Original Source: FD (FAIR DISCLOSURE) WIRE
. Nabanita Merchant, Royal Bank of Canada, SVP, IR . Gord Nixon, Royal Bank of Canada, President, CEO . Barb Stymiest, Royal Bank of Canada, COO . Jim Westlake, Royal Bank of Canada, Group Head Personal and Business Clients Canada . Peter Armenio, Royal Bank of Canada, Group Head U.S. and International . Chuck Winograd, Royal Bank of Canada, Group Head Global Capital Markets . Steve Cawley, TD Newcrest, Analyst . Janice Fukakusa, Royal Bank of Canada, CFO
. Quentin Broad, CIBC World Markets, Analyst . Jim Bantis, Credit Suisse, Analyst . Susan Cohen, Dundee Securities, Analyst . Morten Friis, Royal Bank of Canada, Chief Risk Officer . Mario Mendonca, Genuity Capital Markets, Analyst . Michael Goldberg, Desjardins Securities, Analyst . Ian de Verteuil, BMO Nesbitt Burns, Analyst . Jamie Keating, RBC Capital Markets, Analyst . Trevor Bateman, CIBC World Markets, Analyst
RY reported that it generated record net income in 1Q06 of $1.17b or $1.78 per share. Net income increased 20%, and diluted EPS rose 19%, from what had been a strong qtr. in 1Q05. On 03/03/06, RY announced an increase of $0.08 a share in the quarterly dividend to $0.72 a share.
A. Key Data From Call 1. 1Q06 net income = $1.17b or $1.78 per share.
S1. Opening Comments (G.N.) 1. 1Q06 Highlights: 1. RY started 2006 on a strong note generating record net income in 1Q06 of $1.17b or $1.78 per share. 2. Net income increased 20%, and diluted EPS rose 19%, from what had been a strong qtr. in 1Q05.
1. All of the Co.'s business segments contributed to this growth.
3. ROE was up 200 BP to 23.9%. 2. Specified items (1Q06 Results):
1. Specified items relate to a favorable resolution of: 1. An income tax audit. 2. Reversal of a portion of the general allowance. 3. Additional hurricane related to charges, which was largely for Wilma, which occurred at the very end of the Co.'s
year-end in Oct. 2005. 4. Charges associated with the transfer in early Jan. 2006 of RY's Institutional Investor Services business to RBC Dexia, which is the Co.'s JV which it has a 50% interest, and because of their calendar year-end, RY has only two months of earnings in its numbers. 2. The net impact of all these items was a positive $34m or $0.04 a share. 3. The Co. is certainly pleased with each of its business segments. 3. Record Results:
1. Canadian Personal Business banking operations were strong,
with earnings up 12% over a year ago, reflecting solid underlying performance in: 1. Banking. 2. Wealth management.
3. Insurance operations away from the hurricane reserves. 2. US and International Personal and Business segment: 1. Net income was up 3%, but 9% in US dollars, which is really how the Co. looks at that business from a year ago. 3. RBC Capital Markets had record earnings of $330m, up 25% from a year ago. 1. These results attest to the success of the Co.'s efforts to grow its business in Canada, the US, and globally. 4. A number of non-financial achievements were achieved, including the Co. being recognized as Canada's most respected Corporation for the fourth year in a row, including best long-term investment prospective and a number of other categories as well. 5. RY's brand was ranked top in Canada for the second year in a row. 4. Share Holders:
1. Shareholders have benefited from about a 45% total return over
the past 12 months, including: 1. A 41% increase in the Co.'s common share price. 2. Dividend increases which were up about 16% from a year ago. 5. Dividend: 1. On 03/03/06, RY announced an increase of $0.08 a share in the quarterly dividend to $0.72 in [2Q06] or $0.36 on a post-stock dividend basis. 2. The stock dividend, which has the same effect as a 2-for-1 stock split in the common shares, was announced on 03/03/06.
S2. 1Q06 Financial Review (B.S.) 1. Revenues: 1. RY earned record revenues of just under $5b in 1Q06. 2. Net interest income, non-interest income, and total revenues all increased by 4% over 1Q05, largely reflecting strong volume growth in banking, wealth management, and insurance operations. 3. The stronger Canadian dollar vs. the US however reduced revenues by $60m vs. last year. 2. Non-Interest Income: 1. Insurance-related revenue was up the most, as a result of volume growth across all product lines and higher investment income on equities, which backed the universal life policies. 2. Revenue from mutual funds, brokerage, and investment
management and custodial activities rose strongly, reflecting:
1. Strong net sales and capital appreciation in the mutual fund
business. 2. Higher fees in the investment management businesses.
3. RY generated higher transaction volumes and growth in client
assets in its full-service brokerage business. 4. Underwriting and another advisory revenue declined from 1Q05, due to lower equity and debt originations, which were partially offset by higher M&A activity. 3. Non-Interest Expenses: 1. Net of the Enron reserve last qtr., expenses remained largely unchanged over the past three quarters. 2. The stronger Canadian dollar reduced expenses in 1Q06 by $35m, relative to 1Q05. 4. Costs & Leverage:
1. Change in Non-Interest Expenses (NIE) over 1Q05 was due to
higher variable and stock-based compensation expenses, partially offset by lower salaries, reflecting lower staffing
levels. 2. Other components of NIE were largely unchanged in aggregate. 3. The increase in variable compensation reflects strong business results and some final adjustments to certain annually
calculated bonus plans, which increased expenses in the
current qtr. and reduced expenses in the prior year. 4. The increase in stock-based compensation was due to the significant appreciation in RY's common share price and the accelerated recognition of amounts related to employees who are eligible to retire. 5. The strong operating leverage was seen in the Canadian
Personal and Business segment, which of course is the largest
segment. 5. Balance Sheet Growth: 1. Strong and consistent growth trends in total asset, loans, and deposits were seen.
2. Balance sheet growth reflected: 1. Solid increases in securities as trading businesses have grown. 2. Strong growth in residential mortgages, personal loans, and business and government loans. 3. Total shareholders' equity has recovered nicely from the impact of the Enron litigation reserve and the hurricane-related reserves in 4Q05. 4. Assets under management continued to rise.
5. Assets under administration previously in the Co.'s Institutional and Investor Services business in capital markets have now been transferred over to RBC Dexia Investor Services. 6. RY has shown solid growth in its brokerage operations, assets under admin in Canada. 7. In the US and International segment, RBC Dain Rauscher's assets under admin have grown. 1. There has also been a sizable addition to assets under admin from the Abacus acquisition this qtr. 6. Impaired Loans: 1. Credit quality remained strong. 2. Growth-impaired loan ratio of 0.4% was consistent with last qtr. 3. As for provisions, there was a $50m reversal of the general allowance in the current qtr., resulting from the continuing favorable credit environment and the strengthening of the Co.'s loan quality. 1. The specific provision of $102m in 1Q06 was close to 4Q05 level, but up from a year ago as RY recorded a $52m transfer from the specific allowance to the general allowance in 1Q05. 4. As a result, the specific PCL ratio remains low at 20 BP. 7. Capital Ratio: 1. Tier 1 capital …