RBC, TD and CIBC Beat Profit Estimates as Bank Stocks Slip

RBC, TD and CIBC beat estimates, and bank stocks barely moved

Canada's three biggest banks to report on August 27 all beat expectations. Royal Bank of Canada, Toronto-Dominion Bank and Canadian Imperial Bank of Commerce each topped analysts' quarterly profit estimates, and strong results in their capital markets businesses did most of the work.8 Their reports closed the fiscal third-quarter season, which covered the three months ended July 31. All six of the country's largest lenders beat Bay Street's forecasts despite geopolitical tension and the continuing trade dispute between Canada and the United States.82

For investors, the bigger story came after the numbers. Most of the shares did not rally. Several fell, even though every bank cleared the bar. Six weeks later, with the fourth-quarter season coming into view, that gap between record profits and flat or falling share prices is the key to reading the sector.

The numbers: records at RBC, a rebound at TD, steady gains at CIBC

RBC's net income rose 11% from a year earlier to C$6.02 billion, or C$4.23 per diluted share. Return on equity reached 17.9%, up from 17.3%.9 On an adjusted basis the bank earned C$6.1 billion, or C$4.28 a share, also a record.97 Analysts had been looking for roughly C$4.07 to C$4.08 a share, depending on whether the consensus came from Bloomberg or LSEG.28 RBC's capital markets net income climbed 16%, mainly because of higher revenue in corporate and investment banking and global markets. Equity and debt underwriting led the gains.9 One analysis says the bank's role as the only Canadian lender in the SpaceX IPO underwriting syndicate helped that division. Wealth management revenue rose 16% to C$6.41 billion.4

TD's year-over-year growth was the most striking. Net income rose 38% to C$4.62 billion, up from C$3.34 billion. Adjusted earnings of C$2.77 a share beat the consensus of C$2.47.28 Jefferies analyst John Aiken called it the strongest beat of the quarter.8 Wholesale banking drove much of the result. Net income in that division jumped 87% to C$743 million on record revenue and lower provisions for credit losses. Wealth management and insurance earned a record C$841 million, and Canadian personal and commercial banking rose 7% to C$2.10 billion.7 TD also said it plans to open 100 new U.S. branches by the end of 2028, subject to regulatory approval. It is doing this while still fixing gaps in its anti-money-laundering processes in the U.S.2

CIBC's reported profit rose 15% to C$2.41 billion. Adjusted earnings of C$2.73 a share were 20 Canadian cents above the LSEG estimate.28 Adjusted net income rose 26% to C$2.65 billion. Most of the difference from reported earnings came from C$269 million in charges tied to the sale of CIBC Caribbean Bank.7 Credit quality held up. Loan-loss provisions of C$564 million were only slightly higher than a year earlier, helped by a release of reserves on performing loans as the economic outlook improved.7

Not just a capital markets story

The coverage agrees that trading and investment banking powered the season. Volatile markets and a return of IPO activity lifted trading revenue across the group.4 Capital markets also helped drive the beats at Scotiabank and National Bank.1

That explanation fits RBC and TD best, though, and it is only part of the picture at CIBC. CIBC's Canadian personal and business banking segment earned C$948 million, up 17%, on loan growth and wider net interest margins.7 That is real strength in core domestic lending, while other banks were quieter on that front. At RBC, one portfolio manager described the Canadian personal banking segment as "a little bit light." His firm, First Avenue Investment Counsel, trimmed its holdings in RBC, TD and BMO because of valuation concerns.4 CIBC's quarter was therefore better balanced than its peers' quarters, even though its adjusted beat was smaller than TD's.

Beat the estimates, sold the news

The share-price reaction is where the coverage differs most. One compilation of post-earnings moves shows TD gaining about 1.65% after its 13.1% beat. RBC slipped 1.37% even though it beat on both earnings and revenue, and CIBC fell 2.89% despite a 9.2% beat.3 A separate analysis of RBC counted a 1.3% drop over the event window, or about 1.9% after adjusting for the broader market. It found a further 0.6% decline over the following 20 sessions.13 At least one outlet described CIBC's share price as rising alongside its double-digit growth.10 Most of the reporting does not support that: one same-day report said CIBC stock was down about 2% shortly after the open.7 The weight of evidence says the market sold CIBC on the news.

