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    RY
    Earnings call· Oct 2025(Q4 FY25)

    ROYAL BANK OF CANADA RY

    Dec 3, 2025 Source

    Executive summary

    Royal Bank of Canada Q4 FY25 — Record Earnings and Raised ROE Target

    Royal Bank of Canada concluded FY25 with record Q4 earnings, showcasing the strength of its diversified business model and strong performance across all segments. The bank announced a dividend increase and raised its medium-term ROE target to 17%+, reflecting confidence in its strategic execution and robust capital generation. While geopolitical and trade uncertainties persist, particularly regarding CUSMA, RBC remains cautiously optimistic on the economic outlook, leveraging AI investments and strategic capital allocation to drive long-term shareholder value.

    Highlights

    5

    • Reported record fourth quarter earnings of $5.4 billion and adjusted earnings of over $5.5 billion.

    • Adjusted diluted earnings per share of $3.85 was up 25% from last year.

    • Increased dividend by $0.10 or 6%.

    • CET1 ratio of 13.5%, up 30 basis points from last quarter.

    • Increased medium-term ROE objective from 16% plus to 17% plus.

    Concerns

    4

    • CUSMA negotiations create ongoing uncertainty, with potential downside risk.

    • Retail losses are expected to remain elevated in 2026 due to higher unemployment, consumer insolvencies, and ongoing payment shocks for mortgage renewals.

    • Brewin Dolphin foundational technology integration efforts are taking longer than anticipated, expected to be largely complete by the end of 2026.

    • The $117 million benefit from HSBC Canada purchase price accounting accretion will decrease to approximately $80 million next quarter and largely run off by Q2 2026, impacting NII growth by approximately 1%.

    Guidance & targets

    19
    CategoryTargetConfidence
    Medium-term ROE objective
    17% plus
    high materiality
    High
    Annual all bank net interest income growth (excluding trading)
    mid-single-digit range
    high materiality
    Medium
    Mortgage growth
    low to mid-single-digit range
    medium materiality
    Medium
    Commercial loan growth
    mid- to high single digit range
    medium materiality
    Medium
    All bank expense growth
    mid-single-digit range
    high materiality
    Medium
    Adjusted non-TEB effective tax rate
    21% to 23% range
    medium materiality
    Medium
    Canadian Banking positive operating leverage
    1% to 2%
    medium materiality
    Medium
    PCL on impaired loans
    similar range as what we have experienced in 2025
    high materiality
    Medium
    Insurance ROE target
    mid- to high 20s
    low materiality
    Medium
    Insurance earnings growth
    mid-single-digit
    low materiality
    Medium
    Wealth Management pretax margin
    29%
    medium materiality
    Medium
    RBC Clear deposits
    USD 50 billion
    medium materiality
    Medium
    AI enterprise value
    $700 million to $1 billion
    high materiality
    Medium
    Efficiency ratio
    53%
    high materiality
    Medium
    Dividend payout ratio
    midpoint of this range
    high materiality
    High
    Capital Markets pretax pre-provision earnings growth
    high single-digit annual growth
    medium materiality
    Medium
    U.S. Wealth Management product launch
    enhanced credit card and mortgage capabilities
    low materiality
    High
    Brewin Dolphin technology integration completion
    largely complete by the end of 2026
    low materiality
    Medium
    Commercial Banking efficiency ratio
    32%
    medium materiality
    Medium

