Earnings Call Transcript - TD Q4 2024

Operator, Operator

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 people and is now home to many diverse First Nations, Métis, and Inuit people. We also acknowledge that Toronto was 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's CEO; followed by Ray Chun, the bank's COO; after which Kelvin Tran, the bank's 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 prequalified 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; Paul Clark, Senior Executive Vice President, Wealth Management. Please turn to Slide 2. As noted on Slide 2, 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 of 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 '26 and '27 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 multiyear 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 reviews, 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 $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 nonretail lending portfolios. This quarter, earnings were $3.2 billion and EPS was $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 $0.03 dividend increase, bringing our dividend to $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 begin by discussing how I've spent the past few months since the succession announcements and share my initial thoughts on our future direction, followed by a review of our Q4 results across our businesses. Since September, I've engaged with colleagues, customers, clients, and investors. This has reinforced my belief that TD is a strong franchise with substantial businesses in every market we serve, offering products and services that appeal to our nearly 28 million customers. These solid business fundamentals have enabled the bank to maintain strong underlying performance in recent quarters. Additionally, we've identified opportunities for TD to enhance execution, such as increasing ownership and accountability in our decision-making processes and becoming more digital and mobile-oriented. These changes can streamline operations to improve efficiency, allowing more capacity for investments in risk management, customer experience, and future capabilities. Given the global situation and my role as incoming CEO, we are conducting a thorough review of the bank's strategies and investment priorities to position TD effectively for medium to long-term competition. We are assessing our business mix, including profitability and risk-adjusted returns, to determine where to invest or divest. Everything is open for discussion. As this review progresses, I will provide updates, and we plan to hold a bank-wide Investor Day in the latter half of 2025 to inform you of the outcomes of our strategic assessment. Addressing anti-money laundering remains our highest priority. We have formed a dedicated AML team with experienced professionals from across the industry, and I have emphasized that accountability must extend beyond this team. We have clearly defined accountability and alignment across all areas, from the front lines to risk management and audit teams in both the U.S. and the broader enterprise. We are implementing changes to prevent similar failures in the future. We will also pursue the U.S. balance sheet restructuring strategy we outlined on October 10, with Kelvin providing updates on our progress. In the U.S. Retail segment, we will concentrate on client sectors where we have scale, market share, and competitive advantages, aiming to enhance our return on equity over time. In Canada, we're committed to building on our current momentum. This year, we executed our growth strategies as outlined at the 2023 Canadian Retail Investor Day, and we believe there is more potential to deepen customer relationships across the bank. As stated at our Investor Day, we have a significant organic growth opportunity in Canada due to TD's scale. We see robust growth potential in TD Securities as well, having made significant investments in our capabilities to enhance our offerings. Collaborating with commercial banking, we are focused on using our existing balance sheet to generate additional fee revenue, a strategy expected to enhance return on equity. While we have considerable work ahead, I am optimistic about restoring confidence in the bank as we define our future and deliver results for all stakeholders. Now, moving to our Q4 results. Overall, we are not where we want to be in terms of profitability, but I am encouraged by the momentum and top-line outcomes across our businesses, which reflect the strength of our customer franchises. Canadian Personal and Commercial Banking had a strong quarter with record revenues, positive operating leverage, and solid growth in loans and deposits. We continued to build on our momentum in key sectors over the quarter. In our leading core deposit franchise, we achieved notable performance in checking account acquisitions, culminating in a record year. This year, we have increased new customer acquisitions by 50%. As newcomers settle into life in Canada, deepening our relationships becomes a vital growth driver for both the Canadian personal bank and TD overall. In real estate secured lending, we recorded year-over-year gains in market share, bolstered by effective distribution and the scaling of capabilities like TD Mortgage Direct, which has conversion rates approximately three times those of our traditional lead programs. In Business Banking, we've noticed momentum in deposit growth, and TD Auto Finance achieved record originations this quarter for the fiscal year. Turning to the U.S. retail bank, deposits remained stable, while loans grew 3% year-over-year, and we continue to support customers across our footprint. Net income fell 13% year-over-year, primarily due to higher provision for credit losses and increased expenses. I am pleased to announce the extension of our program agreement with Nordstrom to 2039, allowing TD to manage Nordstrom's card servicing operations in-house upon conversion. This is a strategic milestone for TD in the U.S. credit card sector and will enable us to build scale and drive profitability with streamlined infrastructure and enhanced servicing capabilities. Additionally, for the eighth consecutive year, the bank ranked first in small business administration lending in its footprint and second nationally in SBA loans. Our health care team was ranked the top lender for health care professionals by Forbes for the second year running. In Wealth Management and Insurance, we experienced revenue growth due to increased insurance premiums, asset growth, and a rise in daily trades, with our wealth business achieving record revenue this quarter. However, our insurance segment faced challenges due to the Calgary hailstorm and Montreal floods. Key highlights from the quarter include the launch of TD Active Trader Live, a new weekly streaming program tailored to enhance our clients' trading experiences with detailed analysis and insights. Since its introduction, we have observed a 38% increase in the number of active traders utilizing the platform. TD Asset Management expanded its market share in ETFs, now offering 48 products across various asset classes, geographies, and currencies. In the insurance sector, over 40% of eligible customers now purchase their insurance online from end-to-end, extending our digital leadership as Canada’s top direct insurer. Wholesale Banking has continued to showcase the strengths of the combined TD Securities TD Cowen franchise, recording revenues of $1.8 billion and achieving several firsts in winning mandates that neither legacy business would have secured alone. We anticipate further optimizing our platform to enhance efficiency ratios and improve returns. Highlights from TD Securities this quarter include acting as joint lead on TD’s secondary sale of Schwab shares in a $2.5 billion block trade, one of the ten largest U.S. block trades since 2010. TD Cowen's research platform excelled in the 2024 Extel research surveys, finishing third in Canada and increasing the number of ranked sectors from four in 2023 to eleven in 2024, while claiming the top spot in telecom and media. In the U.S. survey, TD Cowen's Washington Research Group was ranked number one. Furthermore, this quarter, TD Securities earned recognition in four categories at the Euromoney FX awards. Looking ahead to fiscal 2025, we expect it will be challenging to achieve earnings growth as the bank navigates a transition year, advances its AML remediation efforts, and makes business investments. As I mentioned, we are conducting a wide-ranging strategic review to reassess organic opportunities, priorities, productivity and efficiency initiatives, and capital allocation alternatives, all aimed at delivering competitive returns for our shareholders. Consequently, we are suspending our medium-term adjusted EPS growth, ROE, and operating leverage targets. Updates on our strategic review and medium-term financial goals will be provided in the second half of 2025. I remain confident in the earnings growth potential of our Canadian Personal and Commercial Banking, Wealth Management, Insurance, and Wholesale Banking segments. Although we expect the U.S. balance sheet restructuring and AML remediation to affect the U.S. retail segment, we remain dedicated to the U.S. market and confident in our franchise's strength. In closing, I want to express my appreciation to our TD colleagues for their incredible efforts in supporting customers and communities affected by the Calgary hailstorm, Montreal floods, and hurricanes Helene and Milton. I also want to thank all our TD colleagues for their resilience and dedication throughout a challenging year; your commitment is commendable. As we look forward, I am excited to embark on this journey to shape the bank's future together. I will now turn it over to Kelvin.

