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The Toronto-Dominion Bank (NYSE:TD)
Q4 2019 Earnings Call
Dec 5, 2019, 1:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon, ladies and gentlemen. Welcome to TD Bank Group's Q4 2019 Conference Call. I would now like to turn the meeting over to Ms. Gillian Manning, Head of Investor Relations. Please go ahead, Ms. Manning.

Gillian Manning -- Head of Investor Relations

Thank you, operator. Good afternoon and welcome to TD Bank Group's fourth quarter 2019 Investor presentation. We will begin today's presentation with remarks from Bharat Masrani, the Bank's CEO, after which Riaz Ahmed, the Bank's CFO will present our fourth quarter operating results. Ajai Bambawale, Chief Risk Officer will then offer comments on credit quality, after which we will invite questions from 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 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 are 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 2019 MD&A and fourth quarter 2019 earnings news release.

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

Bharat Masrani -- Group President and Chief Executive Officer

Thank you, Gillian, and thank you everyone for joining us today. 2019 was a good year for TD. We continue to add volumes in our retail segments, winning more customers and taking share with a differentiated customer experience. We made further progress in our wholesale banking US dollar strategy, growing the corporate and investment banking and global markets businesses. And we continued to invest in our people and our capabilities to meet our customers' evolving needs. While we accomplished much, the operating environment was challenging marked by lower interest rates, volatile markets and normalizing credit conditions from historically low levels resulting in more modest earnings and EPS growth. Fiscal 2019 earnings of CAD12.5 billion and EPS of CAD6.69 were up 3% from the prior year, and Q4 EPS of CAD1.59 was down 2% year-over-year.

Let me elaborate on the main factors that affected our results this quarter. First, with declining rates and heightened macro concerns pointing to a more subdued outlook for industry revenue growth, we took some restructuring charges this quarter. We are accelerating ongoing efforts to modernize our operations and improve our efficiency. The charges, which were booked in each of our segments totaled CAD0.06 of EPS. Second, while we otherwise had a very good performance in our wholesale bank, revenues were reduced by derivative valuation charges, which Riaz will discuss. Third, while PCL was within our expectations, the ongoing normalization of provisions for credit losses clearly weighed on earnings growth this quarter and for the year as a whole.

Overall, EPS growth for 2019 was more modest. We stayed focused on our long-term strategy and I feel good about what we accomplished this year. We executed well on our enterprise priorities, continuing to serve our customers and clients within our risk appetite. We generated consistent organic capital, ending the year with a strong CET1 ratio of 12.1% even after the repurchase of 13 million common shares, and we created significant value for shareholders, increasing our dividend paid by 11% on a full-year basis and delivering above average peer total shareholder return for the three, five and 10-year periods.

We achieved these good results while positioning ourselves for future success. All year long, I've been sharing examples of our forward focused investments and more frontline advisors supported by enhanced education and training to give our people the capabilities they need to help our customers feel more confident about their finances, in new platforms and end-to-end journeys to make customers and colleagues' lives easier; in data and analytics that deliver better insights and create new sources of value for our customers and our business; and in state-of-the-art technology systems and architecture to enhance the security of our operations and transform the way we do business.

In October, we opened the TD Fusion Centre, a multi-disciplinary agile work space in Toronto, that will strengthen our ability to detect and respond to cyber threats. It's the latest addition to the global support network we've put in place, focused on protecting our assets, safeguarding our customers' privacy and recruiting and developing the next-generation of experts in this critical field.

This quarter, we launched a first-in Canada credit card feature that gives card holders the ability to temporarily block any in-person international charges through the TD app. And we are leveraging Layer 6's predictive AI capabilities in our TD helps program to identify customers who may be facing financial hardship and reach out with proactive advice and solutions. As our digital evolution proceeds, it will continue to be informed by a commitment to develop the industry best practices for the use of powerful new AI and machine learning technologies as we discussed in our recent responsible AI report.

I'm proud of the disciplined choices we've made, guided by our One TD strategy to drive continued leadership in innovation and customer experience at the enterprise level and in each of our businesses. Let me turn to them now.

Our Canadian Retail segment earned CAD7.4 billion in 2019, up 3% from a year ago. We strengthened our market-leading position and keep product lines, and took advantage of solid top line growth to fund strategic investments. We continued our journey of distribution transformation through our future-ready branch strategy and digital homeowner journey and the launch this quarter of our TD Wheels app, which gives Canadian customers a personalized digital car financing experience that is seamless, simple and convenient.

In Wealth, TD Asset Management continued its track record of investment excellence with seven Refinitiv Lipper Awards, including recognition in the fixed income, balanced, equity and ETF categories. We also expanded our product capabilities with the launch of 16 ETFs and several real estate alternative investment solutions for our high net worth and institutional clients. And we successfully upgraded our client servicing and underwriting insurance platform.

