Toronto-Dominion Bank (TD) 2002 Q3 法說會逐字稿

Welcome to the rebroadcast of the TD Bank third-quarter results conference call originally held on Thursday, August 22nd, 2002, at 3:00 p.m. eastern time. Moderator, Mr. Dan Marinangeli. Ladies and gentlemen, after the tone, please slowly spell your first and last name and company name.

Welcome to the TD Bank financial group's third-quarter 2002 investor presentation. My name is Dan Marinangeli and I'm the CFO of the bank. This meeting is being webcast in audio and video, as well as a telephone conference call.

Various media participants are listening to the meeting. As such, please consider the meeting to be on the record.

After the formal presentations, we'll entertain questions from those present, as well as pre-qualified analysts and investors on the phones. Those watching the webcast will be able to e-mail us questions. We'll post the answers on our website within two days.

There is a slight delay between the phones and the webcast, so we suggest you use one or the other, but not both.

With us today is Charlie Baille, the bank's chairman and CEO who will give us an overview of the quarter's results. I will cover our performance in more depth. Followed by Tom Spencer, Vice Chair, Risk Management, on risk management issues.

Also present to answer your questions is Ed Clark, the bank's president, Don Wright, vice chairman and CEO of TD securities, and Rita Rosen is also here. She's sitting at the back of the room on the comfortable couch. She's vice president and chair of TD Canada Trust. This presentation may contain forward-looking statements and we draw your attention to the statement concerning forward-looking statements at the end of our presentation.

Charlie?

Thank you, Dan. And welcome to everyone here today, as well as those of you who are listening in on the telephone or watching on our webcast.

Our call today details our third-quarter results for fiscal 2002. Before our CFO, Dan Marinangeli takes you through the numbers in detail, I wanted to say a few words about both the external and internal operating environment for TD Bank financial group.

First, I would like to address the recently signed Sarbanes-Oxley act and our plans to comply with the certification requirements contained in the act. I, along with Dan Marinangeli, will be signing and committing a certificate to the U.S. Securities and Exchange Commission that our third-quarter report to shareholders fairly presents the financial condition and results of operations of the bank.

Although it is our view that as a Canadian issuer we're not technically required to comply with the certification requirements for our third-quarter results, we decided that we would voluntarily certify our results, and we did this because we wanted to send a clear signal to our shareholders that the CEO and CFO of TD Bank financial group stand behind our financial statements.

Obviously, this quarter was an extremely difficult one for TDBFG. The sectoral provisions we announced in July, $600 million against potential problems in performing loans in the telecommunications sector, combined with the sectoral U.S. corporate provision for $250 million, were painful but necessary to ensure the telecom issue was resolved and put behind us.

Our earnings were impacted by the corporate sectoral provisions announced in July, combined with the dearth of activity in securities markets. These earnings were clearly disappointing and unacceptable.

TD Canada Trust has shown steady growth, while trimming expenses by 3% from the same quarter last year. This has resulted in a significant improvement in TD Canada Trust's operating efficiency ratio from 60.7% in last year's third quarter to 58.5% this quarter.

Growth in core checking and savings accounts remains robust, and we are seeing encouraging signs of strength in mortgages as a result of new accounts, together with improved customer retention. We expect to see more rapid revenue growth over the next 18 months, as we complete the remaining branch mergers and realize the long-term impacts of improved customer satisfaction.

Clearly, the capital markets remain difficult and will continue to challenge TD Waterhouse and TD securities in the short-term.

We do, however, expect to see steady improvements from both these businesses in the fourth quarter and into 2003. Our recently announced strategy shift at TD securities towards fewer but deeper client relationships, and our continued initiatives to reduce cost structures permanently at TD Waterhouse, will help us get there.

Wealth management continues to be an important part of our business. To that end, this quarter we integrated three entities under our wealth management brand, TD Waterhouse.

Our full-service broker, TD Evergreen, our planner, TD financial planning, and our discount broker, TD Waterhouse, came together as the new TD Waterhouse in Canada, and we are already seeing encouraging referral flow from TD Canada Trust to Waterhouse.

We are focused on enhancing profitability at all our businesses so that they may offer solid growing earnings even in very difficult markets. As market conditions become more favorable, we shall be well-positioned to benefit from even stronger margins.

In summary, I believe this quarter demonstrated that we have taken decisive action to address our challenges, that we remain committed to a sustainable strategy in these markets and that we are poised for improvement.

On that note, I'd like to turn the microphone over to Dan. Dan?

In summary, the diluted operating cash earnings per share result was a 46-cent loss this quarter. That was after the sectoral provisions which represented about 89 cents effect on that number. If you were to decide, for some reason, to exclude the sectoral reserves, the business earnings number would be 43 cents per share.

TD Canada Trust net income this quarter was $282 million. That is up 3% year over year and represents the highest-ever profit in TD Canada Trust.

The wealth management segment net income, up $20 million, was down about a third year over year, and the TD Waterhouse net income component in that was actually a loss of $7 million versus a small profit of a million, same quarter last year.

TD securities had a net loss of $544 million versus 217 million profit last year. The sectoral provision had an effect of - after tax of $570 million, so, again, if you chose to exclude that effect, the profitability of TD securities would be a small profit of about $26 million.

Total PCL for this quarter was $1,250,000,000 and it comprised of 400 million being the disclosed base PCL for the quarter. That includes a small sectoral for western Canadian agriculture portfolio. This compares to 190 million PCL last year and 400 million in the second quarter of this year.

The sectoral provision, as Charlie mentioned, we've previously disclosed, 600 million relating to telecom and 250 million relating to the U.S. corporate portfolio.

The TD Canada Trust integration is on track. 225 branches have been merged, of 262. We're planning to merge 13 more this next quarter, Q4, and there are 24 scheduled to be merged in the early part of 2003.

Giving you a reconciliation of cash operating earnings to reported GAAP earnings, reported GAAP earnings are a 67-cent loss, $428 million. Amortization of intangibles represented a 24-cent charge, or $154 million. If you add that back, you'll be getting closer to cash operating earnings.

We had a small special gain this quarter. Again, it's the second installment of our sale of the third-party mutual fund custody and recordkeeping business. That was a 22 million pretax gain or a 18 million post-tax gain, and that represents 3 cents per share of unusual gain. So you deduct that and you get to the 46 cents reported cash operating earnings. Again, if you chose to look at what the base earnings potential might be, you would add back another 89 cents for the sectorals, and you'd get to a 43-cent base earnings before sectoral charge.

