Canada’s largest bank posted higher profits in each of its business segments and comfortably beat analysts’ expectations for its third-quarter earnings released on Wednesday.

Royal Bank of Canada

’s net income for the three months ending July 31 was $5.4 billion, up 21 per cent from the same period last year, resulting in net earnings per share of $3.75.

Its adjusted net income — which removes the impact of non-recurring items — was $5.5 billion, up 17 per cent year over year, resulting in adjusted earnings per share of $3.84, which topped analysts’ expectations of about $3.32 per share.

Chief executive Dave McKay credited the positive performance to strong client activity buoyed by an economy that has so far been more resilient to the impacts of tariffs than initially expected at the start of the year.

“We captured a disproportionate share of client flow this quarter across all our businesses,” he said on a conference call on Wednesday.

Despite the positive performance, McKay expressed a sense of caution going forward and, like other CEOs, highlighted how important renegotiating the

Canada-United States-Mexico Agreement

(CUSMA) is likely to be for the economy.

“Should current CUSMA-compliant goods largely maintain their qualified exemption to tariffs, Canada’s effective tariff rate should remain low and the economy should remain resilient,” he said.

But as trade tensions extend, he said there may be “declining consumer confidence, lower corporate profit margins, rising inflation and softening labour markets across both the U.S. and Canada, with uncertain implications for monetary policy and capital flow.”

RBC’s results were so positive that analysts questioned whether it should update its guidance for the year, but McKay remained wary.

“The only thing that’s holding us back from sitting down and reaffirming and updating (our) guidance is the uncertainty around the tariff scenario,” he said. “We do want to kind of watch a little bit as we go through Q4 to see how negotiations unfold, and we better understand the overall impact to the

Canadian economy

.”

RBC is the third of Canada’s Big Six banks to release its third-quarter results, after the

Bank of Montreal

and the

Bank of Nova Scotia

did so on Tuesday.

The big-bank earnings are often considered a signpost of the country’s economy and, given the uncertainty surrounding tariffs, analysts are closely monitoring the provisions for credit losses (PCLs), the reserves lenders set aside to address potentially problematic loans. That’s a key metric for measuring the health of a bank’s loan book as well as the ability of households and businesses to pay their debts.

Both BMO and Scotiabank reported lower PCLs while topping analysts’ earnings expectations, with the banks’ executives indicating that the economic situation seems to be improving, although uncertainty still persists.

RBC’s total PCLs were $881 million, which is significantly lower than the $1.4 billion in the previous quarter, but higher than the $659 million a year ago, reflecting higher provisions in its capital markets, commercial and personal banking segments. The increase was partially offset by lower provisions in its wealth management segment.

RBC’s PCLs were lower than analysts’ estimates of about $1 billion, but its PCLs for impaired loans, or loans that are more likely to go bad, increased by $290 million, or 47 per cent, from a year ago.

The lender had net income of $1.9 billion in its personal banking segment during the third quarter, up from $1.5 billion a year ago. It also reported net income of $1.3 billion in its capital markets segment, up from $1.2 billion a year ago.

“Royal’s third quarter came in well ahead of expectations,” John Aiken, an analyst at Jefferies Inc., said in a note on Wednesday. “While it did benefit from lower-than-forecast provisions, that was only part of the story, with strong revenue growth likely a more important headline.”

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Mike Rizvanovic, an analyst at Bank of Nova Scotia, said RBC’s performance was driven by a high non-interest revenue largely due to a “record result” in capital markets.

“The bank’s operating segments each came in above our expectations,” he said in a note to clients. “Credit was a positive this quarter and included a small release on performing loans, which could help alleviate recent concerns around the bank’s PCL trajectory following last quarter’s larger reserve build relative to peers.”

• Email: nkarim@postmedia.com