All right. For our last fireside before the break. I think the break is next. Sona Mehta, Group Head of Canadian Personal Banking at TD Bank. Thanks for-
It's okay.
Sitting down with us today and catching up on your business, your strategy. We just had your peer at Royal do the same thing, so we'll, you know, try to compare notes.
It's a pleasure to be here, Gabe. Thanks for having me.
This is more of a thank you type of question, but TD went the other way a while back and combined personal and commercial from a reporting standpoint. There was a trend of splitting them up, which made it a bit tougher to follow. Is that more of a just a segment that how you report the numbers, or is there any more behind-the-scenes kind of coordination going on between the two businesses?
I like starting with a thank you question.
Yeah.
If I look back to the last time we made any changes to segment reporting, that was probably last quarter, I think, of 2022. At the time, you might recall, we actually had retail, like Canadian retail as a segment. At the time, what we did is we said Canadian P&C stands on its own and wealth management and insurance stands on its own. We've largely stayed in that space now. To your point, I think it's simplicity of our external reporting. There's also assets underneath those two businesses that are tied together.
I think about, like, our branch network, some of our technology infrastructure, so splitting that apart is a bit artificial. We have kept it simple and clean, from that perspective. One of the things though that we did very intentionally do at our Investor Day is, my peer, Barbara Hooper, and myself, we each set discrete business line metrics. Whether that's PTPP, ROE, efficiency ratio, we said here at, for each individual business, this is our aspiration that we look to drive, and now we're reporting on that each quarter. Hopefully, our goal is you're getting the best of both.
You get the simplicity of one, reporting at the segment level, but we do provide you the granularity and progress against our Investor Day commitments at the individual personal and commercial bank level.
Okay. Well, when I look at the combined business, I mean, you could reference the Personal's contribution to that, but the you know, margins have been you know, sort of flat for a while. I know there's differences in how banks, m aybe you can explain some of the divergence we're seeing between TD and some of the others. Is it, you know, your decisions you made a few years ago are impacting you today? Are you being more competitive in your pricing, your customer acquisition strategy? Yeah, let's go with that one.
Yeah, for sure. Happy to go through that, Gabe. You know, I think we've been performing in line with our guidance. Last quarter, we were up sequentially one basis point quarter over quarter in NIM, so in line with our relatively stable guidance, and that's where, you know, we've been stable over the last little while. You know, if I decompose that, if you look at our tractor on/off benefit, that's modest, and that's purely timing because we locked in less deposits at that time where rates were lowest in the pandemic level. Naturally, what you get now is modest, but frankly, that was benefit we took earlier.
Mm-hmm.
I would kind of park that. Where we have favorable tailwinds are twofold, really on deposit mix. We've seen a preferential mix on deposits. On our RESL book, we are definitely seeing favorable pricing as older cohorts roll off, and they get replaced with better returning cohorts. Finally, an offset of balance sheet mix. Altogether, like a bunch of different factors, but they net out to stability in the moment. You know, as I look farther ahead, obviously for the immediate next quarter, we've guided to stable again because those factors are largely quite similar. As I look farther out into the year, what we're seeing is, we've now driven several quarters of RESL sequential origination margin expansion. Those will start to accumulate.
You need like a certain, you know, aggregate volume, so to speak, for it to be material to NIM overall as that accumulates, but also as more and more of the lower originating margin cohorts roll off. I'm optimistic about the back half of this year having some potential NIM expansion. Obviously, this all kind of is backstopped by a constructive competitive dynamic.
Mm-hmm.
The fundamentals, as I see them, are supportive of some potential expansion in the back half of 2026.
Even the size of the book, that could be something that goes into 2027. The timing of growth from years ago, that could go into 2027 as well on.
I mean, it's hard enough to look a few quarters out.
Yeah
in this kind of market. We're really more on steady ground, and even that depends on a lot of factors. I would say really the back half of this year, we hope it's gonna be constructive.
I guess the rate outlook that leads to the, you know, Bank of Canada rate as, you know, a central bank's, you know. Maybe we have rate hikes again in the latter half. That should be good for margins still because it has been for TD in the past. The trade-off is growth probably is weaker.
That's exactly the question, right? There you go, Gabe. The time difference isn't hurting you. I mean, you see from our NIIS disclosure, like generally, rising rate environments are accretive. We've got a large and stable deposit base, so that's helpful. The question is, what's the downdraft? If rates go up, does that impair customer willingness to get out there?
Credit appetite.
Does that? You'd have lower growth, right? There's a bunch of puts and takes. Like, for me, like I lean into our strategy underpinnings. You know, we are definitely a growth-oriented institution, and so that's where we'll lean on outperforming.
