TD Bank Focused on Internal Growth for U.S. Retail Lender

Toronto-Dominion Bank, Canada’s largest lender by assets, is focusing on internal growth and small deals rather than large takeovers to expand in the U.S.

“We’re very strongly focused on organic growth,” Mike Pedersen, 53, group head of U.S. banking and chief executive officer of TD Bank, said today in a telephone interview from Cherry Hill, New Jersey. “We’d look at asset purchases or smaller in-footprint deals if they met all our criteria, but we are emphatically not focused on large acquisitions.”

Toronto-Dominion has spent more than $25 billion on U.S. purchases in the past nine years, building a network of branches that stretches from Maine to Florida. The Toronto-based bank now has more branches in the U.S. than Canada, and expects to add more in the next five years to attract clients and build on this year’s record profit from U.S. consumer lending.

“Our strategy is a growth strategy,” said Pedersen, who was promoted in July as part of a management shuffle. “We’ve outgrown the competition and we seek to continue to do that.”

Toronto-Dominion earned 23 percent of its C$7.16 billion ($6.7 billion) of profit from U.S. personal and commercial banking in the fiscal year ended Oct. 31, according to financial statements. Annual profit from its U.S. bank rose about 15 percent to a record C$1.63 billion in 2013 from a year earlier.

Eastern Seaboard

Toronto-Dominion began its U.S. expansion in 2004, with its agreement to buy 51 percent of Portland, Maine-based Banknorth Group Inc. for about $3.8 billion. TD bought the rest of the lender about two years later. In 2007, TD agreed to acquire Commerce Bancorp Inc. for $8.5 billion. It later adopted Commerce’s branding as “America’s Most Convenient Bank,” and its extended branch hours, staying open as late as 8 p.m. on weekdays and offering Sunday banking.

In 2010, TD Bank purchased South Financial Group Inc. for about $61 million and agreed to acquire auto lender Chrysler Financial Corp. for about $6.3 billion.

TD Bank isn’t interested in expanding beyond the Eastern Seaboard into areas such as the U.S. Midwest or even toward building a nationwide bank.

“We like the footprint we’re in because it’s disproportionately higher growth, it’s affluent, it’s a market where our model clearly works,” Pedersen said. “So we’re much more focused on continuing to expand in our current footprint than in thinking about broadening.”

Credit Cards

Chief Executive Officer Ed Clark has been dismissive of any deal with Citizens Financial Group Inc., the U.S. retail lender owned by Royal Bank of Scotland Group Plc., including comments he made in an Oct. 17 investor call. Pedersen said today that Toronto-Dominion’s position hasn’t changed.

“We’re emphatically not interested in large acquisitions,” Pedersen said.

TD would consider smaller banks within its existing area, as well as financial assets such as auto loans and credit card portfolios, Pedersen said. Earlier this year, the lender acquired $5.7 billion of credit-card balances from Target Corp.

“We like the credit-card space,” Pedersen said. “It’s a business that we’re under-penetrated in in the U.S., so we’ve got lots of room to grow.”

TD Bank will add 34 branches, as well as hire more corporate bankers and advisers and an additional 140 mortgage lending officers next year, Pedersen said. Toronto-Dominion had 1,317 U.S. branches at the end of October, compared with 1,179 in Canada.

‘Strong Believers’

“We’re strong believers in the future of branches, or as we call them, stores, because we believe they’ll continue to be vital in acquiring customers,” Pedersen said. “We think we’ll have more stores three or five years from now than we have today.”

TD Bank expects “stable to improving” net interest margins, the difference between what a bank pays for deposits and charges for loans, according to Pedersen.

“We’ve actually faced, on balance, some pretty tough margin pressures over the last few years, and the improvement you see is partly due to the Target acquisition,” Pedersen said. “We think that is probably sustainable.”

Pedersen, who previously headed wealth management and insurance, said he’s expecting better U.S. economic growth in 2014 than this year amid an improving job market and housing.

“My sense is that employment and housing starts and home prices will all improve in 2014 and GDP will accelerate from 1.8 percent or so this year to about 2.7 percent next year,” Pedersen said. “It’s good for the housing market and good for the economy in general.”

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