Toronto Dominion Bank (TD) Q4 2017 Earnings Conference Call Transcript

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TD Bank (NYSE: TD)
Q4 2017 Earnings Conference Call
Nov. 30, 2017 1:30 ET

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Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon, and welcome to TD Bank Group's Q4, 2017 conference call. Please be advised that this call is being recorded. I would now like to turn the meeting over to Ms. Gillian Manning, head of Investor Relations. Go ahead.

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Gillian Manning -- Head, Investor Relations

Thank you. Good afternoon, and welcome to TD Bank Group's fourth quarter, 2017 investor presentation. My name is Gillian Manning, and I'm the head of Investor Relations at the bank. 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. Mark Chauvin, 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 to answer your questions today are, Teri Currie, Group Head, Canadian Personal Banking, Greg Braca, Group Head US Retail, and Bob Doran, 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 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-gap 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 2017 MDNA, and the fourth quarter 2017 earnings news release.

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

Bharat Masrani -- Chief Executive Officer

Thank you, Gillian, and thank you, everyone, for joining us today. Q4 was a great quarter for TD, and a strong finish to fiscal 2017. In a rapidly changing environment, we succeeded by staying true to our customer-centric strategy, drawing on the power of One TD, to support our customers today, as we transform the bank to serve them better tomorrow. Riaz will review our results in more detail, but let me single out a few measures that underscore the strength of our performance.

Earnings and EPS increased by 14% this year, and total bank net income of $10.6 billion, crossed the $10 billion mark for the first time. Revenue growth was strong, and we achieved 260 basis points of operating leverage, while investing for the future. Return on equity rose to 15%, with gains in all of our businesses. We generated 140 basis points of organic capital, over the course of the year, enough to fund the Scott trade acquisition, and our share buybacks, while maintaining strong CET1, and leverage capital ratios. We increased our dividend paid by 9% for the full year, and total shareholder return was 25%.

I will now highlight some of the key accomplishments in each of our segments. Canadian retail had a terrific year, with earnings up 9%, to $6.5 billion, reflecting good revenue growth, and positive operating leverage. In personal and commercial banking, we maintained a market leadership position in core business lines, and had strong growth in anchor products, including double-digit increases in checking accounts and business deposits, and record originations in real estate secured lending. We grew our lead in personal, non-term deposits, and took share in priority areas, like HELOC and unsecured lending. And, with the introduction of our new cash back, and everyday rewards cards, we have a top-notch suite of retail and business credit cards.

In our wealth business, we continue to execute on our growth strategy, reporting share gains in our direct investing and advice channels, particularly private investment advice, where we had taken share for nine consecutive quarters. We also generated $6 billion, in long-term fund sales, more than twice the level in 2016. And, our insurance business had another good year, with record pre-tax income, and lower claims, reflecting fewer severe weather events, and favorable prior years' claims development. Across our Canadian retail businesses, we continue to win new customers, by delivering personalized, connected experiences, and we are deepening relationships with existing ones, by bringing more of the bank to them. That's what our One TD strategy is all about.

Partnering across business and product areas, leveraging our scale, and best-in-class distribution network, to enable customers to interact with us seamlessly. We've also been making purposeful investments, to build the bank of the future. Simplifying processes, building scalable platforms and solutions, and leveraging our in-house team of designers, developers, engineers, architects, data scientists, and researchers, to help our customers feel more confident about their financial lives. We've outfitted all of our Canadian branches with WIFI and iPads, and doubled our network capacity, improving response times by more than 50%. We continue to add digital capabilities, like a unique way for customers to understand the cost of home ownership, search for a property, and get pre-qualified for a mortgage, through one seamless online experience.

We are the number-one ranked mobile banking app in Canada, according to Silicon Valley-based firm AppAnnie, and the highest number of mobile, unique visitors, according to ComScore. We've added a mobile creating tool to our award-winning web broker platform, which moves our direct investing business even further ahead of the competition. Over 10% of trades in DI are now taking place via mobile. And, for the third year in a row, TD-Canada Trust won the IPSOS award for overall customer service excellence among the Big Five banks. As well as the ATM, Online, and Mobile Banking awards.

Overall, a great performance by our flagship Canadian retail franchise in 2017. Our US retail bank also delivered impressive results this year, with earnings up 26%, to $2.2 billion US dollars. Revenue grew by double digits, reflecting margin expansion in the rising rate environment, and healthy volume growth. We manage expenses well, achieving 500 basis points of operating leverage, and reducing our efficiency ratio by almost 300 basis points for the year. And, our return on equity increased by 100 basis points. If you recall that, in 2013, we reached a target we set, to deliver $1.6 billion US in earnings, in our US retail bank. Four years later, we've grown that by over half a billion dollars. By adding customers and taking shares in virtually every line of business. In the consumer bank, we're building on our strength, in checking account acquisition, and deepening relationships. In the commercial bank, we've tripled the size of our corporate and specialty book, and were just ranked highest in small business banking in the south region, according to the 2017 JD Power Small Business Banking Satisfaction Study, for the first time.

And dealer auto finance, ranked highest in JD Power's 2017 Dealer Financing Satisfaction study, among non-gap lenders, earlier this year. We've built our cars and wealth platforms, through strategic relationships, and select acquisitions. And, we've generated productivity savings, that we are redeploying in frontline staff and investments, to drive the next leg of our transformation. From new customer and commercial lending platforms, to digital tools, like TD Voiceprint, TD ASAP, TD Send Money, and our banking app, which ranked number three in mobile banking app satisfaction, according to the 2017 JD Power US Banking App Satisfaction Study.

