Q4 2020 Toronto-Dominion Bank Earnings Call
All participants please standby your meeting is ready to begin good afternoon, ladies and gentlemen, welcome to the TD Bank Group Q4, 2020, <unk> earnings Conference call I would now like to try and the meeting over to Ms. Gillian Manning. Please go ahead and as many.
Thank you operator, good afternoon, and welcome to TD Bank group's fourth quarter 2020 investor presentation.
We will begin today's presentation with remarks from Medtronic and the bank CEO after which reacts I'm at the bank CFO will present, our fourth quarter operating results.
And the Wiley 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, the here to answer your questions today, our Teri Currie group head Canadian personal banking, Greg Brock, our president and CEO TD Bank of America's most convenient bank and Bob Dorrance Group head wholesale bank.
Please turn to slide two.
At the time I would like to caution our listeners that this presentation contains forward looking statements there.
There are risks and actual results could differ materially from what is discussed and that certain material factors or assumptions were applied and making these forward looking statements any forward looking statements contained in this presentation represent the views of management and are presented for the purpose of assisting the bank shareholders and analysts and understanding the bank financial position objectives and priorities and anticipated.
Financial performance.
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 the businesses and to measure overall bank performance. The bank believes that adjusted results provide better with the better understanding of how management views the bank's performance.
And we'll be referring to adjusted results in his remarks.
Additional information on items of note the bank's reported results and.
Factors and assumptions related to forward looking information are all available in the 2020 and DNA and fourth quarter 2020 earnings news release.
With that let me turn the presentation over to net.
Thank you Gillian and thank you everyone for joining us today.
Twentytwenty has been a year without parallel.
Whether you are wherever you live.
Each one of the bus is felt the impact of Google 19, and of course snow and growth in our personal and professional lives.
Once again, we extend a heartfelt thanks and gratitude to the tens of thousands of healthcare workers first responders and others on the <unk> front line, including TD Bank was still working tirelessly to provide the decision essential services grew out of Disgraces.
Well the there's also been a transformative experience will de <unk>.
The showcase the greatest strength as we came together and force to support our customers colleagues and communities.
And it is tempting resilience is the pandemic and the recession and unleashed and a profound impact on the financial performance and the operation.
This year, we delivered earnings of 10.
And billion dollars and eat the s. of $5.36, both down 20% from last year. A good result, given the extraordinary circumstances and helped by a strong finish and Q4.
Personal and commercial banking businesses showed the expected pressures from a downturn that affected households, and businesses so deeply but.
Well the insurance and wholesale business is had the best years ever with record revenue and earnings.
Alan She's also ended the year and robust for we'll see the one ratio of 13.1% and the liquidity coverage ratio of 145%.
These results demonstrate the strength of our proven business model and customer centric strategy.
I couldn't be more proud of.
We showed up what our customers out thousands of TD bank, because the adopted and push forward, providing advice delivering bank relief programs and facilitating access to the government support that has been a lifeline for so many and in terms of customers and trust the dogs to help them meet their financial needs.
This fall, we conducted a and your colleague Serbia and log the highest engagement scores in our history of.
I've, often said that our people are our greatest asset colleagues across the D remain committed to the bank and our purpose the.
This year, we provided additional financial support to recognize the the contributions including especially the bonus for non executive employees.
We've also redeployed several thousand de bankers across the organization meeting urgent needs and our business and opening up new career paths for our people.
And because the only as strong as the communities, we launched the TD community resilience initiative part of the TD and ready commitment to bring the banks the resources and capabilities to the to those communities most affected by the bend ending.
And with this years unprecedented disruption and the enormous and work out but it does require.
Especially proud of the climate action plan, and we launched last month, including our target to achieve net zero greenhouse gas emissions and our.
Operations and financing activities My 2050.
We all recognize the urgent need for businesses of all sizes and in every industry to find new pads the sustainable growth PD.
The D is positioned to play a central role and the separate building on our long history of environmental leadership flow.
Line shareholders and other stakeholders. The responded very positively to our announcement and we look forward to working the working with them well not share journey to a lower carbon future.
We also took steps this year the reinforce the cornerstone of our culture and inclusive of workplace. We're all getting right. We continue to increase the number of women and leadership roles made new commitments to grow the minority executive representation and launch of bank and community weighted afterwards to tackle the impacts of and.
The black racism.
It is the hallmark of our purpose driven <unk> focused strategy and we continue to work to build more sustainable includes the futures even as we transform our day to day operations to meet the Corbett John.
Plunge.
Like all great Great, Susan and history, <unk> will not last forever as stewards of the 165 year old growth organization. It is our responsibility to manage the today and plan and do what tomorrow.
We have been and are continuing to build out of operations for the digital age increasing our agility and customer Centricity, we continue to scale, our ability to execute with speed and impact for customers, helping strengthen and deepen relationships.
The 26 million customers, we have today and the new customers, we are adding every day.
We're also continuing to improve our platforms and technology infrastructures.
These investments were critical in enabling the rapid response to cool equipping 60000 colleagues, including many many contact center employees to support our customers, while working remotely absorbing surging mobile well and Walliams and service volumes and introducing new digital advice and support capabilities overnight.
