RBC Dominion Securities Inc. Darko Mihelic, CFA (Analyst)Sean McQuade, CFA (416) 842-4128 (Associate) [email protected] (416) 842-7804 Vanessa Wan, CA, CFA, [email protected] CPA (Senior Associate) (416) 842-5638 [email protected]

August 31, 2017 Sector: Toronto-Dominion So good you think twice... Sector Perform TSX: TD; CAD 67.06; NYSE: TD Our view: Q3/17 results were strong and TD delivered on good revenue growth, efficiency improvement, and credit. We have increased our Price Target CAD 72.00 ↑ 70.00 estimates and our price target follows higher. We maintain our Sector WHAT'S INSIDE Perform rating. Rating/Risk Change Price Target Change EQUITY RESEARCH EQUITY Key points: In-Depth Report Est. Change We view Q3 results positively – TD delivered on revenue growth, Preview News Analysis efficiency improvement, and good credit. We have increased our Scenario Analysis* estimates and our price target; however, valuations remain fair in our view, and consequently we maintain our Sector Perform rating. TD currently Downside Current Price Upside trades at an 8% premium to the other large Canadian banks that we cover Scenario Price Target Scenario on our 2018E core cash EPS, in line with its average historical premium 36.00 67.06 72.00 78.00 on forward P/E. TD reported core cash EPS of $1.51, well ahead of our 43% 11% 20% estimate and consensus of $1.36. *Implied Total Returns Key Statistics Efficiency improvement was significant and a large driver of strong Shares O/S (MM): 1,848.6 Market Cap (MM): 123,967 Dividend: 2.40 Yield: 3.6% earnings. Efficiency (teb) was at a very low level of 54.1% and improved BVPS: 36.32 P/BVPS: 1.85x ~250 bps YoY though perhaps revenues were outsized. We have Tangible BVPS: 26.95 Cash ROE: 16.1% moderated our efficiency assumptions slightly but still forecast a higher Avg. Daily Volume: 4,353,960 efficiency ratio relative to this quarter of ~55% in 2018/2019. RBC Estimates FY Oct 2016A 2017E 2018E 2019E P&C and U.S. P&C reported strong earnings growth, largely as EPS, Rpt Diluted 4.67 5.44 5.73 6.08 a result of efficiency improvement, but further rate hikes could also Prev. 5.26 5.44 5.74 help support better growth. Earnings growth was +13% YoY in Canada P/Rpt EPS 14.4x 12.3x 11.7x 11.0x P&C (ex-wealth) and +11% YoY in U.S. P&C (on a USD basis, ex-AMTD). EPS, cash Diluted 4.87 5.57 5.85 6.20 While loan growth remains slow in both of these businesses, net interest Prev. 5.38 5.59 5.90 P/CEPS 13.8x 12.0x 11.5x 10.8x margins (NIM) improved by 4 bps and 9 bps QoQ, respectively. Despite Revenue 32.2 34.7 36.4 38.5 this, total bank NIMs declined -4 bps QoQ – we have given credit for NIM Prev. 34.4 35.9 37.9 improvement in our models (as RBC Economics is expecting further rate EPS, Rpt Diluted Q1 Q2 Q3 Q4 hikes in both Canada and the U.S.) but would like to see TD deliver on a 2016 1.17A 1.07A 1.24A 1.20A higher total NIM in future quarters. 2017 1.32A 1.31A 1.46A 1.36E Prev. 1.33E 1.31E Credit was very good this quarter, but we have left our provision for 2018 1.42E 1.39E 1.46E 1.47E credit loss (PCL) assumptions unchanged. TD reported PCLs of $505 Prev. 1.35E 1.32E 1.38E 1.39E EPS, cash Diluted million, much better than our $599 million forecast. TD's total PCL ratio 2016 1.18A 1.20A 1.27A 1.22A was 33 bps, down -2 bps QoQ, but it suggested this was at the low end 2017 1.33A 1.34A 1.51A 1.39E of its expected range. We continue to assume higher PCLs of 43 bps in Prev. 1.36E 1.35E 2018 and 47 bps in 2019, although we admit our forecasts likely contain 2018 1.45E 1.42E 1.49E 1.50E Prev. 1.39E 1.36E 1.42E 1.43E significant forecast error given the adoption of IFRS 9 beginning in Q1/18. EPS, cash Diluted: Cash EPS is Core Cash Revenue in CAD billions. Capital remained solid and TD announced an increase to its normal All values in CAD unless otherwise noted. course issuer bid of 20 million shares (~1% of shares outstanding). TD reported a common equity tier 1 ratio of 11.0%, up 20 bps QoQ. We now assume 2.5 million of share buybacks per quarter over the next four quarters.

We have increased our estimates, largely reflecting higher forecast other fee income, better efficiency, and share buybacks.

Disseminated: Aug 31, 2017 23:04ET; Produced: Aug 31, 2017 23:04ET Priced as of prior trading day's market close, EST (unless otherwise noted). For Required Non-U.S. Analyst and Conflicts Disclosures, see page 16. Banks Toronto-Dominion Bank

Target/Upside/Downside Scenarios Investment summary Exhibit 1: Toronto-Dominion Bank TD is rated Sector Perform:

125 Weeks 10APR15 - 31AUG17 • U.S. P&C: We view recent efficiency improvement 75 UPSIDE 78.00 TARGET 72.00 positively, and while loan growth is decelerating, net 70 CURRENT 67.06 65 interest margins have improved in this business. We forecast

60 8% YoY average earnings growth for the U.S. P&C (ex-AMTD)

55 segment on average in 2018 and 2019. • Canada P&C: Loan growth remains slow in this business, 50 although efficiency improvement has helped with recent earnings growth. TD's Canadian franchise has historically 45 DOWNSIDE 36.00 80m been viewed as best-in-class – in our view, amidst a very 60m 40m competitive environment in Canada, there is risk that 20m 2015 2016 2017 significant damage to TD’s brand could have a negative A M J J A S O N D J F M A M J J A S O N D J F M A M J J A Aug 2018 TD.TO Rel. S&P/TSX COMP IDX MA 40 weeks impact on both earnings and TD's relative valuation to peers. Source: Bloomberg and RBC Capital Markets estimates for Upside/Downside/Target Recent allegations regarding sales practices in Canada, Target price/base case whether true or false, will likely take time to investigate, and Our 12-month price target of $72, which supports our Sector we are unlikely to receive full clarity over the short term. Perform rating, is based on a P/E multiple of 12.0x our 2018E core cash EPS and adding approximately $2 per share to reflect our estimate of excess capital. We value TD at a median-like multiple to peers – while we continue see a more favorable growth outlook in its North American retail businesses, we see higher risk due to recent allegations surrounding sales practices in Canada.

Upside scenario Our 12-month upside scenario price of $78 is based on a P/E multiple of 13.0x our 2018E core cash EPS and adding approximately $2 per share to reflect our estimate of excess capital. The higher multiple in our upside scenario is based on an assumption of greater than expected economic growth in North America, improvements in capital markets and wealth management earnings, and a more normalized interest rate environment, which would lead to improved expected ROEs across the bank group. Our upside scenario assumes the stock regains its prior premium to peers following clarity on recent allegations surrounding sales practices in Canada.

Downside scenario Our 12-month downside scenario price of $36 is based on a P/ B multiple of 1.0x book value. Our downside scenario is based on a recessionary environment in North America, which we expect would lead to increased unemployment, deterioration in credit quality, revenue growth, and balance sheet strength, leading to lower valuations across the bank group.

August 31, 2017 Darko Mihelic, CFA (416) 842-4128; [email protected] 2 Banks Toronto-Dominion Bank

Key Questions Our view 1. What is the outlook for cost savings The Canadian and U.S. retail banking segments reported efficiency gains in fiscal given the bank’s restructuring 2016, which were the largest drivers of TD’s efficiency improvement of ~60 bps. TD initiatives? has indicated that cost savings from restructuring initiatives are expected to be fully realized in 2017. We forecast ~90 bps of efficiency improvement in 2018 and 2019.

2. What is the outlook for credit? We forecast modestly higher provisions for credit losses (PCL) of 43 bps in 2018 and 47 bps in 2019, which compare to our forecast of 38 bps in 2017. We are forecasting an increase in PCLs, as we expect credit to normalize and the large Canadian banks will adopt IFRS 9 in Q1/18. However, our PCL forecasts likely contain significant forecast error at this time, as the banks expect to begin disclosing IFRS 9 impacts next quarter.

3. How exposed is TD to the U.S. and Based on TD’s annual earnings by geography for 2016, approximately 27% of its rising interest rates? total earnings and approximately 39% of its total assets are in the U.S. TD discloses that a +100 bps increase in interest rates would increase total bank after-tax net interest income by $74 million over the following 12 months (although this sensitivity reflects the earnings impact of the banks’ duration profile rather than economic sensitivity).

