Q2 2021 Toronto-Dominion Bank Earnings Call
This conference is being recorded so lets close the homes that don't have as you see.
All participants please standby your meeting is ready to begin.
Good afternoon, ladies and gentlemen, welcome to the TD Bank Group Q2, 'twenty 'twenty 1 earnings conference call I would now like to turn the meeting over to MS. Gillian Manning. Please go ahead mismanaged.
Thank you operator, good afternoon, and welcome to TD Bank group's second quarter 2021 investor presentation.
We'll begin today's presentation with remarks from Pirating, that's Romney the bank's CEO.
After which rehab for them at the bank's CFO will present, our second quarter operating results.
JP on the wildly 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 to answer your questions today 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 of wholesale banking.
Let's turn to slide 2.
At this time I would like to caution our listeners that this presentation contains forward looking statements that there are risks that actual results could differ materially from what is discussed and 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 Q2.2021 report to shareholders with that let me turn the presentation over to Bert.
Thank you Julian and thank you everyone for joining us today.
Q2 was a strong quarter for TD, because we continued to benefit from a recovering economy and rising consumer and business confidence.
<unk> rose to $3.8 billion in EPS to $2 <unk> for more than twice last year's levels as an improving outlook led us to release a portion of the performing allowances, we'd build last year.
Our wealth insurance and wholesale businesses had another strong quarter as clients continue to bring us more of their business and our personal and commercial banking business has gained momentum has increased customer activity helped offset continued margin pressure on the low rate environment.
D..1 ratio ended the quarter at 14, 2%, reflecting these favorable trends.
A year after the COVID-19 pandemic took hold in North America. It continues to have a significant impact on the economy and other financial results unprecedented fiscal and monetary support for households, and businesses has led to a significant increase in cash balance is limiting borrowing needs driving delinquency rates to historic lows.
And keeping our W. A growth muted.
We have navigated this complex environment well.
Our diversified business model and the adaptability and resilience of our people.
As I reflect on our performance over the last year I'm most proud of them through this long period of upheaval. They have continued to deliver for our customers communities and each other and limit our share.
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As we look around today and we know the battle against Covid is not over the devastation. We are witnessing in India, and Brazil is heart wrenching and will have far reaching consequences on those regions, but in North America, we see encouraging signs that the recoveries on solid ground and gathering momentum.
The rapid start to vaccination in the U S is permitted and easing of restrictions across much of our footprint and broadening vaccine availability in Canada should support similar trends here.
TD will continue to play a key role in driving forward debt recovery.
As a purpose driven organization, we know they're being thrives when our customers colleagues and communities thrive our recoveries must go hand in hand that was a core message about 'twenty 'twenty ESG and DCF day reports, which we released this quarter I invite you to read them and learn more about what we are doing.
A more inclusive and sustainable future debt.
It includes our approach to achieving the goals of other climate action plan is the first Canadian bank debt and net zero target by 2050, we are accelerating our athletes have mobilized leaders and experts across the bank and are working closely with clients in multiple sectors to support their transition plans and create positive.
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We also discussed on our progress on inclusion and diversity over the past year, we've seen what any quality looks like across our communities in stark terms in the black Asian indigenous and other communities.
TD will never rest on our past success moving.
We'll work to increase our own representation and contribute to the fight against the virus discrimination and racism.
And because we know what gets measured gets done on ESG report provides expanded and detailed reporting so all stakeholders can track our progress.
As I wrote in my CEO message TD will meet the biggest challenges of other generation with determination on purpose, we will continue to invest in what matters and leverage our resources and the talent of over 90000 colleagues around the world to help build a better bank debt.
Net better bank is powered by a proven business model and sustained and strengthened by the investments we continue to make in our businesses and operations.
And this year of accelerated digital take up and changing customer needs the capabilities and infrastructure. We put in place have enabled us to support a dramatic increase in adoption and engagement.
We are winning with customers by delivering innovative solutions customized to their needs. This quarter crossing the 10 million Mark for mobile users across our North American footprint.
Our Canadian banking App was honored by the business Intelligence group for AI powered insights developed by layer 6 are in house AI team.
In the U S. We were recognized by Celent for a partnership on the virtual assistant.
That provided advice and support to customers digitally at the height of the lockdown.
And we continue to maintain a strong pace of innovation is the number 1 financial institution batten filer in Canada.
These accomplishments have been matched by continued growth and strong customer acquisition in each of our businesses.
Canadian retail segment earned $2.2 billion this quarter.
Low lower PCL, and lower insurance claims and higher volumes and fee income activity accelerated in our banking businesses with continued strength in mortgage volumes and a pickup in credit card spend we also extended our lead in personal deposits and continue to lead in payments ranking number 1 in indirect.
Cash and eat rentschler.
We delivered record earnings on a on a strong trading volumes and net asset growth and impressive insurance earnings including substantial customer premium relief.
We also achieved several milestones this quarter.
And the business Bank TD auto finance ranked highest in dealer satisfaction, among non captive retail lenders by J D power for the fourth year in a row following TD auto Finance U S. J D power win last quarter.
And just after quarter end, we closed the acquisition of wells Fargo's Canadian direct equipment finance business.
Our wealth business, we launched the TD wealth family office, a multidisciplinary group that will leverage our 1 TD model to deliver bespoke advice and solutions for ultra high net worth families and entrepreneurs.
And TD insurance continued to take market share rising to the number 3 position for home and auto General insurance.
Our U S retail bank delivered 853 million U S dollars and net income this quarter with another strong sequential recovery in earnings mainly on lower PCL.
Recall that peer leading consumer deposit volume growth as customers entrusted us with more of their savings.
A further increase in customer transaction activity with a return to near record levels of debit card spend and rising credit card transactions.
We're also seeing good early take up of our new double up credit card what are the best cashback offerings on the market.
We continue to support small business customers with PPP financing ranking in the top 10 nationally as we originated some 45000 triple B loans in the second round of the program and help customers access over 1 billion U S dollars and forgiveness under the program.
