The Toronto-Dominion Bank Price & Performance (TD)

Good morning, everyone. And welcome to the TD Bank Group Q1 twenty twenty five Earnings I would now like to turn the meeting over to Ms. Brook Hales, Head of Investor Relations. Please go ahead, Ms. Hales The. Thank you, operator.

Good morning, and welcome to TD Bank Group's first Quarter twenty twenty five Results Presentation. Will begin today's presentation with remarks from Raymond Chun, the Bank's CEO followed by Leo Salom, President and CEO, TD Bank, America's most convenient bank after which Kelvin Tran, the Bank's CFO, will present our first quarter operating Ajay Bambawale, Chief Risk Officer, will then offer comments on credit quality, after which we will invite questions from prequalified analysts and investors on the phone. Also present today to answer your questions are Sonamita, Group Head, Canadian Personal Banking Barbara Hooper, Group Head, Canadian Business Banking Group Head Wholesale Banking and President and CEO, TD Securities, and Paul Clark, Senior Executive Vice President, Wealth Management. Please turn to Slide two. As noted on Slide two, our comments during this call may contain forward looking statements.

Which involve assumptions and have inherent risks and uncertainties. Actual results could differ materially. I would also remind listeners that the bank uses non GAAP measures to arrive at adjusted results. Bank believes that adjusted results provide readers with a better understanding of how management views the bank's performance. Ray, Leo and Calvin will be referring to adjusted results in their remarks. Additional information about non GAAP measures and material factors and assumptions is available in our Q1 twenty twenty five report to shareholders. With that, let me turn the presentation over to Ray.

Thank you, Brook, and good morning, everyone.

Before we discuss the quarter, I want to briefly comment on the current There's no doubt that tariff and trade risks The clouding the economic outlook Should these risks materialize, a lot depends on their depth and duration. And on the actions governments may take to support Canadians and Canadian businesses. First and foremost, whatever ultimately happens, we are focused on our customers and clients. We will continue to support the millions of businesses and households across Canada and The United States as they navigate uncertainty and new dynamics. Next, we are modeling multiple scenarios including The bank is well capitalized. The a strong balance sheet a resilient business model, and conservative risk appetite. All of which provide us with the ability to steer through unknowns and shifts in the macroeconomic environment. The current situation is also a clear signal that Canadian governments and businesses must pull together. Remove the obstacles that hold back national productivity and strengthen our competitiveness. Interprovincial trade barriers are something we must tackle. Accelerating critical projects to untap mineral, energy and resource production and leadership is another key focus area We also need to evaluate tax regulatory and other policies to retain talent create the right conditions for businesses to grow and make Canada a top destination for foreign investment.

I believe Canada has an opportunity to build on its strength and create the right conditions our economies to thrive in the future. With that, let's turn to the next slide. I'd like to start with an update on our strategic review. As we discussed, we are undertaking a comprehensive strategic review at the bank This will culminate in an Investor Day in the second half of twenty twenty five but we will provide updates along the way. Strategic review is organized around four pillars: and we are making steady progress in each. Earlier this month, we sold TD's entire 10.1% to pursue compelling opportunities to invest in our own business both by buying back TD shares and by seizing opportunities to further support our customers drive performance and accelerate organic growth. And on Monday, we announced that the share buyback was The share buyback received regulatory approval to start on March 3.

We also gave more authority and accountability to our lines of business for the end to end customer experience streamlining TD's operating model. In a few minutes, you will hear from Leo on our U. S. Balance sheet restructuring, We are making great progress and are on track to complete the program along our previously communicated timeline. Leo will also provide an update on our AML remediation. Finally, we are focused on operational excellence AML is our number one priority. And we will continue to invest to accelerate momentum across our businesses we will also need to make strategic investments. We are identifying significant opportunities to restructure operations, reduce costs and improve processes. Please turn to Slide four. In Q1, the bank delivered earnings of $3,600,000,000 and EPS of $2.02 We saw volumes volume growth in Canadian Personal and Commercial Banking and strong trading and fee income in our markets driven businesses. As you will hear from Ajay shortly, Q1 PCLs reflect certain overlays for policy and trade uncertainty.

And Calvin will speak more about expense growth in his remarks, Expenses this quarter include the impact of TD shares issued to eligible non executive colleagues in December. To show our appreciation for their hard work and commitment to the bank, in a challenging year. As of quarter end, the Bank C CET1 ratio was 13.1%, Pro form a for the sale of our Schwab stake earlier this month and the completion of the proposed $8,000,000,000 share buyback TDC Tier one ratio would be approximately 14.2%. CD is very well capitalized with the flexibility to complete a significant share buyback while investing to drive organic growth and maintaining prudent capital levels. Please turn to Slide five. As I travel across our footprint and meet with colleagues, I'm struck by their tremendous pride in TD. We have strong momentum across our businesses and that was evident in our Q1 results. We operate Canada's premier banking franchise and are very proud that TD was once again named Canada's most valuable brand by Brand Finance. In Canadian Personal and Commercial Banking, we introduced Rezzle Specialists in branch to enhance our proprietary distribution strategy. The distribution ecosystem deepens customer relationships and improves retention. While delivering a strong profitable profile.

