Good morning, ladies and gentlemen, and welcome to RBC's Conference Call for the Second Quarter 2022 Financial Results. Please be advised that the call is being recorded. I would now like to turn the meeting over to Asim Imran, Head of Investor Relations. Please go ahead, Mr. Imran.

Thank you, and good morning, everyone. Speaking today will be Dave McKay, President and Chief Executive Officer; Nadine Ahn, Chief Financial Officer; and Graeme Hepworth, Chief Risk Officer. Also joining us today for your questions, 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. To give everyone a chance to ask questions, we do ask that you limit your questions and then requeue. With that, I'll turn it over to Dave.

Thank you, Asim, and good morning, everyone. Thank you for joining us today. Today, we reported earnings of $4.3 billion with earnings per share -- excuse me, up 7% from last year. Revenues were modestly lower year-over-year, largely due to moderating Capital Markets revenues, given unfavorable market conditions. This was partly offset by strong client-driven volume growth in Canadian Banking and City National and solid Wealth Management client activity. Expense growth was only 1%. Before I share context on our earnings this quarter, I want to acknowledge the increasingly complex macro and geopolitical environment. As Russia's invasion of Ukraine drives on with devastating effects, we continue to stand with the people of Ukraine and consistent with our purpose of supporting the humanitarian effort relief efforts in the region as well as the Ukrainian diaspora in Canada. From a macro perspective, while I noted last quarter that we were closer to the mid-cycle economic growth, the ongoing impact of Russia's invasion has added further complexity to existing challenges. From elevated inflation, a rapid tightening of monetary policy, supply chain disruptions and shortages in energy, labor and housing supply. Central Bank actions are having a profound impact on both bond and equity markets and, in turn, impacting capital markets activity. Central banks are facing increasingly difficult decisions in how to manage monetary policy to constrain inflation without impacting economic growth. Given low unemployment, rising wages and elevated liquidity, we believe the key ingredients are in place to help mitigate any sustained slowdown. In this context, I will now speak to our proven business model, which generated a strong 18% ROE this quarter, underpinned by the strength of RBC's financial position, our diversified revenue streams and a balanced growth in capital deployment strategies. These helped drive significant book value per share growth of…

Thanks, Dave, and good morning, everyone. I will start on Slide 9. As Dave noted earlier, we reported earnings per share of $2.96 this quarter, up 7% from last year. Revenues were down 3% year-over-year as strong volume growth and higher investment management and mutual fund revenue were more than offset by an expected slowdown from very strong Capital Markets results last year. Expenses were up 1% from last year with pre-provision, pre-tax earnings down 2%. Our results benefited from a net release and provision for credit losses, which Graeme will speak to shortly. Our effective tax rate was down 270 basis points from last year, mainly due to the impact of net favorable tax adjustments. The legislation associated with the proposed federal budget tax changes has yet to be drafted, and as such, it is too early to comment on details associated with those changes, which we expect to increase our tax rate next fiscal year. Before moving to segment results, I will spend some time on 3 key topics: our balanced capital deployment strategy, our broad-based sensitivity to higher interest rates and our focus on expenses. Starting with capital on Slide 10. Our CET1 ratio was a strong 13.2%, down 30 basis points from last quarter. Our earnings this quarter drove a premium ROE of 18%, generating 75 basis points of capital. We continue to maintain a balanced capital deployment strategy, allocating capital fairly evenly between growth, dividends and buybacks. Inclusive of both dividends and buybacks, our total payout ratio was over 80% this quarter. At the midyear point, we have completed half our previously announced normal course issuer bid and have returned to our traditional policy of twice a year dividend increases. Our organic business growth was largely driven by strong financing across Capital Markets, City National…

Great. Thank you, Nadine, and good morning, everyone. Starting on Slide 20. Our gross impaired loans of $2.1 billion were stable this quarter and are at their lowest level in 7 years. New formations of $398 million increased quarter-over-quarter as they normalize from the 10-year lows experienced last quarter, yet remained below pre-pandemic levels. The increase was mainly in capital markets where we had a new impaired loan in each of our other services, include consumer staple sectors. Turning to PCL on impaired loans on Slide 21. During the quarter, we saw pandemic containment measures continue to use, doing an economic recovery that has resulted in better-than-expected unemployment rates and GDP growth. These factors drove very strong trade outcomes in Q2 with PCL on impaired loans of $174 million or 9 basis points, which is stable compared to last quarter and remained well below pre-pandemic levels and our historic norms. In the Canadian Banking portfolio, PCL on impaired loans was down $40 million from last quarter, primarily driven by our commercial portfolio. Even though the benefits associated with government support core programs for commercial clients have largely concluded, performance has remained strong. Provisions on impaired loans to this portfolio came in at just [$1 million] this quarter, with mid-stage delinquencies also declining from last quarter. This strong performance is also observed more broadly with delinquency rates being lower across all of our Canadian Banking portfolios, as clients continue to benefit from a combination of elevated savings, strong labor markets and the overall economic recovery. In Capital Markets, after 4 consecutive quarters with net PCL reversals, we have seen recoveries normalize as expected, given the low level of impaired balances remaining. PCL on impaired loans was $27 million in the quarter due primarily to provisions on the newly impaired loan in…