Our reading is that the reaction reflects what had already happened to prices. In the week before the reports, CIBC was up nearly 29% for the year and almost 59% over 12 months. TD was up about 25% for the year and RBC about 21%, and all three had already pulled back roughly 6% in the days before earnings.5 All six banks went into the season with four straight quarterly beats, and consensus estimates had been raised steadily.5 The size of RBC's beats had also been shrinking, which suggests analysts had caught up with the bank's real earning power.5 When investors expect a beat, a beat by itself does not lift the stock. What surprises them is how large it is and what drove it. TD had both: an outsized beat and a turnaround story. RBC and CIBC mostly did not.

Capital, returns and the case for a premium

The banks' balance sheets give them room to manoeuvre. RBC ended the quarter with a CET1 capital ratio of 13.5% and returned C$4.0 billion to shareholders through dividends and buybacks. CIBC's CET1 ratio was 13.4%.7 Aiken said RBC's 17.9% return on equity, which beat the bank's own target, justified its valuation premium again.8 Speaking at a Barclays conference in September, RBC executive Katherine Gibson said year-to-date ROE of 17.6% compares with 16.7% in 2025 and 15.5% in 2024. She said the medium-term goal of above 17% is not a ceiling.17 She also said that after the Office of the Superintendent of Financial Institutions cut the domestic stability buffer, RBC is comfortable running a CET1 ratio between 12.5% and 13.5% but does not plan to reduce capital quickly.17

Analysts responded by raising their numbers. After the reports, TD had the strongest upward revision to its earnings estimates at 4.6%, while CIBC's barely moved at 0.2%.3 Consensus forward estimates imply earnings-per-share growth of about 11% for TD in fiscal 2027, about 9% for RBC and nearly 8% for CIBC.3 Price targets followed. RBC Capital raised its TD target to C$173 from C$156, and Scotiabank raised its target to C$187.11

Risks for the next quarter

The main risk is that conditions that helped the third quarter may not last. Management commentary and analysts have flagged tariffs, high bond yields, geopolitical tension and credit provisions as material risks for RBC.13 TD's chief financial officer, Kelvin Tran, called the tariff situation "still quite fluid."4 Gibson said tariffs are hurting certain sectors and regions, and that growth has slowed in commercial real estate, which makes up about 40% of RBC's commercial book.17 For CIBC, the biggest risk is that rising delinquencies in Canadian housing push up credit losses and squeeze margins.16

The wider environment has also changed since August. U.S. bank results this week describe oil prices driven higher by conflict involving Iran, rising inflation and a Federal Reserve that is raising interest rates. Bond markets have sold off sharply as a result.15 Citigroup beat estimates but said investment banking revenue fell 13% from the previous quarter as underwriting slowed. Trading revenue was also lower than in the second quarter.1519 Higher rates are not all bad for Canadian lenders: RBC estimates that a 25-basis-point rise in short-term rates would add about C$35 million a year to net interest income.17 Still, the capital markets activity that powered the August beats is the line most exposed to a slowdown in deals.

Analysis: a strong quarter with less room for upside

RBC, TD and CIBC delivered a strong quarter, but it was expensive to own. The earnings were real and broad. Returns on equity are rising, capital ratios are comfortable and credit losses stayed under control. But a rally of 20% to 30% this year had already priced in much of that strength. The muted reaction says investors now treat beats as normal and are starting to question how long a trading-driven profit surge can last.

That sets a higher bar for the fourth quarter. CIBC is scheduled to report on December 3.14 Investors are likely to focus less on whether the banks beat again and more on whether domestic lending, wealth fees and credit quality can replace slowing investment banking revenue. Based on the third quarter, TD has the clearest upward momentum in estimates and RBC the strongest return on equity. CIBC has the most balanced core business, but its shares are the most exposed if the Canadian housing market weakens.