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 Q for 2020, <unk> earnings Conference call I would now like to turn the meeting over to Ms., Gillian Manning piece glad mismatching.
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 current Ms. ronni, the bank's CEO after which relies on met the bank's CFO will present for fourth quarter operating results.
I keep on the Wiley Chief Risk Officer will then on for comments on credit quality after which we will invite questions from prequalified analysts and investors on the phone.
Oh from here to answer your questions today, our Teri Currie group head Canadian personal banking, Greg Brock, our president and CEO TD Bank America's most convenient bank and Bob Dorrance Group head wholesale banking fleet.
Please turn to slide two.
At this time I would like to caution our listeners that this presentation contains forward looking statements there.
There are risks that actual results could differ materially from what is discussed and that certain material factors or assumptions were applied in making these forward looking statements any forward looking statements contained in this presentation represent the views of management and are presented for the purpose of assisting the bank's shareholders and analysts in understanding the bank's financial position objectives and priorities and anticipated.
Financial performance for <unk>.
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 businesses and to measure overall bank performance. The bank believes that adjusted results provide reader with a better understanding of how management views the bank's performance.
Eric will 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 on all available in the 2020 and DNA and fourth quarter 2020 earnings news release.
With that let me turn the presentation over to Barrett.
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 on buses from the impact of Google 19 in a personal and brought 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 from frontline's, including TD bankers still working tirelessly to provide decision essential services grew up disgraces.
Moving there's also been a transformative experience will de debt.
Good day showcased our greatest strength as we came together in force to support our customers colleagues and communities and it is tested on resilience is the bad debt, making on the recession. It on at least had a profound impact on other financial performance.
On the operation.
This year, we delivered earnings of $10 billion and need vs $5.36 book down 20% from last year.
Good result, given the extraordinary circumstances and helped by a strong finish in Q4.
Personal and commercial banking businesses showed the expected pressures from a downturn that affected households, and businesses so deeply but.
But on well insurance and wholesale businesses had their best years ever with record revenue and earnings our book.
Balance sheet also ended the year robust for with CD, one ratio of 13.1% and other 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 how we showed up for our customers. Our thousands of TD Bank has adapted 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 turn our customers Trust us.
Help them meet their financial needs.
This fall we conducted on an annual colleague, Serbia and log the highest engagement scores in our history.
I've often said that other people are our greatest asset colleagues across TD remained committed to the bank and other purpose.
This year, we provided additional financial support to recognize the contributions including especial bonus for non executive employees.
We've also redeployed several thousand TD bankers across the organization meeting urgent needs in our business and opening up new career paths for our people.
And because we are only as strong as on communities. We launched the TD community resilience initiative part of the TD ready commitment to bring the bank's resources and capabilities to lead to those communities most affected by the bend ending.
I Miss this year's unprecedented disruption and the enormous work out but it does require I'm, especially proud of the climate action plan, we launched last month, including our target to achieve net zero greenhouse gas emissions.
Operations and financing activities by 2050.
We all recognize the urgent need for businesses of all sizes and in every industry to find new pads to sustainable growth TD is positioned to play a central role in this effort building on a long history of environmental leadership.
On on shareholders and other stakeholders have responded very positively to our announcement and we look forward to working day working with them on a share journey to a lower carbon future.
We also took steps this year to reinforce the cornerstone of our culture and inclusive workplace, where all can thrive. We continued to increase the number of women and leadership roles made new commitments to grow minority executive representation and launch bank and community weighted upwards to tackle the impact.
So Wendy black racism.
It is a hallmark of our purpose driven board for good strategy that we have continued our work to build more sustainable inclusive futures, even as we transform our day to day operations to meet the Corbett challenge.
Like all great crisis in history, Corbett will not last forever.
Stewards of this 165 year old growth organization. It is our responsibility to manage for today and plan and do what tomorrow.
We have been and are continuing to build our 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.
These investments were critical in enabling a rapid response to cool equipping 60000 colleagues, including many many contact center employees to support our customers, while working remotely absorbing surging mobile.
Volumes and service volumes, and introducing new digital advice and support capabilities overnight.
We are accelerating these investments to further improve the stability security on agility of our operations and enhance our enterprise capabilities to better serve our customers.
Alongside these enterprisewide innovations, we continued to create new sources of value mutual for our businesses.
