Q1 2021 Toronto-Dominion Bank Earnings Call
[music].
This conference is being recorded.
At school sales at all or would you say.
All participants.
Expenses your meeting is ready to begin.
Good afternoon, ladies and gentlemen, welcome to the TD Bank group's Q1 2021 earnings Conference call I would now like to turn the meeting over to MS. Judy on money. Please go ahead Ms money.
Thank you operator, good afternoon, and welcome to TD Bank group's first quarter 2021 investor presentation.
We will begin today's presentation with remarks from Barrington as Rodney the bank CEO, after which reassignment to bank CFO will present, our first quarter operating results on.
Oh Jacob on the Huawei Chief Risk Officer will then offer comments on credit quality after which we will invite questions from prequalified analysts and investors on the phone.
Also present today to answer your questions are 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.
Please turn to slide two.
At this time I would like to caution our listeners that this presentation contains forward looking statements.
There are risks that actual results could differ materially from what is discussed and that certain material factors 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.
Forward looking statements may not be appropriate for other purposes.
I would also like to remind listeners that the bank uses non-GAAP financial measures to arrive at adjusted results to assess each of its businesses and to measure overall bank performance.
The bank believes that adjusted results provide readers with a better understanding of how management views. The bank's performance Barrett 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 are all available on our Q1 2021 report to shareholders with that let me turn the presentation over to Barrett.
Thank you Julian and thank you everyone for joining us today.
It's been almost since day.
COVID-19 pandemic transformed our lives.
As we continue to witness is uneven impact on the world around us and our own results.
Proud of how the bank is manage through this period.
And commitment shown by our 90000 colleagues around the globe.
<unk> started the year strong as we continued to execute on other strategies in an uncertain environment first quarter earnings were $3 4 billion and EPS was $1 83 up 10% from a year ago.
Provisions for credit losses declined significantly, reflecting an improving economic outlook as well as the impact of ongoing fiscal and monetary support with the economy and the sizable addition to our allowance for credit losses last year.
While spending on payment volumes in our banking business has remained below pre crisis levels, we income pressures eased and deposit growth remained strong and our wealth insurance and wholesale businesses had another banner quarter, reflecting continued high levels of customer engagement and market activity. These.
Strong results further bolstered our balance sheet with a CET one ratio climbing 50 basis points to 13, 6% and our liquidity coverage ratio ending the quarter at 139% overall, a powerful testament to the strength of our diversified business model.
NPD, we believe banking serves a higher purpose.
We continue to flow through hours enriching the lives of our customers colleagues and communities from the depth of the crisis last spring. The recovery that is now emerging we've empowered our people to execute with purpose or impact on behalf of our customers and clients. We have helped facilitate government programs that remain a lifeline.
With so many households, and businesses and we are providing ongoing support for our communities.
We know the recovery is not yet on solid ground COVID-19, and as new variant remain a reality many households are still struggling and businesses, especially small businesses will need additional support after this long months of disruption.
It is too early to predict when we will see a full recovery, but we are encouraged by the progress on vaccination globally as it proceeds accompanied by effective testing and improving three treatments.
Vision for a sustained recovery will continue to take hold we are seeing the evidence already and rising consumer and business confidence increasing customer activity levels and a steepening yield curve, while we expect that the households will maintain debt high level of savings in the near term there is significant pent up demand to spend up.
This long months of an activity as well as the capacity to do so and we will be there to advance the recovery supporting our customers in good times as we did last year and those most difficult circumstances.
In the meantime, we remain vigilant across the bank, we are maintaining and enhancing measures to protect and serve our customers and colleagues adding.
Adding new digital advice capabilities to deliver the financial services they need while supporting the recovery in all of our markets. We are also investing in a bit of future. We know that healthy economies require healthy communities and that an inclusive and sustainable recovery the only path to long term prosperity.
<unk>.
That's why last fall, we launched an ambitious climate action plan to support the global effort to achieve net zero emissions by 2050.
We're also intensifying our focus on diversity inclusion and anti racism working to remove barriers and create opportunities for everyone to price as well as continuing on internal conversations, but what each of US can do most recently, who are black history month events and initiatives.
And in every community across our footprint, we are investing in new programs, bringing our financial resources talent and knowhow to help solve problems and partnering with community organizations to build a resilient.
This quarter that included providing $10 million in grants to Christine organizations because of the TD ready challenge to help them develop innovative solutions to address the inequities laid bare by the pandemic.
And through the DD revenue commitment, we continue to make progress toward our target of $1 billion in giving by 2030.
Electively, we're putting the power of Dd's proven business model and the service of a better future for everyone.
We're also transforming the way we work to day Covid has led to accelerated change across our business and our footprint shifting customer demand colleague explorations and economic realities are creating a new or creating new challenges and opportunities.
And we're meeting them head on with new investments to improve the speed and agility of our operations nurture and develop our talent and grow our businesses.
These forward focused investments are already delivering concrete outcomes across the bank strengthening our connection to customers and clients and seeding the next phase of our growth.
Let me share a few highlights from each of our businesses.
Our Canadian retail segment earned $2 billion this quarter.