Yeah, okay. Sticking to the things that you can control.
Mm-hmm.
Your strategy. I think, probably prior to your Investor Day, there was, you know, the amortizing HELOCs that TD basically introduced to the Canadian marketplace. It was a big growth driver for years, and then during that rate hike environment, kind of took a, you know, a step back 'cause of those trigger rate things.
Mm-hmm.
Now it's like, you're reinvigorating that product strategy. You know, why? Also, I get long questions, but what are you. What has been done to the product to make it so we don't have to worry about trigger rates again? Not that that seems like a plausible scenario right now.
Mm-hmm.
Could be in the future.
Maybe I'll take those in two parts.
Right.
On the product construct of, like, our HELOC FlexLine product, you know, I would back up the bus and say what we're really focused on in our real estate secured lending business, which we are transforming end-to-end, our two anchor points are speed and specialization. Maybe we'll talk about speed in another moment, but relevant to this question really is specialization. What we're seeing is, as we put, specialists in front of each customers increasingly. We have leads from our branch channel going to our mobile mortgage specialist where the deal is complex, as an example. As we put deeper specialists in front of each of our customers, what we find is the advice conversation becomes more robust and specific.
Naturally, the FlexLine product has a very rich value proposition in terms of flexibility to the customer. More specialization leading to more advice conversations opens up the aperture for customers in terms of what might be the best for them. What we find is there's a segment of customers that really benefit and value this product proposition where you do have access to the floating portion as you pay down your principal. You know, it helps manage life. Maybe you wanna do a renovation, or you're looking to invest in something else or, frankly, just a vacation. Those are things that are really goodness that come out of deep, client-centric advice conversations.
I would say over, you know, maybe the past five years, we had more upside in this in this HELOC FlexLine product that we've now reinvigorated with the specialized approach. Frankly, from our perspective as an institution, clients, I think because their needs fundamentally are met for flexibility, we find that a client that has had this FlexLine product, they actually retain with us at a higher rate relative to the traditional mortgage. Net-net, it's kind of the ecosystem where everybody win. The client actually gets a better product that suits their needs, and as an institution, they stay with us. It's a business trend that we definitely find is additive.
I think your second question on it might be more related to the variable rate product, t he amortization implications. You know, we've kept that product construct fairly consistent over time. I know a few of our peers have a similar construct. You know, what we notice is that when a customer comes to us and, you know, they have this big home purchase, cash flow really matters. What we've said is, yes, interest rates. You may choose a variable rate product. Interest rates are gonna go up. They might go down. Your cash flow is largely likely the same during that term of that mortgage. Customers value that we keep that mortgage payment fixed.
Yeah
flat, right, through that time. We do certainly offer them options. During the life of that term, as rates change, they could increase their payments. They could do lump sum payments to stay even keel with amortization. We offer that option. What we do, though, which is very important at time of renewal, is that's like a real reset, right, the amortization, the payment amount. If there was any temporary negative amortization, that gets reset at that point, and traditionally, that's obviously quite important. I think overall, what you see then is the approach that we're taking, the advice, the way we support our customers during different economic cycles, it all manifests in strong credit performance.
Overall, we're quite happy with that combination of product offering, stability for customers, but then naturally a full reset at renewal time.
I guess the whole refi notion was, you know, when we looked at those charts and saw the payment shock type situation was last year and this year. Then for some of those borrowers that had, you know, weren't paying down their principal, they were negatively amortizing. What behaviors did you observe ahead of the renewal? Was it generally, you know, more, I guess conservative or constructive and, you know, similar expectation this year?
We've actually been very pleased with the performance through the renewal cycles. I think all of us were a little queasy a couple of years ago to say when we were early days in this, like h ow will consumers be able to navigate through this circumstance? What we saw was very strong performance, both through the term of the mortgage as well as at renewal. One of the things we pride ourselves on is being very proactive with our clients.
We will be monitoring the credit quality of the book, in aggregate obviously, but in segments and then down to the customer level, and we will reach out to customers if we see signs of distress early. We can offer them constructive options at that time. That also equally applies at time of renewal. We can look at do they need a different amortization schedule? Is it an adjustment in payments?
Frankly, some customers, because it is a planned moment, like, it's not like a month-to-month thing that they're reacting to, but they know, you know, their mortgage renewal is up a year from now. They will start to make the choices that they need to manage their affairs. Then we're there every step of the way to offer advice and constructive options while managing credit quality.
Okay. Have you observed any different behaviors regionally, like Ontario in particular that's you know higher unemployment rate?
