Toronto-Dominion Bank Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 25, 2023

There are 18 speakers on the call.

Operator

Good afternoon, everyone, and welcome to the TD Bank Group Q2 2023 Earnings Conference Call. I would now like to turn the meeting over to Ms. Brooke Hales. Please go ahead, Ms. Hales.

Speaker 1

Thank you, operator. Good afternoon, and welcome to TD Bank Group's Q2 2023 Investor Presentation. Many of us are joining today's meeting from lands 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 Anishinaabe, the Chippewa, the Haudenosaunee and the Wendat peoples and is now home to many diverse nations, Metis and Inuit peoples. We also acknowledge that Toronto is covered by Treaty 13 signed with the Mississaugas of the Credit and the Williams treaties signed with multiple Mississaugas and Chippewa bands. We will begin today's presentation with remarks from Bharat Mazrani, the Bank's CEO.

Speaker 1

After which, Calvin Tran, the Bank's CFO, will present our 2nd quarter operating results. Ajay Bambawale, 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 Michael Rhodes, Group Head, Canadian Personal Banking Barbara Hooper, Group Head, Canadian Business Banking Raymond Chun, Group Head, Wealth Management and Insurance Leo Salom, President and CEO, TD Bank, America's Most Convenient Bank and Riaz Ahmed, Group Head, Wholesale Banking. Please turn to Slide 2. At this time, I would like to caution our 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 1

Any forward looking statements contained in this presentation 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 provided readers with a better understanding of how management views the bank's performance. Barrett will be referencing 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 Q2 2023 report to shareholders. With that, let me turn the presentation over to Barrett.

Speaker 2

Thank you, Brooke, and thank you, everyone, for joining us today. To start, I want to express that our thoughts are with Albertans in light of the devastating fires. TD has mobilized to provide assistance to impacted customers and colleagues. The bank has also contributed directly to relief efforts and enable customers to do so as well through branches, phone and online. In addition, before I review our Q2, I'd like to provide a few comments on our joint announcement with First Horizon earlier this month.

Speaker 2

While we are not at liberty to address confidential discussions with our regulators, we are confident the mutual termination was the right decision Given the uncertainty in timing of regulatory approvals, this decision provides clarity to our colleagues, our customers and to you, our shareholders. I want to thank Brian Jordan, First Horizon's President and CEO and his team for their partnership and wish them great future success. Now let me turn to the future of our U. S. Business.

Speaker 2

TD Bank America's most convenient bank is well capitalized With a stable deposit base and deep customer relationships, we've built a brand that is second to none and the best team in banking. Our business model and footprint provide a robust foundation for continued growth, and we are already executing on significant opportunities. TD is strong, resilient and well positioned to build on our momentum in the months years ahead. Let me now turn to our results. Q2 was a good quarter for TD.

Speaker 2

Earnings were $3,800,000,000 And EPS was $1.94 There were many moving parts this quarter with strength in our retail businesses, While wholesale banking was impacted by challenging market conditions, revenue grew 14% year over year driven by margin expansion. This was offset by higher provision for credit losses and increased expenses, reflecting the inclusion of Cowen, Investments in colleagues and business growth and the impact of foreign exchange. PTPP was over 6% year over year Asdidi's business fundamentals remain strong. Our long standing strategic focus on gathering core deposits across our North American franchise Continues to be a significant competitive advantage, particularly in the current operating environment, amid increased competition for deposits. And as expected, we saw some credit normalization this quarter, but credit performance remains robust.

Speaker 2

The bank CET1 ratio was 15.3%, reflecting organic capital generation Offset by the impact of the Cowen acquisition, beginning with the dividend declared today, we have decided to remove the discount to the shares issued under our dividend reinvestment plan and to offset the discounted shares issued under the DRIP, Today, we announced our intention to repurchase up to 30,000,000 common shares for cancellation subject to regulatory approval. Depending on market conditions, we expect to complete this share buyback by the end of the summer, at which point we will assess the opportunity Before the buybacks, we have a strong capital position, which provides flexibility in an uncertain operating environment. We are pleased to be able to return capital to shareholders while simultaneously accelerating investments to drive profitable growth across attractive opportunities. For example, in the U. S, we're increasing new store openings by 50% and doubling wealth advisor hiring.

Speaker 2

In Canada, You will hear more about these strategic growth initiatives in the weeks months to come. Turning to our Canadian Personal and Commercial Banking segment, we delivered earnings of $1,600,000,000 reflecting revenue growth of 11% and significant positive operating leverage. In the Personal Bank, we saw robust growth in everyday banking with sales up 28% year over year. And to help build Confidence for newcomers to Canada, we enhanced our online appointment booking capabilities to enable customers to book appointments in their The bank delivered industry leading market share gains in core deposits, putting TD's market share Loan growth of 14% year over year and the highest quarter ever for active accounts and digital acquisition. TD recently launched an exclusive Canadian bank offer with Uber, adding to the list of leading global consumer brands that partner with TD, including Air Canada, Amazon, Expedia and Starbucks.

Speaker 2

In real estate secured lending, we saw strong sequential volume growth. Our teams also delivered the highest quarterly retention rates since 2,008. The business bank achieved double digit loan growth for the 7th Consecutive quarter. In the first phase of a multiyear initiative to modernize our customer and credit platforms, Almost 3,000 business bankers across our footprint began using a new relationship management tool that will lead to improved customer experience and increased efficiency. And TD Auto Finance was ranked the highest in dealer satisfaction among non captive, non prime lenders with retail credit for the 6th Year in a row in the J.

Speaker 2

D. Power 2023 Canada dealer financing satisfaction study. Turning to the U. S, Our U. S.

Speaker 2

Retail Bank delivered another strong quarter with earnings of US944 $1,000,000 up 23% year over year, reflecting revenue growth of 24% and record positive operating leverage. With the contribution from our investment in Schwab Of $185,000,000 segment earnings were US1.1 billion dollars We saw robust loan growth again this quarter with personal loans and business loans up 12% and 9% respectively year over year. TD also has strong momentum in customer acquisition with new business checking accounts up 29% year over year. We continue to invest in our U. S.

Speaker 2

Credit card business, where we have significant opportunity to expand our lending And deepen relationships with existing deposit customers. Earlier this month, we launched TD Clear and TD Flex Pay, Innovative new cards that offer compelling value propositions to accelerate TD's growth in the market. The bank also enhanced benefits to the popular TD Cash and Double Up credit cards and made significant advancements in our card servicing and digital capabilities. These investments are supported by TD's recent renewal of its agreements with Visa in Canada and the United States. Further driving organic growth, TD Bank America's Most Convenient Bank has an ambitious plan to open 150 new stores by We're on track to open a total of 18 stores in 2023 with 5 already up and running.

Speaker 2

Earlier this month, we were excited to open our 1st store in Charlotte, North Carolina. When TD entered each of New York City, Philadelphia, Boston and Miami, We meaningfully outgrew peers and I'm confident that we will have the same success in Charlotte. Today, nearly 80% of TD's deposits are in the MSAs where we have a top three position As customers respond to our motto by entrusting us with more of their business. And the bank continues to receive recognition for its unique and inclusive culture. In April, TD was once again named 1 of America's Best Employers for Diversity by Forbes, Moving up to number 2 spot out of 500 companies ranked.

