Good morning, ladies and gentlemen. Welcome to the RBC 2015 Fourth Quarter Results Conference Call. I would now like to turn the meeting over to Ms. Amy Cairncross, VP and Head of Investor Relations. Please go ahead, Ms. Cairncross.

Good morning and thank you for joining us. Presenting to you this morning are Dave McKay, President and Chief Executive Officer; Janice Fukakusa, Chief Administrative Officer and CFO; and Mark Hughes, Chief Risk Officer. Following their comments, we will open the call for questions from analysts. The call is one hour long and will end at 9.00 AM. To give everyone a chance to participate, please keep it to one question and then re-queue. We will be posting management’s remarks on our website shortly after the call. Joining us for your questions are Doug Guzman, Group Head, Wealth Management and Insurance; Doug McGregor, Group Head, Capital Markets and Investor and Treasury Services; Jennifer Tory, Group Head, Personal and Commercial Banking; Zabeen Hirji, Chief Human Resources Officer; and Bruce Ross, Group Head, Technology and Operations. As noted on Slide 2, our comments may contain forward-looking statements which involve applying assumptions and have inherent risks and uncertainties. Actual results could differ materially from these statements. I will now turn the call over to Dave McKay.

Thank you, Amy, and good morning, everyone, and thank you for joining us. Today, we reported record Q4 earnings of over CAD2.5 billion, up 11% from last year. These results capped off a record year with earnings up CAD10 billion, up 11% from last year or 9% on an adjusted basis. I’m very proud to say that we’re the first Canadian company to earn over CAD10 billion in a given fiscal year. We met all of our financial performance objectives. We grew earnings per share by 12%; delivered a strong return on equity of 18.6%; and we exited the year with a very strong CET1 ratio of 10.6%; and we increased our quarterly dividend twice during the year, for an annualized dividend increase of 8%, all of which helped drive solid shareholder returns. I’m very pleased with these results, particularly since the macroeconomic environment was more challenging for us and our clients than we expected at the beginning of the year. I’d like to share my perspective on the full-year performance of our business segments. Canadian Banking had a solid year, with earnings growth of 5% despite slowing economic conditions, particularly in the first half of the year which prompted the Bank of Canada to cut interest rates twice. Clients took advantage of historically low interest rates and we saw strong growth in residential mortgages with balances up 6% from last year. While the overall market grew, we were able to capture disproportionate share of the growth due to success of our employee pricing campaign. In addition, we also saw clients switch out of secured lines of credit and into mortgage products to take advantage of better rates, which also contributed to our mortgage growth. As Mark will discuss, we continue to lend prudently, working directly with our clients to…

Thanks, Dave, and good morning, everyone. Turning to Slide 7, we had a record quarter with earnings of over CAD2.5 billion, up CAD260 million or 11% from last year. Our results reflect solid earnings growth in Capital Markets and Personal and Commercial Banking and improved credit quality, partially offset by lower earnings in Investor and Treasury Services, Insurance and Wealth Management. This quarter, we benefited from tax adjustments mostly in corporate support. While tax adjustments are normal course, they were larger this quarter than we have experienced in recent years. These adjustments reduced our effective tax rate for the fourth quarter and fiscal year 2015. If you add back these adjustments, our effective tax rate for fiscal 2015 would be at the low end of our target range of 22% to 24%. We also had some tax adjustments in Capital Markets that related to our business mix in the current year, which I will explain shortly when I review that segment’s results. Compared to last quarter, earnings increased CAD118 million or 5% largely due to the tax adjustments I just mentioned as well as higher earnings in Insurance, partially offset by lower earnings in Investor and Treasury Services and Wealth Management. This quarter, our ROE was strong at 17.9%, although down from 19% last year largely reflecting our capital build to fund our acquisition of City National which closed on November 2. I’ll also note that this quarter we incurred transaction cost of CAD23 million after-tax related to the acquisition. Turning to capital on Slide 8, our common equity Tier 1 ratio was 10.6%, up 50 basis points from last quarter reflecting strong internal capital generation and lower risk-weighted assets from effective balance sheet management. As an example in capital markets, we reduced securities inventory and derivatives in some trading…

