Q3 2025 Toronto-Dominion Bank Earnings Call
Operator: This conference is being recorded. Cette conférence est enregistrée.
This conference has been recorded.
Operator: All participants, please stand by. Your conference is now ready to begin. Good morning, everyone, and welcome to the TD Bank Group Q3 2025 earnings conference call. I will now like to turn the meeting over to Ms. Brooke Hales, Head of Investor Relations. Please go ahead, Ms. Hales.
All participants please stand by your conference is now ready to begin.
Good morning everyone. And welcome to the TD Bank group. Q3 2025 earnings conference call.
I would now like to turn the meeting over to Miss Brooke Hales, Head of Investor Relations.
Please go ahead. Miss Hills.
Brooke Hales: Thank you, Operator. Good morning and welcome to TD Bank Group's third quarter 2025 results presentation. We will begin today's presentation with remarks from Raymond Chun, the bank's CEO, followed by Leovigildo Salom, President and CEO of TD Bank, America's most convenient bank, after which Kelvin Tran, the bank's CFO, will present our third quarter operating results. Ajai Bambawale, Chief Risk Officer, will then offer comments on credit quality, after which we will invite questions from pre-qualified 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 Liggin, Group Head Wholesale Banking and President and CEO TD Securities, and Paul Clark, Senior Executive Vice President Wealth Management. Please turn to slide two. Our comments during this call may contain forward-looking statements, which involve assumptions and have inherent risks and uncertainties.
Thank you, operator. Good morning, and welcome to TD Bank. Group's third quarter, 2025 results presentation. We will begin. Today's presentation with remarks from Raymond Chun. The bank CEO, followed by Leo, salom president, and CEO, TD Bank. America's most convenient bank after which Calvin Tran the bank, CEO will present our third.
Third quarter, operating results.
A bali Chief risk officer will then offer comments on credit quality after which we will invite questions from pre-qualified analysts and investors on the phone.
Also present today to answer your questions are Sona Meta, Group Head of Canadian Personal Banking, and Barbara Hooper, Group Head of Canadian Business Banking.
Tim Wigan group head, wholesale Banking and president. And CEO, TD Securities and Paul Clark, senior Executive Vice President wealth management. Please turn to slide 2.
Brooke Hales: 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. 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 in our Q3 2025 report to shareholders. With that, let me turn the presentation over to Ray.
The bank believes that adjusted results provide readers with a better understanding of how management views the bank's performance.
Raymond Chun: Thank you, Brooke, and good morning, everyone. We had another strong quarter, which I'm looking forward to discussing in a minute. First, I'd like to share my thoughts on the external environment. Global trade dynamics continue to be fluid. It was encouraging last week to hear the Prime Minister and President are intensifying their efforts to resolve ongoing trade challenges. However, there is still much work ahead with USMCA renegotiations set for next year. While Canadian companies have benefited from that trade agreement, tariffs, and especially sector-specific tariffs, create business uncertainty and economic distortions with significant impacts to the most exposed sectors. Despite this, the Canadian and U.S. economies have shown resilience, though momentum has slowed. These remain early days. It will likely be a long road before the full impact of tariffs is well understood.
Rey, Leo, and Kelvin will be referring to adjustments and results in their remarks. Additional information about non-GAAP measures and material factors and assumptions is available in our Q3 2025 report to shareholders. With that, let me turn the presentation over to Ray.
Thank you, Brooke, and good morning, everyone. We had another strong quarter, which I'm looking forward to discussing in a minute. But first, I'd like to share my thoughts on the external environment.
Global trade dynamics continue to be fluid. It was encouraging last week to hear the Prime Minister and President intensifying their efforts to resolve ongoing trade challenges.
However, there is still much work ahead with cusma or usmca, renegotiation set for next year.
While Canadian companies have benefited from that trade agreement, tariffs, and especially sector-specific tariffs, create business uncertainty and economic distortions with significant impacts on the most exposed sectors. Despite this, the Canadian and U.S. economies have shown resilience.
Go momentum, has flowed.
These remain early days; it will likely be a long road before the full impact of tariffs is well understood.
Raymond Chun: This is a time for bold, decisive leadership that unlocks Canada's economic potential and strengthens our productivity and resilience. I'm encouraged by the federal government's focus on removing internal trade barriers, catalyzing major projects in partnership with Indigenous peoples, and diversifying export markets. This moment is an opportunity to build stronger, more resilient economies. At TD, we stand ready to meet that moment and work with governments and private sectors to strengthen communities across our footprint. No matter how the external environment evolves, we'll be there to support our clients. It's a privilege to serve over 28 million households and businesses, and we will continue working hard every day to understand their needs and help them achieve their goals. With that, let's turn to the next slide. With three quarters of the year done, I am pleased with what we have achieved.
This is a time for bold. Decisive leadership that. Unlocks Canada's economic potential and strengthens our productivity and resilience.
I'm encouraged by the federal government's focus on removing internal trade barriers, catalyzing major projects in partnership with Indigenous peoples, and diversifying export markets.
This moment is an opportunity to build stronger, more resilient economies.
At TD, we stand ready to meet that moment and work with governments and the private sector to strengthen communities across our footprint.
And no matter how the external environment evolves, we'll be there to support our clients. It's a privilege to serve over 28 million households and businesses and we will continue working hard every day to understand their needs and help them achieve their goals with that. Let's turn to the next slide.
Raymond Chun: We continue to act decisively to support TD's future. Our momentum continued this quarter with TD's announcement of a strategic relationship between Fiserv and TD Merchant Solutions. This will simplify TD's portfolio and reduce costs, improving the bank's financial performance over time. It will also elevate the experience for our Canadian business banking clients, delivering best-in-class solutions. We have continued to identify opportunities to innovate, to drive efficiency and operational excellence. Kelvin will provide more details on our efforts to structurally reduce costs across the bank in his remarks. As you know, the bank will host an Investor Day on September 29th. We are very excited to share TD's strategy and medium-term outlook with all of you next month. Before I turn to Q3 results, I wanted to personally thank Alan McGibbon for his leadership and dedication to the bank.
With three quarters of the year done, I am pleased with what we have achieved. We continue to act decisively to support TD's future.
Our momentum continued, this quarter.
With TD's, announcement of a strategic relationship between fiser and TD merchant Solutions.
This will simplify TD's portfolio and reduce costs.
Improving the bank's financial performance over time.
It will also elevate the experience for our Canadian business banking clients, delivering best-in-class solutions.
We have continued to identify opportunities to innovate to drive efficiency and operational excellence.
Calvin will provide more details on our efforts to structurally reduce costs across the bank in his remarks.
As you know, the bank will host an Investor Day on September 29th.
We are very excited to share, TD strategy and medium-term Outlook with all of you next month.
Raymond Chun: TD and I have greatly benefited from his many contributions and keen insights. I also want to congratulate John MacIntyre, who will become the Chair of TD's Board of Directors effective Monday. John's deep financial expertise will help him guide our board in the coming years. He will continue to be invaluable to me and my leadership team as we work to deliver on our strategy and drive long-term value. Please turn to slide four. In Q3, the bank delivered a strong quarter with earnings of $3.9 billion and EPS of $2.20. We saw robust fee and trading income in our markets-driven businesses and volume growth year over year in Canadian personal and commercial banking. TD delivered positive operating leverage this quarter, reflecting strong revenue growth that offset elevated expenses driven by governance and control costs and investments to drive business growth.
Before I turn to Q3 results, I wanted to personally thank Alan McKibben for his leadership and dedication to the bank.
TD and I have have greatly benefit from his many contributions in Keen insights.
I also want to congratulate John McIntire who will become the chair of TD's. Board of directors effective Monday.
John's deep Financial expertise will help him guide our board in the coming years. He will continue to be invaluable to me and my leadership team as we work to deliver on our strategy and drive long-term value.
Please turn to slide 4.
In Q3, the bank delivered a strong quarter with earnings of $3.9 billion and an EPS of $2.20. We saw robust fee and trading income in our markets, driven by business volume growth year-over-year in Canadian Personal and Commercial Banking.
TD delivered positive operating leverage this quarter, reflecting strong revenue growth that offset elevated expenses driven by governance and control costs.
Investments to drive business growth.
Raymond Chun: Impaired PCLs decreased quarter over quarter, reflecting strong credit performance, and we added to our performing reserves for policy and trade uncertainty, taking a prudent approach with almost $600 million in reserves added year to date. Ajai will share more details shortly in his remarks. The bank's Q3 CET1 ratio was 14.8%, reflecting strong capital generation in the quarter. As of quarter end, we were over halfway through our share buyback with 46 million shares repurchased for a total of over $4 billion Canadian dollars. Please turn to slide five. In Q3, we demonstrated disciplined execution across our businesses. In Canadian personal and commercial banking, we delivered a strong quarter with record revenue, earnings, deposits, and loan volumes. Resolve volumes surpassed $400 billion, driven by strong performance across our distribution channels. We continued to deliver robust loan growth in cards.
Impaired PCLs decreased quarter over quarter, reflecting strong credit performance. We added to our performing reserves for policy and trade uncertainty.
Taking a prudent approach with almost $600 million in reserves added year-to-date.
AJ will share more details shortly in his remarks.
Show was 14.8 for 8%.
Reflecting strong capital generation in the quarter.
As a quarter end, we were over halfway through our share buyback, with 46 million shares repurchased for a total of over $4 billion Canadian dollars.
Please turn to slide 5.
In Q3, we demonstrated disciplined execution across our businesses.
In Canadian personal and commercial banking, we delivered a strong quarter with record revenue, earnings, deposits, and loan volumes.
Reservoir volume surpassed 400 billion.
Driven by strong performance across our distribution channels.
Raymond Chun: In this quarter, cards acquisition was the highest it's been in almost a decade. In the business bank, loans were up 6% year over year, reflecting growth across our commercial business. We also saw record retail originations in TD Auto Finance. We delivered continued momentum in U.S. retail with core loans up 2% year over year. U.S. bank card balances were up 12% year over year, reaching a new milestone with $3 billion U.S. dollars in balances. In our U.S. wealth business, total client assets were up 12% year over year, with mass affluent client assets up 26% year over year. This quarter, we made significant progress on our U.S. balance sheet restructuring. We completed the investment portfolio repositioning announced last October and achieved our targeted 10% asset reduction. The bank also continued to prioritize and execute on our AML remediation. Leo will provide more details in his remarks.
We continue to deliver robust loan growth in cards. In this quarter cards, acquisition was the highest it's been in almost a decade.
In the business bank loans are up 6% year-over-year reflecting growth across our Commercial Business.
We also saw record retail originations in TD Auto Finance.
We delivered continued momentum in U.S. retail, with core loans up 2% year-over-year.
US bank card balances were up 12% year-over-year, reaching a new milestone with $3 billion in balances.
In our us wealth business. Total client assets were up, 12% year-over-year with mass affluent client assets of 26% year-over-year.
