Q4 2021 Toronto-Dominion Bank Earnings Call
This conference is being recorded so it feels it does as you say.
All participants please standby your meeting is ready to begin.
Good afternoon, everyone welcome to the TD Bank Group Q4, 2021 earnings Conference call I would now like to turn the meeting over to MS. Gillian Manning. Please go ahead Ms Manny.
Thank you operator.
Good afternoon, and welcome to TD Bank group's fourth quarter 2021, investor presentation. We.
We will begin today's presentation with remarks from Darryl.
After which kelvin trend the bank's CFO will present, our fourth quarter operating results RJ Palmer Walid Chief Risk Officer will then offer comments on credit quality after which we will invite questions from prequalified analysts and investors on the phone.
Also present today to answer your questions are Teri Currie group head Canadian personal banking, Greg <unk>, President and CEO TD Bank America's most convenient bank and re as Ahmed group had wholesale banking.
Please 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 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 pair.
Specific assisting the banks 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 such as 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 use of non-GAAP and other financial measures. The bank's reported results and factors and assumptions related to forward looking information are all available in our annual 2021 report to shareholders.
That let me turn the presentation over to Barrett.
Thank you Julian and thank you everyone for joining us today.
Q4 was a great quarter for TD and it caps off a strong year earnings were $3 $9 billion for the quarter and EPS was $2.09 up 31% from a year ago on a full year basis earnings were $14 6 billion and EPS was $7 91.
<unk>.
Nearly 50%, reflecting higher revenue and a recovery in provisions for credit losses, our retail businesses recorded strong volume and fee income growth as we added new customers and deepen existing relationships and an environment of rising activity. Our wholesale bank built on last year's record performance winning.
Key client mandates and continuing to advance our U S dollar strategy.
And our CET one ratio ended the year at 15, 2% up more than 200 basis points from the fourth quarter of last year.
Reflecting these strong results we declared it dead said dividend increase today, bringing our dividend to <unk> 90, the 89 cents per share per quarter, and we announced our intention to repurchase up to 50 million common shares for cancellation subject to regulatory approval. We are pleased to be able.
To return capital to shareholders, while retaining significant flexibility to continue investing in organic and inorganic growth opportunities.
Proud of what we've accomplished this year, we've stood shoulder to shoulder with our customers colleagues and communities supporting them through the worst of the pandemic and helping them participate in the recovery. There is still much work to do to ensure that this recovery is sustained and sustainable but we meet the challenge from a position of strength.
Powered by our proven business model guided by our long term strategy and investing purposefully in our businesses to position them for future growth.
Our Canadian retail segment earned eight and a half a billion dollars this year with higher revenues across the banking wealth and insurance businesses.
We delivered record real estate secured lending originations God retail sales wealth assets and insurance premiums and we extended our lead in deposits and personal money movement as customers responded to our expanded advice and product offerings by bringing us more of their business.
We are winning with customers with the capabilities, we've developed to deliver legendary experiences a TD aeroplan visa infinite and MBNA rewards platinum plus guards received top billing and several industry reviews, reflecting the investments we've made to enhance the depth and breadth of our premier suite of credit cards.
In addition to being named Best Digital Bank in North America by Global Finance, we were named Canada's Best Consumer digital Big ranking number one in seven categories, including best Mobile banking App Best information security and fraud management and best open banking Apis as well as.
Most innovative digital bank for the third year running.
And as the number one financial institution patents filer in Canada with over 300 patents granted today, we are investing in the R&D to keep <unk> at the forefront of shaping the future of banking.
Our U S retail bank earned $3 3 billion U S dollars in fiscal 2021 with improving topline growth throughout the year as strong deposit volumes triple Triple B loan forgiveness in a steady recovery in consumer lending and fee income helped to offset continued margin pressure.
We build on our leading core deposits ranking eighth nationally supported by further market share gains we saw personal loan volumes rebound in latter half of the year with higher year end balances and mortgages guards and indirect auto.
Number one for SBA lending in our Maine to Florida footprint for for a 50 year running and we were the number seven triple P lender national nationwide, helping small business customers obtain forgiveness for nearly 100000 loans with gross carrying value of almost $9 billion.
Well this is weighing on our loan balances in the near term. It has strengthened our leadership with small business customers in our footprint that are at the heart of our one <unk> strategy.
One TD strategy also helped us earn to J D Power Awards. This year TD Bank America's most convenient bank ranked first in J D. Power's 2021 small business banking satisfaction study in the South region. Our third win in this category and TD Auto finance took top spot in.
The 2021 dealer finance satisfaction study for non captive lenders with prime credit for the second year in a row.
And we continue to deliver on our omni channel strategy amplifying unexpectedly human customer experiences with enhanced digital capabilities, including launching a new robo advisor solutions for our wealth clients and entering into a data access agreement with the Korea designed to help customers share their data.
With Fintech and Aggregators safely and securely as we continue to demonstrate prints principled leadership on open banking.
Our wholesale banking segment delivered strong results this year with earnings of $1 $6 billion over the last several years TD Securities has made significant strides building on its strengths in Canada and investing in the global expansion of its U S. Dollar strategy. The dealer has grown its revenue base by almost.
35% since 2018 added over 100, new corporate lending clients.
And expanded its product industry and ESG advisory capabilities. The progress is evident in strong client activity across the dealers footprint. This quarter, our Canadian banking team acted as financial advisor to Agnico Eagle on his pending merger with Kirkland Lake Gold for a combined <unk>.
<unk> capitalization of 24 billion U S dollars, the second largest gold M&A transaction ever and the largest gold merger of equals transaction.
In the U S. We've grown our U S Prime services business, adding 27 funds and $8 billion in gross assets over the last year.
And then Europe TD Securities is one of five joint lead managers and the only Canadian dealer on the European Union.
<unk> billion euros.
Inaugural Green bond the largest green bond ever.
