Toronto-Dominion Bank host a conference call Transcript

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

Question: Ebrahim Poonawala - BofA Global Research - Analyst : I guess maybe just one big picture question now that we have all these details out. Bharat, I'm not sure if Allen's on the call, I think there's a quote in the press release talking about how the Board is focused on addressing these failures. So I guess if Allen's on the call, he's been on the Board since 2014. But Bharat now that all these details are out, I would love to understand, I get you're going to remediate these issues. What went wrong 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 - BofA Global Research - Analyst : I guess maybe one question for Leo just around the expenses. Wanted to understand on the slide 7, the control governance cost, is it just semantic that you're moving things around or do we expect another additional $500 million in expenses in 2025 over everything that's already been invested in '24 towards this? And Leo, do we -- do you have enough visibility where you can handicap that the investment spend tied to this is largely done? 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 So maybe if I can take a step back, we've been hard at work now for well over a year in terms of developing a very detailed AML remediation plan one that covers the entirety of the program. And I feel very confident that we have a path forward that's very clearly defined. To that extent we now have much more clarity with regards to the component parts, whether that be data technology necessary to be able to bring that program forward. What we're flagging with regards to the expenses is simply we want to move the expenses. Now that we have that clarity back into the segment because I fully intend to report on a regular basis our progress on the AML remediation program as well as on the expense evolution over time. The $500 million number -- the $340 million number that you see on the page or, or I'm sorry, $350 million was the 2024 number that was actually incurred -- expenses incurred and it was reflected in the corporate center. We're just moving the geography and moving that into the segment. Our expense for next year for the AML remediation program and related governance and control type activities is $500 million. I expect that to be the peak of our expense run rates related to this remediation. But I did want to cite that I do expect that level to be sustained through 2026 as we continue to execute the plan of record. But if I could leave you with one final thought on this is, I really feel exceptionally confident with the leadership team that we've assembled to actually execute against that. We've brought in a very seasoned BSA/AML officer for the US. We've brought in a terrific group of executives over 40 titled officers to support the actual execution of the program as well as the actual remediation activities. And, and we've staffed the group with over 700 additional resources in both investigative as well as in change management roles. So long winded way of saying, we have a plan, we feel quite comfortable with it, we're executing it and as I think Ray said, we will get this done.

Question: Ebrahim Poonawala - BofA Global Research - Analyst : Right. Incremental is $150 million next year versus what you already incurred this year. Got it. 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 That is correct to me.

Question: Gabriel Dechaine - National Bank Financial - Analyst : Yeah. I just want to follow up on these and some of these numbers on slide 7. Firstly, the asset, the reduction, you're saying a $200 million to $225 million hit in 2025 you'll offset through higher reinvestment yields some assets you're going to be selling or have sold already. I don't know. It says accretive to NII over the next two to three years. But in the brackets, it says a positive US to $300 million to $500 million in 2025. Is that just for perspective or is this actually going to happen in 2025? 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 Hi, this is Leo again. Just to give you a sense what we want to do with the investment bond portfolio is we have an opportunity to sell up to about $50 billion nominal amount of low yielding securities. We were looking to sell those and reinvest the proceeds into a similar composition of assets but obviously yielding at a higher rate. The loss upfront associated with that will accrue back into our P&L over the next three years with a slightly weighted first and second year profile. That trade, which I know a number of our competitors have also implemented. We feel that will give us some short term profitability that will offset some of the costs that we will be incurring both in loan, repositioning costs as we exit portfolios that we deem to be less strategic as well as we invest the balance of the proceeds in our regulatory program. So it's our way of being able to improve the near term financial profile while taking the necessary steps that we need to make in terms of repositioning the bank to operate within the asset cap.

Question: Gabriel Dechaine - National Bank Financial - Analyst : Okay. So when does that happen.

