The Toronto-Dominion Bank (TD) CEO Bharat Masrani on Q1 2022 Results - Earnings Call Transcript

The Toronto-Dominion Bank (NYSE:TD) Q1 2022 Results Conference Call March 3, 2022 1:30 PM ET

Company Participants

Brooke Hales - Vice President, Investor Relations

Bharat Masrani - Chief Executive Officer

Kelvin Tran - Chief Financial Officer

Ajai Bambawale - Chief Risk Officer

Michael Rhodes - Group Head, Canadian Personal Banking

Paul Douglas - Group Head, Canadian Business Banking

Raymond Chun - Group Head, Wealth & Insurance

Leo Salom - President and CEO, TD Bank, America's Most Convenient Bank

Riaz Ahmed - Group Head, Wholesale Banking

Conference Call Participants

Meny Grauman - Scotiabank

Gabriel Dechaine - National Bank Financial

Ebrahim Poonawala - Bank of America

John Aiken - Barclays

Paul Holden - CIBC

Scott Chan - Canaccord Genuity

Nigel DeSouza - Veritas Investment Research

Sohrab Movahedi - BMO Capital Markets

Mike Rizvanovic - Stifel

Operator

Good afternoon, everyone. Welcome to the TD Bank Group Q1 2022 Earnings Conference Call.

I would now like to turn the meeting over to Ms. Brooke Hales. Please go ahead, Ms. Hales.

Brooke Hales

Thank you, operator. Good afternoon and welcome to TD Bank Group's first quarter 2022 investor presentation. We will begin today's presentation with remarks from Bharat Masrani, the bank's CEO, after which Kelvin Tran, the bank's CFO, will present our fourth quarter operating results. Ajai Bambawale, Chief Risk Officer, will then offer comments on credit quality, after which we will invite questions from prequalified analysts and investors on the phone.

Also present today to answer your questions are Michael Rhodes, Group Head, Canadian Personal Banking; Paul Douglas, Group Head, Canadian Business Banking; Raymond Chun, Group Head, Wealth & Insurance; Leo Salom, President and CEO, TD Bank, America's Most Convenient Bank; and Riaz Ahmed, 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 such as 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 use of non-GAAP and other financial measures, the Bank's reported results and factors and assumptions related to forward-looking information are all available in our Q1 2022 Report to Shareholders.

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

Bharat Masrani

Thank you, Brooke, and thank you everyone for joining us today. I'd like to welcome Michael Rhodes, Group Head, Canadian Personal Banking; and Leo Salom, President and CEO TD Bank America's Most Convenient Bank, who're joining us for the first time. We're also including two additional participants on the call beginning this quarter Paul Douglas, who leads Canadian Business Banking, and Ray Chun, who leads Wealth & Insurance. They are here to answer more specific questions you may have about their businesses and results.

Before we review the quarter, I want to once again express to all Ukrainians around the world and across our footprints, our sincere hope that the violence will come to an end as soon as possible. To help support humanitarian efforts, we have donated more than a $25 million to agencies who are on the ground providing urgent care to the people of Ukraine. TD customers can make donations to the Canadian Red Cross and our branches in Canada, and soon to be American Red Cross in all U.S. stores together a collective effort can make a real difference.

Let me now turn to our first quarter performance. Q1 was a great quarter for TD, earnings were $3.8 billion, and EPS was $2.08, up 13% and 14%, respectively, from the first quarter of last year. Revenue increased across our retail and wholesale segments as customers and clients brought us more of their business and PCL remain low reflecting good credit performance against the backdrop of an improving economic outlook.

Reflecting the strong results, our CET1 ratio ended the quarter at 15.2%, including a 17 basis point impact from the repurchase of 7.5 million common shares during the quarter. Our proven business model anchored by our diversified business mix, North American scale and risk discipline has enabled us to continue to invest in transforming the bank for the digital age.

This quarter, we announced an acceleration of our strategy to establish an enterprise-level data platform on Microsoft Azure. This initiative to modernize our data infrastructure, which includes a multiyear agreement with Databricks, data at scale will further enhance our analytical capabilities and deliver richer insights, driving better customer experiences and enabling colleagues to collaborate with more agility across the bank.

We're also investing in our colleagues, building on our brand as an employer of choice for top technology talent. We are hiring more than 2,000 technology roles in 2022 to drive investments that will help power the future of banking with a focus on skills in cloud, machine learning and automation. As we continue to evolve the colleague and customer experience, growing and empowering skilled technology talent will remain a cornerstone of our forward-focused strategy.

Let me now turn to each of our businesses and review some highlights from Q1. Our Canadian Retail segment earned $2.3 billion, delivering record revenue and earnings. The personal bank had a strong quarter. In our real estate secured lending business, we have been encouraged by the early response to the introduction of our popular FlexLine hybrid lending product into the broker channel in January.

Our cards business is performing very well. Balances rose year over for the first time since Q1 2020 and card retail sales were up 23% year-over-year. Our customers are highly engaged with our loyalty programs, including our Amazon Shop with Points offer, where you've seen approximately 2 million redemptions to date.

Even as we continue to grow personal deposits, we took market share in mutual funds as we leverage our One TD strategy to help more Canadians meet their long-term investing goals. And we strengthened our New to Canada offering, bundling a digitally convenient way to send money to over 200 countries via our award-winning TD Global Transfer service.

Since launch, we have seen increased customer acquisition and volume growth with over 200,000 customers conducting more than 1.8 million transfers to date. It was also a very strong quarter for the business bank with double-digit growth in both loans and deposits. In our wealth business, revenue increased 7% as strong net asset growth in mutual fund sales helped offset a moderation in direct investing trading volumes.

Our WebBroker platform, again, took top spot among Canadian banks in the Globe and Mail annual ranking of digital brokers, and we are excited to have extended those capabilities into a fully mobile environment with the launch of the TD Easy Trade app this quarter. We've seen strong take-up of the app, which is designed to make investing simpler for new and emerging investors.

Turning to the U.S. Our U.S. Retail bank earned $806 million in Q1, an increase of 31% year-over-year. Commercial loan origination volumes improved with mid-single-digit growth in middle market offset by continued PPP runoff and lower commercial real estate exposures. Line of credit utilization rates also increased modestly quarter-over-quarter.

This quarter, we piloted a next-generation digital platform for U.S. commercial clients, providing them with an end-to-end view of their relationship with TD, including access to treasury applications and the ability to transact across products. We also announced additional enhancements to our overdraft policies.

These build on the changes we introduced last August, including the launch of TD Essential Banking a low-cost deposit account designed to meet the needs of unbanked or underbanked households. The latest enhancements are intended to help customers better manage their accounts and make informed financial choices.

And we continue to see good take-up of our Double Up credit card. Double Up has become a primary driver of new bank card accounts for U.S. retail bank with almost 100,000 accounts added to date since its launch last spring. And with the contribution from our investment in Schwab of $200 million, our U.S. Retail segment earned -- earnings were $1 billion this quarter.

