Good morning, ladies and gentlemen. Welcome to RBC's Conference Call for the First Quarter 2020 Financial Results. Please be advised that this call is being recorded. I would now like to turn the meeting over to Nadine Ahn, Head of Investor Relations. Please go ahead, Ms. Ahn.

Thank you, and good morning, everyone. 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, Personal & Commercial Banking; Doug Guzman, Group Head, Wealth Management, Insurance and I&TS; and Derek Neldner, Group Head, Capital Markets. 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. I would also remind listeners that the bank assesses its performance on a reported and adjusted basis and considers both to be useful in assessing underlying business performance. With that, I'll turn it over to Dave.

Thanks, Nadine. Good morning, everyone, and thank you for joining us. We had a great start to the year, delivering record quarterly earnings of $3.5 billion. We reported record results in Canadian Banking and Capital Markets and very strong results in Wealth Management despite interest rate headwinds and a good quarter in insurance. Our results were driven by strong volume growth across our leading client franchises, lower PCL and prudent expense management. We continued to win market share while maintaining a risk profile at the lower end of our appetite and generating an ROE of 17.6%, a premium relative to our global peers. I'm pleased to announce a $0.03 increase to our dividend, bringing our quarterly dividend to $1.08 per share. Our strong capital generation and robust 12% CET1 ratio are proof of our disciplined capital deployment strategy, which is one of RBC's core strengths. Along with the dividend increase, we bought back 7 million shares this quarter, supporting our focus on delivering long-term value for our shareholders. While share buybacks will always be an effective and flexible lever to improve returns, allocating capital for net income growth will continue to be our primary focus. Our leading scale and diversity of revenue streams enables us to invest concurrently in technology, sales capacity and client value, positioning us to succeed in this period of secular change and macro uncertainty. In addition, we constantly review our portfolio of businesses to ensure they provide long-term sustainable growth opportunities and meet our return hurdle rates. Along with repositioning part of our international custody business, as announced in Q4, we entered into agreements to sell all of our banking operations in the Eastern Caribbean this quarter. Similarly, we actively managed our Capital Markets loan book to build sustainable relationships and returns. Before moving to segment…

Thanks, Dave, and good morning, everyone. Starting on Slide 5. We had record earnings of $3.5 billion, up 11% from last year. Diluted EPS of $2.40 was up 12% year-over-year. I'll start with a few comments on cost management. Expenses were up 8% year-over-year. However, most of the growth was driven by staff-related costs such as variable and stock-based compensation, which was commensurate with strong revenue growth in Capital Markets and Wealth Management. Excluding these, expenses were up 3% year-over-year. Total headcount across the bank declined from last quarter as we remained vigilant on controlling costs and driving efficiencies. Moving on to capital on Slide 6. As Dave noted, with the CET1 ratio of 12%, we remain well positioned to fund organic growth opportunities in our leading franchises and to return capital to our shareholders. Our strong earnings allowed us to generate 38 basis points of internally generated capital, more than offsetting the combined impact of previously disclosed accounting and regulatory changes. Strong client-driven RWA growth in Canadian Banking, City National and Capital Markets as well as the impact of lower discount rates in determining pension and post-employment benefit obligations was partially offset by normal course parameter and methodology updates. We also distributed $2.2 billion to our common shareholders in the form of share buybacks and dividends this quarter. Our share count is now at its lowest level since 2010. Moving to our business segment performance on Slide 7. Personal & Commercial Banking reported earnings of nearly $1.7 billion. Canadian Banking net income of over $1.6 billion was up 5% from a year ago. Our commitment to exceptional client experience and innovative digital offerings continue to resonate with clients. Strong volume growth across our Canadian Banking businesses led to 5% year-over-year growth in total revenue. We are seeing increased momentum…