And the personal bank the power of our Omni channel strategy was on full display as we generated very strong mortgage originations and checking account growth, while maintaining our digital leadership.
He is making at the top spots for customer experience engagement and adoption. According to App, Annie Comscore and Novartis Epiphany, respectively, and we made further enhancements this quarter integrating AI into the App.
Two recently launched used cases eligible customers receive personalized proactive advice based on their transaction patterns, including low balances and upcoming payments, providing further support for their financial well be on.
The business bank continue to be the number one fee per lender with nearly $10 billion in loans funded as of January 31.
We also advanced our growth strategy this quarter announcing an agreement to acquire wells Fargo's Canadian direct equipment finance operations.
The transaction, which we expect will close in the first half of calendar 2021 subject to regulatory approvals and closing conditions will expand on mid market presence in this key business line on that scale and new geographies.
And our wealth business, we had another strong quarter for customer acquisition and generated a record $12 billion in retail net asset growth across per franchise and.
And TD direct investing customers are responding to the enhancements we've made to our industry, leading web broker platform, including expanded educational resources to help them build their investing knowledge.
Addressing the growing demand for sustainable investing DD asset management also added three new ESG Etfs to its product lineup.
And in our insurance business of direct to consumer Digital force offering continued to drive strong customer acquisition and premium growth.
Our U S retail bank earned $615 million this quarter.
On consumer checking growth remained exceptionally strong up more than 30% from a year ago as customers continue to choose TD for their banking and savings needs.
Reflecting our commitment to the small business recovery, we continue to facilitate access to the Triple B program excepting over 25000 applications, representing $2 billion in funding is round two of the program got underway.
Delivering more of the bank to a $9 million plus commercial and consumer customers is central to our continued success in the U S market.
To that end, we merge our corporate and specialty banking teams with a commercial organization this quarter to strengthen our competitiveness in key industry verticals and drive further portfolio growth, combining corporate and specialty banking expertise in priority growth areas like asset based lending equipment finance health care and commercial.
Real estate with a commercial bank capabilities in middle market community in small business lending with help us scale, our core businesses and build a commercial bank of the future.
We were also proud to see TD auto finance and the U S received the highest ranking in dealer satisfaction among national non-GAAP debt lenders with Brian credit. According to the J D power 2020 U S dealer financing satisfaction study.
And we booked our first share of net income from Schwab. This quarter. It contributed $161 million in earnings, bringing U S retail segment earnings to $776 million or 1 billion Canadian dollars.
Our wholesale segment had another strong quarter, earning $437 million is the investments we've made to broaden and deepen our client based on product capabilities enabled us to do more business across our global platform.
In our Canadian business, we were proud to be the lead left book runner on Air, Canada, 912 million share offering and.
In the U S. We advised NASDAQ on its $2 $8 billion acquisition of Verifone.
And from our New Dublin base, we acted as joint lead manager on the European Union second sure issuance due on tranche five year on 30 year transaction with total volume of 14 billion euros is the largest SSA transaction TD securities is underwritten to date.
And the highlight is our continued growth and success, serving our European clients.
Overall, I'm very pleased with our start to fiscal 2021.
As I look ahead to the balance of the year I am encouraged by the gathering evidence of a recovery and our ability to make the most of it my confidence is reinforced by the power of our model the clarity of our purpose and the strength of our people.
I'll end by thanking them our people are our greatest assets through.
Through a challenging year, therefore, each other and our customers sustaining and strengthening our winning culture to.
Together, we've come a long way over the past year.
And as one TD and we are well positioned to meet every challenge and continue to build a better bank.
With that I'll turn things over to reassess.
Thank you Bart and good afternoon, everyone. Please turn to slide eight.
This quarter the bank reported earnings of $3 3 billion and EPS of $1 77.
Adjusted earnings were $3 4 billion and adjusted EPS was $1 83.
Revenue increased 2%, reflecting volume growth in the personal and commercial banking businesses and higher wealth insurance and wholesale revenue, partially offset by lower margins in the retail businesses.
Provision for credit losses were $313 million down $604 million sequentially, mainly reflecting lower performing PCL.
Expenses increased 6% year over year, primarily reflecting an increase in the retailer program partners net share of the profits from the U S strategic cards portfolio from lower PCL in U S store optimization costs.
Please turn to slide nine.
Canadian retail net income was $2 billion up 14% year over year on an adjusted basis net income increased 12% year over year.
Revenue increased 1%, reflecting higher wealth and insurance revenue and higher loan and deposit volumes, partially offset by lower margins.
Revenue was up reflecting higher transaction and fee based wealth revenue high.
Insurance revenue and higher loan and deposit volumes, partially offset by lower margins.
Average loan volumes rose, 4%, reflecting growth in business and personal including record reservoir originations.
Average deposits rose, 21%, reflecting double digit growth across all businesses.
<unk> assets increased 7%, reflecting market appreciation and new asset growth.
Margin was 265% a decrease of six basis points from the prior quarter, reflecting changes in asset mix and the impact of lower rates.
Total PCL was $142 million down, 43% sequentially, reflecting lower performing and Bcl two.
