Royal Bank of Canada Reports Fourth Quarter and Record 2012 Results

All amounts are in Canadian dollars and are based on our audited Annual and unaudited Interim Consolidated Financial Statements for the year ended October 31, 2012 and related notes prepared in accordance with International Financial Reporting Standards (IFRS). Our 2012 Annual Report (which includes our audited annual Consolidated Financial Statements and accompanying Management's Discussion & Analysis), our 2012 Annual Information Form and our Supplementary Financial Information are available on our website at rbc.com/investorrelations.

TORONTO, Nov. 29, 2012 /CNW/ - Royal Bank of Canada (RY on TSX and NYSE) today reported record net income of $7.5 billion for the year ended October 31, 2012, up $1.1 billion or 17% from the prior year. Earnings from continuing operations of $7.6 billion were up $620 million or 9% from the prior year. Our results reflected record earnings in Personal & Commercial Banking, Capital Markets and Insurance.

"Our record earnings from continuing operations of $7.6 billion this year were driven by exceptional growth in Canadian Banking, Capital Markets and Insurance, demonstrating the earnings power of our diversified business model," said Gord Nixon, RBC President and CEO. "This year, we extended our leadership position and executed our long-term growth strategy while maintaining our prudent risk and disciplined cost management."

Strong volume growth across all of our Canadian banking businesses, higher fixed income trading and corporate and investment banking results, and improved claims experience in Insurance drove our strong earnings this year. These results were partially offset by higher costs in support of business growth, moderated by our cost management initiatives, and increased provision for credit losses (PCL) in our wholesale and Caribbean portfolios.

Q4 2012 Performance

"We ended the year strongly with results of over $1.9 billion in the fourth quarter driven by solid earnings from most of our businesses including another quarter of over $1 billion in earnings from Canadian Banking," Nixon said. "While the financial industry is expected to face headwinds in 2013, we are confident in our ability to weather these challenges given our strong financial and competitive position."

Earnings of $1,911 million were up $340 million or 22% from last year. Earnings from continuing operations were up $302 million or 19%, driven by stronger fixed income trading results reflecting improved market conditions as compared to challenging markets in the prior year. Solid volume growth across all our Canadian banking businesses, along with stable margins and positive operating leverage, and lower claims costs in Insurance also contributed to the increase. We had higher provisions this quarter, reflecting a single account in our wholesale portfolio and increased provisions in our Canadian personal and business lending portfolios.

Earnings were down $329 million or 15% from the prior record quarter. Excluding certain items which had a favourable net impact of $262 million last quarter, net income was down $67 million or 3%⁽¹⁾. We had higher earnings in all of our retail segments, including lower claims costs in Insurance, higher average fee-based client assets and transaction volumes in Wealth Management, and volume growth in Canadian Banking. These results were more than offset by other net favourable tax adjustments in Corporate Support in the prior quarter.

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Q4 2012 Business Segment Performance

Reflects the strategic realignment of certain business segments, announced on September 11, 2012 and effective October 31, 2012⁽¹⁾.

Personal & Commercial Banking net income was $1,034 million, up $87 million or 9% from last year driven by solid volume growth and a lower effective tax rate in Canada, partially offset by increased costs in support of business growth and higher PCL largely in our Canadian business lending portfolio. We also achieved positive operating leverage of 1.8% in Canadian Banking. Compared to last quarter, net income was down $68 million or 6%.  Excluding the prior quarter mortgage prepayment interest adjustment, net income was up $24 million or 2%⁽²⁾, driven by volume growth in Canadian Banking.

Wealth Management net income was $207 million, up $28 million or 16% from last year and up $51 million or 33% from the prior quarter. Our results were driven by higher average fee-based client assets, higher transaction volumes and the increase in the fair value of our U.S. share-based compensation plan. The prior year included a favourable accounting adjustment related to a deferred compensation plan of $27 million ($16 million after-tax). The prior quarter included an unfavourable impact of $29 million ($21 million after-tax) related to certain regulatory and legal matters.

