Good afternoon, ladies and gentlemen. Welcome to the TD Bank Group Q1 2021 earnings conference call. I would now like to turn the meeting over to Ms. Gillian Manning. Please go ahead, Ms. Manning.
Thank you, operator. Good afternoon, and welcome to TD Bank Group's first quarter 2021 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 first quarter operating results. Ajai Bambawale, Chief Risk Officer, will then offer comments on credit quality, after which we will invite questions from pre-qualified analysts and investors on the phone. Also present today to answer your questions 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 two.
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 and 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 our Q1 2021 report to shareholders. With that, let me turn the presentation over to Bharat.
Thank you, Gillian, and thank you, everyone, for joining us today. It's been almost a year since the COVID-19 pandemic transformed our lives. As we continue to witness its uneven impact on the world around us and our own results, I'm proud of how the bank has managed through this period and of the resilience and commitment shown by our 90,000 colleagues around the globe. TD started the year strong as we continued to execute on our strategies in an uncertain environment. First quarter earnings were CAD 3.4 billion, and EPS was CAD 1.83, up 10% from a year ago. Provisions for credit losses declined significantly, reflecting an improving economic outlook as well as the impact of ongoing fiscal and monetary support for the economy and the sizable addition to our allowance for credit losses last year.
While spending and payment volumes in our banking businesses remained below pre-crisis levels, fee income pressures eased and deposit growth remained strong. Our wealth insurance and wholesale businesses had another banner quarter, reflecting continued high levels of customer engagement and market activity. These strong results further bolstered our balance sheet, with our CET1 ratio climbing 50 basis points to 13.6%, and our liquidity coverage ratio ending the quarter at 139%. Overall, a powerful testament to the strength of our diversified business model. At TD, we believe banking serves a higher purpose, and we continue to fulfill ours, enriching the lives of our customers, colleagues, and communities. From the depths of the crisis last spring to the recovery that is now emerging, we've empowered our people to execute with purpose and impact on behalf of our customers and clients.
We have helped facilitate government programs that remain a lifeline for so many households and businesses, and we have provided ongoing support for our communities. We know the recovery is not yet on solid ground. COVID-19 and its new variants remain a reality. Many households are still struggling, and businesses, especially small businesses, will need additional support after these long months of disruption. It is too early to predict when we will see a full recovery, but we are encouraged by the progress on vaccination globally. As it proceeds, accompanied by effective testing and improving treatments, the foundation for a sustained recovery will continue to take hold. We are seeing the evidence already in rising consumer and business confidence, increasing customer activity levels, and a steepening yield curve.
While we expect that households will maintain their high level of savings in the near term, there is significant pent-up demand to spend after these long months of inactivity, as well as the capacity to do so. We will be there to advance the recovery, supporting our customers in good times as we did last year in those most difficult circumstances. In the meantime, we remain vigilant. Across the bank, we are maintaining and enhancing measures to protect and serve our customers and colleagues, adding new digital and advice capabilities to deliver the financial services they need while supporting the recovery in all of our markets. We are also investing in a better future. We know that healthy economies require healthy communities, and that an inclusive and sustainable recovery is the only path to long-term prosperity.
That's why last fall, we launched an ambitious climate action plan to support the global effort to achieve net zero emissions by 2050. We are also intensifying our focus on diversity, inclusion, and anti-racism, working to remove barriers and create opportunities for everyone to thrive. As well as continuing our internal conversations about what each of us can do, most recently through our Black History Month events and initiatives. In every community across our footprint, we're investing in new programs, bringing our financial resources, talent, and know-how to help solve problems and partnering with community organizations to build their resilience. This quarter, that included providing CAD 10 million in grants to 15 organizations through the TD Ready Challenge to help them develop innovative solutions to address the inequities laid bare by the pandemic.
Through the TD Ready Commitment, we continue to make progress toward our target of CAD 1 billion in giving by 2030. Collectively, we are putting the power of TD's proven business model in the service of a better future for everyone. We are also transforming the way we work today. COVID has led to accelerated change across our business and our footprint. Shifting customer demands, colleague aspirations, and economic realities are creating new challenges and opportunities, and we are meeting them head-on with new investments to improve the speed and agility of our operations, nurture and develop our talent, and grow our businesses. These forward-focused investments are already delivering concrete outcomes across the bank, strengthening our connections to customers and clients, and seeding the next phase of our growth. Let me share a few highlights from each of our businesses. Our Canadian Retail segment earned CAD 2 billion this quarter.
In the personal bank, the power of our omni-channel strategy was on full display as we generated very strong mortgage originations and checking account growth while maintaining our digital leadership. TD's banking app took top spot for customer experience, engagement, and adoption, according to App Annie, Comscore, and Novantas /Epiphany, respectively, and we made further enhancements this quarter integrating AI into the app. In two recently launched use cases, eligible customers received personalized, proactive advice based on their transaction patterns, including low balances and upcoming payments, providing further support for their financial well-being. Our business bank continued to be the number one CEBA lender with nearly CAD 10 billion in loans funded as of January 31st. We also advanced our growth strategy this quarter, announcing an agreement to acquire Wells Fargo's Canadian direct equipment finance operations.
