Q1 2025 Earnings Summary
- TD Bank expects substantial expansion in Net Interest Margin (NIM) in its U.S. Retail segment, driven by ongoing balance sheet restructuring activities and normalization of liquidity levels, which are anticipated to positively impact NIM and Net Interest Income growth over the course of the year. ,
- TD Bank has a strong capital position with a CET1 ratio of 13.1%, and following the sale of its Schwab stake, it expects to have an approximate CET1 ratio of 14.2%. This strong capital base provides flexibility for share buybacks or significant organic growth opportunities, potentially enhancing shareholder value.
- TD Bank is seeing promising growth in its Canadian mortgage business, particularly through its proprietary channels. It delivered $1 billion in funded volumes through enhanced referral programs, marking the best Q1 on record for their Mortgage Specialists, indicating strong fundamentals and bold aspirations for growth in this segment.
- Elevated expense growth driven by higher governance and control investments, including costs for U.S. AML remediation, which are expected to continue into the next quarter and may impact earnings.
- Potential negative impact of policy and trade uncertainty on credit quality, leading to increased provisions for credit losses, as the bank has taken initial steps to bolster reserves for policy and trade uncertainty.
- Slower mortgage growth in the Canadian market compared to peers, with flat quarter-over-quarter growth, which may indicate challenges in gaining market share or weaker growth prospects in this segment.
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
U.S. Retail Performance | Emphasized in Q3 2024 with strong operating momentum, peer‐leading loan growth, and in Q2 2024 with double‐digit growth in certain areas (e.g., auto originations, bank card book) | Q1 2025 continued to highlight consistent U.S. Retail performance with moderate loan and card growth along with ongoing balance sheet restructuring | Consistent emphasis; performance metrics remain robust with refined focus on liquidity normalization |
Net Interest Margin (NIM) Expansion | In Q3 2024, modest NIM expansion was noted driven by higher deposit margins, while Q2 2024 mentioned modest expansion expectations from balance sheet adjustments | Q1 2025 stressed NIM expansion through balance sheet restructuring and liquidity normalization with an expectation of substantial benefit in upcoming quarters | Augmented focus; expectations for further expansion are more pronounced in Q1 2025 |
Recurring Expense Management and Cost Discipline Trends | Q3 2024 described elevated expense growth offset by productivity initiatives (e.g. FTE reductions, real estate optimization) and Q2 2024 similarly noted restructuring and productivity efforts amid modest expense increases | Q1 2025 discussed a marked shift from elevated expense growth toward targeted productivity initiatives, aiming to rightsize the cost base while managing ongoing investments in governance and control | Shift to productivity initiatives; the narrative has evolved to emphasize cost optimization amid high expenses |
Persistent AML Remediation, Regulatory Compliance, and Litigation Risks | Q3 2024 reported heavy AML-related provisions (e.g. a provision of USD 2.6 billion) and detailed significant remediation efforts including hiring and technological investments; Q2 2024 similarly stressed heavy investments in AML remediation and regulatory cooperation | Q1 2025 reiterated AML remediation as the #1 priority with continued investments, though Q1 reported lower immediate remediation costs (e.g. $86 million) while forecasting higher future costs and outlining ongoing enhancements in monitoring and investigative processes | Persistent focus with moderated immediate costs; remediation remains a significant, ongoing financial focus |
Capital Position Strength and Strategic Flexibility | Q3 2024 highlighted a CET1 ratio of 12.8% supported by share buyback activity and Q2 2024 reported a CET1 of 13.4% along with ongoing buyback programs, demonstrating strong capital metrics despite expense pressures | Q1 2025 emphasized a robust capital position with a CET1 ratio of 13.1% (expected to reach 14.2% pro forma post Schwab stake sale and proposed $8 billion buyback) that affords strategic flexibility for organic growth and further capital optimization | Continued strength and improvement; capital metrics remain robust with an enhanced strategic buyback outlook |
Emerging Focus on Canadian Mortgage Business Dynamics | Q3 2024 stressed market share gains in real estate secured lending and in Q2 2024 noted record-funded volumes via initiatives like TD Mortgage Direct, reinforcing strong growth through market share gains | Q1 2025 spotlighted record-funded volumes (e.g. $1 billion in branch referrals) via proprietary channels while also noting concerns over flat quarter-over-quarter mortgage growth relative to peers | New emphasis on record-funded volumes with emerging market share concerns; focus shifting toward proprietary channels |
Declining Emphasis on Diversified Non‑Retail Segments | Q3 2024 and Q2 2024 highlighted strong performance across Wealth Management, Insurance, Wholesale Banking, and Canadian Personal Banking with positive operating leverage and record revenues, rather than any decline | Q1 2025 did not mention a declining emphasis; instead, it reported robust performance and achievements across these segments, reinforcing their importance within the broader business model | No decline observed; diversified non‑retail segments continue to perform strongly and remain a key focus |
Evolving Considerations on Credit Quality and Provisioning | Q2 2024 discussed increasing provisions driven by credit migration, volume growth, and elevated allowances to cover uncertainty; Q3 2024 mentioned stable provisioning with elevated coverage levels but without specific emphasis on policy/trade uncertainty | Q1 2025 provided an expanded view by explicitly incorporating policy and trade uncertainties into its credit loss provisioning, using overlays and multiple scenario modeling to assess potential impacts on future PCLs | Increased cautious emphasis; a more explicit focus on macro uncertainties impacting credit quality and provisioning has emerged in Q1 2025 |
-
U.S. NIM Expansion
Q: What is the outlook for U.S. net interest margin?
A: Management expects the U.S. net interest margin to expand substantially next quarter due to further normalization of liquidity and the full impact of bond repositioning activities conducted in the first quarter. Higher medium-term rates, about 50 basis points higher than a few months ago, are also anticipated to provide a tailwind, particularly in the second half of the year. -
Expense Growth Guidance
Q: How will expense growth trend this year?
A: Expenses are projected to increase in the first and second quarters due to remediation costs, but year-over-year expense growth is expected to moderate in the second half. Despite ongoing investments and restructuring costs, management aims to keep expense growth within the 5% to 7% guidance for the balance of the year. -
Balance Sheet Repositioning
Q: Can you reduce borrowings with asset sales?
A: The bank plans to further reduce its $25 billion in bank borrowings over time, partially utilizing proceeds from an agreed $9 billion portfolio sale in Q2. Selling lower-yielding assets is expected to be accretive to net interest income as it helps lower funding costs. -
Capital Deployment and CET1
Q: How will you deploy excess capital?
A: Management is identifying significant organic growth opportunities and considering portfolio simplification and balance sheet optimization to allocate capital effectively. If excess capital remains after these initiatives, they may consider potential share buybacks. -
$500 Million AML Remediation Costs
Q: Any risk of AML remediation costs exceeding $500 million?
A: The bank incurred $86 million in AML remediation expenses in Q1 and remains comfortable with the $500 million guidance for the year. While some costs may become more material in the second half, management has detailed action plans and will update stakeholders if there are any changes. -
Performing Provision Release
Q: Why was there a release in performing provisions?
A: A release occurred due to model refinements in the U.S. card portfolio and an improved macroeconomic outlook with slightly better GDP, lower unemployment, and higher housing prices. An overlay of $149 million was created to account for industries that may be impacted by tariffs. -
Canadian Mortgage Growth
Q: What's happening with Canadian mortgage growth?
A: Although growth was flat quarter-over-quarter, management is optimistic due to enhancements in proprietary channels and increased referrals, resulting in $1 billion in funded volumes and the best Q1 on record for mortgage specialists. Seasonal factors may have impacted the quarter's growth. -
All-Bank Margin Outlook
Q: How will the all-bank margin trend?
A: The total bank net interest margin is expected to improve, driven by stable P&C NIM, substantial expansion in the U.S., and tailwinds from Schwab earnings. Previous margin compression was due to higher asset levels in prime, which are lower-yielding but attractive from an ROE perspective due to favorable RWA treatment.