Other PCL as an annualized percentage of credit volume was 12 basis points, a decline of 10 basis points quarter over quarter.
Reported expenses increased 1% and adjusted expenses increased 2%.
Please turn to slide 10.
U S. Retail segment reported net income was U S $776 million.
The U S. Retail bank net income was 615 <unk> million dollars down, 14%, primarily reflecting lower revenue and higher expenses, partially offset by lower PCL.
Revenue decreased 5%, reflecting lower deposit margins and fees, partially offset by volume growth and income from SBA Triple P loans.
Average loan volumes increased 5% year over year, mainly reflecting growth in business loans relating to triple B originations.
Deposit volumes, excluding sweep deposits were up 28%, including 33% growth in core consumer checking.
And sweep deposits were up 38%.
Net interest margin was two 4% down three basis points sequentially.
Total PCL, including only the bank's contractual portion of credit losses in the strategic cards portfolio was USD $103 million down 76 percentage from the prior quarter.
The U S retail net PCL ratio was 25 basis points down 76 basis points from last quarter.
Expenses increased 9%, primarily reflecting U S $76 million and costs associated with the closure of approximately 80 stores announced during the quarter.
The bulk of the closures will occur in Q2 and will result in approximately USD 60 million in additional costs next quarter.
The contribution from Td's investment and Schwab was U S $161 million compared with a contribution of U S $152 million from TD Ameritrade a year ago.
Amortization of acquired intangibles and acquisition and integrating integration related charges associated with the swap ratio Schwab transaction are reported in the corporate segment.
Please turn to slide 11.
Wholesale net income was $477 million, an increase of 56%, reflecting higher revenue, partially offset by higher noninterest expenses.
Revenue was $1 3 billion.
Up, 25%, primarily reflecting higher trading related revenue and higher loan underwriting and advisory fees.
<unk> increased by $26 million sequentially, reflecting an increase in impaired PCL relative to recoveries in the prior quarter.
Expenses were up 9%, primarily reflecting higher variable compensation.
Please turn to slide 12.
The corporate segment reported a net loss of $197 million in the quarter compared with a net loss of $227 million in the first quarter last year a.
The year over year decrease reflects a higher contribution from other items, partially offset by acquisition and integration charges related to the Schwab transaction.
The increase in other items, primarily reflects higher revenue from treasury and balance sheet management activities this quarter and an unfavorable adjustment related to hedge accounting in the same quarter last year.
Net corporate expenses were flat compared to the same quarter last year adjusted net loss for the quarter was $94 million compared with an adjusted net loss of $168 million in the first quarter last year.
Please turn to slide 13.
The CET one ratio ended the quarter at 13, 6% up 50 basis points from Q4, we.
We had strong organic capital generation this quarter, which added 37 basis points to CE tier one.
Actual GAAP actuarial gains on employee benefit plans added nine basis points and unrealized gains on fair value through OCI Securities added another five basis points.
The five basis points increase in CET, one attributable to lower <unk> net of FX, primarily a function of lower credit and market risk <unk>.
As noted last quarter, all six transitional adjustments for expected credit losses reclassified from tier two to CET. One capital was previously subject to a 70% scalar factor, which declined to 50% for 2021 effective this quarter.
This reduced our CET one ratio by 14 basis points leverage ratio was four 5% this quarter and the LCR ratio was 139% both well above regulatory minimums I will now turn the call over to you.
Thank you.
Good afternoon, everyone.
Please turn to slide 14.
Gross impaired loan formations was 16 basis.
Stable quarter over quarter.
Cyclically low levels.
Reflecting the ongoing impact of bank debt for a couple of months economic support programs.
Please turn to slide 15.
Gross impaired loans were $3.
42 basis points.
Stable quarter over quarter.
Please turn to slide 16.
<unk>.
We call that our presentation reports PCL ratios, both growth and net of the partner's share of the U S strategic card credit losses.
We remind you that credit losses recorded in the corporate segment are fully absorbed by our partners.
And will not impact from bank's net income.
<unk> sales in the quarter with 316 million or 17 basis points.
Representing a 15 year low.
Acting.
Ongoing impact of bank debt photo on government economic support program.
And eighth performing allowance release.
Please turn to slide 17.
Thanks, impaired PCL increased $106 million quarter over quarter.
Primarily reflected in the U S credit card portfolios.
And largely recorded in the corporate segment.
Performing PCL decreased $711 million quarter over quarter.
Largely due to the.
Lower provisions in the commercial lending portfolios.
Allowance releases in consumer lending portfolios.
Please turn to slide 18.
The allowance for credit losses decreased 437 million to $8 9 billion quarter over quarter.
Selecting.
In fact on foreign exchange.
Resolutions on impaired loans in the wholesale segment.
And performing allowance releases in the consumer lending portfolios.
<unk> two <unk>.
Improvement in our macroeconomic forecasts and client credit atrophy.
Partially offset Bosch.
Management overlays to address ongoing elevated uncertainty.
I want to summarize the quarter.
Credit metrics, including gross impaired loan formations gross impaired loans and a provision for credit losses, while all at cyclically low levels this quarter.
Going forward, we may see credit results vary by quarter.