The transaction, which we expect will close in the first half of calendar 2021, subject to regulatory approvals and closing conditions, will expand our mid-market presence in this key business line and add scale in new geographies. In our wealth business, we had another strong quarter for customer acquisition and generated a record CAD 12 billion in retail net asset growth across the franchise. In TD Direct Investing, customers are responding to the enhancements we made to our industry-leading WebBroker platform, including expanded educational resources to help them build their investing knowledge. Addressing the growing demand for sustainable investing, TD Asset Management also added three new ESG ETFs to its product lineup. In our insurance business, a direct-to-consumer digital-first offering continued to drive strong customer acquisition and premium growth. Our U.S. Retail bank earned $615 million this quarter.
Core consumer checking growth remained exceptionally strong, up more than 30% from a year ago as customers continue to choose TD for their banking and savings needs. Reflecting our commitment to the small business recovery, we continue to facilitate access to the PPP program, accepting over 25,000 applications representing $2 billion in funding as round two of the program got underway. Delivering more of the bank to our 9 million-plus commercial and consumer customers is central to our continued success in the U.S. market. To that end, we merged our corporate and specialty banking teams with the commercial organization this quarter to strengthen our competitiveness in key industry verticals and drive further portfolio growth.
Combining corporate and specialty banking's expertise in priority growth areas like asset-based lending, equipment finance, healthcare, and commercial real estate with a commercial bank's capabilities in middle market community and small business lending will help us scale our core businesses and build the commercial bank of the future. We were also proud to see TD Auto Finance in the U.S. receive the highest ranking in dealer satisfaction among national non-captive lenders with prime credit, according to the J.D. Power 2020 U.S. Dealer Financing Satisfaction Study. We booked our first share of net income from Schwab this quarter. It contributed $161 million in earnings, bringing U.S. Retail segment earnings to $776 million, or CAD 1 billion.
Our Wholesale Banking segment had another strong quarter, earning CAD 437 million as the investments we've made to broaden and deepen our client base and product capabilities enabled us to do more business across our global platform. In our Canadian business, we were proud to be the lead left bookrunner on Air Canada's CAD 912 million share offering. In the U.S., we advised Nasdaq on its $2.8 billion acquisition of Verafin. From our new Dublin base, we acted as joint lead manager on the European Union's second SURE issuance, a dual tranche five-year and 30-year transaction with total volume of EUR 14 billion. It's the largest SSA transaction TD Securities has underwritten to date and highlights our continued growth and success serving our European clients. Overall, I'm very pleased with our start to fiscal 2021.
As I look ahead to the balance of the year, I'm encouraged by the gathering evidence of a recovery and our ability to make the most of it. My confidence is reinforced by the power of our model, the clarity of our purpose, and the strength of our people. I'll end by thanking them. Our people are our greatest asset. Through a challenging year, they were there for each other and our customers, sustaining and strengthening our winning culture. Together, we've come a long way over the past year, and as One TD, we are well-positioned to meet every challenge and continue to build the better bank. With that, I'll turn things over to Riaz.
Thank you, Bharat. Good afternoon, everyone. Please turn to Slide eight. This quarter, the bank reported earnings of CAD 3.3 billion and EPS of CAD 1.77. Adjusted earnings were CAD 3.4 billion and adjusted EPS was CAD 1.83. Revenue increased 2%, reflecting volume growth in the personal and commercial banking businesses and higher wealth, insurance, and wholesale revenue, partially offset by lower margins in the retail businesses. Provision for credit losses were CAD 313 million, down CAD 604 million sequentially, mainly reflecting lower performing PCL. Expenses increased 6% year-over-year, primarily reflecting an increase in the retailer program partners' net share of the profits from the U.S. strategic cards portfolio from lower PCL and U.S. store optimization costs. Please turn to Slide nine. Canadian Retail net income was CAD 2 billion, up 14% year -over year. On an adjusted basis, net income increased 12% year-over-year.
Revenue increased 1%, reflecting higher wealth and insurance revenue and higher loan and deposit volumes, partly offset by lower margins. Revenue was up, reflecting higher transaction and fee-based wealth revenue, higher insurance revenue, and higher loan and deposit volumes, partly offset by lower margins. Average loan volumes rose 4%, reflecting growth in business and personal, including record RESL originations. Average deposits rose 21%, reflecting double-digit growth across all businesses. Wealth assets increased 7%, reflecting market appreciation and new asset growth. Margin was 2.65%, a decrease of six basis points from the prior quarter, reflecting changes in asset mix and the impact of lower rates. Total PCL was CAD 142 million, down 43% sequentially, reflecting lower performing and impaired PCL. Total PCL as an annualized percentage of credit volume was 12 basis points, a decline of 10 basis points quarter-over-quarter. Reported expenses increased 1%, and adjusted expenses increased 2%.
