Q4 2024 Toronto-Dominion Bank Earnings Call
Speaker Change: Once again, please continue to stand by. We thank you for your patience.
Speaker Change: Nous vous remercions de bien vouloir patienter. La conférence débutera sous peu. Nous vous prions de bien vouloir attendre quelques instants et nous vous remercions de patienter.
Ebrahim Poonawale, John Bambawale, John Bambawale, John Aiken
and Ajai Bambawale. Thank you.
Speaker Change: All participants, please stand by. Your conference is now ready to begin.
Speaker Change: Good morning, everyone. Welcome to the TD Bank Group Q4 2024 Earnings Conference Call.
Speaker Change: I would now like to turn the meeting over to Ms. Brooke Hales, Head of Investor Relations.
Please go ahead, Ms. Hales.
Brooke Hales: Thank you, operator. Good morning and welcome to TD Bank Group's fourth quarter 2024 investor presentation.
Brooke Hales: Many of us are joining today's meeting from lands across North America. North America is known as Turtle Island by many Indigenous communities.
Brooke Hales: I am currently situated in Toronto. As such, I would like to begin today's meeting by acknowledging that I am on the traditional territory of many nations, including the Mississaugas of the Credit, the Anishnabeg, the Chippewa, the Haudenosaunee, and the Wendat peoples, and is now home to many diverse First Nations, Métis, and Inuit peoples.
Brooke Hales: We also acknowledge that Toronto is covered by Treaty 13, signed with the Mississaugas of the Credit, and the Williams Treaty signed with multiple Mississaugas and Chippewa Bands.
Brooke Hales: We will begin today's presentation with remarks from Bharat Masrani, the bank's CEO, followed by Ray Chun, the bank's COO, after which Kelvin Tran, the bank's CFO, will present our fourth quarter operating results.
Brooke Hales: Ajai Bambawale, Chief Risk Officer, will then offer comments on credit quality, after which we will invite questions from pre-qualified analysts and investors on the phone.
Brooke Hales: Also present today to answer your questions are Sona Mehta, Group Head, Canadian Personal Banking, Barbara Hooper, Group Head, Canadian Business Banking, Leo Salaam, President and CEO, TD Bank, America's Most Convenient Bank,
Brooke Hales: Tim Wiggin, Group Head, Wholesale Banking and President and CEO, TD Securities, and Paul Clark, Senior Executive Vice President, Wealth Management. Please turn to slide 2.
Brooke Hales: As noted on slide 2, our comments during this call may contain forward-looking statements which involve assumptions and have inherent risks and uncertainties.
Brooke Hales: Actual results could differ materially. I would also remind listeners that the bank uses non-GAAP financial measures to arrive at adjusted results.
Brooke Hales: The bank believes that adjusted results provide readers with a better understanding of how management views the bank's performance. Bharat, Ray, and Kelvin will be referring to adjusted results in their remarks.
Speaker Change: Additional information about non-GAAP measures and material factors and assumptions is available in our 2024 Annual Report. With that, let me turn the presentation over to Bharat.
Bharat Masrani: Thank you, Brooke, and thank you everyone for joining us today. I'd like to welcome Sona Mehta, Group Head, Canadian Personal Banking, and Paul Clark, Senior Executive Vice President, Wealth Management, who are joining this call for the first time.
I will begin with the USAML remediation update.
Bharat Masrani: We have continued to onboard talent and deploy new data-driven technology solutions.
Bharat Masrani: This quarter, we implemented further improvements in transaction monitoring and refinements in our customer risk rating methodology.
Bharat Masrani: We also rolled out additional training for risk, governance, and control colleagues.
Bharat Masrani: We expect to have the majority of the management remediation actions implemented by the end of calendar 2025, with additional management actions planned for calendar 2026.
Bharat Masrani: Remediation actions will then be subject to internal challenge and validation, including sustainability and testing activities, which are planned for calendar 26 and 27, followed by review and acceptance by the monitorship.
Bharat Masrani: Our AMEL remediation will be a multi-year endeavor, and we will continue to provide updates on our progress.
Bharat Masrani: The U.S. AML remediation is our main focus. However, as we have discussed previously, through this work and other ongoing review, we've had an opportunity to examine the effectiveness and capabilities of our enterprise AML program.
Bharat Masrani: We have learned from the U.S. experience and are applying those learnings globally.
Bharat Masrani: Though we have not identified issues to the same extent or experienced the same severe AML-related events in markets outside the U.S., we do need to improve and strengthen our enterprise-wide program. It is critical that we do so, and we will. We are tackling this work with the same determination and urgency.
Bharat Masrani: When we are done with this effort, we will have the AML risk and control environment that befits a G-SIB in the U.S. and in every market in which we operate.
Turning to results.
Bharat Masrani: We have seen momentum in our markets-related businesses, and we believe we are well positioned to benefit from any improvement in the environment in the coming months.
Bharat Masrani: should take some pressure off customers at the lower end of the income scale. This quarter, revenues were up 12% year-over-year, of which 5% reflected reinsurance recoveries for catastrophic claims.
Bharat Masrani: This strong revenue growth was driven by higher fee income in market-related businesses and higher volumes in Canada.
Bharat Masrani: Expenses this quarter reflected investments in our risk and control infrastructure and several notable items totaling approximately a hundred and fifty million dollars including costs associated with our Nordstrom program agreement extension and legal and regulatory costs.
