TD Bank - Earnings Call - Q4 2024

Transcript

Operator (participant)

Good morning, everyone. Welcome to the TD Bank Group Q4 2024 earnings conference call. I would now like to turn the meeting over to Ms. Brooke Hales, Head of Investor Relations. Please go ahead, Ms. Hales.

Brooke Hales (Head of Investor Relations)

Thank you, Operator. Good morning and welcome to TD Bank Group's fourth quarter 2024 investor presentation. Many of us are joining today's meeting from lands across North America. North America is known as Turtle Island by many Indigenous communities. 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 Anishinaabe, the Chippewa, the Haudenosaunee, and the Wendat peoples, and is now home to many diverse First Nations, Métis, and Inuit peoples. 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.

We will begin today's presentation with remarks from Bharat Masrani, the Bank CEO, followed by Ray Chun, the Bank COO, after which Kelvin Tran, the Bank CFO, will present our fourth quarter operating results. 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. Also present today to answer your questions are Sona Mehta, Group Head, Canadian Personal Banking; Barbara Hooper, Group Head, Canadian Business Banking; Leo Salom, President and CEO, TD Bank, America's Most Convenient Bank; Tim Wiggan, Group Head, Wholesale Banking and President and CEO, TD Securities; and Paul Clark, Senior Executive Vice President, Wealth Management. Please turn to slide two. As noted on slide two, 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, Ray, and Kelvin will be referring to adjusted results in their remarks. 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 (CEO)

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 U.S. AML remediation update. We have continued to onboard talent and deploy new data-driven technology solutions. This quarter, we implemented further improvements in transaction monitoring and refinements in our customer risk rating methodology. We also rolled out additional training for risk, governance, and control colleagues. 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. Remediation actions will then be subject to internal challenge and validation, including sustainability and testing activities, which are planned for calendar 2026 and 2027, followed by review and acceptance by the monitorship.

We will then work with our regulators to demonstrate the sustainability of our remediation actions. Our AML remediation will be a multi-year endeavor, and we will continue to provide updates on our progress. 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. We have learned from the U.S. experience and are applying those learnings globally. 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.

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, 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. On the retail side, slowing inflation and easing interest rates 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. This strong revenue growth was driven by higher fee income in market-related businesses and higher volumes in Canada.

Expenses this quarter reflected investments in our risk and control infrastructure and several notable items totaling approximately CAD 150 million, including costs associated with our Nordstrom program agreement extension and legal and regulatory costs. We also saw record catastrophic claims in our insurance business and increased impaired PCLs in our non-retail lending portfolios. This quarter, earnings were CAD 3.2 billion and EPS was CAD 1.72, down 8% and 5% year-over-year, respectively. As of quarter end, the Bank's 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. We remain confident in the earnings power of our franchise and have today declared a CAD 0.03 dividend increase, bringing our dividend to CAD 1.05 per share. Let me now turn it over to Ray in his new role as Chief Operating Officer.

Raymond Chun (COO)

Thank you, Bharat and good morning, everyone. 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. Since September, I've met with colleagues, customers, clients, and investors. It has reaffirmed my confidence that TD is a fantastic franchise with scaled businesses in every market in which we operate and products and services that resonate with our nearly 28 million customers. These solid business fundamentals have enabled the Bank to deliver strong underlying performance over the past few quarters. We've also seen opportunities for TD to improve execution, for example, by increasing ownership and accountability in our decision-making and becoming even more digital and mobile-enabled. We can simplify processes to drive efficiency, creating more capacity to invest in risk and controls, customer experience, and future capabilities.

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. 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, and we plan to hold a bank-wide Investor Day in the H2 of 2025 to update you on this strategic review. AML remediation remains our top priority. We have assembled an AML team with experienced executives and specialists from across the industry, and I've been clear that my expectation is that accountability goes beyond the AML team.