Speaker 2

In Wealth Management and Insurance, We earned $563,000,000 this quarter. Revenue was up 2% year over year, reflecting the strength of our diversified business model As higher insurance volumes and the benefit of higher interest rates helped offset the impacts of trading normalization and market volatility. TD Direct Invest continued to widen the gap to peers with gross new accounts and trading market share increasing year over year. And we rolled out a series of enhancements to TD Easy Trade, adding streamlined access to ready made TD One Click ETF portfolios and more self-service capabilities. TD Asset Management widened its lead versus competitors is the number one Canadian institutional asset manager and the number one money manager for Canadian pension assets.

Speaker 2

TD Asset Management also led the banking industry in long term mutual fund sales in the quarter and leverages brought Products shelved to grow ETF market share. In advice, we continue to invest for future growth, adding over 500 advice professionals In the past year. And on the insurance side, we launched small business insurance this quarter. A Direct to consumer offering is resonating with customers and TD is uniquely positioned to satisfy this unmet Need in the marketplace. We are Canada's number 1 direct insurer and building on our digital leadership with almost 1 in 4 new Sales across our insurance business completed online from end to end this quarter.

Speaker 2

In Wholesale Banking, We delivered net income of $213,000,000 Despite weaker market conditions, revenues were up 13 acquisition and the impact of investments in colleagues made throughout the year. The dealer has added almost a 100 new corporate lending relationships over the past year, extending approximately $34,000,000,000 in additional loan commitments across a diversified range of industries. BD Securities was proud to be one of 3 banks shortlisted by Global Trade Review And our integration with Cowen is well underway. In fact, Only one day after closing, TD Cowen acted as book runner on its first equity offering. And since then, TD Cowen has Book run 13 equity offerings totaling US3.5 billion dollars This is just the beginning as we leverage our new capabilities in US equities and extend our competitive advantage.

Speaker 2

I'm excited to welcome our Cowen colleagues once again and for all that we will accomplish together. Halfway through the year, much has shifted. With the mutual termination of the First Horizon agreement And deterioration in the macroeconomic environment, we do not expect the bank to deliver adjusted EPS growth in the 7 10% medium term target range in 2023. Despite the difficult operating environment, TD continues to deliver for all of its stakeholders and reimagine financial services to shape the future of banking. I hope you will join us for TD's Investor Day on June 8, where we will provide more details On the bank's strategy and growth plans with a focus on our Canadian Retail businesses, we will hold a subsequent Investor Day to highlight our U.

Speaker 2

S. And wholesale businesses. TD is forward focused and purpose driven, and our TD bankers around the globe bring that vision to life every day. I will close by thanking them for all they do to make TD the better bank. With that, I'll turn things over to Kelvin.

Speaker 3

Thank you, Barrett. Good afternoon, everyone. Please turn to Slide 9. For Q2, the bank reported earnings of $3,400,000,000 and Earnings per share of $1.72 down 12% 17%, respectively. Adjusted earnings were $3,800,000,000 up 1 And adjusted earnings per share was $1.94 down 4%.

Speaker 3

Reported revenue increased 10% and includes a net loss from mitigation of impact from interest rate volatility to closing capital on the First Horizon acquisition. Adjusted revenue increased 14%, reflecting margin growth in the Personal and Commercial Banking Businesses, The impact of FX translation and higher advisory fees, equity commissions and global transaction banking and lending revenue in TD Securities. Provision for credit losses was $599,000,000 compared with $27,000,000 in the 2nd quarter last year. Reported expenses increased 16% and include acquisition and integration related charges. Adjusted expenses increased 12%, reflecting the inclusion of TD Cowen, higher employee related expenses, The impact of FX translation and higher spend supporting business growth.

Speaker 3

Absent the retailer partners' Net share of the profits from the U. S. Strategic card portfolio, adjusted expenses increased 12.3% ex FX. Reported total bank PTPP was up 3% year over year. Consistent with prior quarters, Slide 24 shows how we calculated adjusted total bank PTPP and operating leverage, removing the impact of the U.

Speaker 3

S. Strategic portfolio along with the impact of foreign currency translation and the insurance fair value charge. Adjusted total bank PTPP was up 6% after these modifications. Please turn to Slide 10. Canadian Personal and Commercial Banking net income for the quarter was 1 point Average loan volumes rose 6%, reflecting 5% growth in personal volumes and 11% growth in business volume.

Speaker 3

Average deposits rose 2%, reflecting 8% growth in personal deposits, partially offset by a 7% decrease in business In the current rate environment, we continue to see migration of balances into term deposits and other high yielding investments. Net interest margin was 2.74 percent, down 6 basis points compared to the prior quarter, primarily due to lower deposit margin. Many factors can impact margins, including the path of short term rates, tractor on and off rates, Customer Activity and Competitive Market Dynamics. While margins may bounce around quarter to quarter, We are pleased with the year to date margin expansion and expect return of moderate expansion by the end of the year. Total PCL of $247,000,000 decreased $80,000,000 sequentially.

Speaker 3

Total PCL as an annualized percentage of credit volume was 0.19%, down 6 basis points sequentially. Non interest expenses increased 8% year over year, reflecting higher spend supporting business growth, including technology and higher employee related expenses. Please turn to Slide 11. U. S.

Speaker 3

Retail segment reported net income for the quarter was US1 $1,000,000,000 down 3% year over year. Adjusted net income was US1.1 billion dollars up 19% year over year. U. S. Retail Bank reported net income was US859 million dollars down 5%, primarily reflecting higher non interest expenses, including acquisition and integration related charges for the First Horizon acquisition and higher PCL, partially offset by higher revenue.

Speaker 3

U. S. Retail Bank adjusted net income was US944 million dollars up 23%. Reported revenue increased 14% year over year. Prior year reported revenue includes an insurance recovery related to litigation.

Speaker 3

Adjusted revenue increased 24% year over year, reflecting higher deposit margins and loan volumes, partially offset by lower deposit volumes and loan margin and lower overdraft fees. Average loan volumes increased 10 Personal loans increased 12%, reflecting good originations and slower payment rates across portfolios. Business loans increased 9%, reflecting strong originations from new customer growth, higher commercial annualization and slower payment rates, partially offset by PPP loan forgiveness. Average deposit volumes, excluding soup deposits, were down 5% year over year, Personal deposits were down 3% and business deposits declined 6%. Balances were impacted by the economic environment and inflationary We also saw some migration to high yielding products, including CDs and non depository investment opportunities.

Speaker 3

Sweep deposits decreased 23%. Earlier this month, TD and Schwab amended the insured deposit account agreement to reflect the current market and interest rate environment. The revised agreement extends the term by 3 years and provides for lower deposit balances in the next in the 1st 6 years and higher balances in the latter years. In addition, the agreement increases certainty for TD around future deposit balances and strengthens our partnership with Zhuo. Net interest margin was 3.25 percent, down 4 basis points sequentially due to lower deposit margins Many factors can impact margins, including the path of short term interest rates, factor on and off rates, Customer activity and competitive market dynamics.

Speaker 3

While we are pleased with the substantial year to date margin expansion, We expect downward pressure again on margins in Q3, reflecting intensifying pricing competition in the U. S. Market. However, we do expect margins to resume growth, albeit moderately starting in Q4 with new tractor on rates. Total PCL was US140 $1,000,000 a decrease of US9 $1,000,000 sequentially.

Speaker 3

U. S. Retail net PCL ratio including only the bank's share of PCL for the U. S. Strategic cards portfolio As an annualized percentage of credit volume was 0.33%, lower by 1 basis point sequentially.

