The Toronto-Dominion Bank (TD) Earnings Call Transcript & Summary

Welcome back. I would like to welcome our next presenter, or guest, Teri Currie, Group Head, Canadian Banking and for TD Bank, obviously, and a role that she's had since January 2016. We were supposed to be in this -- having this dialogue last year but things happened. And here we are today. So glad we're able to make up for last year. Teri, welcome, and good morning.

Thank you so much. It's great to be here.

Okay. So let's talk about -- I mean, I don't want to spend too much time on retrospective, but obviously, the last year was very challenging for results, and we're starting to come out of the downturn here. Can you talk about some of the biggest challenges that were in place last year? And how you see those challenges kind of either diminishing? And basically, what's driving your improved outlook, some of the key factors for that in the year or two ahead?

Absolutely. Thank you. So I think what we really saw throughout the pandemic was the benefit of the investments we've made in our omnichannel strategy before coming into the pandemic, which really served us well as customers needed to move more of their activity to a self-service or virtual format. Also, we saw the real strength of the Canadian retail, diversified business mix and the fact that wealth, as an example, in Q1, showed the highest trading volumes ever and the highest asset levels ever. Insurance earnings were very strong. When you look at the sort of core personal and commercial banking business, I think lots to talk about in terms of how we look forward to momentum. Real estate secured lending on a relative basis in 2020. Obviously, we did see some challenge, and I put -- part of that down to as we entered the pandemic, our mobile mortgage specialist model was that our customers came into the branches to sign their lending deals so that we could introduce those customers to our great people in the branches into those relationships for them for the future. And also for our branch colleagues, we needed to get end-to-end capabilities to sign deals virtually. So we worked through that very quickly at the beginning of the pandemic but we did take measures, maybe a more assertive measures, on the colleague and customer health and safety with 40% of our network closed for the majority of that time really between March and our full reopening in September. The great news on real estate secured lending is we've done a great job of investing in that business, arguably, the broadest set of channels available for customers to come to us and I'd say, the industry leaders in the digital capabilities and we've seen our year-over-year growth since branch reopening, our amortizing year-over-year growth -- grow every single month since we saw the full branch reopening, and we're continuing to invest in initial advisors, the training of our advisors, and in particular, kind of the automation sort of in the adjudication and the part right up to funding for mortgage volume growth. We've been consistent throughout the cycles in the mid-single digits. We were higher, obviously, in the more recent periods with record originations in Q1 and our best 2 quarters ever in Q4 and Q1. On the cards front, if I speak to momentum, the investments we've made to round out our credit card offerings have really served us well. In the most recent period, our cash back results exceeded the industry. And if you think about the areas of spend where we have great strength to come as economic activity reopens in travel and luxury and entertainment, I feel like we're very well positioned there. If I think about direct investing, I mentioned it earlier, but for the third year in a row, the Globe and Mail rated us tops amongst banks. That's obviously been an important contributor to the capabilities and the advice that we have available, both self-service and education through direct investing and across our wealth advisory of our branch banking advisors. We've done a great job in TD Auto Finance. Indirect lending has held up well -- indirect auto lending, and we've continued to take origination share in TD Auto Finance. We announced our Wells Fargo equipment leasing purchase in Q1. We're looking forward to that deal closing in Q3. And we will see the opportunity to have more capabilities and more bankers available to our customers in that business. I already mentioned the strong overall Canadian retail results. But I did, at the beginning, talk about our omnichannel capabilities. And we are the largest digital bank in Canada. We have the highest digital engagement according to comScore, and we continue to widen that and that's really, again, those capabilities to move our customers across our channels and to help them sort of end-to-end digitally has been a real factor. When I think about the franchise going forward, we are obviously a deposit-rich, interest rate-sensitive, personal bank and Canadian retail bank. And I think that positions us nicely. As the yield curve potentially steepens, who knows when that will happen exactly, but I think we're well positioned for that. And our leadership in personal deposits has continued to grow, and that's a way that we grow customers for the entire One TD franchise. And when I think of some of the factors that have really, to your point around, been difficult during the pandemic, we saw card balances come off quite significantly for those areas of spend that I mentioned that weren't happening. Customers weren't spending in those categories. And in the commercial business, we would have seen commercial line usage go down. And so the mix that we've seen has obviously been less attractive from a NIM perspective, but very attractive from a volume perspective across those businesses. And so again, if you put all that together, I think we're very well positioned to grow moving forward.

