Good morning, ladies and gentlemen. Welcome to RBC's Second Quarter 2019 Financial Results Conference Call. Please be advised that this call is being recorded. I would now like to turn your meeting over to Nadine Ahn, Head of Investor Relations. Please go ahead, Ms. Ahn.

Thank you and thanks for joining us. Speaking today will be Dave McKay, President and Chief Executive Officer; Rod Bolger, Chief Financial Officer; and Graeme Hepworth, Chief Risk Officer. Then we'll open the call for questions. To give everyone a chance to ask a question, we ask that you limit your questions and then requeue. We also have with us in the room Neil McLaughlin, Group Head of Personal and Commercial Banking; Doug Guzman, Group Head, Wealth Management and Insurance; and Doug McGregor, Group Head, Capital Markets and Investor and Treasury Services. As noted on Slide 1, our comments may contain forward-looking statements which involve assumptions and have inherent risks and uncertainties. Actual results could differ materially. With that, I will turn it over to Dave.

Thanks, Nadine, and good morning, everyone. Thanks for joining us. We delivered a solid second quarter. We earned $3.2 billion, up 6% from last year, and EPS was up 7%. We achieved continued growth in our core businesses, where we have been investing to create more value for our clients and our shareholders. As we grow our client franchises, we are focused on maintaining a premium ROE. Our ROE of 17.5% this quarter continues to exceed our medium-term objective. We ended the quarter with a robust CET1 ratio of 11.8%. This provides flexibility to fund organic growth opportunities and to return capital to our shareholders. Our results were supported by strong underlying economic fundamentals in our core markets. Though GDP softened the last couple of quarters, the Canadian economy remains resilient and the unemployment rate is hovering near four-decade lows. Regulatory changes have helped some of Canada's major housing markets stabilize, particularly in Ontario and to the east. Western Canadian markets remain under downward pressure overall, making housing more affordable. In the U.S., we saw strong GDP growth and record low unemployment levels. Trade tariffs are expected to temper GDP growth. However, the underlying fundamentals of consumer spending and business investment remain favorable. Against this backdrop, we delivered solid volume growth and continue to increase our market share with the investments we have made across multiple business lines. In the first half of the year, we continued to invest, especially in client-facing talent and technology. In the latter half of the year, we expect to slow expense growth to drive better operating leverage. While there continues to be market and economic uncertainty, I remain confident in the diversity of our business mix and our focused growth strategy. This quarter, we saw PCL on a few accounts in our commercial book. While elevated from historical lows last year, we do not see this as a systemic trend. Our investments and our commitments to helping clients thrive and communities prosper have helped RBC maintain the No. 1 brand in Canada. This year, we are the only Canadian company recognized in the Top 100 global brands, an accomplishment we are very proud of. So, now turning to our business segments. In Canadian Banking, we saw increased market share and strong volume growth across a number of businesses. Higher revenue was driven by the strong execution of our growth strategy and the benefit of investments we made across our multichannel distribution network, including our client-facing sales force and mobile banking platform. Business Banking saw strong deposit growth and client acquisition as a result of our highly engaged sales force. Commercial growth remained strong and diversified across sectors, including commercial mortgages. Card volumes were also strong and we are pleased to be recognized for our cards and reward platform, with Best Loyalty/Rewards Strategy at the Retail Banker International Global Awards. Our Mortgage business also performed well, generating solid volume growth of 5% year-over-year in what continues to be a very competitive environment. We continue to innovate and create more value for our clients through a number of new digital offerings, including personalized AI-powered budgeting insights through NOMI. Turning to Wealth Management, we had strong earnings growth, as the markets gained momentum and flows increased. We built on our leading position in Canadian Wealth Management, attracting new investment advisors and leveraged our technology and investment performance to strengthen relationships and grow our clients. Once again, RBC Dominion Securities was named the No. 1 brokerage firm in Canada in the 2019 Investment Executive Brokerage Report Card. We continue to see strong AUM growth in Global Asset Management and industry-leading performance. 82% of our funds beat their benchmark on a three-year basis. This quarter, we expanded our alternative asset offerings by launching the RBC Canadian Core Real Estate Fund through an innovative partnership with BCI. Our U.S. Wealth Management franchise continues to perform well, as we execute on our growth strategy in the United States. Both U.S. Wealth AUA and AUM were up double digits as our U.S. private client group continued to see great advisor recruitment. City National had yet another quarter of double-digit loan growth. Our results reflect the success of our organic expansion strategy, driven in part by attracting top talent from across multiple industries and geographies. While our Insurance results were down year-over-year, we still expect to see earnings growth for the full year. We continue to introduce innovative approaches to drive better outcomes for the increasing number of disability clients who are also facing mental illness. Through our exclusive "Onward by Best Doctors" program, we are better assisting clients by expediting their recovery through virtual access to healthcare experts. We are also exploring expansion of our virtual care programs to provide to more people who may be facing mental health challenges while still actively at work. Our Investor and Treasury Services business faced revenue headwinds in light of secular trends in the asset services industry. Our cost structure continues to improve through investments in technology initiatives, which are streamlining processes and creating efficiencies. Our Capital Markets business delivered record earnings this quarter. Our fixed income and currency business and equities businesses created strong revenue in both primary and secondary trading, as we saw markets recover from challenging conditions last quarter. While our Corporate Banking and Investment Banking revenues were relatively flat this quarter, we saw strong market share gains despite lower industry wide fee pools. This highlights both the strength and resiliency of our franchise, as well as strong relationships with our clients through this cycle. In April, we issued our first green bond to fund a portfolio of new and existing businesses and projects that promote sustainability and a transition to a low-carbon economy. This transaction follows a series of environmental milestones at RBC, including our commitment to provide $100 billion in sustainable financing by 2025. So, in conclusion, our results over the first half of the fiscal year are a testament to the strength of our diversified business and our disciplined strategy to grow our client franchises and deliver long-term value to shareholders. I would also like to comment on the floods in eastern Canada. The difficult situation in eastern Canada is impacting many families and communities. RBC remains committed to helping those affected by the floods and we have launched a financial relief program to assist our clients and are proud to support the Red Cross, first responders, and volunteers in support of local relief efforts. And now I will turn it over to Rod to discuss our financial results.