Insurance net income was $194 million, down $6 million or 3% from last year, as lower claims costs in Canadian insurance products and reinsurance products were offset by lower net investment gains and no new U.K. annuity reinsurance contracts in the current quarter.  Compared to the prior quarter, net income was up $15 million or 8%, driven by lower claims costs in our reinsurance products and Canadian insurance products. The prior quarter included a favourable impact from the reduction of policy acquisition cost-related liabilities of $33 million ($24 million after-tax).

Investor & Treasury Services net income was $72 million, up $32 million from last year, largely due to higher funding and liquidity trading results reflecting improved market conditions as compared to the challenging market conditions in the prior year. A full quarter of earnings reflecting our 100% ownership of RBC Investor Services also contributed to the increase although lower spreads and decreased transaction volumes continued to impact our results. Compared to the prior quarter, net income was up $21 million due to higher funding and liquidity trading results and a full quarter of earnings related to RBC Investor Services, partially offset by lower custodial and securities lending fees.

Capital Markets net income was $410 million, up $285 million from the prior year, primarily reflecting higher fixed income trading results. Higher origination reflecting solid issuance activity and strong client growth in lending and increased loan syndication activity largely in the U.S. also contributed to the increase. These results were partially offset by higher PCL related to a single account and a higher effective tax rate reflecting increased earnings in the U.S. Compared to the prior quarter, net income was down $19 million or 4%, largely due to lower trading results particularly at the end of the quarter, lower loan syndication activity in the U.S. following a very strong third quarter and higher PCL as noted above. These factors were partially offset by higher equity origination volumes primarily in the U.S. and Canada.

Corporate Support net loss was $6 million, mainly due to net unfavourable tax adjustments. Net income in the prior year was $118 million, reflecting net favourable tax adjustments. In the prior quarter, net income was $323 million, largely due to the settlement of several tax matters with the CRA which resulted in the release of $128 million of tax uncertainty provisions and interest income of $72 million ($53 million after-tax) related to a refund of taxes paid. The prior quarter also included other net favourable tax adjustments.

Capital - As at October 31, 2012, Tier 1 capital ratio was 13.1% and Total capital ratio was 15.1%. Tier 1 capital was up 10 basis points from last quarter largely due to internal capital generation, partially offset by the phase-in of the transition impact of IFRS and higher risk-weighted assets reflecting growth in our wholesale credit portfolio. Our estimated pro-forma Basel III Common Equity Tier 1 ratio on a fully implemented basis was approximately 8.4%.

Credit Quality - In the fourth quarter, total PCL was $362 million, up $86 million from last year mainly due to increased provisions in our wholesale portfolio related to a single account and in our Canadian Banking business lending portfolio. Compared to the prior quarter, PCL was up $38 million due to the increased provisions noted above, offset by lower provisions in our Caribbean portfolios.

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Q4 2012 vs. Q4 2011

Net income of $1,034 million increased $87 million or 9% compared to the prior year, driven by solid volume growth of 7% across all our Canadian businesses and a lower effective tax rate in Canada. These factors were partially offset by increased costs in support of business growth and higher PCL in Canada.

Total revenue increased $181 million or 6%, reflecting solid volume growth in our Canadian personal and business deposits, personal and business loans, as well as higher credit card transaction volumes.

PCL increased $28 million or 10%, mainly due to higher provisions in our Canadian business lending portfolio, offset by lower provisions in our Caribbean portfolio.

Non-interest expense increased $57 million or 4%, mainly due to higher costs in support of business growth and higher performance-related compensation in Canada, partially offset by our ongoing focus on cost management. In addition, the prior year included net favourable stamp tax and accounting adjustments in the Caribbean.

Q4 2012 vs. Q3 2012

Net income decreased $68 million or 6% compared to last quarter. Excluding a mortgage prepayment interest adjustment that favourably impacted our results last quarter, net income increased $24 million or 2%⁽¹⁾, largely due to volume growth in Canadian Banking.

