Q1 2020 Earnings Call
Oh I can see good. Thank you for linear complicates now beginning good afternoon, ladies and gentlemen, welcome to the Q1 Twentytwenty, meaning conference call I would like to turn the meeting which will give me a lot Inc. Please go ahead, it's neat.
Thank you operator.
Good afternoon, and welcome to TD Bank groups first quarter 2020 investor presentation.
We will begin today's presentation, which remarks from Barrington, its Ronnie the bank CEO after which relies on the bank CFO will present, our first quarter operating results.
On the Wanli Chief Risk Officer will then offer comments on credit quality after which we will invite questions from prequalified analysts and investors on the phone.
Also present today to answer your questions are Terry Curry group had Canadian personal banking, Greg rocket President and CEO TD Bank America's most convenient bank and Bob Dorrance group had wholesale banking.
Please turn to slide two.
At this time I would like to caution listeners that this presentation contains forward looking statements that their risks that actual results could differ materially from what is discussed and that certain material factors or assumptions were applied in making these forward looking statements.
Any forward looking statements contained in this presentation represent if use of management and are presented for the purpose. It assisting the bank shareholders and analysts in understanding the bank financial position objectives, and priorities and anticipated financial performance.
<unk> looking statements may not be appropriate for other purposes.
I'd also like to remind listeners that the bank uses non-GAAP financial measures to arrive at adjusted results to assess each of its businesses and to measure overall bank performance. The bank believes that adjusted results provide meters with a better understanding of how management views the banks performance.
We'll be referring to adjusted results in his remarks.
Additional information on items of note the banks reported results and factors and assumptions related to forward looking information or all available in our Q1 2020 report to shareholders.
With that let me turn the presentation over to their it.
Thank you Judy and then thank you everyone for joining us today.
Q1 was a solid quarter would D earnings rose, 4% to $3.1 billion, and Dps was up 6% to $1.66.
Do you agree at 6% on strong volume growth and record wholesale revenue as the lessons weve been making it our people and gave abilities enable us to continue acquiring more customers and doing more business with them.
We maintained a strong capital position, we see the one ratio ending the quarter at 11.7%, including the impact from I bought at 16, and the repurchase of war 4 million common shares.
We also declared a five cents dividend increase today, bringing a dividend per share to 79 cents for the quarter up 7% from a year ago.
Maybe a compound annual growth rate of 9%.
I'm pleased with outperformance this quarter, which saw us.
Some significant headwinds.
Let me highlight a few had gone accomplishments that speak to the about about strategy that's success in executing on it.
In December.
TD Bank Americas, most convenient being ranked number one in the JD powers 2019, you as national banking satisfaction study.
This is our first ever national drove.
The first year that we were eligible for the survey.
The wind is all the more meaningful given the peer group, which includes some of the nations largest and most storied bags menu, which operate goes to close.
We followed a disciplined strategies is entering the U.S. market keeping our customers at the center of everything we do.
I couldn't be more brown.
He is the relentless focus on providing legendary unexpectedly human experiences.
Or does this milestone recognition.
And this survey.
Right, that's among national banks will both store experience and online satisfaction.
That's what our omni channel strategy is all about.
At TD delivering for our customers in branches in stores as well as online and mobile.
That's it was low.
As I said, the digital dues and the personalization convenience and security they offer.
In Canada, a banking App is consistently a.
Okay got it consistently ranked number one but adoption engagement and customer satisfaction and in the U.S.
Rob is ranked in the adopted.
With the largest digital big in Canada active mobile user base is up 12% from a year ago Cross out of North American footprint to 5.4 million users in Canada, and 3.4 million users in the U.S.
Our omni channel strategy is about giving customers the advice they need to feel more confident about the potential future.
That's the problem is behind the de she'll, it's a message that is being heard loud and clear.
This quarter.
He was named number one brand in Canada, and the 13th most valuable banking brand globally. According to Brent Finance.
Brand promise is a commitment we dig seriously in each of our businesses.
I will turn to them, though.
Canadian retail delivered earnings a $1.8 billion this quarter.
We saw strong volume growth offset by continued normalization of credit provisions as well as higher expense growth as we continue to invest in up business, including adding nearly 1500 advisors and customer facing colleagues across our businesses.
But the second half of the year, we expect the rate of expense growth to moderate given that the dollar level of expenses has now stabilized.
We continue to make significant progress winning more customers.
Helping them get to yes, faster and making it more personal who are focused on end to end journeys and omni channel platforms.
In personal and commercial banking, a future ready branch transformation strategies equipping of frontline themes with the resources and trading to support more to advice conversations.
And do like easy apply home, what does journey and de de clarity on enabling customers to engage with us in their channel of choice.
We are seeing benefits.
Robust loan and deposit growth, including record resolution nations in this quarter.