Thanks, Dave, and good morning, everyone. Starting on Slide 5, we had strong second quarter earnings of $3.2 billion, the second highest on record. Earnings were up 6% from last year and diluted EPS of $2.20 was up 7%. Before I discuss segment-level performance, I want to start with some perspective on key enterprise wide performance drivers and I will start with cost management. Pre-provision, pre-tax earnings were up 7% year-over-year, even after absorbing an elevated expense growth of 8% as we continued to invest to create more value for our clients. A third of this expanse growth was driven by higher variable compensation on improved results and another third was related to investments to drive business growth in the form of additional sales force distribution, transformational technology, and marketing spend. While we remain confident in our client-focused growth strategy highlighted at our Investor Day last year, we are always mindful of risks to the macroeconomic environment. We will continue to manage our costs based on the revenue outlook and expect expense growth to slow to the low single digits in the second half of the year. We believe our scale and discipline positions us well to pull levers and prioritize discretionary projects, if necessary. However, we will always balance any tactical cost measures with our commitment to creating long-term value for our clients and shareholders. Next, on taxes, our effective tax rate of 19% was down from last year. Given our outlook for business mix, we expect our total effective tax rate to be in the 20% to 22% range over the second half of the year. And given our continued double-digit earnings growth in the U.S., we would expect our structural tax rate to increase modestly over the next year or so, given the relatively higher tax rate in the U.S. compared to other lower tax rate jurisdictions. I will talk about capital next on Slide 6. Our strong earnings allowed us to generate over 30 basis points of internally generated capital, while also distributing $1.5 billion in common dividends to our shareholders this quarter. Credit risk RWA was up only 1% from last quarter, as client-driven growth in Canadian Banking and City National were offset by runoffs in underwriting transactions. Market risk was down over $3 billion quarter-over-quarter, largely due to lower fixed income inventory in Capital Markets and INTS. Going forward, we expect the effect of IFRS 16 and revisions to the securitization framework to impact our CET1 ratio in Q1 of 2020. And given our premium ROE, we expect to absorb this impact with less than one quarter of retained earnings. As Dave noted, we remain well-positioned to fund organic growth opportunities and to return capital to our shareholders. Moving on to our business segment performance on Slide 7, Personal and Commercial Banking reported earnings of over $1.5 billion. Canadian Banking net income of over $1.4 billion was up 2% from a year ago, as 7% pre-provision earnings growth was partially offset by higher PCL on select commercial accounts. Strong volume growth was the largest contributor to the year-over-year in net interest income, driving over two-thirds of the growth, outpacing the benefit from higher interest rates. Our strong growing deposit base, as well as solid loan growth, should continue to be the main driver of higher net interest income going forward. Deposit growth was strong, up 9% across both business and personal accounts. Put another way, we added over $30 billion of deposits over the last 12 months. Given market volatility and higher interest rates, we saw double-digit growth in term GICs, as our retail clients shifted into higher yielding savings products. We also saw solid middle-single-digit growth in non-interest bearing personal deposit accounts, as Canadians continue to choose RBC as their primary bank. Net interest margin was up 6 basis points from last year and 1 basis point from last quarter, largely driven by higher deposit spreads. And given the outlook for interest rates, we expect NIM to remain relatively flat over the next several quarters. Operating leverage in Canadian Banking was 1.7% this quarter, as we continued to invest in client-facing staff, technology, and marketing to drive sustained business and client growth. Going forward, we expect operating leverage to be in the 2% to 3% range, subject to volatility between quarters, as we slow the rate of expense growth. Turning to Slide 8, Wealth Management earnings of $585 million were up 9% from last year. Revenue, AUA, and AUM were up double digits year-over-year, as North American equity and bond markets rebounded from challenging market conditions in Q1. While the majority of industry players are reporting net redemptions, RBC Global Asset Management generated mutual fund net sales of $6 billion, with over $2.5 billion from individual investors. The majority of our retail flows were in long-term fixed income and balanced solutions, as we continue to support clients through uncertain times. Our industry-leading net sales resulted in our all-in Canadian retail market share increase to 15.5%, up 40 basis points from a year ago. Adding to our strong growth, our non-U.S. Wealth Management efficiency ratio improved 80 basis points year-over-year. In U.S. Wealth Management, earnings were up 8% year-over-year in U.S. dollars, as strong growth in our U.S. private client group more than offset higher PCL at City National. City National continued to generate strong growth in net interest income, up 14% year-over-year. In U.S. dollars, City National pre-tax, pre-provision earnings were up 10% year-over-year. With deposit competition remaining intense, we utilized select wholesale funding this quarter to meet increasing client demand, resulting in margin compression quarter-over-quarter. We remain confident that our wide range of deposit initiatives will enable us to support strong, prudent loan growth at City National. Furthermore, recoveries on legacy loans that we guided to last quarter were delayed and should now provide a boost to margins in Q3. We maintain our guidance from last quarter and expect City National NIM to be range-bound from year-to-date levels, assuming no rate cuts for the rest of the year. Moving on to Insurance on Slide 9, net income of $154 million was lower, as last year benefited from more favorable investment-related experience driven by new investment strategies. This quarter also had higher disability and life retrocession claims costs. Going forward, we expect some quarterly volatility from the timing of longevity reinsurance sales. Over the last three years, approximately 60% of RBC Insurance earnings have been earned in the second half of the year, given annual actuarial updates generally take place in Q4. And we also expect to keep expenses well-controlled. We highlight Investor and Treasury Services results on Slide 10. Earnings of $151 million were down from strong results in the first half of 2018. Funding and liquidity revenue was down, largely due to the impact of lower mark-to-market gains from lower short-term interest rates. In addition, the prior year also benefited from higher realized gains from the disposition of certain securities. Lower client activity, as seen across the industry, negatively impacted our asset services business, particularly in our global foreign exchange market execution services. We kept expenses fairly flat to last year and, going forward, we expect expense growth to remain modest in this segment. Turning to Capital Markets on Slide 11, the segment generated record net income of $776 million, up 17% from last year, benefiting from both strong revenue growth and a lower effective tax rate. Global markets revenue was up 13% year-over-year, largely driven by strong fixed income trading revenue. Credit trading was higher, with improved client activity reflecting more favorable market conditions, including the narrowing of credit spreads. Our equities trading businesses also performed well, largely from momentum in equity derivatives and deeper client engagement. Corporate investment banking revenue remained flat despite lower global fee pools. Constructive market conditions, including narrowing credit spreads, benefited both debt and equity origination. Looking forward, while we close on some headline deals this quarter, our pipeline remains strong in the upcoming quarters. Overall, we are pleased with our performance against our financial objectives. We continue to execute on the strategy that we outlined at last year's Investor Day, namely delivering more value to our clients while driving premium growth in a prudent manner. And, with that, I will turn it over to Graeme.

