Royal Bank Of Canada · TSX:RY
Royal Bank Of Canada — Q4 2023 Earnings Presentation
52 slides from Royal Bank Of Canada's earnings presentation, Nov 30, 2023
Slide 1: Royal Bank of Canada Fourth Quarter Results
Royal Bank of Canada Fourth Quarter Results November 30, 2023 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, 2023 and related notes prepared in accordance with International Fi
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: Q4/23: Solid volume growth, strong balance sheet and focus on expense control
Q4/23: Solid volume growth, strong balance sheet and focus on expense control Growing earnings Diversified revenue streams(3) ($BN) Containing expense growth YoY Δ Reported Adjusted(1) +2% YoY YoY Δ QoQ Δ Capital +6% YoY Insurance Markets $4.1BN $4.0BN $0.6 $2.6 Net Income (9)% YoY or P&CB 13.0% +6%
Slide 5: Strong volume growth across businesses amidst an uncertain macro backdrop
Strong volume growth across businesses amidst an uncertain macro backdrop Canadian Banking average loans Canadian Banking average City National (CNB) average and acceptances ($ billions) deposits ($ billions) loans and deposits (US$ billions) 8% 6% 9% 9% 11% 6% 2-YR CAGR(1) YoY 2-YR CAGR YoY 2-YR CA
Slide 6: Balanced capital deployment driving sustainable long-term shareholder value
Balanced capital deployment driving sustainable long-term shareholder value Diversified organic growth(3) (RWA $BN) 6.7 6.1 7.5 1.6 (1.6) 2.3 3.9 0.6 2.3 1.4 3.8 2.7 1.1 3.9 5.6 2.6 1.6 2.3 1.0 0.2 (1.9) (3.5) (3.5) (6.2) Strong capital ratio (CET1)(1) Q4/22 Q1/23 Q2/23 Q3/23 Q4/23 Medium-term objec
Slide 7: Medium-term financial performance objectives and updates
Medium-term financial performance objectives and updates Average(2) Medium-term objectives(1) 3-Year 5-Year Diluted EPS growth 10.3% 4.7% 7%+ ✓ Adjusted diluted EPS(3) growth 12.6% 5.9% Profitability ROE 16.4% 16.0% 16%+ ✓ Adjusted ROE(3) 16.9% 16.5% Capital Capital ratios (CET1 ratio)(4) Strong ✓ 1
Slide 8: 2023 Net Income: Results underpinned by a diversified business model
2023 Net Income(1): Results underpinned by a diversified business model 2023 Net Income(2) Personal & Commercial Banking Wealth Management ▪ Market share gain in business lending and Share Reported Adjusted(3) ▪ 32% mutual fund market share amongst banks steady in personal lending and deposits(4) in
Slide 9: Diversified business model: Driving strong value creation through the cycle
Diversified business model: Driving strong value creation through the cycle Premium growth in Reimagining Deepening client leading Canadian innovation relationships franchises Canadian Banking clients with ™ ™ #1 or #2 in key Canadian Banking product categories(1) transaction accounts, 18% investmen
Slide 10: Q4/2023 Financial Review
Q4/2023 Financial Review Nadine Ahn Chief Financial Officer
Slide 11: Q4/23: Solid revenue growth partly offset by higher expenses
Q4/23: Solid revenue growth partly offset by higher expenses Reported Earnings ($ millions, except for EPS) Q4/2023 YoY QoQ ▪ Net income up 6% YoY; adjusted net income(3) up 1% YoY Revenue 13,026 4% (10)% o PPPT(2) down 9% YoY, adjusted PPPT (2,3) flat YoY Insurance PBCAE 92 (21)% (93)% Revenue Reve
Slide 12: Capital: Strong base supports strategic deployment and shareholder returns
Capital: Strong base supports strategic deployment and shareholder returns CET1 Movement 66 bps (33) bps ▪ CET1 ratio(1) of 14.5%, up 40 bps QoQ, reflecting: 12 bps 1 bp (9) bps + Net internal capital generation (earnings net of dividends) +33 bps + DRIP shares issued from treasury Net internal capi
Slide 13: 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 (NII) up 4% YoY o NII ex-trading(1) up 5% YoY, largely due to higher interest rates All-Bank Net Interest Income ($ millions) and solid volume growth in Canadian Banking and loan growth in P&CB WM
Slide 14: Canadian Banking: Higher deposit margins and favourable product mix shift
Canadian Banking: Higher deposit margins and favourable product mix shift NIM on Average Earning Assets Latent benefit of interest rates Rising deposit costs (all-bank) Cumulative beta(1) An illustrative example of the latent benefit to deposits ~30% ~65% ~65% 4.62% Q3/23 NIM 2.68% 0.26% Short Term
Slide 15: Non-interest expense: Realizing benefits of cost containment initiatives
Non-interest expense: Realizing benefits of cost containment initiatives Non-Interest Expense (NIE, $ millions) Q4/2023 Highlights Q4/22 Expenses 7,209 ▪ Reported Non-interest expense up 13% YoY % of LTM NIE ‒ RBC Brewin Dolphin and transaction and integration costs Salaries 35% Salaries & Benefits
Slide 16: P&CB: NIM expansion and solid volume growth offset by higher costs and PCL
P&CB: NIM expansion and solid volume growth offset by higher costs and PCL Net Income ($ millions) Q4/2023 Highlights (2)% Canadian Banking (2)% ▪ Net income flat YoY 2,139 2,134 + Pre-provision, pre-tax earnings(1) up 4% YoY 2,091 − Operating leverage(3): (1.4)% ▪ Revenue up 5% YoY + Net interest i
Slide 17: Wealth Management: Solid asset growth offset by higher costs and PCL
Wealth Management: Solid asset growth offset by higher costs and PCL Net Income ($ millions)(1) Q4/2023 Highlights (74)% | ▪ Net income down 74% or 48% YoY adjusted(2) Specified (48)% adj.(2) − Pre-provision, pre-tax earnings(3) down 61% or 35% YoY adjusted Items of Note (68)% | for specified items
Slide 18: Capital Markets: Benefits from market share gains
Capital Markets: Benefits from market share gains Net Income ($ millions)(1) Q4/2023 Highlights 36% ▪ Net income up 36% YoY + Pre-provision, pre-tax earnings(2) up 7% YoY; Full year total of 4% $4.5BN up 10% YoY + Lower taxes reflecting favourable changes in earnings mix 949 987 ▪ Revenue up 2% YoY
Slide 19: Insurance: Strong business growth across products
Insurance: Strong business growth across products Net Income ($ millions) Q4/2023 Highlights 8% ▪ Net income up 8% YoY 27% 289 ▪ Revenue down 9% YoY; down 6% YoY net of Insurance 268 PBCAE(1) 227 − Lower investment related experience + Improved claims experience + Business growth across most product
Slide 20: Risk Review
Risk Review Graeme Hepworth Chief Risk Officer
Slide 21: Allowance for Credit Losses: Prudent reserve increases on performing loans
Allowance for Credit Losses: Prudent reserve increases on performing loans 2023 Allowance for Credit Losses (ACL) on Loans & Acceptances (L&A) ($ millions) L&A: $880BN PCL on Performing Loans - of $660MM (1,329) ACL to L&A: 0.61% 1,836 L&A: $842BN ACL to L&A: 0.50% 105 5,348 183 372 5,348 4,181 4,55
Slide 22: PCL on impaired loans: Trending higher, in-line with expectations
PCL on impaired loans: Trending higher, in-line with expectations Total RBC ($ millions, bps) Wealth Management (including CNB) ($ millions, bps) 24 Average historical loss rate(1): 30 bps FY19: 12 bps 23 25 21 14 13 17 12 10 4 $69 $499 $539 $441 $42 $357 $38 $254 $26 $11 Q4/22 Q1/23 Q2/23 Q3/23 Q4/
Slide 23: Gross Impaired Loans: Continue to trend higher
Gross Impaired Loans: Continue to trend higher Gross Impaired Loans (GIL) ($ millions, bps) Key Drivers of GIL (QoQ) FY19: 46 bps 42 ▪ Total GIL increased $420MM (up 4 bps QoQ) 38 Canadian Banking 34 ▪ GIL of $1,584MM increased $199MM QoQ, with increases primarily on 31 Commercial loans and Resident
Slide 24: Appendices
Appendices
Slide 25: 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) Q4/2022 Q1/2023 Q2/2023 Q3/2023 Q4/2023 Q4/2022 Q1/2023 Q2/2023 Q3/2023 Q4/2023 Total earning Total 3.69% 4.58% 5.08% 5.44% 5.64% 1.81% 2.64% 3.25% 3.50% 3.70% assets Liabilitie
Slide 26: Funding: Well-diversified
Funding: Well-diversified LCR(1) (total adjusted value, $BN) ▪ As at October 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 = $844 billion or 52% of our total funding (including short-te
Slide 27: Interest rate sensitivity
Interest rate sensitivity All-Bank: Impact of 100 bps change Impact of 25 bps change(2) across the curve(1) Net interest Revenue Short-term rates(2) Across the curve(2) income ($MM) Increase Decrease ($MM) Increase Decrease Increase Decrease Canada $381 $(409) Canadian ~$40 ~$(40) ~$120 ~$(120) Bank
Slide 28: Non-interest income: Strong growth in market-related revenue
Non-interest income: Strong growth in market-related revenue Non-Interest Income ($ millions) Q4/2023 Highlights PBCAE impact ▪ Non-interest income of $6.5BN was up 3% Q4/22 Non-interest income 6,169 (1) 6,285 − CNB impacted by impairment losses with respect to its interest in an associated company
Slide 29: Canadian Banking: Higher spreads and strong volume growth
Canadian Banking: Higher spreads and strong volume growth Average Gross Loans & Acceptances ($ billions) Average Deposits ($ billions) 6% 9% 2% 3% 566 588 598 579 599 549 21 22 19 109 119 123 256 269 76 76 77 254 362 371 377 323 330 295 Q4/2022 Q3/2023 Q4/2023 Q4/2022 Q3/2023 Q4/2023 Percentage Chan
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% 130 bps 12% Pre- 9,016 61.9% 62.0% 6,639 6,865 pandemic 8,837 8,405 60.7% 7,354 6,129 Pre- pandemic Pre- pandemic 54.4% 4,619 Q
Slide 31: Wealth Management: RBC GAM net sales reflect challenging market backdrop
Wealth Management: RBC GAM net sales reflect challenging market backdrop RBC Global Asset Management AUM(1) ($ billions) RBC Global Asset Management Net Sales ($ billions) ~83% of AUM outperforming the benchmark on a 3-year basis(2) Last 12 months ended Q4/2023 Total Long-Term Canadian Retail 4% $(1
Slide 32: U.S. WM (incl. CNB): Solid loan and AUA growth offset higher PCL and expenses
U.S. WM (incl. CNB): Solid loan and AUA growth offset higher PCL and expenses Net Income (US$ millions) Q4/2023 Highlights (US$) $(427)MM Specified Items ▪ Net income down $427 million YoY $(295)MM adj.(1) of Note − Pre-provision, pre-tax earnings(2) down $480 million YoY 251 $(264)MM ▪ Revenue down
Slide 33: Capital Markets: Revenue and loan breakdown by geography
Capital Markets: Revenue and loan breakdown by geography Capital Markets Revenue Breakdown by Geography(1) ($ millions) ▪ Canada: Down YoY, mainly driven by lower FX trading and equities 2,679 trading, as well as lower M&A activity 2,505 2,564 130 136 155 ▪ U.S.: Up YoY, driven by higher fixed incom
Slide 34: Canadian Banking Mortgage Portfolio: Renewal Risk
Canadian Banking Mortgage Portfolio: Renewal Risk Mortgage Balances Renewing Over the Next 5 Years ($BN) (1) 119.1 ▪ 14% of renewal balances mature in 2024, Fixed Rate providing flexibility afforded with time 89.5 38.7 Variable Rate 83.4 10.2 ▪ With time, the portfolio is able to benefit from: 52.2
Slide 35: Canadian Banking: Credit outcomes impacted by higher rates, as anticipated
Canadian Banking: Credit outcomes impacted by higher rates, as anticipated ▪ Credit outcomes have largely normalized to pre-pandemic levels, and we are now seeing higher interest rates driving higher delinquency rates as well as higher PCL and GIL ratios, QoQ Canadian Banking (CB) PCL on Impaired Lo
Slide 36: Canadian residential portfolio: Strong underlying credit quality
Canadian residential portfolio: Strong underlying credit quality Canadian Residential Mortgage Portfolio(1) ($ billions) Canadian Banking RESL Portfolio(2) $198.6 Total $400BN Uninsured $336BN 85% Insured Uninsured Mortgage Balance $366BN $302BN $90.0 $307.6 (23%) (77%) HELOC Balance $34BN $34BN $74
Slide 37: Commercial Real Estate (CRE): Well-diversified portfolio
Commercial Real Estate (CRE): Well-diversified portfolio Total CRE Exposure ($86.5 BN; 9.8% of total L&A) ▪ The portfolio was originated with sound lending standards, and Other Insurance 1% International Land Development 3% remains well-diversified by geography, business and property type Wealth 13%
Slide 38: Allowance for Credit Losses: Prudently reserved
Allowance for Credit Losses: Prudently reserved Allocation of ACL by Product as a % of Loans & Acceptances Pre-Pandemic Q1/20 Q4/22 Q3/23 Q4/23 Product Stage 1 & 2 Total Stage 1 & 2 Total Stage 1 & 2 Total Stage 1 & 2 Total (1) Residential mortgages 0.07% 0.12% 0.07% 0.10% 0.07% 0.11% 0.07% 0.11% Ot
Slide 39: Market Risk: Trading revenue and VaR
Market Risk: Trading revenue and VaR ($ millions) 80 26 22 24 28 60 40 20 0 -20 -40 -60 Trading Revenue (teb) (1) (1) Trading VaR (2)(2) Trading VaR quarterly average ▪ During the quarter, there were no days with net trading losses ▪ Average Trading VaR increased moderately from last quarter, primar
Slide 40: 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 $(20)MM impact on YoY expense growth Q1/21 Q2/21 Q3/21 Q4/21 Q1/22 Q2/22 Q3/22 Q4/22 Q1/23 Q2/23 Q3/23 Q4/23 Share-based compensation 286 134 100 97 47 17 68 3 270 132 243 (17) U.S. WM WAP expense
Slide 41: Items impacting results (1/2)
Items impacting results (1/2) Specified 2023 ($ 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) $(0.03) Higher sev
Slide 42: Items impacting results (2/2)
Items impacting results (2/2) 2022 ($ millions, except for EPS) Specified Item Segments Line Item Before-Tax After-Tax Diluted EPS Q4/2022 Amortization of other intangibles Yes Multiple Segments Expenses $(68) $(52) $(0.04) Q3/2022 Amortization of other intangibles Yes Multiple Segments Expenses $(6
Slide 43: 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 Q4/23 vs. Q4/23 vs. per share amounts) Q4/22 vs. Q3/23 Increase (decrease): Total revenue 124 110 Non-interest expens
Slide 44: Additional Notes (slides 4 to 23)
Additional Notes (slides 4 to 23) 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) Certain deferred tax adjustmen
Slide 45: Additional Notes (slides 25 to 38)
Additional Notes (slides 25 to 38) Slide 25 15. Loan yield is calculated as interest income on loans as a percentage of average total net loans. Total earning asset yield is calculated as interest income on assets as a percentage of average total earning assets. Securities yield is calculated as int
Slide 46: 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 47: 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 48: 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) Q4/22 Q3/23 Q4/23 2022 2023 All-bank Net income 3,882 3,872 4,131 15,807 14,866 Less: Non-controlling interests (NCI) (6) (2) (2) (13) (7) Less: Divid
Slide 49: 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) Q4/22 Q3/23 Q4/23 All-bank Income taxes Income taxes 979 761 (60) Income taxes for adjusting items impacting net income (noted above: D+E+F+G+H) 16 46 703 Adjusted income
Slide 50: 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) Q4/22 Q3/23 Q4/23 $ millions (unless otherwise stated) Q4/22 Q3/23 Q4/23 All-Bank U.S. Wealth Management (incl. City National) (US$) Net in
Slide 51: Reconciliation for non-GAAP financial measures (4/4)
Reconciliation for non-GAAP financial measures (4/4) Calculation of Revenue Net of Insurance PBCAE $ millions (unless otherwise stated) Q4/22 Q3/23 Q4/23 All-Bank Revenue 12,567 14,489 13,026 Less: Insurance PBCAE 116 1,379 92 Revenue net of Insurance PBCAE 12,451 13,110 12,934 Insurance Revenue 644
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