There was been a fair amount of discussion recently about pension accounting. I just wanted to let you know that the financial reporting requires an ongoing estimate of pension expense and the appropriateness of long-term assumptions relating to pension fund return rates, discount rates, and other factors relating to the employee base.

Based on our most recent assessment of these factors, we decided to reduce our expected return rate on our pension fund to 6.75%. This change, along with some other assumption changes, increased our pension expense this quarter by $12 million, and furthermore, we do not anticipate that the current run rate, which is reflected in these financial statements for pension expense, will be exceeded for next quarter or likely all of next year on a quarterly basis.

Looking back to the decomposition of our earnings per share figures going back to the third quarter of last year, we reported a 79-cent cash operating earnings. When you look at the impact of lower revenue, that would reduce earnings by 19 cents. We got some of that back by reducing expenses, increased earnings by 8 cents, higher base PCL numbers reduced earnings by 20 cents. There's some other effects, a higher number of shares outstanding and some other minor items which took earnings down a nickel a share, and the big impact, obviously, was the 89-cent charge for the sectoral reserves. And that gets us to the 46-cent loss, cash operating earnings, previously discussed.

If you wanted to go quarter to quarter, this quarter versus last quarter, Q2 of '02, we reported 45 cents earnings - cash operating earnings last quarter, lower revenue was 6 cents decline, lower expenses got 4 of that back and our 89-cent sectoral was a 89-cent reduction, to get us to the 46-cent loss reported this quarter.

Looking at revenue growth from the same quarter last year, we're down about 7 - seven or eight percent, at 93 percent of the original base. That would be likely under our peer group. All the banks haven't reported yet. We've got two out of the other four have reported. If we assume that they are the - are representative of the other two banks, the peer group would be at about 96 versus the hundred a year ago, so we are underperforming slightly on our peer group in Canada, and a larger underperformance against the peer group in the U.S. which has seen a 12% revenue growth year over year.

Earnings per share growth is a little bit of a misnomer. Perhaps it should be loss per share. But in any event, if you look at our results this quarter, excluding the sectorals, we're at 54% of last year's results, and obviously a fully loaded, including sectorals charge, we'd be well underwater and much below the peer group, which is showing something like a 8 or 10% decline in profitability quarter over quarter or year over year.

Looking at total revenue by business line, you can see that the large green part of this chart relates to TD Canada Trust, and that revenue is up fairly nicely. The big problem, obviously, is the revenue in TD Securities. The purple chart. And it's declined from 770 million this quarter last year to 526 million this quarter.

The wealth management segment is quite - is quite stable, down slightly from the same quarter last year.

On a income basis, as I mentioned before, we saw good results in TD Canada Trust, up from the previous year, up to 282, but the TD Canada Trust loss of 544 obviously swamps the comparison here. That's down from a profit of 217 last year.

If you look at the year-to-date results in net income, you can see that the TD Canada Trust results actually represent more profit than the bank earned as a whole. Even if you exclude the sectoral provisions, the TD Canada Trust profitability represents 73% of the total bank's profitability, excluding sectorals, so obviously we're relying very heavily on the results of TD Canada Trust in the current environment.

Taking a more close look at TD Canada Trust, looking at revenue, we're - we're up about 2% over the same quarter last year. If you restate the results in Q2 for the number of days, the shorter quarter, we're up about 2% from last quarter as well.

You can see that our margins are exceptionally stable in this business, 3.4%, the same as last quarter, and up two basis points from last year.

On expenses and the efficiency ratio, expenses are actually down about 3% over the same period last year. Our efficiency ratio improved to 58.5%. This is despite the fact that we have higher pension costs allocated up to the TD Canada Trust segment. As you can appreciate, if the bank's pension costs are up, the majority of that gets allocated to TD Canada Trust, because that's where the majority of our employees work.

In the third quarter of last year, though, we did have a branch conversion expense bulge and it's clear that that bulge is now working its way out of the Canada trust results and effectively has been virtually eliminated.

Looking at the actual earnings numbers, 282, up 3% from the same quarter last year. The operating ROE is 27%. That's up 1% from last quarter. On a fully loaded basis, the ROE is 17%. That is, with a fully loaded funding cost for the purchase of Canada trust and for an allocation of equity for the goodwill represented by the purchase.

Looking at the full quarter fiscal 2000 - or the full-year fiscal 2000 provision for credit losses, we've reduced our direction here from $540 million total for TD Canada Trust to 520 million. Basically, the results of the Canada trust or TD Canada Trust credit environment have improved over the last quarter, and we also reflect in these numbers the $20 million sectoral for agricultural portfolio in western Canada in these figures.

Looking at market share of personal loans and mortgages, we have reduced - or lost a little bit of market share this quarter. We're down 3 basis points from the previous quarter, but we're still up 29 basis points from the announcement date of the merger. The growth rate year over year is 4.7%, a fairly healthy growth rate, given the environment, I think. We're at 103.9 billion in total outstandings for personal loans and mortgages at the quarter end.

Looking at personal deposits, a tail of two types of deposits here, really, core deposits and term, the core deposit balances, we continue to do very well although the market share is down very slightly this quarter, down 1 basis point, but it's up 70 basis points year over year.

The growth rate of core deposits is quite remarkable. It's 22.6% year over year.

On the term side, a different story. We've gained a little bit of market share this quarter, up 12 basis points, but year over year we're down 55 basis points, and the growth rate actually from year over year is down slightly, 5.8%.

Comparing the total revenue growth rates in TD Canada Trust to our four-bank peer group, we picked up the pace a little bit this quarter, it looks like, and we should be ahead of the peer group in terms of revenue growth in the retail bank.

Over this whole period going back to the beginning of Q2 2000 when we closed the Canada trust purchase, we've had compounded annual growth rates and revenue in TD Canada Trust of 7% per year. That's quite remarkable when you consider that we're in the midst of an integration and closing 225 or 275 branches. I think we've done quite well in that environment, being ahead of our peer group, especially.

Efficiency ratio in TD Canada Trust is 58.5%, an improvement over the previous quarter, and this compares quite favorably to the peer group amounts - we don't have the peer group in this quarter yet but it was 62.5% this quarter and I expect that we'll be well ahead of the peer group this quarter.

And finally, in net income, we are up to a 140% level versus the starting point of Q2 '00. Compound growth rate here of 15.2%, well ahead of the four-bank peer group, and we're doing a lot better here obviously.

