Q1 2023 Toronto-Dominion Bank Earnings Call
Speaker 1: I V gover.
Speaker 2: This conference is being recorded. This conference is being recorded.
Speaker 3: Please stand by your meeting is about to begin. Good afternoon everyone, welcome to the TD Bank Group.
Speaker 3: Q1, 2020, 23 earnings conference call. I would like now like to turn the meeting over to Ms. Brookhael's. Please go ahead, Ms. Hael's.
Speaker 4: Thank you, operator. Good afternoon and welcome to TD Bank Group's first quarter 2023 investor presentation.
Speaker 4: Many of us are joining today's meeting from lands across North America. North America is known as Turtle Island by many indigenous communities. I am currently situated in Toronto. As such, I would like to begin today's meeting by acknowledging that I am on the traditional territory of many nations.
Speaker 4: including the Mississaugas of the Credit, the Anish Naba, the Chippewa, the Haudenosaunee, and the Wendat peoples. And is now home to many diverse-faced First Nations, Métis and Inuit peoples. We also acknowledge that Toronto is covered by Treaty 13 signed with the Mississaugas of the Credit.
Speaker 4: and the Williams Treaty signed with multiple Mississaugas and Chippewa bands.
Speaker 4: We will begin today's presentation with remarks from Barrett, Mizraini, the bank's CEO , after which Kelvin Tran, the bank's CFO will present our first quarter operating results. Ajay Pumbawali, Chief Risk Officer, will then offer comments on credit quality, after which we will invite questions from pre-qualified analysts and investors on the phone.
Speaker 4: America's most convenient bank and re-advent grouphead wholesale banking. Please turn to slide two.
Speaker 4: 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.
Speaker 4: 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, objective and priorities, and anticipated financial performance. Forward-looking statements may not be appropriate for other purposes.
Speaker 4: 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. Bear will be referring to adjusted results in his remarks.
Speaker 4: 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 Q1 2023 report to shareholders.
Speaker 4: With that, let me turn the presentation over to Barrett.
Speaker 5: Thank you, Brooke, and thank you everyone for joining us today.
Speaker 5: To start, I want to express that our thoughts are with all those impacted by the devastating earthquake in Turkey and Syria, including our colleagues, customers and communities who have deep ties to these two countries.
Speaker 5: TDS contributed directly to the relief efforts and enabled customers to do so as well through branches and online. Together, our collective efforts can make a difference and provide some comfort during these terrible hardships.
Speaker 5: It's been a busy week and before I review our strong quarter and start to the fiscal year I'd like to provide a few strategic updates.
Speaker 5: As you know, on February 9th, we mutually agreed with First Horizon to extend the close date to May 27th as provisioned in our contract.
Speaker 5: Since then, we have come to believe that the deal is not expected to receive regulatory approval in time to close the transaction by that date. Regulatory approval is not within the bank's control. So we are doing what is prudent and appropriate. We have opened discussions with First Horizon about a potential additional extension.
Speaker 5: I cannot speculate on when we will receive approval. I can tell you that we are fully committed to the transaction.
Speaker 5: We have a robust community benefits plan in place with broad community support across our combined footprint and our teams have made progress on integration plans.
Speaker 5: This is a great transaction that offers scale and new capabilities.
Speaker 5: to our US franchise.
Speaker 5: We made another unrelated announcement earlier in the week regarding the Stanford matter.
Speaker 5: The settlement we announced allows us to avoid the distraction and uncertainty and uncertainty of a long legal proceeding and is in the best interest of shareholders and the bank.
Speaker 5: And of course yesterday we closed the cow and transaction.
Speaker 5: TD Securities and Cowen are a powerful combination, accelerating our U.S. growth strategy and helping to create an integrated North American dealer with global reach.
Speaker 5: The acquisition of Cowen adds many key capabilities to our growing global markets platform.
Speaker 5: in US equity sales and trading and in US equity research.
Speaker 5: It also adds scale and industry expertise across U.S. capital markets and M&A advisory.
Speaker 5: Congratulations to everyone on this important milestone and a very warm welcome to our over 1500 new colleagues.
Speaker 5: I know I speak for Rias and all of TD securities when I say we are very excited for what we will accomplish together
Speaker 5: Let me now turn to our first quarter performance.
Speaker 5: TD delivered a strong Q1. Earnings increased 8% to $4.2 billion and EPS rose 7% to $2.23.
Speaker 5: Revenue grew 16% year over year, reflecting margin expansion, strong volume growth, and our diversified business mix.
Speaker 5: We took advantage of this environment to continue to invest in our business to drive future growth while delivering robust operating leverage.
Speaker 5: As expected, we saw some credit normalization this quarter, but credit performance remained strong overall, supported by consistent and disciplined underwriting practices.
Speaker 5: 3D-CET-1 ratio ended the quarter 15
Speaker 5: 0.5% or 15% pro forma for the closing of the carbon acquisition.
Speaker 5: With TD strong internal capital generation capabilities and the various capital levers available to the bank, we continue to expect TDC to be one ratio to become comfortably above 11% post closing of the first horizon transaction.
Speaker 5: These strong results are matched by a brand that is second to none. TD was recently named one of the 2023 Global Top 500 Most Variable Brands by Brand Finance earning the highest ranking in Canada.
Speaker 5: Across our distribution channels, the bank delivers personalized connected legendary experiences.
Speaker 5: For the ninth consecutive year, the TD Mobile app had the highest number of monthly active mobile users among Canadian banks, according to mobile analytics firm Data.ai.
Speaker 5: Let me now turn to each of our businesses and review some highlights from Q1.
Speaker 5: A Canadian personal and commercial banking segment delivered record earnings of $1.7 billion, reflecting revenue growth of 17% and significant positive operating leverage.
Speaker 5: The personal bank continued to demonstrate momentum with sales of our everyday banking products up over 20% year over year in industry leading market share gains in non-term deposits again this quarter, driven by strength in branch banking.
Speaker 5: We saw a record Q1 acquisition in the new to Canada customer segment and announced an exclusive strategic relationship with Canada visa, one of the leading online sources of Canadian immigration information with over 2 million monthly visits.
Speaker 5: Through this relationship, TD will help support newcomers as the Navigate Financial Services while settling into their lives in Canada.
Speaker 5: We also had record Q1 credit card spend and organic loan growth driven by rebound in travel and our compelling TD AeroPlan offering, coupled with our best-ever quota for digital acquisition for TD cards.
Speaker 5: In a real estate secured lending business, a team's delivered robust retention rates and enhancements in mobile mortgage specialists productivity despite a softening housing market.
Speaker 5: The businessmen achieved double digit loan growth for the sixth consecutive quarter, and we were proud to collaborate with the Federation of African-Canadian Economics to help black business owners in their entrepreneurial journeys enabling them to access capital and scale their businesses.
Speaker 5: Turning to the US, our US retail bank delivered record earnings of US $1 billion, reflecting revenue growth of 27% and significant positive operating leverage.
Speaker 5: with the contribution from our investment in Schwab of 222 million US dollars segment earnings were 1.2 billion US dollars.
Speaker 5: This quarter, enabled by our investments in event streaming technology, TD launch deposit balance thresholds alerts. The first of several self-service alerts that will further enhance customer convenience and experience.
Speaker 5: We delivered strong loan growth year over year.
Speaker 5: Led by 18% growth in mortgages and 9% growth in cards, personal loans were up 11%.
Speaker 5: And TD demonstrated continued momentum in the middle market and CNI space with business loans up 9% excluding PPP loan forgiveness.
Speaker 5: Finally, this quarter, we were proud to announce a 20-year extension of our agreement with Delaware North, keeping Boston's beloved landmark arena name as TD Garden through 2045.
Speaker 5: A wealth management insurance segment earned $550 million this quarter. Revenue was up 4% as higher insurance volumes and the benefit of higher interest rates help offset the challenging market environment.
Speaker 5: In TD Direct Investing, we took the number one spot in the Globe and Mail's annual ranking of digital brokers and increased market share of new account acquisition quarter over quarter.
Speaker 5: In TD asset management, TD regained its position as the number one money manager for Canadian pension assets and widened its lead versus competitors as the number one Canadian institutional asset manager.
Speaker 5: highlighting the breadth of our capabilities, several DDS and management ETFs and mutual funds across equities, fixed income and balance funds, will recognize this quarter with funds grade A plus awards.
Speaker 5: On the insurance side, our expansion into small business insurance will launch in the coming months. As the number one direct-to-consumer insurer in Canada, this is a natural extension for us to leverage our expertise to deliver exceptional insurance experiences for small business owners.
Speaker 5: In our wholesale banking business we deliver net income of $347 million with revenues roughly flat year over year
Speaker 5: The impact of lower underwriting and trading revenues was offset by higher global transaction banking and lending revenues as we continue to support our clients through market cycles. This quarter, TD Security's Acted, is financial advisor to GIC and Dream Industrial Read.
Speaker 5: on their acquisition of summit industrial income rate. A wholesale banking team also acted as joint bookrunner on the government of Canada's $500 million Ukraine sovereignty bond to assist the government of Ukraine in providing essential service to Ukrainians and restoring energy infrastructure.
Speaker 5: And as I mentioned earlier, Cowan is now part of TD Securities.
Speaker 5: With robust integration plans in place, work is already underway to tap the combined strengths of the business and extend our competitive advantage in the market.
Speaker 5: Guided by our purpose, TD is committed to creating value for all our stakeholders.
Speaker 5: I'm proud that the bank was listed in the DGSI World Index for the ninth consecutive year. DG is one of six banks listed in the DGSI North American Index and the only North American bank included in the World Index.
Speaker 5: The bank was also recently recognized with a top 10% S&P Global ESG score, again standing out from its peers as the only North American bank to be listed in the top 10%.
Speaker 5: And TD Bank, America's most convenient bank, was recognized as one of America's best employers for veterans by Forbes for the third consecutive year.
Speaker 5: This recognition is a reflection of our commitment to the communities we serve. Earlier this week, as part of the TD Ready Challenge, we were pleased to announce a total of $10 million in grants to 10 non-profit and charitable organizations that are working on solutions to help those who may be disproportionately affected by climate change.
Speaker 5: in the transition to a low carbon economy. Later this month, TD will release its 2022 ESG reporting suite, including our Climate Action Plan. We're excited to share the outcomes of a year of effort and accomplishments by thousands of dedicated TD colleagues who transformed our aspirations into action. Our TD bankers continue to
Speaker 5: deliver for all of our stakeholders and it is a privilege to work alongside them every day. I would like to thank them for all they do to make TD the better bank.
Speaker 5: I will end by noting that this is Paul Douglas's last earnings call as Group Head Canadian Business Banking.
Speaker 5: Barbara Hooper will assume leadership of this segment.
Speaker 5: Paul's almost 47-year T.D. career is filled with remarkable achievements and success.
Speaker 5: E&ST have built one of Canada's premier business banks known across the market for the dedication to their customers.
Speaker 5: Paul has also built the best team of business makers in the country and leaves behind a tremendous bench of talent that will continue to drive growth.
Speaker 5: I have known Paul throughout my entire time at TD and want to thank him for his partnership, support and significant contributions to the big success over many decades.
Speaker 5: Paul will assume a newly created position is chair. Canadian business banking will also serve as a special advisor to me.
Speaker 5: Congratulations to Paul and I look forward to continuing to benefit from his wise council as we build for the future
Speaker 5: With that, I'll turn things over to Kelvin.
Speaker 6: Thank you, Barrett.
Speaker 6: Good afternoon, everyone. Please turn to slide 11.
Speaker 6: For Q1, the bank reported earnings of $1.6 billion and EPS of 82 cents down 58% and 59% respectively. Reported earnings include the Stanford litigation settlement and net loss from mitigation of impact from interest rate while utility to
Speaker 6: The adjusted earnings were $4.2 billion and adjusted EPS was $2.23.
