Toronto-Dominion Bank (TD) 2012 Q1 法說會逐字稿

Good afternoon and welcome to TD Bank Group's first-quarter 2012 investor presentation. My name is Rudy Sankovic, and I'm head of Investor Relations for the bank. We'll begin today's presentation with remarks from Ed Clark, the Bank's CEO; after which Colleen Johnston, the Bank's CFO, will present our first-quarter operating results. Mark Chauvin, Chief Risk Officer, will then offer comments on credit quality, after which we will entertain questions from those present and from prequalified analysts and investors on the phone.

Also with us today to present -- to answer your questions are Bob Dorrance, Group Head, Wholesale Banking; Tim Hockey, Group Head, Canadian Banking, Auto Finance, and Credit Cards; Bharat Masrani, Group Head, US PNC Banking; Mike Pedersen, Group Head, Wealth Management, Insurance and Corporate Shared Services.

We'd like to keep the call to about 45 minutes, if at all possible. I do recognize the analysts have a busy day, and there is one more bank reporting this afternoon. So if we could try and keep it quick, that would be much appreciated.

At this time, I'd like to caution our listeners that this presentation contains forward-looking statements, and there are risks that actual results could differ materially from what is discussed. Any forward-looking statements contained in this presentation represent the views of management and are presented for the purpose of assisting the Bank shareholders and analysts in understanding the Bank's financial position, objectives, and priorities, and anticipated financial performance, and may not be appropriate for other purposes.

Certain material factors or assumptions were applied in making these forward-looking statements. For additional information on these factors and assumptions, please see our Q1 2012 MD&A and 2011 Annual Report, available on TD.com.

With that, let me turn the presentation over to Ed.

Thanks, Rudy, and welcome everybody, and thanks for joining us this afternoon. Colleen is going to take you through the first-quarter results in detail, but first I'd like to give you my thoughts about the quarter.

Well, obviously, we're off to a good start for the year. The momentum we built up in 2011 has carried through into the first quarter of this year, resulting in another record performance from our retail businesses and a very strong contribution from our wholesale. Along with the announcement of our strong results today, we were pleased to declare a CAD0.04 dividend increase. Now, this increase has an element of catch up to it, as our stronger-than-expected EPS growth in 2011 resulted in a payout below the middle of our 35% to 45% payout range.

But the dividend also signals the Board's confidence in our ability to deliver sustainable, long-term, quality earnings growth. As always, our Board will continue to assess our dividend payout in the context of our earnings and the environment we face.

While the headwinds remained, we're feeling a little bit better about the world than we did just three months ago -- at least for now. In Europe we are seeing reduced tail risk as a result of the European Central Bank's loan facility, which has clearly help to alleviate the liquidity crunch. At the same time, there are early signs of recovery in the United States, with evidence of an improved labor market and better consumer and business sentiment.

Despite the still fragile economic environment, the resilience of our retail-focused franchise model came through once again in our first quarter results. Canadian banking continued to outperform, with yet another record quarter driven by solid volume growth, the acquisition of MBNA, stable PCLs, and a record low efficiency ratio.

Looking ahead, we believe Canadian banking should deliver mid to high single digit earnings growth for the year, despite slowing personal loan growth and continuing margin pressures. Wealth and insurance had good results this quarter, despite weaker trading levels and a severe weather-related event. These businesses have strong fundamentals and are underrepresented in some of their respective markets. We should see good growth in wealth and insurance this year.

Our US business and delivered a particularly strong quarter. Despite the tough economic environment and the absorption of the full impact of Durbin this quarter, America's most convenient bank was still able to produce a record quarter.

The low interest rate environment helped because it stimulated mortgage refinancing, with balances up 34% over last year. Our multiple growth strategies are paying off. We have a number of stores that are just now maturing, which continue to help fuel new deposit and loan growth. We expect to add new stores at a rate of about 30 plus a year. Cross sell initiatives are taking hold while our superior business model allows us to continue to grow organically in good times and bad. We continue to believe that our US operation will show modest areas of growth this year despite the negative impact of Durbin.

Wholesale delivered another strong quarter, despite an uncertain environment. I'm particularly pleased with the progress we're making on our franchise strategy. We finished calendar year 2011 as the number one equity underwriter in the league's table of rankings for the first time ever, and number two in corporate debt underwriting.

