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Royal Bank of Canada (RY) Q2 Earnings Increase, Stock Up 1.3%

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Shares of Royal Bank of Canada (RY - Free Report) gained 1.3% on the NYSE in response to second-quarter fiscal 2021 (ended Apr 31) results. The company reported net income of C$4 billion ($3.2 billion), up significantly from the prior-year quarter’s figure.

The bank witnessed revenue growth and lower provisions. However, higher expenses, along with decline in deposit balances, were on the downside.

On a year-over-year basis, Wealth Management, Personal & Commercial Banking, Insurance and Corporate Support reported growth of 63%, 258%, 4% and 171%, respectively, in the quarterly net income. Nevertheless, net income in the Investor & Treasury Services declined 47%, while increasing significantly at Capital Markets on a year-over-year basis.

Revenues & Expenses Rise, Provisions Decline

Total revenues came in at C$11.6 billion ($9.4 billion) during the February-April quarter, up 13% on a year-over-year basis. Revenues were favorably impacted by higher non-interest income.

Net interest income came in at C$4.9 billion ($4 billion), down 11% from the prior-year quarter. Non-interest income was C$6.8 billion ($5.5 billion), up 38.9%.

Non-interest expenses were C$6.1 billion ($4.9 billion), up 7% from the year-ago quarter. This increase primarily resulted from rise in human resources and equipment expenses.

As of Apr 31, 2021, Royal Bank of Canada’s net loans came in at C$673.5 billion ($543.1 billion), up marginally from the prior quarter. Deposits totaled C$1.03 trillion ($0.83 trillion), down around 2% sequentially. Total assets were C$1.62 trillion ($1.31 trillion), down 3.3% from the previous quarter.

The company recorded a negative provision to credit losses of C$96 million ($77 million) in the quarter against provisions of $2.8 billion in year-ago quarter. The downside primarily resulted from reduction in provisions in Personal & Commercial Banking and Capital Markets and Wealth Management.

Solid Capital Position

As of Apr 31, 2021, Royal Bank of Canada’s Tier 1 capital ratio came in at 14.1%, up from the prior-year quarter’s 12.7%. Total capital ratio came in at 15.8%, up from the 14.6% reported in the year-earlier quarter.

The company’s estimated Common Equity Tier 1 (CET1) ratio came in at 12.8%, expanding 110 basis points from the prior-year quarter.

Our Viewpoint

We believe improvement in loan balances and a diversified product mix will drive Royal Bank of Canada’s organic growth in the days to come. Though stringent regulatory reforms, along with reduction in revenues, keep us skeptical about the company’s sustainable growth over the long term, Canada’s export-driven economy is anticipated to gain from the recovery of the U.S. economy that has been hit hard by the coronavirus mayhem, thereby aiding the bank.



Royal Bank of Canada currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Competitive Landscape

Bank of Montreal (BMO - Free Report) reported second-quarter fiscal 2021 (ended Apr 30) adjusted net income of C$2.10 billion ($1.67 billion) increased significantly year over year. The company recorded an improvement in revenues and lower provisions in the reported quarter, which supported results to an extent. However, an increase in expenses was a negative.

Among other Canadian banks, The Bank of Nova Scotia (BNS - Free Report) and Canadian Imperial Bank of Commerce (CM - Free Report) are scheduled to report results soon.

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