TD TrenDevice Spa

SECOND QUARTER FINANCIAL HIGHLIGHTS, compared with the second quarter a year ago: - Reported diluted earnings per share(1) were $1.12, compared with $1.20. - Adjusted diluted earnings per share(2) were $1.32, compared with $1.36. - Reported net income(1) was $852 million, compared with $879 million. - Adjusted net income(2) was $973 million, compared with $995 million. TORONTO, May 28 /PRNewswire-FirstCall/ -- TD Bank Financial Group (TDBFG) today announced its financial results for the second quarter ended April 30, 2008. The quarter reflected solid earnings contributions from TD's Canadian and U.S. Personal and Commercial Banking segments, while Wholesale Banking results were impacted by challenging financial market conditions. "I would characterize our second quarter as slightly disappointing but quite acceptable in the context of what's happening in the markets. Our retail businesses in both Canada and the U.S. - which produced more than 90% of our earnings - delivered very solid results this quarter. This shows that we're competing well in a tougher operating environment," said Ed Clark, TD Bank Financial Group President and Chief Executive Officer. SECOND QUARTER BUSINESS SEGMENT PERFORMANCE Canadian Personal and Commercial Banking TD Canada Trust posted solid earnings of $582 million in the second quarter, up 8% over the same period last year. The quarter was defined by good volume growth across all Canadian Personal and Commercial Banking operating businesses. Strength in core banking, real estate secured lending, and business banking and insurance, led earnings growth in the quarter. "Our second quarter performance clearly demonstrated the strength and resilience of the TD Canada Trust franchise. We made further investments in our businesses by opening more new branches with longer hours, and adding more employees to deliver the great customer experience we're known for," said Clark. Wealth Management Wealth Management, including TDBFG's equity share of TD Ameritrade, earned $182 million in the quarter. Within Canadian Wealth Management, discount brokerage was impacted by a lower trading commission strategy, while the full service broker business saw lower new issue activity and trading volumes due to weaker capital markets. As previously announced, TD Ameritrade contributed $67 million to Wealth Management's earnings for the quarter. "We continue to believe our diversified Wealth Management offering positions us well for future growth through a long-term focus on growing assets, building an advisor network, and increasing trading volumes. But the reality is, this quarter our Canadian Wealth Management business was affected by weaker market activity, and to a lesser extent, strategic pricing decisions we made last year which we believe will pay off in the future," said Clark. U.S. Personal and Commercial Banking TD Banknorth earned $130 million in the second quarter. The business continued to see strength in commercial banking and solid overall asset quality. "We're very pleased with the performance of TD Banknorth, which delivered core earnings growth in a challenging environment and is building momentum on organic growth initiatives," said Clark. TDBFG completed the acquisition of Commerce during the quarter. As previously announced, earnings from the Commerce operations will be included in TDBFG's results beginning in the third quarter of 2008. "The close of the Commerce deal is a major milestone for TD, and we're incredibly excited about the progress we have already made on the integration. We're feeling very positive about our U.S. Personal and Commercial Banking segment's ability to grow organically and deliver value to our shareholders. That's why last month we increased our 2008 earnings target for the segment from $700 million to at least $750 million, and reiterated our expectation for a minimum of $1.2 billion in earnings for 2009," Clark said. Wholesale Banking Wholesale Banking produced earnings of $93 million for the second quarter. The segment's results were impacted by the capital markets operating environment, resulting in lower trading revenue, a decline in origination fees and reduced security gains. "Despite the near-term market challenges, TD Securities remains committed to our focus on delivering high-quality earnings without extending out the risk curve. While our Wholesale Banking strategy has helped us avoid the direct hits of significant asset writedowns, our second quarter clearly reflected we haven't been able to outrun the collateral effects of the issues facing the financial services industry," said Clark. Conclusion "At the halfway mark of the year, we remain confident that all of our businesses are well positioned to perform in a challenging environment and deliver on their longer term strategies," said Clark. "And while we don't expect to see earnings growth in 2008, we continue to believe TD will be a positive outlier in both Canada and the United States." CAUTION REGARDING FORWARD-LOOKING STATEMENTS From time to time, the Bank makes written and oral forward-looking statements, including in this document, in other filings with Canadian regulators or the U.S. Securities and Exchange Commission (SEC), and in other communications. In addition, the Bank's senior management may make forward-looking statements orally to analysts, investors, representatives of the media and others. All such statements are made pursuant to the "safe harbour" provisions of the U.S. Private Securities Litigation Reform Act of 1995 and applicable Canadian securities legislation. Forward-looking statements include, among others, statements regarding the Bank's objectives and targets for 2008 and beyond, and strategies to achieve them, the outlook for the Bank's business lines, and the Bank's anticipated financial performance. The forward-looking information contained in this document is presented for the purpose of assisting our shareholders and analysts in understanding our financial position as at and for the periods ended on the dates presented and our strategic priorities and objectives, and may not be appropriate for other purposes. The economic assumptions for 2008 for each of our business segments are set out in the 2007 Annual Report under the headings "Economic Outlook" and "Business Outlook and Focus for 2008", as updated in the subsequently filed quarterly Reports to Shareholders. Forward-looking statements are typically identified by words such as "will", "should", "believe", "expect", "anticipate", "intend", "estimate", "plan", "may" and "could". By their very nature, these statements require us to make assumptions and are subject to inherent risks and uncertainties, general and specific, which may cause actual results to differ materially from the expectations expressed in the forward-looking statements. Some of the factors - many of which are beyond our control - that could cause such differences include: credit, market (including equity and commodity), liquidity, interest rate, operational, reputational, insurance, strategic, foreign exchange, regulatory, legal and other risks discussed in the Bank's 2007 Annual Report and in other regulatory filings made in Canada and with the SEC; general business and economic conditions in Canada, the U.S. and other countries in which the Bank conducts business, as well as the effect of changes in monetary policy in those jurisdictions and changes in the foreign exchange rates for the currencies of those jurisdictions; the degree of competition in the markets in which the Bank operates, both from established competitors and new entrants; the accuracy and completeness of information the Bank receives on customers and counterparties; the development and introduction of new products and services in markets; developing new distribution channels and realizing increased revenue from these channels; the Bank's ability to execute its strategies, including its integration, growth and acquisition strategies and those of its subsidiaries, particularly in the U.S.; changes in accounting policies and methods the Bank uses to report its financial condition, including uncertainties associated with critical accounting assumptions and estimates; the effect of applying future accounting changes; global capital market activity; the Bank's ability to attract and retain key executives; reliance on third parties to provide components of the Bank's business infrastructure; the failure of third parties to comply with their obligations to the Bank or its affiliates as such obligations relate to the handling of personal information; technological changes; the use of new technologies in unprecedented ways to defraud the Bank or its customers; legislative and regulatory developments; change in tax laws; unexpected judicial or regulatory proceedings; continued negative impact of the U.S. securities litigation environment; unexpected changes in consumer spending and saving habits; the adequacy of the Bank's risk management framework, including the risk that the Bank's risk management models do not take into account all relevant factors; the possible impact on the Bank's businesses of international conflicts and terrorism; acts of God, such as earthquakes; the effects of disease or illness on local, national or international economies; and the effects of disruptions to public infrastructure, such as transportation, communication, power or water supply. A substantial amount of the Bank's business involves making loans or otherwise committing resources to specific companies, industries or countries. Unforeseen events affecting such borrowers, industries or countries could have a material adverse effect on the Bank's financial results, businesses, financial condition or liquidity. The preceding list is not exhaustive of all possible factors. Other factors could also adversely affect the Bank's results. For more information, see the discussion starting on page 59 of the Bank's 2007 Annual Report. All such factors should be considered carefully when making decisions with respect to the Bank, and undue reliance should not be placed on the Bank's forward-looking statements as they may not be suitable 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. This document was reviewed by the Bank's Audit Committee and was approved by the Bank's Board of Directors, on the Audit Committee's recommendation, prior to its release. MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATING PERFORMANCE ------------------------------------------------------------------------- This Management's Discussion and Analysis (MD&A) is presented to enable readers to assess material changes in the financial condition and operational results of TD Bank Financial Group (the Bank) for the three and six months ended April 30, 2008, compared with the corresponding