Our return on equity this quarter was a solid 19%, even after absorbing higher capital for market risks under Basel 2.5, and a higher Basel III capital requirements that were allocated to the businesses starting this quarter. Despite the prospect of difficult markets over the next couple of years, we're confident that our 15% to 20% ROE target is achievable.

In this slower growth environment, we are very focused on ensuring that expenses do not grow faster than revenues. We're managing expense growth very tightly this year, and we continue to target positive operating leverage. With interest rates expected to stay low until at least 2014, our management team has turned its attention to 2013 and 2014. We will continue to set ambitious targets to slow our rate of expense growth. In doing so, I want to emphasize that this is not about cutting costs, but rather about finding permanent, sustainable savings in our existing cost structure, which will allow us to reinvest in the business as we have done in the past.

On the capital front this quarter, our Basel III common equity tier 1 ratio hit 7.1%. We continue to feel comfortable with our capital position, in line with our previous guidance.

As we look forward, we remain cautious about the future. Where Europe has resolved its immediate crisis in Greece, it is challenged with the prospect of a low growth environment for many years to come.

In the United States, the economic recovery there remains fragile and may be impacted by what is happening in Europe. The slow recovery in both geographies will mean lower rates for a longer period of time, which will negatively impact our net interest margins for at least the next couple of years. This will remain our core challenge -- hence our focus on permanent reductions in our cost structure.

I remain confident that our proven business model can continue to outperform in the expected environment. While Canadian banking earnings are expected to slow down in the next couple of years, we will see an earnings rotation into other businesses to make up the difference. TD Auto Finance and MBNA have good potential.

Business banking environments remain healthy. Both insurance and wealth have underpenetrated businesses in Canada, and the United States, TD Bank, America's most convenient Bank, clearly outperformed this quarter and has very strong upside.

Our wholesale franchise business is showing excellent resilience in tough markets. With that, let me turn it over to Colleen.

Thanks, Ed, and good afternoon. We are very pleased with our Q1 2012 results, posting record adjusted net income and record adjusted EPS. Our total Bank adjusted net income for the quarter was over CAD1.7 billion, up 9% from last year, while adjusted diluted EPS was CAD1.86, up 8% versus Q1 of 2011.

These strong results were driven by continued momentum in our retail business, which delivered record adjusted earnings of CAD1.6 billion, up 11% from last year.

Results in our wholesale bank were strong, with net income of CAD194 million. Net income was down 17% year over year, due to the elevated level of investment portfolio gains in Q1 of 2011.

The corporate segment had an adjusted gain of CAD17 million versus a loss of CAD19 million in 2011. As we look across the total Bank, we see a few themes worth highlighting. First, we delivered positive adjusted operating leverage of 190 basis points this quarter as a result of acquisitions, solid core revenue growth, and prudent expense management. These results reflect our continued focus on managing expense growth while still investing for the future.

Second, with respect to capital, we remain well positioned. Our Tier 1 capital ratio was 11.6%, down 140 basis points from last quarter. The overall decline was due to our acquisition of MBNA, the implementation of the Basel II market risk framework, also known as Basel 2.5, plus additional capital deductions for IFRS and insurance subs.

Third, MBNA appears to be on track with respect to both performance and integration, in line with our previous guidance. From a retail perspective, MBNA earnings show up in Canadian banking and the wealth and insurance segments.

The first quarter represents a strong start to 2012 for the Bank. Please turn to slide 5. TD's reported net income was almost CAD1.5 billion, or CAD1.55 per share. Adjusted net income was over CAD1.7 billion or CAD1.86 per share. The difference between reported and adjusted results was due to eight items of note.

This quarter includes three new items of note, CAD24 million in integration and direct transaction costs related to the acquisition of MBNA Canada's credit card portfolio, CAD31 million release in the allowance for incurred but not identified credit losses, previously known as the general allowance, and the previously announced litigation reserve plus the marginal increase as a result of the settlement after the quarter end. I would also note that amortization of intangibles was lower, as the legacy Canada Trust intangibles were fully amortized in Q4 of 2011.

Please turn to slide 6. Canadian Personal and Commercial Bank had another great quarter. Adjusted net income was CAD850 million, up 11% versus last year, and up 13% from last quarter. This marked another record quarter for Canadian banking in terms of net income, efficiency, and customer satisfaction.

