Canadian Banks Post Mixed Results As RBC, TD Beat Estimates, CIBC Misses

Royal Bank of Canada and Toronto-Dominion Bank on Thursday reported second-quarter profits that beat estimates, as provisions for credit losses (PCLs) improve at most Canadian banks, while Canadian Imperial Bank of Commerce (CIBC) posted the lone miss on the earnings front as its PCLs rose.

Royal Bank, Canada's largest lender, reported higher profit in the three months ended April 30 from a year earlier, exceeding estimates. TD, the second-biggest Canadian bank, posted lower profit but still beat expectations.

CIBC's profit fell and it slightly missed estimates, with the bank attributing its 847% surge in PCLs to both its acquisition of the Canadian Costco credit card portfolio as well as unfavorable changes in the economic outlook.

TD shares were up 2.7% at C$96.32 in morning trading in Toronto. Royal Bank shares rose 0.5% to C$129.14. CIBC fell 1.3% to C$69.24. The broader Toronto share index rose 1%.

Canadian banks' broad improvements in PCLs have raised questions from analysts concerned about their seemingly sanguine response to the emergence of economic uncertainties, high inflation and geopolitical risks.

Royal Bank executives said the bank has increased the severity and likelihood of its downside economic scenarios.

But "given low unemployment, rising wages and elevated liquidity, we believe the key ingredients are in place to help mitigate any sustained slowdown," said Dave McKay, chief executive officer at Royal Bank, which recovered C$342 million of PCLs in the quarter.

TD took provisions of C$27 million, versus the expected C$237 million. Excluding that impact, its adjusted earnings were almost 11% higher than a year earlier.

TD Chief Financial Officer Kelvin Tran told Reuters that while the risk of an economic slowdown has increased, customers continue to pay down loans and deposits continue to grow, albeit at a slower rate than during the coronavirus pandemic.

On Wednesday, Bank of Nova Scotia and Bank of Montreal also reported better-than-expected profits driven by lower PCLs.

HIGHER EXPENSES

Alongside improving provisions, strength in lending books and fees has continued to lift Canadian lenders' earnings, but they are also seeing increased expenses due to tight labor markets and inflation.

Loan growth helped CIBC post a 7% increase in adjusted earnings excluding taxes and provisions from a year earlier. Executives said consumers remain prudent in managing debt despite higher costs.

At RBC, excluding the impact of taxes and loan-loss provision releases, earnings fell 2% as lower revenues from its capital markets business outweighed strength in wealth management and lending.

That weighed on revenue, which dropped 3%, even as expenses excluding variable compensation rose 7%.

CIBC's adjusted expense growth of 11% outpaced a revenue increase of 9%. Its capital markets business also faced challenges, although that was driven more by a decline in investment banking fees while trading remained strong.

While TD had an adjusted expense increase of 5% from a year ago, its revenue rose 8% thanks to higher loan volumes and fees.

($1 = 1.2818 Canadian dollars)