Toronto Dominion Bank (New York Stock Exchange:TD) Second quarter 2023 Earnings conference 25 May 2023 13:30 Alien
the company's participants
Brooke Hales - Investor Relations
Bharat Maslani - CEO
Kelvin Tran - Chief Financial Officer
Ajai Bambawale - Chief Risk Officer
Leo Salom - Chairman and CEO, TD Bank, America's Most Convenient Bank
Riaz Ahmed - Group Head, Wholesale Banking
Raymond Chun - Group Head, Wealth Management and Insurance
Michael Rhodes - Group Head, Consumer Banking Canada
Barbara Hooper - Group Head, Commercial Banking Canada
Participants in the video conference
Ebrahim Poonawala - Bank of America
Meny Grauman - Scotiabank
Scott Chan——Canaccord Genuine
Doug Young - Desjardins Bank Capital Markets
Paul Holden - CIBC Capital Markets
Gabriel Dechaine - National Bank Finance
Lemar Persaud - Cormark Securities
Joo Ho Kim - Credit Suisse
Sohrab Movahedi - BMO Capital Markets
Nigel D'Souza - Veritas Investment Research
Mike Rizvanovic - KBW
Good evening, everyone, and welcome to TD Bank Group's second quarter 2023 earnings conference call.
I would now like to turn the conference over to Ms. Brooke Hales. Go, Mrs. Tails.
Thank you, operator. Good evening and welcome to TD Bank Group's Q2 2023 investor presentation. Many of us are joining today's meeting from across North America. North America is known as Turtle Island by many indigenous communities.
I am currently in Toronto. So I want to start today's meeting by acknowledging that I am in the traditional territory of many nations, including the Mississauga, Anishnabeg, Chippewa, Houdesoni and Wenda of credit Tes, it is now home to many different ethnic groups, the Metis and Inuit. We also recognize Toronto in its Article 13 Treaty with the Mississaugas of the Credit and the Williams Treaty with several Mississauga and Chippewa bands.
We begin today's presentation with a speech from the bank's CEO, Bharat Masrani. Next, Kelvin Tran, Chief Financial Officer of the bank, will present our operating results for the second quarter. Chief Risk Officer Ajai Bambawale will comment on credit quality later. Next, we invite expert analysts and investors to ask questionsTelephone.
Live to answer your questions today with Michael Rhodes, Head of Canada's Consumer Banking Group. Barbara Hooper, Head of the Canadian Business Banking Group. Raymond Chun, Head of Wealth Management and Insurance Group. Leo Salom, President and CEO of TD Bank, America's Most Convenient Bank. Riaz Ahmed, Head of Wholesale Banking Group.
Go to slide 2. At this time, I would like to remind our audience that this presentation contains forward-looking statements, there is a risk that actual results could differ materially from those discussed, and that certain important factors or assumptions will apply . these forward-looking statements. All forward-looking statements contained in this presentation represent the views of management and are intended to assist the Bank's shareholders and analysts in understanding the Bank's financial condition, goals and priorities and expected financial results. Forward-looking statements may not be appropriate for other purposes.
I also want to remind the audience that banks use non-GAAP financial metrics, such as adjusted earnings, to evaluate each of their businesses and measure the bank's overall performance. The bank believes that adjusted results give readers a better understanding of how the management perceives the bank's results. Bharat will refer to the adjusted results in his comments. Additional information about the note, the bank's use of non-GAAP and other financial measures, the bank's reported results and factors and assumptions related to the forward-looking information can be found in our second quarter 2023 report to shareholders.
With that, let me turn the presentation over to Bharat.
Thank you, Brooke, and thank you all for joining us today. First I want to say that our thoughts are with Alberts in light of the devastating wildfires. TD has mobilized to help affected customers and colleagues. The bank also contributes directly to disaster relief efforts, enabling customers to do so in branches, by phone and online.
Before I look back at the second quarter, I'd also like to make some comments on our joint announcement with First Horizon earlier this month. Although we are not authorized to enter into confidential discussions with our regulators, we believe that mutual termination is the appropriate decision given the uncertainty surrounding the timing of regulatory approvals. This decision provides clarity for our colleagues, our customers and you, our shareholders. I would like to thank First Horizon President and CEO Bryan Jordan and his team for their cooperation and wish them the best of luck in the future.
Now let me talk about the future of corporate America. TD Bank America's most convenient bank is well capitalized with a solid deposit base and deep customer relationships. We have built a brand that is second to none and the best team in banking. Our business model and footprint provide a solid foundation for continued growth. We are already executing on significant opportunities. TD is strong, resilient and well positioned to continue building our momentum in the coming months and years.
Now let me talk about our results. The second quarter was good for TD. Revenue was $3.8 billion and earnings per share were $1.94. There were many moving parts in the quarter that strengthened our retail business, while wholesale banking was impacted by difficult market conditions. Revenue increased 14% year-on-year, driven by margin expansion. This was offset by higher loan loss provisions and increased fees reflecting the inclusion of Cowen, investments in peers and business growth and the impact of foreign exchange. PTPP increased more than 6% year over year as TD's business fundamentals remained strong. Our long-standing strategic focus on pooling core deposits across our North American franchise remains an important competitive advantage, particularly in the current operating environment of increasing competition for deposits. And as expected, we experienced some flattening of lending this quarter, but the credit performance remains strong. The bank's CET1 ratio was 15.3%, reflecting organic capital generation, offset by the impact of the Cowen acquisition.
Effective with the dividend announced today, we have decided to remove the discount on shares issued under the dividend reinvestment plan. To offset the discounted shares issued under the DRIP, we announced today that we intend to repurchase up to 30 million common shares for cancellation, subject to regulatory approval. Depending on market conditions, we expect to complete this share buyback before late summer, when we will assess the possibility prior to the acquisition.
We have a strong capital position that provides flexibility in an uncertain operating environment. We are pleased to be able to return capital to shareholders while accelerating investments to drive profitable growth in attractive opportunities. In the USA, for example, we increased new store openings by 50% and doubled our hiring of wealth advisors. In Canada, we are expanding our engagement with frontline consultants and experts and accelerating investments to upgrade our platform and increase our company's digital and mobile capabilities. You will hear more about these strategic growth initiatives in the coming weeks and months.
For the Canadian Personal and Commercial Banking segment, we delivered gains of $1.6 billion, reflecting revenue growth of 11% and significant positive operating leverage. In Personal Banking, we experienced strong growth in day-to-day banking, with revenue of 28% year-on-year. To help build confidence for newcomers to Canada, we've enhanced our online appointment booking feature so customers can book appointments in their preferred language.
The bank led the market share increases in core deposits, increasing TD's market share to nearly 26 percent. In credit cards, we saw organic loan growth of 14% year-over-year in Q2, the highest quarterly record ever for active accounts and digital acquisitions. TD recently launched an exclusive Bank of Canada agreement with Uber, joining a list of the world's leading consumer brands partnering with TD, including Air Canada, Amazon, Expedia and Starbucks.
