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 February 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
February 24, 2021				By:		/s/ Rod Bolger
				Name:		Rod Bolger
				Title:		Chief Financial Officer

EXHIBIT INDEX

 

Exhibit		Description of Exhibit
99.1		First Quarter 2021 Earnings Release
99.2		First 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

 

FIRST QUARTER 2021

EARNINGS RELEASE

 

ROYAL BANK OF CANADA REPORTS FIRST 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 Q1 2021 Report to Shareholders and Supplementary Financial Information are available at: http://www.rbc.com/investorrelations.

 

Net Income   $3.8 Billion   Up 10% YoY

Diluted EPS1   $2.66   Up 11% YoY

PCL2   $110 Million   PCL on loans ratio down 16 bps3 QoQ

ROE4   18.6%   Up 100 bps YoY

CET1 Ratio   12.5%   Well above regulatory  requirements

 

TORONTO, February 24, 2021 – Royal Bank of Canada (RY on TSX and NYSE) today reported net income of $3,847 million for the quarter ended January 31, 2021, up $338 million or 10% from the prior year, with strong diluted EPS growth of 11% over the same period. Results across our businesses benefited from strong volume growth, increased client activity and constructive markets, partially offset by the impact of low interest rates and higher expenses largely due to variable and stock-based compensation commensurate with strong results. Record earnings in Capital Markets as well as positive earnings growth in Personal & Commercial Banking, Wealth Management and Insurance were partly offset by lower results in Investor & Treasury Services.

 

Results this quarter also reflected lower provisions for credit losses, with a PCL on loans ratio of 7 bps, largely resulting from releases of provisions on performing loans. Lower provisions on impaired loans also contributed to the decrease. Our reserves continue to be prudent and reflective of the uncertainty related to the COVID-19 pandemic, as demonstrated by our allowance for credit losses (ACL) ratio of 85 bps.

 

Compared to last quarter, net income was up $601 million with higher results in Personal & Commercial Banking, Capital Markets, Wealth Management, and Investor & Treasury Services. These factors were partially offset by lower results in Insurance.

 

Our capital position remained robust, with a Common Equity Tier 1 (CET1) ratio of 12.5% supporting strong volume growth and $1.5 billion in common share dividends paid. We also had a strong average Liquidity Coverage Ratio (LCR) of 141%.

 

“Against the uncertain macroeconomic backdrop due to the COVID-19 pandemic, we entered 2021 with strong momentum across our businesses. This is a reflection of the resiliency of our diversified business model, prudent approach to risk management, significant technology investments, and our colleagues’ dedication to our clients and communities. As global economies pivot to recovery, our scale, robust capital and liquidity position, and data and technology capabilities provide us with the foundation to continue prudently investing for long-term growth and delivering sustainable value for our clients, shareholders and communities.” – Dave McKay, RBC President and Chief Executive Officer

 

Q1 2021 Compared to Q1 2020		•  Net income of $3,847 million •  Diluted EPS of $2.66 •  ROE of 18.6% •  CET1 ratio of 12.5%		h   10% h   11% h   100 bps h   50 bps
Q1 2021 Compared to Q4 2020		•  Net income of $3,847 million •  Diluted EPS of $2.66 •  ROE of 18.6% •  CET1 ratio of 12.5%		h   19% h   19% h   260 bps g  0 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.

 

Personal & Commercial Banking

 

Net income of $1,793 million increased $107 million or 6% from a year ago, primarily attributable to continued strong average volume growth of 12% (+19% in deposits and +6% in loans) in Canadian Banking and lower PCL. These factors were partially offset by lower spreads.

 

Compared to last quarter, net income increased $291 million or 19%, primarily due to lower PCL, average volume growth of 2% in Canadian Banking, as well as higher card service and foreign exchange revenue. The timing of professional fees also contributed to the increase. These factors were partially offset by higher staff-related costs.

 

1

Wealth Management

 

Net income of $649 million increased $26 million or 4% from a year ago, primarily due to average loan growth and higher average fee-based client assets, reflecting market appreciation and net sales, net of the associated variable compensation. Higher performance fees driven by strong fund performance and lower PCL also contributed to the increase. These factors were partially offset by the impact of lower interest rates on loans and sweep deposits, as well as higher staff-related costs.

 

Compared to last quarter, net income increased $103 million or 19%, primarily due to an increase in earnings from higher average fee-based client assets, net of the associated variable compensation, and lower PCL. Higher transactional revenue and higher performance fees driven by strong fund performance also contributed to the increase. These factors were partially offset by higher staff-related costs.

 

Insurance

 

Net income of $201 million increased $20 million or 11% from a year ago, primarily due to improved claims experience and higher favourable investment-related experience. These factors were partially offset by the impact of lower new longevity reinsurance contracts and lower international life volumes.

 

Compared to last quarter, net income decreased $53 million or 21%, primarily due to lower favourable investment-related experience as well as new business strain. Higher claims costs and lower benefits from favourable reinsurance contract renegotiations also contributed to the decrease. These factors were partially offset by unfavourable annual actuarial assumption updates in the prior quarter.

 

Investor & Treasury Services

 

Net income of $123 million decreased $20 million or 14% from a year ago, mainly due to lower funding and liquidity revenue reflecting the impact of a less favourable interest rate environment in the current quarter and elevated enterprise liquidity, partially offset by higher gains from the disposition of securities. Lower client deposit revenue, largely driven by lower interest rates, also contributed to the decrease.

 

Compared to last quarter, net income increased $32 million or 35%, mainly due to higher funding and liquidity revenue driven by money market opportunities in the current quarter, and higher revenue from our asset services business from increased client activity.

 

Capital Markets

 

Record net income of $1,067 million increased $185 million or 21% from a year ago, mainly due to higher revenue, largely driven by higher equity trading primarily in the U.S. reflecting increased client activity, partially offset by lower, albeit strong M&A revenue, which was the second highest following the historical high in Q1 2020. Lower PCL also contributed to the increase. These factors were partially offset by higher taxes largely reflecting changes in earnings mix.

 

Compared to last quarter, net income increased $227 million or 27%, largely driven by higher revenue, mainly reflecting higher fixed income trading and higher M&A activity across most regions. Lower PCL also contributed to the increase. These factors were partially offset by higher compensation on improved results.

