Royal Bank Of Canada · TSX:RY
Royal Bank Of Canada — Q2 2024 Earnings Presentation
52 slides from Royal Bank Of Canada's earnings presentation, May 30, 2024
Slide 1: Royal Bank of Canada Second Quarter Results
Royal Bank of Canada Second Quarter Results May 30, 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, 20
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: Q2/24 Key Messages: Accelerating value creation
Q2/24 Key Messages: Accelerating value creation Reported Adjusted(1) Reported Adjusted(1) Strong results across our businesses underpinning sustainable earnings growth $2.74 $2.92 5% 9% Earnings Per Share EPS growth +6% $3.2BN +13% Strong, diversified client-driven growth Canadian Banking Record Wea
Slide 5: Client assets and activity: Solid momentum in market-related businesses
Client assets and activity: Solid momentum in market-related businesses Canadian Banking average gross Canadian Banking average City National (CNB) average loans and acceptances ($ billions) deposits ($ billions) loans and deposits (US$ billions) 9% 10% 11% 14% 5% (3)% 2-YR CAGR(1) YoY 2-YR CAGR YoY
Slide 6: HSBC Canada: Creating long-term value for clients and shareholders
HSBC Canada: Creating long-term value for clients and shareholders Close-and-convert nature of the transaction brings Complementary capabilities allowing for cross-sell opportunities forward expense synergies (i) Cross-sell of RBC products and services to HBCA clients, (ii) Cross-sell of new Fiscal
Slide 7: Q2/2024 Financial Review
Q2/2024 Financial Review Katherine Gibson Interim Chief Financial Officer
Slide 8: Q2/24: Strong, diversified revenue growth drove solid all-bank operating leverage
Q2/24: Strong, diversified revenue growth drove solid all-bank operating leverage Reported HBCA Earnings ($ millions, except for EPS) Q2/2024 ▪ Net income is up 7% YoY; ex-HBCA up 9% YoY YoY QoQ impact Revenue 14,154 14% 5% $245 ▪ Adjusted net income(2) is up 11% YoY; ex-HBCA up 12% YoY Net Interest
Slide 9: Capital: Strong CET1 ratio well-above regulatory requirements post-HBCA closing
Capital: Strong CET1 ratio well-above regulatory requirements post-HBCA closing CET1(1) Movement (240) bps ▪ CET1 ratio(1) of 12.8%, down 210 bps QoQ, reflecting: 72 bps − Closing of the HBCA transaction(2) (34) bps (29) bps 13 bps 3 bps − Higher RWA(1) (excluding FX) from business growth +38 bps an
Slide 10: Net interest income: Solid volume growth and benefits from higher interest rates
Net interest income: Solid volume growth and benefits from higher interest rates ▪ Net interest income (NII) up 9% YoY reflects the inclusion of HBCA All-Bank Net Interest Income ($ millions) revenue, as well as higher spreads and average volume growth in P&CB WM (ex Trading) (1) Others (ex Trading)
Slide 11: Non-interest expense: Higher revenue-driven variable compensation
Non-interest expense: Higher revenue-driven variable compensation Non-Interest Expense (NIE, $ millions) Q2/2024 Highlights Q2/23 Expenses 7,400 ▪ Reported Non-interest expense up 12% YoY; includes HBCA % of LTM NIE transaction and integration costs which added ~4% to growth Salaries & Benefits 121
Slide 12: P&CB: Solid volume growth and higher NIM partly offset by higher PCL and costs
P&CB: Solid volume growth and higher NIM partly offset by higher PCL and costs Net Income ($ millions)(1) Q2/2024 Highlights 7% | 8% adj.(2) Canadian Banking Specified ▪ Net income up 7%; PPPT(3) up 17% YoY Items of Note (0.5)% | 0.4% adj.(2) − PCL up $321MM, including $181MM ($131MM after-tax) of 2
Slide 13: Wealth Management: Strong results driven by market appreciation and net sales
Wealth Management: Strong results driven by market appreciation and net sales Net Income ($ millions)(1) Q2/2024 Highlights 7% | 6% adj.(2) ▪ Net income up 7% or 6% YoY adjusted(2) Specified + Pre-provision, pre-tax earnings(3) up 2% YoY Items of Note 27% | 25% adj.(2) 825 + HBCA added $5 million to
Slide 14: Capital Markets: Record earnings on strong growth in C&IB and Global Markets
Capital Markets: Record earnings on strong growth in C&IB and Global Markets Net Income ($ millions) (1) Q2/2024 Highlights 31% ▪ Net income up 31% YoY 9% + Pre-provision, pre-tax earnings(2) up 24% YoY, including $12 million of HBCA pre-provision, pre-tax earnings(2) 1,262 − HBCA contributed $(1) m
Slide 15: Insurance: Strong investment results and sales growth
Insurance: Strong investment results and sales growth Net Income ($ millions) (1) Q2/2024 Highlights 4% ▪ Net income up 4% YoY ▪ Revenue up 10% YoY (20)% + Insurance investment result of $59MM up from $14MM in the 220 prior year 177 + Favourable investment-related experience. The results in the 170
Slide 16: Risk Review
Risk Review Graeme Hepworth Chief Risk Officer
Slide 17: Allowance for Credit Losses: Prudent reserve increases on performing loans
Allowance for Credit Losses: Prudent reserve increases on performing loans Allowance for Credit Losses (ACL) on Loans & Acceptances (L&A) ($ millions) L&A $975BN - L&A ACL to L&A $880BN PCL on Performing Loans of $244MM (472) 0.62% 672 ACL to L&A 0.64% 69 (35) 17 193 5,874 L&A $856BN ACL to L&A 0.56
Slide 18: Gross Impaired Loans: New formations higher in Capital Markets
Gross Impaired Loans: New formations higher in Capital Markets Gross Impaired Loans (GIL) ($ millions, bps) Key Drivers of GIL (QoQ) FY19: 46 bps 55 ▪ Total GIL increased $1,134MM (up 7 bps QoQ) 48 Canadian Banking ▪ GIL of $2,601MM increased $498MM QoQ, which includes gross 42 impaired loans of $32
Slide 19: PCL on impaired loans: Trended down but remains elevated
PCL on impaired loans: Trended down but remains elevated Total RBC ($ millions, bps) Wealth Management ($ millions, bps) 24 Average historical loss rate(1): 30 bps FY19: 12 bps 31 30 17 23 25 14 21 13 10 $685 $672 $69 $499 $539 $46 $441 $38 $38 $26 Q2/23 Q3/23 Q4/23 Q1/24 Q2/24 Q2/23 Q3/23 Q4/23 Q1/
Slide 20: Commercial Real Estate (CRE): Well-provisioned portfolio
Commercial Real Estate (CRE): Well-provisioned portfolio ▪ Total CRE exposure of $98.6BN represents 10.1% of total loans and acceptances (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 cur
Slide 21: Appendices
Appendices
Slide 22: 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 23: Summary of purchase accounting impacts from HSBC Canada transaction
Summary of purchase accounting impacts from HSBC Canada transaction Purchase Accounting Items(1) Amount Impact Fair value adjustment on loans(2) (3) The net fair value mark accretes to Canadian Banking net interest income as a (net discount) $1.0BN benefit over the lives of the underlying loans (ave
Slide 24: Net Interest Margin: Average rates and balances
Net Interest Margin: Average rates and balances Interest Income Yield(1) Average Assets ($ billions) Q2/23 Q3/23 Q4/23 Q1/24 Q2/24 Q2/23 Q3/23 Q4/23 Q1/24 Q2/24 Loans 5.13% 5.34% 5.56% 5.74% 5.87% Loans 831 834 847 851 897 Securities 4.07% 4.19% 4.53% 4.36% 4.22% Securities 320 355 401 415 405 Repo
Slide 25: 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) Q1/24 Q2/24 Q1/24 Q2/24 Canada $134 $(190) Can
Slide 26: Non-interest income: Strong rally in market-related revenue
Non-interest income: Strong rally in market-related revenue Non-Interest Income ($ millions) Q2/2024 Highlights ▪ Reported non-interest income was up 19% YoY; includes the impact from management of closing capital volatility related to the Q2/23 Non-interest income 6,346 HBCA transaction in Other no
Slide 27: 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) 10% 14% 5% Ex. HBCA 6% Ex. HBCA YoY YoY 635 6% 643 9% 578 605 609 23 13% 566 20 23 128 144 14% 116 271 286 10% 77 79 4% 250 75 9% 367 378 390 3% 338 357
Slide 28: HSBC Canada: Shift in balance sheet mix; attrition within expectations
HSBC Canada: Shift in balance sheet mix; attrition within expectations HBCA Assets ($ billions) Change ▪ Loan balances have been resilient, down $3.5BN or 4% $ millions unless otherwise stated Sep-22 Apr-24 $ % since September 2022 Residential lending 34.4 32.6 (1.8) (5)% − Fair value adjustment on
Slide 29: Canadian Banking: Our ~16MM clients continue to adopt our digital channels
Canadian Banking: Our ~16MM clients continue to adopt our digital channels Active Digital Users (000s)(1) Digital Personal Adoption Rate(2) Active Mobile Users (000s)(1) 10% 70 bps 15% Pre- 62.5% 63.0% 9,681 62.3% 7,415 pandemic 9,192 8,774 7,038 7,354 6,429 Pre- pandemic Pre- pandemic 54.4% 4,619 Q
Slide 30: Wealth Management: Second consecutive quarter of positive net sales
Wealth Management: Second consecutive quarter of positive net sales Global Asset Management: AUM(1) ($ billions) Global Asset Management: Net Sales ($ billions) ~81% of AUM outperforming the benchmark on a 3-year basis(2) Last 12 months ended Q2/2024 11% Total Long-Term Canadian Retail $14.0BN $(6.7
Slide 31: U.S. WM (incl. CNB): Market tailwinds, net sales and higher spreads
U.S. WM (incl. CNB): Market tailwinds, net sales and higher spreads Net Income (US$ millions) Q2/2024 Highlights (US$) Specified Items 24% | 20% adj.(1) of Note ▪ Net income up 24% YoY, including the US$13MM after-tax 87% | 69% adj.(1) impact of cost of the FDIC SA at CNB Includes US$85MM + CNB net
Slide 32: Capital Markets: Revenue and loan breakdown by geography
Capital Markets: Revenue and loan breakdown by geography Capital Markets Revenue Breakdown by Geography ($ millions) 3,154 ▪ Canada: Up YoY, mainly driven by higher revenue in Treasury 2,951 162 Services, higher debt and equity origination fees and higher lending 2,662 165 454 results, partly offset
Slide 33: Corporate Support
Corporate Support Financial performance ($ millions)(1) Q2/2024 Highlights Reported Q2/2024 Q1/2024 Q2/2023 ▪ Net income of $(309)MM Revenue (TEB ) (2) 94 (160) (181) − HBCA transaction and integration costs U.S. WAP gains/(losses) 64 222 11 + Management of closing capital volatility Non-Interest Ex
Slide 34: 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 $47MM 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 Q2/24 Share-based compensation 47 17 68 3 270 132 243 (17) 3
Slide 35: Market Risk Trading Revenue and Trading VaR
Market Risk Trading Revenue and Trading VaR (C$ millions) 24 28 30 28 50 40 30 20 10 0 -10 -20 -30 -40 -50 (1) (2) Trading Revenue (teb) Trading VaR Trading VaR quarterly average ▪ During Q2/24, there were no days with net trading losses ▪ Average Trading VaR of C$28 million was slightly lower from
Slide 36: Canadian Banking: Credit outcomes impacted by higher rates, as anticipated
Canadian Banking: Credit outcomes impacted by higher rates, as anticipated Canadian Banking (CB) PCL on Impaired Loans and Gross Impaired Loans CB Retail FICO Score Distribution(6) (Q2/24) PCL on Impaired Loans Gross Impaired Loans <620 Q2/24 Avg Avg 3.3% Loan (bps) (1) (bps) FICO Balances Score 620
Slide 37: Canadian residential portfolio: Strong underlying credit quality
Canadian residential portfolio: Strong underlying credit quality Canadian Residential Mortgage Portfolio(1) ($ billions) Canadian Banking RESL Portfolio(2) $216.2 Total $438BN Uninsured $374BN Insured Uninsured Mortgage Balance $401BN $337BN $93.9 $339.4 (22%) (78%) HELOC Balance $37BN $37BN 85% LTV
Slide 38: Allowance for Credit Losses: Prudently reserved
Allowance for Credit Losses: Prudently reserved Allocation of ACL by Product as a % of Loans & Acceptances (3) Pre-Pandemic Q1/20 Q2/23 Q1/24 Q2/24 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% 0.08% 0.13% 0.08% 0.12
Slide 39: Funding: Well-diversified
Funding: Well-diversified LCR(1) (total adjusted value, $BN) ▪ As at April 30, 2024, relationship-based deposits, which are the primary source of funding for retail and commercial lending, were High-quality liquid Less Net Cash Surplus = $943 billion or 57% of our total funding (including short-term
Slide 40: Items impacting results (1/2)
Items impacting results (1/2) 2024 ($ millions, except for EPS) Adjusting Item Segments Line Item Before-Tax After-Tax Diluted EPS Q2/2024 Initial PCL on purchased performing Canadian Banking $(181) $(131) financial assets in the HSBC Canada No PCL $(0.10) transaction (Day 1 impact) Capital Markets
Slide 41: Items impacting results (2/2)
Items impacting results (2/2) Adjusting 2023 ($ 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) $(0.03) Higher sev
Slide 42: Impact of foreign currency translation
Impact of foreign currency translation Estimated impact of foreign currency translation on key income statement items For the three months ended ($ millions, except per share Q2/24 vs. Q2/24 vs. amounts) Q2/23 Q1/24 Increase (decrease): Total revenue 45 98 Non-interest expense 28 54 PPPT Earnings (1
Slide 43: 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 44: Glossary (2/2)
Glossary (2/2) Leverage ratio: ▪ A Basel III regulatory measure, the ratio divides Tier 1 capital by the sum of total assets plus specified off-balance sheet items. Tier 1 capital comprises predominantly of CET1 capital, with additional Tier 1 items such as preferred shares, limited recourse capital
Slide 45: Additional Notes (slides 4 to 18)
Additional Notes (slides 4 to 18) Slide 4 1. Net Income and diluted EPS are adjusted for (i) after-tax effect of amortization of other intangibles, (ii) HSBC Canada transaction and integration costs. (iii) management of closing capital volatility related to the HSBC Canada transaction. Adjusted pre-
Slide 46: Additional Notes (slides 24 to 38)
Additional Notes (slides 24 to 38) Slide 24 14. 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 47: Reconciliation for non-GAAP financial measures (1/5)
Reconciliation for non-GAAP financial measures (1/5) Calculation of Adjusted Net Income and Adjusted Diluted EPS $ millions (unless otherwise stated) Q2/23 Q1/24 Q2/24 All-bank Net income 3,680 3,582 3,950 Less: Non-controlling interests (NCI) (1) (2) (2) Less: Dividends on preferred shares and dist
Slide 48: Reconciliation for non-GAAP financial measures (2/5)
Reconciliation for non-GAAP financial measures (2/5) Calculation of Adjusted Effective Tax Rate (teb) $ millions (unless otherwise stated) Q2/23 Q1/24 Q2/24 All-bank Income taxes Income taxes 765 766 976 Income taxes for adjusting items impacting net income (noted above: D+E+F) 29 147 61 Adjusted in
Slide 49: 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) Q2/23 Q1/24 Q2/24 $ millions (unless otherwise stated) Q2/23 Q1/24 Q2/24 All-Bank U.S. Wealth Management (incl. City National) (US$) Net income 3,680 3,582 3,950 Net inco
Slide 50: Reconciliation for non-GAAP financial measures (4/5)
Reconciliation for non-GAAP financial measures (4/5) Calculation of Adjusted Operating Leverage Calculation of Adjusted Revenue, Expenses, PPPT, and Net Income $ millions (unless otherwise stated) Q2/23 Q2/24 $ millions (unless otherwise stated) Q2/23 Q1/24 Q2/24 All-bank Corporate Support Revenue 1
Slide 51: Reconciliation for non-GAAP financial measures (5/5)
Reconciliation for non-GAAP financial measures (5/5) Calculation of ex-HBCA amounts All-bank HBCA Excl. HBCA HBCA: Calculation of Adj. Net Income and PPPT $ millions (unless otherwise stated) Impact Impact $ millions (unless otherwise stated) Net interest income 6,623 179 6,444 PPPT 146 Non-interest
Slide 52: 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