Adjusted cash EPS of $3.10 (up 8% y/y) versus our estimate of $3.01 (consensus $2.96) benefited from a lower tax rate ($0.19/sh). PTPP up 7% y/y; 4% lower-than- our-forecast (higher-than-expected expenses (comp, acquisition)), reflecting lower NII offset by strong trading and fee income. NII up 29% y/y reflecting 1bp q/q drop in NIM (forecast +10bps) and 12% y/y loan growth. Deposit betas rising, shift to higher cost deposits, and run-off of deposits point to near peak NIM for asset sensitive banks. Weaker-than-expected NIM because cost of funding certain transactions in interest expense, but revenue in fee income. Operating-leverage was weak at -4.7% (forecast +0.9%).
PCLs of $532mm ($359mm impaired; $173mm performing) versus estimate of $547mm ($372mm impaired; $175mm performing). Impaired-loan PCLs up 5bps q/ q, U.S. and Capital Markets (Teleco/Media). Domestic PCLs still low, but normalizing. Strengthened performing reserve for macro/portfolio mix. ACL up 3bps q/q. New formations up ~$300mm q/q reflecting increase in Canadian banking (CRE) and U.S.
Canadian P&C PTPP earnings up 18% y/y reflecting revenue growth of 15% and 10% increase in expenses. Average loans up 9% y/y (mortgages up 0.9% q/q, cards up 3.1% q/q, business up 2.9% q/q). NIM up 3bps q/q (virtually no funding gap, unique to RY) and non-interest revenue down 2% y/y (lower mutual fund). Significant shift to higher cost personal GICs from savings accounts limited NIM expansion.
WM PTPP up 7% y/y. Revenue up 14% y/y, U.S. up 23% (including CityNational) reflecting higher NII (rates). International WM revenue up due to higher rates and acquisition. Expenses up 17% y/y. CityNational NII up 40% y/y (margin down 5bps q/q). Significant deposit run-off in U.S.
Capital Markets PTPP down 3% y/y reflecting 4% increase in revenue. Global markets revenue up 17% y/y (FICC strong) and Investment Banking revenue down 11% y/y (no negative marks on leverage loans, much softer deal flow). Expenses up 11% y/y (comp, technology spending).
CET 1: 12.7% versus 12.6% L/Q; estimate 12.6%, reflecting contribution from earnings (less dividends) of 39bps offset by business growth and Canada Recovery Dividend. Credit migration minimal