Toronto Dominion Bank Q2 2025 Earnings Report

Toronto Dominion Bank EPS Results

• Actual EPS: $1.39
• Consensus EPS: $1.25
• Beat/Miss: Beat by +$0.14
• One Year Ago EPS: $2.04

Toronto Dominion Bank Revenue Results

• Actual Revenue: $10.97 billion
• Expected Revenue: $13.36 billion
• Beat/Miss: Missed by -$2.39 billion
• YoY Revenue Growth: N/A

Toronto Dominion Bank Announcement Details

• Quarter: Q2 2025
• Date: 5/22/2025
• Time: Before Market Opens
• Conference Call Date: Thursday, May 22, 2025
• Conference Call Time: 8:00AM ET

The Toronto-Dominion Bank, together with its subsidiaries, provides various financial products and services in Canada, the United States, and internationally. It operates through four segments: Canadian Personal and Commercial Banking, U.S. Retail, Wealth Management and Insurance, and Wholesale Banking. The company offers personal deposits, such as chequing, savings, and investment products; financing, investment, cash management, international trade, and day-to-day banking services to businesses; and financing options to customers at point of sale for automotive and recreational vehicle purchases. It also provides credit cards and payments; real estate secured lending, auto finance, and consumer lending services; point-of-sale payment solutions for large and small businesses; wealth and asset management products, and advice to retail and institutional clients through direct investing, advice-based, and asset management businesses; and property and casualty insurance, as well as life and health insurance products. The company also provides capital markets, and corporate and investment banking products and services, including underwriting and distribution of new debt and equity issues; advice on strategic acquisitions and divestitures; and trading, funding, and investment services to corporations, governments, and institutions. It offers its products and services under the TD Bank and America's Most Convenient Bank brand names. The Toronto-Dominion Bank was founded in 1855 and is headquartered in Toronto, Canada.

Toronto Dominion Bank Q2 2025 Earnings Call Transcript

Key Takeaways

• Strong Q2 earnings of C$3.6 bn with EPS of C$1.97, driven by robust trading and fee income, volume growth, and a CET1 ratio of 14.9% as TD repurchased 30 mn shares under its NCIB.
• Exited US point-of-sale financing and sold US$9 bn of correspondent loans to boost US retail ROE and reallocate capital to its proprietary credit card business.
• Added over C$500 mn to loan reserves to address elevated policy and trade risks amid tariff volatility and a softer Canadian housing market.
• Launched a C$600–700 mn restructuring program, incurring C$163 mn in Q2 charges and targeting C$100 mn in pretax savings for FY25 and C$550–650 mn in annual run-rate savings.
• US AML remediation remains top priority, with expected pretax investments of about US$500 mn in both FY25 and FY26 to enhance transaction monitoring and compliance.

Presentation

[Operator]

Morning, everyone. Welcome to the TD Bank Group Q2 twenty twenty five Earnings Conference Call. I would now like to turn the meeting over to Ms. Brooke Ehles, Head of Investor Relations. Please go ahead, Ms. Ehles.

[Brooke Hales, Head, IR at TD Bank]

Thank you, operator. Good morning, and welcome to TD Bank Group's second quarter twenty twenty five results presentation. We will begin today's presentation with remarks from Raymond Chun, the Bank's CEO followed by Leo Salam, President and CEO, TD Bank, America's Most Convenient Bank after which Kelvin Tran, the Bank's CFO, will present our second quarter operating results Ajay Mambawali, 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 Sona Mehta, Group Head, Canadian Personal Banking Barbara Hooper, Group Head, Canadian Business Banking Tim Wiggin, Group Head, Wholesale Banking and President and CEO, TD Securities and Paul Clark, Senior Executive Vice President, Wealth Management.

[Brooke Hales, Head, IR at TD Bank]

Please turn to Slide two. Our comments during this call may contain forward looking statements, which involve assumptions and have inherent risks and uncertainties. Actual results could differ materially. I would also remind listeners that the Bank uses non GAAP financial measures to arrive at adjusted results. The Bank believes that adjusted results provide readers with a better understanding of how management views the Bank's performance.

[Brooke Hales, Head, IR at TD Bank]

Ray, Leo and Kelvin will be referring to adjusted results in their remarks. Additional information about non GAAP measures and material factors and assumptions is available on our Q2 twenty twenty five report to shareholders. With that, let me turn the presentation over to Ray.

[Raymond Chun, Group President & CEO at TD Bank]

Thank you, Brooke, and good morning, everyone. We had a strong quarter, and I'm looking forward to walking you through the details in a minute. Before we discuss that and share updates on our strategic review and AML remediation, I'd first like to comment on the current environment. Despite a recent tariff de escalation between The US and China that's temporary in nature, there continues to be a high degree of macroeconomic and policy uncertainty. This has made it difficult for businesses to make long term decisions and created economic distortions such as inventory stockpiling and purchases being pulled forward to avoid tariffs.

[Raymond Chun, Group President & CEO at TD Bank]

This fluid environment has also driven volatility in capital markets and created angst for some households. In Canada, housing activity has slowed and the job market has continued to soften with notable losses in trade exposed sectors. With the election in Canada now behind us, there's a new opportunity for bilateral discussions with The US, and I've been encouraged to see the new federal government working alongside the provinces on opportunities to create economic growth, including those that elimination of interprovincial trade barriers. There are no quick fix fixes to the challenges our country is confronting. This is gonna take time and considerable effort.

[Raymond Chun, Group President & CEO at TD Bank]

As a major employer and participant in the economic growth in both Canada and The United States, TD has an important role to play. We stand ready to engage and work productively with governments in both countries. Despite an uncertain external environment, our focus remains constant. We're staying close to our nearly 28,000,000 clients, providing advice and supporting them through this period. Within TD, we will continue to prudently manage risk as we drive our businesses forward, ensuring we can be there for our clients as their needs evolve.

[Raymond Chun, Group President & CEO at TD Bank]

With that, let's turn to the next slide. I'll start with an update on our strategic review. This quarter, we completed the sale of approximately US9 billion dollars on correspondent loans. We also communicated plans to wind down our US point of sale financing business, which services third party retailers. This business is comprised of a series of bespoke arrangements with each retailer, which impacts its profitability and scalability.

[Raymond Chun, Group President & CEO at TD Bank]

Exiting this business is accretive to US retail ROE and free up capacity to invest in a proprietary bank card business. In addition, through the strategic review, we are identifying opportunities to innovate to drive efficiencies and operational excellence. We are structurally reducing costs across the bank by taking a disciplined look at our operations and processes to find opportunities to automate and to reengineer them. Calvin will provide more details on our restructuring program in his remarks. These efforts will create capacity to accelerate digital and AI investments to upgrade capabilities and scale relationship banking.

[Raymond Chun, Group President & CEO at TD Bank]

We are identifying growth opportunities and making good progress across each of our four pillars of our strategic review. TD will host an Investor Day on September 29, where we will look forward where we look forward to presenting a clear direction for the bank's future and our refreshed medium term financial targets. Please turn to Slide four. In Q2, the bank delivered a strong quarter with earnings of $3,600,000,000 and EPS of $1.97 We saw robust trading and fee income in our markets driven businesses and volume growth year over year in Canadian personal and commercial banking. Impaired PCLs decreased quarter over quarter, reflecting strong credit performance broadly across asset classes.

[Raymond Chun, Group President & CEO at TD Bank]

And we added to our performing reserves for policy and trade uncertainty, taking a prudent approach with more than a half a billion in reserves added over the past two quarters. Ajay will share more details shortly in his remarks. As of quarter end, the bank CET1 ratio was 14.9%. We made good progress on our share buyback this quarter, repurchasing 30,000,000 shares for a total of $2,500,000,000 We still intend to deploy $8,000,000,000 of the proceeds from the Schwab share sale for our current NCIB. We have the capacity to execute the NCIB as planned, while maintaining very strong capital levels in this uncertain environment.

[Raymond Chun, Group President & CEO at TD Bank]

Please turn to Slide five. This quarter, we saw strong execution across our businesses. The Canadian Personal and Commercial Banking segment delivered growth on both sides of the balance sheet. In RESL, we continue to enhance speed to decision and to and to provide tailored customer customer advice by referring more complex deals to our mobile mortgage specialist. As you know, our single greatest opportunity is to deepen relationships with our more than 15,000,000 customers in Canada.

