Earnings season is underway for Canadian banks, and so far, they have been crushing it. TD Bank (TSX:TD)(NYSE:TD), Bank of Nova Scotia (TSX:BNS)(NYSE:BNS), and Royal Bank of Canada (TSX:RY)(NYSE:RY) have all released earnings for Q2, and all of them beat estimates. In fact, according to the Financial Post, all of the Bix Six banks beat estimates in the second quarter. In this article, I’ll take a “deep dive” look at the three just mentioned.
TD Bank beats
TD Bank grew its earnings by 144% year over year in the second quarter. A big boost was expected, because the year-before quarter included some major COVID-19 losses — specifically, losses due to an increase in provisions for credit losses (PCLs). Because of the COVID-19 pandemic, many of TD’s loans were perceived to have become riskier. So, the bank increased its PCLs in response. That resulted in lower earnings. But, over several quarters, the PCLs were lowered, which resulted in earnings rising. Today, TD is making more money than it did in the last quarter before COVID hit. In Q1 2020, TD earned $1.64 per share. In Q2 2021, it earned $1.99. So, even if we compare TD’s recent results to pre-COVID quarters, it was a winner.
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Bank of Nova Scotia: A huge win
Bank of Nova Scotia (Scotiabank) is another Canadian bank that scored a big win in Q2. In the second quarter, it earned $1.88 per share, up from $1 — not as big a year-over-year increase as TD Bank, but still pretty good. The bank’s return on equity (ROE) also improved, going from 8.2% to 14.9%. The bank’s Wealth Management division did particularly well, with a 20% increase in assets under management (AUM). The more a wealth manager’s AUM goes up, the more fees it can collect, so this is one gain that could pay dividends well into the future.
Royal Bank of Canada: Flawless victory
Last but not least, we have Royal Bank of Canada.
Royal Bank of Canada beat expectations in the second quarter, with $4 billion in net income, up $2.5 billion. Net income was also up by $168 million from the prior quarter. Even pre-provision earnings were up 11%, which is very important, because it shows that the bank would have posted positive growth, even with COVID not in the equation. Speaking of which: RY’s earnings are also up 58% year to date, which shows that the bank is rapidly getting past the COVID hump that plagued it last year.
Royal Bank of Canada is Canada’s biggest bank for a reason. With an impeccable track record of stability, it is a solid dividend play that investors can count on. No, it doesn’t have the growth potential of a TD Bank, but it’s a different kind of bank stock; it’s a low-risk dividend play that provides just enough income to be better than most bonds. You won’t get rich buying stocks like RY, but you should enjoy steady, growing income.
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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
Fool contributor Andrew Button owns shares of ROYAL BANK OF CANADA and TORONTO-DOMINION BANK. The Motley Fool recommends BANK OF NOVA SCOTIA.