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Rating Action:

Moody's affirms The Toronto-Dominion Bank's ratings (deposits Aa1/Prime-1) and reviews First Horizon Corporation's ratings (Baa3 senior unsecured) for upgrade following acquisition announcement

01 Mar 2022

Toronto, March 01, 2022 -- Moody's Investors Service ("Moody's") has affirmed the ratings and assessments of The Toronto-Dominion Bank (TD) and its affiliates following its announcement that it has agreed to acquire First Horizon Corporation (First Horizon) for $13.4 billion. TD has an a1 standalone baseline credit assessment (BCA), Aa1/Prime-1 deposit ratings, an A1 junior senior unsecured rating, as well as Aa1/Prime-1 Counterparty Risk Ratings and Aa2(cr)/Prime-1(cr) Counterparty Risk Assessments. Following the ratings affirmation, TD's outlook remains stable.

In the same action, Moody's placed on review for upgrade the ratings and assessments of First Horizon Bank. First Horizon Bank has a Baa3 issuer rating, a baa2 standalone BCA, and a preferred stock non-cumulative rating of Ba2 (hyb).

"The acquisition of First Horizon extends TD's US banking franchise in some fast-growing markets in the US Southeast, which compliments TD's existing footprint" said Robert Colangelo, Vice President Senior Credit Officer. "Although this acquisition carries integration risk, Moody's has affirmed TD's ratings based on the bank's proven acquisition track record and its strong credit fundamentals", Mr. Colangelo added.

A complete list of affected ratings and entities within both banking groups can be found at the end of this press release.

RATINGS RATIONALE

The rating actions follows TD's announcement that it will acquire First Horizon, which had total assets of $89 billion and deposits of $75 billion as at 31 December 2021, in an all-cash transaction valued at $13.4 billion. The purchase price represents 2.1 times estimated tangible book value at closing, which, in Moody's view, heightens the importance of TD realizing its projected synergies, thereby raising execution risk for the bank. In addition, TD has agreed to invest $494 million in non-voting First Horizon preferred stock to support First Horizon's growth and franchise enhancement, including employee retention programs. Management expects the transaction to close by 31 January 2023, subject to shareholder and regulatory approvals.

In affirming TD's ratings, Moody's noted the bank's strong financial fundamentals. TD's a1 BCA, which was affirmed, is supported by its strong domestic retail franchise and retail-oriented business mix, which generate stable and recurring profits, strong asset quality, its peer-leading capitalization although this will decline post-closing, and very good liquidity, which protects against unexpected losses and market shocks, respectively. While Moody's views this acquisition as enhancing TD's overall market position in the competitive US market, it believes that the bank does not benefit in the US from the same franchise strength and pricing power that it has in Canada. TD's US banking operations are held in its US holding company, TD Bank US Holding Company, the direct parent of TD Bank, N.A. (collectively referred to as "TD US"). Although First Horizon has a weaker credit profile than TD's, the acquisition is unlikely to result in a weaker financial profile for TD. However, given that First Horizon is predominately a commercial bank, Moody's views the acquisition as increasing the overall credit risk profile of TD US. Management indicated that it would be taking a gross credit mark of $880 million, representing 1.61% of First Horizon's gross loans, with 90% of this allocated to its performing loans. This represents a good cushion to absorb future credit losses that may arise from First Horizon's loan portfolio.

TD US has a strong US Northeast franchise that is focused on personal and commercial banking, auto financing and wealth management services. The acquisition of First Horizon further expands TD's footprint in the US Southeast, adding over 400 banking centers to TD US' extensive branch network as well as providing TD US with growth opportunities in some of the fastest-growing markets in the US Southeast. In addition, First Horizon will benefit from rising interest rates, which will enhance TD US' overall profitability.

TD's capitalization is currently very strong, with a common equity tier 1 (CET1) capital ratio and a tangible common equity (TCE) to risk-weighted assets ratio of 15.2% and 16.1%, respectively as of 31 October 2021. Although this acquisition will weaken TD's capitalization, the bank expects its CET1 ratio to be above 11% at closing. In addition, TD separately announced that the automatic share purchase plan established for its normal course issuer bid will automatically terminate in accordance with its terms.

While this acquisition results in integration risks for TD, Moody's believes that these risks are mitigated by the bank's demonstrated integration track record. Recent examples include the acquisition of Wells Fargo's Canadian direct equipment finance business and Headlands Tech Global Market, LLC in 2021, as well as the acquisitions of Greystone Managed Investments Inc. in 2018 and Scottrade Bank in 2017.