[Raymond Chun, Group President & CEO at TD Bank]

We are executing against that with continued strong referrals to the business bank and wealth. In addition, the personal bank achieved record credit card penetration rates with new checking account customers. In the business bank, loans were up 6% year over year, reflecting growth across our commercial business. In U. S.

[Raymond Chun, Group President & CEO at TD Bank]

Retail, we demonstrated resilience and momentum with six consecutive quarters of consumer deposit growth and core loans up 2% year over year. Our U. S. Wealth business also has momentum. Total client assets were up 15% year over year with affluent client assets up 26% year over year.

[Raymond Chun, Group President & CEO at TD Bank]

We continue to prioritize and execute on our AML remediation and have made significant progress on our U. S. Balance sheet restructuring. Leo will provide an update in his remarks. Wealth Management and Insurance had a strong quarter, reflecting our diversified business mix.

[Raymond Chun, Group President & CEO at TD Bank]

TD Asset Management added 5,300,000,000.0 in net institutional assets, and our advice business delivered strong net asset growth. We continue to innovate in TD Direct Investing, the only bank owned brokerage in Canada to offer partial shares trading. We are seeing great momentum with an 83% increase in partial shares adoption by our Gen z and millennial clients within the last six months. TD Insurance continued its digital transformation with over 46% of new sales this quarter completed digitally from end to end as we build on our position as the leading digital direct insurer in Canada. In wholesale banking, we continue to demonstrate the power of our broader platform with record revenue of $2,100,000,000 This quarter, the trading business benefited from market volatility.

[Raymond Chun, Group President & CEO at TD Bank]

We are navigating challenges in the market while executing against our strategy. Across the bank, we are delivering for our clients. This quarter, both TD Auto Finance in Canada and US Retail in Florida were recognized by JD Power with the highest ranking in customer satisfaction. Please turn to slide six. We recognize that leadership in digital and mobile is critical.

[Raymond Chun, Group President & CEO at TD Bank]

We are investing in these areas and enabling capabilities such as trusted data and AI. This quarter, we announced plans to open a new office in New York City for Layer six, TD's AI research and development center. TD has over 800 AI patent filings. And according to Evident AI, our portfolio is in the top 10 amongst banks globally. Last quarter, I mentioned that we have deployed a generative AI virtual assistant in our contact centers to drive efficiency while enhancing the customer experience.

[Raymond Chun, Group President & CEO at TD Bank]

We are now beginning to deploy this Gen AI virtual assistant across our branch network, driving further colleague and customer experience and efficiency benefits. This year, we launched the next AI enhancement in our fraud operation and insurance claims to enhance our detection of suspected fraudulent auto and residential claims. This helps improve our response time to customers with genuine claims and continues our development of AI and insurance, which has been heavily engaged in machine learning for over a decade. TD continues to innovate for our clients, colleagues, and communities. Please turn to slide seven.

[Raymond Chun, Group President & CEO at TD Bank]

In March, we published our 2024 sustainability report, providing an update on our efforts to protect the bank while adapting business practices to meet changing market conditions and the evolving needs of our stakeholders. Before I turn it over to Leo, I wanna thank our colleagues across the bank for their tremendous dedication and efforts. Together, we are writing the next chapter of this great institution story. We will continue to invest in our talent and our culture. With that, over to you, Leo.

[Leo Salom, Group Head U.S. Retail and President & CEO of TD Bank, America's Most Convenient Bank at TD Bank]

Okay. Thank you, Ray, and good morning, everyone. Please turn to Slide eight. I am very pleased with the progress we've made on our U. S.

[Leo Salom, Group Head U.S. Retail and President & CEO of TD Bank, America's Most Convenient Bank at TD Bank]

AML remediation, which as we said before is our top priority. We're executing against our remediation plan with focus and purpose. And operationally, we continued to make enhancements to our transaction monitoring coverage and investigative practices. As we said we would do last quarter, we implemented the final round of planned scenarios in our transaction monitoring system. Work is progressing on the use of specialized AI to detect, isolate, and automate our risk mitigation activities, and teams are continuing to work on the implementation of the machine learning tools with these capabilities expected to come online next month.

[Leo Salom, Group Head U.S. Retail and President & CEO of TD Bank, America's Most Convenient Bank at TD Bank]

In addition, we rolled out a streamlined workflow of our investigative practices, including the introduction of updated procedures for analyzing customer activity. These changes complement the updated procedures we introduced last quarter. It is important to note, we're also making progress with data staging in relation to the look backs. Finally, we are continuing to implement risk reduction measures across our program. For example, this quarter we introduced further enhancements to our cash deposit requirements at TD stores.

[Leo Salom, Group Head U.S. Retail and President & CEO of TD Bank, America's Most Convenient Bank at TD Bank]

Collectively, these measures will help us manage the bank's financial crimes risk and coupled with our improved monitoring enable us to detect, escalate, and report potential activity of interest earlier and more effectively. While we still have more work to do, we remain on track with our planned remediation activities and are building the foundational AML program that we need for the years ahead. We'll continue to provide updates every quarter. Please turn to Slide nine. I'd also like to update provide an update on our balance sheet restructuring activities.

[Leo Salom, Group Head U.S. Retail and President & CEO of TD Bank, America's Most Convenient Bank at TD Bank]

You will recall this effort has two critical objectives. First, to strictly comply with and maintain a buffer to the asset limitation. And second, to ensure that we can continue to serve our clients and communities as their needs evolve. We made meaningful progress against our objectives this quarter. As of March 31, the first reporting date for the asset limitation, our two quarter average assets were approximately $4.00 $5,000,000,000 versus the OCC's asset limitation of $434,000,000,000 At the end of the fiscal quarter, total assets were $399,000,000,000 reflecting the closing of the correspondent mortgage sale.

[Leo Salom, Group Head U.S. Retail and President & CEO of TD Bank, America's Most Convenient Bank at TD Bank]

Since the end of the first of the fiscal quarter, we have also paid down an additional $7,000,000,000 of bank borrowings. We expect to further reduce our assets in the upcoming quarters using the proceeds from the loan sales, investment maturities and normalized cash levels to pay down additional short term borrowings. And as Ray mentioned, we communicated plans to gradually wind down the approximately $3,000,000,000 in our point of sale financing business, which services third party retailers as part of our efforts to reduce non scalable and niche portfolios that do not fit our focused strategy. I remain confident that we will largely complete the loan sales we identified last October by the end of the fiscal year. And with the execution of our loan reductions and pay down of short term borrowing, we expect to comfortably meet the 10% asset reduction we guided to in October.

[Leo Salom, Group Head U.S. Retail and President & CEO of TD Bank, America's Most Convenient Bank at TD Bank]

Turning to the investment portfolio rotation, we continue to expect to complete the investment portfolio repositioning no later than the first half of calendar twenty twenty five. To date, we have sold approximately $23,000,000,000 notional for an upfront loss of just under $1,300,000,000 pretax. The investment portfolio repositioning is expected to generate an NII benefit in fiscal twenty twenty five at the upper end of the 300,000,000 to $500,000,000 pretax estimated range we provided in October. Collectively, we expect these actions will enable us to improve return on equity through fiscal twenty twenty five and into fiscal twenty twenty six. With that, I'll turn it over to Kelvin.

[Kelvin Vi Luan Tran, Group Head & CFO at TD Bank]

Thank you, Leo. Please turn to Slide 10. TD delivered a strong quarter. Total bank PTPP was up 5% year over year after removing the impact of The U. S.

[Kelvin Vi Luan Tran, Group Head & CFO at TD Bank]

Strategic card portfolio, FX and insurance service expenses. Revenue grew 9% year over year, driven by higher trading related and fee income in our markets driven businesses, including fees from TD sale of its Schwab shares and volumes in Canadian personal and commercial banking. Expenses increased 12% year over year with approximately one quarter of the growth driven by variable compensation commensurate with higher revenues, foreign exchange and the impact of The U. S. Strategic card portfolio.

