On Thursday, Toronto-Dominion Bank (TSX:TD) discussed second-quarter financial results during its earnings call. The full transcript is provided below.
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Access the full call at https://www.meetview.com/TDQ22026/
Summary
Toronto-Dominion Bank reported a strong Q2 2026 with EPS up 21% year-over-year and ROE at 14.4%, surpassing their targets.
The company is ahead of schedule on strategic initiatives such as AI adoption, structural cost reductions, and plans for a $7 billion share buyback program.
Future guidance indicates stable net interest margins and continued credit performance with PCLs expected in the 40 to 50 basis points range for fiscal 2026.
Operational highlights include record revenue in Canadian Personal and Commercial Banking and accelerated loan growth in U.S. Banking.
Management expressed confidence in meeting or exceeding medium-term targets set at Investor Day, driven by strong capital positions and strategic investments.
Full Transcript
OPERATOR
Good morning. Good morning everyone. Welcome to the TD Bank Group second quarter 2026 earnings conference call. I would now like to turn the meeting over to Ms. Brooke Hales, head of investor relations. Please go ahead Ms. Hales.
Brooke Hales (Head of Investor Relations)
Thank you operator. Good morning and welcome to TD Bank Group’s second quarter 2026 results presentation. We will begin today’s presentation with remarks from Raymond Chun, the Bank CEO, followed by Leo Salome, Group Head, US Banking, after which Kelvin Tran, the bank’s CFO, will present our second quarter operating results. Ajay Bambowale, Chief Risk Officer, 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 Mettal, Group Head, Canadian Personal Banking Barbara Hooper, Group Head, Canadian Business Banking Paul Clark, Group Head, Wealth Management and Insurance and Tim Wiggin, 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 Q2 2026 MD&A. Please turn to the next slide. I will now hand the presentation over to Ray.
Raymond Chun (CEO)
Thank you Brooke and good morning everyone. Thanks for joining us. In Q2, the bank delivered a strong quarter reflecting continued momentum across our businesses and structural cost reduction. Earnings Per Share (EPS) was up 21% year over year and Return on Equity (ROE) was 14.4%, up over 200 basis points year over year. TD is executing against the strategies and targets that we shared at Investor Day. In fact, in many cases we are ahead of schedule. The bank is on track to outperform its 6 to 8% Earnings Per Share (EPS) growth and 13% Return on Equity (ROE) targets for fiscal 2026 provided that the current macroeconomic conditions continue. Strong revenue performance this quarter was driven by momentum in our markets driven businesses. Margin expansion and volume growth in Canadian personal and commercial banking impaired Provisions for Credit Losses (PCLs) declined quarter over quarter reflecting strong credit performance. An update to our an update to our macroeconomic outlook resulted in a performing reserve build this quarter. We continue to expect total Provisions for Credit Losses (PCLs) of 40 to 50 basis points in fiscal 2026. TD delivered positive operating leverage for the fourth consecutive quarter excluding variable compensation FX in the US strategic cards portfolio expenses were up 3% year over year we are well on our way to achieve our 3 to 4% expense growth target for fiscal 2026. The bank is driving structural cost reductions, enabling the team to deliver the smallest expense growth since 2022 while at the same time accelerating investments across AI, innovation and frontline talent. Today we announced a 4 cent dividend increase bringing our dividend to $1.12 per share, reflecting confidence in TD’s future growth and earnings power. The bank’s Common Equity Tier 1 (CET1) ratio was 14.3% with strong organic capital accretion offset by consistent share repurchases. It’s been eight months since TD’s investor day. We see strong momentum across our businesses and unparalleled opportunities to take market share on both sides of the border. TD remains committed to completing our 7 billion share buyback program. Please turn to slide 3 Canadian Personal and Commercial Banking delivered record Q2 revenue, PTPP and earnings in real estate secured lending volumes grew 5% year over year. This disciplined growth is anchored in our strategy of speed and specialization. The bank has the largest portfolio of active credit cards and added the most cards in the market based on the annual Nielsen report. We again achieved record penetration rates for consumer and small business credit cards coupled with strong credit quality in the business. Bank loans are up 7% year over year driven by distribution, expansion and broad based momentum. Our clients continue to demonstrate resilience through macroeconomic uncertainty in TD Auto Finance. We were proud to be recognized again this year by J.D. power with the highest rank in dealer satisfaction in U.S. banking. AML remediation remains our top priority. You will hear more about our continued progress from leo. The business is also building towards sustainable growth with increases in core loans expected to be more than offsetting balance sheet runoff beginning next quarter. We saw that Momentum accelerated in Q2 with core business loans up 1.2% sequentially this 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 and in our US wealth business, record mass affluent sales drove double digit asset growth year over year. As we shared at Investor day. US Banking has significant opportunities to accelerate commercial loan growth, scale our cards, franchise and deepen U.S. wealth relationships delivering substantial upside to the bank’s earnings over the medium