Issue ever overall I'm very pleased with our performance. This year, we see continued upside to volume and fee income as the recovery progresses as well as the potential for higher spread revenue from rising rates, coupled with a proven business model the growth opportunities in each of our businesses and our ability to deploy capital.
We believe we can grow adjusted EPS by 7% to 10% over the medium term, while we have good momentum entering the year. The road ahead is likely to be bumpy and it will be challenging to meet our medium term objective in 2022. In addition to a complex macroeconomic environment.
We're likely to see normalization in PCL insurance claims and wealth trading activity, along with declining revenue related to triple B loan forgiveness.
As always we will stay focused on our long term strategy and continue to execute on our enterprise priorities delivering more value for customers across our distribution channels, leveraging our data analytics and AI capabilities to elevate the customer experience transforming the way we work to achieve better.
Mr outcomes investing in our colleagues to ensure they have the skills and resources to grow and succeed in a changing world and continuing to embed ESG in everything we do for meeting our commitments to increase the representation of women black and indigenous peoples.
<unk> ranks to executing on our climate action plan and helping build the sustainable future of the world urgently needs.
To wrap up I'm proud of the strong financial results and returns we've generated for shareholders. This year I'm equally proud of the work of the value we deliver for all our stakeholders last month <unk> was named to the Dow Jones sustainability World Index for the eighth year in a row, a measure of our long track record of.
Good environmental stewardship, social responsibility and corporate governance.
Were also recognized as an employer of choice in numerous surveys one of the world's best employers in 2021 according to Forbes top diversity employer. According to Canada's best diversity employers and diversity in the U S home to a home a home to a top team and two executives and American.
Bankers 2021 most powerful women program and a member of the Bloomberg gender equality index for five years running.
But the greatest recognition is the 90000, TD bankers, who choose to make their careers at TD.
The real force behind our success and the reason I am confident we will continue to build on these achievements as we pursue our shared vision to be the better big I. Thank them for their hard work and dedication and finally, a word to our customers colleagues and communities in British Colombia affected.
By the devastating flooding, we're thinking of you and we will continue to focus on providing whatever support we can through this upheaval.
With that I'll turn things over to Kelvin.
Thank you Barak and good afternoon, everyone. Please turn to slide 10.
For 2021.
Bank reported earnings of $14 $3 billion and earnings per share of $7.72.
It's up 20%.
Adjusted earnings were $14 $6 billion.
And adjusted EPS was $7 91 up 47% and 48% respectively.
Revenue decreased 2%, which includes the impact of the $1 4 billion pretax net gain on the sale of the bank's investment in TD Ameritrade in the fourth quarter last year.
Adjusted revenue increased 1%.
Our three 4% extra facts and the insurance fair value change, reflecting strong fee income and volume growth.
Partly offset by lower retail margins and.
The decline in wholesale trading revenue from 2020, although elevated.
Elevated levels.
Provision for credit losses was a recovery of $224 million.
Lower by seven $5 billion, primarily reflecting a performing PCL recovery compared with last year's build.
Expenses increased 7%.
Mainly reflecting an increase in the retailer program partners net share of the profits from the U S strategic cards portfolio.
Primarily due to lower PCL.
Absent this.
Adjusted expenses increased one 8% or three 7% ex FX, reflecting higher employee related expenses, including variable compensation and higher spend supporting business growth.
Because of the large.
Year over year change in PCL, the accounting for the U S. Strategic card portfolio continues to have a significant impact on total bank expenses.
Pretax pre provision earnings and operating leverage.
Slides 25 to 27.
So how we calculate total bank PTP and operating leverage removing this impact along with the impact of foreign currency translation, which was significant this year and the insurance fair value change.
Slide 26 shows that after making these adjustments total bank PDP was up 3% from fiscal 2020, reflecting strong revenue growth in the retail segment.
Offset by lower wholesale revenue.
Please turn to slide 11.
For Q4, the bank reported earnings of $3 8 billion.
And EPS of $2.04 down.
Down, 26% and 27% respectively.
Adjusted earnings were $3 $9 billion in.
And adjusted EPS was $2 nine up 30% and 31% respectively.
Revenue declined 8%, which includes the impact of last year's pre tax net gain on the sale of our stake in TD Ameritrade.
Adjusted revenue increased 5% or six 5% ex FX and the insurance fair value change.
Reflecting strong fee.
Hum and volume growth in the retail businesses.
Partially offset by lower wholesale trading related revenue from Q4, 2000, twenty's elevated levels.
Provision for credit losses was a recovery of $123 million.
With impaired PCL more than offset by a performing PCL relief.
Expenses increased 4% year over year, including an increase in the retailer program partners net share of the profits from the U S strategic cards portfolio.
Primarily due to lower PCL.
Absent that.
Adjusted expenses increased two 2%.
Our three 9% FX ex FX, reflecting higher employee related expenses, including variable compensation and higher spend on professional and advisory services and marketing as.
As we position ourselves for future growth.
Partially offset by higher corporate real estate optimization charges in the prior year.
Total bank PPP with the modification as shown on slide 25 to 27 was up 10% year over year on strong revenue growth.
<unk> was down 2% quarter over quarter, mainly reflecting higher sequential expense growth.
Please turn to slide 12.
Canadian retail net income for the quarter was $2 1 billion up 19% year over year on.
On an adjusted basis net income was up 17%.
Revenue increased 8%, reflecting higher volume growth and higher fee based revenue and the wealth and banking businesses posh.
Partially offset by lower deposit margins and a decrease in the fair value of investments supporting claims liabilities, which resulted in a similar decrease in insurance claims.
Average loan volume rose 8%.
<unk>, 8% growth in personal volume and 11% growth in business volume.
Average deposits rose, 11%, including 8% growth in personal volumes, 17% growth in business volumes and 12% growth in wealth deposits.
While opex increased 24%, reflecting market appreciation and new asset growth.
Net interest margin was 257% down four basis points compared to the prior quarter, reflecting lower mortgage prepayment revenue.