We made significant progress on our U.S. balance sheet restructuring.
We completed the Investment Portfolio. Repositioning announced last October.
And achieved our targeted 10% asset reduction.
The bank also continued to prioritize and execute on. Our AML remediation, Leo will provide more details in his remarks.
Raymond Chun: In wealth management and insurance, we delivered record earnings and assets in wealth and strong underlying business performance in insurance. TD Asset Management won key institutional mandates globally and domestically and continued to take share in its growing ETF franchise. We had a strong quarter in direct investing, with trades per day up 18% year over year as we continued to gain traction in partial shares in our active trader platform. TD Insurance delivered strong premium growth year over year and continued to enhance its client acquisition strategies. In wholesale banking, we continue to demonstrate the power of our broader platform, delivering over $2 billion in revenue for the third consecutive quarter. We are seeing broad-based revenue growth as market volatility normalizes and our capital markets and advisory businesses accelerate. Please turn to slide six.
In wealth management and insurance, we delivered record earnings and assets in wealth, and strong underlying business performance in insurance.
TD Asset Management, one key institutional mandate, globally and domestically, continues to take share in its growing ETF franchise.
We had a strong quarter in direct investing, with trades per day up 18% year-over-year as we continue to gain traction in partial shares and our Active Trader platform.
TD Insurance delivered strong premium growth year-over-year and continued to enhance its client acquisition strategies.
In wholesale banking, we continue to demonstrate the power of our broader platform, delivering over $2 billion in revenue for the third consecutive quarter.
We are seeing broad-based revenue growth as market volatility normalizes and our capital markets and advisory businesses accelerate. Please turn to slide 6.
Raymond Chun: This quarter, we launched TD AI Prism, a significant step forward in our effort to harness the power of AI. TD AI Prism is designed to deliver greater client personalization through accelerated AI-driven insights and support client services and growth. In TD Securities, we launched a virtual AI assistant which queries our equity research library and synthesizes about 8,500 proprietary research reports covering nearly 1,300 companies in seconds. This tool enhances the productivity and effectiveness of our front office institutional sales, training, and research professionals, enabling them to answer client inquiries with speed. We continue to invest in enabling capabilities such as trusted data and AI. We recognize that leadership in digital and mobile is absolutely critical. We're looking forward to sharing more about our strategies and investments in these areas at our Investor Day next month. Please turn to slide seven.
This quarter, we launched TD AI Prism. A significant step forward in our efforts, the power of AI.
TD's AI Prism is designed to deliver greater client personalization through accelerated, AI-driven insights and to support client services and growth.
And in TD Securities, we launched a virtual AI assistant, which queries our equity research lab library and synthesizes about 8,500 proprietary research reports covering nearly 1,300 companies in seconds.
This tool enhances the productivity and effectiveness of our front office, institutional sales, trading and research professionals.
Enabling them to answer client, inquiries with speed.
We continue to invest in enabling capabilities, such as trusted data and AI.
We recognize that leadership in digital and mobile is absolutely critical.
We are looking forward to sharing more about our strategies and investments in these areas at our Investor Day next Monday.
Please turn to slide 7.
Raymond Chun: Before I turn it over to Leo, I want to thank our colleagues across the bank. Every day, you are working to deliver for our clients, drive shareholder value, and build TD's future. Thank you for all that you do. With that, Leo, over to you.
Leovigildo Salom: Thank you, Ray, and good morning, everyone. Please turn to slide eight. We've continued to make progress on our top priority, the U.S. AML remediation program, and we've now completed a series of important milestones. We have a strong AML leadership team in seat. We've implemented tactical risk reduction measures. We've improved our investigative capabilities. We've launched a new transaction monitoring process and platform. We've deployed all planned scenarios to date on that new environment and are prepared to continuously add and make changes to meet emerging risks and trends. This quarter, we deployed our first machine learning models in our transaction monitoring environment. This tool will continue to improve the effectiveness and efficiency of our program, allowing our AML team to focus their investigative expertise and intelligence.
So, before I turn it over to Leo, I want to thank our colleagues across the bank. Every day you are working to deliver for our clients, drive shareholder value, and build TD's future. Thank you for all that you do. With that, Leo, over to you. Uh, thank you, Ray, and good morning, everyone. Please turn to slide 8.
We've continued to make progress on our top priority, the U.S. AML remediation program, and we've now completed a series of important milestones. We have a strong AML leadership team in place. We've implemented tactical risk reduction measures, improved our investigative capabilities, and launched a new transaction monitoring process and platform.
And are prepared to continuously add and make changes to meet emerging risks and trends this quarter.
Leovigildo Salom: In addition, we built out our governance over new business initiatives, including the establishment of a new Financial Crimes Risk Management Subcommittee dedicated to the assessment and oversight of financial crime risk of new business products and services. We've also launched new focus training for the first and second lines of defense related to suspicious customer activity associated with certain commercial products and services. Coupled with the targeted role-based training and the enhanced bank-wide training, which I spoke about in the past, we are continuously uplifting and developing the knowledge and capabilities of our colleagues across the bank to be effective AML risk managers. At this point, we are where we thought we would be in our work and continue to expect that we will complete the majority of our management remediation actions by the end of calendar 2025.
We deployed, our first machine learning models in our transaction monitoring environment. This tool will continue to improve the effectiveness and efficiency of our program, allowing our AML team to focus their investigative expertise and intelligence. In addition, we've built out our governance over new business initiatives, including the establishment of a new Financial crime risk management subcommittee, dedicated to the assessment and oversight of financial crime risk of new business products and services. We've also launched new focus training for the first and second lines of Defense related to suspicious customer activity associated with certain commercial products and services.
Leovigildo Salom: However, as we have said before, significant work, including important milestones, will continue into calendar 2026 and 2027. I want to also clarify that when we say management remediation actions, we're referring to a broad set of actions that we believe need to be completed to strengthen our AML program. As we have disclosed in our MD&A, these actions include activities such as design, documentation, data preparation, systems, implementation of controls, testing, and more. Finally, as we have noted previously and is customary for remediations of this nature, our U.S. AML remediation work is subject to ongoing review by the monitor and acceptance by our regulators, the DOJ, and FinCEN. Now, I'd like to give you an update on our balance sheet restructuring activities. Please turn to slide nine. As you know, this effort has two critical objectives.
Coupled with the targeted role-based training and the enhanced bank-wide training, which I spoke about in the past, we are continuously uplifting and developing the knowledge and capabilities of our colleagues across the bank to be effective AML risk managers. At this point, we are where we thought we would be in our work and continue to expect that. We will complete the majority of our management remediation actions by the end of calendar 2025. However, as we have said before, significant work, including important milestones, will continue into calendar 2026 and 2027.
I want to also clarify that when we say "management remediation actions," we're referring to a broad set of actions that we believe need to be completed to strengthen our AML program. As we have disclosed in our MD&A, these actions include activities such as design documentation, data preparation, systems implementation, controls testing, and more.
Finally, as we have noted previously, and as is customary for remediations of this nature, are you using AML remediation? Work is subject to ongoing review by the Monitor and acceptance by our Regulators, the DOJ and FinCEN.
Now, I'd like to give you an update on our balance sheet restructuring activities, please turn to slide 9.
Leovigildo Salom: 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. At the end of the fiscal quarter, total assets were US $386 billion, reflecting the deployment of proceeds from the loan sales to pay down bank borrowings. I remain confident that we will largely complete the loan sales we identified last October by the end of the fiscal year. As we continue to focus on simplifying our business, we will be reducing identified additional loans over the course of fiscal 2026 and beyond. With the execution of our loan reductions and pay down of short-term borrowings, we expect to modestly exceed the 10% asset reduction we guided to last October. With this asset reduction, the U.S.
As you know, this effort has 2 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.
At the end of the fiscal quarter total assets or us 386 billion dollars reflecting the deployment of proceeds from the loan sales to pay down bank borrowings. I remain confident that we will largely complete the loan sales. We identified last October by the end of the fiscal year and as we continue to focus on simplifying our business. We will be
reducing identified additional loans over the course of fiscal 2026 and Beyond and with the execution of our loan reductions and pay down of short-term borrowings, we expect to modestly exceed the 10% asset reduction, we guided to last October,
Leovigildo Salom: retail segment could grow core loans at a rate consistent with our historical performance through the medium term without breaching the asset limitation. This is without taking into account any incremental capacity that could be created through the sale of up to $40 billion in non-HQLA securities. This quarter, we completed the investment portfolio repositioning program as well, announced back in October. In total, we sold approximately $25 billion notional for an upfront loss of $1.3 billion pre-tax. These actions are expected to generate an NII benefit in fiscal 2025 of approximately $500 million pre-tax. Collectively, these actions have enabled the U.S. retail segment to improve return on equity, excluding Schwab, by 140 basis points since Q4 of 2024. We expect to continue to improve return on equity through the remainder of fiscal 2025 and into fiscal 2026. With that, I'll turn it over to Kelvin.
With this asset reduction, the US retail segment could grow core loans at a rate consistent with our historical performance through the medium-term without breaching, the asset limitation, and this is without taking into account, any incremental capacity, that could be created through the sale of up to 40 billion dollars in nonh securities.
This quarter, we completed the Investment Portfolio Repositioning Program, as announced back in October.
In total we sold approximately 25 billion dollars notional for an upfront loss of 1.3 billion. Dollars pre-tax, these actions are expected to generate an nii benefit in fiscal 2025 of approximately 500 million dollars pre-tax.
Collectively, these actions have enabled the US retail segment to improve return on Equity, excluding Schwab by 140 basis points. Since Q4 of 2024, we expect to continue to improve return on Equity, to the remainder of fiscal 2025 and into fiscal 2026 with that, I'll turn it over to Kelvin.
Kelvin Tran: Thank you, Leo. Please turn to slide 10. TD delivered a strong quarter. Total bank TTPP was up 13% year over year after removing the impact of the U.S. strategic card portfolio, FX, and insurance service expenses. Revenue grew 10% year over year, driven by higher fee income and trading-related revenue in our market-driven businesses and volume growth in Canadian personal banking. Expenses increased 13% year over year, with approximately one quarter of the growth driven by variable compensation, foreign exchange, and the impact of the U.S. strategic card portfolio. Impaired PCLs declined quarter over quarter, reflecting strong credit performance. Performing provisions reflect additional overlays for policy and trade uncertainty. Please turn to slide 11. As you know, we are undertaking a restructuring program to reduce structural costs and create capacity to invest to build the bank of the future.
Thank you Leo. Please turn to slide 10.
TD delivered a strong quarter.
Total Bank PTPP was up 13% year-over-year after removing the impact of the U.S. strategic car portfolio.
Facts and Insurance Service expenses.
And volume growth in Canadian personal.
Expenses increased 13% year-over-year, with approximately one quarter of the growth driven by variable compensation, foreign exchange, and the impact of the U.S. strategic car portfolio.
