Toronto Dominion Bank (TD) Q1 2026 Earnings Call Transcript

Good morning, everyone. Welcome to the TD Bank Group First 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. Hills.

Thank you, Operator. Good morning and welcome to TD Bank Group's First Quarter 2026 Results Presentation. We will begin today's presentation with remarks from Raymond Chun, the bank's CEO, followed by Leo Salome, Group Head, U.S. Banking, after which Kelvin Tran, the bank's CFO, will present our first quarter operating results. Ajay Bambuale, 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 Canadian Personal Banking, Barbara Hooper, Group Head, Canadian Business Banking, Paul Clark, Group Head, Wealth Management and Insurance, and Tim Wigan, 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 with a better understanding of how management views the bank's performance. Ray, Leo, and Kelvin will be referring to adjusted results. Additional information about non-GAAP measures and material factors and assumptions is available in our Q1 2026 MD&A. I would also like to note that, effective this quarter, the bank renamed its U.S. retail segment to U.S. banking to better reflect the segment's financial products and services. With that, let me turn the presentation over to Ray.

Thank you, Brooke, and good morning, everyone. Thanks for joining us. We had another strong quarter as we continued to demonstrate momentum across our strategic priorities. In Q1, the bank delivered a strong quarter with record earnings of $4.2 billion and EPS of $2.44, powering an ROE of 4.2% up 100 basis points year over year. We saw robust trading and fee income growth in our markets-driven businesses, volume growth in Canadian P&C banking, and margin expansion. Impaired PCLs ticked up quarter-over-quarter in wholesale and U.S. commercial, reflecting a small number of borrowers across various industries. The performance was in line with our expectations. We continue to expect fiscal 2026 PCLs to fall within a range of 40 to 50 basis points. Ajay will share more detail shortly in his remarks. Our year-over-year expense growth continued to moderate this quarter, and we delivered positive offering leverage to achieve our 3% to 4% expense growth target for fiscal 2026. Q1-CET1 ratio was 14.5% with strong organic capital accretion in the quarter. In January, we completed our $8 billion share buyback and launched our new $7 billion share buyback. In Q1, we had bought back approximately 84 million shares across these two buyback programs. We remain committed to consistently returning excess capital to our shareholders. We have conviction that TD's current share price does not fully reflect the bank's intrinsic value. TD has strong momentum, and we see considerable upside from here. Even with significant share buybacks, TD's robust organic capital accretion means it will take time for the bank to reach a 13% CET1 ratio. This is an enviable position for any bank. In a unique advantage for TD, we are managing towards a 13% CET1 ratio by the second half of fiscal 2027. We have momentum across our businesses as we continue to deliver on our strategies to deepen relationships, make TD simpler and faster, and execute with discipline. We continue to see potential upside to our 6% to 8% EPS growth and 13% RRE targets for fiscal 2026, provided that positive macroeconomic conditions continue. Canadian personal and commercial banking delivered record revenue, PPPP, earnings, deposit, and loan volumes. In real estate secured lending, loans were up 5% year-over-year, and we continue to achieve sequential origination margin expansion. In addition, we saw record Q1 originations in our proprietary channels. In cards, we delivered the highest quarterly acquisition in a decade, driven by record pre-approvals for our existing clients and record point-of-sale deepening in our branches in the business bank, with loans and non-term deposits sent year-over-year, respective strategy to capture deepening opportunities, including frontline expansion of 300 business bankers, an increase of 10% since the end of fiscal 2024, and we are seeing the benefits of that strategy play through. U.S. banking, we saw continued momentum across our core business lines as we deepen relationships with our clients. Mid-market lending balances were up 4% year-over-year, and we saw strong pipeline growth with commitments up 15% over the same period. U.S. proprietary credit card balances were up 15% year-over-year with record digital acquisitions. this month, we completed the conversion of Nordstrom's card clients onto our servicing platform. This is an important strategic milestone that provides scale as we build out our credit card. In our U.S. wealth business, total client assets were up 12% year-over-year, with mass affluent client assets up 18% year-over-year. Wealth management and insurance delivering team. Last week, our leadership in the market was once again recognized when personal finance expert, Rob Carrick, said TD Direct Investing is still king among Canadians' online trading platforms. As we saw in Canadian business banking, our frontline expansion strategy is also delivering results in wealth. We added almost 200 financial planners and advisors since the end of fiscal 2024. In the most recent data, TD took 19 basis points of market share in financial planning with newly hired planners delivering strong growth this month we successfully combined our discretionary business in private wealth management this simplifies our business model enhances our value proposition to clients and helps position us for outsized growth it is expected to unlock 40 million dollars in platform and operational efficiencies as outlined at investor day we continue to build on our position as canada's leading digital direct insurer. With almost 80% of our clients digitally engaged, strong progress to our invest-a-day target of 90% insurance business, and we are mitigating the volatility that comes with that growth. We issued another innovative cap bond in the Canadian market, the first that offers protection against aggregate losses of small and medium-sized capital. Banking delivered record revenue and earnings, supported by strong client activities across global markets and corporate investment banking. The team continued to make progress on disciplined execution, achieving improved ROE and moderated year-over-year expense. Reflecting continued momentum, TD Cowan ranked in the top 10 in 10 categories in the 2025 Extel Global Fixed Income Survey, and TD Securities was awarded the best trade finance bank in North America. Continue to make progress against our strategy to deepen relationships, make TD simpler and faster and execute with discipline. As we shared at Investor Day, TD has significant opportunities. This quarter, we drove increased penetration rates in both consumer and small business credit cards in Canada and in our proprietary bank card in the U.S., also making progress on our deepening targets in TD securities. We launched synthetic prime in the U.S. and Europe. Our robust balance sheet and capabilities position us well for this opportunity. Our target of $1 billion in value from AI over the medium term reflects both our progress to date and our confidence in what's ahead. A core tenant of our AI strategy is to build once and use many times, scaling AI through repeatable patterns that lead to faster AI deployments and reduce cost approach with our Gen AI knowledge management solution, which we first introduced in our contact centers last year and have now deployed across our over 1,000 branches in Canada. Questions that used to have colleagues jumping through screens are now answered in seconds. We are taking the same approach with Agentic AI. We launched the initial scaling of an Agentic AI solution to simplify the Resil pre-adjudication process. This provides the foundation for broader Agentic AI adoption across Resil and other businesses, executing with discipline. I'll clear more details on our efforts to deliver structural cost reduction in his remarks. We have a clear strategy that is driving higher ROE with four consecutive quarters of ROE improvement in U.S. banking and ROE up over 400 basis points euro over year in wholesale banking. I remain confident that we will achieve the medium-term targets that we laid out at Investor Day, we may get there fastest. Achieving a 13% CET1 ratio through share repurchases translates into approximately 100 basis points of ROE. Delivering on our $2 to $2.5 billion cost takeout would yield an additional 150 basis points of ROE. And all our businesses are laser-focused on driving ROE to their Investor Day targets. With these levers and our strong performance in q1 i am confident in our path to 16 are we is the only canadian company ranked in the top 100 most valuable brands in the world by brand finance and we continue to invest to extend this leadership and deepen our client relationships earlier this month we launched our new brand reinforcing that in this complex digital first world, TD will always be more human by delivering simpler, more intuitive, and more connected banking experiences in every interaction and in every channel.

