Q3 2020 Toronto-Dominion Bank Earnings Call
Standby your confidence is ready to begin good afternoon, ladies and gentlemen, welcome to the TD Bank Group Q3, Twentytwenty earnings Conference call I'm, not trying to meeting over to Mr. anybody. Please go ahead of mining.
Thank you operator, good afternoon, and welcome to TD Bank Group third quarter 2020 Investor presentation.
We will begin today's presentation much remarks from Barrington as Ronnie the bank CEO after which relies on that the bank CFO will present, our third quarter operating results.
Hi, David Wallis Chief Risk Officer will then offer comments on credit quality after which we will invite questions from prequalified analysts and investors on the phone.
Oh, so here to answer your questions today, Our Cherry Creek group had Canadian personal banking, great 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.
There are risks that actual results could differ materially from what is discussed and that certain material factors. The assumptions were applied in making these forward looking statements.
Any forward looking statements contained in this presentation represented views of management and our presented for the purpose of assisting the bank shareholders and analysts in understanding the bank financial position objectives in priorities and anticipated financial performance.
Forward looking statements may not be appropriate for other purposes.
I would also like to remind listeners that the bank uses non-GAAP financial measures to arrive at adjusted results to assess each of its business isn't to measure overall bank performance.
Bank believes that adjusted results provide readers 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 are only available in our Q3 2020 report to shareholders.
Let me turn the presentation over there.
Thank you Jillian and thank you everyone for joining us today.
Well the last six months DDS 90000 colleagues that worked tirelessly to keep the being fully operational toward the goal with 19 graces delivery for a 26 million customers when they needed us most.
Well the working from home what are the duty location store, rather location that hard work and dedication has been inspiring.
I'm very proud of that tremendous afterwards.
But under difficult circumstances, and I, thank them for their contributions.
D is a bank, but we are also a community, we get where each other and our customers.
I wanted to this graces culture in our people remain among the most important advantages.
What we'll see as through this period of <unk> and I'm confident they will enable us to emerge even stronger in the months ahead.
Good 19 has affected us in.
In ways, none of us could've imagined.
But over the last few months he does become clear that some communities are being disproportionately impacted the addresses.
He has made important financial commitments and introduce new programs to support support recovery and community resilience across our footprint.
This includes allocating $10 million through the D to the annual DD ready challenge the organizations that are developing innovative and measurable solutions to address the inequities exacerbated by the been Debbie.
We're also taking steps to confront more longstanding injustices this quarter.
D. black racism and racism in all its warms moved to the forefront of the global conversation in response to the for the elevated longstanding commitment to the active advancement promotion and celebration of inclusion and diversity within the bank and across the safety.
We announced concrete dog is an important initiatives the girls black indigenous and minority executive representation.
That's an organization.
And they visions that flight racism and promote inclusion.
Introduce new training and development across the bay and to contribute directly to a future everyone. Good thrive and achieve their goals.
This past quarter thousands of de colleagues participated in virtual event to better understand the power of inclusion elevators to elevate us all to celebrate bright an indigenous history. The join the airport and make a direct contribution.
What we may be apart physically we are in many ways closer than ever stronger than ever as a purpose driven bank. This important work is fundamental to who we are what we said for and what we strive to achieve.
Let me turn out to the current environment and outperformance.
TD entered this graces position of strength.
And through prudent financial in risk management practices, we remain well capitalized with a high quality balance sheet and strong liquidity.
This quarter, we saw encouraging signs of activity across our footprint is economies progress with reopening blood.
People started to return to their workplaces for him stepped up hiring consumer and business spending picked up and applications were long before the declined significantly.
We know the road to recovery won't always be smooth the unprecedented actions taken by the bank our industry government central banks and regulators they've been critical in helping save up a deeper graces. These measures cannot be sustained indefinitely, but they have served as a bar.
Will bridge sustaining households, and businesses as the global search for a vaccine or effective treatment proceeds the resumption the resumption in activity now underway attest to that.
Longer term outlook is still uncertain and a measure of caution is warranted, but so do you some cautious optimism given the positive signs we have seen as a bank and there's a society, we must remain prudent but also flexible ready to adapt in real time as the situation.
Changes on the ground that's exactly it wouldn't be again did in Q3 and what will continue to do.
Last quarter I talked about how quickly we were able to reshape our operations.
They are connected to our customers and support them to the deficit. The graces. Thanks to the investments we've made and continued to make in technology training and capabilities.
Those investments group that was a good this quarter as activity accelerated across our businesses.
Digital applications had been enhance with new features self service capabilities and other improvements, resulting in a continued high level of successful online and mobile transactions and engagement.
The U.S., we continued to grosses tens of thousands of small business loans under the Triple B program in record time, helping support the backbone of the economy.
Our new Canadian TD ready advice program is bringing personalize and timely digital content to millions of customers in real time and advisors enough branches did you read the advice centre and on the phone are reaching out to customers to help them think through their financial options. During this difficult period.
He declared a chat but is providing seamless no contact information to thousands of customers a week freeing our TD bank of Superbike crucial financial advice with those.