Bharat Masrani: We also saw record catastrophic claims in our insurance business and increased impaired PCLs in our non-retail lending portfolios.
Bharat Masrani: This quarter, earnings were $3.2 billion, and EPS was $1.72, down 8% and 5% year-over-year respectively.
Bharat Masrani: As of quarter end, the bank CET1 ratio was 13.1%, reflecting the sale of Schwab shares in August, partially offset by the operational risk RWA impact of last quarter's AML provision.
Bharat Masrani: We remain confident in the earnings power of our franchise and have today declared a $0.03 dividend increase, bringing our dividend to $1.05 per share.
Speaker Change: Let me now turn it over to Ray in his new role as Chief Operating Officer.
Thank you, Bharat, and good morning, everyone.
Ray Chun: I'll start with how I've spent the past few months since succession announcements and share my early thoughts on our path forward. Then I'll review our Q4 results across each of our businesses.
Ray Chun: Since September, I've met with colleagues, customers, clients, and investors. It has reaffirmed my confidence that TD is a fantastic franchise.
Ray Chun: with scale businesses in every market in which we operate and products and services that resonate with our nearly 28 million customers.
Ray Chun: These solid business fundamentals have enabled the bank to deliver strong underlying performance over the past few quarters.
For example, by increasing ownership and accountability in our decision-making,
and becoming even more digital and mobile-enabled.
can simplify process to drive efficiency.
Ray Chun: creating more capacity to invest in risk and controls, customer experience, and future capabilities.
Speaker Change: In light of the global resolution and in my role as incoming CEO, we are undertaking a broad and detailed review of the bank's strategies and investment priorities to best position TD to compete over the medium and longer term.
Speaker Change: We are looking at our business mix, including profitability and risk-adjusted return on capital and where we need to invest and divest to improve.
Everything is on the table.
As this work takes shape, I'll provide updates.
Speaker Change: and we plan to hold a bank-wide investor day in the second half of 2025 to update you on this strategic review.
AML remediation remains our top priority.
Speaker Change: We have assembled an AML team with experienced executives and specialists from across the industry.
Speaker Change: And I've been clear that my expectation is that accountability goes beyond the AML team.
Speaker Change: We've established clear accountability and alignment across all three lines of defense.
Speaker Change: starting on the front line and carrying through to risk management and audit teams, both for the U.S. and the enterprise more broadly.
Speaker Change: We are driving change and working to prevent this type of failure from happening again.
Speaker Change: We will also continue to execute against the U.S. balance sheet restructuring strategy that we outlined on October 10th.
Calvin will share some details on our progress.
for the U.S. Retail Segment.
Speaker Change: We will focus on client sectors where we have scale, market share, and competitive advantage with the objective of enhancing ROE over time.
Speaker Change: In Canada, we are focused on building on our momentum. This year, across our businesses, we delivered against the growth strategies outlined at our 2023 Canadian Retail Investor Day.
Speaker Change: And we believe we can do even more to deepen customer relationships across the bank.
Speaker Change: As we highlighted at our investor day, with TD's scale in Canada, we have a powerful OneTD organic opportunity.
We also have strong growth opportunities in TD Securities.
Speaker Change: We have made significant investments in capabilities to enhance our offerings and in partnership with commercial banking colleagues, we are focused on leveraging our existing deployed balance sheet to generate additional fee revenue, a highly ROE accretive strategy.
Speaker Change: Although we have significant work ahead, I am optimistic that we will rebuild confidence in the bank as we chart our future and deliver for all stakeholders.
I will now turn to our Q4 results.
Speaker Change: Overall, we are not where we want to be on profitability. However, I am pleased with the momentum and top-line results across our businesses.
demonstrating the power of our customer franchises.
Speaker Change: We had a strong quarter in Canadian personal and commercial banking.
Speaker Change: with record revenues, positive operating leverage, and robust loan and deposit growth.
Speaker Change: We built on our momentum and key businesses over the quarter.
Speaker Change: In our market-leading core deposit franchise, we delivered strong performance on checking account acquisition, capping off a record year.
Speaker Change: As our newcomer customers settle into life in Canada, and we deepen our relationships, this becomes an important growth engine for the Canadian Personal Bank and Across TD.
Speaker Change: In real estate secure lending, we delivered year-over-year market share gains.
Speaker Change: with strong distribution and continued scaling of capabilities like TD Mortgage Direct, which is delivering conversion rates approximately three times the rate of our traditional LEED programs.
In business banking, we've seen deposit growth momentum.
Speaker Change: and TD Auto Finance delivered record originations this quarter for the fiscal year.
Now turning to the U.S. Retail Bank.
Deposits remained stable and loans grew 3% year-over-year.
and we continue to support customers across our footprint.
Speaker Change: Net income declined 13% year-over-year, driven by higher PCLs and higher expenses.
Speaker Change: I am delighted to announce that we have extended our program agreement with Nordstrom's to 2039 and that upon conversion
Speaker Change: TD will handle Nordstrom's card servicing activities in-house. This is an important strategic step for TD in our U.S. credit card business and will allow us to continue to build scale and drive profitability with simplified technical infrastructure and upgraded servicing capabilities.
Speaker Change: In addition, for the eighth year in a row, the bank ranked number one in Small Business Administration lending in its footprint, and ranked number two in SBA loans nationally.
