Recent developments over the past year ry shares have

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RECENT DEVELOPMENTS Over the past year, RY shares have risen 10%, versus a 14% increase for the broad market. The company is based in Canada and reports results in Canadian dollars. On May 24, RBC reported adjusted fiscal 2Q18 EPS of C$2.06 (US$1.59), up from C$1.85 (US$1.40) a year earlier. Revenues declined 3% to C$10.1 billion, hurt by lower revenues from insurance operations. Net of insurance fair value change, revenues increased 2%. The provision for credit losses was C$274 million, down from the prior year’s C$302 million. The net interest margin was 1.68%, down from 1.73%. Noninterest expense rose 3%, attributed to growth in spending for technology and digital initiatives, and net income came to C$3.06 billion, up 9% from the prior-year period. EARNINGS & GROWTH ANALYSIS RBC has five major reporting segments: Personal & Commercial Banking (50% of net income in fiscal 2017), Wealth Management (16%), Insurance (6%), Investor & Treasury Services (6%), and Capital Markets (22%). We detail 2Q18 results by segment below.
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M ARKET U PDATE - 6 - In Personal & Commercial Banking, net income rose 11% from the prior year (excluding sale gains), to C$1.46 billion, aided by improved spreads on higher interest rates and average volume growth of 5%. In Wealth Management, net income rose 25% to C$537 million, benefiting from greater fee-based assets, improved net interest income on higher interest rates and volume growth, and a lower effective tax rate due to benefits from the U.S. tax reform. In Insurance, net income was up 4%, to C$172 million, as good investment performance was partially offset by higher claims volumes in life retrocession and disability portfolios. Investor & Treasury Services posted a 10% increase in net income, to C$212 million, aided by growth in client deposits and revenues from asset services. Capital Markets net income was flat at C$665 million, as a lower U.S. tax rate was offset by less favorable market conditions that reduced revenues. Going forward, we expect revenue growth in C$ of 6% in fiscal 2018, about equal to the pace in fiscal 2017, aided by health conditions for wealth management and higher interest rates. With the City National integration now complete, the company has deepened its presence in the core markets of California and New York, while also expanding in Washington, D.C. and Minneapolis. We note expected revenue growth of a lighter 5% in U.S. dollars due to a reduced exchange rate. Loss provisions have trended lower in recent quarters, reflecting an improvement in energy credits amid higher oil prices following a sharp decline in early 2016. We look for loss provisions to decline by 4% in FY18. We look for low single-digit growth in noninterest expense in FY18, as efficiency efforts continue. We note that RBC has stated medium-term financial goals of 7%+ growth in diluted EPS, ROE of more than 16%, and a dividend payout ratio of 40%-50%.
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