The Toronto-Dominion Bank (TD:CA) Q2 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call highlights strong financial performance, record earnings in insurance and wholesale banking, and effective cost management through AI and structural reductions. Despite potential PCL pressures, the bank is well-provisioned. Analysts' concerns were addressed with confidence in achieving ROE targets and managing expenses. Positive guidance and strategic growth in cards and wholesale banking further support a positive outlook.
Key Financial Performance
EPS (Earnings Per Share) Up 21% year-over-year. This increase reflects strong revenue performance driven by momentum in markets-driven businesses, margin expansion, and volume growth in Canadian Personal and Commercial Banking.
ROE (Return on Equity) 14.4%, up over 200 basis points year-over-year. This improvement is attributed to strong revenue growth and disciplined capital management.
Dividend Increased by $0.04 to $1.12 per share, reflecting confidence in TD's future growth and earnings power.
CET1 Ratio 14.3%, down 26 basis points sequentially. The decrease was due to share repurchases, offset by strong organic capital accretion.
Canadian Personal and Commercial Banking Revenue Record Q2 revenue achieved. Real estate secured lending volumes grew 5% year-over-year, and business loans were up 7% year-over-year, driven by distribution expansion and broad-based momentum.
U.S. Banking Core Business Loans Up 1.2% sequentially and 3% year-over-year. Middle market lending balances increased 13% year-over-year, and U.S. proprietary credit card balances grew 18% year-over-year, driven by strong acquisition.
Wealth Management and Insurance Earnings Record earnings achieved. New account growth of 15% year-over-year, driven by 16% account growth in TD Direct Investing. Insurance earnings benefited from disciplined claims management and structural cost reduction.
Wholesale Banking Earnings Record earnings achieved, supported by strong client activity across Global Markets and Corporate Investment Banking. ROE for the quarter was 14.5%, an improvement of 360 basis points year-over-year.
Total PCLs (Provision for Credit Losses) 43 basis points, stable quarter-over-quarter. Impaired PCLs decreased $191 million quarter-over-quarter, reflecting lower provisions in wholesale, U.S. banking, and corporate segments.
Allowance for Credit Losses Decreased $147 million quarter-over-quarter due to lower impaired allowance in wholesale banking, partially offset by performing build related to an update to the macroeconomic outlook.
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Operating Highlights
AI and Innovation Investments: TD is accelerating investments in AI and innovation, including the use of Agentic AI to reduce mortgage pre-adjudication cycle time from 15 hours to 3 minutes. The bank has over 40,000 colleagues using AI tools like Copilot and has achieved $145 million in value from AI initiatives this year.
TD Easy Trade App: Launched a redesigned TD Easy Trade app offering market-leading capabilities and 100 free trades, aimed at serving the next generation of investors.
Partial Share Ownership: TD is the only Canadian bank offering partial share ownership, allowing clients to invest with as little as $1.
Market Share in Credit Cards: TD has the largest portfolio of active credit cards in Canada and achieved record penetration rates for consumer and small business credit cards.
U.S. Banking Growth: Core business loans in U.S. banking grew 1.2% sequentially, with middle market lending balances up 13% year-over-year and U.S. proprietary credit card balances up 18% year-over-year.
ETF Market Expansion: TD's ETF assets have more than doubled since fiscal 2024, with a medium-term target of $54 billion.
Structural Cost Reductions: TD is on track to achieve $2 billion to $2.5 billion in structural cost reductions, enabling the smallest expense growth since 2022.
Positive Operating Leverage: Achieved positive operating leverage for the fourth consecutive quarter, with expenses up only 3% year-over-year excluding variable compensation and FX.
AML Remediation: Progress made on AML remediation with new transaction monitoring systems and improved customer risk rating models.
Share Buyback Program: TD remains committed to completing a $7 billion share buyback program, having already returned $15 billion in capital to shareholders.
Small Business Banking Realignment: Realigned small business banking to Canadian Personal Banking to simplify and enhance client services.
AI Transformation: TD is emphasizing AI opportunities to transform operations, reduce costs, and improve scalability across the enterprise.