Thank you, Rod, and good morning, everyone. I'll begin my remarks starting on Slide 13. This quarter, our provisions on performing loans of $83 million or 5 basis points were flat quarter-over-quarter, albeit at the higher end of our expected range of 3 to 5 basis points. This mainly reflects portfolio growth in the quarter, especially in our cards portfolio, which typically sees an increase following the holiday season. It also reflects changes in our macroeconomic forecast where moderately higher long-term interest rates, weaker oil and gas markets and higher unemployment rates were offset by favorable housing trends in Canada. On the other hand, our provisions on impaired loans of $338 million or 21 basis points were down 6 basis points from last quarter and were below our expected range of 25 to 30 basis points. This is mainly due to lower provisions in Personal & Commercial Banking and Wealth Management. Let me now provide some additional color on PCL for some of our businesses. In Canadian Banking, PCL on loans decreased by $33 million from last quarter, largely reflecting lower provisions on impaired loans in our commercial portfolio across a number of sectors. This was partially offset by the increase in provisions on performing loans this quarter, mainly in our cards and commercial portfolios due to the factors I noted earlier. In Caribbean Banking, PCL on loans decreased by $18 million from last quarter due to recoveries in our commercial portfolio and lower provisions in our residential mortgage portfolio. In City National, PCL on loans decreased by $40 million from last quarter, reflecting provisions we took last quarter in our consumer discretionary sector and high recoveries this quarter. Lastly, while PCL on loans in Capital Markets were stable quarter-over-quarter, we did have higher provisions in both the oil and…

[Operator Instructions] Our first question is from Ebrahim Poonawala with Bank of America Merrill Lynch.

I guess my question is on capital allocation. I'm just trying to understand whether we should expect the CET1 to build from the 12% in the context of, I think, Dave's comments around priority on capital allocation remains net income growth. And what I'm trying to understand is in the world where organic growth remains relatively steady state, do we assume buybacks ratchet up? Or is your motivation to do a deal rise? If we can talk about that, that would be helpful.

Maybe Ebrahim, I'll start, and then I'll hand it over to Rod for questions. So our strategy on capital allocation hasn't changed over the last couple of years. You see the strong organic growth that we're generating, we're investing in further growth, which will require capital. So I think from that perspective, it becomes the best way to drive shareholder returns, and we'll continue to allocate capital there. You saw us buy back shares at a greater rate in the last quarter and returning capital to shareholders, and you can expect that we'll use that tool as an ongoing capability to manage our capital base and our returns for shareholders. So I don't think there's any real change in strategy. We continue to look for opportunities to grow our business inorganically. And we've got very strong criteria for that. And the time is not right or the opportunity is not right. So there's nothing in the pipeline right now that would cause us to allocate capital along those lines. So I think that is generally a consistent perspective, for us, with our strong momentum in organic growth in driving shareholder value from it. We're going to continue to run this playbook.

Got it. And I guess, Dave or Rod, should we expect a meaningful buildup from the 12% CET1 levels? Or is -- or you are reluctant to do that? Just your thought process there.

Yes, I think -- it's Rod. I think, Ebrahim, if you go back a couple of years, we were at 10.6% in mid-2017. By mid-2018 we were kind of at the 11%. Even a year ago, we were at the 11.5% -- 11.4% in Q1 '19. And so we got -- we built up to 12%, given some of the macroeconomic uncertainty that Dave was talking about. And we're very comfortable at 12%. When we run all of our stress tests, 12% gives us adequate buffer for even a most severe scenario. So we are quite comfortable and do not see a need to go up above it. It might go up. There's always 10 basis points up or down on a given quarter depending on how RWA comes out or interest rates with the pension discount rate, but we don't see a need to build from here.

Our next question is from Meny Grauman with Cormark Securities.

Wondering what you expect the impact of the changes to the stress test on insured mortgages to be? And then if you could also comment on what a change or a similar change to uninsured mortgage stress test would be as well?

Thanks for the question. It's Neil. I guess, maybe the first point we make on the stress test that we've said in the past, we've been quite supportive of the policies. And by both the government and the regulatory changes, I think, our first priority is to really have a strong housing market. With that said, the change that was announced recently, we view it as actually quite -- having quite a minimal impact. Our analysis so far looks like it would be about 25 to 30 basis points reduction in the qualifying rate. That will really translate into a fairly small increase in purchasing power for the average borrower, probably in the neighborhood of about $20,000, $25,000 on an average mortgage. So I think right now, the focus still, you see a lot of commentary in the marketplace, is around supply. And I think the lack of supply in the major urban markets is still the real focus for where the policy needs to go.

