Before I get started, I just want to mention that I will be rolling out the new platform this week, probably in the next few days. The website will likely be down for the day, so if you see it’s down, it means amazing things are coming.
It’s that time of year again. Canadian bank earnings.
If you keep a keen eye on this sector, which I imagine most do with how popular the banks are, you’ll probably notice one thing:
The banks reported outstanding quarters, but most of them fell in price post-earnings.
If you’ll remember the last earnings overview I did, I mentioned how large and likely unsustainable the Capital Markets segment was for banking results. We saw some “weakness” in this regard this quarter, and I put weakness in quotations because it was far from weak. It was just not as high of growth as its been.
Let’s just get right into it and go over each of the Big 6 Bank earnings, and then I’ll dive into some important sector-wide KPIs.
Of note, I’ve focused a lot on provisions for credit losses over the last few years. In this newsletter, I won’t talk too much about it, as the consensus is they’re all stabilizing. There’s not much to talk about anymore, which is a good thing.
RBC Earnings
RBC posted record earnings, up 14% to $4.08. This beat estimates of $3.85 by nearly 6%.
However, the stock took a hit on earnings day. What investors can take from this is that Royal was priced to perfection, as I have mentioned before. It needed to smash this quarter out of the park to satisfy the market.
It’s also important to know that, as long-term investors, we don’t care when these situations arise. Great earnings, but the market expected more. Oh well, we are holding for the next decade anyway, who cares! If you look at a chart of Royal Bank’s earnings over the last 3 years or so, it’s an investor’s dream. Up and to the right.
Revenue hit $18 billion, coming in well ahead of expectations and also a record.
The one thing that continues to impress me with Royal is its Personal & Commercial Banking. This is the largest bank in the country, a blue-chip giant, and it’s still growing the fastest in this area. Single-digit growth in volumes and deposits, mid-teens growth in net income, and net interest margins expanding. It truly is unbelievable that they’ve been able to post these results in a generally poor economy.
Commercial Banking profits increased 11% from last year. Loan growth came in at 4%, and deposits grew 5%. Small businesses saw an uptick in activity, which is always a good sign. Although it’s a small portion of the loan book, you like to see it.
Capital Markets posted $1.5 billion in net income, up 3% year-over-year. If you remember last year, capital markets growth was through the roof. It is now slowing down, and is one of the reasons I think the market reacted poorly.
RBC bought back $3.3 billion in shares, and its return on equity hit 17.6%, the highest among the Big 6.
My overall thoughts on Royal
Outstanding quarter from a company that was a bit too pricey. If we look at the chart below, P/E’s had just gotten ahead of themselves. I’m still a huge fan of Royal and own it, but I haven’t added to the company for a couple of years now, for this exact reason.
National Bank Earnings
National was starting to spook me a bit in terms of results. It didn’t really have the best back half of 2025. However, this recent quarter alleviated my concerns. It’s right back on track with outstanding growth. Please look at the chart below and compare it with many of the earnings charts in this newsletter. What you will notice is that National’s is a lot “smoother”. Smaller and fewer bumps. This is a good sign.
Revenue grew by 20%+ and earnings by 11%. However, there is a caveat here.
The Canadian Western Bank acquisition drove much of this. I am starting to believe the company sandbagged (gave lower predictions than they knew would happen) the Canadian Western acquisition. At this point, it is contributing significantly higher synergies than expected, and the market is liking it.
If you’ll remember, when National first bought CWB and issued the guidance, the market didn’t like it, which gives me another indication that they might have sandbagged it.
Personal loans rose 11%, commercial loans increased 12%, and the P&C segment grew by 7%. Arguably, the most important element of the quarter was that its three consecutive-quarter decline in net interest margins has finally reversed, with a 5-basis-point bump bringing NIMs back to levels seen a year ago.
It is fairly clear National believes the worst is over economically. It bumped its ROE guidance and ramped up its share buyback program, enabling it to buy 80%~ more shares than originally.
My overall thoughts on National
This is probably one of my favourite banks in the country right now. Although I’m also a big fan of Royal, it is not nimble enough to do what National is doing. From the CWB acquisition to its purchase of a portion of Laurentian’s loan book, the company is still small enough to deliver outsized growth. It was a great rebound quarter, and I’m expecting more to come.