[Operator Instructions] The first question is from Ebrahim Poonawala from Bank of America.

I guess, Dave, just wanted to get your thought process around capital allocation. I think the macro environment is extremely uncertain. I think you used words such as central banks having a profound impact, the Ukraine war adding increased complexity, but on the other hand, of all your peers, you have most excess capital. I think Nadine mentioned that the Basel IV changes will probably more than offset the Brewin impact to capital. So would love to hear as you think about on a go-forward basis, ex organic growth, like how do you think about capital allocation? Do you lean in and become opportunistic in terms of maybe looking at more M&A deals? Or do you hold back and leave some dry powder because things could get worse 6 to 12 months down the road?

Thanks, Ebrahim, it's a great question. I think we've benefited significantly already by being patient, obviously, as valuations change. And I think to your point, we're trying to present a balanced view of the economy right now and that we're mid-cycle, but many late cycle signals to your point. And as central banks struggle to contain inflation, they have to hit demand really hard, and therefore, it's difficult to predict from a macro perspective the impact of rates on demand combined with the impact of inflation on demand and lack of services to meet that demand. So I think from that perspective, markets are struggling to predict how we land the economy, do we land it with a slight recession. And our message today is, it could go either way, it's 50-50. Having said that, there are strong underlying tenants to the economies of liquidity or kind of full of employment and therefore, there are good shock absorbers to absorb that uncertainty. However, the central banks will hit demand pretty hard, and we're forecasting demand -- or GDP next year to be roughly 2% in Canada. So as you think about that trajectory in line with being opportunistic, I think to your point, patients has been rewarded, and therefore, do you really want to pick up someone else's credible at this point in time? Or do you want to see how this plays out a little bit further? So from that perspective, we remain in a balanced posture, which you heard us comment on all our speeches around RWA growth, around share buybacks and around dividends. So I think from that perspective, continue to see us focus on creating, we think, premium shareholder value, shareholder TSR through those 3 balanced mechanisms. I think you'll expect that as our first strategy right now. And then always -- look, because we have such significant organic capital bill because of, as you referenced, the upcoming regulatory changes, we still have significant excess capital to be opportunistic and therefore, we think patients will be rewarded.

And as a follow-up to that, Dave, I think you were very clear last quarter when you talked about Wealth Management interest in U.S., Europe and then obviously, you announced the Brewin acquisition. If you had to sort of pin down to 1 or 2 things that would be of interest, is it still more stuff to do in Europe? Is it something on payments, digital? Any perspective would be helpful.

Yes. At the end of the day, we're very excited about the Brewin Dolphin opportunity. We're excited the shareholders fully approved that with, I think, a high 90s approval rate on Monday. It presents us #3 as an integrated full-service wealth player in the UK, an attractive structural market. And therefore, over time, as we -- our first and foremost objective there is to execute on our synergies and our significant synergies, but having -- when we get into that, then the opportunity in a highly fragmented market to make further consolidations is obviously there. And we are -- we continue to pursue a strategy of creating value for clients complex clients with complex needs, high net worth, ultra-high net worth. So therefore, we continue to look for those opportunities in North America and obviously, in Europe to diversify our revenue stream, diversify our balance sheet. At the same time, my comments around the diversified commercial real estate sector, we have a uniquely diversified portfolio because we have high net worth clients that have real estate needs. We have capital markets clients that have real estate needs globally. We have Canadian clients. And therefore, the diversification of our balance sheet through a cycle is a great asset to us, and that's why we continue to build and seize this business, and not just from a revenue diversification but also balance sheet, and risk. So I think all your questions are important. We find it a very attractive sector that doesn’t need a lot of capital to grow once you make an acquisition. And therefore, we continue to have those. At the same time, we are looking at, if needed, small acquisitions in the technology fintech world, we continue to look at medium-sized acquisitions there to continue to accelerate client acquisition and value creation in our commercial, consumer and wealth franchise. So, yes to both. Great question.

