Release Date: August 22, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- The Toronto-Dominion Bank (TD, Financial) delivered strong earnings of $3.6 billion and EPS of $2.05 for Q3 2024.
- Revenue grew 8% year over year, driven by higher fee income and higher volumes and deposit margins in Canadian Personal and Commercial Banking.
- The bank's CET1 ratio was 12.8%, reflecting strong capital management despite the impact of AML investigation provisions.
- TD's Canadian Personal and Commercial Banking segment delivered record revenues of $5 billion and record net income, up 13% year over year.
- TD was named the Best Consumer Digital Bank in Canada for the fourth consecutive year and the Best Transformation and Innovation in North America for the second consecutive year by Global Finance.
Negative Points
- The Toronto-Dominion Bank (TD) announced a USD2.6 billion provision for AML investigations, adding to the USD450 million provision from the previous quarter.
- The wealth management and insurance segment faced a significant increase in claims due to severe weather events, impacting earnings.
- Expenses increased year over year, reflecting investments in risk and control infrastructure and higher employee-related expenses.
- The bank's US retail segment faced challenges with ongoing AML remediation efforts, requiring substantial investments in staffing and technology.
- The corporate net loss for the quarter was $324 million, with expectations for continued elevated expenses in Q4 due to risk and control investments.
Q & A Highlights
Q: I want to talk about capital. Specifically, why did you need to sell down your Schwab stake to raise capital, especially considering the guidance on operational RWA coming in Q4?
A: Meny, this is Bharat. Historically, TD likes to be well-capitalized, often carrying more capital than generally necessary. Given the current economic volatility and unpredictability, we believe it's prudent to maintain higher capital levels. This aligns with our capital framework and ensures we are well-prepared for any uncertainties.
Q: With the sale of the Schwab stake, is it safe to assume that if you go below 10%, you'll lose Board representation and it will no longer be accounted under the equity method?
A: Our current intention is not to go below where we are. We view this as a strategic investment and are very happy with its performance. We are comfortable with our current governance requirements and levels.
Q: Your guidance is now high single-digit growth in '24, an increase from mid-single-digit mentioned prior. Is the core expense growth still 2% and now the investments have pushed it to high single digits, or are there other factors?
A: It's Kelvin. The increase is due to three main factors: higher risk and control costs, strong performance in our markets-related businesses driving higher compensation, and discrete items like litigation. These factors have led to the updated guidance.
Q: Should we assume the AML-related FTEs will remain with TD even after the build-out is complete, making the associated OpEx recurring?
A: This is Leo Salom. We've added over 500 colleagues to support the AML effort. While some program management resources will phase out, investments in investigative capacity and advanced analytics will likely remain. There will be a structural increase to maintain a strong AML program.
Q: The expense commentary suggests corporate losses could be above the $200 million to $250 million range in Q4 due to risk control investments. Is this delta solely because of additional investments?
A: No, the higher expense growth rate also includes the full-year impact of TD Cowen. The increase is driven by risk and control costs, stronger markets-related businesses, and discrete items like litigation.
Q: How much of the remediation actions for AML risk controls is still a moving target? Could this lead to further expense increases?
A: This is Leo Salom. We've built a comprehensive AML program and are executing against it. While some costs will be repurposed over time, there will be a structural increase to maintain a robust AML program. We believe our cost forecasts are appropriate for the outlined program.
Q: In Canadian P&C, the results were strong this quarter. Could you talk about the outlook given the macro backdrop and expectations for loan and deposit growth?
A: This is Ray. We're pleased with our momentum in Canadian P&C, driven by strong deposit growth and loan growth across the portfolio. We continue to enhance our offerings and see positive operating leverage. We expect this momentum to continue into 2025.
Q: Why did you decide to go ahead with share buybacks and sell Schwab stock? How does this benefit shareholders?
A: Our buybacks have been ongoing throughout the year, and we have now completed 85% of our target. We follow accounting rules and believe maintaining higher capital levels is prudent. This ensures we are well-capitalized and prepared for any uncertainties.
Q: Could you provide some color on performing PCLs this quarter? Despite some deterioration in unemployment rates, your performing PCLs are moving lower.
A: This is Ajai. The decrease in performing PCLs is due to factors like macro conditions and seasonality in US retail, repayments in wholesale, and lower impaireds in Canadian commercial. These factors contributed to the overall reduction in performing PCLs.
Q: Would it be fair to suggest that regardless of nonmonetary fines, you feel confident in the ability to grow earnings in 2025?
A: This is Leo Salom. While I won't speculate on nonmonetary penalties, we are focused on driving governance changes and growing the franchise. Our operating momentum has been strong, and we aim to continue this trend. We are making the necessary investments to ensure sustainable growth.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
