Royal Bank of Canada Stock

All right. Good morning. Welcome back, everyone. Our next presentation, we have Royal Bank of Canada. Joining me today from RBC is their CFO, Katherine Gibson. Katherine, welcome back.

Thank you very much. It's great to be here.

Great. Thanks a lot. It's been a little more than a year since Investor Day. Can you update us on your progress towards the strategic goals outlined at that event?

Yes, for sure. It's hard to believe that it's almost been 1.5 years since Investor Day and the time has just flown by.

And we're really excited about the progress that we've made against our Investor Day strategy that we communicated as well as our targets. So I thought I could break it down into the 3 pieces for you, like what we've accomplished to date, where we see ourselves today and then a bit of a -- what does that mean as we look going forward.

So what we've accomplished so far, we're feeling really good on the progress that we've made against the strategy, the targets, you'll see that some of the targets we're already hitting those targets. So if I start with our Canadian business, definitely seeing growth in our Canadian business, and I'll reference Q3 as kind of our recent results that have come out.

So on mortgages, seeing really good growth. Mortgages were up 4% year-over-year, in line with our guidance. It's very important to us to be focusing on client growth. And so from a market share perspective, that 4% equated to us taking about 50% of the market share just in that quarter-over-quarter growth. We're also seeing really good growth in our Avion acquisition. We hit a historical high in Q3 with our acquisitions. And the other item I would just call out is on our commercial deposits.

We had a 9% year-over-year growth in our commercial deposits. And again, that equated to about 50% of the market share growth in a year-over-year basis. Now it's not just Canada. I know Royal Bank of Canada, we got a focus on the Canadian front, but we're also seeing growth in the -- our global businesses as well. Our investment banking, we're seeing increasing market share. We've just recently announced our focus on building a global transaction bank. And then if you look at our U.S. region results, also making really good progress on the strategy that we outlined at Investor Day of really focusing on like a one region, One RBC focus.

And so we're moving through that quite well. So where does that take us? Where are we today? In Q3, we reported an ROE of just over 18% on a CET1 basis of 13.5%, which, again, we were very pleased with. And that's been a focus of growing that ROE over multiple years. And if you look back in 2024, we had an ROE of 15.5%. In 2025, that was 16.7%. And now year-to-date for 2026, that's already at 17.6%.

And what has underpinned that has been a combined focus on improving our revenue productivity as well as driving cost efficiencies. So on the revenue productivity front, just a couple of items to call out there. If we look at our NIM, we've had our NIM expand over the last 2 years by 18 basis points. And then we've also seen a metric that we threw out there for Investor Day was a focus on increasing our revenue per RWA. And so we've seen a 15-to-20-basis point increase there, really underpinned by the growth that we're seeing in wealth management as well as capital markets. And then on the cost efficiency front, in Q3, we had an efficiency ratio at the all-bank level of just over 52%.

So ahead of our Investor Day target of 53%, and that's reflecting our ongoing focus on driving cost efficiencies. It also is reflective of our success on our HSBC cost synergies where we achieved $760 million ahead of schedule. So feeling really good about that. And that's even before we see the AI benefits that we called out at our Investor Day coming on board. Now the next part, the third part, I would expect the question would be, well, what does that mean going forward? You have an ROE of 18%.

The efficiency ratios, you're hitting some of the targets that you've put out there for Investor Day. And the way that we're thinking about that is we have a medium-term objective of 17% plus. And we add emphasis to that plus. The plus means that we're not holding ourselves back. We'll continue to see expansion on the ROE front.

Now why do we feel that we've got growth continuing to underpin that as we go forward? There's 3 things that we called out at our Investor Day that underpinned our targeted ROE, and they're still coming on board. One I just briefly mentioned was our AI benefits. So we had a target of $700 million to $1 billion, and that was net of investment. So we were very clear with net of investments. We've been at that for a couple of years now, and we're really starting to see hitting the milestones with the scale-up to come on board in 2027. We've also called out our HSBC revenue synergies.

We put out a target of $300 million. So there's a good portion of that still to come online in 2027. And then the other item that I would mention would be in our U.S. region. And so I commented on how we're pleased with the progress that we're seeing there, but there's still areas where we're looking for that to continue to improve on efficiency, on our funding optimization, as well as on our top line revenue growth.

So feeling kind of really good on kind of the journey so far, where we're currently positioned. I think we're in a really good foundational place of strength, and we've got some tailwinds that are within our control as we think about the headway as we point going forward.

Excellent. One of the things that maybe has been contributed to the ROE recently has been the capital markets business. How should we think about the sustainability of profitability of capital markets from the current levels?

Yes. Great question and definitely a very popular question has been around sustainability of capital markets, sustainability of wealth management as well. As we've seen constructive markets and constructive markets have definitely been a driver in helping us set record levels in both wealth management as well as capital markets.

So specific maybe to capital markets, I would say it has been a driver, but it hasn't been the only driver. We've been investing in that business for years, and you're seeing the returns from that. We've been investing in our technology. We've been investing in our talent. And as part of our growth strategy, we've also been very focused in growing in a stable manner. And so when you look at capital markets and the underlying components of our business, yes, we've got global markets and equities, which can be volatile with markets.

But we've also got corporate banking. And so we've seen good growth there. We expect that to be stable as we go forward. We set up a couple of years ago, RBC Clear, which is our transaction banking in the U.S., seeing really good momentum. We again expect that to be stable as we go forward. And then investment banking has also been a component that in talking with clients, hearing positive momentum as we go forward.

So could there be a pullback in markets? Yes, right? I'm sure we could see that at some point in time. What I would mention, though, is kind of back to like we have seen strong growth across all of our business segments in RBC. So Capital Markets, Wealth Management have definitely been 2 of those components.

But in addition to that, we've seen strong growth in our personal banking and our commercial banking, and that's been underpinned by volume growth, NIM expansion as well as a focus on cost efficiency. So if we find ourselves in that spot, we still have this diversification. And we also have the diversification in wealth and capital markets, diversified across regions as well as across products.

Maybe to shift towards the discussion towards capital allocation. Earlier this year, OSFI announced a permanent reduction in the domestic stability buffer, lowering the CET1 capital requirement to 11% compared to, I think, -- you're at 13.5% in 3Q.

But given the new requirement, what do you consider an appropriate level of capital for the bank? How quickly do you want to reach it? And how does that change your -- how has the change affected your capital allocation priorities towards buybacks?

Yes. Look, great question. So a couple of components to step through. I would start with maybe a headline and that no change to how we kind of see our capital deployment framework and our priorities. So I'll step into that. But first, let me start with like from a CET1 range, we feel comfortable that in this environment, running in a range of 12.5% to 13.5%.

And with OSFI's announcement to bring down the DSB buffer by those 50 basis points, we are targeting to run in the middle of that range around the 13%. Given the environment, we think that it's appropriate to be running with additional buffer. There can be unforeseen risk that come at us. So we're well placed to address that. There's also potential opportunities that may come along. So we're well placed to address that as well.

I go back to -- we're in no hurry to change the -- like to drive that down because we're hitting our financial metrics with an ROE of just over 18%. From a capital deployment framework, our #1 priority is to deploy into organic growth. And that organic growth is we're guided and that we're not constrained and that we have to choose one area over the other. We have capital to deploy across all of our businesses. What we are guided by is that the area needs to hit our targeted premium ROE as well as premium growth.

And in the third quarter, we put out just over $80 billion in loan growth, and that was from our retail book, that was from our commercial book, that was from our corporate book. And when you look at that compared to our peers, that amount is larger than the next 2 added together. So we are definitely deploying into organic. Second, in our kind of framework of priority would be dividends. It's very important to us to deliver a sustained dividend increase. And the range that we look to operate within is a 40% to 50% payback ratio.

And our target is to get into the middle of that range. So basically growing our dividends in line with our earnings per share. Third on the list you've asked about is buybacks and is also a very popular topic as well. So for buybacks, we continue to see buybacks as a tactical lever. We're well aware of our kind of valuation, and we continue to buyback because we believe strongly in our intrinsic value. It's not our only financial metric though that we look at.

And so when we think about our buybacks and kind of the level of pace of our buybacks, we also are well aware of kind of the impact on ROE, the impact on earnings per share, as well as the impact on book value per share, another important valuation metric.

And I would share with you that over the last 4 quarters, our book value per share has grown 10%. If we hadn't done buybacks, it would have been 12%. So again, we feel comfortable that buyback is an important tactical lever that we can use to keep us within this 12.5% and 13.5% range and still hit the right valuation metrics. And just to kind of finish out that framework, we've got 4 items on the list. The fourth would be inorganic. We're in no hurry, I would say, to be deploying inorganic where we would see something would be maybe a tuck-in. But again, our #1 priority continues to be organic, followed by dividends and then buybacks with a tactical focus.

Maybe drilling down into the organic aspect. The balance sheet growth in both loans and deposits was in line with or slightly better than peers in 3Q. What are you seeing in loan demand, particularly across commercial versus retail customers? And then looking ahead to 2027, how do you balance the potential benefit of government spending for Canadian commercial loan growth against the possible headwind from higher tariffs?

So starting with -- I'll hit residential commercial and then kind of dip more into that 2027 outlook with tariffs and investment from the government of Canada, these major infrastructure projects. On the retail side, we're seeing strong growth, and I commented in the first question around like mortgages, really pleased with what we're seeing in client growth -- client-driven growth.

Our focus has been largely on switch, so as mortgages are renewing, people switching between banks, we've seen really good results there. We've also been very focused on retention. Our retention are at historical highs. We're seeing retention in the low 90s.

And that's important to keep a focus on because from a margin perspective, as you know this well, Brian, is that from a margin perspective, from a renewal, it's higher because you don't have the same acquisition cost that you incur on that first mortgage. We're also seeing strong results for credit cards.

And so on the Avion, I mentioned earlier as well that we're continuing to see that at a historical high when we look year-over-year on the growth side. On the commercial side, we are seeing strong growth across the balance sheet or strong growth on the deposits and continued growth on the lending side.

Our deposits grew 9% year-over-year, and that's really a reflection of our focus and also our deep relationships with our clients. And it's really important in this time for like a funding perspective as it equates to capital-efficient earnings that we're seeing come through. On the lending side, we are seeing impact from tariffs impacting certain sectors. But I would say like the diversification of our business is playing out quite well and that our loan growth overall has been up 4%. But I would split it into kind of 2 parts here.

We are seeing sectors that are impacted by tariffs that are having slow loan growth. Commercial real estate is just one of those areas. Commercial real estate makes about 40% of our book. And over the last 4 quarters, it's grown at about 0.5 point. What we are seeing though, offset that, though, is strong growth in agriculture. We're seeing growth in technology, health care and also public sector.

And we're also seeing it play out different across the regions. The tariff sectors are more heavily concentrated in Ontario. So we're seeing slower growth in Ontario. But what we're then seeing is stronger growth in Alberta, reflecting the oil, energy, agriculture, Prairie is strong with agriculture, and we're also seeing strong growth on the East Coast side.

So all in all, that's kind of how we're seeing like our retail growth framing up in this current environment as well as our commercial growth. Now your question around what does that look like because there's obviously lots of headlines around tariffs, but at the same time, we're seeing lots of headlines around the major investment spend in Canada. So what we're seeing from our clients is on the commercial side is continued conservatism. I can't spit the word out. And what that is equating to is that we're seeing our clients be very thoughtful and that they're holding back on big major investment spend, but still spending into the operational space, being very diligent on managing their costs and at the same time, being creative and thinking about how do they transition their spend.

And we're seeing that with larger clients being able to pivot a bit more in this space. On the consumer side, we're continuing to see kind of resilience come through in that we just recently got out -- received our credit card data, which gives us a good indication of where clients are spending and their level of spend. And what we've seen is that their level of spend continues to be high on discretionary, whether it's travel, whether it's going out to restaurants, which gives us confidence that, that will continue as we go forward.

And so we're also feeling the optimism because we've heard a lot of headlines right around the government of Canada major infrastructure. And so we don't see that kicking in until the end of '27, probably more into 2028. But I think we are really well placed to be supporting our clients as we see that growth come online and to support new clients that benefit from these major infrastructure projects that come online.

And I think also like maybe a little bit more detail, specifically on the inorganic side. Do you see any opportunities to deploy capital inorganically, particularly in the U.S. to expand the City National franchise? Or do you see further opportunities to deploy capital in your Wealth Management segment?

Another popular question sitting with high capital levels. I would frame it as our bar is like super high when it comes to M&A. And in connection with that, though, you'd expect that we would always be kind of keeping an eye open to the opportunities that are around -- so for us to be open to M&A, it would need to be on our strategy.

It would need to be a strong cultural fit, and we need to be like super confident about the value that it would bring to our shareholders because we've seen all too often areas where there's M&A and it's destructive to value. Where we would be open to M&A, and I'd frame it from a strategic lens. And when you look at our overall strategy, we don't feel like we're sitting with gaps in our strategy that we need to buy something to fill a hole. We feel that we've got all the right ingredients to drive it forward. Where we would be looking to use like a tuck-in through M&A would be to accelerate strategy.

I know you asked about specific areas, like where we would be more open would be in the U.S., where we think we'd be able to accelerate our wealth management business, accelerate our commercial banking in the U.K. as well, look to accelerate our wealth management there. Also like really small little adds. We've done one recently in Canada, where we were looking at building out a tech solution.

And instead, we're able to buy a small company called Pinch that was a digitization of mortgage origination. So we're able to bring that in, and it basically accelerates our path going forward. So in a nutshell, high, high bar and really looking at balancing the operational risk with the value that we would see clearly come out from an acquisition.

Great. And maybe just moving on to the NIM, net interest income. After the Bank of Canada has held rates steady through much of 2026, there's some people a concern that inflationary pressures could prompt the rate increase. Maybe how would that -- talk about how would that impact the NIM trajectory?

Sure. Yes, definitely a lot of discussion around what does the interest rate outlook materialize to be, whether that's in the U.S. or in Canada. Our economics team, their forecast reflects a more immediate kind of increase in the U.S. And then for Canada, a more, I guess, an increase as we go into 2027.

So a couple of increases what they're expecting. Now what does that mean for RBC if we were to see interest rates start to rise? Where I would start is at the -- maybe the top of the house. And at the top of the house, where we focus is really on net interest income, excluding trading. And I'll come into NIM in a second.

But we focus on the net interest income, excluding trading because we feel it's really important to be aware of NIM, but at the same time, volume. And in our Q3 remarks, we had called out that our net interest income, excluding trading, is growing at 7% year-to-date. So really seeing that strong growth in line with our guidance. And then we also noted that there's a couple of headwinds that were more almost like accounting anomalies.

And so with those items excluded, our net interest income, excluding trading was at 11%. And those items that I'm talking about, one would be from our HSBC headwinds from our purchase price equation as that rolls off. And then the other item I just wanted to touch on would be in our Capital Markets space as I had a few questions around why we were showing adjusted numbers.

And so in our capital markets space, we have certain transactions from an accounting lens where one side of it, the revenue side goes into other income, but the funding side of it would show up in net interest income. So when you're looking at NIM, all-bank NIM on its own, you've get one side of the cost, but not the actual revenue.

And so that's why we felt it was important to pull out and show that number. And that's also why we feel it's important to be focused on net interest income, excluding trading. Now from a Canadian banking perspective, though, we do feel that NIM is an important metric. And our guidance in Q3 is that we expect to see Canadian banking NIM stable as we go throughout Q4. And we haven't given any guidance outside of Q4 at this time. But as we look into Q4, continue to expect to see benefits from our structural tractor deposit strategy, continue to expect that we'll see clients flows moving from our term deposits into investments, which is a positive overall to revenue, a bit of a headwind for NIM and then continue to see heightened competition in this space.

Now to your question, the broader question around what does it look like overall on rising interest rates, a couple of things that I would leave you with. One, in our disclosures, we note that a 25 basis point increase on the short end of the curve translates roughly into about $35 million annually net interest income.

So you would have that impact that would flow through. The other item to be aware of would be on the tractors. You don't see it on the long end because of this deposit tractor strategy that we have in place. But if you were to see an increase in that 5-year swap, you'd see those benefits continue to push out. The third thing I would call out is just in a higher interest rate environment, what we have seen so far have been client flows moving, right, from term deposits into investment products. As interest rates rise, you might see a pause and even a reversion of those flows moving back. So definitely a positive from a funding perspective but it would potentially be a negative on the revenue side as the margin that we earn on investment products would be higher than the margin that we earn on our term deposits.

And then just the last item is that as you see interest rates move around, there's always kind of a question on competition and how that kind of flows through and the impact on your pricing for products.

Okay. Maybe switching over to credit quality. PCLs on impaired loans were relatively stable in 3Q, both year-over-year and sequentially, while PCLs on performing loans remain de minimis. Kind of given the current economic environment and potential adverse effects of higher tariffs, are you comfortable with the reserve position?

We're feeling very comfortable with our reserve position. And let me take you why kind of we have that level of comfort. There's a couple of components to step through here. So first off, I would start with our IFRS 9 calculation for Stage 1 and 2 provisioning.

For IFRS 9, our calculation has 5 scenarios. We have an upside scenario. We have a base scenario, and then we actually have 3 downside scenarios as we feel that you need more than just one to really capture the different dynamics that we're seeing play out in the macroeconomic and the overall environment.

Q2 last year, when global tariffs really hit the front page, we introduced a new scenario in our downside. And that was capturing a scenario focus on tariffs, like a tariff-driven recession. And that scenario is more on the severe side because it assumes roughly 25% across the board tariff in Canada, which would definitely drive the country into recession.

Our base case also captures tariff impacts. It basically reflects what are the tariffs that are currently in place and how that is expected to impact over the next 12 months. The weight to these scenarios is another important measure to be aware of. We haven't disclosed externally what those weights are. But what I would leave with you, as you think about this is that the amount of weight that we have on those downside scenarios, if we were to put any more on those downside scenarios, that would basically give you our base case.

And so you can leave believing that we've got a sizable portion of weight on those downsides. How is that translating into our overall provisions? On our retail book, the provision that we're currently sitting with is equal to basically our 20-year high. So we're feeling comfortable from the overall calculation, how we've captured the environment.

Two other quick items to provide some color on is, one is that we are seeing gradual improvement in our overall kind of Stage 3 PCL, whether that's retail book and the consumer book. And that gives us an indication of the credit quality. And then also from an economic outlook, we are looking to more positive improvement as we go throughout the year. 2026, we've seen the unemployment rate improve in Canada. And as we look into 2027, the outlook has further improvement in unemployment, increase in GDP, as well as the housing market to turn around. So we're feeling -- back to my opening comments around feeling comfortable that we've got a solid provision on the books for the environment that we currently are finding ourselves in.

Okay. Maybe a little bit more specifically on the trade policy and tariff issue. Maybe we can quantify RBC's exposure to higher tariffs and discuss how you're seeing clients prepare to manage their ongoing impact?

Yes. Starting with like a broader kind of macro comment, like what we are seeing across Canada is that the economy continues to be resilient. And we're seeing that materialize on the consumer side, and we're seeing that materialize on the commercial side as well.

And I think a big part of that is with CUSMA, or USMCA, 80% of the trade between Canada and the U.S. is still free trade as it falls underneath CUSMA. You probably have seen headlines around Section 338. Those new tariffs target only 5% of the trade between Canada and the U.S. And so it translates into about a 0.4% impact to GDP.

So at a macro level, it was not viewed as being significant. And so overall, that is translating into -- we are seeing sectors that are being impacted. And I touched on it briefly earlier in my comment that, yes, there are sectors being impacted. So we're seeing that through auto, steel, aluminum, forestry, transportation.

But at the same time, we're also seeing other sectors that are growing. Overall, as we said just a few minutes ago, we are seeing gradual improvement in our Stage 3 PCL through both our retail book, our commercial book. And then for those sectors impacted, you're asking for a bit more on the specifics. For those sectors impacted, when we look at the last 12 months and the PCL that we booked, we actually are seeing gradual improvement in that space as well. What to expect or your question around how our clients getting ready for this or how they've been responding.

I would say like what we've been seeing, and I touched on it a bit earlier, is just this conservatism. We're finding that they are well placed in that they're managing their liquidity, they're managing their costs. They're being really thoughtful about their investments. Consumers are doing the same thing. We're seeing them sit with liquidity. They're managing their payments. They're still spending. And so they're positioning themselves well given kind of the certain sectors where we are seeing the impact. And I think they also position themselves very well for what we're expecting to see from the Canadian economy growing as we go into 2027 and then the additional benefit of these major infrastructure projects coming online.

Great. Just one in regards to the strategy, RBC recently announced the launch of Global Transaction Banking, which unifies capabilities across business lines. Can you walk us through the strategic initiative and explain how it could enhance the financial objectives you previously discussed?

Yes. So we currently have transactional banking in different pockets. So in Canada, we have transaction banking, that's called RBC Edge. In the U.S., we've recently, over the last couple of years, set up transaction banking in Capital Markets under the title of RBC Clear. And then we also have transaction banking within City National.

Our recent announcement is in response to what we are hearing from our clients and what we're seeing as an opportunity is to bring all of that together and basically build a focused global transaction banking. So putting it under 2 leaders with a focus on go-to-market with one client strategy and then behind the scenes, building one cohesive transaction banking focuses in North America, but then also with the intention to be building this out globally. You got a question around what is our right to win in this space. And that's where I would point to RBC Clear. 2 years ago or when before we were even setting up RBC Clear, we had clients coming to us and saying, like, given your strong balance sheet, your strong credit rating, we would really like to see you in this space.

So we quickly mobilized and been really pleased with the progress that we've been making with RBC Clear in the deposits that we've grown and the clients that we brought on board. We have over 235 clients on board. One-third of them are S&P clients. So it just gives you an idea of the clients that have come on board. So it gives us confidence that we've been quickly able to build from scratch RBC Clear. And we've got the experience, we've got that momentum behind us to now be playing that strongly into now this global transaction banking.

And 2 other items to just quickly call out on that space is that global transaction banking brings in deposits, bringing in ancillary revenue. It's a very stable business. We're back to the clients who are asking for us to come into the market on this space. So it's really important. Deposits drives that more economical funding and then we've got the ancillary revenue attached to it as well.

I'd also like to touch on the One RBC strategy and how it has improved your ability to serve clients. What other benefits you expect from it? I'll start with your Canadian money-in franchise. And can you speak to the underlying strengths that make this possible, including positioning in wealth and asset management?

Yes. No, great question. And it's something that if I go back to our Investor Day, like One RBC has been like that secret sauce throughout all of it. So on the money in, I'd come at it in 2 components, kind of that first component is that we're very focused on driving deep relationships with our clients. So from a client acquisition on the personal banking side, typically starts with a core checking account. And we're very focused then on -- within a short period of time, deepening that relationship with the client. And so we start with this core deposits, which again is really key to our funding.

And within 30 days, our goal is to have at least 40% have another product or service with RBC. And that has translated strongly. When we look at our overall book, what we are seeing is that 40% of our clients have over 3-plus products with us. That is by far a lead against any of our peers in the Canadian space. And so with that, this deep relationship builds these breadth of products and services. And what we are seeing is it plays into when money is in motion, specific to your question, this money in motion, what we've seen is clients are moving their flows from term deposits into investments.

And given the depth of relationships, we're retaining those flows. Wealth Management, when you think about the breadth and the scale of our products and services that we have in Canada, what we are seeing is that those flows are moving within to our Wealth Management space. In our Wealth Management space, our flows have been up 20% year-over-year. And so it's a win-win for our clients. As they're looking for investment products, it's all within the RBC. So back to that One RBC, it's all within the One RBC. So it's supportive for our clients and at the same time, also beneficial for RBC as we're retaining them and as they're moving from term to investment products, we're also seeing higher revenue given the margins attached.

Okay. And then maybe let's talk a little bit about the U.S. segment, including, say, National Capital Markets. In 3Q, you achieved a 12% ROE target a little bit earlier than expected. Efficiency ratio approached the low 70% range. Do you expect this momentum to continue? And now that the turnaround is on track, what is your expansion plans for City National?

Yes. We're really pleased with the -- I guess you're hearing me say that a couple of times, really pleased. But I would say the overall better is that the Q3 results were a great example of us hitting our targets, continuing to grow the business in the U.S. in the third quarter, we printed a 12% ROE and also we're towards the low end of the 70s from an efficiency perspective.

And that's really our strategy coming together by that one RBC, one region for the U.S. And City National has been a key part of that. We -- in the third quarter, they printed $184 million bottom-line impact. And that's really been an impact of -- or really been a reflection of focused on driving costs down as well as driving profitable growth on the top line.

And so when we think about what's going forward, back to the 3 pillars for the U.S. region that we outlined, one was opportunity around efficiency. Second was opportunity around optimization of our funding. And then the third was looking at top line growth. And so when I think about the components that we have in the U.S., City National has done a great job on driving top line growth as well as driving efficiencies, but there's still so much opportunity to go. They've been investing heavily in building up the infrastructure necessary to accommodate the size of that business. We're expecting to see that roll off as we kind of reach the end of that infrastructure build.

So that will be beneficial to our efficiency metric as that rolls off. We're also seeing the benefit, again, of that One RBC, one region. There's opportunities for us to centralize, standardize more of the back-office activities for all of the businesses in the U.S. We're seeing already opportunity on the funding optimization. We've got sweeps in our Wealth Management U.S. business, and that is enabling us to fund loan growth through looking at our legal entity structure different.

And then on the revenue side, again, we're seeing opportunity in looking at this through that one region in that Wealth Management, just an example, Wealth Management clients are looking for banking products. And so with that, we're looking at City National manufacturing, Wealth Management distributing. And so bringing this all together, we're seeing strong momentum, and it's reflected in our numbers in Q3, but really seeing a really good trajectory of what will drive growth going forward and kind of close on my opening remark is what are those tailwinds in the U.S. with City National, part of that is really one of those tailwinds where we see opportunity going forward.

Well, I think that's a great place to end it because we're out of time.

Still the flashing light.

Please join me in thanking Katherine for her presentation.

Thank you.

Up next in this room, we...

Awesome. Maybe we could start with the quarter just because it was a bit of an outsized result once again, basically...

It's a good thing.

I mean you beat expectations. Your ROE now sits at north of 18%. Just maybe start with the ROE actually. Are you somewhat surprised with how much it's gone in terms of the positive traction that you've seen?

No. I mean you saw us 2 years ago set a 17-plus percent ROE target, but we kept saying plus-plus because we knew the significant opportunities we had to drive the market-leading ROE in the country and improve upon that. You look at the drivers of that, it is very much kind of revenue efficiency and cost efficiency. We added 100 basis points in '24 from 15.5% to 16.5%. Then in '25, 16.5% to 17.5%, and now you see us moving through 2026, close to 18% with a number of tailwinds to that ROE and a few headwinds, but a number of tailwinds, like the cost efficiencies from the articulation that we had in Investor Day of our AI benefits of $1 billion after cost are just starting to kick in now.

So we're driving an 18% ROE on a 13.5% CET1 ratio, still waiting for those benefits to really kick in on the revenue side and the cost side. And you will see us continue to -- I'm sure we'll talk more about AI up our ambition around AI. But even with that first series of opportunities are still starting to kick on the revenue expense side. We have growth tailwinds that we've seen in a number of areas. We've got cost opportunities that we can talk about. So when we look at where we are today and where we think we can take our business, we fully plan on continuing to expand that ROE into the plus, plus, plus area. And you'll see us either in an Investor Day next year, or in Q4 kind of articulate what our next ambition is around those ROE targets. So no, we're not surprised. In fact, we think we can continue to improve upon it at a 13.5% CET1 ratio.

And then as you know, once we get through the uncertainty of the trade friction that we're having and the economic uncertainty and the growth footing starts to reemerge in Canada, we can start to pull that 13.5% back. And therefore, that's ROE enhancing as well. So when I look at all those tailwinds on revenue, cost, efficiency, CET1, returning capital to shareholders, that plus, plus, plus is going to kick in even more. So very excited about the story of capital efficiency, returning capital. And we create -- generate the most amount of capital of any bank in Canada by a wide margin. So I think from that perspective, to create that capital, generate the highest return on it and be efficient, I think, is a big part of our thesis. And we're super excited about what we can continue to do.

And the excess capital, a nice problem to have for sure. When you think about it in terms of capital deployment, how does that current valuation dynamic impact how you sort of see the buybacks? I know in some cases, you might want to be strategic, but obviously, the market seems to be happy with buybacks even at these levels. And then secondly, just in terms of M&A, obviously, it would make it a lot easier to do larger M&A. Where is your mindset on that?

When you're issuing your shares or using your shares in exchange, it does when your currency is strong. So when we look at -- obviously, when we look at doing share buybacks, we're very aware of the intrinsic value of our stock, and we know what our plans are and what our ability to continue to drive our pretax, pre-provision and our NIAT growth forward. So we continue to buy back shares at a 2% level because we have a good understanding that we feel the intrinsic value of the firm is higher than the current valuation. So that's obviously a core metric in our decision-making of do we buy back. So we're continuing to buy back at healthy levels at that 2% level of these valuations, as you saw in the last quarter from our numbers and you see in the month-to-month share numbers.

Second thing is we also know that book value per share growth is also very important in the overall as another valuation metric. So there's a balance between accelerating your buybacks even beyond that, but continuing to grow book value per share. And we grew book value per share at 10% in the last trailing 4 quarters. It would have been 12% have we bought back those shares. So we're always looking to make sure that we hit our book value per share growth targets as well. And we continue to do that by growing our bottom line profit growth, which we've done quite significantly.

So we look at both those metrics, but intrinsic value, obviously, is really super important. And then when we turn to organic growth. We have very significant organic growth opportunities in our RWA growth. You saw that in capital markets growth. And you'll see that in the United States and our commercial banking growth in City National there. And then when it comes to acquisitions, look, we're not looking to do a transformational acquisition where I need to use our shares even though they're strong currency. We would do a tuck-in acquisition in wealth or in the United States, or tuck in the U.K., or a tuck-in acquisition in commercial banking in the United States where we're going to use that surplus capital and it will be very accretive to the shareholder. The opportunity in front of our organization is the transformation of the business using artificial intelligence. That is going to drive by far the greatest shareholder return and the focus of the management team. And that is where the focus of the organization is right now.

It is fundamental, and it has a huge opportunity to drive those ROEs higher, to drive a significantly higher growth rate in the bottom line. And that's where the focus is. And the priority is not making an acquisition. Acquisition would distract us right now. And therefore, that is where the focus of the organization is. So that's how we go through capital. That's how we think about acquisitions. So we're super focused on driving those core valuation metrics that have propelled our stock forward in the last 10 years.

Thanks for that, Dave. Maybe switching over to credit. Obviously, a lot of uncertainty in the market right now with respect to CUSMA, Middle East tensions, geopolitical risks seem to be elevated right now. How does that sort of inform you on your outlook on credit, what you're hearing from clients? Do you think we're in the later innings of this credit cycle? Where do you sort of see all that shaping out right now? And then maybe touch on your reserves post the build that you had last year, are you still comfortable with your level of reserves?

I think there's significant uncertainty in a number of those tariff impacted sectors, obviously. So we're keeping our CET1 ratio a little higher for that uncertainty or running at 13.5% instead of moving it down and eating into some of that buffer. We've grown significantly, but our growth on our balance sheet has been more investment grade than noninvestment grade. We've been selective in our growth in the commercial bank in Canada for that reason. Our credit -- I would say, our credit challenges have not evolved from tariff-impacted sectors.

In fact, I just saw a report where we've seen accelerated paydowns in a number of those sectors as those clients kind of retrench and are very conservative in managing their debt. Our losses, as we've talked about publicly have been more in the supply chain, transportation, logistics sector in Canada because we still are in a good recession in our economy and therefore, the infrastructure built during the pandemic, the flow of goods has not been sufficient to fund all of that debt that was taken on during the pandemic. So we've seen logistics sector and transportation sector losses. We've had some challenges in the HSBC portfolio that we work through. Logistics sector as well and a little bit of retail sector. We work through those. That's been a historic driver. We've had some real estate challenges in the United States that you saw in the last quarter. We're kind of working through those and then in one specific utility in Europe that we keep talking about that. We can't wait to get through that situation.

So those have been the drivers of some of the elevated PCL still within what we forecast. And with the tariff uncertainty, it might bump along sideways. I was hoping to say, yes, I think we're at the peak in coming down. We're certainly seeing that in the commercial book. We see -- we had a very good quarter in the commercial book other than one credit. So we're seeing that come off. Capital markets you can always have a surprise here and there, but should be normalizing. So I'm a little cautious because of the escalation of the trade war right now. But what we're seeing outside of that consumer, commercial, U.S. commercial is getting better.

Great. Thanks for that. Maybe switching over to some of your operating segments. Starting with Personal Banking. That's an area where I got a lot of questions post quarter just in terms of the volume picking up. Is there any -- on the loan side, anything to suggest that maybe you're being a bit more aggressive now, whether on the pricing, trying to get more client acquisitions? What's happening in the personal banking business right now from a volume perspective?

We are definitely on our front foot of growth. I mean I think that is one of the messages you should take out of the first quarter. We did really well on growth across all our businesses. Our balance sheet growth in capital markets, our balance sheet growth in the consumer bank, both on the lending side, deposit growth in the commercial bank. And you look at the volume growth, we put on over $80 billion of lending growth across our consumer, commercial and corporate bank. So the sustainability of what we've done is very strong. It's less based on equity finance and some of the more transient things that are going on in the markets business.

We had very strong core growth. And we acquired customers in the credit card business, which you haven't seen that growth yet. We acquired a lot of new commercial banking customers, a lot of treasury management customers. So yes, we put on a growth spurt, and we're throwing our weight around. But I hear that how did we use price? And when I look at the roll-on/roll-off in the mortgage business, they're the same as they were 4 years ago, 5 years ago. So it tells me that we're not using price any differently than we had before and our competitors are using that price. We gained all this business and drove an 18% ROE. So there's nothing wrong with that. And that's because we have a structural funding advantage with our deposit business, and we have a structural cost advantage. We run the consumer commercial bank at a 35% efficiency ratio. Our competitors are at 45%. We put $0.10 of every dollar of revenue to the bottom line they don't have. That's a fundamental advantage to go in the market and drive a higher ROE and win business. And yes, we're throwing our weight around and we're going to continue to do that. And you saw the volume production ratio.

So we're very happy in the past couple of years, but particularly in the quarter, the client wins on long term assets in our wealth business on credit cards, mortgages, corporate banking, commercial banking deposits. City National, 8% led kind of its peer group in the U.S. you're seeing really stable long-term growth metrics coming out of the bank, and that's how you build a bank in a sustainable growth trajectory that you expect of us.

So Dave, in terms of that volume coming into that business line, I'm guessing some of it's sort of monoline initially you want to cross-sell to these clients. How does that dynamic work at Royal? What's like a reasonable time line of when those customers become more fulsome customers of the bank.

Well, each business is different. We certainly have a focus when we bring a mortgage client on or a core banking client on to cross-sell within the first 2 weeks, at the end of the day or 3 weeks. Mortgages can take a little bit longer. So you've got a really short cross-sell cycle and capture that moment in truth with the consumer client. We bundle products more upfront. So you see more of that in the first 6 months on the consumer side, the commercial banking side, it takes a little bit longer to bring the cash management business and the treasury management business, and so a longer sales cycle there.

And similarly, on deploying our balance sheet into the investment-grade space sponsors in the energy sector and the hyperscaler sector in the AI infrastructure sector. 80% of that growth in the capital markets balance sheet was investment grade in a very different client strategy than you saw us in the last 10 years, which was a lot of sponsor-based business, but a great cross-sell into advisory and M&A on that side. So that cycle around energy infrastructure, around AI and infrastructure, around IPOs could take a bit longer. So each one of those balance sheet deployments have a different realization cycle. But we've proven over time over the last decade that we execute very well on that across. So in that RBC One strategy, we lead the market, particularly in the consumer commercial bank by 30% and our cross-sell ratio. So it's proven that it's a differentiated capability, which is why we invest so much upfront.

And this is just why you saw the consumer banking cost ratio increase, it had negative operating leverage which was fine because we acquired more core banking accounts that we have in the last 4 years. During the quarter, we acquired more credit cards. We pay for that business, knowing that we have a great cross-sell cycle that has worked over a decade. We have great products. So part of that elevated run rate is, yes, we went out in one business which will continue to return. And we did it in the quarter at 18% with the cross-sell to come, again, enhancing that future ROE. So that's kind of the tale of the tape. We're really, really excited about the customer volumes that we won, as you can tell.

So that elevated expenses was primarily just winning customers, the pricing dynamic and, I guess, short-term pain for long-term gain?

Exactly.

Okay. Just in terms of the RESL business, so real estate secured lending, it's a big part of your book in terms of its profitability and how it contributes to the bottom line. So if you have a market in Canada where real estate secured lending is just not growing as robustly and it kind of lingers to that low single-digit percentage range where it's been for a while now. If that continues, let's say, over the next few years, like what sort of impact does that have on your ability to grow that pretax pre-provision earning line credit aside?

Yes, great question. So it's our largest balance sheet item, right, with over $400 billion in mortgages. There's a couple of things. One, I do think we'll get back to immigration growth in the country. We've cooled it down. It's not going to be this low, I think, forever. So immigration growth is really important in driving demand for your housing stock. I think we have suppressed demand from the existing population and that we will get back with more confidence in a world where we reduce the uncertainty around economic growth because of the trade agreement. So you will see demand manifest itself. So I'm hopeful of that.

As I said, our roll-on/roll-off spreads haven't changed much, and I don't know what the competition, whether they will change that much. So then where do you go from there, you have to take out cost out of the business. I think with the ability to use artificial intelligence to increase our efficiency ratio, not just on the operations side, but on the distribution side. This is a very expensive distribution business, right? You pay a significant -- most banks use broker. We don't use broker, but we have an in-house commission sales team that we think through artificial intelligence, we can have a significant improvement in the return on that sales force. And therefore, we have to optimize both back office and front office cost structure to get the ROEs up in this business, and to grow the bottom line even though the number of unit sales. It's one of our highest focus in our AI use cases is getting after our mortgage business. Not just on back office, but that front office distribution cost is really expensive, and we have to bring that margin back to our bottom line. So I'm very excited about that. So that's how I think about maybe a low-growth mortgage business, but I can drive the bottom line faster than the top line.

Okay. Thanks for that. Maybe switching over to commercial banking. And I do recall last year, we sat here and we talked about how the ROE was running at sub-15%. And I think year-to-date, you're close to 18% now. So that's a pretty sizable jump in only a year. Maybe just walk investors through what's changed? How have you driven that? Obviously, the volumes coming back to life are, I'm sure a big part of that. But what do you -- what is RBC done specifically to drive that ROE so much higher?

There are a couple of things. One, you had when it was down there 15%, we were just absorbing HSBC. We had some credit normalization we had to go through with the HSBC portfolio. and work our way through that. So that hurt ROEs in the first couple of years of HSBC. We've worked through a lot of that now and the portfolio is performing very well. So you're seeing a credit normalization. Other than one account, we could have had even a much better Q3. So we think the ROEs can get enhanced just from a little bit more credit normalization going forward. So there is one driver.