Speaker 3

Reported expenses increased 17% and include acquisition and integration related charges for the Force Horizon acquisition. Adjusted expenses were up 9%, reflecting higher employee related expenses and higher business investments. The contribution from TD's investment in Schwab was US185 $1,000,000 up 5% from a year ago, reflecting higher net interest income partially offset by higher expenses, lower asset management fees and lower trading Please turn to Slide 12. Wealth Management and Insurance net income for the quarter was $563,000,000 down Revenue increased 2%, reflecting high investment income in the insurance business, an increase in the fair value of investments supporting claims liabilities and higher insurance volumes, partially offset by lower transaction and fee based revenue in Wealth. PCL for the quarter was $1,000,000 an increase of $1,000,000 from the prior quarter.

Speaker 3

Insurance claims increased 36% year over year, reflecting the impact of changes in the discount rate, which resulted in a similar increase in the fair value of investment Noninterest expenses decreased 1% year over year, reflecting lower variable compensation, partially offset by higher spend supporting business growth, including employee related expenses and technology. Asset under management 3% year over year and assets under administration increased 2% year over year, both reflecting net asset growth. Please turn to Slide 13. Wholesale Banking reported net income for Quarter was $150,000,000 a decrease of 58% year over year. This reflects Higher noninterest expenses, which include acquisition and integration related charges for TD Cowen, partially offset by higher revenues.

Speaker 3

Adjusted net income was $213,000,000 down 41% year over year. Revenue including TD Cowen was $1,400,000,000 up 13% year over year. Higher revenue reflects Higher advisory fees, equity commissions, global transaction banking revenue and lending revenue partially offset by lower trading related revenue. PCL for the quarter was $12,000,000 a decrease of $20,000,000 from the prior quarter. Reported expenses increased 53% and include acquisition and integration related charges for TD Cowen.

Speaker 3

Adjusted expenses increased 44%, reflecting the inclusion of TD Cowen, continued investments in Wholesale Banking's U. S. Dollar strategy, including the hiring of banking, sales and trading and technology professionals and the impact of foreign exchange translation. Please turn to Slide 14. The corporate segment reported a net loss of $399,000,000 in the quarter compared with a reported net loss of $151,000,000 in the Q2 last year.

Speaker 3

The year over year increase primarily reflects lower revenue from treasury and balance sheet management activities, Adjusted net loss for the quarter was $177,000,000 compared with an adjusted net loss of $79,000,000 in the 2nd quarter last year. Please turn to Slide 15. The common equity Tier 1 ratio ended the quarter at 15.3 Down 14 basis points sequentially. We had strong internal capital generation this quarter, which added 28 basis This was partially offset by an increase in RWA net of FX, which decreased CET1 by 2 basis points. We saw a 14 basis point increase in CET1 related to the issuance of common shares under our dividend reinvestment plan.

Speaker 3

As Barrick mentioned, beginning with the dividend declared today and until further announcement, there will be no As a reminder, in Q1, We implemented credit risk methodology changes in preparation for Basel III reforms. The implementation of the Basel III reforms had a small positive Act this quarter. The Cowen acquisition decreased CET1 by 55 basis points, inclusive of the increase in RWA and increase in goodwill Relating to the First Horizon acquisition, a net loss from the mitigation of the impact from interest rate volatility Closing capital decreased CET1 by 2 basis points and an FX hedge increased CET1 by 4 basis points. All hedges related to the First Horizon acquisition are now closed. RWA, including FX, Increased 3.3 percent quarter over quarter, reflecting higher market risk and operational risk RWA, partially offset by a decrease in credit risk RWA.

Speaker 3

Credit risk RWA decreased $3,400,000,000 or 1%, mainly reflecting the impact from Basel III reforms, largely offset by the TD Cowen acquisition and volume increases. Market risk RWA increased $2,200,000,000 or 11%, reflecting the impact of the Cowen acquisition. Operational risk RWA increased $19,000,000,000 or 29%, reflecting the impact of Basel The leverage ratio was 4.6% this quarter and the LCR ratio was 144%, both well above published regulatory minimum. Finally, before I turn the call over to Ajay, I wanted to note that we appreciate that analysts and investors may have questions on the financial impact We have added Slide 26 in

Speaker 4

this presentation to assist in that regard. With that, Ajay, over to you. Thank you, Kelvin, and good afternoon, everyone. Please turn to Slide 16. Gross impaired loan formations decreased by 2 basis points to 14 basis points quarter over quarter, Reflected in the commercial lending portfolios, partially offset by further normalization of credit performance in the consumer lending portfolios.

Speaker 4

Please turn to Slide 17. Gross impaired loans were stable quarter over quarter and remained at low levels. Please turn to Slide 18. Recall that our presentation reports PCL ratios both gross and net Of the partner share of the U. S.

Speaker 4

Strategic card PCLs, we remind you that U. S. 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 provision Credit losses decreased 4 basis points quarter over quarter to 28 basis points. The decrease reflects a smaller performing allowance build this quarter.

Speaker 4

Please turn to Slide 19. The bank's impaired PCL was $551,000,000 a decrease of $2,000,000 quarter over quarter. The bank's current quarter impaired PCL rate remained well below 2019 levels. Performing PCL decreased by $89,000,000 quarter over quarter to 48,000,000 The smaller current quarter provision was recorded across segments. Please turn to Slide 20.

Speaker 4

The allowance for credit losses increased by $168,000,000 quarter over quarter, Reflecting an $83,000,000 impact of foreign exchange, current credit conditions, including some credit migration and volume growth. The bank's allowance coverage remains elevated to account for ongoing uncertainty relating to The economic trajectory and credit performance. In summary, while we've seen Ongoing normalization of key credit metrics in the consumer lending portfolios, the bank's credit performance remained Strong this quarter, evidenced by gross impaired loan formations, gross impaired loans and impaired PCLs remaining at low levels. Looking forward, After 2 quarters of continued strong credit performance, I now expect total PCLs in 2023 Results may vary by quarter. To conclude, despite recent challenges for the broader financial sector, TD remains well positioned given we are adequately provisioned.

Speaker 4

We have a strong capital and liquidity 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 and A session.

Operator

Thank you. We will now take questions from the telephone The first question is from Ebrahim Pudawala from Bank of America. Please go ahead. Your line is open.

Speaker 5

Thank you. First question Bharat, maybe on capital CET1, 15.3, it sounds Like you have no restriction in terms of what you can do in the U. S. I appreciate you can't talk about whatever the regulatory issue is, but The growth plans that you laid out sounds like TD can go about business as usual or sounds like you're accelerating your growth. But give us a sense of the 15.3 CET1.

Speaker 5

What is the right capital level that you're managing to? And how do you get there in a world where U. S. M and A probably is out of the question for the foreseeable future. Yes, maybe if you could start there.

Speaker 2

Yes. Hi, Brian. Great question and nice to talk to you. So firstly, we are Going through an uncertain period here from an economic perspective, markets perspective, volatility. So to have the level of capital we have that It's a good thing.

Speaker 2

It's always good when you have such an uncertainty in the marketplace. Secondly, As you said, we continue to invest in our franchises and over the next While you'll hear more about it, we will provide more detail as to how we are thinking about growth And that should be a good discussion and hopefully you'll be able to make it to the Canadian side of that Discussion on June 8 when we have our Investor Day. And as I said in my remarks, we will have a follow on Investor Day regarding our U. S. Business as well as our wholesale business.

