Toronto-Dominion Bank (TD) 2014 Q3 法說會逐字稿

Good afternoon and welcome to TD Bank Group's third-quarter 2014 investor presentation. My name is Rudy Sankovic and I'm the head of investor relations at the Bank.

We will begin today's presentation with remarks from Ed Clark, the Bank's CEO; and Bharat Masrani, our COO; after which Colleen Johnston, the Bank's CFO, will present our third-quarter operating results.

Mark Chauvin, Chief Risk Officer, will offer comments on credit quality. We will then entertain questions from those in the room and from prequalified analysts and investors on the phone.

Also present today to answer your questions are Tim Hockey, Group Head Canadian banking, auto finance, and wealth management; Mike Pedersen, Group Head US banking; Bob Dorrance, Group Head Wholesale Banking; and Riaz Ahmed, Group Head insurance, credit cards, and enterprise strategy. Riaz is also responsible for the capital and treasury activities at the bank. Please turn to slide 2.

At this time, I would like to caution our listeners that this presentation contains forward-looking statements. There are risks that actual results could differ materially from what is discussed and that certain material factors or assumptions were applied in making these forward-looking statements.

Any forward-looking statements contained in this presentation represent the views of management and are presented for the purpose of assisting the Bank's shareholders and analysts in understanding the Bank's financial position, objectives and priorities, and anticipated financial performance. Forward-looking statements may not be appropriate for other purposes.

I'd also like to remind listeners that the Bank uses non-GAAP financial measures to arrive at adjusted results to assess each of our businesses and to measure the overall Bank performance. The Bank believes that the adjusted results provide readers with a better understanding of how management views the Bank's performance. Ed and Bharat will be referring to adjusted results in their remarks.

Additional information on items of note -- the Bank's reported results and factors and assumption relating to the forward-looking statements are all available in our Q3 2013 -- 2014 report to shareholders.

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

Thank you, Rudy, and welcome, everyone. Thank you for joining us here today. As Rudy mentioned, Bharat and Colleen are going to be up shortly to discuss our third-quarter results in detail, but let me start by sharing my thoughts on the quarter overall and our progress so far this year.

Now the third quarter was obviously a very strong quarter for TD. Earnings were up 37% year over year and earnings per share were up 40% to CAD1.15. These strong results were driven by good growth in all our businesses, including insurance, which rebounded strongly from losses occurred in the third quarter of last year, when we took a CAD418 million after-tax charge due to claims resulting from severe weather-related events and strengthened reserves for general insurance auto claims.

Now, we know the market's approach to dealing with this charge has been to add it back to last year's earnings. On that basis, total Bank earnings were up 8% from a year ago and earnings per share up 10%. Again, a very good result.

This brings our year-to-date earnings-per-share growth to 10%, keeping us on track to deliver fully -- full-year adjusted earnings-per-share growth inside our medium-term target range of 7% to 10%. I am very pleased with this performance, which reflects great execution on a number of fronts.

Our retail business has generated healthy loan and deposit growth. We saw a strong increase in fee income, and our recent acquisitions continue to perform well. Our wholesale bank also had a strong quarter, with the trading and origination businesses both delivering good results.

Credit was a tailwind, once again, particularly in the portfolio in the United States. And net interest margins were stable, despite continued pressure on US loan margins from increased competition.

Expense growth, excluding acquisitions, FX, and variable compensation, was below 3% in the quarter, reflecting continued productivity savings. We had very strong operating leverage in our Canadian businesses.

As you are aware, we have had negative operating leverage in the United States, largely as a result of lower security gains. But expense performance in the United States improved in the quarter, reflecting savings from past investments in productivity. And for the Bank as a whole, operating leverage was close to flat.

We are comfortable with this outcome. We believe we should continue to invest in the future growth and efficiencies, despite the still challenging operating environment.

As I look ahead, I am struck by how much uncertainty we still face. Recent political events are creating headwinds for banks all over the world. Interest rates have dropped back down and expectations for a normalization in rates have been pushed further into the future. And along with them, the revenue upside we will reap as a result of our deposit rich balance sheet.

Capital leverage and liquidity requirements are still evolving, but generally in the direction of a tougher regime, marked by higher funding costs and lower returns. We are supportive of these changes, which have made the banking system much more robust.

But the burden of implementing them is not insignificant, particularly given that many of the rules are still in flux. In this environment, it's important to be patient and stay faithful to our long-term strategy of growing our businesses in line with our risk appetite.

One of the most enduring lessons of my career has been that good management teams leading sound business models adapt. We have a great team at TD and we are strategically well positioned.

Now part of that positioning, of course, is our commitment to deliver legendary service and convenience. I couldn't be more proud of the fact that TD Canada Trust just won the JD Power Award for highest customer satisfaction levels among the big five banks for the ninth year in a row. A truly remarkable achievement.

We were also recognized by Ipsos as a big five bank leader in Canada for customer service excellence for the 10th year in a row. And our innovative TD Thanks You campaign surpassed all expectations, going viral and recording well more than 10 million views on YouTube so far, as people all over the world tune in to see how we wow our customers at TD.

Congratulations to our wonderful marketing team, which again found a way to showcase TD's unique brand to the world.

And as you know, I am here until the end of the fiscal year. This is my last quarterly call. So I'm going to take this opportunity to say my own thank yous. Thank you to our customers, who continually inspire us to find new ways to make TD the better bank.