In Canadian retail, we grew market share in personal deposits maintained our leadership position on payments and continue to differentiate our offering with the launch of TD global trends for this quarter, a best in class money movement capabilities.
We achieved record real estate secured lending originations and build on our leadership in cards and announcing a refresh suite of TD Aeroplan credit cards and crossing the 100000 customer Mark with our Amazon in DNA Cobrand card.
And we continue to support millions of customers through the ciba and serve programs.
As well as through our TD ready advice center.
Well for business at a banner year with record earnings assets and trading volumes, we added more than 120, new investment advisors private bankers in financial planners in on advice businesses launch new sustainability funds EPS in TD asset management and built on a leading direct investing gains.
Well it is with the introduction of TD go losses, a new mobile self directed investing.
And on insurance business had record earnings well delivering substantial credit related relief for customers, our new general insurance platform and enhance digital sensor and advice capabilities drove a second consecutive year of double digit premium growth.
Can you at retail we continue to build the next generation of customer service and advice excellence will be legendary helping our people get closer to our customers and meet the challenging needs and we complemented this with enhanced digital capabilities, including a new customer financial assessment tool as well as the game.
Ability to order replacement debit cards for curbside pickup.
We rank number one in SB lending in our Maine to Florida footprint for a fourth consecutive year and we were the number six PPP lender nationwide funding approximately 86000 loans with over 8 billion us for small business customers the bedrock of.
For our community banking strategy and.
And we were delighted to support the TD Ameritrade Schwab transaction, which closed this quarter book ending our fiscal year with this transformative deal.
TD is now the largest shareholder in a pre eminent U.S. well services for with U.S. six trillion dollars in client assets.
Our wholesale bank on a record $1.4 billion in Twentytwenty, reflecting a strong year for our Canadian franchise and the multi year investments. We've made in U.S. dollar origination across corporate government and pension plans as well as growing product capabilities and our global markets business.
With a diversified global product base, we've built over the last several years, we were able to actively participate in constructive market conditions and continue to grow and deepen client relationships.
We were also proud to launch our sustainable financing corporate transitions group to which we will continue providing clients with advisory services and transition and sustainability focus financing globally aligned with the banks climate action plan.
We recently exceeded the US 100 billion dollar margin for international Bond underwriting, which includes all bonds that are registered to be sold internationally. During the year. This is a significant milestone for the dealer it represents a more than doubling of volume and a 60% increase in market share for the last.
Five years.
And just last month TD Securities was the lead manager on the European Union second social bond financing of the shore program.
At 14 billion euros. This offering was the second largest social one ever issued in the debt capital markets, representing a historic milestone for our entire global franchise.
Overall fiscal Twentytwenty was a year of unprecedented challenge during which we rallied together to deliver on our highest purpose enriching the lives of our customers colleagues and communities, while making foundational investments to power on next leg of growth.
Last quarter, I said, a measure of cautious I said, a measure of cautious optimism optimism was warranted.
Continues to be true today, while the second wave of infections as for some jurisdictions to pause on reopening measures. Each day brings more promising news about potential vaccines, and we can see the impact in improving customer confidence and activity levels.
The outlook remains uncertain, the pandemic could bring new setbacks and we expect the recovery in earnings to be uneven, but we emerged from fiscal 2020 with momentum in our businesses.
As we move through 2021, we expect to benefit from lower PCL as well as an ongoing recovery in customer activity together with continued expense discipline. This should help offset some further deposit margin pressure and a potential moderation in volumes and capital markets activity.
Overall, we feel positive about the power of our franchise as the economy recovers, we are confident that our strong customer base and the continued investments we made in our businesses position us well to execute on other growth opportunities.
As ever we will stay true to our long term strategy and continue to focus on our strength a diversified business mix, a deep customer base, a powerful brand and the very best people.
Finish by thanking them again for their steadfast commitment and dedication in this most extraordinary year with that I'll turn it on reacts to review the numbers in more detail rias. Thanks.
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 on the sale of the bank's investment in TD Max rate as well as prior year charges related to the Air Canada agreement.
For $2.3 million gain is comprised of a non taxable revaluation gain of $1.95 billion based on Schwabs October 5th closing share price of Usthirty $6.94.
And at Zero point $3 billion gain on the release for related deferred tax liabilities.
We also released foreign currency translation and hedging impacts related to our investment from AOCI, which netted to a loss of approximately $550 million on a pre tax basis and were approximately neutral on an after tax basis.
