Royal Bank Of Canada Q3 Earnings Call Highlights

Key Points

• RBC reported record third-quarter earnings of CAD 6 billion, up 11% year over year, with adjusted EPS of CAD 4.28. Broad-based revenue growth drove a 17.9% return on equity, while the CET1 ratio remained strong at 13.5%.
• Capital Markets and Wealth Management delivered standout results, with earnings rising 16% and 32%, respectively. Investment banking, trading, market appreciation, positive net sales and higher client activity supported the records.
• RBC maintained its outlook for the year, including mid-single-digit net-interest-income growth and positive operating leverage, but continued to monitor elevated credit-card delinquencies, geopolitical risks and uncertain trade policy.

Royal Bank Of Canada NYSE: RY reported record third-quarter earnings of CAD 6 billion, up 11% from a year earlier, as broad-based revenue growth across its banking, wealth management and capital-markets businesses supported profitability.

Diluted earnings per share were CAD 4.23, while adjusted diluted EPS was CAD 4.28, also up 11% year over year. Chief Executive Officer Dave McKay said revenue rose 9%, supported by client activity, a diversified business mix and a favorable market backdrop. The bank generated adjusted operating leverage of 2.4% and reported an adjusted efficiency ratio of 52%.

RBC’s return on equity was 17.9%, while its Common Equity Tier 1 capital ratio remained at 13.5%. The bank generated 80 basis points of capital internally during the quarter and deployed 85 basis points through business growth, dividends and share repurchases. RBC repurchased 5.6 million shares for approximately CAD 1.6 billion during the period.

Growth Across Major Businesses

Personal Banking produced CAD 1.9 billion of earnings, with Canadian personal-banking net income down 1% year over year. Revenue reached a record and increased 4%, while net interest income rose 5%. Excluding the effect of lower purchase price adjustments related to RBC’s acquisition of HSBC Bank Canada, personal-banking net interest income increased 8%, driven by 4% loan growth and higher margins.

McKay said sequential mortgage growth reached 1.8%, the strongest level since the HSBC Canada acquisition. Credit-card balances increased 7% from the prior year, while the combined total of average retail deposits and mutual-fund assets under administration increased 8%, or CAD 47 billion. RBC also cited record new-account acquisition at its Avion Rewards program.

Commercial Banking reported record net income of CAD 936 million, up 12% from a year earlier. Revenue increased 5%, driven mainly by higher volumes and margins. Deposits rose 9% year over year and 6% sequentially, while loans increased 4% year over year and 1% sequentially. The segment’s loan-to-deposit ratio improved three percentage points to 58%.

Commercial Banking Group Head Sean Amato-Gauci said loan growth accelerated during the quarter, with July representing the business’s strongest monthly growth in a year. He cited activity in agriculture, healthcare, the public sector and certain real-estate categories. He also said RBC’s HSBC client-retention trends were below the attrition levels modeled during due diligence.

Capital Markets and Wealth Set Records

Capital Markets posted record net income of CAD 1.5 billion, up 16% from the prior year, with record pre-provision, pre-tax earnings of CAD 2 billion. Global markets revenue increased 11%, supported by equities trading and non-trading and financing portfolios, partly offset by weaker rates-trading activity amid muted client demand.

Corporate and investment-banking revenue rose 16%, including a 23% gain in investment-banking revenue. McKay said higher origination and merger-and-acquisition activity contributed to RBC’s market share reaching 2.1% over the past 12 months. Lending and transaction-banking revenue rose 10%, helped by loan and deposit growth.

Group Head of Capital Markets Derek Neldner said the artificial-intelligence capital-expenditure cycle is creating opportunities across technology, data centers, power, energy and critical minerals. He said RBC is using lending relationships to support investment banking, transaction banking, trading and wealth-management activity.

Wealth Management earned CAD 1.4 billion, up 32% year over year, as revenue reached a record and the segment’s pre-tax margin rose four percentage points to 29.3%. Non-interest income grew 16%, supported by market appreciation, positive net sales, new assets and increased transaction activity. Canadian and U.S. wealth-management assets under administration increased 20% and 14%, respectively.

RBC Direct Investing benefited from nearly 40% year-over-year growth in trading volumes. Group Head of Wealth Management and Insurance Neil McLaughlin said the bank does not expect a required step-up in investment spending to sustain current growth, noting that technology and artificial-intelligence initiatives are being funded within the existing investment envelope.

Transaction Banking and U.S. Expansion

RBC said it is building a global transaction-banking business intended to provide an integrated offering for commercial and wholesale clients operating across borders. McKay said the effort will combine the bank’s existing technology platforms and enable a more focused global go-to-market strategy.

Neldner said RBC expects to make organizational changes over the next 60 to 90 days while seeking to avoid disrupting momentum in existing businesses. The bank plans to introduce performance indicators over time to track the broader transaction-banking initiative.

In the United States, City National Bank earned $184 million during the quarter, supported by 8% loan growth and 5% deposit growth. RBC said its U.S. region efficiency ratio improved to 75% year to date, closer to its target in the low-70% range. McKay said the company sees substantial organic growth opportunities at City National, including expansion into the Southeast and potentially Texas, as well as product cross-selling to wealth clients.

Credit Trends and Outlook

Chief Risk Officer Graeme Hepworth said RBC retained elevated weightings to downside scenarios in its provisioning process because of geopolitical tensions and uncertain trade policy. The bank recorded CAD 21 million, or one basis point, of provisions on performing loans.

Provisions on impaired loans were 35 basis points, up one basis point from the prior quarter. Gross impaired loans rose CAD 353 million, led by Capital Markets and Wealth Management, partly offset by lower impaired loans in Commercial Banking. RBC took an additional CAD 120 million provision related to a previously impaired utility-sector borrower because of increased uncertainty surrounding resolution of that exposure.

Hepworth said retail-credit indicators were showing signs of stabilization, though delinquencies in unsecured products, particularly credit cards, remained elevated. RBC expects full-year 2026 provisions on impaired loans to remain within its previously guided range.

Looking ahead, RBC reiterated its full-year targets. It said all-bank net interest income excluding trading was up 7% year to date and remained on track for its mid-single-digit growth guidance. The bank expects Canadian banking margins to be relatively stable in the fourth quarter, as structural tailwinds are offset by competition for mortgages and term deposits. RBC also continues to expect positive all-bank operating leverage for the full year.

About Royal Bank Of Canada (NYSE:RY)

Royal Bank of Canada NYSE: RY is a diversified financial services company and one of Canada's largest banks. Founded in 1864 in Halifax, Nova Scotia, the firm is now headquartered in Toronto, Ontario. It provides a broad range of banking and financial services to individuals, businesses, and institutional clients through a network of branches, digital platforms and international offices.

RBC operates across several principal business segments including personal and commercial banking, wealth management, insurance, investor and treasury services, capital markets, and global asset management.

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