Speaker Change: and Forbes ranked our health care team as the number one lender for health care professionals for the second consecutive year.
in Wealth Management and Insurance.
Speaker Change: We saw revenue growth driven by higher insurance premiums, asset growth, and increased trades per day.
with the Wealth Business delivering record revenue this quarter.
Speaker Change: Our insurance business was impacted by the Calgary hailstorm and Montreal floods.
A few highlights from the quarter.
Speaker Change: We launched TD ActiveTrader Live, a new weekly streaming program designed to enhance clients trading experience with in-depth analysis and insights.
Speaker Change: Since TD ActiveTraders launched in Q2, we've seen a 38% increase in new and existing ActiveTraders utilizing the platform.
Speaker Change: TD Asset Management grew market share in ETFs and now offers 48 ETFs across asset classes, geographies, and currencies.
Speaker Change: In insurance, over 40% of eligible customers now buy their insurance online from end to end, extending our digital leadership as Canada's number one direct insurer.
Speaker Change: Wholesale banking, continue to demonstrate the power of the combined TD Security, TD Cowen franchise.
Speaker Change: with revenues of 1.8 billion in a number of firsts where the team is winning mandates together that neither legacy business would have won alone.
Speaker Change: We expect to continue to optimize the platform with the goal of improving our efficiency ratio and increasing returns.
Some highlights this quarter for TD Securities.
Speaker Change: TD Securities was joint lead on TD's secondary sale of Schwab shares.
Speaker Change: in a $2.5 billion U.S. dollar block trade, one of the ten largest U.S. block trades since 2010.
Speaker Change: C.D. Cowan's research platform continue to shine in the 2024 EXTEL Research Surveys.
Speaker Change: In Canada, we finished in third place, increasing the number of ranked sectors from 4 in 2023 to 11 in 2024, and ranked number one in telecom and media.
Speaker Change: In the U.S. survey, T.D. Cowan's Washington Research Group was ranked number one.
Speaker Change: In addition, this quarter TD Securities was recognized in four categories at the Euromoney FX Awards.
As I mentioned, we are undertaking a broad-based strategic review.
Speaker Change: We will reassess organic opportunities and priorities, productivity and efficiency initiatives, and capital allocation alternatives.
Speaker Change: with the objective of delivering competitive returns for all our shareholders.
as a result of this.
Speaker Change: We are suspending our medium-term adjusted EPS growth ROE and operating leverage targets.
Speaker Change: Expect to provide updates on our strategic review and medium-term financial targets in the second half of 2025.
Speaker Change: I remain confident in the earnings growth potential of our Canadian personal and commercial banking, wealth management, insurance and wholesale banking segments.
Speaker Change: And while we expect that the U.S. balance sheet restructuring and AML remediation will impact the U.S. retail segment,
Speaker Change: We remain committed to the U.S. market and confident in the strength of our franchise.
for the close.
Speaker Change: I want to recognize our TD colleagues for their tremendous efforts in supporting the customers and communities impacted by the Calgary hailstorm, Montreal floods, and Hurricanes Helene and Milton.
More broadly, I want to thank all our TD colleagues.
Through a challenging year, you have demonstrated resolve and commitment.
Speaker Change: And as we look ahead, I am energized to embark on a journey to shape the future of the Bank together.
With that, I'll turn things over to Kelvin.
Kelvin Tran: Thank you, Ray. Good morning, everyone. Please turn to slide nine.
and EPS was $7.81 down 1% year-over-year.
Overall, 2024 was a challenging year.
Kelvin Tran: Revenue grew year-over-year driven by momentum in our markets, driven businesses and higher volumes and deposit margins in Canadian personal and commercial banking.
Kelvin Tran: Expenses also increase year-over-year reflecting investments in our risk and control infrastructure, higher employee related expenses including TD Cowen,
and Higher Technology Span Supporting Business Growth.
Kelvin Tran: Last quarter, we guided to fiscal 2024 expense growth in the high single digit.
Actual expense growth came in at 10% year-over-year.
Well, there were many moving parts.
Kelvin Tran: The variance was mainly due to the 150 million dollars in notable items that Bharat mentioned earlier.
In addition,
Kelvin Tran: Occupancy costs increased this quarter by approximately $90 million reflecting timing of building exits and store renovations.
Kelvin Tran: We continue to prioritize our U.S. AML remediation program while working to manage expenses diligently.
Kelvin Tran: We expect fiscal 2025 expense growth to be in the five to seven percent range.
reflecting investments in our risk and control infrastructure.
and Investments Supporting Business Growth.
Kelvin Tran: including employee-related expenses, net of expected productivity, and restructuring run rate savings.
Total Bank
PTPP was up 2% year-over-year.
Kelvin Tran: consistent with prior quarters. Slide 27 shows how we calculated adjusted total bank PPP and operating leverage, removing the impact of the U.S. strategic card portfolio along with the impact of foreign currency translation and the insurance fair value chart.
Please turn to slide 10.
Kelvin Tran: This quarter, earnings were impacted by higher investments in our risk and control infrastructure, record catastrophe claims in our insurance business, and increased impaired PCLs across our businesses.
Kelvin Tran: Revenue grew 12%, of which 5% reflected reinsurance recoveries for catastrophe claims.
Kelvin Tran: Expenses increase 11% year-over-year, primarily driven by investments in our risk and control infrastructure, investments supporting business growth, including technology and occupancy costs.
and other operating expenses.
