We're here to the final presentation for today. With us, we have TD Bank, and presenting from TD Bank is Leo Salom, Head of U.S. Banking. Welcome, Leo.
Brian, good to be here with you.
Great. Thanks for coming. All right. Let's start. On the recent earnings call, you announced you're going to focus on opening 100 new branches by end of calendar 2028, subject to regulatory approval. Can you provide a few more details on the growth strategy?
Very excited to be able to make that announcement. This is really a return to a proven track record that we've had previously. We did open up about 250 stores over the last decade. Obviously, given the last two or three years with the remediation, we took a pause. This is returning to that expansion strategy. I think maybe a couple of things that I would cite. We have a pretty substantial existing footprint across the U.S. today, 1,100 stores. This is really a focus to densify, strengthen our footprint in those particular markets, and with two critical objectives. One, in the major markets in New England, the New York area and New Jersey, Philadelphia, where we already have a top three deposit position. We really want to ensure that we're properly positioned for the emerging demographic trends that are taking place.
Think of that as a true repositioning, and an extension in terms of the existing footprint that we have. The other part of the expansion is the Southeast expansion, where we really want to take on a greater footprint in markets like Florida, really the Carolinas more broadly. We would like to try to embed or increase our presence in those particular markets. Taken in aggregate, it will be a substantial move in a relatively short period of time. We said we would open up 100 stores by the end of 2028. We will get started on that in short order here. It is an exciting step forward, and it brings us back to a bit of an expansionary posture.
Great. How does the branch expansion strategy interact with the consent orders and asset limitation currently in place for TD's U.S. Bank? Can you comment on what you mean by subject to regulatory approval?
Sure, Brian, and I know I have mentioned this in the past. I would not want anyone to interpret the fact that we are opening up stores as the fact that our remediation plan is complete, or that we have satisfied all elements of the consent order. The consent order always provided for the ability for the bank to be able to open up stores or branches. This is essentially us having a degree of confidence in discussions with our regulators that we will be able to open up those 100 stores by the end of 2028. I should say that with regards to the AML program itself, we feel quite comfortable with the work that we have done in that space. A tremendous amount of progress, Brian, in a relatively short period of time.
I think that where we are on that remediation, where we are from a maturity standpoint, gives us the confidence that we can embark on this expansion plan at this point in time.
All right. You shared that TD continues to make meaningful progress on its AML remediation. Can you provide an update on this progress? Any updates on the timeline?
Sure. I know I've had conversations with many of you with regards to the work that we've done from an AML standpoint. I'd say, first of all, we are very pleased with the progress that we've made on our overall AML remediation plan, and I've signaled that on various analyst calls. If I just take a moment to describe what we've done, we've completely rebuilt the management team around the BSA/AML program. Today, we have 40 very seasoned titled officers supporting various aspects of our AML program. We have strengthened and renewed a lot of our policies and procedures and upgraded them accordingly. We've implemented a new customer risk rating program. We've implemented a new transaction monitoring core platform. We've revamped our investigations capabilities, changed our training programs, and really strengthened the relationship with the sort of engagement model with law enforcement.
Put all those things together, a lot has been done in a relatively short period of time. There's still more work to do with regards to the AML program, but I think we're entering into a very important phase with regards to the program, and that is the phase associated with validation and sustainability. That's really the work ahead of us now is really to ensure that it gets validated. For some of you that you might have heard me say this in the past, when we say validation, it means that every management action that we've implemented will be challenged by the business community, by the business itself, will be subject to internal audit validation, will be reviewed by the monitor, and ultimately it has to be accepted as effective by the regulator. That's the process we're in right now.
I think we've made a lot of progress on the actual management actions themselves. We're now in that important validation stage to be able to secure regulatory relief.
Great. On expenses, TD increased its guidance for the U.S. BSA/AML remediation expenses from $500 million U.S. for fiscal 2026 to $550 million U.S. for 2026. What is driving that increase? What is your outlook for the U.S. BSA/AML expenses for 2027? Should we expect some moderation in costs?