Let me turn briefly to our announcement this week of the agreement to acquire First Horizon headquartered in Memphis, Tennessee. I was in Tennessee this week meeting with First Horizon associates, and I was incredibly impressed with the talented people I met with their passion for their customers and communities.

Regarding our U.S. aspirations, for years, I've been sharing on these calls and elsewhere that one of our goals is to expand in the fast-growing Southeast of the United States. This week, we delivered on that promise with the announcement of our agreement to acquire First Horizon.

Upon closing, we will achieve leadership positions in key markets, strengthen our presence in states such as Florida and the Carolinas and gained footholds in the large Georgia and Texas markets.

And as you heard on Monday, First Horizon's banking centers are located in markets whose populations are projected to grow 50% faster than the U. S. national average. First Horizon is a fantastic bank, customer-centric deeply committed to the communities in which they operate and focus on growth just like TD.

With this acquisition, we extend our reach, acquired nuclear and specialty banking capabilities, add over 400 branches and expand to serve 1.1 million more customers. And as we said on Monday, we expect to achieve $610 million in annual cost synergies. The main drivers of these savings are expected to be technology and vendor costs as we reap the benefit of scale across our platforms and vendor relationships and corporate real estate.

With overall bank costs across the industry migrating to the center and away from the branch network over the past few years, the benefits of consolidation are increasingly achievable in market-adjacent deals without significant impacts to the frontline.

As outlined in our First Horizon Investor presentation, this transaction is expected to deliver 10% plus fully synergized adjusted EPS accretion in fiscal 2023, and the deal is immediately accretive to adjusted EPS at closing.

This transaction is strategically compelling, financially attractive within our risk appetite and culturally aligned. First Horizon is a terrific fit for TD and will enable us to further accelerate our growth in the U. S.

Let me now return to our Q1 results. In Wholesale Banking, earnings were $434 million this quarter. Business activity and markets remained robust, resulting in strong revenue performance and continued lower PCL. Our U.S. dollar strategy and investments continue to bear fruit and have contributed significantly to the revenue growth over the last three years. In addition, TD Securities won several key mandates in the quarter.

In Canada, we acted as joint lead book runner on Nestle's inaugural Canadian dollar offering, a successful $2 billion issuance. TD Securities continued to demonstrate its advisory and financing capabilities in the sustainable finance space, acting as adviser to clear away energy on its $1.9 billion sale of Clearway Community Energy to KKR.

Further reflecting our commitment to embed ESG principles across our business, this quarter, TD Securities debt capital markets team partnered with a syndicate of underwriters, the majority of which were diverse owned businesses to lead a $500 million green bond offering by TD Bank.

This offering was the first time that a syndicate group for a Canadian bank offering bond offering included minority women and veteran-owned businesses as active joint book runners. This was just of the deals making up a record quarter for our debt capital markets team and financial institutions which participated in an underwriting almost $40 billion of investment-grade debt for the sector.

Overall, as I reflect on our performance this quarter, I'm pleased with our strong start to fiscal 2022 and encouraged by the momentum in our businesses. It's been two years since the COVID-19 pandemic transformed the way we work and live.

While there are still challenges ahead, including inflation, labor market and supply chain pressures and serious geopolitical tensions, macroeconomic conditions remain positive as we evolve our approach to COVID-19 and economies recover.

With the strength of our business model and balance sheet, we remain well positioned to continue executing on our growth strategies. At the same time, we know the impact of the pandemic has not been evenly distributed. In particular, it has disrupted education across North America and the transition to alternative ways of teaching has created challenges for both students and teachers due to uneven implementation and unequal access to technology.

That's why the focus of the 2021 TD Ready Challenge was on supporting innovative solutions to address predicted learning loss in math and reading for disproportionately impacted students in grades K-12. This quarter, we were pleased to announce $10 million in grants to 15 organizations to help them develop innovative solutions to address these inequities.

We're also promoting equitable and inclusive innovation through TD Labs' new equity diversity and inclusion resource hub, a platform to support the inclusion of the unique perspectives and experiences of different community groups into the development, design and build of our products and services.

This platform has been piloted with success, and we look forward to leveraging it more broadly. We also continue to focus on inclusion and diversity across the bank most recently through a series of well-attended Black History Month events and initiatives.

TD's commitment to diversity and inclusion and environmental, social and governance initiatives more broadly continues to receive recognition. This quarter, we were proud to be recognized with an S&P Global Silver Class distinction in the 2022 S&P Global Sustainability Yearbook, one of the most comprehensive annual publications on the state of corporate responsibility, the only North American bank to carry the S&P Global gold or silver class distinctions.

Our strategy is centered on our vision, purpose and shared commitments, and I'd like to thank our 3,000 bankers across the globe, who bring those commitments to life every day. Their hard work, dedication and strong performance sustains and strengthens our winning culture.

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

Kelvin Tran

Thank you, Bharat. Good afternoon, everyone, and please turn to Slide 10. This quarter, the bank reported earnings of $3.7 billion and earnings per share of 202, up -- both up 14%. Adjusted earnings were $3.8 billion and adjusted earnings per share was 2 08, up 13% and 14%, respectively.

Revenue increased 4%, reflecting higher volumes and fee-based revenue in the banking and wealth businesses and higher insurance volumes partly offset by our normalization in direct investing trading activity and lower retail margins. Provision for credit losses was $72 million.

Expenses increased 3% year-over-year, reflecting higher spend supporting business growth and higher employee-related expenses partially offset by prior year store optimization costs and the impact of foreign exchange translation.

Adjusted expenses also increased 3%. The retailer partners net share of the profit from the U.S. strategic card portfolio did not have a notable impact on expense growth this quarter as PCL was stable across both periods. Absent the partners' share, adjusted expense growth was 3% year-over-year or 3.6% ex-FX.

For the same reason, the accounting for the U.S. strategic card portfolio had only a minimal impact on pretax, pre-provision earnings and operating leverage this quarter. Slide 24 shows how we calculate total bank PTPP and operating leverage removing this impact, along with the impact of foreign currency translation and the insurance fair value change.

Total bank PTPP was up 6% year-over-year before these modifications and 7% after reflecting strong volume growth. PTPP was up 6% quarter-over-quarter on both measures, mainly reflecting higher wholesale trading-related revenue.

Please turn to Slide 11. The Canadian Retail net income for the quarter was $2.3 billion up 11% year-over-year. Revenue increased 6% reflecting higher fee-based revenue in the banking and wealth businesses and higher loan, deposit and insurance volumes, partially offset by lower direct investing transaction volumes and lower margins.

Average loan volumes rose 9%, reflecting 8% growth in personal volume and 14% growth in business volume. Average deposits rose 9%, including 7% growth in personal volumes, 13% growth in business volumes and 9% growth in wealth deposits. Wealth assets increased 14%.

Net interest margin was 2.53% down 4 basis points compared to the prior quarter, reflecting lower loan margins. Total PCL of $33 million declined $20 million sequentially. Total PCL as an annualized percentage of credit volume was 0.03% down 1 basis point sequentially.