Together with a 194 million U S dollar contribution from our ownership stake in Schwab U S. Retail segment earnings exceeded 1 billion U S dollars.
Our wholesale bank earned $383 million a good result, with lower PCL, helping offset a normalization in trading activity from last year's elevated levels.
This quarter, we continued to build our U S franchise with the announcement of our agreement to acquire headlines Tech global markets expected to close in the second half of calendar 2021.
The transaction will expand our capabilities in fixed income electronic trading and accelerate TD securities innovation and technology strategy.
We were also proud to act as joint lead for the International Finance facility for immunization companies 750 million U S. Dollar 5 year vaccine bonds, which will provide garvey the vaccine alliance with immediately available funding to support routine immunization and lower income countries, reaching day.
Early half the world's children.
At the midpoint on fiscal 'twenty 'twenty, 1 TD bank remains strong and our business is well positioned positioned for the future.
On the Covid related impacts, we saw last year, including margin pressure from low rates high savings rates delaying loan growth and P. C. L will continue to affect the year over year comparisons we will maintain our disciplined approach to investing for the long term, it's served us well through the pandemic and as the recovery progresses. It will.
Support our continued readiness to meet changing needs adapter shifting dynamics and built for growth.
We are also supported by a very robust CET, 1 ratio, which affords us strategic flexibility to invest in our competitive position to grow organically to pursue acquisitions that add capabilities and to build a franchise to return capital to our shareholders when that becomes possible or a combination.
All of those things.
As always we will use our capital responsibly and be Potful about making the right investments for the long term.
Our investments also support how we operate the bank as we plan for a future where more of less can return to TD premises. We know that flexibility will remain critical and that our people need the capabilities and infrastructure to continue to serve customers.
Backed by a clear strategy and strong balance sheet, we look ahead with confidence.
Hank has proven resilient our brand is among the strongest in the industry.
Unique and inclusive culture remains a distinct competitive advantage.
People bring debt culture to life and I'll finish by thanking them for their continued hard work and dedication with that I'll turn it over to reassess.
Thank you Barak and good afternoon, everyone. Please turn to slide 8.
This quarter the bank reported earnings of $3.7 billion on EPS of $1.99, and adjusted earnings are $3.8 billion and adjusted EPS was $2.04.
Revenue decreased 3% weighted.
Saw strong volume growth and higher fee income in our retail segments, which this quarter more than offset lower margins.
Downward pressure came from premium rebates for insurance customers, which I will discuss in a moment lower wholesale revenue and the impact of foreign currency translation.
Provision for credit losses for the recovery of $77 million lower by $690 million sequentially, reflecting a recovery in performing PCL and lower impaired PCL.
Expenses increased 12% year over year, mainly reflecting an increase in the retailer program partners' share of the net profit from the U S strategic cards portfolio, primarily on lower PCL.
Absent the partner's share expenses increased 1%.
Higher employee related expenses and U S store optimization costs were largely offset by foreign currency translation and lower legal provisions this quarter.
Because of the large year over year change in PCL this quarter, the accounting for the U S. Strategic cards portfolio program had a significant impact on expenses.
As well as total bank pretax pre provision earnings and operating leverage.
<unk> 'twenty, 1 and 'twenty 2 of this presentation show, how we calculate PT pp and operating leverage at the total bank level by removing this impact along with the impact of foreign currency translation, which is also significant this quarter.
These adjustments show that the total bank P TPP and operating leverage each declined approximately 3% year over year, because mostly a reflection of lower revenue and higher expenses in wholesale.
Please turn to slide 9.
Canadian retail net income was $2.2 billion up 86% or $1 billion year over year on an.
Adjusted basis, net income increased 82% year over year.
Revenue increased 1% higher transaction and fee based revenue in the banking and wealth businesses and higher volumes were largely offset by lower margins and premium rebates for insurance customers, reflecting reduced driving activity.
Average loan volumes rose, 5%, reflecting growth in business and personal volumes.
Average deposits rose, 20%, reflecting double digit growth in personal business and wealth volumes.
Gross assets increased 21%, reflecting market appreciation and new asset growth.
Margin was 261% a decrease of 4 basis points from the prior quarter, reflecting changes in asset mix and the ongoing impact of the low interest rate environment.
Total PCL was a recovery of $37 million lower by $179 million sequentially, mainly reflecting a recovery in performing PCL.
Total PCL as an annualized percentage of credit volume was negative 0.03 per cent decline of 15 basis points quarter over quarter.
Insurance claims decreased 34%, primarily reflecting lower current year claims a decrease in the fair value of investments supporting claims liabilities and more favorable prior year claim development.
Reported expenses increased 4%, reflecting higher volume driven and employee related expenses, partially offset by prior year charges related to greystone.
Adjusted expenses increased 5%.
Please turn to slide 10.
U S. Retail segment reported net income was approximately U S $1 billion up U S $786 million.
U S retail bank net income was U S $853 million up U S $766 million, primarily reflecting lower PCL.
Revenue increased 2%, reflecting volume growth higher valuation of certain investments and fee income growth, partially offset by lower deposit margins.
Average loans volumes increased 1% year over year and deposit volumes, excluding sweep deposits were up 28%, including 37% growth in core consumer checking.
Sweep deposits were up 18%.
Net interest margin was 215% down 9 basis points sequentially, reflecting balance sheet mix.
Total PCL, including only the bank's share of PCR for the strategic cards portfolio was a recovery of U S $173 million.
Lower by U S 276 million compared with the prior quarter, reflecting lower impaired PCL on a recovery in performing PCL.
The U S retail net PCL ratio was negative <unk>, 4.1% down 66 basis points from last quarter.
Expenses increased 4%, primarily reflecting U S $49 million and store optimization costs.
And higher employee related expenses, partially offset by legal provisions.
Contribution from TD is investment in chalk was U S $194 million as a reminder, amortization of acquired intangibles on an acquisition and integration related charges associated with Schwab's acquisition of TD Ameritrade are reported in the corporate segment.
