Good morning, ladies and gentlemen and welcome to RBC’s Conference Call for the Fourth Quarter 2018 Financial Results. Please be advised that this call is being recorded. I would now like to turn the meeting over to Dave Mun, Head of Investor Relations. Please go ahead, Mr. Mun.

Thanks and good morning. 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 please limit your questions and then re-queue. We also have with us in the room, Neil McLaughlin, Group Head of Personal & Commercial Banking; Doug Guzman, Group Head, Wealth Management and Insurance; and Doug McGregor, Group Head, Capital Markets and Investor & Treasury Services. As noted on slide two, our comments may contain forward-looking statements, which involve assumptions and have inherent risks and uncertainties. Actual results could differ materially. With that, I'll turn it over to Dave.

Thanks, Dave, and good morning, everyone, and thank you for joining us on the call. This morning, we reported earnings of over $3.2 billion, wrapping up the successful year where we met or exceeded all of our medium-term financial objectives. In 2018, we delivered record revenue of $43 billion and earned over $12 billion for the first time in our history. We generated a premium return on equity of 17.6% while maintaining strong capital ratios and one of the highest debt ratings for banks globally. We deployed capital across all of our key priorities to support our clients, and we repurchased $1.5 billion of shares and increased our dividend by 8%. We ended the year with the CET1 ratio of 11.5% or 11.3% on a pro forma basis, after adjusting for expected regulatory changes in Q1. We are well-positioned to continue funding growth opportunities and to return capital to our shareholders, and Rod will touch on this shortly. With respect to credit, our performance was strong and we maintained a consistent approach to lending through the cycle, which Graeme will expand on. While increased protectionism and geopolitical risk created market uncertainty throughout the year, our results did benefit from rising interest rates, GDP growth, a benign credit environment, and U.S. tax reform. We took advantage of the strong macroeconomic environment to add over 1,000 frontline staff in Canada and the U.S., and to invest in technology to strengthen our leading position. As you've heard me say before, this is a period of secular change for the industry, and we believe our investments are building capabilities that will significantly differentiate us and enable us to deliver even more value for our clients. For example, our Borealis AI team has grown to over 60 PhD level researchers across five Canadian research centers.…

Thanks, Dave, and good morning. I'll focus my comments on the fourth quarter and trends that we're seeing leading into 2019. Starting on slide seven. We ended the year with record quarterly earnings of $3.25 billion, up 15% from last year. Diluted EPS of $2.20 was up 17%. And earnings grew by double digits in 4 or 5 segments. Revenue growth benefited from client volume growth and higher interest rates from last year. Expenses were up 5% year-over-year due to higher variable compensation due to strong performance as well as continued investments in technology and talent to grow our business and create value for our clients. Our PCL ratio this quarter was 23 basis points, including 3 basis points for PCL on performing loans known as Stage 1 and Stage 2. Overall for 2018, although there have been some ins and outs, since adoption of IFRS 9, our allowances have grown in line with portfolio growth. Our effective tax rate was 17.5%, down from 19.9% a year ago, benefiting from the impact of U.S. tax reform and some tax benefits. Given our anticipated earnings mix, we expect our effective tax rate to be in the 20% to 22% range in 2019. Turning to slide eight. Our CET1 ratio was 11.5%, up 40 basis points from last quarter. The increase reflected strong capital generation as well as some model parameter changes, even as we continue to invest and grow RWA in each of our businesses. We allowed our CET1 ratio to drift up to absorb upcoming regulatory changes in Q1, which we expect will reduce our CET1 ratio in the 10 to 15 basis-point range. Going forward, we expect that our CET1 ratio will remain slightly above our typical 10.5% to 11% target range to provide us more flexibility in 2019…

