The Toronto-Dominion Bank Q1 FY2025 earnings call

• Strategic Review: Undertaking a comprehensive strategic review with four pillars. Sold TD's 10.1% stake in Schwab, received regulatory approval for share buyback starting March 3, streamlined operating model, and focused on operational excellence/efficiency. - Q1 Results: Earnings of $3.6 billion and EPS of $2.02. Volume growth in Canadian Personal and Commercial Banking and strong trading/fee income in market-driven businesses. CET1 ratio was 13.1%, and pro forma for Schwab stake sale and share buyback, CET1 ratio would be ~14.2%. - US Balance Sheet Restructuring: Made progress, reduced assets from $434B in September to ~$402B in January, signed agreement to sell $9B lending portfolio, and investment portfolio repositioning expected to generate NII benefit in upper end of $300M-$500M pre-tax range. - AML Remediation: Top priority, making progress with additional AML specialists, new case management system, and machine learning tools for transaction monitoring. - Digital Leadership: Deployed GenAI virtual assistant in contact centers, with plans to roll out to wealth and insurance businesses.

Canadian Personal and Commercial Banking: Delivered record revenue, PTPP, deposits, and loans. Average loan volumes rose 4% year-over-year, with 4% growth in personal volumes (real estate secured lending up 3%, cards up 9%) and 6% growth in business volumes. Average deposits rose 5% year-over-year. Net interest margin was 2.81%, up 1 basis point quarter-over-quarter. US Retail: Loans grew 1% year-over-year (excluding loan portfolios identified for sale or runoff), bank card balances grew 12% year-over-year, and small business/middle market verticals grew 7% year-over-year. Net interest margin was 2.86%, up 9 basis points quarter-over-quarter. Wealth Management: Delivered record revenue, earnings, and assets. New accounts were up 30% year-over-year, and insurance gross written premium growth was 13% year-over-year. Wholesale Banking: Delivered record revenue this quarter, but saw higher PCLs.

• Fiscal 2025 expense growth expected in the 5%-7% range, with Q2 expected to have elevated expense growth due to ramp-up in governance and control investments. - US BSA/AML remediation and related governance and control investments expected to be approximately $500 million pretax in fiscal 2025. - Investment portfolio repositioning is expected to generate an NII benefit in fiscal 2025 at the upper end of the $300 million to $500 million pre-tax estimated range.

• Tariff and trade risks clouding the economic outlook, which could impact the business. - AML remediation is a multiyear process with ongoing efforts and uncertainties. - Policy and trade uncertainty is creating overlays for credit provisions in certain business and government lending portfolios.

Q: Related to U.S. balance sheet repositioning, specifically about paying down borrowings and the $9 billion portfolio sale.

A: Leo Salom stated that they had reduced $25 billion of borrowings in Q1, with the $9 billion portfolio sale expected to close in Q2 and the ability to further reduce bank borrowings over time.

Q: About expenses and AML remediation costs, including Q1 costs relative to the $500 million bogey and future risks.

A: Leo Salom said Q1 AML remediation costs were $86 million, with some ebbing and flowing in expense timing, and they feel comfortable with the $500 million guidance. Ray Chun added they have a detailed action plan and would update on any look-back expenses.

Q: About performing provision this quarter and macroeconomic outlook.

A: Ajai Bambawale explained the performing PCL release was due to model updates and macroeconomic forecast improvements, but overlays for policy and trade uncertainty in certain portfolios offset some of it.

Q: About strategic investments and portfolio exits.

A: Raymond Chun said they are identifying opportunities to restructure operations, reduce costs, and invest in organic growth, with the strategic review continuing and plans to share more at the Investor Day.

Q: About US NIMs and Schwab proceeds impact.

A: Leo Salom indicated returning to previous NIM levels with balance sheet restructuring and bond repositioning, and Kelvin Tran noted Schwab proceeds impact the total bank level.