4. What is the outlook for the U.S. Loan growth in TD’s U.S. P&C segment continued to decelerate and was up 5% YoY P&C segment? in the most recent quarter on a U.S. dollar basis. Efficiency improvement (~290 bps YoY in Q3/17) has been a large driver of earnings growth in this business recently. We currently forecast average earnings growth of 8% YoY in 2018/2019 for the U.S. P&C (ex-AMTD) business and note that higher U.S. interest rates and/or a lower Canadian dollar could further support our estimates for this segment. Furthermore, our estimates do not incorporate any potential benefits from a U.S. corporate tax rate cut or other potential benefits from a Trump administration.

5. What is the bank’s dividend policy? TD has adopted a once-a-year dividend increase policy, which is unique among Canadian banks. In Q1/17, TD increased its quarterly dividend to $0.60 per share. We estimate an average payout ratio of 42% over our forecast period.

August 31, 2017 Darko Mihelic, CFA (416) 842-4128; [email protected] 3 Banks Toronto-Dominion Bank

Q3/17 – Results well ahead of our forecast TD reported core cash EPS of $1.51, well ahead of our estimate and consensus of $1.36. Better results relative to our expectations were driven by better revenues, efficiency, and credit. On a segmented basis, all businesses reported better earnings relative to our estimates.

We have increased our estimates – as a result, our price target follows higher to $72 (from $70). We maintain our Sector Perform rating. Our 2018 core cash EPS increases to $5.85 (from $5.59) and our 2019 core cash EPS to $6.20 (from $5.90). The increase to our estimates largely reflect higher forecast other fee income and better efficiency, as well as a share buyback assumption of 2.5 million shares per quarter over the next four quarters. We also increased our net interest margin assumptions (NIM), but the impact was mostly offset by lower loan balances versus our expectations this quarter. We continue to value TD using a 12.0x target multiple on our 2018 core cash EPS and add approximately $2 per share to reflect our estimate of excess capital in approximately one year’s time. U.S P&C results were better than our forecast While loan growth continued to decelerate this quarter, U.S. P&C delivered strong revenue growth and efficiency improvement, as well as good credit. TD reported U.S. P&C earnings (excluding TD Ameritrade) of C$783 million, well ahead of our forecast of C$721 million. Earnings were up 11% YoY on a U.S. dollar basis, as revenues were up 10% YoY and efficiency improved by ~290 bps YoY. Higher revenue growth was partly attributable to the impact of balance sheet management activities in the quarter last year.

Loan growth of 5% YoY was solid but continued to decelerate due to a continued deceleration in commercial loan growth (Exhibit 3). NIMs improved sequentially by 9 bps, as recent U.S. Fed rate hikes have been largely reflected in NIMs. We have increased our estimates for this segment to reflect higher NIMs and our estimates imply 8% average earnings growth in 2018 and 2019.

August 31, 2017 Darko Mihelic, CFA (416) 842-4128; [email protected] 4 Banks Toronto-Dominion Bank

Exhibit 2: TD reported strong U.S. P&C earnings growth due to strong revenues and efficiency improvement

$MM Q3/16 Q2/17 Q3/17 QoQ YoY 2016 YTD 2017 YTD % CHG. Revenues: BMO(1) (USD) 897 867 920 6% 3% 2,607 2,686 3% BNS (CAD) 2,424 2,618 2,645 1% 9% 7,343 7,849 7% TD (USD) 1,810 1,889 1,999 6% 10% 5,282 5,786 10% Average 4% 7% 6%

PCLs: BMO (USD) 58 68 59 -13% 2% 144 172 19% BNS (CAD) 316 349 325 -7% 3% 987 984 0% TD (USD) 130 114 137 20% 5% 413 444 8% Average 0% 3% 9%

Non-Interest Expenses: BMO (USD) 531 533 565 6% 6% 1,595 1,642 3% BNS (CAD) 1,345 1,397 1,442 3% 7% 4,110 4,269 4% TD (USD) 1,058 1,088 1,113 2% 5% 3,147 3,278 4% Average 4% 6% 4%

Net Income: BMO(1) (USD) 222 194 223 15% 0% 630 649 3% BNS (CAD) 527 595 614 3% 16% 1,532 1,785 17% TD (USD) 609 636 678 7% 11% 1,698 1,915 13% Average 8% 9% 11%

Net Interest Margin: BMO (USD) 3.57% 3.73% 3.80% 0.07% 0.23% 3.64% 3.74% 0.10% BNS (CAD) 4.79% 5.00% 4.77% -0.23% -0.02% 4.69% 4.83% 0.14% TD (USD) 3.14% 3.05% 3.14% 0.09% 0.00% 3.12% 3.07% -0.05% Average 3.83% 3.93% 3.90% -0.02% 0.07% 3.82% 3.88% 0.06%

Efficiency Ratio: BMO(1) (USD) 59.2% 61.4% 61.5% 0.1% 2.3% 61.2% 61.1% 0.0% BNS (CAD) 55.5% 53.3% 54.5% 1.2% -1.0% 56.0% 54.4% -1.6% TD (USD) 58.5% 57.6% 55.6% -2.0% -2.9% 59.6% 56.6% -3.0% Average 57.7% 57.4% 57.2% -0.2% -0.5% 58.9% 57.4% -1.5%

(1) Q1/17 excludes a loss related to the sale of a portion of BMO's U.S. indirect auto portfolio (pre-tax -US$43 million, post-tax -US$27 million). Source: RBC Capital Markets, Company reports

Exhibit 3: TD’s U.S. P&C loan growth continued to decelerate this quarter

$MM Q3/16 Q4/16 Q1/17 Q2/17 Q3/17 QoQ YoY Consumer Loan Growth YoY: BMO (USD) -8% -8% -13% -12% -12% 0% -4% BNS (Constant FX) 12% 11% 9% 7% 9% 2% -3% TD (USD) 8% 4% 4% 3% 4% 1% -4% Average 4% 2% 0% -1% 1% 1% -4%

Commercial Loan Growth YoY: BMO (USD) 37% 37% 18% 5% 5% 0% -32% BNS (Constant FX) 10% 4% 1% -1% 7% 8% -3% TD (USD) 17% 12% 10% 7% 5% -2% -12% Average 21% 18% 10% 4% 6% 2% -16%

Total Loan Growth YoY: BMO (USD) 16% 16% 5% -1% -1% 0% -17% BNS (Constant FX) 11% 8% 5% 3% 8% 5% -3% TD (USD) 13% 9% 7% 6% 5% -1% -9% Average 13% 11% 6% 3% 4% 1% -10%

Source: RBC Capital Markets, Company reports

August 31, 2017 Darko Mihelic, CFA (416) 842-4128; [email protected] 5 Banks Toronto-Dominion Bank

Canada P&C results were strong We view Canada P&C results positively, as the business also delivered strong revenue growth and efficiency improvement. Canada P&C (including wealth) earnings of $1,725 million were better than our estimate of $1,672 million. Canada P&C (ex-wealth) earnings grew 13% YoY, which was amongst the highest earnings growth rates reported by the large Canadian banks this quarter, as revenues were up 8% YoY and efficiency improved by ~120 bps YoY (Exhibit 5). Loan growth accelerated modestly on a sequential basis to 4% YoY but remains slower than peers (Exhibit 4). NIMs improved 4 bps QoQ. We have also increased our estimates for this segment to reflect modestly higher NIMs but still forecast slower earnings growth of 5% on average in 2018 and 2019.

Exhibit 4: TD’s Canada P&C loan growth improved modestly but remains below peers

$MM Q3/16 Q4/16 Q1/17 Q2/17 Q3/17 QoQ YoY Mortgages: BMO 5.2% 5.7% 5.5% 5.2% 4.4% -0.8% -0.8% BNS (ex-wealth)(1) -0.1% 0.6% 1.3% 2.3% 3.8% 1.5% 3.9% CM 9.5% 10.8% 11.6% 12.3% 13.1% 0.8% 3.6% NA 6.8% 6.5% 6.3% 5.2% 4.6% -0.6% -2.2% RY 6.4% 5.9% 5.5% 5.5% 6.1% 0.6% -0.3% TD (ex-wealth) 4.7% 3.2% 1.6% 1.2% 1.3% 0.1% -3.4% Total 5.1% 5.1% 5.0% 5.2% 5.7% 0.5% 0.6%

Other Retail: BMO 1.6% 1.8% 1.8% 1.8% 1.7% -0.1% 0.1% BNS (ex-wealth) 8.4% 7.0% 3.8% 3.4% 3.9% 0.5% -4.5% CM 3.2% 3.7% 4.2% 5.0% 5.7% 0.7% 2.5% NA 5.3% 5.2% 4.1% 5.8% 7.2% 1.4% 1.8% RY -1.4% -1.7% -1.2% -0.2% 0.6% 0.8% 2.0% TD (ex-wealth) 4.5% 5.1% 5.7% 6.6% 7.6% 1.1% 3.1% Total 3.1% 3.0% 2.9% 3.4% 4.2% 0.7% 1.1%