Two, you've seen very significant volume growth on both sides of the balance sheet. Deposit flows have been fantastic. We did $19 million growth year-over-year in Q3. As you saw, I think that was greater than all the other banks combined. Huge focus on deposits. You get treasury management fees with that, you get FX fees, you get -- so it's a fee-based business. It's a source of funding for our match-funded Canadian Banking, Consumer and Commercial Banking division, which is really important to be match funded. So that asset is part of our funding advantage. So you're seeing great deposit growth. You saw up until the last quarter, kind of very strong commercial banking growth on the lending side over the last couple of years. We've moderated that a bit, given some of the uncertainties in a number of sectors. So it's still around 3%, 3.5%. It's probably in the middle of the package, not leading the market.

But overall, that growth has been good and the tailwinds from that growth have helped improve our ROEs as well. We just starting to deploy artificial intelligence into commercial auto adjudication credit adjudication, significant opportunity to lower adjudication costs through auto adjudications, filling out spreadsheets, preparing the credit submission with AI right now. All that accelerates our time to decisioning, accelerates our response rate to the client and takes out the cost structure of the business. And we're deploying that right now. It's built. And then we just demoed it to the Board. So all that's to come as another major use case I just gave you the huge use case in mortgages. You've got the use case in commercial banking. You've got all these incredible use cases. So that's again another driver of an enhanced ROE going forward. So I think that's the [ relative ] of good growth, good cost management, PCL normalization, AI deployment for greater than 18% performance in that business.

And just in light of the tariff risk, it sounds like corporate -- your commercial clients in that segment are sitting on pretty healthy balance sheets. Is there anything that you think could derail that? And I'm just wondering how sensitive that would be to maybe the tariff issue escalates a little bit. Is that something that you think could just completely change that trajectory on the commercial volumes that have been coming in lately?

I think, as I said, as the sectors that are targeted expand, you'll see as existing companies are retrenching a bit and be more conservative in their investment appetite and managing their own costs as the trade war expands, you have more people pull back. And therefore, they're not going to borrow. They're going to pay down as they're doing today. They're going to manage their expenses very -- not knowing the duration of this conflict and the magnitude of the loss of those clients base and whether they can pivot their sales to another market or not, it's very dependent on each client. So we work client by client going through that.

So yes, I am worried about the expansion of this, but it's important that we get to a good long-term deal for Canada. And there's enormous benefit on both sides of the border. And I think Americans are telling their congressmen the same thing, that this relationship is important to America and it's important to Canada. And my hope is we will come back to what's good for both countries, which is where we started all of this.

Right. Here's the hope. On the wealth business, can you maybe talk about the tie-in between wealth and your other segments? I know you've been clear in the past about how the bank does tend to keep any GICs coming out of the market -- or sorry, it sort of goes into wealth. It comes out of GICs goes into wealth. How does that tie in work? And has that been getting better? Is it just generally been stable for a long time, but it seems like it's been a pretty big driver for the wealth business as well, keeping those assets in-house.

Exactly. We track it very closely because we do what's right for the customer and the customer is interested in capitalizing on the momentum that's in the equity markets right now. Therefore, we call it the money in motion in the flow business, and we saw significant flows from GICs in particular into long-term net asset sales or long-term net new assets gained market share yet again this quarter, and that's from the internal flow from GICs, a little bit from core checking as well. So one of the reasons you didn't see very much growth in the consumer banking overall deposit space was you saw significant flows into long-term net asset sales. So you saw quite tepid growth. In fact, it almost shrunk a little bit.

So I think we monitor those flows. It's a big part of giving good advice to the client and doing what's right for the client. And they certainly want to take more risk over the last number of quarters, including into the third quarter and putting more money into equity returns. So I think that's very much part of how you deliver device, whether it's in Dominion Securities and wealth, or in our branches through a financial planner and adviser. And we track all of that, and we incent doing what's right for the client. At the same time, we have our financial advisers and wealth cross-selling core banking account, private banking capabilities, which has gone exceptionally well. So the flywheel effect have always putting the One RBC hat on, whether you're a wealth adviser or a branch adviser, a commercial banker. We're always thinking about cross-selling the bank's capabilities and that was built into our Investor Day presentation, and you're seeing that come to fruition and the significant volume growth that we're seeing in AUA, AUM, private banking, just keeps growing. And it's almost constrained by getting enough good people to go into the private bank that Kim is running. We're doing exceptionally well in client growth there. So I think that's the benefit of that cross-sell, the flywheel coming out of wealth and commercial banking.

And then, Dave, obviously, the flows have been very strong on the retail side. I think institutional has had a bit of a pullback, a bit of outflow last quarter. Is it just the industry dynamic of active to passive or assets being brought in-house? Like is it just an industry dynamic? Or is there something specific to Royal?

I think it's a mix. I don't focus on institutional quite as much. I mean it's a much, much lower margin business for us compared to the retail side, where we make the bulk of our revenue and profitability. But it's an important business. We grew it significantly with the acquisition of PH&N. It's a mix. We have seen some moves to passive. We lost one customer, and we saw some roll off of some ultra-high net worth families into other asset classes. So it's been a mixed story there of a bit of runoff and our net sales have been slow. So the head of the business is very much aware that expectations are higher to return that. But at the end of the day, given the really thin margins in institutional, it's not a huge driver of our overall revenue flow. But we don't like to lose in any business that's important to our clients. So I think it's an area where we underperformed a bit, for sure.

And maybe can you touch on that level of profitability on the retail side? I guess when you say that it's such a profitable business, the first thing that pops into my head is, is there any risk that maybe that fee structure sort of moderates over time, like we've got some new entrants in the market that have picked up a lot of traction. How do you sort of see that playing out? And I know it's all about catering to the customer and what the customer wants, but it does seem like there's a cohort of the younger generation that want something a bit maybe different than what's been offered in the past. Any thoughts on that?

Yes. Certainly, competition is great, and I think it's pushing us to be better on our side. I think what consumers have responded to what you're referring to specifically is, first and foremost, a better experience. So a slicker onboarding experience, a slicker interaction with the technology, and we need to respond to that, and we are. And we're building -- we've launched pieces of it, but you'll see a greater launch from us. We need to improve our overall customer experience. I think that is the most important. And we've underinvested in a couple of our platforms. So we're all over that. And you'll see kind of a relaunch and a rebranding of our approach to that. It comes with pricing where you have a lot of loss leaders and you'll make your money elsewhere. We're very aware of that, and we'll respond to that in different ways.

At the end of the day, we have a deep understanding of what this customer wants and what they value, why they've moved. Some of them have left the overall banking system for these alternative offerings, and we have every capability of winning them back. Now part of it is a crypto story. At the end of the day, crypto has, this chapter on crypto to be written, right? There's a lot of risks in storing crypto that everyone should be aware of, certainly hacking risk of crypto and quantum compute risks that are coming down that has been well articulated in the market by leading technologists who are building quantum compute right now. So that all plays into how far do you want to progress into storing crypto and other services that appeal to this audience in balance approach. So we're very aware of what's driving that business. And our response is coming.

Okay. Awesome. And then maybe just on City National. I do recall a few years ago, it was all about the interest rate sensitivity and all the upside that was potentially there. And then obviously, with the regional banking crisis in the U.S., things sort of change. But now you've gotten that business to what seems to be a much better place. It's on solid footing, and it looks like you're back in the growth mode. Maybe talk about the opportunity on City National.

We are excited about our U.S. story in general. But I'll start with City National. We made $183 million. That's almost what we made when we bought it 10 years ago, USD 10 million, USD 83 million, CAD 230 million. That's before we've taken out any of the real cost of our significant remediation efforts and our replatforming efforts, which will start to come down at the end of '26 into '27. So we have a very significant opportunity to improve on that even before we grow the business on a profitability side through reducing our cost structure that we built up significantly, as you know, in the last 2.5 years. So [indiscernible] taking that down.

We grew the balance sheet on both sides at 8%. So you're seeing the benefits of management pivoting from remediation to growth. We are hiring teams in California. We're hiring teams in the South. We're looking into Texas. We are in growth mode now, and you're seeing that production in 8%-plus growth already as those teams just start to become productive. We're growing our private banking offering. We haven't even started cross-selling jumbo mortgages into our significant affluent and high net worth wealth base. You'll see that coming, as Greg talked about at Investor Day, that's just about to launch. So the significant growth opportunity from the bottom line on cost and from the revenue side is just starting to kick in at City National. It is a big growth story for us.

And you'll see us articulate that other in Q4 and Investor Day next year, where the next 3-year horizon is very meaningful to you as a shareholder. So excited about that. You're seeing our announcement of our global transaction bank and the opportunity to build out from RBC Clear and our Canadian transaction ability are now merged into this global transaction, liquidity management, treasury management that first focus is on the United States and on cross-border. Those products are being delivered and being sold now and being enhanced through product delivery. So very significant opportunity. You'll get an update on RBC Clear in Q4. We gave you some big targets. We feel very good about them and you'll see that in the next couple of months. And then this capital markets operation and investment banking, corporate lending, as you talked about, very significant performance in our tech banking practice, and our energy practice and our FIG practice, our industrials practice lagged a bit on health care. We can do better there for sure.

So the corporate lending into the Investment Bank advisory, very strong in the U.S. And on the market side, we underperformed in markets, as you saw. Not happy about it. We missed a big part of that prime equities financing cycle in the U.S., and we'll capture a bit more of it. But what we've built in Capital Markets in the U.S. through balance sheet, through cross-selling advisory is very sustainable and stable because of that process. And therefore, we think the U.S. platform has a great opportunity going forward. So great progress. And you can see why circling back, while I am so excited about improving on that ROE of 18% that we talked about with everything going on in AI with growth, with City National, the Global Transaction Banking, which is off balance sheet, low capital accretion with wealth management, with a cross-sell when you think about the organic momentum we have, more efficient growth. We can be even more efficient in the use of our capital and drive premium growth at an even higher ROE I think that's what gets me super excited about the next 12 months.

Thanks for answering my final question which have been on the Cap Markets business, but maybe I'll just turn it back over to you, Dave, for maybe some quick....

I think that was it. I think it kind of wrapped up that -- this is a great ROE story. This is -- you saw a sustainable client growth. At the end of the day, a huge opportunity. We didn't really get into AI, and I touched on some of the use cases, but our ambition and our conviction around how AI can make our employees more efficient. We can drive a higher ROE from it. We can take out cost is at multiples of what it was when later Investor Day 2 years ago, and even what it was a year ago. This is a foundational technology that's going to transform our business.

Awesome. Well we'll wrap it up here. Thank you very much, Dave.

Thank you, everybody.

Thanks and fantastic having you. Thank you, Dave.

Good morning, ladies and gentlemen. Welcome to the RBC's 2026 Third Quarter Results Conference Call. Please be advised that this call is being recorded. [Operator Instructions]

I would now like to turn the meeting over to Asim Imran. Please go ahead.

Thank you, and good morning, everyone. Speaking today will be Dave McKay, President and Chief Executive Officer; Katherine Gibson, Chief Financial Officer; and Graeme Hepworth, Chief Risk Officer. Also joining us today for your questions, Erica Nielsen, Group Head, Personal Banking; Sean Amato-Gauci, Group Head Commercial Banking; Neil McLaughlin, Group Head, Wealth Management and Insurance; and Derek Neldner, Group Head, Capital Markets.

As noted on Slide 2, 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 this 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 ask that you limit your questions and then requeue.

With that, I'll turn it over to Dave.

Thank you, Asim. Good morning, everyone, and thank you for joining us. Today, we reported very strong results, including record earnings of $6 billion, up 11% year-over-year. Revenues grew by 9% year-over-year as we further increased our revenue productivity while also deploying our balance sheet for client-driven growth. Furthermore, our relatively equal weighting between noninterest revenue and net interest income provides us with an attractive business mix.

We also improved our cost efficiency, generating an adjusted operating leverage of 2.4% and adjusted efficiency ratio of 52%. These results reflect 3 forces working together, diversified business model, strong client activity and a favorable market backdrop. This was enabled by a disciplined execution of well-articulated strategies, investments in talent and technology and deployment of our balance sheet. Our performance this quarter delivered a premium return on equity of nearly 18% and broad-based growth while maintaining a robust 13.5% common equity Tier 1 ratio. This combination continues to generate sustainable long-term shareholder value and this was evidenced by the 10% year-over-year growth in book value per share and 80 basis points of internal capital generation this quarter or 3 percentage points over the last 12 months.

We deployed 85 basis points of capital in the quarter to grow our business, pay dividends and buy back our stock. As always, we continue to prioritize the deployment of our balance sheet towards client-driven organic growth. As we mentioned earlier this year, we're looking to continue building the bank of the future. That means growing market share and laying the foundation for new growth verticals and relationships to diversify the business and create future value. These create a multiplier effect for driving durable ancillary revenue streams. Our integrated platform, client trust and market leadership helped us earn the recognition of both Canada and North America's Best Bank and Euromoney's 2026 Awards for Excellence.

We also continue to return capital to our shareholders. Our total payout ratio increased to 69% this quarter as we grow our dividends towards the midpoint of our medium-term dividend payout ratio objective of 40% to 50%. We're also buying back our stock in a disciplined manner as we look to optimize ROE, EPS growth and compound book value per share growth in a multitiered operating environment. Taking a step back to look at the global landscape, market conditions have remained largely constructive, with mega trends continuing to shape critical sectors, including natural resources, power infrastructure, strategic defense health care and the AI ecosystem. These trends support increased client activity for our capital markets and wealth management segments. Nonetheless, elevated bond yields across many large economies are creating fiscal challenges and refinancing risk for both governments and corporations.

Now a few comments on the outlook for Canada. The Canadian economy and labor market have performed well, having already absorbed multiple shocks over the past 18 months. Our clients have also continued to spend and delinquencies remained well controlled. Looking forward, the implementation of the recently announced Section 338 tariffs could impact approximately 40 basis points of Canadian GDP with a larger impact on certain sectors and provinces. While Canada and the U.S. have yet to come to a longer-term solution, we note the average effective tariff rate remains low at approximately 6% with over 80% of exports remaining duty free. Furthermore, the government has announced substantial support packages, leveraging Canada's significant financial flexibility. The medium-term opportunity remains more meaningful. We look forward to working with all stakeholders on the development of major nation building projects, and we are pleased to see advancements in the port of Montreal expansion and shipbuilding contracts, increased foreign direct investment and new trade relationships adds to our optimism.

We believe we are well positioned to navigate near-term uncertainty while supporting our clients' growth aspirations given the strength of our balance sheet and diversified business model. With this context, I will now speak to the drivers behind our strong segment results with a focus on 4 key factors: First, our leading award-winning franchises that are laser-focused on client needs. Second, our strategies that position us to benefit from our significant data scale, structural growth opportunities and client activity. Third, the targeted connectivity of balance sheet scale, client acquisition and deepening client relationships. And fourth, operating scale that underpins our premium risk-adjusted profitability.

Moving to Slide 5. Personal Banking - Canada reported record revenue this quarter and remains the preeminent franchise in the country with leading market share in personal lending, total deposits and investments. It's encouraging to see higher switch volumes and strong retention, driving a significant uptick in sequential mortgage growth to 1.8%, the highest since our acquisition of HSBC Bank of Canada for Bank Canada. Credit card balances increased 7% from last year in a quarter where [ RBC ] Rewards had a record number of new accounts acquired. We also launched new cashback products as well as our partnership with Hopper, which will bring a world-class travel booking platform and innovative travel offerings to the Canadian market. Also, the aggregate of average retail deposits and mutual fund AUA increased 8% or $47 billion year-over-year with net money inflows positive for the quarter. Ultimately, this repositioning primarily out of term deposits to fee-based investments benefits both the client and the bank.

Commercial Banking has leading market share in both loans and deposits across client categories. This segment generated record net income this quarter, underpinning an ROE of 18.6% in an environment of trade uncertainty and geopolitical risks weighing on business activity and client sentiment, particularly in real estate, supply chain and consumer sectors within Ontario and British Columbia. However, this quarter showed an uptick in sequential loan growth to 1.2% partly due to growth pockets in agriculture, health care and the public sector as well as HST rebates in the real estate sector. Deposit growth was very strong at 9% year-over-year, benefiting from increased client coverage and improved sales productivity. There was also ancillary fee-based benefits to this volume growth as client activity drove double-digit transaction banking revenue growth across FX and cash management fees.

RBC Capital Markets is the leading franchise in our home market, a top 10 global investment bank and was recently named Canada's Best Investment Bank by Euromoney. The segment reported record revenue and net income this quarter, while generating an ROE of 14.5%. Investment Banking revenue increased 23% from last year and our market share over the last 12 months grew to 2.1%, benefiting from higher origination and M&A activity across most regions. Strong lending growth in corporate banking was largely driven by higher investment grade loans in securitization finance in support of our clients' growth aspirations. This drove increased opportunities to cross-sell into advisory origination and sales and trading intermediation activities. Our average investment banking fee for client and average fee per senior banker continue to increase, demonstrating our monetization expanded client connectivity as well as continued talent investments and balance sheet productivity overall, driving stronger returns.

Global Markets revenue was up 11% from last year, underpinned by growing momentum in our equities franchise, where we reported strong market share gains in equity derivatives. As we noted at our Investor Day, growing our equity financing capabilities is a strategic imperative. We grew these volumes 40% compared to last year. We continue to leverage our strong balance sheet, credit rating and brand to drive these strategies, which have robust returns on equity. Looking ahead, our pipeline remains healthy in a constructive environment, and our ongoing growth initiatives support our client-focused strategies. Wealth Management also reported record revenue and net income this quarter, benefiting from its diversified revenue streams as clients came to us for trusted advice, service and solutions in an evolving environment.

Starting with our Wealth Advisory businesses, RBC Dominion Securities, which is the largest Canadian Wealth Management franchise was recently recognized by its advisers as the highest-rated bank-owned investment dealer in Canada, and Investment Executive Brokerage Report Card for the 20th consecutive year. Our U.S. Wealth Advisory business, the sixth largest U.S. wealth advisory firm, recently ranked fourth in J.D. Power's advisory satisfaction ranking. Canadian Wealth Management and U.S. Wealth Management AUA increased 20% and 14%, respectively, benefiting from both market appreciation as well as net new assets in the quarter. RBC Direct Investing, our self-directed platform, benefited from nearly a 40% year-over-year increase in trade volumes, partly due to successful launch of GoSmart earlier this year.

Our Wealth Management platforms also benefited from higher deposits in our Canadian business and an 18% year-over-year growth in credit and lending balances in our U.S. Wealth Advisory franchise. Our new adviser hiring pipeline continues to be strong, position us well for future revenue growth. As the largest Canadian retail mutual fund franchise, RBC Global Asset Management increased assets under management by 13% year-over-year through constructive markets and leading mutual fund net sales. In addition, the RBC iShares Alliance led the industry with respect to long-term ETF net sales of $10 billion for calendar Q2 2026 while currently announcing the expansion of its lineup of fixed income solutions as we continue to expand into private markets.

I'll now cover a few of the key initiatives that will underpin our next leg of profitable growth with a more detailed update to come in Q4. We have an ambition to build a global transaction banking business with an end-to-end offering that allows us to service our business and wholesale clients as they operate seamlessly across borders in a world with evolving trade connections. Secondly, our U.S. region efficiency ratio has improved to 75% year-to-date, moving us closer towards our target in the low 70s. As part of the success, City National Bank's net income increased to USD 184 million this quarter, benefiting from 8% loan growth and 5% deposit growth as we continue to add teams and execute well for our clients. And third, we are also accelerating the execution around our AI ambitions as we built towards generating $700 million to $1 billion in enterprise value by the end of fiscal 2027. We are leveraging our advantages in data scale, client relationships, execution capabilities and nearly a decade of investments in our Borealis Research Institute.

And with that, Katherine, over to you.

Thanks, Dave, and good morning, everyone. Starting with Slide 7. We delivered record results this quarter with diluted earnings per share of $4.23. Adjusted diluted earnings per share of $4.28 was up 11% from last year, reflecting record revenues across most of our segments and all bank operating leverage of 3%.

Turning to capital on Slide 8. Our CET1 ratio remained flat at 13.5%. We generated ROE of 17.9%, underpinning strong capital generation of 80 basis points this quarter. After dividends and strong client-driven growth primarily in corporate lending, credit cards and residential mortgages, complemented by higher market-related exposures in capital markets we generated 16 basis points of net capital. This was largely absorbed by the repurchase of 5.6 million shares for approximately $1.6 billion. Lastly, the previously announced sale of Moneris is expected to contribute approximately 10 basis points to CET1 in the first quarter of 2027, while the run rate earnings impact is not expected to be significant.

Moving to Slide 9. All bank net interest income grew 5% from last year. Excluding trading net interest income, all bank net interest income was up 7%. Further excluding the impact of certain transactions in capital markets that carry related offset in other noninterest income, as well as excluding lower purchase price adjustments or PPA related to the acquisition of HSBC Canada, our all-bank net interest income was up 11%. This reflected solid volume growth across our largest segment, including personal banking, commercial banking and wealth management. We also continue to benefit from our deposit tractor strategy. a sequential decline of 4 basis points in all bank NIM, excluding trading, was largely due to capital markets, including the aforementioned transactions as well as lower loan book spreads, including a shift towards investment-grade loans.

Trading net interest income was down $178 million or 27% from last year, driven by higher financing volumes in capital markets, as Dave noted earlier. This was more than offset in trading noninterest income. Total noninterest income was up 13%, driven largely by higher fee-based revenues in wealth management and capital markets. Moving to Slide 10. Reported noninterest income was up 6% from last year and up 7% on an adjusted basis. Higher variable compensation consistent with higher revenues drove more than half of the growth. Higher salaries was the second largest driver of the growth as we continue to invest in our talent, including in capital markets, wealth management and personal banking. The remainder of the increase reflected technology-related spend, including safety and soundness initiatives and digital tools as well as higher marketing investments, including new brand partnerships.

Moving to taxes. The adjusted non-TEB effective tax rate increased by 1 percentage point to 22.3%, reflecting changes in earnings mix. I'll now turn to our Q3 segment results, which begin on Slide 11. Personal Banking generated $1.9 billion of earnings this quarter. Personal Banking Canada net income was down 1% from last year. Revenue was a record, up 4% from last year. Net interest income was up 5% as we earn through the impact of lower HSBC Canada-related PPA. Excluding this, our net interest income was up 8% from last year, driven by 4% loan growth and higher margins. Noninterest income was up 3%, driven by growth in mutual fund distribution fees underpinned by higher fee-based assets. This was partly offset by lower service charges, largely reflecting the impact of regulatory changes that we guided to previously. Expenses were up 9%, including higher staff-related costs and the timing of investments in technology and marketing. This included digital and AI initiatives as well as client acquisition and engagement campaigns.

Turning to Slide 12. Commercial Banking net income was a record $936 million, up 12% from last year, underpinned by record pre-provision pretax earnings of $1.5 billion. Revenue was up 5%, primarily reflecting higher net interest income growth driven by higher volumes and margins. Commercial banking loan-to-deposit ratio improved 3 percentage points from last year to 58% as deposits grew 9% from last year and 6% sequentially, reflecting growth in non-maturity deposits. Loans were up 4% from last year and 1% sequentially as growth accelerated among our larger clients and in certain sectors.

I'll now make a few comments on our combined Canadian Banking segment. Net interest income was up 5% from last year or up 7%, excluding the impact of lower HSBC Canada related PPA. NIM was down 3 basis points from last quarter. This is primarily reflecting the seasonally higher lending spreads we noted in the prior quarter. Lastly, our combined Canadian Banking segment generated a leading efficiency ratio of 37%. This quarter's negative operating leverage of 3% largely reflected lower HSBC Canada-related PPA. The impact of regulatory changes and the timing of investments in personal banking. Our year-to-date operating leverage remained strong at 2%.

Turning to Wealth Management on Slide 13. Net income of $1.4 billion was up 32% from last year, reflecting record revenue and a strong pretax margin of 29.3%, which was up 4 percentage points from last year. Noninterest income was up 16%, underpinned by market appreciation, positive net sales and net new assets across most regions. Higher transactional revenue also contributed to the increase with increased activity in Canadian wealth management, including our direct investing business. Net interest income was up 16% from last year, benefiting from the positive growth in Canadian Wealth Management and higher spreads and loan volumes in U.S. Wealth Management, including City National Bank.

Turning to Capital Markets on Slide 14. Record net income of $1.5 billion was up 16% from last year. Pre-provision pretax earnings of $2 billion was also a record driven by strong revenue momentum across all businesses and efficiency ratio improvement of 3 percentage points. Global Markets performance remained strong with revenue up 11% from last year. reflecting continued momentum in equities trading and strength in our nontrading and financing portfolios. This was partly offset by headwinds in rate trading amid muted client activity. Corporate and Investment Banking revenue was a record, up 16% from last year with investment banking revenue up 23% from last year, reflecting record levels of activity. Lending and transaction banking revenue was up 10% driven partly by strong growth in loans and in deposits.

Turning to Slide 15. Insurance net income of $197 million was down 20% from last year, largely due to lower insurance service results. This is primarily a result of favorable longevity reinsurance adjustments and recaptures in the prior year. Our premium deposits were up 9% from last year, reflecting higher segregated fund and group annuity sales. To conclude, we reiterate our full year target will remain mindful of the evolving macro environment. All base net interest income, excluding trading, is up 7% year-to-date and on track to deliver against our mid-single-digit range guidance. Looking ahead to next quarter, we expect Canadian Banking margins to be relatively stable, with structural tailwinds offset by increased competition for mortgages and term deposits.

Expense growth of 5% year-to-date remains consistent with our mid-single-digit range guidance. We continue to expect positive all-bank operating leverage for the full year, including 1% to 2% in Canadian Banking. As a reminder, we continue to expect the non-teb effective tax rate to move towards the higher end of our 21% to 23% guided range over the coming quarters. Lastly, following the recent change in the domestic stability buffer, we now expect the CET1 ratio to trend towards the midpoint of our 12.5% to 13.5% range over time. as we look to drive organic growth, increase our dividend and execute share buybacks at a similar cadence to the last [ 2 ] quarters.

With that, I'll now turn it over to Graeme.

Thank you, Katherine, and good morning, everyone. I'll now discuss our allowances in the context of the current macroeconomic environment, continuing geopolitical tensions and ongoing trade developments. As Dave noted earlier, the Canadian economy has proven to be resilient. With the improvement in employment and GDP seen in Q2, we maintain a cautiously optimistic outlook that the economy will continue to expand. Likewise, the U.S. economy has demonstrated strong productivity growth and lower employment rates. Material clinical risk remains a significant sources of economic and credit uncertainty. This stems from 2 key areas: first, the impact of evolving and uncertain trade policy; and second, the inflationary pressures arising from the ongoing complex in the Middle East.

On the trade front, [indiscernible] moving to an annual review cycle has left tariff exemptions intact for goods and services covered in [indiscernible]. Nevertheless, last week, we saw the implementation of new Section 338 tariffs on [ key ] and exports to the U.S. As these apply to a narrow base of Canadian products, these tariffs alone are not expected to meaningfully change our overall economic forecast. The economic impact ultimately depends on how long the new tariffs are made in place, any potential [indiscernible] tariffs and potential government support measures provided to affected workers and businesses. Against this backdrop, we continue to lean on our robust credit underwriting and provisioning processes. For allowances, we have prudently retained elevated weighting to our downside scenarios, including our trade disruption scenario, which contemplates a North American recession driven by an escalating global trade war and rising geopolitical risks.

Turning to Slide 17. We took a total of $21 million or 1 basis point of provisions on performing loans this quarter. This is predominantly driven by portfolio growth in Personal Banking and Capital Markets, partially offset by favorable changes in our macroeconomic forecast largely in the U.S. region. Moving to Slide 18. Gross impaired loans were up $253 million or 1 basis point from last quarter, primarily driven by Capital Markets and Wealth Management and offset by lower impaired loans in Commercial Banking. In Capital Markets, gross impaired loans increased by $466 million, largely due to impaired loans in the real estate and related sector. [indiscernible] are part of a subset of our commercial real estate portfolio, which we expect will face continued impact from ongoing secular headwinds in the near term. The facilities impacted are structured to minimize losses and therefore, were not a key driver of PCL this quarter.

In Wealth Management, impaired loans, predominantly City National Bank increased $114 million, primarily driven by the utility sector. In Commercial Banking, impaired loans are down $241 million over the quarter, we are seeing lower impairments in the real estate and related and consumer discretionary sectors. As a reminder, impairments in our wholesale portfolios are inherently more difficult to predict and can be episodic. However, while risk continues to be elevated, we are seeing modest improvements in credit quality across the wholesale portfolio.

Turning to Slide 19. PCL on impaired loans of 35 basis points was up 1 basis point or $80 million quarter-over-quarter and remains in line with our expectations. In Capital Markets, provisions were up $148 million quarter-over-quarter. The largest driver of provisions this quarter relate to a former investment-grade borer in the other services sector, more specifically in the utility space, that we originally impaired in the first quarter of 2025. Recent changes in the political environment have significantly increased uncertainty around the path of resolution on this file. Accordingly, we are prudently taking an additional $120 million of provisions while recognizing that the ultimate outcome remains uncertain. In the commercial portfolio, while PCL on impaired loans remains elevated compared to historical levels, we have seen improving loss trends over the last 3 quarters. Additionally, retail credit indicators are showing signs of stabilization. Delinquencies in unsecured products, particularly credit cards remain elevated, but have leveled off from last quarter.

In our home equity finance portfolio, while we continue to manage near-term renewal risk, we are encouraged by recent improvements in impairment formations. To conclude, despite various geopolitical and trade headwinds over the last few quarters, Canada's economy has shown signs of stabilization, driven by resilient household spending, recovering business investments and expanding that trade. Although sector is directly targeted by U.S. tariffs to date house headwinds, impacts have remained contained and have not spread to the overall economy. Internally, as noted previously, credit indicators have generally been stable or improving. And we are pleased with the performance of our loan portfolio this quarter. We expect our overall full year 2026 provisions on impaired loans to remain within the range we previously guided to.

And now back to Dave.

Operator, we can take Q&A now.

[Operator Instructions] Your first question comes from the line of Ebrahim Poonawala with Bank of America.

Two-part question if you want to limit questions. But both with the angle of trying to understand where Royal can outperform peers on growth. Maybe for Dave or Derek, one, talk to us in terms of what the AI CapEx cycle means for Royal? Yes, you were on some of these IPOs, debt issuance. But is there something more lasting when we think about lending, deposits, wealth management, that this AI cycle can create? And we just heard NVIDIA last night talk about growth into the next couple of years. So trying to understand if we should view Royal on the revenue side as a beneficiary of what's going on with the AI CapEx build-out? And second, you've made a big splash with the Global Transaction Banking. Just to summarize for us where you think Royal has the right to win in an area that is intensely competitive.

Sure. Thanks, Ebrahim. It's Derek. I'll maybe take your first question on the AI CapEx cycle. I think, certainly, it's an area that's obviously driving tremendous growth, and we do think it will be a unique growth opportunity for us where we are positioned to drive differentiated performance. So if I step back from that or unpack that a little bit, Obviously, the AAI build-out is impacting a variety of sectors from technology to data centers, to power, to energy, critical minerals. Those are all areas where we feel we have strength today, areas we've been investing over time in areas where we're bringing together our collective expertise very well in our view.

When we then look at those areas of opportunity and how they connect to our businesses, obviously, there's a lot of financing required for the build-out, given our size and scale and AA balance sheet, it's an opportunity for us to support clients initially with lending, and you've seen that come through in some very strong loan growth for us year-over-year. But importantly, then anchoring that lending and those relationships into other businesses. You mentioned GTB, clearly, as we're growing our loan book. We are connecting the dots with our cash management business and growing deposits as part of that. We're obviously tying that to investment banking activity where we had very good results this quarter, both across DCM, ECM, project finance and advisory. And then that obviously has ancillary benefits into our trading businesses and also into our wealth franchise. So in totality, there is a very big opportunity, and we think we're positioned well to capitalize on it, and we do think it will be sustainable.

Ebrahim, this is Dave. Maybe I'll give some of the rationale behind creating this global transaction banking business and integrating it across platforms, and I'll hand it to Sean and Derek for more specific comments about the competitive rationale. But we do have aspirations to compete globally. We have invested heavily in technology platforms across Commercial Banking, obviously, RBC Clear and Capital Markets that Derek just spoke to and [indiscernible] national franchise. And we felt that we wanted to integrate that technology platform and bring it under one common leader to not only create efficiencies, but it enable a more focused go-to-market strategy with our clients globally as we segment.

So this allows us to be more efficient and bring our technology to our customers, approach the market more efficiently. And our aspiration is to really serve a more globally connected bank -- globally connected customer from RBC. And we see the world moving to create more global trade relationships, a more global cross-border flow. Also enabling the group to look at modernizing payments through tokenization and stable coins. So that's the strategy behind it. We are very optimistic about it. We think we have -- and we believe we have the right to win. We're a significant creditor to a very large corporate loan book and commercial loan book in City National is growing their mid-corporate and commercial loan book. And therefore, we're part of syndicates. We have relationships with these customers. And we feel we have with modern technology, the right to ask for the cross-sell into the global transaction banking capability.

So with that, maybe Sean and then Derek, some comments about specific competition.

Yes. Thanks, David. It's Sean speaking. So when we've assessed the opportunity here, we started by looking at where are we today and Ultimately, we've got an exceptionally strong foundation across Canada and increasingly in the U.S., as Dave mentioned, you saw in our results, approaching $340 billion in Canadian deposits across all segments of the business and wholesale landscape. We've invested heavily, as Dave has mentioned, to build leading cash management platforms here and in the U.S. with Edge and Clear. We now have the most comprehensive product suite across the cash management, treasury and trade landscape.

And then when we start thinking about our clients and client needs across all segments, clients are expecting more connected and integrated experiences. They also want less friction when they're dealing with us across borders. And clients of all sizes across all sectors and segments increasingly are operating internationally. And this is about supporting client needs and accelerating, I'd say, our growth ambitions across the transaction banking landscape across regions. And ultimately, this leads to some of our long-standing focuses of the organization, deposit strength, funding advantage and growing kind of fee resilient businesses and ROE expansion for the enterprise.

I would just briefly add in terms of a competitive market, but where we feel we have a right to win. Beyond building on Sean's comments on the very strong foundation we obviously enjoy in Canada. I think we've seen very good success in our build-out of RBC Clear, and we look forward to providing a more detailed update at Q4, but needless to say, we are tracking ahead of our plans. We're seeing very good results in terms of new client onboarding, the growth of deposits and the profitability that's coming with that. And so that track record now of 2 years entering a new market, in the transaction banking business and the success we're seeing to date gives us confidence we can continue to build off that, not just in North America, but over time in other regions.

Your next question comes from the line of John Aiken with Jefferies.

Wanted to talk about the Wealth Management pretax margins. I know in the quarter benefited from the reserve release. But basically, what we've seen over the last 2 years, as Dave highlighted in his comments, very significant growth in AUM that's leaded to operating leverage and benefiting the segment. Where I'm going with this is with this growth, are we going to see a necessary step of investment in the segment to perpetuate this? Or are we at a level now where we're actually going to see the scale benefiting and potentially see that margin continue to increase?

Yes. Thanks for the question. So listen, overall, in terms of pretax margin, what you're seeing, maybe just start with our Wealth Canada franchise, you heard in Dave's comments, I mean, this is the #1 platform in Canada. We're actually larger than our #2 and 3 competitors put together. So we do have a scale advantage there and that continues to grow in terms of just a fixed cost base in terms of -- as we're competing and having these assets continue to grow, we're getting some real scale benefit in our Canadian business.

You also heard in some of the comments, a very updraft direct investing franchise, both in terms of adding new clients, but also seeing much steeper client activity in terms of trades per day. So these are all very positive, I'd say, revenue and top line benefits in terms of the pretax margin. In terms of do we expect to see a step-up of investment? Right now, we have been investing fairly consistently across our wealth franchises in terms of technology. We do not expect to have a required sort of step-up in that investment. And then if the -- even within that envelope, we are funding our AI use cases. First -- probably first and foremost, to make better productivity for those same advisers so they can go out and spend more time connecting with clients, continue to grow those individual portfolios do better for the client and obviously better for the enterprise.

And then also in our back office, being able to streamline our processes, think end to end, take costs down, increase our service levels. And then the last portion is our AI for alpha and making sure that our global asset management business is getting the best signals they can and embedding that into the 30-plus customized investment processes to generate alpha. So for -- within all of that, that's all within our existing funding envelope, and we do not see any required step up.

Your next question comes from the line of Stephen Boland with Raymond James.

I'm going to follow up on the GTB announcement. I think that was a good comprehensive answer. I'm just wondering about implementation timing of this. And how do we measure success in this initiative? Is it just going to be kind of buried in the loan growth numbers, maybe the deposit numbers, what metrics are you looking for to show that this initiative is actually taking traction? I'm not sure who wants to take that.

Sure, Steve. It's Derek. I'll start and Sean can add. A very good question. Thank you. In terms of implementation, we have well-established businesses today that individually are all doing very well. And so we've got great momentum. We see an even bigger prize over time that we can get after. But we're very pleased at how all the businesses are doing right now, and we're going to try to ensure we don't disrupt that strong momentum in any way. So we'll be bringing the businesses together. It will be some organizational changes around that. We'll be working through that over the next 60 to 90 days. And we think it will be a fairly seamless transition to take those existing businesses into a unified offering, importantly for our clients and as well for our teams.

We've obviously done a lot of work looking at what we think the opportunity is in North America and beyond. As we bring this business together, we will be crystallizing those targets. And over time, we'll look to come out with different KPIs to address your exact point. So I'd say stay tuned, but definitely, there will -- while this will continue to be reported in the existing segments today, we will be coming out with KPIs to track how the broader GTB initiative is proceeding.

Your next question comes from the line of Gabriel Dechaine with National Bank Financial.

I'm not -- 18% ROE is great. So it's a little bit odd to maybe poke holes. And what I mean by that is the capital markets business is unlike other banks, has not really been enhancing the ROE to the same degree. And that's because of the capital intensity of that business, we've seen over the past year or 2, more corporate lending, balance sheet expansion. I understand the motivation behind that strategy. I'm just wondering when do you expect the inflection point, the balance sheet intensity to maybe calm down a little bit and the lower capital intensity revenue items moving higher and the ROE following that.

Sure. Thanks, Gabe. It's Derek. I'll address that. First, just a couple of sort of comments I would make. One, as you're probably aware, different banks have different approaches to capital allocation to the businesses. So it's a little bit apples and oranges when you compare the capital markets ROEs across peers.

I think to your point, though, it's very important to look over time at how has that been progressing. If you look back, and again, we've had our own changes to capital attribution in recent years. If you look back and you normalize that, we've seen very significant expansion of the capital markets ROE really going back to 2019, 2020. As you'll recall, at Investor Day, we put out a target of 14% by 2027. We're operating well ahead of that this year. So we feel very pleased about how we've been able to continue on that trajectory. And even year-to-date, we've obviously seen a good lift in ROE. But when we look at our revenue to RWA, again, very good progression in those metrics.

The strategy, obviously, is to continue to improve that. We feel very confident in our ability to do it. Part of that comes from the mix of nonlending versus lending. I would just highlight that, again, if you come back to the very strong balance sheet growth we've seen year-to-date, some of that gets monetized in the very near term because there's a direct linkage between the capital you provide and ancillary business. But some of that is building for the long term. And that's where we see very good opportunities where some of the balance sheet deployment right now is really building our medium-term client franchises. And we feel very confident that as we've seen in the last number of years, we'll continue to see that monetization ratio come through and strengthen our franchises over time.