Okay. And you've got a very large and -- a large consumer lending business. [Technical Difficulty] set mortgages aside, but you talked about cards. You mentioned auto lending. Are there any, I hate to use the term, green shoots here when you're looking at the cards business and going on today in terms of spending in balances and auto lending? Are there -- is there acceleration of momentum there? If you can throw some numbers around that, that would be great.

Absolutely. So we're probably half-half in terms of our business being everyday rewards, everyday spend, cash backs and rewards and then half, travel, luxury, entertainment. And obviously, consumers have shifted some of their spend. And we've seen that again in the strength of our Amazon partnership as an example. That partnership is very new, and it's been incredibly great through this period of time. We're at about 166,000 new accounts in Q1 already from a standing start and we have the exclusive availability for TD customers to shop with their rewards points on the Amazon site. And clearly, in this time, that's been a real differentiator for us and a real strength and again, the investments we've made in cash back and everyday rewards and partnerships have really helped us with the spend that we've seen. Consumers, where they've gone to home renovation, food and grocery, et cetera. But obviously, we all look forward, at least I know I do, to a time when we can travel again, when we will be out at concerts or out doing things with friends and family. And the return of that spend with the lineup of capabilities we have against that with our Aeroplan -- Air Canada partnership, our own TD rewards card and then the breadth of the partnerships. Our recent announcement with Air Canada around the Starbucks accelerators exclusively for TD Aeroplan customers. I just feel like we're incredibly well positioned. And to your point, indirect auto lending has held up well. There's still opportunity, I think, on the floor plan side as, again, economies reopen. And when we started to see some reopening in Québec, you could start to see some of that activity as well continue to grow. And then the other thing I'd mention is, as the pandemic started, we're very consistent lenders through the cycle. And as we looked at the beginning of the pandemic, we took down some of our new credit offerings, think about things like balance transfer or credit limit increases, pre-approvals, those types of things, to wait to see how this unfolded. And obviously, as we got later into the year and had more clarity, we restarted those strategies. And so those strategies are starting to pay dividends for us and will continue to, as they did before.

I know my wife and I are looking forward to spending on travel, again, the big debate is whether we take the kids or not. But on the cards business, yours is -- you've got the travel with all the cash back component, but also, I don't know what the size of it within the balance is, but the old MD&A business, more of a financing type cards business. Is that one the primary -- like which of these 3, I guess, are the primary reason why balances are down, and to the extent that there is -- I'll call it the legacy MBNA, but -- for lack of a better description. But is it going to take a long time for that -- those balances to come back? Simply because the borrowers that would probably veer towards those products are getting government support?

So obviously, we can't predict the exact timing. But as I mentioned, I mean the portion of -- the very large portion and the great sort of products and value we have available to consumers in the travel, entertainment, luxury portion, we would expect, as you've talked about wanting to go back to travel. And imagine you'll take 2 trips, one with your kids and one with just the 2 of you. So, you'll double the spend. But we do expect that portion of the card spend to come back. It's just -- we'll have to work through some of the excess deposits and timing on reopening of economic activity. As it relates to MBNA, what's been great about MBNA is we think about that as really a digital sort of hub for us to actually try things that we then can bring back into our bigger card portfolio, the TD card portfolio. And so I did mention already, some of the sort of risk strategies that we've taken down, balance transfer credit line increases. So those are coming back. That will come back, we expect, nicely over time, both for MBNA and our TD Cards business. And then our partnership capability, we really run that through MBNA. So our partnership with Amazon co-brand is on the MBNA rails. And our ability to, again, try things. We have an installment lending capability post purchase for our MBNA card holders and -- so that's something that we can build, but then leverage that build back into our TD Visa overall portfolio and customer base as we get the learnings. So I would say we expect the elements of spend that have been dampened due to the pandemic to come back over time, and we're well positioned for that. And then we continue to be able to leverage MBNA as a partnership vehicle, as a great opportunity for customers to bring their balances to us. And for some segments of the market, that's really the brands that they go to, and we want to be available to customers across how they want to interact with us.

