Royal Bank Of Canada · TSX:RY
Royal Bank Of Canada — Q2 2022 Earnings Presentation
51 slides from Royal Bank Of Canada's earnings presentation, May 26, 2022
Slide 1: Royal Bank of Canada Second Quarter Results
Royal Bank of Canada Second Quarter Results May 26, 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 Q2 2022 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: Strategic investments and capital deployment supporting strong client-driven growth
Strategic investments and capital deployment supporting strong client-driven growth (4) Earnings Diversified revenue streams ($BN) Expense growth (YoY) (14)% YoY +6% Net Income $4.3BN Capital YoY I&TS Markets +5% YoY 6.7% $0.6 $2.3 +4.9% YoY YTD +3% YoY P&CB Pre-Provision, (2)% Insurance 0.9% $4.7 P
Slide 5: Strong volumes and client activity in Canadian Banking and Wealth Management
Strong volumes and client activity in Canadian Banking and Wealth Management Canadian Banking average(1) loans Canadian Banking average Wealth Management (non-U.S.) and acceptances ($ billions)(2) deposits ($ billions)(3) AUA(1) and AUM(1) ($ billions) 8% 9% 13% 10% 10% 3% 2-YR CAGR YoY 2-YR CAGR Yo
Slide 6: Canadian Banking utilization rates rising from trough levels
Canadian Banking utilization rates rising from trough levels Canadian commercial loans continued to grow Commercial Banking ($BN) o Although well below pre-pandemic levels, commercial utilization rates have steadily moved higher from Q3/21 trough levels Credit card balances remain below pre-pand
Slide 7: 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 (Q2/22) CET1 15 13 (48) bps 20 3 $1.7BN 40% 15 11 3 1 3 Common share Dividend
Slide 8: Strategic expansion of global Wealth Management footprint
Strategic expansion of global Wealth Management footprint 1 Proposed transaction results in scale in three of the world’s largest asset pools 2 The transaction will create a top 3 wealth manager in the UK & Ireland that will serve as platform for future growth in an attractive and consolidating mark
Slide 9: Q2/2022 Financial Review
Q2/2022 Financial Review Nadine Ahn Chief Financial Officer
Slide 10: Q2/2022: Benefits from PCL releases and strong volume growth
Q2/2022: Benefits from PCL releases and strong volume growth Reported Earnings ($ millions, except for EPS and ROE) Q2/2022 YoY QoQ Net income up 6% YoY; PPPT(2) down 2% YoY Revenue 11,220 (3)% (14)% Revenue Revenue Net of Insurance FV Change(1) 12,353 1% (8)% Net interest income (see slides 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 (31) bps CET1 ratio of 13.2%, down 30 bps QoQ, reflecting: 75 bps (36) bps Strong RWA growth supporting higher volumes, (33) bps net of favourable model updates (16) bps 3 bps +44 bps Repurchase o
Slide 12: Net interest income: Higher volumes driving strong net interest income growth
Net interest income: Higher volumes driving strong net interest income growth Net interest income up 9% YoY primarily from strong volume growth in All-Bank Net Interest Income ($ millions) Canadian Banking and U.S. Wealth Management (including CNB), (1) (2) partly offset by continued margin pressu
Slide 13: 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 $0.7 bil
Slide 14: Non-interest expense: Continued investments in people and technology
Non-interest expense: Continued investments in people and technology Non-Interest Expense (NIE, $ millions) Q2/2022 Highlights % of LTM NIE Q2/21 Expenses 6,379 Non-interest expense up 1% YoY Up 7% YoY excluding variable and share-based compensation (5) Salaries 34% Salaries & Benefits 87 (which
Slide 15: Personal & Commercial Banking: Continued strong client-driven volume growth
Personal & Commercial Banking: Continued strong client-driven volume growth Net Income ($ millions) Q2/2022 Highlights 17% Canadian Banking 13% Net income up 14% YoY 2,234 Pre-provision, pre-tax earnings up 4%(1) YoY 1,908 1,974 Revenue up 4% YoY Net interest income up 5% YoY (see slide 28)
Slide 16: Wealth Management: Higher results driven by net sales and market appreciation
