Royal Bank Of Canada · TSX:RY
Royal Bank Of Canada — Q3 2023 Earnings Presentation
48 slides from Royal Bank Of Canada's earnings presentation, Aug 24, 2023
Slide 1: Royal Bank of Canada Third Quarter Results
Royal Bank of Canada Third Quarter Results August 24, 2023 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. Totals may not add and
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: Q3/23: Strong revenue growth drove solid growth in PPPT earnings
Q3/23: Strong revenue growth drove solid growth in PPPT earnings Earnings (YoY) Diversified revenue streams(3) ($BN) Investing for growth Non-Interest Expense (YoY) Reported Adjusted(1) +43% YoY Capital +7% YoY Markets $3.9BN $4.0BN +50% YoY or $2.7 (2)% (8)% Net Income +22% YoY net of P&CB 23% 21%
Slide 5: Balanced capital deployment driving sustainable long-term shareholder value
Balanced capital deployment driving sustainable long-term shareholder value Diversified organic growth(3) (RWA $BN) 10 7 CET1: (4) bps 1 2 6 8 2 5 4 1 2 1 2 4 3 6 4 2 2 2 - - (2) (4) (4) Strong capital ratio (CET1) Q3/22 Q4/22 Q1/23 Q2/23 Q3/23 Medium-term objective (4) Capital Markets Wealth Manage
Slide 6: Solid average loan growth and stable deposits amidst a volatile backdrop
Solid average loan growth and stable deposits amidst a volatile backdrop Canadian Banking average loans Canadian Banking average City National (CNB) average and acceptances ($ billions) deposits ($ billions) loans and deposits (US$ billions) 8% 6% 9% 8% 12% 10% 2-YR CAGR YoY 2-YR CAGR YoY 2-YR CAGR
Slide 7: Q3/2023 Financial Review
Q3/2023 Financial Review Nadine Ahn Chief Financial Officer
Slide 8: Q3/23: Solid revenue growth partly offset by higher expenses and PCL
Q3/23: Solid revenue growth partly offset by higher expenses and PCL Reported Earnings ($ millions, except for EPS) Q3/2023 YoY QoQ Net income up 8% YoY; adjusted net income(3) up 11% YoY Revenue 14,489 19% 7% o PPPT(2) up 7% YoY, adjusted PPPT (2) up 10% YoY Insurance PBCAE 1,379 62% 37% Revenue
Slide 9: Capital: Strong capital position supporting business growth and shareholder returns
Capital: Strong capital position supporting business growth and shareholder returns CET1 Movement 65 bps (33) bps (1) bp 11 bps 7 bps (1) bp CET1 ratio of 14.1%, up 40 bps QoQ, reflecting: Net internal capital generation of 32 bps (earnings +32 bps net of dividends) Net internal capital DRIP i
Slide 10: Net interest income: Solid volume growth and continued benefits from higher rates
Net interest income: Solid volume growth and continued benefits from higher rates Net interest income up 7% YoY o NII ex-trading(1) up 6% YoY, largely due to higher spreads and All-Bank Net Interest Income ($ millions) solid average volume growth in both deposits and loans in P&CB WM (ex Trading)
Slide 11: Canadian Banking: Higher deposit margins offset moderating shift in deposit mix
Canadian Banking: Higher deposit margins offset moderating shift in deposit mix NIM on Average Earning Assets Latent benefit of interest rates Rising deposit costs Cumulative beta(1) All Bank An illustrative example of the Personal Deposits latent benefit to deposits Chequing & ~25% Q2/23 NIM 2.65%
Slide 12: Non-interest expense: Higher compensation costs and investments for growth
Non-interest expense: Higher compensation costs and investments for growth Non-Interest Expense (NIE, $ millions) Q3/2023 Highlights Q3/22 Expenses 6,386 Non-interest expense up 23% YoY % of LTM NIE ‒ RBC Brewin Dolphin, foreign exchange, SBC and transaction Salaries 34% Salaries & Benefits 419 an
Slide 13: Non-interest expense: Pulling the levers on cost containment
