Royal Bank Of Canada

All participants, please stand by. Your conference is now ready to begin. Good morning, ladies and gentlemen, and welcome to the RBC's 2025 Second Quarter Results Conference Call. Please be advised that this call is being recorded. I would now like to turn the meeting over to Asim Imran, Senior Vice President, Investor Relations. Please go ahead, sir.

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

Thanks, awesome, and good morning, everyone, and thank you for joining us. Today we reported second quarter earnings of $4.4 billion. Adjusted earnings were $4.5 billion and included $260 million of earnings from the acquisition of HSBC Bank Canada. This quarter we generated strong pre-provision, pre-tax earnings of nearly $7 billion as we continue to execute the strategies we shared at our investor day. Adjusted pre-tax, pre-provision growth was up 16%, or $971 million from last year, more than offsetting a prudent reserve bill to $568 million this quarter. Revenue growth of 11% year-over-year was underpinned by strong average volume growth in personal banking and commercial banking, as well as higher spreads in personal banking. We also reported robust fee-based revenue growth in wealth management and strong global markets revenue in capital markets. Our results demonstrate the strength of our diversified business model and earnings power, as well as the value of the insights and advice we deliver for our clients as they navigate the uncertain macro environment. Our revenue growth is noteworthy considering the evolving market conditions. The strong performance was generated from a position of balance sheet strength, which continues to be, through this cycle, competitive and a strategic advantage for RBC. We continue to grow our core deposit franchises across our segments, including in Canadian banking, where the loan-to-deposit ratio improved to 97%, helping fund loan growth in an efficient and stable manner. We ended the quarter with a common equity Tier 1 ratio of 13.2%, well above regulatory minimums, translating to excess capital of approximately $5 billion relative to a mid-12% range. Underpinned by a robust capital and earnings power, this morning we announced a six cent or 4% increase in our quarterly dividend. We also announced our intention subject to relevant approvals to commence a normal course issuer bid to repurchase for cancellation up to 35 million common shares. We also remain disciplined with respect to our risk management framework and risk appetite. The allowance for credit loss ratio increased to 74 basis points following a prudent reserve bill which included increasing weightings toward downside scenarios amidst heightened economic uncertainty. Our through-the-cycle approach to managing risk takes into consideration elevated market volatility. We did not have any trading loss days this quarter, and furthermore, over the last four years, we've only seen five days where we generated trading loss. Our strong balance sheet creates a resilient foundation that allows us to navigate uncertainty while creating value for clients and shareholders. Turning to the macro environment, changes to longstanding U.S. and international trade policies have resulted in a volatile and uncertain operating environment, given the potential for structural disruptions to global supply chains and capital flows. These changes are taking place concurrently with other large secular forces of change, including the increased role of artificial intelligence and private capital, magnifying the complexity that businesses are facing. We saw market volatility through much of the quarter, evidenced by movements in credit spreads, the VIX, and bond market volatility indices. However, as the US administration implemented a 90-day pause in reciprocal tariffs, the volatility of outcomes, sentiment, and markets narrowed significantly. While we can't say for certain where global trade policies will settle, we are cautiously optimistic about the path forward. Reciprocal tariffs imposed on Canada are currently at the lowest end of the global scale, reflecting strong bilateral trade in the KUSMA agreement. Although we are not projecting a recession in either Canada or the US, the prevailing uncertainty is dampening confidence, sentiment, and client activity in certain parts of the North American economy, including housing. North American consumers have remained resilient. They are continuing to spend, albeit less on discretionary items, and savings are growing. Businesses are in a holding pattern on large CapEx, but have built inventory and shored up supply chains, moving consumption forward. It is under these complex circumstances that policymakers are looking to navigate the options to solve for inflation, unemployment, and growth. We expect the Bank of Canada will continue to take a more dovish stance to shore up consumer sentiment and growth. Furthermore, we hope to see the increased political uncertainty in Canada drive structural improvements in the country's productivity and competitiveness, including more effectively leveraging our abundant natural resources and skilled workforce. With the Federal Reserve signaling a holding pattern on interest rates given opposing forces, we similarly expect a more dovish stance in U.S. monetary policy, albeit on a lagged timeline. To reiterate what I said earlier, we believe we're in a strong position to navigate this period of uncertainty given the strength of our balance sheet our diversified business model, and our strong risk culture. With this context, I will now speak to the trends we're seeing across our businesses as we continue to focus on delivering advice, insights, and value to our clients, starting with our leadership position in Canada. Personal banking, we have the leading distribution network in Canada with a full suite of award-winning products and solutions. Average deposits increased 13% year-over-year, or 8% excluding the acquisition of HSBC Canada, led by outsized growth in our lower-cost core banking and savings products. As noted at our investor day, growing core deposits remains a priority. This provides us with data to support personalization, underpin risk models, and our interest rate hedging strategy while being an important source of funding. Residential mortgage growth was largely supported by stronger client renewals, higher origination volumes driven by strong mortgage switch-in activity, partly offset by higher paydowns. We expect housing resell activity and mortgage growth to remain contained in the near term as the uncertainty around tariffs outweighs lower debt servicing costs from lower interest rates. And with ongoing intense competition, we will maintain the disciplined mortgage growth strategy we articulated over the past year. In our credit card business, spending remained relatively resilient despite low consumer sentiment. Going forward, we expect spending to soften and revolve our balances to increase year-over-year should the current environment persist. Turning to commercial banking, we have leading market share across all segments. Average deposit growth remains strong, up 15% year-over-year, or 10% excluding deposits acquired through the acquisition of HSBC Canada. This growth continues to be supported by investment-centered people and capabilities, including digital client onboarding and transaction processing. banking. Average net loans and acceptances were up 22% year-over-year, or up 9% excluding loans acquired through HSBC Canada. Adjusting for these acquired loans, larger commercial and corporate loans and small business loans grew at a similar rate. Utilization rates have remained largely unchanged. While the lending pipeline and client activity remains solid across many parts of our diversified portfolio, we continue to see signs of cautious business sentiment in certain areas as clients assess how global tariffs could impact their strategies and investment plans. Loan demand was notably softer for companies in the automotive, consumer discretionary, and transportation sectors. Going forward, we continue to expect commercial banking loan growth in the high single-digit range for next year. but moderate to mid to high single-digit growth range in the back half. Turning to HSBC Canada, we are continuing to bring new capabilities to market as we've now completed the migration of the largest and most complex commercial clients acquired through the acquisition of HSBC Canada pursuant to the transition services agreement. As we exit Q2, the execution of cost synergy initiatives is largely complete, and we are increasingly confident of our of achieving our targeted annualized cost synergies by next quarter. Now to segments in which we are expanding our reach in global fee pools. Starting with capital markets, which reported strong pre-provision, pre-tax earnings of $1.4 billion, or a record $3.1 billion in the first half of the year, reflecting its diversified business model. Global markets had a strong quarter, driven by increased client activity amidst market volatility, which largely benefited our equities and broader macro trading businesses. This was partly offset by the impact of a challenging market backdrop on credit trading. The strong performance of both cash equities and equity derivatives was particularly notable as they are a key area of focus for market share gains over the medium term. Like commercial banking, utilization in the corporate banking loan book remained relatively steady. We continue to pursue our strategy to moderately grow lending activity with average loan balances up mid-single digits year-to-date. In contrast, investment banking activity was muted this quarter, given the volatility in markets. Going forward, policy uncertainty could continue to impact activity as clients wait on the sidelines for clarity. While the second half of the year is seasonally slower than the first half, client dialogue is robust, and we are well-positioned to deliver as deal-making momentum improves. Moving to wealth management, where we reported assets under administration growth of 11% in Canada and 9% in the U.S. Our clients remain engaged, and we had solid net sales and transactional activity in our Canadian platforms, including in RBC direct investing. RBC global asset management assets under management increased by 11% to $694 billion. Net sales were robust across asset classes, with client flows shifting from fixed income and equity mandates earlier in the quarter to more balanced funds in April, highlighting our clients' confidence in our wide range of investment strategies across geographies. As a leading asset manager, RBC GAM consistently delivers strong performance through our leading distribution network. This point was underscored with RBC GAM yet again being named the Top Gun Investment Team of the Year in Canada for 2025. To close, this quarter builds on the strong start we've had to fiscal 2025 amidst an evolving operating environment. While macro-related uncertainty remains, we are confident in our ability to pursue the ambitions of medium-term targets outlined at our Investor Day in March. This includes our OneRBC approach to extending our leadership in Canada growing in global fee pools, and leveraging our strong balance sheet, data scale, and AI investments to create more value for clients. The key strategic initiatives designed to accelerate our ambitions are expected to continue to deliver leading risk-adjusted returns and long-term value for our shareholders through a wide range of economic cycles. Catherine, over to you.