Toronto-Dominion Bank at Scotiabank Financials Summit Transcript

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

Question: Mike Rizvanovic - Scotiabank GBM - Analyst : Thank you for joining us today, and I thought maybe we could start with a bit of a macro question. Obviously, there's been a bit of volatility in the economy, both Canada and the US, but for the US specifically, how do you sort of see the macroeconomic environment currently? And how do you see it evolving? And how does it sort of inform your views on your business? 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 Yes. I would say the US economy has been incredibly resilient. I think a number of things, the consumer has remained very strong, in fact, potentially even pulling in some of the purchases as a result of the tariff concerns. We've seen unemployment relatively stable. We've seen a tick or two, but the reality is the market is still healthy in that regard. Tariffs, which I think we all feared was going to have a much more significant impact. I think those fears haven't played out. And there is a lot of investment dollars that are poised to go into certain industries, certainly in technology, biomedical. And so I think in many ways, the US has been able to weather this period relatively well. Now there's tremendous uncertainty, Mike. 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: Mike Rizvanovic - Scotiabank GBM - Analyst : And obviously, on the credit side, that would be important for investors as well. So the credit outlook seemingly stable for now. Does this sort of indicate any pockets of stress in the book. Are you seeing any areas of concern? Or is it just sort of steady as she goes? 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 Well, you would have heard our Chief Risk Officer at the earnings announcement last week talk about the fact that we have set aside a performing reserve of $600 million, and that's Canadian, with the expressed purpose to try to address stress events that could materialize in vulnerable industries. So we have put that in place, a bit of an insurance policy to see how this tariff final negotiations play out. I'd say with regards to the US book specifically, we've just come off a very benign, very strong PCL quarter. PCLs were $230 million. That was down $80 million quarter-on-quarter, half -- a little less than half of that was NCO performance. Half of that was lower performing PCLs related to the tariff builds. So I think we feel pretty good about some of the core leading indicators. The consumer remains strong. Our credit card book is performing well. And even in non-retail and some of the commercial books, we've seen a relatively healthy evolution in terms of the book. That said, to your point around staying vigilant, lower income segments of the marketplace are seeing some degree of stress. And certainly, in the commercial real estate sector, depending on what happens to medium-term rates, I think that will be a very important factor in terms of the health in some of those pockets. We have been -- as you know, we've been reducing the level of commercial real estate exposure for the last four years. So we feel relatively well positioned for it. And I'd say, overall, between credit performance being sound, the provisions that we've built for tariff-related items and just the quality of the allowance that we have, I think we're pretty well positioned as we go into 2026.

Question: Mike Rizvanovic - Scotiabank GBM - Analyst : Near prime. 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: Mike Rizvanovic - Scotiabank GBM - Analyst : Got it. Got it. And then on the AML, obviously, very topical and you did make some commentary on the last call that you've reached some milestones. Just sort of high level, curious on where you are in that journey? It sounds like you're in the later innings and you've obviously done a lot to sort of fix what was ailing. Any color you could add there? 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 Yes. I know I've had a chance to speak to many of you on this topic, but I'm very pleased with the progress we're making on the AML remediation front. I think it starts with having built a great talented AML team of executives. We hired Jackie Sanjuas over from Citi. She's our BSA/AML Officer, not only for the US but globally. We've assembled a group of 40 titled executives across the AML -- across the different AML domain functions. I think these are individuals from leading institutions, both G-SIBs as well as leading law enforcement agencies, Homeland Security, the FBI, FinCEN, et cetera. They've brought a tremendous amount of experience, and those individuals are now building out our program. We completed a major milestone with the implementation of our transaction -- our next-generation transaction monitoring platform. That was a critical deliverable, complex deliverable. We've now ported all of our planned scenarios. They're now operating on that new environment. So that's a major milestone. Likewise, we implemented a new customer risk rating platform on that new next-generation technology as well. And we're recalibrating the risk across the book and then acting and applying due diligence accordingly. This past quarter, we announced that we implemented two machine learning platforms, one to help us detect anomalous behavior on our transaction monitoring environment. And the second to look at any sort of adverse media screening alerts and be able to resolve them effectively. And so both of those are not only giving us another degree of redundancy, but eventually, we'll start translating into significant efficiency in terms of our transaction monitoring environment as well. So very pleased with the progress we're making. We are holding to our guidance. The bulk of our management actions will be completed by the end of calendar 2025. There'll still be some important milestones that we'll need to address in 2026 and 2027. But we are tracking right where we said we would be. And we're also tracking to the investment envelope that we said we would incur. So we will spend $500 million on our AML remediation this year, and we'll spend a comparable amount next year as well. And I think we find ourselves in a very good position. But I just want to emphasize as well, the investments we're making here will not only -- are not only intended to build a world-class AML platform, but they're leverageable. The assets we're building as part of this AML will be leverageable, whether it's the data infrastructure changes we're making, the changes in technology should shore up and should allow us to accelerate and build a more sustainable foundation for the 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: Mike Rizvanovic - Scotiabank GBM - Analyst : It sounds like it's a concurrent strategy where it's not just benefiting the US, but it's bank wide at the same time. 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 Exactly.

