February 25, 2009 / 4:13 PM / in 9 years

UPDATE 3-TD Bank profit slides, but beats forecasts

* Numbers seen boding well for other Canadian banks

* Profit drops 27 pct as loan loss provisions double

* First quarter EPS C$0.82 vs C$1.33

* Dividend held steady at 61 Canadian cents

* Shares up 1.7 percent at C$35.85 (Add CEO, CFO comments from conference call, closing stock price)

By Jeffrey Hodgson

TORONTO, Feb 25 (Reuters) - Toronto-Dominion Bank TD.TO kicked off Canada’s bank reporting season on Wednesday with a smaller than expected drop in quarterly profit, a result that boosted both its stock and shares of its peers.

The country’s No. 2 lender more than doubled its provision for bad loans from a year earlier as the North American economy stumbled badly and as the bank incorporated a U.S. acquisition. But its revenue also rose 15 percent, helped by a jump in net interest income.

“Investors and the market were kind of expecting the worst from this quarter and I think that TD has probably started things off right in terms of showing that ... you’re still able to earn a profit as a bank in this type of environment,” said Craig Fehr, a financial services analyst at Edward Jones.

Canada’s banking system was ranked last year as the world’s soundest by the World Economic Forum. Its more conservative lending practices have helped it avoid the massive writedowns and losses that have driven many U.S. and European banks to the brink of insolvency.

TD said its profit fell to C$712 million ($565 million), or 82 Canadian cents a share, in the first quarter, ended Jan. 31, from C$970 million, or C$1.33 a share, a year earlier.

The bank said adjusted diluted earnings per share were C$1.34. Analysts had expected a profit of C$1.28 a share before items, according to Reuters Estimates.

TD Bank Chief Executive Ed Clark told analysts on a conference call that the bank would face a “tough year” in which maintaining flat earnings per share year over year would be an accomplishment.

“We would obviously like to do better, but that may be tough,” he said.

SHARES, SECTOR RISE

TD Bank shares, which were weaker ahead of the results, closed up 60 Canadian cents, or 1.7 percent, at C$35.85 on the Toronto Stock Exchange.

TD said its provision for credit losses jumped to C$537 million in the latest period from C$255 million a year earlier, when it had not yet closed its acquisition of New Jersey-based Commerce Bancorp.

At the same time, revenue rose to C$4.15 billion from C$3.64 billion, and net interest income rose to C$2.73 billon from C$1.79 billion.

“The first cut actually looks quite good,” said John Aiken, an analyst at Dundee Capital Markets. “We did see deterioration in credit quality, but that was expected. Generally there was very good net interest income growth, largely from volumes since margins compressed.”

“They’re good results and it does portend very well for the rest of the community.”

Royal Bank of Canada RY.TO, National Bank NA.TO, and Canadian Imperial Bank of Commerce CM.TO report on Thursday, while Bank of Montreal BMO.TO and Bank of Nova Scotia BNS.TO report on March 3.

The bank-heavy financials index .SPTTFS on the Toronto Stock Exchange turned higher following TD’s results and closed up more than 3 percent. Analysts said the rise was spurred by hopes that other bank results would be free of nasty surprises even as the Canadian and U.S. economies slide into recession.

TD said on Wednesday it has struck a deal to issue 8 million preferred shares, an offering that is expected to raise gross proceeds of C$200 million and shore up its Tier 1 capital. The offering could be increased in size to C$275 million if demand is strong, TD said.

The bank launched a similar preferred share issue in January, as did several other Canadian banks that have sought to reinforce capital positions as the global financial crisis continues to hammer the industry.

Chief Financial Office Colleen Johnston said TD was “very comfortable” with its Tier 1 capital ratio of 10.1 percent at the end of January. It rose from 9.8 percent at the end of the fourth quarter after it issued C$3.3 billion in securities.

“We expect to continue growing total capital through retained earnings growth and, if necessary, through preferred share issuance. We still have capacity to issue about C$2 billion in preferreds,” she said.

$1=$1.26 Canadian Reporting by Jeffrey Hodgson

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