Insurance claims decreased 3% year-over-year, primarily reflecting a decrease in the fair value of investments supporting claims liabilities, which resulted in a similar decrease in noninterest income partially offset by more severe weather-related events.

Noninterest expenses increased 8% year-over-year, reflecting higher spend supporting business growth, including technology and marketing costs and higher employee-related expenses and variable compensation.

Please turn to Slide 12. U.S. Retail segment reported net income for the quarter was $1 billion up 30% year-over-year. U.S. Retail Bank net income was $806 million up 31% primarily reflecting higher revenue, lower PCL and lower noninterest expenses.

Revenue increased 6% year-over-year, reflecting higher deposit volumes and margins and increased earnings on the investment portfolio and higher fee income from rising customer activity partly offset by low margin.

Average loan volumes decreased 6% year-over-year, reflecting an 11% decline in business loans primarily due to PPP loan forgiveness and paydowns on commercial loans. Personal volumes were flat.

Average deposit volumes, excluding fixed deposits were up 13% year-over-year. Total deposits were up 15%, including 21% growth in consumer checking. Business deposits were up 12%. Sweep deposits declined 6%.

Net interest margin was 2.21% flat sequentially as the impact of lower accelerated fee amortization from PPP forgiveness was offset by higher deposit margins and increased earnings on the investment portfolio.

On Slide 28, we've continued our disclosure on the impact of the PPP program. This quarter, PPP revenue contributed approximately $65 million to net interest income and 10 basis points to NIM. We expect most of this benefit to be realized by the second quarter of this year.

Total PCL was $17 million up $79 million sequentially. The UIL net PCL ratio, including only the bank's share of PCL for the U.S. strategic cards portfolio, as an annualized percentage of credit volume was 0.04%, higher by 19 basis points sequentially.

Expenses decreased 4% year-over-year primarily reflecting prior year store optimization costs of $76 million and productivity savings in the current year partly offset by higher employee-related expenses and investments in the business. The contribution from TD's investment in Schwab was $200 million, up 24% from a year ago.

Please turn to Slide 13. Wholesale net income for the quarter was $434 million, a decrease of 1% year-over-year reflecting higher revenue and lower PCL offset by higher noninterest expenses. Revenue was $1.3 billion, up 3% year-over-year primarily reflecting robust client activity and market.

PCL for the quarter was a recovery of $5 million compared with a recovery of $77 million in the prior quarter. Expenses increased 7% year-over-year primarily reflecting higher employee-related costs and continued investment in the Wholesale Banking's U.S. dollar strategy, including the investments in TD Securities automated trading the electronic fixed income trading business we acquired from Headlands last year.

Please turn to Slide 14. Corporate segment reported a net loss of $227 million in the quarter compared with a reported net loss of $197 million in the first quarter last year. The year-over-year increase reflects a lower contribution from other items partially offset by lower net corporate expenses.

The decrease in other items primarily reflects lower revenue from treasury and balance sheet management activities this quarter. Adjusted net loss for the quarter was $127 million compared with an adjusted net loss of $94 million in the first quarter last year.

Please turn to Slide 15. The common equity Tier 1 ratio ended the quarter at 15.2% flat sequentially. We had strong organic capital generation this quarter, which added 45 basis points to CET1 capital.

This was offset by the repurchase of 7.5 million common shares under our share buyback program, higher RWA and a reduction in the scaler for OSFI's transitional adjustment for ECL reclassified from Tier 2 to CET1 capital, which declined to 25% from 50% effective this quarter.

RWA increased 2% quarter-over-quarter, mainly reflecting higher credit risk and market risk RWA. Credit risk RWA increased $7 billion or 2%, mainly reflecting higher volumes partly offset by a decrease in U.S. retail RWA due to a parameter update for the non-retail portfolio.

Market risk RWA increased $2.8 billion or 17% reflecting higher wholesale exposures. The leverage ratio was 4.4% this quarter and the LCR ratio was 124%, both well above regulatory minimums.

I will hand the call over to Ajai.

Ajai Bambawale

Thank you, Kelvin, and good afternoon, everyone. Please turn to Slide 16. Gross impaired loan formations increased 5 basis points quarter-over-quarter to 16 basis points, driven by U.S. commercial primarily related to government guaranteed paycheck protection program loans, which are now largely resolved. U.S. resi, reflecting loans exiting deferral programs and some early signs of credit normalization, including the reemergence of seasonal trends in the U.S. card and auto portfolios.

Please turn to Slide 17. Gross impaired loans were stable quarter-over-quarter at 33 basis points, remaining at cyclically low levels. Please turn to Slide 18. Recall that our presentation reports PCL ratios both gross and net of the partner share of the U.S. strategic card PCLs. We remind you that PCLs recorded in the corporate segment are fully absorbed by our partners and do not impact the bank's net income.

The bank recorded provisions of $72 million this quarter compared with a recovery of $123 million last quarter. The quarter-over-quarter increase reflects higher impaired PCLs rising from a cyclical low in the prior quarter, coupled with a smaller performing allowance release this quarter.

Please turn to Slide 19. The bank's impaired PCL was $329 million, increasing by $109 million quarter-over-quarter, reflecting some normalization of credit performance, including the reemergence of seasonal trends in the U.S. card and auto portfolios. Performing PCL was a recovery of $257 million compared to a recovery of $343 million last quarter. The current quarter recovery reflects additional allowance releases across all segments.

Please turn to Slide 20. The allowance for credit losses decreased $107 million quarter-over-quarter to $7.1 billion or 93 basis points, reflecting a more favorable economic outlook partially offset by the impact of foreign exchange. The bank's allowance coverage remains elevated from pre-COVID levels given ongoing uncertainty that could affect the economic trajectory and the ultimate credit impact of pandemic.

In summary, the bank exhibited strong credit performance again this quarter, with key credit metrics remaining at or near cyclically low levels. However, as expected, early signs of credit normalization are emerging, including modestly higher early delinquencies and impairments in certain portfolios and more typical consumer behavior, including higher seasonal spending. While credit results may vary by quarter, I continue to expect PCLs to be higher for fiscal '22 increasing from unsustainably low levels last year as credit conditions continue to normalize.

To conclude, TD remains well positioned given we are adequately provisioned, we have a strong capital position, and we have a business that is broadly diversified across products and geographies.

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

Question-and-Answer Session

Operator

Thank you. We will now take questions from the telephone lines. [Operator Instructions] Our first question is from Meny Grauman from Scotiabank. Please go ahead.

Meny Grauman

Just wanted to ask about RESL growth in Canada. Year-over-year, it's underperforming the peer group. And when I look, that gap opened up early in the pandemic, but it's -- looks like it actually has widened recently. So I'm wondering, as you look at that, what is your assessment of what's driving that? What's the reason for that?

Michael Rhodes

Okay. Meny, hi, this is Michael Rhodes. Nice to meet over the phone at least. So your question about RESL, First of all, it's interesting when you look at the numbers and you see almost 9% RESL growth, it's fit and see what was elsewhere in the market. I think that was pretty good. But the truth of the matter is we do have an opportunity and we do expect to do better.

