Earnings Call Transcript
TORONTO DOMINION BANK (TD)
Earnings Call Transcript - TD Q4 2020
Operator, Operator
Good afternoon, ladies and gentlemen. Welcome to the TD Bank Group Q4 2020 Earnings Conference Call. I would now like to turn the meeting over to Ms. Gillian Manning. Please go ahead, Ms. Manning.
Gillian Manning, Investor Relations
Thank you, Operator. Good afternoon, and welcome to TD Bank Group's fourth quarter 2020 investor presentation. We will begin today's presentation with remarks from Bharat Masrani, the bank's CEO. After which, Riaz Ahmed, the bank's CFO, will present our fourth quarter operating results. Ajai Bambawale, Chief Risk Officer, will then offer comments on credit quality. After which we will invite questions from prequalified analysts and investors on the phone. Also here to answer your questions today are Teri Currie, Group Head, Canadian Personal Banking; Greg Braca, President and CEO, TD Bank, America's Most Convenient Bank; and Bob Dorrance, Group Head, Wholesale Banking. Please turn to Slide 2. At this time, I would like to caution our listeners that this presentation contains forward-looking statements that 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, priorities, and anticipated financial performance. Forward-looking statements may not be appropriate for other purposes. I would also like to remind listeners that the bank uses non-GAAP financial measures to arrive at adjusted results to assess each of its businesses and to measure overall bank performance. The bank believes that adjusted results provide readers with a better understanding of how management views the bank's performance. Bharat will be referring to adjusted results in his remarks. Additional information on items of note, the bank's reported results, and factors and assumptions related to forward-looking information are all available in the 2020 MD&A and fourth quarter 2020 earnings news release. With that, let me turn the presentation over to Bharat.
Bharat Masrani, CEO
Thank you, Gillian, and thank you, everyone, for joining us today. 2020 has been a year without parallel. Whoever you are, wherever you live, each one of us has felt the impact of COVID-19 in our personal and professional lives. Once again, we extend our heartfelt thanks and gratitude to the tens of thousands of healthcare workers, first responders, and others on the front lines, including TD Bankers still working tirelessly to provide essential services throughout this crisis. COVID has also been a transformative experience for TD. It has showcased our greatest strength as we came together in force to support our customers, colleagues, and communities, and it has tested our resilience as the pandemic and the recession had a profound impact on our financial performance and operations. This year, we delivered earnings of $10 billion and EPS of $5.36, both down 20% from last year, which is a good result given the extraordinary circumstances and helped by a strong finish in Q4. Our personal and commercial banking businesses showed the expected pressures from a downturn that affected households and businesses so deeply. But our wealth, insurance, and wholesale businesses had their best years ever with record revenue and earnings. Our balance sheet also ended the year in robust form with a CET1 ratio of 13.1% and a liquidity coverage ratio of 145%. These results demonstrate the strength of our proven business model and customer-centric strategy. I couldn't be more proud of how we showed up for our customers, and how thousands of TD Bankers adapted and pushed forward, providing advice, delivering bank relief programs, and facilitating access to the government support that has been a lifeline for so many. And in turn, our customers trusted us to help them meet their financial needs. This fall, we conducted our Annual Colleagues Survey and logged the highest engagement scores in our history. I’ve often said that our people are our greatest asset. Colleagues across TD remain committed to the bank and our purpose. This year, we provided additional financial support to recognize their contributions, including a special bonus for non-executive employees. We've also redeployed several thousand TD bankers across the organization, meeting urgent needs in our business and opening up new career paths for our people. And because we are only as strong as our communities, we launched the TD community resilience initiative, part of the TD ready commitment to bring the bank's resources and capabilities to those communities most affected by the pandemic. Amidst this year's unprecedented disruption and the enormous work effort it has required, I'm especially proud of the Climate Action Plan we launched last month, including our target to achieve net zero greenhouse gas emissions in our operations and financing activities by 2050. We all recognize the urgent need for businesses of all sizes and in every industry to find new paths to sustainable growth. TD is positioned to play a central role in this effort, building on our long history of environmental leadership. Clients, shareholders, and other stakeholders have responded very positively to our announcement, and we look forward to working with them on our shared journey to a lower carbon future. We also took steps this year to reinforce a cornerstone of our culture, an inclusive workplace where all can thrive. We continue to increase the number of women in leadership roles, made new commitments to grow minority executive representation, and launched bank and community-wide efforts to tackle the impacts of anti-black racism. It is a hallmark of our purpose-driven, forward-focused strategy that we have continued our work to build more sustainable, inclusive futures even as we transform our day-to-day operations to meet the COVID challenge. Like all great crises in history, COVID will not last forever. As stewards of this 165-year-old growth organization, it is our responsibility to manage for today and plan and build for tomorrow. We have been and are continuing to build our operations for the digital age, increasing our agility and customer centricity. We continue to scale our ability to