Speaker 6: Up 8% and 7% respectively.
Speaker 6: Reported revenue increased 8% and includes a net loss from mitigation of impact from interest rate volatility to closing capital on the first horizon acquisition.
Speaker 6: Adjust the revenue increase 16% reflecting margin and volume growth.
Speaker 6: in the personal and commercial banking businesses and the impact of FX translation.
Speaker 6: Provision for credit losses was $690 million compared with 72 million in the first quarter last year.
Speaker 6: reported expenses increased 39%
Speaker 6: primarily reflecting the Stanford litigation settlement and higher acquisition and integration-related charges.
Speaker 6: Adjustment expenses increase 11%.
Speaker 6: during by higher employee related expenses, the impact of FX translation, and higher spend supporting business growth.
Speaker 6: On our Q4 call, I noted that we expected adjusted expense growth excluding effects to moderate in fiscal 2023 on a quarter over quarter basis.
Speaker 6: We saw that this quarter with adjusted expense growth moderating sequentially as we continue to prioritize our investments.
Speaker 6: Our goal of delivering positive operating leverage over the medium term remains unchanged.
Absend the retailer, partners, next share of the profits from the US Strategic Card portfolio, adjust the expenses increased 10.4% XFX.
reported total bank PPPP was down 26% year over year, primarily reflecting the Stanford litigation settlement.
consistent with product quarters. Slide 26 shows how we calculate adjusted total bank PDPP and operating leverage removing the impact of the US strategic portfolio along with the impact of foreign currency translation.
and the insurance fair value charge. Adjusted total bank PDPP was up 14% after these modifications.
Please turn to slide 12. Canadian personal and commercial banking net income for the quarter was $1.7 billion, up 7% year over year.
Revenue increased 17% reflecting higher margins and volume growth.
Average loan volumes rose 8% reflecting 6% growth in personal volumes and 14% growth in business volume.
Average deposits rose 3% reflecting 8% growth in personal deposits and a 5% decrease in business deposits.
Net interest margin was 2.82% up 10 basis point compared to the prior quarter.
Primarily due to higher deposit margins reflecting rising interest rates.
partially offset by lower margin.
Martin. Lord, Lord, Lord, Martin.
While many factors can impact margins.
including the path of short-term rates.
including the path of short-term rates, tractors, on and off rates,
customer activity and competitive market dynamics.
and margins may bounce around quarter to quarter, we currently expect net interest margin expansion to moderate for the remainder of fiscal 2023.
Total PCL of $327 million increased $98 million sequentially.
Total PCL as an annualized percentage of credit volume was 0.25% of 8 basis points sequentially.
Non-interest expenses increased 10% year over year, reflecting higher spans supporting business growth, including technology and employee related expenses.
Please turn to slide 13th.
US retail assignment reported an income for the quarter was $1.2 billion US up 17% year over year.
Adjusted net income was $1.2 billion US up 23% year over year.
US retail bank reported net income was $950, $5 million US up 18%.
Primarily, reflecting higher revenue, partially offset by higher non-interest expenses, including acquisition and integration-related charges for the first horizon acquisition, and higher PCL.
US retail bank adjusted net income was $1 billion, up 26%.
adjusted net income was $1 billion up 26%. $1 billion are U.S. $1 billion are U.S.
Revenue increased 27% year over year, reflecting high deposit margins and long volumes.
partially offset by lower low margins and deposit volumes, lower overdraft fees, and lower income from PPP loan forgiveness.
Average loan volumes increase 9% year over year.
Personal loans increased 11%, reflecting strong originations, lower prepayments, and higher credit card sales volumes.
Business loans increased 6% reflecting strong originations, new customer growth, higher commercial line utilization, and increased customer activity, partially offset by PPP loan forgiveness.
excluding PPP loans, business loans, increased night percent.
Average deposit volumes, excluding sweep deposits, were down 2% year over year.
Personal deposits were flat, business deposits declined 4% and sweep deposits decreased 15%.
Nitinchus margin was 3.29%, up 16 basis points sequentially, as higher deposit margins, reflecting the rising interest rate environment were partially offset by lower loan margins.
and negative balance sheet mix. While many factors can impact margins, including the path of short-term rates,
Tractors on and off-rate, customer activity and competitive market dynamics.
margins may bounce around quarter to quarter. We currently expect net interest margin expansion to moderate for the remainder of fiscal 2023.
Total PCL was $149 million US, a decrease of $20 million US sequentially. The US retail net PCL ratio, including only the bank's share of PCL for the US strategic hearts portfolio.
as an annualized percentage of credit volume was 0.34% lower by 6 basis points sequentially. Reported expenses increased 22%
and include acquisition and integration related charges for their first horizon acquisition.
Adjustive expenses were up 16% reflecting high-emply related expenses, credit card growth related expenses and other business investments.
The contribution from TD's investment in Schwab was $222 million U.S.
Up 11% from a year ago reflecting higher net interest income, partially offset by high expenses, lower asset management fees, and lower trading revenue. Please turn to slide 14.
Wealth management and insurance net income for the quarter was $550 million, down 14% year over year.
Revenue increased 4% reflecting higher margin.
and increase in fair value of investment supporting claims by abilities and higher insurance volume.
partially offset by lower volumes and lower transaction and fee-based revenue in wealth.
Insurance claims increase 29% over year, reflecting the impact of changes in the discount rate, which resulted in a similar increase in the fair value of investment, supporting claims by abilities, reported and non-interest income, increased driving activity and inflationary costs partially offset by fewer.
to view whether related events. Non-interest expenses were flat year over year, reflecting higher spend, supporting business growth, including higher employee related expenses and technology costs partially offset by law variable compensation.
Afters under management decreased 3% year over year, reflecting market depreciation. Afters under administration decreased 3% year over year, reflecting market depreciation, partially offset by net asset growth.
Please turn to slide 15. Post-cell banking reported net income for the quarter was $331 million, a decrease of 24% year over year, reflecting higher non-interest expenses in PCL.
Adjusted net income was $347 million down 20% year over year.
Revenue was $1.3 billion, largely unchanged year over year, reflecting lower trading related revenue and underwriting fees, asset by higher global transaction banking and lending revenue.
PCL for the quarter was $32 million, an increase of $6 million from the prior quarter. Reported expenses increased 16% and include acquisition and integration-related charges, primarily for the Kowen acquisition. Relative expenses increased 13%, reflecting continued investments in the Kowen acquisition.
Coast Health Banking's US dollar strategy.
including the hiring of banking, sales and trading, and technology professionals.
higher severance and the impact of foreign exchange translation. Please turn to slide 16.
The corporate segment reported net loss of $2.6 billion in the quarter compared with a reported net loss of $227 million in the first quarter last year.
The year-over-year increase primarily reflects the Stanford litigation settlement.
A net loss from mitigation of impact from interest rate volatility to closing capital on the first rising acquisition.
The recognition of a provision for income taxes in connection with the Canada recovery dividend and increased the Canadian Federal Tax Rate for fiscal 2022 and higher net corporate expenses.
Adjustment net loss for the quarter was $140 million, compared with an adjusted net loss of $127 million in the first quarter last year. Please turn to slide 17.
The common equity tier one ratio ended the quarter at 15.5%, down 69 basis points sequentially.
We had strong internal capital generation discordor which added 42 basis points to CET1.
This was more than offset by an increase in RWA net of effects which decreased CET1 by 62 basis points.
We saw a 14 basis point increase in CET1 related to the issuance of common shares under our dividend reinvestment plan.
Relating to the first Horizon acquisition, a net loss from the mitigation of impact from interest rate volatility to closing capital decreased CET1 by 13 basis points and an FX hedge decreased CET1 by 6 basis points. Previously announced regulatory changes also impacted our CET1. But itmusic plays
this quarter.
We saw a 16 basis point decrease in CET1 related to the Canada recovery dividend, and an 8 basis point decrease related to the elimination of the transitional arrangement for expected credit losses.
Finally, the previously announced Stanford litigation settlement decreased C-T-1 by 23 basis points this quarter.
RWA including FX increased 2.8% quarter over quarter reflecting higher credit risk RWA.
For a RISRWA increase $16.8 billion or 4% mainly reflecting higher volumes.
As a quality, reflecting further credit normalization and parameter updates, and methodology changes in preparation for Basel III reforms.
Market risk RWA decreased $3.4 billion or 15% reflecting lower exposures and tightening credit spreads.
The leverage ratio was 4.8% this quarter, and the LCR ratio was 141% both well above published regulatory minimums.
I will now turn the car over to Ajay. Thank you, Kelvin, and good afternoon everyone.
I will now turn the call over to Ajay. Thank you, Kelvin, and good afternoon, everyone. Please turn to slide 18.
Gross impaired loan formations increased by two basis points to 16 basis points quarter over quarter.
driven by Canadian commercial banking primarily related to a new formation in the health and social services sector.
Canadian commercial banking primarily related to a new formation in the health and social services sector.
some further normalization of credit performance.
largely reflected in the Canadian and US consumer lending portfolios.
Please turn to slide 19. Gross impaired loans were stable quarter over quarter and remained at cyclically low levels.
Please turn to slide 20. Recall that our presentation reports PCL ratios both gross and net of the partner share of the US Strategic Guard PCLs.
We remind you that US card PCLs recorded in the corporate segment are fully absorbed by our partners and do not impact the bank's net income.
The bank's provisions for credit losses increased three basis points, quarter over quarter to 32 basis points.
The increase was largely recorded in the Canadian personal and commercial banking segment.
Please turn to slide 21. The bank's impaired PCL was $553 million.
an increase of 99 million quarter over quarter and primarily related to
some further normalization of credit performance
largely reflected in the consumer lending portfolios. The bank's current quarter-impaired PCL rate remained well below 2019 levels.
The forming PCL of 137 million this quarter was largely recorded in the Canadian personal and commercial banking and wholesale banking segments.
Please turn to slide 22. The allowance for credit losses increased by $113 million quarter over quarter reflecting volume growth.
to slide 22. The allowance for credit losses increased by 130 million quarter over quarter reflecting volume growth and
Credit conditions, including some deterioration in the economic outlook.
partially offset by the impact of foreign exchange. The banks allowance coverage remains elevated.
to account for ongoing uncertainty relating to the economic trajectory and credit performance.
In summary, the bank's credit performance was strong again this quarter.
However, as anticipated, key credit metrics continue to rise from cyclically low levels experience last year.
with this trend most evident in the consumer lending portfolios. Looking forward, while results may vary by quarter, I continue to expect total PCLs to be in the range of 35 to 45 basis points in 2023.
evident in the consumer lending portfolios. Looking forward, while results may vary by quarter, I continue to expect total PCLs to be in the range of 35 to 45 basis points in 2023. As...
Credit performance continues to normalize and we progress along the economic path. TD 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 and you're using a speakerphone, please get your hands set before making your selection.
If you have a question, please press star one on your device's keypad. To cancel that question, please press star two. Please press star one. At this time, if you have a question, there'll be a brief pause of our just spin register. Thank you for your patience.
And the first question is from many Gromin from Scotiabank. Please go ahead. Hi, good afternoon. A few questions on first horizon. Barrett, you addressed it in your opening comments in terms of renegotiating of the contract. And I'm just wondering, what extension data are you looking for for that new contract????? most most of gays are the same. Any left or left hand? When you are? And the one and the one and the other. Please go ahead and first. From the first?ch alert and time. Still you don't really may not appear in your phone.
Many, we've just started those conversations. I think it's premature for me to give you specific dates. You know, we are thinking through as to what might be appropriate and when the timing is right, you know, we will certainly let you know. And just as a follow-up to that, as a result of these negotiations, could the purchase price change?
something that is potential? Well, we've just initiated the negotiations and once the negotiations are finalized, we will be sure to give you further details.
