UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 6-K

 

 

Report of Foreign Private Issuer

Pursuant to Rule 13a-16 or 15d-16

under the Securities Exchange Act of 1934

For the month of May 2021

Commission File Number: 001-13928

 

 

Royal Bank of Canada

(Translation of registrant’s name into English)

 

 

 

200 Bay Street		1 Place Ville Marie
Royal Bank Plaza		Montreal, Quebec
Toronto, Ontario		Canada H3B 3A9
Canada M5J 2J5		Attention: Senior Vice-President,
Attention: Senior Vice-President,		Associate General Counsel
Associate General Counsel		& Secretary
& Secretary

(Address of principal executive offices)

 

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F  ☐            Form 40-F  ☒

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):  ☐

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):  ☐

This report on Form 6-K, management’s discussion and analysis and unaudited interim condensed consolidated financial statements included in exhibit 99.2, and exhibit 99.3 hereto are incorporated by reference as exhibits into the Registration Statement on Form F-3 (File No. 333-227001) and the Registration Statements on Form S-8 (File Nos. 333-12036, 333-12050, 333-13052, 333-13112, 333-117922, 333-207754, 333-207750, 333-207748 and 333-252536).

 

 

 

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

				ROYAL BANK OF CANADA
Date: May 27, 2021				By:		/s/ Rod Bolger
				Name:		Rod Bolger
				Title:		Chief Financial Officer

EXHIBIT INDEX

 

Exhibit		Description of Exhibit
99.1		Second Quarter 2021 Earnings Release
99.2		Second Quarter 2021 Report to Shareholders (which includes management’s discussion and analysis and unaudited interim condensed consolidated financial statements)
99.3		Industry Guide 3 – Return on Equity and Assets Ratios
		Rule 13a-14(a)/15d-14(a) Certifications
31.1		- Certification of the Registrant’s Chief Executive Officer
31.2		- Certification of the Registrant’s Chief Financial Officer
		Interactive Data Files
101.INS		- XBRL Instance Document
101.SCH		- XBRL Taxonomy Extension Schema Document
101.CAL		- XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB		- XBRL Taxonomy Extension Label Linkbase Document
101.PRE		- XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF		- XBRL Taxonomy Extension Definitions Linkbase Document

		Exhibit 99.1

 

SECOND QUARTER 2021

EARNINGS RELEASE

 

ROYAL BANK OF CANADA REPORTS SECOND QUARTER 2021 RESULTS

 

All amounts are in Canadian dollars and are based on financial statements presented in compliance with International Accounting Standard 34 Interim Financial Reporting, unless otherwise noted. Our Q2 2021 Report to Shareholders and Supplementary Financial Information are available at: http://www.rbc.com/investorrelations.

 

Net Income    $4.0 Billion    Up $2.5 Billion YoY

Diluted EPS1    $2.76    Up from $1.00 in  Q2 2020

PCL2    $(96) Million    PCL on loans  ratio down  12 bps3 QoQ

ROE4    19.4%    Up from 7.3% last  year

CET1 Ratio    12.8%    Well above regulatory  requirements

 

TORONTO, May 27, 2021 – Royal Bank of Canada (RY on TSX and NYSE) today reported net income of $4.0 billion for the quarter ended April 30, 2021, up $2.5 billion from the prior year. Diluted EPS was $2.76, up significantly over the same period. Our results this quarter included releases of provisions on performing loans of $260 million compared to elevated provisions on performing loans of $2.1 billion in the prior year.

 

Pre-provision, pre-tax earnings⁵ of $5.1 billion were up 11% from a year ago, mainly reflecting constructive markets and strong volume growth, partially offset by the impact of low interest rates, and higher expenses largely due to higher variable compensation on improved results and higher stock-based compensation. Personal & Commercial Banking and Capital Markets generated solid earnings growth, with Capital Markets reporting record earnings this quarter. Higher results in Wealth Management and Insurance also contributed to the increase. These factors were partially offset by lower results in Investor & Treasury Services.

 

Compared to last quarter, net income was up $168 million with higher results in Personal & Commercial Banking, Wealth Management and Capital Markets. These results were partially offset by lower earnings in Insurance and Investor & Treasury Services.

 

The PCL on loans ratio of (5) bps was down 12 bps from last quarter primarily due to lower provisions in Personal & Commercial Banking and Capital Markets, partially offset by higher recoveries in Wealth Management in the prior quarter. The PCL on impaired loans ratio of 11 bps decreased 2 bps from last quarter.

 

Our capital position remained robust, with a Common Equity Tier 1 (CET1) ratio of 12.8% supporting strong client-driven volume growth and $1.5 billion in common share dividends paid. We also had a strong average Liquidity Coverage Ratio (LCR) of 133%.

 

“I’m tremendously proud of how our employees continue to demonstrate resilience, and bring our Purpose to life to deliver for our clients, communities and shareholders. The strong momentum we’ve achieved in the first half of 2021 reflects our focused strategy to deliver exceptional experiences and create more value for clients. RBC brings this to life through the combination of our powerful scale, strong market share growth, prudent risk management, and significant multi-year investments in talent and technology. While there is reason for optimism as recovery continues to take hold, we know the pandemic’s path forward still poses challenges. We remain firmly committed to helping our clients thrive and communities prosper, and to being an enabler of a more inclusive and sustainable future.” – Dave McKay, RBC President and Chief Executive Officer

 

Q2 2021 Compared to Q2 2020		•  Net income of $4,015 million •  Diluted EPS of $2.76 •  ROE of 19.4% •  CET1 ratio of 12.8%		h   171% h   176% h   1,210 bps h   110 bps
Q2 2021 Compared to Q1 2021		•  Net income of $4,015 million •  Diluted EPS of $2.76 •  ROE of 19.4% •  CET1 ratio of 12.8%		h   4% h   4% h   80 bps h   30 bps
YTD 2021 Compared to YTD 2020		•  Net income of $7,862 million •  Diluted EPS of $5.42 •  ROE of 19.0%		h   58% h   59% h   650 bps

 

1	Earnings per share (EPS).

2	Provision for credit losses (PCL).

3	Basis points (bps).

4	Return on equity (ROE). This measure does not have a standardized meaning under GAAP. For further information, refer to the Key Performance and non-GAAP measures section on page 3 of this Earnings Release.

5

Pre-provision, pre-tax earnings is calculated as income before income taxes (Q2 2021: $5,186 million; Q2 2020: $1,738 million) plus PCL (Q2 2021: -$96 million; Q2 2020: $2,830 million). This is a non-GAAP measure. For further information, refer to the Key Performance and non-GAAP measures section on page 3 of this Earnings Release.

 

1

Personal & Commercial Banking

 

Net income of $1,908 million increased $1,376 million from a year ago, primarily attributable to lower PCL. Pre-provision, pre-tax earnings⁶ of $2,612 million were up 6% from a year ago, mainly reflecting strong average volume growth of 11% (+16% in deposits and +6% in loans), higher card service revenue, and higher mutual fund distribution fees in Canadian Banking, partially offset by lower spreads.

 

Compared to last quarter, net income increased $115 million or 6%, primarily due to lower PCL resulting from higher releases of provisions on performing loans in the current quarter. Average volume growth of 1% in Canadian Banking and lower staff-related costs also contributed to the increase. These factors were partially offset by the impact of three less days in the current quarter.

 

Wealth Management

 

Net income of $691 million increased $267 million or 63% from a year ago, primarily due to average loan growth as well as higher average fee-based client assets, reflecting market appreciation and net sales, net of the associated variable compensation. Lower PCL and higher transactional revenue also contributed to the increase. These factors were partially offset by the impact of lower interest rates.

 

Compared to last quarter, net income increased $42 million or 6%, largely attributable to higher average fee-based client assets, net of the associated variable compensation, lower staff-related costs and higher transactional revenue. These factors were partially offset by unfavourable changes in the fair value of seed capital investments.

 

Insurance

 

Net income of $187 million increased $7 million or 4% from a year ago, mainly due to lower claims costs and the favourable impact of actuarial adjustments. These factors were partially offset by the impact of realized investment gains in the prior year and lower new longevity reinsurance contracts.

 

Compared to last quarter, net income decreased $14 million or 7%, largely due to lower new longevity reinsurance contracts.

 

Investor & Treasury Services

 

Net income of $120 million decreased $106 million or 47% from a year ago, primarily due to lower funding and liquidity revenue as the prior year benefitted from the impact of interest rate movements and higher gains from the disposition of investment securities. Lower client deposit revenue, largely driven by lower interest rates, also contributed to the decrease.

 

Compared to last quarter, net income decreased $3 million or 2%, mainly driven by lower funding and liquidity revenue as the prior quarter benefitted from money market opportunities, partially offset by the impact of annual regulatory costs in the prior quarter.

 

Capital Markets

 

Net income of $1,071 million increased $966 million from a year ago, primarily driven by lower PCL, as well as record revenue in Investment Banking. These factors were partially offset by higher taxes reflecting an increase in the proportion of earnings from higher tax rate jurisdictions, and higher compensation on improved results.

 

Compared to last quarter, net income remained relatively flat as lower PCL and higher debt and equity origination across all regions were offset by lower fixed income trading revenue across all regions driven by reduced client activity, and higher taxes as the prior quarter reflected favourable tax adjustments.

 

Capital, Liquidity and Credit Quality

 

Capital – As at April 30, 2021, our CET1 ratio was 12.8%, up 30 bps from last quarter, mainly reflecting internal capital generation and the impact of higher discount rates in determining our pension and other post-employment benefit obligations, partially offset by risk-weighted assets growth (excluding FX).