We also continued to extend our leadership in the guards fees building on the successful realignment of August <unk> Consumer Guard line up.
Over the last two years, we refreshed our suite of business cards this quarter.
Features that provide customers with greater flexibility like more affordable interest rate options and ways to accelerate accumulation of reward points.
Also gearing up for the rollout of de Aeroplan Guards went air Canada unveiled its new loyalty program, we look forward to sharing more with you soon.
I was business recorded 7% earnings growth and 40% retail net asset growth as customers entrusted us with more of their business.
The second you're in a row did you direct investing one top spot among Canadian banks in the global males annual ranking of online brokers with TD web broker recognized for tools that help people understand how their portfolios are performing and how well they're doing relative to the financial goals.
And on the heels of last quarter's multiple wins at the Lipper Awards GE asset management at one eight awards in multiple asset classes and the fun data fun grade eight plus awards demonstrating diaz in management's commitment.
Delivering exceptional long term investment solutions for clients.
And our insurance business the investments we made it all claims platform are being up in topline revenue growth as stronger share of voice with gross written premiums up 15% and do you enjoy reserving the strongest red bar in Canada is determined by Millward Brown's latest ride dynamics.
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Turning to the U.S.
You as regional Bank generated earnings of 717 million U.S. Dollarss million you as always this quarter up 2% from a year ago.
<unk> volume growth was offset by margin compression as we absorbed last years three fed rate cuts.
The contribution from TD Ameritrade down as expected following the elimination of trading commissions segment earnings declined 7% to 869 million U.S. dollars.
Well you as retail bank earnings growth was more subdued this quarter, we continue to add new households, and girls Oregon's you're driving volume growth was store network as well as online and digitally.
Digital mortgage offering we launched last fall is seeing increased take up and we've added a digital home equity functionality accessible in desktop and mobile formats.
Overall across our North American retail businesses the investments, we're making good hands I gave me abilities improve our productivity and transformed the being for the digital age are delivering tangible benefits for our customers today, well positioning us to serve them better in the future.
Oh thing, but our wholesale banking segment had a strong quarter with $281 million in earnings revenue was $1 billion on higher trading related revenue and underwriting fees as we continued to grow and up to your banking in the corporate lending relationships that day children.
Okay that product areas, reflecting investments in a U.S. dollar strategy.
A global markets business performed very well with broad based strength across products and geographies.
Yes, if there's ways or radio spreads would do these securities. We led the debut Sterling benchmark bond issue for the World Banks International Development Association or.
We also made further progress diversifying a U.S. dollar investment grade.
DCM business with several new corporate origination mandates this quarter, serving his book runner on Duke Energy is Florida, Duke Energy Floridas 700 million U.S. dollar 10 year Green bond and Deutsche Telekom's 1.25 billion U.S. dollar 30 year benchmark transaction.
Corporate and investment banking business had a solid water with several key wins a flagship Canadian franchise was the sole advisor dreamed global read on the 6.2 billion Canadian dollar acquisition by Blackstone, signifying the trust Weve earned with Eagle.
Lines in the industry.
We acted as school either enjoyed a joint book runner on logistics.
300 million dollar for your revolving credit facility and enhancing our competitive position into Montreal market.
And we strengthened our north American real estate investment banking franchise with the addition of a deem from Kimberlite group.
Dziedzic real estate advisory and private capital raising from based in New York Elevating the advisory capabilities, we get off what our North American real estates line base across TD Securities and U.S. Regional Bank.
You're off to a good start in fiscal Twentytwenty.
As we said on out you will recall, we expect full year EPS growth to be moderate again this year.
But the Boston there may be bumpy on a year over year basis, given out 2019 quarterly EPS profile.
And as we continue to absorb last falls.
Great gods and the high level of expenses in our retail segments in the first half of this year.
Well the macroeconomic conditions continue to fluctuate and emerging risks like the Corona virus like reading uncertainty and market volatility. We will remain focused strategy harnessing the strength of our diversified model to grow our business and fulfill our purpose of enriching the lives.
Customers colleagues and communities.
We've had many opportunities to do that over the last quarter.
In December we announced the 10 Grand winners of the TD ready challenge.
The receipt $1 million each for the work advancing medical innovations across North America.
Mitigating geographic financial another barriers to help get.
We just wrapped up our 10th annual de de Black is three month series. This year, we sponsored nearly 100 events celebrating music arts and culture across Canada, and the U.S., providing a platform for leaders in orders to share their personal perspectives on the ongoing effort to build more inclusive.
Unit is.
The diversity, we celebrated the communities around us is a reflection of who we are a D.D.
We were on a this quarter to be recognize what a unique and inclusive employee culture on several fronts as one of Canada stop employers will young people like mediocre well Forbes best employers for diversity in the U.S.
And a member of the Bloomberg gender equality index for the fourth consecutive year.