execute with speed and impact for customers, helping strengthen and deepen relationships with the 26 million customers we have today and the new customers we are adding every day. We're also continuing to improve our platforms and technology infrastructures. These investments were critical in enabling a rapid response to COVID, equipping 60,000 colleagues, including many contact center employees to support our customers while working remotely, absorbing surging mobile volumes and service volumes, and introducing new digital advice and support capabilities overnight. We're accelerating these investments to further improve the stability, security, and agility of our operations and enhance our enterprise capabilities to better serve our customers. Alongside these enterprise-wide innovations, we continue to create new sources of value in each of our businesses. In Canadian retail, we grew market share and personal deposits, maintained our leadership position in payments, and continued to differentiate our offerings with the launch of TD's mobile transfers this quarter, a best-in-class money movement capability. We achieved record real estate secured lending originations and built on our leadership in cards, announcing our refreshed suite of TD Aeroplan credit cards and crossing the 100,000-customer mark with our Amazon MBNA co-branded card, and we continue to support millions of customers through the SBA and CERB programs as well as through our TD Ready Advice Center. Our wealth business had a banner year with record earnings, assets, and trading volumes. We added more than 120 new investment advisors, private bankers, and financial planners in our advice businesses, launched new sustainability funds and ETFs in TD Asset Management, and built on our leading direct investing capabilities with the introduction of TD GoalAssist, our new mobile self-directed investing app. And our insurance business had record earnings while delivering substantial COVID-related relief for customers. Our new General Insurance platform and enhanced digital self-serve and advice capabilities drove a second consecutive year of double-digit premium growth. In US retail, we continue to build the next generation of customer service and advice excellence with B Legendary, helping our people get closer to our customers and meet their challenging needs, and we’ve complemented this with enhanced digital capabilities, including a new customer financial assessment tool as well as the capability to order replacement debit cards for curbside pickup. We ranked number one in SBA lending in our Maine to Florida footprint for a fourth consecutive year. And we were the number six PPP lender nationwide, funding approximately 86,000 loans with over $8 billion for small business customers, the bedrock of our community banking strategy. And we were delighted to support the TD Ameritrade Schwab transaction, which closed this quarter, bookending our fiscal year with this transformative deal. TD is now the largest shareholder in a preeminent US world services forum with $6 trillion in client assets. Our wholesale bank under record $1.4 billion in 2020, reflecting a strong year for our Canadian franchise and the multi-year investments we've made in US dollar origination across corporate, government, and pension clients, as well as growing product capabilities in our global markets business. With a diversified global product base we've built over the last several years, we were able to actively participate in constructive market conditions and continue to grow and deepen client relationships. We were also proud to launch our sustainable finance and corporate transitions group to which we will continue providing clients with advisory services and transition and sustainability-focused financing globally aligned with the bank's Climate Action Plan. We recently exceeded the $100 billion mark for international bond underwriting, which includes all bonds that are registered to be sold internationally during the year. This is a significant milestone for the dealer. It represents more than doubling of volume and a 60% increase in market share over the last five years. Just last month, TD Securities was the lead manager on the European Union's second social bond financing of the Sure program. At €14 billion, this offering was the second largest social bond ever issued in the debt capital markets, representing a historic milestone for our entire global franchise. Overall, fiscal 2020 was a year of unprecedented challenge during which we rallied together to deliver on our highest purpose: enriching the lives of our customers, colleagues, and communities, while making foundational investments to power our next leg of growth. Last quarter, I said a measure of cautious optimism was warranted. That continues to be true today. While a second wave of infections has forced some jurisdictions to pause on reopening measures, each day brings more promising news about potential vaccines. We can see the impact in improving customer confidence and activity levels. The outlook remains uncertain. The pandemic could bring new setbacks. And we expect the recovery in earnings to be uneven. But we emerged from fiscal 2020 with momentum in our businesses. As we move through 2021, we expect to benefit from lower provisions for credit losses, as well as an ongoing recovery in customer activity. Together with continued expense discipline, this should help offset some further deposit margin pressure and a potential moderation in volumes and capital markets activity. Overall, we feel positive about the power of our franchise. As the economy recovers, we're confident that our strong customer base and the continued investments we've made in our businesses position us well to execute on our growth opportunities. As ever, we will stay true to our long-term strategy and continue to focus on our strengths: a diversified business mix, a deep customer base, a powerful brand, and the very best people. I'll finish by thanking them again for their steadfast commitment and dedication in this most extraordinary year. With that, I'll turn it over to Riaz to review the numbers in more detail.