Thank you, Rod, and good morning. I'll start with some general comments before getting into our Q4 PCL performance. As Dave mentioned, the macroeconomic environment on both sides of the border remains favorable. We continue to see unemployment rates at multi-decade lows, steady inflation, and solid GDP growth in Canada and United States, as well the conclusion of the NAFTA negotiations in Q4 has helped to move a significant point of economic uncertainty across North America. Despite the positive baseline outlook, we do see elevated external risks. Most notably, global trade tensions, rising interest rates, and weakening oil prices present potential downside risk for our current macroeconomic outlook. As always, we are maintaining a prudent risk management approach and closely monitoring these developments. Overall, our PCL ratio continues to reflect the high credit quality of our portfolio as seen on slide 16 and 17. Total PCL for the year increased mainly due to the adoption of IFRS 9 on November 1, 2017, as well as higher provisions in Personal and Commercial Banking. This quarter, lower PCL in our loan portfolios was more than offset by higher PCL and securities. Increase in PCL and securities this quarter relates to write down following the restructuring of the Barbados government debt. In Personal and Commercial Banking, PCL on impaired loans was nearly flat to last quarter as lower PCL in our Caribbean Banking lending portfolios was largely offset by higher PCL in our Canadian commercial lending, residential mortgage and personal lending portfolios. In Wealth Management, PCL on impaired loans increased to $7 million, mainly due to a greater amount of loans returning to performing status last quarter. In Capital Markets, PCL on impaired loans increased to $15 million as we took provisions across several accounts this quarter, compared to a higher level of…

Thank you. We will now take questions from the telephone lines. [Operator instructions] The first question is from Ebrahim Poonawala from BoA Merrill Lynch, Bank of America. Please go ahead. Your line is open.

Yes. Hi. So, I had a question on City National in the U.S., Rod. I appreciate your comments around deposit betas rising and pricing competition in the U.S. getting harder on deposits. Having said that, I would think that given the overlay of RBC to the City National franchise and your national expansion in the U.S., you would have seen better deposit growth as you add new client relationships into new markets, like, if you could help us understand in terms of why we're not seeing that and what that means as you think about the loan to deposit ratio at City National and the margin outlook?

Sure. Thanks, Ebrahim; this is Dave. I'll start and then I'll ask Rod to jump in with additional color. So, there's a number of dimensions. First and foremost, at the industry level, you are seeing, particularly in the affluent and high net worth markets, a shift from bank deposits into other investments to seek yield and as we expected. And if you look at the results across the industry, you're seeing very similar trends of slower growth in asset shifts. So, I think that is obviously one factor. The second factor is the business hasn't been as focused on deposits as it has been on the lending side. The balance sheet has been long deposits for quite some time, and we've been leveraging those long deposits to grow our asset base. And you've seen us emphasize maybe margin at the expense of growth for some time. And I think we'll rebalance that a little bit going forward. So, I think you can expect us to see a little bit more emphasis on deposits and growing deposits. And that's enhanced by the acquisition of capabilities like Exactuals, which is a payments capability in the entertainment industry that allows us to be a deposit taker as we feed those funds out to the various constituents to the payment system. So, I think a number of initiatives going forward, maybe a little bit of lack of focus given our long deposit strategy and an overall industry trend as I said -- the shift in deposits, particularly on high net worth customers. So, we feel good about the franchise going forward with the renewed focus. And the expansion of our business into new markets such as Washington and New York, we think are also deposits taking capabilities.

That’s helpful. And just tied to that, any updated thoughts on additional U.S. M&A, particularly on the bank side or is that still unlikely?

No. Certainly, as we look at tuck-in geographic expansion of our existing model, we certainly are watching and looking at various enterprises that we think would be a cultural and business fit that would create shareholder value. And as I said before, we are looking at playbooks, but there’s nothing imminent. And we have so much organic growth opportunity in front of us with the expansion into the markets; I mentioned Boston, Washington, New York, Minneapolis, and footprints in California, we’re still small market share player. We’ve got a lot of opportunity to grow organically. So, if it fits and at the price and it can drive a shareholder return, we’ll consider it. But right now, we’re focused on organic growth in the marketplace, and assets are still pretty expensive.

The next question is from Meny Grauman from Cormark Securities. Please go ahead.

First question is just following up somewhat on the M&A question. I think, Rod, you talked about keeping capital levels elevated to take advantage of growth opportunities. I’m wondering if you can just expand on that. Is that primarily organic growth opportunities or were you referring to M&A?

It was primarily organic growth opportunities and keep our optionality, if the economy does take a downtrend, which we don’t expect, which we expect to continue to grow. But, it’s basically giving us discretion at this point. And if there was an M&A that met the criteria that Dave outlined, then we’d also be well-positioned for that, but that’s not the primary driver.