 

Capital, Liquidity and Credit Quality

 

Capital – As at January 31, 2021, CET1 ratio was 12.5%, unchanged from last quarter, benefiting from internal capital generation, the favourable impact of fair value other comprehensive income adjustments and the favourable impact from asset returns in determining our pension obligations. These factors were offset by higher risk-weighted assets driven by strong organic growth and the impact of a lower capital modification related to the reduction of the exclusion rate applicable to eligible Stage 1 and Stage 2 allowances from 70% to 50%, as well as a release of provisions on performing loans in the current quarter.

 

Liquidity – For the quarter ended January 31, 2021, the average LCR was 141%, which translates into a surplus of approximately $104 billion, compared to 145% and a surplus of approximately $112 billion in the prior quarter. LCR levels remained relatively consistent with Q4 2020 as loan growth was largely offset by a continued increase in client deposits.

 

For the quarter ended January 31, 2021, the Net Stable Funding Ratio (NSFR) was 118%. Our NSFR is currently elevated, largely driven by client deposit inflows resulting from industry-wide impacts of the pandemic and corresponding central bank actions.

 

Credit Quality

 

Q1 2021 vs. Q1 2020

 

Total PCL was $110 million. PCL on loans of $121 million decreased $300 million from the prior year, due to lower provisions in Personal and Commercial Banking, Capital Markets and Wealth Management. The PCL on loans ratio of 7 bps decreased 19 bps. The PCL on impaired loans ratio was 13 bps.

 

2

PCL on performing loans was $(97) million compared to $83 million in the prior year, primarily reflecting releases of provisions in Personal & Commercial Banking and Capital Markets. While uncertainty over the impact of the COVID-19 pandemic remains, the releases were largely due to improvements in our credit quality outlook in the current quarter.

 

PCL on impaired loans of $218 million decreased $120 million from the prior year due to lower provisions in Personal & Commercial Banking and Capital Markets, and recoveries in Wealth Management.

 

Q1 2021 vs. Q4 2020

 

PCL on loans decreased $277 million from last quarter, primarily due to lower provisions in Personal & Commercial Banking, Wealth Management and Capital Markets. The PCL on loans ratio decreased 16 bps.

 

PCL on performing loans was $(97) million, compared to $147 million in the prior quarter, largely reflecting releases of provisions in the current quarter in Personal & Commercial Banking as compared to provisions in Personal & Commercial Banking and Wealth Management in the prior quarter.

 

PCL on impaired loans decreased $33 million from last quarter, reflecting lower provisions in Capital Markets and recoveries in Wealth Management, partially offset by higher provisions in Personal & Commercial Banking.

 

ACL

 

The ratio of ACL on loans and acceptances to total loans and acceptances was 85 bps, down 4 bps from last quarter and up 32 bps from last year.

 

Digitally Enabled Relationship Bank

 

Digital usage continued to grow with 90-day Active Mobile users increasing 12% from a year ago to 5.2 million, and mobile sessions up 40% from a year ago to over 100 million for the first time. Digital adoption increased to 56.0%, and self-serve transactions increased 500 bps from last year to 93.8%.

 

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 and ROE. ROE does not have a standardized meaning under GAAP. We use ROE as a measure of return on total capital invested in our business.

 

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 Q1 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, 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 Q1 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, environmental and social risk, 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 Q1 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 Q1 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 Q1 2021 Report to Shareholders at rbc.com/investorrelations.

 

Quarterly conference call and webcast presentation

Our quarterly conference call is scheduled for February 24, 2021 at 8:00 a.m. (EST) and will feature a presentation about our first 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 9794830#). Please call between 7:50 a.m. and 7:55 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 February 24, 2021 until May 26, 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 34 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 first 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 $3.8 Billion Up 10% YoY

Diluted EPS(1) $2.66 Up 11% YoY

PCL(2) $110 Million PCL on loans ratio down 16 bps(3) QoQ

ROE(4) 18.6% Up 100 bps YoY

CET1 Ratio 12.5% Well above regulatory requirements

TORONTO, February 24, 2021 – Royal Bank of Canada (RY on TSX and NYSE) today reported net income of $3,847 million for the quarter ended January 31, 2021, up $338 million or 10% from the prior year, with strong diluted EPS growth of 11% over the same period. Results across our businesses benefited from strong volume growth, increased client activity and constructive markets, partially offset by the impact of low interest rates and higher expenses largely due to variable and stock-based compensation commensurate with strong results. Record earnings in Capital Markets as well as positive earnings growth in Personal & Commercial Banking, Wealth Management and Insurance were partly offset by lower results in Investor & Treasury Services. Results this quarter also reflected lower provisions for credit losses, with a PCL on loans ratio of 7 bps, largely resulting from releases of provisions on performing loans. Lower provisions on impaired loans also contributed to the decrease. Our reserves continue to be prudent and reflective of the uncertainty related to the COVID-19 pandemic, as demonstrated by our allowance for credit losses (ACL) ratio of 85 bps.

Compared to last quarter, net income was up $601 million with higher results in Personal & Commercial Banking, Capital Markets, Wealth Management, and Investor & Treasury Services. These factors were partially offset by lower results in Insurance.

Our capital position remained robust, with a Common Equity Tier 1 (CET1) ratio of 12.5% supporting strong volume growth and $1.5 billion in common share dividends paid. We also had a strong average Liquidity Coverage Ratio (LCR) of 141%.

 

“Against the uncertain macroeconomic backdrop due to the COVID-19 pandemic, we entered 2021 with strong momentum across our businesses. This is a reflection of the resiliency of our diversified business model, prudent approach to risk management, significant technology investments, and our colleagues’ dedication to our clients and communities. As global economies pivot to recovery, our scale, robust capital and liquidity position, and data and technology capabilities provide us with the foundation to continue prudently investing for long-term growth and delivering sustainable value for our clients, shareholders and communities.”   – Dave McKay, RBC President and Chief Executive Officer

 

Q1 2021 Compared to Q1 2020				•  Net income of $3,847 million •  Diluted EPS(1) of $2.66 •  ROE(4) of 18.6% •  CET1 ratio of 12.5%		h  10% h  11% h  100 bps h  50 bps
Q1 2021 Compared to Q4 2020				•  Net income of $3,847 million •  Diluted EPS(1) of $2.66 •  ROE(4) of 18.6% •  CET1 ratio of 12.5%		h  19% h  19% h  260 bps g 0 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 Q1 2021 Report to Shareholders.