The ultimate magnitude and timing of the pandemic impact remains uncertain.
And there is a wide range of possible outcomes.
To conclude.
We are well positioned to manage through these challenging times.
The significant addition to our allowance last year.
Our strong capital position.
Our broad diversification across products and geographies.
With that operator, we are now ready to begin the Q&A session.
Thank you.
We'll now take questions from the personal lines. Thank you have a question and using a speaker phone. Please state your handset before making your selection.
Have a question. Please press star one on your devices keypad.
You may cancel your question at any time by pressing star two.
Please press star one at this time, if you have a question.
There will be a brief pause for the participants register thank you for your patients.
And our first question is from Paul Holden from CIBC. Please go ahead.
Thanks, Good morning, a couple of questions for you I guess related to expenses. So you highlighted the branch optimization in the quarter and.
And the cost cutting on the run through this quarter and next quarter related to that what I wanted to ask you about is what is the expected cost savings on.
On the other side.
Will that flow through.
Will that be offset by ongoing investments in technology or otherwise.
And then where do you think you can ultimately take the efficiency ratio for the U S banking segment overtime.
Greg Youre on.
Your line.
I am I am Paul can you hear me I hope good afternoon. Good afternoon.
Good well. Thank you for the question so yes, I do appreciate it.
We did have.
A notable item obviously in the quarter for store restructuring and.
Obviously it was a larger.
Impact from a number of stores that we will be closing relative to the normal planning we would do annually for the last several years. So we've announced that we will be shutting down 82 stores and the impact of those 82 stores given the ifr us.
Accounting rules for the charge for the real estate for the closure of those stores will be charge from a couple of quarters between the time its announced on the time they were actually closed.
So obviously once we announced those closures we have a 90 day disclosure period and all sorts of regulatory.
Check boxes that we must include and the stores will be.
Most of them will be closed later in April. So youll also see an impact of that as you noted in the second quarter.
The way I think about those as is is really the view of how do we see our network from Maine to Florida over the next several years, which are the stores that we believe were either redundant.
Or that we can optimize with other nearby locations.
And how do we think about harvesting that expenses and really making sure. We're reinvesting that back into the business for further growth and as we've been talking about it for the last several quarters really for the last several years investing in digital platforms on the consumer side small business initiatives and certainly our goal.
Both on our commercial and wealth and wealth businesses.
I think the one thing that Covid has taught us is that our customers want access to us, but they wanted always they do once physical and we're seeing many of our customers return into the store and we're bullish on that and you'll see markets in future years, where we continue to invest in from stores.
But what you're also seeing is the need for investment in digital and digital capabilities.
And we're doing just that.
Okay. Thank you and then the second part of the question was with the longer term outlook for the efficiency operating efficiency ratio and <unk> yeah yeah.
So there's obviously two parts to that and I'll, let <unk> jump in if he wants to add anything to this but.
If you back out the notable item here for the stores the way we like to think about it is we're running something close to breakeven expenses from a year over year on those numbers will obviously bump around from quarter to quarter depending on initiatives.
But efficiency ratio come back down as we see volumes come back up and and as we see any relief on the rate side or are we continue to grow out of it from a volume perspective.
If you went back pre Covid you would've seen the efficiency ratio in the low to mid 50% range.
And then on <unk>, if you have anything else you want to add to that.
No you covered it Greg I think Paul as we see rates starting to normalize again, I think it's entirely possible to get back into the low 50%.
Thank you.
And the next question is from many Goldman from Scotia Bank. Please go ahead.
Hi, good afternoon.
When I do the straight math on your PTP earnings.
It looks like it was down 4% year over year, but I'm wondering how you think about it specifically I'm curious about.
The impact of the strategic card portfolio on this calculation on also on the leverage ratio.
Yeah. Thank you Manny look.
There are three things that are.
You should look at when looking at GAAP TTP and operating leverage first is the currency impact. So if you simply take our expenses.
The U S segment from Canadian dollars to source currency that would be the first adjustment then I would suggest would be worth looking at.
Secondly, I think the store closure costs debt Gregg just mentioned.
To the extent that one can think of those as one time costs I don't think they should get in our view figure into PTP on Opex.
Yes.
And then the strategic card portfolio, which I'll just walk through in a second.
Debt component of the <unk>.
Payment that we make to the retailers that goes to change in PCL should also perhaps from the adjusted out of those calculations to the extent to the extent that we're trying to figure out what GAAP pre tax pre provision earnings on.
So I think when one looks at it on that basis on a year over year basis, our PTP actually grew by just under 5% and on a quarter over quarter basis. The growth is mid 6%, so quite a bit better than what the.
The headlines would look at on that.
On at the top of the house and the way you look at it.
I think on the matter of the strategic cards portfolio.
And the PCL relating to that if you look on page 26 of our slide where we have for the last few quarters laid out an example debt.
If you had a credit card portfolio for $1 billion net earned revenue of $150 million and has to be below $50 million. So that the risk adjusted profit were 100.
And if the sharing arrangements were such that we retained 20% of the risk adjusted profit and pay to the retailers 80% of that.
And from a GAAP perspective.