Turning to the US, our US Retail Bank performed well in 2019 with earnings up 6%. We continued to drive peer-leading growth in non-interest bearing accounts and anchored products that reflects our focus on acquiring high-quality primary customers. It's a similar story with our small business banking strategy where we've amplified our community-centric model with investments in enhanced data, insights in infrastructure, like the digital next-generation platform we introduced earlier this year. Customers are responding by bringing us more of their business with TD ranking Number 1 in SBA lending in our main two Florida footprints and taking top spot in customer satisfaction for small business banking in the South region by J.D. Power.

We also continued to make our business more efficient, achieving positive operating leverage this year and reducing our efficiency ratio by another 100 basis points. At the segment level, with another strong contribution from TD Ameritrade, US Retail earnings increased 10% for the year or 14% in Canadian dollars to just shy of CAD5 billion. And we were delighted last week to enhance our support for the acquisition of TD Ameritrade by Charles Schwab. This is a transformative deal that will deliver significant value for TD and give us an ownership stake and was the most innovative and highly regarded investment firms in the US.

Rounding out the picture, our Wholesale Bank earned CAD608 million this year, book ended by market volatility in Q1 and derivative valuation and restructuring charges this quarter. While this was clearly a disappointing result, I am pleased with the progress we are making across our business. We increased our leadership position in the Canadian market, occupying the Number 1 spot for M&A announced and completed, syndicated loans and government debt underwriting; and the Number 2 spot for corporate debt underwriting and equity options block trading.

We also built on our leadership position in domestic M&A, with TD Securities advising on several marquee transactions, including this quarter's CAD5.2 billion recapitalization of GardaWorld security, the largest by a privately owned Canadian company. We made strides with our US dollar strategy, on boarding 60 new corporate clients; adding senior leaders to support our technology, power and utilities and sponsored lines; and leading 72 US investment-grade corporate bond deals. And we were active in the Green and Sustainability Bond space, a growing segment of the market that is well aligned with the Bank's strong ESG profile and commitment to support the transition to the low carbon economy of the future.

Looking ahead, we expect the operating environment to remain challenging with continued geopolitical and trade tensions, further normalization of credit conditions from historically low levels and late cycle concerns, keeping interest rates under pressure and financial markets on edge. We also feel the effects of the move -- we will also feel the effects of the move by US discount brokers to eliminate online equity trading commissions, which will impact our equity pickup from TD Ameritrade.

Overall, while we will continue to execute on our strategy guided by our medium-term objectives, we expect EPS growth to be more moderate again next year. Despite these uncertainties, the fundamentals of our business remains strong and I'm confident that we can continue leveraging the investments we have made to add customers increase volumes and continue to grow our business. As always, we remain confident in our purpose to enrich the lives of our customers, colleagues and communities.

One way we are supporting our colleagues' development is by empowering them to contribute to their communities and our customers through the launch of the TD Ready Commitment network. The network enables colleagues to track their personal goals and engage in meaningful volunteer activities, including our recently announced initiative TD Mindpower, which bears non-profit organizations with a dedicated team of skilled TD data and analytics employees who collaborate to help them leverage data and grow their community impact. This is just one of many purpose driven initiatives we've launched in 2019. You can find more highlights in our annual report. I invite you to read my letter to shareholders in the pages that accompany it, which present our strategy in more detail in the transformative investments it is enabling.

To close, I am proud of what we achieved in 2019. I'd like to thank our more than 85,000 colleagues for their hard work and dedication to our vision, purpose and strategy; our customers, for the opportunity to serve them; and our shareholders for the confidence they have placed in us. I look forward to another year of accomplishments in 2020.

With that, I'll turn things over to Riaz.

Riaz Ahmed -- Group Head & Chief Financial Officer

Thank you, Bharat. Good afternoon, everyone. Please turn to Slide 7. In 2019, the Bank reported earnings of CAD11.7 billion and EPS of CAD6.25, up 3% and 4% respectively. Adjusted earnings were CAD12.5 billion and adjusted EPS was CAD6.69, up 3% for the year. Revenue increased 6%, reflecting volume growth and higher margins in our retail businesses, higher insurance and wealth fee-based revenue and the impact of FX translation, partially offset by lower trading-related revenue in Wholesale. Expenses increased 9% on a reported basis, reflecting charges related to Air Canada, Greystone and this quarter's restructuring.

PCL increased 22%, primarily reflecting higher PCL in the consumer and commercial lending portfolios and volume growth. Canadian Retail and US Retail delivered net income of CAD6.9 billion and CAD5 billion for the year respectively, and Wholesale reported approximately CAD600 million in earnings.

