Toronto-Dominion Bank Q4 2025 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Ebrahim Poonawala - Bofa Merrill Lynch Asset Holdings Inc - Analyst : Maybe for Kelvin or Ray, just in terms of capital, when we look at the CET1 at 14.7%, half of retained earnings going to dividends, half going into buybacks, I guess, would be the way to think about it. Do you think you can flex this capital ratio into -- I think you've talked about mid-13s over the next year via RWA growth? Or should we expect the piece of buybacks to materially increase over the next few quarters? LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Ebrahim Poonawala - Bofa Merrill Lynch Asset Holdings Inc - Analyst : That's helpful. And if I can have a follow-up for Leo, maybe on slide 6, Leo. So I just want to make sure I understand this correctly. I understand you need to demonstrate sustainability. Nothing needs to break in a material way. But just hypothetically, if we go through all of '26 through the sustainability review, I'm just wondering, in a world where there was no big sort of leakage in terms of all the systems that you put in place, is there anything different that needs to happen in 2027? And I'm asking this in the context of the US regulatory framework that's becoming a little more pragmatic and not sort of belaboring banks that have had issues in the past. I'm just wondering, is there a scenario where assuming you check all the boxes in '26 on sustainability, where maybe the asset cap could get reviewed as early as '27? Leovigildo Salom - Toronto-Dominion Bank - Group Head U.S. Retail, TD Bank Group and President and Chief Executive Officer, TD Bank, America's Most Convenient Bank Yes. No, thank you very much for the question, Ebrahim. I won't comment with regards to the timing of any sort of relief. But I will -- I just wanted to maybe provide a little bit of color to your question. I think to your point, I think we've made really good progress on the delivery of the management actions. And I've reiterated some of the areas where we've made progress, whether that's the transaction monitoring platform the work that we've done on the customer risk rating tools, the AI tool. LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Gabriel Dechaine - National Bank Financial Research - Analyst : The margin outlook more stable or relatively stable, whatever. In Canada, I'm just wondering because a few of your peers, I mean, there's a bit of a mixed bag, perfectly, but some peers are talking about and exhibiting a wider benefit from wider mortgage spreads. And I'm wondering if that's something that could factor into your outlook and surprise on the positive side. Then on expenses, you had guided to 5% to 7% growth this year. It came in at 10%, including 10% in Q4. And you talked about some year-end investment undertakings that you took advantage of the strong revenue growth, that's fine. I'm just wondering about 2026, you're guiding mid-single digits now. You've taken another restructuring charge those investments you made perhaps help your efficiency performance. Are you -- you should be more capable to deliver you more committed as well as the question.

Question: Gabriel Dechaine - National Bank Financial Research - Analyst : That tractor to win is sort of flattening out, I guess, is that what you're saying? LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Gabriel Dechaine - National Bank Financial Research - Analyst : So I'm not quite clear on the mortgage commentary then and some other banks, I mean quite specific that it's going to be good. You've originated a bunch in 2021, 2022 that were -- was a very competitive environment and the renewals are coming in at higher spreads. Is that not something dynamic that will work in your favor?

Question: Gabriel Dechaine - National Bank Financial Research - Analyst : All right. Then on the expenses?

Question: Doug Young - Desjardins Securities Inc - Analyst : Hopefully, this will be relatively quick. But Leo, you said at a target at the Investor Day, and thanks, Ray, and everyone for all the other targets and guidance provided in the remarks that you set a target of USD2.9 billion for fiscal '26 at the Investor Day. Just wondering how you're feeling about that as you sit and look at today and all the different variables, macro rates, balance sheet restructuring expenses. Can you impact that? Leovigildo Salom - Toronto-Dominion Bank - Group Head U.S. Retail, TD Bank Group and President and Chief Executive Officer, TD Bank, America's Most Convenient Bank Sure, Doug. Maybe I can just ask you to take a look at the quarter as sort of an indication of the momentum going into 2026. We're really pleased with the quarter revenue growth of 7% and -- that was driven by a 7% growth in NII on 6 basis points worth of NIM expansion. But also, we had about an 11% growth in fees, where we saw service fees, our lending fees and wealth management all contributing to a double-digit growth rate. And I do think that's a sustainable momentum as we go into 2026. Expenses, we did a very aligned to raise point. We did see moderation in the expense growth profile in the fourth quarter. Expenses were up 5%, but we did manage positive operating leverage of 232 basis points and our commitment and our guidance of mid-single-digit expense growth stands, we feel quite comfortable with that. And then, as Ajai outlined, I think from a PCL perspective, PCL came in at $220 million, which was down on a quarter-on-quarter basis and down year on year, and it was the lowest level of PCL that we've had since the last quarter of 2023. So if you look at all of the fundamental indicators, I feel quite comfortable with the guidance of both the $2.9 billion NIAT target for the year, but also the return on equity number. Our return on equity for the quarter closed at 9.3%. We've managed to post 180 basis points worth of ROE improvement since the fourth quarter of last year. So Doug, at this point, obviously, we still have a lot of macro uncertainty. We still have to work through potential rate declines that will obviously add some degree of uncertainty for next year. But from an underlying business momentum perspective, I'm quite confident with some of the guidance that we provided on the September Investor Day.

