Toronto-Dominion Bank at National Bank Financial Services Conference Transcript

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

Question: Gabriel Dechaine - National Bank Financial, Inc., Research Division - Analyst : Thank you. Very topical business, as always. And I'd just like to start off with how you see the year evolving. There's -- whatever happens on rate cuts and then there's some fee pressures, of course, in the U.S. So maybe some downward pressure on revenue and then you got the credit losses that are normalizing, nothing too alarming, but just heading in a natural direction, if you will. Is it going to be tough to hit, generate any earnings growth in the business this year. Leovigildo Salom - The Toronto-Dominion Bank - Group Head U.S. Retail and President & CEO of America's Most Convenient Bank Sure. Okay. First of all, thank you very much for the invitation. It's great to be here. There's no question that the U.S. environment right now is very challenging. And probably 2 big factors. One, we're seeing NIM compression. Last year, first quarter 2023, we saw peak NIM levels. And obviously, given the deposit migration, we've seen a little bit of that give back. That is stabilizing. And I think the outlook on that front is quite encouraging, and I'll talk about that in a moment. And the other one is just PCL normalization. We're seeing delinquency levels normalize back to prepandemic levels. In some cases, in some asset classes just slightly above pre-pandemic levels. So those 2 are weighing on the short-term results. But to your point, Gabe, I'm pretty optimistic about what the balance of the year looks like for a number of reasons. One, we are seeing really strong operating momentum in our business. If you look at our loan growth for the first quarter, our overall loan growth was 9%, 11% in retail, 7% in commercial. I think a reflection of a number of things, investments that we've made in the franchise in terms of capacity to be able to serve our client base, extend our coverage. But I also think it reflects the fact that we've got the capital liquidity to be able to lean in on target relationships and be able to cement our relationships with key clients. And I think that's a bit of a luxury in this particular market. I do think margins are stabilizing. I think the back end of the year, we would expect some modest margin expansion, which should certainly help. And to your point around expenses, we've been very focused on our productivity program, and we are seeing a moderation in expense growth. In fact, expense growth for the quarter was down 2% on a quarter-on-quarter basis. So you put all those things together. And I do think that the back end of the year, we should expect

Question: Gabriel Dechaine - National Bank Financial, Inc., Research Division - Analyst : Yes, you have been generating good loan growth pretty contrasting against a lot of the industry actually, so it's been impressive. I'm just wondering how much of an inhibitor, the election and the rate cut uncertainty present to your growth? Like would it be dramatically higher if those issues weren't were present? Leovigildo Salom - The Toronto-Dominion Bank - Group Head U.S. Retail and President & CEO of America's Most Convenient Bank Well, Gabe, there's no question that we've seen some good commercial loan growth over the past probably 5 , 6 months and to that, I think we've been a positive outlier to the market overall. I'd say if I unpack that just for a moment to give you a sense of what we're seeing the growth. I think a good portion of the growth is coming from our middle market expansion. We made a decision to be able to reinforce that group probably about a year ago. We added talent, added coverage. And I think we're seeing the outcome of that now. We're also seeing good growth in our specialty corporate businesses and our national franchise businesses. And so that is giving us a bit of a leg up on the overall industry as a whole from an overall commercial loan perspective. But your point is very true. I mean the market right now, interest rates are weighing on client decisions. There is a bit of a wait-and-see phenomenon that's happening, and that is delaying the amount of investments that certain clients are making and certainly delaying some of the lending decisions or some of the borrowing decisions that they're making. I don't know about the political overhang. I would say rates are probably more important than the political dimension at this point. I would expect that if everything plays out the way we think, we'll see more loan demand in the fourth quarter of this year going into the first quarter of next year as rates begin to signal some opportunity for clients to step into the market.

Question: Gabriel Dechaine - National Bank Financial, Inc., Research Division - Analyst : As far as on the investment part of it, cost containment, while also investing, I just wanted to ask you about Florida as we've always been like this Holy Grail, so to speak, for the bank and -- it's been mostly organic expansion. Is there still an ongoing big push to get bigger in Florida? Leovigildo Salom - The Toronto-Dominion Bank - Group Head U.S. Retail and President & CEO of America's Most Convenient Bank Very much. So in fact, we opened up another store in Florida just 2 weeks ago. Florida is a really attractive market, Gabe. It's benefiting from some really structural tailwinds. There's a significant amount of migration from some of the urban markets, New York, certainly, down to Florida, and that's driving a tremendous amount of population growth, not only in your traditional markets like Miami, Fort Lauderdale, the Palm Beaches. But you're seeing even in some of the Central Florida markets in North Florida, we're seeing significant expansion in those. And I think we're extremely well positioned. We've had probably double-digit growth rates in our Florida marketplace, and that will be an area that we'll continue to invest in.