And in credit cards, The team delivered a record TD Auto Finance saw record originations in Q1 and added dozens of new dealer floor plan relationships. Turning to U. S. Retail, AML remediation remains our number one priority.

We have seen good customer momentum with five consecutive quarters of customer deposit growth.

We're also seeing momentum in our U. S. Wealth business, with total client assets of US52 billion dollars up 11% year over year. As you know, our IDA with Schwab remains unchanged. We are pleased with the current arrangement and confident that we can manage the Schwab balances while complying with the asset limitation. Wealth Management and Insurance had a strong quarter. Let me start by congratulating congratulating the direct investing team. For the third year in a row, we were named the number one digital broker in Canada by the Globe and Mail a fantastic accomplishment that further extends our leadership Last year, TD introduced partial shares capability, unique among Canadian banks and a big hit with young investors. Just over 50% of our clients that have traded partial shares are Gen Z and Millennials. In TD Asset Management, we won $3,200,000,000 in new institutional mandates this quarter, Our strong performance was recognized with 24 fund grade A plus awards, including 15 for ETFs. A testament to our momentum in this rapidly growing segment of the market. Finally, in TD Insurance, we became the first Canadian issuer to sponsor a catastrophe bond solely focused on catastrophe perils in Canada.

This $150,000,000 issuance is an example of our one strategy. With TD Securities acting as joint book runner on this placement. Through the cap bond issuance, TD Insurance leveraged capital markets to manage risk exposure and support resilience against natural disasters. In wholesale banking, we continue to demonstrate the power of our broader platform with quarterly revenue over $2,000,000,000 for the first time. CSAT, TD's leading U. S. Municipal bond trading dealer expanded into a new asset class and is now trading U. S. Investment grade corporate bonds Petey Cowen was recently named IFR's twenty twenty four U. S. Mid Market Equity House of the Year. An award given to the leading underwriter of U. S. Equity offerings between $50,000,000 and $500,000,000 And after quarter end, TD Securities acted as lead book runner on TD's sale of its Schwab stake, This critical role in a milestone transaction is already opening new opportunities for our wholesale banking business. Across our Canadian Personal and Commercial Banking and Wealth Management Insurance segment, We continue to make progress against the medium term financial targets that we laid out at our twenty twenty three Investor Day. Slides twenty nine and thirty in the appendix provide an update on our progress.

Please turn to Slide six. Digital leadership is a critical component of both and it's an area of focus and investment in our strategic review. TD Invent is our bank wide umbrella effort to power innovation. Last year, we deployed a generative AI virtual assistant in our contact centers supporting the Canadian Personal Bank. We have seen reductions in called hold times, escalations to second level support, driving efficiency while enhancing the customer experience. We are now rolling out this Gen AI virtual assistant to our contact center supporting our wealth and insurance businesses. We are determined to keep innovating elevating the experience and driving growth through digital leadership. Please turn to Slide seven. Before I turn the call over to Leo, I want to note that we will release our 20 It will outline our progress and our commitment to our clients as they adapt their businesses and seize new opportunities. Let me conclude with a quick comment. I've been CEO for just under a month. The strategic review is advancing as planned We will continue to drive change and unlock new opportunities. What remains constant is the commitment of our colleagues. I want to thank them for their tremendous effort as together we build the bank for the future with that Leo, over to you.

Thank you, Ray, and good morning, everyone. Please turn to Slide eight. U. S. AML remediation as we've said previously remains our top priority. And I'm pleased with the progress that we've made over the past quarter moving forward with focus and purpose and we continue to bring additional AML specialists with proven experience onto our team and together with the exceptional team that we've already built, we're building the capabilities we need for the future. An important component of our resolutions was the appointment of a monitor.

The DOJ and FinCEN have jointly selected Guidepost Solutions as we look forward to working with them to strengthen and enhance our US BSA AML compliance program. Operationally, are making progress on the technology slide. Including centralizing all investigative cases onto a new single case management system. We will also be implementing enhancements for transaction monitoring. Including adding a further round of scenarios in upcoming quarters. We have designed machine learning tools to help analyze customer data more effectively to detect potential activity of interest with speed. We expect to begin implementing these capabilities in Q3. Collectively, building these capabilities will enable us to detect escalate and report potential activity of interest earlier We remain focused on completing the remediation actions as outlined There is still much to do and this is a multiyear process but we remain unwavering our commitment to build the AML program we need and we will continue to provide updates on a quarterly basis. Now if I can ask everyone to please turn to Page nine. I'd also like to provide an update on our balance sheet restructuring activities. You will recall The effort has two critical objectives. First, to strictly comply with and maintain a buffer to the asset cap limitation.