Okay and then just a final one on the same topic just wondering about the nature of the delay given that the fact that you know
The commentary that we're hearing comes so soon after the contract was extended to the end of May. So I'm wondering...
Is the issue a procedural issue or is it something more more substantive? How would you sort of describe the delay as you see it?
Well, first let me, you know, as we discussed previously, you know, we are really excited about this transaction. We work very hard to date and continue to work very, very hard. And our planning for integration continues. We set up an integration management office.
was thrilled that we announced our community benefit plan very recently which was very important for the communities in which we operate. So really excited about what this transaction does for our US franchise.
As far as timing goes, unfortunately I can't tell you any more than what I've said in my remarks. Yes, we did extend the deal till May 27 since then. We believe that we will not be able to close this transaction by that date. And therefore, as you would expect us to start it too.
Talk about an extension with First Horizon. Okay, thank you very much, Perence. Thank you. The next question is from Doug Young, from Desjardins Capital Markets. Please go ahead.
Hi, good afternoon. Just a few set 1 related questions. I mean, TD had negative organic capital generation quarter about negative 20 basis points. So just a few items. I just want to get some clarity on and hoping you can dig into the asset quality drag of 21 basis points. Is that just normal migration or can you kind of elaborate?
Yeah, it's RJ, so let me take asset quality. You would have noticed the increase there is 6.8 billion and there are really two.
Yeah, it's RJ. So let me take asset quality. You would have noticed the increase there is 6.8 billion and there are really two drivers of that. One is...
normal cost non-retail parameter updates that were made. And we make these annually, so we actually put it through in Q1. And then the second driver is credit normalization. And as I said in my prepared remarks, that credit normalization is occurring largely in the consumer portfolios.
both Canada and the US. Hopefully that's true. Yeah, it is. Can you kind of split the two in terms of which one was more impactful?
Canada and the US. Hopefully that's okay. Can you split the two in terms of which one was more impactful? Yeah, I would say it's...
I would say about 40% is the parameter updates. The balance is credit migration.
Okay. Okay. And then second, I mean, the set one impact from the Basile 3 changes coming to Q2. It looks like it had parameter updates because of Basile 3 that came through in Q1. Can you talk about is there additional hit or benefit that you're going to have in Q2 from the upcoming Basile 3 changes?
Hi, it's Kelvin. I'll take that one correctly. So in Q2, we expect the impact of Basel III to be small either way. Okay. And then, and I know Barrett, you said this, and Kelvin, you said this, I mean, with First Horizon, set one comfortably above 11%.
I guess the question I've got is, would that be the case even if the deal closed right now?
And does that factor in any other actions? Like, does that factor in selling additional stakes in Schwab? Does that factor in with loan sales? Like, I'm just curious if you can give some context to what that means, because I think that's one area that I'm getting a lot of questions on.
Well, Doug, you know, let's look at, and I heard some of the noise around capital, let's look at what TD's record has been on this. It's been a focus the last couple of years.
In our internal capital generation, in our earnings less dividends, it's a simple way to do it. It's about 40 basis points per quarter.
The drip contributes about 13 basis points per quarter. And that allows us to support our customers' activity through RWA growth, which over the last five quarters about 15 to 20 basis points. The first quarter was unusual because I think Ajay provided some of the explanations to you.
The bank's capital flexibility is immense and that's why I was quite happy to say that at the closing of the first horizon it will be comfortably over 11. But as you can see, there's a pathway to a much higher capital level and that will depend on what the requirements are that will be announced from time to time.
feel very comfortable with where the bank's position is on capital. We have a lot of capital leavers as well. And so, you know, I think, you know, the noise around this, you know, I'm not sure that I really understand. Well, I guess maybe just ask it another way, like, is that comfortably above 11% organic?
That's my view, yes, I've said this, that we think we're going to be over 11%.
you know, comfortably over 11%. And then I gave you some of the calculations as to why it even goes higher over time. And so that, you know, we feel very comfortable with our capital position.
Okay, thank you. And I know, Doug, you didn't ask, but many asked me what negotiations would be. I'm not going to talk about any specific issues, those negotiations with First Horizon. We've just started a discussion. We have a fantastic relationship. It's a great franchise. And so, you know, we'll see where we get to.
Thank you. The next question is from Gabriel DeShain, National Bank Financial. Please go ahead.
Well, actually Doug asked pretty much all the questions I asked, but just put a fine point on that. There's no contemplating, you know,
doing what you did ahead of the calendar transaction and selling down any Schwab? You might be confused by the feedback on capital, I guess, but it has to do with where you ended up this quarter versus where people expected you to end up and then applying the pro forma impact of it.
did the head of the account transaction and selling down any shwab. You might be confused by the feedback on capital, I guess, but it has to do with where you ended up this quarter versus where people expected you to end up and then applying the pro-horma impact of... of...
Cowen and First Horizon and you get to a number closer to 11%. I just want to know what you have in the back of your mind or what we'd like to know to get more comfortable with that above 11% figure.
I'm not sure how you calculate your numbers, Gabe said at some point you know I just have to look at your numbers But you know the numbers I gave you there is a pathway here for TD to be an excess of 12 percent you know by next year
And this is even after closing, you know, first horizon and count. And so, you know, when you look at the first fiscal half of next year, we think we have, you know, a clear pathway to be over 12 percent. And you know, if the timing were to change, we could have the capital lever. So-
I don't know what else I can tell you to clarify it further. I mean, that's the way we are thinking about it and feel very comfortable. Okay. Well, how about this then? You know, some recent events in the Canadian banking space have led some banks to target a minimum capital level of 11.5%.
Are you suggesting that temporarily, you would be, let's say, to 11 or just slightly above that. You're fine being at that level and working your way to 12 organically.
Post post post transaction closing is that correct? Well, you know guys there are a lot of assumptions you are making that I'm giving you even after closing first horizon and cavern We would exceed 12% in the first fiscal half of next year Like the timing were to change we got other capital levers as you know and There's a clear by thought I'm being very clear
One,
Should we be concerned that maybe there is supervisory issue in the US that could have an impact on your organic business in the United States? Everything about TD Bank USA, your ability to grow or any of that? Like can you answer that question?
You know, you bring my concomment on our confidential discussions with our regulators, you know, that is an area that no bank, you know, ventures into. But with respect to first horizon, you know, we continue to work with our regulators as part of our application process. And we continue to do that. I can't comment any further.
I think the other questions you're asking me are you know hypothetical in nature and you know we are you know we continue to grow our bank you know Leo does a great job I don't know many stores if you open last quarter Leo six stores were new stores were open and you can you know I'm sure Leo would be happy to answer the loan growth we're having you know the tremendous momentum we have in the US
Right, no, I think again, my husband, I am sure you appreciate we are in uncharted waters here. The only proxy parallel comes to mind is MNT Hudson City which took three years between announcement and close. And I think that's what some investors are trying to handicap. Maybe I guess the second question for you as someone putting a 13 billion dollars to buy wellbeing trust in a country or a country, is definitely faster than two years ago.
Just talk to us, how do you get comfort around franchise attrition, right? Like you I hear about that from investors. It is an extremely competitive market. If I'm an employee at first horizon, getting call from 15 other banks. Like how do you retain that and make sure there's not meaningful attrition in the franchise? If let's say the deal timing gets pushed out by 12 months.
Again, I can't comment on timing, but we looked at when we announced the deal, the structure we had put in place to make sure that we got more than adequate pretension and feel happy about that.
First Horizon as a franchise continues to perform in line with expectations as shared during the acquisition announcement in February of 2022. We are very happy with the transaction and continue to work hard to get it over the closing or the finish line.
Thank you. The next question is from Scott Chan from Canacrogeon Udi. Please go ahead.
Good afternoon, and I'll stay away from first rise and then maybe ask about Cowan that just close. Reads on on Cowan, what are you kind of seeing on the ground there in terms of now and when you announce the transaction. I know it's been difficult, difficult capital markets, but is Cowan going to be operated separately still or do you still have?
Collaboration or something collaboration or integration plans between the two.
Thank you for that, Scott. Look, first, on the closing yesterday, I cannot...
say enough to demonstrate to you the amount of exuberance that both the TD Securities leadership and folks and town leadership and folks were feeling yesterday.
There was an amazing amount of energy in the room as we announced the closing. We have done a lot of preintegration work and coming into the closing there will be some short period of time, let's say a few weeks, during which we need to continue to operate separately.
in order to just finish all our regulatory and functional and business model organization structures as we bring the broker dealers together. And then we'll lead towards a full integration soon after that. So I'd say people are very excited to go. We've got an early...
Jeff Solomon and his team as well as the TD skirmishes leadership just very excited to get together and get on with going our business.
Have you passed out any cost or revenue strategies over the medium term? I assume it's most of the latter potential and I don't know if there's examples that you see right now on it.
Yeah, we're basically at the same place we were at the time when we announced the transaction. Scott, when we talked about having $300 to $350 million of revenue synergies, and we said that we would add about a hundred million US in net income by year.
And as you know, we did not announce any expense synergies at the time of the transaction. Thank you. The next question is from Paul Holden from CIBC.
Thank you. Good afternoon. I'll limit myself to one question on first rise. And I want to try something very specific. I understand you're not going to, you're not going to comment on more general type of question. So the OCC released its schedule of Community Reinvestment Act.
evaluations on February 28th. So that date is obviously interesting between when you provided the last update and the more current update. And that schedule shows that TD will be reviewed in September this year. Are the results of that evaluation something that's required for this merger approval? Is that one of the potential reasons for the delay?
Again, let's not talk about the delay in First Horizon because I think I've said enough on that. Regarding CRA, our current rating is outstanding.
And when you say that the exams will be done in September , I don't know, Leo, I think this is a long-ish exam period that goes on before you get any reports back. Yep. Paul, just to be clear, there's on an annual basis, the OCC will review an institution on a number of different risk ratings, including their CRA ratings. So that is the standard.
in the US, both retail and business. And I was wondering if you can give us any characterization on how you'd view current deposits between let's say, excess savings and core deposits. And I guess what I'm really trying to get at is, where do we think the deposits stabilize, maybe in terms of when and at what level? Any answer?
relief efforts being drawn down or consumed. I think what you're seeing now is just the natural rate sensitivity in terms of where rates are and you're more rate sensitive clients. So think in the consumer side, your mass affluent high-net worth clients and on the commercial side, you're more institutional clients.
looking for either more attractive higher price deposit solutions or in some cases off-balance sheet investment alternatives. So you're seeing that play out and I would expect as long as rates continue to be where they are and or continue to increase.
I think you'll see some degree of rate sensitivity. I will point you though to just the composition of the US that we are a very liquid institution, our access to positive position is quite strong. And in the composition, having a very strong core checking account base in our retail and commercial businesses.
should make us more resilient over the cycle. So from my standpoint, I think we've got a very strong franchise and we continue to acquire clients at a very healthy clip. Just to give you one final stat, this quarter, just on a year on year basis, core checking account volumes were up 13%. So we're continuing to see strong momentum there, and I would expect us to be able to continue to grow the franchise. We're continuing to see strong momentum there, and I would expect us to continue to grow the franchise. So from my standpoint, I think we've got a very strong franchise and we continue to acquire clients at a very healthy clip.
Okay that's helpful and then follow-up to that really on this will be. My last question is just in terms of that movement out of deposits and into wealth products, or as you call the halfoff balance sheet.