Thank you to our 85,000 employees, whose hard work and dedication makes everything we do look easy, which it isn't. Thank you to my partners on the senior executive team and our management team more broadly, who have built strong franchise businesses while fostering our unique and inclusive culture and making TD an extraordinary place to work.

And thank you to you, our analysts, for giving us candid feedback when we need it, and our investors, for sticking with us when we made tough strategic decisions in order to build an enduring, competitive advantage.

What an incredible journey it has been. We have accomplished so much together and I know that TD is poised to reach even greater heights. Whatever the challenges lie ahead, the bank has a leader in Bharat Masrani, who is second to none. And a management team with unparalleled depth and experience. As a customer and a shareholder, I couldn't feel happier or more confident about TD's future.

With that, I'll turn it over to Bharat to discuss our results in more detail. Thank you.

Thank you, Ed, and good afternoon, everyone. The third quarter was indeed a strong quarter for TD. The Canadian retail segment performed extremely well -- net income was up 54%, driven by very good results in our core banking, wealth management, and credit card businesses.

Strong operating leverage in the rebound in insurance earnings, from the charge Ed mentioned.

In our personal and commercial banking business, we delivered solid loan and deposit growth and double-digit increase in business lending. Wealth had another record quarter, with impressive growth in assets and fee income.

Aeroplan also performed well and we brought some 540,000 Aeroplan cardholders under the TD platform this quarter. Welcome to all of you.

Results in the Canadian retail segment were also boosted by a recovery in insurances, as I had mentioned earlier, from the charge we took in the third quarter of 2013. In the years since, we have worked hard to reposition this business and are making good progress.

Looking ahead, we expect our Canadian retail segment to finish the year on a solid footing, with stable loan volumes and continuing momentum in our growth businesses, offset by some modest margin compression.

Our US retail segment delivered record earnings this quarter. US dollar net income exceeded half a billion for the first time, up 4% year over year. Earnings excluding TD Ameritrade were also up 4% year over year. These results were driven by strong organic loan and deposit growth, good expense management, and a further improvement in credit quality, which helped offset the impact of lower security gains.

We continue to expect modest earnings growth in our US retail for fiscal 2014, as tailwind from credit dissipates and heightened competition for assets continues to pressure loan margins.

While our net interest margin was stable this quarter, this was largely due to accretion. If this trend recedes, the downward pressure on underlying margins will be more visible. But despite these challenges on the revenue front, the fundamentals of our business remains strong and we are investing in future growth.

Q3 was a very good quarter for our wholesale bank, with earnings up 46%. We continue to leverage our position as a top three integrated dealer, delivering a strong performance across all of our trading and origination businesses. ROE was 18% for the quarter.

Overall, our businesses performed well in the third quarter. We are pleased with our results, but also mindful of several factors that are likely to affect our earnings in the fourth quarter.

While credit quality remains strong, we expect credit losses to be higher, stemming from recoveries in the US this quarter, which are unlikely to recur. We may see pressure on margins as competition for assets intensifies and support from accretion fades in the US. Our tax rate will likely normalize and we expect expenses to be elevated on a sequential basis.

As we approach year end, we remain focused on finding ways to run our business more efficiently and there could be costs associated with this. This is why we signaled last quarter that we believe positive operating leverage will be difficult to achieve for the full year.

But as we also said, given our stable earnings base and high-quality franchise businesses, we are not prepared to sacrifice long-term growth to preserve short-term operating leverage.

Instead, we will keep looking for permanent cost savings that we can invest in our businesses to build on our leadership position in service and convenience across all of our platforms. I am confident that with the power of our brand, the strength of our model, and our talented team, we can continue to lay the foundation for future growth as we remain focused on our vision of building the better bank.

Earlier on the call, we heard Ed express his thanks to our colleagues, investors, and analysts. It's now our time to thank him. It has been a privilege to work alongside Ed. He inspired us to believe in the better bank and do great things.

On behalf of TD's 85,000 employees, the senior executive team, and the Board, I would like to express our thanks to Ed. He has been a trusted custodian of this great institution and leaves us in better shape than when he first joined. Thank you, Ed.

And now I would like to turn it over to Colleen.

Well, thanks, Bharat, and good afternoon, everyone. Let me take you through our results.

So turning to Q3, we delivered adjusted EPS of CAD1.15, up 40% year over year. This was a strong quarter, reflecting good earnings contributions from all business segments, with a significant improvement in insurance earnings due to additional losses last year as a result of severe weather-related events and strengthened reserves for general insurance auto claims.

After adding back the CAD418 million in insurance charges, adjusted EPS would have been up a strong 10%. Total bank adjusted net income of CAD2.2 billion was up 37%.

Our segment results include retail adjusted earnings of CAD2 billion, up 38% over last year, driven by good retail results on both sides of the border and a significant rebound in our insurance business, mainly due to losses incurred in the Canadian retail segment last year.

Wholesale net income of CAD216 million was up a healthy 46% due to broad-based performance across our core businesses. The corporate segment posted a loss of CAD53 million. Overall, very strong results for the Bank this quarter. Please turn to slide 5.

This slide presents our reported and adjusted earnings this quarter, with the difference due to five items of note. I will comment on two items. We have released the balance of our reserve related to loan losses in our real estate secured lending portfolio taken for last year's Alberta flood. And we incurred CAD16 million of after-tax costs related to the Aeroplan card integration. Please turn to slide 6.