Thank you, Janice, and good morning. We’re pleased with our fourth quarter credit and market risk performance. It reflects the diversification of our portfolios both in terms of geography and industry, low interest rates, strong employment trends as well as our prudent risk management practices. Turning to Slide 15, provisions for credit losses on impaired loans of CAD275 million, or 23 basis points this quarter, were relatively flat sequentially as higher provisions in Capital Markets were largely offset by lower provisions in Personal and Commercial Banking. Gross impaired loans decreased CAD94 million or 3 basis points this quarter, largely due to lower impairments in Personal and Commercial Banking and a write-off in Capital Markets, partly offset by higher impairments in Wealth Management. In Canadian Banking, credit trends were stable. We had provisions of CAD228 million or 25 basis points, down CAD10 million or 1 basis point from last quarter due to lower provisions in commercial lending. Gross impaired loans decreased CAD55 million from last quarter, reflecting lower impaired loans in commercial lending and residential mortgages. In Caribbean and US Banking, credit trends improved slightly this quarter, with provisions down CAD7 million and gross impaired loans down CAD55 million, reflecting higher collections. Wealth Management’s provisions were relatively flat, though gross impaired loans increased CAD48 million sequentially due to a single account in international wealth management which is fully collateralized. We do not anticipate a provision will be required. In capital markets, provisions increased CAD21 million sequentially, spread across five accounts with two of these five accounts in the oil and gas sector, one in the US drilling and services sector and the other in the Canadian E&P sector. Gross impaired loans decreased CAD32 million from last quarter, mainly due to a partial write-off of an account in the oil and gas…

[Operator Instructions] The first question is from Steve Theriault at Bank of America Merrill Lynch.

Couple of questions on capital after somewhat stubborn CET1 trends, you got a nice lift this quarter. So when I look at the RWA schedule, there seems to be a lot of categories that are down, admittedly some of the larger drivers look to be the repo line, the derivative line, you touched on that Janice, thanks for that color. But could we get a little bit more detail and maybe split it out, is there any model assumptions changes or model enhancements or approvals, pretty unusual to see RWA going down? And then maybe more importantly, is there anything on slate for next year on the horizon in terms of model enhancements or anything you expect to help you on the RWA front going forward as you absorb City National?

I think that it was pretty straightforward this quarter in terms of all of our efforts around balance sheet optimization. You asked about potential for other than looking more carefully at what’s happening with our various categories like securities and derivatives, if there are any model changes, we haven’t had anything of significance. What you saw is the data clean up, so we had some of the items that were lumped altogether and we actually cleaned it up into the various underlying categories so that we can get advanced BASEL 2.5 treatment for those particular exposures. Going forward, we expect beyond going ongoing back and forth about credit models and model review that we do from time to time, but what you see here is the result of various solid balance sheet optimization and balance sheet management across all of our businesses.

On the derivative side, is any of the derivative component related to unwinding any of the dividend rental trades?

No, not at all.

And then just on capital as well, are you able at this point to – the SIFI announcement obviously came and went in November, are you in a position at this point to provide the SIFI score for the year that I think we got Q1 last year, but wondering if you have that any earlier?

We don’t have that information available from BASEL, but the minute that we have it, we will definitely provide it. But we are - obviously we were below the 130 cut off that BASEL…

The next question is from Sumit Malhotra at Scotiabank.

Just to piggyback off that question regarding some of the decline in risk weighted assets, it did seem to be in part related to what I’d consider to be more capital market type items, so probably for Doug, when we think about some of this balance sheet repurposing, to use that, if I can use that term, do you foresee this having any impact on revenue trends for the Bank going forward? And if not, I guess, the natural question would be what was the benefit of having these assets in the first place?

