Toronto Dominion Bank 2026 Q3 Earnings Call

Thank you, operator. Good morning, and welcome to TD Bank Group's third quarter 2026 results presentation. We will begin today's presentation with remarks from Raymond Chun, the bank's CEO, followed by Leo Salom, Group Head, U.S. Banking, after which Kelvin Tran, the bank's CFO, will present our third quarter operating results. Ajai Bambawale, Chief Risk Officer, will then offer comments on credit quality, after which we will invite questions from analysts on the phone. Also present today to answer your questions are Sona Mehta, Group Head, Canadian Personal Banking, Barbara Hooper, Group Head, Canadian Business Banking, Paul Clark, Group Head, Wealth Management and Insurance, and Tim Wiggan, Group Head, Wholesale Banking. Please turn to the next slide. Our comments during this call may contain forward-looking statements, which involve assumptions and have inherent risks and uncertainties. Actual results could differ materially.

I would also remind listeners that the bank uses non-GAAP financial measures to arrive at adjusted results. The bank believes that adjusted results provide readers with a better understanding of how management views the bank's performance. Ray, Leo, and Kelvin will be referring to adjusted results in their remarks. Additional information about non-GAAP measures and material factors and assumptions is available in our Q3 2026 MD&A. I will now hand the presentation over to Ray.

Thank you, Brooke, and good morning, everyone. Thanks for joining us. TD had a very strong quarter with record earnings in our Canadian businesses and Wholesale Banking and growing momentum in U.S. Banking. Before I turn to our results, I want to acknowledge the developments over the past few days have added significant uncertainty to the Canada-U.S. trade relationship. Our economies are interconnected, and we are hopeful the two countries will ultimately find common ground. We will continue to be there for our clients in Canada, the U.S., and globally to support their growth as we navigate this uncertain environment. In Canada, trade tensions have not dampened investment opportunities as governments seek to drive new activity.

In a report published earlier this week, TD Economics estimates more than CAD 1 trillion in spending and possibly considerable more could be rolled out across Canada over the coming decade in a historic investment super cycle. We are very well-positioned to benefit from this activity. As we unlock investment opportunities, we have the means to deploy capital to support our clients and the broader economy. Please turn to the next slide. In Q3, the bank delivered a strong quarter with record earnings of CAD 4.7 billion and record EPS of CAD 2.77. Revenue grew 8% year-over-year, driven by momentum in our markets-driven businesses, margin expansion, and volume growth in Canadian Personal and Commercial Banking. Impaired PCLs declined quarter-over-quarter, reflecting strong credit performance. We now expect total PCLs near the lower end of our prior 40 to 50 basis point range in fiscal 2026.

Ajai will share more details in a few minutes. TD delivered positive operating leverage for the fifth consecutive quarter. The bank is driving structural cost reductions, while at the same time accelerating investments across AI, innovation, and frontline talent. Excluding variable compensation, FX in the U.S. strategic cards portfolio, expenses were up 1% year-over-year. We expect to achieve our 3%-4% expense growth target for fiscal 2026. ROE was 16%, up 280 basis points year-over-year. The bank is on track to significantly outperform its 6%-8% EPS growth and 13% ROE target for fiscal 2026, provided that current macroeconomic conditions continue. In Q3, the bank's CET1 ratio was 14.3%, with strong organic capital accretion offset by consistent share buybacks. TD has significant capital flexibility. The lower D-SIB requirement in range create even more capital flexibility than we had before.

We see growing deployment opportunities driven by the super cycle I mentioned earlier. TD is different than peers. We don't just start from a position of strength in capital, we also produce capital at a very strong rate. As a result, it will take time for the bank to reduce its CET1 ratio. We continue to expect to reach 13% CET1 by the second half of fiscal 2027. We remain committed to returning excess capital to our shareholders. To illustrate the potential magnitude of capital return, assuming continued strong organic capital accretion and RWA growth in line with fiscal 2026 year to date, TD could return over CAD 13 billion in capital in fiscal 2027 to reach a 13% CET1 ratio by the end of that year. We are in an enviable position.

TD has the flexibility to return substantial capital to shareholders while meeting our ROE objectives and retaining significant capacity to invest in organic growth and support clients and businesses in our communities. Please turn to slide 3. Canadian Personal and Commercial Banking delivered deposit and loan growth supporting record earnings. In the personal bank, we saw acquisition momentum in day-to-day banking products, including a record Q3 in digital sales, which were up 17% year-over-year. Small business banking acquisition was up 13% year-over-year, driven by our frontline distribution expansion and refreshed product lineup. In real estate secured lending, we grew loans 4% year-over-year through speed and specialization. We delivered record proprietary originations this quarter while maintaining disciplined pricing.