[Kelvin Vi Luan Tran, Group Head & CFO at TD Bank]

Impaired PCLs declined quarter over quarter, reflecting strong credit performance. Performing PCLs increased quarter over quarter, reflecting policy and trade uncertainty. Please turn to Slide 11. As Ray noted, we are undertaking a restructuring program to reduce structural costs and create capacity to invest to build the bank for the future. We incurred restructuring charges of $163,000,000 pretax this quarter and expect to incur total restructuring charges of $600,000,000 to $700,000,000 pretax over the next several quarters.

[Kelvin Vi Luan Tran, Group Head & CFO at TD Bank]

The restructuring program is expected to generate savings of approximately $100,000,000 pretax in fiscal twenty twenty five and annual run rate savings of $550,000,000 to $650,000,000 pretax. Cost savings will be driven by workforce and real estate optimization, asset write offs and business wind downs and exits as part of the strategic review. We expect this will result in approximately 2% reduction to our workforce. Whenever possible, we will look to achieve this through attrition, and we will redeploy talent in areas where we are accelerating our capabilities. Through this restructuring program and the strategic review more broadly, we are innovating to drive efficiency and structurally reduce the bank's cost base.

[Kelvin Vi Luan Tran, Group Head & CFO at TD Bank]

We expect fiscal twenty twenty five expense growth, assuming fiscal twenty twenty four levels of variable compensation, FX and U. S. Strategic cards portfolio to be at the upper end of the previously communicated five percent to 7% range, reflecting investments in governance and control and investment supporting business growth, net of expected productivity and restructuring savings. Please turn to Slide 12. Canadian Personal and Commercial Banking delivered continued volume growth on both sides of the balance sheet.

[Kelvin Vi Luan Tran, Group Head & CFO at TD Bank]

Average loan volumes rose 4% year over year with 3% growth in personal volumes and 6% growth in business volume. This quarter, tariff uncertainty weighed on the Canadian housing market and we saw slower purchase activity. In TDAF, we had record Q2 originations, which may reflect customers pulling forward auto purchases in anticipation of tariffs. Average deposits rose 5% year over year, reflecting 4% growth in personal deposits and 8% growth in business deposits. Net interest margin was 2.82%, up one basis point quarter over quarter, primarily driven by higher loan margins.

[Kelvin Vi Luan Tran, Group Head & CFO at TD Bank]

As we look forward to Q3, we again expect NIM to be relatively stable. Expenses increased reflecting higher technology spend and other operating expenses. Please turn to Slide 13. U. S.

[Kelvin Vi Luan Tran, Group Head & CFO at TD Bank]

Retail demonstrated resilience and business momentum while executing against our balance sheet restructuring. Core loans grew 2% year over year. In key areas of focus, bank card, home equity, middle market and small business, balances grew 11%, nine %, eight % and six % year over year respectively. As you know, we are focused on enhancing ROE in U. S.

[Kelvin Vi Luan Tran, Group Head & CFO at TD Bank]

Retail. We are assessing relationship profitability across our loan portfolios. Net interest margin was 3.04%, up 18 basis points quarter over quarter, reflecting the impact of The U. S. Balance sheet restructuring activities, normalization of elevated liquidity levels, which positively impacted NIM by 11 basis points and higher deposit margins.

[Kelvin Vi Luan Tran, Group Head & CFO at TD Bank]

As we look forward to Q3, we again expect NIM to deliver substantial expansion reflecting the benefits from ongoing balance sheet restructuring activities and further normalization of elevated liquidity levels. Expenses increased US189 million dollars or 13% year over year, reflecting higher governance and control investments, including costs of US110 million dollars for US PSA AML remediation this quarter and higher employee related expenses. We continue to expect US PSA AML remediation and related governance and control investments of approximately US500 million dollars pretax in fiscal twenty twenty five. We expect similar investments in fiscal twenty twenty six. Please turn to Slide 14.

[Kelvin Vi Luan Tran, Group Head & CFO at TD Bank]

Across these diversified businesses, the Wealth Management and Insurance segment is firing on all cylinders. Wealth Management revenue was up 13% year over year, with growth across fee based revenue from higher markets level, transaction revenue from elevated trading activity in volatile markets and net interest income from higher deposit volumes and margins. Insurance delivered gross written premium growth of 10% year over year. Expenses increased this quarter reflecting higher variable compensation, technology spend supporting business growth initiatives and employee related expenses. Segment ROE remains very strong at nearly 47% and Wealth Management's peer leading ROE is driven by robust returns across all of our businesses.

[Kelvin Vi Luan Tran, Group Head & CFO at TD Bank]

Please turn to slide 15. Wholesale Banking had strong performance despite increased market volatility and the decline in capital markets activity. Expenses increased reflecting higher technology and front office expenses along with investments in our growth platforms. We continue to execute on our strategy to be a leading integrated North American investment bank with global reach. Please turn to Slide 16.

[Kelvin Vi Luan Tran, Group Head & CFO at TD Bank]

Corporate net loss for the quarter was $161,000,000 a smaller loss than the same quarter last year, reflecting higher revenue from treasury and balance sheet activities, partially offset by higher net corporate expenses, which were primarily driven by higher governance and control costs. Please turn to slide 17. The common equity Tier one ratio ended the quarter at 14.9%, up 177 basis points sequentially. Strong internal capital generation was offset by the increase in RWA excluding the impact of FX. The Schwab share sale increased CET1 by two thirty eight basis points.

[Kelvin Vi Luan Tran, Group Head & CFO at TD Bank]

We repurchased 30,000,000 common shares under our share buyback program this quarter, which reduced CET1 by 40 basis points. Our average LCR for the quarter was 141%. The bank remains comfortable that it can operate at more typical LCR levels. However, while actions have been taken to manage liquidity buffers down, the proceeds from the Schwab share sale will continue to keep LCR elevated in the near term. With that, Ajay, over to you.

[Ajai Bambawale, Group Head & Chief Risk Officer at TD Bank]

Thank you, Kelvin, and good morning, everyone. Please turn to Slide 18. Gross impaired loan formations were 21 basis points, a decrease of four basis points of $400,000,000 quarter over quarter. The decrease was recorded broadly across the Canadian and U. S.

[Ajai Bambawale, Group Head & Chief Risk Officer at TD Bank]

Consumer and business and government lending portfolios. Please turn to Slide 19. Gross impaired loans decreased $587,000,000 quarter over quarter to $4,870,000,000 or 51 basis points. The decrease was reflected in the Canadian personal and commercial, U. S.

[Ajai Bambawale, Group Head & Chief Risk Officer at TD Bank]

Retail and wholesale segments, with the largest contribution from the business and government lending portfolios and a $197,000,000 impact from foreign exchange. Please turn to Slide 20. Recall that our presentation reports PCL ratios, both gross and net of the partner share of The U. S. Strategic card PCLs.

[Ajai Bambawale, Group Head & Chief Risk Officer at TD Bank]

We remind you that U. S. Card PCLs recorded in the corporate segment are fully absorbed by our partners and do not impact the bank's net income. The bank's provision for credit losses increased $129,000,000 or eight basis points quarter over quarter to 58 basis points. The increase is largely reflected in the Canadian Personal and Commercial Banking and Wholesale Banking segments.

[Ajai Bambawale, Group Head & Chief Risk Officer at TD Bank]

Please turn to Slide 21. The bank's impaired PCL was $946,000,000 a decrease of $270,000,000 quarter over quarter reflected across the Canadian and U. S. Consumer and commercial lending portfolios. By asset class, the largest quarter over quarter decreases were in The U.

[Ajai Bambawale, Group Head & Chief Risk Officer at TD Bank]

S. Cards portfolios related to seasonal trends coupled with the impact of a prior quarter model update and The U. S. Commercial lending portfolio. Performing PCL was $395,000,000 compared to a recovery of 4,000,000 in the prior quarter.

[Ajai Bambawale, Group Head & Chief Risk Officer at TD Bank]

The current quarter performing provisions primarily relate to policy and trade uncertainty and were recorded in the Canadian personal and commercial, U. S. Retail, wholesale banking and corporate segments. Please turn to Slide 22. The allowance for credit losses was $9,600,000,000 a decrease of $9,000,000 quarter over quarter due to a $231,000,000 impact from foreign exchange and lower impaired allowance, largely offset by performing reserves in the consumer and business and government lending portfolios related to policy and trade uncertainty and applied through overlays and an update to our macroeconomic forecast.