Please turn to Slide 8. For the fourth quarter, the Bank reported earnings of CAD2.9 billion and EPS of CAD1.54. Adjusted earnings were CAD2.9 billion and adjusted EPS was CAD1.59, down 2%. Revenue increased 2%, provisions for credit losses increased 36% quarter-over-quarter and expenses increased 3% including CAD154 million of restructuring charges.

Please turn to Slide 9. Canadian Retail net income was CAD1.7 billion, level with prior year. On an adjusted basis, net income increased 2%. Revenue increased by 5%, primarily reflecting volume growth and higher insurance and wealth fee-based revenue. Average loans and deposits increased 5% year-over-year, reflecting growth in both personal and business volumes. And wealth assets grew 14% or 9% excluding Greystone. Margin was 2.96%, consistent with the prior quarter.

Total PCL increased 27% quarter-over-quarter, with increases in impaired and performing PCLs. Total PCL as an annualized percentage of credit volume was 37 basis points, up 8 basis points quarter-over-quarter. Expenses increased 4%, reflecting higher costs supporting business growth and charges related to the acquisition of Greystone. On an adjusted basis, expenses were up 3% and we delivered 200 basis points of operating leverage.

Please turn to Slide 10. US Retail net income was USD900 million, up 5% year-over-year on a reported basis and 3% on an adjusted basis. US Retail Bank's reported earnings were flat year-over-year. Average loan volumes increased 7% year-over-year, reflecting growth in the personal and business customer segments. Deposit volumes, excluding the TD Ameritrade's suite deposits, were up 5%, including 4% growth in core consumer checking account.

Net interest margin was 3.18%, down 9 basis points sequentially, primarily due to lower deposit margins and largely in line with US peers. We expect margins to continue trending downwards, reflecting the impact of the recent Fed rate cuts. Total PCL, including only the bank's contractual portion of credit losses in the strategic cards portfolio, was USD223 million, up 17% sequentially as an increase in impaired PCL was partially offset by a decrease in performing PCL. The US Retail net PCL ratio was 55 basis points, up 7 basis points from last quarter. Expenses were flat year-over-year, reflecting restructuring charges of USD52 million and business volume growth, partially offset primarily by productivity savings. The contribution from TD's investment in TD Ameritrade increased to USD219 million and segment ROE was 11.8%.

Please turn to Slide 11. Net income for Wholesale was CAD160 million, down 44% year-over-year, reflecting lower revenue, higher expenses and higher PCL. Revenue decreased 9%, primarily reflecting derivative valuation charges. This quarter, we implemented a new derivative valuation system and related methodologies, which will enhance our ability to manage risk and pricing. Expenses were CAD600 million, reflecting restructuring charges of CAD23 million, higher securities lending fees and software costs and the impact of FX translation, partially offset by lower variable compensation.

Please turn to Slide 12. The Corporate segment reported a net loss of CAD240 million in the quarter, compared to a net loss of CAD181 million in the fourth quarter last year. The increase in reported net loss was primarily attributable to lower contribution from treasury items and non-controlling interests, partially offset by lower net corporate expenses. Net corporate expenses decreased, largely reflecting lower net pension expenses in the current quarter, partially offset by restructuring charges of CAD51 million.

Please turn to Slide 13. Our common equity Tier 1 ratio ended the quarter at 12.1%, consistent with the prior quarter. We had strong organic capital generation this quarter, which added 32 basis points to our capital position and this was mostly offset by the repurchase of over 8 million common shares in the quarter, as well as growth in RWA and actuarial losses on employee pension plans. Our leverage ratio was 4% and our liquidity coverage ratio was 133%.

During the quarter, the Board approved the launch of a new NCIB to repurchase up to an additional 30 million common shares subject to regulatory approval. Looking ahead to Q1 2020, we expect the implementation of IFRS 16 and the revised securitization framework to have a 28 basis points impact on CET1 capital, in line with the guidance we provided last quarter. We expect the impact to be mitigated by internal capital generation.

I will now turn the call over to Ajai.

Ajai Bambawale -- Group Head & Chief Risk Officer

Thank you, Riaz, and good afternoon, everyone. Overall, credit quality was good across the Bank's portfolios in fiscal '19 and credit losses were in line with our expectations.

Please turn to Slide 14. Gross impaired loan formations were CAD1.5 billion or 22 basis points, stable quarter-over-quarter and year-over-year. Please turn to Slide 15. Gross impaired loans ended the year at CAD3 billion or 43 basis points, stable quarter-over-quarter and down 4 basis points year-over-year.

Please turn to Slide 16. Recall that our presentation reports PCL ratios, both gross and net of the partner's share of the US strategic card credit losses, we remind you that credit losses recorded in the Corporate segment are fully absorbed by our partners and do not impact the Bank's net income. The Bank's PCLs in the quarter were CAD893 million of 51 basis points, up 13 basis points quarter-over-quarter and up 10 basis points year-over-year.

