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A TD Canada Trust branch in the financial district in Toronto, Jan. 28, 2013. NEI Investments, which operates the Ethical Funds mutual fund group, filed shareholder proxy resolutions with the five largest banks in Canada, including TD, calling on them to considering ending the practice of setting CEO pay by benchmarking it against pay at rival banks.

MARK BLINCH/REUTERS

What's a bank to do these days, when even the bank chiefs admit that their flagship Canadian retail divisions face headwinds?

If you're Toronto-Dominion Bank, you rely on your sizable U.S. operation, complete with 1,310 branches.

Yet TD hasn't always been able to do that. Even though the bank shelled out big bucks to buy Banknorth and Commerce Bancorp, the rewards haven't been very handsome – at least not yet. Last year, the U.S. personal and commercial division brought home a profit of $1.1-billion, while the Canadian counterpart made $3.3-billion.

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However, the tide is turning. TD reported second quarter earnings Thursday morning and the U.S. operation reported net income of $398-million – its highest in two years. Digging deeper, the U.S. division is seeing strong loan growth. The total loan book now sits at $98-billion (U.S.) and organic loan growth came in at 15 per cent over the same period in 2012. (That doesn't even count the Target credit card portfolio acquisition). This jump also comes after year-over-year loan growth of 16 per cent in the first quarter.

This is good news for the bank because the U.S. operation has a sizable deposit base worth $182-billion, yet TD wasn't always able to loan a comparable chunk of the money out south of the border.

Here in Canada, by contrast, the deposit base is $221-billion (Canadian), and total loan volumes north of the border totalled $304-billion last quarter.

Plus, Canadian loan growth is slowing, coming in at just 5 per cent during the second quarter. Suddenly the U.S. looks much more attractive if you assume the economic recovery there continues apace.

Of course, TD can't rely on the U.S. operation too much. Overall, the division isn't even making an economic profit. Its assumed cost of capital is 9 per cent, according to the bank's financial documents, yet its return is just 8.6 per cent.

Still, there are encouraging signs that TD has some sort of a safety net to at least partially offset a Canadian slowdown.

(Tim Kiladze is a Globe and Mail Reporter.)

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