We are accelerating these investments to further improve the stability and security and agility of our operations and enhance our enterprise capabilities to better serve our customers.
Alongside the is enterprise wide innovations, we continued to create new sources of value nature of our business is.
And Canadian retail, we grew market share and personal deposits maintained our leadership position and payments and continue to differentiate our offering with the launch of de global trends, what this quarter a best in class money movement capabilities.
We achieved record real estate secured lending originations and build on our leadership and guards announcing a refresh suite of TD and Oakland credit cards, and crossing the 100000 customer Mark with the Amazon, India and the Cobrand card.
And we continue to support the millions of customers through the ciba and certain programs and.
Well, that's true RTD ready advice center.
Well the business had a banner year with the record earnings assets and trading volumes, we added more than 120, new investment advisors private bankers and financial planners and advice business is launched new sustainability of funds and eat the EPS in D. asset management and builds on a leading direct investing capex.
Well it is with the introduction of de de Gaulle. This is a new mobile self directed investing.
And our insurance business and record earnings well delivering substantial who would relate the relief of customers, our new general insurance platform and enhanced digital sensor and advice capabilities drove its second consecutive year of double digit premium growth.
Can you at retail we continue to build the next generation of customer service and advice and excellence with the legendary helping.
Helping our people get closer to our customers and meet the challenging needs and we've complemented the is with enhanced digital capabilities, including a new customer financial assessment do as well as the capability of the order placement debit cards for curbside pickup.
We ranked number one in the SB lending and our Maine to Florida of footprint for the fourth consecutive year.
And we were the number six PPP lender nationwide funding approximately 86000 loans with over 8 billion U.S. for small business customers the bedrock of our community banking strategy.
And we were delighted the support the TD ameritrade ritual of transaction, which closed this quarter book ending of fiscal year with this transformative deal.
The D is now the largest shareholder in the pre eminent U.S. well services form with U.S. six trillion dollars and client assets.
Our wholesale bank and a record $1.4 billion and Twentytwenty, reflecting a strong year for our Canadian franchise and the multi year investments we made in the U.S. dollar origination across corporate and government and bench and lines as well as growing product capabilities and our global markets business.
[music].
With the diversified global product business, we've built over the last several years, we were able to actively participate and constructive market conditions and continue to grow and deepen client relationships.
We're also proud to launch of sustainable finance and corporate transitions group, the which we will continue providing clients with the advisory services and transition and sustainability focus my financing globally aligned with the banks climate action line.
We recently exceeded the U.S. hundred billion dollar of more for international Bond underwriting, which includes all bonds that are registered to be sold internationally. During the year. This is the significant milestone for the dealer it represents the more than doubling of volume and the 60% increase the market share or the last.
Five years.
And just last month TD Securities was the lead manager and the European Union second social bond financing of the shore program.
And at 14 billion euros. This offering was the second largest social one ever issued in the debt capital markets, representing a historic milestone for the entire global franchise.
Overall fiscal Twentytwenty was the year of unprecedented challenge during which the rallied together to deliver on our highest purpose and reaching the lives of our customers colleagues and communities, while making foundational investments to power on the next leg of growth.
Last quarter, I said, a measure of cautious I set a measure of cautious opted the optimism was warranted the continues to be true today, well the second wave of infections as for some jurisdictions to pause on reopening measures. Each day brings the more promising news about potential vaccines and we can see the impact.
And improving consumer confidence and activity levels the.
The outlook remains uncertain, the pandemic could bring new setbacks, and we expect the recovery and earnings to be uneven, but the mergers from fiscal 2020 with momentum in our business is as we move through 2021, we expect to benefit from lower PCL as well as an ongoing recovery and customer active.
With the together with continued expense discipline. This should help offset some further deposit margin pressure and the potential of moderation and volumes and capital markets activity.
Overall, we feel positive about the power of our franchise as the economy recovers we are.
Confident and a strong customer base and the continued investments we made in our business is positioned us well to execute on our growth opportunities.
As ever we will stay true to our long term strategy and continue to focus on our strength and the.
What's the bike business mix, a deep customer base and powerful brand and the very best people and.
Finish by thanking them again for the steadfast commitment and dedication and this most extraordinary year with that I'll turn it over to react to review the numbers in more detail yes. Thank.
Thank you Barry and good afternoon, everyone. Please turn to slide eight.
For fiscal year 2020, the bank reported earnings of $11.9 billion, and EPS of $6.43 up 2% and 3% respectively.
Reported earnings and EPS include a $2.3 billion net after tax gain and the sale of the bank's investment and TD ameritrade rate as well as prior year charges related to the air Canada and agreement.
The $2.3 billion gain is to price dog and non taxable revaluation gain of $1.95 billion based on Schwabs October 5th closing share price of Usthirty $6.94 and.
Net 0.3 billion dollar and gain on the release of a related deferred tax liability.
Also released foreign currency translation and hedging impacts related to our investment from AOCI Guy, which netted to a loss of approximately $550 million and a pre tax basis and were approximately neutral on an after tax basis.
Fiscal Twentytwenty adjusted earnings or $10 million and adjusted EPS was $5.36 most down 20% range.
Revenue increased 6%, including the pre tax net gain on the sale of TD Ameritrade.
