Royal Bank reports record $3.1B income

Higher interest rates, mortgage growth drive higher-than-forecast results in third quarter

TORONTO — Royal Bank of Canada set the tone for the latest round of big bank earnings with a dividend hike and profits and revenues in the latest quarter, helped by higher interest rates and mortgage growth.

Canada’s biggest bank by market capitalization delivered a record $3.1 billion in net income for its fiscal third quarter, up 11 per cent from a year ago.

The bank’s results, which beat analyst expectations, were driven by earnings growth in its wealth management, capital markets and personal and commercial banking divisions.

RBC delivered record earnings against a “strong economic backdrop,” said Royal Bank chief executive Dave McKay.

“We’ve been investing to grow organically on our key markets and our investments are paying off,” he said on a conference call with analysts on Wednesday. “All of our large businesses saw strong earnings growth in the third quarter and we had market share gains in our core franchises.”

As well, the bank said it will now pay a quarterly dividend of 98 cents per share, up from 94 cents per share.

The Toronto-based lender’s diluted earnings per share for the three-month period ended July 31 was $2.10, up 14 per cent from $1.85 per diluted share a year ago.

On an adjusted basis, RBC’s diluted cash earnings per share for its third quarter was $2.14, compared with the $2.11 earnings per share on average expected by analysts, according to Thomson Reuters Eikon.

Royal Bank was the first of Canada’s six biggest banks to report its third-quarter financial results this year. The Canadian Imperial Bank of Commerce reports its results for the period on Thursday, followed by the other banks next week.

“Royal kicked off earnings season with higher-than-forecast earnings and a dividend increase that was twice as much as expected,” said John Aiken, an analyst with Barclays in Toronto.

The bank demonstrated strong cost containment, and “impressive” results in both domestic retail and U.S. wealth management, including a strong contribution from Los Angeles-based City National, Aiken said in a note to clients. RBC acquired City National in 2015.

RBC’s personal and commercial banking arm earned $1.51 billion in the quarter, up $111 million from the previous year, “mainly reflecting improved deposit spreads resulting from higher Canadian interest rates.”

The division also saw average volume growth of five per cent, “primarily driven by solid growth in our leading Canadian residential mortgages, commercial lending and deposit products,” the bank said.