Royal Bank of Canada
) gained 1.8% on the NYSE after the company released strong
second-quarter 2014 (ended April 30) earnings on Thursday. Net
income of C$2.2 billion ($2.0 billion) increased 15% year over
year. Notably, the prior-year quarter includes certain
Results benefited from top-line growth and lower provision for
credit losses, partially offset by increased non-interest expenses.
Performance in Detail
Total revenue in the quarter was C$8.3 billion ($7.5 billion), up
7.2% on a year-over-year basis. The revenue growth was driven by a
rise in non-interest income and net interest income.
Net interest income came in at C$3.5 billion ($3.2 billion), up
7.0% from the prior-year quarter. Non-interest income was C$4.8
billion ($4.3 billion), rising 7.3% year over year.
Non-interest expenses were C$4.3 billion ($3.9 billion), up 7.9%
from the year-earlier quarter. The rise was primarily due to
increase in human resources expenses, equipment costs, occupancy
costs, communication expenses amortization costs.
During the quarter, the segments exhibited decent performance.
Notably, net income in wealth management and capital market
divisions were up 25% and 32% year over year, respectively.
As of Apr 30, 2014, Royal Bank of Canada's total loans stood at
C$423.3 billion ($382.8 billion), up 6.2% from the prior-year
Moreover, deposits stood at C$587.1 billion ($530.9 billion), up
10.3% year over year. Total assets were C$895.9 billion ($810.2
billion), rising 3.4% from the prior-year period.
Total provision for credit losses was C$244.0 million ($220.6
million) in the quarter, down 15.0% year over year, mainly due to
lower provisions in capital markets and the Canadian banking
As of Apr 30, 2014, Royal Bank of Canada's Tier 1 capital ratio
came in at 11.4%, up 20 basis points (bps) from the prior-year
quarter. Total capital ratio was 13.2%, down 80 bps year over year.
The company's estimated Basel III Common Equity Tier 1 (CET1) ratio
stood at 9.7%.
In spite of the impressive results, we are skeptical about Royal
Bank of Canada's ability to sustain the same in the upcoming
quarters, given the sluggish economy, a still low interest rate
environment and stringent regulatory requirements.
However, with the U.S. economy showing signs of improvement, we
expect the export-driven Canadian economy to benefit. Moreover, the
Royal Bank of Canada's strong business model, diversified product
mix and sturdy capital position will likely boost its bottom line
Royal Bank of Canada currently has a Zacks Rank #3 (Hold).
Among other foreign banks,
The Bank of Nova Scotia
) is scheduled to report its fiscal second-quarter 2014 results on
May 27, while
Canadian Imperial Bank of Commerce
Bank of Montreal
) is expected to report on May 29 and May 28, respectively.
Want the latest recommendations from Zacks Investment Research?
Today, you can download 7 Best Stocks for the Next 30 Days.
Click to get this free report
BANK MONTREAL (BMO): Free Stock Analysis Report
BANK OF NOVA SC (BNS): Free Stock Analysis
CDN IMPL BK (CM): Free Stock Analysis Report
ROYAL BANK CDA (RY): Free Stock Analysis Report
To read this article on Zacks.com click here.