Dedication and commitment, TD is back to- Thank you very much, Ray, and good morning, everyone. Please turn to slide six. As we enter into 2026, we remain focused on our number one priority and continue to make good progress as expected against our USAML remediation program. This quarter, we continue to improve the efficiency, the efficacy, and the accuracy of our program. This month, our new KYC platform went live to our business users. This is an important milestone as it delivers a centralized platform that enables the collection and maintenance of customer information in a single Know Your Customer profile. As we complete the full implementation of this new system in the coming months, we will gain better insights about our customers establishing an important building block of a strong AML program. In addition, as we've spoken about previously, we are continuing to work on additional AI and machine learning capabilities. We implemented machine learning models in our transaction monitoring system last year, and additional models will be deployed in our program over the coming quarters. Finally, we rolled out an enhanced financial crime risk assessment methodology that is data-driven, resulting in a more sophisticated assessment of the bank's financial crimes risk. I'm pleased with the work that our teams have been able to accomplish, and I'm certain that we are building a sustainable program that will serve us well into the future. From a financial perspective, while investments will flex away from quarter to quarter, we continue to expect our AML remediation spend to be $500 million in fiscal 2026. That said, the composition of our spend will gradually change towards validation work and look-back costs as we complete our remaining management remediation actions. With that, I'll turn it over to Kelvin.

Thank you, Leo. Please turn to slide 7. Topline momentum coupled with disciplined execution, TD delivered a strong quarter with record earnings. The bank PTPP was up 19% year-over-year after removing the impact of the U.S. strategic heart portfolio, FX, and insurance service expenses. We've shared the details on slide 23. Revenue grew 11% year-over-year, reflecting growth across all of our businesses. At 43 basis points, total PCLs were within our guided range. Spenses increased 7% year-over-year with approximately 1% driven by variable compensation for an exchange in the impact of the U.S. strategic card portfolio. We delivered our third consecutive quarter of positive operating leverage. Please turn to slide. We incurred restructuring charges of $200 million pre-tax driven by further workforce optimization. We have now concluded the restructuring program with total charges of $886 million pre-tax. We expect fully realized annual cost savings of $775 million pre-tax. Our restructuring program is one part of our broader efforts to drive structural cost reduction across. As you heard at Investor Day, we are targeting $2 to $2.5 billion in annualized cost savings over the medium term. AI is helping power these savings as we scale through repeatable patterns driving faster deployment and reduce cost of delivery. Cost management and a deeper understanding of unit costs are also critical components of this effort. In insurance, we expect to deliver over $150 million of claims cost reductions over the medium term through vendor optimization and AI deployment and fraud detection and process reengineering. This will drive reduced timelines for claims fraud detection and increase speed and accuracy for claims resolution, further enhancing the client experience. We're also making progress in wealth. Investments in process improvement, digital, and AI capabilities are expected to reduce the time it takes to complete a financial plan by 50%, creating capacity for higher value advisory and business development activities. We look forward to providing further updates as this work progresses. Please turn to slide 9. Canadian personal and commercial banking delivered record revenue, PTPP, earnings, deposit, and loan volumes. 3% year-over-year, reflecting 3% growth in personal deposits, and 5% growth in business. Additional volumes rose 5% year-over-year, with 5% growth in personal volumes, and 6% growth in business volumes. NIM was stable, up one basis point, quarter-over-quarter. With good revenue and disciplined expense management, we delivered over 200 basis points of offering leverage. We made strategic investments to deepen relationships in priority markets and equally to create simpler and faster client experiences that also reduce structural unit costs, including our launch of the Rezo pre-adjudication agentic AI capability that Ray shared. Going forward, we will take the opportunity to invest in our strategic priorities while continuing with discipline