Royal Bank Of Canada · TSX:RY
Royal Bank Of Canada — Q3 2020 Earnings Presentation
42 slides from Royal Bank Of Canada's earnings presentation, Aug 26, 2020
Slide 1: Royal Bank of Canada Third Quarter Results
Royal Bank of Canada Third Quarter Results August 26, 2020 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 2020 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 balance sheet and diversified business mix underpinned earnings
Strong balance sheet and diversified business mix underpinned earnings Revenue Net Income CET1 Ratio $12.9 $3.2 12.0% Billion +7% YoY(1) Billion +30 bps 12% YoY net of Insurance (2%) YoY QoQ fair value change Market Revenue Earnings Growth Robust Capital Strong revenue growth YoY in Capital Dilu
Slide 5: Well-positioned for the continuing downturn
Well-positioned for the continuing downturn Strong ROE a buffer against risk migration Strong capital (CET1 ratio) Pre-Provision, Pre-Tax Earnings to PCL(1) Premium return profile(2) 12.0% $16.5BN 25.0 9.6x 13.8x 13.1x 9.5x 4.2x 10.0 14.2% 17.2% 3.0% Buffer surplus over 20.0 1.0% DSB 9% CET1 LTM LTM
Slide 6: Solid client activity despite challenging macro backdrop
Solid client activity despite challenging macro backdrop Total loan and deposit growth Canadian retail AUM net sales(1) Debit and credit card volumes(2) (YoY change, $ billions) ($ millions) (YoY change, %) 250 Everyday 2,000 100% MoM Δ May Jun Jul Travel 200 Loans (1%) (1%) 0% 1,000 Retail 50% Dini
Slide 7: Financial Review
Financial Review Rod Bolger Chief Financial Officer
Slide 8: Strong earnings driven by record results in Capital Markets
Strong earnings driven by record results in Capital Markets Reported Earnings ($ millions, except for EPS and ROE) Q3/2020 Q3/2020 net income of $3.2 billion, down 2% YoY; diluted YoY QoQ earnings per share (EPS) of $2.20, down 1% YoY Revenue $12,920 12% 25% o Adjusted diluted EPS of $2.23(4), dow
Slide 9: Strong capital ratios comfortably above regulatory requirements
Strong capital ratios comfortably above regulatory requirements CET1 Movement CET1 ratio of 12.0%, up 30 bps QoQ, 37 bps (7) bps 12 bps (13) bps 13 bps (11) bps mainly reflecting: Strong internal capital generation Lower credit risk RWA due to pay down of credit facilities by clients 12.0% 11.
Slide 10: Credit RWA downgrades underpinned by COVID-19 vulnerable exposures
Credit RWA downgrades underpinned by COVID-19 vulnerable exposures Wholesale Lending-Related Credit RWA Net Credit Downgrades (Q2/20 & Q3/20) ($ billions) Oil & Gas Cumulative impact from net credit downgrades of $11.6 billion over last two Automotive quarters Consumer Discretionary o Majority of
Slide 11: NIM negatively impacted by lower interest rates and strong enterprise liquidity
NIM negatively impacted by lower interest rates and strong enterprise liquidity NIM on Average Assets and Net Interest Income Average deposits Select assets ($ billions) ($ billions) ($ billions) 1.37% 1.36% 1.36% 1.32% YoY growth YoY growth 1.20% 6,500 1.40% 6,000 5,500 1.20% 77 +$1 +2% 160 +$101 +
Slide 12: Personal & Commercial Banking impacted by lower spreads and higher PCL
Personal & Commercial Banking impacted by lower spreads and higher PCL Net Income ($ millions) Q3/2020 Highlights (18%) Canadian Banking n.m.(4) Net income down 17% YoY Primarily driven by lower spreads and higher PCL 1,664 Partially offset by strong average volume growth of 11% 1,367 Revenu
Slide 13: Strong volume growth in Wealth Management offset by lower rates, higher PCL
Strong volume growth in Wealth Management offset by lower rates, higher PCL Net Income ($ millions) Q3/2020 Highlights (12%) Net income down 12% YoY Largely due to the impact of lower interest rates and 33% higher PCL Partially offset by average volume growth and higher average fee-based clien
Slide 14: Solid earnings growth YoY in Insurance
Solid earnings growth YoY in Insurance Net Income ($ millions) Q3/2020 Highlights 6% Net income up 6% YoY 20% Largely due to higher favourable investment-related experience and improved claims experience Partially offset by the impact of longevity reinsurance contracts in the prior year 216
Slide 15: I&TS results impacted by lower funding and liquidity revenue
I&TS results impacted by lower funding and liquidity revenue Net Income ($ millions) Q3/2020 Highlights (36%) Net income down 36% YoY Mainly due to lower funding and liquidity revenue (66%) Partially offset by solid performance in our asset services business driven by higher revenue and 226 di
