Royal Bank of Canada at RBC Capital Markets Canadian Bank CEO Conference Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Darko Mihelic - RBC Capital Markets Inc - Analyst : Okay, so here I was saying I was going to not talk about themes and kick off and speak about bank-specific stuff but the very first person I have up here is Dave McKay. And so, therefore, I feel somewhat compelled that to maybe set the stage for the outlook, I really wanted to ask you about your macro outlook and maybe set the stage for everybody here on how you're looking at the macro environment for banking and specifically for Canadian banks?

Question: Darko Mihelic - RBC Capital Markets Inc - Analyst : And so what this ended up doing, I mean, we had very strong results last year. You had an Investor Day, you came out with an ROE target now hinting that it's going to go higher. And so although this topic was really covered heavily on the fourth-quarter conference call, I still feel compelled to go back to it a little bit.

Question: Darko Mihelic - RBC Capital Markets Inc - Analyst : It was. It was a lot of -- so I wanted to maybe -- we've got time now. We can maybe dissect this a little bit. And so what I thought we can do is let's think about the ROE in the following way and let's start with the denominator where you could be buying back stock, you could be shrinking the denominator towards a higher ROE. You had mentioned that you wanted to operate between 12.5% and 13.5% common equity Tier 1 ratio with anything above 13.5% going to buybacks. So how do you decide on that range? And really, what do you want to do with the denominator to push the ROE higher? Should we expect that at some point you'll go all the way to 12.5% and push the ROE higher through that method? Or maybe I'll just leave it open-ended and just leave it there for you to talk about the denominator?

Question: Darko Mihelic - RBC Capital Markets Inc - Analyst : So that's an interesting discussion on all of those different factors that have to wade into the, conceptually, how you get to the 17% ROE. But it doesn't -- I think one of the interesting things that I noticed at your Investor Day is buried in one of the slides. Royal has a has a targeted ROA, a return on assets. It's 100 basis points. For those of you who read our research, we put out a chart book, and in the chart book, we show you return on assets and historical return on assets and Royal's never been at 100 basis points. Got close a couple of times, but never actually hit 100 basis points. Last year, you were at 85, maybe 87 if you adjust for a few things. So clearly, the high ROE is very much a function of a very high return on assets. So can you help us understand how you get from 87 to 100 on a sustainable basis? LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies. JANUARY 06, 2026 / 1:40PM, RY.TO - Royal Bank of Canada at RBC Capital Markets Canadian Bank CEO Conference

Question: Darko Mihelic - RBC Capital Markets Inc - Analyst : And so to summarize then, a third of NII, a third coming from other income, and then a third you said other factors, but it sounded like efficiency essentially.

Question: Darko Mihelic - RBC Capital Markets Inc - Analyst : Part of it is efficiency and through AI. All right, that's -- okay. Great.

Question: Darko Mihelic - RBC Capital Markets Inc - Analyst : And so one of the other things that I get asked a lot is, all right, ROEs are going higher. Sounds like yours is really ROA improvement, a little less on the leverage, but all the same. The question comes up about risk. So are we moving the risk dial to move the ROE higher? And I suspect the answer would be no there, but what is -- what do you see as the biggest risk to your plans over the very short and medium term?

Question: Darko Mihelic - RBC Capital Markets Inc - Analyst : Yeah, what risks do you see on the horizon that could maybe materialize?

Question: Darko Mihelic - RBC Capital Markets Inc - Analyst : And on credit last year, we did see one file that was noticeable. How should we think about that? Is that now maybe part of the course going forward that it can occasionally happen? It just sort of is what it is. You're a big bank; you can handle it. Or should we think about credit risk being less episodic going forward? How do you frame that for investors?

Question: Darko Mihelic - RBC Capital Markets Inc - Analyst : So we've touched upon the outlook, some of the things that you're working on towards higher returns. In a somewhat constructive, we talked about risks. Maybe one last thing that I picked up on in the last little bit is could taxes be a bit of a headwind for you and how should we think about that?

Question: Darko Mihelic - RBC Capital Markets Inc - Analyst : Are you worried about it longer-term?

Question: Darko Mihelic - RBC Capital Markets Inc - Analyst : Yeah. Not just this country, I think even globally where you operate.

Question: Darko Mihelic - RBC Capital Markets Inc - Analyst : Now the fun part, we're going to go to some audience Q&A.

Question: Darko Mihelic - RBC Capital Markets Inc - Analyst : First one, would you accept a temporarily lower ROE for a large strategic M&A transaction? LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies. JANUARY 06, 2026 / 1:40PM, RY.TO - Royal Bank of Canada at RBC Capital Markets Canadian Bank CEO Conference

Question: Darko Mihelic - RBC Capital Markets Inc - Analyst : Okay. We're up to the point where I always promise to give the last word to the CEO. So Dave, maybe you could summarize or give everybody your key messages that you want them to think about for your company and into 2026?

Question: Darko Mihelic - RBC Capital Markets Inc - Analyst : Okay. With that, we're going to end the session with the RBC. Thank you very much.