Our people our greatest asset and the best ambassadors of the de de Brent I.
I would like to thank all of them for their passion and dedication to make T.D. the better Big every day.
That is doing things over three years, yes.
Thank you Barbara Good afternoon, everyone. Please turn to slide seven.
This quarter, a bank reported earnings of $3 billion and EPS of $1.61.
Adjusted earnings were just under $3.1 billion and adjusted EPS was $1.66.
Revenue increased 6%, reflecting volume growth in the retail segments and record revenue in wholesale.
Revisions for credit losses increased to $919 million up 3% from the prior quarter on higher impaired PCL.
Expenses decreased 7% on a reported basis, reflecting prior charges related to the agreement that air Canada.
Adjusted expenses increased 5%, reflecting higher spend supporting business initiatives and volume growth and changes in pension costs, partially offset by continued productivity savings.
Turning to slide it.
Canadian retail net income was $1.8 billion up 30% year over year, reflecting charges related to the are kinda loyalty agreement a year ago.
On an adjusted basis net income decreased 2% as revenue growth was offset by higher expenses credit losses and insurance claim.
Revenue increased by 4%, primarily reflecting volume growth.
Average loans grew 4% and deposits increased 7% year over year, reflecting growth in both personal and business volumes.
And wealth assets grew 10%.
Martin was 2.94% a decrease of two basis points from the prior quarter.
Reflecting seasonality and the impact of interest expense relating to lease liabilities recorded upon adoption of the IR 16 standard for leases.
Total PCL decreased 2% quarter over quarter with decreases in impaired and performing PCL.
Total PCL, there's an annualized percentage of credit walking was 36 basis points down one basis point quarter over quarter.
Expenses decreased 15%, reflecting prior charges related to the are kinda agreement.
An adjusted basis expenses rose, 7%, reflecting higher span supporting the business initiatives that merit described earlier walliams driven expenses and changes in pension costs, partially offset by a reduction in operating expense, resulting from the adoption of five or a 16.
U.S. retail net income was U.S. $869 million down 7% year over year.
The contribution from Tt's investment and TD Ameritrade decrease the U.S. $152 million, primarily reflecting reduced trading commission fee rates and higher operating expenses, partially offset by higher trading volumes.
The U.S. retail bank reported earnings were up 2% year over year, reflecting loan and deposit growth and a lower provision for income taxes.
Partially offset by lower deposit margins and higher PCL.
Average loan volumes increased 5% year over year, reflecting growth in a personal and business customer segments.
Deposit volumes, excluding that TD ameritrade sweep deposits were up 7%, including 6% growth in core consumer checking accounts.
Net interest margin was 3.07% down 11 basis points sequentially, primarily reflecting lower deposit margins and the impact of interest expense relating to the adoption of 516.
Total PCL, including only the banks contractual portion of credit losses, and the strategic cards portfolio was $243 million $20 million from the prior quarter.
The U.S. retail net PCL ratio was 59 basis points up four basis points from the last quarter.
Expenses were flat year over year, primarily reflecting higher employee related and volume driven expenses, partially offset by productivity savings and a reduction in operating expenses, resulting from the adoption of five car 16.
Segment, our OE was 11.1%.
Please turn to slide 10.
Net income for wholesale was $281 million, an increase of $298 million from the net loss of 17 million recorded into first quarter last year.
Revenue was a record $1 billion, reflecting higher trading related revenue and underwriting fees.
Improved from Q1 off last year, when the business experienced challenging market conditions.
PCL decreased quarter over quarter, as a declining performing PCL, reflecting migration from performing to impair more than offset higher impaired.
Expenses are $652 million, reflecting higher variable compensation securities lending fees and underwriting costs consistent with increased revenues.
Please turn to slide 11.
The corporate segment reported a net loss of $227 million into quarter compared to a net loss of $592 million into first quarter last year.
Reported net loss increased primarily due to a lower contribution from other items and non controlling interests.
Other items decreased primarily reflecting a 43 million dollar after tax adjustment related to hedge accounting, which are the earn back overtime.
Partially offset by higher revenue from other treasury and balance sheet management activities recognized in the current quarter.
Adjusted net loss as a $168 million compared with an adjusted net loss of $525 million into first quarter last year.
Please turn to slide 12.
[noise], our common equity tier one ratio was 11.7% at the end up the first quarter down 37 basis points from the fourth quarter.
We had organic capital generation this quarter, which had a 35 basis points to our capital position.
And this has more than offset by our WSE growth the impact of five far 16, and the revised securitization framework and the repurchase of 4.2 million common shares into quarter.
The 34 basis points declining tiki, one attributable to our W.P. a growth was primarily a reflection of volume growth, particularly in wholesale banking, reflecting strong client activity.
Our leverage ratio was 4% and our liquidity coverage ratio was 137%.