Adjusted revenue increased 3%, reflecting record wealth and insurance and wholesale revenue and growth.
The good growth and the personal and commercial banking businesses, partially offset by margin compression and lower fee income in the banking businesses.
Provisions for credit losses were $7.2 billion for the year up $4.2 billion, primarily attributable to higher performing PCL due to the significant deterioration in the economic outlook relating to calls and.
Expenses decreased 2% year over year, primarily reflecting charges related to the agreement with air Canada, a year ago adjusted expenses increased 1%.
Please turn to slide nine.
For the fourth quarter, the bank reported earnings of $5.1 million and EPS of $2.80 Rick.
The reported earnings and EPS and including the key to include the TD Ameritrade net gain.
Adjusted earnings were $3 billion and adjusted EPS was $1.60.
Revenue increased 15%, including the pretax net gain on the sale of TD Ameritrade adjusted revenue increased 1%.
Provisions for credit losses decreased 58% quarter over quarter to $917 million, reflecting declines and impaired and performing PCL.
Expenses increased 3% year over year, including corporate real estate optimization cost of $163 million and investments supporting business.
Please turn to slide 10.
Canadian retail net income was $1.8 billion up 3% year over year.
Revenue decreased 2% from lower deposit margins and lower fees and the banking businesses.
Offset partially by volume growth and the higher wealth and insurance revenue.
Average loans rose, 3%, reflecting growth and personal and business volumes.
Average deposits rose, 20%, reflecting double digit growth across all businesses.
Well the assets increased 2%, reflecting new asset growth and market appreciation.
The margin was 2.71% and increase of three basis points from prior quarters.
Total pcls decreased by 74% quarter over quarter, reflecting lower impaired and performing PCL.
Total PCL and annualize percentage of credit volume was 22 basis points down 64 basis points quarter over quarter.
Expenses were up 2%, reflecting higher spend supporting business growth.
Please turn to slide 11.
You ex retail segment net income was the U.S. $658 million.
The U.S. retail bank net income was the U S $403 million down us $278 million.
Revenue decreased by 8%, reflecting lower deposit margins and fees, partially offset by volume growth.
Average loan volumes increased 7% year over year, reflecting growth and personal and business volumes with significant increases in the SBH PPP loans the.
Posit volumes, excluding sweep deposits were up 26%, including 30% growth and core consumer checking.
And sweep deposits were up 35%.
Net interest margin was 2.27% down 23 basis points sequentially, primarily of lift reflecting lower deposit margins and balance sheet mix.
Total PCL, including only the bank's contractual portion of credit losses, and the strategic cards portfolio was U.S. $433 million down 34% from the prior quarter the.
You ex retail net PCL ratio was 1.01% down 50 basis points from last quarter.
And expenses decreased 1%.
The contribution from TD is investment and TD Ameritrade was us $255 million up 16%, primarily reflecting higher trading volumes and lower operating expenses, partially offset by reduced trading commissions and lower asset based revenue.
As you know we report our share of TD Ameritrade earnings at the one month lag we will be following the same convention for Schwab and we will begin reporting our share of shrubs earnings on this basis in Q1 fiscal Twentytwenty one.
Please turn to slide 12.
Wholesale net income was $486 million, an increase of $326 million.
Revenue was $1.3 billion up 48%, primarily reflecting higher trading related revenue higher loan fees and higher debt underwriting fees.
PCL decreased by $129 million from the prior quarter, and our recovery and impaired PCL and lower performing PCL.
Expenses were $581 million down 3%.
Please turn to slide 13.
The corporate segment reported a net income of $2 billion in the quarter compared with the net loss of $240 million in the fourth quarter last year. The increase was primarily attributable to the net gain on the sale of for investment and TD Ameritrade.
Adjusted net loss was $213 million compared with an adjusted net loss of $178 million in the fourth quarter last year, reflecting an increase in net corporate expenses, partially offset by higher contributions from treasury activities.
The increase in net corporate expenses reflects the impact of corporate real estate optimization costs of $163 million in the current quarter compared with restructuring charges of $51 million in the same quarter last year.
This quarter, we made the decision to vacate approximately 1.2 million square feet or 11% of our non retail space related to real estate optimization plans that predate covance. Please.
Please turn to slide 14.
Common equity tier one ratio ended the quarter at 13.1% of 62 basis points from Q3.
We had strong organic capital generation, this quarter, which added 30 basis points to our capital position and.
And we also added six basis points, each from actuarial gains and employee benefit plans and oxys transitional arrangements for expected credit loss provisioning.
As previously communicated the Schwab transaction at a roughly neutral impact on see tier one capital.
RW Ace declined this quarter of before the impact of the shrub transaction on lower credit and market risk our revenue and.
And our WH was flat quarter over quarter, including the impact of the swap transaction.
We have set out the details of shops impacts on see tier one capital and RW eight on slide 37.
Leverage ratio was 4.5% this quarter and LCR ratio was 145%, both well above regulatory minimums.
As a reminder, our ses transitional adjustments to see tier one capital of four SCR provisioning is currently subject to a 70% gain or factor, which the declines to 50% in the Q1 of fiscal 2021.