Total PCL of $53 million declined $47 million sequentially, reflecting a larger recovery in performing PCL this quarter.
Total PCL as an annualized percentage of credit volume was 0.04%.
18 basis points from the fourth quarter last year.
Insurance claims increased 3% year over year, primarily reflecting less favorable prior year's claims development and higher current year claims from business growth, partially offset by improved current year claims experience.
Reported noninterest expenses increased 8% year over year, reflecting higher spend supporting business growth, including technology and marketing costs higher employee related expenses and variable compensation.
Partially offset by prior year charges related to the Greystone acquisition.
Adjusted expenses increased 10%.
Please turn to slide 13.
U S retail segment reported net income for the quarter was USD, one $1 billion up 66% year over year.
U S retail bank net income was a record.
<unk> hundred $97 million U S up, 123%, primarily reflecting lower PCL and higher revenue.
Revenue increased 8% year over year, reflecting accelerated fee amortization from PPP loan forgiveness.
Growth in deposit volumes higher valuation of certain investments and higher fee income, partially offset by lower deposit margins.
Average loan volumes decreased 6% year over year, reflecting a 10% decline in business loans.
Primarily due to PPP loan forgiveness, paydowns and lower line usage.
Personal volumes were down 1% year over year, but up 2% sequentially with growth in all major asset classes.
Average deposit volumes, excluding sweep deposits were up 14% year over year.
Personal deposits were up 16%, including 23% growth in consumer checking and business deposits were up 11%.
Sweep deposits declined 2%.
Net interest margin was 221% up five.
Basis points sequentially, reflecting higher investment income and accelerated amortization from PPP loan forgiveness.
On slide 30, we've added new disclosure on the impact of the PPP program showing its contribution to U S. Retail bank net interest income and net interest margin.
This quarter <unk> revenue contributor to about $110 million you asked to NII.
And 16 basis points to NIM.
While the exact timing of loan forgiveness is difficult to predict we expect most of this benefit to have faded by the second quarter of next year.
Total PCL was a recovery of $62 million higher by 12 million sequentially, reflecting a smaller recovery in performing PCL.
The U S retail net PCL ratio, including only the bank's share of PCL for the U S. Strategic cards portfolio was an annualized percentage of credit volume was minus 15% higher by three basis points sequentially.
Expenses increased 3% year over year, primarily reflecting higher incentive based compensation and higher investment in the business, partially offset by productivity savings.
The contribution from Td's investment and Schwab was $195 million <unk> compared to a contribution of 255 million U S from TD Ameritrade a year ago.
Please turn to slide 14.
Wholesale net income for the quarter was $420 million, a decrease of 14% compared to a very strong quarter.
Fourth quarter last year.
Reflecting lower revenue and higher noninterest expenses, partially offset by lower PCL.
Revenue was $1 2 billion down 8% year over year.
At $510 million trading related revenue was down 33% from the elevated levels seen in Q4 2020.
Partially offsetting that lending revenue advisory fees and equity lending equity underwriting all increased year over year.
DCF for the quarter was a recovery of $77 million lower sequentially on recoveries in impaired and performing PCL.
Expenses increased 13% year over year, primarily reflecting higher employee related costs from continued investment in wholesale banks U S dollar strategy and variable comp higher variable compensation.
Please turn to slide 15.
The corporate segment reported a net loss of $150 million in the quarter compared with a reported net income of $2 billion in the fourth quarter last year.
Year over year decrease was primarily attributable to the net gain on the sale of the bank's investment in TD Ameritrade, a $1 4 billion or $2 $25 billion after tax.
Partially offset by lower net corporate expenses and a higher contribution from other items.
Adjusted net loss for the quarter was $65 million.
Paired with an adjusted net loss of $213 million in the fourth quarter last year.
Please turn to slide 16.
The common equity tier one ratio ended the quarter at 15, 2% up 74 basis points from Q3.
We had strong organic capital generation this quarter, which added 49 basis points to CET one capital.
Again, another 13 basis points from a reduction in non significant investments above the 10% threshold deduction.
Reflecting the combined impact of an increase in the threshold from CET one capital growth.
The decrease in net holdings of equity Securities and wholesale banking.
Lower <unk> net of FX and other items added further 12 basis points of capital mainly attributable to lower credit risk <unk>.
Credit risk <unk> declined $6 4 billion.
Primarily due to improved asset quality and U S commercial and auto loans.
The leverage ratio was four 8% this quarter and the LCR ratio was 126% both well above regulatory minimums.
I will now turn the call over to RJ.
Okay, well, thank you Kelvin and good afternoon, everyone. Please turn to slide 17.
Gross impaired loan formations was stable quarter over quarter at 11 basis points.
The remaining at cyclically low levels.
Please turn to slide 18.
Gross impaired loans decreased $240 million or three basis points quarter over quarter.
So a new cyclical low of 32 basis points.
The decrease was across all segments and related to the ongoing impact of support programs.
Customer resilience and the economic recovery.
Please turn to slide 19.
Recall that our presentation reports PCL ratios, both gross and net of the partner's share of the U S strategic card PCL loss.
We remind you that <unk> recorded in the corporate segment are fully absorbed by our partners and do not impact the bank's net income.
The bank recorded a PCL recovery of $124 million in the fourth quarter, reflecting a performing allowance release.
Partially offset by continued low embed provisions.
Please turn to slide 20.
The bank's impaired PCL was $219 million.
Lower by $25 million quarter over quarter, and reaching a new cyclical low.
Performing PCL was a recovery of $3 $43 million compared to a recovery of 279 million last quarter.
The current quarter recovery reflects.
Additional allowance releases across all segments.
For 2021, the bank's full year PCL rate was a recovery of three basis points.
Baird to provisions of 100 basis points in 2020 as credit performance has outperformed our initial expectations.
Please turn to slide 21.
The allowance for credit losses decreased 462 million to $7 2 billion quarter over quarter, reflecting further improvement in credit conditions.
And the impact of foreign exchange.
