Toronto-Dominion Bank (TD) 2010 Q1 法說會逐字稿

Good afternoon and welcome to the TD Bank Financial Groups First Quarter 2010 investor presentation. My name is Tim Thompson and I'm Head of Investor Relations at the Bank. We'll begin todays presentation with strategic remarks from Ed Clark, the Banks CEO after which Colleen Johnston, the Banks CFO will present our first quarter operating results. Mark Chauvin, Chief Risk Officer will then offer comments on credit quality. After that, we'll entertain questions from those present and from pre-qualified analysts and investors on the phone. Also present today to answer your questions are Bob Dorrance, Group Head Wholesale Banking, Bernie Dorval, Group Head Insurance and Global Development, Bill Hatanaka, Group Head Wealth Management, Tim Hockey, Group Head Canadian Banking and Bharat Masrani, USP&C Banking. As in the past we're trying to keep the call to about one hour, with Ed, Colleen and Mark's comments taking up about half that time. Please turn to slide two.

I'd like to caution our listeners by stating the following on behalf of those speaking today. We know that this presentation contains forward-looking statements and actual results could differ materially from what is discussed. Any forward-looking statements contained in this presentation represent the views of Management only as of today and are presented for the purpose of assisting the Banks shareholders and analysts in understanding the Banks financial position. Objectives and priorities and anticipated financial performance as that and for the periods ended on the dates presented, and may not be appropriate for other purposes . Certain material assumptions were applied in making these statements and you can find additional information about such assumptions and the material risk factors that could cause actual results to differ in our first quarter 2010 MD&A and 2009 Annual Report which could be found on our website at TD.com. With that I'll turn the presentation over to Ed.

Thanks, Tim. Before I begin my formal remarks, I'd like to make everyone aware of a thing that I think some people know in that this is Tim Thompson's last quarter as Head of Investor Relations. Tim has done a spectacular job I think representing the Bank with the investment community. He's now moving on to a key role in TD Canada Trust so if you liked TD Canada Trust's earnings this quarter wait until Tim arrives, I'm sure they are going to be even better, so if I can just take this opportunity to say Tim, you did a terrific job and we really appreciate everything you did. I'd also like to introduce Rudy Sankovic, who is currently the CFO of Wealth Management and he is coming over to fulfill Tim's big shoes here. I'm sure you're going to find that you get the same kind of service that you had before and the style of our IR relationships which is open as transparency and a balanced point of view I think we'll continue under Rudy. So, Colleen's going to come up and give you the quarter results in detail. I thought I'd just have some brief comments on our performance and try to give you a sense of how we see the year unfolding as it works its way through.

Well, obviously, we had an excellent quarter. Record adjusted earnings with over CAD1.4 billion in earnings, up 31% compared to last year and anchored again by CAD1.1 billion this quarter in retail adjusted earnings. Once again, we have to tell you our results surpass our expectations. Overall we delivered record revenue, stable PCLs, and flat expenses. Our performance was clearly fueled by our Canadian retail businesses and another record quarter from wholesale. Our Balance Sheet remains strong, Tier 1 capital at 11.5% with over three quarters of it intangible common equity, and despite a quarter where many things went right for us, we have to tell you that we still don't see that the world has changed a whole lot since the outlook we presented to you in the first quarter, last quarter.

You know, we have managed and we continue to see, for us, the message that we give is that we seem to be able to continue to outperform and we're going to be outperforming in what we see is a Canadian economy that's on a slow path to recovery but we also see continued weakness in the United States. We continue to believe that the global economy is going to stay in a fairly fragile state for the rest of 2010. Against this back drop, we're going to continue to focus on the same lower risk, high quality franchise businesses we've been building right through the financial crisis and the subsequent recession. Our better than expected financial strength allows us to continue to stay focused on actions that insure that as we emerge and the world emerges in 2011, TD will emerge with momentum on its side.

Let me say a few words about each of our businesses. TD Canada Trust, what to say, is simply an unbelievable franchise. This quarter was a quarter of records -- record revenue, record earnings, record efficiency, and record customer satisfaction, the most important measure of all. Clearly, a buoyant housing market in Canada has helped our volumes in the real estate secured lending but we continue to build momentum across-the-board with market share gains in personal and business lending as well as in business deposits and insurance. What's even more remarkable is that we achieve these record earnings despite higher PCLs and higher insurance loss rates compared to last year, so we haven't had yet the benefits that we think we're going to see in the future of declining PCLs.

Moving to Wealth, we had a solid quarter. The story here is really the rebound in the equity markets. We're continuing to perform extraordinarily well at asset gathering with solid sales of long term Mutual Funds in Canada. We continue to see very strong in-flows at TD Ameritrade which, coupled with excellent levels of transaction activity, has contributed positively.

Wholesale. Well, clearly 2009 was a huge year for us but at that time we cautioned the market about the sustainability of those 2009 earnings. So here we are with another exceptional quarterly performance, so what's happened? Well, from a business point of view, we're just continuing to focus on our franchise businesses and they continue to perform remarkably well. I think we frankly have been surprised by the shift to a pure franchise play of how profitable that shift is, and it's important to recognize that we are not taking on more risk to achieve our financial results. Our risk weighted assets are flat with last quarter and a third less than last year. This quarter, we did have a number of things go our way. We exited some positions in our non-core businesses on favorable terms, helped by good market conditions and superior execution, and valuations continue to provide a tail wind, as credit spreads narrowed close to their pre-financial crisis levels. With these things in mind we're going to caution you once again that wholesale earnings should normalize going forward.