periods. This MD&A should be read in conjunction with the Bank's unaudited Interim Consolidated Financial Statements and related Notes included in this Report to Shareholders and with our 2007 Annual Report. This MD&A is dated May 27, 2008. Unless otherwise indicated, all amounts are expressed in Canadian dollars and have been primarily derived from the Bank's Annual or Interim Consolidated Financial Statements prepared in accordance with Canadian generally accepted accounting principles (GAAP). Certain comparative amounts have been reclassified to conform to the presentation adopted in the current period. Additional information relating to the Bank is available on the Bank's website http://www.td.com/, as well as on SEDAR at http://www.sedar.com/ and on the U.S. Securities and Exchange Commission's (SEC's) website at http://www.sec.org/ (EDGAR filers section). FINANCIAL HIGHLIGHTS ------------------------------------------------------------------------- For the six For the three months ended months ended (millions of ------------------------------ ------------------- Canadian dollars, Apr. 30 Jan. 31 Apr. 30 Apr. 30 Apr. 30 except as noted) 2008 2008 2007 2008 2007 ------------------------------------------------------------------------- Results of operations Total revenue $3,388 $3,604 $3,544 $6,992 $7,049 Provision for credit losses 232 255 172 487 335 Non-interest expenses 2,206 2,228 2,297 4,434 4,518 Net income - reported(1) 852 970 879 1,822 1,800 Net income - adjusted(1) 973 1,060 995 2,033 2,004 Economic profit(2) 283 462 421 735 864 Return on common equity - reported 13.4% 18.0% 17.1% 15.4% 17.6% Return on invested capital(2) 13.2% 16.6% 16.4% 14.6% 16.6% ------------------------------------------------------------------------- Financial position Total assets $503,621 $435,153 $396,734 $503,621 $396,734 Total risk-weighted assets(3) 178,635 145,900 149,391 178,635 149,391 Total shareholders' equity 30,595 22,940 21,775 30,595 21,775 ------------------------------------------------------------------------- Financial ratios - reported Efficiency ratio 65.1% 61.8% 64.8% 63.4% 64.1% Tier 1 capital to risk-weighted assets 9.1 10.9 9.8 9.1 9.8 Provision for credit losses as a % of net average loans 0.49 0.57 0.41 0.53 0.39 ------------------------------------------------------------------------- Common share information - reported (Canadian dollars) Per share Basic earnings $1.12 $1.34 $1.21 $2.46 $2.49 Diluted earnings 1.12 1.33 1.20 2.44 2.46 Dividends 0.59 0.57 0.53 1.16 1.01 Book value 36.70 30.69 29.66 36.70 29.66 Closing share price 66.11 68.01 67.80 66.11 67.80 Shares outstanding (millions) Average basic 747.7 718.3 719.1 732.9 718.7 Average diluted 753.7 724.6 725.9 739.0 725.4 End of period 802.9 719.0 719.9 802.9 719.9 Market capitalization (billions of Canadian dollars) $53.1 $48.9 $48.8 $53.1 $48.8 Dividend yield 3.5% 3.2% 2.8% 3.4% 2.8% Dividend payout ratio 56.2% 42.6% 43.8% 49.0% 40.7% Price to earnings multiple 12.1 12.3 14.8 12.1 14.8 ------------------------------------------------------------------------- Common share information - adjusted (Canadian dollars) Per share Basic earnings $1.33 $1.46 $1.37 $2.79 $2.77 Diluted earnings 1.32 1.45 1.36 2.77 2.74 Dividend payout ratio 49.2% 39.0% 38.7% 43.8% 36.5% Price to earnings multiple 11.5 11.7 13.2 11.5 13.2 ------------------------------------------------------------------------- (1) Reported and adjusted results are explained under the "How the Bank Reports" section, which includes a reconciliation between reported and adjusted results. (2) Economic profit and return on invested capital are non-GAAP financial measures and are explained under the "Economic Profit and Return on Invested Capital" section. (3) The Bank adopted the "International Convergence of Capital Measurement and Capital Standards - A Revised Framework" (Basel II), issued by the Basel Committee on Banking Supervision for calculating risk-weighted assets (RWA) and regulatory capital starting November 1, 2007. Prior periods numbers are based on the Basel I Capital Accord (Basel I). For details, see the "Capital Position" section. HOW WE PERFORMED Corporate Overview The Toronto-Dominion Bank and its subsidiaries are collectively known as TD Bank Financial Group. The Bank serves approximately 17 million customers in four key businesses operating in a number of locations in key financial centres around the globe: Canadian Personal and Commercial Banking, including TD Canada Trust, as well as the Bank's global insurance operations (excluding the U.S.); Wealth Management, including TD Waterhouse Canada, TD Waterhouse U.K. and the Bank's investment in TD Ameritrade; U.S. Personal and Commercial Banking through TD Banknorth and Commerce; and Wholesale Banking, including TD Securities. The Bank also ranks among the world's leading on-line financial services firms, with more than 5.5 million on-line customers. The Bank had $504 billion in assets as at April 30, 2008. The Bank is headquartered in Toronto, Canada. The Bank's common stock is listed on the Toronto Stock Exchange and the New York Stock Exchange under symbol: TD, as well as on the Tokyo Stock Exchange. How the Bank Reports The Bank's financial results, as presented on pages 32 to 46 of this Report to Shareholders, have been prepared in accordance with GAAP. The Bank refers to results prepared in accordance with GAAP as "reported" results. The Bank also utilizes non-GAAP financial measures referred to as "adjusted" results to assess each of its businesses and to measure overall Bank performance. To arrive at adjusted results, the Bank removes "items of note", net of income taxes, from reported results. The items of note relate to items which management does not believe are indicative of underlying business performance. The Bank believes that adjusted results provide the reader with a better understanding of how management views the Bank's performance. The items of note are listed in the table on the following page. As explained, adjusted results are different from reported results determined in accordance with GAAP. Adjusted results, items of note and related terms used in this document are not defined terms under GAAP and, therefore, may not be comparable to similar terms used by other issuers. The following tables provide a reconciliation between the Bank's reported and adjusted results. Operating Results - Reported ------------------------------------------------------------------------- For the six For the three months ended months ended ------------------------------ ------------------- (millions of Apr. 30 Jan. 31 Apr. 30 Apr. 30 Apr. 30 Canadian dollars, 2008 2008 2007 2008 2007 ------------------------------------------------------------------------- Net interest income $1,858 $1,788 $1,662 $3,646 $3,333 Other income 1,530 1,816 1,882 3,346 3,716 ------------------------------------------------------------------------- Total revenue 3,388 3,604 3,544 6,992 7,049 Provision for credit losses (232) (255) (172) (487) (335) Non-interest expenses (2,206) (2,228) (2,297) (4,434) (4,518) ------------------------------------------------------------------------- Income before provision for income taxes, non- controlling interests in subsidiaries and equity in net income of an associated company 950 1,121 1,075 2,071 2,196 Provision for income taxes (160) (235) (234) (395) (452) Non-controlling interests in subsidiaries, net of income taxes (9) (8) (27) (17) (74) Equity in net income of an associated company, net of income taxes 71 92 65 163 130 ------------------------------------------------------------------------- Net income - reported 852 970 879 1,822 1,800 Preferred dividends (11) (8) (7) (19) (13) ------------------------------------------------------------------------- Net income available to common shareholders - reported $841 $962 $872 $1,803 $1,787 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Reconciliation of Non-GAAP Financial Measures(1) Adjusted Net Income to Reported Results ------------------------------------------------------------------------- Operating results - adjusted For the six For the three months ended months ended ------------------------------ ------------------- (millions of Apr. 30 Jan. 31 Apr. 30 Apr. 30 Apr. 30 Canadian dollars, 2008 2008 2007 2008 2007 ------------------------------------------------------------------------- Net interest income $1,858 $1,788 $1,662 $3,646 $3,333 Other income(2) 1,529 1,791 1,871 3,320 3,713 ------------------------------------------------------------------------- Total revenue 3,387 3,579 3,533 6,966 7,046 Provision for credit losses(3) (232) (238) (172) (470) (335) Non-interest expenses(4) (2,041) (2,106) (2,099) (4,147) (4,202) ------------------------------------------------------------------------- Income before provision for income taxes, non- controlling interests in subsidiaries and equity in net income of an associated company 1,114 1,235 1,262 2,349 2,509 Provision for income taxes(5) (220) (275) (298) (495) (562) Non-controlling interests in subsidiaries, net of income taxes(6) (9) (8) (46) (17) (97) Equity in net income of an associated company, net of income taxes(7) 88 108 77 196 154 ------------------------------------------------------------------------- Net income - adjusted 973 1,060 995 2,033 2,004 Preferred dividends (11) (8) (7) (19) (13) ------------------------------------------------------------------------- Net income available to common shareholders - adjusted 962 1,052 988 2,014 1,991 ------------------------------------------------------------------------- Items of note affecting net income, net of income taxes: Amortization of intangibles(8) (92) (75) (80) (167) (163) TD Banknorth restructuring, privatization and merger-related charges(9) - - (43) - (43) Restructuring and integration charges relating to the Commerce acquisition(10) (30) - - (30) - Change in fair value of credit default swaps hedging the corporate loan book, net of provision for credit losses(11) 1 25 7 26 2 Other tax items(12) - (20) - (20) - Provision for insurance claims(13) - (20) - (20) - ------------------------------------------------------------------------- Total items of note (121) (90) (116) (211) (204) ------------------------------------------------------------------------- Net income available to common shareholders - reported $841 $962 $872 $1,803 $1,787 ------------------------------------------------------------------------- ------------------------------------------------------------------------- (1) Certain comparative amounts have been reclassified to conform to the presentation adopted in the current period. (2) Adjusted other income excludes the following items of note: second quarter 2008 - $1million gain due to change in fair value of credit default swaps (CDS) hedging the corporate loan book; first