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* Loan-loss provisions fall, retail bank income rises
* Litigation loss reduces profit
TORONTO, Feb 28 (Reuters) - Toronto-Dominion Bank reported a stronger-than-expected 21 percent rise in quarterly profit on Thursday, driven by lower loan losses and lending growth at its retail banks, and raised its dividend by 5 percent.
The bank, Canada's second largest, earned C$1.79 billion, or C$1.86 a share, in the first quarter ended on Jan. 31. That compared with C$1.48 billion, or C$1.55 a share, a year earlier.
Net profit was reduced by a C$70 million charge to cover litigation costs stemming from its connection to a $1.2 billion Ponzi scheme run by Florida lawyer Scott Rothstein, who used the bank's accounts.
However, the charge was less than a Rothstein-related C$171 million litigation charge taken in the first quarter of 2012.
Excluding unusual items, it earned C$2.00 a share, up from C$1.86. That topped analysts' expectations of a profit of C$1.92, according to Thomson Reuters I/B/E/S.
The beat was due in part to lower provisions for bad loans, Barclays Capital analyst John Aiken said in a note.
Provisions fell 4.7 percent to C$385 million.
Canadian retail banking income rose 11 percent to C$920 million, as the lower loan-loss provisions offset narrower interest margins and sluggish loan growth of 6 percent year over year.
Fears that Canadian lending growth will slow significantly due to a cooling housing market and more cautious consumer lending appeared to take root in the first quarter, as evidenced by results at TD and other Canadian lenders.
"We are starting to definitely feel a slowdown in the consumer lending side, and I think you'll see a gradual slowing of the (mortgage) lending number over the course of the year," Chief Financial Officer Colleen Johnston told Reuters.
U.S. retail banking income jumped 83 percent to C$315 million due largely to the lower litigation reserve. Excluding that impact as well as other smaller items, profit rose by 9.4 percent.
TD has about 1,100 bank branches in Canada and about 1,300 in the United States, where it has a sizeable presence on the Eastern seaboard. It also owns 45 percent of TD Ameritrade Holding Corp.
Profit in both divisions was hurt by lower lending margins, which suffered from the current low interest rate environment.
Wholesale banking income fell 18 percent to C$159 million on lower trading revenue, which was unusually strong in the first quarter in 2012.
TD raised its quarterly dividend by 4 Canadian cents to 81 Canadian cents per share.