Toronto Dominion Bank’s Earnings Call Contradictions: CET1 Timeline Shifts, U.S. Loan Growth Outlook Diverge

Date of Call: Feb 26, 2026

Financials Results

• Revenue: Revenue grew 11% year-over-year.
• EPS: EPS was CAD 2.44, with record earnings of CAD 4.2 billion.
• Gross Margin: Not specified
• Operating Margin: Not specified

Guidance:

• Expect fiscal 2026 PCLs to fall within a range of 40-50 basis points.
• AML remediation spend for fiscal 2026 is expected to be $500 million.
• Targeting CAD 2.2 billion-CAD 2.5 billion in annualized cost savings over the medium term.
• Expect US Banking to deliver an efficiency ratio in the mid-fifties by fiscal 2029.
• Target total loans in the U.S. to post net growth at the aggregate bank level in Q3.
• Expect net interest margin in Q2 to be relatively stable in Canadian Personal and Commercial Banking and to modestly increase in US Banking.

Business Commentary:

Record Earnings and Revenue Growth:

• TD Bank Group reported record earnings of CAD 4.2 billion and EPS of CAD 2.44 for Q1 2026, resulting in an ROE of 4.2%, up 100 basis points year-over-year.
• The growth was driven by robust trading and fee income growth in markets-driven businesses, volume growth in Canadian Personal and Commercial Banking, and margin expansion.

U.S. Banking Performance and Strategy:

• U.S. Banking saw a 15% increase in credit card balances and 4% growth in mid-market lending, with a 15% increase in commitments.
• The growth was attributed to strategic investments in frontline expansion, strong pipeline growth, and the successful conversion of Nordstrom's card clients onto TD's servicing platform.

Wealth Management and Insurance Growth:

• Wealth Management and Insurance delivered record earnings and assets, with total client assets up 12% year-over-year and mass affluent client app assets up 18%.
• Growth was driven by market share gains, strong performance in Direct Investing, and strategic unification of discretionary and private wealth management businesses.

Credit Quality and Provisioning:

• The bank's gross impaired loan formations were 27 basis points, with an increase in impaired PCLs primarily due to a small number of borrowers across various industries.
• Despite the increase, credit performance was in line with expectations, and the bank remains prudently provisioned with allowance coverage of gross loans at 99 basis points.

Capital Management and Shareholder Returns:

• TD Bank Group maintained a strong capital position with a Q1 CET1 ratio of 14.5%, supported by organic capital accretion and share buybacks totaling approximately 84 million shares.
• The bank is focused on returning excess capital to shareholders, with a long-term target of reaching a 13% CET1 ratio by the second half of fiscal 2027.

Sentiment Analysis:

Overall Tone: Positive

• CEO stated: 'We had another strong quarter as we continued to demonstrate momentum across our strategic priorities.' and 'We continue to see potential upside to our 6%-8% EPS growth and 13% ROE targets for fiscal 2026, provided that positive macroeconomic conditions continue.' Also noted: 'I am confident in our path to 16% ROE.'

Q&A:

• Question from Matthew Lee (Canaccord Genuity): If we assume you reach 13% CET1 ratio by the end of 2027, and your cost savings continue to improve, and you achieve the earnings growth in your targets, I think my math suggests that you can get to that 16% ROE by the end of 2027. Can you maybe talk about what factors might prevent you from getting there or whether it’s just a matter of accounting for the unknowns?
  Response: Management is ahead of schedule on cost reduction and CET1 ratio targets, which provide 100 and 150 basis points of ROE benefit respectively, and is confident in achieving the 16% ROE target.

• Question from Matthew Lee (Canaccord Genuity): Maybe just a quick one on the U.S. loan book. Total loans were down 9%, but core loans are up 2%. Can you just maybe help us understand what the areas of focus are in terms of growing that book in the U.S.? When we should start thinking about core loan growth beginning to outpace the identified sales and runoffs?
  Response: Core loan growth was driven by strong consumer lending (15% credit card growth) and mid-market (4% growth), with pipeline growth of 15%. Targeting net total loan growth at the aggregate bank level in Q3.

• Question from Gabriel Dechaine (National Bank Financial): I just got a quick one here on the credit performance, because, you know, we saw the impaired going and performing, going in a different direction here. You did a good job explaining the, what was going on in the impaired book and your expectations going forward. Just wondering about, you know, the, the performing release. I guess part of it is the U.S., you know, some runoff, you know, what macro changes did you make that might have resulted in these pretty material releases?
  Response: The performing PCL release was driven by improved macroeconomic forecasts (unemployment, GDP) and loans migrating from performing to impaired status, and is well-founded through governance processes.