We've established clear accountability and alignment across all three lines of defense, starting on the front line and carrying through to risk management and audit teams, both for the U.S. and the enterprise more broadly. We are driving change and working to prevent this type of failure from happening again. We will also continue to execute against the U.S. balance sheet restructuring strategy that we outlined on October 10th. Kelvin will share some details on our progress. For the U.S. retail segment, we will focus on client sectors where we have scale, market share, and competitive advantage, with the objective of enhancing ROE over time. 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, and we believe we can do even more to deepen customer relationships across the Bank.

As we highlighted at our Investor Day, with TD scale in Canada, we have a powerful OneTD organics opportunity. We also have strong growth opportunities in TD Securities. 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. 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. 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.

We had a strong quarter in Canadian personal and commercial banking with record revenues, positive operating leverage, and robust loan and deposit growth. We built on our momentum in key businesses over the quarter. In our market-leading core deposit franchise, we delivered strong performance on checking account acquisition, capping off a record year. In fact, this year, we achieved one of the medium-term aspirations that we outlined at our 2023 Investor Day. We have grown new-to-Canada acquisition by 50%. 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. In real estate secured lending, we delivered year-over-year market share gains 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 lead programs.

In business banking, we've seen deposit growth momentum, 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. Net income declined 13% year-over-year, driven by higher PCLs and higher expenses. I am delighted to announce that we have extended our program agreement with Nordstrom's to 2039 and that upon conversion, 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. 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.

Forbes ranked our healthcare team as the number one lender for healthcare professionals for the second consecutive year. In wealth management and insurance, 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. Our insurance business was impacted by the Calgary hailstorm and Montreal floods. A few highlights from the quarter: we launched TD Active Trader Live, a new weekly streaming program designed to enhance clients' trading experience with in-depth analysis and insights. Since TD Active Traders' launch in Q2, we've seen a 38% increase in new and existing active traders utilizing the platform. TD Asset Management grew market share in ETFs and now offers 48 ETFs across asset classes, geographies, and currencies.

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. Wholesale banking continued to demonstrate the power of the combined TD Securities, TD Cowen, and franchise, with revenues of $1.8 billion and a number of firsts, where the team is winning mandates together that neither legacy business would have won alone. 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: TD Securities was joint lead on TD's secondary sale of Schwab's shares in a $2.5 billion USD block trade, one of the 10 largest U.S. block trades since 2010. TD Cowen's research platform continued to shine in the 2024 Extel research surveys.

In Canada, we finished in third place, increasing the number of ranked sectors from four in 2023 to 11 in 2024 and ranked number one in telecom and media. In the U.S. survey, TD Cowen's Washington research group was ranked number one. In addition, this quarter, TD Securities was recognized in four categories at the Euromoney FX Awards. For fiscal 2025, it will be challenging to generate earnings growth as the Bank navigates a transition year, continues to advance its AML remediation with investments in risk and control infrastructure and investments in its businesses. As I mentioned, we are undertaking a broad-based strategic review. We will reassess organic opportunities and priorities, productivity and efficiency initiatives, and capital allocation alternatives with the objective of delivering competitive returns for all our shareholders. As a result of this, we are suspending our medium-term adjusted EPS growth, ROE, and operating leverage targets.

Expect to provide updates on our strategic review and medium-term financial targets in the H2 of 2025. I remain confident in the earnings growth potential of our Canadian personal and commercial banking, wealth management, insurance, and wholesale banking segments, and while we expect that the U.S. balance sheet restructuring and AML remediation will impact the U.S. retail segment, we remain committed to the U.S. market and confident in the strength of our franchise. So to close, 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 Hurricane Helene and Milton. More broadly, I want to thank all our TD colleagues. Through a challenging year, you have demonstrated resolve and commitment, 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 (CFO)

Thank you, Ray. Good morning, everyone. Please turn to slide nine. For 2024, earnings were CAD 14.3 billion, down 5%, and EPS was CAD 7.81, down 1% year-over-year. Overall, 2024 was a challenging year. Revenue grew year-over-year, driven by momentum in our markets, driven businesses in higher volumes and deposit margins in Canadian personal and commercial banking. Expenses also increased year-over-year, reflecting investments in our risk and control infrastructure, higher employee-related expenses, including TD Cowen, and higher technology spend supporting business growth. Last quarter, we guided to fiscal 2024 expense growth in the high single digit. Actual expense growth came in at 10% year-over-year. While there were many moving parts, the variance was mainly due to the CAD 150 million in notable items that Bharat mentioned earlier. In addition, occupancy costs increased this quarter by approximately CAD 90 million, reflecting timing of building exits and store renovation.