Fiscal 2020, adjusted earnings or $10 million and adjusted EPS was $5.36 both down 20%.
Revenue increased 6%, including the pretax net gain on the sale of TD Ameritrade.
Adjusted revenue increased 3%, reflecting record wealth insurance and wholesale revenue and volume growth in the personal and commercial banking businesses, partially offset by margin compression and lower fee income in the banking businesses.
Provision for credit losses were $7.2 billion for the year up $4.2 billion, primarily attributable to higher performing PCR due to the significant deterioration in the economic outlook relating to call.
Expenses decreased 2% year over year, primarily reflecting charges related to the agreement with air Canada a year ago.
Adjusted expenses increased 1%.
Turning to slide nine.
For the fourth quarter, the bank reported earnings of $5.1 billion and EPS of $2.80 repair.
Reported earnings and EPS, including the key include the TD Ameritrade net gain.
Adjusted earnings were $3 billion and adjusted EPS was $1.60.
Revenue increased 15%, including the pre tax net gain on the sales of TD Ameritrade.
Adjusted revenue increased 1% provision.
Provision for credit losses decreased 58% quarter over quarter to $917 million, reflecting declines in 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 in the banking businesses.
Offset partially by volume growth and higher wealth and insurance revenue.
Average loans rose, 3%, reflecting growth in personal and business volumes average deposits rose, 20%, reflecting double digit growth across all businesses.
Well assets increased 2%, reflecting new asset growth and market appreciation.
Margin was 2.71% an increase of three basis points from prior quarters.
Total pcls decreased by 74% quarter over quarter, reflecting lower impaired and performing PCL.
Total PCL as an annualized percentage of credit volume was 22 basis points down 64 basis points quarter over quarter expense.
Expenses were up 2%, reflecting higher spend supporting business growth. Please.
Please turn to slide 11.
US retail segment net income was $658 million.
For Us retail bank net income was us $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 in personal and business volumes with significant increases in the SBH PPP loans debt.
Posit volumes, excluding sweep deposits were up 26%, including 30% growth in core consumer checking.
And sweep deposits were up 35%.
Net interest margin was 2.27% down 23 basis points sequentially, primarily reflecting lower deposit margins and balance sheet mix.
Total PCL, including only the bank's contractual portion of credit losses in the strategic cards portfolio was us $433 million down 34% from the prior quarter.
US retail net PCL ratio was 1.01% down 50 basis points from last quarter.
And expenses decreased 1%.
The contribution from TD is investment in 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 a 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 on a recovery in impaired PCL and lower performing PCL.
Expenses were $581 million down 3%.
Please turn to slide 13.
The corporate segment reported net income of $2 billion in the quarter compared with a net loss of $240 million in the fourth quarter last year. The increase was primarily attributable to the net gain on the sales for investment in TD Ameritrade.
Adjusted net loss was $213 million compared with an adjusted net loss for $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 flow.
Please turn to slide 14.
Common equity tier one ratio ended the quarter at 13.1% up 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 on employee benefit plans and oxys transitional arrangements for expected credit loss provision.
As previously communicated the sharp transaction at a roughly neutral impact on Q1 cash.
Our WH declined this quarter before the impact from disrupt transaction on lower credit and market risk current WH.
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 Cetone 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, on these transitional adjustments to see when capital for SCR provisioning is currently subject to a 70% scalar factor, which declined to 50% in Q1 of fiscal 2021.
We expect the impact on our cetone ratio to be approximately 10 basis points in the first quarter.
I will now turn the call over to Ajay.
Thank you.
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 or 42 basis points decreasing nine basis points quarter over quarter, primarily related to resolutions outpacing formations in the Canadian and U.S consumer us commercial and wholesale lending portfolios.
Wholesale resolutions were largely in the oil and gas sector.
Please turn to slide 17.
Recall that our presentation reports PCL ratios, both gross and net of the partners' share of current use 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 bank's pcls in the quarter were $921 million for.
49 basis points, decreasing 1.3 billion or 68 basis points quarter over quarter.
On stable year over year.
For Twentytwenty banks full year PCL rate was 100 basis points up 55 basis points from 2019 due to the impact of COVID-19 and deterioration 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, largely 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 a smaller increase to the allowance for credit losses this quarter.
Current quarter performing provisions were primarily recorded in the us commercial lending portfolios across a 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.