Finally, in TD Canada Trust, we are building a better bank. The customer service index is at an all-time high of 84. It's changed its composition somewhat over the last few quarters, though. This quarter, the growth rate in customer service index has been greater in the - in the old Canada trust branches versus the Toronto-Dominion branches. Previously it had been the TD branches that had been coming higher as we put into place the customer service model strategy of the bank. Now, we're actually being able to improve customer service in the old Canada trust branches as we finally get some of the kinks out of our back-office processing issues and reestablish the customer service processes that have been resident in the Canada trust system prior to merger.

Both sets of branches, both the TD and the CT branches, are almost the same level of customer service now. That's the first time that's happened since we purchased Canada trust.

Moving on to wealth management, revenue is down slightly this quarter at 538 million, down from 552 the same quarter last year. That's about a 3% decline. You can see that the decline is actually not in the TD Waterhouse segment, as you might expect, but more in the other parts of our wealth management businesses. On the profitability side, Waterhouse had a slight loss of $7 million. That's down from a gain - or a profit of 4 million in the previous quarter.

The rest of wealth management's very stable over this period, earning almost the same amount in each quarter.

Assets under management down slightly from 123 billion to 122 billion. Most balances are fairly static over this period. Last quarter to this quarter. Except for retail mutual funds, and we've lost about $3 billion of assets under management relating to the - the retail mutual fund business. About a billion seven of that is market related, and almost a billion of it is related to withdrawals mostly from the money market funds.

This has caused a reduction in market share of about 40 basis points. That's 40 basis points of bank share this quarter, versus the last quarter, right about 24.26%.

The operating statistics for Waterhouse, a key number here is trades per day. It's 96,000 trades per day. That's down from 104 last quarter and down from 102 last year. We did manage to get some new accounts, 900 and - or sorry, 94,000 new accounts, down from a tax season increase, 144,000 accounts last quarter, but down slightly from the 106,000 new accounts last year.

Customer assets are down to 196 billion Canadian. That's obviously a reflection of the market conditions we're in.

Active accounts are virtually flat from the previous quarter.

We tried to - on the next few slides, we tried to give you some analysis concerning the major drivers in the TD Waterhouse business, and I have to apologize. I think some of you, if you've downloaded these slides from the web earlier today, you may have slides that are not the current version, so I recommend that if you - if you like these slides and you want to use them to download them down and you'll get these slides, which are the correct version.

The major drivers in the TD Waterhouse revenue is obviously trades per day and margin loans. For the period Q3 this year versus Q3 of last year, average trades are down about 6%, as I mentioned. Down to 96 from 102.

Margin loans are down much more over this period. They're down from 6.6 billion to 5.3 billion, or down 20%. Despite that, total revenue was only down 5% in TD Waterhouse, and we've excluded the TD Waterhouse bank and foreign exchange effects in the third quarter here because there has been a significant foreign exchange movement in the last quarter and we've excluded the effect of that to give you base apples-to-apples comparisons.

Basically, despite the decline and the weakening of the basic environment that TD Canada - that TD Waterhouse operates in, we've been able to protect some of the revenue base in Waterhouse and it's basically by increasing revenue through higher commissions, through inactivity fees. We've repriced some margin loan pricing and we've expanded into other businesses, capital markets. We've got a very small market-making business now in TD Waterhouse, but it's doing quite well and has increased our revenue.

On the expense side, if you look at total operating expenses in TD Waterhouse, they're down 5% from 334 to 317 million this quarter. That excludes marketing expenses, so if you look at the marketing expense number, you can see that we've actually reinvested some of that other expense reduction back into marketing expenses. They're $8 million higher this quarter versus last quarter.

And finally, looking at operating margin, which is a key statistic we use to manage this business, that's the margin before tax and before marketing expenses, you can see that we've actually maintained our margin over this period, despite a very much weaker environment in TD Waterhouse this quarter versus last quarter. So we think we're doing the right things. We've been attempting to reduce expenses in the environment that we're in, but obviously we'll do more, if necessary. And if the markets don't improve, we are prepared to do more on the expense side.

Finally, now moving on to TD securities, TD securities is operating in an exceptionally poor environment. That should be obvious by looking at the results, and I think Charlie mentioned it as well in his talk. But there are three major problems that TD securities is facing, in terms of the current environment.

First of all, client origination activity is exceptionally weak. We've got depressed corporate activity. There's relatively low equity volatility in the markets. There's been a pullback in credit supply, not just from banks but from all providers of credit to corporate customers, less supply of credit. Exceptionally weak investor confidence.

In particular, in our debt capital markets business, we've seen a series of corporate downgrades of our customers, credit spreads have moved out. That's caused us significant pain. We have seen lower trading revenue in this business, and a very soft issuance environment for these customers.

And finally, in the corporate lending business, as you would expect, we've got lower revenues due to an increase in non-performing loans and as Charlie mentioned, our repositioning of the corporate lending business, we've started to reduce our exposure to the corporate lending business and that has started to reduce some of the revenue that this business produces.

If you look at the sources of revenue for TD securities over the last five quarters, there are basically five major sources of revenue.

By far, the largest decrease in revenue is in debt capital markets. Debt capital markets includes fixed income high-yield interest rate derivatives, credit derivatives, money market trading, and our custom solutions group which effectively melds all of these products into an integrated customized solution for our customers.

Our revenue peaked in the first quarter of this year in this group, and from that period through the third quarter of this year, that revenue has declined by $340 million.

Overall, the revenue from Q1 has gone from 929 to 526, so about a $400 million reduction, 340 of it relates to debt capital markets.

The corporate investment banking business is down, down about 30 million. That's the corporate lending syndications, M and A activity, investment banking activity in Canada.

Other equity products, basically institutional equities, equity options and equity derivatives, are relatively flat over this period. In fact, they're up a little bit.

And foreign exchange is absolutely flat, as you can tell by that yellow part of the graph.

Equity investments, which include merchant bank and the head office security gains and the portfolio of preferred shares with positive yield, is also down significantly from the peaks that we saw actually in that case back in the fourth quarter of last year. From the first quarter, that business is down about 60 million.

So you can see that it's had a significant impact on TD securities as a whole, and obviously we need - we need a better environment for this to improve greatly.

On the PCL front, just to summarize again, the total PCL charge to TD securities was a $1,132,000,000. 282 of that relates to the non-sectoral charge, and that is down actually a little bit from the 300 million that was charged in the second quarter but up, greatly, obviously, from the amount charged in the same quarter last year.

