TORONTO (Reuters) - Toronto-Dominion Bank (TD.TO) said on Wednesday its second-quarter profit fell 3 percent, hit by a tough environment in wholesale banking and restructuring charges for its recent U.S. acquisition, Commerce Bancorp.
"We did regard it as a disappointing quarter because we're not used to having a drop in earnings," President and Chief Executive Ed Clark said on a conference call. "But I think (it was) quite an acceptable quarter, given the market conditions in which we're operating."
TD Bank, Canada's second-largest bank by market value, said it does not expect any earnings growth in 2008, after warning earlier this year that it was unlikely to hit even the low end of its 7 percent to 10 percent growth target.
But Clark said the outlook could brighten if financial markets improve, producing better earnings in its wholesale banking and wealth-management units, the two weak links in the quarter.
TD's results "are fairly consistent with what we saw yesterday," said Craig Fehr, an analyst at Edward Jones.
"The capital markets side of the business is obviously the real drag on earnings this quarter and I don't think any bank can escape that," he said.
TD said its wholesale banking profit tumbled 57 percent to C$93 million ($94 million) as trading revenue and securities gains fell.
At TD Canada Trust, its domestic personal and commercial banking unit, profit rose 8 percent to C$582 million.
Most of TD's profit comes from its retail banking operations in Canada and the United States, and retail results appear to be "holding up fairly well," Fehr added.
But Brad Smith at Blackmont Capital said that domestic banking and wealth-management revenue growth of just above 4 percent was weaker than he had expected.
Overall, TD Bank said net income was C$852 million, or C$1.12 a share, in the February-April quarter. That was down from C$879 million, or C$1.20 a share, a year earlier.
TD said its adjusted earnings -- which exclude various items such as charges related to the acquisition -- amounted to C$1.32 a share, down from C$1.36 a year earlier.
Analysts had expected earnings of C$1.39 a share before exceptional items, according to Reuters Estimates.
TD Bank closed its US$8.5 billion cash-and-stock acquisition of New Jersey-based Commerce Bancorp on March 31, but its second-quarter results do not include any operating results from Commerce due to a difference in their fiscal quarter-ends.
TD did take charges of C$30 million after tax, or 4 Canadian cents a share, for Commerce restructuring and integration costs in April.
Excluding the Commerce charges, TD's U.S. retail banking segment contributed C$130 million in earnings, more than twice the amount of a year earlier, when TD owned a smaller percentage of New England-based TD Banknorth.
Profit in wealth management -- which includes TD's 40 percent stake in TD Ameritrade (AMTD.O) -- fell 8 percent to C$182 million.
The bank said its provisions for credit losses, a measure that many analysts are closely watching, rose to C$232 million from C$172 million a year earlier.
Shares of TD Bank were down for much of Wednesday's session but rallied late in the day and closed at C$68.70 on the Toronto Stock Exchange, up 26 Canadian cents, or 0.4 percent.
Reporting by Lynne Olver; editing by Peter Galloway