• May 24, 2017
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Royal Bank of Canada releases Q2 2017 financial results

Royal Bank of Canada reported net income of $2,809 million for the second quarter ended April 30, 2017, up $236 million or 9% from a year ago. Results reflect strong earnings in Capital Markets, Investor & Treasury Services, and Wealth Management, as well as solid earnings in Personal & Commercial Banking. We also remain well-capitalized with a Common Equity Tier 1 (CET1) ratio of 10.6%.

Compared to last quarter, net income was down $218 million or 7%. Excluding our share of a gain recorded last quarter related to the sale of the U.S. operations of Moneris Solutions Corporation (Moneris), which was $212 million (before- and after-tax), net income was relatively unchanged, while diluted earnings per share (EPS) grew $0.02. Credit quality remains strong, with our provision for credit losses (PCL) ratio of 0.23%.

“RBC had a strong second quarter, with earnings of $2.8 billion, reflecting solid growth across most of our businesses and prudent risk management. I’m very pleased with our performance for the first half of the year given the uncertain operating environment. Our strong capital position allowed us to repurchase over 30 million of our common shares so far this year,” said Dave McKay, RBC President and Chief Executive Officer. “Innovation is core to RBC, and we continue to invest in building a digitally-enabled relationship bank to better serve our clients while delivering sustainable earnings growth.”

Q2 2017 compared to Q2 2016

•  Net income of $2,809 million (up 9% from $2,573 million)
•  Diluted EPS of $1.85 (up $0.19 or 11% from $1.66)
•  Return on common equity (ROE)of 17.2% (up 100 basis points (bps) from 16.2%)
• CET1 ratio of 10.6% (up 30 bps from 10.3%)

Q2 2017 compared to Q1 2017

•  Net income of $2,809 million (down 7% from $3,027 million)
•  Diluted EPS of $1.85 (down $0.12 or 6% from $1.97)
•  ROE of 17.2% (down 80 bps from 18.0%)
•  CET1 ratio of 10.6% (down 40 bps from 11.0%)

YTD 2017 compared to YTD 2016

•  Net income of $5,836 million (up 16% from $5,020 million)
•  Diluted EPS of $3.82 (up $0.57 or 18% from $3.25)
•  ROE of 17.7% (up 190 bps from 15.8%)

Excluding Q1 specified item: Q2 2017 compared to Q1 2017

•  Net income of $2,809 million (down slightly from $2,815 million)
•  Diluted EPS of $1.85 (up $0.02 or 1% from $1.83)
•  ROE of 17.2% (up 50 bps from 16.7%)

Excluding Q1 specified item: YTD 2017 compared to YTD 2016

•  Net income of $5,624 million (up 12% from $5,020 million)
•  Diluted EPS of $3.68 (up $0.43 or 13% from $3.25)
•  ROE of 17.0% (up 120 bps from 15.8%)

Q2 2017 Business Segment Performance

Personal & Commercial Banking net income of $1,360 million was up $63 million or 5% from a year ago. Canadian Banking net income of $1,316 million was up $75 million or 6% compared to last year, largely driven by volume growth of 7% partially offset by lower spreads, higher fee-based revenue, and lower PCL. These factors were partially offset by higher costs in support of business growth. Caribbean & U.S. Banking net income of $44 million was down $12 million from a year ago, largely due to lower gains from foreign exchange and lower fee-based revenue.

Compared to last quarter, Personal & Commercial Banking net income was down $232 million or 15%. Canadian Banking net income was down $230 million or 15%. Excluding our share of the gain as noted above, Canadian Banking net income was down $18 million or 1%, largely reflecting the negative impact of fewer days in the current quarter. Caribbean & U.S. Banking net income was down $2 million.

Wealth Management net income of $431 million was up $45 million or 12% from a year ago, mainly due to increased earnings resulting from growth in average fee-based client assets which benefited from favourable equity markets, and higher net interest income reflecting volume growth and the impact from higher U.S. interest rates. These factors were partially offset by higher variable compensation on improved results, and higher costs in support of business growth.

Compared to last quarter, net income was relatively unchanged as increased earnings from higher average fee-based client assets were offset by lower transaction revenue.

Insurance net income of $166 million was down $11 million or 6% from a year ago, partially reflecting the impact from the sale of our home and auto insurance manufacturing business. In addition, the prior year included a tax recovery. These factors were partially offset by higher investment-related gains and improved claims experience in both Canadian and International Insurance. Compared to last quarter, net income was up $32 million or 24%, largely due to higher investment-related gains.

Investor & Treasury Services net income of $193 million was up $54 million or 39% from a year ago, mainly driven by higher funding and liquidity earnings reflecting volatility in interest and foreign exchange rates, and tightening credit spreads. Compared to last quarter, net income was down $21 million or 10%, primarily due to lower funding and liquidity earnings and lower results from foreign exchange market execution.

Capital Markets net income of $668 million was up $85 million or 15% from a year ago, driven by higher results in Corporate and Investment Banking and Global Markets reflecting increased client activity driven by improved market conditions, and lower PCL. These factors were partially offset by higher costs largely reflecting increased variable compensation on improved results.

Compared to last quarter, net income was up $6 million or 1%, primarily due to increased debt and equity origination activity largely in the U.S. and higher foreign exchange, equity and commodities trading revenue mainly in Canada. Improved lending largely in the U.S. and increased M&A activity, largely in Europe and Canada, also contributed to the increase. These factors were largely offset by lower fixed income trading revenue across all regions.

Corporate Support net loss was $9 million as asset/liability management activities were more than offset by higher legal and severance costs. Net loss last year of $9 million was mainly due to an increase in PCL for loans not yet identified as impaired, which was mostly offset by asset/liability management activities. Net loss last quarter was $5 million.

Capital – As at April 30, 2017, CET1 ratio was 10.6%, down 40 bps as compared to the prior quarter, mainly due to share repurchases, higher risk-weighted assets reflecting both an update to corporate and business lending risk parameters and business growth, and the impact of lower discount rates in determining our pension and other post-employment benefit obligations. These factors were partially offset by internal capital generation.

Credit Quality – Total PCL of $302 million was up $8 million or 3% as compared to last quarter, largely reflecting higher provisions in Personal & Commercial Banking related to our Caribbean and Canadian lending portfolios. This was partially offset by lower provisions in Capital Markets. Total PCL ratio of 0.23% was up 1 bp as compared to last quarter. Total gross impaired loans (GIL) of $3,249 million was down $310 million from last quarter, largely driven by accounts returning to performing status within the oil & gas sector in Capital Markets. This was partially offset by higher impaired loans in Wealth Management mainly related to one international account. Total GIL ratio of 0.59% was down 7 bps as compared to last quarter.

Non-GAAP Measures
Results and measures excluding the specified item outlined below are non-GAAP measures:

•  Our share of a gain in Q1 2017 related to the sale of the U.S. operations of Moneris to Vantiv, Inc., which was $212 million (before- and after-tax)

Given the nature and purpose of our management reporting framework, we use and report certain non-GAAP financial measures, which are not defined, do not have a standardized meaning under GAAP, and may not be comparable with similar information disclosed by other financial institutions. We believe that excluding these specified items from our results is more reflective of our ongoing operating results, will provide readers with a better understanding of our performance, and should enhance the comparability of our comparative periods. For further information, refer to the Key performance and non-GAAP measures section of our Q2 2017 Report to Shareholders.

Re-disseminated by The Asian Banker