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Royal Bank of Canada's Earnings Rise

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Royal Bank of Canada (RY - Free Report) reported fiscal third-quarter 2013 net income of C$2.2 billion ($2.1 billion), surpassing the year-ago figure of C$2.0 billion ($1.9 billion). This reflects a year-over-year increase of 12%.

Results reflect a rise in net interest income as well as lower provisions for credit losses, partly offset by lower non-interest income and higher expenses.

Including certain one-time items, net income came in at C$2.3 billion ($2.2 billion), up 3% year over year.

Performance in Detail

Total revenue in the quarter was C$7.2 billion ($7.0 billion), down 7% from the prior-year period. Revenue decline was mainly due to lower non-interest income, partly offset by a rise in net interest income.

Net interest income came in at C$3.4 billion ($3.3 billion), up 3% from C$3.3 billion ($3.2 billion) reported in the comparable prior-year period. Non-interest income came in at C$3.8 billion ($3.7 billion), down 14% from the year-ago quarter level.

For the reported quarter, non-interest expenses were C$4.0 billion ($3.9 billion), up 6% from the prior-year quarter. The rise was primarily due to increase in human resources expenses, equipment costs, occupancy costs, professional fees as well as amortization costs, partly offset by lower communication expenses.  

Credit Quality

Total provision for credit losses was C$267.0 million ($259.0 million) in the quarter, down 18% from the year-ago quarter, mainly due to lower provisions in the Caribbean and Canadian Banking portfolios that reflected improved credit quality, partially offset by higher provisions in the Wealth Management division.

Capital Position

As of Jul 31, 2013, Royal Bank of Canada reported total loans of C$404.1 billion ($392.0 billion), up 8% from the prior year.

Moreover, deposits amounted to C$546.2 billion ($529.6 billion), up 9% as of Jul 31, 2012. Total assets were C$851.3 billion ($825.8 billion), up 3% as of Jul 31, 2012.

As of Jul 31, 2013, Royal Bank of Canada’s Tier 1 capital ratio came in at 11.3%, down 170 basis points (bps) from the prior-year quarter. Total capital ratio was 13.7%, down 130 bps year over year.

The company’s estimated pro-forma Basel III common equity Tier 1 ratio was about 9.2%, up from 9.1% in the past quarter on the back of strong internal capital generation.

Dividend Update

Along with the earnings release, the company’s board of directors declared a 6% increase in the quarterly dividend of 67 cents per share. The new dividend will be paid on and after Nov 22, 2013 to shareholders of record as of Oct 24.

Our Viewpoint

Going forward, we expect Royal Bank of Canada’s strong business model, diversified product mix and sturdy capital position to boost its bottom line. However, a persistent low interest rate environment, weak economic recovery and stringent regulatory requirements will continue to drag its financials.

Royal Bank of Canada currently carries a Zacks Rank #3 (Hold). Other foreign banks worth a look include Grupo Financiero Galicia S.A. (GGAL - Free Report) , Sumitomo Mitsui Financial Group Inc. (SMFG - Free Report) and United Overseas Bank Limited (UOVEY - Free Report) . All these stocks carry a Zacks Rank #1 (Strong Buy).

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