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, 2020 and related notes prepared in accordance with International Financial Reporting Standards (IFRS). Our 2020 Annual Report (which includes our audited Annual Consolidated Financial Statements and accompanying Management's Discussion & Analysis), our 2020 Annual Information Form and our Supplementary Financial Information are available on our website at: http://www.rbc.com/investorrelations.

TORONTO, Dec. 2, 2020 /CNW/ - Royal Bank of Canada (TSX: RY) (NYSE: RY) today reported net income of $11,437 million for the year ended October 31, 2020, down $1,434 million or 11% from the prior year. Diluted EPS was $7.82, down 11% over the same period. Our consolidated results reflect higher PCL (increased by $2.5 billion from the prior year), as we prudently built reserves given the unprecedented challenges brought on by the COVID-19 pandemic, in addition to the impact of lower interest rates. Lower results in Personal & Commercial Banking and Wealth Management were partially offset by robust earnings in Capital Markets, as well as higher results in Investor & Treasury Services and Insurance.

The PCL on loans ratio of 63 bps increased by 32 bps from the prior year, largely resulting from higher provisions on performing loans due to the impact of the COVID-19 pandemic. The PCL on impaired loans ratio was 24 bps, down 3 bps from the prior year. Our capital position remained robust, with a Common Equity Tier 1 (CET1) ratio of 12.5%, up 40 bps from the prior year (pre-pandemic levels). We also had a strong average Liquidity Coverage Ratio (LCR) of 145%.

2020 Full Year Business Segment Performance

• 21% lower earnings in Personal & Commercial Banking, mainly due to higher PCL, primarily attributable to the impact of the COVID-19 pandemic on performing loans. The net increase in costs associated with the COVID-19 pandemic, including additional staff-related costs, also contributed to the decrease. Earnings also reflected a decline in net interest income, as strong average volume growth (+6% in loans and +14% in deposits in Canadian Banking) was more than offset by the impact of lower interest rates and competitive pricing pressures. In addition, we continued our investment in digital solutions to improve our clients' experience and deliver personalized advice as the pandemic amplified client preferences for digital offerings.
  
  
• 15% lower earnings in Wealth Management, primarily due to a gain in the prior year on the sale of the private debt business of BlueBay ($134 million after-tax), a decline in net interest income from lower interest rates partially offset by volume growth, and higher staff-related costs. Lower income from sweep deposits also contributed to the decrease. These factors were partially offset by an increase in earnings from higher average fee-based client assets, primarily reflecting net sales and market appreciation, net of the associated variable compensation.
  
  
• 3% earnings growth in Insurance, largely due to higher favourable investment-related experience, partially offset by unfavourable annual actuarial assumption updates.
  
  
• 13% earnings growth in Investor & Treasury Services, as the prior year included severance and related costs ($83 million after-tax) associated with the repositioning of the business. The repositioning combined with the impact of ongoing efficiency initiatives also resulted in lower staff-related costs in the current year. These factors were partially offset by lower client deposit revenue due to margin compression primarily driven by lower interest rates.
  
  
• 4% earnings growth in Capital Markets, largely due to higher fixed income trading revenue across all regions as elevated market volatility drove increased client activity, and higher debt origination across most regions as the low interest rate environment drove increased primary issuance. Higher equity trading revenue primarily in the U.S. also contributed to the increase. These factors were partially offset by higher PCL mainly attributable to the impact of the COVID-19 pandemic on performing assets, higher taxes due to an increase in the proportion of earnings from higher tax rate jurisdictions, and higher compensation on improved results.

Q4 2020 Performance
Earnings of $3,246 million were up $40 million or 1% from a year ago, due to higher results in Capital Markets, Corporate Support and Investor & Treasury Services. These were largely offset by lower earnings in Wealth Management, Personal & Commercial Banking and Insurance. Q4 2019 results included a gain on the sale of the private debt business of BlueBay ($134 million after-tax) in Wealth Management. This gain was largely offset by higher severance and related costs ($83 million after-tax) associated with the repositioning of our Investor & Treasury Services business, as well as by an unfavourable accounting adjustment ($41 million after-tax) in Corporate Support included in the prior year.

Earnings were up $45 million or 1% from last quarter, due to higher earnings in Personal & Commercial Banking, Insurance and Investor & Treasury Services. These were partially offset by lower earnings in Capital Markets, Corporate Support and Wealth Management.

Q4 2020 Business Segment Performance

Personal & Commercial Banking

Net income of $1,502 million decreased $116 million or 7% from a year ago, primarily attributable to lower spreads, largely reflecting the impact of lower interest rates. An increase in technology and related costs and lower card service revenue also contributed to the decrease. These factors were partially offset by average volume growth of 12% in Canadian Banking and lower PCL.

Compared to last quarter, net income increased $135 million or 10%, primarily due to lower PCL, average volume growth of 3% in Canadian Banking and lower staff-related costs. These factors were partially offset by lower spreads, lower card service revenue, an increase in technology and related costs, including digital initiatives, and the timing of professional fees.

Wealth Management

Net income of $546 million decreased $183 million or 25% from a year ago, largely due to a gain in the prior year on the sale of the private debt business of BlueBay of $134 million (after-tax). A decline in net interest income also contributed to the decrease, as average volume growth was more than offset by the impact of lower interest rates. These factors were partially offset by earnings from higher average fee-based client assets, primarily reflecting net sales and market appreciation, net of the associated variable compensation costs.

Compared to last quarter, net income decreased $16 million or 3%. An increase in revenue from higher average fee-based client assets, net of the associated variable compensation costs, and lower PCL were largely offset by unfavourable changes in the net impact of our U.S. share-based compensation plans and the fair value of seed capital investments. In combination with higher technology and related costs and the impact of foreign exchange translation, these factors drove a decrease in net income. Net interest income also contributed to the decrease as average volume growth was more than offset by the impact of lower interest rates.            

Insurance

Net income of $254 million decreased $28 million or 10% from a year ago, primarily due to unfavourable annual actuarial assumption updates. The impact from lower favourable longevity reinsurance contracts and reinsurance contract renegotiations also contributed to the decrease. These factors were partially offset by lower claims costs and higher favourable investment-related experience.

Compared to last quarter, net income increased $38 million or 18%, primarily due to improved travel and disability claims experience, as well as the impact of longevity reinsurance contracts in the current quarter. Higher benefits from favourable reinsurance contract renegotiations also contributed to the increase. These factors were partially offset by unfavourable annual actuarial assumption updates in the current quarter primarily related to mortality experience.

Investor & Treasury Services

Net income of $91 million increased $46 million from a year ago, as the prior year included severance and related costs associated with the repositioning of the business ($83 million after-tax). These factors were partially offset by lower revenue from funding and liquidity, client deposits and our asset services business.

Compared to last quarter, net income increased $15 million or 20%, mainly driven by higher funding and liquidity revenue, primarily reflecting the impact of interest rate movements in the prior quarter, partially offset by lower revenue from our asset services business due to reduced client activity. 

Capital Markets

Net income of $840 million increased $256 million or 44% from a year ago, largely driven by higher revenue in Global Markets reflecting favourable market conditions, and Corporate and Investment Banking, mainly due to higher debt and equity origination across most regions. Lower compensation also contributed to the increase. These factors were partially offset by higher taxes due to an increase in the proportion of earnings from higher tax rate jurisdictions.

Compared to last quarter, net income decreased $109 million or 11%, mainly driven by lower fixed income trading revenue across most regions relative to the prior quarter which benefitted from significant client activity amid elevated market volatility. This was partially offset by lower compensation on decreased results.

Corporate Support

Net income was $13 million in the current quarter, mainly due to asset/liability management activities, partially offset by net unfavourable tax adjustments. Net income was $31 million last quarter, primarily due to asset/liability management activities, partially offset by net unfavourable tax adjustments and residual unallocated costs. Net loss was $52 million in the same quarter last year, largely due to the impact of an unfavourable accounting adjustment.

Capital, Liquidity and Credit Quality

Capital – As at October 31, 2020, our Basel III CET1 ratio was 12.5%, up 50 bps from last quarter, mainly reflecting strong internal capital generation, lower RWA (primarily market risk) and favourable pension & post-employment benefit impact, partially offset by net credit downgrades.

Liquidity – For the quarter ended October 31, 2020, average LCR was 145%, which translates into a surplus of approximately $112 billion, compared to 154% and a surplus of approximately $127 billion in the prior quarter. While average LCR remains at higher than normal levels due to sustained increases in client deposits driven largely due to industry-wide impacts of the pandemic and associated actions taken by central banks, it has declined quarter over quarter due to liquidity optimization actions taken by management.

Credit Quality
Q4 2020 vs. Q4 2019
Total PCL was $427 million. PCL on loans of $398 million decreased $107 million or 21% from a year ago, primarily due to lower provisions in Personal & Commercial Banking and Capital Markets, partially offset by higher provisions in Wealth Management. The PCL on loans ratio of 23 bps decreased 9 bps, and the PCL on impaired loans ratio was 15 bps.

PCL on other financial assets was $29 million, compared to $(6) million in the prior year, largely reflecting higher provisions in Capital Markets due to the impact of the COVID-19 pandemic.

PCL on loans in Personal & Commercial Banking decreased $74 million or 19%, largely due to lower provisions on impaired loans in our Canadian Banking retail and commercial portfolios, mainly due to the impact of the COVID-19 related government support and payment deferral programs, resulting in a decrease of 14 bps in the impaired loans ratio. This was partially offset by higher provisions on performing loans in our Canadian Banking commercial portfolios, primarily due to the evolving impact of the COVID-19 pandemic.

PCL on loans in Wealth Management increased $17 million or 50%, largely reflecting higher provisions on performing loans in U.S. Wealth Management (including City National) due to the evolving impact of the COVID-19 pandemic. This was partially offset by lower provisions and higher recoveries on impaired loans in U.S. Wealth Management (including City National), mainly in the consumer discretionary and investments sectors, respectively, resulting in a decrease of 21 bps in the impaired loans ratio.

PCL on loans in Capital Markets decreased $48 million or 62%, mainly relating to provisions on performing loans as the current quarter largely reflected favourable changes in macroeconomic factors.

Q4 2020 vs. Q3 2020
Compared to last quarter, total PCL decreased $248 million or 37%. PCL on loans decreased $280 million or 41%, primarily due to lower provisions in Personal & Commercial Banking, Capital Markets and Wealth Management. The PCL on loans ratio of 23 bps was down 17 bps and the PCL on impaired loans ratio was down 8 bps from last quarter.

PCL on other financial assets of $29 million increased $32 million, largely reflecting higher provisions in Capital Markets.  

PCL on loans in Personal & Commercial Banking decreased $207 million or 39%, as higher provisions on performing loans in our Canadian Banking commercial portfolios were more than offset by lower provisions in our Canadian Banking retail portfolios, largely due to higher unfavourable changes in our credit quality outlook in the prior quarter. Lower provisions on impaired loans in our Canadian Banking portfolios, mainly due to the impact of the COVID-19 related government support and payment deferral programs, also contributed to the decrease.

PCL on loans in Wealth Management decreased $25 million or 33%, primarily in U.S. Wealth Management (including City National) as the current quarter reflected provisions on impaired loans in a few sectors offset by a recovery in the investments sector, while the prior quarter reflected higher provisions on impaired loans, largely in the industrial products and investments sectors.

PCL on loans in Capital Markets decreased $50 million or 63%, primarily relating to provisions on performing loans as the prior quarter reflected higher unfavourable changes in our credit quality outlook, partially offset by lower repayments in the current quarter.

Digitally Enabled Relationship Bank

90-day Active Mobile users increased 12% from a year ago to 5.0 million, resulting in a 37% increase in mobile sessions. Digital adoption increased to 54.0%.

Q4 2020 vs. Q4 2019
Net income decreased $116 million or 7% from a year ago, primarily attributable to lower spreads, an increase in technology and related costs, and lower card service revenue. These factors were partially offset by average volume growth of 12% in Canadian Banking and lower PCL.

Total revenue decreased $195 million or 4%, mainly due to lower spreads, largely due to the impact of lower interest rates, a decrease in card service revenue and lower service charges. These factors were partially offset by average volume growth in Canadian Banking of 5% in loans and 19% in deposits.

Net interest margin was down 23 bps compared to the same quarter last year, mainly due to lower interest rates.

PCL decreased $71 million or 18%, largely due to lower provisions on impaired loans in our Canadian Banking portfolios, resulting in a decrease of 14 bps in the impaired loans ratio. This was partially offset by higher provisions on performing loans in our Canadian Banking portfolios, primarily due to the evolving impact of the COVID-19 pandemic. For further details on PCL, refer to Capital, Liquidity and Credit quality in the Q4 2020 Business Segment Performance section of this Earnings Release.  

Non-interest expense increased $23 million or 1%, mainly attributable to an increase in technology and related costs, including digital initiatives, as well as incremental COVID-19 related operating costs. These factors were partially offset by lower discretionary spend.

Q4 2020 vs. Q3 2020
Net income increased $135 million or 10% from last quarter, primarily due to lower PCL, average volume growth of 3% in Canadian Banking and lower staff-related costs. These factors were partially offset by lower spreads, lower card service revenue, an increase in technology and related costs, including digital initiatives, and the timing of professional fees.

Q4 2020 vs. Q4 2019
Net income decreased $183 million or 25% from a year ago, largely due to a gain in the prior year on the sale of the private debt business of BlueBay of $134 million (after-tax), as well as lower net interest income. These factors were partially offset by earnings from higher average fee-based client assets, net of the associated variable compensation costs.

Total revenue decreased $119 million or 4%, mainly due to a gain in the prior year on the sale of the private debt business of BlueBay of $151 million, as well as a decline in net interest income as average volume growth was more than offset by the impact of lower interest rates. These factors were partially offset by higher average fee-based client assets, primarily reflecting net sales and market appreciation. 

PCL increased $17 million or 50%, largely reflecting higher provisions on performing loans in U.S. Wealth Management (including City National). This was partially offset by lower provisions and higher recoveries on impaired loans in U.S. Wealth Management (including City National), driving a decrease of 21 bps in the impaired loans ratio. For further details on PCL, refer to Capital, Liquidity and Credit quality in the Q4 2020 Business Segment Performance section of this Earnings Release.

Non-interest expense increased $50 million or 2%, largely due to higher variable compensation commensurate with increased commissionable revenue.

Q4 2020 vs. Q3 2020
Net income decreased $16 million or 3% from last quarter. An increase in revenue from higher average fee-based client assets, net of the associated variable compensation costs, and lower PCL were largely offset by unfavourable changes in the net impact of our U.S. share-based compensation plans and the fair value of seed capital investments. In combination with higher technology and related costs and the impact of foreign exchange translation, these factors drove a decrease in net income. Net interest income also contributed to the decrease as average volume growth was more than offset by the impact of lower interest rates.

Q4 2020 vs. Q4 2019
Net income decreased $28 million or 10% from a year ago, primarily due to unfavourable annual actuarial assumption updates. The impact from lower favourable longevity reinsurance contracts and reinsurance contract renegotiations also contributed to the decrease. These factors were partially offset by lower claims costs and higher favourable investment-related experience.

Total revenue decreased $195 million or 17%, mainly due to the change in fair value of investments backing policyholder liabilities, which is largely offset in PBCAE as indicated below, and lower realized investment gains. These factors were partially offset by business growth, primarily in International Insurance, which is largely offset in PBCAE as indicated below.