term. Wealth management and insurance delivered record earnings and assets. We continue to drive innovation in TD Direct Investing, Canada’s number one digital investing platform. TD is the only Canadian bank to offer partial share ownership with as little as $1. Clients can now invest in some of the biggest companies in the world, bringing down barriers and creating new opportunities for Canadians. This quarter we launched the fully redesigned TD EasyTrade. The app offers market leading capabilities 100 free trades, helping to widen the gap to peers in direct investing. With this launch, the bank is positioned to continue to serve the next generation of investors. We continue to take share in ETFs with assets more than doubling since the end of fiscal 2024, we are well on our way to achieving our medium term target of 54 billion in ETF assets and in insurance. We continue to build on our position as Canada’s leading digital direct insurer with over 80% of our clients digitally engaged. Strong progress towards our Investor day target of 90% plus wholesale banking delivered record earnings this quarter supported by strong client activity across global markets and corporate investment banking. Broad based momentum across our platform enabled the business to earn through the almost 200 million in revenue from the Schwab transaction in Q2 last year. The team continued to execute against the strategies we laid out and invested day and placed in the top 10 in the U.S. equity and equity Linked league tables calendar year to date, Clients are entrusting TD Security with their largest and most complex transactions as they navigate the evolving macroeconomic environment. Please turn to Slide 4. We continue to make progress against our strategy to deepen relationships, make TD simpler and faster and execute with discipline. This quarter the Canadian personal bank delivered almost 9 billion in closed referrals to wealth double digit growth year over year and well on our way to achieving our medium term target. Within wealth itself, TD has an unparalleled pipeline from direct investing to advice. This quarter alone direct investing referred $1.5 billion to advice up 42% year over year, positioning TD to capture assets through the significant intergenerational wealth transfer currently underway in Canada. We continue to invest in our small business banking franchise and attract clients. With net client acquisition up 15% year over year in the first half of 2026 effective next week, we are moving our small business banking franchise to Canadian personal banking. Almost 90% of small business clients also do their personal banking with td. This realignment will enable TD to deliver simpler and faster for our small business banking clients, the backbone of the Canadian economy. Across the bank we have a clear strategy that is driving higher Return on Equity (ROE). This quarter US banking and wholesale banking Return on Equity (ROE)s were up 130 basis points and 360 basis points year over year respectively. As I said last quarter, TD may achieve its medium term Return on Equity (ROE) target faster than we expected at Investor Day. Please turn to Slide 5. At our investor Day we share targets to take out two to two and a half billion in structural costs and generate one billion in annualized value from AI. Over the medium term we have strong momentum and are tracking ahead of pace on both targets. Across the bank, structural cost reductions are fueling accelerated investments in innovation and AI. TD is and will continue to be a leader in AI. I believe AI will transform our operations, make our colleagues more efficient, our processes faster and our products and services better. We’re already seeing it across our businesses. In resol we reduce mortgage pre adjudication cycle time from approximately 15 hours to 3 minutes using Agenti in insurance. TD continues to innovate. We set a new industry standard for AI adoption in Canada, becoming the first home and auto insurer to launch a client facing generative, AI virtual assistant and across the bank. We have over 40,000 colleagues using Copilot and over 7,000 engineers using AI for software development was with the most active achieving a 29% increase in throughput. TD is increasingly emphasizing AI opportunities that transform end to end experiences, drive lower unit costs and are scalable across the enterprise. We see significant opportunities across credit contact centers, fraud and frontline productivity among other focus areas. We are tracking well ahead of pace on our target to deliver 200 million in value from AI this year. At the halfway mark we have already delivered almost 145 million in value across predictive, generative and agentic AI use cases. Please turn to Slide 6. For the fourth consecutive year, TD was named the most valuable brand in Canada by Brand Finance. TD was also recently ranked number one on LinkedIn’s list of the top 25 best Canadian companies to work for. These incredible accomplishments reflect the dedication and commitment of our colleagues across the bank. Thank you for continuing to deliver for our clients and shareholders every day. Now, before I hand it over to Leo, I’d like to take a moment to honor the memory of Richard M. Thompson. He was one of TD’s true architects, dedicating more than four decades to our organization, rising to become chairman and CEO. It was under his leadership TD launched the first bank owned self directed brokerage in Canada, laying the groundwork for today’s TD Direct investing. TD securities roots can also be traced back to his time leading the bank. Dick cared deeply about td, its clients, its colleagues and the community. His impact will be felt for generations to come. With that, I will hand it over to you Leo.
