Q3 2019 Earnings Call
Good afternoon, ladies and gentlemen, welcome to the TD Bank Group Q3, 2019 conference call.
I would now like to turn the meeting over to Ms., given your money head of Investor Relations at TD Bank. Please go ahead Ms. Manning.
Thank you operator.
Good afternoon, and welcome to TD Bank group's third quarter 2019 investor presentation.
We will begin today's presentation with remarks from Mr., Ronnie the bank's CEO after which relies on the bank's CFO will present, our third quarter operating results.
RJ Palmer Wally Chief Risk Officer will then offer comments on credit quality after which we will invite questions from prequalified analysts and investors on the phone.
Also present today to answer your questions are Teri Currie group head Canadian personal banking.
Greg Brock, our president and CEO TD Bank America's most convenient bank and Bob Dorrance Group head wholesale banking.
Please turn to slide two.
At this time I would like to caution our listeners that this presentation contains forward looking statements that there are risks that actual results could differ materially from what is discussed and that certain material factors or assumptions were applied in making these forward looking statements.
Any forward looking statements contained in this presentation represent the views of management and are presented for the purpose of assisting the bank's shareholders and analysts in understanding the bank's financial position objectives and priorities and anticipated financial performance forward looking statements may not be appropriate for other purposes.
I would also like to remind listeners that the bank uses non-GAAP financial measures to arrive at adjusted results to assess each of its businesses and to measure overall bank performance. The bank believes that adjusted results provide readers with a better understanding of how management views the bank's performance.
Barrett will be referring to adjusted results in his remarks.
Additional information on items of note the bank's reported results and factors and assumptions related to forward looking information are all available in our Q3 2019 report to shareholders with that let me turn the presentation over to Barrett.
Thank you Julian and thank you everyone for joining us today.
Q3 was another strong quarter for TD earnings rose, 7% to $3.3 billion EPS increased 8% to $1.79.
Oral caused segments performed well in the quarter.
We generated good revenue growth as customers interest and trusted us.
With more of their business expense growth moderated, resulting in positive operating leverage.
And we continue to invest in capabilities to serve our customers better.
Today and tomorrow.
This forward focus investments that are made possible by the strength of our business model.
It is brewing itself over time, delivering consistent earnings growth.
Anchored by strong risk culture, and robust balance sheet metrics.
That includes the C.D. one ratio that held steady at 12% this quarter after the repurchase or.
Over 11 million common shares. This is a powerful testament to our ability to generate organic capital and an important source of strength and flexibility.
This impressive enterprise performance was built on positive results in each of US segments, Let me turn to them though.
Canadian retail had another good quarter in Q3 with earnings up 3% to $1.9 billion.
Revenue growth was strong and the rate of expense growth slowed contributing to positive operating leverage we continue to elevate the customer experience introducing a number of innovative solutions in the personal bank, we launched an international remittance tool that allows the customers to send money by easy with four cash payout at more than 500000 Western Union locations around the world.
It's a simple and intuitive experience leveraging our digital and money movement capabilities. A great example of working together as one TD to help our customers more particularly in the important new to Canada segment.
TD, Canada Trust also surpassed the 5 million Mark for active mobile users this quarter solidifying our leadership position as Canada's largest.
Digital bank.
And our wealth business building on last quarter's Graystone fund launches, we introduced a new real estate pooled asset trust for high net worth clients and seeded a global real estate fund with these product innovations we are seeking out a leadership position in proprietary alternative offerings in the direct investing side.
We refresh our learning center with extensive online resources, including curated video learning journeys and live online workshops.
And in our insurance business. The TD insurance App is now powered by the same technology behind TD for me, our banking apps digital concierge.
It offers enhanced content and location management capabilities, including the ability to direct customers to the nearest TD insurance Auto center.
Across our Canadian retail franchise, we continue to win more business by making it easier for our customers to engage with us whether it's giving people the ability to send money to family and friends around the world equipping investors with investment choices and educational resources to build their wealth or providing support to drivers on the road, it's about being there for our customers when and where they need us and providing them with the advice and capabilities they need to feel more confident about their financial lives.
Turning to the U.S. earnings in our US retail bank rose, 6% to 747 million us dollars this quarter.
Revenue increased 4%, reflecting strong loan and deposit growth and higher fee income we generated over 100 basis points of positive operating leverage and with the contribution from TD Ameritrade up 17% segment earnings increased 9% to 967 million us dollars a new high.
We also continue to invest in our core infrastructure and digital platforms to power. The next generation of personalized connected human experiences for all of our customers, including an active mobile user base that exceeds 3 million.
We launched a new digital mortgage offering to make the application process simpler faster and easier. It combines self serve tools for easier access with face to face guidance when customers wanted and it does reduce processing times, resulting in higher overall experience scores.