Expect the impact on our cetone ratio to be approximately 10 basis points and the first quarter I.
I will now turn the call over to Ajay.
Thank you guys and good afternoon, everyone.
Please turn to slide 15.
Gross impaired loan formations decreased eight basis points quarter over quarter, primarily reflecting the ongoing impact of bank and government assistance programs on the consumer lending portfolios.
And lower formations in the us commercial lending portfolios.
Please turn to slide 16.
Gross impaired loans were 3.2 billion of 42 basis points decreasing nine basis points quarter over quarter, primarily related to the resolutions outpacing formations in the Canadian and U.S consumer use commercial and wholesale lending portfolio.
Wholesale resolutions were largely in the oil and gas sector.
Please turn to slide 17.
Recall that our presentation reports BC and ratios, both gross and net of the partner's share of the U.S. strategic card credit losses, we remind you the credit losses recorded in the corporate segment of fully absorbed by our partners and do not impact the bank's net income.
The bank's pcls in the quarter were 921 million of four.
49 basis points, decreasing 1.3 billion or 68 basis points quarter over quarter.
And stable year over year.
The 2020 the banks full year PCL rate was 100 basis points up 55 basis points from 2019 due to the.
The impact of COVID-19 and the team.
The region in the economic outlook, including the impact of credit migration.
Please turn to slide 18.
The bank's PCL decreased $469 million quarter over quarter zone.
The reflecting the ongoing impact of bank and government assistance programs in the consumer lending portfolios.
And prior period impact provisions in the wholesale segment.
Performing PCL decreased 799 million quarter over quarter due to the smaller increase to the allowance for credit losses this quarter.
Current quarter performing provisions were primarily recorded in the us commercial lending portfolios across and number of industries, including commercial real estate.
Please turn to slide 19.
The allowance for credit losses increased 157 million or two basis points quarter over quarter to 126 basis points, driven by the business and government portfolios, reflecting an increase in the us commercial.
Forming allowance, partially offset by lower wholesale segment impaired allowance largely related to resolutions in the oil and gas sector.
I remain satisfied with the banks allowance coverage, which reflects.
Current economic outlook.
And our portfolio and geographic mix.
Please turn to slide 20.
Loan balances and the bank led the for programs decreased 41 billion from the third quarter as most deferrals have now expired.
In terms of deferrals related credit impact the significant the majority of clients that have graduated from deferred programs are current with net payments and graduated deferral of delinquency rates are elevated relative to our broader portfolios, but remain.
Within expectations.
We will continue to monitor our portfolios closely to assess the ongoing impact as customers return to regular payments.
Now, let me briefly summarize the year.
We continue to operate through challenging conditions, given the unprecedented impact from the COVID-19 pandemic.
Bank led and government assistance programs have had the desired effect of helping our customers.
However, the shape of the recovery and.
The magnitude and timing of the ultimate credit impact the main uncertain.
While I expect the sales to be lower Twentytwenty, one reflective of our significant performing allowance build this year.
Given the degree of ongoing uncertainty the may remain elevated from threeq of with 19 levels and could vary by quarter.
To conclude given the significant addition to our loans this year, our strong capital position and a broad diversification across products and geographies, we remain well positioned to manage through these difficult times.
With that operator, we're now ready to begin the Q and a session.
Thank you we will now take questions from the telephone line. If you have a question and you are using a speaker phone. Please lift your handset before making your selection. If you have a question. Please press star one on your devices keypad, if at any time it Wister capital. Your question. Please press the pound sign Please press star one at this time.
If you have a question.
And the first question is from GAAP, but he is the same.
The net National Bank financial Please go ahead and we buy.
First question for.
Barrett or rias.
The dividend increases and buybacks are frozen until August of this as otherwise and just want to clear up the possible confusion around M&A is that more of the case by case deployment option.
Okay, and then you could potentially do something.
The gave the nice to your voice has been the license we got together and hopefully we do get an opportunity given all the good news that all of us and been seeing on TV.
Yep.
On the M&A volume.
I've always said this in over the past few years, we look at capital deployment sort of outlook is the low how we think about capital of of deploying capital.
And we've been consistent that we are interested and acquisitions, the compelling and makes sense for us and as long as there the make strategic sense financial sense of risks and culture since you know.
We're very open.
The two acquisitions and the one specific area as we pointed out that are of particular interest and of.
Parts of the United States, and where we do have organic opportunities, but we think two acquisitions, we could accelerate those those those opportunities.
Theres any asset generating type of you know of.
Opportunities available, we'd be quite interested and obviously anything in Canada will be.
Great interest so so our view on this has been consistent and that has not changed.
I think what the if you sort of look at what's going on through the up and them and it would appears.
[music] of change and probably will change.
Is the number of opportunities May go up as we look at how the environment the was there.
A lot of banks I am sure are facing dislocations of financial services company in General Im.
Sure there are lots of boards out there looking at their strategic.
Sort of opportunities when we all of the other and that may throw of.
More deals the in the picture and and our view is that we do have.
Very good capabilities and our bank there are areas that would be of particular interest we're good acquires the noise.
We convert well, we integrate well with great great franchises and the other end of it and the our history has been true through major downturns and dislocations. If there had been opportunities TD has taken those opportunities and made the.