Impaired PCLs declined quarter-over-quarter, reflecting strong credit performance.
Performing Provisions. Reflect additional overlays for policy and trade uncertainty. Please turn to slide 11.
as you know,
We are undertaking a restructuring program to reduce structural costs.
And create capacity to invest to build the bank of the future.
Kelvin Tran: We expect to incur total restructuring charges of $600 million to $700 million pre-tax over several quarters. In Q3, we incurred restructuring charges of $333 million pre-tax. The restructuring program is expected to generate savings of approximately $100 million pre-tax in fiscal 2025 and annual run rate savings of $550 million to $650 million pre-tax. 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 continue to expect fiscal 2025 expense growth, assuming fiscal 2024 levels of variable compensation, FX, and the U.S. strategic card portfolio to be at the upper end of the 5% to 7% range, reflecting investments in governance and control and investments supporting business growth, net of expected productivity and restructuring savings.
We expect to incur total restructuring charges of $600 million to $700 million pre-tax over several quarters.
In Q3 we incurred restructuring charges of 333 million pre-tax.
The restructuring program is expected to generate savings of approximately $100 million pre-tax in fiscal 2025.
And annual run rate Savings of 550 million to 650 million dollars free time.
Cost savings will be driven by Workforce and real estate optimization.
As I write off and business line downs and exits as part of the strategic review,
We continue to expect fiscal 2025 expense growth, assuming fiscal 2024 levels of variable compensation factors and the U.S. strategic cost portfolio to be at the upper end of the 5% to 7% range, reflecting investments in governance and control as well as investments supporting business growth, net of expected productivity and restructuring savings.
Kelvin Tran: We have delivered strong results year to date, and we are evaluating opportunities to further accelerate investments in our business to drive future growth. We look forward to sharing more at our upcoming Investor Day. Please turn to slide 12. Canadian personal and commercial banking delivered a strong quarter with record revenue, earnings, deposits, and loan volume. Average deposits rose 4% year over year, reflecting 4% growth in personal deposits and 6% growth in business deposits. Average loan volumes rose 4% year over year, with 3% growth in personal volumes and 6% growth in business volume. This quarter, housing market activity improved compared to the prior quarter, and our resolve strategy delivered both sequential volume growth and margin expansion in the competitive market. Net interest margin was 2.83%, up one basis point quarter over quarter, primarily driven by higher loan and deposit margins.
We have delivered strong results year to date.
And we are evaluating opportunities to further.
Accelerate investments in our business to drive future growth.
We look forward to sharing more at our upcoming investor day.
Please turn to slide 12.
Canadian Personal and Commercial Banking delivered a strong quarter with record revenue, earnings, deposits, and loan volumes.
Average deposits, roof, rolls 4% year-over-year reflecting 4% growth in personal deposits and 6% growth in business deposits.
Average loan volumes rose 4% year-over-year, with 3% growth in personal volumes and 6% growth in the business audience.
This quarter, housing market activity improved compared to the prior quarter, and our reso strategy delivered both sequential volume growth and margin expansion in a competitive market.
Net, interest margin was 2.83% of 1 basis. Point quarter over quarter, primarily driven by higher loan and deposit margin.
Kelvin Tran: As we look forward to Q4, 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. retail sustained business momentum and made significant progress on balance sheet restructuring. Deposits, excluding sweeps, were stable year over year and were up 2%, excluding targeted run-off in our government banking business. Core loans grew 2% year over year, reflecting continued strength in bank card, home equity, middle market, and small business. Net interest margin was 3.19%, up 15 basis points quarter over quarter, reflecting the impact of U.S. balance sheet restructuring activities, normalization of elevated liquidity levels, and higher deposit margins. As we look forward to Q4, we expect NIM to moderately expand. Expenses increased $199 million U.S. or 13% year over year, reflecting higher governance and control investments, including costs of $157 million U.S. for U.S.
As we look forward to Q4, we again expect Nim to be relatively stable.
Expenses increase, reflecting higher Technologies, ban and other offering expenses, please turn to slide 13.
US retail has sustained business momentum and made significant progress on the balance sheet restructuring.
Deposits, excluding sweeps, were stable year-over-year.
And we were up 2%, excluding targeted runoff in our government banking business.
4 loans, grew 2% year-over-year reflecting continued strength. In bank card home equity Middle Market and small business.
Net, interest margin was 3.19%.
15 basis points quarter-over-quarter reflecting the impact of the U.S. balance sheet, restructuring activities, normalization of elevated liquidity levels, and higher deposit margins.
as we look forward to Q4, we expect name to moderately expand
Kelvin Tran: BSA AML remediation this quarter and higher employee-related expenses. While investments will fluctuate from quarter to quarter, we continue to expect U.S. BSA AML remediation and related governance and control investments of approximately $500 million U.S. pre-tax in fiscal 2025. We expect similar investments in fiscal 2026. Overall, U.S. retail expense growth is expected to be in the mid-single-digit range in fiscal 2024. We remain focused on productivity initiatives to help fund investments in our core franchise. Please turn to slide 14. Wealth management and insurance delivered strong underlying business performance. In wealth management, market appreciation coupled with strong account origination drove record assets this quarter. Direct investing had a particularly strong quarter. We saw a significant increase in trading volumes led by our active trader clients with volumes up 23% year over year and increased deposits. We have continued to invest in our insurance business.
Expenses increase, 199 million us or 13% year-over-year, reflecting higher governance and controlled Investments including costs of 157 million us for us BSA AML remediation, this quarter and higher employee related expenses.
Quarter. We continue to expect, USPSA AML remediation and related governance and control Investments of approximately, 500 million us pre-tax in fiscal 2025.
We expect similar investments in fiscal 2026.
Overall, U.S. retail expense growth is expected to be in the mid-single-digit range in fiscal 2027.
We remain focused on productivity initiatives to help fund investments in our core franchise.
Please turn to slide 14.
Wealth management and insurance delivered, strong, underlying business performance.
In wealth management Market appreciation, coupled with strong account, origination drove record assets. This quarter
Direct investing had a particularly strong quarter.
We saw a significant increase in trading volumes led by our active Trader clients with volumes up 23% year-over-year and increase deposits.
Kelvin Tran: This quarter, while lower CAT activity provided a benefit, the performance underscores the strength of our business and ability to deliver profitable growth. Expenses increased this quarter, reflecting higher variable compensation commensurate with higher revenues and increased technology investments. Please turn to slide 15. Wholesale banking delivered a strong quarter driven by broad-based revenue growth across global markets and corporate and investment banking, and our pipeline of future deals remains robust. We continue to demonstrate the industrial logic of the TD Cowen acquisition. Expenses increased, reflecting higher technology, front office costs, variable compensation, and spend supporting regulatory and business projects. Please turn to slide 16. Corporate net loss for the quarter was $164 million, 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.
We have continued to invest in our insurance business.
This quarter, while lower cat activity provided a benefit, the performance underscores the strength of our business and ability to deliver profitable growth.
Expenses increased in this quarter, reflecting higher Rebel compensation, commensurate with higher revenues and increased technology investments.
Please turn to slide 15.
Postal banking delivered a strong quarter, driven by broad-based revenue growth in Global Markets and Corporate and Investment Banking. Our pipeline of future deals remains robust.
We continue to demonstrate the industrial logic of the TDK acquisition.
Expenses increase reflecting higher technology, fund office costs rival compensation and spend supporting Regulatory and business projects.
Please turn to slide 16.
Kelvin Tran: Please turn to slide 17. The common equity tier one ratio ended the quarter at 14.8%, down five basis points sequentially. We delivered strong internal capital generation this quarter. The bank repurchased 16 million common shares under its share buyback program in Q3, which reduced CET1 by 25 basis points. Our average LCR for the quarter was 138%. The bank is now operating at normalized liquidity levels. With that, Ajai, over to you.
Corporate net loss for the quarter was $164 million, 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 517.
The common Equity Tier 1 ratio ended the quarter. At 14.8% down 5 basis points sequentially.
We deliver strong, internal Capital generation this quarter.
The bank we purchased 16 million common shares under its share buyback program in Q3 which reduced C1 by 25 basis points.
Our average Liquidity Coverage Ratio (LCR) for the quarter was 138%. The bank is now operating at normalized liquidity levels.
Ajai Bambawale: Thank you, Kelvin, and good morning, everyone. Please turn to slide 18. Gross impaired loan formations were 26 basis points, an increase of 5 basis points of $402 million quarter over quarter. The increase was largely recorded in the wholesale banking and U.S. commercial lending portfolios related to a small number of borrowers across a number of industries. Please turn to slide 19. Gross impaired loans increased $468 million quarter over quarter to $5.33 billion or 56 basis points. The increase was largely reflected in the wholesale banking and U.S. commercial lending portfolios. 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. 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.
With that, R.J., over to you. Thank you, Kelvin, and good morning, everyone. Please turn to slide 18.
Gross impaired loan formations were 26 basis points, with an increase of 5 basis points or $42 million quarter over quarter.
The increase was largely recorded in the wholesale Banking and US commercial lending portfolios related to a small number of borrowers across a number of Industries.
Please turn to slide 19.
Gross impaired loans increased $468 million quarter over quarter to $5.33 billion, or 56 basis points. The increase was largely reflected in the wholesale banking and U.S. commercial lending portfolios.
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— 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.
Ajai Bambawale: The bank's provision for credit losses decreased $370 million or 17 basis points quarter over quarter to 41 basis points. The decrease was recorded broadly across the Canadian and U.S. consumer and business and government lending portfolios and reflective of strong underlying credit performance and a smaller current quarter performing build. Please turn to slide 21. Impaired PCLs were $904 million, a decrease of $42 million quarter over quarter, driven by the Canadian personal and commercial segment. Performing PCL was $67 million, a decrease of $328 million quarter over quarter. The decrease reflects a smaller current quarter build for policy and trade uncertainty. Please turn to slide 22. The allowance for credit losses was $9.7 billion, an increase of $116 million quarter over quarter, reflecting additional performing reserves relating to policy and trade uncertainty and higher impaired allowance associated with a few impairments in the wholesale lending portfolio.
The bank's provision for credit losses decreased by $370 million, or 17 basis points, quarter over quarter to 41 basis points.
Quarter performing.
Bill, please turn to slide 21.
Impaired, pcls were 94 million, a decrease of 42 million quarter over quarter driven by the Canadian personal and Commercial segment.
Performing PCL was $67 million, a decrease of $328 million quarter over quarter.
The decrease reflects a smaller current quarter build for policy and trade uncertainty.
Please turn to slide 22.
The allowance for credit losses was 9.7 billion and increase of 116 million quarter over quarter, reflecting additional performing, reserves relating to policy and trade uncertainty and higher impaired. Allowance associated with a few impairments in the wholesale lending portfolio.