In property-based loans, we experienced strong sequential growth. Our team also achieved the highest quarterly rate since 2008. Commercial banks posted double-digit loan growth for the seventh consecutive quarter. In the first phase of a multi-year plan to modernize its client and credit platforms, nearly 3,000 commercial bankers have begun using new relationship management tools that will improve customer experience and increase efficiency. In JD Power's 2023 Canadian Dealer Finance Satisfaction Survey, TD Auto Finance has been ranked among the top unsecured, non-prime retail lenders for dealer satisfaction for the 6th year in a row.
In the United States, our U.S. Retail Bank another strong quarter with earnings of $944 million, up 23% year-over-year, reflecting 24% revenue growth and record positive operating leverage. Combined with our $185 million investment contribution in Charles Schwab, segment earnings were $1.1 billion. We saw strong lending growth again this quarter, with personal loans and business loans up 12% and 9% year-on-year respectively.
TD also had strong customer acquisition momentum, with new business checking accounts growing 29% year-over-year. We continue to invest in our US credit card business, and we have many opportunities to expand our lending footprint and deepen relationships with existing depositors. Earlier this month, we launched the innovative new TD Clear and TD Flex Pay cards, which offer a compelling value proposition to accelerate TD's growth in the market. The bank also enhanced the benefits of its popular TD Cash and Double Up credit cards and made significant strides in card servicing and our digital capabilities. These investments are supported by TD's recently renewed Visa agreements with Canada and the United States.
TD Bank America's most accessible bank has an ambitious plan to open 150 new stores by 2027, further fueling organic growth. We are on track to open a total of 18 stores in 2023, of which 5 are already in operation. Earlier this month, we were excited to open our first store in Charlotte, North Carolina. When TD went into New York, Philadelphia, Boston and Miami, we outperformed our peers by a wide margin, and I believe we will have the same success in Charlotte. Today, nearly 80% of TD's deposits are in MSAs, and we are in the top three MSAs as clients respond to our model by outsourcing more of their business to us.
The bank continues to be recognized for its unique and inclusive culture. In April, TD was again named one of America's top employers for diversity by Forbes, rising to No. 2 on the Companies 500 list. In wealth management and insurance, our revenue for the quarter was $563 million. Revenue increased 2% year-on-year, reflecting the strength of our diversified business model, as higher insurance volumes and higher interest rates helped offset normalization of transactions and market volatility.
TD Direct Investing continues to widen the gap with its peers, increasing year-over-year in total new accounts and traded market share. We've made several improvements to TD Easy Trade, added one-click access to out-of-the-box TD ETF portfolios and more self-service features. Extending its lead over competitors, TD Asset Management is Canada's No. 1 institutional asset manager and No. 1 money manager of Canadian pension assets. TD Asset Management also led the banking industry in long-term mutual fund sales in the quarter, leveraging its broad product shelf to grow ETF market share. On the consulting side, we continued to invest in future growth by adding more than 500 consulting professionals in the past year. In the insurance area, we launched small business insurance this quarter.
Our direct-to-consumer products resonate with customers, and TD is uniquely positioned to address this unmet market need. We are the largest direct insurer in Canada, and building on our digital leadership, nearly a quarter of new sales across our entire insurance business were completed online end-to-end during the quarter.
In Wholesale Banking, we achieved net income of $213 million. Revenue rose 13% year-on-year, driven by the acquisition of Cowen and growth in the banking and lending business despite soft market conditions. This was offset by an increase in costs reflecting the impact of the Cowen acquisition as well as peer investments during the year.
The business added nearly 100 new business lending relationships over the past year, providing approximately $34 billion in additional loan commitments across multiple industries.
TD Securities is proud to be one of three banks to receive the Top North American Trade Leaders award from Global Trade Review for its trade finance offerings. Our integration with Cowen is going well. In fact, just one day after the market closed, TD Cowen acted as bookrunner for its IPO. Since then, TD Cowen has completed 13 IPOs for a total of $3.5 billion. This is just the beginning as we capitalize on our new opportunities in US equities and expand our competitive advantage. It is my pleasure to welcome back our Cowen colleagues and thank you for all that we have achieved together.
Half a year has passed and a lot has changed. With the mutual termination of the First Horizon agreement and a deteriorating macro environment, we do not expect $bank to achieve its medium-term target of 7% to 10% adjusted EPS growth in 2023. Despite the challenging operating environment, TD continues to shape the future banking by serving all stakeholders and redefining financial services.
I hope you will attend TD's Investor Day on June 8, where we will provide more details on the bank's strategy and growth plans, focusing on our Canadian retail business. We will host a subsequent Investor Day event highlighting our US and wholesale business.
TD is proactive and targeted. Our TD Bankers around the world make this vision a reality every day. Finally, I want to thank them for everything they do to make TD a better bank.
With that, I will leave the matter to Kelvin.
Thanks Bharat. Good evening, everybody. Go to slide 9. The bank's second-quarter earnings were $3.4 billion, or $1.72 per share, down 12% and 17%, respectively. Adjusted earnings were $3.8 billion, up 1 percent, and adjusted earnings per share were $1.94, down 4 percent.
Reported revenue increased 10%, including a net loss to mitigate the impact of interest rate fluctuations on the closing financing of the First Horizon acquisition. Adjusted revenue increased 14 percent, reflecting higher personal and commercial banking margins, the impact of foreign exchange and higher TD Securities advisory fees, equity fees and global banking and lending income.
The provision for credit losses was $599 million compared to $27 million in last year's second quarter. Reported costs increased 16 percent, including acquisition and integration costs. Adjusted costs increased 12 percent, reflecting the inclusion of TD Cowen, higher personnel-related costs, the impact of currency translation and higher costs to support business growth.
Excluding retail partners' net share of US strategic card portfolio revenue, adjusted fees increased 12.3 percent (excluding currency). The banking sector's total PTPP increased by 3% year-on-year.
Consistent with prior quarters, Slide 24 shows how we calculate aggregate adjusted PTPP and operational leverage for the banking sector, removing the impact of the US strategic portfolio as well as the impact of foreign currency translation and underwriting day value charges. Following these revisions, total adjusted banking sector PTPP increased by 6%.
Transition to Slide 10 Canadian Personal and Business Banking net income for the quarter was $1.6 billion, an increase of 4% over the prior year. Revenue increased 11%, reflecting higher margins and volume growth.
Average lending volume increased 6%, reflecting a 5% increase in personal loan volume and an 11% increase in business volume. Average deposits rose 2%, reflecting an 8% increase in personal deposits, partially offset by a 7% decline in business deposits. In the current interest rate environment, we continue to see a shift in balances to time deposits and other high-interest investments.