Thank you, Rod, and good morning, everyone. Starting on Slide 13, our total PCL on loans was $441 million this quarter, equivalent to 29 basis points, which was comprised of $435 million in provisions on impaired loans, as well as $6 million in provisions on performing loans. PCL on impaired loans increased by $12 million from last quarter, mainly due to higher provisions in Commercial Banking, which were partially offset by lower provisions in Capital Markets. However, PCL on performing loans decreased by $87 million from last quarter. Here, provisions necessary to support volume growth were more than offset by the impact of more favorable macroeconomic variables, such as equity markets, oil prices, as well as interest rates and unemployment rates, relative to Q1. I would now like to provide some color on three businesses, starting with Canadian Banking. PCL on impaired loans of $363 million increased 7 basis points from last quarter, largely due to the losses associated with two borrowers in our commercial lending portfolio, one in the public works and infrastructure sector and the other in the information technology sector. In Wealth Management, PCL on impaired loans increased by $6 million from last quarter, mainly due to higher provisions on a couple of accounts at City National. In Capital Markets, PCL on impaired loans decreased by $54 million, as we had a large provision on one account in the utilities sector in Q1. Turning to Slide 14, gross impaired loans increased to $3 billion, up 3 basis points from last quarter, largely due to new formations which were partially offset by a number of impaired loan sales. Most notably in this quarter, we saw an elevated level of new formations in the oil and gas sector, mainly in the U.S. While headline oil prices have strengthened in recent months, there are still critical headwinds impacting a number of our clients. These include weakened financial situations persisting from the 2015 downturn and continued low natural gas prices. Impaired loans in this sector continue to be well-structured, with our seniority and collateral providing us good protection against loan losses. So, despite the elevated level of impairments, we believe we are adequately provisioned. Additionally, we do not expect new oil and gas formations to persist at this level going forward. Aside from oil and gas, new impairments and loan losses in our wholesale portfolios have been a relatively limited number and widely dispersed across geographies and sectors. Turning to Slide 16, our Canadian retail portfolios were generally stable, both in terms of provisions and new formations this quarter, with the exception of our cards portfolio, where seasonal factors led to higher provisions in the quarter. Overall, the performance of our retail portfolios is as expected and we anticipate performance will remain so for the remainder of the year. In closing, we continue to be well-disciplined in our loan underwriting process and are comfortable with the credit profile of our portfolios. While we have seen elevated levels of impairments and provisions in our wholesale portfolios relative to the exceptionally low levels experienced in 2018, we do not see that as indicative of a material credit trend. As we look to the remainder of the year, we expect our total PCL ratio, including both impaired and performing loans, to continue to be in the 25-30 basis point range based on the current macroeconomic environment, although we do expect to see some quarter-over-quarter variability in our provisions. With that, Operator, let's open the lines for Q&A.