Speaker 2

Targeting capital, I mean, I know last quarter there was lots of discussion By many of you that what's your path to 12% and I had laid out a clear path as to how we get to 12%. I guess around 12 would be a good target based on conditions as we know today. But we continue to see good growth in our businesses. I'm sure Michael, Leo, Riaz and Ray will talk about this Terrific momentum in our businesses and we are looking forward to deliver the volumes and taking share, which has been The historic advantage TD has had in any type of environment. So, and I leave it at that.

Speaker 2

As you know, we did announce a buyback of 30,000,000 shares. This is to reflect the shares we had issued under the DRIP in order to finance the First Horizon transaction. Since that deal is now terminated, it makes sense to buy back those shares. And we expect to finish that buyback by the end of the summer or so. And then of course, we will look at what makes sense and then we will be assessing the way forward from that with respect to capital deployment.

Speaker 2

But my message on capital deployment has not changed. It has been there for a few years. We look at what level of capital we're going to require to Support our strategies, RWA growth, market share growth. We have not been shy in deploying our capital where we think we need a capability build, Either we buy or build it ourselves. We look at in other opportunistic situations that might present themselves.

Speaker 2

And we also consider buybacks when appropriate. So that thinking of that framework remains unchanged. And I would Say that over the next few months, we'll be able to provide more clarity as to how we will deploy our capital going forward.

Speaker 5

But Bharat, are you saying that you are able to do M and A? Because it sounded like you may build or buy. So does that mean you can Do M and A if you wanted to because the expectation externally is given this issue that's whatever happened to led to the First Horizon termination, You're out of M and A for the foreseeable future. Is that a wrong assumption?

Speaker 2

I think to speculate on M and A It's always a dangerous game because nobody can say perfectly. But we've done deals previously on capability builds. I think in Ray's We acquired Greystone a few years ago. And Riaz's business, we just acquired Cowen. We in Riyadh's business acquired Headlands as well not too long ago.

Speaker 2

And so that goal it's an ongoing For us, either its capability builds or where there's an extension to our businesses and that will we will continue to look at those as they present themselves.

Speaker 5

Got it. I'll requeue. Thank you.

Operator

Thank you. The next question is from Meny Grauman from Scotiabank. Please go ahead. Your line is open.

Speaker 6

Hi, good afternoon. Just a follow-up on Ebrahim. Barrett, just wanted to better understand why not be more aggressively buying back shares here given the excess capital position? What's the counterpoint to doing a bigger buyback?

Speaker 2

I said, it would take us a bit of time to get the 30,000,000 shares bought and To that, we will reassess. And as I said in my comments, we should be able to complete this phase of the buyback By the end of the summer and then we will reassess our position and hopefully by that time we would have also outlined some of our growth plans And then we can discuss further as to what would be an appropriate level of buybacks.

Speaker 6

Got it. And then just Focusing in on the U. S, you terminated the transaction with FHM, but you still have a very sizable U. S. Business.

Speaker 6

And I'm just wondering how You view their U. S. Regional banking crisis, how that has impacted that existing business both in terms of good and bad from your perspective.

Speaker 2

I'll pass it on to Leo to provide the perspective on that. But we've been in the U. S. For many years. As you said, we have a sizable, great scale business From Maine to Florida, that has been a terrific and continues to be a terrific growth engine for the bank.

Speaker 2

And in this current crisis, in my remarks, I said how many new accounts we are opening, the type of business we're attracting. But Leo can perhaps Provide more perspective because we are viewed as a we have a brand that is second to none in the U. S. This particular turmoil, we've seen our deposits actually deposit flow to be attractive. The number of accounts The TD is I think in some of our business is a record.

Speaker 2

And Leo, why don't you provide some more color?

Speaker 7

Sure, Barrett. And Meny, it's good to speak to you. Obviously, the last 2 months, somewhat unprecedented in terms of the activity. The market has continued to see deposit contraction at the industry level. I think overall deposits down about a I think overall deposits down about $1,000,000,000,000 year on year.

Speaker 7

That coupled with obviously The liquidity scares that took place, it did no doubt the regional banks and some of the small banking players That might find themselves with either mark to market challenges from a capital standpoint and or commercial real estate concentrations do find themselves In a slightly challenged environment, as Barrett said, I feel really quite positive about our franchise. We've got a very strong deposit base. I think what probably characterizes our footprint in the U. S. Is that we've got probably one of the leading retail deposit franchises And it's held up quite well.

Speaker 7

In fact, on a quarter on quarter basis, retail deposits were essentially flat and we saw a very good account opening volumes. Even on the commercial side of the house, our commercial checking accounts opened in the quarter were up 29% on a year on year basis. So The franchise continues to perform well. We were resilient from a deposit standpoint. I do think that the market will be tighter as we move forward.

Speaker 7

We're already seeing Tighter credit conditions. And I think given the fact that we've got a strong capital base, liquidity to be able to Provide our clients with the support that they need through the cycle. I think we find ourselves in a very good position to be able to consolidate relationships with some of our key clients And be able to take share.

Speaker 6

Is growth in the U. S. Southeast still a priority geographically speaking?

Speaker 7

I'm sorry, can you say that again, Meny?

Speaker 6

The big part of the rationale for FHN was growing in the U. S. Southeast fast growing region. How important is growth in that region and can you do it organically?

Speaker 7

Yes, very much so. Many as Barrett indicated in his opening remarks, we've Outlined a plan to open up 150 stores. A very large portion of that is in the Southeast. So think Consolidating our footprint in Florida, specifically South and Central Florida, continuing expansion in the Carolinas. We already have a very strong footprint in South Carolina.

Speaker 7

Barrett alluded to the fact that we opened up our first store in North Carolina. I was down in Charlotte with the Mayor, Had a great grand opening. We're going to continue to lean into that market as well. Atlanta is the market. It's the one major metro market where we do not have A significant retail presence and we're going to lean into that market.

Speaker 7

We've already got an interesting commercial footprint, but we want to continue to expand there. And then selectively outside of that Southeast footprint, Meny, there are gaps that we think we had in our Urban Market Centers, so think Boston, Philly, New York, where we think there are expanding communities, growing communities where we'll Lean into this sort of round out our existing footprint, but the Southeast is going to be a very important part of the overall equation. Thank you.

Operator

Thank you. The next question is from Scott Chan from Canaccord Genuity. Please go ahead. Your line is open.

Speaker 8

Thank you. Good afternoon. Maybe I'll stick with you, Leo, on the U. S. Side.

Speaker 8

I noticed that your loan growth was pretty strong quarter over quarter, Retail, Commercial and Mortgages. And it seems like your peers have kind of stepped back or called it the market conditions. And Just wondering if TV is just a bit more aggressive or how are you kind of gaining that incremental market share that we've seen over the past few quarters.

Speaker 7

Sure. Sure, Scott. Let me just provide a little bit of color on the numbers because I think it'll help. We were pretty balanced in terms of loan growth in the quarter, both our personal and our commercial banking businesses ex PPP We're up double digits. If you look at the consumer side of the house for just a moment, 17% in terms of overall balance growth on a year on year basis.

Speaker 7

I'd like to say that it was powered by Significant origination growth, it wasn't. We had solid performance in terms of origination. I think the real story was pay downs. Paydowns are at historical levels and obviously what we did originate resulted in good loan growth and we tend to be slightly undersized in terms of our overall Mortgage book, so it provided us a good headline print. Cards, we were really pleased with the cards performance.

Speaker 7

We saw 9% growth in cards. And the lion's share of that was actually in our proprietary line. So think bank card and our retail card services business We're up 15% 13% respectively. And then the auto business, which obviously has been quite challenged with supply chain issues, Saw some very good performance. We were up 6%.

