Toronto-Dominion Bank Sees 200 bps ROE Gain and 3% Core Expense Growth
TD•TD Bank holds $500 million in PCL reserves with expected pressure from trade, tariffs and geopolitical risks while sub-650 credit migrations remain limited. The bank posted positive operating leverage for a fourth consecutive quarter, with core expenses up 3% and ROE rising 200 basis points year-over-year.
1. Credit Quality and PCL Guidance
TD Bank’s Chief Risk Officer expects pressure on provisions for credit losses from trade actions, tariffs and geopolitical tensions but notes the bank is well-provisioned with $500 million in reserves. While some migration in the sub-650 credit segment is observed, overall consumer credit remains resilient thanks to lower rates, wage growth and government support.
2. Operating Leverage and Expense Trends
The bank achieved positive operating leverage for the fourth straight quarter as core expenses rose just 3% year-over-year, excluding variable compensation and currency impacts. Discipline in expense management drove this performance, reinforcing the bank’s focus on efficiency.
3. ROE Improvement and AI Initiatives
Return on equity increased by 200 basis points year-over-year, driven by revenue growth and structural cost reductions. Management highlighted progress on AI initiatives that are expected to accelerate efficiency gains and enhance profitability beyond historic levels.
4. US Expenses and Forecast
US operating expenses were elevated due to higher governance and control costs, including the Nordstrom integration, but base expenses remained below 3% growth. The bank maintains mid-single-digit expense guidance for US operations and expects enterprise-wide expense growth of 3% to 4% for the year.
