FOCUSING ON THE FUTURE
TD remained focused on the future in 1998 while dealing with the current realities of volatile financial markets and the changing face of competition in financial services – in Canada and around the world. The global financial services industry changed dramatically during the year.

Major mergers in the U.S. and elsewhere changed the benchmarks for competitive world-class institutions. New global giants have leapt ahead in terms of resources, technologies and economies of scale and scope, spreading their costs over much larger volumes and customer bases. A number of them have targeted Canada, creating new levels of competition in businesses including credit cards, deposit-taking, small business lending and mutual funds.

This has intensified the need to transform TD Bank Financial Group into a financial institution for the 21st century – pursuing avenues of growth with the best prospects of future value for shareholders. We saw our proposed merger with the Canadian Imperial Bank of Commerce as an opportunity to generate long-term shareholder value by moving forward as one of the new giant global competitors – accelerating our progress.

While we are disappointed the Government of Canada has not permitted us to realize the advantages of the proposed merger, TD Bank Financial Group will continue to seek out other opportunities to build shareholder value – in North America and beyond. We have exceptional core businesses and people. We will focus on these strengths and move forward. And we will pursue other opportunities to help us achieve greater scope, scale and success in our chosen businesses.

FOCUSING ON CORE BUSINESSES: PROGRESS AGAINST STRATEGIES
While the merger proposal absorbed significant energies, we remained firmly focused on our strategic priorities in 1998. Our fundamental strategy for building shareholder value remains intact – investing in high-growth, high-return businesses where we believe we can achieve success by making it easier for customers. Our strategic priorities are based on preparing for the future – and investing capital in the areas of greatest potential future returns.

In 1998, we made progress with three strategic priorities: investing in wealth management businesses, repositioning our retail banking business and completing the build of our investment dealer, TD Securities. In keeping with these strategic priorities – which require the allocation of our equity capital to the areas of greatest potential returns over the long term and divesting those whose return potential is unsatisfactory – we divested our payroll business during the year. This was a high volume, low margin business where we were not a big enough player to generate satisfactory returns for shareholders, nor were we likely to reach sufficient size in the future.

Investing in wealth management businesses
Several years ago, we targeted wealth management as our primary opportunity to differentiate ourselves in retail financial services and we continued to build our business in 1998. Most significantly, we enhanced our leadership in discount brokerage, expanding our global franchise with key acquisitions and moving into the #2 position in the world. During the year, we integrated California-based Kennedy, Cabot & Co. into Waterhouse in the United States, and we acquired Jack White & Company, another California-based leader. In Australia, we merged Pont Securities with newly-acquired Rivkin Croll Smith and launched these operations under the Green Line brand name. We acquired Gall & Eke Limited, a significant discount broker in the U.K., creating a platform for expansion in Europe. As well, we continued to drive technology to help make it easier for customers to do business with us, as demonstrated by strong growth in our WebBroker Internet brokerage offering at Waterhouse and Green Line – and by the fact that Waterhouse was ranked the best discount broker in the U.S. by The Wall Street Journal's Smart Money magazine.

At the same time, we expanded our TD Evergreen full service brokerage branch network by close to 25%. We also continued to build our mutual fund businesses – with new funds, new services, new technologies and an ongoing focus on staff training and investor education. This focus is reflected in the fact that, for the fourth year in a row, TD branches were ranked #1 among major financial institutions in customer service and advice for mutual funds.

While making substantial investments for future growth, we achieved record revenues and net income from our wealth management businesses – all of which weathered the market turbulence in the latter part of the year extremely well.

Moving forward, we will continue to build our wealth management businesses and, in particular, we will seek out opportunities to expand our global discount brokerage franchise.

Repositioning retail banking
In the face of increasing competition and new technologies, we have been working hard to reposition our retail banking business – to help make it easier and more convenient for customers while reducing costs, enhancing service levels and transforming our branches into sales and service centres. This strategy is vital; while branches are expensive delivery channels for basic transactions, they provide effective distribution channels for high value financial products and services to our customers.

