Q3 2021 Toronto-Dominion Bank Earnings Call
[music].
This conference is being recorded so it's gonna stay home if they don't go as you see.
All participants please standby your conference is ready to begin.
Good afternoon, ladies and gentlemen, welcome to the TD Bank Group Q3, 2021 earnings conference call I would now like to turn the meeting over to MS. Gillian Manning. Please go ahead Ms Manning.
Thank you operator.
Good afternoon, and welcome to TD Bank group's third quarter 2021 investor presentation.
We will begin.
Today's presentation with remarks from Barrett with Ronnie the bank's CEO after.
After which the.
The bank's CFO will present, our third quarter operating results.
I have a 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 today to answer your.
Your questions are Teri Currie group head Canadian personal banking, Greg <unk>, President and CEO TD Bank America's most convenient bank and Bob Dorrance group head of wholesale banking.
Let's turn to slide two.
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.
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 referred.
Referring to adjusted results in his remarks.
Additional information on items of note the bank's reported results and factors and assumptions related to forward looking information are all available in our Q3 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.
Q3 was a strong quarter for TD with net income after tax of $3.6 billion and EPS of $1.96, well above last year's levels and just shy of our record Q2 results.
Strong revenue growth in the personal and commercial banking businesses is raising customer.
Activity drove higher volumes and fee income and margin pressures ease.
Wealth insurance and wholesale earnings moderated, but remained well above pre pandemic levels in aggregate.
<unk> and AUM across our Canadian and U S wealth platforms surpassed $1 trillion for the first time.
Our CET one ratio ended the quarter at 14, 5%, reflecting these strong fundamentals and good credit conditions against the backdrop of an improving macro environment.
This capital position gives us considerable flexibility to pursue organic and inorganic growth opportunities as well.
Well as return capital to shareholders. When current restrictions are eased as always we will be disciplined in our approach deploying capital thoughtfully and in support of our long term strategic objectives.
I'm very pleased with our performance this quarter and encouraged by the progress we are seeing.
The North American economy, and across our client base. The pandemic is still very much with us, but there is growing evidence that everyone is learning how to manage through it.
Last quarter, I said that as economic conditions normalize td's trends would come to the fore.
That is exactly what is happening with <unk>.
Adding new customers and deepening existing relationships and we look forward to supporting our customers through the next phase of the recovery with advice and solutions to meet their evolving financial needs leveraging our <unk> model.
Our Canadian retail segment earned $2 one.
$1 billion.
In the third quarter with strong revenue and volume growth the personal and commercial bank had a terrific quarter with customer activity rebounding strongly driving record volumes in many business lines and real estate secured lending and commercial year to date net growth in loan.
Volumes as surpass full year 2020 levels.
While credit card balances are still being impacted by high savings rates God retail sales reached a new high in Q3, as we've made creative use of accelerators and leverage our strategic relationships, including the new subscription offer.
We introduced this quarter with instant card.
Bonuses for TD, Aeroplan cardholders, who linked their car to a Starbucks account.
And our exclusive relationship with Amazon, which has seen customers make over 1 million redemptions using the Amazon shop with points capability on the DD card.
On the deposit side, we extended our lead in personal deposits and commercial volumes remained strong and.
In the wealth business, while trading volumes moderated in line with the industry advice channels again performed very well, we achieved record year to date net asset growth in our advice businesses and <unk>.
Record year to date long term sales and our TD mutual fund franchise.
Insurance delivered strong topline growth and saw a steady return to pre COVID-19 driving patterns.
We supported our clients through to get dystrophic weather events in Calgary, and Barry providing ongoing relief.
We also strengthened our position as the digital insurance leader in Canada with new capabilities like same day online quote and bind.
And our mobile banking App and website earned top marks for customer engagement and experience in a trio of surveys from sensor tower to App Tokyo and.
Similar web.
Turning to the U S. Our U S retail bank delivered record earnings of $891 million this quarter on improved revenue and stable expenses.
Deposit volumes have moderated, but still grew at double digit rates year over year as customers continue to trust TD.
For their banking needs.
We saw further loan paydowns on the back of still high levels of liquidity, but debit and credit card transaction activity accelerated in particular, we've seen strong take up of our new double up credit card, adding 50000 customers since last quarter's launch.
The card offers customers, a 1% cashback on purchases and another 1% when they redeem points into a DDA deposit accounts, helping us broaden and deepen relationships.
We continue to win on service convenience and safety this quarter, we made it easier for customers to engage with us.
Enabling them to book in person appointments online across our retail businesses, we added new capabilities in our stores to Untether employees. So they can serve our customers better we continue to partner with top tier fintech companies to offer a small business and commercial clients integrated payment solutions.
And we were proud to be ranked number one by an insider intelligence with security and reputation in the 2021 banking Digital Trust report.
And wholesale banking earnings were $330 million on a normalization in trading activity, partly offset by higher advisor.
Advisory fees TD Securities won several signature mandates in the quarter and received further recognition for the investments we've made to strengthen our global platform and enhance the capabilities we offer our clients.
We were active book runner and sold Canadian dealer lower on Air Canada is $2 billion of high <unk>.
Yield cross border trade, the Canadian component of which was the largest ever high yield deal in Canada.
TD Securities was named Canada's Best investment Bank in Euromoney Awards for Excellence in 2021 are first time, taking this honor.
And in global markets, we were joined winters of.
Most impressive sovereign Supranational agency House proposed LIBOR solutions, and most impressive SSA coverage team at the 2021 global capital Bond rewards.
We also built on our leadership in the ESG space being selected as one of two structuring advisors.
Users to the government of Canada on its inaugural Green bond issuance.
Overall as I reflect on our performance. So far this year I am pleased with the way, we've navigated a complex and rapidly changing environment. We continued to benefit from our diversified business mix and our people have demonstrated their ability.
<unk> to rise to the current challenge.
As we enter as we enter the final quarter of the year. The environment remains fluid. The pandemic is still raging in many parts of the world and while rising vaccination rates have supported a strong recovery in economic and employment growth new variance of challenging this.
