Royal Bank Of Canada · TSX:RY
Royal Bank Of Canada — Q2 2023 Earnings Presentation
49 slides from Royal Bank Of Canada's earnings presentation, May 25, 2023
Slide 1: Royal Bank of Canada Second Quarter Results
Royal Bank of Canada Second Quarter Results May 25, 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 Q2 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: Q2/23: Solid revenue and volume growth underpinned by a strong balance sheet
Q2/23: Solid revenue and volume growth underpinned by a strong balance sheet (4) Earnings (YoY) Diversified revenue streams ($BN) Investing for growth +5% YoY Non-Interest Expense (YoY) Net Income $3.6BN (14)% Capital Adjusted Net Markets +12% (0.9)% Income(1) $3.8BN (13)% +$1.1BN YoY or $2.6 YoY (7
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 $BN) 20 2 CET1 3 (18) bps 4 10 7 1 6 8 2 13 5 4 1 2 2 4 3 2 4 2- 2- (4) Strong capital ratio Q2/22 Q3/22 Q4/22 Q1/23 Q2/23 (3) Capital Markets Wealth Management P&CB Other Committed to
Slide 6: Solid loan growth and stable deposits amidst volatile backdrop
Solid loan growth and stable deposits amidst volatile backdrop Canadian Banking average loans Canadian Banking average City National average loans and and acceptances(1) ($ billions) deposits ($ billions)(3) deposits (US$ billions) 8% 8% 9% 8% 12% 14% 2-YR CAGR YoY 2-YR CAGR YoY 2-YR CAGR YoY 578 56
Slide 7: Q2/2023 Financial Review
Q2/2023 Financial Review Nadine Ahn Chief Financial Officer
Slide 8: Q2/23: Solid revenue growth more than offset by higher expenses and PCL
Q2/23: Solid revenue growth more than offset by higher expenses and PCL Reported Earnings ($ millions, except for EPS) Q2/2023 YoY QoQ ▪ Net income down 14% YoY; adjusted net income(3) down 13% YoY Revenue 13,520 20% (10)% o PPPT(2) up 1% YoY, adjusted PPPT (2) up 2% YoY Insurance PBCAE 1,006 n.m. (
Slide 9: Capital: Strong capital position supporting business growth and shareholder returns
Capital: Strong capital position supporting business growth and shareholder returns CET1 Movement 79 bps 10 bps (23) bps 2 bps ▪ CET1 ratio of 13.7%, up 100 bps QoQ, reflecting: 59 bps (31) bps + Basel III reforms impact of 79 bps + DRIP(1) impact of 10 bps +28 bps + Net capital accretion after abso
Slide 10: Funding: Well-diversified deposit base underpinned by strong client relationships
Funding: Well-diversified deposit base underpinned by strong client relationships 135% 113% 31.0% Aa1 Liquidity Coverage Net Stable Funding Total Loss Absorbing Capacity Legacy senior long-term debt(2) Ratio(1) Ratio(1) Ratio (TLAC)(1) rating from Moody’s (3) (4) Canadian Personal Canadian Business
Slide 11: Net interest income: Solid loan growth tempered by shift in product mix
Net interest income: Solid loan growth tempered by shift in product mix ▪ Net interest income up 16% YoY driven by the impact of higher All-Bank Net Interest Income ($ millions) interest rates and solid loan growth in Canadian Banking and (1) (1) (2) Wealth Management, partially offset by unfavourab
Slide 12: Canadian Banking: Net interest margin pressured by client-led shift in product mix
Canadian Banking: Net interest margin pressured by client-led shift in product mix NIM on Average Earning Assets Latent benefit of interest rates Rising deposit costs Cumulative beta(1) All Bank An illustrative example of the Personal Deposits latent benefit to deposits Chequing & ~25% Q1/23 NIM 2.7
Slide 13: 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) Q2/2023 Highlights Q2/22 Expenses 6,434 ▪ Non-interest expense up 16% YoY % of LTM NIE ‒ RBC Brewin Dolphin, foreign exchange and share-based Salaries 35% Salaries & Benefits 425 compens
Slide 14: P&CB: Solid volume growth offset by higher Stage 1 & 2 PCL and expenses
P&CB: Solid volume growth offset by higher Stage 1 & 2 PCL and expenses Net Income ($ millions) Q2/2023 Highlights (14)% Canadian Banking (10)% ▪ Net income down 15% YoY 2,234 2,126 + Pre-provision, pre-tax earnings(1) up 11% YoY 1,915 − Operating leverage(3): Q2/23: (0.6)% ▪ YTD: 2.3% ▪ Revenue up
Slide 15: Wealth Management: Higher NII and net sales more than offset by higher costs
Wealth Management: Higher NII and net sales more than offset by higher costs Net Income ($ millions)(1) Q2/2023 Highlights (8)% ▪ Net income down 8% YoY − Pre-provision, pre-tax earnings(2) down 5% YoY (13)% ▪ Revenue increased 11% YoY + RBC Brewin Dolphin added 5% to the growth rate 809 848 742 + C
Slide 16: Capital Markets: Strong performance in volatile markets
Capital Markets: Strong performance in volatile markets Net Income ($ millions)(1) Q2/2023 Highlights 10% ▪ Net income up 10% YoY (23)% + Pre-provision, pre-tax earnings of $1.1BN(2), up 4% YoY 1,223 + A lower effective tax rate reflecting changes in earnings mix 939 ▪ Revenue up 5% YoY 857 + Corpor
Slide 17: Insurance: Higher capital funding costs
Insurance: Higher capital funding costs Net Income ($ millions) Q2/2023 Highlights (33)% ▪ Net income down 33% YoY (6)% ▪ Revenue net of Insurance PBCAE(1) down 18% YoY − Higher capital funding costs 206 + Sales growth in most Canadian Insurance products 148 139 ▪ Expenses up 10% YoY − Higher staff-
Slide 18: Risk Review
Risk Review Graeme Hepworth Chief Risk Officer
Slide 19: 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 - $856BN L&A ACL to L&A $847BN 0.56% (286) ACL to L&A 441 L&A(1) 0.53% 110 $795BN 44 19 ACL to L&A 0.49% PCL on Performing Loans of $173MM
Slide 20: PCL on impaired loans: Continues to normalize
PCL on impaired loans: Continues to normalize Total RBC ($ millions, bps) Wealth Management ($ millions, bps) 21 13 Average historical loss rate(1): 30 bps 17 FY19: 12 bps 12 9 9 8 4 $441 $42 $357 0 0 $254 $26 $174 $170 $- $1 $11 Q2/22 Q3/22 Q4/22 Q1/23 Q2/23 Q2/22 Q3/22 Q4/22 Q1/23 Q2/23 ▪ Provisio
Slide 21: Gross Impaired Loans: Trending back toward pre-pandemic levels
Gross Impaired Loans: Trending back toward pre-pandemic levels Gross Impaired Loans (GIL) ($ millions, bps) Key Drivers of GIL (QoQ) ▪ Total GIL increased $294MM (up 3 bps QoQ) FY19: 46 bps 34 Canadian Banking 31 ▪ GIL of $1,324MM increased $133MM QoQ, with increases in both the 27 26 retail and com
Slide 22: Appendices
Appendices
Slide 23: Diversified business model: Driving strong value creation through the cycle
Diversified business model: Driving strong value creation through the cycle Premium growth in Reimagining Deepening client leading Canadian innovation relationships franchises ™ Canadian Banking clients with #1 or #2 in key Canadian Banking ® transaction accounts, product categories(1) 19% investmen
Slide 24: Net Interest Income: Average rates and balance sheet
Net Interest Income: Average rates and balance sheet Interest-Earning Asset Yields (1) Interest-Bearing Liability Costs(2) Q2/2022 Q3/2022 Q4/2022 Q1/2023 Q2/2023 Q2/2022 Q3/2022 Q4/2022 Q1/2023 Q2/2023 Total earning Total 2.14% 2.78% 3.69% 4.58% 5.08% 0.59% 1.08% 1.81% 2.64% 3.25% assets Liabilitie
Slide 25: Net Interest Income: Funding mix shift challenging margin expansion
Net Interest Income: Funding mix shift challenging margin expansion Canadian Banking Net Interest Income ($ millions) CNB Net Interest Income (US$ millions) 37 (16) 85 3,609 86 417 581 +16% 474 +23% YoY 3,107 YoY NIM NIM YoY: +20 bps YoY: +34 bps (1) Q2/22 Net Interest Spreads Volume & Mix Q2/23 Net
Slide 26: Funding: Well-diversified
Funding: Well-diversified LCR (total adjusted value, $BN) ▪ As at April 30, 2023, relationship-based deposits, which are the primary source of funding for retail and commercial lending, were High-quality liquid Net Cash Surplus $826 billion or 53% of our total funding (including short-term assets Le
Slide 27: Interest rate sensitivity
Interest rate sensitivity All-Bank: Impact of 100 bps change Impact of 25 bps change(2) across the curve(1) Net interest Revenue Increase in short- Increase across Decrease across income ($MM) Increase Decrease ($MM) term rates(2) the curve(2) the curve(2) Canada $541 $(582) Canadian ~$60 ~$135 ~$(1
Slide 28: Non-interest income: Benefiting from higher trading results
Non-interest income: Benefiting from higher trading results Non-Interest Income ($ millions) Q2/2023 Highlights (1) ▪ Non-interest income was up 25% YoY; up 5% net of PBCAE(1) Q2/22 Revenue (net of PBCAE) 6,126 + Higher Capital Markets revenue driven by fixed income trading (2) revenue Investment, b
Slide 29: 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) 8% 8% 1% 1% 558 566 573 578 523 537 20 20 17 112 116 250 100 253 249 76 75 75 345 366 367 306 316 274 Q2/2022 Q1/2023 Q2/2023 Q2/2022 Q1/2023 Q2
Slide 30: 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 Personal Adoption Rate(2) Active Mobile Users (000s)(1) 6% 150 bps 10% 60.8% 61.3% 62.3% 6,287 6,429 8,774 8,579 Pre- 5,826 8,270 pandemic Pre- 54.4% Pre- pandemic pandemic 7,354 4,619 Q
Slide 31: Wealth Management: RBC GAM total net sales turn positive
Wealth Management: RBC GAM total net sales turn positive RBC Global Asset Management AUM(1) ($ billions) RBC Global Asset Management Net Sales ($ billions) 1% Last 12 months ended Q2/2023 3% Total Long-Term Canadian Retail $(8.8)BN $(10.4)BN 561 564 11.3 548 0.3 88 90 91 0.7 7.0 63 64 74 8.2 110 103
Slide 32: U.S. Wealth Management (incl. CNB): Higher revenue offset by investments
U.S. Wealth Management (incl. CNB): Higher revenue offset by investments Net Income (US$ millions) Q2/2023 Highlights (US$) (28)% ▪ Net income down 28% YoY (34)% − Pre-provision, pre-tax earnings(2) down 20% YoY 215 196 ▪ Revenue up 6% YoY Includes US$46MM + Net interest income at CNB up 23% YoY (se
Slide 33: Capital Markets: Revenue and loan breakdown by geography
Capital Markets: Revenue and loan breakdown by geography Capital Markets Revenue Breakdown by Geography(1) (2) ($ millions) ▪ Canada: Up YoY, mainly driven by improved margins in Transaction 3,121 Banking, higher M&A and loan syndication activity, as well as higher 174 FX trading; partially offset b
Slide 34: Canadian Banking: Continuing to see signs of credit normalization
Canadian Banking: Continuing to see signs of credit normalization ▪ PCL and GIL ratios increased QoQ and YoY, as credit outcomes continue to return to more normal levels ▪ 30-89 day delinquency rates were relatively stable QoQ across most portfolios Canadian Banking (CB) PCL on Impaired Loans and Gr
Slide 35: 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) $192.1 Total $391BN Uninsured $327BN Insured Uninsured 84% Mortgage Balance $356BN $292BN $91.3 $296.9 (24%) (76%) HELOC Balance $35BN $35BN $72
Slide 36: Commercial Real Estate (CRE): Portfolio summary
Commercial Real Estate (CRE): Portfolio summary ▪ CRE exposure of $82.4 billion at Q2/2023 accounts for 9.6% of total Loans and Acceptances ▪ The portfolio was originated with sound lending standards, and remains well-diversified by geography, business and property type Exposure by Business Segment
Slide 37: Allowance for Credit Losses: Prudently reserved
Allowance for Credit Losses: Prudently reserved Allocation of ACL by Product as a % of Loans & Acceptances Pre-Pandemic Q1/20 Q2/22 Q1/23 Q2/23 Product Stage 1 & 2 Total Stage 1 & 2 Total Stage 1 & 2 Total Stage 1 & 2 Total (1) Residential mortgages 0.07% 0.12% 0.06% 0.10% 0.08% 0.11% 0.08% 0.11% Ot
Slide 38: Market risk: Trading revenue and VaR
Market risk: Trading revenue and VaR ($ millions) 80 60 40 20 0 -20 -40 -60 -80 50 58 55 47 -100 Trading Revenue (teb) (1) VaR VaR quarterly average ▪ During the quarter, RBC experienced 1 day with net trading losses, largely associated with stresses in the U.S. regional banking sector, which did no
Slide 39: 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 +$115MM impact on YoY expense growth Q1/21 Q2/21 Q3/21 Q4/21 Q1/22 Q2/22 Q3/22 Q4/22 Q1/23 Q2/23 Share-based compensation 286 134 100 97 47 17 68 3 270 132 U.S. WM WAP expense (gains)/losses 157 12
Slide 40: Impact of foreign currency translation
Impact of foreign currency translation Estimated impact of foreign currency translation on key income statement items For the three months ended (Millions of Canadian dollars, except Q2/23 vs. Q2/23 vs. per share amounts) Q2/22 Q1/23 Increase (decrease): Total revenue 320 72 Non-interest expense 206
Slide 41: Items impacting results
Items impacting results 2023 ($ millions, except for EPS) Specified Item Segments Before-Tax After-Tax Diluted EPS Q2/2023 HSBC Canada transaction and integration costs Yes Corporate Support $56 $43 $0.03 Q1/2023 Canada Recovery Dividend (CRD) and the permanent increase in the corporate income tax Y
Slide 42: Additional Notes (slides 4 to 24)
Additional Notes (slides 4 to 24) Slide 4 1. Adjusted for (i) after-tax effect of amortization of other intangibles (Q2/23: $66MM; Q1/23: $71MM; Q2/22: $46MM), (ii) HSBC Canada transaction and integration costs (Q2/23: $43MM; Q1/23: $8MM; Q2/22: $nil). (iii) Canada Recovery Dividend (Q2/23: $nil; Q1
Slide 43: Additional Notes (slides 28 to 37)
Additional Notes (slides 28 to 37) Slide 28 17. Comprised of Net gain on investment securities, Share of profit (loss) in joint ventures and associates and Other, including U.S. WM WAP gains/(losses). Slide 32 18. Adjusted net income and adjusted pre-provision, pre-tax earnings for every quarter exc
Slide 44: 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 45: 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 46: Reconciliation for non-GAAP financial measures (1/3)
Reconciliation for non-GAAP financial measures (1/3) Calculation of Adjusted Net Income and Diluted EPS $ millions (unless otherwise stated) Q2/22 Q1/23 Q2/23 Net income 4,253 3,214 3,649 Less: Non-controlling interests (NCI) (3) (2) (1) Less: Dividends on preferred shares and distributions on other
Slide 47: Reconciliation for non-GAAP financial measures (2/3)
Reconciliation for non-GAAP financial measures (2/3) Calculation of PPPT Calculation of PPPT $ millions (unless otherwise stated) Q2/22 Q1/23 Q2/23 $ millions (unless otherwise stated) Q2/22 Q1/23 Q2/23 All-Bank U.S. Wealth Management (incl. City National) (US$) Net income 4,253 3,214 3,649 Net inco
Slide 48: Reconciliation for non-GAAP financial measures (3/3)
Reconciliation for non-GAAP financial measures (3/3) Calculation of Revenue Net of Insurance PBCAE $ millions (unless otherwise stated) Q2/22 Q1/23 Q2/23 All-Bank Revenue 11,220 15,094 13,520 Less: Insurance PBCAE (180) 1,545 1,006 Revenue net of Insurance PBCAE 11,400 13,549 12,514 Insurance Revenu
Slide 49: 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