The last of the big Canadian banks — TD Bank (CA:TD), Royal Bank (CA:RY) and CIBC (CA:CM) — reported earnings on May 25. And it’s clear two themes emerged from the Big 5’s latest round of quarterly results.
Dividend investors got their prized dividend increases and all five reported much higher provisions for credit losses (PCL) in the quarter. So, here we are, halfway through fiscal 2023, and the Canadian banks appear much less attractive to investors despite the healthy dividend increases.
Which of the Big 5 won Q2? Candidly, given the deterioration of the lending environment, demonstrated in both higher loan losses and more restrictive lending practices by the banks, an argument can be made that none won the latest battle for Canadian bank supremacy. Let’s have a bank-by-bank look.
Canadian Banks Quarter-at-a-Glance
| Bank | Dividend Change | PCL, Change from Q2 22 | PCL as %, Change from Q2 22 |
| Bank of Nova Scotia | +3 cents (2.9%) to $1.06/share | $709 million, up from $219 million | 0.35%, up 22 basis points |
| Bank of Montreal | +4 cents (2.8%) to $1.47/shr | $1.02 billion, up from $50 million | 0.42%, up 44 bps |
| CIBC | +2 cents 2.4% to 87 cents/shr | $438 million, up from $303 million | 0.20%, up 5 bps |
| Royal Bank of Canada | +3 cents (2.3%) to $1.35/shr | $600 million, up from minus $342 million | 0.27%, up 33 bps |
| TD Bank | No change at 6 cents/shr | $599 million, up from $27 million | 0.30%, up 27 bps |
Bank of Nova Scotia
Bank of Nova Scotia (CA:BNS) reported its Q2 2023 results on May 24. It increased its dividend by 3 cents (2.9%) to $1.06 a share. Its annualized rate of $4.24 yields a high 6.4%. (All figures in Canadian dollars unless otherwise specified.)
Its PCL number in Q2 2023 was $709 million, up from $219 million a year earlier. Through the first six months of 2023, those provisions were $1.35 billion, up from $441 million a year ago. Its PCL as a percentage of net loans and acceptances was 0.35%, an increase of 22 basis points over the first half of 2022.
Bank of Montreal
Bank of Montreal (CA:BMO) also reported its Q2 2023 results on May 24. It increased its dividend by 4 cents (2.8%) to $1.47 a share. Its annualized rate of $5.88 yields 5.2% at the current share price.
Its PCL in Q2 2023 was $1.02 billion, up from $50 million a year earlier. Through the first six months of 2023, its PCL was $1.24 billion, up from minus $49 million a year ago. Its PCL as a percentage of net loans and acceptances was 0.42%, an increase of 44 basis points over the first half of 2022.
CIBC
CIBC was the third Canadian bank to report its Q2 2023 results on May 25. It increased its dividend by 2 cents (2.4%) to 87 cents a share. Its annualized rate of $3.48 yields 61%.
Its PCL in Q2 2023 was $438 million, up from $303 million a year earlier. Through the first six months of 2023, its PCL was $733 million, up from $378 million a year ago. Its PCL as a percentage of net loans and acceptances was 0.20%, an increase of 5 basis points over the first half of 2022.
Royal Bank of Canada
Royal Bank reported its Q2 2023 results on May 25. It increased its dividend by 3 cents (2.3%) to $1.35 a share. Its annualized rate of $5.40 yields 4.5%.
Its PCL in Q2 2023 was $600 million, up from minus $342 million a year earlier. Through the first six months of 2023, its PCL was $1.13 billion, up from minus $237 million a year ago. Its PCL as a percentage of net loans and acceptances was 0.27%, an increase of 33 basis points over the first half of 2022.
TD Bank
TD reported its Q2 2023 results on May 25. It kept its dividend the same as the previous quarter at 96 cents. However, it raised its dividend by 7 cents (7.9%) with its January payment. Its annualized rate of $3.84 yields 4.9%.
Its PCL in Q2 2023 was $599 million, up from $27 million a year earlier. Through the first six months of 2023, its PCL was $1.29 billion, up from $99 million a year ago. Its PCL as a percentage of net loans and acceptances was 0.30%, an increase of 27 basis points over the first half of 2022.
Verdict on Q2 Results
The Big 5 Canadian banks increased their PCL in the first six months of fiscal 2023 by 808% to $5.74 billion from $632 million in the first half of 2022.
While CIBC is often looked upon as the weakest of Canada’s five largest banks, its PCL as a percentage of its net loans and acceptances is the lowest through the first six months of 2023.
Further, it was the only bank of the five that beat analyst earnings estimates for the quarter. The consensus was that CIBC would earn $1.62 a share in Q2 2023; it actually made $1.70, 8 cents higher. Earnings jumped due to a 6% year-over-year increase in revenue.
When you consider the mess TD has on its hands for pulling out of the First Horizon (US:FHN) acquisition — it paid $225 million to terminate the deal — combined with a 1,202% increase in its PCL through the first six months of 2023, it is clearly not the winner of this quarter.
That award goes to CIBC.
This article originally appeared on Fintel
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