We continue to target 10.5% as our target ratio. We view anything above that as discretionary capital. And I think we’ve proven that we’re disciplined allocators of capital and we will make the right choices with that. And that capital ratio at 11.5 this quarter gives us flexibility to do different things, grow organically, ahead of -- if there is any cycle coming, we have that flexibility, and returning capital to shareholders as we’ve talked about before. So, it’s nice to have that flexibility but our capital targets and strategy hasn’t changed.

And just in terms of understanding the current oil price environment and how that is likely to impact the PCL ratio going forward. I think, it’d be helpful just to understand, how formulaic this whole is, like, prices have dropped quite dramatically. So, next quarter, is it just simply updating those prices? And just by definition, you’re going to have to add provisions because of that or how much discretion do you have in all of this?

This is Graeme. I’ll take that. As you saw in our disclosure there now, we run a number of scenarios, and our pessimistic scenarios already do account to some degree a decline in oil and gas prices. And so, our current ECL, the current provisions we have against our performing loan portfolio would already to some degree account for the oil and gas type of concern. Now, as that moves into more of a base case or parts of those downsides move into our base case, we would expect that to add some incremental losses as I alluded to in my speech, but we think that would be marginal and that would show up more in Q1. So, a lot of this has happened over the last few weeks. So, it wasn't fully reflected in the Q4 numbers. But certainly because of the way we approach it with a multiple scenarios, it is already at this point partially baked in.

Thank you. The next question is from Mario Mendonca from TD Securities. Please go ahead.

Estate business specifically, there's been fairly meaningful growth there in Canada…

Mario, can you restart? We didn't catch the first part of your sentence.

Sure. I was referring to commercial real estate growth or commercial real estate, generally. There's something like $51.6 billion in commercial real estate construction lending, $36 billion of that is in Canada, and the growth there has been fairly meaningful. Now, I'm really -- I'm going at it from this perspective, simply because in historical cycles, commercial real estate almost always accounts for the lion share of the increase in nonperforming loans when things do soften. So, maybe this was for Graeme. Is there some reason why it might be different this time, because you think we have a lot of confidence in the sector, given the kind of growth that you're layering on?

Hi, Mario; it's Neil. I'll start. In terms of development loans, it's actually a fairly small chunk of our overall commercial book. We actually see a lot more growth in our commercial mortgage book in terms of real estate. And as we've mentioned before, it's an asset classes that’s performed very well for us and we like the risk. In terms of development loans, it actually hasn't grown even on average -- the average rate our commercial book has grown. We're starting to see projects get out of the ground. And our strategy has been to grow that with our best clients and it's predominantly in Toronto market, in the Vancouver market and it's in the -- a little under -- around a $3 billion portfolio for us. So, we haven't really taken on new clients over the last year and a half.

So, just to be clear, of the $36 billion or so in Canada, you say only 10% of that or so is construction, the rest would be commercial real estate or mortgages, rather?

In the retail portfolio, yes.

Yes. I would just comment, overall, I would say commercial real estate, I think that's -- your comment about the riskiness of it. Our commercial real estate is a much more globally diversified portfolio that it's ever been; certainly the addition of City National adds more diversification there, Capital Markets activity in that space is much more international in nature. And as Neil said, I think in all of that, the construction financing piece, which I would say has historically been the riskier piece, has not been the biggest source of growth; it’s been much more of a shift into commercial mortgages, that's true of CNB as well. And so, I think it actually gives us more comfort from a risk perspective as to why that growth has been very reasonable and hasn't really shifted our risk profile materially. Certainly, the commercial real estate is a concentration. And so, we constantly are stress testing that and making sure that that works inside of our risk appetite. And I think today we continue to be supportive of that growth.

Okay. So, just tying that in then from a credit perspective, you're guiding to -- or you offered 20 to 25 basis points, then we’ll add 3 basis points of that for the performing. So, you're talking about a very good credit environment outlook for 2019…

To be clear, the 3 basis points is additive to the 20 to 25.

Yes. That's what I was -- sorry, I understood it to be additive. Yes. What I want to ask is, when you look at your commercial, like commercial and wholesale, so everything non-consumer, there were losses there of about $147 million in the quarter -- sorry, in the year, PCLs on a balance of approaching $200 billion. So, we're looking at something like 7 to 8 basis points of credit loss in your commercial and wholesale. In offering that outlook for 2019, are you essentially saying then that losses in commercial could very well remain in the sort of 8 to 10 basis points in 2019?