We continue to prioritize our U.S. AML remediation program while working to manage expenses diligently. We expect fiscal 2025 expense growth to be in the 5% to 7% range, reflecting investments in our risk and control infrastructure and investments supporting business growth, including employee-related expenses, net of expected productivity, and restructuring run rate savings. Total Bank PTPP was up 2% year-over-year, consistent with prior quarters. Slide 27 shows how we calculated adjusted Total Bank PTPP 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 charge. Please turn to slide 10. 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. Revenue grew 12%, of which 5% reflected reinsurance recoveries for catastrophe claims.

The remaining increase was driven by higher fee income in our markets-driven businesses, volumes in Canadian personal and commercial banking, deposit margins, and insurance premiums. Expenses increased 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. Total Bank PTPP was down 2% year-over-year after removing the impact of the US strategic card portfolio, along with the impact of foreign currency translation and the insurance fair value charge. Please turn to slide 11. 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, with 4% growth in personal volumes, driven by real estate secured lending up 4% and cards up 9%, and 6% growth in business volumes.

Average deposits rose 5% year-over-year, reflecting 6% growth in personal deposits and 4% growth in business deposits. Quarter-over-quarter, deposit growth outpaced loan growth. TD's large base of stable retail and commercial deposits remained the primary source of long-term funding for the Bank. 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 CORRA-based loans. Do not expect any further NIM impact from this transition. 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, and tractor-on and off rates, we expect NIM to remain relatively stable. Expenses increased, reflecting high technology and marketing spend supporting business growth. The business delivered positive operating leverage again this quarter. Please turn to slide 12.

This quarter, the U.S. retail bank continued to focus on AML remediation and made progress against our balance sheet restructuring strategy. We have reduced assets from $434 billion as of September 30 to approximately $431 billion as of October 31, using proceeds from investment maturities plus cash to pay down certain short-term borrowings. Since quarter end, we have paid down an additional $14 billion of bank borrowings, using mainly cash, contributing to a further reduction in U.S. assets. As a reminder, TD's two U.S. banking subsidiaries must comply with the asset limitation beginning March 31st, 2025. The total asset test is performed quarterly and is an average of the combined asset balances at the end of the current year, current quarter, sorry, and the preceding quarter.

Q4, we also sold approximately $2.8 billion of bonds as part of our investment portfolio repositioning, resulting in an upfront loss of $226 million pre-tax and an expected benefit of $89 million in net interest income in fiscal 2025. Since quarter end, we have sold an additional $3.3 billion of bonds, resulting in an upfront loss of approximately $236 million pre-tax and an estimated benefit of $80 million to $90 million in net interest income in fiscal 2025. 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. This quarter, the U.S. retail bank delivered average loan volumes up 3% year-over-year and flat average deposit volumes, excluding sweep deposits. Net interest margin was 2.77%, down 25 basis points quarter-over-quarter.

Substantially all of this decrease was driven by maintaining elevated liquidity levels as a prudent risk management measure. Excluding this impact, NIM would have been relatively stable. As we look forward to Q1, while many factors can impact margins, we expect NIM to expand modestly, driven by balance sheet restructuring actions, partially offset by deposit spread compression, driven by Fed rate actions and competitive market dynamics. Expenses increased 4% year-over-year, largely reflecting costs associated with the extension of our credit card program agreement with Nordstrom, higher legal and regulatory expenses, and higher operating expenses, partially offset by ongoing productivity initiatives. As a reminder, we intend to reflect U.S. governance and control costs in the U.S. retail segment effective in Q1 2025. For fiscal 2024, these expenses were largely in line with our forecast of approximately $350 million pre-tax. Please turn to slide 14.