Question: Gabriel Dechaine - National Bank Financial - Analyst : Okay. And then just on the, so, so I'll wrap up here. I saw at the end of June your US call reports, I had total assets of just over $400 billion and then the asset cap in your press release and the OCC. It's based on a $434 billion number. So in a span of three months, $30 billion of assets were added to the US. I'm wondering how that happened. And then I guess given that you do have US, I'm thinking about loan growth here, the composition of your balance sheet. You've got a lot of excess deposits, you're capped. But could you just reduce your loans to deposits ratio and still grow? 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 There's maybe two questions there. So let me take each one very quickly. First, from a liquidity standpoint, you'll see on page 7. We did say that we increased our available cash liquidity and we thought that was simply prudent given the fact that we took a large reserve in last quarter or just a few months ago. And now we came out with the global resolution and we felt that it was prudent to keep a higher level liquidity and we borrowed to raise cash against some of our HQLA investment. So that's -- that explains the asset level. To your broader question and I think it is a very important question. So I'm just going to spend a moment on it. What we're trying to do is create a capacity within the balance sheet. So by reducing total assets by 10%. You want to be able to do two things. One strictly comply with the asset cap. We want to give ourselves a buffer so that we can honors our obligation to regulators under the consent order. But also critically important, we want to make sure that we can continue to serve our existing clients as their needs evolve as well as be able to continue to serve the needs of our communities where we serve up and down the east coast. Both of those are, are critically important. So by doing the things that we've talked about here, that will give us the flexibility to be able to do that in the short term. In addition, I think your point that you're raising is a valid one. Our total investment cash and investment portfolio as a percent of total assets is 45%. That would be higher than what you'll find at most other institutions. That investment portfolio does give us some flexibility in the future as well above and beyond what we're doing with this initial 10% reduction in terms of total assets. So long winded way of saying, I think there is flexibility to continue to serve our clients and respect the actual asset cap commitment that we have.

Question: Doug Young - Desjardins Securities - Analyst : Maybe just a few other. Just I want to clarify a few things from page 7 and apologize as some of this is redundant. But I think it's just, it's important. Just first on the cost side, Leo, so you're moving it from corporate back into us retail. So none of the AML cost was going through the US retail in fiscal '24. So that $350 million, $500 million, is all of what's being invested and that $500 million is the peak, but we'll stay up there like there's no incremental AML related costs that were in US retail up above and beyond what the numbers you quote. Is that correct? 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 Your point is correct. These are the -- these is all of the AML change remediation and related infrastructural costs associated with the plan.

Question: Doug Young - Desjardins Securities - Analyst : And then just lastly, like I know in the OCC, I think it was in the OCC, they did talk about restrictions on stock buybacks and you, you mentioned everything else around store openings and whatnot, but there wasn't any mention like do you have to go to and, and I'm not suggesting you're 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 : Leo, you mentioned something that I want to follow up on. You talked about the inherent uncertainties that arise from the AML resolution. So just hoping you could go into more detail there in terms of what you're referring to is that just the timing and pace of the repositioning of the balance sheet in the, or is there something else that you're referring to? 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 There's two things on page 7. There's a lot of moving parts here and executing that during the course of, of 2025, we'll certainly be a significant work stream. I think the other thing that we've done is simply recognizing that we -- this is a significant announcement to the marketplace and it's going to be our obligation to steward the conversations with our clients and give them the confidence that TD will continue to service them as we have for the last two decades. And so, but we're not taking that lightly. We have deep relationships with our clients, but this is a significant event and we want to make sure that we manage that effectively.

Question: John Aiken - Jefferies - Analyst : Leo, I apologize I haven't gone through the complete consent order. Apparently there's a reason why I didn't go to law school. But are there any -- is there any limitations on doing something like significant risk transfers or other measures of securitization or alternatively transferring some of the assets from the US Retail Bank into other areas within the bank? Is there any restrictions on what it can do in, I guess in those measures? 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: John Aiken - Jefferies - Analyst : Thanks Leo. And then secondarily, as this process has been evolving, what has your discussions with your clients being like in relation to the I guess the negative headlines that that TD has been buffeted by? And can you talk to whether there's been any change in your net promoter scores or however you value customer engagement? 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 Obviously. John, let me start by maybe reiterating what Bharat said. This is, -- we've taken full accountability for the events that have transpired with regards to our AML program. You know, we did not live up to the standards that we hold ourselves to from a risk and governance standpoint. And obviously, we've acknowledged that quite clearly with our clients. We're fortunate to have client -- deep client relationships. Many of which date back years if not decades with our clients. And it is important to me that we continue to stand by them to signal that that TD is going to continue to support them and continue to grow with them as their businesses evolve. And so to me, that is one of the most important things that all of our frontline staff are doing to just continue to reinforce and cement the relationship that we forge with those clients.