The next question is from Meny Grauman from Scotiabank.

Just following up on that in terms of how low you'd be prepared to take your CET1 ratio? Again, Dave, given your comments on the complex macro environment, has anything changed for you there in terms of sort of, operationally, how low you would be prepared to go? Curious your thoughts on that.

Obviously, we have regulatory minimums and buffers above that, and given our strong capital generation ability and depending on the type of acquisition, you could take it down to kind of the regulatory threshold plus a buffer and servers buffer. Therefore, we have significant capital to work with on any type of potential acquisition. Nadine, would you like to add anything?

Yes. And I think you covered it, Dave. I mean, I think we said at over $13 billion, right, at the levels of what Dave recommended. So realistically, I think many than the comments I referenced in the speech that we are looking at some positive impacts associated with Basel III, I think that, to your point around prudency around what's happening in the macroeconomic environment, we still have sufficient capital to make decisions around strategic opportunities as well.

And just to put a finer point on it, would 11%, like a 50 basis point buffer be acceptable even in this kind of environment?

Maybe a little higher, but not a lot. But not significant, you're in the right zone. Yes.

Got it. And then just in terms of those new impaired loans in the Cap Markets business, is there anything interesting about those? Are those impairments in any way related to supply chain inflation? Any of the complex issues we're talking about or more idiosyncratic, if you're able to even sort of disentangle then?

Yes. Sure. Meny, it's Graeme. Just a couple of comments there. I mean yes, we don't really comment on client-specific accounts. I would just say, we've kind of gone through a year here in Capital Markets where we've had basically no new impaired loan formation. So it's the fact that we have 1 or 2. I wouldn't draw anything extraordinary out of that at this point in time, and I wouldn't say, there was anything dramatic across the 2 accounts either. I would just marry that up with -- if you look at the scoreboard of all of our kind of early credit indicators, those all continue to be very positive signals. And so I wouldn't treat this as something against that, if you will.

The next question is from Gabriel Dechaine from National Bank Financial.

I want to ask about the net release and the big performing provision release. So I see from your note, the graphics there showing your base case assumptions for GDP unemployment and all that looks like it's become a bit more conservative than what you had at the last quarter or the start of -- end of last year. Your loans classified as Stage 2, the higher-risk performing category, up 14% quarter-over-quarter. And then I see this, whatever, $504 million performing ACL release. That's the second biggest number since the release cycle started in 2021. Can you help me understand the moving pieces here? On one hand, it looks like deterioration, but then from a provisioning standpoint, clearly not.

Yes. Sure, Gabriel, it's Graeme. I'll speak to that. Certainly, on the competing factors. As I made comments in my notes, certainly, we're seeing a lot of positive economic signals right now, right? And that's translating into very strong credit performance in terms of Stage 3 results, and looking forward from that, we've got strong cash balances, still low utilization rates. We're still seeing upgrades out on bring downgrades, delinquencies at low kind of performing levels. So we have a very strong kind of near-term credit environment. But if we back up what's driving that, we -- in driving the release here, I would really kind of break it into those 2 parts. One is, we put in significant reserves back in 2020 in light of the kind of the extraordinary environment we were in with the kind of complete economic shutdown, and we gradually released those through 2021 and into 2022. But nonetheless, we've not got to kind of the pre-pandemic levels that we were at back in 2019, if you will, to early 2020. I mean we've hold on to significant reserves there based on the uncertainty that we've still been facing. And I would say that uncertainty was still tied to 2 proof points for us. One was around kind of what was going to happen following the end of government support. And when government support largely concluding in the fall, we really wanted to see the signals and the outcomes of that. And then going back to the data points I referenced earlier, we're not seeing the kind of negative consequences we were worried about as government support came to an end. On top of that, we saw earlier this year, we were obviously kind of facing Omicron and that created another uncertainty here, whether society…

Okay. That's very clear. Just a technical question though. I've heard Dave talk about it on numerous occasions there, labor shortages and inflation, I mean obvious challenges to the economy. Where does that all own yourself for that matter? Where does that factor in? When I look at these forward-looking indicators, that’s primarily a toggle on your GDP forecast, like it's not -- it's something that -- these are the major risks to the -- on the economic outlook, I guess. And just wondering where I would see that reflected?

Yes. So inflation, so that's one of a number of macroeconomic variables that we factor into our kind of our loan loss considerations. Really we're transiting that through to kind of the direct impacts that we would see, say, on interest rates, the rising rate environment, and that's kind of a direct variable. The certainty that creates around widening credit spreads, which is another factor; higher yield, which is another factor; GDP itself is a factor. So it indirectly, if you will, translates into all those variables, which do drive kind of our models and our other analytics that we bring to bear as we decide on our loan loss allowances.

The next question from Paul Holden, CIBC.

I want to go back to the discussion around capital allocation, but a little bit of a different angle to it. Just with respect to organic capital allocation in light of your more balanced view on economic risks, like is your risk appetite changed at all with respect to underwriting new loans, whether that's on a broad basis or there specific areas you're pulling back risk?

Maybe I'll start with a high-level view of how we approach it strategically and I don't know, Graeme, if you want to jump in after that. Certainly, we take a through cycle approach, right? We look at long-term client relationships. You can't time markets. You can't pulling out of client deals once the clients on the books are there for a while. So therefore, our risk strategy is consistent through a cycle based on kind of our overall client and business strategy. So we don't tweak nor do we materially change how we approach that, and obviously, when you're looking at market deterioration and other things, you may miss more deals because of that, and you're certainly seeing that now in a number of kind of lending sectors where competition and I call end-of-cycle practice is not everywhere across the credit spectrum, but certainly, in some significant pockets of the credit spectrum. You're seeing end-of-cycle pricing behavior, end-of-cycle terms and condition behavior. And that could cause you to miss deals with a consistent lending structure, which is obviously happening today. But Graeme, did you want to elaborate on that?

Yes. I think the kind of hit that key phrase, which is that through the cycle approach. We've designed our risk appetite so that we can be that very consistent and persistent support for our client base and know that we can operate effectively through the cycle. So when times are good, we're not out there stepping hard on the gas pedal. We are constantly reviewing and stress testing our portfolio to make sure that we are resilient for when we get into more difficult periods and continue to lend into that and support our clients on that, and I think that's critically important. And as Dave mentioned earlier, I think the other piece that quickly feeds into that is the diversification we have and not just the value that is from kind of the top line, but the importance that plays in kind of our ability to be that consistent support provider, if you will, through the cycle.

All right. Okay. And then second question is with respect to management of liquidity and potential shift in deposit trends. So you obviously saw good deposit growth quarter-over-quarter, little bit of a pullback in the U.S., I guess, because of higher deposit betas. Maybe you can address that a bit. But how are you thinking about the risk of an QT given inflationary pressures on retail customers, et cetera, and management of deposits and liquidity?

That's an excellent question, Paul. I think it's something that everyone looks. I mean as was announced with the Bank of Canada, they would start allowing some of their bonds to mature at about 20% per year. When we look at it from our deposit base, I mean we would expect that with quantity of trying to withdraw some of the liquidity from the system and have a modest dampening effect on deposits. But I think given our franchise overall, we're not really expecting that to have a material impact because we do expect that it will occur over time. So what you have seen is a slight slowdown in our deposit growth, if you will, but still growth in another event. So I think as it relates to overall liquidity, I mean we do keep that in mind when we saw the big ramp up in our deposit base have gone through the period and evaluating how that may transition into either paying down that surplus liquidity has definitely been an asset in the economy overall. But we take that into consideration when evaluating how we deploy those deposits. But we don't think that it will have a material impact, as I mentioned, is expected to be grow over a period of time. I would also say that, that deposit base has been a strategic complement to our advantage overall and funding advantage given the fact that not only has the low beta on it and I'll reference the U.S. in a moment, but in Canada, in particular, how that's accelerating our NII growth, but also a funding advantage overall to support our strong asset growth, both in Canada and the U.S. In the U.S., it's a bit of a different dynamic. I would think that you saw that part of our deposit slowdown in the quarter before. We did anticipate that given the fact that there is a higher deposit beta in the U.S., but we still do expect that only to ramp up very slowly over time with the Fed rate hikes getting up to 200 basis points roughly before we start to see that deposit beta around the 39% start to move up.

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

I think, Nadine, in your prepared remarks, you talked about Canadian Banking op leverage being negative this quarter, 1% -- or just under 1% year-to-date. But I think you also mentioned driving operating leverage to above 1% to 2%, which is your historical range or target area for fiscal '23. And the mix ratio below 40% in fiscal '23, although I don't think that's new news. But I'm just more curious about what gets you to where -- from where we are today to where you think you're going to get to next year?