I guess it's different than different approach. And you learn from the past, I mean, a long time ago, admittedly, but we saw the corporate loan book growing by a lot, and then there was some reversal of that eventually. So it's just not is different this time, I suppose. And my next question for Dave. Just M&A is an obvious area of discussion here given where bank stock valuations are how do you define a tuck-in acquisition these days? And what would it take for you to do something more than a tuck-in, I guess?

I would say first and foremost, Gabriel, we're focused on organic growth. You've seen the momentum quarter-over-quarter and year-over-year in our corporate loan book and our commercial loan book in City National. You look at the mega projects coming. We're expecting to see RWA growth and lending growth and revenue growth and NII growth from those sectors. So there's going to be significant opportunity and growing opportunity to deploy capital into organic growth, and we're quite excited about it. And you saw the very strong client activities that across all our lending, including mortgages.

So I think that's where we're going to put cattle first and foremost. We've always said that, and I'm very excited about the growth and opportunities around that. super cycle generated from AI that was previously asked. So I think that's formal. So as we think about then to your question, second, we're going to buy back our shares. And continue to buy back shares at the rate we've done in the last number of quarters and accelerate where possible. So I think we've got significant capital. We generated a significant amount of capital from our profitability. So I think second, third, as I think about that, it's always important to state those first 2 because that's our priority, and that's how we're going to create significant shareholder value. We're always mindful of franchises that can create value for us, whether it's creating scale in commercial banking in the United States, creating scale and wealth management in the United States has always been our focus.

We have an ability because of RBC's scale to allow City National to grow. We don't need to do something to be competitive. We have cash management products. We have treasury management, we have commercial and consumer lending capability. We're cross-selling those effectively now. So it's not that we needed to close a capability gap. We'll do it if it can create shareholder value. And I guess while our stocks are strong, so are the potential targets. And therefore, it's all about creating a playbook that creates medium-term shareholder value.

So nothing's changed. We're not keeping capital because we think we're going to do something imminently. We're keeping capital for growth, and we're also keeping capital because there's a little bit of instability in the geopolitics like the world right now. But we're not keeping capital because we feel we have to do something. We're only going to do something if it creates meaningful shareholder value because management's time is best placed in growing this franchise client by client, and we have huge opportunity to do that.

Your next question comes from the line of Mario Mendonca with TD Securities.

I was looking at Royal's tax preprovision profit growth this quarter and frankly, over the last couple of quarters. It's in line with some, but certainly weaker than others. And as I drill down and think about it, it's certainly not your fee income. Clearly, that's very strong. And while there could be some lagging on the trading, I understand that because of Royal's focus on fixed income compared to some of your peers.

But where it does stand out is on the NIM essentially. And I appreciate the bank's target is to grow NII, but your NII growth is lagging several of your peers. The reason I'm coming at it from this direction is, I would not have expected that given Royal's deposit profile and you [indiscernible] that profile and the funding advantage regularly as you should. Why is that not driving better margin performance relative to your peers given the funding profile and the level of rates that we have in the market today?

Thank you for the question. It's Katherine. As you noted, our all bank NIM is impacted at the top of the house by some capital market items. As you pull those out and you look at the overall kind of underlying growth, the one thing that I would take you to is on the net interest income side, we have been earning through our purchase price equation.

So that is the headwind that we've been earning through. So if you take that aside, as I referenced in my remarks, we are growing our net interest income at 7%. And that is underpinned by strong volume growth that we've seen in both our commercial as well as in our personal bank. So both on the loan side as well as the deposits in the commercial banking. So overall, we're feeling good about that trajectory going forward as we think about [ NIM ]. And as I said in my comments, I feel like we've got a stable NIM as we enter into the fourth quarter.

Can you just talk about what the effect of those peaks of the wind down of the PPA. Is that taking out 3 points of growth, 4 points growth? What would you put that up? And when would you expect the bank to lap that headwind?

So the PPA was about $100 million headwind per quarter, and that translates into about a 40 basis point headwind. And so we will lap that when we head to Q2 next year.

Your next question comes from the line of Paul Holden with CIBC.

Sort of questioning along the same vein, specifically, I guess, for Sean. Just looking at the NII growth, and I guess, loan growth specifically, we have seen some of the peers show accelerated commercial loan growth over the last couple of quarters, not seeing that as much as for Royal, but obviously, it's still really good deposit growth. So just wondering if you can talk about that, what's going on in terms of the competitive dynamics there?

Sure. Thanks, Paul. Thanks for the question. So our loan growth for the quarter was 1.2%, as Katherine highlighted. That was actually double the growth rate from our previous quarter. with really strong exit momentum. July actually was our highest growth month that we've experienced in a year. And so looking ahead, we expect to track and to continue to build on that momentum.

Our pipelines are really strong. We've obviously seen some variability across regions and sectors, especially those impacted by the tariffs. But we're also seeing some really good green shoots that's driving that momentum, especially in those sectors that are less impacted by tariffs or some of the uncertainty, whether it's in agriculture in health care and public sector and some emerging green shoots also in real estate, especially in Ontario as developers have shifted to single-family homes and purposeful rental driven by the HSD rebate. Our pipelines are really strong, as I mentioned, we continue to see quality improvements across the portfolio, whether it's declining watch list, impaired rates and special loans volumes.

And as Dave mentioned, we've got some obviously, optimism that the government and infrastructure programs will start to take effect. We're pretty well balanced and steady through the cycle lenders, all and have coming off of 12 of 13 consecutive quarters of outsized growth relative to the market. So we're happy with our growth, especially in this part of the cycle, and we have a lot of focus on continuing the momentum we have recently and continuing to invest in the business on both sides of the balance sheet.

Okay. That's helpful. So it sounds like building momentum. Just one quick follow-up. Just HSBC client retention that's been strong in line with or better than your expectations?

Absolutely. I'll start. Maybe [indiscernible] can follow as well. On the client side, we are well below our targeted attrition rates that we would have modeled during the due diligence. We've had extremely strong retention and growing with the client base is now that we fully integrated, completed the and also are picking up strength in some of the areas that HSBC had outsized positions in, for example, the hotels and seniors housing and the upper end of the market in our Corporate Client Group, where we really embedded a lot of the learnings from HSBC's model to drive growth in that segment. So absolutely, we're really pleased with the retention and importantly, the recent growth from that portfolio.

And then on the retail side, it's [indiscernible], I would say similar teams to what Sean has expressed. At the aggregate client retention level feel very good about the performance of that trending at or slightly ahead of where we would have expected it when we went into the deal. And then we continue to see the opportunity for depth of relationship across that client franchise take hold. And so month-over-month, we are continuing to deepen those client relationships that HSBC client came to us with less depth than the RBC clients. And so we see ourselves on track exactly as we would expect relative to that depth of relationship. So feeling good that those clients are being well served by us.

Next question comes from the line of Mike Rizvanovic with Scotiabank.

Had a question for Dave just on the capital ratio. Just wondering it seems like there's a bit of a hesitation to fully incorporate the 100 basis point DSP range reduction into where you sort of want to be on the CET1 ratio. And I understand in the current environment, perfectly why, but if you're thinking more longer term, let's say, 2 to 3 years out, is there a possibility that maybe we go back to that previous historical dynamic where the banks -- well, Royal would be somewhere in that 50 to 100 basis point buffer above the high end of where the DSP could land at, meaning that right now, the max that OSFI could add at the CET1 requirement would be 11%. So can you get to sort of ballpark 12% flat on CT1 in, say, 2 to 3 years?

Yes. Great question. So we are being careful and prudent, given some of the uncertainty in the geopolitical environment. What we do, as Katherine mentioned, foresee bringing that 13.5% down towards initially the mid of our range, 12.5% to 13.5% because we're at this high end now. And then potentially even lower to your point because we have that ability to do so, whether it's organic growth or continuing share buyback. So I would say, yes, we would not have an adverse reaction to bringing it down consistently through the deployment of capital to somewhere near those ranges given the recent DSP pullback by OSFI.

Okay. That's helpful. And then a quick one for Neil. Just wanted to ask about CNB. Obviously, the number this quarter looks really strong, and you've had a pretty strong rebound here. When you think about CNB and the next leg of growth, is this something that is just going to largely be an organic story? Or are you potentially looking to add to your capabilities with inorganic?

Maybe I'll address that as I work very closely with Greg Carmichael, Head of CNB and our U.S. operations. So yes, first and foremost, we have a very significant opportunity to grow organically. We are adding teams across different markets now into the Southeast. Looking potentially to go into Texas.

We're adding product capability to cross-sell into our wealth clients and Neil's business, whether it's mortgages, core banking product, credit cards coming off the C&B platform. We're moving into mid-corporate global transaction banking with new capabilities there. So there is a significant organic push that the team is very focused on. If there is an opportunity to add to commercial scale, we do talk about that and the synergies. We're increasingly building a capability to have a robust -- as you said, as we've gone through all of this change in investment in our platform, our risk platforms or tech platforms we're building a capability to roll another bank on to those platforms. We have a number of very significant opportunities to integrate the U.S. already within RBC, whether it's our Georgia Bank and others. So there's synergies there that we're focused on. So the U.S. has enormous opportunity for us.

You saw a very significant growth in CNB, and we think there's more exciting growth coming as we continue to reduce costs from our remediation efforts and we continue to grow organic our footprint. And yes, we're always thinking and talking about how can we add to that scale with a confident playbook like we had with HSBC, where we take out costs as a predominant driver of shareholder returns and then look to grow our footprint in the region. So it's both. Honestly, it's a great question, and we're very excited about the opportunities in the United States.

This concludes the question-and-answer session. I will now turn the call back over to Dave McKay for closing remarks.

Thank you for your questions today. We're really up with the results. I think there are some areas where certainly we're looking to improve our operations. But I think the underlying thematic that we tried to convey today is we're seeing very strong client activity. We're winning market share, not always at the margin we wanted, but we're winning market share across our corporate banking, investment banking activities, commercial banking, deposits, in particular, consumer banking mortgages competing well. We're competing really well for AUA and AUM.

So you're seeing a franchise that's really invested and continues to invest in building a sustainable foundation for growth on our balance sheet, offer a balance sheet. And I think that's the characteristic of our franchise. This is sustainable growth built through clients with great products, great systems, great capabilities, and we're going to continue to do that with a really healthy mix between NII and noninterest income. So thank you very much for your questions. We look forward to our ongoing dialogue and to see you next quarter.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.

Good morning, ladies and gentlemen. Welcome to the RBC's 2026 Second Quarter Results Conference Call. Please be advised that this call is being recorded. [Operator Instructions]

I would now like to turn the meeting over to Asim Imran. Please go ahead.

Thank you, and good morning, everyone. Speaking today will be Dave McKay, President and Chief Executive Officer; Katherine Gibson, Chief Financial Officer; and Graeme Hepworth, Chief Risk Officer. Also joining us today for your questions, Erica Nielsen, Group Head, Personal Banking; Sean Amato-Gauci, Group Head, Commercial Banking; and Neil McLaughlin, Group Head, Wealth Management; and Derek Neldner, Group Head, Capital Markets.

As noted on Slide 2, 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 ask that you limit your questions and then requeue. With that, I'll turn it over to Dave.

Thanks, Asim, and good morning, everyone, and thank you for joining us. Today we reported earnings of $5.5 billion and adjusted earnings of $5.6 billion, our second highest quarterly performance on record. As you'll see on Slide 4, pre-provision pretax earnings were up 15% from last year, benefiting from strong revenue growth of 11% and all bank operating leverage of over 3%. Our performance this quarter delivered a 17.2% return on equity on the foundation of a robust 13.5% common equity Tier 1 ratio.

These results were underpinned by the strength of our diversified business model benefiting from both a constructive environment for our market-related businesses and operating scale in our Canadian Personal Banking and Commercial Banking segments. Capital Markets reported record net income reflecting strong performance in both Global Markets and Investment Banking. Wealth Management continued to report strong results across our North American advisory and asset management businesses.

Personal Banking results were driven by an operating leverage of 3% and growth of in-money balances. Commercial Banking generated an ROE of over 17%.

Moving to Slide 5, starting with Capital Markets, where Global Investment Banking improved their last 12-month market share to over 2% as we saw record levels of fee-based revenue from strong M&A advisory activity as well as debt and equity origination. In Global Markets, our ongoing investments in talent and technology are strengthening our equities franchise, which also reported record revenue this quarter. Our strong FICC franchise also reported solid results.

We also saw solid growth in our financing transaction banking businesses as we continue to support our clients' growth aspirations. With the leading Canadian franchise as well as the top 10 ranked global business, we are in a great position to support and grow alongside key macro trends, including AI, energy, digital infrastructure and aerospace and defense around the world.

In AI and related infrastructure, we advised CPPIB on its U.S. $4.2 billion acquisition of atNorth, a Pan-Nordic data center operator, as well as acted as joint active book runner on Alphabet's $8.5 billion inaugural Maple senior unsecured notes offering, the largest bond offering ever in the Canadian market. In the energy space, RBC acted as an exclusive financial adviser to Arc Resources on their sale agreement with Shell, in a transaction valued at $22 billion. In the United States, RBC acted as joint lead book runner to Fervo Energy on their recent $2.2 billion IPO.

Wealth Management continued to drive strong performance in a volatile environment. Clients are coming to us for trusted advice as they move money back into investments across our distribution network, including our full-service Dominion Securities and PH&N Investment Council channels as well as through our Personal Banking network. Our leading Canadian Wealth Management business with assets under administration of over $1 trillion benefited from both market appreciation as well as $10 billion in net new assets this quarter.

U.S. Wealth Management AUA of nearly USD 800 billion included USD 5 billion in net new assets this quarter and over USD 2 billion in recruited assets benefiting from our continued adviser recruitment. Furthermore, credit and lending balances were up 16% from last year, reflecting growing demand from U.S. clients for our full-service capabilities. Loan growth in City National was also strong, up 9% year-over-year in U.S. dollars.

RBC Global Asset Management assets -- sorry, assets under management, surpassed $800 billion this quarter, benefiting from leading mutual fund net sales as we continue to capture money-in-motion in our Canadian retail channels amidst changing client preferences. In this context, the combined Personal Banking Canada average deposits and AUA were up 5% or $34 billion year-over-year, with spot Personal Banking AUA surpassing $300 billion for the first time. We maintained very high retention rates as clients moved between deposits and investments. As always, we're guided by doing what we think is right for them given interest rate and equity market conditions.

Mortgage growth continued to be impacted by macro uncertainty and moderating house prices, with funded volumes largely driven by an increase in switch activity. Importantly, approximately 90% of home equity balances had a multiproduct relationship.

Commercial Banking growth remains resilient despite facing 2 structural demand headwinds with Ontario seeing the greatest impact. Firstly, tariff-driven uncertainty is having a disproportionate impact on the growth in trade-exposed sectors such as supply chain. Secondly, we continue to see moderating demand in commercial real estate, particularly in condo development. Nonetheless, we have delivered 12 consecutive quarters of market share capture and leading balances -- and lending balances as of last quarter. We're seeing growth in health care and other service-oriented sectors and regions such as the Prairies. And we're also beginning to see increased FX and cash management related activity.

I'll now shift to the macro environment. We are operating in a world of competing [ segments ]. Equity markets are hitting record highs, driven in part by expectations of rising corporate profits and an AI-enabled future. At the same time, bond yields tell a different story, reflecting the risk of monetary tightening as inflation pressures build from both the direct and indirect impacts of the energy shock. Throughout this period of volatility, the Canadian economy has remained resilient with an annualized GDP growth tracking at 1.7% in Q1 2026. Core inflation, excluding energy, has stayed broadly stable and our own card spending data shows consumers are still spending in service-related sectors despite the energy disruption. So far, weakness in tariff-exposed sectors has not spread to the broader economy, with growth seen in several sectors, including energy and agriculture.

However, uncertainty remains elevated. The near-term outlook for Canada hinges on how CUSMA negotiations unfold and how long the Middle East conflict persists with impacts yet to be fully felt on input costs. The outcome of these factors will have implications for client demand, supply chain stability and the direction of monetary policy.

Looking further out, there are emerging opportunities that are creating optimism. We believe the resolution of CUSMA uncertainty, new trading relationships and the advancement of major nation-building projects can meaningfully expand the Canadian economic ecosystem, creating a multiplier effect on the near -- over the near to medium term. RBC Research sheds light on enormous opportunity for Canada. The country can become an energy superpower, strengthen its presence in the critical mineral supply chain, expand power infrastructure and build a stronger strategic defense posture. We encourage policymakers in all levels of government to continue to work together to secure Canada's future prosperity.

As Canada's largest bank, we're well positioned to support the future, with strong balance sheet and leading franchises. We back that commitment with action. We recently announced an indigenous advisory [ and finance ] practice within RBC Capital Markets to help expand access to capital for indigenous-owned major projects and investments. Beyond Canada, global fee pools have maintained their momentum as the macro environment continues to support growing corporate activity and strategic boardroom discussions. Our own investment banking pipeline remains healthy, in part due to our ongoing investments in talent to build bench strength in high priority areas.

Moving to Slide 6. We constantly strive to optimize long-term shareholder value through increased profitability, client-driven growth and return capital to shareholders. We have increased our return on assets to approximately 90 basis points by executing against key strategic initiatives. And we have increased our revenue productivity through our diversified fee-based businesses and by leveraging our technology and operational scale to improve cost efficiency, all while continuing to grow our businesses.

We've improved our U.S. region efficiency ratio from 83% in 2024 to 75% this quarter. We continue to make significant progress in bringing together our strong U.S. franchises as we drive towards our target of a regional efficiency ratio in the low 70s.

We're also committed to our bold ambitions when it comes to generating $700 million to $1 billion enterprise value from AI. We've developed over 200 leading-edge AI models, rethinking how we operate, streamline workflows and delivering more hyper-personalized client experiences by leveraging our proprietary Adam Foundation model and our increasing data scale within our [ Lumina ] platform.

Since 2025, LLM token usage has increased by over 500%, reflecting the speed at which AI is being integrated into daily workflows and critical business processes. Our digital assistant uses AI for intent detection and orchestration, navigating clients to digital capabilities or the best adviser across the network, allowing our people to focus on deepening client relationships.

We've also deployed AI to deliver significant time savings. An AI-powered search of policy procedure articles with 2 advisers is processing approximately 2 million searches per month. Commercial Banking, our clients' financials are being ingested and spread using AI.

AI is also accelerating how we're building our technology platform of the future. To date, AI has contributed to the development of over 24 million lines of code and facilitated over 120,000 code reviews.

Given the importance of combining technology with talent, we continue to invest in our people to accelerate client-driven, profitable growth opportunities, which remains our priority. We're hiring senior talent in key sectors in capital markets, growing our adviser base in North America in wealth advisory businesses while adding relationship managers across our Commercial Banking businesses in Canada and City National Bank.

Beyond these strategic investments, we remain committed to returning capital to shareholders in a balanced way. Our total payout ratio has increased from 51% in 2024 to 65% in the first half of 2026. This morning, we increased our dividend by $0.12 from last quarter, a 14% increase year-over-year as we look to drive our dividend payout ratio towards the midpoint of our 40% to 50% medium-term objective.

Buybacks remain an important avenue for returning capital to shareholders. We increased our buybacks to 7 million shares this quarter at an annualized pace of 2% of our common shares outstanding. Furthermore, we announced our intention this morning subject to relevant stock exchange and regulatory approvals to commence a normal course issuer bid to repurchase for cancellation up to 45 million common shares. We plan to continue buying back our shares as we believe their intrinsic value remains higher than current valuations given the opportunities to improve both profitability and growth while maintaining a strong balance sheet in uncertain environment. However, we remain disciplined. We will look to optimize not only ROE and EPS growth but also the compounding of our book value per share growth, which is also an important driver of long-term shareholder value.

And with that, Katherine, over to you.

Thanks, Dave, and good morning, everyone. Starting with Slide 8. This quarter, we reported strong results with diluted earnings per share of $3.85. Adjusted diluted earnings per share of [ $3.90 ] was up 25% from last year, reflecting solid revenue growth and all bank operating leverage of 2%. FX trends, including U.S. dollar weakness, reduced earnings by $85 million from last year, and earnings were sequentially impacted by 3 fewer days this quarter.

Turning to capital on Slide 9. The CET1 ratio of 13.5% was down 20 basis points from last quarter. Our strong ROE of 17.2% was underpinned by 75 basis points of internal capital generation this quarter. Net of both dividends and client-driven RWA growth, we generated 23 basis points of capital, which was mostly offset by repurchases of 7.4 million shares, for approximately $1.7 billion. Retail parameter changes, which we guided to in Q1, and the impact of market movements on OCI balances also had a modest negative impact.

Moving to Slide 10. All bank net interest income was up 6% from last year, reflecting volume growth and higher spreads. This was partly offset by lower purchase price adjustments, or PPA, related to the acquisition of HSBC Canada. All bank net interest margin was up 3 basis points from last quarter. All bank NIM, excluding trading revenue, was down 2 basis points sequentially, including the impact of lower lending spreads in Capital Markets, which partly reflects the shift toward investment-grade loans. As a reminder, the cost of funding of certain transactions, particularly in Capital Markets, is recorded in interest expense, while related revenue is recorded in other noninterest income. This was particularly evident on a year-over-year basis this quarter.

Canadian banking NIM was flat relative to last quarter, including a 4 basis point impact from lower HSBC Canada acquisition-related PPA and increased competitive pricing pressures for term deposits. These were offset by continued benefits from our structural hedges and seasonally higher spreads within our lending portfolio, which in the past has included items such as higher credit card revolve rate.

Moving to Slide 11. Reported noninterest expense was up 8% from last year. Adjusted expense growth was 9%, of which approximately half was driven by higher variable compensation consisting with higher revenues in Wealth Management and Capital Markets. The remainder of the increase was largely driven by a combination of growth-related initiatives, including higher salaries and other staff-related costs, as well as ongoing technology initiatives, marketing and business development. Legal provisions of $84 million in corporate support also contributed to the increase.

Our adjusted all-bank operating leverage of 2% helped lower our all-bank adjusted efficiency ratio by 1 percentage point from last year, as we continue to focus on expense discipline. This includes optimizing our multichannel distribution network and leveraging both digital and AI-driven initiatives across multiple workflows and businesses.

Moving to taxes. As per our guidance, the adjusted noncash effective tax rate of 22.5% largely reflected changes in earnings mix.

I'll now turn to our Q2 segment results beginning on Slide 12. Personal Banking reported strong earnings of $1.9 billion this quarter. Net income in Personal Banking Canada was up 18% from last year. Revenue growth was 6%, benefiting from the strength of our leading scale in money in franchise, as client balances shifted between core banking accounts, term deposits and our diverse investment offerings, including within our Wealth Management business.

Net interest income was up 6% from last year, reflecting solid average volume growth and higher margins. Noninterest income was up 5% from last year, reflecting double-digit growth in mutual fund revenue, partly offset by lower service charges, including impacts from regulatory changes we guided to in Q1. Volatility and card service revenue also impacted the quarter. Operating leverage was strong, 4%, benefiting from continued expense management.

Turning to Slide 13. Commercial Banking reported strong net income of $854 million, up 43% from last year, which included elevated PCL on both performing and impaired loans. Pre-provision pretax earnings were up 5% from last year, driven by higher net interest income growth, reflecting higher volumes and a favorable deposit mix as well as higher margins. Deposits increased 3% from last year and flat sequentially, largely driven by higher nonmaturity deposits despite seasonally higher tax payment activity by our clients. Amidst continued tariff-related uncertainties, loans were up 3% from last year or 1% sequentially.

Turning to Wealth Management on Slide 14. Net income of $1.2 billion was up 28% from last year, reflecting strong revenue growth. Noninterest income was up 10%, reflecting higher fee-based client assets driven by market appreciation, particularly in North American equity markets, and net new asset growth.

In RBC Global Asset Management, we continue to see positive retail net sales with $5.2 billion in long-term retail, largely distributed across equity and balanced mandates. This was partly offset by outflows in institutional mandates, which can be lumpy in nature. Transaction revenue, reflecting increased client activity in Canadian Wealth Management also contributed to the increase.

Net interest income was up 10% from last year, benefiting from higher spreads, reflecting higher mortgage roll-on rates and loan growth in U.S. Wealth Management, including City National Bank. Canadian Wealth Management also contributed to the increase, reflecting deposit growth.

Turning to our Capital Markets results on Slide 15. Record net income of $1.5 billion increased 23% from last year, underpinning a strong ROE of 14.8% and an efficiency ratio of 53.2%. Strong pre-provision pretax earnings of $1.8 billion was up 30% from last year, reflecting strong revenue growth.

Global Markets revenue was up 16% from last year, reflecting continued momentum in cash equities and derivatives and a rebound in credit trading from a challenging market backdrop last year. This was partly offset by market headwinds for rates trading in Europe this quarter. Corporate and Investment Banking revenue was a record, up 17% from last year. Investment Banking revenue was up 27% from last year and lending and transaction banking revenue was up 10%, driven by higher volumes.

Turning to Slide 16. Insurance net income of $218 million was up 3% from last year, reflecting strong insurance investment results from lower funding costs as well as lower expenses. This was partly offset by lower insurance service results on unfavorable claims experience, offset partly by the favorable impact of reinsurance contract recaptures. Premiums and deposits were up 17% from last year, reflecting strong [ segregated ] funds and group annuity sales.

Corporate support reported a net loss of $102 million. Segment net interest income and expenses represented a modest 2% and 1% of all-bank results, respectively, underscoring our disciplined approach to transfer pricing and expense allocation. We are similarly disciplined when it comes to allocating capital internally, including a 12.1% capital attribution rate to our business segment, which we increased last year. We also allocate the leverage required to each business segment's attributed capital.

In conclusion, I'll now spend a few minutes updating our outlook for the remainder of 2026. We continue to expect that annual all-bank net interest income growth, excluding trading, to be in the mid-single-digit range, including over $250 million of lower PPA benefits. We expect portfolio mortgage spreads to be marginally higher by the end of 2026 as roll-on spreads are expected to be slightly higher than roll-off spreads. However, any changes in competitive intensity could provide headwinds.

We also maintain our guidance of full year all-bank expense growth in the mid-single-digit range, and positive all-bank operating leverage, including higher variable compensation and costs associated with growth-related initiatives and continued investments in our [ Safety and Soundness ] framework.

Lastly, given the uncertain environment, we intend to maintain capital levels closer to the higher end of our targeted CET1 range, while returning capital to shareholders through dividends and share buybacks.

With that, I'll now turn it over to Graeme.

Great. Thank you, Katherine, and good morning, everyone. I'll now discuss our allowances in the context of the current macroeconomic environment, evolving geopolitical tensions and ongoing trade uncertainty.

As Dave noted earlier, while North American economies continue to show resilience, we are also seeing soft underlying conditions with geopolitical risks and trade uncertainties pushing inflation and interest rate risk higher, including potential headwinds to growth. Currently, our Canadian GDP growth and unemployment rate base case forecast are little changed from last quarter. However, the base case is conditional on the conflict in the Middle East being resolved in the near term and the core of CUSMA largely remaining intact. While our base case outlook remains cautiously optimistic, the uncertainty around our forecast has increased. As a result, we have incorporated a modest amount of additional severity into our downside macroeconomic scenarios. Furthermore, consistent with the last 4 quarters, we've also retained elevated weightings to our downside scenarios. These scenarios incorporate potential impacts from inflationary and geopolitical headwinds.

Turning to Slide 18. We took a total of $18 million or 1 basis points of provisions on performing loans this quarter. This was driven by unfavorable macroeconomic impacts, which were partially offset by changes in credit quality and updates to our retail models.

Moving to Slide 19. Gross impaired loans of $9.8 billion increased by $623 million or 4 basis points from last quarter, primarily driven by Capital Markets and Wealth Management. In Capital Markets, impaired loans increased by $321 million driven by formations across a few sectors, including real estate, forest products and consumer discretionary. Increase in real estate is predominantly driven by 1 larger commercial real estate file in the U.S.

In Wealth Management, impaired loans have increased by $224 million, predominantly in City National, and driven by names in utilities, real estate and other services sectors, as well as our consumer mortgage portfolio. Recall that in the first quarter of 2025, we had increased performing provisions on select mortgages at City National due to the California wildfires. This quarter, we've identified a small subset of high-risk clients, most of which were subject deferral programs, that we have now moved into impaired status. While impaired loans remain elevated, new formations decreased quarter-over-quarter across most segments, including Capital Markets.

Turning to Slide 20. PCL [ on ] impaired loans of 34 basis points or $899 million was down $169 million or 6 basis points quarter-over-quarter, reflecting lower provisions across Capital Markets, Personal Banking and Commercial Banking. In Capital Markets, PCL on impaired loans totaled $113 million, down $132 million quarter-over-quarter due to the absence of any larger losses on new individual impairments, partially offset by incremental provisions on some existing impaired names.

In Personal Banking, PCL on impaired loans totaled $488 million or 36 basis points, down $28 million quarter-over-quarter driven by lower provisions in residential mortgages and personal loans, partially offset by higher provisions in credit cards. The credit cards portfolio in particular has seen a sustained increase in PCL over the last few quarters driven by regional pressures, particularly in Ontario.

In Commercial Banking, PCL on impaired loans totaled $246 million or 53 basis points, down $27 million quarter-over-quarter. While we saw a reduction in new provisions, impairment remain elevated due to softer economic conditions in Canada, especially in economically sensitive sectors and regions.

In Wealth Management, PCL on impaired loans totaled $52 million or 16 basis points, up $18 million quarter-over-quarter, with new provisions in both the utilities and other sectors.

To conclude, while we are pleased with the performance this quarter, we continue to have a cautious outlook on credit. For the Canadian economy, we are seeing signs of stabilization and we expect to see continued modest economic growth. Sectors exposed to U.S. tariffs have experienced job losses, but those losses have not [ led ] to the broader economy. Internally, credit indicators have generally been stable or improving. This includes a stabilizing delinquency rates across most retail products as well as moderate improvements in wholesale indicators such as watch list exposure and files moving to our workout team.

In terms of the external environment, headwinds from the conflict in the Middle East, U.S. tariffs, trade policy uncertainty and a shrinking population will likely keep economic risk elevated. Despite tightened uncertainty, we remain confident in the overall quality, diversification and resilience of our portfolios. [ Our BUS ] provisioning framework and monitoring allow us to assess a wide range of [indiscernible] outcomes and impacts to our portfolio. We continue to expect our full year 2026 provisions on impaired loans to remain within the range we previously guided to.

Now back to Dave.

Thanks, Graeme. So to close, we continue to execute against our strategic priorities and look to drive improvements in our profitability metrics while deploying capital for client-driven growth and returning capital to shareholders. Our underlying strength is built on a foundation of a strong brand, a robust balance sheet and One RBC diversified business model where we have leading scale in our home market while having a diversified footprint at scale beyond Canada.

This combination was underpinned -- or has underpinned the resilience of our earnings through several shocks over the recent cycle, generating an average ROE of 16% from 2020 onwards and over 17% over the last 12 months.

With that, operator, let's open the lines for Q&A.

[Operator Instructions] And your first question comes from the line of Ebrahim Poonawala with Bank of America.

Maybe, Dave, for you, just listening to your prepared remarks on the macro and then Graeme kind of handicapping credit risk [ back ] to the war, the trade uncertainty, I guess the question from an investor standpoint is, is the risk of things breaking negatively over the next 6 to 12 months higher, then things moving in the right direction and a year from now looking a lot more constructive? As you look at both those, one, is that the right frame through which to think about where the macro could go either well or negatively? And within that, like do you have enough confidence based on what you're hearing from either Prime Minister Carney and his administration where USMCA negotiations might be going, just at least -- and what you're seeing in terms of the ground reality in Canada today, that things have actually stabilized and are ready to improve? Or is it still too early to make a call there?

Yes. Ebrahim, a very good question. So I feel good about where we are. I think I'm really impressed by the resilience of the Canadian economy right now. When you think about the positive growth that we're looking at, our forecast might be on the more optimistic side in our economics group, but we're thinking 1.5% to 1.6% GDP growth over the coming 4 quarters. And that's in the face of very little residential real estate activity, very little commercial activity, the fact that that's such a big part of the Canadian economy, and we've shown an ability to grow through that, the consumer is still spending and the consumer savings as well. So I see so many positive trends in the Canadian economy that's allowed us to be resilient to what we have.

Notwithstanding that, we should be eyes wide open about the Section 232 impacts have had on the Ontario economy in particular and that's led to credit weakness that we've recognized in our portfolio in Stage 3 and Stage 1 and 2 builds, as you know. So there is a little bit of caution there that we're not through Section 232.

But I still come back to this is an important trade deal for both countries. It's pursuing a long a track that's not dissimilar to the track that happened the last time. And I'm optimistic we'll get to something that's good for both countries. So I'm impressed by the resilience, notwithstanding the Section 232 have impacted the Canadian economy and then created some weakness there.

And then there's the longer-term investment. You saw the risk on Canada. You saw the investment flows shifting. You saw Canada moving in. These are going to still take a while to get shovels in the ground, but they're moving at a pace in parallel that we haven't seen before. And I'm getting -- I'm excited about the opportunity to deploy RBC capital into that, and we have a significant balance sheet to do that. The investment -- we have an investment forum again with the Prime Minister in the fall, and we're going to showcase some of these and a number of these energy opportunities, rare earth minerals, infrastructure opportunities, electricity grid. I mean you go through the defense build, you go through the opportunities for this country to deploy capital, that creates value for our partners around the world and diversifies our economy, it's really, really significant. And I haven't seen it in my kind of 40 years in this organization.

So the resilience in the short term, the meaningful opportunities in the long term -- and part of that resilience I should mention is we are running a structural fiscal deficit as well across provinces and governments. And therefore, like the U.S. economy, that's significantly bolstered by a structural fiscal deficit at the government level. So at the Canadian economy, that's going to help us absorb some of the uncertainty in the short term. So I hope that answers your question, but I think resilience in the short term, growth in the medium term.

I think that's well put. And maybe a follow-up, Dave. The other thing here that investors are sort of actively thinking about is disruption risks to banks, legacy revenue streams and margins. As we think about like AI and the effort by the [ OFC ] to sort of accelerate fintech charters, just frame that for us. When you think about -- I mean, you all have been at the forefront or ahead of the pack, I would argue, on all things AI. One, the opportunity, is that meaningful, do you think, in a market like Canada that can fall to the bottom line? And secondly, the risk from fintechs being able to scale up at a much faster rate due to AI and how you think about disruption risk?

I do think it's a really meaningful opportunity. We gave you some data points as we continue to -- we've built over 200 models. We have our employees that are making great use of this. You see the productivity lift that's making our employees more efficient, more effective. The ability for us to serve I think 25 million customers with the same cost base is our objective.

So when you look at the opportunities to marry this AI capability with our commercial account management, with our private bankers, with our wealth management, with our asset managers, you look at -- our investment bankers, you look at the productivity lift and the ability to make -- to be more efficient, but more effective as well in front of the customer, it's a significant lift. And it's really exciting. I think it's going to make our employees better and it's going to make our employees more effective in front of the customer. It's going to allow to serve more customers at the same time. And therefore, we're super excited about that across every single business, including right into the back office.

So I think this is meaningful. We put that $1 billion target out there. We fully intend on meeting that target over the next 18 months as we put in the Investor Day. And then we'll take it from there. I just see the pervasiveness of the technology capability throughout the bank.

To your second point, on disruption, I've seen this model and this scenario run throughout my career. And I always come back to the basic foundation, is are we capable of building the same thing? Is there anything inherent in a patent or a capability that we can't do? And the answer is absolutely not. In fact, we have enormous scale to create these technologies and accelerate their deployment into our business model. So there's nothing that we see out there that we can't do just as quickly.

The other advantage and moat that we have is in this complex world fraught with risk and fraud and uncertainty, trust and brand and security become paramount. And therefore, I don't think customers are going to choose nonregulated financial institutions for their savings if they're -- what is the cyber risk of that institution? What is the capital base of that institution to absorb errors and fraud and operational risk?

So we talk about customers will move their money freely. No, I think customers are going to be judicious in trust and brand and scale and capability and price. And I think that all goes together. It's not just going to be on price. And we've seen that throughout history at the end of the day. So we're competing, I think, with moats as well that are not going to disintermediate.

And then if there is a competition, we are fully capable of building this. You've seen our response with GoSmart and our ambition to build that out into a much bigger capability for our clients and we can respond. So I think that's the premise I keep coming back to. I always ask and make sure, can we build it? Can we deploy this? Is there anything different between our products and theirs? No. Okay. Is it a price issue? Okay, then let's talk about price. So I think that's how I would look at it. We feel fully confident in matching any of the tools out there.

Your next question comes from the line of Gabriel Dechaine with National Bank Financial.

Question to start on the credit picture here. You had gross impaired loans going up, a couple of conflicting data points. I guess, gross impaired loans going up and then you had lower loan losses, and part of the lower loan loss figure is because performing provisions were quite low. I'm just wondering, can you explain that? But I'm just wondering why you wouldn't feel compelled, given the macro outlook, the uncertainty vis-a-vis CUSMA, the inflation risk, all that stuff, that you weren't a little bit more aggressive on the performing build this quarter? Coverage ratios.

Yes. Good question, and it's Graeme. What I would point to, so the build we did do related to kind of that uncertainty, we certainly acknowledge it, I would say we did increase the severity of our downside scenarios. Roughly speaking, that would have added about $80 million to our Stage 1 and 2 provisions, all else being equal.

But kind of the counter to that, what played out this quarter is the credit quality side of it, right? As I noted in my comments, we've seen more stability, if not some improvements, in a lot of our kind of credit indicators, if you will, ratings migration, watch list, delinquency trends. And so credit has for the last, I think, since the beginning of 2025, we've been adding about $80 million a year to our performing loan loss allowances for credit quality, just reflecting kind of those increasing trends around delinquencies, et cetera. And so this -- with that stability playing through the quarter, we actually released $20 million on credit quality rate. So that's just you're seeing that credit quality, that stability playing through into our performing loan loss calculations. And so that's what kind of countered that build on that severity and kind of left us in a bit more of a neutral status there.

And then maybe just kind of to support that, I mean you did note the increase in the GIL ratio. Again, I think more importantly was just noting the new formation. I think that's a better indicator of kind of some of the trends we're seeing -- we've seen in generally improving trends on new formations. The GIL ratio itself, it's getting higher. I would expect it to increase going forward. It's just reflecting a few things. There's new formations kind of stabilize, workouts are just taking longer, right? We -- when you look at, say, res mortgages, there's a fixed capacity in the system, and we're at that fixed capacity. And so until that starts to balance better, we'll just see the GIL ratio increase. Likewise, on the wholesale side, again, while we're seeing some better trends there, it's still very uneven. And workouts, when I look at some of the bigger names in our GIL balances on the wholesale side, I wouldn't expect we'll see resolution on those files, so probably closer to the kind of tail end of this year. So there's a timing part of when resolutions ultimately play out in those GIL ratios.

Okay. And then on the margin side of the discussion, excuse me, I think that HSBC purchase accretion is behind us now. So steady state now. Your [ tractors ] or tailwind, I suppose, the mortgage refinancing in the back half, it sounds marginally positive. Is that a little bit less spread-enhancing than you thought previously? Just throwing a few things together, but I want to get your general outlook for NIM going forward.