Leo Salome (Group Head, US Banking)
Great. Thank you Ray. As we enter the latter half of fiscal 2026, we continue to make good progress on our Anti-Money Laundering (AML) remediation program. This quarter with respect to the look back activities required under the OCC and FinCEN consent orders. The third party vendor has now completed its first population of look back reviews. While there’s more work to do in the coming months, I’m encouraged by the progress being made on this very important deliverable Turning to our Anti-Money Laundering (AML) Platforms and Systems as you’ve heard me speak about in prior quarters, our Anti-Money Laundering (AML) program is now running on a new transaction monitoring system that has an embedded machine learning and AI enhancements. We’ve streamlined and improved our investigative practices and and last quarter we deployed our new Know Your Customer (KYC) Strategic Platform. This foundational work has resulted in measurable residual risk reduction as our processes continue to mature. Notably this quarter we embedded an improved customer risk rating model into our Know Your Customer (KYC) platform which provides us with more accurate, timely and consistent risk assessments across our entire client population. We also continue to focus on improving our operational systems to enable frontline staff to complete critical Anti-Money Laundering (AML) tasks with greater efficiency. Specifically this quarter we updated our onboarding systems for money service businesses, providing our colleagues with the ability to sustainably identify, detect and manage these types of businesses going forward. Finally, we made an important enhancement to our financial Crime Risk Management training program with the introduction of enhanced controls which provide detailed insights into training, effectiveness, completion metrics and workforce readiness, all of which are important elements of a sustainable training program. From a financial perspective, the composition of our Anti-Money Laundering (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. We expect that trend to continue with overall Anti-Money Laundering (AML) remediation costs moderating in the second half of the year, largely in line with the previous guidance of $500 million in fiscal 2026. With that, I’ll turn it over to Kelvin.
Kelvin Tran (Chief Financial Officer)
Thank you Leo. Please turn to slide 8. TD delivered a strong quarter with momentum across our businesses through the TD Cowen acquisition and as you heard on Investor Day, we are taking deliberate strategic action to diversify the bank’s business mix. We saw the benefits of that strategy play out this quarter with strength in our markets driven businesses, margin expansion and volume growth in Canadian personal and commercial banking delivering robust top line growth at 43 basis points. Total PCLs were within our guided range and flat quarter over quarter expenses increased 5% year over year with approximately 2% driven by variable compensation, foreign exchange and the impact of the U.S. strategic cards portfolio. We delivered our fourth consecutive quarter of positive operating leverage. We made significant progress on our structural cost reductions enabling accelerated investments in business growth Total Bank PTPP was up 12% year over year after removing the impact of the US Strategic Cards, Portfolio, FX and Insurance Service expenses. We’ve shared the details on slide 23. Please turn to slide 9. Canadian Personal and Commercial Banking delivered record Q2 revenue, PTPP and earnings average deposits rose 3% year over year reflecting 1% growth in personal deposits and 5% growth in business deposits. We had a strong RRSP season including record close referrals from the Canadian Personal bank to our wealth business Average loan volumes rose 6% year over year with 5% growth in personal volumes and 7% growth in business volumes. Strong business loan growth reflected continued investment in our frontline bankers and execution against our local advice focused model. Net interest margin was relatively stable, up 2 basis points sequentially. As we look forward to Q3 based on the current rate and competitive market dynamics, we again expect net interest margin to be relatively stable. Similar to this quarter’s results, expenses rose 2% year over year and benefited from some timing impacts. Please turn to slide 10. In US banking, earnings were up 12% year over year and ROTCE expanded by over 200 basis points to 14.8% excluding sweeps and targeted runoff. In our government banking business deposits were up 1% year over year. Deposit costs declined quarter over quarter reflecting our strategic pullback on certain higher cost deposits and the strength of our non term personal deposits and operating business deposit franchises. Core loans grew 3% year over year driven by accelerated momentum across our portfolios. New bank card account acquisition was up 32% year over year and TD Auto Finance delivered record Q2 originations. We also saw a 17% year over year increase in middle market lending commitments and our home equity lending pipeline remains robust. Net interest margin was 3.41%, up 3 basis points quarter by quarter driven by higher loan and deposit margin. As we look forward to Q3, we expect net interest margin to modestly increase. Expenses increased 10% year over year reflecting higher governance and control investments and spend supporting business growth initiatives including the conversion of Nordstrom credit card clients onto TD’s servicing platform. There is no change to our guidance for fiscal 2026 overall expense growth in the mid single digit range and approximately $2.9 billion US in net income for the US banking segment. As we shared on our Q1 call in February, we converted Nordstrom card clients onto TD’s servicing platform. The conversion was completed smoothly and marked an important strategic milestone that provides scale as we build out our credit card franchise and opens opportunities to pursue new strategic card partnerships and drive down unit costs over time slide 22 provides an illustrative example of the accounting for our Strategic Cards portfolio. As a result of the Nordstrom change and consistent with similar transactions, the receivable adjustment of $144 million US was treated as an item of note in Q2. Please turn to Slide 11. Wealth Management and insurance again delivered record earnings and assets. In wealth, we had new Account growth of 15% year over year driven by 16% account growth in TD. Direct investing trades per day were up 11% year over year as clients continued to engage across our platform. Insurance delivered record earnings reflecting discipline, claims management and accelerated structural cost reductions sequentially. Expenses for this segment, excluding variable compensation, were relatively flat. We are driving structural cost savings while investing for the future, including accelerated distribution expansion. Please turn to slide 12. Wholesale banking delivered record earnings driven by strong execution across global markets and corporate and investment banking, including strength in our equities, capital markets and lending businesses. Our performance reflects the depth and diversification of the platform combined with high levels of client activity and constructive market conditions. Expenses increased 6% year over year as we continue to invest in talent and technology. Return on equity for the quarter was 14.5%, an improvement of 360 basis points year over year driven by strong revenue growth, moderating expense growth and disciplined capital management. Please turn to Slide 13. Corporate net loss for the quarter was $166 million, relatively flat to the same quarter last year. Please turn to Slide 14. The Common Equity Tier 1 ratio ended the quarter at 14.3%, down 26 basis points. Sequentially, we delivered strong organic capital accretion. Again this quarter, the bank repurchased approximately 19 million common shares under its share buyback program in Q2, which reduced CET1 by 41 basis points. TD’s capital position is a competitive advantage as Ray shared. The bank remains committed to completing a $7 billion share buyback. Upon completion of this program, and together with our previous share buyback, we will have returned $15 billion in capital to our shareholders. And with that, I will turn it over to Ajay.