Ajai Bambawale: Now, in summary, the bank exhibited continued strong credit performance this quarter, evidenced by a sequential reduction in impaired PCLs. While underlying credit performance remains resilient, we've conducted a further review of our lending portfolios, considering ongoing policy and trade-related risks, and have added incremental reserves this quarter. In aggregate, our policy and trade-related reserves are now approximately $600 million, and we are prudently reserved for the dynamic economic environment. While there are many potential scenarios that could play out in terms of the economic trajectory and credit performance, I expect fiscal 2025 PCL results to fall within the range of 45% to 55% I offered at the start of the year.
Now, in summary.
the bank exhibited continued, strong credit performance, this quarter evidenced by a sequential reduction in impaired pcl's
While underlying credit performance remains resilient.
We've conducted a further review of our lending portfolios, considering ongoing policy and trade-related risks.
And have added incremental reserves this quarter.
In aggregate our policy and trade related reserves are now approximately 600 million.
And we are prudently reserved for the dynamic economic environment.
While there are many potential scenarios that could play out, in terms of the economic trajectory and credit performance, I expect fiscal 2025 PCL results to fall within the range of 45 to 55 basis points. I offered at the start of the year.
Ajai Bambawale: Looking forward, TD is well positioned to manage through this period of uncertainty, 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. With that, Operator, we are now ready to begin the Q&A session.
Looking forward, TD is well positioned to manage through this period of uncertainty, 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.
With that operator, we are now ready to begin the Q&A session.
Operator: Thank you. Please press star one at this time if you have a question. There will be a brief pause while the participants register. We thank you for your patience. The first question is from John Aiken from Jefferies.
Thank you. Please press star 1 at this time. If you have a question, there will be a brief. Pause all the participants register.
We thank you for your patience.
The first question is from John Aken from Jeffrey's.
John Aiken: Good morning, Leo. Thanks for the update in terms of the AML remediation and the balance sheet restructuring. A question for you, though. In your prepared commentary, you talked about the lending portfolio could grow over the next couple of years without breaching the restriction. Not putting too fine a point on this, but are we expecting to see an inflection point at some point in 2026 and actually start to see the loan balances grow in the U.S. portfolio?
Good morning Leo. Thanks for the uh, the update in terms of the AMR remediation. The balance sheet restructuring, uh, question for you though. Can you prepare commentary? You talked about, uh, the Millennium portfolio could grow, uh, over the next couple of years without breaching, the, uh, the Restriction, uh, not putting too fine. A point on this. But, are we expecting to see an inflection point at some point in 2026 and actually start to see the loan balances grow in the US portfolio?
Leovigildo Salom: John, thanks for the question. Just to break it down, we, and we did provide this disclosure. We've already reduced the overall balance sheet by about $17 billion. We've got an additional $18 billion on a spot basis that we've identified for runoff and/or selective repricing. That will be largely the work that we'll be doing over the next few quarters into 2026. I would expect that you'll still see from a headline standpoint that we'll see some contraction in the book through most of 2026 with an inflection point towards the end of the year. The areas where we are experiencing really good strong growth, and Kelvin highlighted some of these. In our bank card business, I'm really pleased we've been consistently delivering double-digit growth in terms of overall credit card proprietary growth. Likewise, we saw home equity balances grow by 9%, so solid performance there.
Um, John thanks for the question. Um, just to break it down. We um, and we did provide this disclosure we've already, uh, reduced the overall balance sheet by about 17 billion dollars. We've got an additional 18 billion dollars on a spot basis that we've identified for runoff and or selective repricing. So that, that will be largely. The work that we'll be doing over the next few quarters into 2026. Uh, I would expect that you'll still see from a headline standpoint that we'll see some contraction in the book, through most of, uh, 2026 with an inflection point, towards the end of the year. Um, the areas where
Leovigildo Salom: Even in the commercial segment, which is given the uncertainty in the marketplace, has been experiencing a bit of a wait-and-see sort of dynamic. We're seeing decent growth there. Small business was up 5%. Our mid-market and specialty businesses were up 6%. I think we're seeing the core underlying growth taking place. To your point, we'll still have a runoff scenario for the better part of 2026 as we try to get to the fighting weight size for the U.S. business.
Try to get to the fighting weight size for the U.S. business.
John Aiken: Thanks for the clarification, Ray. I appreciate it.
Thanks for the clarification. I appreciate it.
Operator: Thank you. The next question is from Gabriel Deshayne from National Bank Financial.
Gabriel Deshayne: Hey, good morning. First question is just to follow up on that one. You've, the loans we're talking about in the U.S., the exits, runoffs, $17 billion to date, $18 billion, thanks for that number, identified for, you know, similar treatment. Is that contemplated and is that the full program as you see it now? Because there's what you do this year and then it sounds like more beyond, or beyond 2026 or whatever. Is this capturing all that outlook?
Thank you. The next question is from Gabrielle dessen from National Bank Financial. Hey, good morning. Uh, first question just to follow up on that 1. So you've uh, the loans we're talking about uh, in the US, the exits runoffs, uh, 17 billion uh, to date. 18 billion, thanks for that number. Uh, identified for uh, you know, similar treatment um, is that
Leovigildo Salom: Thanks for the question, Gabe. I'd say that is the entirety of the program. That reflects not only what we announced back in October, Gabe, but it also includes the product of the strategic reviews that we've conducted over the past two quarters.
Gabriel Deshayne: Okay, great. From a modeling standpoint, I know these aren't all homogeneous portfolios, but when you choose to exit them, ROE is the ultimate deciding factor, but risk is another. Are these going, in totality, to cause your margins to go up or down and then your risk to go up or down, just the nature of these portfolios? I know the correspondent mortgage would probably be low margin and low loan loss, but maybe the rest of the program has different characteristics.
Contemplated and is that the the full program as you see it now because, uh, there's what you do this year and then it sounds like more Beyond or or or or Beyond 2026 or whatever is this uh um, capturing all that Outlook. No, no. Thanks for the question, Dave. Um, I I'd say that is the entirety of the program that reflects not only what we announced back in October, okay? But it also includes the product of the Strategic reviews that we conducted over the past, uh, 2 quarters. Okay, great. And this is from a, you know, modeling standpoint and I know these aren't all homogeneous portfolios, but uh, when you choose to exit them are always, you know, the ultimate deciding factor, but risk is another. So are these going, you know, in in, in in totality are these going to, you know, cause your margins to go up or down and then your your, you know, your your risk uh, to go up or down like just
Just the nature of these portfolios and all the correspondent mortgages would probably have a little margin, low loss, but maybe...
Leovigildo Salom: No, Gabe, that's exactly right. I'd say the two primary criteria, one obviously is, we looked at portfolios that were not accretive to return on equity. Making sure that the portfolio is profitable and is hurdling was criteria number one. Number two was, is it core to the franchise? Are we lending to clients where we are able to serve them completely as opposed to just a standalone lending relationship? All the portfolios that we've chosen as part of this exercise fall in that category.
The rest of the program has different characteristics.
Gabriel Deshayne: Okay. Next question is on expenses, expense management. Just so I'm crystal clear, the, and I mean, I should know this by now, but the U.S. $500 million of AML remediation costs, the direct stuff, that's in the U.S. PNC segment, correct?
Okay, that's exactly right. I, I'd say the 2 primary criteria. 1 obviously is, uh, we looked at portfolios that were not accredited to return on equity and so, uh, making sure that, um, the, the portfolio is profitable and is hurtling was criteria number 1. Number 2 was, is it, is it quarter to the franchise? Are they are we lending to to clients that that where we are able to serve them, you know, completely as opposed to just a standalone lending relationship and all the portfolios that we've chosen as part of this exercise follow in that category.
Leovigildo Salom: That is correct, yeah.
Gabriel Deshayne: Okay. My hopefully more intelligent question is, are there additional, you know, indirect costs that are, I mean, seemingly tied to this issue as well? Because, I mean, in the wholesale banking, I see, you know, good revenue growth, but then expenses were up more, spend to supporting regulatory and business projects. In the corporate segment, sounded like governance and control costs were noted. I'm just wondering if there's additional inflationary pressures that are starting to affect other segments.
Okay. Um, next question is on expenses, expense management. So just so I'm crystal clear the, the I mean, I should know this by now but uh, uh, the US 500 million of AML remediation costs, the direct stuff, but in the US PNC segment, correct, correct, correct. Yeah. Okay. My my hopefully more intelligent question is
Leovigildo Salom: All right, Gabe, it's Kelvin. Why don't I take that first? Yeah, so overall, the majority of the year-over-year expense growth is governance and control related. You've already known that part of that is in Leo's business. We've also taken this opportunity to uplift our governance and control costs across the bank, where we see feasible. Maybe I'll pass it on to Ajai just to give you a few examples of those and then to Tim on the investment that he's making in his business.
Are there additional, you know, uh, indirect costs that are, I mean, seemingly tied to this issue as well? Because, uh, I mean in the whole field of banking, I see, you know, good revenue growth. Um, but then expenses were up more, uh, spending to support regulatory and business projects. And then in the corporate segment, it sounded like governance and control costs were noted. I'm just wondering if there are additional inflationary pressures that are starting to affect other segments.
Ajai Bambawale: Yeah, I'd say with respect to second-line risk functions that are under my purview, the main area we're investing in is AML. Not just U.S. AML, but we're very much investing in enterprise AML as well. As I've said on earlier calls, there are other risk programs that we're investing in. A good example of that is fraud. Another good example is cyber. Compliance is the third example I would share with you. We are investing in other risk programs as well.
Hi Davis Calvin, why don't I pick that for? Uh, yeah. So overall, um, the majority of the year-over-year expense growth is governance and control related. Uh, you've you've already know that part of that is is in Leo's business. And we've also taken this opportunity to uplift our, uh, uplift, our governance and control cross across across the bank, um, where we see feasible. Uh, and so, maybe I'll pass it on to AJ just to give you a few examples of those. And then to Tim on on the investment that he's making in his business. Yeah. So I'd say, with respect to Second Line risk functions that are under my purview the main area where investing is AML. So not just us AML but we're very much investing in Enterprise AML as well. And as I've said on earlier calls there are other risk programs that we're investing in a good example.
Example of that is fraud. Another good example is, cyber compliance is the third example. I, I would I would share with you
Leovigildo Salom: Okay. Gabe, from a wholesale perspective, you mentioned the revenue. We are aggressively scaling our wholesale business. As you've seen, in this quarter, we did $2 billion of revenue. The way I would describe that, we essentially matched Q2 in revenue, which included the $184 million from Schwab that we disclosed. That involves investment across global markets, capital markets, as well as investment banking. To follow on Ajai's point, we also need to make foundational investment in our risk and control platform to allow us to scale within risk appetite and properly manage our risk. I think we are well on track with our stated goals, and the results are showing that our strategy is playing out.
So we are investing in other risk programs as well.