Now, let me briefly summarize the year.
Credit performance trended positively in 2021, as we progress through the pandemic.
As evidenced by cyclically low gross impaired loan formations gross impaired loans and PCL.
I expect <unk> to be higher in 2022, increasing from unsustainably low levels. This year.
As the benefit from support program subside and credit conditions begin to normalize.
However, credit results may vary by quarter.
And low PCL levels may persist in the near term benefiting from lower impairments and the potential for further performing releases.
To conclude.
<unk> remains well positioned given we are adequately provisioned, 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 one on your devices Keypad you may cancel your question at any time by pressing Star two please press star one at this time, if you have a quest.
There will be a brief pause while participants register for questions. Thank you for your patience.
And our first question is from Gabriel Duchaine from National Bank Financial. Please go ahead.
First question lots of pressure okay.
The PPP balances there the new disclosure.
<unk> four 8 billion.
But the $4 8 billion dollar balances.
Period end.
Well above $4 billion from Q3 levels can you give me a sense of.
When do you expect that the fully run off is going to be next quarter or two and would be would there be a commensurate or linear.
The revenue impact of those are repaid.
I assume you want me to take that part yeah. Yeah go ahead Greg.
Gabriel how are you and thanks for the questions Greg breaker.
I would just say that yes, we continue to progress and I'll remind you of the comments I made during Q3.
We expected the majority of this PPP one off to really.
Come to conclusion by the middle of 'twenty, two it's playing out the way we bought we did have a bit of a further <unk>.
Acceleration of forgiveness during the fourth quarter, and we had over $3 billion of loans forgiven. During Q4 alone with that said, we've got a little over $3 billion less forgiveness.
As we come into the start of 'twenty two fiscal and we expect the majority of this is done by Q1 and Q2 of next year Okay.
Even if it's spread out over two quarters.
Similar to correct. It depends a lot of this depends on the customers.
Coming into us and making sure. The documentation is prepared we've got obviously coordinate all of this with the SBA they've got to give us final sign off on it so a lot of.
But all things being equal I think you tend to see more of it get done in Q1 or Q2, but by the end of the second quarter, we should probably be out of it okay. Thanks for that.
Question for Barrett.
The dividend.
Pre COVID-19.
<unk> reviewed it and.
During Q1.
For obvious reasons, we did it in Q4 growth in C&I, just wondering what the future holds would you be.
Evaluating the dividend in Q1, 'twenty two or was this quarter.
Speak about.
And then.
The phase III Wednesday, another dividend increase potentially until Q1 of 'twenty three if you could clarify please.
Yes Gabe.
Nice to see you, but good to hear your voice and I hope everything is well with you.
We look at our dividends on an ongoing basis as to what makes sense is tough to give you a particular timeline on that.
But it was important this time around given that the restrictions on dividends were lifted that we do.
<unk> increased our dividend in line with what our expectations are.
But it's not a bad assumption that we'd like to look at this on an annual basis and hopefully we get into this cycle, but that doesn't mean that we will not periodically look at it.
On a different cycle based on circumstances in the environment you might be in.
So I don't know how to interpret that.
Well, you're asking me next quarter I don't think so it will be by modeling okay.
But I can't precisely tell you when do we look at our dividends.
Generally our cycle has been annual and that has worked out reasonably well for us, but it will depend on the environment going forward because we are looking at.
A lot of changes to the environment than what we had pre pandemic.
Unlikely that we have to wait until 2023 or that.
I can't tell you exactly Gabe is hard to predict the whole year out there but.
General practices to look at this.
Once a year, we like that but it will depend on the environment that we're in and hope all is well with you as well. Thank you all the best.
<unk>.
Thank you. The next question is from John Aiken from Barclays. Please go ahead. Your line is now open.
Good afternoon, Barrett I understand your reticence about the medium term EPS targets hitting it in 2022, given the success that <unk> had in provisions in 2021, but would you would you be willing to make the commentary about pre provision pre tax earnings whether or not you think the medium term.
Target could be hit or not on that basis in 2022.
No doubt as I said in my remarks.
We got good momentum our business mix is terrific.
Our businesses and the momentum we are seeing are suited for this debacle recoveries. So we like that.
We ended the year with good confidence, but as I said in my remarks, there is a lot of uncertainty out there a lot of Lumpiness nobody had heard of this new variant as of a week ago, So things can change quite dramatically.
But feel comfortable that with our business mix and the way we have positioned.
The geography to geography different territories, we are in our footprint.
That.
We feel good do to maintain our medium term earnings growth target of 7% to 10%.
But it's very hard to put a pin on one particular year given all the uncertainties around eight regarding provisions regarding the variance normalization of activity whenever that might happen or not happen. So in all those respects yogurts won't be as good as mine.
I think your guess is better than mine birch, thanks, and I'll leave I'll lead the capital question for somebody else. Thank you. Thank you.
Thank you. The next question is from Doug Young from David Barden Capital markets. Please go ahead.
Hi, good afternoon.
First question just on.
Regulatory capital credit risk guard that'd be weighs down about 8% year over year and it looks around it looks like around half of this is driven by an improvement in quality and quality improvement it looks like it added about 47 basis points to the set one ratio over the past year and I guess the question is any purposely de risking.
Or what's driving this in particular.
Yeah, well thanks for the question, it's Ajay so I'll respond.
I would say is we are seeing improvement in credit quality pretty much across the bank all segments.
We're seeing lower Pds, we are seeing an improvement in <unk> as well and a good example of that is a U S auto business.
Power prices in used car prices have been going up on.
On the non retail side as well again, all commercial businesses, we are seeing upgrades in ratings and so generally positive credit migration is occurring.
But as Kelvin said, a big piece of this is the U S and U S auto is.
Important contributor.
Hope that's helpful.
Yeah, and I guess I just follow up on that is this something that.
As we look at is mix a big part of this I guess it was part of my question to you and as you start to get a pickup in commercial lending and start to pick up and credit card revolving and we start to see that mix shift start to drag down I guess.