Okay. Last one on cards, in particular, pointed to the Aeroplan portfolio. Is there any thought towards -- like an additional investment in that partnership? I mean in the States, we've seen a few banks make additional commitments to point purchases with their airline partners because they're -- it's in their financing mechanism for the airlines in a tough period. Is there anything brewing on that front with TD and Aeroplan?

So we were delighted to launch the new program on November 8 with Air Canada and their announcements of the new value that's available for our 1.2 million Aeroplan customers. And we've worked together in the partnership to continue to find ways for our customers to both earn and redeem points and increase and enhance the value of that. The new value proposition does that inherently with the opportunity to use points for things like Wi-Fi or seat upgrades or things that weren't available to pool points from a family perspective. So that -- we think the value is there as travel returns. But we've also worked together on some accelerators of things like gas and grocery and things that were very relevant during this period and continue to be, and that's been well -- that has created some good engagement. And then again, I did mention the Starbucks partnership, but we've just announced that and the engagement and response to what has been very positive, and that's unique to TD.

Okay. I'll move on to the commercial lending side of the business. And just your perspective on where things stand with commercial loan growth, your outlook, is it going to be positive this year? What's the pulse of the business borrower as you see it? Is this -- I mean there's got to be -- there's no homogeneity there like [indiscernible] but are they still very reluctant to take on credit? Or is that freeze thawing slowly but surely.

So I would say TD is a consistent, again, and prudent lender through the cycle. And so we've been there for our customers through the pandemic as we would have been pre. I would say we've seen some very good growth in our traditional areas of strength, our agriculture business, multiunit residential and commercial real estate. And where you've seen -- where we and others, I think, have seen less growth has been on the commercial operating loans and lines. And that's a combination, I think, of more liquidity, some staying on the sidelines or prudence during an uncertain time. As I mentioned earlier, if you think about, again, the balances for cards and for commercial lending, we would have seen an equal, call it, about $3 billion come off in that commercial loan line piece. And so the business we're putting on and growing quite successfully in our core strength -- core areas of strength is a lower-margin business. And as businesses gain confidence and the economies start to reopen and they begin to invest, we'd expect to see that mix be favorable to margin as well as to volumes. And we feel very good about our bankers in the field, close to our customers, continuing to do the right things to help them meet their goals.

And then your perspective of the -- because commercial -- deposit balances, sorry, are quite high, loan growth is subdued. I've heard some bankers talk about that commercial deposit balance could actually stay high, and you'll see loan growth come back without having to see the deposit decline because the businesses just want to maintain that extra liquidity and credit is relatively cheap right now. Do you think -- is that a view that you have that they're not mutually exclusive?

I think it's hard -- I mean, I guess, I think, overall, if you think forward from a shape of the balance sheet perspective, we'll start to see some of the sort of balance sheet mix dynamic change, which should be, again, not sure the timing, but hopefully, quite a positive. I think both on the personal and the commercial side, obviously, we've got more deposits, customers have more liquidity. I think in the case of personal, we're seeing that customer -- we're really working with our customers to help them invest that savings that they might not have banked on before the pandemic for the future, and we're really seeing that play out in our mutual funds cash net sales growth, which has been quite strong more recently. On the commercial side, I think it's hard to predict what will happen. I suspect, over time, we'll see some of that deposit drawn down, and we'll start to see the lines of loans being drawn for investment. But I always worry when we're trying to predict what will happen in the future. All I do believe is some of that deposit volume likely will stick and will get invested. And the loans will end up getting used to grow businesses in the future.

You did touch upon the interplay of the deposits and the wealth business. Like have you stepped up efforts there to identify which customers have excess cash earning, low yield and then could be better off, so we can enter the wealth product. Like what's the modus operandi of the bank? And how -- have you -- can you quantify some sort of incremental wealth growth -- AUM growth from that strategy?