Is this an opportunity to grow that wealth franchise in the US? I think was one of your strategic priorities when you moved down there. Are you seeing increasing opportunity? Well, I'll start I'll certainly ask Ray to chime in but growing the wealth franchise in the US is absolutely one of the key Priorities and I would describe that on a number of different fronts. We've got the mass affluent opportunity
in the stores themselves, and Ray can talk a little bit more about the fact that we're growing our financial advisors in the stores. There's the continued growth of the high net worth franchise aligned with our retail business, and increasingly we're seeing some really nice success in terms of the collaboration that's taken place between our wealth and our commercial banking teams. In fact,
We did see some outflows in the commercial banking deposit front. What I didn't mention to you is that $1.3 billion of the last two quarters of that outflow ended up in our wealth franchise. So we're systematically trying to retain that client wallet inside the franchise and that will be a big area of focus force going forward. Ray, I don't know if there's anything like that.
And you know what I'd add Paul is, you know in Canada we have figured out a model that generates significant partnership between our branch banking and wealth management and we're taking that model into the United States and as Leo said targeting really the mass affluent clients and we have a significant customer base within the TDAMCB that are mass market clients.
We've seen a dramatic increase now in referrals from our stores to our wealth advisors. And we're continuing to scale our advisors in the U.S. and we've now at 300 advisors moving to 400 advisors by the end of this year. And what I would tell you is on a monthly basis, we're continuing to see momentum and we suspect we're...
We'll continue to drive growth in our U.S. wealth franchise as we move forward. All right. I got a message from me. Have a great afternoon. Thank you, Paul.
Thank you. The next question is from Soram, overheading from Bimo. Please go ahead.
Maybe just if you go to Michael Rhodes and talk a little bit about the deposit rent in Canada, which I expect to happen there first.
Sure, absolutely. I'll start, I'm going to just as Leo mentioned, clearly rate sensitivity in a higher rate environment is picking up. That being the case, our strategy has been and continues to be gathering core franchise accounts and I think the check-in account, as really the anchor of that. We've seen very, very strong account acquisition over the past quarter, actually available recently.
And this actually being driven by a record number of new to Canada check and accounts for Q1. And so we're seeing very strong flows coming in. And the result of that is we're actually seeing that our non-term share of deposits is actually or share across the industry is actually increasing in a very nice pace actually on a year of your basis. Think about 90 points or so of share gain for non-term deposits.
I think that we find some good evidence that this is being well managed.
Michael, do you expect that competitive dynamics to still allow you to...
Exercise the discipline or do you think that eventually you will have to give into it? So compared dynamic ebbs and flows as you can imagine week to week, month to month. And I say right now we've been pretty disciplined. We've been very disciplined in terms of pricing and it's formed well for us.
And I don't see any real changes that coming in the near term. Okay. Calvin just very quickly just given the dynamic potential closing timing of that first horizon, does your hedging...
whether it's capital or interest rates or the like, does that kind of dynamically roll forward? Is there gonna be any incremental cost associated with that? Or how should we be thinking about that?
Yeah, we will continue to dynamically roll that forward. Unless we talked about earlier on the, you know, the biggest hedge on the interest rate is something that we already have on the books and will continue to roll that forward and the cost is minimal.
And then we also have the FX hedge as well and we'll look at that for it too. To no material incremental or marginal risk or costs, sorry, associated with it. Just last, I mean, last quarter, I think, when you finish stocks the year.
you had kind of in your remarks you commented that it could even be that in 2023 the bank can deliver EPS within its medium-term growth targets. Do you still expect that to be the case? So I think last quarter when I said that we said you know
given the rate momentum and the anticipated closing of the analysis acquisitions. That certainly are tailwinds for us and as well as the volume growth that
that we've just delivered. There are headwinds, of course, you know, there are geopolitical tensions, it's a complex operating environment and potential economic slowdown.
So on balance I said at that time, you know, unless things change, you know, we should meet that and there was a chance we would exceed it. So we'll see, we're very happy with our first quarter.
You know, organically the being delivered 8% earnings growth, you know, so very pleased with that, you saw some of the numbers.
And I think folks have talked about some of the loan numbers we are seeing and our ability to attract non-interest rate sensitive deposits, which is a core strength of the bank, and continued momentum on the wealth and insurance side.
So very happy with how things started off in the year. Let's see how the next three quarters go.
And then we can sort of look back and say, all right, what out of the headwinds, you know, which ones came to pass and the tailwinds, you know, which one came to pass. And then we can certainly talk about it then, you know, if we have exceeded it even more as to why that happened, and if you haven't met it, then we will explain what caused that.
Thank you very much for taking my questions. Thank you. The next question is from Mike Rizbanovic from KVW. Please go ahead. Good afternoon. I wanted to ask Michael Rhodes, just what's your outlook on the Resil book in Canada?
What kind of growth do you think is in the cards for 2023? Yeah, so the great question, thanks for the question. And so, you know, clearly, you know that the number of sales and purchases of homes in Canada has gone down in recent data, supports that. But we look across 2023, you know, we'd expect that the rental growth being the low to mid-single digits range.
the Fed data for sales, it's still down, you know, plus 40% year-to-year. I'm wondering where would you see that gold coming from? What sort of like what's baked into that assessment when you say low to mid-single digits? It seems quite optimistic given the state of the market right now. So a couple of things that come into play there. You're right for the quarter.
We see our advisors are being quite productive and we're making some operational enhancements to our processes and so the data I look at gives me some optimism on a go-forward basis. Recognizing the market is soft and you know, if they're the market softens up a whole bunch more than I might change my tune, but just given what I see today, I think that's achievable. Okay, thanks a couple and then bear it. I just had a really quick follow up for you.
on your earlier comment about the 12% CP1 level. I think what you said was the midpoint of 2024, and I'm not gonna ask you about the FHN timing or anything like that, but when you say 12% by middle of next year, is that based on the assumption of TD's normal course, typical environment where you get that 15 to 20 basis points, quarter of a quarter sequential organic generation?
the 12% CP1 level. I think what you said was the midpoint of 2024 and not going to ask you about the FHN timing or anything like that But when you say 12% by middle of next year is that based on the assumption of TD's normal course the typical Environment where you get that 15 to 20 basis points quarter of a quarter sequential organic generation Yes, Mike
Okay, thanks for the call. Thank you. The next question is from Lamar Persaud from Coremark Securities. Please go ahead. Thanks. It seems like the bank isn't going to be able to answer most of my questions on first horizon right now, but maybe I'll try one of them. In the outside, the deal doesn't get regulatory approval or an agreement to extend isn't cheap.
Would it be fair to suggest the 435 million termination fee would not apply in this case? I think the deal terms are in the document that we've filed and Lamar best for you to check that as to what the technicalities are there in that, all the details around it.
And then maybe try to make an agency bank and can you talk to what's driving the recurred business deposit growth? It looks like it's a drop for two consecutive quarters. So it would be fair to suggest this is just the deployment of some excess COVID deposits. Yeah, it's Paul. Thanks, Lamar. If you look back to the early part of the...
pandemic, you would see the TD outgrew most of the banks for quite a while in the early part of the pandemic. Some of that is just the reversal of that now that we've ended. That has to do with the makeup of our book and pair to others.
Then in addition, as Leo spoke about, there is a seek for yield here going on. We're not losing any accounts. The core business is quite strong. Some of the excess deposits that our commercial bank customers hold are chasing yield, and our policy has always been to be very disciplined around margins.
And so we have lost some deposits. Thank you. Thank you. The next question is from Duho Kim from Credit Swiss. Please go ahead. Hi. Thanks. Thank you. Good afternoon. Just wanted to go back to your net interest margin. Comment.
You had mentioned that it may moderate in terms of improvements from here and when I look at the results, this quarter, you're up to basis points, sequentially at the all bank level. So I'm curious, is that sort of the improvement that we should think a lot as we go forward that maybe one to two basis points of the lowest thing with digital kind of improvements, just curious if you could quantify what you see for the remainder of the year. Thanks.
Hi, it's Kelvin. I'll take that. The two basis points quarter over quarter that you mentioned, it's the all-inclusive NIM, and so we typically look at non-trading NIM. And when you adjust for that, the quarter over quarter expansion is positive six basis points.
And so last quarter in Q4, the margin expansion was 12 basis point and then this quarter is 6 basis point and you expect that to moderate and we expect that the margin expansion continue to be positive for the remainder of 2023 but the trend is going to be similar that is going to be moderating.
What I would like to note though...
is that a lot of people focus only on short-term rates. And as you know, we had a significant increase in short-term rates over the last few quarters. Fords would indicate that there's still some to come, but less than before. But I would like to note that the long-term rate also matters. So if you look at page 27.
Canada, the relevant rate is five years, the US is seven years. These tractors do reprise over time and the on rate is higher than the off rate. And so what that means is that even if short term rates doesn't go up, everything else being equal.
The repricing of the tractors will continue to support margin expansion. Appreciate the call. Thank you. The next question is from Nigel LaSouza from Veritas Investment Research. Please go ahead. Good afternoon. Thank you for taking my questions. The first one I had for you was...
So let me respond to that. What I would say is you've got to look at these trends over a longer period. But if you look, if you actually look at the year over year numbers, you'll find impaired and performing up both in Canada and the US.
You're right in pointing out that this quarter, US performing actually came down. There are really two reasons for that. One is we had repayments of some high risk loans so the associated allowance got released. And the second reason is we made a methodology update relating to consumer loans.
where we found we were forward predicting the move from stage 1 to stage 2. So we put that correction in which led to a reversal.
So, if you exclude these two, you would have actually seen a small performing build in the US as well. So, hopefully that's helpful to you.
That's helpful. And then the last question I had this quickly was, on variable rate mortgages, any update on the portfolio how it's tracking? And just in question of the monthly mortgage payment, just trying to understand if the higher rates leads to an immediate pass through of an increase in the monthly mortgage payment and if we're fortunate for this capitalizing in pass through.
across the Resil book, our credit quality is strong. So if I look at delinquencies and I see the quarter or quarter change, it's nominal. It's basically one beep that to inhale off. Formations, Resil is flat, charge offs, I would say near zero. So if I look at quality in many different ways, the quality is strong. The books we are watching were there.
There's no requirement to repass, but we are very encouraged by what we're seeing where they're voluntarily coming forward and making principled payments. But I'll pass it to Michael for a few minutes. I think you touched a bit about the dynamic of how our variable mortgages work.
in that as rates go up, that the amount you amortize basically is going down until you could reach a point where you you do end up negative amming and there's actually your loan basically has some capital added to it each period and then either at a trigger point or at renewal things get reset.
And just to clarify, I assume that trigger point is 105% of some sort of loan balance amount. Is that how it works? It depends if it's a HELOC or for some mortgage or for mortgages. It's linked to your loan to value at I think is 80%. 80% uninsured and I think it's 105 or insured or is it the same for both? It's 105 for the other one. Got it. Thank you. Thank you.
Thank you. The next question is from Darko Vihuich from RBC Capital Markets. Please go ahead. Hi, thank you just a quick numbers question for Leo. I'm looking at the U.S. retail segment and the non-interesting come. I realize overdraft fees are significantly lower. But when I look at this quarter of number, is it fair to say Leo that this is about the bottom or is there still some more downside to this line item? Okay, thanks for the question.
So we have fully implemented all the overdraft measures that we identified last year. And so this quarter, you're right to say that we have, you're seeing the full impact of all those changes. And just to, you know, that includes the limit, the daily limit of overdraft charges that includes the change in the threshold, which a client begins to incur an overdraft, the 24-hour grace period, the NFC elimination fee, all those. You've got a full quarter worth of impact. So.
This is the bottom I would expect to your point as we continue to grow our core checking and cards base that we would see additions to our fee income line. Okay, great. That's very helpful. Thank you. Question for Barrett. You've given us a rough roadmap to 12% common equity tier one. There is of course a small possibility that the regulator increases the DSP this summer in June . With 50 basis point, let's say pretend increase, do you have the capability of overcoming a 50 basis point increase in the minimum ratio, or would you need to raise equity for that?
No, no, we have capability to meet that if that turns out to be the case. But these are hypothetical questions, but you ask me a straight question, I give you a straight answer.
Okay, thanks very much for that. Appreciate it. Thank you. The next question is from Ibrahim Punowala from Bank of America. Please go ahead.
Hey, thanks for taking my question again. Just two quick follow-ups, one Leo, or just taking the US non-interest income. Any sense of the impact if there are changes in strategic to credit card-led charge fees, what that would mean for T-Day?
Yes, thank you very much, everybody. Obviously, the CFPB has come out with some proposed rulings. It's still early. I expected it to be some evolution in terms of what that final proposal is going to look like. So I prefer not to speculate at this point in time in terms of the total impact, but I would say is...
Credit card late fees is a percent of our total US retail revenues is a relatively small percentage so in any event it would be manageable. That's helpful and just one quick one, Rhea, for you. We've seen a significant growth in the loan book in wholesale banking. Juan, do you expect that to be sustainable? What's the driver of that? Well, you may as you know, the over the course of the last four.
and we're earning very good returns on those new originations. So it's really about taking market share at a time when we're able to. And just on market share, it's a difficult period for bunch of investment banks right now. Is there a strategy to grow carbon beyond their existing verticals and selectively higher bankers and capabilities and we may be aggressive on that over the next?
12 months or so? I think we have to pace that appropriately with the integration work and bringing the two firms together. But look, I think there are opportunities. We're always open for them right now. We're in a good position to do that. But I think that for the next, let's say, quarter or two, the focus will be on getting the integration correct and finished.
Thank you. Thank you. There are no further questions registered at this time. I'd like to turn the call back over to Barrett Mazrani. Thanks so much. Thanks very much, operator, and thank you, everyone, for joining us this afternoon. Again, a great quarter from TD. Terrific 8% earnings growth, $4.2 billion in earnings.
So very happy with the start to the year and once again, we'll take this opportunity to thank our TD bankers around the world for once again Delivering for all of our all of our stakeholders and Paul Congratulations again 47 great years at the bank and it's a good thing. You're not going away far So we look forward to working with you and your other capacities at the bank and Barb Congratulations on your new position with the Canadian commercial bank
Thank you and we'll see you in 90 days. Thank you. The conference has now ended. Please disconnect your lines at this time and we thank you for your participation.
I have.
Good afternoon everyone. Welcome to the TD Bank Group Q1 20023 Earnings Conference Call. I would like to turn the meeting over to Ms. Brookhael's. Please go ahead, Ms. Hales. Thank you, operator. Good afternoon and welcome to TD Bank Group's first quarter 2023 investor presentation. Many of us are joining today's meeting from lands across North America.
North America is known as Turtle Island by many indigenous communities. I am currently situated in Toronto. As such, I would like to begin today's meeting by acknowledging that I am on the traditional territory of many nations, including the Mississaugas of the Credit, the Anish Naba, the Chippewa, the Haudenosaunee, and the Wendat peoples.
and is now home to many diverse first nations, Métis and Inuit peoples. We also acknowledge that Toronto is covered by Treaty 13 signed with the Mississaugas of the Credit and the Williams Treaty signed with multiple Mississaugas and Chippewa bands.
We will begin today's presentation with remarks from Barrett, Ms. Ronnie, the bank's CEO , after which Kelvin Tran, the bank's CFO will present our first quarter operating results. Ajay Pumbawali, Chief Risk Officer, will then offer comments on credit quality, after which we will invite questions from pre-qualified analysts and investors on the phone.
Also present today to answer your questions are Michael Rose, Group Head Canadian Personal Banking, Hall Douglas, Group Head Canadian Business Banking, Raymond Chan, Group Head Wealth Management and Insurance, Leo Salam, President and CEO TD Bank America's most convenient bank, and Riaz Ahmed, Group Head Hoselle Banking. Please turn to slide two. At this time, I would like to caution our listeners that this presentation contains forward-looking statements.
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. Bear 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 Q1 2023 report to shareholders. With that, let me turn the presentation over to Barrett. Thank you, Brooke, and thank you everyone for joining us today.
To start, I want to express that our thoughts are with all those impacted by the devastating earthquake in Turkey and Syria, including our colleagues, customers and communities, we have deep ties to these two countries.
TDS contributed directly to the relief efforts and enabled customers to do so as well through branches and online. Together, our collective efforts can make a difference and provide some comfort during these terrible hardships. It's been a busy week and before I review our strong quarter and start to the fiscal year, I would like to thank our partners for their support and for their support. We are very proud to be here today and thank you for your support. Thank you for your support. We are very proud of you. We are very proud of you. We are very proud of you. We are very proud of you. We are very proud of you.
I'd like to provide a few strategic updates. As you know, on February 9th, we mutually agreed with First Horizon to extend the close date to May 27 as provision in our contract. Since then, we've come to believe that the deal is not expected to receive regulatory approval in time to close the transaction by that date. Regulatory approval is not within the bank's control.
So, we are doing what is prudent and appropriate. We have opened discussions with First Horizon about a potential additional extension. I cannot speculate on when we will receive approval. I can tell you that we are fully committed to the transaction.
We have a robust community benefits plan in place with broad community support across our combined footprint and our teams have made progress on integration plans. This is a great transaction that offers scale and new capabilities to our US franchise. We made another unrelated announcement earlier in the week regarding the Stanford matter.
are a powerful combination, accelerating our U.S. growth strategy and helping to create an integrated North American dealer with global reach. The acquisition of COUNN adds key capabilities to our growing global markets platform. In U.S. equity sales and trading and in U.S. equity research.
It also adds scale and industry expertise across US capital markets and M&A advisory. Congratulations to everyone on this important milestone and a very warm welcome to our over 1500 new colleagues. I know I speak for ReADS and all of TD securities.
when I say we are very excited for what we will accomplish together. Let me now turn to our first quarter performance. TD delivered a strong Q1. Earnings increased 8% to $4.2 billion in EPS rose 7% to $2.23.
Revenue grew 16% year over year, reflecting margin expansion, strong volume growth, and our diversified business mix.
We took advantage of this environment to continue to invest in our business to drive future growth while delivering robust operating leverage. As expected, we saw some credit normalization this quarter, but credit performance remained strong overall, supported by consistent and disciplined underwriting practices. It is CETI 1 ratio ended the quarter at 15.
0.5% or 15% pro forma for the closing of the Kawan acquisition. With TD strong internal capital generation capabilities and the various capital levers available to the bank, we continue to expect TD C-1 ratio to become comfortably above 11% post closing of the first horizon transaction.
These strong results are matched by a brand that is second to none. TD was recently named one of the 2023 Global Top 500 Most Valuable Brands by Brand Finance earning the highest ranking in Canada.
Across our distribution channels, the bank delivers personalized connected legendary experiences. For the ninth consecutive year, the TD Mobile App had the highest number of monthly active mobile users among Canadian banks, according to mobile analytics firm, data.ai.
Let me now turn to each of our businesses and reviews some highlights from Q1. A Canadian personal and commercial banking segment delivered record earnings of 1.7 billion dollars, reflecting revenue growth of 17% and significant positive operating leverage.
The personal bank continued to demonstrate momentum with sales of our everyday banking products up over 20% year over year in industry leading market share gains in non-term deposits again this quarter, driven by strength in branch banking. We saw a record Q1 acquisition in the new to Canada customer segment.
and announce an exclusive strategic relationship with Canada VISA, one of the leading online sources of Canadian immigration information with over 2 million monthly visits.
Through this relationship, TD will help support newcomers as the Navigate Financial Services while settling into their lives in Canada.
We also had record Q1 credit card spend and organic loan growth driven by rebound in travel and our compelling TD AeroPlan offering, coupled with our best-ever quarter for digital acquisition for TD cards. In our real estate secured lending business, our teams delivered robust retention rates and enhancements in mobile mortgage special.
owners in their entrepreneurial journeys enabling them to access capital and scale their businesses.
Turning to the US, a US retail bank delivered record earnings of US $1 billion, reflecting revenue growth of 27% and significant positive operating leverage.
With the contribution from our investment in Schwab of 222 million US dollars segment earnings were 1.2 billion US dollars.
This quarter, enabled by our investments in event streaming technology, TD launched deposit balance threshold alerts, the first of several self-service alerts that will further enhance customer convenience and experience.
We delivered strong loan growth year over year. Led by 18% growth in mortgages and 9% growth in cards, personal loans were up 11%. And TD demonstrated continued momentum in the middle market and CNI's ways with business loans up 9% excluding PPP loan forgiveness.
Finally, this quarter, we were proud to announce a 20-year extension of our agreement with Delaware North, keeping Boston's beloved landmark arena named as TD Garden through 2045. A wealth management and insurance segment earned $550 million this quarter.
Revenue is up 4% as higher insurance volumes and the benefit of higher interest rates help offset a challenging market environment. In TD Direct Investing, we took the number one spot in the Globe and Mail's annual ranking of digital brokers and increased market share of new account acquisition quarter over quarter.
TD asset management regained its position as the number one money manager for Canadian pension assets and widened its lead versus competitors as the number one Canadian institutional asset manager. Thanks very much.
highlighting the breadth of our capabilities, several DDS management ETFs and mutual funds across equities fixed income and balance funds will recognize this quarter with funds grade A plus awards.
On the insurance side, our expansion into small business insurance will launch in the coming months. As the number one direct-to-consumer insurer in Canada, this is a natural extension for us to leverage our expertise to deliver exceptional insurance experiences for small business owners. In our wholesale banking business, we deliver net income of $347 million.
REIT on their acquisition of Summit Industrial Income REIT.
A wholesale banking team also acted as joint book runner on the Government of Canada's $500 million Ukraine sovereignty bond to assist the Government of Ukraine in providing essential service to Ukrainians and restoring energy infrastructure.
And, as I mentioned earlier, COUNN is now part of TD securities. With robust integration plans in place, work is already underway to tap the combined strengths of the business and extend our competitive advantage in the market. Guided by our purpose, TD is committed to creating value for...
in the world index. The bank was also recently recognized with the top 10 percent S&P Global ESG score, again standing out from its peers as the only North American bank to be listed in the top 10 percent. And TD Bank, America's most convenient bank, was recognized as one of America's best employers for veterans by Forbes for the third consecutive year.
This recognition is a reflection of our commitment to the communities we serve. Earlier this week, as part of the TD Ready Challenge, we were pleased to announce a total of $10 million in grants to 10 nonprofit and charitable organizations that are working on solutions to help those who may be disproportionately affected by climate change and the transition to a low-carbon economy. Later this month, we will be announcing a total of $10 million in grants to 10 nonprofit
TD will release its 2022 ESG reporting suite, including our climate action plan. We're excited to share the outcomes of a year of effort and accomplishments by thousands of dedicated TD colleagues who transformed our aspirations into action. Our TD bankers continue to deliver for all of our stakeholders, and it is a privilege to work alongside them every day. I would like to thank them for all they do to make TD the better big.
I will end by noting that this is Paul Douglas' last earnings call as Group Head Canadian Business Banking. Barbara Hooper will assume leadership of this segment. Paul's almost 47-year TD career is filled with remarkable achievements and success. ENSTM have built one of Canada's premier business banks known across the market for the dedication to their customers. Paul has also built the best team of business makers in the country and leaves behind a tremendous bench of talent that will continue to drive growth.
I have known Bob throughout my entire time at TD and want to thank him for his partnership, support and significant contributions to the big success over many decades.
Paul will assume a newly created position as chair, Canadian business banking, when we will also serve as a special advisor to me. Congratulations to Paul, and I look forward to continuing to benefit from his wise counsel as we build for the future. With that, I'll turn things over to Kelvin.
Thank you, Barrett. Good afternoon, everyone. Please turn to slide 11. For Q1, the bank reported earnings of $1.6 billion and EPS of 82 cents, down 58% and 59% respectively.
Reported earnings include the Stanford litigation settlement, and net loss from mitigation of impact from interest rate while utility to closing capital on the first horizon acquisition.
and the recognition of a provision for income taxes in connection with the Canada recovery dividend and increase in the Canadian federal tax rate for fiscal 2022.
Adjusted earnings were $4.2 billion, and adjusted EPS was $2.23, up 8% and 7% respectively. Reported revenue increased 8%, and includes a net loss from mitigation of impact from interest rate volatility to closing capital.
on the first horizon acquisition. Adjusted revenue increased 16 percent, reflecting margin and volume growth in the personal and commercial banking businesses and the impact of FX translation.
Provision for credit losses was $690 million compared with 72 million in the first quarter last year.
Reported expenses increased 39%, primarily reflecting the Stanford litigation settlement and higher acquisition and integration related charges.
Adjustment expenses increase 11% during by higher employee related expenses, the impact of FX translation, and higher spend supporting business growth.
On our Q4 car, I noted that we expected adjusted expense growth, excluding effects, to moderate in fiscal 2023 on a quarter over quarter basis.
We saw that this quarter with adjusted expense growth moderating sequentially as we continue to prioritize our investments. Our goal of delivering positive operating leverage over the medium term remains unchanged. Absent the retailer, partners, next share of the profits from the U.S. Strategic Car portfolio.
adjusted expenses increased 10.4% XFX. Reported total bank PTPP was down 26% year-over-year primarily reflecting the Stanford litigation settlement.
Consistent with prior quarters, slide 26 shows how we calculate adjusted total bank PDPP and operating leverage, removing the impact of the U.S. strategic card portfolio along with the impact of foreign currency translation.
quarters slide 26 shows how we calculate adjusted total bank PDPP and operating leverage removing the impact of the US strategic portfolio along with the impact of foreign currency translation and the insurance fair value charge.
Adjusted total bank PDPP was up 14% after these modifications. Please turn to slide 12. Canadian personal and commercial banking net income for the quarter was $1.7 billion up 7% year over year.
Revenue increased 17% reflecting higher margins and volume growth. Average loan volumes rose 8% reflecting 6% growth in personal volumes and 14% growth in business volumes.
Average deposits rose 3% reflecting 8% growth in personal deposits and a 5% decrease in business deposits. Net interest margin was 2.82%. Up to 10 basis point compared to the part of quarter. Primarily due to higher deposit margins reflecting rising interest rates.
and margins may bounce around quarter to quarter. We currently expect net interest margin expansion to moderate for the remainder of fiscal 2023.
Total PCL of $327 million increased $98 million sequentially. Total PCL as an annualized percentage of credit volume was 0.25% of 8 basis points sequentially.
Non-interest expenses increased 10% year over year, reflecting higher spend supporting business growth, including technology and employee related expenses.
expenses increase 10% year-over-year, reflecting highest-span supporting business growth, including technology and employee-related expenses. Please turn to slide 13th.
US retail assignment reported an income for the quarter was $1.2 billion US up 17% year over year. Adjusted net income was $1.2 billion US up 23% year over year. US retail bank reported an income was $955 million US.
Up 18%, primarily reflecting higher revenue, partially offset by higher non-interest expenses, including acquisition and integration-related charges for the first horizon acquisition, and higher PCL. US retail bank adjusted net income was $1 billion up 26%, $1 billion US. Revenue increased 27% year over year.
reflecting high deposit margins and loan volumes, partially offset by lower loan margins and deposit volumes, lower overdraft fees, and lower income from PPP loan forgiveness. Average loan volumes increased 9% year over year. Personal loans increased 11%, reflecting strong originations, lower prepayments, and higher credit card sales volumes. Business loans increased 6% reflecting...
strong originations, new customer growth, higher commercial line utilization, and increased customer activity, partially offset by PPP loan forgiveness, excluding PPP loans, business loans increased 9%. Average deposit volumes, excluding suite deposits, were down 2% year over year. Personal deposits were flat, business deposits declined 4% and suite deposits decreased 15%.
Net interest margin was 3.29%, up 16 basis points sequentially, as higher deposit margins reflecting the rising interest rate environment were partially offset by lower loan margins and negative balance sheet mix. While many factors can impact margins including the path of short-term rates, tractors on and off rates, customer activity and competitive market dynamics, margins may bounce around quarter to quarter.
We currently expect net interest margin expansion to moderate for the remainder of fiscal 2023. Total PCL was 149 million dollars US, a decrease of 20 million US sequentially. The US retail net PCL ratio, including only the bank's share of PCL for the US strategic cards portfolio, as an annualized percentage of credit volume was...
0.34%, lower by six basis points sequentially. Reported expenses increased 22% and include acquisition and integration-related charges for their first horizon acquisition. Adjusted expenses were up 16%, reflecting high employee-related expenses, credit card growth-related expenses and other business investments. The contribution from TD's investment in Schwab was $222 million US, up 11% from a year ago, reflecting higher net interest income.
partially offset by higher expenses, lower asset management fees, and lower trading revenue. Please turn to slide 14. Wealth management and insurance net income for the quarter was $550 million, down 14% year-over-year. Revenue increased 4%, reflecting higher margins.
and increase in fair value of investment supporting claims by abilities and higher insurance volumes, partially offset by lower volumes and lower transaction and fee-based revenue in wealth.
Insurance claims increase 29% over year, reflecting the impact of changes in the discount rate, which resulted in a similar increase in the fair value of investments, supporting claims by abilities, reported in non-interest income, increased driving activity and inflationary costs partially offset by fewer severe weather-related events. Non-interest expenses were flat year over year.
Reflecting higher spend, supporting business growth, including higher employee related expenses and technology costs, partially offset by law variable compensation. Asset under management decreased 3% year over year, reflecting market depreciation. Asset under administration decreased 3% year over year, reflecting market depreciation, partially offset by net asset growth. Please turn to slide 15. Also banking reported net income for the quarter was $331 million.
32 million dollars, an increase of 6 million from the prior quarter.
Reported expenses increased 16% and include acquisition and integration related charges, primarily for the Cowan acquisition. Adjustment expenses increased 13% reflecting continued investments in wholesale banking, US dollar strategy, including the hiring of banking, sales and trading, and technology professionals.
higher severance and the impact of foreign exchange translation. Please turn to slide 16. The corporate segment reported net loss of $2.6 billion in the quarter compared with the reported net loss of $227 million in the first quarter last year. The year-over-year increase primarily reflects the Stanford litigation settlement.
A net loss from mitigation of impact from interest rate volatility to closing capital on the first rising acquisition, the recognition of a provision for income taxes in connection with the Canada recovery dividend, an increase in the Canadian Federal Tax Rate for Fiscal 2022, and higher net corporate expense. Adjusted net loss for the quarter was $140 million.
I'm paired with an adjusted net loss of $127 million in the first quarter last year. Please turn to slide 17. The Common Equity T01 ratio ended the quarter at 15.5% down 69 basis points sequentially. We had strong internal capital generation discordor, which added 42 basis points to CET1.
This was more than offset by an increase in RWA net of effects, which decreased CET1 by 62 basis points. We saw a 14 basis point increase in CET1 related to the issuance of common shares under our dividend reinvestment plan. biggest increasing user reflected by us because we could see us
A net loss from the mitigation of impact from interest rate volatility to closing capital decreased CET1 by 13 basis point and an FX hedge decreased CET1 by 6 basis point. Previously announced regulatory changes also impacted our CET1 this quarter. We saw a 16 basis point decrease in CET1 related to the Canada recovery dividend.
and an 8 basis point decreased related to the elimination of the transitional arrangement for expected credit losses. Finally, the previously announced Stanford litigation settlement decreased C-T-1 by 23 basis points this quarter. RWA, including AFACS, increased 2.8% quarter-to-requiter reflecting higher credit risk RWA.
For a RISRWA increase 16.8 billion dollars or 4% mainly reflecting higher volumes, asset quality reflecting further credit normalization and parameter updates, and methodology changes in preparation for Basel III reforms. Market risk RWA decreased $3.4 billion.
to Ajay. Thank you Kelvin and good afternoon everyone.
Please turn to slide 18. Gross impaired loan formations increased by two basis points to 16 basis points, quote, over, quote, driven by Canadian commercial banking, primarily related to a new formation in the health and social services sector. And some further normalization of credit performance, and some further normalization of credit performance, quote, over, quote, driven by Canadian commercial banking,
largely reflected in the Canadian and US consumer lending portfolios. Please turn to slide 19. Gross impaired loans were stable quarter over quarter and remained at cyclically low levels. Please turn to slide 20. Recall that our presentation reports PCL ratios both gross.
It's just points.
quarter over quarter to 32 basis points. The increase was largely recorded in the Canadian personal and commercial banking segment.
over quarter to 32 basis points. The increase was largely recorded in the Canadian personal and commercial banking segment. Please turn to slide 21.
The bank's impaired PCL was $553 million, an increase of $99 million quarter over quarter, and primarily related to some further normalization of credit performance, largely reflected in the consumer lending portfolios.
The bank's current quarter-impaired PCL rate remained well below 2019 levels. Performing PCL of 137 million this quarter was largely recorded in the Canadian personal and commercial banking and wholesale banking segments.
The bank's current quarter impaired PCL rate remained well below 2019 levels. Performing PCL of $137 million this quarter was largely recorded in the Canadian personal and commercial banking and wholesale banking segments. Please turn to slide 22.
The allowance for credit losses increased by 130 million quarter over quarter, reflecting volume growth, and credit conditions, including some deterioration in the economic outlook.
partially offset by the impact of foreign exchange. The Bank's allowance coverage remains elevated to account for ongoing uncertainty relating to the economic trajectory and credit performance. In summary,
The bank's credit performance was strong again this quarter. However, as anticipated, key credit metrics continued to rise from cyclically low levels experienced last year with the trend most evident in the consumer lending portfolios. Looking forward, while results may vary by quarter, I continue to expect total PCLs to be in the range.
of 35 to 45 basis points in 2023, as credit performance continues to normalize, and we progress along the economic path.
TD 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.
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 and you're using a speaker phone, please hit your handset before making your selection. If you have a question, please press star one on your device's keypad. To cancel that question, please press star two. Please press star one. At this time, if you have a question, there will be a brief pause of our just spin register. Thank you for your patience. And the first question is from many Gralman from Scorscher Bank. Please go ahead. Hi, good afternoon.
A few questions on first horizon. Barrett, you addressed it in your opening comments in terms of renegotiating of the contract. And I'm just wondering, what extension date are you looking for for that new contract? Many, we've just started those conversations. I think it's premature for me to give you a specific date.
Well, we've just initiated the negotiations and once the negotiations are finalized, we will be sure to give you further details. Okay, and then just a final one on the same topic, just wondering about the nature of the delay.
given that the fact that, you know, the commentary that we're hearing comes so soon after the contract was extended to the end of May. So I'm wondering, is the issue a procedural issue or is it something more substantive? How would you sort of describe the delay as you see it? Well, first let me, you know, as we've discussed previously, you know, we are really excited about this.
which we operate. So, you know, really excited about, you know, what this transaction does for our US franchise.
As far as timing goes, unfortunately I can't tell you any more than what I've said in my remarks. Yes, we did extend the deal until May 27th. Since then, we believe that we will not be able to close this transaction by that date. As you would expect, we started to talk about an extension with First Horizon.
Okay, thank you very much, Perence. Thank you. The next question is from Doug Young from Desjardins Capital Markets. Please go ahead. Good afternoon. Just a few set one related questions. I mean, TD had negative organic capital generation is quarter of a negative 20 basis point. So just a few items. I just want to get some clarity on. And hoping you can dig into the asset quality drag of 21 basis points. Is that just normal migration or?
And as I said in my prepared remarks, that credit normalization is occurring largely in the consumer portfolios both Canada and the US. Yeah, there's a can you kind of split the two in terms of what which one was more impactful? Yeah, I would say, well, it's, I would say about 40% is the parameter updates.
the balance is credit migration. Okay. Okay, and then second, I mean the set one impact from the Basel 3 changes coming in Q2. Looks like you had parameter updates because of Basel 3 that came through in Q1. Can you talk about is there additional hit or benefit that you're going to have in Q2 from the upcoming Basel 3 changes? Hi, it's Kelvin. I'll take that one.
Correct. So in Q2, we expect the impact of Basel III to be small either way. Okay. And then, and I know, Barrett, you said this, and Kelvin, you said this, I mean, with First Horizon, set one comfortably above 11%.
I guess the question I've got is, would that be the case even if the deal closed right now? And does that factor in any other actions? Like does that factor in selling additional stakes in Schwab? Does that factor in with loan sales? Like I'm just curious if you can give some context to what that means because I think that's one area that I'm getting a lot of questions on. Well, Doug, you know, let's look at, I heard some of the noise around capital.
activity through RWA growth, which was the last five quarters about 15 to 20 basis points. You know, the first quarter was unusual because I think Ajay provided some of the explanations to you. So, you know, the bank's, you know, capital flexibility is immense and that's why I was quite happy to say that, you know.
At the closing of the first horizon will be comfortably over 11. But as you can see, there's a pathway to a much higher capital level, and that will depend on what the requirements are that will be announced from time to time. So, feel very comfortable with where the bank's position is on capital. We have a lot of capital levers as well. And so, I think the noise around this, I'm not sure that I really understand. Well, I guess maybe just ask it another way. Like, is that comfortably above 11% organic?
That's my view. Yes, I've said this that we think we're going to be over 11%, comfortably over 11%. And then I gave you some of the calculations as to why it even goes higher over time. We feel very comfortable with our capital position.
Thank you. And I know Doug Eurin does, but many asked me what negotiations would be. I'm not going to talk about any specific issues or negotiations with first horizon. We've just started a discussion. We have a fantastic relationship. It's a great franchise.
And so, you know, we'll see where we get to. Thank you. The next question is from Gabriel DeShane, National Bank Financial. Please go ahead. Well, actually, Doug asked pretty much all the questions I asked, but just to put a fine point on that, there's no contemplating, you know, doing what you did ahead of the account transaction and selling down any schwaab.
You might be confused by the feedback on capital, but it has to do with where you ended up this quarter versus where people expected you to end up and then applying the pro forma impact of Cowen and First Horizon and you get to a number closer to 11%. I just want to know what you have in the back of your mind or we'd like to know just to kind of get more comfortable with that comfortably above 11% figure.
And if the timing were to change, we could have the capital lever. So I don't know what else I can tell you to clarify it further. I mean that's the way we are thinking about it and feel very comfortable.
Okay, well how about this then? Some recent events in the Canadian banking space have led some banks to target a minimum capital level of 11.5%.
Are you suggesting that, you know, temporarily anyway, you would be, let's say, 11 or just slightly above that, you're fine being at that level and working your way to 12 organically?
Post post post transaction closing is that is that correct? Well, you know guys there are a lot of assumptions you are making that I'm giving you even after closing first horizon and cavern You know we would exceed 12% in the first fiscal half of next year like the timing were to change we got other capital levers as you know And so you know so if there's a clear by thought I'm being very clear gate
Okay, I appreciate that. Thanks. Thank you. The next question is from Ibrahim Punowala from Bank of America. Please go ahead. Good morning. Good afternoon. I guess I'm hard just wanted to follow up on the deal. Two questions. One.
Should we be concerned that maybe there is supervisory issue in the US that could have an impact on your organic business in the United States? Everything about TD Bank USA, your ability to grow or any of that? Like can you answer that question?
You know, I can't comment on our confidential discussions with our regulators, you know, that is an area that is no being, you know, ventures into. But with respect to first horizon, you know, we continue to work with our regulators as part of our application process. And we continue to do that. I can't comment any further.
Any other questions you're asking me are you know hypothetical in nature and you know we are you know we continue to grow our bank you know Leo does a great job I don't know many stores if you open last quarter Leo Six stores were new stores were open and you can you know I'm sure Leo would be happy to answer the loan growth we're having you know the tremendous momentum we have in the US Right no I think again my husband I am sure you'll appreciate we're in uncharted waters here
the only proxy parallel comes to mind is MNT Hudson City which took three years between announcement and close. And I think that's what some investors are trying to handicap. Maybe I guess the second question for you as someone putting a 13 billion dollars to buy first horizon. Just talk to us how do you get comfort around franchise attrition right like you I heard about that from investors. It is an extremely competitive market if I'm an employee at first horizon getting call from 15 other banks.
Like, how do you retain that and make sure there's not meaningful attrition in the franchise if let's say the deal timing gets pushed out by 12 months? Again, I can't comment on timing, but we looked at when we announced the deal, the structure we had put in place to make sure that we've got more than adequate retention and feel happy about that. But to horizon, as a franchise, you know, continues to perform in line with expectations, as shared during the acquisition announcement in February of 22. We are very happy with the transaction and continue to work hard to get it over the closing or the finish line.
Thank you. The next question is from Scott Chan from Canaccord-Yenoudi. Please go ahead. Hi, good afternoon. I'll stay away from first horizon and maybe ask about Cowen that just closed. Riaz, on Cowen, what are you kind of seeing on the ground there in terms of now and when you announce the transaction? I know it's been difficult to announce the transaction. I mean, I can't hear you. It's been a while. I'm not sure how it's going to go, but I'm just wondering if you have any idea how you might be able to get through this process? I'm not sure. I'm not sure. I'm not sure. I don't know. I'm not sure. I'm not sure. I'm not sure. I'm not sure. I don't know. I'm not sure. I'm not sure. I don't know. I don't know.
difficult capital markets, but is Cowen going to be operated separately still or do you still have collaboration or some collaboration or integration plans between the two? Thank you for that Scott. Look first on the closing yesterday, I cannot say enough to demonstrate to you the amount of exuberance that both TD Securities leadership and folks and Cowen leadership and folks were feeling yesterday and there was a just an amazing amount of energy.
dealers together and then we'll lead towards a full integration soon after that. So I'd say people are very excited to go. We've got an early operating model in place, go to market strategy in place and there's just a tremendous amount of excitement. I'd say even more yesterday than we had at the data of the announcement.
or red means, these are going to need in term of my life. I assume it's most of a ladder potential. And I don't know if there's examples that you see right now on it.
Yeah, we're basically at the same place we were at the time when we announced the transaction, Scott, when we talked about having $300 to $350 million of revenue synergies. And we said that we would add about $100 million US in net income by year. And as you know, we did not announce any expense synergies at the time of the transaction. Okay, thank you very much.
Thank you. The next question is from Paul Holden from CIBC. Please go ahead. Thank you. Good afternoon. I'll limit myself to one question on first rise. And I want to try something very specific. I understand you're not going to, you're not going to comment on more general type questions. So the OCC released its schedule of Community Reinvestment Act.
evaluations on February 28th. So that dates obviously interesting between when you provided the last update and the more current update. And that schedule shows that TD will be reviewed in September this year. Are the results of that evaluation something that's required for this larger approval? Is that one of the potential reasons for the delay?
Yeah, and let's not talk about delay in first horizon, because I think I've said enough on that. Regarding the CRA, our current rating is outstanding. That's correct. And when you say that the exams will be done in September , I don't know, Leo, I think this is a long issue, you know, exam period that goes on before you get any reports back. Yep, Paul, just to be clear, there's an annual basis, the OCC will review an institution on a number of different risk ratings, including their CRA ratings. So that is the standard opera.
court deposits and I guess what I'm really trying to get at is where do we think the deposits stabilize maybe in terms of a little when and at what level any insight you could find there would be I think helpful. I'll take that one thanks for the question. I think what we're seeing as a result of the increase in rates is just building rate sensitivity. I think earlier over the past two quarters we were seeing a little bit of the excess savings from the pandemic relief efforts.
being drawn down or consumed. I think what you're seeing now is just the natural rate sensitivity in terms of where rates are and you're more rate sensitive clients. So think in the consumer side, your mass affluent, high net worth clients and on the commercial side, you're more institutional clients looking for either
more attractive higher price deposit solutions, or in some cases off balance sheet investment alternatives. And so you're seeing that play out. And I would expect as long as rates continue to be where they are and or continue to increase, I think you'll see some degree of rate sensitivity. I will point you though to just the composition of the US, that we are a very liquid institution, our excess deposit position is quite strong. And then the composition, having a very strong core checking account base in our retail and commercial businesses.
should make us more resilient over the cycle. So from my standpoint, I think we've got a very strong franchise and we continue to acquire clients at a very healthy clip. Just to give you one final stat this quarter, just on a year on year basis, core checking account volumes were up 13%. So we're continuing to see strong momentum there, and I would expect us to be able to continue to grow the franchise. We're continuing to see strong momentum there, and I would expect us to continue to grow the franchise. So from my standpoint, I think we've got a very strong franchise and we continue to acquire clients at a very healthy clip.
Okay, that's helpful. And then follow up to that, Leo and this will be my last question. It's just in terms of that movement out of deposits and into wealth products, or as you call it, the off balance sheet. Is this an opportunity to grow that wealth franchise in the US? I think it's one of your strategic priorities when you moved down there. Are you seeing increasing opportunity?
Paul, I'll start. I'll certainly ask Ray to chime in, but growing the wealth franchise in the U.S. is absolutely one of the key priorities. And I would describe that on a number of different fronts. We've got the mass affluent opportunity in the stores themselves. And Ray can talk a little bit more about the fact that we're growing our financial advisors in the stores. There's the continued growth of the high net worth franchise aligned with our retail business. And increasingly we're seeing some really nice success in terms of the collaboration that's taken place between our wealth and our commercial banking teams.
We did see some outflows in the commercial banking deposit front. What I didn't mention to you is that $1.3 billion over the last two quarters of that outflow ended up in our wealth franchise. So we're systematically trying to retain that client wallet inside the franchise. And that'll be a big area of focus for us going forward. Ray, I don't know if there's anything you'd like to add. The only thing I'd add, Paul, is in Canada we have figured out a model that generates significant partnership between our branch banking and wealth management. And we're taking that model into the United States and, as Leo said, targeting really the mass affluent clients. And we have a significant customer base within.
the TDAMCB that our mass market clients. We've seen a dramatic increase now in referrals from our stores to wealth advisors. And we're continuing to scale our advisors in the U.S. and we've now at 300 advisors moving to 400 advisors by the end of this year. And what I would tell you is on a monthly basis, we're continuing to see momentum and we suspect we'll continue to drive growth in our U.S. wealth franchise as we move forward. All right, I got my tits for me. Have a great afternoon. Thank you. Thank you Paul.
Thank you. The next question is from Soram Owehade from BMO. Please go ahead. Maybe just if you can go to Mike, Michael Rhodes, and talk a little bit about the deposit trends in Canada and what you expect to happen there first, please. Sure, absolutely. I'll start. Just as Leo mentioned, clearly rate sensitivity in a higher rate environment is picking up. That being the case, our strategy has been and continues to be gathering core franchise accounts.
I think the check-in account is really the anchor of that. We've seen very, very strong account acquisition over the past quarter, actually, you know, recently. And this is actually being driven by a record number of new-to-Canada check-in accounts for Q1. And so we're seeing very strong flows coming in. And the result of that is we're actually seeing that our non-term share of deposits is actually our share across the industry is actually increasing at a very nice pace, actually, on a year-over-year basis. Think about 90 points or so of share gain for non-term deposits. And so we're seeing that. Now, the overall industry that you're seeing some mix shifts. I mean, if you were to look at industry data, I think what you would actually see is that our mix shift has been much more moderate.