Gabriel Deshayne: I'm sure we'll dive into that in greater detail in September, in a month or so. The last one, buyback, the pace, I know there's the number of shares and then the dollar amount. The stock price has gone up since you announced the buyback program. If I look at the number of shares, it was 30 some odd million in the last quarter, 15 or so this quarter, unless I'm mistaken. Are you still committed to the full US $8 billion amount?
Banking, uh, but to follow on AJ's point. We also need to make foundational investment in our risk and control platform, uh, to allow us to scale within risk appetite and properly managed, uh, our risk. Uh, but I think we are well on track, uh, with our stated goals and and the results are are showing uh, that our strategy is playing out. I'm sure we'll dive into that in Greater detail on the September, in a month or so. Um,
The last 1 by back. Uh, the pace. I mean, I I know the the number of shares and then the dollar amount the the stock price has gone up since you, you announced the, the buyback program. So, uh, but if I look at the number of shares, there was 30 some odd million on the last quarter of 15 or so this quarter, unless I'm mistaken, uh, you're still committed to the full us 8 billion dollar uh, amount
Leovigildo Salom: Thanks for the question, Gabe, it's Ray. Yes, the simple answer is yes. We are still looking to deploy about $8 billion from the Schwab sale proceeds for our current NCIB. As you said, we did, you know, we've made good progress this quarter. We bought back 16 million shares. We're at about 46 million shares that we've bought back since we announced the program for $4 billion through quarter end. I'll just note that the pace of the buyback will depend on some of the market conditions. As you saw and noted, we accelerated some of that repurchase in Q2 when we saw the share price dip. We're committed to completing the $8 billion buyback that we announced.
Okay, thanks for the question Dave. It's Ray. Um, and and yes the simple answer is. Yes. Uh, we are still looking to deploy about 8 billion dollars from the Schwab sale proceeds for our current ncib. And as you said I mean we did, you know, we've made good progress. This quarter, we bought back 16 million shares. Uh, we're at about 46 million shares, uh, that we bought back since we announced the the program before billion dollars through quarter end. And we'll just note that that the pace of the buyback, uh, will depend on some of the market conditions and as you saw and noted, uh, we accelerated some of that repurchase in Q2 when we saw,
Gabriel Deshayne: Okay, enjoy the rest of your summer.
Leovigildo Salom: Thanks, Gabe.
All the share price dip. Um, but where we are committed to completing the 8 billion, uh, buyback that we announced. Okay, well, uh, enjoy the rest of your summer. Thanks.
Operator: Thank you. The next question is from Matthew Lee from Canaccord Genuity. Please go ahead.
Thank you. The next question is from Matthew Lee.
From canaccord genuity, please. Go ahead.
Leovigildo Salom: Hey, thanks for my question. Maybe just on the capital markets side, activity finally seems to be picking up on the CIB front. You know, how did the addition and integration of TD Cowen improve your approach to winning investment banking mandates, particularly in the U.S.? Should we expect capital markets to be a bigger growth driver for you this cycle than maybe how TD has looked in the past? Yeah, thanks very much for the question. I would just say you should absolutely expect continued growth in capital markets. If I give you a longer-term view of revenue, I'll just take you back to fiscal 2022. That was the last full fiscal year prior to the TD Cowen acquisition, where we were doing on a quarterly basis about $1.2 billion of revenue.
And they say my question, um, maybe just on the Capital Market side activity. Finally seems to be picking up on the cnib front.
You know, how does the addition of an integration of Ken, improve your approach to winning Investment Banking mandates, particularly in the US? And then, you know, should we expect Capital markets to be a bigger growth driver for you this cycles and maybe how to look in the past.
Leovigildo Salom: In Q4, we guided to an expectation that we could take that to $1.8 billion per quarter in this fiscal year. Quarter to date, as you've seen, we're actually coming in at $2 billion. I would say much like you've seen from other banks over the course of the last few months, the first half of the year was about monetizing volatility, which I think we did very well. As we look at Q3, we've had a meaningful pickup in CIB. Within that, you would have obviously advisory, equity capital markets for us specifically is a much bigger contributor. A lot of that is just as a result of the mix and being more exposed to U.S. equity capital markets activity. We also saw leveraged finance pickup.
Yeah, thanks very much for the question. I would just say you should absolutely expect, uh, continued growth, uh, in in capital markets. Uh, if I give you a longer term view of of Revenue, I'll just take you back to, uh, fiscal 2022. So that was the last, uh, full fiscal year prior to the TD Cowen acquisition, uh, where we were doing on a quarterly basis about 1.2, uh, billion of Revenue, uh, in Q4, uh, we guided to, uh, an expectation that we could, uh, take that to 1.8, uh, billion, uh, per quarter in this, uh, fiscal year and quarter to date. Uh, as you've seen, uh, we're actually coming in at, uh, at 2 billion. And, uh, I would say much like you've seen, uh, from other, uh,
Leovigildo Salom: Overall, as I said earlier, we are seeing the benefits of the broader platform and continuing to scale and invest to become a top 10 North American dealer. All right. As a follow-up, you know, any industries in particular, are you starting to see some excitement in terms of equity and advisory? It's actually fairly broad-based. I would call out our biotech franchise has been a big contributor. Our energy, energy infrastructure, communication, media, telecom. I would really suggest to you that the shape of this quarter is very well diversified. Even though we had outsized global markets activity in the first half, when you normalized for Schwab, the sequential revenue on the market side was actually fairly flat. The meaningful delta, again, was in advisory and capital markets and fairly well diversified, which obviously is encouraging for us. All right, I appreciate the caller. I'll pass it on.
Uh, banks, over the course of the last few months, the first half of the year was about monetizing, uh, volatility, which I think we did very well. Uh, but as we, uh, look at Q3, uh, we've had a meaningful pickup in CIB. And within that, you would have obviously advisory. Uh, Equity Capital Markets for us specifically, uh, is a much bigger contributor, and a lot of that is just as a result of the mix and being, uh, more exposed to U.S. uh, Equity Capital Markets activities. We also saw uh, leveraged finance pickup. So, uh, overall, as I said earlier, we are seeing uh, the benefits of the broader platform and continuing to scale and invest to become a top 10 North American dealer.
All right, and as a follow-up, you know, are there any industries in particular where you are starting to see some excitement in terms of equity and advisory?
Uh, it's actually fairly broad-based. Uh, so I would call out, um, our, our biotech, uh, franchise, uh, has been a big contributor, our energy, uh, energy infrastructure, uh, communication media Telecom. Uh, so I I would really, uh, suggest to you. That the shape of this quarter is very well Diversified. Um, and even even though we had, um, you know, outsized, uh, Global markets activity, uh, in the first half, when you normalize for Schwab. Uh, the sequential
Revenue on the market side was actually fairly flat, but the meaningful delta again was in advisory and capital markets, and fairly well diversified, which obviously is encouraging for us.
All right, I appreciate you calling. I'll pass the line.
Operator: Thank you. The next question is from Ibrahim Bunawala from Bank of America. Please go ahead.
Thank you. The next question is from Abraham Buena Walla from Bank of America. Please go ahead.
Ibrahim Bunawala: Hey, good morning. I guess just a few questions that are on expenses, and maybe Leo with you on the U.S. side. Just making sure I'm hearing you correctly, there's another, I guess, $18 billion of loans that are going to run off next year. Expense growth is going to be mid-single digits in the U.S. segment. All of that obviously speaks to some version of negative operating leverage in that business for next year as well. Sorry if I missed it, but remind us, I feel like the control costs, AML costs were in the run rate this year. When you think about just the drivers of expense growth relative to kind of the balance sheet runoff that's taking place, how should we think about that in terms of just the U.S. segment profitability, looking out next year?
Hey, good morning.
Yes. Um, just a few questions around expenses and uh maybe Leo with you on the US side. Uh just making sure I'm hearing you correctly.
There's another, I get 18, 18 billion dollars of loans that are going to run off next year.
Expense growth is going to be mid-single digits, uh, in the US segment. All of that obviously, uh, speaks to some version of negative operating leverage in that business for next year as well. And
Sorry if I missed it, but remind us. I feel like the control costs and AML costs were in the run rate this year.
So, when we think about just the drivers of expense growth relative to kind of the balance sheet runoff that's taking place.
Leovigildo Salom: Yeah, everything, good to hear from you. Maybe if I could just frame first expenses and then I'll come back to sort of overall profitability. From an expense standpoint, as Kelvin guided, we are confident with our spend pattern against the AML remediation program. We will come in at the $500 million number for the 2025 year, and we believe that that number will look similar in 2026. I think we've got some degree of consistency there. I think from an expense standpoint, I would expect the fourth quarter, just in terms of where we'll land, to be somewhat similar in terms of the absolute level of expense that we saw in the third quarter. That reflects the slightly higher AML remediation program spend pattern just in terms of the calendarization from the first half of the year to the second half of the year.
How should we think about that in terms of just the U.S. segment profitability looking out next year?
Um, everything good to hear from you. Um, maybe if I could just frame first expenses and then I'll come back to to sort of overall profitability, uh, from an expense standpoint. Um, as Kelvin guided, um, we we are confident, uh, with our spend pattern against the AML program. So we will come in at at the half a billion dollar number, uh, for the 2025 year and, and, and we believe that that number will look similar in 2026. So I think, uh, we've got some degree of of consistency there.
Leovigildo Salom: That number obviously in any one given quarter could bump around. The piece that we did share with you is that we are guiding to a mid-single-digit expense growth for 2026. What that reflects is that while we still will have elevated remediation expenses, somewhat in line with what we've seen in 2025, you'll start seeing the benefit of the productivity efforts that we've announced in previous calls and just the deliberateness around the choices that we're making. Productivity is important because we want to continue to not only remediate, but also invest in the franchise in those areas that we think have significant growth.
Um, I I think from a expense uh standpoint I would expect the fourth quarter just in terms of where we'll um, land to be somewhat similar in terms of the absolute level of expense that we saw in the third quarter and that and that reflects the slightly higher AML, uh spend uh pattern just in terms of the calendar, from the first half of the year to the second half of the Year. And that number obviously, in anyone given quarter could bump around. Um, I I think the, the piece that we did share with you is that we are guiding to a mid single digit expense growth for, uh, 2026. And what that reflects is that while we still will have elevated, remediation expenses, um, someone in line with what we've seen in 2025, you, you'll start seeing the benefit of, you know, the productivity efforts that, that, that we've announced in previous calls and just the, the, the deliberateness around the, the choices that we're making, um, productivity is important because we want to continue to not only remediate but also invest in the franchise in those areas that we think have
Leovigildo Salom: To your point with regards to overall profitability, we still believe that between the work that we've done on the bond repositioning, the tractor-on-rate versus off-rate profile, the work that we've done to reduce excess liquidity, notwithstanding that we're going to have some headwinds related to the runoff of the $18 billion, that we'll still have a strong revenue dynamic in 2026. That coupled with the disciplined profile and expenses would lead us to a year of NIAAC growth. We'll provide a little bit more texture and guidance during the Investor Day call in late September. Long-winded way of saying, I'm still constructive with regards to the outlook for 2026.