Commercial Loans: BMO 10.2% 11.6% 9.0% 8.1% 7.6% -0.5% -2.6% BNS (ex-wealth) 5.6% 5.6% 6.3% 7.4% 10.3% 2.9% 4.7% CM 14.2% 13.4% 11.0% 10.5% 8.7% -1.8% -5.5% NA 3.6% 2.3% 0.5% 2.1% 4.2% 2.0% 0.5% RY 6.2% 7.3% 7.2% 9.9% 10.9% 1.0% 4.7% TD (ex-wealth) 10.2% 10.0% 9.4% 8.3% 8.0% -0.3% -2.2% Total 8.7% 8.9% 7.8% 8.2% 8.5% 0.3% -0.1%

Total Canada P&C Loans: BMO 5.6% 6.3% 5.5% 5.2% 4.7% -0.5% -1.0% BNS (ex-wealth)(1) 2.6% 2.7% 2.6% 3.2% 4.7% 1.5% 2.1% CM 9.2% 10.0% 10.2% 10.7% 11.0% 0.3% 1.9% NA 5.6% 4.9% 4.1% 4.2% 4.8% 0.5% -0.8% RY 4.2% 4.0% 4.0% 4.7% 5.5% 0.7% 1.2% TD (ex-wealth) 5.5% 4.9% 4.2% 4.1% 4.4% 0.4% -1.1% Total 5.3% 5.3% 5.0% 5.3% 5.9% 0.6% 0.6%

(1) Includes Tangerine run-off portfolio. Excluding the Tangerine run-off portfolio, BNS's mortgage growth would be 6% YoY and total Canada P&C loan growth would be 6% YoY. Source: Company reports, RBC Capital Markets

August 31, 2017 Darko Mihelic, CFA (416) 842-4128; [email protected] 6 Banks Toronto-Dominion Bank

Exhibit 5: TD’s Canada P&C earnings growth was also very strong relative to peers

$MM Q3/16 Q2/17 Q3/17 QoQ YoY 2016 YTD 2017 YTD % CHG. Revenues: BMO(1) 1,770 1,724 1,855 8% 5% 5,167 5,371 4% BNS (ex-wealth)(2) 2,308 2,310 2,459 6% 7% 6,772 7,123 5% CM 2,225 2,225 2,342 5% 5% 6,565 6,864 5% NA 739 734 785 7% 6% 2,161 2,274 5% RY(3) 3,499 3,510 3,680 5% 5% 10,301 10,756 4% TD (ex-wealth) 3,185 3,207 3,428 7% 8% 9,387 9,949 6% Total 13,726 13,710 14,549 6% 6% 40,353 42,337 5%

PCLs: BMO 152 128 125 -2% -18% 419 371 -11% BNS (ex-wealth) 216 236 224 -5% 4% 612 695 14% CM 197 196 187 -5% -5% 559 588 5% NA(4) 44 46 45 -2% 2% 171 143 -16% RY 265 256 259 1% -2% 804 765 -5% TD (ex-wealth) 258 235 238 1% -8% 748 742 -1% Total 1,132 1,097 1,078 -2% -5% 3,313 3,304 0%

Non-Interest Expenses: BMO 863 882 903 2% 5% 2,575 2,685 4% BNS (ex-wealth) 1,079 1,091 1,134 4% 5% 3,235 3,344 3% CM 1,120 1,147 1,175 2% 5% 3,318 3,450 4% NA 422 410 413 1% -2% 1,239 1,235 0% RY 1,503 1,479 1,602 8% 7% 4,432 4,595 4% TD (ex-wealth) 1,358 1,407 1,418 1% 4% 4,013 4,232 5% Total 6,345 6,416 6,645 4% 5% 18,812 19,541 4%

Net Income: BMO(1) 561 531 615 16% 10% 1,616 1,722 7% BNS (ex-wealth)(2) 751 729 740 2% -1% 2,164 2,213 2% CM 667 648 720 11% 8% 1,976 2,077 5% NA(4) 199 204 240 18% 21% 549 657 20% RY(3) 1,284 1,316 1,349 3% 5% 3,756 3,999 6% TD (ex-wealth) 1,151 1,147 1,299 13% 13% 3,395 3,646 7% Total 4,613 4,575 4,963 8% 8% 13,456 14,314 6%

Average Loans: BMO 207,240 214,139 216,878 1% 5% 204,168 214,573 5% BNS (ex-wealth) 295,000 302,600 308,900 2% 5% 293,700 304,000 4% CM 268,306 289,774 297,855 3% 11% 262,484 290,449 11% NA 91,963 95,364 96,344 1% 5% 91,410 95,397 4% RY 375,600 388,800 396,100 2% 5% 372,500 390,100 5% TD (ex-wealth) 361,600 371,600 377,600 2% 4% 357,900 373,000 4% Total 1,599,709 1,662,277 1,693,677 2% 6% 1,582,162 1,667,519 5%

Net Interest Margin: BMO 2.55% 2.49% 2.54% 0.05% -0.01% 2.54% 2.51% -0.03% BNS (ex-wealth) 2.32% 2.32% 2.35% 0.03% 0.03% 2.30% 2.33% 0.03% CM 2.48% 2.36% 2.37% 0.01% -0.11% 2.50% 2.37% -0.13% NA 2.26% 2.24% 2.27% 0.03% 0.01% 2.24% 2.25% 0.01% RY 2.63% 2.62% 2.61% -0.01% -0.02% 2.63% 2.61% -0.02% TD (ex-wealth) 2.69% 2.71% 2.75% 0.04% 0.06% 2.69% 2.72% 0.03% Average 2.49% 2.46% 2.48% 0.02% -0.01% 2.48% 2.47% -0.02%

Efficiency Ratio: BMO(1) 48.8% 51.2% 48.7% -2.5% -0.1% 49.9% 50.0% 0.1% BNS (ex-wealth) 46.8% 47.2% 46.1% -1.1% -0.7% 47.8% 46.9% -0.8% CM 50.3% 51.6% 50.2% -1.4% -0.1% 50.5% 50.3% -0.3% NA 57.1% 55.9% 52.6% -3.3% -4.5% 57.3% 54.3% -3.0% RY 43.0% 42.1% 43.5% 1.4% 0.5% 43.0% 42.7% -0.3% TD (ex-wealth) 42.6% 43.9% 41.4% -2.5% -1.2% 42.8% 42.5% -0.2% Average 48.1% 48.6% 47.1% -1.5% -1.0% 48.6% 47.8% -0.8% (1) BMO: Adjusted for a gain on sale of U.S. ($187 million pre-tax, $168 million after-tax) in Q1/17. (2) BNS: Adjusted for a gain on sale of Roynat Lease Finance ($116 million pre-tax, $100 million after-tax) in Q2/16. In Q1/17, Q2/17, and Q3/17, BNS disclosed that a gain on sale of real estate contributed to Canada P&C earnings (incl. wealth) growth of 5%, 6%, and 4% YoY, respectively. For Q1/17, we have estimated a pre-tax gain of approximately $60 million and after-tax gain of $45 million, which are excluded from the figures above. For Q2/17, we have estimated a pre-tax gain of approximately $62 million and after-tax gain of $51 million, which are excluded from the figures above. For Q3/17, we have estimated a pre-tax gain of approximately $52 million and after-tax gain of $40 million, which are excluded from the figures above. (3) RY: Adjusted for a gain on sale of the U.S. operations of Moneris ($212 million before- and after-tax) in Q1/17. (4) NA: Q2/16 is adjusted for the sectoral provision ($250 million pre-tax, $183 million after-tax). In Q2/17, NA reversed $40 million pre-tax of its sectoral provision ($29 million after-tax), which is excluded from the figures above. Source: Company reports, RBC Capital Markets

August 31, 2017 Darko Mihelic, CFA (416) 842-4128; [email protected] 7 Banks Toronto-Dominion Bank

Wholesale results were softer this quarter, as expected, but better than our forecast Wholesale earnings of $293 million was well ahead of our estimate of $236 million. Earnings growth in this business declined -3% YoY, generally in line with the decline observed for the other large Canadian banks this quarter (Exhibit 6). Wholesale revenues were actually up 5% YoY and better than peers, although a deterioration in efficiency largely resulted in a decline in earnings.