Revenues were up due to solid volume growth across most product lines, strong fee growth, and the acquisition of MBNA Canada's credit card portfolio. This was partially offset by lower margin on average earning assets.

The business generated good but slower personal lending volume growth, with year-over-year increases of 7% in real estate secured lending and 19% in auto lending. Business lending volume growth was strong at 14%, where we continue to make great progress.

Average deposit volume growth rates were also strong, with personal deposit volumes increasing 4%, while average business deposit volume increased 12%. This quarter's results reflect the impact of the MBNA Canada acquisition. This acquisition contributed 5% to adjusted revenue and added 5% to adjusted expenses, 12 basis points to NIM, and increased PCL by CAD73 million.

Credit trends continue to improve, with personal banking PCL excluding MBNA down 9% compared to last year, due to better credit performance and enhance collection strategies. Margin was down 2 basis points compared to last year, but up 8 basis points sequentially due to MBNA. Excluding MBNA, margin was down 4 basis points versus the previous quarter and 14 basis points from Q1 2011, due to the low rate environment, portfolio mix, and competitive pricing pressures.

We expect margin pressure will continue in this low rate environment. Adjusted expenses increased 8% compared to last year due to MBNA, higher employee-related costs, and continued investment in the business. As expected, expenses were well down over last quarter. Operating leverage was 2%. Looking forward, we expect Canadian PNC Banking to post earnings growth in the mid to high single digits in 2012.

Please turn to slide 7. Wealth and insurance, excluding the impact of TD Ameritrade, delivered good results despite volatile capital markets. Net income of CAD294 million was up 14% from last year and 2% sequentially. Wealth earnings were up 11% year over year. Revenues declined due to lower trading volumes, partially offset by strong asset and fee growth in the advice and asset management businesses. We are pleased with the growth in net new client assets.

Expenses and wealth were down significantly year over year, due to nonrecurring expenses in Q1 of 2011 in the wealth business and proactive expense management. Insurance earnings were up 17% year over year, with increased revenue driven by premium growth, improved claims performance, and the addition of MBNA. This was partly offset by the impact of a severe weather-related event in November.

TD Ameritrade contributed to CAD55 million to TD this quarter, up 15% from last year and 2% sequentially. We expect good growth in wealth and insurance earnings for the balance of the year.

Please turn to slide 8. U.S. Personal and Commercial Bank delivered record adjusted net income of $345 million for the quarter, up 6% from last year and up 19% from last quarter. The increase was primarily due to very strong core business growth and a lower PCLs, partially offset by the impact of the Durbin Amendment. US PNC's organic volume growth excluding acquisitions continues to be very impressive. Excluding the Chrysler Financial acquisition, average loans increased by 9%, with residential mortgages up 34% and commercial loans up 5% compared to last year.

Average deposits, excluding government deposits and TD Ameritrade IDAs, were up 9%, with personal deposits of 7% and commercial up 12%. TD Ameritrade sweep deposits grew 30% compared to last year and 5% sequentially.

This strong volume growth net of Durbin drove a 5% increase in revenue compared with Q1 of 2011. The gross impact of the Durbin Amendment was in line with our previous guidance, though this was somewhat reduced by indirect mitigation efforts.

The impact of the Chrysler Financial acquisition largely offset the impact of various accounting driven items last year.

Total PCL was down 25% compared to last year as asset quality continued to improve. While the overall credit quality of acquired credit impaired loans remains in line with our original expectations, PCL on these loans increased this quarter.

Adjusted expenses increased by 8% over last year, due to the Chrysler Financial acquisition and investments in new stores. On a sequential basis, adjusted expenses declined by 10%, primarily due to elevated expenses in Q4. We expect that strong core business growth will be muted by the Durbin impact, resulting in modest earnings growth in 2012.

Please turn to slide 9. Wholesale delivered very good results this quarter, with net income of CAD194 million. Earnings dropped 17% versus Q1 of last year, entirely due to elevated security gains in the prior year.

Trading-related income of CAD380 million was strong this quarter, as improved results in the interest rate and credit portfolios more than offset declines in equity trading. I would caution you that this level of trading revenue is above ongoing expectations. We remain comfortable with our previous guidance of CAD300 million per quarter or -- over a normalized cycle.

PCL increased by CAD9 million versus Q4, primarily due to a single merchant banking exposure as compared to a small recovery in the prior quarter. Expenses increased 3% sequentially, as higher variable compensation due to improved capital markets revenue was partially offset by lower operating expenses.