Who needed most.
Thousands of contact center <unk> colleagues up relating expert guidance most enabled from home.
We're also investing in the future.
We continue to modernize our technology infrastructure, including migrating to the cloud to leverage it scalability security and speed.
We're also enhancing our customer and colleague facing applications to deliver better experiences for our customers in a more flexible and productive work from home environment for our people.
As customers become more digitally enabled we're working to increase the safety and security of customer enable data sharing through the launch of Fdx in Canada, and other ventures with industry participants.
If we were delighted this month.
Introduce our updated suite of pediatric Glenn Visa cards. Following you had Canada the announcement of the new Aeroplan program.
Why do we know it's early for many Canadians to be thinking about travel we will be ready when they are we're excited to deliver this new benefits, which further differentiate a position as the number one credit card issuer in Canada.
We also continue to invest in our people.
Through future ready in Canada and be legendary in the U.S.
Empowering our colleagues to provide customers with the advice they need to navigate these uncertain times with confidence.
We're also investing in our colleagues experience and career development always central to TV is culture.
This is important more than ever today.
Where possible, helping our colleagues manage the demands a work in whole blood.
We are helping them develop their capabilities and advancing careers to redeployment opportunities as well its training through DD thrive our self serve learning platform, which now has 60000 users.
But colleagues working at a de location branches store, we continued to take precautions would take there and our customers will be.
Our financial results this quarter reflect these investments as well as the gradual economic reopening that is underway.
In Q3, we delivered earnings of $2.3 billion and as of $1.25 much improved from last quarter as continued volume growth moderating provisions for credit losses, and strong wealth in wholesale revenue helped offset ongoing margin in fee pressure in our personal and commercial.
Banking businesses in addition.
Our C.D. one ratio Glenville guerline appointed a have did well in a half percent lifted in part by the transition of a U.S. non retail portfolio.
Our b.
In Canadian retail, we saw strong quarter over quarter earnings growth led by our wealth and insurance businesses net asset growth elevated trading activity and a fourfold increase in online account acquisition drove record well to revenue.
Insurance revenues blamed on a volume driven premium growth and strong pick up or enhanced digital capabilities and we maintain good momentum and personal and commercial banking with strong volume growth on high levels of customer engagement and the continued acceleration in consumer spending and the new account growth.
New account growth throughout the quarter as economies, we get reopened.
In the U.S.U.S. retail bank earnings improved significantly from last quarter.
We continue to work with our customers through this difficult period and the results are evident in strong loan growth in beer, leading deposit growth.
Together with flat expenses, this helped offset the impact of lower margins and fee income.
At the segment level TD Ameritrade made a strong contribution to earnings Boyd heightened trading activity and we still expect the Charles Schwab transaction, which remains subject to certain conditions to close this calendar year, making D and important shareholder in an industry leader with the strength and scale.
Needed to compete and grow in a highly competitive market.
Wholesale banking delivered record revenue of $1.4 billion and record earnings of $442 million this quarter on strong trading and blind underwriting activity, including several marquee deals.
The joint book Runner on Air Canada was 1.6 billion dollar share offering and private placement of convertible notes.
We also served as book runner and Raisins 1.3 billion Maple issue is a U.S. dollar strategy continues to gain traction.
And we built on our leadership in the as this is space acting as joint lead manager on eight U.S. dollar benchmark trades, including a three year $1 billion over 19 response bond to support the private sector in Latin America, and the Caribbean duties first book runner role, where I'd be list.
Our third quarter results reflect the resilience diversified business model and the power of our customer centric strategy.
Our model is a powerful enabler, allowing us to support customers through these volatile uncertain times, well continue to make strategic investments to serve them even better in the future.
I'll now turn it over to realize to review the numbers in more detail Rias.
Thank you Bob and good afternoon, everyone. Please turn to slide eight.
This quarter, the bank reported earnings of $2.2 billion and EPS of $1.21.
Adjusted earnings were $2.3 billion and adjusted EPS was $1.25.
Revenue increased 2%, reflecting volume growth across our businesses and record wealth and wholesale revenues, partially offset by margin compression and lower fee income as a result of reduce customer activity in the personal and commercial banking businesses.
Provisions for credit losses decreased by 32% quarter over quarter to $2.2 billion.
The decrease was mainly attributable to lower performing pcls.
Selecting a small increase to performing allowance for credit losses this quarter.
<unk> expenses decreased 1% or number year over year basis.
Please turn to slide nine.
Canadian retail net income was $1.3 billion down 33% year over year, reflecting higher credit losses.
Lower revenue and higher insurance claims on an adjusted basis net income also decreased 33%.
Revenue decreased by 2%, reflecting lower margins, partially offset by volume growth and higher wealth and insurance revenues.
Average loans rose, 3%, reflecting growth in both personal and business volumes.
It's rose, 18%, reflecting double digit growth imbalances across all businesses.
Wealth assets increased 4%, reflecting new asset growth and market appreciation.