Yeah. Brian, we did say on the call that we were going to come in for the full-year at $550 million. So a $50 million increase vis-à-vis what we had said before. What we did say is that the majority of that expense increase was associated with the look-back exercise that we're running. To a lesser extent, it was also related to the fact that we've accelerated a series of management actions that were previously scheduled for later on in 2026, outside of our fiscal period, and 2027, and we've brought those in to be able to get out in front of some of the critical deliverables that we had. I'd say, as I think about 2027, we do believe we'll be able to moderate overall governance and control costs associated with the AML remediation effort.
I'd say that moderation is probably to take place more in the second half of the year versus in the first half of the year, but it will allow us to be able to start to realize some degree of benefits. Some of you might recall in the investor day, we did communicate that we do expect that more than half of the total remediation expense will be able to be reduced permanently, while there'll be a portion of that that will remain as part of our run cost as part of the AML program. But I think being able to experience some degree of moderation will certainly help us in next year's overall expense profile.
Okay, great. On expenses more broadly, TD has maintained its guidance for mid-single-digit growth for fiscal 2026. What are some examples of how you're driving structural cost savings in U.S. banking? What is your outlook for overall expenses for fiscal 2027?
Yeah. The work we are doing on expenses is critically important. I know many of you have heard me talk about the fact that we are really looking at our structural cost envelope in the U.S. business. In the investor day discussion, we did put out a target to reduce our structural cost by CAD 750 million. I can say based on the progress that we have made this year, having achieved almost CAD 200 million of cost savings this year already, that I think we should be able to achieve that within the MTO period. Some of the things that are driving some of those savings is partly the store optimization work that we did earlier this year. We also discontinued a number of businesses as part of our balance sheet restructuring effort.
We have been leaning into certain organizational health initiatives to be able to bring down our overall staffing levels in select areas in the bank. We are leaning in awfully hard on this moderation of G&A costs as we are getting through some of the remediation. We are able to begin to start realizing some degree of benefit. Probably the one that is early days, but it is showing some promise, is the work that we are doing from an AI perspective to actually see some additional expense. You put all those things together, and I think the way I would ask all of you to think about it is we have already been able to moderate the absolute level of expenses in the U.S. banking business. So our overall expenses on an absolute basis have been about CAD 1.8 billion, just above CAD 1.8 billion for the last four quarters.
What we would like to be able to do is create the capacity for ourselves to be able to reinvest back at scale in some of the critical things that we are trying to achieve, including our branch expansion plan, including the increase of frontline bankers and financial advisors leaning into some of the infrastructural investments we are trying to make in data and technology. But I think the point that I would want to underscore is we are trying to create the capacity to be able to enjoy the value of J-curve type investments without the J-curve, to be able to allow us to be able to self-fund an accelerated degree of growth within the envelope that we currently operate today. I think we are making good progress, more to come over the next 24 months.
Great. I think that kind of leads directly into my next question. Is AI driving expense savings, and can you provide examples of AI initiatives transforming how you operate the business in the U.S.?
Sure. In a word, absolutely. I am truly excited about what we are seeing from an AI perspective. I will just talk about some of the things that we are already doing and maybe some of those things that are probably to come in terms of some of the opportunities. I would say the single most impactful AI program that we are running right now is our software development program. We have now enabled 1,800 of our developers with GitHub Copilot. I would say while adoption curves will vary across that universe of developers, we are seeing anywhere between a 30%-40% improvement in technology capacity available to those individuals. Which right now we are going to look at potential cost synergies there. But we are also experiencing what is a significant increase in just our ability to bring solutions to market faster.
We are using it as a capacity increase as opposed to a hard dollar reduction at this moment in time. But obviously we will revisit that as we move forward. I would say another area that we have applied AI at scale is within the AML effort itself. We have already deployed three AI models. Things like scanning negative news for any adverse developments on any clients in the portfolio, or using AI to be able to look at our transaction alerts and be able to decipher rare patterns in it and be able to surface that much more effectively. We are now working on a solution to be able to construct an investigator's desktop, to be able to allow them to be able to look at hundreds of different items and immediately score it and be able to provide them with greater insights on how to manage that particular investigation.