We also delivered more convenience for customers with accounts with both TD Bank and TD Ameritrade. They can now get an integrated view of their banking and investment accounts on Tds digital site and access in a marriage rate accounts from the TD website or mobile app, a better experience for our customers and another step forward in our strategic relationship with TD Ameritrade.
Our wholesale banking earned $244 million this quarter up 9% from a year ago is higher trading related revenue offsets.
Lower advisory and equity underwriting fees.
Our U.S. dollar strategy continues to show steady progress since the beginning of the fiscal year and against the backdrop of softer industry wide new issuance volumes, we gained market share lead book runner on more than 100 us investment grade deals.
And more than double the number of U.S. ABS lead lead book runner mandates, we were active in the Green bond space again, this quarter participating in 12 green or sustainable body bond issuances.
Including join leads on the World banks inaugural Euro mandate gave Wwes first drilling green SSD offering of the year and Lbbw. His inaugural U.S. dollar green covered bond out of Europe .
TD Securities was named 2019, Canada derivatives house of the year by global capital for the second year in a row as well as coming forth in SSLP bonds, reflecting the strides we've made in building out our capital markets business.
And for the second year in a row, we tied for first place in overall Canadian fixed income is a greenidge share leader in Greenwich quality leader. These results demonstrate the success of our strategy to build long term client relationships as well as our commitment to quality service and excellence in execution to deliver for our clients.
All in all a good performance by our wholesale business as we continue to execute on our strategy to add scale and diversification to our client focused franchise dealer.
Overall I'm pleased with our performance at this stage of the year three quarters into fiscal 2019, EPS is up 6%. Good result, given the uncertain macro environment and difficult start to the year in wholesale.
As you know macroeconomic uncertainties persist trade and geopolitical tensions continue to escalate central banks are cutting rates and yield curves have declined and remain inverted for long periods.
However, our diversified retail focus model is demonstrated its resilience in a variety of operating environments with the investments we've been making to modernize our operations and increase our efficiency. We are well positioned to continue meeting our customers' changing needs and delivering value for our shareholders.
As ever we move forward United by our purpose to enrich the lives of our customers colleagues and communities.
They are at the heart of everything we do we expressed our commitment to them in a variety of ways this quarter.
In July we celebrated TD, thanks to our annual customer appreciation day in particular, we recognize small business banking clients, who have shown exceptional dedication and service to their local communities.
The work, they're doing promoting female entrepreneurship children's elds sustainable food practices and employment opportunities for people with disabilities to cite just a few example, examples is an inspiration to us all.
We've always believed that we win the most customers that TD, because we have the best people.
So we were proud to be named one of the top three employees in this years, Indeed top rated workplaces in Canada and to make a big move up in diversity Incs stuff 50 companies in the U.S.
This is ray rankings reflect many things, but above all our unique and inclusive employee culture.
That culture was on full display this summer as we celebrated right 2019 in Canada.
At World Pride in New York.
Thousands of employees joined together for events in over 100 cities across North America in support of the LGBT Q2 plus community.
And we launched the second annual TD ready challenge focus on better held one of four drivers of change we are supporting to the ready commitment corporate citizenship strata strategy. This year's 10 brands a $1 million. Each will go to organizations that are helping improve access to early detection and intervention for disease with a goal of driving more equitable health outcomes for everyone.
To wrap up.
I would like to thank our more than 85000 people for their hard work and dedication.
They live our purpose and shared commitments each day and truly bring the TD brand to life I'm proud of what we've accomplished together and I look forward to a successful finish to the year with that I'll turn things over to Rias.
Thank you Barbara Good afternoon, everyone. Please turn to slide seven.
This quarter, the bank reported earnings of $3.2 billion and EPS of $1.74.
Adjusted earnings were $3.3 billion, and adjusted EPS was $1.79 up 8%.
Revenue rose, 6% with increases across all our business segments provisions for credit losses increased 3% quarter over quarter.
Expenses increased 5%, reflecting business growth and investments in strategic initiatives.
Please turn to slide eight.
Canadian retail net income was $1.9 billion up 2% year over year, reflecting higher revenue and positive operating leverage.
Adjusted net income increased 3%.
Revenue increased by 6%, primarily reflecting volume growth and higher insurance and wealth fee based revenue.
Average loans increased 5% year over year, and average deposits increased 3%, reflecting growth in both personal and business volumes.
Margin was 2.96% down three basis points sequentially, reflecting a prior period refinement in revenue recognition assumptions and the auto finance portfolio and competitive pricing in term deposits.
Total PCL increased 13% quarter over quarter increases in impaired and performing Pcls total PCL as an annualized percentage of credit volume was 29 basis points up two basis points quarter over quarter.
Expenses increased 6%, reflecting higher cost supporting business growth and charges related to graystone.
Please turn to slide nine.
US retail net income was usnine hundred $67 million up 10% year over year on a reported basis and 9% on an adjusted basis.
US retail bank reported earning reported earnings rose, 6% year over year on revenue growth of 4% and positive operating leverage.