Non-interest expense: Pulling the levers on cost containment Reducing employee base Managing discretionary spend(2) Change in FTE (000s) QoQ % change +6.1k; +7% RBC Brewin 23% Dolphin 2 Acquisition 18% 19% +3.0k; +3% 15% 2 +1.5k; +2% 2 2 4% 1 1 (1) (2) Partial sale of RBC IS -15% operations (2.4)k;
Slide 14: P&CB: NIM expansion and solid volume growth partly offset by higher expenses
P&CB: NIM expansion and solid volume growth partly offset by higher expenses Net Income ($ millions) Q3/2023 Highlights 5% Canadian Banking 11% Net income up 4% YoY Pre-provision, pre-tax earnings(1) up 5% YoY 2,023 2,134 1,915 Operating leverage(3): (2.0)% YTD: +0.8% Revenue up 6% YoY N
Slide 15: Wealth Management: Solid asset growth was more than offset by higher costs
Wealth Management: Solid asset growth was more than offset by higher costs Net Income ($ millions)(1) Q3/2023 Highlights (18)% Net income down 18% YoY Pre-provision, pre-tax earnings(2) down 16% YoY (9)% Revenue increased 10% YoY 821 RBC Brewin Dolphin added 5% to the growth rate 742 Canad
Slide 16: Capital Markets: Benefits from diversified business model and market share gains
Capital Markets: Benefits from diversified business model and market share gains Net Income ($ millions)(1) Q3/2023 Highlights 57% Net income up 57% YoY Pre-provision, pre-tax earnings(2) up 54% YoY (0)% Lower taxes reflecting favourable changes in earning mix Market share gains across both
Slide 17: Insurance: Favourable investment related experience
Insurance: Favourable investment related experience Net Income ($ millions) Q3/2023 Highlights 22% Net income up 22% YoY 63% Revenue up 50% YoY; up 22% YoY net of Insurance 227 PBCAE(1) 186 Higher favourable investment related experience 139 Growth in both Canadian and International Insuranc
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 Movement in Allowance for Credit Losses (ACL) on Loans & Acceptances ($ millions) L&A $860BN L&A - $856BN ACL to L&A 499 (437) 0.58% ACL to L&A 0.56% 22 58 40 L&A(1) $817BN PCL on Performing Loans of $120MM ACL to L&A 0.49% 4
Slide 20: PCL on impaired loans: Trending higher but remain below historical averages
PCL on impaired loans: Trending higher but remain below historical averages Total RBC ($ millions, bps) Wealth Management ($ millions, bps) 13 13 Average historical loss rate(1): 30 bps FY19: 12 bps 21 23 17 9 12 8 4 $42 $38 $499 0 $441 $357 $26 $254 $170 $11 $1 Q3/22 Q4/22 Q1/23 Q2/23 Q3/23 Q3/22 Q
Slide 21: Gross Impaired Loans: Continues to normalize with higher new formations
Gross Impaired Loans: Continues to normalize with higher new formations Gross Impaired Loans (GIL) ($ millions, bps) Key Drivers of GIL (QoQ) FY19: 46 bps Total GIL increased $391MM (up 4 bps QoQ) 38 34 Canadian Banking 31 GIL of $1,385MM increased $61MM QoQ, with increases primarily on Resident
Slide 22: Appendices
Appendices RBCR
Slide 23: 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 ® transaction accounts, product categories(1) 18% investmen
Slide 24: Net Interest Income: Average rates and balance sheet
Net Interest Income: Average rates and balance sheet Interest-Earning Asset Yields (1) Interest-Bearing Liability Costs(2) Q3/2022 Q4/2022 Q1/2023 Q2/2023 Q3/2023 Q3/2022 Q4/2022 Q1/2022 Q2/2023 Q3/2023 Total earning Total 2.78% 3.69% 4.58% 5.08% 5.42% 1.08% 1.81% 2.64% 3.25% 3.50% assets Liabilitie
Slide 25: Funding: Well-diversified
Funding: Well-diversified LCR (total adjusted value, $BN) As at July 31, 2023, relationship-based deposits, which are the primary source of funding for retail and commercial lending, were High-quality liquid Less Net Cash Surplus = $822 billion or 51% of our total funding (including short-term rep
Slide 26: Interest rate sensitivity
Interest rate sensitivity All-Bank: Impact of 100 bps change Impact of 25 bps change(2) across the curve(1) Net interest Revenue Increase in short- Increase across Decrease across income ($MM) Increase Decrease ($MM) term rates(2) the curve(2) the curve(2) Canada $441 $(475) Canadian ~$50 ~$115 ~$(1
Slide 27: Non-interest income: Broad-based growth across segments
Non-interest income: Broad-based growth across segments Non-Interest Income ($ millions) Q3/2023 Highlights PBCAE impact Non-interest income of $8.2BN was up 31% from $6.2BN last Q3/22 Non-interest income 5,392 (1) 850 6,242 year; up 27% net of PBCAE(1) (2) Higher fixed income trading revenue re
Slide 28: Canadian Banking: Higher spreads and strong volume growth
Canadian Banking: Higher spreads and strong volume growth Average Gross Loans & Acceptances ($ billions) Average Deposits ($ billions) 6% 8% 2% 2% 553 578 588 535 566 579 20 21 19 119 104 116 250 256 75 76 251 76 354 367 371 316 323 283 Q3/2022 Q2/2023 Q3/2023 Q3/2022 Q2/2023 Q3/2023 Percentage Chan
Slide 29: Canadian Banking: Our 14MM+ clients continue to adopt our digital channels
Canadian Banking: Our 14MM+ clients continue to adopt our digital channels Active Digital Users (000s)(1) Digital Personal Adoption Rate(2) Active Mobile Users (000s)(1) 7% 140 bps 11% 61.9% 8,774 8,837 62.3% 61.9% 6,639 8,277 6,429 60.5% 7,354 5,962 Pre- Pre- pandemic pandemic Pre- 54.4% pandemic 4
Slide 30: Wealth Management: RBC GAM net sales impacted by shift to GICs
Wealth Management: RBC GAM net sales impacted by shift to GICs RBC Global Asset Management AUM(1) ($ billions) RBC Global Asset Management Net Sales ($ billions) ~85% of AUM outperforming the benchmark on a 3-year basis(2) Last 12 months ended Q3/2023 Total Long-Term Canadian Retail 3% $(2.2)BN $(7.
Slide 31: U.S. Wealth Management (incl. CNB): Volumes offset by NIM pressure and costs
U.S. Wealth Management (incl. CNB): Volumes offset by NIM pressure and costs Net Income (US$ millions) Q3/2023 Highlights (US$) (71)% Net income down 71% YoY (56)% Pre-provision, pre-tax earnings(2) down 57% YoY Revenue flat YoY 215 CNB NIM(5) up 4 bps YoY, including benefits from hedging ac
Slide 32: Capital Markets: Revenue and loan breakdown by geography
Capital Markets: Revenue and loan breakdown by geography Capital Markets Revenue Breakdown by Geography(1) ($ millions) Canada: Up YoY, mainly driven by higher fixed income trading and improved margins in Transaction Banking; partially offset by lower 2,663 equities trading 2,632 140 130 U.S.: U
Slide 33: Canadian Banking: Continuing to see signs of credit normalization
Canadian Banking: Continuing to see signs of credit normalization PCL and GIL ratios were relatively stable QoQ, while delinquency rates continue to increase across most products Canadian Banking (CB) PCL on Impaired Loans and Gross Impaired Loans CB Retail FICO Score Distribution (Q3/23) <620 Q3/
Slide 34: 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) $196.3 Total $398BN Uninsured $333BN 84% Insured Uninsured Mortgage Balance $363BN $298BN $90.8 $303.5 (23%) (77%) HELOC Balance $35BN $35BN $73
Slide 35: Commercial Real Estate (CRE): Well-diversified portfolio
Commercial Real Estate (CRE): Well-diversified portfolio CRE exposure of $82.4 billion at Q3/2023 accounts for 9.6% of total Loans and Acceptances The portfolio was originated with sound lending standards, and remains well-diversified by geography, business and property type Exposure by Business
Slide 36: Allowance for Credit Losses: Prudently reserved
Allowance for Credit Losses: Prudently reserved Allocation of ACL by Product as a % of Loans & Acceptances Pre-Pandemic Q1/20 Q3/22 Q2/23 Q3/23 Product Stage 1 & 2 Total Stage 1 & 2 Total Stage 1 & 2 Total Stage 1 & 2 Total (1) Residential mortgages 0.07% 0.12% 0.07% 0.10% 0.08% 0.11% 0.07% 0.11% Ot
Slide 37: Market risk: Trading revenue and VaR
Market risk: Trading revenue and VaR ($ millions) 80 60 40 20 0 -20 -40 -60 -80 58 55 47 36 -100 Trading Revenue (teb) (1) VaR VaR quarterly average During the quarter, there were no days with net trading losses Average VaR continued to decline this quarter. This was driven by exposure changes i
Slide 38: Share-based compensation (SBC): Market volatility leads to swings in SBC
Share-based compensation (SBC): Market volatility leads to swings in SBC SBC (incl. U.S. WM WAP) had a +$175MM impact on YoY expense growth Q1/21 Q2/21 Q3/21 Q4/21 Q1/22 Q2/22 Q3/22 Q4/22 Q1/23 Q2/23 Q3/23 Share-based compensation 286 134 100 97 47 17 68 3 270 132 243 U.S. WM WAP expense (gains)/los
Slide 39: Impact of foreign currency translation
Impact of foreign currency translation Estimated impact of foreign currency translation on key income statement items For the three months ended (Millions of Canadian dollars, except Q3/23 vs. Q3/23 vs. per share amounts) Q3/22 Q2/23 Increase (decrease): Total revenue 277 (84) Non-interest expense 1
Slide 40: Items impacting results
Items impacting results 2023 ($ millions, except for EPS) Specified Item Segments Before-Tax After-Tax Diluted EPS Q3/2023 Retrospective impact of HST on payment card No Personal & Commercial $(66) $(62) $(0.04) clearing services, which were announced in the Banking Government of Canada’s 2023 budge
Slide 41: Additional Notes (slides 4 to 24)
Additional Notes (slides 4 to 24) Slide 4 1. Net Income and EPS is adjusted for (i) after-tax effect of amortization of other intangibles (Q3/23: $61MM; Q2/23: $66MM; Q3/22: $46MM), (ii) HSBC Canada transaction and integration costs (Q3/23: $84MM; Q2/23: $43MM; Q3/22: $nil). Adjusted pre-provision,
Slide 42: Additional Notes (slides 27 to 36)
Additional Notes (slides 27 to 36) Slide 27 15. Comprised of Net gain on investment securities, Share of profit (loss) in joint ventures and associates and Other, including U.S. WM WAP gains/(losses). Slide 31 16. Adjusted net income and adjusted pre-provision, pre-tax earnings for every quarter exc
Slide 43: Glossary (1/2)
Glossary (1/2) Assets under administration (AUA): Assets administered by us, which are beneficially owned by clients. Services provided in respect of assets under administration are of an administrative nature, including safekeeping, collecting investment income, settling purchase and sale transac
Slide 44: Glossary (2/2)
Glossary (2/2) Net interest margin (NIM): Calculated as net interest income divided by average earning assets, net. Net stable funding ratio (NSFR): The Net Stable Funding Ratio is a Basel III metric defined as the amount of available stable funding relative to the amount of requested stable fun
Slide 45: Reconciliation for non-GAAP financial measures (1/3)
Reconciliation for non-GAAP financial measures (1/3) Calculation of Adjusted Net Income and Diluted EPS $ millions (unless otherwise stated) Q3/22 Q2/23 Q3/23 Net income 3,577 3,649 3,872 Less: Non-controlling interests (NCI) (2) (1) (2) Less: Dividends on preferred shares and distributions on other
Slide 46: Reconciliation for non-GAAP financial measures (2/3)
Reconciliation for non-GAAP financial measures (2/3) Calculation of PPPT Calculation of Adjusted PPPT $ millions (unless otherwise stated) Q3/22 Q2/23 Q3/23 $ millions (unless otherwise stated) Q3/22 Q2/23 Q3/23 All-Bank All-Bank Net income 3,577 3,649 3,872 PPPT 4,896 5,020 5,249 Income taxes 979 7
Slide 47: Reconciliation for non-GAAP financial measures (3/3)
Reconciliation for non-GAAP financial measures (3/3) Calculation of Revenue Net of Insurance PBCAE $ millions (unless otherwise stated) Q3/22 Q2/23 Q3/23 All-Bank Revenue 12,132 13,520 14,489 Less: Insurance PBCAE 850 1,006 1,379 Revenue net of Insurance PBCAE 11,282 12,514 13,110 Insurance Revenue
Slide 48: 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