TD Bank's Q3 2025 Earnings Call: Contradictions Emerge on U.S. Loan Growth, Strategic Card Cuts, and Expense Guidance

The above is the analysis of the conflicting points in this earnings call

Date of Call: August 28, 2025

Financials Results

• Revenue: Total revenue up 10% YOY
• EPS: $2.20 per share (adjusted), YOY comparison not disclosed

Guidance:

• Majority of U.S. AML management remediation actions expected by end of 2025; some work continues into 2026–2027.
• U.S. BSA/AML investments ≈ USD 500M pretax in FY25; similar in FY26.
• FY25 expense growth seen at upper end of 5%–7% (ex variable comp/FX/U.S. strategic cards baseline).
• Restructuring charges $600–$700M pretax; FY25 savings ≈ $100M; run-rate $550–$650M pretax.
• Canadian P&C NIM expected relatively stable in Q4.
• U.S. Retail NIM expected to moderately expand in Q4.
• U.S. Retail expense growth targeted mid-single digits in FY26.
• U.S. asset reduction to modestly exceed 10%; majority of identified loan sales to complete by fiscal year-end.
• FY25 PCL expected within 45–55 bps.

Business Commentary:

• Strong Financial Performance:
• TD Bank Group reported earnings of $3.9 billion and EPS of $2.20 for Q3 2025, with positive operating leverage.

• The growth was driven by robust fee and trading income in markets-driven businesses and volume growth in Canadian Personal and Commercial Banking, offsetting elevated expenses.

• Canadian Personal and Commercial Banking Momentum:

• The Canadian Personal and Commercial Banking segment delivered record revenue, earnings, deposits, and loan volumes.

• This was attributed to strong performance in cards, business banking, and residential mortgage strategies, as well as favorable deposit margins.

• U.S. Retail Bank Restructuring:

• The U.S. Retail segment saw deposits excluding sweeps stable year-over-year, with core loans growing 2% year-over-year.

• TD is actively reducing its U.S. balance sheet, with $17 billion already reduced and plans to exceed the 10% asset reduction target.

• Impact of Balance Sheet Restructuring on Profitability:

• TD's U.S. Retail segment improved its net interest margin by 15 basis points quarter-over-quarter.
• This was due to balance sheet restructuring activities, normalization of elevated liquidity levels, and higher deposit margins.

Sentiment Analysis:

• Management reported a strong quarter: earnings of $3.9B and EPS $2.20; total revenue up 10% YOY; positive operating leverage; CET1 ratio at 14.8%. Credit trends improved with impaired PCLs down QoQ and additional performing reserves added prudently. U.S. Retail NIM rose 15 bps QoQ and is expected to moderately expand in Q4. Wholesale revenue exceeded $2B for the third straight quarter.

Q&A:

• Question from John Aiken (Jefferies): Will U.S. loan balances inflect to growth in 2026 given asset limits and runoff?
  Response: U.S. loans will likely contract through most of 2026 with an inflection to growth toward year-end; underlying growth remains strong in cards, home equity, and commercial.

• Question from Gabriel Dechaine (National Bank Financial): Does the $17B completed plus $18B identified represent the full U.S. loan reduction program?
  Response: Yes—this captures the entire program including actions announced in October and outcomes of recent strategic reviews.

• Question from Gabriel Dechaine (National Bank Financial): Are governance/control costs rising outside U.S. AML, impacting segments like Wholesale and Corporate?
  Response: Yes—TD is uplifting governance and control enterprise-wide (AML, fraud, cyber, compliance) and investing in Wholesale risk/control platforms.

• Question from Matthew Lee (Canaccord Genuity): How has Cowen improved U.S. IB mandates and will Capital Markets be a bigger growth driver?
  Response: Capital Markets is now a larger growth driver; revenue is running ≈$2B per quarter vs ≈$1.2B pre-Cowen, with stronger advisory/ECM and a top-10 NA dealer ambition.

• Question from Matthew Lee (Canaccord Genuity): Which sectors are driving advisory/ECM momentum?
  Response: Broad-based strength with notable contributions from biotech, energy infrastructure, and communications/media/telecom.

• Question from Ebrahim Poonawala (BofA Securities): How to think about U.S. expense growth and profitability in 2026 amid asset runoff?
  Response: AML spend steady (~$500M in FY25, similar FY26); expenses disciplined (mid-single-digit growth in FY26); despite runoff, revenue actions support NIAT growth in 2026.

• Question from Ebrahim Poonawala (BofA Securities): When could the U.S. asset cap be lifted post-remediation?
  Response: Most management actions should complete by end-2025, with tail items into 2026–2027; cap timing depends on monitor/regulators and sustainability reviews.

• Question from Sohrab Movahedi (BMO Capital Markets): Wholesale investment needs, FTEs, and RWA/ROE path?
  Response: FTE increases are seasonal; current expenses reflect building platforms and risk controls; as revenues grow and costs normalize, TD targets pre-Cowen-like ROEs with better RWA efficiency.

• Question from Doug Young (Desjardins Securities): Why higher U.S. impaired metrics but a performing allowance release, and details of the $600M overlay?
  Response: A few U.S. impairments (incl. CRE) lifted impaired PCLs; performing PCL had a small release on macro changes; $600M overlays built over 3 quarters for tariff risk (~$410M business/government, ~$190M consumer).

• Question from Doug Young (Desjardins Securities): What’s driving U.S. ROE improvement—earnings or balance sheet?
  Response: Primarily earnings-driven so far (three sequential NIAT increases), with further ROE lift expected as balance sheet actions flow through in 2026.

• Question from Shalabh Garg (Veritas Investment Research): Do differing Canadian vs U.S. commercial credit outcomes reflect underwriting differences?
  Response: No—underwriting is consistent; U.S. variance stems from a few specific impairments (including CRE) while overall reserves remain strong.

• Question from Paul Holden (CIBC Capital Markets): Canadian P&C NII/NIM outlook given RESL, HELOC/cards growth and deposit mix?
  Response: Sequential RESL growth and card strength plus favorable deposit mix supported margins; NIM guided to be relatively stable into Q4.

• Question from Darko Mihelic (RBC Capital Markets): What would trigger release of the ~$600M policy/trade overlays?
  Response: If tariff outcomes are better than assumed, overlays could be released; if worse, they could increase; otherwise reserves will be used as migration materializes.