Slide 27 and for further details.
Based on to slide 11.
Wholesale net income was $383 million, an increase of 83%, reflecting lower PCL, partially offset by lower revenue and higher expenses.
Revenue was $1.2 billion down, 8%, primarily reflecting lower trading related revenue and lower debt underwriting, partially offset by higher advisory fees.
<unk> was lower by $83 million sequentially, primarily reflecting a recovery in performing PCL.
<unk> are up 14%, primarily reflecting higher variable compensation. Please.
Please turn to slide 12.
The corporate segment reported a net loss of $186 million in the quarter compared with a net loss of $202 million in the second quarter last year. The year over year decrease reflects a higher contribution from treasury and balance sheet management activities and lower net corporate expenses, partially offset by.
And integration charges related to the swap transaction.
Net loss for the quarter was $106 million compared with an adjusted net loss of $443 million in the second quarter last year.
Please turn to slide 13.
The CET 1 ratio ended the quarter at 14, 2% up 63 basis points from Q1.
We had strong organic capital generation this quarter, which added 47 basis points to CET 1 capital.
Actuarial gains and employee benefit plans added another 17 basis points Chris.
The risk weighted assets decreased by approximately $12 million in the quarter on lower retail and commercial balances in U S retail and FX, which the bank hedges.
The impact of ex FX on our CET 1 ratio was there for mutant.
For these transitional adjustments for ECL provisioning reduced our CET 1 ratio by 7 basis points this quarter.
Average ratio was 4.6% this quarter and the LCR ratio was 128% both well above regulatory minimums I will now turn the call over to Ajay.
Thank you and good afternoon, everyone. Please turn to slide 14.
Gross impaired loan formations were 14 basis points.
Remaining at cyclically low levels.
Selecting the impact of support programs customer resilience.
And the continued economic recovery.
Please turn to slide 15.
Gross impaired loans were $2.8 billion decreasing $254 million quarter over quarter.
Primarily related to resolutions outpacing formations in the Canadian and U S consumer lending portfolios and the impact of foreign exchange.
Please turn to slide 16.
Recall that our presentation reports PCL ratios, both gross and net of the partner's share of the U S strategic card PCI loans.
We remind you that <unk> recorded in the corporate segment.
Fully absorbed by our partners and do not impact the bank's net income.
This quarter the bank recorded a gross PCL recovery of $373 million, reflecting a performance, allowing allowance release, partially offset by cyclically low impaired provisions.
Please turn to slide 17.
The bank's impaired PCL was $385 million.
Continuing at low levels, and decreasing 84 million quarter over quarter.
The decrease was primarily reflected in the U S consumer lending portfolios.
Performing PCL was a recovery of 758 million lower by 605 million quarter over quarter, largely due to allowance releases across all segments.
Please turn to slide 18.
The allowance for credit losses decreased $968 million due 8 billion quarter over quarter.
Reflecting a performing allowance release.
Largely related to the.
The improvement in our economic outlook and consumer credit attributes.
At 289 million impact of.
Foreign exchange.
Yeah.
Now to summarize the quarter.
Bank led deferral and ongoing government support programs have had the desired effect of helping our customers.
And reducing initial expectations for credit losses.
As reflected in our allowance release this quarter as well as cyclically low gross impaired loan formations and gross impaired loans.
Credit results May continue to vary by quarter as day.
There is a wide range of possible outcomes.
The uncertainty associated with the ultimate credit impact remains elevated but has reduced overtime.
As a result, Pcl's may continue to be relatively low through the remainder of 2021.
To conclude.
We remain well positioned to manage through the balance of the pandemic given we are adequately provision.
We have a strong capital position and we have a business that is broadly diversified across products and geographies.
With that operator, we are now ready to begin the Q&A session.
Thank you we will now take questions from the telephone lines. If you have a question on you're using a speaker phone. Please lift your handset before making your selection.
If you have a question. Please press star 1 on your devices keep hot you make him for your question at any time by pressing Star 2 please press star 1 at this time. If you have a question there will be a brief pause for all participants register for questions. Thank you for your patience.
And the first question is from Ebrahim <unk> from Bank of America Securities. Please go ahead. Your line is now open.
Good afternoon.
I guess, so maybe just to start out maybe at the consolidated net.
Just talk to us in terms of when you see NII, a stabilizing would actually growing or have you hit that point.
<unk> bottomed out this quarter and what's your outlook barring obviously, if he takes for the margin both in Canada and the U S.
Thank you for them and look I think that are you know when you look at the whole question of margins in the quarter over quarter comparison.
Ah I think where it feels like we still have some moderated downward pressure from a L. P speaking, particularly tight because of the amount of cash that is overall in the system.
And Ah, but however, the.
On the level of interest rates is definitely starting to show some upward momentum so.
In addition to that I think our asset mix is an important a factor I mean, obviously as our deposit growth continues and and mark more customers are trusting us with their deposits.
We're still at an all time low interest rates and therefore that Oh. He's also a headline impact on non net interest margin.
Card balances have been coming down as you know, but we're very encouraged to see our card spending are starting to return very smartly.
And there's liquidity in the system.
Wayne's are we expect to see some of the card balances as well as loan growth remaining so we remain quite optimistic that as the economy is starting to open here and and and and and and economic activities taking on momentum that we are very well geared to.
Upward.
Interest rates. So as you know we've disclosed our NII sensitivity in the MD&A.
But I should also tell you that a 25 basis points increase in short term rates would mean, a Canadian $275 million to NII as well as U S $220 million in the U S segment.
Got it and just on the re separate note on on in terms of capital. Obviously means you have a monster capital build over 14% CET 1.
Just talk to us if you could elaborate on the comments you made at the AGM my own gut openness towards M&A.
We've talked a lot about M&A over the last few years titled give us a sense of what is it that you're going after in terms of Oh that's.
As far as inorganic capital deployment is concerned either in terms of other type of asset that you're looking or are.
Other new markets or new geographies that you could consider in the U S and relative.
For your existing footprint.
Yeah. So the story has not changed you Brian it's been a consistent story.
That from a capital deployment perspective, and on acquisitions as an important part of that.
And we've said that you know we will not be shy.
To do a bank deal it could be in the southeast of the U S or any part of our footprint.
<unk> said that you know, we would look for asset generating type of businesses as well you know, we like certain spaces and we've talked about it and so we continue to monitor the situation in the U S is a very fluid.
There are some deals that have gotten done but for US you know our approach has been consistent and we have said.
And any potential deal has to make strategic sense sales to make financial sense. It has to make sense with respect to our risk appetite.
And cultural.
And so you know as long as we can meet those thresholds. Then of course, you know we would look at anything very seriously we do have the flexibility.
But we are not forced to do anything that is out there because you know were non strategically challenged we have a scaled business in the U S that continues to grow.
And as <unk> mentioned and and I said in my remarks earlier on we have a growing franchise and we are taking share.
In the markets that we're in.
But should a compelling opportunity presented itself, we do have that flexibility to look at it very seriously and if it makes sense for us and obviously, we would go ahead with the transaction. So nothing has changed.
Brian.
But you should expect us to be consistent with our approach going forward.
Got it thanks for taking my questions.
<unk>.
Thank you. The next question is from many Grumman from Scotia Capital. Please go ahead. Your line is now open.
Hi, good afternoon Barry.
Given your interest in M&A does that mean that you will carry more excess capital going forward, even through a recovery than you would normally how do you think about excess capital in relation to your M&A aspirations.
Well you know we.
We have always maintained good capital levels that it's been the tradition that TD look.
At historical levels, you know, we've always had good capital levels and I think the part that gets underestimated with respect to our.
On a diversified business mix proven business model is that we do generate capital on.
On a regular basis as well so I don't think you should take my comments on the or the circumstances. We are in is a departure from what a normal capital deployment framework is and I'll remind you.
That framework consists of you know, we always want to make sure that we have adequate capital to invest in the strategies that we've laid out.
We always want to make sure that we have flexibility around capability builds either organically or inorganically.
We always look at you know from an M&A perspective, with something compelling is going to be.
Emerging in the markets in which we operate we wanted to have some flexibility.
And then we've also been consistency.
If we exhaust all those requirements and if you still have excess capital we will not be shy to do to return that our shareholders. So I think nothing has changed through this to suggest that we will change our framework in any anyway.
Thanks for that.
Thank you. The next question is from Paul Holden from CIBC. Please go ahead. Your line is now open.
Thanks. Good afternoon. So first of all I wanted to ask a point of clarification on that additional interest rate sensitivity you provided for 275 in Canada, plus 225 in the U S. So 500 total is that sort of is.
That something you'd expect to accrue in a very short order or is that something that would accrue on.
Over multiple quarters or multiple years is that 25 basis points works its way into margins.
Thanks, Paul for and that those particular numbers are on the basis of an immediate 25 basis points rise into central bank rates, and therefore would accrue almost immediately.
And then the NII sensitivity table that is in the MD&A that talks to a 100 basis points that would take into account the Ada considerations as well as.
Tractor and concentrations over time, but this amount of 540 or on.
Canadian dollar million would be immediate.
Got it. Thank you. Thanks for that and then 1 additional question I had is with respect to U S auto loan growth on I guess particular to this quarter I was expecting a little bit more.
Given the volume of car sales as well as some of the auto loan growth. We saw from U S comps. So wondering why it wasn't better on the quarter and sort of maybe also an update on.
An updated outlook tied to that that's on.
On segment as well.
Paul So its Greg and thanks for the question I would just say that you know.
This is a business that you know, we're we're pretty mature in and.
We've been managing this for a number of years and we've said that.
It's not just about the growth of the business for US. It's also about the margin of the business and it's about the quality of the growth and as you can imagine over the last year, we wanted to be obviously, particularly careful.
During the pandemic about how we were going to grow it and we were gonna grow it smartly and obviously, we will also not just with an eye on margins, but with an eye on credit quality.
Things are forming up firming up including used car prices are a stability in the in the consumer market from a a credit on a liquidity standpoint, obviously.
This is a space and a lot of consumer asset classes that are quite favorable.
But we've also seen that margins have been holding up quite strong as well.
And.
No.
If this level of.
New car, but also used car sales continue we could see a little bit more moderation of increased growth, but the other thing I <unk>.
Suppose that against is we're also seeing record pay downs across all consumer categories. So you know even though these are term loans facilities over anywhere from 48.
272 months, we're seeing some of these schedules paid down quicker than normal given the excess cash that's in the market. So I think there's a number of factors going on.
Putting excess consumer liquidity, they're applying to debt.
And certainly our mix of the business between.
Prime Super Prime and some near Prime that we do.
And quite frankly, we like the margins for the volume that we're taking on right now.
Okay got it I'll leave it there thank you.
Yeah.
Thank you. The next question is from Scott Chan from Canaccord Genuity. Please go ahead. Your line is now open.
Good afternoon, maybe just sticking on the U S side.
With housing and I noticed on residential mortgages, and Helocs, where were down quarter for quarter and we all we all know the story in Canada, where it was up sequentially for TD as well maybe give an update on on maybe the housing market in the U S. If it's slowing a little bit more than Canada, and and how that is affecting.
Kind of those 2 TD pockets sure. So so Scott its Greg and thanks for the question first I'd start with home equity that you've seen this trend going back over the last really year on a half 2 years about pressure on home equity balances given the ultra low rates that we've been in for a while now and.
Quite frankly, even though we're down which we don't like to see on a quarter over quarter or year over year basis, we're actually down a lot less than a lot of our U S. Peers. If you look at their home equity numbers.
We continue to originate home equity and this is a space, depending on where interest rates and market demand lives will be interesting and continuing to first stabilize and then grow it but I would just say that the across the entire industry people have been retiring home equity in favor of <unk>.
Financed out the fixed mortgages and fixed term for extended period of time, given where rates are on the mortgage front.
