Royal Bank Of Canada · TSX:RY
Royal Bank Of Canada — Q1 2024 Earnings Presentation
50 slides from Royal Bank Of Canada's earnings presentation, Feb 28, 2024
Slide 1: Royal Bank of Canada First Quarter Results
Royal Bank of Canada First Quarter Results February 28, 2024 All amounts are in Canadian dollars unless otherwise indicated and are based on financial statements prepared in compliance with International Accounting Standard 34 Interim Financial Reporting, unless otherwise noted. Effective November 1
Slide 2: Caution regarding forward-looking statements
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
Slide 3: Overview
Overview Dave McKay President and Chief Executive Officer
Slide 4: Q1/24: Strong balance sheet, controlled expense growth and solid volume growth
Q1/24: Strong balance sheet, controlled expense growth and solid volume growth Strong earnings Diversified revenue streams(3) ($BN) Controlled expense growth YoY Δ Reported Adjusted(1) (6)% YoY YoY Δ QoQ Δ Capital Markets +5% YoY $3.6BN $4.1BN Insurance $3.0 Net Income $0.4 P&CB +14% (5)% +136% YoY
Slide 5: Client assets and activity: Momentum in market sensitive businesses
Client assets and activity: Momentum in market sensitive businesses Canadian Banking average gross Canadian Banking average City National (CNB) average loans and acceptances ($ billions) deposits ($ billions) loans and deposits (US$ billions) 7% 6% 8% 9% 8% Flat 2-YR CAGR(1) YoY 2-YR CAGR YoY 2-YR C
Slide 6: Balanced capital deployment driving sustainable long-term shareholder value
Balanced capital deployment driving sustainable long-term shareholder value Diversified organic growth(1)(3) (RWA $BN) 6.1 7.5 1.6 (1.6) 5.0 2.1 0.6 2.3 1.4 2.7 1.1 4.7 3.8 5.6 2.6 1.6 2.3 1.0 2.3 0.2 (1.9) (4.2) (3.5) (6.2) Strong capital ratio (CET1)(1) Q1/23 Q2/23 Q3/23 Q4/23 Q1/24 (4) Medium-ter
Slide 7: Planned acquisition of HSBC Canada: Updated transaction expectations
Planned acquisition of HSBC Canada: Updated transaction expectations Transaction Assumptions at Announcement Updated Expectations Fiscal Year F2024 F2025 Oct-24 Oct-25 $740MM Realized 25% 60% 80% 100% Synergies ▪ $740MM of estimated expense synergies Year 1 Year 2 Expense – 20% realized in Year 1 (2
Slide 8: City National: Strengthening CNB's operational infrastructure remains a top priority
City National: Strengthening CNB’s operational infrastructure remains a top priority City National’s balance sheet has more than doubled in size Investments to remediate certain non-financial risks and since the acquisition in Q1 / 2016 standards to strengthen operational infrastructure ▪ Over the c
Slide 9: Q1/2024 Financial Review
Q1/2024 Financial Review Nadine Ahn Chief Financial Officer
Slide 10: Q1/24: Solid volume growth more than offset by higher expenses and PCL
Q1/24: Solid volume growth more than offset by higher expenses and PCL Reported Earnings ($ millions, except for EPS) Q1/2024 YoY QoQ ▪ Net income up 14% YoY; adjusted net income(2) down 5% YoY Revenue 13,485 1% 6% o PPPT(1) down 11% YoY, adjusted PPPT (1,2) down 1% YoY Net Interest Income 6,332 2%
Slide 11: Capital: Strong position supports strategic deployment and shareholder returns
Capital: Strong position supports strategic deployment and shareholder returns CET1(1) Movement ▪ CET1 ratio(1) of 14.9%, up 40 bps QoQ, reflecting: 67 bps (34) bps 13 bps 12 bps (23) bps (2) bps 6 bps + Net internal capital generation + Unrealized mark-to-market gains on OCI +33 bps securities Net
Slide 12: Net interest income: Solid volume growth and benefits from higher interest rates
Net interest income: Solid volume growth and benefits from higher interest rates ▪ Net interest income (NII) up 2% YoY o NII ex-trading(1) down 0.5% YoY, largely in Capital Markets and Wealth All-Bank Net Interest Income ($ millions) Management. This was partially offset by solid volume growth in (1
Slide 13: Non-interest expense: Continuing to execute on cost containment
Non-interest expense: Continuing to execute on cost containment Non-Interest Expense (NIE, $ millions) Q1/2024 Highlights Q1/23 Expenses 7,589 ▪ Reported Non-interest expense up 10% YoY % of LTM NIE ‒ Transaction and integration costs related to the planned Salaries 34% Salaries & Benefits 129 acqui
Slide 14: P&CB: Solid volume growth offset by higher PCL and costs
P&CB: Solid volume growth offset by higher PCL and costs Net Income ($ millions) Q1/2024 Highlights (3)% Canadian Banking (1)% ▪ Net income down 4% YoY + Pre-provision, pre-tax earnings(1) up 4% YoY 2,126 2,091 2,061 − Operating leverage(3): (0.7)% ▪ Revenue up 4% YoY + Net interest income up 5% YoY