Effective this quarter, we increase the tier one capital allocated to the business segments to 10.5% from 10%.
I'll now turn the call over to Ajay.
Thank you realize and good afternoon, everyone.
Overall credit quality continues to be good across the banks portfolios in the first quarter.
Please turn to slide 13.
Gross impaired loan formations 1.69 billion or 24 basis points up two basis points quarter over quarter and down two basis points year over year.
The quarter over quarter, increasing gross impaired loan formations.
Was primarily driven by.
Borrow a specific idiosyncratic events in the wholesale segment.
Please turn to slide 14.
Gross impaired loans ended the quarter 3.2 billion 45 basis points up two basis points quarter over quarter and down eight basis points year over year.
The quarter over quarter increase in gross impaired loans was primarily reflected in the wholesale segment.
Please turn to slide 15.
Recall that our presentation reports bcl ratios, both gross and net off the partner's share of the U.S. strategic God credit losses.
We remind you that credit losses recorded in the corporate segment are fully absorbed by our partners and do not impact the bank's net income.
The banks Pcls in the quarter, when 923 million or 52 basis points stable quarter over quarter and up two basis points year over year.
Please turn to slide 16.
The banks impaired.
<unk> increased 69 million quarter over quarter.
Hi, madly driven by.
The wholesale segment due to credit migration and the U.S. credit card portfolio, largely reflecting seasonal trends.
Partially offset by lower provisions in the Canadian commercial portfolio.
The forming PCL decreased 39 million quarter over quarter largely related to the wholesale segment.
Acting prior quarter provisions and current quarter credit migration from performing to embed.
Partially offset by higher provisions in the U.S. commercial portfolio.
In summary credit quality continues to be good across the banks portfolios this quarter, and we remain well positioned for growth in our lending portfolios.
With that operator, we're now ready to begin the QNX session.
Operator.
Yes.
Okay.
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First question.
No problem of coal Mac Securities. Please proceed.
Hi, Good afternoon, just wanted to.
Ask about a the margin outlook definitely rate expectations are changing quickly now looks like.
The markets pricing in Threeq cuts in the U.S. into Encana I'm wondering what.
The implications of that would be from your outlook on margins.
Yes again.
So many maybe I'll start and maybe turn it over the Terry from there, but in the U.S.
Obviously, a you know we're watching this real time and a as of a month ago. There were really no rate cut expectations for the foreseeable future and this is happening real time, and we continue to watch along with yourselves. We've given guidance in Q4 about what the impact of a rate cut means to us and a you know what we've seen for the first three right.
Cuts a is that happened in the latter part of 2019, we believe would continue to apply the any future rate cuts in 2020, and we've generally said those rate cuts per 25 basis point caught annualized over the course of the year or would be worth somewhere around $90 million on the short end just on.
The short end and you know so far that's what we've seen play out.
Sorry.
Canadian perspective.
Yeah, just in general we're expecting a downward pressure on margins, we built into our plan one cut and so that's the starting point and we would've thought downward pressure the rate environment bezel and term competitive pricing and then I have for 16 rounding out the reasons why.
Our equivalent of the 90 million U.S. would be 150 million Canadian for 25 basis point cut the short end with an immediate effect.
Thanks, and then just on on capital you talk about allocation.
To businesses from tend to tenant <unk> percent is that just.
Reflecting the increased buffer or is there something else there.
Well, let you wouldn't be a REIT to just related to the increased buffer because obviously that is now sitting at 10 in the quarter percent, but we just felt that as a capital expectations are rising that it's appropriate to increase the a allocation to the business segments. Many.
And just thinking through it in terms of sort of practical implications could you just kind of.
Talk to that there's anything.
In terms of a practical implications from that change no I don't think so because as you know.
We look at a capital at the top of the house and we've always been carrying this capital and simply make ER and allocation change or which essentially takes capital from the corporate segment into the business segments. So I think in terms of fire business activity, they wouldn't really be any notable or material chain.
Interest in how we run into businesses across the segments.
Got it thanks.
Thank you.
Next question is from a in the form of Bank of America. Please proceed with your line is something.
Hi, good afternoon.
I guess gag just had a follow up question on the U.S. margin. So when I look at your margin feel seven in the first quarter Oh compared to Peel. It back in 2015 before the fed started using here just trying to understand like Hawaii has awarded in the balance sheet mix has changed drastically if you had already.
We added when the fed was at Seattle.
And because it doesn't sound like you expect any improved margin defensibility fought any income and need caught short <unk> love any color on that.
Sure So you're taking those back a number of years now five years or so and you know as we've talked about generally we're always commenting it on the impact quarter to quarter and what that looks like or the changes that have been made over the course of year. When you go back over four or five years as you would know we've talked about this previously.