Speaker 7

And more importantly, we're seeing good risk adjusted yield expansion In that market, so we're hopeful that will translate into greater profitability. On the commercial side, we continue to do well from a commercial standpoint. I think a combination of factored plays played into it. We saw a little bit more growth than we did in previous quarters In the small business and the community regional segments, commercial real estate is still somewhat Sluggish as you would expect. We've been cautious in that area.

Speaker 7

We've been quite deliberate over the past 3, 4 years and we've reduced our overall exposure to commercial real estate. But we saw good solid growth in the mid market and the C and I Community and the pipeline remains strong. I'll just caution a little bit that I think the outlook, the debt ceiling discussions, I could see a little bit of moderation in that commercial I'm sorry, in the commercial banking space, at least in the near term. But I'm still quite confident that once again given our capital, our liquidity position, we'll be able to support clients through the cycle.

Speaker 8

Thanks, Leo. And maybe just for Riaz on Capital Markets. I would suspect that 2 months of Cowen would have held up Profitability in the segment, it seems like Cameron's run rate of profit is about $50,000,000 a quarter in the normal market. So Can you help us maybe unpack where the shortfall came? Was it your core business Cowen or just market factors?

Speaker 9

Scott, thanks for that. Look, I think overall, the quarter continued to We continue to kind of navigate a difficult operating environment with kind of mixed results by business. So Overall trading results, equity underwriting and U. S. M and A were revenue headwinds So Canadian M and A revenue was spectacular for us this quarter given we were able to close 3 or 4 transactions that had already been in the pipeline.

Speaker 9

So all in all, kind of a mixed result on revenue with 14% growth. I think U. S. Equity and M and A would have been lighter by U. S.

Speaker 9

Dollars 50,000,000 to 75,000,000 Let's say on what our overall expectation would have been. But as you say, thrilled to close We had a nice equity nice pickup in equity commissions and a little bit of contribution on the advisory side and expect a strong pickup in revenue and markets Turn more favorable. And then on the expenses side, we've been talking about the significant investments we've made in Growing our U. S. Platform and now including the acquisition of Cowen.

Speaker 9

So all in all, I think I'm really quite excited and optimistic to prepare TD Securities and Wholesale Bank for its next Phase of growth, but I do expect revenue and expense numbers over the next couple of quarters to remain a bit bumpy as we adjust and optimize business mix And deepen the integration. So I think it will be we'll hit our more of a run rate stride by fiscal 2020

Speaker 8

Okay. Thank you very much.

Operator

Thank you. The next question is from Doug Young from Desjardins Capital Markets. Please go ahead. Your line is open.

Speaker 10

Good afternoon. I guess the question is for Kelvin. In your prepared remarks, you talked about NIMs in And it sounds and correct me if I'm wrong, but it sounds like you expect some moderation in Q3 and then a return to modest Expansion in Q4 and then it sounds like maybe going into fiscal 'twenty four, but I don't want to put words in your mouth and correct me if I'm wrong. But What I'm kind of I'm trying to figure out is what's driving that? Is it just the pickup in tractors in Q4?

Speaker 10

Like what gives you the confidence that it will start to moderately expand to Q4 going forward.

Speaker 3

Thanks, Doug. Yes, it's Kelvin here. That's correct. The tractors are going to be supporting that trend. Obviously, there are many factors that impact Margin is not just about rates, but also competitive behaviors as well.

Speaker 3

But when you're looking at rates, what we benefited from over the last And then now we're looking at tractors coming on with tractors on rates being higher than the off rates. And so that's going to be supportive of margin expansion, but more gradually Than what normally you see in short term rates increases.

Speaker 5

Is there

Speaker 10

a reason why it's Q4? And is there a structural reason why there's a delay and you don't see that unfolding in Q3?

Speaker 3

Well, it really depends on what the rates were 5 or 7 years ago. And as these tractors price in Every month is like a laddered bond portfolio that gets repriced. And so bit by bit, it actually Helps with the margin, which is very different than if you have short term rates on growth rate investment because when there's a change in Central Bank rate then that entire deposit Investment from those deposits get repriced, whereas tractors is 1 of a Fraction of that every month and then over time it builds. Yes.

Speaker 10

No, I understand. And you haven't disclosed The size of the Tractory portfolio or have you or would you be willing to?

Speaker 3

No, we haven't disclosed that detail. Okay.

Speaker 10

All right. And my second question is, I guess, in the U. S, you had a decline in sweep deposits from Schwab, 11% quarter over quarter. I think I kind of get what drove it, but can you talk a bit about what drove it? And can you talk a bit about the new sweep deposit agreement And how that impacts the economics for TD going forward versus the old agreement?

Speaker 10

And what are the puts and takes that we should think about?

Speaker 7

Yes. This is Leo. I can take that. Maybe just to start with the quarter itself. So suites closed the quarter at about $110,000,000,000 it was down 23%.

Speaker 7

And essentially as would have been reported by Swab, a lot of that is simply clients Cash sorting or looking for brokerage fixed income yield pickup visaviseposit sweeps. So a very expected sort of behavior amongst clients that are investing with Schwab for investment returns. We do expect that trend to continue, albeit maybe moderate a bit as we think about the subsequent quarter. I think we're quite pleased with the new agreement. Kelvin outlined the basic terms of the agreement.

Speaker 7

It essentially extends the agreement Wishwaffe for another 3 years, and it increases our long term floor in that agreement

Speaker 11

up to $60,000,000,000

Speaker 7

which is certainly important to us in terms of preserving that strategic relationship. We do provide greater flexibility for them to accommodate some of that cash sorting behavior that's taking place. We would expect a little more downdraft into 2024. We think that the actual impact on that is going to be manageable and something that It can certainly be absorbed within the overall revenue performance in the business.

Speaker 10

Am I right that you're sharing more of the yield on those sweep deposits in the new agreement with Schwab versus prior because you're reflecting obviously the current rate environment versus the way it was structured Is that am I right to think of it like

Speaker 7

No, no, no. The actual economics on the actual sweep structures themselves That hasn't changed. What the only fundamental change is providing a lower floor that gives them greater flexibility in terms of liquidity management in the short term.

Speaker 10

Okay. Appreciate it. Thank you.

Operator

Thank you. The next question is from Paul Holden from CIBC. Please go ahead. Your line is open.

Speaker 12

Thank you. Good afternoon. A couple of questions related to the U. S. Retail business.

Speaker 12

I guess, first off, Just looking at the increase in average FTE across the different segments, I noticed U. S. Retail is up 12% Year over year pretty significant. So maybe you can talk about some of those investments you've made in the SP, like what specifically Are those 4 are those related to the new upcoming store openings? Or is it a separate investment?

Speaker 7

Yes. Paul, thanks for the question. Actually, three sources just to maybe oversimplify a bit. One, a portion of that is just returning Staffing levels to pre pandemic levels in both in all of our front facing areas. So think the stores, the call centers, We had experienced attrition through the pandemic and now we're returning that and fortunately that increase is translating into Better customer satisfaction score.

Speaker 7

So we're quite pleased with that investment. The second grouping is a very deliberate investment in our digital technology and data initiatives. It's a major thrust. So not only are we trying to grow the store network, which has historically been A real asset for TD in the States, but we're also complementing with a big push on digital and mobile And those investments and that staff complement is supporting the delivery of some critical initiatives there. And the third was actually resources for the First Horizon integration program.

