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 October3 1, 2022 and related notes prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board, unless otherwise noted. Our 2022 Annual Report (which includes our audited Annual Consolidated Financial Statements and accompanying Management's Discussion & Analysis), our 2022 Annual Information Form and our Supplementary Financial Information are available on our website at: http://www.rbc.com/investorrelations.

TORONTO, Nov. 30, 2022 /CNW/ - Royal Bank of Canada⁷ (TSX: RY) (NYSE: RY) today reported net income of $15.8 billion for the year ended October 31, 2022, down $243 million or 2% from the prior year. Diluted EPS⁸of $11.06 remained unchanged from the prior year. Our consolidated results include total PCL of $484 million compared to $(753) million last year, primarily reflecting lower releases of provisions on performing loans in Personal & Commercial Banking and Capital Markets due to unfavourable changes in our macroeconomic outlook in the current year. Lower earnings in Capital Markets and Insurance were partly offset by higher results in Personal & Commercial Banking, Wealth Management and Investor & Treasury Services.

Pre-provision, pre-tax earnings⁸ of $20.6 billion were up 4% from a year ago, mainly reflecting higher net interest income driven by strong volume growth and higher spreads in Canadian Banking and Wealth Management. These factors were partially offset by lower revenue in Capital Markets, including the impact from loan underwriting markdowns in Q3 2022, largely driven by challenging market conditions. Results also reflected higher salaries, technology investments and discretionary costs to support strong client-driven growth.

The PCL on loans ratio of 6 bps increased 16 bps from the prior year. The PCL on impaired loans ratio was 10 bps, flat from the prior year.

Our capital position remained robust, with a Common Equity Tier 1 (CET1) ratio of 12.6% supporting strong client-driven organic growth. In addition, this year we returned $12.4 billion to our shareholders through common share buybacks and dividends. And today, we declared a quarterly dividend of $1.32 per share reflecting an increase of $0.04 or 3%.

"While market conditions continue to be tough, our 2022 results reflect a resilient bank that is well-positioned to pursue strategic growth and deliver long-term shareholder value. Our premium businesses, strong balance sheet, prudent risk management and diversified business model mean we can deliver advice and services that help our clients navigate all cycles. RBC colleagues remain focused on building more exceptional experiences for our clients and supporting sustainable and prosperous communities."

– Dave McKay, RBC President and Chief Executive Officer

2022 Full-Year Business Segment Performance

• 7% earnings growth in Personal & Commercial Banking, primarily attributable to higher net interest income, driven by average volume growth of 9% in both loans and deposits in Canadian Banking, and higher spreads. As a result of the rising interest rate environment (Bank of Canada raised the benchmark interest rate by 350 bps from March to October 2022), we saw higher spreads as compared to the prior year. Higher non-interest income, including higher foreign exchange revenue, card service revenue and service charges driven by increased client activity also contributed to the increase in earnings. These factors were partially offset by higher PCL, and higher staff and technology related costs. Our Canadian Banking franchise generated strong positive operating leverage of 3.8% while continuing to invest in digital initiatives to improve the client experience and deliver personalized advice.
• 20% earnings growth in Wealth Management, mainly due to higher net interest income driven by average volume growth of 19% in loans and 11% in deposits largely in U.S. Wealth Management (including City National), and higher interest rates. Higher average fee-based client assets primarily reflecting net sales, as well as the impact of a legal provision taken in U.S. Wealth Management (including City National) in the prior year that was partially released in the first quarter of 2022, also contributed to the increase. These factors were partially offset by higher staff-related costs and variable compensation.
• 4% lower earnings in Insurance, largely due to the impact of lower new longevity reinsurance contracts, partially offset by higher favourable investment-related experience.
• 17% earnings growth in Investor & Treasury Services, mainly due to higher revenue from client deposits reflecting improved margins, partially offset by higher technology-related costs.
• 30% lower earnings in Capital Markets, primarily driven by lower revenue in Corporate & Investment Banking, larger releases of provisions on performing assets in the prior year and lower revenue in Global Markets. Global investment banking fee pools were impacted by weakness in credit and equity markets beginning in the second fiscal quarter of 2022, resulting in an approximately 30% decline in global investment banking fee pools⁹ this fiscal year compared to record levels in fiscal 2021.

Q4 2022 Performance

Earnings of $3.9 billion remained relatively flat from a year ago, with diluted EPS growth of 2% over the same period. Our consolidated results reflect $381 million of provisions, primarily taken on loans in the current quarter, as compared to $(227) million in the prior year, due to releases of provisions on performing loans, primarily in Personal & Commercial Banking. Higher earnings in Wealth Management and Personal & Commercial Banking reflected higher interest rates and robust client-driven volume growth. Earnings in Insurance and Investor & Treasury Services were largely unchanged. These were offset by lower earnings in Capital Markets.

Pre-provision, pre-tax earnings[10] of $5.2 billion were up 10% from a year ago, mainly reflecting higher net interest income driven by higher spreads and strong volume growth in Canadian Banking and Wealth Management. This was partially offset by lower market-related revenue in Capital Markets and Wealth Management. Results were also impacted by higher staff-related costs, including higher salaries and variable compensation.

Earnings were up $305 million or 9% from last quarter due to higher earnings in Capital Markets, Personal & Commercial Banking, Insurance, and Wealth Management. These were partially offset lower earnings in Investor & Treasury Services. The PCL on loans ratio of 18 bps was up 1 bp from 17 bps last quarter. The PCL on impaired loans ratio of 12 bps was up 4 bps from last quarter.

 

Q4 2022 Business Segment Performance

Personal & Commercial Banking 

Net income of $2,139 million increased $106 million or 5% from a year ago, primarily attributable to higher net interest income reflecting higher spreads from higher interest rates and strong average volume growth of 10% in loans (including strong mortgage and business loan growth of 10% and 15%, respectively) and 9% in deposits in Canadian Banking. Higher non-interest income, including higher card service and foreign exchange revenue from increased client activity, also contributed to the increase. These factors were partially offset by higher PCL, higher staff and technology related costs, including digital initiatives, as well as higher marketing costs.

Compared to last quarter, net income increased $116 million or 6%, primarily due to higher net interest income reflecting higher spreads and volume growth. Lower PCL also contributed to the increase. These factors were partially offset by higher staff-related and marketing costs, as well as the timing of professional fees.

Wealth Management

Net income of $822 million increased $264 million or 47% from a year ago, primarily due to higher net interest income reflecting higher interest rates and average volume growth in loans and deposits, and the impact of a legal provision taken in U.S. Wealth Management (including City National) in the prior year. These factors were partially offset by lower fee-based revenues mainly driven by unfavourable market conditions.

Compared to last quarter, net income increased $45 million or 6%, mainly due to higher net interest income largely reflecting higher interest rates. This factor was partially offset by lower average fee-based client assets, largely driven by unfavourable market conditions.

Insurance

Net income of $268 million remained relatively flat, largely reflecting the impact of offsetting items between revenue and PBCAE (policyholder benefits, claims and acquisition expense). PBCAE also included the impact of favourable annual actuarial assumption updates.

Compared to last quarter, net income increased $82 million or 44%, mainly due to favourable annual actuarial assumption updates.

Investor & Treasury Services

Net income of $110 million remained relatively flat as the impact of higher revenue reflecting improved margins mainly driven by higher interest rates from client deposits, was largely offset by lower funding and liquidity revenue and lower revenue from our asset services business.

Compared to last quarter, net income decreased $54 million or 33%, mainly driven by lower funding and liquidity revenue, including the impact of a funding cost adjustment.

Capital Markets

Net income of $617 million decreased $303 million or 33% from a year ago, primarily due to the timing of true-ups related to our variable compensation plans. Lower revenue in Corporate & Investment Banking reflecting lower debt and equity origination as well as lower loan syndication revenue and higher PCL, also contributed to the decrease. These factors were partially offset by a lower effective tax rate reflecting changes in the earnings mix as well as higher fixed income trading revenue in Global Markets.

Compared to last quarter, net income increased $138 million or 29%, mainly due to higher fixed income trading revenue as the prior quarter included the impact from loan underwriting markdowns, primarily in the U.S., largely driven by challenging market conditions. This factor was partially offset by higher compensation on increased results and the timing of true-ups related to our variable compensation plans.

Capital, Liquidity and Credit Quality 

Capital – As at October 31, 2022, our CET1 ratio was 12.6%, down 110 bps from last year, mainly reflecting risk-weighted asset growth (excluding FX), share repurchases, the impact of our Brewin Dolphin acquisition, and the unfavourable impact of fair value other comprehensive income adjustments. These factors were partially offset by net internal capital generation, favourable net credit migration and model updates.             

Liquidity – For the quarter ended October 31, 2022, the average liquidity coverage ratio (LCR) was 125%, which translates into a surplus of approximately $73 billion, compared to 123% and a surplus of approximately $66 billion in the prior quarter. LCR has increased compared to last quarter as loan growth was more than offset by an increase in volume and change in mix of client deposits, as well as by issuances of term funding.

The Net Stable Funding Ratio (NSFR) as at October 31, 2022 was 112%, which translates into a surplus of approximately $95 billion, compared to 113% and a surplus of approximately $100 billion in the prior quarter. NSFR remained relatively flat compared to last quarter as growth in loans and securities was offset by issuance of term funding and increases in client deposits.

Credit Quality

Q4 2022 vs. Q4 2021

Total PCL was $381 million compared to $(227) million last year, reflecting provisions taken on performing loans and higher provisions on impaired loans in the current quarter, as compared to releases of provisions on performing loans in the prior year, primarily in Personal & Commercial Banking. The PCL on loans ratio of 18 bps compared to (12) bps last year increased 30 bps.

PCL on performing loans was $126 million compared to $(355) million last year, primarily attributable to releases of provisions in the prior year driven by improvements in our macroeconomic and credit quality outlook, as compared to provisions taken in the current quarter in our Canadian Banking portfolios mainly reflecting unfavourable changes in our macroeconomic and credit quality outlook.

PCL on impaired loans increased $117 million, primarily due to higher provisions in Personal & Commercial Banking, largely in our Canadian Banking portfolios.

Q4 2022 vs. Q3 2022

Total PCL was $381 million and increased $41 million or 12% from last quarter, largely due to higher provisions on loans in Wealth Management and Capital Markets, partially offset by lower provisions on loans in Personal & Commercial Banking. The PCL on loans ratio increased 1 bp.

PCL on performing loans decreased $51 million or 29%, primarily due to lower provisions in Personal & Commercial Banking, largely in our Caribbean Banking portfolios, mainly reflecting the recovery from the COVID-19 pandemic and model updates. This was partially offset by higher provisions in U.S. Wealth Management (including City National), mainly reflecting unfavourable changes in our credit outlook. 

PCL on impaired loans increased $84 million or 49%, largely due to higher provisions in Personal & Commercial Banking in our Canadian Banking portfolios, partially offset by lower provisions in our Caribbean Banking portfolios. Provisions taken in Capital Markets in the current quarter, mainly in the other services sector, as compared to recoveries last quarter, also contributed to the increase.

Selected financial and other highlights

 

Personal & Commercial Banking 

 

Q4 2022 vs. Q4 2021

Net income increased $106 million or 5% from a year ago, primarily attributable to higher net interest income reflecting higher spreads and average volume growth of 9% in Canadian Banking. Higher non-interest income also contributed to the increase. These factors were partially offset by higher PCL, higher staff and technology related costs, including digital initiatives, as well as higher marketing costs.

Total revenue increased $814 million or 18%.

Canadian Banking revenue increased $765 million or 17%, primarily due to higher net interest income reflecting higher spreads and average volume growth in Canadian Banking of 10% in loans and 9% in deposits. Increased client activity contributed to higher card service and foreign exchange revenue. These factors were partially offset by lower average mutual fund balances driving lower distribution fees.

Caribbean & U.S. Banking revenue increased $49 million or 26%, mainly due to higher net interest income reflecting higher spreads and the impact of foreign exchange translation.

Net interest margin was up 30 bps, mainly due to the impact of the rising interest rate environment.

PCL was $286 million compared to $(208) million last year, primarily attributable to releases of provisions on performing loans in the prior year reflecting the recovery from the COVID-19 pandemic as compared to provisions taken in the current quarter in our Canadian Banking portfolios, mainly reflecting unfavourable changes in our macroeconomic and credit quality outlook. Higher provisions on impaired loans, primarily in our Canadian Banking portfolios, also contributed to the increase, resulting in a 6 bps increase in the PCL on impaired loans ratio.

Non-interest expense increased $183 million or 9%, mainly attributable to higher staff and technology related costs, including digital initiatives, higher marketing costs, as well as professional fees.

Q4 2022 vs. Q3 2022

Net income increased $116 million or 6% from last quarter, primarily due to higher net interest income reflecting higher spreads. Lower PCL also contributed to the increase. These factors were partially offset by higher staff-related and marketing costs, as well as the timing of professional fees.

Net interest margin was up 11 bps, mainly due to the impact of the rising interest rate environment.

Wealth Management

 

Q4 2022 vs. Q4 2021

Net income increased $264 million or 47% from a year ago, primarily due to higher net interest income reflecting higher interest rates.

Total revenue increased $532 million or 15%, primarily due to higher net interest income reflecting higher interest rates and average volume growth of 26% in loans and 4% in deposits. The impact of foreign exchange translation and higher revenue from sweep deposits also contributed to the increase. These factors were partially offset by lower average fee-based client assets, largely driven by unfavourable market conditions.

PCL increased $58 million, largely reflecting higher provisions on performing loans in U.S. Wealth Management (including City National), mainly driven by unfavourable changes in our macroeconomic outlook.

Non-interest expense increased $140 million or 5%, largely due to the impact of foreign exchange translation as well as the Brewin Dolphin acquisition and related costs in the current quarter. Higher staff and technology related costs also contributed to the increase. Partly offsetting these factors was the impact of a legal provision taken in U.S. Wealth Management (including City National) in the prior year that was partially released in the first quarter of 2022.

Q4 2022 vs. Q3 2022

Net income increased $45 million or 6% from last quarter, mainly due to higher net interest income largely reflecting higher interest rates. This factor was partially offset by lower average fee-based client assets, largely driven by unfavourable market conditions. 

Insurance   

 

Q4 2022 vs. Q4 2021

Net income remained relatively flat largely reflecting the impact of offsetting items between revenue and PBCAE. PBCAE also included the impact of favourable annual actuarial assumption updates.

Total revenue decreased $857 million or 57%, primarily due to lower group annuity sales and the change in fair value of investments backing policyholder liabilities, both of which are largely offset in PBCAE as indicated below.

PBCAE decreased $916 million or 89%, primarily due to lower group annuity sales and the change in fair value of investments backing policyholder liabilities, both of which are largely offset in revenue. Higher favourable annual actuarial assumption updates largely related to economic assumption updates in the current year also contributed to the decrease.

Non-interest expense increased $5 million or 3%.

Q4 2022 vs. Q3 2022

Net income increased $82 million or 44% from last quarter, mainly due to favourable annual actuarial assumption updates.

Investor & Treasury Services 

 

 

Q4 2022 vs. Q4 2021

Net income remained relatively flat as the impact of higher revenue from client deposits was largely offset by lower funding and liquidity revenue and lower revenue from our asset services business.

Total revenue decreased $45 million or 8%, mainly due to lower funding and liquidity revenue including the impact of a funding cost adjustment. Funding and liquidity revenue, as reflected in net interest income, includes funding costs, which were unfavourably impacted by increasing rates and offset by gains on related economic hedges in non-interest income. Lower revenue from our asset services business, the impact of repositioning initiatives and foreign exchange translation also contributed to the decrease. These factors were partially offset by higher revenue from client deposits, reflecting improved margins.

Non-interest expense decreased $35 million or 8%, mainly due to the impact of foreign exchange translation and lower costs associated with ongoing efficiency initiatives.

Q4 2022 vs. Q3 2022

Net income decreased $54 million or 33% from last quarter, mainly driven by lower funding and liquidity revenue, including the impact of a funding cost adjustment.

Capital Markets     

 

 

Q4 2022 vs. Q4 2021

Net income decreased $303 million or 33% from a year ago, primarily due to the timing of true-ups related to our variable compensation plans. Lower revenue in Corporate & Investment Banking, and higher PCL also contributed to the decrease. These factors were partially offset by a lower effective tax rate reflecting changes in the earnings mix as well as higher revenue in Global Markets.

Total revenue increased $15 million or 1%, mainly due to higher fixed income trading revenue across most regions partially offset by lower debt origination across all regions.

PCL was $32 million compared to $(22) million last year, largely attributable to provisions on performing assets in the current year, reflecting unfavorable changes in our macroeconomic outlook as compared to releases in the prior year reflective of the recovery from the COVID-19 pandemic. Provisions taken on impaired loans in the current quarter, largely in the other services sector, as compared to recoveries in the prior year, mainly in the oil and gas sector, also contributed to the increase, resulting in an increase of 7 bps in the PCL on impaired loans ratio.

Non-interest expense increased $461 million or 40%, primarily due to the timing of true-ups related to our variable compensation plans. Higher technology-related costs and the impact of foreign exchange translation also contributed to the increase.

Q4 2022 vs. Q3 2022

Net income increased $138 million or 29% from last quarter, mainly due to higher fixed income trading revenue as the prior quarter included the impact from loan underwriting markdowns, primarily in the U.S., largely driven by challenging market conditions. This factor was partially offset by higher compensation on increased results and the timing of true-ups related to our variable compensation plans.

Corporate Support 

 

Due to the nature of activities and consolidation adjustments reported in this segment, we believe that a comparative period analysis is not relevant.

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, 2022 was $142 million, compared to $143 million in the prior quarter and $125 million in the same quarter last year. For further discussion, refer to the How we measure and report our business segments section of our 2022 Annual Report.

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

Q4 2022
Net loss was $74 million, primarily due to residual unallocated items and unfavourable tax adjustments.

Q3 2022
Net loss was $52 million, primarily due to residual unallocated items and unfavourable tax adjustments.

Q4 2021
Net income was $5 million.

We measure and evaluate the performance of our consolidated operations and each business segment using a number of financial metrics, such as net income, ROE and non-GAAP measures, including pre-provision, pre-tax earnings. Certain financial metrics, including ROE and pre-provision, pre-tax earnings do not have any standardized meanings under GAAP and may not be comparable to similar measures disclosed by other financial institutions. We use ROE, at both the consolidated and business segment levels, as a measure of return on total capital invested in our business. We use pre-provision, pre-tax earnings to assess our ability to generate sustained earnings growth outside of credit losses, which are impacted by the cyclical nature of a credit cycle. We believe that certain non-GAAP measures are more reflective of our ongoing operating results and provide readers with a better understanding of management's perspective on our performance.

Calculation of ROE   

 

Additional information about key performance and non-GAAP measures can be found under the Key performance and non-GAAP measures section of our 2022 Annual Report.

Consolidated Balance Sheets

 

Consolidated Statements of Income 

 

Consolidated Statements of Comprehensive Income   

 

Consolidated Statements of Changes in Equity    

 

 

CAUTION REGARDING FORWARD-LOOKING STATEMENTS

From time to time, we make written or oral forward-looking statements within the meaning of certain securities laws, including the "safe harbour" provisions of the United States Private Securities Litigation Reform Act of 1995 and any applicable Canadian securities legislation. We may make forward-looking statements in this Earnings Release, in other filings with Canadian regulators or the SEC, in reports to shareholders, and in other communications, including statements by our President and Chief Executive Officer. Forward-looking statements in this document include, but are not limited to, statements relating to our financial performance objectives, vision and strategic goals. The forward-looking information contained in this Earnings Release is presented for the purpose of assisting the holders of our securities and financial analysts in understanding our financial position and results of operations as at and for the periods ended on the dates presented, as well as our financial performance objectives, vision and strategic goals, and may not be appropriate for other purposes. Forward-looking statements are typically identified by words such as "believe", "expect", "foresee", "forecast", "anticipate", "intend", "estimate", "goal", "commit", "target", "objective", "plan" and "project" and similar expressions of future or conditional verbs such as "will", "may", "might", "should", "could" or "would".

By their very nature, forward-looking statements require us to make assumptions and are subject to inherent risks and uncertainties, which give rise to the possibility that our predictions, forecasts, projections, expectations or conclusions will not prove to be accurate, that our assumptions may not be correct, that our financial performance objectives, vision and strategic goals will not be achieved, and that our actual results may differ materially from such predictions, forecasts, projections, expectations or conclusions.

We caution readers not to place undue reliance on these statements as a number of risk factors could cause our actual results to differ materially from the expectations expressed in such forward-looking statements. These factors – many of which are beyond our control and the effects of which can be difficult to predict – include: credit, market, liquidity and funding, insurance, operational, regulatory compliance (which could lead to us being subject to various legal and regulatory proceedings, the potential outcome of which could include regulatory restrictions, penalties and fines), strategic, reputation, competitive, model, legal and regulatory environment, systemic risks and other risks discussed in the risk sections of our annual report for the fiscal year ended October 31, 2022 (the 2022 Annual Report); including business and economic conditions in the geographic regions in which we operate, Canadian housing and household indebtedness, information technology and cyber risks, geopolitical uncertainty, environmental and social risk (including climate change), digital disruption and innovation, privacy, data and third party related risks, regulatory changes, culture and conduct risks, the effects of changes in government fiscal, monetary and other policies, tax risk and transparency, and the emergence of widespread health emergencies or public health crises such as pandemics and epidemics, including the COVID-19 pandemic and its impact on the global economy, financial market conditions and our business operations, and financial results, condition and objectives. Additional factors that could cause actual results to differ materially from the expectations in such forward-looking statements can be found in the risk section of our 2022 Annual Report.

We caution that the foregoing list of risk factors is not exhaustive and other factors could also adversely affect our results. When relying on our forward-looking statements to make decisions with respect to us, investors and others should carefully consider the foregoing factors and other uncertainties and potential events. Material economic assumptions underlying the forward-looking statements contained in this Earnings Release are set out in the Economic, market and regulatory review and outlook section and for each business segment under the Strategic priorities and Outlook sections in our 2022 Annual Report. Except as required by law, we do not undertake to update any forward-looking statement, whether written or oral, that may be made from time to time by us or on our behalf.  

Additional information about these and other factors can be found in the risk sections of our 2022 Annual Report. Information contained in or otherwise accessible through the websites mentioned does not form part of this Earnings Release. All references in this Earnings Release to websites are inactive textual references and are for your information only.

ACCESS TO QUARTERLY RESULTS MATERIALS

Interested investors, the media and others may review this quarterly Earnings Release, quarterly results slides, supplementary financial information and our 2022 Annual Report at rbc.com/investorrelations.

Quarterly conference call and webcast presentation

Our quarterly conference call is scheduled for November 30, 2022 at 8:00 a.m. (EST) and will feature a presentation about our fourth quarter and 2022 results by RBC executives. It will be followed by a question and answer period with analysts. Interested parties can access the call live on a listen-only basis at rbc.com/investorrelations/quarterly-financial-statements.html or by telephone (416-340-2217, 866-696-5910, passcode  6983188#). Please call between 7:50 a.m. and 7:55 a.m. (EST).

Management's comments on results will be posted on our website shortly following the call. A recording will be available by 5:00 p.m. (EST) from November 30, 2022 until February 28, 2023 at rbc.com/investorrelations/quarterly-financial-statements.html or by telephone (905-694-9451 or 800-408-3053, passcode 4264780#).

ABOUT RBC

Royal Bank of Canada is a global financial institution with a purpose-driven, principles-led approach to delivering leading performance. Our success comes from the 95,000+ employees who leverage their imaginations and insights to bring our vision, values and strategy to life so we can help our clients thrive and communities prosper. As Canada's biggest bank and one of the largest in the world, based on market capitalization, we have a diversified business model with a focus on innovation and providing exceptional experiences to our 17 million clients in Canada, the U.S. and 27 other countries. Learn more at rbc.com.

We are proud to support a broad range of community initiatives through donations, community investments and employee volunteer activities. See how at rbc.com/community-social-impact.

 

 

SOURCE Royal Bank of Canada