Maybe I'll start and then I'll turn it over to Neil. I think what you started to see particularly this quarter was around our margin expansion, up 40 basis points on a quarter-over-quarter basis, and we would expect that continued run rate as we start to see the interest rate increases. And I mentioned, a lot of the benefit of that coming from our low beta, strong deposit base and so that is really driving a lot of the growth we're going to see, not only off of the increase in interest rates, but continued strong volume growth. In addition, just around the management of our expenses, and I'll turn it over to Neil, but we're very -- we obviously hit a very low period in Q2 last year, a very difficult comparative as we've been increasing some of our spend, not only on the increase in sales force, but also in some of our marketing as well that we've come off very low levels from last year, but we're managing that expense base. I mean we can talk to a number of areas where we are not only improved our productivity from our frontline perspective, but also some of the initiatives that we've undertaken in our investments in digital and technology, which are also helping on the back office side. So that's why we're looking for the expansion in operating leverage. And I'll turn it over to Neil for comments.

Yes. I mean just a little more color on what Nadine already provided. I mean our outlook on NIM is 4 to 5 basis points per quarter for the next couple of quarters. So just to kind of dimensionalize the trajectory there. The deposits will play a big part, and we spoke about the market share gains on the core deposit with relatively low betas. The other things I think we've talked about thematically, but getting with the revolve rates back in the credit card book, as Dave mentioned in his prepared comments, that's one of the drivers of NIM. I haven't talked as much about just the other income, and there's a couple of things as we look year-over-year for Q2 in that line. Mutual funds, obviously, with equity markets down or a headwind, we talked about a normalization of direct investing. Our credit card service revenue -- last year, we benefited dramatically from a lower redemption experience with travel not being available as an option. That's obviously opened up when we had higher redemption experiences. And we also had to take upfront the cost of new card acquisition bonus points. So that was about $45 million for the quarter, relatively flat card services revenue for Q2. We'd start to see that normalize as we move forward getting into sort of more parallel to the purchase volume growth rates, which were over 20% for the quarter. So I think those are some of the things, and then just new client acquisition and strong volumes. So about almost 10% volume growth on the collective business and just really pleased with how we're onboarding new clients in those platform.

Perfect. And then just secondly, Graeme, I think you mentioned in your remarks, you -- correct me if I'm wrong, credit challenge is not likely to surface in fiscal '24. And I'm just trying to get a sense of what you're kind of meaning here. Is that when you think that you're going to get a peak-out in PCLs? Or I'm just trying to get a sense of what's the thinking behind that.

So a good question, a good follow-up there. Just to make sure I clarify. So I think there's 2 things. There's the kind of normalization of credit cost. I was talking about -- we've obviously had very strong credit outcomes and as kind of the actuals that have come in over the last few quarters have proven to be stronger than we'd anticipated. Obviously, that's reflective of things like 40-year lows on unemployment. And so we expect that will kind of extend out longer than we thought, and thus, kind of the return to more normal levels of Stage 3 losses, probably down deeper into 2023. Separately, when I kind of reference 2024 is really more getting into some of these emerging headwinds that we're seeing, right? So the impacts of rising rates and the potential for higher inflationary environment, kind of those will -- certainly will have an impact in terms of forward credit costs. I just was saying, I think the timing of those, the impact of those are even, if you will, more deferred. When you look at some -- certainly some portfolios like maybe our unsecured credits or small business could see that kind of impacted sooner, but many of our businesses were kind of the loan profile or debt profile has been termed out. It's not so that kind of profile starts to turn over that you'd start to kind of see the impact on kind of delinquencies and impairments come through. And so whether that's our res mortgage portfolio, our commercial real estate portfolio or even many parts of our capital markets kind of wholesale portfolio, the impacts there are probably more latent due to those kind of emerging headwinds.

The next question is from Lemar Persaud from Cormark Securities.

Maybe flipping back to Graeme here. I think you covered off some of this in earlier responses on credit. But following this quarter's release, you're actually now at an ACL coverage ratio below what the bank had at the end of Q4 '19 with pre-pandemic. But it looks like to me there's a lot more economic uncertainty today than at the end of 2019. So could you maybe help me understand why you're comfortable with the kind of 49 basis points coverage on -- I think it's Slide 22 versus, I think, the 53 basis points you at the end of 2019. Like perhaps, at a high level, there's some uptiering in the portfolio, changes in business mix or just maybe you're just overall more comfortable operating under IFRS 9 now, just given that you've gone through a period of stress. So any thoughts there would be helpful.