I think, first of all, I’ll take you through where some of the reductions came in capital markets, it came in fixed income and some of the portfolios that we were looking at were credit portfolios in the US in particular and some of our securitization portfolios. So when Janice talks about optimization, what we’re really doing is trying to figure out where we’re getting proper returns on GAA and RWA and we looked at those portfolios in particular and took some assets off. I would say also in the leverage lending part of our business, we weren’t as active last quarter as we have been over the last year or so and frankly that worked out pretty well for us given the performance of credit markets. I think, going forward, we have a business plan, we obviously work with Janice and the rest of the Bank on capital allocation and the Bank expects to generate more capital as the year goes on through retained earnings. And so we think that we will have the capital we need to grow the business.

And the question regarding net income, I mean, is in your view the pull back from some of these businesses, should we contemplate any kind of material change in the earnings profile of your segment?

No. One of the reasons we took assets off where we did, there is some – in the fixed income business in particular, things are reasonably difficult in certain parts of those trading books. And so I wouldn’t expect that that’s going to have a significant run rate change to our business. The other thing that’s happened and I think it might be in the sup is that the legacy book has been running off pretty vigorously...

Some of the old level 3 types of?

Yes. And so there has been a significant run off over the course of the year and the last half of the year.

The next question is from Rob Sedran at CIBC.

Janice touched on all bank operating leverage and the hopes for next year, I wonder if we can get a little bit more color perhaps from Jennifer on the Canadian segment specifically, I’m curious on the quarter how much of it was just seasonally elevated expenses versus structural spending that has to happen and perhaps what the prospects are for your segment in particular as we look into next year?

Overall, we’re pleased with the progress we’ve made managing expenses. And on a full-year basis, our efficiency ratio is 44% and actually we’ve improved the ratio by 70 basis points over the past two years. Operating leverage was 0.4%, notwithstanding margin compression, I think that’s an important thing to note and in addition we reduced our headcount in Canadian Banking by 528 FTE this year, mostly through attrition and a similar number last year. The expenses this quarter were up 3% largely driven as was pointed out by some of the seasonal timing of marketing and particularly higher technology-related costs. We are continuing to invest in our digital channels as Dave mentioned and also to invest in automating and simplifying our processes to improve the pain points for our clients and our employees. We are obviously continuing to manage our overall costs, given the margin conditions as we want to continue to invest in the business. So we are going to continue to target operating leverage of 1% to 2% for the full-year and drive our efficiency ratio further down over the medium term, notwithstanding the challenging interest rate environment. But a reminder that through the year, the seasonal factors impacting revenue and expense trends can create fluctuations in operating leverage and efficiency ratio.

Do you think that kind of operating leverage is attainable over a medium term when you’ve already got a 44% efficiency ratio? How far down do you think that ratio can go?

Yes, because as even Janice pointed out, we think there are more efficiencies through technology investments that we can gain. The challenge is really going to be on the revenue side given margin compression.

I would add that if you look at the interest rate environment of absolute lower rates, but very high prime VA spreads, that plays against the construct of our balance sheet more than any other bank on the street, given the very high core deposit base that we have and the relatively high proportion of fixed rate mortgages that we have. So that creates a more difficult revenue environment. As you start to see that shift in the last couple of months towards higher base rates, slightly higher base rates as VAs go up and compression as Jennifer just mentioned of your prime VA spreads which really affects your variable rate lending book, that plays a little bit more into our strength than others. So it’s been a difficult year balance sheet wise as far as margin compression for Jennifer’s business as she mentioned from an overall macroeconomic rate environment, but also from a competitive environment and that should alleviate a little bit going forward. So that was one of the reasons why revenue is compressed. We like the structure of our balance sheet with very strong core deposits and our deposit funding ratios being strongest among the banks, it just didn’t play into the rate environment as well a fairly unique macro rate environment last year.

The next question is from Gabriel Dechaine at Canaccord Genuity.

Just wanted to ask a quick one, Doug, if you can talk about – we got some color from Janice, but if you can talk about the current quarter trading conditions, how those are progressing compared to the quarter we just had? And then the next one would be for either Dave or Janice, few of your peers with big US businesses have quantified the sensitivity of their earnings to increases in US rates, as you acquired City National and rolled out, you gave some guidance and you acquired City National about their rate sensitivity, but how does it fit into the overall business? Is there like a broad sensitivity you can give us there?