We would record revenue in the financial statements from 108, PCL on 50 noninterest expenses for the portion that we pay to the to our to our retailer partners of $80. So we retain 20.
And then in the segment accounting for U S retail we record on net.
Share of thoughts or retail revenue would be 30, PCL would be 10, and net income would be 'twenty and in the corporate segment, we record revenue ex tariff with net debt our retailers enjoy from that portfolio being 120 <unk> share of <unk> for key and then the amount that we pay to them in noninterest expenses.
80.
So if it turns out getting on subsequent period revenue was 250 by PCL were zero than what you would get in our corporate segment is revenue of 124, the retailer partner share PCL of zero. The net payment would be 120, so our people are at.
Noninterest expenses would go up by $40, reflecting the component of the.
The retailers share of net of debt.
The PCL reduction.
So in order to get on apples to apples comparison of revenue too.
To to expenses on a PTP tier on operating leverage basis, we would tend to add back the amount of PCM that agents corporate segment to our to our expense line.
I think if you look at that on that basis menu, which I think is the right way to look at it our PT pp has actually been quite strong quarter over quarter and year over year.
Just as a follow up on that.
What kind of.
Pre tax pre provision growth you expect for the year as a whole is.
Under your calculation that 5% as you mentioned is that something that can be sustained.
Throughout the rest of the year, how do you view that.
Fiscal 'twenty one.
I think if you look at fiscal 'twenty. What we have highlighted is the fact that we have a diversified and integrated business model in U S retail banking and Canadian retail banking.
And so we're in Canada.
Particularly where margins have compressed we have seen the benefit of that coming through the wealth and insurance revenue because every position our bank against the our Canadian retail customers.
Holistic way that somebody may have on checking.
Checking on savings accounts.
And credit cards on mortgages, a carry and they may have wealth products with clear and they also may be buying their home and auto insurance from us. So we were thrilled with the fact that through 2020 Canadian retail <unk> grew by 12% year over year, which is just a stunning accomplishment in my view in how our cash.
Customers Trust based on how our customer acquisition engine is working.
Then of course, we had a very strong wholesale revenues in a period, where net interest rates have been very low and customers have been taking advantage to complete their financing and their M&A activity. So I think we really changed from highlights the diversification on our business model and its customer centricity.
Thank you.
Next question is from W. Addition, from National Bank Financial Please go ahead.
So.
Quick clarification here.
The idea of your agreement with Schwab I think the new fee structure kicked in.
Last quarter. So this would be the full effect.
Other than your results for this quarter.
Yes that would be correct because the transaction closed on October 6th tier.
And then starting July 1st bathroom Schwab concern sweep.
Sweeping those deposits on a $10 billion or so a year for their balance sheet, but since the amount of deposits so much higher.
It's a much longer path to get to that $50 billion.
On a minimum level I guess.
It was up.
Should we be looking on it now.
Yes, that's right I think from the time that we announced a transaction to the time that we closed there was a significant increase in Ida balances. So you are right.
For which.
That those balances from closing.
$250 million.
We will have become longer.
And so in this first period on July 1st after closing.
Schwab can take back as they wish.
The amount on the balances as of closing minus minus plus 10 billion.
The difference the difference between our balances to 10 billion minus the amount at closing as what they can take on July one.
My other follow up on that but.
Couple of just from it.
No.
A question for Greg.
Yes.
The on.
And in the U S. Other new administration now.
Have a new head of the CFPB as well.
I'm just wondering what you're thinking of these days when it comes to potential regulatory actions, but it could have a negative impact on your your.
Free income line similar to what we saw after the financial crisis, if theres any whispers of actions taking place there and even if it does not.
You, taking another look at how you.
On your fee structures in the U S.
How are you charging for certain services there.
How that might evolve over the next next year.
Okay.
Yes. Thank you for the question and certainly a lot going on in the U S. These days that we all continue to watch, but what I would.
Just to remind everyone as debt.
Whether it was the last administration or eight years before that or even before that.
We found a way to continue to grow the bank and add customers and grow revenue and grow the bottom line and continue most importantly to take share in service on customers and <unk>.
Stack up on the J D Power awards that we so much love behind my desk and do those sorts of things and that's our continued plan regardless of the environment I think one other things that we get called out for us on.
Some of.
Our fee income drivers and one other things we're keenly focused on given the maturity of the bank debt. We're building real time is how do we find other ways to grow fee income on the good news is we believe we have terrific upside across the U S and across segments.
Certainly in wholesale certainly in our wealth business that were.
You know are collaborating on with Leo and how do we leverage this new partnership with Schwab, how do we do more.
In our in our traditional everyday middle market and commercial banking businesses in small business in Treasury management.
So yeah, I mean, there'll be puts and takes with every chain.
Change that occurs but we do believe we will find ways. Most importantly to add new households on new customers that will blunt any one particular area.
Okay.
Thank you.
Our next question is from Ebrahim <unk> from Bank of America Securities. Please go ahead.
Hey, good afternoon.
I have a question on credit card lending one.
So what expectations on win credit card growth comes back both from the U S and Canada and secondly.