[Ajai Bambawale, Group Head & Chief Risk Officer at TD Bank]

Please turn to Slide 23. In light of recent events, we have provided additional disclosure regarding industries most exposed to elevated policy and trade risk. These industries represent 9% of the bank's gross loans and acceptances. Though the ultimate credit impact will depend on a range of factors, the magnitude and duration of tariffs and government stimulus. While the industries of focus abroad, exposure to borrowers most sensitive to these risks is small, representing less than 1% of the bank's gross loans.

[Ajai Bambawale, Group Head & Chief Risk Officer at TD Bank]

We will continue to work closely with our customers through these challenging conditions. Now in summary, the bank exhibited strong credit performance this quarter, evidenced by lower gross impaired loan formations, gross impaired loans and impaired PCLs. As a result of the ongoing policy and trade risks, we have reviewed our credit portfolios and bolstered our results in excess of $500,000,000 over the past two quarters. That being said, there are many potential scenarios that could play out that may impact the economic trajectory and credit performance, some of which could drive fiscal twenty twenty five PCL results beyond the 45 to 55 basis points range I previously provided. However, TD is well positioned to manage through this period considering our prudent provisioning, broad diversification across products and geographies, our strong capital position and our through the cycle underwriting standards that have served us well through challenging conditions in the past.

[Ajai Bambawale, Group Head & Chief Risk Officer at TD Bank]

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

[Operator]

Thank you. We will now take questions from the telephone lines. Thank you for your patience. We will take the first question from Matthew Lee, Canaccord Genuity. Please go ahead.

[Matthew James Lee, Director, Equity Research - Financials and Industrials at Canaccord Genuity Group]

Good morning. Thanks for taking my question. I wanted to ask Leo one here. When I think about the repositioning of The U. S.

[Matthew James Lee, Director, Equity Research - Financials and Industrials at Canaccord Genuity Group]

Portfolio, you've talked a bit about $500,000,000 in NII benefit in 2025. But the program could continue to the first half of twenty twenty six. So does that kind of imply that there's maybe a further couple of hundred million dollars of NII benefit that could be felt from the repositioning in 2026?

[Leo Salom, Group Head U.S. Retail and President & CEO of TD Bank, America's Most Convenient Bank at TD Bank]

So Matt thanks for the question. As you know the trade effectively takes a loss upfront and then obviously you'll see the NII recapture associated with the higher rate structures on the investment bond portfolio over the next three years. So you should expect that next year the number will be slightly higher than what we recorded this year to reflect the calendarization impact. And then and that will continue through year three. And then thereafter, depending on market conditions, those investment bonds would reprice at market rates at that point in time.

[Matthew James Lee, Director, Equity Research - Financials and Industrials at Canaccord Genuity Group]

And then we should be thinking about NIM as expanding in 2026 and beyond 2025 based on the repositioning?

[Leo Salom, Group Head U.S. Retail and President & CEO of TD Bank, America's Most Convenient Bank at TD Bank]

Yes. So maybe if I could just take a moment on there, because I know that our NIM is moving. We saw an 18 basis point improvement in the quarter. There is a number of factors that are influencing NII right now. First, as Kelvin described, we are running down some of the excess liquidity that we had built up late last year.

[Leo Salom, Group Head U.S. Retail and President & CEO of TD Bank, America's Most Convenient Bank at TD Bank]

Second, as you called out, the investment bond repositioning is starting to trickle through the P and L. And then obviously, the tractor onoff rates right now represents a tailwind for the business. So we do expect that the NII trajectory over the next few quarters to be quite positive. And we do expect that NIM expansion for Q3 will be a substantial increase, mirroring what we saw in Q2. I should state because for the second quarter, we did have one extraordinary item, which is we did change the amortization period for some of our deferred product acquisition costs.

[Leo Salom, Group Head U.S. Retail and President & CEO of TD Bank, America's Most Convenient Bank at TD Bank]

That was about a $46,000,000 charge we took. We would not expect that to reoccur in Q3.

[Matthew James Lee, Director, Equity Research - Financials and Industrials at Canaccord Genuity Group]

Okay. That's helpful. I'll pass the line.

[Leo Salom, Group Head U.S. Retail and President & CEO of TD Bank, America's Most Convenient Bank at TD Bank]

Thank you, Matt.

[Operator]

Thank you. The next question is from John Aiken from Jefferies. Please go ahead.

[John Aiken, Director of Research at Jefferies Financial Group]

Ray, I wanted to clarify something that I thought I heard in your prepared commentary. In context of the exit of the correspondent loans to the point of sale in The U. S, you mentioned that it was going the proceeds were going be diverted into proprietary bank card operation. Did I did I get that correct? And I guess, has that been previously disclosed or is this is this a new initiative?

[Raymond Chun, Group President & CEO at TD Bank]

You're talking about the the wind down of our, what we call our RCS business, which is our our third party credit card business. So that's about a US3 billion dollars portfolio that we're going to be winding down. And then that will provide us capital that we can then redeploy to our proprietary credit card business that we've been building out organically for the last number of years.

[John Aiken, Director of Research at Jefferies Financial Group]

Fantastic. Thank you. Sorry about the misperception on my part. And then, Calvin, in relation to the restructuring charge, again, I apologize if I missed this, but did you give us a breakdown in terms of which the segments will be more or less impacted by this?

[Kelvin Vi Luan Tran, Group Head & CFO at TD Bank]

No. The the hi, it's Kelvin. The the the impact is pretty broad based across the bank. I I can offer that in terms of nature, it's going to be on the workforce, real estate optimization, asset impairment, really about tech decommissioning, and then also wind down of some businesses like Ray and Leo talked about earlier.

[John Aiken, Director of Research at Jefferies Financial Group]

Okay. Thanks. I'll requeue.

[Operator]

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

[Gabriel Dechaine, Analyst at National Bank]

Hi. I I just wanna ask about your, you know, your excess capital position. So if I, you know, look at where you are today, I factor in the amount of buybacks you're still committed to at current prices and then this restructuring charge leaves me with a pro form a ratio of about just under 14%. So still a good amount that, you know, I think most investors and myself anyway look at as well, that's the those are the funds that are still remaining from the Schwab sale that you said you'd be using some of that for internal investment. And if there's anything remaining, you could be increasing the buyback buy back more stock than what you've announced already at some point in time.

[Gabriel Dechaine, Analyst at National Bank]

I'm just wondering what the current view is and what the potential is for another large buyback is. The macro climate certainly dicier, maybe there's other investment initiatives you have in mind. So maybe you can provide some clarity. Thanks.

[Raymond Chun, Group President & CEO at TD Bank]

Gabe, I appreciate the question. Let me start by saying, as I said in my prepared comments on the current NCIB, our commitment is still to execute the $8,000,000,000 NCIB buyback. And as we get through our strategic review and as I stated at the Investor Day, we'll sort of lay out for you where we think we're going to deploy some of that capital and some of that certainly from we're seeing significant organic growth opportunities. And we're still looking at rightsizing some of the portfolios from a scale those businesses that may not be core to our business. And so we're looking at some of those opportunities.

[Raymond Chun, Group President & CEO at TD Bank]

And at the end of all of that, we will assess the current market. I mean, these are uncertain times and there certainly is value in being well capitalized as we think forward. But as we move through this uncertainty and as we get through our strategic review, if we still then feel that we have excess capital as I've said before, then we then look at as another opt opportunity to do to do another buyback.

[Gabriel Dechaine, Analyst at National Bank]

So there could be some more costs associated with like, the the the those funds shouldn't be automatically assumed to be hey. There's a big buyback coming in. So there's more more investment required. Right?

[Raymond Chun, Group President & CEO at TD Bank]

Yes. I think as part of our strategic review, we're definitely be looking at how we deploy some of that capital and then we'll assess the opportunity for a buyback later in the year and sort of closer to next year.

[Gabriel Dechaine, Analyst at National Bank]

Okay. And then on the thanks for that. On the bond portfolio repositioning, I think I've heard you talk about it in the past, like it was going be done by the end of this quarter or maybe I misunderstood, but we're roughly halfway through, should be done by the midpoint of the calendar year. That's fine. I'm just looking at the guidance on the NII uplift.