We were also pleased to close the Scott Trade transaction this quarter, further strengthening our relationship with TD Ameritrade. The contribution from our investment in TD Ameritrade increased 7% this year, bringing US retail segment earnings to $2.6 billion US, up 15%, year-over-year. Rounding out our strong results in 2017, earnings in our wholesale segment rose 13%, surpassing $1 billion, and ROE climbed to 17%. We have substantially increased the earnings power of TD Securities, which continues to build on its leadership position in the Canadian market, and occupies the number one or number two spot, in the key domestic rankings, including equity, and equity options block trading, government and corporate debt, underwriting syndicated loans, M&A analysis completed, and equity underwriting.

We also made significant progress building our US dollar franchise, and growing our lead managed, corporate, SSA, and FIC businesses. Our One TD strategy has been critical to this success. Our corporate investment banking and global markets team are working with all bank partners, to grow the collective bank franchise, and TD Securities continues to partner with the US Commercial and Retail Teams, on a client coverage model that will drive growth in both businesses. We also demonstrated our commitment to environmental leadership, and support for the transition to a lower carbon future. TD Securities has helped underwrite nearly $11 billion in green bonds since 2010, and led a $1 billion US issuance for TD this year, one of the largest green bonds ever issued by a bank.

Overall, 2017 was a strong year for TD across the board, and we expect to carry that momentum into 2018. As always, there are issues on the horizon, from the impact of the latest mortgage rule changes in Canada, to the NAFTA renegotiations, to geopolitical uncertainty. But, the macroeconomic environment remains broadly supportive. The Canadian and US economies are growing. The job market is healthy, and wages are rising, and interest rates are likely to continue increasing at a moderate pace. While there are global risks, these conditions, if sustained, may enable us to deliver total bank adjusted EPS growth for 2018, inside our 7 to 10% medium term target range.

Our vision to be the better bank positions us uniquely well, to thrive in a world of disruption and innovation. Over the years, we've continually reinvented ourselves to serve our customers better, and with the investments we are making today, we are not just keeping pace with the changing world, but helping define the shape of the one to come. Initiatives like our agreement with Systo, a leading provider of conversation artificial intelligence, to integrate their Kai banking platform in our top ranked mobile app, allowing authenticated customers to gain more insight into their spending, through an interacting, AI-powered chat interface.

In our cybersecurity office in Tel Aviv, another first for a Canadian bank. The access it gives us to one of the world's leading cyber and technology ecosystems will strengthen our ability to attract top talent in this critical area. As I look around, I see the tremendous progress we've made, and I'm excited about what lies ahead. I've always said that we succeed at TD, because we have the best people. This year, we were named in Media Forbes 2018, Canada's top 100 employers list, for the twelfth time, as well as Diversity [inaudible] [00:13:11] Top 50 Companies in the US, for the fifth consecutive year.

I'm very proud of what we accomplished this year, and I can't wait to see what we will achieve together in 2018, and beyond. With that, I will turn things over to Riaz.

Riaz Ahmad -- Chief Financial Officer

Thank you, Bharat, and good afternoon, everyone. Please turn to slide 4. In 2017, the bank reported earnings of $10.5 billion, an EPS of $5.50, both up 18%. Adjusted earnings were $10.6 billion, and adjusted EPS was $5.54, both us 14%. Revenue increased 5%, with growth across all of our business segments, and expenses increased 3%, resulting in positive operating leverage. TCL decreased, reflecting a favorable credit environment. Canadian retail and US retail delivered a net income of $6.5 billion, and $3.3 billion, respectively, for the year. And, wholesale reported over $1 billion in earnings. Please turn to slide 5.

This quarter, the bank reported earnings of $2,7 billion, an EPS of $1.42, both up 18%. Adjusted earnings are $2.6 billion, and adjusted EPS was $1.36, both up 11%. Results reflect growth across both Canadian and US retail businesses. Revenue increased 6%, net interest income rose 5%, reflecting loan and deposit growth, and a more favorable interest rate environment. Non-interest income rose 7%, primarily due to the dilution gain on the Scott Trade transaction, reported as an item of note.

Excluding this gain, adjusted non-interest income rose 2%. Expenses were down sequentially, and year-over-year, reflecting productivity savings, some tax adjustments in the current quarter, and the impact of the sale of the direct investing business in Europe. Partially offset by higher employer expenses, and higher investments in technology initiatives. Provisions for credit losses increased 15% quarter-over-quarter, primarily reflecting seasonal trends in credit cards, and auto portfolios in US retail.

Segment reported earnings were $1.7 billion for Canadian retail, $776 million for US retail, and $231 million for wholesale. The corporate segment reported a gain of $41 million, or a loss of $104 million, on an adjusts basis. Please turn to slide 6. Canadian retail segment net income was $1.7 billion, up 11%, reflecting revenue growth, and lower PCL, partially offset by higher insurance claims. Revenue rose 5%, reflecting loan and deposit growth, and higher margins. Total loan growth was 5%, year-over-year, with increases in both personal and business lending volumes.

Deposits increased by 8%, reflecting growth in core checking and savings accounts, and business deposits. Insurance claims rose 5%, reflecting higher currency of claims, but we had fewer weather-related events, and more favorable prior years' claims development. Margin was 2.86%, up 2 basis points this quarter, primarily as a result of recent increases in interest rates. While many factors affect margins, and they will continue to fluctuate from quarter to quarter, the current economic environment, and the possibility of further rate increases, is expected to support a positive trend for margins, on a full-year basis.

