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 Ms. Brooke Hales, Head of Investor Relations. Please go ahead, Ms. 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 Leo Salom, President and CEO, 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 prequalified analysts and investors on the phone. Also present today to answer your questions are Sona Mehta, Group Head, Canadian Personal Banking; Barbara Hooper, Group Head, Canadian Business Banking; Tim Wiggan, Group Head, Wholesale Banking, and President and CEO, TD Securities; and Paul Clark, Senior Executive Vice President, Wealth Management. Please turn to Slide 2. Our comments during this call may contain forward-looking statements, which involve assumptions and have inherent risks and uncertainties. Actual results could differ materially. I would also remind listeners that the bank uses non-GAAP financial measures to arrive at adjusted results. The bank believes that adjusted results provide readers with a better understanding of how management views the bank's performance. 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.

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 are 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 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. 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. 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. With 3 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…

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 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. In addition, we've 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 or 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 an 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…

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 card portfolio, FX and insurance service expenses. Revenue grew 10% year-over-year driven by higher fee income and trading-related revenue in our markets driven businesses and volume growth in Canadian Personal and Commercial Banking. Expenses increased 13% year-over-year with approximately 1/4 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 restructuring program to reduce structural costs and create capacity to invest to build the bank of the future. We expect to incur total restructuring charges of $600 million to $700 million pretax over several quarters. In Q3, we incurred restructuring charges of $333 million pretax. The restructuring program is expected to generate savings of approximately $100 million pretax in fiscal 2025, and annual run rate savings of $550 million to $650 million pretax. Cost savings will be driven by workforce and real estate optimization, asset write-offs and business wind down and exit 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 cards 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 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…

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. 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. 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 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. 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 Instructions] The first question is from John Aiken from Jefferies.

Leo, thanks for the update in terms of the AML remediation, 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 reaching 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?

John, thanks for the question. Just to break it down, 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. So 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. And 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%. So I think we're seeing the core underlying growth taking place. But 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.

The next question is from Gabriel Dechaine from National Bank Financial.

First question, just to follow up on that one. So 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 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?

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, but it also includes the product of the strategic reviews that we've conducted over the past 2 quarters.

Okay. Great. And just from a modeling standpoint, and 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. So are these going -- in totality, are these going to cause your margins to go up or down and then your risk to go up or down, like just the nature of these portfolios. I know the correspondent mortgage would probably be low margin, low loan loss, but maybe the rest of program has different characteristics?

No, Gabe, that's exactly right. I'd say the 2 primary criteria. One obviously is we looked at portfolios that were not accretive to return on equity. And so making sure that the portfolio is profitable and is hurtling was criteria number one. Number two was, is it core to the franchise? Are they -- are we lending to clients that -- where we are able to serve them completely as opposed to just a stand-alone lending relationship and all the portfolios that we've chosen as part of this exercise fall in that category.

Okay. Next question is on expenses, expense management. So just so I'm crystal clear, the -- I mean I should know this now, but the USD 500 million of AML remediation costs, the direct stuff, that's in the U.S. P&C segment, correct?

Correct.

Okay. My hopefully, more intelligent question is, are there additional indirect costs that are I mean, seemingly tied to this issue as well? Because in Wholesale Banking, I see good revenue growth, but then expenses were up more spend to supporting regulatory and business projects. And then 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.

Gabe, it's Kelvin. Why don't I take that first. Yes. So overall, the majority of the year-over-year expense growth is governance and control related. You've already know that part of that is in Leo's business, and we've also taken this opportunity to uplift or uplift our governance and control cost across the bank where we see feasible. And so maybe I'll pass it onto Ajai just to give you a few examples of those. And then to Tim on the investment that he's making in his business.

Yes. So I'd say with respect to second-line risk functions that are under my purview. The main area we're investing in is AML. So not just U.S. 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 of that is fraud. Another good example is Cyber. Compliance is the third example I would share with you. So we are investing in other risk programs as well.

And Gabe, from a wholesale perspective, you mentioned the revenue. We are aggressively scaling our wholesale business. So as you've seen, in this quarter, we did $2 billion of revenue. And the way I would describe that, we essentially matched Q2 in revenue, which included the $184 million from Schwab that we disclosed. So that involves investment across global markets, capital markets as well as investment banking. But 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. But I think we are well on track with our stated goals and the results are showing that our strategy has playing out.

