Canada's biggest banks wrapped up another solid quarter of better-than-expected results, shrugging off hefty writedowns and worries about the domestic housing market with robust growth beyond the country's borders.
TD, the last of the big banks to report its results, said Thursday it earned $2.353 billion for the period ended Jan. 31, marking a seven per cent drop from the same period in 2017.
But after adjusting for one-time items, TD Bank reported adjusted diluted earnings of $2.946 billion or $1.56 per share, a 15 per cent jump from the previous year, beating expectations.
Collectively, the five biggest banks including Royal Bank of Canada, TD Bank, Bank of Montreal, Scotiabank and the Canadian Imperial Bank of Commerce, earned more than $10-billion for the three-month period. That marks a 4.4 per cent drop from roughly $10.46 billion in the first quarter of 2017.
Earnings for lenders with a U.S. footprint this quarter were hit by one-time charges to adjust for a major U.S. corporate tax cut, which took effect Jan. 1.
Yet, Canada's largest financial institutions still exceeded analyst estimates, fuelled by their international operations.
On an adjusted basis to remove one-time items such as the tax charge, Canada's biggest lenders earned roughly $11.3 billion, up approximately 12.59 per cent from a year ago
"You're really seeing nice contribution coming from outside of Canada," said Shannon Stemm, an analyst with Edward Jones, based in St. Louis.
Scotiabank, which has focused its international expansion efforts on Latin America, reported net income of $667 million from its international banking division, marking a 16 per cent year-on-year increase.
TD, one of the 10 biggest banks in the U.S., on Thursday reported a 19 per cent increase in net income to $952 million from its retail banking arm south of the border.
BMO's U.S. personal and commercial banking division reported net income of $310 million, up 24 per cent from a year earlier. Meanwhile CIBC, which purchased Chicago-based PrivateBancorp last summer, reported $134 million in profits, up roughly 362 per cent from the first quarter in 2017.
RBC posted double-digit growth in their wealth management and capital markets divisions, helped by the U.S. corporate tax cut. Los Angeles-based City National, acquired by RBC in 2015, contributed US$114 million in net income in the latest quarter, more than double compared to a year ago.
Meanwhile, in Canada, amid heightened worries over new, stricter underwriting rules for mortgages, the banks' domestic businesses remained strong.
TD's domestic earnings were $1.76 billion in the first quarter, up 12 per cent from a year earlier. The other four lenders posted year-over-year first-quarter profit growth in their Canadian businesses ranging between nine and 19 per cent.
The banks' mortgage portfolios this quarter saw little impact from the federal financial regulator's new underwriting rules for uninsured mortgages, as of Jan. 1.
Under the new rules, would-be homebuyers with a downpayment of 20 per cent or larger must prove they can make their mortgage payments if interest rates rise. In general, the banks signalled it was too early to tell what impact these rules have had thus far, expect the additional requirements to pose a headwind in the quarters to come.
"The Canadian operations remain solid," said John Aiken, an analyst with Barclays in Toronto. "We've got steady cash and capital generation from that. But we're starting to see signs that the strong run may be starting to ease."
The banks reaped the benefits of a strong Canadian economy in 2017.
But the projected bump from President Donald Trump's tax reforms are expected to help compensate the banks with even bigger future profits south of the border due to tax savings and increased economic activity.
Scotiabank doesn't have a significant retail banking presence in the U.S., but its chief executive Brian Porter said this week he is optimistic that the markets of Peru, Chile, Colombia and Mexico will still experience positive knock-on effects.
RBC said this week it is expecting a benefit of roughly $250 million annually, while TD said it is anticipating a full-year benefit of US$225 million.
"The macro environment in Canada and the U.S. remains supportive and developments over the past quarter have provided us with additional upside," TD chief executive Bharat Masrani said on a conference call discussing its results.
"While there are risks on the horizon, if these positive conditions persist, adjusted earnings growth for the full year may exceed our medium-term targets."
One such risk that does cloud the outlook is the potential dismantling of the North American Free Trade Agreement, as the latest round of strained talks commenced this week.
RBC chief executive David McKay said this week that concern over the trade deal is weighing on its commercial customers' longer term investment decisions.