execution. As we look forward to Q2, we again expect that interest margin to be relatively stable. Please turn to slide 10. In U.S. banking, year-over-year, earnings were up 22 percent, TTPP was up 7 percent, and ROTCE expanded by 330 basis points to 14.7 percent. Excluding sweeps and targeted runoff in our government banking business, deposits were up 1% year-over-year, 2% year-over-year, reflecting continued strength in bank card, home equity, and middle market. Net interest margin was 3.38%, up 13 basis points quarter-over-quarter, driven by an adjustment for client deposit rates in the product order and higher loan margins from improved. As we look forward to Q2, we expect NIMM to modestly increase. Expenses increased 8% year-over-year, reflecting higher governance and control costs and employee-related expenses. As mentioned, earlier this month, we completed the conversion of Nordstrom card clients onto our servicing platform. Going forward, for Nordstrom, TD will have a higher share of revenue and expect the Slide 22 provides an illustrative example of the accounting for our strategic card partnerships. As a result of the Nordstrom change and consistent with similar transactions, we expect the receivable adjustment of $145 million U.S. to be treated as an item of note in Q2. The Northstone conversion was fully reflected in the guidance that we provided at Investor U.S. Banking is on track to achieve our target of $2.9 billion U.S. in earnings in fiscal 2026. In addition, I wanted to highlight a change in the presentation of our financials for U.S. Banking. TD invests in tax-advantaged entities to support the communities in which we operate while generating income tax benefits previously losses on these investments were recognized in non-interest income while the related tax benefits were recognized in provision for income taxes comparability with u.s peers we reclassify the losses from non-interest income to provision for income passes in u.s banking in accordance with ifrs we made offsetting adjustment in corporate segment so that there's no change in non-interest income or provision for income taxes at the total bank level. This change lowers the efficiency ratio in U.S. banking. As a result, we updated our medium-term target and now expect U.S. banking to deliver an efficiency ratio in the mid-50s by fiscal 2029. Please turn to slide 11. In Q1, wealth management and insurance delivered record earnings and assets. We saw market share gains across our businesses, led by 97 basis points of revenue share growth year-over-year in direct investing. Today, we're up 10% year-over-year, driven by new client growth and deeper relationships. ETF assets surpassed $31 billion, dollars up from 17 billion at the end of fiscal 2024 and well on our way to our medium term target of 54 billion dollars in insurance we continue to focus on profitable growth increasing roe by 80 basis points year over year sequentially expenses for the segment excluding variable compensation were down two percent reflecting discipline expense management we are driving structural cost savings while investing for the future including unifying our discretionary private wealth businesses and our new td easy trade app please turn to slide 12. wholesale banking delivered record revenue and earnings driven by broad-based performance across global markets and corporate and investment banking, with strengths in commodities, global equity derivative and advisory fees, and equity underwriting. Overall, performance reflects the depth and diversification of the platform combined with high levels of client activity and constructive market conditions. Impaired PCLs increase, reflecting a small number of borrowers across various industries. RJ will share more details shortly in his remarks. Expenses increased 5% year-over-year as we continue to invest in technology and front office capabilities, spending to support business growth and higher variable compensation. 12.6% driven by strong revenue growth, moderating expense growth, and disciplined capital management. Please turn to slide 13. Loss for the quarter was $153 million, a smaller loss than the same quarter last year. revenue from treasury and balance sheet management activities partially offset by higher net corporate expenses. Please turn to slide 14. The common equity tier one ratio ended the quarter at 14.5 percent, down 15 basis points sequentially. We delivered strong organic capital accretion this quarter. The bank repurchased 19 million common shares under its previous and current share by back programs into one, which reduced CET1 by 38 basis points. As Ray said, TD's capital position is a competitive advantage. We remain committed to consistently returning excess capital to our shareholders. And with that, I will turn it over to Ajit.