All of these things will make not only our AML program much more effective, but it should over time generate some really significant efficiencies. I would say one area that I am particularly excited about is the work we are seeing in the call center space. In the voice and chat AI space we are working with a vendor as we speak to be able to enable a voice AI agent solution that we are targeting to address about 50% of the calls into our call centers. In fact, we were at a board meeting yesterday, and we got a chance to actually be able to demo the new piece. It is incredible what is possible today in just the last three to four months.
The quality of the speech dynamic and the reduction in the latency that exists is now making what seemed almost unlikely a year ago, very likely now. What we will do, obviously, that will create some synergies in terms of frontline staffing, but we hope we will be able to reinvest some of that in being able to enrich the overall experience in the call center over time. I use those as just examples, but Ray Chun, our Group CEO, talks about reimagining banking. I really do think that agentic AI and some of the things that we are looking at at the moment will allow us to be able to change the way we work internally, how work gets done inside the organization. I think it will unlock a significant amount of expense synergies over time.
Oh, great. Let's turn to the balance sheet. Q3 was an important inflection point for TD's U.S. banking segment with positive sequential loan growth. What do you see as key drivers of loan growth for your business going forward?
To your point, Brian, last quarter, we were able to post total loan growth. That means that we fully absorbed all of the restructuring loan runoff within the quarter. It is the first time we have done that since we announced the overall restructuring program. Our core loan growth, we have about CAD 165 billion in total loans. Our core loan growth was 3%, evenly distributed. Both retail and commercial both posted about a 3% growth rate. But what I think is most important is in the areas that we have signaled during Investor Day that we were going to grow. Take our bank card business. Our bank card business was up 20% on a year-on-year basis. New accounts for our cards business was up 30%, and spend was up 12%.
Some really strong fundamental growth in a category that we have said was going to be one of the critical categories to win as we think about the Investor Day overall targets. I would say that it was not the only category. In our HELOC business, our Home Equity Line business that portfolio was up 6% on a year-on-year basis, and pipeline volumes were up 25%. We are seeing some good fundamental growth there as well. I would say the last area that I would cite is our mid-market business, which is an area that we have been deliberately focusing on and working very closely with TD Cowen, which is the investment bank that we purchased in TD Securities to reinforce our capital markets business. That overall portfolio, the mid-market business, was up 15% on a year-on-year business.
I think we are just beginning to see the power of that partnership with TD Securities. You put all those things together, I am feeling cautiously optimistic about our ability to not only sustain but accelerate the growth that we are seeing across our various lending books.
Great. On the deposit side, with the competitive deposit market, TD is well-positioned because of the strong core deposit base. What do you see as drivers of the deposit growth going forward?
In many ways, the one thing I would leave with all of you is that the deposit portfolio at TD is the crown jewel. It is the flagship product. We have historically been a very effective deposit gatherer in the U.S. Just to bring that to life a bit, in the three largest markets that we operate in, so the New England marketplace, including Boston, our presence in New York City, and our presence in the greater Philadelphia marketplace, we have a top three market share position. In fact, 76% of all of our deposits are in markets where we're either first, second or third in terms of market share. So that gives us an incredibly strong overall position. If you look at the type of deposits we have, we are a traditional core checking transactional primary bank institution.
So that gives us a great stable platform to be able to fund our portfolio. When you combine that with the fact that our loan-to-deposit ratio is 58% overall, just sub 80 if you exclude the Schwab deposits, that gives us a unique position vis-à-vis our regional peers and some of our larger bank peers to be able to not only fund our balance sheet, but to do so at a much more attractive cost point than some of our peers that are forced into marginal pricing structures. So I think that's a unique advantage for us. It is an area, to your point, that we are leaning in. It's a critical part of our Investor Day objectives. In retail, we are leaning in quite significantly. The branch expansion will be helpful. I'd say the expansion of our front office staff will also be critically important.
We're retooling our digital account opening capabilities and implementing next generation precision pricing capabilities to tier much more intelligently and price our book effectively as we move forward. In retail, I'm confident that we'll be able to continue to grow that core book of business. Likewise, in the commercial side of the house, last year we announced a global transaction banking effort across TD Securities and ourselves to be able to focus on those cash management and treasury management capabilities that are going to position us to be a leader in the U.S. marketplace and to better service both our commercial and corporate banking clients. Really pleased with the progress we're making on that front, and I would expect that to translate into greater product innovation and ultimately greater growth in terms of overall commercial deposits. You put those things together.
