Royal Bank reports second-quarter net income increases by 15 per cent

By David Friend, The Canadian Press

TORONTO – Royal Bank of Canada (TSX:RY) said net income grew 15 per cent in the second quarter, helped by record earnings in its wealth management segment.

Other key divisions such as personal and commercial banking and its trading operations contributed as well, driving profits to $2.2 billion, or $1.47 per share, from $1.9 billion or $1.25 a share in the same period a year ago.

Cash diluted earnings per share were $1.49, beating analyst’s estimates by five cents a share, according to data from Thomson Reuters.

“We continue to focus on achieving the right balance between driving volume growth and maintaining strong margins in order to deliver profitable earnings,” said incoming CEO Dave McKay, who officially takes the job from Gord Nixon in August, in a conference call.

Growth in Royal Bank’s wealth management operations continued in the quarter, rising 25 per cent to $278 million from a year earlier.

Profits in the capital markets segment increased 32 per cent to $507 million compared to last year, largely due to strong trading results and growth in its U.S. loan book.

The bank’s personal and commercial banking net income was $1.11 billion, up $76 million or seven per cent compared with last year.

The Canadian banking segment had net income of $1.11 billion, up $86 million or eight per cent, largely due to growth across most businesses and lower provisions for credit losses.

Excluding certain items, Royal Bank had an adjusted net income of $1.94 billion, up 13 per cent, and earnings per share was up 20 cents from $1.27 year-over-year.

After delivering several consecutive quarters of growth, some analysts have questioned whether Royal Bank can maintain the momentum in the face of widespread challenges in lending growth for domestic mortgages and higher consumer debt levels.

McKay outlined some of the bank’s priorities on the conference call.

“We’re not interested in mass-market banking through a bricks and mortar model,” he said.

“Nothing is imminent from an acquisition perspective. We have a very strong franchise and remain focused on executing our current strategy.”

While most of the banking segments showed growth, Royal Bank’s insurance division posted lower net income of $154 million, down $10 million or six per cent year-over-year.

RBC had a return on common equity of 19.1 per cent in the quarter ended April 30, up from 18.7 per cent year-over-year.

Barclays analyst John Aiken said RBC had solid start to the earnings season for the big banks.

“The beat against expectations largely came from provisions for credit losses that continue to defy expectations,” Aiken said in a research note.

“We estimate that the better than anticipated credit added approximately $0.04 per share to earnings. While the market has typically shaken this off, it is hard to continue to deny the trend, despite our belief that credit will have to turn at some point,” Aiken wrote.

Royal Bank and TD Bank (TSX:TD) were the first Canadian banks to report financial results for the quarter.

Toronto-Dominion Bank has reported a higher second-quarter net income of $1.98 billion, up from $1.71 billion in the same quarter of 2013.

Three other big banks are scheduled to issue results next week.

Royal Bank is the country’s largest bank by assets and market capitalization and has 79,000 employees serving more than 15 million clients. The bank has operations across North America and in 44 other countries.

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