The Toronto-Dominion Bank Earnings - Q1 2026 Analysis & Highlights
TD Bank Group delivered strong Q2 2026 results with significant momentum across all business segments, demonstrating progress on strategic initiatives including AI deployment, structural cost reduction, and AML remediation, while maintaining confidence in achieving or exceeding medium-term targets despite macroeconomic uncertainties.
Key Financial Results
Earnings per share (EPS) grew 21% year-over-year, with return on equity (ROE) at 14.4%, up over 200 basis points year-over-year.
Total bank pre-tax pre-provision profit (PTPP) was up 12% year-over-year after removing the impact of the US strategic cards portfolio, foreign exchange, and insurance service expenses.
Provision for credit losses (PCLs) was 43 basis points, stable quarter-over-quarter, reflecting lower provisions in Wholesale and Corporate segments partially offset by increases in Canadian Personal and Commercial and US Banking.
Common equity Tier 1 (CET1) ratio ended the quarter at 14.3%, down 26 basis points sequentially, with strong organic capital accretion offset by share repurchases.
Impaired PCLs decreased CAD 191 million quarter-over-quarter to CAD 973 million, reflecting lower provisions in Wholesale, US Banking, and Corporate segments.
Business Segment Results
Canadian Personal and Commercial Banking delivered record Q2 revenue, PTPP, and earnings, with average deposits rising 3% year-over-year (1% growth in personal deposits and 5% in business deposits) and average loan volumes rising 6% year-over-year (5% in personal and 7% in business).
Real estate secured lending volumes grew 5% year-over-year with disciplined growth anchored in speed and specialization strategy.
Canadian Personal Bank delivered almost CAD 9 billion in closed referrals to Wealth, representing double-digit growth year-over-year.
US Banking earnings were up 12% year-over-year with return on tangible common equity (ROTCE) expanding by over 200 basis points to 14.8%.
Core loans in US Banking grew 3% year-over-year, driven by accelerated momentum across portfolios, with new Bankcard account acquisition up 32% year-over-year and middle market lending commitments up 17% year-over-year.
US Banking net interest margin was 3.41%, up 3 basis points quarter-over-quarter, driven by higher loan and deposit margins.
Wealth Management and Insurance delivered record earnings and assets, with new account growth of 15% year-over-year driven by 16% account growth in TD Direct Investing.
Direct Investing referred CAD 1.5 billion to Advice, up 42% year-over-year.
Insurance delivered record earnings, reflecting disciplined claims management and accelerated structural cost reduction.
Wholesale Banking delivered record earnings driven by strong execution across Global Markets and Corporate and Investment Banking, with return on equity for the quarter at 14.5%, an improvement of 360 basis points year-over-year.
Wholesale Banking revenue was up 18% year-over-year in the first half despite CAD 180 million earned last year from the Schwab transaction.
Capital Allocation
Dividend increased by CAD 0.04 per share, bringing the dividend to CAD 1.12 per share, reflecting confidence in TD's future growth and earnings power.
Bank repurchased approximately 19 million common shares under its share buyback program in Q2, which reduced CET1 by 41 basis points.
TD remains committed to completing a CAD 7 billion share buyback program, which together with previous share buybacks will have returned CAD 15 billion in capital to shareholders.
Macroeconomic Environment
Bank is on track to outperform its 6% to 8% EPS growth and 13% ROE targets for fiscal 2026, provided that current macroeconomic conditions continue.
Rates are down 275 basis points from their peak, contributing to Canadian consumer resilience despite high household debt.
Wage growth and ongoing government support are supporting Canadian consumer resilience.
Some migration in the Canadian consumer is occurring, largely in the less than 650 credit score segment, linked to the macro environment, with some migration visible in real estate secured lending, auto, and cards.
Unemployment rates are going higher, creating potential pressure on credit quality.
Trade and tariff actions, potential impacts of the Middle East war, and the macro environment in Canada are expected to create some pressure on PCLs.
TD has close to CAD 500 million in reserves for trade and tariffs, with most of that reserve unused.
Geopolitical environment and ongoing conflict in the Middle East have not resulted in material impacts on credit performance to date, though some performing reserves were added this quarter to reflect deterioration in economic outlook and uncertainty related to the war.
Growth Opportunities and Strategies
Structural cost reductions of CAD 2 billion to CAD 2.5 billion are targeted over the medium term, with the bank already achieving CAD 900 million of structural cost reduction against a goal of CAD 900 million for the year.
AI is expected to generate CAD 1 billion in annualized value over the medium term, with CAD 500 million in expense reduction and CAD 500 million in productivity or revenue.
Bank has already delivered almost CAD 145 million in value from AI across predictive, generative, and agentic AI use cases at the halfway mark of the year, tracking well ahead of pace on the target to deliver CAD 200 million in value this year.
Mortgage pre-adjudication cycle time was reduced from approximately 15 hours to 3 minutes using agentic AI in real estate secured lending.