Kelvin Tran: Total bank PTPP was down 2% year-over-year after removing the impact of the U.S. strategic card portfolio along with the impact of foreign currency translation and the insurance fair value charge. Please turn to slide 11.
and many more. Thank you. Thank you.
Kelvin Tran: Canadian personal and commercial banking delivered a strong quarter with record revenue and robust loan and deposit growth.
Average loan volumes rose 5% year-over-year.
Kelvin Tran: with 4% growth in personal volumes driven by real estate secured lending up 4% and cards up 9% and 6% growth in business volumes.
Kelvin Tran: Average deposits rose 5% year-over-year, reflecting 6% growth in personal deposits and 4% growth in business deposits.
Photorecorder, deposit growth, outpaced loan growth.
Kelvin Tran: CD's large base of stable retail and commercial deposits remain the primary source of long-term funding for the bank.
Kelvin Tran: Net interest margin was 2.8%, down one basis point quarter-over-quarter as expected, primarily due to changes in balance sheet mix reflecting the transition of BAs to CORA-based loans.
Do not expect any further limb impact from this transition.
Kelvin Tran: As we look forward to Q1, while many factors can impact margins, including the impact of any future Bank of Canada rate cuts, competitive market dynamics, tractor on and off rates, we expect NIM to remain relatively stable.
Kelvin Tran: Expenses increase reflecting high technology and marketing spends supporting business growth.
The business delivered positive offering leverage again this quarter.
Please turn to slide 12.
Kelvin Tran: This quarter, the U.S. Retail Bank continued to focus on AML remediation and made progress against our balance sheet restructuring strategy.
Kelvin Tran: We have reduced assets from $434 billion as of September 30th to approximately $431 billion U.S. as of October 31st.
Kelvin Tran: using proceeds from investment maturities plus cash to pay down certain short-term borrowings.
Kelvin Tran: Since quarter end, we have paid down an additional $14 billion U.S. of bank borrowings using mainly cash, contributing to a further reduction in U.S. assets.
Kelvin Tran: As a reminder, TD's two U.S. banking subsidiaries must comply with the asset limitation beginning March 31, 2025.
Kelvin Tran: The total asset test is performed quarterly and is an average of the combined asset balances at the end of the current quarter and the preceding quarter.
Resulting in
Kelvin Tran: in an upfront loss of $226 million U.S. pre-tax and an expected benefit of $89 million U.S. in net interest income in fiscal 2025.
Kelvin Tran: Since quarter end, we have sold an additional $3.3 billion U.S. of bonds resulting in an upfront loss of approximately $236 million pre-tax U.S. and an estimated benefit of $80 million to $90 million U.S.
and net interest income in fiscal 2025.
Kelvin Tran: We are focused on maintaining flexibility to continue to serve our current and future customers in the markets in which we operate, while ensuring we comply with the asset limitation. Please turn to slide 13.
Kelvin Tran: Substantially all of this decrease was driven by maintaining elevated liquidity levels as a prudent risk management measure.
Kelvin Tran: 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0 11.0 12.0 13.0 14.0 15.0 16.0 17.0 18.0 19.0 20.0 21.0 22.0 24.0 25.0 27.0 28.0 29.0 30.0 31.0
Excluding this impact, NIM would have been relatively stable.
Kelvin Tran: As we look forward to Q1, while many factors can impact margins, we expect NIM to expand more modestly.
Kelvin Tran: Expenses increased 4% year-over-year, largely reflecting costs associated with the extension of our credit card program agreement with Nordstrom.
Kelvin Tran: higher legal and regulatory expenses, and higher operating expenses partially offset by ongoing productivity initiatives.
As a reminder,
Kelvin Tran: We intend to reflect U.S. governance and control costs in the U.S. retail segment effective in Q1 2025.
Kelvin Tran: For Fiscal 2024, these expenses were largely in line with our forecast of approximately $350 million pre-tax.
[inaudible]
Please turn to slide 14.
Kelvin Tran: Wealth Management and Insurance delivered record revenue and strong underlying business performance this quarter.
Kelvin Tran: Excluding the impact of reinsurance recoveries for catastrophe claims, the year-over-year increase in revenue reflected higher insurance premium, fee-based revenue, transaction revenue, and deposit margins.
Wealth, we saw net asset growth across all business lines.
and many more. Thank you. Thank you.
Speaker Change: Meaning increase reflects less favorable prior years claims development and increased claim severity.
Speaker Change: We saw record capacity claims of $388 million this quarter due to severe weather-related events in Calgary and Montreal in August.
Speaker Change: As you may have seen, to help support analysts and investors' analysis in our insurance business performance, we disclosed this number on November 5th.
Speaker Change: Going forward, we intend to continue this practice and provide disclosure of catastrophe claims and of reinsurance shortly after the end of the fiscal quarter.
Fences were up 16% year-over-year.
Speaker Change: More than half of this increase reflected higher variable compensation with the remainder driven by higher technology and marketing spend, in part related to our recent launch of TD partial shares.
Assets under management increase year-over-year, reflecting market appreciation.
Speaker Change: Assets under administration increase year-over-year reflecting market appreciation and net asset growth. Please turn to slide 50.
Also, banking continued to perform.
Speaker Change: Year-over-year revenue growth reflects higher lending revenue, underwriting fees, and trading-related revenue.