I'm sure we'll dive into that in greater detail on the September in a month or so. Last one, buyback, the pace -- I mean, I know there's the number of shares and the dollar amount, the stock price has gone up since you announced the buyback program. So -- but if I look at the number of shares, it was 30-some-odd million in the last quarter, 15 million or so this quarter, unless I'm mistaken. Are you -- you're still committed to the full USD 8 billion amount?

Thanks for the question, Gabe. It's Ray. And yes, the simple answer is, yes. We are still looking to deploy about $8 billion from the Schwab sale proceeds for our current NCIB. And as you said, I mean we did -- we've made good progress this quarter. We bought back 16 million shares. We're at about 46 million shares that we bought back since we announced the program of $4 billion through quarter end. And we'd just note that the pace of the buyback will depend on some of the market conditions. And as you saw and noted, we accelerated some of that repurchase in Q2 when we saw the share price dip. But we are committed to completing the $8 billion buyback that we announced.

The next question is from Matthew Lee from Canaccord Genuity.

Maybe just on the capital market side, activity finally seems to be picking up on the C&IB front. How does the addition of an integration of Cowen improved your approach to winning investment banking mandates, particularly in the U.S? And then should we expect capital markets to be a bigger growth driver for you this cycle than maybe how TD has looked in the past?

Yes. Thanks very much for the question. I would just say you should absolutely expect continued growth in capital markets. To give you a longer-term view of revenue, I'll just take you back to fiscal 2022. So 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. In Q4, we guided to an expectation that we could take that to $1.8 billion per quarter in this fiscal year. And quarter-to-date, as you've seen, we're actually coming in at $2 billion. And 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. But as we look at Q3, we've had a meaningful pickup in CIB. And within that, you would have obviously advisory equity capital markets for us specifically is a much bigger contributor and 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 leverage finance pickup. So 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. And as a follow-up, any industries in particular, are you starting to see some excitement in terms of equity and advisory?

It's actually fairly broad-based. So I would call out our biotech franchise has been a big contributor, our energy infrastructure, communication, media, telecom. So I would really suggest to you that the shape of this quarter is very well diversified. And even although we had outsized global markets activity in the first half when you normalize for Schwab, 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.

The next question is from Ebrahim Poonawala from Bank of America.

I guess just a few questions around 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. And sorry if I missed it, but remind us, I feel like the control costs, AML costs were in the run rate this year. So 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?

Yes. Ebrahim, 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 program. So we will come in at the $0.5 billion number for the 2025 year. And we believe that, that number will look similar in 2026. So 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, and that reflects the slightly higher AML spend pattern just in terms of the calendarization from the first half of the year to the second half of the year, and that number, obviously, in any one given quarter could bump around. I think the piece that we did share with you is that we are guiding to a mid-single-digit expense growth for 2026. And 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. 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. And that, coupled with the disciplined profile and expenses would lead us to a year of NIAT growth, and we'll provide a little bit more texture and guidance during the Investor Day call in late September. But long-winded way of saying, I'm still constructive with regards to the outlook for 2026.

That's helpful, 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 AML remediation stuff is concerned? And if that is, in fact, the case, my understanding of kind of how the U.S. regulators work is, you've got sort of [DUCs] lined up. They may observe this for 1 year or 2 years, 3 years, whatever it is. But if you are done by the end of the year and if there's no breakage over the next year or 2, is it -- I'm just wondering the time line that you had initially put out going to '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 you could share your perspective on how shareholders to think about that?

Yes. So what I would say Ebrahim, let's just be a little bit more precise. And 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, that -- that 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. But I've been very clear that some longer-tail items do stretch into 2026 and 2027. So the program doesn't entirely complete in 2025. I'd say 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. Internally, 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 internal audits validation process. The monitor will provide their governance oversight. And then finally, the regulator will look for a period 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 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 next question is from Sohrab Movahedi from BMO Capital Markets.

Okay. I wonder if I could just ask Tim a little bit more on Wholesale Bank. 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. But can I get a sense of as you think about whether you're trying to go, how much more investing and spending needs to take place? And when do we expect to see the fruits of that, so to speak, on a sustained basis?

Yes. So I would say -- thanks very much for the question. I would say with regard to FTEs, that is absolutely seasonal. So as you look out over the next year-over-year or over the medium term, we don't expect a material increase in our complement of FTEs. And 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. But you're really seeing all elements of expense hitting in the current year. And so 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. So that's hitting. The employees that we've added, which again, I would say, on a net-net basis are neutral, our subject matter expertise and leaders in their field. But as you know, there's a J-curve there. And then finally, all of this has to happen within our risk appetite. And so there's a material investment in our risk and control platform, and we're a year into a 2- or 3-year program on that upfront. So 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.

Okay, Tim, and I appreciate that. And I'm sure you're going to give us more details, I guess, next month, but I guess, worth to try. As you go, as you make this progress towards your, let's call it, 3-year plan, is there an anticipation that your risk-weighted assets here should then continue to grow at some sort of a rate? And what sort of an ROE target do they have on your back?

Yes. So maybe I would take you back to pre-Cowen acquisition because obviously prior to this substantial investment, we were generating 13% ROE and efficiency ratios in the low 60s. So this is how we run the business. But as you well know, generally, it takes 3 to 5 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. So the first part of that process is to make sure you have the right tools to deepen your client relationships and drive RAROC with your clients. The second part is delivering, which I think we're doing. But 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.

Okay. Look forward to the 29th of September.

The next question is from Doug Young from Desjardin Capital Markets.

I guess for Ajai. 2 kind of things of credit, higher gross impaired loan formations in U.S. Commercial, I think you talked about. But then in the U.S., there's a release of performing loan allowances. And so I'm just trying to connect the 2 and maybe walk through where the release came from? And then 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 0 last year? How has that evolved? And then I have a follow-up.

Yes. So again, there are multiple parts to your question. So let me try to answer each one of them. You mentioned higher GILs. And yes, we saw higher GILs. Some of it came from wholesale and some from the U.S. In wholesale, there were really 4 borrowers. One was in telecom and cable, 2 in professional and other and 1 in transportation. There were a few impairments on the U.S. Commercial book. 3 of them were CRE, and I would call those pretty much expected. And there was 1 in C&I 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 numbers, the GIL 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 then 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. And the main driver of that small release was the macro -- change in the macro environment in the United States. And 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. So it's not an unexpected event from my perspective. And let me turn to the $600 million. So we've actually built $600 million over 3 quarters, okay. 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. And when we did this…

And so just to follow up on that, the $600 million and the $410 million, $190 million. How much of that is Canada? How much is -- I would assume most of this is Canada, but...

Yes, we haven't disclosed that, but I can tell you a fair bit is Canadian P&C, and the balance is -- U.S. based, some for U.S. retail, and there's some for Wholesale.

And then just 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 how to 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 results would be required. Now I want to be very clear that we've made certain assumptions. To the extent the tariffs turn out to be higher than the assumptions we've made, that means we have to build more reserves, 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 built the reserves. We're going to draw down on those reserves.

Yes. Okay. And then just second, Leo, you talked about ROE improvement in the U.S. I guess it's kind of -- there's 2 parts of the equation. Obviously, the numerator and the denominator. How much of this is driven numerator versus denominator? And then can you give a kind of context to where you started and where you think you can get to with that U.S. ROE?

Well, Doug, thanks for the question. I -- we will be providing more clarity with regards to return on equity target at the Investor Day. So I won't front run that discussion at this point. But it's been a combination of both, right? So if you look at -- we are clearly contracting portions of the portfolio that we believe are not accretive to our return on equity profile. But the reality is a lot of the benefit because that RWA reduction is still funneling through the balance sheet. So where you're seeing the improvement right now has been the improvement in overall operating results. We've had 3 sequential quarters of NIAT growth from 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. So I think we're executing as expected at this point. 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. So I think right now, it's been an earnings 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 U.S. balance sheet restructuring.

The next question is from Shalabh Garg from Veritas Investment Research.

