Royal Bank kicks off bank earnings with 11% profit increase

Royal Bank of Canada raised its dividend as it reported a record $3.1 billion in net income for its 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.

Royal Bank chief executive Dave McKay said the bank delivered record earnings with "strong results in our largest businesses."

"We maintained our focus on risk management and expense control; at the same time, we continue to invest in long-term sustainable growth, including in the United States," McKay said in a statement Wednesday.

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.

RBC's personal and commercial banking arm earned $1.51 billion in the quarter, up $111 million or eight per cent 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.

Its wealth management division however saw a 19 per cent bump in net income to $578 million, "largely reflecting higher average fee-based assets" in Canada and the U.S. South of the border, RBC said it also benefited from higher interest rates as well as a lower effective tax rate after a corporate tax cut was introduced at the beginning of the year.

RBC's capital markets division saw a 14 per cent lift to net income of $698 million, due to higher revenue as well as a lower effective tax rate.

The bank's insurance and investor and treasury services divisions, however, saw net income decrease by two per cent and 13 per cent, respectively, to $158 million and $155 million. The bank cited factors including increased costs to support growth for the drop in net income.

The bank's common equity tier 1 ratio or CET1 — a key measure of financial health — was 11.1 per cent, up 20 basis points from the previous quarter and up from 10.9 a year ago.

RBC's provisions for credit losses, or money set aside for bad loans, was $338 million, up $60 million or 22 per cent from the prior quarter and up from $320 million a year ago.

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.