Royal Bank Of Canada · TSX:RY
Royal Bank Of Canada — Q4 2020 Earnings Presentation
46 slides from Royal Bank Of Canada's earnings presentation, Dec 2, 2020
Slide 1: Royal Bank of Canada Fourth Quarter Results
Royal Bank of Canada Fourth Quarter Results December 2, 2020 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, 2020 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: Q4/20: Strong client-driven volume growth and client activity offset by lower rates
Q4/20: Strong client-driven volume growth and client activity offset by lower rates Revenue Net Income CET1 Ratio +1% YoY(1) $11.1 net of Insurance $3.2 12.5% fair value change, Billion and excluding the Billion +50 bps (2%) YoY BlueBay gain in the +1% YoY QoQ prior year Diversified Business Model E
Slide 5: Solid client activity despite challenging macro backdrop
Solid client activity despite challenging macro backdrop Total loan and deposit growth Canadian retail AUM net sales(1) Debit and credit card volumes(2) (YoY change, $ billions) ($ millions) (YoY change, %) 250 Everyday 2,000 100% Travel 1,000 Retail 200 Loans 50% Dining and Entertainment - 150 Depo
Slide 6: 2020: Diverse earnings power and strong balance sheet underpins solid results
2020: Diverse earnings power and strong balance sheet underpins solid results Strong PPPT earnings provide a buffer against risk migration Strong capital (CET1 ratio) PPPT Earnings to Stage 3 PCL(1) Allowance for Credit Loss (ACL) 12.5% $19BN 13.8x 14.7x surplus over 25.0 20.0 9.9x 10.5x 11.7x 10.0
Slide 7: 2020: Strong volume growth and client activity offset by higher PCL and lower rates
2020: Strong volume growth and client activity offset by higher PCL and lower rates Diversified Business Model Personal & Commercial Banking Wealth Management 2020 Net Income(1) #1 or #2 market share in key categories #1 retail fund company in Canada(3) Over 14 million clients #1 HNW & UHNW
Slide 8: Helping clients thrive and communities prosper
Helping clients thrive and communities prosper Our Vision To be among the world’s most trusted and successful financial institutions Our Goals CANADA UNITED STATES SELECT GLOBAL FINANCIAL CENTRES To be the undisputed To be the preferred partner to To be a leading financial leader in financial corpor
Slide 9: ESG performance highlights: Putting our Purpose into practice
ESG performance highlights: Putting our Purpose into practice Royal Bank of Canada is a purpose-driven, principles-led organization How we deliver value Building & attracting talent Sustainable finance and Climate change: accelerating Preparing youth for the and driving a diverse & responsible inves
Slide 10: Financial Review
Financial Review Rod Bolger Chief Financial Officer
Slide 11: Q4/20: Strong Capital Markets and WM (non-U.S.) results offset by impact of rates
Q4/20: Strong Capital Markets and WM (non-U.S.) results offset by impact of rates Reported Earnings ($ millions, except for EPS and ROE) Q4/2020 YoY QoQ Q4/2020 net income of $3.2 billion, up 1% YoY; diluted Revenue $11,092 (2)% (14)% earnings per share (EPS) of $2.23, up 2% YoY o Adjusted diluted
Slide 12: Strong capital ratio comfortably above regulatory requirements
Strong capital ratio comfortably above regulatory requirements CET1 Movement 10 bps (1) bp CET1 ratio of 12.5%, up 50 bps QoQ, 35 bps (4) bps (4) bps 11 bps mainly reflecting: Strong internal capital generation Lower RWA, primarily market risk 12.5% Favourable pension & post- 12.0% employmen
Slide 13: Credit RWA downgrades largely related to loans within vulnerable sectors
Credit RWA downgrades largely related to loans within vulnerable sectors Cumulative impact from net credit downgrades of $13 Loan Growth By Segment (Q2/20, Q3/20 & Q4/20) billion over last three quarters ($ billions) o Majority of net lending-related credit downgrades were Cumulative Q2/20 Q3/20 Q
Slide 14: Net interest income: Strong volume growth offset by impact of lower interest rates
Net interest income: Strong volume growth offset by impact of lower interest rates NIM on Average Earnings Assets and Net Interest Average deposits Select assets Income ($ billions) ($ billions) ($ billions) 1.60% 1.61% Growth Growth 5,800 1.59% 1.49% 1.52% 5,600 1.60% YoY QoQ YoY QoQ 74 1.40% 5,400
Slide 15: Non-interest income: Strong results in Capital Markets and WM (non-U.S.)
