Royal Bank hikes dividend as it reports $3.2B net income in first quarter

Royal Bank of Canada raised its dividend as it reported quarterly net income of $3.17 billion, up from $3.01 billion a year ago, matching market expectations as market volatility during the period weighed on its earnings.

The Toronto-based lender hiked its quarterly payment to common shareholders by four cents to $1.02 per share.

The bank's dividend increase came as the lender reported solid earnings from its personal and commercial banking and insurance divisions for the quarter ended Jan. 31.

However, RBC also reported flat results from its wealth management arm and lower results in capital markets and investor and treasury services due to challenging market conditions.

"Our strategy and unwavering focus on delivering value for our clients and shareholders continues to underpin our ability to consistently deliver solid results, even against a challenging market backdrop," said Dave McKay, RBC's chief executive, in a statement.

"We remain focused on prudently managing our risks and balancing our investments for long-term growth as we transform the client journey."

Canada's biggest lender by market value reported net income for the three-month period ended Jan. 31 that amounted to $2.15 per diluted share, compared with $2.01 one year ago.

After adjustments, RBC earned $2.19 per diluted share, matching the $2.19 per share expected by analysts, according to Thomson Reuters Eikon.

Tumultuous quarter for markets

The bank's personal and commercial banking division earned net income of $1.57 billion, up 3.3 per cent from the same period a year earlier, mainly due to volume growth and higher deposit spreads. RBC's insurance arm reported net income of $166 million, up 31 per cent from the prior year period.

However, its other divisions came under pressure from the tumultuous market during the quarter.

The bank's wealth management arm delivered earnings of $597 million, flat from the same period a year ago, due to factors including higher costs related to business growth and "lower transaction volumes as uncertainty impacted equity markets."

RBC's investor and treasury services arm saw net income drop 26 per cent to $161 million, primarily due to lower funding and liquidity revenue, higher costs in support of business growth and lower revenue from its asset services business due to challenging market conditions and lower client activity.

Earnings for RBC's capital markets division totalled $653 million, down 13 per cent from a year earlier, largely due to higher provisions for credit losses and lower revenue in corporate and investment banking and lower issuance activity.

While RBC's earnings per share for the quarter was in line with expectations, the bank's results were of "lower quality," said Scott Chan, an analyst with Canaccord Genuity Capital Markets, in a note to clients.

"In the context of (RBC)'s share price appreciation heading into the quarter, we view these results as underwhelming and expect the stock to relatively underperform," Chan wrote.

The bank's provisions for credit losses, or money set aside for bad loans, in the latest quarter increased 54 per cent to $514 million, compared with $334 million a year earlier, "mainly due to a higher provision on impaired loans in capital markets taken on one account in the utilities sector."

The bank's common equity tier 1 ratio (CET1), a key measure of financial health, was 11.4 per cent, down from 11.5 per cent during the previous quarter, but up from 11 per cent a year ago.