From a capital perspective, you'll notice that risk-weighted assets increased by CAD16 billion or 46% versus last year. This increase was driven by the revised Basel II market risk framework and was within our previous guidance of 3 to 4 times our Q4 2011 market risk RWA. This increase recaptures the RWA decrease realized several years ago when we implemented our VAR model.

Despite the challenging market environment our wholesale business performed well. We expect that wholesale will continue to deliver solid, risk-adjusted returns with a 15% to 20% ROE target in 2012.

Please turn to slide 10. The reporting philosophy for the corporate segment remains the same, but the composition has changed under IFRS. On an adjusted basis, the corporate segment posted a gain of CAD17 million in the quarter compared with a loss of CAD19 million last year. The increase was part of partly due to lower net corporate expenses and a favorable tax item. With the implementation of IFRS, the negative impact of noncontrolling interest of about CAD26 million per quarter is now below the line and no longer resides in the corporate segment.

Looking forward, our new estimated range for the remainder of 2012 is an adjusted net loss of CAD40 million to CAD80 million per quarter. As you know, corporate segment results contain some volatility and are inherently difficult to predict.

Please turn to slide 11. In this environment of constrained revenue growth, a focus on cost management is critical. While our expenses may fluctuate from quarter to quarter, we are firmly committed to managing core expense growth very tightly to deliver positive operating leverage this year, in the face of slowing revenue growth.

Our adjusted efficiency in Q1 was 55.3%, the lowest in five quarters. Excluding the impact of MBNA, our Q1 expenses dropped by over CAD200 million from Q4 in-line with our expectations. With interest rates expected to stay low until 2014, combined with slowing loan growth, it is critical that we get ahead of these impacts and start focusing on expense growth beyond 2012. We have initiatives underway to permanently improve efficiency and we will manage expenses even more tightly in 2013 and 2014. Despite slowing our rate of expense growth in future years, we remain firmly committed to investing for the future.

Please turn to slide 12. Looking at capital, there are no material changes to our Basel III outlook. Our pro forma Basel III capital ratio was 7.1% at the end of the first quarter. We continue to remain comfortable with our Basel III guidance.

I would also like to highlight that in Q1, we changed how the bank allocates internal capital to our businesses. We will now be allocating based on future Basel III capital requirements of 7% of Basel III RWA plus goodwill and intangibles. The RWAs reported by segment reflect today's Basel II methodology, while capital has been assigned applying the Basel III methodology. We've also moved from ROIC to ROE as our return measure. Please note the capital allocation changes have been applied prospectively.

Overall, we remain comfortable with our capital position. Please turn to slide 13. As we look ahead to the balance of fiscal 2012, we expect the operating environment to remain challenging, and I should remind you that the second quarter is impacted by two fewer days, which will lower EPS by roughly CAD0.06.

I want to reiterate that our goal continues to be 7% to 10% adjusted EPS growth over the medium term, despite the challenging operating environment. And with that, I'll turn presentation over to Mark.

Thank you, Colleen, and good afternoon, everyone. Please turn to slide 14. As we've done in the past, the debt securities classified as loans in the acquired credit impaired loan portfolios have been excluded from the credit slides. The latter consists of the Florida FDIC covered loans and the acquired credit impaired loans for The South Financial, Chrysler Financial, and MBNA Canada acquisitions. These portfolios are excluded to provide what we believe is a better representation of the Bank's credit performance. Also, this is the first quarter that our credit slides are presented using IFRS accounting standards. Now let's turn to credit quality.

The Canadian personal, commercial, and wholesale portfolios continue to exhibit strong overall credit quality. We continue to watch the Canadian housing market and consumer debt situations closely and are adjusting our underwriting standards where appropriate.

We're continuing to see positive momentum in the performance of the US credit portfolios, as evidenced by the resolution of impaired loans exceeded new impaired formations during the past quarter; we are seeing fewer problem loans on the horizon; and personal loan delinquency levels reduced during the quarter. We expect these positive trends to continue over the coming quarters.

Finally, our acquired portfolios and debt securities classified as loans continue to perform within our original expectations. Now I will turn the presentation back to Rudy.

Great. Thank you very much, Mark. We'll now open it up to questions. To give everyone a chance to participate, if you could, let's keep it to one question, and then we will requeue if there is time.

