道明银行2025年第二季度收益回顾：低于预期的信贷成本是一种宽慰

2023A2024A2025E2026E7.917.817.768.547.997.817.67-----52,037.056,789.061,002.964,503.7 John Aiken, CFA * | Equity Analyst(416) 847-7376 | jaiken@jefferies.comJoe Ng, CFA * | Equity Analyst(416) 847-7396 | jng4@jefferies.comAria Samarzadeh, CFA * | Equity Analyst(416) 847-7398 | asamarzadeh@jefferies.com The Long View: TD BankInvestment Thesis / Where We DifferWhile TD continues to recover from the resolution of its anti-money launderingissues, the bank retains a solid growth profile, based on the strength of itsretail banking platforms on both sides of the border. Further, the ample excesscapital offers optionality, as well as downside protection from a potentialrecession.Base Case,C$103, +15%Our base-case price target of C$103 for TD isbased on a 12.0x forward P/E against FY26E EPSof $8.54.Sustainability MattersTop Material Issues:1)Product Design & Lifecycle Management:Contributing to environmental and social impacts throughtheir lending practices and considering ESG factors and risk exposure when underwriting loans.2)Access and Affordability:Focusing on initiatives to serve underbanked communities.Company Targets:1) Reduction in Scope 1 and 1 GHG emissions from 2019 baseline -25% reductions by 2025.2) Commitment to provide $500 billion in sustainable finance by 2030.3) Women in roles of Vice President and above in Canada - 45% and Black, Indigenous, and minorityrepresentation at executive levels across North America - 25% by 2025 (achieved).Questions to Management:1) What steps have you taken, or plan to take, to promote financial inclusion for underbanked, unbanked,and underserved communities?2) What is the strategy for carbon-intensive lending portfolios; what are the near-term & long-term plansfor lending?Please see important disclosure information on pages 8 - 14 of this report.This report is intended for Jefferies clients only. Unauthorized distribution is prohibited. Upside Scenario,C$113, +26%Emerging from a soft landing and no recession, animproving U.S. economy generates a better-than-expected performance from the bank's U.S. retailbanking platform, as our upside scenario of C$113for TD is based on a 10% increase to its FY26EEPS, against a forward P/E of 12.0x. Downside Scenario,C$85, -5%Weighedby weaker economic growth and aprolonged slowdown hitting both sides of theborder, our downside scenario of C$85 for TD,based on a 10% decline to its FY26E EPS, againsta forward P/E of 11.0x.CatalystsWe believe that TD remains in the regulatorypenaltybox with respect to potential U.S.acquisitions, albeit likely in the final seconds.While we believe TD will revisit its U.S. acquisitioninterests,the ample level of capital offersoptionality, including a material and meaningfulreturn of capital to shareholders. 2 Solid Results in the End, But a Bit of a Push-PullQuarterSecond Quarter Results: NeutralOutlook: NeutralEarnings quality: Lower provisions and taxes, as well as strong contributions from Insurance andCorporate, somewhat lower the earnings quality, from our perspective.Operating leverage/performance: Strong core cost containment led to a sequential decline inexpenses and, along with core revenue growth, generated positive operating leverage in the quarter.Risk: The regulatory oversight of TD continues to heighten its risk profile, but we believe this declinesas the bank progresses in its remediation programs. In addition, TD's overall risk is tempered by thesignificant lift in its capital ratio in the quarter.Figure 1 - TD - EPS Summary.Q2-25 EARNINGS PER SHARE OVERVIEW(in C$ millions)Pre-taxAfter-taxEPSvs. Q1-25Reported$12,040$11,055$6.27305.8%Adjustments:Adjusting items, net($4.30)Adjusted Core Earnings$12,040$3,426$1.97(2.6%)vs. JEF - Above/(Below)$1.5923.9%vs. Consensus - Above/(Below)$1.7512.6%Source: Company reports, JefferiesTD reported adjusted EPS of $1.97, above consensus of $1.75 and our estimate of $1.59. Headlineearnings of $6.27 per share included the gain on sale of TD's stake in Schwab during the quarter($4.92 per share).On the credit front, provisions were up in the quarter, with TD's overall level ($1,341MM) comingin below consensus' expectations ($1,453MM). Provisions on impaired loans declined sequentially($267MM, or 22%), while provisions on performing were at $395MM (against a recovery of $4MMin the first quarter).Juxtaposed against the increase in provisions, on the back of the gain from SCHW, TD's regulatorycapital ratio increased by 180bps, to 14.9%, while TD repurchased 30MM shares in the quarter.By business segment, Canadian P&C Banking Net interest margins increased by 1bp while averageloans were up 0.3% (up 3.7% from a year ago). Earnings were down against the first quarter on lowerrevenues, and negative operating leverage. While impaired provisions declined, this was offset byhigher provisions on performing loans. South of the 49th parallel, U.S. Retail margins were up 14bpswhile average loans were up 0.3% sequentially and 3.7% from a year ago (down 3.1% on both peri