Okay. Well, thank you, Kelvin, and good morning, everyone. I was pleased with the bank's overall credit performance this quarter. Now, let me turn to the results, starting on slide 15. Gross-impaired loan formations were 27 basis points, an increase of four basis points quarter over quarter. The increase was largely recorded across the wholesale banking and U.S. commercial lending portfolios related to a small number of borrowers across a range of industries. Partially offset by lower formations in the Canadian commercial lending portfolio. Please turn to slide 16. Gross-impaired loans increased two basis points, quote over quarter, to 58 basis points of $5.59 billion. The increase was reflected in the U.S. commercial and Canadian consumer portfolios. partially offset by lower impairments in Canadian 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, an increase of 57 million or two basis points quarter over quarter, driven by the wholesale banking segment, partially offset by lower provisions in Canadian personal and commercial banking. Please turn to slide 18. impaired pcls were 1.16 billion increasing 221 million quarter over quarter largely as a result of credit migration in the wholesale and u.s commercial lending portfolios related to a small number of borrowers across a range of industries partially offset by lower provisions in Canadian commercial. More than half of the increase in the bank's impaired PCLs this quarter was due to a single borrower in the wholesale segment. We do not expect the level of impaired provisions in wholesale this quarter to be reflective of a typical run rate moving forward. The bank recorded a performing PCL recovery of $125 million, reflecting improvement in the macroeconomic forecast and migration from performing to impaired in the wholesale and U.S. commercial lending portfolios. The performing PCL recovery was primarily recorded in the U.S. banking and wholesale segments. Please turn to slide 19. The allowance for credit losses decreased 144 million quarter over quarter related to a 156 million impact from foreign exchange improvement in the Canadian and U.S. economic forecasts partially offset by higher impaired allowance in the wholesale and U.S. commercial lending portfolios. Now, to summarize, the bank exhibited strong credit performance this quarter as PCLs were within the guidance offered at the end of last year. Additionally, we remain prudently provisioned with allowance coverage of gross loans at 99 basis points, including more than $500 million in reserves set aside for ongoing elevated policy and trade uncertainty. Looking forward, 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. TD is well-positioned to operate through a variety of economic scenarios, considering our prudent provisioning, broad diversification across products and geographies, our strong capital position, and our through-the-cycle underwriting standards. With that operator, we are now ready to begin the Q&A session.

