RY Royal Bank of Canada

All amounts are in Canadian dollars and are based on our audited Annual and unaudited Interim Consolidated Financial Statements for the year and quarter ended October 31, 2019 and related notes prepared in accordance with International Financial Reporting Standards (IFRS). Our 2019 Annual Report (which includes our audited Annual Consolidated Financial Statements and accompanying Management's Discussion & Analysis), our 2019 Annual Information Form and our Supplementary Financial Information are available on our website at: http://www.rbc.com/investorrelations.

TORONTO, Dec. 4, 2019 /CNW/ - Royal Bank of Canada (RY on TSX and NYSE) today reported record net income of $12,871 million for the year ended October 31, 2019, up $440 million or 4% from the prior year, with diluted EPS¹ growth of 5%. Results reflected strong earnings growth in Personal & Commercial Banking and Wealth Management as we continued to leverage our scale and unique client value proposition to drive strong client-driven volumes. Solid results in Insurance were mainly driven by the impact of new longevity reinsurance contracts. These were partially offset by lower earnings in Investor & Treasury Services, primarily due to lower funding and liquidity revenue and severance and related costs associated with repositioning of the business, and in Capital Markets, due to a challenging market environment. Our results also reflect an increase due to foreign exchange translation. Provisions for credit losses (PCL) ratio on loans of 31 basis points (bps) increased by 8 bps from the prior year and the PCL on impaired loans ratio was 27 bps.

Our capital position remained robust with a Common Equity Tier 1 (CET1) ratio of 12.1%, up 60 bps from the prior year. In addition, we increased our quarterly dividend twice during 2019, for an annual dividend increase of 8%. In 2019, we repurchased 10.3 million shares for $1 billion.

2019 Full Year Business Segment Performance

• 6% earnings growth in Personal & Commercial Banking, mainly due to average volume growth of 7% (average loan growth in Canadian Banking: +6% residential mortgages and +11% business loans; average deposits growth: +9% in both business and personal deposits) and higher spreads as higher interest rates more than offset the impact of competitive pricing pressures. These factors were partially offset by higher PCL. PCL on impaired loans ratio increased 4 bps, largely reflecting higher provisions on impaired loans in Canadian Banking. We generated positive operating leverage of 2.4%, while continuing to invest in the business to create more value for our >14 million Personal & Commercial Banking clients and build new client relationships. Higher staff-related costs were in part due to the addition of commercial account managers and investment advisors to deliver more advice and insights to our clients. We also continued our investments in technology, including in digital solutions for both our personal and business banking clients.
  
  
• 13% earnings growth in Wealth Management, mainly due to higher average fee-based client assets reflecting market appreciation and net sales benefiting from our scale, talent and infrastructure advantage, as well as higher net interest income driven by average volume growth at City National Bank, which continued to add both teams and offices in key locations such as New York City and Washington D.C. Net income also included a gain on the sale of the private debt business of BlueBay ($134 million after-tax). These factors were partially offset by increased costs in support of business growth, higher variable compensation commensurate with revenue growth and higher PCL.
  
  
• 4% earnings growth in Insurance, mainly due to the impact of new longevity reinsurance contracts, partially offset by higher claims costs.
  
  
• 36% lower earnings in Investor & Treasury Services, primarily due to lower funding and liquidity revenue driven by the short-term interest rate environment and lower gains from the disposition of certain securities, as well as severance and related costs ($83 million after-tax) associated with repositioning of the business. Lower revenue from our asset services business largely driven by secular industry trends, also contributed to the decrease.
  
  
• 4% lower earnings in Capital Markets, as Corporate and Investment Banking revenue saw headwinds from challenging market conditions driving lower industry-wide investment banking activity. Higher PCL and higher technology and related costs also contributed to the decrease. These factors were partially offset by a lower effective tax rate, largely reflecting changes in earnings mix, higher revenue in Global Markets and the impact of foreign exchange translation. Despite a challenging market environment, RBC Capital Markets^® continues to be well positioned as a premier global investment bank. We have been successful in winning more and higher quality mandates, increasing our ranking to top 10 in U.S. M&A advisory for announced transactions, our highest ranking achieved to date.