And on the just from these buy now pay later companies, which other emerging you on a policy moving target, but target is kind of partnered with one of them called reform. So just trying to get a sense of <unk> do you see these <unk> completed two credit card lending into our business on to what extent do you see that list. Thank you.
Hey, Brian This is Barry.
Going to pass it onto Terry to talk about the <unk>.
Radio business and then Greg perhaps can comment on the U S. And then I'll come back and provide you an overall view.
Okay.
Thanks Edwin.
So let me start with sort of a day.
The strength of the cards business in Canada, So obviously in the more immediate term.
We've seen customer liquidity, resulting in paydowns within the COVID-19 impacts locked.
Lockdowns and then January is seasonally a lower volume period, but having said that.
A couple of aspects in thinking about the business on its potential to capture pent up demand.
Economies reopen and activity resumes.
From an acquisition standpoint if.
As you think about the Canadian cards business almost day to think about half of our customer base as travel on luxury.
As other categories of spend such as everyday spend and.
On cash back.
We invested over the last number of years and have a very strong line up.
Hey, Dan.
<unk> bank and that's performing well.
Despite the circumstances.
In light of the circumstances.
Got a very strong partnership with Amazon.
It is paying.
On our bank dividends for us and our customers.
Since the launch of that partnership.
There is more opportunity there and then obviously larger ticket purchases in the travel and luxury space.
The opportunity to come back and we have a fantastic partnership that we only launched in November.
With Air Canada and in fact in January our TD Aeroplan incident visa card was named the bank airline pilot in Canada and flow that along with our proprietary travel offering positions us I think across the board are incredibly well as demand returns the other piece to think about that.
It is while we have better line of sight now into the economic circumstances. Some of your acquisition strategy that we have on pause in 2020, we've resumed and those will allow us to build balances.
Even I would say Joe from a period, where the activity has not return right.
So overall when I look across the strength of <unk>.
Our offering.
Obviously, we don't know the timing of that.
Rebound, but I believe we're well positioned for the pent up demand.
Maybe just a comment on buy now pay later on.
We have a in our MD&A portfolio.
Post purchase.
Our capabilities in terms of customers being able to put on installment plans.
There are in the U S and maybe I'll pass it to Greg.
Point of sales capabilities.
Net.
Terry Thank you I would just say we've certainly saw.
Balances come down from their peaks a.
On a year ago Ebrahim.
And as the economy begins to heat back up and things begin to open back up and we're certainly hearing a lot of anecdotal data from that not only.
From the folks that.
On the economic side, but also our customers directly and businesses and Theres certainly.
On top demand to.
Go a little bit back more to normal and as that activity picks back up again, we'd certainly expect to see card volumes.
Follow suit as flow.
Ex can get out and about again, especially from a travel on leisure standpoint, certainly from a restaurant standpoint in some geographies.
Just to tack on to the buy now pay later, we're already in that business effectively and we have a business called retail card services as part of our portfolio.
It's a couple of billion dollars portfolio, and we partner with national retailers.
And provides point of purchase finance, so, it's a business where certainly staring down.
But it's a business we're already on.
Hey, Brian This is Barry.
And there's no need for me to add more than what you've already heard overall.
This is a key business for us it's a very important business and then we're thrilled with how our business has evolved in Canada.
What has become yes, we are heavily travel oriented.
You know when we get off this pandemic may turn out to me on advantage once again and so on the other work. The teams have done in Australia has done is to reduce debt.
On the cash back card as well, which has been very very useful through this period.
In the U S. You know our business is very young yes, we have this partnership deals, but with Greg and his team are really working on as a bank card offering and that is growing quite quite well.
TD branded cards.
Our retail network there. So overall, a very important product as its evolving the old payments space is evolving very fast, but rest assured we are keeping up with all of those trends and where appropriate we are making the investments to make sure that we do have those capabilities and given our brand and I expect us to have our fair share of the market.
Thanks for taking my question.
Okay.
Thank you.
The next question is from Doug Young from Deutsche Bank. Please go ahead.
Hi, Good afternoon I guess this question is gonna be for Terry just an Ria as I think you mentioned it in his remarks, just the strength in the wealth on the insurance side was was it was very noteworthy.
And it looks like I would've expected the P&C insurance other really good quarter, given everything that we've seen and there's from a publicly traded comp that we can look at but it looks like the wealth business was actually the bigger contributor and we carry I'm just hoping you can dig a little bit more into what you saw maybe if you can parse out some of the pieces that would be helpful.
Thanks for the thanks for the opportunity debt. So let me start with insurance since you started there.
We've been investing in this business.
We have a book both the phone I.
Capability, but it probably industry leading end.
And on capability.
Yes.
Debt, we've been investing in and so we've had strong business growth.
On.
Quarter four the year over year, a good claims experience.
And.
<unk> been able to manage also helping customers.
Go on through this difficult time.
What I would say is that we're on the other element of this business assets.
Ah is a collision centers across the country force auto business one of our customers.
How's that.
There are often times L. T D centers that can help make that a better experience for those customers. So we've been investing in our capabilities.
Doing a great job as an on line insurer, we have I think the business model.
Capabilities and customer experience for the future and.