We believe the turned out to be pretty pretty good for us. So that's the long answer to see the nothing has changed.
And we like the flexibility that we have.
Given our balance sheet, given our brand and given you know the the Dave of scale, we already have in various markets in which we operate.
Thank you the.
The next question is from Ebrahim Poonawala with Bank of America Securities. Please go ahead.
Good afternoon.
The follow up on.
And I did.
PC as one.
Jay if you talk about.
Performing PCL.
I heard you talk mentioned commercially in the state diving, the Pcls and the U.S. This quarter just tell us at all.
More of the.
Function of portfolio the view of any factors of from the macro standpoint that net to this.
The from the PCL based and the U.S. this quarter.
And yes.
Yes. So thank you for the question so.
Let me just elaborate one I would say is macro was not a driver of our allowance build.
This quarter in fact, if you go and look at the macro variables you see there's some deterioration in the near quarters work at the us.
Unemployment GDP and also Canadian housing if you go to the later quarters.
And the good to see and see an improvement we didn't change any of our waiting and downside like I said last quarter remains a doubling of so bottom line. It was not the macro.
As you're aware, we look at our portfolios and an ongoing basis and.
And and we repeat that every quarter. So we did migrate parts of our book in the us and.
Much and real estate is part of that but it isn't only confined to commercial real estate. It was a few other industries, including the professional sundry manufacturing. So there were a few industries, but the performance allowance build is based on credit migration.
That's helpful.
Thank you.
The next question is from many Grauman with Scotia Bank. Please go ahead. Your line is open.
Hi, good afternoon.
We see excess cash balance is very high both sides of the border both consumers and businesses.
And with the positive data.
I'm wondering what the implications are for credits and as you think ahead and also for loan growth.
The this on why and how long does it take what's your view of how this will impact both credit and loan growth.
It might be of what it's actually a bunch of core of the credit side, and then perhaps Terry and and Greg and talked about.
And what they're seeing from the client I will vary so I'd actually take you back to my comment the last quarter wed indicated that my view was that were really going to see impairment start in the second half of the year.
Part of the reason was we're sitting on all these cash balances so till the stimulus ends and we start seeing the cash balances come down we're not going to see the impairment so and that's the other reason why even in our prepared remarks, we said PCL will vary quarter by quarter.
C and situation, where pcls remain low for a couple of quarters and then start rising so the key.
For the near term these cash balances I would call them of credit positive.
Great.
Maybe it and we can start with you talked about loan growth and Canada.
Sure. Thanks.
So.
Okay and follow onto it.
Business loans actually held up pretty well this quarter.
The lower utilization and part of that would have been to the subsidies for sure.
And then that was offset by some good growth and real estate construction lumps in the residential and agriculture.
And the personal side and Sir.
And the answer.
We would have seen less utilization as a result and the.
Hi.
And play the cash.
The activated from the deposit growth perspective.
Obviously benefited.
And we're focused very.
Heavily on ensuring that we help our customers.
The money.
And that's for the future aspirations and we're quite focused on the.
Many its Greg I would just add that.
We are seeing a pretty decent loan growth given the state of the economy, what we've been through for the last few quarters.
In the consumer side of the loan book, it's really kind of a tale of the.
A couple of stories, you've got very very strong growth and the mortgage business as you'd imagine right now not only because of new home purchases because of low rates because of another refinance boom going on but you're also seeing a drag and credit card and the outstanding balances and spend and far more muted growth pretty flattish growth and auto business from what we.
You would generally be seeing the pre cold and and the commercial space as.
As you know of business loans are up 10% of some of that is driven by the PPP small business.
A program for small and businesses, but really throughout the second third and even into the fourth although it's come down somewhat you've seen good activity on the commercial side folks business is looking to raise liquidity and make sure in some cases that they have the excess liquidity on the balance sheets.
Or taking advantage of opportunities.
And on the deposit side. The story is quite strong and you're rightfully. The pointed out we would have thought deposits would have started to more normalized after Q3, but just from a year over year standpoint, the deposits ex sweeps or up 26% year over year and the U.S., just very very strong growth 35%.
Up in the commercial businesses so.
So businesses small and medium and large companies are putting liquidity on the balance sheet.
They are making sure there are the prepared for opportunities or making sure they're prepared the downsides, depending on the industries that the RIN even on the consumer side consumer checking balances are still quite strong and I do think this lens to some of our Jay's comments about why we're still seeing delinquency rates quite muted the.
Positive DTA balances and our consumer space was up 30% year over year and quarter over quarter, many were still up quite a bit and other seven and the half plus billion dollars.
Even from Q3, the Q4 across consumer and commercial so quite a strong story still.
Thank you.
The next question is from the Scots Chan with Canaccord Genuity. Please go ahead.
Hi, Good afternoon, I got a two part question and U.S. retail and after fiscal Q2 kind of in terms of profitability you showed nice momentum over.
Over the past two quarters like how do you see that trajectory.
And the near term in terms of potential and.
Improved profitability going forward, and maybe kind of tying it into the credit side, which is the obvious delta and your experience on your referral programs and how important is further fiscal stimulus near term on that outlook.