Yes. I think, again, we're differentiating, certainly in the near-term we expect a relatively benign credit environment. And so, wholesale certainly always provides the most significant point of uncertainty. In any given quarter, handful of loans can change that. But I think overall in the near-term, we continue to expect a fairly consistent trend on the commercial side. I think as I said in my comments, the further if you look out there, I think we do expect that to increase gradually over time, and certainly uncertainty gets larger the further you look out. But in the near term, the fundamentals continue to be strong and fairly supportive there.

So, I wouldn't be overstating it to say your guidance is consistent with call it 10 basis points of credit loss in commercial and wholesale. That wouldn’t -- I wouldn't be overstating matters in saying that.

Again, I am focused on the overall there, but…

We'll circle back.

We’ll have to circle back to you on that one.

Why don’t we just move on to the next question and requeue Mario, if you like.

Thank you. The next question is from John Aiken from Barclays. Please go ahead.

Good morning. I'm certainly not complaining with the operating leverage that was generated within Canadian P&C, but it does look like the efficiency ratio has inflated as we progressed through the year. And when I look back, the similar situation happened in 2017 as well. Is this something where basically you take a more conservative stance at the beginning of the year and then as revenues unfold you actually then are a little more active on your project spend or am I misreading exactly what's happening here, and this is just an ongoing evolution that will occur?

Thanks, John; it's Neil. No, in terms of our efficiency ratio, there is some seasonality to the expense line. So, we do -- this is kind of a trend we see each year and we do have more expenses come into Q4. I think, in terms of the appetite in terms of spending, obviously we're looking at what's our revenue growth. And we take that into consideration as we really manage our costs. But I would -- we haven't shifted at all from our goals around a sub-40% efficiency ratio and it would really chalk it up to seasonality.

Okay. So, then, I guess to paraphrase, given the fact that the fourth quarter and the third quarter efficiency ratios were above the annual and yet you're trending down towards the sub 40%, can we assume then that we might see another step function in Q1 on some moderation to loss [ph] latter part of the year, even if it's just the fourth quarter?

Yes. I think that's fair.

Great. Thank you very much. I'll requeue.

Thank you.

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

Thanks, a couple for me. I just want to go back to the U.S. margin for a second. Dave, you talked about having gotten margin maybe to some extent at the expense of growth and maybe flipping that script somewhat. And Rod last quarter, you talked pretty constructively about the U.S. NIM. We got a rate hike towards the end of September, I think it was. So, the margin didn't move this quarter. So, to me that's a bit surprising, despite what U.S. comps did. But maybe you could give us a sense maybe of what we should expect in terms of NIM upside in the event of future rate hikes and how that balances with deposit growth.

Sure. I can take that. I mean, just be careful, on a quarter-over-quarter basis, I mean, you even saw it in Canadian Banking, we were flat last quarter, up 3 basis points this quarter and up 12 basis points both quarters year-over-year. I think City National, you’ll see continued upward trends. Overall, we were up 40 something basis points year-over-year in Q4. With a couple of Fed increases being priced in by the market, 2 to 3 of them. You should expect 5 to 10 basis points of improvement per quarter next year I would think. There might be some volatility to that, one quarter might be below that, one quarter might be above that. And certainly, the deposit betas that we talked about earlier, will factor into that and may slow that growth rate down a bit, which you’d expect as NIM gets higher, competition increases, and that’s natural and consistent with past cycles.

And then, if I could for likely for Neil. Last quarter, you mentioned increase in mortgage renewal rates as a positive driver. Are you seeing that hold consistently? Are you seeing more upside from renewal rates? They still -- I think you said in -- are they still around that 92% range? And could that increment higher, if rates continue to tick higher and renewals get a little trickier for customers?

Yes. The renewal rates are still in that zone. They’ve come off a little bit. But, we’re still in the 90% range. In terms of the outlook, the real focus for us, obviously retaining those mortgages, after we spend a cost to acquire them. I think we’ve probably seen most of the uplift in terms of -- we’ve talked in the past about the B-20 impact; I think that’s probably mostly baked in. But they’re still -- we still feel very good about our renewal rates compared to our competition.

