Shares of Toronto-Dominion Bank (TD -0.47%) essentially opened flat this morning after Canada's second largest bank reported a profit of more than $5.1 billion, or $2.80 diluted earnings per share, beating estimates from analysts.
The bank's fourth-quarter profits are up about 80% from its fourth quarter of 2019.
But that huge jump is only because the bank recorded a big gain from receiving a 13.5% stake in Charles Schwab (NYSE: SCHW) after selling its brokerage platform TD Ameritrade to the company .
On an adjusted basis, TD Bank reported nearly $3 billion in earnings, or $1.60 earnings per diluted share, in its fourth quarter, which is just slightly higher than its earnings in the fourth quarter of 2019. Analysts on average expected TD Bank to report earnings of $1.28 per share for the quarter.
Net interest income of $6.4 billion in the quarter grew 3% year over year. Actual interest income on loans and securities fell significantly year over year due to the steep decline in interest rates, but that was offset by a big reduction in expenses mainly because of much cheaper deposit costs.
After the bank set aside large provisions for potential future loan losses in the second and third quarters of the year, the provision in the fourth quarter fell to much more normalized levels.
Overall, TD Bank has set aside enough money to cover loan losses on 1.26% of total loans .
TD Bank also has a lot of capital with a common equity tier 1 (CET1) ratio -- a measure of a bank's core capital expressed as a percentage of risk-weighted assets -- of 13.1%.
When asked about the potential for mergers and acquisitions, TD Bank CEO Bharat Masrani said, "If there are compelling opportunities, we want to make sure that we look at them seriously ... And our capital levels provide us with that flexibility."