Wealth Management: Higher results driven by net sales and market appreciation Net Income ($ millions)(1) Q2/2022 Highlights 10% Net income up 10% YoY (6)% Pre-provision, pre-tax earnings up 8%(2) YoY 795 Revenue increased 11% YoY 750 Wealth Management (non-U.S.) revenue up 8% YoY 683 Highe
Slide 17: Insurance: Earnings growth on favourable investment experience
Insurance: Earnings growth on favourable investment experience Net Income ($ millions) Q2/2022 Highlights 10% Net income up 10% YoY 5% Higher favourable investment-related experience Revenue down 56% YoY (up 24% net of Insurance FV(1)) 197 206 187 Change in fair value of investments backing
Slide 18: Investor & Treasury Services: Deposit margin expansion offset by higher costs
Investor & Treasury Services: Deposit margin expansion offset by higher costs Net Income ($ millions) Q2/2022 Highlights 1% Net income up 1% YoY 3% Revenue up 3% YoY Higher client deposit revenue largely reflecting improved client 120 118 121 deposit margins Impact of foreign exchange transl
Slide 19: Capital Markets: $1 billion in pre-provision, pre-tax earnings
Capital Markets: $1 billion in pre-provision, pre-tax earnings Net Income ($ millions) Q2/2022 Highlights (26)% Net income down 26% YoY (23)% Pre-provision, pre-tax earnings down 20%(1) YoY 1,071 Revenue down 14% YoY 1,030 Corporate and Investment Banking revenue down 6% YoY 795 Softer dea
Slide 20: Risk Review
Risk Review Graeme Hepworth Chief Risk Officer
Slide 21: Gross Impaired Loans: Stable QoQ at lowest level in 7 years
Gross Impaired Loans: Stable QoQ at lowest level in 7 years Gross Impaired Loans (GIL) ($ millions, bps) Key Drivers of GIL (QoQ) Total GIL was relatively stable (down $4MM or 1 bp QoQ) 40 Canadian Banking 35 GIL of $1,095MM decreased $74MM QoQ 31 28 27 o New formations remained muted, particula
Slide 22: PCL on impaired loans: Remain below pre-pandemic and long-term averages
PCL on impaired loans: Remain below pre-pandemic and long-term averages Total RBC ($ millions, bps) Wealth Management ($ millions, bps) 11 5 9 9 2 0 0 8 (1) 7 $177 $180 $174 $12 $146 $137 $3 $1 $- $(2) Q2/21 Q3/21 Q4/21 Q1/22 Q2/22 Q2/21 Q3/21 Q4/21 Q1/22 Q2/22 Lower provisions QoQ, due primarily
Slide 23: Allowance for Credit Losses: COVID uncertainty subsides but new risks emerge
Allowance for Credit Losses: COVID uncertainty subsides but new risks emerge Movement in Allowance for Credit Losses (ACL) on Loans ($ millions) L&A $763BN - - L&A ACL to L&A $795BN 0.58% ACL to L&A 0.49% (737) 174 (172) 52 181 4,389 PCL on Performing Loans of $(504)MM 3,887 Q1/22 ACL COVID-19 Downs
Slide 24: Canadian residential portfolio: Strong underlying credit quality
Canadian residential portfolio: Strong underlying credit quality Portfolio Metrics Origination Metrics: Pre-Pandemic vs Today Total RESL Investor Variable Rate Maintained a disciplined approach to mortgage underwriting, Metric Portfolio(1) Mortgages Mortgages applying a through-the-cycle view at o
Slide 25: Appendices
Appendices
Slide 26: Diversified business model driving strong value creation through the cycle
Diversified business model driving strong value creation through the cycle Premium growth in Reimagining Deepening client leading Canadian innovation relationships franchises Canadian Banking clients with #1 or #2 in key Canadian Banking product categories(1) transaction accounts, 19% investments, b
Slide 27: ESG: Putting our Purpose into practice
ESG: Putting our Purpose into practice Royal Bank of Canada is a purpose-driven, principles-led organization How we deliver value Building & attracting talent Sustainable finance and Committed to net-zero emissions Preparing youth for the and driving a diverse & responsible investment and accelerati
Slide 28: Net Interest Income: Average rates and balance sheet
Net Interest Income: Average rates and balance sheet Interest-Earning Asset Yields (1) Interest-Bearing Liability Costs(2) 3.24% 3.16% 1.09% 3.03% 3.01% 3.10% Loans 0.96% 0.94% 0.91% 0.89% Term deposits Total earning 2.13% 2.09% 2.14% 1.99% 1.95% assets Securities 0.55% 0.53% Total deposits 1.85% 1.
Slide 29: Net Interest Income: Higher interest rates begin to benefit net interest margin
Net Interest Income: Higher interest rates begin to benefit net interest margin Canadian Banking Net Interest Income ($ millions) Canadian Banking NIM on Average Earning Assets 0.09% (123) 266 (0.03%) 2.45% 3,107 2.41% (0.02%) 2,964 +5% YoY NIM NIM YoY: (10) bps QoQ: +4 bps Q2/21 Net Interest Volume
Slide 30: Non-interest income: Lower Capital Markets revenue from strong results last year
Non-interest income: Lower Capital Markets revenue from strong results last year Non-Interest Income ($ millions) Q2/2022 Highlights Q2/21 Revenue (net of FV change) (1) 7,332 Non-interest income was down 12% YoY; down 3% net of Insurance FV change(1) Market-related (2) Investment, brokerage & cus
Slide 31: Canadian Banking: Strong volume growth
Canadian Banking: Strong volume growth Average Gross Loans & Acceptances(1) ($ billions) Average Deposits(1) ($ billions) 9% 10% 2% 1% 519 523 477 528 537 492 17 18 16 97 100 252 249 91 222 75 75 75 311 338 345 255 268 274 Q2/2021 Q1/2022 Q2/2022 Q2/2021 Q1/2022 Q2/2022 Percentage Change(1) YoY QoQ
Slide 32: 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% 180 bps 11% 58.6% 5,826 8,270 5,695 8,110 57.5% 56.8% 7,873 5,266 Pre- Pre- pandemic pandemic Pre- pandemic 4,491 7,246 52.3% Q4/19 Q2/21
Slide 33: Wealth Management: Strong long-term net sales at RBC GAM
Wealth Management: Strong long-term net sales at RBC GAM RBC Global Asset Management AUM(1) ($ billions) RBC Global Asset Management Net Sales ($ billions) Last 12 months ended Q2/2022 0.3% (6.4)% Total Long-Term Canadian Retail $27.1BN $13.8BN 599 14.7 559 561 98 2.0 93 88 73 7.6 62 63 0.7 5.4 110
Slide 34: U.S. Wealth Management (incl. CNB): Continued strong volume growth
U.S. Wealth Management (incl. CNB): Continued strong volume growth Net Income (US$ millions)(1) Q2/2022 Highlights (US$) 7% Net income up 7%YoY (8%) Pre-provision, pre-tax earnings(3) up 6% YoY Revenue up 12% YoY 184 212 196 Higher average fee-based client assets reflecting net sales and Inc
Slide 35: Capital Markets: Revenue and loan breakdown by geography
Capital Markets: Revenue and loan breakdown by geography Capital Markets Revenue Breakdown by Geography ($ millions) Canada: Down YoY, mainly driven by a decrease in equity and debt 2,718 2,810 origination fees, as well as lending revenues; partially offset by 115 159 higher commodities and fixed
Slide 36: 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 (Q2/22) <620 Q2/22 Avg PCL on Impaired Loans Gross Impaired Loans Avg 3% Loan (bps) (1) (bps) FICO 620- Balances Score Q2/21 Q1/22 Q2/22 Q2/21 Q1/
Slide 37: Canadian residential portfolio: Strong underlying credit quality
Canadian residential portfolio: Strong underlying credit quality Q2/2022 Highlights(1) Canadian Banking RESL Portfolio(1) Strong underlying quality of uninsured real estate secured lending Total $373BN Uninsured $310BN (RESL) portfolio Mortgage $337BN $274BN 54% of uninsured portfolio have a FIC
Slide 38: Allowance for Credit Losses: Return to pre-pandemic levels
Allowance for Credit Losses: Return to pre-pandemic levels Allocation of ACL by Product as a % of Loans & Acceptances Pre- Peak Total Product Pandemic Q2/20 Q3/20 ACL Ratio Q1/21 Q2/21 Q3/21 Q4/21 Q1/22 Q2/22 Q1/20 Q4/20 (1) Residential mortgages 0.12% 0.15% 0.16% 0.15% 0.15% 0.14% 0.12% 0.11% 0.10%
Slide 39: Market risk trading revenue and VaR
Market risk trading revenue and VaR ($ millions) 80 60 40 20 0 -20 -40 -60 -80 -100 Trading Revenue (teb) (1) VaR Despite elevated market volatility during Q2/2022, there were no days with net trading losses Average VaR decreased from last quarter mainly due to the impact of the Q2/20 period of
Slide 40: 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) Q3/20 Q4/20 Q1/21 Q2/21 Q3/21 Q4/21 Q1/22 Q2/22 U.S. WM WAP revenue gains/(losses) 156 7 168 134 51 41 (89) (154) U.S. WM WAP expense (gains)/losses 135 8 157 124 59 42 (71) (122) Pre-Provision, Pre-Tax Earnings Imp
Slide 41: 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 42: Additional Notes (slides 3 to 13)
Additional Notes (slides 3 to 13) 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 46-49. For more information, see slide 50. 2. Adjusted for (i) after-tax effect of amortization of other intangi
Slide 43: Additional Notes (slides 20 to 35)
Additional Notes (slides 20 to 35) Slide 20 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 23 20. Based on $337B
Slide 44: Additional Notes (slides 36 to 37)
Additional Notes (slides 36 to 37) Slide 36 31. Canadian residential mortgage portfolio of $368BN comprised of $337BN of residential mortgages in Canadian Banking, $3BN in other Canadian business platforms, $11BN of mortgages with commercial clients ($8BN insured) and $17BN of residential mortgages
Slide 45: 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 46: Glossary (2/2)
Glossary (2/2) Liquidity coverage ratio (LCR): The Liquidity Coverage Ratio is a Basel III metric that measures the sufficiency of HQLA available to meet net short-term financial obligations over a thirty day period in an acute stress scenario. Net interest margin (NIM) (average earning assets, ne
Slide 47: Reconciliation for non-GAAP financial measures (1/4)
Reconciliation for non-GAAP financial measures (1/4) Calculation of ROTCE $ millions (unless otherwise stated) Q2/21 Q1/22 Q2/22 Net income available to common shareholders 3,938 4,039 4,182 Add: After-tax effect of amortization of other intangibles 46 47 46 Net income available to common shareholde
Slide 48: 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) Q2/21 Q1/22 Q2/22 $ millions (unless otherwise stated) Q2/21 Q1/22 Q2/22 Income Taxes (teb) CS Non-Inte
Slide 49: 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) Q2/21 Q1/22 Q2/22 $ millions (unless otherwise stated) Q2/21 Q1/22 Q2/22 All-Bank (1) U.S. Wealth Management (incl. City National) (US$) Net income 4,015 4,095 4,253 Net
Slide 50: Reconciliation for non-GAAP financial measures (4/4)
Reconciliation for non-GAAP financial measures (4/4) Calculation of Adjusted PPPT $ millions (unless otherwise stated) Q2/21 Q1/22 Q2/22 U.S. Wealth Management (incl. City National) (US$) (1) PPPT 214 257 226 Add: CNB’s amortization of intangibles 36 36 35 Adjusted PPPT 250 293 261 Calculation of Ad
Slide 51: 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