Kelvin Vi Tran, CFO

Thank you, Ray. Good morning, everyone. Please turn to Slide 9. For 2024, earnings were $14.3 billion, down 5%, and EPS was $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 and 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 digits. Actual expense growth came in at 10% year-over-year. While there were many moving parts, the variance was mainly due to the $150 million in notable items that Bharat mentioned earlier. In addition, occupancy costs increased this quarter by approximately $90 million, reflecting timing of building exits and store renovations. 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 calculate 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 U.S. 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 volume. 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 remain the primary source of long-term funding for the bank. Net interest margin was 2.8%, down 1 basis point quarter-over-quarter as expected, primarily due to changes in balance sheet mix reflecting the transition of BAs to CORRA-based loans. We 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 higher 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 31, 2025. The total asset test is performed quarterly and is an average of the combined asset balances at the end of the current quarter and the preceding quarter. In 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 pretax 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 pretax 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 Banking 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 pretax. 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. Whilst 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, meaning the increase reflects less favorable prior year's claims development and increased claims severity. We saw record catastrophe claims of $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 PCL this quarter, reflecting a number of small 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 $361 million. Net corporate expenses increased $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 1 ratio ended the quarter at 13.1%, up 27 basis points sequentially. Total 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 management 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 impact takes effect on a one-quarter lag. We have begun our U.S. balance sheet restructuring. This resulted in an upfront loss of $234 million pretax or negative 4 basis points to CET1. With that, Ajai, over to you.

Ajai Bambawale, Chief Risk Officer

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 $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. Recall 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. Bank's impaired PCL was $1.15 billion, an increase of $233 million quarter-over-quarter, largely related to credit migration in the nonretail lending portfolios. A performing PCL release of $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 $303 million quarter-over-quarter to $9.1 billion or 95 basis points, primarily due to higher impaired allowance in the business and government lending portfolios and a $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 in 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, Operator

The first question is from Gabriel Dechaine from National Bank Financial.