Average loan volumes increased 6% year over year, reflecting growth in the personal and business customer segments.
Deposit volumes, excluding the TD ameritrade sweep deposits were up 5%, including 4% growth in core consumer checking.
Net interest margin was 3.27% down 11 basis points sequentially, primarily due to lower deposit margins and balance sheet mix.
Total PCR, including only the bank's contractual portion of credit losses in the strategic cards portfolio was US 101 $191 million up 12% sequentially as a decrease in impaired PCL was more than offset by an increase in performing PCL.
The U.S. retail net PCL ratio was 48 basis points up three basis points from last quarter.
Expenses increased 3% year over year, reflecting business and volume growth and higher investments in business initiatives, partially offset by productivity and elimination of the FDIC surcharge.
The contribution from TD is investment in TD Ameritrade increased to use $220 million segment, our ROE was 12.9%.
Please turn to slide 10.
Net income for wholesale was $244 million up 9% year over year, reflecting higher revenue and partially offset by higher noninterest expenses and higher PCL.
Revenue increased 13%, reflecting higher trading related revenue, partially offset by lower advisory and equity underwriting fees.
Expenses increased 12%, reflecting continued investments in the global expansion of our U.S. dollar strategy and the impact of FX translation.
Please turn to slide 11.
The corporate segment reported a net loss of $173 million in the quarter compared to a net loss of $113 million in the same quarter last year.
Net corporate expenses were lower or lower year over year, largely reflecting lower net pension expenses and lower enterprise projects in the current quarter.
Please turn to slide 12.
Our common equity tier one ratio ended the quarter at 12% level with the prior quarter.
We had strong organic capital generation this quarter, which added 41 basis points to our capital position.
This was mostly offset by the repurchase of over 11 million common shares in the quarter and growth in R.W. Baird.
Looking ahead to Q1, 2020 , we expect implementation or five our 16 and the revised securitization framework to have a 20 to 30 basis point impact on Cetone capital, which we expect will be mitigated by internal capital generation.
Our leverage ratio was 4.1% and our liquidity coverage ratio was 132% I will now turn the call over to Roger.
Thank you Riyadh and good afternoon, everyone. Please turn to slide 13.
The bank's credit quality remained strong in the third quarter.
Gross impaired loan formations were $1.46 billion or 21 basis points stable quarter over quarter and up three basis points year over year.
Please turn to slide 14.
Gross impaired loans ended the quarter at $2.9 billion of 42 basis points.
Down six basis points quarter over quarter, and down three basis points year over year.
The banks 351 million quarter over quarter decrease.
In gross impaired loans, primarily reflects the sale of impaired loans in the us commercial portfolio.
Attributable to the power and utility sector.
And resolutions outpacing formations.
In the U.S. resolute portfolios, partially offset by higher impaired loans in the Canadian commercial and wholesale portfolios.
Please turn to slide 15.
Recall that our presentation reports PCL ratios, both gross and net of the partner's share of the us strategic card credit losses.
We remind you that credit losses recorded in the corporate segment are fully absorbed by our partners and do not impact the bank's net income.
The bank's pcls in the quarter was 664 million or 38 basis points stable quarter over quarter and up three basis points year over year.
Please turn to slide 16.
The bank's embed PCL was stable quarter over quarter, reflecting credit migrations in the Canadian retail and wholesale segments offset by a decrease in the us retail and corporate segments.
Performing PCL increased quarter over quarter, largely reflecting normal course parameter updates in the Canadian and us consumer lending portfolios.
In summary, as expected we've seen some credit normalization this year in the Canadian consumer lending portfolios and the banks commercial lending portfolios.
Overall credit quality remained strong across the banks portfolios and we remain well positioned for continued growth.
With that operator, we're now ready to begin the Q and a session.
Thank you.
Please press star one at this time, if you have any questions there will be a brief pause when the participants sorry, just here for questions. Thank you for your patience.
The first question is from Ebrahim Poonawala from Bank of America Merrill Lynch. Please go ahead. Your line is now open.
Good afternoon.
Thanks, I guess first question.
If you can talk about just the margin outlook in Canada and the us.
Given the forward curve in both markets are pricing in Haiti.
On just would love to get your thoughts in terms of the magnitude of compression we should expect as we look out over the next year.
Hey, Brian . Thank you as you know in Canada, We've said before that margins will bump around for a variety of reasons and.
While that there are.
Some very strong underlying economic fundamentals with employment and business investment clearly the.
Yes, Canada is going to be affected by what really happens in the U.S. So.
And if we turn to the.
Us.
Geography, the U.S. segment.
Again on the ground as Greg will tell you the.
Activity is very good.
We have a situation where.
Employment is at a record level of consumer.
Activity remains quite strong and business investment is remaining quite positive and quite constructive and you can see that in the in our performance in our loan and deposit growth in the us.
But clearly they are.