Speaker Change: We saw higher PCLs this quarter, reflecting a small number of impairments across various industries.
Speaker Change: Expenses increased 1% year-over-year and the business delivered positive offering leverage this quarter. Please turn to slide 16.
Speaker Change: The net loss for corporate for the quarter was $361 million. Net corporate expenses increased $323 million compared to the prior year, primarily reflecting higher investments in risk and control infrastructure. Please turn to slide 17.
Speaker Change: The Common Equity Tier 1 ratio ended the quarter at 13.1%, up 27 basis points sequentially.
Speaker Change: Internal capital generation was partially offset by the increase in RWA excluding the FX impact, inclusive of risk transference transactions done in the ordinary course of managing portfolio exposures.
Speaker Change: We had a negative 35 basis point impact to CET-1 from the operational risk RWA impact of the bank's provisions for investigations into the U.S. BSA AML program last quarter.
Speaker Change: As a reminder, consistent with the Basel III reforms, operational risk RWA impacts take effect on a one-quarter lag.
We have begun our U.S. balance sheet restructuring.
Speaker Change: This resulted in an upfront loss of $234 million pre-tax or negative four basis points to CP1.
That Ajai, over to you.
Ajai Bambawale: Okay, thank you Kelvin and good afternoon everyone. Please turn to slide 18.
Cross-impaired loan formations were 28 basis points.
Ajai Bambawale: an increase of six basis points quarter over quarter driven by the Canadian and U.S. commercial and wholesale banking lending portfolios.
Ajai Bambawale: related to a small number of borrowers across a number of industries.
Please turn to slide 19.
Ajai Bambawale: Loss impaired loans increased 779 million or eight basis points quarter over quarter to 52 basis points
The increase was largely recorded in...
Canadian and U.S. Commercial and Wholesale Banking.
Please turn to slide 20.
Ajai Bambawale: Recall that our presentation reports PCL ratios both gross and net of the partner share of the US strategic card PCLs.
Ajai Bambawale: 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.
Bank's provision for credit losses was stable quarter over quarter.
Ajai Bambawale: For 2024, the bank's full year PCL rate was 46 basis points, up 12 basis points from the prior year.
Ajai Bambawale: reflecting normalization of credit performance and consistent with our PCL guidance provided at the start of the year.
Please turn to slide 21.
Ajai Bambawale: Banks' impaired PCL was $1.15 billion, an increase of $233 million quarter over quarter.
largely related to
Credit Migration in the Non-Retail Lending Portfolios
A performing PCL release of 44 million was recorded across
Ajai Bambawale: the Canadian Personal and Commercial Banking and U.S. retail segments this quarter.
Ajai Bambawale: reflecting an improvement in the economic outlook including the impact of lower interest rates and migration from performing to impaired.
Please turn to slide 22.
Ajai Bambawale: The allowance for credit loss is increased by $303 million quarter over quarter to $9.1 billion on 95 basis points.
Ajai Bambawale: primarily due to higher impaired allowance in the business and government lending portfolios and a 54 million impact from foreign exchange.
Now let me briefly summarize the year.
The bank exhibited strong credit performance throughout 2024.
as credit normalization has occurred as anticipated.
Ajai Bambawale: We expect fiscal 2025 PCLs to be in a range of 45 to 55 basis points.
Ajai Bambawale: as some further pressure on credit is expected to play out as we move through this credit cycle.
Speaker Change: With that, operator, we are now ready to begin the Q&A session.
Thank you.
Speaker Change: We will now take questions from the telephone lines. If you have a question, please press star 1.
Speaker Change: You may cancel your question at any time by pressing star 2.
Speaker Change: So please press star 1 at this time if you have a question. There will be a brief pause while the participants register for the questions.
Speaker Change: The first question is from Gabrielle Deschain from National Bank Financial. Please go ahead. Your line is open. Good morning. Just a quick one. Like, there's a lot of moving pieces in this balance sheet optimization. I'm going back to, you know, the presentation. I think it was on Q3, whatever. And it was said you were going to dispose of $50 billion of securities, and that would generate the...
Speaker Change: nearly you know mid-range 400 million dollar US benefit to NII. If I look at what you
Speaker Change: This close so far, I've got about $6 billion, including what happened after December 4th. And we're at around half of that NII benefit. What am I missing here? So you've sold a lot less than $50 billion, but you're already at half of the expected benefit.
Hi, it's Calvin. I can take that.
Calvin: It's not every bonds have the same maturity and are impacted by level of rates and spread the same way and so depending on which bonds you sell the ones that we sold happen to have a lot more losses up front.
Calvin: So it's just a matter of, you know, the nature of what you sold, not some...
Speaker Change: And I'm wondering how much of that increase is related to, you know, the
Speaker Change: disclose remediation costs, and how much of that is kind of, I don't know, I'd call it ad hoc, and, you know, is this something that we could be bearing for a while? Because I think a lot of
Speaker Change: People, myself actually, are wondering about unintended or unexpected indirect costs related to this remediation program and AMLSU because I appreciate you can't.
Speaker Change: You know, isolate everything, but there's bound to be stuff that comes out of nowhere.
Speaker Change: which is an increase of 5 to 7 percent, that would be inclusive of professional fees and remediation costs.
Okay.
So...
Speaker Change: This increase that I saw, that went over a billion dollars, does that include the remediation costs and then other costs that may have not been anticipated?