Canadian retail delivered a strong quarter, with adjusted net income of CAD1.4 billion, up 54% year over year. The increase was driven by good loan and deposit volume growth, higher fee income -- primarily in the wealth business -- the addition of Aeroplan, and a significant rebound from last year in our insurance business, where we took additional charges.

Loan and deposit growth was good this quarter. Total loan growth was 6% year over year, with real estate secured lending volume up 3% and business lending growth up a strong 11%. Card growth was strong at 26% due mainly to the addition of Aeroplan.

Personal and business deposits increased by 4% due to strong growth in core checking and savings accounts, partially offset by lower term deposit volume.

Margin was up one basis point sequentially. As we have discussed before, quarterly margins will bump around, depending on product mix, seasonality, the competitive environment, or rate moves. For the fourth quarter, we are expecting a decline in margin of roughly 5 basis points, as we expect the combination of these items to generally work against us.

Credit performance continues to be favorable, with PCL and personal banking up CAD5 million from last year due to the addition of Aeroplan balances, partially offset by better credit performance and lower level of bankruptcies. Business banking PCL was up CAD7 million, driven by prior-year recoveries.

Adjusted expenses were up 6% due to higher employee-related costs, including higher variable compensation, particularly in the wealth business; volume growth; and the Aeroplan card acquisition, partly offset by productivity gains. Adjusted operating leverage was very strong, at approximately 380 basis points. Of note, our efficiency ratios this quarter for both Canadian retail and Canadian P&C were new records.

We continue to disclose the Canadian wealth and insurance businesses, which are now part of the Canadian retail segment. The wealth business made a strong contribution, with 14% earnings growth driven by strong asset growth. Assets under management grew CAD30 billion or 15%.

The insurance business had solid results, with CAD132 million in earnings, up significantly from last year when the business was impacted by the additional charges. Overall, a very strong performance for Canadian retail. Please turn to slide 7.

US retail, which includes the US personal and commercial banking businesses, US credit cards, TD Auto Finance US, US wealth business, and TD Ameritrade, delivered 4% net income growth year over year. US retail excluding TD Ameritrade had good earnings of $449 million, an increase of 4% over last year. The increase reflects strong organic growth, favorable credit, and good expense management, partially offset by much lower security gains.

Revenue decreased by 4% year over year. Excluding the impact of gains on sales of securities, revenue increased by 2% due to increased volume growth and higher fee income, partially offset by lower margins.

Average loans were up 18% year over year, with a 3% increase in personal loans and a 13% increase in business loans. Average deposits increased by 5%.

The margin was relatively stable this quarter; however, we expect a 5 to 8 basis point decline in accretion next quarter as well as some core compression. PCL decreased by $99 million due to broad-based improvements in asset quality, particularly in auto loans, HELOCs, and business lending.

Expenses were slightly down versus last year due to permanent expense reductions, partially offset by higher employee costs to support business growth. Earnings from our ownership stake in TD Ameritrade in US dollars were up 1% year over year, mainly due to a 3% increase in Ameritrade earnings, partially offset by TD's lower ownership percentage. Ameritrade continues to grow client assets at a strong pace, up 24% year over year. All in, a very good performance for the US. Please turn to slide 8.

Net income in our wholesale business of CAD216 million was up 46% compared to the third quarter last year. Strong broad-based performance across core businesses drove the strong results.

Revenue was up by 21% over last year due to a combination of higher trading-related revenue, equity and debt underwriting volumes, and M&A fees. Trading-related revenue was good, at CAD325 million, within expectations.

Noninterest expenses were up 12% compared to last year due to higher variable compensation, in line with higher revenue, partly offset by lower operating expenses. ROE this quarter was 18.4%. Please turn to slide 9.

The corporate segment posted an adjusted loss of CAD53 million in the quarter compared to a loss of CAD11 million in the same period last year, as a result of ongoing investment and enterprise projects and initiatives. Adjusted net loss was also higher sequentially due to the higher corporate expenses and gain on sale of TD Ameritrade shares recognized in Q2, partially offset by positive tax items.

For the fourth quarter, we expect that net corporate expenses will increase over the Q3 level, driven by continued investments in projects and initiatives and a reduced level of favorable tax items. Please turn to slide 10.

Core expenses for the quarter, excluding the impact of FX and acquisitions, were up 4.8% year over year. Excluding variable compensation, core expenses grew by 2.3%.

Growth in core expenses was driven by a combination of higher investment in regulatory and growth initiatives and employee costs, partially offset by productivity gains. On a year-to-date basis, core expenses have grown by 4.7%, or 3.1% when variable compensation is excluded. Operating leverage for the third quarter was slightly negative.

We expect Q4 expenses to be elevated again this year. Regulatory project costs will be higher Q4 and we will incur costs associated with driving additional productivity improvements.

These costs relate to initiatives already communicated and underway to transform and optimize various functions and organizational structures. As a result of these costs, we likely won't achieve positive operating leverage for the full year. Please turn to slide 11.

Our Basel III common equity Tier 1 ratio was 9.3% in third quarter, up 10 basis points versus Q2, due mainly to solid organic capital generation partially offset by an increase in risk-weighted assets across various segments and the repurchase of 4 million shares during the third quarter.

