The Toronto-Dominion Bank (TD:CA) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call reflects a stable financial performance with positive elements like share buybacks and strong credit performance. However, there are concerns about weaker insurance results, slight declines in U.S. deposit growth, and unclear guidance on asset cap relief. The Q&A session did not reveal significant negative sentiment but highlighted uncertainties in regulatory timelines. Overall, the mix of positive and negative factors, along with stable but not exceptional financial metrics, suggests a neutral stock price movement over the next two weeks.
Key Financial Performance
Earnings $3.9 billion in Q4, with EPS of $2.18 and ROE up 110 basis points year-over-year. Reasons include robust fee and trading income in markets-driven businesses and volume growth in Canadian Personal and Commercial Banking.
Fraud Losses Down 26% year-over-year in fiscal 2025 due to ongoing investments in fraud modernization across capabilities, data, systems, and processes.
AI Use Cases Generated $170 million in value in fiscal 2025, with an expectation of $200 million in incremental value for next year. Reasons include applications in loan underwriting, intelligent leads, and deepening client relationships.
Dividend Increased by $0.03 to $1.08 per share, reflecting confidence in TD's future growth and earnings power.
CET1 Ratio 14.7% in Q4, with strong capital generation. Share buybacks reduced CET1 by 33 basis points.
Share Buybacks $6 billion worth of shares repurchased in fiscal 2025, with plans to complete the current $8 billion buyback by Q1 2026.
Canadian Personal and Commercial Banking Revenue Record revenue in Q4, with deposits up 4% year-over-year and loans up 5% year-over-year. Reasons include strong loan growth across businesses and record RESL originations.
U.S. Retail Core Loans Up 2% year-over-year, with U.S. bank card balances up 14% year-over-year. Reasons include strong account acquisition and growth in home equity and middle market.
Wealth Management Client Assets Up 10% year-over-year, with mass affluent client assets up 21% year-over-year. Reasons include client growth, net asset growth, and market appreciation.
Wholesale Banking Revenue Record $2.2 billion in Q4, driven by broad-based growth across Global Markets and Corporate and Investment Banking.
Provision for Credit Losses (PCLs) Stable quarter-over-quarter at 41 basis points, with impaired PCLs at $943 million. Reasons include strong credit performance and seasonal trends in U.S. card and auto portfolios.
Allowance for Credit Losses Increased by $40 million quarter-over-quarter, reflecting model updates in Canadian credit card portfolio and foreign exchange impacts.
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Operating Highlights
AI Use Cases: Implemented approximately 75 AI use cases generating $170 million in value for fiscal 2025, with expectations to generate $200 million in incremental value next year.
Fraud Modernization: Investments in fraud modernization led to a 26% year-over-year reduction in fraud losses.
Digital Sales: Achieved record digital sales for day-to-day banking products in Canadian Personal and Commercial Banking.
Cards Acquisition: Delivered the best year of card acquisitions in nearly a decade in Canada and the strongest account acquisition in 7 years in the U.S.
Canadian Market: Record revenue, deposits, and loan volumes in Canadian Personal and Commercial Banking. Real estate secured lending posted robust growth with record Q4 originations.
U.S. Market: Core loans grew 2% year-over-year, and U.S. bank card balances were up 14% year-over-year. Total client assets in U.S. wealth business increased by 10%.
Small Business Lending: Ranked #1 in small business administration lending in the U.S. footprint for the ninth consecutive year.
Expense Management: Year-over-year expense growth moderated, delivering positive operating leverage. Restructuring program expected to generate $750 million in annual run-rate savings.
Balance Sheet Restructuring: Achieved a 10% asset reduction in U.S. Retail, creating $52 billion of capacity and generating $500 million in NII benefit for fiscal 2025.
Capital Management: Repurchased over $6 billion in shares and announced a $0.03 dividend increase, reflecting confidence in future growth.
