Canada's big banks all beat expectations in quarterly results

Toronto-Dominion Bank and Canadian Imperial Bank of Commerce closed out quarterly results reporting on Thursday, joining major rivals in beating expectations, thanks to much lower provisions for loan losses and trading strength even as their retail businesses posted muted growth or declines.

All six major banks surpassed pre-pandemic profit levels in the first quarter as an increase in soured loans has so far failed to materialize, but executives cautioned that a rise is still in the cards amid continued uncertainty and as government assistance programs come to an end.

"There are some positive signs with expectations of vaccines, but we need to be vigilant about a possible third wave" of the pandemic, Riaz Ahmed, chief financial officer at TD, Canada's second-largest lender, said in an interview.

But the bank, which has almost $9 billion of reserves to cover loan losses, is satisfied with its level of coverage for future losses, he added.

TD reported a decline of 13 per cent in its U.S retail business, while growth in its Canadian banking unit was driven largely by its wealth business, which also helped lift earnings at the other lenders.

In addition to margins under pressure, anemic loan growth, and higher expenses in TD's U.S. business, "strong contributions previously received from Ameritrade have ebbed under the new, previously announced earnings from Schwab," Barclays analyst John Aiken said in a note.

CIBC reported higher profit at all its businesses, with strength in capital markets, and the recovery of $89 million in provisions on performing loans offsetting sluggish growth in its Canadian banking unit.

TD reported adjusted net income of $1.83 a share, in the three months to Jan. 31, versus analysts' expectations of $1.49 a shares. CIBC saw adjusted income rise to $3.58 a share, compared with estimates of $2.81 a share.

RBC chief is optimistic

On Wednesday, Royal Bank of Canada chief executive David McKay expressed optimism.

"As we approach a year into the global pandemic, we are encouraged by both the number and efficacy of vaccines," McKay told analysts on a conference call.

"This — in addition to significant pent up demand, rising prospects of further stimulus programs, expectations of a gradual easing of lockdown measures and pledges of continued low interest rates — to support the sustained economic recovery."

Executives also pointed to mortgages and the stock markets as factors that boosted the bank's outlook and profit.

"Canadian housing activity also remains elevated," said McKay, pointing to an increase in construction permits. "We expect a lack of supply, low interest rates, elevated savings rates, continuing work from home arrangements, and a potential resumption of immigration to underpin continued demand."

Meanwhile, chief financial officer Rod Bolger said RBC's Direct Investing saw average trading volumes from individual investors rise 200 per cent compared with the same period last year, and that personal chequing accounts grew by more than 30 per cent.

Auto lending down dramatically

But Bolger noted that the pandemic has made it harder to grow RBC's commercial and credit card businesses. Neil McLaughlin, the bank's head of personal and commercial banking, also said that auto lending was down dramatically last year.

"Travel is our biggest category and we are just not seeing consumers spending there," McLaughlin added. "They are paying down debt."

McLaughlin said that while the lower credit card balances were providing real challenges for the company, he expects the spending to bounce back.

"I think as the economy opens up and entrepreneurs gain confidence, you'll start to see commercial lending start to come back, hopefully in the back part of the year," McLaughlin added.

National Bank of Canada also topped expectations Wednesday as it reported its first-quarter profit rose more than 20 per cent compared with a year ago, boosted by growth across its business.

On Tuesday, Bank of Montreal and Scotiabank kicked off a week of rosy results.

Both banks said economic recoveries driven by the rollout of coronavirus vaccines will boost performance into the year, though BMO executives also said that U.S. clients are benefiting from a faster vaccine rollout compared with Canada.