UPDATE 2-TD reports modest first-quarter profit miss, raises dividend

(Adds details of results)
TORONTO, Feb 25 (Reuters) - Toronto Dominion Bank TD.TO
reported a first-quarter profit that slightly missed analyst
expectations Thursday as provisions for credit losses soared and
expenses increased, but the Canadian lender still raised its
quarterly dividend.
Provisions for credit losses, the amount set aside to cover
bad loans, jumped about 77 percent to C$642 million, and
non-interest expenses rose nearly 12 percent.
TD's results, which were also hurt by a decline in capital
markets earnings, come as Canadian banks have been facing
increasing margin pressures after the Bank of Canada
unexpectedly cut interest rates last year.
Net interest margins, a closely watched indicator of a
bank's profitability, slipped to 2.06 percent.
TD experienced some margin compression in Canada, though
U.S. margins were solid in the quarter, Chief Financial Officer
Riaz Ahmed said.
"It's just a reflection of a continued low interest rate
environment," he said in an interview. "The effects of the last
rate cut by the Bank of Canada continued to work their way
through the book."
TD shares were up 0.7 percent in morning trading.
Gross impaired loans in the oil and gas sector fell to C$86
million in the first quarter, from C$93 million in the fourth
quarter. Provisions for credit losses in the energy industry
also dropped from the fourth quarter.
"It's a function of our exposure. We are comfortable with
the quality of the portfolio," Ahmed said about the
comparatively low amount TD has set aside to cover for bad loans
in the energy sector.
Less than 1 percent of TD's total loan portfolio comes from
the oil and gas sector.
The bank did benefit in the quarter from strength in its
Canadian and U.S. retail units, as well as from a weaker
Canadian dollar for its businesses south of the border.
Toronto-based TD has been expanding aggressively across the U.S.
East Coast and is one of the 10 biggest banks in the United
States.
The company's earnings grew 4 percent at its Canadian retail
banking division, amid higher volumes in loans and deposits.
Its wholesale banking profit dropped 16 percent, hurt by
weakness in equity trading and lower security gains.
Overall net income for the quarter ended Jan. 31 was C$2.22
billion, or C$1.17 per share, up from C$2.06 billion, or C$1.09
per share, a year earlier. Excluding special items, earnings
rose to C$1.18 per share.
Analysts had expected earnings of C$1.19 a share on average,
according to Thomson Reuters I/B/E/S.