Royal Bank Of Canada · TSX:RY
Royal Bank Of Canada — Q2 2021 Earnings Presentation
41 slides from Royal Bank Of Canada's earnings presentation, May 27, 2021
Slide 1: Royal Bank of Canada Second Quarter Results
Royal Bank of Canada Second Quarter Results May 27, 2021 All amounts are in Canadian dollars unless otherw ise indicated and are based on financial statements prepared in compliance w ith International Accounting Standard 34 Interim Financial Reporting, unless otherw ise noted. Our Q2 2021 Report to
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: Strong client activity and volume growth offset impact of low interest rates
Strong client activity and volume growth offset impact of low interest rates (1) Diversified revenue streams ($BN) Expenses well controlled (YoY) Strong earnings growth 7.4% Total Non-interest expense (NIE) +18% YoY Capital +171% Total NIE excl. Variable (VC) and Net Income $4.0BN YoY Markets Stock-
Slide 5: Strong volume growth and market share gains in our largest businesses
Strong volume growth and market share gains in our largest businesses Canadian Banking average loans Canadian Banking average Wealth Management (non-U.S.) ($ billions) (1) deposits ($ billions) AUM and AUA ($ billions) 6% 16% $144 BN 492 477 435 464 90 410 90 719 84 370 222 611 576 183 575 161 514 4
Slide 6: Deepening client relationships across Canadian Banking and Wealth Management
Deepening client relationships across Canadian Banking and Wealth Management Percent of clients with transaction accounts, investments and borrowing products(1) 2021 Best Bank in North America 19% ~45% Canadian HNW retail client base 13% has a relationship with both Canadian Banking and Canadian Wea
Slide 7: Solid results from our U.S. operations
Solid results from our U.S. operations Net Income (US$ millions) U.S. Operations Revenue (US$ billions)(3) Last 12 months ended Q2/2021 n.m.(1) 1% CNB Net 652 656 Interest Income 17% Capital Total U.S. Markets 490 466 $9.7 billion 46% WM (ex- CNB NII) 36% 45 103 114 17 76 49 59 Q2/2020 (21) Q1/2021
Slide 8: Our 14MM+ Canadian Banking clients continue to adopt our digital channels
Our 14MM+ Canadian Banking clients continue to adopt our digital channels Active Digital Users (000s)(1) Digital Adoption Rate (2) Active Mobile Users (000s)(1) 4% 290 bps 9% 7,755 7,873 56.8% 5,171 5,266 56.0% 7,544 53.9% 4,819 Q2/20 Q1/21 Q2/21 Q2/20 Q1/21 Q2/21 Q2/20 Q1/21 Q2/21 Mobile Sessions (
Slide 9: Financial Review
Financial Review Rod Bolger Chief Financial Officer
Slide 10: Lower PCL, constructive markets, and volume growth offset low interest rates
Lower PCL, constructive markets, and volume growth offset low interest rates Reported Earnings ($ millions, except for EPS and ROE) Q2/2021 YoY QoQ Net income increased 171% YoY largely driven by lower PCL on Revenue 11,618 12% (10)% performing loans, higher market sensitive revenue and strong vol
Slide 11: Strong capital and earnings growth continue to drive shareholder returns
Strong capital and earnings growth continue to drive shareholder returns CET1 Movement 3 bps (21) bps CET1 ratio of 12.8%, up 30 bps QoQ, reflecting: 43 bps 4 bps Record internal capital generation Favourable pension & post-employment benefit impact Organic RWA growth supporting client-drive
Slide 12: Net interest income: Strong volume growth more than offset by lower interest rates
Net interest income: Strong volume growth more than offset by lower interest rates Net interest income down 11% YoY as strong volume growth was more than offset by the impact of lower interest rates. Trading net interest income was impacted by lower repo & secured financing revenue All-bank NIM
Slide 13: Well positioned for rising interest rates
Well positioned for rising interest rates Lower interest rates have negatively impacted deposit margins in Canadian Banking, and asset yields at City National (CNB) Strong mortgage growth and lower credit card balances in Canadian Banking shifted the product mix towards lower-yielding assets ~
Slide 14: Non-interest income: Diversified revenue streams offset interest rate headwinds
Non-interest income: Diversified revenue streams offset interest rate headwinds Non-Interest Income(1) ($ millions) Q2/2021 Highlights Q2/20 Revenue (net of FV change) (1) 5,821 Non-interest income was up 39% YoY; up 26% net of (2) Insurance FV change (1) Market-related Investment, brokerage & cus
Slide 15: Non-interest expense: Higher variable compensation commensurate with results
Non-interest expense: Higher variable compensation commensurate with results Non-Interest Expense ($ millions) Q2/2021 Highlights Q2/20 Expenses Non-interest expense was up 7% YoY 5,942 Down 4% YoY excluding variable and stock-based Compensation Salaries & Benefits (35) compensation (which inclu
Slide 16: Strong volume growth and solid cost discipline in Personal & Commercial Banking
Strong volume growth and solid cost discipline in Personal & Commercial Banking Net Income ($ millions) Q2/2021 Highlights n.m.(1) Canadian Banking 6% Net income up $1.2 billion YoY Lower PCL, strong average volume growth and higher fee-based 1,908 revenue, partially offset by lower spreads 1,79
Slide 17: Solid results in Wealth Management driven by market performance and net sales
Solid results in Wealth Management driven by market performance and net sales Net Income ($ millions) Q2/2021 Highlights 63% Net income up 63% YoY 6% Strong average loan growth and higher average fee-based client assets net of the associated variable compensation, lower PCL and higher transactio
Slide 18: Solid results in Insurance
Solid results in Insurance Net Income ($ millions) Q2/2021 Highlights 4% Net income up 4% YoY (7)% Lower claims costs and the favourable impact of actuarial adjustments were partially offset by the impact of realized investment gains in the prior year and lower new longevity reinsurance contract
Slide 19: Investor & Treasury Services results lower on tough comparable
Investor & Treasury Services results lower on tough comparable Net Income ($ millions) Q2/2021 Highlights Net income down 47% YoY (47)% Lower revenue from funding and liquidity and client deposits 226 (2)% Revenue down 25% YoY Lower funding and liquidity revenue as the prior year benefitted
Slide 20: Record earnings of over $1 billion in Capital Markets
Record earnings of over $1 billion in Capital Markets Net Income ($ millions) Q2/2021 Highlights n.m.(1) Net income up $966 million YoY 0% Lower PCL and record Corporate and Investment Banking revenue, partially offset by higher taxes and compensation 1,067 1,071 Revenue up 18% YoY Corporate
Slide 21: Risk Review
Risk Review Graeme Hepworth Chief Risk Officer
Slide 22: ACL reflects ongoing uncertainty related to COVID-19
ACL reflects ongoing uncertainty related to COVID-19 Movement in Allowance for Credit Losses on Loans(1) ($ millions) ACL to L&A 0.85% - 177 - (260) ACL to L&A 0.79% (306) See slide 23 for details 63% P&CB (majority from Retail) and 33% Capital Markets 5,914 5,525 5,525 ACL to L&A 0.53% 3,471 ACL (Q
Slide 23: GIL below pre-pandemic levels with continued muted new formations
GIL below pre-pandemic levels with continued muted new formations Gross Impaired Loans (GIL) ($ millions, bps) Key Drivers of GIL (QoQ) 57 Total GIL decreased $95 million (down 1 bp QoQ) 51 Capital Markets 47 GIL decreased $157 million, primarily reflecting resolution of previously 41 40 impaire
Slide 24: PCL on impaired loans at its lowest level in over 15 years
PCL on impaired loans at its lowest level in over 15 years Total RBC ($ millions, bps) Wealth Management ($ millions, bps) 37 21 8 $43 0 2 23 -13 15 $613 13 $15 $- $3 11 $398 $251 $218 $(27) $177 Q2/20 Q3/20 Q4/20 Q1/21 Q2/21 Q2/20 Q3/20 Q4/20 Q1/21 Q2/21 Lower provisions QoQ in Capital Markets an
Slide 25: Strong underlying credit quality in Canadian Banking (CB)
Strong underlying credit quality in Canadian Banking (CB) Canadian Banking PCL on Impaired Loans and Gross Impaired Loans CB Retail FICO Score Distribution (Q2/21) Q2/21 Avg PCL on Impaired Loans Gross Impaired Loans Avg <620 Loan (bps) (1) (bps) FICO 3% Balances Score Q2/20 Q1/21 Q2/21 Q2/20 Q1/21
Slide 26: Canadian residential portfolio has strong underlying credit quality
Canadian residential portfolio has strong underlying credit quality Q2/2021 Highlights Canadian Banking Residential Lending Portfolio(1) Strong underlying quality of uninsured residential lending portfolio(1) Total ($338.5BN) Uninsured ($263.7BN) 54% of uninsured portfolio have a FICO score >800
Slide 27: Appendices
Appendices
Slide 28: ESG performance highlights: Putting our Purpose into practice
ESG performance highlights: Putting our Purpose into practice Royal Bank of Canada is a purpose-driven, principles-led organization How we deliver value Building & attracting talent Sustainable finance and Climate change: accelerating clean Preparing youth for the and driving a diverse & responsible
Slide 29: Strong volume growth in Canadian Banking
Strong volume growth in Canadian Banking Average Gross Loans & Acceptances(1) ($ billions) Average Deposits(1) ($ billions) 6% 16% 1% 1% 472 477 488 492 464 17 16 19 410 88 90 90 78 76 220 222 79 183 276 305 311 227 252 255 Q2/2020 Q1/2021 Q2/2021 Q2/2020 Q1/2021 Q2/2021 Percentage Change (1) YoY Qo
Slide 30: Net Interest Income sensitivity
Net Interest Income sensitivity Interest Rate Risk in the Banking Book (IRRBB) Sensitivities – NII risk(1) ($ millions) NII risk Q2/2021: The quarter-over-quarter change in NII sensitivity, Q1/20 Q2/20 Q3/20 Q4/20 Q1/21 Q2/21 in particular for the 100 bps down shock, was largely attributable to co
Slide 31: Strong net sales at RBC Global Asset Management
Strong net sales at RBC Global Asset Management RBC Global Asset Management AUM ($ billions) RBC Global Asset Management Net Sales ($ billions) 15% 2% 14.8 559 0.9 548 93 14.7 484 93 2.0 73 62 7.2 66 71 7.6 111 18.6 5.3 112 102 6.8 6.2 277 293 238 -2.6 -1.0 -4.4 -2.1 -0.5 Q2/2020 Q1/2021 Q2/2021 Q2/
Slide 32: 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) Q2/2021 Highlights (US$) n.m.(1) Net income up $124 million YoY Strong volume growth, lower PCL, and higher fee-based client 17% assets, partly offset by lower rates and spreads Revenue up 35% Y
Slide 33: Capital Markets revenue and loan breakdown by geography
Capital Markets revenue and loan breakdown by geography Capital Markets Revenue Breakdown by Geography ($ millions) Canada: Down YoY mainly driven by lower fixed income trading, 2,708 2,718 partially offset by higher equity and commodities trading as well 135 115 higher lending 2,313 427 387 166
Slide 34: IFRS 9 range of macroeconomic scenario assumptions (as of April 30)
IFRS 9 range of macroeconomic scenario assumptions (as of April 30) Canada Real GDP ($ Trillions)(1) Canada Unemployment Rate (%)(3) 11 2.5 2.4 9 2.3 2.2 7 2.1 5 2.0 1.9 3 U.S. Real GDP (US$ Trillions)(2) U.S. Unemployment Rate (%)(3) 10 22.0 21.5 21.0 8 20.5 20.0 6 19.5 19.0 4 18.5 18.0 2 Oil price
Slide 35: 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 $31.3 billion or 4.5% of total loans & acceptances outstanding Vulnerable wholesale exposure is down 10% QoQ, due primarily to repayments of COVID-19 related draws Sector Group Inf
Slide 36: ACL coverage: Lower-risk residential mortgages a large part of our balance sheet
ACL coverage: Lower-risk residential mortgages a large part of our balance sheet Allocation of ACL by Product Q1 / 2021 Q2 / 2021 % of Loans & Acceptances % of Loans & Acceptances Product Stage 1 Stage 2 Stage 1 & 2 Stage 3 Total Stage 1 Stage 2 Stage 1 & 2 Stage 3 Total (1) Residential mortgages 0.
Slide 37: Market risk trading revenue and VaR
Market risk trading revenue and VaR ($ millions) 150 100 50 0 -50 -100 -150 -200 -250 (1) Trading Revenue Market Risk VaR During Q2/2021, there were no days with net trading losses VaR remained stable in Q2/2021 (1) Includes loan underwriting commitments. 36 Second Quarter 2021 Results Royal Ban
Slide 38: 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, Q2/21 vs. Q2/21 vs. except per share amounts) Q2/20 Q1/21 Increase (decrease): Total revenue (356) (95) PCL 13 6 Non-interes
Slide 39: Additional Notes (slides 3 to 13)
Additional Notes (slides 3 to 13) Slide 3 2. Revenue net of insurance fair value change of investments backing policyholder liabilities (Q2/21: -$568MM; Q2/20: -$953MM). This is a non-GAAP measure. For more information, see slide 40. 3. Non-interest expense YoY grow th excluding variable and stock b
Slide 40: Additional Notes (slides 14 to 35)
Additional Notes (slides 14 to 35) Slide 14 17. Other non-interest expenses include YoY change in non-interest expense from the follow ing line items: Telecommunications, Postage and courier, Stationery and printing, Business and capital taxes, Employee training, Donations, Outsourced item processin
Slide 41: 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