Ajay Bambowale (Chief Risk Officer)
Thank you, Kelvin and good morning everyone. The bank exhibited continued strong credit performance this quarter. Please turn to slide 15. Gross impaired loan formations were 22 basis points, a decrease of 5 basis points of 457 million quarter over quarter. The decrease was largely recorded in the wholesale and US commercial lending portfolios, partially offset by an increase in Canadian commercial. Please turn to Slide 16. Gross impaired loans decreased 4 basis points quarter over quarter to 54 basis points, reflecting lower impairments in wholesale and US banking segments. Partially offset by an increase in Canadian personal and commercial. Please turn to slide 17. Recall that our presentation reports PCL ratios, both gross and net of the partner share of the U.S. strategic card PCLS. We remind you that U.S. card PCLS recorded in the corporate segment are fully absorbed by our partners and do not impact the bank’s net income. The Bank’s provision for credit losses was 43 basis points stable quarter over quarter as lower provisions in the wholesale and corporate segments were partially offset by an increase in Canadian personal and Commercial and US Banking. Please turn to Slide 18. Impaired PCLs were 973 million, decreasing 191 million quarter over quarter reflecting lower provisions in the Wholesale, US Banking and Corporate segments partially offset by an increase in Canadian commercial. The bank recorded a performing PCL of 28 million, largely related to an update to the macroeconomic outlook, partially offset by migration of performing reserves to impaired in the wholesale segment. Please turn to slide 19. The allowance for credit losses decreased 147 million quarter over quarter due to lower impaired allowance in wholesale banking driven by resolutions partially offset by performing build largely related to an update to the macroeconomic outlook. Now I’d like to spend a few minutes discussing two key risk topics. First is private credit and private equity. We’ve added a slide in our Appendix detailing a breakdown of our gross loans to the financial sector. Didi’s exposure to private credit and equity is small at approximately 1% of total bank Ross loans and is primarily concentrated in subscription or capital called facilities. Our exposure is low risk, primarily investment grade, and does not pose a material concern for the bank as it continues to perform well with no watch list or impaired loans. Second is the geopolitical environment and the ongoing conflict in the Middle East. We have not realized material impacts on credit performance to date. We have, however, added some performing reserves this quarter to reflect deterioration in our economic outlook and the uncertainty related to the duration and impact of the war. We will continue to carefully monitor potential impacts of the heightened risk environment on our credit portfolios and take suitable actions if warranted. With that, let me summarize the quarter. The bank exhibited strong credit performance as evidenced by lower gross impaired loans and gross impaired loan formations and stable PCLs. Additionally, we continue to be prudently reserved at 97 basis points of allowance coverage. While results may vary by quarter and are subject to changes to economic conditions, we continue to expect fiscal 2026 PCLs to fall within a range of 40 to 50 basis points. With that operator, we are now ready to begin the Q and A session.
OPERATOR
Thank you ladies and gentlemen, we will now begin the question and answer session. Should you have a question please press the star followed by the 1. On your touch tone phone you will hear a prompt that your hand has been raised. If you wish to decline from the polling process please press star followed by the two. And if you are using a speakerphone please lift the handset before pressing any keys. The first question comes from Ibrahim Poonawalla with BOV Securities. Please go ahead.
Ibrahim Poonawalla (Analyst)
Good morning. I guess maybe Ajay is starting with you on. Ibrahim, your line is open. We got him. Thank you Graham. Yeah, sorry about that. So I guess maybe Ajay starting with you on credit quality, you you on the PCL guidance just give us a sense when we think about you probably have among of all the banks like the best sense of what’s happening with the consumer the sort of dynamic with high unemployment rates going higher as we look through the next six months and beyond do you think generally credit and it is the early indicators that you see suggest that credit sends for the Canadian consumer book are moving in the right direction or do you expect further worsening and with the end point being unclear in terms of when we actually see some of the peaking on delinquency delinquencies etc.
