Canadian Bank Earnings: RBC, TD and CIBC Beat Q3 Profit Forecasts

A clean sweep that markets met with a shrug

Canada's three biggest lenders closed out the fiscal third-quarter reporting season on August 27 by beating analysts' profit estimates. Their capital markets businesses did much of the work.11 Royal Bank of Canada, Toronto-Dominion Bank and Canadian Imperial Bank of Commerce were the last of the Big Six to report. That meant all six lenders beat Bay Street forecasts for the quarter, even with geopolitical tension and Canada's trade dispute with the United States in the background.1315

The headline numbers were strong. RBC reported record net income of C$6.0 billion for the quarter ended July 31, up 11% from a year earlier, and diluted earnings per share rose 13% to C$4.23.3 TD's net income jumped 38% to C$4.62 billion, or C$2.74 a share.14 CIBC earned C$2.41 billion, or C$2.47 a share, up 15% year over year.14

The market reaction was much cooler than the results. TD rose, but RBC and CIBC fell. That gap between strong earnings and soft share prices is the most telling part of this season, and it says something about where Canadian bank stocks now sit.

How big were the beats?

On an adjusted basis, each bank came in well ahead of forecasts. RBC earned C$4.28 a share against a consensus of about C$4.07, according to S&P Capital IQ data.14 TD's adjusted earnings of C$2.77 a share beat the C$2.47 analysts expected.14 CIBC's adjusted C$2.73 was about 20 Canadian cents above LSEG's consensus figure.12

The exact size of each beat depends on which consensus you use. LSEG put RBC's expected figure at C$4.0811, and another tally used C$4.04, which made RBC's surprise about 5.9%.6 The ranking doesn't change, though. TD posted the biggest surprise, roughly 13%, while CIBC beat by about 9% and RBC by about 6%.8 Jefferies analyst John Aiken called TD's result the strongest beat of the quarter.13

Revenue also came in above forecasts. RBC's total revenue rose 9% to C$18.54 billion18, ahead of the roughly C$18.07 billion analysts had pencilled in.6 TD's revenue of C$16.93 billion was well above an estimate of about C$15.17 billion.8

Capital markets did the heavy lifting

The reports all agree on what drove the quarter. Investment banking and trading thrived on heavy deal flow, volatile markets that lifted trading income, and a revival of IPOs in both Canada and the U.S.13

At RBC, capital markets profit rose 16% to C$1.54 billion, helped by more equity and debt underwriting, M&A advisory work and equity trading.18 RBC was also the only Canadian bank in the underwriting group for SpaceX's high-profile IPO.11 Its wealth management arm did even better, with profit up 32% to C$1.44 billion on growth in fee-based client assets.18 TD's wholesale banking division, which houses its capital markets and corporate lending, increased net income by 87%.13 At CIBC, capital markets income rose 34%, partly thanks to lower loan-loss provisions.11

This is the clearest sign of a long-term shift. Over the past two years the banks have built up capital and loan-loss reserves while growing outside Canada and expanding fee businesses such as wealth management and investment banking. That has made their earnings less dependent on domestic lending.13 RBC chief executive Dave McKay said the quarter came from a diversified business model, strong client activity and a favourable market.12

The weakness is in the core consumer bank. RBC's personal banking profit slipped 1% to C$1.92 billion as higher costs and provisions cancelled out gains in net interest income.18 Brian Madden of First Avenue Investment Counsel said RBC had come up a little short in its biggest segment despite the overall beat.12 So the record earnings rely heavily on market-sensitive businesses that can turn quickly when markets do.

Credit held up better than feared

Credit quality was the second support. Many investors expected tariffs to cause a rise in bad loans, but that didn't happen this quarter. RBC set aside C$1.0 billion for credit losses, less than analysts expected.18 RBC Dominion Securities analyst Darko Mihelic noted that TD's provisions fell for a second straight quarter. TD management now expects its full-year loss ratio to land at the low end of its guidance. TD's chief risk officer said the bank has reserved about C$500 million specifically for policy and trade risks. He still expects total provisions to finish near the bottom of the 40 to 50 basis point range.14

CIBC said its most tariff-exposed borrowers make up less than 1% of its loans.11 Its chief risk officer did acknowledge that impaired losses were running slightly above the range CIBC set at the start of the year, a forecast that didn't assume a long trade war or conflict in the Middle East.14 McKay argued that the economy has already absorbed several shocks in the past 18 months. He also said Canada's effective U.S. tariff rate stays low, with more than 80% of U.S.-bound exports still entering duty-free.14

TD's turnaround story gains credibility

Of the three, TD probably did the most to change how investors see it. Its U.S. segment profit climbed 41% to C$1.07 billion on loan growth in mid-market commercial lending and credit cards.14 The bank also plans to open 100 new U.S. branches by the end of 2028, subject to regulatory approval.14 It is still under a US$434 billion asset cap imposed after its anti-money-laundering failures, so it has been exiting less profitable portfolios to make room for growth under that limit.14

Analysts responded by raising their targets. One analyst highlighted TD's strong operating leverage and said the bank had reached its medium-term return-on-equity and efficiency targets during the quarter, with room for more through cost and capital improvements. TD's return on equity rose to 16.0%. Earnings-estimate revisions after the results were strongest for TD.8 In our view, this matters more than the size of the beat. It suggests investors are starting to look past the AML penalties and treat TD as a growth stock again.

Why the stocks didn't follow

TD rose on the day, while RBC and CIBC both fell.7 Reports differ on how much. Same-day coverage had RBC down between 1% and 2% and CIBC down between 1% and 3.5%1112, and a later tally put closing moves at about -1.4% for RBC, -2.9% for CIBC and +1.7% for TD.8 National Bank fell more than 4% despite its own beat earlier in the week.8

We read this as a valuation story. Canadian banks were trading at about 15 times forward earnings, their highest valuation since 2010, and had beaten the broader Toronto market.13 Before the results, CIBC was up nearly 29% for the year and TD nearly 25%, and each had gained close to 58% over twelve months. All of them came into the quarter with four straight beats, and consensus estimates had been raised steadily. Even before results, RBC's margin over estimates had been getting smaller, a sign that forecasts were catching up with actual performance.

When beats are already expected, small details decide the stock move. RBC's weak personal banking result counted for more than its record total. Aiken argued that RBC's 17.9% return on equity, above the bank's own target, still justifies its premium valuation.13 One analyst kept a neutral view of RBC because its impaired-loan provision rate came in above both his estimate and the bank's guidance.

What it means for shareholders and borrowers

Shareholders are still getting paid well. RBC bought back about 5.6 million shares for roughly C$1.6 billion in the quarter and kept its CET1 capital ratio at 13.5%.6 It declared a dividend of C$1.76 a share, TD C$1.12 and CIBC C$1.07.15 Consensus forecasts call for earnings growth of about 9% at RBC, 11% at TD and 8% at CIBC from fiscal 2026 to fiscal 2027.8

Borrowers shouldn't expect much from these profits. Consumer-finance coverage warned that strong bank earnings may lead to tighter lending rather than cheaper mortgages or easier credit.16 Profits driven by trading desks and wealth fees do little for households facing tariff-related uncertainty.

The takeaway

The third quarter showed that Canada's big banks can grow earnings through a trade war, mostly because they have built businesses that profit from market activity. That is a real achievement, but it also brings a risk. If deal flow and trading volumes slow, the businesses that carried this quarter could hold earnings back instead. With valuations at a 16-year high, investors are now pricing these banks as if the strong results will continue. Fourth-quarter results, which RBC and its peers typically report in December, will show whether personal banking and credit can take over if capital markets cool.