And if the rule -- it looks like the rule will be extended to the uninsured market. Do you think that will have a bigger impact?

I wouldn't -- I think it would have -- at this point we would think would have the exact same impact.

Okay. And then just as a related question. You're now consistently growing mortgages well above the market. And I'm wondering, is there a gap between you and the market where you would start to get concerned and what would that gap be?

Well, I think in terms of the market, there was a player a couple of years ago that was originating at an exceptionally high clip. And I would also look back in 2018, we were not -- we wouldn't say we were at our best in terms of running the mortgage business. So we've commented in the past, after 2018 at the back half of that year, we did a full end-to-end review, and we're now really seeing the gains from that review right from additional sales power with mortgage specialists on the ground meeting with customers, right through our operational processes, how we underwrite and specifically how we're turning around and getting back to customers. So one of the things that's been a big improvement is just turnaround times and really having a customer centricity. So those would be the levers we've pulled. Graeme mentioned and Dave mentioned as well in his comments. Our origination profile -- we've not at all gone down the risk curve. We have exactly the same FICO profile and LTV profiles that we've had. So at this point, we're feeling really good about what we're originating. Some of what you're also seeing is that activity is up and stressing the first quarter you're seeing home prices jumping has also led to some increases. So that's really, I guess, the underlying rationale for our performance. And we'll have to wait and see what the back half of the year looks like.

Our next question is from Steve Theriault with Eight Capital.

I had a question on Capital Markets, but maybe, Neil, since we have you, just a couple of quick follow-ups. Could you speak just to the mix of HELOC versus mortgages? Like is that -- has that come as a function of some of the considerations since 2018? Is this something proactive...

Steve, there's a limit to 1 question. So do you want to ask a Capital Markets question or a retail question? Why [indiscernible] you ask a Capital Markets question?

All right. Fair enough. The fixed income and rate trading, you mentioned the strength there. But it's pretty close to 2x run rate levels. And looking at the U.S. peers and what they did, FIC was up 40% or 50%, it looks like. So it does seem to be on another level of growth. So maybe, Derek, you could talk a bit about the drivers there and maybe remind us about the mix of credit versus rates within your portfolio versus some of your competitors?

Sure. Thanks, Steve. I appreciate the question. I think if you -- obviously, from a starting point, if you look at the environment in the quarter, it was a very strong environment for the industry overall. And as you noted, a number of our U.S. peers that reported saw increases in that business. So we did have a strong environment that we were working within. If I break that down into a few different components, obviously, the low rates and the tightening of credit spreads we saw drove a very strong new issue environment that drove higher primary origination for us really across our various geographies. On the back of that, then we did see a heightened client trading activity, building on the DCM issuances as well, just given the strong secondary markets in general. So that drove very good ongoing secondary trading revenue for us in credit and in rates. I would say the third driver was an increased focus on our corporate and FI risk solutions group. So working on interest rate, foreign exchange hedging. And I think that's really been a function of just driving improved collaboration across our businesses and across our geographies. As well, I would say, behind our trading businesses, the team has made a number of investments over the last year in people, in some systems. And, Franky [ph] I think, has just brought a very good execution in risk management that's being reflected in the trading results that you're seeing this quarter.

And is that, for the most part, carried on into the first few weeks of February?

Well, obviously, the market environment in terms of low rates and credit spreads remaining tight has continued. To the extent that continues in place, we expect that will be a positive backdrop for us and others. But as Dave and Rod have mentioned, there certainly are some potential risks on the horizon. And so we'll just continue to monitor that carefully and see how it impacts our client trading flow. I would just maybe finally add related to one of your questions. We are carefully managing the risk profile of the trading book. And as you'll see in one of the slides, our VaR for the quarter was actually down. So we don't see the improved results being driven by any change to our risk profile or risk appetite.

