Shares of Royal Bank of Canada hit new all-time highs on Wednesday after Canada’s largest lender reported higher profits and beat analysts’ expectation in its fiscal third quarter, the first full quarter since it completed the purchase of HSBC Holdings PLC’s Canadian business.

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The Toronto-based bank reported adjusted net income of $4.7 billion for the three-month period that ended on July 31, up 18 per cent from the same period last year. Adjusted earnings per share were $3.26, up 15 per cent year over year, beating consensus expectations of $2.95.

Despite a strong performance that saw earnings grow in all but one of the bank’s business segments, chief executive Dave McKay expressed caution on a conference call with analysts, noting that there’s still some uncertainty in the economy as consumers wait to benefit from interest rate cuts and the unemployment rate rises.

“We haven’t landed this plane on the economy yet,” McKay said. “It’s a little uncertain out there. We are operating with confidence in an uncertain environment and we’re moving forward.”

Some analysts attributed RBC’s strong performance to its ability to keep provisions for credit loss (PCL) — the funds banks must set aside for potential bad loans — under control amid a tumultuous economy.

PCLs have been rising across the industry, but RBC’s rose by just seven per cent or $43 million compared to a year ago, reflecting higher provisions in personal and commercial banking. The $659 million total was below analysts’ expectations for the quarter.

McKay was pleased with the bank’s credit outcome but said there are still “significant headwinds” in the economy. He expects the unemployment rate to peak either toward the end of this year or early 2025, something that could continue to influence the amount of money that the bank keeps aside for potential bad loans.

While interest rates cuts are expected to ease the pressure on consumers, McKay said that it will take some time before they actually benefit.

“We have had rate cuts and those have been beneficial,” he said. “But that doesn’t mitigate rates as headwind for many of these consumers that when they go to reprice mortgages … there still is a payment shock that these consumers will face.”

On RBC’s integration with HSBC, the bank’s head of personal and commercial business, Neil McLaughlin, said that the bank has made a “good start” in terms of selling its products to HSBC clients.

“Right now, we’re really spending time to get to know these clients…. It’s early green shoots,” he said, noting opportunities in credit cards and the small business segment.

The company’s reported net income was $4.5 billion for the quarter, up $626 million or 16 per cent from last year, leading to earnings per share of $3.09.

The inclusion of HSBC deal increased net income by $239 million.

Matthew Lee, an analyst at Canaccord Genuity Group Inc., said in a note on Wednesday that expenses and PCLs helped drive the earnings beat.

“Expenses were $300 million better than what we had. Provisions for credit losses at $659 million were also $250 million lower than our estimated,” he said.

Jefferies Financial Group Inc. analyst John Aiken described the results as a “standout quarter” and investors also appeared impressed.

The bank’s shares were up more than 2.7 per cent to $160.86 in midday trading in Toronto, extending a run of record highs.

• Email: nkarim@postmedia.com

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