[Gabriel Dechaine, Analyst at National Bank]

You're still talking about a 300,000,000 to $500,000,000 NII uplift. That's not an annualized figure. That's an actual impact on this fiscal year, correct? And I guess that's more successful reinvestment. Is that basically the story?

[Leo Salom, Group Head U.S. Retail and President & CEO of TD Bank, America's Most Convenient Bank at TD Bank]

Gabe, good morning. It's Leo. Yes. The short answer, we are we are virtually complete the actual investment bond portfolio. We had indicated we'd be done by the end of the calendar.

[Leo Salom, Group Head U.S. Retail and President & CEO of TD Bank, America's Most Convenient Bank at TD Bank]

I think we'll we'll be done virtually over the next few days and weeks. I'm pleased on where we are with regards to the work markets have been constructive and so we were able to complete it a little bit ahead of schedule. Now with regard to the impact, what we have indicated and Kelvin mentioned it in his prepared remarks, we had given back in October a range of 300 to 5 hundred million dollars and we can confirm to you right now that it will be on the upper end of that range. That is an in year 2025.

[Gabriel Dechaine, Analyst at National Bank]

Yes. Okay. Okay. Great. So that was and then just a lot let's sneak another one in there.

[Gabriel Dechaine, Analyst at National Bank]

The corporate NII, a big big jump up there. You mentioned treasury activities. And is that is is there any, you know, unusual drivers there, or or is that some sort of new run

[Kelvin Vi Luan Tran, Group Head & CFO at TD Bank]

Hi. Hi. It's Kelvin. That's right. The the treasury activity that we're mentioning relates to the investment from the proceeds of the Schwab share sale.

[Kelvin Vi Luan Tran, Group Head & CFO at TD Bank]

Okay. We sold those shares, we had cash coming in and those are invested generating higher NII in the corporate segment. And then you would expect that NII to come down over time as we redeploy that cash to buy back shares.

[Gabriel Dechaine, Analyst at National Bank]

Got it. Thank you.

[Kelvin Vi Luan Tran, Group Head & CFO at TD Bank]

Thanks, Gabe.

[Operator]

Thank you. The next question is from Doug Young, Desjardins Capital Markets. Please go ahead.

[Doug Young, Analyst at Desjardins Capital Markets]

Hi, good morning. Just wanted to clarify one thing, Ray or Leo. Just on the business exit, the point of sale business exit, you're talking about the Target credit card books and the other retailer credit card books. Just do I have that right or do I have that wrong?

[Leo Salom, Group Head U.S. Retail and President & CEO of TD Bank, America's Most Convenient Bank at TD Bank]

No, Doug. Let me just clarify that. There are three businesses in our overall cards stable. One is our proprietary bank card business, which we've indicated is core and we've done a number of things. Happy to elaborate a little bit more there.

[Leo Salom, Group Head U.S. Retail and President & CEO of TD Bank, America's Most Convenient Bank at TD Bank]

Second, our co branded card offering and we have two critical partners Nordstrom, Target. Those remain strategic. We're very pleased with the relationship we have with both firms. And then there's this point of sale financing business or what we have historically referred to as our retail card services business. And the challenge with that business despite the fact we have very strong relationships with some of the top retailers across the country is that business does not scale quite as well.

[Leo Salom, Group Head U.S. Retail and President & CEO of TD Bank, America's Most Convenient Bank at TD Bank]

And when we were looking at what was going be required to transform that business, it was going to be consumptive of significant investment resources. And at a time we're really thinking through where do we want to invest capital for the greatest return. As Ray indicated, we felt that it was more important to be able to invest in our core proprietary cards business. So just to be clear, proprietary cards and our co branded cards remain very much core and strategic long term strategic priorities for us.

[Doug Young, Analyst at Desjardins Capital Markets]

Okay, that's clear. And then what other can you talk about any other businesses that you would be thinking from a wind down perspective? And I would assume it's not just The U. S, this would be across all of your different areas. But anything else that you would highlight in terms of business exits or wind downs?

[Raymond Chun, Group President & CEO at TD Bank]

Look, I would say not on this call, but we certainly are looking at all of our options and going through all of our products, services and businesses. And some of that we will share as we get to the Q3 call and then certainly we'll have more to share as we get to Investor Day.

[Doug Young, Analyst at Desjardins Capital Markets]

Fair enough. I figured I'd try. And then just maybe lastly, the Canadian Banking, it seemed like there was a sequential decent drop in non interest income. Maybe I've got that wrong, but is there anything in particular that went through in the Canadian Banking on the revenue side that was abnormal? Or what would have caused the sequential decline in the noninterest income line?

[Sona Mehta, Group Head of Canadian Personal Banking at TD Bank]

Hi, Doug. It's Sona. I'll take that. Sequentially, it would have been three less days sequentially and on a year over year basis. Also, you might recall we had leap year last year, so there was one fewer day effectively this Q2.

[Sona Mehta, Group Head of Canadian Personal Banking at TD Bank]

That's about a 1% impact to revenue on a Q2 year over year basis or $40,000,000 Overall, the business fundamentals for CAD P and C are solid. And beyond the NII piece on the other income, there were a collection of smaller Q2 impacts. I can give you a couple of examples. We would have seen moderated foreign currency spend both on the debit and credit side as consumers had a little more caution, especially with cross border purchases. We saw some lower merchant acquiring revenue in the business bank and some small timing items.

[Sona Mehta, Group Head of Canadian Personal Banking at TD Bank]

So no one big thing on the other income side for Q2, but rather a collection of smaller things. So really, I'd say a few factors, the biggest is days and leap year. But I would say as we look ahead, we were encouraged by the late Q2 volume momentum. We read that as a positive sign for Q3. And we're expecting quarter over quarter NIM stability So overall, we're feeling confident heading into Q3.

[Doug Young, Analyst at Desjardins Capital Markets]

Appreciate the color. Thank you.

[Operator]

Thank you. The next question is from Paul Holden from CIBC. Please go ahead.

[Paul Holden, Analyst at CIBC World Markets]

Thank you. Good morning. I want to get a better understanding of what drove the sequential decline in impaired PCLs in Canadian P and C banking. Like listening to Ray's opening remarks regarding the macro backdrop, all of which I think makes sense, would suggest sort of higher impaired PCLs, but obviously we saw it lower. So just wondering what drove that and if there's anything we can take away from that trend in terms of forward expectations.

[Ajai Bambawale, Group Head & Chief Risk Officer at TD Bank]

Well, thanks, Paul. It's Ajei. Let me give you an overview of what's happening on impaired PCLs, and I'll go to Canadian P and C as well. So as I said in my prepared remarks, impaired PCLs, they're down substantially two seventy million dollars We've seen it in Canadian P and C. The numbers in U.

[Ajai Bambawale, Group Head & Chief Risk Officer at TD Bank]

S. Retail are quite big. Corporate segment as well, numbers went up slightly for wholesale. If I look at Canadian P and C, the numbers are down across asset classes. So RESL numbers are down, auto numbers are down, cards numbers are down, and commercial numbers are are are down.

[Ajai Bambawale, Group Head & Chief Risk Officer at TD Bank]

They are not large dollars, but I'd call them quite symbolic because it's really telling us that if you keep this tariff issue aside, we were really seeing peak PCL and good quality. And I think the fact that rates have come down, you know, have helped borrowers. And then if I turn to US retail, again, the numbers down there quite a bit. Cards is a big contributor, but as I said in my prepared remarks, there are two factors there. One is seasonality.

[Ajai Bambawale, Group Head & Chief Risk Officer at TD Bank]

And the second is we put a model update in the last quarter. So quarter over quarter, there is a decline. But there are other asset classes that have come down. So for example, the commercial numbers in The U. S.

[Ajai Bambawale, Group Head & Chief Risk Officer at TD Bank]

Are down a fair bit. Auto is down, but part of auto is seasonality. But Rezel and other parts of other consumer are also down. So this is not just a one off. Yes, there's seasonality and this model issue

[Ajai Bambawale, Group Head & Chief Risk Officer at TD Bank]

But I think on a broader basis, we're seeing good credit quality. And then just finally on wholesale, wholesale numbers went up a little bit. It's $28,000,000 And that's because we took some incremental PCL for three existing borrowers in telco, cable, media, power and utility and CRE office. And we did have two impairments there as well in forestry. So that's the overall picture on impaired PCL.