Turning to the United States, we think we actually had a pretty good quarter in the context of continuing difficult market conditions. We're extremely pleased with the fundamentals of our business there and we're extremely pleased with how the team has performed following integration. Having said that though, we still believe that 2010 will be pretty tough, as the headwinds we're facing are as strong as the tail winds. What does that mean? Well that means that earnings maybe in a bit of a holding pattern at current levels. So what are those headwinds? Well they include PCLs that we believe will remain elevated until the end of the year, continued low nominal interest rates, intense competition for both loans and deposits, regulatory uncertainty, and obviously the already announced changes to overdraft fees, but for us, what partially or wholly almost offsets the tail winds includes our business model combined with the completion of the integration so that now we can focus our intention on leveraging our great brand, strong distribution, and enviable customer base.

So let's move to talk about how we see the rest of the year shaping up. With the first few months behind us, it's clear that our business model is pretty well positioned. Overall, the four key factors that have determined our growth from here are the same ones I talked about last quarter. PCLs, the level of nominal interest rates, the speed at which we normalize in the capital markets and our rate of organic growth. Our base case for 2010 is balanced with a decent amount of caution; however, there are reasons to be somewhat optimistic about growth in 2010, even though it is a transition year. A strong earnings performance in Canadian retail should more than offset any normalization in wholesale earnings. Key indicators that we're watching are volume growth in TDCT, general market conditions, and trading volumes in Canadian wealth and the speed of the normalization in wholesale. Looking to 2011, we expect then to see additional earnings contribution from declining PCLs and rising interest rates in our retail businesses.

In Canada, PCLs were up year-over-year but they were flat compared to last quarter. We're seeing increasing evidence that loss rates have peaked in the personal book. Initially offsetting these declines will likely be modest PCL increases in the commercial book from current very low levels and of course the continued growth in retail volumes. In the United States we see PCLs continue to hover around first quarter levels. We can't point anything that suggests a looming problem in the context of the current economic conditions but we also don't see a sudden improvement. We think 2010 will be a grind and we'll be continuing to build reserves until we see the fundamental economic conditions improve. We're still pleased with the quality of our wholesale loan book. We don't see anything that causes us concern at this point. There is a chance that we will be able to go through the rest of the recovery period with no substantial losses in that book. As before, our Wealth Management businesses and TD Bank, America's most convenient Bank, remained most exposed to very low nominal interest rates. When rates move higher, we expect the corresponding lift in earnings in both businesses in time, and of course, in Wealth Management, we're very dependent on continued robust levels of trading.

Lastly, our organic growth continues and in Canada in particular, at a faster pace than any of us might have expected. That also means we're already building growth for 2011. We're supporting that growth this year with continued reinvestment in our franchises. In insurance, we're cautiously optimistic that the combination of strong organic growth and improving margins, plus a return to more normal levels of weather-related claims will position us well for solid revenue growth.

Moving to Lending, in Canada we're pleased with the recent changes to the mortgage market announced by the government. Combined with a number of other factors, we expect a moderation of volumes in real estate secured lending as we move through the year. In the United States, we're continuing to see good progress despite the headwinds there. We're growing our personal lending volumes and although our commercial volumes have somewhat stabilized, we're still gaining market share as other people shrink their books.

To wrap up, let me reiterate what you've heard me say before. I believe that TD Bank has enormous earnings potential that we're going to see as we move into 2011. We are emerging from the financial crisis and the resulting economic recession with our business model intact and momentum on our side. With that, I will turn our presentation over to Colleen.

Well, thanks, Ed, and good afternoon to all. First quarter 2010 highlights; total Bank adjusted net income was over CAD1.4 billion, a new record up 31% from first quarter of 2009 and up 9% from last quarter. Adjusted diluted earnings per share for the quarter, CAD1.60 up 26% over last year and up 10% over last quarter. Adjusted revenues exceeded CAD5 billion this quarter, again, a new record, and up 13% versus last year while credit losses and expenses were relatively flat. Total adjusted retail earnings almost CAD1.1 billion, up 11% from a year ago and 10% over last quarter, mainly due to very strong performance in Canadian personal and commercial banking. Excluding the foreign exchange impact, total retail was up 15% year-over-year.

Wholesale; Another record quarter with net income of CAD372 million, up 40% over first quarter of 2009 and flat to our record fourth quarter of 2009. On an adjusted basis, the corporate segment posted a loss of CAD33 million compared with CAD159 million loss last year. Compared to first quarter last year, the lower adjusted net loss was due to higher securitization gains and favorable valuations, a decrease in losses associated with hedging and Treasury activities, unfavorable tax items reported last year, partially offset by the Windstar litigation gain in first quarter of last year. Going forward we expect the corporate segment loss to range from CAD50 million to CAD100 million per quarter. Tier 1 capital ratio of 11.5% was up 20 basis points from last quarter, mainly due to retained earnings growth.

Moving on, the next slide, reported net income was CAD1.3 billion or CAD1.44 a share. Adjusted net income of CAD1.4 billion or CAD1.60 per share. The difference between reported and adjusted results was due to six items of note. Two of these I'd like to highlight are the first is the positive impact of scheduled reductions in the income tax rate resulting in a gain of CAD11 million after-tax or CAD0.01 a share on net future income tax liability and number two, the reversal of provision for insurance claims of CAD17 million after-tax or CAD0.02 per share relating to a favorable outcome in a recent court decision. You saw this item going the other way previously in first quarter of 2008. With first quarter 2010 behind us, we have now retired the item of note for restructuring and integration charges relating to commerce. The modest ongoing costs related to restructuring and integration will be reflected in adjusted earnings in the next couple of quarters. Please turn to slide six.