 

In Q3 2021, we expect to reflect model parameter updates to increase the threshold for determining small business clients subject to retail capital treatment, as permitted under regulatory capital requirements, and to recalibrate probability of default parameters for the remaining borrowers in our wholesale portfolio. We expect the implementation of these parameter updates to increase our CET1 ratio

 

6

Pre-provision, pre-tax earnings is calculated as income before income taxes (Q2 2021: $2,577 million; Q2 2020: $747 million) plus PCL (Q2 2021: $35 million; Q2 2020: $1,706 million). This is a non-GAAP measure. For further information, refer to the Key Performance and non-GAAP measures section on page 3 of this Earnings Release.

 

2

by approximately 70-80 bps in Q3 2021. This impact will be partially offset by the increase in stressed Value-at-Risk (SVaR) multipliers effective May 1, 2021, which is expected to decrease our CET1 ratio by approximately 10-15 bps. Both of these estimates are subject to change based on portfolio size or portfolio mix held.

 

Liquidity – For the quarter ended April 30, 2021, the average LCR was 133%, which translates into a surplus of approximately $89.6 billion, compared to 141% and a surplus of approximately $104.3 billion in the prior quarter. Average LCR decreased from the prior quarter primarily due to lower funding levels as the bank continues to optimize its liquidity position.

 

Net Stable Funding Ratio (NSFR) as at April 30, 2021 was 118%, which translates into a surplus of approximately $119.0 billion, compared to 118% and a surplus of approximately $122.2 billion in the prior quarter. NSFR has remained stable over the quarter as lower wholesale funding was largely offset by continued growth in client deposits.

 

Credit Quality

 

Q2 2021 vs. Q2 2020

 

Total PCL was $(96) million. PCL on loans of $(83) million decreased $2,817 million from a year ago, primarily due to lower provisions in Personal & Commercial Banking, Capital Markets and Wealth Management. The PCL on loans ratio was (5) bps. The PCL on impaired loans ratio was 11 bps.

 

PCL on performing loans was $(260) million compared to $2,121 million in the prior year, as the prior year reflected elevated provisions due to the impact of the onset of the COVID-19 pandemic as compared to releases in the current quarter. While uncertainty over the impact of the COVID-19 pandemic remains, the releases were driven by improvements in our macroeconomic and credit quality outlook.

 

PCL on impaired loans of $177 million decreased $436 million, mainly due to recoveries in Capital Markets in the current quarter as compared to provisions taken in the prior year. Lower provisions in Personal & Commercial Banking and Wealth Management also contributed to the decrease.

 

Q2 2021 vs. Q1 2021

 

PCL on loans of $(83) million decreased $204 million from last quarter, primarily due to lower provisions in Personal & Commercial Banking and Capital Markets, partially offset by higher recoveries in Wealth Management in the prior quarter. The PCL on loans ratio of (5) bps decreased 12 bps.

 

PCL on performing loans of $(260) million decreased $163 million, primarily reflecting higher releases of provisions in Personal & Commercial Banking and Capital Markets. While uncertainty over the impact of the COVID-19 pandemic remains, the releases were driven by improvements in our macroeconomic and credit quality outlook.

 

PCL on impaired loans of $177 million decreased $41 million, primarily due to recoveries in Capital Markets as compared to provisions in the last quarter and lower provisions in Personal & Commercial Banking, partially offset by recoveries in Wealth Management in the prior quarter.

 

ACL

 

The ratio of ACL on loans and acceptances to total loans and acceptances was 79 bps, down 6 bps from last quarter and 5 bps from last year.

 

Digitally Enabled Relationship Bank

 

Digital usage continued to grow with 90-day Active Mobile users increasing 9% from a year ago to 5.3 million, and mobile sessions up 22% from a year ago to 111.6 million. Digital adoption increased to 56.8%, and self-serve transactions increased 150 bps from last year to 93.5%.

 

Key Performance and Non-GAAP Measures

 

We measure and evaluate the performance of our consolidated operations and each business segment using a number of financial metrics, such as net income, ROE and non-GAAP measures, including pre-provision, pre-tax earnings. ROE and pre-provision, pre-tax earnings do not have any standardized meanings under GAAP. We use ROE as a measure of return on total capital invested in our business. We believe that certain non-GAAP measures are more reflective of our ongoing operating results and provide readers with a better understanding of management’s perspective on our performance.

 

Additional information about ROE and other key performance and non-GAAP measures can be found under the Key performance and non-GAAP measures section of our Q2 2021 Report to Shareholders.

 

3

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 securities legislation. We may make forward-looking statements in this Earnings Release, in other filings with Canadian regulators or the SEC, in other reports to shareholders, and in other communications, including statements by our President and Chief Executive Officer. Forward-looking statements in this document include, but are not limited to, statements relating to our financial performance objectives, vision and strategic goals, expectations regarding our CET1 ratio, and the potential continued impacts of the coronavirus (COVID-19) pandemic on our business operations, and financial results, condition and objectives and on the global economy and financial market conditions. The forward-looking information contained in this Earnings Release is presented for the purpose of assisting the holders of our securities and financial analysts in understanding our financial position and results of operations as at and for the periods ended on the dates presented, as well as our financial performance objectives, vision and strategic goals, and may not be appropriate for other purposes. Forward-looking statements are typically identified by words such as “believe”, “expect”, “foresee”, “forecast”, “anticipate”, “intend”, “estimate”, “goal”, “plan” and “project” and similar expressions of future or conditional verbs such as “will”, “may”, “should”, “could” or “would”.

By their very nature, forward-looking statements require us to make assumptions and are subject to inherent risks and uncertainties, which give rise to the possibility that our predictions, forecasts, projections, expectations or conclusions will not prove to be accurate, that our assumptions may not be correct and that our financial performance objectives, vision and strategic goals will not be achieved. We caution readers not to place undue reliance on these statements as a number of risk factors could cause our actual results to differ materially from the expectations expressed in such forward-looking statements. These factors – many of which are beyond our control and the effects of which can be difficult to predict – include: credit, market, liquidity and funding, insurance, operational, regulatory compliance (which could lead to us being subject to various legal and regulatory proceedings, the potential outcome of which could include regulatory restrictions, penalties and fines), strategic, reputation, legal and regulatory environment, competitive and systemic risks and other risks discussed in the risk sections and Significant developments: COVID-19 section of our annual report for the fiscal year ended October 31, 2020 (the 2020 Annual Report) and the Risk management and Impact of COVID-19 pandemic sections of our Q2 2021 Report to Shareholders; including business and economic conditions, information technology and cyber risks, Canadian housing and household indebtedness, geopolitical uncertainty, privacy, data and third party related risks, regulatory changes, environmental and social risk (including climate change), and digital disruption and innovation, culture and conduct, the business and economic conditions in the geographic regions in which we operate, the effects of changes in government fiscal, monetary and other policies, tax risk and transparency, and the emergence of widespread health emergencies or public health crises such as pandemics and epidemics, including the COVID-19 pandemic and its impact on the global economy and financial market conditions and our business operations, and financial results, condition and objectives.

We caution that the foregoing list of risk factors is not exhaustive and other factors could also adversely affect our results. When relying on our forward-looking statements to make decisions with respect to us, investors and others should carefully consider the foregoing factors and other uncertainties and potential events. Material economic assumptions underlying the forward-looking statements contained in this Earnings Release are set out in the Economic, market and regulatory review and outlook section and for each business segment under the Strategic priorities and Outlook headings in our 2020 Annual Report, as updated by the Economic, market and regulatory review and outlook and Impact of COVID-19 pandemic sections of our Q2 2021 Report to Shareholders. Except as required by law, we do not undertake to update any forward-looking statement, whether written or oral, that may be made from time to time by us or on our behalf.

Additional information about these and other factors can be found in the risk sections and Significant developments: COVID-19 section of our 2020 Annual Report and the Risk management and Impact of COVID-19 pandemic sections of our Q2 2021 Report to Shareholders.

 

Information contained in or otherwise accessible through the websites mentioned does not form part of this Earnings Release. All references in this Earnings Release to websites are inactive textual references and are for your information only.

 

ACCESS TO QUARTERLY RESULTS MATERIALS

Interested investors, the media and others may review this quarterly Earnings Release, quarterly results slides, supplementary financial information and our Q2 2021 Report to Shareholders at rbc.com/investorrelations.

 

Quarterly conference call and webcast presentation

Our quarterly conference call is scheduled for May 27, 2021 at 8:30 a.m. (EST) and will feature a presentation about our second quarter results by RBC executives. It will be followed by a question and answer period with analysts. Interested parties can access the call live on a listen-only basis at rbc.com/investorrelations/quarterly-financial-statements.html or by telephone (416-340-2217, 866-696-5910, passcode 4691510#). Please call between 8:20 a.m. and 8:25 a.m. (EST).

 

Management’s comments on results will be posted on our website shortly following the call. A recording will be available by 5:00 p.m. (EST) from May 27, 2021 until August 24, 2021 at rbc.com/investorrelations/quarterly-financial-statements.html or by telephone (905-694-9451 or 800-408-3053, passcode 8026879#).

 

Media Relations Contact

Gillian McArdle, Senior Director, Communications, Group Risk Management and Finance, gillian.mcardle@rbccm.com, 416-842-4231

 

Investor Relations Contacts

Nadine Ahn, SVP Wholesale Finance and Investor Relations, nadine.ahn@rbccm.com, 416-974-3355

Asim Imran, Vice President, Investor Relations, asim.imran@rbc.com, 416-955-7804

Marco Giurleo, Senior Director, Investor Relations, marco.giurleo@rbc.com, 416-955-2546

 

ABOUT RBC

Royal Bank of Canada is a global financial institution with a purpose-driven, principles-led approach to delivering leading performance. Our success comes from the 86,000+ employees who leverage their imaginations and insights to bring our vision, values and strategy to life so we can help our clients thrive and communities prosper. As Canada’s biggest bank, and one of the largest in the world based on market capitalization, we have a diversified business model with a focus on innovation and providing exceptional experiences to our 17 million clients in Canada, the U.S. and 27 other countries. Learn more at rbc.com.

 

We are proud to support a broad range of community initiatives through donations, community investments and employee volunteer activities. See how at rbc.com/community-social-impact.

 

Trademarks used in this earnings release include the LION & GLOBE Symbol, ROYAL BANK OF CANADA and RBC which are trademarks of Royal Bank of Canada used by Royal Bank of Canada and/or by its subsidiaries under license. All other trademarks mentioned in this earnings release, which are not the property of Royal Bank of Canada, are owned by their respective holders.

 

4

Exhibit 99.2

 

Royal Bank of Canada second quarter 2021 results

All amounts are in Canadian dollars and are based on financial statements presented in compliance with International Accounting Standard 34 Interim Financial Reporting, unless otherwise noted.

 

Net Income $4.0 Billion Up $2.5 Billion YoY

Diluted EPS(1) $2.76 Up from $1.00 in Q2 2020

PCL(2) $(96) Million PCL on loans ratio down 12 bps(3) QoQ

ROE(4) 19.4% Up from 7.3% last year

CET1 Ratio 12.8% Well above regulatory requirements

TORONTO, May 27, 2021 — Royal Bank of Canada (RY on TSX and NYSE) today reported net income of $4.0 billion for the quarter ended April 30, 2021, up $2.5 billion from the prior year. Diluted EPS was $2.76, up significantly over the same period. Our results this quarter included releases of provisions on performing loans of $260 million compared to elevated provisions on performing loans of $2.1 billion in the prior year.

Pre-provision, pre-tax earnings⁵ of $5.1 billion were up 11% from a year ago, mainly reflecting constructive markets and strong volume growth, partially offset by the impact of low interest rates, and higher expenses largely due to higher variable compensation on improved results and higher stock-based compensation. Personal & Commercial Banking and Capital Markets generated solid earnings growth, with Capital Markets reporting record earnings this quarter. Higher results in Wealth Management and Insurance also contributed to the increase. These factors were partially offset by lower results in Investor & Treasury Services.

Compared to last quarter, net income was up $168 million with higher results in Personal & Commercial Banking, Wealth Management and Capital Markets. These results were partially offset by lower earnings in Insurance and Investor & Treasury Services.

The PCL on loans ratio of (5) bps was down 12 bps from last quarter primarily due to lower provisions in Personal & Commercial Banking and Capital Markets, partially offset by higher recoveries in Wealth Management in the prior quarter. The PCL on impaired loans ratio of 11 bps decreased 2 bps from last quarter.

Our capital position remained robust, with a Common Equity Tier 1 (CET1) ratio of 12.8% supporting strong client-driven volume growth and $1.5 billion in common share dividends paid. We also had a strong average Liquidity Coverage Ratio (LCR) of 133%.

 

“I’m tremendously proud of how our employees continue to demonstrate resilience, and bring our Purpose to life to deliver for our clients, communities and shareholders. The strong momentum we’ve achieved in the first half of 2021 reflects our focused strategy to deliver exceptional experiences and create more value for clients. RBC brings this to life through the combination of our powerful scale, strong market share growth, prudent risk management, and significant multi-year investments in talent and technology. While there is reason for optimism as recovery continues to take hold, we know the pandemic’s path forward still poses challenges. We remain firmly committed to helping our clients thrive and communities prosper, and to being an enabler of a more inclusive and sustainable future.”   - Dave McKay, RBC President and Chief Executive Officer

 

Q2 2021 Compared to Q2 2020				•  Net income of $4,015 million •  Diluted EPS of $2.76 •  ROE of 19.4% •  CET1 ratio of 12.8%		h  171% h  176% h  1,210 bps h  110 bps
Q2 2021 Compared to Q1 2021				•  Net income of $4,015 million •  Diluted EPS of $2.76 •  ROE of 19.4% •  CET1 ratio of 12.8%		h  4% h  4% h  80 bps h  30 bps
YTD 2021 Compared to YTD 2020				•  Net income of $7,862 million •  Diluted EPS of $5.42 •  ROE of 19.0%		h  58% h  59% h  650 bps

 

(1)	Earnings per share (EPS).

(2)	Provision for credit losses (PCL).

(3)	Basis points (bps).

(4)	Return on equity (ROE). This measure does not have a standardized meaning under GAAP. For further information, refer to the Key performance and non-GAAP measures section of this Q2 2021 Report to Shareholders.

(5)	Pre-provision, pre-tax earnings is calculated as income before income taxes plus PCL. This is a non-GAAP measure. For further information, refer to the Key Performance and Non-GAAP Measures section of our Q2 2021 Earnings Release.

 

 

Table of contents

 

2         Royal Bank of Canada        Second Quarter 2021

 

Management’s Discussion and Analysis

Management’s Discussion and Analysis (MD&A) is provided to enable a reader to assess our results of operations and financial condition for the three and six month periods ended or as at April 30, 2021, compared to the corresponding periods in the prior fiscal year and the three month period ended January 31, 2021. This MD&A should be read in conjunction with our unaudited Interim Condensed Consolidated Financial Statements for the quarter ended April 30, 2021 (Condensed Financial Statements) and related notes and our 2020 Annual Report. This MD&A is dated May 26, 2021. All amounts are in Canadian dollars, unless otherwise specified, and are based on financial statements presented in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB), unless otherwise noted.

Additional information about us, including our 2020 Annual Information Form, is available free of charge on our website at rbc.com/investorrelations, on the Canadian Securities Administrators’ website at sedar.com and on the EDGAR section of the United States (U.S.) Securities and Exchange Commission’s (SEC) website at sec.gov.

Information contained in or otherwise accessible through the websites mentioned herein does not form part of this report. All references in this report to websites are inactive textual references and are for your information only.

 

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 securities legislation. We may make forward-looking statements in this Q2 2021 Report to Shareholders, in other filings with Canadian regulators or the SEC, in other reports to shareholders, and in other communications. Forward-looking statements in this document include, but are not limited to, statements relating to our financial performance objectives, vision and strategic goals, the Economic, market, and regulatory review and outlook for Canadian, U.S., European and global economies, the regulatory environment in which we operate, and the risk environment including our credit risk, liquidity and funding risk, expectations with respect to our CET1 ratio, and the potential continued impacts of the coronavirus (COVID-19) pandemic on our business operations, financial results, condition and objectives and on the global economy and financial market conditions and includes our President and Chief Executive Officer’s statements. The forward-looking information contained in this document is presented for the purpose of assisting the holders of our securities and financial analysts in understanding our financial position and results of operations as at and for the periods ended on the dates presented, as well as our financial performance objectives, vision and strategic goals, and may not be appropriate for other purposes. Forward-looking statements are typically identified by words such as “believe”, “expect”, “foresee”, “forecast”, “anticipate”, “intend”, “estimate”, “goal”, “plan” and “project” and similar expressions of future or conditional verbs such as “will”, “may”, “should”, “could” or “would”.

By their very nature, forward-looking statements require us to make assumptions and are subject to inherent risks and uncertainties, which give rise to the possibility that our predictions, forecasts, projections, expectations or conclusions will not prove to be accurate, that our assumptions may not be correct and that our financial performance objectives, vision and strategic goals will not be achieved. We caution readers not to place undue reliance on these statements as a number of risk factors could cause our actual results to differ materially from the expectations expressed in such forward-looking statements. These factors – many of which are beyond our control and the effects of which can be difficult to predict – include: credit, market, liquidity and funding, insurance, operational, regulatory compliance (which could lead to us being subject to various legal and regulatory proceedings, the potential outcome of which could include regulatory restrictions, penalties and fines), strategic, reputation, legal and regulatory environment, competitive and systemic risks and other risks discussed in the risk sections and Significant developments: COVID-19 section of our 2020 Annual Report and the Risk management and Impact of COVID-19 pandemic sections of this Q2 2021 Report to Shareholders; including business and economic conditions, information technology and cyber risks, Canadian housing and household indebtedness, geopolitical uncertainty, privacy, data and third-party related risks, regulatory changes, environmental and social risk (including climate change), and digital disruption and innovation, culture and conduct, the business and economic conditions in the geographic regions in which we operate, the effects of changes in government fiscal, monetary and other policies, tax risk and transparency, and the emergence of widespread health emergencies or public health crises such as pandemics and epidemics, including the COVID-19 pandemic and its impact on the global economy and financial market conditions and our business operations, and financial results, condition and objectives.

We caution that the foregoing list of risk factors is not exhaustive and other factors could also adversely affect our results. When relying on our forward-looking statements to make decisions with respect to us, investors and others should carefully consider the foregoing factors and other uncertainties and potential events. Material economic assumptions underlying the forward-looking statements contained in this Q2 2021 Report to Shareholders are set out in the Economic, market and regulatory review and outlook section and for each business segment under the Strategic priorities and Outlook headings in our 2020 Annual Report, as updated by the Economic, market and regulatory review and outlook and Impact of COVID-19 pandemic sections of this Q2 2021 Report to Shareholders. Except as required by law, we do not undertake to update any forward-looking statement, whether written or oral, that may be made from time to time by us or on our behalf.

Additional information about these and other factors can be found in the risk sections and Significant developments: COVID-19 section of our 2020 Annual Report and the Risk management and Impact of COVID-19 pandemic sections of this Q2 2021 Report to Shareholders.

 

Overview and outlook

 

About Royal Bank of Canada

Royal Bank of Canada is a global financial institution with a purpose-driven, principles-led approach to delivering leading performance. Our success comes from the 86,000+ employees who leverage their imaginations and insights to bring our vision, values and strategy to life so we can help our clients thrive and communities prosper. As Canada’s biggest bank, and one of the largest in the world based on market capitalization, we have a diversified business model with a focus on innovation and providing exceptional experiences to our 17 million clients in Canada, the U.S. and 27 other countries. Learn more at rbc.com.

Royal Bank of Canada         Second Quarter 2021         3

 

Selected financial and other highlights

 

		As at or for the three months ended														As at or for the six months ended
(Millions of Canadian dollars, except per share, number of and percentage amounts)		April 30 2021				January 31 2021				April 30 2020						April 30 2021				April 30 2020
Total revenue		$	11,618			$	12,943			$	10,333					$	24,561			$	23,169
Provision for credit losses (PCL)			(96	)			110				2,830						14				3,249
Insurance policyholder benefits, claims and acquisition expense (PBCAE)			149				1,406				(177	)					1,555				1,437
Non-interest expense			6,379				6,542				5,942						12,921				12,320
Income before income taxes			5,186				4,885				1,738						10,071				6,163
Net income		$	4,015			$	3,847			$	1,481					$	7,862			$	4,990
Segments – net income
Personal & Commercial Banking		$	1,908			$	1,793			$	532					$	3,701			$	2,218
Wealth Management			691				649				424						1,340				1,047
Insurance			187				201				180						388				361
Investor & Treasury Services			120				123				226						243				369
Capital Markets			1,071				1,067				105						2,138				987
Corporate Support			38				14				14						52				8
Net income		$	4,015			$	3,847			$	1,481					$	7,862			$	4,990
Selected information
Earnings per share (EPS) – basic		$	2.76			$	2.66			$	1.00					$	5.42			$	3.41
– diluted			2.76				2.66				1.00						5.42				3.40
Return on common equity (ROE) (1), (2)			19.4%				18.6%				7.3%						19.0%				12.5%
Average common equity (1)		$	83,450			$	80,750			$	79,100					$	82,050			$	78,450
Net interest margin (NIM) – on average earning assets, net			1.50%				1.50%				1.61%						1.50%				1.60%
PCL on loans as a % of average net loans and acceptances			(0.05)%				0.07%				1.65%						0.01%				0.96%
PCL on performing loans as a % of average net loans and acceptances			(0.16)%				(0.06)%				1.28%						(0.11)%				0.67%
PCL on impaired loans as a % of average net loans and acceptances			0.11%				0.13%				0.37%						0.12%				0.29%
Gross impaired loans (GIL) as a % of loans and acceptances			0.40%				0.41%				0.51%						0.40%				0.51%
Liquidity coverage ratio (LCR) (3)			133%				141%				130%						133%				130%
Net stable funding ratio (NSFR) (4)			118%				118%				n.a.						118%				n.a.
Capital ratios and Leverage ratio
Common Equity Tier 1 (CET1) ratio			12.8%				12.5%				11.7%						12.8%				11.7%
Tier 1 capital ratio			14.1%				13.8%				12.7%						14.1%				12.7%
Total capital ratio			15.8%				15.5%				14.6%						15.8%				14.6%
Leverage ratio			5.0%				4.8%				4.5%						5.0%				4.5%
Selected balance sheet and other information (5)
Total assets		$	1,615,316			$	1,671,151			$	1,675,682					$	1,615,316			$	1,675,682
Securities, net of applicable allowance			255,152				287,482				269,941						255,152				269,941
Loans, net of allowance for loan losses			673,511				672,563				673,448						673,511				673,448
Derivative related assets			97,236				110,917				140,807						97,236				140,807
Deposits			1,033,323				1,054,597				1,009,447						1,033,323				1,009,447
Common equity			85,544				82,934				79,236						85,544				79,236
Total risk-weighted assets			555,607				557,519				558,412						555,607				558,412
Assets under management (AUM)			929,800				897,400				789,000						929,800				789,000
Assets under administration (AUA) (6)			6,111,000				6,133,600				5,381,800						6,111,000				5,381,800
Common share information
Shares outstanding (000s) – average basic			1,424,889				1,423,350				1,422,754						1,424,107				1,425,203
– average diluted			1,427,107				1,425,280				1,427,871						1,426,183				1,430,468
– end of period			1,424,727				1,424,083				1,422,566						1,424,727				1,422,566
Dividends declared per common share		$	1.08			$	1.08			$	1.08					$	2.16			$	2.13
Dividend yield (7)			3.9%				4.3%				4.7%						4.1%				4.7%
Dividend payout ratio			39%				41%				108%						40%				62%
Common share price (RY on TSX) (8)		$	117.31			$	103.50			$	85.63					$	117.31			$	85.63
Market capitalization (TSX) (8)			167,135				147,393				121,814						167,135				121,814
Business information (number of)
Employees (full-time equivalent) (FTE)			83,709				84,030				82,499						83,709				82,499
Bank branches			1,307				1,328				1,329						1,307				1,329
Automated teller machines (ATMs)			4,469				4,523				4,564						4,469				4,564
Period average US$ equivalent of C$1.00 (9)			0.798				0.779				0.725						0.789				0.742
Period-end US$ equivalent of C$1.00			0.813				0.782				0.718						0.813				0.718

 

(1)

Average amounts are calculated using methods intended to approximate the average of the daily balances for the period. This includes average common equity used in the calculation of ROE. For further details, refer to the Key performance and non-GAAP measures section.

(2)

This measure may not have a standardized meaning under generally accepted accounting principles (GAAP) and may not be comparable to similar measures disclosed by other financial institutions. For further details, refer to the Key performance and non-GAAP measures section.

(3)

LCR is the average for the three months ended for each respective period and is calculated in accordance with the Office of the Superintendent of Financial Institutions’ (OSFI) Liquidity Adequacy Requirements (LAR) guidance as updated in accordance with the regulatory guidance issued in fiscal 2020. For further details, refer to the Liquidity and funding risk section.

(4)

Beginning in Q1 2021, OSFI requires Canadian Domestic Systemically Important Banks (D-SIBs) to disclose the NSFR on a prospective basis. The NSFR is calculated in accordance with OSFI’s LAR guideline, which, in turn, reflects liquidity related requirements issued by the Basel Committee on Banking Supervision (BCBS). For further details, refer to the Liquidity and funding risk section.

(5)

Represents period-end spot balances.

(6)

AUA includes $15.0 billion and $2.9 billion (January 31, 2021 – $15.3 billion and $4.1 billion; April 30, 2020 – $16.1 billion and $6.7 billion) of securitized residential mortgages and credit card loans, respectively.

(7)

Defined as dividends per common share divided by the average of the high and low share price in the relevant period.

(8)

Based on TSX closing market price at period-end.

(9)

Average amounts are calculated using month-end spot rates for the period.

n.a.

not applicable

4         Royal Bank of Canada        Second Quarter 2021

 

Economic, market and regulatory review and outlook – data as at May 26, 2021

The predictions and forecasts in this section are based on information and assumptions from sources we consider reliable. If this information or these assumptions are not accurate, actual economic outcomes may differ materially from the outlook presented in this section.

Economic and market review and outlook

A resurgence in the spread of COVID-19 in some regions, including the emergence and progression of new variants of COVID-19, has resulted in certain regions re-imposing or increasing the level of containment measures. This continues to restrain the pace of near-term economic activity. However, containment measures have generally been more targeted by region and industry since the initial shutdowns in the spring of 2020, and the economic impact from subsequent shutdowns has been less severe. Vaccine distribution has been uneven across jurisdictions, but continues to increase, which is expected to allow for more significant and sustainable easing of containment measures over the summer of 2021 in many economies. Government support programs have maintained household purchasing power and are expected to support a recovery in spending as containment measures ease. Despite these positive developments, uncertainty remains regarding vaccine efficacy against new variants of COVID-19 and vaccine supply and availability which could impact the timing and extent of a full recovery.

Canada

The Canadian economy grew sharply in spite of a resurgence in the spread of COVID-19 in the latter part of 2020 that was accompanied by increased containment measures, which extended into 2021 and continued to weigh heavily on activity in the travel and hospitality sectors. GDP rose 9.6%¹ in the final calendar quarter of 2020 and is expected to have grown another 6.5%¹ in the first calendar quarter of 2021. The unemployment rate fell to 7.5% in March 2021, down from 8.8% in December 2020, but rose back to 8.1% in April 2021 as re-imposed containment measures led to another round of job losses. Substantial government support for households and businesses remains in place, and extensions have already been announced to previously expanded employment insurance programs as well as business wage and rent subsidies. The Bank of Canada (BoC) recently announced a plan to slow the pace of monthly asset purchases and indicated that interest rates are likely to begin to rise earlier than the BoC previously expected, although still not until the second half of calendar 2022. Further resurgence in virus spread remains a significant headwind for the economy in the second calendar quarter of 2021, but rising vaccination rates are expected to ease pressure on healthcare services and allow for a more significant and sustainable easing of containment measures over the summer.

U.S.

Growth in the U.S. economy has accelerated alongside a rapid rollout of vaccines and large government stimulus spending. GDP grew 4.3%¹ in the final calendar quarter of 2020, and 6.4%¹ in the first calendar quarter of 2021. While employment rose with 1.8 million jobs added in the first four months of calendar 2021, the remaining shortfall in jobs relative to pre-pandemic levels is still substantial at 8.2 million, with more than one third concentrated in the leisure and hospitality sectors where containment measures are the most stringent. The recovery of the labour market is expected to accelerate as containment measures ease more significantly and sustainably. Household incomes continue to be supported by exceptionally large government stimulus spending including additional support that was made available as part of the stimulus package passed in March 2021. The Federal Reserve has committed to maintaining extraordinary policy support by keeping benchmark interest rates low and continuing with asset purchases until the labour market has recovered. Supportive fiscal and monetary policy is expected to help to accelerate growth in spending in calendar 2021, alongside the expectation that rising vaccination rates will enable a more substantial and sustainable easing of containment measures.

Europe

A resurgence in virus spread has prompted the re-imposition of containment measures in Euro area countries, and vaccine distribution in the Euro area has progressed more slowly than in many other regions. Euro area GDP declined by 0.6% in the first calendar quarter of 2021 following a 0.7% decline in the fourth calendar quarter of 2020. The economy is expected to return to growth in the second calendar quarter of 2021 and beyond as vaccination rates increase more significantly. In the U.K., GDP declined by 1.5% in the first calendar quarter of 2021 reflecting a resurgence in virus spread and re-imposition of containment measures during that period. A sharp increase in economic output in the U.K. is expected beginning in the second calendar quarter of 2021 as vaccine distribution in the U.K. has been running ahead of other regions and containment measures have begun to ease. Both the European Central Bank (ECB) and the Bank of England have held interest rates low while further expanding the scope and length of their quantitative easing programs. Fiscal stimulus is also expected to continue to support household incomes despite still weak underlying labour market conditions.

Financial markets

Government bond yields remain historically low but have increased on optimism that the economic recovery is poised to accelerate alongside rising vaccination rates and inflation expectations. Major indices rose to all-time highs as equity markets continued to be supported by monetary policy stimulus, massive government income support and positive vaccine developments. Monetary policy is expected to remain accommodative for an extended period.

 

1

Annualized rate

Royal Bank of Canada         Second Quarter 2021         5

 

Regulatory environment

We continue to monitor and prepare for regulatory developments and changes in a manner that seeks to ensure compliance with new requirements while mitigating adverse business or financial impacts. Such impacts could result from new or amended laws and regulations and the expectations of those who enforce them. A high level summary of the key regulatory changes that have the potential to increase or decrease our costs and the complexity of our operations is included in the Legal and regulatory environment risk section of our 2020 Annual Report, as updated below. A summary of the additional regulatory changes and relief instituted by governments globally and by OSFI during 2020 in response to the COVID-19 pandemic is included in the Significant developments: COVID-19, Liquidity and funding risk and Capital management sections of our 2020 Annual Report, with updates provided in the Impact of COVID-19 pandemic, Liquidity and funding risk and Capital management sections of this Q2 2021 Report to Shareholders.

Global uncertainty

Significant uncertainty about the impacts of the COVID-19 pandemic, trade policy and geopolitical tensions continue to pose risks to the global economic outlook. In April 2021, the International Monetary Fund (IMF) projected global growth of 6.0% in 2021, up from its previous forecast of 5.5% in January 2021, reflecting expectations of a stronger recovery in economic activity as rising vaccination rates enable more substantial and sustainable easing of containment measures, supported by additional fiscal support in a few large economies and the continued adaptation of economic activity to subdued mobility. Despite these positive developments, uncertainty remains regarding vaccine efficacy against new variants of COVID-19 and vaccine supply and availability. Trade policy also remains a source of global uncertainty as the impacts of the new U.S. administration’s trade agenda and the U.K.’s progress on an international trade policy remain to be seen. Finally, global financial markets remain vulnerable to geopolitical tensions, such as those between the U.S. and China, many of which center around trade and technology. Our diversified business model, as well as our product and geographic diversification, continue to help mitigate the risks posed by global uncertainty.

Minimum qualifying rates for insured and uninsured mortgages in Canada

On May 20, 2021, OSFI announced that effective June 1, 2021, the proposed minimum qualifying rate for uninsured mortgages will be the greater of the mortgage contract rate plus 2% or 5.25%. OSFI also announced that it will review and communicate the qualifying rate at a minimum annually, every December. The Department of Finance Canada, who is responsible for setting the benchmark rate for qualifying insured mortgages, also announced on May 20, 2021 that it would align the rate for insured mortgages with the rate set by OSFI for uninsured mortgages and that this new rate would apply to insured mortgages approved on June 1, 2021 or later. The minimum qualifying rate for insured mortgages will be subject to review and periodic adjustment.

Interest rate benchmark reform

London Interbank Offered Rate (LIBOR) is the most widely referenced benchmark interest rate across the globe for derivatives, bonds, loans and other floating rate instruments; however, there is a regulator-led push to transition the market from LIBOR and certain other benchmark interest rates to alternative risk-free, or nearly risk-free, rates that are based on actual overnight transactions. On March 5, 2021, the Financial Conduct Authority (FCA), the regulator of the ICE Benchmark Administration (IBA) which administers LIBOR, announced the permanent cessation or loss of representativeness of all 35 LIBOR benchmark settings currently published by the IBA. For further details, refer to Note 2 of our Condensed Financial Statements.

U.K. and European regulatory reform

EU Sustainability-Related Disclosures Regulation requires financial services firms to disclose their approaches to considering environmental, social and governance factors as part of their advice and investment decision processes. These requirements were effective on March 10, 2021 and there has been no material impact on us; however, we will continue to monitor future guidance and the impact, if any, on us.

For a discussion on risk factors, including our framework and activities to manage these risks and other regulatory developments which may affect our business and financial results, refer to the Significant developments: COVID-19 section, including the Impact of pandemic risk factor, and the Risk management – Top and emerging risks and Legal and regulatory environment risk sections of our 2020 Annual Report and the Impact of COVID-19 pandemic, Risk and Capital management sections of this Q2 2021 Report to Shareholders.

6         Royal Bank of Canada        Second Quarter 2021

 

Impact of COVID-19 pandemic

On March 11, 2020, the World Health Organization declared the outbreak of a strain of novel coronavirus disease, COVID-19, a global pandemic. The breadth and depth of the impact of the COVID-19 pandemic on the global economy and financial markets has continued to evolve with disruptive effects in countries in which we operate and beyond, while also contributing to increased market volatility and changes to the macroeconomic environment. In addition, the COVID-19 pandemic has continued to affect our employees, clients and communities, with resultant impacts on our operations, financial results and present and future risks to our business.

Measures to contain the spread of COVID-19, including business closures, social distancing protocols, travel restrictions, school closures, quarantines, and restrictions on gatherings and events, have been and continue to be widespread. These measures have had and continue to have extensive implications for the global economy, including the pace and magnitude of recovery, as well as on related market functions, unemployment rates, and fiscal and monetary policies. The easing of containment measures and progress towards reopening plans have been accompanied by resurgences in the spread of COVID-19 in some regions, resulting in the re-imposition of restrictions in certain regions. As the COVID-19 pandemic continues to evolve, including through the emergence and progression of new variants of COVID-19 in different regions, governments continue to adjust their response and approach to the pandemic. Consequently, the extent of containment measures and progress towards reopening continues to vary and fluctuate across different regions. While vaccines have been approved for use and are being administered in many countries, uncertainty remains regarding vaccine efficacy against new variants of COVID-19, vaccine supply and availability, and the ability of governments to quickly and effectively distribute vaccines to inoculate a sufficient proportion of the population to enable widespread easing of containment measures and support the transition to a fully reopened economy. All of these factors contribute to the uncertainty regarding the timing of a full recovery. The COVID-19 pandemic, the containment measures and the phased reopening approach taken in several regions could have longer-term effects on economic and commercial activity and consumer behaviour after the COVID-19 pandemic recedes and containment measures are fully lifted. In conjunction with the COVID-19 pandemic containment measures, governments, regulatory bodies, central banks and private organizations around the globe have provided and continue to provide unprecedented relief programs and temporary measures to facilitate the continued operation of the global economy and financial system, all of which are intended to provide support to individuals and businesses. While some programs have come to an end, other programs remain in place or have continued to be developed in an effort to support the overall economy. We expect that these governments, regulatory bodies, central banks and private organizations will continue to assess the need for these programs and measures.

In addition to the broad impacts of the COVID-19 pandemic on our employees, clients, communities and operations, the COVID-19 pandemic has impacted and will continue to impact our financial results. Results across all of our business segments have been and continue to be impacted to varying degrees by downstream implications from changes in the macroeconomic environment, including lower interest rates, modest consumer spending relative to pre-pandemic levels, market volatility, fluctuations in credit spreads, as well as other impacts including changes in credit risk, increased client-driven volumes and changes in operating costs. Notwithstanding these challenges, our financial results and condition amid these challenges demonstrate the resilience of our capital and liquidity positions, which have been bolstered by our position of strength at the time of entering this crisis and throughout the period.

Given the uncertainty of the extent and duration of the COVID-19 pandemic and its impacts on the economy and society as a whole, as well as the timeline of the transition to a fully reopened economy, the future impact on our businesses and our financial results and condition remains uncertain. We are closely monitoring the potential continued effects and impacts of the COVID-19 pandemic.

For further details regarding the impact of the COVID-19 pandemic, including associated risks, relief programs, programs in support of funding and liquidity, and other government measures, refer to the Significant developments: COVID-19, including the Impact of pandemic risk factor, risk and Capital management sections of our 2020 Annual Report.

Relief programs

In response to the COVID-19 pandemic, several government programs have been and continue to be developed to provide financial aid to individuals and businesses, which include wage replacement for individuals, wage subsidies and rent relief for businesses, and lending programs for businesses, which we are administering for our clients. To further support our clients in financial need, various temporary relief programs were launched beyond the available government programs.

A summary of RBC and government relief programs is included in the Significant developments: COVID-19 section of our 2020 Annual Report, with updates noted below.

RBC relief programs

During the second quarter of 2020, we announced the RBC Client Relief program which aimed to provide immediate and long-term relief for clients impacted by the COVID-19 pandemic. The RBC Client Relief program for the majority of our commercial and small business clients closed on June 30, 2020 and loan deferrals within the program closed for retail clients on September 30, 2020.

As at April 30, 2021, payment deferral periods for clients that participated in these programs have largely concluded; however, we have assessed and will continue to assess the needs of each individual client and continue to provide support to clients on a case by case basis. The majority of our clients that have exited these programs have returned to making regular payments on their loans following the expiry of their payment deferral periods.

Royal Bank of Canada         Second Quarter 2021         7

 

Government programs in response to the COVID-19 pandemic

In response to the COVID-19 pandemic, both the Canadian and U.S. federal governments established programs intended to support businesses experiencing cash flow challenges during this unprecedented time, through which financial institutions have facilitated and continue to facilitate the provision of financial relief. In Canada, these programs include the Canada Emergency Business Account (CEBA) and the Business Credit Availability Program (BCAP), which is comprised of the Export Development Canada (EDC) BCAP Guarantee, the Business Development Bank of Canada (BDC) Co-Lending Program, the BDC Mid-Market Financing Program, and the EDC Mid-Market Guarantee and Financing Program. In the U.S., the federal government has established the Paycheck Protection Program (PPP). There have been no significant changes to these programs since October 31, 2020, except as noted below:

•

On March 22, 2021, the Canadian Federal government announced that the application deadline for the CEBA program has been extended from March 31, 2021 to June 30, 2021.

•

In January 2021, the U.S. Small Business Administration (SBA), in consultation with the U.S. Treasury Department, pursuant to the “Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act” (Economic Aid Act) relaunched the PPP, extending it through March 31, 2021, and announced a number of updates to the PPP for current and future loans. The expanded program includes new categories of eligible expenses, including operating expenditures, property damage costs, supplier costs and worker protection expenditures, in addition to payroll costs, utilities and mortgage interest. Borrowers are also provided with additional flexibility, including the ability to set their covered period for forgivable expenditures to be any length between 8 and 24 weeks. Certain borrowers with existing PPP loans may qualify for a second draw loan and may be eligible for a supplemental increase to their first draw. On March 30, 2021, the “PPP Extension Act” was signed into law, extending the PPP for an additional two months to May 31, 2021, and providing an additional 30-day period for the SBA to process pending applications.

•

On January 26, 2021, the Canadian Federal government announced the BDC Highly Affected Sectors Credit Availability Program (HASCAP). Under this program, Canadian banks are able to provide low-interest loans ranging from $25,000 to $1 million to businesses that have been heavily impacted by COVID-19 to cover operational cash flow needs. Loans funded under this program are fully guaranteed by the BDC. The application deadline for this program is June 30, 2021.

As at April 30, 2021, we have facilitated the administration of relief to more than 194,000 clients (January 31, 2021 – 184,800) who have enrolled in the Canadian federal government programs, with corresponding exposures of $10.8 billion (January 31, 2021 – $9.3 billion), of which $10.2 billion (January 31, 2021 – $8.7 billion) was funded. For further details, refer to Note 6 of our 2020 Annual Consolidated Financial Statements. As at April 30, 2021, we have provided $6.4 billion (US$5.2 billion) of funding (January 31, 2021 – $5.7 billion, (US$4.5 billion)) to 20,341 clients (January 31, 2021 – 16,835 clients) through the PPP.

8         Royal Bank of Canada        Second Quarter 2021

 

Financial performance

 

Overview

Q2 2021 vs. Q2 2020

Net income of $4,015 million was up $2,534 million from a year ago. Diluted earnings per share (EPS) of $2.76 was up $1.76 and return on common equity (ROE) of 19.4% was up from 7.3% last year. Our Common Equity Tier 1 (CET1) ratio of 12.8% was up 110 bps from a year ago.

Our results reflected higher earnings in Personal & Commercial Banking, Capital Markets, Wealth Management and Insurance, partially offset by lower earnings in Investor & Treasury Services. The same quarter last year reflected elevated provisions on performing loans due to the impact of the onset of the COVID-19 pandemic, which unfavourably impacted results in Personal & Commercial Banking, Capital Markets and Wealth Management in the prior year.

Q2 2021 vs. Q1 2021

Net income of $4,015 million was up $168 million or 4% from last quarter. Diluted EPS of $2.76 was up $0.10 or 4% and ROE of 19.4% was up from 18.6% in the prior quarter. Our CET1 ratio of 12.8% was up 30 bps from last quarter.

Our results reflected earnings growth in Personal & Commercial Banking, Wealth Management and Capital Markets, partially offset by lower results in Insurance and Investor & Treasury Services.

Q2 2021 vs. Q2 2020 (Six months ended)

Net income of $7,862 million was up $2,872 million or 58% from the same period last year. Diluted EPS of $5.42 was up $2.02 or 59% and ROE of 19.0% was up from 12.5% in the prior year.

Our results reflected higher earnings in Personal & Commercial Banking, Capital Markets, Wealth Management and Insurance, partially offset by lower earnings in Investor & Treasury Services. The same period last year reflected elevated provisions on performing loans due to the impact of the onset of the COVID-19 pandemic, which unfavourably impacted results in Personal & Commercial Banking, Capital Markets and Wealth Management in the prior year.

For further details on our business segment results and CET1 ratio, refer to the Business segment results and Capital management sections, respectively.

Impact of foreign currency translation

The following table reflects the estimated impact of foreign currency translation on key income statement items:

 

		For the three months ended										For the six months ended
(Millions of Canadian dollars, except per share amounts)		Q2 2021 vs. Q2 2020				Q2 2021 vs. Q1 2021						Q2 2021 vs. Q2 2020
Increase (decrease):
Total revenue		$	(356	)		$	(95	)				$	(429	)
PCL			13				6						15
Non-interest expense			(256	)			(71	)					(305	)
Income taxes			(24	)			(7	)					(26	)
Net income			(89	)			(23	)					(113	)
Impact on EPS
Basic		$	(0.06	)		$	(0.02	)				$	(0.08	)
Diluted			(0.06	)			(0.02	)					(0.08	)

The relevant average exchange rates that impact our business are shown in the following table:

 

		For the three months ended														For the six months ended
(Average foreign currency equivalent of C$1.00) (1)		April 30 2021				January 31 2021				April 30 2020						April 30 2021				April 30 2020
U.S. dollar			0.798				0.779				0.725						0.789				0.742
British pound			0.577				0.574				0.575						0.575				0.577
Euro			0.669				0.644				0.659						0.656				0.671

 

(1)

Average amounts are calculated using month-end spot rates for the period.

Royal Bank of Canada         Second Quarter 2021         9

 

Total revenue

 

		For the three months ended																For the six months ended
(Millions of Canadian dollars, except percentage amounts)		April 30 2021				January 31 2021				April 30 2020								April 30 2021				April 30 2020
Interest and dividend income		$	6,898			$	7,236			$	9,226							$	14,134			$	19,464
Interest expense			2,044				2,201				3,761								4,245				8,778
Net interest income			4,854				5,035				5,465								9,889				10,686
NIM			1.50%				1.50%				1.61%								1.50%				1.60%
Insurance premiums, investment and fee income			536				1,809				197								2,345				2,191
Trading revenue			377				524				(66	)							901				392
Investment management and custodial fees			1,711				1,703				1,500								3,414				3,035
Mutual fund revenue			1,014				1,000				890								2,014				1,836
Securities brokerage commissions			431				401				460								832				778
Service charges			460				458				468								918				956
Underwriting and other advisory fees			747				590				544								1,337				1,171
Foreign exchange revenue, other than trading			292				289				280								581				533
Card service revenue			281				272				212								553				499
Credit fees			368				332				304								700				664
Net gains on investment securities			82				35				45								117				56
Share of profit in joint ventures and associates			24				25				15								49				37
Other			441				470				19								911				335
Non-interest income			6,764				7,908				4,868								14,672				12,483
Total revenue		$	11,618			$	12,943			$	10,333							$	24,561			$	23,169
Additional trading information
Net interest income		$	642			$	740			$	1,064							$	1,382			$	1,764
Non-interest income			377				524				(66	)							901				392
Total trading revenue		$	1,019			$	1,264			$	998							$	2,283			$	2,156

Q2 2021 vs. Q2 2020

Total revenue increased $1,285 million or 12% from a year ago, mainly due to higher trading revenue, other revenue and insurance premiums, investment and fee income (Insurance revenue). Higher investment management and custodial fees, underwriting and other advisory fees, as well as mutual fund revenue also contributed to the increase. These factors were partially offset by lower net interest income. The impact of foreign exchange translation decreased total revenue by $356 million.

Net interest income decreased $611 million or 11%, largely due to lower spreads in Personal & Commercial Banking and Wealth Management, and lower trading revenue in Capital Markets primarily in repo products. The impact of foreign exchange translation also contributed to the decrease. These factors were partially offset by volume growth in Canadian Banking and Wealth Management.

NIM was down 11 bps compared to last year, mainly due to lower spreads in Personal & Commercial Banking and Wealth Management primarily due to the impact of lower interest rates.

Insurance revenue increased $339 million, primarily reflecting the change in fair value of investments backing policyholder liabilities, which is largely offset in PBCAE.

Trading revenue increased $443 million, as the prior year included loan underwriting markdowns impacting fixed income trading in the U.S. and Europe driven by widening credit spreads. Higher equity trading across most regions reflecting increased client activity also contributed to the increase.

Investment management and custodial fees increased $211 million or 14%, mainly due to higher average fee-based client assets reflecting market appreciation and net sales.

Mutual fund revenue increased $124 million or 14%, primarily due to higher average fee-based client assets reflecting market appreciation and net sales in Wealth Management, and higher average balances driving higher mutual fund distribution fees in Canadian Banking.

Underwriting and other advisory fees increased $203 million or 37%, largely driven by higher equity origination, higher M&A activity and higher debt origination, all largely in the U.S.

Other revenue increased $422 million, largely attributable to changes in the fair value of the hedges related to our U.S. share-based compensation plans which was largely offset in Non-interest expense.

Q2 2021 vs. Q1 2021

Total revenue decreased $1,325 million or 10% from last quarter, mainly due to lower insurance revenue. Lower net interest income and trading revenue also contributed to the decrease. These factors were partially offset by higher underwriting and other advisory fees. The impact of foreign exchange translation decreased total revenue by $95 million.

Net interest income decreased $181 million or 4%, mainly due to the impact of three less days in the current quarter, and lower trading revenue in Capital Markets. These factors were partially offset by volume growth in Canadian Banking.

Insurance revenue decreased $1,273 million or 70%, mainly reflecting the change in fair value of investments backing policyholder liabilities and lower group annuity sales, both of which are largely offset in PBCAE.

10         Royal Bank of Canada        Second Quarter 2021

 

Trading revenue decreased $147 million or 28%, mainly attributable to lower fixed income trading across all regions driven by reduced client activity.

Underwriting and other advisory fees increased $157 million or 27%, primarily driven by higher debt and equity origination across all regions.

Q2 2021 vs. Q2 2020 (Six months ended)

Total revenue increased $1,392 million or 6% from the same period last year, primarily driven by higher other revenue and trading revenue. Higher investment management and custodial fees, mutual fund revenue, underwriting and other advisory fees, and insurance revenue also contributed to the increase. These factors were partially offset by lower net interest income. The impact of foreign exchange translation decreased total revenue by $429 million.

Net interest income decreased $797 million or 7%, largely due to lower spreads in Personal & Commercial Banking and Wealth Management. Lower trading revenue in Capital Markets and the impact of foreign exchange translation also contributed to the decrease. These factors were partially offset by volume growth in Canadian Banking and Wealth Management.

Insurance revenue increased $154 million or 7%, mainly reflecting the change in fair value of investments backing policyholder liabilities, partially offset by lower group annuity sales, both of which are largely offset in PBCAE.

Trading revenue increased $509 million, as the prior year included loan underwriting markdowns impacting fixed income trading in the U.S. and Europe driven by widening credit spreads. Higher equity trading across all regions reflecting increased client activity also contributed to the increase.

Investment management and custodial fees increased $379 million or 12%, largely driven by higher average fee-based client assets reflecting market appreciation and net sales.

Mutual fund revenue increased $178 million or 10%, primarily due to higher average fee-based client assets reflecting market appreciation and net sales in Wealth Management, and higher average balances driving higher mutual fund distribution fees in Canadian Banking.

Underwriting and other advisory fees increased $166 million or 14%, mainly due to higher equity origination across most regions.

Other revenue increased $576 million, largely attributable to changes in the fair value of the hedges related to our U.S. share-based compensation plans which was largely offset in Non-interest expense.

Provision for credit losses

Q2 2021 vs. Q2 2020

Total PCL decreased $2,926 million from a year ago.

PCL on loans of $(83) million decreased $2,817 million, as the prior year reflected elevated provisions on performing loans due to the impact of the onset of the COVID-19 pandemic. The PCL on loans ratio was (5) bps.

Q2 2021 vs. Q1 2021

Total PCL decreased $206 million from last quarter.

PCL on loans of $(83) million decreased $204 million, primarily due to lower provisions in Personal & Commercial Banking and Capital Markets, partially offset by higher recoveries in Wealth Management in the prior quarter. The PCL on loans ratio of (5) bps decreased 12 bps.

Q2 2021 vs. Q2 2020 (Six months ended)

Total PCL decreased $3,235 million from the same period last year.

PCL on loans of $38 million decreased $3,117 million from the same period last year, as the prior year reflected elevated provisions on performing loans due to the impact of the onset of the COVID-19 pandemic. The PCL on loans ratio was 1 bp.

For further details on PCL, refer to Credit quality performance in the Credit risk section.

Insurance policyholder benefits, claims and acquisition expense (PBCAE)

Q2 2021 vs. Q2 2020

PBCAE increased $326 million from a year ago, primarily reflecting the change in fair value of investments backing policyholder liabilities, which is largely offset in revenue. The impact of lower new longevity reinsurance contracts also contributed to the increase. These factors were partially offset by lower claims costs, mainly in our travel-related and disability products, as well as the impact of actuarial adjustments.

Q2 2021 vs. Q1 2021

PBCAE decreased $1,257 million or 89% from last quarter, primarily reflecting the change in fair value of investments backing policyholder liabilities and lower group annuity sales, both of which are largely offset in revenue.

Q2 2021 vs. Q2 2020 (Six months ended)

PBCAE increased $118 million or 8% from the same period last year, mainly reflecting the change in fair value of investments backing policyholder liabilities, which is largely offset in revenue. Lower new longevity reinsurance contracts also contributed to the increase. These factors were partially offset by lower claims costs, primarily in our travel-related and disability products, and lower group annuity sales.

Royal Bank of Canada         Second Quarter 2021         11

 

Non-interest expense

 

		For the three months ended																For the six months ended
(Millions of Canadian dollars, except percentage amounts)		April 30 2021				January 31 2021				April 30 2020								April 30 2021				April 30 2020
Salaries		$	1,641			$	1,655			$	1,671							$	3,296			$	3,323
Variable compensation			1,874				1,804				1,370								3,678				3,016
Benefits and retention compensation			503				543				508								1,046				1,049
Share-based compensation			134				286				24								420				245
Human resources			4,152				4,288				3,573								8,440				7,633
Equipment			487				493				468								980				930
Occupancy			400				404				417								804				814
Communications			212				213				252								425				502
Professional fees			314				291				324								605				608
Amortization of other intangibles			318				319				315								637				618
Other			496				534				593								1,030				1,215
Non-interest expense		$	6,379			$	6,542			$	5,942							$	12,921			$	12,320
Efficiency ratio (1)			54.9%				50.5%				57.5%								52.6%				53.2%
Efficiency ratio adjusted (2)			52.3%				51.9%				52.6%								52.1%				52.1%

 

(1)

Efficiency ratio is calculated as Non-interest expense divided by Total revenue.

(2)

Measure has been adjusted by excluding the change in fair value of investments backing policyholder liabilities. This is a non-GAAP measure. For further details, refer to the Key performance and non-GAAP measures section.

Q2 2021 vs. Q2 2020

Non-interest expense increased $437 million or 7% from a year ago, mainly due to higher variable compensation on improved results, and the change in the fair value of our U.S. share-based compensation plans, which was largely offset in Other revenue. These factors were partially offset by the impact of foreign exchange translation.

Our efficiency ratio of 54.9% decreased 260 bps from 57.5% last year. Excluding the change in fair value of investments backing policyholder liabilities, our efficiency ratio of 52.3% decreased 30 bps from 52.6% last year.

Q2 2021 vs. Q1 2021

Non-interest expense decreased $163 million or 2% from last quarter, primarily due to the impact of foreign exchange translation and lower staff related costs. A favourable sales tax adjustment in the current quarter as well as the change in the fair value of our U.S. share-based compensation plans, which was largely offset in Other revenue, also contributed to the decrease. These factors were partially offset by higher variable compensation on improved results.

Our efficiency ratio of 54.9% increased 440 bps from 50.5% last quarter. Excluding the change in fair value of investments backing policyholder liabilities, our efficiency ratio of 52.3% increased 40 bps from 51.9% last quarter.

Q2 2021 vs. Q2 2020 (Six months ended)

Non-interest expense increased $601 million or 5% from the same period last year, mainly attributable to higher variable compensation on improved results and the change in the fair value of our U.S. share-based compensation plans, which was largely offset in Other revenue. These factors were partially offset by the impact of foreign exchange translation.

Our efficiency ratio of 52.6% decreased 60 bps from 53.2% last year. Excluding the change in fair value of investments backing policyholder liabilities, our efficiency ratio of 52.1% remained unchanged from 52.1% last year.

Efficiency ratio excluding the change in fair value of investments backing policyholder liabilities is a non-GAAP measure. For further details, including a reconciliation, refer to the Key performance and non-GAAP measures section.

Income taxes

 

		For the three months ended																For the six months ended
(Millions of Canadian dollars, except percentage amounts)		April 30 2021				January 31 2021				April 30 2020								April 30 2021				April 30 2020
Income taxes		$	1,171			$	1,038			$	257							$	2,209			$	1,173
Income before income taxes			5,186				4,885				1,738								10,071				6,163
Effective income tax rate			22.6%				21.2%				14.8%								21.9%				19.0%

Q2 2021 vs. Q2 2020

Income tax expense increased $914 million from a year ago, primarily due to higher income before income taxes in the current quarter.

The effective income tax rate of 22.6% increased 780 bps, mainly due to the impact of changes in earnings mix and the proportion of tax exempt income relative to lower earnings in the prior year.

Q2 2021 vs. Q1 2021

Income tax expense increased $133 million or 13% from last quarter, primarily due to higher income before income taxes and net favourable tax adjustments in the prior quarter.

The effective income tax rate of 22.6% increased 140 bps, mainly due to the net favourable tax adjustments in the prior quarter.

Q2 2021 vs. Q2 2020 (Six months ended)

Income tax expense increased $1,036 million or 88% from the same period last year, primarily due to higher income before income taxes.

The effective income tax rate of 21.9% increased 290 bps, mainly due to changes in earnings mix combined with the impact of lower earnings in the same period last year.

12         Royal Bank of Canada        Second Quarter 2021

 

Business segment results

 

How we measure and report our business segments

The key methodologies and assumptions used in our management reporting framework are periodically reviewed by management to ensure they remain valid. They remain unchanged from October 31, 2020.

For further details on our key methodologies and assumptions used in our management reporting framework, refer to the How we measure and report our business segments section of our 2020 Annual Report.

 

Key performance and non-GAAP measures

Performance measures

Return on common equity

We measure and evaluate the performance of our consolidated operations and each business segment using a number of financial metrics, such as net income and ROE. We use ROE, at both the consolidated and business segment levels, as a measure of return on total capital invested in our business. Management views the business segment ROE measure as a useful measure for supporting investment and resource allocation decisions because it adjusts for certain items that may affect comparability between business segments and certain competitors. ROE does not have a standardized meaning under GAAP and may not be comparable to similar measures disclosed by other financial institutions. For further details, refer to the Key performance and non-GAAP measures section of our 2020 Annual Report.

The following table provides a summary of our ROE calculations:

 

		For the three months ended
		April 30 2021																														January 31 2021						April 30 2020
(Millions of Canadian dollars, except percentage amounts)		Personal & Commercial Banking				Wealth Management				Insurance				Investor & Treasury Services				Capital Markets				Corporate Support				Total						Total						Total
Net income available to common shareholders		$	1,885			$	676			$	185			$	117			$	1,050			$	25			$	3,938					$	3,787					$	1,420
Total average common equity (1), (2)			24,250				16,100				2,350				3,350				22,850				14,550				83,450						80,750						79,100
ROE (3)			31.8%				17.2%				32.1%				14.3%				18.9%				n.m.				19.4%						18.6%						7.3%
		For the six months ended
		April 30 2021																														April 30 2020
(Millions of Canadian dollars, except percentage amounts)		Personal & Commercial Banking				Wealth Management				Insurance				Investor & Treasury Services				Capital Markets				Corporate Support				Total						Total
Net income available to common shareholders		$	3,659			$	1,313			$	384			$	238			$	2,101			$	30			$	7,725					$	4,859
Total average common equity (1), (2)			23,800				16,150				2,300				3,250				22,700				13,850				82,050						78,450
ROE (3)			31.0%				16.4%				33.3%				14.8%				18.7%				n.m.				19.0%						12.5%

 

(1)

Total average common equity represents rounded figures.

(2)

The amounts for the segments are referred to as attributed capital.

(3)

ROE is based on actual balances of average common equity before rounding.

n.m.

not meaningful

Royal Bank of Canada         Second Quarter 2021         13

 

Non-GAAP measures

We believe that certain non-GAAP measures described below are more reflective of our ongoing operating results and provide readers with a better understanding of management’s perspective on our performance. These measures enhance the comparability of our financial performance for the three and six months ended April 30, 2021 with the corresponding periods in the prior year and the three months ended January 31, 2021. Non-GAAP measures do not have a standardized meaning under GAAP and may not be comparable to similar measures disclosed by other financial institutions.

The following discussion describes the non-GAAP measures we use in evaluating our operating results.

Efficiency ratio excluding the change in fair value of investments in Insurance

Our efficiency ratio is impacted by the change in fair value of investments backing policyholder liabilities, which is reported in revenue and largely offset in PBCAE.

The following table provides calculations of our consolidated efficiency ratio excluding the change in fair value of investments backing policyholder liabilities:

 

		For the three months ended
		April 30 2021														January 31 2021														April 30 2020
						Item excluded														Item excluded														Item excluded
(Millions of Canadian dollars, except percentage amounts)		As reported				Change in fair value of investments backing policyholder liabilities				Adjusted						As reported				Change in fair value of investments backing policyholder liabilities				Adjusted						As reported				Change in fair value of investments backing policyholder liabilities				Adjusted
Total revenue		$	11,618			$	568			$	12,186					$	12,943			$	(346	)		$	12,597					$	10,333			$	953			$	11,286
Non-interest expense			6,379				–				6,379						6,542				–				6,542						5,942				–				5,942
Efficiency ratio			54.9%								52.3%						50.5%								51.9%						57.5%								52.6%
																For the six months ended
																April 30 2021														April 30 2020
																				Item excluded														Item excluded
(Millions of Canadian dollars, except percentage amounts)																As reported				Change in fair value of investments backing policyholder liabilities				Adjusted						As reported				Change in fair value of investments backing policyholder liabilities				Adjusted
Total revenue																$	24,561			$	222			$	24,783					$	23,169			$	485			$	23,654
Non-interest expense																	12,921				–				12,921						12,320				–				12,320
Efficiency ratio																	52.6%								52.1%						53.2%								52.1%

14         Royal Bank of Canada        Second Quarter 2021

 

Personal & Commercial Banking

 

		As at or for the three months ended																As at or for the six months ended
(Millions of Canadian dollars, except percentage amounts and as otherwise noted)		April 30 2021				January 31 2021				April 30 2020								April 30 2021				April 30 2020
Net interest income		$	3,085			$	3,161			$	3,149							$	6,246			$	6,375
Non-interest income			1,442				1,402				1,251								2,844				2,635
Total revenue			4,527				4,563				4,400								9,090				9,010
PCL on performing assets			(166	)			(60	)			1,370								(226	)			1,436
PCL on impaired assets			201				225				336								426				612
PCL			35				165				1,706								200				2,048
Non-interest expense			1,915				1,978				1,947								3,893				3,931
Income before income taxes			2,577				2,420				747								4,997				3,031
Net income		$	1,908			$	1,793			$	532							$	3,701			$	2,218
Revenue by business
Canadian Banking		$	4,341			$	4,352			$	4,170							$	8,693			$	8,538
Caribbean & U.S. Banking			186				211				230								397				472
Selected balance sheet and other information
ROE			31.8%				30.1%				9.0%								31.0%				18.7%
NIM			2.56%				2.56%				2.73%								2.56%				2.75%
Efficiency ratio			42.3%				43.3%				44.3%								42.8%				43.6%
Operating leverage			4.5%				(0.7)%				(1.7)%								1.9%				(0.4)%
Average total earning assets, net		$	493,400			$	489,800			$	468,400							$	491,600			$	465,900
Average loans and acceptances, net			497,400				493,500				471,300								495,400				469,000
Average deposits			495,000				490,100				428,700								492,500				421,100
AUA (1)			339,000				320,900				275,700								339,000				275,700
Average AUA			334,400				315,900				275,900								325,000				283,300
PCL on impaired loans as a % of average net loans and acceptances			0.17%				0.18%				0.28%								0.18%				0.26%
Other selected information – Canadian Banking
Net income		$	1,872			$	1,754			$	649							$	3,626			$	2,273
NIM			2.55%				2.54%				2.70%								2.55%				2.71%
Efficiency ratio			40.8%				41.9%				42.7%								41.3%				42.0%
Operating leverage			4.7%				(1.6)%				(1.8)%								1.5%				(0.4)%

 

(1)

AUA represents period-end spot balances and includes securitized residential mortgages and credit card loans as at April 30, 2021 of $15.0 billion and $2.9 billion, respectively (January 31, 2021 – $15.3 billion and $4.1 billion; April 30, 2020 – $16.1 billion and $6.7 billion).

Financial performance

Q2 2021 vs. Q2 2020

Net income increased $1,376 million from a year ago, primarily attributable to lower PCL. Average volume growth of 11% in Canadian Banking was mostly offset by lower spreads due to the lower interest rate environment.

Total revenue increased $127 million or 3%.

Canadian Banking revenue increased $171 million or 4%, primarily driven by average volume growth of 16% in deposits and 6% in loans, higher card service revenue and higher average balances driving higher mutual fund distribution fees. Higher securities brokerage commissions reflecting increased client activity also contributed to the increase. These factors were partially offset by lower spreads and the impact of one less day in the current quarter.

Caribbean & U.S. Banking revenue decreased $44 million or 19%, primarily reflecting lower spreads and the impact of foreign exchange translation.

Net interest margin was down 17 bps, primarily due to lower interest rates.

PCL decreased $1,671 million, as the prior year reflected elevated provisions on performing loans due to the impact of the onset of the COVID-19 pandemic as compared to releases in the current quarter driven by improvements in our macroeconomic and credit quality outlook. Lower provisions on impaired loans also contributed to the decrease, resulting in a decrease of 11 bps in the impaired loans ratio. For further details, refer to Credit quality performance in the Credit risk section.

Non-interest expense decreased $32 million or 2%, largely attributable to lower discretionary spend and a favourable sales tax adjustment in the current quarter, partially offset by higher staff-related costs.

Q2 2021 vs. Q1 2021

Net income increased $115 million or 6% from last quarter, primarily due to lower PCL resulting from higher releases of provisions on performing loans in the current quarter. Average volume growth of 1% in Canadian Banking and lower staff-related costs also contributed to the increase. These factors were partially offset by the impact of three less days in the current quarter.

Net interest margin remained flat.

Q2 2021 vs. Q2 2020 (Six months ended)

Net income increased $1,483 million or 67% from the same period last year, largely reflecting lower PCL. Average volume growth of 11% in Canadian Banking was more than offset by lower spreads due to the lower interest rate environment.

Total revenue increased $80 million or 1%, largely due to average volume growth in Canadian Banking of 18% in deposits and 6% in loans. Higher securities brokerage commissions reflecting increased client activity, higher average balances driving higher mutual fund distribution fees, and higher card service revenue also contributed to the increase. These factors were partially offset by lower spreads.

PCL decreased $1,848 million, as the same period last year reflected elevated provisions on performing loans due to the impact of the onset of the COVID-19 pandemic as compared to releases in the current year driven by improvements in our macroeconomic and credit quality outlook. Lower provisions on impaired loans also contributed to the decrease, resulting in a decrease of 8 bps in the impaired loans ratio. For further details, refer to Credit quality performance in the Credit risk section.

Non-interest expense decreased $38 million or 1%.