Royal Bank of Canada (RY – Snapshot Report) reported impressive fourth-quarter and fiscal 2014 (ended Oct 31) results. Net income in the reported quarter came in at C$2.3 billion ($2.1 billion), increasing 11% year over year.

For fiscal 2014, adjusted net income grew 10% from the prior year to C$9.1 billion ($8.4 billion). Moreover, after considering certain non-recurring items, net income was C$9.0 billion ($8.3 billion), up 8% year over year.

Results benefited from a rise in revenues, partially offset by higher non-interest expenses and an increase in provision for credit losses. Notably, all segments exhibited improved performances during the quarter.

Performance in Detail

Total revenue in the reported quarter was C$8.4 billion ($7.6 billion), up 6% on a year-over-year basis. Growth was driven by a rise in both non-interest income and net interest income.

For fiscal 2014, total revenue increased 11% from the prior year to C$34.1 billion ($31.3 billion).

Net interest income came in at C$3.6 billion ($3.3 billion), up 6% from the prior-year quarter.

Non-interest income was C$4.8 billion ($4.3 billion), rising 6% year over year. All fee income components, except trading income and credit fees, showed improvement.

Non-interest expenses were C$4.3 billion ($3.9 billion), up 5% from the year-ago quarter. The rise was largely due to an increase in human resources expenses, other costs and professional fees.

Total provision for credit losses was C$345 million ($312 million) in the quarter, up 3% year over year.

Balance Sheet and Capital Position

As of Oct 31, 2014, Royal Bank of Canada’s net loans stood at C$435.3 billion ($388.9 billion), up 6% year over year. Moreover, deposits were C$614.1 billion ($548.6 billion), up 9% year over year. Total assets amounted to C$940.6 billion ($840.2 billion), rising 9% from the preceding year.

As of Oct 31, 2014, Royal Bank of Canada’s Tier 1 capital ratio came in at 11.4%, down from 11.7% as of Oct 31, 2013. Total capital ratio was 13.4%, down from 14.0%.

The company’s estimated Basel III Common Equity Tier 1 (CET1) ratio stood at 9.9%.

Our Take

In spite of the impressive results, we are skeptical about Royal Bank of Canada’s ability to sustain growth in the upcoming quarters, given the sluggish economic recovery, a still low interest rate environment, limited fee income earning avenues and stringent regulatory requirements.

However, with the U.S. economy showing signs of improvement, the export-driven Canadian economy will likely benefit. Moreover, the Royal Bank of Canada’s strong business model, diversified product mix and stable capital position will likely boost its bottom line going forward.

Royal Bank of Canada currently has a Zacks Rank #4 (Sell).

Among other foreign banks, both The Royal Bank of Scotland Group plc (RBS –Snapshot Report) and ItauUnibanco Holding S.A. (ITUB – Analyst Report) reported impressive third-quarter 2014 results. Further, The Bank of Nova Scotia (BNS –Snapshot Report) is scheduled to announce fourth-quarter and fiscal 2014 results on Dec 5.

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