Canadian PNC; Net income of CAD720 million, as Ed said, are up 23% from last year and 16% from last quarter and it was a quarter of new records. Net income, revenue, efficiency, return on invested capital and customer satisfaction. Compared to last year, positive operating leverage more than offset an 18% increase in PCLs.

So some highlights. Revenue was up 11% over last year due to strong volume growth across most banking products and margin expansion partly offset by lower insurance revenues. We saw strong volume growth primarily in real estate secured lending and in personal and business deposits. Compared to last year, total lending for TDCT grew by 13%, with personal up 14% and business up 4%. TDCT deposits grew 8% with core banking growth up 25% and business deposit growth up 14%. For the quarter, revenues increased 4% sequentially due largely to volume growth and the HELOC repricing.

Provision for credit losses, CAD315 million up 18% from last year, mainly due to volume growth and higher provisions on unsecured lending and credit cards. PCLs were up 1% over last quarter. It's becoming apparent that personal PCL rates are cresting while we expect that business banking credit losses could increase during the year from current low levels. Expenses up 1% from last year driven primarily by higher employee compensation and lower litigation costs. Expenses down 3% sequentially due to higher fourth quarter marketing and project costs. Compared to last year, margin was up 11 basis points at 293, mainly due to margin expansion and real estate secured lending partly offset by margin compression and deposits. The margin was up five basis points compared to last quarter. Overall, an exceptional quarter for TD Canada Trust. Please turn to slide seven.

Our global Wealth Management Business which excludes TD Ameritrade, net income of CAD101 million up 35% from last year and up 4% sequentially. Earnings were helped by improved market conditions and higher asset levels. Highlights: Revenue of CAD590 million was up 1% from last quarter and up 12% from last year. The year-over-year increase was driven by higher fees from increased average client assets, higher trading volumes, contributions from our UK acquisitions, and higher client deposits and margin loans. This increase was partially offset by margin compression due to the low rate environment and reduced commissions per trade as we grow our active trader client base in the online brokerage business.

Expenses were flat sequentially and up 6% from first quarter of 2009 due to higher variable compensation, increased spending on infrastructure and expenses related to our UK acquisitions. TD Ameritrade contributed to CAD43 million to TD this quarter down CAD34 million or 44% from last year and down CAD16 million or 27% from last quarter. The year-over-year decline was primarily due to lower earnings at TD Ameritrade combined with the impact of a stronger Canadian Dollar. On the whole a very solid performance from Wealth. Please turn to slide eight.

US personal and commercial bank. In US dollars, adjusted net income was $216 million for the quarter, up 5% from last year and up 10% sequentially. The US PNC segment continued to perform well in a challenging economic and uncertain regulatory environment. Generally revenues and expenses have been coming in higher than expected but we expect both should trend toward more normal levels over the next few quarters. Some highlights; Revenues were close to CAD1.1 billion, up 10% compared to last year and up 5% compared to last quarter. Sequential improvement was due to higher fee based revenue including overdraft fees. The increase reflects a now integrated product and service offering in the US. In terms of volume growth, we continue to see good deposit growth. Retail core deposits were up 4% versus fourth quarter and 13% versus last year. Lending volumes were relatively flat versus last quarter, a good performance when you consider the deleveraging that's happening across the US right now.

Expenses up 12% year-over-year due to some ongoing integration costs and increase in FDIC premiums and new store openings, partly offset by commerce deal synergies. We opened 13 new stores this quarter and are pleased with the start of our Metro Boston expansion strategy where we opened three new stores this quarter. Compared to last quarter, expenses were up 3% mainly due to higher than expected integration costs.

Provision for credit losses; down 5% compared to last quarter and up 1% over last year. Excluding provisions recorded on debt securities that are classified as loans, PCL for the quarter was CAD182 million, an increase of CAD67 million or 58% compared with the first quarter last year primarily due to higher levels of charge-offs and higher reserve requirements resulting from the recession in the United States. Margin was down 21 basis points over last year mainly due to the lower overall level of interest rates and related deposit margin compression. Compared to last quarter, the margin was down five basis points primarily due to higher volume of lower spread deposit products. On balance, a good quarter in US personal and commercial bank despite tough market conditions.

Moving on to wholesale, slide nine. Net income of CAD372 million, yet another record quarter, up 40% from last year and flat sequentially. Over the last several quarters, we've talked about wholesale earnings not being sustainable and here we are once again with another exceptional quarter. We benefited from improved capital market trading activity and valuations, wider spreads and good client flow. Additionally this quarter, we exited or amended a number of transactions on favorable terms. We definitely expect fewer such opportunities going forward. Provision for credit losses, PCL of CAD8 million for the current quarter was mainly our cost of credit protection. Expenses up 8% from last year due to higher variable compensation partly offset by lower severance, legal and regulatory costs. Compared to last year, expenses were down 3% mainly due to lower severance costs. Wholesale benefited from generally more favorable conditions than we would expect on a sustained basis for the remainder of the year. We continue to expect wholesale return on invested capital to normalize at roughly 20% for the balance of the year. Overall, this was another exceptionally strong quarter for the wholesale Bank. With that I'll turn things over to Mark.

Thank you, Colleen and good afternoon, everyone. First I'll provide an overview of our performance at a consolidated level followed by brief highlights for each of the credit portfolios. Please turn to slide ten.