[Ajai Bambawale, Group Head & Chief Risk Officer at TD Bank]

And I do view it as a quite a positive development.

[Paul Holden, Analyst at CIBC World Markets]

Okay. Second question is with respect to the cost restructuring. And what I'm really going to try and get at is sort of roughly what proportion could we expect to benefit bottom line, I. E, operating efficiency. And one of the reasons I asked just looking through some of the numbers in the sub pack, I've seen Canadian P and C FTE year over year is down roughly 6%.

[Paul Holden, Analyst at CIBC World Markets]

So you've had significant headcount reduction, but expense is still up five percent. So obviously, the composition of expenses is changing. So again, think it just raises the importance of the question, how much of the cost restructuring gets redeployed into other initiatives, investments and how much of it does drop through to improved efficiency?

[Kelvin Vi Luan Tran, Group Head & CFO at TD Bank]

It's Kelvin. I'll take that. Yes. So we see significant opportunities to continue to invest in the business to drive future growth. One area, as you would expect, is on the digital, AI and technology front.

[Kelvin Vi Luan Tran, Group Head & CFO at TD Bank]

And so that spend does not always translate into specific FTEs, but those are investment that are important investment for us.

[Paul Holden, Analyst at CIBC World Markets]

Okay. So if I understand the answer then, then most of it gets redeployed into investments into the business?

[Kelvin Vi Luan Tran, Group Head & CFO at TD Bank]

Correct. That's correct.

[Paul Holden, Analyst at CIBC World Markets]

Okay. Okay. That's it for me. Thank you.

[Raymond Chun, Group President & CEO at TD Bank]

Thanks, Paul.

[Operator]

Thank you. The next question is from Saurabh Mobahedi from BMO Capital Markets. Please go ahead.

[Sohrab Movahedi, Equity Research Analyst at BMO Capital Markets]

Okay. Thank you. Maybe I can if I can just start off with Leo. I mean, Leo, obviously lots of good work getting done, lots of moving parts. In the first half of the year in U.

[Sohrab Movahedi, Equity Research Analyst at BMO Capital Markets]

S. Dollars, U. S. Retail has done around 1,200,000,000.0 What do you think the second half of the year will be from an earnings contribution perspective?

[Leo Salom, Group Head U.S. Retail and President & CEO of TD Bank, America's Most Convenient Bank at TD Bank]

Saurabh, good to talk to you. We're not going to provide a guidance at this point, but maybe if I can give you the moving parts. Generally speaking, we're constructive. We're very positive about what the second half will look like. And what's driving that is one, as I indicated before, I do think we will have NII tailwinds based on the factors that I described before, that being less excess liquidity, the investment bond repositioning of the tractor on off rates, all those things will give us a tailwind as we think about the back end of the year.

[Leo Salom, Group Head U.S. Retail and President & CEO of TD Bank, America's Most Convenient Bank at TD Bank]

I do think that from a fee line another income perspective, I mean, saw in the quarter strong growth in our wealth business, continued work with TD Cowen and our commercial banking business on lending fees line and sustain growth in our retail consumer, retail deposit franchise which will translate into service fees. So you put those things together. And I think from a revenue standpoint, we would expect revenues to be sustained and strong. From a cost standpoint, just quickly, I would say, we would expect a moderation in the rate of growth in expenses in the second half. And that reflects a number of things.

[Leo Salom, Group Head U.S. Retail and President & CEO of TD Bank, America's Most Convenient Bank at TD Bank]

One is the year on year financial shape, but also some of the work that we're doing from a productivity standpoint to absorb some of the governance and control type activity. So I think we remain while expenses related to AML will be slightly higher based on our spend pattern for the first half of the year. I think generally speaking we'll see a moderation in the rate of growth. And you heard Ajay talk about where we are from a overall health of the credit portfolio itself. So you put those things together and we are feeling optimistic about what the second half of the year is going to be.

[Leo Salom, Group Head U.S. Retail and President & CEO of TD Bank, America's Most Convenient Bank at TD Bank]

And the one thing that we have been and Ray has been very clear about this I think I've messaged as well is we're really focused on improving the return on equity profile quarter on quarter through this year and into next year. As we think about the Investor Day discussion, I think we'll provide a little bit more guidance as to firming up what that objective looks like. But long winded way of saying, I think we feel very positive about the back end of the year.

[Sohrab Movahedi, Equity Research Analyst at BMO Capital Markets]

Okay. That's really helpful. Thank you. And if I can just sneak one more in for Ajay. I mean, I think Ajay you said tariffs aside everything is fine actually.

[Sohrab Movahedi, Equity Research Analyst at BMO Capital Markets]

But if you think about the complex environment, the tariffs, all the puts and takes, where do you think you will actually see deterioration? Will it be in the, I'll call it the business and corporate lending stuff? Or do you think it will be in the consumer stuff?

[Ajai Bambawale, Group Head & Chief Risk Officer at TD Bank]

Yeah. Well, thanks, Saurabh. I think I think you could see it actually in both. Because if the macro deteriorates, you will see it in consumer. And the way we built our reserves, you know, we have built both for consumer and business and government lending.

[Ajai Bambawale, Group Head & Chief Risk Officer at TD Bank]

I do think, and we have built the reserves that way, that there could be bigger impact on non retail. And most of this 500,000,000 that we're talking about is actually been built in business and government. And what we did is we actually went and looked first at the industries that were exposed to tariffs. Okay, that's the 9% number that we have disclosed. After that, we went and looked on a more narrow basis saying, what out of these borrowers are most sensitive to tariffs.

[Ajai Bambawale, Group Head & Chief Risk Officer at TD Bank]

And, but we look broadly at the financial impact, again, across the 9%, not just a smaller population. We looked at the ratings migration that could occur and based on that ratings migration, we built our results. So again, this $500,000,000 a big part of it is business and government, but there is some for consumer. Because if the macro deteriorates, I think you should expect there'll be impact on the consumer as well.

[Sohrab Movahedi, Equity Research Analyst at BMO Capital Markets]

Okay. And so was this equity markets write down equity investment portfolio markdowns you talked about? Was that would you dub that as tariff related as well? This was in Wholesale Banking?

[Tim Wiggan, President & CEO, TD Securities Group Head, Wholesale Banking, TD Bank Group at TD Bank]

Yes, it's Tim Wiggins. So I would attribute that to our strategic portfolio, mark to market on our strategic portfolio, which would correlate more to index declines within quarter. And so if you see normalization quarter over quarter in the S and P that can reverse. So it was a factor in quarter, but it was a mark to market event.

[Sohrab Movahedi, Equity Research Analyst at BMO Capital Markets]

I see. Okay. Thank you for that clarity. That's it for me.

[Operator]

Thank you. The next question is from Mike Huszinowicz from Scotiabank. Please go ahead.

[Mike Rizvanovic, Managing Director at Scotiabank]

Hi, good morning. Question for Leo. Just wanted to talk a little bit about the AML spend. And it looks like I think this is new guidance, correct me if I'm wrong, but the $500,000,000 persisting in 2026. And I guess I was under the impression, I think a lot of investors were that, that number could potentially fall off at some point.

[Mike Rizvanovic, Managing Director at Scotiabank]

So I'm not trying to ask for 2027 guidance, but is that still the dynamic where you do expect at some point these expenses will fall off to some extent? Or is it more of a perpetual sort of run rate for AML?

[Leo Salom, Group Head U.S. Retail and President & CEO of TD Bank, America's Most Convenient Bank at TD Bank]

Mike, let me answer that by first saying that we are comfortable with the guidance that we provided for 2025. So in other words, we do believe that we will operate within the $500,000,000 guidance that we provided. We spent between the first and second quarter about $196,000,000 We'll see a slight uptick as we go into the meat of our remediation delivery programs. But I feel comfortable with that guidance. What we did is we wanted to give the Street a sense of what 2026 was going to look like.