Exhibit 6: TD’s decline in wholesale earnings was largely in line with peers

$MM Q3/16 Q2/17 Q3/17 QoQ YoY 2016 YTD 2017 YTD % CHG. Revenues (teb): BMO 1,082 1,200 1,067 -11% -1% 3,159 3,495 11% BNS 1,151 1,203 1,117 -7% -3% 3,257 3,535 9% CM 738 690 679 -2% -8% 2,103 2,198 5% NA 370 404 392 -3% 6% 1,076 1,215 13% RY 2,087 2,117 2,040 -4% -2% 6,057 6,228 3% TD 859 818 902 10% 5% 2,289 2,577 13% Total 6,287 6,432 6,197 -4% -1% 17,941 19,248 7%

PCLs: BMO 37 46 -2 -104% -105% 89 40 -55% BNS 38 2 24 1100% -37% 210 34 -84% CM 7 -5 1 -120% -86% 115 -4 -103% NA 0 0 0 nmf nmf 0 0 nmf RY 33 24 44 83% 33% 276 100 -64% TD 11 -4 0 -100% -100% 73 -28 -138% Total 126 63 67 6% -47% 763 142 -81%

Non-Interest Expenses: BMO 620 685 690 1% 11% 1,913 2,097 10% BNS 507 501 530 6% 5% 1,507 1,591 6% CM 352 348 340 -2% -3% 1,009 1,054 4% NA 156 165 162 -2% 4% 455 497 9% RY 1,160 1,173 1,199 2% 3% 3,315 3,497 5% TD 437 481 504 5% 15% 1,307 1,509 15% Total 3,232 3,353 3,425 2% 6% 9,506 10,245 8%

Net Income: BMO 318 322 293 -9% -8% 862 991 15% BNS 421 517 441 -15% 5% 1,110 1,427 29% CM 290 267 252 -6% -13% 755 865 15% NA 156 175 168 -4% 8% 454 526 16% RY 635 668 611 -9% -4% 1,788 1,941 9% TD 302 248 293 18% -3% 682 808 18% Total 2,122 2,197 2,058 -6% -3% 5,651 6,558 16%

Average Loans: BMO 46,943 52,239 52,745 1% 12% 45,434 51,741 14% BNS 81,400 79,800 82,100 3% 1% 81,800 81,400 0% CM 25,705 22,086 22,238 1% -13% 25,452 22,411 -12% NA 13,234 12,546 13,236 5% 0% 12,279 12,844 5% RY 87,400 83,600 83,100 -1% -5% 88,900 83,500 -6% TD* 37,950 42,550 44,300 4% 17% 36,900 42,317 15% Total 292,632 292,821 297,719 2% 2% 290,765 294,213 1%

Efficiency Ratio: BMO 57.4% 57.1% 64.7% 7.6% 7.3% 60.6% 60.0% -0.6% BNS 44.0% 41.7% 47.4% 5.7% 3.4% 46.3% 45.0% -1.3% CM 47.7% 50.4% 50.1% -0.3% 2.4% 48.0% 48.0% 0.0% NA 42.2% 40.8% 41.3% 0.5% -0.9% 42.3% 40.9% -1.4% RY 55.6% 55.4% 58.8% 3.4% 3.2% 54.7% 56.1% 1.4% TD 50.9% 58.8% 55.9% -2.9% 5.0% 57.1% 58.6% 1.5% Average 49.6% 50.7% 53.0% 2.3% 3.4% 51.5% 51.4% -0.1%

*Imputed average balance based on company's disclosed spot balances. Source: RBC Capital Markets, Company reports

August 31, 2017 Darko Mihelic, CFA (416) 842-4128; [email protected] 8 Banks Toronto-Dominion Bank

Exhibit 7: TD’s trading revenue growth was better than peers due to good FICC results

$MM Q3/16 Q2/17 Q3/17 QoQ YoY Equities: BMO 130 214 124 -42% -5% BNS* 42 -103 43 -142% 2% CM 126 125 64 -49% -49% NA 85 115 118 3% 39% RY 262 325 311 -4% 19% TD 59 204 51 -75% -14% Total 704 880 711 -19% 1% FICC: BMO 296 203 227 12% -23% BNS* 315 268 287 7% -9% CM 217 197 184 -7% -15% NA 96 100 89 -11% -7% RY 716 573 524 -9% -27% TD 388 221 412 86% 6% Total 2,028 1,562 1,723 10% -15% Other: BMO 9 4 21 425% 133% BNS* 24 16 25 56% 4% CM 5 -1 20 nmf 300% NA 19 21 13 -38% -32% RY n/a n/a n/a n/a n/a TD n/a n/a n/a n/a n/a Total 57 40 79 98% 39% Total trading revenue (teb): BMO 435 421 372 -12% -14% BNS 428 518 448 -14% 5% CM 348 321 268 -17% -23% NA 200 236 220 -7% 10% RY 978 898 835 -7% -15% TD 447 425 463 9% 4% Total 2,836 2,819 2,606 -8% -8% *BNS's trading results by product are disclosed on a non-TEB basis. Source: RBC Capital Markets, Company reports

TD delivered significant efficiency improvement Efficiency improvement was very good this quarter, which we view positively. TD reported an efficiency ratio (teb) of 54.1% this quarter, representing an improvement of ~250 bps YoY, largely driven by an improvement in both Canada P&C and U.S. P&C (Exhibit 8). Lower expenses were partly attributable to the sale of TD’s European Direct Investing business this quarter although perhaps revenues were outsized. While we do not expect strong operating leverage of ~+5% this quarter to continue, we have moderated our efficiency assumptions and our estimates imply operating leverage of approximately +90 bps on average in 2018 and 2019.

August 31, 2017 Darko Mihelic, CFA (416) 842-4128; [email protected] 9 Banks Toronto-Dominion Bank

Exhibit 8: TD delivered significant efficiency improvement this quarter

Q3/16 Q4/16 Q1/17 Q2/17 Q3/17 QoQ YoY Efficiency Ratio (teb): Canada P&C 41.5% 43.7% 42.8% 43.2% 41.6% -1.6% 0.1% Canada P&C (ex-wealth) 42.6% 44.7% 42.5% 43.9% 41.4% -2.5% -1.2% U.S. P&C 58.5% 61.8% 56.8% 57.6% 55.6% -2.0% -2.9% Wholesale Banking 50.9% 58.3% 61.1% 58.8% 55.9% -2.9% 5.0% Total Bank 56.6% 58.1% 56.1% 56.3% 54.1% -2.2% -2.5%

Source: RBC Capital Markets, Company reports

Credit quality was very good PCLs were very low this quarter, and TD suggested this quarter’s PCLs were on the low end of the banks’ expected range. PCLs of $505 million were well below our estimate of $599 million. TD’s PCL ratio was 33 bps, down 2 bps QoQ (Exhibit 9), and TD suggested that it would expect a PCL ratio of 35–40 bps as a more normal range. Gross impaired loan formations also continued to decline this quarter (Exhibit 10).

We continue to forecast a rise in PCLs given the adoption of IFRS 9 but admit that our PCL forecasts likely contain significant forecast error at this time. We forecast a PCL ratio of 43 bps and 47 bps, respectively, in 2018 and 2019, versus an expected PCL ratio of 38 bps in 2017. The large Canadian banks will adopt IFRS 9 beginning in Q1/18 and will begin to disclose related impacts next quarter.

Exhibit 9: PCLs were very low this quarter

Q3/16 Q4/16 Q1/17 Q2/17 Q3/17 QoQ YoY PCL ratio: Canadian Retail 0.28% 0.28% 0.29% 0.26% 0.25% -0.01% -0.03% U.S. Retail 0.59% 0.63% 0.84% 0.63% 0.59% -0.04% 0.00% Wholesale 0.10% 0.01% -0.25% -0.06% -0.01% 0.05% -0.11% Total Bank 0.39% 0.37% 0.42% 0.35% 0.33% -0.02% -0.06%

Source: RBC Capital Markets, Company reports

Exhibit 10: Gross impaired loan formations continued to decline

Gross Impaired Loan Formations ($MM) Q3/16 Q4/16 Q1/17 Q2/17 Q3/17 QoQ YoY Canadian Retail 662 648 631 534 499 -7% -25% U.S. Retail 514 579 650 620 601 -3% 17% Wholesale Banking 48 0 0 0 0 nmf -100% Total 1,224 1,227 1,281 1,154 1,100 -5% -10%

Source: RBC Capital Markets, Company reports

Capital was solid; share buyback announced TD reported solid capital build and announced an increase to its normal course issuer bid this quarter. TD reported a common equity tier 1 (CET1) ratio of 11.0%, up 20 bps sequentially (Exhibit 11). TD announced an increase to its normal course issuer bid for up to 20 million shares. As a result, we have incorporated 2.5 million of share buybacks per quarter over the next four quarters.