Total revenue decreased $71 million or 2%. Excluding the mortgage prepayment interest adjustment, total revenue increased $54 million or 2%⁽¹⁾, reflecting continued volume growth in Canada in residential mortgages, business and personal deposits and loans and higher credit card transaction volumes.

PCL remained relatively flat compared to last quarter as lower provisions in our Caribbean portfolio were offset by higher provisions in our Canadian business lending portfolio.

Non-interest expense increased $18 million or 1%, mainly due to higher costs in support of business growth in Canada and seasonally higher domestic marketing spend partially offset by our ongoing focus on costs management.

On October 23, 2012 we announced a definitive agreement to acquire the Canadian auto finance and deposit business of Ally Financial Inc. which will add significant scale to our existing business and strengthen RBC's position as a leader in the Canadian auto finance industry. This transaction is subject to customary closing conditions and is expected to close in the first calendar quarter of 2013.

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Q4 2012 vs. Q4 2011

Net income of $207 million increased $28 million or 16% compared to the prior year, mainly due to higher average fee-based client assets and higher transaction volumes. The increase in fair value of our U.S. share-based compensation plan also contributed to the increase. The prior year results included a favourable accounting adjustment related to a deferred compensation plan of $27 million ($16 million after-tax).

Total revenue increased $110 million or 10%, mainly due to higher average fee-based client assets reflecting capital appreciation and net sales and higher transaction volumes reflecting improved market conditions. The increase in fair value of our U.S. share-based compensation plan also contributed to the increase.

Non-interest expense increased $79 million or 9%, mainly due to higher variable compensation driven by higher commission-based revenue and the increase in fair value of our U.S. share-based compensation plan. The prior year included a favourable accounting adjustment related to our deferred compensation plan as noted above.

Q4 2012 vs. Q3 2012

Net income increased $51 million or 33% from the prior quarter, mainly due to higher average fee-based client assets reflecting net sales and capital appreciation, higher transaction volumes, and the increase in fair value of our U.S. share-based compensation plan. These factors were partially offset by higher costs in support of business growth. The prior quarter included an unfavourable impact of $29 million ($21 million after-tax) related to certain regulatory and legal matters.

 

Q4 2012 vs. Q4 2011

Net income of $194 million decreased $6 million or 3% compared to the prior year as lower claims costs in Canadian insurance products and reinsurance products were offset by lower net investment gains and no new U.K. annuity reinsurance contracts in the current quarter.

Total revenue decreased $117 million or 10%, mainly due to the change in fair value of investments backing our policyholder liabilities, which was largely offset in policyholder benefits, claims and acquisitions expense (PBCAE). In addition, the prior year included higher net investment gains. These factors were partially offset by volume growth across most products.

PBCAE decreased $97 million or 11%, mainly due to the change in fair value of investments backing our policyholder liabilities as noted above, partially offset by higher costs commensurate with volume growth.

Non-interest expense increased $5 million or 4%, mainly due to higher costs in support of business growth, partially offset by our ongoing focus on cost management.

Q4 2012 vs. Q3 2012

Net income of $194 million increased $15 million or 8% from the prior quarter, mainly due to lower claims costs in our reinsurance products and Canadian insurance products. Our prior quarter results were favourably impacted by the reduction of policy acquisition cost-related liabilities of $33 million ($24 million after-tax).

Q4 2012 vs. Q4 2011

Net income of $72 million increased $32 million compared to the prior year, largely due to higher funding and liquidity trading results reflecting improved market conditions as compared to the challenging market conditions last year. A full quarter representing 100% ownership of RBC Investor Services earnings also contributed to the increase, although lower spreads and decreased transaction volumes negatively impacted our results.

Total revenue increased $152 million or 58%, primarily due to a full quarter of RBC Investor Services revenue, partially offset by lower spreads, decreased foreign exchange activity and lower custodial fees. Higher funding and liquidity trading, driven by greater market liquidity and improved market conditions also contributed to the increase in revenue.