Speaker Change: Yeah, so I think the $1 billion that you see there, that table includes adjusted and like report, really they're reported expenses, so you have to take some items.
Speaker Change: But professional fees is a way for us to ramp up when we accelerate remediation and that would be, yes, whether there are...
Speaker Change: bills or some of the BAU work because of the fact that we needed help in the short term.
Speaker Change: Okay, a quick one just on the securities repositioning again. The losses that you're recording on disposition, that's being adjusted out of earnings, but then the benefit, the $400 million or so to NII, that's going to be kept in your adjusted figure? Or remain in your adjusted figure? Is that what we're doing here?
Correct, yeah. All right, thank you.
Speaker Change: Thank you. The next question is from Mani Raman from Scotiabank. Please go ahead. Hi, good morning. A few questions on the strategic review. First off, just wanted to understand when you actually began the strategic review. That would be helpful to know.
Speaker Change: Fannie, it's Raymond. Let me take that. So we've started the strategic review as of last month and certainly are starting to dig into it.
Speaker Change: I think the process is going to take somewhere between four to five months to get through and as I outlined in my comments, it will be quite comprehensive and we will look at all of the moving parts and that really is, I mean, we're going to build off the fact that we do have a terrific franchise as I've looked at it, but I really do believe there are opportunities to get even stronger, more competitive.
Speaker Change: And so I look forward to sharing more with you in the second half of 2025.
Speaker Change: Understood. I guess the reason I'm asking is that I was a little surprised that it wouldn't have started earlier. I mean, the bank has known about these issues for a while. So, I'm just trying to understand, maybe don't fully appreciate.
Speaker Change: sort of the timeline here. Were you waiting for something specific in order to kick this strategic review off? How do we understand sort of the timeline here?
Speaker Change: It's my opportunity to dive deep and make sure that we're putting TD in the best position possible as we think about how we're going to compete in the medium and long term.
Speaker Change: And then, thanks for that. When you talk about everything's on the table, does that include divestitures and does that include potential divestitures in the US?
Speaker Change: As I said we're going to be a thorough comprehensive review and everything is on the table.
Okay, thank you.
Speaker Change: Thank you. The next question is from Ibrahim Poonawalla from Bank of America. Please go ahead.
Good morning.
I guess maybe just following up on the...
Speaker Change: Strategic Review. So I think the messaging is right, Raymond, around everything's on the table, you're going through all of this. At the same time, as we think about, I mean, you've been at the bank for 30-plus years.
Speaker Change: as a shareholder, is the takeaway that we could have even stronger ROE medium-term targets when we come out of all of this? Or is the message that there are things that you identified as not quite performing as well, which may impede your ability to achieve those prior targets? I'm just trying to figure out...
Speaker Change: and align your messaging around foundation is strong, get even stronger, does it mean that even though you've suspended these targets, our expectation should be things will be even stronger and better when you've completed this process? Is that the right takeaway?
Speaker Change: I'd say again, let me start by saying, I do have confidence
Speaker Change: in our businesses across TD and you've seen the momentum that we've had and whether it's the Canadian Personal and Commercial Bank, Wealth Management, TD Securities, and certainly we built a fantastic franchise in the US.
Speaker Change: But I think it's important that we go through this process. It's going to be a thorough process.
Speaker Change: It's a prudent thing to do, but before I comment on anything further, I look forward to sharing that with you at the Investor Day in 2025, but we're building off a position of strength.
Speaker Change: But again, as in telling you what you should expect, I think it's a bit premature and let's go through the process and then we'll share that with you at the Investor Day.
Speaker Change: that's fair and I guess maybe Kelvin just following up two things if you don't mind clarifying just want to make sure the five to seven percent expense growth is relative to the twenty nine point one four eight full year adjusted expense number is that right
The End
Yeah.
Speaker Change: Got it. And just similarly on NII to the extent given all the moving pieces, if you can give us a sense of what you expect NII growth to look like based on whatever your rate assumptions are for 2025.
Got it. Thank you.
Thank you.
Speaker Change: Thank you. The next question is from Paul Holden from CIBC. Please go ahead.
Speaker Change: Thank you. Sorry, I might have missed a little bit of that last question, but I think it's an important one just in terms of the growth expectation for Canada. Obviously, you held a big Investor Day not that long ago, focusing on the growth opportunities in Canada. I want to make sure there's no message that any of that has changed. Maybe the targets end up changing a bit, but all those growth opportunities you highlighted back in 2023 are still on the table.
Speaker Change: And our Canadian business leads just comment on the progress that we've made on the Investor Day, but we're certainly tracking to those commitments. Sona, do you want to lead us off? Yeah, thanks very much, Ray, and thanks for the question. No, absolutely, we are tracking to each of the priorities we outlined at Investor Day. We've seen good growth on both sides of the balance sheet. On personal deposits, you've seen 6% growth year over year.
Speaker Change: We've grew our share and term materially. We've seen good growth on the loan side with 4% year over year.
Speaker Change: So all in all, that's led to, you know, this strong quarter has led to capping off a record year this year for day-to-day checking acquisition. So really a position of strength and momentum.
Speaker Change: We have a robust and resonant partner roster. We're seeing now that translate to some strong results with our strong quarter-over-quarter loan growth on the credit card book.
Speaker Change: On the real estate secured lending, we continue to have strong multi-channel presence right throughout our proprietary channels as well as strong broker relationships.