Main macroeconomic uncertainties that are kind of driving our rate considerations and expectations that at some point, perhaps we may see the economy slow.
So it's difficult really to give you a any particular outlook on the on the rates because if it turns out that we might see a trade uncertainties dissipate.
We may see.
Returning to our greater macro confidence.
Richard also help the underlying.
Underlying.
Business conditions so.
I think as.
As a matter of general outlook I'd.
It'd be difficult to give you a forward outlook, but clearly if the forward curve do play out there we would expect to see some margin compression as a result of that.
But then there are also mitigating factors that as interest rates have come down you might there obviously continue to see loan volumes grow faster and credit performance should be better. So I think thats fair you can see some very mix there are conditions, depending on which scenario you wish to.
Outline.
Understood and 11 basis points of margin compression that you saw in the U.S. This quarter was there anything one off in there that might reverse itself next quarter.
The Btwenty seven the right.
We used to think about how the margin mix and from here.
If the right base there are no unusual items to point out in that Ebrahim about half of that is.
And driven by just the rate compression that I talked about earlier and then the other half is due to balance sheet mix.
That materializes from our continued their volume growth.
Got it. Thank you guys. Thank you again.
Thank you.
The next question is from Steve give you from a capital. Please go ahead. Your line is now open.
I had a question on KPN c., but first if I could just follow up realism on the NIM appreciating. There's you can think about a lot of different scenarios do you think it it makes sense at all to look back at either what your margin was or the delta in the margin following.
The last couple or few rate hikes in 17, and 18 to help us gauge future movements or has mix change or anything else changed to the point, where that you don't think that's a useful way to think about it.
No I think as Steve.
Doing a little bit of trending is always useful in not taking a look at how.
That things would change under various scenarios and and you can see the mix change in the balance sheet as well as we can because the loans and deposits categories are indeed disclosed so.
I think it would be useful to look at that trending but.
You also have to keep in mind as I mentioned earlier that forward. If you take a forward looking view.
You also have to take into account what changes that might bring along with Tara volumes.
Yeah, that's fair.
Thanks for that and then so on Canadian PNC.
Terry for the most part Ft had has been for the last couple of years pretty range from between 27 to 20000.
And.
Springleaf and not stripping away the wealth component. So just looking at the appendix in the supplemental but this quarter jump too.
I think just under 29000 is there anything.
Temporary in nature in terms of that spike or maybe if you could just give us a bit of color on.
What's going on in terms of ft.
In that division.
For sure.
Thank you so and if you look at kind of our strategy around and and continuing to be a leader in acquiring new customers and then the embedded growth opportunity in the franchise.
We've been working through in branch banking as I've mentioned before a feature ready strategy, where that's really around.
Ensuring that we're elevating the capabilities of our people in the branch network and adding.
Client facing advisors, both in my business and pulse business to me.
The customer opportunity. So as we're doing that we're seeing that sort of a steady climb of client facing advisors that were adding we've also been investing in more mobile mortgage specialists. So you're seeing the growth of them and then as we're implementing.
New initiatives to help the client experience some of which I talked about earlier.
As the number one digital bank in Canada. Some of the investments, we're making in that I T space or in those capabilities are contributing to the growth and then finally, we've been adding in the operations and adjudication space as we've had strong growth in lending in the franchise to ensure that we can get answers to our customers quickly when they make requests of us around loans. That's the most important thing to them is helping them to understand what they can afford quickly so that they can make their personal decisions. So in combination those are the strategic investments, we've been making business that have caused that increase in ft.
Would you say, there's there's upside from there as you can.
I think your intention is to continue to hire more mobile banking specialist and so on would you.
Uh huh.
So I mean, some of those things have been ongoing for a while right. So for sure I was in this year with the future strategy in particular been adding financial advisors in the branch network at an accelerated pace, we had last year.
A slower we had a slower pace coming into this year as.
Because we had more vacancies and then we were accelerating growth. So you've seen some accelerated growth this year for financial advisors in the branch in particular.
We will continue to add advisors and invest at a pace that makes sense to deliver both short term and long term growth.
The pace would likely come down a little bit as we go into next year.
Thanks, Brett.
Operator, do we have another call.
Thank you Tim next question is from that many grauman from Cormark Securities. Please go ahead. Your line is now open.
Hi, I wanted to understand a little better what was driving the.
The parameter updates that we're pushing up the the performing loan provisions or if you could highlight some of the key movers here.
Oh, Thanks RJ so.
I would say we are regularly at on an ongoing basis look at our models and look at our parameters across books.
So for this quarter basically we update our updated up parameters for the consumer portfolio in Canada, and the <unk> and the U.S. and there was a bit of an uptick because of that the uptick was in Canadian auto there was an uptick certainly in.
Canadian cards, and then in U.S. cards, as well, particularly in the performing category in the on the embedded side in the U.S., we actually saw a benefit so really what this parameter updates are doing is adjusting for.