Gabe, it's Katherine. I'll take that question, and then I'll get Erica to just step in because we've also got the money-in-motion that's just playing a key part in our results and expect it to as we go forward. So you probably heard me say this before, like for the all-bank NIM, we feel that it's got a lot of moving parts. And so we actually will guide you to the guidance on the net interest income, excluding trading, which I said, remains in the mid-single digits. I feel like it's a better construct for Canadian banking. So if I take it to the CB NIM level, we are expecting it to be largely stable over the back half of the year.

As I mentioned in my remarks, there is a little bit of seasonality that played into Q2. So we'll likely see some volatility between the quarters and the second half of the year as that seasonality rolls off. But the key drivers, as you've called out will have a tailwind would be the tractor. So that will continue to play out for the rest of the year. We'll have some of that mortgage roll on and roll off that Erica can touch on as well.

And then I would say the unknown is really the competitor actions and then the client actions as well, just to the degree that as we've seen term deposits roll down, how much will move into demand deposits and how much will move into investment products? But even as it moves into investment products, yes, that's a compression to NIM. But overall, just a reminder, it's still positive to revenue for the organization. With that, I'll turn it to Erica.

Yes. Thanks, Katherine, and thanks for the question. So on mortgages, in particular, as we look to the back half, Gabe, you're quite right that on the roll-off dynamics on that portfolio, we do see lower spread mortgages rolling off. So as we think about the back half, there's a couple of different dynamics we're watching. One is the competitive intensity as it relates to price as we go into the latter half of the spring/summer market and into the fall. And of course, we want to compete effectively, but we want to balance the margin that we're going to earn on the volume that we're competing for. So that will play a role.

The second dynamic that's happening in there is, of course, how we think about hedging and the cost of that hedging, which has been more volatile in the last quarter than it has been in prior quarters. And sometimes, we have to -- that's a cost to the business that we have. And so we'll see where markets are as we go through the back half of the year to determine how that -- those hedge costs perform for us.

Your next question comes from the line of Matthew Lee with Canaccord Genuity.

Maybe a bigger picture one. Just given the fact that you're already operating at a premium ROE and a bit above guidance, how should investors think about the next leg of EPS growth if ROE is stable from here? I mean is the growth algorithm now more about organic deployment of capital, fee income growth, productivity, capital return? Maybe touch on those please.

Yes. Maybe I'll take that. It's Dave. And thank you, Matthew, for your question. Certainly, as we look across our businesses, to capitalize on growth, it is an organic story for us. We obviously have done a great job in integrating HSBC, and we have growth opportunity from those clients, and we're well on our way to meeting our cross-sell commitments of $300 million and a little over halfway there already. So we're seeing growth out of the HSBC portfolio.

You're seeing strong growth coming out of City National. We reported 9% growth out of that business. So we're adding account managers. We're seeing strong demand on that side. We're seeing geographic expansion. So City National is on its front foot. So you're seeing good client flow. You've seen the Capital Markets, and maybe I'll turn it to Derek next to talk about his pipeline and what's going on. But we're seeing very strong client flow activity through our advisory businesses, our equity capital markets businesses, obviously. It's a lot of corporate-driven activity, which is good to see as well and a balance there.

And then you're seeing an opportunity for the residential mortgage business to restart. You're seeing green shoots, as Erica mentioned. And that provides a foundation for growth. And the Commercial Banking demand from hopefully the uncertainty alleviating and cross-border trade. All of that before we get into the major projects that we can fund.

And then the cost opportunity. There's a very significant opportunity for us to continue to be more efficient in this organization to deploying AI as part of that. And those benefits are really just starting to accrue as we deploy those 200 models across the organization and embed them in our flows.

So you've got growth, you've got costs, and all of those are very supportive of structural ROEs. And we don't even really need margin expansion. Margin stability gets us there. But some of our businesses are operating at historically low margins as well. And therefore, you heard us mention that we're hopeful, given how tight funding is for many organizations, that you get back to a little more reasonable margins and better hurdles than you're seeing today. So I'll stop there. I'll provide some more comments in my summary. But maybe, Derek, just on the Capital Markets side, to talk about kind of the opportunities for growth you're seeing.

Sure. Thanks, Dave, and thanks for the question. I mean just a few observations I would make. Obviously, we had a very strong quarter. Importantly, we continue to see that activity as we look forward. Our pipelines on the investment banking side remain at record levels. I think the conditions that have driven very high levels of client activity in our sales and trading in Global Markets business continue to be in place. And we're seeing very good demand from clients for lending and financing capital to help support those initiatives. And so certainly, as we look forward, we continue to see a very constructive environment for our clients.

Against that backdrop and consistent with our Investor Day messaging, we see lots of opportunities for organic growth across all 4 of our major businesses in Capital Markets. So in Global Markets, we're investing in our sales teams, we're investing and building out new capabilities around our equities, FX and commodities platforms as well as broader financing platforms. In Investment Banking, we continue to make very good progress on hiring and building out our sector capabilities. And then importantly, in Corporate Banking, the loan growth to support both our markets clients and our Investment Banking clients against their most important strategic initiatives is critical.

And then finally, obviously, we're seeing great progress in our global transaction banking and cash management build-out, and we continue to see opportunities to deploy capital to invest in those product capabilities.

And finally, I would just say, Dave touched on it a little bit earlier, but when I bring a geographic lens to us, we're very optimistic about the levels of activity we have seen and we anticipate going forward in Canada in line with a number of the major government-supported initiatives. The U.S. as our second home market is obviously a very large opportunity for us, and we've got a -- it's the largest part of our business today, but significant growth ahead. And then increasingly, we see some very good opportunities to continue to invest and expand our footprint in Europe. So right across the businesses and our 3 core geographies, we see very good opportunities for organic capital investment.

Okay. I think we should go to the next question. Thanks, Derek.

Your next question comes from the line of Sohrab Movahedi with BMO Capital Markets.

Okay. Dave, I just want to go back to ROE for a second. I think in response to one of the questions, you said that some of the businesses are actually not quite operating at capacity or I think you said something closer to historically low margins. So can I give a sense of which businesses do you think are not quite where you would like them to be? And as we think about the outlook that you've presented, not necessarily over the next 6 months, but over the medium term, is it going to be a case of retaining this resilient ROE is going to be in and around where you are with the return on assets, and the capital levels are going to drift closer to the bottom end of the range that Katherine talked about? Or how do you see the capital-ROA dynamic kind of playing out and in which business segment?

There's a lot in that question. So let me just start on macro, at your last question. Yes, we're absolutely targeting an ROA of 1%, as you saw in our Investor Day, moving it there. So I think from that perspective, we want to continue to move that higher. And I think from all the levers that we have, from growth, from efficiency and productivity capabilities, are driving us to aspire to a higher ROA.

And as that filters through into our overall decisions to deploy capital and return capital to shareholders, I think where our posture is today is that we're a little bit conservative in that we're going to keep our capital levels towards the higher end of that range. You saw us deploy 2% share buyback. And that was a use of [ cap ] and 30 basis points of capital -- RWA capital, roughly. So I think from that perspective, we'll keep it closer to the higher end in the short term as we get through the conflicts in the war and the uncertainty around trade agreement on Section 232 impacts.

But then as we look at our commitment to keep returning capital to you above that is an important kind of marker for us is we'll continue to do buybacks. And you saw us announce an NCIB to do that, up to 3% of our shares. So returning capital to you will be a constant trend. And then we'll look for opportunities to accelerate that as we did in Q2 to get higher into that range more towards that 2% to 3%.

So I think it's not a change in how we've articulated, Sohrab. It's being strategic and tactical, I might call it at the same time, that there's a constant level of return and then there's going to be an acceleration and our desire to do that. And yes, we do feel we can operate this bank over the medium term at a lower target CET1 ratio in that range. And therefore, we're not saying that we're always going to be at 13.5%, but we want to be there now. But I would -- I do say that I can see running this bank at a lower capital level and returning that capital to you. And we're generating such significant capital through our profitability and we think we're going to enhance our profitability going forward. So we're going to generate even more capital. But from that range, we do see ourselves moving into the mid-range or lower end of that range over time and continuing to return capital through organic and capital returns.

So I hope that helps. It's like tactical in the short term, but it's continue to be strategically align towards that. And where the ROEs end up, we're committed to exceeding as best we can our target ROE that we gave you of 17-plus percent. We had a very strong ROE this quarter, in a shortened quarter, that tells you the earnings power and the capital efficiency of this organization continues to improve, and we expect it to continue to improve.

I've also guided that we balance growth, and growth in EPS are really important. And therefore, why would you turn -- if you can -- a 13% or 14% ROE opportunity down, if you can continue to drive an overall balance and mix in your organization of 17-plus, plus percent going forward. So we're always trying to balance growth and EPS growth with book value growth per share along with target ROEs. And I think the capital efficiency and the operational efficiency opportunity is going to allow us to do all of that. I think that's the magic in our business model, that we'll continue to improve on all those metrics. I think that gives us enormous shareholder value creation opportunity.

Your next question comes from the line of Mario Mendonca with TD Securities.

Real quickly on some dynamics on the loan side. So commercial loan growth, it's good at 3% year-over-year in Canada, but it's light relative to what we're seeing from some of your peers. So maybe a comment on that. And then the $12 billion increase in wholesale lending this quarter, that's a big number, not something I'm used to seeing. So could you speak to those 2?

Yes. Thank you, Mario. It's Sean. On the commercial side, we've -- 3% year-over-year, 1% on a quarter-over-quarter basis. I would say we've been pleased with our commercial growth for an elongated period. We've taken share capture for 12 consecutive quarters, as Dave mentioned, leading into Q1. We don't have the full results for Q2 yet.

And going forward, we're really starting to see some nice tailwinds. Our pipelines are really strong. We've seen continued growth and resilience in some of the sectors that have been less impacted by tariffs, like agriculture, public sector, services, health care, seniors housing, et cetera. We've seen some really strong month-over-month momentum. In March and April, we've seen the largest month-over-month growth rates that we've seen in about 6 months also in the business. And then we're also starting to see some pickup in Ontario real estate directly correlated to the HST announcements and some early wins in the defense sector.

So I've got some confidence that we're going to continue to pick up share and grow into the second half of the year. And that's further amplified as Dave mentioned, with the medium-term benefits that we'll see from the infrastructure spend, the impact of the new global trade agreements as well as the eventual CUSMA resolution.

Derek, do you want to talk to Capital Markets?

Sure. Thanks for the question, Mario. Yes, we obviously saw a very good growth in the corporate loan book quarter-over-quarter, as you highlighted. A few things I would highlight. One, that really reflects some of the broader activity we're seeing amongst clients, both in terms of strategic M&A, which sometimes requires term loans or bridges that are shorter term in nature as they fund into those acquisitions, as well as some of the organic capital build that we're seeing across major infrastructure investments and otherwise.

In addition, we had very good success this quarter adding some new large clients. And so these were larger investment-grade names that we've been building relationships with across the platform and finally have the opportunity to come into their core banking group, which was a very nice win for us. So it really reflected growth across those 3 areas. Broadly, we're being very disciplined in how we're managing risk and capital allocation around it. That incremental growth you saw this quarter skewed more heavily investment-grade than our broader book. So it's actually increase the overall credit quality of the book, notwithstanding the higher level of growth you saw in the quarter.

I think we have a few more questions to go.

Your next question comes from the line of Paul Holden with CIBC.

I was going to ask the question on the commercial loan growth, but we already got an answer for that. Maybe I'll try quickly a different one. Derek, you gave a pretty good update and outlook on sort of the near-term growth for Cap Markets. What about kind of -- I guess one of the things we're struggling for the group, not just for RBC, is kind of like can you build revenue and earnings in Cap Markets off of what's shaping up to be a very good 2026, which was projecting to be growth off a very good 2025? Like how much longer can this growth continue?

Paul, very good question. I'd really break it into 3 pieces. As I mentioned, in terms of the near-term visibility of our pipelines that we see, we continue to be very encouraged by the level of activity. And so that certainly will carry us through a number of quarters.

To your question, when we think sort of medium term and how sustainable is the level of client activity, there can always be macro shocks or other things. But our base case is, we think some of the structural dynamics that are really fueling activity amongst both our corporate and private assets and institutional asset management clients really remain intact. And so touching on those, obviously, some of the geopolitical uncertainty, the uncertainty that's creating around the economy, inflation, commodities, et cetera, these are all driving heightened levels of run rate trading activity in our markets business. We think a lot of those trends in terms of the environment we're in over likely the next few years stay intact. They'll ebb and flow a little bit quarter-to-quarter, but the volatility and the level of uncertainty that we're seeing from a variety of different factors probably persists.

Within the Investment Banking and Corporate Banking business, usually when you see that uncertainty, you might see lower activity. But what we're seeing is some multiyear strategic trends that are driving activity. So when you think about shifts to supply chains, benefits of scale, obviously, very constructive regulatory environments that are facilitating transactions and consolidation, energy transition, digital infrastructure spending, these are all multiyear trends that we think will continue to drive activity and capital required for investment.

And then finally, I would just say we can't control the environment. We're optimistic on the outlook. But if there was some shock and we saw a slowdown, we take a lot of comfort in the incremental growth strategies we have that can outperform irrespective of what the market environment brings, and the core stability and quality of our franchise that I think you've seen play out over many years in terms of lower volatility of results than many of our peers.

Okay. I think we have one more question from Mike.

Your final question does come from Mike Rizvanovic with Scotiabank.

I'll keep this quick. Just a quick one for Erica. Can you provide some color on deposit flows? So I'm looking at the bottom left quadrant of Slide 24, I do find it interesting that it's the first time in a while we've seen personal and savings come off. I understand the GIC dynamic going into mutual funds. But what about the personal and savings side? Is that something that -- was there an anomaly in the quarter? Does it go back to positive in the near term? Any thoughts on that would be helpful. .

Yes, Mike, thanks for your question. Just a couple of reflections. Like I think when we think about the Personal Bank, we play a very large role in the growth of our clients across all of our businesses. So if you think about the -- we talked about it in the last quarter, some of the accelerated movement of money from the Personal Bank into Wealth Management. So when you look at those figures at the bottom left of 24%, that is also us supporting rotation back into equities both in our broker GICs [ and RISA ] business as well as in our core personal banking business going over to our direct investing and DS channel. And then as well, some of the rotation that's happening within our own -- on our own balance sheet as clients are coming out of term deposits and going into mutual funds.

And we had a stellar quarter from a mutual funds perspective in Q2. We saw February was our second highest month ever in mutual fund sales, and our market capture at about 25% of the bank market capture was tremendous. And so we know we're supporting clients as they rotate into their long-term positions of having the bounce between savings and equities, and we'll continue to support that as the organization for our clients.

Okay. Thanks, Erica. So that brings our call to a close. Again, we had a very strong quarter. You saw strong client flows across all our businesses, you saw really good margins and enhanced profitability from that. And I think the theme that you should hopefully take away from this is very good growth opportunities across all our businesses: Commercial, Capital Markets, the Consumer Bank, Insurance, Wealth Management, not just in Canada, but the United States and in Europe, which we didn't get to touch on as much as well today.

So thank you very much for your questions, and look forward to seeing you next quarter. Thank you.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.

Good morning, everyone.

[Interpreted] Welcome to our 2026 Annual Meeting of Common Shareholders.

I'm Jacynthe Cote, and I have the privilege of being Chair of the Board of Royal Bank of Canada. I am honored to acknowledge the land we are gathered on today. We are in Toronto, the traditional territory of the Mississaugas of Credit First Nation, the Anishinabeg, the Chippewa and the Haudenosaunee and the Wendat peoples. And we are Treaty 13 territory. These traditional territories continue to be home to many indigenous people, and I'm grateful to be on this land.

With me on stage, Dave McKay, President and Chief Executive Officer; and Jessica Clinton, Senior Vice -- Senior President, Deputy General Counsel and Corporate Secretary. I will act as Chair of the meeting, and Jessica will be our Secretary. Pina Pacifico and Joseph Chirico, officers of our transfer agent, Computershare Trust Company of Canada, will be our scrutineers. Also present are members of the Board of Directors and senior management.

As notice of the meeting has been duly given and a quorum of common shareholders is present, I now call the Annual Meeting of Common Shareholders to order.

[Interpreted] As always, the meeting will be conducted in English and French.

Participants may select the language of their choice depending on whether they are attending the meeting in person or online.

Good morning. If you're attending the meeting in person and would like a translation headset, please raise your hand and someone will assist you. English is on Channel 2 and French on Channel 10. If you're joining the meeting online, you can listen in English, French or without translation by selecting your preferred option above the video player on your screen. Closed captioning is available on all broadcasts. If you're joining by telephone and prefer a different language, please hang up and dial back in using the phone number for that language listed on our website.

I will now ask participants to please take a moment to review the caution regarding forward-looking statements provided on the screens in the room and online.

Thank you, Jessica. Now could you please explain how to ask questions during the meeting?

To make sure as many shareholders and proxy holders as possible have a chance to participate, only one question may be asked at a time and speaking time for each question will be 1 minute. Shareholders and proxy holders may ask questions in either English or French.

For those joining us in person, please use the handheld Lumi connector device provided to you at the registration desk to join the queue. Please raise your hand when you are called upon. For those joining us online, please submit your question through the Lumi platform.

Please refer to the rules of conduct and user guide for more information on how to participate and submit questions. Questions related to specific items of business will be addressed in accordance with the meeting agenda. As a reminder [Audio Gap] information desk outside the meeting room or contact the secretary using the contact details on the back cover of our 2026 proxy circular.

Thank you, Jessica. As always, we welcome constructive conversation with shareholders and proxy holders. Today, we will consider the matters of business set out into our 2026 proxy circular, including the election of directors and the appointment of our auditor. Common shareholders will be asked to approve a nonbinding advisory resolution on our approach to executive compensation, and we will then consider the shareholder proposals.

We will now proceed with the first item of business, which is the reception of the bank's financial statements for fiscal 2024 and 2025. I invite shareholders and proxy holders who would like to ask a question on this topic to queue in or submit your question online.

At this time, I would like to introduce Lona Mathis, Ryan Leopold and Alaina Tennison, the representatives of PwC, our auditor for the 2025 fiscal year. As indicated in our proxy -- our proxy circular. Copies of the auditor's report and the financial statements are included in our 2025 annual report, which can be found on SEDAR+ and EDGAR as well on the websites of RBC and Computershare.

Jessica, are there any questions or comments on the bank financial statements?

There are no questions on this item.

So you have received the notice of meeting, which outlines the matters to be considered today. The notice of meeting is also included in our proxy circular. I'll now ask Jessica to review the voting procedures.

If you are attending in person, you may vote either via the Lumi connector device or by paper ballot. If voting by the device, your vote will be automatically submitted to our scrutineers. If you have opted to vote by paper ballot, please print your name clearly and sign your ballot. If you're attending online, you may vote via the Lumi platform. All meeting resolutions are on display. To vote, tap one of the voting options available.

Votes may be changed up until the time voting is closed. If you do not vote, you will be regarded as having abstained. Voting will remain open until the Chair of the meeting declares voting closed. Votes will be counted by our scrutineers. Preliminary results will be announced at the meeting today and final results voted -- posted on our website. A simple majority is required to approve all matters voted on at this meeting.

Thank you, Jessica. I declare voting on all matters open.

[Interpreted] Thank you, Jessica. I declare voting on all matters open.

We'll proceed with the next item of business, which is the election of directors. If you would like to ask a question on this topic, please queue in or submit your question online.

This year, the number of directors nominees have been set by the Board at 13. Biographies of each of the nominees begins on Page 14 of the proxy circular. All of the nominees are currently RBC directors, and I will now ask Jessica to nominate the individuals proposed for election as directors.

[Audio Gap] Nominate each person set out on Pages 14 through 20 of our proxy circular to be elected as a director of the bank to hold office until the close of the next Annual Meeting of Common Shareholders or until their successors are elected or appointed.

Thank you, Jessica. Are there any questions or comments on the election of directors?

There are no questions on this item.

I declare the nominations closed. Please cast your vote on the election of directors now.

The next item of business is the appointment of our auditor. If you would like to ask a question on this topic, please queue in or submit your question online. And I'll ask Jessica to make a motion for the appointment of the auditor.

I move that PricewaterhouseCoopers be appointed the auditor of the bank until the close of the next annual meeting of common shareholders.

Thank you. The motion has been moved. Jessica, are there any questions or comments on the appointment of our auditor.

There are no questions on this item.

The auditor now -- please cast your vote on the appointment of the auditor now.

The next item of business is the shareholder advisory vote on our approach to executive compensation. The description of this advisory resolution is on Page 7 of the proxy circular. If you would like to ask a question on the topic, please queue in or submit your question online. And I will now ask Jessica to make the motion to approve this resolution.

I move on an advisory basis and not to diminish the role and responsibilities of the Board of Directors that the shareholders accept the approach to executive compensation disclosed in the proxy circular.

Thank you. Jessica, are there any questions or comments on our approach to executive compensation?

There are no questions on this item.

So please cast your vote on our approach to executive compensation now.

We will now proceed with the shareholder proposals. There are 11 proposals being put to a vote today. The Board and management recommend that shareholders vote against each of these proposals for the reasons described in the proxy circular. We will ask the submitting shareholder to present the proposal and we'll invite common shareholders to vote on them all at the end.

The 11 shareholder proposals are voting -- we're voting on today were all submitted by MEDAC, the Mouvement d'education et de defense des actionnaires, and I would -- if you would like to ask a question of the shareholder proposals, please queue in or submit your question online.

MEDAC is represented by Willie Gagnon, who is here in person to present these proposals. RBC met with MEDAC in advance of the meeting and appreciated the opportunity to engage on the shareholder proposal being presented today.

[Interpreted] Mr. Gagnon, thank you for joining us. Please speak to the MEDAC's proposals.

[Interpreted] Chair, good morning. My name is Willie Gagnon. I'm here on behalf of MEDAC as every year. The Mouvement d'education et de defense des actionnaires that's been existing for over 30 years. I was told that I had 10 minutes for my intervention. I see that there's just about under 8 minutes.

But we -- it is true that we have sent you a lot of proposals this year. Normally, we would have sent about five proposals. And the other six former proposals that have been sent in previous years have been added. I am not going to go on, on the reasons why we decided to submit these proposals, but the results on those proposals justify our submitting them again.

So as far as the new proposals this year are concerned, there is one about strengthening shareholder participation in Annual General Meetings because there was a default in quorum for a listed company last year. So we ask our questions about the participation of shareholders in AGMs. We would have liked not to demand a vote on this proposal if you had agreed to publish a table -- a small table where we could see whether the participation rate was going down or up. And what was the participation rate of individual investors and institutional investors.

According to your response, you say that the participation rate is being maintained. So you could actually tell us this data. It would have been good for you to give us a table on this. The data is available, and there's a table accompanying our proposal that is the same as the one that we would have wanted from you. So that's unfortunate.

Proposal #2, youth inclusion in bodies of the bank. We would have been open to the possibility of not demanding a vote on this proposal if you had demonstrated that the millions of dollars that you're spending on youth issues in civil society, if you spent on programs to train youth to take part in Board meetings. There are similar initiatives for the -- at the company administrators' college or company directors' college, you decided not to do the same. So this is our proposal.

Proposal #3, a responsible performance-based compensation policy. We asked that the bank adopt a more responsible compensation policy. Based on the bank's overall performance. I'm not going to go into detail. Your answer is no.

Proposal #4, strategic diversification of skills within the Board of Directors. We wanted the Board of Directors to adopt a new skill diversification policy to meet current and future challenges. We wanted to know what were the policies in place in order to renew the criteria of the skills matrix of the Board of Directors. You told us it was an annual exercise, but we would have liked to know if something can be [ done ] that we are in a specific and particular context at the moment. And we think that it would be important to repeat the exercise. But we didn't agree on this.

Proposal #5, formal recognition of the systemic role of the Board of Directors. It is proposed that the Board of Directors form a standing advisory committee on the systemic impact of the bank's decisions. The bank tells us that it's already doing it, that it doesn't need an advisory committee, an advisory committee that we call on external experts. I'm not going to go into details about the motivations. I have other proposals.

Proposal #6, that -- a formal proposal, fighting against forced labor and child labor. It got 25% of the vote last year. And then proposal on regulating AI. We would not have submitted the proposal if you'd agreed on an initiative on civil society. We got 14% last year.

Next proposal, public disclosure of nonconfidential information country-by-country reporting. We got 10% last year. And then advisory vote on environmental policies. We got almost 17% last year. A proposal on circular economy that we've submitted for several years, and we got about 10% last year.

And finally, the proposal on in-person shareholder meetings, we would have accepted not to submit this to vote if you had committed to maintaining in-person shareholder meetings. Of course, it is provided for in the law, but we would have wanted a commitment from you. Despite the 48% that was -- that this proposal got, it would have been easy to tell us, for example, today that we would maintain -- you would maintain in-person meetings. This would be a victory for us this year.

Anyway, so we have the proposal. They're all submitted to a vote. I have to say the discussions with the bank are more and more difficult. I've been doing this for about 20 years, and this is the most difficult year that we've had with the bank. I don't understand why. I'm trying to understand why. I've been talking to people about it, to my interlocutors this morning. I would like to go back to previous practices. I do not know what the reasons are that make it more difficult to speak with you.

But we're pleased with the quality of the responses you provided. But we did not agree on any question, whether minor or major. And actually, the six former proposals that we're submitting again this year are almost all proposals on which we agreed with every other bank. You're the only one that's receiving these proposals. And I have to say that this year, I'm the only one to make proposals. The MEDAC is the only shareholder to make proposals.

So what is happening? Are those who are used to making proposals giving up because there's no use to it. We deplore the fact that we are in this situation that we're submitting so many proposals. According to the act, we can submit as many as we want. But I invite you, Chair, to think about the proposals and the questions that I'm asking today. I will be the only one doing it this year. But I'm pleased to speak with you directly today.

Thank you very much for all the time. And I managed to speak before the end of the time. So thank you for all the time you gave us. And I invite all the shareholders to support all our proposals as many people have done in the past.

[Interpreted] Thank you, Mr. Gagnon. There were conversations with you and the MEDAC, and I apologize that you are not satisfied with the outcome of these conversations. We look forward to further conversations in coming years.

Questions or comments on the shareholder proposals.

Yes. We have a live audio question from [ John Ridsdale. ] Please go ahead.

My name is [ Chief Na'Moks ], Hereditary Chief of [ Witsuwit'en. ] I have a question related to proposal 5, formal recognition of the systemic role of the Board of Directors. On your Board of Directors, you have Thierry Vandal who is on the Board of TC Energy Corporation. This director, his perspective and interests are directly tied to the incentive to continue building and investing in oil and gas projects. Projects that are responsible for systematic problems such as climate change, economic risk, local health impact and pollution that impacts generations. Fossil fuel projects, including LNG Canada Phase 2 and Ksi Lisims are seeking final investments right now.

And while we know these Board of Directors who have a direct connection to oil and gas companies will be conflicted about this, I would urge every board member to take their role seriously and make a choice not to invest in these projects, nor approve any further connection between RBC and LNG Canada Phase 2 and Ksi Lisims LNG project. Will the Board make the right choice and acknowledge the systematic role, responsibility and invest in indigenous...

Thank you for your question. The Board always -- it's an ongoing process to look at the skills and qualification needed not only for the Board of today, but the Board of tomorrow. So we are making a regular assessment and then this is what defines the recruitment of the future directors that we have.

Your question was very specific about Thierry. Thierry comes from -- I mean, has a very strong background in trading energy. He has been the CEO of Hydro-Quebec, the largest hydropower facility in North America. It's been -- is still in the investment of energy. So he brings a whole span of understanding of the energy globally. He's a very committed director. He's received, as long as he's been on the Board, extremely high ratings for shareholders, it is always above 97% approval. And I'll repeat -- I'll say the same thing as I said last year. We're lucky to have him. Thank you for your question.

Any other question?

Yes, we have a live audio question from [ Jeff Carlson. ]

Can you hear me?

Yes.

Great. Thank you. We continue to hear and read a lot of unrealistic expectations, and this guided -- calls for less fossil fuel investment and more renewable investment. Informed people understand that renewables will never take the place of fossil fuel energy supply. And this is no better evidenced by the current conflict, which is currently directing -- directly affecting them, the Strait of Hormuz in the Middle East.

This energy supply will never be -- can never be replaced by so-called green energy. In short, we need more investments in traditional fossil fuel production and discovery, not less, especially from Canadian sources, and I encourage RBC to expand this investment.

Thank you. Thank you for your comment. Is there any other question or comment?

Yes, we have a live audio question from [ Jesse Logan Stotler. ]

My name is [indiscernible] my taxpayer name is [ Jesse Stotler ], I'm [indiscernible]. The question related to proposal #9, the advisory vote on environmental policies. RBC's investment in backing of major fossil fuel projects continues despite clear support from stakeholders who voted in the past to align investments with clean energy and not further oil and gas projects. In the last year, RBC has abandoned emission targets and withdrawn from the Net-Zero Banking Alliance and continues to be the top funder of fossil fuel projects within so-called Canada.

I've spoken before and continue to attend the RBC AGM because of RBC's role in funding and supporting LNG Canada Phase 1 and now possibly Phase 2. As you know, have been hired to find new buyers for LNG Canada Phase 2....

So Dave -- from a Board perspective, let me say a few comments before I pass it on to Dave. From a Board perspective, we do -- back to that proposal, we don't believe that, that proposal is helping -- I mean, and it would help what we're doing, and we're putting it to the vote. But Dave, would you like to add comments from management's perspective?

Thank you, Jacynthe. Maybe I'll answer the question in more of a macro perspective. So as we think about as a country, as our government leads us through a strategy of energy security, prosperity in the country, investment in our economic future, it requires a balance to grow our energy supply in a secure way and lever the resources that we have in our country.

And that includes both renewables, low-carbon energy supply and fossil fuels have to be done in balance. And therefore, there is an opportunity to secure a more safer world or secure energy supply by leveraging all those resources in Canada. And that is being led by our government. And therefore, as Canada's largest bank, we will support that government initiative to diversify our sources of energy, but to continue to invest in those energy sources that meet global demand are economic or have indigenous participation, and we go through the formal legal approvals and FPIC approval.

So I think it's a balance that we have to approach, I don't think it's one or the other. We need all sources of energy as we look to a digital future, to electrify our economy. The demands on energy can be very inflationary and it's incumbent on us to protect our economy by looking at all sources.

Thank you, Dave. Thank you for your question. To keep us on track, I'll take one final question on the shareholder proposals before we proceed with the vote. Is there any?

Yes, we have a live audio question from Richard Brooks. Mr. Brooks, go ahead.

Thank you. My name is Richard Brooks. I'm the Climate Finance Director at Stand.earth, and I'm here as a shareholder. I am sad to not be in person at your meeting this year. I hope you didn't spend too much money on security and coffee this year in anticipation of my attendance.

But more importantly, RBC explicitly has promised in the past to the New York City Comptroller that it would disclose its energy supply financing ratio. It has been 2 years since that promise was made. And while peers like CIBC and National Bank are moving towards transparency, RBC is now refusing to not only disclose the ratio to its shareholders, which is the violation of material law or provide a clear time line, while simultaneously removing its environmental and social risk policy from its website. According to BloombergNEF, RBC's actual energy financing ratio is very low, 0.61:1, meaning for every dollar you put into volatile fossil fuels, only $0.61 goes to reliable.

Thank you for your comment. Dave?

Yes. Thank you, Mr. Brooks, for your question. So we did disclose last year the methodology that we're going to use to calculate what is a very complex ratio. And we took our time to make sure the calculations are accurate and most importantly, comparable. So when you compare ratios across other banks, the methodologies are quite different, and therefore, you have to be careful in that comparison.

Having said that, the investment, as I said in my previous answer, in renewables, low-carbon energy sources are very important. And you will see as we disclose that, and we're not refusing to disclose that. That is incorrect. We are making the calculations now, and you will see us disclose that energy ratio, particularly the detail of how much we're financing on renewables, how much we're financing on low-carbon and how much we continue to finance and invest in our country in carbon-intensive fuels.

And I can tell you, just the highlights of what you'll see over the coming quarter is that the increase in funding of renewables is up 40%. The increase in low-carbon lending is up 19%. And those ratios are much greater than the growth and actually potential reduction we're seeing in funding and emissions from our heavy, intense carbon fossil fuels. So when you look at that, you should expect a material improvement, Mr. Brooks, in that ratio. And I just ask you to be a little bit patient as we get the numbers finalized and accurate, and you will see those numbers. Thank you.

Thank you, Dave. If you have not yet voted on any of the items on the agenda, please do so now.

[Voting]

I will now ask the scrutineers to collect any paper ballots. Please raise your hand so that the scrutineers can identify you.

As we have now dealt with all the business items on the agenda, I declare voting on all matters closed. At this time, I will ask the scrutineers to tabulate the votes. I will now ask Jessica to speak to the preliminary voting results.

The scrutineers have reported that 52.86% of eligible shares have been voted at this meeting. According to the scrutineers' report, I am pleased to report that all Board-recommended matters of business have been approved and all shareholder proposals have been defeated.

Final results will be posted on the bank's website and SEDAR+.

Thank you, Jessica. There being no further business, I hereby declare the Annual Meeting of common shareholders terminated.

[Interpreted] There being no further business, I hereby declare the Annual Meeting of Common Shareholders terminated.

It's now my pleasure to welcome RBC's President and Chief Executive Officer, Dave McKay, to the stage.

[Interpreted] Thank you, Jacynthe, and good morning, everyone.

Annual Meeting. Wherever you're joining us from today, thank you for your continued investment and trust in RBC. We believe that trust is earned in every interaction. This belief has made us what we are today, a partner to more than 19 million clients, an anchor of stability in thousands of communities and one of the world's most successful financial institutions.

I am exceptionally proud of our RBC achievements in 2025, from our strong financial results to the way our employees show up for our clients and communities each and every day. After completing the biggest acquisition in our history, we launched a bold global growth strategy at our 2025 Investor Day that raises the bar for what clients can expect from us.

Our momentum is built on a strong strategic foundation that sets us apart. Our business model gives us earnings and risk diversification through economic cycles. We have world-class client franchises with scale in the markets we compete in and best-in-class value propositions for our clients. We have financial strength that comes from a robust balance sheet, strong liquidity and deep funding capacity to fund future growth.

Then there's our data scale, which powers nearly everything we do, including how we're using artificial intelligence to deliver more value to clients. This data advantage is amplified by our operating and technology scale. We invest over $5 billion in technology annually, which allows us to build the bank of tomorrow while navigating changes today.

And finally, there's our brand scale, we're Canada's most valuable brand and one of the top brands globally. This reputation helps us attract and retain clients and makes us a destination for top talent.

Of course, strategy just sets the direction. It's execution that drives performance. In 2025, our relentless client focus translated into exceptional results. We generated $20.4 billion in earnings with a return on equity of 16.3%, while returning over $11 billion to shareholders through common dividends and share buybacks.

Building on this success, we earned $5.8 billion in the first quarter of 2026, up 13% year-over-year. This was underpinned by an ROE of 17.6% and a robust 13.7% CET1 ratio, putting us on a track to hit the capital efficiency targets we set last year.

As you may recall, we increased our through-the-cycle ROE objective in 2025 to 17% plus, driven by improved cost efficiencies and revenue productivity. This discipline is at the heart of our investor thesis, and it will continue to guide how we build the bank in the years ahead.

Our strong performance reflects how we bring the best of RBC to everything we do. In Canada, we're the leading bank with the #1 market share in all key personal and business banking product categories. Our Personal Banking and Commercial Banking businesses are driving deposit growth by delivering more value to clients, deepening existing relationships and attracting new ones. That's the reason why we've ranked highest in customer satisfaction among the big five banks by JD Power for the fifth time in 6 years.

Across our Wealth Management businesses, we've grown assets under administration to record levels, the quality of our advice and the breadth of our investment and wealth planning solutions.

Meanwhile, in our Capital Markets businesses, we're driving strong revenue growth across both global markets and investment banking. We're capitalizing on strong client flow as clients increasingly turn to us to navigate market volatility, manage risk and capture opportunities.

We're also deepening those client relationships through new capabilities such as RBC Clear, our U.S. transaction banking platform. We've onboarded over 180 clients at USD 23 billion in deposits since we launched in 2024 and are well on our way to reaching our USD 50 billion medium-term target. In short, we're delivering results by staying ahead of what clients need and bringing them unparalleled advice and value they can rely on.

Now let me take a moment here to reflect on our home market. The drive to compete that has helped build RBC into a global leader, competing against the best, maintaining a relentless focus on creating value and investing for the long term is what Canada needs as a nation right now. The country is at an once-in-a-generation moment.

And global investors are signaling that they see Canada as a stable, reliable partner in a volatile world. Foreign direct investment is flowing into the country at levels we haven't seen in nearly 2 decades, and major projects are emerging in the energy, critical minerals and defense sectors. I believe Canada can become the world's premier destination for long-term investment, but only if it moves with purpose, urgency and speed and a race for capital that's never been more intense.

Across the globe, countries are building competitive advantages and diversifying their economies by making investments in infrastructure, streamlining regulations and finding new ways to attract capital. But what has made us successful in the past won't necessarily lead to future success.

In a world defined by competition, Canada can't rely on past advantages or legacy strengths alone. To succeed, the country must make deliberate long-term choices and investments. Canada has the resources, the people and the potential to lead in this new era. So let's talk about what it might actually take to do all of that.

New RBC research will show that Canada needs $1.8 trillion in capital investment over the next decade to meet its economic potential and finance the country's major projects. The vast majority of this capital must come from the private sector. Government simply cannot and should not fund it alone.

As Canada's largest bank based on market capitalization, RBC is financing and investing in the industries that will shape a more resilient Canadian economy. And we're planning to bring more of our lending, underwriting and advisory services to help close Canada's funding gap and support the major projects that will build this country's future. But that future is only possible if Canadian innovators and their ideas stay in Canada. And I hear from Canadian entrepreneurs who feel they need foreign capital to build at home. And too often, that means leaving their home market. It's time to shift that narrative.

I'm pleased to share today that RBC intends to launch an initiative to accelerate economic growth in Canada. As part of this, we plan to form and invest in a growth fund and also continue to make direct equity investments in Canadian companies. Our ambition is to deploy up to $1 billion over the coming years to help companies build and scale in Canada. We've already backed homegrown innovators in fields like quantum computing, climate tech and health care.

Alongside providing growth capital, we'll be also hiring key roles in expanding our client offering in sectors of national importance. That includes building out our defense sector practice, expanding our infrastructure and project finance capabilities, including a greater focus in the far north and indigenous partnerships. And increasing our ability to help more Canadian companies expand abroad. I look forward to sharing more in the coming months as we help world-class globally competitive companies thrive at a defining moment for Canada.

This isn't just a Canadian story. In the U.S., we're focused on delivering seamless client experiences that bring the full strength of one of the world's strongest banks to our institutional, corporate, commercial and high net worth clients and their businesses. As we continue to integrate across our leading franchise, we will create more opportunities to bring the best of RBC to our U.S. clients.

And in the U.K. and Europe, we're accelerating growth with the integration of RBC Brewin Dolphin by expanding our capital markets expertise in target areas across the continent.

To deliver on RBC's bigger growth and bigger global ambitions. We're also building new capabilities that help businesses manage liquidity, move money and mitigate risk with confidence. Transaction banking is a [ USD 314 billion ] global market being reshaped right now by shifting trade flows and digital disruption. Our capabilities in cash management, cross-border payments, trade finance and foreign exchange, help our corporate clients and commercial clients operate seamlessly across borders and compete in a global economy.

At the same time, generative and agentic AI are opening entirely new frontiers in financial services, and we expect this to be an advantage for us. Earlier this year, we created the AI group, a new team that supports all our businesses and reports directly to me. Their mission is to partner across RBC to accelerate our AI transformation at scale, amplify the impact of our people and deliver real value to our clients. We spent the past decade building the foundation, data platforms, exceptional talent and world-class security. Now we're tapping into that leadership to deliver up to $1 billion in AI-driven enterprise value by 2027.

[Interpreted] What grounds our strategy is our communities. We know that when the communities around us are thriving, our clients have a better foundation for success. This understanding shapes our approach to sustainability. And it's why RBC is investing in areas where we can make a positive impact. That drive to make a difference is part of who we are. And it's something that I've been proud to be part of since I first started my journey at RBC over 40 years ago.

Our extraordinary team contributed a record-breaking $33.6 million in personal donations last year. These donations supported charities in communities around the world, and that shows the impact that we can make together. No matter how RBCers chose to show up, whether it was by supporting local charities or volunteering their time. Their efforts are making a meaningful difference -- amazing colleagues across RBC.

I want to thank you for your unwavering commitment to our purpose. To our shareholders and clients, thank you again for your trust in RBC. The dedication of our global team, I am confident we will continue to be an anchor of strength for you and our communities. And with that, we're looking forward to taking your questions. Thank you.

Thank you, Dave. I will now open the floor for questions and comments. Jessica, are there any questions or comments?

There are no questions at this time.

That concludes our question-and-answer period. For anyone with outstanding questions or comments, representatives from RBC are available at the information desk located immediately outside the meeting room and are happy to speak with you.

As we reach the end of our time today, I want to express my gratitude to the people who make RBC so exceptional. Firstly, on behalf of the Board and our shareholders, I want to recognize the more than 100,000 RBC employees who are the heartbeat of this organization. Their hard work on behalf of clients and communities every day is what brings RBC's success to life. Thank you.

We're living through one of the most pivotal and transformative moments of our generation, and I'm grateful for the privilege to work alongside my fellow directors at this moment.

Finally, I want to thank Dave and his team. Dave's steady and purpose-driven leadership has been transformational to RBC. And it's why the Board is more confident than ever in RBC's future and in its ability to uphold the trusted reputation clients and communities count on.

To our shareholders, thank you all for being here with us today. We appreciate your engagement. Ladies and gentlemen, that completes our meeting.

[Interpreted] I hereby declare the annual meeting terminated.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]

All right. I'd like to welcome to the stage, Erica Nielsen, Group Head, RBC's Personal Banking division. And a job you've had for just under 2 years now. So thanks for coming to Montreal, Erica. I really appreciate it. And I look forward to this discussion.

Thank you.

And one thing I want to start -- kick off with is HSBC Canada. And the reason for that is when it was acquired and subsequent, a lot of the -- I think the words the crown jewel is the commercial business, right? I think that -- hopefully, I'm not misquoting anybody. So it kind of made us overlook a little bit of the personal banking business that was acquired. We looked at the mortgage business, maybe that one is going to get shrunk because HSBC was a price leader in that. And in short, overlooking the personal banking business of HSBC, which is probably not a good thing. So maybe you can highlight some of the assets you picked up some of the new capabilities and something get excited about with that acquisition on the personal side.

Yes, thanks. Yes, we've been really pleased with the acquisition of HSBC for the personal bank. And I know as has the commercial bank. I know we set out to really dramatically change the cost profile of the bank. So if you think about the scale play that, that is for the personal bank, material change in cost profile when we brought that business in. And I think RBC writ large has met and is on pace to exceed the cost expectations that we had for that acquisition.

And likewise, on the revenue synergy side, we'd say we are on track for the $300 million that we've committed in revenue synergies. But a lot of those revenue synergies are associated with the personal bank and what we do in the personal bank. So to your point on we talked about crown jewel of commercial, like what does that mean for the personal bank. So a couple of things to highlight related to HSBC. Like it's a very strong client franchise in Canada. The quality of those customers in their personal bank is exceptionally strong quality. And in fact, in pockets of their credit is a stronger quality credit than what RBC had on its books, and we feel very confident about our own quality of our book.

But those customers were also had broader relationships than just single serve. So you talk about the mortgage portfolio, and I know there's a lot of conversation about the price sensitivity of the mortgage portfolio for HSBC. And yet over 90% of those customers were embedded with core checking accounts. And so these weren't sort of fly-by-night customers who may have just been price shopping. They had entrenched relationships with HSBC. Now that said, there is a substantial opportunity for us related to depth of relationship and cross-sell. And you say, well, [indiscernible] you just told me they had a good relationship. They did.

That's a good follow-up question, actually.

Right. They did, but they don't have the level of depth of relationship that RBC enjoys with its own customer base. And so there is a lot of activity happening now with that customer base. And as we start to recognize financial needs with those consumers, then getting those consumers more engaged with more RBC products. And that's one of the core levers that we have. And that matures over time, right? So if you think about that as a synergy, it doesn't just manifest -- it's not the same as a cost takeout, like I either took the cost out or I didn't.

When we talk about cross-sell and depth of relationship, that has to occur when a client has a need. And so as we are listening to the HSBC customers, as we're identifying the needs of those customers, we're then able to come in with a secondary or third or fourth product behind that's going to meet their needs. And so I've been really pleased. We're meeting our expectations, both on retaining those customers inside the franchise and growing those customers inside the franchise.

And then the other part of the synergies that are available for the personal bank was that there were a number of capabilities that we built in order to meet the needs of the HSBC customer, things that they were accustomed to, foreign currency accounts, money movement items that they were accustomed to at HSBC that wasn't part of our product lineup.

But they are in demand from the RBC pool of customers. And so now that I've built these capabilities, I'm able to then cross-sell those into RBC's customer base as part of the synergies of the transaction. And so all of that told, I feel -- we feel good about the franchise that we bought, the growth inside the franchise, our ability to hit those synergy targets in the personal bank.

Okay. Great. The deposit business is something that's obviously been in focus for a number of years now, and there's been a big cycle of big influx post COVID, then there was a big price war on term deposits. And today, we're in a phase where deposit growth is, in some cases, stagnating or shrinking. We see that headline number, and we get the general description of all that's term deposits, old term deposits maturing and the core deposits still growing. Can you maybe flesh that out a little bit more so that we can appreciate what's going on in the deposit book and whether it's good?

Yes. So a number of dynamics happening inside the deposit book when you peel back the onion. When we were in that deposit gathering when we talked about sort of GICs and sort of the resurgence of that as a category again, we always talked about the notion that for some of that money, it was sitting in a GIC product partly because of the rate that was available, partly because of uncertainty related to the consumer, but those were dollars that historically would have found themselves into markets, right?

But at that period of time, consumer is uncomfortable with the volatility that they've been seeing inside the market, so uncomfortable to place that. So -- and with the pricing in GIC is a really good place for that to stay. And so our commitment all along through this sort of oscillation of cycles, and I'll talk about what the other half of that cycle looks like now is to actually make sure that we're meeting the need of the customer and that the product that they're getting and the placement of that investment funds is sitting in the right product relative to what they need for their long-term health.

And so when we look at what's happening now and the drawdown of some of those GIC portfolios, I have a lot of confidence and conviction into where those flows are going. So we see material increases on a year-over-year basis into our markets-based business, so into Dominion Securities into direct investing as those GIC dollars find natural homes inside the market. And so I think what that means is when you look at the headline numbers, you could see some retraction or holding steady of the absolute level of deposits. But what I see underneath is a material outflow of those deposits into our wealth businesses, which is exactly what we need for the client, right?

At the end of the day, the question is, is RBC well serving the need of the client. And for many customers, planning for retirement means they need to be in the markets, whether that's the equity market or the bond market, they need to be in the markets. And so we need to get those customers placed there. We also reduced our retention events when we're into placement into the market. So we feel really good that, that flow is actually happening. And then you say, well, what's actually happening then underlying inside your deposit accounts and are you comfortable?

We continue to grow our account-based business in a material way. Those deposits of existing customers and new customers are building in the way that we would see. And so the net-net of that is we're in a part of the cycle where we'd see this natural rotation into some of those equities businesses for the consumer, and that's what they need for their long term, but the strength of all of those products underneath is healthy.

I guess, I don't know if it's dots I can connect. But when we go back in time and look at the big fluctuations in the deposit business over the past few years, there may have been strategic decisions made during the time with how you manage that book and invested the liquidity and how the margins are performing today because we're seeing quite a bit of margin divergence between some banks.

And I'm wondering what your -- yours has been relatively flatter. Revenue growth is a different thing, of course, but people do focus on margins. So what's your view on why some banks like yours, the margin performance a bit flatter, whereas some have been kind of shocking.

Yes. So I think I think how each of the different banks think about their -- how they track their book of business is different across the institution. So I think really important for us to go back and think about like in -- post the rate increase cycle, where have your margins performed. And if you look at our -- the NIM expansion for us, we've had very healthy near top of the stack NIM expansion through that period.

And then even over the last 12 months, I'd say our NIM is second best inside the marketplace. So I think more important because some of these things are structural to look at longer periods of time because each of the banks treat those things -- treat them differently from a structure perspective. And then the other part would be like as I think about sort of the quarter-on-quarter -- as we've talked about, for us, at least, we are rolling down the PPA, which has a NIM drag for us.

We talked about 2 basis points in the first quarter, 4 basis points as we go into next quarter. So my intention is to grow through that and maintain, right, as I think about where our NIM performance is. And so that's -- I think about that rotation as some of the key aspects on -- as you think about comparative NIM performance.

Yes. I mean we do -- I say we -- some of us focus on the quarter-to-quarter as opposed to the 5-year kind of trend. So that plays into it. What about the mortgage books impact on your margin? Because there's -- we've heard that spreads are quite good from some banks and maybe I think it's from some other banks comments a little bit more neutral and how that plays into your margin outlook because the mortgage book itself might not grow, which is in and of itself a good thing for margin. But then the repricing on mortgages retained is actually coming at higher spreads. Is that something we can look forward to?

Yes. I think we always talked about -- for us, we always talked about the back half of '26, getting into a period of -- if you reflect back on when that business went on to the books, it was -- there was a lot of levity in the mortgage market at that time. There was a lot of deals to be done, but there was also a lot of price competition. And that's really when we started to see in this period. We're in this period of when did we start to see margins inside that business really retract.

And so that business is now coming up for maturity. And so I think as we look at the second half, if you're just to play out retention, one would say that there's opportunity for mortgage expansion from a margin perspective because the mortgages that were -- are coming off our books and renewing are at very thin spreads. But I put a big caveat on that because this is a very intense mortgage market from a pricing perspective as we think about the available to acquire share that's inside the market.

We're not seeing a healthy purchase market right now, which means that the activity for switch is intense. And the necessity of each of the institutions to retain their back book is very important, right? That's part of how we're going to compete is to make sure that, that back book of mortgages stays with each of us. And obviously, as a fierce competitor, I want to go out and switch in as much of my competitors' business as possible to grow my book of business.

So there is opportunity for margin expansion as we go through this year, but I think we'll have to also be very aware of where the price competition sits in the marketplace at that period of time. If I could wave my magic wand and say it's great, I'd say retention rates stay amazing and price competition stays neutral and we have a good period on margins, but I don't control all those aspects.

And so what's really important for us is that we ensure that our back book is well protected. So our retention activities across the organization and the depth of those activities are happening as we see each month of cohort coming in so that we are performing as well as possible from a retention perspective and then out there fighting for every switch piece of business that we can do.

All right. Great. More of a risk type question, but if I look at mortgages and HELOCs, not the same product, I believe you disclosed HELOCs as the non-amortizing balances. Mortgage growth has actually been surprisingly strong, whereas the HELOC growth has been flatter. And I think one thing that comes to mind is the demand or people just not drawing on equity to pay for renovation or whatever. But is there also an element are banks and Royal specifically doing anything to maybe limit people's abilities to -- or maybe that's the wrong word, just not push that product because the home market is not very strong right now. You don't want to increase your exposure to that.

It's a really interesting question. So I would say there is no change in the way that we sell the mortgage product. So for example, we would never have conversations with our salespeople about different mortgage products being more on sale and less on sale. It's just not part of our psyche. The most important thing that we do in this period is to like have a robust conversation with the customer about the options that are available and to then ascertain what their degree of comfort level is across all the different types of products.

And so I think what you're seeing reflected is that in these periods of uncertainty, clients are looking for more certainty and the HELOC business is a little bit more managed versus if I know that I'm going to have a fixed rate mortgage and I know that this is my payment and I know that then this is my amortization of the mortgage, like they're looking for more certainty. So I actually think what you see reflected in the volume is reflective of how Canadians are thinking about what mortgage product and the way in which they construct their mortgage is going to best meet their needs as opposed to like our HELOCs not on sale at RBC, that would be completely false.

For certain customers, the home equity line of credit is absolutely the right product. And so we do see -- we still see volume in that business. It's just not growing in the same way that it is. And then to the question about it's a non-amortizing product, it is, but there are LTV, 65% loan-to-value caps that are placed inside that product, right? So it's not -- a home loan is not a product for somebody who is like high loan to value, right? They have to have 65%. They need 35% down in their home to be able to be in that mortgage construct because it is non-amortizing.

Got it. And then the credit card book, is -- are the payment rates still too high by that? I mean, is it still -- because for a number of years, the credit card book has actually been -- and Royal and others, surprisingly, people are still paying off a high percentage of their monthly balance. So they're not revolving as much, which is good from a risk standpoint, but from a revenue standpoint or hasn't been as positive for the top line. What's the dynamic right now?

Yes, we still see the characteristics sort of getting us back to where they were pre-COVID, which I think as in this part of the cycle, I think some people would say that's surprising from the amount of payment to -- that notion of paying to revolving. And so that sort of maybe it speaks to the resiliency of the Canadian consumer in this part of the cycle and that there still is resilience inside that consumer as we look at those payment rates.

And then I guess the credit question more specifically, we have seen delinquency rates rising. Like what's your your statement on that trend, where it's going, especially now when I maybe got caught up in a moment of higher rates maybe later this year. Like is that -- or should we be concerned about this trend, I guess?

Yes. So I would say both -- when we look at delinquency and in particular, maybe specific both to the credit card question you just asked me, Gabe, but also to inside our mortgage portfolio, I would say that we are seeing delinquency rates in line with what our expectations would have been. So I feel really confident about the business that we have on our books, the quality of that business, the way it's performing and sort of the rate of delinquency that we're seeing is more driven by the macro factors than feeling like we have any type of vulnerability inside our own credit book.

And a lot of those are those factors that we've talked about. It's employment, right? Without employment, it's difficult for Canadians to make their debt payments, mortgages, credit cards. And so that's where we've been talking a lot about some of the vulnerabilities that we've seen inside Ontario, GTA, the surrounding areas around Toronto, in particular, inside BC, but we also see elevated unemployment inside those communities. And so that's where we have -- we've seen more stress in those areas than we see in other provinces across the country. So it's really not -- it's not necessarily a general Canadian story. It's more about how each of the different provinces are reacting and the employment in each of those different provinces.

You touched upon the competitive dynamic of the market earlier when we were talking about mortgages. And then another facet of the competitive discussion is the new entrant risk and OSFI is making it easier for fintechs to operate in Canada or plans to anyway. How credible is the threat?

And I ask that because over the years, I've heard about the fintech threat multiple times, multiple iterations and nothing really happens other than the way I respond to it, banks are investing it causes their expenses to go up essentially. That's the real threat because the player doesn't actually amount to much, but to build up your moats, you got to spend more. Is there anything -- any different angle that might be applicable this time?

Yes. I mean I'd certainly say that we -- like we're looking at all of the competitive disruption and the fintech entrants in a very material way. I think what's really important to understand when we look at where those entrants are, they are often looking and taking parts of a client experience where you'd say, historically, maybe the bank was suboptimal in the way that they delivered value into those very specific niche parts of our offering.

And so then there's obviously a competitive response, right? So what that means is that as we see the validity of those competitors coming and we understand the products, then we're going to respond. And you can be rest assured that RBC is going to take very seriously any of those competitors, understand what they're offering customers, make an assessment of should we be offering that service to customers manifested in that way and then determining what's our path from there.

So you talk about does it increase your expense base. I mean it depends on whether I feel like we have to differentially invest or whether I can move pockets of money around to invest if we believe that we need to make any changes. What I'd say is that like it's incumbent on an organization like RBC to have value propositions and digital experiences and human experiences for our customers that clearly meet their needs.

And those customer expectations are changing rapidly. So if you went back 10 years ago and you said, okay, well, what's RBC's appetite for like an experience change from a digital perspective. Many times, we found we were trying to lead customers in places that they weren't probably ready to go yet. And now I would say, I'd say the consumer is maybe more ready than the banks have the speed to get out there. And so my challenge to our team is we need to get moving that the customer is telling us that their appetite for the way in which they want to experience RBC in a more convenient way needs to increase.

And therefore, we are increasing the pace at which we are digitizing things that customers expect to be digitized. But in doing so, we're doing 2 things. One, I'm better meeting the needs of consumers and what they're asking for us, but we're also better shoring up against the disruptors who are trying to take pieces of our experience and say, "Hey, RBC, you're suboptimal here." And so it's a win-win strategy on both fronts to help me create a moat, but also helps me better win with the consumer.

Any anecdotes or examples you can share because it's quite interesting that, like, when you identify something happening and then, oh, what's your response?

Right. I think like -- I think we would look at like the continued evolution of the things that we're doing in payments, right, that like I want to be able to do payments. I want to be able to do it easier from my couch. I want to be able to not have to come and see you for those payments.

And so as we evolve where we go in payments, we better meet client expectations, also an area where there's lots of competitive fintech activity, right? There's a lot of fintechs seeing payment flows and deciding that's a place for them to compete. And so that's not an area that I want to seed and I want to better meet my consumers' expectations.

I don't want to be able to pay for stuff quicker from my couch. But I'm not your typical customer.

Well, there's a difference between doing your banking versus purchasing.

Yes. Okay. The operating leverage, it's been phenomenal in your business. Like what's -- I think high single digits. What's the -- are we going to take a sharp correction there back to a more normalized rate? Or what's your expectation in the near to medium term?

Yes. So I would say -- so a couple of things. I'd say the strength of that operating leverage really driven by the money in franchise at RBC and a lot of the expansion in margins that we saw on that side. And so I said as that starts to normalize, i.e., be in the margin of the year prior and the year prior to that, you'll start -- you should start to see that retrench back to our guidance on the 1% to 2% operating leverage is where I'd expect that will sort of will start to land. I think that's normal based on where we're seeing the market to the whole conversation where we started, Gabe, on what are you seeing on deposits and how is that franchise moving? I think that's in line with how we see what's normalizing on that side of the business.

Okay. And then just to wrap up on the topic of AI. I wrote the question, like do you see more upside from revenues or cost reduction? We can talk about that. But I just -- things happen so fast, how -- when you make an investment today, how do you know you're going to get the benefit from it in the future because it could easily be disrupted within months theoretically.

Yes, it's a really great question. And I think to your comment, like where were you a year ago to where are you now? And how do you feel about the places where you're making investments? I think we are very much learning. And I think that's exciting because I could sit here today with more confidence about the places where AI is really going to differentially change our business and have more assurance that I see what those outcomes are going to be because they're being revealed in the work that we're doing.

And so one of the things I would guide to would be the places where you can clearly create differentiation competitively. So places where I can use my scale, the scale of the breadth of the RBC client base that we have, the depth of those relationships with us, where I can use that to create models, I can materially outperform those who do not have that scale. And you'd say, well, why do you feel that way?

So well, I can actually see it as we're now doing the modeling. So if RBC had a client base that was 50% of the size, what's the outcome of that modeling? If RBC has 75% of what we have, what's the outcome? And you can start to see how those large models actually perform very differently, which a year ago, we had hypotheses about this, but now we can actually see model performance very different. And in places where I can't go to market to buy that kind of data, right? So if you don't have that breadth of client base, you will struggle to have the same performance that somebody with our scale would have inside the marketplace. That gets me very excited.

On the opposite side of that question, there's probably places where could there be providers who are going to provide AI tools to us to help us scale faster in places that become less of a competitive advantage? Yes, but necessary for us as we think about cost takeout, et cetera, right? And so now the question is, I think the question we're asking ourselves very clearly is how do I ensure that my finite resources inside RBC, who are exceptional in Borealis are then placed on those things that are going to create competitive differentiation, and I go to market to purchase AI tools from others where I don't -- where that benefit is not existing.

So why do I want to do that? Because it allows me to increase my pace. Then I can take advantage of my own resources on the things that are going to be most important to drive our business and while looking at and using others to help me scale faster in places that there will be less competitive differentiation.

Got it. Okay. Well, we are into the overtime a little bit. And I'd like to thank you again for taking the time out of your day to chat with us and nice to meet you as well or get the...

Thanks, Gabe.

Good afternoon. Welcome to our Global Financial Institutions Conference, which we're very excited to have all of you here. As you know, this is a true partnership across a number of areas of RBC Capital Markets from our partners in equity research, equity sales, corporate access and marketing and global investment banking. This conference will only be as successful as the companies that come to participate here and also the investors come to engage in a very thought provoking discussions, especially based upon the landscape and the environment we're in. So thank you for being here. And I know it'll be 2 very active days of engagement, especially considering the macroeconomic environment.

I'm very pleased to introduce our lunch keynote session. I would like to welcome Derek Neldner, CEO of RBC Capital Markets, who will moderate our lunch keynote session with Dave McKay, our President and CEO of RBC Financial. Derek, Dave?

Thanks, [ Vinny ]. Welcome, everybody, and thank you for taking the time to join us today and participate in our Annual Global Financial Institutions Conference. It's a very important event for us. And hopefully, you'll find the next couple of days really productive and engaging for all of you. Just as we kick off the fireside discussion today, reflecting on recent years, I think it's fair to say the last few years have been anything but ordinary for the sector.

And when you think about organizations in the financial institution space, there's been enormous volatility and change that all organizations have had to navigate. And whether that's a shifting interest rate environment, changing economic outlook, geopolitical and trade uncertainty or the ongoing implications from technology advancements and AI, it has certainly been a lot.

And I think that pace of change will continue, and it certainly is not going to stand still. But when you look at all the things the sector has been through the last few years, I think it is starting to redefine sort of a new normal operating environment. And so I think it's very timely that we have the pleasure of having a discussion with Dave McKay, our President and CEO today.

Dave, to get your thoughts on the environment and how you're positioning RBC strategically to continue to be successful against this new backdrop? So I'd like to start there and really start with the macro. We could, I'm sure, spend the next 45 minutes just on that. We'll we won't do that, but I think it's an important place to start.

If you think about 2025 and how we entered the year, there are actually a fair number of tailwinds. We had equity markets at all-time highs. We had credit spreads at tight, I'd say we had a reasonable economic backdrop. And then obviously, in recent weeks, you've seen more volatility introduced initially with some of the sell-off in the software sector, questions around private credit and then obviously, the geopolitical events over the last 10 days. Can you maybe start, Dave, just with your view of -- I mean I know it's changing daily right now in terms of the macro environment, but just your views of the economic and market environment we find ourselves in, implications of sort of the geopolitical events as you think about the outlook and just your thoughts on how RBC is positioned for that?

Yes. Thanks, Derek, and welcome, everybody. I can't believe a year has gone by. And Man, time starts to fly. It's -- usually, we have bad weather for you this time of the year shoveling at this time of volatility is in a far off place and having contagion back to what we do every day. But certainly, as you look at the opportunities that arise from the challenges that we have and where we are in as far as growth and change the world of AI is having kind of a profound effect, I think, on our sector, and I'm sure we'll talk about that.

And as far as resilience and geopolitical, I characterize our clients and leaders in our own organization is coming through certainly a year of volatility and uncertainty. I think tariffs and CUSMA, particularly between the U.S. and rest of world, Canada, in particular, given $400 billion crosses the border every year, tariff-free before that. We've built all our supply chains in so many sectors around that. There is relative advantage in doing that. Our automotive companies, our steel companies, everyone benefits from that. We wouldn't have built a 2-decade integrated supply chain that didn't work, and it wasn't creating prosperity and wealth for everyone on each side and CEOs have been communicating that to the administration for the better part of the last 12 months that this tightly integrated supply chain works and creates competitiveness and reduces inflation, and we shouldn't mess with it because it's good.

And I think generally, that's well understood by the trade offices and administration. And therefore, as we restart our negotiations as of Sunday apparently, and as communication lines are open. It's from that base of knowledge that vast majority of this is so good for both sides and this tight integration reduces inflation and creates competitiveness. And therefore, there are changes that are needed. The world has changed since even the most recent negotiations, and we have to adjust the agreement, but that's core, it's core to prosperity and core to competitiveness and our economies. And therefore, we have to be very careful as we try to shift too much of this.

And I think Congress will have an eye on that as well 36 U.S. states have Canada as their #1 trade partner, export, 36. Many of those, most of those are red states at the end of the day. So there's a strong interest among Republican governors, Republican senators and representatives that this is really important to the majority of U.S. states as well.

So we start from that perspective of that has caused a lot of calories being burned, what does the new agreement look like so the U.S. economy is outperforming the Canadian economy right now. A number of European economies have kind of bounced back, outperforming the Canadian economy. I would call the Canadian economy resilient, 1.5% forecasted growth versus kind of 2.5% in the United States. And it's off a little bit because that trade uncertainty has manifested itself in investment uncertainty whether it's residential housing, worried about your job, worried about making that type of investment, prices are declining in Canada. So another reason to hold off. You're seeing rates are less of an issue in Canada as we brought short end of rates down more quickly.

So the rate environment has really helped on cash flow and disposable income, and you're seeing Canadians consume more. I'm not going to buy a house, I'm going to go on a trip and I'm going to trip more to Europe into the Caribbean. And I'm going to consume hospitality, food beverage and that's created jobs and therefore, the jobs have been resilient in the Canadian economy. And overall, that consumer spend and the overall economic environment is stable with, I think, poised for significant growth, as we'll talk about in a second. You all know the U.S. economy exceptionally well driven by 10% of Americans who have prospered significantly from equity markets who are consuming, what, 50% of domestic consumption, 10%. It's a massive K-shape in the U.S. economy, that wealth creation from markets has propelled that.

And therefore, and then secondary effect is running an 8% structural fiscal deficit at the government level is very stimulative to the U.S. economy. And those 2 factors have offset what is seen declining employment and activity in so many sectors outside of artificial intelligence and the infrastructure build around that. So you've got a bit of a skew to the U.S. economy that also has potential to expand when rates come down, you're seeing high long-term rates in the U.S. economy really also impede residential house buying and construction. And very much part of both North America and Canada, U.S. economies is driven by -- has been driven historically by housing. It's been probably too much of a story in Canada.

It needs to be more of a story in the United States. And therefore, there is a tailwind when longer-term rates eventually come down. But the challenge with a short-term disruption, is inflationary, can be inflationary. If it continues and persists. Right now, it's come off a fair bit. And it could be just a pass-through, and it won't distort overall consumer purchase habits and consumer disposable income, and that's the hope if it moderates relatively soon. But if it prolongs, and that gets embedded into the price of goods and the price of services with a higher energy cost and higher input costs, becomes inflationary, rates can't come down, disposable income gets impacted, and that's going to start to constrain consumption. So that's the risk that all of you are watching, and that's the risk that markets are watching.

And when the word of it's going to go on longer, oil goes up and the impact on the economy comes down, and then the market -- Warren Buffett said the best, the market starts as a voting machine and gets ultimate to a weighing machine. The market is a voting machine is voting that this is going to have an impact and I better pull back. The weighing will come later, how much. So I think that instability in the short term, hopefully, we resolve this issue for everybody's sake, and we can move forward in a more stable world, but therein lies a risk to build up that we're all trying to weigh right now.

The votes are out. But the weighing goes forward. So a resilient economy with, I think, a number of tailwinds that can really help build on that. You're seeing a little bit of credit risk. We'll probably talk about private credit in the consumer side, both sides of the economy, subprime struggling, you saw in a major, I think, B2C company on the subprime space make an announcement today, I think go easy.

Subprime is weak on both sides of the border, given the leverage and the worries there and inflationary costs impact the ability of those consumers to service that. That's particularly isolated to the Toronto economy, the Greater Toronto area. Majority of Canada is pretty stable and fully employed. The Canadian economy is mostly the impact of CUSMA has been directed to Southern Ontario and Toronto, and that's where you're seeing most of the job loss, manufacturing job loss, slower issues, supply chain challenges, default, commercial default in the supply chain, trucking. We're largely in North America in a goods recession. We're consuming services and consuming experiences, but we still have a goods recession across North America. You've seen that in the layoffs at Amazon and UPS and therefore, that impact your feeling into the economic environment as well.

So when you're seeing commercial and consumer loss in Canada, you're feeling it acutely in Central Canada, where you've got large supply chain, large transportation hubs, steel hubs, impacted by CUSMA and therefore, the weakness you're seeing in some of the bank credit results are largely related to that. So I think those are certainly of some of the impacts you're seeing from a macro, that's the kind of negative. The positive side of this as you think about energy, where it's going. Canada is very much on a mission to leverage our resources again after 10 years of ignoring them and trying to diversify our export and trade relationships with multiple countries, whether that's with China, South Korea, Japan, India and Asia and then certainly Germany U.K. and Europe and leading with our linear natural gas or LNG, which is in desperate demand in Europe to offset the sort of supply initially from Russia now from Qatar and others, the straits that are becoming more volatile.

And then longer term, with India offtake less Russian energy into India, more from the west, petrochemicals and energy into Japan, Korea and China. And therein lies a huge opportunity for Canada to lever these resources that have been -- we haven't been able to get government support for and then First Nation support. We feel under the Carney government is a complete 180-degree pivot towards a more prosperous future. Minerals, rare earth minerals, LNG, energy, petrochemicals to start, forestry, agriculture as well. And as you think about the opportunity, the world is sensing this unprecedented opportunity. We've never seen more FDI flow into our economy in the last 15 years. We had 2025, the first positive year of FDI flow. Now Canadians have been a huge exporter of capital because we have these large pension funds that are centralized in the export capital every year.

We only invest 6% of our own domestic pension funds in the Canadian economy and 94% outside. So Canada has been a net exporter, a significant exporter of capital. Some of you benefit from that and see that. There's a chance to index that a bit higher for Canadian infrastructure, and you'll probably see some of that money stay home. But we've also seen unprecedented interest from Europe, from the Middle East, Abu Dhabi committing in Qatar, committing $50 billion of infrastructure funding for Canada.

We want to help intermediate that and need to be there to do that. So this FDI flow at $96 billion gross in the last year more than offset the outflows and we have turned positive and we're sensing as we bring these projects to market for the first time, we're in a really good place to really start to drive an incremental leg of growth. So we're quite hopeful that we'll renew CUSMA and it will be a stable agreement for a long period of time.

But we're super excited about the growth way that we're not going to pivot away from this. But we're going to leverage that investment, renewed relationships with all those countries. And that's a stimulative growth. The next stimulus of growth is we're going to spend 2.5% of GDP on defense, which, yes, we're going to run from a fiscal deficit to do that, like the U.S. is doing in other areas. And that $70 billion of incremental spend is being used in dual purpose, military industrial. So if we're going to build a road in an energy pipeline or electricity pipeline, energy pipeline to the north, it's going to be for a naval base and it's going to be for a mineral mine and base.

So trying to dual-purpose everything we do in the north as we defend the Arctic and grow the Arctic. So you'll see this multiuse capabilities coming through our infrastructure that will grow our economy, access resources, help defend North America, play a greater role in NATO and therefore, that is a significant stimulus to the Canadian economy. And as we look at handing out these contracts, the first one that's under discussion, the F-35s has been under discussion for 15 years now, and they're debating back and forth. But the real one that's being levered is our $100 billion submarine deal. So we're looking at buying 12 subs for $100 billion and the 2 candidates are South Korea and Germany. And therefore, it's a grand bargain agreement. The contract on our side, we want to export more energy and we want investment in our automotive sector, whether it's Hyundai or Volkswagen coming in.

So therefore, those -- being able to leverage significant purchase contracts in the defense side into growth investment into the country is also another tailwind. So when you think about defense, energy exports, new deals, reigniting the real estate sector with investments and more certainty around the economy. While we're hanging in there, and we're doing well and we're resilient at 1.5%. You can see the stimulus that could come to accelerate this growth. And I'm really bullish about that.

I'm really bullish about accelerating prosperity and growth and it creates opportunities for RBC to intermediate that capital, and it creates opportunities for us to use our balance sheet to support that infrastructure and that growth. You look at Europe and Canada, it's different in the United States because of scale, but a lot of that defense spend is in the mid-corporate space, not in the senior market space like it is in the U.S., but there's a lot of commercial mid-corporate companies that need to scale whether it's ammunition manufacturers in Alberta or others, they need capital to scale their production.

And therefore, with an offtake agreement, we will be able to lend against that type of scaling into the big corporate space. Germany is in the same place. A lot of the spend that's coming out of the German commitment to the NATO is going to be in the commercial and mid-corporate space versus in senior markets. So we're very well captured as being Canada's largest bank for business to lend and intermediate that type of capital flow and investments. So super excited. And then the last thing I'll say the uncertainty that we're currently feeling just lends more weight behind the need for Europe and Asia to diversify the Canadian Energy as a more stable long-term source of energy so as we're in the market right now trying to secure LNG offtake agreements in many of these countries, this disruption, the Strait of Hormuz and this instability lays into Canada's strength, a stable long-term supply of energy.

Now it's time to close those contracts get those deals done. So I think from that perspective, macro you can see so many ways that this will be a great growth agenda for North America and for Canada.

It feels like a trailing 12 months a lot of change, a lot of uncertainty, but resilience as you described it, some near-term uncertainty once again, but a lot of reason for optimism and tailwinds, in particular around the Canadian economy as you look forward, which is great.

So if I take that, Dave and I then pivot to RBC and our strategy. We're coming up in a few weeks' time on the 1-year anniversary of our Investor Day. I think some very bold ambitions and targets that you and the team put forward. When you're in, how are you feeling about progress? Where are you feeling great and maybe where there are some places because of the changing landscape or otherwise, we need to continue to work or reflect.

We've accomplished a lot in the last year. I think we're right on track, and in more areas and not ahead of where we thought we'd be, whether it's the AI commitments we've made and the $700 million to $1 billion of benefit to our bottom line by year 3, I think feeling very good. I think we're the only bank to -- we're one of the first banks to make a commitment -- monetary commitment at all, but the only bank to do it net of investment, which means that we had a deep understanding of how much it was going to cost to train and build these models, deploy these models.

A lot of banks have followed us with commitments to benefits, but pre cost because they weren't as certain about the cost structure to leverage their data, get their data in shape, which is a big part of the challenge is making sure your data is capable of training a model. A lot of banks are struggling getting clean data, and it's very expensive. We've been training reinforcement learning models, machine learning models for 12 years now in our AI Institute and have deployed those models into your business. I think one of our most successful examples is AI on the block equities trading side, I've been doing for what 7 or 8 years now. So we've built models. We've learned how to train models. Our data is in great shape. Therefore, retraining those LLMs on the AI side has gone faster.

And as we've done that largely on the time lines and the cost structure we thought and now we're integrating those models into our consumer banking business into our commercial adjudication business into your investment banking, advisory side, into our coding. 40% of the code produced in our technology group now by lines of code is done by an LLM, a series of LLMs, not just one. So we're seeing good adoption there.

Therefore, we're still producing more lines of code for the same cost and ultimately, we'll produce lines of code for a lower cost as we've committed a significant benefit. So as we think about one of the big articulations of our Investor Day around AI. We remain incredibly excited about the impact on our internal operations and on our B2C direct-to-consumer capability from capital markets advisory, capital markets trading to commercial banking, credit to commercial banking operations, deposit to consumer banking, advisory call centers through the whole gamut insurance, there isn't a part of our business that's not being impacted by AI.

And therefore, there will be multiple waves. This is just wave 1, the 9 projects and the $700 million to $1 billion there are multiple ways and to accelerate that I've changed the organization, and I've asked Bruce Ross, who headed up our technology and operations group for the past 15 years to step over and be Head of AI reporting into myself.

So I've put one of my most senior leaders in charge of making sure externally, we understand everything going on, and we're bringing best-in-class into the organization, making sure internally, we share best practices and we push these ideas out. And three, he's responsible for making sure we execute against building the models, integrating the models into the business and function process flow I really felt I needed a senior leader to be on this 24/7, pushing the organization forward, helping the organization understand and execute with excellence.

It's that important because it impacts everything you do from how you think about the overall cash flow of your business and how you think about your customers to how you think about other potential opportunities in the marketplace, you have to understand the impact of AI on your own business and your customer businesses and your competitor businesses.

And the best way to do that is from a base of knowledge of having done it, not surmising or trying to extrapolate from a theory so the faster you can move, the better you understand that we're all in the better able you are to take advantage of what's going on around you. So AI was a foundational component of our investment thesis. And then each business head including yourself, Derek got up there and articulate a bold vision of how you're going to build your markets business, how are you going to build your capital markets advisory business, how are we going to build the commercial business, the deposit business. And we laid out KPIs for each of our businesses and KPIs that stretched us into what we felt would lead to market-leading TSR and market-leading revenue and profit performance at the most efficient capital rates and productive capital rates.

And as we look through that, to your question, we're performing very well. There's a couple of KPIs that were behind. We committed to a certain level of alts penetration, and we're still kind of building out the product bench and we're you're trying to get to market with that. So we're lagging a bit on are alt side, but you look at the sectors, the commitment you made in FX progress and equities progress. I mean, we had a fantastic quarter in equities and we're seeing a significant turn there. You're seeing the momentum build in FX and the capability, the hiring that you're looking to do on the advisory side, sector, making for a very competitive marketplace. In some areas, it might be ahead, some areas it might be a little bit off. But that's really important.

So the key drivers of our business in the capital markets feels pretty good. The key drivers in our wealth business. I think the flows that we're looking at, it's a bit behind, but some of the core was good. The overall performance of some of our funds is lagging a bit as what we thought we needed to do. So we're -- we've got to improve a bit on some of the investment performance that for perennially had been at the very top of the industry has slipped a little bit, and we can kind of improve that. I think that hasn't really had an impact on flow yet. But if it persists, it will start to impact flow a little bit as all the asset managers in the room would know. Our acquisition of new customers into the consumer bank and the cross-sell of those is ahead of plan. I think we are impacted a little bit by immigration. Immigration has slowed more quickly in Canada as it has in the United States.

And therefore, we don't see that household formation at the same rate we did. It will come back a bit, probably not to where it was because we're still trying to engage as a country, the impact of artificial intelligence, the impact on jobs and therefore, we'll be more cautious in how many we can let in and employ in our countries, all countries are looking at that, like what is the demand for labor. And therefore, let's not overwhelm our labor market with too much immigration that we don't create the experience that we're looking to create for both sides. So you just caution generally globally around trying to gauge the impact of AI in your labor force and then the overall demographic strategy as a country.

