Quarterly Earnings Document
Q 3 2 0 2 4 E A R N I N G S C O N F E R E N C E C A L L
A U G U S T 2 2 , 2 0 2 4
D I S C L A I M E R
THE INFORMATION CONTAINED IN THIS TRANSCRIPT IS A TEXTUAL REPRESENTATION OF THE
F O R W A R D - L O O K I N G I N F O R M A T I O N
From time to time, the Bank (as defined in this document) makes written and/or oral forward-looking statements, including in this document, in other filings with Canadian regulators or the
By their very nature, these forward-looking statements require the Bank to make assumptions and are subject to inherent risks and uncertainties, general and specific. Especially in light of the uncertainty related to the physical, financial, economic, political, and regulatory environments, such risks and uncertainties - many of which are beyond the Bank's control and the effects of which can be difficult to predict - may cause actual results to differ materially from the expectations expressed in the forward-looking statements. Risk factors that could cause, individually or in the aggregate, such differences include: strategic, credit, market (including equity, commodity, foreign exchange, interest rate, and credit spreads), operational (including technology, cyber security, and infrastructure), model, insurance, liquidity, capital adequacy, legal, regulatory compliance and conduct, reputational, environmental and social, and other risks. Examples of such risk factors include general business and economic conditions in the regions in which the Bank operates; geopolitical risk; inflation, rising rates and recession; regulatory oversight and compliance risk; the ability of the Bank to execute on long-term strategies, shorter-term key strategic priorities, including the successful completion of acquisitions and dispositions and integration of acquisitions, the ability of the Bank to achieve its financial or strategic objectives with respect to its investments, business retention plans, and other strategic plans; technology and cyber security risk (including cyber-attacks, data security breaches or technology failures) on the Bank's technologies, systems and networks, those of the Bank's customers (including their own devices), and third parties providing services to the Bank; model risk; fraud activity; insider risk; the failure of third parties to comply with their obligations to the Bank or its affiliates, including relating to the care and control of information, and other risks arising from the Bank's use of third parties; the impact of new and changes to, or application of, current laws, rules and regulations, including without limitation tax laws, capital guidelines and liquidity regulatory guidance; increased competition from incumbents and new entrants (including Fintechs and big technology competitors); shifts in consumer attitudes and disruptive technology; environmental and social risk (including climate change); exposure related to significant litigation and regulatory matters; ability of the Bank to attract, develop, and retain key talent; changes to the Bank's credit ratings; changes in foreign exchange rates, interest rates, credit spreads and equity prices; the interconnectivity of Financial Institutions including existing and potential international debt crises; increased funding costs and market volatility due to market illiquidity and competition for funding; Interbank Offered Rate (IBOR) transition risk; critical accounting estimates and changes to accounting standards, policies, and methods used by the Bank; the economic, financial, and other impacts of pandemics; and the occurrence of natural and unnatural catastrophic events and claims resulting from such events. The Bank cautions that the preceding list is not exhaustive of all possible risk factors and other factors could also adversely affect the Bank's results. For more detailed information, please refer to the "Risk Factors and Management" section of the 2023 MD&A, as may be updated in subsequently filed quarterly reports to shareholders and news releases (as applicable) related to any events or transactions discussed under the heading "Significant Events" in the relevant MD&A, which applicable releases may be found on www.td.com. All such factors, as well as other uncertainties and potential events, and the inherent uncertainty of forward-looking statements, should be considered carefully when making decisions with respect to the Bank. The Bank cautions readers not to place undue reliance on the Bank's forward-looking statements. Material economic assumptions underlying the forward-looking statements contained in this document are set out in the 2023 MD&A under the heading "Economic Summary and Outlook", under the headings "Key Priorities for 2024" and "Operating Environment and Outlook" for the Canadian Personal and Commercial Banking,
Any forward-looking statements contained in this document represent the views of management only as of the date hereof and are presented for the purpose of assisting the Bank's shareholders and analysts in understanding the Bank's financial position, objectives and priorities and anticipated financial performance as at and for the periods ended on the dates presented, and may not be appropriate for other purposes. The Bank does not undertake to update any forward-looking statements, whether written or oral, that may be made from time to time by or on its behalf, except as required under applicable law.