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 one on your touchtone 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 Matthew Lee with Canicor Genuity. Please go ahead.

Hey, thanks for taking my question. 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 unknown?

It's Ray. Thanks for the question. As I said at the end of our Q4 results, I mean, we are definitely seeing good momentum coming out of, first and foremost, fiscal 2025, and you saw that momentum carry through, and you're seeing that play 14.2%. If you think about our CET1 ratio getting down to the 13% by the second half of 2027, as I commented in my comments, that gives us another 100 basis points. We are well on pace on our $2 billion to $2.5 billion expense takeout and the discipline and the structural cost reduction and the things that we're focused on. That gives us another 150 basis points pickup on that. And so, and if you look across our businesses for the quarter, every business at TD improved their commitment. So what I would say is, even in our Q4, to what we thought during Investor Day, and our confidence is high on getting to the 16% ROE, the guidance that we gave.

Okay, that's helpful. And then maybe just a quick one on the U.S. loan book. Total loans were down 9%, but core loans were 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., and why don't we should start thinking about core loan growth being to outpace the identified sales and runoffs?

So, Matt, thanks for the question. So, if you look at the core loan growth for the quarter, it was 2%. If I can break that down for you, we saw really strong consumer lending growth, as I prioritized in our Investor Day discussion. Our credit card book, particularly our bank card book, is a major area of focus for us. So just to give you a sense of the momentum that we've got in that segment, we saw 15% balance growth for the quarter. Unit sales were up 33% on a year-on-year basis. We used the term penetration rate as a critical indicator of the card's portfolio success, and we saw a 200 basis point increase in the penetration of credit cards to our deposit client base on a year-on-year basis. So, we're making progress towards that plus 30% figure that we gave at Investor Day. And sales activities were strong coming out of the seasonal, you know, Christmas rush. So, you put all those things together, we were pleased about our consumer lending growth anchored by that card's performance. On the commercial side, a bit more of a tale of two cities. At the higher end, at the corporate mid-market business, we're seeing relatively good activity and loan demand. So our mid-market business, we saw 4% growth, and Ray then commented in his comments, we saw 15% growth in actual commitment. So the pipelines look good at the larger corporate end of the market. Likewise, in our specialty business, higher education, which is a really important segment for us, we saw loan growth of about 5%. So at the higher end, we're seeing good loan demand and the economic momentum the U.S. is translating into good loan growth. Where we're seeing a little bit of sluggishness in the U.S. market broadly is at the small business and sort of lower-end community banking level. That segment's growing a little slower. And I think that those businesses are just more susceptible to the trade uncertainty, the supply chain disruptions, and just the current state of interest rate. So I think there we're still seeing some muted growth. But when you take everything as a whole, I'm quite pleased with the 2 percent growth on balance. I would expect that growth rate to moderately accelerate over the next couple quarters. and that we should, to your point around, when should the entire portfolio switch over to a net growth position? We are targeting that in the third quarter, total loans, so that would include the, those loans that have been identified for runoff, we would actually post net loan growth at the aggregate bank level in the U.S.

