Royal Bank of Canada Q2 FY2026 earnings call

- Overall Quarterly Results * Reported total earnings of $5.5 billion, adjusted earnings of $5.6 billion (second-highest quarterly performance on record) * Pre-provision pre-tax earnings up 15% year-over-year, with 11% total revenue growth and 3% all-bank operating leverage * ROE of 17.2%, supported by a robust 13.5% common equity tier one (CET1) ratio * 12 consecutive quarters of commercial banking market share capture

- Strategic Growth and Market Position * Capital Markets achieved 12-month global investment banking market share growth of over 2%, with record fee revenue from M&A advisory and debt/equity origination; equities franchise posted record revenue, and the FIC franchise delivered solid results * Wealth management saw net new assets of $10 billion (Canada) and $5 billion (U.S.) in the quarter, with 16% year-over-year U.S. credit/lending balance growth and 9% year-over-year loan growth at City National * Launched a new Indigenous advisory and finance practice within RBC Capital Markets to expand capital access for Indigenous-owned projects * Continued U.S. expansion, improving the U.S. region efficiency ratio from 83% (2024) to 75% this quarter, targeting a low 70% efficiency ratio long-term

- AI Transformation and Productivity * Targeting $700 million to $1 billion in enterprise value from AI initiatives * Deployed over 200 AI models leveraging the proprietary Atom Foundation model and Lumina data platform; LLM token usage has increased over 500% since 2025 * AI is integrated across workflows: client digital assistance, commercial financial statement processing, and code development (over 24 million lines of code generated and 120,000 code reviews facilitated to date)

- Capital Return to Shareholders * Increased quarterly dividend by $0.12, representing a 14% year-over-year increase, targeting a dividend payout ratio at the midpoint of the 40-50% medium-term range * Executed buybacks of 7 million shares this quarter (2% annualized pace of outstanding common shares) * Announced a proposed normal course issuer bid to repurchase up to 45 million common shares for cancellation, pending regulatory approval

1. Personal Banking: Reported net income of $1.9 billion, up 18% year-over-year. Revenue grew 6% year-over-year, with non-interest income up 5% year-over-year. Contributed ~34.5% of total segment net income. 2. Commercial Banking: Reported net income of $854 million, up 43% year-over-year. Pre-provision pre-tax earnings grew 5% year-over-year, with deposits up 3% year-over-year and loans up 3% year-over-year. Contributed ~15.5% of total segment net income. 3. Wealth Management: Reported net income of $1.2 billion, up 28% year-over-year. Non-interest income grew 10% year-over-year, and net interest income grew 10% year-over-year. Canada AUA exceeded $1 trillion, U.S. AUA was nearly $800 billion, and RBC Global Asset Management AUM surpassed $800 billion. Contributed ~21.8% of total segment net income. 4. Capital Markets: Reported record net income of $1.5 billion, up 23% year-over-year, with a 14.8% ROE and 53.2% efficiency ratio. Pre-provision pre-tax earnings were $1.8 billion, up 30% year-over-year: global markets revenue up 16% year-over-year, corporate investment banking revenue hit a record, up 17% year-over-year, and lending/transaction banking revenue up 10% year-over-year. Contributed ~27.3% of total segment net income. 5. Insurance: Reported net income of $218 million, up 3% year-over-year. Premiums and deposits grew 17% year-over-year. Contributed ~4% of total segment net income. 6. Corporate Support: Reported a net loss of $102 million. Segment interest income and expenses made up only 2% and 1% of total bank results, respectively.

- Full-year 2026 all-bank net interest income growth (excluding trading) is maintained in the mid-single-digit range, including over $250 million in lower purchase price adjustment (PPA) benefits from the HSBC Canada acquisition - Portfolio mortgage spreads are expected to be marginally higher by the end of 2026, as roll-on spreads are projected to slightly exceed roll-off spreads, though increased competitive intensity could create headwinds - Full-year all-bank expense growth is maintained in the mid-single-digit range, with positive all-bank operating leverage expected, incorporating higher variable compensation, growth initiative costs, and ongoing investments in risk and safety frameworks - Full-year 2026 provisions on impaired loans are expected to remain within the previously guided range - In the current uncertain environment, the bank intends to maintain CET1 capital levels closer to the higher end of its targeted range, while continuing to return capital via dividends and share buybacks

- Macroeconomic and geopolitical risks: Elevated uncertainty from the ongoing Middle East conflict, KUSMA/USMCA trade negotiations, and U.S. Section 232 tariffs, which have disproportionately impacted trade-exposed sectors (notably Ontario commercial real estate and supply chains) and increased inflation/interest rate risk - Commercial real estate risk: Moderating demand for commercial real estate, particularly condo development, with one large impaired commercial real estate loan recorded in the U.S. this quarter - Credit risk: New impaired loan formations decreased quarter-over-quarter across most segments, but gross impaired loans rose $623 million quarter-over-quarter driven by capital markets (real estate, forest products, consumer discretionary) and wealth management (utilities, real estate, consumer mortgages at City National related to prior California wildfires); credit card PCL has seen sustained increases over recent quarters, particularly in Ontario - Impaired loan resolution timing: Workouts for existing impaired loans are taking longer than typical due to system capacity constraints in residential real estate and uneven wholesale conditions, so the gross impaired loan ratio is expected to continue increasing in the near term even as new formations stabilize - Competitive risk: Increased competitive pricing pressure for term deposits could pressure net interest margins going forward

Q: Is the risk of negative macro outcomes over the next 6-12 months higher than the chance of constructive improvement, and have conditions stabilized in Canada given ongoing trade negotiations? / A: RBC management highlights significant resilience in the Canadian economy, with projected 1.5-1.6% GDP growth over the next four quarters despite weak real estate activity, and continued consumer spending and saving. While Section 232 tariffs have created weakness in Ontario that is not yet fully resolved, management is optimistic that a mutually beneficial trade deal will be reached. Long-term, major infrastructure, energy and critical mineral projects are moving forward, creating large opportunities for RBC to deploy capital.

Q: How meaningful is the AI opportunity for bottom-line growth in Canada, and what is the risk of fintech disruption accelerated by AI? / A: Management sees AI as a very meaningful opportunity, on track to hit the $1 billion enterprise value target within 18 months, with productivity gains across client-facing and back-office roles that allow serving more clients at the same cost base. For disruption risk, RBC has the scale to deploy AI as fast as any fintech, and its regulated status, trusted brand, large capital base and strong security pose a significant moat that will prevent broad disintermediation; RBC is also developing its own digital competitor offerings to match new market entrants.

Q: Why was the performing loan provision build modest this quarter, given elevated macro uncertainty? / A: Management increased the severity of downside macro scenarios this quarter, which would have added roughly $80 million to performing provisions, but this was offset by $20 million in releases from improved credit quality trends. Stabilizing delinquencies, watch list improvements and ratings migration across most portfolios led to the net neutral overall build. The increase in gross impaired loans reflects slower workout timelines (not rising new formations), so the ratio will continue to rise temporarily even with stable new impaired loans.

Q: How should investors expect EPS growth to look from current high ROE levels? / A: EPS growth will be driven primarily by organic capital deployment, fee income growth and productivity improvements from initiatives like AI. Key organic growth opportunities include cross-selling to the acquired HSBC Canada client base (over halfway to the $300 million cross-sell target), expansion at Citi National, strong pipelines in capital markets, and expected renewed growth in residential mortgages. Productivity and cost efficiency gains from AI are already starting to accrue, and margin stability is enough to support ongoing growth even without expansion.