Royal Bank Of Canada · TSX:RY
Royal Bank Of Canada — Q4 2021 Earnings Presentation
50 slides from Royal Bank Of Canada's earnings presentation, Dec 1, 2021
Slide 1: Royal Bank of Canada Fourth Quarter Results
Royal Bank of Canada Fourth Quarter Results December 1, 2021 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, 2021 and related notes prepared in accordance with International Fin
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: Q4/21: Strong client activity, volume growth and premium ROE drive BVPS growth
Q4/21: Strong client activity, volume growth and premium ROE drive BVPS growth (4) Strong earnings growth Diversified revenue streams ($BN) Expense growth (YoY) 8.7% Impact of +1% YoY +20% Capital 1.9% legal provision Net Income $3.9BN I&TS Markets YoY $0.5 +5% YoY 5.2% $2.3 4.4% +5% YoY P&CB 1.9% P
Slide 5: 2021 NIAT: PCL releases, higher volumes and client activity offset lower rates
2021 NIAT(1): PCL releases, higher volumes and client activity offset lower rates 2021 Net Income(2) Personal & Commercial Banking Wealth Management Diversified business model Market share gains in Canadian residential Largest retail fund company in Canada mortgages and personal deposits capturi
Slide 6: Diversified business model driving strong value creation through the cycle
Diversified business model driving strong value creation through the cycle Premium growth in Reimagining Deepening client leading Canadian innovation relationships franchises Canadian Banking clients with #1 or #2 in key Canadian Banking product categories(1) transaction accounts, 19% investments, b
Slide 7: Q4/21: Strong volume growth and client activity in our largest businesses
Q4/21: Strong volume growth and client activity in our largest businesses Canadian Banking average(1) loans Canadian Banking average Wealth Management (non-U.S.) and acceptances ($ billions)(2) deposits ($ billions)(3) AUM(1) and AUA(1) ($ billions) 7% 8% 14% 9% 14% 19% 2-YR CAGR YoY 2-YR CAGR YoY 2
Slide 8: Leading client value proposition across our Canadian wealth management platform
Leading client value proposition across our Canadian wealth management platform Full-spectrum of advisor-led Digital investment offerings Leading asset management wealth management advice Self-Directed Discount Brokerage Robo-Advisor $362BN $524BN $597BN +26% YoY +26% YoY +15% YoY Canadian Banking C
Slide 9: Medium-term financial performance objectives and updates
Medium-term financial performance objectives and updates Average(2) Medium-Term Objectives(1) 3-Year 5-Year Diluted EPS growth 7%+ 10% 10% Profitability ROE 16%+ 16.5% 16.8% Capital ratios (CET1 ratio) Strong 12.8% 12.1% Capital Management Dividend payout ratio 40% – 50% 47% 46% Canadian Ban
Slide 10: Reimagining a sustainable future
Reimagining a sustainable future Inform and inspire Net-zero leadership 4-Pillar Help clients as they Hold ourselves Strategy Canada’s sustainable in our own transition to net-zero accountable future operations Expanded commitment to mobilize $500 billion in sustainable finance by 2025 Committed
Slide 11: Q4/2021 Financial Review
Q4/2021 Financial Review Nadine Ahn Chief Financial Officer
Slide 12: Strong earnings growth driven by PCL releases and continued client-driven growth
Strong earnings growth driven by PCL releases and continued client-driven growth Reported Earnings ($ millions, except for EPS and ROE) Q4/2021 Net income up 20% YoY; Pre-provision, pre-tax earnings up 4% YoY QoQ YoY Revenue 12,376 12% (3%) Revenue Net of Insurance FV Change (1) 12,643 12% 3% Reve
Slide 13: Capital: Strong capital and earnings growth continue to drive shareholder returns
Capital: Strong capital and earnings growth continue to drive shareholder returns CET1 Movement 42 bps (30) bps CET1 ratio of 13.7%, up 10 bps QoQ, reflecting: (3) bps (1) bp Internal capital generation Partly offset by strong RWA growth supporting client- driven business activities Cumulati