Under prediction, all overproduction off Pcls and they are sort of a one time true up so it's pretty much normal course activity.
Okay, I guess, where I'm getting at is we saw a big move in the yield curve over the last for a while and a higher probability of a recession I'm wondering if those factors are factors like that changed or get captured in the modeling or for for performing loan provisions suite. So we certainly consider a macro changes.
But the macro change in fact, I would say was slightly beneficial.
So it's not a macro is not driving this parameter or a related increase.
And in terms of that.
Net positive for macro factors, what's the key positives I can think of a lot of negative, but what what would be the key positives. So so so good follow up so I would say that in Canada. You know, we certainly object updated on 19 GDP numbers, there was slightly better employment numbers.
In Canada, and as you're aware you know home prices are firming up as well.
And in the United States for 19 in particular as you know slightly our growth for 19 was was updated those were really the drivers.
Thank you.
[noise]. Thank you. The next question is from that robot Robert Sedran from <unk> capital markets. Please go ahead, well I know Ben.
Hello, Good afternoon, a question for Terry Please I just I noticed the mortgage growth is starting to pick up a little bit after a period, where he locks were definitely dominating the business mix I know you've kind of talked about this a little bit in the past but.
Is this reflecting more of a a maturation of the new hulot product or or is there something a conscious decision to shift more business toward the mortgage product.
Thank you, it's it's not it I mean customer by customer we will help them make the right decision about the mortgage product that makes sense for them or their rental product that makes sense for them and it is often the case that their hybrid he left product with its flexibility makes sense.
You're seeing a little bit right now and just in terms of rates as people go into fixed rate versus floating so that would explain a little bit of the mortgage growth, but in general you know really pleased with the continuing sort of 5% growth in total Russell a and the investments we've made in that business.
That is that kind of growth rate, especially as Jay noted the prices are firming, a little bit is that.
You know a rate of growth that you think is reasonable as we look out I know, it's difficult to look too far out, but it is 5% rental growth something you're comfortable with continuing we're certainly comfortable with the business that we have done and we've been at that sort of rate of growth over the last number of quarters as you know and there's lots of factors to consider but with the investments. We've made in this business. We've talked about kind of mid single digit growth in this business and that's certainly what we expect for this year. Okay. Thank you and just just to can clarify react when you're talking about the Canadian margin. It sounded like the decline this quarter was more about the prior period than it was about this quarter is that right.
Well I think in both quarters. There are some adjustments that contributed to that and so you're right. Most of the decline would be due to those items are fundamentally we'd have been down one bips one vehicle. Okay. Thank you.
Thank you. The next question is from Scott Chan from Canaccord Genuity. Please go ahead. Your line is now open.
Hi, Good afternoon, I, just wanted to go to wholesale banking and ER and on the expense side I I guess for three straight quarters, it's been low double digits.
And you called out continued investments in the the global U.S. dollar strategy does that dissipate at some point and should we expect expenses to normalize to lora level.
Yeah, I think the run rate.
As Ive commented in the last couple of quarters that were seeing a this year.
Overall, which has been.
Sort of in that 600 million dollar level is Ah.
What the.
The steady state.
Would appear to be so how that plays out we made a lot of investment in 17, and 18 and Thats rolling through into 19.
That'll that'll reduce and.
I think the run rate, where we are now will will be the at that level. So the year over year should should should come down but.
Okay. Thanks, and just on the U.S. side I just noticed on commercial was a bit light on the quarter I know, it's just one quarter I think how to compare to peers on the U.S. side was there something.
On the commercial side that a that you guys may be pulled back on or or should we expect this portfolio to still LP is personal going forward.
Yeah, I just want to make sure I confirm the question you said you saw it as a bit light. The commercial are you on the U.S. side, it was up 1% quarter over quarter.
But so on a year over year basis, it's still a pace personal but if I kind of look across that.
Thank you I just wanted to make sure I was on a quarter over quarter.
You know between pay downs and movement and seasonality, that's going to move around a bit but I would say fundamentally ER. It's we've actually been seeing strong and very supportive CNR and overall commercial loan growth or you know commercial loan growth for the quarter was Ah you know roughly 7% all in with commercial real estate.
And if we went back just a couple of quarters ago, we would have been talking about a more moderate rates of growth. So it's it's good to see that we've actually been accelerating the growth in in the CNS business over the last couple of quarters. The market's been constructive we've been spending a lot of time on various strategies for middle market and the commercial bank and we think it's performing quite well right now.
Okay. Thank you.
Thank you. The next question is from Doug Young from Deutsche Bank Capital Markets. Please go ahead. Your line is now open.
Thank you good afternoon, just on the credit side.
One of those two things I guess, there is an uptick in pcls in gross impaired loan formations in Canadian retail and hopefully, hoping you can elaborate a bit on the drivers and I think in the.
And the Mdna, there's a mention of insolvencies or whatnot. So and is hoping you can unpack that and then.