What I would say is a yeah over the last couple of quarters. There has been very very strong growth, although had let up a bit as you got into the second half of Q2.
Because it was just running so hot from a refinance standpoint.
Since our 2020.
And and rates going so low.
So we're seeing.
A lot of the volume now on the purchase side and we're still seeing refinances are getting done, but it's really moved to more of a purchase market.
And that's split between conforming and jumbo mortgages, so a little bit of a cooling on the refinance side as this has gone on for quite a while since last year.
But again year over year up 4%. This also I should note includes us increasingly engaging in the conforming and for sale business.
And youre seeing that in our fee income lines as well as we're originating.
More than we have historically in the conforming.
For sale business, so I'm, a little bit of a shift in our mix as well as not just a jumbo for our own balance sheet, but also conforming business that we would sell off to Fannie and Freddie.
Okay. Thanks for thanks very much.
Yes.
Thank you. The next question is from Sohrab mother Hetty. Please go ahead. Your line is now open.
Yes. Thank you.
I just wanted to go to Terry very quickly.
So within the Canadian personal and commercial banking segment, Terry I think you provided disclosure of debt.
Wealth earnings were about $419 million. This quarter can you tell me how much of that was discount brokerage piece.
So I don't think we provide that level of detail but.
As you noted we do disclose.
The results in the wealth result.
What I would just point out.
But you can give us a platform is it was a very strong quarter for wealth overall with record trade volumes record account opening strong market levels and strong net off that growth.
And also on the work across our businesses for 1 for me.
Fight Lockdowns, we're seeing the activity.
In terms of referrals.
For business is back to pre pandemic levels for some really strong momentum to build upon as we go forward.
But no disclosure on the dollar value associated with discount brokerage not is that part of the world.
Thank you.
Thank you. The next question is from Nigel D'souza from Veritas investment Research. Please go ahead. Your line is now open.
Thank you good afternoon, I wanted to touch on deposits for my understanding carrying excess deposits on your balance sheet weighs on on your margins.
But when I look at it on a quarter reported basis at the bank level looks like deposits actually declined.
Wondering if you could provide an update on your outlook for the deposit runoff do you expect to retain a lot of the excess deposits. You currently carrying or have you seen a runoff of withdrawals of those deposits pick up as the economy reopens.
Maybe if you go U S and Canada separately realize that would make sense because we come back with a consolidated so maybe Terry do you want to start first and talk about Canada.
For sure Thanks Pat.
For the question Rachel and so on.
<unk> says the overall deposit growth in Canada, obviously, both sequentially and year over year, we continued to grow our lead.
In deposits are in Canada.
We continue also to lead in money movement.
Both for our interactive E transfer and flash as Ed mentioned in his remarks as well as.
Moving in global transfer remittance type payment capability.
We're also seeing debit.
Debit volume growth significantly through the pandemic for we're feeling very comfortable on across our businesses and Canadian retail core deposit growth and customer acquisition continues to be an important factor for us moving forward on your question around retention of balances.
Thank you know for knowing what we know today, we wouldn't see a large run off in 2020.1 as we project forward.
In fact, we're having great success and putting on.
Those deposits are at work for customers on our mutual funds net sales results in the quarter were the strongest we've seen for 2017 as an example, and so having really good success in terms of helping our customer to a maybe a segment of stay at home favorites, who hadn't anticipated.
Moving on liquidity.
Is now getting the advice they need for months to help make that you know our investments or our goal planning for themselves for the longer term.
So that's how we think about it in Canada, maybe I'll turn it over to Greg.
Yeah.
Yeah, Nigel Thanks for the question, maybe I would just first clarify that if you look at our back.
Back out sweep deposits for a minute and just look at the core business of consumer and business deposits. If you look at a year over year basis.
Our consumer deposits are up 23% on a very large base year over year quite strong business deposits are up 33% year over year quite strong if you look at our quarter over quarter sequentially.
Personal deposits are still up from Q1 to Q2 up over 6% another $7 billion came in.
From Q1 for Q2 and business deposits up nearly 3%.
At around $2.8 billion Q over Q1 over Q1 over Q2, so still quite strong growth in my comment would be on this is that yeah. We would have expected some smoothing out given the strong pace of growth over this past year, but between government stimulus on PPP or the paycheck protection program on.
The business side continue to fund more accounts customers were still raising cash and you saw a quite robust balance sheets on the business side on the consumer side. Obviously, you had the $1.9 trillion dollar stimulus on top of the $900 million stimulus at the end of 'twenty. So our accounts continue to be flush on the consumer side.
You know, we would expect some normalization at some point, depending on the shape of any additional government or support programs out there.
But what I would say is that as the economy begins to open up and some of this gets to be spent.
As we're seeing a real time on we're also seeing a record or near record volumes in terms of debit and credit card and interchange and things like that beginning to ramp up over the last couple of months.
Eventually this will turn into additional fees for the bank and lending opportunities as cash balances get spent down but for.
For right now we're actually quite happy.
Because we continue to open accounts.
Attract new households, and certainly it's the quality of the deposits that matter to it's not like we're paying up or these are coming into you know high rate accounts. I mean, these are coming into very low rate or no wait accounts and their core checking accounts for new households, or added balances to existing checking households.
So just to give you a little color on that.
Right.
Nigel This is Barry just to add you know TD has traditionally been strong on the deposit business, particularly checking you should expect us to continue having that strength you know through any cycle and we consider that business to be core to our model in a sense for that and it provides us with the key relationship from which we can.
Deepen that relationship so that number is going to go up and down as you heard from day again, Greg that you know.
They do go up and down and there's puts and takes it on fee income goes up on deposits go down a bit.
Given our diversified model you should see that strength ongoing but just wanted to leave you a message that this is a core strength of the bank, we like our strength in this area.
Good.
Sectors to continue having debt strength going forward.
That's very detailed and helpful response, and if I could just quickly touch on the expense side.
It looks like your expenses are running a bit elevated and I was wondering if there's any factors you point to for.