Please turn to slide 10. U.S. Retail segment reported net income was $776 million. The U.S. Retail Bank's net income was $615 million, down 14%, primarily reflecting lower revenue and higher expenses, partially offset by lower PCLs. Revenue decreased 5%, reflecting lower deposit margins and fees, partially offset by volume growth and income from SBA PPP loans. Average loan volumes increased 5% year-over-year, mainly reflecting growth in business loans relating to PPP originations. Deposit volumes, excluding sweep deposits, were up 28%, including 33% growth in core consumer checking, and sweep deposits were up 38%. Net interest margin was 2.24%, down three basis points sequentially. Total PCL, including only the bank's contractual portion of credit losses in the strategic cards portfolio, was $103 million, down 76% from the prior quarter. The U.S. Retail net PCL ratio was 25 basis points, down 76 basis points from last quarter.
Expenses increased 9%, primarily reflecting $76 million in costs associated with the closure of approximately 80 stores announced during the quarter. The bulk of the closures will occur in Q2 and will result in approximately $60 million in additional costs next quarter. The contribution from TD's investment in Schwab was $161 million, compared with a contribution of $152 million from TD Ameritrade a year ago. Amortization of acquired intangibles and acquisition and integration-related charges associated with the Schwab transaction are reported in the corporate segment. Please turn to slide 11. Wholesale net income was CAD 437 million, an increase of 56%, reflecting higher revenue, partially offset by higher non-interest expenses. Revenue was CAD 1.3 billion, up 25%, primarily reflecting higher trading-related revenue and higher loan underwriting and advisory fees. PCL increased by CAD 26 million sequentially, reflecting an increase in impaired PCL relative to recoveries in the prior quarter.
Expenses were up 9%, primarily reflecting higher variable compensation. Please turn to Slide 12. The Corporate segment reported a net loss of CAD 197 million in the quarter compared with a net loss of CAD 227 million in the first quarter last year. The year-over-year decrease reflects a higher contribution from other items, partially offset by acquisition and integration charges related to the Schwab transaction. The increase in other items primarily reflects higher revenue from treasury and balance sheet management activities this quarter, and an unfavorable adjustment related to hedge accounting in the same quarter last year. Net corporate expenses were flat compared to the same quarter last year. Adjusted net loss for the quarter was CAD 94 million, compared with an adjusted net loss of CAD 168 million in the first quarter last year. Please turn to Slide 13. The CET1 ratio ended the quarter at 13.6%, up 50 basis points from Q4.
We had strong organic capital generation this quarter, which added 37 basis points to CET1. Actual gains on employee benefit plans added nine basis points, and unrealized gains on fair value through OCI securities added another five basis points. The five basis points increase in CET1 attributable to lower RWA net of FX was primarily a function of lower credit and market risk RWA. As noted last quarter, OSFI's transitional adjustments for expected credit losses reclassified from Tier 2 to CET1 capital was previously subject to a 70% scalar factor, which declined to 50% for 2021 effective this quarter. This reduced our CET1 ratio by 14 basis points. Leverage ratio was 4.5% this quarter, and the LCR ratio was 139%, both well above regulatory minimums. I will now turn the call over to Ajai.
Thank you, Riaz. Good afternoon, everyone. Please turn to Slide 14. Gross impaired loan formations were 16 basis points, stable quarter-over-quarter at cyclically low levels, reflecting the ongoing impact of bank deferral and government economic support programs. Please turn to Slide 15. Gross impaired loans were CAD 3.06 billion or 42 basis points, stable quarter-over-quarter. Please turn to Slide 16. Recall that our presentation reports PCL ratios, both gross and net, of the partners' share of the U.S. 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 PCL in the quarter were CAD 316 million or 17 basis points, representing a 15-year low, reflecting the ongoing impact of bank deferral and government economic support programs, and a performing allowance release. Please turn to Slide 17.
Bank's impaired PCL increased CAD 106 million quarter-over-quarter, primarily reflected in the U.S. credit card portfolios and largely recorded in the corporate segment. Performing PCL decreased CAD 711 million quarter-over-quarter, largely due to lower provisions in the commercial lending portfolios and allowance releases in the consumer lending portfolios. Please turn to Slide 18. The allowance for credit losses decreased CAD 437 million- CAD 8.9 billion quarter-over-quarter, reflecting the impact of foreign exchange, resolutions of impaired loans in the Wholesale segment, and performing allowance releases in the consumer lending portfolios related to improvement in our macroeconomic forecast and client credit attributes, partially offset by management overlays to address ongoing elevated uncertainty. To summarize the quarter. Key credit metrics, including gross impaired loan formations, gross impaired loans, and the provision for credit losses, were all at cyclically low levels this quarter.