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Risk or Challenges
AML Remediation: The bank is still addressing AML remediation under OCC and FinCEN consent orders. While progress has been made, there is ongoing work required, and the associated costs are expected to continue, albeit at a moderating pace.
Macroeconomic Uncertainty: The bank has added performing reserves due to an updated macroeconomic outlook and uncertainties related to geopolitical risks, including the ongoing conflict in the Middle East. These factors could impact credit performance and economic conditions.
Credit Risk: While credit performance remains strong, there is an increase in performing reserves to account for potential economic deterioration. Additionally, there is a slight increase in impaired loans in Canadian personal and commercial segments.
Expense Management: Although structural cost reductions are being achieved, expenses have increased in certain areas, including governance, control investments, and business growth initiatives, which could pressure margins.
Private Credit and Equity Exposure: The bank's exposure to private credit and equity is small but concentrated in subscription or capital call facilities. While currently low risk, this area requires ongoing monitoring given market conditions.
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Guidance & Outlook
EPS Growth and ROE Targets: The bank is on track to outperform its 6% to 8% EPS growth and 13% ROE targets for fiscal 2026, provided that the current macroeconomic conditions continue.
Provision for Credit Losses (PCLs): The bank continues to expect total PCLs of 40 to 50 basis points in fiscal 2026.
Expense Growth: The bank is well on its way to achieve its 3% to 4% expense growth target for fiscal 2026.
Share Buyback Program: TD remains committed to completing its $7 billion share buyback program.
U.S. Banking Growth: Increases in core loans are expected to more than offset balance sheet runoff beginning next quarter. U.S. banking has significant opportunities to accelerate commercial loan growth, scale the cards franchise, and deepen U.S. wealth relationships, delivering substantial upside to the bank's earnings over the medium term.
ETF Assets: The bank is well on its way to achieving its medium-term target of $54 billion in ETF assets.
AI and Innovation Investments: The bank is tracking ahead of pace on its target to deliver $200 million in value from AI this year and aims to generate $1 billion in annualized value from AI over the medium term.
Net Interest Margin (NIM): In Canadian Personal and Commercial Banking, NIM is expected to remain relatively stable in Q3. In U.S. Banking, NIM is expected to modestly increase in Q3.
U.S. Banking Expense Growth: No change to guidance for fiscal 2026 overall expense growth in the mid-single-digit range and approximately USD 2.9 billion in net income for the U.S. Banking segment.
PCLs and Economic Outlook: Fiscal 2026 PCLs are expected to fall within a range of 40 to 50 basis points, with adjustments reflecting macroeconomic outlook and geopolitical risks.
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Shareholder Return Plan
Dividend Increase: TD Bank announced a $0.04 dividend increase, bringing the dividend to $1.12 per share. This reflects confidence in the bank's future growth and earnings power.
Share Buyback Program: TD Bank remains committed to completing its $7 billion share buyback program. In Q2, the bank repurchased approximately 19 million common shares, reducing the CET1 ratio by 41 basis points. Upon completion of this program, along with a previous buyback, the bank will have returned $15 billion in capital to shareholders.
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Key Q&A
Q:What are the expectations for credit trends in the Canadian consumer book over the next 6 months?
A:Ajai Bambawale expects some pressure on PCLs due to trade and tariff actions, potential impacts of the Middle East war, and the macro environment in Canada. He noted that household debt in Canada is high, but Canadian consumers have been resilient due to factors like lower rates, better starting wealth, wage growth, and government support. Migration is expected in the less-than-650 credit segment, but overall credit is in good shape with the bank well-provisioned at 97 bps, including $500 million for trade and tariffs.
Q:How is TD deploying AI and what impact is it having on their ROE targets?
A:Raymond Chun stated that TD is ahead of its Investor Day targets and has momentum across all businesses. ROE is up 200 basis points year-on-year at 14.4%. Structural cost reductions and AI initiatives are contributing to this growth. TD has achieved $900 million in structural cost reductions this year and sees upside to its $1 billion AI objective. The bank is confident in achieving its ROE targets ahead of schedule, assuming stable macroeconomic conditions.
Q:What is the reason for elevated expenses in the U.S. and how does TD plan to manage them?