Progress in complicating reopening plans, that's why last week, we announced that starting in November 1st colleagues entering a D. D workplace will need to be fully vaccinated or be subject to additional safety protocols.
We believe vaccination is the best path out of the pandemic.
For the right way to protect the health and safety of our customers colleagues and communities.
The benefits of the recovery taking hold around us are evident it is critical we do everything we can to maintain and build on the gains. It's also clear those gains are not big distributed equally so.
A stable recovery.
And it must also be an inclusive recovery, we took several steps this quarter to advance that objective.
In the U S. We announced 100 million U S dollar equity fund to support minority owned small businesses with $25 million targeted for black and latinx.
Covering firms to provide communities of color with access to the capital they need to grow their businesses.
We launched new retail banking offerings on both sides of the border to better meet the needs of underserved customers in Canada, we entered into a strategic alliance with Canada post to increase access to.
All of the services for Canadians, particularly in rural remote and indigenous communities.
And in the U S. We made changes to our overdraft policies and introduced TD essential banking and low cost deposit accounts supplemented by a suite of accessible and customized financial education tools.
Financially, we kicked off the annual TD ready challenge. This year's campaign will provide a total of $10 million in financial support the organizations that have developed scalable solutions to help K 12 students disproportionately affected by pandemic related learning loss in math and reading.
That's purposeful investments reinforced the strength of our proven business model that reflect our unique and inclusive culture and they will enable us to continue playing a key role in driving forward the recovery and delivering the right outcomes for all of our stakeholders.
None of this would be possible.
Deal without our 90000, TD bankers, who bring our purpose to life and deliver each day on our vision to be the better bank I'll end by thanking them for their hard work and dedication with that I'll turn it over to <unk>.
Thank you Barak and good afternoon, everyone.
Possible turn to slide nine.
And this quarter the bank reported earnings of $3.5 billion and EPS of $1.92 and.
And adjusted earnings were $3.6 billion and adjusted EPS was $1.96.
Revenue was even on a year over year basis continued strong volume growth and.
Please see income and the retail segments were offset by lower wholesale revenue and the impact of foreign currency translation and lower margin.
Provisions for credit losses was a recovery of $37 million is impaired PCL was more than offset by performing PCL relief.
Expenses increased 6%.
Higher every year, mainly reflecting an increase in the retailer program partners net share of profit from the U S strategic card portfolio, primarily on lower PCL apps.
Absent the partner share of PCL adjusted expenses increased 1%.
Because the year over year change in PCL remains large the accounting for that.
Send guarantee to cards portfolio program continues to have a significant impact on expenses as well as charter bank pretax pre provision earnings and operating leverage.
<unk> 22 to 23 of the presentation show, how recalculate PT pp and operating leverage at the total bank level.
This impact along with the impact.
New extra currency translation, Richard significant again this quarter.
Slide showed that total bank PTP was up 3% year over year, and 11% quarter over quarter, reflecting strong revenue growth in our retail segment, partly offset by a decline in wholesale revenue.
Please turn to slide 10.
A foreign Indian retail net income was $2.1 billion.
$862 million year over year.
On an adjusted basis net income increased $837 million year over year.
Revenue increased 9%, reflecting higher fee based revenue in the banking and wealth businesses and higher.
One and deposit volumes, partially offset by lower deposit margins.
Average loan volumes rose, 7%, reflecting growth in personal and business volumes average deposits rose, 13%, reflecting double digit growth in personal business and wealth volumes.
Wealth assets increased 20%.
Higher reflecting market appreciation and new asset growth, including record mutual fund flows.
Margin was flat to prior quarter at two six to six 1%.
Total PCL of $100 million were higher by $137 million sequentially, mainly reflecting a smaller.
<unk> bring performing PCL this quarter.
Total PCL as an annualized percentage of credit volume was 0.08%.
Insurance claims increased 4% year over year, primarily reflecting higher current year claims from business growth, partially offset by a decrease in the fair value of investments supporting claims liabilities.
Record reported expenses increased 8%, reflecting volume driven and employee related expenses as well as higher technology and marketing costs as we continue to invest in demand.
Please turn to slide 11.
U S. Retail segment reported net income was <unk> $1.1 billion up U S 560.
I mean.
U S retail bank net income was a record U S $891 million up U S $631 million, primarily reflecting lower PCL and higher revenue, partially offset by higher expenses.
Revenues increased 5%, reflecting higher fee income from increased customer.
<unk> strong deposit growth and higher income from PPP loans, partially offset by lower deposit margins.
Average loan volumes decreased 5% year over year.
Personal volumes decreased 1%, primarily reflecting lower home equity and credit card balances.
And business loans.
<unk> percent, reflecting paydowns and lower commercial line usage.
Actually offset by higher average PPP loan volumes.
Average deposit volumes, excluding sweep deposits were up 15%, including 25% growth in core consumer checking.
The sweep deposits were up 3%.
<unk> margin was.
Two 6% up one basis point sequentially.
Total PCL, including only the bank's share of T cells for the strategic cards portfolio was a recovery of EUR $74 million.
Higher by <unk> $99 million sequentially on a smaller recovery in performing PCL.
Net in the U S retail net PCL ratio was negative 0.18%.
<unk> increased 2%, primarily reflecting higher investments in the business.
The contribution from Td's investment and Schwab towards U S $161 million.
Paired with a contribution of U S $230 million from TD.
A year ago. Please.
Please turn to slide 12.
Wholesale net income was $330 million, a decrease of 25%, reflecting lower revenue, partially offset by lower PCL and lower noninterest expenses.
Revenue was $1.1 billion down 22%.
Maryland, reflecting lower trading related revenue, partially offset by higher other revenue and advisory fees.
PCL was $2 million.
<unk> were down, 5%, primarily reflecting lower variable compensation, partially offset by higher employee related costs from continued investments in wholesale banking.
Primarily strategy.
Please turn to slide 13.
Our corporate segment reported a net loss of $205 million in the quarter compared with a net loss of $130 million in the third quarter last year.
The year over year increase reflects a lower contribution from other items acquisition and integration charges related.
