Despite facing macroeconomic headwinds, Canada’s major banks demonstrated remarkable resilience in fiscal 2025. Entering 2026, differentiation within the sector and the unique narratives of individual banks will create diverse investment opportunities. Among them, National Bank of Canada (TSX: NA) and Toronto-Dominion Bank (TSX: TD), for distinctly different reasons, have become two of the most noteworthy targets for the new year.
National Bank of Canada: From Regional Leader to National Challenger on the Offensive
The core of National Bank’s story lies in its successful strategic transformation and clear path toward national expansion. Long viewed as a regional bank centered in Quebec, the bank is rapidly expanding its business footprint across the country through the completed acquisition of Canadian Western Bank (CWB) in 2025 and the recent takeover of Laurentian Bank’s retail and small-and-medium enterprise (SME) asset portfolios.
The integration of CWB establishes a significant foothold for National Bank in commercial banking in Western Canada, while the Laurentian Bank assets further consolidate its retail network in Quebec and Ontario. Commercial lending is its traditional strength, and a national network is expected to unleash greater synergies and growth potential. Management anticipates this will support its ongoing “hike-and-buyback” capital return strategy, with potential further dividend increases in 2026.
As of the end of fiscal 2025, this Canadian bank’s Common Equity Tier 1 (CET1) ratio of 13.8% ranks among the highest of the “Big Six,” providing a substantial buffer for future growth and risk resistance. The challenge lies in the execution risks associated with rapid M&A integration; the key is whether it can successfully digest the two major acquisitions and achieve the expected synergies. Furthermore, its provision for credit losses (PCL) surged 51% year-over-year in Q4 2025, requiring investors to monitor changes in its asset quality amid economic uncertainty.
Toronto-Dominion Bank: Value Recovery and Return After a Crisis
In 2024, TD Bank faced record fines (US$3.09 billion) and an asset cap penalty due to U.S. anti-money laundering (AML) compliance failures, severely impacting its stock price and reputation. However, this very crisis has spurred profound internal changes and created value reassessment opportunities.
The focus for 2026 includes: Under new CEO leadership, AML remediation has been designated the “top priority,” and progress has been made. Market expectations for its emergence from the gloom were part of the reason its stock rebounded over 72% in 2025. Now, the worst may be over. To reward shareholders and demonstrate confidence, management announced a massive stock buyback program of up to C$7 billion (expected to be completed in Q1 of fiscal 2026), alongside a 3% dividend increase (current yield ~3.43%). The huge buyback will significantly boost earnings per share (EPS) and return on equity (ROE).
Despite restrictions on its U.S. operations, its Canadian domestic and wholesale banking businesses performed strongly in fiscal 2025, with full-year net profit soaring 132% year-over-year, proving the profitability of its core business remains intact. The asset cap on U.S. operations (US$454 billion) limits its growth in the short term, and the timing for finalizing the remediation and regulatory relief remains uncertain. Market sentiment is highly sensitive to its compliance progress, and any negative news could trigger volatility.
For investors in 2026, these two bank stocks offer stylistically different allocation choices: National Bank is an “offensive growth” play. Investors are paying for its growth story of transitioning from the “sixth-largest bank” to a national giant through savvy acquisitions, along with the potential for excess capital appreciation and sustained dividend growth during this process.
TD Bank is a “deep-value recovery” play. Investors are betting that its strong fundamental business can withstand the compliance crisis and achieve a certain return to value as the regulatory clouds gradually dissipate, aided by massive share buybacks and dividend growth. Both share the common advantages of solid capital adequacy and a long history of dividends (National Bank has 15 consecutive years of growth; TD has a 168-year dividend history). Investors can choose to follow the aggressive or bet on the leading bank’s value recovery based on their own risk preferences.