[Leo Salom, Group Head U.S. Retail and President & CEO of TD Bank, America's Most Convenient Bank at TD Bank]

I'd say right now we believe that the spend will be similar. The composition of the spend might change a little bit. It might be a little less remediation, more validation work, more look backs, monitor costs, etcetera. So the composition might change, but we think the overall spend level is going to be similar. Then I wouldn't want to speculate on 2728, But I feel like the program is moving.

[Leo Salom, Group Head U.S. Retail and President & CEO of TD Bank, America's Most Convenient Bank at TD Bank]

We're actually making good progress on the remediation plan. We're hitting the milestones. We're tracking well. So I feel positive about some of the expense guidance that we've already provided.

[Mike Rizvanovic, Managing Director at Scotiabank]

Okay. So no color you can't really provide any color on potentially drawing that to some extent lower at some point in the future?

[Leo Salom, Group Head U.S. Retail and President & CEO of TD Bank, America's Most Convenient Bank at TD Bank]

Well, there's no question as we start thinking about those outer years. I would expect that the raw remediation program management expenses that we are incurring today will fall off. We could have a slight uptick in some of our run costs, net net there will be a decline at some point in the future.

[Mike Rizvanovic, Managing Director at Scotiabank]

Got it. Okay. That's helpful.

[Mike Rizvanovic, Managing Director at Scotiabank]

And then maybe a quick one for Sona. Just on the mortgage business in Canada, it does look like TD saw a bit of a decline sequentially. And I think there has been quite a bit of underperformance versus most of your peers just in terms of your RESL balances in the Canadian P and C segment. Can you help me understand what's driving that? You know, was sort under the impression that with the, you know, the big push fund, the mortgage the mortgage mobile specialist, sorry, that you you you probably could see at least market level growth and maybe even some outperformance on some of those initiatives.

[Mike Rizvanovic, Managing Director at Scotiabank]

But I'm just a little bit confused as to why you would be underperforming just given some of those new distribution channels that you sort of introduced the last couple of years?

[Sona Mehta, Group Head of Canadian Personal Banking at TD Bank]

Yes, Mike, this is Sona. Thanks for the question. So maybe I'll just start just briefly on the macro context. We've clearly seen buyers sitting, waiting a little bit on the sidelines. We're seeing inventory buildup.

[Sona Mehta, Group Head of Canadian Personal Banking at TD Bank]

I think we're up to five months of inventory. And I think each of the last three months of Korea housing sales were in the range of 9% to 10% lower on a year over year basis. So it's certainly a different spot than where we were in early Q1. In early Q1, we were gearing up for a strong spring just given the natural supportive rate environment. But uncertainty is weighing on buyer sentiment.

[Sona Mehta, Group Head of Canadian Personal Banking at TD Bank]

So really, a lot has changed in the last four months. Now if I look at our specific competitive position, we're a multichannel through the cycle lender. I would say in this particular market, our broker originations have moderated a little bit. We have really strong relationships and we continue to compete for profitable business. But you mentioned the MMS and what I thought might be helpful to share is despite the macro headwinds, I'm really pleased with the strength that we've seen in our proprietary channels.

[Sona Mehta, Group Head of Canadian Personal Banking at TD Bank]

So if I look at our branch and MMS proprietary ecosystem, originations and again this is despite the macro environment, originations in those two channels are actually up double digits year over year. And so while you see a flat average sequential growth on a spot basis, we're actually up $1,000,000,000 quarter over quarter. So the growth is there. The profile was a little different this quarter where we had higher pay downs in January and February, but then we exited the quarter with momentum. So overall, I think the fundamentals are very good.

[Sona Mehta, Group Head of Canadian Personal Banking at TD Bank]

What we are highly focused on Mike is really building speed in our ecosystem, ensuring we have specialization. Our branch mortgage referral system ecosystem I had shared on the Q1 call, we had tripled referrals in that ecosystem in Q1 and that has continued in Q2. So on a year to date basis, the branch MMS referral ecosystem is performing incredibly well. So I would say good exit momentum to Q2.

[Sona Mehta, Group Head of Canadian Personal Banking at TD Bank]

And I think we're poised as the market recovers to deliver on speed and expertise.

[Mike Rizvanovic, Managing Director at Scotiabank]

That's great insight. Just one quick follow-up. So would you be expecting to trend in terms of loan volumes with the industry? I'm just not sure if there's a dynamic of protecting margins or maybe focusing on more profitable accounts that would maybe lead to a little bit of underperformance going forward?

[Sona Mehta, Group Head of Canadian Personal Banking at TD Bank]

I think my profitability should always be a factor. And so we will compete to win profitable business and then leverage our strength in channels where we can differentiate on speed and customer experience, but profitability is important.

[Kelvin Vi Luan Tran, Group Head & CFO at TD Bank]

Silana, do you want to elaborate a little bit on just the paydown dynamics that you're seeing as well?

[Sona Mehta, Group Head of Canadian Personal Banking at TD Bank]

Yes. Yes, for sure, Kelvin. I can share that. So Mike, what we saw in Q1 was some seasonality late in the quarter. And really, that continued actually interestingly enough this year this quarter into February.

[Sona Mehta, Group Head of Canadian Personal Banking at TD Bank]

So both January and February were high pay down months for us. I think our book skews slightly more premium. And so as you have customers that have more disposable income by way of year end bonuses, for example, and more liquidity in the market. We actually saw January and February prepayments were up double digits on a year over year basis. So that was some of the dampness in late in Q1 and then also the jump off point as well as early in Q2 in February.

[Sona Mehta, Group Head of Canadian Personal Banking at TD Bank]

So those are perhaps a little bit more symptomatic of our premium book.

[Mike Rizvanovic, Managing Director at Scotiabank]

Okay, got it. Thank you. Thank you very much for the color. That's helpful.

[Operator]

Thank you. The next question is from Lamar Persaud from Cormark Securities. Please go ahead.

[Lemar Persaud, Equity Research Analyst - Financials at Cormark Securities]

Yes, thanks. I want to go over the liquidity coverage ratio in that 141%. You're saying that obviously it should be somewhat elevated in the near term reflecting these proceeds from the Schwab shares. How should we like what's a more normal level given all the changes that's going on at TD? And you know, should we be thinking about something in the 130% flat range and kind of how fast you get there? Any thoughts would be helpful.

[Kelvin Vi Luan Tran, Group Head & CFO at TD Bank]

Sure. It's Kelvin. I'll take that. Yeah. So we would look at LCR in the normal range of one twenty five to one thirty five.

[Kelvin Vi Luan Tran, Group Head & CFO at TD Bank]

So one thirty is kind of smack in the middle. The the in terms of just adding providing a little bit more color, last year, when we raised liquidity, some of that liquidity were, like, a kind of a, let's say, one year basis. So it's gonna take some time for those to run off. But we're comfortable at, you know, normalizing on a liquidity level getting back to the one twenty five to one thirty five over time.

[Lemar Persaud, Equity Research Analyst - Financials at Cormark Securities]

And is that something that we could expect in the next year? Like, I'm just wondering if you could just provide some time frame on how to get that done.

[Kelvin Vi Luan Tran, Group Head & CFO at TD Bank]

Like yes. The answer is yes because the two biggest pieces, as you know, is the proceeds from the Schwab sale, and then a lot of that is going to be redeployed in share buyback. And so that's gonna be used. And then some of those liquidity raise about a year or eighteen months. And over that time frame, that would also decrease. So that would normalize.

[Lemar Persaud, Equity Research Analyst - Financials at Cormark Securities]

Okay.

[Lemar Persaud, Equity Research Analyst - Financials at Cormark Securities]

Thanks. And then a question on credit here. I appreciate the disclosure on these industry of focus from tariffs. But wondering if there's any color you can add as to what industries make up that kind of less than 1% cohort. Is it focused in any of these specific industries like automotive, agriculture or anything that you've highlighted on your slide 23?

[Lemar Persaud, Equity Research Analyst - Financials at Cormark Securities]

Or is it kind of well diversified amongst these kind of industries of focus?

[Ajai Bambawale, Group Head & Chief Risk Officer at TD Bank]

I'd say it's diversified across a number of industries that are on that page. Some of the ones I can call out for your benefit would be auto, agriculture, sundry manufacturing, transportation, and retail. Those that's where the most sensitive would be. But industries on the page is not confined to one industry, so it's it's fairly diversified.

