RBC reports $3.2B profit in Q3, beats expectations

“While we are seeing early and encouraging signs of an economic rebound from the depths of March, uncertainty remains over the timing and shape of the recovery,” McKay told financial analysts.

“The real test of the recovery will come once government support programs start to wind down. We anticipate the fall will be a challenging time.”

To help Canadians cope, RBC has approved about 500,000 payment deferrals to customers and put aside $675 million for bad loans in its third quarter, up from $425 million at the same time last year but down from $2.83 billion in the quarter before.

McKay expects most clients will resume making payments as soon as their deferrals expire and said the bank’s risk level from the deferrals has been reduced “significantly” as many clients saw their deferral programs wrap at the end of July.

His comments came as the bank reported a profit of $3.20 billion or $2.20 per diluted share in its third quarter compared with $3.26 billion or $2.22 per diluted share a year earlier.

Revenue totalled $12.92 billion, up from $11.54 billion in the same quarter last year.

On an adjusted basis, RBC says it earned $2.23 per diluted share in its latest quarter compared with an adjusted profit of $2.26 per diluted share a year ago.

Analysts on average had expected an adjusted profit of $1.81 per share, according to financial markets data firm Refinitiv.

The result was bolstered by record earnings in RBC capital markets and solid earnings in insurance.

The bank was helped along by Canadians regaining some of the roughly 3 million jobs lost during the pandemic and credit card holders spending more this July than last year — the first year-over-year positive trend since mid-March.

McKay also noticed strong activity in North American housing markets.

“In Canada, home sales, house prices and housing starts have shown surprising resilience, partly reflecting pent-up demand and low interest rates,” he said.

“We reported very strong mortgage growth of 10% year-over-year, picking up from similarly robust levels at the start of the year.”

Those promising signs were offset by lower results in the bank’s personal and commercial banking, wealth management and investor and treasury services businesses, McKay said.

The bank was also hampered by higher provisions for credit losses and low interest rates, but he insisted that they wouldn’t cause RBC to switch up its long-term strategy.

However, he warned, “While we remain focused on creating the bank of the future, cost management will be an increasing priority as we look to deliver long-term sustainable value.’

Meanwhile, Barclays analyst John Aiken chalked up the quarter as “impressive” in a note he sent to investors.

He told them Barclays was so encouraged by the results that it increased its RBC price target by $2 to $108.

Aiken said, “While the current quarter’s earnings demonstrate what profitability can be like with more moderate provisions, we believe that RY’s conservatism in building reserves early and its diversified platform (less reliant on lending overall than peers) continues to hold it in good stead.”