You know, have significant growth to your point with regards to overall profitability, we still believe that between the work that we've done on the bond repositioning, the tractor on rate versus off rate profile, the the work that we've done to reduce excess liquidity, notwithstanding that we're going to have some headwinds with related to the runoff of the 1820. Uh, 6 and that coupled with
The disciplined, uh, profile and expenses would lead us to a year of neach growth, and we'll provide a little bit more texture and guidance during the investor day, call in late, uh, in late September. But, um, long-winded way of saying, I'm still constructed with regards to the outlook for 2026
Ibrahim Bunawala: That's helpful, Leo. I think if I heard correctly, you said you expect to have all the work done by the end of the year as far as the AML remediation stuff is concerned. If that is in fact the case, my understanding of kind of how the U.S. regulators work is you've got sort of your ducks lined up. They may observe this for a year, two years, three years, whatever it is. If you're done by the end of the year and if there's no breakage over the next year or two, is it, I'm just wondering, the timeline that you had initially put out going into 2028, is there, how do you think about or how should we think about the removal of that asset cap during that process once things are done and the subsequent 12 to 24 months?
That says Leo, and I think if I heard correctly, you said you expect to have ...
All the work done by the end of the year as far as the emails remediation. Uh, stuff is concerned. And if that is, in fact, the case, my understanding of kind of how the US Regulators work is, you've got sort of your Ducks lined up. They may observe this for a year or 2 years, 3 years, whatever it is. But if, if, if you're done by the end of the year, and if there's no breakage over the next year or 2, uh,
Ibrahim Bunawala: If you could share your perspective on how shareholders should think about that.
Leovigildo Salom: Yeah. What I would say, I mean, let's just be a little bit more precise. I think what we've said is that we think that the majority of our management actions, which is the first stage of the remediation effort, in other words, what we can control, so the design of our programs, the documentation of the policies, the implementation of critical process changes, the data, the systems, those things that are foundational to a good program, we believe the majority will be completed by the end of 2025. I've been very clear that some longer tail items do stretch into 2026 and 2027. The program doesn't entirely complete in 2025. The other point that I would clarify is once we complete a management action, there's a number of stages that we will still be subjected to.
is it is it? I'm just wondering the timeline that you had initially put out going into 28, is there? How do you think about or how should we think about the removal of that asset cap during that process? Once things are done and the subsequent 12 to 24 months? Like if if you could share your perspective on how shareholders to think about that. Yeah.
Leovigildo Salom: Internally, within the bank, we have an internal challenge process that both the first and second line will conduct. We subject all of our programs to internal audits validation process. The monitor will provide their governance oversight. Finally, the regulator will look for a period of sustainability to make sure that the program is in fact living up to expectations. I think what we can control, I feel quite comfortable with the progress we're making on the actual remediation plan, but I just want to be a little careful about the timing as to an asset cap or any, we really don't control those items. What we want to do is make sure that we build a very strong program as quickly and as comprehensively as possible.
The number of stages that we will still be subjected to internally, uh, within the bank, we have an internal challenge process that both the first and second line will conduct. Then we subject all of our programs to an internal audits validation process. The monitor will provide their governance oversight. And then finally, um, uh, the regulator will look for periods of sustainability to make sure that the program is, in fact, living up to expectations. So I think what we can control, I feel quite comfortable with the progress we're making on the actual remediation plan, but I just want to.
I just want to be a little careful about the timing as to an asset cap or any. I I we really don't control those items. What we want to do is make sure that we build a very strong program as quickly and as comprehensively as possible.
Ibrahim Bunawala: Extremely helpful. Thank you.
Extremely helpful.
Operator: Thank you. The next question is from Saran Movahedi from Bank of Montreal Capital Markets. Please go ahead.
Thank you. The next question is from Sabi from Beimo Capital. Markets, please go ahead.
Ibrahim Bunawala: Okay, thank you. I wonder if I could just ask, Tim, a little bit more on wholesale banking. I mean, you, I think you mentioned, Tim, that there are some investments that are taking place to accommodate a top 10 type, I suppose, aspiration in North America. I see a big increase in, for example, full-time equivalent or employee count. Some of it, I suppose, is seasonal. Can I get a sense of, as you think about where you're trying to go, how much more investing and spending needs to take place? You know, when do we expect to see the fruits of that, so to speak, on a sustained basis?
Okay, thank you. Um, I wonder if I could, um, just ask Tim a little bit more on wholesale bank. I mean, you, I think you mentioned Tim that there is some Investments that are taking place.
Uh, to accommodate a top 10 type, uh,
I suppose aspiration in North America, you know, I see a big increase in uh, for example, full-time equivalent.
Or employee count, some of it. I suppose is seasonal. But, um, can I get a sense of...
as you think about, whether you're trying to go how much more
Uh, investing and spending.
Needs to take place.
Leovigildo Salom: Yeah, so I would say thanks very much for the question. I would say with regard to FTEs, that is absolutely seasonal. As you look out over the next year over year or out over the medium term, we don't expect a material increase in our complement of FTEs. I would say just generally, we'll be able to share more color in terms of the shape of the investment profile at the Investor Day. You're really seeing all elements of expense hitting in the current year. To give you tangible examples, our convertible platform didn't exist a year ago and is a meaningful contributor to the league table rankings that you're seeing in equity and equity linked. That requires investment. We've been quite open that we are expanding our U.S. prime business. You're seeing growth in prime overall, 20% plus, but more to come as we roll out incremental strategies.
And, uh, you know, when, you know, when do we expect, uh, to see the fruits of that, so to speak, on a sustained basis? Yeah, so I would say, thanks very much for the question. I would say with regard to FPS, that is absolutely seasonal. So, as you look out over the next, you know, year-over-year or out over the medium term, we don't expect, uh, a material increase in our uh, complement of FTAs. And, uh, I would say just, uh, generally, um, we'll be able to share more color in terms of the shape of the, um, of the investment profile at the Investor Day. Uh, but you're really seeing, uh, all elements of expense hitting uh, in the current year. And so, to give you, you know, tangible examples, our convertible, uh, platform didn't exist, uh, a year ago and is a meaningful contributor, uh, to the league table rankings that you're seeing in equity and equity-linked. Uh, that requires investment. Uh, we've been.
Leovigildo Salom: That's hitting. The employees that we've added, which again, I would say on a net-net basis are neutral, are subject matter expertise and leaders in their field. As you know, there's a J curve there. Finally, all of this has to happen within our risk appetite. There's a material investment in our risk and control platform. We're a year into a two or three-year program on that front. Essentially, over the medium term, as revenue growth continues and those expenses normalize, I'm confident that we'll hit our targets that we'll speak more about next month.
Uh, quite open that we are expanding our us Prime uh business, you're seeing growth in Prime overall, uh, 20% plus, but more to come as we roll out, uh, incremental strategies. So, so that's hitting uh, the employees uh, that we've added. Uh, which again, I would say on a, on a net, net basis, our neutral, um, our uh, subject matter, expertise, and, and leaders, uh, in their field. But as you know, there's a J curve there and then finally, all of this has to happen, uh, within uh, our our risk appetite. And so there's a material investment in our risk and control platform. And uh, we're a year into to, to a 2 or 3 year program on on that front. So essentially over the medium term, uh, as Revenue, uh, growth continues and and those uh expenses normalize. I'm confident that we'll we'll hit our targets that we'll speak more about um next month.
Ibrahim Bunawala: Okay, Tim, I appreciate that. I may, I'm sure you're going to give us more details, I guess, next month, but I guess worth a try. As you go, as you make this progress towards your, let's call it three-year plan, is there an anticipation that your risk-weighted assets here should then continue to grow at some sort of a rate? You know, what sort of an ROE target do they have on your back?
Okay, Tim and and and I appreciate that and I may I'm sure you're going to give us more details, I guess, next month. But uh I guess Worth to try as as you go as you make this uh progress towards your, let's call it 3 year. Plan is is there is there an anticipation that you risk with that assets here? Should then continue to grow?
Leovigildo Salom: Yeah, so maybe I would take you back to the pre-Cowen acquisition, because obviously, prior to this substantial investment, we were generating over 13% ROEs and efficiency ratios in the low 60%. This is how we've run the business. As you well know, generally, it takes three to five years to build a world-class platform, and that's what we're doing. With regard to risk-weighted assets, a big part of our objective is around the denominator and how we're managing capital. The first part of that process is to make sure you have the right tools to deepen your client relationships and drive railrocks with your clients. The second part is delivering, which I think we're doing.
Leovigildo Salom: To be clear, we have an exercise that basically looks at the loan book and looks for opportunity to upscale and go deeper and reallocate where necessary, now that we have a platform in place to monetize more effectively against that loan book or RWA.
Uh, with your with, with your clients. Uh, the second part is delivering, uh, which I think we're doing, uh, but to be clear, we have an exercise that that basically looks at, uh, the loan book, uh, and uh, looks for opportunity, uh, to upscale and go deeper and reallocate, uh, where necessary. Now that we have a platform uh, in place to monetize more effectively against that loan book or rwa.
Ibrahim Bunawala: Okay, thank you very much. Look forward to the 29th of September.
Okay, thank you very much. I look forward to the September 29th session.
Operator: Thank you. The next question is from Doug Young from Desjardins Capital Markets. Please go ahead.
thank you. The next question is from Doug Young from Deja Capital markets. Please go ahead.
Leovigildo Salom: Hi, good morning. It's for Ajai. Two kind of things on credit. Higher, you know, gross compared loan formations in U.S. commercial, I think you talked a bit. In the U.S., there's a release of performing loan allowances. I'm just trying to connect the two and maybe walk through where the release came from. If you can, I think you said about $600 million of expert credit judgment. I think it's in your performing loan allowances, related to risks around trade policies. Can you put a little more meat around that? Like, was that zero last year? How has that evolved? I have a follow-up. Thanks.
Hi, good morning. Um, I guess for AJ.
2 2 kind of things on credit, uh, higher, you know, growth compared to loan formations in in US commercial, I think you talked about, but then in in the US you there's a release of Performing loan allowances and so I'm just trying to connect it to you. And maybe walk through, uh, where the release came from. And then if you can, I think you said about 600 million of experts credit judgement. I think it's in your performing loan allowances. Um, are related to risks around trade policies? Can you put a little more meat around that like, is that zero last year? How is that evolved? Um,
Ajai Bambawale: Yeah, so again, there are multiple parts to your questions. Let me try to answer each one of them. You mentioned higher JILs, and yes, we saw higher JILs. Some of it came from wholesale and some from the U.S. In wholesale, there were really four borrowers. One was in telecom and cable, two in professional and other, and one in transportation. There were a few impairments on the U.S. commercial book. Three of them were CRI, and I would call those pretty much expected. There was one in CNI in the industrial construction and trade contractor space. I don't necessarily view this as a trend, but you're right in pointing out the number, the JIL numbers did go up. If I look at U.S. impaired PCLs, U.S. impaired PCLs went up because of these impairments and the related reserves.