Speaker 7

And so what you would expect us to do is unwind those resources. We're going to do that gradually, obviously, where we have an opportunity to be able to backfill into our core franchise, we'll certainly do that. But We'll see a reduction there with regards to the overall integration resource that we had put in place.

Speaker 12

Okay. That's great color on that.

Operator

And then I want to ask a

Speaker 12

question on the planned store opening. So I think we all agree it's a right long term strategy, but we also know the market can get a little bit fussed around the growth in expenses ahead of the Planned revenue benefit. So just wondering how you're trying to how you plan on sort of legging in these store openings, if there's Any planned expense efficiencies against it or maybe just give us a general sense of how you envision The expense growth in the U. S. Business as a result of this planned strategy.

Speaker 7

Sure. Paul and Barrett talked about trying to do an Investor Day and I look forward to being able to share maybe the more fulsome strategy with you. But We're essentially looking to invest in 4 critical areas, our consumer distribution expansion, the store expansion that we talked about, Leaning into digital and mobile capabilities and making sure that we're delivering a commensurate legendary experience through those Digital assets, growing our cards franchise and then finally building out our national commercial banking footprint. Underpinning all of that is a very deliberate Productivity program focused on identifying structural opportunities to not only fund these programs, but hopefully give us Some absorptive capacity for what might be declining rate cuts in the future. So Productivity is going to be a very important part.

Speaker 7

We've already enacted some of those measures. You would have seen our expense growth rate On a quarter on quarter, we were down 3.8% and we will continue to lean in on trying to Partially fund some of our critical investment and critical growth initiatives. So that will certainly be part of the strategy.

Speaker 12

Got it. Okay. Thank you. I'll leave it there.

Speaker 13

Just maybe Paul, I'll add one thing Leo is that as we're making Early days, but certainly strong progress on growing our U. S. Wealth business in partnership with LEO's retail and commercial business. And so Some of the FTE that you'd see that we're making investments in the U. S.

Speaker 13

Is actually to accelerate our advisors In the U. S. Footprints in sort of our 4 major markets and we've taken our playbook here, our very successful playbook

Speaker 2

on how

Speaker 13

to build out a financial planning business for the mass affluent affluent clients from Canada and we're exporting that into the United States and already seeing very early promising signs.

Operator

Thank you. The next question is from Gabriel Dechaine from National Bank Financial. Please go ahead.

Speaker 14

Yes. Good afternoon. I'll rapid fire these. The U. S.

Speaker 14

Business, I saw that you used a few more Federal Home Loan Bank deposits, just wondering why you tapped that funding source higher cost given that your balance sheet in the U. S. Is so liquid to begin with. Then the wealth business in Canada primarily, I saw transaction revenues down 35% year over year. Wondering how much of that is caused by fee impact or changes to your fee structure versus Just market behavior subdued.

Speaker 14

And then on the wholesale business, I get markets weren't favorable this quarter, but Operating leverage was quite negative this quarter and I'm wondering how you're thinking about the combined Cowen and your legacy business and The cost base there basically.

Speaker 7

Gabe, why don't I take the first one with regards to FHLB borrowings. Borrowings in the quarter went up to $19,500,000,000 up from $10,000,000 at the end of last quarter. We typically use it as a temporary bridge source of liquidity. Sometimes It is more economic to do that than breaking into an investment position that hasn't yet matured. To give you a sense, we've already on a spot basis today, those borrowings are back down to $11,500,000,000

Speaker 12

Okay.

Speaker 7

So it's Simply a transitional source of funding

Speaker 13

for us. And then, it's Raymond. If I think about Canadian wealth, the question you had on fee income, I would say similar to the rest of the industry, there's probably 3 Headwinds that are impacting fee income. 1 is equities. And with the S and P on average down about 8%, That will have headwinds on our fee income side of the business.

Speaker 13

The other piece is trades per day. And trades per day continue to normalize in our direct investing business, still down about 29% on a year on year basis. It's still up From pre pandemic levels, but we're still seeing a normalization on trades per day. And then like the rest of the industry, A deposit mix with the higher interest rate environment that we're in, we're certainly seeing some of our deposits Staying within the TD family, but moving to more interest bearing products like GICs in the short term. What I would say though is the fundamentals of the business I'm very pleased with.

Speaker 13

It's continuing to see very strong net asset growth, Which is leading to market share gains across all of our Wealth Management businesses. And so whether that's in our institutional asset management business, we're widening our We're picking up more from a market share on trades in general in the direct investing business. We picked up market share in new accounts in direct investing and continue to be the fastest growing private wealth management business in Canada. So The fundamentals of the businesses are strong, and I think the impact that you're seeing on fee income are more industry related at this moment.

Speaker 14

Yes. No, I was asking specifically about the trades, No, that's a volume client behavior thing, not there's no because you have tweaked your fee structure a bit and you're telling me that hasn't really had an impact there?

Speaker 13

That's had nominal impact on the introduction of that.

Speaker 14

Okay. Thanks.

Speaker 9

Eivai, just to add on the wholesale side that As you know, we've been building out our U. S. Capabilities for a number of years now and And essentially, the Cowen acquisition was about that. And you'll remember when we announced the transaction, We said that the transaction was not about cost synergies. And I I think as we move things around and optimize things, we'll find some efficiencies.

Speaker 9

But clearly, with the weaker markets, we're going to go through a little bit S curve to build up the revenue with the elevated cost base. But look, I think I have to say to you that from the announcement of the transaction and now since closing, we're kind of 90 days since closing. There is such an overwhelmingly positive reaction from our clients, both legacy TD Securities as well as legacy Cowen clients, as to what we can do together and as the teams have started to work together, we're already involved in So much dialogue as a combined form with our clients that we could have not done individually on our own. So I feel incredibly positive about the acquisition and the transaction, and I

Operator

Thank you. The next question is from Lamar Persaud from Commerc Securities, please go ahead. Your line is open.

Speaker 15

Thanks. I appreciate the commentary on the segmented margins. But I'm wondering, does that translate through to the All Bank level? So we should expect a pause on expansion of the All Bank level for Q3 and then expansion again in Q4. Is that fair?

Speaker 3

Generally speaking, there is a correlation, but at the total bank level, Assuming you mean, ex trading, the core NIM, you also have impact on some of our hedging activities like in corporate And also the sweep deposit that is not included in the U. S. P&C Business. And then generally, we don't talk about the trading The non trading NIM of TD Securities, but they do have that impact as well as is Wealth and Insurance. So Those are some of the components that could be refined in terms of estimate versus the 2 big U.

Speaker 3

S. P and C Businesses.

Speaker 7

So

Speaker 2

it depends on the movement

Speaker 15

of those other factors. You're not offering any

Speaker 3

Yes, because those ones like if you look at like the hedging stuff that could bounce around in corporate. But I think the important thing is that for the fundamentals Our retail businesses, that is what we expect for those segments.

Speaker 15

Okay. Okay. That's fair. And then maybe for A. J, but can you talk a little bit about the office portfolio?

Speaker 15

How much of that is Canada versus U. S? And Should we expect some rising losses on this portfolio moving forward?

Speaker 4

Thanks. I'm happy to respond. So Office, I'd say, overall is about 11% of total CRE and as a percent of Total bank loans and BAs is 1%, so it's quite small. Dollars 3,000,000,000 of that which is approximately 30% of our loan And it's spread across A, B and C Properties. The one distinguishing factor in Canada is that you have Meaningful recourse to guarantors and the portfolio is performing at present quite well.