Gabriel Dechaine, Analyst

Just a quick one. Like there's a lot of moving pieces in this balance sheet optimization. I'm going back to the presentation, I think around Q3 whatever. And it was said you were going to dispose of $50 billion of securities and that would generate the nearly mid-range, USD 400 million benefit to NII. If I look at what you've 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 Vi Tran, CFO

It's Kelvin. I can take that. It's not every bond has the same maturity and is impacted by a level of rates and spread the same way. And so, depending on which ones you sell, the ones that we sold happened to have more upfront losses.

Gabriel Dechaine, Analyst

Okay, so it's just a matter of what you've sold, not something unusual that I missed. Regarding professional fees, I noted that both Bharat and Kelvin mentioned expenses like real estate and Nordstrom costs, which caught my attention. Your fees exceeded $1 billion this quarter, and I'm curious how much of that increase is tied to the disclosed remediation costs and how much is more spontaneous. Is this something we should expect to bear for a while? Many people, including myself, are concerned about potential unexpected indirect costs from this remediation program and the AML issue. I understand you can't pinpoint everything, but there will likely be unforeseen expenses.

Kelvin Vi Tran, CFO

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

Gabriel Dechaine, Analyst

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

Kelvin Vi Tran, CFO

Yes. The $1 billion mentioned includes adjusted and reported expenses, so some items need to be removed from that total. The professional fees are meant to help us accelerate remediation, whether they were incurred for built work or ongoing business activities, as we needed support in the short term.

Gabriel Dechaine, Analyst

Okay. Just a quick question regarding the securities repositioning. The losses you're recognizing from the disposition are being excluded from earnings, but the benefit of about $400 million to net interest income will be included in your adjusted figures, correct?

Kelvin Vi Tran, CFO

Correct. Yes.

Operator, Operator

The next question is from Meny Grauman from Scotiabank.

Meny Grauman, Analyst

A few questions on the strategic review. First off, just wanted to understand when you actually began this strategic review? That would be helpful to know.

Raymond Chun, COO

Meny, it's Raymond. 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 4 to 5 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 that 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 second half of 2025.

Meny Grauman, 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 as the incoming CEO, Meny, that it's in 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, Analyst

And then, when you talk about everything is 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.

Operator, Operator

The next question is from Ebrahim Poonawala from Bank of America Merrill Lynch.

Ebrahim Poonawala, Analyst

I guess maybe just following up on the strategic review. So I think the messaging is right, Raymond around everything is on the table. You're going through all of this. At the same time, as we think about you've been at the bank for 30-plus 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 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

Thanks for the 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 the 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, I am telling you what you should expect, I think, is a bit premature. And let's go through the process, and then we'll share that with you at the Investor Day.

Ebrahim Poonawala, Analyst

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

Kelvin Vi Tran, CFO

Yes.

Ebrahim Poonawala, Analyst

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 '25?

Kelvin Vi Tran, CFO

We 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.

Operator, Operator

The next question is from Paul Holden from CIBC.

Paul Holden, Analyst

Sorry, 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. I 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 '23 you're still on the table?

Raymond Chun, COO

Thank you for the question, Paul. I'll have Sona and our Canadian business leads provide some insights on the progress we've made since the Investor Day, but we are definitely on track with those commitments. Sona, would you like to add anything?

Sona Mehta, Group Head, Canadian Personal Banking

Yes. 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. On personal deposits, you've seen 6% growth year-over-year. We grew our share in term materially. We've seen good growth on the loan side with 4% year-over-year. And as you've heard, one of the 3 commitments that we outlined for ourselves at Investor Day, we have achieved on an accelerated basis that was outgrowing the newcomer, the Canada population growth by 50%. So all in all, that said, the strong quarter has led capping off a record year this year for day-to-day 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 a strong multichannel 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, very good retention profile and profitability profile. So we're really pleased with the first foray there. And then I would say we continue to invest in technology and data and 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 will see us stay committed to the strategic pillars that we outlined at Investor Day. I just maybe close by saying we feel we have very strong momentum. We continue to have a sizable growth opportunity, maybe 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, Analyst

Okay. Good to hear. My last question is about the expense guidance of 5% to 7%. Looking back at your recent slide deck, it seems you anticipated around CAD 800 million in expense savings compared to approximately USD 550 million in risk and control expenses, which might result in a balanced scenario, possibly slightly favorable. Considering the expected 5% to 7% growth next year, I'm curious where these additional costs are being allocated unless there's a revision to your risk and control expenses. I'm assuming some might be directed towards the strategic review or invested for future revenue growth. It would be helpful to understand where these extra expenses are being allocated.