Margin was 2.68% a decrease of 15 basis points from the prior quarter, reflecting lower interest rates.
Total PCL decreased by 18% quarter over quarter, primarily reflecting lower performing PCL and.
And total PCL as an annualized percentage of credit volume was 0.86% down 21 basis points quarter over quarter.
Expenses are flat year over year on a reported an adjusted basis.
Please turn to slide 10.
You asked retail net income was U S $490 million.
The U.S. retail banks net income was $260 million down U S $487 million, reflecting higher pcls and lower revenue.
Average loan volumes increased.
Year over year, reflecting growth into personal and business customer segments, including record mortgage originations.
Deposit volumes, excluding the TD ameritrade sweep deposits were up 24%, including 25% growth in core consumer checking.
TD ameritrade seek deposits were up 37%.
Net interest margin was 2.50% down 43 basis points sequentially.
Mainly reflecting the impact of lower deposit margins and higher cash in deposit balances.
Total.
Including only the banks contractual portion of credit losses in the strategic cards portfolio was you at $655 million down 20% from the prior quarter.
The U.S. retail net PCL ratio was 1.51% down 52 basis points from last quarter.
Expenses were flat year over year, reflecting productivity savings, partially offset by higher legal provisions and cost to support government programs.
The contribution from Tt's investment in TD, Ameritrade was U.S. $230 million up 5%, primarily reflecting higher trading volumes, partially offset by reduced trading commissions lower asset base revenue and higher operating expenses.
Please turn to slide 11.
Net income for wholesale was $442 million, an increase of $198 million, reflecting higher revenue, partially offset by higher PCL and higher expenses.
Revenue was $1.4 billion up 53%, reflecting higher trading related revenue and higher underwriting fees.
PCL was $123 million down 67% from the prior quarter on lower impaired and performing PCL.
Expenses were $669 million up 13%, primarily reflecting a higher accruals for variable compensation.
Please turn to slide 12.
The corporate segment reported a net loss of $130 million in the quarter compared with a net loss of $573 million into third quarter last year.
The decrease primarily reflects the positive impact of tax items, which are held in other adjusted net loss of $76 million compared with an adjusted net loss of $109 million in the third quarter last year.
Please turn to slide 13.
Our common equity tier one ratio ended the quarter at 12.5% up 144 basis points from Q2.
The primary driver of the increase was a decline in credit risk R.W.A., which added 92 basis points to capital this quarter.
72 basis points of those 92 was attributable to that transition our U.S. non retail portfolio from standardized.
The methodology.
We were pleased to be able to bring forward. This transition, which we had hoped to implement by year end into the third quarter.
The remaining 20 basis points reflect lower volumes reduce line usage and parameter updates.
The U.S. nonretail they are meet transition coupled with the increase in performing allowances this quarter eliminated the expected loss shortfall capital deduction.
And created an expected loss excess which added to our transitional arrangements for expected loss.
Credit loss provisioning in aggregate. These contributed 31 basis points to our Cetone ratio.
Other factors included a 15 basis point increase attributable to organic capital generation, and then 11 basis point increase later to the issuance of common shares under our dividend reinvestment plan.
The increase in our capital ratio this quarter. The bank has decided that beginning with the dividend declared today and until further announcements there'll be no discount to the shares issued under our dividend reinvestment plan.
Our leverage leverage ratio was 4.4% this quarter and our LCR ratio as 150%, both well above regulatory minimums.
I will now turn the call over to Jane.
Thank you realize and good afternoon, everyone. Please turn to slide 14.
Gross impaired loan formations were stable quarter over quarter at 23 basis points.
No matter, the reflecting a decrease in the U.S. and Canadian consumer lending portfolios and the wholesale segment driven by lower formations in the oil and gas sector.
Partially offset by higher formations in the U.S. and Canadian commercial lending portfolios.
Please turn to slide 15.
Gross impaired loans ended the quarter at 3.8 billion of 51 basis points up four basis points quarter over quarter, driven by the us and Canadian commercial lending portfolios and the Canadian resolute portfolio largely due to the cessation off info.
Activities to resolve impaired loans in response to cope with 19.
Partially offset by the impact of foreign exchange.
Please turn to slide 16.
Recall that our presentation reports PCL ratios.
Gross and net of the Fox Ms share of the U.S. strategic card 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 were 2.19 billion or 117 basis points, decreasing 1.3 billion of 59 basis points quarter over quarter.
Although pcls have decreased across all segments quarter over quarter Pcls remains elevated from prequel with 19 levels, primarily due to the ongoing pandemic.
Please turn to slide 17.
The banks embed PCL decreased 138 million quarter over quarter as reflected in the wholesale segment, largely driven by less oil and gas related credit migration.
Performing PCL decreased 894 million, reflecting a small increase to the allowance for credit losses this quarter.
Please turn to slide 18.
The allowance for credit losses increased 1.3 billion this quarter, primarily related to higher performing allowances due to the impact of covert 19 and incorporates our economic outlook for Canada and the us.
Selecting a slower pace of recovery than forecast in the previous quarter.