August 31, 2017 Darko Mihelic, CFA (416) 842-4128; [email protected] 10 Banks Toronto-Dominion Bank

Exhibit 11: TD reported solid capital build this quarter

Q2/17 Basel III CET1 Ratio 10.8% Internal capital generation 0.38% Impact of issuance of common shares 0.08% Actuarial gains on employee pension plans 0.07% RWA increase and other -0.26% Q3/17 Basel III CET1 Ratio 11.0%

Source: RBC Capital Markets, Company reports

August 31, 2017 Darko Mihelic, CFA (416) 842-4128; [email protected] 11 Banks Toronto-Dominion Bank

Exhibit 12: TD Bank summary financial model

RBC Capital Markets Equity Research TD Bank - Model Summary Prior estimates ($ millions, except for per share amounts) 2016 2017E 2018E 2019E Q3/16 Q4/16 Q1/17 Q2/17 Q3/17 Q3/17E 2017E 2018E 2019E Income statement - Adjusted for items of note Core net interest income (teb) 18,994 20,183 21,658 23,111 4,730 4,861 4,951 4,853 5,100 5,150 20,219 21,606 23,066 Trading revenues (teb) 1,636 1,803 1,600 1,600 447 380 515 425 463 400 1,740 1,600 1,600 Market sensitive other income 3,990 4,350 4,600 4,836 1,046 1,027 1,078 1,073 1,102 1,086 4,337 4,537 4,770 Other fee income 7,538 8,357 8,588 8,970 1,865 1,959 2,073 2,041 2,203 1,999 8,097 8,157 8,509 Total revenues 32,158 34,693 36,446 38,517 8,088 8,227 8,617 8,392 8,868 8,635 34,393 35,900 37,946 Non-interest expense* 18,496 19,286 20,064 21,062 4,577 4,784 4,833 4,723 4,797 4,813 19,323 20,056 21,125 Provision for credit losses 2,330 2,237 2,685 3,055 556 548 633 500 505 599 2,335 2,703 3,080 Pre-tax income (teb) 11,332 13,170 13,697 14,400 2,955 2,895 3,151 3,169 3,566 3,223 12,735 13,140 13,741 Tax Expense (teb) 2,538 3,055 3,171 3,312 676 658 722 734 839 747 2,942 3,043 3,161 Net Income 8,794 10,115 10,526 11,088 2,279 2,237 2,429 2,435 2,727 2,477 9,793 10,097 10,581 Total equity in Net Income of TD Ameritrade, net of taxes 498 515 576 637 137 110 129 126 138 136 522 613 696 Core net income 9,292 10,630 11,102 11,725 2,416 2,347 2,558 2,561 2,865 2,613 10,315 10,710 11,276 Preferred dividends 141 193 202 202 36 43 48 48 47 49 197 206 206 Net Income to common shareholders and minority interests 9,151 10,436 10,901 11,523 2,380 2,304 2,510 2,513 2,818 2,564 10,118 10,505 11,071 Minority interests 115 115 116 116 29 29 29 28 29 28 113 112 112 Core cash net income to common shareholders 9,036 10,321 10,785 11,407 2,351 2,275 2,481 2,485 2,789 2,536 10,005 10,393 10,959

Income statement - per share data Reported EPS 4.67 5.44 5.73 6.08 1.24 1.20 1.32 1.31 1.46 1.33 5.26 5.44 5.74 Core Cash EPS 4.87 5.57 5.85 6.20 1.27 1.22 1.33 1.34 1.51 1.36 5.38 5.59 5.90

Dividends per share 2.16 2.35 2.46 2.57 0.55 0.55 0.55 0.60 0.60 0.60 2.35 2.46 2.57 Dividend payout ratio 44% 42% 42% 41% 43% 45% 41% 45% 40% 44% 44% 44% 44% Average fully diluted shares 1,857 1,854 1,842 1,840 1,857 1,859 1,860 1,859 1,850 1,859 1,859 1,859 1,859

Divisional income statement - (core cash) Canadian Retail Banking 5,988 6,503 6,810 7,108 1,509 1,502 1,566 1,570 1,725 1,672 6,382 6,630 6,932 U.S. Retail Banking (excluding TD Ameritrade) 2,524 2,976 3,227 3,439 663 608 689 737 783 721 2,851 3,034 3,234 TD Ameritrade 435 439 496 557 125 93 111 108 118 118 449 541 624 Wholesale Banking 920 1,059 1,042 1,080 302 238 267 248 293 236 989 988 1,023 Corporate (576) (346) (472) (460) (183) (94) (75) (102) (54) (133) (356) (483) (536) Adjustments (preferreds, intangibles) (256) (308) (318) (318) (65) (72) (77) (76) (76) (77) (310) (318) (318) Total 9,035 10,321 10,785 11,407 2,351 2,275 2,481 2,485 2,789 2,536 10,005 10,393 10,959

Credit data Total provision for credit losses 2,330 2,237 2,685 3,055 556 548 633 500 505 599 2,335 2,703 3,080 Total PCL ratio 0.41% 0.38% 0.43% 0.47% 0.39% 0.37% 0.43% 0.34% 0.33% 0.39% 0.39% 0.43% 0.46% Gross impaired loans 3,509 3,467 3,509 3,399 3,290 2,985 Allowance for credit losses 4,373 4,230 4,373 4,331 4,451 4,217 Net impaired loans (864) (763) (864) (932) (1,161) (1,232) NIL ratio (0.15)% (0.13)% (0.15)% (0.16)% (0.19)% (0.21)%

Profitability Domestic Retail NIM 2.74% 2.77% 2.81% 2.86% 2.79% 2.78% 2.82% 2.81% 2.84% 2.79% 2.76% 2.78% 2.82% Core banking NIM 2.14% 2.12% 2.16% 2.20% 2.12% 2.08% 2.11% 2.12% 2.09% 2.14% 2.13% 2.16% 2.20% Return on tangible common equity 19.2% 20.5% 20.1% 19.1% 19.9% 18.4% 19.9% 20.2% 21.8% 19.3% 19.5% 18.3% 17.5% Pre-tax pre-provision earnings-core 12,976 14,476 15,914 16,987 3,511 3,443 3,784 3,669 4,071 3,822 14,089 15,191 16,169 Pre-tax pre-provision ROA (% of average assets) 1.12% 1.18% 1.24% 1.26% 1.2% 1.1% 1.2% 1.2% 1.3% 1.2% 1.1% 1.2% 1.2% Return on assets - core 0.78% 0.84% 0.84% 0.85% 0.81% 0.75% 0.81% 0.84% 0.89% 0.81% 0.81% 0.80% 0.81% Return on risk weighted assets - core 2.29% 2.48% 2.43% 2.42% 2.41% 2.27% 2.44% 2.48% 2.67% 2.38% 2.39% 2.34% 2.35% Return on equity 13.9% 15.0% 14.7% 14.3% 14.5% 13.6% 14.5% 14.8% 16.1% 14.3% 14.4% 13.9% 13.6% Efficiency ratio 57.5% 55.6% 55.1% 54.7% 56.6% 58.1% 56.1% 56.3% 54.1% 55.7% 56.2% 55.9% 55.7%

Balance sheet Assets 1,176,967 1,214,223 1,277,822 1,338,913 1,182,436 1,176,967 1,186,883 1,251,920 1,202,381 1,257,974 1,276,971 1,344,651 1,409,635 Risk weighted assets 405,844 425,155 460,729 482,756 389,412 405,844 402,168 420,053 408,803 426,354 432,792 455,731 477,755 Loans (net of allowances) 585,656 598,203 629,536 659,633 571,637 585,656 584,658 598,461 592,369 601,355 610,436 642,789 673,854 Common shareholders equity 68,164 68,367 73,916 80,374 66,171 68,164 67,280 70,187 67,126 71,545 72,870 78,440 84,373 Tangible common equity 49,787 51,057 56,606 63,063 48,257 49,787 49,328 51,480 49,815 52,837 54,163 59,733 65,666 Avg common equity 65,135 68,870 73,506 79,839 64,595 66,769 67,697 68,956 68,777 70,290 69,634 74,984 80,673 Book value per share 36.71 37.03 40.20 43.71 35.68 36.71 36.25 38.08 36.32 38.81 39.53 42.55 45.77 Tangible book value per share 26.81 27.66 30.79 34.30 26.02 26.81 26.57 27.93 26.95 28.66 29.38 32.40 35.62 Common equity Tier 1 ratio 10.4% 10.7% 11.1% 11.9% 10.4% 10.4% 10.9% 10.8% 11.0% 11.0% 10.9% 11.6% 12.3% Tier 1 capital ratio 12.2% 12.4% 12.5% 13.3% 11.9% 12.2% 12.6% 12.5% 12.8% 12.7% 12.6% 13.1% 13.7% Total capital ratio 15.2% 15.1% 14.4% 15.1% 14.6% 15.2% 15.1% 14.9% 15.6% 15.4% 15.3% 15.0% 15.6%

Other items Tax rate (teb) 22% 23% 23% 23% 23% 23% 23% 23% 24% 23% 23% 23% 23% Total trading revenues 1,636 1,803 1,600 1,600 447 380 515 425 463 400 1,740 1,600 1,600

* Non-interest expense is presented on a cash basis, which excludes the amortization of intangibles. Source: Company reports, RBC Capital Markets estimates

August 31, 2017 Darko Mihelic, CFA (416) 842-4128; [email protected] 12 Banks Toronto-Dominion Bank

Exhibit 13: TD Bank variance table

RBC Capital Markets Equity Research TD Bank - Variance Table Actual vs. estimate % Change ($ millions, except for per share amounts) Q3/16 Q2/17 Q3/17 Q3/17E % $MM QoQ YoY Income statement - Adjusted for items of note Core net interest income (teb) 4,730 4,853 5,100 5,150 -1% (50) 5% 8% Trading revenues (teb) 447 425 463 400 16% 63 9% 4% Market sensitive other income 1,046 1,073 1,102 1,086 1% 16 3% 5% Other fee income 1,865 2,041 2,203 1,999 10% 204 8% 18% Total revenues 8,088 8,392 8,868 8,635 3% 233 6% 10% Non-interest expense* 4,577 4,723 4,797 4,813 0% (16) 2% 5% Provision for credit losses 556 500 505 599 -16% (94) 1% -9% Pre-tax income (teb) 2,955 3,169 3,566 3,223 11% 343 13% 21% Tax Expense (teb) 676 734 839 747 12% 92 14% 24% Net Income 2,279 2,435 2,727 2,477 10% 250 12% 20% Total equity in Net Income of TD Ameritrade, net of taxes 137 126 138 136 1% 2 10% 1% Core net income 2,416 2,561 2,865 2,613 10% 252 12% 19% Preferred dividends 36 48 47 49 -4% (2) -2% 31% Net Income to common shareholders and minority interests 2,380 2,513 2,818 2,564 10% 254 12% 18% Minority interests 29 28 29 28 4% 1 4% - Core cash net income to common shareholders 2,351 2,485 2,789 2,536 10% 253 12% 19%