You mentioned real estate optimization in the past and it looks like your other expenses are running a little bit.
The elevated but is there anything specific that are that's causing expenses to run a little higher than you anticipated and do you see expenses.
Trending lower or what's your outlook on the expense side.
Okay. Nigel on the main thing on expenses I called out in my remarks were that have to do around the share of the.
Retailers are share of their.
Their net profit and the strategic card portfolio, which makes it look particularly elevated.
And then other than that at the top of the house expenses would have grown 1% and I would say to you that there are not.
Not any particular trends to call out there other than to just say that are we.
Continued this year to see a higher employee related expenses, but and <unk> and of course, the foreign currency translation.
An impact as well but.
If you look at the noninterest expense line, so that I set out in the sub pack, you'll see that there are some fluctuations from quarter to quarter, but overall trends seem.
Seem to be fairly stable and we're making the investments that we need to make to.
To continue to grow the business.
Okay I appreciate the color. Thanks.
Thank you. The next question is from Gabriel Duchaine from National Bank Financial. Please go ahead. Your line is now open hi, good afternoon.
Wanted to ask about the you know the Canadian banking segment I look at it on a you know the PNC basis or from your appendix and.
Easier to compare them.
Bring here of a pretax pre provision profit growth.
That's been down on the year over year basis. However, it looks like we're entering a tobacco for where the comps are.
Sure.
Looking pretty easy I'm, just wondering what your view is on that whether we can resume a.
Positive growth for that segment in Q3, and Q4 on the P. P. P P basis.
Okay bits, Terry I think I'll take the question. Thank you I think it's so as you've mentioned.
We would've had actually positive pizza P. P. I should take out for the insurance customer remediation at the Canadian retail level on this.
Quarter year over year and.
And then at the P&C segment level I think to the conversation we've been having certainly not.
Notwithstanding strong volume growth and increases that we have seen in anticipating customer activity.
We do think there'll be margin pressure for the balance of 'twenty 1.
That's the price kind of a conversation I had earlier.
Earlier on.
You said that if I look out for that and think about economies reopening on how we're positioned in.
And some other factors we've been talking about.
For potential for the interest rates are.
There's enough sensitivity debt.
As I mentioned earlier, we will over time potentially see the on off the.
The trucks, you're repricing a start to become more favorable.
You know, we're well positioned we've seen that credit card spend in Canada.
So to actually above retail sales were above Q2 of 2019.
In an environment, where travel spend is down 80% for the industry and recreation and entertainment is down 40%. So with our breath of credit card offerings I feel very comfortable that we're well positioned as that activity.
Forward.
Can you just showed strength in real estate secured lending.
Free backed origination quarters back to back ever.
And the 1 TD strength that we've talked about and the mutual fund.
Sales that I mentioned earlier on where we're seeing the cash.
On being opposite day to talk customer.
And that's for the long term cost line.
Put all that together.
Like we're very well positioned for.
For our customers to meet their needs going forward.
And over time that should improve the turns into COVID-19.
Yeah.
So.
Timing wise I mean I'm on.
There's a lot of moving pieces in there.
And it sounded like for you.
On the <unk>.
<unk> pressures are still going to be great.
On the weighing down on your Q3 Q4 on a sufficiently enough for it worse.
We're gonna have negative growth.
Cause that.
Thank you for a lot of moving parts and so it's very hard to call, which is why I tried to give you color I I do think that we will keep on margin compression for the balance of 21 assets re price all other things being equal.
Okay and then.
Just the capital question for for Barrett.
I know I mean I'm not the M&A question, you know whatever the answers there.
Okay.
It's been a consistent ones I don't want to go down that path again, but I do want to ask about the.
Options that are on your disposal, if and when.
For the removes the distribution restrictions.
It was an acquisition mutually exclusive for.
Stuff like Oh on accelerated buyback program or.
A big dividend increase.
But that's kind of the expectation for some other banks are setting that once those restrictions are removed.
Maybe more so on the dividend front, we could for big.
For the normal.
Bigger than normal larger than normal increases because the play sort of cats with payout ratio I'm just wondering how your for your first few things are shaping up.
Okay.
To give you precise answers on you know something that may or may not happen in the near term or whatever but but the we had laid out the framework that we've used in debt has been there for many many years does not change.
If we don't have used for debt capital as I laid out earlier than you know we are not shy and returning capital to our shareholders and we've done. It previously and then you know we will do it again if circumstances warrant. There are yes, you know the day levels. As you said, you know pretty pretty lofty so all of that.
As you know vehicles.
Or are available to us and then we would look at you know what makes sense.
From an ongoing basis expectations wise with would've what our sense might be on the earnings potential in the future et cetera. So all of those inputs would be considered.
But like I said the framework.
It has not changed and I don't see changing again.
The other.
So you kind of touched upon that but the numbers are so large that you could do a bit of everything.
Acquisitions buybacks demand increase and of course organic growth.
Yeah.
It's hard to pin down on a specific formula here for you because there isn't 1.
And then on all.
All those are options that are available to us as they are to others.
And you would expect us to be prudent and use those options that make sense for the bank all day long term.
Alright, well look forward for that thanks.
<unk>.
Thank you. The next question is from Darko <unk>. Please go ahead from RBC capital markets. Please go ahead. Your line is now open.
Great. Thank you a question centers around Canada, P&C as well.
I just wanted to drill into the premium rebates.
Despite the premium rebates insurance put up very good earnings.
So maybe you can talk a little bit about how you're measuring it I mean are you are you excluding the claims from the expense part when Youre doing.
Pre tax pre provision and operating leverage and as the premium rebate.
Is that like a 1 off just for this quarter or do you anticipate that that there's more of that to bleed into Q3.
Thanks for the question Doug for its Terry So maybe on the premium rebates. So it was 165 million this quarter.
And we have had.
Earlier on.
Rebates.
It had been an average boats in the prior period.
You know the basis for doing nothing but honestly.
Activity thing Lois.
During the pandemic.
