* TD, Laurentian results in line with estimates
* Credit quality helps TD, hurts Laurentian
* Shares muted, Canadian Western stock surges (Adds Laurentian and CWB results, analyst comments, shares)
By Cameron French
TORONTO, Sept 2 (Reuters) - Toronto-Dominion Bank (TD.TO) said on Thursday its third-quarter profit rose 29 percent on stronger retail banking profits and credit quality, while smaller Laurentian Bank of Canada (LB.TO) posted a 5 percent profit gain on lending margins and loan growth.
Shares of both banks were mixed when markets opened, but regional lender Canadian Western Bank (CWB.TO) charged ahead nearly 4 percent a day after it reported a better than expected 47 percent surge in profit.
TD, Canada's second-largest bank, earned C$1.18 billion ($1.12 billion), or C$1.29 a share, in the quarter, up from a profit of C$912 million, or C$1.01 a share, a year earlier.
Stripping out several items, adjusted profit was C$1.43 a share, about even with analysts expectations of a C$1.44 a share profit, as polled by Thomson Reuters I/B/E/S.
Profit from TD's flagship Canadian retail bank rose 24 percent to C$841 million, a pace of growth the bank said was not likely to continue due to the cooling of the domestic housing market and pressure on lending margins.
Income at TD Bank's U.S. franchise, which includes more than 1,000 branches in the Eastern United States, climbed 30 percent to $276 million.
"The positive for the quarter at TD is the continued growth that they're getting form their retail franchise, and this is on both sides of the border," said John Aiken, an analyst at Barclays Capital.
Wholesale banking income fell 45 percent to C$179 million, also following the trend of TD's rivals, as trading and underwriting revenues were hurt by the European debt crisis.
Like the other banks that make up Canada's "Big Six," TD benefited in the quarter from fewer loan defaults as the economy stabilized somewhat and the credit crisis eased.
This allowed the bank to reduce provisions for bad loans to C$339 million from a year-before C$557 million.
Tier 1 capital ratio, a measure of the bank's financial stability, rose to 12.5 percent from 11.1 percent, as TD stockpiled capital in advance of global capital and liquidity reforms that are expected to be unveiled by the Basel banking committee in November.
Uncertainty over how much capital Canada's banks will have to maintain going forward has forced them to put dividend increases and large acquisitions on hold.
"We hope that by the first quarter of fiscal 2011 we'll be in a position, in the context of the board's outlook on earnings and the bank's dividend policy, to provide some guidance," TD Chief Executive Ed Clark said in a release.
Unlike TD, credit quality hurt Laurentian's bottom line, as loan losses rose to C$20 million from C$16 million, due in part to a C$5 million loss on a bad commercial loan.
Canada's No. 7 bank earned C$30.1 million, or C$1.13 a share, in the quarter, in line with analysts' estimates, and up from a year-before profit of C$28.7 million, or C$1.08 a share.
About one hour into Thursday's session, TD stock was up 28 Canadian cents at C$72.40, while Montreal-based Laurentian was down 2.2 percent at C$46.51.
The strongest performer in the TSX financial sector was Canadian Western, which was up 2.9 percent at C$25.21.
Edmonton, Alberta-based CWB said late on Wednesday it earned C$46.6 million, or 59 Canadian cents a share, in the quarter, up from C$28.7 million, or 38 Canadian cents a share.
Stripping out certain tax items, the regional bank earned 48 Canadian cents a share, ahead of analysts' per-share estimates of 45 Canadian cents.
Quarterly revenue at the bank, which does much of its business with Alberta's energy sector, rose 30 percent to a record C$111.0 million, it said.
Macquarie analyst Sumit Malhotra called the results solid, and said he expects CWB will one of the first Canadian banks to raise its dividend.
$1=$1.05 Canadian Reporting by Cameron French; editing by Rob Wilson