So, if it’s still in the low 90s, what would the renewal rate run rate have been like a year ago, 2 years ago, like before B-20 was implemented?

We’d be in the 88, 87 range.

The next question is from Gabriel Dechaine from National Bank Financial. Please go ahead.

My first question is for Doug actually on the Capital Markets outlook. Just kind of high level here, total trading revenues for the year were up a bit but we’re definitely seeing some weakness in FICC. Advisory revenues were down a little bit versus 2017, kind of a wash with the trading. The loan growth -- if I understand correctly, the loan growth that you got in this business is going to moderate a bit in the year ahead. You’re not going to have the same tax uplift this year from the U.S. and PCLs, will probably stay flat or so. Just wondering, where do you expect the momentum next year, and how do you expect the business to grow relative to the bank’s overall target?

Why don’t I start with the tax? I mean, the tax uplift, I don’t see any reason why that’s going to change going forward. And so, most of our revenue [technical difficulty] the U.S., we have a lower tax rate there, and we have various investment structures in our portfolios that I think will persist. So, I think that the tax improvement isn’t going to go away anytime soon. In terms of the business, in the investment bank, I would say the Canada has been difficult. And to the extent we see any improvement in that going forward, that’ll be quite helpful. I mean, there just has been very muted capital raising in M&A activity this year and the situation in the oil patch has made financing more difficult. So, we hope for some improvement going forward, but really our focus is in Canada and Europe where we're seeing significant gains. And Dave mentioned in his conversation that we've hired, I think, a dozen senior investment bankers in the U.S. over the last six months that are just coming onto the platform. And we expect productivity improvements with them. Our brand is getting better there. And in terms of the loan book, we expect that we're going to see some leverage in terms of fee revenue from some of the loans we've put out this year. And Dave mentioned a couple of the large investment grade underwritings that we have on our books right now that'll generate significant fees. I mean, we've got good momentum, we’ll carry on.

And the trading, did I miss that?

Yes. The trading, I mean, we're just -- I think we're just getting better and better on the equity side, frankly. And you're seeing a little bit of an uptick in bar, but that's in our listed and over the counter options business and in our structured equity solutions business, and they're performing very nicely. A fixed income, I think rate globally has been a little difficult. We're really quite focused on credit. We've had a bit of a softer credit market in last quarter, but I think we're confident that we'll grow that revenue as well.

Thank you. The next question is from Sumit Malhotra from Scotia Capital. Please go ahead.

Thanks. Good morning. I'm going to start with Graeme please, and just to get a little bit more color on energy. First off, on your slide, in the presentation slide 21, you gave us a breakdown of how much of the Canadian heavy oil portfolio is investment grade versus non-investment grade. Do you have a number on a total E&P basis, because I wanted to compare it to where you were a couple years ago when we were talking about this issue?

I don't if I have that number, maybe I’ll have to come back to on that number.

Has it changed materially in your view from where we were in 2015, 2016? Or we can come back to it if you want?

Yes. Let me come back to you on that. I just want to make sure I have the right numbers for you.

Okay. And the way I’d -- I guess the next part of this and thinking about how provisioning changes under IFRS 9. So, when we look back at Royal’s credit performance for the energy book in that period of time, the producer portfolio specifically, you ended up taking in ‘15 and ‘16 something like $350 million of provisions, 5% cumulative. Under IFRS 9, do we see that very quickly and upfront as you adjust expectations for what happens in Stage 1 and Stage 2, or has there been enough strengthening of balance sheets in the oil patch that you don't think the level of provision required is going to be nearly to that level?