So given the uncertainty around how things on the forward, it's hard to say, whether there will be another period, where a more customary remediation might make sense, but we'll obviously.
Pay close attention to how the situation is evolving.
When I talked about on Canadian retail P. J D. P. If you excluded that remediation you would get to a pause it does for you.
On our results for Q2 for Canadian Rachel.
And then in terms of the performance of the business.
Feeling really.
Really good about how that business is performing.
Yeah.
The growth sorry, written premiums would have been up double digits agenda for you exclude the remediation.
So sales are strong retention is strong.
Digital capabilities that we have on that business really are distinctive in terms of the general insurance business on.
Auto claims a collision centers across the country are provide a much better experience for TD customers. If they are in need of repairs for there'd be approached you on accidents and.
Just overall seeing good growth in the life and health business.
Like in particular, the drop life business for it.
I would say you know hard.
Hard to say.
Have more with mediation to follow a very strong quarter.
On a business than we had been investing in that business over time to really be a premier direct insurance business in Canada.
Thank you for that and just to be clear on the expense side, because you know and I. Appreciate you guys answer to the previous question on.
At the top of the house expenses are well controlled but in Europe and your division for your segments sorry, Terry.
Do see pretty good expense growth.
And even though I appreciate that excluding the premium rebate.
You would have positive operating leverage it still does seem outsized in terms of expense growth relative to what other banks are putting up so is there 1 or 2 specific initiatives that youre spending on that might ease off.
As we get into the back half of the year on into next year.
So maybe I'm just to be clear the P to P. P was positive for Canadian retail, excluding the customer remediation I didn't comment on operating leverage just to be clear on that.
On the expense sorry old wrong, I think yeah, we are.
As had mentioned.
You know sort of prudent for.
Since management over the full year for the top of the house. So I would say that would be the same commentary.
Commentary for my perspective on the Canadian retail business. When you look at Q2 year over year, and we have mentioned this as well employee related expense growth.
If you look back to.
Q2 sort of last year.
And then particular employee incentive comp and then Q2 this year those those 2 would be going in different directions. So that would be 1 items for year over year, and then volume driven expenses such as from our business activities.
And if I look quarter over quarter. It was a pretty modest sequential expense increase for Canadian retail.
I think you know.
And we as bad debt and when we look at.
The business overall, we're making the investments we need to you know to grow the business.
To create efficiencies.
To generate cost savings overtime, as low as customer efficiencies and capabilities from colleague efficiencies and I think we're doing that in a way that also allows us over a 4 year for you to manage expenses prudently.
Okay, great. Thanks for the color.
Thank you. The next question is from Mike <unk> from Credit Suisse. Please go ahead. Your line is now open.
Hey, good afternoon, a couple of quick ones for Greg I'm wondering if you can comment on the Ida agreement the impact of the balance is starting to come off on the back half of this year can.
Can you can you quantify that for us at least at least ballpark.
Greg would you like me to take that on the.
Do you can react.
Mike its a react as you know are under the.
Agreement that we have with schwab debt.
And they're able to reduce the balance is that they have on dips.
Deposit with us by $10 billion a year starting on July 1.
And then any excess debt went from the date, we closed up until until.
And until June 30, yet so.
Just to give you a hypothetical example, if sweep balances at closing were $145 million taken take them down $235 million on July 1 starting from whatever the current for position is and then $10 billion a year after that.
Okay. So just just to get a sense of the magnitude I know you haven't disclosed the spread that TD has earned previously on those balances, but can I look at something like a U S call reports just to get some some color on what types of securities you might be holding from.
For those deposits.
Yeah, I think you're generally as you know we are absent the sweep deposits are bound loans and deposits that fairly balance. So I think our approach will give you oh.
A decent viewing 2 day.
Integral liquidity premiums that are available for the kinds of securities and equity purchase.
Okay. Thanks for that and then just quickly on on the PPP loans I'm wondering if you can give us an update on maybe what's been accrued and what's left to be accrued magnitude wise just just it would be helpful to sort of look at it from the perspective of your NII in the U S going forward.
So Mike happy to answer it then.
You know PPP has been a very successful program in the first round.
We put on over $8 billion worth of PPP loans for 85000 small business customers and in the second round.
We've put on approximately 4 billion net roughly 363.7 billion extra outstandings for another 46.47000 customers. So you can get the average size of round 2 of each 1 of those loans is something just shy of $80000, obviously very very small business for the majority.
<unk>.
So if you put those together it's on.
Obviously over $12 billion between round, 1 which was a really second into third quarter of last year, and then round 2 which just completed or is in the process of being completed right now.
Over $12 billion and the way we would think about it is through the end of the second quarter, we probably have for given something in the order of.
<unk> 20 per cent.
Of of that exposure and.
Half of that would have been those fees would have been on the crude into NII.
During our.
Prior quarters and the other half of that 20% would have been in in the second quarter. Just completed so the way I think about it is we still about 80% more to go to accrue those fees over obviously, the next year or 2.
And is that is that relatively straight line over the next 6 to 8 quarters.
It depends on the forgiveness program because the way they've done this is.
First if if if loans aren't forgiven or for a customer doesn't seek they have to actually apply for forgiveness. It would just accrual for the remaining you know for 5 years or whatever is left on the term of blown we would take it into income, but I would suspect the vast majority would seek some sort of forgiveness and apply through it in and then.
Once those loans are forgiven they would immediately accrue in and we would think over the next several quarters. The majority of that would come into income.
Okay. That's very helpful. Thank you for that.
Thank you. The next question is from Doug Young from days, our debt capital markets. Please go ahead. Your line is now open.
Good afternoon, I'll try to keep this quick quick just on the expense side and wholesale just trying to get an understanding you know mix was up 14% year over year revenue is down 8%. So I mean, what drove that discrepancy is there something unusual in there or additional staffing costs and is this a new.
Run rate to think about.
I think Doug it's Bob.
The.
The majority of the increase year over year was in the variable comp line as you would recall last second quarter of.