I gave a guidance at the investor day of a mid-single-digit growth rate in terms of deposits, and I think we feel quite comfortable with that as a future guidance.
Well then, let me put this together. How do these loan and deposit dynamics plus tractor pricing impact U.S. banking's NIM outlook? You've guided to modest NIM expansion for Q4. What is driving that, and what is your NIM outlook for fiscal 2027?
We're coming off a particularly strong quarter from a NIM perspective. NIM came in at 347 basis points. That was up 6 basis points on a year-on-year basis, up 28 basis points. I'm sorry, 6 basis points sequentially, 28 basis points on a year-on-year basis. So a good strong overall performance. A number of factors played into that. But if we think about the fourth quarter, the guidance that we gave is that we still believe that there's an opportunity for modest NIM expansion. I think a little bit more muted than what we experienced in the most recent quarters, but still a modest expansion nonetheless. As we think about 2027, we still remain constructive about our ability to be able to grow NIM.
As I said before, I think that growth will be more modest in nature, maybe more muted than what we experienced in the full-year 2026 profile. But notwithstanding the impacts of higher interest rates overall, the growing margins in both our loan book, growth in higher yielding loans and higher investment yields all come together and give us some tailwind. The one area where we probably won't experience as much of a tailwind from a NIM perspective, Brian, is tractor on/off rates. I think the first half of the year, just because of what's coming off and what's coming on, that may not be quite as much of a tailwind as we enjoyed earlier in 2026.
But as we see through the year, given where rates are, I do think the tractor on, tractor off rates the back end of this year of 2027 and into 2028 will be a tailwind as well. Generally speaking, constructive about the future.
Okay, great. Then maybe just comment, people think Fed might be raising rates tomorrow. There might be some rate hikes early next year. Any thoughts on how that would impact your NIM outlook?
No. I think in the short term, I don't think it will impact it significantly. I think there might be some degree of favorability in the short term. Personally, I think a rate hike at this point will send a very strong positive message that the Fed is, in fact, conscious about the inflationary pressures that are still present and that are going to be able to rein in some of that sort of inflationary growth. I would argue the bond market's expecting it. So I think it's priced in right now. The market's priced 86% probability that they will increase. So I think it's important. Something other than a rate hike at this point could create some instability in terms of overall market reaction. I think the fundamental question that we just need to consider, I think generally speaking, the backdrop for banking has been very constructive.
If you look at earnings, if you look at general momentum in the industry overall, I think the biggest area of concern at this point is do rates get to a level that they begin to affect the consumer and begin to fundamentally constrain through commercial and corporate growth activity? I don't think we're there. In fact, I think the consumer has been resilient, and we're seeing corporations continue to make decisions in terms of their financial futures. But I do think that making sure that rates are contained is going to be critically important to the health of the banking industry over the next few years.
Okay, great. Then maybe on the credit side, TD has demonstrated strong credit performance over the past few quarters. What are you seeing in U.S. banking, and how would you characterize business client sentiment and U.S. consumer health?
Yes. So really strong quarter. Total PCLs came in at CAD 227 million, and that was down sequentially about 9%, flattish on a year-on-year basis. But if you look at the leading indicators, retail delinquency was stable to down across all product categories. With regards to some of the other critical indicators like gross formations as well as gross impaired loans, in both cases, we saw sequential declines, 13% in terms of new formations and about 6% decline in gross impaired loans. So I do think we are experiencing, despite some of the macro uncertainty, some really strong credit underlying performance numbers. I think that's to be expected. I think TD's portfolio is a strong portfolio. On the retail side, we have very little subprime and near-prime exposure. We're largely a super prime core retail portfolio.
On the commercial side, we have deliberately been de-risking areas of greater potential risk. For instance, reducing our office pre-exposure over the past three and a half years. So I think you put those two things together, I think we feel like we've got a very strong credit portfolio, and we've got more than sufficient allowances against that book. So I think PCLs should be a bright spot for us, certainly over the next few quarters.