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C O R P O R A T E P A R T I C I P A N T S
C O N F E R E N C E C A L L P A R T I C I P A N T S
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P R E S E N T A T I O N
Thank you operator. Good morning and welcome to
Many of us are joining today's meeting from lands across
We will begin today's presentation with remarks from
Please tuto slide 2. As noted on Slide 2, our comments during this call may contain forward-looking statements, which involve assumptions and have inherent risks and uncertainties. Actual results could differ materially. I would also remind listeners that the Bank uses non-GAAP financial measures to arrive at adjusted results. The Bank believes that adjusted results provide readers with a better understanding of how management views the Bank's performance. Bharat and Kelvin will both be referring to adjusted results in their remarks. Additional information about non-GAAP measures and material factors and assumptions is available in our Q3 2024 Report to Shareholders.
With that, let me tuthe presentation over to Bharat.
Thank you, Brooke. And thank you, everyone, for joining us today.
In Q3, TD delivered earnings of
Before I get into the details, I want to spend a few minutes on the announcement we made late yesterday. We continue to actively pursue a resolution of our AML matters. Discussions have been productive - and while we are not through the tunnel yet, we can see the light at the end of this journey. In our release, we noted that it is our expectation that a global resolution can be achieved by the end of the calendar year. The
I also want to spend a minute on the remediation program itself. This is important work - and the remediation program is well underway. In May, we updated you on our progress. We've advanced on all fronts since then. We've onboarded leadership with deep subject matter expertise supported by increased staffing resources. We've hired from other banks, regulators, government and even law enforcement. We've invested in data and technology to enable improved transaction monitoring and data analytics capabilities. And we've implemented new cross-functional procedures for preventing, detecting, and reporting suspicious activity. While there is still much work ahead, we are pleased with the progress we've made. This is a priority. Our
Let's now tuto our third quarter earnings.
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Revenue grew 8% year-over-year driven by higher fee income in our markets-driven businesses and higher volumes and deposit margins in Canadian Personal & Commercial Banking. PCLs were stable quarter- over-quarter reflecting continued strong credit performance. We completed our restructuring program announced in the fourth quarter last year - delivering efficiencies across the enterprise - and continued to prioritize investments in our risk and control infrastructure.
As of quarter-end, the Bank's CET 1 ratio was 12.8 per cent, reflecting the impact of the AML investigations provisions and shares bought back during the quarter, partially offset by organic capital generation. The sale of 40.5 million shares of Schwab - which brings our holding to approximately 10.1% - further strengthens our capital ratio, ensuring the Bank stays well above regulatory requirements after taking this provision. TD remains very well-capitalized, with ample liquidity and the means to invest in our AML remediation program, in our business and in the customer experience.
The Bank continues to shape the future of banking. This quarter, TD completed the migration of its main data platform to the cloud, eliminating related legacy systems and modernizing the Bank's data infrastructure. Enhancing scalability, security, and speed, TD's cloud-based platform is a key foundation for our forward-focused,data-driven organization. And we were proud that TD was recently named the Best Consumer Digital Bank in
Let me now tuto each of our businesses and review some highlights from Q3.
Our Canadian Personal and Commercial Banking segment delivered record revenues - reaching
In Personal Lending, the Bank is supporting the financial journey of
In Business Banking, TD grew loans by 7% year-over-year. This quarter, the Bank launched
Turning to the
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The Wealth Management and Insurance segment demonstrated resilience this quarter, as strong fundamentals - including record revenues - enabled the business to eathrough a significant increase in claims. For the last few years, we have seen an increase in the frequency of weather events. With TD's winning direct-to-consumer business model - and our ability to adapt to changes in the environment - I am confident that the Insurance business will continue to deliver an attractive retuon equity over time. Our Advice businesses saw significant retail net asset growth across all our channels, coupled with market appreciation - driving total assets up 15% year-over-year. In Direct Investing, our leadership position is the result of consistent innovation to bring market leading capabilities to our clients. You saw that last quarter with the launch of TD Active Trader. And we've continued to innovate - this month, TD was the first bank in
Wholesale Banking continued its growth with revenues up 14% year-over-year on broader and stronger capabilities. We continue to make good progress integrating our teams, deepening our client relationships, and gaining momentum across our banking and markets businesses. In addition, we enhanced
Overall, our businesses performed well in Q3 - and I am confident in the strength of our franchise. We are operating in a challenging environment - with significant market volatility, rapidly evolving rate expectations, and heightened geopolitical risks. Amidst uncertainty in the outlook for the economies in both
And those of you in
Our colleagues live our commitment to our customers every day - and I want to thank them for all their efforts. I am confident that together, we will continue to deliver for all our stakeholders.