For those participating in person in the room here, I would ask you to identify your name and firm before asking your question. Before ending the call today, I will ask Ed to offer some final remarks. So, why don't we get started with the folks in the room first? I will turn it over to any analysts or investors.

Thanks, Rudy. John Reucassel from BMO Capital Markets. Bharat, a question for you. The US numbers continue to be very good. Could you talk a little bit about -- it looks like the noninterest income in US dollars was up versus last year, and even flat with Q4.

How did you deal with Durbin? What happened in there? Why did you perform so well? And then maybe some commentary on the loan growth. Is it just continuation, execution of what you have been talking about, or are there special things going on there?

We think he is a miracle worker, so we're very interested in this question.

And is the CAD345 million in quarterly earnings -- is this a new base for the -- I'm just trying to understand the quality of the numbers that you generate.

I think there were four questions in that, John. Let's start with Durbin. We said that the impact of Durbin on a normalized basis is CAD50 million to CAD60 million a quarter. And my view is that the number continues to be in that range.

In Q1 we did have a certain sort of I would call positive sort of impact on that number for us, firstly, seasonally, because of the gift card business, which is a big business for the bank. That does help us from a seasonal perspective.

We also had -- and I would say timing as to how we get paid on some of the interchange in the US. So those were positive, so perhaps the impact in Q1 was not as much as you might have been thinking, but I think it is appropriate to say Durbin will cost us CAD50 million to CAD60 million.

Having said that, we are trying very hard to mitigate the impact. As you know, there is no direct mitigation. It's not like Reg E, where we can change the behavior of our store folks and have customers opt in or opt out, depending on what their choices might be. Here for us, the mitigation is more to do with our ability to optimize our offerings, our value proposition out there, where appropriate, to increase the fees, and more importantly, to offset it through growth.

As Ed mentioned and Colleen mentioned, we are seeing good organic growth in our business in the US, and that does help us to offset this. And I think I had said this in an earlier call, that my view is that within two years, we would have offset Durbin. So that continues to be the case.

With respect to your -- in the fourth part of your question, our business -- and I've tried to figure out why the seasonality that we have in our US business, but we do. So Q2, a part from being a short quarter seasonally, is not as strong a quarter.

So, overall, I think I'm still comfortable that we will -- we are trying very hard; it's tough to predict the future perfectly, but the guidance or the point we made is that our US business should be able to evidence modest growth in 2012 for what we delivered in 2011, notwithstanding the impact of Durbin.

I'm comfortable in saying that. And with respect to growth, generally, yes, it is the same. It might be boring, John, but that is what we do for a living. It is getting one mortgage at a time, one customer at a time, one deposit at a time, and one credit card at a time. And that is what it takes in our business, and we continue to work hard to generate that growth. And that is what is happening in our business in the US.

Thanks, John. Any other questions from the room? Okay, operator, why don't we go to the first question on the phone, please?

Steve Theriault, Bank of America.

Thank you. Question for Tim Hockey. Tim, I just want to make sure I understand what's going on with the HELOC trends. We've seen now several quarters of the HELOC book being relatively unchanged or even really shrinking slightly. Can you speak to what is driving this trend? Is it just that your product remains a little less competitive price-wise versus peers?

That's exactly right. We haven't changed our standards in any way. It's literally just the competitive market and our pricing is a little off market right now.

So I guess what I don't understand is if I come in to the branch, and if I don't like the prime plus one pricing on the variable rate revolving portion, why don't I take a HELOC with a fixed option and get the flexibility of being able to draw down principal payments?

Many do. In fact, we often sell our HELOC because it has all of those features as a much more flexible option as a mortgage. So it's not like we're not having any success in selling our HELOCs; it's just that there is very aggressive pricing elsewhere in the market place. So we have this largest portfolio, and as a result, we are seeing a little bit of market share loss in, specifically, HELOC. But on the other hand, we're getting it back on the mortgage side.

If I might, just one on credit cards. We've heard a lot about your mortgage efforts in the US, but could we get a bit of an update on your credit card initiative? How successful have you been ramping that business in the US? And should we see any appreciable positive impact on margins or loan growth anytime soon?

This is Bharat, Steve. On the credit card business, as you know, it is -- relative to the business we have in Canada, it is quite small. But we are seeing good growth in the number of cards that we're able to put out. We have various initiatives that we have talked about previously as to how we are doing that.