Going forward, we may see credit results vary by quarter as the ultimate magnitude and timing of the pandemic-related credit impact remains uncertain, and there is a wide range of possible outcomes. To conclude, we are well-positioned to manage through these challenging times given the significant addition to our allowance last year, our strong capital position, and our broad diversification across products and geographies. With that, operator, we are now ready to begin the Q&A Session.
Thank you. We will now take questions from the telephone lines. If you have a question and you're using a speakerphone, please mute your handset before making your selection. If you have a question, please press star one on your device's keypad. You may cancel your question at any time by pressing star two. Please press star one at this time if you have a question. There will be a brief pause for the participants register. Thank you for your patience. Our first question is from Paul Holden from CIBC. Please go ahead.
Thanks. Good morning. I have a couple questions for you, I guess, related to expenses. You highlighted the branch optimization in the quarter and the costs that are going to run through this quarter and next quarter related to that. What I want to ask you about is what is the expected cost savings on the other side? Will that flow through? Will that be offset by ongoing investments in technology or otherwise? Where do you think you can ultimately take the efficiency ratio for the U.S. banking segment over time?
Greg, do you think you're on the line?
I am. Paul, can you hear me, I hope? Good afternoon.
Good afternoon.
Good. Well, thank you for the question. Yeah, I do appreciate it. We did have a notable item, obviously, in the quarter for store restructuring, and obviously it was a larger impact for the number of stores that we will be closing relative to the normal pruning we would do annually for the last several years. We've announced that we will be shutting down 82 stores. The impact of those 82 stores, given the IFRS accounting rules for the charge for the real estate for the closure of those stores will be charged from the couple of quarters between the time it's announced and the time they're actually closed. Obviously, once we announce those closures, we have a 90-day disclosure period and all sorts of regulatory checkboxes that we must include. The stores, most of them will be closed later in April.
You'll also see an impact of that, as you noted in the second quarter. The way I think about those is really the view of how do we see our network from Maine to Florida over the next several years, which are the stores that we believe were either redundant or that we could optimize with other nearby locations. How do we think about harvesting that expense save and really making sure we're reinvesting that back into the business for further growth. As we've been talking about it for the last several quarters, really for the last several years, investing in digital platforms on the consumer side, small business initiatives, and certainly a growth in our commercial and wealth businesses. I think the one thing COVID has taught us is that our customers want access to us, but they want it always.
They do want physical, and we're seeing many of our customers return into the store, and we're bullish on that. You'll see markets in future years where we continue investing in stores. What you're also seeing is the need for investment in digital and digital capabilities, and we're doing just that.
Okay, thank you. The second part of the question was sort of the longer-term outlook for the operating efficiency ratio in U.S. Retail .
There's obviously two parts to that, and I'll let Riaz jump in if he wants to add anything to this. Obviously the efficiency ratio over the last several quarters has crept up, but that's mostly because of the revenue line. As you've noticed that if you back out the notable item here for the stores, the way we like to think about it is we're running something close to breakeven expenses from a year-over-year, and those numbers will obviously bump around from quarter-to-quarter, depending on initiative. Efficiency ratio will come back down as we see volumes come back up and as we see any relief on the rate side or we continue to grow out of it from a volume perspective. I think if you went back pre-COVID, you would have seen the efficiency ratio in the low to mid 50% range.
I don't know, Riaz, if you have anything else you want to add to that.
No, you've covered it, Greg. I think, Paul as we see rates starting to normalize again, I think it's entirely possible to get back into the low 50%.
Thank you. The next question is from Meny Grauman from Scotiabank. Please go ahead.
Hi, good afternoon. Riaz, when I do the straight math on your PTPP earnings, it looks like it was down 4% year-over-year, but I'm wondering how you think about it. Specifically, I'm curious about the impact of the strategic card portfolio on this calculation and also on the leverage ratio.
Thank you, Meny. I think there are three things that you should look at when looking at PTPP and operating leverage. First is the currency impact. If you simply take our expenses for the U.S. segment from Canadian dollars to source currency, that would be the first adjustment that I'd suggest would be worth looking at. Secondly, I think the store closure costs that Greg just mentioned to the extent that one can think of those as one-time costs, I don't think they should, in our view, figure into PTPP or operating leverage. The strategic card portfolio, which I'll just walk through in a second. The component of the payment that we make to the retailers that goes to change in PCL should also perhaps be adjusted out of those calculations. To the extent that we're trying to figure out what pre-tax pre-provision earnings are.
I think when one looks at it on that basis, on a year-over-year basis, our PTPP actually grew by just under 5%, and on a quarter-over-quarter basis, the growth is mid 6%, quite a bit better than what the headlines would look at on at the top of the house in the way you look at it. I think on the matter of the strategic cards portfolio, and the PCL relating to that, if you look on page 26 of our slide, where we have for the last few quarters laid out an example, that if you had a credit card portfolio for CAD 1 billion that earned a revenue of CAD 150 million and had PCL of CAD 50 million so that the risk-adjusted profit were CAD 100.