Thank you. We will now take questions from the telephone lines.[Operator Instructions] Our first question is from Ebrahim Poonawala from Bank of America Merrill Lynch. Please go ahead.

Thank you. Good morning. I guess I have a two-part question for Rod on expansion of operating leverage. One, I heard you, in terms of expense growth slowing down in the back half. I was wondering if you could put some numbers around that. We see first half expense growth of about 6.5%. I was just wondering if low single digits mean more like 1% to 2%. And, secondarily, in an environment where revenue growth could probably slow to low single digits next year, can you talk about additional potential to reduce expenses? Like, could we have a period where expense growth could be flat or lower, in the low single digits?

Sure. Thanks, Ebrahim. Thanks for that. And, yes, as I mentioned, the low single digit expense growth and, as I mentioned, a third of our growth or a little more than a third of our growth this quarter was on variable compensation. So, that does accommodate slightly lower revenue growth going forward than the 9% that we were able to achieve this quarter. So, if our revenue growth does go back to that 9%, you'd see us more toward that mid-single digit growth. But, otherwise, low single digits is somewhere in the 1% to 4% range, all else being equal. Your question in terms of the slowing revenue growth, absolutely, operating leverage does scale to revenue growth, typically, on a longer-term or medium-term basis. And if we just go back to 2016 when we acquired City National, if you strip out City National, you will recall, or you may recall, that we had revenue growth of only 1% across the rest of the business that year and we were able to decrease expenses by 1% in that year. So that was a period where we did see the slower revenue growth and we were able to curtail the expense growth. We have been investing. We have been investing for the future. We have been investing in our talent. We have been investing in our technology and our marketing and our clients and in solutions for clients. And so our growth is at an elevated level so the rate of growth should come down.

Crystal clear. Thank you so much.

Thank you. Our following question is from Meny Grauman from Cormark Securities. Please go ahead.

Yes, hi. Good morning. Also on the expense side, interested in you expanding a little bit on what you mentioned in terms of not wanting to trade off long-term investment needs for shorter term considerations. And just wondering, is it becoming tougher to manage that? To invest what you need in the business and make sure that you have the expense control that you need in a slowing revenue environment? Is that becoming tougher? Are there any practical implications to that statement that you made?

Maybe I will start and I will hand it to Rod. Certainly, as you have heard us comment over a number of quarters, we plan on a number of factors. We felt that, over the last couple of years, we have gotten ahead of the curve on a number of large program, technology investments. You have seen the announcements we have made in the retail bank, on our mobile platform, on our back office capabilities. You have seen us investing in Capital Markets and trading platforms at INTS. So, we felt, as you heard us say, that we timed a lot of our large investments to the revenue tailwinds that we have had from interest rate increases and a strong economy and we have been planning for an environment where things slow, as you would expect in a normal economic cycle. So, we have a number of programs that we are working on that we feel we can slow investments without sacrificing the good work that we have done. So, we feel that we are well-positioned and that is been consistent with our strategy for an extended period of time and we feel we are in a good position.

And just as a follow-up, in terms of the guidance of slowing expense growth in the second half, if you take that forward, that kind of slowdown, is that sustainable over a longer term period or is that really based on an assumption that things will normalize on the revenue side of the equation in a year or two years? Is there sort of a time limit here where it does become tougher again to keep that expense growth slow?

Given the size of our organization, this is where scale really plays to our strength. We have significant scale. We have a significant ability to absorb, whether it's an AML program, regulatory requirements, or building out a client-facing platform, our scale allows us to invest simultaneously across a number of platforms. And, again, back to my previous comment, we have been doing this for a number of years. So, we knew we had strong economic winds behind us. So, we are planning to manage in a number of different economic environments. If there is continued positive economic growth in the market, we are prepared to balance our revenue expense growth. If we see slower volume growth and slower revenue growth as we hit a cycle, we have plans to manage, as Rod mentioned, in that type of cycle, too, knowing how much we have invested already. So, we feel, given our scale and our historic investments, we are well-positioned to manage that.

Thank you. Our following question is from Gabriel Dechaine from National Bank Financial. Please go ahead.

Good morning. I want to talk about ITS first and just take a crack at understanding the revenue trend there, where NII has been negative for the past couple of quarters. You talked about funding costs. I was just wondering if there's anything in the balance sheet mix of that business that is maybe detracted from profit growth there. I see the deposit growth has been, in dollar terms, much lower than the asset growth over the past couple of years.

Yes, it's Doug McGregor. The issue with that part of the business, the Treasury Services part of the business, is we were getting much better spreads on our high-quality liquid asset portfolio. So, that portfolio invests in Europe and Canada and it has to invest in sovereign and sovereign-agency securities and the spreads have really come off in the last couple of years. So, it's really about what we can earn on the liquidity book that we hold for the bank in various places.

Presumably that liquidity helps you in other areas of the bank?

Well, it's necessary. And it was just that we were earning twice the spread on that book a couple years ago than we are now and we have kind of positioned ourselves short and, I guess, reasonably conservatively in anticipation that we'll get another opportunity to earn more in that book going forward.