Question: Gabriel Dechaine - National Bank Financial, Inc., Research Division - Analyst : But the credit risk RWA would be the bigger component of that. Leovigildo Salom - The Toronto-Dominion Bank - Group Head U.S. Retail and President & CEO of America's Most Convenient Bank Yes, that's right. That's correct. 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: Gabriel Dechaine - National Bank Financial, Inc., Research Division - Analyst : Now switching over to Schwab. There's about $95 or so billion of deposits that are still on the balance sheet. Can you remind us of the time line for them to -- and it's still a floor of $50, I believe. Leovigildo Salom - The Toronto-Dominion Bank - Group Head U.S. Retail and President & CEO of America's Most Convenient Bank Sure. What no, it's -- actually, we renegotiated the agreement. Maybe I can walk through -- in May of last year, we renegotiated the insured deposit agreement with Schwab. And essentially, what we wanted to do -- we wanted to extend the agreement, so we extended it for another 3 years. And in exchange, we provided Schwab a little bit more flexibility with regards to floors, the minimum deposit levels that they need to maintain with us. That gave Schwab some flexibility, and it kept us in a strategic partnership that we're quite pleased with. As a result of that, the actual minimums through September of 2025 will be equal to our fixed rate obligations. After September 2025, the floor is $60 billion through the year 2034. And another arrangement, of course, as I said before, went into effective, I guess, May of last year.

Question: Gabriel Dechaine - National Bank Financial, Inc., Research Division - Analyst : When you say partnership, and I'm -- just to be devil's advocate or whatever, I see passive investment, I could look at it that way, is if you own 11% or whatever and over time, the deposits are moving over to Schwab. So how do you see things differently in describing in a partnership? Leovigildo Salom - The Toronto-Dominion Bank - Group Head U.S. Retail and President & CEO of America's Most Convenient Bank No, no, I think you've described -- I think we've got a 12% stake in arguably one of the best wealth advisory firms in the country. Schwab manages $8.5 trillion in assets. It has a terrific leadership team, a proven business model continues to grow at strong single and double-digit growth rates. So I think we like very much the equity interest that we have in that and as -- over the past few months, they've been actually integrated in TD Ameritrade, and so we're seeing the synergies and the benefits from that. So we're quite pleased with the equity component of that relationship. And I think this other IDA agreement is another important part of that arrangement. To your point, though, we do operate our own wealth franchise, and we do go to market with our own distribution piece. So there isn't a commercial partnership, but there is a very important investment in partnership.

Question: Gabriel Dechaine - National Bank Financial, Inc., Research Division - Analyst : Sticking to the regulatory/political theme AML issues have obviously been topical with TDU over the past year or so. I understand that the costs of addressing these -- this issue is being borne by the corporate segment. I'm wondering what's the impact on your business as far as day-to-day operations and more compliance people running around that type of thing. Leovigildo Salom - The Toronto-Dominion Bank - Group Head U.S. Retail and President & CEO of America's Most Convenient Bank Yes certainly. But just to maybe take a step back before I answer where the expenses are. I do want to make a very important point. This remediating our AML program is a top priority for the bank. It's a top priority for me personally. We are -- we take any sort of breach in our governance and control processes very seriously. And so this is getting maximum attention inside the organization. And we've made significant progress already on our program. We've added significant talent and leadership to our AML organization. We've added hundreds of individuals, both in terms of analysts, investigators as well as supporting program management architects to be able to invest and enhance our program. We're investing in our data infrastructure. We're investing in technology, in other words, we know what we need to do, and we're at it. We're going to fix it. We believe it's manageable, but it is a top priority for the bank. That said, from an expense standpoint, the expenses that are related to the transformation. So some of the infrastructure changes are in fact being carried at the center. And the logic there is that those transformational program changes will not only impact the U.S. but they'll form the basis, those platforms will be the basis of our global program. With regards to run rate expenses, those that are much more recurring in nature those are still reflected at the local level. So we do have a bit of a split along the lines of what the future carry run rate cost will look like.