• Question from Paul Holden (CIBC Capital Markets): Two questions related to Leo’s business. I guess, first is with respect to the NIM expansion, 13 basis points this quarter, guidance for modest expansion next quarter. I think that was the same guidance we got this quarter. What drove the upside this quarter, and there’s potential it follows through next quarter? Second part of the question, with that good NIM expansion, with you talking about, you know, loan growth starting to improve and crossing over to positive in Q3, and what I’m seeing good expense discipline, like, can we start to expect to see positive operating leverage and lower efficiency ratio out of the US Bank in 2026?
  Response: NIM expansion was driven by loan repositioning tailwinds, selective repricing, and tracker rate tailwinds, offset by Fed rate cuts. Modest expansion expected next quarter. Revenue momentum, pricing discipline, and expense focus (including store closures, vendor wins, AI automation) support positive operating leverage and lower efficiency ratio outlook for the year.

• Question from Sohrab Movahedi (BMO Capital Markets): Okay, thank you. I just wanted to, a question for Sona. If I remember correctly, I think at the Investor Day, the medium-term type of targets for your business would have had efficiency ratios, which I think you’re at right now, and ROEs around, I think, where you’re at right now, or at least we’re in this quarter. Is this as good as it gets for your business from those sorts of metrics, or is there still room for improvement here, Sona?
  Response: Management sees room for further improvement, driven by AI deployment (e.g., agentic AI in RESL reducing pre-adjudication time) which provides P&L benefits, and expects to exceed $1 billion in value from AI over the medium term, indicating upside to Investor Day targets.

Contradiction Point 1

Timeline for Reaching 13% CET1 Ratio

Contradiction on when the 13% CET1 ratio will be achieved.

Matthew Lee (Canaccord Genuity) - Matthew Lee (Canaccord Genuity)

2026Q1: Progress is ahead of schedule... reaching a 13% CET1 ratio (adding ~100 bps to ROE)... - Raymond Chun(CEO)

What factors might prevent you from reaching a 13% CET1 ratio by the end of 2027? - Ibrahim Punawala (Bank of America)

2025Q4: The CET1 ratio is not expected to fall below 13% in 2026 but may reach it in 2027. - Kelvin Tran(CFO)

Contradiction Point 2

Outlook for U.S. Loan Book Growth

Contradiction on the expected timing for U.S. loan net growth.

Matthew Lee (Canaccord Genuity) - Matthew Lee (Canaccord Genuity)

2026Q1: The bank expects total U.S. loans to post net growth in Q3. - Leo Salom(Group Head, U.S. Retail)

"When will core loan growth in the U.S. loan book outpace sales and runoffs, given a 9% decline in total loans?" - Paul Holden (CIBC)

2025Q4: The focus is on core deposit growth (checking accounts) going forward, with mid-single-digit deposit growth targeted over the medium term. - Leo Salom(Group Head, U.S. Retail)

Contradiction Point 3

Characterization of the Performing Loan Loss Provision Release

Contradiction on the primary driver of the performing PCL release.

Gabriel Dechaine (National Bank Financial) - Gabriel Dechaine (National Bank Financial)

2026Q1: The performing PCL release was well-founded and driven by two factors: 1) Macro improvements: Unemployment and GDP numbers improved in Canada and the U.S. 2) Credit migration: Reversal of provision previously set aside for loans that migrated from performing to impaired. - Raymond Chun(CEO) & Ajai Bambawale(CRO)

What macro changes and U.S. runoff factors contributed to the material releases in the performing book? - Paul Holden (CIBC)

2025Q2: Impaired PCLs declined across Canadian P&C, US Retail, and Wholesale, driven by strong credit quality, seasonal factors, and a model update. - Ajai Bambawale(CRO)

Contradiction Point 4

Asset Cap Removal Timeline

The timeline for potential asset cap removal is described as being within the bank's control versus outside.

Gabriel Dechaine (National Bank Financial) - Gabriel Dechaine (National Bank Financial)

2026Q1: The performing PCL release was well-founded and driven by two factors: 1) Macro improvements: Unemployment and GDP numbers improved in Canada and the U.S. 2) Credit migration: Reversal of provision previously set aside for loans that migrated from performing to impaired. - Raymond Chun & Ajai Bambawale

What macro changes contributed to the material releases in the U.S. performing loan book, considering the runoff? - Ebrahim Huseini Poonawala (Bank of America)

2025Q3: The 'majority of management actions' are expected to be completed by end of 2025. However, some items will stretch into 2026/2027. The bank must then pass internal challenges, audits, monitor oversight, and regulator sustainability tests before any potential cap removal, which is outside the bank's direct control. - Leovigildo Salom

Contradiction Point 5

U.S. Loan Book Growth Outlook

Timing of the inflection point for U.S. loan growth is presented differently.

Matthew Lee (Canaccord Genuity) - Matthew Lee (Canaccord Genuity)

2026Q1: The bank expects total U.S. loans to post net growth in Q3. - Leo Salom(Group Head, U.S. Retail, TD Bank Group & President and CEO, TD Bank, America's Most Convenient Bank)

Can you clarify the areas of focus for growing the U.S. loan book, given the 9% decline in total loans but 2% core loan growth, and when core loan growth might outpace sales and runoffs? - John Aiken (Jefferies)

2025Q3: Headline asset contraction is expected through most of 2026, with an inflection point towards the end of the year. - Leovigildo Salom(Group Head, U.S. Retail, TD Bank Group & President and CEO, TD Bank, America's Most Convenient Bank)