Our next question is from Gabriel Dechaine with National Bank Financial.

My question is for Graeme. Thanks for the outlook commentary on the factors that could affect your provisioning. I'm wondering if maybe you can fine-tune that guidance. COVID-19, rail blockade, will that keep your loss rate on performing loans at the upper end of that range or maybe even above? And are you seeing any maybe issues in the nonperforming due to the rail blockades probably showing up?

Yes. Thanks, Gabriel. It's Graeme. I'll try and maybe address a few points around COVID-19 and the rail blockades. I'd say our risk focus has been on kind of 3 elements there. One, first and foremost, is just the health and safety of our employees and then ensuring that we have the operational continuity and resiliency to work through this period and work through a period where it could potentially get worse. So that's been a great leadership by our teams there and working with the external bodies to deal with these challenges. And then when you look at the financial side of it, in terms of the direct risk there, we are not an operator player in Mainland China. So we have really no direct exposure to what's happening and what's acute part of this in China itself. And so that really brings us back to kind of the -- probably the area we are most focused on, which is that kind of secondary risk as a consequence of what's happening. And there's really 2 elements there that we're kind of focusing on. One is the impact of the Chinese consumer kind of disappearing for a period here. And then the second part would be the supply chain impact with China as a manufacturer to the world. Right now, I'd say, we're monitoring that. We're looking at evaluating the sectors that we think are most impacted. We're engaging with our clients, but the reality is that this is too early, too soon to really have a view as to the real impact here. It's going to really depend on the duration of this and the severity going forward. And right now, that's highly uncertain. We're not seeing any impacts in our portfolio at this point in time. And so really, as I said, we're just wondering for potential at this point. You did comment on Stage 1 and 2, whether it's COVID-19 or the rail blockades, that would be the place it would manifest itself first. And so that would be something we'll be considering in Q2. But right now, as I said, it's too uncertain and it's too early to provide any guidance as to how material that could be.

And then the rail blockades, are you seeing anything in the Stage 3 near-term horizon?

No. My comments would apply both to COVID-19 and the rail blockades. It's too soon to see impact. I said we're now talking to clients and certainly clients are being impacted, but it really depend on the duration of this and whether it has any staying power or not.

Our next question is from Sumit Malhotra with Scotia Capital.

My question is for Rod. It's going to relate to margin and mix in the City National. When the bank bought that business a few years ago, I have your -- according to my notes, the mixture of the loan book was about 80% floating rate or adjustable. Has that mix changed significantly since Royal took over the business? And relatedly, I think your adjective, Rod, was that you expect margins to tick lower. Obviously, we've seen a substantial move over the course of the past year as we've had 3 rate hikes. Is the more moderate outlook for margin compression based on your view on what the Fed does or is the variability of this book based more on, let's call it, market rates like SEDAR as opposed to the Fed?

Yes. Sumit, thanks for that. So I believe my comments were that we expect a continued decrease in Q1 because of the Fed decreases. The 2 of them in our fiscal fourth quarter had to flow through for the full quarter, including the one in October. And then we thought it would tick lower from there. And we continue to see that. We saw, obviously, the pronounced decrease of 17 basis points quarter-over-quarter in Q1. We expect that to moderate. Right now, if you look at the Fed futures, there's 86% -- this is as of yesterday afternoon, 86% chance of a Fed cut by July. That gets priced into the Fed futures. And so therefore, that gets priced into our modeling into the out quarters. So it might be 3 to 5 basis points on the Fed funds, which is not going to impact us as much. We still have a majority of our loans on the variable rate as you cited. But part of this is also mix. So we've been growing that mortgage book in the 20% -- over 20% range, which tends to have a lower margin than some of the other products. Also, it's funding sources. So yes, we've had very strong deposit growth, but when City National was acquired 4-plus years ago, the majority of the funding was in noninterest-bearing deposits. And as we've continued to grow the loan book double digits, the mix of noninterest-bearing deposits was over 50% as recently as first quarter last year. It's mid-40s now. So if that shifts a little bit, it will have a modest impact on your NIM and cause a few basis points of NIM compression here and there. But overall, we're adding new profitable client relationships, strong client relationships, bringing more product and more services from a stronger platform, both with from City National's platform as well as RBC's platform. So this is all part of the strategy. And we can't control the Fed funds, but we're still very comfortable with the business that we're adding.

And just to be clear, I'll stop here, your comments on what Fed funds futures. As far as pricing for your commercial portfolio is concerned, is it SEDAR that's the governing factor or is it specific movements by the Fed that drive that, meaning market rates or actual Fed fund movements, for the most part?

Well, most lending in the U.S. is based off of LIBOR-based product at this point, until that changes. But that is influenced by Fed funds. And so it might be more direct in other countries than it is in the U.S., but there still is a correlation there.

Our next question is from Doug Young with Desjardins Capital.

Just thinking about the U.S. Wealth Management business, we've seen some changes by some of your peers. I mean Goldman has come out and state that they want to be bigger mass affluent, and we see Morgan Stanley going into E*TRADE. And I think Royal's focus has been mostly high net worth. I just want to get a sense of the strategy for that wealth business. And I think we always talk mostly about the banking side, but maybe just the strategy for the wealth side of the business. And does that have to pivot here as well?

Yes. Thanks for the question. I'll take it. Certainly, as we think about our strategy and how we want to grow the business and how we want the balance sheet to look at $100 billion bank in the U.S. versus the $50 billion bank it is today. Now as Rod alluded to and we talked in our comments, we are shifting to high net worth consumer balance sheet as a different balance from largely a commercial-driven cash management organization with a Wealth Management cross-sell. Hence, we're really focused on products like mortgage and cross-selling into core checking and then cross-selling into Advisory and Wealth Management products. So that strategy continues to build out. We are opening branches in New York and expanding into Washington and Nashville, as you've heard us tell that story. And that growth has accelerated. At the same time, we're -- the loan book has been growing faster than deposit book. So growing our deposit strategy has become of paramount importance. So you'll see us likely launch a direct-to-consumer bank in the United States sometime at the end of this year, early next year, really focused on a higher net worth customer, not dissimilar to some of our competitors in the U.S., what they've done. We have a number of strategies to looking at that to move it from high beta to mid beta type relationships. And I think that strategy will help us fund our longer-term growth. So as we evolve in the U.S., we shift from a largely commercial cross-sold into wealth to a balance between kind of a high net worth, ultra-high net worth client. We'll move down a little bit down market into super affluent and look at the direct-to-consumer strategy filling in behind there. So you'll see us going to bring in some new capability around that to make sure that we're able to continue to grow both our loans and deposits at a strong ratio that you're seeing today. So that would be the shift for us. We feel good about the organic strategy versus having to go out and acquire deposits through an acquisition.

Our next question is from Mario Mendonca with TD Securities.

Probably for Graeme. When you look at the performing loan PCLs, the numbers have been small from the very beginning from when these new standards came to be. What I'm thinking about is when you test the models, when you run scenarios through the models, what sort of -- what do you have to build in, in terms of unemployment or an outlook for rates or oil and gas or any variable, really, to make these numbers meaningful? And meaningful to me would be something not 5 basis points, more like 15 or 20 basis points. What sort of environment do we need to see to make these numbers meaningful?

Thanks, Mario. It's a good question. I think we -- a couple of things that I'd respond out there. So to some extent, we actually already do build some variability into that. We -- as part of our performing loan analysis, we build in 5 different scenarios into that. There's the base case and the pessimistic, which we provided some disclosure on historically. But in addition to those, we do run 2 other scenarios that -- one that focuses on kind of a much more depressed oil and gas environment and one that focuses on a much more depressed housing environment. And so those are factored in, and we weight those accordingly because we do view it as lower probability events. And so when we bring those into play, that is why our overall allowance is materially higher than our base case would articulate. As the environment shifts and unemployment moves with that, certainly, unemployment, interest rates would be some of the bigger factors that would drive that allowance. But the sensitivity that's really going to be dependent on the portfolio and dependent on the business mix that we're looking at. But I think, today, we've really disclosed more specific than what you've seen in our disclosures in Q4.