Zero is a schwab transaction and higher net corporate expenses adjust.
Adjusted net loss for the quarter was $122 million compared with an adjusted net loss of $76 million in the third quarter last year.
Please turn to slide 14.
Common equity tier one ratio ended the quarter at 14 five.
Related to stand up 25 basis points from Q2.
We had strong organic capital generation this quarter, which added 45 basis points to CET one capital.
Closing of the Wells Fargo Canadian direct equipment finance business and headlines Tech global markets acquisitions during the quarter collectively accounted for 15 basis.
Five GAAP.
<unk> net effect FX and other items subtracted a further five basis points from capital, mainly attributable to higher credit risk and market risk.
<unk>.
RW increased $10 billion on a quarter by quarter over quarter basis, mainly reflecting higher market risk.
This points occurs Chris great risk weighted assets and.
The increase in market risk <unk> reflected the expiry of Rcs temporary reduction of the <unk> multiplier and the increase in credit card card every year reflected higher wholesale banking exposures the impact of FX and acquisitions, partially offset by cost of credit migrate.
And credit Canadian and U S retail.
Our leverage ratio was four 8% this quarter and the LCR ratio was 124% both well above regulatory minimums.
I will now turn the call over to Ajay.
Thank you <unk> and good afternoon, everyone. Please turn to slide 15.
Gross impaired.
<unk> formations decreased three basis points quarter over quarter.
The 11 basis points of.
A 16 year low and were lower across all segments.
Turn to slide 16.
Gross impaired loans declined three basis points or 152 million.
Third loan quarter over quarter to $2.65 billion, reflecting the on.
Ongoing impact of support programs.
Customer resilience and the economic recovery.
Please turn to slide 17.
We call that our presentation.
<unk> reports PCL ratios.
Both gross and net of the partner's share of the U S. Strategic card Bcl's, we remind you that <unk> recorded in the corporate segment.
Fully absorbed by our partners and do not impact the bank's net income.
Bank recorded.
PCL recovery of $35 million in the quarter refer.
Reflecting a performing allowance release.
Partially offset by cyclically low impaired provisions.
Please turn to slide 18.
Thanks impaired PCL was <unk>.
<unk> hundred $44 million with all segments contributing to $141 million quarter over quarter decrease.
Performing PCL was a recovery of $279 million this quarter.
Baird to a recovery of $758 million last quarter.
200, <unk> current quarter recovery reflects additional allowance releases in the Canadian retail U S retail and corporate segments.
Please turn to slide 19.
The allowance for credit losses decreased 258 million to seven.
7 billion quarter over quarter, reflecting a performing allowance release largely related to continued improvement in credit conditions.
In summary credit performance has trended positively this year.
As we.
Risks through the pandemic.
And these sales may continue to be relatively low through the balance of the fiscal year.
While credit performance has been satisfactory.
Uncertainty associated with the ultimate credit impact of COVID-19 remains elevated.
We have planned.
Credit results.
They vary by quarter.
However remains well positioned to manage through the balance of the pandemic given we are adequately provisioned we.
We have a strong capital position and we have a business that.
<unk> 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.
Have a question and you are using a speaker phone. Please lift your handset before making your selection.
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As Brian Please press star one on your devices keypad you.
You may cancel your question at any time by pressing star Q.
Please press star one at this time, if you have a question there will be a brief pause with the participants register thank you for your patience.
The first question is from Gabriel <unk> with National.
Your question. Please go ahead.
Well number one.
First of all Bob Congratulations on the NIM.
In retirement.
Good luck.
And the next phase in the <unk>.
Grab for arrears for stepping in there.
So as far as my question goes for.
The U S business.
I saw that you made some changes to your positive product lineup you added one.
It doesn't charge overdraft fees anymore, and then the I guess the existing product.
So more lithium curves there are limits on how many times you can charge overdraft and at what level they are triggered.
Or is this stuff.
<unk>.
Going to have any noticeable impact on the revenue line in the U S in the coming quarters because.
I understand that.
These sources of pretty substantial one.
Well Gabriel first of all thank you for the question Hope all is well.
Let me just provide a little context why.
Why we did that and why we rolled the product out we call. It bank of Central first as you know our model in the U S. We're particularly focused on making sure we're covering all of the communities in which we do business.
Still to a large part unfortunately, there was a lot of unbanked or underbanked populations in.
Why.
Really throughout the footprint and in doing our own research and seeing where the market was moving.
We thought this was the right approach.
And making sure we're providing banking services to the new banking environment.
As well as those that have been troubled by overdrafts in the past.
The U S bank of Central really is.
Non overdraft product that you cannot overdraw there are no checks, but you get all the benefits of.
Atms digital online banking and certainly the debit capabilities that go along with it. So we think this is a positive product and.
We're already getting really good feedback and just.
A couple of short weeks from the field and folks are embracing it I do want to say, though that for our core customers that are in the banking world. There is definitely a place for the overdraft product and the ability to make sure that item is get paid and folks continue to.
Have access to items that are clearing.
There are accounts, whether they're at the register or through the check in.
Overdressed still has a place.
I would say is that some of the changes that we made into the number of limits.
To your question and how many times you can overdraw and the actual thresholds to Overdraw. We just think these were.
Through the experiences for our customer and we really wanted to make sure that we continue to face off with our 10 million customers and stay very.
Very competitive with the market. So we think this were positive changes as to the impact.
This is not going to have a material impact on our on our P&L or our performance.
But.
Better.
We would think that the combination of these changes if you'd size them they could be worth 40 or $50 million. But this is this is not going to.
Change the narrative of our P&L.
Obviously, obviously, we will continue to watch where the market moves with these developments and we will stay current on our product suite.
But random or per quarter.
No no that would that's a per annum now okay alright.
Thanks, a lot Greg I appreciate it.
The clarification, there and the rationale which are which are totally understand as well. Thank you and enjoy the rest of your summer.
Thank you.
Thank you the next question.
Doug Young with Desjardins capital markets. Please go ahead.
Hi, good afternoon.
Barrett in your opening remarks, you talked a bit about P&C margin pressure easing. So the question.
Maybe it's more to Terry and Greg but.
And Korea is so high.
I guess my question is have we hit a trough and in NIM the divisional level or is there structurally some further pressure that we should be expecting any guidance on that side and then as we roll that up to top of the house is there anything else in corporate that could cause some.
And Nims as we go forward and maybe Greg within your answer was there any.
Is far from the Triple T prepayments on margins in this quarter. Thanks.
Let me just just from an overall bank per Se Doug This is Barry.
And then pass it onto Terry and Greg to talk about each of our major businesses, but generally.
Number keeps on bumping around as you've heard generally theres.
The impact on blood pressure on this quarter to quarter it can bump around.
But as long as rates are.
Where they are in.
Business continues to grow there may be pressure downward pressure, but without a doubt and a lot of the re pricing that has occurred.
When it does come into towards the end of this cycle rather than towards the beginning of this cycle.
Why don't I pass it over to Terry perhaps you can comment on the Yoyo divisional question and then maybe Greg can pick it up it is in and then Greg can pick up your question on the Triple B loans. Okay. Thanks, Barrett, it's Terry and I would say there.
And a lot to add.
Our business perspective to what Barrett had said we were pleased that the pressures eastern in fact their margins were flat sequentially.
There are still.
There's still downward pressure going forward.
And again, there are a lot of moving parts.
So not a lot to adhere to a T SEC.
Well thanks for the question.
And the.
The way I would say about the U S.
Barrett categorize it very appropriately in any given quarter the single bump around.
A bit but I would say the general.
Direction it could still have.
There is not a cure in subsequent quarters.
And it's mostly because what we're seeing is we're still seeing the mix of the business and deposits.
Really overwhelming loan growth and deposits continue to come in.
At a very robust pace, even though we still have some of that growth in our year over year comparisons at this point and still.
Still growing double digits.
Other aspect of it as we know is that while the long rates, while the short end of the curve is in the base year over year.
You still have some pressure on the long end as we reprice investments that are maturing and there's still some downward pressure there what I was pleased to see in this past quarter with some stabilizing.
Some pressure on strengthening in our loan margins, which was very constructive as we were up one basis point quarter over quarter and to answer your question directly PPP.
In this quarter in May had maybe two basis points of impact to the upside.
Yeah.
Okay.
Yes, there's nothing as I pulled that up to the top of the house, no bad surprise, and but as I pull up to the top of the house is nothing else that I should be thinking about at the corporate level.
No they're not in a structural way I'm in carry.
Terry and Greg have called out balance sheet flows and the volatility in rates and market conditions, but some.
Yes.
Sort of in the corporate segment, you can see some volatility come out from a hedging arrangements.
Issues like that so I would say that to echo <unk> comments that we're kind of my more into closer to just.
Business as usual developments on margins.
As some of the rate cut impacts that we saw the significant rate cut impacts. We saw last year are now kind of in our year over year since our work now.
Okay Thats helpful. And then just second Terry on the wealth management earnings they were down $45 million sequentially from last or last quarter sequentially, but can you talk a bit but what drove.
This was a bit surprised by that and is there anything unusual in there.
So thanks for the question I guess I would say last night was up 16% year over year, there was a sequential.
Sequential decline as you mentioned.
Really that would be all to do with sort of levels.
Trading activity you can see in the appendix of the presentation on page 25 sort of the makeup of the of the wealth earnings and so I guess I would comment that you know real strength in the advisory or parts of the business.
Q3 was our highest Q3 ever.
For mutual fund long term mutual fund net sales and I think we haven't seen levels like that back until probably 2015 or something like that so real strengths and that's really a tribute to the investments that are a little slower and our teams have been making in advisors and in capabilities to serve our customers.
And on the transaction revenue I mean, we'd probably come from three times, what would've been the normal rate pre pandemic down to something like two times, what we would've seen and I think as we think forward around transaction revenue, we would still expect it to remain above pre pandemic levels.
Helpful. Thank you.
Thank you. The next question is from many Grumman with Scotiabank. Please go ahead.
Hi, Good afternoon. This is a question regarding loan growth.
In P&C, Canada.
When I look at TD and tracking versus the peer average it looks like TD has been lagging.
The peer average since about Q1, 'twenty and so when I look at that.
I wonder what's going on what one thing that comes to mind is that.
You know you adjusted your risk appetite more aggressively as a result of Covid and certainly the gap with peers appears to have enlarged around the height of COVID-19. So I'm just wondering if.
If that is in any way part of the story and then I have a follow up.
So maybe I'll step back.
Really pleased.
Really paying attention to what is it what are the signs of momentum and I think our sequential performance was very strong.
Cross the board for PNC.
If I look at lending and sort of break it apart commercial lending was really strong this quarter.
And you know that had three elements to it one was the wells acquisition, but even without that real strength and growth in commercial lending and we saw that with some commercial loan utilization.
Going back obviously, its still well off pre pandemic levels, but kind of Q1 was the dip and it's continued to we've continued to see utilization growth. Since then so that's a positive and there's room to grow there and then real estate and sort of any real estate related businesses, obviously, there's real strength in demand there and so commercial was a real.
A source of strength are real estate secured lending on a sequential basis, we were a bit behind the peers. If you look at market share data for the 2021 calendar year, what's been reported to date given the scale of our business over the first four months of the calendar year, we did take share that may bump around over.
The next few quarters, but I'm confident with the investments that we've made in advisors and capabilities for our customers.
We will see us continuing to build that market share position over the coming year, and then credit cards, obviously another component into the specific of your question both for unsecured personal lending.
And credit cards are we would've seen both the the economic activity impacts, which disproportionately given our particular cards mix towards travel and and premium cards.
It has impacted US having said that you would have seen in this quarter.
Unbelievable, our sales results our strengths a 21% up year over year. So we're really seeing the economic activity come back.
In spend.
And we're.
We're seeing that in a time when still travel is about 62% off you know sort of the levels pre pandemic.
Part of the.
The story is the return to some of the risk strategies that we'd been a little more cautious on through the pandemic things like balance transfer and limit increase offers and those are predominantly Bakken market and we should see the benefits of those going forward. If you look at Q3 results.