And then it's Rod. I will jump in on your comment on the net interest income because that is a function, unfortunately, of the accounting, where our cash staff does a series of transactions, U.S. dollar and then swaps into other currencies. And, unfortunately, the payments then go out of book into net interest income and then the revenue hedging is in the other revenue line, which is what you'll see when you notice that that dropped off after Q2. That activity increased given our position in the marketplace and so you would have seen a corresponding increase in that other line and a decrease in the net interest income line, specifically in INTS. And that also impacts our all-in bank NIM, which is why that appears to start going down starting in Q3 of last year because of that structural change from the accounting.

Okay. Back to Doug, and Rod had talked about trading and credit being a driver of the fixed income results that we saw. How much of an influence was the improved dynamics in the high-yield market this quarter? And then if you have any thoughts on the Fed's recent statements on the high-yield market and raising some concerns there, how you're positioned versus what they're worried about.

Well, there has been a very active high-yield new issuance business over the last couple of months, in particular. I think as investors saw term interest rates back off and anticipated they would come down, they were buying fixed income products so there was some money moving out of the loan market into high-yield. So, we have been active as a book renter in a number of high-yield deals. So, that has helped. I think, really, credit products, including investment grade leverage loans, high-yield, all improved dramatically in the second quarter and we participated. And I would say fixed income credit is a business that we really work to be continuously better and better in and I think that is where the opportunity is, in fact. And so I think it's paying off. I think we did a good job. In terms of our participation in high-yield, it's really around just doing new issues. our participation in leverage finance, which I think is what the Fed is more concerned about, we would be a ninth or 10th market player and we have been quite consistent in terms of our underwriting risk right through the cycle and we are very comfortable with it.

Thank you. Our following question is from John Aikin from Barclays. Please go ahead.

Good morning. A couple of quick questions on the domestic residential mortgage growth, if I may. Was there any geography that provided outsized growth or was it basically the inflows were pretty much in line with the current portfolio as it stands?

Thanks, John. It's Neil McLaughlin. Across the book, we would say Ontario is leading the way. It's softer out west, both in Alberta and the prairies. And Quebec is a little bit slower. Everything else is kind of about the average.

Thanks, Neil. And how would you characterize the competition in the quarter and how did it change? I guess one of the things is that the growth that you received on the residential mortgage side was a little bit higher than I had anticipated.

Yes. I think every - we always would say the competition is quite fierce this time of the year. We are really getting into the heavy spring market. I think we do expect we will compare well versus some of our competitors. We made some changes in the business, both in terms of operational efficiencies, getting back to customers more quickly, just being more, I think, competitive on price. There has been a fragmentation in the market that we needed to adjust to. And then I would say the last part is - we mentioned it in a couple of calls - we made some changes last year, both in terms of process as well as a new digital tool, and that is really helped our retention. And we are seeing all-time highs in terms of retention of the mortgage book. So, it's all coming together to give us a little bit of premium growth.

Thank you. Our following question is from Steve Theriault from Eight Capital. Please go ahead.

Thanks very much. If I could start on City National, Rod, you talked a bit about the margin. We were surprised to see it go down after what we talked about last quarter but it sounds like there's a delay there. But you also mentioned unexpected wholesale funding. So, can you give us a bit more detail around that? Was that just around stronger loan growth or was it around - I see the deposit balances were down in the quarter - did you just have to maybe use some short-term wholesale funding? Just some color on that. And you mentioned the go-forward margin. Should we think of it as between 348 and 356 for the next few quarters? Just some detail around that would be great.

Sure. Yes. And we had planned for the wholesale funding that we tapped into. I would say we expect positive growth to resume again on a go-forward basis. But we have been growing the loan book faster than the deposit book. We had enjoyed a very favorable loan-to-deposit ratio. Now we are getting back toward market levels at about a 90% level. So, the wholesale funding, there's plenty of opportunity there and very low usage of that. And our margins continue to be quite strong, on a relative basis, to our peer group. But with the Fed now more likely, by October or December, to decrease than increase, we just don't see the expansion that we have been able to enjoy over the last year or two. And the deposit pricing has been intense in the U.S., as the value of those deposits have gone up. Now that the interest rate increases have paused, that is expected to pause as well. And so we think we are well-positioned. We also plan to continue growing the loan book and resume growth of the deposit book.

But did I hear you correctly that the accounting adjustment that was going to favorably impact NIM this quarter, you still expect to see that in Half 2?

Yes, it's actually not accounting. It's an actual recovery on some old FDIC loans coming out of the financial crisis. We thought we were going to close on the deal in Q2. We are going to close on it in Q3. It's going to give a one-time benefit. It's not a PCL item, it goes through net interest income. And that is a one-time bump up but then we would expect to be back to the levels that we have been at in Q1 and Q2, again, absent a Fed decrease.

Right. Okay.

Steve, it's Dave here. Just a comment around - some of the outcomes from our new deposit strategies are taking a little longer to materialize but we do have ability to move more sweeps on. We are working actively to build out low-cost, low-beta transaction account momentum in a number of different ways and we are competing harder for mid-beta deposits with our customers. So, these are all taking time to come to fruition but, as Rod pointed out, we expect to see better traction with that going forward and a better opportunity to fund the double-digit loan growth that we expect to continue.

Okay. And then just last thing for me. Rod, I missed what you said or maybe didn't understand what you said on Q1 2020. Did you size that RWA impact from some of those anticipated changes?

Not directly. I said it would be covered by one quarter of retained earnings, which, just looking back historically, our internal capital generation net of dividends has been in the 30 basis points. So, I basically said it was less than 30 basis points. But it's probably in the middle to higher end of that. It's going to be more than 15 and below 30. I will say that much.

