TD Bank (TD) Q2 2026 earnings review
Broad-Based Growth Obscures U.S. Restructuring Drag
TD delivered a highly robust Q2 2026, posting adjusted EPS of $2.38 (+21% YoY) and adjusted Net Income of $4.17B (+15% YoY). The bank is operating from a position of strength, achieving an adjusted ROE of 14.4% that tracks well ahead of its 13% FY26 target. Growth was propelled by record earnings in Canadian P&C, Wealth, and Wholesale Banking. The bank is aggressively leaning into its excess capital, executing its $7B share buyback program and raising the dividend to $1.12 per share. While U.S. Banking headline loans continue to contract due to balance sheet restructuring, core NIM expansion and Canadian volume growth provide a strong foundation for continued outperformance.
🐂 Bull Case
U.S. Banking adjusted NIM jumped 37 bps YoY to 3.41%, while Canadian P&C NIM expanded 3 bps to 2.85%. Both segments are successfully driving higher loan and deposit margins despite a fluid rate environment.
TD is actively driving down its 14.3% CET1 ratio toward a 13% target by H2 2027. This aggressive capital return strategy mathematically guarantees substantial ROE tailwinds over the next 18 months.
🐻 Bear Case
AML remediation and governance costs continue to drain profitability, running at ~$173M this quarter. Management confirmed the $500M annual run-rate will persist through FY26.
Despite management celebrating 'core' loan growth, total U.S. average loans shrank by 7% YoY (US$13B). True top-line expansion in the U.S. remains hostage to the ongoing balance sheet restructuring.
⚖️ Verdict: 🟢
Bullish. The bank is hitting its stride operationally, delivering positive operating leverage for the fourth consecutive quarter. The combination of structural cost takeout, AI efficiencies, and a massive capital return program heavily outweighs the lingering U.S. regulatory costs.
Key Themes
Canadian P&C Volume & Margin Momentum
Accelerating. Canadian P&C net income grew 15% YoY to a record $1.92B. The growth is high-quality, driven by a 6% increase in average loan volumes (5% personal, 7% business) and expanding margins (NIM up 3 bps to 2.85%). Expanding the frontline with 300+ business bankers over the last year is yielding direct market share gains.
U.S. Core Growth Amidst Restructuring
Stable. While headline U.S. metrics look messy, the underlying engine is healthy. Excluding runoff portfolios, core average loan volumes increased 3% YoY. The conversion of the Nordstrom credit card portfolio onto TD's platform was successfully completed, adding scale that will drive down unit costs over time.
AI-Driven Structural Cost Reductions
Management is targeting $2B-$2.5B in structural cost savings and is tracking ahead of pace. A standout specific innovation is the implementation of Agentic AI in the real estate secured lending (RESL) business, which slashed mortgage pre-adjudication cycle times from 15 hours to just 3 minutes. This directly lowers unit costs while improving client experience.
Headline U.S. Loan Contraction Contradicts Momentum Narrative
Management's press release highlights 'sustained business momentum' in the U.S., but the raw data tells a more sobering story: total average U.S. loan volumes collapsed by US$13 billion (7% YoY). Business loans specifically plunged 10%. Until the balance sheet restructuring completely finishes, this massive runoff will continue to cannibalize core growth.
Persistent AML Remediation Spend
Stable. U.S. AML remediation remains the bank's top risk priority. U.S. non-interest expenses rose 10% YoY, heavily burdened by US$173M in AML remediation costs in Q2 alone. The composition of this spend is shifting from implementation to validation and look-back reviews, but the total dollar drag is not expected to ease before 2027.
Macroeconomic Strain on Canadian Consumers
While total PCLs were flat sequentially, Canadian P&C impaired PCLs rose 9% YoY to $465M. Management explicitly noted credit migration in consumer lending portfolios, particularly in the sub-650 credit score segment. An updated, more pessimistic macroeconomic outlook also forced an overall performing reserve build this quarter.
Wealth & Wholesale Breakout
Fee-based businesses are firing on all cylinders. Wealth & Insurance delivered an 18% YoY net income jump, fueled by a 19% YoY surge in AUM and the successful relaunch of the TD Easy Trade app. Concurrently, Wholesale Banking ROE expanded a massive 360 bps YoY to 14.5%, proving the TD Cowen integration is finally generating real scale.
Other KPIs
Decelerating. This is an intentional and positive decline from 14.5% in 26Q1 and 14.9% a year ago. The bank repurchased 19 million shares this quarter (a 41 bps drag on CET1) as it aggressively manages capital down to a 13% target by H2 2027 to boost ROE.
Stable. PCL ratio remained flat at 0.43% sequentially and fell from 0.58% a year ago. Allowance coverage remains robust at 97 basis points, giving management a comfortable buffer against further macro deterioration.
Adjusted revenue grew 6% YoY while adjusted non-interest expenses (excluding variable comp, FX, and strategic cards) grew just 3%. The jaws between revenue and expense growth are widening, showcasing strict operational discipline.
Guidance
Stable. Management is highly confident in hitting this target (excluding variable comp, FX, and strategic cards), as Q2's core expense growth landed perfectly at 3%. This indicates structural cost reduction programs are offsetting inflation.
Stable. No change to the massive regulatory price tag. The spend mix is shifting away from implementation toward validation and 'look-back' reviews, but bottom-line relief remains elusive.
Stable. Q2 actuals landed right in the middle at 43 bps. Management expects pressure from trade tariffs and macro weakness, but feels perfectly provisioned at current levels.
Stable. After an impressive 3 bps expansion in Q2, the bank expects margins to plateau in Q3, citing current rate and competitive market dynamics, with potential for slight upside in Q4.
Accelerating. Continuing its rapid upward trajectory from 3.00% a year ago, driven by the delayed benefits of balance sheet repositioning and disciplined deposit pricing.
Key Questions
U.S. Loan Growth Inflection
Headline U.S. average loans fell 7% YoY. Based on the remaining timeline for the balance sheet restructuring runoffs, exactly which quarter do you expect headline U.S. loan growth to cross back into positive territory?
AML Look-back Costs and Timeline
With the first population of OCC/FinCEN look-back reviews complete, how has this informed your estimate of the total scope? Is there a risk that the look-back window expands, keeping AML costs pinned at US$500M beyond 2026?
AI Savings Drop-Through
You are tracking ahead of your $1B AI value target, with Agentic AI dramatically cutting mortgage processing times. How much of these savings are being allowed to drop to the bottom line versus being reinvested into front-line business banker hiring?
Tariff Reserve Adequacy
You previously built nearly $500M in reserves for trade and tariff risks. Given the shift in U.S. trade policy dynamics this quarter, do you foresee needing to top up that specific reserve, or is it already capturing the worst-case scenario?