By Financial Desk | August 29, 2025
TORONTO — Toronto-Dominion Bank (TD) reported a return to positive quarterly earnings on Thursday, August 28, 2025, posting a profit of $3.34 billion for the third quarter ended July 31, 2025—a stark turnaround from the $181 million loss in the same period last year, which was marred by a massive US$3 billion fine for anti-money laundering (AML) deficiencies. However, the bank’s recovery is tempered by growing concerns over mortgage renewals and borrower stress in Canada, where high interest rates continue to strain households amid a softening economy.
The Q3 results, which exceeded analyst expectations, reflect robust performance in Canadian retail banking, with net income in the Canadian Personal and Commercial Banking segment rising 4% year-over-year to contribute significantly to the overall figures. Adjusted earnings per share came in at $2.20, surpassing the consensus estimate of $2.05, driven by record revenue in key areas and lower-than-anticipated provisions for credit losses (PCLs) at $971 million—below the $1.2 billion forecasted by analysts. TD’s common equity Tier 1 (CET1) ratio stood at a healthy 14.8%, underscoring the bank’s resilience despite ongoing U.S. regulatory challenges.
“We are well positioned to build on this momentum as we compete, grow and build our bank for the future,” said CEO Ray Chun in a statement. The bank also announced plans for an investor day on September 29 to outline its updated strategy under Chun’s leadership. Revenue for the quarter reached $12.5 billion, up from the prior year, bolstered by 7% growth in real estate secured lending (RESL) volumes, including mortgages and home equity products. TD highlighted its 14th consecutive month of market share gains in RESL, attributing this to innovations like the “Mortgage Direct” channel, which streamlines applications for customers.
Despite these positives, mortgage stress is emerging as a shadow over TD’s outlook. With approximately 60% of Canadian mortgages set to renew by the end of 2026—and 40% at higher rates—many borrowers face “payment shock” as they transition from pandemic-era low rates (around 2.5%) to current levels near 4.0% or more. A recent TD Economics report noted that while aggregate mortgage payments are declining due to recent Bank of Canada rate cuts and short-term renewals at lower rates, individual households—particularly lower-income ones in high-cost regions like Ontario and British Columbia—are under pressure. Delinquency rates in these areas are rising faster, and TD forecasts unemployment peaking at 7.3% in Q4 2025, coinciding with a major renewal wave.
Chief Risk Officer Ajai Bambawale emphasized during the earnings call that TD’s borrowers have been proactive, with many making lump-sum payments or switching to fixed rates ahead of trigger points. As a result, the share of mortgages with amortizations extended beyond 35 years has normalized to 15.4%, down from a peak of 27.4% in early 2023. However, the bank has bolstered reserves by over $500 million in recent quarters as a precaution against potential defaults. “We are well reserved,” Bambawale said, noting elevated paydowns in Q2, including from year-end bonuses among TD’s premium borrower base.
The broader Canadian housing market adds to the unease. Home prices have stagnated, with sales activity soft due to high rates and economic uncertainty, including U.S. tariff threats. TD’s residential mortgage portfolio stood at $267.4 billion in Q2, down slightly from Q1 due to moderated broker originations and high paydowns, though proprietary channels like branches and mobile specialists saw double-digit growth. CFO Kelvin Tran pointed to “tariff uncertainty” as a drag on buyer sentiment, with net interest margins holding steady at 2.81%.
In the U.S., TD continues to grapple with AML remediation, incurring $262 million in restructuring charges related to balance sheet adjustments under a regulatory asset cap. This includes loan sales to comply with limits, but U.S. retail operations showed momentum with 5% loan volume growth. Overall, the bank’s full-year adjusted net income is on track, but analysts warn that persistent mortgage vulnerabilities could cap consumer spending and weigh on future earnings.
TD’s shares rose about 2% in early trading following the announcement, reflecting investor relief over the earnings beat. However, the mortgage stress narrative echoes concerns across Canada’s Big Six banks, with peers like RBC and Scotiabank also reporting rising delinquencies. As Chun noted, “This persistent pressure on debt servicing creates a key constraint on consumer spending growth.” With rate cuts providing some aggregate relief, TD remains optimistic but vigilant, urging borrowers to explore options like amortizations or prepayments to manage renewals.
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