All right, that's great, caller. I'll pass the line. Thanks, Matt.

Thank you. The next question comes from Gabriel Deschain with National Bank Financial. Please go ahead.

Yeah, I just got a quick one here on credit performance because, you know, we saw the impaired going and performing going in a different direction here, and you did a good job explaining 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 uh you know some runoff but uh you know what what macro changes did you make that might have resulted in these uh pretty material releases yeah no thanks uh gabe for the question so again i'd start by saying a performance release it's well founded and it's been through all our governance

processes and there are really two drivers of that release one is the macro changes and if you go and look at our disclosures you'll see the unemployment numbers have improved both canada and the united states and you'll see the gdp numbers have also improved that drove part of the release okay the second part actually don't even think about it as a release okay we built performing against names that were migrating when that loan moves from performing to impaired i have to reverse the performance and add it to the impaired so those are the two compo two component parts but again as i said it's uh it's well founded uh all right thank you the next question comes from paul

holden with cibc capital markets please go ahead thank you good morning um two questions related to Leo's business I guess first is with respect to the name expansion 13 basis points this quarter guidance for modest expansion next quarter I think that was the same guidance we got this quarter so what what drove the upside this quarter there's potential it follows through next quarter and then second part of the question with with that good name 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. Can we start to expect to see positive operating leverage and lower efficiency ratio out of the U.S. bank in 2026?

Paul, let me take both of those and then maybe I'll give you a sort of a summary view on the aggregate U.S. performance. Let me start with the NIMB. We delivered a NIM of 338 base points, up 13 base points, quarter-on-quarter, 52 base points on a year-on-year basis. So, obviously, a strong print. Really three factors. One, the remaining impact of all the loan repositioning work that we did last year, which obviously gave us, you know, a strong tailwind. Second, selective repricing activities across both the deposit and loan book as we adjust the overall balance sheet to its new size. And third, the tailwinds that we're enjoying from tractor-on rates. So those were the three primary drivers. And that was offset ever so slightly by the repricing, by the Fed rate cut. As we look at the next period, I won't have quite as much tailwind from the bond reposition activity because that's already reflected in our NII. But I still think that we'll have margin expansion opportunities. They'll be more modest in nature. And then as we think about the rest of the year, Obviously, that tractor tailwind will still be there, but we'll have to absorb the Fed rate cuts that are planned for the second half of the year. So, that's basically, in a nutshell, where we think overall NII is going to be. But as you saw, the net interest income number on an absolute basis from a revenue perspective was up 10% year on year. So, we're really pleased with the momentum that we're seeing there in aggregate. You know, with regards to, you know, overall, you know, loan performance or the state of the business broadly, I couldn't be more pleased with the quarter. You know, NIAIDA is 723, up 22% on a year-on-year basis, and driven by both top-line revenue growth and sound, you know, credit performance. I think it was a good, solid, you know, solid profile. We are seeing acceleration in those critical loan areas that you mentioned. And I would expect that, you know, to continue over the next few quarters. But I do want to hit your expense point. A lot of effort is going into our expense strategies, expense strategic cost management strategies. As you would have seen this quarter, we did close 51 stores, as we announced in the investor day. So we are going to see distribution savings. We continue to lean into our vendor management programs with a sizable win this past quarter, which certainly will contribute to our expense run rate profile going forward. AI and some of the process automation work is still front and center, and we are beginning to see some degree of opportunities to at least change the resourcing mix associated with our remediation programs, all of which should create some downward pressure on expenses for the balance of the year. So you put the revenue momentum that we're enjoying now, the pricing discipline we've put in place, You know, the expense focus that we have and will continue to materialize over the rest of the year, I feel quite confident with regards to the outlook for the rest of the year.