Question: Paul Holden - CIBC World Markets, Inc - Analyst : A few questions for clarification. I guess starting with the capacity to upstream dividends from those US reg subs to the parent. Any reasons to believe that the $500 million of AML expenses you plan to incur would be deemed not to be sufficient. Have you seeing any reason today why the subs would not be able to upstream dividends? 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, in short we're comfortable with the forecast that we put in place. It's based on that detailed remediation plan that I discussed before. The only hedge that I would make to that is that obviously as part as you would have read in the consent orders. There is language with regards to lookbacks 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: Paul Holden - CIBC World Markets, Inc - Analyst : And then you also highlighted that TD Securities does not fall under the consent order. So just to be clear on that, you do have the ability to put on wholesale loans in the US under TD Securities with no asset restriction, correct? Bharat Masrani - Toronto-Dominion Bank - Group President, Chief Executive Officer, Non-Independent Director Securities is not part of the resolution here. So TD Securities continue to conduct its normal course business.

Question: Lemar Persaud - Cormark Securities - Analyst : I want to start off by with a question on slide 7 here. And just those three bullets from the balance sheet restructuring. So I'm wondering if you could just talk like obviously you have the negative impact of $200 million to $225 million from reducing assets, raising liquidity, presumably that's a negative impact there and then repositioning the US portfolio. That's I think what you're suggesting there is a positive pickup. So what's the net impact of those three items? Is it expected to be relatively neutral to, to NII or negative? Just trying to understand this a little better? 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 I would say that we think of 2025 as a transition year. We're going to use the year to be able to make the significant moves to be able to create that asset capacity, to be able to comply with the asset cap and continue to serve our clients. So I would expect that on balance, this would be a slight drag to earnings in 2025 but it will allow us to be able to produce a stable earnings profile in subsequent periods.

Question: Lemar Persaud - Cormark Securities - Analyst : If I could end with one big picture question maybe for you, Bharat. Obviously, there's a well-publicized case of one of your competitors that went through an asset cap and the significant impact it had on their net income growth. Obviously, at TD it's different because it's only applying to your US retail business. So I'm wondering, can you talk to us about the knock on impacts of other businesses from this US retail asset cap. Do you feel like you can make up the earnings and by allocating excess capital to other businesses? Is that a fair assumption? 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: Nigel D'Souza - Veritas Investment Research - Analyst : My first question going through the OCCC synthesis order. From my understanding, there is the option for the OCC to require the bank to reduce total consolidated assets by up to 7% if not compliant within the timeline outlined by the OCC. Just trying to understand what timeline is that specifically referring to. When is the earliest point at which the OCC could potentially use that discretion to require reduction in total assets? And what would that entail, I assume for the asset dispositions impact to NII or capital? 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 Nigel, this Leo. Just to answer your question, the consent order requires us to deliver an action plan, which as I indicated has been drafted and we're executing against it. That action plan has a series of core deliverables aligned to the articles of the consent order itself. It is that those timelines that they're referring to. And so it's our obligation to execute against the plan that we provided the timelines that are in place.

Question: Nigel D'Souza - Veritas Investment Research - Analyst : And then on civil money penalties, I also noticed there is provision here on the suspicious activity. Look back that the OCC can also at its discretion, enforce additional civil money penalties either on the look back or if there's a failure to comply on the requirements. So just any sense of how far first is that look back going to go, is that the past decade and then any sense of the scope of potential additional penalties from that look back. 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 Nigel, we're still drafting the actual framework for the lookback itself and obviously working with the consultant to assist us in that process. So that we'll be able to provide a little bit more details in the future.