ECL continued to reflect a very favorable credit environment, and expenses increased 1% year-over-year. And we had nearly 400 basis points of operating leverage, on a net of claims basis. Please turn to slide 7. US retail net income was $621 million in US dollars, up 16%. US retail bank earnings rose 16% in US dollars, or 18%, adjusting for the costs associated with the Scott Trade transaction. A strong result was driven by 10% revenue growth, reflecting a more favorable interest rate environment, and continued growth in loan and deposit volumes. Average loan and deposit volumes increased by 6%, and 7% respectively, reflecting growth in personal and business customer segments, and an 11% increase in suite deposits, from TD-Ameritrade, primarily driven by the Scott Trade transaction. Margin was 3.18%, up four basis points, quarter-over-quarter, primarily due to higher interest rates and balance sheet mix.

We anticipate the operating environment to remain relatively stable in 2018, characterized by good economic growth, and rising interest rates, which bodes well for continued loan and deposit growth, and improving net interest margin. A 19% increase in PCL, quarter-over-quarter, reflects seasonal trends in the credit card and auto portfolios. Expenses increased 7%, reflecting higher employee costs and investments in business initiatives, partially offset by productivity savings. On an adjusted basis, excluding the costs associated with the Scott Trade transaction, expenses rose 5%, the efficiency ratio was 59.1%, and we had nearly 500 basis points of operating leverage.

Earnings from our ownership stake in TD-Ameritrade rose by $12 million US, on a year-over-year basis. Please turn to slide 8. Net income for wholesale was $231 million, reflecting lower revenue, partially offset by lower non-interest expenses, and lower taxes. Revenue decreased 6%, reflecting lower trading-related revenue, due to weaker capital markets activity. Non-interest expenses decreased 3%, year-over-year, reflecting lower variable competition, partially offset by operating expenses related to the establishment of TD Prime Services in the US. Please turn to slide 9.

Corporate segment boasted net income of $41 million in the quarter, compared to a loss of $138 million in the same quarter last year. The increase reflects the dilution gain on the Scott Trade transaction in the current quarter, and a decrease in net corporate expenses, partially offset by a lower contribution from other items. This lower contribution from other items reflects lower revenue from treasury and balance sheet management activities, and a favorable impact from tax items, recognized in the same quarter last year. Please turn to slide 10.

Our common equity Q1 ratio was 10.7%, at the end of the fourth quarter, down 30 basis points from the third quarter. Strong, organic capital generation added 32 basis points to our CET1 ratio this quarter. During the quarter, we repurchased close to 8 million common shares, at a cost of 13 basis points of capital, and closed the acquisition of Scott Trade, which absorbed another 23 basis points of capital. The increase in risk vetted aspects largely reflects the effects of the [inaudible] [00:20:30] principally an increase in exposure, where Basel 1 has more punitive risk weights than Basel 3.

Our leverage ratio was 3.9%, and our liquidity coverage ratio was 120%. Please turn to slide 11. This quarter, we are providing an initial view of the impact of 5RS9 for financial instruments, which is being implemented effective November 1, 2017. As of October 31, 2017, the current estimate, subject to refinement, is an overall reduction to shareholders equity, of approximately $36 million, of which $96 million is attributable to the adoption of the expected credit loss methodology. Partially offset by $60 million, due to classification and measurement changes, primarily reflecting securities required to be measured at fair value. Based on the current regulatory requirements, the expected impact to CET1 capital is a decrease of 15 basis points, which is almost exclusively due to the Basel 1 regulatory floor.

I will now turn the call over to Mark.

Mark Chauvin -- Chief Risk Officer

Thank you, Riaz, and good afternoon, everyone. Please turn to slide 12. The strong credit quality we experienced throughout the year, continues into the fourth quarter. Gross and paired loan foundations remain stable, at $1.2 billion, on a quarter-over-quarter, and year-over-year basis. US retail formations increased $68 million, quarter-over-quarter, largely due to seasonal trends in the credit card and auto portfolios, and one new impaired borrower, in the commercial portfolio.

There were no new formations in the wholesale portfolio. Turning to slide 13. Gross impaired loans ended the year at $3.1 billion, stable at 49 basis points, quarter-over-quarter, and down 9 basis points, year-over-year. The $100 million increase in gross impaired loans in the quarter is primarily driven by the negative impact of foreign exchange. Moving on to slide 14. As indicated in previous quarters, US Strategic Card PCLs are reported on a net basis, for segment reporting, including only the bank's contractual portion of credit losses.

For the purpose of the credit slides, however, we continue to report gross losses, to better reflect portfolio credit quality. Quarter-over-quarter, provisions for credit losses are up $90 million, or 6 basis points, to 39 basis points. Canadian retail PCL of $243 million, of 25 basis points, continued the solid performance we've seen throughout the year, representing cyclically low loss levels. US retail PCL is up 17 basis points, quarter-over-quarter, to 76 basis points, or $358 million, which is in line with our expectations. As experienced in previous years, PCL typically rises in the fourth quarter, and first quarter, due to seasonal trends in the credit card and auto portfolios, driven by the back-to-school, and holiday shopping seasons. Volumes and delinquencies historically decrease in Q2 and Q3, as customers receive tax refunds.

For 2017, the full-year loss rate of 37 basis points, represents a 4 basis point decrease from 2016, driven by improved credit quality in the oil and gas sector. To conclude, credit quality remains strong across the bank's portfolios, and we remain well positioned for continuing growth, into 2018. With that, operator, we are now ready to begin the question and answer session.

Questions and Answers:

Operator

Thank you. If you'd like to ask a question, please signal by pressing star-one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, please press star-one to ask a question. We'll pause for just a moment, to allow everyone an opportunity to signal for questions.

We'll go first to Meny Grauman from Cormark Securities.

Meny Grauman -- Cormark Securities

Hi, good afternoon. Question about the PCL ratio. The 37 basis points in 2017. I'm wondering what you expect the impact of IFRS 9 to be, on that ratio? Sort of isolated? And then, if you could just talk more broadly about PCL ratio next year?