Non-interest expense increased $107 million or 51%, mainly reflecting a full quarter of RBC Investor Services costs.  Higher variable compensation on improved results also contributed to the increase.

Q4 2012 vs. Q3 2012

Net income increased $21 million due to higher funding and liquidity trading results and a full quarter of RBC Investor Services earnings, partially offset by lower custodial fees, and lower securities lending as the prior quarter was favourably impacted by the European dividend season. The prior quarter was unfavourably impacted by a writedown of intangibles and costs related to the acquisition of the remaining 50% interest in RBC Dexia (RBC Investor Services) of $12 million ($11 million after-tax).

Q4 2012 vs. Q4 2011

Net income of $410 million increased $285 million, primarily due to higher fixed income trading results reflecting improved market conditions compared to the challenging market conditions in the prior year. Higher corporate and investment banking results primarily in the U.S. also contributed to the increase. These factors were partially offset by higher PCL and a higher effective tax rate reflecting increased earnings in the U.S. Our prior year was unfavourably impacted by a loss of $105 million ($77 million after-tax) related to a consolidated special purpose entity from which we exited all transactions during the first quarter of 2012.

Total revenue of $1,556 million increased $588 million from the prior year, largely due to higher fixed income trading reflecting increased client activity, greater market liquidity and tightening credit spreads compared to the prior year. Higher equity and debt origination reflecting solid issuance activity, strong client growth in lending and increased loan syndication activity, mainly in the U.S. also contributed to the increase.

PCL of $63 million increased $58 million from the prior year, largely reflecting a provision taken this quarter for a single account.

Non-interest expense of $916 million increased $114 million or 14% from the prior year, largely due to higher variable compensation reflecting improved results and higher costs in support of business growth partially offset by our cost management initiatives.

Q4 2012 vs. Q3 2012

Net income of $410 million decreased $19 million or 4% from the prior quarter, mainly due to lower trading results particularly at the end of the quarter reflecting increased market uncertainty due to Hurricane Sandy and the U.S. presidential election, lower loan syndication activity primarily in the U.S. as compared to the robust activity in the prior quarter, and higher PCL related to a single account as noted above. These factors were partially offset by higher equity origination, primarily in the U.S. and Canada.

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

Net interest income (loss) and income taxes (recoveries) in each quarter in Corporate Support include the deduction of the teb adjustments related to the gross-up of income from Canadian taxable corporate dividends recorded in Capital Markets. The amount deducted from net interest income (loss) was offset by an equivalent increase in income taxes (recoveries). The teb amount for the three months ended October 31, 2012 was $104 million as compared to $88 million in the prior quarter and $85 million in the prior year. For further discussion, refer to the How we measure and report our business segments section of our 2012 Annual Report.

In addition to the teb impacts noted above, the following paragraphs identify the other material items affecting the reported results in each quarter.

Q4 2012

Net loss was $6 million mainly due to net unfavourable tax adjustments and a loss attributed to an equity accounted for investment. These factors were largely offset by asset/liability management activities.

Q3 2012

Net income was $323 million largely due to the previously announced settlement of several tax matters with the CRA which resulted in the release of $128 million of tax uncertainty provisions and interest income of $72 million ($53 million after-tax) related to a refund of taxes paid. Our results benefitted from other net favourable tax adjustments and asset/liability management activities.

Q4 2011

Net income was $118 million mainly due to net favourable tax adjustments, partially offset by a loss attributed to an equity accounted for investment.

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KEY PERFORMANCE AND NON-GAAP MEASURES

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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 2012 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 return on equity (ROE). The following table provides a summary of our ROE calculations:

n.m not meaningful 

Non-GAAP measures

Given the nature and purpose of our management reporting framework, we use and report certain non-GAAP financial measures, which are not defined nor do they have a standardized meaning under GAAP and may not be comparable with similar information disclosed by other financial institutions. We believe these measures provide readers with a better understanding of our performance and should enhance the comparability of our comparative periods.