Our allowance for credit losses increased across all segments and all major asset classes with the largest contribution by asset class reflected in the business and government portfolios across a broad set of industries.
Over the past two quarters in response to the covert 19 pandemic.
Bank has added $3.9 billion in allowance, increasing our allowance coverage by 50 basis points to 124 basis points.
The potential for further changes to our allowance coverage will largely depend on the magnitude and duration of the ongoing corporate 19 pandemic.
Please turn to slide 19.
Let me now take a moment to touch on the banks deferred programs.
And balances under banked, let deferred programs decreased 14 billion from the second quarter.
Deferrals had been largely concentrated in our resolute auto and commercial lending portfolios.
From the inception of these programs in March deferral requests.
April and have been steadily declining since then.
As expected deferred programs and government stimulus have been effective in helping our customers manage through the pandemic to date.
While it is too early to see any meaningful impairment in deferred populations. We will continue to monitor an assistant closely over the coming quarters as both the deferral and stimulus periods and.
Now, let me briefly summarize this quarter.
We continue to operate through challenging an uncertain conditions.
Given the unprecedented impact from the covert 19 pandemic and have added allowances for credit losses Accordingly.
Satisfied with the banks allowance coverage, which reflects our current economic outlook and our portfolio and geographic mix.
To conclude we remain well prepared to manage through these difficult times with that operator, we're now ready to begin the culinary session.
Thank you.
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We have their first question from piece can you from a capital. Please go ahead. Your line is open.
Yes, thanks, good afternoon, everyone.
Wanted to start of the question on line you can see expenses Terry I was looking back and this was the first time I think I can see PMC ranking.
Excluding the wealth and insurance component has had expenses down or flat since you back in 2016 and clearly these are extraordinary times for can you give a bit of an outlook around how much you think you can or will or want to remain expenses over the next few quarters is flat to down something we should contemplate here relative to the apart.
In the spend do you want to undertake room nights few quarters.
[laughter]. Thanks, Thanks to the question Steve. So we have continued to manage our expenses quite actively and I would say prudently.
And as you mentioned for PMC, they were down sequentially and year over year, despite actually absorbing cobot related costs involving rewards for our folks.
In the field as well as.
And enhanced cleaning protocols and safety and security enhancements I.
I would say that.
Talked about over quite a period of time believers that are available to us.
We will always invest.
For the future.
We will always going back to ensure that protect and compliance requirements are match.
And at some of believers that were available to us this quarter worrisome sequencing and prioritization of more discretionary activities.
As well as add some marketing expense that just didn't make sense in light of the context externally.
We're not as sort of in a position right now to give guidance because theres. So much uncertainty going forward, but what I can tell you as we will continue to prioritize investments to ensure.
That we need protection complied me investor business strategies and that we.
Also consider discretionary investments to build business.
Given month many of the investments we've made in the past that we're leveraging including our number one digital position in Canada.
We're pretty confident that.
We're not pretty good place.
As we look forward.
Should we think about Q4.
You know in the past Oh, we thought about it as a bit of a lumpy quarter in terms of expenses flat is that a headwind for for this year at all.
There are lot of moving parts.
Go back to that beginning at the year.
Good thing that I had commented on was the shape of our expenses last year in terms of first half second half.
Notwithstanding a lot is changed including coping and we will still have some cobot expenses in Q4, just the nature of that first half second half.
We would see.
Decent shape for expenses in Q4, all those things being equal.
Okay, just quick follow up if I could.
A very smaller than usual loss incorporate rather I think you said that was driven by tax item.
Reading that right, but that's about 30 million this quarter.
That was the change that entity expenses had this quarter end of wouldn't be about roughly right.
Thank you.
Thank you. The next question is from Gabriel Duchaine from National Bank Financial. Please go ahead. Your line is open.
Good afternoon.
I want to ask a.
A couple of questions here on the credit stuff.
First.
2.2 billion provisions about 60% of that is performing provisions.
Wondering if you can.
Ballpark, how much of the performing was due to a model adjustments and how much was due to.
Management overlay.
Recall that these days.
Yes. Thanks, Thank you for the question.
If I look at the last two quarters.
Jordi, Okay, and what I'm, saying majority is very high over 85% of up performing loans over the last two quarters is modeled so the overlay is.
Basically about 15%.
Over the past two quarters so.
The same no big no skewed no difference on those grew this quarter.
Well I would say the overlays are coming down because there's more on the macro outlook gotcha.
And then.
Wondering if you can quantify this for me.
And you talked about what conditions and need to arise for you to make adjustments to your Hcl just wondering what would your USIO look like or what kind of increase are we talking about.
You were to shift.
On a percentage of the pessimistic sooner.
Yeah. That's a good question, but that's not a number we wouldn't disclose I think you know that are probability.
We did see is greater than our base is yellen. If you look at our numbers that difference has actually increased which is telling you, we're putting greater weightage that'd be having to prior quarters or not on the downside.
No data point I'm willing to share with you is that.
The downside actually using a double to shape.