Speaker Change: So we now have placed specialized bankers in our branches for real estate secured lending and actually as well for investing.
Speaker Change: We just started that this November and we're already seeing really strong results.
That ecosystem delivers franchise relationships, very, very good.
Speaker Change: retention profile and profitability profile. So we're really pleased with the first foray there. And then I would say we continue to invest in technology and data. You know, our TD Mortgage Direct solution has been incredibly resonant with consumers and we're seeing leads converting at three times the rate.
Speaker Change: and so across the board you will see us stay committed to the the strategic pillars that we outlined at Investor Day. I just maybe close by saying you know we feel we have very strong momentum
Speaker Change: We continue to have a sizable growth opportunity made even bigger by our record acquisition in the last two years And we know how to execute and so we're very excited to deliver on the growth ahead
Speaker Change: savings, Canadian, versus roughly US $550 million of risk and control expenses. So call it roughly a wash, maybe a little bit net favorable. So when I think about that five to 7% growth next year, I wonder like, where are those additional costs being allocated? Unless you're revising your risk and control expenses, like I'm assuming they're going...
Speaker Change: maybe into the strategic review, maybe it's going invested, it being invested for your future revenue growth. It'd be helpful to get a sense of kind of where those additional expenses are being allocated. Thanks.
Kelvin Tran: Hi, it's Kelvin, I'll take that. So, absolutely, you know, we continue to invest in the business and that is a big part of the increase.
Kelvin Tran: We are on track on achieving the savings that we set out through the restructuring. And then there's going to be, like you said, more risk and control costs as well. I mean, there are look-back programs that we have to undertake, their monitorship and so forth. So all of that are included in that range.
Kelvin Tran: as part of our forecast. But as you know, there are many, many moving parts, but that is our expected view today.
That's it for me. Thank you.
Thank you.
Speaker Change: The next question is from Darko Mijelic from RBC Capital Markets. Please go ahead.
Darko Mijelic: Hi, thank you. A couple of questions. The first is a mechanical one on the on the AML issue and apologies I've never dealt with this before so I just want to understand the mechanics behind
Darko Mijelic: the dividend or in other words cash coming out of the U.S. up to the Canadian Holdco. It's my understanding that you have to
Darko Mijelic: provide evidence that you you know sort of done what you you want to do but what I don't understand is why they would ever give you permission.
Darko Mijelic: if you have a three and four-year monitorship on the go.
Darko Mijelic: presumably they wouldn't be satisfied until you complete that, so why would they
next year or whatever on an early basis.
Darko Mijelic: give you the go-ahead to dividend of cash. So maybe if you can just understand, just to understand the mechanic of it, maybe it's something more rudimentary and I'm just missing it.
Speaker Change: Any dividends declared from that requires a certification from the Board that we have allocated enough funds to our remediation, etc. And if we are able to certify that, then you can declare the dividend.
So there's nothing preventing the OCC from saying no.
Speaker Change: Well, you know, it's hard to predict what the future would bring, but that's in the consent order. You can see in the consent order from the Fed, which is our main holding company that owns all the assets in the United States.
Speaker Change: Okay, thank you. My second question relates to the Schwab deposits. They're now down to U.S. $83 billion. And again, I just want to understand the mechanics of this program. You know, that fell $17 billion.
Speaker Change: from last year, actually from a peak of 153 billion, and in my mind the way this might work is if interest rates keep going down
Speaker Change: and equity markets keep performing well, these deposits could grow. And so what goes down could go up. So what if that does occur? How does that work in your plan? How do you remediate if these deposits grow $17-20 billion a year for your asset cap?
Speaker Change: Thanks for the question, and I think you've summarized that well. We have seen a decline from a peak of about $155 billion to the current spot.
Speaker Change: of about $83 billion in size. And when the markets run, you tend to see more of those sweep deposits.
Speaker Change: get invested in the marketplace, and when there is a pause or any sort of profit-taking in the marketplace, those sweep deposits do increase somewhat, and we would see. In fact, we're seeing a slight stabilization.
Speaker Change: in overall balances. As you know, when we renegotiated the agreement with Schwab, we actually provided Schwab with the flexibility.
Speaker Change: to bring down the overall levels of deposits down to a floor of $60 billion and they've been executing against that. Most recently, we've seen a pause in that reduction, particularly on a spot basis in this quarter.
Speaker Change: We could expect to see some increase in the short term if there is some sort of market dislocation. The reality is we plan for that. One of the, you know, going back to our October 10th discussion, one of the reasons why we're executing against the balance sheet restriction with so much purpose is to create
Bharat Masrani, Ajai Bambawale, Brooke Hales
Speaker Change: You know, the swap can take up, the sweep deposits can go up, but there's a cap as to how it can go. It's $30 billion above the minimum required to be held at TD.
Speaker Change: Okay, thank you for that. That's good detail. I'll recue, thank you.
Speaker Change: Thank you. The next question is from Saurabh Movahedi from BMO Capital Markets. Please go ahead.
Saurabh Movahedi: Okay, thank you. I just wanted to clarify, as you do this strategic review,
Speaker Change: I assume you've put any capital allocation, for example, buybacks on hold. Is that the right way to think about it, Ray?
Ray Chun: I think until we go through the strategic review, at this moment, you know, we'll look at all of the options as to how we deploy our capital, but at this moment, that would be the right way to look at it. But again, let's see how, you know, as we work our way through the review, I'll keep everybody updated along the way.