TD Bank Earnings
TD Bank’s Q1 earnings came in strong. I have to admit, the company is navigating the AML issues well.
The 20% increase in adjusted earnings per share is a big rebound, driven by stabilization of the U.S. segment and record-breaking performance in Canadian retail. The Canadian banks are killing it in Canada, there is no doubt.
You can see the crater the AML issues left in TD’s earnings in the chart below. We’re now back on track.
Management’s guidance on credit losses gives me the feeling that they believe the credit cycle is normalizing rather than deteriorating. However, I do believe we are teetering here, and if the macro environment gets worse or the global conflict causes inflation to creep back up, this could change.
As mentioned, the Canadian segment is outstanding. Revenue came in at record levels. Interestingly, credit cards fueled significant growth this quarter, with some of the highest levels of new cards and balances we’ve seen in a while.
The US used to be TD’s bread and butter. However, as shown in the chart below, since the AML issue, the Canadian retail side has become dominant.
That’s not to say US business is poor. Its retail banking segment saw net income jump 21%. I have no doubt this figure is somewhat bloated by the one-off AML-related cost the bank was dealing with, but it’s still solid growth. While governance costs related to the new US AML program will continue to drag on US profits and growth, the progress made is a clear signal that TD is moving past its most significant issues.
My overall thoughts on TD
TD is doing well, all things considered. Returns on equity are improving, and fine impacts are subsiding. The only difficulty we now have is determining when regulators will remove the asset cap. At some point, that will hamper the company’s ability to grow.
It’s still a bank I pass on for now, as I’m a larger fan of Royal and National. However, it was a solid quarter.
Scotiabank Earnings
The Bank of Nova Scotia has put together a string of relatively solid quarters after years of underperformance. However, the bank still struggles to get all its segments working together. While the most recent results were strong relative to analyst estimates, Scotiabank has been playing catch-up for years against the Big 6 and continues to do so.
One of the big bright spots Scotia had mentioned was the return on equity, which climbed 120 basis points to 13%.
This is all good, but there’s an issue here. It still lags significantly behind the operational efficiency of Royal Bank or National Bank, which are in the 16-17% range.
This performance gap is reflected in the bank’s valuation. Because price-to-book multiples are closely correlated with ROE in the banking sector, Scotiabank trades at 1.4x book value, whereas a top performer like Royal Bank trades at 2.2x. If you see two banks with differing P/B multiples, it’s almost always ROE that explains the difference.
Look at the chart below and see how closely intertwined ROE and P/B are.
What does this mean? Well, if Scotia can continue to improve ROE and P/B, the stock price should follow.
Although Canadian banking revenue and earnings rose by 3% and 5%, the underlying loan and deposit data suggest that growth is slowing. Total loans grew by 3%, but the mortgage book almost entirely drove this, while personal and business lending actually shrank by 1%. Even more worrying is a 2% decline in deposits. Its international segment wasn’t really any better.
This is the one bank where I’ll speak on PCLs/ACLs. The bank will show a reduction in total Allowances For Credit Losses, indicating an improvement. However, the bulk of the reduction was simply them getting rid of bad loans on the international side. Approximately $500 million of the $600 million decline in allowances was tied directly to divestitures. When you strip these out, their ACLs actually went up.
My overall thoughts on Scotia
I’m still not a fan of this bank. However, it’s been on a reasonable price run. But this is also because it was working off a much weaker base. It’s fairly easy to have a 40% year when your previous 7 years were flat.
I’d view this as the weakest of the Big 6 Banks overall. Still a quality company, just doesn’t compete with the other 5.
BMO Earnings
BMO posted solid Q1 2026 results. The bank had a rough period 18-24 months ago, but that all seems to be in the past. Earnings per share of $3.48 was up more than 12% compared to last year.
The return on equity also stands out here. ROE hit 12.4%, which is up 1.1% YoY. Some might say I was overly critical of BNS’s low Return on Equity and think I might be being unfair here, praising BMO for recovering its Return on Equity. The difference is that BMO has shown strong performance in the past, Scotia hasn’t for 7+ years. So, I’m a bit more confident in a recovery back to the mid-teens over a bank like Scotia.
Another reason I’m a bit more confident in a recovery is that provisions for credit losses dropped to $746 million from $1.0 billion in the first quarter of last year. At the same time, most banks have stabilized their provisions. BMO is slashing them.
