Toronto-Dominion Bank reported a lower second quarter profit as turmoil in financial markets cut earnings at its wealth management unit and the bank took restructuring and hedging charges.

On Thursday, the bank said it earned $618 million, or 68¢ a share, in the second quarter ended April 30, compared with $852 million, or $1.12 a share, a year earlier.

The results included charges on amortization of intangibles, losses on hedging, restructuring related to the acquisition of U.S. bank Commerce Bancorp, Inc. and shareholder litigation.

Excluding those items, TD said it had adjusted earnings of $1.23 per share, down from $1.32 per share a year earlier.

In a conference call on Thursday, TD CEO Ed Clark said that despite the lower earnings, the bank’s executives consider the results positive.

“It was a good quarter, we’re feeling good about the quarter,” Clark said. “Each of our businesses are coping with the current economic environment extremely well.”

Added Clark: “Obviously we feel slightly better about what our earnings potential is in 2009 given how well we’ve done in the first half.”

TD’s Canadian personal and commercial banking segment posted earnings of $589 million in the second quarter, up 1% from the same period last year. Strong volume growth in deposits and lending continued this quarter, the bank said.

Loan growth could continue in the months ahead as TD picks up the slack in the market, Clark said.

“There’s a reasonable chance that this may be a rare recession where we actually grow volumes through the downturn as we continue to fill the gaps left by those who have exited the lending market,” he said. He noted that TD has grown quickly in the auto lending market, where it previously was not an active player. “That’s an example of how TD and other Canadian banks have stepped up their lending efforts to ensure that Canadians have access to credit.”

TD’s wealth management business, including the bank’s equity share in TD Ameritrade, earned $126 million in the quarter, down 31% from the second quarter of last year, despite “spectacular” transactional volumes in online brokerage operations, according to Clark. TD attributed the drop in profit to market declines on the mutual funds and advice-based businesses.

Still, Clark said business unit fared well overall. “Our wealth management business continues to perform well, given the environment,” he said.

The bank also continued to increase the number of client-facing advisors during the quarter.

The U.S. personal and commercial banking business generated $231million in reported net income and $281 million in adjusted net income during the quarter, an 8% decline in adjusted net income from the previous quarter “due to increased provision for credit losses and seasonal factors,” the bank said.

Wholesale banking earned net income for the quarter of $173 million, up 86% compared with the same period last year. The group results included strong trading revenues, led by interest rate and foreign exchange revenue.

TD’s provisions for credit losses rose to $656 million from $232 million a year ago. Clark warned that as the recession continues, provisions for credit losses are likely to increase throughout Canada and the U.S.

“We’re not done the credit cycle yet,” he said.

But overall, Clark said he is much more confident about the state of the economy and TD’s earnings potential than he was six months ago.

“There has been a mood shift that says we’re not looking at Armaggeddon now; there is a bottom to this,” he said. While he acknowledged that the next 18 months will be tough, he said the bank has shifted its focus to the long-term, and TD’s prospects as it emerges from the recession.

IE