The stock price of Royal Bank of Canada (RY) rose 2.5% since the company released a strong fiscal fourth-quarter 2013 earnings on Dec 5. Net income of C$2.1 billion ($2.0 billion) increased from the year-ago figure of C$1.9 billion ($1.8 billion). Moreover, for fiscal 2013, net income was C$8.4 billion ($8.2 billion), up 11.8% from C$7.5 billion ($7.4 billion) earned in fiscal 2012.
Results benefited from top-line growth and lower provision for credit losses, partly offset by increased non-interest expenses.
Performance in Detail
Total revenue in the quarter was C$8.0 billion ($7.7 billion), up 6.0% on a year-over-year basis. For fiscal 2013, revenues were $30.9 billion ($30.3 billion), up 3.7% from $29.8 billion ($29.2 billion) in fiscal 2012. The revenue growth was driven by rise in non-interest income and net interest income.
Net interest income came in at C$3.4 billion ($3.3 billion), up 5.5% from C$3.2 billion ($3.1 billion) in the prior-year quarter. Non-interest income was C$4.6 billion ($4.4 billion), rising 6.4% year over year.
Non-interest expenses were C$4.2 billion ($4.0 billion), up 7.5% from the year-earlier quarter. The rise was primarily due to increase in human resources expenses, equipment costs, occupancy costs, communication expenses, outsourced item processing expenditure, professional fees, amortization costs as well as impairment of goodwill and other intangible charges.
As of Oct 31, 2013, Royal Bank of Canada’s total loans was C$410.6 billion ($392.4 billion), up 8.0% from the prior-year quarter.
Moreover, deposits amounted to C$558.5 billion ($533.7 billion), up 10.0% from Oct 31, 2012. Total assets were C$860.8 billion ($822.6 billion), rising 4.3% from Oct 31, 2012.
Total provision for credit losses was C$335.0 million ($322.9 million) in the quarter, down 7.5% year over year, mainly due to lower provisions in capital markets and the Canadian banking portfolios.
As of Oct 31, 2013, Royal Bank of Canada’s Tier 1 capital ratio came in at 11.7%, down 140 basis points (bps) from the prior-year quarter. Total capital ratio was 14.0%, down 110 bps year over year.
The company’s estimated pro-forma Basel III common equity Tier 1 ratio was about 9.6%, up 40 bps from the past quarter on the back of strong internal capital generation.
Along with the earnings release, Royal Bank of Canada’s board of directors declared a quarterly dividend of C$0.67 per share. The dividend will be paid on and after Feb 24, 2014 to shareholders of record as of Jan 27.
In spite of the robust results, we are skeptical about Royal Bank of Canada’s ability to sustain the same in the coming 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 as well. Moreover, Royal Bank of Canada’s strong business model, diversified product mix and sturdy capital position will likely boost its bottom line going forward.
Royal Bank of Canada currently has a Zacks Rank #4 (Sell). However, some better-ranked foreign banks include Grupo Financiero Galicia S.A. (GGAL - Snapshot Report), HDFC Bank Ltd. (HDB - Analyst Report) and Australia & New Zealand Banking Group Ltd (ANZBY). All these stocks carry a Zacks Rank #1 (Strong Buy).