So if I could just paraphrase. If Royal's business mix were to shift toward, say, aggressively into leverage lending, I'm not suggesting that's what's happening, but if the business mix were to shift to something that was a lot riskier and you moved your weightings toward the -- those unfavorable scenarios meaningfully because you saw a big deterioration coming, is that the scenario -- are those the scenarios or conditions under which those performing loan PCLs would rise meaningfully?

Well, I think there's a lot of difference. It's -- if we adjusted our base case in a meaningful way, that would drive it. And as I said, unemployment would be one of the biggest factors there just because of the sheer size of our retail business. Businesses like cards are inherently more volatile than other businesses. So again, the factors there will be driving that will be things like unemployment. On the wholesale side, it is factors like interest rates and actual market performance, commercial real estate indices that drive the models there more. So different factors driving different parts of our portfolio. Credit quality will drive that. So we see deterioration in our credit quality. We'll see an impact there. But as I said earlier in the comments, growth is what drove it on one side of this quarter and some of the macro changes we made this quarter drove it. Credit quality this quarter, for example, wasn't really a contributor to the overall allowance.

Our next question is from Sohrab Movahedi with BMO Capital Markets.

Neil, I'm sorry if you mentioned this and I missed it, but can you just provide a little bit of additional detail as to geographically where the mortgage growth is coming from? And when you shared the statistics around -- I think Dave may have mentioned it around how many new customers you're picking up. Is this a measure against that? In other words, are you picking up new mortgage customers and it's counting towards your, I think, goal of getting to around 2.3 million net new customers by 2023?

Sure. Thanks for the question. Mortgage growth really being driven out of for the eastern part of the country, so Ontario being the strongest. We're seeing really strong performance around the Toronto, the GTA. Southwestern Ontario, strong housing markets in places like Hamilton have been very supportive. And then in Quebec, we have a very -- we're the number three 3 player in Quebec. We've got a strong footprint there and well described as the strong housing market in Montreal,. So those will be the fastest-growing regions in the portfolio. We have seen BC start to pick up as that market start to recover from the price corrections we saw a little over a year ago. In terms of -- sorry, the second part of your question was around new clients. In terms of new clients, I guess, a couple of comments we'd make building on Dave's commentary. We set out a plan to get to the targets that we laid out for 2023. We have an action plan in place. So we're feeling confident about the plan. We're up about 10% in terms of new client origination. And specifically, your question around us is mortgage -- is new mortgage clients part of it? It is, but the primary sort of first products we're onboarding clients into would be the core checking account as well as the credit card. So those would be the 2 largest, but absolutely, new mortgage clients would go into those totals.

Our next question is from Scott Chan with Canaccord Genuity.

Maybe just switching to the U.S. side. Mortgage growth up 24% year-over-year. Is that driven by kind of core City National Bank in terms of its core location or is it kind of new branches or is it just the U.S. housing fundamentals are picking up momentum as well?

Our growth is across our markets. Our core market of Los Angeles and California, in general, continues to perform very well when you look at MSAs. We are growing the number of branches we have in New York, and it's become a core kind of lead product to acquire client relationships. Similarly, in our other cities that we've expanded to, and that was part of the strategy that we articulated from day 1 as we could accelerate our expansion and our breakeven expansion by bringing new products to bear. So this is part of the strategy we've been talking about for 4 years. It's fantastic to see the team execute it. We've spent a significant amount of time building the back office to handle this type of volume growth and to deliver an exceptional experience and a quality experience for our clients. And you're acquiring a lower risk customer. So this is exactly what we are looking for and how we want to grow the bank. We're adding new branches in New York City this year and into next year, including into Hudson Yards. And this will be a core part of the growth strategy for our business.

Our next question is from Mike Rizvanovic with Credit Suisse.

Just wanted to go back to the margin guidance for Canadian Banking. And I think the guidance was for 3 to 5 basis points of further compression potentially if we see the same sort of trends. Would that incorporate not just the competition that was cited, but also low mix?

