Royal Bank Of Canada (RY) Q2 Earnings Impress, Revenues Up
Zacks Investment Research | May 26, 2017 08:32AM ET
Royal Bank of Canada (NYSE:RY) reported second-quarter fiscal 2017 (ended Apr 30) net income of C$2.8 billion ($2.1 billion), up 9% from the prior-year quarter.
Elevated loans and deposits balances, along with higher revenues, reflected organic growth. Moreover, lower provisions were another positive. However, a rise in non-interest expenses was a concern.
Revenue Escalate, Expenses Flare Up, Provisions Fall
Total revenue was C$10.3 billion ($7.7 billion), up 8.4% on a year-over-year basis. Revenue was driven by higher net interest and non-interest income.
Net interest income came in at C$4.2 billion ($3.2 billion), up 5.0% from the prior-year quarter. Non-interest income was C$6.1 billion ($4.6 billion), up 10.9% year over year.
Non-interest expenses were C$5.2 billion ($3.9 billion), up 6.1% from the year-ago quarter. The rise was primarily due to an increase in almost all the components.
During the quarter, Personal & Commercial Banking, Wealth Management, Investor & Treasury Services, Canadian Banking and Capital Markets segments’ net income reported a year-over-year rise of 5.0%, 12.0%, 39.0%, 8.3% and 15.0%, respectively. However, Insurance segment’s net income reported a year-over-year decline of 6.0%. Notably, the Corporate Support segment reported net loss.
As of Apr 30, 2017, Royal Bank of Canada’s total average loans and acceptances came in at C$540.5 billion ($395.7 billion), up 3.1% from the prior-year quarter. Additionally, deposits were C$785.6 billion ($575.1 billion), up 5.9% year over year. Total assets were C$1.2 trillion ($0.88 trillion), up 4.3% from the year-earlier quarter.
Total provision for credit losses was C$302 million ($226.9 million) in the quarter, down 34.3% year over year, mainly due to lower provisions in Personal & Commercial Banking, Canadian Banking and Capital Markets. However, provisions in Wealth Management increased.
Strong Capital Position
As of Apr 30, 2017, Royal Bank of Canada’s Tier 1 capital ratio came in at 12.0%, up 10 basis points from the prior-year quarter. Total capital ratio was 14.1%, expanding 10 basis points year over year.
The company’s estimated Common Equity Tier 1 (CET1) ratio came in at 10.6%, up 30 basis points year over year.
Our Viewpoint
We believe a consistent improvement in the top line and diversified product mix will help Royal Bank of Canada grow organically. Further, the export-driven economy of Canada is anticipated to benefit from the gradual recovery of the U.S. economy.
However, a persistent low interest rate environment and overall sluggishness in the economy, along with stringent regulatory reforms and escalating expenses, keep us skeptical about the company’s sustainable growth over the long term.
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Royal Bank of Canada currently has a Zacks Rank #4 (Sell). You can see Original post
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