And second, to ensure that we can continue to serve our clients and communities as their needs evolve. We have made meaningful progress against our objectives Most notably, we have reduced assets [indiscernible] US434 billion dollars in September to approximately $4.00 $2,000,000,000 due largely to the reduction of borrowings using excess cash and investment maturities. Our asset reduction is proceeding on track as well. This week, we signed an agreement to sell $9,000,000,000 corresponding lending portfolio and we do expect that transaction to close in Q2. Our investment portfolio reposition is also proceeding well. To date, we have sold approximately $19,000,000,000 of notional bonds for an upfront loss of $1,100,000,000 pretax In total, the investment portfolio repositioning is expected to generate an NII benefit in fiscal twenty twenty five at the upper end of the $300,000,000 to $500,000,000 The tax estimated range that we provided in October. I feel confident that we will complete portfolio repositioning in the upcoming months and largely complete the identified loan sales by the end of the fiscal year. [indiscernible] we are assessing further portfolios with lower returns that are not scalable for potential sale or wind down as part of the broader strategic review that Ray referenced.

Collectively, we expect these actions will enable us to improve return on equity through fiscal twenty twenty five and into fiscal twenty twenty six. With that, I'll turn it over now Kelvin. Thank you, Leo. Please turn to Slide 10.

Earnings were relatively flat year over year, offset by higher expenses including governance and control investments, and higher PCLs. Total bank PTP was up 6% year over year after removing the impact of The U. S. Strategic card portfolio [indiscernible] and insurance service expenses. Revenue grew 9% year over year driven by higher trading related and fee income in our markets driven businesses volumes in Canadian Personal and Commercial Banking, and insurance premium. Expenses increased 12% year over year driven by with approximately The third of the growth driven by variable compensation commensurate with higher revenues and foreign exchange. We continue to expect fiscal twenty twenty five assuming fiscal twenty twenty four levels of variable compensation, FX, and The U. S. Strategic cards portfolio to be in the 5% to 7% range.

However, given the ramp up in our governance and control investments, over the course of fiscal twenty twenty four, we expect elevated year over year expense growth in Q2.

We have provided Slide 27 in the appendix to today's presentation to help stakeholders better understand T expense growth profile. Please turn to Slide 11. [indiscernible] Personal and Commercial Banking delivered record revenue PPP deposits and loans. Average loan volumes rose 4% year over year with 4% growth in personal volumes reflecting real estate secured lending up 3% and cards up 9%.

And 6% growth in business volumes. Rezo, we saw the up tech in customer activity that began late in Q4 carry into Q1 driven by lower interest rates with the tariff uncertainty emerging only late in Q1.

In Commercial Banking, demand was strong in Q1 but customers are now pivoting to a wait and see approach. Average deposits rose 5% year over year reflecting 4% growth in personal deposits and 7% growth in business deposits.

In the Personal Bank, saw good growth in non term deposits and moderating growth in term deposits as customers value liquidity in the current environment. This mix shift was margin accretive. Net interest margin was 2.81% up one basis point quarter over quarter, primarily driven by changes to balance sheet mix As we look forward to Q2, while many factors can impact margins, including the impact of a further Bank of Canada rate cuts competitive market dynamics and deposit reinvestment rates and maturity profiles we expect The to be relatively stable. Expenses increased reflecting higher technology spend, the impact of TD shares issued to eligible employees and various other operating expenses. Please turn to Slide 12. U. S. Retail delivered business momentum while executing against our balance sheet restructuring program.

Loans grew 1% year over year 3% excluding the impact of the loan Bancart balances grew 12% year over year 7% year over year. While our business clients generally foresee potential investment opportunities, many are proceeding with caution given uncertainty around tariffs, and long term rates. Net interest margin was 2.86% up nine basis points quarter over quarter reflecting the impact of The U. S. Balance sheet restructuring activities and normalization of liquidity levels which positively impacted NIM by five basis points. Partially offset by lower deposit margin. As we look forward to Q2, we expect NIM to deliver substantial expansion benefiting from ongoing balance sheet restructuring activities and further normalization of our elevated liquidity levels. Expenses increased 11% year over year reflecting higher governance and control investments including costs of $86,000,000 for U. S. BSA AML remediation and higher operating expenses. As a reminder, effective this quarter, certain U. S. Governance and control investments including costs for U. S. BSA AML remediation, previously reported in the corporate segment are now reported in the U. S. Retail segment. We have reclassified prior periods to conform with this approach.

Governance and control investments were higher this quarter compared to the first quarter last year as remediation efforts progressed over this period, We expect this year over year trend to continue into the second quarter. We continue to expect U. S. DSA AML remediation and related governance and control investments, of approximately US500 million dollars pretax in fiscal twenty twenty five. Please turn to Slide 13.