Yes, that's a good question. Thank you. So I think you hit on one of the key points there, which is mix, right? And so if you adjust for mix, we would still be about 8% to 10% higher than where we were back in 2019. So I think that's a key variable. Most of the growth, I don't know, over the last 2 years on the balance sheet has come from the residential mortgage portfolio, which is kind of one of a lower coverage ratio for it. On the other end of the spectrum, obviously -- and Neil alluded to this earlier, on the cards business, which is a high coverage ratio business, obviously, we have lower balances there and even the balances we do have are much more towards the transactor and not the revolver, which is a lower risk profile. So mix is a significant contributor to that. I would say also, if you go back to 2019, we were building our reserves then because we're feeling we were getting towards the end of cycle. So we were already, I think, playing ourselves into a more prudent posture with our reserves back in kind of late 2019. Obviously, 2020 presented a whole different level of magnitude of concern, but as we get back to now, we obviously are facing an uncertain environment, and we do factor that into our framework, as I talked about earlier. And certainly, $200-plus million increase in our loan loss reserves related to those factors, it's certainly considerable by any kind of non-COVID kind of norm. And so we are taking the right actions to make sure we are truly reserved kind of for these new headwinds.

Okay. That's helpful. And then I just want to come back to Slide 5, where you talk about the kind of utilization in Canadian Commercial Banking. How much of that sequential increase at [84.9] from Q1 '22 to [87.9] was driven by the utilization? Because I think there's other factors in there, paydowns, new customers of the bank, et cetera. So just wondering if we could just isolate for the utilization.

Yes. So maybe I'll just -- it's Neil. I'll just speak to the utilization question. So utilization, we'd say, has trough, has begun to tick up. But it's only -- it's not even, I would say, back to the sort of halfway from trough to where we were pre-pandemic. So a couple of the drivers in there, just demand loans and operators sort of in the diversified book. But I think differentiated versus other lenders is, we're a leader in the automotive floor plan finance business and that has only just started last month to come back. So we're negative growth actually in the book for basically the entire of the pandemic. So still room to go. We would count that as one of the opportunity areas with, we believe, having a higher risk-rated customer, we feel comfortable putting operators out to them and then just business confidence leaning into using those operating lines.

Okay. That's helpful. But specifically, what I'm getting at is, is the [84.9] to the [87.9] sequential. It looks like utilization went up 1.3 points. So you like how much of that $3 billion would do that 1.3 points of utilization from Q1?

Yes, we'll have to circle back to break down the number. I've given the utilization tick up, but we can break out how much of that is new exposure and then how much of that is utilization. We're going to try to get through, I think, 3 or 4 questions quickly here, and as everyone's been waiting patiently. Next question, please.

So the next question will be from Sohrab Movahedi from BMO Capital Markets.

Graeme, I wanted to just come back to you. I mean I think you've done a excellent job of explaining the challenges of providing provisions under IFRS 9. I guess what I would like to understand is, is the net result that provisioning now just becomes a lot more reactionary than forward looking? I guess, number one. And number two, what would have been than 1 or 2 key drivers that would have contributed to the bank's decision to put so much reserves aside during COVID that have now, I guess, reversed? And I'm hoping for more than just, well, the economy is reopening. And I'd just like to understand what did you anticipate was going to happen and to what order of magnitude? And how has that not transpired?

So your comment over on reactionary versus forward looking. I mean inherently, IFRS 9 is intended to be forward-looking, and it is fundamentally based off on our forward projections of a whole series of macroeconomic variables. And that is pre-pandemic, that was largely what drove it. When we kind of found ourselves in the pandemic, very extraordinary situation where the broad economy had shut down, that is where we kind of had introduced, if you will, other lenses, other kind of analytics we brought to bear to kind of consider the real consequences of that. I think as you saw through 2021 as the broad economy did recover, and again, these are the forward-looking indicators, we did bring it down through that period. Certainly, we brought it down at a rate slower than you would have seen in other jurisdictions, despite kind of the strong kind of forecast on that recovery at the time. And that's because there's really 2 factors that go into IFRS 9. There's kind of, what is your baseline expectations, but what is the uncertainty around that? And that is the piece that we continue to hold back on with IFRS 9 and ratio of the pandemic was the kind of level of uncertainty. And the government support was a huge factor in that and really trying to get our heads wrapped around to what degree that was just pushing back negative credit outcomes versus truly mitigating them. And so that was what I mentioned earlier, we really wanted to see kind of the proof points come off the back end of government support concluding. And so that is a big factor of kind of why we are kind of taking the further steps now to say, we don't have that same uncertainty with the pandemic that we had in place 3 and 6 and 9 months ago. The other one was, again, these subsequent ways. And sitting here in Q1, we are obviously kind of facing Omicron as a huge new wave coming at us, and we need to see that the tools we now have in place with vaccinations and treatments, we're going to allow the economy to remain open or we're going to be back on this roller-coaster. And so we had 2, in my view, big proof points that we needed to kind of get to a spot that we were more comfortable going back on this uncertainty reserve, if you will, that we've had in place and now kind of trend back towards more focusing on those macroeconomic variables that kind of give us the insights we need going forward. And that's kind of the 2 big competing factors.