Ajay Bambowale (Chief Risk Officer)
Thanks. Yeah, again there’s, there’s quite a few things there Ibrahim, but let me answer your question comprehensively. Let me start with what I expect first. I should remind you I’ve reaffirmed the bank’s guidance. What I do expect is some pressure on PCLs because of three reasons. Trade and tariff actions, potential impacts of the Middle east war and the macro environment, particularly in Canada. If you think about trade and tariffs, TD bank is already well provisioned. You know we have close to $$500 million there and most of that reserve is unused. With respect to the Middle east war, I’d call it a watch item. Having said that, what we did this quarter is we put more weight on our downside case and we have already built some incremental reserves. So we are going to continue to reassess our reserves each quarter. But I feel quite comfortable that at 97 basis points we’re well positioned on reserves. As I mentioned we still have that $$500 million and we have a lot of financial flexibility. If I turn to the second part of your question which is on Canadian consumers I’d start by saying you know household debt in Canada is high but if you look at how the Canadian consumer has done they’ve been very resilient. The reason they’ve been very resilient is a few things. One, rates are down. If you look at where rates peaked, rates are down 275 basis points. The second reason I’d offer up is the starting point on wealth is much better than it was pre pandemic. The third is wage growth and the fourth is ongoing government support. Having said that, are we seeing some migration in Canadian consumer? The answer is yes. We’re seeing it largely in the less than 650 segment but it is entirely expected it’s linked to the macro environment. So again I think you should expect some migration on the Canadian book. We’re seeing a little bit of it in real estate secured lending, we’re seeing a bit of it in auto, we’re seeing a bit of it in cards. But overall I think credit is still in good shape. Yes, there are some uncertainties. We’ll continue to watch them, we’ll reassess them through our process. But at 97 beeps including excluding $500 million for trade and tariffs, I think the bank is very well provisioned. So hopefully I gave you enough context Ibrahim.
Raymond Chun (CEO)
No, that’s good context and very comprehensive and I guess one for you is going to transform the bank. Like you talked a lot in terms of the details and how TD is deploying AI as we look forward, I think you obviously laid out some ROE targets at the investor day. You’re running ahead of those. As we look forward. Like do you think is it unreasonable to assume that td, despite its business makes having more US exposure could actually become a much profitable bank than what we are historically used to? And even in terms of as we think about the timeline to achieve some of your investor day targets, are you feeling better about them today than you did on the day of. Thanks, thanks Ibrahim for the question. So let me tackle that in a few different buckets. Let me start with the investor day and you know, I think it was about, about eight months ago, certainly feels a little bit longer than that. But as I’ve said for the last number of quarters we continue to have momentum and we are ahead of the vast majority of the metrics and the medium term outlook that we had set at Invest, all the businesses are ahead of their targets and so we feel very good not only in achieving them but achieving them sooner. If I look at our ROE target and roe being up 200 basis points year on year at 14.4%. If I look at just us going from our current CT1 ratio of 14.3 down to 13% that picks up another 90 basis points of ROE. And then if you look at Our expense management or structural cost reduction from 2 to 2.5 billion, that adds another 1.1, 110 basis points. And so when you look at that, that’s about 200 basis points of ROE pickup. And that’s all within our control. And I think that’s what really gives us a lot of confidence that we can get to certainly our ROE targets ahead of what we had anticipated at investor day, assuming macroeconomic conditions remain. On the structural cost reduction, which has been a critical focus for us, leveraging AI automation, process redesign, we set a goal of two to two and a half billion. What I can tell you, Ibrahim, is we are well ahead of pace. Our goal for this year was to have $900 million of structural cost reduction and we have already achieved that. And so on that side we think there’s upside. And on the 1 billion AI objective that we set out 500 million in expense reduction, 500 million in productivity or revenue. We definitely see, as we’ve gotten more and more into the agentic AI and generative predictive AI, we definitely see more upside to the billion dollar goal that we had set. So coming back to your question, do we think the, that we can do more than what we had put on the investor day? We believe we’re ahead of pace. We have momentum right across all of our lines of businesses and I think that’s setting us up well for accelerated growth on a go forward basis.
Ibrahim Poonawalla (Analyst)
Thank you.
Raymond Chun (CEO)
Thanks, Ibrahim.
OPERATOR
Thank you. The next question comes from Gabriel Deschane with National Bank Financial. Please go ahead.
Gabriel Deschane (Analyst)
Good morning. First on the, well, a couple angles here on the U.S. the expenses, they were up quite a bit. I know you gave some explanation, but let’s just revisit that. Indulge me. And what stands out is the AML cost, 173 million. That’s ahead of the 500 million annual kind of figure. Was there mention of some sort of a third party agreement that’s no longer going to be costing you money? Something like that.