    Segment performance

    6
    SegmentRevenueYoYQoQMargin
    Personal Banking
    Reported strong operating leverage and improved efficiency in Canada, driven by NII growth and noninterest income strength. Loan and deposit growth were positive, with a notable shift in deposit mix.
    Net income (Canada): up 20% from last yearOperating leverage (Canada): 9%Efficiency ratio (Canada): 38.4%Net interest income: up 13% from last yearLoans: grew 3% year-over-yearDeposits: grew 1% from last yearDemand deposit growth: 8%GIC decline: 4%Noninterest income: up 7% from last yearMutual fund sales: $5 billion (half in Q4)Net new clients (premium): 400,000Avion member base growth: 700,000 in 2025
    		———$1.9 billion
    Commercial Banking
    Achieved record revenue and well-managed expenses, leading to strong pre-provision pretax earnings. Loan growth benefited from diversified portfolio, partly offset by slower growth in tariff-impacted sectors. Did not meet profitability expectations due to higher PCL.
    Pre-provision pretax earnings: up 9% from last yearLoans: up 5% last yearDeposits: up 3% last yearAverage commercial banking deposits: up 10%Average commercial banking loans: up 16%Transaction banking revenue: up approximately $80 million from last year
    		———$810 million
    Wealth Management
    Underpinned by record revenue, strong market appreciation, and net sales. City National Bank showed significant earnings growth. Progress made on pretax margin towards Investor Day target, despite Brewin Dolphin integration delays.
    Noninterest income: up 14% from last yearAssets under management (RBC Global Asset Management): increased by 17% to $794 billion year-over-yearAssets under administration (Canadian Wealth Management): up 17% versus last yearAssets under administration (U.S. Wealth Management): up 14% versus last yearNet interest income: up 13% from last yearCity National Bank adjusted earnings: USD 163 million (Q4), up 79% from last year and 17% from last quarterPretax margin: 24.5%Annual net new assets (Canadian Wealth Management, ex-direct investing): $33 billion or 4.9%U.S. Wealth Management net new assets (ex-CNB): USD 28 billion or 4.3%Total AUA (Wealth Management advisory businesses): $2.3 trillionExperienced financial advisers (U.S. Wealth Management): attracted over 90
    		———$1.3 billion
    Capital Markets
    Achieved record fourth quarter revenue and strong net income, driven by higher fixed income trading, M&A activity, and increased lending volumes. Investments in talent and technology amplified strategic priorities, with significant progress in RBC Clear.
    Pre-provision pretax basis: up 62% from last year to $1.6 billionGlobal Markets revenue: up 30% from last yearCorporate and Investment Banking revenue: up 18% from last yearInvestment banking revenue: up 26% year-over-yearLending and transaction banking revenue: up 12%RBC Clear clients onboarded: over 180RBC Clear deposits: USD 23 billion
    		$3.6 billion——$1.4 billion
    Insurance
    Net income was down 40% from last year, primarily due to unfavorable annual actuarial assumption updates and an adjustment related to a previously recognized reinsurance recapture gain. Capital allocation methodology revised effective Q1 2026.
    		———$98 million
    U.S. Region
    Made solid progress in enhancing profitability, driven by more active clients, strong markets, and improved operational efficiency. Leveraged enterprise-wide capabilities and optimized financial resources.
    Net income: up 28% from last yearROE: increased by 1.4% to 10.7%Efficiency ratio: improving by 4% to 79%City National's net income: USD 350 million or USD 450 million on an adjusted basis
    		————

    Operational metrics

    30
    Adjusted diluted EPS
    $3.85up 25% from last year
    Q4 FY25

    Reported diluted EPS was $3.76.

    Adjusted all bank operating leverage
    8.5%
    Q4 FY25

    Reflecting continued momentum across most businesses.

    Pre-provision pretax earnings
    $1.8 billionup year-over-year
    Q4 FY25

    More than offsetting the increase in provisions for credit losses.

    Total payout ratio
    59%
    Q4 FY25

    Reflecting share buybacks and dividends.

    Total payout ratio
    57%
    FY25

    Reflecting share buybacks and dividends.

    Share buybacks
    $1 billionrepurchased 4.8 million shares
    Q4 FY25

    Part of returning capital to shareholders.

    Share buybacks
    15 million1% of common shares outstanding
    FY25

    Total shares bought back for the fiscal year.

    All bank net interest income growth (excluding trading)
    11%YoY
    Q4 FY25

    All bank net interest income was up 13% including trading.

    All bank net interest income growth (excluding trading)
    17%YoY
    FY25

    Full year growth.

    Canadian Banking NIM change
    5QoQ
    Q4 FY25

    Largely benefiting from a favorable shift in product mix and continued benefits of long-term interest rates.

    Reported noninterest expense growth
    4%YoY
    Q4 FY25

    From last year.

    Core noninterest expense growth
    5%YoY
    Q4 FY25

    Driven by higher variable compensation, volume-driven costs, and investments in technology, partly offset by expense discipline and HSBC synergies.

    Adjusted non-TEB effective tax rate
    20.4%down approximately 1 percentage point relative to last quarter
    Q4 FY25

    Largely reflecting a favorable tax adjustment in the U.S.

    HSBC Canada PPA accretion benefit
    $117 million
    Q4 FY25

    Related to the purchase price accounting accretion of fair value adjustments from the HSBC Canada acquisition. Expected to decrease to $80 million next quarter and largely run off by Q2 2026.

    PCL on performing loans
    $14 million
    Q4 FY25

    Mainly reflects changes in credit quality and portfolio growth, partially offset by favorable changes in macroeconomic forecast.

    Gross impaired loans
    $8.7 billiondown by $69 million or 2 basis points from last quarter
    Q4 FY25

    Primarily driven by accounts returning to performing status and higher write-offs.

    Retail losses
    $74 millionhigher this quarter
    Q4 FY25

    In line with expectations, main driver from unsecured portfolios.

    Commercial provisions
    $50 millionup this quarter
    Q4 FY25

    Additional provisions on previously impaired commercial real estate exposure and a new provision in consumer discretionary sector.

    Capital Markets provisions
    $73 milliondown quarter-over-quarter
    Q4 FY25

    As provisions were taken on two large accounts in the previous quarter.

    Risk-weighted assets increase
    $58 billionfrom last year
    FY25

    As the bank continues to support clients' financial needs and growth aspirations.

    Book value per share growth
    9%
    FY25

    In line with historical 10-year average.

    Total capital returned to common shareholders
    $11 billion
    FY25

    Through dividends and share buybacks.

    LCR
    127%
    FY25

    Liquidity Coverage Ratio.

    Loan-to-deposit ratio
    100%
    FY25

    Across Canadian Banking.

    Revenue to RWA ratio
    40up this year
    FY25

    Increased revenue productivity.

    Dividend CAGR
    7%
    Last 10 years

    Consistent dividend growth.

    Capital Markets full year PPPT
    $5 billion
    FY24

    Base for high single-digit annual growth target.

    RBC Assist users
    30,000
    Current

    Internal AI tool launched across front office and functional roles.

    AI-enabled code development
    5 million
    Current

    Development of technology platform of the future, enhancing security and developer productivity.

    CET1 ratio annual add from net income
    80
    Annually

    Estimated net income, net of dividends and core RWA growth.

    Industry KPIs

    13
    MetricValueDetails
    Loans3%%
    Deposits1%%
    Rotce ROE16.8%%
    Cet1 ratio13.5%%
    Capital returns$1 billionUSD
    Fee income linesup 7%%
    Allowance reserves71bps
    Net interest incomeup 13%%
    Net interest margin3bps
    Net charge offs npls$8.7 billionUSD
    Total operating expensesup 4%%
    Provision for credit losses38bps
    Efficiency ratio operating leverage54%%

    Product announcements

    3
    ProductTypeDetails
    Commission-free ETF tradinglaunch
    Role distinction programlaunch
    Enhanced credit card and mortgage capabilitieslaunch

    Deals & partnerships

    5
    HSBC Bank CanadaIntegration of acquired bank

    Driving further synergies with commercial and retail client franchises, including cross-selling Personal Banking and Wealth Management products, higher payment volumes and fees from enhanced treasury management solutions, and international trading capabilities.

    VisaSponsorship for major sporting event

    Partnership for the 2026 FIFA World Cup to grow Avion member base.

    Canadian TireStrategic relationship

    Added strategic relationship as part of client value proposition and reciprocity.

    Pattison Food GroupStrategic relationship

    Added strategic relationship as part of client value proposition and reciprocity.

    NVIDIACollaboration on AI strategy

    Partnering to accelerate Agentic AI strategy, enhancing Aiden platforms across Capital Markets.

    Risks & headwinds

    6
    CUSMA Negotiations / U.S. Trade IssuesOngoing into 2026

    Unresolved issues around CUSMA; severe sectoral impacts leading to job losses in Ontario.

    Mitigation: Maintained prudent approach with allowances, retaining elevated weightings to downside scenarios; potential downside risk appropriately captured in allowances.

    Elevated Retail Losses2026

    Retail losses were $74 million higher this quarter; expected to remain elevated.

    Mitigation: Monitoring performance of condo segments; strong underwriting standards and portfolio quality cited for condo portfolio outperformance.

    Commercial Real Estate Cyclical HeadwindsOngoing

    Commercial real estate continues to face cyclical headwinds.

    Mitigation: Loan growth benefited from diversified portfolio led by resilient sectors, partly offsetting slower growth in tariff-impacted sectors.

    Brewin Dolphin Technology Integration DelaysLargely complete by the end of 2026

    Foundational technology integration efforts related to the Brewin Dolphin acquisition are taking longer than anticipated.

    Mitigation: Remains steadfast in achieving profitability targets over the medium term for U.K. Wealth Management.

    Modest Economic Growth and Lagged Fiscal Stimulus Impacts2026

    Economic growth will remain relatively modest and lagged impacts from fiscal stimulus could leave certain sectors and regions under pressure.

    Mitigation: Forecasting PCL on impaired loans in 2026 to continue in a similar range as 2025, maintaining strong reserves.

    Higher Payments at Mortgage Renewal2026

    Higher payments at mortgage renewal have contributed to rising consumer impairments in certain regions.

    Mitigation: Monitoring performance of the condo segments, which perform better than the overall mortgage portfolio due to strong underwriting standards.

    What to watch in Q1 FY26

    5

    CUSMA Negotiation Outcome

    2026
    CurrentUnresolved, creating ongoing uncertainty
    TargetSatisfactory conclusion or clear path forward

    Why it matters

    Resolution of CUSMA is critical for economic certainty, business investment, and could lead to potential reserve releases or pre-funding for Stage 3 losses.

    While the timing and outcome of CUSMA negotiations creates ongoing uncertainty, we feel the potential downside risk has been appropriately captured in our allowances, supporting our financial resilience through the cycle.

    Q&A highlights

    6

    Given the 17.2% ROE and 13.5% CET1, is RBC overearning on ROE, and is 18%+ achievable? Does RBC's scale create a competitive advantage in ROE differential?

    Dave McKay stated that 17%+ ROE is already significantly differentiated from peers. While 18%+ is achievable, it would involve a trade-off with growth. The current 17%+ target balances accelerated growth, capital return, and premium ROE, with prudence given CUSMA and economic uncertainties. Katherine Gibson clarified the ROE MTO change is not dependent on lowering CET1, but rather confidence in progress.

    “We believe that we can achieve accelerated loan growth, return capital to shareholders and drive a premium ROE of 17%.”

    asked by Ebrahim Poonawala · answered by David McKay

    2 min read6 chapters

    Detailed Narrative

    01

    Strategic Update and Medium-Term Objectives

    RBC updated its Investor Day financial targets, raising its through-the-cycle medium-term ROE objective to 17% plus, up from 16% plus. This revision reflects improved cost efficiencies, increased revenue productivity, strong client flows, and funding synergies from deposit growth. The bank aims to optimize growth, returns, and capital efficiency, maintaining a consistent risk appetite while driving shareholder value and outperforming targets.

    02

    Capital Allocation and Shareholder Returns

    The bank generated significant excess capital, with net income net of dividends and core RWA growth estimated to add approximately 80 basis points to its CET1 ratio annually. RBC plans to operate within a 12.5% to 13.5% CET1 range, with potential for accelerated buybacks if sustainable excess capital exceeds 13.5%. The dividend payout ratio will target the midpoint of the 40%-50% range, reinforced by a 6% dividend increase this quarter.

    03

    HSBC Bank Canada Integration Progress

    RBC expects to exceed its initial target of $740 million in annualized cost synergies from the HSBC Bank Canada acquisition. The bank is also well on its way to achieving the $300 million annual revenue synergies target by 2027, having already realized $115 million of cross-sold revenue in 2025. This progress is driven by cross-selling Personal Banking and Wealth Management products and enhancing treasury management solutions.

    04

    Artificial Intelligence (AI) Investments and Impact

    RBC is leveraging its market-leading AI capabilities, including platforms like Aiden and PVC.AI, and partnering with firms such as NVIDIA to accelerate its Agentic AI strategy. The bank is deploying generative AI models across its businesses, with its internal AI tool, RBC Assist, launched to over 30,000 employees. RBC is on track to meet its target of $700 million to $1 billion of enterprise value from AI, net of investments, expecting accelerated benefits from 2027.

    05

    Credit Outlook and Macroeconomic Environment

    Despite persistent economic headwinds and CUSMA uncertainty, RBC maintained a prudent approach to allowances, retaining elevated weightings to downside scenarios. While Canadian GDP is expected to strengthen and unemployment rates to fall in 2026, retail losses are projected to remain elevated due to higher unemployment, consumer insolvencies, and mortgage payment shocks. The bank forecasts PCL on impaired loans in 2026 to be similar to 2025 levels, reflecting ongoing caution.

    06

    U.S. Operations and Global Expansion

    RBC made solid progress in enhancing profitability across its U.S. businesses, with City National Bank executing well and the U.S. region's ROE increasing to 10.7%. The RBC Clear U.S. transaction banking platform onboarded over 180 clients and USD 23 billion in deposits, targeting USD 50 billion medium-term. The bank is also expanding its global presence, including potential new markets in the Middle East and improved performance in Asia, aiming to build a competitive global business.

    AI-generated summary of the company’s earnings call. Not investment advice.