Yeah. You know, we have a strong book in Ontario by virtue of our footprint. That holds true in the RESL book as well. About 1/2 of our exposure is in Ontario. Naturally, I think the question comes up is, you know, is unemployment rate as it varies between different regions, what's the impact to the region, but in aggregate in the book? In Ontario specifically, Gabe, our credit performance is actually slightly higher than the rest of the country. You've got an inbuilt better starting point in Ontario, an inbuilt resilience. To the degree that we see disproportionate impact, obviously employment does translate into elevated losses. We're starting out at a better point in Ontario.
Net net, we feel very comfortable with both the credit quality in the book, but the performance that's very much in line with our expectations.
Okay. What about on the unsecured side? We'll start with credit cards. TD's business is a combination of two. You've got the first class, you've got the Aeroplan, the more affluent customer I guess, and then you have something we don't talk about that often, but years ago you bought the MBNA portfolio, and that's a different customer that uses credit cards more as a borrowing vehicle. Like, what's going on with that customer right now, and how big is the book?
Yeah. Maybe if I, you know, talk about the aggregate credit card business first. It's a business that we highlighted at Investor Day, one that we see considerable upside opportunity. We identified that our aspiration is to deepen our relationships by 700 basis points in the personal side and 1,500 basis points on the small business customer side. I couldn't be more pleased with the progress that we're making. We're tracking ahead of where we even set our own goals. If I look at our record, our relationship depth in both personal and SBB, we're at record levels. Really, we've come off of an incredible quarter where we had the highest ever acquisitions that we've had in any quarter, across the portfolio. What I really like, Gabe, is
This is for cards we're talking.
This is for cards.
Yeah.
What I really like is that it's balanced growth, and how we're going about it is two very simple things. We've taken our existing customers. These are checking customers from our leading day-to-day bank, and we're pre-approving those customers and being proactive, reaching out to them increasingly via mobile, which we hadn't done before. We've had record uptake in pre-approvals. These are customers we know. We have their data. They're franchised with us. We understand the credit risk, and they fit very well within our risk appetite. Then the second was this opportunity that we had. We acquire more day-to-day customers every single year. I would say we were doing okay at deepening the relationship into credit cards. Now we are doing so much better, like record levels of franchising at point-of-sale onboarding.
It's very balanced growth. We're really saying our core bread and butter of our business, those are the customers that we're growing with. It's translating to number one year-over-year loan growth again this past quarter. Really strong progress and then underpinned by this leading credit quality. I think from, you know, soup to nuts, you see like a really well-performing book. You mentioned MBNA in particular.
I think the way , Gabe, and you kind of articulated this in your question, is what we wanna do is have a very full product shelf that has the right product for any customer. That's really what the MBNA portfolio gives us, is to have choice for the customer that is looking for something that's more of that ilk. But at the same time, we have our premium travel cards, we have our cashback cards. You know, having that right roster of cards and partners is incredibly important. Then we do all the right things to make sure the book grows.
Right. What's the portfolio? How big is it now, that MBNA one?
Is it 'cause it is a borrowing more of a credit product, right?
Yeah.
Yeah.
No, I mean, I think you have pockets of it, Gabe, right? Like, over the years, that book has diversified as well. Like, you see Amazon product is in that portfolio and has more of a spend- kind of profile to it. I would say that book continues to grow in line with our overall book. We like the spot that it sits at in the customer continuum. It's really about customer choice.
Okay. You know, what's been the key to the acquisition? You know, record quarter for customer acquisition.
This is on the credit card side.
Yeah, yeah.
Yeah. I think it goes back to this. We have a large back book of clients that we have not up until now fully franchised to the full opportunity that we had. You know, what we've said, and I think I hope you heard this, like, tone at Investor Day, like, this is a TD that is an edgier TD, where we're saying, like, opportunity that's on the shelf, like, it's coming off the shelf. We are gonna get at it. These are just, like, all of the block-and-tackling pieces that we have to make sure we have pre-approvals ready to go. It's a very different experience to say to a customer as they walk in, "Yes," versus, "Let me ask you 20 questions." It's a very different experience. Now, let me make sure it's served up in mobile, right?
We know more customers are in mobile than they are in our assisted channels. These are all, like, the really healthy things that you do when you're just getting at the opportunity. The team's done an incredible job.
Okay. On the deposits I know we talked about deposits earlier, more as a net margin question, but the balances itself have been growing, which is, you know, different banks are doing different things, but yours has been a bit of an outlier. The story we hear from some of the other banks which have maybe flatter deposit balances that the old GICs that we originated back in 2021, 2022, those are maturing. They're not coming back. They're going to the wealth product, whatever. Then the core deposits are still growing. What's your version, I guess? Or what's happening at TD's in deposit business that's maybe a bit different?