Q1, we had record earnings and capital.
On the wealth line, obviously just strength across the board.
Did have you know.
The highest wealth asset levels on record a crosswalk on my businesses and mutual fund results were very strong.
And obviously trading levels continued to be at record levels, it's possible that some of that trading activity could become more normalized although I think.
We will continue to see new investors in the space.
And I believe we've got best in class capability, not only for them to understand what they're doing our education on learning capability that people take up are helping our investors to understand what they're doing and we feel strongly about that capability being available for them.
But also just their ability to interact with us digitally with their advisors or as a handoff from our branch colleagues, we feel like we've got great capability there.
We've been adding advisers.
For a while and in my business in the personal bank.
Gerard TD ready advice strategy, we really work hard as one from me to help our customers who are often right now sitting on more liquidity than they had planned or to invest for the long term.
And to help them do that in a way that they feel confident and we have goal assist available for self directed investors.
To look at setting up.
Our <unk> solution to their goal planning.
Very comprehensive one of the real strength from T. D has mentioned is our one T D approach and I can tell you that with Covid, while we've made the tinman on permanent colleagues can be in our retail branches.
The colleagues.
We'll be on.
Growth business and business banking business.
To get back into our stores with our branch bank, because that's where the magic happens.
And Jerry just a follow up you don't you've never broken out how much your online brokerage business contributes to well I would imagine that's where a lot of strength came through or the broker debt broker business.
So clearly the online trading which is reported in our wealth segment was a strong contributor, but Neil and and we all pay close attention to the other parts of its business and they're growing nicely as well.
Okay, and then Greg just on the U S nims little bit stronger than I would've thought it is there anything unusual in there like how do you see this unfolding I know theres. Some prepayments from the PPP is having an index. If he can provide a little color that'd be helpful. Thanks.
Sure. So it is good to see that stabilize and but like we've been saying I mean, the pressure that we've been on is because of rates, but it's also the mix of the business. So we believe we're growing good fundamental deposits and we're going to continue to do that and we want to take share on that deposit base business.
What I would add on to your question, though more directly yeah, you've got that.
Some PPP that's in that NIM number.
Which contributes.
A little bit tuitions, but you're also seeing positive.
Margin on the loan growth side.
And positive margins on the on the loans, we are putting on the books is also helping so a good news story on that front.
Thank you.
Once again, please press star one on other devices keypad, if you have a question.
Our next question is from Nigel D'souza from Veritas investment Research. Please go ahead.
Thank you good afternoon, I wanted to touch on our wholesale banking and it looks like you had another strong quarter for trading net interest income and I was wondering if you could provide some color on how you think that would perform in.
A rising yield environment. So it is a steepening of the yield curve do you see that as a tailwind or headwind or is that neutral or.
We're not on materials were trading NII in that segment.
Bob are you on the line Sam Baird, Hi, Nigel I would say, it's there's pluses and minuses on a steepening yield curve definitely helps on the.
On the.
On the corporate NII.
And other things related to securitization et cetera, it Ken.
Can have temporary.
Negative impacts.
From the shorter term trading businesses, but net net I think it would be more neutral.
Okay. That's helpful. Thanks for the color. Thanks.
Yeah.
Thank you.
Our next question is from Scott Chan from Canaccord Genuity. Please go ahead.
Good afternoon debt, maybe Greg just a clarification question.
So is there going to be did you state that there has been an additional $60 million.
And the cost to hit the P&L on the on.
On the branch closures that you announced today.
Correct and that'll that'll that'll take effect in Q2.
Okay, and and <unk> as you did this exercise in the U S have noticed here.
Canadian branch count has been pretty stable out over on over the past call. It two years is there any opportunities with COVID-19 to rationalize them.
On the branches and the Canadian network.
Hey.
Yes, So let me talk about branches.
Our operating context.
Thank you Scott very different U S versus Canada, and Ah, we like Greg Wood every on an ongoing basis look at the network and think about where we.
We might merge where we importantly would open new locations or relocate branches on.
What I would say on Canada, I mentioned, the strength of one T D.
And also Greg mentioned that your customers every channel matters to our customers.
And you will see some.
The more modest activity internally that moral analogous to what you would see from us on an ongoing basis. Our branch network is majority of fleet urban in priority urban markets. We have just over 170 Billboard locations that.
And that drives strong brand recognition and the ability for to house our partners.
To meet customers needs across all of their television channel and business needs.
And again they are the homes the one to the end through the pandemic even at times like we're experiencing.
With Lockdowns customers are coming into the branch and we're meeting their needs and so we would stand up and say you know what.
Pretty well positioned as we can.
Go ahead.
Yeah.
Thank you.
Once again, please press star one on your devices keypad, if you have a question.
And our next question is from Ebrahim <unk> from Bank of America Securities. Please go ahead.
Okay.
Hey, Hello again.
I guess just another question follow up in terms of strategically on M&A, when you're sitting on a pile of capital at 13, 5% we've.
We've seen transactions happen in the U S and the banks and the non bank space.
These generally historically been active in may be opportunistic in terms of capital allocation just talk to us in terms of when you look at the U S market today.