Core Cash EPS 1.27 1.34 1.51 1.36 10.5% 0.14 13% 19%

Efficiency ratio (teb) 56.6% 56.3% 54.1% 55.7% -1.6% -2.2% -2.5% Tax rate (teb) 22.9% 23.2% 23.5% 23.2% 0.4% 0.4% 0.7%

* Non-interest expense is presented on a cash basis, which excludes the amortization of intangibles. Source: Company reports, RBC Capital Markets estimates

August 31, 2017 Darko Mihelic, CFA (416) 842-4128; [email protected] 13 Banks Toronto-Dominion Bank

Exhibit 14: Banks valuation table

Stock Price Mkt Cap ROE Operating EPS EPS Growth P/E Ratio Indicated Dividend Ticker per share (Bln) BVPS P/BV TBVPS P/TBV 2016 2017E 2018E 2019E 2016 2017E 2018E 2019E 16/15 17/16 18/17 19/18 2017E 2018E 2019E $/share Yield Canadian Banks (CAD) - RBCCM estimates 1 BMO $ 89.61 $ 58.1 59.65 1.5x 48.21 1.9x 13.0% 13.8% 13.0% 12.7% 7.52 8.30 8.34 8.75 8% 10% 0% 5% 10.8x 10.7x 10.2x 3.60 4.0% Bank of Nova Scotia BNS $ 77.69 $ 93.1 44.54 1.7x 34.59 2.2x 14.6% 14.6% 14.2% 14.0% 5.99 6.48 6.70 7.15 6% 8% 3% 7% 12.0x 11.6x 10.9x 3.16 4.1% CIBC CM $ 104.91 $ 46.0 64.29 1.6x 49.88 2.1x 19.0% 17.6% 16.3% 16.1% 10.22 10.66 10.65 11.40 8% 4% 0% 7% 9.8x 9.9x 9.2x 5.20 5.0% 2 National Bank NA $ 57.48 $ 19.6 30.84 1.9x 24.46 2.3x 15.5% 18.3% 17.6% 17.4% 4.35 5.45 5.70 6.10 -7% 25% 5% 7% 10.5x 10.1x 9.4x 2.32 4.0% 3 RY $ 92.68 $ 135.1 44.93 2.1x 35.64 2.6x 16.3% n/a n/a n/a 6.78 n/a n/a n/a 1% n/a n/a n/a n/a n/a n/a 3.64 3.9% TD Bank TD $ 67.06 $ 124.0 36.32 1.8x 26.95 2.5x 13.9% 15.0% 14.7% 14.3% 4.87 5.57 5.85 6.20 6% 14% 5% 6% 12.0x 11.5x 10.8x 2.40 3.6% Median Big Six 1.8x 2.3x 15.1% 15.0% 14.7% 14.3% 6% 10% 3% 7% 10.8x 10.7x 10.2x 4.0% U.S. Money Centre Banks and Investment Dealers (USD) - Consensus estimates Bank of America BAC $ 23.89 $ 235.3 24.88 1.0x 17.63 1.4x 7.8% 7.8% 8.9% 9.3% 1.45 1.82 2.16 2.41 5% 25% 19% 12% 13.2x 11.1x 9.9x 0.48 2.0% C $ 68.03 $ 185.4 77.36 0.9x 67.36 1.0x 6.9% 6.8% 7.2% 8.1% 4.72 5.20 5.95 6.99 -12% 10% 14% 17% 13.1x 11.4x 9.7x 1.28 1.9% GS $ 223.74 $ 86.6 194.41 1.2x 183.90 1.2x 10.9% 9.9% 9.9% 10.4% 17.05 18.25 20.00 22.12 -7% 7% 10% 11% 12.3x 11.2x 10.1x 3.00 1.3% JP Morgan Chase JPM $ 90.89 $ 319.8 66.05 1.4x 52.37 1.7x 10.8% 10.6% 11.4% 11.7% 6.13 6.80 7.58 8.40 -5% 11% 11% 11% 13.4x 12.0x 10.8x 2.00 2.2% MS $ 45.50 $ 83.6 38.22 1.2x 33.24 1.4x 9.4% 9.2% 9.9% 10.7% 2.87 3.48 3.96 4.34 6% 21% 14% 9% 13.1x 11.5x 10.5x 1.00 2.2% Median 1.2x 1.4x 9.4% 9.2% 9.9% 10.4% -5% 11% 14% 11% 13.1x 11.4x 10.1x 2.0% U.S. Large Cap Regionals (USD) - Consensus estimates BB&T Corp BBT $ 46.09 $ 37.2 33.61 1.4x 20.74 2.2x 9.4% 9.4% 9.8% 10.1% 2.89 3.14 3.45 3.65 2% 9% 10% 6% 14.7x 13.4x 12.6x 1.32 2.9% Fifth Third FITB $ 26.13 $ 19.3 20.39 1.3x 17.09 1.5x 8.6% 8.9% 9.4% 9.9% 1.68 1.82 2.02 2.26 -3% 8% 11% 12% 14.4x 12.9x 11.6x 0.56 2.1% KeyCorp KEY $ 17.21 $ 18.7 13.48 1.3x 10.83 1.6x 11.5% 10.4% 10.8% 11.7% 1.16 1.37 1.55 1.68 8% 18% 13% 8% 12.6x 11.1x 10.2x 0.38 2.2% SunTrust STI $ 55.10 $ 26.4 46.67 1.2x 30.00 1.8x 8.1% 8.6% 9.1% 9.2% 3.55 4.02 4.40 4.78 -1% 13% 9% 9% 13.7x 12.5x 11.5x 1.60 2.9% US Bancorp USB $ 51.25 $ 85.7 25.44 2.0x 17.95 2.9x 13.4% 13.4% 13.7% 13.6% 3.24 3.45 3.80 4.10 2% 6% 10% 8% 14.9x 13.5x 12.5x 1.12 2.2% WFC $ 51.07 $ 253.5 36.13 1.4x 30.35 1.7x 11.4% 11.5% 11.9% 11.8% 4.06 4.16 4.45 4.85 -2% 2% 7% 9% 12.3x 11.5x 10.5x 1.56 3.1% PNC Financial PNC $ 125.41 $ 60.1 87.71 1.4x 67.87 1.8x 9.3% 9.6% 10.1% 10.1% 7.39 8.34 9.16 10.02 6% 13% 10% 9% 15.0x 13.7x 12.5x 3.00 2.4% M&T Bancorp MTB $ 147.86 $ 22.5 98.70 1.5x 68.01 2.2x 8.7% 9.4% 9.8% 10.0% 7.92 9.27 9.97 10.70 4% 17% 7% 7% 16.0x 14.8x 13.8x 3.00 2.0% Median 1.4x 1.8x 9.3% 9.5% 10.0% 10.1% 2% 11% 10% 8% 14.5x 13.1x 12.0x 2.3% U.S. Custodian Banks (USD) - Consensus estimates State Street STT $ 92.49 $ 34.6 50.30 1.8x 29.88 3.1x 11.9% 12.2% 12.6% 12.8% 5.27 6.15 6.79 7.36 8% 17% 10% 8% 15.0x 13.6x 12.6x 1.68 1.8% Bank of New York Mellon BK $ 52.28 $ 54.0 35.22 1.5x 14.93 3.5x 9.9% 10.0% 10.5% 10.8% 3.17 3.52 3.92 4.27 11% 11% 11% 9% 14.9x 13.3x 12.2x 0.96 1.8% Northern Trust NTRS $ 88.50 $ 20.2 41.77 2.1x 39.30 2.3x 11.4% 11.8% 12.9% 12.2% 4.31 4.68 5.28 5.47 15% 8% 13% 4% 18.9x 16.8x 16.2x 1.68 1.9% Median 1.8x 3.1x 11.4% 11.8% 12.6% 12.2% 11% 11% 11% 8% 15.0x 13.6x 12.6x 1.8%

1) BMO’s definition of core EPS includes a net gain of $0.20 in 2017 relating to a net gain on the sale of Moneris U.S. and a portion of BMO’s U.S. indirect auto loan portfolio. 2) NA’s definition of core EPS includes a gain of $0.12 per share in 2016 relating to the revaluation of ABA. 3) RBC Dominion Securities Inc. is a direct wholly owned subsidiary of Royal Bank of Canada and, as such, is a related issuer of Royal Bank of Canada. RBC Capital Markets estimates for Canadian banks only including ROE and EPS. Other banks’ estimates sourced from Bloomberg. R = Restricted Source: RBC Capital Markets estimates, Bloomberg estimates (U.S. Banks), Reuters, Company reports

In all jurisdictions where RBC conducts business, we do not offer investment advice on Royal Bank. Certain regulations prohibit member firms from soliciting orders and offering investment advice or opinions on their own stock. References to Royal Bank are for informational purposes only and are not intended as a direct or implied recommendation for investing in Royal Bank and all related securities.