Leo Salome (Group Head, US Banking)
Well, Gabe, thanks, thanks very much for the question. Let me, let me start by saying that I think the quarter was, it was a solid quarter for the US came in at 702 and that was up 12% on a year, on year basis. And if you break down the factors, we had positive core loan growth, we had moderate Net Interest Margin (NIM) expansion and as RJ described, I think Provisions for Credit Losses (PCL) performance in the US was quite strong. So expenses were somewhat elevated at 9.9% on a year, on year basis. But I would note that it was flat on a quarter on quarter basis and it’s the third quarter that we had relatively the same expense despite the fact to your point we did have higher governance and control expenses in the quarter and I think composition matters here. We’re seeing more as I’d indicated in previous quarters, we would expect to start seeing more validation look back and monitor expenses this year and less remediation implementation expenses. And that’s exactly what we saw in the quarter. So that was somewhat elevated. The other important, important milestone in the quarter was that we completed the conversion of Nordstrom and so we had higher conversion and operating expense that we assumed as part of that transaction. So if you isolate those two categories our base operating expenses were below 3%. So I feel like we’re making some really good progress in terms of moderating the rate of growth. I should say let me, let me just reaffirm that we still believe that we will achieve our mid single digit expense growth guidance for the year. In fact we’ve got good line of sight to being able to achieve that and more importantly I think we’re tracking really well to meet and or exceed our NIAD objective that we laid out in investor day. So net net, I’m feeling good at where we are. Obviously any opportunity that I’ve got to accelerate the remediation process it is my number one priority. We’re trying to work through it as quickly as possible because we know how important that is to the overall franchise.
Gabriel Deschane (Analyst)
I get that. I wasn’t critiquing the number, just trying to get a sense of the I guess additional elements this quarter that might not be around in coming quarters as that cost line kind of does drift down sequentially but I guess more on the strategic side as you move and I appreciate that AML remediation is your number one priority but as you move through the process and maybe increase bandwidth for growth initiatives. Sounds like there’s some improvement in the core commercial banking loan book you’re open it sounds to exploring new strategic card partnerships. I want to get a sense for how are you thinking about the growth aspect of the business at this point and what we can look forward to.
Leo Salome (Group Head, US Banking)
Gabe, thank you very much for the question. I think the quarter did highlight the fact that we are seeing acceleration in number of different areas. I know Kelvin described a little bit of the loan growth but I just want to call out maybe a couple stats. One, we’ve been talking about the fact that total loan growth was going to turn the corner. Well on a spot basis total loan growth this quarter versus last quarter was in Fact positive. So, so that is, that’s a, that’s the first quarter that we’ve seen that since we embarked on the balance sheet restructuring exercise. So that’s, that’s, that was a step in the right direction and we would expect to build on that momentum in the, in the subsequent quarters. If I look core loan growth. Core loan growth was, was 3% for the quarter and it was really well distributed across both our consumer lending portfolios as well as commercial loans. I’ll talk about consumer loans just for a moment. We saw a number of our businesses, particularly the bank card business. That was what we saw. Overall balances up 18% and 32% growth in account sales. We were seeing real positive momentum there. We’ve been investing in that business over the past three years and we’re beginning to see the fruits of some of those investments. I’d say turning to commercial, I was particularly pleased about the quarter on quarter performance in commercial Overall growth was 1.2% for the quarter. So if you annualize that, that would suggest a mid single digit growth rate for our commercial businesses. But probably more important than just the absolute number was the composition. We’d been seeing really strong performance in sort of the middle market segment for some time. What we saw this quarter was stronger performance in both small business and our commercial regional businesses. So it was a slightly broader base win this quarter. And I think that that’s quite encouraging. I do think that given the work that we’re doing to your point, the fact that we’re increasing the number of bankers on the street supporting, you know, our commercial banking business, I do expect us to see some degree of acceleration in that business. There’s obviously some macroeconomic factors that you can’t control and there’s still risk of trade and supply chain disruptions. But generally speaking, I’m really confident about what I’m seeing in terms of some of the, some of the pipelines and some of the leading indicators.
Gabriel Deschane (Analyst)
Okay. And Ray, I heard you say it felt like a long time since investor day. I thought time was supposed to fly when you’re having fun. All right, that’s all folks. Have a good day. Thanks Dave. Thanks Gabe.
OPERATOR
Thank you. The next question comes from Paul Holden with CIBC Capital Markets. Go ahead.
Paul Holden (Analyst)
Thank you. Good morning. Want to ask a question on the expense guide? So I think Calvin, you’re pretty clear in terms of core expense growth was pretty good this quarter. I think 2% if we adjust for some FX and variable comp. So better than the mid single digit guidance. But then you Kind of stuck with the mid single digit guidance for the full year. So maybe you can talk about some of the things that were timing related and why that will come back next quarter. And I would have thought given what Ray has said on being ahead of plan on AI, that maybe there was some upside to expenses and efficiencies this year. So maybe you can help us think through all of that.
Raymond Chun (CEO)
Thanks Paul. Maybe I’ll just kick off and then Calvin can jump in. Paul, just want to clarify the mid single digit guidance is specific to the us the guidance that we have for at the enterprise level and we have confidence that is 3 to 4%. And so we don’t see, there’s nothing that we see as a one time that’s creating the, our expense this, this quarter. And so we see the structural cost reductions that we’ve been making across all of our business lines continuing. And as we accelerate our, our value from AI and automation, I think you’re going to see, as I’ve been saying previously, that that we try to continue to take the structural cost run rate of the organization down consistently on a unit cost basis. And so you’re seeing that play through and you’ll continue to see that play through. Paul. So I just wanted to clarify the mid single digit is us, not enterprise.
