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File photo of Toronto's financial district in the King St. West and Bay St. area.

Fred Lum/The Globe and Mail

Canada's biggest banks have produced a blockbuster first quarter, as higher profits from a variety of sources – from investment banking to corporate lending and higher transaction fees – help to erase investor concerns about slowing growth in consumer lending.

Amid fears of sluggish growth in the core retail banking businesses of the major lenders, a deluge of earnings reports Thursday showed instead what that slowdown actually looks like: a $2-billion quarterly profit at one bank, a record quarter at another, and dividend increases almost across the board.

Growth in Canadian retail banking is slowing, but other areas are more than compensating for any semblance of eroding growth banks are experiencing as highly leveraged Canadian households borrow less, and pay down debt.

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Royal Bank of Canada led the way, reporting a $2.07-billion quarterly profit, up 12 per cent from last year. While the bank reported strong retail bank earnings that showed only mild signs of a slowdown and slimming margins, RBC's large capital markets business plowed ahead with a 25-per-cent increase in profit.

Toronto-Dominion Bank made $1.79-billion, up 21 per cent, driven mostly by its large retail banking operations.

TD chief executive officer Ed Clark, however, noted the bank has started to see loan growth slowing. Meanwhile, TD's wealth management business reported strong profits, in part due to higher fee revenue.

"Our Canadian retail bank is starting the year on a very strong note, supported by good lending growth and stable margins," Mr. Clark told analysts on a conference call. "However, with Canadian households de-leveraging, consumer lending growth is slowing across the industry," he added. "Business lending growth remains strong, but this provides only a partial offset."

Several banks are looking at business lending to to pick up the slack where household borrowing is no longer growing as fast.

Canadian Imperial Bank of Commerce said higher bank fees and tight cost controls helped to keep profits in personal and commercial banking from slowing. CIBC made $798-million in the quarter, down about 4 per cent from a year ago. Had the bank not booked a significant one-time loss related to its former structured credit business, CIBC's profit would have been its best first-quarter on record, at $895-million.

National Bank of Canada reported a profit of $364-million, up 4 per cent from last year. Since Bank of Montreal kicked off earnings season by reporting a $1.05-billion profit for the quarter on Tuesday, five of Canada's six biggest banks have now combined to report profits totalling $6.07-billion for the quarter.

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Bank of Nova Scotia, the country's third-largest bank, is the last of the Big Six banks to report earnings on Tuesday.

Investment banking has also emerged as a particular saviour for the Big Banks in the quarter, as trading revenues and underwriting profits at some banks took off amid resurgent markets. At RBC, which operates Canada's largest capital markets operation, the bank went through the first quarter without suffering a single day of trading losses. RBC capital markets co-CEO Mark Standish perhaps summed up the thoughts of the entire sector, calling it "the sort of quarter we enjoy."

In general, the banking sector's profits are more robust than most analysts were expecting. Barclays Capital analyst John Aiken called the results from RBC a "very impressive quarter," adding "it is hard to argue with the myriad of positives."

However, market reaction to the earnings was generally unremarkable, with RBC and TD rising about 1 per cent, and CIBC falling less than 1 per cent.

RBC chief executive officer Gord Nixon, speaking before the bank's annual meeting in Calgary on Thursday, told analysts that the bank's core personal and commercial banking division turned in a record quarter for profits. However, he added, "there is no question that the Canadian banking industry is facing slightly slower growth as a result of slower mortgage demand." That said, Mr. Nixon said he believes RBC can continue to maintain its overall pace relative to the sector.

If the trend of the first quarter continues in 2013, the banks may experience a slowdown in consumer lending, but it may be hardly noticeable in the bigger profit picture. RBC and TD both increased their quarterly dividends 5 per cent Thursday, just two days after Bank of Montreal boosted its dividend nearly 3 per cent.

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Of the banks that have reported, only CIBC and National did not boost their dividends this quarter. CIBC chose not to do so even though its payout ratio is under 45 per cent. Addressing the issue on a conference call, CIBC CEO Gerry McCaughey said the bank is in the midst of buying back shares, and the extent of its repurchase program will determine future dividend hikes.

"The degree of buyback drives the degree of dividend increases available to you," he said. Mr. McCaughey also shot down speculation that the lack of a dividend hike suggested the bank is concerned about the stability of its earnings in the near future. "I wouldn't read too much into our not raising the dividend this quarter."

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