Riaz Ahmed, CFO
Thank you, Bharat. Good afternoon, everyone. Please turn to Slide 8. For fiscal year 2020, the bank reported earnings of $11.9 billion and EPS of $6.43, up 2% and 3% respectively. Reported earnings and EPS include a $2.3 billion net after-tax gain on the sale of the bank's investment in TD Ameritrade, as well as prior year charges related to the Air Canada agreement. The $2.3 billion gain is comprised of a non-taxable revaluation gain of $1.95 billion based on Schwab’s October 5th closing share price of $36.94 and a $0.3 billion gain on the release of a related deferred tax liability. We also released foreign currency translation and hedging impacts related to our investment from other comprehensive income, which netted to a loss of approximately $550 million on a pre-tax basis and were approximately neutral on an after-tax basis. Fiscal 2020 adjusted earnings were $10 billion and adjusted EPS was $5.36, both down 20%. Revenue increased 6%, including the pre-tax net gain on the sale of TD Ameritrade. Adjusted revenue increased 3%, reflecting record insurance and wholesale revenue and volume growth in the personal and commercial banking businesses, partially offset by margin compression and lower fee income in the banking businesses. Provisions for credit losses were $7.2 billion for the year, up $4.2 billion, primarily attributable to higher performing provisions for credit losses due to the significant deterioration in the economic outlook relating to COVID. Expenses decreased 2% year-over-year, primarily reflecting charges related to the agreement with Air Canada a year ago. Adjusted expenses increased 1%. Please turn to Slide 9. For the fourth quarter, the bank reported earnings of $5.1 billion and EPS of $2.80. Reported earnings and EPS include the TD Ameritrade net gains. Adjusted earnings were $3 billion and adjusted EPS was $1.60. Revenue increased 15%, including the pre-tax net gain on the sale of TD Ameritrade. Adjusted revenue increased 1%. Provisions for credit losses decreased 58% quarter-over-quarter to $917 million, reflecting declines in impaired and performing provisions for credit losses. Expenses increased 3% year-over-year, including corporate real estate optimization costs of $163 million and investments supporting business growth. Please turn to Slide 10. Canadian retail net income was $1.8 billion, up 3% year-over-year. Revenue decreased 2% from lower deposit margins and lower fees in the banking businesses, offset partially by volume growth and higher wealth and insurance revenue. Average loans rose 3%, reflecting growth in personal and business volumes. Average deposits rose 20%, reflecting double-digit growth across all businesses. Wealth assets increased 2%, reflecting new asset growth and market appreciation. Margin was 2.71%, an increase of 3 basis points from the prior quarter. Total provisions for credit losses decreased by 74% quarter-over-quarter, reflecting lower impaired and performing provisions for credit losses. Total provisions for credit losses as an annualized percentage of credit volume were 22 basis points, down 64 basis points quarter-over-quarter. Expenses were up 2%, reflecting higher expenses supporting business growth. Please turn to Slide 11. US retail segment net income was $658 million. The US Retail Bank net income was $403 million, down $278 million. Revenue decreased by 8%, reflecting lower deposit margins and fees, partially offset by volume growth. Average loan volumes increased 7% year-over-year, reflecting growth in personal and business volumes with significant increases in the SBA PPP loans. Deposit volumes excluding sweep deposits were up 26%, including 30% growth in core consumer checking, and sweep deposits were up 35%. Net interest margin was 2.27%, down 23 basis points sequentially, primarily reflecting lower deposit margins and balance sheet mix. Total provisions for credit losses including only the bank's contractual portion of credit losses in the strategic cards portfolio was $433 million, down 34% from the prior quarter. The US Retail net provisions for credit losses ratio was 1.01%, down 50 basis points from last quarter, and expenses decreased 1%. The contribution from TD's investment in TD Ameritrade was $255 million, up 16% primarily reflecting higher trading volumes and lower operating expenses, partially offset by reduced trading commissions and lower asset-based revenue. As you know, we report our share of TD Ameritrade earnings with a one-month lag, and we will be following the same convention for Schwab and we will begin reporting our share of Schwab's earnings on this basis in Q1 of fiscal 2021. Please turn to Slide 12. Wholesale net income was $486 million, an increase of $326 million. Revenue was $1.3 billion, up 48% primarily reflecting higher trading-related revenue, higher loan fees, and higher debt underwriting fees. Provisions for credit losses decreased by $129 million from the prior quarter on our recovery in impaired provisions for credit losses and lower performing provisions for credit losses. Expenses were $581 million, down 3%. Please turn to Slide 13. The corporate segment reported net income of $2 billion in the quarter compared with a net loss of $240 million in the fourth quarter last year. The increase was primarily attributable to the net gain on the sale of our investment in TD Ameritrade. Adjusted net loss was $213 million compared with an adjusted net loss of $178 million in the fourth quarter last year, reflecting an increase in net corporate expenses, partially offset by higher contributions from treasury activities. The increase in net corporate expenses reflects the impact of corporate real estate optimization costs of $163 million in the current quarter compared with restructuring charges of $51 million in the same quarter last year. This quarter, we made the decision to vacate approximately 1.2 million square feet or 11% of our non-retail space related to real estate optimization plans that predate COVID. Please turn to Slide 14. The common equity tier one ratio ended the quarter at 13.1%, up 62 basis points from Q3. We had strong organic capital generation this quarter, which added 30 basis points to our capital position, and we also added 6 basis points each from actuarial gains on employee benefit plans and OSFI’s transitional arrangements for expected credit loss provisioning. As previously communicated, the Schwab transaction had a roughly neutral impact on CET1 capital. Risk-weighted assets declined this quarter before the impact of the Schwab transaction on lower credit and market risk risk-weighted assets, and risk-weighted assets were flat quarter-over-quarter, including the impact of the Schwab transaction. We have set out the details of Schwab's impacts on CET1 capital and risk-weighted assets on Slide 37. The leverage ratio was 4.5% this quarter, and the LCR ratio was 145%, both well above regulatory minimums. As a reminder, OSFI’s transitional adjustments to CET1 capital for ECL provisioning are currently subject to a 70% scale factor, which declines to 50% in Q1 of fiscal 2021. We expect the impact on our CET1 ratio to be approximately 10 basis points in the first quarter. I will now turn the call over to Ajai.