Greg.
So sure so Scott Thanks for the question, Yes, we too are pretty pleased the notwithstanding the.
The.
The large drop and earnings obviously because of the onset of the pandemic and Q2.
Strong recovery and Q3 and net continued right through Q4, while certainly not back the pre cold the levels, we are quite pleased with that trajectory.
I would just add that.
You know, we're going to have to see how this how this goes and where.
We're quite happy with customer activity.
We've heard a few times of delinquency rates continue to remain quite muted.
We are pleased to see that liquidity is still very much a surplus and both consumer and commercial checking accounts I do think that bodes well, we are seeing a recovery and scenes and credit card and debit activity that bodes well for the overall economy, and you're seeing that play out and the unemployment rates and the us as well as various into.
The caters.
Across the commercial of commercial segments and I do think it's it's still early to say how the next couple of quarters at least the next quarter of two until the vaccine is fully rolled out there's going to be some bumps and the road over the next couple of months that we want to be mindful of.
But what we're seeing real time from our customers is that they are in a reasonable position.
I think its stimulus is an important decision.
The discussion point to have that bridge and told the vaccine is more fully out there.
And that the some conclusion around that.
Both on the consumer side as well as any relief for impacted industries and the commercial space. So I think as we think about the earnings trajectory.
It's it's obviously something we're going to be watching we're going to be managing through.
So far of customers are holding up quite well and I think the next 90 to 120 days will be instructive around stimulus and how we get to the other side of that vaccine and Scott.
Thank you. The next question is from Sohrab Movahedi with BMO capital markets. Please go ahead.
Thank you Greg the actually wanted to pick up where you left off and.
Good day, and nervous and early and see where do you see and.
Concerns around.
She's and pressures maybe show you talked about credit cards and that the cards. The coverings, but are you worried about the compression outside of margins and.
Well you know we're bankers right. So I guess, we get paid to worry and we spent quite a bit of tall and talking about downside scenarios you know and.
You know I think we're doing all that we can all of our employees across the TD Bank group and make sure. We're as prepared as we can as we can be and that includes how do we serve our customers as we're hearing about more lot sales and spikes and infection rates, especially in the us over the last several weeks. So we continue to watch all of these.
Things closely both for our employees as well as for our customers I.
I do think the biggest the.
Moving to be watch for will be do we get to another stimulus package that does bridge the vaccine, especially if we get more shutdowns of particularly around affected industries restaurants travel leisure industries and things like that have been hit, particularly hard. So we continue to watch that but overall I would say.
Is that the attitude and the mood seems to be that folks are beginning to think about what the other side of that pandemic is and the expectation that the vaccine whether it's in two months or whether it's in four or five months does begin to get rolled out and we do begin to get back to normal. So it is quite constructive and positive I think that folks are thinking about brighter times and and.
More of a recovery mindset and how are we how we got to ask and invest and grow our business is effectively on the other side of that I do think thats quite positive.
Thank you. The next question is from Mike and the Savannah Vic with Credit Suisse. Please go ahead.
Hi, Good afternoon, and a question for Greg I just wanted to see if you can maybe break out the margin decline sequentially, just and some of the components, it's a pretty sizable move and it's.
It's the big confusing to understand where this is headed because we've seen such significant differences among the peers on the U.S. exposure.
Yes.
Sure Mike So let me just take a step back if we if we.
Take a look at this obviously, we all know that you know in the U.S. Bank, where deposit rich organization. We also know that we have had excess liquidity and.
And we Havent had to rely on wholesale funding or wholesale deposits to fund loan growth, which has certainly been the you know a positive thing from how we think about the bank and the U.S.
The positive sides of this is regardless of where the rates are up or down. We believe good core fundamental deposit growth is actually a strength of the organization notwithstanding where rates are so and I put all of those things together as you'd imagine its reason why I was so specific by calling out some of the growth rates of the deposit business of 30% of all in 26 per se.
And against the versus without Ameritrade deposits, even factored in but I always call up the quality of those deposits that we think is awfully strong with the consumer DTA of 30%.
The of itself. So this is this is again the quality story of been talking about for the last several quarters of that growth.
And does bode well long term as far as the margin goes when you had deposits as you know really outweighing the growth of the loan book, especially in this environment, we wouldn't expect too many banks to be growing loan books and the double digits, let alone the growing at 25 and 30% to absorb this excess liquidity, you're going to have a decline and margins and we're going to get hit particularly.
Harder than what you might see as the headline number around that but underneath that and number two though I would just mention.
Is that other organizations are going to have the ability to pay down wholesale deposits, which would offset some of the impact on margin as well as you know perhaps.
Moving some of the wholesale deposits. They would have raised since we all have that that margin compression would hit us a little bit harder, but overall the deposit story, especially with good quality de growth of consumer and commercial we actually think it's a good story long term.
Thank you. The next question is from Nigel the Suzette once a day types investment research. Please go ahead.
Thank you good afternoon, I wanted to touch on the wholesale banking segment.
And you had a pretty strong net interest income for this quarter as well and sockets up.
Quarter over quarter and I was wondering if that's at all tied to a replay of market transactions and the reason why I ask is.