Question: Doug Young - Desjardins Securities Inc - Analyst : So you moved out of the high cat zones or you were in high cat zones and therefore, that impact in Q4, and therefore, you've moved out of that, and that should benefit you going forward. Is that...

Question: Paul Holden - CIBC World Markets Corp - Analyst : I want to ask a couple of questions on deposit growth, maybe starting with Sona because you already gave some flavor on NIM sort of tailwinds and headwinds and you mentioned that deposits not quite growing at the same pace as loans. So if you can talk about why that is and what TD is doing to accelerate particularly low-cost deposit growth?

Question: Paul Holden - CIBC World Markets Corp - Analyst : Okay. Okay. So no reason to suggest any kind of change in trend then in the near term? You're happy with where you are.

Question: Paul Holden - CIBC World Markets Corp - Analyst : Okay. I also want to ask Leo about deposit growth there. It's it's down a little bit Q-over-Q and year over year. I'm not going to make a big deal of it, because it's not down a lot, but still down. Like how should we think about that in '26. Should we start to see those personal deposits growing again? Or are they continue to shrink because maybe you continue to rationalize the retail store count? Just help us think through that. Leovigildo Salom - Toronto-Dominion Bank - Group Head U.S. Retail, TD Bank Group and President and Chief Executive Officer, TD Bank, America's Most Convenient Bank Sure, Doug. Thank you. So if you look at our deposit numbers on a headline basis, they were down slightly. The runoff is really coming from the Schwab sweep deposits running off, essentially as planned. We had indicated that under the new agreement, Schwab did have the ability to bring down the overall level of sweep deposits and they're executing that plan as per the agreement. In addition, we've targeted the government banking collateralized portfolios, those that provide us very little liquidity, largely commoditized in terms of pricing, we targeted about $5 billion of that portfolio for runoff, and that was aligned to the overall portfolio balance sheet restructuring activity. In addition, we have taken from about -- as you know, earlier this year, we had taken a very defensive posture in terms of pricing to defend our deposit base, as we move through the year as we've made progress on the balance sheet, restructuring on the lending side or on the asset side of the house, we've also looked at our deposit business and implemented much more pricing discipline around some of our higher-priced deposit categories, both in consumer and corporate to make sure that we are managing healthy deposit margins. And in the quarter, we saw a 5 basis point expansion in deposit margins as a result of the actions that we're taking. So given where we are in the US, given the restructuring activities, we are being more selective around our pricing and we have the opportunity to do so and that is translating into some margin expansion for us. So to your point with regards to the outlook, absolutely, I expect us to go back to a growth posture, but particularly around our core deposits, our core checking account, interest and noninterest-bearing checking account balances, we believe that's critical for long-term profitability. LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Paul Holden - CIBC World Markets Corp - Analyst : Is it too early to ask for that in '26 or not? Leovigildo Salom - Toronto-Dominion Bank - Group Head U.S. Retail, TD Bank Group and President and Chief Executive Officer, TD Bank, America's Most Convenient Bank I think we've already provided enough guidance at this point. So maybe next quarter.

Question: Sohrab Movahedi - Bank of Montreal - Analyst : Okay. Ray, I just wanted to focus on slide 16, you have some targets for 2026, including 6% to 8% adjusted EPS growth. I wonder if you could just tell us which business segments are likely to exceed that and which may be a little bit below that? In other words, how is that -- are you arriving at that by business segment?

Question: Sohrab Movahedi - Bank of Montreal - Analyst : Yes. That's very helpful. And I just wanted to get with Kelvin on this, but -- and get him to clarify something in the context of buybacks, I think a couple of times you mentioned subject to market conditions. So under what conditions would you not do the buyback?

Question: Sohrab Movahedi - Bank of Montreal - Analyst : So you're price sensitive?