In addition, OSFI provided guidance to all banks this quarter on the treatment of minority interest for CET1 purposes. Our Ameritrade goodwill is now a direct deduction from CET1 capital and has negatively impacted the ratio by about eight basis points. Overall, we continue to remain well positioned for the evolving regulatory and capital environment.

With that, let me turn it over to Mark.

Thank you, Colleen, and good afternoon, everyone. Please turn to slide 12. Credit performance across the Bank remains strong, with annual loss rates running at five-year lows.

The third quarter PCI rate of 28 basis points represents a seven-point improvement over last quarter and a nine-point reduction from last year. Performance during the quarter was driven by strong and stable credit quality across all the portfolios, with solid volume growth.

Canadian credit card loss rates are at historical lows, with the Aeroplan portfolio performing strongly.; improvement in the US indirect auto portfolio credit quality, as we position the portfolio for future growth; and strong and stable credit quality in the Canadian and US commercial credit portfolios. Total bank loss rates are expected to remain stable into 2015, with no immediate signs of concern ahead.

Now I'll turn the presentation back to Rudy.

Thank you, Mark. We will now open it up for questions. So to give everyone a chance to participate, please keep to one question and then re-queue if there's time. For those participating in person in the room here, can I 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. Why don't we get started with questions in the room?

John Aiken with Barclays. Mark, I wanted to dive in a little bit on the indirect auto improvement in the provisions that we saw in this quarter. Was this just cyclicality that we see in the portfolio?

It does look like the PCI ratios have been trending down. Is this something that you think would be a low? And in a follow-on for Tim, when you see this performance, how does that bolster your confidence and your ability to continue to move it further along on the credit yield?

So on the loss rate, there's been a program over the last year and a half to really look -- now that we have full history on the acquired portfolio and we're in about the third year, it provides us with the opportunity to develop our own credit strategies, to have a better understanding of the portfolio.

So these were conscious efforts taken to improve the quality the portfolios, so I wouldn't call them seasonal. I would say that's kind of what we intended to achieve and that's where we are running at.

So they would be subject to changes in used car rates. The loss rates are very low, so if that were to change, that would be a negative. Or changes to the economy, but I wouldn't put it to seasonal. I think it's an improvement that I would look to stay, at least over the short term, barring a change.

Mark, there was no change in the methodology that you used for looking at what would be classified as impaired in the quarter?

No.

Okay, thank you.

And just relative to the outlook for the business in the US, there's no question. As Mark says, we are building out our capability and our confidence in custom scorecards to be able to moderate where we are on the prime, near-prime spectrum.

I would say the industry has -- and our particular approach has been to go actually a little bit more upscale, because that's where the risk-adjusted margins are right now, counted against our confidence. But as we build out the scorecard, we might react to market conditions and actually go down a little bit more, but we take that sort of a quarter at a time.

Thank you.

Thanks John. Next question.

Yes, it's Darko from RBC Capital Markets. A couple of questions with respect to the net interest margin outlook that you provide, Colleen. You mentioned five basis points of compression for next quarter in Canada and a bit more in the US.

It sounds like there's a lot happening in the US. I wonder if you can break it down for us, because you mentioned the reasons for the compression. I am wondering which of the reasons is causing the most amount of compression.

And perhaps most importantly, what I'm interested in is is this just the beginning of a continual decline in the margin thereafter, or do you think that it stabilizes from there on in? Thank you.

Well, I think it would be great if Tim and Mike could answer those questions about the Canadian and US margin. Over to you.

I'm tempted to say go ahead, Mike, but (laughter). So the five we allude to in Canada -- first of all, a little bit of a backdrop. If you remember through the last few quarters, we always say there are many, many factors. They go up and they go down.

We've been actually surprised the last three quarters that we get sort of surprised on the upside. As we look forward to Q4 in particular, we think most of those positive surprises will turn against us. So there aren't any positive factors, but they are driven by number of things.

Your first point is what is the largest driver? There is a seasonality effect -- mortgage breakage in particular is one that we think will be, call it, a couple of basis points. There's also some Basel III impacts, sort of a LCR, that will hit us in the next quarter. And generally mixed trends.

But we are doing some things ourselves. For example, in our MD&A book, we have an increased forecast for some of our promo loan -- promo card offerings, which lowers the margin. So when you look at all those factors, they combine to have what would be an abnormal amount, which is why we decided to call it out.

Your larger question as to whether this is a secular trend -- it's still very early to figure out what 2015 is. We are at that stage, but there will continue to be pressure from a competitive point of view as well as a sustained low rate environment.

So in terms of the US, I think what Colleen said was that the margin was going to be relatively stable or was relatively stable this quarter, but that we expected sort of a 5% to 8% decline in accretion next quarter and then some core compression.

Let me just start by saying that if you look back over the recent quarters in the US, the banks we most compete with -- so the Money Center banks and the regionals -- they've seen margin compression in sort of the five to eight basis point per quarter range. So this is been going on for a little while.

We do expect compression again in the fourth quarter, but it is difficult to predict. And again, that's in addition to the lower accretion. I think the core issue is loan compression. And it's particularly in the auto finance and in the corporate/commercial lending portfolios.

I would say as an additional note, consistent with what Tim said, in our case, some of that loan compression is attributable to the credit origination strategies that we take, probably about one-third of it.