The quarter-over-quarter increase reflects the US credit card and auto portfolios, largely due to typical seasonal trends. As experienced in previous years, PCLs in the US credit card and auto portfolios typically rise in the fourth and first quarters due to back-to-school and holiday shopping. Balances and delinquencies historically decrease in the second and third quarters as customers catch up with their payments. The balance of the quarter-over-quarter PCL increase is largely reflected in the Canadian Retail and Wholesale segments, primarily due to credit migration.

Please turn to Slide 17. The Bank's impaired PCL increased CAD151 million quarter-over-quarter, largely related to the US credit card and auto portfolios reflecting seasonal trends and credit migration in the Canadian commercial and auto portfolios. Performing PCL increased CAD78 million quarter-over-quarter, driven by the Canadian commercial, Canadian cards and wholesale lending portfolios, primarily due to credit migration, and seasonal trends in the US credit card and auto portfolios, partially offset by the impact of prior quarter parameter updates in the consumer lending portfolios.

For 2019, the full-year rate is 45 basis points, up 6 basis points from 2018. The increase in total PCL in 2019 largely reflects ongoing credit normalization in the Canadian Retail and Wholesale segments from prior year's cyclically low levels and volume growth across the Bank's portfolios.

In summary, we've had good credit quality across the Bank's portfolios in 2019 and are well positioned for continued growth in our lending portfolios. Looking to the year ahead, the period of cyclically low loss rates are likely behind us. Subject to quarterly seasonal fluctuations and provided economic conditions remain supportive, I expect fiscal 2020 PCL to be in the neighborhood of 50 basis points.

With that operator, we are now ready to begin the Q&A session.

Questions and Answers:

Operator

[Operator Instructions] And the first question is from Ebrahim Poonawala from Bank of America. Please go ahead.

Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst

Good afternoon. I guess, Riaz, if you could start on the margin outlook, you talked about the Fed rate cuts impacting the US margin. If you can give us a sense of the cadence of incremental margin compression that you expect next quarter and if the Fed is truly done for the time being, is that -- when do you expect the US margin to begin stabilizing? Or do you expect the continued drift lower?

Greg Braca -- Group Head, US Retail, TD Bank Group and President and CEO, TD Bank, America's Most Convenient

Ebrahim, thank you. This is Greg Braca. So, thanks for the question. I just start by saying, as you know, we've had three rate cuts, starting in July and then September and then at the end of October, 25 basis points each. And over the next quarter, you would generally expect that the margins would continue to trend lower given the fact that the last cut just occurred at the last day of the fiscal year-end on October 31st, and the second rate cut only had the effect of being in the fourth quarter for half the quarter.

So, all things being equal, obviously, there's a lot that goes into this, including the mix of the business and what the long end of the rate does and on-off rates and things that we've talked about before, but given those three rate cuts and certainly, two impacting Q4 to what would be Q1, you were generally see a glide path to lower margins in Q1.

Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst

Got it. And if I may one more, just in terms of capital. It sounds like you should be able to absorb the IFRS 16 impact relatively easily in the next quarter, as we think about capital deployment and with sort of some clarity on the Ameritrade front, any updated thoughts, Bharat, in terms of, as you think about M&A opportunities in the US, be it within the Northeast within your banking footprint or non-bank M&A?

Bharat Masrani -- Group President and Chief Executive Officer

No change, Ebrahim. As we've said previously, I mean, we look at capital deployment on a holistic basis. Obviously, we want to support the strategies we have laid out, that is organic growth, the RWA growth that follows. We want to make sure that we also have capital flexibility, should we need to build out any capabilities that are more appropriately done through acquisitions rather than trying to organically build them. I think Greystone falls into that category quite nicely.

We also said that we will always be -- make sure that we have capital flexibility issued some opportunities present themselves. And you've seen TD participate in those transactions, there are so many over the past few years that have turned out to be terrific for us.

And then finally, yes, we are interested in acquisitions. We've said the Southeast is particularly attractive to us given the potential there in the US. We've also said, we would look at others that makes sense from a strategic and a financial perspective. So, nothing has changed from that perspective. And I'm sure with the type of environment we are seeing and what we are calling for that is -- which is challenging that certainly may give us opportunities more so than it might have previously. So, we will keenly watch the space and should anything compelling present itself, we will be looking at it seriously.

Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst

Understood. Thank you.

Operator

Thank you. And the next question is from Meny Grauman from Cormark Securities.

Meny Grauman -- Cormark Securities -- Analyst

Hi, good afternoon. Question on the restructuring charge, just wondering about what expense savings you expect to recognize from that restructuring and for 2020 and 2021?