 

 

Table of contents

 

2         Royal Bank of Canada        First 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 month period ended or as at January 31, 2021, compared to the corresponding period in the prior fiscal year and the three month period ended October 31, 2020. This MD&A should be read in conjunction with our unaudited Interim Condensed Consolidated Financial Statements for the quarter ended January 31, 2021 (Condensed Financial Statements) and related notes and our 2020 Annual Report. This MD&A is dated February 23, 2021. All amounts are in Canadian dollars, unless otherwise specified, and are based on financial statements prepared 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 Q1 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, 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 Q1 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, environmental and social risk, 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 Q1 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 Q1 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 Q1 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 34 other countries. Learn more at rbc.com.

Royal Bank of Canada         First Quarter 2021         3

 

Selected financial and other highlights

 

		As at or for the three months ended														For the three months ended
(Millions of Canadian dollars, except per share, number of and percentage amounts)		January 31 2021				October 31 2020				January 31 2020						Q1 2021 vs. Q4 2020				Q1 2021 vs. Q1 2020
Total revenue		$	12,943			$	11,092			$	12,836					$	1,851			$	107
Provision for credit losses (PCL)			110				427				419						(317	)			(309	)
Insurance policyholder benefits, claims and acquisition expense (PBCAE)			1,406				461				1,614						945				(208	)
Non-interest expense			6,542				6,058				6,378						484				164
Income before income taxes			4,885				4,146				4,425						739				460
Net income		$	3,847			$	3,246			$	3,509					$	601			$	338
Segments – net income
Personal & Commercial Banking		$	1,793			$	1,502			$	1,686					$	291			$	107
Wealth Management			649				546				623						103				26
Insurance			201				254				181						(53	)			20
Investor & Treasury Services			123				91				143						32				(20	)
Capital Markets			1,067				840				882						227				185
Corporate Support			14				13				(6	)					1				20
Net income		$	3,847			$	3,246			$	3,509					$	601			$	338
Selected information
Earnings per share (EPS) – basic		$	2.66			$	2.23			$	2.41					$	0.43			$	0.25
– diluted			2.66				2.23				2.40						0.43				0.26
Return on common equity (ROE) (1), (2)			18.6%				16.0%				17.6%						260 bps				100 bps
Average common equity (1)		$	80,750			$	78,800			$	77,850					$	1,950			$	2,900
Net interest margin (NIM) – on average earning assets, net			1.50%				1.52%				1.59%						(2) bps				(9) bps
PCL on loans as a % of average net loans and acceptances			0.07%				0.23%				0.26%						(16) bps				(19) bps
PCL on performing loans as a % of average net loans and acceptances			(0.06)%				0.08%				0.05%						(14) bps				(11) bps
PCL on impaired loans as a % of average net loans and acceptances			0.13%				0.15%				0.21%						(2) bps				(8) bps
Gross impaired loans (GIL) as a % of loans and acceptances			0.41%				0.47%				0.45%						(6) bps				(4) bps
Liquidity coverage ratio (LCR) (3)			141%				145%				129%						(400) bps				1200 bps
Net stable funding ratio (NSFR) (4)			118%				n.a.				n.a.						n.a.				n.a.
Capital ratios and Leverage ratio
Common Equity Tier 1 (CET1) ratio			12.5%				12.5%				12.0%						–				50 bps
Tier 1 capital ratio			13.8%				13.5%				13.1%						30 bps				70 bps
Total capital ratio			15.5%				15.5%				14.9%						–				60 bps
Leverage ratio			4.8%				4.8%				4.2%						–				60 bps
Selected balance sheet and other information (5)
Total assets		$	1,671,151			$	1,624,548			$	1,476,304					$	46,603			$	194,847
Securities, net of applicable allowance			287,482				275,814				266,667						11,668				20,815
Loans, net of allowance for loan losses			672,563				660,992				629,940						11,571				42,623
Derivative related assets			110,917				113,488				93,982						(2,571	)			16,935
Deposits			1,054,597				1,011,885				902,284						42,712				152,313
Common equity			82,934				80,719				78,256						2,215				4,678
Total risk-weighted assets			557,519				546,242				523,725						11,277				33,794
Assets under management (AUM)			897,400				843,600				799,900						53,800				97,500
Assets under administration (AUA) (6)			6,133,600				5,891,200				5,723,700						242,400				409,900
Common share information
Shares outstanding (000s) – average basic			1,423,350				1,422,578				1,427,599						772				(4,249	)
– average diluted			1,425,280				1,426,466				1,433,060						(1,186	)			(7,780	)
– end of period			1,424,083				1,422,473				1,423,212						1,610				871
Dividends declared per common share		$	1.08			$	1.08			$	1.05					$	–			$	0.03
Dividend yield (7)			4.3%				4.4%				4.0%						(10) bps				30 bps
Dividend payout ratio			41%				48%				44%						(700) bps				(300) bps
Common share price (RY on TSX) (8)		$	103.50			$	93.16			$	104.58					$	10.34			$	(1.08	)
Market capitalization (TSX) (8)			147,393				132,518				148,840						14,875				(1,447	)
Business information (number of)
Employees (full-time equivalent) (FTE)			84,030				83,842				82,491						188				1,539
Bank branches			1,328				1,329				1,330						(1	)			(2	)
Automated teller machines (ATMs)			4,523				4,557				4,619						(34	)			(96	)
Period average US$ equivalent of C$1.00 (9)			0.779				0.756				0.760						0.023				0.019
Period-end US$ equivalent of C$1.00			0.782				0.751				0.756						0.031				0.026

 

(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 Liquidity Adequacy Requirements (LAR) guideline, which, in turn, reflects liquidity related requirements issued by the BCBS. For further details, refer to the Liquidity and funding risk section.

(5)

Represents period-end spot balances.