So as I -- as we think about all of that, I think setting that stretch goal is propelling us and we've had great results again in Q1. We had a really outstanding 2025. We significantly exceeded market expectations like we're $0.20 above estimates, drove a 17.8% ROE well above market estimates. So we're incredibly capital efficient. And we're capturing a disproportionate share of the client flow in each of our businesses. That's our strategy, right? Capture client flow at a higher efficiency ratio, driving more profit per dollar of revenue. And we measure all of that, our efficiency, our productivity efficiency. And HSBC for us was a transformational play. We acquired HSBC Canada because we took our efficiency ratio in our consumer commercial bank, which is 50-plus percent of RBC, from 42% to 35%.

Our competitors averaged 43% to 48%, 49%. So if you're dropping $0.15 per dollar of revenue to the bottom line, more than your competitors. Think about the competitive opportunity you have, you can give that to pricing, you can -- that shareholder and that operating competitive gap is significant. And therefore, we can leverage that to scale growth and compete in the marketplace.

And we haven't even got the benefit of our artificial intelligence that number yet. So that productivity efficiency ratio has been best-in-class for a while, but then it has a quantum moat to it now post HSBC. And therefore, we have that strategic advantage where we can do the same piece of business, at the same price as our competitor be 15% more efficient and therefore drive a 17.5% ROE off the same piece of business that our competitors are doing at 13% or 14% on. I think that's the structural difference between our businesses. And so efficiency productivity really drives a huge part of our investment thesis and our overall ROE.

And that's probably a good segue into a topic I know is very top of mind for investors right now, which is capital allocation because as you say, Dave, with that, best-in-class efficiency ratio, driving premium ROE, which is driving very strong quarter-by-quarter organic capital generation. It's a good problem to have, but we've got excess capital at 13.7%. So in an environment today where you're trying to strike the right balance between growth, continuing to deliver premium ROE, managing an uncertain risk environment, how are you thinking about capital allocation?

We think a lot about it. And I know some of our investors are stressed about what is RBC going to do with all this excess capital. And I think what I generally hear though as well, and what I think we've earned is we haven't misspent your capital to date. Capital it doesn't have a halfway. It doesn't disappear. It can only be misspent. And therefore, I think we have for the majority have a lot of confidence that we will spend it and creating the most amount of shareholder value possible. And we won't dilute and do something done with it.

So first and foremost, we have significant RWA growth opportunities and all those initiatives I just talked about. And therefore, we look forward and we anticipate the demand coming out of the real estate sector, anticipate demand coming out of manufacturing, out of energy and we see RWA growth to consume this organically, and we're super excited about deploying it that way.

Second, we see returning couple to shareholders, and that's our primary mechanism. We have slowed the cadence of our buybacks to the low end of our range given market volatility and uncertainty. Part of it CUSMA uncertainty and the impact that we saw on the economy, and on customers, partly a significant run-up in our stock in the 1 quarter. So we are looking as we exited Q4 and we beat by $0.35, I think, and our stock went from $206 to $235. It was, oh, that was quick. We are planning on buying back a bunch of shares at $210, and now we're buying it back at $235. Maybe we'll slow things down and see how stable that price is. And if that grew to $238. So kind of the short-term positive volatility in the stock caused with pull back a little bit, but we still maintained our floor of buybacks. And then now you see a bit of a systemic pullback because of what's happening in the Middle East and an opportunity to accelerate again.

So returning capital to shareholders is our strong second lever here. And we'll continue to return that capital regularly and consistently, over time, no matter what the stock price is, but you have to give us a little bit of flexibility to accelerate that when we see there's a tactical opportunity. We're trying to get the best return on that capital. And like JPMorgan, we're buying back our stock at 2.5x book. And therefore, it's -- we're trying to be efficient with that, looking at all other opportunities to do that.

But one thing I can tell you, I'm not saving capital to make an acquisition. It is not in my mindset. Right now. It's organic growth, organic growth, organic growth. We have huge opportunity and tailwinds that we can talk about. And then returning capital to shareholders is sufficient for us to outperform and drive premium TSR. I don't have strategic gaps in any of our business, I really need to fill through acquisitions. So I'm not out there saying this business won't survive unless I make an acquisition. I don't have to do that.

I've got opportunities to grow in Europe, opportunities to grow across capital markets, wealth and commercial banking in the United States and opportunities to grow significantly in Canada with all that efficiency and productivity and the leverage we have. So we've got enough to deliver on a premium growth band at a premium ROE that don't have to make an acquisition. I look and I make sure I'm not missing anything, but it's not in the strategic mindset of a priority for us.

Therefore, you can rest assured that growing organically and returning capital to shareholders gets it done and that is the focus of the organization. I think a number of investors kind of left the Q1 call saying, I think Dave is really pushing hard for an acquisition. I said no. My job is to make sure I don't miss something. I'm always looking and thinking but it's not the push, and we're not pushing for something because it's very hard to make an acquisition work.

HSBC was pure gold for the organization, and we have tracked that for years. There's very few HSBCs that are so accretive that you can get done. And if another HSBC comes along, I will do it, let's say. But there isn't one. So rest assured that organic growth and capital return drives a premium TSR and that's our focus. And yes, we have significant capital to do that. And we're just trying to lever that capital into the best return possible along those guidelines. I think that's really important for the market to here. It's great to have that flexibility to be able to grow, support customers, support your national strategy and strategy in the markets like America that we're a significant player with more capital. This is our second home market. We're very excited about the growth opportunities of our U.S. wealth and U.S. capital markets business.

And U.S. commercial business, City National had a fantastic quarter. We've got City National has got a great tailwind behind it is performing much, much better and very well. We made over $210 million in City National last quarter, and we see upside from that. So I think we're very, very excited about all the growth levers that we can pull. So that capital efficiency, 17-plus percent doesn't -- it's not a cap. We're not trying to manage to 17%. We'd love to do 18% with premium growth, but we don't need to set a target to do 18%. We just need to set a target that allows us flexibility to grow at a premium and deliver a premium capital return.

And it's a balance between all of it. I could run the bank at 19% and not grow it. I can run the bank at 18% and grow it, right? So I can run the bank at 25% if I want to -- ROE maximization is not the objective function here it's growth, premium growth add a premium ROE together gives an optimized TSR, total shareholder return.

And I think you know that. It just feels like the market forgot that for a little while, and they're chasing kind of ROE growth without thinking about what type of EPS growth is coming with that. So for us, the ROE tailwinds for the ROI story, our credit normalization continued improved performance from City National from a cost takeout from the remediation work we've been finishing and from growing the balance sheet again, as you're seeing, quite significantly. So we're excited about the customer flow coming in credit normalization, improved margins, particularly out of mortgage, where we've seen historic margin compression. Some of that can come from AI.

Some of that will come from a more disciplined market, leveraging our funding advantage as well, improved performance across our markets business as we're looking an opportunity there. Some of the -- hitting of the targets we've said in Investor Day, and then we haven't seen yet the $700 million to $1 billion our bottom line contribution from AI, I think overall you think about the tailwinds we have along that, we're already at 17.7% ROEs.

We don't have to change the target to execute even better against that. So I sit here saying, "Oh, we've got a lot of momentum." We've operated in a generally constructive economy, particularly for our global markets and our market-based businesses and wealth and capital markets. We can have a more constructive business, I think, for our Canadian consumer and commercial businesses going forward with those types of tailwinds. I look through the short-term dislocation of the market today to all of this positivity and say, we will get through what's happening in the world today. And I think North America is poised to really accelerate from here on in.

Bringing a few things together, Dave. I mean you touched on AI, but I mean if you step back, look under your leadership. Frankly RBC has been very forward-looking, very future-looking. We got on data early. We got on AI early, but the world is changing very quickly. You've got lots of challenger models trying to disrupt a variety of different businesses. Technology and AI are sort of a key part of that. You've been in this business a long time. You've seen different technological evolutions.

Just interested, how are you thinking about this period for financial services? Do you think this is fast, but incremental change? Do you think it is fundamental structural disruption of businesses? How do you see that playing out? And you touched on around AI a bit, but how are you positioning the bank to win against a period of potential disruption?

I've in my -- I don't know, somewhere near my 40th year in this business, 12th year as CEO so I've seen a lot. I can't say I've seen it all. I've seen a lot in different roles. The one kind of fundamental framework I used to kind of look at change and forces of change, particularly technology change is what problem is it solving? Is it a technology looking for a problem, which has been a lot of the case over the last couple of decades? Or is it -- is there a fundamental problem that this technology is designed to solve.

And whether it's AI, which I think is a technology solving fundamental problems of efficiency and knowledge and capability and predictability technologies like blockchain have struggled to solve problems. They've created new products for sure. Those products have had limited speculative appeal to them and we look at products like stablecoin, which is kind of a hybrid solution, and we say, can it solve a fundamental problem.

And I think, yes, there are some fundamental problems that stablecoin can answer, particularly the friction and timeliness of cross-border payments. But when you look at your domestic payment system, is it solving a problem. No. It's a different way of serving the same value to the customer. Therefore, it has how much friction is there in implementing the technology and it's high, right? And don't forget you have to defend these new technologies from quantum computing risk, cyber security risk, AML risk, onboarding risk so the nature of integrating a new technology into your value chain in a bank faced with all those responsibilities to society is very, very high.

But you look at these challenger technologies. And the second question asked if it is serving in solving a problem, though limited, it may be -- can the incumbent build it? Or is there a uniqueness to the fintech in applying that technology with IP uniqueness or just the technology limitation of the incumbent and solving that.

And what you've seen historically is the innovation that's come out of fintech, which is -- there's been a lot of innovation coming at Fintech, it has been rather easily adopted by the incumbent banks as they've invested in that technology, bought that technology and integrated in their supply chain without disruption. And therefore, I look at something like stablecoin. And I say are we going to change our entire off-ramps and on-ramps to build a new highway of stablecoin to take out the cost and friction or is Swift just going to build a better blockchain network and eliminate that friction themselves.

And the answer is both Swift is building that right now. And will they build it as well as some of the challenger Ethereum networks and others, maybe, maybe not, probably. And therefore, will the incumbent defend and adopt a new technology? Or will the attacker replace that. And that has been a bet. What's happened much more than not is the incumbent has adopted a new technology and adjusted their business. And I think that is why we've been so successful as an industry, we've been able to adapt and take on these new technologies and change our business, customers have benefited.

And I think, again, I look at this new suite of technology. And I encourage you to apply those 2 lenders. Are you solving a problem, can incumbents execute against it? And the answer is yes and yes, you'll probably get a lot more of what you've seen in the past. We'll defend our customer franchises. We'll serve them better and we'll continue forward. And I don't see anything out there now that I can't build, whether it's through stablecoin blockchain network or AI at the end of the day that we know we have the scale and the capacity to build our own models to buy these models, to integrate these models into our business, and therefore, it's changing us for the better.

It's giving more customer value, it's changing the overall equation, but I'm super excited about the opportunity to adopt that technology and help our customers do better and help RBC be better. So I think I've seen enough of this that, that model works today. And I think the market is kind of sorting through that for the most part.

Well, I think it's a great framework, Dave because it's -- I mean, there is so much change going on, it's easy to sort of get lost in it. But I think that's a good couple pillar principles -- lot of people can think about this. So we're almost at time. That's been terrific. We've covered a lot, but with sort of one minute left with our audience. Any final thoughts you'd leave on RBC, our strategy, our positioning?

No, I think the message is we have significant flexibility. What does it require to be successful as a large universal bank in the world of serving the customer groups we do, you need scale. And I define scale across the following dimensions: you need brand scale. Brand scale helps you win in a digital world because as we acquire core customers in a physical world by the physicality of your branch and putting your name on a corner, you have to have brand scale that pulls in a digital world, an all-digital world.

So brand scale becomes all the more critical. So when you look at big banks like ROI and JPM, we have brand scale that transcends into the digital world. So you need brand scale, you need customer scale as customer sale gives you data scale. Data scale is critical. What we've already learned is that the breadth and depth of data produces a higher performing LLM, large language model. And that large language model is more predictable, more predictive and creates greater value. So data scale creates a moat now in this world of LLMs and generative AI. And we've kind of empirically proved that.

So we're very excited. So data scale gives you ability to be more relevant to customers, to attract ancillary value through partnerships as other organizations want to partner with you because of your data scale helps them with their data scale. So data scale is critical in a digital and a world for all those reasons. You need balance sheet scale. Customers are growing, the world is growing. Customers are shortening their supplier chain from key integrators to banks. Therefore, the size of balance sheet you bring to support your customers absolutely critical and to absorb the equity base to absorb the shocks that we're seeing in the world today and continue to be there for your customer.

The balance sheet scale includes funding scale, maybe bigger than capital scale. Funding scale is absolutely critical, and then you need operating scale. That efficiency ratio, I talked about dropping more profit to the bottom line, having pricing flexibility, operating scale is part of that is brand scale, data scale, balance sheet scale, operating scale. Life goes pretty well from there. So thank you. Thank you for being here. Thank you for participating in this conference, being together and talking these things through is critical, and I love being here and appreciate you attending today.

Thank you, Dave. I appreciate everybody joining us.

Thank you.

Good morning, ladies and gentlemen. Welcome to RBC's 2026 First Quarter Results Conference Call. Please be advised that this call is being recorded [Operator Instructions]

I would now like to turn the meeting over to Asim Imran. Please go ahead.

Thank you, and good morning, everyone. Speaking today will be Dave McKay, President and Chief Executive Officer; Katherine Gibson, Chief Financial Officer; and Graeme Hepworth, Chief Risk Officer. Also joining us today for your questions, Erica Nielsen, Group Head, Personal Banking; Sean Amato-Gauci, Group Head, Commercial Banking; Neil McLaughlin, Group Head, Wealth Management; Derek Neldner, Group Head, Capital Markets; and Jennifer Publicover, Group Head, Insurance.

As noted on Slide 2, 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. [Operator Instructions]

With that, I'll turn it over to Dave.

Thank you, Asim. Good morning, everyone, and thank you for joining us. Today, we reported record earnings of $5.8 billion and adjusted earnings of $5.9 billion. Pre-provision pretax earnings were nearly $8.5 billion, and were up 14% from last year. These strong results were underpinned by record revenue of nearly $18 billion and a 5% operating leverage. Both Wealth Management and Capital Markets reported record revenue and pre-provision pretax earnings benefiting from a constructive environment for our market-related businesses. Personal Banking and Commercial Banking reported record results underpinned by growth in money balances and money imbalances, higher margins and strong operating leverage as well. This was achieved even as housing conditions and uncertainty around trade policies continue to temper loan growth in Canada. Our return on assets increased to nearly 90 basis points, and we bought back over 4 million shares this quarter for approximately $1 billion.

Our performance delivered a return on equity of 17.6% on the foundation of a robust 13.7% common equity Tier 1 ratio. This powerful combination drove 9% growth in retained earnings.

Before covering client activity and business results, I'll briefly discuss the macro environment shaping our revenue drivers. The Canadian economy remained resilient through the elevated uncertainty from persistent and evolving geopolitical and trade tensions. GDP and job growth continued despite lower immigration levels and household balance sheets are improving.

That said, the impact from tariffs on the economy varies depending on the clients or sectors. We are seeing strong profitability and improving productivity for many of our corporate clients, while commercial clients and tariff-impacted sectors and geographies are facing headwinds. And the impact of the K-shaped economy continues to bifurcate Canadians. Going forward, we expect increased fiscal stimulus, and the diversification of new trading relationships to create a multiplier effect of supporting economic growth and client activity over the near to medium term.

With this context, I will now speak briefly to key trends we are seeing across our businesses as seen on Slide 5. In Personal Banking, mortgage growth remained modest as housing demand remained soft in key regions. This was due to the affordability challenges, economic uncertainty and a pullback in immigration levels.

Looking forward, given weaker demand, we reiterate our low to mid-single-digit mortgage growth guidance for the year. This growth will be supported by proprietary mortgage specialist sales force, capturing switch opportunities and driving strong retention through increased investments in channel capacity. Further, our recently announced strategic partnership with realtor.ca, will create new top-of-funnel opportunities.

The strength of our money in franchise was on display again this quarter. We saw growth across demand deposits and mutual funds as many of our clients saw higher returns amidst term deposit renewals. The aggregate flows to personal and savings accounts, GICs and mutual funds increased almost 50% from last quarter, driving strong revenue growth.

Commercial Banking loans were up 4% with strength in health care and agriculture. Growth was moderated by a tariff-related slowdown in supply chain sectors and demand-driven headwinds in commercial real estate, which represents approximately 40% of the portfolio. On a provincial level, Ontario continues to experience tariff-related headwinds, while we are seeing resilience in the Prairies. Even though larger clients are cautiously returning to growth mode, we expect commercial loan growth to stay closer to the lower end of our mid- to high single-digit range for the year, the longer we go without clarity on the CUSMA trade negotiations.

Deposit growth was stronger, up 5% year-over-year, reflecting broad-based expansion across nearly all sectors amidst the competitive landscape. To build on this momentum, we continue to invest across our sales force capacity and enhance digital and AI-driven underwriting capabilities, while elevating our transaction banking offerings.

Our Wealth Management segment had a very strong quarter, generating over $6 billion in revenue, $1.7 billion in pre-provision pretax earnings and $1.3 billion in net income. Growth in fee-based assets benefited from market appreciation as North American equity markets rose double digits year-over-year and bond indices also moved higher. In addition, we recorded strong net new assets over the last 12 months, benefiting from clients moving back into the markets as well as continued adviser recruitment.

Assets under administration were up 13% year-over-year in Canadian Wealth Management, surpassing $1 trillion for the first time. U.S. Wealth Management AUA was up 12% to USD 777 billion and RBC GAM assets under management were up 11% to $796 billion. Furthermore, City National's earnings continued to grow with both pre-provision pretax earnings, and net income more than doubling year-over-year.

This quarter, wealth management announced the expansion of RBC Echelon, our premier platform for a growing base of ultra-high net worth U.S. clients. We're also addressing the needs of new and aspiring self-directed investors by launching GoSmart, an intuitive mobile-first platform integrated within the RBC mobile app.

Capital Markets also had a record quarter with revenue of $4 billion, pre-provision pretax earnings of $1.9 billion, and net income of $1.5 billion. Global Markets generated record revenue of $2.2 billion with robust client activity amidst a constructive environment. We benefited from notable performance in equities, where we've made strategic investments to bolster our equity derivatives and financing capabilities.

Corporate & Investment Banking benefited from higher debt and equity origination activity, higher M&A activity and higher North American lending revenue with average loans, up 8% from last year. We continue to have a healthy M&A and origination pipeline as the macro and regulatory environment is expected to support growing fee pools.

I now want to talk about our focus on compounding long-term shareholder value. Our philosophy has remained consistent. As noted last quarter, we can constantly evaluate opportunities to optimize shareholder value, not to just maximize ROE. We concurrently want to enhance client-driven profitable growth while upholding our disciplined risk appetite, and we have done both. This requires both the deployment of capital as well as leveraging our structural advantages in funding and noninterest expenses, along with our leading franchises, distribution and technology.

On dividends, we look to progressive increases underpinned by sustainable earnings growth as we strive towards the midpoint of our 40% to 50% medium-term objective. When it comes to the level of share buybacks during times of uncertainty and volatility, we are aware of our book value multiples and intend to maintain capital levels near the higher end of our targeted range.

Similarly, we have a high bar when it comes to acquisitions, and we'll continue to be patient for the right opportunities to accelerate growth instead of solving capability gaps. Our priority continues to be investing to organically grow our businesses. The top of Slide 6 -- top left side of Slide 6 highlights the organic RWA deployed to support our clients' financing needs and growth aspirations discussed earlier. We have increased the level of client-driven growth given an expanding suite of opportunities. Organic RWA growth this quarter was greater than the quarterly average of each of the last 6 years -- 3 years, sorry. Our diversified business model allows us to strategically grow RWA through a changing macro environment. We took advantage of constructive opportunities to utilize our resources to grow access across our capital markets businesses over the past year and reduced client demand and lower growth in commercial banking.

The bottom left charts on Page 6 illustrate growth by ROE bands across our segments and sublines of business. When it comes to allocating capital to drive client growth, we don't just allocate capital to grow the highest ROE businesses, we also look to strengthen market share and invest in new technologies and lay the foundation for new growth verticals to enhance future value and diversification across One RBC. These create a flywheel multiplier effect for driving durable ancillary revenue streams. Important point to make is that some of our largest businesses are inherently capital-light and do not need a lot of capital to grow. These are mostly funded by noninterest expenses, growth in less capital-intensive higher ROE businesses is a key driver of our revenue mix and growth. Our relatively equal weighting between capital-light fee-based revenue and more capital-intensive net interest income provides us with an attractive business mix as well as a lower credit risk profile.

While some of our capital-intensive businesses generated returns below our expectations in fiscal 2025, this was partly due to several headwinds, which we expect to reverse over time. These include elevated PCL and performing loans, higher wholesale PCL, elevated spend in the U.S. and lower mortgage spreads due to increased competition.

Furthermore, we look to offset any dilution from growing businesses with a lower stand-alone ROE by deepening client relationships to drive improved revenue productivity while also becoming more efficient. We also won't grow for the sake of growth, as evidenced by our discipline on mortgage growth and pricing amidst intense competition. We target profitable revenue growth that drives future value.

Looking forward, we see momentum and significant opportunities to organically deploy capital across our diversified business model to accelerate profitable revenue growth. We are growing capital markets, corporate loans, which would initially generate a lower stand-alone ROE. However, this growth creates opportunities to add on higher ROE revenue such as transaction banking and investment banking fees.

Additionally, we will continue to support client activities by deploying RWA into our financing businesses, which can further monetize sales and trading intermediation activities. A combination of growth and deepening relationships drives a higher segment and client relationship ROE.

Another strategic initiative is to align transaction banking with our growing City National Bank commercial loan book as we build out teams while launching U.S. mortgage and credit card products to increase penetration within a high-net-worth client segment in U.S. Wealth Management. We also expect meaningful opportunities in commercial banking when we have certainly -- certainty around CUSMA and when we start seeing the execution of large-scale infrastructure projects highlighted in the Canadian federal budget. The segment's ROE of over 16% this quarter highlights the power of the franchise when PCLs normalize.

We are applying similar approaches across our strategic initiatives, some of which are listed on the right-hand side of Slide 6. We're not trying to just acquire loans, we are building relationships, and these are -- and there are a lot of opportunities to grow without diluting our ROE.

To close, we are focused on creating sustainable shareholder value by accelerating our ambitions to drive both profitable growth and a premium ROE underpinned by our Investor Day targets, including improving revenue productivity and cost efficiencies. We also remain committed to using our strong internal capital generation to return capital to shareholders through both dividends and buybacks.

Our future success will include opportunities to turn our highest potential AI use cases into solutions that bring value to clients. To do that, we recently announced that our Group Head, Technology and Operations, Bruce Ross, will lead our newly created AI group to accelerate our AI ambitions. Moving into the Group Head Technology and Operations role is Naim Kazmi, a transformational leader who has held multiple leadership roles as most recently, the technology lead for the successful close and convert integration of HSBC Canada. We look forward to their continued success.

And with that, Katherine, over to you.

Thanks, Dave, and good morning, everyone. Starting with Slide 8. This quarter, we reported strong results with diluted earnings per share of $4.03, adjusted diluted earnings per share of $4.08 was up 13% from last year, reflecting solid revenue growth and adjusted all bank operating leverage of 4.3%.

Turning to capital on Slide 9. The CET1 ratio of 13.7% was up 20 basis points from last quarter, reflecting strong internal capital generation of 79 basis points underpinned by our 17.6% ROE. A modest benefit from changes in regulatory updates and market-driven OCI gains also contributed to the increase. This was partly offset by higher dividends as announced last quarter and higher RWA from the strong client-driven business growth that Dave just spoke to. Share buybacks of 4.2 million shares for approximately $1 billion, largely in line with last quarter's pace also had an impact.

Moving to Slide 10. All bank net interest income was up 8% from last year, or up 7%, excluding trading revenue, reflecting strong growth in Personal Banking and solid results in Commercial Banking and Capital Markets. All bank net interest margin was down 7 basis points from last quarter, largely due to seasonally higher financing activities in capital markets. All bank NIM, excluding trading revenue, was up 1 basis point from last quarter, largely due to higher net interest income on certain transactions in capital markets, which were offset in noninterest income.

Canadian Banking NIM was flat relative to last quarter, largely reflecting favorable product mix, driven by growth in nonmaturity deposits. Continued benefits from our structural tractor hedging strategy also contributed due to a combination of beneficial 5-year swap spread rule on trends and continued growth in notional balances. This was offset by pricing competition and lower purchase price accounting accretion benefit related to the acquisition of HSBC Bank Canada, which we guided to last quarter. Excluding the PPA accretion roll-off impact, Canadian Banking's NIM would have been up 2 basis points.

Moving to Slide 11. Reported noninterest expense was up 2% and adjusted noninterest expense was up 3% from last year. Adjusted expense growth was largely driven by higher variable compensation, consistent with higher revenues in Wealth Management and Capital Markets. Higher salaries and pension and benefits-related costs also contributed to the increase, largely driven by a net increase in headcount. This was offset by the impact of FX translation and lower share-based compensation, which was driven by changes in equity markets and our own share price.

Our expense growth also reflected the realization of cost synergies from the acquisition of HSBC Bank Canada and higher severance last year. Excluding these impacts, our expense growth would have been in the mid-single-digit range. On taxes, the adjusted non-TEB effective tax rate of 21.9%, was up approximately 1.5 percentage points from last quarter, reflecting changes in earnings mix.

I'll now turn to our Q1 segment results beginning on Slide 12. Personal Banking reported record results of approximately $2 billion this quarter. Focusing on Personal Banking in Canada, net income was up 18% from last year, and the segment generated operating leverage of 9%. Revenue growth was 9% with net interest income up 10%, reflecting higher margins and volume growth.

Noninterest income was up 8% from last year, largely reflecting higher mutual fund revenue. Loan growth of 4% was driven by growth across all portfolios. Deposit growth was flat as growth in lower cost demand deposits was offset by a decline in term deposits, concurrent with lower interest rates.

However, this quarter, we generated over $2 billion in retail mutual fund net sales compared to the $5 billion we generated in all of fiscal 2025, reflecting the strength of our money in franchise. We expect this momentum to continue next quarter, including benefits from the seasonally active retirement contribution period.

Turning to Slide 13. Commercial Banking reported record net income of $863 million, up 11% from last year. Pre-provision pretax earnings was up 5% from last year, driven by revenue growth from higher volumes and well-managed expenses. Deposits increased 5% from last year or 2% sequentially, driven by growth in non-maturity deposits, partly offset by a decline in term deposits. Loan growth continued to moderate to 4% year-over-year or 1% sequentially with tariff-related uncertainties impacting demand in key sectors and geographies.

Turning to Wealth Management on Slide 14. Net income of $1.3 billion was up 32% from last year, reflecting record revenue. Noninterest income was up 11% reflecting higher fee-based client assets driven by market appreciation as well as net new assets. Strong retail mutual fund net sales over the last 12 months, including this quarter, were partly offset by outflows in short-term institutional mandates, which can be lumpy in nature.

Transactional revenue, driven by client activity in U.S. Wealth Management also contributed. Net interest income was up 4% from last year, driven by higher deposit growth in Canadian Wealth Management as well as higher spreads and loan growth in U.S. Wealth Management, including City National Bank. City National's net income increased to USD 143 million. Record revenue this quarter was partly offset by higher expenses, including higher variable compensations and staff costs, including adviser recruitment.

Turning to our Capital Markets results on Slide 15. Net income of $1.5 billion increased 3% from last year. Record pre-provision pretax earnings of $1.9 billion were up 11% from last year, partly offset by higher variable compensation. Global Markets revenue was up 7% from last year, reflecting record equity trading as well as strength in repo products, partly offset by softer credit trading results. Corporate and Investment Banking revenue was flat year-over-year. Investment banking revenue was down 6% from last year, offsetting lending and transaction banking revenue that was up 6%.

Turning to Slide 16. Insurance net income of $213 million was down 22% from last year, reflecting a $65 million reinsurance recapture gain in the prior year. Return on equity for the business was 24.9%, reflecting the increase in attributed capital for insurance as guided to in our fourth quarter call. We continue to target a mid- to high 20% medium-term ROE. The U.S. region net income of USD 716 million was up 2% from last year, driven by a pickup in client activity in both Capital Markets and Wealth Management, including City National as well as some benefits of strong markets and improved operational efficiency. This was partly offset by higher PCL.

I'll now spend a few minutes updating our outlook for 2026. Consistent with last quarter, we expect annual all bank net interest income growth, excluding trading, to be in the mid-single-digit range. This includes the majority of the remaining $80 million PPA accretion roll-off next quarter, which translates to approximately a 4 basis point impact to Canadian Banking NIM. Noninterest income is expected to benefit from robust client activity in market-related businesses. That said, capital markets is seasonally stronger in the first quarter, particularly in certain trading businesses, consistent with increased client activity.

As a reminder, starting next quarter, we'll also begin to see the modest impact of reduced fees in Personal Banking in line with regulations set out in last year's federal budget. Also recall, the second quarter has fewer days than the other quarters.

We continue to expect all bank expense growth to be in the mid-single-digit range for the year due to the realization of previously committed costs and ongoing investments. This includes the growth initiatives that Dave spoke to earlier. Investments in technology and safety and soundness framework of the bank continue to be a priority, given emerging opportunities in risk, where we spend approximately $1 billion annually. Nonetheless, we continue to expect positive all-bank operating leverage for the year, including 1% to 2% for Canadian Banking as we continue to focus on efficiencies across the bank, including AI-related benefits.

We expect the adjusted non-GAAP effective tax rate to move towards the higher end of our 21% to 23% previously guided range over the next 12 months. In contrast, we expect Corporate Support segment losses to now trend closer to the lower end of the $100 million to $150 million range per quarter. On capital, we expect a modest 10 basis point negative impact to our CET1 ratio next quarter, reflecting changes to retail capital parameters.

To conclude, we remain focused on continuing to drive sustainable shareholder value through capital allocation, centered on client-driven organic growth within our risk appetite, along with returning capital to shareholders.

With that, I'll now turn it over to Graeme.

Thank you, Katherine, and good morning, everyone. Starting on Slide 17, I'll discuss our allowances in the context of the macroeconomic environment and ongoing trade uncertainty. We remain cautiously optimistic on the outlook for the Canadian economy. We expect to see mild growth and continued stabilization in the economy, supported by prior rate cuts, ongoing trade diversification initiatives and targeted fiscal measures.

Looking ahead, while we believe the Canadian economy has demonstrated resilience, factors such as U.S. trade policy, the upcoming CUSMA joint review and geopolitical tensions add ongoing uncertainty to our outlook.

Against this backdrop, we have maintained a prudent approach with our allowances. While our base outlook assumes that current CUSMA exemptions and tariffs are maintained going forward, to reflect the uncertainty of outcomes, we have retained elevated weightings to our downside scenarios consistent with the last three quarters.

As a reminder, in the second quarter of 2025, we introduced a trade disruption scenario into our IFRS 9 framework. This scenario captures the risk of Canada facing significantly higher tariffs across all exports, but also reflects the potential for a severe North American recession driven by escalating global trade wars. When certain trade conditions have widened the range of possible outcomes, we feel the potential downside risk of a CUSMA withdrawal has been appropriately captured in our allowances, supporting our financial resilience through the cycle.

Turning to Slide 18. We took a total of $28 million or 1 basis point of provisions on performing loans this quarter, reflecting unfavorable changes in credit quality and portfolio growth partially offset by a favorable impact from our macroeconomic forecast.

Moving to Slide 19. PCL on impaired loans of 40 basis points was up 2 basis points or $84 million relative to last quarter with higher provisions in Capital Markets and Personal Banking, partially offset by lower provisions in Commercial Banking. In Capital Markets, provisions on impaired loans were up $130 million from the prior quarter. Most notably, we incurred a large provision related to a borrower in the consumer discretionary sector as well as to a previously impaired borrower in the financial services sector. We also continue to see provisions in the commercial real estate sector consistent with ongoing headwinds in that space.

In our Commercial Banking portfolio, PCL on impaired loans was down $73 million compared to last quarter, reflecting lower provisions on larger borrowers. While we saw better performance in Q1, we expect losses to remain elevated in the coming quarters given the ongoing soft economic conditions, particularly in cyclical industries. As a reminder, impairments and recognized losses in our wholesale portfolios are inherently more difficult to predict and can be more episodic quarter-to-quarter.

In Personal Banking, PCL and impaired loans increased by $27 million, driven by higher provisions in residential mortgages and credit cards partially offset by lower provisions in personal lending. We continue to see a more localized impact in our retail portfolios with higher provisions driven by softness in Ontario and the Greater Toronto region.

Residential mortgage provisions are increasing as expected due to these regional factors and pressures from higher payments at mortgage renewal. We expect these pressures to abate as we exit 2026 with average payment increase at renewal decreasing substantially in 2027. We remain confident in the quality of our mortgage portfolio, underwriting and collateral.

Moving to Slide 20. Gross impaired loans of $9.2 billion were up by $485 million or 3 basis points from last quarter, largely driven by 3 segments. In Personal Banking, gross impaired loans increased by $294 million quarter-over-quarter, largely driven by new formations in the Canadian residential mortgage portfolio. In Wealth Management, gross impaired loans increased by $90 million, driven by C&B with newly impaired loans in the commercial real estate and consumer staple sectors. In Commercial Banking, gross impaired loans increased by $88 million quarter-over-quarter, Large new formations in the quarter related to borrowers in the transportation and industrial product sectors.

To conclude, despite higher episodic losses in capital markets this quarter, we remain confident in the overall quality, diversification and resilience of our portfolios. We still expect full year 2026 provisions on impaired loans to remain within the guidance previously provided. Credit outcomes will continue to depend on the extent and duration of tariffs, the performance of labor markets, interest rates and real estate prices, factors we are actively monitoring as the trade and geopolitical landscape evolves. As always, we continue to proactively manage risk through the cycle and evaluate multiple scenarios across our credit and stress testing frameworks. We remain well provisioned and capitalized to withstand a wide range of macroeconomic and geopolitical outcomes.

With that, operator, let's open the lines for Q&A.

[Operator Instructions] And your first question comes from the line of Ebrahim Poonawala with Bank of America.

Can you hear me?

Very well.

Yes. So I wanted to go back, the Slide 6 is extremely helpful. So thanks for laying it out that way. But there's something you said like around that slide around profitable growth at a premium ROE. From an investment standpoint, it comes down to a relative game.

So when we look at that Slide 6, maybe just talk to us about -- there are lots of tailwinds in capital markets today that the industry is benefiting from. As we think about the advantage that Royal has because of scale, because of market leadership position in many businesses, what are things that Royal can do that some of your peers may not be able to do as profitability that we, as investors, should think about?

That's fair. Maybe I'll ask Derek to start because you referred specifically to capital markets. And then myself, Sean or Erica will maybe answer that question in the context of Canadian Banking. So Derek, maybe the scale advantage that you have in capital markets.

Sure. Thanks for the question, Ebrahim. So as you know, we've obviously been investing in the capital markets business now for many decades and have established very much a global footprint with today, about 70% of our revenue coming from outside of Canada. I think those investments over multiple decades have really put us in a position where we do bring advantages in terms of our global footprint, the diversification of our business, both across client segments, sectors and products. And then obviously, the scale that, that brings, not just the scale within capital markets, but the scale of RBC that we can more broadly leverage.

So what does that allow us to do from a competitive advantage perspective? I think, first, you've really seen that come through in the sustainability of our results. That breadth across geographies and products and client segments has allowed us to deliver, we believe, very sustainable results at lower volatility than some of our industry peers. Importantly, from a client perspective, the cross-border platform we have allows us to serve our clients across multiple markets, whether that be in financing or advisory or sales and trading intermediation, which is very important as our clients get bigger and scale themselves and are looking for partners that can serve them across all their needs and allows us to pursue and support them in larger transactions, which again, scale is a theme we're seeing across industries, and our clients are looking for partners that can support them.

And then finally, I would just say, very importantly, the scale advantages that we have and the sustainability and diversification of our business allows us to continue to invest very consistently over the cycle. And we're not going to chase certain themes at a certain point in the market cycle, but allows us to pursue a very consistent strategy, making the investments in talent, technology with our balance sheet resources to really build long-term durable client franchises.

And then finally, it allows us to do that without stretching on risk. So we've got lots of different avenues where we can invest organically, continue to build the business. We want to be thoughtful, particularly at this point in the cycle. And so we feel we can do that without compromising our risk appetite in any way.

Thanks, Derek. Ebrahim, when we think about scale, we think about it in the context of operating scale, brand scale, data scale among a number of dimensions. And when you think about the operating scale of the Canadian Bank, Consumer and Commercial Banking operating at a combined productivity ratio of what, I think, 35%, 36%, it allows us to compete for business and drive a higher ROE at the same price, same risk level that allows us to price more flexibility. When you have a 30% advantage over your competitors are when they -- in mid-40s, it allows us enormous flexibility within our risk appetite to earn a higher ROE on the same piece of business or price more aggressively if we want to serve that client. So on the operating scale side, it's clear the advantages that gives us, and it drives that consistent premium ROE -- operating ROE that we've driven.

But maybe I'll turn it to Erica because it's such an important question, right? I want to go on and spend a little more time on it. It's a great question, maybe about data scale and brand scale, Erica, in your business?

Thanks, Dave. So maybe just a comment on the data scale. One of the most important things that we see going forward as we serve more Canadians in the Canadian marketplace is our ability to understand and -- understand what those consumer needs are, understand the everyday financials of those consumer needs, and then use that information to build models that allow us to further grow our business, further penetrate that business. When we look at the ability of our models, particularly those AI-based models that we're looking at. Now we can see very different outcomes based on the scale of consumers that we see in the Canadian marketplace. And so we look at that as a significant opportunity for us to grow our businesses differentially based on the data scale and the activity scale that we see in our client franchise.

So that's a big part of our Investor Day thesis. I think -- we probably have a long queue, we should move on, but I appreciate that question. Operating data, balance sheet, brand scale are a big part of how we drive consistent premium growth in ROE.

Your next question comes from the line of John Aiken with Jefferies.

I was hoping to drill down a little bit on City National. I think Katherine mentioned in her commentary that there were a bit of headwinds in terms of provisions. I wanted to discuss the outlook for '26, '27, and how much work is left to be done? Or have we finished with most of the heavy lifting?

I think you heard incorrectly, there's a tailwind from, not a headwind. We're having credit experience in City National. We serve a premium, affluent and entrepreneurial commercial customer. Any other clarity on that, Katherine?

No. I would just say in my comments, I was just calling out the strength of their earnings this quarter. And in addition to the clean credit book growth, we've seen really strong loan growth, deposit growth, profitable growth, and we're really pleased with the results that we see now on a continuous basis over a few quarters. So as we go forward, really seeing them deliver against the targets that they have set out almost a year ago with that profitable top line growth, driving the efficiencies, and it's really materializing with more to come.

Yes. And we are well on our way to meeting and exceeding our Investor Day targets in City National. We are very excited about being on a growth front footing right now with that business, profitability-wise and customer growth-wise. So I don't foresee the credit headwinds that you mentioned.

Your next question comes from the line of Gabriel Dechaine with National Bank Financial.