Slide 14: Net interest income: Higher volumes offset by lower spreads and trading results
Net interest income: Higher volumes offset by lower spreads and trading results Net interest income up 1% YoY as strong volume growth more than offset lower spreads and lower trading results in Capital Markets o Net interest income (ex-trading) was up 4%(1) due to strong volume growth in Canadian
Slide 15: Net interest margin: Well-positioned for rising interest rates
Net interest margin: Well-positioned for rising interest rates Canadian Banking NIM on Average Earning Assets 25 bps increase in interest rates Roughly half of the Canadian Banking and City National deposit base is non-interest bearing or low-rate deposits 2.51% (0.03%) (0.02%) Most of U.S. Weal
Slide 16: Non-interest income: Strong market-related performance
Non-interest income: Strong market-related performance Non-Interest Income(1) ($ millions) Q4/2021 Highlights Q4/20 Revenue (net of FV change) (1) 6,317 Non-interest income was up 20% YoY; up 20% net of Insurance FV change(1) Market-related (2) Investment, brokerage & custodial fees 522 Higher i
Slide 17: Non-interest expense: Higher variable compensation and legal provision
Non-interest expense: Higher variable compensation and legal provision Non-Interest Expense ($ millions) Q4/2021 Highlights Q4/20 Expenses 6,058 Non-interest expense was up 9% YoY Up 4% YoY excluding variable and share-based compensation Compensation Salaries & Benefits 81 (which includes change
Slide 18: Personal & Commercial Banking: Continued strong client-driven volume growth
Personal & Commercial Banking: Continued strong client-driven volume growth Net Income ($ millions) Q4/2021 Highlights 35% Canadian Banking (4)% Net income up 34% YoY Pre-provision, pre-tax earnings up 8%(1) YoY 2,113 2,033 Revenue up 6% YoY 1,502 Net interest income up 2% YoY (slide 13 & 14
Slide 19: Wealth Management: Strong underlying performance impacted by legal provision
Wealth Management: Strong underlying performance impacted by legal provision Net Income ($ millions)(1) Q4/2021 Highlights 2% Net income up 2% YoY (25)% Pre-provision, pre-tax earnings down 4%(2) YoY includes $96MM (after-tax) legal Revenue increased 13% YoY 744 provision Wealth Management (
Slide 20: Insurance: Strong sales and continued expense control
Insurance: Strong sales and continued expense control Net Income ($ millions) Q4/2021 Highlights 5% Net income up 5% YoY 14% Revenue up 57% YoY (up 48% net of Insurance FV change)(1) 254 267 Higher group annuity sales (largely offset in PBCAE) 234 Business growth driven by longevity reinsura
Slide 21: Investor & Treasury Services: Increased client activity and expense control
Investor & Treasury Services: Increased client activity and expense control Net Income ($ millions) Q4/2021 Highlights 20% Net income up 20% YoY 24% Revenue up 5% YoY Higher revenue from increased client activity in our asset services 109 business 91 88 Higher funding and liquidity revenue a
Slide 22: Capital Markets: Strong Investment Banking offset moderating Global Markets
Capital Markets: Strong Investment Banking offset moderating Global Markets Net Income ($ millions) Q4/2021 Highlights 10% Net income up 10% YoY (19%) Pre-provision, pre-tax earnings up 3%(1) YoY 1,129 Revenue up 1% YoY 920 Corporate and Investment Banking revenue up 13% YoY 840 Higher M&A
Slide 23: Risk Review
Risk Review Graeme Hepworth Chief Risk Officer
Slide 24: Allowance for Credit Losses: Trending towards pre-pandemic levels
Allowance for Credit Losses: Trending towards pre-pandemic levels Movement in Allowance for Credit Losses (ACL) on Loans ($ millions) ACL to L&A 0.89% 541 (995) - - ACL to L&A (794) 0.67% ACL to L&A 137 (355) 0.60% 6,115 6115 (230) 5661 4,867 4,867 4,649 4,419 ACL (Q4/20) PCL on Impaired PCL on Perf
Slide 25: Gross Impaired Loans: Lower for the fifth consecutive quarter