Kelvin Tran (Chief Financial Officer)
That’s right. Calvin here our guidance for 2026 expense growth affects and variable compensation and strategic cover 3 to 4%. So this quarter we’re at 3% Q1 was higher than that. And so just on an average basis we’ll get to that range for the full year. We’re confident that we’ll get there.
Paul Holden (Analyst)
Okay, my mistake. Understand. Thank you for that. And then maybe just a quick one for Sona increasingly hearing about some increased competition maybe on the loan side and also on the deposit side sort of pressuring margins a bit. What are you seeing in your business specifically in your confidence around the ability to sort of maintain margins in Canadian retail banking? Thanks.
Sona
Okay, thanks for that question, Paul. So if we look at the quarter we were up in CAD, PNC2bps sequentially in line with our NIM guidance and really that’s broken down in a couple of factors. We saw some positive trends on deposit margins including tractor repricing as well as driving higher loan margins. And so let me tug a little bit at what you’re getting to. So in the market we definitely did see in the second quarter particularly competitive pricing set in. But Paul, as you’ve heard me say, we are firmly committed to profitable growth and for us that means disciplined pricing. And you know, so as we anchor in this principle, we’ve nonetheless had 5% year over year reso growth. And that’s because we are, with our disciplined pricing, we are able to drive positive on off margin, including in this competitive quarter. And so as we look ahead, we expect to see relatively stable NIM in Q3, similar to this quarter. And you know, I’m even optimistic for some potential nim upside in Q4. And if I just step back, Paul, you know, I think, and picking up off what Ray said earlier, you know, I think we’re out to capture organic growth upside. We see tremendous momentum across the businesses. Obviously we’re pleased with in resell how we’re leaning in competing on speed and specialization rather than price. But across the board we see momentum. We’ve had number one year over year growth in resol, in cards and in deposits. So we’re particularly pleased with the quarter and proud of our team’s work.
Paul Holden (Analyst)
That’s helpful. Thank you. I’ll leave it there.
OPERATOR
Thank you. The next question comes from Matthew Lee with Care Genuity. Please go ahead.
Matthew Lee (Analyst)
Hi. They say my question, most of my questions have been answered, but maybe one on cards. You did highlight strong acquisition and record penetration. US bank card bouncer up and obviously the Nordstrom conversion onto TD’s platform. Just how are you thinking about card in general as a growth engine, especially balancing kind of position, credit normalization and maybe potential new strategic partnership.
Leo Salome (Group Head, US Banking)
Yeah, Matt, thanks for the question. I’ll start on the US side and maybe I’ll pass it to Sona to add something from a Canadian perspective. I think from a US business, we’re somewhat underweight in terms of total cards in our overall book. So it is a segment that, it’s a product that we’re very focused on and it’s one of the reasons why three years ago we embarked on a really comprehensive build. We added significant talent. We retooled our cards operations, we retooled the product lineup, we changed some of our credit underwriting. In fact, we implemented a number of AI models that allow us to be able to leverage deposit activity, to be able to fine tune some of our targeting. All those things are culminating in the performance that you’re seeing today on the bank card side of the house. So I absolutely want to grow our bank card. One of the investor day targets that we established was to get to a 30% penetration of our deposit book. And quite frankly, Matt, I’d like to exceed that. In fact, we’re tracking quite well. We picked up 200 basis points on a year. On year basis. So clearly want to try to maximize the growth of our core bank card business. But I also, I’m thrilled about the successful conversion of the Nordstrom transaction. Being partnered with one of the premier retailers in the US marketplace is a privilege. And to the extent that we can deepen our relationship with Target and potentially bolt on other really high quality card partnerships, that will be a priority for us in the future as well. I’d like to have cards receivables be a larger portion of the overall hold. And to your point, we’re cognizant about the risk profile, but I can tell you based on what we’re seeing at this point, we’re quite comfortable with the credit risk that that portfolio represents. And I think in many ways being able to build a bigger cards business as part of our overall US US balance sheet will actually improve Net Interest Margin (NIM)S and will improve our overall diversification in terms of our asset earnings. So net, net. It’s a long winded way of saying it’s a big priority for us in the US Sona.
Sona
Yeah, maybe just briefly, Matt. Really strong story north of the border as well in our cards business. You know, we’ve had strong cards acquisition up double digits year over year and it’s really driving to continued momentum towards our investor day targets on depth of relationship both for personal consumer cards as well as small business banking clients. You know what I’m particularly pleased with is it’s exactly growing in the spots that we would want it to grow. So we’ve had a really thoughtful execution playbook. Again, how do we really increase this depth of relationship within our existing clients? And so most of our growth year over year is actually coming from strong preapproval conversion amongst our existing clients. Those are the clients we know the most about and very additive. Right from a quality book perspective. And then on the flip side with our new to banking clients, we’ve seen continued momentum in deepening that relationship at point of sale in our branches. So really healthy mix and really healthy growth supporting our number one position in the industry this year.
