It’s time for one of my most popular newsletters on the platform. Bank stock earnings.
This one is typically a long one, so I’m just going to dive right into it.
It was an exceptional quarter from the banks. Every one of them beat what analysts expected.
Five of the six grew their profits by 20% or more. They set records across a wide variety of business segments. So, why are most of the big banks down post-earnings?
I do want to be honest here. A big chunk of that “growth” is really just an accounting mirage, and I will explain why.
First, let’s do a quick plain-English rundown of how each bank did. Then I’ll walk through the handful of key performance indicators for the banks, grouped by theme, so you can see who genuinely did well and who struggled.
Of note, all of the earnings throughout this report are their adjusted earnings, factoring in things like acquisitions, etc. These might differ from headline numbers or reported figures. They are the more accurate numbers to use.
The Banks’ Quarters
Royal Bank (RY)
Royal is the gold standard, there is no doubt.
Earnings came to $3.90 per share, up 25%, and the bank returned $4 billion to shareholders through dividends and share buybacks while hiking its dividend 7%.
Its trading and wealth-management arms did most of the work. The only complaint is the stock. It was already sitting at a record high going into the report and barely moved afterward.
As I’ve mentioned previously, the banks are priced to perfection. When a near-flawless quarter gets a shrug from the market, this is confirmation of that opinion.
TD Bank (TD)
TD’s reported profit looks like it cratered, but that’s only because a year ago it booked a giant one-time gain from selling its stake in US brokerage Charles Schwab.
Ignore that, and underlying profit per share actually grew 21%, with record results in Canadian banking and wealth management. The problem is south of the border, where regulators have legally capped how big TD’s US business can grow, as punishment for the bank’s money-laundering failures.
That business is frozen. TD is a strong bank with a pair of handcuffs on right now. Yes, they can continue to sell off US assets to create a buffer, but it will likely remain one of the cheaper Canadian banks until that cap is removed.
National Bank (NA)
Headline profits grew 41%, which is exactly why I mentioned at the start of the newsletter I’ll be using adjusted figures. The huge bump was entirely because last year’s results were dragged down by costs from buying Canadian Western Bank. The honest figure is profit up 13%, still a good quarter.
The Canadian Western takeover is now fully absorbed and paying off faster than promised, and National runs leaner than any of its rivals. The stock fell about 3% after earnings.
This one is in a similar situation as Royal. Valuations were trading significantly above historical averages. These two banks needed blowout quarters to see positive reactions, and they didn’t get them.
BMO (BMO)
BMO is seeing a fairly nice recovery and is a turnaround play in motion. Profits jumped 40% and total profit hit a record, but the real indicator here, and the one the market was looking for, was a stabilization in bad loans.
Loans the bank had flagged as worrisome dropped 20% from a year ago, and newly booked bad loans fell by 30%. The bad-loan problem that hammered BMO for two years is clearly fading.
Its returns are still the weakest of the group, but they’re climbing fast. I would argue that this one has the most room for improvement moving forward.
CIBC (CM)
Quietly the cleanest quarter of the bunch, and the market hammered the stock.
Earnings increased 24%, and unlike most of its peers, that growth is real rather than an accounting change. Adjusted figures came in at virtually the exact level of reported figures.
Its lending profitability widened, its capital cushion grew, and the US commercial-property loans that really hurt its reputation a couple of years ago are now a tailwind. It’s also selling its Caribbean operations for US$1.6 billion to simplify the business.
This company was a real turnaround play, but I would argue that turnaround is finished. It now needs to execute, as valuations are significantly above what the market has historically paid for this heavy Canadian-focused bank.
Scotiabank (BNS)
The recovery is working, but with so many years of underperformance, the market still seems to have a “show me” approach with regard to Scotia. I personally expected the stock to move further upwards after a quarter like this, but it didn’t.
Canadian banking profits are growing at a 20%+ pace, wealth management is booming, and lending margins widened. Management even moved up its profitability target by a year.
But it still has the riskiest loan book of the six, and its strategic pivot toward the US is not really moving all that fast.
Ranking the banks based on their quarters
Keep in mind, these are not necessarily what I feel are the “best banks”, I’m simply ranking them below based on the quarters they had.
- CIBC – The cleanest quarter of the six: 24% profit growth that didn’t have numerous adjustments and the widest margin expansion. Market punished the stock.
