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Royal Bank of Canada (RY-T) and Toronto-Dominion Bank (TD-T) both handily beat quarterly profit expectations on Thursday—sending their shares sharply higher—as a strong economy supported loan growth and investment banking operations,
The results from Canada's two biggest banks followed impressive results from other Canadian lenders over the past two weeks, and confounded predictions that consumer lending was drying up.
TD also raised its quarterly dividend by 8.2 percent, becoming the first of the Canada's big five banks to do so since the financial crisis.
"We're seeing underlying earnings growth which is a lot stronger than what I believe the market had been anticipating," said John Aiken, analyst at Barclays Capital in Toronto.
Canada's banks weathered the financial crisis in relatively good shape due to conservative lending practices. Unlike many U.S. and European banks, no Canadian lenders required a government bailout.
Their results reflect a surge in Canadian economic growth in the fourth quarter of last year.
"We're still seeing good (loan) growth, not at the double-digit level that we saw in 2010, but certainly still quite strong," Colleen Johnston, TD's Chief Financial Officer, told Reuters.
She said, however, that the bank had begun to see a slowdown in mortgage lending during the quarter to December 31, the first quarter of the banks' fiscal year.
PROFITS BEAT EXPECTATIONS
The banks' core Canadian personal and commercial banking operations underpinned profit growth as consumers continued to borrow despite concerns about high debt levels and the threat of rising interest rates.
The U.S. divisions of both banks also contributed to the jump, particularly at RBC, whose international division turned a quarterly profit for the first time in nearly three years.
Provisions for bad loans, which have steadily declined since the financial crisis, shrank further during the quarter, padding the bottom line of both lenders.
Adjusted profit at RBC, Canada's biggest bank, was $1.26 a share, easily topping the profit of $1.01 a share expected by analysts polled by Thomson Reuters I/B/E/S.
On a net basis, RBC earned a record $1.84 billion, or $1.24 a share, up from $1.50 billion, or $1.00 a share, a year earlier.
Canadian personal and commercial banking income at RBC rose 14 percent to $882 million, investment banking profit climbed 7 percent to $613 million, and international banking turned a profit of $24 million, compared with a loss of $57 million last year.
TD HIKES DIVIDEND
TD, Canada's No. 2 bank, earned $1.54 billion, or $1.69 a share, up from $1.30 billion, or $1.44 a share.
Excluding items, the bank earned $1.74 a share, well ahead of analysts' expectations of a profit of $1.55 a share.
TD raised its quarterly payout to 66 cents a share from 61 cents a share.
Canadian personal and commercial banking income jumped 26 percent to $905 million, while TD's U.S. retail bank, which covers much of the U.S. East Coast and boasts more branches than the bank's Canadian franchise, earned $319 million US, up 85 percent on the year.
Wholesale banking income fell 36 percent to $237 million, but that result topped expectations as the year-before result was padded by investment gains from exiting businesses following the financial crisis.