I'm referring to Slide 42. Now there was a sharp year-over-year improvement in the Canadian Commercial credit performance, whereas 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 2 countries?

Yes. So let me -- it's Ajai. So let me explain the difference between what happened with Canadian P&C. And in U.S. Retail. And 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. So the underwriting standards are consistent. What you see on Canadian P&C is you see the numbers are down $159 million. Impaireds are down 52% and performing is down 107%. U.S. retail is also down. So directionally, PCLs are -- it's the same. Okay. But performing is down $149 million in the U.S. The divergence has come from impaired. Okay? And impaired PCL is slightly up. It's up $21 million. And the reason impaired PCL is up is we did see some impairments. As I mentioned, there were 3 in CRE, 2 in office -- 1 in office, 1 in retail, 1 multifamily, and then there was 1 in C&I. 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, CRE, I think I've said on previous calls, this whole CRE situation in the U.S. is still playing out and we're very well reserved for that situation. So I'll leave it at that.

The next question is from Paul Holden from CBIC.

I'll try to keep it quick in the interest of time. So a question for Sona. Kind of 2-part question, but trying to get to the major point, which is sort of maybe NII outlook on Canadian P&C banking. So if I look at loan growth in the quarter, I see residential mortgage is down a bit, but then strong growth in what I think are higher-margin products, HELOC, cards. So maybe you can talk through that a bit in terms of the outlook and why residential mortgage is down in the quarter, but good growth on the other side? And then the second part of the question is really on deposit mix. I know in the past quarter, you've talked about 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 NIM and NII outlook for the segment?

Sure. Thanks, Paul. So first, maybe on the loan side of the business. We've seen actually we're quite pleased with the quarter. We've seen strong sequential momentum in the RESL business, 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 better than that on a spot basis. So we are seeing good growth both in that line as well as in the credit card business. So 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. So in the quarter, in particular, I think we have benefited from favorable deposit margins, including a mix impact. On the RESL side of the business, coupled with the sequential growth, we saw a good margin expansion. So we saw both quarter-over-quarter and year- over-year, better margins both on originations as well as the portfolio. So kind of a four peat for RESL. And then the credit card business obviously is healthy from an NII, NIM perspective. So that may be the first part of the question. Hopefully, I've answered that for you. On the deposit side of the business, also, I would say a strong quarter. So we've led both year-over-year and quarter-over-quarter in personal deposits growth. And what we're seeing is a good growth shift positively to demand deposits. So that is also a positive momentum. So I think a number of factors coming together. We continue to guide to a relatively stable NIM heading into Q4, but we're pleased overall with a strong exit in Q3 with good momentum.

Okay. And I guess really where I'm going with that is I get the guidance is for stable. But if I put all everything together, it certainly benefited the quarter and would suggest to me it probably benefit Q4, but you're guiding to stable. So are you just being conservative in that guidance? Or do you expect a change in trend? Just again, just trying to square everything up here.

Yes. No, I think the guidance is sound, Paul. I think there's a number of factors. And so it's obviously a growth business. There's a lot of mix impacts and then the one piece that we hadn't spoken about like balance sheet mix also comes into play. So I think our guidance is the right one.

The next question is from Darko Mihelic from RBC Capital Markets.

I'll be really quick as well. Ajai, you gave great detail on the $600 million reserve. So maybe just to boil this down, I'd like to understand 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 equaled what Europe got, would that be better than what you've anticipated and released those reserves? Would those be 2 sort of outcomes that would result in substantially most of those reserves being released?

Yes. I think where you're going 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 settle, and the uncertainty reduces and there's more clarity around tariffs, and let's say the tariffs are lower, we would reassess that result. And if you 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 are higher than what we've assumed, then you should expect us to increase our reserves. And then 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. So if you look ahead, and we are working -- still working on the guidance for next year, that will follow. But 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. And then 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?

Yes. It does. Yes.

There are no further questions registered. At this time, I will turn the call back to Mr. Raymond Chun.

Well, thank you, operator, and thank you, everyone, for joining us today. We appreciate as always the questions and your comments. And let me just wrap by saying that TD has delivered for its 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. Look forward to speaking with all of you again real soon at our Investor Day on September 29. Thank you.

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