Wealth management and insurance delivered record revenue and strong underlying business performance this quarter. 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. While we saw net asset growth across all business lines, insurance service expenses increased 76%, of which 66% is attributable to higher catastrophe claims in the quarter. Remaining increase reflects less favorable prior years' claims development and increased claim severity. We saw record catastrophe claims of CAD 388 million this quarter due to severe weather-related events in Calgary and Montreal in August. As you may have seen, to help support analysts and investors' analysis in our insurance business performance, we disclosed this number on November 5. Going forward, we intend to continue this practice and provide disclosure of catastrophe claims net of reinsurance shortly after the end of the fiscal quarter.

Expenses were up 16% year-over-year. 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 increased year-over-year, reflecting market appreciation. Assets under administration increased year-over-year, reflecting market appreciation and net asset growth. Please turn to slide 15. Wholesale Banking continued to perform. Year-over-year revenue growth reflects higher lending revenue, underwriting fees, and trading-related revenue. We saw higher PCLs this quarter, reflecting a small number of impairments across various industries. Expenses increased 1% year-over-year, and the business delivered positive operating leverage this quarter. Please turn to slide 16. The net loss for corporate for the quarter was CAD 361 million. Net corporate expenses increased CAD 323 million compared to the prior year, primarily reflecting higher investments in risk and control infrastructure. Please turn to slide 17.

The common equity tier one ratio ended the quarter at 13.1%, up 27 basis points sequentially. 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. The August sale of 40.5 million Schwab shares increased CET1 by 54 basis points. We had a negative 35 basis point impact to CET1 from the operational risk RWA impact of the bank's provisions for investigations into the U.S. BSA AML program last quarter. 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. This resulted in an upfront loss of $234 million pre-tax, or negative 4 basis points to CET1. That, Ajai, over to you.

Ajai Bambawale (CRO)

Okay. Thank you, Kelvin, and good afternoon, everyone. Please turn to slide 18. Gross impaired loan formations were 28 basis points, an increase of 6 basis points quarter-over-quarter, driven by the Canadian and U.S. commercial and wholesale banking lending portfolios related to a small number of borrowers across a number of industries. Please turn to slide 19. Gross impaired loans increased CAD 779 million, or 8 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. We call that our presentation reports PCL ratios, both gross and net, of the partner share of the U.S. strategic card PCLs. 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.

For 2024, the bank's full-year PCL rate was 46 basis points, up 12 basis points from the prior year, reflecting normalization of credit performance and consistent with our PCL guidance provided at the start of the year. Please turn to slide 21. The bank's impaired PCL was CAD 1.15 billion, an increase of CAD 233 million quarter-over-quarter, largely related to credit migration in the non-retail lending portfolios. A performing PCL release of CAD 44 million was recorded across the Canadian personal and commercial banking and U.S. retail segments this quarter, 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. The allowance for credit losses increased by CAD 303 million quarter-over-quarter to CAD 9.1 billion or 95 basis points, primarily due to higher impaired allowance in the business and government lending portfolios and a CAD 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. Looking forward, while results may vary by quarter and are subject to changes to economic conditions, we expect fiscal 2025 PCLs to be in a range of 45 to 55 basis points, as some further pressure on credit is expected to play out as we move through this credit cycle. With that, operator, we are now ready to begin the Q&A session.

Operator (participant)

Thank you. We will now take questions from the telephone lines. If you have a question, please press star one. You may cancel your question at any time by pressing star two. So please press star one at this time if you have a question. There will be a brief pause while the participants register for the questions. We thank you for your patience. The first question is from Gabriel Dechaine from National Bank Financial. Please go ahead. Your line is open.

Gabriel Dechaine (Managing Director and Senior Equity Analyst)

Good morning. Just a quick one. There's a lot of moving pieces in this balance sheet optimization. I'm going back to 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 a nearly mid-range $400 million USD benefit to NII. If I look at what you disclosed so far, I've got about $6 billion, including what happened after December 4. 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.

Kelvin Tran (CFO)

Hi, it's Kelvin. I can take that. Not every bond has 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 more losses upfront.