(6)

AUA includes $15.3 billion and $4.1 billion (October 31, 2020 – $15.6 billion and $6.7 billion; January 31, 2020 – $15.4 billion and $7.8 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        First Quarter 2021

 

Economic, market and regulatory review and outlook – data as at February 23, 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 the latter part of 2020, including the emergence of new variants of COVID-19 in different regions, has resulted in many countries increasing the extent of containment measures, curtailing economic activity. However, the resulting disruptions to the economy have not been as significant as those experienced in the spring of 2020 and positive developments concerning vaccines have improved the outlook beyond the very near-term. Substantial fiscal and monetary policy support remains in place to help the economy weather near-term weakness until vaccination rates increase and enable what is expected to be a more sustainable easing of containment measures over the second half of calendar 2021. Despite the positive developments, uncertainty remains regarding vaccine supply and availability, as well as the ability of vaccines to work effectively against new emerging variants of COVID-19, which could impact the timing and extent of a full recovery.

Canada

The Canadian economy is expected to have grown by 7.5%¹ in the final calendar quarter of 2020, a second consecutive increase following the sharp decline in the second calendar quarter of 2020, which would limit the contraction to 5.4% in calendar 2020. A resurgence in virus spread, including the emergence of new variants of COVID-19, and associated re-imposition of containment measures are once again weighing on economic growth in early 2021, although the impact is expected to be much less pronounced compared to the spring of 2020. We expect GDP to remain flat in the first calendar quarter of 2021, as weakness in the hospitality and travel sectors is offset by improvements in the rest of the economy, including the industrial sector. Although the labour market shed jobs in December and January for the first time since April 2020, with job losses heavily concentrated in part-time positions, total hours worked still rose over the two months combined. The unemployment rate jumped to 9.4% in January, still below its peak of 13.7% in May 2020. Exceptional government income support will continue to help offset near-term wage losses for households, and the Bank of Canada (BoC) continues to focus on keeping interest rates very low. That policy support is expected to help maintain household purchasing power until containment measures can be eased more significantly and labour markets begin to recover more sustainably. By the end of calendar 2020, households had accumulated substantial savings, which will support consumer spending as containment measures ease, especially spending on services such as travel and entertainment that have been and continue to remain in many jurisdictions unavailable through the COVID-19 pandemic. Beyond the very near-term, vaccine developments have been significantly more positive. It is expected that increased distribution among more vulnerable age groups will help to ease pressure on the healthcare system, reduce deaths from COVID-19, and allow for some gradual easing of containment measures in the spring of 2021. Despite the ongoing uncertainty, we expect GDP growth to increase from the second calendar quarter of 2021 onwards as rising vaccination rates over the summer enable further easing of containment measures and household spending rises.

U.S.

The U.S. economy grew 4%¹ in the final calendar quarter of 2020, limiting the annual contraction to 3.5% for the calendar year. We expect growth in the first calendar quarter of 2021 to slow to 2.5%¹ as a resurgence in virus spread, including the emergence of new variants of COVID-19, and associated re-imposition of containment measures are again weighing on economic activity. Employment declined in December for the first time since the spring of 2020 as more leisure and hospitality jobs were lost due to the re-imposition of containment measures, but increased modestly in January. Employment outside of leisure and hospitality continued to grow over the two months, and the unemployment rate of 6.3% in January remained well below its peak of 14.8% in April 2020. Fiscal stimulus, including exceptional government income transfers to households, is expected to continue to support household disposable incomes for those out of work. 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 should help to accelerate growth in spending in calendar 2021, alongside the expectation of rising vaccination rates to enable the easing of containment measures.

Europe

A resurgence in virus spread and the emergence of new variants of COVID-19 have also weighed on the economic recovery in both the Euro area and the U.K. Euro area GDP is expected to have declined by 0.7% in the last calendar quarter of 2020. In the U.K., GDP growth is expected to have remained positive but moderated to 0.7%. The trade deal signed between the U.K. and the European Union mitigated the potential for what could have otherwise been a sharper headwind for GDP growth in both regions in 2021. 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 will also continue to support household incomes despite still weak underlying labour market conditions. As in other regions, the expected easing of containment measures alongside rising vaccination rates should support stronger GDP growth in the U.K. and Euro area beginning in the second calendar quarter of 2021.

Financial markets

Government bond yields remain at historically low levels due to subdued inflation pressures and expectations that monetary policy will remain accommodative for an extended period. Monetary policy stimulus, massive government income support

 

1

Annualized rate

Royal Bank of Canada         First Quarter 2021         5

 

and positive vaccine developments have supported equity markets, with major indexes rising to all-time highs. After falling sharply in the spring of 2020, oil prices have rebounded back to around pre-pandemic levels amid rising global demand and a recent announcement from Saudi Arabia that it would cut production.

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 and Capital management sections of this Q1 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 January 2021, the International Monetary Fund (IMF) projected global growth of 5.5% in 2021, up from its previous forecast of 5.2% in October 2020, reflecting expectations of a recovery in economic activity later in the year as rising vaccination rates enable the easing of containment measures, supported by additional fiscal and monetary policy measures in a few large economies. Despite the positive developments, uncertainty remains regarding vaccine supply and availability, as well as the ability of vaccines to work effectively against new emerging variants of COVID-19. Trade policy also remains a source of global uncertainty as the impacts of post-Brexit trading relationships and the new U.S. administration 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.

United States regulatory initiatives

Policymakers continue to evaluate and implement reforms to various U.S. financial regulations, which could result in amendments to the U.S. regulatory requirements and associated changes in compliance costs. With a new U.S. administration, there is heightened potential for the introduction of new financial regulations or changes to existing/proposed regulations. On January 1, 2021, the U.S. Congress enacted the Anti-Money Laundering Act of 2020 (AMLA) which represents a comprehensive set of reforms to U.S. anti-money laundering laws. Regulations pertaining to this legislation have yet to be issued; the extent, timing and impact of which are unknown at this time. We will continue to monitor developments and any resulting implications for 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, including the Impact of pandemic risk factor, 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 Q1 2021 Report to Shareholders.