In terms of why, look, our branch network, I think everyone knows, has been a historic source of strength. And this was clearly disproportionately impacted during COVID. But then coming out of COVID, we do look to create momentum in all channels, and that's why I said we expect to do better. So hours returned to normal as our mobile mortgage specialist productivity continues to improve, and we are seeing implement.

And as we continue to invest in training, operations, account management, and again, we've seen improvements in account management and retention, and see the benefits of the recent enhancements such as FlexLine in the brokerage channel, Bharat had referred to this in his remarks, we will not see any actuals in our financial numbers, but we are pleased with what we're seeing there.

And so, I start off by saying we expect to do better, and I'll conclude with that. The other comment I would make is if you look just over the past year or so, and just look at the sequential performance in the past year or so, I think you will see some momentum and it's certainly my job you enroll, and my job is to ensure that momentum continues.

Meny Grauman

And just as a follow-up, is your assessment that part of the issue is maybe a more cautious approach to risk? And how do you -- is that something that needs to be fixed or that you've addressed?

Michael Rhodes

As I'm sure you've heard before, we're through the cycle lenders. And I think that narrative stays the same today as it has last year, and it will be a year from now. Realistically, it's the closing down the loss of capacity for 10 hours in the branch has distortionary impacted us. We were more reliant. And so being through the cycle lenders, you're going to see us be relatively consistent with our credit approach.

Meny Grauman

And then just in terms of how you approach fixing the problem, you mentioned the FlexLine in the broker channel. How important is that in order to get you back to the peer -- you back into the peer range or even above?

Michael Rhodes

Yes. So, we're optimistic that FlexLine and broker channel will drive some nice performance on a go-forward basis. At the end of the day, and I know I'm not new to this call, you would have heard before that we like to be in all channels to be everywhere where our customer is. And certainly, broker is a channel where we want to be.

But I don't want to diminish the importance of our core retail franchise, and we expect to see strong performance of our core retail franchise. And I'd also offer that our mobile mortgage specialists, I said this is true, our productivity is improving. And so, we're looking to see performance in all channels and improved performance in all channels. Broker is one of those and FlexLine will certainly be helped there.

Meny Grauman

And just a final one, just as a follow-up, just in terms of timing there in terms of when you think you'll be able to close that gap with the peer group.

Michael Rhodes

Yes. So I might play the new guy card here. So I don't want to get too precise on timing. I will just offer that you should expect to see continued momentum.

Operator

Thank you. Following question is from Gabriel Dechaine from National Bank Financial. Please go ahead.

Gabriel Dechaine

My question is for Leo. During the quarter, you made some additional adjustments to the overdraft fee structure in your business. I'm wondering if you can quantify the potential revenue impact and the timing thereof as you see it. I know there were some changes last August. And at the time, you guys said it was about $40 million to $50 million impact. Just wondering what the latest round would be.

Leo Salom

Gabe, thank you very much for the question. Let me just describe very quickly what we actually announced February 1. We made a series of changes. We changed the minimum threshold by which a client would be charged overdraft to $50. We indicated that we will implement a 24-hour grace period.

We also announced that we're launching real-time alerts to keep clients informed with regards to overall balances and overdraft events. And then, finally, we implemented a cap to no more than three overdrafts in any given day. We feel that this was an appropriate set of changes. We thought it both gives clients optionality and convenience. And so we're comfortable with the changes that we made.

To your question about the overall impact, our estimate at this point is that if I add the changes that we made in 2021 and these most recent changes, the in-year impact will be $165 million. And if you annualize that, just to get a sense of what the total number would be on an annual basis, we'd be about $250 million. That's about 45% of what our pre-COVID overdraft levels were. Once again, quite comfortable with the changes, and I think we were trying to be responsive to client needs and certainly to the marketplace.

Gabriel Dechaine

That's U.S. dollars, I imagine?

Leo Salom

Yes, it is.

Gabriel Dechaine

And is there a timing that you have in mind? It's not as if behaviors changed because of some of the changes you introduced were included launching a overdraft fee products. There could be some switching involved. I don't know if this stuff happens overnight or what. How do you see it?

Leo Salom

No, Gabe, it's a very good question. We did launch the TD Essential checking account product late last year, which is essentially a no overdraft product. About 10% of all of our accounts are now in that product. We think it gives -- once again, when we talk about optionality between the TV Essential product as well as these changes that we made and the introduction of real-time alerts, I really do believe that that's a -- we'll be launching a series of other real-time alerts. Overdraft is one specific area, once again, giving clients greater control and greater options.

Gabriel Dechaine

Okay. And but does this phase in over time, something kind of just so I can model it?

Leo Salom

So, we actually announced that the $50 threshold, which will trigger not all of the impact but most of the impact would go into effect on April 1.

Gabriel Dechaine

Okay. Now switching to the -- well, quick one on rate sensitivity. Thanks for putting the slide in there, Kelvin and others, I imagine. Just -- I don't think -- I think it was, but what we would have called surge deposits at one point, does that included in that sensitivity? Or do you back that out, the benefit from rising rates?

Kelvin Tran

Yes. So that includes all deposits. We don't back it out. It's on a constant balance sheet basis.

Gabriel Dechaine

Okay. And then the last one on the acquisition the $494 million of prefs you're buying from First Horizon, 30% of that goes to an employee retention mechanism. And the other 70% goes to what? I'm wondering if you can kind of help me understand where that money goes.

Leo Salom

I can certainly take this. This is Leo. You're right, the first $150 million was really earmarked around retention, which is critically important to us. We wanted to ensure that we were retaining what is the real asset of First Horizon, which is their bankers, their frontline staff. And so that was key.

The balance was really a reflection of the fact that we've got a great deal of confidence in the model that First Horizon is pursuing and their organic growth plans, and we wanted to facilitate the acceleration of those, whether that's organic branch expansion whether that's increasing of commercial banking coverage teams or simply getting after day two enhancements that would potentially position the firm for a more rapid future integration.

So we're quite comfortable with Brian's discretion to actually execute against those items. I would also say maybe just one last point on this is that we wanted to signal very clearly our commitment to this transaction, to First Horizon, to the management team and 3,000 colleagues that will soon become TD colleagues because we do believe this is a world-class franchise and one that will be very additive to TD Banking.

Kelvin Tran

Gabe, just on the over I think Leo said it, but just to clarify, the 10% of new accounts, not all accounts. So it's just 10% of new accounts. And Gabe, this is memory lanes for me. I think you and I talked many, many years ago when I was in the U.S. product changes is just a normal course there. I remember the Durbin amendment and we're saying how much money is that better? How much money is that? And how will you offset it? I think the key message on how we manage these changes that are relatively regular in the U.S. business is through growth.

One of the main characteristic of TD Bank, America's most convenient bank used to have a lot more customers every day than what we had yesterday. So that's another way to look at it. The TD Essential Banking, is 10% of all new accounts now carries a fee. So at some point, all these things kind of square up and you march on. So I just want to make sure that some of our historic conversations are not forgotten.