Q4 2019 Performance
Earnings of $3,206 million were down $44 million or 1% from a year ago, due to lower results in Investor & Treasury Services, Capital Markets, Insurance and Corporate Support. These were partially offset by higher earnings in Wealth Management and Personal & Commercial Banking.

Earnings were down $57 million or 2% from last quarter, due to lower earnings in Investor & Treasury Services, Capital Markets, Personal & Commercial Banking and Corporate Support. These were partially offset by higher earnings in Wealth Management and Insurance.

Q4 2019 Business Segment Performance

Personal & Commercial Banking

Net income of $1,618 million increased $80 million or 5% from a year ago, mainly due to average volume growth of 6% in loans and 10% in deposits in Canadian Banking, benefiting from solid housing activity, our growing client-facing sales force as well as a favourable interest rate environment. These factors were partially offset by higher PCL. Total PCL increased $70 million or 22%. PCL on impaired loans ratio increased 4 bps, largely driven by higher provisions on impaired loans in Canadian Banking portfolios.

Compared to last quarter, net income decreased $46 million or 3%. Higher net interest income driven by average volume growth of 2%, partially offset by lower spreads, was more than offset by higher PCL and the timing of professional fees.

Wealth Management

Net income of $729 million increased $176 million or 32% from a year ago, mainly due to a gain on the sale of the private debt business of BlueBay ($134 million after-tax) as well as higher average fee-based client assets reflecting market appreciation and industry-leading net sales in Canada.

Compared to last quarter, net income increased $90 million or 14%, largely due to a gain on the sale of the private debt business of BlueBay and higher average fee-based client assets reflecting market appreciation and net sales. These factors were partially offset by a decrease in net interest income driven by lower spreads (mainly at City National Bank), increased costs in support of business growth and higher variable compensation commensurate with revenue growth.

Insurance

Net income of $282 million decreased $36 million or 11% from a year ago, primarily due to lower favourable reinsurance contract renegotiations and lower favourable annual actuarial assumption updates. Higher claims costs and lower favourable investment-related experience also contributed to the decrease. These factors were partially offset by the impact of new longevity reinsurance contracts.

Compared to last quarter, net income increased $78 million or 38%, primarily due to the impact of new longevity reinsurance contracts and favourable reinsurance contract renegotiations in the current quarter, partially offset by lower favourable investment-related experience.

Investor & Treasury Services

Net income of $45 million decreased $110 million or 71% from a year ago, primarily due to severance and related costs associated with repositioning of the business ($83 million after-tax), as well as lower funding and liquidity revenue driven by the short-term rate environment. Lower revenue from our asset services business due to reduced client activity and lower deposit margins also contributed to the decrease.

Compared to last quarter, net income decreased $73 million or 62%, mainly driven by severance and related costs associated with repositioning of the business.

Capital Markets

Net income of $584 million decreased $82 million or 12% from a year ago, largely driven by lower revenue in Corporate and Investment Banking, partly due to lower global investment banking fee pools and higher PCL. These factors were partially offset by a lower effective tax rate, largely reflecting changes in earnings mix. Global Markets generated higher revenue despite heightened market uncertainty.

Compared to last quarter, net income decreased $69 million or 11%, mainly due to lower M&A revenues, primarily in the U.S., lower equity origination, largely in the U.S. and Europe, as well as higher costs related to changes in the timing of deferred compensation. Lower fixed income trading, mainly in the U.S., and higher PCL also contributed to the decrease. These factors were partially offset by a lower effective tax rate, higher foreign exchange trading revenue, mainly in Europe, higher debt origination, largely in the U.S., and higher municipal banking activity.

Corporate Support

Net loss was $52 million in the current quarter, largely due to impact of an unfavourable accounting adjustment. Net loss was $15 million in the prior quarter, mainly due to net unfavourable tax adjustments, largely offset by asset/liability management activities. Net income was $20 million in the prior year, largely reflecting net favourable tax adjustments.

Capital and Credit Quality

Capital – As at October 31, 2019, Basel III CET1 ratio was 12.1%, up 20 bps from last quarter, mainly reflecting internal capital generation which was partially offset by higher risk-weighted assets due to continued business growth, and share buybacks. We continued to deliver a strong return of capital to shareholders with $2 billion returned to shareholders in the fourth quarter, including $474 million of net repurchases.

Credit Quality – Total PCL was $499 million. PCL on loans of $505 million increased $172 million or 52% from a year ago, due to higher provisions in Personal & Commercial Banking, Capital Markets and Wealth Management, as we returned to a more normalized level of credit losses towards the end of 2019. The PCL ratio on loans of 32 bps increased by 9 bps and the PCL on impaired loans ratio was 27 bps.

Total PCL in Personal & Commercial Banking increased $70 million or 22% from a year ago. PCL on impaired loans ratio increased 4 bps, largely driven by higher provisions on impaired loans in our Canadian Banking commercial portfolios and retail portfolios.

Total PCL in Wealth Management increased $30 million from a year ago. PCL on impaired loans ratio increased 17 bps, largely driven by higher provisions on impaired loans in U.S. Wealth Management (including City National), mainly in the consumer discretionary sector.

Total PCL in Capital Markets increased $46 million from a year ago. PCL on impaired loans ratio increased 17 bps, driven by higher provisions on impaired loans in the industrial products and oil & gas sectors.

Compared to last quarter, total PCL on loans increased $76 million or 18%, mainly due to higher provisions in Personal & Commercial Banking and Capital Markets. The PCL ratio on loans was up 5 bps and the PCL on impaired loans ratio was up 2 bps from last quarter.

PCL on loans in Personal & Commercial Banking increased $48 million from the prior quarter, reflecting higher provisions on performing loans largely in Canadian Banking, mainly driven by unfavourable changes in portfolio mix, partially offset by favourable changes in macroeconomic factors and model updates. Higher provisions on impaired loans in Canadian Banking, partially offset by lower provisions on impaired loans in Caribbean Banking, also contributed to the increase.

PCL on loans in Capital Markets increased $22 million from the prior quarter, driven by higher provisions on performing loans due to unfavourable changes in portfolio mix. Higher provisions on impaired loans also contributed to the increase.

Digitally Enabled Relationship Bank

90-day Active Mobile users increased 16% from a year ago to 4.5 million, resulting in a 20% increase in mobile sessions. Digital adoption increased to 52%.

In September 2019, RBC announced the launch of the RBC Insight Edge™ platform for its business banking clients across Canada. RBC Insight Edge™ is a first-of-its-kind Canadian platform that RBC advisors will use to provide clients with relevant insights about their industry performance, customers, and markets. RBC Insight Edge™ leverages the bank's expertise in information management and insight development which is safeguarded by rigorous privacy standards to help business owners and managers turn insights into actions that improve client loyalty and productivity and drive growth.

Q4 2019 vs. Q4 2018
Net income of $1,618 million increased $80 million or 5% compared to the prior year, largely reflecting average volume growth of 8%, partially offset by higher PCL.

Total revenue increased $204 million or 5%, mainly due to average volume growth of 6% in loans and 10% in deposits in Canadian Banking.

Net interest margin was flat compared to prior year, as higher interest rates were offset by the impact of competitive pricing pressures.

Total PCL increased $70 million or 22%. PCL on impaired loans ratio increased 4 bps, largely driven by higher provisions on impaired loans in our Canadian Banking portfolios. For further details on PCL, refer to Credit quality in the Q4 2019 Business Segment Performance section on page 3 of this Earnings Release.  