Let me remind you that the information provided in this section is presented on a credit portfolio basis versus a financial results which are presented on a business segment basis. The primary difference is the inclusion of US credit cards in the US credit portfolio. Similar to last quarter, we've excluded the impact of the debt securities classified as loans to provide a clearer picture of US credit portfolio performance.

Turning to loan balances; Lending growth was concentrated in the Canadian and US personal real estate secured portfolios consistent with our strategy to build a North American franchise. Volumes were stable or down slightly in the balance of the credit portfolios. Please turn to slide 11. As expected, gross impaired loans continued to trend up driven primarily by an increase in US personal and commercial impaired loans which I will discuss in more detail in a moment. Impaired loans in the Canadian personal and commercial portfolio remained constant quarter-over-quarter consistent with the general strengthening and the credit quality of the portfolio. Specific allowance coverage of our impaired loans decreased slightly during the quarter. We continue to monitor specific allowances closely and remain comfortable with the existing coverage level. Please turn to slide 12.

Credit losses remained elevated in first quarter due to continued high unemployment and bankruptcy rates combined with a broader effects of the recession particularly in our US commercial lending portfolio. As a result of stable credit performance in the Canadian portfolios, we did not increase our general allowance for Canadian personal and commercial or wholesale banking during the quarter. We did, however, increase our US personal and commercial reserves by CAD60 million due to the continuing weaknesses in the portfolio. As observed across the industry, gross impaired coverage ratios are trending down as we enter the latter stages of the credit cycle. In our case, this is driven by the combined impact of three factors; first, a business mix with roughly two-thirds of our gross impaired loans in the US; second, the US market practice of charging off impaired loans earlier in the work out process thereby reducing the amount of specific allowances; and lastly, lower loss rates experienced on real estate secured loans coupled with a protracted work out period for this asset class. The result of these three factors is higher impaired loans, combined with lower specific allowances producing lower coverage ratio. Please turn to slide 13 for a more detailed discussion of portfolio performance.

With respect to portfolio performance, I would highlight the following points; performance of our Canadian personal portfolios was fairly stable during the quarter. Visa and unsecured line of credit loss rates eased slightly in the quarter, continued easing as expected as the economy continues to improve. Both the Canadian commercial and wholesale portfolios continue to perform well. We are pleased with the resilience of the commercial portfolio. Although we saw early signs of deterioration in the latter half of 2009, these have not resulted in a material increase in impaired loans or losses. The increases in provisions during the quarter are attributed to small business lending. Although commercial losses are expected to trend up in 2010 from existing low levels, we're not anticipating the major increases experienced in past recessions. Overall, we are satisfied with the performance of our Canadian portfolios.

Our outlook for our US portfolios is more cautious. Losses in the US personal portfolio continue to trend up with seasonal delinquencies impacting first quarter performance. We remain comfortable with the quality of new loans originated in our growing real estate secured and indirect auto portfolios. As we expected, the US commercial credit portfolios is seeing more widespread effects of the recession. Losses in the residential commercial real estate portfolio appear to be nearing their peak as we continue to reduce exposure in this segment.

In the commercial industrial portfolio, credit deterioration was more evident in first quarter. We saw a broad based rise in defaults across the portfolio, although no specific industry or geography stood out as an area of concern. The deterioration and associated losses are expected given the economic environment. Similarly, the non-residential commercial real estate portfolio is experiencing growing defaults as the recession plays out. This portfolio remains a vulnerability and we expect to see loss rates rise. Although weak credit conditions are expected to persist in the US throughout 2010, we remain comfortable that our sound underwriting standards coupled with close monitoring of the vulnerable portfolios will hold losses to manageable levels. We do not expect US credit performance to have a material impact on the banks overall performance in 2010.

To sum up, credit performance met expectations in the first quarter, given the ongoing economic uncertainty, particularly in the US, we expect credit losses to continue to increase throughout the year, peeking in late 2010 followed by a decline in 2011. Now, I'll turn the presentation back to Tim.

Thanks a lot Mark. We're asking those participating in the Q & A portion of the meeting to ask one question at a time. Those in the room participating in person, can I ask you to identify your name and firm before asking your question. And just before ending the call today, I'll ask Ed to offer some final remarks. So let's get started. We'll come into the room here first. Michael?

Michael Goldberg, Desjardins Securities. Ed, how did Basal 2.1 proposals impact your thinking about your investment in TD Ameritrade in the impact of your currency translation account or about any other strategic issues in terms of how the Bank is managed and what issues do you think Canadian banks should be focusing on regarding revisions to the proposals?

That's a fairly sweeping question but I'll try to give a short answer to it. I think I guess my advice to bankers around the world is relax. This is going to take some time to play out. I think we all would like to see the same standards around the world but that means coming to an agreement with the whole set of countries who have formed their banking systems over the last hundred years differently and so every world change has a different impact so it's not surprising it's going to take a little while to sort out.

I think you start with a proposition that the Canadian banking system is well capitalized going into this compared to other nations in the world and secondly, one would assume that in the end of the day, the changes are going to be directed to where the problems were and in its core, the problem was that you had trading rules, capital rules that were too loose, allowed excess leverage in the wholesale dealer, and you had a mortgage system that was broken in the United States. So one would hope that whatever changes eventually come out of this are the capital that has to be raised as directed to solving the problem that caused the crisis. In our particular case, as you know, there are trading rules coming into effect at the end of 2010 so well before Basal 2.1 or 3 or whatever it's called that doesn't really happen until 2013 so the most immediate impact and the one I'm surprised frankly that the market is focused lesson is there are trading rules coming at the end of 2010. As it happens we already moved the dealer because we thought that's where the industry was going and so the impact will be less on us but there will be an impact on us but it's an absorbable impact in our view.

You point out that in the sense of the proposed rules whether they happen or not, the most severe one for us is clearly the different treatment of the investment in TD Ameritrade and we wouldn't think that would impact our strategic stance. We like our position with TD Ameritrade, we would hold that position, obviously the cost of holding that position and from the capital that we have to put against it will go up but it won't change our attitude to that position.

And can I just follow-up? You talked about the defective mortgage product in the US. Have you actually seen any indication of actions or plans to do anything to fix this product?

I think that's going to take even longer. I think the different political and business interest in the current model are pretty deeply embedded and given that they're embedded in a housing market that's in disarray I think people are nervous about how you move to a new model but as I say you also have all sorts of other issues that are embedded in that model so I don't think that cure is going to come quickly.

Yes, Bharat, when we look at your business and look at volume trends, personal growth, actually looks decent, commercial sort of flattish. That makes a lot of sense but can you sort of help us understand how much of that is a function of the market and lack of demand for commercial lending versus any sort of product or mix strategy that TD might be employing and I guess what I'm really trying to get at is, at what point and how quickly do you think your commercial book can start to grow once the market finds a bottom and starts to recover a little bit?

On the commercial side, it is purely market driven. We've seen some moderating in our growth levels but if you look at the overall market statistics, the market is down quite substantially, so we still are taking share but obviously not growing as much as we were last year but that is due to market conditions, as the overall economy in the US continues to delever. On the personal side as you know, we are doing well. We are very happy to expand our mortgage business, two legacy banks did not have a platform of any kind. We built a new platform and frankly, are very happy with that business and are growing I'd say in an area that makes sense for us. Mortgages are becoming more of a relationship product in the US. We've noticed it. We see a deepening relationship with our existing client base by having that product the way we are delivering it now, so overall, I suspect we will continue to see momentum on the personal side and on the commercial side although we will keep on taking share, I think the growth levels will continue to be moderate until the overall demand in the US picks up.

Can I just push you a little bit on the commercial front because some of your peers seemed to express a little bit of optimism in fact that the US commercial demand might start picking up. I don't think he means tomorrow but in the next six to eight months. Are you seeing any early indications that there is maybe a bottom here and that commercial may be set to pick up a little bit?

We are in certain pockets but I wouldn't want to suggest that we are back into the go go days where the market is expanding tremendously. We are seeing some pockets where there's life. We're seeing certain deals in the markets that suggest that we might be seeing an uptick in demand, but if you look at a couple of years ago, the markets we're expanding in 10% or 12%, we were expanding faster than that. I think last year, overall demand for C&I loans was down in the double digit area and we were high. We increased I think we were up 4% or 5%, so yes, we see some signs but I wouldn't want to say that we'll see a roaring comeback in the next quarter or so.

(Inaudible) A question for Tim, loan growth in Canada, what Ed said it was moderating. What should we expect from loan growth there and a lot of your peers have been talking about the mid to high single digits. I don't know if that's where you are but maybe you could in the face of rising interest rates, tougher rules on the CMHC, record high debt service ratios in Canada, record high ownership, it seems like even mid to high single digits seems like a big ambitious number but maybe you could talk a bit about that.

Sure. Well if you actually break it up into its component parts let's take a look at the real estate secured lending business, so we're up 13% or 14% year-over-year. We think the most recent changes A) are good for the economy but B) are likely to pull forward some continued growth into the call it first half of this year and then probably moderate a little bit more so back down to that middle, in terms of revenue growth, if you look over multi-year of a cycle, that never really gets much below the 3%, 4%, 5% so it will probably get down to that sort of level but after some acceleration, if you talk about non-real estate secured lending, personal lending growth, then I think that will start to moderate back down to those same sort of levels, 6%, 7%, 8% in the cycle. And if you talk about business lending, we're already seeing that growth slow normally from demand dampening, we continue to take share on both categories, all three of those categories if you will, very strong share over the last year over 100 basis points in each, but we also find that the competitive market has also picked up so it will probably be tougher for us to gain share at exactly the same rate going forward so that's how I'd position it.

And then just a question for Bharat. With the new FDIC levies, the higher taxes proposed on uninsured liabilities in the US, could you give us some sense as to what type of earnings impact this would be? Is it 5%, 10%, or could you maybe give us some goal posts with these new rules?

Some of the rules you're talking about are still not confirmed so I think there will be more debate, ongoing debate as to what the real impact would be. In our case, as you know, most of the funding we have in the US is through assessed insured deposits so that's a good thing based on at least the initial information that is coming out in some of those rule changes, but overall I'd say I think it's reasonable to assume the level of earnings, I think Ed mentioned in his comments, $200 million bucks in net income out of the US for the next few quarters for this fiscal year is a reasonable way of looking at it. It might be some variability but that's what I think based on information available. I think it's a reasonable way to look at our numbers for the rest of the year.

Yes, (inaudible), a question for Bharat. You have provided good disclosure on the US residential mortgage side with loan to values and FICO scores. Can you please talk about loan to values or other relevant metrics for the US commercial real estate portfolio, question one and question two, when you stress that that portfolio, what kind of loss rate are you assuming to help us gauge the downside?