Gabriel Dechaine (Managing Director and Senior Equity Analyst)

Okay. So it's just a matter of the nature of what you sold, not some weird thing that I overlooked. And then professional fees, I guess, just to get a you did highlight, or Bharat and Kelvin, you both highlighted expense items like the real estate stuff, and then there's the Nordstrom costs, and then professional fees. That one jumped out at me a bit. It popped up over CAD 1 billion this quarter. And I'm wondering how much of that increase is related to the already disclosed remediation costs, and how much of that is kind of, I'll call it ad hoc.

And is this something that we could be bearing for a while? Because I think a lot of people, myself actually, are wondering about the unintended or unexpected indirect costs related to this remediation program and AML issue. Because I appreciate you can't isolate everything, but there's bound to be stuff that comes out of nowhere.

Kelvin Tran (CFO)

Kelvin, so if you're looking at the outlook, the expense guidance we provided in 2025, which is an increase of 5%-7%, that would be inclusive of professional fees and remediation costs.

Gabriel Dechaine (Managing Director and Senior Equity Analyst)

Okay. So this increase that I saw, they went over CAD 1 billion. Does that include the remediation costs and then other costs that may have not been anticipated?

Kelvin Tran (CFO)

Yeah. So I think the CAD 1 billion that you see there, that table includes adjusted, and really they're reported expenses, so you have to take some items out.

But professional fees is a way for us to ramp up when we accelerate remediation. And that would be, yes, whether they're billed or on some of the BAU work because of the fact that we needed the help in the short term.

Gabriel Dechaine (Managing Director and Senior Equity Analyst)

I've got 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 CAD 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?

Kelvin Tran (CFO)

Correct. Yes.

Gabriel Dechaine (Managing Director and Senior Equity Analyst)

All right. Thank you.

Operator (participant)

Thank you. The next question is from Meny Grauman from Scotiabank. Please go ahead.

Meny Grauman (Managing Director and Equity Research Analyst)

Hi. Good morning. A few questions on the strategic review. First off, just want to understand when you actually began the strategic review. That'd be helpful to know.

Raymond Chun (COO)

Meny, it's Ray. Let me take that. So we've started the strategic review as of last month, and certainly are starting to dig into it. 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 it 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, and so I look forward to sharing more with you in the H2 of 2025.

Meny Grauman (Managing Director and Equity Research Analyst)

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 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?

Raymond Chun (COO)

If I look at it more in the sense of the incoming CEO, Meny, that 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.

Meny Grauman (Managing Director and Equity Research Analyst)

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 U.S.?

Raymond Chun (COO)

As I said, we're going to be a thorough, comprehensive review, and everything is on the table.

Meny Grauman (Managing Director and Equity Research Analyst)

Okay. Thank you.

Operator (participant)

Thank you. The next question is from Ebrahim Poonawala from Bank of America. Please go ahead.

Ebrahim Poonawala (Research Analyst)

Good morning. I guess maybe just following up on the strategic review. So I think the messaging is right, Ray, 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+ years. 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've identified as not quite performing as well, which may impede your ability to achieve those prior targets? I'm just trying to figure out 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?

Raymond Chun (COO)

Good question, Ebrahim. I'd say again, let me start by saying I do have confidence in our businesses across TD. And you've seen the momentum that we've had in whether it's the Canadian personal and commercial bank, Wealth Management, TD Securities. And certainly, we built a fantastic franchise in the U.S. But I think it's important that we go through this process. It's going to be a thorough process, and 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.

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.

Ebrahim Poonawala (Research Analyst)

That's fair. And I guess, really, Kelvin, just following up two things, if you don't mind clarifying. Just want to make sure the 5%-7% expense growth is relative to the 29.148 full-year adjusted expense number. Is that right? Yes. 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?

Kelvin Tran (CFO)

Don't provide NII outlook for that long. I mean, all I would offer is the NIM guidance that we provided for both Canada and the U.S. businesses.

Ebrahim Poonawala (Research Analyst)

Got it. Thank you.

Operator (participant)

Thank you. The next question is from Paul Holden from CIBC. Please go ahead.

Paul Holden (Equity Analyst)

Thank you. 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. Want to make sure there's no message that any of that has changed. Maybe the targets end up changing a bit, but that all those growth opportunities you highlighted back in 2023 are still on the table.