For sure. Maybe I'll break it out into two pieces.
Yep.
One, I would say in this part of the rate cycle where rates have moderated, they're kind of at a lower level now, we are definitely seeing the favorable shift from term deposits into non-term deposits. That is very much a phenomenon in our book, and it's a tailwind for us. What I would say, though, that underlies that or goes beyond that is, okay, that's happening. The question is, how is the book also being replenished? For us, this is an acquisition and a book growth-led story.
As new customers, as we bring in more customers, onboard to TD with a deposit product. Over 80% of our customers when they come new to bank, open either a checking account or a savings account, and often both. That's what we'd like. When you have this consistent acquisition inflow, and we do the things that we do incredibly well. We engage the customer, we make sure they're active, they're engaged. That leads to primacy. We have more Canadians view us as their primary bank than anyone else.
When that happens, a primary customer tends to hold more deposits. They also tend to stay with us longer. This isn't something that's once and done. Like, this is something we do every day, every week, every month, and it fuels this deposit book that we have. What you see is a very preferential profile. We have 69% of our deposits that are in this non-term, very stable book, versus p robably mid-fifties in the industry.
This, for us, is, yes, we're seeing definitely the rundown in term deposits, but we are seeing this healthy, steady, strong acquisition base. There's obviously gonna always be seasonality, Gabe. There's some quarters, you know, that people are flowing into RSPs and other investments. Like, an individual quarter might behave differently i n aggregate, like, this has been a point of strength for TD. I think it's something, that we pride ourselves in, and we continue to see strength and momentum here.
Okay. Now we've talked a bit, you know, customer acquisition, you know, growth, for obvious reasons. There's also a discussion to be had around, you know, what you do during periods of economic weakness. You know, in the past, we've heard banks say Well, you talked about it, but when we're talking about mortgage renewals, working with our customers, getting ahead of the. Like, what. You know, the volume of that activity must be higher today than what it normally is. Like, can you. Other than reaching out to mortgage customers before renewal and/or well before renewal, what are. Are there any other, you know, strategies you're implementing to kind of make sure during a period of, you know, economic softness that t hings don't, you know, go, you know. We don't have more negative developments than is necessary?
Yeah. I think we start with a very client-centric ethos and also a prudential ethos. If I start maybe with the second part first, you know, when we underwrite a client, we pride ourselves on being a through-the-cycle lender. That means, you know, we don't have frothy times, and we don't pull back, right? We have a very consistent risk posture. I think that matters first because we're saying there is a typical type of borrower profile that stays within our risk appetite on a perennial basis, and we don't wax on, wax off. We would prefer to have consistency there. You start out with that. You start out with a strong borrower.
The second thing that we do is obviously, very holistic monitoring, and I mentioned it both at the portfolio, the subsegments, down to the individual borrower. I think the key for us is that we reach out early. If you see distress, that customer can come into our TD Helps group that I mentioned in two ways. One is, they've talked to someone in a branch or one of our contact centers and expressed some financial duress in their life, and then that could be a referral into our TD Helps team. Equally, when we see things in our portfolio where we see signs of distress, and maybe it hasn't manifested, maybe the person hasn't reached out, we will proactively reach out to customers and say, "Hey, can we offer you some help and advice?" You know, we talked about mortgage.
It might be, like, a temporary relief on payments. It might be adjusting actual payments amount and amortization. Like, if you hear some of the individual stories, Gabe, like, we really help customers through what might be some of their hardest moments. We pride ourselves. We're there for the life's best moments, and we're there for the hardest moments. I think it comes down to our borrower-by-borrower approach and to say, like, "Let's work with you to try and get you through this." We've seen that. As the mortgage book has renewed through multiple cycles, we'll have 27% of that book renew this year. We're there. We work with our clients, and that serves us really well. Ultimately, you see it bear out in the results.
Mm-hmm.
You know, we have, among our peers, leading performance in our RESL book, in our credit book, and I think it's the. It's not one part of the ecosystem. Like, it's the whole thing, starting from underwriting, stability in the profile that we look for, and then supporting our clients through tough times.
Okay. Well, I should end on a happier note.
Yeah, let's find some happiness. We are very pleased with the momentum, I have to say, in the business. You know, this past quarter, Gabe, we led the industry in personal deposits growth, in credit card growth, and in our RESL growth. You know, our team has this data back to the last eight years or so. We've never done that before. Like, this is a team that is getting at the opportunity that we have, and we're tracking very well against where we said we were gonna chart the path to the future.
Perfect. Well, thanks for coming to Montreal, and I look forward to doing this again in the future.
Absolute pleasure, Gabe. Thank you.