Royal Bank of Canada Reports Fourth Quarter and Record 2014 Results

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, 2014 and related notes prepared in accordance with International Financial Reporting Standards (IFRS). Our 2014 Annual Report (which includes our audited annual Consolidated Financial Statements and accompanying Management's Discussion & Analysis), our 2014 Annual Information Form and our Supplementary Financial Information are available on our website at rbc.com/investorrelations.

TORONTO, Dec. 3, 2014 /CNW/ - Royal Bank of Canada (RY on TSX and NYSE) today reported record net income of $9.0 billion for the year ended October 31, 2014, up $662 million or 8% from last year, driven by record earnings across all of our business segments. Our performance also reflects positive operating leverage across most businesses, and solid credit quality with a provision for credit loss (PCL) ratio of 0.27%. Our capital position remains strong with a Basel III Common Equity Tier 1 ratio of 9.9% at the end of fiscal 2014.

"We delivered record earnings of $9.0 billion in 2014 with record results in each of our business segments," said Dave McKay, RBC President and CEO. "Looking ahead, while we anticipate industry headwinds to persist, we believe RBC is well positioned given the strength of our franchise as well as our commitment to delivering superior advice and a differentiated experience to our clients."

2014 Performance

Earnings of $9.0 billion were up $662 million, or 8% from last year. Excluding specified items⁽²⁾, earnings were $9.1 billion, up $794 million or 10%⁽³⁾, driven by record results in all of our business segments. Key highlights include:

• 7% earnings growth in Canadian Banking, largely from solid volume growth and strong fee-based revenue growth;
• 22% earnings growth in Wealth Management, driven by higher revenue from growth in average fee-based client assets;
• 31% earnings growth in Insurance, largely due to lower net claims costs and favourable actuarial adjustments. A charge of $118 million after-tax reflecting a change in tax legislation in Canada was included in 2013 results;
• 30% earnings growth in Investor & Treasury Services, driven by the continued benefits of our efficiency management activities and growth in client deposits. A restructuring charge of $31 million after-tax was included in 2013 results;
• 21% earnings growth in Capital Markets, largely driven by strong equity markets, our continued focus on origination, lending and increased activity from client-driven strategies, as well as strong credit quality; and,
• Increased quarterly dividend twice during the year for a total increase of 12%.

Net income for the fourth quarter ended October 31, 2014 was $2.3 billion, up 11% from last year, driven by strong performance across our retail businesses and continued strength in Investor & Treasury Services.

"We delivered another strong quarter of earnings growth, demonstrating the strength of our retail businesses and capital position, as well as our continued focus on efficiency management activities," said Dave McKay, RBC President and CEO.

Q4 2014 Performance

Earnings of $2.3 billion were up $232 million or 11% from last year, driven by strong performance across all of our retail businesses, reflecting higher revenue in Wealth Management on increased average fee-based client assets, higher earnings in Canadian Banking reflecting strong fee-based revenue growth and solid volume growth of 5%, and lower net claims in Insurance. These factors were partially offset by lower earnings in Capital Markets, largely driven by lower trading revenue.

Earnings were down $45 million or 2% from last quarter. Earnings were down $85 million or 4%⁽³⁾ excluding the loss related to the sale of RBC Jamaica of $40 million (before and after-tax) last quarter, as solid revenue growth in our retail businesses was more than offset by lower trading results reflecting challenging market conditions in the latter half of the quarter compared to strong levels last quarter, a $105 million ($51 million after tax and compensation adjustments) charge reflecting the implementation of valuation adjustments related to funding costs on uncollateralized over-the-counter derivatives (FVA), as well as $75 million ($46 million after-tax and variable compensation) of lower revenue and costs associated with the exit of certain proprietary trading strategies in compliance with the Volcker Rule. Higher PCL in Capital Markets and Caribbean banking also contributed to the decrease.