There's been a lot of developments over the past year in the digital asset space with the GENIUS Act and the CLARITY Act. How are you thinking about TD's role in a tokenized U.S. ecosystem?
Yeah. I think we want to be a leader in client-centric digital asset platforms and solutions. If I take a step back, I think the GENIUS Act was a really important step forward. It created a legislative framework for stablecoin, and more importantly, it triggered almost an awareness moment across the entire industry, and particularly the banking industry, that tokenized deposits in stablecoin was going to become a reality much quicker than first thought. That's resulted in a mobilization across the entire industry. At TD, back at the beginning of this year, we created the digital asset task force under Jeff Solomon's leadership. Jeff was the former President and CEO of Cowen, the investment bank that we acquired. Under his leadership, we did look at a number of digital asset solutions that we wanted to bring forward.
We have embarked on a tokenized deposit solution that will link our commercial banking clients and the corporate bank's clients to be able to provide ledger to ledger transactions internally. We've been supporting the clearing houses effort to create a tokenized deposit clearing process. In fact, which was announced, I guess, a month and a half or two months ago. TD will play a very important role in terms of enabling that as well. I do think certainly on a tokenized deposit perspective, we believe that there is a tremendous amount of utility for our clients in that space, and we will be early adopters in that space. I'd say with regards to stablecoin, we did sign on to a major consortium of global banks to be able to enable stablecoin technology. The view there was for cross-border transactions.
We don't know if stablecoin will become the primary means of digital asset exchange, but we felt that it was important to play a role as that technology develops going forward. All things being equal, I do think that plus a number of other initiatives that we're working on, we do want to play a leadership role in how digital assets get brought to market. I would say you mentioned CLARITY Act, and Brian, I'd like to make a bit of a distinction there. TD will always support innovation that is client-centric. But we do have some concerns about the CLARITY Act in its current form. I think the largest concern is whether the BSA, AML, and KYC rules by which crypto will be governed will be sufficient to protect the financial system as a whole.
Having just gone through a challenging remediation process ourselves, getting that right, from my standpoint, that's instrumental, and we're going to be continuing to work with other industry players to make sure the final form of the CLARITY Act has very strong protective language with respect to that. Likewise, I think we have to be thoughtful about this yield discussion. The risk of disintermediating banks, and then subsequently, potentially inhibiting loan formation in the U.S. is something that we need to look at very carefully. I know that this is the subject of a great deal of discussion, and we're certainly lending our voice to that discussion as we move forward. But to your first point, we absolutely want to play a role in the broader digital asset evolution discussion.
Excellent. U.S. bank M&A has been a hot topic on both sides of the border. At the top of the house, TD has said it is focused on organic growth but would potentially consider inorganic opportunities that provide fee income diversifications. What does that mean for your business, and are there inorganic opportunities for U.S. banking?
Brian, I never like to rule things out, but the reality is, we are absolutely focused on our organic growth strategy at this point. You've heard us talk about growing our branch network. We talked about adding 450 advisors next year. We're leaning into some of the work that we're doing in terms of our digital offerings. I think right now for us, where we are in our journey, completing the remediation is priority number one. Accelerating the momentum in the franchise, which we've started to see that actually materialize in 2026, maintaining that and building on that momentum is critically important. Then ultimately, we put out some pretty bold aspirations with regards to our investor day targets. Executing against those aspirations is really what we're focused on. From our standpoint, I think we see that through an organic strategy at this point in time.
We'll never rule out evaluating intelligent inorganic opportunities, but for our immediate focus, it's going to be driving that organic growth.
Great. Let's end on ROE. For your business, you were targeting 9.5% ROE for fiscal 2026, and you've already hit that target. Medium-term target is 13%. Is that still the right target, and what levers are you pulling to achieve it?
Brian, are you trying to get me to change my guidance at the Barclays conference?
Of course.
I think we are in good shape on the ROE. Just maybe a couple of numbers to sort of anchor the group. We did post in the third quarter 10.2% in terms of ROE. That was up 130 basis points on a year-on-year basis, up 270 basis points over the last two years. And ROTCE eclipsed 15%. As we communicated in Investor Day, our targets are 13% and 18% respectively for ROE and ROTCE. I think where we stand right now, I think there is a path not only to achieve that, but potentially exceed that number. I think a number of factors are playing into that. We talked about the momentum we are seeing from an earnings perspective, but we are also spending quite a bit of time on just capital optimization.