Interest bearing loans are down.
Slightly but promo loans and the free period are actually up and historically those turn into interest bearing loans over a period of time. So I think we're well positioned both with our you know travel to come back international travel in FX in particular, and then these offers being back end market.
Get to know and then.
The breadth of our product availability and our partnerships in cards to capture demand going forward.
And just if I can draw on them.
The commentary.
From my perspective, there's really no change in risk appetite in Terry's business and as you outlined there was some selective tightening.
During the pandemic so for the large part reinstated the other comment I'd make is an Arista buckman, we certainly look at the origination quantity very.
Closely and are satisfied with what we're seeing.
And just as a follow up.
How important is it to get.
Back above.
The average is that something you're the track or or you don't look at it that way and then and then when do you expect to get above.
So I guess commercial I'd say going really well are in terms of real estate secured lending as I mentioned you know.
The percentage growth versus the scale of our <unk>.
Business in the share growth, we are actually taking share in the first four months of the year and expect to continue to take share going forward. So I'm comfortable that we've got the right strategies and investments in place and then on credit cards I would attribute.
Kind of middle of the pack right now and I would attribute that again to the mix of the book.
We've got the Amazon partnership, which is unique to TD and delivering great results.
<unk> mentioned the shock with points redemptions that are only available to TD customers. We have the partnerships through aeroplan, including a unique capability for Canadians to get bonus offers through Starbucks and you may have just seen an announcement.
That aeroplan will be partnering with the LCBO. So another great opportunity for TD cardholders only.
And then the instant cart subscription.
Sort of work that we're doing so I feel overall like we are well positioned there's nothing sort of standing in our way as economic activity returns to regaining.
<unk> leadership position.
Thank you Pat.
Thank you. The next question is from Ebrahim <unk> with Bank of America. Please go ahead.
Yeah.
Good afternoon.
I guess, just Terry maybe sticking with credit cards, there's been a fair amount.
The conversation that one will be NPL over the last few months.
As you think about the growth of that product one.
Find us everything that youre doing in terms of partnerships to grow that and secondly, given just your.
And your positioning in there.
Credit card business, both in the U S and Canada.
Do you agree with the view that.
The economics of the college business and what that business might look as we emerge come out of the pandemic is likely to be very different impacted by liquidity that the consumers have and the adoption of the B N P. L. A.
So theres a.
A lot in that question, let me so let me start with the sort of the the end of your question on the economics of the business. So as I talked about real strength in customer activity and therefore other income was very strong.
And you know I would think that as that activity continues we would continue to see strength there.
Clearly what.
We are building loan balances, but that will lag the customer activity.
But I have no reason.
Not I believe that we will have sequential.
Loan balance growth sustained over the coming period of time as the activity returns and that will obviously.
Lead to further profitability, so I don't see any sort of permanent impact. It's a timing issue from my perspective more than an issue as it relates to buy now pay later we.
We are paying attention to this evolution.
I don't see it in the near term being an impact to our ability.
<unk> two <unk>.
<unk> to grow profitably and having said that we are playing in the space.
With our MD&A card offering we do have a post purchase installment plan capability that's been in market for a number of months and it has a it's it's worked well and we've built that.
In such a way that it is a.
Leverages will in our visa credit card portfolio and so that's something that we'll continue to evaluate and then in the U S. Business are you may be aware that we have both pre and post purchase capability in the retail card services business and.
And we have also.
So and opportunity with select merchants in a partnership with a fintech to do point of sale purchase installment lending and so you know one of the things <unk> done a great job of is you know sort of leveraging capabilities on either side of the border learning on either sides of the border and then implementing as it makes sense for our customers.
Going forward, so I'd say, it's a space, we're paying attention to I don't see it having a material impact in the near term and we've got good experience in.
In the product.
That's helpful. Thank you and I guess just.
Bob or yes, congratulations to both of you.
Maybe a word on the wholesale business so you've been.
Investing in growing that for the last number of years.
Give us a sense of as we come out of this we're at the market share opportunity for BD in the wholesale business.
Is it a product or geography, and then kind of how do we think about where we are in the market share growth opportunity and outlook there for that business. Bob you can really set this up.
Yes.
No.
I can set it up.
Oh give me your responsibility areas.
[laughter].
So.
It definitely is in the U S dollar.
Business Abraham.
Both in the U S region, but also in U S dollar products globally.
No.
I think the big opportunities for growth.
Ongoing addition of.
Corporate clients.
Which were growing organically, we continue to invest in adding people.
And.
Adding credit relationships.
Enhancing those relationships.
With the introduction of the product suite that we've been building.
More recently, we invested in them and U S awesome securitization products asset backed securities.
Whereas adding to our corporate bond capabilities.
But we're very focused as well on.
How are we going to do more in the <unk>.
Private equity part of the landscape because that is really growing as you all know.
And so we are.
We've been building out our relationships with the private equity.
Major private equity firms in the U S.
Yes.
In the midterm.
Midcap ones as well.
Product suites.
Focus on also let's focus from the Canadian European pension clients that are active interest in that market as well.
Adding to our product capabilities.
The leveraged finance.
Bond markets et cetera, So we are seeing growth there.
Lots of opportunity for growth Ah severity.
A large large market, we're looking to focus on the segments of that market, but we are comfortable and have expertise in Canada.
Increasingly too.
On the product side, we're also continuing to build the prime service business.
I need to build or.
Our energy and commodities trading businesses, our equity structured product businesses. So there is lots of opportunity.
We are doing this organically.
Thank.
Cook time.
We've more than doubled.
Our workforce in the U S and the loss of some of these years and we're adding to it this year as well and we will add over the next.
Number of years.
So I think it's important that will diversify.
Our business model.
You know, we're all we all fight for market share in Canada with Canada.
You know its a relatively mature market.
It's not like the U S is going to mature, but it's just much much larger and we have also been working hand in hand with greg's team.
As to how we.
We become a.
Increasingly successful as being a good partner.
In pursuing our universal banking model in the U S and that's.