quarter 2008 - $55 million gain due to change in fair value of CDS hedging the corporate loan book; $30 million pre-tax provision for insurance claims, as explained in footnote 13; second quarter 2007 - $11 million gain due to change in fair value of CDS hedging the corporate loan book. (3) Adjusted provision for credit losses excludes the following item of note: first quarter 2008 - $17 million related to the portion that was hedged via the CDS. (4) Adjusted non-interest expenses excludes the following items of note: second quarter 2008 - $117 million amortization of intangibles; $48 million restructuring and integration charges, as explained in footnote 10; first quarter 2008 - $122 million amortization of intangibles; second quarter 2007 - $112 million amortization of intangibles; $86 million TD Banknorth restructuring, privatization and merger-related charges, as explained in footnote 9. (5) For reconciliation between reported and adjusted provision for income taxes, refer to the reconciliation table on page 12. (6) Adjusted non-controlling interests excludes the following items of note: second quarter 2007 - $4 million amortization of intangibles; $15 million on restructuring, privatization and merger-related charges. (7) Adjusted equity in net income of an associated company excludes the following items of note: second quarter 2008 - $17 million amortization of intangibles; first quarter 2008 - $16 million amortization of intangibles; second quarter 2007 - $12 million amortization of intangibles. (8) Amortization of intangibles primarily relates to the Canada Trust acquisition in 2000, the TD Banknorth Inc. (TD Banknorth) acquisition in 2005 and its privatization in 2007, and the acquisitions by TD Banknorth of Hudson United Bancorp (Hudson) in 2006 and Interchange Financial Services Corporation (Interchange) in 2007, and the amortization of intangibles included in equity in net income of TD Ameritrade. (9) The TD Banknorth restructuring, privatization and merger-related charges include the following: $31million restructuring charge, which primarily consisted of employee severance costs, the costs of amending certain executive employment and award agreements and write-down of long-lived assets due to impairment, included in U.S. Personal and Commercial Banking; $4 million restructuring charge related to the transfer of functions from TD Bank USA, N.A. (TD Bank USA) to TD Banknorth, included in the Corporate segment; $5 million privatization charges, which primarily consisted of legal and investment banking fees, included in U.S. Personal and Commercial Banking; and $3 million merger-related charges related to conversion and customer notices in connection with the integration of Hudson and Interchange with TD Banknorth, included in U.S. Personal and Commercial Banking. In the Interim Consolidated Statement of Income, the restructuring, privatization and merger-related charges are included in non-interest expenses. (10) As a result of the acquisition of Commerce and related restructuring and integration initiatives undertaken, the Bank incurred restructuring and integration charges. Restructuring charges consisted of employee severance costs, the costs of amending certain executive employment and award agreements and the write-down of long-lived assets due to impairment. Integration charges consisted of costs related to employee retention, external professional consulting charges and marketing (including customer communication and rebranding). In the Interim Consolidated Statement of Income, the restructuring and integration charges are included in non- interest expenses. (11) The Bank purchases CDS to hedge the credit risk in Wholesale Banking's corporate lending portfolio. These CDS do not qualify for hedge accounting treatment and they are measured at fair value with changes in fair value recognized in current period's earnings. The related loans are accounted for at amortized cost. Management believes that this asymmetry in the accounting treatment between CDS and loans would result in periodic profit and loss volatility which is not indicative of the economics of the corporate loan portfolio or the underlying business performance in Wholesale Banking. As a result, the CDS are accounted for on an accrual basis in the Wholesale Banking segment and the gains and losses on the CDS, in excess of the accrued cost, are reported in the Corporate segment. Adjusted earnings excludes the gains and losses on the CDS in excess of the accrued cost. When a credit event occurs in the corporate loan book that has an associated CDS hedge, the PCL related to the portion that was hedged via the CDS is netted against this item of note. During the prior quarter, the change in the fair value of CDS, net of PCL, resulted in a net gain of $38 million before tax ($25 million after tax). The item of note included a change in fair value of CDS of $55 million before tax ($36 million after tax), net of PCL of approximately $17 million before tax ($11 million after tax). (12) This represents the negative impact of the scheduled reductions in the income tax rate on reduction of net future income tax assets. (13) The provision for insurance claims relates to a recent court decision in Alberta. The Alberta government's legislation effectively capping minor injury insurance claims was challenged and held to be unconstitutional. While the government of Alberta has appealed the decision, the ultimate outcome remains uncertain. As a result, the Bank accrued an additional actuarial liability for potential claims in the first quarter of 2008. Reconciliation of Reported Earnings per Share (EPS) to Adjusted EPS(1) ------------------------------------------------------------------------- For the six For the three months ended months ended ------------------------------ ------------------- Apr. 30 Jan. 31 Apr. 30 Apr. 30 Apr. 30 (Canadian dollars) 2008 2008 2007 2008 2007 ------------------------------------------------------------------------- Diluted - reported $1.12 $1.33 $1.20 $2.44 $2.46 Items of note affecting income (as above) 0.16 0.12 0.16 0.29 0.28 Items of note affecting EPS only(2) 0.04 - - 0.04 - ------------------------------------------------------------------------- Diluted - adjusted $1.32 $1.45 $1.36 $2.77 $2.74 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Basic - reported $1.12 $1.34 $1.21 $2.46 $2.49 ------------------------------------------------------------------------- ------------------------------------------------------------------------- (1) EPS is computed by dividing net income available to common shareholders by the weighted-average number of shares outstanding during the period. As a result, the sum of the quarterly EPS may not equal to year-to-date EPS. (2) The diluted earnings per share figures do not include Commerce earnings for the month of April 2008 because there is a one month lag between fiscal quarter ends, while share issuance on close resulted in a one-time negative earnings impact of 4 cents per share. Amortization of Intangibles, Net of Income Taxes ------------------------------------------------------------------------- For the six For the three months ended months ended ------------------------------ ------------------- (millions of Apr. 30 Jan. 31 Apr. 30 Apr. 30 Apr. 30 Canadian dollars, 2008 2008 2007 2008 2007 ------------------------------------------------------------------------- TD Canada Trust $37 $21 $45 $58 $94 ------------------------------------------------------------------------- TD Banknorth: Reported amortization of intangibles 32 33 20 65 40 Less: non-controlling interest - - 4 - 8 ------------------------------------------------------------------------- Net amortization of intangibles 32 33 16 65 32 TD Ameritrade (included in equity in net income of an associated company) 17 16 12 33 24 Other 6 5 7 11 13 ------------------------------------------------------------------------- Amortization of intangibles, net of income taxes(1) $92 $75 $80 $167 $163 ------------------------------------------------------------------------- ------------------------------------------------------------------------- (1) Amortization of intangibles is included in the Corporate segment. Economic Profit and Return on Invested Capital The Bank utilizes economic profit as a tool to measure shareholder value creation. Economic profit is adjusted net income available to common shareholders less a charge for average invested capital. Average invested capital is equal to average common equity for the period plus the average cumulative after-tax goodwill and intangible assets amortized as of the reporting date. The rate used in the charge for capital is the equity cost of capital calculated using the capital asset pricing model. The charge represents an assumed minimum return required by common shareholders on the Bank's invested capital. The Bank's goal is to achieve positive and growing economic profit. Return on invested capital (ROIC) is adjusted net income available to common shareholders divided by average invested capital. ROIC is a variation of the economic profit measure that is useful in comparison to the equity cost of capital. Both ROIC and the equity cost of capital are percentage rates, while economic profit is a dollar measure. When ROIC exceeds the equity cost of capital, economic profit is positive. The Bank's goal is to maximize economic profit by achieving ROIC that exceeds the equity cost of capital. Economic profit and ROIC are non-GAAP financial measures as these are not defined terms under GAAP. Readers are cautioned that earnings and other measures adjusted to a basis other than GAAP do not have standardized meanings under GAAP and therefore, may not be comparable to similar terms used by other issuers. The following table reconciles between the Bank's economic profit, return on invested capital and adjusted net income. Adjusted results, items of note and related terms are discussed in the "How the Bank Reports" section. Reconciliation of Economic Profit, Return on Invested Capital and Adjusted Net Income ------------------------------------------------------------------------- For the six For the three months ended months ended ------------------------------ ------------------- (millions of Apr. 30 Jan. 31 Apr. 30 Apr. 30 Apr. 30 Canadian dollars, 2008 2008 2007 2008 2007 ------------------------------------------------------------------------- Average common equity $25,593 $21,221 $20,940 $23,599 $20,435 Average cumulative goodwill/intangible assets amortized, net of income taxes 4,082 4,015 3,784 4,049 3,750 ------------------------------------------------------------------------- Average invested capital $29,675 $25,236 $24,724 $27,648 $24,185 Rate charged for invested capital 9.3% 9.3% 9.4% 9.3% 