Royal Bank Of Canada · TSX:RY
Royal Bank Of Canada — Q1 2023 Earnings Presentation
51 slides from Royal Bank Of Canada's earnings presentation, Mar 1, 2023
Slide 1: Royal Bank of Canada First Quarter Results
Royal Bank of Canada First Quarter Results March 1, 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. Our Q1 2023 Report to Sh
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: Q1/23: Strong revenue growth underpinned by a diversified business model
Q1/23: Strong revenue growth underpinned by a diversified business model (4) Earnings (YoY) Diversified revenue streams ($BN) Expense growth (YoY) 4% YoY Impact of RBC Brewin Dolphin, prior year Net Income $3.2BN (22)% Capital legal provision release and HSBC Canada Adjusted Net Markets transaction
Slide 5: Balanced capital deployment driving sustainable long-term shareholder value
Balanced capital deployment driving sustainable long-term shareholder value Diversified organic growth(1) (2) (RWA $BN) 20 2 CET1 13 3 (13) bps 2 4 10 7 5 1 6 2 13 5 4 1 8 2 4 2 4 2- (2) (4) Strong capital ratio Q1/22 Q2/22 Q3/22 Q4/22 Q1/23 (3) Capital Markets Wealth Management P&CB Other Committed
Slide 6: Broad-based loan growth despite slowdown in housing activity
Broad-based loan growth despite slowdown in housing activity Canadian Banking average loans Canadian Banking average City National average loans and and acceptances(1) ($ billions) deposits ($ billions)(4) deposits (US$ billions) 8% 9% 9% 8% 12% 16% 2-YR CAGR(3) YoY 2-YR CAGR YoY 2-YR CAGR YoY 573 5
Slide 7: Canadian Banking: Supporting our clients through volatile times
Canadian Banking: Supporting our clients through volatile times Client Acquisition Personal Banking Net Money-In(1) Superior Cross-Sell Ability Percent of clients with transaction ▪ Our continuum of offerings allows clients to shift liquidity accounts, investments, borrowing and ~950k between person
Slide 8: Wealth Management: Growing our global wealth advisory franchises
Wealth Management: Growing our global wealth advisory franchises RBC has scale in three of the world’s largest asset pools C Canadian Wealth Management Wealth Management U.S. Wealth Management (excluding RBC GAM) (excluding City National) UK & Ireland #1 6th largest HNW market share(1) U.S. wealth a
Slide 9: Q1/2023 Financial Review
Q1/2023 Financial Review Nadine Ahn Chief Financial Officer
Slide 10: Q1/23: Strong net interest income growth more than offset higher expenses and PCL
Q1/23: Strong net interest income growth more than offset higher expenses and PCL Reported Earnings ($ millions, except for EPS and ROE) Q1/2023 ▪ Net income down 22% YoY; adjusted(3) net income up 5% YoY YoY QoQ Revenue 15,094 16% 20% o PPPT(2) up 7% YoY Revenue Net of Insurance FV Change(1) 14,431
Slide 11: Capital: Strong capital position supporting business growth and shareholder returns
Capital: Strong capital position supporting business growth and shareholder returns CET1 Movement 70 bps ▪ CET1 ratio of 12.7%, up 10 bps QoQ, reflecting: 6 bps + Net internal capital generation (earnings net of (31) bps (20) bps (17) bps dividends) +39 bps − Impact of the Canada Recovery Dividend (
Slide 12: Net interest income: Robust growth reflecting rising rates and higher volumes
Net interest income: Robust growth reflecting rising rates and higher volumes All-Bank Net Interest Income ($ millions) (1) P&CB WM (ex Trading) ▪ Net interest income up 18% YoY due to higher spreads and solid Others (ex Trading)(1) (2) Trading NII (3) YoY loan growth in Canadian Banking and Wealth
Slide 13: Canadian Banking: Higher deposit margins partly offset by changing client activity
Canadian Banking: Higher deposit margins partly offset by changing client activity Canadian Banking NIM on Average Loan growth largely funded Client behaviour is driving a Earning Assets through lower cost client deposits change in deposit mix Loan YoY QoQ Deposit +2% QoQ +8% YoY (1) (2) Q4/22 NIM 2
Slide 14: 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) Q1/2023 Highlights Q1/22 Expenses 6,580 ▪ Non-interest expense up 17% YoY % of LTM NIE ‒ Overall, RBC Brewin Dolphin added 3% to expense growth Salaries 35% Salaries & Benefits 284 ‒ Hig
Slide 15: P&CB: Continued margin expansion and strong client-driven volume growth
P&CB: Continued margin expansion and strong client-driven volume growth Net Income ($ millions) Q1/2023 Highlights 8% Canadian Banking (1)% ▪ Net income up 7% YoY 2,139 2,126 + Pre-provision, pre-tax earnings(1) up 18% YoY 1,974 ▪ Revenue up 15% YoY + Net interest income up 23% YoY (see slide 26) +
Slide 16: Wealth Management: Strong net interest income growth
Wealth Management: Strong net interest income growth Net Income ($ millions)(1) Q1/2023 Highlights 3% ▪ Net income up 3% YoY 1% + Pre-provision, pre-tax earnings(2) up 7% YoY ▪ Revenue increased 14% YoY + Canadian Wealth Management revenue up 4% YoY 821 836 848 + Higher net interest income from high
Slide 17: Capital Markets: Record revenue driven by strong Global Markets results
Capital Markets: Record revenue driven by strong Global Markets results Net Income ($ millions)(1) Q1/2023 Highlights 9% ▪ Net income up 9% YoY 72% − Pre-provision, pre-tax earnings(2) down 3% YoY 1,223 − A lower effective tax rate reflecting changes in earnings mix 1,122 ▪ Revenue up 4% YoY − Corpo
Slide 18: Insurance: Lower group annuity sales and higher capital funding costs
Insurance: Lower group annuity sales and higher capital funding costs Net Income ($ millions) Q1/2023 Highlights (25)% ▪ Net income down 25% YoY (45)% 268 ▪ Revenue up 35% YoY (down 33% net of Insurance FV(1)) + Change in fair value of investments backing policyholder 197 liabilities largely offset
Slide 19: Risk Review
Risk Review Graeme Hepworth Chief Risk Officer
Slide 20: 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 L&A(1) - $847BN $763BN ACL to L&A ACL to L&A L&A (262) 0.53% 357 0.58% $842BN ACL to L&A 56 0.50% 22 95 PCL on Performing Loans of $173MM 4
Slide 21: Gross Impaired Loans: Normalization of new formations
Gross Impaired Loans: Normalization of new formations Gross Impaired Loans (GIL) ($ millions, bps) Key Drivers of GIL (QoQ) ▪ Total GIL increased $400MM (up 5 bps QoQ) 31 28 Canadian Banking 27 25 26 ▪ GIL of $1,191MM increased $171MM QoQ, with increases in both the retail and commercial portfolios
Slide 22: PCL on impaired loans: Increasing, but remains below pre-pandemic levels
PCL on impaired loans: Increasing, but remains below pre-pandemic levels Total RBC ($ millions, bps) Wealth Management ($ millions, bps) 17 13 Average historical loss rate(1) 30 bps 12 9 9 8 4 $357 $42 $254 0 0 0 $180 $174 $170 $1 $- $1 $11 Q1/22 Q2/22 Q3/22 Q4/22 Q1/23 Q1/22 Q2/22 Q3/22 Q4/22 Q1/23
Slide 23: Commercial Real Estate (CRE) portfolio summary
Commercial Real Estate (CRE) portfolio summary ▪ CRE exposure of $77.6 billion at Q1/2023 accounts for 9% of total Loans and Acceptances ▪ The portfolio was originated with sound lending standards, and remains well-diversified by geography, business and property type Exposure by Business Segment Exp
Slide 24: Appendices
Appendices
Slide 25: Diversified business model: Driving strong value creation through the cycle
Diversified business model: Driving strong value creation through the cycle Premium growth in Reimagining Deepening client leading Canadian innovation relationships franchises ™ Canadian Banking clients with #1 or #2 in key Canadian Banking ® transaction accounts, product categories(1) 18% investmen
Slide 26: Net Interest Income: Average rates and balance sheet
Net Interest Income: Average rates and balance sheet Interest-Earning Asset Yields (1) Interest-Bearing Liability Costs(2) Q1/2022 Q2/2022 Q3/2022 Q4/2022 Q1/2023 Q1/2022 Q2/2022 Q3/2022 Q4/2022 Q1/2023 Total earning Total 1.95% 2.14% 2.78% 3.69% 4.58% 0.48% 0.59% 1.08% 1.81% 2.64% assets Liabilitie
Slide 27: Net Interest Income: Higher interest rates continue to benefit net interest margin
Net Interest Income: Higher interest rates continue to benefit net interest margin Canadian Banking Net Interest Income ($ millions) CNB Net Interest Income (US$ millions) 26 (24) 118 3,812 183 591 653 +23% +40% YoY 468 3,103 YoY NIM NIM YoY: +32 bps YoY: +70 bps (1) Q1/22 Net Interest Spreads Volum
Slide 28: Funding: Well-diversified
Funding: Well-diversified ▪ As at January 31, 2023, relationship-based deposits, which 130% 112% are the primary source of funding for retail and commercial Liquidity Coverage Net Stable Funding lending, were $814 billion or 52% of our total funding Ratio(1) Ratio(1) (including short-term repo fundi
Slide 29: Interest rate sensitivity: Remain well-positioned for rising interest rates
Interest rate sensitivity: Remain well-positioned for rising interest rates All-Bank: Impact of 100 bps change Impact of 25 bps change(2) across the curve(1) Net interest Revenue Increase in short- Increase across Decrease across income ($MM) Increase Decrease ($MM) term rates(2) the curve(2) the cu
Slide 30: Non-interest income: Benefiting from robust Global Markets and client activity
Non-interest income: Benefiting from robust Global Markets and client activity Non-Interest Income ($ millions) Q1/2023 Highlights (1) ▪ Non-interest income was up 14% YoY; flat net of Insurance Q1/22 Revenue (net of FV change) 8,225 FV change(1) (2) (93) + Higher Global Markets revenue driven by sw
Slide 31: Canadian Banking: Strong YoY volume growth across our largest portfolios
Canadian Banking: Strong YoY volume growth across our largest portfolios Average Gross Loans & Acceptances(1) ($ billions) Average Deposits(1) ($ billions) 9% 8% 1% 2% 549 558 566 573 519 528 20 19 18 112 109 97 254 253 252 76 76 75 338 362 366 295 306 268 Q1/2022 Q4/2022 Q1/2023 Q1/2022 Q4/2022 Q1/
Slide 32: 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) 6% 150 bps 10% 59.0% 58.3% 6,287 8,579 6,129 8,405 57.5% 8,110 5,695 Pre- Pre- Pre- pandemic pandemic pandemic 7,354 52.5% 4,619 Q1/20 Q1/2
Slide 33: Wealth Management: Lower assets impacted by unfavourable market conditions
Wealth Management: Lower assets impacted by unfavourable market conditions RBC Global Asset Management AUM(1) ($ billions) RBC Global Asset Management Net Sales ($ billions) Last 12 months ended Q1/2023 (8)% 5% Total Long-Term Canadian Retail $(20.9)BN $(9.2)BN 599 548 98 523 90 5.4 83 73 1.5 55 64
Slide 34: U.S. Wealth Management (incl. CNB): Higher margins and loan growth
U.S. Wealth Management (incl. CNB): Higher margins and loan growth Net Income (US$ millions) Q1/2023 Highlights (US$) 1% ▪ Net income up 1% YoY (4)% + Pre-provision, pre-tax earnings(2) up 21% YoY 212 225 215 ▪ Revenue up 17% YoY Includes US$54MM + Net interest income at CNB up 40% YoY (see slide 26
Slide 35: Capital Markets: Revenue and loan breakdown by geography
Capital Markets: Revenue and loan breakdown by geography Capital Markets Revenue Breakdown by Geography(1) (2) ($ millions) ▪ Canada: Up YoY, mainly driven by higher equities, fixed income and 3,121 commodities trading revenue; partially offset by lower equity 2,992 174 origination 178 2,484 577 ▪ U
Slide 36: Canadian Banking: Continuing to see signs of credit normalization
Canadian Banking: Continuing to see signs of credit normalization ▪ 30-89 day delinquency rates were relatively stable QoQ across most portfolios − QoQ increases observed in the Cards portfolio (seasonal) and the Small Business portfolio (due to the impact of higher interest rates and government gua
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) $190.6 Total $390BN Uninsured $324BN Insured Uninsured 84% Mortgage Balance $355BN $289BN $92.3 $294.3 (24%) (76%) HELOC Balance $35BN $35BN $72
Slide 38: Allowance for Credit Losses: Prudently reserved
Allowance for Credit Losses: Prudently reserved Allocation of ACL by Product as a % of Loans & Acceptances Pre-Pandemic Q1/20 Q1/22 Q4/22 Q1/23 Product Stage 1 & 2 Total Stage 1 & 2 Total Stage 1 & 2 Total Stage 1 & 2 Total (1) Residential mortgages 0.07% 0.12% 0.07% 0.10% 0.07% 0.10% 0.08% 0.11% Ot
Slide 39: Market risk trading revenue and VaR
Market risk trading revenue and VaR ($ millions) 80 60 40 20 0 -20 -40 -60 -80 -100 (1) Trading Revenue (teb) (1) VaR ▪ During Q1/2023, there were no days with net trading losses ▪ Average VaR remained relatively stable from last quarter ▪ Average SVaR of $176 million increased $18 million from last
Slide 40: Corporate Support: Market volatility leading to swings in U.S. WM WAP gains (losses)
Corporate Support: Market volatility leading to swings in U.S. WM WAP gains (losses) +$210MM benefit to YoY revenue growth Q1/21 Q2/21 Q3/21 Q4/21 Q1/22 Q2/22 Q3/22 Q4/22 Q1/23 U.S. WM WAP revenue gains/(losses) 168 134 51 41 (89) (154) (22) (98) 121 U.S. WM WAP expense (gains)/losses 157 124 59 42
Slide 41: Impact of foreign currency translation
Impact of foreign currency translation Estimated impact of foreign currency translation on key income statement items For the three months ended (Millions of Canadian dollars, except Q1/23 vs. Q1/23 vs. per share amounts) Q1/22 Q4/22 Increase (decrease): Total revenue 215 30 PCL 6 (1) Non-interest e
Slide 42: Items impacting results
Items impacting results 2023 ($ millions, except for EPS) Segments Before-Tax After-Tax Diluted EPS Q1/2023 Canada Recovery Dividend (CRD) and the permanent increase in the corporate income Corporate Support $1,050 $1,050 $0.76 tax rate applicable to fiscal 2022 net of deferred tax adjustments HSBC
Slide 43: Additional Notes (slides 3 to 13)
Additional Notes (slides 3 to 13) Slide 3 1. Adjusted for (i) after-tax effect of amortization of other intangibles (Q1/23: $71MM; Q4/22: $52MM; Q1/22: $47MM), (ii) Canada Recovery Dividend and other tax related adjustments (Q1/23: $1,050MM; Q4/22: $nil; Q1/22: $nil) and (iii) HSBC Canada transactio
Slide 44: Additional Notes (slides 20 to 37)
Additional Notes (slides 20 to 37) Slide 20 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 25 19. Loan yield is
Slide 45: 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 46: 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 that measures the sufficiency of available stable funding to meet the minimum coverage level of
Slide 47: Reconciliation for non-GAAP financial measures (1/4)
Reconciliation for non-GAAP financial measures (1/4) Calculation of Adjusted Net Income and Diluted EPS $ millions (unless otherwise stated) Q1/22 Q4/22 Q1/23 Net income available to common shareholders 4,039 3,809 3,168 Add: Canada Recovery Dividend and other tax related adjustments (specified item
Slide 48: Reconciliation for non-GAAP financial measures (2/4)
Reconciliation for non-GAAP financial measures (2/4) Calculation of Tangible Book Value Per Share $ millions (unless otherwise stated) Q1/22 Q4/22 Q1/23 Tangible common equity - end of period 82,687 86,727 86,448 Common shares outstanding (000s) - end of period 1,416,020 1,382,911 1,382,818 Tangible
Slide 49: Reconciliation for non-GAAP financial measures (3/4)
Reconciliation for non-GAAP financial measures (3/4) Calculation of PPPT Calculation of Adjusted PPPT $ millions (unless otherwise stated) Q1/22 Q4/22 Q1/23 $ millions (unless otherwise stated) Q1/22 Q4/22 Q1/23 All-Bank U.S. Wealth Management (incl. City Net income 4,095 3,882 3,214 National) (US$)
Slide 50: Reconciliation for non-GAAP financial measures (4/4)
Reconciliation for non-GAAP financial measures (4/4) Calculation of NIE excl. VC & SBC Calculation of Revenue Net of Insurance FV Change $ millions (unless otherwise stated) Q1/22 Q4/22 Q1/23 $ millions (unless otherwise stated) Q1/22 Q4/22 Q1/23 Expenses 6,580 7,209 7,675 All-Bank Less: Variable co
Slide 51: 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