Wealth Management delivered record revenue earnings and assets.

New accounts were up 30% year over year with new accounts up 44% in direct investing as the business continued to compete and win in a competitive market. Insurance delivered gross written premium growth of 13% year over year with our marketing efforts yielding leading brand awareness in the crowded category. To help support analysts and investors analysis, of our business performance, we have provided new disclosure on return on equity for each of the wealth management and insurance businesses.

Expenses this quarter reflect higher variable compensation The business is driving efficiencies at a gains scale. Please turn to Slide 14. Wholesale Banking delivered record revenue this quarter driven by its global markets business, demonstrating the power of our franchise. The higher PCLs this quarter with performing PCLs reflecting policy and trade uncertainty and impaired PCLs reflecting a few new impairment. Expenses increased 7% year over year, reflecting higher verbal compensation, front office and technology costs. Please turn to Slide 15. As I mentioned earlier, effective this quarter, certain U. S. Governance and control investments including costs for U. S. BSA AML remediation, previously reported in the corporate segment are now reported in The U. S. Retail segment. This slide reflects these changes within the Corporate segment. Corporate net loss for the quarter was $266,000,000 and net corporate expenses were $370,000,000 Please turn to Slide 16. The common equity Tier one ratio ended the quarter at 13.1%, up two basis points sequentially. Strong internal capital generation was offset by the increase in RWA excluding the impact of FX, and the impact of from our U. S. Balance sheet restructuring activities. We expect the impact to CET1 from the Schwab share sale to be approximately two thirty eight basis [indiscernible] in Q2.

This differs modestly from what we disclosed on February 11, as that was based on Q4 risk weighted asset and Q1 risk weighted assets are higher. Our average LCR for the quarter, which does not reflect the impact of the Schwab share sale post quarter end, was 141%.

We are comfortable operating at more typical LCR levels and have begun to manage liquidity levels down.

However, we expect LCR to remain elevated in the near term reflecting proceeds from the Schwab The sale.

With that, Ajay, over to you.

Thank you, Kelvin, and good morning, everyone. Please turn to Slide 17. Gross impaired loan formations were 25 basis points a decrease of three basis points quarter over quarter reflected in the Canadian and U. S. Commercial and wholesale banking lending portfolios. Please turn to Slide 18. Gross impaired loans increased $5.00 $4,000,000 quarter over quarter to $5,450,000,000 or 56 basis points. The increase was recorded across the Canadian and U. S. Consumer and business and government lending portfolios and includes a $181,000,000 impact of foreign exchange. Please turn to Slide 19.

Recall that our presentation report 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. The bank's provision for credit losses in to 50 basis points.

The increase is largely reflected in Canadian Personal and Commercial Banking, and U. S. Commercial partially offset by lower provisions in wholesale banking. Please turn to Slide 20. The bank's impaired PCL was $1,200,000,000 with an increase of $63,000,000 quarter over quarter driven by The U. S. The portfolio related to the adoption impact of a model update and seasonal trends, partially offset by lower impaired provisions in wholesale banking. A nominal performing PCL recovery of $4,000,000 this quarter was related to the adoption impact of a model update in The U. S. The portfolio and improvement in our macroeconomic forecast reflecting recent positive economic data though tempered for policy and trade uncertainty. Largely offset by overlays in the business and government lending portfolios Again, for policy and trade uncertainty. Please turn to Slide 21. The allows for credit losses increased by $47,000,000 quarter over quarter.

To $9,600,000,000 or 99 basis points.

Primarily due to a $214,000,000 impact from foreign exchange overlays in the business and government lending portfolios related to policy and trade uncertainty, and credit migration. Partially offset by an update to our macroeconomic forecast. In summary, the bank exhibited strong credit performance this quarter in line with expectations as we progress through the credit cycle. While we have taken initial steps to bolster our reserves, for policy and trade uncertainty, the situation remains fluid.

There are many potential scenarios that could play out that may impact the economic trajectory and credit performance. Some of which could drive PCL results beyond the 45 to 55 basis points range I provided last quarter for fiscal twenty twenty five. That being said, TD is well positioned to manage through The period considering our prudent provisioning broad diversification across products and geographies, our strong capital position and our through the cycle underwriting standards that have served us well through challenging conditions in the past.

With that operator, we are now ready to begin the Q and A session. Thank you. We will now take questions from the telephone lines. We thank you for your patience. The first question is from Paul Holden from CIBC The.

Please go ahead. Thank you. Good morning. Excuse me. First question is related to The U. S. Balance sheet repositioning. You highlighted that you paid down U. S. $25,000,000,000 of borrowings in Q1. Assuming there's probably more to do there just in terms of paying down higher costs borrowings. Can that come hand in hand with say that $9,000,000,000 portfolio [indiscernible] the could the sale of lower yielding assets actually be NII accretive?