Mark Chauvin -- Chief Risk Officer

Yes. So, based upon our current view of the economic forecast, we don't expect IFRS 9 to have a major impact on creating reserves over the next year itself. If I look, I kinda give you a range of where we -- last year was 37 basis points. We're looking for continued, strong economic conditions. We put some things for the enterprise, around the 40 basis point range, plus or minus, maybe 2 or 3 basis points. Which, in my view, based upon the overall product mix of our balance sheet, represents a continued strong performance. But, it would be dependent upon the economic conditions remaining favorable.

Meny Grauman -- Cormark Securities

Thanks for that, and if I could just ask a question about insurance earnings down in the quarter, on a year by year basis, about 20%, I'm wondering if you could provide a little bit more color into what drove that?

Teri Currie -- Group Head, Canadian Personal Banking

For sure, it's Teri. So, if you look at the full year, I think we feel very good about the overall performance of the insurance business for the year. There was an item, in the fourth quarter, that we disclosed around current year accident benefits. That provision was increased. What we're seeing is the cost to repair vehicles, as they become more technologically enabled, it takes longer, it's more complicated, and it costs more. That's an industry phenomenon, and over time, that gets dealt with in the price, the premiums. That was partially offset by fewer weather-related claims, quarter-over-quarter, as well as a higher release of prior year developments, quarter over quarter. Sorry, year over year, for the quarter.

Meny Grauman -- Cormark Securities

Thanks for that.

Operator

And, we'll go next to Sumit Maholtra, with Scotia Capital.

Sumit Malhotra -- Scotia Capital

Thanks, good afternoon. Just wanted to start with Bob, in terms of the trading revenue performance in the quarter. We've seen different trends, across the group. It's been weaker for most -- for all members of the group, certainly in different forms of magnitude. Wanted to ask specifically about year result in the quarter, and what some of the key factors were, and more importantly, what you think the trend is, as we start 2018.

Bob Doran -- Head, Wholesale Banking

Sure. As you noted, it is quite volatile. With respect to comparisons, and even within the groupings, quarter over quarter, and our -- in our results, the differing categories can vary. We had, on the second side, the real issues were that both the fixed income markets, as well as the corporate credit markets, were remarkably strong, with very little volatility, and as a result of that, we saw very much reduced secondary activity, in terms of trading. As well as very little trend established in the marketplace. The markets remained relatively open, with respect to origination revenues, but on the trading side, in both corporate credit, and interest rates, was very slow. And, similarly, on the equity side, with the reduction in synthetic equity, you can see that trend, obviously, is in place.

And then, that area is very much dependent on client activity, and we experienced a quarter where we had limited client activity. To go forward, I think you really need to see, and I think all people, in my area, would say that would be welcome would be some form of either volatility, or some form of repricing some assets, that would get people more engaged in the trading of them. So, you know, offsetting that, I think we continue to see good origination activity. Markets are very receptive to new issues in fixed income and corporate credit. But, it comes out in the price, that's it.

Sumit Malhotra -- Scotia Capital

For trading specifically, Bob, we're last day of November. Fair to say, it hasn't felt that different, so far, in Q1, relative to what we saw in Q4.

Bob Doran -- Head, Wholesale Banking

Yeah, I feel on the trading side of the business, markets are fairly good. But, they're not that active, on the institutional front.

Sumit Malhotra -- Scotia Capital

Okay, and then, last one -- thank you for that. Last one for me is, for Mark, just thinking about the provision in the US, and specifically, I'm looking page 34 of your supplement. When we look at the US provision, quarter-over-quarter, I'm looking at the line that the incurred, but not identified. And, you went from a recovery of $7 million last quarter, to $48 million in Q4. Is it fair to say that the bulk of that is the -- what we would call the collective change in the credit card book? And, specifically, the seasonality that you talked about, is this driven more from a reserving perspective, because of expectations, or are there trends in the business that you see worsening, that causes you to increase that particular line?

Mark Chauvin -- Chief Risk Officer

Yeah, no, it is really resulting from the seasonal trend. Which really is, primarily, in the credit cards, with the retailers. And so, what you have is a combination of, as you go into this quarter, and the fourth quarter, and next, you have increasing volumes, plus kind of more demands on individuals, so you see a slight deterioration in quality, and both of those factors will drive increased reserved. But, what we've seen every year, over the past four or five years, in the second quarter, is that the volumes come down as the card balances get paid off, and people start to manage, bring things a little more current.

So, it's not a -- I wouldn't say it's a trend that we're concerned about. It's one that we're very familiar with, it's extremely repeatable, and it's consistent. It's exactly what we expected, actually.

Sumit Malhotra -- Scotia Capital

So, I'll end it here. If I look at your 2017 provisioning, Q1, you were 42 basis points, Q4, you're 37. And to your point, you're in the low 30s in the two middle quarters. As a result of that US seasonality, and based on your economic outlook, you think that seasonal pattern is a reasonable way to think about things, for 2018?

Mark Chauvin -- Chief Risk Officer

For the US.

Sumit Malhotra -- Scotia Capital

For the US?

Mark Chauvin -- Chief Risk Officer

Absolutely for the US, yes.

Sumit Malhotra -- Scotia Capital

Thanks for your time.

Operator

And we'll go next to Nick Stogdill, with Credit Suisse.

Nick Stogdill -- Credit Suisse

Hi, good afternoon. Another credit card question. Just looking at the fee line there, it was down sequentially in year-over-year. I believe there might have been an adjustment going through this quarter, if you could just give us some more color on the size, and what caused it, and will that have an ongoing impact on the runaway credit card fee growth?