Slide 15: Wealth Management: Higher fee-based income offset by higher costs and lower NII
Wealth Management: Higher fee-based income offset by higher costs and lower NII Net Income ($ millions)(1) Q1/2024 Highlights (27)% | ▪ Net income down 27% or 26% YoY adjusted(2) Specified (26)% adj.(2) − Pre-provision, pre-tax earnings(3) down 32% YoY Items of Note $391MM | 895 $206MM adj.(2) ▪ Rev
Slide 16: Capital Markets: Strong PPPT results more than offset impact of higher PCL
Capital Markets: Strong PPPT(1) results more than offset impact of higher PCL Net Income ($ millions) Q1/2024 Highlights (7)% ▪ Net income down 7% YoY − Pre-provision, pre-tax earnings(1) down 9% YoY 17% 1,241 1,154 ▪ Revenue down 6% YoY 987 + Corporate & Investment Banking revenue up 3% YoY + Highe
Slide 17: Insurance: Robust earnings growth driven by favourable investment performance
Insurance: Robust earnings growth driven by favourable investment performance Net Income ($ millions) Q1/2024 Highlights 228% ▪ Net income up 228% YoY 127% ▪ Revenue up 136% YoY; 220 − Insurance service result modestly lower, down 3% YoY + Insurance investment result of $141MM up from a $(73)MM loss
Slide 18: Risk Review
Risk Review Graeme Hepworth Chief Risk Officer
Slide 19: Allowance for Credit Losses: Prudent reserve increases on performing loans
Allowance for Credit Losses: Prudent reserve increases on performing loans Allowance for Credit Losses (ACL) on Loans & Acceptances (L&A) ($ millions) L&A - $880BN L&A $880BN ACL to L&A PCL on Performing Loans of $133MM (536) 0.64% 685 ACL to L&A 0.61% (49) 5,630 160 22 L&A $847BN ACL to L&A 0.53% 5
Slide 20: PCL on impaired loans: Trending higher, as expected
PCL on impaired loans: Trending higher, as expected Total RBC ($ millions, bps) Wealth Management ($ millions, bps) Average historical loss rate(1): 30 bps 31 FY19: 12 bps 24 25 21 23 17 14 13 14 10 $685 $69 $499 $539 $441 $42 $357 $38 $38 $26 Q1/23 Q2/23 Q3/23 Q4/23 Q1/24 Q1/23 Q2/23 Q3/23 Q4/23 Q1
Slide 21: Gross Impaired Loans: New formations higher in Canadian Banking
Gross Impaired Loans: New formations higher in Canadian Banking Gross Impaired Loans (GIL) ($ millions, bps) Key Drivers of GIL (QoQ) FY19: 46 bps 48 ▪ Total GIL increased $494MM (up 6 bps QoQ) 42 Canadian Banking 38 ▪ GIL of $2,103MM increased $519MM QoQ, with higher new formations 34 31 o Commerci
Slide 22: Commercial Real Estate (CRE): Well-diversified portfolio
Commercial Real Estate (CRE): Well-diversified portfolio ▪ Total CRE exposure of $85.3BN represents 9.7% of total L&A ▪ The portfolio was originated with sound lending standards, and remains well-diversified by geography, business and property type Since the start of the current rate-hiking cycle (Q
Slide 23: Appendices
Appendices
Slide 24: Diversified business model: Driving strong value creation through the cycle
Diversified business model: Driving strong value creation through the cycle Premium growth in Reimagining Deepening client leading Canadian innovation relationships franchises Canadian Banking clients with ™ ™ #1 or #2 in key Canadian Banking product categories(1) transaction accounts, 18% investmen
Slide 25: Net Interest Margin: Average rates and balances
Net Interest Margin: Average rates and balances Interest Income Yield(1) Average Assets ($ billions) Q1/23 Q2/23 Q3/23 Q4/23 Q1/24 Q1/23 Q2/23 Q3/23 Q4/23 Q1/24 Loans 4.80% 5.13% 5.34% 5.56% 5.74% Loans 826 831 834 847 851 Securities 3.67% 4.07% 4.19% 4.53% 4.36% Securities 324 320 355 401 415 Repo
Slide 26: Net Interest Income: Net interest margins and Interest rate sensitivity
Net Interest Income: Net interest margins and Interest rate sensitivity All-Bank: Impact of 100 bps change Impact of 25 bps decrease(2) across the curve(1) Net interest Revenue Short-term rates(2) Across the curve(2) income ($MM) Increase Decrease ($MM) Q4/23 Q1/24 Q4/23 Q1/24 Canada $296 $(331) Can
Slide 27: Non-interest income: Tailwinds from higher client activity and market appreciation
Non-interest income: Tailwinds from higher client activity and market appreciation Non-Interest Income ($ millions) Q1/2024 Highlights ▪ Non-interest income was flat YoY; Adjusted non-interest income(6) was up 5% YoY excluding the impact from management of closing Q1/23 Non-interest income 7,155 cap
Slide 28: Non-Interest Expense: Market volatility leads to swings in share-based compensation
Non-Interest Expense: Market volatility leads to swings in share-based compensation SBC (incl. U.S. WM WAP) had a $127MM impact on YoY expense growth $ millions (unless otherwise stated) Q1/22 Q2/22 Q3/22 Q4/22 Q1/23 Q2/23 Q3/23 Q4/23 Q1/24 Share-based compensation 47 17 68 3 270 132 243 (17) 397 U.