Well, you've certainly seen the strength of our One TD in our Canadian retail business, as I mentioned at the beginning, with wealth asset levels at the highest levels ever in Q1. What we did at the beginning of the pandemic is we leveraged our really strong data and analytics capability, inclusive of the capabilities of Layer 6. So you'll recall the company that we purchased a couple of years ago. And we actually segmented across our Canadian retail customers to very small micro segments and what happened in the pandemic, as you know, is there were people facing hardship or importantly, the segment that we've really focused on is those that we think were about to go into hardship. And we stood up a TD Ready Advice center and -- with outbound calling capability. This is not just customers who had deferred and then calling them when their deferral was coming up. This was actually proactively, and we continue to, going out to customers where we could see changes in their activity that caused us to be cautious or concerned about where they were headed. We've connected with over 40,000 of those customers so far, and over 1/4 of them have taken us up on the spot on the help that likely help them not to get into their next issue. So we feel very good about that, and that really helps us to continue to build out credit and advice capability for the future. On the other side of the spectrum, to your point around, call it, stay-at-home savers, there was this segment of customers who potentially had not been invested and hadn't anticipated this opportunity to plan for the future. And we've, through either outbound outreach or capturing as customers who are in orders of magnitude more frequently coming in through our external properties to get information about advice and investing, we're triaging either those inbound or calling outbound, both providing digital or self-service hedges, if you will, or our advisors directly calling across our businesses, to get those customers appointments to help them to make their investments for the future. One TD. So the -- really, the referrals across our Canadian retail businesses has been a strong component of our success and franchise year in and year out, and that is no different. The hardest part of the pandemic for some of our partners to the branch banking world, our wealth advisors and our business bankers, the hardest part has been for them not to be able to get into the branch to work with their personal banking colleagues because that really creates the connections, relationships and the magic, if you will, of One TD. Just to give you a stat for the RSP campaign, last year, we took an approach of extending our hours. This year, we did the same thing, but we did it virtually across many of our branches, and our appointments were up 17% year-over-year during that kind of end of the RSP campaign period.

Well, let's talk about the branch network. And I know there's -- I mean I'm hearing different opinions. But to me, it seems like the branch network of banks today for all banks, including TD, you've -- what happened in the past year was the book traffic falling off a cliff, some of that traffic might not come back like with the structural changes, like the -- is the acceleration of branch footprint reduction something you're thinking about? What are your thoughts there?

So I've been very consistent on this topic and the pandemic hasn't changed my view. Customers want all channels, and they want them for different reasons at different times. And the future-ready strategy that we have been on since the end of 2018 in the branch banking network, which is really shifting what happens inside the walls away from service to advice. And I say that only in that we would have, 3 years ago, had, call it, 2 to 1, our branch staffing being serviced to advice. And now it's about a 1 to 1 mix. And that's driven by how, what customers are coming into the branch for has shifted. As you know, 92% of our financial transactions are now performed self-service. So the omni capabilities, as I mentioned earlier, that we had really served us well through the pandemic. Our branch network, we are largely urban. We are a leader in the majority of the priority urban markets. We continue to have an hours advantage. When we were in the height of the first lockdown, we would have seen 40,000 appointments across the network in a week. So people still want to come in. Most of the things that I heard from customers in terms of feedback during the time when we had the branch closures were feedback about access and wanting more access. So we continue to believe that the branch network is important, that our omnichannel strategy is the right one, that our pivot to advice is serving us well, and we're adding more advisors across all of our businesses in service of that requirements of customers. And -- but what has changed, and I think will sustain us into the future, is how flexibly we can use our capacity in the network. So as an example, it would have been, in the past, pre-pandemic, that when a customer booked an appointment online or over the phone, their option was, which branch would you like to book that appointment in? What's the branch close to you or what's convenient for you? Now with virtual capabilities, the question is, would you like a virtual appointment? And if so, we can now use the full capacity and the full hours across time zones of our network to meet that customer need. So that will serve us well. The other piece is, when we had branches closed and the phone volumes were very high, we had branch bankers helping answer the phones for the contact center. And that hybrid approach to helping our customers will also sustain both as a talent strategy and I think an ability to develop our people more quickly for the bank.

Okay. Well, we're past the 25-minute mark. We've had a very thorough discussion here. And I appreciate us making up for lost time from last year, and I hope the rest of your day and week go great. Nice to see you again.

Thank you, Gabe. It's really nice to see you. Glad we could do this.

You bet.