I would say that our overall underwriting in both the legacy institutions was pretty strong. The Northeast of the US where overwhelming majority of our exposures are again is done relatively well. I'd say the outset and Mark might correct me here but loan to values were pretty strong and the outset we were doing deals around 70%-75% loan to values. We do stress our portfolios and are happy and quite satisfied with the allowances we set up and reserves we set up against that book and part of our framework requires us to look at those types of numbers so I don't have specific asset class losses for you but we are satisfied that in the scenarios that we have looked at, that our reserving and approach in managing those portfolios is appropriate.

(Inaudible), Fairer Tax Investment Research. The increase in deposit fee revenue was very notable this quarter. My question is how much of that is in the US and how much of that is sustainable post-July 1 when regulation E comes into effect?

So if you're talking just of the US, I'm not sure of the enterprise. Yes, it is just the US. Obviously, there are changes coming as you pointed out Regulation E comes into force in July and I think part of it actually gets enforced in August and overall, we made quite a few product changes in our US business through the integration, so I'd say it's a mixed bag. There's tail winds and headwinds but the headwinds with respect to the specific change is obviously not a small headwind for us but like I answered earlier on, it is reasonable to assume notwithstanding those changes that our earnings in the US should follow the trends you saw in the first quarter so to put in a couple hundred million dollars of net income a quarter notwithstanding those changes for the rest of the year is a reasonable assumption, at least from what I can see.

Can we go to the phones please for the First Caller?

Our first question comes from Steve Theriault with Merill Lynch Canada. Please go ahead.

Thank you very much. A couple questions for Bob Dorrance, if I might, and I know it's been indicated on the call that the wholesale results are unsustainable and I certainly appreciate that, but Bob, is there any kind of normalized range of any kind you might be able to point us towards for the trading business?

It's Ed here. You have to understand, Bob's a little sensitive. The clock is up CAD370 million last quarter and then this quarter and everyone wants to know how unsustainable he is but anyway, go ahead.

And it is unsustainable. I have Ed looking at me going "why"? So that's a very good question. I think it's been a very much of a roller coaster in the last two years in the wholesale business as it relates to what the earnings power of the business is and what the earnings power will be, so it is very difficult to forecast, we're obviously not very good at it or I'm not. I come back to I guess Steve, sort of tried and true, I think this is a business that we can make given the business strategies that we have and the markets that we're in. We can make 20% ROIC on a normalized basis and in good markets we'll make more than that and in bad markets we'll make less, so I still hold true to we have CAD3.5 billion of capital in the business roughly, that might go up a little as a result of the market changes in Basal this year, and I think 20% is a normalized range. When we get to the 20%, I don't really know, but I do know that 45% is not sustainable so that's how we're looking at it. Markets are normalizing with respect to margins and spreads and competition and etc. So I think one would expect that these high levels of ROIC that we're earning in the wholesale part will go down and they will go down on average to 20% and how quickly it gets there will be a function of how good the markets are over the balance of the year.

We talked a bit about market risk, Bob. Do you have any ability to quantify what you think the market risk changes might be for first quarter 2011 or are we talking about a double of market risk? I know it's not super material to the Bank.

I think in terms of the market risk weighted assets, we're still working through that A) in doing the relevant applications and B) getting the appropriate interpretation of the rules because that's still influx a little bit, and then also, our positions relative to when we actually apply those new parameters, our books have changed as well but in terms of market risk weighted assets, I think it's fair to say that it would be at least a double, how much more than that we'll have to see.

And one last quick one if I might. Any thoughts, anything you can tell us on your desire or intention to look to become a primary dealer in the US? Any update there, anything you'd care to say?

I guess what I would say is that during the course of the credit crisis we were able to take advantage of that to build a US Treasury trading business in New York and we have been building that and continue to do so and if we determine that it's an advantage, we'll update you at that time.

Fair enough. Thanks for your time.

Next caller, please?

Your next question comes from Cheryl Pate with Morgan Stanley. Please go ahead.

Oh, hi. I have a couple questions for Bob as well. Just wondering if you could help us size to what extent the trade in this quarter, the impact of the unwinding in the positions in a positive way versus sort of core underlying trends, and then secondly, if you can sort of discuss the trends in the quarter, and maybe compare what he saw in January versus November, December time frame.

As both Ed and Colleen mentioned in their comments, I think part of the favorable trading revenue that we had in the quarter was that we were able to exit some of our credit trading positions at values that were higher than we thought. While that was a nice thing to have, it was certainly the actual trading experience that we had in our ongoing core business was the primary reason for the good results. We wanted to give you a context though that that was there, but that was positive. I think if you look at the trading revenues in the schedule, you can already see that in foreign exchange, that the revenues had been normalizing and that started back in the middle of last year and they're coming down to more normalized levels.

On the fixed income side, where we have a higher weighting to fixed income then perhaps some of the peers, those markets have held up more strongly, particularly in origination and with origination has come good trading. We've also added as I mentioned in the previous caller, we've added a US trading business during the course of the last couple years so I think that's new and higher level of revenue. I think what you're starting to see now though, is that the fixed income markets have been significantly repaired. Our margins aren't as attractive. Origination is still strong but we've had a few hiccups along the way in the last little while in terms of the European markets so I think it's starting to normalize there as well and that's probably similar to comments you've heard in other wholesale banks.

Thanks for the color. That's helpful. If I could just ask a second question for Tim Hockey. Efficiency in the Canadian P&C business is really strong this quarter, record low. Can you talk about how we should think about normalized run rate for the balance of the year?

In efficiency ratio?

Yes.

We think it will firmly start with a four. Want a little more than that?

That would be great.