I guess it makes a big part of this as well.
Well I'd say mix is a factor for example, if your growth is coming from let's assume reservoir, which Richard is youre not seeing as much <unk> against the risk.
But if you are quality improvements in other asset classes, which attract Ohio <unk>, yes. So I think mix is a factor I think it will continue to be a factor.
EBIT going forward.
Okay.
And then Bert I mean, you mentioned in your opening remarks, just using capital for inorganic moves so I'm going to use that as a goal.
Way to go in but I guess my question is are you still primarily interested in targets in the U S East coast in Florida or are you more willing to look outside of your current U S footprint and I ask the question just because I'm getting asked that question.
Yes, Doug again late with Gabe nice to hear your voice and over everything as well.
<unk>.
Yeah.
Our approach to looking at inorganic opportunities or acquisitions has not changed over the years, we've said that we have.
Our capital deployment framework that looks at what needs do we have et cetera, et cetera, but I won't repeat and bore you with that.
With respect to specific acquisitions. We've also been very clear that it has to make strategic sense. It has to make financial sense. It has to be within our risk appetite and of course it has to be aligned.
Aligned with the TD culture, no those are very important.
Criteria for the bank and so yeah of course, you know doing something within our footprint.
Is terrific because it helps us financially and it actually helps us become a more of a scale player in certain markets, where we are building scale and it will just accelerate that but we've not been shy in looking at opportunities and frankly, having done.
And outside of our footprint as well.
Our auto business that.
Started with the acquisition of Chrysler financial is a national business in the United States, Our credit card business, our partnership with target and Nordstrom is national in nature.
So it depends on the opportunities, but it has to meet our criteria. It's very important to us that it does it does make strategic sense and financial sense and risk and culture. So that's the best way I can sort of give you.
More more insight as you know what our thought processes.
I appreciate it thank you thanks, Doug.
Thank you. The next question is from Ebrahim <unk> from Bank of America. Please go ahead. Your line is now open.
Good morning.
Yeah.
I guess Martha.
I could tell from your last response.
Something meets all your criteria and ends up let's just say in California that will still be fair game.
Yes.
Long as it makes sense to all the great deal. We have laid out then of course, we'd look at any any transaction that.
Got.
It comes our way or is an offer that's how we look at it and it's been our approach for a few years and it has worked well for us.
Makes sense I guess another question the end of October you announced.
Meaningful.
Executive changes.
Talk to us in terms of how we should read into that.
I understand part of it was just bringing in the next generation of talent into.
Into leadership roles, but as we think about execution does it change anything in terms of the pace at which you move on things or just strategic priorities, maybe tactically being a little bit discipline would love any perspective, you can share.
Hey, Brian.
The great thing about PD.
<unk> is the strength of our bench if you look at the.
The executives.
That we have and that's a huge blessing and a huge advantage for the bank. So I am so proud of the team you saw would be delivered for us all of our stakeholders, including our shareholders.
Last year and frankly over many years so.
I don't think you should view this as a change in strategy or approach at all this is just taking advantage of the terrific talent, we have in the bank and of course.
Once in a while of retirements as well so we got to.
Worked that into our thinking and make sure that you know as a bank.
We are well positioned for the great opportunities, we have going forward.
Got it thanks for taking my questions.
Thank you.
Our next question is from Paul Holden from CIBC. Please go ahead.
Thank you and good afternoon. So first question relates to the.
Commercial loan growth in the U S and the additional disclosure on Triple P is appreciated and it gives us an opportunity to back out the non triple P loans.
Which were down again quarter over quarter, and just wondering whats.
What's the outlook, there and the near term.
<unk> program is over do we expect the non triple P will start to recover.
Greg.
Thank you.
Paul Nice to hear from you and thanks for the question.
Yeah. So we provided additional disclosure we thought it was important but backing out.
What you generally see in the commercial side is youre seeing.
The slowdown in loan growth and negative year over year loan growth really nearer itself on the opposite side of the balance sheet with a tremendous growth in deposits in the U S. Similar to many of our peer banks. They reported Q3, youre seeing a lot of pressure on commercial loan outstandings and that really.
Translates into what we see day in and day out of just very very low record low utilization rates, we used to think utilization rates on the commercial book in the low 30% range was was was very low and now we're in the high teens. So I just wanted to.
That there's a lot of liquidity and with rates. So low you continue to see that long term structures are being done in the capital markets, especially for larger larger commercial borrowers notwithstanding all of this I would say that the old.
<unk> volume that the teams are processing very strong again demand is back.
Credit and credit facilities are getting retired quicker and end with capital markets that we would expect to see this beginning to normalize.
In Q1, and Q2 based on everything that we can see in the market pipelines and activity that's going on.
That is helpful. Thank you.
And then second question is with respect to <unk>.
It feels like every quarter, you surprise us with a positive update on CET one.
When I look at the internal capital generation number of 49 basis points. So just wonder if there is a scenario where you'd be able to generate enough loan growth enough. Our adobe UA to actually consume all of that internal capital generation like can you envision such a scenario or even.
Under more robust loan growth you expect youll continue to accrete CET one.
Paul This is Barry hard to put a specific number on what that would be but.
This is an indication of the earnings power of TD Bank group.
And that's how our business model is positioned well.
We do generate excess capital and we can also absorb you know.
Good loan growth so.
I don't think I can give you specific guidance on how much of our capital will be used on what level of loan growth, but suffice it to say as I've said many times before our capital deployment framework, our priority number one is to support our existing.
Existing strategies and whatever strategies, whatever plans, we put in place and that entails.
Use of or increase in <unk> on an ongoing basis, because that's where a growing franchise and we have lots of opportunities and to have the flexibility. We do is a great advantage for the bank.
Understood. Okay I'll leave it there thank you.
Yes.
Thank you. The next question is from many garman from Scotiabank. Please go ahead.