I’ll start with the current quarter. I would say that the business environment overall is much more constructive than it was last quarter. Last quarter, we had an equity market where very difficult issuing to, we had clients’ shares reducing in value, they weren’t interested in selling at levels that the shares got to and probably more importantly credit markets, especially high yields in the US was quite difficult. So we’re seeing a nice repairing in equities and firming up on the credit side. So the new issue business is going better, [Hydro 1] being an example. We’ve also had some good wins on the M&A side. We’ve had a nice win in the US and Australia over the last two or three weeks. So yes, it’s considerably better than it was in August, September.

We’ve had a month now with City National and we’re really excited about the momentum that the business had coming into the close of the transaction on November 1 with their balance sheet growth and the client growth has been absolutely exceptional and we spent better part of the month starting to launch our synergy programs. But as you point out, one of the largest synergies in this transaction, we will spend a lot more time on this in the Investor Day in March, is the asset sensitivity of the balance sheet to a higher US rate environment. That was a big part of the trajectory of the earnings that we saw. I can refer you back to a September disclosure by City National where they disclosed some of the asset sensitivity of their current balance sheet that they had at the end, I believe, of at least it was Q2. And they disclosed that in a rate environment that goes up 200 basis points, as you bleed those higher rates into that portfolio, by the end of the second year, they disclosed an asset sensitivity of US$279 million. So very significant sensitivity. I think that’s beyond what we disclosed in January, so again reflecting both the accelerated growth of the balance sheet and the client success they are having and the short duration of their asset profile leads to very significant asset sensitivity in the context of their overall current earnings structure. So a very exciting part of the synergies and trajectory of this business US$279 million.

How would that compare to the existing Royal business? Is it similar, are they more, just trying to get a sense of the full picture, not just City National?

So we do have a significant amount of sweep deposits on our US Wealth Management franchise that would – as we unlock the value of those, and again, we acquired the City National acquisition to really get after the use of those deposits and unlock the true value of those suites over time, but certainly that deposit base would have an asset sensitivity – I don’t think we’ve disclosed that and calculated that, again it’s a meaningful part of the overall earnings potential of our existing US Wealth franchise. So when you combine the two business together, they both bring fairly material asset sensitivity and interest rate, increased earnings potential to RY.

I think it’d be helpful if once you settle down the integration a little bit, you can give us a bit of a picture there and some rules of thumb for 25 or 100 basis point shift that keep it simple stupid stuff. Thanks.

The next question is from Doug Young at Desjardins Capital Markets.

Just on the Wealth Management business, and I think Janice you mentioned a few points, just I think you mentioned there’s a CAD21 million, correct me if I’m wrong, restructuring charge coming in Q1, just wondering because I thought that was going to be done at the tail end of this year, just wondering what’s dragging into next year? And then are we done? And then more broadly on Wealth Management, if I exclude the restructuring charge, I think, and correct me if I’m wrong, earnings increased 3% year-over-year, but obviously your assets were up quite nicely and I think you had less transaction activity, new issuance activity or something as such, if you can just enlighten me and maybe kind of guide me in terms of how to think about modeling out or thinking about earnings growth? And then maybe in the same context, what if City National add to that potential in the Wealth Business?

So what I said about the remainder of the restructuring, it would be about CAD20 million to CAD25 million of additional expense after-tax that we’d be taking in Q1 and it is in relation to the fact that we are going as fast as we can, but it’s big and complex projects. There was some overhang into the next fiscal year. If you look at our core Wealth Management earnings and to some degree adjust out a lot of the noise that’s happening, we do believe that despite the fact that markets did turn down towards the end of the year that there was earnings growth in our core businesses in Wealth Management and we think that as we go through the next year, you will see more of that core earnings growth because less of a preoccupation on what we’ve been doing around international wealth management.

I think what’s been previously disclosed in relation to the restructuring program is that we were largely complete and so this is moving along that spectrum and is consistent with our expectations for the overall execution of the program. If you look back to when we started our estimate of the cost and timing has been very accurate, it’s been quite well executed. So you shouldn’t view the CAD20 million to CAD25 million as additional to what was anticipated before, but rather as Janice said, sort of completion of the last set of activities that are currently contemplated. Part of my job is to come in and take a fresh look at things, so I will be doing that – the whole business, but you should regard that program as having been well executed in the last bit, it’s pretty much the completion of what we’ve talked about before.

With respect to your question how does City National fit into overall Wealth Management, we decided to organize around one client which is the high net worth, ultrahigh net worth client in the US, putting together our existing US wealth franchise with the City National franchise who serves a very similar customer on the wealth side in addition City National serves a very strong commercial customer and linked those two together. That organizing philosophy of one bank one client is consistent with how we think about our franchise globally, particularly in Canada. So given the client they serve, it belongs in the wealth franchise and we will roll up overall to our global wealth business because of the customer franchise that it serves. So that’s where it belongs for now and that’s how it’s going to be managed [rustled, reported to] myself directly, but the results will show up in the consolidated global wealth segment.

And when I think about looking forward, should we expect the margins that have to – and I believe it’s the case, but is there potential for margin improvement in wealth as you integrate the City National, is that the way to think about it?

Certainly with respect to our US wealth business, as we look to expand our client wallet and increase the revenue, for sure, and then we look at cost efficiencies from a functional side across the two businesses are both primary opportunities. But this is first and foremost a revenue growth strategy and a cross sell, and deeper client relationships with the larger product shelf. Secondary, it’s leveraging the sweep and cash deposits that are in the wealth franchise, treasury is a cost opportunity across the infrastructure side. So yes, in that order.

The next question is from Sohrab Movahedi at BMO Capital Markets.

Maybe Dave or Janice, when you look at the financial targets that you have and as we think ahead, what’s the basis for example for EPS growth target? Is it the CAD10 billion or is it an adjusted number that’s lower or how should I think about typical movements in the business mix this quarter of capital markets and the corporate segments?

I think that when you look at our targets for EPS growth, it’s obviously going to be impacted by share issuance we did on our acquisition of City National. So we also look at EPS growth target as a proxy for earnings growth target going forward in the medium term and so it would be growth based on where we sit today and what is achievable in the medium term. So that would be the basis given our current trajectories and how we look at the medium term in terms of our outlook, our business mix, taking into consideration the things Dave talked about the growth potential we have with for example City National and our solid performance in all of our underlying segments. We believe we can achieve the medium-term objectives as set out in our annual report. But there will be some pressure on EPS definitely in the short run because of the issuance.

Just to be clear, Janice, and I’m not suggesting this is an annual target, but if we were going to start the measurement period today and look ahead, the starting point is the CAD9.9 billion adjusted net income?

That’s how we are looking at it and these are absolutely not annual financial targets. They are about the medium-term, as you know, there is movement without and that’s why we look at a medium-term objective and not setting annual guidance.

Maybe this one is again for Dave or Janice, when you think about this medium-term targets, if you think over the next couple of years, where do you think the primary driver of the leverage is going to come from, is it going to be on the revenue line or is it going to be on the expense line?

I would say it has to come from both; it’s a good question. We’re certainly excited about the growth opportunities of our capital markets franchise and our wealth franchise with City National in the US and capitalizing on a strong US market, so that presents a very strong revenue growth opportunity. We have a very balanced and strong Canadian franchise, but whether the growth is in the wealth side, commercial side, capital markets or consumer, we are poised from a business perspective, from a geographic perspective to capture that growth in Canada. We have demonstrated that over a decade now, so we feel strongly about that. So when you look at our ability to grow where we see pockets of growth globally, we feel very strongly particularly with our North American franchise and the emerging business that Doug is building with ITS and capital markets in Europe, albeit that could be a more prolonged play of economic recovery. But we’re certainly investing for that long term play. So that really is where we look at the revenue side. There is an enormous opportunity digitally to look at efficiencies, to streamline customer processes, to redeploy our employees into higher value added activities. So that’s an ongoing longer term secular opportunity to become more efficient. And the last thing I would add is if you look at the delta on earnings from interest rate increase on our Canadian balance sheet, it’s significant. The largest, as I talked about in my speech, core deposit franchise on the consumer and business side has seen historically low compression in margins as that accelerates in an eventual rising rate environment that also gives us confidence in our long-term trajectory to meet those earnings objectives. So I think you look at diversification, you look at our growth strategy in the US, you look at our ability to use technology and you look at our balance sheet and our core deposit franchise are all reasons to be positive about these medium-term objectives.