Teri Currie -- Group Head, Canadian Personal Banking

It's Teri again. So, we have every year, a look at the long-term redemption rate for our TD proprietary cards. That ticked up a little bit, and this was a liability adjustment for that reason. It's a good news story, in fact, because the reason that that ticked up was that with the launch of our new credit cards, in particular cash back, everyday rewards, including in that, first class travel and MDNA, we have a really good client engagement with those cards, the rewards site, and the program. And so, that plays out well, in sort of earnings through the year. But, it caused a little bit of an adjustment in that liability for the quarter. It's an unusual item.

Nick Stogdill -- Credit Suisse

And, how much, just ballpark, did it contribute to the year-over-year decline, or sequential decline? And then, would the redemption rate be higher going forward, so we should expect maybe lower growth, a little bit, in the fee line?

Teri Currie -- Group Head, Canadian Personal Banking

Yeah, I'm quite comfortable with the prospects of growth going forward, for the cards business, and the fees. We had, basically, retail sales in our full credit card business up 8%, year-over-year, so good engagement, good quality business being done, a very competitive lineup. This is really something that we take a look at annually. And, it may or may not change, going forward. It was a marginal change, it wasn't material to our overall results.

Riaz Ahmad -- Chief Financial Officer

I think -- Nick, it's Riaz. If just an overall, what Teri suggested obviously means that customers are very happy with the cards, so in the end, I think it turns out to be good news. But, if you look at the page 11 -- if you're referring to the card services line on page 11 of the subpack, on all of those non-interest income lines, I think you also have to be mindful of the fact that a number of those revenue items are in US dollars, and so we also had a lower -- a stronger Canadian dollar, so effects translation would affect a number of those, if you're looking at them from a trend line perspective.

Nick Stogdill -- Credit Suisse

Okay, thank you. And then, just one clarification, on the insurance earnings, or the review. Is that an annual type of review? Or, was there something more specific, or a trend that you saw, that caused you to review the accident benefit provisioning?

Teri Currie -- Group Head, Canadian Personal Banking

It's Teri again. It would be an ongoing review. It was simply a recognition of the fact that we have seen this change, as has the industry, in the costs of vehicle repairs. And, again, we should see that play out in pricing, over time.

Nick Stogdill -- Credit Suisse

Thank you.

Operator

And, we'll go next to Steve Threll, with 8 Capital.

Steve Threll -- 8 Capital -- Analyst

Thank you. Sorry, just to complete the circle, maybe, on cards. Teri, can you talk a little bit about your outlook for card growth next year? You addressed the service fees, I think, but card growth, in the quarter, I think was 1%. So, maybe you can put that in the context of the work you're doing on the cashback cards, and what you're seeing in terms of spend, on the Arrow Gold Card.

Teri Currie -- Group Head, Canadian Personal Banking

For sure. So, just overall, we feel great. We continue to maintain a strong market share position -- number one in cards, as you know. We -- I talked about it in the past. We've made investments, this year, to continuously improve our lineup, including, as you mentioned, the cashback cards and the everyday rewards cards. Customers are taking up the cashback card, in particular, above our own expectations, which is good news. And, again, strong retail sales, up 8%, year-over-year. We have made -- and, I've mentioned this in the past, some, let me call it volume rate trade-off, in terms of our MBNA business, doing fewer low-yielding promotional loans. That's actually -- we're giving up some volume, but it's improving the profitability. We doubled the profitability of that business this year.

So, overall, we feel great. I think we've got a TD credit card to meet any Canadian's needs. Including a great travel lineup, including first class travel. And, have no reason to expect retail sales to do anything but continue to perform well.

Steve Threll -- 8 Capital -- Analyst

Okay, thanks for that. And then, for Greg, on US indirect auto. I see that picked up in the quarter. Maybe some of that's seasonal, but I think that is some of the best growth we've seen in some time, after a pause in the last year or so. Maybe just any comments on, is there a change in tact, is there any update on pricing maybe getting a little bit better in auto, or worse, for that matter? What's the outlook for that business, looking into next year?

Greg Braca -- President and Chief Executive Officer

Yeah, so thanks for the question, Steve. A couple comments. As you rightly called out, for the better part of four or five quarters now, we've called out that we'd likely start to see moderating auto growth, given the size of the portfolio, the coverage of our portfolio. And, as we've been watching the overall industry as a whole, wanted to make sure we remained in a good position there. Additionally, as we've also been talking about for a few quarters, we've moderated the mix. A little less high prime, more into the prime space, and we bled in a little near-prime business, to build some margin into the portfolio. I think, particularly to your question, if you think about Q4, auto sales in general, both new and used, after the hurricane season, were quite strong, in some of our southern markets, including Texas, Florida, and the Carolinas.

And, some of that uptick was the natural result of that. But again, at 6%, year-over-year, it's sort of where we've been signaling our growth for the last few quarters, mid, middle single digit growth, year-over-year.

Steve Threll -- 8 Capital -- Analyst

Thank you.

Operator

And, we'll go next to Mario Mendonca, with TD Securities.

Mario Mendonca -- TD Securities

Good afternoon. First, Mark Chauvin, if you could help me think through this PCL seasonality just one more time. Last year, going from Q4 '16, to Q1 '17, lift in PCLs was big, and I'm talking across the entire bank, here. There may have been something going on in Canada that I don't recall. But, that sort of nearly $100 million lift, from one quarter to the next, is that conceivable, going into Q1 '18?

Mark Chauvin -- Chief Risk Officer

So, Mario, I guess I focus -- I don't have my memory, what it was for the US, but the -- I would expect a further lift in the US, in Q1, really to capture kind of the Christmas buying season, and the increase in the volumes, in the card portfolios, resulting primarily from that area. Which would come back in the -- which would come down in Q2. And, that's what we've witnessed in the past, in the US, and that's what my forecasts are showing me this year, again.

Mario Mendonca -- TD Securities

So, that $100 million lift, from one quarter to the next, at this point, that's not something you could speak to, just now?