Yes. I mean, let’s look at different parts there, and just to tie into my remarks earlier, like as we showed in our disclosure here, like the direct exposure to the acute levels we're seeing in the western Canadian select prices is a pretty small, pretty manageable exposure, largely investment grade. So, we don't see that as a real acute concern at this point. We are seeing overall price levels down oil and gas. Although I would say that's not anywhere near as acute as we saw in 2016. Additionally, our book is quite a bit smaller than it was in 2016. And I would say it's arguably better quality. So, when I say better quality, we have seen our clients derisking significantly, borrowing bases that I think were very effective through the last downturn, I think everything becomes more robust. So, I think we head into this in a much better manner. That does lead into kind of the IFRS 9 part of it. And as you said, I think historically that would have been -- you wouldn't have seen the losses accrue until we saw the impairments. Now, those do get pulled forward in the IFRS 9 world. So, the mix of our book, the quality that's reflected in our ratings does translate through into our IFRS 9 models. As I said earlier, we've already put it for that in parts -- we've put it parts because we do look at multiple scenarios there. We do wait for different scenarios and then a couple of scenarios do consider decreases in oil and gas prices. As that shifts to our or at least the commodity pricing shifts into our baseline, we would see some incremental. And that does pick up also the indirect side, like our consumer exposure and our commercial exposure we would see in Alberta. So that’s why I said earlier, it will come in through Stage 1 and 2 initially and then translate over to Stage 3 through time.

Thank you. The next question is from Robert Sedran from CIBC Capital Markets. Please go ahead.

Hi. Good morning. I wanted to ask about the Insurance business. So, I guess, first, Rod, the positive impact of life retrocession contract negotiations. That sounds like a non-recurring kind of benefit. Is that the largest mover this quarter, and am I correct?

It’s Doug Guzman. I'll take that. So, there's -- as you know, there's a number of moving pieces in the business. There's this quarter the life retro, there's every Q4 the actuarial adjustments, there's the investment-related gains which feature this year as well as longevity reinsurance or the annuities. The life retro, this is obviously where we take risk of mortality off of primary insurers. That's been uneconomic for the industry for a period. And so, this year, we and many others -- we have the ability to reprice that. And that creates a release of reserves this quarter or this year and then -- but what it does is it restores a run rate profitability to the business for next year. So, I wouldn't anticipate that to fall off materially year-to-year. More importantly, what I'd encourage you to do is focus on the whole segment because with those big pieces that move around from quarter to quarter and year to year, I think both Dave and Rod said, we’d anticipate to grow the business from here. Investments were a positive this year and life retro was a positive this year which might be lower next year. But our annuities offer opportunity we believe. We believe our investment which is extremely conservatively set up with kind of 2% to 3% non-fixed income compared to much higher for others, offers continuing opportunity to release reserves. The core business and claims was a little weaker than we'd expect this year. So, I think as you wrap the whole thing up, we expect to grow from here. But, of the two that are cited in the public disclosure, the life retro piece was a smaller positive than was the investment activity.

That’s Doug. That’s actually kind of where I wanted to go, because the slide every quarter seems to reference the volatile items that sort of explain the most volatile business that you guys seem to have. And you talk about full year growth, and there's less on the slide, there's often less in the disclosure about where that growth is going to come from. So, is this just about making the operation better and tighter, or is it actually about top-line growth and new business being added to the mix?

It’s both, right? So, first of all, the investment side of the portfolio is part of the -- is part of the business. But, we’ve talked about in home and auto and ability to serve more clients with a broader product range. We believe that’s an opportunity over time. Disability claims throughout the year for many have been a little weaker than we thought; that should regress to the mean we’re taking action to get people back to work. So that’s a core operational business, if you will. Credit, there is slow growth; that’s a client-facing business obviously, slow growth; isn’t helped by digital distribution, but we expect that to serve growth year-over-year. And then if you start with a conservative posture on your investment portfolio, and each fourth quarter we have tended to show you releases on the actuarial assumptions, which would suggest that the reserving is not aggressive to begin with. You should expect to see improvements kind of with the passage of time on both those investments and actuarial adjustments line items, in addition to the core business growth.

Okay. Thank you.

I mean, I guess just one other thought. The release of actuarial reserve -- reserve release or reserve actuarial adjustments, in essence is the release of profitability or a business that has been written in the past, right, because you’re adjusting your assumptions for experience. And so, view it not as anomalous or separated from the business, but view it as the delivery of profit that’s previously been -- product that’s previously been written.

And we’ll move to next question. We do have an ability to go a little bit beyond 9, adding on the queue, so.

Yes. Maybe, I’ll just jump in, I just wanted to -- I just want to follow-up on Sumit’s question, I was looking up some of the details there on the investment grade, non-investment grade mix, so, and caveat it but we just don’t think in aggregate we’re nearly at the same severity as we were in 2016, the investment grade, non-investment grade mix for energy book is about the same as it was three years ago. It is as smaller book though, at the same time.