When I look kind of your balance sheet interest bearing deposits with banks has increased substantially.
Over the last few quarters, so am I thinking of that correctly has the driver.
Bob.
Yes, we have a.
Nigel had.
But good repo or act of rainfall.
Business this year and.
A couple of quarters.
And that is.
Hello.
The net and ER and IR.
Hi.
So any commentary there and how you expect that to play out over the next few quarters is that going to wind down with.
A lower deposit balances.
Our view is that.
That will be one of the headwinds that business.
This will face.
The scope of 21.
Okay. Appreciate the color. Thank you.
Thank you. The next question is from the mob vessel with the Carmax Securities. Please go ahead.
Thanks, My questions for each of you you'd mentioned that Pcls could remain elevated from peak of at levels can you help us pinned down a range that we should be thinking of for total p. sales for 2021.
Sure Let me let me let me give you my view, so we're not giving any guidance. This year. So I don't think I'm going to be able to give you the range [laughter].
However, let me just talk about the uncertainty and you can see it's.
It's because of the uncertainty we are unable to give you a range. There are several factors and some of them are positive.
Some of them on the negative.
For example, the level and timing of impairment is uncertain, but I.
I've talked a bit about that and I expected to be more in the second half of these talking the second now.
And then the shape of the free cash.
Every.
Can be influenced by a number of things, including the second wave stimulus timing in the United States and the quantum of the stimulus.
And the availability of distribution and public acceptance of the vaccine. So from my perspective, you know the range of outcomes is.
Is quite wrong and would you should take some comfort from is we have the significant allowances the.
Okay and were going well positioned into next year, and we believe the numbers will be low of PCL, but.
I can't give you any specific range.
Thank you.
The next question is from them and get paid the shine with National Bank Financial. Please go ahead.
Hi, just a follow up on the the U.S. margin there and.
And you kind of alluded to with the.
And all the excess liquidity I guess, we're seeing that the loans to the bar the to the world's running 60 percentish.
Pre covered most of them took 50 I'm just wondering.
Do you think we share the.
Bottom or and but ratio is going to be the studies. They are 50 per cent most of the part of the ratio and then the.
And you kind of and could grow back into a higher number before we sort of sort of see margin recover burn.
Barring a rate increase or something like the.
Gabriel Thanks, Thanks for the question again, yeah. So I would just say that these things are hopefully going to be hard to predict right. So I would have thought that we would have been getting a bit top ish in the deposit growth after the Q3, but they continue to.
And quite strongly into Q4 as I've already noted I think part of the story will be going forward is is there. Another stimulus packages there were another round and that might affect or spike the deposits even further.
And I think as you start getting back to a more normal state or if there isn't.
Another round of stimulus that's meaningful I do think both small businesses and consumers will begin to eat into their their deposit reserves and I think they're going to be doing it for a number of reasons, whether they are affected the from financial performance, while they're going to be thinking about were opportunities. The begin to reinvest excess liquidity. So I think we're going to have to watch and over the net.
A couple of quarters before we begin to get back to a steady state.
Thank you once again, please press star one on the of devices keypad. If you have a question and the next question is from Ebrahim Poonawala with Bank of America Securities. Please go ahead.
Hey, Thanks for taking the question and again I just.
Just wanted to follow up on your Oh, the sponsor earlier regarding us M&A in particular, the specifically well part of you've talked for a long time about liking the southeast market.
And Florida in particular, having said that debt and too. Many of you can franchise and secondly, any kind of deliberate that standalone just talk to us when you think about the U.S.
He didn't sort of market given sort of the digitization given what you've done some corbett how do you think about the PD Sanjay index to the best to think about it doesn't east coast, Maine to Florida franchise, and Thats, what you want to do or does the cases and the shift in the the backdrop et cetera, you talked about the challenges for the bank create an opportunity.
And to make the some more national franchise.
Right and the gray.
The question.
Yes, and you know there was the.
During normal times creep and then Inc.
And the opportunities whether or not that many and who knows what happens in a post spin them and go or to the current period and our desire is that a the the markets. We're in a terrific markets and high growth markets. If you look at you know we are writing and the fifth the the top states and off from a growth.
The.
Opportunity perspective, so very happy with where we are but did I would we look at opportunities is outside of the franchise.
I think that I've been around long enough to say never say never.
And there is a compelling opportunity of course, you would one does the is one of our big analysts and are presenting a lot of our investors the law.
Look at any opportunity that made strategic and financial and risk and cultural center. So so I don't want to say that we'll never look at it because there are certain business as we have the national and scale. If you look at the credit card business, particularly the partnership business. This national and scale out did you auto finance business is national and scale.
Some of our specialty lending does go outside of the footprint. The of course, the TD Securities business is quite national from the U.S. perspective. So we do have experience and dealing with you know more broader business is in the U.S. and we'll see how this plays out the and.
And I think the great thing for the D. is that yeah.
Not compelled to do because we don't consider ourselves to be subscale, we've got a fantastic position great brand of Gus.
Similar proposition that is second to none and therefore, you know weekend of.
Look back and see to know what what makes sense for us.
And so the that's the luxury we have with.
As I mentioned earlier the capabilities of the capital levels and no. These are all great advantages to have in a in a very uncertain market and environment.