There are many other inputs than just what the fed funds rate it would be would be mix of the business. Its long term rates, it's tracking and it's the general strategies of the business and and that mix of the business. So there's a lot that's gone into that over the last four or five years I would generally say that you know over the last.
Water and over the last year, a the decline you've seen from the high generally fits with what we've been calling out and it really is playing out on the short end the way we would see it ended the last quarter quite frankly, you know our quarter over quarter decline.
Pretty much as in keeping with peers in the U.S. that we would have seen especially if you consider the fact that we had one more month in this quarter versus their reporting cycle ending on a on December or for the last stuff for the last fed cod.
If or am I think it's also worth pointing out its riyadh second quarter over quarter analysis that Greg was talking about.
The adoption of fire far a 16 or would have put a four basis points pressure on margin in the U.S. segment.
Yeah.
Understood that helped keep it could be I know they get once you mentioned about the mix, but when I look back four years ago. Your commercial book will still 42% they talk about 41% today, so and maybe I can follow up offline going to better understand a diverse enough the mix change.
I I guess, just moving to Canada retail, we noticed a pretty decent slow down in does he looked at all and you've seen a pickup in Oh, I guess picks me definition mortgage growth.
If you can talk about what's going on there and what implication that mix shift should we expect that tend to continue so is that by design and what that means for the incremental margin for sure. Thanks.
So and if you look at me.
Originations in Q1, the total portfolio had about 4.4 at a spot basis year over year growth any flex line growth would have been 4.5%. So just slightly higher I think the other relevant statistic to your question is all of the growth more than the growth of the portfolio, so 5.6% year over.
Here, what's the combination of mortgage and fixed he luck. So what we are seeing isn't at low rate environment customers, taking at that time and sort of decision to lock in.
In terms of sort of keylock overall, it slightly more than mortgage that would still be it to the fourth place share that we've talked about in terms of hybrid he locke.
Mortgage and 96% of that origination is actually to TD, Canada Trust customers.
So quite comfortable with what we're originating there in terms of the sort of ongoing.
You know how this will play out over time every time, we meet with the customer will help them to make the right decision around the right product that meets their needs.
So as the environment shifts you can see some shifting in the mix.
Got it thank you.
Thank you and next question in Japan, Sumit Malhotra of Scotiabank. Please proceed.
Thanks, Good afternoon start with other please you were pretty specific with us on the Q4 call and thinking about.
Where are the provision ratio would would trend and 2020.
In and around 50 basis points, just wanted to get your view is Ah early days, obviously, but with the impact the.
Covered 19 virus is having on some economic growth estimates and perhaps business activity has it changed the way you're thinking about the provision outlook.
For the bank this year than that that may relate to the performing portfolio as well and is there any change in the traditional pattern of seasonality in and around the credit card and that auto portfolio as far as your.
Visibility on that is concerned.
Yeah. So let me let me start with quoted so what I would say is you know as you're aware the situation is still playing out certainly from a credit perspective up to now we haven't seen any material.
Business came back where how about continuing to monitor developments and really looking at different scenarios that could play out. So I was up now from a credit perspective, there's nothing in our forecast relating to two Bcf, we have always been spending time on things like our.
Our our employees customers and certainly the health and safety and and business continuing to continue D. I think thats been quite important.
So I'll come back to guidance, So my guidance, which was in the neighborhood at 50 basis points subject to seasonality and subject to support them economic conditions for now remains.
Unchanged and then your third question was about seasonality. So Q1 as you know.
Tends to be a high seasonal quarter and if you look at.
The U.S. segment on the corporate segment on a combined basis, you'll see an increase and that increases largely because of seasonality. However.
I do acknowledge the seasonality wasn't as much as we've seen in the previous.
And the reason for that is we've actually taken some risk reducing actions in those portfolios and this is particularly U.S. cards. So a bit of that is playing out.
Thanks for that and second question is for Reos or Terry.
Taking about the expense outlook for the personal and commercial bank.
So again this is another area where were we usually have seen over the past with TD past number of years with TD. There's some seasonality when when you start to your new year, and usually we see a reset in the expense level.
You've talked about the spending required for the.
Aeroplan refresh and some other project activity you have.
Just wanted ask the question because you do take a small restructured churned small in the in the context of TD as a whole and I know it didn't impact this segment as a whole, but it does seem like the restructuring conversation has picked up for the sector again as first TD is concerned and you or your view rias.
Is the restructuring is a restructuring initiatives now complete for the bank and is what we see on the expense line going to be more run rate or is there a contemplation that to fund some of the project activity you have in mind, you may need to reduce another layer of structural costs.
Couple of maybe two or three things I might point out in relation to that question Sumant. So you will recall that in Q4 that I had mentioned that a bank wide level.
<unk> expense levels and expense growth had a stabilized to four or five quarters in a row and that has continued to play out this quarter. So we continue to be very happy with the or would it be expense performance in aggregate and the growth in our Q1, reflecting the investments that we need to make.