Speaker 4

In the U. S, our exposure is $7,300,000,000 70% of that is in major And a significant portion of our exposure is actually Class A properties. If I look at both Canada and the U. S. Across OfficeCree, I would describe the classified exposure or what we would call watch exposure and impairment levels And what we've done as a bank is we've stress tested our office portfolio.

Speaker 4

So we've looked at rates, a rate stress, A lease renewal stress and a value stress, and we find ourselves already well reserved For such stress, because we didn't release our CRE reserves. We kept most of our CRE reserves and our CRE reserves overall Approximately 2.5 times pre COVID level. So we feel we're well reserved from what data we note today. And overall, I'd say we draw comfort from the fact that we do have a lot of depth of experience in this space. And As I said, the reserve levels give me comfort as well.

Speaker 4

So hopefully that's enough color for you.

Speaker 15

Yes, that's really helpful. Thanks. That's it for me.

Operator

Thank you. The next question is from Juho Kim from Credit Suisse. Please go ahead. Your line is open.

Speaker 15

Hi. Thank you. Good afternoon. I just had a quick question and I wanted to ask on the on capital deployment. And I appreciate that you provide that you will provide more clarity as we look ahead.

Speaker 15

Well, I wanted to see if you can discuss sort of beyond the U. S. Retail Banking space where you're seeing Some interesting opportunities. Could we maybe see the bank do something in the wealth space in Canada? Or would the bank Even consider sort of an auto footprint acquisition opportunities as we look ahead.

Speaker 15

I'm just trying to get a General sense, so any color or commentary would be helpful. Thank you.

Speaker 2

It's hard to speculate on M and A. No, it's difficult to say where because these opportunities present themselves when market conditions But as you've seen in Canada, whenever there is an opportunity, TD looks at it very seriously, given our size, scale and the number of customers we have. And I Pointed out an example of TD Greystone was a terrific acquisition. It was about 3 years ago, 4 years ago. We continue to monitor the market for what is possible and what would make sense The important thing to note is that at TD, we are disciplined on this.

Speaker 2

I mean, just because we have the capital, we don't want to chase everything It's out there. It has to make strategic sense. It has to make financial sense. It has to be within our risk appetite. It To be culturally aligned, we have a very disciplined approach on this.

Speaker 2

But if the transaction were to fit all that, And then of course, we look at it very seriously.

Speaker 15

Got it. Thank you. That's it for me.

Operator

Thank you. The next question is from

Speaker 11

Without going into the details of the regulatory constraints, if you will, in the U. S, can you comment If resolving those issues will mean elevated spending in the foreseeable future?

Speaker 2

It's the bank spends, what's how much do we spend in a year, Kelvin? What's that? I think it's $20 odd 1,000,000,000 The scale of TD is quite large. And whether we have to spend on this or that, I mean, of course, there's a prioritization required as you would expect in any business. And It's normal course stuff to continue to look at opportunities to invest in our platforms.

Speaker 2

And you've heard Some of the things that Leo was talking about and that's an investment. And I would add and I think the question was Because the expenses are upfront and the returns are later on, but at TD, we've had a tradition of doing what is right over the long term. I mean, we don't see we don't look at what's our quarter to quarter. Of course, you look at it and we Take it seriously, but the whole plan here is that are we creating long term sustainable shareholder value or not. And that's the way you should think about it.

Speaker 2

And I'm surprised my friend Michael Rhodes is sitting here and he's got such a great story. So I'm going to pass it on to him to talk about what are you doing in the biggest business we have

Speaker 16

Barret, thank you for the question.

Speaker 11

But just can I sorry, sorry, Mike, I would like to hear from you? But My question is resolving the regulatory issues in the U. S. So I would love to hear from Canada for sure, but The issues in the U. S, will it require elevated spend?

Speaker 11

Is this do you have to spend money to issue there to resolve the issues in the U. S. With the regulator?

Speaker 2

When the time is right, we will talk more about it. We got an Investor Day coming for the U. S. As what our spend levels will be and How we'll be spending it and what categories we'll be still spending in. So stay tuned, Sohrab, on that.

Speaker 2

The U. S. I like the question, the FTE increase in the U. S. And the investments continue to be at Quite a pace in the U.

Speaker 2

S. And I don't see that changing.

Speaker 16

So Barrett, do you still want me to answer your question?

Speaker 17

Yes. Okay.

Speaker 16

Thank you for the question, Barrett. But you think about obviously a lot of great things going across the enterprise and Throughout the conversation, Leo, Ray and others have used the word fundamentals quite a lot and I'm going to use the word fundamentals also. And I think about the fundamentals, the Canadian Personal Bank Really quite strong and particularly strong this quarter. Barrett, you mentioned in your introductory comments, 20 8% growth In everyday bank accounts on a year over year basis, checking accounts, savings accounts, credit card accounts and relative to pre pandemics more than 20% growth. So We're doing very well there.

Speaker 16

Our core checking account in the Q2 are the best ever. The core checking account is a franchise account from which Like all other sorts of goodness happens in terms of deepening relationships. Our net customer growth is the best we've seen in years. Our deposit growth is $20,000,000,000 on a year over year basis, 8%. Our cards growth was 14% and we continue to expect strong growth on an ongoing basis.

Speaker 16

Our new account acquisition has been strong and we haven't quite returned to pre pandemic, but we have a ways to go to return to pre pandemic levels On revolve rate, our resol growth was the best sequentially in the marketplace, if you actually look on a spot basis And recognize the market has been slow for real estate in general, but we're certainly seeing green shoots and It's not just the retention that's been very strong, but our acquisition pipeline has been good. And then year on year, we've had 100 and 100 of new advisors. And so our fundamentals are strong and we feel good with the pipelines we have to drive continued growth on an ongoing basis. And It's really across the franchise between Leo, Barb, Ray and myself and Riaz feel good about how

Speaker 2

Thank you, Michael. Appreciate it.

Speaker 11

Michael, thank you very much. I hope you didn't front run your June 8 event. Can I ask a second question since you answered Barrett's question? I guess my second question again for the team is obviously nice to have the elevated capital levels. How much Does the ROE drag from that elevated capital level factor into the urgency to deploy it?

Speaker 2

So we generate good returns, Sohrab. If you look at our ROEs, we like where we are. It's well in excess of our cost of capital and it's within the range that you see historically from TD. So we feel comfortable. And like I said, You should not assume that just because we have capital in our pockets that it's burning a hole there and then we need to be impatient as to how we manage that.

Speaker 2

It is important that we look at the environment, look at what our own growth And those things are important factors for us. So the ROE drag is Something that I'm sure Calvin will keep on calculating, but we feel pretty comfortable as to where we are.

Speaker 7

Thank you.

Operator

Thank you. Okay. The next question is from Nigel D'Souza from Veritas Investment Research. Please go ahead. Your line is open.

Speaker 15

Good afternoon. Thanks for taking my question. Just a couple of quick follow ups. First on deposits, wondering if you could Expand on the trends you're seeing for migration to term deposits. What's the rate of that migration this quarter versus And on the U.

Speaker 15

S. Retail side, any color on trends you're seeing specifically for noninterest And on the short deposits?

Speaker 16

Okay. Versus Gannon. Versus Gannon. Okay. Sure.