Thank you. The next question is from so right most of it.
The with BMO capital markets. Please go ahead.
Thanks and want.
I wanted to try that one again, maybe ask a little bit more specifically bank.
Thank you and service fees securities brokerage commissions.
Two of your larger fee items and with the rich and the bottom line contribution.
And I, please get and outlook commentary and dose.
Both Canada and the us.
Yeah, so listen it all.
The market continues to evolve you know different products led different rules and different markets. You know our belief is that you know we go where the customers go you know where the customer centric bank we.
The business mix, we have the a very happy with it we.
We have scaled business is on both sides of the border, which I think is important.
Full service provider you know it is not just the no one product the Romano line beautiful service provider again on both sides of the border. So that's the type of franchise. We are building and I think I mentioned in my remarks, and we've got 26 million customers.
That we serve and the retail side and plus and all of you at Bob's business and the Douglass business and.
And and Greg's business and the there's lots of other other.
Other types of customers that we serve so I think you know we have great advantages here the.
Through the pandemic and other times when the lids.
Being a deposit heavy bank and seemed like Wow. This is one circumstance where things might not look as the advantages for us, but again when we look back.
We have the checking relationships. This is where the core relationship starts and over the customers the from which we can build so ours is the franchise that is enduring the different times and the sort of my view is the noise.
Talk specific.
And on what might make sense the in the future, but you know we got a fantastic Foundation here and so we'll see how this plays out over the next and what.
Thank you. The next question is from many Robin with Scotia Bank. Please go ahead.
Hi, again, just on a and buybacks given your capital ratio is there and case to be made.
Allowing buybacks now do you feel that that would be a valid arguments kind of that you could make.
And whoever it listen the regulator and announcement.
Is that something you're.
That makes sense.
I think the they know us here and and other regulators of spoken on this and I can fully understand from a regulatory perspective, it was not too long ago and the world went through the global financial crisis, and I'm sure those memories of ER afresh and.
And regulators and then and many other stakeholders of mine. So I think it's the prudent thing to do the until this this crisis is behind us and Im sure.
The question is better adjusted all of our regulators.
Thank you.
Thank you.
And no more questions and the queue at this time I would now like the turn the meeting back over to Mr. per out much Rodney for closing remarks.
Thank you operator, and thank you all of the full participating today, we really appreciate good the engaging conversation.
And once again you know your bank, who is the delivery of four for all of our stakeholders and I could not be more proud of and 90000 and on TD bankers the roundup.
Around the world who of not only manage through this difficult crisis, but they've been there for our customers for the full for each other and for the communities in which we live in sort of and.
Which live and work.
So once again folks you know things were joining and gives we don't get adjusted to connect happy holidays to all of you and the stay safe.
Thank you.
Thank you the conference has now and net please disconnect your lines at this time. Thank you for your participation.
[noise].
This conference is no longer being recorded no interest the modest said coffeehouse it that the whole the.
[music].
And Miss out on the process FIFA. Please.
Please note that this conference call has ended the please disconnect. Your line at this time. Thank you.
Okay opinion of Skus.
The kind of money.
Okay.
[laughter].
[music].
Instead of 550, though the snow.
This conference call has ended the please disconnect. Your line is just the time. Thank you.
And you know.
I mean the.
And our consumer spending.
[music].
So I don't process before.
Please note that this conference call has ended the please disconnect. Your line at this time. Thank you.
Okay opinion, that's because of that.
And.
Okay and she was funding.
[music].
I don't know 50 for the <unk>.
Note that this conference call has ended the please disconnect. Your line at this time. Thank you.
Okay, and the units because it had been.
The Tommy.
Consumer spending.
[music].
And set up from 55.
Please note that this conference call has ended the please disconnect. Your line is at the time. Thank you.
Okay.
And.
And our consumer spending.
[music].
Profit before.
Note that this conference call has ended the please disconnect. Your line at this time. Thank you.
And that's good for that.
Okay and she was trending.
[music].
50 for the please.
Please note that this conference call has ended the please disconnect. Your line at this time. Thank you.
Okay, and the units because the timing.
And.
Okay and she was running.
[music].
And they set of process before the snow.
This conference call has ended the please disconnect. Your line is just the time. Thank you.
And that's because of that.
And I mean the.
And our consumer spending.
[music].
I don't process before.
Please note that this conference call has ended the please disconnect. Your line at this time. Thank you.
And in those cases.
The town, meaning.
The parents she with funding.
[music].
I don't know 50 flow.
Please note that this conference call has ended please disconnect. Your line at this time. Thank you.
Okay, and the units because it had been.
Okay, and that's how I mean the C.
She was the billing.
[music].
Okay fair enough of 50, though the snow.
This conference call has ended the please disconnect. Your line is at the time. Thank you.
And you know.
And of course, she was pending.
[music].
I don't process before.
Note that this conference call has ended the please disconnect. Your line at this time. Thank you.
Okay opinion of Skus.
The 10 I mean the.
And she was funding.
[music].
Since the phone please.
Please note that this conference call has ended the please disconnect. Your line at this time. Thank you.
Okay opinion of Skus.
The kind of money.
Okay.
[laughter].
[music].