When I spoke about Scotia, I said it struggled to get all segments rolling. BMO is not in the same situation. In fact, all segments are firing on all cylinders.
Canadian P&C is the same as all the other banks (except Scotia). Deposit growth held steady in both Canada and the US. US banking increased by 13%. However, large currency swings took away most of this.
My overall thoughts on BMO
Strong recovery for this one. I like the bank. Yes, I did decide to move on from it when it started reporting its higher provisions a few years ago, but this would be one I have no problem owning again. Would I now that I own National/Royal? Probably not, but if it got undeniably cheap here, I’d be a buyer.
CIBC Earnings
I will admit, CIBC was the bank I was hardest on for many years. Not because management was doing anything wrong or anything. But mostly because it just had way too much Canadian exposure. That Canadian exposure, all while avoiding many of the international issues that plagued banks like Scotia and BMO, has allowed CIBC to crush it.
Earnings are up 25%, the fastest pace of all Big 6 Banks.
Revenue climbed 15% to $8.4 billion. It is hard not to see real operating leverage here.
ROE came in at 17.4%, up from the mid-15 % range last year. For a bank with this large of mortgage exposure, this is exceptional. CIBC now has the second-highest ROE out of all the major banks, and it’s coming up Royal Bank’s rear view mirror, and fast.
If you look at the chart below, you can see why this company struggled so much in the years leading up to the pandemic. Persistently declining ROEs. However, 2023 might have been rock bottom, and we could continue to head up from there. If you’re confused as to why the ROE is only 14.5%, it is reported numbers, not adjusted numbers. But it paints the same picture.
Loan growth was steady. Personal and business banking saw volume increases, while commercial banking benefited from both volume and margin expansion. Net interest margins are growing.
Credit quality held up. Provisions for credit losses were down slightly from last year, and the PCL ratio stayed manageable even as the loan book grew. Canadian consumer health isn’t deteriorating as fast as some feared.
Another interesting element is that while many of the major banks saw Capital Markets slow, CIBC did not. Net income jumped 42%.
Virtually everything is going right for this bank right now.
My overall thoughts on CIBC
Outstanding run for this bank, I have to give it to them. I start to wonder how long it can go on for. Realistically, if Canadian consumer lending continues to be strong and this company can pivot into more aggressive international growth, there is still room for potential growth here.
The international pivot is key. They’ve got a solid footprint in Canada, but at some point that will return to normalized growth. For a very long time, this was a “meh” bank for me. I’ve changed my tune. It’s top quality, just a bit too over-exposed to Canada for me to own.
My ranking of the banks from best to worst this quarter
I know members like this, so I’ll do it again. I wouldn’t say any bank had a “bad” quarter, but here are my rankings:
- CIBC
- National Bank
- Royal Bank
- TD Bank
- Bank of Montreal
- Scotiabank
Trends I’m Seeing
Mortgage growth was sluggish everywhere. BMO mentioned they will likely see low-single-digit loan growth heading into 2026. Not shocking, really, given unemployment around seven percent and borrowers renewing mortgages at rates much higher than they locked in years ago.
Consumer credit quality is slipping in spots. RBC’s chief risk officer flagged higher retail losses through 2026. CIBC and TD echoed similar concerns, especially in the Greater Toronto Area, where affordability is rough.
Small business lending is flat. RBC saw some reasonable growth, but on a very small base. The economy is ugly on this front right now, there is no doubt.
The one thing I find interesting is that no bank is pulling ahead or falling behind in a meaningful way.
Tariffs, energy prices because of the global conflict, and the AI rollout are absolutely key to watch in 2026.
Valuation Comparison: Are the Big 6 Cheap or Expensive?
Right now, the Big Six trade at forward P/Es of around 12.9. That is not only not “cheap”, it’s bordering on expensive.
Back in March 2024, banks traded at roughly 11 times forward earnings.
Just to give you an idea (and a sneak peek at the new platform releasing in a few days), here is a “Valuation Zone” chart of Royal Bank. Green is undervalued, yellow is fair value, and red is overvalued.
This is the most expensive banks have been in years.
Return on equity targets matter here, and the banks need to hit them because they’re priced in. Both National Bank and BMO raised their ROE targets after strong quarters.
In my opinion, banks are set-and-forget. Put them into a dollar-cost averaging routine and get on with your day. However, we’re a tad pricey right now.