Hi, good afternoon, just keeping on the capital team just wondering how aggressive you intend to be on the buyback and could we see a scenario where you renew your buyback within the year that you use it all up and renew.
Many good good to hear from you.
In our case.
It's terrific that we've announced is in CIB. The buyback is one of the largest ones. We have announced in recent history at least that's my recollection.
The important thing to note for for US at least is that when we announced we do execute sooner will be busy doing that and you know.
Hard to <unk>.
Give you a specific scenarios in the future because that particularly given the uncertain environment, it's hard to predict what's going to happen a year from now six months from now or even a quarter from now.
Hopefully in.
The cycle of all of US there is no more variance coming down the pike here because things can change quite dramatically, but it's hard to give you a specific scenarios like that but.
Very happy that we've announced this buyback because I think it is meaningful and our intention is to complete it.
There is no doubt that the buybacks large historically, but when I look at the kind of capacity.
The city that you have the kind of excess capital you have it seems like you could do multiples of that.
Buyback and still have a reasonably high capital ratio so.
Yes, no maybe.
Another way to think about it.
What what capital ratio are you managing to end and why not.
Be more aggressive on the buyback what are the considerations that you have how much of that is M&A related.
Yeah again, I don't think I can give you precise numbers that make sense.
To try and predict and forecast. These numbers I think the fact that we can announce a buyback of this magnitude and still have the flexibility.
Tells you the strength of TD and then that's a good position to be in so it's hard for me to give you precisely what numbers. We are working through what the scenario might be a few quarters or a year or two down the road. So I mean time will tell many.
Okay. Thank you.
Thank you. The next question is from Nigel D'souza from Veritas investment Research. Please go ahead.
Thank you. Good afternoon. My first question was on your allowance levels and when I look at allowances for performing loans. They are still fairly elevated as you noted and I'm trying to understand given the improvement in credit quality that you've cited excess liquidity for your clients and.
Just the general low level of impairments in delinquencies.
Preventing.
Higher releases of those allowances and put another way if I look at your forward looking indicators have improved substantially over the last a year or so I'm wondering why that hasnt translated to.
Higher releases up allowances on performing most of whats offsetting that.
Yes, RJ, so let me respond.
Allowances really reflecting our view of the expected credit loss and in determining that view, we certainly have taken into account.
All the uncertainty that still exists and that uncertainty as Barry just said you got existing variance you got new variance.
Potential for inflation, it's actually already here.
Ultimate economic trajectory is an unknown and the post stimulus impact on customers is also going to play out in the coming quarters. So we feel we have the appropriate level of allowance.
However, each quarter and we're going to really look at it we're going to look at the changing macro situation. We are going to look at the forward looking uncertainty and to the extent the improvement we certainly will consider releases in the future, but we're quite comfortable where allowances is right now.
Okay, and just functionally the.
The improvement in Apple license has been offset by management overlay or a higher weighting to the downside scenario.
While we didn't make any change in our weightings quarter over quarter.
I would say the overlays over time have reduced but.
The overlay still exist they have been reducing with time, but they are still exists and I would finally say overlays remain an important part of our allowance process.
Okay, and if I could just quickly finish on just some question on your trading income when I look at the bank level. There's there's a loss there and I know thats not what you want us to track in terms of.
Wholesale banking trading revenue, but could you just fill us in on what's driving that loss on the bank level is that a fair value losses related to securities held for trading.
I'm wondering about the bank level Calvin Yeah. So I think we should look at the trading related income because.
Trading line in itself.
Does not include all of the hedges that you have that would come through in NII. For example, and that's why we actually do provide that information separately.
Okay. Thanks for that color.
Thank you. The next question is from Lamar Pesade from Cormack Securities. Please go ahead.
Thanks, I just wanted to continue on the M&A and capital discussion. If there is something that makes sense from an M&A perspective.
What's the ratio of the bank be comfortable going down to to finance the deal.
Again that will depend on what kind of risks are we assuming what is our view of what scenarios might be at play over the short and medium term and that will guide us as to what level of capital as we need to do to have in the bank so hard to.
Exactly put a pin on whats the number it would depend on circumstance.
At the time and particularly if there was an M&A as to what actually.
Assuming and what kind of risks that we'd be assuming.
Okay. Thanks, that's it for me.
Thanks Lamar.
Thank you.
Thank you. The next question is from Sohrab <unk> from BMO capital markets. Please go ahead.
Hey, Thank you just a couple of maybe clarifying questions maybe for Greg Greg.
Sorry, if I missed it but when you were talking about the Triple P.
P loans did you also mention whats the remaining unamortized fees on that.
Greg.
Thank you Wes are up nicely here from you and I did not.
But.
We would generally look at beyond advertising season again some of this it depends on how long. These these loans are outstanding because if they don't get forgiven then they continue to amortize over the life, but we expect the vast majority of these to be forgiven in the next couple of quarters.
And it's probably about $100 million would be the rough estimate on amortized fees.
Forgive me.
Left to go.
100 million left to go Okay, perfect and then.
Just calvin from.
<unk>.
From your perspective.
I think drew our attention to page 27, I think of the slide deck, where you were talking about.
Adjusting to to get a kind of a purer view of the pretax pre provision for example.
The earnings of the bank adjusting for the partners value and so on and so forth.
Fair to say Youre going to continue to give this slide.
Yeah indefinitely in other words when things normalize.
So to speak on credit and the mechanics with with the partner's share like we'll be able to see this on an ongoing basis you didn't just convenient these give this to us over the last number of quarters, and then you're going to take it away.
In the future when when it may be a little bit more of a tailwind to the bank how are you.
Depends on how much you are willing to pay but.
And so we would continue to provide the slide as long as it's relevant.
The thing about this slide is that.
Because the peak.
PCL related to the partnership is volatile and when that's volatile it creates the other offset on the expenses and you could actually see this.
This amount in.
In the corporate segment PCL, that's mostly where the volatility is so.
So even if the slide is not there you could pick up these numbers and then we would provide all of the details in this.