For me allowance, partially offset by lower wholesale segment impact 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 on the bank led to for programs decreased $41 billion from the third quarter as most deferrals have now expired.
In terms of deferral related credit impact the significant majority of clients that have graduated from the for programs are current with debt payments and graduated deferral 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.
The magnitude and timing of the ultimate credit impact remain uncertain.
While I expect sales to be lower in Twentytwenty, one reflective of our significant performing allowance build this year.
Given the degree of ongoing uncertainty they may remain elevated from pre COVID-19 levels and could vary by quarter.
To conclude given the significant addition to our allowance for this year, our strong capital position and our 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 lines. If you have a question on your 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 you wish to cancel your question. Please press the pound site. Please press star one at this time.
If you have a question.
And the first question is from GAAP areas Duchenne.
With a net National Bank financial Please go ahead and we book.
George.
First question for.
Barrett or rias.
Dividend increases and buybacks are frozen until losses as otherwise just want to clear up the possible confusion around M&A is that more of a case by case deployment option.
As you could potentially do something.
Gabe nice to hear your voice has been a while since we got together hopefully we do get an opportunity given all the good news that all of us have been sitting on TV.
Yep.
On M&A volume.
I've always said this in over the past few years, we look at our capital deployment sort of outlook is it on how we think about capital we deploy capital.
And we've been consistent that we are interested in acquisitions that are compelling and makes sense for us as long as there that make strategic sense financial sense risks and culture since.
We're very open.
Due to acquisitions and they've been specific area as we pointed out that are of particular interest and other.
Parts of the United States, where we do have organic opportunities, but we think through acquisitions, we could accelerate those those those opportunities.
Theres any asset generating type of you know.
Opportunities available we'd be quite interested in obviously anything in Canada will be a great interest. So so our view on this has been consistent and that has not changed here.
I think what the if you sort of look at what's going on through the pandemic would appears to have change it probably will change.
Is the number of opportunities May go up as we look at how the environment evolves there.
A lot of banks I'm sure are facing dislocations of financial services company in general.
Im sure there are lots of boards out there looking at their strategic sort.
Sort of opportunities when we on the other and that made on throw up for.
More deals in the picture and in our view is that we do have.
Very good capabilities in other bank debt are areas that would be of particular interest we're good acquirers we.
We convert well, we integrate well we create great franchises at the other end of it and our history has been through through major downturns and dislocations. If there had been opportunities TD has taken those opportunities and major repairs.
Quickly they have tended to be pretty pretty good for us. So that's a long answer to say that nothing has changed.
And we like the flexibility that we have.
Given our balance sheet, given our brand given you know the day will scale, we already have in various markets in which we operate.
Thank you.
The next question is from Ebrahim Poonawala with Bank of America Securities. Please go ahead.
Good afternoon.
For the up on.
Net.
On PC as one.
Ajay if you talk about.
Performing PCL.
How'd you talk on mentioned commercial real estate diving the pcls in the US this quarter just tell us at all or is this more of a function of portfolio. The view on any factors on from a macro standpoint that led to this.
For the PC based on the us this quarter.
Yes.
Yes, so cash.
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 is some deterioration in the near quarters for Canada us.
Unemployment GDP and also Canadian housing if you go to the later quarters, you actually going to see and see an improvement we didn't change any of our waiting and our downside like I said last quarter remains.
So bottom line it was not macro.
Well, we look at other portfolios on an ongoing basis and.
And we'll repeat that every quarter. So we did migrate parts of our book in the U.S in on.
Commercial real estate is part of that but it isn't only confined to commercial real estate. It was a few other industries, including other professional sundry manufacturing. So there were a few industries, but the performance allowance build is based on credit migration.
Okay. That's helpful.
Thank you for.
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.
On that a little deposit data.
I'm wondering what the implications on for credit as you think ahead and also for loan growth.
This on wind how long does it take what's your view of how this will impact for both credit and loan growth.
It might be for what it's actually a bunch of color on the credit side, and then perhaps Terry and Greg can talk about.
What they're seeing from that line I will value. So I'd actually take you back to my comments last quarter wed indicated that my view was that we're 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 balance has come down we're not going to see the impairments. So and that's the other reason why even in our prepared remarks from set PCL will vary quarter by quarter.
See a situation where pcls remained low for a couple of quarters and then start rising so.
For the near term these cash balances I would call them a credit positive.