If the sharing arrangements were such that we retained 20% of the risk-adjusted profit and paid to the retailers 80% of that, then from a GAAP perspective, we would record revenue in the financial statements of CAD 150, PCL of CAD 50, non-interest expenses for the portion that we pay to our retailer partners of CAD 80, so we retain CAD 20. In the segment accounting for U.S. Retail, we record our net share of that. Retail revenue would be CAD 30, PCL would be CAD 10, and net income would be CAD 20. In the corporate segment, we record revenue that our retailers enjoy from that portfolio being CAD 120, their share of the PCL at CAD 40, and then the amount that we pay to them in non-interest expenses is CAD 80.
If it turns out that in a subsequent period, revenue was still 150, but PCL was zero, what you'd get in the corporate segment is revenue of 120 for the retailer partner share, PCL of zero. The net payment would be 120, our non-interest expenses would go up by CAD 40, reflecting the component of the retailer share of the PCL reduction. In order to get an apples -to -apples comparison of revenue to expenses on a PTPP or an operating leverage basis, we would tend to add back the amount of PCL that is in the corporate segment to our expense line. As I said, I think if you look at that on that basis, Meny, which I think is the right way to look at it, our PTPP has actually been quite strong quarter-over-quarter and year-over-year.
Just as a follow-up on that, what kind of pre-tax, pre-provision growth do you expect for the year as a whole? Is under your calculation at 5%, as you mentioned, is that something that can be sustained throughout the rest of the year? How do you view that in fiscal 2021?
I think if you look at fiscal 2020, what we have highlighted is the fact that we have a diversified and an integrated business model in U.S. Retail banking and Canadian Retail banking. Where in Canada, in particular, where margins have compressed, we have seen the benefit of that coming through the wealth and insurance revenue because we position our bank against our Canadian Retail customers in a holistic way. That somebody may have a checking and savings accounts and credit cards and mortgages with Teri, and they may have wealth products with Leo, and they also may be buying their home and auto insurance from us.
We were thrilled at the fact that through 2020, Canadian Retail NIAT grew by 12% year-over-year, which is just a stunning accomplishment in my view in how our customers trust us and how our customer acquisition engine is working. Of course, we had the very strong wholesale revenues in a period when interest rates have been very low and customers have been taking advantage to complete their financings and their M&A activities. I think we really tend to highlight the diversification in our business model and its customer centricity.
Thank you. Next question is from Gabriel Dechaine from National Bank Financial. Please go ahead.
Hi, Riaz. Just a quick clarification here, Riaz. The IDA agreement with Schwab, I think the new fee structure kicked in at the end of last quarter, this would be the full effect reflected in your results this quarter?
Yes, that would be correct because the transaction closed on October 6th. Yeah.
Okay. Starting July 1st, that's when Schwab can start sweeping those deposits on CAD 10 billion or so a year to their balance sheet. Since the amount of deposit is so much higher, it's a much longer path to get to that CAD 50 billion minimum level, I guess. Is that how we should be looking at it now?
Yes, that is right. I think from the time that we announced the transaction to the time that we closed, there was a significant increase in IDA balances. You are right to which those balances from closing would be to CAD 50 million will have become longer. In this first period on July 1st after closing, Schwab can take back if they wish, the amount of the balances as of closing plus CAD 10 billion. The difference between the balances to CAD 10 billion minus the amount at closing is what they can take on July 1.
Okay. I might have to follow up on that, but I got the gist of it. A question for Greg. The U.S. has a new administration now. They have a new head of the CFPB as well. I'm just wondering what you're thinking of these days when it comes to potential regulatory actions that could have a negative impact on your fee income line, similar to what we saw after the financial crisis, if there's any whispers of actions taking place there. Even if there's not, are you taking another look at your fee structures in the U.S. and how you're charging for certain services there, and how that might evolve over the next year? Because, yeah.
Gabriel, thank you for the question. Certainly a lot going on in the U.S. these days that we all continue to watch. What I would just remind everyone is that whether it was the last administration or eight years before that, or even before that, we found a way to continue to grow the bank and add customers and grow revenue and grow the bottom line and continue, most importantly, to take share and service our customers and stack up the J.D. Power awards that we so much love behind my desk and do those sorts of things. That's our continued plan, regardless of the environment. I think one of the things that we get called out for is some of our fee income drivers.
One of the things we're keenly focused on, given the maturity of the bank that we're building real time, is how do we find other ways to grow fee income. The good news is we believe we have terrific upside across the U.S. and across segments. Certainly in Wholesale, certainly in our wealth business that we're collaborating on with Leo, and how do we leverage this new partnership with Schwab? How do we do more in our traditional everyday middle market and commercial banking businesses and small business and treasury management? Yeah. There'll be puts and takes with every change that occurs, but we do believe we will find ways, most importantly, to add new households and new customers that will blunt any one particular area.
Thank you. Our next question is from Ebrahim Poonawala from Bank of America Securities. Please go ahead.