Paul, thanks for the The. This is Leo. The, the short answer is at the end of the first quarter, so January 31, we were sitting on $25,000,000,000 of bank borrowings having already reduced nearly $25,000,000,000 previously. So there will be an opportunity to further reduce that over time. How quickly we can do that will depend on the term structure of some of those bank borrowings. So we will be able to deploy a good portion of the $9,000,000,000 to reduce a portion of those bank borrowings in the second quarter. The balance will have to materialize as we reduce Our overall loan portfolio we'll do that gradually during the course of the year. So you may not see the same size of decline in the second quarter but you will see over time an opportunity to further reduce the $25,000,000,000 in bank borrowings on the balance sheet. At the end of the first quarter.

Got it. Okay. And then second question, no change in expense guidance or that expected risk and control remediation costs of US500 million dollars So that's good. Two questions related to The. I guess, first one is, can you give us a sense of what the actual costs incurred in Q1 were relative to that $500,000,000 bogey.

And then two, I just want to get confidence that Ray in particular, you've really gone through this checked off all the nuts and bolts to make sure there is no future upside risk that this US500 million dollars dollars may grow into something larger? Paul, maybe I'll address the first part of it and then I'll hand it over to Ray. On the total expenses for the first quarter for the AML remediation was $86,000,000 and I think we disclosed that number. Which is slightly lower than what we spent the fourth quarter That's to be expected. There'll be some ebbing and flowing in terms of expense timing related to some of the remediation activities. I do expect that the that some of the look back expenses related to the monitor costs etcetera will become much more material in the second half of the year. So there'll be a little bit of staging, but we feel quite comfortable with the guidance of $500,000,000 As I've shared with you in the past, we're pretty far along the remediation program. Some of the more complex elements The remediation program around technology infrastructure. We've already released a number of releases on our transaction monitoring platform.

Which are some of the longer pull type items. So generally speaking, feel quite comfortable with the overall guidance of $500,000,000 Right.

And Paul, I think Leo has covered it well. We have a this for a little bit and we have a detailed action plan on what the remediation efforts need to be I think the piece that he flagged on the look back is the piece that does we go through that, Paul, we'll update you if there's anything that comes from the look pack, but that's the one that I would say That will take a little bit of time as we go through that process. But we have actually budgeted in the sense of the $500,000,000 The then if there's more, beyond that, we'll update all of you as we go along.

Okay.

I'll leave it there. Thanks for your time. Thank you. The next question is from Gabriel Desjain from National Bank Financial. Please go ahead.

Good morning. Guess I'll start with expenses. So 12% expense growth a third of that was variable comp related in FX. So let's say 8% The measure up against your guidance. So a little bit about The. You're saying Q2 you'll have another expense uptick and then I would assume that means in the second half expense growth growth maybe doesn't follow-up a cliff, but drops well below that full year range? Is that how we're expecting it to play out?

It's Kelvin. That's right, Gabe. So the year over year increase in Q2 is really due to the profile from last year. So if you look Q2 was a little bit lower back in 'twenty four and because of the ramp up, you would see a higher year over year uptake and you're right that in we expect the second half of the year, The over year expense growth would be moderating.

Okay. And that's despite what Leo was just saying as far as there's going to be a seasonal increase in AML remediation costs in the second half? That's right. Like that we're talking about total bank expenses. Yes, yes, yes.

Okay.

Video business also in Q2 would expect The year over year higher expense growth as well for you. And Gabe, maybe I can just jump in on that just to give you some clarity. So, you're right. First and second quarter will have elevated expense growth numbers. But to the point that Kelvin raised and very similar to the shape at the overall group level, The back notwithstanding that some of the remediation costs might increase, the year on year comparisons will moderate Yes. The rate of growth quite substantially. So I just wanted to leave you with that clarity.

Fair enough. Now other question about the performing provision this quarter, a release and you gave an explanation there that was helpful. The model refinements for The U. S. Current portfolio don't even know what goes in that. So that's fine, I guess. But then the improvement to the macroeconomic outlook, it kind of made me spit out my coffee a bit. What are we talking about here? I think we're all in agreement. There's a lot of uncertainty out there. Canadian economy at least is really decelerating. And is it a matter of you had really conservative assumptions and they're just not as bad as you assumed? Or I'm trying to understand why there's a deviation in your messaging versus certainly what we're seeing from other banks.

I do feel our messaging is quite consistent, but let me let me explain the moving parts Do you So performing PCL and went to a little detail. So the macro and the Canadian macro we actually in our scenario, in our base case, had GDP slightly better unemployment lower, better HPI.

So that and again keep in mind, this is all done in a point in time. Mhmm.

The scenario and the models drove a release in macro. The we had a model update in cards And that model update essentially we used better predictive variables and there was better segmentation of risk across the PD bands.

That drove another release in performing.