Question: Sohrab Movahedi - BMO Capital Markets - Analyst : Leo, maybe if I can just start with you. A bunch of moving parts as you've laid out financially. Anyway, on slide 7, if I just zoom out for a second, your US retail franchise excluding Schwab was making somewhere in the USD3 billion a year plus in earnings. Lots of good actions that you will be able to take to account, avail some of these. And I know you have to move expenses around but on a like for like basis, do you think you'll be able to retain that level of earnings or do you think that has to come down? 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 So I thank you for the question. Let me -- if I could take a step back and just reiterate what I said before, I think if you were, if I was to lay out for you priorities and how we're going to execute against it and I'll get to the earnings question in a moment. The first priority obviously is making sure that we're absolutely focused on that remediation program making the progress that we've committed to. Number two, I would say this balance sheet restructuring optimization exercise that we've laid out on page 7 is critically important because I think it gives us the flexibility also provides the street our investors, the transparency on some of the investments that we're making and how that impacts the franchise overall. The third area of focus is obviously continuing to drive the core franchise itself. So continuing to invest in areas like digital and mobile, continue to invest in our cards business, continue to build out the depth of our commercial banking business. All of those things are critically important. 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: Sohrab Movahedi - BMO Capital Markets - Analyst : And if I could just maybe for Ajai, I mean, I don't know what happens with the concept of asset caps under IFRS 9, but is there a scenario where your reserve levels may look excessive?

Question: Sohrab Movahedi - BMO Capital Markets - Analyst : Okay. And then I guess just the final comment, Leo I think one of the or Bharat or [Ray] I don't know, but one of the messages is that as we look to rethink the composition of this balance sheet, maybe even create some capacity, maybe dispose of some lower yielding capital intensive, all of those types of things. It is the net result that hopefully we'll get to some level of earning stability, but it would be a more profitable earnings stream maybe measured from an ROA or ROE perspective. 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 So that's in fact correct. I think what our view is that you'll see us try to preserve ROE in the short term, given all the moving parts that we've described in 2025. But over time, I would expect our return on equity to improve. And that is an objective that we're setting for ourselves.

Question: Darko Mihelic - RBC Capital Markets - Analyst : I think you'll have a number of questions. They'll be brief, I think and just a couple of clarifications. So hopefully we can get through this quick. In your response to the question on Schwab ownership, is there any other impact on perhaps your ability to have Board members and or any impact on the deposit agreement? Bharat Masrani - Toronto-Dominion Bank - Group President, Chief Executive Officer, Non-Independent Director Sorry. Are you still talking about Schwab or are you talking more generally?

Question: Darko Mihelic - RBC Capital Markets - Analyst : And that would include the deposit agreement there. Bharat Masrani - Toronto-Dominion Bank - Group President, Chief Executive Officer, Non-Independent Director Yes. There would.

Question: Darko Mihelic - RBC Capital Markets - Analyst : A question on the repositioning of the balance sheet. What happens to your net interest income and the sensitivity going forward? I think the prior guidance was that even in a falling rate environment, you would consider NIMS to be stable to even modestly rising and you have the capability to handle significant drops in interest rates. What happens now after all this balance sheet repositioning?

Question: Darko Mihelic - RBC Capital Markets - Analyst : So nothing happens to the tractors essentially. Is that correct?

Question: Darko Mihelic - RBC Capital Markets - Analyst : Just last question. Should I think about your capacity now to generate capital on a go forward basis as essentially climbing? So maybe at the beginning, not much changes, but over time because you're constrained, your RWA growth will be much more modest in the US. How should I think about your ability to generate capital going forward?

Question: Darko Mihelic - RBC Capital Markets - Analyst : I'm thinking about this as a higher ROE essentially means a higher return. So you should be able to generate more access capital. Am I thinking about that incorrectly

Question: Darko Mihelic - RBC Capital Markets - Analyst : And if you give it any, I mean, in the past, you used to give some capacity to generate capital, call it basis points and common equity tier 1 ratio. You used to give us ranges if you have gotten into any a thought process on that or a range now, after you've considered all these changes. Bharat Masrani - Toronto-Dominion Bank - Group President, Chief Executive Officer, Non-Independent Director This is Bharat, Darko. There's so many moving parts here. Give us time and, but I think directionally your logic is fine, but instead of giving you a number right now, I think give us time or you're thinking around how this would play out from a capital and return perspective is correct. But as far as giving you exact numbers, let's think about that. And at some point in the future we can have that further discussion. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies.