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Royal Bank of Canada (88DB)

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Friday 29 May, 2020

Royal Bank of Canada

2nd Quarter Results

RNS Number : 2886O
Royal Bank of Canada
28 May 2020
 

To view the Q2 2020 Report to Shareholders in PDF, please click on the link below.

 

http://www.rns-pdf.londonstockexchange.com/rns/2886O_1-2020-5-28.pdf  

 

 

 

 

 

 

Royal Bank of Canada second quarter 2020 results

 

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

 

 

 

 

 

 

 

 

 

 

 

Net Income

$1.5 Billion

Down 54% YoY

 

 

Diluted EPS (1)

$1.00

Down 55% YoY

 

 

Total PCL (2)

$2.8 Billion

Total PCL ratio on loans

up 139 bps (3) QoQ

 

 

ROE (4)

7.3%

Down from 17.5% last year

 

 

CET1 Ratio

11.7%

Well above regulatory

requirements

TORONTO, May 27, 2020 - Royal Bank of Canada (RY on TSX and NYSE) today reported net income of $1,481 million for the quarter ended April 30, 2020, down $1,749 million or 54% from the prior year. Diluted EPS 1 was $1.00, down 55% over the same period. The unprecedented challenges brought on by the COVID-19 pandemic led to increased provision for credit losses of $2,830 million, up $2,404 million from last year. The increased provisions unfavourably impacted results in Personal & Commercial Banking, Capital Markets and Wealth Management. These factors were partially offset by higher earnings in Investor & Treasury Services and Insurance.

Compared to last quarter, net income was down $2,028 million with lower results in Personal & Commercial Banking, Capital Markets and Wealth Management. Earnings in Insurance were relatively flat compared to the prior quarter. These factors were partially offset by higher results in Investor & Treasury Services.

The total PCL ratio on loans was 165 bps, up 139 bps from last quarter as we prudently increased reserves due to the impact of the COVID-19 pandemic. The PCL ratio on impaired loans of 37 bps increased 16 bps from last quarter, due to higher PCL on impaired loans mainly in Capital Markets. Our capital position remained robust, with a Common Equity Tier 1 (CET1) ratio of 11.7%. We also had a strong average Liquidity Coverage Ratio (LCR) of 130%.

 

 

 

 

"My sincere thanks to all those on the frontlines who are combatting the virus with courage and compassion, and to the RBCers who are living our Purpose with extraordinary dedication to help our clients manage during these uncertain times," said Dave McKay, RBC President and Chief Executive Officer. "We entered this period of heightened macroeconomic uncertainty from a position of strategic and financial strength. Our scale, diversified business mix, technology investments and talented employees define our leading client franchises. Our strong capital and liquidity position, and disciplined risk management, have enabled us to remain resilient and focused on delivering long-term value for our clients, shareholders and communities."

 

 

 

 

 

 

 

 

 

   

 

Q2 2020

Compared to

Q2 2019

 

 

 

• Net income of $1,481 million

• Diluted EPS (1) of $1.00

• ROE (4) of 7.3%

• CET1 ratio of 11.7%

 

 

¯  54%

¯  55%

¯  1,020 bps

¯  10 bps

 

 

 

 

 

 

Q2 2020

Compared to

Q1 2020

 

 

• Net income of $1,481 million

• Diluted EPS (1) of $1.00

• ROE (4) of 7.3%

• CET1 ratio of 11.7%

 

¯  58%

¯  58%

¯  1,030 bps

¯  30 bps

 

 

 

 

 

 

YTD 2020

Compared to

YTD 2019

 

 

• Net income of $4,990 million

• Diluted EPS (1) of $3.40

• ROE (4) of 12.5%

 

¯  22%

¯  22%

¯  460 bps

(1)  Earnings per share (EPS).

(2)  Provision for credit losses (PCL).

(3)  Basis points (bps).

(4)  Return on Equity (ROE). This measure does not have a standardized meaning under GAAP. For further information, refer to the Key performance and non-GAAP measures section of this Q2 2020 Report to Shareholders.

 

Table of contents

 

 

1  Second quarter highlights

2  Management's Discussion and Analysis

2  Caution regarding forward-looking statements

2  Overview and outlook

2  About Royal Bank of Canada

3  Selected financial and other highlights

4  Economic, market and regulatory review and outlook

5  Significant developments: COVID-19

9  Financial performance

9  Overview

14  Business segment results

14  How we measure and report our business segments

14  Key performance and non-GAAP measures

16  Personal & Commercial Banking

17  Wealth Management

19  Insurance

20  Investor & Treasury Services

21  Capital Markets

22  Corporate Support

23  Quarterly results and trend analysis

24  Financial condition

24  Condensed balance sheets

25  Off-balance sheet arrangements

26  Risk management

26  Credit risk

33  Market risk

38  Liquidity and funding risk

45  Capital management

50  Accounting and control matters

50  Summary of accounting policies and estimates

50  Change in accounting policies and disclosures

50  Controls and procedures

51  Related party transactions

52  Enhanced Disclosure Task Force recommendations index

53  Interim Condensed Consolidated Financial Statements (unaudited)

59  Notes to the Interim Condensed Consolidated Financial Statements (unaudited)

84  Shareholder Information

 

 

 

Management's Discussion and Analysis

 

Management's Discussion and Analysis (MD&A) is provided to enable a reader to assess our results of operations and financial condition for the three and six month periods ended or as at April 30, 2020, compared to the corresponding periods in the prior fiscal year and the three month period ended January 31, 2020. This MD&A should be read in conjunction with our unaudited Interim Condensed Consolidated Financial Statements for the quarter ended April 30, 2020 (Condensed Financial Statements) and related notes and our 2019 Annual Report. This MD&A is dated May 26, 2020. 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 2019 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 StatesPrivate Securities Litigation Reform Act of 1995 and any applicable Canadian securities legislation. We may make forward-looking statements in this Q2 2020 Report to Shareholders, 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, 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 liquidity and funding risk, and the potential continued impacts of the coronavirus (COVID-19) pandemic on our business operations, financial results and financial condition and on the global economy and financial market conditions. 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, strategic, reputation, legal and regulatory environment, competitive and systemic risks and other risks discussed in the risk sections of our 2019 Annual Report and the Risk management and Significant developments: COVID-19 sections of this Q2 2020 Report to Shareholders; including information technology and cyber risk, privacy, data and third party related risks, geopolitical uncertainty, Canadian housing and household indebtedness, regulatory changes, digital disruption and innovation, climate change, 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, financial results and financial condition.

We caution that the foregoing list of risk factors is not exhaustive and other factors could also adversely affect our results. When relying on our forward-looking statements to make decisions with respect to us, investors and others should carefully consider the foregoing factors and other uncertainties and potential events. Material economic assumptions underlying the forward-looking statements contained in this Q2 2020 Report to Shareholders are set out in the Economic, market and regulatory review and outlook and for each business segment under the Strategic priorities and Outlook headings in our 2019 Annual Report, as updated by the Economic, market and regulatory review and outlook and Significant developments: COVID-19 sections of this Q2 2020 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 of our 2019 Annual Report and the Risk management section of this Q2 2020 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 84,000+ employees who 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.

 

 

 

 

Selected financial and other highlights

 

 

 

 

 

 

 

 

 

 

As at or for the three months ended

 

As at or for the six months ended

(Millions of Canadian dollars, except per share,

number of and percentage amounts) (1)

April 30

2020

January 31

2020

April 30

2019

 

April 30

2020

April 30

2019

Total revenue

$  10,333

$  12,836

$  11,499

 

$  23,169

$  23,088

Provision for credit losses (PCL)

  2,830

  419

  426

 

  3,249

  940

Insurance policyholder benefits, claims and acquisition expense (PBCAE)

  (177 )

  1,614

  1,160

 

  1,437

  2,385

Non-interest expense

  5,942

  6,378

  5,916

 

  12,320

  11,828

Income before income taxes

  1,738

  4,425

  3,997

 

  6,163

  7,935

Net income

$  1,481

$  3,509

$  3,230

 

$  4,990

$  6,402

Segments - net income

 

 

 

 

 

 

Personal & Commercial Banking

$  532

$  1,686

$  1,549

 

$  2,218

$  3,120

Wealth Management

  424

  623

  585

 

  1,047

  1,182

Insurance

  180

  181

  154

 

  361

  320

Investor & Treasury Services

  226

  143

  151

 

  369

  312

Capital Markets

  105

  882

  776

 

  987

  1,429

Corporate Support

  14

  (6 )

  15

 

  8

  39

Net income

$  1,481

$  3,509

$  3,230

 

$  4,990

$  6,402

Selected information

 

 

 

 

 

 

Earnings per share (EPS) - basic

$  1.00

$  2.41

$  2.20

 

$  3.41

$  4.36

   - diluted

  1.00

  2.40

  2.20

 

  3.40

  4.34

Return on common equity (ROE) (2), (3)

  7.3%

  17.6%

  17.5%

 

  12.5%

  17.1%

Average common equity (2)

$  79,100

$  77,850

$  74,000

 

$  78,450

$  73,800

Net interest margin (NIM) - on average earning assets (4)

  1.61%

  1.59%

  1.62%

 

  1.60%

  1.61%

PCL on loans as a % of average net loans and acceptances

  1.65%

  0.26%

  0.29%

 

  0.96%

  0.32%

PCL on performing loans as a % of average net loans and acceptances

  1.28%

  0.05%

  -%

 

  0.67%

  0.04%

PCL on impaired loans as a % of average net loans and acceptances

  0.37%

  0.21%

  0.29%

 

  0.29%

  0.28%

Gross impaired loans (GIL) as a % of loans and acceptances

  0.51%

  0.45%

  0.49%

 

  0.51%

  0.49%

Liquidity coverage ratio (LCR) (5)

  130%

  129%

  127%

 

  130%

  127%

Capital ratios and Leverage ratio

 

 

 

 

 

 

Common Equity Tier 1 (CET1) ratio

  11.7%

  12.0%

  11.8%

 

  11.7%

  11.8%

Tier 1 capital ratio

  12.7%

  13.1%

  12.9%

 

  12.7%

  12.9%

Total capital ratio

  14.6%

  14.9%

  14.8%

 

  14.6%

  14.8%

Leverage ratio

  4.5%

  4.2%

  4.3%

 

  4.5%

  4.3%

Selected balance sheet and other information (6)

 

 

 

 

 

 

Total assets (7)

$  1,675,682

$  1,476,304

$  1,378,885

 

$  1,675,682

$  1,378,885

Securities, net of applicable allowance

  269,941

  266,667

  240,991

 

  269,941

  240,991

Loans, net of allowance for loan losses

  673,448

  629,940

  602,392

 

  673,448

  602,392

Derivative related assets

  140,807

  93,982

  84,812

 

  140,807

  84,812

Deposits (4)

  1,009,447

  902,284

  863,136

 

  1,009,447

  863,136

Common equity (7)

  79,236

  78,256

  76,114

 

  79,236

  76,114

Total capital risk-weighted assets

  558,412

  523,725

  510,463

 

  558,412

  510,463

Assets under management (AUM)

  789,000

  799,900

  733,100

 

  789,000

  733,100

Assets under administration (AUA) (8)

  5,381,800

  5,723,700

  5,655,600

 

  5,381,800

  5,655,600

Common share information

 

 

 

 

 

 

Shares outstanding (000s) - average basic

  1,422,754

  1,427,599

  1,435,091

 

  1,425,203

  1,436,099

   - average diluted

  1,427,871

  1,433,060

  1,441,163

 

  1,430,468

  1,442,194

   - end of period

  1,422,566

  1,423,212

  1,434,879

 

  1,422,566

  1,434,879

Dividends declared per common share

$  1.08

$  1.05

$  1.02

 

$  2.13

$  2.00

Dividend yield (9)

  4.7%

  4.0%

  3.9%

 

  4.7%

  4.0%

Dividend payout ratio

  108%

  44%

  46%

 

  62%

  46%

Common share price (RY on TSX) (10)

$  85.63

$  104.58

$  106.77

 

$  85.63

$  106.77

Market capitalization (TSX) (10)

  121,814

  148,840

  153,202

 

  121,814

  153,202

Business information (number of)

 

 

 

 

 

 

Employees (full-time equivalent) (FTE)

  82,499

  82,491

  82,197

 

  82,499

  82,197

Bank branches

  1,329

  1,330

  1,335

 

  1,329

  1,335

Automated teller machines (ATMs)

  4,564

  4,619

  4,569

 

  4,564

  4,569

Period average US$ equivalent of C$1.00 (11)

$  0.725

$  0.760

$  0.751

 

$  0.742

$  0.750

Period-end US$ equivalent of C$1.00

$  0.718

$  0.756

$  0.746

 

$  0.718

$  0.746

(1)  Effective November 1, 2019, we adopted IFRS 16 Leases. Results from periods prior to November 1, 2019 are reported in accordance with IAS 17 Leases in this Q2 2020 Report to Shareholders. For further details on the impacts of the adoption of IFRS 16 including the description of accounting policies selected, refer to Note 2 of our Condensed Financial Statements.

(2)  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.

(3)  These measures 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.

(4)  Commencing Q4 2019, the interest component and the accrued interest payable recorded on certain deposits carried at Fair Value Through Profit and Loss (FVTPL) previously presented in trading revenue and deposits, respectively, are presented in net interest income and other liabilities, respectively. Comparative amounts have been reclassified to conform with this presentation.

(5)  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) guideline as updated in accordance with the Q2 2020 guidance. For further details, including this Q2 2020 guidance, refer to the Liquidity and funding risk section.

(6)  Represents period-end spot balances.

(7)  Effective Q4 2019, the transition adjustment related to the adoption of IFRS 15 Revenue from Contracts with Customers was revised. The comparative amounts have been revised from those previously presented.

(8)  AUA includes $16.1 billion and $6.7 billion (January 31, 2020 - $15.4 billion and $7.8 billion; April 30, 2019 - $16.2 billion and $8.3 billion) of securitized residential mortgages and credit card loans, respectively.

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

(10)  Based on TSX closing market price at period-end.

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

 

 

 

 

Economic, market and regulatory review and outlook - data as at May 26, 2020

 

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

Measures to contain the COVID-19 pandemic have sharply curtailed economic activity in many countries, resulting in unprecedented declines in GDP and a substantial increase in unemployment. Significant fiscal and monetary policy stimulus has been implemented across many jurisdictions that is intended to prevent longer-term damage to economies and assist in eventual recoveries. However, significant uncertainty remains with regards to the timing and the extent of recovery, including the possibility of subsequent waves.

Canada

Containment measures put in place to address the COVID-19 pandemic led to a sharp contraction in economic activity in Canada as GDP reportedly fell by 10% 1 in the first calendar quarter of 2020. While provinces began gradually easing containment measures in May 2020, based on most recent projections, economic output is expected to decline by a further 40% 1 in the second calendar quarter of 2020. Temporary business closures and projected declines in revenue have prompted widespread layoffs, with 3 million Canadians losing their jobs in March and April 2020, pushing the unemployment rate to 13.0%, and millions more working reduced hours. Although economic activity and unemployment are expected to partially rebound in the second half of calendar 2020, a full recovery is likely to be held back by the impact of income loss and health concerns placed on consumer spending and housing activity. Additionally, challenges in the energy sector, higher debt levels and weaker profitability weighing on business sentiment, are also contributing to expectations for only a partial rebound. The federal government is supporting the economy with significant fiscal measures including income support and wage subsidies, as well as loans and tax deferrals for businesses. The Bank of Canada (BoC) cut its policy rate to 0.25% in March from 1.75% at the start of calendar 2020 and has provided significant support to maintain the resilience and stability of the financial system. Nonetheless, GDP is expected to remain well below 2019 levels through the remainder of the calendar year.

U.S.

U.S. GDP declined by 4.8% 1 in the first calendar quarter of 2020 amid the significant contraction in economic activity as the result of extensive containment measures. While some states have started to gradually re-open their economies, based on most recent projections, we expect ongoing containment measures will drive a further 35% 1 drop in economic activity in the second calendar quarter of 2020, including sharp contractions in consumer spending and business investment. Unemployment has increased to 14.7% in April 2020 though the negative impact on household incomes has been cushioned by significant federal fiscal support, including higher unemployment benefits and incentives for businesses to maintain payrolls. Economic activity is expected to partially rebound and unemployment is likely to decline over the second half of calendar 2020. The Federal Reserve (Fed) lowered its policy rate to a range of 0-0.25% in March from 1.50-1.75% at the start of calendar 2020 and has significantly expanded its balance sheet through quantitative easing and a number of other liquidity programs designed to improve the flow of credit to businesses. However, GDP is expected to remain well below 2019 levels through the remainder of the calendar year.

Europe

With the severity of localized COVID-19 outbreaks and early implementation of containment measures, the Euro area GDP fell by 3.8% 2 in the first calendar quarter of 2020 with a further 26% 2 decline expected in the second calendar quarter. In the United Kingdom (U.K.), where containment measures were implemented slightly later, GDP declined by 2% 2 in the first calendar quarter of 2020 followed by an expected decline of 18% 2 in the second calendar quarter. The European Central Bank (ECB) has held interest rates low and the Bank of England (BoE) lowered its policy rate to nearly zero. Economic activity is expected to partially rebound in the second half of calendar 2020, underpinned by substantial fiscal and monetary policy support. However, GDP is expected to remain well below 2019 levels through the remainder of the calendar year.

Financial markets

The economic fallout of the COVID-19 pandemic resulted in sharp losses in equity markets with the Standard & Poor's 500 Index recording a 34% decline at the onset of the global spread, however, equities have since retraced about half of that decline amid significant fiscal and monetary policy support. Oil prices have fallen sharply with a substantial drop in demand having been exacerbated by a price war between Saudi Arabia and Russia. The resolution of that dynamic has failed to support oil prices which remain at their lowest levels in more than 20 years. Central bank interest rate policies have put downward pressure on government bond yields, however their large scale asset purchases have helped offset upward pressure on government borrowing costs arising from significant debt issuances to fund fiscal programs.

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 any 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 2019 Annual Report, as updated below. A summary of the additional

1  Annualized Rate

2  Non-annualized Rate

regulatory changes instituted by governments globally and OSFI during the second quarter of 2020 in response to the COVID-19 pandemic are included in the Significant developments: COVID-19, Liquidity and funding risk and Capital management sections of this Q2 2020 Report to Shareholders.

Global uncertainty

Significant uncertainty about the impacts of the COVID-19 pandemic, trade policy and geopolitical tensions continue to pose risks to the global economic outlook. In April 2020, the International Monetary Fund (IMF) projected global growth in calendar 2020 to fall to -3%; a baseline scenario which would mark the worst recession since the Great Depression and far worse than the global financial crisis of 2008. Uncertainty around the duration and intensity of the health and financial crisis could result in global GDP declining further if the pandemic does not recede this year, and even if the pandemic does recede there could be longer-term effects on economic growth and commercial activity. Estimates around the expected recovery beyond this fiscal year are equally uncertain, as the timelines for economic recovery are largely dependent on the duration of the pandemic, including the possibility of subsequent waves, and the effectiveness of the fiscal and monetary policy measures introduced in response. Trade policy also remains a source of uncertainty, as the Brexit transition period deadline of December 31, 2020 remains in place, despite delayed negotiations between the U.K. and the European Union (EU) and requests from the IMF to extend the transition. In March 2020, Canada ratified the Canada-United States-Mexico Agreement reducing lingering uncertainty about trade within North America, but the post-pandemic future of global trade policy remains uncertain as countries may look to decrease reliance on the global supply chain. Finally, global financial markets remain vulnerable to geopolitical tensions, such as those between Russia and the Organization of the Petroleum Exporting Countries (OPEC), which could result in increased market and commodity price volatility, and the uncertain future of the U.S.-China trade relationship. Our diversified business model, as well as our product and geographic diversification, continue to help mitigate the risks posed by global uncertainty.

United States Tax Reform

The U.S. Treasury continues to release guidance on the Tax Cuts and Jobs Act. There has been no material impact for us; however, we will continue to monitor future guidance and the impact, if any, on us.

Regulatory initiatives

Government agencies and regulators have extended the effective dates for various regulations, primarily due to the impact of the COVID-19 pandemic, including:

• Canadian benchmark rate for qualifying insured mortgages - The government has suspended the previous effective date of April 6, 2020 until further notice.

• Client focused reforms - The Canadian Securities Administrators have extended the first phase relating to conflicts of interest and the related disclosure requirements which will not come into effect until June 30, 2021, extended from its previous effective date of December 31, 2020. The timeline to comply with the second phased is unchanged.

• Control and Divestiture Proceedings rule - The Fed has revised the effective date to September 30, 2020, extended from the previous effective date of April 1, 2020.

• Central Securities Depositary Regulation - The EU has revised the effective date to February 2021, extended from its previous effective date of September 2020.

• Transaction reporting of securities financing transactions - This guidance is now expected to take effect in the third calendar quarter of 2020, extended from its previous effective date of the second calendar quarter 2020.

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 Risk management - Top and emerging risks and Legal and regulatory environment risk sections of our 2019 Annual Report and the Risk and Capital management sections of this Q2 2020 Report to Shareholders.

 

 

 

Significant developments: COVID-19

 

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 COVID-19 on the global economy and financial markets continues to evolve with disruptive effects in countries in which we operate and the global economy while also contributing to increased market volatility and changes to the macroeconomic environment. In addition, COVID-19 continues to effect our employees, clients and communities with resultant impacts on our operations, financial results and present and future risks to our business. For further details on these risks, refer to the Impact of pandemic risk factor section below.

Measures to contain the spread of COVID-19, including business closures, social distancing protocols, travel restrictions and school closures have been widespread. Although gradual and staged reopening plans have begun across several regions, these measures are continuing to have extensive implications for the global economy and related market functions, unemployment rates, and fiscal and monetary policies. The pandemic and the containment measures implemented in response to COVID-19 could also have longer-term effects on the economic and commercial activity and consumer behaviour after the pandemic recedes and the measures are lifted. In conjunction with the COVID-19 pandemic containment measures, governments, regulatory bodies, central banks and private organizations around the globe have extended unprecedented relief programs and temporary measures to facilitate the continued operation of the global economy and financial system which are intended to provide support to individuals and businesses. Regulatory guidance from the Government of Canada and OSFI have also been implemented to facilitate the continued strength of the Canadian financial systems, including the expansion of existing facilities, the introduction of new funding programs and capital modifications to support the programs implemented in response to COVID-19. In addition, the BoC, the Fed and other central banks have taken further steps to stimulate the economy through reductions in benchmark interest rates. Despite these measures and programs, the extent and duration of the impact of COVID-19 continues to be uncertain.

For further details on these measures and their impact on us, refer to Impact of pandemic risk factor and Relief program sections outlined below as well as the Liquidity and funding risk and Capital management sections of this Q2 2020 Report to Shareholders.

In addition to the broad impacts of COVID-19 on our employees, clients, communities and operations, COVID-19 has impacted our financial results in Q2 2020 across all of our business segments to varying degrees. The impact on our consolidated results is primarily reflected in higher PCL and fair value changes due to the impact of market volatility, including movements in Other comprehensive income (OCI). Results across all of our business segments in Q2 2020 were also impacted by downstream implications from the changes in the macroeconomic environment, including lower interest rates, reduced consumer spending, widening of credit spreads, as well as other impacts including, increased client-driven volumes and higher operating costs. Notwithstanding these challenges, our financial results and condition amid these challenges demonstrate the resilience of our capital and liquidity positions, which were bolstered by our position of strength at the time of entering this crisis and throughout the period.

Given the uncertainty in the extent and duration of the COVID-19 impacts on the economy and society as a whole, as well as the timeline of the transition to reopen the economy, the future impact on our businesses and our financial results and condition remains uncertain.

In response to the COVID-19 pandemic, we have instituted various measures and programs to protect and support our employees, clients and communities, while also striving to ensure continued customer service to our clients, including the following:

• Promoting the safety and well-being of our employees by transitioning the majority of our workforce to work from home arrangements, offering paid leave days, additional compensation for those required to work on-site and 24/7 access to mental well-being support networks.

• Supporting our clients with targeted outreach and relief programs for our individual, small business, commercial and corporate clients such as payment deferrals, refinancing or restructuring and new loans as well as participation in various government relief programs. For further details, refer to the Relief programs section below.

• In response to the needs of our communities, we have committed to support efforts focused on food security, mental health and strategic preparedness and response as well as the introduction of the Frontline Healthcare Workers Essential Care Program.

Impact of pandemic risk factor

Pandemics, epidemics or outbreaks of an infectious disease in Canada or worldwide could have an adverse impact on our business, including changes to the way we operate and on our financial results and condition. During Q2 2020, the spread of the COVID-19 pandemic adversely affected our business and caused uncertainty in the global economy and it continues to pose risks to the global economy, our clients and our business operations. Governments and regulatory bodies in affected areas have imposed a number of measures designed to contain the pandemic, including widespread business closures, travel restrictions, quarantines, and restrictions on gatherings and events. These measures are significantly impacting global economic activity and contributing to increased market volatility and changes to the macroeconomic environment. As impacts continue to materialize, the effects of the disruption on our business strategies and initiatives have adversely affected and may continue to adversely affect our financial results, including the realization of credit, market, or operational risk losses.

Governments, monetary authorities, regulators and financial institutions, including us, have taken actions to support the economy and financial system. These actions include fiscal, monetary and other financial measures to increase liquidity, and provide financial aid to individual, small business, commercial and corporate clients. Additionally, regulatory relief measures in support of financial institutions has also been provided. For more information on these programs, refer to the Relief programs, Liquidity and funding risk and Capital management sections below.

We are closely monitoring the potential continued effects and impacts of the COVID-19 pandemic, which is a rapidly evolving situation. Uncertainty remains as to the full impacts of COVID-19 on the global economy, financial markets, and us, including on our financial results, regulatory capital and liquidity ratios and ability to meet regulatory and other requirements. The ultimate impacts will depend on future developments that are highly uncertain and cannot be predicted, including the scope, severity, duration and the possibility of subsequent waves of the pandemic, and the effectiveness of actions and measures taken by government, monetary and regulatory authorities and other third parties. With respect to client relief programs, we may face challenges, including increased risk of client disputes, litigation, government and regulatory scrutiny as a result of the effects of the COVID-19 pandemic on market and economic conditions and actions government authorities take in response to those actions. We may also face increased operational and reputational risk and financial losses such as higher credit losses amongst other things, depending on the effectiveness of these programs for our individual, small business, commercial and corporate clients. The effectiveness of these programs will depend on the duration and scale of COVID-19 and will vary by region and industry, with varying degrees of benefit to our clients.

The COVID-19 pandemic has and may continue to result in disruptions to our clients and the way in which we conduct our business, including the closure of certain branches, increased staff working off premise, and changes to our operations due to higher volumes of client requests, as well as disruptions to key suppliers of our goods and services. These factors have and may continue to adversely impact our business operations and the quality and continuity of service to customers. To date, we have taken proactive measures through our business continuity plans and our crisis management teams have increased their efforts to preserve the well-being of our employees and our ability to serve clients. Additionally, we have launched various relief programs beyond the available government programs to further support our clients in financial need. For more information on our relief programs, refer to the Relief programs section below.

In addition to the impact that the COVID-19 pandemic has on our business, it may also continue to increase financial stress on our clients. This could lead to increased pressure on our individual clients as well as on the financial performance of our small business, commercial and corporate clients in conjunction with operational constraints due to the impacts of social distancing, including but not limited to continued closures or reduced operating hours, lost sales opportunities and/or increased operating costs, which could result in higher than expected credit losses for us.

If the COVID-19 pandemic is prolonged, including the possibility of subsequent waves, or further diseases emerge that give rise to similar effects, the adverse impact on the economy could deepen and result in further volatility and declines in financial markets. Moreover, it remains uncertain how the macroeconomic environment, societal and business norms will be impacted following this pandemic. Unexpected developments in financial markets, regulatory environments, or consumer behaviour and confidence may have adverse impacts on our financial results and condition, business operations and reputation, for a substantial period of time.

In virtually all aspects of our operations, our view of risks is not static. Consistent with our Enterprise Risk Management Framework (ERMF), we continue to evaluate top risks which are evolving and emerging risks arising from the impacts of the COVID-19 pandemic, including:

• Information Technology (IT) and Cyber risks have increased as malicious activities are creating more threats for cyber-attacks including COVID-19 phishing emails, malware-embedded mobile apps that purport to track infection rates, and targeting of vulnerabilities in remote access platforms as companies move to telework arrangements. Our IT and cyber controls are operating effectively and we are continuing to monitor the threat landscape.

• Privacy, Data and Third Party risks have also heightened as the use of telework arrangements have become common practice. As our employees continue to work from home, we are continuously monitoring and enforcing best practices as we seek to maintain the privacy and confidentiality of all sensitive information. Our security awareness program is required to be completed by each employee annually and includes cyber awareness training on managing risks while working remotely. Third party providers critical to our operations are being monitored for any impact on their ability to deliver services, including fourth party risk.

• Canadian Housing and Household Indebtedness risks have increased as a result of a rise in unemployment and decline in labour participation. While interest rate cuts, government support programs and relief programs offered by banks will help many households, concerns related to housing affordability in certain markets and levels of Canadian household debt were already elevated before the additional challenges brought on by the COVID-19 pandemic and could continue to rise if the COVID-19 pandemic worsens, resulting in, among other things, higher credit losses.

Our business activities expose us to a wide variety of risks and as a global financial institution with a diversified business model, we actively manage risks to help protect and enable our businesses. As described in our 2019 Annual Report, our ERMF provides an overview of our enterprise-wide programs for managing risk, including identifying, assessing, measuring, controlling, monitoring and reporting on significant risks that face the organization. Our ERMF has continuously evolved, well positioning us to manage through adverse economic and market conditions and providing us with a strong foundation to allow us to navigate through these periods of heightened risk.

For further details on how we manage our risks, refer to the risk sections in our 2019 Annual Report.

Relief programs

In response to the COVID-19 pandemic, several government programs have been 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, we have also launched various relief programs beyond available government programs.

 

RBC relief programs

During the second quarter of 2020, we announced the RBC Client Relief program which provides immediate and long-term relief for clients impacted by the COVID-19 pandemic. Through this program, we are helping our clients by implementing various relief measures, including payment deferrals, reduced credit card charges and refinancing or credit restructuring, fee waivers and temporary limit increases across various retail, small business and commercial products.

As at April 30, 2020, more than 492,500 clients globally have been approved to participate in our payment deferral program, including clients that have continued to make payments, and the following table summarizes the number of loans and their associated gross carrying amounts outstanding.

 

 

 

 

 

As at April 30, 2020

(Millions of Canadian dollars, except number of loan amounts)

Number of loans

Gross carrying
amount of
loans outstanding

Residential mortgages

  198,843 

$  54,064 

Personal

  118,434 

  3,477 

Credit cards

  249,405 

  1,746 

Small business

  8,310 

  1,142 

Wholesale

  20,646 

  16,189 

Total

  595,638 

$  76,618 

Government programs in response to the COVID-19 pandemic

Government of Canada  

On March 13, 2020, the Department of Finance Canada announced new programs to help support the functioning of markets and finance businesses while ensuring the financial sector remains sound, well-capitalized and resilient, in light of the impact of the COVID-19 pandemic. To support businesses experiencing cash flow challenges during this unprecedented time, the government has established the following programs:

• The Canada Emergency Business Account (CEBA) - Under this program, Canadian banks are able to provide interest-free loans of up to $40,000 to existing eligible small business clients as a source of liquidity for immediate operating costs. The loans are funded by the Government of Canada, with the Canadian banks retaining no credit risk.

• The Business Credit Availability Program (BCAP) - This program is comprised of the Export Development Canada (EDC) BCAP Guarantee and the Business Development Bank of Canada (BDC) Co-Lending Program.

• Export Development Canada (EDC) BCAP Guarantee - Under this program, Canadian banks are able to provide existing eligible mid-sized and large business clients, focused on both export oriented and domestic sales-based businesses, with loans of up to $6.25 million to support short-term liquidity needs. These loans must be used for certain operating costs and are 80% guaranteed by the EDC.

• Business Development Bank of Canada (BDC) Co-Lending Program - Under this program, Canadian banks and the BDC will jointly provide loans to eligible business clients of up to $6.25 million to meet their operational and liquidity needs. The maximum loan varies by the size of the business and may be structured with an interest-only payment obligation for the first year.

These programs were launched during Q2 2020 with over 115,250 clients and a corresponding total of $4.5 billion relief approved through the CEBA program, of which $1.3 billion was funded as at April 30, 2020.

In addition to this, the Government of Canada and other governing bodies have provided guidance in other areas including but not limited to the extension of regulatory and tax filings. We are currently reviewing the impact of these provisions, and expect the impact to be immaterial for us.

United States Government  

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (CARES) Act was signed into law, which is in addition to other programs that have been enacted by the United States Federal Government. As part of the CARES Act, the Paycheck Protection Program (PPP) offers small businesses with loans, guaranteed by the United States Federal Government, to support the payment of up to 8 weeks of payroll costs, interest on mortgages, rent, and utilities. Through this program, we have provided loans directly to our clients based on their assessment of certain eligibility requirements and failure to meet these requirements will result in recourse actions for the borrower. In some cases, the United States Small Business Administration may forgive all or a portion of the loan. As at April 30, 2020, we have provided $5,119 million (US$3,678 million) of funding to 8,850 clients through this program.

Separately, the U.S. Department of the Treasury provided guidance deferring due dates for various tax returns, other tax filings and tax payments. We are currently reviewing the impact of these provisions, and expect the impact to be immaterial for us.

 

Programs in support of liquidity and funding

Governments and federal agencies have also expanded the eligibility criteria to their existing funding programs and announced new programs to provide further liquidity to banks as well as providing additional sources to access funding for which we can support our clients during this time of uncertainty, including:

• Existing funding programs - The BoC has increased funding available and broadened eligibility requirements for existing term repo facilities and the revised insured mortgage purchase programs through Canada Mortgage Housing Corporation. These programs also include central banks' programs in other jurisdictions, such as the BoE's U.S. dollar swap facility.

• New funding programs - The BoC added the Banker's Acceptance Purchase Facility and the Standing Term Liquidity Facility. Additionally, the Fed introduced the Primary Dealer Credit Facility.

For further details on how we are managing our liquidity and funding profile, refer to the Liquidity and funding risk section of this Q2 2020 Report to Shareholders.

We will continue to monitor and provide updates on new programs or further interpretations and guidance announced by us, governments and federal agencies. In order to support all of the aforementioned programs, central banks and domestic and global regulators have provided guidance on regulatory capital, liquidity and reporting requirements. For a discussion on these initiatives, refer to the Risk and Capital management sections of this Q2 2020 Report to Shareholders.

 

 

 

Financial performance

 

 

 

 

Overview

 

Q2 2020 vs. Q2 2019

Net income of $1,481 million was down $1,749 million or 54% from a year ago. Diluted earnings per share (EPS) of $1.00 was down $1.20 or 55% and return on common equity (ROE) of 7.3% was down from 17.5% last year. Our Common Equity Tier 1 (CET1) ratio of 11.7% was down 10 bps from a year ago.

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

Personal & Commercial Banking earnings decreased primarily due to higher PCL, mainly driven by the impact of the COVID-19 pandemic on performing assets, and lower spreads. These factors were partially offset by average volume growth of 9% in Canadian Banking.

Capital Markets results were down primarily due to higher PCL, mainly driven by the impact of the COVID-19 pandemic on performing assets and higher provisions on impaired assets in a couple of sectors. Lower revenue in Corporate and Investment Banking also contributed to the decrease. These factors were partially offset by higher revenue in Global Markets and lower taxes due to an increase in the proportion of earnings from lower tax rate jurisdictions.

Wealth Management results decreased primarily due to higher PCL, mainly driven by the impact of the COVID-19 pandemic on performing assets, and higher staff and technology-related costs. Also contributing to the decrease was the impact of market volatility during the current quarter which resulted in unfavourable changes in the fair value of seed capital investments, interest rate derivatives and the net impact of our U.S. share-based compensation plans. These factors were partially offset by an increase in revenue from higher average fee-based client assets, net of the associated variable compensation costs.

Investor & Treasury Services earnings increased primarily due to higher funding and liquidity revenue.

Insurance results were up mainly due to higher favourable investment-related experience and new longevity reinsurance contracts, partially offset by the impact of actuarial adjustments and lower benefits from favourable reinsurance contract renegotiations.

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

Q2 2020 vs. Q1 2020

Net income of $1,481 million was down $2,028 million or 58% from the prior quarter. Diluted EPS of $1.00 was down $1.40 or 58% and ROE of 7.3% was down from 17.6% in the prior quarter. Our CET1 ratio of 11.7% was down 30 bps.

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

Personal & Commercial Banking results were lower reflecting higher PCL, mainly due to the impact of the COVID-19 pandemic on performing assets. Lower card service revenue due to a significant decrease in purchase volumes, two less days in the quarter and lower spreads also contributed to the decrease. These factors were partially offset by average volume growth of 2% in Canadian Banking.

Capital Markets earnings were down largely due to higher PCL, mainly driven by the impact of the COVID-19 pandemic on performing assets and higher provisions on impaired assets in a couple of sectors. Lower fixed income trading revenue in Corporate and Investment Banking primarily from loan underwriting markdowns in the U.S. and Europe reflecting widening credit spreads and lower M&A activity primarily in the U.S., also contributed to the decrease. These factors were partially offset by lower compensation on decreased revenue and lower taxes due to an increase in the proportion of earnings from lower tax rate jurisdictions. Net Income was also impacted by higher fixed income trading revenue in Global Markets in Canada and Europe due to increased client activity, partially offset by lower fixed income trading revenue in the U.S.

Wealth Management earnings decreased largely due to higher PCL, mainly driven by the impact of the COVID-19 pandemic on performing assets. Also contributing to the decrease was the impact of market volatility during the current quarter which resulted in unfavourable changes in the fair value of seed capital investments, interest rate derivatives and the net impact of our U.S. share-based compensation plans. Net interest income was relatively flat as average volume growth was offset by the impact of lower interest rates. These factors were partially offset by lower variable compensation commensurate with the decline in commissionable revenue.

Insurance results were relatively flat as higher travel claims costs, the impact of lower new longevity reinsurance contracts and unfavourable actuarial adjustments were largely offset by higher favourable investment-related experience.

Investor & Treasury Services results increased primarily due to higher funding and liquidity revenue reflecting the impact of interest rate movements in the current quarter and higher gains from the disposition of securities, partially offset by higher funding costs related to enterprise liquidity. Higher revenue from increased client activity in our asset services business resulting from elevated market volatility in the current quarter also contributed to the increase.

Q2 2020 vs. Q2 2019 (Six months ended)

Net income of $4,990 million decreased $1,412 million or 22% from a year ago. Six month diluted EPS of $3.40 was down $0.94 or 22% and ROE of 12.5% was down from 17.1% in the prior year.

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

Personal & Commercial Banking earnings were down reflecting higher PCL, mainly due to the impact of the COVID-19 pandemic on performing assets. Lower spreads and higher staff-related costs also contributed to the decrease. These factors were partially offset by average volume growth of 8% in Canadian Banking.

Capital Markets results decreased primarily due to higher PCL, mainly driven by the impact of the COVID-19 pandemic on performing assets and higher provisions on impaired assets in a couple of sectors. Higher compensation on increased revenue also contributed to the decrease. These factors were partially offset by higher revenue in Global Markets.

Wealth Management results were lower primarily due to higher staff and technology-related costs, as well as higher PCL mainly driven by the impact of the COVID-19 pandemic on performing assets. Also contributing to the decrease was the impact of market volatility during the current quarter which resulted in unfavourable changes in the fair value of seed capital investments, interest rate derivatives and the net impact of our U.S. share-based compensation plans. The prior period also included the impact of a favourable accounting adjustment in Canadian Wealth Management. These factors were partially offset by an increase in revenue from higher average fee-based client assets, net of the associated variable compensation costs, and an increase in transaction volumes.

Investor & Treasury Services results were up largely driven by higher funding and liquidity revenue.

Insurance earnings increased mainly due to new longevity reinsurance contracts and higher favourable investment-related experience, partially offset by lower benefits from favourable reinsurance contract renegotiations.

Impact of foreign currency translation

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

 

 

 

 

 

 

 

For the three months ended

 

For the six months ended

(Millions of Canadian dollars, except per share amounts)

Q2 2020 vs.
Q2 2019

Q2 2020 vs.
Q1 2020

 

Q2 2020 vs.

Q2 2019

Increase (decrease):

 

 

 

 

Total revenue

$  98

$  140

 

$  33

PCL

  28

  43

 

  28

Non-interest expense

  73

  104

 

  28

Income taxes

  (5 )

  (8 )

 

  (7 )

Net income

  2

  1

 

  (16 )

Impact on EPS

 

 

 

 

Basic

$   -

$   -

 

$  (0.01 )

Diluted

  -

  -

 

  (0.01 )

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

 

For the six months ended

April 30

2020

January 31

2020

April 30

2019

 

April 30

2020

April 30

2019

U.S. dollar

  0.725 

  0.760 

  0.751 

 

  0.742

  0.750

British pound

  0.575 

  0.579 

  0.573 

 

  0.577

  0.578

Euro

  0.659 

  0.684 

  0.667 

 

  0.671

  0.661

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

 

Total revenue

 

 

 

 

 

 

 

 

 

For the three months ended

 

For the six months ended

(Millions of Canadian dollars)

April 30

2020

January 31

2020

April 30

2019

 

April 30

2020

April 30

2019

Interest and dividend income

$  9,226

$  10,238

$  10,132

 

$  19,464

$  20,281

Interest expense (1)

  3,761

  5,017

  5,359

 

  8,778

  10,661

Net interest income (1)

$  5,465

$  5,221

$  4,773

 

$  10,686

$  9,620

NIM (1)

  1.61%

  1.59%

  1.62%

 

  1.60%

  1.61%

Insurance premiums, investment and fee income 

$  197

$  1,994

$  1,515

 

$  2,191

$  3,094

Trading revenue (1)

  (66 )

  458

  314

 

  392

  709

Investment management and custodial fees

  1,500

  1,535

  1,381

 

  3,035

  2,831

Mutual fund revenue

  890

  946

  899

 

  1,836

  1,772

Securities brokerage commissions

  460

  318

  316

 

  778

  658

Service charges

  468

  488

  466

 

  956

  934

Underwriting and other advisory fees

  544

  627

  554

 

  1,171

  899

Foreign exchange revenue, other than trading

  280

  253

  243

 

  533

  492

Card service revenue

  212

  287

  266

 

  499

  548

Credit fees

  304

  360

  288

 

  664

  603

Net gains on investment securities

  45

  11

  37

 

  56

  83

Share of profit in joint ventures and associates

  15

  22

  14

 

  37

  29

Other

  19

  316

  433

 

  335

  816

Non-interest income

$  4,868

$  7,615

$  6,726

 

$  12,483

$  13,468

Total revenue

$   10,333

$   12,836

$   11,499

 

$   23,169

$   23,088

Additional information

 

 

 

 

 

 

Total trading revenue

 

 

 

 

 

 

Net interest income (1)

$  1,064

$  700

$  555

 

$  1,764

$  1,119

Non-interest income (1)

  (66 )

  458

  314

 

  392

  709

Total trading revenue

$  998

$  1,158

$  869

 

$  2,156

$  1,828

(1)  Commencing Q4 2019, the interest component of the valuation of certain deposits carried at FVTPL previously presented in trading revenue is presented in Net interest income. Comparative amounts have been reclassified to conform with this presentation.

Q2 2020 vs. Q2 2019

Total revenue decreased $1,166 million or 10% from last year, mainly due to a reduction in insurance premiums, investment and fee income (Insurance revenue), lower other revenue and lower trading revenue. These factors were partially offset by higher net interest income, securities brokerage commissions, investment management and custodial fees, and the impact of foreign exchange translation which increased total revenue by $98 million.

Net interest income increased $692 million or 14%, largely due to higher trading revenue in Capital Markets primarily in repo products, volume growth in Canadian Banking and Wealth Management, as well as higher funding and liquidity revenue within our Investor & Treasury Services business. These factors were partially offset by lower spreads in Wealth Management and Canadian Banking. The impact associated with higher funding and liquidity revenue within our Investor & Treasury Services business was more than offset by lower related gains on non-trading derivatives in Other revenue.

NIM was down 1 bp compared to last year, mainly due to lower spreads in Wealth Management and Personal and Commercial Banking primarily driven by the impact of lower interest rates, and changes in average earning asset mix with volume growth primarily in reverse repos. These factors were partially offset by higher spreads in our trading portfolios in Capital Markets and higher funding and liquidity revenue within our Investor & Treasury Services business. The impact of higher funding and liquidity revenue within our Investor & Treasury Services business was more than offset by lower related gains on non-trading derivatives in Other revenue.

Insurance revenue decreased $1,318 million or 87%, primarily due to the change in fair value of investments backing policyholder liabilities and lower group annuity sales, partially offset by business growth in International Insurance, all of which are largely offset in PBCAE.

Trading revenue decreased $380 million or 121%, mainly attributable to Capital Markets driven by lower fixed income trading largely in the U.S. reflecting widening credit spreads, including the impact of loan underwriting markdowns. Lower equity trading revenue primarily in Canada also contributed to the decrease.

Investment management and custodial fees increased $119 million or 9%, primarily due to higher average fee-based client assets mainly reflecting net sales.

Security brokerage commissions increased $144 million or 46%, mainly due to higher transaction volumes in Wealth Management and higher revenue in cash equities due to increased client activity in Capital Markets.

Other revenue decreased $414 million or 96%, mainly 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. Lower gains on non-trading derivatives in our Investor & Treasury Services business, which were largely offset in Net interest income, also contributed to the decrease.

Q2 2020 vs. Q1 2020

Total revenue decreased $2,503 million or 19% from the prior quarter, mainly due to lower Insurance revenue, trading revenue and other revenue. These factors were partially offset by higher net interest income, higher securities brokerage commissions, and the impact of foreign exchange translation which increased total revenue by $140 million.

Net interest income was up $244 million or 5%, mainly driven by higher trading revenue in Capital Markets primarily in repo products, volume growth in Wealth Management and Canadian Banking, as well as higher funding and liquidity revenue within our Investor & Treasury Services business. These factors were partially offset by two less days in the quarter and lower spreads in Wealth Management and Canadian Banking. The impact associated with higher funding and liquidity revenue within our Investor & Treasury Services business was more than offset by lower related gains on non-trading derivatives in Other revenue.

Insurance revenue decreased $1,797 million or 90%, primarily due to the change in fair value of investments backing policyholder liabilities and lower group annuity sales, both of which are largely offset in PBCAE.

Trading revenue decreased $524 million or 114%, mainly attributable to Capital Markets driven by lower fixed income trading largely in the U.S. reflecting widening credit spreads, including the impact of loan underwriting markdowns. Lower equity trading revenue primarily in Canada also contributed to the decrease.

Security brokerage commissions increased $142 million or 45%, mainly due to higher revenue in cash equities due to increased client activity in Capital Markets and higher transaction volumes in Wealth Management.

Other revenue decreased $297 million or 94%, mainly 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, lower gains on non-trading derivatives in our Investor & Treasury Services business and the unfavourable impact of economic hedges. The impact of changes in the fair value of seed capital investments also contributed to the decrease. These factors were partially offset by higher net gains in our non-trading investment portfolios.

Q2 2020 vs. Q2 2019 (Six months ended)

Total revenue remained relatively flat from the prior year as higher net interest income, underwriting and other advisory fees, investment management and custodial fees, securities brokerage commissions, mutual fund revenue and credit fees were largely offset by a decrease in Insurance revenue, other revenue and trading revenue. The impact of foreign exchange translation also increased total revenue by $33 million.

Net interest income increased $1,066 million or 11%, largely due to volume growth in Canadian Banking and Wealth Management and higher trading revenue in Capital Markets primarily in repo products. Higher funding and liquidity revenue within our Investor & Treasury Services business also contributed to the increase. These factors were partially offset by lower spreads in Wealth Management and Canadian Banking. The impact associated with higher funding and liquidity revenue was more than offset by lower related gains on non-trading derivatives in Other revenue.

Insurance revenue decreased $903 million or 29%, largely reflecting the change in fair value of investments backing policyholder liabilities partially offset by business growth in longevity reinsurance, both of which are largely offset in PBCAE.

Trading revenue decreased $317 million or 45%, mainly due to lower revenue in Capital Markets from equity trading in North America and lower fixed income trading in the U.S., including the impact of loan underwriting markdowns reflecting widening credit spreads. These factors were partially offset by higher fixed income trading within rates products in Capital Markets primarily in Europe and Canada.

Investment management and custodial fees increased $204 million or 7%, driven by higher average fee-based client assets primarily reflecting net sales and market appreciation, partially offset by the impact of a favourable accounting adjustment in Canadian Wealth Management in the prior year.

Underwriting and other advisory fees increased $272 million or 30%, largely due to higher debt origination and M&A activity primarily in North America.

Other revenue decreased $481 million or 59%, mainly driven by lower gains on non-trading derivatives in our Investor & Treasury Services business, which were largely offset in Net interest income. 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, also contributed to the decrease.

Provision for credit losses

Q2 2020 vs. Q2 2019

Total PCL increased $2,404 million from the prior year.

PCL on loans of $2,734 million increased $2,293 million from the prior year, largely due to the impact of the COVID-19 pandemic on performing loans, resulting in higher provisions in Personal and Commercial Banking, Capital Markets and Wealth Management. The PCL on loans ratio of 165 bps increased 136 bps.

Q2 2020 vs. Q1 2020

Total PCL increased $2,411 million from the prior quarter.

PCL on loans of $2,734 million increased $2,313 million from the prior quarter, largely due to the impact of the COVID-19 pandemic on performing loans, resulting in higher provisions in Personal and Commercial Banking, Capital Markets and Wealth Management. The PCL on loans ratio increased 139 bps.

Q2 2020 vs. Q2 2019 (Six months ended)

Total PCL increased $2,309 million from the prior year.

PCL on loans of $3,155 million increased $2,198 million from the prior year, largely due to the impact of the COVID-19 pandemic on performing loans, resulting in higher provisions in Personal and Commercial Banking, Capital Markets and Wealth Management. The PCL on loans ratio of 96 bps increased 64 bps.

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

 

Insurance policyholder benefits, claims and acquisition expense (PBCAE)

Q2 2020 vs. Q2 2019

PBCAE decreased $1,337 million from the prior year, mainly reflecting the change in fair value of investments backing policyholder liabilities and lower group annuity sales, both of which are largely offset in revenue. Higher favourable investment-related experience and the impact of new longevity reinsurance contracts also contributed to the decrease. These factors were partially offset by business growth in International Insurance which is largely offset in revenue, the impact of actuarial adjustments and lower favourable reinsurance contract renegotiations. Claims costs were relatively flat as the increase in travel claims associated with the COVID-19 pandemic were offset by improved life retrocession claims.

Q2 2020 vs. Q1 2020

PBCAE decreased $1,791 million from the prior quarter, mainly reflecting the change in fair value of investments backing policyholder liabilities and lower group annuity sales, both of which are largely offset in revenue. Higher favourable investment-related experience also contributed to the decrease. These factors were partially offset by higher claims costs primarily related to travel, the impact of lower new longevity reinsurance contracts and unfavourable actuarial adjustments.

Q2 2020 vs. Q2 2019 (Six months ended)

PBCAE decreased $948 million or 40% from the prior year, mainly reflecting the change in fair value of investments backing policyholder liabilities which is largely offset in revenue, the impact of higher favourable new longevity reinsurance contracts and higher favourable investment-related experience. These factors were partially offset by business growth which is largely offset in revenue, and the lower impact of reinsurance contract renegotiations.

Non-interest expense

 

 

 

 

 

 

 

 

 

For the three months ended

 

For the six months ended

(Millions of Canadian dollars, except percentage amounts)

April 30

2020

January 31

2020

April 30

2019

 

April 30

2020

April 30

2019

Salaries

$   1,671

$  1,652

$  1,607

 

$  3,323

$  3,215

Variable compensation

  1,370

  1,646

  1,430

 

  3,016

  2,818

Benefits and retention compensation

  508

  541

  471

 

  1,049

  963

Share-based compensation

  24

  221

  114

 

  245

  269

Human resources

$  3,573

$  4,060

$  3,622

 

$  7,633

$  7,265

Equipment

  468

  462

  445

 

  930

  876

Occupancy

  417

  397

  405

 

  814

  802

Communications

  252

  250

  273

 

  502

  513

Professional fees

  324

  284

  290

 

  608

  595

Amortization of other intangibles

  315

  303

  299

 

  618

  589

Other

  593

  622

  582

 

  1,215

  1,188

Non-interest expense

$  5,942

$   6,378

$  5,916

 

$   12,320

$   11,828

Efficiency ratio (1)

  57.5%

   49.7%

   51.4%

 

  53.2%

  51.2%

Efficiency ratio adjusted (2)

  52.6%

  51.6%

  53.2%

 

  52.1%

  52.7%

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

(2)  Measures have been adjusted by excluding the change in fair value of investments backing our policyholder liabilities. These are non-GAAP measures. For further details, refer to the Key performance and non-GAAP measures section.

Q2 2020 vs. Q2 2019

Non-interest expense increased $26 million from the prior year, largely due to higher staff-related costs (excluding share-based compensation), the impact of foreign exchange translation and an increase in technology and related costs. Additional compensation in the current quarter instituted for certain employees, primarily those client-facing amidst the COVID-19 pandemic, as well as other incremental COVID-19 related costs, also contributed to the increase. These factors were partially offset by the change in the fair value of our U.S. share-based compensation plans, which was largely offset in Other revenue.

Our efficiency ratio of 57.5% increased 610 bps from 51.4% last year. Excluding the change in fair value of investments backing our policyholder liabilities, our efficiency ratio of 52.6% decreased 60 bps from 53.2% last year.

Q2 2020 vs. Q1 2020

Non-interest expense decreased $436 million or 7% from the prior quarter, primarily due to lower variable compensation on decreased results, and the change in the fair value of our U.S. share-based compensation plans which was largely offset in Other revenue. These factors were partially offset by the impact of foreign exchange translation.

Our efficiency ratio of 57.5% increased 780 bps from 49.7% last quarter. Excluding the change in fair value of investments backing our policyholder liabilities, our efficiency ratio of 52.6% increased 100 bps from 51.6% last quarter.

Q2 2020 vs. Q2 2019 (Six months ended)

Non-interest expense increased $492 million or 4% from the prior year, primarily attributable to higher variable compensation on increased revenue, higher staff-related costs and an increase in technology and related costs, including digital initiatives. These factors were partially offset by the change in the fair value of our U.S share-based compensation plans, which was largely offset in Other revenue.

Our efficiency ratio of 53.2% increased 200 bps from 51.2%. Excluding the change in fair value of investments backing our policyholder liabilities, our efficiency ratio of 52.1% decreased 60 bps from last year.

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

 

Income taxes

 

 

 

 

 

 

 

 

 

For the three months ended

 

For the six months ended

(Millions of Canadian dollars, except percentage amounts)

April 30

2020

January 31

2020

April 30

2019

 

April 30

2020

April 30

2019

Income taxes

$  257

$  916

$  767

 

$  1,173

$  1,533

Income before income taxes

$   1,738

$   4,425

$   3,997

 

$   6,163

$   7,935

Effective income tax rate

  14.8%

  20.7%

  19.2%

 

  19.0%

  19.3%

Q2 2020 vs. Q2 2019

Income tax expense decreased $510 million or 66% from last year, primarily due to lower income before income taxes in the current quarter.

The effective income tax rate of 14.8% decreased 440 bps, mainly due to a higher proportion of tax exempt income and income from lower tax rate jurisdictions relative to the overall decline in earnings. These factors were partially offset by favourable tax adjustments in the prior year.

Q2 2020 vs. Q1 2020

Income tax expense decreased $659 million or 72% from last quarter, primarily due to lower income before income taxes in the current quarter.

The effective income tax rate of 14.8% decreased 590 bps, mainly due to a higher proportion of income from lower tax rate jurisdictions and tax exempt income relative to the overall decline in earnings.

Q2 2020 vs. Q2 2019 (Six months ended)

Income tax expense decreased $360 million or 23% from last year, mainly due to lower income before income taxes in the current year.

The effective income tax rate of 19.0% decreased 30 bps, mainly due to a higher proportion of tax exempt income relative to the overall decline in earnings, partially offset by net favourable tax adjustments in the prior year.

 

 

 

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, 2019.

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 2019 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 2019 Annual Report.

 

The following table provides a summary of our ROE calculations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended

 

April 30

2020

 

January 31

2020

 

April 30

2019

(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

$  516

$  411

$  178 

$  222

$  86

$  7

$  1,420

 

$  3,439 

 

$  3,161 

Total average common equity (1) , (2)

   23,500

   16,100

   2,200 

   3,200

   23,450

   10,650

   79,100

 

   77,850 

 

   74,000 

ROE (3)

  9.0%

  10.4%

  33.0% 

  28.4%

  1.5%

  n.m.

  7.3%

 

  17.6% 

 

  17.5% 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the six months ended

 

 

 

April 30

2020

 

April 30

2019

 

 

(Millions of Canadian dollars,

except percentage amounts)

Personal &
Commercial
Banking

Wealth
Management

Insurance

Investor &
Treasury
Services

Capital
Markets

Corporate
Support

Total

 

Total

 

 

Net income available to common shareholders

$  2,179

$  1,021

$  357 

$  362

$  949

$  (9 )

$  4,859

 

$  6,257 

 

 

Total average common equity (1) , (2)

  23,400

  15,750

  2,200 

  3,150

  23,100

  10,850

  78,450

 

  73,800 

 

 

ROE (3)

  18.7%

  13.0%

  32.7% 

  23.2%

  8.3%

  n.m.

  12.5%

 

  17.1% 

 

 

(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

Non-GAAP measures

We believe that certain non-GAAP measures described below are more reflective of our ongoing operating results and provide readers with a better understanding of management's perspective on our performance. These measures enhance the comparability of our financial performance for the three and six months ended April 30, 2020 with the corresponding periods in the prior year and the three months ended January 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 our 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 our policyholder liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended

 

April 30

2020

 

January 31

2020

 

April 30

2019

 

 

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

$  10,333

$   953 

$   11,286 

 

$   12,836 

$   (468 )

$   12,368

 

$   11,499

$   (383 )

$   11,116

Non-interest expense

  5,942

  - 

  5,942 

 

  6,378 

  -

  6,378

 

  5,916

  -

  5,916

Efficiency ratio

  57.5%

 

  52.6% 

 

  49.7% 

 

  51.6%

 

  51.4%

 

  53.2%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the six months ended

 

 

 

April 30

2020

 

April 30

2019

 

 

 

 

 

 

 

Item excluded

 

 

 

Item excluded

 

(Millions of Canadian dollars,
except percentage amounts)

 

 

 

 

As reported

Change in fair value of
investments backing
policyholder liabilities

Adjusted

 

As reported

Change in fair value of
investments backing
policyholder liabilities

Adjusted

Total revenue

 

 

 

 

$   23,169 

$   485

$   23,654

 

$   23,088

$   (630 )

$   22,458

Non-interest expense

 

 

 

 

  12,320 

  -

  12,320

 

  11,828

  -

  11,828

Efficiency ratio

 

 

 

 

  53.2% 

 

  52.1%

 

  51.2%

 

  52.7%

 

 

 

Personal & Commercial Banking

 

 

 

 

 

 

 

 

 

 

As at or for the three months ended

 

As at or for the six months ended

(Millions of Canadian dollars, except
percentage amounts and as otherwise noted)

April 30

2020

January 31

2020

April 30

2019

 

April 30

2020

April 30

2019

Net interest income

$  3,149

$  3,226

$  3,060

 

$  6,375

$  6,194

Non-interest income

  1,251

  1,384

  1,273

 

  2,635

  2,557

Total revenue

  4,400

  4,610

  4,333

 

  9,010

  8,751

PCL on performing assets

  1,370

  66

  9

 

  1,436

  44

PCL on impaired assets

  336

  276

  363

 

  612

  676

PCL

  1,706

  342

  372

 

  2,048

  720

Non-interest expense

  1,947

  1,984

  1,887

 

  3,931

  3,802

Income before income taxes

  747

  2,284

  2,074

 

  3,031

  4,229

Net income

$  532

$  1,686

$  1,549

 

$  2,218

$  3,120

Revenue by business

 

 

 

 

 

 

Canadian Banking

$  4,170

$  4,368

$  4,099

 

$  8,538

$  8,269

Caribbean & U.S. Banking

  230

  242

  234

 

  472

  482

Selected balance sheet and other information

 

 

 

 

 

 

ROE

  9.0%

  28.3%

  27.2%

 

  18.7%

  26.9%

NIM

  2.73%

  2.77%

  2.85%

 

  2.75%

  2.85%

Efficiency ratio

  44.3%

  43.0%

  43.5%

 

  43.6%

  43.4%

Operating leverage

  (1.7)%

  0.7%

  2.4%

 

  (0.4)%

  1.0%

Average total earning assets, net

$   468,400

$   463,400

$   440,300

 

$   465,900

$   438,700

Average loans and acceptances, net

  471,300

  466,800

  441,900

 

  469,000

  440,000

Average deposits

  428,700

  413,700

  389,000

 

  421,100

  385,500

AUA (1)

  275,700

  294,200

  283,300

 

  275,700

  283,300

Average AUA

  275,900

  290,600

  277,900

 

  283,300

  270,800

PCL on impaired loans as a % of average net loans and acceptances

  0.28%

  0.24%

  0.34%

 

  0.26%

  0.31%

Other selected information - Canadian Banking

 

 

 

 

 

 

Net income

$  649

$  1,624

$  1,460

 

$  2,273

$  3,004

NIM

  2.70%

  2.72%

  2.80%

 

  2.71%

  2.79%

Efficiency ratio

  42.7%

  41.3%

  42.0%

 

  42.0%

  41.8%

Operating leverage

  (1.8)%

  0.7%

  1.7%

 

  (0.4)%

  0.7%

(1)  AUA represents period-end spot balances and includes securitized residential mortgages and credit card loans as at April 30, 2020 of $16.1 billion and $6.7 billion, respectively (January 31, 2020 - $15.4 billion and $7.8 billion; April 30, 2019 - $16.2 billion and $8.3 billion).

Financial performance

Q2 2020 vs. Q2 2019

Net income decreased $1,017 million or 66% from last year, primarily attributable to higher PCL mainly driven by the impact of the COVID-19 pandemic on performing assets, and lower spreads. These factors were partially offset by average volume growth of 9% in Canadian Banking.

Total revenue increased $67 million or 2%.

Canadian Banking revenue increased $71 million or 2% compared to last year, largely reflecting average volume growth of 7% in loans and 11% in deposits, partially offset by lower spreads and lower card service revenue driven by a significant decrease in purchase volumes.

Caribbean & U.S. Banking revenue decreased $4 million or 2% compared to last year.

Net interest margin was down 12 bps, mainly due to the impact of competitive pricing pressures, lower interest rates and changes in product mix.

PCL increased $1,334 million, largely reflecting higher provisions on performing loans due to the impact of the COVID-19 pandemic. Higher provisions on impaired loans in our Canadian Banking retail portfolios were more than offset by lower provisions on impaired loans in our Canadian Banking commercial and Caribbean Banking portfolios, as the prior year reflected higher provisions taken in the public works & infrastructure and information technology sectors. For further details, refer to Credit quality performance in the Credit risk section.

Non-interest expense increased $60 million or 3%, primarily attributable to higher staff-related costs, including additional compensation in the current quarter instituted for certain employees, primarily those client-facing amidst the COVID-19 pandemic, as well as other incremental COVID-19 related costs.

Q2 2020 vs. Q1 2020

Net income decreased $1,154 million or 68% from last quarter, reflecting higher PCL, mainly due to the impact of the COVID-19 pandemic on performing assets. Lower card service revenue due to a significant decrease in purchase volumes, two less days in the quarter and lower spreads also contributed to the decrease. These factors were partially offset by average volume growth of 2% in Canadian Banking.

Net interest margin was down 4 bps, mainly due to the impact of lower interest rates.

Q2 2020 vs. Q2 2019 (Six months ended)

Net income decreased $902 million or 29% from last year, reflecting higher PCL, mainly due to the impact of the COVID-19 pandemic on performing assets. Lower spreads and higher staff-related costs also contributed to the decrease. These factors were partially offset by average volume growth of 8% in Canadian Banking.

Total revenue increased $259 million or 3% from last year, mainly driven by average volume growth in Canadian Banking of 7% in loans and 10% in deposits and higher average balances driving higher mutual fund distribution fees, partially offset by lower spreads and lower card service revenue driven by a significant decrease in purchase volumes.

PCL increased $1,328 million, largely reflecting higher provisions on performing loans due to the impact of the COVID-19 pandemic. Higher provisions on impaired loans in our Canadian Banking retail portfolios were more than offset by lower provisions on impaired loans in our Canadian Banking commercial and Caribbean Banking portfolios, as the prior year reflected higher provisions taken in the public works & infrastructure and information technology sectors. For further details, refer to Credit quality performance in the Credit risk section.

Non-interest expense increased $129 million or 3%, primarily attributable to higher staff-related costs, and an increase in technology and related costs, including digital initiatives.

 

 

 

Wealth Management

 

 

 

 

 

 

 

 

 

 

As at or for the three months ended

 

As at or for the six months ended

(Millions of Canadian dollars, except number of,

percentage amounts and as otherwise noted)

April 30

2020

January 31

2020

April 30

2019

 

April 30

2020

April 30

2019

Net interest income

$  737

$  738

$  731 

 

$  1,475

$  1,475 

Non-interest income

 

 

 

 

 

 

Fee-based revenue

  1,774

  1,847

  1,663 

 

  3,621

  3,377 

Transaction and other revenue

  311

  581

  585 

 

  892

  1,075 

Total revenue

  2,822

  3,166

  2,979 

 

  5,988

  5,927 

PCL on performing assets

  76

  (1 )

  13 

 

  75

  28 

PCL on impaired assets

  15

  (1 )

  17 

 

  14

  28 

PCL

  91

  (2 )

  30 

 

  89

  56 

Non-interest expense

  2,169

  2,370

  2,204 

 

  4,539

  4,368 

Income before income taxes

  562

  798

  745 

 

  1,360

  1,503 

Net income

$  424

$  623

$  585 

 

$  1,047

$  1,182 

Revenue by business

 

 

 

 

 

 

Canadian Wealth Management

$  835

$  843

$  808 

 

$  1,678

$  1,650 

U.S. Wealth Management (including City National)

  1,384

  1,624

  1,539 

 

  3,008

  3,010 

U.S. Wealth Management (including City National) (US$ millions)

  1,003

  1,234

  1,155 

 

  2,237

  2,258 

Global Asset Management

  500

  594

  538 

 

  1,094

  1,081 

International Wealth Management

  103

  105

  94 

 

  208

  186 

Selected balance sheet and other information

 

 

 

 

 

 

ROE

  10.4%

  15.8%

  16.5% 

 

  13.0%

  16.5% 

NIM

  2.97%

  3.17%

  3.66% 

 

  3.07%

  3.66% 

Pre-tax margin (1)

  19.9%

  25.2%

  25.0% 

 

  22.7%

  25.4% 

Number of advisors (2)

  5,333

  5,299

  5,176 

 

  5,333

  5,176 

Average total earning assets, net

$  100,900

$  92,500

$  81,900 

 

$  96,700

$  81,200 

Average loans and acceptances, net

  75,100

  69,600

  62,200 

 

  72,300

  61,700 

Average deposits

  119,100

  105,600

  93,000 

 

  112,300

  93,600 

AUA (3)

   1,053,700

   1,106,900

   1,050,900 

 

   1,053,700

   1,050,900 

U.S. Wealth Management (including City National)  (3)

  559,200

  578,600

  537,200 

 

  559,200

  537,200 

U.S. Wealth Management (including City National) (US$ millions) (3)

  401,700

  437,300

  400,900 

 

  401,700

  400,900 

AUM (3)

  782,100

  792,900

  726,600 

 

  782,100

  726,600 

Average AUA

  1,040,200

  1,097,100

  1,027,300 

 

  1,068,900

  1,006,700 

Average AUM

  770,400

  780,200

  712,200 

 

  775,300

  693,300 

PCL on impaired loans as a % of average net loans and acceptances

  0.08%

  (0.01)%

  0.12% 

 

  0.04%

  0.09% 

 

 

 

 

 

 

Estimated impact of U.S. dollar, British pound

and Euro translation on key income statement items

(Millions of Canadian dollars, except percentage amounts and as otherwise noted)

For the three

months ended

 

For the six
months ended

Q2 2020 vs.
Q2 2019

Q2 2020 vs.
Q1 2020

 

Q2 2020 vs.
Q2 2019

Increase (decrease):

 

 

 

 

Total revenue

$  48

$  66

 

$  22

PCL

  4

  5

 

  4

Non-interest expense

  41

  55

 

  19

Net income

  3

  5

 

  (1 )

Percentage change in average U.S. dollar equivalent of C$1.00

   (3)%

   (5)%

 

   (1)%

Percentage change in average British pound equivalent of C$1.00

  -%

  (1)%

 

  -%

Percentage change in average Euro equivalent of C$1.00

  (1)%

  (4)%

 

  2%

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

(2)  Represents client-facing advisors across all our Wealth Management businesses.

(3)  Represents period-end spot balances.

 

Financial performance

Q2 2020 vs. Q2 2019

Net income decreased $161 million or 28%, primarily attributable to higher PCL, mainly driven by the impact of the COVID-19 pandemic on performing assets, and higher staff and technology-related costs. Also contributing to the decrease was the impact of market volatility during the current quarter which resulted in unfavourable changes in the fair value of seed capital investments, interest rate derivatives and the net impact of our U.S. share-based compensation plans. These factors were partially offset by an increase in revenue from higher average fee-based client assets, net of the associated variable compensation costs.

Total revenue decreased $157 million or 5%.

Canadian Wealth Management revenue increased $27 million or 3%, mainly due to higher transaction volumes driven primarily by the impact of elevated market volatility and higher average fee-based client assets largely reflecting net sales.

U.S. Wealth Management (including City National) revenue decreased $155 million or 10%. In U.S. dollars, revenue decreased $152 million or 13%, primarily attributable to the impact of market volatility during the current quarter resulting in unfavourable 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, as well as changes in the fair value of interest rate derivatives from widening credit spreads. Average volume growth from an increase in business activity in the current quarter was more than offset by the impact of lower interest rates resulting in a decline in net interest income. These factors were partially offset by higher average fee-based client assets mainly reflecting net sales.

Global Asset Management revenue decreased $38 million or 7%, largely due to the unfavourable change in fair value of seed capital investments driven by the impact of market volatility in the current quarter.

PCL increased $61 million, reflecting higher provisions on performing loans in U.S. Wealth Management (including City National) due to the impact of the COVID-19 pandemic. For further details, refer to Credit quality performance in the Credit risk section.

Non-interest expense decreased $35 million or 2%, mainly due to the change in the fair value of our U.S. share-based compensation plans, which was largely offset in revenue. This factor was partially offset by higher staff-related costs in support of business growth, the impact of foreign exchange translation, higher technology and related costs, and higher regulatory costs.

Q2 2020 vs. Q1 2020

Net income decreased $199 million or 32%, largely due to higher PCL, mainly driven by the impact of the COVID-19 pandemic on performing assets. Also contributing to the decrease was the impact of market volatility during the current quarter which resulted in unfavourable changes in the fair value of seed capital investments, interest rate derivatives and the net impact of our U.S. share-based compensation plans. Net interest income was relatively flat as average volume growth was offset by the impact of lower interest rates. These factors were partially offset by lower variable compensation commensurate with the decline in commissionable revenue.

Q2 2020 vs. Q2 2019 (Six months ended)

Net income decreased $135 million or 11% from a year ago, primarily due to higher staff and technology-related costs, as well as higher PCL mainly driven by the impact of the COVID-19 pandemic on performing assets. Also contributing to the decrease was the impact of market volatility during the current quarter which resulted in unfavourable changes in the fair value of seed capital investments, interest rate derivatives and the net impact of our U.S. share-based compensation plans. The prior period also included the impact of a favourable accounting adjustment in Canadian Wealth Management. These factors were partially offset by an increase in revenue from higher average fee-based client assets, net of the associated variable compensation costs, and an increase in transaction volumes.

Total revenue increased $61 million or 1%, largely due to higher average fee-based client assets primarily reflecting net sales and market appreciation, an increase in transaction volumes and the impact of foreign exchange translation. These factors were partially offset by the impact of market volatility in the second quarter of 2020 resulting in unfavourable 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, seed capital investments, and interest rate derivatives from widening credit spreads, as well as the impact of a favourable accounting adjustment in Canadian Wealth Management in the prior period. Net interest income was flat as average volume growth was offset by the impact of lower spreads.

PCL increased $33 million, reflecting higher provisions on performing loans in U.S. Wealth Management (including City National) largely due to the impact of the COVID-19 pandemic. This was partially offset by lower provisions on impaired loans driven by higher recoveries in the information technology and other services sectors. For further details, refer to Credit quality performance in the Credit risk section.

Non-interest expense increased $171 million or 4%, primarily due to higher variable compensation commensurate with increased commissionable revenue, and higher staff-related costs in support of business growth. Higher technology and related costs and the impact of foreign exchange translation also contributed to the increase. These factors were partially offset by the change in the fair value of our U.S share-based compensation plans, which was largely offset in revenue.

 

 

 

 

Insurance

 

 

 

 

 

 

 

 

 

 

As at or for the three months ended

 

As at or for the six months ended

(Millions of Canadian dollars, except
percentage amounts and as otherwise noted)

April 30

2020

January 31

2020

April 30

2019

 

April 30

2020

April 30

2019

Non-interest income

 

 

 

 

 

 

Net earned premiums

$  957

$  1,350 

$  964 

 

$  2,307

$  2,126

Investment income, gains/(losses) on assets supporting insurance policyholder liabilities  (1)

  (796 )

  609 

  515 

 

  (187 )

  896

Fee income

  36

  35 

  36 

 

  71

  72

Total revenue

  197

  1,994 

  1,515 

 

  2,191

  3,094

PCL

  1

  - 

  - 

 

  1

  -

Insurance policyholder benefits and claims (1)

  (257 )

  1,535 

  1,077 

 

  1,278

  2,206

Insurance policyholder acquisition expense

  80

  79 

  83 

 

  159

  179

Non-interest expense

  148

  153 

  150 

 

  301

  304

Income before income taxes

  225

  227 

  205 

 

  452

  405

Net income

$  180

$  181 

$  154 

 

$  361

$  320

Revenue by business

 

 

 

 

 

 

Canadian Insurance

$  (344 )

$  1,383 

$  1,004 

 

$  1,039

$  2,043

International Insurance

  541

  611 

  511 

 

  1,152

  1,051

Selected balances and other information

 

 

 

 

 

 

ROE

  33.0%

  32.5% 

  32.4% 

 

  32.7%

  33.5%

Premiums and deposits (2)

$   1,148

$   1,542 

$   1,106 

 

$   2,690

$   2,420

Fair value changes on investments backing policyholder liabilities (1)

  (953 )

  468 

  383 

 

  (485 )

  630

(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 Insurance policyholder benefits, claims and acquisition expense.

(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

Q2 2020 vs. Q2 2019

Net income increased $26 million or 17% from a year ago, mainly due to higher favourable investment-related experience and new longevity reinsurance contracts, partially offset by the impact of actuarial adjustments and lower benefits from favourable reinsurance contract renegotiations.

Total revenue decreased $1,318 million or 87%, primarily due to the impact of the change in fair value of investments backing policyholder liabilities, which is largely offset in PBCAE as indicated below. The change in fair value is largely related to widening spreads partially offset by the impact of lower Canadian interest rates.

Canadian Insurance revenue decreased $1,348 million, primarily due to the change in fair value of investment backing policyholder liabilities and lower group annuity sales, both of which are largely offset in PBCAE as indicated below.

International Insurance revenue increased $30 million or 6%, as business growth in longevity reinsurance was partially offset by the change in fair value of investment backing policyholder liabilities, both of which are largely offset in PBCAE as indicated below.

PBCAE decreased $1,337 million, mainly reflecting the change in fair value of investments backing policyholder liabilities and lower group annuity sales. Higher favourable investment-related experience and the impact of new longevity reinsurance contracts also contributed to the decrease. These factors were partially offset by business growth in International Insurance, the impact of actuarial adjustments and lower favourable reinsurance contract renegotiations. Claims costs were relatively flat as the increase in travel claims associated with the COVID-19 pandemic were offset by improved life retrocession claims.

Non-interest expense decreased $2 million or 1%.

Q2 2020 vs. Q1 2020

Net income decreased $1 million or 1%, mainly due higher travel claims costs, the impact of lower new longevity reinsurance contracts and unfavourable actuarial adjustments. These factors were largely offset by higher favourable investment-related experience.

Q2 2020 vs. Q2 2019 (Six months ended)

Net income increased $41 million or 13% from a year ago, mainly due to new longevity reinsurance contracts and higher favourable investment-related experience. These factors were partially offset by lower benefits from favourable reinsurance contract renegotiations.

Total revenue decreased $903 million or 29% compared to the prior year, largely reflecting the change in fair value of investments backing policyholder liabilities partially offset by business growth in longevity reinsurance, both of which are largely offset in PBCAE as indicated below.

PBCAE decreased $948 million or 40%, mainly reflecting the change in fair value of investments backing policyholder liabilities, the impact of higher favourable new longevity reinsurance contracts and higher favourable investment-related experience. These factors were partially offset by business growth and the lower impact of reinsurance contract renegotiations.

Non-interest expense decreased $3 million or 1%.

 

 

 

 

Investor & Treasury Services

 

 

 

 

 

 

 

 

 

(Millions of Canadian dollars, except

percentage amounts and as otherwise noted)

As at or for the three months ended

 

As at or for the six months ended

April 30

2020

January 31

2020

April 30

2019

 

April 30

2020

April 30

2019

Net interest income

$  74 

$  58

$  (34 )

 

$  132 

$  (65 )

Non-interest income

  635 

  539

  621

 

  1,174 

  1,283

Total revenue

  709 

  597

  587

 

  1,306 

  1,218

PCL on performing assets

  14 

  -

  -

 

  14 

  -

PCL on impaired assets

  - 

  -

  -

 

  - 

  -

PCL

  14 

  -

  -

 

  14 

  -

Non-interest expense

  392 

  402

  388

 

  794 

  806

Net income before income taxes

  303 

  195

  199

 

  498 

  412

Net income

$  226 

$  143

$  151

 

$  369 

$  312

Selected balance sheet and other information

 

 

 

 

 

 

ROE

  28.4% 

  18.0%

  17.4%

 

  23.2% 

  17.3%

Average deposits

$  194,700 

$  174,500

$  173,900

 

$  184,500 

$  172,900

Average client deposits

  64,900 

  57,900

  58,200

 

  61,300 

  58,700

Average wholesale funding deposits

  129,800 

  116,600

  115,700

 

  123,200 

  114,200

AUA (1)

   4,037,700 

   4,308,200

   4,307,800

 

   4,037,700 

   4,307,800

Average AUA

  4,292,800 

  4,286,200

  4,271,000

 

  4,289,500 

  4,230,500

(1)  Represents period-end spot balances.

Financial performance

Q2 2020 vs. Q2 2019

Net income increased $75 million or 50%, primarily due to higher funding and liquidity revenue.

Total revenue increased $122 million or 21%, mainly due to higher funding and liquidity revenue primarily driven by the impact of interest rate movements in the current quarter and higher gains from the disposition of securities, partially offset by higher funding costs related to enterprise liquidity. Higher revenue from increased client activity in our asset services business resulting from elevated market volatility in the current quarter also contributed to the increase.

Non-interest expense remained relatively flat.

Q2 2020 vs. Q1 2020

Net income increased $83 million or 58%, primarily driven by higher funding and liquidity revenue reflecting the impact of interest rate movements in the current quarter and higher gains from the disposition of securities, partially offset by higher funding costs related to enterprise liquidity. Higher revenue from increased client activity in our asset services business resulting from elevated market volatility in the current quarter also contributed to the increase.

Q2 2020 vs. Q2 2019 (Six months ended)

Net income increased $57 million or 18%, largely driven by higher funding and liquidity revenue.

Total revenue increased $88 million or 7%, mainly due to higher funding and liquidity revenue primarily driven by the impact of interest rate movements in the current period and higher gains from the disposition of securities, partially offset by higher funding costs related to enterprise liquidity.

Non-interest expense decreased $12 million or 1%.

 

 

 

 

Capital Markets

 

 

 

 

 

 

 

 

 

 

As at or for the three months ended

 

As at or for the six months ended

(Millions of Canadian dollars, except

percentage amounts and as otherwise noted)

April 30

2020

January 31

2020

April 30

2019

 

April 30

2020

April 30

2019

Net interest income (1) , (2)

$  1,456

$  1,161

$  993

 

$  2,617

$  1,962

Non-interest income (1) , (2)

  857

  1,387

  1,176

 

  2,244

  2,305

Total revenue (1)

  2,313

  2,548

  2,169

 

  4,861

  4,267

PCL on performing assets

  723

  18

  (23 )

 

  741

  15

PCL on impaired assets

  294

  61

  48

 

  355

  150

PCL

  1,017

  79

  25

 

  1,096

  165

Non-interest expense

  1,291

  1,435

  1,289

 

  2,726

  2,519

Net income before income taxes

  5

  1,034

  855

 

  1,039

  1,583

Net income

$  105

$  882

$  776

 

$  987

$  1,429

Revenue by business

 

 

 

 

 

 

Corporate and Investment Banking

$  722

$  1,141

$  969

 

$  1,863

$  1,896

Global Markets

  1,694

  1,450

  1,235

 

  3,144

  2,462

Other

  (103 )

  (43 )

  (35 )

 

  (146 )

  (91 )

Selected balance sheet and other information

 

 

 

 

 

 

ROE

  1.5%

  15.1%

  13.6%

 

  8.3%

  12.2%

Average total assets

$   820,700

$   716,000

$   648,900

 

$   767,800

$   646,200

Average trading securities

  108,100

  115,700

  101,200

 

  112,000

  101,700

Average loans and acceptances, net

  117,600

  99,300

  101,800

 

  108,300

  100,000

Average deposits (2)

  79,300

  76,500

  78,200

 

  77,900

  79,100

PCL on impaired loans as a % of average net loans and acceptances

  0.94%

  0.24%

  0.19%

 

  0.62%

  0.30%

 

 

 

 

 

 

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

 

For the six

months ended

Q2 2020 vs.

Q2 2019

Q2 2020 vs.

Q1 2020

 

Q2 2020 vs.

Q2 2019

Increase (decrease):

 

 

 

 

Total revenue

$  35

$  52

 

$  9

PCL

  23

  35

 

  22

Non-interest expense

  22

  31

 

  10

Net income

  (5 )

  (7 )

 

  (17 )

Percentage change in average U.S. dollar equivalent of C$1.00

   (3)%

   (5)%

 

   (1)%

Percentage change in average British pound equivalent of C$1.00

  -%

  (1)%

 

  -%

Percentage change in average Euro equivalent of C$1.00

  (1)%

  (4)%

 

  2%

(1)  The taxable equivalent basis (teb) adjustment for the three months ended April 30, 2020 was $132 million (January 31, 2020 - $128 million; April 30, 2019 - $120 million) and for the six months ended April 30, 2020 was $260 million (April 30, 2019 - $227 million). For further discussion, refer to the How we measure and report our business segments section of our 2019 Annual Report.

(2)  Commencing Q4 2019, the interest component and the accrued interest payable recorded on certain deposits carried at FVTPL previously presented in trading revenue and deposits, respectively, are presented in net interest income and other liabilities, respectively. Comparative amounts have been reclassified to conform with this presentation.

Financial performance

Q2 2020 vs. Q2 2019

Net income decreased $671 million or 86%, primarily due to higher PCL, mainly driven by the impact of the COVID-19 pandemic on performing assets and higher provisions on impaired assets in a couple of sectors. Lower revenue in Corporate and Investment Banking also contributed to the decrease. These factors were partially offset by higher revenue in Global Markets and lower taxes due to an increase in the proportion of earnings from lower tax rate jurisdictions.

Total revenue increased $144 million or 7%.

Corporate and Investment Banking revenue decreased $247 million or 25%, mainly due to lower fixed income trading revenue primarily from loan underwriting markdowns in the U.S. and Europe driven by widening credit spreads.

Global Markets revenue increased $459 million or 37%, driven by higher fixed income trading revenue across all regions primarily due to increased client activity in rates and repo products amidst elevated market volatility in the current quarter. Higher commissions revenue in cash equities due to increased client activity also contributed to the increase. Global Markets revenue was also impacted by lower equity trading revenue mainly in Canada and Europe, partially offset by higher equity trading revenue in the U.S.

Other revenue decreased $68 million largely reflecting higher residual funding costs.

PCL increased $992 million, largely reflecting higher provisions on performing assets mainly due to the impact of the COVID-19 pandemic. Higher provisions on impaired loans also contributed to the increase, largely due to provisions taken in the oil & gas sector due to continued pressure on oil prices and provisions taken in the consumer discretionary sector, resulting in an increase of 75 bps in the impaired loans ratio. For further details, refer to Credit quality performance in the Credit risk section.

Non-interest expense remained relatively flat.

Q2 2020 vs. Q1 2020

Net income decreased $777 million or 88% largely due to higher PCL, mainly driven by the impact of the COVID-19 pandemic on performing assets and higher provisions on impaired assets in a couple of sectors. Lower fixed income trading revenue in Corporate and Investment Banking primarily from loan underwriting markdowns in the U.S. and Europe reflecting widening credit spreads and lower M&A activity primarily in the U.S. also contributed to the decrease. These factors were partially offset by lower compensation on decreased revenue and lower taxes due to an increase in the proportion of earnings from lower tax rate jurisdictions. Net Income was also impacted by higher fixed income trading revenue in Global Markets in Canada and Europe due to increased client activity, partially offset by lower fixed income trading revenue in the U.S.

Q2 2020 vs. Q2 2019 (Six months ended)

Net income decreased $442 million or 31%, primarily due to higher PCL, mainly driven by the impact of the COVID-19 pandemic on performing assets and higher provisions on impaired assets in a couple of sectors. Higher compensation on increased revenue also contributed to the decrease. These factors were partially offset by higher revenue in Global Markets.

Total revenue increased $594 million or 14%, mainly due to higher fixed income trading revenue in Global Markets across all regions as well as higher debt origination and M&A activity primarily in North America. Higher loan syndication activity in the U.S. also contributed to the increase. These factors were partially offset by lower fixed income trading revenue in Corporate and Investment Banking primarily from loan underwriting markdowns in the U.S. and Europe reflecting widening credit spreads, lower equity trading revenue across all regions, as well as lower gains on the sale of certain investment securities.

PCL increased $931 million, largely reflecting higher provisions on performing assets due to the impact of the COVID-19 pandemic. Higher provisions on impaired loans also contributed to the increase, resulting in an increase of 32 bps in the impaired loans ratio, largely due to provisions taken in the oil & gas sector reflecting continued pressure on oil prices and the consumer discretionary sector in the current year, partially offset by a provision taken in the utilities sector in the prior year. For further details, refer to Credit quality performance in the Credit risk section.

Non-interest expense increased $207 million or 8%, largely reflecting higher compensation on increased revenue.

 

 

 

Corporate Support

 

 

 

 

 

 

 

 

 

 

For the three months ended

 

For the six months ended

(Millions of Canadian dollars)

April 30

2020

January 31

2020

April 30

2019

 

April 30

2020

April 30

2019

Net interest income (loss) (1)

$    49

$   38

$  23

 

$    87

$   54

Non-interest income (loss) (1)

  (157 )

  (117 )

  (107 )

 

  (274 )

  (223 )

Total revenue (1)

  (108 )

  (79 )

  (84 )

 

  (187 )

  (169 )

PCL

  1

  -

  (1 )

 

  1

  (1 )

Non-interest expense

  (5 )

  34

  (2 )

 

  29

  29

Net income (loss) before income taxes (1)

  (104 )

  (113 )

  (81 )

 

  (217 )

  (197 )

Income taxes (recoveries) (1)

  (118 )

  (107 )

  (96 )

 

  (225 )

  (236 )

Net income (loss)

$  14

$  (6 )

$   15

 

$  8

$  39

(1)  Teb adjusted.

Due to the nature of activities and consolidation adjustments reported in this segment, we believe that a comparative period analysis is not relevant. The following identifies material items affecting the reported results in each period.

Total revenue and Income taxes (recoveries) in each period in Corporate Support include the deduction of the teb adjustments related to the gross-up of income from Canadian taxable corporate dividends and the U.S. tax credit investment business recorded in Capital Markets. The amount deducted from revenue was offset by an equivalent increase in Income taxes (recoveries).

The teb amount for the three months ended April 30, 2020 was $132 million, as compared to $128 million in the prior quarter and $120 million last year. The teb amount for the six months ended April 30, 2020 was $260 million, as compared to $227 million in the prior year.

The following identifies the material items, other than the teb impacts noted previously, affecting the reported results in each period.

Q2 2020

Net income was $14 million, largely due to asset/liability management activities, partially offset by net unfavourable tax adjustments.

Q1 2020

Net loss was $6 million, largely reflecting residual unallocated costs and net unfavourable tax adjustments, partially offset by asset/liability management activities.

Q2 2019

Net income was $15 million, largely due to asset/liability management activities, partially offset by net unfavourable tax adjustments.

Q2 2020 (Six months ended)

Net income was $8 million, mainly due to asset/liability management activities, partially offset by net unfavourable tax adjustments and residual unallocated costs.

Q2 2019 (Six months ended)

Net income was $39 million, largely due to asset/liability management activities.

 

 

 

 

Quarterly results and trend analysis

 

Our quarterly results are impacted by a number of trends and recurring factors, which include seasonality of certain businesses, general economic and market conditions, and fluctuations in the Canadian dollar relative to other currencies. The following table summarizes our results for the last eight quarters (the period):

Quarterly results (1)  

 

 

 

 

 

 

 

 

 

 

 

 

 

2020

 

2019

 

2018

(Millions of Canadian dollars,

except per share and percentage amounts)

Q2

Q1

 

Q4

Q3

Q2

Q1

 

Q4

Q3

Personal & Commercial Banking

$  4,400

$  4,610

 

$  4,568

$  4,546

$  4,333

$  4,418

 

$  4,364

$  4,284

Wealth Management

  2,822

  3,166

 

  3,187

  3,029

  2,979

  2,948

 

  2,740

  2,798

Insurance

  197

  1,994

 

  1,153

  1,463

  1,515

  1,579

 

  1,039

  1,290

Investor & Treasury Services

  709

  597

 

  566

  561

  587

  631

 

  624

  620

Capital Markets (2)

  2,313

  2,548

 

  1,987

  2,034

  2,169

  2,098

 

  2,056

  2,157

Corporate Support (2)

  (108 )

  (79 )

 

  (91 )

  (89 )

  (84 )

  (85 )

 

  (154 )

  (124 )

Total revenue

$   10,333

$   12,836

 

$   11,370

$   11,544

$   11,499

$   11,589

 

$   10,669

$   11,025

PCL

  2,830

  419

 

  499

  425

  426

  514

 

  353

  346

PBCAE

  (177 )

  1,614

 

  654

  1,046

  1,160

  1,225

 

  494

  925

Non-interest expense

  5,942

  6,378

 

  6,319

  5,992

  5,916

  5,912

 

  5,882

  5,858

Income before income taxes

$  1,738

$  4,425

 

$  3,898

$  4,081

$  3,997

$  3,938

 

$  3,940

$  3,896

Income taxes

  257

  916

 

  692

  818

  767

  766

 

  690

  787

Net income

$  1,481

$  3,509

 

$  3,206

$  3,263

$  3,230

$  3,172

 

$  3,250

$  3,109

EPS - basic

$  1.00

$  2.41

 

$  2.19

$  2.23

$  2.20

$  2.15

 

$  2.21

$  2.10

 - diluted

  1.00

  2.40

 

  2.18

  2.22

  2.20

  2.15

 

  2.20

  2.10

Effective income tax rate

  14.8%

  20.7%

 

  17.8%

  20.0%

  19.2%

  19.5%

 

  17.5%

  20.2%

Period average US$ equivalent of C$1.00

$  0.725

$  0.760

 

$  0.755

$  0.754

$  0.751

$  0.749

 

$  0.767

$  0.767

(1)  Fluctuations in the Canadian dollar relative to other foreign currencies have affected our consolidated results over the period.

(2)  Teb adjusted. For further discussion, refer to the How we measure and report our business segments section of our 2019 Annual Report.

Seasonality

Seasonal factors may impact our results in certain quarters. The first quarter has historically been stronger for our Capital Markets businesses. The second quarter has fewer days than the other quarters, which generally results in a decrease in net interest income and certain expense items. The third and fourth quarters include the summer months which results in lower client activity and may negatively impact the results of our Capital Markets brokerage business.

Trend analysis

Earnings have generally trended upward over the period. However, earnings in the second quarter of 2020 reflect the impact of the COVID-19 pandemic across all of our business segments primarily resulting in a significant increase in PCL and fluctuations in revenue from the impact of market volatility, including interest rates and credit spreads, as well as client activity. Results in the first quarter of 2019 were impacted by challenging market conditions throughout the earlier part of the quarter. Quarterly earnings are also affected by the impact of foreign exchange translation.

Personal & Commercial Banking revenue has benefitted from solid volume growth since the beginning of the period. Higher spreads throughout 2018 and the early half of 2019 reflecting higher interest rates have been partially offset by the ongoing impact of competitive pricing pressures. Net interest margin in Canadian Banking has generally declined over the latter part of the period, largely reflecting the impact of competitive pricing pressures. In addition, the BoC lowered rates by 150 bps in the second quarter of 2020. The second quarter of 2020 also saw lower card service revenue driven by a significant decrease in purchase volumes.

Wealth Management revenue has generally trended upwards primarily due to growth in average fee-based client assets which benefitted from market appreciation and net sales. Net interest income has also increased throughout the majority of the period largely driven by volume growth across the period and the impact of higher interest rates throughout the earlier part of the period. The impact of the U.S. Fed rate cuts resulted in lower spreads throughout the latter part of the period. A gain on the sale of the private debt business of BlueBay contributed to the increase in the fourth quarter of 2019. The change in the fair value of the hedges related to our U.S. share-based compensation plans, which is largely offset in Non-interest expense, also contributed to fluctuations in revenue over the period, including the heightened impact resulting from market volatility in the second quarter of 2020. The impact of market volatility during the second quarter of 2020 also resulted in unfavourable changes in our average fee-based client assets, as well as the fair value of interest rate derivatives and seed capital investments.

Insurance revenue fluctuated over the period, primarily due to the impact of changes in the fair value of investments backing policyholder liabilities which is largely offset in PBCAE. Revenue has benefitted from business growth in Canadian and International Insurance over the majority of the period, with the exception of lower group annuity sales impacting the majority of the latter part of the period.

Investor & Treasury Services revenue has been impacted by fluctuations in market conditions and client activity across the period. Revenue from our funding and liquidity business have fluctuated throughout the latter part of the period driven primarily by changes in money market opportunities. During the first half of 2019 our asset services business was impacted by challenging market conditions. While, the latter half of the period was generally impacted by lower client activity and lower client deposit margins, the second quarter of 2020 was favourably impacted by interest rate movements and elevated market volatility contributing to increased client activity.

Capital Markets revenue is influenced, to a large extent, by market conditions that impact client activity in our Corporate and Investment Banking and Global Markets businesses, with the first quarter results generally stronger than the remaining quarters. The decline experienced in the fourth quarter of 2018 largely resulted from lower fixed income trading revenue. Client activity in 2019 was impacted by challenging market conditions resulting in lower investment banking fee revenues experienced across the industry. The impact of challenging market conditions also resulted in lower equity trading revenue across much of the latter part of the period. The first quarter of 2020 saw more favourable market conditions and increased client activity resulting in higher fixed income trading revenue and M&A activity. Elevated market volatility in the second quarter of 2020 resulted in increased client activity being more than offset by lower fixed income trading revenue, including the impact of loan underwriting markdowns.

PCL on performing assets has fluctuated over the period as it is impacted by macroeconomic conditions, volume growth, changes in credit quality and model changes, with the impact of the COVID-19 pandemic resulting in a significant increase in provisions in the second quarter of 2020. PCL on impaired assets saw lower provisions and higher recoveries across a few sectors in the latter half of 2018, although the fourth quarter of 2018 was impacted by the restructuring of portfolios in Barbados. After relatively benign credit conditions, we returned to a more normalized level of credit losses towards the end of 2019, though the first quarter of 2020 saw lower provisions on impaired loans in Personal & Commercial Banking and Wealth Management. The second quarter of 2020 saw higher provisions on impaired loans in Capital Markets in the oil & gas and consumer discretionary sectors.

PBCAE has fluctuated quarterly as it includes the changes to the fair value of investments backing our policyholder liabilities and business growth, including the impact of group annuity sales, both of which are largely offset in Revenue. PBCAE has also fluctuated due to investment-related experience and claims costs over the period, with the second quarter of 2020 being impacted by higher travel claims associated with the COVID-19 pandemic. Since late 2018, PBCAE has been positively impacted by favourable reinsurance contract renegotiations. Actuarial adjustments, which generally occur in the fourth quarter of each year, also impact PBCAE results.

While we continue to focus on efficiency management activities, Non-interest expense trended upwards over majority of the period. Growth mainly reflects higher costs in support of business growth and our ongoing investments in technology and related costs, including digital initiatives, and higher staff-related costs, including variable compensation. The increase in the fourth quarter of 2019 reflected severance and related costs associated with repositioning of our Investor & Treasury Services business. The second quarter of 2020 was affected by the impact of market volatility on the change in fair value of our U.S. share-based compensation plans which was largely offset in Revenue as well as lower variable compensation on decreased results.

Our effective income tax rate has fluctuated over the period, mostly due to various levels of tax adjustments and changes in earnings mix. The first quarter of 2019 included a write-down of deferred tax assets resulting from a change in the corporate tax rate in Barbados. The second quarter of 2020 saw a decrease mainly due to a higher proportion of tax exempt income and income from lower tax rate jurisdictions relative to the overall decline in earnings.

 

 

 

Financial condition

 

 

 

 

Condensed balance sheets

 

 

 

 

 

 

 As at

(Millions of Canadian dollars)

April 30

2020

October 31

2019

Assets

 

 

Cash and due from banks

$  98,777

$  26,310

Interest-bearing deposits with banks

  48,398

  38,345

Securities, net of applicable allowance (1)

  269,941

  249,004

Assets purchased under reverse repurchase agreements and securities borrowed

  325,534

  306,961

Loans

 

 

Retail

  435,409

  426,086

Wholesale

  243,269

  195,870

Allowance for loan losses

  (5,230 )

  (3,100 )

Other - Derivatives

  140,807

  101,560

 - Other (2)

  118,777

  87,899

Total assets

$   1,675,682

$   1,428,935

Liabilities

 

 

Deposits

$  1,009,447

$  886,005

Other - Derivatives

  144,710

  98,543

 - Other (2)

  426,711

  350,947

Subordinated debentures

  9,774

  9,815

Total liabilities

  1,590,642

  1,345,310

Equity attributable to shareholders

  84,935

  83,523

Non-controlling interests

  105

  102

Total equity

  85,040

  83,625

Total liabilities and equity

$  1,675,682

$  1,428,935

(1)  Securities are comprised of Trading and Investment securities.

(2)  Other - Other assets and liabilities include Segregated fund net assets and liabilities, respectively.

 

Q2 2020 vs. Q4 2019

Total assets increased $247 billion or 17% from October 31, 2019. Foreign exchange translation increased total assets by $30 billion.

Cash and due from banks was up $72 billion or 275%, primarily due to higher deposits with central banks reflecting our short term cash and liquidity management activities amidst the COVID-19 pandemic.

Interest-bearing deposits with banks increased $10 billion or 26%, primarily due to higher deposits with central banks, reflecting our cash and liquidity management activities amidst the COVID-19 pandemic.

Securities, net of applicable allowance, were up $21 billion or 8%, largely due to higher government debt securities, largely driven by our liquidity management activities and the impact of foreign exchange translation. These factors were partially offset by a decrease in equity trading securities reflecting unfavourable market conditions.

Assets purchased under reverse repurchase agreements (reverse repos) and securities borrowed increased $19 billion or 6%, mainly attributable to the impact of foreign exchange translation, increased client activities and lower financial netting.

Loans (net of Allowances for loan losses) were up $55 billion or 9%, largely due to volume growth in wholesale loans in part to support our clients during this unprecedented time. Volume growth in residential mortgages and the impact of foreign exchange translation also contributed to the increase.

Derivative assets were up $39 billion or 39%, primarily attributable to higher fair values on foreign exchange contracts and interest rate contracts.

Other assets were up $31 billion or 35%, largely reflecting higher cash collateral balances and an increase in premises and equipment as a result of adopting IFRS 16. Higher margin requirements and the impact of foreign exchange translation also contributed to the increase.

Total liabilities increased $245 billion or 18%. Foreign exchange translation increased total liabilities by $30 billion.

Deposits increased $123 billion or 14%, mainly as a result of higher business and retail deposits driven by increased client activities. The impact of foreign exchange translation and higher bank deposits also contributed to the increase.

Derivative liabilities were up $46 billion or 47%, primarily attributable to higher fair values on foreign exchange contracts and interest rate contracts.

Other liabilities increased $76 billion or 22%, mainly attributable to higher obligations related to repurchase agreements reflecting increased funding activities and lower financial netting. The impact of foreign currency translation, higher lease liabilities as a result of adopting IFRS 16 and higher obligations related to securities sold short also contributed to the increase.

Total equity increased $1 billion or 2%.

 

 

 

Off-balance sheet arrangements

 

In the normal course of business, we engage in a variety of financial transactions that, for accounting purposes, are not recorded on our Consolidated Balance Sheets. Off-balance sheet transactions are generally undertaken for risk, capital and funding management purposes which benefit us and our clients. These include transactions with structured entities and may also include the issuance of guarantees. These transactions give rise to, among other risks, varying degrees of market, credit, and liquidity and funding risk, which are discussed in the Risk management section of this Q2 2020 Report to Shareholders.

The following provides an update to our significant off-balance sheet transactions, which are described on pages 45 to 47 of our 2019 Annual Report.

Involvement with unconsolidated structured entities

RBC-administered multi-seller conduits

We administer multi-seller conduits which are used primarily for the securitization of our clients' financial assets. Our maximum exposure to loss under these transactions primarily relates to backstop liquidity and partial credit enhancement facilities extended to the conduits. As at April 30, 2020, the total assets of the multi-seller conduits were $42.3 billion (October 31, 2019 - $37.2 billion) and our maximum exposure to loss was $43.2 billion (October 31, 2019 - $37.9 billion). The change reflects the impact of foreign exchange translation and an increase in securitization activities since October 31, 2019, primarily in Auto loans and leases and Equipment receivables asset classes.

As at April 30, 2020, the total asset-backed commercial paper (ABCP) issued by the conduits amounted to $28.2 billion (October 31, 2019 - $23.8 billion). The rating agencies that rate the ABCP rated 100% of the total amount issued within the top ratings category (October 31, 2019 - 100%).

 

 

 

Risk management

 

 

 

 

Credit risk

 

Credit risk is the risk of loss associated with an obligor's potential inability or unwillingness to fulfill its contractual obligations on a timely basis. Credit risk may arise directly from the risk of default of a primary obligor, indirectly from a secondary obligor, through off-balance sheet exposures, contingent credit risk and/or transactional risk.

Our Credit Risk Framework (CRF) and supporting credit policies are designed to clearly define roles and responsibilities, acceptable practices, limits and key controls. There have been no material changes to our CRF as described in our 2019 Annual Report.

Credit risk exposure by portfolio, sector and geography

The following table presents our credit risk exposures under the Basel regulatory defined classes and reflects exposures at default (EAD). The classification of our sectors aligns with our view of credit risk by industry.

 

 

 

 

 

 

 

 

 

 

 

 

As at

 

April 30

2020

 

January 31

2020

 

Credit risk (1)

 

Counterparty credit risk (2)

 

 

 

 

On-balance

sheet amount

Off-balance sheet amount  (3)

 

Repo-style

transactions

Derivatives

Total

exposure

 

Total

exposure

(Millions of Canadian dollars)

Undrawn

Other (4)

 

Retail

 

 

 

 

 

 

 

 

 

Residential secured (5)

$  325,460

$  85,590

$  -

 

$  -

$  -

$  411,050 

 

$  403,152

Qualifying revolving (6)

  24,858

  67,389

  -

 

  -

  -

  92,247 

 

  91,656

Other retail

  63,277

  13,201

  70

 

  -

  -

  76,548 

 

  75,353

Total retail

$  413,595

$  166,180

$  70

 

$  -

$  -

$  579,845 

 

$  570,161

Wholesale

 

 

 

 

 

 

 

 

 

Agriculture

$  9,559

$  1,748

$  48

 

$  -

$  139

$  11,494 

 

$  11,198

Automotive

  13,157

  5,715

  319

 

  -

  974

  20,165 

 

  17,949

Banking

  37,659

  1,867

  573

 

  44,094

  20,910

  105,103 

 

  106,230

Consumer discretionary

  18,965

  7,735

  733

 

  -

  593

  28,026 

 

  25,187

Consumer staples

  7,006

  6,595

  545

 

  -

  1,317

  15,463 

 

  14,127

Oil & gas

  9,402

  10,939

  1,688

 

  -

  1,555

  23,584 

 

  21,161

Financial services

  33,012

  21,753

  2,933

 

  111,292

  21,192

  190,182 

 

  193,281

Financing products

  3,728

  870

  545

 

  311

  753

  6,207 

 

  5,129

Forest products

  1,589

  660

  102

 

  -

  68

  2,419 

 

  2,411

Governments

  231,575

  8,190

  1,513

 

  32,585

  7,610

  281,473 

 

  163,053

Industrial products

  9,685

  8,221

  660

 

  -

  898

  19,464 

 

  16,784

Information technology

  8,080

  5,217

  251

 

  -

  2,127

  15,675 

 

  14,303

Investments

  17,668

  2,787

  392

 

  11

  453

  21,311 

 

  20,521

Mining & metals

  3,046

  3,370

  868

 

  -

  340

  7,624 

 

  6,833

Public works & infrastructure

  2,091

  1,462

  421

 

  -

  226

  4,200 

 

  4,063

Real estate & related

  68,921

  12,961

  1,355

 

  -

  1,256

  84,493 

 

  80,086

Other services

  27,911

  10,765

  996

 

  28

  2,019

  41,719 

 

  39,903

Telecommunication & media

  7,790

  6,934

  87

 

  -

  1,798

  16,609 

 

  16,476

Transportation

  8,306

  5,296

  1,833

 

  -

  2,613

  18,048 

 

  15,440

Utilities

  12,155

  17,538

  4,504

 

  -

  5,274

  39,471 

 

  33,728

Other sectors

  1,759

  258

  3

 

  32

  15,341

  17,393 

 

  21,779

Total wholesale

$  533,064

$  140,881

$  20,369

 

$  188,353

$  87,456

$  970,123 

 

$  829,642

Total exposure (7)

$  946,659

$  307,061

$  20,439

 

$  188,353

$  87,456

$  1,549,968 

 

$  1,399,803

 

 

 

 

 

 

 

 

 

 

By geography (8)

 

 

 

 

 

 

 

 

 

Canada

$  632,572

$  239,475

$  10,407

 

$  77,920

$  38,589

$  998,963 

 

$  912,174

U.S.

  214,250

  49,738

  8,947

 

  45,774

  20,857

  339,566 

 

  297,411

Europe

  61,136

  15,622

  950

 

  54,699

  22,350

  154,757 

 

  133,376

Other International

  38,701

  2,226

  135

 

  9,960

  5,660

  56,682 

 

  56,842

Total exposure (7)

$   946,659

$   307,061

$   20,439

 

$   188,353

$   87,456

$   1,549,968 

 

$   1,399,803

(1)  EAD for standardized exposures are reported net of allowance for impaired assets and EAD for internal ratings based (IRB) exposures are reported gross of all allowance for credit losses and partial write-offs as per regulatory definitions.

(2)  Counterparty credit risk EAD reflects exposure amounts after netting. Collateral is included in EAD for repo-style transactions to the extent allowed by regulatory guidelines.

(3)  EAD for undrawn credit commitments and other off-balance sheet amounts are reported after the application of credit conversion factors.

(4)  Includes other off-balance sheet exposures such as letters of credit and guarantees.

(5)  Includes residential mortgages and home equity lines of credit.

(6)  Includes credit cards, unsecured lines of credit and overdraft protection products.

(7)  Excludes securitization, banking book equities and other assets not subject to the standardized or IRB approach as well as exposures from the Paycheck Protection Program (PPP) instituted by the U.S. government in Q2 2020. For further details on the PPP, refer to the Significant developments: COVID-19 section of this Q2 2020 Report to Shareholders.

(8)  Geographic profile is based on the country of residence of the borrower.

 

Q2 2020 vs. Q1 2020

Total credit risk exposure increased $150 billion or 11% from the prior quarter, largely due to higher deposits with central banks, volume growth in loans and acceptances and the favourable impact of foreign exchange translation.

Retail exposure increased $10 billion or 2%, largely driven by volume growth in the residential secured portfolio.

Wholesale exposure increased $140 billion or 17%, largely due to higher deposits with central banks reflecting our short term cash and liquidity management activities and volume growth in loans and acceptances in support of clients across many sectors during the COVID-19 pandemic. The favourable impact of foreign exchange translation also contributed to the increase.

The geographic mix of our credit risk exposure remained largely consistent to the prior quarter. Our exposure in Canada, the U.S., Europe and Other International was 64%, 22%, 10% and 4%, respectively (January 31, 2020 - 65%, 21%, 10% and 4% respectively).

Net European exposure by country, asset type and client type   (1) , (2)  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As at

 

April 30

2020

 

January 31

2020

 

Asset type

 

Client type

 

 

 

 

(Millions of Canadian dollars)

Loans

Outstanding

Securities  (3)

Repo-style

Transactions

Derivatives

 

Financials

Sovereign

Corporate

 

Total

 

Total

U.K.

$  9,841

$  17,231

$  2,509

$  5,640

 

$  14,820

$  10,684

$  9,717

 

$  35,221

 

$  29,029 

Germany

  2,328

  7,953

  28

  623

 

  6,348

  1,708

  2,876

 

  10,932

 

  8,592 

France

  1,900

  11,764

  4

  229

 

  1,227

  11,014

  1,656

 

  13,897

 

  10,559 

Total U.K., Germany, France

$  14,069

$  36,948

$  2,541

$  6,492

 

$  22,395

$  23,406

$  14,249

 

$  60,050

 

$  48,180 

Ireland

$  898

$  95

$  394

$  60

 

$  625

$  24

$  798

 

$  1,447

 

$  1,368 

Italy

  115

  85

  -

  5

 

  61

  72

  72

 

  205

 

  497 

Portugal

  -

  20

  -

  -

 

  10

  -

  10

 

  20

 

  48 

Spain

  408

  315

  -

  67

 

  302

  17

  471

 

  790

 

  525 

Total peripheral

$  1,421

$  515

$  394

$  132

 

$  998

$  113

$  1,351

 

$  2,462

 

$  2,438 

Luxembourg

$  2,591

$  8,408

$  59

$  62

 

$  1,672

$  7,915

$  1,533

 

$  11,120

 

$  10,844 

Netherlands

  1,731

  922

  28

  621

 

  915

  -

  2,387

 

  3,302

 

  2,650 

Norway

  124

  1,949

  45

  48

 

  1,889

  90

  187

 

  2,166

 

  2,185 

Sweden

  348

  1,595

  -

  20

 

  937

  634

  392

 

  1,963

 

  3,048 

Switzerland

  842

  4,117

  161

  350

 

  747

  3,832

  891

 

  5,470

 

  4,381 

Other

  2,098

  2,085

  102

  213

 

  1,471

  1,164

  1,863

 

  4,498

 

  4,498 

Total other Europe

$  7,734

$  19,076

$  395

$  1,314

 

$  7,631

$  13,635

$  7,253

 

$  28,519

 

$  27,606 

Net exposure to Europe (4) , (5)

$   23,224

$   56,539

$   3,330

$  7,938

 

$   31,024

$   37,154

$   22,853

 

$   91,031

 

$   78,224 

(1)  Geographic profile is based on country of risk, which reflects our assessment of the geographic risk associated with a given exposure. Typically, this is the residence of the borrower.

(2)  Exposures are calculated on a fair value basis and net of collateral, which includes $149.6 billion against repo-style transactions (January 31, 2020 - $157.6 billion) and $13.0 billion against derivatives (January 31, 2020 - $10.2 billion).

(3)  Securities include $5.9 billion of trading securities (January 31, 2020 - $8.7 billion), $33.1 billion of deposits (January 31, 2020 - $27.6 billion), and $17.5 billion of debt securities carried at fair value through other comprehensive income (FVOCI) (January 31, 2020 - $13.7 billion).

(4)  Excludes $2.7 billion (January 31, 2020 - $2.5 billion) of exposures to supranational agencies, predominantly in Luxembourg.

(5)  Reflects $2.0 billion of mitigation through credit default swaps, which are largely used to hedge single name exposures and market risk (January 31, 2020 - $2.6 billion).

Q2 2020 vs. Q1 2020

Net credit risk exposure to Europe increased by $12.8 billion or 16% from last quarter, mainly driven by higher deposits with central banks in France and the United Kingdom, higher volume growth in loans across most of Europe and higher derivatives largely in the United Kingdom.

Our European corporate loan book is managed on a global basis with underwriting standards reflecting the same approach to the use of our balance sheet as we have applied in both Canada and the U.S. The PCL on loans during the quarter was $220 million. GIL was $285 million with a GIL ratio of 123 bps, up 62 bps from last quarter, mainly across a few sectors.

 

Residential mortgages and home equity lines of credit (insured vs. uninsured)

Residential mortgages and home equity lines of credit are secured by residential properties. The following table presents a breakdown by geographic region.

 

 

 

 

 

 

 

 

 

 

 

 

As at April 30, 2020

(Millions of Canadian dollars,

except percentage amounts)

Residential mortgages

 

Home equity
lines of credit

 Insured (1)

 

 Uninsured

 

Total

 

Total

Region (2)

 

 

 

 

 

 

 

 

 

Canada

 

 

 

 

 

 

 

 

 

Atlantic provinces

$  7,819

  52 %

 

$  7,321

  48 %

 

$  15,140

 

$  1,749 

Quebec

  12,966

  37

 

  22,519

  63

 

  35,485

 

  3,347 

Ontario

  37,360

  28

 

  98,325

  72

 

  135,685

 

  16,228 

Alberta

  20,811

  53

 

  18,540

  47

 

  39,351

 

  6,075 

Saskatchewan and Manitoba

  9,068

  48

 

  9,731

  52

 

  18,799

 

  2,238 

B.C. and territories

  14,635

  27

 

  39,794

  73

 

  54,429

 

  8,023 

Total Canada (3)

$  102,659

  34 %

 

$  196,230

  66 %

 

$  298,889

 

$  37,660 

U.S. (4)

  1

  -

 

  19,926

  100

 

  19,927

 

  1,815 

Other International (4)

  1

  -

 

  3,107

  100

 

  3,108

 

  1,374 

Total International

$  2

  - %

 

$  23,033

  100 %

 

$  23,035

 

$  3,189 

Total

$   102,661

  32 %

 

$   219,263

  68 %

 

$   321,924

 

$   40,849 

 

 

 

 

As at January 31, 2020

(Millions of Canadian dollars,

except percentage amounts)

Residential mortgages

 

Home equity
lines of credit

 Insured (1)

 

 Uninsured

 

Total

 

Total

Region (2)

 

 

 

 

 

 

 

 

 

Canada

 

 

 

 

 

 

 

 

 

Atlantic provinces

$  7,658

  51 %

 

$  7,352

  49 %

 

$  15,010

 

$  1,795 

Quebec

  12,120

  35

 

  22,894

  65

 

  35,014

 

  3,387 

Ontario

  35,339

  27

 

  97,354

  73

 

  132,693

 

  16,173 

Alberta

  20,474

  53

 

  18,452

  47

 

  38,926

 

  6,152 

Saskatchewan and Manitoba

  8,842

  49

 

  9,335

  51

 

  18,177

 

  2,286 

B.C. and territories

  14,370

  27

 

  38,972

  73

 

  53,342

 

  8,018 

Total Canada (3)

$  98,803

  34 %

 

$  194,359

  66 %

 

$  293,162

 

$  37,811 

U.S. (4)

  -

  -

 

  18,098

  100

 

  18,098

 

  1,644 

Other International (4)

  6

  -

 

  2,938

  100

 

  2,944

 

  1,366 

Total International

$  6

  - %

 

$  21,036

  100 %

 

$  21,042

 

$  3,010 

Total

$  98,809

  31 %

 

$  215,395

  69 %

 

$  314,204

 

$  40,821 

(1)  Insured residential mortgages are mortgages whereby our exposure to default is mitigated by insurance through the Canada Mortgage and Housing Corporation (CMHC) or other private mortgage default insurers.

(2)  Region is based upon the address of the property mortgaged. The Atlantic provinces are comprised of Newfoundland and Labrador, Prince Edward Island, Nova Scotia and New Brunswick, and B.C. and territories are comprised of British Columbia, Nunavut, Northwest Territories and Yukon.

(3)  Total consolidated residential mortgages in Canada of $299 billion (January 31, 2020 - $293 billion) was largely comprised of $274 billion (January 31, 2020 - $268 billion) of residential mortgages and $7 billion (January 31, 2020 - $7 billion) of mortgages with commercial clients, of which $4 billion (January 31, 2020 - $4 billion) are insured mortgages, both in Canadian Banking, and $18 billion (January 31, 2020 - $18 billion) of residential mortgages in Capital Markets held for securitization purposes.

(4)  Home equity lines of credit include term loans collateralized by residential mortgages.

Home equity lines of credit are uninsured and reported within the personal loan category. As at April 30, 2020, home equity lines of credit in Canadian Banking were $38 billion (January 31, 2020 - $38 billion).

Residential mortgages portfolio by amortization period

The following table provides a summary of the percentage of residential mortgages that fall within the remaining amortization periods based upon current customer payment amounts, which incorporate payments larger than the minimum contractual amount and/or higher frequency of payments.

 

 

 

 

 

 

 

 

 

 

As at 

 

April 30

2020

 

January 31

2020

 

Canada

U.S. and other
International

Total

 

Canada

U.S. and other
International

Total

Amortization period

 

 

 

 

 

 

 

£ 25 years

  78 %

  35 %

  75 %

 

  72 %

  36 %

  69 %

> 25 years £ 30 years

  22

  65

  25

 

  24

  64

  27

> 30 years £ 35 years

  -

  -

  -

 

  3

  -

  3

> 35 years

  -

  -

  -

 

  1

  -

  1

Total

  100 %

  100 %

  100 %

 

  100 %

  100 %

  100 %

 

Average loan-to-value (LTV) ratios

The following table provides a summary of our average LTV ratio for newly originated and acquired uninsured residential mortgages and RBC Homeline Plan ® products by geographic region.

 

 

 

 

 

 

 

 

 

 

 

For the three months ended

 

For the six months ended

 

April 30

2020

 

January 31

2020

 

April 30

2020

 

 Uninsured

 

 Uninsured

 

 Uninsured

 

Residential

mortgages  (1)

RBC Homeline
Plan
® products  (2)

 

Residential

mortgages (1)

RBC Homeline
Plan
® products (2)

 

Residential 

mortgages  (1)

RBC Homeline
Plan
® products  (2)

Region (3)

 

 

 

 

 

 

 

 

Atlantic provinces

  74 %

  76 %

 

  74 %

  74 %

 

  74 %

  75 %

Quebec

  72

  73

 

  72

  73

 

  72

  73

Ontario

  71

  68

 

  71

  67

 

  71

  68

Alberta

  73

  72

 

  72

  71

 

  73

  72

Saskatchewan and Manitoba

  74

  75

 

  74

  75

 

  74

  75

B.C. and territories

  68

  66

 

  68

  65

 

  68

  65

U.S.

  72

  n.m.

 

  73

  n.m.

 

  73

  n.m.

Other International

  67

  n.m.

 

  71

  n.m.

 

  69

  n.m.

Average of newly originated and acquired for the period (4) , (5)

  71 %

  69 %

 

  71 %

  68 %

 

  71 %

  68 %

Total Canadian Banking residential mortgages portfolio (6)

  58 %

  50 %

 

  58 %

  50 %

 

  58 %

  50 %

(1)  Residential mortgages exclude residential mortgages within the RBC Homeline Plan ® products.

(2)  RBC Homeline Plan ® products are comprised of both residential mortgages and home equity lines of credit.

(3)  Region is based upon the address of the property mortgaged. The Atlantic provinces are comprised of Newfoundland and Labrador, Prince Edward Island, Nova Scotia and New Brunswick, and B.C. and territories are comprised of British Columbia, Nunavut, Northwest Territories and Yukon.

(4)  The average LTV ratio for newly originated and acquired uninsured residential mortgages and RBC Homeline Plan ® products is calculated on a weighted basis by mortgage amounts at origination.

(5)  For newly originated mortgages and RBC Homeline Plan ® products, LTV is calculated based on the total facility amount for the residential mortgage and RBC Homeline Plan ® product divided by the value of the related residential property.

(6)  Weighted by mortgage balances and adjusted for property values based on the Teranet - National Bank National Composite House Price Index.

n.m.  not meaningful

 

Credit quality performance

The following credit quality performance tables and analysis provide information on loans, which represents loans, acceptances and commitments, and other financial assets.

Provision for credit losses

 

 

 

 

 

 

 

 

For the three months ended

 

For the six months ended

(Millions of Canadian dollars, except percentage amounts)

April 30

2020

January 31

2020

April 30

2019

 

April 30

2020

April 30

2019

Personal & Commercial Banking

$  1,687

$  343

$  385

 

$  2,030

$  732

Wealth Management

  87

  (2 )

  30

 

  85

  56

Capital Markets

  950

  80

  27

 

  1,030

  170

Corporate Support and other

  10

  -

  (1 )

 

  10

  (1 )

PCL - Loans

$  2,734

$  421

$  441

 

$  3,155

$  957

PCL - Other financial assets

  96

  (2 )

  (15 )

 

  94

  (17 )

Total PCL

$  2,830

$  419

$  426

 

$  3,249

$  940

PCL on loans is comprised of:

 

 

 

 

 

 

Retail

$  725

$  34

$  30

 

$  759

$  63

Wholesale

  1,396

  49

  (24 )

 

  1,445

  36

PCL on performing loans

$  2,121

$  83

$  6

 

$  2,204

$  99

Retail

$  281

$  271

$  258

 

$  552

$  527

Wholesale

  332

  67

  177

 

  399

  331

PCL on impaired loans

$  613

$  338

$  435

 

$  951

$  858

PCL - Loans

$  2,734

$  421

$  441

 

$  3,155

$  957

PCL on loans as a % of average net loans and acceptances

  1.65%

  0.26%

  0.29%

 

  0.96%

  0.32%

PCL on impaired loans as a % of average net loans and acceptances

   0.37%

   0.21%

   0.29%

 

   0.29%

   0.28%

 

 

 

 

 

 

 

Additional information by geography (1)

 

 

 

 

 

 

Canada

 

 

 

 

 

 

Residential mortgages

$  9

$  10

$  6

 

$  19

$  16

Personal

  138

  129

  116

 

  267

  237

Credit cards

  139

  137

  122

 

  276

  238

Small business

  14

  12

  9

 

  26

  14

Retail

  300

  288

  253

 

  588

  505

Wholesale

  76

  6

  113

 

  82

  154

PCL on impaired loans

$  376

$  294

$  366

 

$  670

$  659

U.S.

 

 

 

 

 

 

Retail

$  2

$  (2 )

$  1

 

$  -

$  3

Wholesale

  178

  55

  48

 

  233

  158

PCL on impaired loans

$  180

$  53

$  49

 

$  233

$  161

Other International

 

 

 

 

 

 

Retail

$  (21 )

$  (15 )

$  4

 

$  (36 )

$  19

Wholesale

  78

  6

  16

 

  84

  19

PCL on impaired loans

$  57

$  (9 )

$  20

 

$  48

$  38

PCL on impaired loans

$  613

$  338

$  435

 

$  951

$  858

(1)  Geographic information is based on residence of borrower.

Q2 2020 vs. Q2 2019

Total PCL was $2,830 million. PCL on loans of $2,734 million increased $2,293 million from the prior year, primarily due to higher provisions in Personal & Commercial Banking, Capital Markets and Wealth Management. The PCL on loans ratio of 165 bps increased 136 bps.

PCL on performing loans of $2,121 million increased $2,115 million, primarily reflecting higher provisions in Personal & Commercial Banking, Capital Markets and Wealth Management due to the impact of the COVID-19 pandemic.

PCL on impaired loans of $613 million increased $178 million, largely reflecting higher provisions in Capital Markets, partially offset by lower provisions in Personal & Commercial Banking.

PCL on other financial assets of $96 million increased $111 million, largely reflecting higher provisions in Capital Markets primarily due to the impact of the COVID-19 pandemic.

PCL on loans in Personal & Commercial Banking increased $1,302 million, largely reflecting higher provisions on performing loans in our Canadian Banking portfolios as described above. Higher provisions on impaired loans in our Canadian Banking retail portfolios were more than offset by lower provisions on impaired loans in our Canadian Banking commercial and Caribbean Banking portfolios, as the prior year reflected higher provisions taken in the public works & infrastructure and information technology sectors.

PCL on loans in Wealth Management increased $57 million, reflecting higher provisions on performing loans in U.S. Wealth Management (including City National) as described above.

PCL on loans in Capital Markets increased $923 million, largely reflecting higher provisions on performing loans as described above. Higher provisions on impaired loans also contributed to the increase, largely due to provisions taken in the oil & gas sector reflecting continued pressure on oil prices and provisions taken in the consumer discretionary sector.

Q2 2020 vs. Q1 2020

PCL on loans of $2,734 million increased $2,313 million from the prior quarter, primarily due to higher provisions in Personal & Commercial Banking, Capital Markets and Wealth Management. The PCL on loans ratio of 165 bps increased 139 bps.

PCL on performing loans of $2,121 million increased $2,038 million, primarily reflecting higher provisions in Personal & Commercial Banking, Capital Markets and Wealth Management due to the impact of the COVID-19 pandemic.

PCL on impaired loans of $613 million increased $275 million, largely reflecting higher provisions in Capital Markets and Personal & Commercial Banking.

PCL on other financial assets of $96 million increased $98 million, largely reflecting higher provisions in Capital Markets primarily due to the impact of the COVID-19 pandemic.

PCL on loans in Personal & Commercial Banking increased $1,344 million, largely reflecting higher provisions on performing loans in our Canadian Banking portfolios as described above. Higher provisions on impaired loans in our Canadian Banking portfolios also contributed to the increase.

PCL on loans in Wealth Management increased $89 million, largely reflecting higher provisions on performing loans in U.S. Wealth Management (including City National) as described above.

PCL on loans in Capital Markets increased $870 million, largely due to higher provisions on performing loans as described above. Higher provisions on impaired loans also contributed to the increase, largely due to provisions taken in the oil & gas sector reflecting continued pressure on oil prices and provisions taken in the consumer discretionary sector.

Q2 2020 vs. Q2 2019 (Six months ended)

Total PCL was $3,249 million. PCL on loans of $3,155 million increased $2,198 million from the prior year, primarily due to higher provisions in Personal & Commercial Banking, Capital Markets and Wealth Management. The PCL on loans ratio of 96 bps increased 64 bps.

PCL on performing loans of $2,204 million increased $2,105 million, primarily reflecting higher provisions in Personal & Commercial Banking, Capital Markets and Wealth Management due to the impact of the COVID-19 pandemic.

PCL on impaired loans of $951 million increased $93 million, reflecting higher provisions in Capital Markets, partially offset by lower provisions in Personal & Commercial Banking and Wealth Management.

PCL on other financial assets of $94 million increased $111 million, largely reflecting higher provisions in Capital Markets, primarily due to the impact of the COVID-19 pandemic.

PCL on loans in Personal & Commercial Banking increased $1,298 million, largely reflecting higher provisions on performing loans in our Canadian Banking portfolios as described above. Higher provisions on impaired loans in our Canadian Banking retail portfolios were more than offset by lower provisions on impaired loans in our Canadian Banking commercial and Caribbean Banking portfolios, as the prior year reflected higher provisions taken in the public works & infrastructure and information technology sectors.

PCL on loans in Wealth Management increased $29 million, largely reflecting higher provisions on performing loans in U.S. Wealth Management (including City National) as described above. This was partially offset by lower provisions on impaired loans driven by higher recoveries in the information technology and other services sectors.

PCL on loans in Capital Markets increased $860 million, largely reflecting higher provisions on performing loans as described above. Higher provisions on impaired loans also contributed to the increase, largely due to provisions taken in the oil & gas sector reflecting continued pressure on oil prices and provisions taken in the consumer discretionary sector in the current year. This was partially offset by a provision taken in the utilities sector in the prior year.

 

Gross impaired loans

 

 

 

 

 

 

As at

(Millions of Canadian dollars, except percentage amounts)

April 30

2020

January 31

2020

April 30

2019

Personal & Commercial Banking

$   1,637

$   1,689

$   1,786

Wealth Management

  329

  344

  243

Capital Markets

  1,563

  903

  1,013

Corporate Support and other

  -

  -

  -

Total GIL

$  3,529

$  2,936

$  3,042

Canada (1)

 

 

 

Retail

$  832

$  816

$  763

Wholesale

  625

  709

  630

GIL

  1,457

  1,525

  1,393

U.S. (1)

 

 

 

Retail

$  31

$  31

$  31

Wholesale

  1,311

  793

  969

GIL

  1,342

  824

  1,000

Other International (1)

 

 

 

Retail

$  211

$  235

$  324

Wholesale

  519

  352

  325

GIL

  730

  587

  649

Total GIL

$  3,529

$  2,936

$  3,042

Impaired loans, beginning balance

$  2,936

$  2,976

$  2,782

Classified as impaired during the period (new impaired) (2)

  1,308

  713

  1,162

Net repayments (2)

  (253 )

  (304 )

  (129 )

Amounts written off

  (423 )

  (399 )

  (501 )

Other (2), (3)

  (39 )

  (50 )

  (272 )

Impaired loans, balance at end of period

$  3,529

$  2,936

$  3,042

GIL as a % of related loans and acceptances

 

 

 

Total GIL as a % of related loans and acceptances

  0.51%

  0.45%

  0.49%

Personal & Commercial Banking

  0.34%

  0.36%

  0.40%

Canadian Banking

  0.28%

  0.29%

  0.29%

Caribbean Banking

  3.84%

  4.46%

  6.23%

Wealth Management

  0.40%

  0.48%

  0.38%

Capital Markets

  1.19%

  0.89%

  0.99%

(1)  Geographic information is based on residence of the borrower.

(2)  Certain GIL movements for Canadian Banking retail and wholesale portfolios are generally allocated to new impaired, as return to performing status, Net repayments, sold, and foreign exchange translation and other movements amounts are not reasonably determinable. Certain GIL movements for Caribbean Banking retail and wholesale portfolios are generally allocated to Net repayments and new impaired, as return to performing status, sold, and foreign exchange translation and other movements amounts are not reasonably determinable.

(3)  Includes return to performing status during the period, recoveries of loans and advances previously written off, sold, and foreign exchange translation and other movements.

Q2 2020 vs. Q2 2019

Total GIL of $3,529 million increased $487 million or 16% from the prior year and the total GIL ratio of 51 bps increased 2 bps, reflecting higher impaired loans in Capital Markets and Wealth Management, partially offset by lower impaired loans in Personal & Commercial Banking.

GIL in Personal & Commercial Banking decreased $149 million or 8% due to lower impaired loans in our Caribbean Banking and Canadian Banking commercial portfolios, partially offset by higher impaired loans in our Canadian Banking retail portfolios.

GIL in Wealth Management increased $86 million or 35%, primarily reflecting higher impaired loans in U.S. Wealth Management (including City National), primarily in the consumer staples sector.

GIL in Capital Markets increased $550 million or 54%, mainly due to higher impaired loans in a few sectors, including the consumer discretionary and oil & gas sectors, partially offset by lower impaired loans in the utilities sector.

Q2 2020 vs. Q1 2020

Total GIL increased $593 million or 20% from the prior quarter, and the total GIL ratio of 51 bps increased 6 bps, reflecting higher impaired loans in Capital Markets partially offset by lower impaired loans in Personal & Commercial Banking and Wealth Management.

GIL in Personal & Commercial Banking decreased $52 million or 3%, reflecting lower impaired loans in our Canadian Banking commercial and Caribbean Banking portfolios, partially offset by higher impaired loans in our Canadian Banking retail portfolios.

GIL in Wealth Management decreased $15 million or 4%, largely reflecting lower impaired loans in U.S. Wealth Management (including City National) in the consumer discretionary sector, partially offset by higher impaired loans in the consumer staples sector.

GIL in Capital Markets increased $660 million or 73%, mainly due to higher impaired loans in the oil & gas and consumer discretionary sectors.

 

Allowance for credit losses (ACL)

 

 

 

 

 

 

As at

(Millions of Canadian dollars)

April 30

2020

January 31

2020

April 30

2019

Personal & Commercial Banking

$   4,102 

$   2,714 

$   2,692 

Wealth Management

  336 

  254 

  218 

Capital Markets

  1,415 

  501 

  378 

Corporate Support and other

  12 

  2 

  2 

ACL on loans

$  5,865 

$  3,471 

$  3,290 

ACL on other financial assets

  118 

  43 

  56 

Total ACL

$  5,983 

$  3,514 

$  3,346 

ACL on loans is comprised of:

 

 

 

Retail

$  2,635 

$  1,910 

$  1,818 

Wholesale

  2,158 

  746 

  677 

ACL on performing loans

$  4,793 

$  2,656 

$  2,495 

ACL on impaired loans

  1,072 

  815 

  795 

 

 

 

 

Additional information by geography (1)

 

 

 

Canada

 

 

 

Retail

$  216 

$  200 

$  169 

Wholesale

  207 

  153 

  192 

ACL on impaired loans

$  423 

$  353 

$  361 

U.S.

 

 

 

Retail

$  2 

$  2 

$  - 

Wholesale

  279 

  159 

  141 

ACL on impaired loans

$  281 

$  161 

$  141 

Other International

 

 

 

Retail

$  117 

$  129 

$  169 

Wholesale

  251 

  172 

  124 

ACL on impaired loans

$  368 

$  301 

$  293 

ACL on impaired loans

$  1,072 

$  815 

$  795 

(1)  Geographic information is based on residence of the borrower.

Q2 2020 vs. Q2 2019

Total ACL of $5,983 million increased $2,637 million or 79% from the prior year, largely reflecting an increase of $2,575 million in ACL on loans.

ACL on performing loans of $4,793 million increased $2,298 million from the prior year, largely reflecting higher ACL in Personal & Commercial Banking, Capital Markets and Wealth Management due to the impact of the COVID-19 pandemic.

ACL on impaired loans of $1,072 million increased $277 million from the prior year, due to higher ACL in Capital Markets, partially offset by lower ACL in Personal & Commercial Banking. Higher ACL on impaired loans in our Canadian Banking retail portfolios were more than offset by lower ACL in our Caribbean Banking and Canadian Banking commercial portfolios.

ACL on other financial assets of $118 million increased $62 million from the prior year, largely reflecting higher ACL in Capital Markets, primarily due to the impact of the COVID-19 pandemic.

Q2 2020 vs. Q1 2020

Total ACL of $5,983 million increased $2,469 million or 70% from the prior quarter, reflecting an increase of $2,394 million in ACL on loans.

ACL on performing loans of $4,793 million increased $2,137 million from the prior quarter, largely reflecting higher ACL in Personal & Commercial Banking, Capital Markets and Wealth Management due to the impact of the COVID-19 pandemic.

ACL on impaired loans of $1,072 million increased $257 million from the prior quarter, largely due to higher ACL in Capital Markets.

ACL on other financial assets of $118 million increased $75 million from the prior quarter, largely reflecting higher ACL in Capital Markets, primarily due to the impact of the COVID-19 pandemic.

For further details, refer to Note 5 of our Condensed Financial Statements.

 

 

 

Market risk

 

Market risk is defined to be the impact of market prices upon our financial condition. This includes potential gains or losses due to changes in market determined variables such as interest rates, credit spreads, equity prices, commodity prices, foreign exchange rates and implied volatilities. There have been no material changes to our Market Risk Framework from the framework described in our 2019 Annual Report. We continue to manage the controls and governance procedures that ensure that our market risk exposure is consistent with risk appetite constraints set by the Board of Directors. These controls include limits on probabilistic measures of potential loss in trading positions, such as Value-at-Risk (VaR) and Stressed Value-at-Risk (SVaR).

Market risk controls are also in place to manage structural interest rate risk (SIRR) arising from traditional banking products. Factors contributing to SIRR include the mismatch between future asset and liability repricing dates, relative changes in asset and liability rates, and product features that could affect the expected timing of cash flows, such as options to pre-pay loans or redeem term deposits prior to contractual maturity. To monitor and control SIRR, we assess two primary financial metrics, Net Interest Income (NII) risk and Economic Value of Equity (EVE) risk, under a range of market shocks and scenarios. For further details of our approach to the management of market risk, refer to the Market risk section of our 2019 Annual Report. There has been no material change to the SIRR measurement methodology, controls, or limits from those described in our 2019 Annual Report.

Market risk measures - FVTPL positions

VaR and SVaR

The following table presents our Market risk VaR and Market risk SVaR figures.

 

 

 

 

 

 

 

 

 

 

 

 

 

April 30, 2020

 

January 31, 2020

 

April 30, 2019

 

As at

For the three
months ended

 

As at

For the three
months ended

 

As at

For the three
months ended

(Millions of Canadian dollars)

Average

High

Low

 

Average

 

Average

Equity

$  55

$  39

$  64 

$  13

 

$  22

$  20

 

$  14

$  15

Foreign exchange

  3

  3

  5 

  2

 

  3

  2

 

  4

  4

Commodities

  5

  3

  5 

  2

 

  1

  2

 

  1

  1

Interest rate (1)

  132

  61

  178 

  12

 

  13

  13

 

  15

  13

Credit specific (2)

  6

  6

  7 

  5

 

  6

  5

 

  5

  5

Diversification (3)

  (15 )

  (20 )

  n.m. 

  n.m.

 

  (18 )

  (17 )

 

  (21 )

  (18 )

Market risk VaR (4)

$  186

$  92

$  232 

$  20

 

$  27

$  25

 

$  18

$  20

Market risk Stressed VaR (4)

$   139

$  147

$   228 

$   75

 

$   95

$    84

 

$   86

$    96

 

 

 

 

 

 

 

 

 

 

 

 

April 30, 2020

 

April 30, 2019

 

 

 

 

As at

For the six
months ended

 

As at

For the six
months ended

 

 

 

(Millions of Canadian dollars)

Average

High

Low

 

Average

 

 

 

Equity

$  55

$  30

$  64 

$  13

 

$  14

$  18

 

 

 

Foreign exchange

  3

  3

  5 

  1

 

  4

  5

 

 

 

Commodities

  5

  2

  5 

  1

 

  1

  2

 

 

 

Interest rate (1)

  132

  37

  178 

  11

 

  15

  15

 

 

 

Credit specific (2)

  6

  5

  7 

  4

 

  5

  5

 

 

 

Diversification (3)

  (15 )

  (19 )

  n.m. 

  n.m.

 

  (21 )

  (18 )

 

 

 

Market risk VaR (5)

$  186

$  58

$  232 

$  18

 

$  18

$  27

 

 

 

Market risk Stressed VaR (5)

$  139

$   115

$  228 

$  72

 

$  86

$  110

 

 

 

(1)  General credit spread risk and funding spread risk associated with uncollateralized derivatives are included under interest rate VaR.

(2)  Credit specific risk captures issuer-specific credit spread volatility.

(3)  Market risk VaR is less than the sum of the individual risk factor VaR results due to portfolio diversification.

(4)  The average market risk VaR and average SVaR for the three months ended April 30, 2020 includes $41 million and $41 million, respectively (January 31, 2020 - $1 million and $5 million; April 30, 2019 - $nil and $2 million), related to loan underwriting commitments, with the remainder related to our core trading portfolio.

(5)  The average market risk VaR and average SVaR for the six months ended April 30, 2020 includes $21 million and $23 million, respectively (April 30, 2019 - $1 million and $4 million), related to loan underwriting commitments, with the remainder related to our core trading portfolio.

n.m.  not meaningful

The historical period used to compute VaR is comprised of the last two years of equally weighted market data, and is rolled forward on at least a monthly basis. The period used for VaR in April 2020 includes the market turmoil in March 2020. It therefore reflects a greater potential loss than the estimate for the SVaR historical period, which is currently a period covering the 2008 global financial crisis. In Q3 2020, the SVaR period will be updated to reflect the market volatility observed during Q2 2020.

Q2 2020 vs. Q2 2019

Average market risk VaR of $92 million increased $72 million and average SVaR of $147 million increased $51 million from the prior year, primarily due to credit spread widening and the impact of significant market volatility in the current period. This impacted loan underwriting commitments, as well as fixed income and equity portfolios.

Q2 2020 vs. Q1 2020

Average market risk VaR of $92 million increased $67 million and average SVaR of $147 million increased $63 million from the prior quarter, mainly driven by credit spread widening and the impact of significant market volatility in the current quarter. This impacted loan underwriting commitments, as well as fixed income and equity portfolios.

Q2 2020 vs. Q2 2019 (Six months ended)

Average market risk VaR of $58 million increased $31 million and average SVaR of $115 million increased $5 million from the prior year, both mainly reflecting the factors noted above.

 

The following chart displays a bar graph of our daily trading profit and loss and a line graph of our daily market risk VaR. We incurred 13 days with net trading losses during the three months ended April 30, 2020 due to the significant market volatility in the current quarter. Four of these net trading loss days exceeded VaR. We incurred no net trading losses in the three months ended January 31, 2020.

 

To view this graph, please see the PDF:  http://www.rns-pdf.londonstockexchange.com/rns/2886O_1-2020-5-28.pdf

 

(1)  Includes loan underwriting commitments.

Market risk measures for assets and liabilities of RBC Insurance ®  

We offer a range of insurance products to clients and hold investments to meet the future obligations to policyholders. 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 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 Insurance policyholder benefits, claims and acquisition expense. As at April 30, 2020, we held assets in support of $11.4 billion liabilities with respect to insurance obligations (January 31, 2020 - $12.3 billion).

Market risk measures - Structural Interest Rate Sensitivities

The following table shows the potential before-tax impact of an immediate and sustained 100 bps increase or decrease

in interest rates on projected 12-month NII and EVE for our structural balance sheet, assuming no subsequent hedging. Rate

floors are applied within the declining rates scenarios, with floor levels set based on rate changes experienced globally. Interest rate risk measures are based upon interest rate exposures at a specific time and continuously change as a result of business activities and management actions.

 

 

April 30

2020

 

January 31

2020

 

April 30

2019

 

EVE risk

 

NII risk (1)

 

 

 

 

 

 

(Millions of Canadian dollars)

 Canadian
dollar
impact

U.S.
dollar
impact 
(2)

 Total

 

Canadian
dollar
impact

U.S.
dollar
impact 
(2)

Total

 

 EVE risk

NII risk (1)

 

 EVE risk

NII risk (1)

Before-tax impact of:

 

 

 

 

 

 

 

 

 

 

 

 

 

100 bps increase in rates

$  (1,465 )

$  (243 )

$  (1,708 )

 

$  566

$  135

$  701

 

$  (1,564 )

$  468

 

$  (1,112 )

$  469

100 bps decrease in rates

  1,292

  167

  1,459

 

  (571 )

  (155 )

  (726 )

 

  1,143

  (627 )

 

  505

  (612 )

(1)  Represents the 12-month NII exposure to an instantaneous and sustained shift in interest rates.

(2)  Represents the impact on the SIRR portfolios held in our City National and U.S. banking operations.

As at April 30, 2020, an immediate and sustained -100 bps shock would have had a negative impact to our NII of $726 million, up from $627 million last quarter. An immediate and sustained +100 bps shock at the end of April 30, 2020 would have had a negative impact to the bank's EVE of $1,708 million, up from $1,564 million reported last quarter. The quarter-over-quarter change in NII sensitivity is largely attributed to growth in deposits combined with a marginal impact from lower rates, while the quarter-over-quarter change in EVE sensitivity is mainly attributed to structural balance sheet growth. During the second quarter of 2020, SIRR NII and EVE risks remained within approved limits.

 

Market risk measures for other material non-trading portfolios

Investment securities carried at FVOCI

We held $89.0 billion of investment securities carried at FVOCI as at April 30, 2020, compared to $77.5 billion in the prior quarter. We hold debt securities carried at FVOCI primarily as investments, as well as to manage liquidity risk and hedge interest rate risk in our non-trading banking balance sheet. As at April 30, 2020, our portfolio of investment securities carried at FVOCI is interest rate sensitive and would impact OCI by a pre-tax change in value of $8 million as measured by the change in the value of the securities for a one basis point parallel increase in yields. The portfolio also exposes us to credit spread risk of a pre-tax change in value of $25 million, as measured by the change in value for a one basis point widening of credit spreads. The value of the investment securities carried at FVOCI included in our SIRR measure as at April 30, 2020 was $11.5 billion. Our investment securities carried at FVOCI also include equity exposures of $0.5 billion as at April 30, 2020, compared to $0.5 billion in the prior quarter.

Non-trading foreign exchange rate risk

Foreign exchange rate risk is the potential adverse impact on earnings and economic value due to changes in foreign currency rates. Our revenue, expenses and income denominated in currencies other than the Canadian dollar are subject to fluctuations as a result of changes in the value of the average Canadian dollar relative to the average value of those currencies. Our most significant exposure is to the U.S. dollar, due to our operations in the U.S. and other activities conducted in U.S. dollars. Other significant exposures are to the British pound and the Euro, due to our activities conducted internationally in these currencies. A strengthening or weakening of the Canadian dollar compared to the U.S. dollar, British pound and the Euro could reduce or increase, as applicable, the translated value of our foreign currency denominated revenue, expenses and earnings and could have a significant effect on the results of our operations. We are also exposed to foreign exchange rate risk arising from our investments in foreign operations. For unhedged equity investments, when the Canadian dollar appreciates against other currencies, the unrealized translation losses on net foreign investments decreases our shareholders' equity through the other components of equity and decreases the translated value of the Risk-weighted Assets (RWA) of the foreign currency-denominated asset. The reverse is true when the Canadian dollar depreciates against other currencies. Consequently, we consider these impacts in selecting an appropriate level of our investments in foreign operations to be hedged.

Derivatives related to non-trading activity

Derivatives are also used to hedge market risk exposure unrelated to our trading activity. Hedge accounting is elected where applicable. These derivatives are included in our SIRR measure and other internal non-trading market risk measures. We use interest rate swaps to manage our SIRR, funding and investment activities. Interest rate swaps are also used to hedge changes in the fair value of certain fixed-rate instruments. We also use foreign exchange derivatives to manage our exposure to equity investments in subsidiaries that are denominated in foreign currencies, particularly the U.S. dollar, British Pound, and Euro.

For further details on the application of hedge accounting and the use of derivatives for hedging activities, refer to Notes 2 and 8 of our 2019 Annual Consolidated Financial Statements.

 

Linkage of market risk to selected balance sheet items

The following tables provides the linkages between selected balance sheet items with positions included in our trading market risk and non-trading market risk disclosures, which illustrates how we manage market risk for our assets and liabilities through different risk measures:

 

 

 

 

 

 

 

As at April 30, 2020

 

 

Market risk measure

 

(Millions of Canadian dollars)

Balance sheet
amount

Traded risk  (1)

Non-traded
risk 
(2)

Non-traded risk
primary risk sensitivity

Assets subject to market risk

 

 

 

 

Cash and due from banks

$  98,777

$  -

$  98,777

  Interest rate

Interest-bearing deposits with banks

  48,398

  33,794

  14,604

  Interest rate

Securities

 

 

 

 

Trading

  135,778

  125,087

  10,691

  Interest rate, credit  spread

Investment, net of applicable allowance

  134,163

  -

  134,163

  Interest rate, credit spread,  equity

Assets purchased under reverse repurchase agreements and securities borrowed

  325,534

  271,679

  53,855

  Interest rate

Loans

 

 

 

 

Retail

  435,409

  8,045

  427,364

  Interest rate

Wholesale

  243,269

  8,258

  235,011

  Interest rate

Allowance for loan losses

  (5,230 )

  -

  (5,230 )

  Interest rate

Segregated fund net assets

  1,743

  -

  1,743

  Interest rate

Other

 

 

 

 

Derivatives

  140,807

  136,597

  4,210

  Interest rate, foreign  exchange

Other assets

  106,392

  6,112

  100,280

  Interest rate

Assets not subject to market risk (3)

  10,642

 

 

 

Total assets

$  1,675,682

$  589,572

$  1,075,468

 

Liabilities subject to market risk

 

 

 

 

Deposits

$  1,009,447

$  123,955

$  885,492

  Interest rate

Segregated fund liabilities

  1,743

  -

  1,743

  Interest rate

Other

 

 

 

 

Obligations related to securities sold short

  40,347

  40,347

  -

 

Obligations related to assets sold under repurchase agreements and securities loaned

  278,605

  265,708

  12,897

  Interest rate

Derivatives

  144,710

  141,353

  3,357

  Interest rate, foreign exchange

Other liabilities

  91,499

  11,049

  80,450

  Interest rate

Subordinated debentures

  9,774

  -

  9,774

  Interest rate

Liabilities not subject to market risk (4)

  14,517

 

 

 

Total liabilities

$   1,590,642

$   582,412

$   993,713

 

Total equity

$  85,040

 

 

 

Total liabilities and equity

$  1,675,682

 

 

 

(1)  Traded risk includes positions that are classified or designated as FVTPL and positions whose revaluation gains and losses are reported in revenue. Market risk measures of VaR and SVaR and stress testing are used as risk controls for traded risk.

(2)  Non-traded risk includes positions used in the management of the SIRR and other non-trading portfolios. Other material non-trading portfolios include positions from RBC Insurance ® and investment securities, net of applicable allowance, not included in SIRR.

(3)  Assets not subject to market risk include $10,642 million of physical and other assets.

(4)  Liabilities not subject to market risk include $14,517 million of payroll related and other liabilities.

 

 

 

 

 

 

 

 

As at January 31, 2020

 

 

Market risk measure

 

(Millions of Canadian dollars)

Balance sheet
amount

Traded risk (1)

Non-traded
risk (2)

Non-traded risk
primary risk sensitivity

Assets subject to market risk

 

 

 

 

Cash and due from banks

$  34,120

$  -

$  34,120

  Interest rate

Interest-bearing deposits with banks

  31,331

  19,166

  12,165

  Interest rate

Securities

 

 

 

 

Trading

  145,015

  134,046

  10,969

  Interest rate, credit spread

Investment, net of applicable allowance

  121,652

  -

  121,652

  Interest rate, credit spread, equity

Assets purchased under reverse repurchase agreements and securities borrowed

  324,187

  261,216

  62,971

  Interest rate

Loans

 

 

 

 

Retail

  430,841

  7,285

  423,556

  Interest rate

Wholesale

  202,238

  8,901

  193,337

  Interest rate

Allowance for loan losses

  (3,139 )

  -

  (3,139 )

  Interest rate

Segregated fund net assets

  1,788

  -

  1,788

  Interest rate

Other

 

 

 

 

Derivatives

  93,982

  91,622

  2,360

  Interest rate, foreign exchange

Other assets

  82,679

  5,315

  77,364

  Interest rate

Assets not subject to market risk (3)

  11,610

 

 

 

Total assets

$  1,476,304

$  527,551

$  937,143

 

Liabilities subject to market risk

 

 

 

 

Deposits

$  902,284

$  95,918

$  806,366

  Interest rate

Segregated fund liabilities

  1,788

  -

  1,788

  Interest rate

Other

 

 

 

 

Obligations related to securities sold short

  35,624

  35,624

  -

 

Obligations related to assets sold
under repurchase agreements and
securities loaned

  254,391

  247,170

  7,221

  Interest rate

Derivatives

  94,611

  92,527

  2,084

  Interest rate, foreign exchange

Other liabilities

  81,258

  9,107

  72,151

  Interest rate

Subordinated debentures

  9,269

  -

  9,269

  Interest rate

Liabilities not subject to market risk (4)

  13,018

 

 

 

Total liabilities

$   1,392,243

$   480,346

$   898,879

 

Total equity

$  84,061

 

 

 

Total liabilities and equity

$  1,476,304

 

 

 

(1)  Traded risk includes positions that are classified or designated as FVTPL and positions whose revaluation gains and losses are reported in revenue. Market risk measures of VaR and SVaR and stress testing are used as risk controls for traded risk.

(2)  Non-traded risk includes positions used in the management of the SIRR and other non-trading portfolios. Other material non-trading portfolios include positions from RBC Insurance ® and investment securities, net of applicable allowance, not included in SIRR.

(3)  Assets not subject to market risk include $11,610 million of physical and other assets.

(4)  Liabilities not subject to market risk include $13,018 million of payroll related and other liabilities.

 

 

 

Liquidity and funding risk

 

Liquidity and funding risk (liquidity risk) is the risk that we may be unable to generate sufficient cash or its equivalents in a timely and cost-effective manner to meet our commitments as they come due. Liquidity risk arises from mismatches in the timing and value of on-balance sheet and off-balance sheet cash flows.

Our Liquidity Risk Management Framework (LRMF) is designed to ensure that we have sufficient liquidity to satisfy current and prospective commitments in both normal and stressed conditions. There have been no material changes to our LRMF as described in our 2019 Annual Report.

We continue to maintain liquidity and funding that is appropriate for the execution of our strategy. Liquidity risk remains well within our risk appetite.

On January 1, 2020, the OSFI regulatory minimum for the Net Stable Funding Ratio (NSFR) of 100% became effective, in accordance with the revised LAR guidelines. The NSFR is determined based on the liquidity characteristics and maturity profile of our assets, liabilities, and off-balance sheet exposures and is intended to reduce structural funding risk by requiring banks to maintain a surplus of available stable funding over the required stable funding. We do not anticipate any challenges in meeting this requirement. The requirement to disclose consolidated NSFR and its major components will become effective for Canadian domestic systemically important banks (D-SIB) on January 31, 2021.

During Q2 2020, governments and federal agencies have instituted and also expanded the eligibility criteria to their existing funding programs and announced new programs to provide further liquidity to banks. In addition to these measures, OSFI announced a series of regulatory measures and provided additional guidance to allow banks to focus on their resilience efforts and to enhance the financial system's stability. These measures have provided additional flexibility in lending activities permitting banks to fall below the regulatory minimum through the use of available buffers above the regulatory authorized minimum for the Liquidity Coverage Ratio (LCR) and temporary modifications in limits, including those used for covered bonds, and adjustments to other liquidity metrics.

 

Liquidity reserve

Our liquidity reserve consists of available unencumbered liquid assets as well as uncommitted and undrawn central bank borrowing facilities that could be accessed under extraordinary circumstances subject to satisfying certain preconditions as set by various Central Banks (e.g., BoC, the Fed, Bank of England, and Bank of France). 

To varying degrees, unencumbered liquid assets represent a ready source of funding. Unencumbered assets are the difference between total and encumbered assets from both on- and off-balance sheet sources. Encumbered assets, in turn, are not considered a source of liquidity in measures of liquidity risk.

Although unused wholesale funding capacity, which is regularly assessed, could be another potential source of liquidity to mitigate stressed conditions, it is excluded in the determination of the liquidity reserve.

 

 

 

 

 

 

 

 

 

As at April 30, 2020

(Millions of Canadian dollars)

Bank-owned
liquid assets

Securities
received as
collateral from
securities
financing  and
derivative
transactions

 

Total liquid
assets

Encumbered
liquid assets

Unencumbered
liquid assets

Cash and due from banks

$  98,777

$  -

 

$  98,777

$  3,178

$  95,599

Interest-bearing deposits with banks

  48,398

  -

 

  48,398

  348

  48,050

Securities issued or guaranteed by sovereigns, central banks or multilateral development banks (1)

  242,169

  345,253

 

  587,422

  385,690

  201,732

Other securities

  87,640

  107,169

 

  194,809

  98,721

  96,088

Undrawn credit lines granted by central banks (2)

  24,692

  -

 

  24,692

  -

  24,692

Other assets eligible as collateral for discount (3), (4)

  117,122

  -

 

  117,122

  -

  117,122

Other liquid assets (5)

  39,139

  -

 

  39,139

  36,647

  2,492

Total liquid assets

$   657,937

$   452,422

 

$   1,110,359

$   524,584

$   585,775

 

 

 

As at January 31, 2020

(Millions of Canadian dollars)

Bank-owned
liquid assets

Securities
received as
collateral from
securities
financing and
derivative
transactions

 

Total liquid
assets

Encumbered
liquid assets

Unencumbered
liquid assets

Cash and due from banks

$  34,120

$  -

 

$  34,120

$  2,899

$  31,221

Interest-bearing deposits with banks

  31,331

  -

 

  31,331

  331

  31,000

Securities issued or guaranteed by sovereigns, central banks or multilateral development banks (1)

  221,047

  327,977

 

  549,024

  381,064

  167,960

Other securities

  97,168

  116,376

 

  213,544

  93,188

  120,356

Undrawn credit lines granted by central banks (2)

  7,679

  -

 

  7,679

  -

  7,679

Other assets eligible as collateral for discount (3)

  107,727

  -

 

  107,727

  -

  107,727

Other liquid assets (5)

  21,955

  -

 

  21,955

  20,993

  962

Total liquid assets

$   521,027

$   444,353

 

$   965,380

$   498,475

$   466,905

 

 

 

As at

 

 

 

 

(Millions of Canadian dollars)

April 30

2020

January 31

2020

 

 

 

 

Royal Bank of Canada

$  309,677

$  232,799

 

 

 

 

Foreign branches

  96,843

  64,856

 

 

 

 

Subsidiaries

  179,255

  169,250

 

 

 

 

Total unencumbered liquid assets

$   585,775

$   466,905

 

 

 

 

(1)  Includes liquid securities issued by provincial governments and U.S. government-sponsored entities working under U.S. Federal government's conservatorship (e.g., Federal National Mortgage Association and Federal Home Loan Mortgage Corporation).

(2)  Includes loans that qualify as eligible collateral for the discount window facility available to us at the Federal Reserve Bank of New York (FRBNY). Amounts are face value and would be subject to collateral margin requirements applied by the FRBNY to determine collateral value/borrowing capacity. Access to the discount window borrowing program is conditional on meeting requirements set by the FRBNY and borrowings are typically expected to be infrequent and due to uncommon occurrences requiring temporary accommodation.

(3)  Represents our unencumbered Canadian dollar non-mortgage loan book (at face value) that could, subject to satisfying conditions precedent to borrowing and application of prescribed collateral margin requirements, be pledged to the BoC for advances under its Emergency Lending Assistance (ELA) program. ELA is not considered a source of available liquidity in our normal liquidity risk profile but could in extraordinary circumstances, where normal market liquidity is seriously impaired, allow us and other banks to monetize assets eligible as collateral to meet requirements and mitigate further market liquidity disruption. The balance also includes our unencumbered mortgage loans that qualify as eligible collateral at Federal Home Loan Bank (FHLB).

(4)  Excludes mortgage loans eligible for pledging to BoC in accordance with the expanded eligibility criteria announced in Q2 2020. For further details, refer to the Significant developments: COVID-19 section of this Q2 2020 Report to Shareholders.

(5)  Encumbered liquid assets amount represents cash collateral and margin deposit amounts pledged related to over-the-counter (OTC) and exchange-traded derivative transactions.

The liquidity reserve is typically most affected by routine flows of client banking activity where liquid asset portfolios adjust to the change in cash balances, and additionally from capital markets activities where business strategies and client flows may also affect the addition or subtraction of liquid assets in the overall calculation of the liquidity reserve. Corporate Treasury also affects liquidity reserves through the management of funding issuances where reserves absorb timing mismatches between debt issuances and deployment into business activities.

 

Q2 2020 vs. Q1 2020

Total liquid assets increased $145 billion or 15%, primarily due to increased eligibility of bank's assets for central bank facilities, higher client deposits as well as actions taken to maintain a prudent liquidity position.

Asset encumbrance

The table below provides a summary of our on- and off-balance sheet amounts for cash, securities and other assets, distinguishing between those that are encumbered or available for sale or use as collateral in secured funding transactions. Other assets, such as mortgages and credit card receivables, can also be monetized, albeit over longer timeframes than those required for marketable securities. As at April 30, 2020, our unencumbered assets available as collateral comprised 31% of total assets (January 31, 2020 - 28%).

Asset encumbrance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 As at

 

April 30

2020

 

January 31

2020

 

Encumbered

 

Unencumbered

 

 

 

Encumbered

 

Unencumbered

 

(Millions of Canadian dollars)

Pledged as
collateral

Other  (1)

 

Available as
collateral 
(2)

Other  (3)

 

Total

 

Pledged as
collateral

Other (1)

 

Available as
collateral (2)

Other (3)

Total

Cash and due from banks

$  - 

$  3,178

 

$  95,599 

$  -

 

$  98,777

 

$  - 

$  2,899

 

$  31,221 

$  -

$  34,120

Interest-bearing deposits with banks

  - 

  348

 

  48,050 

  -

 

  48,398

 

  - 

  331

 

  31,000 

  -

  31,331

Securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trading

  49,125 

  -

 

  84,214 

  2,439

 

  135,778

 

  44,278 

  -

 

  98,240 

  2,497

  145,015

Investment, net of applicable allowance

  19,024 

  -

 

  115,090 

  49

 

  134,163

 

  16,481 

  -

 

  105,122 

  49

  121,652

Assets purchased under reverse repurchase agreements and securities borrowed (4)

  429,018 

  17,100

 

  35,908 

  5,136

 

  487,162

 

  432,249 

  23,468

 

  34,221 

  5,578

  495,516

Loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage securities

  30,233 

  -

 

  44,508 

  -

 

  74,741

 

  30,834 

  -

 

  41,281 

  -

  72,115

Mortgage loans (5)

  64,629 

  -

 

  32,783 

  149,771

 

  247,183

 

  49,997 

  -

 

  21,210 

  170,882

  242,089

Non-mortgage loans