AI and Machine Learning: Deployed AI-powered financial crimes automation platform and machine learning tools to enhance AML remediation and transaction monitoring.
Shareholder Returns: Initiated share buyback programs totaling $14 billion, effectively returning capital from the Schwab sale to shareholders.
Operational Focus: Focused on deepening client relationships, simplifying operations, and disciplined execution to drive growth and returns.
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Risk or Challenges
Tariffs and Canada-U.S. trade dynamics: High degree of uncertainty around tariffs and Canada-U.S. trade dynamics, particularly impacting industries like steel and aluminum.
Economic uncertainty: Economic uncertainty has affected business and consumer confidence, though Canada's economy and employment remain resilient.
AML remediation program: Significant investments and ongoing work required for U.S. AML remediation, with critical milestones extending into 2026 and 2027.
U.S. balance sheet restructuring: Efforts to comply with asset limitations and improve returns involve significant restructuring, including asset reductions and investment portfolio repositioning, which have incurred upfront losses.
Performing provisions for credit losses (PCLs): Elevated performing provisions for policy and trade uncertainty, though credit performance remains strong.
Regulatory compliance costs: Continued investments in governance, control, and compliance, including AML and transaction monitoring systems, are driving up expenses.
Macroeconomic conditions: Potential risks from macroeconomic conditions, including trade and tariff uncertainties, which could impact PCLs and overall financial performance.
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Guidance & Outlook
AI Use Cases: For next year, TD expects AI use cases to generate $200 million in incremental value, focusing on customer acquisition, customer insights, and risk management.
Expense Growth and Operating Leverage: TD is on track to deliver 3% to 4% expense growth and positive operating leverage in fiscal 2026.
Earnings and ROE Targets: TD expects to achieve 6% to 8% EPS growth and 13% ROE targets for fiscal 2026, with potential upside from strong business momentum and favorable macroeconomic conditions.
Share Buyback Program: TD plans to complete its current $8 billion share buyback by the end of Q1 2026 and initiate a new $6 billion to $7 billion share buyback program, subject to regulatory approval.
U.S. Retail Balance Sheet Restructuring: TD aims to maintain a buffer to the asset limitation and has created $52 billion of capacity for core loan growth. The restructuring is expected to generate an NII benefit of approximately $550 million pretax in fiscal 2026.
Restructuring Program Savings: TD expects annual run rate savings of approximately $750 million pretax from its restructuring program.
PCL Guidance: TD expects PCLs to be in the 40 to 50 basis points range for fiscal 2026, an improvement from the 45 to 55 basis points range guided for fiscal 2025.
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Shareholder Return Plan
Dividend Increase: TD Bank announced a $0.03 dividend increase, bringing the dividend to $1.08 per share. This reflects confidence in the bank's future growth and earnings power.
Dividend Review Cycle: The bank has moved from an annual dividend review cycle to a semiannual cycle to better align shareholder returns with earnings growth.
Current Share Buyback Program: TD Bank is over 75% through its current $8 billion share buyback program, having repurchased 65 million shares for over $6 billion. The program is expected to be completed by the end of Q1 2026.
New Share Buyback Program: Subject to regulatory approval, TD Bank plans to initiate a new share buyback program of $6 billion to $7 billion after completing the current program. This is part of the strategy to return capital generated from the Schwab sale to shareholders.
Total Payout Ratio: For fiscal 2025, TD Bank delivered a total payout ratio of 93%, including share buybacks and common share dividends.
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Key Q&A
Q:What are the dynamics behind the degradation on residential mortgages year-over-year, and why hasn't the HELOC portfolio shown similar degradation?
A:Ajai Bambawale explained that the Canadian housing outlook is slightly better due to pent-up demand and a better job market. The customer profile remains strong across RESL, HELOC, and residential mortgages. Metrics like uninsured current LTVs are low at 56%, and delinquencies across residential mortgages and HELOCs are stable. Impaired PCLs are slightly higher but quantified at $6 million, and gross impaired loans increased by $55-$60 million, mainly from vintages from '22 to '24. Despite some uptick in residential mortgages, the portfolio is considered strong.
