TD Bank Financial Group second quarter profits fell to $852 million, from $879 million last year, the bank reported today.

That’s down $27 million, or 3%, compared with the second quarter last year, it said. Adjusted net income was $973 million, down $22 million or 2%. Adjusted net income for the quarter excludes a $30 million after-tax charge for restructuring and integration costs related to the bank’s recently completed acquisition of Commerce Bancorp in the U.S.

According to the bank’s earnings report, diluted earnings per share were $1.12, compared with $1.20 last year. TD said earnings were “solid” in the bank’s Canadian and U.S. personal and commercial banking segments, while wholesale banking results were negatively impacted by challenging financial market conditions.

“I would characterize our second quarter as slightly disappointing but quite acceptable in the context of what’s happening in the markets,” said Ed Clark, president and CEO at TD Bank Financial Group. “Our retail businesses in both Canada and the U.S. – which produced more than 90% of our earnings – delivered very solid results this quarter. This shows that we’re competing well in a tougher operating environment.”

In the personal and commercial segment here in Canada, TD Canada Trust earnings were up $42 million, or 8%, at $582 million in the quarter, over the same period last year.

TD’s personal and commercial banking business south of the border, TD Banknorth, earned $130 million in the quarter after TD completed the acquisition of Commerce. According to the bank, earnings from the Commerce operations will be included in results beginning in the third quarter of 2008. Last month, TD increased its 2008 earnings target for the segment from $700 million to at least $750 million, and reiterated expectations for a minimum of $1.2 billion in earnings for 2009, Clark said.

The bank’s wealth management business, including its equity share of TD Ameritrade, earned $182 million in the quarter. The firm previously announced that TD Ameritrade contributed $67 million to wealth management’s earnings for the quarter. “We continue to believe our diversified wealth management offering positions us well for future growth through a long-term focus on growing assets, building an advisor network, and increasing trading volumes,” said Clark. “But the reality is, this quarter our Canadian wealth management business was affected by weaker market activity, and to a lesser extent, strategic pricing decisions we made last year which we believe will pay off in the future.”

Wholesale Banking produced earnings of $93 million for the quarter. TD said the segment’s results were negatively impacted by the capital markets operating environment, resulting in lower trading revenue, a decline in origination fees and reduced security gains. “While our wholesale banking strategy has helped us avoid the direct hits of significant asset writedowns, our second quarter clearly reflected we haven’t been able to outrun the collateral effects of the issues facing the financial services industry,” said Clark.

Net interest income for the quarter was $1.9 billion, up $196 million, or 12%, compared with the same period last year.

On a year-to-date basis, income increased $22 million, or 1%, to $1.8 billion compared with the same period last year, while adjusted net income of $2 billion increased $29 million or 1%. According to the bank, the increase in adjusted net income was primarily due to higher income in the U.S. personal and commercial banking segment associated with the privatization of TD Banknorth plus growth from Canadian personal and commercial banking income.

During the quarter, TD recorded a provision for credit losses of $232 million, up $60 million compared with the second quarter last year. On a year-to-date basis, provision for bad loans was up $152 million, from $335 million in the same period last year.

“At the halfway mark of the year, we remain confident that all of our businesses are well positioned to perform in a challenging environment and deliver on their longer term strategies,” said Clark. “And while we don’t expect to see earnings growth in 2008, we continue to believe TD will be a positive outlier in both Canada and the United States.”

Also today, TD announced that Clark plans to exercise roughly 650,000 options for TD common shares from October 2008 until the end of 2009 and donate a portion (approximately 40%) of the pre-tax proceeds to charity.