We delivered strong performance in our business bank with loans and non-term deposits each up 8% year-over-year and commercial client acquisition up 10% year-to-date, reflecting the benefits of our distribution expansion. This quarter marked an important inflection point for our U.S. Banking segment, with total loans positive sequentially. The team continued to execute against the organic growth strategies we laid out at Investor Day. U.S. bank card balances, mid-market lending, and home equity lending were up 20%, 15%, and 6% year-over-year respectively. In our U.S. wealth business, we delivered record mass affluent investment assets driven by net asset growth and market appreciation. As we look ahead, branch expansion remains an important component of our growth strategy in the U.S.

Consistent with the branch repositioning plan shared at Investor Day and subject to regulatory approval, we are focused on opening 100 new branches by the end of calendar 2028, with work ongoing to identify additional opportunities through 2030 as we continue to invest in organic growth opportunities. Wealth Management and Insurance delivered record revenue, earnings, and assets. We have strong momentum in wealth with market share gains across advice, direct investing, and ETFs. New accounts grew 26% year-over-year, highlighted by straight-through digital onboarding over 90% in TD Easy Trade. Trades per day were up 20% year-over-year, and in ETFs, we are on track to achieve our medium-term target of CAD 54 billion in assets. Our insurance business continues its leadership role in AI and is accelerating deployment across the bank.

TD Insurance leads the Canadian industry in the scaled deployment of AI-powered vehicle damage estimation for auto claims, simplifying and accelerating repairs for our clients. Wholesale Banking delivered record revenue and earnings this quarter, reflecting the strength of our client franchise and product depth and favorable market conditions. TD Securities continued to strengthen its position as a trusted advisor on critical and complex global transactions. Our performance this quarter reflects the confidence clients have in our people, capabilities, and execution across markets, financing, and advisory solutions. This continued to drive market share gains. Calendar year-to-date, TD Securities placed in the top 10 in the U.S. equity and equity leagues tables. We also saw continued momentum in building a world-class integrated global transaction bank for our commercial and corporate clients, with deposits up 18% year-over-year.

Our growing wholesale bank is an important driver of fee income acceleration and revenue diversification for TD. Please turn to slide 4. We made significant progress in deepening client relationships on both sides of the border. The Canadian personal bank again achieved record penetration rates for both consumer and small business credit cards this quarter, and wealth closed a record CAD 24 billion in referrals year-to-date. In the U.S., we expanded our TD Premier program, which deepens relationships by bringing together our mass affluent clients' banking and wealth needs. TD Premier is designed to drive organic growth, delivering acquisition on both sides of the balance sheet and accelerating the powerful referral engine from our retail branches. We continue to innovate to make TD simpler and faster. We have scaled Gen AI knowledge management solutions across Canada with over 20,000 client-facing colleagues now supported by these capabilities.

We are also leveraging AI to enhance the colleague and client experience in TD Auto Finance Canada. We have automated approximately one-third of the manual processes in funding and launching digital income verification to deliver credit decisions faster. Finally, we continue to execute with discipline. Total bank ROE reached 16% this quarter, in line with the medium-term target we shared at Investor Day. This reflects strong momentum in disciplined expense and capital management across our businesses as TD continues to deliver on the commitments we have shared with you. This quarter's record results were also supported by favorable market conditions in our Wealth and Wholesale Banking businesses. We are executing against the strategies that we shared at Investor Day. In fact, in many cases, we are ahead of schedule with strong growth momentum across our businesses. We have already delivered on the CAD 900 million in structural cost reductions that we targeted for fiscal 2026.

We are on track for our CAD 2 billion to CAD 2.5 billion medium-term structural cost reduction target that we shared at Investor Day, and in fact, see potential upside as we fundamentally reset the cost base of the bank. TD is a top 10 bank in the U.S. With a stronger foundation and best-in-class talent, we are increasingly positioned to outcompete in our footprint. In Wholesale Banking, we have almost doubled our quarterly revenue since the TD Cowen acquisition closed, and capital markets still represents a smaller percentage of TD's revenue as compared to other G-SIB peers. We are just getting started in terms of what TD Securities can accomplish. In Canada, across our Personal and Business Banks and in Wealth, we are making the most significant investments in frontline distribution that TD has made in over a decade.