Following the ratings affirmation, TD's outlook remains stable reflecting Moody's expectation that, following the closing of the acquisition, the bank's financial profile will remain broadly unchanged, and that its capital level will remain comfortably above its regulatory minimum, supported by its strong internal capital generation.

In the same action, Moody's placed First Horizon's ratings and assessments on review for upgrade. First Horizon will comprise about 15% of the combined assets and one-quarter of loans of the enlarged TD US, which has a stronger standalone credit profile than First Horizon. First Horizon's baa2 standalone BCA reflects its solid core retail banking franchise, good asset quality, and weaker-than-peer capitalization, as well as its heightened integration risk stemming from the bank's merger of equals with IBERIABANK Corporation, which resulted in a more geographically diverse loan and deposit franchise as well as provided opportunity for cost savings. The merger closed in July 2020 and core systems conversions occurred in February 2022.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Given TD's very high ratings, rating upgrades are unlikely. However, TD's BCA and ratings could be upgraded if the bank reduced its exposure to Canadian consumer credit card and auto finance debt, relative to TD's Canadian loan portfolio.

Moody's could downgrade TD's ratings if the bank encounters unexpected challenges or missteps in the integration of First Horizon, or if TD's asset quality in the US were to worsen materially as a result of the acquisition, or if TD significantly increases its reliance upon capital markets earnings that could result in earnings volatility or increased its market risk exposures as measured by VaR. TD's ratings could also be downgraded if its TCE ratio was to drop below 10% following the closing of the acquisition or if it were to issue a lower amount of junior senior unsecured debt than planned, which would reduce protection for its senior creditors.

For First Horizon, Moody's review for upgrade will focus on the likely benefit from the increased scale and diversification of the acquisition by TD. If the acquisition does not close as expected, First Horizon's BCA and ratings could be confirmed if it maintains its current financial profile.

Absent the acquisition by TD, First Horizon's BCA could be upgraded following a sustained improvement capitalization and demonstration of bondholder-friendly approach to capital management, while maintaining good asset quality performance.

First Horizon's BCA could be downgraded if capitalization weakens and/or asset quality deteriorates significantly in either its own originated loan book, or recently acquired loan portfolios.

The principal methodology used in these ratings was Banks Methodology published in July 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1269625. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Affirmations:

..Issuer: Toronto-Dominion Bank (The)

.... Adjusted Baseline Credit Assessment, Affirmed a1

.... Baseline Credit Assessment, Affirmed a1

.... LT Counterparty Risk Assessment, Affirmed Aa2(cr)

.... ST Counterparty Risk Assessment, Affirmed P-1(cr)

.... LT Counterparty Risk Rating (Foreign Currency), Affirmed Aa1

.... ST Counterparty Risk Rating (Foreign Currency), Affirmed P-1

.... LT Counterparty Risk Rating (Local Currency), Affirmed Aa1

.... ST Counterparty Risk Rating (Local Currency), Affirmed P-1

.... LT Issuer Rating, Affirmed A1, Stable

.... ST Deposit Rating (Foreign Currency), Affirmed P-1

.... ST Deposit Rating (Local Currency), Affirmed P-1

.... LT Deposit Rating (Foreign Currency), Affirmed Aa1, Stable

.... LT Deposit Rating (Local Currency), Affirmed Aa1, Stable

.... Junior Subordinated Medium-Term Note Program (Local Currency), Affirmed (P)A2

.... Junior Subordinated Regular Bond/Debenture (Local Currency), Affirmed A2 (hyb)

.... Junior Subordinated Regular Bond/Debenture (Foreign Currency), Affirmed A2 (hyb)

.... Junior Senior Unsecured Medium-Term Note Program (Foreign Currency), Affirmed (P)A1

.... Junior Senior Unsecured Medium-Term Note Program (Local Currency), Affirmed (P)A1

.... Junior Senior Unsecured Regular Bond/Debenture (Foreign Currency), Affirmed A1, Stable

.... Junior Senior Unsecured Regular Bond/Debenture (Local Currency), Affirmed A1, Stable

.... Other Short Term (Foreign Currency), Affirmed (P)P-1

.... Other Short Term (Local Currency), Affirmed (P)P-1

.... Pref. Stock Non-cumulative (Local Currency), Affirmed Baa1 (hyb)