And secondly on that seasonality pointer, we as you know I've been working quite hard to remove that from our a expense profile and have or gone a fair bit fairways too to achieve that and what you're seeing now is not so much seasonality, but more in the timing of windows.
Expenses that are encouraged so for example in Canadian personal banking, where he had started talking about a increasing investments in branch transformation as well as they are kinda investments that you referred to.
In the middle of last year, and you see expenses.
Reflecting that into Q3 Q4, and then Q1, where we were stable again, so that in personal and commercial banking in the second half a year, you'll see growth rates in expenses.
Moderate a fair bit.
I think as to the a matter of restructuring charge or you'll recall that in Q4, I said that our restructuring charge was not particularly related to a expense savings or productivity, but was a continuing a exercise in optimizing processes and procedures that we've been building as we undertake the various transformation exercises.
And I would say that that's going to continue into bank a as a as technology changes at the effect of disruption on the investments that we're making.
Omni channel delivery or off our products and services to our customers that changes in the environment may from time to time caused us to review or how we do business and it could be that we may see I restructuring charges in that order from time to time.
Last point, though just to go back to something you said the way I look at it expense growth on an all bank level year over year. This quarter was 5% and and that's the same as we had in 2019 again at least the way I look at it is that in your view a reasonable level for us to expect in terms of a run rate all bank and expense growth Mark.
For TD I would say that it gives us sufficient envelope to make the investments that that we feel that we need to make to continue to build on our leadership positions in the market.
That's helpful. Thank you for use on.
Thank you. The next question is fun, Doug young of stage I didn't capital. Please proceed.
Hi, good morning, I'm sorry.
<unk> good afternoon.
Just on the CET one ratio when I look at your slide 12, yes, and I look at internal capital generation and risk weighted asset growth I mean, essentially there was no organic internal capital generation.
This corner, so I'm just trying to get a sense of was there something in a normal or unusual in the R.W. way increased.
That may not continue because I look at your growth in your Canadian retail and U.S. retail Didnt feel like it was that I think you mentioned wholesale so just trying to get a sense of that and has as we look forward.
Tt's ability to generate internal organic capital has that hasn't changed in your view.
Thank you for that question, Doug No I think there you know the this particular quarter the organic our WH deployment as you point out is somewhat elevated.
It isn't a in my view age and in my expectation a run rate level of quarterly RW investment.
But from time to time, there are situations, where we can I take advantage of certain positions. We so we have our normal client growth and then we have opportunities to increase investment. There every now and then in this particular quarter, we had some very good.
ER opportunities to look at a certain exposures and adjust them to increase our productivity downtown capital deployed.
Can can you elaborate on what those interesting opportunities where is this more business repo or is this just wanted to get a lot more detail. Yeah. I think it's mostly in though wholesale segment and a in I don't think it's going to see particularly productive to point them out other than to say that you aren't there.
There were some interesting opportunities for us to deploy capital.
Okay.
And then just capital markets, there's a sizable new gross impaired loan formations and just hoping to get a little bit more detail on what that related to I think there. It was mentioned an ideal sing pratik.
Related events that occurred in the corner, just hoping you could flesh that out a bit.
Yeah. It is our Jay I'll respond to that so we did have three impairments in capital markets to them.
Pipeline oil and gas and one of them was in media and the all idiosyncratic events I don't really see any team or trend.
Here, So I knew I also noticed and we had already built a part of the provision. So that's the reason why some of the performing provision is moving to the to it to embed.
Yes, My other question and then answer and then just Jay you talked about you took risk reducing actions in the U.S. on the U.S. card portfolio can you give a little more detail in that.
I can say, it's a combination of things I'd say one is investment in collections.
Second is just refining the bike box a little so being more selective with clients, but a good example would be credit line decreases. So we did a combination of things you know on that portfolio.
Okay. Thank you.
Thank you next question is for love the Suzanne video that's interesting. Please proceed.
Thank you good afternoon.
I just have a one quick question for you if I could turn to your U.S. retails segment I noticed that the a the effective tax rate this quarter for that segment was a fairly low at about 4.5%.
Just provide us some color on what's driving but oh effective tax rate this quarter and how should we think about the run rate for your effective tax rate and U.S. retail going forward.
So Nigel Thank you for the question and as you would know that we take various estimates on our tax liabilities over several exposures and we'll regularly update to provision based on new information resolution of tax matters and changes in regulations and these are these kind of events would be fairly common.
Quarter to quarter and will move around a little bit an aggregate this quarter. They tended to all be favorable and at the same time. They they they all tend to be more significant have an impact for this quarter than would be typical in a usual quarter.
And what run rate do you expect going forward for a 2020 <unk>.
Yeah, I think it would be helpful to look at the normally quarterly run rate over the last year since tax reform was probably a good guide.