Joining a lots of opportunity and we look forward.
Thank you.
Thank you.
The next question is from Paul Holden with CIBC. Please go ahead.
Thank you good afternoon.
I didn't think I'd be asking this question this deep into the Q&A session, but I guess I'll ask on the <unk>.
Discount broker threat in Canada with one of your competitors moving.
Commissions to zero, how do you view.
View that competitive threat.
What strategies will you use to retain clients and and Asaf.
So it's Terry Thanks for the question Paul.
Maybe I'll just level set because I know theres been some attempt to quantify what this could mean, if a similar strategy was taken by.
And so oh start with about 1% of Td's total revenue would be how we would estimate it Ah theres a broker dealer fees and commissions line one in the sub pack page six and it's about 50% of that line would be represented by a change that would be similar.
Just to give you the quantification.
Yes, I'd start with we haven't a unique and differentiated offering.
In TD direct investing and so you know I think we provide significant value.
That.
<unk> enables our customers and clients to achieve their goals with us and.
I get to feel a very well informed through our industry, leading learning center and tools and capabilities that we provide the dashboards with web broker and a sink or swim we have unique trading offerings. We.
We have advisors were available and specialists who are available to.
Alzheimers.
And we continue to really add content customers, who leverage our learning content provide us with very high satisfaction scores like 20 points ahead of those that don't and so I think that we have an offering and a platform that is a very unique.
Mark has a second value and so we're starting point would be that you know we need to make a change.
Obviously, we will continue to evaluate what happens in the marketplace and continue to make the right decisions for our business I would also offer that you know we have recently launched TD GUL assistance. So we.
<unk> are.
Offering that is available to customers, who really are self service investors, where they want to follow up plan. There's no minimums Theres no monthly fee no commissions for trading T. D. E. T off so there is a and offerings to meet the breadth of needs of Canadians.
We have investors that we feel very confident we will continue to win in the future.
Great.
For answer.
Then just one more for me and I guess, a bigger picture one.
The federal government announced.
Proposals around open banking.
And I'm relatively recently, so I'm just wondering what your thoughts are around.
I'm, hoping banking as a potential risk or opportunity and how TD is prepared for that.
Quality.
Thanks, It's Terry again, and so and you know this has been a.
L. A that meets paid a lot of attention to obviously the ability for customers to share their data safely and securely with full knowledge of where it's going and how it's being used is incredibly important for us at TD and we've talked about that over the years I think we're.
Five very well prepared.
And interested in continuing to leverage our data and third party data in particular for our TD customers and think that we have some unique our ability to do that.
We've been involved in the U S marketplace and standing up a data sharing platform Mccoy and.
At the end of this year, along with other large banks in the U S will be able to using Apis share data if as customers have asked us to in an appropriate and safe fashion and.
So again, another example of where we're able to take learnings from one market and apply them in another so we look forward to the continuing.
But evolution of open banking, we also think they are.
An industry led solution like in the U S makes a lot of sense and some other global markets.
This has been put forward is that a response to unbanked. That's a very small population in Canada, and I would say from a TD perspective, we think our Canada.
The alliance will be a way to get at are Unbanked and indigenous communities across the country and then often it's a it's talked about as a way to help customers switch bank accounts more because very few customers switch, but more customers switching Canada than in other markets that have enabled this capability. So I don't see it as a as an.
[noise] opposed success requirement, but what I do see is for customers, who want to have the ability to have their data shared we will be well positioned to.
Take advantage of that capability and help them meet their goals.
Great. Thank you that's it for me.
Thank you. The next question is from Nigel D'souza with Veritas investment.
On average please go ahead.
Thank you good afternoon I wanted to first start off on a quick question related to trading revenue when I look at the income statement, there's a trading income loss there of about $60 million.
And that's against.
On a segment level at wholesale.
Not reading trading related revenue of 467.
7 million. So I was wondering if you could just provide some color on book.
The reconciliation there between that and what drove it.
At the bank level.
<unk> that we're seeing this quarter.
Nigel let me take that its react.
You can as you know.
And trading products you can have a combination of both interest income as well as gains and losses materialize from daily flows.
And so the accounting for that is that the interest income and taxable equivalent to dividends and whatnot going through NII lines and then the.
Bank market.
And most of it is going to be or the other.
Income lines.
So what are you doing the sub pack as we are bright.
Break that all out for you.
Presented as a trading related revenue, which is actually the proper line to focus on because trading gains and losses that gets.
Hum that Rick NII.
NII lines as well to come up with that trading related number is how I'd position it but unpacking.
Unpacking it is.
Set of complexities between line items like that that can be a.
Very detailed so that better to just focus on the trading related.
Uh huh.
Quarter to quarter trends, and how our global markets business sentiment.
Okay. That's helpful. Maybe I'll look at the details offline if I could just pivot on to your allowances and when I look at TD is released this quarter. It appears that he has been a bit more conservative.
Some of your peers in releasing allowances on your performing loans and I was wondering if there's anything you're seeing that.
Makes you more cautious or more conservative or maybe some color on how.
Are you thinking of the.
The reversal would would play out over the coming quarters.
Yes, Hi, Jay let me share.
With you now.
Speak about the peers, but sort of if you go back and look over three quarters, you'll find that we have released 40% of the reserves we built since COVID-19.
And those reserve releases are really driven by two things you know go throughput in macro and then the.
My appointed conditions.
This quarter, what I would say is that delta was.
Considered in greater detail and mostly I would say in our downside case. So what we did is we selected a tougher downside case, which is a global slump.
And that reflects.
Second countries, including Canada, and the United States struggled to control the virus and this could lead to additional containment measures. We also added some more weight on the downside both for Canada and the U S.
So it's really the delta variant that led to the.
The overall macro.
Flexed in factors tempering, our released this quarter.
And then if I look ahead.
There are possibilities of cost of future releases.
And I think those would largely be driven by macro conditions. We would also look at the forward looking uncertainty.
Macro it reduces.
There are possibilities of additional releases again as Barry said.
The pandemic has is not all of them. So you should expect continued prudent from us.
What was that.