9.4% ------------------------------------------------------------------------- Charge for invested capital $(679) $(590) $(567) $(1,279) $(1,127) ------------------------------------------------------------------------- Net income available to common shareholders - reported $841 $962 $872 $1,803 $1,787 Items of note affecting net income, net of income taxes 121 90 116 211 204 ------------------------------------------------------------------------- Net income available to common shareholders - adjusted $962 $1,052 $988 $2,014 $1,991 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Economic profit $283 $462 $421 $735 $864 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Return on invested capital 13.2% 16.6% 16.4% 14.6% 16.6% ------------------------------------------------------------------------- ------------------------------------------------------------------------- Significant Events in 2008 Acquisition of Commerce Bancorp, Inc. On March 31, 2008, the Bank acquired 100% of the outstanding shares of Commerce Bancorp, Inc. (Commerce) for purchase consideration of $8.5 billion, paid in cash and common shares. As a result, $57.1 billion of assets (including additional goodwill of approximately $6.1 billion and intangible assets of $1.9 billion) and $48.6 billion of liabilities were included in the Bank's Consolidated Balance Sheet. The allocation of the purchase price is subject to finalization. Commerce, together with TD Banknorth, is referred to as "TD Commerce Bank" in this document. TD Commerce Bank is reported in the U.S. Personal and Commercial Banking segment. For details, see Note 20 to the Interim Consolidated Financial Statements for the quarter ended April 30, 2008. The fiscal periods of Commerce and the Bank are not co-terminus. Commerce's fiscal quarter ends March 31 while the Bank's second quarter ends April 30. As a result, Commerce's results for the three months ended each calendar quarter will be consolidated with the Bank's results for the fiscal quarter. This is in the normal course of the Bank's financial reporting and TD Banknorth is reported in a similar manner. Because the Commerce transaction closed on March 31, due to the one month lag, the Bank's second quarter results do not include any results of Commerce. However, $48 million before tax ($30 million after tax) restructuring and integration charges incurred in April 2008 were included in the Bank's results for the quarter ended April 30, 2008 because they represent material TD Commerce Bank events for the quarter ended April 30, 2008. The projected adjusted earnings of U.S. Personal and Commercial Banking segment is estimated to be at least $750 million in 2008 and a minimum of $1,200 million in 2009(1). (1) Projected adjusted results for 2008 are equal to the first quarter 2008 annualized plus management's estimate of the expected contribution from the Commerce transaction, taking into account expected synergies and excluding restructuring and integration charges. The 2009 estimate is equal to the 2008 estimate, excluding the contribution from the Commerce transaction, increased by our target growth rate range of 7% to 10%, plus management's estimate of the contribution from the Commerce transaction. Projected adjusted results exclude restructuring and integration charges, anticipated to total US$420 million before tax, the majority of which will be taken in 2008 and 2009. Commerce's future earnings and all other estimates are subject to risks and uncertainties that may cause actual results to differ materially. See the "Caution regarding forward-looking statements" included in the Bank's press release dated April 21, 2008, which is available on the Bank's website at http://www.td.com/, as well as on SEDAR at http://www.sedar.com/ and on the SEC's website at http://www.sec.org/ (EDGAR filers section). FINANCIAL RESULTS OVERVIEW ------------------------------------------------------------------------- Performance Summary An overview of the Bank's performance on an adjusted basis for the second quarter of 2008 against the financial shareholder indicators included in the 2007 Annual Report is outlined below. Shareholder performance indicators help guide and benchmark the Bank's accomplishments. For the purposes of this analysis, the Bank utilizes adjusted earnings, which exclude items of note from the reported results that are prepared in accordance with Canadian GAAP. Reported and adjusted results are explained under the "How the Bank Reports" section. - Adjusted diluted earnings per share for the first six months of 2008 were up 1% from the same period last year. The Bank's goal is to grow adjusted earnings per share by 7% to 10% over the longer term. - Adjusted return on risk-weighted assets for the first six months of 2008 was 2.61%, down from 2.74% in the first half of 2007. - Total shareholder return for the twelve months ended April 30, 2008 was 1%, above the peer average of -17%. Net Income Year-over-year comparison ------------------------- Reported net income for the current quarter was $852 million, down $27 million, or 3%, compared with the second quarter last year. Adjusted net income was $973 million, a decline of $22 million or 2%. The decrease in adjusted net income was primarily due to a decline in Wholesale Banking earnings, partially offset by higher earnings generated from U.S. Personal and Commercial Banking and Canadian Personal and Commercial Banking. Wholesale Banking net income was negatively impacted by a difficult capital markets environment resulting in lower trading revenue and securities gains. U.S. Personal and Commercial Banking earnings were higher, largely due to the impact of the TD Banknorth privatization. Canadian Personal and Commercial Banking delivered earnings growth driven largely by good volume growth across most banking products. Prior quarter comparison ------------------------ Reported net income decreased $118 million, or 12%, compared with the prior quarter. Adjusted net income for the second quarter decreased by $87 million or 8%. The lower reported result was primarily due to the current quarter restructuring and integration charges of $30 million after tax related to the Commerce acquisition and lower gains on credit default swaps (CDS) hedging the corporate loan book. Both of these items were reported as items of note this quarter. The Wholesale Banking segment was the primary contributor to decreased adjusted net income due to difficult capital market conditions resulting in lower trading revenue and lower securities gains. Canadian Personal and Commercial Banking earnings were down modestly, largely due to the impact of less days this quarter. The Corporate segment loss declined by $30 million due largely to the impact of various tax items. Year-to-date comparison ----------------------- On a year-to-date basis, reported net income of $1,822 million increased $22 million, or 1%, compared with the same period last year. Adjusted net income of $2,033 million increased $29 million or 1%. The increase in adjusted net income was primarily driven by higher U.S. Personal and Commercial Banking net income due to increased ownership associated with the privatization of TD Banknorth and growth from Canadian Personal and Commercial Banking income. Wealth Management delivered higher earnings due to growth in TD Ameritrade's underlying earnings, partially offset by weaker results in Canadian Wealth Management. These increases were partially offset by lower Wholesale Banking earnings due to a challenging operating environment for the capital markets businesses. Net Interest Income Year-over-year comparison ------------------------- Net interest income for the quarter was $1,858 million, an increase of $196 million, or 12%, compared with the second quarter last year. The growth was driven by the Canadian Personal and Commercial Banking and Wholesale Banking segments with partial offsets in U.S. Personal and Commercial Banking and the Corporate segment. Canadian Personal and Commercial Banking increased primarily due to volume growth across most banking products, partially offset by a 9 basis point (bps) decline in margin on average earning assets to 2.96%. Wholesale Banking net interest income increased primarily due to higher trading-related net interest income, which was partially offset by lower trading revenue in Wholesale Banking included in other income. U.S. Personal and Commercial Banking net interest income declined, primarily due to the strengthening of the Canadian dollar and a 16 bps compression in net interest margin to 3.73%. Prior quarter comparison ------------------------ Net interest income increased by $70 million, or 4%, compared with the previous quarter. The increase was driven primarily by Wholesale Banking with a partial offset in the Corporate segment while other operating segments had minor decreases due to the lower number of days in the quarter. The increase in Wholesale Banking was primarily due to higher trading-related net interest income which was largely offset by lower trading revenue included in other income. Year-to-date comparison ----------------------- On a year-to-date basis, net interest income of $3,646 million increased $313 million, or 9%, compared with the same period last year. The growth was driven primarily by the Canadian Personal and Commercial Banking and Wholesale Banking segments with U.S. Personal and Commercial Banking providing a partial offset. Canadian Personal and Commercial Banking net interest income increased primarily due to volume growth in real-estate secured lending, deposits and credit cards, which was partially offset by a 7 bps decline in margin on average earning assets to 2.97%. Wholesale Banking net interest income increased largely due to higher trading-related net interest income. However, the increase in trading-related net interest income was largely offset by lower trading revenue in Wholesale Banking included in other income. U.S. Personal and Commercial Banking net interest income declined primarily due to the strengthening of the Canadian dollar and the impact of an 11 bps compression in net interest margin. Other Income Year-over-year comparison ------------------------- Reported other income for the second quarter was $1,530 million, down $352 million, or 19%, compared with the second quarter of last year. On an adjusted basis, other income was $1,529 million, lower by $342 million or 18%. The decrease in adjusted other income was driven by a $384 million decline in Wholesale Banking due to lower trading revenue, and underwriting and advisory fees as the capital markets businesses were impacted by difficult market conditions. Wealth Management other income also declined from the prior year due to lower commissions in discount brokerage as a result of pricing changes introduced last year. Canadian Personal and Commercial