Whats your appetite in terms of acquisition and does that all have to wait till we get the green light from the from the Aussie to actually deploy capital.
Thanks for the question Brian.
No change in our outlook I think I've said this many times before.
Certainly.
Sure.
So open to acquisitions in the U S market and in the Canadian market as well I might debt.
On the way, we think about it is obviously on anything we do has to make strategic sense for national sales timing sense et cetera.
So we are open and if a compelling opportunity were to present itself. We will look at it very seriously and as you said you know we have flexibility because of our.
Our strong balance sheet and capital levels et cetera. So.
We would seriously look at anything that we thought was compelling but the important point is that.
We are not strategically challenged our U S businesses of scale on a weird in the markets we want to be.
And with the size and reach and the brand recognition that we have there is not as if you know that.
On the spending all our time thinking about how do we go and spend our capital looking for acquisitions, but on the other hand, if there is something that makes strategic sense and financial sense that obviously, we look at it very seriously.
Got it and would you.
Thank you.
Alright, Thanks, Brian.
Thank you.
And the next question is from Mario Mendonca from TD Securities. Please go ahead.
Good afternoon.
If we could just fast forward three months.
And.
I listened to your explanation for the partner's share really carefully.
And if we apply that donation to three months from now.
Would it be correct to say that unless CLS from the partner's share increased significantly.
What we saw this quarter in terms of the difference between operating leverage on pre tax pre provision earnings growth will be what it'll be.
It'll be far more significant next court specifically.
Because of the significant increase in performing loan PCL.
In Q2 2020.
Related to other partners.
Or are we just sort of set up for another really uncomfortable look the headline number unless unless we're willing to go from the mental gymnastics of partners.
Partners card.
Okay.
Or are we just set up for another really tough.
The headline number.
Yes, Mario you'd be correct about that and as I.
Highlighted in my remarks.
The reason we call out the strategic cards portfolio was just always to keep reminding you of that.
On page 12 of our sub pack, where we show you. The corporate segment results I mean, the PCL there are virtually all in relation to the partner share of <unk> offering and the credit card portfolio and then you can see the expenses that move with that.
It gives you a decent explanation from every year every quarter as we think about.
P P P and operating leverage I think of it on to my point earlier that in a diversified model when margins come back perhaps.
Other income and wealth and et cetera on might be.
Might be lighter, but if you keep reminding yourself to add back the change in the allowance from the corporate segment to your calculations I think youll find that actually ex much much more consistent annual going on right.
<unk> yourself from 15 to keep calculating this maybe will take also had an opportunity to include a slide on that in the future.
Right.
We built it from myself to understand it.
But it's by no means just one thing that you can do.
Sort of off the cuff so yes.
Anything you can do the quarter theyre, making it clearer for us would be appreciated. Thank you yes.
And similarly, we may take the opportunity, we'll consider taking the current calculations that I, just mentioned and posted them on our website.
Thanks.
Thank you.
And our last question is from many Grandma from Scotia Bank. Please go ahead.
Hi, Thanks for taking me again, just a quick question Terry I think it was maybe maybe not kicking in Q4, but Q3, you talked about having fewer branches open then three of your four competitors.
Is that all back to normal now just wanted to check in on on that in terms of the status of the branches, especially relative to peers.
And yes, we.
We're pretty much reopened there are onesies and twosies and I'm certain that that would be the case across Canada for our competitors as well in terms of just incident that happened on health related but.
But overall and probably a good time for me to recognize the fact that we are all I think looking ahead to what we're seeing in the global vaccination.
Cash from enhancements to treatments.
And testing enhancements and those are all great things for us to think forward for personally and for our businesses. It's good to remember that all front line folks has been thrown out almost a year now and continue to be still dealing with a variance in the <unk>.
Virus and some of the constraints on ensuring their own and their customers' safety and so it's a good time for me to think from.
From what they've done on behalf of our business on behalf of Canada.
Thank you.
Thank you.
There are no more questions in the queue at this time I would now like to return the call to Mr. Baber from us Ronnie for closing remarks.
Thank you very much operator on Wow channel questions for you.
And I should say to both Mary and many of you know Theres a great questions on the program as Shannon I know it is counterintuitive, but when our expenses go up stemming from our payment or partners on the credit card portfolio. That's a good thing and I know that's counterintuitive. So as I said, we will provide more explanation of debt into futures it's more.
Clear.
For all of you.
But overall very happy with the scar debt, where fiscal year and yes, it's too early to declare victory against this tragic and terrible pandemic.
But I think given that the vaccines are rolling out then and there will be bumps in the road going forward, but overall I'd say you know we are headed in the right direction.
I would like to take this opportunity like Terry just said to think on 90000 colleagues around the world. They keep on delivering regardless of the environment. They keep on delivering for all of our stakeholders, including our shareholders. So thank you. Thank you for everything you do.
TD and our shareholders with that are focusing on nice to have.
Welcome to all of you and look forward to ongoing engagement.
Through the quarter or at quarter end 90 days from now thanks very much.
Yeah.
Thank you.
Conference has now ended please disconnect. Your line is at this time and we thank you for your participation.