 

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 some jurisdictions. As the COVID-19 pandemic continues to evolve, including through the emergence 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. Despite recent government approvals authorizing the use of vaccines in many countries, uncertainty remains regarding vaccine efficacy against the new variants of COVID-19, supply and availability as well as 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,

6         Royal Bank of Canada        First Quarter 2021

 

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 January 31, 2021, the majority of our clients have exited these programs and returned to making regular payments on their loans following the expiry of their payment deferral periods. The following table summarizes the gross carrying amount of loans outstanding for clients remaining in these programs.

 

		As at
		January 31 2021						October 31 2020
(Millions of Canadian dollars, except number of loan amounts)		Gross carrying amount of loans outstanding						Gross carrying amount of loans outstanding
Residential mortgages		$	809					$	6,829
Personal			62						712
Credit cards			16						172
Small business			31						138
Wholesale			784						2,618
Total		$	1,702					$	10,469

Payment deferral periods for clients remaining in these programs as at January 31, 2021 will largely conclude by the end of the second quarter of 2021. As the RBC Client Relief programs gradually come to an end, 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.

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 December 7, 2020, the Canadian Federal government announced that the application deadline for the CEBA program has been extended from December 31, 2020 to March 31, 2021.

Royal Bank of Canada         First Quarter 2021         7

 

•

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 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. Applications for this program commenced on February 1, 2021 and therefore no amounts were funded under this program as at January 31, 2021. The application deadline for this program is June 30, 2021.

As at January 31, 2021, we have facilitated the administration of relief to more than 184,800 clients (October 31, 2020 – 174,200) who have enrolled in the Canadian federal government programs, with corresponding exposures of $9.3 billion (October 31, 2020 – $7.1 billion), of which $8.7 billion (October 31, 2020 – $5.7 billion) was funded. For further details, refer to Note 6 of our 2020 Annual Consolidated Financial Statements. As at January 31, 2021, we have provided $5.7 billion (US$4.5 billion) of funding (October 31, 2020 – $5.8 billion, (US$4.3 billion)) to 16,835 clients (October 31, 2020 – 15,888 clients) through the PPP.

 

Financial performance

 

Overview

Q1 2021 vs. Q1 2020

Net income of $3,847 million was up $338 million or 10% from a year ago. Diluted earnings per share (EPS) of $2.66 was up $0.26 or 11% and return on common equity (ROE) of 18.6% was up from 17.6% last year. Our Common Equity Tier 1 (CET1) ratio of 12.5% was up 50 bps from a year ago.

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

Q1 2021 vs. Q4 2020

Net income of $3,847 million was up $601 million or 19% from last quarter. Diluted EPS of $2.66 was up $0.43 or 19% and ROE of 18.6% was up from 16.0% in the prior quarter. Our CET1 ratio of 12.5% was unchanged from last quarter.

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

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
(Millions of Canadian dollars, except per share amounts)		Q1 2021 vs. Q1 2020				Q1 2021 vs. Q4 2020
Increase (decrease):
Total revenue		$	(74	)		$	(104	)
PCL			2				2
Non-interest expense			(49	)			(74	)
Income taxes			(3	)			(4	)
Net income			(24	)			(28	)
Impact on EPS
Basic		$	(0.02	)		$	(0.02	)
Diluted			(0.02	)			(0.02	)

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

 

(Average foreign currency equivalent of C$1.00) (1)		For the three months ended
		January 31 2021				October 31 2020				January 31 2020
U.S. dollar			0.779				0.756				0.760
British pound			0.574				0.578				0.579
Euro			0.644				0.642				0.684

 

(1)

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

8         Royal Bank of Canada        First Quarter 2021

 

Total revenue

 

		For the three months ended
(Millions of Canadian dollars, except percentage amounts)		January 31 2021				October 31 2020				January 31 2020
Interest and dividend income		$	7,236			$	7,463			$	10,238
Interest expense			2,201				2,453				5,017
Net interest income			5,035				5,010				5,221
NIM			1.50%				1.52%				1.59%
Insurance premiums, investment and fee income			1,809				958				1,994
Trading revenue			524				224				458
Investment management and custodial fees			1,703				1,577				1,535
Mutual fund revenue			1,000				961				946
Securities brokerage commissions			401				320				318
Service charges			458				456				488
Underwriting and other advisory fees			590				578				627
Foreign exchange revenue, other than trading			289				233				253
Card service revenue			272				211				287
Credit fees			332				361				360
Net gains on investment securities			35				23				11
Share of profit in joint ventures and associates			25				20				22
Other			470				160				316
Non-interest income			7,908				6,082				7,615
Total revenue		$	12,943			$	11,092			$	12,836
Additional trading information
Net interest income		$	740			$	728			$	700
Non-interest income			524				224				458
Total trading revenue		$	1,264			$	952			$	1,158

Q1 2021 vs. Q1 2020

Total revenue increased $107 million or 1% from a year ago, mainly due to higher investment management and custodial fees, other revenue and securities brokerage commissions. Higher trading revenue also contributed to the increase. These factors were partially offset by lower net interest income and a decrease in insurance premiums, investment and fee income (Insurance revenue). The impact of foreign exchange translation also decreased total revenue by $74 million.

Net interest income decreased $186 million or 4%, largely due to lower spreads in Personal & Commercial Banking and Wealth Management. These factors were partially offset by volume growth in Canadian Banking and Wealth Management.

NIM was down 9 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 decreased $185 million or 9%, primarily reflecting the change in fair value of investments backing policyholder liabilities and lower group annuity sales in Canadian Insurance, both of which are largely offset in PBCAE.

Investment management and custodial fees increased $168 million or 11%, mainly due to higher average fee-based client assets, primarily reflecting market appreciation and net sales.

Securities brokerage commissions increased $83 million or 26%, largely reflecting increased client activity in Canadian Banking.

Other revenue increased $154 million or 49%, primarily driven by the change in the fair value of the hedges related to our U.S. share-based compensation plans, which was largely offset in Non-interest expense.

Q1 2021 vs. Q4 2020

Total revenue increased $1,851 million or 17% from last quarter, mainly due to an increase in insurance premiums, investment and fee income (Insurance revenue), higher other revenue and higher trading revenue. Higher investment management and custodial fees also contributed to the increase. These factors were partially offset by the impact of foreign exchange translation which decreased total revenue by $104 million.