Banking other income increased driven by higher personal deposit and card services fee growth. Prior quarter comparison ------------------------ Reported other income decreased $286 million, or 16%, compared with the prior quarter. Adjusted other income was $262 million, or 15%, below the prior quarter. The decline in adjusted other income was due to a $302 million decrease in Wholesale Banking resulting from weaker foreign exchange and interest rate and credit trading revenue, lower securities gains and a decline in underwriting and advisory fees. The U.S. Personal and Commercial Banking segment provided a partial offset with marginally higher other income. Year-to-date comparison ----------------------- Reported other income of $3,346 million decreased $370 million, or 10%, compared with the same period last year. Prior year reported other income included the favourable impact of higher gains due to the change in fair value of CDS used to hedging the corporate loan book. Year-to-date adjusted other income was down $393 million, or 11%, from the previous year. The decrease in adjusted other income was due to a decrease of $400 million in Wholesale Banking driven by weak trading revenue and lower underwriting and advisory fees. Wealth Management and Corporate segments experienced marginal declines in other income. Canadian Personal and Commercial Banking reported higher other income, largely driven by higher fee income, primarily from personal deposit and credit card growth. Provision for Credit Losses Year-over-year comparison ------------------------- During the quarter, the Bank recorded a provision for credit losses of $232 million, an increase of $60 million compared with the second quarter last year, primarily due to higher specific provisions in the Canadian Personal and Commerial Banking segments and higher general provisions in the U.S. Personal and Commercial Banking segment. Prior quarter comparison ------------------------ Provision for credit losses for the second quarter was down $23 million from $255 million in the prior quarter. The decrease was primarily due to a $46 million decrease in specific provisions in the Wholesale Banking segment, which was partially offset by increases in the Canadian and U.S. Personal and Commercial Banking segments of $19 million and $20 million, respectively. Year-to-date comparison ----------------------- On a year-to-date basis, provision for credit losses increased $152 million, from $335 million in the same period last year. The increase was primarily due to higher specific provisions in the Canadian Personal and Commercial Banking and Wholesale Banking segments, and higher general provisions in the U.S. Personal and Commercial Banking segment. Provision for Credit Losses ------------------------------------------------------------------------- For the six For the three months ended months ended ------------------------------ ------------------- (millions of Apr. 30 Jan. 31 Apr. 30 Apr. 30 Apr. 30 Canadian dollars, 2008 2008 2007 2008 2007 ------------------------------------------------------------------------- Net new specifics (net of reversals) $244 $267 $221 $511 $405 Recoveries (33) (32) (37) (65) (68) ------------------------------------------------------------------------- Provision for credit losses - specifics 211 235 184 446 337 Change in general allowance VFC 16 15 11 31 22 TD Banknorth 5 4 (23) 9 (24) Other - 1 - 1 - ------------------------------------------------------------------------- Total $232 $255 $172 $487 $335 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Non-Interest Expenses and Efficiency Ratio Year-over-year comparison ------------------------- Reported non-interest expenses for the second quarter were $2,206 million, down $91 million, or 4%, compared with the second quarter last year. The current quarter reported expenses included $48 million of restructuring and integration charges attributable to the Commerce acquisition while the prior period included $86 million in charges related to the privatization of TD Banknorth and to the transfer of functions from TD Bank USA to TD Banknorth. These items were recognized as items of note. Adjusted non-interest expenses of $2,041 million were down $58 million, or 3%, compared with the second quarter last year due to reductions in U.S. Personal and Commercial Banking and Wholesale Banking, partially offset by growth in Canadian Personal and Commercial Banking. U.S. Personal and Commercial Banking non-interest expenses declined primarily due to the strengthening Canadian dollar and cost control initiatives. Wholesale Banking expenses were down primarily due to lower variable compensation. Canadian Personal and Commercial Banking reported higher year-over-year expenses, primarily driven by investments in new branches and longer hours. The reported efficiency ratio was 65.1%, compared with 64.8% in the second quarter last year. The Bank's adjusted efficiency ratio was 60.3%, compared to 59.4% in the same period last year. Prior quarter comparison ------------------------ Reported non-interest expenses of $2,206 million were down $22 million, or 1%, compared with the prior quarter. Reported non-interest expenses this quarter included $48 million of restructuring and integration charges attributable to the Commerce acquisition recognized as an item of note. Total adjusted non-interest expenses were $2,041 million, down $66 million or 3%. The decrease was a result of lower expenses in the Corporate segment and Wholesale Banking. Corporate segment experienced favourable tax items this quarter. Wholesale Banking expenses declined, driven by lower incentive compensation. The reported efficiency ratio was 65.1%, compared with 61.8% in the prior quarter. The Bank's adjusted efficiency ratio was 60.3% compared with 58.8% in the prior quarter. Year-to-date comparison ----------------------- On a year-to-date basis, reported non-interest expenses of $4,434 million were down $84 million, or 2%, compared with the same period last year. The current year-to-date reported expenses included $48 million of restructuring and integration charges attributable to the Commerce acquisition while the prior year-to-date period included $86 million in charges related to the privatization of TD Banknorth and to the transfer of functions from TD Bank USA to TD Banknorth. Total adjusted non-interest expenses were $4,148 million, down $54 million, or 1%, due to declines in U.S. Personal and Commercial Banking and Wholesale Banking, partially offset by growth in Canadian Personal and Commercial Banking. U.S. Personal and Commercial Banking accounted for the greatest portion of the year-to-date decline, primarily due to the strengthening of the Canadian dollar and the impact of cost control initiatives. Wholesale Banking expenses decreased primarily due to lower incentive compensation. Canadian Personal and Commercial Banking expenses increased due to investments in new branches, higher staffing costs associated with longer branch hours and higher employee compensation. The reported efficiency ratio improved to 63.4%, compared with 64.1% in the same period last year. The Bank's adjusted efficiency ratio improved to 59.5%, from 59.6% in the same period last year. Taxes ----- As discussed in the "How the Bank Reports" section, the Bank adjusts its reported results to assess each of its businesses and to measure overall Bank performance. As such, the provision for income taxes is stated on a reported and an adjusted basis. The Bank's effective tax rate was 16.8% for the second quarter, compared with 21.8% in the second quarter last year, and 21.0% in the prior quarter. On a year-to-date basis, the Bank's effective tax rate was 19.1%, compared with 20.6% in the same period last year. The period over period decrease is primarily attributable to a recognition of future tax benefits in the current quarter. Taxes(1) ------------------------------------------------------------------------- For the three months ended ---------------------------------------------- (millions of Apr. 30 Jan. 31 Apr. 30 Canadian dollars) 2008 2008 2007 ------------------------------------------------------------------------- Income taxes at Canadian statutory income tax rate $310 32.7% $367 32.8% $374 34.8% Increase (decrease) resulting from: Dividends received (79) (8.3) (87) (7.7) (67) (6.2) Rate differentials on international operations (69) (7.3) (84) (7.5) (65) (6.0) Other - net (2) (0.3) 39 3.4 (8) (0.8) ------------------------------------------------------------------------- Provision for income taxes and effective income tax rate - reported $160 16.8% $235 21.0% $234 21.8% ------------------------------------------------------------------------- ------------------------------------------------------------------------- --------------------------------------------------------- For the six months ended ------------------------------ (millions of Apr. 30 Apr. 30 Canadian dollars) 2008 2007 --------------------------------------------------------- Income taxes at Canadian statutory income tax rate $677 32.7% $766 34.9% Increase (decrease) resulting from: Dividends received (166) (8.0) (170) (7.8) Rate differentials on international operations (153) (7.4) (147) (6.7) Other - net 37 1.8 3 0.2 --------------------------------------------------------- Provision for income taxes and effective income tax rate - reported $395 19.1% $452 20.6% --------------------------------------------------------- --------------------------------------------------------- (1) Certain comparative amounts have been reclassified to conform to the presentation adopted in the current period. Reconciliation of Non-GAAP Provision for Income Taxes ------------------------------------------------------------------------- For the six For the three months ended months ended ----------------------------- ------------------- (millions of Apr. 30 Jan. 31 Apr. 30 Apr. 30 Apr. 30 Canadian dollars) 2008 2008 2007 2008 2007 ------------------------------------------------------------------------- Provision for income taxes - reported $160 $235 $234 $395 $452 Increase (decrease) resulting from items of note: Amortization of intangibles 42 63 40 105 83 TD Banknorth restructuring, privatization and merger-related charges - - 28 - 28 Restructuring and integration charges relating to the Commerce acquisition 18 - - 18 - Change in fair value of credit default swaps hedging the corporate loan book, net of provision for credit losses - (13) (4) (13) (1) Other tax items - (20) - (20) - Provision for insurance claims - 10 - 10 - ------------------------------------------------------------------------- Tax effect - items of note 60 40 64 100 110 ------------------------------------------------------------------------- Provision for income taxes - adjusted $220 $275 $298 $495 $562 ------------------------------------------------------------------------- ------------------------------------------------------------------------- HOW OUR BUSINESSES PERFORMED For management reporting purposes, the Bank's operations and activities are organized around the following operating business segments: Canadian Personal and Commercial Banking, Wealth Management, including TD Ameritrade, U.S. Personal and Commercial Banking, and Wholesale Banking. The Bank's other activities are grouped into the Corporate segment. Results of each business segment reflect revenue, expenses, assets and liabilities generated by the business in that segment. The Bank measures and evaluates the performance of each segment based on adjusted results where applicable, and for those segments the Bank notes that the measure is adjusted. Amortization of intangible expense is included in the Corporate segment. Accordingly, net income for the operating business segments is presented before amortization of intangibles, as well as any other items of note not attributed to the operating segments. For further details, see the "How the Bank Reports" section, the "Business Focus" section in the 2007 Annual Report and Note 27 to the 2007 audited Consolidated Financial Statements. For information concerning the Bank's measures of economic profit and return on invested capital, which are non-GAAP financial measures, see page 7. Segmented information also appears in Note 15. Net interest income within Wholesale Banking is calculated on a taxable equivalent basis (TEB), which means that the value of non-taxable or tax- exempt income, including dividends, is adjusted to its equivalent before-tax value. Using TEB allows the Bank to measure income from all securities and loans consistently and makes for a more meaningful comparison of net interest income with similar institutions. The TEB adjustment reflected in the Wholesale Banking segment is eliminated in the Corporate segment. The TEB adjustment for the quarter was $107 million, compared with $99 million in the second quarter last year, and $135 million in the prior quarter. On a year-to- date basis, the TEB adjustment was $242 million, compared with $256 million in the same period last year. The Bank securitizes retail loans and receivables and records a gain or loss on sale, including the setup of an asset related to the retained interests. Credit losses incurred on retained interests subsequent to securitization are recorded as a charge to other income in the Bank's consolidated financial statements. For segment reporting, the provision for credit loss related to securitized volumes is included in the Canadian Personal and Commercial Banking segment but is reversed in the Corporate segment and reclassified as a charge to other income to comply with GAAP. Canadian Personal and Commercial Banking Canadian Personal and Commercial Banking net income for the quarter was $582 million, an increase of $42 million, or 8%, compared with the second quarter last year, and a decrease of $16 million, or 3%, compared with the prior quarter. The annualized return on invested capital was 29%, up from the 27% in the second quarter last year and relatively flat with the prior quarter. Net income for the six months ended April 30, 2008 was $1,180 million, an increase of $96 million, or 9%, compared with the same period last year. The return on invested capital, on a year-to-date basis, was 29%, compared to 27% in same period last year. Revenue for the quarter was $2,134 million, which grew by $148 million, or 7%, compared with the second quarter last year, due to good volume growth across most banking products, particularly in real-estate secured lending, deposits and credit cards. Revenue decreased by $13 million, or 1%, compared with the prior quarter, due mainly to fewer calendar days in the current quarter. On a year-to-date basis, revenue was $4,281 million, which increased by $285 million, or 7%, compared with the same period last year, for reasons similar to the comparison of this quarter to the second quarter last year. Higher fee income, primarily from personal deposit and credit card growth, also contributed to the year-over-year growth. Margin on average earning assets for the quarter decreased by 9 bps to 2.96%, compared with the second quarter last year due to portfolio mix, continued higher funding costs and ongoing price competition in high-yield savings and term deposits. Margin on average earning assets decreased 2 bps compared with the prior quarter on the continued price competition in deposits and on changing portfolio mix. On a year-to-date basis, margin on average earning assets decreased by 7 bps to 2.97%, compared with the same period last year. Compared with the second quarter last year, real-estate secured lending volume (including securitizations) grew by $14.7 billion, or 11%, personal deposit volume grew by $6.5 billion, or 6%, and consumer loans volume grew by $1.7 billion or 7%. Business deposits volume increased by $3.4 billion, or 9%, and business loans and acceptances volume grew by $2.7 billion or 14%. Gross originated insurance premiums grew by $54 million or 9%. As at February 2008, personal deposit market share was 20.8% and personal lending market share was 19.8%. Small business lending (credit limits of less than $250,000) market share as at December 31, 2007 was 18.5%. Provision for credit losses for the quarter was $191 million, which increased by $48 million, or 34%, compared with the second quarter last year. Personal banking provision for credit losses of $175 million was $36 million higher than the second quarter last year, primarily due to higher personal lending and credit card volumes. Business banking provision for credit losses was $16 million for the quarter, compared with $4 million in the second quarter last year. Annualized provision for credit losses as a percentage of credit volume was 0.39%, an increase of 7 bps, compared with the second quarter last year, primarily from a change in asset mix. Provision for credit losses increased by $19 million, or 11%, compared with the prior quarter. Personal banking provisions increased $9 million, or 5%, compared with the prior quarter, primarily due to higher volumes. Business banking provisions increased by $10 million, compared with the prior quarter, mainly due to reversals and recoveries in the prior quarter. On a year-to-date basis, provision for credit losses was $363 million, which increased by $82 million, or 29%, compared with the same period last year. Personal banking provisions of $341 million increased $74 million, or 28%, compared with the same period last year, primarily due to reasons listed above for the quarter, while business banking provisions amounted to $22 million, compared with $14 million in the same period last year. Non-interest expenses for the quarter were $1,095 million, which increased by $62 million, or 6%, compared with the second quarter last year. On a year-to-date basis, non-interest expenses were $2,191 million, which increased by $99 million, or 5%, compared with the same period last year. Primary drivers of the expense growth were investments in new branches, higher staffing costs associated with longer branch hours and higher employee compensation. Non-interest expenses decreased by $1 million compared with the prior quarter, mainly due to fewer calendar days in the current quarter and lower business volume-related costs. The average full time equivalent (FTE) staffing levels increased by 1,582, or 5%, compared with the second quarter last year. On a year-to-date basis, FTE staffing levels increased by 1,530, or 5%, compared with the same period last year. The growth was primarily from increases in branch sales and service personnel, as well as continued growth in the insurance business. FTE staffing levels decreased by 176, or 1%, compared with the prior quarter, primarily due to fewer seasonal part-time staff. The efficiency ratio for the current quarter improved to 51.3%, compared with 52.0%, in the second quarter last year and was relatively flat compared with the prior quarter ratio of 51.0%. On a year-to-date basis, the efficiency ratio improved to 51.2%, compared with 52.4% in the same period last year. The outlook for the rate of year-over-year revenue growth is expected to be relatively stable for the balance of the year although margins continue to be vulnerable to higher funding costs and volume growth is susceptible to an economic downturn. Over time, we believe that revenue growth will continue to benefit from increasing our leading position in branch hours and new branch openings. Provisions for credit losses on both personal and business banking loans, in aggregate, are expected to grow, in line with the underlying volume growth and increase if economic conditions continue to worsen. The business lending provision should increase as well, as the expectation is that prior net recoveries in business loans will not continue. Expenses will continue to be closely managed to ensure spending supports long-term earnings growth. Wealth Management Wealth Management's net income for the second quarter was $182 million, which represented a decrease of $15 million, or 8%, compared with the second quarter last year, and a decrease of $34 million, or 16%, compared with the prior quarter. The annualized return on invested capital for the quarter was 19% compared with 22% in the second quarter last year and 23% in the prior quarter. Canadian Wealth Management's net income was $115 million, which represented a decrease of $19 million, or 14%, compared with the second quarter last year, and a decrease of $13 million, or 10%, compared to the prior quarter. The Bank's investment in TD Ameritrade generated net income of $67 million, an increase of $4 million, or 6%, compared with the second quarter last year and a decrease of $21 million, or 24%, compared with the prior quarter. Strong core earnings growth was partially offset by the impact of the stronger Canadian dollar. For the second quarter ended March 31, 2008, TD Ameritrade delivered net income of US$187 million, up 33% from the same period last year and 22% below the prior quarter. Net income for the six months ended April 30, 2008 was $398 million, an increase of $15 million, or 4%, compared with the same period last year. The year-to-date increase in net income included results from the Bank's investment in TD Ameritrade, which generated $155 million of net income compared with $127 million in the same period last year. On a year-to-date basis, the return on invested capital was 21%, flat from the same period last year. Revenue for the quarter was $558 million, which decreased by $36 million, or 6%, compared with the second quarter last year, primarily due to lower commissions