What we did is we took a step back and looked at all the industries that may be impacted by tariffs We looked at potential risk migration. Again, this was based on an initial view and keep in mind, this is all as at January 31. And we created an overlay of $149,000,000 And I do believe that's pretty similar to the approach of others I think the difference with us is there are certain factors the model being a material one that drove a release. So we overwrote those releases through the overlay.

Okay.

In interest of time, I'll just sign off here. Thanks.

Thank you.

The next question is from Ebrahim Punnouala from Bank of America. Please go ahead.

Hey, good morning.

I guess maybe first question, maybe for Ray and Leo, both. But I think Ray, in your prepared remarks, you mentioned you might identify the need to make strategic investments I think you mentioned about looking for other portfolio exits. As we think about so this is not AML related, but as we think about the outlook for investment spend, expense growth, does that leave the door open where expense growth could ramp up as you identify more investment opportunities? Or is that going to be concurrent with savings that you talked about And same thing on the portfolio exits, is that partly the reason why you're operating with a much higher CET1 is to give yourself room to restructure and exit some loan loans or sort of small business lines And take charges and move on. Would love color on both those. Thank you.

Maybe I'll start, Ibrahim, and good morning. On our strategic review, as I outlined on Slide three, one of the pillars is on the drive efficiency operational excellence. And So from a cost optimization we're going deep to right size our cost base, Ibrahim. And some of that then will provide us the opportunity to invest in the capabilities in some of the areas of the organization. And so sort of self funding in many cases some of those opportunities, but we also then have [indiscernible] through the strategic review some significant organic growth opportunities and we'll be using some of the proceeds from that side of it. So think of it as in The fact that we will manage our expenses So the guidance for the balance of this year is still 5% to 7%. And as we move forward, we will continue to invest in our business, but then manage our expenses back down to a more normalized growth Comment on No, we're following the same logic Maybe if I could just take a step back to give you a sense of how we're thinking about The U. S. First and foremost, I feel like we're making very good progress on both The AML remediation investment bond repositioning and the broader balance sheet restructuring program.

I think on all three fronts, We've essentially executed on the things that we've laid out to do. I think as we think about the outlook for the business, I think I feel there's a number of factors that point to a very positive outlook. First, we're trading as a result of the investment bond repositioning. We will be on the upper end of our range and that's positive. So we're ahead of schedule with regards to our overall investment bond repositioning. I think we're also seeing medium term rates a little stronger and as a result tractor on rates are a little bit better and therefore that will be constructive from a revenue standpoint. We are seeing in our core areas of growth, we're seeing good volumes. Our cards our bank cards business was up 12% and our mid market business up 7%. But just to highlight two areas that we've previously expressed a degree to to sort of lean into. And our wealth business was up 11% in the quarter. So some of the businesses that you and I have talked about in terms of the criticality for the franchise performed well. From an expense standpoint, to your question, our challenge is that we've got to absorb the restructuring costs.

And so we are being very deliberate and very mindful about generating productivity where we can to be able to create the space to invest those significant remediation efforts and nothing that is our first priority. We're going to do what we need to do to make sure that we're addressing that fully. But I do think that some of the work that we're doing will allow us to be able to invest selectively in the areas that I think will be critical for our future, whether that be cards, wealth or digital strategy. So We are trying to as Ray said, create the capacity in order to be able to not only address the foundational investments The need to make on remediation, but also selectively and I do emphasize selectively because The strategic review forcing us to make some significant choices invest in those areas that I think will be quite positive. You put all that together and I think two big conclusions. One, I do think we'll be able to generate return on equity improvement on a quarter on quarter basis through this year and into next year, And secondly, I do think we return to a positive NIAB profile as we go into 2026.

That's helpful. And just one quick follow-up, maybe it's quick. Kevin, you mentioned name expansion should be substantial Would appreciate if you could quantify that in what you expect either segment level or consolidated level? Thank you.

Maybe I'll follow-up, Ebrahim, just on The U. S. Business because it's where that substantial adjective was applied, I think. We are there's going to be two big factors or two big drivers driving that. One, will further normalize to the question that Paul raised earlier. We'll continue to normalize liquidity and that will have an impact in the quarter. And secondly, we'll get sort of a full quarter's impact of the bond repositioning activity that we did in the first quarter. Both of those items will substantially move the NIM for The U. S. Business.

Thereafter, coming back to the point I raised before, I do think The rate structures right now with higher medium term rates will be constructive for modest NIM expansion thereafter.

Thank you. The next question is from Mani Grauman from Scotiabank. Please go ahead. Hi, good morning. Wanted to follow-up on some of the expense questions that Paul asked the beginning of the call. Specifically, if I'm looking at The U. S. I'm looking at sequential decline in expenses on an adjusted basis. So I think you touched on it, but I want [indiscernible] What's driving that sequential decline? I wouldn't have expected that given the incremental remediation costs. I think you mentioned something about timing, but I just wanted to understand what's going on here and what The [indiscernible] Thanks for The question. Just to [indiscernible] in the fourth quarter, we did have The lumpy items. We had The sign on bonus related to Nordstrom And we also had the CFPB settlement that we concluded in the fourth quarter.

