The Toronto-Dominion Bank Q4 FY2024 earnings call

Management Statement and Operational Highlights

• AML Remediation: Continued onboarding talent, deploying data-driven tech, improving transaction monitoring, refining risk rating, and rolling out training. Majority of management actions expected by end 2025, with further actions planned for 2026. Learnings from U.S. experience applied globally to strengthen enterprise AML program.
• Results Overview: Revenue up 12% Y/Y (5% from reinsurance recoveries for catastrophes), earnings $3.2B, EPS $1.72 (down 8% and 5% Y/Y respectively). CET1 ratio 13.1% as of quarter end. Dividend increased to $1.05 per share.
• Business Updates: Canadian Personal and Commercial Banking had record revenues, U.S. Retail Bank made progress on balance sheet restructuring, Wealth Management and Insurance saw revenue growth, Wholesale Banking performed well with revenue growth.
• Strategic Review: Broad review of strategies and investment priorities underway, suspending medium-term adjusted EPS growth, ROE, and operating leverage targets. Bank-wide Investor Day planned for H2 2025 to update on strategic review.

Segment Performance

• Canadian Personal and Commercial Banking: Strong quarter with record revenue. Average loan volumes rose 5% Y/Y (4% personal, 6% business), average deposits up 5% Y/Y (6% personal, 4% business). Net interest margin 2.8%, down 1 basis point Q/Q. Expenses increased but positive operating leverage.
• U.S. Retail Bank: Focused on AML remediation, reduced assets from $434B to ~$431B, average loan volumes up 3% Y/Y, net interest margin 2.77%, down 25 basis points Q/Q. Expenses increased.
• Wealth Management and Insurance: Record revenue, net asset growth, but impacted by record catastrophe claims (e.g., Calgary Hailstorm, Montreal floods).
• Wholesale Banking: Revenue growth, higher PCL, positive operating leverage.
• Corporate: Net loss of $361M due to higher investments in risk and control infrastructure.

Guidance

• Fiscal 2025 expense growth expected in the 5% to 7% range, reflecting investments in risk and control infrastructure and business growth, net of productivity and restructuring savings.
• Suspended medium-term adjusted EPS growth, ROE, and operating leverage targets. Expect to provide updates on strategic review and medium-term financial targets in H2 2025.

Risks

• AML remediation is a multiyear endeavor with inherent risks and uncertainties, including potential impacts on financial performance.
• Potential impact of economic conditions, competitive market dynamics, and regulatory changes on the bank's performance.

Question and Answer

Q: Gabriel Dechaine on securities repositioning and expenses A: Kelvin Tran explained that the nature of sold securities affects upfront losses and that expense guidance for 2025 includes professional fees and remediation costs Q: Meny Grauman on strategic review timeline A: Raymond Chun stated the strategic review started last month and will take 4-5 months, with everything on the table including divestitures Q: Ebrahim Poonawala on strategic review and expense growth A: Raymond Chun mentioned confidence in businesses but detailed review needed, Kelvin Tran confirmed 5%-7% expense growth includes risk and control costs Q: Paul Holden on Canada growth and expense guidance A: Sona Mehta confirmed tracking to 2023 Investor Day commitments, Kelvin Tran said expense growth includes business investments and risk control costs Q: Darko Mihelic on AML dividend mechanics and Schwab deposits A: Bharat Masrani explained dividend certification process, Leo Salom discussed Schwab deposit dynamics and balance sheet management Q: Sohrab Movahedi on strategic review and capital allocation A: Raymond Chun said capital allocation on hold during review, Tim Wiggan discussed Wholesale Banking's growth and execution Q: Darko Mihelic on noninterest income outlook A: Leo Salom mentioned noninterest income expected to stabilize with deposit and card business growth, noting impact of regulatory changes