in discount brokerage as a result of pricing changes introduced last year and lower new issue and trading revenues in full-service brokerage. Offsetting the decline was higher trade volumes in discount brokerage and increased net interest income, primarily due to growth in client cash deposits and margin loans. Revenue decreased by $12 million, or 2%, compared with the prior quarter, primarily due to a combination of lower trading revenues, new issues and net interest income. On a year-to-date basis, revenue was $1,128 million, which decreased $17 million, or 1%, compared with the same period last year, primarily due to lower commissions in discount brokerage and current market conditions impacting new issues and trading revenues in full- service brokerage, partially offset by higher trade volumes in discount brokerage and the new mutual fund administration fee. Expenses for the quarter were $387 million, which decreased by $6 million, or 2%, compared with the second quarter last year, primarily due to lower variable compensation associated with lower revenues. Expenses increased by $8 million, or 2%, compared with the prior quarter, primarily due to timing of compensation-related expenses. On a year-to-date basis, expenses were $766 million, which increased by $9 million, or 1%, compared with the same period last year, mainly due to higher volume-related payments to sellers of the Bank's mutual funds, the new mutual fund administration fee and the continued investment in growing the sales force in our advice-based businesses and related support staff. Assets under management of $174 billion at April 30, 2008 increased $14 billion, or 9%, from October 31, 2007, due to addition of net new client assets and the additional mutual fund assets from TD Ameritrade, partially offset by the impact of market-related declines. Assets under administration totalled $187 billion at the end of the quarter, increasing by $2 billion, or 1% from October 31, 2007, primarily due to addition of net new client assets, partially offset by declines driven by capital markets volatility. Wealth Management is anticipated to continue to be impacted by volatile capital markets for the balance of the fiscal year. Investment in client- facing advisors, products and technology continues in order to ensure that the business grows for the future. Wealth Management ------------------------------------------------------------------------- For the six For the three months ended months ended ----------------------------- ------------------- (millions of Apr. 30 Jan. 31 Apr. 30 Apr. 30 Apr. 30 Canadian dollars) 2008 2008 2007 2008 2007 ------------------------------------------------------------------------- Canadian Wealth $115 $128 134 $243 256 TD Ameritrade $67 88 63 $155 127 ------------------------------------------------------------------------- Net income $182 $216 197 $398 383 ------------------------------------------------------------------------- ------------------------------------------------------------------------- U.S. Personal and Commercial Banking The acquisition of Commerce closed on March 31, 2008. The Bank's consolidated balance sheet as at April 30, 2008 included the Commerce assets and liabilities. As this segment reports results on a one-month lag, Commerce results of operations will be included starting next quarter. U.S. Personal and Commercial Banking's reported net income for the quarter was $100 million, compared with $23 million in the second quarter last year, and $127 million in the prior quarter. Adjusted net income for the quarter was $130 million, compared with $62 million in the second quarter last year and $127 million in the prior quarter. Adjusted net income for the quarter excludes a $30 million after-tax charge for restructuring and integration costs related to the Commerce acquisition while adjusted net income for the second quarter last year excluded a $39 million after-tax charge being the Bank's share of TD Banknorth's restructuring, privatization and merger-related charges. There were no items of note affecting earnings in the first quarter of 2008. Much of the increase in adjusted net income over the second quarter of last year related to the increased ownership percentage in TD Banknorth from the privatization transaction that was completed in April 2007. The annualized return on invested capital was 5.9%, compared with 3.8% in the second quarter last year and 5.7% in the prior quarter. Reported net income for the six months ended April 30, 2008 was $227 million, compared with $87 million in the same period last year. On a year-to- date basis, adjusted net income was $257 million, compared with adjusted net income of $126 million in the same period last year; much of this increase was due to the increased ownership percentage. On a year-to-date basis, the return on invested capital was 5.8%, compared with 4.0% in the same period last year. Revenue for the quarter was $475 million which declined by $29 million, or 6%, compared with the second quarter last year, primarily due to a stronger Canadian dollar relative to the U.S. dollar. Revenue in U.S. dollars increased 8% as higher fee income and a gain recorded in connection with the Visa initial public offering (IPO) more than offset a reduction in net interest income. Revenue increased by $23 million, or 5%, compared with the prior quarter, primarily due to the gain on the Visa IPO. On a year-to-date basis, revenue declined $63 million, or 6%, compared with the same period last year, primarily due to the stronger Canadian dollar. On a year-to-date basis, revenue in U.S. dollars increased by 7%, primarily due to growth in fee income, revenue from the January 2007 acquisition of Interchange, and the Visa gain. Net interest income was adversely affected by strong competition for deposits. Margin on average earning assets declined by 16 bps from 3.89% to 3.73%, compared with the second quarter last year, and decreased 15 bps compared with the prior quarter. On a year-to-date basis, the margin on average earning assets decreased by 11 bps from 3.92% to 3.81%, compared with the same period last year. Provision for credit losses for the quarter was $46 million which increased by $11 million, or 31%, compared with the second quarter last year, and by $20 million, or 77%, compared with the prior quarter. The increased provision for credit losses was due to increased net write-offs, including a $12 million change in methodology related to small business loans. Net impaired loans increased by $60 million compared with the second quarter last year, and by $89 million compared with the prior quarter, primarily due to the inclusion of $97 million of net impaired loans from Commerce at March 31, 2008. However, net impaired loans as a percentage of total loans and leases declined to 0.61%, compared with 0.72% as at the end of the prior quarter and 0.57% as at the end of the second quarter last year. Reported non-interest expenses for the quarter were $294 million, a decline of $90 million, or 23%, from the second quarter last year and an increase of $56 million, or 24%, over the prior quarter. On an adjusted basis, non-interest expenses declined by $60 million, or 20%, compared with the second quarter last year, primarily due to strengthening of the Canadian dollar and cost control initiatives, while non-interest expenses increased slightly from the prior quarter. On a year-to-date basis, adjusted non- interest expenses were $484 million which declined by $121 million, or 20%, compared with the same period last year. The average FTE staffing level was 8,099, compared with 8,701 in the prior year and 8,019 in the prior quarter; the decline from the prior year levels were due to improved efficiency and branch closings. The efficiency ratio improved year over year and quarter over quarter on a reported and adjusted basis. Management continues to focus on asset quality, organic growth of loans and deposits, and on the ongoing integration of the TD Banknorth and Commerce organizations. Although the banking market in the U.S. is expected to remain challenging, and there is uncertainty related to the continuing effects of the ongoing market issues related to subprime real estate lending and related issues, we expect to be able to achieve our previously communicated target of at least $750 million for the fiscal year and a minimum of $1.2 billion for 2009. For more detail, see the Bank's press release dated April 21, 2008, which is available on the Bank's website at http://www.td.com/, as well as on SEDAR at http://www.sedar.com/ and on the SEC's at http://www.sec.org/ (EDGAR filers section). Wholesale Banking Wholesale Banking reported net income for the quarter of $93 million, a decrease of $124 million, or 57%, compared with the second quarter last year, and a decrease of $70 million, or 43%, compared with the prior quarter. The annualized return on invested capital was 11% in the current quarter, compared with 34% in the second quarter last year and 21% in the prior quarter. Net income for the six months ended April 30, 2008 was $256 million, down $158 million, or 38%, while the return on invested capital was 16%, compared with 32% for the same period last year. Wholesale Banking revenue was derived primarily from capital markets, investing and corporate lending activities. Revenue for the quarter was $428 million, compared with $642 million in the second quarter last year and $608 million in the prior quarter. The capital markets businesses generate revenue from advisory, underwriting fees, trading, facilitation and execution services. Capital markets revenue decreased from the second quarter last year, primarily due to weaker interest rate and credit trading revenue, and lower underwriting, partially offset by stronger foreign exchange trading revenue. Interest rate and credit trading revenue declined due to weaker credit markets, lower liquidity and a breakdown in traditional pricing relationships between bonds and credit default swaps (CDS). Foreign exchange trading generated strong revenue, mainly driven by interest rates volatilty. Capital markets revenue decreased from the prior quarter, primarily due to lower foreign exchange, interest rate and credit trading revenue, partially offset by stronger equity trading revenue. The equity investment portfolio posted lower securities gains this quarter compared with the second quarter last year and the prior quarter. Corporate lending revenue was in line with the second quarter last year and the prior quarter. On a year-to-date basis, revenue was $1,036 million, a decrease of $241 million, or 19%, compared with the same period last year, primarily due to lower trading revenue, partially offset by higher securities gains. Provision for credit losses was comprised of allowances for credit