Non-interest expense increased $20 million or 1%, primarily attributable to an increase in staff-related costs, partially offset by lower marketing costs.

Q4 2019 vs. Q3 2019
Net income decreased $46 million or 3% from the prior quarter. Higher net interest income driven by average volume growth of 2%, partially offset by lower spreads, was more than offset by higher PCL and the timing of professional fees.

Q4 2019 vs. Q4 2018
Net income increased $176 million or 32% from the prior year, mainly due to a gain on the sale of the private debt business of BlueBay of $134 million (after-tax) and higher average fee-based client assets.

Total revenue increased $447 million or 16%, mainly due to a gain on the sale of the private debt business of BlueBay of $151 million, higher average fee-based client assets reflecting market appreciation and net sales, and the change in the fair value of the hedges related to our U.S. share-based compensation plans, which was largely offset in non-interest expense. Higher net interest income driven by average loan growth of 15%, partially offset by lower spreads, also contributed to the increase.

Total PCL increased $30 million. PCL on impaired loans ratio increased 17 bps, largely driven by higher provisions on impaired loans in U.S. Wealth Management (including City National), mainly in one sector. For further details on PCL, refer to Credit quality in the Q4 2019 Business Segment Performance section on page 3 of this Earnings Release.

Non-interest expense increased $201 million or 10%, primarily due to the change in the fair value our U.S. share-based compensation plans, which was largely offset in revenue, increased costs in support of business growth, largely reflecting higher staff-related costs, and higher variable compensation commensurate with revenue growth.

Q4 2019 vs. Q3 2019
Net income increased $90 million or 14% from the prior quarter, largely due to a gain on the sale of the private debt business of BlueBay of $134 million (after-tax) and higher average fee-based client assets reflecting market appreciation and net sales. These factors were partially offset by a decrease in net interest income driven by lower spreads, increased costs in support of business growth and higher variable compensation commensurate with revenue growth.

Q4 2019 vs. Q4 2018
Net income decreased $36 million or 11% from a year ago, primarily due to lower favourable reinsurance contract renegotiations and lower favourable annual actuarial assumption updates. Higher claims costs and lower favourable investment-related experience also contributed to the decrease. These factors were partially offset by the impact of new longevity reinsurance contracts.

Total revenue increased $114 million or 11%, largely due to the change in fair value of investments backing our policyholder liabilities, which is largely offset in PBCAE as indicated below and realized investment gains. Business growth, largely in longevity reinsurance, also contributed to the increase. These factors were partially offset by lower group annuity sales, which is largely offset in PBCAE as indicated below.

PBCAE increased $160 million or 32%, mainly due to the change in fair value of investments backing our policyholder liabilities, lower favourable investment-related experience, business growth and lower favourable reinsurance contract negotiations. Lower favourable annual actuarial assumption updates, largely related to unfavourable mortality, morbidity and commission experience, partially offset by favourable economic assumptions, and higher claims costs also contributed to the increase. These factors were partially offset by lower group annuity sales and the favourable impact of new longevity reinsurance contracts.

Non-interest expense decreased $6 million or 4%, driven by cost management initiatives.                                                                 

Q4 2019 vs. Q3 2019
Net income increased $78 million or 38% from the prior quarter, primarily due to the impact of new longevity reinsurance contracts and favourable reinsurance contract renegotiations in the current quarter, partially offset by lower favourable investment-related experience.

Q4 2019 vs. Q4 2018
Net income decreased $110 million or 71% from a year ago, primarily due to severance and related costs, as well as lower funding and liquidity revenue.

Total revenue decreased $58 million or 9%, mainly reflecting lower funding and liquidity revenue, primarily driven by the short-term rate environment and lower gains from the disposition of certain securities, as well as lower revenue from our asset services business due to reduced client activity. Lower client deposit revenue, largely driven by margin compression reflecting spread tightening, also contributed to the decrease.

