The Toronto-Dominion Bank Earnings - Q2 2025 Analysis
Positives
- The bank delivered strong Q2 results with earnings of CAD 3.6 billion and EPS of CAD 1.97.
- The bank saw strong growth in its Wealth business, continued work with TD Cowen and Commercial Banking business on the lending fees line, and sustained growth in its retail consumer, retail deposit franchise.
- The bank saw an 83% increase in partial shares adoption by Gen Z and Millennial clients within the last six months.
- Revenue grew by 9% YoY driven by higher trading-related and fee income in markets-driven businesses, including fees from TD sale of Schwab shares and volumes in Canadian Personal and Commercial Banking.
- The bank exhibited strong credit performance in Q2, evidenced by lower gross impaired loan formations, gross impaired loans, and impaired PCLs.
Q&A Highlights - Q2 2025
Analyst asked about the potential for further NII benefit from the repositioning of the US portfolio in 2026.
Leo Salom explained that the trade will result in an initial loss, but the NII recapture will be seen over the next three years, with a slight increase in 2023 due to calendarization. The investment bonds will reprice at market rates in the future, and the NII benefit will continue to be realized.
Analyst asked about the restructuring charge and its impact on different segments of the bank.
The impact is broad-based across the bank, with a focus on workforce reduction, real estate optimization, asset impairment, tech decommissioning, and the wind-down of some businesses.
Analyst asked about other businesses that the company might consider winding down.
The company is evaluating all options and reviewing all products, services, and businesses, but did not provide specific details on this call. They will share more information during the Q3 call and at Investor Day.
Analyst asked about the potential impact of the complex environment, including tariffs, on TD's business and corporate lending compared to consumer lending.
Ajai K. Bambawale explained that the company has built reserves for both consumer and business and government lending, and that the $500 million reserve is primarily for business and government lending. He also noted that the company has looked at the financial impact across the 9% of borrowers exposed to tariffs, as well as the ratings migration that could occur, and has built reserves accordingly. He concluded that the company expects to see an impact on both consumer and business and government lending if the macro environment deteriorates.
Analyst asked about TD's performance in the mortgage business in Canada, specifically in comparison to its peers.
Sona Mehta explained that the macro context has changed in the last four months, with buyers sitting on the sidelines and inventory buildup, leading to a decline in housing sales. She also noted that TD's broker originations have moderated a little bit, but the company continues to compete for profitable business. Despite the macro headwinds, Mehta was pleased with the strength in TD's proprietary channels, with branch and MMS originations up double-digits year-over-year. She also highlighted the growth in the branch and MMS proprietary ecosystem originations, which are up CAD 1.5 billion quarter-over-quarter. Mehta concluded by stating that the company is focused on building speed and expertise in its ecosystem, and is poised to deliver on speed and expertise as the market recovers.
Analyst asked about the company's expectation for loan volumes and whether they would trend with the industry.
Management emphasized the importance of profitability and stated that they will compete to win profitable business, leveraging their strengths in channels where they can differentiate on speed and customer experience. However, they also acknowledged that profitability should always be a factor and that they will focus on more profitable accounts.
Analyst asked about the company's pay-down dynamics and whether they can expect a similar trend in the next year.
Management explained that the company saw some seasonality late in Q1 and early in Q2, with high paydown months in January and February. They attributed this to the company's premium book, which skews towards customers with more disposable income and liquidity in the market. They stated that this trend is likely to continue in the next year, with the company's proceeds from the Schwab sale and liquidity raise being redeployed in share buyback and normalizing over time.
Analyst asked about the industries that make up the less than 1% cohort of sensitive loans.
The industries include auto, agriculture, sundry manufacturing, transportation, and retail. The cohort is diversified across these industries.