Mark Chauvin -- Chief Risk Officer

Well, I'd like to analyze the 100 better, to tell you the truth. I mean, I would hope -- is it on the US part? I mean, you know, last year, they were all in gas issues, and there were things -- there's been a few other changes, here. But, if I just focused on the US, I think it'd be a very appropriate comment.

Mario Mendonca -- TD Securities

Okay. Riaz, something -- a question for you. The sensitivity to interest rates has become an increasingly important input into the way I look at banks, and the questions I get from investors. And, I know you've been -- the bank hasn't been open to updating the guidance from May of 2013, but one of your largest peers did, recently. Is there anything you can offer us to augment our understanding of interest rate sensitivity? Perhaps just ranges, or an update on the 2013 guidance?

Riaz Ahmad -- Chief Financial Officer

Mario, as we've said before, looking at the full picture of outside rising rates is complex, and includes a number of factors, which could include business product mix, balance sheet mix, changes in the shape of the yield curve, edging costs accretion affects, betas, etc. But, I do understand that there's a real interest from investors and analysts, to better understand our NII upside to future interest rates. So, if I were to give you a very simplified view, which is, that if wee took our balance sheet as of October 31, and assumed an instantaneous 25 basis points rate increase, a short rate increase, then the NII upside is about $150 million, subject to all those assumptions that I talked about earlier. And, if we split about $100 million in Canadian retail, and $50 million in US retail.

Bharat Masrani -- Chief Executive Officer

Riaz, this is just in the short term, it's not the overall term.

Riaz Ahmad -- Chief Financial Officer

It's a rate hike, yeah. Taking away all of those other assumptions that, everything else being equal.

Mario Mendonca -- TD Securities

So, over a full year, that's what we'd see?

Riaz Ahmad -- Chief Financial Officer

Correct, that's the full year.

Mario Mendonca -- TD Securities

Thank you.

Operator

And, we'll go next to Gabriel Dechaine, with National Bank Financial.

Gabriel Dechaine -- National Bank Financial

Good afternoon. I wanted to ask you about the Basel 1 floor impact, and that $33.5 billion of RUAs tied to that item. That's the kind of number I usually associate with a large acquisition. But, I'm not getting the accretion, or anything like that. So, I recall last quarter, Riaz, you talked about some strategies or actions that you're looking at, to alleviate some of this RUA pressure, or is it more realistic that we see OSFE get more lenient, I guess. Some of the other banks have hinted at that.

Riaz Ahmad -- Chief Financial Officer

Well, I think, as others have correctly called out, the industry has made representations to OSFE, to relook at the impact of the Basel 1 floor, because it does give incorrect incentives to the banks. And, the methodology that Basel 1 used, as you will recall, was very different from the Basel 3 methodology, so we're really applying a very old formula, to look at how the floor is calculated. So, we are in consultation with OFSE on the matter. Now, there are some capital market tools that are available, to manage the Basel 1 floor, but I think, up until we get a resolution of the industry dialogue with the regulators, I think I'd just rather wait it out.

Gabriel Dechaine -- National Bank Financial

I understand that. And, you can't bank on relief coming, so let's say, in the steady state, how should we think of that number changing over time, in relation to where you're currently growing the business? Where's the primary source of risk led asset inflation coming from? Is it mortgages? That one seems kind of obvious, as these are complicated --

Riaz Ahmad -- Chief Financial Officer

Well, I think that Canadian industries shape, overall shape is that assets in Canada tend to be lower risk weighted, for all the reasons that you're already familiar with. So, if you look at the run rate of how the Basel floor has been built up, which is disclosed in our subpack, then I think you can use that as a reasonable going forward run rate. But, I think for us in particular, having said that we are a low-risk bank, it could be reasonable to expect that we would be first to trip the Basel 1 floor, and that it would build up. And, to your point, it has therefore accumulated to $33.5 million by October 2017, I think you could anecdotally look at our IFRS 9 results, and also say, yes, that is reflective of the -- of a lower risk portfolio approach that we use. But, I am quite hopeful that this will be resolved, but hard to call the timing on it.

Gabriel Dechaine -- National Bank Financial

Okay, and if I could throw one in there for Teri, I asked the other banks, so I might as well as you. The B20. Are you seeing some demand being called forward? It doesn't seem to -- well, you are getting growth in uninsured mortgages, so maybe that is the case. And then, into 2018, how much do you originate now, new originations, and the downside to that from B20, were would that be?

Teri Currie -- Group Head, Canadian Personal Banking

So, on the first point, it's hard to tell whether we're seeing a pull forward. I think, anecdotally, we think that is the case, given the January 1 timing of the rule. In terms of quantifying the impact to origination, there are a lot of moving parts, and I think we feel comfortable that the numbers that have been cited by our peers would be something that would be representative of the impact that we might experience, as well. As many have stated, it's not a pure, mathematical exercise, and just assuming people would behave the same way they did in 2017, there's lots of ways that buyers can choose to cure, including buying less expensive properties, amassing a down payment over a longer period of time, accessing more down payment funds, expanding their amortization.

So, I would say, on balance, we expect our impact to be in line with the industry.

Gabriel Dechaine -- National Bank Financial

Good, thank you for that. And, Mark Chauvin, have a good retirement.

Mark Chauvin -- Chief Risk Officer

Thank you.

Operator

We go next to Mike Rizvanovic, at Macquarie Capital Market.

Mike Rizvanovic -- Macquarie Capital Market -- Analyst

Good afternoon. I just wanted to go back to the B20 for a second. Just wondering, do you build into that guidance, what seems to be relatively modest, in terms of the impact on originations. Do you build into the fact that we're looking at mortgage rates being about 60, 70 basis points higher, and maybe more importantly, are you including perhaps another two rate hikes by the Bank of Canada, which is, I think, what the market currently expects for 2018? And, if you don't, will your guidance change, and will it be more meaningful?