Okay. So you're.
You're waiting on the downside is greater than you're waiting on the base case.
No I'm, saying my waiting on my downside this increase quarter over quarter Okay.
Thank you have a good.
Your summer.
Thank you.
Thank you as the next question is from many from from Scotiabank. Please go ahead. Your line is open.
Hi, Good afternoon, just a question.
On the Hcl as well a up again to 9.2.
Billion I'm, just wondering I appreciate a lot of it is driving being driven by models, but in terms of sort of said management overlay piece.
At what point is Hcl too high in your view can there be such a thing and.
On a related question what kind of coverage ratios do you prefer to look at tend to sort of what's your perspective on on that question of.
When I look at it to you could say it just looks too high.
Yes.
Second question.
Let's see I don't have a target coverage ratio this not the way we work like every quarter, we look at what the forward looking scenarios are.
You know will assess we'll do a bottom up assessment as well, we triangulate all the data.
Then we'll take color as to what's most appropriate for our a book of business I think you'd go nowhere in very uncertain times the shape of the reopening.
What's going to happen things could plateau.
You know in a few months so we're taking that into account were being.
Corporately group now with respect to overlays like typically I don't want to see too many overlays I'd like to see it all in our model output, but you have to appreciate it unprecedented times. These models are trained on historical data that is quite different okay. So they shouldn't be an expectation that.
I would use experts judgment and that will do an overlay, but over time I expect the overlays to come down.
Thanks for that in time, maybe approaching in a different way just as a follow up I mean, it definitely makes sense that some banks are more conservative than others, but.
Just a question is.
Is there something in your business.
Is making you more concerned that maybe we wouldn't have we wouldn't see is there a particular issue that.
That is impart driving this conservatism.
Yes. Thanks for the question. So my answer is no our allowance reflects our geographic mix. It reflects how products mix and very importantly, it reflects the times where in.
Despite.
Being appropriately prudent.
So there's no.
To be more than that.
Thanks Roger.
Thank you and the next question is from Ebrahim Poonawala from Bank of America Securities. Please go ahead.
Good afternoon.
Yes. It does this first I wanted to follow up well on the comment you made about the leasing on the downside increase quarter over quarter.
I guess why that would be the case in the U.S.
Thanks, Bob Wilson them keep it since Twoq results could you tell us like what's on the outlook for Canada. The Canadian economy to keep you updated that would cause you can tease debt to meeting the downside or the Canadian retail segment.
Yes, I know, it's a good question, but let's let me kind of tell you what's.
What's driving the numbers up it's just not it's just not the downside case, what's driving the numbers is that even our base case, which was 30.
Is now reflective of a very gradual recovery. So if you go to our disclosures.
You'll see for Canada for instance, a unemployment numbers, Ohio.
I'd be numbers are lower and not H.B. I numbers I'll also lot, that's what's driving our allowance numbers.
It's less to yes, the little more weight on the downside, but if you look at the difference there. It's not just at the downside is driving on numbers. We believe we're an uncertain times, it's the time to be prudent and our economic outlook reflects that.
Understood and I guess, so called question that own capital.
As I guess.
John significant bid I guess.
As we look out it seems like we should still see the calculations his tire and I I saw news at nine talking about though.
Thank you be opportunistic on M&A, So just talk to us it on outlook on capital and just a couple of management standpoint are you ready if an opportunity what the pump tool what the coming months.
Do kind del Sol pursue.
Strategic M&A.
Sure I am so this is a bad.
So a couple of points I mean, if you look at a you pointed out the wanted to have enough person. So I'd say historically and traditionally DD. Our view is in a having strong capital is always a good things regardless of the environment, So you're seeing a bit of that live.
Secondly, I think you just a just as the three or four questions and all of them. Good the theme off that did though.
We are in a uncertain times this crisis is unprecedented.
Yes, you know we are seeing green shoots we are seeing you know gradual reopenings.
Somewhat of a normalization in certain jurisdictions in which we operate but we also recognize that this things could change wed dramatically.
Change because there's a spike in infections or whatever the case might be schools are reopening so who knows what's going to happen four weeks from now so the bank you know is appropriately prudent and cautious about it and when you're in that situation to have very strong capital numbers. There's also a good thing we think thats the way it traditionally PD would.
Operator, and then I get to the point that Youre asking.
This isn't an unprecedented graces I think there's an over uses the word unprecedented but it's an appropriate phrase is an appropriate for his would describe you know what we've seen environment.
And without a doubt.
And the before this ends there are going to be opportunities, we feel that if and when they would do present themselves. A then TD as we have as we did in the global financial crisis and most of the other downturns, we've we've experienced in our lifetime.
That said, we want to be prepared if there are compelling opportunities we want to make sure.
We look at them seriously and if that makes sense from a risk perspective return perspective timing perspective, cultural perspective, then we want to be ready to act and capital levels provides us with that flexibility.
And then barb just on that he's been a big believe let him he didn't distribution both sides of the border does the crisis and the adoption of digital among customers make you feel differently about bank M&A.
It's hard to say I think that are different angles to look at from an M&A perspective, I think our belief in distribution has been more omni oriented.
I think this environment is showing that our view on omni rather than digital only has turned out to be correct.
I think every channel of ours as long as we providing goes personalize connected.
And seamless experience is another served us well and so I I wouldn't want to you know so totally discount.
Bank M&A from it I think a situation is such that you know we would look at any opportunity, but we would only do a deal that made sense from a risk and the financial and strategic perspective.
Well it and we also said to assume that calculations of tire from yet.
Yeah I think.
I had mentioned on the call last time that a you know we've been converting our books from a standardized to advanced approaches for some time now and the U.S. non retail portfolio.
That was down almost the last one well do last one major portfolio. It can be converted so I think we're through that piece and I expect a capital from here to be more reflective of a.
Organic.
Variables here as well as potential migration effects if conditions get worse.
Got it thank you.
Thank you.
Next question is from Sohrab Movahedi from BMO capital markets. Please go ahead.
Yeah. Thanks.
Two quickies one if I can just maybe ask RJ.
Maybe it's a bit upside redundant question, but he's in past calls you've kind of reminded us that there is seasonality.
In the provisioning levels with the with the cards.
Partnership.
And that tends to kind of have that historically had spikes kinda towards a Christmas timeframe and coming out of state. So Q4 in Q1.
There's obviously lots and lots of reserves you put up here right now, but is there still gonna be some seasonality, we should be thinking about when it comes to the cards portfolio and your share up it's going into Q4 in Q1, if next year.
Yes. So the simple answer is yes Q4 in Q1, so you see the.
Caught pcls build up because of seasonality in Q4 Q1. So you will see seasonality, but what did you should also keep in mind is that God balances generally have come down. So so you know the seasonal impact may not be as great as it was previously.
Okay. Thank you and maybe a quick question for ramp maybe that's real quick I didn't know for AFE for Bob and Bob.
Obviously, having that diversification benefits if youre your segment was quite helpful. In this quarter.
I Wonder if you could just paint a picture of SAP, where you think you can't take that business from here.
And what sort of fat additional resources, you may need both people call it expenses and debt and capital or balance sheet type resources, and what sort of said, what's sort of expectations you want to set for us for the next couple of years.
Okay.
For the question.
I think as I've been talking about in a number of years that we had been investing.
Particularly in our U.S. dollar strategy. So that's booked in the U.S. region, but in the $1 globally.
And that has.
Turned a that's turned out to be a you know very good investment I think you saw some.
Some of the benefits of that and so far this year and the last couple of quarters.
So that that will sort of continued to be the focus how do we continue to build though.
You S. dollar capabilities in those areas, where we choose to compete where we think we have competitive advantage and where we think we can make.
Strong returns.
And so in particular.
The corporate sector.
Ooh lots of opportunity, especially in a in the U.S. Oh, a significantly grow on our U.S. franchise in terms of corporate lending.
We are building it out.
Oh.
A greater on investment grade side, but we're also building up in non investment grade side as well and this a pandemic crisis, so far as well, obviously opportunity to move and clients as well as to upturn clients.
On the corporate lending side, that's the investment part and from that.
We've been able to them to increase or wallet share it with respect to a debt capital markets transactions asset securitization or yield offerings foreign exchange hedging et cetera, et cetera. So building the a product lines integrated with the client relationship.
On the government side.
Globally with it we have lots of opportunities still we had built up our SSD business a fairly significantly in a in dollars.
And were top five a dollar.
Market share there.
That being said, there's just feel a more opportunities who will be lower financing in the government side, not just the necessary, but in a provinces and.
And federal governments and agencies et cetera. So we see continued opportunity there and we've also a branch stone and from dollars then we're doing sterling and we've.
Started solid inroads into euro as well.
And then if you look at the other institutional client base be it hedge funds are real money central banking.
We've extended or product suite.
Order to both help on the origination focus but also to.
Build a client and product relationships there so prime services commodities foreign exchange.
Various structured product businesses that we're building in the U.S.
Equities et cetera. So.
Yeah, I think what we will do is.
We haven't been as we've tried to make those investments.
Currently own of adding that people, but also partly of looking at where we need to find synergies in order and productivity in order to fund.
And we're finding that as well I think as you well know.
There's been a lot of electronification of many of the business opportunities and that leads to a productivity.
Allows us money to to invest so I think on average we want to.
Continue to grow the franchise.
There aren't a lot of opportunities in our marketplace to do.
Significant acquisitions, but we have added teams and we'll continue to look for that.
Then we will add people and will integrate and build the franchises and moves we have in Canada, we still remains an important market as well.
Very helpful. Thank you. Thanks.
Thank you for the next question is from Paul Holden JBC. Please go ahead. Your line is open.
Good afternoon.
Ask you fear perspective around timing or potential timing under your base case for.
Loan impairment.
What we've heard from someone the other banks is first graft.
These.
Loan deferrals.
Off which is kind of end of Q4 for partway through Q4 event.