Gabriel Dechaine

When I look at the filings here, and it shows that overdraft is actually becoming a smaller percentage of the fee income in the business. So you're doing nothing else.

Operator

Following question is from Ebrahim Poonawala from Bank of America. Please go ahead.

Ebrahim Poonawala

I guess maybe sticking with Leo on looking at Slide 28. Just talk to us, your business lending ex-PPP was fairly weak, and it has been very weak. You saw some strong growth from some of your peers. We've seen strong growth from the U.S. banks. Why we're not seeing the same commercial strength in the lending book, and just your outlook on that business? And also, I would love to hear if you think First Horizon adds anything on the commercial lending side for building.

Leo Salom

Thank you very much, Ebrahim. Let me just frame a couple of things first. There's two primary factors that really point to our performance on a year-on-year basis. As you rightly point out, we are seeing the unwind of the PPP portfolio. We extended 130,000 PPP loans for nearly $14 billion at a time that those clients needed it. And certainly, we're very proud of that. But we did over index.

In other words, we had a greater percentage of PPP loans as a percent of our commercial banking book than both our big bank as well as regional competitors. And so as that's unwinding that is creating a bit of a structural drag for us. Now that drag is all but expired. We would expect that the majority of that portfolio to be completed by the end of the second quarter.

I think the other piece, which we've also worked through, is our commercial real estate book. Our commercial real estate book did experience lower origination volumes, particularly in the office and retail space. And we've seen faster payback activity on that portfolio. We do have a slightly shorter duration in terms of the overall book than some of our competitors, and that obviously weighed on that portfolio in this period of time. So, there's two big structural areas that are contributing.

I did want to just give you a sense of some of the green shoots that we're experiencing, though, because I think it's important to just look at it. We experienced a sharp increase in gross loan originations in the first quarter. In fact, back to above pre-COVID levels, which is very encouraging. We started seeing a bit of a plateau in terms of line utilization.

And in fact, we saw a little bit of an increase in the first quarter, and that trend is continuing into the month of February. And in certain lines of businesses, particularly the middle market segment, which seems to be reacting a little bit more quickly. On a quarter-on-quarter basis, we saw a 5% increase in terms of overall loan balances.

So I'd say it is early. -- but we are seeing greater demand. And I suspect that as the liquidity conditions in the marketplace continue to stabilize I would expect that our community banking segment, our middle market, our asset-based lending areas would all see increased activity and loan balance growth through the course of this year. And I'm certainly optimistic that that's the case.

To your point with regards to First Horizon, I do think that First Horizon will absolutely be additive to us from a commercial banking perspective. And just the the geographic attractiveness of the First Horizon footprint, the capabilities that they have in the commercial, the quality of their commercial banking franchise and then the abilities to potentially overlay, whether that be TD Securities, whether that be just our balance sheet and giving them the ability to be a ranger and lead on more transactions or simply some of the combinations in the vertical categories, I think all of that will be very attractive and very additive to our current commercial bank.

Ebrahim Poonawala

Got it. So do you expect, as you think about -- and I'm looking at ex-PPP business loans, should we expect mid- to high single-digit type of loan growth that your peers are talking about or not?

Leo Salom

I would expect that we would see a gradual improvement quarter-on-quarter, and we should be able to get to loan growth levels that we're achieving pre COVID.

Ebrahim Poonawala

Got it. And I guess just one question on Canadian Retail. Mike, we saw revenues up 6%, expenses up 8%. As we think about the outlook for the rest of the year. Just give us a sense of how you're thinking about operating leverage going forward? And any puts and takes around what drivers of expense growth versus where you see potential savings?

Michael Rhodes

I guess I'll start out with this. So in terms of the expense growth in Canadian retail and you referenced the 8%, you have to disaggregate that a bit because there's -- the components, and I'm right here with me, wealth and insurance and the Canadian personal and commercial bank. If you look at the last page of the sub-pack, there was actually a breakdown of the Canadian Personal Bank, which actually shows about a 4% expense growth if my memory is correct on a year-over-year basis, and that's between Paul and myself and on the business banking side.

The operating leverage of that is strong. And look, we continue to -- we'll keep on investing in the business, and we would expect to generate positive operating leverage on an ongoing basis. Obviously, some puts and takes here and there. I hope I could make that disaggregation to see that. And then, Ray, maybe I'd actually hand it over to you to kind of talk about some of the dynamics you have because I gave one piece to the equation here the other piece.

Raymond Chun

Sure, Michael. Ebrahim. It's Ray. From a wealth and insurance perspective, on a year-on-year expenses were up 14%, and it's mainly driven by investments in really the right areas across both wealth and insurance to drive better exceptional client experiences, new acquisition and accelerate our growth.

And one thing I'll do is I'll just remind everyone that TD Wealth results include the direct investing business, which do impact our reported earnings and expenses. So -- in wealth, expense growth was mainly driven by the variable compensation due to higher fee-based revenue growth and shift in our revenue mix from transactions to fee-based revenue.

Considering that, wealth earnings remained stable year-on-year. And despite direct investing trading levels normalizing, which was down 28% year-on-year, which we do anticipate will continue in 2022, we'll call out the trades per day are still double what they were pre pandemic. And so we're also investing in new products, adding more advisers nationally and investing in digital and technology really to respond to the changing client expectations while meeting the ever-increasing regulatory requirements across wealth.

And I'll just point out and Bharat called it out, one of the key investments that we made in the quarter was the launch of TD Easy Trade, a mobile trading app designed to make investing easier and simpler for all new and emerging investors. We launched that in January -- and we've seen very strong early uptake in new accounts and net asset growth, which really demonstrates that it's resonating with the emerging investors.

I'd say on the wealth side, although expenses are up our Q1 results demonstrate the strength of our diversified wealth business. If I shift to TD Insurance, the business continues to grow, and there we're making the right investments to support the number one direct-to-consumer insurer in Canada.

And that includes increased investments in marketing, building leading digital capabilities, and we made a significant investment in our insurance advisers in our contact centers to ensure we're delivering exceptional experiences that will deepen our customer relationships. So I hope that gives you a sense of where we're making investments, Ebrahim, on both wealth and insurance.

Ebrahim Poonawala

That will help. And I guess, is the net of that that we should see the efficiency ratio improve year-over-year versus the 43.1 last year or unclear where that may shake out.

Leo Salom

Yes. So, I think it depends on the number of assumptions that you're going to have over the next little while because other than volume growth you're going to have rate -- what your expectations on rates are going to be. And then I would say also, if you look at last year, the peak trading revenue were actually in Q2. So you're going to see another quarter like that. But our goal is to generate positive operating leverage in the medium term.

Operator

Following question is from John Aiken from Barclays. Please go ahead.

John Aiken

A couple of quick questions, Kelvin, on the interest rate sensitivity. Couple of the banks have actually produced year two impacts from rising rates, are you actually able to provide any order of magnitude in terms of what the impact might be on TD state sensitivity for a year or two?