Riaz Ahmed -- Group Head & Chief Financial Officer

Meny, it's Riaz. As you would have noted in our sub-factor over the course of 2019, we've added almost 3,500 FTEs in various frontline and technology projects and corporate functions. And the business is do from time to time and take the opportunity to look at ways of optimizing how we work, modernizing our operations and improving our efficiency. If you look at the expense that we have reported over the last five quarters, excluding the effects of restructuring charges, the expenses have been relatively stable. So, I think you should look at this more and more as an optimization exercise within a context of a growing bank and not necessarily driven to create additional productivity.

Meny Grauman -- Cormark Securities -- Analyst

Got it. And then just in terms of the charge related to the derivative systems upgrade. Just wondering if there is any revenue lift that you expect from that change, you mentioned better pricing. So I'm wondering if there is a benefit that you see from that, that will be materially noticable?

Bob Dorrance -- Group Head, Wholesale Banking, TD Bank Group and Chairman CEO & President, TD Securities

Meny, it's Bob Dorrance. I think by better pricing what we're talking about as faster pricing being able to respond more quickly. I think the benefit that we will achieve because we will have real-time mark to market of the portfolio and all the various parameters in what is a complex portfolio was the ability to hedge the portfolio better. So, the expectation is that we work with this system over the next year that we'll be able to reduce the volatility that we've experienced in marking the book-to-market once a month.

Meny Grauman -- Cormark Securities -- Analyst

So just as a follow-up, is it going to be observable it on your results, this kind of upgrade or is it more just sort of behind the scenes?

Bob Dorrance -- Group Head, Wholesale Banking, TD Bank Group and Chairman CEO & President, TD Securities

No, I think, we'll wait and see and how that plays out, Meny.

Meny Grauman -- Cormark Securities -- Analyst

Okay, thank you.

Operator

Thank you. And the next question is from Gabriel Dechaine from National Bank Financial. Please go ahead.

Gabriel Dechaine -- National Bank Financial -- Analyst

Good afternoon. Just wanted to ask about your risk appetite and we got margins coming down, we got PCL ratios normalizing and does that affect your risk appetite at all? I know a couple of years ago, you were talking about expanding fairly ambitiously in the unsecured personal lending space in Canada, how has that changed at all? And what would need to happen for you to maybe...

Ajai Bambawale -- Group Head & Chief Risk Officer

It's Ajai. Thanks for the question. So let me start. I think you're aware our risk appetite statement is a principles-based risk appetite statement, but it is also informed by all the stress testing work that we do. And quite frankly, risk appetite is not something that we keep changing. So there's got to be something significant has to happen for us to want to change our risk appetite. So, we're not changing our risk appetite. Having said that, if there are opportunities that are within our risk appetite, like I believe personal lending is, we will certainly explore that. So, no change in risk appetite, but there are enough opportunities for us that are within risk appetite. Maybe I'll turn it over to Teri for a few comments.

Gabriel Dechaine -- National Bank Financial -- Analyst

Thanks. Maybe I would just add there are a number of areas as we've talked about before where we have embedded growth opportunity well within our risk policies and our risk appetite, you cited unsecured personal lending. We still have the HELOC hybrid market share in fourth place where we have the opportunity and continue to seek out business with our own customers. Impulse business in the business bank, there are geographies where we're continuing to add bankers, where we have opportunity and industry segments where we can do more. So, definitely we are open for business and growing well within those at risk policy.

Okay. How about the glass half full perspective and so easy to get down in the dumps these days, but rates are down a lot, for margins we go, still a lot of ink on that, but from a credit risk standpoint that should help, right?

Ajai Bambawale -- Group Head & Chief Risk Officer

Yes, it's Ajai. I think if rates come down, at some point, it will help credit, but it could take some time.

Gabriel Dechaine -- National Bank Financial -- Analyst

Okay.

Ajai Bambawale -- Group Head & Chief Risk Officer

We believe lower rates in the longer run could help credit, yes.

Gabriel Dechaine -- National Bank Financial -- Analyst

Thanks and happy holidays.

Bharat Masrani -- Group President and Chief Executive Officer

For you too as well, Gabe. This is Bharat, just to add something. Ajai and Teri covered it up well, I mean risk appetite is not something that is fleeting or changing quarter-by-quarter, it is very principles-based as Ajai noted and something that we take very seriously. And within our risk appetite, you know the size of our bank, the scale of our bank and when we say we want to grow certain parts of our business, it is not based of indications in one quarter or two quarters, it is a plan, it is a long-term plan and we execute against that plan. Of course, we'll be adaptable should there be a fundamental change in the environment. But you should not expect from TD a knee jerk reaction in changing our risk appetite, because a one particular quarter gave one indication.