Great Jay maybe Terry we can start with you talk about loan growth in Canada for sure.
Thanks Barry.
So.
Okay follow on for.
[music].
Our business on is actually held up pretty well this quarter, but where we did see lower utilization as part of that would have been to the subsidies for sure.
And then that was offset by some good growth in real estate construction multifamily residential on agriculture on.
On the personal side.
Yeah.
Landscape from space, we would have seen less utilization as a result.
Hi.
On play the cash burn.
Moving from a deposit growth perspective.
Obviously benefited from.
And we're focused on.
Heavily on ensuring that we help our customers.
That money good per.
That's for their future aspirations on we're quite focused on that.
On many its Greg I would just add that.
We are seeing 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.
A couple of stories, you've got very very strong growth on the mortgage business as you'd imagine right now not only because of new home purchases because of low rates for because of an other refinance book going on but you're also seeing a drag on credit card and outstanding balances in spend and for more muted growth pretty flattish growth in auto business from.
What we would generally be seeing pretty cold in the commercial space.
As you know business loans are up 10% some of that is driven by the PPP small business per.
Program for smaller businesses, but really throughout the second third and even into the for off although it's come down somewhat you've seen good activity on the commercial side folks businesses looking to raise liquidity make sure in some cases that they have excess liquidity on the balance sheets.
Or taking advantage of opportunities.
On on the deposit side. The story is quite strong and you're rightfully pointed out we would have thought deposits would have started to more normalized after Q3, but just from a year over year standpoint deposits X sweeps or up 26% year over year on the U.S., just very very strong growth 35%.
In the commercial businesses so.
So businesses small medium and large companies are putting liquidity on the balance sheets.
They are making sure there are other prepared for opportunities or making sure they're prepared for downsides, depending on the industries that therein, 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.
Positive DTA balances on our consumer space is up 30% still year over year and quarter over quarter. Many were still up quite a bit to another seven and a half plus billion dollars.
Even from Q3 to Q for across consumer and commercial so quite a strong story still.
Thank you.
The next question is from Scott Chan with Canaccord Genuity. Please go ahead.
Hi, Good afternoon, I got a two part question on U.S. retail.
After fiscal Q2 kind of in terms of profitability you showed nice momentum on.
Over the past two quarters like how do you see that trajectory current near term in terms of potential.
Improved profitability going forward, and maybe kind of tying it into the credit side, which is the obvious delta and your experience on your door for all 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 on notwithstanding.
Yep.
The large drop in earnings obviously because of the onset of the pandemic from Q2.
Strong recovery in Q3 net continued rights from Q4, while certainly not back to pre covert levels. We are quite pleased with that trajectory I would just add that.
You know, we're going have to see how this how this goes and.
We're quite happy with customer activity.
As Weve heard a few times on delinquency rates continue to remain quite muted.
We are pleased to see that liquidity is still very much at a surplus in both consumer and commercial checking accounts I do think that bodes well, we are seeing a recovery in scenes and credit card and debit activity that bodes well for the overall economy and you're seeing that play out on the unemployment rates in the us as well as various end.
Caters.
Across the commercial commercial segments, but I do think it's it's still early to say how the next couple of quarters at least the next quarter or two until the vaccine is fully rolled out there's going to be some bumps on 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 stimulus is an important disk.
Discussion point to have that bridge and total vaccine is more fully out there.
And that does some conclusion around that.
Both on the consumer side as well as any relief for impacted industries on the commercial space. So I think as we think about the earnings trajectory.
It's it's obviously something we are going to be watching we're going to be managing through.
So for our 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 Scott.
Thank you for the next question is from Sohrab Movahedi with BMO capital markets. Please go ahead.
Thank you, Greg I actually wanted to pick up where you left off in debt.
EBITDA for nervous value and see where do you see.
Concerns around.
See pressures maybe show you talked about credit card and debit card recovery.
Worried about compression outside of margins anyway.
Well, we're bankers right. So I guess, we get paid to worry and we spent quite a bit of time talking about downside scenarios you know.
And.
So I think we're doing all that we can all of our employees across TD Bank group to 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.
Closely both for our employees as well as for our customers.
I do think the biggest.
Thing to watch for will be do we get to another stimulus package that does bridge the vaccine, especially if we get more shutdowns.
Check on your rent 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 in the mood seems to be that folks are beginning to think about what the other side of that pandemic is the expectation that the vaccine whether it's in two months or whether it's in for.
