Toronto-Dominion Bank, which doubled its branch count over the past six years through a U.S. expansion, plans to cut expense growth by as much as half to offset a slowdown in its home market.

Canada's second-biggest bank plans to increase core expenses, which exclude costs for acquisitions and foreign exchange, by about 3% next year, its chief financial officer, Colleen Johnston, said. That compares with gains of 5% to 6% over the past couple years, according to bank figures.

"The key is we've got to look at core expenses and rein them in," Johnston said in a July 21 interview at the bank's Toronto headquarters. "I think the challenge for us as an organization is where we've been investing and growing."

Johnston foresees "a slowing environment" in Canada, driven by less demand for housing and increased competition on products such as mortgages and credit cards. Sales of existing homes are forecast to decline 1.3% this year as mortgage rates rise, according to the Canadian Real Estate Association.

Toronto-Dominion has increased domestic consumer banking profit by an average of 14% a year since 2003, a faster pace than any of its Canadian competitors. In addition, the bank has spent more than $25 billion on acquisitions south of the border, giving it more branches in the U.S. than at home.

Double-digit growth in Canadian banking is "not realistic over the long term," said Johnston, who joined the bank in 2004 from Bank of Nova Scotia. "The reality is that at some point that's going to slow down to a more normal level."

The slowdown in Canadian consumer bank profit could begin in the second half of 2011, after earnings of C$847 million ($893 million) from that unit in the fiscal second quarter, its second-highest result to date. Toronto-Dominion is scheduled to report third-quarter results on Sept. 1.

If business is slowing down, "it's only natural to the CEO then to, in fact, cut back on the cost line," said Gareth Watson, vice president of investment management at Richardson GMP Ltd. in Toronto, which oversees about C$16 billion. "It's difficult to increase the revenue line in a difficult environment."

Toronto-Dominion records about C$3 billion a quarter in noninterest expenses. It plans to increase staff and add 55 branches overall next year, but it will curb spending by centralizing purchases ranging from real estate maintenance to telecommunications equipment for the entire organization, Johnston said.

"The big advantage we've got is we're now a North American bank," she says. "When we go and talk to a major supplier, we have 2,500 branches now in North America."

Other Canadian lenders, including Bank of Montreal, have said expense gains will moderate to counter a slowing economy.

Toronto-Dominion is counting on strong U.S. growth, where profit increased 38%, to C$652 million in the first six months of the year, compared with an expansion of 18% for consumer banking in Canada.

"We can grow our balance sheet much faster than our peer group in the U.S.," because many of the U.S. locations re fairly new, Johnston says. "We've got a lot of younger branches that are underpenetrated. You're going to see very strong growth."

The bank also expects 2011 to be a record year for its asset management business, which includes a stake in the brokerage TD Ameritrade Holding Corp. Investment banking, which typically represents about 10% to 15% of earnings, will be "relatively flat," Johnston says.

Johnston, a triathlete, has been ranked one of the top 25 Most Powerful Women in Banking by U.S. Banker (now American Banker Magazine) two years running, as well as Best CFO by Canadian Business magazine in 2009. A graduate of Toronto's York University with a bachelor of business administration, the Vancouver-born Johnston began competing in triathlons last year after learning how to swim, in tribute to her mother, who had recently passed away.

She also chairs Toronto-Dominion's Women in Leadership committee, which aims to identify opportunities and promote within the organization.

Since forming the committee in 2005, the bank has increased the number of female vice presidents, senior vice presidents and executive vice presidents to 34% of all employees, from 22%. Over that time, the bank has gone from fifth among Canadian banks in that distinction to third.

Johnston, who along with Royal Bank of Canada CFO Janice Fukakusa is the country's highest-ranking female bank executive, says a female Canadian bank chief executive could be named "within the next couple of generations" of succession.

Toronto-Dominion CEO Edmund Clark, 63, has said he plans to retire in two years. Caisse Centrale Desjardins du Quebec, the country's largest credit union group, is already led by CEO Monique Leroux.

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