* TD Q4 adjusted EPS C$1.46 vs C$1.30 estimate
* CIBC Q4 adjusted EPS C$1.41 vs C$1.31 estimate
* Beat estimates, but worries remain
* Shares mixed (Recasts, adds CEO, investor comments)
By Andrea Hopkins
TORONTO, Dec 3 (Reuters) - Two of Canada's big banks reported stronger-than-expected profits on Thursday to end the year in far better shape than many global rivals, but investors said it was too early to to say credit woes were behind the banks given the frailty of the economic recovery.
Toronto Dominion Bank (TD.TO), Canada's second-largest lender, said profit after one-time items nearly doubled in its fourth quarter, handily beating expectations, while rival Canadian Imperial Bank of Commerce (CM.TO) saw a 48 percent jump in income, well above expectations.
While profits at both TD and CIBC, Canada's No. 5 bank, exceeded analysts' estimates, investors focused on TD's exposure to weak credit conditions in the United States, sending its shares 2.5 percent lower on the day. CIBC shares closed 2.2 percent higher.
"I'm glad they had a relatively good quarter, I'm glad that our banking system is not in complete tatters the way it was in America, that's all good," said Danielle Park, president and portfolio manager of Venable Park Investment Counsel.
"But it's just that (share) prices have gone up an awful lot in the last few months and I don't think we're likely to hold on to all that, especially if we start realizing that the recovery is not out of the woods yet."
TD Chief Executive Ed Clark echoed the caution, saying he believes underlying economic conditions will remain lackluster for the foreseeable future, with bad loans continuing to plague banks as long as unemployment is rising.
"I don't want to overstate these challenges. We've learned two lessons in the past year: first, you can have positive surprises in a challenging year, and second, you can always figure out other ways to outperform," Clark told analysts in a conference call.
Despite a solid performance by TD's Canadian retail and global investment banking, investors focused on a 24 percent drop in income at its big U.S. operations, which are concentrated in the U.S. Northeast.
"In the short term, the deterioration of American nonperforming loans is something that investors are certainly going to pay attention to," said Charles Lannon, director of global equities at Toron Investment Management.
TD, which has about as many U.S. branches as Canadian after its 2007 acquisition of Commerce Bancorp, has been caught by a broad deterioration of its U.S. credit portfolio as consumers and businesses struggle to repay their loans in the recession.
Clark told analysts he believed U.S. loan losses will not peak until the end of 2010 because unemployment remains a problem. What's more, the outsized profits TD has been notching up in its trading business will likely return to normal as interest rates move up, he said.
Across the street, CIBC won the approval of investors with a stronger-than-expected 48 percent jump in profit. While the bank set aside more money for bad loans, executives signaled the worst of its credit woes may be over.
"Our current outlook for 2010 loan losses is for better performances in our wholesale and personal loan books and stable performance in our cards portfolio for the year as a whole," Chief Risk Officer Tom Woods told analysts during a conference call following the results.
With Bank of Montreal (BMO.TO) having also exceeded Street estimates last week, Canada's big lenders are closing what could have been a very rough year with strong balance sheets -- setting the stage for possible acquisitions of weaker global rivals in the year ahead.
Barclays Capital analyst John Aiken said the bar was now high for No. 1 Royal Bank of Canada (RY.TO) and No. 3 Bank of Nova Scotia (BNS.TO) to show stronger profits, too. RBC reports on Friday and Scotia reports next week.
"We caution investors that valuations of the remaining banks, although likely to benefit from the reported results to date, may have higher expectations built in," Aiken said in a note to clients. "Consequently, it will likely take larger positive surprises to meaningfully benefit their relative valuations."
The results of both TD and CIBC included one-time items that make year-over-year comparisons difficult. That's typical for the final quarter of the year when the banks make accounting adjustments and record gains or losses that do not reflect the core earnings power of the lenders.
When those items are included, TD had net income of C$1.01 billion in the fourth quarter, matching its fourth quarter 2008 result, while CIBC's net profit rose to C$644 million from C$436 million a year earlier.
Shares of TD closed down C$1.71 at C$66.08, while CIBC shares ended the day C$1.52 higher at C$70.00.
A smaller regional bank, National Bank of Canada (NA.TO), came in slightly weaker than expected.
The Quebec-based lender said adjusted profit after one-time items were excluded was C$1.40 per share, below average estimates for a profit of C$1.46 a share.
National Bank shares ended down 5.8 percent at C$60.84.
$1=$1.05 Canadian Reporting by Andrea Hopkins, editing by Peter Galloway firstname.lastname@example.org; +1 416 941 8159; Reuters Messaging:email@example.com