2020 was a very challenging quarter that's.
So when we talked for the vast majority of the PCL accrual that impacted our comp accrual.
And.
So our year over year, so it looks high but ex that.
<unk> expenses on a well controlled.
So I wouldn't say this is a new run rate now.
Okay.
And then just lastly, you know I think.
And we've heard this from other banks too and I think from yourselves is while there's and then there's a view that with credit card balances, obviously being down maybe they stabilize and maybe they come back and that would be positive for many reasons, including Nims now what's the risk that credit card balances don't come back you know theres been the new adoption on things like that.
Now pay later, which is starting to ramp up quite quickly.
Just curious your thoughts on that thank you.
It's scary.
Go ahead Terry.
Thank you so in Canada.
Hum.
My sense is that's not what.
What we would anticipate happening and <unk>.
Actually in the last period, we saw sort of a flattening.
Loan balances for the month over month for the quarter, which we haven't actually seen we have been seeing a decline on previous to that.
So I feel like.
Well, we've got pent up demand for home travel recreation and entertainment as I've mentioned earlier.
I think on those are higher ticket items on our expectation is that we would start to see a it's more of a timing issue from our perspective on whether or not at this point.
Yeah I'll leave it there thank you.
Yeah.
Okay.
Thank you. The next question is from Mario Mendonca from TD Securities. Please go ahead. Your line is now open.
Good afternoon. This is Matt most of the price for you in the past the banks pointed to.
On the 5 year basket cat bond yield is a reasonable benchmark pieces when gauging what could happen to banks margin domestic retail.
So first of all on my partners, that's still a reasonable.
Would you still recommend that is something we could track to give us some indication of where the margin might head over time.
Yeah, I think I'm, Mario and in Canada, we use a 5 year swap rate and at the bank of Canada, but the swap rate and then in the U S. It's a 7 year swap rates. So both of those still remain within.
Within the framework of how we manage our overall tractors.
Okay. So let me let me close with that let me just trying to swing by so hypothetically if we were to see.
The 5 year swap rate move materially higher but again this is very much type of football, but essentially back where it was before this all happened. So if you buy the notion that inflation could put some upward pressure on rates is there any sort of structural reason why TD is margins.
The domestic retail on the U S retail segment any structural reasons why wouldnt get back to the levels, we saw pre crisis and by that I mean materially higher than really on the.
The domestic retail margin.
Pre pandemic like 284 basis points and in the U S.
As you're well aware there was a lot higher than where it is today or are there structural reasons like changes in business mix or maybe extending ladder for duration of lives for some reason why that won't get back there.
No Mario there are no structural reasons, which would which would cause that to not materialize in a as you know are in iron and net interest sensitivity measures. We do give you additional sensitivity that says if you see 100 basis points widening.
On margin the impact on our NII will be plus $2.1 billion.
Yes, there are actually a kind of a phone.
Okay, just on trends about business mix changes or you might see a certain liquidity requirements in certain at certain times or or you may see that we've gathered so many of them are more.
More deposits over the course of for the last for 5 quarters that may make that jump around a little bit about the fundamentals sensitivity on the bank to interest rate upside remains very sound and.
I'm very optimistic that those margins are coming back as rates rise.
Alright, thank you.
Thank you and the last question is from Sohrab <unk> from BMO capital markets. Please go ahead. Your line is now open.
Hey, Thank you very much for taking my question I, just wanted to come back to Teri.
Ask it a little bit about the competitive dynamics that you may be seeing from non traditional sources.
Specifically well for simple the work that we do shows that you may be losing.
Customer just to them.
Maybe 3 times more than our and the next biggest Canadian.
On competitor or are you.
Position to comment on.
How much of a how much transfers youre seeing in gross is positive for your bank 12 for simple.
But it's certainly not on I wouldn't be in a position to come on comment on that specifically.
I'd come back to the fact that you know, we're seeing wealth account openings on foot levels.
And trade volumes at record levels.
Quarter end.
And I think the comprehensive.
Approach that we take to well.
On the direct capabilities that allow customers to.
Build portfolios or make decisions on a self service basis, but also the availability of advisors, even in our direct investing business and the comprehensive education and training that we make available for customers really stands out.
Relative to the competition and that's based on I think we feel you know fully dressed to compete.
Against all competitors, both traditional and nontraditional.
So youre not seeing any need to spend any more money to retain your discount brokerage customers.
We would over time continue to look at any competitive threats and what would be the appropriate way to respond.
I think what he believes is that Oh, well it's simple.
Comprehensive sort of need and customers actually have exhibited this on our direct investing business pre pandemic, we might have seen more of the account opening activity absolutely be.
True I went for.
From a branch.
Personal banking.
Colleague.
Sure depends on Nick obviously digital account openings have listen what we also have seen is that those digital accounts actually have more activity and higher balances. When we subsequently we chose a specifically to customers with an advisor and so with multichannel opportunity for our customers.
For training and education on that.
Is second to none on the video library that is available to our customers.
<unk> positions us to compete incredibly effectively and full price isn't built on the answer here.
Okay. Thank you very much.
Thank you.
There are no more questions in the queue at this time I would now like to turn the call to Mr. Barrett for any for closing remarks.
Thank you operator, and thank everyone for joining us while it is premature to declare victory against the pandemic given what we're seeing around the world.
We are encouraged with the progress we've seen in North America.
And in various parts of our footprint and as the economy recovers and we get to the other side of this are we feel very good with our diversified business model the value proposition, we provide and of course the famous legendary experiences at the bank is well known for.
So we feel that as the economy normalizes.
TD strength will come to for and looking forward to.
Good growth levels.
We see that happening.
I also want to take the opportunity to once again. Thank my 90000 colleagues around the world are there've been the pillar of the anchor for the bank to manage through a very difficult period here and they continue to deliver for our shareholders for our customers for.
For the communities as well as for each other so so thank you for that.
And folks I look forward to meeting some of you in person hopefully sooner.
And then later, but at a minimum we'd be talking 90 days from now thank you very much.
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