The Toronto-Dominion Bank Q3 FY2026 earnings call

• Financial Strength: TD reported record earnings of $4.7 billion and EPS of $2.77. Revenue grew 8% YoY, driven by markets-driven businesses, margin expansion, and volume growth. ROE reached 16%, up 280 bps YoY.
• Capital Position: CET1 ratio stood at 14.3%. The bank has significant capital flexibility, aiming to return substantial capital to shareholders while maintaining organic growth investment capacity. Target is to reach 13% CET1 by H2 FY2027.
• AI Leadership: Accelerated AI deployment across retail credit, software development, and contact centers. Hit the fiscal 2026 target of $200 million in value from AI three quarters into the year.
• Structural Cost Reductions: Achieved $900 million in structural cost reductions for FY2026 ahead of schedule. On track for the $2-$2.5 billion medium-term target with potential upside.
• U.S. Branch Expansion: Announced plans to open 100 new branches by end of calendar 2028, focusing on East Coast MSAs, subject to regulatory approval and ongoing AML remediation progress.
• Credit Quality: Impaired PCLs declined QoQ. Gross impaired loan formations were 20 bps. Strong credit performance across commercial and wholesale portfolios.
• Strategic Partnerships: Deepened relationships between U.S. Banking and Wholesale Banking, particularly in mid-market lending, driving synergy in fee income and advisory services.

Canadian Personal and Commercial Banking: Delivered record revenue, earnings, and profit before taxes (PTP). Deposits grew 1% (personal) and 5% (business), while loans grew 4% (personal) and 8% (business). Net Interest Margin (NIM) increased by 3 basis points sequentially.

U.S. Banking: Earnings increased 11% year-over-year, with Return on Tangible Common Equity (ROTCE) expanding to 15.6%. Total loans showed positive sequential growth. Bank card balances rose 20%, mid-market lending commitments up 9%, and home equity lending up 6%. Record NIM of 3.47% was achieved, up 6 basis points quarter-over-quarter.

Wealth Management and Insurance: Delivered record revenue, earnings, and assets. New accounts grew 26% year-over-year, and trades per day were up 20%. Efficiency ratio net of IFC was 53%.

Wholesale Banking: Achieved record revenue and earnings with an ROE of 16.7%. Deposits for the global transaction bank grew 18% year-over-year.

Corporate/Other: Reported a net loss of $82 million, smaller than the prior year period.

• Expense Growth: Expects total expense growth of 3-4% for fiscal 2026. U.S. Banking expects mid-single-digit expense growth.
• Provision for Credit Losses (PCL): Expects total PCLs near the lower end of the prior 40-50 basis point range for fiscal 2026.
• EPS and ROE Targets: On track to significantly outperform the 6-8% EPS growth and 13% ROE targets for fiscal 2026, contingent on macroeconomic conditions.
• CET1 Ratio: Expects to reach 13% CET1 by the second half of fiscal 2027.
• U.S. Banking Income: Expects approximately $2.9 billion in net income for the U.S. Banking segment for fiscal 2026.
• AML Remediation Expenses: Expects overall U.S. AML remediation expenses to be approximately $550 million for the year.

• Trade Policy Uncertainty: Significant uncertainty in Canada-US trade relations due to recent developments; however, governments are driving historic investment spending which TD is positioned to benefit from.
• Regulatory Consent Orders: U.S. Banking remains under consent orders for AML remediation. While progress is strong, it remains the #1 priority, and branch expansion is subject to regulatory approval.
• Asset Cap: The U.S. business is still subject to an asset cap under the consent order, which constrains certain growth activities until fully resolved.
• Macroeconomic Volatility: Potential impacts from tariffs, Middle East conflicts, and broader economic shifts on credit quality and market conditions. Prudent provisioning includes ~$500 million in reserves for policy/trade risks.

Q: Analyst asked about the interaction between opening 100 new U.S. stores by 2028 and the ongoing AML remediation/asset cap. / A: Leo Salom confirmed the plan to open 100 stores, primarily in 2028, to reinforce East Coast presence. He emphasized that AML remediation remains the top priority and the consent order is still in place, but significant progress allows them to proceed with branch repositioning. No inference should be drawn between the asset cap and branch openings; the cap remains active until all consent order aspects are satisfied.

Q: Analyst asked if the $13 billion capital return figure referred to buybacks only and how they measure impact on book value. / A: Raymond Chun clarified that the $13 billion refers specifically to buybacks, excluding dividends. He stated the primary use of capital is organic growth, with selective acquisitions possible but not a current priority. Excess capital will be returned to shareholders. He noted the team has more confidence in delivering medium-term outlooks and may adjust guidance next quarter based on continued momentum.

Q: Analyst asked if the bank is nearing peak credit losses and what drove better-than-expected impairment results. / A: Ajai Bambawale indicated they are likely past the peak, citing stable delinquencies and lower impaired PCLs across non-retail portfolios. He attributed strong performance to economic resilience and disciplined, prudent risk management, including early reserve building for tariff uncertainties. The bank maintains ~$500 million in reserves for trade risks and feels well-positioned despite evolving geopolitical factors.

Q: Analyst asked about the drivers of strong fee income in U.S. Banking and its sustainability. / A: Leo Salom explained that headline fees were slightly understated due to a Nordstrom partnership shifting some revenue to NII. Core fee income shows mid-single-digit growth. Key driver is synergy between U.S. Banking and Wholesale Banking in mid-market lending, where transactional fee revenues surged 28% due to integrated debt/equity and M&A capabilities. This model is expected to drive further growth in 2027.

Q: Analyst questioned how 100 new U.S. stores would impact PTPP given initial costs and whether expense growth could be contained. / A: Leo Salom outlined investments in stores, distribution (adding ~450 bankers), and product strategies. He stated these would be largely self-funded through productivity gains and moderation in GNC expenses in 2027. Raymond Chun added that structural cost reductions ($900M achieved YTD) create a 'flywheel effect,' allowing funding of growth investments while maintaining positive operating leverage and ROE discipline.