Yeah. That's helpful. Just a quick clarification on the.
It seems to be having more of a regional impact in the U S are you seeing something.
And the south east footprint versus your northeast or do you think about it regionally.
What we know is it spreading and right now I'd, maybe regional but again <unk> is a forward looking measure.
And on behalf.
Adult so think about where it might be in NIM.
Six months or even three months Diamond has a lot of momentum so as I said, it's not in our base, it's mostly in that downside case.
Did consider it for this quarter.
Okay. That's helpful. Thank you.
Thank you.
The next question is from Mike Rosado with.
<unk>. Please go ahead hi, good.
Afternoon question for Greg wants to go back to the NSF change in the U S.
The 40 million that you referenced can we use the call reports the regulatory call reports.
Sort of a proxy to how much you actually earn on NSF fees in the U S business.
Yes.
You can.
You can.
I would just say that.
No.
The call reports are refined proxy, but.
A lot of times, when we get talked about as a U S bank and our noninterest income.
Percentage of Overdrafts is higher.
Credits a lot of our peers obviously.
Some of that goes to the fact that we don't have the wholesale numbers in the U S business and we don't have.
You know a large as large of a wealth business built up yet and you have lower.
A lower lower drivers from some of those businesses, but.
Higher than.
But those fee income numbers that you call out.
Our filing to use as a proxy sure.
Okay got it that's helpful. So then with respect to the 40 million comment that that seems to be only about 10%.
Well, I said 40, I said $40 million to $50 million and it depends on volume right.
Interactions that you'd see but.
We model this thing out and a return to normal activity level, that's where we would see is to be the impact from these changes we made reducing the number of overdrafts you can occur per day, and reducing them from five to three and raising the threshold from $5 to 10.
But we were using.
Normalized activity in the market.
I'm, just curious like with respect to your existing client base.
It seems a bit light given.
You've got an option to not ever have to pay those fees like why would you have not sorry, why would you not have more gravitation to that account.
Your existing client base.
A question, but I'll go back to my opening when I talked about the product that it doesn't have an overdraft feature.
First and foremost because theres no checks that come with this product.
So a lot of your existing portfolio, our existing portfolio and are not going to gravitate towards not having the ability to have check writing capabilities.
Number one most people want that a lot of people are going to want that.
And then secondly.
A lot of people find it actually very comforting that if something comes it whether it's an AC H debit or a recurring payment that there is some sort of overdraft protection doesn't allow that item to get bounce back.
For for a certain second.
It's a good installation, though that are either new to banking or.
Or trying to make sure that theyre not overdrive drafting their account and have limited transactions don't need truck check writing capability this will be attractive.
But again Theres no checks that come with this product so you're going to have some folks that this would not be applicable for right got.
Got it thanks for that color.
One of the pop just quickly pivot to Terry is this something that could potentially come to Canada inevitably.
And not sure if you can quantify but should we be looking at maybe the U S. As a proxy in terms of how much of it.
The revenue in the Canadian business would come from DNS a necessity.
So it's teri.
So the proportion would be much lower than in the Canadian business.
Turning point and then I would say, we do have the basic banking account available in Canada and for many of the same reasons that Greg has faded.
GAAP protection as a convenience and.
And peace of mind product.
And we have the opportunity for people to either pay as they go in most provinces or pay F.
<unk> fee for the service and so you know I I.
I don't necessarily see a reaction to this in the same way and just given that it's a very meaningful and useful product.
And.
Okay. Thank you both of them both for the color.
Thank you. The next question is from Darko <unk> with RBC capital markets. Please go ahead.
Alright, Thank you Terry I, just want to go back to the.
The discussion on.
The transaction.
For the season and the decline there from the outside looking in it's hard for us to know.
With such a big decline quarter over quarter.
It's hard for us to know whether there is other underlying current happening in the business and what I mean by that is <unk>.
Park from potentially some of your customers going to.
<unk>.
Starting to trade with zero commissions.
That's had an impact this quarter, but things like fractional share ownership.
Crypto currency trading is there any do you think that's having any impact to the business is this something that TD.
It's considering addressing can you maybe just.
To those potential threats to the business or Conversely.
Conversely, maybe there are opportunities I don't know, but.
Do you think any of that's having any impact with respect to those to those revenues.
Thanks for the question.
Probably go back to and you know we're coming off of.
Very high levels of trading.
Talk to us to what would have been the normal pre pandemic and so.
That three times to two times and an expectation that we have that we would continue to remain above pre pandemic levels I think is a positive.
Speaks to the breadth of offering and the value of the platform that I talked about earlier.
Obviously, we continue to monitor the market and some of the things that you've identified are likely opportunities for the business in the longer term.
We do pay close attention to the flows.
And I think one.
That that might be helpful is when we look at the.
Assets under administration.
<unk> in Q3 of customers under the age of 30 or they actually grew sequentially and so we are seeing a capture of quality customers in that age bracket, which is something that I know people pay attention to.
So just I would reiterate that the the strength and breadth of this offering and obviously, we stay close to the.
Minutes.
The launch of TD goal assist was very recent and it is a reaction to what's happening in the market and I can anticipate us continuing to deliver.
Against enhanced customer expectations over the coming periods.
Okay. Thanks for that and Terry you had a big jump in card services fees.
Market and.
You can service charges can you just give us an idea of I mean, it looks different from peers as well.
Any insight into that.
Certainly the service charges would be.
Again client activity, returning and so activity levels will be the main driver.
Okay.
Okay. Thank you very much and again, Bob best of luck in retirement and congrats.
Thank you. Our next question is from Lamar Prasad with Cormack Securities. Please go ahead.
Thanks for the question probably for Greg can you provide the total dollar impact of Paydowns in the U S.
Growth this quarter.
And then maybe some <unk>.
Comment on the expectation moving forward I guess, ultimately where I'm trying to get at is I'm trying to understand what we can expect to see loan growth in the U S come back and in a more meaningful way or are we talking say a quarter or two out or is it somewhere further down the road.
Well thanks for the question.
It's something obviously, we're certainly very focused on but let me just.
