Royal Bank Of Canada (RY) Q2 Earnings Impress, Provisions Low
Zacks Investment Research | May 24, 2018 10:02PM ET
Royal Bank of Canada (NYSE:RY) reported second-quarter fiscal 2018 (ended Apr 30, 2018) net income of C$3.1 billion ($2.4 billion), up 9% from the prior-year quarter.
The bank experienced lower provisions and higher net interest income. Moreover, elevated loans and deposit balances were on the positive side. However, investors’ concerns were visible on escalating expenses and lower fee income which led its share price to fall 2.5% on the NYSE, following the results.
Furthermore, on a year-over-year basis, Wealth Management, Investor & Treasury Services, Personal & Commercial Banking, Insurance and Canadian Banking reported rise of 24.6%, 9.8%, 7.4%, 3.6% and 8.3%, respectively, in quarterly net income. Nevertheless, net income in the Capital Markets segment declined slightly. Corporate Support segment reported income as compared with loss in the prior-quarter.
Net Interest Income Rises, Provisions Fall, Partly Offset by Higher Expenses
Total revenues came in at C$10.1 billion ($7.9 billion) in the February-April quarter, down 2.9% on a year-over-year basis. Revenues were negatively impacted by lower non-interest income, partly offset by higher net interest income.
Net interest income came in at C$4.4 billion ($3.5 billion), up 4.8% from the prior-year quarter. Non-interest income was C$5.6 billion ($4.4 billion), down 9.7% year over year.
Non-interest expenses were C$5.5 billion ($4.3 billion), up 3.8% from the year-ago quarter. The rise came primarily due to an increase in almost all the components.
As of Apr 30, 2018, Royal Bank of Canada’s total loans came in at C$561.9 billion ($437.8 billion), up 4% from the prior-year quarter. Additionally, deposits totaled C$822 billion ($640.5 billion), up 4.6% year over year. Total assets were C$1.27 trillion ($0.99 trillion), up 5.8% from the year-earlier quarter.
Total provision for credit losses was C$274 million ($214.8 million) in the quarter, down 9.3% year over year, mainly due to benefit recorded in the Wealth Management and Capital Markets. This was partially offset by higher provisions in Personal & Commercial Banking as well as Canadian Banking.
Strong Capital Position
As of Apr 30, 2018, Royal Bank of Canada’s Tier 1 capital ratio came in at 12.3%, up from 12.0% in the prior-year quarter. Total capital ratio came in at 14.1%, in line with the year-earlier quarter.
The company’s estimated Common Equity Tier 1 (CET1) ratio came in at 10.9%, up 30 basis points from the prior-year quarter.
Our Viewpoint
We believe a continued improvement in loan balances and diversified product mix will drive Royal Bank of Canada’s organic growth. Though stringent regulatory reforms and escalating expenses keep us skeptical about the company’s sustainable growth over the long term, the export-driven economy of Canada is anticipated to benefit from the gradual recovery of the U.S. economy, thereby benefiting the bank.
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