Gross Impaired Loans: Lower for the fifth consecutive quarter Gross Impaired Loans (GIL) ($ millions, bps) Key Drivers of GIL (QoQ) 47 Total GIL decreased $253 million (down 4 bps QoQ) 41 40 Canadian Banking GIL of $1,239 million decreased $19 million QoQ, as higher new 35 formations in both the
Slide 26: PCL on impaired loans: Lower for the sixth consecutive quarter
PCL on impaired loans: Lower for the sixth consecutive quarter Total RBC ($ millions, bps) Wealth Management ($ millions, bps) 15 5 0 2 13 -1 11 -13 8 7 $12 $251 $0 $3 $218 $177 $146 $137 $(2) $(27) Q4/20 Q1/21 Q2/21 Q3/21 Q4/21 Q4/20 Q1/21 Q2/21 Q3/21 Q4/21 Lower provisions QoQ in Canadian Bankin
Slide 27: Appendices
Appendices
Slide 28: ESG: Putting our Purpose into practice
ESG: Putting our Purpose into practice Royal Bank of Canada is a purpose-driven, principles-led organization How we deliver value Building & attracting talent Sustainable finance and Committed to net-zero emissions Preparing youth for the and driving a diverse & responsible investment and accelerati
Slide 29: Canadian Banking: Strong volume growth
Canadian Banking: Strong volume growth Average Gross Loans & Acceptances(1) ($ billions) Average Deposits(1) ($ billions) 8% 9% 2% 3% 505 516 489 504 17 463 476 17 17 91 93 88 77 230 241 76 214 78 293 320 330 248 259 264 Q4/2020 Q3/2021 Q4/2021 Q4/2020 Q3/2021 Q4/2021 Percentage Change(1) YoY QoQ Pe
Slide 30: 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 Adoption Rate(2) Active Mobile Users (000s)(1) 5% 290 bps 10% 56.4% 56.9% Pre- Pre- 7,876 7,980 Pre- 5,394 5,547 pandemic pandemic 7,601 pandemic 5,031 54.0% 7,246 4,491 52.3% Q4/19 Q4/2
Slide 31: Wealth Management: Strong net sales at RBC Global Asset Management
Wealth Management: Strong net sales at RBC Global Asset Management RBC Global Asset Management AUM(1) ($ billions) RBC Global Asset Management Net Sales ($ billions) 15% Last 12 months ended Q4/2021 2% Total Long-Term Canadian Retail 597 $44.5BN $23.1BN 587 519 98 99 84 71 67 12.3 70 112 110 10.2 3.
Slide 32: Net Interest Income: Average rates and balance sheet
Net Interest Income: Average rates and balance sheet All-Bank Asset Yields(1) All-Bank Deposit Costs(2) 3.34% 3.28% 3.24% 3.16% 3.03% Loans 1.16% 1.15% 1.09% 0.96% 2.27% 0.91% 2.15% 2.13% 2.09% 1.99% Total earning Term deposits assets 1.93% 0.63% 1.85% 1.79% Securities 0.58% 0.55% 1.77% 1.70% 0.48%
Slide 33: U.S. operations: Solid top line growth
U.S. operations: Solid top line growth Net Income (US$ millions) U.S. Operations Revenue (US$ billions)(2) (2)% Last 12 months ended Q4/2021 (25)% CNB Net 642 Interest Income 18% 489 479 Total U.S. Capital 445 Markets $9.7 billion WM (ex- 46% 373 CNB NII) 425 includes 35% US$78MM 122 (after-tax) leg
Slide 34: U.S. WM (incl. CNB): Strong revenue growth more than offset by legal provision
U.S. WM (incl. CNB): Strong revenue growth more than offset by legal provision Net Income (US$ millions)(1) Q4/2021 Highlights (US$) (53)% Net income down 53%YoY (72)% Pre-provision, pre-tax earnings(3) down 70% YoY Includes US$78MM Revenue up 12% YoY after-tax impact of Average fee-based cl
Slide 35: Capital Markets: Revenue and loan breakdown by geography
Capital Markets: Revenue and loan breakdown by geography Capital Markets Revenue Breakdown by Geography ($ millions) Canada: Up YoY, mainly driven by increases in M&A and equity origination activities, partially offset by lower fixed income and 2,463 equities trading 2,275 2,298 121 133 342 116
Slide 36: Canadian Banking: Strong underlying credit quality
Canadian Banking: Strong underlying credit quality Canadian Banking (CB) PCL on Impaired Loans and Gross Impaired Loans CB Retail FICO Score Distribution (Q4/21) <620 Q4/21 Avg PCL on Impaired Loans Gross Impaired Loans Avg 3% Loan (bps) (1) (bps) FICO Balances Score 620- ($BN) Q4/20 Q3/21 Q4/21 Q4/
Slide 37: Canadian residential portfolio: Strong underlying credit quality
Canadian residential portfolio: Strong underlying credit quality Q4/2021 Highlights Canadian Banking Residential Lending Portfolio(1) Strong underlying quality of uninsured residential lending portfolio(1) Total $357.6BN Uninsured $285.2BN 53% of uninsured portfolio have a FICO score >800 $322.4
Slide 38: Allowance for Credit Losses: Trending towards pre-pandemic levels
Allowance for Credit Losses: Trending towards pre-pandemic levels Allocation of ACL by Product as a % of Loans & Acceptances Pre- Peak Total Pandemic ACL Ratio Product Q1/20 Q2/20 Q3/20 Q4/20 Q1/21 Q2/21 Q3/21 Q4/21 (1) Residential mortgages 0.12% 0.15% 0.16% 0.15% 0.15% 0.14% 0.12% 0.11% Other Reta
Slide 39: Market risk trading revenue and VaR
Market risk trading revenue and VaR ($ millions) 80 60 40 20 0 -20 -40 -60 -80 Trading Revenue (teb) (1) VaR During Q4/2021, there were no days with net trading losses VaR saw a moderate increase in Q4/2021 The historical period used to compute VaR covers the past 2 years (1) Includes loan und
Slide 40: 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 Q4/21 vs. Q4/21 vs. per share amounts) Q4/20 Q3/21 Increase (decrease): Total revenue (200) 55 PCL 1 1 Non-interest e
Slide 41: Additional Notes (slides 3 to 16)
Additional Notes (slides 3 to 16) Slide 3 1. Pre-provision, pre-tax earnings is calculated as income before income taxes and PCL. This is a non-GAAP measure. For reconciliation, see slide 44-48. For more information, see slide 49. 2. Adjusted for (i) after-tax effect of amortization of other intangi
Slide 42: Additional Notes (slides 24 to 37)
Additional Notes (slides 24 to 37) Slide 24 18. New formations for collectively assessed portfolios in Canadian Banking and Caribbean Banking are net of amounts returned to performing, repayments, sales, FX, and other movements, as amounts are not reasonably determinable. Slide 27 19. Includes Susta
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) Operating leverage: The difference between our revenue growth rate and non-interest expense growth rate. Return on common equity (ROE): Our consolidated ROE calculation is based on net income available to common shareholders divided by total average common equity for the period.
Slide 45: Reconciliation for non-GAAP financial measures (1/5)
Reconciliation for non-GAAP financial measures (1/5) Calculation of ROTCE $ millions (unless otherwise stated) Q4/20 Q3/21 Q4/21 Net income available to common shareholders 3,173 4,237 3,819 Add: After-tax effect of amortization of other intangibles 58 47 46 Net income available to common shareholde
Slide 46: Reconciliation for non-GAAP financial measures (2/5)
Reconciliation for non-GAAP financial measures (2/5) Calculation of Effective tax rate (teb) Calculation of NIE excl. VC & SBC $ millions (unless otherwise stated) Q4/20 Q3/21 Q4/21 $ millions (unless otherwise stated) Q4/20 Q3/21 Q4/21 Income Taxes (teb) Expenses 6,058 6,420 6,583 Income Taxes 900
Slide 47: Reconciliation for non-GAAP financial measures (3/5)
Reconciliation for non-GAAP financial measures (3/5) Calculation of PPPT Calculation of PPPT $ millions (unless otherwise stated) Q4/20 Q3/21 Q4/21 $ millions (unless otherwise stated) Q4/20 Q3/21 Q4/21 All-Bank U.S. Operations (US$) Net income 3,246 4,296 3,892 Net income 489 642 479 Income taxes 9
Slide 48: Reconciliation for non-GAAP financial measures (4/5)
Reconciliation for non-GAAP financial measures (4/5) Calculation of Adjusted PPPT $ millions (unless otherwise stated) Q4/20 Q3/21 Q4/21 U.S. Operations (US$) PPPT 631 672 570 Add: CNB’s amortization of intangibles 37 36 36 Adjusted PPPT 668 708 606 U.S. Operations (C$) PPPT 835 827 717 Add: CNB’s a
Slide 49: Reconciliation for non-GAAP financial measures (5/5)
Reconciliation for non-GAAP financial measures (5/5) Calculation of Non-Interest Expense YoY Growth (excluding FX and growth in VC and SBC) $ millions (unless otherwise stated) Q4/19 Q1/20 Q2/20 Q3/20 Q4/20 Q1/21 Q2/21 Q3/21 Q4/21 Total NIE - Current Period 6,319 6,378 5,942 6,380 6,058 6,542 6,379
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