* Insurance charge pulls profit lower
* Earnings before special items tops analyst estimates
* Bank hikes dividend by 5 percent
By Cameron French
TORONTO, Aug 29 (Reuters) - Toronto-Dominion Bank's quarterly profit fell 10 percent as Canada's No. 2 lender took C$418 million in insurance-related charges, but the result topped estimates and the bank hiked its dividend by 5 percent.
TD, the final large Canadian bank to report results for the period, warned last month it would take insurance charges for higher provisions in its auto lending unit as well as losses from floods in Alberta and Ontario during the summer.
The bank earned C$1.53 billion, or C$1.58 a share, in the third quarter ended July 31, compared with C$1.70 billion, or C$1.78 a share, a year earlier.
Excluding a C$59 million charge for the amortization of intangibles, a C$70 million gain on the change in fair value of derivatives hedging, and other items, the profit was C$1.65 a share. Analysts on average had expected C$1.55, according to Thomson Reuters I/B/E/S.
A bright spot was loan growth at TD's retail banking business, which has about 2,400 branches in Canada and the United States.
Retail bank earnings rose 13 percent to C$997 million in Canada and jumped 57 percent to C$445 million in the United States, where TD has more than 1,300 branches on the Eastern Seaboard.
Wholesale banking income, which includes trading, investment banking, and advisory businesses, slid 18 percent to C$147 million due to weaker trading revenue.
"Our wholesale quarter was a little bit softer, but all-in, the remainder of the business (outside of insurance) was very good," Chief Financial Officer Colleen Johnston said in an interview.
Canada's cooling housing sector and sluggish economy has squeezed consumer lending growth at the big Canadian banks, pressuring their largest revenue source.
This has prompted TD to bulk up its higher-margin lending in areas such as auto loans and credit cards.
Earlier this year, TD closed its acquisition of Target Corp's $5.9 billion U.S. credit card portfolio, and it is in talks to buy about half of Canadian Imperial Bank of Commerce's Aeroplan credit card portfolio.