Question: Mike Rizvanovic - Scotiabank GBM - Analyst : Got it. Got it. And then on your business in terms of the balance sheet optimization, that's something that you're very focused on. Maybe just remind investors in the room -- you sounded very confident that you can still grow even with the asset cap. Just remind us on that upside and maybe where you've sort of gotten to at this point? 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 Sure. So likewise, very pleased with the progress on the balance sheet restructuring piece. If I take you back to the announcement we made in October, we said we were going to get a 10% headroom of the $434 billion cap. I'm pleased to say in the third quarter, we've achieved that threshold. So we came in at -- overall assets came in at $386 billion. It's $48 billion of headroom. And that when you couple that $48 billion with the non-HQLA balances that we have, which are about $40 billion, we have $90 billion of capacity against $180 billion loan book. So to your point, Mike, around do we have the capacity to be able to grow? I think we've got the capacity to grow certainly at the historical levels of growth and/or at market expected growth rates for many years to come. And that was the first major hurdle, the big check mark that we want to achieve. We're still looking at further opportunities to optimize the balance sheet as we try to drive towards a more return-on-equity focused performance in the US. But for the most part, we're very pleased with the progress we've made thus far.

Question: Mike Rizvanovic - Scotiabank GBM - Analyst : Maybe talk a little bit about that. Is it selling portfolios or runoff, maybe a bit of both. 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. No, I'd say what we have left, there's a small corporate banking portfolio that we'll be shifting over to TD Securities just based on our internal segmentation. But if you leave that aside, for the most part, it's just organically going through the book and making sure that we are establishing deeper relationships with those clients that they're priced effectively. And if we're not able to do those two things, obviously, we'll run off select portfolio. So that runoff will take place through 2026 and beyond. So there'll be a tail exposure for 2027 and 2028 as well. We're going to be really focused, though, on core loan growth. So I just want to emphasize, we have posted core loan growth in our businesses for the last three quarters. And we certainly expect that, that will accelerate as we've now created the capacity, we've created the confidence amongst our clients that we will be able to stand by them and continue to grow with them, and that was a major objective when we set out for the balance sheet restructuring exercise.

Question: Mike Rizvanovic - Scotiabank GBM - Analyst : Got it, thank you for that. Maybe just on the broader strategy in the US, if you could just maybe touch on your longer-term ambitions, maybe starting with the wealth management business. Obviously, that's something that is a very light capital -- light touch on capital -- 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: Mike Rizvanovic - Scotiabank GBM - Analyst : So it sounds like the fee-based revenue in your business should be the stronger growth driver on the top line going forward as opposed to NII? 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 Well, I think both will grow because cards will certainly contribute to the NII story as well as some of the work that we're doing in mid-market. But there's no question that we want to prioritize fee-based opportunities. And that will be in a number of areas. It will be continuing to grow our core deposit businesses and making sure that we're getting the service fee opportunities there. Obviously, the last three years prior to this, there have been a number of fee rules, overdraft rules, et cetera, that did bite into fee income. I think the outlook on that is going to be more positive going forward. So that will be a source of growth. I think also, we'll see growth in our wealth businesses. That will be a growth of fee growth for us. And then in the mid-market space, working very closely with TD Cowen, I think that will be an area where we'll be able to bring greater transaction banking and other advisory services to bear in tandem with TD Cowen. So I think that will be a source of growth as well.