Obviously, cash net income over this period is not an income, actually, it's a loss, and 544 million loss including the sectoral. Excluding the sectoral, a very small gain of 26 million.

ROE is a very large negative number, unless you exclude the sectoral, in which case it is still a very low and unacceptable 3% on capital invested.

On that cheery note, I will pass the microphone over to Tom.

Thank you, Dan. I won't - I won't repeat the reserves that you've heard a couple of times and looked at in two or three different slides already, but I would like to make a couple of comments.

In terms of the sectoral reserves, the first observation I would make is we have not used any of them from the - from the date announced to the date reported, so - and the second observation I would make is within the billion three guidance, we took 400 million this quarter and we'd, I think, said a few weeks ago that that would be 400 million specifics and then there would be the sectoral reserves.

As it turns out, we did 300 million - 380 million specifics and the 20 million agricultural sectoral that Dan referred to, and I think it's quite clear from looking on what's going on in western Canada that the environment, the economic environment, the agricultural environment, is stressed and though I believe our bank has the reputation of working with growers through difficult times, it would not surprise us at all to see credit losses coming out of our portfolio there. And so we're - we're looking at that and setting up a sectoral against that.

Now, in terms of the portfolio overall, asset quality, I guess is one way of expressing it at this point, but when we - when we look at our long-term goal of 35 basis points, clearly 165 basis point annualized number based on the $2.15 billion reserves we will report this year is an unacceptable performance.

I think I mentioned last quarter that when we - when we look at this over the cycle that we are picking a cycle from 1994 to the end of the second quarter, and we thought it would be more like 40 basis points over the cycle as compared to the 35. I would say with the adjustment of the sectorals now, we're more like 50 basis points over the cycle.

We did not add to general reserves over the quarter. There's a minor adjustment for foreign exchange for the translation effect on foreign currency generals. And general reserves as a percent of risk-weighted assets remained at 92 - or sorry, were down slightly at 92 basis points but remained and I believe will remain slightly above the level of the peer group.

I know the new formations data is important data. New formations were down slightly this quarter, at $673 million as compared to 778 million last quarter, so 60 basis points last quarter, 51 basis points this quarter. It's very clear that corporate formations were the biggest part of the story there, and corporate formations were 472 million as compared to 573 million last quarter. We made an announcement earlier in the quarter that the most significant event related - related to that was our exposure to Adelphia, where we had five loans at operating subsidiaries with a total exposure of 325 million. So that was the lion's share. There were six corporate relationships overall classified this quarter, and one of them was in the telecom sector.

Aggregate gross impaired loans increased to 2.024 billion at the end of the third quarter, but we are well-reserved as specific sectoral and general reserves exceeded gross impaired loans by 799 million, as compared to reserves exceeding gross impairs by $41 million at the end of the second quarter.

Looking at reserve adequacy in the corporate book, another way, this slide shows specific allowances as a percent of gross impaired and then adjusted - the same ratio, but adjusted for write-offs, previous write-offs, on existing impaired loans. So the blue line is the reported information that you would calculate from the analysts package, and as you can see, specific reserves represented 41% of gross impaired loans at quarter-end, as compared to 36% at the end of the previous quarter.

The green line adds back previous write-offs on existing impaired loans, and on this basis, reserves are 61% of gross impaireds, up slightly from 59% at the end of the last quarter.

I continue to feel that these levels are higher than the long-term trend, and they reflect really the low expected recovery rates on certain telecom credits. In the future, I would anticipate that reserves adjusted on this basis would be slightly lower, more like 50% long-term run rate.

At our July meeting, we showed a forecast of our net telecom exposure at quarter end, and we've updated the information on this slide. As you can see, after adjusting for the sectoral reserve, our total telecom and cable exposure is 4.058 billion as compared to the July forecast of 3.792 billion.

That $266 million increase can be reconciled with three items. The most significant factor was depreciation of the Canadian dollar which accounted for 176 million of the 266 million, though foreign currency loans translated into Canadian dollars. The second item would be net draw-downs of 78 million, and the third item, telecom provisions, were actually 12 million lower than we anticipated they would be. We had included a number of 230 million on the earlier slide. They actually came in at 218 million.

Looking at telecom in terms of reserve adequacy, we've broadened this slide out to include the entire unregulated telephone sector this quarter. So previously, we'd been highlighting the three most troubled sectors, competitive local exchange carriers, long-haul fiber, and paging. And the competitive local exchange carrier, I think last quarter we were showing 11 accounts. We sold one account this quarter within the reserve. Gross impaireds at the end of the quarter were up because we had one telecom loan in the [inaudible] sector as I mentioned earlier that was classified impaired this quarter. And overall reserves in this segment were 58% last quarter, 83% this quarter. Long-haul fiber, one loan of the - sorry. In long-haul fiber, we have four loans of the six loans impaired, and as well, we're 83% reserved, as compared to 73% last quarter.

In paging, there's been no change in the number of loans, and all loans are repaired. We're reserved at 80% as compared to 63% last quarter.

Wireless, we have two files which are impaired. One a very nominal exposure in Canada. And the second, an Argentinian loan. Overall, we're 71% reserved there. We believe that wireless assets with customer franchises that are more sustainable have more value than some of these other business models that I've referred to earlier.

And the other sector, which includes really all over aspects of competitive telephony, long distance, satellite, towers, local telephone in Indonesia going back a number of years, the so-called triple-play strategies in Europe, where cable franchises are being modified to provide internet and telephony services, or built from scratch to provide those services. But within that portfolio, there are three impaired loans reserved at 51%.

Once again, these files typically have more stable customer franchises and stronger sector, I think, recovery rate potential.

Overall - and I should mention overall unregulated or impaired - are reserved at 79%.

Turning to the utilities industry, which is topical in the current environment, we've updated the information that we presented at the second-quarter analyst meeting.

Outstandings here have increased materially, and there are really two principal reasons for the increase. We had ordinary-course draws on projects of $459 million, and then we had liquidity-related draws - and these are related, really, to downgrades that have taken place in the sector - of $530 million. So that - that total is 989 million. Of the 989 million, 99 of the increase is actually foreign exchange translated relate - translation related, so a similar issue there as to the case in telecom.

I think I noted last time we showed this slide that the impairs in the tower purchase segment related to Indian and Indonesian power projects, they're in a long-term restructuring process but we think we'll see some movement on some of those files over the next six months or so.

I also think - I think I said that the merchant power sector was historically the sector we would be most worried about because notwithstanding the fact they're low-cost providers, they are subject to market price risk, but more recently, I think, the real topical issue has been around the allegations of improper energy trading and market price-fixing in the diversified generation and diversified utility sectors.

We're watching these sectors closely. I think it's - you know, it's probably no secret that in large part, the U.S. corporate reserve - sectoral reserve we established was against this for - potential problems in this sector but having said this, I really think that we have to look at the utility sector differently than the telecom sector. We're talking in the utility sector about hard assets having - we haven't got a substantial imbalance of supply and demand in the market. We're talking hard assets that are salable. In fact, we've seen material movements on the part of management to sell assets to deal with liquidity problems. We've seen informed investors putting capital into the sector. Warren Buffett buying assets at what he views as being distressed market prices is an example. We've seen managements moving proactively to raise liquidity, and banks and capital markets are responding.

So a number of the companies here have already solved their problems. Clearly, there are others that we're continuing to watch closely, and - and - but within the next year or so, I would think we'd have worked through this problem and I think - I don't anticipate it would be the type of problem that would lead us to have to change our reserves based on what I know of it presently.

In terms of market risk this has actually been one of the more problematic slides in terms of the way the industry really presents this information historically because the - I think the standard is to include origination revenue in market-risk-related activity and then provide it to value at risk limits. And in our case, we've done that as well, of course, but from time to time we I guess feel somewhat uncomfortable presenting the information on that basis for a couple of reasons. One is there is the potential, of course, to disguise material losses by offsetting - having offsetting large origination revenues on the days the losses were incurred, and probably as important, from a competitive perspective, we're somewhat uncomfortable highlighting large customer transactions in P and L terms on a public basis.

So we've made a modification to this slide this quarter, and, in effect, what we've done is we have not reported origination revenue associated with any transaction that would have had a P and L of $10 million or more. So we've tried to smooth it out, and that would have had the effect, of course, of making sure that we weren't disguising any material down days in the data.

But the VAR calculation, of course, is consistent. It's calculated on the basis of historical - one-year historical sequence - series, and 99% confidence interval. We're at 18.93 million. That's down slightly from where it's been running recently. And daily trading losses did not exceed our VAR during the quarter.

In terms of - we had a more volume tile quarter, a choppier trading quarter, nevertheless, and I would say credit spreads were the primary reason for that. This chart is prepared in the same fashion, the daily history gram market risk-related revenue and we had losses on 78% - or sorry - losses on - sorry. We had profitable day - we were profitable 78% of the trading days, if I can get this out, which is down materially from where we would have been reporting previously, where 90 to 95% of our probably trades would have been profitable.

I think we'd now like to turn to questions, so perhaps I could turn the microphone over to Charlie.

Questions?

Could you comment, please, if this efficiency margin of 58, below 60% [inaudible] is likely to be maintained in the fourth quarter and for next year, and also if operating margin at TD Waterhouse, if I remember correctly, you had a goal of 25%, whether you think it's still reasonable in the current environment.

Okay. I'll try that. In terms of TD Canada Trust, I think what we've been saying for the last few analyst meetings is that we've been attempting to hold our expenses in a fixed range around the $880 million mark, and that we were going to have the efficiency ratio decline by having revenues grow and holding that expense. As Dan mentioned, we were particularly challenged this quarter because of this flow-through of the pension adjustment which basically flowed through the TD Canada Trust and we probably - without that, we obviously would have done better than our goal. But I think you can - you know, we're still attempting to stay in that 880 range, if we can, while absorbing the additional pension expense.

Going into next year, I think we would see modest increases in our expense numbers, but they will stay well below the increases in our revenue numbers and so we'll see a drop below. We're determined to have the efficiency ratio drop below - significantly below the 58% mark next year.

In terms of TD Waterhouse, the third quarter is a slow period for Waterhouse, and so it doesn't really represent what I think is a - is an ongoing operating efficiency ratio or pretax, pre-marketing margin, which is just the inverse of the - of the efficiency ratio. And so year-to-date, that number would be closer to 17% for TD Waterhouse globally, and we would - I think that's a - that kind of number is certainly the number with existing trading volumes that I think is realistic.

The one factor that's, I think, important in terms of analyzing the companies is that the - basically the North American franchise of Waterhouse is profitable, but we are losing money on the international franchise, and so that's depressing the overall operating margin of TD Waterhouse globally.

We're in the progress - process of restructuring our international arrangements to deal with those losses and to - to make TD Waterhouse internationally - hopefully next year - less of a drag, we think significantly less of a drag on TD Waterhouse, and by 2004, there will be no drag at all. But I think you should be aware that that distorts the numbers somewhat because, in fact, the rest of the group is operating at higher margins than the global number.

Questions? Heather?

I had - is this on? I had two questions on the retail side.

First, you guys reported a fairly stable margin in retail. Your competitors showed some compression, and given the rate environment and we're hearing price competition, you would think that we'd see some compression, so I'm just curious how you were able to maintain the stable margins.

And also, on retail provisioning, I think your competitors showed less of an increase on retail provisioning than you did, and just curious if you can comment on why that might be.

On the compression, I think there's probably two reasons why we - it's hard to know since I don't know the inside of my competitor's books and I do know the inside of mine, but we have always run a fully hedged book, and we - by looking at our competitors' numbers - have the sense that they do more gapping than we do, and gapping is great when it goes in your favor but it means margin compression when it goes against you.

So we - you know - run a philosophical view that if we want to do interest rate gapping, we don't have to buy a retail bank to do it, and so we don't run the retail bank with interest rate gapping and that, I think, is the main reason we have stability.

But I would also say it goes back to - if you take at what's been happening to our market share, we've had strong market share growth in the non-term product but we have a loss over the, you know, past year, market - significant market share growth in two key products, mortgages and term, and that's because we've been running a very disciplined process of making sure that we're running a profitable business there, rather than chasing market share.

I think other people - I think perhaps for sound strategic reasons and we're in the middle of a merger - are attempting to buy commodity business in the hope that eventually the checking business will follow the commodity business and you'll take the customer and the product that you can buy them away, in the hopes that you'll transfer the relationship. But so far, we've not seen that happen. Instead, our market share in the core checking business is obviously going up significantly, but that has meant that we haven't seen spread compression in our main products.

And the provision?

Oh, sorry, sorry. I just forgot about T.

On the provision side, there's no question. We have, you know, had significant growth in our unsecured lending file, so we've had significant market share growth in the past year - really in the first year of the merger, we had significant. Both - I'd say both TD and Canada trust, prior to the merger, were taking market share in unsecured lending and that process continued in the first year.

We've slowed that process down and so we're not taking as much market share growth there. In fact, we've had negative growth in the last quarter, so we're not in that product - absolute growth - so we've definitely slowed that down. But, you know, I think in combination with some of our back-room problems, we probably ended up getting a cohort with loss characteristics that weren't altogether desirable from our point of view, and so we tightened our credit standards, but equally, I mean it's not just credit standards. Tightened the administration of our credit standards. And so that's been working our way through the file, and that's why you see this bulge in the retail PCLs and then a decline in retail. You'll now see a decline in the retail PCLs. But I think we've clearly, because of our market share growth and this particular problem, ran our PCLs up about what our competitors were doing.

Thanks.

No more questions? Shall we go to the phone?

We have a question from Jamie Keeton from Merrill Lynch. Please go ahead.

Thank you very much. Maybe two or three here, if I may.

Number one, is the - could you talk a bit about the credit default swap portfolio, to the extent it exists. Both what you've perhaps purchased for your book and/or what you've written as well for others?

And also, the second question, maybe - whether it's for Tom or if Don's there - related to trading, looking at the numbers, I was curious either on a divisional or segmented basis and/or on the VAR chart, I wondered if, to the point about trading losses, if there was a significant issue of trading losses in terms of any offsets there, or if we're kind of seeing the - on the VAR chart, we're kind of seeing the impact of any discreet losses that may be there.

Don, why don't you handle that.

Okay. Let me first talk about credit default swaps. I mean we run an active book in terms of credit trading where we have lots of two-way trading. It is a mark-to-market book. It is marked daily. And, you know, any P and L that's associated with that would be in our - in our trading numbers.

On the other - on the other hand, we also have credit - have credit default swaps against some of our banking book. We do not write any credit default swaps in that area at this point in time. I guess you could look forward to once our credit portfolio management group is well in place, we might consider doing that from the point of view of getting diversification across the book or something, but it's nothing that we've done at this point in time, and we have a number - I don't know if we want to get into the exact number, but we have purchased default insurance close to 1-and-a-half billion dollars worth against our book.

Is that all relatively new, Don, that default insurance? I wasn't aware of that before?

No.

You've had that for a while, huh?

We've had it for some time, yes.

Can you just describe, to the extent that that portfolio is kind of either in the money or is going to become useful down the road, perhaps just a little bit of color as to what sector it might be in?

I - it's fairly broad. It's across a lot of things, and, you know, as far as being in the money, I mean, it's a hedging strategy so whenever it's in the money, if we did it properly, we're in the money on the loan side, so you can, you know, I think look at it in that context as basically whatever we have is probably flat in that term.

Do you anticipate being able to use any of it in the next year or so?

Well, you know -

Or is it usable -

- in some ways, I hope not but, you know, we'll use it whenever - obviously whenever it makes sense for us to use it.

Okay.

You know, it's certainly there and we're able to - able to use it. You know, it's hard to say what period of time we'll use it. Somebody has to default before we can use it.

I wonder if I could ask just briefly, the other thing, royal come off credit watch today. Have you heard any more progression on your Moody's rating or whether that perhaps fits, Dan or someone else?

No, there's been nothing else recently Jamie.

Thanks a lot.

And you won't anticipate anything in the inner term?

No, I think the credit outlook rating is something that, you know, can go on for up to a year or so, so I wouldn't have anticipated anything since the July 18th announcement.

Thanks a lot, guys.

Your next question comes from Melody ward from RBC Capital Markets. Please go ahead.

All right. Thanks very much. On Page 12 of your supplemental, you show trading losses, a line item of 73 million, but further down when you include net interest income and the various categories of FX for interest rate, you have 218 million of revenue. I'm just wondering, can you elaborate on where those losses were, the 73 million in that line item, how I trace that back into TDSI?

I couldn't trace it back.

I'm going to have the same problem, I think.

Any particular area? Equities or -

I don't have the actual traceback into the revenue figures that I talked about, but I think it would be fair to say.

Because everything looks positive.

That the majority of those - if you look at the breakout of the $218 million total trading-related revenue, interest rate and credit portfolios are obviously the biggest decline from last quarter. That would lead me to believe that we're looking at the debt capital markets part of TD securities. Again, that wouldn't be true across the board, necessarily, but it would be the majority of it, I would think.

Okay. And secondly, when you announced your sectoral provision last month, you had about 1.9 billion or 2 billion of investment-grade telecom. I'm curious about some of the assumptions you made with that at the time because I'm looking at shifts of lessening your investment-grade exposures and your non-investment grade in telecom as increasing which you'd almost expect as credit quality does deteriorate, and if that continues, was that taken into account with your provisions or ...

Can you talk about if you continue to get shifting of investment-grade into non-investment-grade telecom?

Tom, do you want to handle that?

Well, Melody, we went through a process where we looked through the entire portfolio.

Well, Melody, we went through a process where we looked into the entire portfolio and made some assessments about what the future might hold in terms of migration and identified those loans where we thought we were at risk to downgrade in establishing a reserve, and we'll go through a process each quarter where we revisit those assumptions.

So, yeah, I do think we captured - we captured the downgrade risk in the - in the analysis that we did.

I think it's fair to say we're no less comfortable now than with when we went through that Melody.

Thank you. And could you elaborate on your airline exposures, please?

Tom?

Yeah, we haven't actually talked about that for quite a long time. I think we put a slide up, going back to the fourth quarter last year, sort of a post-September 11th slide, that showed exposure around those kinds of industries.

Airlines is really a very modest industry exposure for us. I guess if we included everything, it would be kind of - the only funded exposures that we have in the portfolio are about 50 million.

50?

With leases on a couple of aircraft where we're secured on the equipment, and they were originally done as tax leases going back a number of years and they continue to be serviced. Other than that, airline - the airline industry is not an industry that we have focused on for financing.

Thank you.

Your next question comes from Jim ban advertise from Credit Suisse First Boston. Please go ahead.

Hi. Good afternoon. Two questions. One to Ed in terms of retail banking. You've given us some good background in terms of branch merger slides and the timing over the next two years. Could you give us an update in terms of the actual cost savings to date as a percentage of what the goal was at - at the time of the transaction, and when do you think you'll get to the hundred percent level?

I guess the - the easiest to look at it, I think when we did the original transaction, we said that we wanted to get an expense ratio below 58% going into 2003, and so I think we're - in that sense, we're quite satisfied with where we are on the expense side.

I think as I may have indicated earlier, we've ended up getting there slightly differently than we originally had thought because we've done better on the revenue side. As you are aware, in the original business model, we assumed that we would lose market share, and we haven't yet lost any market share over the run, so that's been the big surprise, so our revenues are higher than originally anticipated. But equally, our costs are higher than we originally anticipated because we didn't anticipate some of the differences in the systems between the two companies in the back room, and so we're - we've had to keep more people in the back room and more people in the call centers than we originally anticipated.

And a number of dollars that we've had to spend on systems to upgrade the systems to both improve the customer service model and to eventually take those costs out was larger than we had originally anticipated and we've been absorbing those costs as we've gone along.

So I think the way we feel about it is that we'll meet the original profit and efficiency goals, but we'll probably take another year to actually get the absolute expenditures down to the level that we had originally anticipated and perhaps another 18 months would be more realistic, but in one sense, that's actually a good thing because it means there's more ultimate up in the - in the transaction than in the morning business model.

But Ed, there's been no change in terms of the expense synergies target in terms of being 450 million?

Absolutely we're - we will get those expenses out eventually.

Okay. Great. Just a second question for Don, in terms of T securities and staffing levels. Dan has highlighted the total revenue charts and the significant drop-downs for the past few quarters. The U.S. investment dealers have been reducing staffing levels by greater than 10%. One of your peers talked about 6 to 8% decline in staffing levels. Can you give us a sense in terms of year-to-date what the change has been and where you want to get to at this point?

No, I can't give it to you in percentage terms because I just don't have those numbers, but we continue to make - to make changes in terms of - in terms of reducing staff levels. Some of the things that are part of our strategic plan going forward in terms of reducing our capital in the lending side will lead to quite substantial downsizings in terms of people over time, but as you can appreciate, you need a period of time to work off these loans, you need people to manage them while they're still on your books, but that will happen over time. From a front-office perspective, at the end of last year, we cut a significant number of people right at the end of the year, and this year, you know, we've been doing it in bits and pieces as well, and, you'll continue to see that. Whether that number is 10% or 16%, I really don't have that number and I'll - I can supply it to you, if you wish.

Thanks very much.

Your next question comes from Susan Cohen from Dundee Securities. Please go ahead.

Thank you. Your equity securities, surplus over book, declined quite sharply this quarter to 186 million from 412 million. Can you talk a little bit about that?

[inaudible] there's two components of our unrealized gains. Those two components [inaudible] head office [inaudible] portfolio [inaudible] also [inaudible] market [inaudible] private equity market [inaudible] valuations on [inaudible] merchant banking [inaudible] unrealized gains went down [inaudible]

Let's see if I can add a little bit to that Don. By far, the largest decline was in the more liquid head-office portfolio, Susan. If you look at the decline being about $200 million, the majority of that certainly related to the more liquid and traded securities we have in that portfolio versus the merchant banking portfolio, which also did decline but not as drastically.

And the end of July was feeling pretty bleak.

Thank you.

Your next question comes from Neil Matheson from standard life. Please go ahead.

Good afternoon. I apologize if this question has been asked but I've only just been able to get on the call.

It's really with relation to slide 30, relating to the total revenue picture in TD securities, and it's the - the volatility particularly, obviously, in the debt area, and I'm wondering if you can give us some - a little more detail on this. And obviously the question is not, well, it's down and markets are bad. The question is that it looks as though your results in debt trading and mark-to-market presumably high-yield have been more volatile than, say, the average U.S. investment bank, and I'm just wondering if you can tell us about what specific areas of the marketplace have the most impact of you - on you so we can understand this volatility going forward as well.

Don?

Thank you. I think the - the issue that you're speaking about boils down to a couple of things. I've said in past - in past presentations that somewhere close to 75% of our business is customer related, and as a result, over the past three months in the third quarter, we had a lot less activity in that market than we've been used to in the past, and as a result, our revenues went down substantially. Our trading-related revenues went down substantially.

Also, you know, we did have positions in the - in the high-yield area, and it's an area that we're fairly small in, but - but it did hurt us in terms of causing us to - to take some mark-to-market losses as spreads widened. And for the most part, we did a lot better in the first half, in terms of even things like government trading and whatever, but a lot of it is based on the amount of client activity that was happening. So, you know, we're already starting to see a change in that as we go through August and in September in terms of a calendar building up, and whatever, from a debt capital markets point of view. So expect that to turn around, but the basic reason was a few - a few positions, but as I've said before, most of our activity is definitely focused on doing client business, and that really was nonexistent for a good part of the third quarter.

Well, it may be that middle of the quarters are slightly different with one ending in July versus one ending June. But I mean versus one Canadian bank at any rate but certainly versus the U.S. peer group, you know, trading revenue is down like 50%. That sounds like a lot more of a decline than everybody else would have had reduced client activity. So my sense is that your business flow is more sensitive. Is there something that would account for that?

The only thing I can think of is that we didn't - we didn't make up for the lack of activity by taking larger proprietary positions and in retrospect, maybe we should have done that, but it's not really the way we run our business, so I can't really speculate on what - what our competitors - the makeup of their business is, but that's the only thing that I can think of.

Okay. Is that - is that - is there actually pullback in proprietary positions versus, you know, prior quarters, or, no, that really just hasn't changed much?

No, not really. There's no - no pullback in terms of that, but, you know, when you don't have client activity, a lot of traders tend to want to fill the void by taking larger positions, and as you can see from our VAR schedules, we didn't increase our risk. In fact, we went the other way a little bit. So, you know, I - I think I've - over the last number of quarters - have been saying that, you know, we're trying to make the client business the focus of our activities rather than proprietary trading, which, you know, has both negatives and positives in it.

So I think that's the main issue.

Okay. Thank you.

I think we'll go back to the room now. Ian?

I'm referring to page 16 of the supplemental part, which is your capital [inaudible] assets and the capital statistic.

Don, the risk-weighted equivalent from market risk, which I think is a number I've never quite figured out in my own mind, I guess, but it's risen quite a bit here, and I mean, if the trading risk is a market related risk as you show on VAR and stuff like that, why is it that number up so much?

Actually, I think you got me on that one, Ian.

At last.