Katherine, can you repeat what you said about the Canadian Banking NIM and the impact of HSBC, the accretion runoff stuff in Q2?

Yes, happy to. So what we saw as an impact this quarter was the PPA rolling off related to HSBC, and so it's starting to roll off this quarter, which was the 2 basis points impact, and we're going to see it largely kind of fully roll off. There's a little bit that will last throughout the rest of the year, but it will be a 4 basis point impact.

Having said all that, we're still seeing like a positive momentum from our tractor strategy we're seeing positive impact from the deposit mix shift as we're seeing those flows move into nonterm. We're also, as I said in my comments, seeing really positive flows into mutual funds. So I know that doesn't necessarily show up in NIM, but it's showing up in overall revenue growth. And then you would have seen in the charts that we've included, there is still competitive pressure that is a bit of an unknown going forward. But we're seeing that on GICs, and we're also seeing it in the commercial book and a little bit still on the mortgages as well.

So margin down basis points next quarter?

Yes, not -- the impact will be 4 basis points, and we don't give specific guidance out on NIM. We kind of pushed towards the guidance on the NII, excluding trading. But I would say you could look to kind of track to a stable expectation on NIM as we go forward.

Got it. And for Dave, just -- we hear this comment every now, and then like pressure to deploy capital, which -- I don't think that applies to Royal. You got a lot of capital but you're going to nearly an 18% ROE. I didn't see a huge boost from capital markets that helped, but it wasn't like outsized this quarter. So are you just willing to sit on excess capital and wait for the organic growth to come, and then we'll see like a leg up then that type of thing?

That's a great question as we are put our third quarter consecutively of 17-plus percent ROE. It's driven from the strength of the business, not largely from buybacks. We haven't seen the benefit of our AI benefits that we discussed, the $700 million to $1 billion benefits as we've invested that money and are still on track to deliver that for investors. So we're excited about that. We do, to your point, have significant capital to buy back shares. And we're certainly looking to continue to do that and grow into that. So we will be able to improve that ROE through some share buybacks.

And then from an organic perspective, we want to spend more time talking about it. We do see more growth coming from a significant number of projects that are going to get built in this country, whether it's deployment of our defense industry spend, it's the energy infrastructure we need to be, the Arctic infrastructure, the minerals infrastructure, all these multiple use capabilities that the Prime Minister and the government has talked about is going to require a significant amount of domestic and foreign capital. One of the reasons we're looking to intermediate that capital from places like the Middle East as well into the country.

So I think from that perspective, we see an acceleration of growth opportunities coming at us on the organic side that we're trying to anticipate the timing on that. It's hard to predict some of these larger projects. But again, we anticipate good growth coming.

And the third thing I'd say we continue to be on the lookout for the right acquisition. It's not that we're avoiding them. Just none have met our hurdles at the end of the day and the hurdles that we promised you to drive accretion. At the end of the day, they are all significantly dilutive, and that's not acceptable to us. We don't grow for the sake of growth. We're here to create shareholder value. So it's not that we're not looking, that we understand the business we want to grow. They're all in the businesses that we talked about. What's global wealth, U.S. wealth, commercial banking, those are the types of acquisitions we would look at and nothing's met our hurdle rate. So we continue to be active in all fronts in creating shareholder value. And I think that you should get comforted by the number of levers we have to pull to enhance ROEs and create growth at the same time.

Your next question comes from the line of Paul Holden with CIBC.

A question for Graeme. So Dave talked about loan growth being near the bottom end of the guidance range for the year due to sort of softer economic conditions in Canada persisting. What does that imply for the PCL guidance? I know you've restated the PCL guidance. Does that mean, should be assuming something at the upper end of the range, would you assume? And then sort of tied to that, I'm really curious you provide quite a good slide on -- I think it's Slide 34 where you show the mortgage portfolio, sort of the component of the higher risk where LTVs over 80 and credit bureau score below 685, and we saw some change in that number quarter-over-quarter. So maybe just on the question is talk to us about Canadian consumer risk and what that might mean for PCLs.

Thanks, Paul. I think the comments they made around kind of softness on the growth side is quite consistent with the guidance we've given in Q4, and we're persisting into Q1. We continue to see the Canadian economy in particular, not certainly, weakening into a recessionary standpoint, but struggling with kind of pretty modest growth. And there's certainly regional effects, particularly when we talk about the consumer side of our portfolio, we particularly see weakness in Ontario consistent with kind of the elevated levels of employment we see in the region. And I think what we talked about in our guidance previously and that persists into Q1 is that we really kind of saw 2026 being a year where we were going to kind of be in this plateau of relatively elevated credit losses.

And as things are really kind of trending sideways, there's some near-term headwinds that haven't changed that are still playing out. Those are headwinds like the increasing payments that many of our mortgage clients are going through. We've got the kind of ongoing kind of trade and tariff uncertainty. And again, that's impacting many sectors that we've talked about in the commercial side, but that does play through into the consumer side as well. And again, a lot of that is centered in the GTA and Ontario as well.

So overall, I wouldn't say -- I think our view on the consumer has changed a lot in Q1 versus Q4, we're seeing a lot of the things we talked about then persist into Q1. When we look at the different products, I would say we see some indicators of stability and kind of early delinquencies and products like our mortgage product, products -- our unsecured lending products. Areas like indirect auto where we've seen maybe some recent trends in impairments that were improving, but the earlier delinquencies there are showing a bit of a softening. And so there's some pluses and minuses there. When we put that together, that's what's kind of leading to us persisting kind of our view that the forecast and guidance we provided in Q4 still holds now. That's kind of the rough view of the consumer side. I'd say.

The wholesale side is where we see more volatility, right? And I think we kind of called that out in Q4, and we're seeing that play out very much in Q1. Wholesale is by nature is just going to -- is going to be more volatile quarter-to-quarter. Interesting in our portfolio, you're seeing kind of that play out in both directions. I think in capital markets, we obviously saw elevated levels of impairments and risk playing through in the quarter.

Let me kind of compare that against a lot of the forward-looking metrics we look at in the wholesale book, things like our watch list and movement into our special loan group ratings migration. Those are all stable, if not improving. And so we don't see this as some new indicator that capital markets is resetting at a higher level. Likewise, Commercial Banking had a much improved quarter this quarter. But that's a business where, likewise, the indicators are still high and risk is still elevated. And so when you put wholesale together, we still think we're going to be in an elevated environment for the year, but it's going to be pluses and minuses as we work our way through each quarter. So -- and overall, very consistent, I would say, with Q4, but a few pluses and minuses as we look throughout the portfolio.

Your next question comes from the line of Sohrab Movahedi with BMO Capital Markets.

Okay. I just wanted to go back to Slide 6 and ask a question of Derek, in particular, and maybe Graeme. Derek, you're kind of listed a couple of times as both capital-intensive and moderate capital-intensive use of, I guess, resources here. So when you go to grow your corporate lending, for example, before some of the benefits come through, should we be expecting a bit of a, I don't know, moderation or mellowing in your segment ROE before it picks up? And as you do more corporate banking, Graeme, do we need to think about Royal's through the cycle average PCL with a greater volatility around it, even if it comes in around the same? So if you could just provide some color as to what the outlook may look like, not necessarily over the next 12 months, but over the next 24, 36 and beyond.

Sure. Thanks, Sohrab. It's Derek. I'll start, and then Graeme can obviously chime in on the second part of your question. Just a few things I would highlight. So on that Slide 6, as you know, Capital Markets has a broad portfolio of businesses. Some are more capital-intensive, such as the corporate banking loan book. Some are moderate being parts of our Global Markets business. But I would also highlight, we have some very low capital intensity businesses, such as investment banking and transaction banking that are key growth areas for us as well. And so when we look at how we might deploy organic capital, it's really across all of these areas. For the more capital or moderate capital intensity through direct capital employment through financing and lending. And then through the less capital-intensive areas, it's really through NIE as we invest in talent and technology.

To your specific question on what should you expect from the ROE, we would not expect a deterioration in our ROE. We think we can deploy capital, while at the same time, do that across the portfolio to continue on the trajectory of moving our ROE target higher consistent with what we articulated at Investor Day, and you've obviously seen that in the last two quarters as our ROE has continued to trend upwards. So it's a balance between ROE and growth. We think we can invest across the portfolio, drive accelerated growth while continuing to migrate our ROE higher.

And maybe just sort of add on the kind of risk element to that question, just kind of say a few things on that. I think while capital markets has been growing and there are plans to grow, if you kind of go up and look at what's happened over the last 3 to 5 years, and you use kind of a metric like RWA as an indicator, we've actually seen the RWA footprint of capital markets kind of abate or kind of remain a stable proportion of RBC's overall risk profile.

And so no, I don't expect it will kind of dramatically change kind of the volatility of our credit book per se. If you look where the growth is happening, say, on the loan book or off the markets business on the financing side, it tends to be kind of higher-grade corporate relationships that we're driving more of. And so I wouldn't expect it to be kind of driving volatility in a really distinct or unique way there. So as it stands, again, in the plan, we have a kind of a very well-articulated risk appetite. I don't think anything that we're laying out here has us changing our risk appetite. That's consistent with what we messaged at Investor Day. So no change in approach on that at this point.

Your next question comes from the line of Mario Mendonca with TD Securities.

Dave, perhaps just a quick question. I was intrigued by a comment you made in your prepared remarks. You said -- and it was in the context of returning capital in the form of buybacks. You said something to be effect of, and we acknowledge where the price of the book is. And I may have misheard you, but what message were you trying to convey if I did, in fact, hear you correctly?

Just as we came out of Q4 into Q1 and saw the significant run-up in the share price, we looked at the volatility in the marketplace. And I think we tempered some of our buyback activity through Q1. As you saw, we maintained a kind of consistent level as we had in previous quarters between $800 million and $1 billion. It was probably most attributable to the uncertainty in the marketplace. And we exited the quarter thinking we'd be buying back shares at a certain level and ended up having a target much higher. So it's just a combination of events. I wouldn't attribute anything specific to the share price because we continue to buy back at $225, $230, $235 a share throughout the quarter. So we maintained an even cadence to the quarter versus an acceleration through the quarter. So I wouldn't attribute anything. It's more the uncertainty of the geopolitical situation that caused us to hedge a little bit through the quarter.

And then when you made reference to wanting to be at the high end of your target capital range, just remind me is 13.5 the high end? Or would you think that's the high end?

We let it run up a little bit. We are -- we had a significant quarter where we earned a great return, and we're very capital efficient, and it moved up to 13.7. It just gives us more flexibility to deploy that into buybacks and growth in the coming quarter.

And then, just maybe, I think one other thing. When you think about your U.S. franchise, I think CNB went through a rough patch. It's clearly at the other end. Things are looking much better than they were a couple of years ago. Does that give you the confidence? And maybe this is the right way to ask it, is does the institution have the stomach for another meaningful U.S. banking transaction?

Does it have the stomach? Absolutely. Accretive shareholder value and the synergies lead to that shareholder value. It's all about your business case. And can you extract synergies versus the price and the competition? I mean, we expect to have significant competition for any commercial property that we'd be looking at or wealth management property. And therefore, does your synergy stack compete and can you earn a return on it? So we spent all our time building hypothetical synergy cases for each of these opportunities, and we talk about them, what would we do with this franchise differently than the current management team does. How do you put a valuation on that, and that leads us to be disciplined in any approach. So we know we have capital strength. We know our currency is strong, and therefore, we want to grow, but we're going to grow and create shareholder value at the same time.

Your next question comes from the line of Ebrahim Poonawala with Bank of America.

Just a quick follow-up, maybe for Erica and Sean, as we think about the margin outlook for the Canadian banking business, maybe just talk to what you're seeing on deposit pricing on term deposits versus acquiring new households. I'm just trying to get a sense of what the competitive dynamics look on both fronts and the implications that may have as we think about just margins over the next year or two?

Yes. Thanks, Ebrahim, for the question. It's Erica. Maybe just a couple of reflections. As it relates to the pricing and the competition that we're seeing on our deposit franchise, particularly with GICs, I would say that it still continues to be a competitive market. And that is coming from a group of clients who are largely in 1-year term deposits, and they're looking now to make the determination of is it time for equities or is it time to remain in the GIC portfolio. And so we are watching that portfolio and trying to guide clients appropriately. So we want to make sure that, a, first and foremost, as we retain the dollars at RBC to grow our money in franchise. And then, we follow what the client need is based on, should they remain in the GIC portfolio or should they largely move into the mutual fund portfolio.

We see increasing, as Katherine talked about in her remarks, increasing rotation into mutual funds, but at the end of the day, our core metric is that we keep the dollars in the RBC franchise. And then, as it relates to client acquisition, as you can imagine, there is -- client acquisition is challenged for all of us in this market at this point given the rollback in immigration in Canada. And so we are competing aggressively in that marketplace to switch Canadians across the different institutions and win, and we have had good success in our business at attracting with our value propositions, RBC Vantage, the Avion portfolio, acquiring clients into our core checking and savings businesses so that we can continue to grow that franchise. But that is -- remains competitive across all of our peer set.

Ebrahim, it's Sean. So on the commercial side, we are seeing continued mix -- product mix shift from term into demand as kind of the clients perceive the opportunity cost of holding excess liquidity to be low and are giving up some yield to maintain flexibility in this current environment. Just to give you some context there, we saw term obviously peak in 2023 or so at peak levels of rate increases at approximately 20% of the portfolio. The trough was about 8% to 9% in the early stages of COVID.

We're in the close to the 14% range now. So while there's potential tailwind opportunity, we think that will continue to abate over the coming quarters, but we do see customers being more liquid and especially at the upper end of the portfolio, keeping sort of powder dry as we see investment activity starting to pick up on the lending side by the same clients who are being much more active than sort of the core commercial and smaller base.

Thanks, Sean. I think that's our last question. And I know you need to jump to another call, so maybe I'll wrap up here.

So a strong quarter for RBC across all our businesses. Client-driven growth, as you heard Katherine say, we earned through some margin headwinds from the PPA. We earned through some tax increases. We earned through some PCL increases. So it just talks to the earnings power of the organization and what -- where headwinds will become tailwinds. You saw the very strong capital efficiency well into -- well on our way to, as one of you referred to at 18% with tailwinds as well, as I highlighted around, we haven't seen the AI benefits yet, which are coming and are on track, and we're confident of. We haven't really bought back shares that are utilizing the capital surplus capital that we have that creates opportunities there and the growth that's coming to deploy that organically as well.

And I'm going to finish where we started with Ebrahim's question on scale. I mean, when you're looking at these lower capital-intensive businesses that are so important in driving our business, whether it's wealth, or the transaction banking opportunity. The operating scale we have allows us to invest in this type of growth and get ahead of the curve. When you deploy $0.5 billion into your transaction banking platform because it's essential to your competitiveness in the future, but also the profitability that's going to come from that platform in the future. I think it's very significant. We've absorbed all that into our current run rate. So as you think about the ability to invest our NIE organically into growth, Neil's GoSmart initiative, which we didn't have a chance to talk about today, creating higher ROE, lower capital growth largely comes from your NIE efficiency and your NIE scale. And I think we -- that is the characteristics of our platform, and that's the benefits you see in getting ahead of these and creating revenue growth and profitable growth from that.

So thanks for your questions. I know you have another call. Appreciate your interest and questions, and we'll see you next quarter.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.

Okay. Good morning, everybody. My name is Darko Mihelic for anyone who hasn't met me yet. I am the research analyst here in Toronto. I cover the large-cap Canadian bank space, and I'd like to formally welcome you all to the 2026 RBC Canadian Bank CEO Conference. See a lot of familiar faces in the crowds, wonderful to have you here.

Similar to prior years, the presentations today will be in a fireside chat format. Please note that today's schedule and each speaker's biography are available on the website. This allows me to skip past flowery introductions and get right to the meet of the heart -- the heart of the matter. Like previous years, there is an opportunity for the audience Q&A. It's through the Slido app. And I do intend to end each session a bit early so that I can ask the most popular questions voted by you, the audience.

If you would like to submit questions during any of the sessions, please scan the QR code on your table to log into Slido with the password. Once you are in Slido, you can choose the room that corresponds with each session to ask your questions. The Canadian economy wasn't particularly strong last year, but it was far from a recession. And while there was some concern regarding USMCA negotiations, which will may happen this year, maybe towards summer.

It's clear that Canada wasn't overly burdened with the existing tariffs in 2025. And the country is slowly adjusting to tariffs and other economic challenges. We may have even adjusted to geopolitical uncertainty or at least become a little numb to it. Fundamentally, credit losses stabilized in 2025. And the outlook provided by the Canadian banks is essentially for stable PCLs in 2026 and maybe declining into 2027.

Capital markets, while volatile, were constructive. So while loan growth was low, it probably gets better over time, not worse. Interest rates are at a good level for the economy and for lending and other bank products. Banks have been investing. They're becoming more productive. And maybe even the crusade for higher capital requirements seems like it's also finally ended. But the bar is set high for the Canadian banks.

Every time I have discussions with investors, they throw valuation at me. For context, in 2024, when I came up here and I gave my opening speech, the big 6 Canadian banks had an average forward P/E ratio of 9.9%, just under 10. Last year, the forward P/E ratio was 11.9%. Today, as I sit here and my associates updated this for me last night, the big 6 median P/E ratio is 14x forward PE. You might ask about relative P/E. Banks currently trade at 83% of the TSX, P/E. The 10-year average has been 70%.

Canadian banks trade at a half multiple turn higher than the U.S. banks. And the 10-year average has been a 0.7 multiple discount. Against the Canadian life insurers, the Canadian banks are a full 2.3 multiple points higher than the life insurers. There's a little bit IFRS 17 magic in there, but the 10-year average is 0.7. What's interesting is when I have this debate with clients and investors on valuation and P/Es, it shifts a little bit when you look at price to book.

Against the TSX, the banks have a discount of 21% on a price-to-book basis, a 10-year average of 15%. They're actually discounted a bit more on a book basis versus the TSX. Against the U.S. banks, the price to book is 16% higher, but the 10-year average is 34% higher.

So we're essentially looking at a bit of a tough spot from a valuation perspective. And as I say, that raises the bar quite high for the Canadian banks. But ROEs have been improving. And every company that I cover has been upping their ROE targets. So some of the discussion today is going to way into ROE and returns and what we're going to do with capital. And unlike prior years where I might get up here and ask about a theme or 2, there isn't going to be any of that today.

Today, I'm going to be very bank-specific because in today's world with high valuations and high expectations, I think what we really want to know is where do you want to place your bets because the whole group is up here, you really want to be focusing on which banks are producing the highest returns with the lowest risk. So I won't be asking about AI. I won't be asking about private credit or any other themes that are out there because I don't think we get substantive answers anyway.

And I really want to dive into bank-specific returns and what the banks intend to do with all of their excess capital. But before I do that, I really want to make one last ask of the audience here is please chime in with your questions. I can't think of everything when I'm up here. And it's really, really helpful to see a bunch of questions that have been up voted that I get to throw at the CEO. So with that, I'm going to officially kick off the conference and ask Dave McKay from RBC to step up to the stage. Good morning Dave.

Thanks. How are you doing?

Good. How are you? Okay. So here, I was saying I was going to not talk about themes and speak about bank-specific stuff. But the very first person I have up here is Dave McKay. And so therefore, I feel somewhat compelled that to sort of maybe set the stage for the outlook, I really wanted to ask you about your macro outlook and maybe sort of set the stage for everybody here on how you're looking at the macro environment for banking and specifically for Canadian banks?

I think to your opening comments, so we'll have to dig out of that a little bit. How do we earn into the valuation, I guess, is what you're trying to say. We feel really good about things. I think this is the first time in my tenure, we've seen a general risk on theme from foreign investors on Canada. They've always worried about mortgages and the mortgage industry and corrections there, and it was hard to bring that capital in, and we're certainly seeing that risk on capital.

Part of it is the growth opportunities in the country and infrastructure investment that we're going to make, whether it's energy infrastructure, mining and minerals infrastructure, transportation and kind of rebuilding a more diversified economy going forward, $60 billion of defense spend, $115 billion of infrastructure. So when you think of about kind of that the macro backdrop 3 to 10 years out, we have an opportunity to get some really big things done for the first time in a decade.

And I think that is exciting investors that certainly excites us as we talk about deploying capital and RWA into long-term growth opportunities. So I think there is a thematic tailwind that you probably should talk about because I haven't felt it in 10 years, and I'm excited about that. Now the operating backdrop, and I'll start with Canada into the U.S., is I still think resilient and constructive. If you look at the Canadian consumer, yes, they're carrying leverage, but they're not buying homes the way they used to. So we're seeing very little activity in presale, almost no activity in presale.

So construction financing is not there. That's a big part of the Canadian economy. That's been slow. Yet the consumer has taken that disposable income and they're consuming with it. They're consuming services. They're consuming some goods, more at the high end, certainly has helped create jobs and stabilize unemployment in the country. And therefore, that consumer spend redirected from debt servicing, increased debt servicing and housing, lower rates have helped as well.

That cash flow we're seeing through our payments businesses are flowing into the Canadian economy, creating jobs that you've seen, helping offset some of the sectoral impact from tariffs and some of the other kind of headwinds of the Canadian economy that you alluded to in your opening comments. So I think that resilience of the Canadian consumer has really helped in that cash flow. We've always worried about how much disposable income goes into mortgage servicing at the end of the day. So to see a bit of a pause to see some of those tax, sort of those interest rate cuts go into consumption has helped the Canadian economy and helped the consumer. Unemployment is still very, very low from a longer-term perspective. And we feel good about that. So you've seen that. So you saw good credit card growth. You saw very strong deposit growth. You saw probably the top 40% of Canadians by disposable income and investing in equity markets and propelling markets.

And all that was a catalyst for a very constructive environment, particularly for ROI where we have the money -- the leading money in franchise, whether it's into deposits, deposits into investments and back again, that circular money flow is so critical we saw that deposit flow more than any other franchise, I think, really flow into investments where we earn a higher return on our activity. So all that was very constructive and based on a resilient consumer.

You've seen a resilient commercial banking. You saw us drive high single-digit growth in commercial lending. You saw us drive high commercial deposit growth. You've got some sectoral impacts that are regional in nature, steel in Ontario, and you know the key sectors, and that has struggled. But to your point, the majority of our trade with the U.S. is still under CUSMA, and that activity has continued. And therefore, we've had some sectoral differences. But overall, we're seeing good activity across our mid-corporates and our commercials with stable credit loss to your point. And then we've had very constructive advisory markets, particularly in the United States and Canada around more IPOs, more equity raise capital raise around debt capital markets, more advisory and strategic M&A, sponsor-based deals and that activity built through the year, particularly to year-end and continues into 2026 quite strongly.

So very constructive advisory markets and capital raising markets. And then volatile -- volatility levels were fairly high, vols were high, and therefore, our trading businesses did well, whether it was credit trading, obviously, macro trading, FX was strong. And therefore, we saw very strong results out of our markets businesses. All that led to an ability to offset slow mortgages, offset a few challenges here and there a bit higher credit that we had to earn through year-over-year.

All that was a constructive backdrop in Canada and similar in the United States, the U.S. consumer unemployment is still low. Disposable incomes are strong. They're not buying houses either. Therefore, their consumption levels were high. So you saw strong consumer activity carrying the U.S. economy. Still fairly tepid commercial lending growth, but then very strong senior markets growth in the United States. And Europe had a revival. You just saw more markets activity than we've seen there in a while and a bit of a mix depending on what segment you're looking at in the wealth space.

So the macro environment has been really resilient. With great opportunities for long-term investment to continue to build sustainable growth, which I think gets everybody excited. There's a new tone in the country, and there's kind of this view among all leaders that now is the time to get stuff done, and we've got to get these projects approved, funded and in place. And I think given the geopolitical world that we live in, the impetus, particularly for Canada to get these things done is really, really strong.

You feel everyone pulling in the same direction for the first time. So overall, I would say it's constructive, and that bore out in the results, particularly for our franchise where we have such a strong deposit franchise and funding franchise, as you know, we place a lot of that deposit funding into tractors. That creates a stabilized income for a number of years going forward. And I think that really helps us continue to deliver the type of growth that we've delivered. So net-net, while there were challenges for sure, resilience and positioning for the future, I think, the stronger themes for the year. And I think markets have rallied around that and are pretty excited about the opportunities going forward as we are at RBC.

And so what this ended up doing, I mean, you had very strong results last year. You had an Investor Day, you came out with an ROE target for now hinting that it's going to go higher. And so although this topic was really covered heavily on the fourth quarter conference call, I still feel compelled to go back to it a little bit.

It's a long transcript.

It was. There was a lot of -- so I wanted to maybe let's -- we've got time now. We can maybe dissect this a little bit. And so what I thought we can do is let's think about the ROE in the following way. And let's start with the denominator. Where you could be buying back stock, you could be shrinking the denominator towards a higher ROE. You had mentioned that you wanted to operate between 12.5% and 13.5% common equity Tier 1 ratio with anything above 13.5% going to buybacks.

So how do you decide on that range? And really, what do you want to do with the denominator to push the ROE higher? Should we expect that at some point, you'll go all the way to 12.5% and push the ROE higher through that method? Or maybe I'll just leave it open-ended and just leave it there for you to talk about the denominator.

Certainly, we spent a fair bit of time on the Q4 call kind of going through the balance you have to do between the efficient use of capital and growth at the end of the day. And you run a range of scenarios and how -- what is the best way to create and optimize the shareholder value of your firm. And for us, it's balancing that growth at a market-leading ROE and 17% plus, plus is a big part of that and that we will constantly try to exceed that. But we felt that as kind of the mid-range target allowed us to both create market-leading growth and profit growth and revenue growth at the more efficient capital deployment returns.

And for us, we have scenarios where we can run it at 18-plus percent, but then we would sacrifice growth to do that, and we found that the best balance between the 2. So you're trying to balance you're above market, you're above target ROEs versus your below target ROEs. I've got businesses outside of Canada that are operating and we will continue to operate below that 17% target. But I'm looking at the growth opportunities of the businesses that are Canada that deliver a premium ROE and you're looking at that balance and trying to optimize the growth in all those marketplaces.

And City National continues to grow and improves, it's going to be ROE enhancing, but it's been a bit of a drag on ROEs going forward. So there certainly is as we continue to reposition the ROE at City National, we're quite excited about that. So you're looking at that balance. So the first thing you have to do is you're always looking to optimize your growth curve at your target ROE. And I think that allows us to do both. The second thing you're trying to do is you're trying to make sure you have a prudent reserve against volatility and uncertainty going forward. And sometimes you'll run the bank a little higher if you're sensing you're going into an economic cycle, there's extreme geopolitical volatility that could impact results and outcomes. So you'll bounce around in that range.

So when we stress test our balance sheet and stress test against different scenarios out there, we always make sure that we have sufficient capital to cover off the scenarios that we need to. And therefore, you'll bounce around in that range a little bit. So we came up with the range that guide you that we're not going to allow our CET1 ratio to grow unbounded at the end of the day and that we will continue to prune to prune and that we can operate in that range of 12.5% to 13.5% and achieve all those objectives.

And that shows the earnings power. And if there was a strategic inorganic opportunity that came forward, the other thing you have to remember is we got such strong quarter in, quarter out organic capital growth that we're producing, like we can produce 80 basis points net of dividends given our current earnings stream. And therefore, if there's something strategic, we can allow that capital to accumulate very quickly and that allows us to do a cash deal. So part of the strategy that is also what is your capital generation ability each quarter and how much flexibility does that give you and we're producing such strong earnings and consistent earnings that you can rely on your ability to build capital in the short term and therefore, don't have to carry as much of it on your balance sheet at the same time.

So it's all those dimensions, honestly, that you look at risk mitigation, growth, capital efficiency, flexibility to deploy and grow capital quickly, if there's an acquisition that comes along. All that flexibility allows us to range bound that and give investors an idea of how we're going to manage our balance sheet from an efficiency perspective going forward because the #1 question I get, how high are you going to let the CET1 ratio run.

At the end of the day, given that 80 basis points that you're building pretty consistently and really felt it was important that we all get on the same page is how we want to manage the balance sheet. So it's great to have that strategic flexibility. It's unique, and we take it very seriously how we use capital.

So that's an interesting discussion on all of those different factors that sort of have to wait into the -- conceptually how you get to the 17% ROE. But it doesn't -- I think one of the interesting things that I noticed at your Investor Day is buried in one of the slides Royal has a targeted ROA, return on assets. It's 100 basis points. For those of you who read our research, we put out a chart book and in the chart book, we show you return on assets and historical return on assets, and Royal has never been at 100 basis points, got close a couple of times, but never actually hit 100 basis points.

Last year, we were at 85, maybe 87, if you adjust for a few things. So clearly, the high ROE is very much a function of a very high return on assets. So can you help us understand how you get from 87 to 100 on a sustainable basis?

There's a number of drivers. I've mentioned a couple already. Certainly, the acceleration of the growth and remediation of our U.S. platform, we expect to increase ROEs there, increase its contribution overall to the organization. And we're very excited about the growth opportunities across those franchises, but in particular, City National. So we've always talked about the growth potential of City National getting back to its target ROE and being more accretive to our overall target.

So remediating `U.S. Each [ SBC ] while we've delivered on our cost targets, we have certainly the revenue targets that we're very excited about, and you saw us give an update that we're well on our way to about 1/3 of that already. We still have 2/3 of that to deliver an over $200 million plus of opportunity there. So you think about that great franchise and delivering there.

We have our money in franchise. which, again, produces high ROEs as we deploy that into our mutual fund business into our Domain Securities business into our PH&N business at a high ROE as we won't see the type of growth, I think, in 2026 that we saw in '25 in the markets. But certainly, that is accretive to our ROEs and ROAs going forward. And then as you think about the mortgage business, we've come through probably the most difficult 3 years in the mortgage franchise in the last '25. I would say you've heard me talk about it on this stage and other stages a number of times. We've had this most significant margin compression in our history.

We're carrying a very significant mortgage book at above the cost of capital, but certainly well below our target 17-plus percent. And therefore, the ability as we're seeing slowly to get those ROEs higher through margin expansion and cost takeout are very significant. And that -- given the size of that book, you can imagine on a $450 billion book when you start to see 5, 10 basis points of margin expansion, that's accretive as well. So you have that business.

So you've got your advisory businesses and capital markets are also very strong. And overall, that's accretive to ROE. So ROEs will really come from then as you summarize that, 1/3 of it will come from NII growth, 1/3 of it will come from certainly other income growth and then 1/3 of it from a variety of factors. You don't want to talk about AI, but it certainly is one of the most significant forces of change in our society and in the banking industry. And as the market leader and the third largest -- third highest rated bank in the world in deploying AI. And this is the third straight year we've been rated in the top 2 or 3 in the world in commercializing and deploying AI. It's because we've worked hard in our data. We've been building models for a decade. We have over 100 PhDs in AI. And we've got a lot of experience in deploying these models, and we're accelerating that.

And you saw that as part of the investor theme, but that is certainly a catalyst for better margin, better profitability across the organization. We just articulated 9 large projects that you saw in our Investor Day, but there's a lot more going on beyond that as well in the organization, and that creates opportunities on the ROE -- ROE side. So for all that, that gave us confidence that our ROAs can improve towards 100 basis points up to there. And then certainly, that's part of the story in driving to a 17-plus percent ROE.

That's a lot of different levers that the organization has at its disposable to get after that. So if one doesn't work as well as we hoped, we've got so many others. And that gave us confidence, notwithstanding the geopolitical uncertainty and the volatility around trade and tariffs, we had enough levers at our disposal to continue to manage the organization in a more efficient way, producing higher ROE growth for our shareholders.

And so to summarize, 1/3 of NII, 1/3 coming from other income and then 1/3 you said other factors, but it sounded like efficiency essentially is.

Part of it is efficiency.

Part of it is efficiency and through AI. All right. That's okay. Great.

Well, there's a number of ways of getting there, a number of paths and we're always looking for that flexibility in adapting and moving forward. So we have a lot of levers at our disposal, and we've invested heavily in our franchise.

And so one of the other things that I get asked a lot is, all right, ROEs are going higher. It sounds like yours is really ROA improvement, a little less on the leverage. But all the same, the question comes up about risk. So are we moving the risk dial to move the ROE higher? And my suspect the answer would be no there, but what is -- what do you see as the biggest risk to your plans over the very short and medium term?

Well, the first answer is that we are not changing our risk appetite. I mean we recognize that for so many in this room, we're through the cycle hold. We're over-indexed through the cycle hold and then managing to a consistent risk appetite and risk profile is absolutely critical to our investment thesis. We want to produce the highest ROE premium growth franchise at a lower volatility level. And that is our investment thesis, and that's what drives so many of you into our stock and over-indexed into our stock, and we respect that and certainly managing to that. So we do not take or look at taking a change in risk appetite to create that type of growth. And that's really important to us, and we constantly monitor that and stress our portfolio and talk about risk appetites with our Board and everything else we do as a management team.

So I think really important to emphasize that, that's within the consistent risk appetite. And when you have a premium franchise that has such a diversity to it, we don't need to take risk to grow in the majority of our markets. So I think outsized risk to growth. So I think that's a really important statement that all this strategy and how we're managing the business is within a consistent risk appetite that we've articulated to you over the last decade. So I think that's important. I think your second part of the question was what is the outlook then and how you're thinking about that.

Risk you see on the horizon that could maybe...

I still think leverage and credit risk are still one of the key risk that we have to manage. We still haven't resolved CUSMA. We haven't resolved some of the quota system that you're going to see within the steel sector, within the softwood lumber sector, within dairy sector, and therefore, that will have impacts to certain firms. And I would say it's hard to sit here and say with confidence that every firm is going to make it through that repositioning.

There will be some firms that struggle and therefore, it could be a little lumpy going forward as we try to resolve some of the sectoral issues around CUSMA. We don't expect any shock to the overall agreement because it's really good for America at the end of the day and good for Canada. I think that's a really important basis for a perspective. So I think there's going to be some volatility within those sectors, and you should expect a little bit of spikiness overall.

Consumer remains resilient at the end of the day. There's a bit of creep as we have a K-shaped economy as everyone continues to talk about. And there's an increasing differentiation between the top 20% of earners in both Canada and the United States and the bottom and the 60% or 40%. And that growing differentiation and disparity is really driving the political agenda in both countries. I mean you see what's on Canadians' minds is the majority are surveyed and it's inflation, it's jobs, it's housing at the end of the day.

So that -- the 40% part of our overall population in Canada are driving a big part of our agenda. And aren't -- and they're struggling. They're struggling to make ends meet. At the end of the day, they're making their payments. For the most part, they don't have homes that are renters in the economy. And therefore, as we see the cost of housing come down, as we see interest rates come down, we see rents come down, I think that's helpful to a big part of our population that are struggling to make ends meet.

That disparity is much greater in the United States and much more severe and will become, I think, is a huge political issue and will become an increasing political issue as you approach the midterms in November, whether it's electricity costs, partly driven by AI and the impact of AI demand and compute demand on electricity costs is quite severe, and you might see a doubling of retail electricity, residential electricity rates in the United States because of that. So all those are big issues to be solved, and that will drive a big part of the political agenda. So I think from that perspective, the consumers remains resilient and largely working, sometimes 2 jobs. And I think we're probably okay there. So I do worry about -- so the sectoral credit. There is a significant amount of leverage in the system right now that we're keeping an eye on.

So I think that is one of the key risks. And geopolitical risk is obvious at the end of the day, and you need to spend the rest of the time talking about that. Then the other things I worry about are cyber risk. I constantly worry about cyber risk in an enhanced, more [ fractures], more confrontational geopolitical world, cyber risk continues to increase. It's not just commercial cyber risk that we take on.

It's nation-state cyber risk and trying to disrupt infrastructure within a given country for geopolitical purposes. So we spend an enormous amount of money and time defending against that. And I think that is a big part of the value proposition that leading institutions like RBC offer Canadians and our customers in general. We're offering security, peace of mind, strength and stability, cyber defense, and therefore, brand and trust around that are critical. And when you think about it I often get the questions, are you worried about stablecoin? Are you worried about fintech disruption? I said, well, when you come back to who are you going to trust to protect you, who are you going to trust to invest? There's so many fintechs have been hacked at the end of the day.

And the resources that you need to defend your perimeter and defend your franchise are growing and they're significant. Even the hundreds and hundreds, if not [ $1 billion ] that we spend in defending, not every institution can afford that. And that bar keeps getting higher and higher and higher. I worry about cyber because it's your brand, systems brand and confidence in the system. I think that would be a second risk that would get a lot of my focus and a lot of my team's focus. I could go on, but those would be the 2 big ones, credit and cyber.

And on credit, last year, we did see one file that was noticeable. How should we think about that? Is that now maybe part for the course going forward that it can occasionally happen. It just sort of is what it is, you're a big bank, you can handle it. Or should we think about credit risk being less episodic going forward? How do you frame that for investors?

We had initially a highly rated external utility that we stretched ourselves into. So I would say there was a bit of a one-off risk where we stretched ourselves into a bridge loan financing that was at the upper end of our appetite because it was a highly rated utility. I think our learning from that is it doesn't matter if it's a highly rated utility, we're going to moderate some of the absolute hold levels there.

So I think we got our heads around maybe a bit of an exception to what we would normally do given the construct there, and we got caught. And we wrote off more than we wanted to write off, and that was -- we earned through that quite nicely, but still not happy that the situation happened. It may resolve itself over the coming months a little bit. We'll see. But it's obviously hung up in a lot of political rhetoric as well. So I think that would be our learning that notwithstanding that, we're going to be conservative.

So we've touched upon the outlook some of the things that you're working on towards higher returns in a somewhat constructive. We talked about risks. Maybe one last thing that I sort of picked up on in the last little bit is could taxes be a bit of a headwind for you? And how should we think about that?

Yes, I think we've signaled pretty clearly where we expect the range of tax impact to come in. So certainly, there's a couple of headwinds that we have to earn into. One, we've been very clear about the impact of PPA impact of the acquisition of HSBC that, that has been a bit of a tailwinds in our consumer NII, and we'll fully earn through that. But just to keep reminding people that will take a bit of a point off our growth as we don't have that largely for the most of 2026 point of NII growth in that business. And taxes, certainly, as we go and look at Pillar 2 and Pillar 2 gets implemented around the world and enforced around the world, and our overall tax burden will increase as Katherine, our CFO, has articulated well into that range that we put out there.

So I think there's certainly a headwind there, notwithstanding the headwinds that we have to earn all those tailwinds we talked about and the confidence that we still set our medium-term target at 17-plus percent ROE is that we understand the challenge in front of us, and we're fully prepared to deliver on that. So yes, there are headwinds, and we'll earn through them.

Are you worried about it longer term?

Taxes, and how we're going to pay for everything?

Not just in this country, I think even globally where you operate.

Certainly, our governments are carrying significant amount of debt. I'm obviously more worried about the U.S. fiscal situation than the Canadian fiscal situation. But we don't have unlimited capacity to borrow in Canada as well. And we've got significant commitments we've made to defense and commitments we made to infrastructure. So I am quite concerned about the U.S. economy as far as U.S. more fiscal situation and significant deficit being incurred.

It's a wonderful floor under the economy. The end of the day, it's kind of washing out cycles with a significant amount of government spend and GDP creation. So it's nice to have, but you just can't count on that being there at that level for a prolonged period of time without more serious things happening. So absolutely from that perspective, deficits are -- have to be managed appropriately. And I think we're seeing some imbalances that are concerning.