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Q4 2014 Business Segment Performance

Personal & Commercial Banking net income of $1,151 million was up $81 million or 8% compared to last year. Canadian Banking net income was a record $1,210 million, up $123 million or 11%, driven by strong fee-based revenue growth, solid volume growth of 5% across most of our businesses, and favourable net cumulative accounting adjustments of $55 million ($40 million after-tax) in the quarter.

Compared to last quarter, Personal & Commercial Banking net income was up $13 million or 1%. Canadian Banking net income was up $25 million or 2%, reflecting favourable net cumulative accounting adjustments noted above and fee-based revenue growth. These factors were partly offset by higher marketing and infrastructure costs in support of business growth.

Wealth Management net income of $285 million was up $83 million or 41% compared to last year, mainly due to higher earnings from growth in average fee-based client assets in our Global Asset Management and Canadian Wealth Management businesses resulting from capital appreciation and net sales, along with lower PCL. Compared to last quarter, net income was flat as the positive impact of higher earnings from growth in average fee-based client assets was offset by restructuring costs of $27 million ($18 million after-tax) related to our U.S. and International Wealth Management businesses.

Insurance net income of $256 million increased $149 million from last year. Net income increased $31 million or 14%⁽¹⁾ excluding a charge last year of $118 million after-tax related to a change in tax legislation in Canada, mainly due to lower net claims costs and earnings from a new U.K. annuity contract. Compared to last quarter, net income increased $42 million or 20%, also reflecting lower net claims costs and earnings from a new U.K. annuity contract.

Investor & Treasury Services net income of $113 million increased $22 million or 24% compared to last year, largely due to higher net interest income from growth in client deposits and continuing benefits from our ongoing focus on efficiency management activities. Compared to last quarter, net income increased $3 million or 3%.

Capital Markets net income of $402 million decreased $67 million or 14% from last year, mainly due to lower trading results primarily reflecting a $105 million charge ($51 million after tax and compensation adjustments) from the implementation of FVA, $75 million ($46 million after-tax and variable compensation) in lower revenue and costs associated with the exit of certain proprietary trading strategies in compliance with the Volcker Rule, as well as challenging market conditions in the latter half of the quarter. Higher PCL also contributed to the decrease. These factors were partially offset by higher corporate and investment banking activities and lower variable compensation.

Compared to last quarter, net income decreased $239 million or 37% from a very strong third quarter, mainly due to lower trading results, lower investment banking activities, and higher PCL. These factors were partially offset by lower variable compensation, lower litigation provisions and related legal costs.

Corporate Support net income was $126 million largely reflecting gains on private equity investments related to the sale of a legacy portfolio and asset/liability management activities. Net income last year was $162 million mostly due to net favourable tax adjustments including a $124 million income tax adjustment which related to prior years.

Capital - As at October 31, 2014, Basel III CET1 ratio was 9.9%, up 40 basis points (bps) compared to last quarter, driven by solid internal capital generation and lower risk-weighted assets partially reflecting the exit of certain proprietary trading strategies in compliance with the Volcker Rule.

Credit Quality - Total PCL of $345 million increased $11 million or 3% from a year ago, and $62 million or 22% from last quarter, mainly due to higher PCL in Capital Markets and higher PCL in Caribbean Banking, primarily reflecting increased provisions on our impaired residential mortgages portfolio of $50 million. Our PCL ratio of 0.31% decreased 1 bp compared to last year and increased 5 bps compared to last quarter.

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Q4 2014 vs. Q4 2013

Net income increased $81 million or 8% compared to last year, reflecting strong fee-based revenue growth, solid volume growth and favourable net cumulative accounting adjustments of $55 million ($40 million after-tax) in the quarter in Canadian Banking. These factors were partly offset by higher PCL in the Caribbean.

Total revenue increased $243 million or 7%, largely due to strong fee-based revenue growth, primarily attributable to higher mutual fund distribution fees and card services revenue, solid volume growth of 5% across most businesses in Canada and favourable net cumulative accounting adjustments.