August 31, 2017 Darko Mihelic, CFA (416) 842-4128; [email protected] 14 Banks Toronto-Dominion Bank

Valuation Our 12-month price target of $72, which supports our Sector Perform rating, is based on a P/E multiple of 12.0x our 2018E core cash EPS and adding approximately $2 per share to reflect our estimate of excess capital. We value TD at a median-like multiple to peers – while we continue to see a more favorable growth outlook in its North American retail businesses, we see higher risk due to recent allegations surrounding sales practices in Canada. Risks to rating and price target Risks to our price target and rating include the health of the overall economy, sustained deterioration in the capital markets environment, the Canadian and U.S. housing market, a failure of government programs, litigation and tax assessment risk, and greater than anticipated impact from off-balance sheet commitments. Additional risks include regulatory and political risk including tax rates, an unexpected acquisition, weakening retail credit quality, and loss of domestic market share. Damaging reports about TD's sales practices may increase shorter-term risk. Company description TD Bank Financial Group is Canada's second-largest bank by market capitalization.

August 31, 2017 Darko Mihelic, CFA (416) 842-4128; [email protected] 15 Banks Toronto-Dominion Bank

Required disclosures Non-U.S. analyst disclosure Darko Mihelic, Vanessa Wan and Sean McQuade (i) are not registered/qualified as research analysts with the NYSE and/or FINRA and (ii) may not be associated persons of the RBC Capital Markets, LLC and therefore may not be subject to FINRA Rule 2241 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account. Conflicts disclosures The analyst(s) responsible for preparing this research report received compensation that is based upon various factors, including total revenues of the member companies of RBC Capital Markets and its affiliates, a portion of which are or have been generated by activities of the member companies of RBC Capital Markets and its affiliates.

Please note that current conflicts disclosures may differ from those as of the publication date on, and as set forth in, this report. To access current conflicts disclosures, clients should refer to https://www.rbccm.com/GLDisclosure/PublicWeb/ DisclosureLookup.aspx?entityId=1 or send a request to RBC CM Research Publishing, P.O. Box 50, 200 Bay Street, Royal Bank Plaza, 29th Floor, South Tower, Toronto, Ontario M5J 2W7.

A member company of RBC Capital Markets or one of its affiliates managed or co-managed a public offering of securities for Toronto-Dominion Bank in the past 12 months.

A member company of RBC Capital Markets or one of its affiliates received compensation for investment banking services from Toronto-Dominion Bank in the past 12 months.

A member company of RBC Capital Markets or one of its affiliates expects to receive or intends to seek compensation for investment banking services from Toronto-Dominion Bank in the next three months.

RBC Capital Markets, LLC makes a market in the securities of Toronto-Dominion Bank.

RBC Dominion Securities Inc. makes a market in the securities of Toronto-Dominion Bank.

Royal Bank of Canada, together with its affiliates, beneficially owns 1 percent or more of a class of common equity securities of Toronto-Dominion Bank.

RBC Capital Markets is currently providing Toronto-Dominion Bank with investment banking services.

RBC Capital Markets has provided Toronto-Dominion Bank with investment banking services in the past 12 months.

RBC Capital Markets has provided Toronto-Dominion Bank with non-investment banking securities-related services in the past 12 months. Explanation of RBC Capital Markets Equity rating system An analyst's 'sector' is the universe of companies for which the analyst provides research coverage. Accordingly, the rating assigned to a particular stock represents solely the analyst's view of how that stock will perform over the next 12 months relative to the analyst's sector average. Although RBC Capital Markets' ratings of Top Pick (TP)/Outperform (O), Sector Perform (SP), and Underperform (U) most closely correspond to Buy, Hold/Neutral and Sell, respectively, the meanings are not the same because our ratings are determined on a relative basis. Ratings Top Pick (TP): Represents analyst's best idea in the sector; expected to provide significant absolute total return over 12 months with a favorable risk-reward ratio. Outperform (O): Expected to materially outperform sector average over 12 months. Sector Perform (SP): Returns expected to be in line with sector average over 12 months. Underperform (U): Returns expected to be materially below sector average over 12 months. Risk Rating

August 31, 2017 Darko Mihelic, CFA (416) 842-4128; [email protected] 16 Banks Toronto-Dominion Bank

As of March 31, 2013, RBC Capital Markets suspends its Average and Above Average risk ratings. The Speculative risk rating reflects a security's lower level of financial or operating predictability, illiquid share trading volumes, high balance sheet leverage, or limited operating history that result in a higher expectation of financial and/or stock price volatility. Distribution of ratings For the purpose of ratings distributions, regulatory rules require member firms to assign ratings to one of three rating categories - Buy, Hold/Neutral, or Sell - regardless of a firm's own rating categories. Although RBC Capital Markets' ratings of Top Pick(TP)/ Outperform (O), Sector Perform (SP), and Underperform (U) most closely correspond to Buy, Hold/Neutral and Sell, respectively, the meanings are not the same because our ratings are determined on a relative basis (as described above). Distribution of ratings RBC Capital Markets, Equity Research As of 30-Jun-2017 Investment Banking Serv./Past 12 Mos. Rating Count Percent Count Percent BUY [Top Pick & Outperform] 826 52.01 293 35.47 HOLD [Sector Perform] 657 41.37 144 21.92 SELL [Underperform] 105 6.61 7 6.67

References to a Recommended List in the recommendation history chart may include one or more recommended lists or model portfolios maintained by RBC Wealth Management or one of its affiliates. RBC Wealth Management recommended lists include the Guided Portfolio: Prime Income (RL 6), the Guided Portfolio: Dividend Growth (RL 8), the Guided Portfolio: ADR (RL 10), and the Guided Portfolio: All Cap Growth (RL 12), and former lists called the Guided Portfolio: Large Cap (RL 7), the Guided Portfolio: Midcap 111 (RL 9), and the Guided Portfolio: Global Equity (U.S.) (RL 11). RBC Capital Markets recommended lists include the Strategy Focus List and the Fundamental Equity Weightings (FEW) portfolios. The abbreviation 'RL On' means the date a security was placed on a Recommended List. The abbreviation 'RL Off' means the date a security was removed from a Recommended List. Equity valuation and risks For valuation methods used to determine, and risks that may impede achievement of, price targets for covered companies, please see the most recent company-specific research report at https://www.rbcinsight.com or send a request to RBC Capital Markets Research Publishing, P.O. Box 50, 200 Bay Street, Royal Bank Plaza, 29th Floor, South Tower, Toronto, Ontario M5J 2W7.

August 31, 2017 Darko Mihelic, CFA (416) 842-4128; [email protected] 17 Banks Toronto-Dominion Bank

Toronto-Dominion Bank Valuation Our 12-month price target of $72, which supports our Sector Perform rating, is based on a P/E multiple of 12.0x our 2018E core cash EPS and adding approximately $2 per share to reflect our estimate of excess capital. We value TD at a median-like multiple to peers – while we continue to see a more favorable growth outlook in its North American retail businesses, we see higher risk due to recent allegations surrounding sales practices in Canada.