Hey, good afternoon. I had a question around credit card lending. One, if you can just talk to your expectations on when credit card growth comes back, both in the U.S. and Canada. Secondly, talk to us around the risk from these buy now, pay later companies which are emerging. You're a partner with Target, but Target's kind of partnered with one of them called Affirm. We're just trying to get a sense, Bharat, do you see these new companies as a risk to credit card lending and to your business, and to what extent do you see that risk? Thank you.
Ebrahim, this is Bharat. I'm going to pass it on to Teri to talk about the Canadian business, and then Greg perhaps can comment on the U.S., and then I'll come back and provide you an overall view. Teri?
Thank you. Thanks, Ebrahim. Let me start with sort of the strengths of the cards business in Canada. Obviously in the more immediate term, we've seen customer liquidity resulting in pay downs. We've seen the COVID impacts of lockdowns. January is seasonally a lower volume period. Having said that, I look at a couple of aspects in thinking about the business and its potential to capture pent-up demand once economies reopen and activity resumes. From an acquisition standpoint, if you think about the Canadian cards business, think about half of our customer base as travel and luxury, and half of the base as other categories of spend, such as everyday spend and cash back.
We invested over the last number of years and have a very strong lineup against cash back. That's performing well year-over-year despite the circumstances and in light of the circumstances. We've got a very strong partnership with Amazon that is paying big dividends for us and our customers since the launch of that partnership. There's more opportunity there. Obviously, larger ticket purchases in the travel and luxury space have the opportunity to come back. We have our fantastic partnership that we only launched in November with Air Canada. In fact, in January, our TD Aeroplan Visa Infinite card was named the best airline card in Canada. That, along with our proprietary travel offering, positions us, I think, across the board incredibly well as demand returns.
The other piece to think about that is while we have better line of sight now into the economic circumstances, some of the acquisition strategies that we had on pause in 2020, we've resumed, and those will allow us to build balances even, I would say, during the period where the activity has not returned. Overall, when I look across the strengths of our offering, obviously we don't know the timing of the rebound, but I believe we're well positioned for the pent-up demand. Maybe just to comment on buy now, pay later. We have in our MBNA portfolio post-purchase capabilities in terms of customers being able to put in installment plans. There are in the U.S., and maybe I'll pass to Greg, at -point -of -sale capabilities in this regard.
Teri, thank you. I would just say we certainly saw balances come down from their peaks a year ago, Ebrahim. As the economy begins to heat back up and things begin to open back up, and we're certainly hearing a lot of anecdotal data from that, not only from the folks that are on the economic side, but also our customers directly and businesses. There's certainly pent-up demand to go a little bit back more to normal. As that activity picks back up again, we'd certainly expect to see card volumes follow suit as folks can get out and about again, especially from a travel and leisure standpoint, certainly from a restaurant standpoint in some geographies.
What I would just tack on to the buy now, pay later, we're already in that business effectively, and we have a business called Retail Card Services as part of our portfolio. It's a couple of billion-dollar portfolio, and we partner with national retailers and provide point-of-purchase finance. It's a business we're certainly staring down, but it's a business we're already in.
Ebrahim, this is Bharat. There's no need for me to add more than what you've already heard. Overall, the card business is a key business for us. It's a very important business, and we're thrilled with how our business has evolved in Canada as what we've become. Yes, we are heavily travel-oriented, which, when we get off this pandemic, may turn out to be an advantage once again. Some of the other work the teams have done, what Teri has done is to there on the cashback card as well, which has been very useful through this period. In the U.S., our business is very young. Yes, we have these partnership deals, but what Greg and his team are really working on is our bank card offering, and that is growing quite well. This is the TD-branded cards through our retail network there.
Overall, a very important product. Yes, it's evolving. The whole payment space is evolving very fast, but rest assured, we are keeping up with all those trends and where appropriate, we're making the investments to make sure that we too have those capabilities. Given our brand, I expect us to have our fair share of the market.
Got it. Thanks for taking my question.
Thank you. The next question is from Doug Young from Desjardins. Please go ahead.
Hi, good afternoon. I guess this question is going to be for Teri. Riaz mentioned it in his remarks. Just the strength in the wealth and the insurance side was very noteworthy. It looks like I would have expected the P&C insurance to have a really good quarter given everything that we've seen. There's a publicly traded comp that we can look at. It looks like the wealth business was actually the bigger contributor. Anyway, Teri, I'm just hoping you can dig a little bit more into what you saw. Maybe if you can parse out some of the pieces, that would be helpful.
Certainly. Thanks for the opportunity, Doug. Let me start with insurance since you started there. We've been investing in this business, and we have both a phone capability, but a probably industry-leading end-to-end capability in this business that we've been investing in. We've had strong business growth for the year-over-year, a good claims experience, and we've been able to manage also helping customers as they've gone through this difficult time. What I would say is that the other element of this business that's unique is our collision centers across the country. If in the auto business, when our customers do have an accident, there are oftentimes TD centers that can help make that a better experience for those customers. We've been investing in our capabilities. We are doing a great job as an online insurer.