Net interest margin decreased 5 bps, primarily due to a change in recording of certain loan fees in our business portfolio from Net interest income to Non-interest income as well as other accounting adjustments.

PCL increased $39 million, with the PCL ratio increasing 3 bps, largely reflecting increased provisions on our impaired residential mortgage portfolio of $50 million in the Caribbean, partly offset by lower provisions in our personal lending portfolios in Canada.

Non-interest expense increased $84 million or 5%, mostly due to higher marketing and infrastructure costs in support of business growth and higher variable compensation. These factors were partly offset by continuing benefits from our efficiency management activities, including the full integration of Ally Canada, as well as lower provisions related to post-employment benefits and restructuring charges in the Caribbean as last year included a provision of $40 million compared to a provision of $17 million this year related to restructuring charges.

Q4 2014 vs. Q3 2014

Net income increased $13 million or 1%. Excluding a loss of $40 million (before and after-tax) related to the closing of the sale of RBC Jamaica last quarter, net income decreased $27 million or 2%⁽¹⁾, as favourable net cumulative accounting adjustments noted above and fee-based revenue growth were more than offset by higher PCL in the Caribbean and a $17 million provision related to restructuring in the Caribbean.

Q4 2014 vs. Q4 2013

Net income increased $123 million or 11% compared to last year, driven by strong fee-based revenue growth, solid volume growth and favourable net cumulative accounting adjustments of $55 million ($40 million after-tax).

Total revenue increased $237 million or 8%, reflecting strong fee-based revenue growth, primarily attributable to higher mutual fund distribution fees and card services revenue, solid volume growth of 5% across most businesses and favourable net cumulative accounting adjustments noted above.

Net interest margin decreased 4 bps, primarily due to the change in recording of certain loan fees in our business portfolio from Net interest income to Non-interest income as well as other accounting adjustments.

PCL decreased $13 million, with the PCL ratio decreasing 2 bps, largely reflecting lower impairments in our personal lending portfolio, partially offset by higher write-offs in our credit cards portfolio.

Non-interest expense increased $81 million or 6%, compared to last year, mostly due to higher marketing and infrastructure costs in support of business growth and higher variable compensation, partly offset by continuing benefits from our efficiency management activities including the full integration of Ally Canada.

Q4 2014 vs. Q3 2014

Net income increased $25 million or 2%, reflecting favourable net cumulative accounting adjustments as noted above and fee-based revenue growth. These factors were partly offset by higher marketing and infrastructure costs in support of business growth.

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1 These are non-GAAP measures. For further information, including a reconciliation, refer to the non-GAAP measures section on page 11 of this Earnings Release.

Q4 2014 vs. Q4 2013

Net income increased $83 million or 41% from a year ago, mainly due to higher earnings from growth in average fee-based client assets primarily in our Global Asset Management and Canadian Wealth Management businesses, and lower PCL.

Total revenue increased $224 million or 16%, mainly due to higher revenue from growth in average fee-based client assets reflecting capital appreciation and strong net sales, and the impact of foreign exchange translation.

PCL was nil. Last year included provisions on a few accounts.

Non-interest expense increased $156 million or 14%, mainly due to higher variable compensation driven by higher revenue, increased costs in support of business growth, the impact of foreign exchange translation, and restructuring costs of $27 million ($18 million after-tax) related to our U.S. and International Wealth Management businesses.

Q4 2014 vs. Q3 2014

Net income was flat compared to last quarter as higher earnings from growth in average fee-based client assets reflecting capital appreciation and net sales were mostly offset by restructuring costs related to our U.S. and International Wealth Management businesses and lower transaction volumes. In addition, last quarter's results included semi-annual performance fees.

Q4 2014 vs. Q4 2013

Net income increased $149 million from a year ago. Net income increased $31 million or 14%⁽¹⁾ excluding a charge last year of $160 million ($118 million after-tax) as a result of new tax legislation in Canada, mainly due to lower net claims costs including a favourable cumulative adjustment related to outstanding claims in our life retrocession business and earnings from a new U.K. annuity contract. Our results last year included a favourable impact from interest and asset related activities on the Canadian life business and a gain on sale of our Canadian travel agency insurance business.