Speaker Change: And so you have, I mean you yourself are the Chief Operating Officer now, I think a number of the business heads are on the table.
Speaker Change: are embarking on new opportunities and challenges. So when you are doing this strategic review, what are they doing as far as the base business? What is Tim Mugen doing as far as TD Securities is concerned? Is he in a holding pattern? Or if they wanna deploy capital, they're allowed to do that in advance of the strategic review being done.
Speaker Change: Hey Saurabh, it's Tim Wiggin calling and thanks for the question. We are absolutely not in a holding pattern. If you look at the quarter we've reported and the year as a whole, you're truly seeing the power of the combined wholesale franchise.
Speaker Change: I think it's important to note that, as you're aware, this transaction and our combination is within two years, so closing March 1st.
So, in my view, we're well ahead of schedule.
Speaker Change: in terms of leveraging the existing client base, our existing capital with the combined platform.
Speaker Change: To put things in perspective and make this tangible, just last month our continuing membership agreement with FINRA was approved. And I mention that because in some cases we're literally bringing people together on the same trading floor, and that's happening over the next couple of weeks.
Speaker Change: But if we take a step back, and maybe to provide you a bit of color and context in terms of how far we've come.
Speaker Change: The fiscal year as a whole was $7.3 billion in revenue, up 25%. The adjusted number, as you know, was $1.4 billion in NIAT. If you add back the off-channel communication...
Speaker Change: charge, which was obviously industry-wide. We came in at $1.5 billion.
So roughly $380 million per quarter.
Speaker Change: which very much aligns with the $375 million to $425 million per quarter that you would have heard us talk about previously.
Speaker Change: So again, we have strong revenue, we have the right clients, we're adding capabilities to the equation.
Speaker Change: And that obviously takes the ROE up, which is a continued focus within Wholesale as well as across the bank. So, very pleased with where we are and absolutely growing, executing, and frankly winning.
Speaker Change: So Tim, you're not worried that as that two-year passes on, retaining people will be a problem for your business?
Tim: People are always our primary concern in any business I've been involved in and they've always been capital markets I've continually said that you can have you know, the best capabilities and the best platforms and the best technology
Tim: But we need people and I believe we will have and continue to have a team of people That will allow us to execute and frankly when we're through this TD and TD Securities will be a destination of choice for professionals in the markets that we operate in
And I appreciate you taking my questions, thank you.
Speaker Change: Thank you. The next question is from Darko Mijelic from RBC Capital Markets. Please go ahead.
Darko Mijelic: Hey, thank you. Alright, my last question is for is for Leo. Leo, can you give me a sense of how I should expect
your non-interest income?
Darko Mijelic: to behave over the course of the next year. It's been under pressure. If you can just give me any sort of a view on that, that would be helpful. Thank you.
Speaker Change: I think in a previous quarter, we talked a little bit about the fact that we had
Speaker Change: really weathered most of the overdraft pricing changes and now that that's fully baked into the run rate. That had been
a significant drag force, cumulatively.
Speaker Change: between both retail and small business overdraft fee reduction. That was nearly a half a billion dollar reduction in terms of overall annual revenues and that has now fully cycled through. I'd say with regards to the looking forward, while we don't provide guidance per se, I do think that as we continue to grow our cards business and grow our our core checking account platform, which is
Speaker Change: with the crown jewel of the franchise or retail deposit franchise, I would expect
Speaker Change: account fees in particular to grow in proportion to the growth.
Speaker Change: that we're experiencing in the business. So I feel good about that. Obviously there are some things that we watch on a regular basis, regulatory changes.
Speaker Change: There are presently a number of fee cap proposals in the marketplace right now under litigation and we do have an administration change so there's a lot of intangibles and a lot of questions that are still out there with regards to how that might impact the future but in terms of our core, what we can control
Speaker Change: which is driving good, solid retail deposit growth and continuing to grow our bank card business, which by the way grew at 13% on a year-on-year basis in the quarter. I feel like we're doing the fundamentals and that we should see non-interest income growth return back to a more stabilized growth profile.
Okay, great. That's helpful. Thank you. Happy holidays, everyone.
Thanks, Tarka.
Speaker Change: Thank you. There are no further questions registered at this time. I will now turn the call back to Mr. Masrani.
Bharat Masrani: Thank you very much operator and great great questions. Great to see that the fundamentals of our businesses, particularly the momentum we have in each of our segments, is terrific. We do have headwinds as we discussed but good to see that there is good momentum in each of our operating businesses.
Bharat Masrani: Before we close, I'd like to recognize Riaz Ahmed, who will retire at the end of January. For almost three decades, Riaz helped shape TD's strategy and deliver business performance.
Bharat Masrani: His impact on our business will be felt for years to come. I want to extend my personal thanks to Riaz for his close partnership and invaluable counsel over many years. I wish him the very best in his next exciting chapter.
Bharat Masrani: Like I said earlier, while 2024 was a difficult year, TD remains a strong bank with tremendous advantages.
Bharat Masrani: In the weeks and months ahead, as Ray takes the reins, I know he, with the support of a strong bench of leaders, will successfully chart the path forward for TD. Thank you and best wishes for the holidays.
Speaker Change: Thank you. The conference has now ended. Please disconnect your lines at this time. We thank you for your participation.