And then sort of impairment, peaking.
21 wondering if that's consistent with your view or.
Are you feeling the timing on it there.
Yeah. Thanks for the questions. So as you know.
Both the differ programs and all this stimulus provided either.
Corporations or two individuals have been very beneficial so.
I'm not seeing a lotta impairments in the near term.
And once told me will pickup when some of the stimulus.
Programs and and in my judgment that'll be.
In 2021, I can't pinpoint the order, but my gut tells me it'll be more the second half of 2021.
Okay.
Thank you for that and then second question would be with respect.
And.
Retail banking and just wondering.
How you're viewing potential market share opportunities today.
Across mortgages and other personal lending products.
Given the covert uncertainties, if you pull back a bit in terms of appetite to gain market share or is that more.
Steady course in terms of what you want to do from market share perspective.
Thanks.
Thanks for the question Terry So I'll talk a little bit about rental and that means that the business. So overall and so in this quarter. Our AD sequential volume growth would have been third relative to our main competitors.
Yeah, I feel like it's I think about the corridor, we were competing in some sense with one I'm tied behind our backs as of August 24.
We have fewer branches opened three or four top competitors and I think weve been.
A lot more conservative with our safe reopening.
Having said that you know by the end of September.
We would have the majority our branches open all other things being equal as the environment shakes out the next month.
So if I just step back and look at the resin business.
You really great about how we're positioned for growth you may recall that in 2019, we implemented our feature ready strategy and those distribution changes were an adjustment for her colleagues in branch banking in particular.
The adjusted to the model one in particular, the Handoffs, Tim as more complex deal to the mobile market specialists, but when we entered this year.
We really saw an uptick.
40% belong in Europe for your increased pre co head of branch banking activity and so.
Went into coated with the flattening of the curve activities and the closure of the branches. We have seen branch origination come off the bat and then for mobile market specialists.
As we went into the Kobin period.
The change to have customers signing with mobile mortgage specialists required a little bit of setup, we quickly sort of daughter cells in a place where that capability was there but that caused us a little bit of drag in the early part of the quarter. We really saw significant increases by July and our third party volumes.
Were very strong.
In July and our branch originations are picking up so what the investments we've made in distribution operations in automation in training and with the network open.
I feel like we're well positioned to grow the business and our retention is very strong up 60 basis points in the quarter.
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Risk perspective, because that was a component of your question.
We continue to have grown this business kind of mid single digits over a number of period.
And have been able to do that within our risk policies and our risk appetite.
Great that's very helpful.
Thank you.
Thank you next question is from Nigel just himself from very tough investment research. Please go ahead.
Good afternoon, I just had two questions for you and the first if I could turn to risk weighted assets.
And when I looked at credit risk drill down on asset quality that was a benefit this quarter I was wondering to what drove that I assume its into retail a exposures and maybe.
I think probably until they have been how about split between residential secured versus a qualifying revolving credit.
Yes, so the asset quality.
Improvement is really coming from two things it's lower.
Lower utilization.
Right, so lower utilization part of it would show up on the volume, but when you are lower utilization of piece of it shows up as basic quality because the probability of default is less so a part of that benefit as we attribute it to quality.
And then the second part of that is we did update our non retail.
I'd parameter for 19 data and as you know 19 was relatively benign so we've got.
Some benefit from that so overall, those two things sort of offset any credit R.W.A. increase because of migration.
Okay. So just.
Follow up on that doesn't mean that the non retail R.W.A. updates are going to lag that through the cycle. So how should I interpret it or into the retail is going to be more sensitive and all the way or a third we look at it.
Yes, so read it did I would say does lag because what you know what happens in retail as you go to wait for the bureaus cause to get updated and that's sort of feeds back into the R.W.A. The other thing that you have to keep in mind also is there's a charge off the charge of retail much much faster so there's a bit on line.
Because it because of retail I think the other very important point is that generally you know direct GAAP calculations are quite different than I have first night right I have heard as nine as forward looking it's it's more while it added because a macro factors because of property weights.
Our W is all backward looking it's a through the cycle.
Generally that view because it's through the cycle changes very slowly.
That's very helpful and just a last quick question if I may on your deferral book.
Specifically on small business in commercial I know, it's too early to talk about impairments, but could you maybe just provide some color on geographic mix and sector mix effect or deferred book just so we have some insights on what the composition is.
Yes, so that that deferred books on the commercial side you know it really goes back to what are the impacted industries and you'll notice.
We have a new slide I believe it slide number 29, where we sort of call out what the industries.
Focus our and part of those industries of focus include commercial real estate.
And there's some riskier segments within commercial real estate. For example, you noted we didn't creek to the extent you you have nonessential retailers on your rent rolls. This there's some risk that there's some risk associated with you know with hotels.
Some with office three you know the other segment I'd call out. It's just a retail segment, you know restaurants, and again coming back to non essential retailers.
Then this transportation and within transportation transportation and cruise lines, though exports is fairly small that a bit in health and social services as well. So then if I come back to deferrals and who.