Question: Mike Rizvanovic - Scotiabank GBM - Analyst : Got it. Maybe talk a little bit about the synergies or the link between your business and the wholesale business in the US. So TD Cowen, obviously, has been ramped up quite a bit. So a lot of investment in that business. What's the sort of link? And where are some of the opportunities that you see over the longer term? 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 Yes. Some of you would have certainly heard Tim Wiggan, who runs our TD Securities business. Talk about TD Cowen as completing TD Securities because it did provide for both US and global, a very strong research, equity research, equity capital markets and advisory capabilities that completes where our traditional strengths have been on the TD Securities side. I'd say what that doesn't tell you though is the complement that exists with the commercial bank. TD Cowen has a long, a very long mid-market client roster that they have developed for more than a decade. And they have a really strong relationships with mid-market sponsors. And I think the advantage of merging TD Cowen's client base as well as their sponsor relationships with our balance sheet and our transactional banking capabilities and eventually the ability to upstream them into TD Securities for future capital decisions is a unique opportunity we didn't have, Mike before. So I do think that this partnership is really important. What we've done already is we've taken three senior leaders from TD Cowen, and we moved them into the commercial bank, running different aspects of the bridge between the two businesses. And you're beginning to see a little bit of the results. You would have seen our level of mid-market balance growth has been improving, and we're clearly outperforming our mid-market peers in that space at this point. We're coming off a smaller base, so you'd expect us to be able to do that. But you're also seeing an increase in our fee revenues associated with some of our commercial banking activities as we buy now more credibly for lead positions as opposed to simply being a participant. 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: Mike Rizvanovic - Scotiabank GBM - Analyst : Okay. Great. On the AI side, obviously, there's an expense dynamic on efficiency gains over time. There's also a revenue dynamic, potential revenue gains as well. Maybe -- and not to ask you to quantify that might be at the Investor Day, it might not be. I'm guessing it probably will. 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 Stay tuned.

Question: Mike Rizvanovic - Scotiabank GBM - Analyst : Okay. Thank you for that thoughtful response. We've got about a minute left. Maybe I'll just turn it over to you, Leo, if you had any final key messages that you want investors to take away with from this discussion. 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 Well, Mike, thanks again for the invitation. It's great to be here with all of you. I'd say -- if I leave you with one message is that we have done what we said we would do a year ago. I know a year ago, I had very candid discussions with many of you with regards to what we were going to have to do in the US. And I'd say whether it's the work on the AML remediation front or whether it's the US balance sheet restructuring work or the investment bond repositioning activity or ensuring that we could maintain core momentum outside of the balance sheet restructuring pieces. I think we can point to all of those and say that we've been able to make real substantial progress against that. But I'd also point to the earnings improvement that we've seen in the institution. We've had three quarters of sequential earnings growth. You're beginning to see a bit more of a normalized earnings profile based on what we've been able to generate recently. And we've done that while increasing our return on equity. Return on equity was at 8.9% in the quarter. We still have more work to do on that front, but that was up 60 basis points quarter-on-quarter, and it was up 140 basis points from early in the year. As we look forward, we will be providing on Investor Day guidance with regards to earnings outlook as well as guidance with regards to our return on equity hurdles. I think it's important, given where we are in terms of the evolution of the US business that we provide our investors greater clarity on that front. But if I leave you with something, and you'd expect me to say this, but I'm incredibly optimistic about our franchise in the US I think we have -- in two decades, we've built a top 10 bank in the US We are still a very young franchise. This moment that we're living is letting us build an incredibly powerful infrastructure that will serve us very well not only to solve a specific AML program, but to build the platform to be a more formidable competitor in the US marketplace. And that's exactly what we're going to try to do. And in the quarters to come, certainly in Investor Day in the quarters to come, we'll continue to provide you an update in terms of how we're evolving against that overall mission. But I do thank for all the investors that have been supporting the stock as you have recently, greatly appreciated, and we'll continue to get at the work we have to do. So thank you. 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: Mike Rizvanovic - Scotiabank GBM - Analyst : Awesome. Thank you very much, Leo, for the insights. Thank you for joining us today. Much appreciated, and -- 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 Thanks, Mike. Appreciate it.