The second thing on credit there was a reversal in performing loan Pcls in capital markets I. Originally thought it was the do it with BG in EBIT I guess that actually in the U.S. retail. So just wanted to understand what that reversal and performing home Pcls in capital markets was related to you. Thank you.
Thanks for the questions. So first on.
Canadian impact just as an uptick I'd say a fair bit of that is commercial and really what's occurring in commercial we are moving off some very low numbers and it's it's across four or five industries for five or so.
Again offload numbers, but that's part of the numbers and then.
I would say in the in the rest of the book the personal book there is an uptick particularly in unsecured credit.
Some in other personal summing cards in other personal it's driven by some seasoning that's occurring because of some select risk expansion. We did couple of years ago and there is an uptick in insolvencies. That's also reflected there and then the other category I'd call out is cards again, a bit of an uptick because of.
Insolvencies.
And then the second part of your question on capital markets.
Again, the reversal there is largely model driven so we updated our easier models in capital markets and so that's a model related.
A release.
I went was updated in the model that would have driven over again, it's it's it's all the parameters that would drive the release is there anyone in particular or is that just across the board it's across the board.
But doesn't sound like on the Canadian retail side.
How about you know did you call out certain items it doesn't sound like there concerning to you is that a fair.
Statement.
Yes, because again, we are moving on very low numbers. If you actually go back and look at.
Q3 over 18, we were at 24 weeks.
You know we had 29 beeps now so overall, we're still operating within a very acceptable range, but again I will remind you were late in the cycle and I do expect some gradual normalization in credit losses actually.
In our Q1 call did message that and it's actually turning out as expected I mean would you say 29 basis points is normal or would you be me you were with normalization land on the PCL rate.
Yes. So good question I don't think Thats, a number we disclose but what I will tell you is that 25 to 30 still is a lower number and normal would be higher than that.
Great. Thank you.
Thank you. The next question is from Sumit Malhotra from Scotia Capital. Please go ahead. Your line is now open.
Thanks, Good afternoon, I start with the numbers related question for Terry in Canadian personal and commercial.
Looking at your fee income line for the for the quarter.
Up 1% year over year, and we didn't see the normal.
Seasonal increase from Q2 to Q3, which at the very least the day count usually helps was there anything that depressed the feed number.
This quarter that was out of the ordinary that maybe resulted in an overall revenue being a bit later.
Thank you. So there were a couple items this quarter and a couple of items last year that would represent a couple of points in the other income.
So that would definitely be part of that part of the story. There. So think of it more like 3% to 4% growth and then you know I'd say just to comment on the business itself, you know really strong core checking and savings growth at over 4% and retail card sales up 2%, so maybe a little bit lower but certainly a good momentum there and we're still looking forward to the air Canada partnership in the future couple of small items mortgage discharge fees were a little bit lower I think that's probably timing and our wealth referral fees were a little bit lower and as we've gone through this a change in the branch banking network I think that's just really a a sort of a function of the change we're going through and it's not something that worries me I'd say, there's been a good trend on other income and I expect a good business growth going forward.
The three to four in your view is a more reasonable run rate expectation certainly we've seen good growth momentum and would continue to expect to see that.
Thank you and then.
Across the border to U.S. personal commercial for for Greg.
I think both in in this quarter and also nine months over nine months your expense growth of the business is 3%.
Off the top Laura mentioned the.
Many initiatives that are underway in terms of.
Technological spend and the offering to customers when we take into account some of the comments on the rate backdrop, and what that might mean for revenue.
How are you thinking about.
Your level of investment spend and expense growth of the business was 3%.
The a reasonable level that you can you can keep or.
Is it a perhaps a little bit low in light of some of those investments that were discussed.
Well, maybe just backward looking I'll start with that I think you know weve tried to strike the right balance and you've seen that bump around a quarter over quarter or just in 2019 from first quarter to second quarter to third.
And just given the nature of the business, you'll probably continue to see that bump around from quarter to quarter. I do think you know it's part of the arts as much as a as anything is how do we strike the right balance with making sure that we are building the digital bank or for the next decade that we are making the right investments that we're investing in front line facing capabilities employees in digital and quite frankly, I think you're seeing that in the growth numbers play out real time.
Both in terms of the consumer bank small business, the commercial bank and things were doing around or wealth business that is certainly we spent a lot of time and energy are building the capabilities around that in the U.S. and a lot of these capabilities didn't exist.
You know 578, certainly 10 years ago. So do I think we're getting the right balance right I I think we are I would also say that we're also trying to make sure we're as efficient as possible. So you know we've talked before about the via you business as usual expenses versus build the bank.
ER and making sure we're making those right investments how are we getting cost down how we digitizing the bank and using new tools and capabilities just as important I think that narrative has to continue to play out.
ER and we're gonna be mindful of getting that balance right going forward.
How does about I'll stop here, how does that balance taking into account. The fact that you know for a period of time here.