All right appreciate the color. Thank you.
Thank you. The next question is from that go down machine.
Well she'll buying following show.
Good afternoon, a question for Terry Austria in a refund speech talked about the you know, they're taking a closer look good the U box them an issue with Reinvestable loans.
Can you maybe told me how you interpret the commentary and what the you know TB given the size of it. So you are where the exposure there might be and how you see a this is you probably know.
So I think so the question I think and we're very comfortable with the way our product is designed a in terms of the you know 65% of the loan to value portion being able to be reinvent civil and then up to 80% six Oh, we obviously.
As I see looks at this issue would participate as we would in any consultation if there was the opportunity to do so I think if we just step back and look at the how weve been originating business in the he luck book as we've talked about it's again largely been to TD, Canada Test, Canada Trust customers should we know well.
96% of the recent quarter originations as I mentioned, a and so quite comfortable with the quality of the borrowers and if we look at the specifics of the product over time, we've seen very little increasing the actually utilization of those helocs overtime in fact slightly down quarter over.
Quarter in Q1 of this year and Ah only up very marginally year over year, and so I think you know the illnesses on us to ensure that as we're talking to customers were putting in them in the product that makes the most sense for them and that they understand the product that they purchased from us and that's how we're spending our time and attention.
Sure.
I'm not seeing I mean.
I guess number in levels.
So people are actually paying off.
Rather than.
<unk> element.
More so in Q1, 88% of he locks and 95% of total Russell would've been paying down principal in Q1 as an example, just to give you a sense of how the book is offering thank you.
Thank you.
Our next question is phone so had.
<unk> of BMO capital markets. Please proceed.
Thank you.
Questions, maybe one or two started off with that with Bob Bob Dorrance Bob.
The at the lending book.
In your a into wholesale bank was up about.
13% year over year with U.R.W. ace of being up about the same.
No they would not have been up about the same the.
Majority of that growth still would be an investment grade lending.
That.
Tends to be a.
Revolving credit to.
A large amount. So we did have a we did have good growth in order to W. Is a reos commented on some of that would've been in corporate lending somewhat of in markets and some was in fact, the probably two thirds of our growth was business driven and we had another third that was.
Related to regulatory change.
Okay, and and a in the past I think you'd said that as far as the segment expenses.
You know 600, or so million quarter at least probably that the new norm that still valid.
Uh huh.
That's a good good question or the.
We ran at 600 most of the a year last year.
As you recall, we had a very difficult Ah first quarter last year. So.
In a better quarter Ah you know 12 months later, so variable comp was up.
No those those numbers will.
Have a different rid of growth so year over year, because last year the trend improved.
So it would not expect that they'd be the same magnitude of growth and variable comp on a quarter over quarter for year over year basis.
So that that should level out.
There was a or a change in.
An accounting change and how are security, a lending fees and underwriting costs get.
Recognized last year.
They would have been a contra revenue this year that are an expense.
So between the.
The increase in the comp pool and that item.
We would have been roughly flat so but there is there so inflation I I do expect that.
We're not expecting any growth in F. T E. This year, we continue to.
Invest in no systems projects Prem significantly related to still regulatory change that is still going on.
Thank you see that at all.
Oh, the dealer you know both sides of the border.
What we're trying to.
I mean team that.
At an appropriate pace and at the same time. We're also looking at productivity to help fund the that part of what we're doing so long way of saying it may be slightly higher than six harder to quarter.
If it is it wouldn't be a.
Revenue driven by growth yeah.
And if I can just sneak one more in for RG, Oh, Gee I think in day into Canadian retail risk discussion in the shareholder reports anyway you.
You call out a credit migration in auto portfolios.
Can you comment a little bit about exactly what that is and a if that's going to have any bearing about around a future growth prospects for the portfolio.
Yes so.
What's occurring is really that business is growing so some of the credit migration has also linked to Ohio volumes, and then them mix changes occurring as well so there's more prime non subvented in that portfolio. So it's a combination of volumes and mix changes that are dry.
Having that I remain quite satisfied with the book and the underwriting standards in that business.
And so Terry you or your okay to continue to originate I guess.
With within you with whatever risk standards that are you can maintain that growth rate.
The businesses continuing to drive good growth in that business I think quite comfortable with the relationships that we've built and the business that we've done. Thank you very much.
Thank you then next question is fun Darko Milicic RBC capital markets. Please proceed.
Hi, Thank you my questions for Terry and it's just a rather straightforward I think we've had some discussion around.
Elevated spend I just wondered if you can maybe provide us a little more color on when you expect the revenue benefits from.
These are these initiatives and how quickly it ramps up.
Sure. Thank you for the question. So maybe I can take a step back I'd start with thing I feel like we're quite well position with the investments we have been making and continue to make in the business not only <unk> for all of our customers Omnichannel needs.