Kelvin Vi Tran, CFO

It's 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, their 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.

Operator, Operator

The next question is from Darko Mihelic from RBC Capital Markets.

Darko Mihelic, Analyst

I have a couple of questions. First, I have a clarification regarding the AML issue. I apologize, but I haven't dealt with this before, so I'm trying to get a grasp on how the dividend works, specifically how cash flows from the U.S. to the Canadian Holdco. My understanding is that you need to provide evidence of compliance before proceeding. However, I'm unclear why they would approve this given the ongoing 3- and 4-year monitorship. It seems they wouldn't be satisfied until you complete that. So why might they grant you permission next year or earlier to distribute cash? I’m just trying to understand the basic mechanics, and I may be missing something.

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.

Darko Mihelic, Analyst

So there's nothing preventing the OCC from saying no?

Bharat Masrani, CEO

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, Analyst

Okay. And my second question relates to the Schwab deposits. They're now down to USD 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. And 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 billion, $20 billion a year for your asset cap?

Leo Salom, President and CEO, TD Bank

Thank you for your question, Darko. You've summarized the situation effectively. We've observed a decline from a peak of around $155 billion to the current level of approximately $83 billion. In a rising market, we typically see an increase in those sweep deposits being invested. Conversely, during market pauses or profit-taking phases, those deposits tend to rise. We're currently seeing a slight stabilization in overall balances. When we renegotiated with Schwab, we allowed them to reduce the overall deposit levels to a minimum of $60 billion, and they have been following through on that. Recently, we've noted a halt in that reduction, especially this quarter. We might see a short-term increase if the market experiences any dislocation. We're prepared for that. Reflecting on our discussion from October 10, one of the main reasons we're actively restructuring our balance sheet is to ensure we can meet the asset cap requirements. We'll continue this approach since deposit growth plays a role in the overall asset cap calculation.

Bharat Masrani, CEO

Darko, this is Bharat. I want to add that Schwab can increase the sweep deposits, but there is a limit to how high it can go, which is $30 billion above the minimum required to be held at the subsidiary.

Operator, Operator

The next question is from Sohrab Movahedi from BMO Capital Markets.

Sohrab Movahedi, Analyst

Okay. 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 complete the strategic review, we will explore all options for capital deployment. At this time, that would be the correct approach. However, as we progress through the review, I will keep everyone updated along the way.

Sohrab Movahedi, Analyst

You are now the Chief Operating Officer, and several business heads are exploring new opportunities and challenges. During the strategic review, what is being done regarding the base business? What is Tim Wiggan’s role regarding TD Securities? Is he staying idle, or are they permitted to allocate capital before the review is complete?

Tim Wiggan, Group Head, Wholesale Banking and President and CEO, TD Securities

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 1. 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 mentioned 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 $7.3 billion in revenue, up 25%. The adjusted number, as you know, was $1.4 billion in NIAT. If you add back the off-channel communication charge, which was obviously industry-wide, we came in at $1.5 billion. So roughly $380 million per quarter, which very much aligns with the $375 million to $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, Analyst

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

Tim Wiggan, Group Head, Wholesale Banking and President and CEO, TD Securities

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 Securities will be a destination of choice for professionals in the markets that we operate in.

Operator, Operator

The next question is from Darko Mihelic from RBC Capital Markets.

Darko Mihelic, Analyst

All right. My last question is for Leo. Leo, can you give me a sense of how we should expect your noninterest 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.

Leo Salom, President and CEO, TD Bank

In a previous quarter, we discussed that we had mostly navigated the overdraft pricing changes, which are now fully integrated into our current run rate. This was a substantial burden for us, as the combined impact of the reductions in overdraft fees for retail and small businesses resulted in nearly $0.5 billion decrease in annual revenues, and that has now fully passed. Looking ahead, while we do not provide specific guidance, I believe that with the growth of our card business and our core checking account platform—essentially the heart of our retail deposit franchise—we should see an increase in account fees that matches our business growth. I feel optimistic about that. Of course, we are monitoring various factors, including regulatory changes. Currently, there are several fee cap proposals in litigation, and with an administration change, there are many unknowns regarding future impacts. However, focusing on our strengths within our control—such as achieving solid retail deposit growth and expanding our bank card business, which saw a year-on-year growth of 13% this quarter—I believe we are adhering to the fundamentals, and we can expect noninterest income growth to stabilize and return to a healthier growth trend.

Operator, Operator

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, and 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 bench of leaders, will successfully chart the path forward for TD. Thank you, and best wishes for the holidays.

Operator, Operator

Thank you. The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation.