Royal Bank Of Canada · TSX:RY
Royal Bank Of Canada — Q4 2022 Earnings Presentation
54 slides from Royal Bank Of Canada's earnings presentation, Nov 30, 2022
Slide 1: Royal Bank of Canada Fourth Quarter Results
Royal Bank of Canada Fourth Quarter Results November 30, 2022 All amounts are in Canadian dollars and are based on our audited Annual and unaudited Interim Consolidated Financial Statements for the year and quarter ended October 31, 2022 and related notes prepared in accordance with International Fi
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: Q4/22: Performance underpinned by strong capital ratios and deposit franchise
Q4/22: Performance underpinned by strong capital ratios and deposit franchise (4) Earnings Diversified revenue streams ($BN) Expense growth (YoY) 1% YoY 0% I&TS Capital Net Income $3.9BN $0.5 Markets 9.5% 8.5% YoY (8)% YoY +18% $2.3 Insurance YoY 2.6% 6.5% Pre-Provision, $0.6 P&CB F2022 F2022 10% (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 Diversified organic growth(1) (2) (RWA $BN) Committed to sustainable dividend growth (Q4/22) 20 3 CET1 (14) bps $1.8BN 47% 15 13 3 1 3 4 10 7 Common share Dividend payout 2
Slide 6: Strong volume growth across our largest segments
Strong volume growth across our largest segments Canadian Banking average(1) loans Canadian Banking average City National (CNB) average and acceptances ($ billions)(2) deposits ($ billions)(4) loans and deposits (US$ billions) 9% 10% 9% 9% 12% 6% 2-YR CAGR(3) YoY 2-YR CAGR YoY 2-YR CAGR YoY 566 549
Slide 7: 2022 NIAT: Benefit of higher rates offset impact of challenging market conditions
2022 NIAT(1): Benefit of higher rates offset impact of challenging market conditions 2022 Net Income(2) Personal & Commercial Banking Wealth Management Diversified business model ▪ Market share gains in Canadian personal ▪ Largest retail mutual fund company in Canada and business deposits, and credi
Slide 8: Medium-term financial performance objectives and updates
Medium-term financial performance objectives and updates Average(2) Medium-Term Objectives(1) 3-Year 5-Year Diluted EPS growth 7%+ ✓ 8% 8% Profitability ROE 16%+ ✓ 16.4% 16.7% Capital ratios (CET1 ratio) Strong ✓ 12.9% 12.5% Capital Management Dividend payout ratio 40% – 50% ✓ 46% 46% Canadian Banki
Slide 9: 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 10: Climate: Supporting an orderly transition toward a more sustainable future
Climate: Supporting an orderly transition toward a more sustainable future Sustainable Finance(1) 2030 interim emissions reduction targets(3)(4) Cumulative sustainable financing value $500BN Emission Emission 2030 Target Commitment Scope 4 Scope (as % set in 2021 reduction from Inclusion Inclusion (
Slide 11: Q4/2022 Financial Review
Q4/2022 Financial Review Nadine Ahn Chief Financial Officer
Slide 12: Q4/22: Higher margins, strong volume growth offset challenging market conditions
Q4/22: Higher margins, strong volume growth offset challenging market conditions Reported Earnings ($ millions, except for EPS and ROE) Q4/2022 YoY QoQ ▪ Net income flat YoY; PPPT(2) up 10% YoY Revenue 12,567 2% 4% Revenue Revenue Net of Insurance FV Change(1) 13,007 3% 8% ▪ Net interest income (see
Slide 13: Capital: Strong capital position supporting business growth and shareholder returns
Capital: Strong capital position supporting business growth and shareholder returns CET1 Movement 66 bps (31) bps (41) bps ▪ CET1 ratio of 12.6%, down 50 bps QoQ, reflecting: (17) bps − Closing of Brewin Dolphin acquisition (14) bps (7) bps +35 bps − Repurchase of 7.9MM shares for $1.0BN Net interna
Slide 14: Net interest income: Margins continue to expand as benchmark rates rise
Net interest income: Margins continue to expand as benchmark rates rise Summary All-Bank Net Interest Income ($ millions) ▪ Net interest income up 24% YoY due to higher spreads and strong (1) (2) NII (excl. trading) Trading NII NIM (%) volume growth in Canadian Banking and Wealth Management YoY o Ne
Slide 15: Canadian Banking NIM: Higher deposit margins offsetting lower asset yields
Canadian Banking NIM: Higher deposit margins offsetting lower asset yields We are well-positioned for rising Loan growth largely funded Client behaviour is driving a interest rates through lower cost client deposits change in deposit mix ▪ Well-positioned: YoY QoQ +3% QoQ +9% YoY o for rising intere
Slide 16: Non-interest expense: Higher compensation costs
Non-interest expense: Higher compensation costs Non-Interest Expense (NIE, $ millions) Q4/2022 Highlights Q4/21 Expenses 6,583 ▪ Non-interest expense up 10% YoY % of LTM NIE Salaries & Benefits 181 ▪ Up 9% YoY excluding variable and share-based compensation(1) Salaries 35% (which includes changes in
Slide 17: 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) Q4/2022 Highlights 5% Canadian Banking 6% ▪ Net income up 1% YoY 2,139 + Pre-provision, pre-tax earnings(1) up 25% YoY 2,033 2,023 ▪ Revenue up 17% YoY + Net interest income up 22% YoY (see slide 28) + NIM of 2
Slide 18: Wealth Management: Higher NII more than offset impact of challenging markets
Wealth Management: Higher NII more than offset impact of challenging markets Net Income ($ millions)(1) Q4/2022 Highlights 47% ▪ Net income up 47% YoY 6% + Pre-provision, pre-tax earnings(2) up 54% YoY Includes $96MM ▪ Revenue increased 15% YoY (after-tax) legal + Canadian Wealth Management revenue
Slide 19: Insurance: Stable earnings year over year
Insurance: Stable earnings year over year Net Income ($ millions) Q4/2022 Highlights 0% ▪ Net income flat YoY 44% 267 268 ▪ Revenue down 57% YoY (down 39% net of Insurance FV(1)) − Lower group annuity sales, and the change in fair value of 186 investments backing policyholder liabilities, both of wh
Slide 20: Investor & Treasury Services: Higher rates drive margin expansion
Investor & Treasury Services: Higher rates drive margin expansion Net Income ($ millions) Q4/2022 Highlights 1% ▪ Net income up 1% YoY (33)% ▪ Revenue down 8% YoY 164 − Lower funding and liquidity revenue(3) including the impact of a funding cost adjustment 109 110 − Lower revenue from asset service
Slide 21: Capital Markets: Challenging markets and higher expenses weigh on results
Capital Markets: Challenging markets and higher expenses weigh on results Net Income ($ millions) Q4/2022 Highlights (33)% ▪ Net income down 33% YoY − Pre-provision, pre-tax earnings(1) down 39% YoY 29% ▪ Revenue up 1% YoY − Corporate and Investment Banking revenue down 5% YoY 920 − Lower loan syndi
Slide 22: Risk Review
Risk Review Graeme Hepworth Chief Risk Officer
Slide 23: 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 $742BN - ACL to L&A - 0.60% L&A $842BN L&A (243) ACL to L&A 254 $817BN 0.50% ACL to L&A 60 0.49% 18 81 4,419 4,170 4,181 4,181 4,092 4,110 4,011 4,011 Q4
Slide 24: Gross Impaired Loans: Modest increase but well below pre-pandemic levels
Gross Impaired Loans: Modest increase but well below pre-pandemic levels Gross Impaired Loans (GIL) ($ millions, bps) Key Drivers of GIL (QoQ) ▪ Total GIL increased $140MM (up 1 bp QoQ) 31 28 Canadian Banking 27 25 26 ▪ GIL of $1,020MM increased $18MM QoQ, with increases in the retail portfolio part
Slide 25: PCL on impaired loans: Remain below pre-pandemic and long-term averages
PCL on impaired loans: Remain below pre-pandemic and long-term averages Total RBC ($ millions, bps) Wealth Management ($ millions, bps) 9 9 12 5 7 8 4 1 0 0 $254 $12 $11 $180 $174 $170 $137 $1 $- $1 Q4/21 Q1/22 Q2/22 Q3/22 Q4/22 Q4/21 Q1/22 Q2/22 Q3/22 Q4/22 ▪ Provisions were up $84MM QoQ, with high
Slide 26: Appendices
Appendices
Slide 27: ESG: Putting our Purpose into practice
ESG: Putting our Purpose into practice Royal Bank of Canada is a purpose-driven, principles-led organization How we deliver value Building & attracting talent Sustainable finance(7) and Committed to net-zero emissions Preparing youth for the and driving a diverse & responsible investment and acceler
Slide 28: Net Interest Income: Average rates and balance sheet
Net Interest Income: Average rates and balance sheet Interest-Earning Asset Yields (1) Interest-Bearing Liability Costs(2) 4.17% Loans Interest cost 3.18% on repos 3.69% Total earning 3.42% assets 3.03% 3.01% 3.10% 3.22% 2.40% Term Deposits 2.78% 3.23% Securities 2.14% Repo & 1.66% Total 1.99% 1.95%
Slide 29: Net Interest Income: Higher interest rates continue to benefit net interest margin
Net Interest Income: Higher interest rates continue to benefit net interest margin Canadian Banking Net Interest Income ($ millions) CNB Net Interest Income (US$ millions) (12) 218 71 3,724 460 136 627 +22% +45% YoY 3,046 432 YoY NIM NIM YoY: +28 bps YoY: +81 bps Q4/21 Net Interest Margins Volume &
Slide 30: Funding: Well-diversified
Funding: Well-diversified ▪ As at October 31, 2022, relationship-based deposits, which 125% 112% are the primary source of funding for retail and commercial Liquidity Coverage Net Stable Funding lending, were $819 billion or 54% of our total funding Ratio Ratio(1) ▪ Short and long-term wholesale fun
Slide 31: Interest rate sensitivity: Remain well-positioned for rising interest rates
Interest rate sensitivity: Remain well-positioned for rising interest rates All-Bank Canadian Banking U.S. Wealth Management 100 bps increase in 25 bps increase in 25 bps increase in Net interest rates across the Net interest Revenue(3) rates rates income ($MM) curve(1) income ($MM) (US$MM) Canada $
Slide 32: Non-interest income: Lower market-related revenue amidst challenging backdrop
Non-interest income: Lower market-related revenue amidst challenging backdrop Non-Interest Income ($ millions) Q4/2022 Highlights Q4/21 Revenue (net of FV change) (1) 7,581 ▪ Non-interest income was down 14% YoY; down 11% net of Insurance FV change(1) Market-related (2) Investment, brokerage & custo
Slide 33: 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% 2% 3% 535 549 505 553 566 516 19 19 17 104 109 251 254 95 241 76 76 75 330 354 362 283 295 264 Q4/2021 Q3/2022 Q4/2022 Q4/2021 Q3/2022 Q4/202
Slide 34: 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% 140 bps 10% 58.1% 58.3% 8,405 6,129 8,277 5,962 56.9% 7,980 5,547 Pre- Pre- pandemic Pre- pandemic pandemic 7,246 52.3% 4,491 Q4/19 Q4/2
Slide 35: 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 Q4/2022 (12)% (4)% Total Long-Term Canadian Retail $(9.4)BN $(3.4)BN 597 542 12.3 99 523 86 3.5 83 71 56
Slide 36: U.S. Wealth Management (incl. CNB): Higher margins and volumes
U.S. Wealth Management (incl. CNB): Higher margins and volumes Net Income (US$ millions)(1) Q4/2022 Highlights (US$) n.m. ▪ Net income up $170MM YoY 5% + Pre-provision, pre-tax earnings(3) up $259MM Includes US$78MM after-tax impact of ▪ Revenue up 18% YoY legal provision 215 225 + Net interest inco
Slide 37: Capital Markets: Revenue and loan breakdown by geography
Capital Markets: Revenue and loan breakdown by geography Capital Markets Revenue Breakdown by Geography ($ millions) Includes loan ▪ Canada: Up YoY, mainly driven by increased trading revenue across underwriting all products, as well as higher M&A activity; partially offset by lower 2,298 markdowns
Slide 38: Canadian Banking: Seeing signs of credit normalization
Canadian Banking: Seeing signs of credit normalization ▪ 30-89 day delinquency rates increased QoQ across all portfolios; delinquency rates remain below pre-pandemic levels, with the exception of the Small Business portfolio, where delinquencies are being driven in part by government guaranteed faci
Slide 39: 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) $188.1 Total $388BN Uninsured $321BN Insured Uninsured 83% Mortgage Balance $352BN $285BN $93.1 $290.7 (24%) (76%) HELOC Balance $36BN $36BN LTV
Slide 40: Allowance for Credit Losses: Prudently reserved
Allowance for Credit Losses: Prudently reserved Allocation of ACL by Product as a % of Loans & Acceptances Pre- Peak Total Product Pandemic ACL Ratio Q4/21 Q1/22 Q2/22 Q3/22 Q4/22 Q1/20 Q4/20 (1) Residential mortgages 0.12% 0.15% 0.11% 0.10% 0.10% 0.10% 0.10% Other Retail 1.61% 2.34% 1.73% 1.68% 1.5
Slide 41: Market risk trading revenue and VaR
Market risk trading revenue and VaR ($ millions) 80 60 40 20 0 -20 -40 -60 -80 -100 Trading Revenue (teb) (1)(2) (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 the U.K. governme
Slide 42: 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) $(139)MM impact to YoY revenue growth Q4/20 Q1/21 Q2/21 Q3/21 Q4/21 Q1/22 Q2/22 Q3/22 Q4/22 U.S. WM WAP revenue gains/(losses) 7 168 134 51 41 (89) (154) (22) (98) U.S. WM WAP expense (gains)/losses 8 157 124 59 42
Slide 43: Impact of foreign currency translation
Impact of foreign currency translation Estimated impact of foreign currency translation on key income statement items For the three months ended (Millions of Canadian dollars, except Q4/22 vs. Q4/22 vs. per share amounts) Q4/21 Q3/22 Increase (decrease): Total revenue 209 214 PCL 5 4 Non-interest ex
Slide 44: Items impacting results
Items impacting results 2022 ($ 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
Slide 45: Additional Notes (slides 3 to 15)
Additional Notes (slides 3 to 15) 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 49-52. For more information, see slide 53. 2. Adjusted for (i) after-tax effect of amortization of other intangi
Slide 46: Additional Notes (slides 23 to 37)
Additional Notes (slides 23 to 37) Slide 23 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. Sustainable fi
Slide 47: Additional Notes (slides 38 to 39)
Additional Notes (slides 38 to 39) Slide 38 32. Canadian residential mortgage portfolio of $384BN comprised of $352BN of residential mortgages in Canadian Banking, $3BN in other Canadian business platforms, $12BN of mortgages with commercial clients ($9BN insured) and $17BN of residential mortgages
Slide 48: 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 49: 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 stable funding ratio (NSFR): ▪ The Net Stable Funding Ratio is a Basel III metric that measures the sufficiency of available stable funding to meet
Slide 50: Reconciliation for non-GAAP financial measures (1/4)
Reconciliation for non-GAAP financial measures (1/4) Calculation of ROTCE $ millions (unless otherwise stated) Q4/21 Q3/22 Q4/22 Net income available to common shareholders 3,819 3,517 3,809 Add: After-tax effect of amortization of other intangibles 46 46 52 Net income available to common shareholde
Slide 51: Reconciliation for non-GAAP financial measures (2/4)
Reconciliation for non-GAAP financial measures (2/4) Calculation of Effective Tax Rate (teb) Calculation of NIE excl. VC & SBC $ millions (unless otherwise stated) Q4/21 Q3/22 Q4/22 $ millions (unless otherwise stated) Q4/21 Q3/22 Q4/22 Expenses 6,583 6,386 7,209 Income Taxes (teb) Less: Variable co
Slide 52: 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) Q4/21 Q3/22 Q4/22 $ millions (unless otherwise stated) Q4/21 Q3/22 Q4/22 (1) All-Bank U.S. Wealth Management (incl. City National) (US$) Net income 3,892 3,577 3,882 Net
Slide 53: Reconciliation for non-GAAP financial measures (4/4)
Reconciliation for non-GAAP financial measures (4/4) Calculation of Adjusted PPPT $ millions (unless otherwise stated) Q4/21 Q3/22 Q4/22 U.S. Wealth Management (incl. City National) (US$) (1) PPPT 52 283 311 Add: CNB’s amortization of intangibles 36 35 35 Adjusted PPPT 88 318 346 Calculation of Adju
Slide 54: 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