And I think bear mentioned some of the investments Air Canada and feature ready in particular and as degree as and then the shape sort of implications of a on the expense side as you've noted the Q2 to Q3 step up and then a relatively stable pattern at following unexpected going forward.
The PCL piece also a is something that we haven't talked about but if you look at kind of through 2019, we kinda talk to a 400 million dollar PCL levels in the business and that is from a year over year perspective for this quarter in next quarter.
To be something that'll be a year over year headwind and and then on the revenue side a if there was some softness at this quarter and I would say a couple things played into that.
One thing is as we watch went through the transformation and continue to transform under our feature ready strategy that was a very significant assets and continues to be transformation of our business to elevate advice increased customer colleague confidence and meet more customer needs and in the early.
In late 2018, we brought all branch managers from across the country together for the very first time, we did not do that post the TD, Canada Trust integration and we kicked off this very significant change and that change was to roles and responsibilities in the branch it was to the performance ecosystem.
Was to invest more in client facing advisors and their mentioned across Canadian retail we have over 15, almost 1500 additional ftn Q1 of this year versus last year.
And primarily a that growth in PMC is is around the feature ready strategy. We've invested in tools and training. We've added new rules senior financial advisor to continue to grow the capabilities and and enable a career progression for a for our very best advisor.
Yes.
We've added more district leaders, so that our leaders has and continue to train and provide tools to them. So they can coach and support our people better.
So in combination quite significant change and not surprisingly when we were in the early part of last year as our colleagues were absorbing that change, but it hasn't been a softness in branch sales, which then takes a little bit of timed actually play itself out in revenue so that jumped pets coming into this year was a little bit impacted I give you that background, because I would say.
We ended the year with really good momentum in branch banking across our channels, Oh actually but Im branch banking in particular, and just sort of give me. Some sense. If Q1, you know it was already mentioned the record a real estate secured lending originations up 22% year over year or credit card account sales.
Sales were up so active accounts are up 21% year over year, we has rolled out a multi holding account capability in a better conversation tool for our in branch advisers to use with their customers and we're seeing significant year over year gross in the number of Canadians who are choosing.
To have an Irish appear a T.F. a stay with us for the first time.
And we're also continuing.
Continuing to see the the investments we're making in the current business more broadly payout and we'll continue to see that hopefully at the only size that an appreciable increase in air Canada, a airplane cards in 2018, and we obviously have the program coming at the end of this year, so simply from the branch banking.
Perspective, I feel confident that the momentum that's been building will serve us well going forward and then you add to that very consistent real estate secured lending volume growth the very strong core.
Deposit growth in both the business bank and the personal bank at 6% and Ah I would say our number one digital banking capabilities, where you know as Barry mentioned, a you know we that mentioned the growth in North America in Canada, we have a leadership position that 7.65 million.
Digital active users 71% of those are mobile active users and the digitally active were up 6% and in Q1 versus last year over 6% of self service financial transactions. There sorry financial transactions has come out of branch banking, we've seen that increasing customers.
Making financial transactions using our digital capabilities. The parent mentioned have the highest engagement in Canada and high ratings and so I feel like with the investment in branches supporting investments in the phone channel that have helped our service levels and those number one digital capabilities and the proof points that were.
Seeing that we're well positioned for revenue growth going forward.
And then in is it fair to say then that this momentum just kicking in now so I should be seeing it as early as next quarter.
I think what were.
These things do take time to season, I think where we're at.
Quite comfortable we you'll see this and financial results in the later part of the here, we do expect barring any macro events Oh positive operating leverage for the second half a and continued mid single digit volume growth in loans and deposits.
Okay, great. Thanks very much.
Thank you. This concludes his question Pat I would now like to tend to me back over to Mr.. That's Miss Oh. Please proceed.
Thank you operator, and thank you all for joining us a this afternoon just to reiterate the you know I'm very pleased with the performance, particularly given the significant headwinds that we as outlined in Q4 for this coming year.
And I was just not to repeat everything they've got said on the call reduce earnings from TD Ameritrade to the do know of 300 million U.S. for this year.
I should add that those that run rate wouldn't be recaptured once the schwab deal is closed and we started seems on the synergies flow through then of course, Greg talked about the three rate cuts in the United States that happened in the fiscal Q4. So you know given honest sensitivity to rates, a particularly in the U.S. business who knows.
It's not a surprising that that's a that's a headwind for US and then of course, we haven't will continue to invest in Canadian retail that is a a core part of you know what do you want to do and we are starting to see an old rigs results out of it. So overall given the fundamental performance with volumes and whatnot.
Seeing on customer metrics in a very happy with other bank is performing so once again, thank you for joining us and I would like to take this opportunity to think are supposed to 90000 colleagues around the world for continuing to deliver for all of us stakeholders, including all shareholders. Thank you and so you in 90 days.
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