Teri Currie -- Group Head, Canadian Personal Banking

I think the way to think about it would be what we've said, and would continue to say looking forward, is our proprietary total risal growth should look like mid-single digits, and we would continue to expect that, even with what we've just said about B20. We think headwinds would come at that, if B20 was above those ranges we just talked about, or if there were further interest rate rises that could potentially mute lending activity.

Mike Rizvanovic -- Macquarie Capital Market -- Analyst

Okay, thanks for that. And, just quickly, so if the impact is as modest as some of your peers and yourselves seem to be indicating, do you think that maybe heightens the risk that the regulator maybe looks to do more to cool down the market? I just can't imagine -- if originations are not really coming off, then that means that credit growth is probably running at roughly the same pace. Do you see that as an additional risk?

Teri Currie -- Group Head, Canadian Personal Banking

I think it's hard to predict what might happen. What I think is happening now is, people are looking at, what are the impacts of the cumulative changes that have occurred, and how do they play out, and I think then, decisions may be taken, based on how that all works out in the end.

Mike Rizvanovic -- Macquarie Capital Market -- Analyst

Okay, thanks for that.

Operator

And, we'll go next to Doug Young, with Desjardin Capital Markets.

Doug Young -- Desjardins Capital Markets -- Analyst

Good afternoon. Just probably two quick questions. On the seasonality, Mark, I understand the seasonality on the credit card book, and just, can you remind me the seasonality on autos, or is this more a function of just, you're going down to near-prime, from prime, and super prime, is that the seasonality? If you can kinda just flesh that out?

Mark Chauvin -- Chief Risk Officer

Yeah, there is a small element of seasonality, on autos, which is really driven by just more competing needs for funds during this period, and you see a slight deterioration in credit quality. Which we have -- which we see come back in subsequent quarters, so we identify that as being seasonal. But, it is the minority. The majority of really what we see is in the credit cards, with the retailers.

Doug Young -- Desjardins Capital Markets -- Analyst

Okay, and then, I guess Riaz, operating leverage, was delivered, obviously, in the quarter, the next ratios come down quite nicely, in the back half of this year. As you look out to next year, can we think of similar levels of improvements? Can you talk a little bit about what would drive further benefits? Or, is this just abnormally good? Just want some color on that, thank you.

Riaz Ahmad -- Chief Financial Officer

Doug, as I've said before, I really look to operating leverage on a business by business basis, because each business has its own unique characteristics and attributes, and in evaluating the performances of the businesses, we look to the maturity of that business in the marketplace, the level of investment that may be required, a revenue growth that is achieved, etc. So, the aggregation of all of that, obviously, is a great tailwind, if everyone's doing particularly well, which we did in 2017. But, therefore, it's hard to kind of call it on an annual basis across -- at the all-bank level. Because some businesses, which may be high operating leverage -- high efficiency ratio business, but low capital businesses, may be just as attractive to grow, which could get the old bank operating leverage number not to look so attractive.

So, I think of it more at a business by business level, and let the aggregate add up to whatever it may.

Doug Young -- Desjardins Capital Markets -- Analyst

So, I mean, others have provided -- well, some have provided operating leverage targets, some have provided efficiency ratio targets. Any thoughts of doing something similar, just to give us direction around expenses?

Riaz Ahmad -- Chief Financial Officer

I think, overall, I would say -- I would hesitate to give you a bank-level outlook only, because you know that our strategy is to grow revenue, and to make the investments that we need to make, to transform the business and get productivity savings out. So, the combination of those could result in operating leverage being very strong in some years, as it has been this year, and maybe less strong in other years, as you've seen in prior years. So, it's hard to call it out, but overall, when you've got an economy like this, and we're calling out a 7 to 10% growth rate, you can assume that operating leverage will continue to be good.

Doug Young -- Desjardins Capital Markets -- Analyst

Thank you.

Operator

We'll go next to Saeed Movahedi with BMO Capital Markets.

Saeed Movahedi -- BMO Capital Markets -- Analyst

Maybe both for Riaz and Mr. Masrani, I mean, this 7 to 10 percent, maybe the Basel floor, becoming more of a tailwind, as opposed to a headwind. Remind us of the capital priorities, please. And, you had done the buybacks, this year, to the extent that the opportunities present themselves, do you think this is a good time to do buybacks, or are you valuation sensitive?

Bharat Masrani -- Chief Executive Officer

Saeed, this is Bharat. You've heard me say this before, I think we've been consistent on this. That as we deploy capital, and a capital deployment framework, it's fairly straightforward, we wanna make sure that we're supporting all of our growth strategies, and wherever capital is required, we will allocate it. Secondly, we have also said that if there are any capability gaps in the bank, then we will certainly go out and buy those capabilities, if that is what is appropriate for us. There has also been some discussion on, would some kind of acquisitions make sense, and we said yes, some of them may.

For example, in the southeast of the US, and that continues to be the case. On the card side, and we've talked about it previously, this is a very good business, we like it, we like the model that we apply to it, where the risk is shared, as are the revenues. And, we find the risk-adjusted returns to be very attractive, and as we are building out our US card business, it does provide us with the scale, that otherwise, we would not have. And so, we go through a framework, in that regard. And, there's also this issue around uncertainty around regulations, and all that. Although, we've gone through a good phase here, where the level of uncertainty is reduced, but it has not been eliminated.

So, we go through that thinking, and after all that, if we think that we still have the flexibility, then of course, we will seriously consider buybacks as well. So, that's the way we deploy our capital, and as you saw, we did do buybacks, and that's the way we got that. So, time will tell how that works out, and we'll see whether these other requirements are there or not, before we consider any buybacks.