Now the end note to the stack that you can pick up in the sub pack.
Okay, I think it would be good idea to continue to provide it for an extended period of time.
Barrett and just I guess can you come back into the Mars question.
In the past I can think of that.
Historically, the banks not being shy about I'll call. It transformative capital deployment, maybe going all the way back to the acquisition of Canada Trust.
And obviously the Congress spending acquisition.
Is it fair to say that if you find something that first of all are you in pursuit of something transformative and then secondarily. If you found something transformative. Thank you you will you will be able to do it with resources on hand or would you would you be inclined to wholesale.
Uh huh.
Our holders.
No.
It's sort of I know I see the trend of all the questions here on capital is worth I would say.
That is a fantastic position for <unk> to be in and it gives us lots of flexibility in deploying our capital for organic and inorganic opportunities regarding your question.
This is a transformative or not transformative we if it meets our criteria. We will certainly look at it very seriously and see whether it makes sense for us and we have not been shy in acquiring entities that are sometimes fuel capability bill.
<unk> for the bank layer six comes to mind, which was an AI company nothing to do with banking at the time, but it's turned out to be a terrific acquisition for the bank.
So sometimes we can talk about transform we're able not transformative, but our view is that.
That we would want to make sure that it fits within our strategy makes sense for the bank over the long term and it will create tremendous value.
For all of our stakeholders now.
Your point about the.
Capital.
<unk> it at the moment, well I will remind folks and when we did those transactions that you just talked about we will not shy to go back to our shareholders and asking for money because there's those those acquisitions made sense in their own right. It was not something like you know for some reason our excess capital is burning a hole in our Pos.
Yes.
And I think you should see that as a continuation that TD. That's how we look at any any potential transaction.
I appreciate the color. Thank you.
Thank you. The next question is from Scott Chan from Canaccord Genuity. Please go ahead.
Good afternoon, maybe going back to that slide 26 Calvin on.
On a yearly PT pp.
Without the adjustment.
And you get to 3% in fiscal 2021, 3% in 2020.
And I know you talked about crystal ball, but when you're thinking about fiscal 2022 hadn't expenses or targeting expenses, how should we think about that heading into 2022.
Yeah, So we don't.
<unk> necessary a specific target for expense growth.
A way we look at it is that.
We need to deliver value for our shareholders in the medium and long term and that means that we need to continue to invest in the business.
And so that means you have to prioritize.
What are important projects.
And then at the end of day, it's driving growth and so our goal is to drive positive operating leverage having revenue growing faster than expenses.
Okay, and maybe just sneak in one more on <unk> on capital.
M&A one of your competitors talked about expanding wealth management distribution capabilities and then on the past you had said.
Two large Canadian independent is that something is that an area of interest for you are you looking at that.
A piece of the segment, especially.
In this marketplace, where it's been pretty pretty hot.
So, but you were breaking up a bit there Scott, but I think I got your question like I've said this before anything in Canada in the financial services space, We would look at it very seriously because you know there are not many opportunities that present themselves and whenever they have TD has been there I think the the aeroplan.
Business when it comes to mind over the recent past.
And in wealth management as well of course, you know.
Greystone comes to mind and so of course, we will look at it. So I think that's what you meant.
But.
Our view on M&A is not confined to one specific business within within our portfolio and mix of business will be any part of the bank.
Okay got it thank you very much right.
Thank you. The next question is from Darko <unk> from RBC capital markets. Please go ahead.
Hi, Thank you I think this first numbers questions for Kelvin if you can just give us an idea.
<unk>.
And this may not be too material, but I'm just curious about.
How much are.
You guys sort of feel that insurance claims were.
Below normal I'm, just trying to I'm, just trying to understand what kind of a headwind you might face.
If claims normalized.
Okay.
Alright, Thanks, Brian Kerry So I'll take the question Darko.
So.
Clearly sequentially there were a number of factors that impacted claims going down more favorable prior year development, we had lower cats.
In Q4.
Better claims experience.
Decrease in the fair value of investments supporting claim liabilities and then we did have some offsets to that.
Thank you a question as you look forward.
We would expect there's a lot of moving parts as many of my colleagues have said.
And I think there is a question around return to the office and commuting and when commuting actually returns to a more normalized level.
So our expectation would be that in a normalized environment, we would see an increase in claims.
I would also say that our cost of claims has been coming down and it's better than the pre pandemic level stuff that sustains.
I'd say, that's a positive.
Okay. Thanks.
Thanks for that but okay. So we'll try and work with that.
I guess.
Another question, just generally speaking picnic picking up on the theme.
Of management change.
It is.
Is it fair to say that we.
About the three units that had been affected including the guys here.
Is it fair to say that there's going to be a period here.
Of.
A significant review.
And potentially restructuring charges in 2022 or something of that sort or do you think that that's way off base that that line of thinking and we should really just not think about.
Large changes.
In the year ahead.
Certainly I'm not thinking about it.
So.
I'm certainly not thinking about it we are very happy with the strategies. We've deployed over many many years and I expect that to continue and so you should not view as management changes.
Meaning to fundamentally change the way the base of this bank is absolutely not so I'm not I'm not thinking about it but like in <unk>.
Reluctant to always say, okay, there's never going to happen or whatever.
But I certainly am not thinking about it the way you positioned it.
Okay great.
Thank you very much.
Thank you.
The next question is from Ebrahim <unk> from Bank of America. Please go ahead.
Hi, I guess Calvin.
Follow up question, Justin I apologize, if I missed it but.
The bank of Canada, I expect you to move on to the U S. Fed probably moved in July remind us in terms of the NII lift we should expect to see from a 25 basis points 100 basis points. When you take both in Canada and the U S.
Yes, Hi Ram.
So the 25 basis point hike in their short.
Right would be about $370 million in that split about 50, 50 U S Canada.
And as the 50% didn't Canada as immediate as it would be in the U S or would it take time.
To flow into just given the duration of the asset side.