Speaker 16

A great question. And Well, first of all, I'll just start with sort of stating the obvious that our strategy is to grow our core deposit franchise and We pick our spots to compete and we've been obviously very pleased with the results we've seen so far this year. And one thing I should probably underscore which I didn't mention Earlier is new to Canada is really doing a great job of actually fueling our core customer relationship growth and certainly our core deposits. And so when you look at our total deposits up $22,000,000,000 on a year over year basis, you can then disaggregate core deposits From term deposits. And you'll see 2 things as we look at the data.

Speaker 16

First one is that our overall mix Of core deposits is better than the marketplace. And then second, as if you look at the trend lines in the marketplace, everyone's seeing some degree of migration, We're seeing less migration than others in the marketplace. And so I actually feel very good about where we are in terms of our overall mix, our deposit behaviors. And then certainly brought to the marketplace both in absolute level and in trend line, we look quite good.

Speaker 13

And Nigel, I'll just add, it's Raymond that and I said it a little bit earlier from a wealth perspective, we are definitely seeing some of our deposits From our cash and mutual funds moving to more interest rate sensitive products like GICs, high interest savings accounts. And so what you'll see is the deposits are moving from the wealth business, but they're actually staying inside the TD Franchise and moving into Michael's personal deposits. And so net net, you're seeing still us retaining our What I would say is that migration has definitely slowed significantly. And so we do think hopefully that we've reached the bottom of that And those deposits that are sitting in GICs are sitting in short term. And so we do see as the markets do turn, the opportunity for those funds to come back into the equities.

Speaker 2

Before Leo takes it, Barb, you want to comment on business deposits as well?

Speaker 1

Yes. The story is similar. We are also focused On core deposits and our core deposit business remains very strong and stable. We have Seeing core deposits move into term deposits. We're very price disciplined on term deposits And they really for the majority of our clients aren't franchise type deposits.

Speaker 1

They're very transactional. And We don't write business to any great extent that is not economically attractive for us. And so That's what we've seen. Is it slowing? I'd say we saw some slowdown in April.

Speaker 1

1 month doesn't make a trend, so we'll have to wait and see.

Speaker 7

And Nigel, maybe just giving you a sense of what are some of the underlying trends. Earlier in previous quarters, we were seeing some of the excess pandemic deposits running out of What I would call the mass retail and small business client basis, we didn't see that this quarter. In fact, retail deposits under $100,000 Actually increased overall despite the uncertainty in the marketplace. So we felt really good about the that sort of core Retail and Small Business Client Franchise. Where we're seeing more migration is obviously clients, Mass Apple and high net worth clients on the retail side and your institutional larger corporate mid market players, Which are actively yield seeking.

Speaker 7

And so to give you a sense in our commercial banking business, we had just 3 very large clients Move significant amount of deposits into TD Wealth and secure brokerage returns that are better than what they were securing So we're still seeing that at the margin. Now medium term rates have come off a little bit and so Some of that may not be quite as attractive as it might have been, but I still think there's going to be some yield seek That's likely to take place in the market. We have looked at our pricing. I think our pricing is solid. But given the strength of our deposit, We certainly aren't pricing at the margin.

Speaker 7

I think we've got a strong core and I think we can defend our current pricing in place.

Speaker 15

Got it. And could you also comment on the level of excess deposits and maybe tie it down into the rising debt service costs or Potential behavior changes by your clients in Canada, I guess, focus in the U. S. Maybe in variable mortgages, are you seeing higher Paydowns to kind of manage the renewal payment shock or what are you seeing on the excess deposit side?

Speaker 16

So, if I look at our deposit book in a situation where both obviously the mortgage and the deposits, It's actually interesting. On average, we're actually seeing more discretionary reduction in spend And customers who don't have a mortgage than who do have a mortgage. And so mortgage customers in general are handling things very well. And then when you look at customers who have renewals coming up, Again, we're seeing that customers are making very modest shifts in their discretionary behavior. When you get to trigger rate customers, there's a bit more of a shift.

Speaker 16

But Overall across the board, our customers are handling the increased payments on their mortgages, I think quite, quite well, Majid?

Speaker 4

No, I agree with that. And actually the deposits, look at the numbers quite closely, are continue to be well above pre COVID levels. It's not only Canada, it's United States as well. And again, our experiences as customers are reaching their rate reset In our dates, they're doing the right thing. Some of them are even taking actions earlier.

Speaker 4

So the overall quality we're seeing On RESL, but even on the variable interest rate mortgage book is good and it's really no difference. So customers are So far adapting quite well.

Speaker 7

And Nigel, I would just add from a pay down perspective in the U. S, We're still at historical lows. Obviously, we don't have the same variable pricing Challenges that the Canadian market has. So we're not we're seeing record low pay down activities in terms of the reso book. Likewise, on the commercial side, pay downs were down significantly in the quarter.

Speaker 7

So That's contributing to some of the actual loan growth that we're seeing over the past couple of quarters.

Speaker 2

Okay. That's helpful. That's it for me. Thank you.

Operator

Thank you. The last question will be from Mike Ryszynowicz from KBW Research. Please go ahead. Your line is open.

Speaker 17

Hi. For Michael, I think part of your great Canadian story is your residential mortgage book. So just looking at your market share gains, it looks like it was pretty much across the board. Every region you picked up Share among the big five this quarter. My question is, how much how highly correlated is that to your margin compression in Canadian P&C Banking?

Speaker 17

I'm not sure how spreads Active in the quarter in the mortgage lending business, but was that a meaningful impact to the margin downside that we saw?

Speaker 16

I can make this answer very short. No, that was not a meaningful The mortgage performance that we had was just from a combination of very strong retention of our existing book. And I think we've we're just getting better and better at winning new business on the front end. And so that would not have had a meaningful

Speaker 17

Okay. Thanks, Matt. And then just a really quick one for Barrett and sorry to kind of keep circling back to this, but With respect to whatever it is going on with the regulators in the background, can you at least delineate if this is In any way impactful on your ability to deploy capital in non deposit taking institutions. I think it's a fair assumption that we're all making that you Can't buy another bank, hence FHM got canceled. But what about if you were to look at like a wealth or capital markets acquisition, Is it any different or does the same whatever issue is going on in the background impact

Speaker 11

Put the whole thing on, I guess, on hold

Speaker 17

in terms of capital deployment. Is there a difference between the 2?

Speaker 2

Well, it depends what it is. And I mean, the approvals take time and so we'll have to assess depending on what kind of opportunity there is in the market. And Mike, as I can't comment any further, but we look at all kinds of transactions and many of them don't make It's hard to speculate on what we would do or what we would not do.

Speaker 17

Okay. So you are open to other Types of M and A, not just necessarily deposit taking institutions. Is that a fair assessment?

Speaker 2

Riaz just signed a big jig in but Cowen, so.

Operator

Thank you. There are no further questions registered. At this time, I will talk sorry, Turn the call back over to Mr. Miltrayne.

Speaker 2

Yes. Thank you, operator, and thank you, everyone, for joining. I know we went long, but this is Such a great discussion. Brook thought we should keep on extending since we have so much interest. But thank you.

Speaker 2

It was a great, great call and Terrific questions as well. And hopefully, we'll see all of you on June 8 here in Toronto, really looking forward to it. And I would end by thanking my TD colleagues around the world. They are the ones who keep on delivering for all our stakeholders, including our shareholders. So thank you to all of you and See you on the 8th.

Operator

Thank you. The conference has now ended. Please disconnect your lines at this time And we thank you for your participation.

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Earnings Conference Call
Toronto-Dominion Bank Q2 2023
00:00 / 00:00