Net interest income remained relatively flat.

Insurance revenue increased $851 million or 89%, mainly reflecting the change in fair value of investments backing policyholder liabilities and higher group annuity sales, both of which are largely offset in PBCAE.

Trading revenue increased $300 million, mainly attributable to higher fixed income trading reflecting favourable market conditions.

Investment management and custodial fees increased $126 million or 8%, largely due to higher average fee-based client assets, primarily reflecting market appreciation and net sales.

Other revenue increased $310 million, largely reflecting the change in the fair value of the hedges related to our U.S. share-based compensation plans, which was largely offset in Non-interest expense. The prior quarter also included unfavourable changes in the fair value of certain instruments in our non-trading portfolios.

Royal Bank of Canada         First Quarter 2021         9

 

Provision for credit losses

Q1 2021 vs. Q1 2020

Total PCL decreased $309 million from a year ago.

PCL on loans of $121 million decreased $300 million, reflecting lower provisions in Personal & Commercial Banking, Capital Markets and Wealth Management. The PCL on loans ratio of 7 bps decreased 19 bps.

Q1 2021 vs. Q4 2020

Total PCL decreased $317 million from last quarter.

PCL on loans of $121 million decreased $277 million, primarily reflecting lower provisions in Personal & Commercial Banking, Wealth Management and Capital Markets. The PCL on loans ratio decreased 16 bps.

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

Insurance policyholder benefits, claims and acquisition expense (PBCAE)

Q1 2021 vs. Q1 2020

PBCAE decreased $208 million or 13% from a year ago, 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. Improved claims experience, mainly in our life retrocession and disability products, and higher favourable investment-related experience also contributed to the decrease. These factors were partially offset by lower new longevity reinsurance contracts and lower benefits from favourable reinsurance contract renegotiations.

Q1 2021 vs. Q4 2020

PBCAE increased $945 million from last quarter, primarily reflecting the change in fair value of investments backing policyholder liabilities and higher group annuity sales, both of which are largely offset in revenue, as well as new business strain. Lower favourable investment-related experience, higher claims costs, and lower benefits from reinsurance contract renegotiations also contributed to the increase. These factors were partially offset by unfavourable annual actuarial assumption updates in the prior quarter, largely related to mortality experience.

Non-interest expense

 

		For the three months ended
(Millions of Canadian dollars, except percentage amounts)		January 31 2021				October 31 2020				January 31 2020
Salaries		$	1,655			$	1,712			$	1,652
Variable compensation			1,804				1,371				1,646
Benefits and retention compensation			543				447				541
Share-based compensation			286				57				221
Human resources			4,288				3,587				4,060
Equipment			493				508				462
Occupancy			404				431				397
Communications			213				254				250
Professional fees			291				385				284
Amortization of other intangibles			319				330				303
Other			534				563				622
Non-interest expense		$	6,542			$	6,058			$	6,378
Efficiency ratio (1)			50.5%				54.6%				49.7%
Efficiency ratio adjusted (2)			51.9%				53.5%				51.6%

 

(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.

Q1 2021 vs. Q1 2020

Non-interest expense increased $164 million or 3% 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 and lower discretionary spend, net of incremental COVID-19 related costs.

Our efficiency ratio of 50.5% increased 80 bps from 49.7% last year. Excluding the change in fair value of investments backing policyholder liabilities, our efficiency ratio of 51.9% increased 30 bps from 51.6% last year.

Q1 2021 vs. Q4 2020

Non-interest expense increased $484 million or 8% from last quarter, 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. Higher staff related costs also contributed to the increase. These factors were partially offset by the impact of foreign exchange translation, lower discretionary spend and the timing of professional fees.

Our efficiency ratio of 50.5% decreased 410 bps from 54.6% last quarter. Excluding the change in fair value of investments backing policyholder liabilities, our efficiency ratio of 51.9% decreased 160 bps from 53.5% last quarter.

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.

10         Royal Bank of Canada        First Quarter 2021

 

Income taxes

 

		For the three months ended
(Millions of Canadian dollars, except percentage amounts)		January 31 2021				October 31 2020				January 31 2020
Income taxes		$	1,038			$	900			$	916
Income before income taxes			4,885				4,146				4,425
Effective income tax rate			21.2%				21.7%				20.7%

Q1 2021 vs. Q1 2020

Income tax expense increased $122 million or 13% from a year ago, primarily due to higher income before income taxes and changes in earnings mix. These factors were partially offset by net favourable tax adjustments in the current quarter.

The effective income tax rate of 21.2% increased 50 bps, mainly due to changes in earnings mix, partially offset by net favourable tax adjustments in the current quarter.

Q1 2021 vs. Q4 2020

Income tax expense increased $138 million or 15% from last quarter, primarily due to higher income before income taxes, partially offset by changes in earnings mix and higher net favourable tax adjustments in the current quarter.

The effective income tax rate of 21.2% decreased 50 bps, primarily due to changes in earnings mix and the net impact of the tax adjustments noted above.

 

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
		January 31 2021																														October 31 2020						January 31 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		$	1,774			$	637			$	199			$	121			$	1,051			$	5			$	3,787					$	3,173					$	3,439
Total average common equity (1), (2)			23,350				16,200				2,300				3,150				22,600				13,150				80,750						78,800						77,850
ROE (3)			30.1%				15.6%				34.5%				15.3%				18.5%				n.m.				18.6%						16.0%						17.6%

 

(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         First Quarter 2021         11

 

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 months ended January 31, 2021 with the corresponding period in the prior year and the three months ended October 31, 2020. 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
		January 31 2021														October 31 2020														January 31 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		$	12,943			$	(346	)		$	12,597					$	11,092			$	235			$	11,327					$	12,836			$	(468	)		$	12,368
Non-interest expense			6,542				–				6,542						6,058				–				6,058						6,378				–				6,378
Efficiency ratio			50.5%								51.9%						54.6%								53.5%						49.7%								51.6%

12         Royal Bank of Canada        First Quarter 2021

 

Personal & Commercial Banking

 

