UPDATE 2-TD Bank profit rises despite sluggish housing growth

Thu May 23, 2013 11:21am EDT

* Earned C$1.90 a share, vs analysts' forecast of C$1.91

* Trading revenue, U.S. income higher; shares drop 0.9 pct

* To buy back up to 1.3 percent of shares

* CFO says bank can be more active in capital deployment

By Cameron French

TORONTO, May 23 (Reuters) - Toronto-Dominion Bank reported a 2 percent increase in quarterly earnings as higher trading, business lending and U.S. banking income offset slowing loan growth in its core Canadian market.

The result, the first from a Canadian bank in a quarter that has seen Canadian housing sales activity slow, was roughly in line with analysts' estimates.

Shares fell 0.9 percent to C$83.25, underperforming TD's Canadian banking peers, which were also in the red on Thursday.

Income from TD's flagship Canadian retail bank rose 5 percent to C$847 million as stronger business lending and lower loan-loss provisions helped offset slowing consumer loan growth.

Canadian home sales activity has been more sluggish so far this year than in 2012, although prices have risen slightly.

Low interest rates have also pinched retail banking income by reducing the margins on loans.

This has prompted TD to bulk up its higher-margin lending in areas such as auto lending and credit cards. During the quarter, TD closed its acquisition of Target Corp's $5.9 billion U.S. credit card portfolio.

TD's U.S. retail banking network produced income of US$392 million, up 9 percent, on the back of loan and deposit growth.

"The basic business - the Canadian and U.S. personal and commercial banking - performed pretty well," said John Kinsey, a portfolio manager at Caldwell Securities in Toronto.

The bank, Canada's second-largest, earned a net C$1.72 billion ($1.66 billion), or C1.78 a share, in the second quarter ended April 30. That compared with a year-earlier profit of C$1.69 billion, or C$1.78 a share.

Excluding items including a C$58 million amortization charge, earnings were C$1.90 a share. Analysts on average had expected C$1.91, according to Thomson Reuters I/B/E/S.

TD has about 1,100 bank branches in Canada and about 1,300 in the United States, with a sizeable presence on the Eastern seaboard. It also owns 45 percent of TD Ameritrade Holding Corp.

The bank announced it would buy back up to 12 million of its common shares, or about 1.3 percent of the bank's outstanding shares.

Colleen Johnston, the bank's chief financial officer, said the buyback was related to the bank's strong capital position.

TD's Tier 1 common equity ratio was 8.8 percent during the quarter, even after absorbing the Target credit card acquisition as well as the $688 million purchase of asset manager Epoch Investments, which also closed during the quarter.

That's comfortably ahead of the 8 percent level the Canadian banks will be expected to hold as of 2016.

"We're now at the point, as are other Canadian banks, where we can start more actively thinking about capital deployment, having built to these very good levels," said Johnston.

Wholesale banking income, which accounts for trading, investment banking and corporate lending, rose 12 percent to C$220 million, due to stronger trading-related revenue and lower expenses.

Barclays Capital analyst John Aiken said TD's results likely won't materially change expectations for the Canadian banks still to report, though he said the strong capital markets result should bode well for Royal Bank of Canada, which reports next Thursday.

National Bank of Canada, the country's No. 6 bank, reports on Friday.

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