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 are we going 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 There's Ivanisevic with credit Suisse. Please go ahead.
Hi, Good afternoon, a question for Greg I, just wanted to see if you can maybe break out the margin decline sequentially just on some of the components, it's a pretty sizable moving.
It's a bit confusing to understand where this is headed because we've seen such significant differences among the peers on us 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 in the US Bank. We are deposit rich organization. We also know that we have had excess liquidity.
And we Havent had to rely on wholesale funding or wholesale deposits to fund loan growth, which has certainly been a.
A positive thing from how we think about the bank in the US the other positive side for 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 on 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.
30% all in 26% of against vs without ameritrade deposits, even factored in but I always call up the quality of those deposits that we think is awfully strong consumer DTA up 30%.
In in of itself. So this is this is again that quality story I have been talking about for the last several quarters of that growth. We think does bode well for long term as far as the margin goes when you had deposits as you know really.
Really outweighing the growth of the loan book, especially in this environment, we wouldn't expect too many banks to be growing loan book in the double digits, let alone for growing at 25 for 30% to absorb this excess liquidity you're going to have a decline in margins and we're going to get hit, particularly harder than what you might see as the headline number around that but underneath that number to go on.
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 perhaps.
We're 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 DTA growth from consumer and commercial we actually think it's a good story long term.
Thank you for the next question is from Nigel de Souza once a day types investment research. Please go ahead.
Thank you good afternoon, I wanted to touch on your wholesale banking segment.
And you had a pretty strong net interest income for this quarter as well in fact, it's up.
Quarter over quarter and I was wondering if that's at all tied to a.
Repo market transactions and the reason why I ask is.
When I look at your balance sheet interest bearing deposits with banks has increased substantially.
For the last few quarters, so am I thinking of that correctly as a driver.
Bob.
Yes, we have a.
Nigel had.
But good repo.
For active repo.
Business this year.
The latter per quarter.
That is.
Hello.
The net debt.
Hi.
So any commentary on on how you expect that to play out over the next few quarters is that going to wind down with.
Lower deposit balances.
Our view is that.
That that will be one of the headwear business will face.
Go on.
Okay. Appreciate the color. Thank you.
Thank you for the next question is from Lemar Pestle with Carmax Securities. Please go ahead.
Thanks, My questions for Asia, you you'd mentioned that Pcls could remain elevated from pre covert levels can you help us pinned down a range that we should be thinking on for total pcls 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 on range [laughter].
However, let me just talk about the uncertainty and it's because of the uncertainty we are unable to give you a range. There are several factors at play some of them are positive.
Some of them on negative.
For example, the level and timing of impairment is uncertain, but I've talked a bit about that and I expect it to be more in the second half for T., starting the second half.
And then the shape of the recovery.
Can be influenced by a number of things, including the second wave stimulus timing in the United States on the quantum of the stimulus.
And the availability distribution and public acceptance of the vaccine. So from my perspective, you know the range of outcomes is.
Is quite broad would you should take some comfort from is we have built significant allowances.
This year, Okay and were going well positioned into next year and we believe the numbers will be low for PCL, but I.
I can't give you any specific region.
Thank you for.
The next question is from them and get their shine with National Bank Financial. Please go ahead.
Hi, just a follow up on the U.S. margin there.
Greg you kind of alluded to at the.
And on the excess liquidity I guess, we're seeing that most of the bar that was running 60 percentish.
Pretty covered most of them took 50 I'm just wondering.
Do you think we've hit a bottom or that ratio is going to be the studies. They are 50% most of the target ratio and then.
Drilling from a grow back into a higher number before we start to see margin recover from.
From a rate increase or something like that.
Gabriel Thanks, Thanks for the question again, yeah. So I would just say that these things are hopefully going to be hard to predict price. So I would have thought that we would have been getting a bit top ish in the deposit growth after Q3, but they continue to.
On 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 our spike the deposits even further.
I think as you start getting back to a more normal state or if there isn't.
Another round of stimulus Thats meaningful I do think both for small businesses and consumers will begin to eat into their their deposit reserves on I think they're going to be doing it for a number reasons, whether they are affected from financial performance or they're going to be thinking about where opportunities to begin to reinvest excess liquidity. So I think we're going to have to watch it 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 your 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 again.
Just wanted to follow up on your response earlier regarding us M&A in particular for specifically on.