But back to Colleen's point. There's a lot of moving parts right now. There's accretion, there's product mix, there is the -- looking forward, there's the potential impact of LCR on investment yields, which will affect margin.

Very difficult -- there's positives and negatives there. Very difficult to see what will happen. Obviously competition continues, so difficult to look out very far on margin.

One last thing, Darko, I would add is just lest you believe that five points spells doom and gloom for the fourth quarter, we actually -- we think it's all about earnings and how to maximize that. And we expect to have a fairly solid end to the year positive operating leverage.

Thanks, Darko. All right, why don't we move to the phone? So operator, if you could take the first question, please?

Gabriel Dechaine, Canaccord Genuity.

Good afternoon. Ed, I got a question for you on your last call here. [In or] TD, sub 9.5 core Tier 1 ratio, that hasn't prevented you from being active on the buyback. I'm wondering if TD has a different view on capital requirements and how long you plan on buying back stock at your current capital levels?

You're going to have to ask Bharat how long he plans to buy -- how much stock he plans to buy back, but I would say no. I think there is a consensus in the industry forming of the kind of capital ratios you're going to have. I don't think we would be different from that consensus.

And as I indicated in my remarks, I think what's happening is that they are finalizing the rules as they go through. And each time they finalize them, they probably make them slightly tougher than you might've thought they were going to be when they went through.

And I think that's causing people some concern, but I think the reality is that the kind of ratios that we are all and basically at today are the kind of ratios we're going to have to maintain.

Okay. Then just a quick one on the NIM, Mike. 5 to 8 basis points down from just a drop in accretion, plus core NIM compression, so there's a number on top of that. And then on credit -- Mark, if maybe you can quantify or give a sense of what you mean by commercial recoveries in the US are going to normalize or stabilize? Because we've had lots of recoveries over the past couple of quarters, and how that's going to change over the next few, I suppose.

Gabriel, it's Mike. I didn't actually hear a question, but I agreed with what you said. I will let Mark answer and then if you want to ask me something, feel free.

The reason why you didn't hear is he knows he can only ask one question. So then he makes a series of statements and then asks the question.

So on the level of recoveries -- so in the commercial business bank in the US in the Q3, we had what I would call as nonrecurring large recoveries, loans that had been around for quite a while that we've been working on. And they came in at the range of $20 million to $25 million as a recovery or a positive to PCL.

There are other recoveries, of course, which I would call the normalized level. But something like those two occurring again, there's nothing on the horizon that would tell me they would occur. There are no others like that.

So $20 million to $25 million, that's the total amount this quarter?

Of what I would put into the category of unusual nonrecurring.

Got you. And actually, there was a question on NIM. It's 5 to 8 basis points down in the US plus what other amount for core compression?

We did not say an amount. I alluded to the fact that we had been seeing 5 to 8 compression in the industry and that we expect there to be some compression in the fourth quarter. Don't want to predict exactly.

Okay, thanks.

Thanks, Gabriel, for your five-part question. Why don't we move on to the next question, operator?

Steven Theriault, Bank of America Merrill Lynch.

I will try and keep it to a two-part question. So just to follow up on buybacks, I think your program expired in June. So I guess the follow-on question would be are you intending to refile now or will you wait to see how the CET1 develops over the next couple of quarters?

And then sort of on the capital side as well, hearing you say, Ed, that earnings had been better than you expected this year, I think I'm reminded of your -- your and the Board's decision not to reevaluate the dividend every other quarter. So I guess I'm wondering, given that the numbers have been stronger and I guess keeping in mind, next year is the dividend that something that might be on the Board agenda next quarter or is everyone still leaning towards more of an annual review, which I think would take us to Q1 -- Q1 or Q2 next year?

So I think you're going to be caught in the middle of a transition here. I'm not going to talk about the future and Bharat is going to tell you that when he is the CEO, he will talk about the future. But I hand it over to Bharat.

We did talk about getting off the twice-a-year or an automatic expectation of dividend increases, but the good thing here is that our dividends are up 14% year over year. I think the last dividend we declared was pretty healthy.

And so we will review our dividend on an ongoing basis. It's hard for me to predict what that level would be, but let me reiterate -- our intention is to get to the midpoint of our range and we're not there all the way yet.

So it would be reasonable to assume that our dividend growth will outpace EPS growth. The timing of it will depend on how we feel about our earnings, which is the main driver of what we do with dividends.

Okay. And on the normal course, is your bid filing?

I think your assessment is correct. We've talked about our capital deployment views. Obviously, we invest our capital firstly in our own organic growth strategies -- RWA growth, etc.

We look at if there is any potential acquisition. We certainly look at it from is this a full capability building, is it -- accelerate some of the plans we might have. So we have that into consideration.

And then you talked about the uncertainty around rules now. We seem to be gravitating more towards certainty on what the exact capital rules would be, but there's still some ambiguity out there. So all those things is what we look at. So we are comfortable with where we are now and we will see where we go in the future.

Okay, thanks very much.

Thanks, Steve. Next question, please?

Peter Routledge, National Bank Financial.

Just a quick point of clarification, first, on page 25 of the presentation. The wholesale portfolio -- is that loans to your clients in wholesale banking or are there other business segment clients in there?

Sorry, Peter, we're just flipping to the page. It is Mark Chauvin. It's nonretail, but it's not commercial. It's outstanding balances generated in the wholesale bank, but it would be other type -- not repos, but other types exposures going in and out of there. But they're all in wholesale.

