Doubts Raised on TD Bank's US Branch Expansion

The timing of TD Bank’s plans to open 150 new U.S. branches by 2027 has been thrown into doubt by the regulatory uncertainty surrounding the Toronto-based bank.

TD is facing pressure from U.S. regulators to overhaul its safeguards against money-laundering in the bank’s U.S. division—an overhaul that some industry analysts believe may end up costing the bank $2B.

In an earnings call late last week, TD executives disclosed that the bank has spent $500M to overhaul systems to protect it from money-laundering; TD also has set aside $450M to cover its growing legal expenses, according to a report in American Banker.

In May 2023, TD abruptly bailed out of a $13.4B takeover of Tennessee-based First Horizon citing uncertainty over whether or when the merger could receive regulatory approval. It would have been TD’s largest acquisition, adding more than 400 branches in the U.S., primarily in the rapidly growing Southeast.

According to a report in the Wall Street Journal, regulators’ concerns were related to anti-money laundering practices, with the US Office of the Comptroller of the Currency and the Federal Reserve reluctant to sign off on the company’s practices.

After the First Horizon deal fell through, TD unveiled an ambitious plan to open 150 new U.S. branches by 2027.

During the call with investors last Thursday, TD vowed to complete the overhaul of its safeguards, but didn’t directly answer questions about whether the bank’s ambitious U.S. branch expansion is now mostly off the table, American Banker’s report said.

“I know that there’s a lot of questions about what we can and cannot do,” Leo Salom, who heads TD’s U.S. retail arm, said during the call. “The one thing that I will commit to this group is as soon as we’re in a position to provide greater clarity on those, we will certainly do that.”

When asked about the company’s plans for new branches, Salom said TD is “deliberately pacing” the expansion and will focus more on its “digital and mobile strategies.”

“I’m not making the claim that we cannot grow the stores,” Salom said, during the call. “But I also want to be very clear that we are in the midst of discussion with regulators, and I don’t want to prejudice any of those conversations at this point.”

Banks large and small have been putting new branches in Southeast, the region with the fastest-growing population. Regional banks also are joining the party, with several Midwest banks pursuing aggressive growth strategies in the Southeast.

Cincinnati-based Fifth Third Bank is in the midst of opening 31 new Southeast branches, including 25 branches in South Carolina. Fifth Third is pursuing a strategy that will divide its portfolio 50/50 between the Midwest and Southeast within the next five years. The Ohio bank has opened 110 branches in the Southeast in the past four years.