We have, I think, the business model and capabilities and customer experience for the future. In Q1, we had record earnings in that business. On the wealth side, obviously, just strengths across the board. We did have the highest wealth asset levels on record across Riaz and my businesses. Our mutual fund results were very strong, and obviously trading levels continued to be at record levels. It's possible that some of that trading activity could become more normalized, although I think we do continue to see new investors in this space. I believe we've got best-in-class capabilities not only for them to understand what they're doing, our education and learning capabilities that people take up are helping our investors to understand what they're doing, and we feel strongly about that capability being available for them.
Also just their ability to interact with us digitally with their advisors or as a handoff from our branch colleagues. We feel like we've got great capability there. We've been adding advisors for wealth and in my business in the personal bank, and through our TD Ready Advice strategy, we really work hard as One TD to help our customers who are often right now sitting on more liquidity than they had planned for, to invest with us for the long term, and to help them do that in a way that they feel confident. We have GoalAssist available for self-directed investors to look at setting up a low-fee solution to their goal planning. Very comprehensive.
One of the real strengths of TD, Riaz mentioned, is our One TD approach. I can tell you that with COVID, while we've needed to manage how many colleagues can be in our retail branches, the colleagues in both Leo's wealth business and Paul's business banking business can't wait to get back into our stores with our branch bankers because that's where the magic happens.
Teri, just a follow-up. You've never broken out how much your online brokerage business contributes to wealth. I would imagine that's where a lot of strength came through or the broker business.
Clearly the online trading, which is reported in our wealth segment, was a strong contributor. Leo and we all pay close attention to the other parts of his business, and they're growing nicely as well.
Okay. Then Greg, just on the U.S. NIMs, a little bit stronger than I would've thought. Is there anything unusual in there? How do you see this unfolding? I know there's some prepayments in the PPP as having an impact. If you can provide a little color, that'd be helpful. Thanks.
Sure. It is good to see that stabilize. Like we've been saying, the pressure that has been on is because of rates, but it's also the mix of the business, and we believe we're growing good fundamental deposits, and we're going to continue to do that. We want to take share in a deposit-based business. What I would add on to your question, though, more directly, yeah, you've got some PPP that's in that NIM number, which contributes a little bit to it. You're also seeing positive margin on the loan growth side. Positive margins on the loans we are putting on the books is also helping. A good news story on that front.
Thank you. Once again, please press star one on your device's keypad if you have a question. Our next question is from Nigel D'Souza from Veritas Investment Research. Please go ahead.
Thank you. Good afternoon. I wanted to touch on Wholesale Banking, and it looks like you had another strong quarter for trading net interest income. I was wondering if you could provide some color of how you think that would perform in a rising yield environment. Is the steepening of the yield curve, do you see that as a tailwind, a headwind, or is that neutral or not that material for trading NII in that segment?
Bob, are you on the line?
Yes, I am, Bharat. Hi, Nigel. I would say there's pluses and minuses on it. Steepening yield curve definitely helps on the corporate NII and other things related thereto, securitization, et cetera. It can have temporary negative impacts on some of the shorter-term trading businesses. Net, I think it would be more neutral.
Okay, that's helpful. Thanks for the color.
Thanks.
Thank you. Our next question is from Scott Chan from Canaccord Genuity. Please go ahead.
Good afternoon. Maybe, Greg, just a clarification question. Did you state that there'd be an additional CAD 60 million in cost to hit the P&L on the branch closures that you announced today?
Correct. That'll take effect in Q2.
Q2. Okay. As you did this exercise in the U.S., I've noticed your Canadian branch count has been pretty stable over the past, call it two years. Is there any opportunities with COVID to rationalize the branches in the Canadian network?
Teri?
Yes. Let me talk about branches. Obviously, our operating context, thank you, Scott, are very different, U.S. versus Canada. We, like Greg, would every, on an ongoing basis, look at the network and think about where we might merge, where we importantly would open new locations or relocate branches. What I would say in Canada, I mentioned the strength of One TD, and also Greg mentioned this, our customers, every channel matters to our customers. You will see some more modest activity in Canada, more analogous to what you would see from us on an ongoing basis. Our branch network is majoritively urban in priority urban markets. We have just over 170 billboard locations that drive strong brand recognition and the ability to house our partners to meet customers' needs across all of their TD channel and business needs.
Again, they are the home to One TD. Through the pandemic, even at times like we're experiencing with lockdowns, customers are coming into the branch, and we're meeting their needs. We would see it as we're pretty well-positioned as we think ahead.
Thank you. Once again, please press star one on your device's keypad if you have a question. Our next question is from Ebrahim Poonawala from Bank of America Securities. Please go ahead.