Slide 16: Record earnings in Capital Markets
Record earnings in Capital Markets Net Income ($ millions) Q3/2020 Highlights Net income up 45% YoY 45% Record earnings driven by higher revenue in Global n.m.(1) Markets Partially offset by higher compensation on improved results and higher taxes 653 Revenue up 35% YoY 949 Corporate and I
Slide 17: Risk Review
Risk Review Graeme Hepworth Chief Risk Officer
Slide 18: Evolving impact of COVID-19 continues to be reflected in our provisions
Evolving impact of COVID-19 continues to be reflected in our provisions Movement in Allowance for Credit Losses on Loans ($ billions) 0.89% 0.84% $0.4 ACL to L&A ACL to L&A $0.3 ($0.5) 27% from Vulnerable Wholesale Sectors 90% Retail $5.9 $6.1 Cards, Personal Lending and Residential Mortgages Allowa
Slide 19: Lower PCL on impaired loans (Stage 3) aided by client support programs
Lower PCL on impaired loans (Stage 3) aided by client support programs Total RBC ($ millions, bps) Wealth Management ($ millions, bps) 750 37 150 40 27 40 650 25 21 23 30 130 21 21 30 11 8 20 550 $613 20 110 450 10 90 (1) 10 - $434 0 350 70 $399 $398 (10) $338 $43 -10 250 50 (20) -20 150 30 (30) -30
Slide 20: Increase in GILs largely attributed to COVID-19 vulnerable sector exposure
Increase in GILs largely attributed to COVID-19 vulnerable sector exposure Gross Impaired Loans (GIL) ($ millions, bps) Key Drivers of GIL 51 57 Total GIL increased $328 million (6 bps) QoQ 4000 47 46 45 Canadian Banking 50 3500 3,857 3,529 Higher impairments in the commercial (mainly real estat
Slide 21: 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 $43 billion or 7% of total Total Loans & Acceptances (Q3/20) loans & acceptances outstanding o The majority of this exposure is secured by assets or guarantees o QoQ decrease mainly
Slide 22: Well diversified Commercial Real Estate (CRE) portfolio
Well diversified Commercial Real Estate (CRE) portfolio CRE-Retail exposure represents 1.6% of total loans & CRE Exposure by Borrower Type acceptances outstanding Loans and acceptances ($ billions) o A significant portion of our CRE-Retail portfolio is +14.6% comprised of Class-A malls and grocery
Slide 23: Strong underlying credit quality in Canadian Banking
Strong underlying credit quality in Canadian Banking Canadian Banking Outstanding Lending Exposure(1) Canadian Banking FICO Score Distribution – Retail (Average balances, $ billions) (As of Q3/2020) Q3/2020 Q2/2020 <620 4% Residential 283 Mortgages 276 620-680 37 8% HELOCs 38 681-720 Personal Lendin
Slide 24: Canadian Banking payment deferral programs
Canadian Banking payment deferral programs (1) Since the onset of the pandemic, RBC has approved over 500 thousand clients globally to participate in its various payment deferral programs o Of the clients supported to date, ~70% were in Canadian Banking Active deferral balances for Canadian Bank
Slide 25: Canadian Banking retail payment deferral summary
Canadian Banking retail payment deferral summary (1) To date, $57 billion(2) of our retail portfolio exposure was deferred Retail Deferral Balance Continuity ($ billions) o ~$6 billion new deferrals were added in Q3/20 March 18 to July 31, 2020 o ~$14 billion in deferrals rolled-off in Q3/20 83%
Slide 26: Market risk trading revenue and VaR
Market risk trading revenue and VaR ($ millions) 150 100 50 0 -50 -100 -150 -200 -250 Trading Revenue (1) Market Risk VaR During Q3 2020, there were no days with net trading losses. In Q3 2020, overall market volatility and credit spreads improved. The impact of these factors on fixed income and
Slide 27: Appendices
Appendices
Slide 28: IFRS 9 range of macroeconomic scenario assumptions (as of July 31)
IFRS 9 range of macroeconomic scenario assumptions (as of July 31) Canada Real GDP ($ Trillions)(1) Canada Unemployment Rate (%)(3) 16 2.4 14 2.3 12 2.2 10 2.1 8 2.0 6 1.9 4 1.8 2 1.7 U.S. Real GDP (US$ Trillions)(2) U.S. Unemployment Rate (%)(3) 14 22.0 12 21.0 20.0 10 19.0 8 18.0 6 17.0 4 16.0 2 1
Slide 29: Allocation of ACL by product: Lower-risk mortgages a large part of our balance sheet
Allocation of ACL by product: Lower-risk mortgages a large part of our balance sheet Q2 / 2020 Q3 / 2020 % 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 Residential mortgages (1) 0.0% 0.8% 0.1% 21.9% 0.15%
Slide 30: Canadian residential portfolio has strong underlying credit quality
Canadian residential portfolio has strong underlying credit quality Canadian Banking Residential Lending Portfolio(2) Q3/2020 Highlights As at Q3/2020 Strong underlying quality of uninsured residential Total ($318BN) Uninsured ($241BN) mortgage portfolio(2) Mortgage $281.0BN $203.5BN o 53% of unin
Slide 31: Credit Risk RWA: Corporate pay downs offset credit downgrades
Credit Risk RWA: Corporate pay downs offset credit downgrades Retail credit risk exposures (IRB) by PD range(1) ($ billions) 500 451 462 15.3% Strong underlying retail credit 4.1% quality with 85% of loans considered 364 370 4.3% (down 40 bps QoQ) 400 10.6% 10.6% 6.0% 5.7% lower risk (PD < 0.50) 1
Slide 32: Internal ratings map
Internal ratings map Our rating system is designed to stratify obligors into 22 grades The following table aligns the relative rankings of our 22-grade internal risk ratings with the external ratings used by S&P and Moody’s This table represents an integral part of our 2019 Annual Consolidated F
Slide 33: Net Interest Income sensitivity
Net Interest Income sensitivity Structural interest rate sensitivity – NII risk (1) ($ millions) NII risk Q3/20: The quarter-over-quarter change in net Q1/20 Q2/20 Q3/20 interest income sensitivity was attributed to deposit growth along with lower prevailing rates, which move in rates move in rate
Slide 34: Canadian Banking: Strong volume growth offset by impact of lower interest rates
Canadian Banking: Strong volume growth offset by impact of lower interest rates Average Gross Loans & Acceptances(1) ($ billions) Average Deposits(1) ($ billions) 6% 18% 1% 9% 378 410 446 464 467 442 19 17 203 19 183 90 89 85 165 79 78 80 213 227 243 258 276 283 Q3/2019 Q2/2020 Q3/2020 Q3/2019 Q2/20
Slide 35: Our 14MM+ Canadian Banking clients continue to use our digital channels
Our 14MM+ Canadian Banking clients continue to use our digital channels Active Digital Users(1) Digital Adoption Rate(2) Active Mobile Users(1) 6% 210 bps 14% 7,544 7,527 53.9% 53.8% 4,819 4,917 7,112 51.7% 4,321 Q3/19 Q2/20 Q3/20 Q3/19 Q2/20 Q3/20 Q3/19 Q2/20 Q3/20 Mobile Sessions(3) Self-Serve Tra
Slide 36: Growing our leading market share in Canadian retail assets under management
Growing our leading market share in Canadian retail assets under management Assets Under Management ($ billions) Net Sales ($ billions) All-in Market Share(1) All-in Market Share(1) 15.6% 16.1% 16.1% n.m.(2) n.m.(2) 39.4% 260 240 257.6 220 244.2 232.5 200 180 160 140 3.0 3.1 120 100 80 60 40 20 0.6
Slide 37: Increased earnings from U.S. operations
Increased earnings from U.S. operations Net Income (US$ millions) U.S. Operations Revenue (US$ billions)(1) Last 12 months ended Q3/2020 40% n.m.(2) 582 RBC CM RBC WM Total U.S. 3.7 4.7 $8.5 billion 416 45 Other(3) Q3/2019 Q2/2020 Q3/2020 Q3/2020 Highlights US$ millions (unless otherwise stated) Q3/
Slide 38: Lower margins offset strong volume growth in U.S. Wealth Management (incl. CNB)
Lower margins offset strong volume growth in U.S. Wealth Management (incl. CNB) Net Income (US$ millions) Q3/2020 Highlights (US$) (37%) Net income down 37% YoY 94% Largely due to lower interest rates, higher PCL and higher expenses Benefitted from continued strong double digit volume growth 2
Slide 39: Capital Markets revenue breakdown by business
Capital Markets revenue breakdown by business Corporate and Investment Banking Revenue Breakdown by Business ($ millions) 12% Up 12% YoY: 50% Higher revenue due to the reversal of loan underwriting markdowns in the U.S. and Europe (1) 1,080 Higher debt origination, primarily in the U.S. 962
Slide 40: 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 driven by lower M&A activity, partially 2,748 151 offset by higher fixed income trading 2,313 2,034 481 U.S.: Up YoY driven by higher fixed income and equity 166 1
Slide 41: Other items impacting results
Other items impacting results F2020 Other Items ($ millions, except for EPS) Segments Before-Tax After-Tax Diluted EPS Q3/2020 No significant items of note Q2/2020 No significant items of note Q1/2020 No significant items of note F2019 Other Items ($ millions, except for EPS) Segments Before-Tax Aft
Slide 42: 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