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The World According to TD

Across a footprint that stretches from Maine to Florida, TD Bank is almost annoyingly good at the small things customers love.

It offers dog treats to its branch patrons' four-legged companions. It makes sure its giveaway pens have no metal pocket clips (women don't like them; they cause too many snags). TD also has a flair for marketing stunts like the flash mob that performed an elaborate dance routine in Times Square last year. Employees and local dancers dressed up as doctors in green scrubs, encouraging consumers to get a free "checking check-up" to learn about recent changes to their bank accounts.

Indeed, TD prides itself on the attention it pays to every detail in its interactions with the public.

What's less obvious is how well the U.S. retail banking unit of Canada's TD Bank Group has paid attention to the big details.

With smart calls on the macroeconomic and competitive environments, TD has grown in ways that suggest its strategy is built on something far more substantial than dog treats and dance routines. And with a conviction about the future of retail banking that veers from the more cautious path of its peers, TD-which now has more branches in the United States than in Canada-is doubling down on its investment in branches here, while many of its rivals are openly questioning the profitability of retail banking. Chase, for example, predicts that 70 percent of customers with less than $100,000 in deposits and investments will be unprofitable as a result of new regulations on bank fees.

If the U.S. retail customer makes for a business with thinning margins, count TD among the banks planning to make it up on volume. While the average bank branch conducts 11,000 transactions per month, the average TD branch conducts 17,500. And the company, which first entered the U.S. in 2004, sees ample room for its young U.S. franchise to grab market share.

This spring, at its annual shareholders meeting, TD unveiled a plan to increase its branch presence in New York City by more than 50 percent, with the addition of 50 locations over the next four years. Though it means pitting itself, in an already saturated market, against the likes of JPMorgan Chase and Wells Fargo, TD sees the potential to become the area's third-largest retail bank by deposits, up from its current fifth-place standing.

It will take years to fully evaluate whether TD has made the right call. But Bharat Masrani, president and CEO of the U.S.-based TD Bank, doesn't see the bet on New York as being overly gutsy.

"It's not a small investment," he acknowledges. "But investments make sense if you are getting a decent return and it's providing you with a strategic advantage."

TD already enjoys both of those things in New York, where the bank and its legacy institutions went from having zero presence in 2001 to a strong franchise with close to 90 locations today.

Growing in Boston may be a tougher goal to achieve given the lack of available locations there, but TD has to continue to scout around if it is to keep on leveraging its presence in Massachusetts, where it currently has about 150 locations.

The bank also has aggressive growth plans in mind for South Florida, despite its being an epicenter of the mortgage meltdown. "The asset side of the balance sheet is challenging there, but there is nothing wrong with the deposit side in Florida," says Masrani. "This is the fifth largest state in the union. ... It's very attractive to us." Two years ago, TD had about 35 branches in Florida. Now it has 167.

The unwavering commitment to retail banking that TD has displayed since the start of the crisis has benefitted customers who say they couldn't get credit anywhere else. Among them: a franchisee of Kiddie Academy, which has a chain of 101 daycare centers in 22 states. The franchisee, which received pre-approval for a Small Business Administration loan, got turned down by two other institutions before obtaining a loan through TD.

"The banks all got kind of tight with their credit," says Lene Steelman, Kiddie Academy's controller and vice president of accounting. "Since we were getting 'no's,' we expected the same thing from [TD] also."

TD is a contrarian in part because it can afford to be. Its return on common equity is 18 percent, well above the 10 percent level of many big regional banks. And it reports a 50 percent increase in loan volume, excluding the impact of acquisitions, over the four years ended Dec. 31, compared with a 1 percent drop in loan volume overall for banks with more than $10 billion in assets.

When other banks hesitated, "TD hit the gas pedal," says Brian Klock, an analyst with Keefe, Bruyette & Woods. "They were making loans when other banks didn't want to."

Here again, Masrani argues that TD was just taking a logical step, not a haphazard one. "We didn't have the problems like the others. So why would we not be open for business?"




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