Net interest margin was 2.74%, down 6 basis points from the previous quarter, primarily due to lower deposit rates. Many factors can affect profit margins, including short-term interest rates, tractor commissioning and shutdowns, customer activity and competitive market dynamics. While margins will likely increase every quarter or so, we are comfortable with year-to-date margin expansion and expect a return to modest expansion by year-end.
Total PCL was $247 million, down $80 million sequentially. Total PCL as a percentage of loan volume was 0.19% YoY, down 6 basis points sequentially. Non-interest expenses increased 8% year-over-year, reflecting higher costs to support business growth, including technology and higher staff-related costs.
See slide 11. The US retail segment reported net income of $1.0 billion for the quarter, down 3% year-over-year. Adjusted net income was DKK 1.1 billion. USD, an increase of 19% compared to the previous year. U.S. Retail Banking reported net income of $859 million, down 5%, primarily due to higher non-interest expenses, including acquisition and integration costs from the First Horizon acquisition and higher PCL, partially offset by higher revenue. The U.S. retail bank's adjusted net income was $944 million, up 23 percent.
Reported revenue increased 14% compared to the previous year. Last year's reported revenue included insurance claims in connection with legal proceedings. Adjusted revenue increased 24% year-over-year, reflecting higher deposit margins and lending volume, partially offset by lower deposit volumes and lower margins and lower overdraft fees.
The average loan size increased by 10% year-on-year. Personal loans grew by 12%, reflecting a healthy loan mix and lower payout rates. Commercial loans increased 9%, reflecting strong growth in new customers, higher commercial loan utilization and lower interest rates, partially offset by write-offs of OPP loans.
Average deposits, excluding large deposits, fell 5% year-on-year. Personal deposits fell 3% and business deposits fell 6%. The balances are affected by economic conditions and inflationary pressure. We've also seen some move to higher yield products, including CDs and no-deposit investment options.
Sweep deposits fell 23%. Earlier this month, TD and Charles Schwab revised their protected savings account agreements to reflect the current market and interest rate environment. The revised agreement extends the term by three years and allows for lower deposits in the first six years and higher deposits in the final years. In addition, the agreement adds security to TD regarding future deposit balances and strengthens our partnership with Charles Schwab.
Net interest margin was 3.25%, down 4 basis points sequentially due to lower deposit spreads reflecting higher funding costs. Many factors can affect profit margins, including short interest rates, tractor starts and stops, customer activity and competitive market dynamics.
While we are pleased with the significant margin expansion to date, we again expect downward pressure on margins in the third quarter, reflecting increased price competition in the US market. However, we expect margins to continue to grow despite a modest start to the fourth quarter and a focus on new tractors.
Total PCL was $140 million, down $9 million sequentially. The US retail net PCL ratio, which includes only the bank's share of PCL in the US strategic card portfolio as an annualized percentage of credit volume, was 0.33%, down 1 basis point sequentially.
Reported costs increased 17%, which includes acquisition and closing costs for the First Horizon acquisition. Adjusted costs increased by 9 percent, reflecting higher personnel-related costs and increased investment in the business. TD's investment contribution to Charles Schwab was $185 million, up 5% from a year ago, reflecting higher net interest income partially offset by higher fees, lower wealth management fees and lower trading income offset by.
Go to slide 12. Wealth management and insurance net income for the quarter was $563 million, down 16% year-over-year. Revenue increased 2%, reflecting higher insurance investment income, higher fair value of investment-backed liabilities and higher insurance volumes, partially offset by lower real estate transaction and fee income.
PCL for the quarter was $1 million, an increase of $1 million over the prior quarter. Insurance claims increased 36% year-over-year, reflecting the impact of changes in the discount rate, which resulted in a corresponding increase in the fair value of passively backed investments reported in non-interest income, more severe weather-related events and increased inflation costs drives the activity.
Non-interest expense decreased 1% year-over-year, reflecting lower variable compensation, partially offset by higher costs to support business growth, including staff-related costs and technology costs. Assets under management increased 3% year-over-year and assets under management increased 2% year-over-year, both reflecting growth in net assets.
Go to slide 13. Wholesale Banking reported net income of $150 million for the quarter, down 58% year-over-year. This reflected higher non-interest expenses, which included the TD Cowen acquisition and integration costs, partially offset by higher revenue.
Adjusted net income was $213 million, down 41% year-over-year. Revenue, including TD Cowen, was $1.4 billion, up 13 percent from the prior year. Higher revenue reflected higher advisory fees, equity fees, global banking income and loan income, partially offset by lower transaction-related income.
PCL for the quarter was $12 million, down $20 million from the prior quarter. Reported costs increased 53%, including the acquisition and integration of TD Cowen. Adjusted expenses increased 44%, reflecting the inclusion of TD Cowen, continued investment in the Wholesale Banking dollar strategy, including the hiring of banking, sales and marketing and technology professionals, and the impact of currency translation.
Go to slide 14. The corporate segment reported a net loss of $399 million for the quarter, compared to a net loss of $151 million reported in the second quarter last year. The year-over-year increase primarily reflects lower revenue from finance and balance sheet management activities, a net loss to mitigate the impact of interest rate fluctuations on the closing financing of the First Horizon acquisition and higher corporate costs. Adjusted net loss for the quarter was $177 million, compared to an adjusted net loss of $79 million in the second quarter last year.
Go to slide 15. The Tier 1 commons index closed at 15.3 percent for the quarter, down 14 basis points in a row. Our internal capital formation was strong this quarter, adding 28 basis points to CET1. This was partially offset by an increase in RWA net currency, which lowered CET1 by 2 basis points. We saw a 14 basis point increase in CET1 related to the issuance of common stock under the dividend reinvestment plan.
As Bharat said, starting with the dividend announced today and going forward, there will be no discounts on shares issued as part of our dividend and reinvestment. We remind you that we implemented changes to our approach to credit risk during the first quarter in preparation for the Basel III reforms. The implementation of Basel III reforms had a less positive effect in the quarter.
The acquisition of Cowen lowered CET1 by 55 basis points, including the increase in RWA and the increase in goodwill and impairment. With respect to the First Horizon acquisition, the net loss to mitigate the impact of interest rate volatility on final capital lowered CET1 by 2 basis points and currency hedging increased CET1 by 4 basis points. All hedges in connection with the purchase of First Horizon are now closed.
Risk-weighted assets, including foreign currency, increased 3.3% quarter-on-quarter, reflecting higher market risk and operational risk-weighted assets, partially offset by a decrease in credit risk-weighted assets. Credit risk RWA fell by DKK 3.4 billion. USD or 1%, primarily reflecting the impact of Basel III reforms, largely offset by the TD Cowen acquisition and higher transaction volume. Market risk RWA increased by $2.2 billion, or 11%, reflecting the impact of the Cowen acquisition.