Your your net interest income, which is obviously the bulk of your revenues growing at double digits and now it's it's half of that in this new world order for interest rates does not balance getting that balance right allow you to slow the level of investment spend or is some of that expenditure already in the pipeline and set in stone so to speak.
Well the good news is that you've heard us talk about a number of investments that we've made over the last few years and platforms in terms of capability and building. The infrastructure. We think that is awfully important and I think that's true, but we will continue to want to make investments going forward and we're going to have to balance the environment, we're in and I think.
You know the leading organizations that get this right will be the ones that just don't fold up the tent because of the environment. There in that there are still able to find the head room by freeing up capacity or being efficient and other areas to make sure. They are investing in their priorities. So we shouldn't get ourselves if the environment gets more difficult or the slope of the curve continues the way. It is we're going to have to be smart around that going forward.
Thanks for your time.
Thank you. The next question is from Nigel the sewage <unk> from Veritas investment. Please go ahead. Your line is now open.
Thank you good afternoon I had two quick questions. The first just to circle back on a point you made earlier I believe I got it correctly. The impairments that you were seeing on the Canadian commercial book that was driven by.
Multiple accounts and if I look in your or multiple sectors and if I look in your supplement.
I see automotive construction metals, and mining and oil and gas and mining.
Hi, I'm identifying the right sectors, you're that drove that and is it correct that it wasn't driven by a single account it was driven by a few factors.
Yes, sure you're absolutely right. It's a few borrowers across auto industrial other services you would see a few dollars if metals I think there's a bit in into retail. So there's no. There's no single borrower and there's no real team I'd say these are more idiosyncratic issues.
Okay. So that was my second Paul if you still view it as idiosyncratic at this point in the cycle and the second question I had and this is a more specific one and that's the last one for the commentary you had on your your updates you're modeling in fact, you pedal off models under under I first nine for performing loans I just wanted to check in with you whether those model updates and the true up that did include.
Change or update in your scenario weightings in other words are you waiting the adverse scenario or more have you changed that and is that a expected to change given the current conditions.
Yes, so we look at our scenario weightings.
Every quarter as part of our governance, we did not change our scenario weightings.
For this quarter, having said that we believe we have an adequate waiting on the downside and a probability weighted allowance continues to be higher than our baseline.
Okay, that's really a useful insight thank you.
Thank you. The next question is from Gabriel Duchaine from National Bank Financial. Please go ahead. Your line is now open.
Good afternoon, a couple of questions are around the U.S. business Im sorry, if I missed it but the margin guidance for the U.S.
Did you provide any for you know the near term and.
You know if not can you tell me you know.
What the impact of the fed rate cut will be.
On Q4 margins given that you don't have a quarter.
I've got a follow up broader more interesting I hope.
Gabriel its Greg Thanks for the questions.
No we did not provide the guidance if you Miss the earlier part of the call and what our view is around the net interest margin going out, but we did cover off that obviously you know the fed rate cuts and the general slope of the curve is generally not favorable and you know our quarter over quarter number that you saw us down 11 basis points quarter over quarter is a combination of lower.
A short end rates <unk> in front running of the actual fed rate cuts, we saw in the market as well as balance sheet mix.
So.
Well, that's how I'd answer that from a quarter over quarter perspective.
Another way would you expect the linear relationship and you're merging or be a you know.
Right.
Floral or does that moderate over time, but I remember back in the <unk>.
Yeah. So.
You know I think what we've talked about in the past is or what it means on the way up.
On the way down all things being equal on the short end of it from a spot number just for the U.S. retail bank I'm talking about now <unk> in U.S dollars of every 25 basis points of Cod is worth roughly 90 million pretax.
And gave it it shouldn't be yeah, it's Greg or qualified at all things being equal they should do the same book and you are dealing with the same float a mix of the book it should be linear.
Okay.
And my broader question.
This issue Oh combined with you know America trade, let's say because of.
The revisions have been.
Pretty substantially negative, reflecting mirror more challenging growth outlook as well the combination of your us business and Ameritrade had been.
All right or at least 20% if not more of your growth over the past few years, how would the the possible slowdown in these businesses affect your your confidence in the 7% to 10% growth or maybe roll that out over the next year as well perspective.
Okay.
Gave what I'd tell you is that first of all.
You know when you look at the US retail businesses over the course of the last three or four years, you're quite right in pointing out that there hasn't been a fabulous for us and for.
For for delivering ER franchise grow to know what we look at in terms of that that's the winning strategy for us over the years have been that we've.
We have been able to build a franchise that is focused on delivering its customers need.
And we underwrite consistently true through various cycles, and therefore pick up market share and sometimes and we've gone through in down markets, you've actually seen on T.D. do better.
So I think if we focus on the right strategy the macros that would be what they will be but you know as I indicated earlier when you see rates coming down there can be a number of offsetting factors in volumes and the economy does a little bit better you can see better credit performance and you might see for example in brokerage space is that that cash and Ida balances et cetera might or might it might might be might actually increase. So there can be some very good down mitigating effects of of rate declines.