		As at or for the three months ended
(Millions of Canadian dollars, except percentage amounts and as otherwise noted)		January 31 2021				October 31 2020				January 31 2020
Net interest income		$	3,161			$	3,114			$	3,226
Non-interest income			1,402				1,259				1,384
Total revenue			4,563				4,373				4,610
PCL on performing assets			(60	)			135				66
PCL on impaired assets			225				181				276
PCL			165				316				342
Non-interest expense			1,978				2,030				1,984
Income before income taxes			2,420				2,027				2,284
Net income		$	1,793			$	1,502			$	1,686
Revenue by business
Canadian Banking		$	4,352			$	4,165			$	4,368
Caribbean & U.S. Banking			211				208				242
Selected balance sheet and other information
ROE			30.1%				26.0%				28.3%
NIM			2.56%				2.59%				2.77%
Efficiency ratio			43.3%				46.4%				43.0%
Operating leverage			(0.7)%				(5.4)%				0.7%
Average total earning assets, net		$	489,800			$	478,500			$	463,400
Average loans and acceptances, net			493,500				482,000				466,800
Average deposits			490,100				481,300				413,700
AUA (1)			320,900				292,800				294,200
Average AUA			315,900				297,600				290,600
PCL on impaired loans as a % of average net loans and acceptances			0.18%				0.15%				0.24%
Other selected information – Canadian Banking
Net income		$	1,754			$	1,474			$	1,624
NIM			2.54%				2.56%				2.72%
Efficiency ratio			41.9%				44.9%				41.3%
Operating leverage			(1.6)%				(6.8)%				0.7%

 

(1)

AUA represents period-end spot balances and includes securitized residential mortgages and credit card loans as at January 31, 2021 of $15.3 billion and $4.1 billion, respectively (October 31, 2020 – $15.6 billion and $6.7 billion; January 31, 2020 – $15.4 billion and $7.8 billion).

Financial performance

Q1 2021 vs. Q1 2020

Net income increased $107 million or 6% from a year ago, primarily attributable to average volume growth of 12% in Canadian Banking and lower PCL. These factors were partially offset by lower spreads.

Total revenue decreased $47 million or 1%.

Canadian Banking revenue decreased $16 million, primarily due to lower net interest income as average volume growth of 19% in deposits and 6% in loans was more than offset by lower spreads. Lower service charges also contributed to the decrease. These factors were partially offset by higher securities brokerage commissions reflecting increased client activity.

Caribbean & U.S. Banking revenue decreased $31 million or 13%, primarily reflecting lower spreads.

Net interest margin was down 21 bps, mainly due to lower interest rates.

PCL decreased $177 million or 52%, mainly reflecting releases of provisions on performing loans. While uncertainty over the impact of the COVID-19 pandemic remains, the releases were largely due to improvements in our credit quality outlook and lower exposures in the current quarter. Lower provisions on impaired loans also contributed to the decrease, resulting in a decrease of 6 bps in the impaired loans ratio. For further details, refer to Credit quality performance in the Credit risk section.

Non-interest expense decreased $6 million.

Q1 2021 vs. Q4 2020

Net income increased $291 million or 19% from last quarter, primarily due to lower PCL, average volume growth of 2% in Canadian Banking, as well as higher card service and foreign exchange revenue. The timing of professional fees also contributed to the increase. These factors were partially offset by higher staff-related costs.

Total revenue increased $190 million or 4%, mainly driven by average volume growth of 2% in Canadian Banking and higher card service revenue. Higher foreign exchange revenue and securities brokerage commissions reflecting increased client activity also contributed to the increase. These factors were partially offset by lower spreads.

Net interest margin was down 3 bps, mainly due to the ongoing impact of the lower interest rate environment.

PCL decreased $151 million or 48%, largely reflecting releases of provisions on performing loans. While uncertainty over the impact of the COVID-19 pandemic remains, the releases in the current quarter were largely due to improvements in our credit quality outlook and lower exposures in certain portfolios. This was partially offset by higher provisions on impaired loans in our Canadian Banking portfolios, resulting in an increase of 3 bps in the impaired loans ratio. For further details, refer to Credit quality performance in the Credit risk section.

Non-interest expense decreased $52 million or 3%, largely reflecting the timing of professional fees and marketing costs, as well as the impact of higher technology and related costs in the prior quarter. These factors were partially offset by higher staff-related costs.

Royal Bank of Canada         First Quarter 2021         13

 

 

Wealth Management

 

		As at or for the three months ended
(Millions of Canadian dollars, except number of, percentage amounts and as otherwise noted)		January 31 2021				October 31 2020				January 31 2020
Net interest income		$	666			$	686			$	738
Non-interest income			2,721				2,382				2,428
Total revenue			3,387				3,068				3,166
PCL on performing assets			(2	)			51				(1	)
PCL on impaired assets			(27	)			–				(1	)
PCL			(29	)			51				(2	)
Non-interest expense			2,563				2,312				2,370
Income before income taxes			853				705				798
Net income		$	649			$	546			$	623
Revenue by business
Canadian Wealth Management		$	900			$	835			$	843
U.S. Wealth Management (including City National)			1,702				1,539				1,624
U.S. Wealth Management (including City National) (US$ millions)			1,326				1,165				1,234
Global Asset Management			695				608				594
International Wealth Management			90				86				105
Selected balance sheet and other information
ROE			15.6%				13.0%				15.8%
NIM			2.34%				2.50%				3.17%
Pre-tax margin (1)			25.2%				23.0%				25.2%
Number of advisors (2)			5,457				5,428				5,299
Average total earning assets, net		$	112,900			$	109,300			$	92,500
Average loans and acceptances, net			81,800				81,000				69,600
Average deposits			137,900				132,100				105,600
AUA (3)			1,180,400				1,100,000				1,106,900
U.S. Wealth Management (including City National) (3)			623,000				583,800				578,600
U.S. Wealth Management (including City National) (US$ millions) (3)			487,000				438,200				437,300
AUM (3)			890,000				836,400				792,900
Average AUA			1,171,300				1,107,700				1,097,100
Average AUM			883,800				839,600				780,200
PCL on impaired loans as a % of average net loans and acceptances			(0.13)%				0.00%				(0.01)%

 

Estimated impact of U.S. dollar, British pound and Euro translation on key income statement items (Millions of Canadian dollars, except percentage amounts)		For the three months ended
		Q1 2021 vs. Q1 2020				Q1 2021 vs. Q4 2020
Increase (decrease):
Total revenue		$	(41	)		$	(53	)
PCL			1				1
Non-interest expense			(34	)			(44	)
Net income			(6	)			(8	)
Percentage change in average U.S. dollar equivalent of C$1.00			3%				3%
Percentage change in average British pound equivalent of C$1.00			(1)%				(1)%
Percentage change in average Euro equivalent of C$1.00			(6)%				–%

 

(1)

Pre-tax margin is defined as Income before income taxes divided by Total revenue.