Operating risk RWA increased by $19 billion, or 29%, reflecting the impact of Basel III reforms, including the impact of the Stanford settlement and the acquisition of TD Cowen. Leverage for the quarter was 4.6% and LCR was 144%, both well above published regulatory minimums.
Finally, before I turn the call over to Ajai, I would like to note that we understand that analysts and investors may have questions about the financial impact of the mutual termination of the First Horizon transaction. We have added slide 26 to this presentation to help with this.
With it, Ajai, close to you.
Thanks, Kelvin, and good afternoon everyone. See slide 16. Gross impaired loans reflected in the corporate loan portfolio fell sequentially by 2 basis points to 14 basis points, partially offset by further normalization of credit development in the consumer loan portfolio.
Go to slide 17. Gross impaired loans were unchanged and remained low in the quarter.
Go to slide 18. Recall that our presentation reported the PCL ratio, US Strategic Card PCL partner share gross and net. We remind you that the American card PCL registered in the business sector is fully absorbed by our partners and does not affect the bank's net income.
The bank's provisions for credit losses fell 4 basis points to 28 basis points quarter-on-quarter. This decline reflects poor performance in bonuses in the quarter.
Go to slide 19. The bank's diluted PCL was $551 million, down $2 million from the quarter. The bank's diluted PCL rate for the current quarter remains well below 2019 levels. PCL dividends fell $89 million to $48 million in the quarter. All sectors recorded the lowest forecasts for the current quarter.
Go to slide 20. Provisions for credit losses increased sequentially by $168 million, reflecting the impact of $83 million in foreign currency, current credit conditions, including credit migration and volume growth. The bank's coverage ratio remains high to take into account continued uncertainty about the financial trajectory and credit development.
Overall, while we saw a continued normalization of core credit metrics across the consumer loan portfolio, the bank's credit performance remained strong in the quarter, evidenced by the fact that gross impaired loans, gross impaired loans and impaired PCL remained low. As can be seen. Looking ahead, after two quarters of continued strong credit performance, I now expect aggregate PCL in 2023 to be near the lower end of my previous guidance of 35 to 45 basis points. However, the results may vary from quarter to quarter.
Overall, despite recent challenges to the broader financial sector, TD remains well positioned given our strong reserves. We have a strong capital and liquidity position and a broadly diversified business across products and geographical areas.
With that, operator, we're now ready to start the question-and-answer session.
[Operator Instructions] The first question is from the line of Ebrahim Poonawala of Bank of America.
My first question, Bharat, may be in this chapter. CET1, 15.3, you don't seem to have any restrictions in the US. I understand you can't talk about any regulatory issues, but the growth plan you've laid out sounds like business as usual for TD, or it sounds like you're accelerating growth. But let's look at 15.3 CET1, what is the correct level of capital that you want to achieve? How do you do that in a world where US M&A may not be possible for the foreseeable future? Yes, maybe if you can start there.
Yes Ibrahim, good question, nice to talk to you. First, we are going through a period of uncertainty financially, in terms of markets, volatility, so having the level of capital that we have is good. So when you have this kind of uncertainty in the market, it's always good.
Second, as you said, we continue to invest in our franchise. You'll hear more about it over the next few days. We will provide more details on how we view development. It should be a good conversation and hopefully you can get into the Canadian side of the conversation at the investor day on June 8th. As I said in my remarks, we will have follow-up investor days in both the US business and the wholesale business.
In terms of target capital, I mean, I know last quarter a lot of you talked about your path to 12%, and I've laid out a clear path for how we're going to get to 12%. So based on what we know today, I would guess that around 12% is a good target. But we continue to experience good growth in our business. I'm sure Michael, Leo, Riaz and Ray will talk about our business going strong. We look forward to delivering the volume and share share that has been TD's historical strength in a variety of environments.
So I'll stop there. As you know, we announced the purchase of 30 million shares. This is reflected in the shares we issued under the DRIP to finance the First Horizon transaction. Since that trade is now dead, it makes sense to buy back those shares. We hope to complete the purchase around the end of the summer.
And then of course we have to look at what makes sense and assess the way forward in terms of capital growth. But my message about capital growth has not changed. It has been around for a few years.
We look at the level of capital required to support our strategy, RWA growth, market share growth. We are not shy about using capital where we believe there is a need for capacity building, regardless of whether we buy or build it ourselves.
We will consider other opportunistic situations that may arise and consider acquisitions if necessary. So the idea, this context remains the same. I would say that over the next few months we will be able to articulate more clearly how we will deploy our capital.
But Bharat, you say you have the ability to do M&A because it sounds like you can build or buy. So does that mean you can still do M&A if you want to? Because the expectations for this problem are given externally, whatever happens to cause First Horizon to cease, you have no M&A for the foreseeable future. Is this an incorrect assumption?
I think speculating on mergers and acquisitions is always a dangerous game because nobody is perfect. But we have previously made agreements to build capacity. I think we in Ray's business bought Greystone a few years ago. In the Riaz business, we have just bought Cowen. We at the Riaz business also bought Headlands some time ago.
And that's the thing - it's an ongoing effort for us, both in building capacity and expanding our business. It will be -- we will keep an eye on them as they appear.
The next question comes from Meny Grauman's line from Scotiabank.
Just a sequel to Ibrahim. Bharat, just trying to get a better understanding of why you are not buying stocks more aggressively here in the midst of an excess capital position? What are the disadvantages of making a major purchase?
I said it would take us a while to get 30 million shares, but - after that, we'll reassess. As I said in the comments, we should be able to complete this buyback phase by the end of the summer and then we will reassess our position. Hopefully by then we will also have outlined some of our development plans. Then we can further discuss the appropriate acquisition level.
I got it. So just focus on the US, you closed the deal with FHN, but you still have a big business in the US. I was wondering how you feel about our regional banking crisis in the US, and from your perspective, how is it affecting existing businesses, for better or for worse?
I will pass this on to Leo to get some input on this. But we have been in America for many years. As you said, we have a tremendous business from Maine to Florida that is fantastic and continues to be a great growth engine for the bank.
During the current crisis, I said in my remarks how many new accounts we open, what kind of business we attract. But maybe Leo can give more perspective because we're seen as—we have a brand that's second to none in America. This particular turbulence, we've seen our deposits - deposits actually flow attractively. I believe TD in some of our businesses has opened a record number of accounts. And Leo, why don't you add a little more color?
Of course, Bharat. And Meni, it was a pleasure talking to you. Clearly, the activity of the past two months has been unprecedented in some ways. The market continues to experience a decline in deposits across the industry. I think overall, deposits are down about $1 trillion year-over-year. Clearly, combined with the liquidity scares that have already occurred - there is no doubt that regional banks and some of the smaller bankers may be challenged either from the market side or from a capital and/or commercial point of view. real estate is in a highly competitive environment.