With that, I'll tuthings over to Kelvin.
Thank you, Bharat. Good morning, everyone. Please tuto slide 11.
Reported earnings this quarter include a
Revenue increased year-over-year, driven by higher fee income in our markets-driven businesses and higher volumes and deposit margins in Canadian Personal & Commercial Banking. We saw record revenues in two segments this quarter - Canadian Personal & Commercial Banking and Wealth Management & Insurance. Expenses increased year-over-year, reflecting investments in our risk and control infrastructure and higher employee-related expenses. We continue to prioritize our investments and
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manage expenses diligently. While we continual to look for efficiencies in our cost base, we have now concluded our restructuring program. We have provided more details on slide 27.
Notwithstanding good execution against our restructuring initiatives, we expect fiscal 2024 adjusted expense growth to be in the high-single digits reflecting higher investments in our risk and control infrastructure, strong performance in our markets-related businesses, and certain items including litigation. PCLs were stable quarter-over-quarter.
Please tuto slide 12.
Canadian Personal & Commercial Banking delivered a strong quarter with record net income and revenue, reflecting loan and deposit volume growth and substantial positive operating leverage. Average loan volumes rose 6% year-over-year, with 6% growth in personal volumes - driven by real estate secured lending up 6% and cards up 10% - and 7% growth in business volumes. Average deposits rose 5% year- over-year, reflecting 7% growth in personal deposits and 2% growth in business deposits. Net interest margin was 2.81%, down 3 basis points quarter-over-quarter - as expected - reflecting the migration of BAs to CORRA-based loans. As we look forward to Q4, while many factors can impact margins, we expect downward pressure due to BA-CORRA migration and the impact of
Please tuto slide 13.
Please tuto slide 14.
Wealth Management & Insurance delivered record revenue and strong fundamentals across its diversified businesses. Revenue grew 13% year-over-year, reflecting higher insurance premiums, fee-based revenue, deposit margins, and transaction revenue. Insurance Service Expenses were up 20% year-over-year, primarily reflecting increased claims severity, less favourable prior years' claims development and larger impact of severe weather-related events. We saw claims costs of
To help support analysts' and investors' analysis of our Insurance business performance, we have added disclosure of current quarter claims costs, net of reinsurance, to page 12 of the Supplemental Financial Information package. Expenses were up 13% year-over-year. More than half of this increase related to provisions for ongoing litigation matters, with the remainder driven by higher variable compensation. Assets under management and assets under administration increased year-over-year, both reflecting market appreciation and net asset growth.
Please tuto slide 15.
Wholesale Banking continued its growth, delivering revenues of
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Please tuto slide 16.
The Corporate net loss for the quarter was
Please tuto slide 17.
The Common Equity Tier 1 ratio ended the quarter at 12.8%, down 57 basis points sequentially. We had strong internal capital generation this quarter. RWA (excluding the impact of FX) increased slightly, primarily reflecting the operational risk RWA impacts from certain provisions taken last quarter. We repurchased approximately 13 million shares in Q3, and none in August to date. Our current NCIB expires on August 31st and we do not intend to repurchase any additional shares prior to expiry. Across the 90 million share buyback program - and our previous 30 million share buyback program - TD repurchased over 100 million shares, almost 85% of the shares authorized - delivering returns for shareholders while managing our capital appropriately. TD sold its common shares in
With that Ajai, over to you.
Thank you, Kelvin, and good morning, everyone. Please tuto slide 18.
Gross impaired loan formations were stable at 22 basis points for the Bank, as higher impaired loan formations in Wholesale and
Please tuto slide 19.
Gross impaired loans increased 3 basis points quarter-over-quarter to 44 basis points, driven by a few new impairments across a number of industries in each of Wholesale and
Please tuto slide 20.
Recall that our presentation reports PCL ratios both gross and net of the partners' share of the
The Bank's gross provision for credit losses was stable quarter-over-quarter, as an increase in the Wholesale segment was offset by decreases in the Canadian P&C,
Please tuto slide 21.
The Bank's impaired PCL was
Please tuto slide 22.
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The Allowance for Credit Losses increased by
In summary, the Bank exhibited continued strong credit performance this quarter, as evidenced by stable gross impaired loan formations and PCL. Our year-to-date PCL result is 46 basis points. My prior guidance of 40 to 50 basis points for fiscal 2024 remains appropriate although results may vary by quarter, and are subject to changes in economic conditions.