Take a step back and just make sure we do.
Just level set where we are in the U S and what most of our peers are seeing as far as loan growth I think it's important to provide that context and as you would've seen by much of their second quarter numbers.
Well.
We would have been on the on the better side of the group, whether it's the regionals and really especially you can measure in the money centers had far more substantial declines year over year on loan growth because of Paydowns, particularly on the commercial side and in some of their card portfolios.
And then just going on the context as I said.
<unk> the last couple of quarters Youre seeing pressure on loan growth because of all of the government stimulus and that's showing up in our deposit balances and.
So on the consumer side, there's been a whole host of programs that continue to play out and are providing liquidity and youre seeing pressure on cards balances on the commercial side starting on the on the low end.
And on the small business side PPP has had just a tremendous impact with one hundreds of billions of dollars in liquidity gets put into the system and you are seeing depressed loan growth and paydowns on the commercial and corporate side, certainly Bob's business and my business Youre seeing pay downs occur specifically because of excess liquidity in the system, but also because of the.
Ani and access to capital markets Youre seeing a lot of even revolving credits pay down in various forms of bank debt being retired or certainly not being leverage utilization rates are at all time lows that I can remember going back.
Quite a long time and so those are all the pressure points, what I would say is that and I've mentioned this.
The cheap motor too as we were expecting on the as the recovery takes hold into the back end of this year, we would've expected to start to see some pickup in loan growth and loan volume and just one little tidbit of real time data.
I know youre looking at the averages and what we're reporting here, but also in the material, we're giving you a spot balances and youre beginning to see some.
And the last signs of green shoots for loan growth in the U S. If you're looking at the spot numbers youre seeing more robust second quarter to third quarter growth in mortgages and cards are actually up and positive not down.
And youre seeing the same than the auto business.
What I'd say is that that's certainly a positive and we continue to watch.
On the commercial side.
The teams are if you look at my business on the commercial side, we are underwriting a ton of business.
But just as quickly as we're putting in on which is generating good fee income as well, there's a lot of refinancing going on for long term structures in the capital markets and we're going to continue to watch for that growth on the commercial side, but we would expect that in the back.
Watch out for the calendar year to start emerging.
Okay. 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. Barrett Ms Ronny for closing remarks.
Operator, and great questions and on many issues.
Just to reiterate.
And then I think you heard it in some of the responses given the scale.
And profile of our businesses in the U S. We have 10 million customers DD essential banking, which is a new product.
<unk> just got introduced addresses a specific small segment of the underbanked within our footprint just to keep that.
Effective with respect to some of the questions that Tony was getting once again it is not.
We haven't seen a compression in pricing and some of these products before but as you have seen previously that we adjust our products we adjust.
We are positioned in the market and we think we have a value.
And precision that is compelling so we'll see how those things play out but suffice it to say given the scale size and profile of PD, we feel comfortable as to how we can sort of navigate through some of these issues that was brought up on the call.
Overall, I'm very happy with the results I think the momentum is it gets.
Profit as we get this pandemic more behind us.
Is great I think sequential quarter performance in various metrics that folks.
There have been slight English <unk> growth and I know, it's a complicated number for us because we are going to adjust for partnerships strategic guard adjustments et cetera, but I am sure Julien.
Bill and Kevin will help you folks out, but overall I feel good you know that there's great momentum in the business and it looks like we're getting out of this pandemic with good growth potential I don't want to as usual thing 90000, TD bankers around the world. They do a great job and continue.
And for our shareholders.
Also wanted to take a moment to recognize the changes we announced our senior executive team, which take effect on September the first.
Now all of many of you mentioned as Bob will be retiring from his role as president and CEO of TD securities, but he's not going far he will stay on as Jeremy.
At TD securities as well as an adviser to me.
As all of you know, we will be digging on the president and CEO role at TD Securities. After almost six years as CFO and moving welcome Kelvin trend and Barbara Hooper to the senior executive team Calvin as CFO.
Chairman and Barbara as EVP of corporate development, and Treasury and strategic sourcing I look forward to continuing to work with all of them in their new roles and since this is his last call as CFO and Bob's last earnings call I would like to invite each of them to say a few words.
Thank you.
Oh, Yeah, it's been a real privilege to serve as CFO for nearly.
Nearly six years, it's really been fantastic to work with our investors and analysts and I look forward to continuing to see many of you in my new role.
I'm really excited to be joining TD securities.
Alright. Thanks.
Thanks, and appreciation to bar and can afford for the opportunity.
Bob on the Tds leadership team have built a terrific franchise and I feel lucky to be joining.
<unk> talented team and also trilled equally throughout this at Calvin and Barb, taking on the new role we do have a top.
With the sudden treasury organization.
And to my colleagues there I'd just like to say thank you it's been a real privilege of working with you.
Yes.
Thanks.
These last.
20, plus years at TD has been incredibly rewarding.
We feel very fortunate to have had the opportunity to.
Finally, <unk> with so many great people.
The dealer across the bank and in the business community.
I believe that working together, we've built an impressive dealer franchise that continues to evolve and support our clients.
Attracting and retaining great talent and make a lasting difference in the communities in which we are involved.
I look forward to our successful comfort TD securities.
As it transitions into.
And to the President and CEO role next week.
It's got a great team to work with.
I also look forward to continue to support the dealers client coverage.
Through my efforts as chairman and also.
All of you to work with Barrick.
So I'd like to thank Barrett to the entire senior executive team and the board for their support and guidance over the years.
And last but not least thank you to everyone at TD securities for a great partnership.
We've accomplished so much together.
Now I'll turn it back to Barry.
For his final words.
Thanks, very much Bob and thank you Barry as you know congratulations to all the new folks.
The new positions looking forward to great things and thank you all who calling in an agreed engaging call look forward to seeing you in the next hopefully we can meet in person one of these days.
Otherwise, we will talk 90 days from now stay safe and stay healthy all the best.
Okay.
Thank you.
The conference has now ended please disconnect your lines at this time and we thank you for your participation.
Thank you. The conference has now ended please disconnect your lines at this time and we thank you for your participation.
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