Thank you. Our following question is from Robert Sedran from CIBC Capital Markets. Please go ahead.

Thanks and good morning. Rod, I guess sticking on the risk weighted asset question, I didn't fully appreciate in your answer whether some of the items you discussed that moved the risk weighted assets down a little bit were timing related and might kind of go back the other way. I'm trying to understand the 11.8% CET1 ratio. Is there a chance then in the next quarter that that edges down rather than the continued capital generation? Or have we kind of rebased here at 11.8%?

Well, I don't know that we are rebased. I would say we enjoyed our internal capital generation of 33 basis points. Excluding foreign exchange, our RWA went down by almost $2 billion. So, that was 4 basis points. I would not expect a repeat of that. Our trailing four-quarter growth has been in the $10 billion range versus the $2 decrease. So, $10 billion is usually 20 basis points. I don't know that we are going to get back to that level, although, historically, Q3 has been higher from a retail bank growth standpoint, given the mortgage market. And our City National growth has been strong as well. So, that will flip around. And then this quarter, we enjoyed some unrealized gains on securities given the markets and kind of everything else added about 4 basis points and that can be anywhere from plus or minus 4 basis points. So, I would not expect us to grow at this level but I would expect us to be range-bound within a minus 10 or plus 10 over the next quarter and I would not expect another growth of 40 basis points.

And just thematically, leaving aside the Q1 impact of IFRS changes, is that sort of 15 basis points a quarter of capital generation, 15 to 20 basis points of capital generation, still in play going forward or does business mix and business mix evolution shift the way we should think about the ability to generate excess capital?

I would say we have been in that mix shift already. We have been growing in City National, where we are on the standardized approach and not the advanced approach. We have been growing the uninsured mortgage book much faster than the insured book, given the change in the regime there. We had been growing, until this quarter, capital markets, which tends to carry higher risk weighted assets. That growth has slowed. Part of that was the pipeline was so robust over the previous year. So, I would not expect that to structurally change. I would say that 30 basis points guidance would hold.

Thank you. Our following question is from Doug Young from Desjardins Capital Markets. Please go ahead.

Hi, good morning. Just on City National, I think, Rod, you mentioned pre-tax, pre-provision earnings were up 10%. And then I look at your supplement, the adjusted earnings were down 16%. So, I'm just trying to get a sense of how much of that related to credit and how much of that related to expense growth. And maybe you can give a little more color on the credit side because I think you had a few accounts impaired this quarter. I think there was one account that was impaired last quarter. So, I'm just hoping to get some color on the divergence between that.

Sure, I will start and then I will hand it over to Graeme to give more color on the credit. But in terms of U.S. dollars, in terms of kind of the revenue and expense growth, when you look through it all, we were around 10% growth on revenue and expense. As Dave mentioned, we continued to invest organically in that business and we plan to continue to invest organically in that business. We haven't done a bolt-on acquisition so we will invest some of our earnings there for long-term strategic value. But the PCL, in U.S. dollar terms, had a recovery last year of $13 million, given the intricacies of IFRS 9. And then this year was a charge of $23 million in U.S. dollars. So, that is a $36 million swing year-over-year. And then I will hand it over to Graeme to give a little bit more color on that.

Yes. I was going to reiterate where I left off there. One is that, last year, they were in a net recovery, which is not a norm by any mean, both on Stage one and two, and had very low levels of impairments and some significant recoveries on the Stage 3 side in 2018. We look at 2019 year-to-date there, City National is running, I think, in the 24 to25 basis point range. About half of that is coming from the performing loan side, the IFRS 9 Stage 1 and Stage 2. That is probably running at a higher level than you would otherwise expect. As we have indicated, overall, there is an amount there that would and should grow consistent with the overall loan growth there and their loan growth is obviously higher than overall RBC. But stage one and two has been impacted there due to some macro forecast changes and other components in their portfolio. So, over time, that should grade down to be more consistent with their overall portfolio growth, assuming the macro environment doesn't change. And Stage three has been running in the 12 to13 basis point range. Again, I don't think that is outside of a normal amount for them. We have had a handful of accounts - when you look at their portfolio, they've got a commercial portfolio that I think is a good, quality portfolio. I don't think it's - we haven't changed the nature of the credit profile and so we expect that to operate a consistent, steady level going forward. And so I think, overall, the other piece we have in their portfolio is a growing residential mortgage portfolio, which is a very high-quality portfolio that shifts the overall balance there, as well, a little bit down. I think those two portfolios, over time, would look similar to the Canadian portfolios. So, that would be the guidance I would give you there.

So, it just sounds like more abnormal bumps than anything that you're getting overly concerned with at this point in time and some of it related to IFRS 9?

That is correct. Yes.

Okay. And then just maybe second on the City National. I think U.S. jumbo mortgage market has been an area that you plan to use to drive cross-sell. And it sounds like, and correct me if I'm wrong, that market has slowed considerably this year. Is that the case? Has that changed your strategy in new client acquisitions? Maybe just if you can flesh that out. Thanks.

Thanks. It's Dave here. No. Certainly, as we think about growing our business over the next four or five years and diversifying our client base, diversifying by geography, the jumbo mortgage product and acquisition ability that it has is very much integral to our expansion in New York and Boston, Washington, and maybe other areas in the South. So, it's proven to be a very successful product for us. As Graeme mentioned, the client segmentation that we are targeting is a low-risk, low-volatility product and one that we can cross-sell from. So, you have seen that product grow year-over-year at around 20%. We expect that to continue, if not accelerate. We have got a good foundation to do that and we are hiring bankers out there to really target clients with that product. So, we think it's integral to our overall expansion and growth strategy.

Is that 20% your growth or is that the industry growth?

That is our growth.

That is your growth. Okay. Great. Thank you.

Thank you. Our following question is from Sumit Malhotra from Scotia Capital. Please go ahead.

Thank you. Good morning. I will start with Dave, please, as I wanted to ask maybe a more philosophical question around the expense commentary. I think, Dave, one of the factors the market has appreciated with Royal has been the consistency of the investment spend the bank has worked with for a number of years now. And, certainly, you have avoided taking any of the restructuring charges or one-time factors that some of your peers may have benefited from in the short term. So, the commentary on expenses, I get, certainly, the tie-in to revenue. But as far as the enhancements that you have communicated to us for a number of years, the areas you have built out, and the professionals you have brought aboard, should we also read this reduction in expense growth going forward as some commentary on you have made the progress or you have built the systems and advantages out that you were looking for and now it's going to be a reduced level of allocation required? So, I get the tie-in to revenue. Just kind of thinking bigger picture about where you want to take the bank and whether this reduction speaks to that as well.

I think you're absolutely on the right track. If you look at each of the functional business heads, very much a renewed focus on incrementally what's really important, given all the accomplishments that we have had over the previous five years. So, we are very focused on what we need net new and we are constantly looking for opportunities to recycle spend in our significant cost space to new initiatives. So, we are actively working on it. And when you're an organization of our size, you have to get ahead of these things well before a cycle turns. So we are, as a management team, actively thinking about this all the time - where our priorities lie and planning for a potential environment. We don't know the timing but you have to plan and get ahead of these things. So, we feel that we are able to accomplish our regulatory needs, our safety and soundness around AML, our customer-facing needs, our replatforming of a number of areas in Capital Markets, and manage into a potentially - unknown timing - lower revenue environment. So, this is actively how we are managing the business and how we talk about the business. And the faster you can get ahead of it, the easier it is to manage.

And then to relate this to maybe the here and now, for Neil, your segment, it would sound like, is the primary beneficiary of a lower level of expense growth. And at least from the comparisons we do, it seems like the operating leverage for Canadian PNC or Canadian Banking at Royal has been lower than industry levels. It's been consistently positive but lower. Are you of the view that, with this step down in costs, we will see the operating leverage performance in Canadian Banking now trend decently higher than what we have seen for over a 3-5 year basis?

Yes, thanks for the question. Yes, I mean, the operating leverage to-date, to your point, has been positive. We do expect it to improve in the second half of the year. One of the things we have been investing in is in our people and technology, to Rod's point earlier. On our people, we are going to start to see a flattening of the FTE profile. We have made the investments where we have felt we needed to, whether that is in our commercial business, our mortgage business. So, we are feeling confident that we have targeted the right roles and the right markets and you'll start to see that level off. The other comment I would make, in terms of technology, we are also benefiting now from just the economies of scale. So, the platforms we have put in place and the people we have hired, they're actually able to put out more productivity per FTE in those technology initiatives than we did two or three years ago. And a good example would be our mobile team. They'd be able to put out about a third more productivity this year versus two years ago, in terms of the amount of code that they're putting into the app. So, that helps in terms of the efficiency around technology.

Thank you. Our following question is from Mario Mendonca from TD Securities. Please go ahead.

Good morning. One specific question, one more broad-based. First, the specific. You folks referred to narrowing credit spreads on a few occasions as the reason why you say unrealized gains were a little higher and why underwriting was a little stronger. But did the narrowing credit spreads have any effect on the trading revenue, which looked awfully strong this quarter, in terms of mark-to-market gains or any other accrual adjustments?

Yes, it's Doug. Certainly, improving credit spreads helped the fixed income business. It wasn't so much mark-to-markets on inventory as it was just really trading activity with clients, and even more so, new issue activity in investment grade and high-yield credits. So, yes, a better credit environment was a lot of the source of much better results for the quarter.

So, to the extent that there was some mark-to-market adjustments, that was not the driver of the strong results then?

No. No, it wasn't this quarter. The mark-to-market results we are talking about earlier in the Treasury Services business was a year, year-and-a-half ago. We had some longer dated sovereign securities in a held-for-sale book and we sold them and marked them and so it contributed to the earnings a year ago.

Okay. And then just a broad-based question, Dave and Rod. You folks have referred to guidance for the year at 7%-plus. And the first half of the year being challenging in Q1, a little better now, but you come awfully close at about 6% or 7%. There are just so many moving parts here, including what you said about expenses, PCLs, margins. Can you offer any outlook on what you think 2019 looks, in totality, from the perspective of EPS growth?

Yes, I think, for the latter half of the year, we are feeling that we have got good momentum. That we are, as you said, going to bring our expenses down and we are operating in a strong economy with strong employment. Therefore, we feel the ability to continue to grow the business. We are not moving off of our medium-term objective.

Thank you. Our following question is from Sohrab Movahedi from BMO Capital Markets. Please go ahead.