During 1998, we continued to expand electronic banking convenience with the introduction of Web Banking. We focused on developing more convenient branch locations – reaching people where they shop with our TD in-store initiative. We launched a mobile force of Financial Planners to reach more customers. We increased choice with attractive new deposit products and credit cards. We enhanced and expanded our TD Main$treet Banking services for small businesses. As well, we established mid-market teams covering market areas across Canada – bringing high levels of expertise into local communities for commercial customers.

These initiatives contributed to market share gains in core businesses and led to high satisfaction ratings from customers – positioning us for a future in which competition from new entrants and U.S.-based giants will intensify.

Moving forward, we will continue to invest in electronic banking alternatives to make it easier for customers and we will continue to build the distribution capabilities of our branch network in terms of higher value products. To this end, we are hopeful that the federal government will allow the sale of insurance and personal leasing through the branches, increasing competition to the benefit of consumers. We are also exploring opportunities to expand our distribution of third-party financial products and services in addition to our own. TD branches have demonstrated leadership in this area, distributing a range of competitors’ mutual funds, commercial paper and securities – meeting our customers’ needs by providing a broad choice while generating growth in our valuable retail franchise.

Building TD Securities
We completed the build of TD Securities in 1998; we now have capabilities in all key areas in the Canadian market and selected international markets, enabling us to compete head to head with other major securities dealers. Equally important, with our integrated corporate and investment banking approach and high level of industry specialization, we are able to meet the complex needs of our corporate clients by providing a full range of financing alternatives.

Our progress in developing a competitive securities dealer has been real and measurable. The Financial Post ranked us as the fourth largest dealer in Canada – up from fifth the previous year. And TD Securities was ranked by Euromoney magazine as the best securities firm in Canada.

Our strengths in key areas helped TD withstand the extreme volatility in financial markets experienced in the latter part of the year. For instance, the strengths we have developed in recent years in the fixed income area and related interest-based businesses helped offset setbacks in our equity-related businesses. While continuing to build and invest, we have been responding to market realities to ensure enhancement of shareholder value. We have moderated compensation and expense growth, and we exited our U.S. institutional equities business in New York, where we saw little prospect of satisfactory returns.

Now that the fundamental build of TD Securities has been completed, we will focus more closely on the corporate and investment banking businesses that deliver the best returns on capital over an economic cycle.

IMPROVING THE BUSINESS BALANCE
TD has been well served by being a balanced bank – strong in both retail and wholesale businesses. In assessing the areas of highest potential return to shareholders over the longer term, we recognize the value in retail/wholesale diversification. At the same time, we believe that increasing our investments in retail businesses will deliver greater value to shareholders. At present, 48% of TD’s capital is deployed in retail businesses and 52% in wholesale. Over the longer term, our target is to exceed 60% in retail through internal growth and acquisitions while continuing to meet the needs of our corporate and institutional clients. New capital allocation within our wholesale businesses will support strong individual businesses such as our top rated loan syndication, foreign exchange, trade finance and high returning securities businesses – businesses which are less capital intensive than traditional credit.

MOVING FORWARD
Our business environment will be difficult in the year ahead. We anticipate slower economic growth in Canada and in key markets around the world, continued volatility in major financial markets and emerging markets. In Canada, we anticipate increased competition from domestic and foreign financial institutions – particularly if the government opens up the payments system and provides foreign banks with greater access to our lending markets. As well, we will be completing and testing our Year 2000 computer-readiness program, which has been absorbing considerable resources.

In dealing with the new competitive realities of global financial services, we will continue to make the most of the exceptional people, businesses and franchises of TD Bank Financial Group. A challenging year lies ahead – but we are confident of further progress, as TD people have clearly demonstrated their ability to focus on customers and rise to every challenge.

A. Charles Baillie
Chairman and Chief Executive Officer

William T. Brock
Deputy Chairman

If you would like a printed copy of the complete 1998 TD Annual Report, please contact (416) 982-8578, Corporate & Public Affairs or write to Corporate & Public Affairs, P.O. Box 1, TD Centre, 19th Floor, TD Tower, Toronto, Ontario, M5K 1A2 or e-mail tdinfo@tdbank.ca.