Question: Gabriel Dechaine - National Bank Financial, Inc., Research Division - Analyst : One question I get asked, and I mean it's -- I don't know to what extent you can address it. But when we look at regulatory oversight in the U.S. in the past, there have been examples where the regulator the OCC or the Fed says, okay, you guys have had some issues. We kind of cap your growth for a while and come up recently, actually. Is that even a worthy consideration for TD in the U.S.? Leovigildo Salom - The Toronto-Dominion Bank - Group Head U.S. Retail and President & CEO of America's Most Convenient Bank Gabe, I really can't respond. I wouldn't want to speculate with regards to what the discussions we're having with any of our regulators. What I would say is I'd ask you to just take a look at what we've been doing. I mean we've got an exceptionally strong franchise. We've got a leading retail deposit business across the country. We're a leading small business lender. We've got a strong community bank offering commercial services right across our East Coast footprint. We've been able to scale our corporate franchise businesses. So we've already got a significant foothold on the East Coast. And we continue to invest in areas like cards, our wealth business, our mid-market business. So in many ways -- and if you would have seen our first quarter, you see some of that operating momentum very much present. So I would expect us to make the requisite investments we need to make in our regulatory environment and certainly our governance and control environment. But I would expect to still responsibly, sustainably grow our franchise in the U.S.

Question: Gabriel Dechaine - National Bank Financial, Inc., Research Division - Analyst : What's the opportunity for you there to work with them? Leovigildo Salom - The Toronto-Dominion Bank - Group Head U.S. Retail and President & CEO of America's Most Convenient Bank It is -- the TD Cowen acquisition has been -- it not only allows Riaz to complete the footprint with regards to the wholesale business in the U.S. because they bring equity research, equity capital markets capabilities, investment banking capabilities. But they also have a very strong mid-market client base and a mid-market sponsors business, which fits really nicely with the commercial bank. And in fact, we are partnering quite deliberately with Jeff Solomon and the TD Cowen team to be able to bring our teams together. And I think some of the successes that you're seeing in terms of the growth that we've seen in the market is as a result of the TD Cowen.

Question: Gabriel Dechaine - National Bank Financial, Inc., Research Division - Analyst : And your -- and how. Leovigildo Salom - The Toronto-Dominion Bank - Group Head U.S. Retail and President & CEO of America's Most Convenient Bank And selectively the one point that I want to make, Gabe, is our mid-market business we find ourselves an interesting moment in the mid-market space in the U.S. It had been an area of significant growth for many of the regional banks. The current capital liquidity concerns has meant that there's been a bit of a pullback from some of our regional peers. So it's giving us an opportunity, given the fact that we do have the capital, we do have liquidity. We have a financial resource to play in that space. We're leaning into that space, but we're doing it very selectively. We're choosing those clients that -- where we believe we can bring the entirety of the bank to bear to include cash management services, operating account, payment capabilities and not simply offering the balance sheet indiscriminately. So that discipline should not only allow us to be able to grow, but also be able to post some healthier return on equity profile.

Question: Gabriel Dechaine - National Bank Financial, Inc., Research Division - Analyst : Just -- we have time for one last question. Maybe check the crowd or we got one there. Unidentified Analyst In terms of that Cowen acquisition obviously when you made it you had expectations (inaudible) benefits based on what you just said are you expecting greater benefits.

Question: Gabriel Dechaine - National Bank Financial, Inc., Research Division - Analyst : And that brings us to time. Leo, thank you very much. I appreciate you coming to Montreal. Leovigildo Salom - The Toronto-Dominion Bank - Group Head U.S. Retail and President & CEO of America's Most Convenient Bank Thank you. DISCLAIMER Refinitiv reserves the right to make changes to documents, content, or other information on this web site without obligation to notify any person of such changes. In the conference calls upon which Event Transcripts are based, companies may make projections or other forward-looking statements regarding a variety of items. Such forward-looking statements are based upon current expectations and involve risks and uncertainties. Actual results may differ materially from those stated in any forward-looking statement based on a number of important factors and risks, which are more specifically identified in the companies' most recent SEC filings. Although the companies may indicate and believe that the assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate or incorrect and, therefore, there can be no assurance that the results contemplated in the forward-looking statements will be realized. THE INFORMATION CONTAINED IN EVENT TRANSCRIPTS IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE CONFERENCE CALLS. IN NO WAY DOES REFINITIV OR THE APPLICABLE COMPANY ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY EVENT TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S CONFERENCE CALL ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies.