Royal Bank of Canada (NYSE:RY) RBC Capital Markets Financial Institutions Conference March 4, 2025 8:00 AM ET Company Participants Dave McKay - President & Chief Executive Officer Conference Call Participants Derek Neldner - Chief Executive Officer & Group Head of RBC Capital Markets Unidentified Company Representative Good morning, everyone. Welcome to our global FI conference is actually truly global more than ever. And despite everything that we're seeing in the broader marketplace, it's a great time for ...

Royal Bank of Canada (NYSE:RY) Q1 2025 Earnings Conference Call February 27, 2025 8:30 AM ET Company Participants Asim Imran - Senior Vice President, Investor Relations Dave McKay - President & Chief Executive Officer Katherine Gibson - Chief Financial Officer Graeme Hepworth - Chief Risk Officer Derek Neldner - Group Head, Capital Markets Erica Nielsen - Group Head, Personal Banking Conference Call Participants John Aiken - Jefferies Mario Mendonca - TD Securities Ebrahim Poonawala - Bank of America Meny G ...

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. Totals may not add, and percentage changes may not reflect actual changes due to rounding. For an explanation of defined terms used in this presentation, refer to the Glossary on slides 42-43. Our Q1 2025 Report to Shareholders and Supplementary Financial Information are available on our webs ...

Core Viewpoint - Royal Bank reported quarterly earnings of $2.55 per share, exceeding the Zacks Consensus Estimate of $2.28 per share, and showing an increase from $2.11 per share a year ago, indicating a positive earnings surprise of 11.84% [1][2] Financial Performance - The company posted revenues of $11.78 billion for the quarter ended January 2025, surpassing the Zacks Consensus Estimate by 8.70%, compared to $9.98 billion in the same quarter last year [2] - Over the last four quarters, Royal Bank has consistently surpassed consensus EPS estimates and revenue estimates [2] Stock Performance and Outlook - Royal Bank shares have declined approximately 0.9% since the beginning of the year, while the S&P 500 has gained 1.3% [3] - The company's earnings outlook is crucial for investors, as it includes current consensus earnings expectations for upcoming quarters and any recent changes to these expectations [4] Estimate Revisions - The trend for estimate revisions ahead of the earnings release was unfavorable, resulting in a Zacks Rank 4 (Sell) for the stock, indicating expected underperformance in the near future [6] - Current consensus EPS estimate for the upcoming quarter is $2.22 on revenues of $10.68 billion, and for the current fiscal year, it is $9.15 on revenues of $43.99 billion [7] Industry Context - The Zacks Industry Rank for Banks - Foreign is currently in the bottom 48% of over 250 Zacks industries, suggesting that the industry outlook may negatively impact stock performance [8]

Partnership and AI Development - RBC partners with Cohere to co-develop and deploy a secure enterprise generative AI solution called North for Banking, optimized for financial services [1] - The platform integrates RBC's and Cohere's proprietary foundation models and RBC's internal platforms to accelerate genAI development securely and efficiently [1] - The collaboration focuses on developing accurate and verifiable models with enhanced risk and security features for the financial services industry [1] Strategic Vision and AI Impact - RBC aims to redefine banking capabilities with AI playing a crucial role in future success, building on nearly a decade of AI investment and responsible AI principles [2] - North for Banking is an end-to-end AI solution designed to increase workforce productivity and operational efficiency in the financial industry while prioritizing security and data privacy [2] - RBC has already implemented genAI technology in its advice center and Capital Markets business, improving client service and analyst productivity [2] Industry Recognition and Leadership - RBC ranks 1 in Canada and third globally for AI maturity among 50 global financial institutions in the Evident AI Index, excelling in Talent, Innovation, Leadership, and Transparency [2] Company Overview - RBC is a global financial institution with a diversified business model, serving over 18 million clients across Canada, the U S, and 27 other countries [3] - The company employs over 98,000 people and focuses on innovation and delivering exceptional client experiences [3]

Core Insights - The Royal Bank of Canada (RBC) has released its list of the top 30 stock picks for 2025, which considers both company fundamentals and market conditions [1] - Since its inception, the RBC top 30 stocks have achieved an average annual compound return of 13.7%, outperforming the MSCI World Index, which has a return of 11.2% [1] - The 2025 list includes ConocoPhillips, which replaces Canadian Natural Resources, and MSCI, which replaces Intercontinental Exchange [1] - Analysts predict a potential stock price increase of 34% for ConocoPhillips and 12% for MSCI [1]

Group 1 - Royal Bank of Canada is the largest bank in Canada by assets [1] - The company leads in several product categories including residential mortgages, business loans, credit cards, deposits, mutual funds, and capital markets [1]

Financial Data and Key Metrics Changes - The company reported fourth quarter earnings of $4.2 billion, including $265 million from the acquisition of HSBC Canada, with adjusted earnings of $4.4 billion, up 18% year-over-year [5][35] - The common equity Tier 1 (CET1) ratio improved to 13.2%, resulting in $5 billion of excess capital above the 12.5% level [8][36] - The diluted earnings per share was reported at $2.91, with adjusted diluted earnings per share at $3.07, up 16% from last year [35] Business Line Data and Key Metrics Changes - Personal Banking reported net income of $1.6 billion, with a 17% year-over-year increase, and organic net interest income up 9% [45][46] - Commercial Banking net income rose 16% to $774 million, with pre-provision pre-tax earnings up 36% [47] - Wealth Management net income after tax was $969 million, with a significant increase in assets under management (AUM) by 26% year-over-year [28][30] Market Data and Key Metrics Changes - The Canadian Banking segment saw a 19% increase in deposits, with strong growth across core banking, term deposits, and investment accounts [20] - In the U.S., RBC Clear, the cash management business, experienced rising inflows of deposits and a robust pipeline [10] - City National reported net income of US$144 million, with adjusted earnings of US$391 million, indicating improvement in its earnings profile [31] Company Strategy and Development Direction - The acquisition of HSBC Canada is positioned to enhance RBC's offerings for newcomers and commercial clients with international needs, with expected expense synergies of $740 million [17][18] - The company aims to maintain a disciplined approach to capital allocation, focusing on organic growth and dividend increases while being opportunistic with share buybacks [37][76] - RBC is committed to achieving a return on equity (ROE) of over 16%, supported by earnings growth and capital deployment strategies [15][70] Management's Comments on Operating Environment and Future Outlook - The management noted a cautious but optimistic outlook, with expectations of continued growth in the wealth franchise and commercial banking despite macroeconomic challenges [115][116] - The Canadian economy is expected to soften, with rising unemployment and potential impacts from tariffs, but the company remains focused on investing for growth [114][120] - Management anticipates that credit losses will peak in the second half of 2025, with a forecasted credit loss ratio in the mid-30s basis points [65][66] Other Important Information - The company reported a strong operating leverage of 7% across all banks, with provisions for credit loss on impaired loans remaining stable at 26 basis points [6][12] - RBC ranked highest in the 2024 J.D. Power Canada Retail Banking Satisfaction Study, reflecting strong client satisfaction [9] Q&A Session Summary Question: How should shareholders view the 16%-plus ROE target? - Management expressed confidence in achieving the 16%-plus ROE target through various initiatives without further capital deployment [70][71] Question: What is the appetite for share buybacks given the current CET1 ratio? - Management indicated that returning capital to shareholders is important, but the first priority is deploying capital into organic growth opportunities [74][76] Question: What is the outlook for residential mortgage impairments? - Management noted that impairments are expected to increase due to a peak renewal period, but clients are well-positioned to manage through it [82][84] Question: What are the drivers for achieving the 16%-plus ROE target? - Management highlighted cost takeouts from HSBC, operational efficiencies at City National, and capturing deposit flows as key drivers [92][96] Question: How does the company view the impact of tariffs on operations? - Management stated that they are not making major changes to business plans or credit strategy in response to potential tariffs, expecting a resolution [120][121]

Financial Performance Highlights - Royal Bank of Canada's diluted earnings per share (EPS) were $2.91, a 5% year-over-year increase[9], while adjusted diluted EPS grew by 16% to $3.07[9] - The company achieved record Q4 Capital Markets revenue of $2.9 billion[9] - All-bank operating leverage was positive, with a 6.9% increase reported and a 4.3% increase on an adjusted basis[9] - Return on Equity (ROE) was 14.3% reported and 15.1% adjusted[9] Business Segment Performance - Personal Banking saw loan growth of 4% and commercial banking loan growth of 12% (excluding HBCA)[9] - Wealth Management client asset growth was 24% year-over-year[9] - Canadian Banking's loan to deposit (LTD) ratio was 98%[9] Capital Management - The bank's CET1 ratio stood at 13.2%[9] - Share buybacks involved 408,000 shares for $67 million[9] - The dividend increased by $0.06 or 4% quarter-over-quarter[9] HSBC Bank Canada (HBCA) Acquisition - Targeted cost synergies from the HBCA acquisition are $740 million[9], with $224 million achieved year-to-date[9] - Approximately 55% of the stated target cost synergies have been achieved on a run-rate annualized basis[9]

Financial Performance - Total revenue for 2024 reached CAD 57,344 million, an increase of 11.4% from CAD 51,464 million in 2023 [114]. - Net income for 2024 was CAD 16,240 million, reflecting an 11.1% increase from CAD 14,612 million in 2023 [114]. - Adjusted net income for 2024 was CAD 17,430 million, up 10.1% from CAD 15,829 million in 2023 [114]. - Total revenue for the year ended October 31, 2024, was $57.344 billion, an increase from $51.464 billion in 2023, representing a growth of approximately 11% [200]. - Net income available to common shareholders for 2024 was $15.908 billion, compared to $14.369 billion in 2023, reflecting a year-over-year increase of about 10.7% [200]. - The consolidated Return on Equity (ROE) for 2024 was 14.4%, slightly up from 14.3% in 2023 [200]. - The company reported a specified item related to the HSBC Canada transaction and integration costs amounting to $960 million in 2024 [200]. - The efficiency ratio improved to 59.7%, a decrease of 20 bps from the previous year, while the adjusted efficiency ratio decreased to 57.1% [168]. Assets and Capital - Total assets increased by 8.2% to CAD 2,171,582 million from CAD 2,006,531 million in 2023 [114]. - The Common Equity Tier 1 (CET1) ratio decreased to 13.2% from 14.5% in 2023, a decline of 130 basis points [114]. - The liquidity coverage ratio (LCR) was reported at 128%, down from 131% in 2023 [114]. - The average total assets increased to $165.4 billion from $127.2 billion [254]. - The average total earning assets rose to $149.4 billion from $108.8 billion [254]. - The company aims to maintain a strong capital ratio (CET1) of 13.4% [141]. Wealth Management - Wealth Management segment saw a significant increase in net income of 27.1%, reaching CAD 3,422 million compared to CAD 2,693 million in 2023 [114]. - Wealth Management reported total revenue of $18.161 billion for 2024, with adjusted revenue of $18.403 billion after accounting for specified items [205]. - The U.S. Wealth Management segment generated CAD 8,906 million in revenue, an increase of 11.8% from CAD 7,969 million in 2023 [276]. - Canadian Wealth Management revenue increased by $717 million or 14%, largely due to higher fee-based client assets and transactional revenue [296]. - Assets Under Administration (AUA) increased to CAD 4,685,900 million in 2024, a rise of 13.9% from CAD 4,110,200 million in 2023 [283]. - The company reported a total AUA balance of $4,685,900 million at the end of the year, compared to $4,110,200 million in the previous year [288]. Risk Factors - The company emphasizes the importance of considering various risk factors that could cause actual results to differ materially from expectations [111]. - The risk factors include credit, market, liquidity, operational, and compliance risks, among others [111]. - The company provides additional information about risk factors in the risk sections of the 2024 Annual Report, which may be updated by subsequent quarterly reports [113]. Economic Outlook - Canadian GDP is expected to increase by 1.0% in calendar 2024, following a 1.5% increase in calendar 2023 [127]. - U.S. GDP growth is projected to be 2.8% in calendar 2024, after a 2.9% increase in calendar 2023 [128]. - Euro area GDP is expected to rise by 0.7% in calendar 2024, following a 0.5% increase in calendar 2023 [129]. - Economic growth in the Caribbean is expected to moderate, with risks from climate vulnerability and geopolitical conflicts impacting growth prospects [217]. - In the U.S., GDP growth resilience is anticipated to limit downward pressure on labor markets and inflation, leading to fewer interest rate reductions compared to Canada [218]. Transaction and Integration - The company completed the HSBC Canada transaction on March 28, 2024, consolidating its results into various segments [114]. - The acquisition of HSBC Bank Canada was completed for a total consideration of $15.5 billion, enhancing the company's position in commercial banking [133][134]. - The company successfully transitioned HSBC Canada clients onto the RBC Direct Investing platform, enhancing its digital capabilities [271]. Shareholder Returns - The company's total shareholder return (TSR) for the past three years was 14%, outperforming the peer group average of 11% [143]. - The total shareholder return was 57.8%, a significant increase compared to the previous year [144]. - The common share price at the end of the period was $168.39, reflecting a 52.0% increase from the previous year [144].