Non-interest expense increased $87 million or 21%, largely driven by severance and related costs associated with repositioning of the business.

Q4 2019 vs. Q3 2019
Net income decreased $73 million or 62% from last quarter, mainly driven by severance and related costs associated with repositioning of the business.

Q4 2019 vs. Q4 2018
Net income decreased $82 million or 12% from a year ago, largely driven by lower revenue in Corporate and Investment Banking and higher PCL. These factors were partially offset by a lower effective tax rate largely reflecting changes in earnings mix, as well as higher revenue in Global Markets.

Total revenue decreased $69 million or 3%, mainly due to lower M&A activity across all regions and lower equity trading revenue primarily in the U.S. These factors were partially offset by higher fixed income trading revenue, largely in North America.

Total PCL increased $46 million. PCL on impaired loans ratio increased 17 bps, driven by higher provisions on impaired loans in a couple of sectors. For further details on PCL, refer to Credit quality in the Q4 2019 Business Segment Performance section on page 3 of this Earnings Release.

Non-interest expense increased $64 million or 5%, mainly driven by higher costs related to changes in the timing of deferred compensation and higher technology and related costs.

Q4 2019 vs. Q3 2019
Net income decreased $69 million or 11% from the prior quarter, mainly due to lower M&A revenues, primarily in the U.S., lower equity origination, largely in the U.S. and Europe, as well as higher costs related to changes in the timing of deferred compensation. Lower fixed income trading, mainly in the U.S. and higher PCL also contributed to the decrease. These factors were partially offset by a lower effective tax rate, higher foreign exchange trading revenue, mainly in Europe, higher debt origination, largely in the U.S., and higher municipal banking activity.

Due to the nature of activities and consolidation adjustments reported in this segment, we believe that a comparative period analysis is not relevant. The following identifies material items affecting the reported results in each period.

Total revenue and income taxes (recoveries) in each period in Corporate Support include the deduction of the teb adjustments related to the gross-up of income from Canadian taxable corporate dividends and the U.S. tax credit investment business recorded in Capital Markets. The amount deducted from revenue was offset by an equivalent increase in income taxes (recoveries).

The teb amount for the three months ended October 31, 2019 was $112 million, $111 million in the prior quarter and $142 million last year. For further discussion, refer to the How we measure and report our business segments section of our 2019 Annual Report.

The following identifies the material items, other than the teb impacts noted previously, affecting the reported results in each period.

Q4 2019
Net loss was $52 million in the current quarter, largely due to impact of an unfavourable accounting adjustment.

Q3 2019
Net loss was $15 million in the prior quarter, mainly due to net unfavourable tax adjustments, largely offset by asset/liability management activities.

Q4 2018
Net income was $20 million in the prior year, largely reflecting net unfavourable tax adjustments. 

Key performance and non-GAAP measures

Additional information about these and other key performance and non-GAAP measures can be found under the Key performance and non-GAAP measures section of our 2019 Annual Report.

Return on Equity
We measure and evaluate the performance of our consolidated operations and each business segment using a number of financial metrics, such as net income and ROE. ROE does not have a standardized meaning under GAAP. We use ROE as a measure of return on total capital invested in our business. The following table provides a summary of our ROE calculations:

Non-GAAP Measures
There were no specified items for the three months ended October 31, 2019, July 31, 2019 and October 31, 2018 as well as for the years ended October 31, 2019 and October 31, 2018.

Given the nature and purpose of our management reporting framework, we use and report certain non-GAAP financial measures, which are not defined, do not have a standardized meaning under GAAP, and may not be comparable with similar information disclosed by other financial institutions. We believe that excluding these specified items from our results is more reflective of our ongoing operating results, will provide readers with a better understanding of management's perspective on our performance, and enhance the comparability of our comparative periods. For further information, refer to the Key performance and non-GAAP measures section of our 2019 Annual Report.