Kelvin Tran

Sure. So in terms of 100 basis points, the increase in interest rates across the curve on a static balance sheet, our number would be $2.8 billion -- but I would say just a little bit of caution on how you use that number because as you know, the assumption there is 100 basis point increase across the entire curve, right?

And as you know, when forward rate changes, whatever you've seen so far, people expect the short end of the rate of the curve to increase, but the longer end of the curve to not increase by that much. So you have to take that into account.

And then the other thing to take into account is what we've talked about in the past is whatever your on-off rates are because as your hedges mature or your investments mature in terms of rate, you need to think about how those rates mature versus the new rate that you put on. Hopefully, that answers your question.

John Aiken

Yes. No, understood, Kelvin. And just one follow-on. I know you've been exceptionally busy over the last little while, but have you had a chance to take a look at your rate sensitivity disclosures for First Horizon and how they're calculated. And would you anticipate any major differences if you've actually been able to dive into the weeds or should we take those data sensitivities is fairly similar to how TD calculates them?

Kelvin Tran

Yes. So we looked at their interest rate sensitivity. And so we're comfortable with including those into our model. We know that they do hedge their balance sheet as well. And as we work through the integration plan, we would look at that and take into account in how we're going to operationalize it.

Operator

Following question is from Paul Holden from CIBC. Please go ahead.

Paul Holden

First question is going back to Mike, and I really appreciate the candid answers on the residential mortgage opportunity. And I guess I want to ask you a broader question as you think about the Canadian Retail Bank as a whole. Has there been any evidence of deterioration in market share more broadly or maybe flipping out on its head, do you see broader opportunities to catch up and surpass peers?

Michael Rhodes

No, it's a good question. And actually, it's good. I mean, if I follow up and take a look overall. Look, I'd say, first of all, there's a lot of things we're very, very pleased with, what's performing the Canadian personal bank and, in fact, including share increases and some things that really matter. If you take a look at our deposit franchise, our deposit franchise share gain on a year-over-year basis is actually quite attractive and we're getting the right types of deposits. we like that.

The other thing we look at, and I'm here with my friend, Ray across the table for me, is we're gaining share in deposits. At the same time, we're actually creating mutual fund referrals. In fact, the mutual fund origination we have during the quarter has been very, very strong. And so we're very pleased with that. In fact, we call our cells market-leading with a combination of both our deposit business and our mutual fund generation.

If you look at the other asset classes and if you look and say that the cards business, as an example, I looked at everyone's competitive data. Everyone is in a reasonably tight range. But if you look at our spend, it's up 23% on a year-over-year basis, and it's actually definitely up over pre-pandemic periods.

And we're feeling good about how we're positioned with cards, and we expect to see growth there. And overall, there's a lot to like about our deposit -- our retail franchise. We have the best physical network in the marketplace. We have number one position in 79% of all markets with 500,000 people or more in the Canadian marketplace.

We have more web traffic. We have number one share of voice on social channels, and we've got a great, great front line, very purpose-driven, take care of the customer every single day. And as I say, look, we have opportunities in RESL. I agree with that. And with cards, we were number one market share. We're not right now, but you may know I have a lot of card experience in I'm looking forward to recapturing that position.

Paul Holden

And then a question for Leo, sort of some strategic opportunity type question. I mean, arguably, TD is underpenetrated in U.S. Wealth Management, I think now $41 billion of AUA, which is relatively small given the footprint there. Any indications you can give us on the ability to grow that piece of the U.S. business? And is there anything in First Horizon that helps on that venture?

Leo Salom

Paul, thank you very much for the question. As you know, I spent the last 10 years running our wealth franchise here in Canada. And I'd say we've got an enormous opportunity in the U.S. I'd say fundamentally, when you think we've got 9.5 million retail clients, the mass affluent and high net worth SKU on that is as much as 35% of the overall book.

The ability to bring systematically financial planning and other mass affluent investment solutions to that client base both in the stores and via other direct digital platforms is very compelling. We've been building out that team. In fact, we added over 30 advisers just over the past 12 months, we will accelerate that pace because I believe that we need to achieve a critical mass of advisers to support our retail mass affluent clients.

And likewise, I think the high net worth opportunity and the partnership with the commercial bank, making sure that we're bringing not only commercial banking solutions but bringing along the business transfer solutions and the other wealth management, investment management solutions and to do that at scale and consistently is going to be a big priority for us.

So I think as I think about trying to build out key business in the U.S., our wealth management opportunity has got to be one of the most significant levers that we're going to pull.

Paul Holden

Great. I feel like we're going to be asking about this more often. One final question, again, Leo, for you, the U.S. Bank closed a number of stores roughly a year ago, right, early 2021. Notice that the store count though grown in each of the last two quarters. Maybe you can sort of give us a sense of what the strategy is there? I'm assuming it's into new geographies? And maybe you can just kind of clarify that.

Leo Salom

Well, that's absolutely right. So think of when we do store optimizations, it's us looking at the entire network and deciding where we could potentially consolidate certain locations, still keeping the client at the center of that decision but then redeploying those investment dollars into geographies that have higher growth profiles and with the view on densification.

Something that we're very proud of is that 79% of our deposit base are in markets that we're either number one, two or three. And the only way you can do that is by being very purposeful around thinking through your distribution network and investing around certain MSAs and achieving critical mass.

I'd say -- I know we talked a great deal about the branch network there, and that was the basis of your question, Paul. But I'd say the investments we're making in digital marketing and digital acquisition are also critically important in terms of being able to achieve the full potential of our branch network.

And there, I have to say I'm extremely pleased with what the U.S. team has been able to do over the past two, three years. we are a leader in terms of customer checking account acquisition in the United States. And to the extent that we can get that network model right, bring digital marketing to bear and maximize our presence in the marketplace, I think that will put us in a very good position.

Operator

Thank you. Following question is from Scott Chan from Canaccord Genuity. Please go ahead.

Scott Chan

Just a couple of follow-up questions on First Horizon. How big is your wealth management platform? Is it kind of revolved management solutions? But I don't know if you can kind of help quantify it.

Leo Salom

Scott, to give you a sense, their total revenue base, if I strip out what is the institutional trust business, it's comparable to ours. It's a little smaller. But in terms of the model that they run, they run a brokerage RIA model very similar to ours.

They partner -- in their structure, their wealth advisers are very aligned to the commercial bank -- and they create a very effective partnership, almost a deal team around certain clients, and they've been very successful in growing their wealth business using that model.

We've historically leveraged the retail network and the retail alignment piece. So I think it's a complementary aspect to their model that we can leverage over time. But clearly, bringing those two groups together and, obviously, continuing to invest in our wealth distribution, our coverage will be a priority.

Scott Chan

And you talked about the wealth opportunity. But when I look at the AUM on the U.S. side, I sense that there's significant opportunity there. But every time I look at it, it's always declining and significantly underperforming peers in terms of assets. And maybe you can update on why that's happening. And is there anything strategic or anything or any initiatives going on with that platform?