If you think about 11% revenue growth and 1% expense growth, that's a pretty wide gap. We don't tend to operate that way. We continue to believe our philosophy is to drive future strong revenue growth by investing in our business and so the good news is this quarter, we didn't have any way of panic attack on expenses and pull them back. In fact we're continuing to invest and we will continue to invest in the next few quarters obviously so we'll see a narrowing of the gap but the great thing about efficiency ratio is it continues to go down with the gap between revenue and expense so we're feeling very comfortable about the current speed that we're on.

Great. Thank you.

Thanks, Cheryl. Next caller please?

The next question comes from Brad Smith with CI Capital Markets. Please go ahead.

Thanks very much. Ed, this is a question for you. You mentioned in your earlier remarks that you were pleased with the recent government initiative. My question is this. I was just curious if you could maybe fill us in a little bit as to why, since all of the banks seem to feel this was the right thing to do, why the government had to be asked to do it and why the banks just as a group didn't set their own internal underwriting standards and tighten things up, but I guess the question that comes out of that in my mind is, where there's some participants in the market that were not seeing need to tighten standards and was there some concern market share would be shifted around if there wasn't sort of a top level government action, and then my second follow-up to that is if you might recall the last time the Canadian banks asked the government to sort of intervene in sort of operating policy decisions?

I'm going to let Tim answer the first one. There's a story that said that the banks asked the government. I think the government itself was coming to his own views and I'm sure there were lots of informal conversations that went on to say where do you think this is and I think most banks were saying that if you go back and motor up and say that you have this debate around asset bubbles and should you solve asset bubbles by broad monetary policy or should you actually try to do it with narrower focus regulation, I think most banks if asked that question would have gone back to a government and say this is probably a classic case where rather than raise tightened monetary policy jointly, you ought to start touching through singly focused instruments, but I don't think there was a formal request on either side on this particular topic.

I see, okay. You're right. I mean I think the story has been written many times in the last few months that there was a formal request being made.

Yes, but Tim can talk, to still try to answer your question, how come you just didn't do this yourself on your own, fella?

And I think, Brad, that many of the banks lending institutions did obviously take a look at their own lending and adjudicating standards and make tweaks here and there. I think the real issue, though, is that we have a system in Canada where CMHC governs many of the parameters and that as a government body, they can make sort of broad sweeping statements that, as Ed says, does tend to take the heat off of the sector as opposed to a more broad based approach, so we're very supportive of this particular change. We think it's the right level of temperance to put on the market. Some of the banks I think were actually achieving these types of standards anyway but of course, any time there is a change that the CMHC makes that we're all essentially governed by then it levels and resets the playing field because any time as you alluded, one of us moves unilaterally there are share shifts that aren't necessarily good for any of us, so moving the industry down lock step is good for Canada and therefor it's good for the industry.

Thanks very much.

Next caller please?

Your next question comes from Mario Mendonca with Genuity Capital Markets.

Good afternoon. Bharat, in response to questions about changes in overdraft fees or your ability to charge overdraft fees, deposit fees and even the responsibility crisis, you've referenced CAD200 million in net interest income and I just haven't followed that reference. What are you getting at when you say CAD100 million to CAD200 million in NII?

I didn't mean NII. My view, what I was saying is that this quarter you saw the US PNC segment deliver US $250 million of net income after-tax and I think it's based on what I can see, notwithstanding the changes that you talked about is reasonable to assume for the balance of the fiscal year that we should be earning around that number, CAD200 million of net income after-tax per quarter.

I see, so your suggesting to us that there are things that you can do to counteract what we've just mentioned?

Yes. I mean, there are mitigation strategies, I think Regulation E not to get into details but requires the Bank to have specific customer segments opt in to certain product changes so all the banks are moving towards various strategies to make sure that customers who want that service do get that service, so overall, I feel that notwithstanding those changes, I think it's reasonable to assume that we will earn $200 million in net income after-tax over the balance of the year per quarter.

That was very helpful. Thanks for the clarification. Just going back to what Brad was talking about there, changes in CMHC rules. I'm struck by how much stronger TD's personal loan growth has been than your peers over the last say year or so. Year-over-year, TD something like 13, your peers would be like 6.5 so essentially a double, I know you can't say that TD will get themselves into trouble here because they've grown it so quickly but does that cross your mind at all that your peers are maybe being a little bit more prudent or is this just simply the service model coming through?

I'm not sure, are you asking about Canada or the US?

I'm sorry, I should be clear. I'm asking about Canada.

So certainly it crosses our mind as to whether our lending standards are prudent but we're quite confident that this is great growth and quite frankly, we took the approach going into the recession that because of our relative position of strength and our service model that we were going to follow a pretty simple philosophy, and that is we make lots of good loans in bad times and we don't make any bad loans in good times so that's the philosophy and we thought we would stand by our customers in tough types and that means continue to lend. We think the other banks essentially did what generally bankers do in recessions, which they tighten up, and the loans that go bad tend to be the loans that you wrote a year or two ago, not the ones you write right in the middle of a recession, so we're quite confident that the share gains we made, and that's on the personal lending side and on the business lending side, have generated great revenue growth and a bit of a sea change in market share and we took advantage of the recession when we could.

I've noticed that but does that mean we have to be a little more sensitive to things in about a year or two with TD?

I don't think so. Our belief is that one of the things we'll see from a PCL point of view is in absolute dollars, our PCL rate we hope will come down certainly with the rest of the industry but because of our growth itself, it's best to focus on the PCL rate. The PCL rate will come down more dramatically when you absolute dollars in PCL, because our loan growth has been so much more dramatic than the competition.