The next question is from Meny Grauman at Cormark Securities.

In the prepared remarks, you noted signs of stress in Alberta and I’m not sure if I missed it, but wondering if you could clarify what you’re referring to, what you’re seeing in the province?

I guess I’d point out to two things. One, as I said throughout the year, one of the early warning signals we monitor is unemployment and unemployment has moved up. So that is obviously the economic impact for all of us in the province. And then the second point I mentioned is we did see some slight uptick in delinquencies in our card portfolio. I would say that that’s quite slight, it is less than 1% of our outstandings in our Alberta card portfolio. But because we are watching so closely, we did notice it, so we will now continue to monitor that going forward.

I’m wondering going to the expense side, a lot of discussion there, definitely technology spending is in focus for Canadian banks and globally, and I’m wondering from your perspective, do you have any sense that – does Royal Bank have an advantage when it comes to technology spending in the current environment, I mean, we tend to think of scale as being important, do you believe that that is still an important factor in terms of being able to handle these expenses better relative to peers or are there any other factors that would suggest that Royal has an advantage when it comes to meeting these significant challenges when it comes to technology spending?

I would say there is two things that favor us. One, we started this journey probably earlier than many of our peers, almost seven or eight years ago and have been on a legacy system replacement technology build over a prolonged period of time whether it’s the retail credit transformation project, commercial projects, started a while ago. So we sequence this over a period of time and got some of the big projects out of the way and enabled to focus more on the digital projects now. So I think I talked about that many times over the last five years and we feel that we’ve gotten a lot of heavy lifting done, but we’ve got significant amount of work to do for others may be playing catch up on both of those fronts. Second thing is scale. I mean, technology costs for all of us, it’s probably less for us with our purchasing power, but let’s say it’s even the same when the size of our income statement and our revenue line allows us to spend more than our competitors and it’s going to cost us the same to deliver many of these apps in the digital world for back office technology integrations or digital processes. So I would say timing and scale are advantages.

The next question is from Peter Routledge at National Bank Financial.

Probably a question for Janice, there’s always a lot of talk about level of capital, but I want to ask a question about the cost of capital, particularly non-equity capital. You may have noticed there was a pressure by one of your peers where we saw widening by about 2 times on spreads and sub data spreads are wider by 90 basis points, next couple of years will have [bail in] that’s probably going to raise your long-term deposit funding cost by 20 to 40 basis points. I guess, how are you going to pass this along to customers or shareholders, and I suspect more of it will go to customers. So do you think that’s right? Am I right in that assessment? And secondly, if so, what are the implications for Canadian credit quality as loan yields move up?

That’s a good question, Peter, because you would have seen from our perspective that we do a lot of funding in the market and when we do funding we try to fund three to six months ahead of our requirements so that we don’t get caught in pricing pressures and have to replace that funding. And when we look at our own funding spreads because of our credit markets have been, they’ve widened out, but with our base book, we are still funding pretty much below the AA- equivalent of other financial service companies. I think that as we get more clarity around bail in, we will have more clarity around the debt ratings. I think that is a bit of an overhang for all of the Canadian issuers in terms of determining what the bail in triggers are in that, but from our perspective we are well aware of the potential for funding cost to drip up and that’s why we are totally focused on balance sheet optimization, looking at the correct returns and making sure that we are never caught short in terms of our own funding needs and that we can satisfy them well in advance when we have the requirements. So I think that’s how we look at the funding equation with all of the uncertainty.

This concludes our question-and-answer session today. I would like to turn the meeting back over to Mr. McKay for final remarks.

I want to thank everyone for joining us this morning and also for your support and engagement over the past year as we’ve had very constructive dialog and certainly appreciate your questions. And I’d like to take this opportunity at this part of the season to wish you and your families all the very best for safe and happy holiday season. We will see you in Q1. Thanks very much.

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