So when you adjust for those factors, it sort of neutralizes the sort of sequential sequential decline. As we move forward, as I've talked about before, I would expect that towards the second half of the year, the rate of growth would moderate. We were up 11% on a year on year basis in the quarter of which our governance and control costs represented about 7% of that growth. So our base growth rate was 4% And I do think we continue, as I said before, to look at productivity measures that will give us the space to continue to invest not only in governance and control, initiatives on some of the the critical business priorities that I highlighted previously.

That makes sense. And then just want to follow-up on Ajay, you talked about $149,000,000 overlay wanted to understand at a high level, obviously, how do you calculate that? Like what is that 100 how do you derive that 149,000,000 This is based on a top down analysis we did on industries that may be impacted by tariffs and what we really considered is risk rating migrations and we use that risk rating migration to extrapolate what the impact could be and our ACL process or allowance process [indiscernible] captured that initial view on how risk ratings may migrate and the migration was a little different for The U. S. Commercial book as opposed to the Canadian commercial or TD Securities book. But again, it was a top down analysis. It's an initial analysis There is more work going on. We're doing a lot more bottom up work for the next quarter. And of course, we'll see have to see how the macro scenario evolves. I think you know that there's so many different scenarios that could play out. So saying anything beyond that at this stage is a little difficult.

Understood. Thank you.

Thank you. The next question is from Matt Lee from Canaccord Genuity.

Morning, guys. Maybe I just have a question. On the Canadian The book, flat growth quarter over quarter and a bit lower than some of the peers. Maybe just talk about what you're seeing in that business and how we should think about growth as you progress through the year?

Matt, thanks for that. This is Sono.

I'll take that.

So let me start by saying we've been very declarative in our Investor Day aspirations. The is a business that we like, that we want to grow and we're continuing to compete. To win profitable business. So I can just walk you through some of the fundamentals and how we think about this book.

First of all, we're a through the cycle multichannel lender. That's really important. That gives us great reach.

And then within that portfolio, especially over the last couple of quarters, we've been leaning in to enhance how we go to market, especially in our proprietary channels. So a few things that we've done. This quarter, as Ray shared we rolled out RESOL specialists as well as investing specialists in our highest opportunity branches And so we've thoughtfully enhanced that integration between our branch and our mobile mortgage sales force at the same time. We're seeing really promising results. So referrals from our branch to our MMS have tripled quarter over quarter. And it's translating into real dollars. We've delivered $1,000,000,000 in funded volumes through that channel alone.

And it's been the best quarter on record sorry, best Q1 on record for our MMS. So back to your question. Now overall growth will vary from quarter to quarter, but the fundamentals are absolutely pointed in the right direction. I think you typically see some seasonality that's lower in Q1. But ultimately, this is a good book. We compete to win profitable business. We're seeing really good results in our proprietary channels. Also seeing depth of relationship improve up nicely year over year among our Russell customers. So I'd probably sum up by saying, our aspirations are declarative, they're bold, We like the strength that we're seeing in our proprietary ecosystem. And we're going to continue to compete to win profitable business.

Okay, great. So nothing particular the quarter that might have affected growth other than maybe seasonality?

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

Hi, good morning. Maybe just a few quick ones. Hopefully. U. S. NIMs, just to go back to The. When you say normalized like should we be thinking going back to around the 3% level where you kind of work Q1 And then expanding out finer point on that. And then you're going to have some excess liquidity coming in from The Schwab sale. Is that is that something I assume it doesn't impact U. S. NIMs does that kind of filter up and impact the all bank NIMs? Doug, just to give you a sense, we won't provide a specific guidance on the call. What I can tell you is if you look back to where we were before we put on the liquidity position that we did quarter, fourth quarter and you look at that NIM level returning back to that NIM level would not be an unreasonable assumption. So The you combine that with the bond repositioning piece, which will be an enhancement to NII, I think if you model that, that will give you a good sense of where we'll probably land from a NIM standpoint.

And it's Kelvin here on the [indiscernible] earnings from the swap proceeds, you would see that in the corporate tax.

Okay. So that would impact then I guess marginally the Old Bank NIM. And then the total bank?

Yes, on the total bank level. [indiscernible] And then Neil, just just to clarify that $300,000,000 to $500,000,000 I mean that's not a new number. You're looking to be at the upper end of that Is that $300,000,000 to $500,000,000 or let's call it $500,000,000 Is that going to be in for the Paul, are you expecting that to be in for the full year The twenty twenty five or be on a run rate No, no, that's an in year profile. And just to give you a bit more information that we we reflected about $46,000,000 related to the bond repositioning in the first quarter.