.... Pref. Stock Non-cumulative (Foreign Currency), Affirmed Baa1 (hyb)

.... Subordinate Regular Bond/Debenture (Local Currency), Affirmed A2

.... LT Deposit Note/CD Program (Foreign Currency), Affirmed (P)Aa1

.... LT Deposit Note/CD Program (Local Currency), Affirmed Aa1, Stable

.... LT Deposit Note/CD Program (Foreign Currency), Affirmed Aa1, Stable

.... Commercial Paper (Foreign Currency), Affirmed P-1

.... Senior Unsecured Medium-Term Note Program (Local Currency), Affirmed (P)Aa2

.... Senior Unsecured Medium-Term Note Program (Foreign Currency), Affirmed (P)Aa2

.... Subordinate Medium-Term Note Program (Foreign Currency), Affirmed (P)A2

.... Subordinate Medium-Term Note Program (Local Currency), Affirmed (P)A2

.... Senior Unsecured Regular Bond/Debenture (Foreign Currency), Affirmed Aa2, Stable

..Issuer: TD Bank US Holding Company

.... LT Issuer Rating, Affirmed A1, Stable

..Issuer: TD Bank, N.A.

.... Adjusted Baseline Credit Assessment, Affirmed a1

.... Baseline Credit Assessment, Affirmed a2

.... LT Counterparty Risk Assessment, Affirmed Aa3(cr)

.... ST Counterparty Risk Assessment, Affirmed P-1(cr)

.... LT Counterparty Risk Rating (Foreign Currency), Affirmed A1

.... LT Counterparty Risk Rating (Local Currency), Affirmed A1

.... ST Counterparty Risk Rating (Foreign Currency), Affirmed P-1

.... ST Counterparty Risk Rating (Local Currency), Affirmed P-1

.... LT Issuer Rating, Affirmed A1, Stable

.... ST Deposit Rating (Local Currency), Affirmed P-1

.... LT Deposit Rating (Local Currency), Affirmed Aa2, Stable

..Issuer: TD Group US Holdings LLC

.... LT Issuer Rating (Local Currency), Affirmed A2, Stable

..Issuer: Toronto Dominion Bank (London)

.... LT Counterparty Risk Assessment, Affirmed Aa2(cr)

.... ST Counterparty Risk Assessment, Affirmed P-1(cr)

.... LT Counterparty Risk Rating (Foreign Currency), Affirmed Aa1

.... ST Counterparty Risk Rating (Foreign Currency), Affirmed P-1

.... LT Counterparty Risk Rating (Local Currency), Affirmed Aa1

.... ST Counterparty Risk Rating (Local Currency), Affirmed P-1

.... Junior Senior Unsecured Deposit Note/CD Program (Foreign Currency), Affirmed (P)A1

.... LT Deposit Note/CD Program (Foreign Currency), Affirmed (P)Aa1

.... ST Deposit Note/CD Program (Foreign Currency), Affirmed (P)P-1

.... Subordinate Medium-Term Note Program (Foreign Currency), Affirmed (P)A2

.... Senior Unsecured Medium-Term Note Program (Foreign Currency), Affirmed (P)Aa2

.... Other Short Term (Foreign Currency), Affirmed (P)P-1

.... Commercial Paper (Foreign Currency), Affirmed P-1

..Issuer: Toronto Dominion Global Finance

.... BACKED Senior Unsecured Medium-Term Note Program (Foreign Currency), Affirmed (P)Aa2

.... BACKED Other Short Term (Foreign Currency), Affirmed (P)P-1

..Issuer: Toronto Dominion Holdings (U.S.A.), Inc.

....BACKED Commercial Paper (Local Currency), Affirmed P-1

..Issuer: Toronto-Dominion Bank, New York Branch

.... LT Counterparty Risk Assessment, Affirmed Aa2(cr)

.... ST Counterparty Risk Assessment, Affirmed P-1(cr)

.... LT Counterparty Risk Rating (Foreign Currency), Affirmed Aa1

.... ST Counterparty Risk Rating (Foreign Currency), Affirmed P-1

.... LT Counterparty Risk Rating (Local Currency), Affirmed Aa1

.... ST Counterparty Risk Rating (Local Currency), Affirmed P-1

.... LT Bank Deposits (Local Currency), Affirmed Aa1, Stable

On Review for Upgrade:

..Issuer: First Horizon Bank

.... Adjusted Baseline Credit Assessment, Placed on Review for Upgrade, currently baa2