Leo Salom

Scott, I think there's two things. When you look at the AUM number, we do run an asset manager in the U.S. and -- and I can certainly ask Ray to elaborate a little bit more.

But the two factors that are weighing on our AUM level, one is the fact that we don't really run an independent U. S. asset manager. It is part of TD asset management. And TD asset management from time to time might balance mandates from one part of our manufacturing plant to another. And so you could see movements between the U.S. and Canada but that is independent of our approach and the way we're trying to approach solutions in the marketplace.

The other factor is that Epoch is much more -- historically been more aligned to a value orientation. And up until recently, that style has been out of favor. Now we are very encouraged by what we're seeing more recently where you're starting to see real discrimination in the marketplace. And I think that operating model is likely to get much more traction in the short term. But I've probably stolen some of his -- Ray's thunder. So Ray, I don't know if there's anything you'd add to that.

Raymond Chun

I you've captured it well, Leo. I think the big opportunity for us will be and have been and it's been a work in progress is really to bring Epoch and TD Asset Management together and leverage the expertise that actually is in TD Asset Management, while we grow our U.S. asset management business. So that will be the work that we'll do over the next few years on that side of it, but significant opportunities on that side also, Scott.

Scott Chan

And just lastly, maybe for Kelvin. It seems like intra-quarter, expenses has been a focus. And I think a theme on this call has been on investing and you're hiring 1,000 tech people. I wonder if it's all bank level, Kelvin, if you can offer some expense guidance kind of following your fiscal Q1.

Kelvin Tran

Yes. So we don't like -- I think we've talked about that previously. We don't look at expenses on its own -- so our goal, again, is to look at driving positive operating leverage. And if we do see growth -- revenue growth opportunity then we would increase our investment.

And like we talked about earlier on, there are a few buckets of expenses that we look at. There's table stakes, expenses that you just need to spend to run the bank, and that's one bucket that is always there. Then there are strategic expenses that you have that you invest for the long term, so that's another bucket.

And then the last bucket would be more discretionary, but really important. If you see that the economy is recovering, you see revenue opportunities, you see rising rate environment, then you will dial up those investments to really capture market share because those opportunities are ripe for the taking. So, that's where I would leave it.

Operator

Thank you. Following question is from Nigel DeSouza from Veritas Investment Research. Please go ahead.

Nigel D'Souza

I had a question for Ajai, and I wanted to turn to your allowances. So you noted that your allowances are running at an elevated level relative to pre-COVID. And I'm wondering why we haven't seen a more aggressive release of those allowances. If I look at your forward-looking indicators, those have improved. So wondering why that didn't drive a big lease. And then second, based on your guidance -- should we take from your guidance that the sales are higher this year should be higher this year. Is that is a possibility you won't be able to fully release those excess allowances before credit conditions normalize?

Ajai Bambawale

I know it's a good question, so let me respond, and I'll start with allowance and then I'll go back to PCL. So I'd say the main reason we haven't released our allowances because there's still a tremendous amount of uncertainty. The sources of that uncertainty still are changing, okay? So Bharat talked about geopolitics, inflation. There is -- we don't know what the ultimate economic trajectory will be as a result of this war. So there's quite a bit of uncertainty out there, which is why we're releasing our results gradually.

Having said that, you're right, if the macro continues to improve, if this uncertainty reduces, we will be releasing more reserves. The exact timing of it is very difficult to tell. And then I'll go back to PCL. So I look at PCLs, what I would say is I expect a gradual increase in PCLs. And I say that because -- we think with normalization, impaired PCLs are going to rise. Again, I'm not expecting a sudden increase but gradual increase in impaired PCL. So we feel that is going to happen.

The reason we're saying the number could be higher is that performing PCL, that could be a bumpy ride, okay? And because there are various drivers of performing PCL, there's volume, there's migration, there's parameters, there's macro. So you're right in saying, I can't say for sure, we're not going to release the reserves. It's not predetermined. But the reason we are being cautious in what we're seeing is that performing PCL and what happens with that is going to be a bit bumpy. So I hope that's helpful to you.

Nigel D'Souza

That's very helpful. And if I could just focus on one variable here in your forward-looking indicators. When we look at your policy, Central Bank policy interest rate assumption, base case versus upside scenario, the upside scenario assumes a higher policy rate. Now can you help me understand why that is? Because I would think that an assumption of a higher policy rate would be an adverse scenario because it increases debt servicing costs. So could you just explain that?

Ajai Bambawale

Yes. For our upside, again, these scenarios are developed by economists we use in overheated economy. And that overheated economy there's high inflation, but there's high interest rates as well. So and in that case, we actually assume in Canada, rates go up 150 basis points and, in the U.S., 125 basis points. Our downside case here is a pretty stringent case. It's a global slump.

And in that case, the inflation actually unwinds quite fast. But our base case as well, we do assume high inflation in the base case. It's almost -- I think it starts out being at around 6% for the U.S. at Q4 and then sort of tapers off from there. But it's the assumptions we've made for the upside case, and an overheated risk economy is what we're assuming.

Nigel D'Souza

Okay. So any comments on the stagflationary scenario if you have higher interest rates and decelerating growth, how does that affect your credit loss modeling?

Ajai Bambawale

Yes, good question. So what I would tell you is we're giving it a lot of thought, and we are going to be running some stagflation scenarios in CR. It is a plausible scenario. We would be concerned with that kind of a scenario, and we're doing more work on that front right now.

Operator

Thank you. Following question is from Sohrab Movahedi from BMO Capital Markets. Please go ahead.

Sohrab Movahedi

I just wanted maybe to do a couple of cleanup questions. I'll start off with Leo. You talked about the opportunity -- or maybe Ray and you both talked about the opportunities between td Asset Management Epoch and really leveraging the franchise in the U.S. What's unique about -- is it just a new set of eyes looking at this? Or have these opportunities always been there and the focus wasn't there? Or is there a particular reason why the next 12 months will be better than the last 12 months, so to speak?

Leo Salom

Sure, I can certainly start. This is Leo. I'd say that the reality is, if you look at the growth trajectory, the U.S. business over time, whether it be expanding the footprint, adding capabilities U.S. has been on a journey to round out its core capabilities for some time. We just think this is a terrific opportunity to lean into the wealth lever.

Both Ray and I worked together for many years. I think we see clearly an opportunity in the U.S. marketplace from a demographic standpoint, I think we've got the capabilities. We just implemented a next-generation adviser support platform, which we're really excited about that went into production just 1.5 months ago.

And so, we're making the investments to be able to scale that business. And look -- having looked after the wealth business for 10 years in Canada. I look at the U.S. opportunity. And in many ways, I see it as larger certainly, as a growth contributor, I see it as a very significant opportunity.

Sohrab Movahedi

And Leo, you mentioned the addition of advisers. When these advisers come on, how long before they are productive?