I mean not to belabor the point, but I could argue back that -- or what would you say if I argue back and say, yes, but Canadian consumer leverage at an all-time high. Interest rates going up. Higher funding costs for the corporate borrowers. Higher energy costs for our corporate buyers. Higher labor costs for your corporate buffers compliance with ESG going to eat away. Like I mean are we not going to see corporate profit margins if your borrowers deteriorate. And maybe you're saying, yes, but not until 2024, so I'll worry about it later. But like how do you factor all of that in? Or do you disagree with that assessment?

I don't disagree with the assessment. I think those are exactly the kind of ingredients that go into the reason we increased our reserves over $200 million. So as I said, we've got this, if you will, latency coming off of the pandemic that we've said that uncertainty just isn't there in the same way, but we have a whole new set of uncertainties coming into play. There are different magnitudes in our view, and that's why one hand, we're leasing 700. On the other hand, we're taking in over 200 on that. And so yes, you are outlining a set of risks and outcomes that we are worried, and we're attaching kind of greater weight to, if you will, about our baseline, if you will, to have kind of a recessionary environment, but certainly, that's a higher risk. I would say, all the things you're talking about, though, do factor into our fundamental credit processes. These are the kind of matters that get them pounded into our ratings processes, if you will. And those are the core drivers that go into our estimates of forward credit losses.

Next question from Mario Mendonca from TD Securities.

We can go through these relatively quickly. Any impacts of IFRS 17 on the insurance results? If the answer is, it's not material, that's good enough for me.

Yes, not material to what we have know today, no.

Okay. Another thing. The -- in your other revenue, the other line, the $85 million, obviously down a lot from last quarter. Last time we saw this was back in Q2 '20 when there were mark-to-market losses on certain investments and some hedging activity, but it bounced back pretty sharply the very next quarter. Can you just take me through what caused that decline this quarter? And is it appropriate to assume it bounces back next quarter?

Right. I just want to confirm, you're referring to the other, other...

Yes. Yes.

Yes. Okay. So that one relates -- there's a couple of things in there primarily, though, I think you may have seen this before, also relates to what's in there from our, what we call, wealth accumulation plan, which is related to our stock plan. So that's the volatility associated with our share price.

And were there mark-to-market losses in there as well?

Yes. So that -- yes, exactly. That's exactly what you're seeing, and then we have the other offset to that on NIE and that was partially offset by the Wealth Management gains that I referenced in our sale in City National for some of the noncore affiliates, but primarily, it relates to the wealth accumulation plan. That's our slide that we provided for you the breakdown of that, Mario, in the pack.

So very much like what happened in Q2 '20. These things tend to bounce back relatively quickly. Is that right?

It's based on how the market value of our share price, so...

Okay. And then the final thing is on credit fees. It's not unique to Royal, but syndication activity down declined sharply in Q2. Maybe just an outlook on the syndication market in the U.S. that continue to trend down from Q2 levels or has it sort of snap-back?

Mario, it's Derek. Maybe I'll take that one. I think, obviously, in the last couple of months, we've gone through quite an adjustment in credit markets, fairly pronounced through March and April. That did continue through the early part of May. We are starting to see a little bit of stabilization just in the last few days, and so that did impact volumes of new loan syndications activity in the second quarter. I think we're seeing still a very robust M&A pipeline and so that is leading to very reasonable activity, but obviously, with the ongoing market uncertainty, both clients are a little bit more cautious, and we're obviously trying to take a prudent approach to risk on new loan syndication activity against that backdrop until we get greater clarity. So still active, but you're certainly seeing a little bit of a slowdown that was in Q2 persist relative to what we saw against a very robust 2021 and the first quarter of this year.

