Toronto-Dominion Bank has a plan to keep costs in check as it expands across the eastern United States - by turning old burger joints and chicken outlets into bank branches.
Embarking on a major push south of the border, TD told analysts Wednesday it is looking to more than double U.S. profits to $1.6-billion (U.S.) over the next three years. During that time, Canada's second-largest bank will also open 200 new U.S. branches.
Rather than build from scratch, though, TD is looking to renovate, since fast food restaurants come with a few key ingredients the bank finds attractive.
"The parking is there, the access is there, [and]most of these fast food restaurants already have a drive-through, so it's a perfect fit for us," said Fred Graziano, head of TD's retail banking division.
The plan is "us thinking a little bit outside the box," he told an investor presentation in New York.
TD is betting big on the U.S., where it has expanded aggressively in the past several years, amassing a network of nearly 1,200 branches in 15 states, roughly the same number it has in Canada.
The bank told analysts that it plans to boost profit from its U.S. operations through acquisitions, new branch expansion and fewer loan losses. Most of its new branches will come in key markets such as Florida and New England, where TD has a significant presence.
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Boosting its U.S. profit to $1.6-billion would be a significant jump from the $781-million profit the U.S. operations reported on Oct. 31, at the end of the last fiscal year.
However, Bharat Masrani, TD's head of U.S. consumer banking, said the bank expects to benefit from an improving economy and lower loan losses in the years ahead.
TD expects a $300-million earnings lift in the U.S. over the next three years from fewer loan losses, as customers are better able to keep up with payments in an improving economy.
"We are extremely well-positioned along the Eastern Seaboard, and have a strong platform from which to accelerate our growth," Mr. Masrani told analysts.
TD's retail footprint covers much of the coast from Maine to Florida. In May, the bank bought South Financial Group Inc. for about $192-million in cash and stock, giving it branches in Florida and the Carolinas.
In April, it acquired three Florida banks placed in receivership by U.S. regulators. The purchase of Riverside National Bank of Florida, First Federal Bank of North Florida and AmericanFirst Bank, gave TD 69 new U.S. branches, and a platform from which it hopes to build.
Prior to the deals, TD had about 30 locations in Florida, which the bank told analysts is among the most deposit-rich states in the U.S., and one of the wealthiest. Florida is the latest frontier in TD's $15-billion string of U.S. acquisitions over the past five years that has seen it expand branches from Boston to New York.
The struggling banks TD bought in Florida were purchased through deals struck with the U.S. Federal Deposit Insurance Corp. Under the deal, the bank paid face value for the assets, but the FDIC agreed to pick up at least half of the losses from future failed loans, if they occur.