Ajai Bambawale, CRO
Thank you, Riaz, and good afternoon, everyone. Please turn to Slide 15. Gross impaired loan formations decreased 8 basis points quarter-over-quarter, primarily reflecting the ongoing impact of bank and government assistance programs on the consumer lending portfolios and lower formations in the US commercial lending portfolios. Please turn to Slide 16. Gross impaired loans were $3.2 billion or 42 basis points, decreasing 9 basis points quarter-over-quarter, primarily related to resolutions outpacing formations in the Canadian and US Consumer, US Commercial, and Wholesale Lending portfolios. Wholesale resolutions were largely in the oil and gas sector. Please turn to Slide 17. Recall that our presentation reports provisions for credit losses ratios, both gross and net of the partner share of the US strategic card credit losses. We remind you that credit losses recorded in the corporate segment are fully absorbed by our partners and do not impact the bank's net income. The bank's provisions for credit losses in the quarter were $921 million or 49 basis points, decreasing $1.3 billion or 68 basis points quarter-over-quarter and stable year-over-year. For 2020, the bank's full-year provisions for credit losses rate was 100 basis points, up 55 basis points from 2019 due to the impact of COVID-19 and deterioration in the economic outlook, including the impact of credit migrations. Please turn to Slide 18. The bank's provisions for credit losses decreased $469 million quarter-over-quarter, largely reflecting the ongoing impact of bank and government assistance programs in the consumer lending portfolios and prior period impaired provisions in the wholesale segment. Performing provisions for credit losses decreased $799 million quarter-over-quarter due to a smaller increase to the allowance for credit losses this quarter. Current quarter performing provisions were primarily recorded in the US commercial lending portfolios across a number of industries, including commercial real estate. Please turn to Slide 19. The allowance for credit losses increased $157 million or 2 basis points quarter-over-quarter to 126 basis points, driven by the business and government portfolios reflecting an increase in the US commercial performing allowance, partially offset by lower wholesale segment impaired allowance largely related to resolutions in the oil and gas sector. I remain satisfied with the bank's allowance coverage, which reflects our current economic outlook and our portfolio and geographic mix. Please turn to Slide 20. Loan balances under bank-led deferral programs decreased $41 billion from the third quarter as most deferrals have now expired. In terms of deferral-related credit impact, the significant majority of clients that have graduated from deferral programs are current with their payments. Graduated deferral delinquency rates are elevated relative to our broader portfolios but remain within expectations. We will continue to monitor our portfolios closely to assess the ongoing impact as customers return to regular payments. Now, let me briefly summarize the year. We continue to operate through challenging conditions given the unprecedented impact from the COVID-19 pandemic. Bank-led and government assistance programs have had the desired effect of helping our customers. However, the shape of the recovery and the magnitude and timing of the ultimate credit impact remain uncertain. While I expect provisions for credit losses to be lower in 2021, reflective of our significant performing allowance this year, given the degree of ongoing uncertainty, they may remain elevated from pre-COVID-19 levels and could vary by quarter. To conclude, given the significant addition to our allowance this year, our strong capital position, and our broad diversification across products and geographies, we remain well-positioned to manage through these difficult times. With that, operator, we are now ready to begin the Q&A session.
Operator, Operator
Thank you. We will now take questions from the telephone lines. The first question is from Gabriel Dechaine from National Bank Financial.
Gabriel Dechaine, Analyst
First question for Bharat or Riaz. Dividend increases and buybacks are frozen until OSFI says otherwise. I just want to clear up the possible confusion around M&A. Is that more of a case-by-case deployment option, as in you could potentially do something?