I would be immediate because it's a short term move like a short rate move and that would happen.
Yeah.
Alright, so $270 million and.
Another sort of smaller question, we saw capital one come out yesterday.
Yes.
You've talked about this in the past any updated views around overdraft fees, how youre thinking about that product in the U S.
I'll pass it onto Greg, but just to sure.
We review this every time.
Ongoing basis as to what makes sense, we introduces terrific product in the U S. Greg talked about it with PD essential banking and very happy with how that is attracting customers to the <unk> franchise in the U S. So Greg I don't know whether you want to add anything but this is something that we all our offerings. We will review it and to make sure we are competitive in.
And meeting customer needs.
Greg is there anything else you wanted to add.
I think you've covered it really well and Abraham nice to hear from you as well and thanks for the question.
I would say that we rolled out the TD essential product, which is a non overdraft checking products for our consumers and we rolled this out only in August and we just had terrific pickup from this product already in fact, roughly 10% of our new accounts are coming from this.
So again, we look at how the product is positioned in some cases overdraft is a product that our customers want they want to be able to utilize from time to time, if it's needed, but certainly we do look at how these things are structured and and we've made changes in the past and as the market moves we would consider changes again in the future.
Got it and one last if I could squeeze in.
Can you comment on potential for any strategic deepening with the schwab relationship between a great asset for you, but I'm. Just wondering is there anything on the lending side et cetera that you could be doing with schwab or we shouldn't be thinking about that.
We have a terrific.
Not only a great investment, but a great relationship as you know we have a long term deposit agreement.
Our thinkorswim platform in Canada supported by Schwab So already.
Very good and a very productive.
Our relationship with TD, and we like our position very well, we keep on looking at different things and we want to make sure. We do what makes sense for us.
For the clients. We may have so that's an ongoing review and where appropriate of course, you know we would offer where it made sense. So.
To give you any more detailed than that but the existing relationship itself is pretty sizable.
But thank you again.
Sure.
Thank you.
Thats all the question time, we have for questions today, I will turn the meeting back over to Mr. Pat Barrett Ms Randi for closing remarks. Thank.
Thank you. Thank you operator, and thank you to all of you I mean, great questions great engagement I know a lot of questions on capital, but I view that as a positive given the flexibility. It provides the bank and making the right investments for the future.
I'd also like to once again, thank our 90000 TD bankers around the world for everything they delivered for all of our stakeholders, including our shareholders customers clients and communities both in Q4 and in fiscal 'twenty one.
Before we wrap up I wanted to take a moment to recognize two of our executives on today's call.
A couple of couple of you already mentioned it and as we recently announced you would all know that Terry will be retiring from TD at the end of January of next year. After an extraordinary 35 year career. In addition, Greg will be assuming a new role as vice chair of our U S Bank effective January one.
This will be the last quarterly earnings calls for both Greg and Terry I would like to invite each of them to say a few words Greg.
Well, thank you Barak very much and I'll be brief in my comments, but it is kind of hard to believe that it's been already a little over five years. Since it was announced that I was taking over just the U S business.
I really do want to thank you.
You yourself the boards, both the parent and the U S boards and the entire senior executive team for your counsel your guidance and collaboration.
Certainly over the last five years and really over the 20 years I've been here with the organization I'm really proud to see what's been accomplished and built in the U S and particularly what we're investing in and the momentum we've built real time in the U S and that momentum has really been accelerated throughout the pandemic. If it's hard to believe and we believe will be key.
Coming out of this stronger than when we went into two years ago. Finally, I really do want to make sure. My comments are closed off here by thanking my leadership team in the U S as well as the 25000 colleagues we have at America's most convenient bank that drives these outcomes day in and day out I'm really so proud of what's been delivered particularly over the last.
Two years real time in this pandemic and the momentum we're building and finally I would just say that Leo will make a terrific leader for the business in the U S and he and I have been working on the transition for the last month and we will continue to work over on it over the next month and much more to come I look forward to the next role as Vice chair and in particular.
Being able to get out and spend more time with clients and thinking through and then.
<unk> with you and Leo and the rest of the team so all the best in over to Terry.
Terry Thanks, Greg and I want to start by thanking Barrett for his support over the years, but particularly for his support while I was working through my decision to retire and then the ask of the bank for me to join the <unk> Board, which will keep me connected which I'm really excited about.
Everyone around the table knows I'm still an armchair HR person and so some of your questions were around that sat moves any additions to the sat and I have to agree with what Barry has said.
It really is a tribute to the leadership bench at this bank and you will all benefit from the great people, who these new moves as well as the new people who've joined the senior executive team and seeing Kelvin today on the call you've been able to witness that I am delighted that Michael really just going to lead the personal bank in its next chapter he is on.
Amazing leader he is a great partner.
I know he's going to build on the current momentum and ensure that we remain a unique and inclusive culture and a strong growth engine for the bank.
The hardest part about retiring is obviously leading the people.
So my senior executive team colleagues, but also just the amazing people in the personal banking across the bank.
And I just filament pride on how all of you and all of them have stepped up for Canadians over the last 20 months and dealt with all of the personal challenges at the same time as really focusing on the needs of our communities and our colleagues and our customers.
Thank you.
<unk> has made us better and your support for the bank is incredible and I Hope you have a wonderful holiday season, and that you are able to safely enjoy time with friends and family. This year, Eric back to you. Thanks, Thanks, Greg and thanks Terry.
No pressure on Michael and <unk> based on what I just said.
We will redo the plan for next year.
Greg all the best in your new role in theory of course, congratulations once again on a fabulous career in your well deserved retirement I look forward to seeing you at the U S Board starting in February. So that's terrific. Thank you everyone for a great call great engagements as I said stay safe and here's wishing you all the best for the holiday.
As in the new year, and we will see you in 90 days. Thank you.
Thank you. The conference has now ended please disconnect your lines at this time and we thank you for your participation.
Thank you once again the conference has now ended please disconnect your lines at this time and we thank you for your participation.
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