Thanks. Just two quickies here, hopefully. Rod, on Page 20 of your slide deck, you have a breakdown of the U.S. earnings or the U.S. operations. 17%, I think, over the last 12 months, of earnings and 23% of revenue. When you think two to three years out, where do you think those percentages will go to and where will they converge on? Do you think the revenue and the earnings will kind of converge on some number, presumably with earnings going up as opposed to revenues coming down? But do you see just the higher growth outside of Canada or inside of Canada?

Well, thanks for that. So, I would expect the share of revenue to be higher than the share of earnings because, while we are growing scale in the U.S., we are not going to match the scale we have and the market share and market position that we enjoy in Canada. So, while that delta might narrow, I would not expect to see it be eradicated. In terms of the growth rate, though, we continue to see higher growth prospects in the U.S. Again, given the inverse of scale, we don't have the same market share so we are able to grow market share and we have been across all of our businesses in the U.S. and that comes with higher growth rate than what we would expect in Canada, where we do have a No. one or No. two market share in most of our businesses. So, therefore, although we might continue and we expect to continue to grow market share as we outlined at our Investor Day, that growth rate won't be at the double digits if the overall economy, on a nominal basis, isn't growing at that sort of level.

So, is it safe to say that the driver of the medium-term EPS growth is going to have to come from outside of the U.S.?

I wouldn't say that. Our medium-term objective is 7%-plus and we should be able to achieve that in Canada and outside of Canada. It just might be higher outside of Canada.

Okay. And maybe for Neil. I don't know. Neil, when I look at the wholesale bank or the wholesale loan book breakdown, two industry groups that seem to be delivering pretty robust year-over-year growth are financial services and investments. What would be included in those and what businesses would they be supporting and in which geographies?

It's Rod. I might take that. I think that has been the growth in our repo book. And so that is where a lot of that is flowing into. But we would expect that growth rate to slow down.

Thank you. Our following question is from Scott Chan from Canaccord Genuity. Please go ahead.

Good morning. Just following up on a previous question. On the U.S. wealth management side, assets are pretty strong relative to kind of where they track with U.S. peers. And you kind of called out private client as one of the areas of growth. But is there anything outside of market appreciation that we should think about that is kind of driving this outside asset growth in the U.S.?

Yes, Scott. It's Rod. We have been adding advisors. We have been growing that business significantly. Our margins in that business have improved off of relatively low levels versus the industry to now industry levels. So, we have been investing in technology, we have been adding advisors who are being attracted to the RBC culture, the RBC brand, and as a result, our margins have more than doubled in that business. And so that is been attracting new AUA, as well as credit growth, where we have been leveraging the City National franchise and the partnership between City National and the U.S. wealth business. The legacy business out of Minneapolis - the Dain Rauscher business - has been quite strong, as has been the partnership with the Capital Markets business with the manufacturing and then the distribution through the U.S. wealth business. So, that business is firing on all cylinders right now.

And what is the biggest driver of that margin? Is it just the scale or is it something else?

Well, we have been able - we have a very strong sweep balance down there, which as interest rates increase, we have been able to benefit from. That is been a big driver. But also the financial advisory productivity is up substantially and we have been driving strong operating leverage through that business. Again, back to Dave's earlier comments on scale, that is a business where we have been able to drive up good revenue growth with modest expense growth and that is a business where we have significantly increased the technology spend. We had been under investing in that business until the last two years and the result is that we have better tools for our advisors and for our clients.

Great. Thank you very much.

Thank you.

We have time for one more call, Operator.

Certainly. So, I would now like to turn the meeting back over to Mr. McKay.

I thought we could take one more call. Before I conclude, I would like to welcome Nadine Ahn, who is our new Head of Investor Relations. Nadine brings a wealth of experience gained over 20 years at RBC, including in her current role as CFO of Capital Markets and INTS. Prior to this, Nadine held a number of positions of increasing responsibility in our Corporate Treasury group. Nadine's capacity for building trusted relationships, coupled with her strong business and financial acumen, will serve her well in her new role. So, welcome, Nadine, to your first call.

Thank you.

At the same time, I would like to sincerely thank Dave Mun, who you all know well, who has moved on to another role, continuing on his 20-year journey at the bank. We have all greatly valued Dave's insights over the years and his leadership was critical to both the success of our 2018 Investor Day and for RBC being recognized as having the best Investor Relations team in the Canadian financial sector for two years running. So, congratulations to Dave and he's going to do great work for us in another role. Now, just summing up, I think you heard a story today and results around great customer momentum and flow across all our businesses, market share gains, our investments have really produced growth that is stable to growing margins in most cases. We have great activity and success in our Capital Markets business and our trading businesses so I think that is one of the headline stories. Our NIE was elevated to drive some of that growth but positions us well for the future and I think you have heard a number of questions and comments that we are going to bring that NIE down quite significantly as we have achieved a number of our objectives going forward and our run rates become a little easier. And you have seen a few credit spikes. We don't think it's systemic but it's part of the diversification of our book that we have got a globally diversified book, a customer diversified book, and diverse across businesses, and you're going to see a credit here and there that is going to go the wrong way. So, overall, we are feeling good about the business. Thank you for your questions and look forward to talking to you next quarter.

Thank you. The conference has now ended. Please disconnect your lines at this time and we thank you for your participation.