Leo Salom

Well, I think it depends on whether you're talking about mass and high net worth, learning curve is a little different on each and whether you're trying to build from within or you're hiring seasoned advisers. So I wouldn't want to speculate on what we try to do in the mass affluent space.

We try to take some of our strong retail talent, put them through a bit of an internal investment academy, prepare them for their licensing, both on an RIA as well as a Series 7 license, and then prepare them to be able to deliver against the financial planning framework as opposed to a brokerage framework. And that -- and we've been quite successful with that operating model. And anything what I want to do is try to accelerate that.

In the high net worth space, we tend to bring individuals onboard and recruit individuals that are seasoned. And so the learning curve there is much shorter. They're really learning how to operate within TD as opposed to how to be able to deliver against client expectations. And so I would say there -- the key is just making sure that you're creating -- you're identifying -- you're recruiting top talent.

And I think TD when an adviser thinks of TD and they think of our network, they think of our presence, where we operate, our client base, it's an extremely attractive proposition for an adviser to want to bring that investment capability to bear on our client base. And that's our proposition where we're hiring.

Sohrab Movahedi

Okay. And then, Ajai, for you, can you just talk a little bit about the efforts that you and your team would have put in around the due diligence for the First Horizon acquisition limit the number of weeks you were involved in our spend percentage of the book reviewed number of accounts, that kind of stuff.

Ajai Bambawale

So I'll make a few comments. What I would tell you is that at the bank, we have a tried and tested due diligence framework. We've used it for many acquisitions. We use it here. It was detailed. It was thorough. There were teams from across the banks that have been involved in the whole process. So, this is not just risk but everyone.

And including this, there were quite a few people, I don't have exact numbers with the U.S. team, the Canadian team as well were involved. So I'm quite satisfied that the process was robust. And the outcome is a good outcome for the bank. And does that address your question? In terms of files, I can give you a little bit if you want.

Sohrab Movahedi

Yes, I'd like to know, like did you spend 1,000 hours, was it 200 hours from a risk perspective? Did you review 80% of the largest accounts? Or did you review 50% of the industry groups, like a little -- yes, if you have it handy, I'd like a lot more detail.

Ajai Bambawale

Well, I'll give you a little bit of color. We looked at quite a few files. I'd say approximately 20% of the plans were reviewed by us. And we were very sort of thoughtful in our approach on what files we wanted to review. And we were satisfied just on the file review that the credit quality here at First Horizon was entirely acceptable. And we just didn't do a file review.

We looked at credit policies. We looked at underwriting standards. We compare them to ours. So all that led us to the conclusion that across their retail book, which is largely vessel, C&I, which is a big book, and of course, Cree as well that the underwriting standards and quality and the team, future TD colleagues, we were quite pleased with that. So I hope that helps.

Bharat Masrani

Just to add, this is a core strength of TV, how we do acquisitions. There's a whole process we follow the number of people involved, who's going to be involved, who's going to be leading each of the teams. So it's a very thorough process that has been reviewed by many, many stakeholders. So, we feel very comfortable as to how this particular due diligence was carried and what kind of results we got out of it.

Operator

Thank you. Our last question is from Mike Rizvanovic from Stifel. Please go ahead.

Mike Rizvanovic

I want to go back to Leo on the overdraft fees. So what I'm wondering is how concerned are you that this line, and I appreciate the added color on the new guidance, but how concerned are you that this may actually end up going to zero if you're thinking one or two years out, just with respect to seeing more banks actually eliminate this fee altogether and it's just hard for you to understand how we could get this divergence where some banks charge the fee and others don't. So, how concerned are you that there's more downside here on that fee line?

Leo Salom

Mike, thanks for the question. I'd say the -- our objective when we launched the TD Essential checking account was, in fact, to provide clients with a product that would give them a zero overdraft option. So it was by design, and now we give clients choice, whether they want the TD Essential checking product or they want our core checking.

From our standpoint, I think choice is what's critical. Obviously, we'll continue to monitor the market with regards to how things develop. We need to be competitive. And obviously, to the extent that we believe we need to revisit that, we would. But at this point in time, we feel very comfortable with the decisions we made.

Mike Rizvanovic

Okay. And then maybe a quick one for Ray. I just wanted to ask about the insurance revenue being so strong. Obviously, I would suspect part of that is driven by the fact that you're the only Canadian bank that underwrites P&C insurance, and you've outperformed your peers quite a bit here. I'm wondering how much of that do you think possibly comes back as driving returns to normal auto claims start to return to normal. What's the sort of downside? If you could quantify, that would be helpful.

Raymond Chun

Thanks, Mike, for the question. And I'd say our insurance business, as you said, just continues to grow and take market share. And before I get there, I mean, just to give you a sense, to your question, TIs, I mean, our earnings are very strong earnings were up 15% year-on-year, core revenue growth of 8%. And that's really on the strength of our underwriting, our pricing sophistication and claims excellence. And so that's -- overly the fact that Q1 was an unusually high catastrophe activity for this quarter. It's actually the highest cat quarter since 2014 for Q1.

And so we have been monitoring closely the easing of the COVID-19 public health restrictions across the country. And pandemic has certainly impacted driving behavior, and it continues to disrupt the supply chain, I would say, in the auto sales, new auto sales and certainly in the auto parts industry. And so we're watching that carefully.

But in addition to this, claims are also impacted, as you know, by many other factors and seasonality being one weather events. And I think you would have all have seen that over the last few years, we've expanded our market-leading auto centers across the country. And certainly, that will help us as driving returns.

And we do anticipate that, as COVID dissipates, the driving world resumed to pre-pandemic levels. We do anticipate that claims or claims are going to normalize. And I think the advantage that we have is that we'll have, over the course of this year, 28 auto centers across the country, handling about 40% to 50% of our auto claims, which is a real advantage from a client experience and from a claims management.

Operator

We have no more questions in the queue at this time. I would now like to turn the call over to Mr. Bharat Masrani for closing remarks.

Bharat Masrani

Thank you, operator. Great engagement on the questions, great job by the team here at TD. Folks are in new positions, but you can see that they certainly are well prepared and raring to go as terrific to see that. And from my perspective, a great start to the year, very happy with how we are performing in various lines. You saw what our opportunities are.

We had a good discussion on that, and really, really excited about the announced acquisition of First Horizon. This does -- it takes our business in the U.S. to a new level as to the opportunity very, very exciting. So, I'm happy to report that we will get some of these businesses where we lag back to where TD normally is, and the pandemic is certainly a had an outsized impact on us because of our branch e-centric model particularly in Canada.

Before we close, I'd like to take this opportunity to thank Gillian Manning as she heads off to a new role with TD Asset Management. Over the last few years, Gillian has built a strong and award-winning IR team that is respected by our analysts and investors. I'd like to thank Gillian for her leadership and wish her all the best at TD Asset Management.

I'm also delighted to welcome Brooke Hales as our new Head of IR, and she is off to a flying start, having just done her second call in one week. Thanks for joining us, and we'll talk to you all again in 90 days. Thank you.

Operator

Thank you. The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation.