Royal Bank Of Canada · TSX:RY
Royal Bank Of Canada — Q3 2024 Earnings Presentation
48 slides from Royal Bank Of Canada's earnings presentation, Aug 28, 2024
Slide 1: Royal Bank of Canada Third Quarter Results
Royal Bank of Canada Third Quarter Results August 28, 2024 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. Effective November 1,
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: Q3/24 Key Messages: Accelerating value creation
Q3/24 Key Messages: Accelerating value creation Reported Adjusted(1) Reported Adjusted(1) Strong results across our businesses underpinning sustainable earnings growth $3.09 $3.26 13% 15% Diluted Earnings Per Share Diluted EPS growth +6% $3.0BN +18% Strong, diversified client-driven growth Canadian
Slide 5: Client assets and activity: Solid momentum in market-related businesses
Client assets and activity: Solid momentum in market-related businesses Canadian Banking average gross Canadian Banking average Capital Markets loans and market loans and acceptances ($ billions) deposits ($ billions) share ($ billions; %)(3) 12% 17% 15% 22% +8% LTM(4) GIB(5) 2-YR CAGR(1) YoY 2-YR C
Slide 6: HSBC Canada: Expense synergies remain on track
HSBC Canada: Expense synergies remain on track On track to deliver $740MM of targeted cost synergies – As at Q3/24, RBC has achieved ~50% of annualized targeted cost synergies Fiscal Year FQ3/24 F2024 F2025 Jul-24 Oct-24 Oct-25 $740MM Realized Synergies Target 16% 25% 60% 80% 100% Year 1 Year 2 Deal
Slide 7: Q3/2024 Financial Review
Q3/2024 Financial Review Katherine Gibson Interim Chief Financial Officer
Slide 8: Q3/24: Solid revenue growth driven by higher volumes, NIM and higher markets
Q3/24: Solid revenue growth driven by higher volumes, NIM and higher markets Financial Results Reported HBCA Earnings $ millions (except for EPS) Q3/2024 YoY QoQ impact ▪ Net income is up 16% YoY; ex-HBCA up 10% YoY Revenue 14,631 13% 3% $728 ▪ Adjusted net income(2) is up 18% YoY; ex-HBCA up 11% Yo
Slide 9: Capital: Strong position supports strategic deployment and shareholder returns
Capital: Strong position supports strategic deployment and shareholder returns CET1(1) Movement ▪ CET1 ratio(1) of 13.0%, up 20 bps QoQ, reflecting: 70 bps (32) bps + Net internal capital generation (12) bps 1 bp ‒ Higher RWA(1) (excluding FX), mainly from net credit +38 bps migration and business g
Slide 10: Net interest income: Benefits from higher interest rates and solid volume growth
Net interest income: Benefits from higher interest rates and solid volume growth ▪ Net interest income was up 17% All-Bank Net Interest Income ($ millions) o Net interest income (ex-trading) was up 19% YoY reflecting the (1) (1) (2) P&CB WM (ex Trading) Other (ex Trading) inclusion of HBCA net inter
Slide 11: Non-interest expense: Improved results driving higher variable compensation
Non-interest expense: Improved results driving higher variable compensation Non-Interest Expense (NIE, $ millions) Q3/2024 Highlights Q3/23 Expenses 7,765 % of LTM NIE ▪ Reported Non-interest expense up 11% YoY; includes HBCA integration costs and amortization of intangibles, which added ~2% Salarie
Slide 12: P&CB: Solid volume growth and higher NIM partly offset by higher PCL and costs
P&CB: Solid volume growth and higher NIM partly offset by higher PCL and costs Canadian Banking: Key Metrics Q3/2024 Highlights HBCA Reported $ millions (unless otherwise stated) Q3/2024(1) Impact Personal & Commercial Banking YoY QoQ ▪ Net income up 17% or 19% adjusted(2) YoY Revenue 6,445 22% 13%
Slide 13: Wealth Management: Strong results driven by market appreciation and net sales
Wealth Management: Strong results driven by market appreciation and net sales Key Metrics Q3/2024 Highlights (1) Reported $ millions (unless otherwise stated) Q3/2024 ▪ Net income up 30% or 28% YoY adjusted(4) YoY(2) QoQ Revenue 4,765 8% 3% + Pre-provision, pre-tax earnings(3) up 20% YoY Net interes
Slide 14: Capital Markets: Strong deal flow amidst fee pool recovery
Capital Markets: Strong deal flow amidst fee pool recovery Key Metrics(1) Q3/2024 Highlights Reported ▪ Net income up 23% YoY $ millions (unless otherwise stated)(2) Q3/2024 YoY(4) QoQ + Pre-provision, pre-tax earnings(3) up 18% YoY Revenue 3,004 12% (5)% Corporate & Investment Banking 1,645 23% (5)
Slide 15: Insurance: Lower investment result partly offset by core business performance
Insurance: Lower investment result partly offset by core business performance Key Metrics Q3/2024 Highlights Reported $ millions (unless otherwise stated) (1) Q3/2024 ▪ Net income down 21% YoY YoY QoQ Revenue 285 (15)% (4)% ▪ Revenue down 15% YoY Insurance Service Result 214 44% 5% − Insurance inves
Slide 16: Risk Review
Risk Review Graeme Hepworth Chief Risk Officer
Slide 17: Allowance for Credit Losses: Prudent reserve increases on performing loans
Allowance for Credit Losses: Prudent reserve increases on performing loans Allowance for Credit Losses (ACL) on Loans & Acceptances (L&A) ($ millions) L&A L&A $975BN - $978BN PCL on Performing Loans of $42MM ACL to L&A 623 (601) ACL to L&A 0.62% 0.63% 122 (118) 38 6,138 L&A $860BN ACL to L&A 0.58% 4
Slide 18: Gross Impaired Loans: New formations higher in Canadian Banking
Gross Impaired Loans: New formations higher in Canadian Banking Gross Impaired Loans (GIL) ($ millions, bps) Key Drivers of GIL (QoQ) ▪ Total GIL increased $353MM (up 3 bps QoQ) 58 Canadian Banking 55 48 ▪ GIL of $3,361MM increased $760MM QoQ, with increases mainly in Commercial 42 38 o Commercial n
Slide 19: PCL on impaired loans: Loss rates trended lower across all segments
PCL on impaired loans: Loss rates trended lower across all segments Total RBC ($ millions, bps) Wealth Management ($ millions, bps) Average historical loss rate(1): 30 bps 24 31 30 17 23 25 26 14 13 11 $685 $69 $672 $623 $499 $539 $46 $38 $38 $32 Q3/23 Q4/23 Q1/24 Q2/24 Q3/24 Q3/23 Q4/23 Q1/24 Q2/24
Slide 20: Commercial Real Estate (CRE): Remains well-diversified post HBCA transaction
Commercial Real Estate (CRE): Remains well-diversified post HBCA transaction Total CRE Exposure ($96.8 BN; 9.9% of total L&A) ▪ The portfolio was originated with sound lending standards, and remains well-diversified by geography, business and property type Insurance 1% Other Land Development 5% Inte
Slide 21: Appendices
Appendices
Slide 22: Diversified business model: Driving strong value creation through the cycle
Diversified business model: Driving strong value creation through the cycle Premium growth in Reimagining Deepening client leading Canadian innovation relationships franchises Canadian Banking clients with ™ ™ #1 or #2 in key Canadian Banking product categories(1) transaction accounts, 18% investmen
Slide 23: Net Interest Margin: Average rates and balances
Net Interest Margin: Average rates and balances Interest Income Yield(1) Average Assets ($ billions) Q3/23 Q4/23 Q1/24 Q2/24 Q3/24 Q3/23 Q4/23 Q1/24 Q2/24 Q3/24 Loans 5.34% 5.56% 5.74% 5.87% 5.96% Loans 834 847 851 897 964 Securities 4.19% 4.53% 4.36% 4.22% 4.20% Securities 355 401 415 405 425 Repo
Slide 24: Net Interest Income: Interest rate sensitivity
Net Interest Income: Interest rate sensitivity All-Bank: Impact of 100 bps change Impact of 25 bps decrease(2) across the curve(1) Net interest Revenue Short-term rates(2) Across the curve(2) income ($MM) Increase Decrease ($MM) Q2/24 Q3/24 Q2/24 Q3/24 Canadian $206 $(248) Dollar Impact Canadian $(2
Slide 25: Net Interest Margin: Canadian Banking and City National
Net Interest Margin: Canadian Banking and City National Canadian Banking NIM(1) QoQ Waterfall CNB NIM QoQ Waterfall (0.03)% 0.05% (0.06)% 0.04% 2.84% 0.03% (0.04)% 0.05% 2.80% 2.98% 2.76% 3.02% 2.99% 2.99% 2.98% Q2/24 NIM Rate Impacts Competitive Product HBCA Impact Q3/24 NIM Q2/24 NIM Asset Yields
Slide 26: Non-interest income: Strong markets and client activity driving robust growth
Non-interest income: Strong markets and client activity driving robust growth Non-Interest Income ($ millions) Q3/2024 Highlights ▪ Reported non-interest income was up 9% YoY; Q3/23 Non-interest income 6,691 + HBCA added ~2% to overall adjusted non-interest income + Higher investment management & cu
Slide 27: Canadian Banking: Our ~16MM clients continue to adopt our digital channels
Canadian Banking: Our ~16MM clients continue to adopt our digital channels Active Digital Users (000s)(1) Digital Personal Adoption Rate(2) Active Mobile Users (000s)(1) 10% 80 bps 15% Pre- 63.0% 62.7% pandemic 9,681 9,718 61.9% 7,609 8,837 7,415 7,354 6,639 Pre- pandemic Pre- pandemic 54.4% 4,619 Q
Slide 28: U.S. WM (incl. CNB): Market tailwinds, net sales, higher spreads and lower PCL
U.S. WM (incl. CNB): Market tailwinds, net sales, higher spreads and lower PCL Key Metrics (US$ millions) Q3/2024 Highlights US$ millions (unless otherwise stated)(1) Q3/2024 YoY QoQ ▪ Net income up $102 million YoY Revenue 1,610 9% (1)% + CNB net income was up $90 million YoY Expenses 1,423 5% 1% P
Slide 29: Corporate Support
Corporate Support Financial performance ($ millions)(1) Q3/2024 Highlights Reported Q3/2024 Q2/2024 Q3/2023 ▪ Net income of $(208)MM Revenue (TEB(2)) (148) 94 (3) − HBCA transaction and integration costs ($125MM after-tax) U.S. WAP gains/(losses) 166 64 129 Non-Interest Expense 223 376 141 ▪ Adjuste
Slide 30: Non-Interest Expense: Market volatility leads to swings in share-based compensation
Non-Interest Expense: Market volatility leads to swings in share-based compensation SBC (incl. U.S. WM WAP) had a $(8)MM impact on YoY expense growth $ millions (unless otherwise stated) Q1/22 Q2/22 Q3/22 Q4/22 Q1/23 Q2/23 Q3/23 Q4/23 Q1/24 Q2/24 Q3/24 Share-based compensation 47 17 68 3 270 132 243
Slide 31: Market Risk Trading Revenue and Trading VaR
Market Risk Trading Revenue and Trading VaR (C$ millions) 28 30 28 30 50 40 30 20 10 0 -10 -20 -30 -40 -50 Trading Revenue (teb) (1) Trading VaR (2) Trading VaR quarterly average ▪ During Q3/24, there were no days with net trading losses. ▪ Average Trading VaR of C$30 million remained relatively sta
Slide 32: Canadian Banking: Credit outcomes impacted by higher rates, as anticipated
Canadian Banking: Credit outcomes impacted by higher rates, as anticipated Canadian Banking (CB) PCL on Impaired Loans and Gross Impaired Loans CB Retail FICO Score Distribution(6) (Q3/24) PCL on Impaired Loans Gross Impaired Loans <620 Q3/24 Avg Avg 3.4% Loan (bps) (1) (bps) FICO Balances Score 620
Slide 33: Canadian residential portfolio: Strong underlying credit quality overall
Canadian residential portfolio: Strong underlying credit quality overall Canadian Residential Mortgage Portfolio(1) ($ billions) Canadian Banking RESL Portfolio(2) $219.2 Total $442BN Uninsured $377BN Insured Uninsured 85% Mortgage Balance $405BN $340BN $92.7 $345.0 (21%) (79%) HELOC Balance $37BN $
Slide 34: Allowance for Credit Losses: Prudently reserved
Allowance for Credit Losses: Prudently reserved Allocation of ACL by Product as a % of Loans & Acceptances Q3/23 Q2/24 (3) Q3/24 (3) Product Stage 1 & 2 Stage 3 Total Stage 1 & 2 Total Stage 1 & 2 Total (1) Residential mortgages 0.07% 23.6% 0.11% 0.08% 0.12% 0.08% 0.13% Other Retail 1.68% 42.6% 1.82
Slide 35: Funding: Well-diversified
Funding: Well-diversified LCR(1) (total adjusted value, $BN) ▪ As at July 31, 2024, relationship-based deposits, which are the primary source of funding for retail and commercial lending, were High-quality liquid Less Net Cash Surplus = $957 billion or 56% of our total funding (including short-term
Slide 36: Items impacting results (1/2)
Items impacting results (1/2) 2024 ($ millions, except for EPS) Adjusting Item Segments Line Item Before-Tax After-Tax Diluted EPS Q3/2024 Non-Interest $(72) / $(53)/ Losses on non-core investments No Wealth Management $(0.04) Income US$(53) US$(38) Purchase accounting accretion of fair value Person
Slide 37: Items impacting results (2/2)
Items impacting results (2/2) Adjusting 2023 ($ millions, except for EPS) Segments Line Item Before-Tax After-Tax Diluted EPS Item Q4/2023 Legal provisions No Wealth Management Expenses $(166) $(166) $(0.12) Impairment of other intangibles No Wealth Management Expenses $(52) $(38) $(0.03) Higher sev
Slide 38: Impact of foreign currency translation
Impact of foreign currency translation Estimated impact of foreign currency translation on key income statement items For the three months ended ($ millions, except per share Q3/24 vs. Q3/24 vs. amounts) Q3/23 Q2/24 Increase (decrease): Total revenue 182 49 Non-interest expense 114 33 PPPT Earnings
Slide 39: Glossary (1/2)
Glossary (1/2) Assets under administration (AUA): ▪ Assets administered by us, which are beneficially owned by clients, unless otherwise noted. Services provided in respect of assets under administration are of an administrative nature, including safekeeping, collecting investment income, settling p
Slide 40: Glossary (2/2)
Glossary (2/2) Liquidity coverage ratio (LCR): ▪ The Liquidity Coverage Ratio is a Basel III standard that aims to ensure that an institution has an adequate stock of unencumbered high-quality liquidity assets that consists of cash or assets that can be converted into cash at little or no loss of va
Slide 41: Additional Notes (slides 4 to 18)
Additional Notes (slides 4 to 18) Slide 4 1. Net Income and diluted EPS are adjusted for (i) after-tax effect of amortization of acquisition-related intangibles, (ii) HSBC Canada transaction and integration costs. Adjusted pre-provision, pre-tax earnings adjusts for (i) pre-tax effect of amortizatio
Slide 42: Additional Notes (slides 23 to 34)
Additional Notes (slides 23 to 34) Slide 23 14. Loan yield is calculated as interest income on loans as a percentage of average total net loans. Securities yield is calculated as interest and dividend income on securities as a percentage of average securities, net of applicable allowance. Repo & sec
Slide 43: Reconciliation for non-GAAP financial measures (1/5)
Reconciliation for non-GAAP financial measures (1/5) Calculation of Adjusted Net Income and Adjusted Diluted EPS $ millions (unless otherwise stated) Q3/23 Q2/24 Q3/24 All-bank Net income 3,860 3,950 4,486 Less: Non-controlling interests (NCI) (2) (2) (3) Less: Dividends on preferred shares and dist
Slide 44: Reconciliation for non-GAAP financial measures (2/5)
Reconciliation for non-GAAP financial measures (2/5) Calculation of Adjusted Effective Tax Rate (teb) $ millions (unless otherwise stated) Q3/23 Q2/24 Q3/24 All-bank Income taxes Income taxes 736 976 887 Income taxes for adjusting items impacting net income (noted above: D+E+F) 46 61 73 Adjusted inc
Slide 45: Reconciliation for non-GAAP financial measures (3/5)
Reconciliation for non-GAAP financial measures (3/5) Calculation of PPPT Calculation of PPPT $ millions (unless otherwise stated) Q3/23 Q2/24 Q3/24 $ millions (unless otherwise stated) Q3/23 Q2/24 Q3/24 All-Bank U.S. Wealth Management (incl. City National) (US$) Net income 3,860 3,950 4,486 Net inco
Slide 46: Reconciliation for non-GAAP financial measures (4/5)
Reconciliation for non-GAAP financial measures (4/5) Calculation of Adjusted Revenue, Expenses, PPPT, and Net Income $ millions (unless otherwise stated) Q3/23 Q2/24 Q3/24 Corporate Support Revenue (3) 94 (148) Add: Management of closing capital volatility related to the HSBC Canada transaction - (1
Slide 47: Reconciliation for non-GAAP financial measures (5/5)
Reconciliation for non-GAAP financial measures (5/5) Calculation of ex-HBCA amounts (Q3/24) All-bank HBCA Excl. HBCA Calculation of Core NIE Growth YoY $ millions (unless otherwise stated) Impact Impact $ millions (unless otherwise stated) Q3/23 Q3/24 Change Net interest income 7,327 569 6,758 All-b
Slide 48: 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