With that, I will tuit back over to Bharat.
Thank you, Ajai. Before we begin the Q&A session, I want to note that we have included the information that we are able to share on AML matters in yesterday's press release and our Q3 materials - we do not have additional information to share at this time. I look forward to providing additional clarity as soon as I can. For today, I suggest that we focus on the Bank's Q3 earnings.
With that, operator, we are now ready to begin the Q&A session.
Q U E S T I O N A N D A N S W E R
Operator
[Operator Instructions]. Our first question is from
I want to talk about capital. And specifically, it's not clear to me why you needed to sell down your Schwab stake to shore up capital. Even if I take into account the guidance on operational RWA coming in Q4. So if you could help me understand the thought process there. It seems like there's something else going on here in terms of other considerations. Especially given the context of buying back
Meny, this is Bharat. You know that traditionally and historically, the bank likes to be well capitalized and frankly, likes to carry more capital than what may generally be necessary. In line with that, we think it's prudent to have capital. There is still a lot of volatility, and economic conditions are not as predictable as one would like, so this is just to be prudent and it makes sense. That's the capital framework we use, and we think it made sense to have the capital levels that we are projecting for the next quarter.
So would this sort of conservative capital stance signal that AML fines could end up being materially larger?
We announced
And just another follow-up. So is it fair to assume that you're not comfortable going below 12.5% CET1? Is that where you're thinking in terms of your comfort level?
We're targeting between 12% and 12.5%. So we continue to be comfortable with that target. But obviously, we review this on an ongoing basis depending on economic conditions.
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With the sale of the Schwab stake, is it safe to assume that if at some future point when you end up below 10%, you'll lose board representation, and it will no longer be accounted under the equity method?
Our current intention is not to go below where we are.
I understand that, Bharat, but - if you do go below that, is that the case?
It's a strategic investment for us. We're very happy as to how this investment has performed. And our view is that our governance, requirements, and where we are, we are very comfortable with that. And we would like to continue at these levels.
Okay, Bharat. And is it safe to assume that the sale of the stake has no bearing in terms of the agreement you have on the sweep accounts?
Yes.
A question on expenses, your guidance is now high single-digit growth in 2024 - a bit of an increase versus mid-single-digit you mentioned prior. Maybe just breaking it down, is the core expense growth still 2% and now the investments have pushed it to high single digits, or are there other factors that maybe have played out in terms of updated guidance?
It's Kelvin. I'll take that question. Yes, there may be three factors. One is risk and control costs being higher than previously thought. Also, our markets-related businesses are performing really really well, and so therefore the compensation are driven by higher revenues - and we'll take that trade any day. And then plus there are a few discrete items like the litigation that we just talked about in wealth this quarter. Those are the three main factors.
All right. And then a follow-up question on the AML costs themselves. It sounds like a lot of the investment being made is predicated on hiring additional talent, building it out, and maintaining some sort of AML infrastructure. Should we just assume those FTEs will remain with TD even after that build out is complete? And does that essentially mean the OpEx associated is kind of recurring?
Yes. Let me take that one, Matt. This is
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But there's going to be an increase, a structural increase, to represent the model we want to run going forward, which I think will be a very strong AML program going forward.
On the expense commentary, Kelvin, you were saying that the corporate loss could be above that guidance range of
No. So if you're looking at corporate, remember earlier when I talked about the - there are two items here
- you're talking about the corporate net loss and then expenses. On expenses I talked about the 3 drivers that caused the increase. And remember that the higher expense growth rate partly includes
TD Cowen as well because last year was a partial year, and this year is a full year.
Yes. I think on the Q4 call, you said mid-single digits, including these AML-type costs, and Cowen.
High single digits are the 3 factors that I talked about earlier. There's the risk and control, stronger markets- related businesses and then discrete items like litigation and so forth.
Okay. And refresh my memory please. This year, you'd quantified
No, I think the
Nothing for 2025. But it seems likely that these costs could persist though into 2025. Is that unreasonable to expect?
That's correct. It's a multi-year program.
Okay. I get you don't want questions on this regulatory matter. But the press release clearly outlined what your estimate of total penalties would be. I don't dispute that number at all. But there's also mention of non- monetary penalties. What are you thinking of there? Is an asset cap on the table for the
Nonmonetary means anything that is nothing to do with money. So we said the
Right. But nonmonetary can involve financial impacts. You can agree on that, correct?
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