Raymond Chun (COO)

Well, thanks for the question. Maybe I'll have our Sona, 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 on?

Sona Mehta (Group Head of Canadian Personal Banking)

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. Personal deposits, you've seen 6% growth year-over-year. We've grew our share in term materially. We've seen good growth on the loan side with 4% year-over-year. And as you heard, one of the three commitments that we outlined for ourselves at Investor Day, we have achieved on an accelerated basis that was outgrowing the newcomer to the Canadian population growth by 50%. So all in all, that's led to the strong quarter has led to capping off a record year this year for everyday checking acquisition.

So really a position of strength and momentum. Maybe I can just briefly comment on the two other items that we focused on at Investor Day. On the credit card side, as you heard from us earlier this year, we've now crossed 8 million active credit card accounts. 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. 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. And I'm pleased to share we've moved on to the next phase of execution on our specialization advice strategy.

So we now have placed specialized bankers in our branches for real estate secured lending and actually as well for investing. And they work as an ecosystem between the branches and our mobile mortgage sales force. We just started that this November, and we're already seeing really strong results.

That ecosystem delivers franchise relationships, very good retention profile and profitability profile. So we're really pleased with the first story there. And then I would say we continue to invest in technology and data. Our TD Mortgage Direct solution has been incredibly resonant with consumers, and we're seeing leads converting at three times the rate. And so across the board, you'll see us stay committed to the strategic pillars that we outlined at Investor Day. Just maybe close by saying we feel we have very strong momentum. 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.

Paul Holden (Equity Analyst)

Okay. Good to hear. And then last question for me. Just want to drill down on the expense guidance a bit of 5%-7%. When I go back to the slide deck you provided not that long ago, I think you expected roughly CAD 800 million of expense savings versus roughly $550 million of risk and control expenses. I'll call it roughly a wash, maybe a little bit net favorable. So when I think about that 5%-7% growth next year, I wonder where are those additional costs being allocated unless you're revising your risk and control expenses? I'm assuming they're going 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 (CFO)

Kelvin, I'll take that. So absolutely, we continue to invest in the business, and that is a big part of the increase. 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, there monitorship, and so forth. So all of that are included in that range as part of our forecast. But as you know, there are many, many moving parts, but that is our expected view today.

Paul Holden (Equity Analyst)

That's it for me. Thank you.

Operator (participant)

Thank you. The next question is from Darko Mihelic from RBC Capital Markets. Please go ahead. Go ahead.

Darko Mihelic (Managing Director and Senior Equity Analyst)

Hi. Thank you. A couple of questions. The first is a mechanical one on the AML issue. And apologies, I've never dealt with this before. I just want to understand the mechanics behind the dividend, or in other words, cash coming out of the U.S. up to the Canadian holding co. It's my understanding that you have to provide evidence that you've sort of done what you want to do. But what I don't understand is why they would ever give you permission. If you have a three- and four-year monitorship on the go, presumably they wouldn't be satisfied until you complete that. Why would they next year or whenever on an early basis give you the go-ahead to dividend of cash? Maybe you could just understand the mechanic of maybe it's something more rudimentary, and I'm just missing it.

Bharat Masrani (CEO)

Darko, this is Bharat. The main entity we have in the U.S. is the company that owns all the banks and what we call our intermediate holding company. Any dividends declared from that require 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. Well, 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.

Darko Mihelic (Managing Director and Senior Equity Analyst)

Okay. Thank you. My second question relates to the Schwab deposits. They're now down to $83 billion. And again, I just want to understand the mechanics of this program. That fell $17 billion from last year, actually from a peak of $153 billion. In my mind, the way this might work is if interest rates keep going down 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 in a year for your asset cap?

Kelvin Tran (CFO)

Darko, 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 of about $83 billion in size. And when the markets run, you tend to see more of those sweep deposits 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.