[Lemar Persaud, Equity Research Analyst - Financials at Cormark Securities]

Okay. And then how does how does your watch list kind of evolved over the last quarter?

[Ajai Bambawale, Group Head & Chief Risk Officer at TD Bank]

Good question. Positively, and the watch list has been coming down, and it's actually down across all business segments.

[Lemar Persaud, Equity Research Analyst - Financials at Cormark Securities]

Okay. Thanks. Any any anything you could share in terms of magnitude of changes in that watch list?

[Ajai Bambawale, Group Head & Chief Risk Officer at TD Bank]

I don't I don't have all those numbers in front of me, but I think if I look at my embeds, I wouldn't say they're huge movements, but they're positive movements.

[Lemar Persaud, Equity Research Analyst - Financials at Cormark Securities]

Okay, thanks. That's it for me.

[Operator]

Thank you. The next question is from Darko Mihelic from RBC Capital Markets. Please go ahead.

[Darko Mihelic, Analyst at RBC Capital Markets]

Hi, thank you. Good morning. My questions are all for Anje as well. Maybe just the first question is with respect to the reserve building, I do see the 500,000,000 in the business build. But one of the things that I do also see is when I look at the forward looking indicators and sort of what has changed, I see very significant changes in Canada GDP, US GDP, and the house price index is also fairly aggressive.

[Darko Mihelic, Analyst at RBC Capital Markets]

And then you went from an expectation last quarter of 8% to a negative expectation for house prices for the rest of this year, but a very small change overall in the actual stage one, stage two performing at about three percent quarter over quarter. And I believe it's linked to very small changes in your unemployment expectations, where we're seeing like the 40 basis point increase in unemployment expectation, and it's essentially sitting where unemployment is today. So, Ajay, what is informing first of all, am I correct in thinking that if we had a bigger change in the unemployment expectation, we would have seen even more reserve build and likely consumer retail?

[Tim Wiggan, President & CEO, TD Securities Group Head, Wholesale Banking, TD Bank Group at TD Bank]

And what is it that's informing this view that unemployment really won't change from like the current level in Canada?

[Ajai Bambawale, Group Head & Chief Risk Officer at TD Bank]

Yeah. Well, let me me walk you through what the drivers of our tariff build are. First are the macro changes. And again, the macro changes are determined by our chief economist. They're not determined by me, but we have a strong governance process and we take it through our governance process.

[Ajai Bambawale, Group Head & Chief Risk Officer at TD Bank]

But what changed? So yes, you called out GDP actually, it came down quite a bit for Canada, quite a bit for The United States. Unemployment for Canada quarter over quarter is for the near term went up 0.4%, for The U. S. Went up 0.2%.

[Ajai Bambawale, Group Head & Chief Risk Officer at TD Bank]

We did put tariffs into these scenarios and I'm happy to share the numbers with you. For Canada, we put in tariffs of 10% for six months and then those come down over a period of time. And for The US, put in 23% for six months and those come down over a period of time. Okay. The second thing I'd like to point out on macro is that our downside case is a recessionary case.

[Ajai Bambawale, Group Head & Chief Risk Officer at TD Bank]

And that downside case also reflects the risks of higher tariffs. In addition to the macro, what we've done is we've looked more holistically at the book and said at higher tariffs rate, what could be the impact on consumers and non consumers. And that's the way we built the overlay. So it's really a combination of these macro plus the judgmental overlay that got us to the 500,000,000 number. But at one zero one beeps, Darko, I do feel that we are well reserved.

[Ajai Bambawale, Group Head & Chief Risk Officer at TD Bank]

And the one thing I want to caution you because the situation is fluid, things could change. There's always the possibility we may have to build reserves, but I feel good as to where we are. Our reserves reflect our forward looking view as at April 30. So if that forward looking view evolves, we may have to build more reserves. But again, for this year, as you know, like I'd really ask you to anchor on the fact that we're not changing our guidance.

[Ajai Bambawale, Group Head & Chief Risk Officer at TD Bank]

We're still saying for this year 45 to 55 basis points, But we're also calling out that the risk to that range is elevated because of the environment.

[Kelvin Vi Luan Tran, Group Head & CFO at TD Bank]

Kelvin here, also additional color is that immigration policy is also constraining population growth. So so it is harder to get a rising unemployment rate out of that factor. In addition, the assumption, you can run various scenarios in your projection, but the scenario that we've run there is that we expect to have resolution to be somewhere in Q3. And if that takes longer, that would worsen the economic outlook and potentially drive higher PCL.

[Darko Mihelic, Analyst at RBC Capital Markets]

Okay. Thank you for that. And in your one of your answers previously, Ajay, you mentioned that the industries that are at risk, you sort of suggested that of that 9%, just 1% is most sensitive, I suppose, to tariffs. And you mentioned migration risk. Can you maybe better define that for me? I just want to understand the better definition and why the exposure is relatively small at less than 1% rather sensitive to tariffs. So maybe you can just define that migration issue a bit better for me.

[Ajai Bambawale, Group Head & Chief Risk Officer at TD Bank]

Well, let me let me outline how we built built the results and created the overlay. We looked at the industries that were most exposed to taps. Okay? That's a broad set. That's the 9% number.

[Ajai Bambawale, Group Head & Chief Risk Officer at TD Bank]

Our reserves were built on that 9% number. What we did is we went actually within those industries, borrow by borrow and assessed what is the financial impact on the borrower. So for example, we'd look at revenue, we'd look at cost of goods sold, and we'd look at what impact that would have on the ratings of that individual borrower. If you then aggregate that up, that created the overlay. Okay?

[Ajai Bambawale, Group Head & Chief Risk Officer at TD Bank]

So that's that's the allowance there. We then went to to a to each borrower, and we used a set of criteria. And one of the main criteria we used was borrower strength, that which of these borrowers would be most vulnerable or most sensitive to tariffs. And when we aggregated that number up, this is exposure, that number was less than 1% of gross loans.

[Darko Mihelic, Analyst at RBC Capital Markets]

Okay. Thank you. And so, essentially, if your reserves are based on the 9%, but when you whittle it down to less than one, is it it are you suggesting that the overlay actually brought the reserve down?

[Ajai Bambawale, Group Head & Chief Risk Officer at TD Bank]

No. The reserves are based on 9%, but you could conclude a lot of those reserves are held against these names that are most sensitive.

[Darko Mihelic, Analyst at RBC Capital Markets]

Okay. That's better. Okay. Thank you.

[Operator]

Thank you. There are no further questions registered at this time. I would now like to turn the meeting over to Raymond Chan. Mister Chan?

[Raymond Chun, Group President & CEO at TD Bank]

Yep. I'm assuming one sec. Take a pause for a sec.

[Raymond Chun, Group President & CEO at TD Bank]

Listen, let me just thank everyone for for joining the call. And just again, I'll end with thanking our more than 100,000 colleagues across Canada, U. S. And globally for all your support and all the hard work. And we look forward to chatting with all of you next quarter. Thank you.

[Operator]

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

Participants

Analysts

• Brooke Hales, Head, IR at TD Bank
• Raymond Chun, Group President & CEO at TD Bank
• Leo Salom, Group Head U.S. Retail and President & CEO of TD Bank, America's Most Convenient Bank at TD Bank
• Kelvin Vi Luan Tran, Group Head & CFO at TD Bank
• Ajai Bambawale, Group Head & Chief Risk Officer at TD Bank
• Matthew James Lee, Director, Equity Research - Financials and Industrials at Canaccord Genuity Group
• John Aiken, Director of Research at Jefferies Financial Group
• Gabriel Dechaine, Analyst at National Bank
• Doug Young, Analyst at Desjardins Capital Markets
• Sona Mehta, Group Head of Canadian Personal Banking at TD Bank
• Paul Holden, Analyst at CIBC World Markets
• Sohrab Movahedi, Equity Research Analyst at BMO Capital Markets
• Tim Wiggan, President & CEO, TD Securities Group Head, Wholesale Banking, TD Bank Group at TD Bank
• Mike Rizvanovic, Managing Director at Scotiabank
• Lemar Persaud, Equity Research Analyst - Financials at Cormark Securities
• Darko Mihelic, Analyst at RBC Capital Markets