The main focus, again, is through our stores. We are America's most convenient bank. We have a huge customer base, and a lot of our existing customers have credit cards elsewhere. So we work on various strategies to see whether we can cross sell credit cards. And generally speaking, yes, it is quite a small business; we're happy with how we are progressing in that business.

And I forget the second part, sorry, Steve. But I'd say overall, credit card is showing good momentum.

(inaudible - microphone inaccessible)

Yes. It's too small to make any material difference on the margin.

How much of the CAD12.5 billion of other consumer would be cards, then?

You know -- about CAD1 billion.

Robert Sedran, CIBC.

Tim, based on the information on slide 6, I get MBNA at roughly breakeven on the quarter. First of all, is that correct? And then, could you perhaps just give us a sense of the expected earnings emergence from this transaction, and how long it will take to start adding meaningfully to earnings?

It's Colleen. If you look at the math that we provided, I think it would lead you to conclude that it was a breakeven in the quarter. Actually, it was a bit better than that. I think part of it is just in the rounding, frankly. So it added about 2% to the bottom-line growth in the quarter.

And to answer the underlying trends, we are actually quite happy with what we're seeing. It will be in line with the guidance we gave previously, we think, for this year. Integration is going well. The employees have all signed on, and the signs are up on the buildings, and we are selling lots of cards. So we're quite happy, and I would say our early look at the credit quality is also better than we expected.

Peter Routledge, National Bank Financial.

Thanks. Question just for Bharat. I think you had just some questions on the revenue side of your business, but on the expense side, I guess you cut average FTEs by 295 and expenses seem -- granted, the adjusted efficiency ratio is a little bit higher, but you don't have Durbin in the numerator relative to the same quarter last year. So can you just inform what you're doing on expenses? And how much room do you have to take more cost out?

So, to give you a sense, firstly, quarter over quarter is always hard to make comparisons, because there's always timing issues, etc., etc. But overall, I think we have, like Colleen mentioned, similar to the rest of the whole of TD Bank Group, we have various initiatives that are US focused to make sure that we are permanently reducing our cost base.

One example I will give you, and I don't want to take too much time here, is in our teller system in the US. We recently introduced imaging capability. So when our customers walk in, their deposits are imaged on the spot before the customer leaves the store. What that does is better customer experience, it's all accurate, if there are 29 checks instead of 30 -- if the customer thought they were depositing 30, we would be able to fix that on the spot.

What it does is it allows us then to exchange those images, not only with other banks, but to make our processing more seamless. And we're able to transmit that electronically.

It reduces costs, improves our experience for our employees, and frankly, a good thing there is it's good for the environment as well, because we don't have vans running around trying to pick checks from all of our stores. Just one example of some of the things that we're working on to try and permanently reduce costs, but these are fairly long-term type of projects, and my view is that over time, we will be able to get more efficiencies out of our business in the US.

What's your target for adjusted efficiency ratio, say, for 2013? If you're at 60 now, roughly, where do you want to be?

I think the US -- generally, if you look at many of our peers, would run lower to mid 50%, 55% or so. In our own case, given the type of balance sheet we have, we don't have as many -- relatively speaking -- commercial loans. And as we redo our balance sheet where we have more loans, you should be able to see that ratio move towards what you would expect out of the US peer group.

The mid-50s%?

Yes.

Brad Smith, Stonecap Securities.

Great, thanks. I was just wondering, Bharat, or Tim perhaps, if we can get an update on the Chrysler integration and how the business is going? I was particularly interested in if we could get a sense for the revenue and income contribution that it is making to the US segment? Thank you.

This Tim, Brad. The dealer sign-ups actually just crossed over the 7,500 mark, so again, as we said earlier, great acceptance from the dealer community.

Loan originations continue to be quite strong, up fairly significantly over, obviously, where we were from a standing start this time last year. I would say our revenue, as we have said before, is still challenged from a margin point of view, given that we are playing in the prime space.

Our expenses are relatively high on a run rate basis, but I can tell you that our earnings contribution to date relative to our expectations is high -- less from the performance of the underlying business, if you will, and more so from the performance of things like our leases being brought forward, good reseale values on cars.

So clearly, we still have some mitigation work from an ongoing business point of view, and we've got all sorts of remediation efforts vis-a-vis things like compliance and bringing what was a captive auto finance company up to snuff, now, being fully regulated by a bank.