Okay. So that's a pretty good growth rate quarter over quarter and year over year for that portfolio. Does that signal to TD -- and I guess this question is for Bharat. Does that signal TD's got a bit more appetite for capital markets' risk, generally, and lending, more specifically?

I'm sure Bob will put some more color on this. We have said we are very happy with our framework for our wholesale banking. We want our wholesale bank to be a franchise player. We want our wholesale bank to operate within our stated risk appetite and we would like Bob to generate 15% to 20% return on the amount of capital we allocate.

So within that framework, if there is opportunities for us to grow and increase our earnings, that would be a great outcome for the bank. So maybe Bob can comment on specific strategies we are employing within that overall framework.

I think you have to differentiate between the corporate loan book and what is in this number. The number tends to be a bit volatile, Peter, as reported here, because of quarter-end movements and BAs, etc.

Looking at our corporate loan book, we have seen reasonably good growth, both in Canada and US, and we continue to both try to look for the white spaces where we can add new clients as well as up-tier within syndicates, so with clients on the credit side of the portfolio.

I would say that the credit corporate growth has been more in the range of 12%, 13% year over year.

Bharat, if Bob could deliver 15% to 20% ROE on, say, 30% more capital allocated to that business in a relatively short period of time, would you or the Board give him that capital?

You're asking a hypothetical question. Would it be within his risk appetite? Is it out to build a franchise business or not. So there would be a lot of moving parts there, but if Bob can deliver that kind of return in the framework that I just outlined, we would seriously consider that.

Thank you.

Thanks, Peter. Next question, please.

Robert Sedran, CIBC.

For Mike Pedersen -- Mike, last quarter, we talked a little bit about some of the headwinds to consumer loan growth, specifically around credit cards through Target and then also transitioning from a refi boom into just normal course originations in the mortgage business.

Could you perhaps give us a bit of an update in terms of progress on both of those files and whether the consumer re-leveraging is, in the United States, the catalyst we should be leaning on or if this is just a market share game at this point?

Yes, let me just more broadly -- so obviously, good long growth in the quarter -- up 8% with 13% in commercial and 3% in personal and even in the quarter, good long growth, 2.4%. We continue to outperform competitors.

We had particularly good commercial lending growth this quarter. Personal lending, a bit better than it was last quarter, with some growth in almost all the categories, but it is still slow. I think the outlook might be a bit better.

So in auto finance, we had good growth this quarter and our optimization is obviously paying off. And we do expect that to continue with decent growth on mortgages. It's tough. It feels like fits and starts. The growth has improved a bit, but originations are up 15% versus last quarter, but they are down 70% versus last year, so that gives you a sense.

My sense on mortgages is that there are some positive signs emerging; you're seeing pending home sales up. Applications are up. The percentage of people who say they want to purchase a home is up.

And if you look at the estimates from Fannie and Freddie and the Mortgage Bankers Association, they are up quite strongly, sort of 13% to 25% for purchase volumes, but they are quite pessimistic on refis.

That should play fairly well for TD, given our origination strategies in our footprint, where there isn't a lot of refi upside. We are 75-25 purchase/refi right now.

And the other portfolio that I think is improving in terms of growth is HELOCs. You've seen a bit of growth the last couple of quarters and I think that should continue. We are underpenetrated there and should be able to do more. And you do have this phenomenon in the United States of stay in your home and renovate rather than move.

So I am cautious still, because as I said, it seems like fits and starts and lots of uncertainty, but it is feeling better than it did a quarter ago, and I am more positive looking out now than I was then.

And you think that the Christmas issues with Target has pretty much worked through the system now and growth is what it is or is there still some lingering impact from that?

I think there's -- I think we are mostly through that. The portfolio was kind of flat this quarter, but sales and utilization is looking pretty good. So I think we're mostly through that.

Thank you and thanks to Ed as well. Good luck, Ed.

Thank you.

Thanks, Rob. Next question, please.

Mario Mendonca, TD Securities.

Good afternoon and Ed, congratulations on a great career. If I could just ask one quick follow-up question, first, for Colleen. The earnings accretion -- or the yield accretion, just refresh my memory on the accounting.

Would there be any offset -- beneficial offset if yield accretion declines. And my gut feeling is there should be, but I'm not really sure.

Yes, there can be -- Mario? Sorry, I'm getting some feedback here on my mic.

I'm holding my receiver, so I don't think it's my end.

Okay, maybe we are getting some interference from the other mics.

She means from me.

There can be and that is often what happens is that they don't necessarily go totally insane, but you can have a positive on the NII front then a similar -- you can have then a negative on the PCL side. So as they say, they don't necessarily go exactly together, but right, for this quarter, the accretion was relatively neutral versus the prior quarter.

But I think the point we are making is that our projections at the moment would suggest that we would have about 5 to 8 basis points of decline as we head into Q4. But again, it's always difficult to forecast.

And can we assume that some of that will be offset by lower credit losses?

Potentially.

That is the potential offset.

Potentially.

Okay. And then on the LCR, I'm really surprised that the liquidity coverage ratio would come up as a headwind on the TD call, given the Bank's deposit franchise. I would have figured that would have come up on virtually every other call besides TD.

So what would be helpful to understand is when you talk about that headwind on NII or the margin, what are you referring to? Having to sell certain higher-yielding securities and replace them with lower-yielding, very liquid securities? Is that the message?