We would see in fact, we're seeing a slight stabilization in overall balances. As you know, when we renegotiated the agreement with Schwab, we actually provided Schwab with the flexibility to bring down the overall levels of deposits down to a floor of $60 billion. They've been executing against that. Most recently, we've seen a pause in that reduction, particularly on a spot basis in this quarter. 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 going back to our October 10th discussion, one of the reasons why we're executing against the balance sheet restructuring with so much purpose is to create the capacity to be able to comply with the asset cap.

We'll continue to do that because deposit growth does factor into asset cap, the overall asset cap calculation as well.

Bharat Masrani (CEO)

Darko, this is Bharat. Just to add, Schwab can take up the sweep deposits and go up, but there's a cap as to how well it can go: $30 billion above the minimum required to be held at TD.

Darko Mihelic (Managing Director and Senior Equity Analyst)

Okay. Thank you for that. That's good detail. I'll turn it back to you. Thank you.

Operator (participant)

Thank you. The next question is from Sohrab Movahedi from BMO Capital Markets. Please go ahead.

Sohrab Movahedi (Managing Director of Financials Research)

Okay. Thank you. I just wanted to clarify, as you do this strategic review, I assume you've put any capital allocation, for example, buybacks on hold. Is that the right way to think about it, Ray?

Raymond Chun (COO)

I think until we go through the strategic review at this moment, 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 as we work our way through the review. I'll keep everybody updated along the way.

Sohrab Movahedi (Managing Director of Financials Research)

And so you have I mean, you yourself are the Chief Operating Officer now. I think a number of the business heads around the table 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 Wiggan doing as far as TD Securities is concerned? Is he in a holding pattern? Or if they want to deploy capital, they're allowed to do that in advance of the strategic review being done?

Tim Wiggan (Group Head of Wholesale Banking)

Thanks, Sohrab. It's Tim Wiggan 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. 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 in terms of leveraging the existing client base, our existing capital with the combined platform. 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.

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, the fiscal year as a whole was CAD 7.3 billion in revenue, up 25%. The adjusted number, as you know, was CAD 1.4 billion in NIAT. If you add back the off-channel communication charge, which is obviously industry-wide, we came in at CAD 1.5 billion. So roughly CAD 380 million per quarter, which very much aligns with the CAD 375 million-CAD 425 million per quarter that you would have heard us talk about previously. So again, we have strong revenue. We have the right clients. We're adding capabilities to the equation. 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.

Sohrab Movahedi (Managing Director of Financials Research)

So you're not worried that as that two-year passes on, retaining people will be a problem for your business?

Tim Wiggan (Group Head of Wholesale Banking)

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 the best capabilities and the best platforms and the best technology, 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.

Sohrab Movahedi (Managing Director of Financials Research)

I appreciate you taking my questions. Thank you.

Operator (participant)

Thank you. The next question is from Darko Mihelic from RBC Capital Markets. Please go ahead.

Darko Mihelic (Managing Director and Senior Equity Analyst)

Hey. Thank you. All right. My last question is for Leo. Leo, can you give me a sense of how I should expect your non-interest income to behave over the course of the next year? It's been under pressure. If you can just give me any sort of view on that, that would be helpful. Thank you.

Leo Salom (Group Head of U.S. Retail Banking)

Darko, I think in a previous quarter, we talked a little bit about the fact that we had really weathered most of the overdraft pricing changes, and now that's fully baked into the run rate. That had been a significant drag for us cumulatively between both retail and small business overdraft fee reduction. That was nearly CAD 500 million 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 core checking account platform, which is really the crown jewel of the franchise, our retail deposit franchise, I would expect account fees in particular to grow in proportion to the growth 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. 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, 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-over-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.

Darko Mihelic (Managing Director and Senior Equity Analyst)

Okay. Great. That's helpful. Thank you. Happy holidays everyone.

Leo Salom (Group Head of U.S. Retail Banking)

Thanks, Darko.

Operator (participant)

Thank you. There are no further questions registered at this time. I will now turn the call back to Mr. Masrani.

Bharat Masrani (CEO)

Thank you very much, Operator. 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.

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. 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. Like I said earlier, while 2024 was a difficult year, TD remains a strong bank with tremendous advantages. In the weeks and months ahead, as Ray takes the reins, I know he, with the support of a strong bank.