A:Leo Salom explained that U.S. expenses were elevated due to higher governance and control expenses, as well as costs related to the Nordstrom conversion. However, base operating expenses were below 3%. TD expects to achieve mid-single-digit expense growth guidance for the year and is tracking well to meet or exceed its NIAT objective. The bank is focused on accelerating the remediation process and sees opportunities for growth in commercial banking and strategic card partnerships.
Q:What is TD's outlook on expense growth and efficiency improvements?
A:Raymond Chun clarified that the mid-single-digit expense growth guidance applies to the U.S., while the enterprise-level guidance is 3% to 4%. TD is leveraging AI and automation to reduce structural costs and expects to maintain this trend. Kelvin Vi Tran confirmed that the bank is on track to meet its expense growth guidance for the year.
Q:How is TD managing competition in the Canadian retail banking sector?
A:Sona Mehta stated that TD is committed to profitable growth through disciplined pricing. Despite competitive pricing in the market, TD achieved 5% year-over-year RESL growth and expects stable NIM in Q3 with potential upside in Q4. The bank is focusing on organic growth and has seen momentum across RESL, cards, and deposits.
Q:What is TD's strategy for growth in the cards business?
A:Leo Salom highlighted that TD is focused on growing its U.S. cards business, aiming for a 30% penetration of its deposit book. The bank has invested in talent, operations, and AI models to improve targeting and credit underwriting. In Canada, Sona Mehta noted strong acquisition and growth in cards, driven by preapproval conversions among existing clients and deepening relationships with new clients. Both markets see cards as a priority for growth.
Q:What is the sustainability of the wholesale banking ROE and potential for further expansion?
A:Tim Wiggan noted that the wholesale banking ROE of 14.5% reflects a constructive market environment, investments in the platform, and a balanced mix of corporate and investment banking. The U.S. now accounts for a larger share of revenue, and the bank is focused on creating durability and repeatability in its platform. Ray Chun added that TD's strong capital position allows for flexibility in deploying capital for growth in wholesale banking.
Q:Review of Unclear Management Responses
A:Management avoided directly addressing the question about specific timing or details on when expenses related to AML remediation and Nordstrom conversion would normalize or decline. Additionally, while discussing competition in Canadian retail banking, the response lacked specific data on how TD's pricing compares to competitors.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Agentic AI
Auto Finance
Banking record
Direct Investing
Insurance record
KYC platform
Nordstrom
account
accretion
asset wealth
bank client
bank cost
bank share
banking franchise
business margin
card client
card franchise
client activity
client servicing
completion
cost reduction
digit
distribution expansion
dividend
expansion volume
frontline
insurer client
investing advice
investment AI
market lending
momentum business
population
record PTPP
reduction investment
service business
talent
training program
unit
value AI
way term
TD Transcript
The Toronto-Dominion Bank (TD:CA) Q2 2026 Earnings Call Transcript
Positive5-28
The earnings call highlights strong financial performance, record earnings in insurance and wholesale banking, and effective cost management through AI and structural reductions. Despite potential PCL pressures, the bank is well-provisioned. Analysts' concerns were addressed with confidence in achieving ROE targets and managing expenses. Positive guidance and strategic growth in cards and wholesale banking further support a positive outlook.
The Toronto-Dominion Bank (TD:CA) Presents at 24th Annual Financial Services Conference Transcript
Neutral3-24
The Toronto-Dominion Bank (TD:CA) Presents at RBC Capital Markets Global Financial Institutions Conference 2026 Transcript
Neutral3-11
The Toronto-Dominion Bank (TD:CA) Q1 2026 Earnings Call Transcript
Positive2-26
The earnings call reveals strong financial performance with record revenues and earnings across multiple segments, robust loan growth, and a positive outlook on operating leverage and efficiency improvements. The Q&A section supports this with confidence in achieving targets and addressing concerns effectively. Despite some increase in impaired PCLs and expenses, the overall sentiment is positive, especially with a significant share buyback plan and strategic initiatives in place. The absence of market cap data suggests a cautious approach, but the positive elements outweigh the negatives, indicating a likely positive stock price movement.
TD Report
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