As Bharat said, I am very optimistic about our franchise. We have a very strong deposit base. I think what's distinctive about our US footprint is that we probably have one of the best retail deposit franchises, and it's very well maintained.
In fact, on a quarterly basis retail deposits were broadly flat and we are seeing very good account openings. Even on the commercial side, our business checking accounts opened in the quarter were up 29% year-over-year.
So the franchise continues to perform well. We have been robust in terms of deposits. I believe the market will become more tense as we move forward. We are already seeing tighter credit conditions. And I think given that we have strong capital liquidity to be able to give our clients the support they need through the cycle, I think we're in a very good position to be able to build relationships with some of the key customers we have and could share.
Geographically, is growth in the Southeast US still a priority?
Excuse me, can you say that again, Meny?
Much of FHN's rationale was growth in the fast-growing Southeast region of the United States. How important is growth in this area? Can you make it organic?
Yes, a lot, Meni. As Bharat mentioned in his opening remarks, we have plans to open 150 stores. Much of it is in the southeast. So consider strengthening our Florida footprint, particularly South and Central Florida, as you continue to expand into the Carolinas. We already have a very strong footprint in South Carolina.
Bharat mentioned that we opened our first store in North Carolina. I'm in Charlotte. The mayor spoke loudly. We will also continue to expand this market.
Atlanta is a market -- it's a large metro market where we don't have a lot of retail, and we're going to lean into that. We already have an interesting commercial footprint, but we will continue to expand there.
And then selectively, outside of the Southeast footprint, Menu, we think we have a gap in the urban center of the market. So think about Boston, Philadelphia, New York, where we think there are growing communities, growing communities where we will tend to round out our existing footprint. But the Southeast will be a very important part of the overall equation.
The next question comes from the line of Scott Chan from Canaccord Genuity.
Maybe I'll stay with you, Leo, in America. I noticed that your loan growth was very strong compared to quarterly, retail, commercial and mortgage. And your peers seem to have caved or invoked market conditions. Wondering if TD is more aggressive? Or how do you get the incremental market share that we've seen in recent quarters?
safe. Of course, Scott. Let me put some color on the numbers as I thought it would help. We were roughly balanced in terms of loan growth in the quarter. Our former PPP private and commercial banking are both in double digits.
If you look at the consumer side of the house, RESL has been strong. The total balance sheet grew 17% year-on-year. I would say it's driven by significant origination growth. none. We did well at the origin. I think the real story is payment. Expenses are at historic levels. Obviously, everything we've done has resulted in good loan growth, and we tend to be a little bit smaller relative to our overall mortgage portfolio. So it gives us a nice header print.
card, we are very satisfied with the card's performance. We saw a 9% increase in the number of cards. And the lion's share is actually in our exclusive product line. So consider that our bank card and retail card services grew by 15% and 13% respectively.
And then there have been some really good results from the car industry, which obviously has a lot of supply chain problems. We have increased by 6 per cent. More importantly, we see good growth in risk-adjusted returns in this market. So hopefully that will translate into more profitability.
Commercially, we continue to do very well commercially. I think it's a combination of factors. We are seeing slightly more growth in small business and regional community sectors than in previous quarters.
Commercial properties remain somewhat sluggish. As you might expect, we are cautious on this front. We have been very cautious over the last three or four years and reduced our overall exposure to commercial real estate. But we've seen good, steady growth in the mid-market and C&I communities. And the pipeline is still going strong.
I just wanted to note that I think the outlook, the debt ceiling discussion, I could see some moderation in that advertising -- sorry, at least in the commercial banking space in the short term. But again, I believe that given our capital and liquidity position, we will be able to support our customers through the cycle.
Perhaps only for Riaz in capital markets, I doubt two months of Cowen will keep the segment profitable. It appears that Cowen's current margins are around $50 million per share. quarter in a normal market. So can you help us figure out the source of the deficit? Is Cowen your core business or just a market player?
Thanks Scott. Look, I think the entire quarter continued -- we continued to weather a difficult operating environment with mixed business results. So overall deal performance, equity underwriting and US M&A were headwinds in the quarter, which we were able to partially mitigate with very strong loan demand and performance in transaction banking.
Also, Canadian M&A revenue was very strong for us this quarter as we were able to close 3 or 4 deals that were already open. So overall, revenue was up 14% with mixed results. I think US equities and M&A were $50 million to $75 million less than our overall estimate.
But like you said, it's nice to close the Cowen acquisition. Our stock is good -- equity commissions are recovering well, there is some contribution from the advisory side, and we expect strong revenue growth as the market becomes more favorable.
And then in terms of expenses, we talked about the significant investments we've made in expanding our platform in the US, which now includes the acquisition of Cowen.
Overall, I think -- I'm very excited and optimistic about getting TD Securities and Wholesale Banking ready for the next phase of growth. However, I expect revenue and expense figures for the next two quarters to remain volatile as we adjust and optimize our business structure and deepen our integration. So I think it will be -- we will have further rate hikes during FY24.
The next question comes from the line of Doug Young of Desjardin Capital Markets.
The question is probably about Kelvin. In your prepared remarks, you talked about NIMs in Canada and the United States. It sounds like -- correct me if I'm wrong, but it sounds like you're expecting a bit of a slowdown in the third quarter, then a return to modest expansion in the fourth quarter, and then it sounds like we're going into the fiscal year 24. But I won't put the words out of your mouth, you can correct me if I'm wrong, but what I do - I try to understand what drives it? Are pickups only on tractors in Q4? What gives you confidence that it will start to grow moderately in Q4 and beyond?
Thank you, Doug. Yes, it's Kelvin. It is true. Tractors will support this trend. Obviously, there are many factors that affect the margin. It's not just about percentages, it's about competitive behavior.
But when you look at interest rates, what we've benefited from over the past year is an increase in short-term interest rates, which has a more immediate effect. And then we now look at tractors that are priced above the reduced price. So that will support margin expansion, but more slowly than you typically see in short-term rate hikes.
Q4 Is there any reason? Is there a structural reason for the delay that you don't see in the third quarter?
Well, it really depends on what the rates were five or seven years ago. Since these tractor prices each month are like a repriced ladder bond portfolio. Little by little it actually helps the margin, which is very different from short-term interest on floating rate investments, because when central bank rates change, the entire deposit investment deposit from them is converted, and Tractors Monthly is only a fraction of that. So over time it builds up.
Yes. no i understand You have not stated the size of the tractor portfolio, or have or would you?
No, we did not reveal these details.
Okay Okay My other question is I think in the US Charles Schwab sweeps was down 11% sequentially. I think I understand what drives it. But can you talk about what caused this? Can you tell us a bit about the new comprehensive escrow agreement and how it affects TD's financial position going forward compared to the old agreement? And which placements and downloads to consider?