Gabriel Dechaine -- National Bank Financial -- Analyst

Okay. I'm going to have to rewrite that section to just give...

Gillian Manning -- Head of Investor Relations

Operator, I think, we're ready for our next question.

Operator

Thank you. [Operator Instructions] And the next question is from Sumit Malhotra from Scotia Capital. Please go ahead.

Sumit Malhotra -- Scotia Capital -- Analyst

Thank you. Good afternoon. I just want to pick up with Ajai, please. So, going from 45 basis points to 50 for a bank of your size, it's not the biggest deal in the world, but I just wanted to dig in a little bit since you're giving us such a specific forecast in and around that range for 2020. I mean, when I look at some of the underlying metrics in credit for your bank and there are lot of things can move around, but your gross impaired loan balance hasn't really moved that much for a few quarters, your formations have been relatively well contained and to the extent, these are some of the first factors we look at, they seem to be OK. What parts of the portfolio -- your portfolio, do you look at it and say, this is a portion of the book that we can reasonably expect loss rates to migrate higher in the near-term?

Ajai Bambawale -- Group Head & Chief Risk Officer

Well, thanks for the question. So let me tell you how I get to the neighborhood of 50 basis points. I'm basically assuming that certain portfolios, which I believe are not yet operating at normalized levels, will continue to normalize and in my mind there are three. So, Canadian Retail is one of them, like if you look at Canadian Retail, three of the last four quarters, we operated between 25 bps to 30 bps, to me that's cyclically low and for the full-year were 31 bps. So, I expect that to continue to normalize.

The second book is Wholesale. Like, if you look at Wholesale losses and I believe in the first three quarters, it was like CAD2 million. So if I look out like I think wholesale will continue to also gradually normalize. And the third book is US Commercial. So if I look at US Commercial, I'd say no or very little losses in that book for a few years. So, I am assuming, because we are late in the cycle that will continue to see normalization in that portfolio.

So, if I look at all three portfolios, that's what kind of gets me to a number of closer to 50 basis points. Okay. And I should also clarify that from a economic perspective, I'm generally assuming stable economic conditions consistent with our disclosures.

Sumit Malhotra -- Scotia Capital -- Analyst

That's very specific and I appreciate that, because when -- we go one step further here, for example, you're right, your Wholesale provision is higher this quarter, but the bulk of that came from the performing provision. And when I look at TD in the last two years that we've been under the new standard. Your provisions on the performing portion of the book have been 5 basis points to 6 basis points respectively. And I think in every quarter, the Bank has had an actual provision in the performing in the Stage 1 and Stage 2 buckets, which hasn't been the case for all of your peers. I know there is different approaches to this, it was different setup costs across the sector. This is a -- I'm going to ask if you could give a simple answer to something that's a complex question, but why do you think it is that your bank has been so consistent in having provisions in the performing portfolio and that hasn't necessarily been the case across the group?

Ajai Bambawale -- Group Head & Chief Risk Officer

Well, I can't speak to my peers, but I can certainly tell you what's occurring at TD. So, first let's ground ourselves in what are the drivers of performing PCL? One, its volume; two, its credit migration; three, its parameter updates; and four, its macroeconomic changes. So, if I look at our allowances and this is all disclosed in the allowance tables, our allowance year-over-year went up by CAD378 million. Off that, performing is actually CAD399 million and let me just explain that to you.

Stage 1 is CAD237 million. So, what that's telling you is most of our allowance build is volume and some of it is -- some of that is also parameter updates. We then have CAD162 million in Stage 2 and that is partly credit migration and partly parameter updates. So, the migration, some of it is occurring in Canadian commercial. There is a bit in Canadian cards, but a big part of it is actually parameter updates. There is a bit in US cards and there is a bit in Wholesale.

Then, if I turn to Stage 3, Stage 3 increase for us is only CAD61 million. So, which tells you, like, we've actually built Stage 3 allowances in the past. And the offset to that it's CAD82 million in ACI or debt securities. So, I hope that helps. But volume is the bigger story here.

Teri Currie -- Group Head, Canadian Personal Banking

No, and I'll stop there. I guess the thing is volume in and of itself, we would expect the dollar amount of provisions to look to rise and not necessarily the ratio. I guess when I look at you guys, you have so much more than you've charged off, your allowances now continue to rise. So it is somewhat surprising to me on a lot of these quarters that we see your ability to continue at that pace, but I think you're saying to me volume is part of it, but perhaps some of the parameter updates you're applying are more conservative than we're seeing across the group. That's more of a statement of my part. So, I will leave it there and I thank you for your help.

Ajai Bambawale -- Group Head & Chief Risk Officer

Thanks.

Operator

Thank you. And the next question is from Robert Sedran from CIBC Capital Markets. Please go ahead.

Robert Sedran -- CIBC Capital Markets -- Analyst

Hi, good afternoon. Just first quickly a point of clarification, Ajai, that 50 basis point number, that's for the total provision, not for the provisions on impaired, correct?

Ajai Bambawale -- Group Head & Chief Risk Officer

That's correct, total.

Robert Sedran -- CIBC Capital Markets -- Analyst

Okay. Thank you.

Ajai Bambawale -- Group Head & Chief Risk Officer

Not giving a specific number. I said in the neighborhood off and...

Robert Sedran -- CIBC Capital Markets -- Analyst

Understood, understood. I just wanted to make sure that's what you were speaking, I mean, not just the provisions on impaired. So that's great. And then, maybe for Riaz, the card services line on -- in non-interest income was looked a bit light this quarter, I don't know if there is an element of seasonality or if there is something else going on in there. Can you tell us what happened on that, please?

Riaz Ahmed -- Group Head & Chief Financial Officer

Sure, Rob. From time to time as we look at how cardholders engage with us, we have a revaluation of points liabilities, reward points liabilities, etc. So, it's mostly in this quarter are reflective of those revaluations.

Robert Sedran -- CIBC Capital Markets -- Analyst

So, absent that impact, it would be something closer to what a normal run rate for that line would be, is that fair?

Riaz Ahmed -- Group Head & Chief Financial Officer

Yes.

Teri Currie -- Group Head, Canadian Personal Banking

Maybe the only thing I would add is, that's driven obviously by our customers being more engaged with the program and doing more business with the program. So, I think that's a -- well, it is an adjustment. It's a positive.

Robert Sedran -- CIBC Capital Markets -- Analyst

Okay, thank you.

Operator

Thank you. And the next question is from Scott Chan from Canaccord Genuity. Please go ahead.

Scott Chan -- Canaccord Genuity -- Analyst

Good afternoon. I always like looking at the AUM on a fiscal year on annual basis. And when I look at the US segment for you guys, the numbers are bit perplexing versus peers. US was down another 17% year-over-year and I think peers are kind of in the high teens. You talk about the headwinds of active to passive and I think that is kind of a less of a tailwind going forward, but perhaps you can explain why? What is going on there? And if any kind of actions that kind of stop those outflows?

Greg Braca -- Group Head, US Retail, TD Bank Group and President and CEO, TD Bank, America's Most Convenient

Sure. So, thank you. It's Greg Braca. Thank you for the question. So first, I would like to just start off by saying that wealth and [Indecipherable] and asset management, the US continues to be important part of our growth strategy long term and we are spending a lot of time discussing it and you correctly pointed out that there is an industry dynamic going on from active to passive and that's part of the story. But I think a couple of quarters ago, I also mentioned that we made the strategic decision to exit some money market funds that does drive the top line AUM number and we've called that out in the past and it was a strategic decision, they're very, very low margin business. They were in strategic to us long term and we did exit that.

So I'd say, if you think about it, half of that story is roughly AUM and the active to passive story and the other half is really related to the exit of those money market funds.

Scott Chan -- Canaccord Genuity -- Analyst

Okay, thank you very much.

Operator

Thank you. [Operator Instructions] And the next question is from Nigel D'Souza from Veritas Investment Research. Please go ahead.

Nigel D'Souza -- Veritas Investment Research -- Analyst

Thank you. Good afternoon. So, I have a few, I guess, housekeeping items. So one question I have for you as you noted that the impact that we had from the derivatives valuation charges in Wholesale Banking, and offset to that was higher trading revenue, I believe, but when I look at your disclosure looks like trade revenue actually declined sequentially. Am I misinterpreting the numbers there or is there something I'm missing here?

Greg Braca -- Group Head, US Retail, TD Bank Group and President and CEO, TD Bank, America's Most Convenient

No, Nigel, in aggregate, the derivative valuation charges in Q4 were CAD96 million and they were taken through the trading-related lines. So, if you want to get the impact you would have to grow stack back up on to the trading-related on the fixed income line.

Nigel D'Souza -- Veritas Investment Research -- Analyst

Got it. That's really helpful. And then the second point I had is more so on the dividend payout ratio. So, looking at your supplement, the adjusted payout ratio is at 46.5%, I understand that includes those restructuring charges, which were backed out this quarter. But even if we do back that out, it's still I believe higher than the run rate we've seen in prior quarters. So, does that have any impact, I know it's early to talk about it, but is that have any impact to your future dividend policy decisions in 2020 or is this just a one-off item that we should be looking at?