Q:Can the CET1 ratio flex into mid-13s over the next year via RWA growth, or should we expect an increase in buybacks?
A:Raymond Chun and Kelvin Vi Tran explained that the CET1 ratio is at 14.7%, and they plan to complete the existing share buyback program by Q1 and initiate a new $6-$7 billion buyback program, subject to regulatory approval. They aim to grind down the CET1 ratio, but market conditions will influence the pace. They do not expect to reach 13% by 2026 but possibly by 2027.
Q:Is there a scenario where the asset cap could get reviewed as early as 2027, assuming sustainability is demonstrated in 2026?
A:Leo Salom stated that while he cannot comment on the timing of relief, progress has been made on management actions, including transaction monitoring and AI tools. Internal audit validation and collaboration with regulators are critical to demonstrating sustainability and earning release from the consent order. Progress updates will be provided in the coming quarters.
Q:Could wider mortgage spreads positively impact the margin outlook in Canada?
A:Sona Mehta explained that positive expansion in origination margins has been observed for several quarters, contributing to a broader tailwind. Proprietary mortgages booked through branches or MMS channels are increasing, offering better margins. This mix and margin expansion in the RESL book are expected to continue favorably.
Q:What caused the weaker bottom line results in the insurance business despite low CAT this quarter?
A:Raymond Chun explained that the insurance business rebalanced its portfolio to reduce concentration in high severe weather regions, impacting Q4 results. This adjustment is expected to improve resiliency and stability of earnings going forward. Full-year performance showed strong gross written premiums and an ROE of 24.2%.
Q:Why is deposit growth not matching the pace of loan growth in Canada, and what is TD doing to accelerate low-cost deposit growth?
A:Sona Mehta stated that TD has seen strong growth across deposits, cards, and RESL. There is a shift towards non-term deposits, which aligns with industry trends. TD has a strong position with 69% of deposits in non-term accounts compared to the industry average in the mid-50s. The bank is pleased with its current deposit growth and mix.
Q:Why has deposit growth in the U.S. declined slightly, and what is the outlook for 2026?
A:Leo Salom explained that the decline is due to planned runoff of Schwab sweep deposits and targeted reduction in government banking collateralized portfolios. Pricing discipline has been implemented to manage healthy deposit margins, resulting in a 5 basis point expansion in deposit margins. Core deposit growth is expected to return to mid-single-digit rates over the medium term.
Q:Which business segments are likely to exceed or fall below the 6%-8% adjusted EPS growth target for 2026?
A:Raymond Chun highlighted strong momentum across all business segments. Fee income businesses like TD Securities and Wealth Management are providing tailwinds, while core banking fundamentals in Canada and the U.S. are better than expected. Wholesale Banking and Canadian Business Banking also show strong growth and efficiency improvements.
Q:Under what conditions would TD not proceed with its buyback program?
A:Kelvin Vi Tran stated that the pace of buybacks depends on market conditions and regulatory approvals. While TD is not highly price-sensitive, market volatility and regulatory constraints could influence the execution of the buyback program.
Q:Review of Unclear Management Responses
A:Management avoided providing a direct answer to the question about the timing of asset cap relief in 2027, stating they could not comment on the timing but emphasized progress on management actions and collaboration with regulators.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Banking record
Day AI
Group President
PCLs trade
ROE RWA
ROE target
Slide momentum
TD Bank
accuracy
activity Slide
backdrop capital
benefit pretax
business household
buyback end
case value
commitment
condition PCLs
confidence
deposit loan
discipline
dividend
economy
employee Slide
end process
expense leverage
investigation
investing
investment activity
machine learning
modernization
net ISE
outcome
record deposit
record income
record sale
relationship client
runoff
shareholder
tailwind condition
target Investor
trade day
trade tariff
transition
use case
value use
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