Bharat Masrani, CEO
Gab, nice to hear your voice. It's been a while since we got together. Hopefully, we do get an opportunity given all the good news that all of us have been seeing on TV. On M&A, I've always said this for the past few years, we look at our capital deployment sort of outlook as how we think about capital, how we deploy capital. And we've been consistent that we are interested in acquisitions that are compelling and make sense for us. As long as they make strategic sense, financial sense, risk sense, and cultural sense, we are very open to acquisitions. And there have been specific areas we pointed out that are of particular interest. Parts of the United States, where we do have organic opportunities, but we think through acquisitions we could accelerate those opportunities. If there's any asset-generating type of opportunities available, we'd be quite interested. And obviously, anything in Canada would be of great interest. So, our view on this has been consistent and that has not changed here. I think if you sort of look at what's going on through the pandemic, what appears to have changed and probably will change is the number of opportunities may go up as we look at how the environment evolves here. And a lot of banks, I'm sure, are facing dislocations or financial services companies in general. I'm sure there are lots of Boards out there looking at their strategic sort of opportunities one way or the other, and that may throw off more deals in the picture. And then our view is that we do have very good capabilities in our bank. There are areas that would be of particular interest. We are good acquirers. We convert well. We integrate well. We create great franchises at the other end of it, and our history has been through major downturns and dislocations; if there have been opportunities, TD has taken those opportunities and they have turned out to be pretty good for us. So that's a long answer to say that nothing has changed, and we like the flexibility that we have given our balance sheet, our brand, and the type of scale we already have in various markets in which we operate.
Operator, Operator
The next question is from Ebrahim Poonawala with Bank of America Securities.
Ebrahim Poonawala, Analyst
I just wanted to follow up on credit around provisions for credit losses. One, Ajai, if you could talk about the performing provisions for credit losses, I heard you mention commercial real estate driving the provisions for credit losses in the US this quarter. Just tell us around, is this more of a function of portfolio review, or are there any factors from a macro standpoint that led to this performing provisions for credit losses build in the US this quarter? And yes.
Ajai Bambawale, CRO
So, let me just elaborate. One, I would say is macro was not a driver of our allowance build this quarter. In fact, if you go and look at the macro variables, you'll see there is some deterioration in the nearer quarters, both in Canada and US unemployment, GDP and also Canadian housing. If you go to the later quarters, you're actually going to see an improvement. We didn't change any of our weighting. Our downside, like I said last quarter, remains a W. So bottom line, it was not macro. As you're aware, we look at our portfolios on an ongoing basis, and we repeat that every quarter. So, we did migrate parts of our book in the US, and commercial real estate is part of that, but it isn't only confined to commercial real estate. It was a few other industries, including other professional groups and sundry manufacturing. So, there were a few industries, but the performance allowance build is based on credit migration.
Operator, Operator
The next question is from Meny Grauman with Scotia Bank.
Meny Grauman, Analyst
We see excess cash balances very high, both sides of the border, both consumers and businesses see that in the deposit data. I'm wondering what the implications are for credit as you think ahead? And also for loan growth, does this unwind? How long does it take? What's your view of how this will impact both credit and loan growth?
Bharat Masrani, CEO
Ajai, why don't you cover up the credit side and then perhaps Terry and Greg can talk about what they're seeing from their clients.
Ajai Bambawale, CRO
So, I'd actually take you back to my comment last quarter where I indicated that my view was that we're really going to see impairments start in the second half of the year. Part of the reason was we're sitting on all these cash balances. So, until the stimulus ends and we start seeing the cash balances come down, we're not going to see the impairments, and that's the other reason why, even in our prepared remarks, we said provisions for credit losses will vary quarter-by-quarter. We could see a situation where provisions for credit losses remain low for a couple of quarters and then start rising. So, at least for the near term, these cash balances, I would call them a credit positive.
Bharat Masrani, CEO
Maybe, Terry, if we can start with you, talk about loan growth in Canada.
Teri Currie, Group Head, Canadian Personal Banking
So just to follow on to what Ajai has said. Our business loans actually held up pretty well this quarter. But where we did see lower utilization, part of that would have been due to the subsidies for sure, and then that was offset by some good growth in real estate construction, multi-residential, and agriculture. On the personal side, certainly in the unsecured lending space, we would have seen less utilization as a result of the money in play, the cash that is there to be activated. From a deposit growth perspective, obviously we benefited and we're focused very heavily on ensuring that we help our customers put that money to good use over time, investing it for their future aspirations, and we're quite focused on that.
