Royal Bank of Canada 2026 Q3 Earnings Call

Please go ahead. Thank you, and good morning, everyone.

Speaking today will be Dave McKay, President and Chief Executive Officer, Katherine Gibson, Chief Financial Officer, and Graeme Hepworth, Chief Risk Officer. Also joining us today for your questions, Erica Nielsen, Group Head Personal Banking, Sean Amato-Gauci, Group Head Commercial Banking, Neil McLaughlin, Group Head Wealth Management and Insurance, and Derek Neldner, Group Head Capital Markets. As noted on slide 2, our comments may contain forward-looking statements, which involve assumptions and have inherent risks and uncertainties. Actual results could differ materially. I would also remind listeners that the bank assesses its performance on a reported and adjusted basis and considers both to be useful in assessing underlying business performance. To give everyone a chance to ask questions, we ask that you limit your questions and then re-queue. With that, I will turn it over to Dave.

Thank you, Asim. Good morning, everyone, and thank you for joining us. Today, we reported very strong results, including record earnings of CAD 6 billion, up 11% year-over-year. Revenues grew by 9% year-over-year as we further increased our revenue productivity while also deploying our balance sheet for client-driven growth. Furthermore, our relatively equal weightings between non-interest revenue and net interest income provides us with an attractive business mix. We also improved our cost efficiency, generating an adjusted operating leverage of 2.4% and adjusted efficiency ratio of 52%. These results reflect three forces working together: diversified business model, strong client activity, and a favorable market backdrop. This was enabled by a disciplined execution of well-articulated strategies, investments in talent and technology, and deployment of our balance sheet.

Our performance this quarter delivered a premium return on equity of nearly 18% and broad-based growth while maintaining a robust 13.5% Common Equity Tier 1 ratio. This combination continues to generate sustainable long-term shareholder value, and this was evidenced by the 10% year-over-year growth in book value per share and 80 basis points of internal capital generation this quarter, or three percentage points over the last 12 months. We deployed 85 basis points of capital in the quarter to grow our business, pay dividends, and buy back our stock. As always, we continue to prioritize the deployment of our balance sheet towards client-driven organic growth. As we mentioned earlier this year, we are looking to continue building the bank of the future. That means growing market share and laying the foundation for new growth verticals and relationships to diversify the business and create future value.

These create a flywheel multiplier effect for driving durable ancillary revenue streams. Our integrated platform, client trust, and market leadership helped us earn the recognition as both Canada's and North America's best bank in Euromoney's 2026 Awards for Excellence. We also continue to return capital to our shareholders. Our total payout ratio increased to 69% this quarter as we grow our dividends towards the midpoint of our medium-term dividend payout ratio objective of 40%-50%. We are also buying back our stock in a disciplined manner as we look to optimize ROE, EPS growth, and compound book value per share growth in a multi-tiered operating environment. Taking a step back to look at the global landscape, market conditions have remained largely constructive, with mega trends continuing to shape critical sectors including natural resources, power infrastructure, strategic defense, healthcare, and the AI ecosystem.

These trends support increased client activity for our Capital Markets and Wealth Management segments. Nonetheless, elevated bond yields across many large economies are creating fiscal challenges and refinancing risks for both governments and corporations. A few comments on the outlook for Canada. The Canadian economy and labor market have performed well, having already absorbed multiple shocks over the past 18 months. Our clients have also continued to spend, and delinquencies remained well controlled. Looking forward, the implementation of the recently announced Section 338 tariffs could impact approximately 40 basis points of Canadian GDP with a larger impact on certain sectors and provinces. While Canada and the U.S. have yet to come to a longer-term solution, we note the average effective tariff rate remains low at approximately 6%, with over 80% of exports remaining duty-free. Furthermore, the government has announced substantial support packages leveraging Canada's significant financial flexibility.

The medium-term opportunity remains more meaningful. We look forward to working with all stakeholders on the development of major nation-building projects, and we are pleased to see advancements, support of Montreal expansion, and shipbuilding contracts. Increased foreign direct investment and new trade relationships adds to our optimism. We believe we are well-positioned to navigate near-term uncertainty while supporting our clients' growth aspirations, given the strength of our balance sheet and diversified business model. With this context, I will now speak to the drivers behind our strong segment results with a focus on four key factors. First, our leading award-winning franchises that are laser-focused on client needs. Second, our strategies that position us to benefit from our significant data scale, structural growth opportunities and client activity. Third, the targeted connectivity of balance sheet scale, client acquisition, and deepening client relationships. And fourth, operating scale that underpins our premium risk-adjusted profitability.

Moving to slide 5, Personal Banking in Canada reported record revenue this quarter and remains the preeminent franchise in the country, with leading market share in personal lending, total deposits and investments. It is encouraging to see higher switch volumes and strong retention driving a significant uptick in sequential mortgage growth to 1.8%, the highest since our acquisition of HSBC Bank Canada. Credit card balances increased 7% from last year in a quarter where Avion Rewards had a record number of new accounts acquired. We also launched new cashback products, as well as our partnership with Hopper, which will bring a world-class travel booking platform and innovative travel offerings to the Canadian market. Also, the aggregate of average retail deposits and mutual fund AUA increased 8%, or CAD 47 billion year over year, with net money inflows positive for the quarter.

Ultimately, this repositioning primarily out of term deposits to fee-based investments benefits both the client and the bank. Commercial banking has leading market share in both loans and deposits across client categories. This segment generated record net income this quarter, underpinning an ROE of 18.6% in an environment of trade uncertainty and geopolitical risks weighing on business activity and client sentiment, particularly in real estate, supply chain, and consumer sectors within Ontario and British Columbia. However, this quarter showed an uptick in sequential loan growth to 1.2%, partly due to growth pockets in agriculture, healthcare, and the public sector, as well as HST rebates in the real estate sector. Deposit growth was very strong at 9% year-over-year, benefiting from increased client coverage and improved sales productivity.

There was also ancillary fee-based benefits to this volume growth as client activity drove double-digit transaction banking revenue growth across FX and cash management fees. RBC Capital Markets is the leading franchise in our home market, a top 10 global investment bank, and was recently named Canada's best investment bank by Euromoney. This segment reported record revenue and net income this quarter, while generating an ROE of 14.5%. Investment banking revenue increased 23% from last year, and our market share over the last 12 months grew to 2.1%, benefiting from higher origination and M&A activity across most regions. Strong lending growth in corporate banking was largely driven by higher investment-grade loans and securitization finance in support of our clients' growth aspirations. This drove increased opportunities to cross-sell into advisory, origination, and sales and trading intermediation activities.

Our average investment banking fee per client and average fee per senior banker continued to increase, demonstrating our monetization of expanded client connectivity as well as continued talent investments and balance sheet productivity overall, driving stronger returns. Global markets revenue was up 11% from last year, underpinned by growing momentum in our equities franchise, where we reported strong market share gains in equity derivatives. As we noted at our Investor Day, growing our equity financing capabilities is a strategic imperative. We grew these volumes 40% compared to last year. We continue to leverage our strong balance sheet, credit rating, and brand to drive these strategies, which have robust returns on equity. Looking ahead, our pipeline remains healthy in a constructive environment, and our ongoing growth initiatives support our client-focused strategies.

Wealth management also reported record revenue and net income this quarter, benefiting from its diversified revenue streams as clients came to us for trusted advice, service, and solutions in an evolving environment. Starting with our wealth advisory businesses, RBC Dominion Securities, which is the largest Canadian wealth management franchise, was recently recognized by its advisors as the highest-rated bank-owned investment dealer in Canada in Investment Executive's Brokerage Report Card for the 20th consecutive year. Our U.S. wealth advisory business, the sixth-largest U.S. wealth advisory firm, recently ranked fourth in J.D. Power's Advisory Satisfaction ranking. Canadian wealth management and U.S. wealth management AUA increased 20% and 14% respectively, benefiting from both market appreciation as well as net new assets this quarter.

RBC Direct Investing, our self-directed platform, benefited from nearly a 40% year-over-year increase in trading volumes, partly due to the successful launch of GoSmart earlier this year. Our wealth management platforms also benefited from higher deposits in our Canadian business and an 18% year-over-year growth in credit and lending balances in our U.S. wealth advisory franchise. Our new advisor hiring pipeline continues to be strong, positioning us well for future revenue growth. As the largest Canadian retail mutual funds franchise, RBC Global Asset Management increased assets under management by 13% year-over-year due to constructive markets and leading mutual fund net sales.