- RBC – The best bank doing best-bank things, with the highest profitability and biggest capital return. The market was relatively neutral on the quarter, with the stock staying flat.
- National Bank – Strong quarter with real growth, the leanest costs in the group, and the Canadian Western deal paying off early. The stock is held back by a high valuation.
- BMO – The flashiest growth on an absolute basis, but the quarter only looked big because Q2 2025 was so poor. This is a solid option right now for those looking for a contrarian bank.
- TD – Records in three of four businesses, but its biggest engine (US) is frozen under the regulatory cap and a lot of its per-share growth came from buybacks rather than the business. It needs that cap removed.
- Scotiabank – A good Canadian banking result, however it has the lowest profitability of the six and was the only bank with rising bad-loan costs while every peer saw relief.
The catch: Most of this “growth” is borrowed from last year
Most investors will be confused as to why pretty much all the banks fell this quarter, some of them drastically (CIBC by ~5%.)
When you see National Bank up 41%, BMO up 40%, or Scotiabank up 33%, the natural assumption is that these businesses are on fire and share prices should go upwards.
However, it is mostly a mirage. Here’s what happened.
A year ago, the banks were bracing for a tariff-driven recession that never really came. Banks prepare for trouble by setting aside money to cover loans they fear might go bad. These are provisions for credit losses.
Think of it as a household padding its emergency fund because it’s worried about a layoff. A year ago they padded that fund enormously. This year, with the worries generally fading, they barely added to it, and in some cases pulled money back out.
RBC set aside $568 million against potentially troubled loans a year ago; this quarter, just $18 million. BMO went from $289 million to $5 million.
Provisions come out of earnings. So, these reserves made earnings much worse in Q2 of 2025, and now that year over year comparison is making earnings look much better.
The best way to measure these banks is what they earn before any of that rainy-day money and before taxes. They call this PPPT, or Pre-Provision, Pre-Tax earnings. On that basis, RBC grew 15%, BMO 16%, CIBC 19%. Strong, but just a long way from the headline numbers.
CIBC is the differentiator here, whose rainy-day fund was basically unchanged from last year, so its 24% headline growth is a true reflection.
The takeaway for the whole season: trust the adjusted numbers, ignore the eye-popping reported ones, and you’ll see the sector grew solidly, not spectacularly.
With valuations where they are right now, it likely just wasn’t good enough.
Bank Profitability: RBC and CIBC dominate
In general, find the highest return on equity and you’ll find your most expensive/highest quality bank. That’s the percentage of profit a bank squeezes out of every dollar of shareholders’ money. The higher the number, the harder the bank is using your shareholder capital. Anything in the mid-teens is excellent for a big bank.
RBC led at 17.4%. CIBC came in right behind at 16.4%, which would have sounded far-fetched a few years ago for the bank everyone wrote off as the low-return runt of the litter. I will be the first to admit, I was dead wrong on CIBC. It’s done exceptionally well. National Bank held 16.8%, helped by being the most cost-efficient of the six.
At the back sit BMO at 13.5% and Scotiabank at 13.2%. BMO’s returns are held down because its US arm earns too little and because it’s only now climbing out of its bad-loan hole.
Scotiabank’s are dragged down by its riskier international business, and have been for years. The thing both have going for them is momentum. ROEs are improving, and they do both have projections to get to 15%+.
So the laggards are really the comeback stories. The question for each is whether you believe the trend continues.
I tend to lean more towards BMO here as the turnaround play. Scotia just has a lot to prove for me in order to give it a vote of confidence again.
Lending margins: CIBC and Scotia widened the spread, National slipped
The core of how a bank makes money is the gap between what it earns lending money out and what it pays you to keep your deposits with it. This is called the Net Interest Margin. It’s essentially the bank’s markup, and a wider gap means more profit on the same loans. In a quarter where most banks were just trying to hold Net Interest Margins (NIM) steady, two pushed them higher.
CIBC was the standout, widening its markup meaningfully on better loan and deposit pricing, and this is exclusively why we saw strong results. Scotiabank wasn’t far behind, helped by cheaper funding costs in Latin America. RBC and TD increased a bit, but not at the level of BNS or CIBC.
The one that went backwards was National Bank, whose NIMS slipped. In addition to this, management did note there could be more softness ahead.
Some of that was a one-off, but it’s a reminder that National’s strong quarter leaned more on growing loan volumes and fees than on the markup itself.
I’m not overly concerned with this from National. They’ve posted quarters like this before, and it ends up being nothing more than a one-off.
Provisions for credit losses: Scotiabank the standout, and not in a good way
Provisions are typically where you can spot the trouble with a bank, and despite how good earnings are, if provisions are ever higher than the market expects, or in the case of BMO a few years ago way above consensus, the stock will tank. Fortunately, not much to report on the provision front. It was a fairly calm quarter.
In fact, most of the banks reduced provisions. All except for Scotia and CIBC. I’ll explain why Scotia is a bigger problem than CIBC.
CIBC has the smallest pile of already-gone-bad loans in the group, and the trouble it does have has shifted away from US office buildings (its old nemesis in my opinion) toward ordinary Canadian borrowers. So, the small increase in provisions doesn’t bother me. Scotia has a high allocation to provisions, while CIBC does not. CIBC has the larger buffer here.
I will say, BMO showed the most encouraging trend, and it looks like its US commercial real estate situation is under control for now.
The exception, as mentioned, is Scotiabank, but it’s still not anything to be alarmed about. It sets aside the most for bad loans of any of the six, and was the only bank to report a sequential (compared to last quarter) increase in provisions.
Part of the jump was a single large Brazilian borrower going bad, which should be a one-off. But the broader reality is that Scotia’s international lending simply carries more risk than a Canadian-based rival, and management expects its bad-loan costs to stay elevated for the rest of the year.
Capital markets and wealth management are soaring, but is it sustainable?
A lot of this quarter’s strength came from two segments that will likely be unable to sustain this momentum over the long term.
The banks’ trading-and-dealmaking arms posted huge gains, up 47% at BMO and 40% at CIBC, riding some of the craziest market activity we’ve ever witnessed. Wealth management was nearly as strong everywhere, because rising stock markets automatically lift the fees these banks earn on the bigger pile of client money they manage.
Some of the banks openly admitted there will be a cooling in the back half of the year in terms of capital markets. It is simply unsustainable.
The dependable segments, everyday Canadian banking and commercial lending, grew at a steadier pace. The large-scale growth came from the parts of the business that rise and fall with the markets. So when you think about next year, focus more on the banking side of things, and less on the capital markets.
Valuations: Which banks actually provide value right now?
In my opinion, the best valuation metric for a bank is the price-to-book multiple. Book value is roughly what the bank would be worth if you added up everything it owns and subtracted what it owes. A stock at two times book costs you twice that underlying net worth. The Big 6 trade at a very wide range. But when you dig into the underlying numbers, it’s almost always the return on equity that drives the higher valuations.
At the expensive end, RBC trades at about 2.8 times book, with CIBC and National around 2.5 to 2.6. You’re paying full price for proven quality, and the “meh” reactions to good quarters tell you the market has already paid up. These three are nowhere near “bargain” territory.
Then, there are the comeback stories. Scotiabank trades at just 1.8 times book and pays a 4.1% dividend, the lowest price and largest dividend, precisely because it has the weakest returns and riskiest loans.
TD is cheaper still, with its entire discount explained by that US asset cap. Until they can get that removed, I think the bank will trade at a discount to peers.
The best value right now, in my opinion, might lie in BMO. The company doesn’t have all that much holding it back, unlike Scotia with a lagging international segment and TD with the asset cap. Sure, it’s more expensive than these two, but it also has ample room to grow if its US commercial side of things is figured out for good.
I do not own BMO nor will I own it as I already have National and Royal. But if you were to ask me which one I’d buy today if I had to buy a bank, I like the setup here for BMO.
Wrapping it up
In my opinion, the best quarters belonged to CIBC and RBC, but their stocks already reflect it. The interesting money is at the other end. BMO is the recovery I’d be looking to buy, because its PCL improvement is noticeable.
The whole sector had a good quarter. But a good quarter and a good stock aren’t the same thing. The banks that posted the best numbers are the ones you already pay up for. The better deal sits with the ones still carrying something the market dislikes. In this instance, I like BMO the most.
Would I personally buy it? No. I’m already fully allocated to banks with National and Royal. But, it does look attractive if the story continues.