And another follow-up. Thanks.
Yeah, so again, there are multiple parts to your questions. So let me try and answer each 1 of
Ajai Bambawale: You're correct in pointing out that on a performing basis, performing PCLs in the U.S. came down, and there was, I would call it, a small release. The main driver of that small release was the change in the macro environment in the United States. My final comment on that would be that I have seen this variation quarter over quarter, and it's not every quarter that the impaireds in the segments would move in the same line. It's not an unexpected event from my perspective. Let me turn to the $600 million. We've actually built $600 million over three quarters. We started building in Q1, then we had the big build in Q2. What we did this quarter was we actually went and refreshed all the work we did last quarter and went deep into understanding the borrowers that were most sensitive to tariffs.
You mentioned, higher gills. And, and yes, we saw higher gills. Some of it came from wholesale and from some from the US in wholesale, they were already for borrowers. Uh, 1 was in Telecom and cable 2 in professional and other and 1 in transportation. There were a few impairments on the US commercial book, 3 of them were 3. And I would call those uh, pretty much expected. And there was 1 uh, in cni in the industrial construction and trade contractor space. I don't necessarily view this as a trend, but you're right in pointing out. Uh, the number. The Gill numbers did did go up. If I look at us impaired, pcl's us. Impt pcl's went up because of these impairments and the related Reserves.
okay, and then your correct in pointing out that on a performing basis, performing pcl's in the US came down and there was, I would call it a small release and the main driver of that small release was, the macro uh change in the macro environment in the United States and my my final comment on that would be that I have seen this variation quarter over quarter you know and it's it's
Not every quarter that the impedance of the segments would move in the same line. So it's it's not an unexpected event from my perspective, and then let me turn to uh, the 600 million. So we've actually built 600 million over 3 quarters.
Ajai Bambawale: When we did this work, so that's non-retail, we looked at the potential impact on their financials, whether it was revenue or cost of goods sold. That gave us an idea of what potential migration should occur. Could it be one notch? Could it be two notches? We used that potential migration to determine what the allowance would be. This quarter, because that number was slightly higher, we took a little more against business and government lending. We've also been looking at the consumer portfolios over these three quarters. We're looking at the potential impact of inflation and higher rates on consumers. This quarter, we actually added a little bit for the consumer books as well. If I take that total $600 million, approximately $410 million is for business and government, and $190 million is for the consumer sector.
Okay, we started building in q1, then we add the big build in Q2 what we did this quarter was we actually went and refreshed all the work we did last quarter and went deep into understanding the borrowers that were most sensitive to tariffs and when we did this work, so that's non retail when we did this work, we looked at the potential impact on their financials, you know, whether it was revenue or cost of goods sold that gave us an idea of what potential migration should occur. Could it be 1 Notch? Could it be 2 notches and we use that potential migration to determine what the allowance would be and this quarter because that number was slightly higher, we took a little more against uh business and government lending. What we've also done is we've been looking at the consumer portfolios over these 3 quarters. We're looking at the potential impact of inflation and higher.
Ajai Bambawale: I'll just end by saying I'm very comfortable with where we are at. We've done a lot of work to determine what the overlay should be. I think this uncertainty still exists, and it's going to continue for a while, but I feel we're well positioned. We're sitting at 103 bps reserves, and I'll leave it at that.
Rates on consumers. So this quarter, we actually added a little bit for the consumer books as well, so if I take that total 600 million, approximately 410 million is for business and government and 190 million is for the consumer sector. So again, I just end by saying, I'm very comfortable with where we are at. We've done a lot of work to determine what the overlay should be, I think, you know, this uncertainty still exists.
And it's going to continue for a while, but I feel we're well positioned. We're sitting at 103 beeps reserves, and I'll leave it at that.
Leovigildo Salom: Just to follow up on that, the 600 and the 410, 190, how much of that is Canada? Which
Operator: I would assume most of this is Canada, but,
Rachel Smith: Yeah, we haven't disclosed that, but I can tell you our biggest Canadian P&C, and the balance is, there is some for U.S. retail and there's some for wholesale.
The 600 and the 410, 190. How much of that is Canada? I would assume most of this is Canada, but um,
Yeah, we haven't disclosed that, but I can tell you a fair bit is Canadian.
And the balance is us; there is some for us retail and there's some for wholesale.
Operator: In a real-life example, what is that $600 million? If we had a breakdown in the USMCA, that is what this is there for. It doesn't cover everything that would happen, but it provides you a cushion in anticipation of that. Is that how to think of that $600 million?
Rachel Smith: We have made certain tariff assumptions for Canada and the U.S. This is really taking those tariff assumptions and running it through our portfolio to determine what incremental migration or reserves would be required. I want to be very clear that we have made certain assumptions. To the extent that tariffs turn out to be higher than the assumptions we have made, that means we have to build more reserves. To the extent that tariffs turn out to be lower than what we have assumed, that means we would be releasing. To the extent that tariffs are as assumed, then as that book migrates, we build the reserves. We are going to draw down on those reserves.
And I just see in a real life example, like, what is that? 600 million. So if we had a breakdown in usmca like, that is what this is there for. It doesn't cover, obviously everything that would happen, but it provides you a cushion in anticipation of that. Is that at a think of that 600 million. Well, this is we've made certain tariff assumptions for Canada and the United States, this is really taking those tariff assumptions and running it through our portfolio to determine what incremental migration or over or reserves would be required. Now I want to be very clear that
We've made certain assumptions. To the extent that tariffs turn out to be higher than the assumptions we've made, we have to build more results. To the extent that tariffs turn out to be lower than what we've assumed, that means we would be releasing. And to the extent that tariffs are as assumed, then, as that book migrates, we build the results. We're going to draw down on those results.
Operator: Okay. Just second, Leo, you talked about ROE improvements in the U.S. I guess it's kind of, there's two parts of the equation, obviously the numerator and the denominator. How much of this is driven numerator versus denominator? Can you give a kind of a context to where you started and where you think you can get to with that U.S. ROE?
Operator: Thank you for the question. We will be providing more clarity with regards to return on equity target at the investor day. I won't front run that discussion at this point. It's been a combination of both, right? If you look at it, we are clearly contracting portions of the portfolio that we believe are not accretive to our return on equity profile. The reality is a lot of the benefit because that RWA reduction is still funneling through the balance sheet. Where you're seeing the improvement right now has been the improvement in overall operating results. We've had three sequential quarters of NIAC growth from the fourth quarter of last year to present, and that has allowed us to be able to post cumulatively 140 basis points worth of improvement when you exclude Schwab. I think we're executing as expected at this point.
Yeah. Okay. And then just second Leo, you talked about, how are we Improvement in the US? Um, you know, I guess it's kind of there's 2 parts of the equation. Obviously, the narrator and the denominator. You know, how much of this is driven, numerator versus denominator and then can you give a kind of a context to where you started? And where you think you can get to with that us Roe?
Well, I I thanks for the question. I I um, we will be providing more more clarity, uh, with regards to return on Equity Target at the investor day. So I I won't, I won't front run that discussion at this point but um, it it's been a combination of both, right? So if you look at uh, we are clearly, uh, Contracting. Um, portions of the portfolio that we that we believe are not um, accretive to or um, you know, to our return on Equity uh profile. But the reality is a lot of the a lot of the benefits because that rwa, uh, reduction is still funneling through, uh, um, through the balance sheet. So, where where you're seeing the Improvement right now has been the Improvement in overall operating results. We've had 3 sequential, uh uh quarters of neach growth.
Operator: I hope that you also appreciate the fact that you're beginning to get a sense based on the performance that we posted this quarter at $695 million in earnings, what the outlook could look like for 2026 as well. I think right now it's been an earnings story, aided by the fact that we are selectively making some changes on the balance sheet side. You'll see more of that balance sheet impact next year as we complete the overall U.S. balance sheet restructuring. Appreciate the call. Thank you.
Um, uh, from fourth quarter of last year to present, um, and that is allowed us to be able to post cumulatively 140 basis points worth of improvement when you exclude Schwab. So, um, I I think we're we're, we're, we're executing as expected at this point. Um, I I hope that, um, you also appreciate the fact that you're beginning to, to get a sense based on the performance that we posted this quarter at 695 million in earnings. What the, what the, what the Outlook could look like for 2020 6 as well. So, I, I think right now, it's been a, it's been an earning story with aided by the fact that we are selectively, making some changes on the balance sheet side, you'll see more of that balance sheet impact. Next year, as we complete the overall us balance sheet, uh, restructure
Operator: Thank you.
Appreciate the call. Thank you.
Thank you.
Brooke Hales: Thank you. The next question is from Shilab Garg from Veritas Investment Research. Please go ahead.
Thank you. The next question is from Shalabh Guard from Veritas Investment Research. Please go ahead.
Raymond Chun: Good morning and thank you for taking my question. I'm referring to slide 42. Now, there was a sharp year-over-year improvement in the Canadian commercial credit performance, whereas the U.S. was a bit elevated. Now, when I look at the size of the loan portfolios, they look pretty similar in terms of size and mix. Now, does this highlight a difference in underwriting standards, or is it more of a function of balance sheet positioning in the U.S. and the relative size in the two countries?
Good morning. And thank you for taking my question. I'm referring to the slide 42 now. There was a sharp here. Over here. Improvement in the Canadian commercial. Correct performance. Whereas us was a bit elevated. Now, when I look at the size of the loan portfolios, they look pretty similar in terms of size and mix. Now does this highlight a difference in underwriting standards or is it more of a function of balance sheet positioning in the US and the relative size?
Uh, in the 2 countries.
Rachel Smith: Yes, so let me explain the difference between what happened with Canadian P&C and U.S. retail. I wouldn't call it a difference in underwriting standards. The underwriting standards are pretty consistent across the board, and underwriting standards are not something that we change. The underwriting standards are consistent. What you see on Canadian P&C is the numbers are down $159 million. Impairs are down $52 million and performing is down $107 million. U.S. retail is also down. Directionally, PCLs are the same. Performing is down $149 million in the U.S. The divergence has come from impairs. Impaired PCL is slightly up. It's up $21 million. The reason impaired PCL is up is we did see some impairments. As I mentioned, there are three. There were three in CRI, two in office, one in retail, one multifamily, and then there was one in CNI. I'd say the results are generally consistent.
Impacts okay, and embedded PCL is slightly up; it's up $21 million. The reason impaired PCL is up is we did see some impairments.
As I mentioned, they're clear. There were 3 and 3, 2 in office, 1 in office, 1 in retail, 1 multi-family, and then there was 1 in CNI.
