Toronto-Dominion Bank Q1 2025 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Paul Holden - CIBC - Analyst : First question is related to the US balance sheet repositioning. You highlighted that you paid down USD25 billion of borrowings in Q1. And I'm assuming there's probably more to do there just in terms of paying down higher cost borrowings. Can that come hand in hand with, say, that $9 billion portfolio sale you've agreed to already in Q2? And could the sale of lower-yielding assets actually be NII accretive? Leovigildo Salom - Toronto-Dominion Bank - Group Head U.S. Retail, TD Bank Group and President and Chief Executive Officer, TD Bank, America's Most Convenient Bank Paul, thanks for the question, it's Leo. Yes, the short answer is, at the end of the first quarter, so January 31, we were sitting on $25 billion of bank borrowings, having already reduced nearly $25 billion previously. So there will be an opportunity to further reduce that over time. How quickly we can do that will depend on the term structure of some of those bank borrowings. So we will be able to deploy a good portion of the $9 billion to reduce a portion of those bank borrowings in the second quarter, the balance will have to materialize as we reduce our overall loan portfolio. We'll do that gradually during the course of the year. So you may not see the same size of decline in the second quarter, but you will see over time an opportunity to further reduce the $25 billion in bank borrowings on the balance sheet at the end of the first quarter.

Question: Gabriel Dechaine - National Bank Financial - Analyst : I guess I'll start with expenses. So 12% expense growth, a third of that was variable comp related in FX. So let's say, 8% to measure up against your guidance. A little bit above that, you're saying Q2, you'll have another expense uptick. And then I would assume that means in the second half expense growth (inaudible) it doesn't fall off a cliff, but drops well below that full year range? Is that how we're expecting it to play out?

Question: Gabriel Dechaine - National Bank Financial - Analyst : And that's despite what Lee was just saying as far as there's going to be a seasonal increase in AML remediation costs in the second half?

Question: Gabriel Dechaine - National Bank Financial - Analyst : Now other question about the performing provision this quarter, a release. And you gave an explanation there that was helpful. The model refinements for the US current portfolio? I don't even know what goes in that. So that's fine, I guess. But then the improvement to the macroeconomic outlook, kind of may be split out my coffee a bit. What are we talking about here? And I think we're all in agreement. There's a lot of uncertainty out there. The Canadian economy, at least, is really decelerating. And is it a matter of you had REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies.

Question: Ebrahim Poonawala - Bank of America - Analyst : I guess maybe first question maybe for Ray and Leo both. But I think, Ray, in your prepared remarks, you mentioned you might identify the need to make strategic investments. And then I think Leo mentioned about looking for other portfolio exits. As we think about -- so it's not AML related, but as we think about the outlook for investment spend, expense growth, does that leave the door open where expense growth could ramp up as you identify more investment opportunities? Or is that going to be concurrent with things that you talked about? And same thing on the portfolio exits, is that partly the reason why you're operating with a much higher CET1 is to give yourself room to restructure and exit some loans or sort of small business lines and take charges and move on? Would love color on both those.

Question: Ebrahim Poonawala - Bank of America - Analyst : And just one quick follow-up. Maybe it's quick. Kelvin, you mentioned NIM expansion should be substantial. I would appreciate if you could quantify that in what you expect either at segment level or consolidated level? Leovigildo Salom - Toronto-Dominion Bank - Group Head U.S. Retail, TD Bank Group and President and Chief Executive Officer, TD Bank, America's Most Convenient Bank Maybe I'll follow-up, Ebrahim, just on the US business because it's where that substantial adjective was applied, I think we are -- there's going to be two big factors or two big drivers driving that. One, we'll further normalize to the question that Paul raised earlier, we'll continue to normalize liquidity. And that will have an impact in the quarter. And secondly, we'll get sort of a full quarter's impact of the bond repositioning activity that we did in the first quarter. Both of those items will substantially move the NIM for the US business. thereafter, coming back to the point I raised before, I do think that the rate structures right now with higher medium-term rates will be constructive for modest NIM expansion thereafter.

Question: Meny Grauman - Scotiabank - Analyst : I wanted to follow up on some of the expense questions that Paul asked at the beginning of the call. Specifically, if I'm looking at the US. I'm looking at a sequential decline in expenses on an adjusted basis. So I think you touched on it, but I want to make sure I understand it. What's driving that sequential decline? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies.

Question: Meny Grauman - Scotiabank - Analyst : That makes sense. And then I just wanted to follow up on -- you talked about $149 million overlay. Just wanted to understand at a high level, obviously, how do you calculate that? How do you derive that $149 million?