Hey. Hello again. I guess just another question, Bharat, in terms of strategically on M&A, when you're sitting on a pile of capital at 13.5%, we've seen transactions happen in the U.S. in the banks and the non-bank space. TD has generally historically been active and very opportunistic in terms of capital allocation. Just talk to us in terms of when you look at the U.S. market today, what's your appetite in terms of acquisition, and does that all have to wait till we get the green light from the OSFI to actually deploy capital?
Thanks for the question, Ebrahim. No change in our outlook. I think I've said this many times before. We certainly are open to acquisitions in the U.S. market and in the Canadian market as well, I might add. The way we think about it is obviously anything we do has to make strategic sense, financial sense, timing sense, et cetera. We are open, and if a compelling opportunity were to present itself, we will look at it very seriously. As you said, we have flexibility because of our strong balance sheet and capital levels, et cetera. We would seriously look at anything that we thought was compelling. The important point is that we are not strategically challenged. Our U.S. business is of scale, and we are in the markets we want to be in with the size and reach and the brand recognition that we have.
It's not as if that we are spending all our time thinking about how do we go and spend our capital looking for acquisitions. On the other hand, if there is something that makes strategic sense and financial sense, obviously we look at it very seriously.
Got it. Thank you.
All right. Thanks, Ebrahim.
Thank you. The next question is from Mario Mendonca from TD Securities. Please go ahead.
Good afternoon. Riaz, if we could just fast-forward three months, I listened to your explanation for the partner share really carefully. If we apply that explanation to three months from now, would it be correct to say that unless PCLs and the partner share increase significantly, what we saw this quarter in terms of the difference between operating leverage and pre-tax pre-provision earnings growth it'll be far more significant next quarter, specifically because of the significant increase in performing loan PCL in Q2 2020 related to the partners. Aren't we just sort of set up for another really uncomfortable-looking headline number unless we're willing to go through the mental gymnastics of this partners card? Again, are we just set up for another really tough headline number?
Yes, Mario, you'd be correct about that. As I highlighted in my remarks, the reason we call out the strategic cards portfolio is just always to keep reminding you of that. On page 12 of our supp pack, where we show you the corporate segment, the results, I mean, the PCLs there are virtually all in relation to the partner share in the credit card portfolio. You can see the expenses that move with that so that it gives you a decent explanation. Every quarter, as we think about PTPP and operating leverage, I think to my point earlier, that in a diversified model, when margins come back, perhaps other income and wealth, et cetera, might be lighter.
If you keep reminding yourself to add back the change in the allowance in the corporate segment to your calculations, I think you'll find that actually it's much, much more consistent, and you'll rid yourself of this pain to keep calculating this. Maybe we'll take also an opportunity to include a slide on that in the future.
Right. Because I've built it for myself to understand it, but it is by no means something that you can do sort of off the cuff. Yeah. Anything you can do next quarter to make it clear for us would be appreciated. Thank you.
Yeah. Similarly, we may take the opportunity. We'll consider taking the current calculations that I just mentioned and post them on our website.
Thanks.
Thank you. Our last question is from Meny Grauman from Scotiabank. Please go ahead.
Hi. Thanks for taking me again. Just a quick question. Teri, I think it was maybe not in Q4, but Q3, you talked about having fewer branches open than three of your four competitors. Is that all back to normal now? Just wanted to check in on that in terms of the status of the branches, especially relative to peers.
Thanks, Meny. Yes, we're pretty much reopened. There are onesies and twosies, I'm certain that that would be the case across Canada for our competitors as well in terms of just incidents that happen health-related. Overall, probably a good time for me to recognize the fact that we are all, I think looking ahead to what we're seeing in the global vaccination success, the success and enhancements to treatments and testing enhancements. Those are all great things for us to think forward for personally and for our businesses. It's good to remember that our frontline folks have been throughout almost one year now and continue to be still dealing with a variant in the virus and some of the constraints and ensuring their own and their customers' safety.
It's a good time for me to thank them for what they've done on behalf of our business, on behalf of Canada.
Thank you.
Thank you. There are no more questions in the queue at this time. I would now like to return the call to Mr. Bharat Masrani for closing remarks.
Thank you very much, operator. Wow, Ajai, no questions for you. I should say to both Mario and Meny, those are great questions on the partnership, and I know it is counterintuitive that when our expenses go up stemming from our payment to our partners on the credit card portfolio, that's a good thing. I know that's counterintuitive. As Riaz said, we will provide more explanation of that in the future so it's more clear for all of you. Overall, very happy with the start to our fiscal year. Yes, it's too early to declare victory against this tragic and terrible pandemic. I think given that the vaccines are rolling out, and there will be bumps in the road going forward. Overall, I'd say we are headed in the right direction.
I would like to take this opportunity, like Teri just said, to thank our 90,000 colleagues around the world. They keep on delivering regardless of the environment. They keep on delivering for all of our stakeholders, including our shareholders. Thank you. Thank you for everything you do for TD and our shareholders. With that, folks, nice to have spoken to all of you and look forward to ongoing engagement through the quarter or at quarter-end 90 days from now. Thanks very much.
Thank you. The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation.