Royal Bank Of Canada · TSX:RY

Royal Bank Of Canada — Q3 2022 Earnings Presentation

52 slides from Royal Bank Of Canada's earnings presentation, Aug 24, 2022

  1. Slide 1: Royal Bank of Canada Third Quarter Results

    Royal Bank of Canada Third Quarter Results August 24, 2022 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 Q3 2022 Report to

  2. 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

  3. Slide 3: Overview

    Overview Dave McKay President and Chief Executive Officer

  4. Slide 4: Strong balance sheet and rate sensitivity are strengths amidst challenging backdrop

    Strong balance sheet and rate sensitivity are strengths amidst challenging backdrop (4) Earnings Diversified revenue streams ($BN) Expense growth (YoY) (33)% YoY I&TS (17)% Capital Net Income $3.6BN $0.6 +13% YoY Markets YoY $1.6 +11% 7.6% Insurance YoY $1.2 0.3% YTD 5.8% YTD Pre-Provision, P&CB (3)

  5. Slide 5: Balanced capital deployment driving sustainable long-term shareholder value

    Balanced capital deployment driving sustainable long-term shareholder value 16%+ ROE Strong capital ratio Medium-term objective Reinvesting to drive organic growth(1) (2) (RWA $BN) Committed to sustainable dividend growth (Q3/22) 20 CET1 (22) bps $1.8BN 51% 15 15 3 Dividend payout 3 13 3 10 Common s

  6. Slide 6: Strong loan growth across our largest segments

    Strong loan growth across our largest segments Canadian Banking average(1) loans Canadian Banking average City National (CNB) average and acceptances ($ billions)(2) deposits ($ billions)(4) loans and deposits (US$ billions) 9% 10% 9% 9% 13% 9% 2-YR CAGR(3) YoY 2-YR CAGR YoY 2-YR CAGR YoY 553 535 50

  7. Slide 7: Canadian Banking: A key part of RBC’s diversified business model

    Canadian Banking: A key part of RBC’s diversified business model All-Bank Revenue (Last Twelve Months)(1) Growing the Leading Canadian Banking Franchise Q4/19 Wealth LTM in Management Insurance 9% (12%) 14MM 19% 41% brackets 29% clients LTM Efficiency Ratio (26%) I&TS Clients with 5% (5%) transactio

  8. Slide 8: Canadian Banking: Enhancing the client acquisition funnel by creating more value

    Canadian Banking: Enhancing the client acquisition funnel by creating more value Iconic Canadian Leading Partner to Reimagining New Partners Partners Merchants Innovation ‡ ™ ‡ ‡ ™ ‡ Ventures Largest Proprietary Attract new Loyalty Program clients ® Largest Largest Deepen ® Distribution & Strong Cli

  9. Slide 9: Q3/2022 Financial Review

    Q3/2022 Financial Review Nadine Ahn Chief Financial Officer

  10. Slide 10: Q3/2022: Earnings impacted by challenging environment and prudent reserve build

    Q3/2022: Earnings impacted by challenging environment and prudent reserve build Reported Earnings ($ millions, except for EPS and ROE) Q3/2022 YoY QoQ  Net income down 17% YoY; PPPT(2) down 3% YoY Revenue 12,132 (5)% 8% Revenue Revenue Net of Insurance FV Change(1) 12,017 (2)% (3)%  Net interest i

  11. Slide 11: Capital: Strong capital position supporting business growth and shareholder returns

    Capital: Strong capital position supporting business growth and shareholder returns CET1 Movement 61 bps (31) bps (23) bps  CET1 ratio of 13.1%, down 10 bps QoQ, reflecting: (11) bps (5) bps  Repurchase of 10.4MM shares for $1.3BN +30 bps o Repurchased 33MM shares YTD for $4.4BN Net internal capit

  12. Slide 12: Net interest income: Higher volumes and margin expansion driving strong growth

    Net interest income: Higher volumes and margin expansion driving strong growth  Net interest income up 17% YoY due to strong volume growth and All-Bank Net Interest Income ($ millions) higher spreads in Canadian Banking and Wealth Management. Record (1) (2) lending revenue in Capital Markets and hi

  13. Slide 13: Non-interest expense: Lower variable compensation offset investments for growth

    Non-interest expense: Lower variable compensation offset investments for growth Non-Interest Expense (NIE, $ millions) Q3/2022 Highlights % of LTM NIE Q3/21 Expenses 6,420  Non-interest expense down 1% YoY  Up 8% YoY excluding variable and share-based compensation(1) Salaries 35% Salaries & Benefi

  14. Slide 14: P&CB: Higher NIM and continued strong client-driven volume growth

    P&CB: Higher NIM and continued strong client-driven volume growth Net Income ($ millions) Q3/2022 Highlights (4)% Canadian Banking (9)%  Net income down 3% YoY 2,113 2,234  Pre-provision, pre-tax earnings(1) up 15% YoY 2,023  Revenue up 11% YoY  Net interest income up 14% YoY (see slide 28)  St

  15. Slide 15: Wealth Management: Higher NII more than offset impact of unfavourable markets

    Wealth Management: Higher NII more than offset impact of unfavourable markets Net Income ($ millions)(1) Q3/2022 Highlights 4%  Net income up 4% YoY 4%  Pre-provision, pre-tax earnings(2) up 10% YoY  Revenue increased 8% YoY 744 750 777  Canadian Wealth Management revenue up 6% YoY Includes $58M

  16. Slide 16: Insurance: Lower earnings from longevity reinsurance contracts

    Insurance: Lower earnings from longevity reinsurance contracts Net Income ($ millions) Q3/2022 Highlights (21)%  Net income down 21% YoY (10)%  Impact of new longevity reinsurance contracts in the prior year 234  Revenue down 30% YoY (down 13% net of Insurance FV(1)) 206 186  Change in fair valu

  17. Slide 17: Investor & Treasury Services: Rising interest rates drive margin expansion

    Investor & Treasury Services: Rising interest rates drive margin expansion Net Income ($ millions) Q3/2022 Highlights 86%  Net income up 86% YoY 36%  Revenue up 13% YoY 164  Higher client deposit revenue reflecting improved client margins  Higher funding and liquidity revenue, resulting largely

  18. Slide 18: Capital Markets: Challenging market conditions impact results

    Capital Markets: Challenging market conditions impact results Net Income ($ millions) Q3/2022 Highlights (58)%  Net income down 58% YoY  Pre-provision, pre-tax earnings(1) down 52% YoY (40)%  Revenue down 33% YoY 1,129  Corporate and Investment Banking revenue down 52% YoY 795  Loan underwritin

  19. Slide 19: Risk Review

    Risk Review Graeme Hepworth Chief Risk Officer

  20. Slide 20: Gross Impaired Loans: Lower for the 8th consecutive quarter

    Gross Impaired Loans: Lower for the 8th consecutive quarter Gross Impaired Loans (GIL) ($ millions, bps) Key Drivers of GIL (QoQ)  Total GIL decreased $78MM (down 2 bps QoQ) 35 Canadian Banking 31  GIL of $1,002MM decreased $93MM QoQ, with reductions in both the 28 27 retail and commercial portfol

  21. Slide 21: PCL on impaired loans: Remain below pre-pandemic and long-term averages

    PCL on impaired loans: Remain below pre-pandemic and long-term averages Total RBC ($ millions, bps) Wealth Management ($ millions, bps) 9 9 5 8 8 1 7 (1) 0 0 $180 $174 $170 $12 $146 $137 $1 $- $1 $(2) Q3/21 Q4/21 Q1/22 Q2/22 Q3/22 Q3/21 Q4/21 Q1/22 Q2/22 Q3/22  Slightly lower provisions QoQ, due pr

  22. Slide 22: 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 ($ millions) - L&A - L&A $817BN $795BN ACL to L&A ACL to L&A 0.49% 0.49% 170 (223) 31 (27) 173 PCL on Performing Loans of $177MM 4,060 4,064 4,064 4,011 4,011 3,887 3,887

  23. Slide 23: Canadian Banking RESL Portfolio: Renewal Risk

    Canadian Banking RESL Portfolio: Renewal Risk  Generally, monthly payments on mortgages do not change until the renewal date(1), so the impact of higher interest rates on mortgage debt service is primarily realized upon renewal RESL Balances Renewing Over the Next 5 Years ($BN) (2) 26% % of Total 2

  24. Slide 24: Capital Markets Leveraged Finance: Maintaining disciplined risk management

    Capital Markets Leveraged Finance: Maintaining disciplined risk management Lending portfolio is held to maturity and is subject to credit risk $9.6BN $9.6BN $9.6BN  Outstanding exposure of $9.6BN(1) is stable and represents a Other 8% CCC+ and 17% below decreasing share of total loans and acceptanc

  25. Slide 25: Appendices

    Appendices

  26. Slide 26: 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, 19% investmen

  27. Slide 27: ESG: Putting our purpose into practice

    ESG: 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 Committed to net-zero emissions Preparing youth for the and driving a diverse & responsible investment and accelerati

  28. Slide 28: 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) 1.66% Interest cost 3.42% Loans on repos 3.16% 3.10% 3.03% 3.01% 2.78% Total earning 1.45% Term deposits assets 2.09% 2.14% 0.96% 0.94% 0.95% 1.99% 1.95% 0.91% 0.89% 2.47% Secur

  29. Slide 29: Net Interest Income: Higher interest rates begin to benefit net interest margin

    Net Interest Income: Higher interest rates begin to benefit net interest margin Canadian Banking Net Interest Income ($ millions) Canadian Banking NIM on Average Earning Assets 0.02% 153 3,508 2.60% 270 0.18% +14% 2.45% YoY (0.05%) 3,085 NIM NIM YoY: +9 bps QoQ: +15 bps Q3/21 Net Interest Volume & M

  30. Slide 30: Interest rate sensitivity: Well-positioned for rising interest rates

    Interest rate sensitivity: Well-positioned for rising interest rates All-Bank Canadian Banking U.S. Wealth Management 100 bps increase in 25 bps increase in 25 bps increase in Net interest rates across the Net interest Revenue(2) rates rates income ($MM) curve(1) income ($MM) (US$MM) Canada $0.8 bil

  31. Slide 31: Non-interest income: Lower market-related revenue amidst challenging backdrop

    Non-interest income: Lower market-related revenue amidst challenging backdrop Non-Interest Income ($ millions) Q3/2022 Highlights Q3/21 Revenue (net of FV change) (1) 7,229  Non-interest income was down 19% YoY; down 15% net of Insurance FV change(1) Market-related (2) Investment, brokerage & custo

  32. Slide 32: Canadian Banking: Strong volume growth across our largest portfolios

    Canadian Banking: Strong volume growth across our largest portfolios Average Gross Loans & Acceptances(1) ($ billions) Average Deposits(1) ($ billions) 10% 9% 3% 2% 523 535 489 537 553 504 19 17 17 100 104 249 251 93 230 75 76 75 320 345 354 259 274 283 Q3/2021 Q2/2022 Q3/2022 Q3/2021 Q2/2022 Q3/202

  33. Slide 33: 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) 5% 170 bps 11% 58.6% 5,962 8,270 8,277 58.1% 5,826 7,876 56.4% 5,394 Pre- Pre- pandemic pandemic Pre- pandemic 4,491 7,246 52.3% Q4/19 Q3/21

  34. Slide 34: Wealth Management: Lower assets reflect unfavourable market conditions

    Wealth Management: Lower assets reflect unfavourable market conditions RBC Global Asset Management AUM(1) ($ billions) RBC Global Asset Management Net Sales ($ billions) Last 12 months ended Q3/2022 (8)% (3)% Total Long-Term Canadian Retail $6.7BN $3.5BN 587 10.2 561 542 98 4.0 88 0.7 86 67 63 56 8.

  35. Slide 35: U.S. Wealth Management (incl. CNB): Strong volume growth and higher margins

    U.S. Wealth Management (incl. CNB): Strong volume growth and higher margins Net Income (US$ millions)(1) Q3/2022 Highlights (US$) 10%  Net income up 10%YoY 10%  Pre-provision, pre-tax earnings(3) up 32% YoY 196  Revenue up 14% YoY 196 215  Net interest income at CNB up 24% YoY (see slide 28) Inc

  36. Slide 36: Capital Markets: Revenue and loan breakdown by geography

    Capital Markets: Revenue and loan breakdown by geography Capital Markets Revenue Breakdown by Geography ($ millions) Includes loan  Canada: Down YoY, mainly driven by decreased equity and debt underwriting origination fees, as well as decreased loan syndication fees; partially 2,463 markdowns of of

  37. Slide 37: Canadian Banking: Strong underlying credit quality

    Canadian Banking: Strong underlying credit quality Canadian Banking (CB) PCL on Impaired Loans and Gross Impaired Loans CB Retail FICO Score Distribution (Q3/22) <620 Q3/22 Avg PCL on Impaired Loans Gross Impaired Loans Avg 2% Loan (bps) (1) (bps) FICO 620- Balances Score Q3/21 Q2/22 Q3/22 Q3/21 Q2/

  38. Slide 38: Canadian residential portfolio: Strong underlying credit quality

    Canadian residential portfolio: Strong underlying credit quality Q3/2022 Highlights(1) Canadian Banking RESL Portfolio(1)  Strong underlying quality of uninsured real estate secured lending Total $383BN Uninsured $315BN (RESL) portfolio Mortgage $347BN $279BN  52% of uninsured portfolio have a FIC

  39. Slide 39: Allowance for Credit Losses: Prudently reserved

    Allowance for Credit Losses: Prudently reserved Allocation of ACL by Product as a % of Loans & Acceptances Pre- Peak Total Product Pandemic ACL Ratio Q3/21 Q4/21 Q1/22 Q2/22 Q3/22 Q1/20 Q4/20 (1) Residential mortgages 0.12% 0.15% 0.12% 0.11% 0.10% 0.10% 0.10% Other Retail 1.61% 2.34% 1.92% 1.73% 1.6

  40. Slide 40: 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 the quarter, RBC experienced 2 days with net trading losses, neither of which exceeded VaR. Both were the result of elevated market volatility driven by changing market expe

  41. Slide 41: 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) $(73)MM impact to YoY revenue growth Q3/20 Q4/20 Q1/21 Q2/21 Q3/21 Q4/21 Q1/22 Q2/22 Q3/22 U.S. WM WAP revenue gains/(losses) 156 7 168 134 51 41 (89) (154) (22) U.S. WM WAP expense (gains)/losses 135 8 157 124 59 4

  42. Slide 42: Items impacting results

    Items impacting results 2022 ($ millions, except for EPS) Segments Before-Tax After-Tax Diluted EPS Q2/2022 Gains on the sale of certain non-core affiliates Wealth Management $84 $58 $0.04 Q1/2022 Partial release of legal provision taken in U.S. Wealth Management (including City Wealth Management $8

  43. Slide 43: Additional Notes (slides 3 to 12)

    Additional Notes (slides 3 to 12) Slide 3 1. Pre-provision, pre-tax earnings is calculated as income before income taxes and PCL. This is a non-GAAP measure. For reconciliation, see slide 47-50. For more information, see slide 51. 2. Adjusted for (i) after-tax effect of amortization of other intangi

  44. Slide 44: Additional Notes (slides 19 to 36)

    Additional Notes (slides 19 to 36) Slide 19 19. 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 26 20. Assets managed

  45. Slide 45: Additional Notes (slides 37 to 38)

    Additional Notes (slides 37 to 38) Slide 37 30. Based on $347BN in residential mortgages with non-commercial clients and $36BN in HELOC in Canadian Banking. Based on spot balances. Totals may not add due to rounding. Weighted by mortgage balances and adjusted for property values based on the Teranet

  46. Slide 46: 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

  47. Slide 47: Glossary (2/2)

    Glossary (2/2) Net interest margin (NIM) (average earning assets, net):  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 betwee

  48. Slide 48: Reconciliation for non-GAAP financial measures (1/4)

    Reconciliation for non-GAAP financial measures (1/4) Calculation of ROTCE $ millions (unless otherwise stated) Q3/21 Q2/22 Q3/22 Net income available to common shareholders 4,237 4,182 3,517 Add: After-tax effect of amortization of other intangibles 47 46 46 Net income available to common shareholde

  49. Slide 49: Reconciliation for non-GAAP financial measures (2/4)

    Reconciliation for non-GAAP financial measures (2/4) Calculation of Effective Tax Rate (teb) Calculation of Corp. Support Non-Interest Income Excl. U.S. WM WAP $ millions (unless otherwise stated) Q3/21 Q2/22 Q3/22 $ millions (unless otherwise stated) Q3/21 Q2/22 Q3/22 Income Taxes (teb) CS Non-Inte

  50. Slide 50: Reconciliation for non-GAAP financial measures (3/4)

    Reconciliation for non-GAAP financial measures (3/4) Calculation of PPPT Calculation of PPPT $ millions (unless otherwise stated) Q3/21 Q2/22 Q3/22 $ millions (unless otherwise stated) Q3/21 Q2/22 Q3/22 (1) All-Bank U.S. Wealth Management (incl. City National) (US$) Net income 4,296 4,253 3,577 Net

  51. Slide 51: Reconciliation for non-GAAP financial measures (4/4)

    Reconciliation for non-GAAP financial measures (4/4) Calculation of Adjusted PPPT $ millions (unless otherwise stated) Q3/21 Q2/22 Q3/22 U.S. Wealth Management (incl. City National) (US$) (1) PPPT 215 226 283 Add: CNB’s amortization of intangibles 36 35 35 Adjusted PPPT 251 261 318 Calculation of Ad

  52. 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

Royal Bank of Canada — Q3 2022 Earnings Presentation on 6ix