Gabriel Dechaine, Credit Suisse.

Just a quick one. Accretable yield -- did any of that flow through the revenue line in the US? And then I'll pick one here -- let's go with loan growth in the US. I see that for the last few quarters, commercial loan growth has been trailing consumer. I know it's -- consumer is starting from a smaller base, but was there anything else going on there? Is it more of a strategic focus on the consumer? Is it a competitive marketplace for commercial loans? Was it impact of the runoff business? What is the trend there that I am not seeing?

On the accretable yield question -- so I think you are probably asking that in reference to the acquired credit impaired loans, whether there is anything unusual in the accounting. So this quarter, what you saw is that we did have a larger PCL number related to acquired credit impaired loans. But to Mark's earlier comment, we do expect that portfolio -- it is performing within original expectations. So we did have a PCL. We did not have anything notable on the revenue side.

And just to answer the question on consumer versus commercial, on the consumer side, most of the growth is coming on the mortgage and HELOC front. And there, the answer is relatively simple. The legacy institutions that we acquired did not have any meaningful business in the mortgage segment. We've built a very good platform now. Mortgages are available to 1300 stores in the US.

And what is going on with the lower rate cycle is there is a huge refinancing boom in the US. So a lot of our customers had their mortgages at other institutions, and as they refi because of the rates, they're coming it back to TD.

So that is why we are seeing very good pickup in our mortgage business. We are very happy with the way that it is going with respect to credit quality, what are the products we can sell those customers, etc., etc. So that is going very well.

On the commercial side, we are showing good growth on its own. I think year over year ex acquisitions, it is about 10% growth. Given what is going on in the US, we feel that growth is good and in keeping with what we feel is within our risk appetite.

Generally in the economy, you know, there's more strength. We are seeing some pickup on the commercial side that should continue. And in our case, we do get the advantage that when we enter a new market through new stores, one of the key advantages we have is we deliver the whole bank. So that does generate commercial business for us as well. Overall, I would say it is more the story around taking advantage on the consumer side rather than losing focus on the commercial side.

Sumit Malhotra, Macquarie Capital.

Thanks, good afternoon. Very quick one for Tim Hockey, and then maybe a longer one for Ed Clark. Tim, your expense growth this quarter -- realize MBNA only in there for 2 months, but it was 8% year over year. Would you expect the full-year expense growth in Canada to be higher, lower, or about the same verses that number?

For Ed Clark, some press reports during the quarter suggested that the Bank was looking at the potential purchase of an asset in Florida. It's been a while since you bought anything in the US, and been a while since at least I've heard you talk about it. You used to mention asset sizes that you would be looking at or pretentiously looking at, whether it was actual banks or assets like [Resser] financial or MBNA Canada that had just a lending component. Can you give us an update on what you are thinking about potential US acquisitions?

So on the first one, on the expense growth, that is about the range, but I would say I can assure you we will have positive operating leverage for the year.

And maybe I can just clarify on that, just for the record. So obviously, that 8% does include the MBNA impact, so X that, we were up about 3%.

In terms of acquisitions, I think we've been signaling the market that we now believe we have strategic size in the United States, so we're not size challenged, per se. We have said that Florida would be a place that we want to fill in, and we would like on the asset management side to get some bigger strength in US and international equities for our wealth management strategy, but those would be smaller acquisitions.

So I think once you decide that you are not strategically challenged, you want to make sure that any acquisition you did was accretive. And so yes, we continue to look at portfolios of assets, and we will continue to do that. And if we see something which is good for the shareholders, we will do it but we are not chasing assets, per se.

And similarly, if we're looking at banks, we will want to be disciplined and make sure that it is a good deal from the shareholders point of view. So we continue to look at things, but we are not in a great hurry to do deals.

Mario Mendonca, Canaccord Genuity.

My questions were asked and answered. Thank you.

Darko Mihelic, Cormark Securities

Thank you. Just a question on the corporate segment. Colleen, I'm staring at page 10 of your supplemental pack, and under IFRS accounting, the worst I've seen of the corporate segment is a loss of CAD29 million. So the question refers to why do we think a CAD40 million to CAD80 million loss range is appropriate? Secondly, should we expect that to happen right away, starting in Q2? Third, along the same lines, would it be real -- in other words, is it possible that we just get an allocation among segments, so that you might have bigger loss in corporate, but you have more earnings in, I don't know, wealth or something like that? Can you give me some idea of why we are thinking CAD40 million to CAD80 million and how we should see that roll through for the rest of the year?