Matthew Lee (Analyst)
All right, that’s helpful,
OPERATOR
Thank you. The next question comes from Doug Young with Deschardins Securities. Please go ahead.
Doug Young
Hi, good morning. I guess for Tim and for Ray here on wholesale. I mean I know this was a particularly strong quarter and results are pretty good, but are we caught my eye in wholesale at 14 and a half percent. I think you’ve targeted 13% from the investor day. Tim, you can talk a bit about sustainability. Is There room for further ROE expansion and then what drives this? And Ray, as you look over at that, does that give you more comfort? You’ve got a lot of excess capital and I know it’s pointed towards organic growth and buybacks and whatnot, but does that give you more comfort deploying capital into into capital markets?
Raymond Chun (CEO)
So when I start and then, and then Tim, you can jump in after. I would say first and foremost very pleased with the continued momentum in TD Securities. And as we said also at Investor Day, what we’re trying to do in the organization is balance or right size, our NII and fee income. And whether it’s our wealth business, our insurance business which both have record quarters, or our wholesale business, getting the fee income mix up across TD bank was a priority for us coming out of Investaday. And you’re seeing exactly that not just from Tim’s business, but from Paul Clark’s businesses. And so I’m pleased there. And before I hand it over to Tim, from a capital perspective, what I would just say is it is an area of the organization that we do believe has outsized opportunity for accelerated growth. And Tim and team are demonstrating the power of the platform and the acquisition of TD Cowan and TD securities combined. And so I would say it’s playing along exactly what we thought on a go forward basis. And then just from a capital perspective, the only thing I would say is I do think we are positioned differently than any other organization amongst our peers, that we start with an incredibly strong capital position 14.3 CET1. But when you overlay our strong organic capital generation that we do here within the organization, it really gives me an advantage that we can deploy capital in different ways at the same time. We can do continue to do buybacks while we look at not only organic growth opportunities and how do we want to accelerate some of our organic growth opportunities like NTD Security. So it gives me flexibility, Doug, to be able to do multiple things that maybe some of our peers can’t. So on that note, I’ll hand it
Tim Wiggin (Group Head, Wholesale Banking)
back over to Doug. I would just add two or three things. So it is important to note despite all the headlines that we are in a constructive market. So from a capital markets perspective, equity, capital markets, debt, capital markets, credit generally are in a positive place. You’ve heard me speak before about volatility. I would characterize it as a healthy level both from the standpoint of being able to monetize volatility on the trading side while keeping the capital markets open. And then I would just say generally there’s an openness to M and A. So as we sit today, it’s a constructive environment and quite a healthy backlog. The second point is Ray mentioned we’ve invested heavily in our platform and we continue to invest. So we’re doing more. We’re deepening our relationships with our existing clients. And if we look at the first half, that’s reflected where we had top line up 18% year over year, despite the $180 million earned last year from the swab transaction. So very healthy from that perspective. On capital specifically, I would continue to emphasize we’re not capital constrained by any means, but we do need to do more with that resource. So I always like to look at revenue growth relative to RWA growth, and again in this quarter, that number was about three times. The other point I wanted to emphasize is mix. So good balance between corporate and investment banking and global markets. And I think that’s reflected as well in the results, but also geography. So directionally, if we look at 2022, which was the last year prior to the Cowen acquisition, we would be doing about a quarter of our revenue in the US and today that number is twofold. And of course, it’s a market that’s about 20 times the size of Canada, so we see a tremendous amount of Runway. So all of that coming together drove the ROE 14.5% and the efficiency ratio of 63%. But maybe the last point I wanted to leave you with, there’s obviously always cyclicality in our business, but it’s about creating durability and repeatability on our platform and positioning ourselves to be able to serve clients and deliver for shareholders through the cycle. And I think that’s what you’re seeing.
Doug Young
I appreciate the color, and for the sake of time, I’ll leave it there. Thank you. Thanks, Doug.
OPERATOR
Thank you. There are no more questions in the queue at this time. I would now like to return the call to Mr. Raymond Chun for closing remarks.
Raymond Chun (CEO)
Thank you, operator. And thank you everyone for joining us today. We appreciate your questions and comments. In Q2, we continued our business momentum with strong credit performance, positive operating leverage, and robust earnings growth. ROE was 14.4%, up 200 basis points year over year. I’m proud of the progress through the first half of the year, and I’m confident TD will continue to deliver for its stakeholders. Now, before we close the call, I’d like to go a little bit off script for a moment to congratulate Brooke and her team on winning across five categories at the IR Impact Awards last month. What an incredible accomplishment, Brooke. Reflecting strong engagement with all of you. Our investors and analysts thank you for your support. And congratulations again to Brooke and the team. I look forward to connecting with all of you again next quarter. Thanks, everyone.
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