So I will start. I think I am the one that mentioned it. I was talking about the margin outlook and I said that it is one of the factors that will affect margins going forward, because it will affect yields and investments, particularly liquid investments. I wasn't making any comment with respect to our liquidity.

I will turn it over to Riaz.

I think, Mario -- Tim mentioned it in the Canadian context as well. And I think what you have to do is just go back to what Ed talked about earlier, that as you look at the guidance that was issued by us in May 2014 and then you interpret that, you end up having to hold higher-quality liquid assets than what the framework would have suggested.

But at the same time, the subsequent planning considerations out of that, I don't think it's unreasonable to expect that in some respects, the business model will change. And for some classes of deposits, you might expect to see a substantial market-free pricing that occurs for those deposits.

So the rules are complicated and they are subject to interpretation and as we are working our way through them to go towards January 2015 compliance, they do have an impact and we do need to get to a compliance by that date. So you've seen us do a fair bit of pre-funding this year as well.

Just a little surprised that it would come up on the TD call and I would figure it probably belongs on other calls. And just one really quick, unfair question, if you don't mind.

Sitting here, something came across Bloomberg where Finance Minister Oliver is announcing that he's going to make some consumer-friendly announcements in Toronto -- in the Toronto area next week. Do you think that that relates to Interchange and do you have any comments on Interchange?

Mario, it's Riaz. I haven't seen that Bloomberg announcement. Maybe it's just come across now. I don't know what that would be about. My comments on Interchange -- so you will be tired by now from hearing all the other calls and everybody else's responses on it, because the -- this has been on the government's agenda and consultations are ongoing, but this is a lot of stakeholders and a lot of complex issues to deal with.

I have no idea what the outcome will be and where it will lead to so unfortunately, I don't have anything to add on that front for you.

Thank you.

Thanks, Mario. Next question, please.

Doug Young, Desjardins Capital Market.

Just first on the -- I think my only question, sorry. The risk weighted assets, Colleen, you mentioned that there was an increase and I kind of looked a little bit at it and it looks more driven by credit risk and specifically in corporate.

Just wondering if there's any details you can provide. And as well, were there any model refinements in the quarter, and as you look to your portfolio, are you anticipating any model refinements on your RWA calculation? Thanks.

So our growth on a quarter-over-quarter basis was largely volume-driven across our businesses, with some small offsets on foreign exchange and also some small offsets related to the mechanics of the way this minority interest adjustment was made. At the moment, no, we don't have any -- we didn't have any model-related changes. And I'll hand it over to Mark in terms of anticipated changes, but I don't think so.

Yes, table 27 of the MD&A gives detail. And actually due to the model changes, we are -- looking at a model is ongoing. You have to refresh them annually. It's a continuous process under ARB.

And during the quarter, the net change was a slight reduction in RWA. Again, if I look forward, they are ongoing. I don't see anything that would -- there's always a slight change of some sort issue as you have more data and you run your thing, but in a improving economy like we're having in portfolios, the net impact press tends to be that they get a little lower, not higher.

The only thing I would put as a separate discussion item would be we are in the process of applying for ARB status on the US assets and for AME, operational risk capital across the enterprise, but this is -- this outcome could mean next year, but it is uncertain.

I really can't predict when it would be, but in terms of any capital impact, we look at it, it's hard to determine what the impact is, because it is -- it will be the basis of the approval. But it's in our capital planning and to me, it's all within manageable levels and it's something that we're aware of.

And just if I could sneak a second one -- in the loss from the Alberta storms in July and August, has some of that filtered through your insurance results this quarter or are you anticipating or do you have an idea of what those losses could be in the fourth quarter, related to those events in Alberta? Thanks.

Doug, it's Riaz. As you know, July and August does tend to be peak season for weather events, but I think that for us, it splits over Q3 and Q4. So our Q3 results do indicate -- do already include the effects of the four events that we went through in July, and the impact on us was relatively muted.

And I think that to the -- if the August -- we had two events, the Burlington rain and then the Alberta hail as well. And we have made estimates in relation to those losses. And I can tell you that if nothing happens between now and October, our results will look very consistent with what we just reported for Q3.

Okay, thank you.

Thanks, Doug. Next question, please.

Derek De Vries, UBS.

Just one question -- a lot's been covered. But some clarification on your business outlook. In the US, I think you called for modest earnings growth 2014 on 2013. Apologies, I'm kind of new to this, but I'm assuming that's US dollar and it's adjusted net income, so just clarification on that.

And then modest -- you are looking 7% up through the first nine months. When I think modest, I kind of think 2% to 3%. That would imply pretty significantly down on Q4 last year. Is that the intention of that guidance?

So yes, we mean adjusted net income and yes, we meaning US dollars. I do think that in Q4, we expect a bit of downside. We got the margin pressures that I alluded to before. We've got -- I don't think we will have the PCL tailwind that we had this quarter, as Mark's alluded to.

And as Colleen said, we will have some additional expenses in the US in the fourth quarter. We've got some severance expenses; we've got some project expenses, some regulatory time and costs, and so on. So we don't expect to -- Q4 to be as good as Q3.

Understood. But then it sounds like it's going to be significantly worse than Q4 last year, which was already significantly worse than Q3. Is that correct?

I'm sorry, I don't remember what Q4 was last year. But it is going to be down from Q3 this year.

Okay.

Okay, thanks, Derek. Next question, please.

Meny Grauman, Cormark Securities.

Good afternoon. Just a question on Ontario auto insurance. It was a headline topic about a year ago. Just wondering what -- is there any developments on that front and in terms of the earnings outlook for the auto insurance business, in Ontario specifically?

Meny, I don't have anything specific on that front to report to you, other than to say that Bill 171, which fell at the time that the election was called, has been reintroduced as Bill 15 and it has not yet been sent to committee. But it contains some important improvements on the cost side, including the licensing of clinics and dealing with arbitration tribunals, etc., so we are very encouraged with the reintroduction of Bill 15 and hope that it will be made law soon.

But when you look at other jurisdictions across Canada, it is obvious that there is more that can be done in Ontario to support the premiums that the government wishes to deliver for the drivers in Ontario. But we have been quite happy with the developments to date and are making good progress in improving our sales and underwriting capabilities and our customer experience side on the sales and service side and feel that as I said earlier, I am quite pleased with this year on that front.

Thank you.

Thanks, Meny. Can we have the next question please, operator?

Sumit Malhotra, Scotia Capital.

My questions are for Tim Hockey. Just looking at the expense line and specifically the Canadian bank, compared to the shorter quarter, that's pretty rare to see the expense line actually decline when we going to Q3. And I wanted to check with you here as to whether there is any specific items this quarter that lower the expenses?

I know you're going to have a normal increase in Q4, but obviously, you have kind of returned to that 3% to 4% operating leverage in the last couple of quarters. So I wanted to get your outlook there on the leverage line and whether that's the key initiative you're looking at to offset the margin compression?

So short answer is no extraordinary items in the quarter, but also expanded operating leverage this quarter that we would expect to narrow and normalize next quarter.

And I know the Aeroplan obviously added to the revenues, so is it fair to say that there wasn't too much that was added to expense infrastructure in this segment as a result of bringing that portfolio over?

Yes, that would be fair to say. Look, we added a fair bit of expense to get through the conversion spikes and to make sure that the customer experience would be stable. And the same applies in relation to the MD&A integration that we hope to complete in Q4.

So expenses in the card business are somewhat elevated this year. And as the integrations and conversion stabilize, we will look for opportunities to take them out.

Last thing, just to make sure I understand the NIM in this segment correctly. I think we understand that there usually is a seasonally higher level of prepayment fees that benefit NIM in Q3, so that falling off in Q4 is not unusual.

But some of the other factors you talk about, are those expected to reverse when you start 2015? Or does that five basis point or so decline in Q4 set the new base off of which you expect to fluctuate in 2015?

Yes, as I said, everybody tends to look at NIMs on a length quarter as opposed to year over year. And I think that's appropriate, so we always think of it is the new base and then we look at each individual factor and say of all of them, which ways are they likely to go?

So I would say that's the new starting point. And we will bump around from there. And our planning process, as I said, is underway to figure out what sort of effects it will have.

Thanks for your time.

Thanks, Sumit. Operator, I think we have time for one last question. We are just bumping up against 4 o'clock, so why don't we have one last one, please?

Sohrab Movahedi, BMO Capital Market.

Sorry to ask this question as the last one, but as Ed and Bharat -- as you think about the uncertainties that you've highlighted -- economic, political, regulatory -- you talk about the tough operating environment. How do you decide what is the right level of reinvestment in the business?

This is Bharat. In our case, actually, we've been pretty disciplined in investing for the future. In my comments, I said yes, there is pressure over the short term, but we don't think we should sacrifice our long-term growth in order to achieve short-term results.

So for example, in the US, we continue to open new stores. For all of our North American businesses, we continue to make significant investments in digital capabilities and online capabilities. And this we feel is important for our franchise. So that should not slow down, at least that's our view. That this is important as we build out a lot of our platforms and our franchises.

And obviously there's pressure. Certain priorities have to be put in place, but our view is that we are not going to stop investing for the future.

So Bharat, safe to say that investing for the future is a higher priority than capital return?

Of course. Building long-term sustainable growth engine is -- to us, is far more important than meeting short-term expectations. That is important. When I talked about the capital deployment framework that we use, investing in our business is our top filter before we start thinking of anything else.

Okay. Thank you very much.

Thank you, Sohrab. I'm sorry, Darko. Question in the room. Sorry.

Thank you. Actually, don't even want to ask a question, I just didn't want the call to end without me at least expressing some gratitude to Ed Clark for -- file it back over the many years that I've covered the stock.

You've answered all our tough questions. You have ducked any of them. And you've answered all of our stupid questions with class, for which I thank you very much. And I don't know that I can speak for everybody, but I do think we're going to miss you and best of luck in retirement. Thanks.

Okay. So thanks. With that, Ed --

Yes. Thank you. As I said at the start, it's been a great journey for me. Obviously, it's great that we ended up on a high note. Wasn't destined to be that way, but it turned out to be that way.

But I guess as I think back 23 years ago, when I joined Canada Trust, or 15 years ago when Charlie announced with me that TD was buying us, the really high is that opportunity to work with fantastic set of people throughout the Company to try to build a customer- and employee-focused company in both Canada, the United States. And so again, thank you all for making that possible.

So with that, we will conclude the meeting. So thank you, everyone. We will see you next quarter. Thank you.