Investor Presentaiton
First Horizon Acquisition
Mitigation of Interest Rate Volatility to Closing Capital
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Purchase accounting requires TD to fair value First Horizon's assets and liabilities at closing
Since fair values are sensitive to interest rates, changes in rates will impact the fair values and therefore the amount of
goodwill and capital, relative to the Bank's assumptions at announcement (illustration below)
During Q3, TD implemented a strategy to mitigate interest rate volatility to capital upon closing of the acquisition
TD
To achieve this, the Bank de-designated certain interest rate swaps hedging fixed income investments in fair value hedge
accounting relationships
This strategy did not involve any new market transactions and is therefore economically neutral and costless
The mark-to-market gains or losses on the de-designated swaps are expected to mitigate the capital impact of fluctuations in
goodwill that will arise as interest rates change
Values shown below are illustrative and reflect the estimated impact of changes in interest rates, First Horizon's Balance sheet,
and other assumptions. Actual results may vary.
Illustrative Example
US$B
Announcement
Assumptions
At time of Hedge
+50 bps
increase
Change in Term Interest Rates
-50 bps
decrease
Purchase Price
13.4
13.4
13.4
13.4
Fair Value
5.7
4.2
3.8
4.6
Goodwill & Intangibles
7.7
9.2
9.6
8.8
Impact to Capital
Goodwill & Intangibles
(7.7)
(9.2)
(9.6)
(8.8)
Hedge MTM, gain/(loss)
0.0
0.0
0.4
(0.4)
Total
(7.7)
(9.2)
(9.2)
(9.2)
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