Greg Braca, President and CEO, TD Bank, America's Most Convenient Bank
Meny, it's Greg. I would just add that we are seeing pretty decent loan growth, given the state of the economy and what we've been through for the last few quarters. In the consumer side of the loan book, it's really kind of a tale of a couple of stories. You've got very, very strong growth in the mortgage business, as you'd imagine right now, not only because of new home purchases due to low rates but because of another refinance boom going on. But you're also seeing a drag in credit card and outstanding balances and spend and far more muted growth, pretty flattish growth in the auto business from what we would generally be seeing pre-COVID. In the commercial space, as you know, business loans are up 10%. Now some of that's driven by the PPP, small business program for smaller businesses. But really throughout the second, third, and even into the fourth quarters, although it's come down somewhat, you've seen good activity on the commercial side, businesses looking to raise liquidity, making sure that in some cases they have excess liquidity on their balance sheets or taking advantage of opportunities. On the deposit side, the story is quite strong and you're rightly to point it out. We would have thought deposits would have started to more normalize after Q3. But just from a year-over-year standpoint, deposits ex-sweeps are up 26% year-over-year in the US, just very, very strong growth, 35% up in the commercial businesses. So businesses, small, medium, and large companies are putting liquidity on their balance sheets. They are making sure they're either prepared for opportunities or making sure they're prepared for downsides depending on the industries that they're in. Even on the consumer side, consumer checking balances are still quite strong. I do think this lends to some of Ajai's comments about why we're still seeing delinquency rates quite muted. Deposit DDA balances in our consumer space are up 30% still year-over-year. And quarter-over-quarter, Meny, we're still up quite a bit, another $7.5 plus billion even from Q3 to Q4 across consumer and commercial. So, quite a strong story still.
Operator, Operator
The next question is from Scott Chan with Canaccord Genuity.
Scott Chan, Analyst
I got a two-part question on US retail. After fiscal Q2, kind of in terms of profitability, you've shown nice momentum over the past two quarters. How do you see that trajectory kind of near-term in terms of potential improved profitability going forward? And maybe tying it into the credit side, which is the obvious delta, and your experience on your deferral programs, and how important is further physical stimulus near-term on that outlook?
Greg Braca, President and CEO, TD Bank, America's Most Convenient Bank
Yes, we too are pretty pleased notwithstanding the large drop in earnings, obviously, because of the onset of the pandemic in Q2, strong recovery in Q3 and that continued right through Q4. While certainly not back to pre-COVID levels, we are quite pleased with that trajectory. I would just add that we're going to have to see how this goes. We're quite happy with customer activity. As you've heard a few times, delinquency rates continue to remain quite muted. We are pleased to see that liquidity is still very much at a surplus in both consumer and commercial checking accounts. I do think that bodes well. We are seeing a recovery in fees and credit card and debit activity, which bodes well for the overall economy. And you're seeing that play out in the unemployment rates in the US, as well as various indicators across the commercial segments. But I do think it's still early to say how the next couple of quarters, at least the next quarter or two until the vaccine is fully rolled out. There's going to be some bumps in the road over the next couple of months that we want to be mindful of. But what we're seeing real-time from our customers is that they're in a reasonable position. I think stimulus is an important discussion point to have that bridge until the vaccine is more fully out there, and that there's some conclusion around that, both on the consumer side as well as any relief for impacted industries on the commercial space. So, I think as we think about the earnings trajectory, it's obviously something we're going to be watching, we're going to be managing through. So far, our customers are holding up quite well. And I think the next 90 to 120 days will be instructive around stimulus and how we get to the other side of that vaccine, Scott.
Operator, Operator
The next question is from Sohrab Movahedi with BMO Capital Markets.
Sohrab Movahedi, Analyst
Greg, I actually wanted to pick up where you left off and be a bit of a nervous nelly and see where do you see concerns around fee pressures maybe? So you talked about credit card and debit card recovery in fees. But are you worried about the compression outside of margins anywhere?
Greg Braca, President and CEO, TD Bank, America's Most Convenient Bank
Well, we're bankers, right? So I guess we get paid to worry, and we spent quite a bit of time talking about downside scenarios, as you know. And I think we're doing all that we can, all of our employees across TD Bank Group, to make sure we're as prepared as we can be. And that includes how do we serve our customers as we're hearing about more lockdowns and spikes in infection rates, especially in the US over the last several weeks. So we continue to watch all of these things closely, both for our employees as well as for our customers. I do think the biggest thing to watch for will be, do we get to another stimulus package that does bridge the vaccine, especially if we get more shutdowns, particularly around affected industries like restaurants, travel, and leisure industries that have been hit particularly hard. So we continue to watch that. But overall, I would say the attitude and the mood seems to be that folks are beginning to think about what the other side of that pandemic is and the expectation that the vaccine, whether it's in two months or whether it's in four or five months, does begin to get rolled out and we do begin to get back to normal. So it is quite instructive and positive, I think, that folks are thinking about brighter times and more of a recovery mindset and how we're going to act and invest and grow our businesses effectively on the other side of that. I do think that's quite positive.