Non-interest income: Strong results in Capital Markets and WM (non-U.S.) Non-Interest Income by Segment(1) ($ billions) Q4/2020 Highlights 55% 57% 56% % of total Non-interest income was down 3% YoY; relatively flat 6,784 revenue(1) net of Insurance FV change(1) 6,287 422 6,317 410 391 Non-intere
Slide 16: Strong volume growth in P&CB more than offset by low interest rate environment
Strong volume growth in P&CB more than offset by low interest rate environment Net Income ($ millions) Q4/2020 Highlights (7%) Canadian Banking 10% Net income down 5% YoY Strong volume growth and lower PCL, more than offset 1,618 by the impact of lower spreads, lower non-interest 1,502 1,367 inc
Slide 17: Strong volumes and sales in Wealth Management more than offset by lower rates
Strong volumes and sales in Wealth Management more than offset by lower rates Net Income ($ millions) Q4/2020 Highlights (25%) Net income down 25% YoY Excluding prior year’s $134 million (after-tax) gain on (3%) sale of the private debt business of BlueBay (BlueBay gain)(4), net income was down
Slide 18: Insurance results impacted by unfavourable actuarial adjustments
Insurance results impacted by unfavourable actuarial adjustments Net Income ($ millions) Q4/2020 Highlights (10%) Net income down 10% YoY Unfavourable actuarial adjustments resulting from 18% annual assumption updates 282 254 Revenue down 17% YoY; up 1% net of Insurance FV 216 change(1) Chan
Slide 19: I&TS continues to be impacted by elevated liquidity and challenging environment
I&TS continues to be impacted by elevated liquidity and challenging environment Net Income ($ millions) Q4/2020 Highlights Net income up 102% YoY 102% Excluding prior year’s severance and related costs of 20% $83 million (after-tax) associated with repositioning of the business, net income was d
Slide 20: Record fourth quarter results in Capital Markets
Record fourth quarter results in Capital Markets Net Income ($ millions) Q4/2020 Highlights Net income up 44% YoY 44% Higher revenue in Global Markets and Corporate and (11%) Investment Banking, and lower compensation costs, partially offset by higher taxes due to an increase in the 949 proporti
Slide 21: Medium-term financial performance objectives and updates
Medium-term financial performance objectives and updates Average(5) Medium-Term Objectives 3 Years 5 Years Diluted EPS growth 7%+ 1% 3% Profitability ROE(1) 16%+ 16.2% 16.4% Capital ratios (CET1 ratio) Strong 12.0% 11.6% Capital Management Dividend payout ratio 40% – 50% 49% 48% Full Year Pe
Slide 22: Risk Review
Risk Review Graeme Hepworth Chief Risk Officer
Slide 23: Lower new formations reflect the ongoing impact of client support programs
Lower new formations reflect the ongoing impact of client support programs Gross Impaired Loans (GIL) ($ millions, bps) Key Drivers of GIL (QoQ) 57 Total GIL decreased $662 million (down 10 bps QoQ) 51 New formations were down $714 million QoQ 46 47 45 Capital Markets GIL decreased $419 millio
Slide 24: Lower PCL on impaired loans (Stage 3) reflect lower new formations
Lower PCL on impaired loans (Stage 3) reflect lower new formations Total RBC ($ millions, bps) Wealth Management ($ millions, bps) 37 21 21 27 8 23 -1 0 21 15 $43 $613 $35 $434 $398 $338 $(1) $15 $251 $- Q4/19 Q1/20 Q2/20 Q3/20 Q4/20 Q4/19 Q1/20 Q2/20 Q3/20 Q4/20 Lower provisions QoQ across all se
Slide 25: ACL reflects prudent reserve build through 2020
ACL reflects prudent reserve build through 2020 Movement in Allowance for Credit Losses on Loans(1) ($ billion) 0.89% 0.89% ACL to ACL to 1.3 -1.2 L&A L&A 0.1 0.3 -0.3 0.53% ACL to 2.5 L&A 60% Wholesale, 6.1 mainly P&CB 6.1 and WM, partially 3.4 offset by CM ACL (Q4/19) PCL on PCL on Net write-offs,
Slide 26: Canadian Banking – Retail Portfolio
Canadian Banking – Retail Portfolio (1) Active and Expired Deferral Balances (Q4/2020) Active Deferrals Expired Deferrals Product Balances % of Total Balances % Delinquent (3) Avg. FICO Avg. LTV % Current ($BN) Balances ($BN) (2) (All Past Due) Home Equity Finance (HEF) $5.8 1.8% 746 60% $45.7 98.2%
Slide 27: Canadian Banking – Commercial and Small Business Portfolio
Canadian Banking – Commercial and Small Business Portfolio (1) Active and Expired Deferral Balances (Q4/2020; C$ million) 1,929 2,403 Cumulative and active deferral balances account for ~20% and 17,339 2% of total outstanding balances 15,410 12,778 in the Commercial and Small Business portfolios, re
Slide 28: Exposure to wholesale sectors most vulnerable to COVID-19 impacts
Exposure to wholesale sectors most vulnerable to COVID-19 impacts Our most vulnerable wholesale exposure represents $37 billion or 5% of total loans & acceptances outstanding QoQ decrease mainly reflects repayments of drawdowns that occurred at the onset of COVID-19 In Q4/2020, our vulnerable
Slide 29: COVID-19 vulnerable sector spotlights
COVID-19 vulnerable sector spotlights Vulnerable exposure Commercial Real Estate (CRE) Consumer Discretionary $57.6 billion in Loans & acceptances outstanding as of Q4/2020 $16.5 billion in Loans & acceptances outstanding as of Q4/2020 76% Canada; 20% USA; 3% Other International 60% Canada; 39%
Slide 30: COVID-19 vulnerable sector spotlights
COVID-19 vulnerable sector spotlights Vulnerable exposure Oil & Gas Transportation $7.6 billion in Loans & acceptances outstanding as of Q4/2020 $7.6 billion in Loans & acceptances outstanding as of Q4/2020 75% Canada; 18% USA; 7%Other International 58% Canada; 25% USA; 17% Other International E
Slide 31: Appendices
Appendices
Slide 32: Net Interest Income sensitivity
Net Interest Income sensitivity Interest Rate Risk in the Banking Book (IRRBB) Sensitivities – NII risk(1) ($ millions) NII risk Q4/2020: The year-over-year change in net interest Q1/20 Q2/20 Q3/20 Q4/20 income sensitivity is largely attributed to higher business and retail deposit growth move in
Slide 33: Canadian Banking: Strong volume growth offset by impact of lower interest rates
Canadian Banking: Strong volume growth offset by impact of lower interest rates Average Gross Loans & Acceptances(1) ($ billions) Average Deposits(1) ($ billions) 5% 19% 2% 4% 387 446 463 467 476 452 17 20 17 89 88 203 214 87 78 171 81 78 283 293 216 243 248 265 Q4/2019 Q3/2020 Q4/2020 Q4/2019 Q3/20
Slide 34: Our 14MM+ Canadian Banking clients continue to use our digital channels
Our 14MM+ Canadian Banking clients continue to use our digital channels Active Digital Users(1) Digital Adoption Rate(2) Active Mobile Users(1) 5% 170 bps 12% 7,527 7,601 5,031 53.8% 54.0% 4,917 7,246 52.3% 4,491 Q4/19 Q3/20 Q4/20 Q4/19 Q3/20 Q4/20 Q4/19 Q3/20 Q4/20 Mobile Sessions(3) Self-Serve Tra
Slide 35: Growing our leading market share in Canadian retail assets under management
Growing our leading market share in Canadian retail assets under management Assets Under Management ($ billions) Net Sales ($ billions) All-in Market Share(1) All-in Market Share(1) 16.1% 16.1% 16.1% n.m.(2) 39.4% 32.0% 280 260 268.3 240 257.6 220 232.5 200 3.1 180 160 140 120 2.0 100 80 60 40 0.6 2
Slide 36: Solid results from U.S. operations
Solid results from U.S. operations Net Income (US$ millions) U.S. Operations Revenue (US$ billions)(1) Last 12 months ended Q4/2020 52% (16%) RBC CM Total U.S. 3.9 RBC WM 489 4.6 $8.8 billion 322 582 Other(2) Q4/2019 Q3/2020 Q4/2020 Q4/2020 Highlights US$ millions (unless otherwise stated) Q4/20 YoY
Slide 37: Lower rates more than offset growth in U.S. Wealth Management (incl. CNB)
Lower rates more than offset growth in U.S. Wealth Management (incl. CNB) Net Income (US$ millions) Q4/2020 Highlights (US$) (31%) Net income down 31% YoY Strong double-digit average volume growth was more (9)% than offset by the impact of lower interest rates, higher expenses and higher PCL R
Slide 38: Capital Markets revenue breakdown by business
Capital Markets revenue breakdown by business Corporate and Investment Banking Revenue Breakdown by Business ($ millions) 16% Up 16% YoY: 1% Higher debt origination in North America (1) Higher equity origination across most regions 1,080 1,088 Higher lending revenues across most regions 934
Slide 39: Capital Markets revenue and loan breakdown by geography
Capital Markets revenue and loan breakdown by geography Capital Markets Revenue Breakdown by Geography ($ millions) Canada: Down YoY, driven by higher residual funding costs 2,748 and lower repo & secured financing revenue, partially offset 151 2,275 by higher commodities trading 481 133 1,987 (1)
Slide 40: Strong underlying credit quality in Canadian Banking
Strong underlying credit quality in Canadian Banking Canadian Banking Outstanding Lending Exposure(1) Canadian Banking FICO Score Distribution – Retail (Average balances, $ billions) (As of Q4/2020) Q4/2020 Q3/2020 <620 Residential 293 3% Mortgages 283 620-680 37 7% HELOCs 37 681-720 Personal Lendin
Slide 41: Canadian residential portfolio has strong underlying credit quality
Canadian residential portfolio has strong underlying credit quality Q4/2020 Highlights Canadian Banking Residential Lending Portfolio(1) Strong underlying quality of uninsured residential mortgage Total ($328BN) Uninsured ($252BN) portfolio(1) Mortgage $291.0BN $215.0BN 53% of uninsured portfoli
Slide 42: IFRS 9 range of macroeconomic scenario assumptions
IFRS 9 range of macroeconomic scenario assumptions (as of October 31) Canada Real GDP ($ Trillions)(1) Canada Unemployment Rate (%)(3) 14 2.4 2.3 12 2.2 10 2.1 8 2.0 6 1.9 4 1.8 2 1.7 U.S. Real GDP (US$ Trillions)(2) U.S. Unemployment Rate (%)(3) 22.0 14 21.0 12 20.0 10 19.0 8 18.0 6 17.0 4 16.0 2 0
Slide 43: ACL coverage: Lower-risk residential mortgages a large part of our balance sheet
ACL coverage: Lower-risk residential mortgages a large part of our balance sheet Allocation of ACL by Product Q3 / 2020 Q4 / 2020 % of Loans & Acceptances % of Loans & Acceptances Product Stage 1 Stage 2 Stage 1 & 2 Stage 3 Total Stage 1 Stage 2 Stage 1 & 2 Stage 3 Total Residential mortgages(1) 0.1
Slide 44: Market risk trading revenue and VaR
Market risk trading revenue and VaR ($ millions) 150 100 50 0 -50 -100 -150 -200 -250 Trading Revenue(1) Market Risk VaR There were no days with net trading losses during Q4/2020 RBC maintained a cautious market risk profile in Q4/2020, with VaR generally stable near levels achieved at the end o
Slide 45: Other items impacting results
Other items impacting results 2020 Other Items ($ millions, except for EPS) Segments Before-Tax After-Tax Diluted EPS Q4/2020 No significant items of note Q3/2020 No significant items of note Q2/2020 No significant items of note Q1/2020 No significant items of note 2019 Other Items ($ millions, exce
Slide 46: 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