The next question is from Sohrab Movahedi from BMO Capital Markets. Please go ahead.

Graeme, just to confirm, I think couple of years ago, you were about 80% to 85% non-investment grade. Is that the ratio you’re talking about?

Non-investment grade?

Yes. Can you tell us what that mix is there?

Our overall energy book, it’s about 50-50 investment grade non-investment grade.

Thank you. And…

And as I said earlier, I mean investment grade side tends to be your larger, more diversified integrated operator, and then non-investment grade side tends to be well secured and borrowing based structures as we referred to earlier.

Sorry. I just -- I must have written it down wrong, because it sounds like, it was a larger proportion non-investment grade a couple years ago. But, I just wanted to get from Neil. Neil, I think or Rod for that matter, you were talking about 1 to 2 basis points, let’s say, or 4 to 8 basis points, I guess over the full year, 1 to 2 basis points per quarter, NIM expansion in Canada. And I wonder, if you could just talk us through where you see that expansion coming from? What would be the drivers of that?

It’s Rod. I’ll start, Neil can jump in. But, I mean, most of it is structurally inherent in our book right now, because from the past Bank of Canada increases that have happened, because we’ve gotten the deposit beta, it’s baked into the book and now our mortgage book is repricing. So, it’s not as dependent on future rate increases as you might otherwise expect. We've talked in the past and we showed at Investor Day that we get a nice even flow over five years from interest rate increases, and that's what most of that would flow from. So, if you look at it from an FTP standpoint, it's higher deposit spreads. If you look at it from a economic standpoint, it is higher mortgage rates accompanied by a deposit beta.

Thank you. Your next question is from Scott Chan from Canaccord Genuity. Please go ahead.

Hi. Good morning. Doug, just going back to Insurance side, you talked about the growth in the investment portfolio and majority being fixed income. What's the other 2% to 3% makeup of that portfolio right now?

Yes. So, it's not necessarily the growth of the portfolio, it’s the positioning of the portfolio. So, the rest would be fixed income, which is obviously a natural match to the long duration liabilities on the insurance side.

Okay. And the other 2% to 3% is just I guess a whole gamut of stuff?

Yes. I mean, the equities, there's a little bit of real estate, there is U.S. equities, which offer some diversification. But, the point really is that that proportion is very small relative to others in the industry.

Agreed. And maybe just turning over to the Canadian side, I appreciate the guidance on the resi growth. But, if you look at the other categories like HELOCs and other personal, which is -- which I think is mostly investment loans, it was kind of flat throughout ‘18, what do you see within those buckets heading into ‘19 in the face of deleveraging and potentially higher rates?

Thanks for the question. It’s Neil. Yes, we've seen some -- we've actually had our HELOC product shrinking as we see some flow of clients at renewal looking to lock that in our residential mortgage. That's starting to slow. So, we're -- the outlook and there we've been sort of negative 2%, obviously, start to see that come back to flat and then some slow growth over time. In terms of personal lending, there is really to two segments. It’s our auto book and then it's our direct consumer loan -- loans that we originate through our branches. Our auto book is up about 6% competitive, but we've been doing a lot of work there to really provide growth, and that's something we feel is sustainable. In terms of the consumer lending, we've commented in the past, we have, by far the largest market share. I think we’re really making sure we're balancing opportunity to lend more with making sure we feel good about the risk and we're not over levering our customers. We started to move back to -- starting to see growth again, in terms -- month over month in that book. Right now, we're about flat and we’ll start to see low single-digit growth as an outlook for 2019.

Great. Thank you very much.

Operator, we'll take another call. I know we're a bit over but there is a few people in the queue that haven’t had a chance.

Perfect. Thank you. Next question is from Doug Young from Desjardins. Please go ahead.

Good morning. I'll try to be quick. Just back to City National, I mean, you covered off the NIM nicely and the deposits and the loans. But, when I look at the quarter, sequentially, it looked like there was a bit of a decent pullback in earnings sequentially. And I know year-over-year it looks quite good still. I think, there was some tax benefits in the quarter. And I know you've hired some additional frontline staff. Is there anything else that's dragging down the profitability in the expense side that could continue into next year? How should we think of -- because the tax benefits are in there but the year-over-year comparison goes away next year. Is there anything else that could drag the evolution of earnings at City National as we think out over the next year?