Saeed Movahedi -- BMO Capital Markets -- Analyst

Just, Bharat, to quickly follow up on that, if you found yourself in the mid-11% range, for how long could that capital level stay at those levels, before you would trigger the buyback?

Bharat Masrani -- Chief Executive Officer

The level of precision on this, Saeed is difficult, because there are a lot of moving parts. You've seen in our own case, in the last one year, or last little while, could we have predicted, with the Scott Trade transaction, as to how that came about, or the floor that you just talked about, as to how it applies, particularly to TD, and Riaz have you a good understanding, or to some of the other questions, as to why it appeared to have impacted TD sooner, and probably more. Because of the way our balance sheet works. So, there are lots of moving parts, here. I wouldn't want you to start modeling a particular month or a particular week, after we hit the magical number that you might think is good. So, we'll see. When we get there, we will obviously make a very deep assessment, as to what makes sense for the bank.

Saeed Movahedi -- BMO Capital Markets -- Analyst

Thank you, I appreciate that.

Operator

And, we'll go next to Darko Milelic, with RBC Capital Markets.

Darko Mihelic -- RBC -- Analyst

Hi, thank you. Riaz, sorry to go here, but you opened the can of worms on the NII, and the impact on rates. And, I wanna approach this question a little bit differently, though, because we're not gonna be able to -- sorry?

Riaz Ahmad -- Chief Financial Officer

I said, that's not what you said last quarter. Go ahead.

Darko Mihelic -- RBC -- Analyst

So, I know we're not going to be able to solve for precisely everything that happens on the NII front, but I guess I'll phrase the question this way. This past year, we've seen some rate increases, and we did see some margin improvement, in the US and in Canada. But, the all-bank margin was actually down, year-over-year. And, as far as I can tell, when I look through your data, it looks as though the culprit was interest-bearing liabilities, in Canada and the US, on the business and government side. Had a fairly large increase there, in those funding costs. And so, when I step back, and just think about your commentary on a 25 basis point rate hike, can you speak to whether or not what happened this year was sort of one-offish, and perhaps we should not expect some sort of a repeat in 2018? And therefore, as I think of $150 million of NII, for a 25 basis point rate hike, can I think of that as largely being positive at the all-bank level. Is there any way you could help me with that?

Riaz Ahmad -- Chief Financial Officer

There are two things I could suggest to you, Darko. First, when you look at the all-bank margin, and therefore, consider the entire balance sheet, it introduces a whole host of other business items, that we don't generally focus on, when we look at Canadian retail and US retail. So, for example, if you look at the size of the investment securities that we carry on our balance sheet, some of those are needed to meet liquidity requirements, and some of them are driven by our deposit-rich US franchise, where we have a low loan-to-deposit ratio. And so, you know that those items -- and then, you also look at the short-term balance sheet of the dealer, and businesses such as repos, and whatnot, where there are funding approaches there that are taken into account, in the all-bank NII, and whose effect may overwhelm a 25 basis points rate hike,

Because they're such a big part of our aggregate balance sheet. But yet, are very low-risk activities. Holding HPLA securities, and holding access deposits in the US, and conducting repo businesses etc. are all low risk businesses, but they're not NII-driven businesses, necessarily. They're there for other reasons. So, I don't think you can anticipate -- necessarily correlate that what the impact would be should translate, necessarily, into an all-bank margin number, because of these other factors. Now, you asked about anything that is one-offish, that might not repeat in 2018,

Well, if we got similar interest rate hikes in 2018, as we did in 2017, one delta will be betas. I mean, you would expect, through the cycle, betas to continue rising. Does the efficiency of the rate hikes, to your NII development -- we would expect that to reduce, over time?

Darko Mihelic -- RBC -- Analyst

Thank you very much, I appreciate the color.

Operator

Thank you. And, at this time, I would like to turn the call back to Mr. Bharat Masrani, for closing remarks.

Bharat Masrani -- Chief Executive Officer

Thank you, operator, and just to conclude, great numbers from the bank. Terrific performance once again, and I'd like to take this opportunity once again to thank our nearly 85,000 TD colleagues around the world, who continue to deliver for our shareholders.

And, I know one of you on the call mentioned this. I'd like to take this opportunity as well, to thank Mark Chauvin. This is Mark's last analyst quarterly investor call, before he looks forward to a great retirement. Mark has given 35-plus years to TD, and we are very thankful for those years, Mark. We wish you very well in your retirement. And, finally, in case, folks on the phone, if you don't get together, happy holidays to you, and your families, and we'll see you in the new year. Thanks very much.

Operator

That does conclude today's conference, we thank you for your participation,

Duration: 62 minutes

Call participants:

Gillian Manning -- Head, Investor Relations

Bharat Masrani -- Chief Executive Officer

Riaz Ahmad -- Chief Financial Officer

Mark Chauvin -- Chief Risk Officer

Teri Currie -- Group Head, Canadian Personal Banking

Greg Braca -- President and CEO, TD Bank, America's Most Convenient Bank

Bob Doran -- Head, Wholesale Banking

Saeed Movahedi -- BMO Capital Markets -- Analyst

Steve Threll -- 8 Capital -- Analyst

Meny Grauman -- Cormark Securities -- Analyst

Gabriel Dechaine -- National Bank Financial -- Analyst

Nick Stogdill -- Credit Suisse -- Analyst

Doug Young -- Desjardins Capital Markets -- Analyst

Sumit Malhotra -- Scotia Capital -- Analyst

Darko Mihelic -- RBC -- Analyst

Mario Mendonca -- TD Securities -- Analyst

Mike Rizvanovic -- Macquarie Capital Market -- Analyst

More TD analysis

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