TD Bank FY 1Q16 Earnings Call Notes

The Toronto-Dominion Bank (TD) Bharat B. Masrani on Q1 2016

Normalization in credit conditions became apparent this quarter

“We have signaled for some time that we expected a normalization in credit conditions. That became apparent this quarter. But while provisions rose, this was due in large part to volume growth, prior-period recoveries, and the negative impact of foreign exchange.”

Deterioration in oil and gas but credit quality remains strong otherwise

“Underlying loss rates remain acceptable. We did experience some negative credit migration in oil and gas portfolios, and we added to reserves accordingly. We continued to monitor our oil and gas exposures closely and remain confident that any losses will be manageable given the small size of this exposure relative to our balance sheet. Mark will address credit in more detail in his remarks, but at a high level, credit quality remains strong across our Canadian and U.S. portfolios and we are comfortable that we are adequately reserved.”

Fundamentals are strong despite the market

“More generally, the heightened focus on credit and falling commodity prices reflects growing concern that fiscal and monetary authorities will be unable to prevent a slowdown in the global economy. The resulting increase in risk aversion has unsettled financial markets and shaken confidence in the outlook. While this volatility can be unnerving, it is important not to lose sight of the fundamentals. TD’s business model is strong”

Riaz E. Ahmed – Group Head and Chief Financial Officer

Mark R. Chauvin – Chief Risk Officer and Group Head

Seeing definitely signs of deterioration in oil affected regions

“Although we are seeing definite signs of deterioration in consumer lending, delinquency, and loss rates in the impacted regions, to-date, loan losses have been largely offset by strong performance across the rest of the country.”

Credit quality is strong otherwise, but has normalized

“To conclude, the key takeaways in the quarter are: first, credit quality remains strong in the Canadian and U.S. portfolios; second, the U.S. portfolio losses have largely normalized from unsustainably low levels in 2015 with losses expected to remain stable over the balance of the year; and lastly, our major concern continues to be low energy prices.”

Seeing credit losses in auto in oil impacted provinces

“Yeah. So, the – I would say on the indirect auto in Canada, prime and non-prime or what you’re referring to, is the one area that we’re seeing the initial credit losses in the oil impacted provinces”

Michael Bo Pedersen – Group Head-U.S. Banking TD Bank Group and President & CEO-TD Bank

Credit card loans season after two years

“with cards, as we build that book quite fast, there’s a phenomenon we call seasoning which means that in the second year, you tend to get a little more delinquency and loss than you do in the first year. So, as you build, that gets reflected as the cohort season. So, you’re seeing a little bit of that across the portfolio, but that was very much – it’s behaving as expected, nothing that causes us any worry.”