Question: Matthew Lee - Canaccord Genuity - Analyst : Maybe a different type of question. On the Canadian mortgage book, flat growth quarter over quarter and a bit lower than some of the peers. Maybe just talk about what you're seeing in that business and how we should think about growth (inaudible) through the year?

Question: Matthew Lee - Canaccord Genuity - Analyst : Okay. Great. So nothing particular in the quarter that might have affected growth other than maybe seasonality.

Question: Doug Young - Desjardins Capital Markets - Analyst : Just maybe just a few quick ones, hopefully. US NIMs, just to go back to that, when you say normalized, like should we be thinking going back to around the 3% level where you kind of worked before Q1. And then expanding out from there, just hoping to get a finer point on that. And then you're going to have some excess liquidity coming from the Schwab sale. I assume it doesn't impact the US NIMs, does that kind of filter up and impact the all bank NIMs? Leovigildo Salom - Toronto-Dominion Bank - Group Head U.S. Retail, TD Bank Group and President and Chief Executive Officer, TD Bank, America's Most Convenient Bank Doug, just to give you a sense, well, we won't provide a specific guidance on the call. What I can tell you is if you look back to where we were before, we put on the liquidity position that we did in late third quarter, fourth quarter. And you look at that NIM level, returning back to that NIM level would not be an unreasonable assumption. So then you combine that with the bond repositioning piece, which will be an enhancement to NII. I think if you model that, that will give you a good sense of where we'll probably land from a NIM standpoint.

Question: Doug Young - Desjardins Capital Markets - Analyst : Okay. So that would impact in, I guess, marginally, the all bank. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies.

Question: Doug Young - Desjardins Capital Markets - Analyst : Yes. On the total bank level And then, Leo, just to clarify that $300 million to $500 million -- I mean that's not a new number you're looking to be at the upper end of that. Is that $300 million to $500 million or let's call it $500 million, is that going to be in for the full -- are you expecting that to be in for the full year of fiscal '25 or be on a run rate exiting '25 at that level? Leovigildo Salom - Toronto-Dominion Bank - Group Head U.S. Retail, TD Bank Group and President and Chief Executive Officer, TD Bank, America's Most Convenient Bank No. That's an in-year profile. And just to give you a bit more information that we reflected about $46 million related to the bond repositioning in the first quarter. So the lion's share number will materialize over the subsequent quarters.

Question: Darko Mihelic - RBC Capital Markets - Analyst : I have just a couple of detailed questions on the US business as well. I appreciate the suggestion that your NIM will expand meaningfully or substantially next quarter. But your NIM and your NII have a few -- well, a lot of moving parts. So I was just wondering if you could provide maybe a range of NII for next quarter for me to work off for the model? Leovigildo Salom - Toronto-Dominion Bank - Group Head U.S. Retail, TD Bank Group and President and Chief Executive Officer, TD Bank, America's Most Convenient Bank Darko, Well, let me just give you a sense of the drivers that you might want to think about. Clearly, I've given you a sense of where the bond repositioning piece is going to land, and you can sort of get a sense of -- we take the residual amount and that three quarters left. You can get a sense of what that lift is going to look like. I can tell you that the on rates right now that we're seeing is about 50 basis points higher than they were just a few months ago. And so obviously, that will be a tailwind that we'll start to enjoy maybe less so in the first half of the year, but more so towards the second half of the year. I'd say in terms of the underlying growth, we will be exiting a series of portfolios. So as we communicated to you back on October 10, there isn't an [eye drag] from exiting some of those lower-yielding portfolios. I think at that point in time, we did estimate that would be about a $250 million impact. So if you model that and then assume that in our core lines of businesses, I'm using our core bank cards business, our home equity line of business and our commercial and those segments in commercial, we're seeing good growth. I will say that I do believe, despite the fact that there is general optimism in the US with regards to our commercial clients are optimistic about the expansionary sort of deregulatory discussions that the current administration has laid out. I do think that some of the commercial lines might be a little bit more muted. But if you put all those things together, I think it lays out a relatively constructive backdrop for NIM expansion and for NII growth over the course of the year. And obviously, we'll try to continue, as Ray said, we'll try to continue to maximize those actions as we can. But I want to come back to maybe the obvious statement. Our focus here is to leverage 2025 as that transition year, to make the investments we need to in the core franchise to be able to address some of our remediation activities and to be able to exit 2025, exhibiting the earnings power of the US franchise. And so we're doing those things to be able to enter into 2026 with a more normalized profile.