Thanks for being so candid.

Next caller, please?

Your next question comes from Darko Mihelic with Cormark Securities. Please go ahead.

Hi, Tim actually I'd like to test your confidence on the underwriting and I'm looking at page 25 of the supplementary and at line 25, which shows the loan loss rate in the other portfolio at 242 basis points for the first quarter which looks like a new high and I guess a couple questions come out of that. The first is, if I go back, I can see a low of about 1.5% in that portfolio so the questions that pop out of this are can that 242 rate trend back down to 150 and secondly, why is that 242? What caused the jump in the quarter and why such a high rate? I look at some other banks and they don't have such a higher rate. I think some VFC is in there but maybe you could give us clarification as to what's in there because by my math if I take it down to about 1.5% from 2.4%, that's about CAD200 million lower annualized in loan loss provisions from your division, so any help on that would be very good.

So there are some items that we took in the first quarter that I think are expressly in that row. I can't do the math in my head as to what I attributed to that but it's more of a one-time item. I can tell you again if you're testing my confidence, I am quite confident that even in the other category, we are seeing absolute level of rates in personal credit PCLs having crested. I guess is the short answer, and by individual category, I can't think of one that's an outlier that would cause that one to go up other than the sort of one-time, so we can get back to you on that specific line item but I think we're okay.

But is it fair to use the 150 as a sort of target right to go down towards?

Yes, I think what you're probably looking at here is that we changed the provisioning methodology for the old VFC portfolio and so you're seeing that actually go through a specific as opposed to a general so you should be seeing an offset, so essentially those loss rates, the underlying loss rates, were fairly consistent quarter-over-quarter. I think that's the anomaly you're seeing.

Can we follow-up afterwards?

Sure. We'll post the answer to that question on the IR website.

Next caller, please?

Your next question comes from Sumit Malhotra with Macquarie Capital Markets.

Good afternoon. In the four pillars of earnings analysis or conversations you've been giving us last couple quarters, last quarter Ed had a comment in which you stated 'low interest rates are hurting the Bank in retail but helping you in wholesale' and maybe if I tag Bob Dorrance in on this along with some of the other questions, when we look at the Banks ability quarter after quarter to continue to post these big wholesale results, despite your view that it should normalize, what is helping you with low interest rates on the wholesale side? Is it funding cost, is it kind of carry business, is it the fixed income origination you've talked about a combination of the three, and what is it that you feel goes away or normalizes the near term when it doesn't look like at least short-term or long term levels of interest rates have changed that much?

Bob is looking like I didn't agree with you but now I'm having to defend it but go for it.

I think certainly as interest rates fell and went lower and that general impact on markets was very positive which is obviously very positive for the wholesale business. So I think were rates to stay low and markets to slow down, we wouldn't be a net beneficiary of the low rate environment and I think Ed is also alluding to the fact that oftentimes as rates start to rise, were that to result in fixed income markets reversing, it's harder to make money in rising price fixed income markets than it is in falling priced fixed income markets. As a matter of course, we're not a carry Bank and we're not a carry Bank in the wholesale party either so we're not benefiting from a funding aspect.

I certainly know, Ed has talked about that in the retail business but that hasn't been one of the reasons that TD has posted strong--

No, but when one has assets and rates fall, you benefit to the point where they stop falling and normalize and then you benefit both by owning assets and also by the velocity of assets starting to improve which happen in all markets.

Just related question and I'll stop there, on your underwriting advisory line, some of the better prints we've seen from TD perhaps ever since you've been giving us this disclosure, in the last couple quarters, is the bulk of this for the Bank coming on the fixed income side or is there a pretty good split between your equity, your advisory and your fixed income business?

We actually had a record quarter in investment banking, a record quarter in the history of TD securities. It's a very strong business split between M&A, equity, and fixed income and I think because numbers are public and you can follow them, certainly the equity issuance business has slowed down, it didn't start off as well in 2010 as it ended in 2009, fixed income origination remains strong and M&A was good, M&A tends to be more spotty so that's hard to forecast.

Thanks for your time.

Thanks. Any last questions in the room?

Richard Tattersal, Heathbridge Capital. I think last year, Ed, at the RBC Banks EO conference, you mentioned you were a bit nervous about acquisition opportunities given the balance sheets that are a bit of a black hole, you referenced Chevy Chase as a Bank that might have got away but you might have grabbed, a good franchise, you've got the FDIC, you're on the approved list for that, so how active is the US M&A file in 2010?

Yes, so I guess one of our messages is I think our fundamental view of the world hasn't really changed a whole lot and so I think we would still be quite nervous about large whole acquisitions where we aren't getting any assistance, so I think for the moment we think of 2010 as we are going to keep looking at either assisted deals or smaller unassisted deals where we think we can sort of self-under write the catastrophe insurance.

Thanks very much for your questions so I'm just going to turn it over to Ed for some final remarks before we end the meeting.

Once again, just to congratulate Tim for a job well done and welcome to Rudy, so obviously we're feeling pretty good about the quarter. It's been a record quarter. I think we're obviously pleased that the message in the quarter is the franchise strategies that we've been following all the way through here are continuing to pay off and what you're going to see is us continuing to invest in those franchise strategies and I think working our way through what we still see as 2010 as a transition year setting up some pretty good years in 2011 and 2012 and hopefully the world economy improves, so thank you very much.

With that I'll end the meeting. If we can be of further assistance, please contact the investor relations team, or visit our website at TD.com. Thanks for your time today.