The corporate segment has many, many moving parts. Structurally, we believe that that ongoing loss should be in the CAD40 million to CAD80 million range. But this quarter, just a number of those moving parts all happened to trend a little bit more positively, creating that outcome. So it isn't matter of pointing to individual items that really drove it, but it was a whole variety of things. I would guide you back to the minus CAD40 million to minus CAD80 million for the remaining quarters of the year, but as we have seen, that number is quite difficult to predict.

Cheryl Pate, Morgan Stanley.

Hi. Just a question for Tim Hockey. Just wondering if you can give us some color in terms of mortgage originations, fixed versus variable rate? I think we've heard some color from peers that consumer is moving more towards a fixed rate product, and sort of how your originations have sort of trended over the last couple of quarters in relation to that, and to the degree that impacted the margin this quarter.

So, our overall portfolio is about 50-50 split, but very clearly, like the industry, we've seen it shift to fixed. I think that number is more like 70/30 now, depending on the product. In terms of the margin shift, we have had a little bit of benefit, but as you see, our margin on average earning assets has gone down a little bit, so it wasn't enough to move that dial.

Brian Klock, Keefe, Bruyette & Woods.

Good afternoon. Just a quick follow-up for Ed, and actually maybe even for Tim. Tim, you talked about the Chrysler Financial deal and some of the margins being a little bit tighter than initially expected. There isn't a large auto platform that's out for bid right in this right now and in the US -- actually, North American auto platform. It's a little bit bigger than the Chrysler platform. I guess you guys think that is something that would fit well with TD? Or would that be something you would be interested in for the right price?

I don't think we comment on specific situations. I would say, though, that we are quite pleased with what we have now.

Okay. And then a quick question for Mark. Some of your other peers have talked about the condo developer exposure that they have within Canada. Is that something you could share with us?

Certainly. So for condo developer -- I'm assuming that is really the condos that are under construction. So that is the high-rise -- that has been an area that we would probably identify as the highest risk, or one of the higher risks, in commercial lending, so we have always approached it from a fairly conservative perspective, meaning that we've had very consistent underwriting guidelines that we have adhered to.

We really only deal with kind of the most experienced builders that happen to be long-standing builders that we've had relationships with. In terms of the underwriting guidelines, we always have recourse. We always satisfy ourselves that we're dealing with a counterparty with reasonable liquidity, and we require a certain level of pre-sales that would reduce the risk, in our view, to protect against a sudden correction of any sort.

To put it kind of into context for you, it's not a big business for us. In the commercial bank, it is really less than 2% of outstandings. And that number has remained relatively constant for a while, because it doesn't turn.

Ohad Lederer, Veritas Investment Research.

Thank you. I just have a question about the asset to capital multiple. I see it's up to 18.3. Just wondering, then, does that number incorporate all of the transactional relief that [OSPY] provided? And is then just wondering about the banks, thinking about that, given robust balance sheet growth in the US, does the ACM become a constraint, or are there other solutions to get around it?

We're pretty comfortable with where we are right now. As you say, the IFRS impact -- we do have a transition element on that, but we are quite comfortable with the ACM right now. We don't really see it as a binding constraint at all.

Thank you, I'll had. And with that, I will turn it over to Ed for final remarks.

Thanks, Rudy. Well, from our point of view, it was obviously a great quarter, both in terms of the amount of earnings, but I would also say the quality of earnings. And I would say, if you had to say what is the standout, I think it's clear that our US entity in overcoming Durbin did particularly well this quarter.

I think our message is that the economy does feel a bit better; certainly the US economy feels better. And I think the US -- Europe has taken out a little bit of the tail risk. But still, when you step back, you have to say that a low interest rate environment still seems like the best prediction here, and low interest rates do put downward pressure on our interest margin. And hence, as I said, what you are going to see us -- and these are long investments to do, but we have to work to pour some more money into how do we actually permanently lower the cost structure of the bank to operate in a lower interest rate environment.

We continue to maintain that we like the 7% to 10% target rate for our earnings growth, but as I mentioned last quarter, we're going to have to hard in this environment to get there. But that is what you pay us to do. So thank you very much.

Thank you, Ed. With that, I will end the meeting. Thank you for your time today and have a good day.