(2)

Represents client-facing advisors across all of our Wealth Management businesses.

(3)

Represents period-end spot balances.

Financial performance

Q1 2021 vs. Q1 2020

Net income increased $26 million or 4% from a year ago, primarily due to average loan growth and higher average fee-based client assets, net of the associated variable compensation. Higher performance fees and lower PCL also contributed to the increase. These factors were partially offset by the impact of lower interest rates on loans and sweep deposits, as well as higher staff-related costs.

Total revenue increased $221 million or 7%.

Canadian Wealth Management revenue increased $57 million or 7%, mainly due to higher average fee-based client assets, primarily reflecting market appreciation and net sales.

U.S. Wealth Management (including City National) revenue increased $78 million or 5%. In U.S. dollars, revenue increased $92 million or 7%, primarily attributable to average loan growth of 22%, 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, and higher average fee-based client assets reflecting net sales and market appreciation. These factors were partially offset by the impact of lower interest rates on net interest income and revenue from sweep deposits.

Global Asset Management revenue increased $101 million or 17%, primarily due to higher fee-based client assets reflecting market appreciation and net sales. Higher performance fees and changes in the fair value of seed capital investments also contributed to the increase.

14         Royal Bank of Canada        First Quarter 2021

 

International Wealth Management revenue decreased $15 million or 14%, primarily due to a decline in net interest income largely reflecting the impact of lower interest rates.

PCL decreased $27 million, primarily in U.S. Wealth Management (including City National), reflecting recoveries on impaired loans in a couple of sectors in the current quarter, resulting in a decrease of 12 bps in the impaired loans ratio. For further details, refer to Credit quality performance in the Credit risk section.

Non-interest expense increased $193 million or 8%, primarily due to changes in the fair value of our U.S. share-based compensation plans, which was largely offset in revenue, and higher variable compensation commensurate with increased commissionable revenue. Higher staff-related costs in support of business growth also contributed to the increase. These factors were partially offset by the impact of foreign exchange translation.

Q1 2021 vs. Q4 2020

Net income increased $103 million or 19% from last quarter, primarily due to an increase in earnings from higher average fee-based client assets, net of the associated variable compensation, and lower PCL. Higher transactional revenue and higher performance fees also contributed to the increase. These factors were partially offset by higher staff-related costs.

Total revenue increased $319 million or 10%, primarily due 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, and higher average fee-based client assets, primarily reflecting market appreciation and net sales. Higher transactional revenue, mainly driven by client activity, as well as higher performance fees also contributed to the increase. These factors were partially offset by the impact of foreign exchange translation.

PCL decreased $80 million, largely reflecting lower provisions on performing loans in U.S. Wealth Management (including City National), primarily due to unfavourable changes in macroeconomic factors in the prior quarter. Recoveries on impaired loans in a few sectors in the current quarter also contributed to the decrease, driving a decrease of 13 bps in the impaired loans ratio. For further details, refer to Credit quality performance in the Credit risk section.

Non-interest expense increased $251 million or 11%, primarily due to changes in the fair value of our U.S. share-based compensation plans, which was largely offset in revenue. Higher variable compensation commensurate with increased commissionable revenue as well as higher staff-related costs also contributed to the increase. These factors were partially offset by the impact of foreign exchange translation.

 

Insurance

 

		As at or for the three months ended
(Millions of Canadian dollars, except percentage amounts and as otherwise noted)		January 31 2021				October 31 2020				January 31 2020
Non-interest income
Net earned premiums		$	1,248			$	986			$	1,350
Investment income, gains/(losses) on assets supporting insurance policyholder liabilities (1)			524				(71	)			609
Fee income			37				43				35
Total revenue			1,809				958				1,994
PCL			–				(1	)			–
Insurance policyholder benefits and claims (1)			1,331				391				1,535
Insurance policyholder acquisition expense			75				70				79
Non-interest expense			149				151				153
Income before income taxes			254				347				227
Net income		$	201			$	254			$	181
Revenue by business
Canadian Insurance		$	1,157			$	299			$	1,383
International Insurance			652				659				611
Selected balances and other information
ROE			34.5%				42.5%				32.5%
Premiums and deposits (2)		$	1,444			$	1,129			$	1,542
Fair value changes on investments backing policyholder liabilities (1)			346				(235	)			468

 

(1)

Includes unrealized gains and losses on investments backing policyholder liabilities attributable to fluctuation of assets designated as FVTPL. The investments which support actuarial liabilities are predominantly fixed income assets designated as FVTPL. Consequently, changes in the fair values of these assets are recorded in Insurance premiums, investment and fee income in the Consolidated Statements of Income and are largely offset by changes in the fair value of the actuarial liabilities, the impact of which is reflected in PBCAE.

(2)

Premiums and deposits include premiums on risk-based insurance and annuity products, and individual and group segregated fund deposits, consistent with insurance industry practices.

Financial performance

Q1 2021 vs. Q1 2020

Net income increased $20 million or 11% from a year ago, primarily due to improved claims experience and higher favourable investment-related experience. These factors were partially offset by the impact of lower new longevity reinsurance contracts and lower international life volumes.

Total revenue decreased $185 million or 9%.

Canadian Insurance revenue decreased $226 million or 16%, primarily reflecting the change in fair value of investments backing policyholder liabilities and lower group annuity sales, both of which are largely offset in PBCAE as indicated below.

International Insurance revenue increased $41 million or 7%, mainly due to the change in fair value of investments backing policyholder liabilities, which is largely offset in PBCAE as indicated below. In addition, the prior year included an unfavourable impact from reinsurance contract renegotiations. These factors were partially offset by lower international life volumes.