.... Baseline Credit Assessment, Placed on Review for Upgrade, currently baa2

.... ST Counterparty Risk Assessment, Placed on Review for Upgrade, currently P-2(cr)

.... LT Counterparty Risk Assessment, Placed on Review for Upgrade, currently Baa1(cr)

.... ST Counterparty Risk Rating (Foreign Currency), Placed on Review for Upgrade, currently P-2

.... ST Counterparty Risk Rating (Local Currency), Placed on Review for Upgrade, currently P-2

.... LT Counterparty Risk Rating (Foreign Currency), Placed on Review for Upgrade, currently Baa2

.... LT Counterparty Risk Rating (Local Currency), Placed on Review for Upgrade, currently Baa2

.... LT Issuer Rating, Placed on Review for Upgrade, currently Baa3, Outlook changed to Rating Under Review from Stable

.... ST Deposit Rating (Local Currency), Placed on Review for Upgrade, currently P-2

.... Pref. Stock Non-cumulative (Local Currency), Placed on Review for Upgrade, currently Ba2 (hyb)

.... Subordinate Regular Bond/Debenture (Local Currency), Placed on Review for Upgrade, currently Baa3

.... LT Deposit Rating (Local Currency), Placed on Review for Upgrade, currently A3, Outlook changed to Rating Under Review from Stable

..Issuer: First Horizon Corporation

.... LT Issuer Rating, Placed on Review for Upgrade, currently Baa3, Outlook changed to Rating Under Review from Stable

.... Pref. Stock Non-cumulative (Local Currency), Placed on Review for Upgrade, currently Ba2 (hyb)

.... Senior Unsecured Regular Bond/Debenture (Local Currency) , Placed on Review for Upgrade, currently Baa3, Outlook changed to Rating Under Review from Stable

..Issuer: First Tennessee Real Estate Securities Co Inc

.... Pref. Stock (Local Currency), Placed on Review for Upgrade, currently Ba1 (hyb)

Outlook Actions:

..Issuer: Toronto-Dominion Bank (The)

....Outlook, Remains Stable

..Issuer: TD Bank US Holding Company

....Outlook, Remains Stable

..Issuer: TD Bank, N.A.

....Outlook, Remains Stable

..Issuer: TD Group US Holdings LLC

....Outlook, Remains Stable

..Issuer: Toronto Dominion Bank (London)

....Outlook, Remains Stable

..Issuer: Toronto-Dominion Bank, New York Branch

....Outlook, Remains Stable

..Issuer: First Horizon Bank

....Outlook, Changed To Rating Under Review From Stable

..Issuer: First Horizon Corporation

....Outlook, Changed To Rating Under Review From Stable

..Issuer: First Tennessee Real Estate Securities Co Inc

....Outlook, Changed To Rating Under Review From No Outlook

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

The below contact information is provided for information purposes only. Please see the ratings tab of the issuer page at www.moodys.com, for each of the ratings covered, Moody's disclosures on the lead rating analyst and the Moody's legal entity that has issued the ratings.

The relevant office for each credit rating is identified in "Debt/deal box" on the Ratings tab in the Debt/Deal List section of each issuer/entity page of the website.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Robert Colangelo
VP - Senior Credit Officer
Financial Institutions Group
Moody's Canada Inc.
70 York Street
Suite 1400
Toronto, ON M5J 1S9
Canada
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Andrea Usai
Associate Managing Director
Financial Institutions Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Canada Inc.
70 York Street
Suite 1400
Toronto, ON M5J 1S9
Canada
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
© 2022 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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Additional terms for Japan only: Moody's Japan K.K. (“MJKK”) is a wholly-owned credit rating agency subsidiary of Moody's Group Japan G.K., which is wholly-owned by Moody’s Overseas Holdings Inc., a wholly-owned subsidiary of MCO. Moody’s SF Japan K.K. (“MSFJ”) is a wholly-owned credit rating agency subsidiary of MJKK. MSFJ is not a Nationally Recognized Statistical Rating Organization (“NRSRO”). Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Non-NRSRO Credit Ratings are assigned by an entity that is not a NRSRO and, consequently, the rated obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ are credit rating agencies registered with the Japan Financial Services Agency and their registration numbers are FSA Commissioner (Ratings) No. 2 and 3 respectively.

MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any credit rating, agreed to pay to MJKK or MSFJ (as applicable) for credit ratings opinions and services rendered by it fees ranging from JPY100,000 to approximately JPY550,000,000.

MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.

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