PBCAE decreased $193 million or 30%, mainly reflecting the change in fair value of investments backing policyholder liabilities, higher favourable investment-related experience and lower claims costs. These factors were partially offset by unfavourable annual actuarial assumption updates in the current year largely related to mortality experience, lower favourable longevity reinsurance contracts, business growth, and the lower impact from reinsurance contract renegotiations.

Non-interest expense decreased $2 million or 1%.

Q4 2020 vs. Q3 2020
Net income increased $38 million or 18% from last quarter, primarily due to improved travel and disability claims experience as well as the impact of longevity reinsurance contracts in the current quarter. Higher benefits from favourable reinsurance contract renegotiations also contributed to the increase. These factors were partially offset by unfavourable annual actuarial assumption updates in the current quarter primarily related to mortality experience.

Q4 2020 vs. Q4 2019
Net income increased $46 million from a year ago, as the prior year included severance and related costs associated with the repositioning of the business. These factors were partially offset by lower revenue from funding and liquidity, client deposits and our asset services business.

Total revenue decreased $45 million or 8%, mainly due to lower funding and liquidity revenue largely driven by elevated enterprise liquidity partially offset by higher gains from the disposition of securities, and lower client deposit revenue as the growth in client deposit volumes was more than offset by margin compression. Lower revenue from our asset services business driven by reduced client activity also contributed to the decrease. These factors were partially offset by the impact of foreign exchange translation.

Non-interest expense decreased $101 million or 20% as the prior year included severance and related costs associated with the repositioning of the business. Lower staff-related costs reflecting the benefit from ongoing efficiency initiatives also contributed to the decrease. These factors were partially offset by the impact of foreign exchange translation and higher costs in support of efficiency and technology initiatives.

Q4 2020 vs. Q3 2020
Net income increased $15 million or 20% from last quarter, mainly driven by higher funding and liquidity revenue primarily reflecting the impact of interest rate movements in the prior quarter, partially offset by lower revenue from our asset services business due to reduced client activity.

Q4 2020 vs. Q4 2019
Net income increased $256 million or 44% from a year ago, largely driven by higher revenue in Global Markets and Corporate and Investment Banking, as well as lower compensation. These factors were partially offset by higher taxes due to an increase in the proportion of earnings from higher tax rate jurisdictions.

Total revenue increased $288 million or 14%, mainly due to higher equity trading revenue primarily in the U.S. reflecting favourable market conditions and increased client activity, as well as higher debt origination across most regions. Higher fixed income trading revenue largely in the U.S. driven by increased client activity, and higher equity origination across most regions also contributed to the increase.

PCL decreased $13 million or 17%, mainly due to lower provisions on performing loans, partially offset by higher provisions on other financial assets. For further details on PCL, refer to Capital, Liquidity and Credit quality in the Q4 2020 Business Segment Performance section of this Earnings Release.

Non-interest expense decreased $143 million or 11%, primarily driven by lower compensation.

Q4 2020 vs. Q3 2020
Net income decreased $109 million or 11% from last quarter, mainly driven by lower fixed income trading revenue across most regions relative to the prior quarter which benefitted from significant client activity amid elevated market volatility. This was partially offset by lower compensation on decreased results.

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, 2020 was $127 million, $126 million last quarter and $112 million in the same quarter last year. For further discussion, refer to the How we measure and report our business segments section of our 2020 Annual Report.

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

Q4 2020
Net income was $13 million in the current quarter, mainly due to asset/liability management activities, partially offset by net unfavourable tax adjustments.

Q3 2020
Net income was $31 million last quarter, primarily due to asset/liability management activities, partially offset by net unfavourable tax adjustments and residual unallocated costs.

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

Key performance and non-GAAP measures

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, at both the consolidated and business segment levels, as a measure of return on total capital invested in our business.

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 2020 Annual Report.