Really along the lines of the impacted industries. So some of the biggest users of deferrals are in commercial real estate Adrienne retail because these other sectors that are most impacted by covert 19.
I hope that helps.
That's very very insightful. Thank you for the color.
Yes.
Thank you as the next question is from Scott Chen from Canaccord Genuity. Please go ahead. Your line is open.
Good afternoon, I just on the U.S. retail side I think in your prepared remarks, you talked about a record U.S. mortgage originations and I was wondering if you could provide a I perspective on a kind of the outlook on U.S. mortgages and perhaps on cards in autos.
Its progress through Corbett.
Sure It's Greg Scott. So thank you for the question. So first I would just give you a little bit of a backdrop that over the last five plus months or so we've definitely seen a slowdown in general activity starting in March.
And then progressing through various parts of the footprint in the U.S. certainly you saw a lot of slow down in the mid Atlantic in particular in New York, New Jersey, and Pennsylvania markets as those will hop points for cold that would translate to lower card spend a lower retail.
Credit line spend.
And and certainly we saw that the that play out in the mid Atlantic States as we got into late.
Spring and then into early summer and mid through mid summer really the focus of of the pandemic in the U.S. shifted to the southeast really down through the Carolinas in Florida, and you would've seen a lot of that slow down where retailers, both large and small consumer spending patterns would have slowed down.
And you know you would've seen that while some of the more hard hit markets earlier on we're starting to reopen up on the mortgage front the way that translates is.
You know with rates. So low you certainly saw a shift from a percentage from purchase volume to much more refinance volume and but what we're certainly seeing real time right now is record volumes that we're taking in.
And right now for a refinance insulin purchase volume that is still holding up.
There's a lot of activity tivity right outside the major cities in the suburbs.
And and we're seeing really record activity up and down the footprint from mean to Florida as I said, so mortgages are up given what we've talked about more muted growth and we've traditionally had over the last year or two on auto and certainly depressed card spend translating to less.
Card balances that get to what you want to Scott that's perfect and maybe just a follow up on that just.
Just on margin on the U.S. side down 43 bps quarter over quarter. Yeah me can you maybe kind of talking about the outlook there as it bottomed and then maybe from the Canadian perspective as well.
Alright, well, let me start then I'll turn it over to Terry. So yes, that's certainly you called it right 43 basis points quarter over quarter, and then 77 basis points year over year, but for the quarter over quarter number. What you saw it was a little bit of a lag in linerboard didn't come down immediately with 150 basis points of rate cuts that took effect in March right away you still had we.
Widened credit spreads in the market because of you know all that was going on at that point and then certainly a lot of that LIBOR spread came down as you got into Q3 to more normalized levels, given where fed funds were.
And that placing a you know a great focus on our own margins, a and you see some of that in addition to US we had very very strong deposit growth. So the way I'd give you the quarter over quarter look and yield. The you look as well is its rate certainly, but the volume and mix of the business because of all.
Volume that we're taking in this is certainly being reinvested a far lower rates then would've been traditionally on the book.
So that's kind of a the view, we're not really updating the outlook.
Given you know a lot of uncertainty over the next couple of quarters as we think about this but I'd say the general trend given where long waits. All you can see further pressure on a bit on on margins as you look out.
And next carried just to pick up on the similar seems you know about a half the rate cuts would have worked their way through in Q2 and they've been fully.
Worked through in Q3, there will be sold downward pressure in the near term.
Lower cards in the asset mix would be one contributor to that and then you know overtime tractor repricing that will play a role.
Lot of moving parts, but certainly more modest compression we would think.
Thank you very much.
Thank you.
Once again, please press star one it's have any question.
And the next question is from Gabriel to Shine Some National Bank financial. Please go ahead.
Oh, I forgot how to retract my question not only to ask anything.
Good to hear from you gave [laughter] just wondering you on the record [laughter].
[laughter] hope you're doing well [laughter]. Thanks. Thanks.
All right to that.
Thank you.
In that case, there are no more questions in queue. At this time I wouldn't I can certainly meaning over back to Mr. Barry.
That's running for closing remarks.
Thank you operator, and thank you all who is joining us a this afternoon I'd say in overall quite happy with how the borders turned out a given the environment in which we are.
All living through you know the performance has been good businesses are doing you know what do you expect us to do from TV and with strong capital levels and we've talked about that on the call is also a good advantage for the bank or to have so overall happy very happy with how things are turning out.
Happy from a relatively perspective, I guess, you, though with the environment Nobody's happy and hopefully you know the next 90 days a week.
We are into a different situation.
I would like to take the opportunity to do think my duty colleagues around the world I mean, they've done just the masterful job and adjusting to a very difficult environment and they've been there to deliver for our customers and for the communities in which we live and work. So so a big thank you to 90000 strong PD bankers around the World you you make us feel proud.
As to what you do day in and do.
With that again things would joining us today, and we look forward to having another discussion 90 days from though thank you very much somebody.
Yes.
Thank you. The conference has now ended please disconnect your lines at this time and we thank you for your participation.
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