Operator, Operator
The next question is from Mike Rizvanovic with Credit Suisse.
Mike Rizvanovic, Analyst
A question for Greg. I just wanted to see if you can maybe break out the margin decline sequentially just in some of the components. It's a pretty sizable move and it's a bit confusing to understand where this is headed, because you've seen such significant differences among the peers on US exposure?
Greg Braca, President and CEO, TD Bank, America's Most Convenient Bank
Let me take a moment to step back and review the situation. We know that our bank is rich in deposits and we have ample liquidity, which means we haven't had to depend on wholesale funding or deposits for loan growth. This is certainly a positive aspect for us in the U.S. market. Additionally, we believe that solid core deposit growth is a strength of our organization, regardless of whether interest rates are increasing or decreasing. That’s why I specified the growth rates of our deposit business, highlighting a 30% overall increase and a 26% increase when excluding Ameritrade deposits, while emphasizing the strong quality of these deposits. For instance, consumer DDA has risen by 30%. This reinforces the quality growth story I've been discussing for the past several quarters, which we believe is encouraging for the long term. Regarding margins, since our deposit growth is outpacing loan growth, especially in this current environment, we don't expect many banks to achieve double-digit loan growth, let alone 25% or 30% growth to utilize this excess liquidity. Consequently, we anticipate a decline in margins, and we might experience a sharper impact than the average bank. However, other organizations may offset some of the margin impact by reducing wholesale deposits, but since we don’t have that option, we will feel this margin compression more acutely. Nevertheless, the overall deposit story, especially the strong DDA growth in both consumer and commercial segments, gives us optimism for the long term.
Operator, Operator
The next question is from Nigel D'Souza with Veritas Investment Research.
Nigel D'Souza, Analyst
I wanted to touch on your wholesale banking segment. And you had pretty strong net interest income for this quarter as well. In fact, it's up quarter-over-quarter. And I was wondering if that's at all tied to repo market transactions? And the reason why I ask is, when I look at your balance sheet, interest-bearing deposits with banks have increased substantially over the last few quarters. So am I thinking of that correctly as a driver?
Bob Dorrance, Group Head, Wholesale Banking
Yes, we have, Nigel, had a good repo or an active repo business this year in the latter couple of quarters, and that has been of help to the net net interest income.
Nigel D'Souza, Analyst
So any commentary then on how you expect that to play out over the next few quarters? Is that going to wind down with lower deposit balances?
Bob Dorrance, Group Head, Wholesale Banking
Yes. Our view is that will be one of the headwinds that the business will face in fiscal '21.
Operator, Operator
The next question is from Lemar Persaud with Cormark Securities.
Lemar Persaud, Analyst
My question is for Ajai. You had mentioned that provisions for credit losses could remain elevated from pre-COVID levels. Can you help us pin down a range that we should be thinking of for total provisions for credit losses for 2021?
Ajai Bambawale, CRO
Let me give you my views. So we're not giving any guidance this year, so I don't think I'm going to be able to give you a range. However, let me just talk about the uncertainty. And it's because of the uncertainty, we are unable to give you a range. There are several factors at play, some of them are positive, some of them are negative. For example, the level and timing of impairment is uncertain. But I've talked a bit about that. I expect it to be more in the second half, or at least start in the second half. And then the shape of the recovery can be influenced by many factors, including the second wave, stimulus timing in the United States, and the quantum of the stimulus, along with the availability, distribution, and public acceptance of the vaccine. From my perspective, the range of outcomes is quite broad. What you should take some comfort from is we have built significant allowances this year. We're well-positioned into next year, and we believe provisions for credit losses will be lower, but I can't provide any specific range.
Operator, Operator
The next question is from Gabriel Dechaine with National Bank Financial.
Gabriel Dechaine, Analyst
Just a follow-up on the US margin there. And Greg, you kind of alluded to it, the excess liquidity, I guess, we're seeing that in the loans to deposits. It was running 60%-ish pre-COVID and now it's at 50%. I'm just wondering, do you think we've hit a bottom or that ratio is going to be the steady state there, 50% loan to deposit ratio? And then you're kind of going to grow back into a higher number before we start to see margins recover barring that rate increase or something like that?
Greg Braca, President and CEO, TD Bank, America's Most Convenient Bank
Gabriel, thanks for the question again. Yes. So I would just say that these things are hopefully going to be hard to predict. I would have thought that we would have been getting a bit popish in the deposit growth after Q3, but they continued to fund quite strongly into Q4, as I've already noted. I think part of the story you'll be going forward is, is there another stimulus package, is there another round, and that might affect or spike the deposits even further. But I do think, as you start getting back to a more normal state or if there isn't another round of meaningful stimulus, I do think both small businesses and consumers will begin to eat into their deposit reserves. I think they're going to be doing it for a number of reasons, whether they're affected from financial performance or are they going to be thinking about where are opportunities to begin to reinvest excess liquidity. So I think we're going to have to watch it over the next couple of quarters before we begin to get back to a steady state, Gabriel.
Operator, Operator
The next question is from Ebrahim Poonawala with Bank of America Securities.
Ebrahim Poonawala, Analyst
Just wanted to follow up on your response earlier regarding US M&A specifically. Bharat, you've talked for a long time about like in the southeast market and Florida in particular. Having said that, there aren't too many retail franchises that really kind of deliver that stand alone. Just talk to us when you think about the US retail sort of market, given some of the digitization, given what you've learned from COVID. How do you think about the TD franchise? Is it still best to think about it as an East Coast Maine to Florida franchise, and that's what you want to do? Or does the crisis and the shift in the rate backdrop, et cetera, you talked about the challenges for other banks create an opportunity to make this a more national franchise?
Bharat Masrani, CEO
During normal times before the pandemic, there weren't many opportunities, and we’re uncertain about what will happen post-pandemic or in the current period. We believe the markets we are in are excellent, characterized by high growth. Our presence is strong in the top states for growth opportunities, which makes us very satisfied with our position. However, if we were to consider opportunities outside our franchise, I would say never say never. If a compelling opportunity arises, it would make sense to explore it, especially if it aligns strategically, financially, and culturally. It’s important to remain open to possibilities because certain aspects of our business have national reach. For instance, our credit card partnership business and our TD Auto Finance operations are national in scale. Additionally, some of our specialty lending extends beyond our traditional footprint, and our TD Securities business is also quite national from a U.S. perspective. We have experience in operating broader businesses in the U.S., and we will see how this evolves. The advantage for TD is that we’re not pressured to pursue acquisitions since we don’t view ourselves as lacking scale. We have a strong position, a great brand, and a customer proposition that is unparalleled. This allows us to thoughtfully evaluate opportunities that make sense for us, and we find ourselves in a fortunate position with our capabilities and capital, which are significant advantages in this uncertain market and environment.
Operator, Operator
The next question is from Sohrab Movahedi with BMO Capital Markets.
Sohrab Movahedi, Analyst
I wanted to try that one again, maybe ask a little bit more specifically. Banking service fees, securities brokerage commissions, those are two of your larger fee items that would be rich in bottom-line contribution. Can I please get an outlook commentary on those for both Canada and the US?
Bharat Masrani, CEO
The market continuously evolves. Different products play different roles in different markets. Our belief is that we go where our customers go. We're a customer-centric bank. The business mix we have, we are very happy with it. We have scaled businesses on both sides of the border, which I think is important. We are a full-service provider. It is not just one product or a mono line. We are a full-service provider on both sides of the border. So that's the type of franchise we are building. I think I mentioned in my remarks we have 26 million customers that we serve on the retail side. Plus, if you add Bob's business and Paul Douglas' business, and in Greg's business, there are lots of other types of customers that we serve. So I think we have great advantages here. Through the pandemic, there were times when being a deposit-heavy bank, it seemed like, wow, this was one circumstance where things might not look as advantageous for us. But again, when we look back, we have the checking relationship. This is where the core relationship starts with our customers from which we can build. Ours is a franchise that is enduring through different times. Sohrab, my view is I can't talk specifically on what might make sense in the future, but we've got a fantastic foundation here, and we'll see how this plays out over the next little while.
Operator, Operator
The next question is from Meny Grauman with Scotia Bank.
Meny Grauman, Analyst
Just on buybacks. Given your capital ratio, is there a case to be made for allowing buybacks now? Do you feel that would be a valid argument that you could make to whoever listens, the regulator, I guess, but is that something that makes sense?
Bharat Masrani, CEO
I think OSFI and other regulators have spoken on this, and I can fully understand from a regulatory perspective. It was not too long ago when the world went through the global financial crisis, and I'm sure those memories are afresh in regulators’ and many other stakeholders’ minds. So I think it's a prudent thing to do until this crisis is behind us, and I'm sure this question is better asked of our regulators.
Operator, Operator
There are no more questions in the queue at this time. I would now like to turn the meeting back over to Mr. Bharat Masrani for closing remarks.
Bharat Masrani, CEO
Thank you, operator, and thank you all for participating today. We really appreciate good engaging conversation. And once again, your bank has delivered for all of our stakeholders. I could not be more proud of our 90,000 TD bankers around the world who have not only managed through this difficult crisis but have been there for our customers, for each other, and for the communities in which we live and serve. Once again, folks, thanks for joining. In case we don't get a chance to connect, happy holidays to all of you and stay safe. Thank you.
Operator, Operator
Thank you. The conference has now ended. Please disconnect your lines at this time. Thank you for your participation.