The next question is from Mike Rizvanovic from Stifel GMP.

Just a quick one for Graeme. Just wondering if you can provide any insights on the excess deposits that are currently on your book for retail. You did mention the mortgage portfolio trending towards the higher income borrower. Are you seeing something similar in that excess deposit base? The reason I ask you, I'm trying to get a sense of how meaningful excess deposits is on PCLs. I mean if it's held by people that normally would not go through an insolvency anyway, maybe it's not as much of an impact. So any thoughts you can provide there would be helpful.

Yes, it's Neil. Mike, I'll start it off and then see if Graeme wants to add anything. I mean in terms of the consumer deposit book, I mean we're still seeing double-digit growth year-over-year, 15% growth in terms of the checking account. So still very strong, and we're still seeing growth, albeit slowing growth on the savings side. So I think that kind of speaks to just where the consumer is in terms of deposits. Maybe just put a little more color on some of the comments that Graeme made. We are seeing in the mortgage book that just given home prices and our underwriting standards, we're seeing just the overall income and the net worth of a mortgage buyer increase over time. And I think a bit of a systemic issue is that first-time homebuyer is becoming less and less a part of our portfolio. There may be non D-SIB lenders that are picking up some of that business that isn't able to be done under the guidelines, but I think it is a bit of a sad commentary in terms of young people being able to get into some of these markets. But it does underpin that overall net worth and just the income Graeme's points about the confidence in the mortgage portfolio.

Yes. The only thing I was going to add just more specifically to your question there, Mike, was just that -- when we look at deposit and savings balances stratified by risk class, we see those elevated and persistently elevated across all risk classes. So it's not just narrow, if you will, to the highest kind of rated and highest income clients, if you will. And so those kind of elevated levels relative to pre-pandemic maybe have started to flatten, but we certainly haven't seen them draw down and it just kind of gain points back to that there's a lot of liquidity available to the consumer out there still.

Okay. Appreciate the color. And then just quickly with Nadine. Can we -- should we still expect the corporate segment to continue to sort of be at that roughly breakeven level on a go-forward basis? I know you had the big tax gain that I think showed up in corporate this quarter. I'm guessing that's onetime-ish as we sort of get back to that previous run rate.

Yes. I mean corporate support, we note there the comment that Mario made has the volatility associated with the wealth accumulation plan in there, that is both in other revenue and in other expenses. We tend to distribute out of our corporate support. We don't keep elements in there. So the one thing that you did see in there, you referenced was our income tax provision change. But I think to your point, we do keep it what you normally have from a run rate, so you can expect that going forward.

So the last question will be from Scott Chan from Canaccord Genuity.

I'll just keep it to one. Dave, just going back to the dividend, the 7% dividend increase. Is RBC trying to signal something with that above-average dividend increase, maybe near-term confidence, EPS growth, especially since I heard Nadine say that the Board would look at dividend every other quarter going forward?

Yes. Our cycle is to -- has been historically to look at dividends, rate sets twice a year and that's -- we'll continue to do that process internally. It does absolutely signal our confidence for all the reasons you heard and I think you just let me into a great wrap up as to how we feel about things, but you see the strong volumes. You see the significant outperformance on the deposit. I do keep saying that deposits and funding is a strategic imperative or particularly in the future. We've really focused on core deposits and deposit gathering in north and south of the border, a very important part. And you're starting to see the margin lift. You're starting to see finally after a decade those deposits are really going to start to pay. And I think you heard the NIM lift. You heard the revenue lift. You heard the operating leverage that's going to come from that continued asset growth along with that. So from that perspective, yes, you heard all the elements of that confidence and why we felt we would move $0.08, and we look at it twice a year.

So thanks for your comments and questions, great questions. Just to sum up, we had, as Nadine mentioned, a tough year-over-year comp on our particular capital markets business and some of our expenses. We saw a great quarter-over-quarter volume growth. You saw the margin return and the NIM start to return the way we predicted. You heard from both Nadine and Neil that we expect good secular quarter-over-quarter margin improvement as we continue through to benefit from the rate increases, at least very strong margin improvement coming from City National as well and revenue growth, probably closer to 30 basis points over the next quarter and again, the following quarter. So that's having an impact. All the investment we've made in growing those deposits, but also growing our diversified lending capability and managing through a cycle. We're very confident of our ability to drive operating leverage, improved operating leverage and create shareholder value. So thank you very much for all your questions, and we look forward to talking again next quarter. Thank you, operator.

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