We are really looking at our RWA models, looking at how capital is consumed, evaluating underperformance sectors within the bank, and making sure we are holding those businesses accountable and driving the necessary changes, whether that be unit cost changes or fundamental volume acceleration to be able to achieve some of our targets. I am pleased with the progress we have made to date, but we are absolutely committed to get to that 13% target, and I think stay tuned for some more updates with regards to that overall target.
Oh, excellent. Well, we have a few minutes left, I guess if anyone wants to ask any questions from the audience. Sounds quiet. It's late in the day.
Questions?
Got one in the back.
Good.
We got a mic on.
Yeah. Can you hear me?
Yes.
You happen to operate in a footprint that I would consider to be a very competitive environment for deposits and deposit rate setting. Can you talk about what your competitive advantages are relative to other institutions, and is it the stickiness of the deposits, the granularity, or what is the nature of your deposit base?
Sure. Maybe just to take a quick step back. Our deposit base right now stands at just under CAD 300 billion in size. What is different about our deposit base is, one, we do have a very large single depositor through the Schwab sweep structure, which represents about CAD 70 billion of that overall target. At the aggregate level, our loan-to-deposit ratio is 58%. If you take out the Schwab component piece, it would still be a little sub 80% overall. First of all, we are a very deposit-rich bank, and the composition of that deposit base is important. We have a very significant checking account and low yield savings overall composition as part of the overall footprint.
Why that is important is, one, it gives us a tremendous amount of funding capacity, and secondly, I am funding that largely with lower cost deposits relative to some of our regional peers that might not have that same flexibility and are funding themselves at the margin. That flexibility for us is quite significant. It is one of the reasons why our NIM expanded six basis points sequentially and 28 basis points, is that we have been able to right-size the balance sheet as part of our overall restructuring efforts and still be able to generate some overall margin increase.
To your point, though, the market is very competitive, and we are seeing if you look at macro trends, you are seeing loan growth start to increase across the industry and deposit formation starting to lag that overall loan demand. I do think that your premise that things will become more competitive is certainly true.
Add neobanks and other factors that might bring a slightly less conventional approach to deposit gathering, and I fully expect the next two or three years to be a really competitive environment. It is one of the reasons why we are leaning into our branch expansion strategy. It is one of the reasons why we are leaning into our mass affluent strategy to make sure that we continue to protect what is probably one of our most valuable assets, which is that core strong transactional deposit base in at TD. Thank you.
Okay. We have one more question here.
Thank you. Would you be able to expand on how TD anticipates adapting to Canadian macro risk, specifically with a weakening Canadian consumer spending and U.S.-Canada trade uncertainties heating up?
I will address that from the U.S. perspective. I think we are certainly concerned about the state of some of the trade discussions between the two countries. It goes without saying that the reliance of both countries to the trade and supply chains are critically important, and we are hopeful that we will arrive at beneficial solutions for both countries, so that that USMCA sort of question mark is removed from the overall equation. I do not want to prejudice it with my own thoughts, but I do believe that we will find a solution on that point. It is in both countries' best interest, not only in terms of economic trade, but in terms of defense coordination and just the ability to manage a number of really important issues, including immigration, et cetera. I do believe that there will be some sort of positive outcome on that front.
It is important to us. A number of our clients in our book of business are Canadian snowbirds, and we serve them cross-border, and obviously, maintaining a strong relationship there is going to be critically important going forward. I would say trade, generally speaking, if I could, is critically important. There is a tremendous amount of uncertainty still with regards to the state of trade relationships globally. Getting to an effective outcome on those and just arriving at greater certainty, I think will be one of the many factors that will eliminate some of the doubt that might exist in some of our commercial clients with regards to whether this is the right moment to invest. I am hopeful that we will continue to see progress, both in the Canadian context, but in terms of trade much more generally. Thank you.
Great. Thanks. That brings us. We're out of time. Please join me in thanking Leo for his presentation.
Thank you.