I think if you look at this business, the theme -- and the comments I made and Rod made are certainly around investing for medium and longer term growth. We’re opening new centers, we’re hiring private bankers, we’re hiring commercial bankers, we’re ramping up our back office capability on the jumbo mortgage side, which is a big part of our acquisition strategy. So, every business goes through step-ups and investments to create future growth. And I think we're able for the first couple years to run off the existing platform. And now, there's benefit of a step up as I've talked about over the last year to create the capacity for another growth spurt and acquisitions spurt. So, you're seeing a little bit of that kind of roll into Q4 as we’ve hired as you heard hundreds of frontline staff to create opportunities in New York and Boston and Washington and in markets. So, there's a bit of a step up there that it takes a private banker a good year, commercial banker good year to two years to get going. So, we're you know into our third year now of doing this. So, we're going to start to see that traction. So, I think it's a little bit of that for sure. There's a bit of the business trying to adjust to higher regulatory expectations and CCAR in the U.S. versus what they’ve had before us; we’ve absorbed that cost increase. We call it a dissynergy in the acquisition. So, I think what you're looking at predominantly now is posturing for growth. And we're very excited about the run rate going forward. And as Rod referenced, it'll be supported by some margin increase from -- we expect anywhere from 2 to 4 rate increases coming at us in the United States, and the business is well positioned to do that. So we sense a very strong market with tailwinds to go forward -- going forward to invest in. And I think that's what you're reflecting in Q4.

And so, it doesn't feel like you expect there to be a lag in earnings growth next year and then it to pick up again in 2020 as some of these individuals and regions get up to speed. It sounds like you think it's -- you’re set up well to continue the momentum. Is that a fair characterization?

Yes. I don't expect us to do 47%. To be sure, you said [ph] you normalize the tax increases. Back to the original discussion, we had when we acquired City National, double digit growth. And it could be lumpy quarter to quarter as we talk about but we look at a year. We have 15% loan growth, and we're going try to do better on the deposit side, we have margin increases, we've invested already and stepping up our cost base. So, we're going to -- hopefully that can hold and will create solid earnings growth as we talked about.

I appreciate the answer. Thanks.

I think we have time for maybe one.

Thank you. The next question is from Mario Mendonca from TD Securities. Please go ahead.

All my questions are asked and answered. Thank you.

Okay. We’ll take one more then. There’s one more in the queue, I think.

Thank you. It is from -- next question, Nigel D’Souza from Veritas Investment. Please go ahead. Nigel D’Souza: Thank you. Good morning. I wanted to circle back on your residential mortgage growth outlook for F19, that 3% to 5% range that you mentioned. And at the high end of the range, that's a marginal step down from F18. So, where do you expect to be in that range, at the low end or the high end? And what are the underlying assumptions for real estate; are you expecting book prices and volumes to move higher in 2019? Thanks.

Thanks for the question, it’s Neil. I mean, I think the range we've given just gives a sense; there is some uncertainty in the market obviously. The assumption in there is that we see about a 3% increase in home sales and a very moderate increase in home prices of 1%. That said, if we look at 2018 as a comparator and just the uncertainty there, we started -- we had a pull forward effect, pull the bunch of volume forward and then kind of May on, we’ve been slowing. So, we’re trying to provide this outlook coming through a fairly choppy year. In terms of where do we see it, Ontario particularly, GTA is stronger, really stronger in the East, and we’re seeing weakening volumes kind of Manitoba West, if that gives you a sense of the mix. Nigel D’Souza: Okay. Sure. So, for now, I think we’ll just take the midpoint of that range. I appreciate the color.

So, why don’t I wrap up? Thanks everyone for joining the call today. I think from the themes from all the questions and the responses you heard from the business leaders, we’ve got a lot of momentum and we’ve invested in growth. You’ve seen that in our revenue line you. We feel we’re operating in good economic conditions. We still feel there’s tailwind on margin from rates and both our Canadian and U.S. businesses. We feel we’re in a strong credit environment. And going into 2019, having invested in growth and technology and frontline people, as you heard, we’re feeling good about the outlook for the economy and for the bank. So, that’s kind of the theme that we wanted to communicate and came out I hope with your questions. So, thank you, and we’ll see you again in Q1.

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