Risks to rating and price target Risks to our price target and rating include the health of the overall economy, sustained deterioration in the capital markets environment, the Canadian and U.S. housing market, a failure of government programs, litigation and tax assessment risk, and greater than anticipated impact from off-balance sheet commitments. Additional risks include regulatory and political risk including tax rates, an unexpected acquisition, weakening retail credit quality, and loss of domestic market share. Damaging reports about TD's sales practices may increase shorter-term risk. Conflicts policy RBC Capital Markets Policy for Managing Conflicts of Interest in Relation to Investment Research is available from us on request. To access our current policy, clients should refer to https://www.rbccm.com/global/file-414164.pdf or send a request to RBC Capital Markets Research Publishing, P.O. Box 50, 200 Bay Street, Royal Bank Plaza, 29th Floor, South Tower, Toronto, Ontario M5J 2W7. We reserve the right to amend or supplement this policy at any time. Dissemination of research and short-term trade ideas RBC Capital Markets endeavors to make all reasonable efforts to provide research simultaneously to all eligible clients, having regard to local time zones in overseas jurisdictions. RBC Capital Markets' equity research is posted to our proprietary website to ensure eligible clients receive coverage initiations and changes in ratings, targets and opinions in a timely manner. Additional distribution may be done by the sales personnel via email, fax, or other electronic means, or regular mail. Clients may also receive our research via third party vendors. RBC Capital Markets also provides eligible clients with access to SPARC on the Firms proprietary INSIGHT website, via email and via third-party vendors. SPARC contains market color and commentary regarding subject companies on which the Firm currently provides equity research coverage. Research Analysts may, from time to time, include short-term trade ideas in research reports and / or in SPARC. A short-term trade idea offers a short-term view on how a security may trade, based on market and trading events, and the resulting trading opportunity that may be available. A short-term trade idea may differ from the price targets and recommendations in our published research reports reflecting the research analyst's views of the longer-term (one year) prospects of the subject company, as a result of the differing time horizons, methodologies and/or other factors. Thus, it is possible that a subject company's common equity that is considered a long-term 'Sector Perform' or even an 'Underperform' might present a short-term buying opportunity as a result of temporary selling pressure in the market; conversely, a subject company's common equity rated a long-term 'Outperform' could be considered susceptible to a short-term downward price correction. Short-term trade ideas are not ratings, nor are they part of any ratings system, and the firm generally does not intend, nor undertakes any obligation, to maintain or update short-term trade ideas. Short-term trade ideas may not be suitable for all investors and have not been tailored to individual investor circumstances and objectives, and investors should make their own independent decisions regarding any securities or strategies discussed herein. Please contact your investment advisor or institutional salesperson for more information regarding RBC Capital Markets' research. For a list of all recommendations on the company that were disseminated during the prior 12-month period, please click on the following link: https://rbcnew.bluematrix.com/sellside/MAR.action The 12 month history of SPARCs can be viewed at https://www.rbcinsight.com/CM/Login. Analyst certification All of the views expressed in this report accurately reflect the personal views of the responsible analyst(s) about any and all of the subject securities or issuers. No part of the compensation of the responsible analyst(s) named herein is, or will be, directly or indirectly, related to the specific recommendations or views expressed by the responsible analyst(s) in this report. Third-party-disclaimers

August 31, 2017 Darko Mihelic, CFA (416) 842-4128; [email protected] 18 Banks Toronto-Dominion Bank

The Global Industry Classification Standard (“GICS”) was developed by and is the exclusive property and a service mark of MSCI Inc. (“MSCI”) and Standard & Poor’s LLC (“S&P”) and is licensed for use by RBC. Neither MSCI, S&P, nor any other party involved in making or compiling the GICS or any GICS classifications makes any express or implied warranties or representations with respect to such standard or classification (or the results to be obtained by the use thereof), and all such parties hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability and fitness for a particular purpose with respect to any of such standard or classification. Without limiting any of the foregoing, in no event shall MSCI, S&P, any of their affiliates or any third party involved in making or compiling the GICS or any GICS classifications have any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages.

References herein to “LIBOR”, “LIBO Rate”, “L” or other LIBOR abbreviations means the London interbank offered rate as administered by ICE Benchmark Administration (or any other person that takes over the administration of such rate). Disclaimer

RBC Capital Markets is the business name used by certain branches and subsidiaries of the Royal Bank of Canada, including RBC Dominion Securities Inc., RBC Capital Markets, LLC, RBC Europe Limited, Royal Bank of Canada, Hong Kong Branch and Royal Bank of Canada, Sydney Branch. The information contained in this report has been compiled by RBC Capital Markets from sources believed to be reliable, but no representation or warranty, express or implied, is made by Royal Bank of Canada, RBC Capital Markets, its affiliates or any other person as to its accuracy, completeness or correctness. All opinions and estimates contained in this report constitute RBC Capital Markets' judgement as of the date of this report, are subject to change without notice and are provided in good faith but without legal responsibility. Nothing in this report constitutes legal, accounting or tax advice or individually tailored investment advice. This material is prepared for general circulation to clients and has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. The investments or services contained in this report may not be suitable for you and it is recommended that you consult an independent investment advisor if you are in doubt about the suitability of such investments or services. This report is not an offer to sell or a solicitation of an offer to buy any securities. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may occur. RBC Capital Markets research analyst compensation is based in part on the overall profitability of RBC Capital Markets, which includes profits attributable to investment banking revenues. Every province in Canada, state in the U.S., and most countries throughout the world have their own laws regulating the types of securities and other investment products which may be offered to their residents, as well as the process for doing so. As a result, the securities discussed in this report may not be eligible for sale in some jurisdictions. RBC Capital Markets may be restricted from publishing research reports, from time to time, due to regulatory restrictions and/ or internal compliance policies. If this is the case, the latest published research reports available to clients may not reflect recent material changes in the applicable industry and/or applicable subject companies. RBC Capital Markets research reports are current only as of the date set forth on the research reports. This report is not, and under no circumstances should be construed as, a solicitation to act as securities broker or dealer in any jurisdiction by any person or company that is not legally permitted to carry on the business of a securities broker or dealer in that jurisdiction. To the full extent permitted by law neither RBC Capital Markets nor any of its affiliates, nor any other person, accepts any liability whatsoever for any direct or consequential loss arising from any use of this report or the information contained herein. No matter contained in this document may be reproduced or copied by any means without the prior consent of RBC Capital Markets. Additional information is available on request.

To U.S. Residents: This publication has been approved by RBC Capital Markets, LLC (member FINRA, NYSE, SIPC), which is a U.S. registered broker-dealer and which accepts responsibility for this report and its dissemination in the United States. Any U.S. recipient of this report that is not a registered broker-dealer or a bank acting in a broker or dealer capacity and that wishes further information regarding, or to effect any transaction in, any of the securities discussed in this report, should contact and place orders with RBC Capital Markets, LLC. To Canadian Residents: This publication has been approved by RBC Dominion Securities Inc.(member IIROC). Any Canadian recipient of this report that is not a Designated Institution in Ontario, an Accredited Investor in British Columbia or Alberta or a Sophisticated Purchaser in Quebec (or similar permitted purchaser in any other province) and that wishes further information regarding, or to effect any transaction in, any of the securities discussed in this report should contact and place orders with RBC Dominion Securities Inc., which, without in any way limiting the foregoing, accepts responsibility for this report and its dissemination in Canada. To U.K. Residents: This publication has been approved by RBC Europe Limited ('RBCEL') which is authorized by the Prudential Regulation Authority and regulated by the Financial Conduct Authority ('FCA') and the Prudential Regulation Authority, in connection with its distribution in the United Kingdom. This material is not for general distribution in the United Kingdom to retail clients, as defined under the rules of the FCA. However, targeted distribution may be made to selected retail clients of RBC and its affiliates. RBCEL accepts responsibility for this report and its dissemination in the United Kingdom. To German Residents: This material is distributed in Germany by RBC Europe Limited, Frankfurt Branch which is regulated by the Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin). To Persons Receiving This Advice in : This material has been distributed in Australia by Royal Bank of Canada - Sydney Branch (ABN 86 076 940 880, AFSL No. 246521). This material has been prepared for general circulation and does not take into account the objectives, financial situation or needs of any recipient. Accordingly, any recipient should, before acting on this material, consider the appropriateness of this material having regard to their objectives, financial situation and needs. If this material relates to the acquisition or possible acquisition of a particular financial product, a recipient in Australia should obtain any relevant disclosure document prepared in respect of that product and consider that document before making any decision about whether to acquire the product. This research report is not for retail investors as defined in section 761G of the Corporations Act. To Hong Kong Residents: This publication is distributed in Hong Kong by Royal Bank of Canada, Hong Kong Branch, which is regulated by the Hong Kong Monetary Authority and the Securities and Futures Commission ('SFC'), RBC Investment Services () Limited and RBC Investment Management (Asia) Limited, both entities are regulated by the SFC. Financial Services provided to Australia: Financial services may be provided in Australia in accordance with applicable law. Financial services provided by the Royal Bank of Canada, Hong Kong Branch are provided pursuant to the Royal Bank of Canada's Australian Financial Services Licence ('AFSL') (No. 246521.) To Singapore Residents: This publication is distributed in Singapore by the Royal Bank of Canada, Singapore Branch, a registered entity granted offshore bank licence by the Monetary Authority of Singapore. This material has been prepared for general circulation and does not take into account the objectives, financial situation, or needs of any

August 31, 2017 Darko Mihelic, CFA (416) 842-4128; [email protected] 19 Banks Toronto-Dominion Bank

recipient. You are advised to seek independent advice from a financial adviser before purchasing any product. If you do not obtain independent advice, you should consider whether the product is suitable for you. Past performance is not indicative of future performance. If you have any questions related to this publication, please contact the Royal Bank of Canada, Singapore Branch. Royal Bank of Canada, Singapore Branch accepts responsibility for this report and its dissemination in Singapore. To Japanese Residents: Unless otherwise exempted by Japanese law, this publication is distributed in by or through RBC Capital Markets (Japan) Ltd. which is a Financial Instruments Firm registered with the Kanto Local Financial Bureau (Registered number 203) and a member of the Japan Securities Dealers Association ("JSDA"). .® Registered trademark of Royal Bank of Canada. RBC Capital Markets is a trademark of Royal Bank of Canada. Used under license. Copyright © RBC Capital Markets, LLC 2017 - Member SIPC Copyright © RBC Dominion Securities Inc. 2017 - Member Canadian Investor Protection Fund Copyright © RBC Europe Limited 2017 Copyright © Royal Bank of Canada 2017 All rights reserved

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