 

 

 

 

 

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_{CAUTION REGARDING FORWARD-LOOKING STATEMENTS}

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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 Q4 2012 Earnings Release, in other filings with Canadian regulators or the United Stated Securitized and Exchange Commission (SEC), in reports to shareholders and in other communications. Forward-looking statements in this document include, but are not limited to, statements relating to our financial performance objectives, vision and strategic goals, the economic, market and regulatory review and outlook for Canadian, U.S., European and global economies, the outlook and priorities for each of our business segments, and the risk environment including our liquidity and funding management. The forward-looking information contained in this document 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 and our financial performance objectives, vision, strategic goals and financial performance objectives, 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", "plan" and "project" and similar expressions of future or conditional verbs such as "will", "may", "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 and that our financial performance objectives, vision and strategic goals will not be achieved. 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, operational, legal and regulatory compliance, insurance, reputation and strategic risks and other risks discussed in the Risk management and Overview of other risks sections of our 2012 Annual Report; the impact of changes in laws and regulations, including relating to the Dodd-Frank Wall Street Reform and Consumer Protection Act and the regulations issued and to be issued thereunder, the Basel Committee on Banking Supervision's global standards for capital and liquidity reform, over-the-counter derivatives reform, the payments system in Canada, consumer protection measures and regulatory reforms in the U.K. and Europe; general business and economic market conditions in Canada, the United States and certain other countries in which we operate, including the effects of the European sovereign debt crisis, and the high levels of Canadian household debt; cybersecurity; the effects of changes in government fiscal, monetary and other policies; the effects of competition in the markets in which we operate; our ability to attract and retain employees; the accuracy and completeness of information concerning our clients and counterparties; judicial or regulatory judgments and legal proceedings; development and integration of our distribution networks; and the impact of environmental issues.

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 Q4 2012 Earnings Release are set out in the Overview and Outlook section and for each business segment under the heading Outlook and priorities in our 2012 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 management and Overview of other risks sections of our 2012 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 Q4 2012 Earnings Release, quarterly results slides, Supplementary Financial Information and our 2012 Annual Report, 2012 Annual Information Form (AIF) and Annual Report on Form 40-F (Form 40-F) on our website at rbc.com/investorrelations. Shareholders may request a hard copy of our 2012 Annual Report, AIF and Form 40-F free of charge by contacting Investor Relations at (416) 955-7802. Our Form 40-F will be filed with the SEC.

Quarterly conference call and webcast presentation

Our conference call is scheduled for Thursday, November 29, 2012 at 8:00 a.m. (EDT) and will feature a presentation about our fourth quarter and 2012 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: www.rbc.com/investorrelations/ir_events_presentations.html or by telephone (416-340-2217 or 1-866-696-5910, passcode 1853457#). Please call between 7:50 a.m. and 7:55 a.m. (EDT).

Management's comments on results will be posted on our website shortly following the call. Also, a recording will be available by 5:00 p.m. (EDT) on November 29, 2012 until February 27, 2013 at: www.rbc.com/investorrelations/ir_quarterly.html or by telephone (905-694-9451 or 1-800-408-3053, passcode 3629188#).

ABOUT RBC

Royal Bank of Canada (RY on TSX and NYSE) and its subsidiaries operate under the master brand name RBC. We are Canada's largest bank as measured by assets and market capitalization, and among the largest banks in the world, based on market capitalization. We are one of North America's leading diversified financial services companies, and provide personal and commercial banking, wealth management services, insurance, investor services and wholesale banking on a global basis. We employ approximately 80,000 full- and part-time employees who serve more than 15 million personal, business, public sector and institutional clients through offices in Canada, the U.S. and 49 other countries. For more information, please visit rbc.com.

Trademarks used in this earnings release include the LION & GLOBE Symbol, ROYAL BANK OF CANADA, RBC and RBC INVESTOR SERVICES which are trademarks of Royal Bank of Canada used by Royal Bank of Canada and/or by its subsidiaries under license. All other trademarks mentioned in this report, which are not the property of Royal Bank of Canada, are owned by their respective holders.

 

SOURCE: RBC