Overview Of 2001 & First Quarter 2002
Peter W. Currie
Vice-Chairman & Chief Financial Officer
Royal Bank of Canada
133rd Annual Meeting
Royal Bank of Canada
February 22, 2002
Thank you, Gord. Good morning, ladies and gentlemen.
I will be discussing with you briefly this morning your company's
financial results in 2001 and the first quarter of 2002, prepared
in accordance with U.S. Generally Accepted Accounting Principles
As Gord Nixon mentioned, despite significant challenges last
year, we produced solid results. Net income was a record $2.4
billion, up 10% from 2000, while earnings per share were $3.55,
Core cash net income was $2.5 billion, also up 10% from 2000,
while core cash earnings per share were $3.68, again 4% higher
than in 2000. These core cash numbers exclude the impact of
special items and costs related to the amortization of goodwill
and other intangible items, which makes our results more comparable
to those of certain Canadian and American competitors. In
2001, special items totaling $204 million after-tax largely
included gains on the sale of non-strategic businesses and
costs related to restructuring our retail banking business
in the U.S.. There were no special items in 2000.
Return on common equity was 16.6% and core cash return on
common equity 17.1%.
We have a diversified group of businesses, which allowed
us to perform well in 2001 despite the tough conditions. Strong
performances by Personal & Commercial Banking, Insurance
and Transaction Processing, which together accounted for nearly
70% of core cash net income, offset the impact of weak capital
market conditions on our Wealth Management and Corporate &
Investment Banking operations.
My discussion of last year's business segment results will
be entirely on a core cash basis.
Personal & Commercial Banking's net income was up 24%
over 2000, partially reflecting the contribution of RBC Centura.
Return on equity, or ROE, was 20.0%.
Insurance net income increased 83% last year, reflecting
the addition of RBC Liberty Insurance and strong performances
by the Canadian life, creditor and travel insurance businesses.
ROE for Insurance was 21.9% and reflected higher common equity
attributed to the segment in 2001.
Wealth Management had a challenging year due to unfavourable
capital market conditions. Its results also reflected costs
associated with the acquisition of RBC Dain Rauscher. Net
income was $352 million in 2001. ROE was 18.4%, reflecting
additional capital attributed to the segment in 2001.
Corporate & Investment Banking results were also affected
by weak capital markets and costs associated with the acquisition
of Dain Rauscher Wessels. Net income was $417 million. ROE
was 11.8%, reflecting additional average common equity attributed
to the segment last year.
Our Transaction Processing segment continued to show growth,
with net income up 7%. ROE was 31.1% in 2001.
Overall, we met many of our aggressive objectives last year,
particularly in the areas of revenue growth and capital management.
In addition, excluding acquisitions, we were able to meet
our objective for expense growth. Our performance compared
to our 2001 objectives is outlined on page 6 of last year's
Annual Report, and I'd urge you to review it.
Gord Nixon described our strong shareholder returns over
the five years ended October 31, 2001. Included in these numbers
were common share dividends. Between the end of 1999 and 2001,
we raised dividends four times, resulting in an increase of
50% over that period. During 2001, we raised the dividend
twice, for a 20% increase, and as announced this morning,
our dividend will increase by another $0.02 or 6% in the second
First quarter 2002
Now, I'd like to take a few minutes to discuss our very
strong results in the first quarter of 2002, which we released
earlier this morning. This quarter's results reflect the adoption
of a new accounting standard in Canada and the U.S. under
which goodwill is no longer amortized. As a result, I will
no longer be discussing cash results as the new standard brings
our accounting results very close to our cash results. We
think this makes our financial reporting more straightforward.
Net income for the first quarter was a record $734 million,
compared to $695 million a year ago. Last year's results included
a $111 million after-tax gain from special items, resulting
primarily from the sale of a non-strategic business and the
formation of a card processing joint venture. Fully diluted
earnings per share were $1.04, compared to $1.08 a year ago,
which had included $0.17 of gains from these special items.
Excluding special items in the first quarter of last year,
net income was up 26%. Fully diluted earnings per common share
were 14% higher than a year ago, compared to our growth objective
for 2002 of 5-10%.
The strong growth reflects a substantial increase in net
income from our recent U.S. acquisitions largely due to the
purchase of Centura Banks in June of last year. It also reflects
ongoing cost discipline, as I will show you shortly.
Return on common equity was 17.1%, within the 17-19% range
targeted for this year. A year ago, return on common equity
was 21.9% and, excluding special items, it was 18.3%.
Our business segments maintained their solid performance
in the first quarter, and the following discussion excludes
any special items in last year's first quarter.
Personal & Commercial Banking generated net income of
$389 million, up 37%. ROE was 18.8% compared to 20.9% a year
Earnings for the Insurance segment were $42 million, up 8%
from a year ago. ROE was 23.0%, up from 22.4%.
Wealth Management's net income was $88 million, down from
$99 million in last year's first quarter due to retention
compensation expenses relating to our acquisitions of Dain
Rauscher Corp. and Tucker Anthony Sutro. These expenses are
expected to decline starting next quarter. ROE was 11.1%,
reflecting the lower earnings and additional average capital
attributed to Wealth Management this quarter compared to last
Corporate & Investment Banking reported net income of
$146 million, virtually unchanged from last year. ROE was
13.7%, reflecting additional average common equity attributed
to the segment this quarter compared to a year ago.
Earnings from Transaction Processing were $40 million compared
to $46 million in the first quarter of last year. ROE was
25.7% this quarter.
Our total revenues were up 22% over the same quarter last
year, surpassing our 2002 objective of growth between 7% and
Operating expenses, which exclude special items, costs of
Stock Appreciation Rights and certain acquisition expenses
such as retention compensation, were up 19%, lower than the
22% growth in operating revenues. This was in line with our
Excluding our recent U.S. acquisitions, operating expenses
fell 7% while operating revenues were up 1%.
Our success in meeting our revenue, expense, earnings growth
and ROE targets demonstrates our continued commitment to managing
Our results in the area of portfolio quality also remain
on target. Specific provisions for credit losses for the first
quarter of this year were .55% of loans and bankers' acceptances,
within our target range of 45 to 55 basis points.
The bank maintained strong capital ratios during the quarter.
The Tier 1 capital ratio was 8.8% and the Total capital ratio
was 12.3%. We also met our objectives for valuation, ranking
in the top quartile of Canadian banks in both share price
to book value and share price to analysts' earnings estimates
In conclusion, our results for the first quarter of 2002
met our objectives. We remain focused on generating strong
returns by improving our cost structure, seeking out opportunities
for profitable revenue growth and paying careful attention
to our risk profile. And we remain committed to being the
premier financial services company in Canada, while expanding
selectively and profitably in the U.S..
Thank you for your attention.