You've talked for a long time about liking the southeast market.
And for that particular, having said that debt on too many details franchises that clearly kind of deliver that standalone just talk to us when you think about the us.
From a retail sort of market given sort of the digitization given what you've learned from Cove. It how do you think about the PD Sanjay index still best to think about it as an east coast, Maine to Florida franchise, and Thats, what you want to do or does the prices on the shift in the day backdrop et cetera, you talked about the challenges for other banks creates an opportunity.
To make this a more national franchise.
Right.
Great question.
Sitting on there was a day.
During normal times free pandemic.
The opportunities whether or not that many and on knows what happens in on post spin them ankle or to the current period in our desire is that the markets. We're in a terrific markets at a high growth markets. If you look at you know.
I think in the for the top states it on from a growth.
Opportunity perspective, so very happy with where we are.
But did on would we look at opportunities is outside of franchise.
I think that I've been around long enough to say never say never if there is a compelling opportunity of course, you would want as a.
As one of our big analysts and are presenting a lot of other investors to 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 businesses. We have the national in scale. If you look on a credit card business, particularly the partnership business. This NAV.
And on scale on TD Auto finance business is national in scale. Some of our specialty lending does go outside of our footprint. The of course, the TD securities businesses is quite national from a US perspective. So we do have experience in dealing with you know more broader businesses in the us.
And we'll see how this plays out.
I think the great thing for TD is that we're not compelled to do because we don't consider ourselves to be subscale, we've got a fantastic position great brand customer proposition that is second to none and therefore in a weekend.
Look back and see you know what what makes sense for us.
And so that's the luxury we have with.
I mentioned earlier the capabilities the capital levels and now these are all great advantages to have in a in a very uncertain market and environment.
Thank you for the next question is from so wrap more variety with BMO capital markets. Please go ahead.
Thanks Juan.
On it you try that one again, maybe ask a little bit more specifically thanks.
Banking service fees security.
Securities brokerage commissions.
For two of your larger fee items.
The rich in that bottom line contribution.
Can I, please get an outlook commentary on those.
Both Canada and the us.
Yeah, so listen in on.
The market continues to evolve you know different products flow different rules in different markets. You know our belief is that you know we go with other customers go when a customer centric bank we are in other.
The business mix, we have we are very happy with it we have scaled businesses on both sides of the border, which I think is important.
On a full service provider. It is not just one product for the Romano line. We're a full service provider again on both sides of the border. So that's the type of franchise. We are building you know I think I mentioned in my remarks, you know, we got 26 million customers.
We serve on the retail side and plus it on if you add Bob's business and book Douglass business and in Greg's business and there's lots of other other types of customers that we serve so I think you know we have great advantages here.
Through the pandemic it other times when it lists.
Being a deposit heavy bank it seemed like Wow. This is one circumstance where things might not look as advantages for us, but again when we look back.
We have the checking relationships. This is where the core relationship starts to know with other customers on from which we can build so ours is a franchise that is enduring two different times and then sort of my view is.
Specific.
On on what might make sense in the future, but you know we've got a fantastic Foundation here and so we'll see how this plays out over the next day.
Thank you for the next question is from many grauman with Scotiabank. Please go ahead.
Hi, again, just on a on on buybacks given your capital ratio is there a case to be made for allowing buybacks now you feel that that would be a valid arguments that you could make to.
Whoever is listen the regulator against Smith.
Thats something.
That makes sense.
I think this that on US here and then other regulators have spoken on this and I can fully understand from a regulatory perspective. It was not too long ago in the world went through the global financial crisis, and I'm sure those memories of refresh.
And regulators and then on many other stakeholders mine. So I think it is a prudent thing to do until this this crisis is behind us and Im sure.
His question is better for us at all for regulators.
Thank you.
Thank you.
There are no more questions in the queue at this time I would now like to turn the meeting back over to Mr. per out much Rodney for closing remarks.
Thank you operator, and thank you all for participating today, we really appreciate good engaging conversation.
And once again you know your bank has delivered for for all of our stakeholders and I could not be more proud of for 90000, it on TD bankers Rhonda.
Around the world, who have not only manage through this difficult crisis, but they've been there for our customers for for for each other and for the communities in which we live answer.
Which live and work.
So once again focusing on thanks for joining in case, we don't get adjusted to connect happy holidays to all of you and stay safe.
Thank you.
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