Slide 29: Canadian Banking: Strong volume growth in higher spread loan products
Canadian Banking: Strong volume growth in higher spread loan products Average Gross Loans & Acceptances ($ billions) Average Deposits ($ billions) 6% 9% 1% 2% 573 598 605 599 609 558 20 22 23 112 123 128 269 271 76 77 77 253 366 377 378 330 338 306 Q1/2023 Q4/2023 Q1/2024 Q1/2023 Q4/2023 Q1/2024 Per
Slide 30: Canadian Banking: Our ~15MM clients continue to adopt our digital channels
Canadian Banking: Our ~15MM clients continue to adopt our digital channels Active Digital Users (000s)(1) Digital Personal Adoption Rate(2) Active Mobile Users (000s)(1) 7% 120 bps 12% Pre- 62.5% pandemic 9,016 9,192 62.0% 7,038 8,579 61.3% 6,865 7,354 6,287 Pre- pandemic Pre- pandemic 54.4% 4,619 Q
Slide 31: Wealth Management: RBC GAM net sales turn positive amidst rising markets
Wealth Management: RBC GAM net sales turn positive amidst rising markets RBC Global Asset Management AUM(1) ($ billions) RBC Global Asset Management Net Sales ($ billions) ~79% of AUM outperforming the benchmark on a 3-year basis(2) Last 12 months ended Q1/2024 6% Total Long-Term Canadian Retail $8.
Slide 32: U.S. WM (incl. CNB): Improved underlying profitability at City National
U.S. WM (incl. CNB): Improved underlying profitability at City National Net Income (US$ millions) Q1/2024 Highlights (US$) $(121)MM Specified Items of Note ▪ Net income down 56% YoY, including the US$85MM after- $(122)MM adj.(1) $296MM tax impact of cost of the FDIC SA at CNB 241 $163MM adj.(1) − Pr
Slide 33: Capital Markets: Revenue and loan breakdown by geography
Capital Markets: Revenue and loan breakdown by geography Capital Markets Revenue Breakdown by Geography ($ millions) 3,146 ▪ Canada: Down YoY, mainly driven by lower equity trading and lower 2,951 funding and liquidity revenue in Treasury Services, partly offset by 174 2,564 165 601 higher M&A fees
Slide 34: Canadian Banking: Credit outcomes impacted by higher rates, as anticipated
Canadian Banking: Credit outcomes impacted by higher rates, as anticipated Canadian Banking (CB) PCL on Impaired Loans and Gross Impaired Loans CB Retail FICO Score Distribution (Q1/24) Q1/24 Avg PCL on Impaired Loans Gross Impaired Loans Avg <620 Loan (bps) (1) (bps) FICO 3.3% Balances Score 620- (
Slide 35: Canadian residential portfolio: Strong underlying credit quality
Canadian residential portfolio: Strong underlying credit quality Canadian Residential Mortgage Portfolio(1) ($ billions) Canadian Banking RESL Portfolio(2) $199.6 Total $401BN Uninsured $339BN 85% Insured Uninsured Mortgage Balance $366BN $304BN $89.2 $308.9 (22%) (78%) HELOC Balance $35BN $35BN $74
Slide 36: Allowance for Credit Losses: Prudently reserved
Allowance for Credit Losses: Prudently reserved Allocation of ACL by Product as a % of Loans & Acceptances Pre-Pandemic Q1/20 Q1/23 Q4/23 Q1/24 Product Stage 1 & 2 Total Stage 1 & 2 Total Stage 1 & 2 Total Stage 1 & 2 Total (1) Residential mortgages 0.07% 0.12% 0.08% 0.11% 0.07% 0.11% 0.08% 0.13% Ot
Slide 37: Funding: Well-diversified
Funding: Well-diversified LCR(1) (total adjusted value, $BN) ▪ As at January 31, 2024, relationship-based deposits, which are the primary source of funding for retail and commercial lending, were High-quality liquid Less Net Cash Surplus = $847 billion or 52% of our total funding (including short-te
Slide 38: Market Risk: Trading revenue and VaR
Market Risk: Trading revenue and VaR ($ millions) 60 22 24 28 30 40 20 0 -20 -40 -60 Trading Revenue (teb) (1) Trading VaR (2) Trading VaR quarterly average ▪ During the quarter, there were no days with net trading losses. ▪ Average Trading VaR of $30 million remained relatively stable from last qua
Slide 39: Items impacting results (1/2)
Items impacting results (1/2) 2024 ($ millions, except for EPS) Specified Item Segments Line Item Before-Tax After-Tax Diluted EPS Q1/2024 $(159) / $(115)/ Cost of the FDIC Special Assessment No Wealth Management Expenses $(0.08) US$(117) US$(85) Amortization of other intangibles Yes Multiple Segmen
Slide 40: Items impacting results (2/2)
Items impacting results (2/2) Specified 2023 ($ millions, except for EPS) Segments Line Item Before-Tax After-Tax Diluted EPS Item Q4/2023 Legal provisions No Wealth Management Expenses $(166) $(166) $(0.12) Impairment of other intangibles No Wealth Management Expenses $(52) $(38) $(0.03) Higher sev
Slide 41: Impact of foreign currency translation
Impact of foreign currency translation Estimated impact of foreign currency translation on key income statement items For the three months ended ($ millions, except per share Q1/24 vs. Q1/24 vs. amounts) Q1/23 Q4/23 Increase (decrease): Total revenue 36 (96) Non-interest expense 28 (52) PPPT Earning
Slide 42: Additional Notes (slides 4 to 21)
Additional Notes (slides 4 to 21) Slide 4 1. Net Income and diluted EPS is adjusted for (i) after-tax effect of amortization of other intangibles, (ii) HSBC Canada transaction and integration costs, (iii) Impairment losses on our interest in an associated company, (iv) management of closing capital
Slide 43: Additional Notes (slides 25 to 36)
Additional Notes (slides 25 to 36) Slide 25 13. Loan yield is calculated as interest income on loans as a percentage of average total net loans. Securities yield is calculated as interest and dividend income on securities as a percentage of average securities, net of applicable allowance. Repo & sec
Slide 44: Glossary (1/2)
Glossary (1/2) Assets under administration (AUA): ▪ Assets administered by us, which are beneficially owned by clients, unless otherwise noted. Services provided in respect of assets under administration are of an administrative nature, including safekeeping, collecting investment income, settling p
Slide 45: Glossary (2/2)
Glossary (2/2) Net interest margin (NIM): ▪ Calculated as net interest income divided by average earning assets, net. Net yield: ▪ Net yield is calculated as total repo revenue as a percentage of average reverse repo balances. Operating leverage: ▪ The difference between our revenue growth rate and
Slide 46: Reconciliation for non-GAAP financial measures (1/4)
Reconciliation for non-GAAP financial measures (1/4) Calculation of Adjusted Net Income and Adjusted Diluted EPS $ millions (unless otherwise stated) Q1/23 Q4/23 Q1/24 All-bank Net income 3,133 3,939 3,582 Less: Non-controlling interests (NCI) (2) (2) (2) Less: Dividends on preferred shares and dist
Slide 47: Reconciliation for non-GAAP financial measures (2/4)
Reconciliation for non-GAAP financial measures (2/4) Calculation of Effective Tax Rate (teb) $ millions (unless otherwise stated) Q1/23 Q4/23 Q1/24 All-bank Income taxes Income taxes 2,103 (33) 766 Income taxes for adjusting items impacting net income (noted above: E+F+G+H+I+J) (1,032) 703 147 Adjus
Slide 48: Reconciliation for non-GAAP financial measures (3/4)
Reconciliation for non-GAAP financial measures (3/4) Calculation of PPPT Calculation of Adjusted PPPT excl. Specified Items $ millions (unless otherwise stated) Q1/23 Q4/23 Q1/24 $ millions (unless otherwise stated) Q1/23 Q4/23 Q1/24 All-Bank U.S. Wealth Management (incl. City National) (US$) Net in
Slide 49: Reconciliation for non-GAAP financial measures (4/4)
Reconciliation for non-GAAP financial measures (4/4) Calculation of Operating Leverage excl. Specified and Other Items $ millions (unless otherwise stated) Q1/23 Q1/24 All-bank Revenue 13,357 13,485 Add: Management of closing capital volatility related to the planned acquisition of HSBC Canada - 286
Slide 50: Note to users
Note to users We use a variety of financial measures to evaluate our performance. In addition to generally accepted accounting principles (GAAP) prescribed measures, we use certain key performance and non-GAAP measures we believe provide useful information to investors regarding our financial condit