I'll leave it there. Thank you have a good long weekend.
You too.
Thank you. The next question is from Darko Mihelic from RBC capital markets. Please go ahead. Your line is now.
Actually just as a follow up to that.
Maybe just.
I I mean, I get the I.D.A. balances may go up.
I guess the is a yield pickup that you have when the when the five year U.S.U.S. dollar swap rate is over 150 guess is below that now.
How does that factor into the numbers going forward is that just something that that falls off slowly and gradually over the next few quarters.
And am I right in thinking it's about a $100 million or so.
Oh of revenue.
Youre correct Darko in saying that a win now those are revenue sharing arrangement said that go with interest rates.
Coming to play they do play out over the course of the tractor in strategies that are that are undertaken so.
So it is a it is a gradual slow pop and therefore, our gradual slope.
Down as to the quantification of it we have not disclosed that before and I I think you have to be quite a able to calculate it off their public disclosures yep. Okay. Thank you I appreciate that and then just a question for RG <unk> on slide 16.
I mean I appreciate that the parameter updates on the U.S. portfolio is in the cards. The corporate those shows performing is.
As negative I mean can you just help me understand.
I think the partners that's the partner share right. So just maybe give us right. So again parameter updates good.
Impact portfolios differently. So what was happening on the strategic cards is so keep in mind parameter updates are adjusting for.
Either under predictions over prediction, so if we look over predicting.
Impaired for instance in strategic cards, just correcting for that if we were even under predicting performing than with correct for performing so we actually saw a benefit in strategic guards because there was some over prediction.
Okay, and we're going into the seasonal pickup in Pcls I suppose because of.
Of the audit indirect auto and credit cards in the U.S. is there any reason to think that this year. It will be different in terms of magnitude like should we sort of be expecting a similar normal sort of pick up in pcls in in Q4 for the cards and auto portfolio in the U.S.
So I did give you some guidance for the full year, which was 40 to 45 basis points and I do expect.
For the full year will be near the higher end of the range and I'd say the main reason for that I mean, three quarters. It played out is because us tends to be high from a front because of seasonality. So I think you should look at.
Basically history to see where that number will be but Q4.
Tends to be a high number for us.
Okay, great. Thank you.
Thank you.
The next question is from Sohrab Movahedi from BMO capital markets. Please go ahead.
Oh, Thanks, RJ your Uh huh.
Good Guy to go to again it just it just a quick question are you.
I know, there's been lots of investments on the technology side, but from a risk management and collections in particular.
Oh, you are you adequately staffed or are you adding to your stuff.
Yes, so what I would tell you is that we've done a very comprehensive downturn readiness assessment across the bank and were continuing to invest.
In areas, including collections, both from a technology perspective, and certainly I'd say from an F.D. perspective, we would ramp up again, depending on the situation I don't think we'd ramp up too much in advance, but we certainly have a plan on how to deal with it.
So we so in other words in it you haven't ramped up right now and that's from a from a collections perspective.
I think we are adequately staffed right now you're adequately stuck.
And Terry do you think you can generate operating positive operating leverage next year.
So we've talked about this year our goal over the medium term is to deliver positive operating leverage and we expect to do that finisher.
Too early to talk about next year is that right.
I think my friends around the table would say Ya [laughter] apart from this or this is this is better than was running.
You know, we've always said that we would like to continue to invest for the future. You know that's the hallmark of TD. That's how we create the franchise that we have that's why you see the growth you do there will be instances, where we may not have positive operating leverage for a particular period, because we are not going to compromise on great opportunities to invest.
But our general aspiration and anything you you've heard US say this before is to generate positive operating leverage, but we shouldn't focus too much on it but the glip beauty or order a year, even if the right opportunities present themselves.
Barrett since since I, just got you any any updated thoughts around a inorganic capital deployment.
Inorganic.
No generally sort of you know the T.D.A., there's no doubt that we are good at acquisitions I think we've showed that are in our history. In fact, a lot of the franchises. We've built in a outside of Canada have come through that.
So obviously, if there is any compelling opportunity that presents itself, we will always look at it very seriously.
And in this current environment with all these macro uncertainties, there's probably more opportunity will present itself depending on how long is uncertainties continue so we will make sure that we you know look at all of those opportunities seriously.
Thank you.
Thank you there are no further questions registered at this time I would like to turn like the meeting over to Mr. embarrass Mr. Rodney.
Thank you operator, and thank you to all of you for joining US. This afternoon. Once again as I do every quarter. Because you know it is important I would like to take the opportunity to think about 85000 colleagues around the world to continue to deliver for all of US stakeholders every quarter really appreciate all the effort they put into delivering for our shareholders as well. Thank you and see you in 90 days.
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No as you put all this it can say how is it that the whole piece.
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