Bharat Masrani -- Group President and Chief Executive Officer

Let me take that, Nigel. This is Bharat. We look at our dividends, generally speaking, once a year and we will do so again. And our general policy is to be within the range of 40% to 50%. There have been times when we said our ratio will be more influenced by trying to get to the mid-range of that range, but sometimes, we are not the greatest forecasters and it comes in lower than that. I think what you saw this quarter because of this various charges, it should not be viewed as a pattern from TD.

Nigel D'Souza -- Veritas Investment Research -- Analyst

And the last question I have, speaking of those charges, the distribution across the segments, it's higher and US Retail and lower allocation to Canadian Retail. So, is this -- like you mentioned, is this merely repositioning in a normal, I guess, restructuring event? Or does this at least -- or do these charges tie-in at all to the macro, because I think you'd expect more headwinds in domestic banking relative to the US banking?

Greg Braca -- Group Head, US Retail, TD Bank Group and President and CEO, TD Bank, America's Most Convenient

Yes, so it's Greg. And I'll just start off on the US portion that we've called out, we had CAD52 million pre-tax and restructuring charges in the US. And I'd say, it's probably half and half. As I think about our franchise and store distribution and how we optimizing that in real estate costs and the other half of that charge would be around how are we driving more efficiencies? How are we investing for the future? And if you've seen the trend over the last several quarters and over the last year, you've seen us getting more and more expenses out being more efficient as an operation to really allow us to invest in the things that our core, including investments in the new platforms and digital and technology. And I think, we've made some major strides in 2019 on that front. So, I divide it up to half on half as I just described for the US.

Nigel D'Souza -- Veritas Investment Research -- Analyst

Okay, that's very helpful. I appreciate the color. Thank you.

Operator

Thank you. And the next question is from Sohrab Movahedi from BMO Capital Markets. Please go ahead.

Sohrab Movahedi -- BMO Capital Markets -- Analyst

Thank you. Ajai, I just wanted to come back to you. We talk a lot about normalization of the credit, is there any reason to believe loss content by product category, whether it's credit cards or other lines of consumer credit lines, the loss content as we go into the next cycle will be anymore a punitive or higher than you may have been in prior cycles?

Ajai Bambawale -- Group Head & Chief Risk Officer

I don't have any reason to believe that, I mean, but consumer leverage is high in Canada, as you could see a little more severity on the Canadian side, that's the only comment I would make.

Sohrab Movahedi -- BMO Capital Markets -- Analyst

But that's not something that is necessarily you've explicitly kind of factored into your buildup to that plus or minus 50 basis points.

Ajai Bambawale -- Group Head & Chief Risk Officer

Not necessarily, but I've certainly taken into account that insolvencies in '19 are higher than '16, '17 and '18. They're much lower than '09, but I'm certainly assuming we will continue to see that, and in my mind the driver of that is the consumer leverage in Canada.

Sohrab Movahedi -- BMO Capital Markets -- Analyst

And not to belabor the point, but from what very limited stuff you've already seen, is there any reason to believe it's going to have a more severe loss content?

Ajai Bambawale -- Group Head & Chief Risk Officer

I don't believe so.

Sohrab Movahedi -- BMO Capital Markets -- Analyst

Thank you.

Operator

Thank you. There are no further questions registered at this time. I would now like to return the meeting back to Bharat Masrani.

Bharat Masrani -- Group President and Chief Executive Officer

Thank you, operator, and thank you for all of you for joining us this afternoon. Just to conclude, very challenging environment. It was great to see that we continued to make progress in our enterprise priorities and I do want to take this opportunity to thank our 85,000 colleagues around the world for once again delivering for the Bank and for our shareholders. And to our folks who participated on the phone, happy holidays, in case we do not meet before, and see you in 90 days. Thank you.

Operator

[Operator Closing Remarks]

Duration: 50 minutes

Call participants:

Gillian Manning -- Head of Investor Relations

Bharat Masrani -- Group President and Chief Executive Officer

Riaz Ahmed -- Group Head & Chief Financial Officer

Ajai Bambawale -- Group Head & Chief Risk Officer

Greg Braca -- Group Head, US Retail, TD Bank Group and President and CEO, TD Bank, America's Most Convenient

Bob Dorrance -- Group Head, Wholesale Banking, TD Bank Group and Chairman CEO & President, TD Securities

Teri Currie -- Group Head, Canadian Personal Banking

Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst

Meny Grauman -- Cormark Securities -- Analyst

Gabriel Dechaine -- National Bank Financial -- Analyst

Sumit Malhotra -- Scotia Capital -- Analyst

Robert Sedran -- CIBC Capital Markets -- Analyst

Scott Chan -- Canaccord Genuity -- Analyst

Nigel D'Souza -- Veritas Investment Research -- Analyst

Sohrab Movahedi -- BMO Capital Markets -- Analyst

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