Yes. It's Rod. It factors in the pricing competition. It factors in what we're seeing out of the Bank of Canada in terms of the forward rate curve as well as product mix. And so similar to a year ago when in the kind of the full winter season fixed-rate mortgage spreads kind of came to a low point. They rebounded a bit last year in December and then into January and into the spring season. This year, that rebound was delayed. It didn't happen until January, but we've seen that those spreads rebound in January and again in February. So we would expect that to hopefully continue. Again, it's a dynamic marketplace. So yes, you have mix, you have the markets and you have competitive pricing pressure. And competitive pricing pressure has been the biggest driver of the last 2 quarters decreases. And what we're seeing in the marketplace right now is for that to abate somewhat for the rest of the year.

Okay. So that does incorporate some sort of spread pickup. I'm just looking at what's happened in the last 2 quarters and you've had about an 8 basis point decline. So is it fair to say you're expecting a little bit of improvement in the actual spread relative to where it was or something to mitigate what we've seen the last 2 quarters, I guess, what I'm getting at?

Well, what you've seen the last 2 quarters -- in Q4, you saw a mix. So that was mix and pricing competition. So that was a combination of the GIC growth and the mortgage growth being the predominance of our volume growth in Q4, which are lower spread products. So that's a mix issue. You also saw some of the fall and into winter season spread compression that we've seen in the last 2 years on the mortgage side. So that was the predominance of the 4 basis point in Q4. This quarter, it is the -- again, the weakness in the marketplace from a pricing perspective on the mortgage side is the primary factor this quarter. And now that we're seeing spreads normalize a bit as we saw in January and into February as well as last year, we expect that impact to moderate, similar to what we saw last year. Last year rates were still going up. So you didn't actually see all of this because you thought rates were going up last year. But now that rates are coming down, this is more dynamic in what you're seeing, but we don't expect that 4 basis points each quarter to continue. In fact, we think it's going to be the 3 to 5 basis points for the rest of the way.

Our next question is from Nigel D'Souza with Veritas Investment Research.

I'd like to point you to Slide -- or Page 16 of your presentation slide. So you mentioned -- Graeme mentioned weakness in your unsecured retail portfolios. And when I'm looking at your personal lending, 90-day delinquency rate, it's relatively stable along with PCL. So I'm wondering if you could provide some color first on what's driving that stability given also a lower mix of HELOCs in that lending bucket? And then second, on credit cards, there's a sizable increase quarter-over-quarter in your 90-day delinquency rate. I'm wondering if you could provide some insights on to how much of that is being driven by the rule change you noted in Quebec. And also when we look at the PCLs and write-off rates for credit cards, they're actually down sequentially. So could you provide some color on what's driving that divergence there between delinquencies and PCLs and write-offs?

The -- so this is Graeme. Maybe I'll address that. I guess I'll be just reiterating some of the comments I think we -- I made in my speech earlier that the 2 main effects we're seeing are one in Quebec, specifically, is the impact of the change in the minimum card payment amount. And so that's translating through both the -- uniquely to credit cards there, but it's also impacting overall insolvencies in the form of consumer proposals. And as I said earlier, the personal lending -- we see Alberta influencing that in part, and that's just the weakness in the Alberta situation there. And then, additionally, we are seeing rising insolvencies and consumer proposals more broadly than that. That's, I think, driven by a few things outside of Alberta, where, say, in Toronto, we've got very strong employment situation in Toronto, but you are seeing a rising cost of living. There's a latent effect associated with rising rates from 2018 and then, more recently, you'd see rising rental costs that are influencing the cost of living for clients that despite strong employment is tripping through into the personal lending piece. So those are some of the factors that we're seeing. So maybe I'll -- Neil might have some comments here just on the growth side that could be influencing that as well.

Yes. The one other thing I'd just add to Graeme's comments. On the personal lending, we talked in previous calls, that was a portfolio that was flat to actually had negative growth, and that's returned to about a 3% growth. So you're starting to see kind of just the denominator effect of growth on the PCL as well. And then the credit card book -- the seasonality is one of the biggest drivers there, and Graeme mentioned that in his comments, coming off the holiday season, very predictable.

