Royal Bank reported improved net income for its first quarter, ended January 31.

Net income came in at $734 million. Last year’s first quarter net income of $695 million included gains from special items of $111 million after-tax.

Excluding special items in last year’s first quarter, net income was up $150 million or 26% and earnings per share up 14% from a year ago.

Return on equity was 17.1% compared to 21.9% a year ago (18.3% excluding special items), reflecting common equity issued in last year’s third quarter.

Stronger contribution from U.S. Personal & Commercial Banking acquisitions, largely as a result of the acquisition of Centura Banks in June 2001, and the benefits of cost discipline were behind these strong results.

Commenting on the quarter’s results, Gord Nixon, president & CEO, said, “Our results reflect a solid start to 2002. Our net income this quarter was a record $734 million, up 26% from a year ago. This strong performance reflected the expected operational benefits from our recent U.S. acquisitions and ongoing cost discipline.”

Revenues were up 17%. This largely reflected contributions from recent U.S. acquisitions, which led Wealth Management, Insurance and Personal & Commercial Banking to generate double-digit revenue growth over a year ago. Expenses rose 22%, reflecting recent U.S. acquisitions. Operating expenses were up 19% compared to operating revenue growth of 22%.

The specific provision for credit losses was $286 million or .55% of average loans and bankers’ acceptances compared to .37% a year ago and .82% last quarter. The bank’s capital ratios strengthened during the quarter, with the Tier 1 capital ratio rising to 8.8% and the Total capital ratio rising to 12.3% from 8.7% and 11.8%, respectively, last quarter.

Nixon said, “Our most important short-term priority for the United States is to consolidate our recent acquisitions and ensure we meet operating targets by enhancing efficiency and growing revenues, partially by introducing some initiatives that have been very successful in Canada. While we do not expect to make any significant acquisitions in the short term, we continue to look for disciplined, strategic and profitable platform extensions, primarily in Personal & Commercial Banking and Wealth Management.”

He said that wealth management and P&C banking are expected to be the main drivers of operational and financial expansion over the long term. “We expect wealth management’s earnings contribution to rise when equity markets strengthen and retention compensation costs for recent U.S. acquisitions fall.”

Wealth management net income was down 31% from a year ago. RBC Dain Rauscher (which now includes Tucker Anthony Sutro acquired on October 31, 2001) recorded a net loss of $8 million this quarter, compared to net income of $6 million a year ago when approximately three weeks of its results had been included in the quarter. The lower earnings at RBC Dain Rauscher reflect higher retention compensation costs relating to the bank’s acquisition of these businesses of $36 million this quarter (including $13 million for Tucker Anthony Sutro) compared to $26 million last quarter and $4 million a year ago.

The retention compensation costs are expected to decline to approximately $27 million in each of the next three quarters. The significant revenue and expense growth rates for Wealth Management were entirely attributable to the combined contributions from RBC Dain Rauscher and Tucker Anthony Sutro. Tucker Anthony Sutro’s business is being integrated into RBC Dain Rauscher’s and the integration is expected to be completed in March 2002. Cost savings from this integration are expected to be more evident in the second half of this fiscal year.

ROE declined, reflecting the above-mentioned factors and an additional $1.8 billion of average common equity attributed to the segment this quarter compared to last year, of which $1.4 billion related to goodwill arising from the acquisitions of Dain Rauscher and Tucker Anthony Sutro.