Rachel Smith: I won't call the underwriting standards different, but in any given quarter, you can see some variation across products, across segments. In fact, CRI, I think I've said on previous calls, this whole CRI situation in the U.S. is still playing out, and we're very well reserved for that situation. I'll leave it at that.
So again I'd say the results are generally consistent, I won't call the underwriting standards different but in any given quarter you can see some variation across products across segments. And in fact C, I think I've said on previous calls, this whole crew situation in the US is still playing out, you know, and we're very well reserved for that situation. So I'll leave it at that.
Raymond Chun: Thank you for the explanation. I'll turn it back on.
Thank you for the explanation. I'll turn it back on.
Brooke Hales: Thank you. The next question is from Paul Holden from Canadian Imperial Bank of Commerce. Please go ahead.
Leovigildo Salom: Hi, thank you. Good morning. I'll try to keep it quick in the interest of time. A question for Sona. It's kind of a two-part question, but trying to get to the major point, which is sort of maybe the NII outlook on Canadian P&C banking. If I look at loan growth in the quarter, I see residential mortgages down a bit, but then strong growth in what I think are higher margin products, HELOC, cards. Maybe you can talk through that a bit in terms of the outlook and why residential mortgage is down in the quarter, but the growth on the other side. The second part of the question is really on deposit mix. I know in the past quarters you've talked about the benefit of GICs rolling off and demand deposits growing. Is that ongoing and do you expect it to be ongoing?
Thank you. The next question is from Paul Holden from CIBC. Please go ahead.
Hi. Thank you. Good morning. I'll try to keep it quick in the interest of time. So, question for Sona. It's kind of a two-part question, but I'm trying to get to the major point, which is sort of maybe the knee look on Canadian PNC banking. So, if I look at long growth in the quarter, I see residential mortgages down a bit within strong growth in what I think are higher margin products, like parts.
Leovigildo Salom: That really leads to like sort of what's the NIM and NII outlook for the segment. Thank you.
Kelvin Tran: For sure. Thanks, Paul. First, maybe on the loan side of the business, we've seen actually, you know, we're quite pleased with the quarter. We've seen strong sequential momentum in the RESL business. Speaking here, Paul, to the aggregate of both mortgage and HELOC. On an average basis, it's up 1% quarter over quarter and better than that on a spot basis. We are seeing good growth both in that line as well as in the credit card business. We've seen strong 7% year-over-year growth in the credit card business. As I look at NIM and NII, obviously there's a number of factors there broadly influencing both NIM and NII. Things from tractors, which obviously confer a lot of stability to our large core deposit business, as well as product mix and balance sheet mix.
Um, so maybe you can talk through that a bit in terms of the outlook. And why residential mortgages are down on the quarter? But the growth on the other side. And then the second part of the question is really on deposit mix. I know in past quarters, you've talked about the benefit of GICs rolling off and demand deposits growing. Is that ongoing, and do you expect it to be ongoing? And then again, that really leads to like sort of what's the MIN and II outlook for the segment? Thank you.
Sure, thanks. Uh, Paul, so, um
You know, we're quite pleased with the quarter. We've seen strong sequential momentum in the Russell business. Uh, and I'm speaking here, Paul, to the aggregate of both mortgage and HELOC. So on an average basis, it's up 1% quarter over quarter and, uh, better than that on a swap basis.
Kelvin Tran: In the quarter in particular, I think we benefited from favorable deposit margins, including a mixed impact. On the RESL side of the business, coupled with the sequential growth, we saw a good margin expansion. We saw both quarter over quarter and year over year better margins both on originations as well as the portfolio. Kind of a four-peat for RESL. The credit card business obviously is healthy from an NII and NIM perspective. That's maybe the first part of the question. Hopefully, I've answered that for you. On the deposit side of the business, I would say a strong quarter. We've led both year over year and quarter over quarter in personal deposits growth. What we are seeing is a good growth shift positively to demand deposits. That is also positive momentum. I think, you know, a number of factors coming together.
Um, so we are seeing good growth, uh, both in that, uh, line as well as in the credit card business. So we've seen strong 7%, year-over-year growth in the credit card business. You know, as I look at MIM and knee, obviously, there's a number of factors there, broadly, um, influencing both men and knee, you know, things from tractors, which obviously confer a lot of stability to our large core deposit business, as well as product, mix and balance sheet, mix. Um, so in the quarter in particular, I think we benefited from uh, favorable deposit margins, including a mix impact,
On the resale, side of the business, coupled with the sequential growth, we saw a good, uh, margin expansion. So we saw both quarter over quarter and year-over-year, uh, better margins, uh, both um, on originations as well as the portfolio, so kind of a 4 piece, uh, for Russell.
Um, and then the credit card business obviously uh is healthy from an knee and in perspective.
Uh, so that's maybe the first part of the question. Hopefully, I've answered that for you on the deposit side of the business, you know? Also, I would say a strong quarter. Um, so we've led both year-over-year and quarter-over-quarter in personal deposits growth.
Kelvin Tran: We continue to guide to relatively stable NIM heading into Q4. We're pleased overall with a strong exit in Q3 with good momentum.
Leovigildo Salom: Okay. I guess really where I'm going with that is I get the guidance is for stable, but if I put everything together, it certainly benefited the quarter. What's it suggest to me? It probably benefits Q4, but you're guiding to stable. Are you just being conservative in that guidance, or do you expect a change in trend? Just again, trying to square everything up here.
And what we are seeing as is a good uh growth shift positively to demand deposits. Um so that is also positive momentum so I think you know, a number of factors coming together. Uh, we continue to guide uh to relatively stable men uh, heading into Q4. Um but we're pleased overall with, uh, a strong, uh, exit in Q3 with a good momentum.
Kelvin Tran: Yeah, no, I think the guidance is sound, Paul. I think there's a number of factors in this. It's obviously a growth business. There's a lot of mixed impacts, and then the one piece that we hadn't spoken about, like balance sheet mix, also comes into play. I think our guidance is the right one.
Okay and I guess really where I'm going with that is I get to I get the guidance is for stable but if I put all the everything together it's certainly benefited the quarter and with that suggests to me, it probably benefit Q4 but you're guiding to to stable. So are you just being conservative in that guidance? Um or do you expect to change in Trend just again just trying to square square. Everything up here?
Leovigildo Salom: Okay, I'll leave it there. Thank you.
Yeah. No, I think the guidance is sound. I think there's a number of factors, and so it's obviously a growth business. There's a lot of mixed impacts, and then the one that we hadn't spoken about, like balance sheet mix, also comes into play. So I think our guidance is the right one. Okay, I'll leave it there. Thank you.
Brooke Hales: Thank you. The next question is from Darko Mielic from Royal Bank of Canada Capital Markets. Please go ahead.
Thank you.
The next question is from Darko Mitch from RBC Capital Markets. Please go ahead.
Ajai Bambawale: Thank you. Good morning. I'll be really quick as well. Ajai, you gave great good detail off of the $600 million reserve. Maybe just to boil it down, I'd like to understand just sort of what would it take to release them, right? Would it be the USMCA is left alone, for example? Would that be better than anticipated and cause a release of substantially those reserves? If tariffs equal what Europe got, would that be better than what you've anticipated and release those reserves? Would those be two sort of outcomes that would result in substantially most of those reserves being released?
you you gave great detail on the 600 million uh Reserve
So maybe just to boil this down.
I would like to understand sort of what it would take to release them, right? Would it be that the USMCA is left alone? For example, would that be better than anticipated and cause a release of substantially those reserves if tariffs equal what Europe got?
Uh, would that be better than what you've anticipated and released? Those reserves, would those be too sort of, uh, outcomes that would result in substantially most of those reserves being released?
Rachel Smith: Yeah, I think where you're going is the right way to think about it. I mean, as I said, we made some assumptions of what migration would occur, and there were underlying tariff assumptions. Naturally, if things settle and the uncertainty reduces, and there's more clarity around tariffs, and let's say the tariffs are lower, we would reassess that reserve. If we have to release part of that reserve, we will. At the same time, if there are changes in the USMCA that are negative and they're higher than what we've assumed, you should expect us to increase our reserves. The third point I made, and this is a really important point because we built the reserve, if the migration occurs as we think it is, then we've already built the reserves. We're going to use those reserves.
Yeah I I think where you're going is is the right way to think about it. I mean we as I said we made some assumptions of what migration would occur and there were underlying tariff assumptions naturally, if things subtle settle and and the uncertainty reduces and there's more clarity around tariffs and let's say the tariffs are lower, you know, we would reassess that result. And if we have to release part of that Reserve, we will at the same time, you know, if their changes in the usmca that are negative and they're higher than what we assumed, then you should expect us to increase our Reserves.
Rachel Smith: If you look ahead, and we are still working on the guidance for you for next year, that will follow. The way I look at it is looking forward, I actually expect impaired PCLs to gradually rise from these levels. It's going to be gradual as the impact of tariff plays out. Performing PCL depends on the drivers. Okay, but to the extent that tariffs turn out more favorable, then I know there are other drivers, but yes, it's going to have a positive impact on performing, and you'll see lower performing next year. Hope that helps you, Darko.
And then the third point I I made and this is a really important point because we built the reserve. If the migration occurs as we think it is, then we've already built the results. We're going to use those reserves. So if you look look ahead and we are working still working on the guidance for you for for uh next year you know that will follow but the way I look at it is looking forward, I actually expect impaired TLS to gradually rise from these levels. It's going to be gradual as the impact of tariffs plays out and then performing PCL depends on the drivers okay but to the extent that tariffs turn out more favorable. Then I know the other drivers but yes, it's going to have a positive impact on performing and you'll see lower performing next year.
Ajai Bambawale: Yeah, it does. Thank you very much.
Hope that helps your do. Yeah, it does. Yeah, thank you very much.
Brooke Hales: Thank you. There are no further questions registered. At this time, I will turn the call back to Mr. Raymond Chun.
Thank you. There are no further questions registered.
John Aiken: Thank you, operator, and thank you everyone for joining us today. We appreciate, as always, the questions and your comments. Let me just wrap by saying that TD has delivered for its stakeholders in Q3 with 10% revenue growth, positive operating leverage, and strong credit performance. On that note, we wish all of you a good long weekend. I look forward to speaking with all of you again real soon at our investor day on September 29. Thank you.
At this time, I will turn the call back to Mr. Raymond Chung.
Well, thank you, operator. And thank you, everyone, for joining us today. We appreciate, as always, the questions and your comments.
Uh, and let me just wrap by saying the TD has delivered for stakeholders in Q3, 10% revenue growth.
Positive operating leverage, strong credit performance.
So, on that note, we wish all of you a good long weekend. We look forward to speaking with all of you again real soon at our Investor Day on September 29th. Thank you.
Brooke Hales: Thank you. The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation.
Thank you. The conference has now ended.
Please disconnect your lines at this time, and we thank you for your participation.