Over 40,000 colleagues are using Copilot and over 7,000 engineers are using AI for software development, with the most active achieving a 29% increase in throughput.
TD became the first home and auto insurer to launch a client-facing, generative AI virtual assistant in Canada.
TD Direct Investing is Canada's number one digital investing platform, now offering partial share ownership with investments starting at as little as CAD 1.
TD Easy Trade app was fully redesigned offering market-leading capabilities and 100 free trades.
ETF assets more than doubled since the end of fiscal 2024, with the bank well on its way to achieving its medium-term target of CAD 54 billion in ETF assets.
Over 80% of insurance clients are digitally engaged, with strong progress towards the Investor Day target of 90%-plus.
US Banking has significant opportunities to accelerate commercial loan growth, scale the cards franchise, and deepen US wealth relationships, delivering substantial upside to the bank's earnings over the medium term.
US Banking is building towards sustainable growth, with increases in core loans expected to more than offset balance sheet runoff beginning next quarter.
Middle market lending balances were up 13% year-over-year and US proprietary credit card balances were up 18% year-over-year, driven by strong acquisition.
US wealth business achieved record mass affluent sales driving double-digit asset growth year-over-year.
Small business banking franchise is being moved to Canadian Personal Banking, with almost 90% of small business clients also doing their personal banking with TD, enabling simpler and faster service delivery.
Net client acquisition in small business banking is up 15% year-over-year in the first half of 2026.
TD is exploring new strategic card partnerships beyond the Nordstrom conversion, with openness to deepening relationships with Target and potentially bolting on other high-quality card partnerships.
Bankcard business is targeting 30% penetration of the deposit book, with the business already picking up 200 basis points on a year-over-year basis.
Wholesale Banking is deepening relationships with existing clients, with top line up 18% year-over-year in the first half despite the CAD 180 million earned last year from the Schwab transaction.
Wholesale Banking revenue growth relative to RWA growth was about three times in the quarter, demonstrating efficient capital deployment.
Wholesale Banking US revenue has doubled from about a quarter of total revenue in 2022 (the last year prior to the Cowen acquisition) to about half today.
Financial Guidance and Outlook
Bank expects to outperform its 6% to 8% EPS growth and 13% ROE targets for fiscal 2026, provided current macroeconomic conditions continue.
Bank may achieve its medium-term ROE target faster than expected at Investor Day.
Total PCLs are expected to fall within a range of 40 basis points to 50 basis points for fiscal 2026.
Expense growth guidance for fiscal 2026 is 3% to 4% excluding foreign exchange, variable compensation, and the US strategic cards portfolio.
US Banking expense growth guidance remains mid-single-digit range with approximately CAD 2.9 billion in net income expected for the US Banking segment for fiscal 2026.
Net interest margin in Canadian Personal and Commercial Banking is expected to be relatively stable in Q3, similar to Q2 results.
US Banking net interest margin is expected to modestly increase in Q3.
AML remediation costs are expected to moderate in the second half of the year, largely in line with previous guidance of CAD 500 million in fiscal 2026.
Composition of AML remediation spend has begun to shift towards validation and sustainability costs, as management implementation expenses have started to moderate on a quarter-over-quarter and year-over-year basis.
Credit Quality and Risk Management
Gross impaired loan formations were 22 basis points, a decrease of 5 basis points or CAD 457 million quarter-over-quarter.
Gross impaired loans decreased 4 basis points quarter-over-quarter to 54 basis points, reflecting lower impairments in Wholesale and US Banking segments.
Allowance for credit losses decreased CAD 147 million quarter-over-quarter due to lower impaired allowance in Wholesale Banking driven by resolutions, partially offset by performing build.
Bank is prudently reserved at 97 basis points of allowance coverage.
TD's exposure to private credit and equity is small at approximately 1% of total bank gross loans, primarily concentrated in subscription or capital call facilities, with low risk and primarily investment grade.
Private credit and equity exposure continues to perform well with no watch list or impaired loans.
AML Remediation Progress
Third-party vendor has completed its first population of lookback reviews required under the OCC and FinCEN consent orders.
AML program is now running on a new transaction monitoring system with embedded machine learning and AI enhancements.
New KYC strategic platform was deployed last quarter, with an improved customer risk-rating model embedded this quarter providing more accurate, timely, and consistent risk assessments.
Onboarding systems for money service businesses were updated, providing colleagues with the ability to sustainably identify, detect, and manage these types of businesses.
Enhanced controls were added to the Financial Crime Risk Management training program, providing detailed insights into training effectiveness, completion metrics, and workforce readiness.
Brand and Workplace Recognition
TD was named the most valuable brand in Canada by Brand Finance for the fourth consecutive year.
TD was ranked number one on LinkedIn's list of the top 25 best Canadian companies to work for.
Investor Relations team won across five categories at the IR Impact Awards last month.
