TORONTO-DOMINION BANK $72 (Toronto symbol TD; Conservative Growth Portfolio, Finance sector; Shares outstanding: 719.9 million; Market cap: $51.8 billion; SI Rating: Above average) is the third-largest bank in Canada, with assets of $396.7 billion. It operates over 1,000 branches in Canada.

Like Royal, TD is expanding in the United States. It recently paid $3.2 billion U.S. for the 41% of subsidiary TD Banknorth that it did not already own. Banknorth operates about 600 branches in the U.S. northeast. It has struggled lately in the face of strong competition from larger banks.

TD has a long history of successfully integrating acquisitions. Owning all of Banknorth should make it easier for it to close under-performing branches and cut credit losses.

TD also owns roughly 40% of U.S. online broker TD Ameritrade. A private investment firm is pressuring TD Ameritrade to merge with one of its major competitors (E*Trade or Charles Schawb). The merged company could cut costs and quickly improve profits. Whatever the outcome, the merger talk has helped draw investor attention to the potential of this investment.

Despite its growing U.S. operations, TD still gets roughly three-quarters of its revenue from Canada, particularly its Canadian retail banking operations.

Thanks to strong demand for credit cards and mortgages, TD’s income in the second fiscal quarter ended April 30, 2007 rose 24.8%, to $1.36 a share (total $995 million) from $1.09 a share ($780 million) a year earlier. These figures exclude unusual items. Revenue climbed 12.9%, to $3.5 billion from $3.1 billion.

TD’s growing operations in the U.S. have also increased its exposure to the weakness in the American housing market. Consequently, bad loans in the latest quarter rose to 0.32% of total loans from 0.22% a year earlier. But the Banknorth restructuring and tighter credit policies in Canada should keep credit losses under control.

The bank continues to do a good job of controlling its costs. Excluding one-time restructuring charges, its efficiency ratio in the quarter fell to 58.9% from 63.8% a year earlier.

TD should earn $5.32 a share in fiscal 2007, and the stock trades at 13.5 times that estimate. The $2.12 dividend yields 2.9%.

TD Bank is a buy.