So The lion's share of that number will materialize over the [indiscernible] Okay, perfect. And then I guess over 4% CET1 ratio, I mean, described the buybacks A lot of discussion around an ability to put capital to work organically. I mean that's a lot of capital to put to work again. Can you talk about three to four of the biggest opportunities to really drive where you're going to invest that capital? I assume it's a bunch of areas including capital markets, but just trying to get a sense better sense of how to think Doug, I'll take The.

As I said The the strategic review, we're still going through the process. We're about halfway through The strategic review just so you get a sense of timelines.

But we are looking at it in multiple different buckets, where we are going to allocate our capital. And so we start with that we've identified The significant organic opportunities and we'll start to share some of those potentially along the way and then certainly at the Investor Day But we are also looking to simplify the portfolios and you've seen some of the The that we've already taken We'll continue to look at opportunities to optimize our balance sheet and that could be in the form of restructuring, that could be in the form of potential revisiting our investment bond portfolio and see further actions that we want to take there. And then also then looking at our portfolio and to see which businesses that we may look at from an optimization perspective and we've done some of those activities, but we have some more to look at. And then there's some other efficiency opportunities that we'll be looking at. So certainly, as I said before, I don't want to front run the strategic review but what we will do is as we continue to make some of these decisions, start to share those with you. But I do look forward to sharing the more comprehensive and where we're going to allocate that capital at the Investor Day.

And at the end of that, if there is still capital remaining, I've said on The previous calls, that then we will look at a potential another share buyback.

Appreciate the color. Thank you.

Thank you. The last question is now from Dark from RBC Capital Markets. Please go ahead.

Hi, thank you. Good morning. I had just a couple of detailed questions on The U. S. Business as well.

I appreciate the The suggestion that your NIM will expand meaningfully. Or substantially next quarter. [indiscernible] NIM and your NII have a few well, a lot of moving parts.

So I was just wondering if you could provide maybe a range of NII for next quarter for me to work off for the model? Darko, well, let me just give you a sense of the drivers that you might want to think about Clearly, I've given you a sense of where the bond repositioning piece is going to land, and you can sort of get a sense of we take the residual amount and got three quarters left, you can get a sense of what what that lift is going to look like. I can tell you that the on rates right now that we're seeing is about 50 basis points higher than what they were just a few months ago. And so obviously The will be a tailwind that will start to enjoy, maybe less so in the first half of the year, but more so towards the second half of the year?

I'd say in terms of the underlying growth we will be exiting a series of portfolios. So as we communicated to you back on October The, there isn't an eye drag from exiting some of those lower yielding portfolios. I think at that point in time, we did estimate that would be about a $2,250,000 impact.

So if you can if you model that and then a assume that in our core lines of businesses, I'm using cards, our core bank cards business, our home equity line of business and our commercial and those segments in commercial we're seeing good growth. I will say that I do believe despite the fact that there is general optimism in The U. S. With regards to our commercial clients are optimistic about the expansion [indiscernible] I do think that some of the commercial lines might be a little bit more muted. If you put all those things together, I think it lays out a relatively constructive backdrop for NIM expansion and for NII growth over the course of the year, And obviously, we'll try to continue as Ray said, we'll try to continue to maximize those actions as we can. But I want to come back to maybe The obvious statement. Our focus here is to leverage 2025 as that transition year to make the investments we need to in the core franchise to be able to address some of our remediation activities. And to be able to exit 2025 exhibiting the earnings power of The U. S. Franchise.

And so we're doing those things to be able to enter into 2026 with a more normalized profile.

Okay. Thank you. I'll get back to the training the drawing board on that. That is useful though. I appreciate that, Leo.

Calvin, just at the All Bank level, there was some margin compression given everything that's at play, what would your view be for the all bank margin going forward?

Yes. So the NIM at the total bank level would have been positive quarter over quarter.

From the retail businesses.

But the decline was really driven by the The bank due to some business volumes and I'm going to ask him to just speak to that those opportunities.

Yes. Darko, essentially what's driving that is higher asset levels in prime.

So as you know, those are lower interest paying deposits.

But extremely attractive from an ROE perspective just given the RWA treatment. So what you're really seeing at play there is the continued focus on growing our prime franchise.

I see. Okay. That's helpful. Okay.

So we did guide to that P and C NIM is relatively stable. U. S. Substantially expansion then you also have tailwind from the Schwab earnings as well. So all of those headed towards on the positive Okay.

Thanks very much. Appreciate that.

Thank you. There are no further questions registered at this time. Will now return the call back to Raymond Chen.

Well, thank you everyone for joining us this morning. We look forward to speaking again at our Q2 call in May and ahead of that is obviously our annual meeting in April So hope everyone has a great rest of the day. Thank you.

Thank you. The conference has now ended. And we thank you for your participation.