That's good. One follow-up, if you don't mind. Just looking at the quarter-over-quarter change in branch count down roughly 5%, but FTE up roughly 2.5. Maybe you can just talk quickly into it in terms of where you're adding headcount, and then I'll stop there.

Paul, I'm glad you brought it up because I should have mentioned it before. but we had a really important transaction that we closed. We successfully converted the Nordstrom portfolio onto our platform. So effective this past weekend, we are now servicing all of Nordstrom onto our platform. So the FT increase that you saw was essentially additional call center representatives, our collection staff, and fraud to be able to manage that expanded volume flow that now we'll be managing directly previously it was managed in Nordstrom so we've taken we've expanded our staffing to be able to support that portfolio okay thank you thank you thank you the next question comes from Saurabh Muvahidi with BMO Capital Markets please go ahead okay thank you I just wanted to um a question for Sona if I remember correctly I think that they invested

Today, 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 where in this quarter. So is this as good as it gets for your business from those sorts of metrics, or is there still room for improvement here, Sona?

Thanks, Saurabh, for the question. Yeah, you're referencing our Investor Day target. So, both on efficiency ratio and ROE, we're targeting the 40% range. Saurabh, you know, maybe if I just step back and look at both of those. So, our efficiency ratio, obviously, this quarter, both from a revenue and an expense perspective, we're pleased with the performance this quarter. You know, as I look at what we talked about at Investor Day, There's a number of levers that we have to manage efficiency ratio and improve efficiency ratio. We talked about distribution optimization. We talked about tech platforms and procurement. But what has become an even greater driver, I would say, since Investor Day is how we will deploy AI to favor efficiency ratio. You know, maybe I'll just spend, you know, a few seconds on that. our approach there is really to drive simple and fast experiences but they come with real P&L outcomes one example I would share with you so you heard me talk a lot at Investor Day about speed and specialization it's absolutely core to our result strategy and so we've recently deployed and started to scale agentic AI into the result workflow that's taking pre-adjudication processes from 15 hours down to minutes. So it's delivering speed to decision. As we said, speed was a big strategy, a better colleague experience that helps us win more business, and, of course, it takes out structural cost as well. So I think what you will see is a number of things that we will do will benefit efficiency ratio and will benefit ROE over the long term, and these are short cycle cases that we get up and down and deliver real value. So, back to your point, I think we're very pleased with the performance, and we'll continue to lead in, and we're making very good progress on our Investor Day targets across the board.

And I think if I heard you correctly, but correct me if I'm wrong, since Investor Day, you would move these targets higher, basically, lower expense ratio and higher ROE just because of the traction on AI. Is that fair?

Not quite, Sorb. I think you will see us lean heavily in. Our targets, we hold on our specific targets, but the momentum and progress is incredible. We just see an engine that is humming and we see lots of possibilities.

Maybe I'll just jump in for a second also. What I would add is we think we will get now from an AI perspective and how we put out the billion dollars 500 million in revenue 500 million in expense with one example with the agentic we now see how much that can be scaled across the organization across every business line so if you think about this mortgage example it can be applied in credit cards can be applied in small business banking can be applied in commercial banking in the u.s and so i do think we're going to get more from the value from an ai perspective beyond the billion dollars uh that sona commented on And then again, you know, we're seeing good momentum, better momentum than what we had thought during Invested Day, which was only six months ago. So I think a great start to the year and lots of momentum. And then if the macro environment continues, we do think we have upside both.

I appreciate that, Carlos. Thank you.

Thank you. There are no more questions in the queue at this time.

I would now like to return the call to Mr. Raymond Schoen for closing remarks. well thank you operator and thank you everyone for joining us today we appreciate your questions and comments in q1 we continued our strong momentum positive operating levels 14.2 percent up 100 basis points year over year as we continue to execute against the strategies and targets that we've shared with you fiscal 2026 is off to a strong start and i'm confident td will continue to deliver for its shareholders i look forward to connecting with all of you again next quarter Thank you.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and we ask that you please disconnect your lines.