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TD Bank ATM machines in New York, on March 17, 2020.JEENAH MOON/Reuters

Toronto-Dominion Bank reported a sharp increase in quarterly profit, driven primarily by a sizable recovery in provisions the bank had set aside for bad loans, as the U.S. and Canadian economies began climbing out of the pandemic-induced recession.

For the fiscal second quarter ended April 30, TD earned $3.7-billion, or $1.99 per share, compared with profit of $1.5-billion, or 80 cents per share in the same quarter a year earlier. Adjusted for special items, TD said it earned $2.04 cents per share, while analysts expected $1.77 in adjusted earnings per share, according to Refinitiv.

The bank released $377-million in provisions for loan losses in the quarter, while analysts had estimated it would continue setting aside approximately $470-million in provisions for credit losses. In the same quarter last year, TD set aside $3.2-billion in anticipation of a huge default in loans when the pandemic first hit, which ate into the bank’s overall revenue for 2020.

RBC , Bank of Montreal and CIBC also reported higher earnings due to declines in loan loss provisions this week, as they reclaimed funds set aside for defaulting loans.

The bank’s overall revenue this quarter was $10.2-billion, a decrease of 2.8 per cent from the same period last year.

Dividends per share remained constant at 79 cents. Canada’s banking regulators have prohibited dividend hikes while the country grapples with the pandemic.

“An improving economic outlook led to the release of a portion of the performing allowances we built last year,” TD’s chief financial officer Riaz Ahmed said in an interview with The Globe and Mail. He added that the bank was encouraged by strong vaccine distribution in both the U.S. and Canada and that the worst could be over for many businesses.

The Canadian retail division of the bank benefited substantially from a strong growth in mortgage originations, a higher number of credit card transactions and positive revenue from the bank’s wealth and insurance departments. Net income from the division was $2.18-billion, an increase of 86 per cent compared to the same quarter last year.

“We expect the housing market to continue remaining resilient, with mid to high single digit growth in mortgage originations to continue for the remainder of the year,” Mr. Ahmed said.

Net income from American retail division was $1.3-billion, an increase of 292 per cent from the second quarter last year, mostly because of lower provisions for credit losses. Notably, TD’s investment in Charles Schwab Corp. through TD Ameritrade contributed $246-million in earnings this quarter.

Profit from the bank’s capital market division was $383-million, up 83 per cent from a year ago largely because of lower provisions for credit losses. Revenue climbed 4 per cent from last year, but was down 10 per cent from last quarter because of a decline in trading revenue, which dropped 25 per cent to $558-million. TD has traditionally been one of the more risk-averse banks when it comes to underwriting deals in momentum sectors like cannabis, psychedelics and cryptocurrency, which have all seen substantial deal activity over the last one year.

Mr. Ahmed said the bank’s conservative risk culture has served it well, and that TD has been investing heavily in maintaining “top dealer status” in Canada.

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