And I don't see any road changes that coming in the near term. Okay. Calvin, just very quickly, just given the dynamic potential closing timing of the first horizon, does your hedging, whether it's capital or interest rates or the like, does that kind of dynamically
is something that we already have on the books and will continue to grow that forward and the cost is minimal. And then we also have the FX hedge as well and we'll do that forward too. To no material incremental or marginal risk or at cost sorry. All right associated with it. Okay. All right.
And just last, I mean, last quarter, I think when you finished off the year, you had kind of in your remarks. You commented that it could even be that in 2023, the bank can deliver EPS within its medium term.
quarter I think when you finished off the year you had kind of in your remarks you commented that it could even be that in 2023 the bank can deliver EPS within its medium term growth targets.
Do you still expect that to be the case? So I think last quarter, when I said that, we said, you know, given the rate momentum and the anticipated closing of the announced acquisitions, that certainly are tailwinds for us and as well as the volume growth that...
that we've just delivered. There are headwinds, of course, you know, there are geopolitical tensions, it's a complex operating environment and potential economic slowdown. So on balance, I said at that time, you know, unless things change, you know, we should, we should meet that and then there was a chance we would exceed it.
So we'll see, we're very happy with our first quarter. You know, organically the bank delivered 8% earnings growth. You know, so very pleased with that. You saw some of the numbers. And I think folks have talked about, you know, some of the loan numbers we are seeing, and our ability to attract, you know, non-interest rate sensitive deposits, which is a core strength of the bank, and continued momentum on the wealth and insurance side. So very happy with, you know, how things started off in the year. And we're very pleased with, you know, how things started off in the year.
Let's see how the next three quarters go. And then we can sort of look back and say, all right, what out of the headwinds, which ones came to pass, and the tailwinds, which one came to pass. And then we can certainly talk about it. Then if we have exceeded even more as to why that happened. And if you haven't met it, then we will explain what caused that. Thank you very much for taking my questions.
Thank you. The next question is from Mike Rizbanovic from KVW. Please go ahead. Good afternoon. I wanted to ask Michael Rhodes, what's your outlook on the kind of growth these think is in the cards for 2023?
Yeah, so great question. Thanks for the question. And so, you know, clearly, you know, that the number of sales and purchases of homes in Canada has gone down and recent data supports that. As we look across 2023, you know, we'd expect that the result growth to be in the low to mid single digits range for the year. Okay, so I guess that's consistent with what we've heard from some of the other banks just looking at your portfolio. It looks like it was down a little bit sequentially or let's just call it flat quarter quarter.
And as I look at some of the large cities that have reported the fed data for sales, it's still down plus 40% year over year. I'm wondering where would you see that growth coming from? What's sort of like what's baked into that assessment when you say low to mid single digit, it seems quite optimistic given the state of the market right now. So a couple of things that come into play there. You're right for the quarter sequentially, we were basically flat. As you look going forward, there are a couple of things. One is the first quarter of course is seasonally a relatively low quarter.
The second is I just look into our pipelines on a go-forward basis. I'm feeling more optimistic about things on a go-forward basis. We see our advisors are being quite productive and we're making some operational enhancements to our processes. So the data I look at gives me some optimism on a go-forward basis, recognizing the market is soft. To the market softens up a whole bunch more than I might change my tune, but just given what I see today, I think that's achievable. Okay, thanks, thanks, LeCoulet. And then, bear, I just had a really quick follow-up for you on your earlier comment about the 12% CP1 level. I think what you said was the midpoint-
Thanks, it seems like the bank isn't going to be able to answer most of my questions on first horizon right now, but maybe I'll try one of them.
In the outside chances, you'll get regulatory approval or agreement to extend this and cheat. Would it be fair to suggest the 435 million termination fee would not apply in this case? I think the deal terms are in the document that we've filed and Lamar best for you to check that as to what the technicalities are there and that, all the details around it.
Okay, and then maybe turn it to Canadian PMC Bank. Can you talk to what's driving the weaker business deposit growth? It looks like it's a drop for two consecutive quarters. So it would be fair to suggest this is just the deployment of some excess COVID deposits. Yeah, it's Paul. Thanks, Lamar. If you look back to the early part of the pandemic, you would see the TD outgrew most of the banks for quite a while in the early part of the pandemic. Some of that is just the reversal of that now that we've ended.
And that has to do with the makeup of our book and pair to others. And then in addition, as Leo spoke about, there is a seek for yield here going on. We're not losing any accounts. The core business is quite strong. Some of the access deposits that our commercial bank customers hold are chasing yield. And our policy has always been to be very disciplined around margins. And so we have lost some deposits. Thank you.
has to do just with the makeup of our book and paired others. And then in addition, as Leo spoke about, there is a seek for yield here going on. We're not losing any accounts. The core business is quite strong. Some of the access deposits that our commercial bank customers hold are chasing yield. And our policy has always been to be very disciplined around margins. And so we have lost some deposits. Thank you. Thank you.
The next question is from Duho Kim from CreditSquiz. Please go ahead. Hi, thanks. Thank you. Just wanted to go back to your net interest margin. Comment. You had mentioned that it may moderate in terms of improvements from here. And when I look at the results, this quarter, you are up to basis points, sequentially, at the all-bent level. So I'm curious, is that sort of the improvement that we should think a lot as we go forward that maybe one to basis points of the low single digit kind of improvements. Just curious if you could quantify what you see for the remainder of the year. Thanks.
Hi, it's Kelvin, I'll take that. So the two basis point, quarter-vercorder, that you mentioned, it's the all-inclusive NIMM, and so we typically look at non-trading NIMM, and when you adjust for that, the quarter-vercorder expansion is a positive six basis point. And so last quarter in Q4, the margin expansion was 12 basis point, and then this quarter six basis point, and you expect that to moderate, and we expect that of the margin expansion continue to be positive for the remainder of 2023.
but the trend is going to be similar, that is going to be moderating. What I would like to note though is that a lot of people focus only on short-term rates, and as you know, we had a significant increase in short-term rates over the last few quarters. Fords would indicate that there's still some to come but less than before, but I would like to note that the long-term rate also matters. So if you look at page 27, Canada, the relevant rate is five years, and the US is seven years. These tractors do reprise over time.
And the on rate is higher than the off rate. And so what that means is that even if short-term rates doesn't go up, everything else being equal, the repricing of the tractors will continue to support margin expansion. Thank you. Appreciate the comment. Thank you. The next question is from Nigel de Souza from Veritas Investment Research. Please go ahead. Good afternoon. Thank you for taking my questions. The first one I had for you was on your performing...
You're right in pointing out that this quarter US performing actually came down
There are really two reasons for that. One is we had repayments of some high-risk loans. So the associated allowance got released and the second reason is we made a methodology update relating to consumer loans where we found we were forward predicting the move from stage one to stage two. So we put that correction in which led to a reversal. So if you exclude these two you would have actually seen a small performing build in the US.
point just to try and understand the dynamics of how the monthly payments are tracking relative to mortgage rates were variable. Well, I can start generally with credit quality and then I'll pass it on to Michael Rhodes. So what I would tell you is, generally across the Resil book, our credit quality is...
If I look at delinquencies and I see the quarter of a quarter change, it's nominal. It's basically one beep that to in heel-ok. Formations, vessel, is flat, charge-offs, I would say near zero. So if I look at quality in many different ways, the quality is strong. The books we are watching were definitely watching the variable interest rate. Mortgage is in particular the trigger point population. We are watching rate renewal risk across both the variable and fixed books as well. But overall we are seeing strong quality. We are actually seeing customers come forward when they...
or at renewal, things get reset. And just to clarify, I assume that trigger point is one of five percent of some sort of loan balance amount. Is that how it works? It depends if it's a HELOC or if it's a mortgage. Or for mortgages, it's linked to your loan to value at I think is 80%. 80% of your loan balance amount is 80%.
80% uninsured and I think it's 105 for insured or is it the same for both? It's 105 for the other one. Got it. Thanks. That's it for me. Thank you. Thank you. The next question is from Darko Mihilic from RBC Capital Markets. Please go ahead. Hi, thank you. Just a quick numbers question for Leo. I'm looking at the US retail segment and the non-interest income. I realize overdraft fees are significantly lower, but when I look at this quarter number, is it fair to say Leo, that this is about the bottom or is there still some more downside to this line item? Thanks for the question.
So, we have fully implemented all the overdraft measures that we identified last year. And so, this quarter, you're right to say that we have, you're seeing the full impact of all those changes. And just to, you know, that includes the limit, the daily limit of overdraft charges, that includes the change in the threshold by which a client begins to incur an overdraft, the 24-hour grace period, the NSF elimination fee, all those, you've got a full quarter worth of impact. So, this is the bottom. I would expect, to your point, as we continue to grow our core checking and cards base, that we would see additions to our fee income line.
Okay, great. That's very helpful. Thank you. Question for Barrett. You've given us a rough road map to 12% common equity tier 1. There is, of course, a small possibility that the regulator increases the DSP this summer in June with 50 basis point, let's say pretend increase. Do you have the capability of overcoming a 50 basis point increase in the minimum ratio or would you need to raise equity for that?
No, we have capabilities to meet that. If that turns out to be the case, but these are hypothetical questions, but you ask me a straight question. I give you a straight answer. Okay, thanks very much for that. Appreciate it. Thank you. The next question is, Isha Ibrahim Punowala from Bank of America. Please go ahead.
Hey, thanks for taking my question again. There's two quick follow-ups, one Leo, or just thinking of the US non-interest income. Any sense of the impact if there's changes in strategic to credit card-led charge fees, what that would mean for T-Day? Yes, thank you very much, everybody. Obviously the CFPB has come out with...
some proposed rulings. It's still early. I expected it to be some evolution in terms of what that final proposal is going to look like. So I prefer not to speculate at this point in time in terms of the total impact. What I would say is credit card late fees is a percent of our total US retail revenues is a relatively small percentage. So in any event it would be manageable. Let's help. And just one quick one. A real few. We've seen a significant growth in the loan working wholesale banking.
Do you expect that to be sustainable? What's the gaiver of that? Well, you know, over the course of the last four or five quarters, there's been a lot of loan demand, and we are in a fortunate position of being able to...
Do you expect that to be sustainable? What's the driver of that? Well, Libraam, as you know, over the course of the last four or five quarters, there's been a lot of loan demand and we're in a fortunate position of being able to be particularly selective and grow our clients.
client base, particularly in the United States, in accordance consistently with our strategy. And we're earning very good returns on those new originations. So it's really about taking market share at a time when we're able to. And just on market share, it's a difficult period for a bunch of investment banks right now. Is there a strategy to grow carbon beyond their existing verticals and selectively hire bankers and capabilities and be maybe aggressive on that over the next 12 months or so? I think we have to pace that appropriately with the integration work and bringing the two firms together. But look, I think there are opportunities. We're always open.
for them right now. We're in a good position to do that. But I think that for the next, let's say, quarter or two, the focus will be on getting the integration correct and finished. No, thank you. Thank you. There are no further questions registered at this time. I'd like to turn the call back over to Barrett Mazrani.
Thanks so much. Thanks very much, operator, and thank you everyone for joining us this afternoon. Again, a great quarter from TD, you know, to a rate of 8% earnings growth, $4.2 billion in earnings. So, very happy with the start to the year. And once again, we want to take this opportunity to thank our TD bankers around the world for once again delivering for all of our stakeholders and Paul. Congratulations again, 47 great years at the bank, and it's a good thing you're not going away far. So, we look forward to working with you in your other capacities at the bank and barb, congratulations on your new position with the Canadian Commercial Bank.
Thank you and we'll see you in 90 days. Thank you. The conference has now ended. Please disconnect your lines at this time. And we thank you for your participation.