Total revenue increased $74 million or 7% as compared to last year, mainly due to the change in fair value of investments backing our policyholder liabilities resulting from the decrease in long-term interest rate, largely offset in PBCAE. Earnings from a new U.K. annuity contract also contributed to the increase. These factors were partially offset by the impact of the sale of our Canadian travel agency insurance business.

PBCAE decreased $126 million or 14%. Excluding a charge last year of $160 million related to new tax legislation in Canada as noted above, PBCAE increased $34 million or 5%, mostly due to the change in fair value of investments backing our policyholder liabilities, largely offset in revenue. These factors were partially offset by lower net claims costs including a favourable adjustment as noted above.

Non-interest expense increased $6 million or 4%, primarily due to higher costs in support of business growth, partially offset by continuing benefits from our efficiency management activities.

Q4 2014 vs. Q3 2014

Net income increased $42 million or 20% from last quarter mainly due to lower net claims costs including a favourable cumulative adjustment as noted above and earnings from a new U.K. annuity contract.

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1   These are non-GAAP measures. For future information, including a reconciliation, refer to the non-GAAP measures section on page 11 of this Earnings Release.

Q4 2014 vs. Q4 2013

Net income increased $22 million or 24%, largely reflecting higher net interest income from growth in client deposits, continuing benefits from our efficiency management activities and higher foreign exchange results in Investor Services.

Total revenue increased $30 million or 7%, mainly due to higher net interest income resulting from growth in client deposits, higher foreign exchange revenue, and higher funding and liquidity revenue mainly as a result of tightening credit spreads. These factors were partially offset by a decrease in custodial fees.

Non-interest expense decreased $3 million or 1%, primarily due to continuing benefits from our efficiency management activities, partially offset by the impact of foreign exchange translation.

Q4 2014 vs. Q3 2014

Net income increased $3 million or 3%, largely due to an increase in custodial fees and higher foreign exchange results in Investor Services, mostly offset by lower securities lending results as last quarter was favourably impacted by seasonally higher securities lending.

Q4 2014 vs. Q4 2013

Net income decreased $67 million or 14% from last year, mainly due to lower trading results primarily reflecting a $105 million charge ($51 million after tax and compensation adjustments) reflecting the implementation of FVA, $75 million ($46 million after-tax and variable compensation) in lower trading revenue and costs associated with the exit of certain proprietary trading strategies in compliance with the Volcker Rule, as well as challenging market conditions in the latter half of the quarter, partially offset by lower variable compensation.

Total revenue decreased $184 million or 11% from last year, primarily due to lower trading revenue reflecting the factors noted above which was partially offset by higher corporate and investment banking revenue including the impact of foreign exchange translation.

PCL increased $21 million from last year, reflecting a provision on a single account.

Non-interest expense decreased $61 million or 6% from last year, mainly due to lower variable compensation. These factors were partially offset by the impact of foreign exchange translation, higher costs in support of business growth, and costs associated with the exit of certain proprietary trading strategies noted above.

Q4 2014 vs. Q3 2014

Net income decreased $239 million or 37% from the record results last quarter, mainly due to lower trading results reflecting challenging market conditions in the latter half of the quarter compared to strong levels last quarter, the implementation of FVA, and lower trading revenue and costs associated with the exit of certain proprietary trading strategies as noted above. Lower results in most investment banking businesses compared to strong levels last quarter, and higher PCL also contributed to the decrease. These factors were partially offset by lower variable compensation reflecting lower results and a lower compensation to revenue ratio, lower litigation provisions and related legal costs, and strong growth in M&A activity.

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 material items affecting the reported results in each period.

Net interest income (loss) 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 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, 2014 was $101 million as compared to $174 million last quarter and $94 million last year period. For further discussion, refer to the How we measure and report our business segments section of our 2014 Annual Report.

In addition to the teb impacts noted above, the following identifies the other material items affecting the reported results in each period.

Q4 2014

Net income was $126 million largely reflecting gains on private equity investments related to the sale of a legacy portfolio and asset/liability management activities.

Q3 2014

Net loss was $10 million largely reflecting net unfavourable tax adjustments, which was mostly offset by asset/liability management activities.

Q4 2013

Net income was $162 million largely reflecting net favourable tax adjustments including a $124 million income tax adjustment which related to prior years, and asset/liability management activities.

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 2014 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). ROE does not have a standardized meaning under GAAP. We use ROE as a measure of return on the capital invested in our business. The following table provides a summary of our ROE calculations:

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, do not have a standardized meaning under GAAP and may not be comparable with similar information disclosed by other financial institutions. Results and measures excluding specified items are non-GAAP measures. We believe that providing information excluding the items specified below is more reflective of our ongoing operating results, will provide readers with a better understanding of our performance and should enhance the comparability of our comparative periods. For further information refer to the Key Performance and non-GAAP measures section of our 2014 Annual Report.

Our results were impacted by the following specified items:

• In Q3 2014, a loss of $40 million (before and after-tax), which includes foreign currency translation, related to the closing of the sale of RBC Royal Bank (Jamaica) Limited and RBTT Securities Jamaica Limited (collectively "RBC Jamaica").
• In Q1 2014, a loss of $60 million (before and after-tax) also related to the sale of RBC Jamaica noted above, along with provisions related to post-employment benefits and restructuring charges in the Caribbean of $40 million ($32 million after-tax).
• In Q4 2013, a charge of $160 million ($118 million after-tax) as a result of new tax legislation in Canada in Insurance.

_{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 filings with Canadian regulators or the U.S. Securities and Exchange Commission (SEC), in reports to shareholders and in other communications. Forward-looking statements include, but are not limited to, statements relating to our financial performance objectives, vision and strategic goals, and include our Chief Executive Officer's statements. 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,  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", "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, insurance, regulatory compliance, operational, strategic, reputation, competitive and systematic risks and other risks discussed in the Risk management and Overview of other risks sections of our 2014 Annual Report; anti-money laundering; growth in wholesale credit; the high levels of Canadian household debt; cybersecurity; the business and economic conditions in Canada, the U.S. and certain other countries in which we operate; the effects of changes in government fiscal, monetary and other policies; tax risk and transparency; our ability to attract and retain employees; the accuracy and completeness of information concerning our clients and counterparties; the development and integration of our distribution networks; model, information technology, information management, social media, environmental and third party and outsourcing risk.

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 Overview and outlook section and for each business segment under the heading Outlook and priorities in our 2014 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 2014 Annual Report to Shareholders.

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 2014 Earnings Release, quarterly results slides, Supplementary Financial Information and our 2014 Annual Report, 2014 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 2014 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 quarterly conference call is scheduled for Wednesday December 3^rd, 2014 at 8:00 a.m. (EST) and will feature a presentation about our fourth quarter and 2014 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 1-888-789-9572, passcode 1952784#). 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. Also, a recording will be available by 5:00 p.m. (EST) on December 3^rd, 2014 until February 24^th, 2015 at: www.rbc.com/investorrelations/ir_quarterly.html or by telephone (905-694-9451 or 1-800-408-3053, passcode 2308956#).

ABOUT RBC

Royal Bank of Canada is Canada's largest bank, and one of 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 capital markets products and services on a global basis. We employ approximately 78,000 full- and part-time employees who serve more than 16 million personal, business, public sector and institutional clients through offices in Canada, the U.S. and 38 other countries. For more information, please visit rbc.com.

Trademarks used in this earnings release include the LION & GLOBE Symbol, ROYAL BANK OF CANADA and RBC 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 earnings release, which are not the property of Royal Bank of Canada, are owned by their respective holders.

SOURCE RBC