losses and accrual costs for credit protection. Provision for credit losses was $10 million in the quarter, compared with $12 million in the second quarter last year and $56 million in the prior quarter. The prior quarter included specific allowance of $43 million related to two credit exposures in the merchant banking portfolio. On a year-to-date basis, provision for credit losses was $66 million, an increase of $30 million compared with the same period last year. Wholesale Banking continues to proactively manage its credit risk and currently holds $2.5 billion in notional CDS protection. Expenses for the quarter were $291 million, a decrease of $38 million, or 12%, compared with the second quarter last year, primarily due to lower variable compensation. Expenses decreased $30 million, or 9%, from the prior quarter, mainly due to lower variable compensation related to lower net income. On a year-to-date basis, expenses were $612 million, a decrease of $49 million, or 7%, compared with the same period last year. The efficiency ratio for the quarter was 68%, compared with 51% in the second quarter last year and 53% in the prior quarter. On a year-to-date basis, the efficiency ratio was 59%, compared with 52% in the same period last year. Overall, Wholesale Banking had a weak quarter driven by lower trading revenue, weaker capital markets activity and a lower contribution from the equity investment portfolio. We expect the operating environment to remain challenging which may lead to continued lower capital market activity and lower trading revenues relative to the prior year. Key priorities remain: solidifying our position as a top three dealer in Canada, seeking opportunities to grow proprietary trading in scalable and liquid markets, maintaining a superior rate of return on invested capital and enhancing the efficiency ratio through improved cost control. Corporate Corporate segment's reported net loss was $105 million for the quarter, compared with a reported net loss of $98 million in the second quarter last year and a reported net loss of $134 million in the prior quarter. The adjusted net loss for the quarter was $14 million, compared with an adjusted net loss of $21 million in the same quarter last year and an adjusted net loss of $44 million in the previous quarter. Compared with last year, on an adjusted basis, the net loss improved by $7 million, primarily as a result of favourable tax items, which were partially offset by costs related to increased corporate financing activity. The current quarter adjusted net loss improved by $30 million from the prior quarter, also due to similar factors as above, combined with higher net securitization gains and the impact of unfavourable tax items in the prior quarter. The Corporate segment's reported net loss was $239 million for the six months ended April 30, 2008. On an adjusted basis, the year-to-date net loss was $58 million or $55 million higher than last year, mainly due to a decrease in securitization activity and costs related to increased corporate financing activity. The difference between reported and adjusted net income for the corporate segment was due to certain items of note as outlined below. These items are described more fully on page 6. Reconciliation of Corporate Segment Reported and Adjusted Net Income ------------------------------------------------------------------------- For the six For the three months ended months ended ----------------------------- ------------------- (millions of Apr. 30 Jan. 31 Apr. 30 Apr. 30 Apr. 30 Canadian dollars) 2008 2008 2007 2008 2007 ------------------------------------------------------------------------- Corporate segment net income - reported $(105) $(134) $(98) $(239) $(168) ------------------------------------------------------------------------- Items of note affecting net income, net of income taxes: Amortization of intangibles 92 75 80 167 163 TD Banknorth restructuring, privatization and merger-related charges - - 4 - 4 Change in fair value of credit default swaps hedging the corporate loan book, net of provision for credit losses (1) (25) (7) (26) (2) Other tax items - restatement of future tax asset - 20 - 20 - Provision for insurance claims - 20 - 20 - ------------------------------------------------------------------------- Total items of note 91 90 77 181 165 ------------------------------------------------------------------------- Corporate segment net income - adjusted $(14) $(44) $(21) $(58) $(3) ------------------------------------------------------------------------- ------------------------------------------------------------------------- TD AMERITRADE HOLDING CORPORATION The condensed financial statements of TD AMERITRADE Holding Corporation, based on its consolidated financial statements filed with the SEC, are provided as follows: CONDENSED CONSOLIDATED BALANCE SHEETS ------------------------------------------------------------------------- Mar. 31, Sept. 30, (millions of U.S. dollars) 2008 2007 ------------------------------------------------------------------------- Assets Receivables from brokers, dealers and clearing organizations $5,033 $6,750 Receivables from clients, net of allowance for doubtful accounts 7,529 7,728 Other assets 5,173 3,614 ------------------------------------------------------------------------- Total assets 17,735 18,092 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Liabilities Payable to brokers, dealers and clearing organizations 6,644 8,387 Payable to clients 5,059 5,314 Other liabilities 3,479 2,236 ------------------------------------------------------------------------- Total liabilities 15,182 15,937 ------------------------------------------------------------------------- Stockholders' equity $2,553 $2,155 ------------------------------------------------------------------------- Total liabilities and stockholders' equity $17,735 $18,092 ------------------------------------------------------------------------- ------------------------------------------------------------------------- CONDENSED CONSOLIDATED STATEMENTS OF INCOME ------------------------------------------------------------------------- For the three For the six months ended months ended ------------------- ------------------- (millions of U.S. dollars, Mar. 31 Mar. 31 Mar. 31 Mar. 31 except per share amounts) 2008 2007 2008 2007 ------------------------------------------------------------------------- Revenues Net interest revenue $138 $137 $287 $276 Fee-based and other revenue 485 388 978 784 ------------------------------------------------------------------------- Net revenue 623 525 1,265 1,060 ------------------------------------------------------------------------- Expenses Employee compensation and benefits 132 109 238 207 Other 191 191 371 390 ------------------------------------------------------------------------- Total expenses 323 300 609 597 ------------------------------------------------------------------------- Other income 0 5 1 6 ------------------------------------------------------------------------- Pre-tax income 300 230 657 469 Provision for income taxes 113 89 229 182 ------------------------------------------------------------------------- Net income(1) 187 141 428 287 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Earnings per share - basic $0.31 $0.24 $0.72 $0.48 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Earning per share - diluted $0.31 $0.23 $0.71 $0.47 ------------------------------------------------------------------------- ------------------------------------------------------------------------- (1) The Bank's equity share of net income of TD Ameritrade is subject to adjustments relating to amortization of intangibles. BALANCE SHEET REVIEW Total assets were $504 billion as at April 30, 2008, $82 billion higher than at October 31, 2007 of which $57 billion related to the acquisition of Commerce this quarter. The table below shows the impact of Commerce. Excluding the Commerce impact, total assets increased $24.4 billion compared to October 31, 2007. The net increase was composed primarily of a $15 billion increase in loans, a $5 billion increase in securities purchased under reverse repurchase agreements and a $4 billion increase in other assets. Residential mortgage loans increased $6 billion, mainly due to Canadian Personal and Commercial Banking volume growth. Consumer and personal loans were $4 billion higher with the increase arising from volume growth in Canadian Personal and Commercial Banking. Business and government loans were up $5 billion, primarily due to volume growth in U.S. Personal and Commercial Banking and Wholesale Banking. Securities purchased under reverse repurchase agreements increased $4 billion in Wholesale Banking and $2 billion in U.S. Personal and Commercial Banking as the business experienced higher client demand. Other assets increased $4 billion, primarily due to the combination of higher customer liabilities under acceptances in Canadian Commercial and Personal Banking and Wholesale Banking, driven by higher business volumes and a $2 billion increase in trading derivatives, primarily in Wholesale Banking due to market movement. Excluding Commerce, total deposits were $302 billion at the end of the second quarter, an increase of $26 billion from October 31, 2007. Personal deposits increased $10 billion, largely due to increased volumes in Canadian Personal and Commercial Banking and U.S. Personal and Commercial Banking. Business and government deposits were up $10 billion, driven primarily by higher Canadian Personal and Commercial Banking and Corporate segment balances. Wholesale Banking trading deposits were also up $7 billion. Acceptances increased $2 billion, primarily in Canadian Personal and Commercial Banking and Wholesale Banking due to higher business volumes. Obligations related to securities sold under repurchase agreements decreased by $2 billion due to Wholesale Banking-related activity. Other liabilities decreased $5 billion, primarily due to lower Wholesale Banking broker payables and a lower net future tax liability. Subordinated notes and debentures increased $3 billion due to the $0.5 billion medium term note issuance in April 2008 and the $2.5 billion issuance of medium term notes in the first quarter. Preferred stock increased $0.7 billion due to issuances in the first and second quarters of this year. The table below presents the impact of the acquisition of Commerce on the Bank's consolidated balance sheet as at April 30, 2008: DATASOURCE: TD Bank Financial Group CONTACT: Colleen Johnston, Group Head Finance and Chief Financial Officer, (416) 308-9030; Tim Thompson, Senior Vice President, Investor Relations, (416) 308-9030, or Simon Townsend, Senior Manager, Corporate Communications, (416) 944-7161

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