Yes. This is Leo. Can I have this? Maybe start with the quarter itself. So the scan ended the quarter at about $110 billion, down 23%. Essentially, Schwab reports, a lot of it is just sorting through cash or finding brokerages for interest income versus deposit clearing.
So it is a very expected behavior among clients who invest with Schwab for ROI. We expect this trend to continue, although there may be some moderation as we look ahead to the next quarter.
I think we are very happy with the new agreement. Kelvin outlined the main terms of the agreement. It essentially extended its agreement with Schwab for another 3 years. That raised the long-term cap of this deal to $60 billion, which is certainly important to our strategic relationship.
We give them more flexibility to handle some of the cash sorting behavior that goes on. We expect a larger decline in 2024. We believe the actual impact of this will be manageable and certainly absorbed by the company's overall revenue performance.
Am I correct that you are sharing more of the performance of scanner deposits in the new deal with Schwab with the old deal because you are clearly reflecting the current rate environment versus the way it was structured before? It's - I think it's true...
No no. The actual financial position of the scanning structure itself has not changed. What - the only fundamental change is to provide a lower bottom line, allowing them to manage liquidity more flexibly in the short term.
The next question comes from the line of Paul Holden from CIBC.
A few questions about US retail. I think first of all, when you look at the average FTE growth across the different sectors, I see US retail growth of 12% year-over-year, which is pretty respectable. So maybe you can talk about some of the investments you've made in FTE. What the hell is this? Are these related to the new store opening soon? Or invest alone?
Yes. Thanks for your question, Paul. Actually three sources, maybe oversimplified a bit. Number one, part of it is just getting our staffing levels back to pre-pandemic levels on all of our fronts. So think about stores, call centers, we've experienced attrition in the pandemic and now we're bringing it back. Fortunately, this increase translates into better customer satisfaction scores. So we are very happy with the investment.
The second group is a very conscious investment in our digital and data plans. This is a big push. So we're not only trying to expand the store network, which historically has been a real asset for TD in the US, but we're also complementing that with a strong push into digital and mobile. These investments and staffing support a number of key initiatives there.
The third is actually a resource for the First Horizon Integration Program. So what you want us to do is open up those resources. Obviously, we will do it incrementally, and if we have the opportunity to supplement our core franchises, we certainly will. But we will see a reduction in the total integration resources that we have invested.
Okay The color of it is nice. Then I want to ask a question about the store opening plan. So I think we can all agree that's the right long-term strategy, but we also know that the market can move quickly around spending growth ahead of planned revenue gains. Wondering how to try it - how are you going to make a pair of leggings when these stores open if there are any savings planned? Or maybe just give us an overview of how you envision growth in corporate US spending as a result of this program strategy.
Of course, Paul. Bharat talked about trying to make it an investor day, and I look forward to sharing perhaps the most comprehensive strategy yet with you. But basically we want to invest in four key areas: expanding our distribution to consumers, expanding the stores we're talking about. Lean on digital and mobile capabilities and ensure we deliver similarly legendary experiences through these digital properties. Expand our spare parts franchise. And then finally build our national commercial banking footprint.
All of this is underpinned by a very deliberate productivity program focused on identifying structural opportunities to not only fund these programs but hopefully give us some capacity to absorb future rate cuts. So productivity will be a very important part.
We have already implemented some of these measures. You can see that our expense growth was down 3.8% sequentially. We will continue to seek to partially fund some of our key investments and key growth initiatives. So that will definitely be part of the strategy.
I got it.
Maybe, Paul, one thing I'd add, Leo, we're making early progress, but certainly significant progress in growing our US presence in partnership with Leo's retail and trade business. So you'll see that some of the FTEs that we've invested in the US are actually to accelerate our US advisors in four major markets.
We have our book here, a very successful book on how to build a financial planning business for wealthy clients in Canada. We export it to the US and we have seen very early promising signs.
The next question comes from the line of Gabriel Dechaine from National Bank Financial.
I'll put them up as soon as possible. As for the US, I see you have overdrawn some of your Federal Home Loan bank deposits. I'm just wondering why you're using this more expensive source of funding when your US balance sheet is inherently liquid.
And then there's the wealth business in Canada, primarily I see a 35% year-over-year decline in trading revenue. I wonder how much of that is due to the impact of fees or changes in your fee structure versus pressured market behavior?
And then on the wholesale side, I know the market was unfavorable in the quarter, but the operating leverage was quite negative in the quarter. I was wondering how you feel about the combined Cowen and your old business and the cost base there?
Gabe, why can't I get my first FHLB loan? Loans totaled $19.5 billion in the quarter, up from $10.0 billion at the end of the previous quarter. We generally use it as a temporary source of liquidity.
Sometimes it is more economical to do so than to enter into an investment position that has not yet matured. To give you a sense, we're on the ground today, those loans are down to $11.5 billion. So it is only a bridging funding source for us.
This is Raymond. If I think about the wealth in Canada, your question about fee income, I would say that similar to others in the industry, there are probably three headwinds that affect fee income. One is stocks. With the S&P down about 8% on average, this will have a negative impact on the fee income side of the business.
The second part is daily transactions. Our direct investment daily trading continued to normalize, down approximately 29% year-over-year. It is still above pre-pandemic levels, but we are still seeing a normalization of transactions on a daily basis.
And so, like other industries, deposits combined with the high interest rate environment that we're in, we'll certainly see some of our deposits stay with the TD family but move to higher interest products like GICs in the near term.
What I will say though is that the fundamentals of the business that I'm very pleased with is that I continue to see very strong growth in net worth, which is driving market share gains across all of our wealth management businesses. So both in our institutional asset management business, we are expanding our market share there.
We have gained market share in general transactions in the direct investment area. We gained market share in new direct investment accounts and continued to be the fastest growing private wealth management company in Canada. So the business fundamentals are strong. And I think the impact on fee income that you're seeing now is more industry related.
Yes. I specifically asked about transactions -- it's not a mass client behavior -- because you tweaked your commission structure a little bit, which you told me didn't make a difference.
It had a nominal effect on the introduction of this one.
Gabe, just to add on the wholesale side, as you know, we've built our capabilities in the US over the years. That's basically what the Cowen acquisition was for. You'll recall when we announced the deal we said the deal was not cost synergistic.
And I think we'll find some efficiencies as we move things around and optimize things. But as the market softens, we'll obviously expand our cost base through a little bit of the S-curve to generate revenue.
But I'll probably tell you that we're 90 days from closing from the announcement of the deal to now being closed, and our customers, both TD's traditional customers and Cowen's in terms of things we can do together. The legacy is good As the teams begin to work together, as a combined company, we've had so many conversations with our customers that we couldn't have done alone.
So I feel very positive about acquisitions and trades. And I think it's a mistake to start revealing the opportunities we've just been given. So I think the platform will need some patience as it continues to prepare for better performance, but I'm very happy with where we are, especially given the incredible customer feedback we've received.
The next question is from the line of Lemar Persaud from Cormark Securities.
I appreciate the comment about segment margins. But I wonder if that translates across the bank? Therefore, we expect that the scale expansion of the entire bank will be suspended in the third quarter and will expand again in the fourth quarter. is this fair
Broadly, there is a correlation, but at the bank level, assuming you mean ex-dividend trading, core NIM, you also have an impact on some of our hedging activities, such as corporate and non-US rollovers. Property insurance business.
And then we don't usually talk about trades -- TD Securities' non-trade NIMs, but they have that impact as well as wealth and insurance. So those are some of the things that could improve on the valuations of the two largest US P/C insurers.
So it depends on the movement of these other factors? You do not provide any guidance at bank level.
Yes, because if you look at the hedges, they support the company. But I think the important thing is that in terms of the fundamentals of our retail business, that's what we expect from those segments.
ok ok That's fair enough. And then maybe Ajai, but can you talk about the office portfolio? How much of that is Canada vs. America? Should we expect some incremental losses going forward for this portfolio?
I am happy to answer. So in the office I'd say it's about 11% of the overall CRE total. 1% of total bank loans and BA. So it's small. $3 billion of that, about 30% of our loan exposure, or $10.3 of the office is Canadian. This is mostly in GTA and GVA. It is divided into properties A, B and C.
The only differentiating factor in Canada is that you basically turn to a guarantor. The portfolio is currently performing well. In the US, our exposure is $7.3 billion. 70% of that is in the major metro areas and a significant portion of our exposure is actually Class A properties.
If I look at both Canada and the US across the CRE office, I would describe the rated risk or what we call observed risk and impairment levels are currently low. However, there are migrations in the portfolio. What we do as a bank is to test our portfolio of offices.
So we looked at interest rates, price pressure, lease renewal pressure and value pressure. We are well prepared for that pressure because we have not released our CRE inventory yet. We have maintained the majority of our CRE inventory, and our CRE inventory overall is about 2.5 times pre-COVID levels. So given the data we know today, we think we're being cautious. Overall, I would say we are comforted by the experience we have in this room. As I said, the reserve level also gives me comfort. So hopefully this color is enough for you.
The next question is from the line of Joo Ho Kim from Credit Suisse.
Kim Joo Ho
I just have a quick question I would like to ask about capital development. I appreciate you providing some more clarity as we look forward, but I'd like to see if you can discuss anything outside of the US retail banking space where you see some interesting opportunities.
Could we see them making a difference in Canada's wealth sector? Or will the bank consider an unusual acquisition opportunity as we look to the future? Just trying to get a general feel or color commentary would be helpful.
It is difficult to speculate on mergers and acquisitions. It is difficult to say where because these opportunities will arise when market conditions permit. But as you've seen in Canada, when there's an opportunity, TD takes it very seriously given the size, the size and the number of customers that we have. I pointed out that an example of TD Greystone was a great acquisition that was made about three, four years ago. We will continue to monitor the market for what may happen and what makes sense for us.
The important thing to note is that we at TD have the discipline to do this. I mean, just because we have capital, we don't want to chase anything out there. It must be strategic. It must make economic sense. It must be - within the risk appetite. It must be culturally consistent. We have a very strict approach to this. But if the agreement suits them all, then of course we take it very seriously.
The next question comes from the line of Sohrab Movahedi from BMO Capital Markets.
Without getting into the specifics of the US regulatory restrictions, can you comment on whether that means increased spending in the near future?
Is - the bank spends money - how much do we spend per year, Kelvin? What is - I think it's over $2 billion. The size of the TD is quite large. If we're going to spend money on this or that, of course, as you would expect in any business, I think there needs to be prioritization, and it's normal to continue to look for opportunities to invest in our platform.
You hear some of the things Leo talks about, it's an investment. I would like to add that I think the problem is that the cost is upfront and the payoff is later. But at TD we have a tradition of doing the right thing in the long run.
I mean, we don't look at -- we don't look at what's on a quarterly basis. Of course you see it, and we take it seriously. But the whole program here is whether we create long-term sustainable shareholder value. This is how you should think about it.
I'm surprised that my friend Michael Rhodes is sitting here and he told a great story. So I'll leave it to him to talk about what you do in the biggest business in our TD family?
Bharat, thanks for your question.
But just -- sorry, sorry, Mike, I want to hear from you, but my question is about solving regulatory issues in the United States, so of course I want to hear from Canada. But do America's problems require more spending? Is it -- you have to spend money on version -- to fix the US with the regulators?
We'll talk more about that in due course. Investor Day in the US is approaching - what is our spending level, how should we spend it, which categories will we continue to spend on? Stick around. So let's get started.
But in America I love this question. Growth and investment in the US continues at a fairly strong pace in the US and I don't see that changing.
So Bharat, do you still want me to answer your question?
Okay Thanks for your question Bharat. But obviously you're thinking about a lot of great things going on across the company. Throughout the discussion, Leo, Ray and others use the word "base" several times. I will basically use this word as well.
I think the bottom line is that Canadian Personal Banking was really, really strong this quarter, and it was particularly strong. Bharat, you mentioned your initial comment that everyday bank accounts, checking accounts, savings accounts, credit card accounts are up 20% year-over-year, compared to pre-pandemic, more than 20% growth, very good.
Our current account for the second quarter was the best ever. A basic checking account is a privileged account that, like all other kinds of benefits, happens in the form of deepening relationships.
Our net customer growth was the best in years. Our deposits grew by $20 billion, or 8%, year-over-year. Our credit card growth was 14% and we continue to expect continued strong growth.
Our new customer acquisitions have been strong, we're not quite back to pre-pandemic, it's a way to get back to pre-pandemic levels with revenue. If you really look at the ground, our RESL development has always been the best in order on the market. Admittedly, the housing market in general has been slow to move, but we are certainly seeing signs of improvement.
Not only is retention very strong, our acquisition pipeline is also very strong. And then every year we add hundreds or thousands of new consultants. So our fundamentals are strong and we're comfortable with our pipeline driving continued growth. It's really the whole franchise, right now between Leo, Barb, Ray and me and Riaz, I feel pretty good about where we're at.
I hope you missed the event on June 8th. After you have answered Bharat's question, may I ask one more question? I guess to my second question, of course increasing the capital level is a good thing for the team. How much immediate growth does ROE get from this added capital level factor?
So we have a good chance, Sohrab. If you look at our ROE, like where we are now. That's significantly higher than our cost of capital and within the range you've historically seen from TD. This is how we feel comfortable. Like I said, don't assume that just because we have funds in our pockets, it burns a hole in there and we have to worry about how to deal with it. It is very important to look at the environment and what our own development plan is. These things are very important factors for us.
So the ROE move is something that I think Kelvin will continue to figure out, but we're very happy with where we are.
The next question comes from the line of Nigel D'Souza from Veritas Investment Research.
Nigel de Sousa
Just a quick follow up. The first is deposits. Wondering if you can expand on the transition trends you see for time deposits. How fast is the migration this quarter? If possible, what do you have so far in the third quarter? In terms of US retail, any color in the trends you see is for interest-free and short-term deposits.
Okay First up is Canada. Okay sure. good question. Well, first, let me start by stating our obvious strategy for expanding the core deposit franchise. We have chosen our venues and we are of course very pleased with the results we have seen so far this year.
One thing I should probably highlight that I haven't mentioned before is that it's new to Canada and it's doing a really good job of driving growth in our core customer relationship and of course our core deposits. So when you look at our total deposits that have grown by $22 billion a year, you can separate time deposits from time deposits. When we look at the data, you see two things. The first is that our overall portfolio of core deposits is the best in the market. And then the other thing is, if you look at the market trend line, everybody sees some kind of migration. We see fewer immigrants than others in the market.
So I feel very, very happy with where we are in terms of the overall portfolio and deposit behavior. Of course, we look good on the market both in absolute numbers and trend lines.
Nigel, I'll add, it's Raymond, I've said before from a wealth standpoint that we're definitely going to see some deposits in our cash and mutual funds move to more interest rate sensitive products like GICs, high interest savings account.
So what you're going to see is the deposits move out of the wealth business, but they actually stay within the TD franchise and move into Michael's personal deposits. So net net, you see, we still keep our deposit.
I would say that immigration has definitely slowed significantly. So we think, hopefully, we've found the bottom of that part. These deposits in GIC are short-term. So we see an opportunity for the market to move these funds back into equities.
Before Leo gets to it, Barb, would you like to comment on the professional testimony if you would?
Yes. The stories are similar. We are also focused on core deposits, and our core deposit business remains very strong and stable. We have seen time deposits become time deposits.
We are very strict about our prices for time deposits. In fact, for most of our clients, they are not franchise deposits. They are very transactional. So we do not write companies that are not financially attractive to us to a large extent. So we'll see.
Will it slow down? I would say we experienced some slowdown in April. There won't be a trend for a month, so we'll have to wait and see.
Nigel, maybe just to give you an idea of what it is - what some of the underlying trends are. Earlier in previous quarters, we've seen some excess pandemic deposits being drained from what I would call a large retail and smaller business customer base. We didn't see that this quarter.
Despite market uncertainty, retail deposits under $100,000 actually increased overall. So we feel very good about this core retail and small business franchise. Where we see more migration is obviously retail clients, affluent and affluent clients and the larger mid-sized corporate players in your institution who are actively looking for returns. So, just to give you an idea, in our commercial banking business we've only had 3 very large clients who moved a lot of their deposits to TD Wealth and got a better brokerage return than they got with a scan before. So we're still watching it on the sidelines.
Now the medium-term interest rates have fallen slightly. So some of it may not have the appeal it could have. But I still think there may be some yield-seeking behavior in the market.
We have reviewed our prices. I think our price is fixed. However, given the strength of our deposits, we certainly do not price on margin. I think we have a strong core and I think we can defend our current pricing.
Nigel de Sousa
I got it. You could also comment on the level of excess deposits, which could be related to higher debt servicing costs or possible behavioral changes in Canadian customers, I think, with an emphasis on the US. Perhaps in variable mortgages you see higher returns by handling the shock of renewal payments? Or what did you see in terms of excess deposits?
So it's really interesting if I look at our deposit books when we obviously have both mortgages and deposits. On average, we actually see a more subtle reduction in spending for non-mortgage customers compared to mortgage customers. So mortgage customers generally handle things pretty well.
And then when you look at customers who have renewed, we again see customers making very small changes in autonomous behavior. When you open up to customers, there's more variety, but overall, our customers handle increased mortgage payments, I think, pretty, very well. Aye?
No, I agree. Actually, deposit, look at the numbers very carefully - they continue to be well above pre-COVID levels. Not just Canada, but America too. Again, our experience is that when customers get close to their price reset date, they do the right thing. Some of them took action even earlier.
So the overall quality that we see in RESL, but even in the variable rate book, is good and it's really no different. So the customers, at least so far, are well adjusted.
Nigel, I would just add from a US repayment point of view that we are still at a historic low. We obviously don't have the variable pricing challenges that the Canadian market has. So we're not -- we're experiencing record low yields for RESL books.
On the commercial side, payments also fell significantly in the quarter. So -- that contributes to some of the real loan growth that we've seen in recent quarters.
The final question will be from Mike Rizvanovic of KBW Research.
For Michael, I think part of your Canadian history is the mortgage book. So just looking at the growth in your market share, it looks almost across the board. During the quarter, you achieved Big 5 share in each region.
My question is - how much does this have to do with margin compression in your Canadian P&C bank? I'm not sure how they affected spreads in the mortgage industry this quarter. But does it have a significant impact on the magnitude of the downside we see?
I can keep this answer very short. No, it is not a significant effect. Our mortgage service is just a very strong team from our existing books. And I think we have -- we're getting better at winning new business on the front end. So it will not have any significant impact on the margins.
Okay And then a quick statement from Bharat. Sorry I keep coming back to it. But in terms of what's going on behind the scenes with the regulators, can you at least describe whether that in any way affects your ability to expose funds to non-depository institutions? I think it's a fair assumption, we all thought you couldn't buy another bank, so FHN was cancelled.
But what if you are thinking of acquiring wealth or capital markets? is there any difference Or is it the same -- whatever happens in the background does it affect the whole thing I guess hangs in the balance in terms of capital development? Is there a difference between the two?
Well, it depends on what it is. I mean approval takes time. Therefore, we should evaluate based on the types of opportunities available on the market. And, Mike, as you know, I can no longer comment. But we looked at different deals and a lot of them didn't make sense. It is difficult to speculate about what we will or will not do.
Okay So you're open to other types of M&A, not just depository institutions. Is this a reasonable estimate?
Riaz just wrote the big check and bought Cowen, so…
No other problems indicated. At this time, I have the floor for -- excuse me, please return the call to Mr. Masrani.
A - Bharat Masrani
Thanks, operator, and everyone for participating. I know we've come a long way, but it was a really good conversation. Brooke thinks we should go ahead and extend the time because we have a lot of interest, but thanks. That's a good call and a good question.
We look forward to seeing you in Toronto on June 8th. Finally, I would like to thank my TD colleagues around the world. They are the ones who continue to serve all of our shareholders, including our shareholders. Thank you all and see you on the 8th.
Thanks. The meeting is now over. Please disconnect your line at this time, thank you for your participation.