And it's Rod. I'm just going to give you -- for what it's worth, in Q1 of '16 and Q1 of '17 and the Q1 of '18, the 90 days past due for credit cards was 80 basis points each quarter. So very similar to what we're seeing today. I think what you saw last year in Q1 was more of a cyclical low.

Okay. We'll try to take one, maybe 2 more. I think there's a couple in the queue. So try to answer quickly and ask quickly.

Our next question is from Ebrahim Poonawala with Bank of America Merrill Lynch.

So we'll make it quick. Just for Graeme, following up on credit. I mean, I think when you talk to sort of global investors, lots made out of the consumer proposals and insolvencies rising. I think you addressed that a little bit in some of the questions you've answered. But outside of the coronavirus, outside of the rail strike, just if you can talk about, one, should those proposal and the insolvency increase worry your shareholders and investors around sort of increasing credit risk around the consumer? Or you think that's kind of a little bit more bouncing off the lows, idiosyncratic in nature? I think that would be helpful.

Again, if we look at our consumer portfolio overall, on the secured products -- trends overall are very strong. They're very consistent with what we see in our origination, has been a very consistent profile. When we look at the mix of our credit ratings on the consumer books, it's been very consistent. And the delinquency trends have been strong there. And so I called out specifically the effects that we're seeing on the unsecured because that's really the one pocket of weakness that we're seeing driven by the rising consumer proposals and the effects that drive those are really the ones we've talked about here, the weakness in Alberta on one hand, the card of -- the minimum payment effect in Quebec and then the general cost of living impact elsewhere. And so outside of those pieces that we've called out, again, I would say the consumer portfolio has been a very, very stable credit profile for us. We have not changed our origination strategies there. And so we've been very persistent and consistent in what we're bringing into the front door. And so I think those are the key messages that I would continue to leave you with on the consumer side.

And do you think the 3 things that you pointed out, do they get worse or do you think that should be relatively stable?

Ebrahim, we have to cut you short there. We'll take 1 more question, sorry.

Our next question is from Steve Theriault with Eight Capital.

Okay. I'll keep it quick. Part of it was asked and answered. But Neil, if you could just complete the loop a bit for us in terms of some commentary around the HELOC versus the traditional mortgage mix.

Right. Yes. I think Rod actually made -- touched on it in his comments. We have seen -- so the HELOC book is actually shrinking. We're seeing customers move those into fixed-term mortgages, partly because I think clients outlook on rates and really wanting to have a predictable payment. And then also, as they work with our team, if that's the right advice for the clients. There's -- Rod touched on business mix. There is a margin reduction we take on that, but we do focus on the client. If that's the best advice for the client, then that's what we do. And we did see an acceleration of that in Q1 versus our sort of run rate for 2019.

I will now turn the meeting back over to Mr. McKay.

So thank you, everyone, for attending today's call and for your comments. There's a couple of themes we really wanted you to take away from today's results and call that we just finished, and that is around strong volumes across all our core franchises: you look at the Capital Markets results, out of our Global Markets business, out of our Investment Banking business; you look at our Canadian banking franchise for mortgages to cards to commercially; you look at the Wealth Management results, which no one -- in Canada, which no one asked about, but generating a great core volume, great share gains, very strong results there that we didn't touch on in any of the questions; you look at the City National volumes just pushing 20% from both deposits and lending; you look at strong insurance results. So it really talks to core momentum from the investments we've made in capacity, in digital capabilities and investing in value for our customers, have really delivered core volume growth. We've done all of that while maintaining high ROEs. So there's a lot of questions about margin. But at the end of the day, we drove 17.5% ROEs on a 12% CET1 base. It talks to the returns we're getting off of the business we're booking, the cross-sell ratios we're getting, all done within a consistent credit appetite. So we feel very good about our start to the year. Thank you for your questions. We look forward to speaking with you in Q2.

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