DON WRIGHT:

One for you, and zero for me. I will get back to you on that and we'll post the answer on our website.

Other questions on the floor? [inaudible]?

Yeah. A couple of questions, if I may. One, in terms for Tom. Just looking at the base rate provisions for the retail bank of let's say 115 million a quarter, whatever, and now you've set the goal of 700 million for next year as a total, so just the end game being 60 million in the corporate book per quarter, could you just take us through perhaps once again how you come about with that comfort level that you can get it into the 700 million? Is it because you've basically pulled forward into the sectoral provisions and that's going to help you buffer because the first 250 million you get, you're going to be able to pull out of sectorals, or just - I'm trying to understand, because this takes you back to levels that we haven't seen for obviously several quarters.

Well, no doubt. I guess if you look at - look at our losses this year, they've been heavily telecom related and so we think we've dealt with that problem with the telecom sectoral, so if you take that piece out of the equation that was - of the 282 or 3 million in TD securities this quarter, that was 218 million. So now we're talking about sort of more normal numbers for the rest of - rest of the portfolio, and so then looking forward, we do have that U.S. corporate sectoral around events that we might be worried about, and when we look at sort of the core - the quality of the rest of the portfolio, we're - we don't really see migration downward in terms of the portfolio quality outside of telecom in a material way. So if you factor in the fact that we do have that corporate sectoral plus we have the 200 to $250 million of potential capacity and that level of guidance, we think that - we think that that's an adequate level for next year.

And just on a sectoral - I mean, you took 20 million for the agriculture out west and yet, you know, the power - power gen book on a non-investment grade basis is huge. So why wouldn't you have not taken a sectoral against that versus using the U.S. sectoral - or you alluded to that kind of was in the back of your mind as you looked at U.S. sectoral. Why wouldn't you designated it particularly for the power group?

Well, we didn't designate it, actually, and I guess one of the reasons you don't designate it is because you have to use it for exactly where you designated it, and so we designated it against the U.S. corporate book. But I did say that it's available for some of the potential accidents that we've talked about.

Okay.

And it really is the malfeasance that we were worried about, and - in the bigger loans, anyway. If we have problems, it's going to be because of the malfeasance.

But if there's no malfeasance, then you won't draw on the sectorals?

Well, those - I think the power companies - our real risk in the power companies is malfeasance, and that's what we wanted to protect against.

We have a little more flexibility - I mean, any watch list credit we have today in the U.S. corp portfolio could be - if we had a - if that migrated to an impaired status, we could draw on the sectoral to create a specific.

Okay. And then I guess either for Pat or Charlie, I mean just - we've heard previous quarter that, you know, obviously the TD Bank, TD Waterhouse brand name just trying to build a global brand, and then looking at U.S. expansion, talking to about three legs to a U.S. strategy, the Wal-Mart, the Waterhouse obviously, and then Brooks, where do you stand in terms of the vision to that U.S. or just international focus outside of Canada, given where you sit today? Is there still a lot of moving parts you're looking to take advantage of near-term, that's more medium-term given the current environment? Just I guess where are we on a strategy basis.

Ed, you've been spending a lot of time on that lately. Why don't you handle that one?

In terms of non-North American strategy, I think we have a very simple objective in TD Waterhouse international, and that's to stem the losses and make it into a, as I say, profitable or non-losing enterprise. Given today's trading volumes, I think in terms of our planning process, we've said assume that the world doesn't get any better than it is today, and build your business so that you can be profitable in that environment so that we have significant operating leverage. And as I said, I think we will be there by the end of 2003 on the international front.

As far as a U.S. strategy overall, obviously Waterhouse remains a critical component. We're continuing to pursue the Wal-Mart initiative. But I'd say, you know, realistically for the company right now, we have to go back to making sure that we have operating earnings that are growing and, you know, increase our capital base. We're satisfied with our capital position now, but obviously we don't have large amounts of surplus capital to go out shopping, and so the thing that we should be doing is earning more money and building up our capital position.

So I think the focus of the company in the next 12 months is operational excellence.

I think we'll take one more question. Michael?

Thanks, Charlie. I'll actually split it into two quick ones for Tom. First one, you've taken what's a relatively small sectoral position against the agricultural business to 20 million. Going forward should we expect, I guess, a change in the way that you provision in general as various sectors start to show signs of deterioration, maybe? We'll see an increased use of sectoral provisions which might lead to a bit of lumpiness in provisioning or do you think this is really sort of the last sector provision that you'll expect to take?

And the second question is just more general. I noticed you've established a new credit portfolio in the risk management group. I'm just wondering, you know, what specifically the role of that group will be, and is that going to have any impact on, you know, say how you actually manage risk at the bank or on the way you do business? Period.

[inaudible] discussions around [inaudible] about 15 years [inaudible] situation [inaudible] geography [inaudible] .

Let me just comment on it and then I'll pass it on to Don for the portfolio. I think just reminding people, what's the advantage of a sectoral? The advantage is that you see a problem but you don't know where in the sector the problem's going to occur, and so it's very hard to know how do you provide against that, given current GAAP restrictions on your ability to take provisions unless you can identify a specific problem. And so I think they are - they don't necessarily, as we did this quarter, they aren't necessarily lumpy. In this case, we basically, you know, took - we indicated that we were going to take 400 million and we assigned 20 million as a sectoral because we said somewhere there's going to be a problem here. We just can't tell you which person is going to put up their hand but it's hard to believe no problem. So I think they are an useful technique to find a way in our industry to be proactive ahead of the curve in your provisioning policy to anticipate problems before you actually identify which one is the actual problem.

Take a shot at answering the credit portfolio management group.

Its basic objectives are to improve the ROE of our credit portfolio through hedging, through diversification, through reducing concentrations. Just - and also to work on the workout loan side. So it's basically across a whole - a whole group of things, and it isn't to obviously compete or replace the risk management group, but it's something in the business where we're going to be much more proactive at balancing and rebalancing our portfolio.

For instance, somebody talked earlier about migration. Well, you know, as things migrate, we should be rebalancing our portfolio all the time, so we'll be playing a very, very active role in terms of doing all of that.

But all credit - you know, all final credit decisions in terms of approving credits and whatever will still go through the risk management group. The portfolio management group has the ability to decline a credit, but not to approve a credit. Does that answer your question?

Yeah. Thanks a lot, Don.

You're welcome.

Thank you very much for joining us, and just in closing, we're very conscious that our results are unacceptable and we want to assure you that we are focused on improving those. Thank you again.