Now the fun part, we're going to go to some audience Q&A.

Yes, fire away.

First one, would you accept a temporarily lower ROE for a large strategic M&A transaction?

Temporarily short term. I don't have any significant gaps that I have to close that I would say are strategic. So when I'm looking at a roll-up, I'm looking at much more accretive short term or I'll pass on it. I passed on so many acquisitions because they're just not accretive enough and we have so much opportunity on the inorganic side. So if it was transformational in our ability to compete in the long term, when I look at it, absolutely I'd look at it. It's my job, our currency is really strong. But the story of how quickly we can earn back to that 17-plus percent would be really important to the overall storyline to even consider doing it.

And we don't get -- we don't work for free, right? So we're not going to give all the synergies to the seller at the end of the day. And I think you're in a market with so much capital flowing around that the deals are going to get done are going to be very advantageous to the seller. At the end of the day, there's a lot of buyers out there. So I'm a little skeptical on the ability to really drive shareholder value through M&A right now to tell you the truth.

And we're very much focused on just organic growth, but there are a couple of opportunities in the wealth space that I think in the United States that would be transformational that we'd have to look at. And they'll be -- they're high, high-quality franchises and they'll be hotly coveted and whether you can be the winning franchise and still deliver all those benefits to the shareholder is questionable, but you want to be there and have a look at the end of the day, you want to get the call and you want to try to make it work. But there are few and far between. I tell you the truth. They may never trade, but you're always ready in case they do and try to make the business case work. So yes, I would look at it. I think that's would be crazy not to. But our earn back to 17% would be a big part of the story.

Okay. We're up to the point where I always promise to give the last word to the CEO Dave, maybe you could summarize or give everybody your key messages that you want them to think about for your company into 2026.

I think we're operating in a constructive environment that's balanced. I see enormous opportunity for ROI in the United States, whether it's our City National franchise, our wealth franchise, our capital markets franchise. We're very excited about the growth opportunity that we articulated in our Investor Day in the U.S. And in Canada, we continue to take share. We continue to benefit from an overall market-leading franchise in every business we're doing. Canada has, I think, some unprecedented growth opportunities that we haven't seen in the last decade or 15 years. So I've been more excited about Canada than I have been in the last decade. I think the tone at the top is really good.

The ideas are in the right direction, and we're all pulling in the right way. And I think we've got to get these things done, and they're not easy things to get done as far as our infrastructure build, but they're accretive to growth and accretive to prosperity and they diversify our economy and make us a stronger nation going forward. And I think super supportive of the direction we're going. So I think I feel the world is seeing that for the first time.

And therefore, I'm excited about the amount of capital that's looking at ROI from outside the country as well to capitalize on that opportunity as we try to grow our investor base and diversify our investor base. So great opportunity to grow and improve our mortgages in Canada. We'll continue to see good spend on the credit card side. We're excited about the depositing our money -- our market-leading deposit business, which is critical to driving ROEs and critical to driving that premium performance. Still is your deposits are key. And we've invested heavily in our deposit business through partnerships, through technology, whether it's commercial deposit taking, consumer deposit taking and most recently, RBC Clear.

And our senior markets, our capital markets in the U.S., we're very proud of the product we built and the awards that we received when we built it have translated into customers signing up for the product and using it to the point that we raised $23 billion of funding and of deposits in U.S. senior markets from scratch, from not even having a product 3 years ago. And we think we can take that to -- as we talked about the $50 billion plus. And that is transformational from our growth perspective.

And it changes how we can look at acquisitions where before I could not solve someone else's U.S. funding challenge, like Comerica having a funding challenge and can't grow. I could never solve that. Now I can getting closer to being able to solve that for other institutions that are struggling. And therefore, that could change the overall synergy case and synergy story from ROI looking at opportunities in the U.S. So all that work gives us enormous flexibility, significant growth opportunities in on-balance sheet, off-balance sheet. And it's the balance of our global franchise and our diversified client franchises that I think is the power of RBC.

And I'm excited. I'm really excited. And AI is just another wave of opportunity to create shareholder value and client value at the end of the day. So there's a lot of levers to pull and a market that I think will have more opportunity going forward, and we're well positioned to take advantage of that.

Okay. With that, we're going to end the session with RBC. Thank you very much.

Thank you. Thanks, Darko.

Good morning, ladies and gentlemen. Welcome to RBC's 2025 Fourth Quarter Results Conference Call. Please be advised that this call is being recorded. [Operator Instructions]

I would now like to turn the meeting over to Asim Imran. Please go ahead.

Thank you, and good morning, everyone. Speaking today will be Dave McKay, President and Chief Executive Officer; Katherine Gibson, Chief Financial Officer; and Graeme Hepworth, Chief Risk Officer. Also joining us today for your questions Erica Nielsen, Group Head, Personal Banking; Sean Amato-Gauci, Group Head Commercial Banking; Neil McLaughlin, Group Head Wealth Management; Derek Neldner, Group Head Capital Markets and Jennifer Publicover over, Group Head Insurance.

As noted on Slide 2 of the quarterly slides and the strategic update, 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.

And with that, I'll turn it over to Dave.

Thanks, Asim. Good morning, everyone, and thank you for joining us. Today, we reported record fourth quarter earnings of $5.4 billion and adjusted earnings of over $5.5 billion. Closing out a record year in which we meaningfully drove our strategy forward. Our results speak to the strength of our diversified business model. This includes benefits from our leading deposit franchises in Personal Banking and Commercial Banking, Capital Markets reported record fourth quarter results.

Our Wealth Management segment also reported record revenue, reflecting strong markets and client flows. These outstanding results underpinned a strong return on equity of 16.8% for the quarter supported by a CET1 ratio of 13.5%. This morning, we also increased our dividend by $0.10 or 6%. We further returned capital to shareholders through $1 billion of share buybacks of nearly 5 million common shares this quarter.

Through an annual review of our medium-term objectives, we are increasing our return on equity from 16% plus to 17% plus. I will speak more to this after Graeme's remarks by providing an update on our Investor Day financial targets while sharing a strategic update on how we are driving long-term shareholder value.

Before passing to Katherine for her views on the quarter and the outlook for fiscal 2026, I want to briefly address the operating environment in light of the heightened geopolitical and economic uncertainty. Fiscal and monetary policy has limited the impact of persistent sectoral and regional trade tensions, while other parts of the economy remain resilient. As Canada's effective tariff rate remains low and as Canadian exports to the U.S. remains solid, down 2% to 3% using the latest available data, the Canadian economy should maintain its demonstrated resilience as Canada negotiates a longer-term renewal of CUSMA.

Furthermore, the ongoing shift towards a service-oriented economy should also offset some of the trade-related headwinds. We North American consumers remain resilient, and we are confident in the overall resilience of our own retail portfolios. However, the impact of the K-shaped economy is increasingly polarizing with more affluent consumers investing disposable income in growing markets, while less affluent consumers struggle with affordability.

Over the medium term, the federal government's infrastructure and defense spend should stimulate growth in jobs in Canada and attract foreign investment. Challenge is the country's ability to get these projects approved by all stakeholders in a timely and efficient way. While the operating environment remains fluid and complex, and there is a lot of hard work yet to be done by governments and the private sector, I am cautiously optimistic on the outlook for Canada. As Canada's largest financial services company by market capitalization, we recognize the important role we will continue to play in driving economic growth for Canada.

In the U.S., our businesses are engaged in constructive dialogue with clients on lower -- as lower U.S. interest rates and pro-growth deregulation are providing more confidence in corporate boardrooms, leading to increasing market activity across sectors from banking and technology to manufacturing.

With that, Katherine, over to you.

Thanks, Dave, and good morning, everyone. Starting with Slide 7. This quarter, we reported record results with diluted earnings per share of $3.76. Adjusted diluted earnings per share of $3.85 was up 25% from last year. Reflecting continued momentum across most of our businesses and strong adjusted all bank operating leverage of 8.5%. Pre-provision pretax earnings were up $1.8 billion year-over-year, more than offsetting the increase in provisions for credit losses, which Graeme will speak to shortly.

Turning to capital on Slide 8. CET1 ratio of 13.5% was up 30 basis points from last quarter, largely reflecting strong internal capital generation net of dividend. This is partly offset by higher risk-weighted assets as we continue to deploy capital to drive organic growth and partly offset by a reclassification of certain RWA due to a methodology change.

Returning capital to our shareholders through share buybacks and dividends remains a key part of our strategy. This quarter, we repurchased 4.8 million shares for approximately $1 billion, resulting in a total payout ratio of 59% for the quarter.

Moving to Slide 9. All bank net interest income was up 13% from last year or up 11% excluding trading revenue. Net interest income growth, excluding trading was up 17% for the year. All bank net interest margin, excluding trading revenue, was up 3 basis points from last quarter, mainly reflecting higher margins in Personal Banking and Commercial Banking. Canadian Banking NIM was up 5 basis points from last quarter, largely benefiting from a favorable shift in product mix and the continued benefits of long-term interest rates.

Moving to Slide 10. Reported noninterest expense was up 4% and core noninterest expense was up 5% from last year. Core expense growth was driven by higher variable compensation to measure it with higher revenues. Higher volume-driven costs and investments in technology also contributed to the growth. This is partly offset by continued expense discipline and cost synergies related to the acquisition of HSBC Bank Canada. On taxes, the adjusted non-TEB effective tax rate was 20.4% this quarter, down approximately 1 percentage point relative to last quarter, largely reflecting a favorable tax adjustment in the U.S.

Turning to our Q4 segment results beginning on Slide 11. Personal Banking reported earnings of $1.9 billion this quarter. Focusing on Personal Banking Canada, net income was up 20% from last year. Strong operating leverage of 9% underpinned an improvement in efficiency ratio to 38.4%. This was partly offset by higher provisions for credit losses. Net interest income was up 13% from last year.

Loans grew 3% year-over-year, reflecting growth in mortgages and cards. Deposits grew 1% from last year, driven by demand deposit growth of 8%, partly offset by a 4% decline in GIC. Noninterest income was up 7% from last year, largely reflecting the strength of our leading money in franchise with approximately $5 billion in mutual fund sales, half of which was in the fourth quarter.

Turning to Slide 12. Commercial Banking net income of $810 million was up 5% from last year. Pre-provision pretax earnings were up 9% from last year, reflecting record revenue and well-managed expenses. Loans were up 5% and deposits were up 3% last year. Loan growth benefited from our diversified portfolio led by resilient sectors, including agriculture, health care and public sector, partly offset by slower growth in tariff-impacted sectors, including manufacturing and logistics. Commercial real estate continues to face cyclical headwinds.

Turning to Wealth Management on Slide 13. Net income of $1.3 billion rose 33% from last year underpinned by record revenue. Noninterest income was up 14% from last year. Assets under management and RBC Global Asset Management increased by 17% to $794 billion year-over-year, reflecting market appreciation and net sales in long-term Canadian retail and institutional money market mandates. We continue to see momentum in Canadian retail mutual fund net sales as our clients move back into market across fixed income, balance and equity mandates.

Assets under administration were up 17% in Canadian Wealth Management and 14% in U.S. Wealth Management versus last year. Our net interest income was up 13% from last year, including higher results in Canadian Wealth Management, driven by average volume growth in deposits and higher spreads. Higher revenue this quarter was partly offset by higher variable compensation in line with increased compensable revenues. City National Bank generated USD 163 million in adjusted earnings, including a release in performing provisions, up 79% from last year and 17% from last quarter.

Turning to our Capital Markets results on Slide 14. Net income of $1.4 billion increased 45% from last year. Underpinned by a record fourth quarter revenue of $3.6 billion. On a pre-provision pretax basis, results were up 62% from last year to $1.6 billion. Global Markets revenue was up 30% from last year, reflecting higher fixed income trading across all regions, particularly in rates, municipal bonds and higher volumes and spreads in repo products. Higher equity derivatives trading also contributed to the increase.

Corporate and investment banking revenue was up 18% from last year. Investment banking revenue was up 26% year-over-year reflecting higher M&A activity. Lending and transaction banking revenue was up 12%, driven by higher volumes. These factors were partly offset by higher compensation on increased results and continued investments in technology.

Lastly, turning to Slide 15. Insurance net income of $98 million was down 40% from last year, primarily reflecting the impact of unfavorable annual actuarial assumption updates an adjustment related to a previously recognized reinsurance recapture gain. Effective Q1 2026, we are revising our methodology for allocating capital to insurance to more closely align with legal entity capital requirements.

This increases attributed capital for insurance impacting the ROE effective fiscal 2026. This change though in the segment allocation has no impact at the all bank level. I'm now going to spend a few minutes on our outlook for 2026. We expect positive all-bank operating leverage for the year, including 1% to 2% positive operating leverage for Canadian Banking. We expect annual all bank net interest income growth, excluding trading to be in the mid-single-digit range. I'll spend some time unpacking the drivers given there are a few moving parts.

As a reminder, in the past, we have highlighted that there are many variables that impact NIM, including changes in client and competitive behavior and the forward curve, which are difficult to predict in the current dynamic environment. Our guidance reflects improving product mix, including higher growth in demand deposits relative to GICs and benefits from our structural hedging tractor strategy.

Furthermore, lower spread mortgages rolling into higher spread mortgages in the second half of 2026 are also expected to be a benefit, contingent on the competitive environment.

Solid volume growth across our businesses is also expected to contribute. We expect mortgage growth in the low to mid-single-digit range, reflecting continued stabilization in the Canadian housing market. Commercial loan growth is expected to trend in the mid- to high single-digit range, contingent on improving macro conditions and client sentiment.

The $117 million in benefits this quarter related to the purchase price accounting accretion of fair value adjustments from the HSBC Canada acquisition will decrease to approximately $80 million next quarter. and largely run off by Q2 2026. This is expected to impact all bank net interest income growth by approximately 1%. Also, as a reminder, the second quarter has fewer days than the other quarters, which generally results in a decrease in net interest income.

Turning to noninterest income. Noninterest income is expected to benefit from a continued shift in client flows towards investments, partly offset by reduced fees in the second half of the year in line with regulations set out in last year's federal budget.

In Capital Markets, we continue to maintain a high-level engagement with our clients in what we deem a constructive environment as deal pipelines continue to remain robust. We expect all bank expense growth to be in the mid-single-digit range, reflecting higher variable compensation.

For Q1 2026, we expect to incur seasonally higher costs related to pension and eligible to retire benefit. We will continue upholding a disciplined approach to cost management, while investing in our strategic growth initiatives, as well as continued investments in our broader safety and soundness framework.

As noted at our Investor Day, we expect the adjusted non-TEB effective tax rate to be in the 21% to 23% range, reflecting changes in earnings mix. As we look to 2026, we'll continue to prioritize client-driven organic growth, dividend increases and be more active in our use of buybacks while maintaining strong capital levels. Dave will speak to this further in a strategic update.

To conclude, we generated record results this quarter, underpinning an adjusted ROE of 17.2%. Our results highlight our efficient use of resources, including our robust capital, diversified sources of funding and liquidity and prudent cost management.

And with that, I will turn it over to Graeme.

Thank you, Katherine, and good morning, everyone. I'll now discuss our allowances in the context of the current macroeconomic environment and ongoing trade uncertainty. Despite persistent economic headwinds, the Canadian economy has demonstrated resilience over the past year with household spending remaining strong.

As we head into 2026, we expect to see continued stabilization in the Canadian economy, supported by recent rate cuts, government fiscal support and federal budget actions. However, U.S. and Canada trade issues remain largely unresolved. Consequently, we have maintained a prudent approach with our allowances, retaining elevated weightings to our downside scenarios consistent with the last 2 quarters.

Turning to Slide 17. We took a total of $14 million or 1 basis point of provisions on performing loans this quarter. This mainly reflects changes in credit quality and portfolio growth, partially offset by favorable changes in our macroeconomic forecast.

As a result, we observed a small increase of allowances on our performing loans in Personal Banking and Commercial Banking, offset by releases in wealth management from the City National portfolio. It's important to note that economic impacts have not been felt uniformly across our portfolio. rising unemployment in Ontario and the Greater Toronto area, coupled with higher payments at mortgage renewal have contributed to rising consumer impairments in these regions.

Additionally, softness in these regions and uncertainty from U.S. sectoral tariffs have had a greater relative impact on economically sensitive sectors in the commercial banking portfolio. In response, we have continued to build reserves against our Canadian portfolios.

Overall, we continue to maintain strong reserves and we will continue to prudently manage our allowances given the backdrop of ongoing uncertainty as we move into 2026.

Moving to Slide 18. Gross impaired loans of $8.7 million were down by $69 million or 2 basis points from last quarter, primarily driven by accounts returning to performing status and higher write-offs as total informations were flat quarter-over-quarter. Our overall gross impaired loans remain elevated, we are seeing a more stable trend in the pace of new wholesale formations and watch list exposure since the beginning of the year.

In Capital Markets, new formations increased by $160 million over Q3. This was offset by an increase in borrowers returning to performing status and higher write-offs. Impairments this quarter were mainly driven by accounts in the consumer discretionary, real estate related and financial services sectors.

In Commercial Banking, new formations decreased $250 million quarter-over-quarter. New formations were driven -- primarily driven by accounts in the real estate and related consumer discretionary and transportation sectors.

Turning to Slide 19. PCL on impaired loans of 38 basis points was up 2 basis points or $71 million quarter-over-quarter, in line with our expectations, with higher provisions across most segments.

For the full year, PCL on impaired loans of 37 basis points was consistent with our full year guidance despite the impairment from 1 large capital markets or in the other services sector. This reflects the diversification and scale benefits of our loan portfolio and overall business model.

Losses in the retail portfolios were $74 million higher this quarter, in line with our expectations. Our unsecured portfolios continue to be the main driver of losses for the quarter. Mortgage provisions are increasing as expected due to the regional factors previously highlighted. We expect retail losses to remain elevated in 2026 as we work through the lagged effect of higher unemployment consumer insolvencies and ongoing payment shocks for mortgage renewals in Canada. We continue to monitor the performance of the condo segment. However, the Condo portfolio continues to perform better than the overall mortgage portfolio, pointing to our strong underwriting standards and portfolio quality.

In the commercial portfolio, provisions were up $50 million this quarter. We took additional provisions on a previously impaired commercial real estate exposure tied to the insolvency of a large Canadian retailer and a new provision in the consumer discretionary sector. Further, our annual update of our coverage ratio has resulted in a small additional provision for the quarter.

The cyclical supply chain and consumer discretionary sectors accounted for a majority of our commercial losses over the last 12 months, given softer economic conditions and the impact from the higher rate environment earlier in the year. In Capital Markets, provisions were down $73 million quarter-over-quarter as provisions were taken on two large accounts in the previous quarter.

To conclude, we remain confident in the overall quality, diversification and resilience of our portfolios. We are pleased with our performance through a year mark that prolonged and heightened uncertainty. This year, we added a total of $622 million in provisions on performing loans. Positioning us favorably to navigate the risk landscape, whether it be uncertain outcomes from U.S. trade policy, geopolitical risk or surprises to our economic forecast.

Looking ahead to 2026 with early signs of stabilization and sector-specific export and employment numbers, we expect Canadian GDP to gradually strengthen and unemployment rates to gradually fall from an earlier peak of 7.1%. However, economic growth will remain relatively modest and lagged impacts from fiscal stimulus could leave certain sectors and regions under pressure.

Based on this backdrop, we are forecasting PCL impaired loans in 2026 to continue in a similar range as what we have experienced in 2025. While the timing and outcome of CUSMA negotiations creates ongoing uncertainty, we feel the potential downside risk has been appropriately captured in our allowances, supporting our financial resilience through the cycle. Credit outcomes will continue to depend on the extent and duration of tariffs, the effectiveness of announced fiscal support and stimulus measures and the performance of labor markets, interest rates and real estate prices. And as always, we continue to proactively manage risk through the cycle, and we dremain well capitalized to withstand a broad range of macroeconomic and geopolitical outcomes.

And now back to Dave.

Thank you, Graeme. Before speaking to the progress made against the strategies we articulated at our Investor Day in March, I will share some highlights of our annual performance, starting with Slide 3 of the strategic update deck. In fiscal 2025, we delivered an ROE of 16.3%, underpinned by over $66 billion in revenue and $20.4 billion of net income with record results in Wealth Management, Personal Banking, Capital Markets and Commercial Banking.

Revenues were driven by strong volume growth, constructive markets and margin expansion across key products. Our earnings supported the increased return of capital to shareholders and a $58 billion increase in risk-weighted assets from last year as we continue to support our clients' financial needs and growth aspirations.

At the same time, we prudently built our allowance for credit loss ratio to 71 basis points and saw common equity Tier 1 growth of $9.8 billion with our CET1 ratio increasing to a robust 13.5%. Our funding strength is further underpinned by 127% LCR, 100% loan-to-deposit ratio across Canadian Banking growing U.S. deposits across City National and Transaction Banking and relatively narrow wholesale funding spreads. We grew book value per share by 9% this year, in line with our historical 10-year average, while returning over $11 billion of capital to our common shareholders through dividends and share buybacks.

Slide 4 through 6 are a good reminder of the foundational strength of our business model, which is underpinned by being the leading financial service provider in Canada across most businesses and client categories. In addition, we have a strong presence in the United States and Europe and attractive client verticals in some of the world's largest fee pools.

The success of our diversified business model is further strengthened by how our segments are working together as one RBC to deepen client relationships and bring them the full strength of our bank. We're delivering more comprehensive FX, payments and transaction banking solutions to our wholesale clients across platforms and geographies, while looking to leverage the North South connectivity of RBC Clear and RBC Edge.

We're also providing complex solutions for our high net worth and ultra-high net worth clients, leveraging the collective expertise of our Capital Markets and Wealth Management businesses as we look to capitalize on our combined origination and distribution strengths. In short, our clients are at the center of everything we do.

Turning to the ambitions we set out at Investor Day, we are already seeing outcomes unfolding from the significant growth opportunities we articulated in March. Starting with the integration of HSBC Bank Canada on Slide 7, we expect to exceed our initial target of $740 million in annualized cost synergies. With $115 million of cross sold revenue in 2025, we are well on our way to achieving the $300 million annual revenue synergies target by 2027.

Going forward, we expect to drive further synergies with both our commercial and retail client franchises, including cross-selling personal banking and wealth management products, as well as higher payment volumes and fees from enhanced treasury management solutions. International trading capabilities, along with strength with internationally connected clients.

Moving to our ambition of leveraging our market-leading artificial intelligence capabilities, where we continue to see the benefits of our long-term organic investments in data platforms and foundational models. In the past, you have heard us speak about Adin, Knomi PVCai and our leading ability to build and implement machine and reinforcement learning models. We believe these capabilities have accelerated our ability to build and deploy generative AI models. We are partnering with leading firms like NVIDIA to accelerate our agentic AI strategy, enhancing our ADI platforms across capital markets.

We're also implementing key initiatives across our businesses, including reimagining mortgages and workflow for our commercial, corporate and investment banking teams. We're also leveraging AI to build the technology platform of the future, showing early results and enhanced security to protect the bank and clients technology operations and AI-enabled developer productivity.

This includes the development of over 5 million lines of code over 55,000 code reviews and over 3,000 test suites. RBC Assist, our internal AI tool has been launched to over 30,000 employees across front office and functional roles, enabling employees to be more productive in their day-to-day work. We are on track to meet our target of $700 million to $1 billion of enterprise value from artificial intelligence.

Importantly, our target is net of investments, including building on investments already made in data storage, GPU clusters, proprietary LLM, risk governance and in people. We are also performing well against our enterprise-wide targets as seen on Slide 8.

As Katherine noted earlier, we reported strong growth in net interest income this year as we leverage the strength of our Canadian deposit franchises. In addition, strong fee-based growth in wealth management and capital markets revenue streams, combined with an uptick in transaction banking revenue increased our revenue productivity with a revenue to RWA ratio up over 40 basis points this year. At the same time, we are driving our efficiency ratio towards our 53% target while continuing to invest for future growth.

Moving to Slide 9. Our goal continues to be to drive long-term shareholder value, which is reflected in our 4 medium-term objectives. As I noted earlier, we are increasing our through-the-cycle medium-term ROE objective to 17% plus to the improved cost efficiencies and increased revenue productivity, including strong client flows and funding synergies from deposit growth.

We are constantly evaluating growth opportunities to drive shareholder value with the goal of optimizing growth, returns and capital efficiency. We believe a 17% plus target allows us to do it all through a market cycle. We are always focused on achieving better outcomes for our shareholders and simply meeting our objectives and targets. Our premium ROE, robust capital generation and current CET1 ratio give us significant strategic optionality. Even after deploying capital to grow our franchises and pay dividends, we expect to build significant excess capital over the coming years.

Net income, net of dividends and core of RWA growth is estimated to add approximately 80 basis points to our CET1 ratio annually. We'll continue to consider all dimensions of capital allocation, focusing on client-driven organic growth within our risk appetite and maintaining higher capital buffers during more volatile times. You've heard me say before that there is no half-life to capital.

Returning capital to shareholders is an important part of our plan. This year, we bought back $15 million or 1% and of our common shares outstanding. Our total payout ratio was 57% this year. Unless we see changes in the domestic stability buffer, we continue to view that we have surplus capital in excess of 12.5%. At this point, our strategy is to operate within a 12.5% to 13.5% range in the current environment. If there is sustainable excess capital above 13.5% CET1 ratio, Beyond what is needed to support longer-term organic growth opportunities within our risk appetite, we would look to deploy it towards accelerated buybacks above our recent cadence.

We will also continue to strive to consistently grow our dividend which have increased at a 7% CAGR over the last 10 years. Given the strength of our performance, our fiscal 2025 dividend payout ratio was at the lower end of our 40% to 50% medium-term objective.

Going forward, we will look to sustainably operate at the midpoint of this range. Today's outsized dividend increase reflects this intention. I will provide an update on how we're progressing on some of the key segment-specific strategies we highlighted at our Investor Day.

On Slides 10 and 11, Capital Markets generated record revenue of $14.4 billion and earnings of $5.4 billion this year, as our major businesses, we're well positioned to take advantage of constructive markets. Importantly, we are on track to meet our Investor Day targets our pretax pre-provision earnings growth and increased revenue profitability from our financial resources.

We successfully grew our client franchises this year, leveraging the full breadth of our capabilities through our holistic global coverage model. Business growth was enabled by continued investments in talent with accelerated hiring of senior coverage and relationship managers in global markets and investment banking across the United States and Europe.

Additionally, the cross-platform investments we made in artificial intelligence and technology are amplifying the execution of our strategic priorities. In Global Markets, we delivered broad-based market share gains with notable growth in focus areas, including equity derivatives and financing, commodities and [ G10 ] FX where we're capturing benefits from enhanced one RBC approach. With the increased scale of this business, we believe we can sustainably deliver strong results over the cycle, and we are focused on increasing market share guided by our prudent risk appetite.

In Global Investment Banking, we are seeing the results of our strategic shift towards winning larger mandates, resulting in increased revenue productivity of senior bankers. Given the strength of our technology data center, energy, power, utility and infrastructure teams across both investment banking and corporate banking, we are well positioned to benefit from the structural growth in artificial intelligence infrastructure and energy systems globally.

And lastly, we are pleased with the progress of RBC Clear, our U.S. transaction banking platform. We've onboarded over 180 clients and USD 23 billion in deposits this year and are well on our way to reaching our USD 50 billion medium-term target. The funding benefits from this strategy will not only reduce our reliance on wholesale funding, it will also enable our growth strategies.

Moving to Wealth Management on Slides 12 and 13. We improved the pretax margin to 24.5% as we drove -- as we drive towards our Investor Day target of 29% by 2027. We are well positioned to benefit from secular trends across our key client segments, with annual net new assets increasing $33 billion or 4.9% in Canadian Wealth Management, excluding direct investing. U.S. Wealth Management net new assets increased by USD 28 billion or 4.3%, excluding CNV.

And our total AUA across our wealth management advisory businesses has now reached $2.3 trillion. We are looking to further extend our industry-leading position in our Canadian full-service private wealth businesses by enhancing product capabilities that are becoming increasingly important to our client base. We've doubled sales of private alts while having a record year for insurance sales to our Canadian clients. We are also increasing our investments in RBC Direct Investing. The second largest self-directed platform in Canada to enhance the client value proposition for the next leg of growth.

We introduced commission-free ETF trading to create more value and win with early-stage investors. We launched our role Distinction Program that provides dedicated support and exclusive benefits to high net worth clients as they transition into full service relationships. This year, we attracted over 90 experienced financial advisers to U.S. Wealth Management with approximately 80% of these hires delivering over $2 million of historical revenue production. We will continue hiring over the medium term to meet our Investor Day commitments.

An important part of our U.S. strategy is to expand our product shelf with proprietary banking offerings to our U.S. wealth management and private banking clients. By the end of fiscal 2026, we will be launching enhanced credit card and mortgage capabilities as we continue to grow securities-based and tailored lending. We continue to believe in the secular opportunity in U.K. Wealth Management. Given the country's structural retirement funding challenges. While foundational technology integration efforts related to the Brewin Dolphin acquisition are taking longer than anticipated, we believe this will be largely complete by the end of 2026. We remain steadfast in achieving our profitability targets over the medium term.

RBC Global Asset Management maintained its leadership position in Canada as we leveraged our leading affiliated retail distribution network, while enhancing our global distribution capabilities. We are expanding our investment capabilities with production innovation, adding to our growing expertise across traditional active mandates. This is in addition to a growing platform of alternative asset classes. These factors contributed to strong net sales of over $38 billion or 5.6% at RBC GAM and growing AUM to $794 billion.

Turning to Slides 14 and 15 and looking at the U.S. as a region. We have made solid progress in enhancing profitability across our U.S. businesses. Net income was up 28% from last year driven by more active clients, strong markets and improved operational efficiency. City National's net income increased to USD 350 million or USD 450 million on an adjusted basis as it continues to execute well at the client level, while growing deposits. The U.S. regions ROE increased by 1.4% to 10.7%, with the efficiency ratio improving by 4% to 79%. This success has been underpinned by several factors. Including leveraging enterprise-wide capabilities, centralizing shared services and eliminating duplicative processes, operations and functions. We've seen improvement in both capital and funding efficiency through various financial resource optimization programs.

Moving to Slides 16 and 17. This was a great year for Personal Banking. In addition to record revenue, we are on track to meet our Investor Day target of a sub-40% efficiency ratio by 2027. We're proud that RBC was ranked highest in customer satisfaction among the big five retail banks in the J.D. Power Canada retail banking satisfaction study for the second consecutive year. We added 400,000 net new clients to our premium client base this year.

In addition, 40% of new clients acquired in year are now multiproduct clients. We remain focused on capturing the shifting money in motion, benefiting from the combination of our award-winning client value proposition, interconnected distribution channels and leading deposit and investment franchises. Reciprocity is also a core part of our client value proposition. We added strategic relationships with iconic Canadian partners such as Canadian Tire and the Patterson Food Group. This helped us grow our Avion member base by 700,000 in 2025.

Looking forward, we are excited about our partnership with Visa for the 2026 FIFA World Cup. With respect to channel optimization, our strategy to automate low complexity work, leverage artificial intelligence and increase the number of specialists and our sales force is helping meet our clients' evolving needs while also driving higher adviser productivity and workload digitization.

Turning to Slides 18 and 19. Commercial Banking expanded on our largest business deposit and lending franchise in Canada. We exceeded our growth goals in 2025 with double-digit volume growth on both sides of the balance sheet, driving record revenue. Ultimately, we did not meet our profitability expectations. Our ROE decline from fiscal 2024 largely due to higher PCL amidst an uncertain macro backdrop.

Despite unfavorable business sentiment and heightened competition, average commercial banking deposits and loans were up 10% and 16%, respectively. Our diversification and leading product shelf, including our market-leading transaction banking solutions helped offset the impact from the more challenged sectors while consolidating business with existing clients and attracting new clients. Increased investments in dedicated service and integrated distribution teams, along with realigned coverage positions, coverage positions us well to unlock further growth as business sentiment recovers. We are seeing strong momentum with transaction banking revenue of approximately $80 million from last year as we saw increased client activity in both flows and account management activities.

In addition, we are increasing our collaboration with Capital Markets in City National to support the North South banking needs of our clients. Our investments are increasing scale, and increasing scale give us confidence in our ability to continue driving down the efficiency ratio towards 32% target while supporting our medium-term growth ambitions.

Moving to Slide 20. RBC Insurance is an integral part of the One RBC model, working with both our Canadian wealth management and personal banking businesses to provide both wealth and insurance solutions while growing our leading creditor insurance business. As Katherine noted earlier, effective Q1 2026, we are revising our methodology for allocating capital to insurance. Going forward, the ROE target for insurance will now be in the mid- to high 20s, underpinned by mid-single-digit earnings growth and execution against key strategies. We'll continue enhancing our product suite to gain market share and keep areas of focus including in our group businesses. We'll hear more about this over the coming quarters.

We are leveraging the power of AI to improve our underwriting, claims management and adviser effectiveness. Investment management will also play a part as we increase our allocation towards higher-yielding alternative assets, including infrastructure.

So to close, we are well positioned to succeed across economic cycles given our unwavering commitment to our clients and diversified revenue streams at scale leading franchises and a strong balance sheet underpinned by robust capital ratios broad sources of funding and a prudent risk appetite. We remain focused on delivering a premium through the cycle ROE and strong EPS growth underpinned by client-driven market share gains, increasing revenue productivity and improving cost efficiencies.

Finally, we are committed to using our strong internal capital generation to return capital to shareholders through increasing dividends and the strategic cadence of buybacks. With that, operator, let's open the lines for Q&A.

[Operator Instructions] Your first question comes from the line of Ebrahim Poonawala with Bank of America.

I guess, Dave, thanks for running through all of that. I guess a question around ROE and as we think about just capital deployment, Royal earned what, 17.2% ROE with a 13.5% CET1 this quarter. As we look forward and you look segment by segment, do you consider that the bank is over earning on ROE in any part of the business? Because I guess the follow-up to that is, is the ROE potential even with a 13% plus CET1 exceeding 18%, not 17%. And I ask this in the context of whether or not your scale, your diversity is actually creating a competitive advantage versus your peers in terms of the ROE differential. So would love any color on that.

Well, I think, first, I'd say our ROE has already differentiated itself significantly from our peers, given that many aspire to get to 15% versus us being already at 17% in the last 2 quarters, as you mentioned. So I think it is already differentiated quite significantly. And we're very clear about the plus, right? So we're trying to balance a number of things.

One, we do want to see accelerated growth, and we want to outperform on growth as well. And therefore, as we look at the opportunities. Now we could easily run this bank at 18-plus percent, but we would trade off a bit of growth for that. So we think targeting 17-plus percent for now, and that's a target that we review within the year and annually at a minimum. So it's not a static target. It can be a dynamic target for us, and we will continue to review that.

We believe that we can achieve accelerated loan growth, return capital to shareholders and drive a premium ROE of 17%. Like we're -- as you said there in the last 2 quarters, others aspire to it. And that's, for us, plus doesn't mean we can't do both. I would think you can also detect a little bit of conservatism from us in that we still haven't resolved CUSMA. We still haven't seen the economy normalize yet. We are running fairly elevated markets right now.

And therefore, I think it's just a prudent approach given there are some significant uncertainties that could affect the economy going forward that we just want to see play out a little bit longer. And therefore, I think as we sit here, we thought that 70% kind of clears the board for us.

As I said in my comments that we can provide accelerated growth, a very strong ROE at 17-plus when we fully develop our AI and we start to see the benefits that we might see as 30,000 employees are using generative AI right now in their jobs as we start to see those benefits roll in. And I'm hopeful that we'll be able to look at that again and increase that in the near term. But for now, I think it is differentiated. It's a growth story. It's a capital return story through dividends and buybacks. And it's a really, really strong performance and consistent performance within our risk appetite.

Got it. That's clear. And just following up on that, Dave, I'm having a hard time understanding whether the economy is getting better or worse as we look into the first half of '26 and how significant or important is some clarity on CUSMA or the U.S. trade negotiations to really get business investment going, CapEx going? Or are actions that the governments announced enough to actually start seeing a pickup in activity based on what you're saying?

No, I still think there's significant uncertainty exists. So you saw a lot through 2025 and you heard the commentary from both Derek and Sean that investors -- or businesses have held back on CapEx. You're starting to see a little bit of growth there because some businesses just need to replace machinery that's wearing out or at a necessity, they have to move forward.

But there still is a hesitancy as we have not resolved the issues around CUSMA. You're seeing pretty severe sectorial impacts that are leading to job losses and Ontario is most acutely impacted by that. So you're seeing challenges there. So I would say we have not resolved CUSMA. And therefore, a lot of elements of the budget were more medium-term oriented and not short-term oriented. So just for that reason, you heard Graeme's commentary on largely flattish outlook for credit quality, and we're just being a little more conservative in our outlook for the next year, not a deterioration, but we're struggling to see a significant acceleration yet in either mortgages or commercial activity.

Your next question comes from the line of Gabriel Dechaine with National Bank.

Sort of related to that question, and I guess, Graeme touched upon a little bit in his comment. I'm just kind of trying to get a sense for your credit outlook there. You said the downside scenarios are reflected in your reserves. So if the USMCA or CUSMA is not extended than you've already reflected that. What's the -- what happens if that scenario plays out?

It's Graeme. I mean, I was a bit reluctant to project what we're going to do on performing allowances, but I think you're focused on the right point that could really kind of be a toggle for us one way or another in 2026. As you recall, we built up fairly significant provisions in Q2 last year kind of following operation. And while that's abated, I think we haven't really released any of those allowances, just reflecting the CUSMA uncertainty. And so as that plays out this year, I mean, you could certainly see, I'd say, three different paths there.

If CUSMA conclude satisfactory or favorably, then that certainly would leave us in a spot that we bought some reserves that could be released. I think if it plays out unsatisfactorily, then I would say we have prefunded in part what could be an increase in Stage 3 losses going forward. And quite frankly, if the uncertainty doesn't sort itself out in '26 and drags on, I would say we'd probably continue with those reserves in place. So right now, we don't know how that's going to play out, and that's the uncertainty that Dave is referencing. And I think we'd like to get deeper into that and understand that before we kind of provide direction on which way performing allowances would go.

Yes. Okay. So yes, that does provide some clarity of uncertainty. And Dave, there's been this trend across the sector of pulling forward ROE targets and stuff like that. Your bank obviously is doing that. Something that you included in your 2027 ROE target, the upside scenario was 17% plus at the time and that -- maybe about half of that included some AI benefits. I'm wondering if there's a potential scenario, it sounds like it based on your commentary that we're also going to be pulling forward and maybe upsizing those payoffs from the investments in your various AI strategies. And yes, let's go with that.

Well, I think you heard in my comments, certainly, as we worked through the year since Investor Day in building the models and testing the models and deploying its model, greater confidence in our ability to execute within that range.

We are confident, obviously, in making those commitments at Investor Day, but we progressed and had a very strong year. We've rolled it out to 30,000 employees, and we haven't seen the benefit of that yet. So we are quite excited about the impact of generative AI. It was kind of one of the factors that featured into our 17-plus percent target for ROE. And I think it would be the #1 driver that would factor into was performing against that 17-plus percent target.

Got it. So we're still 2025 investment year, 2026 investment year pay off, you start to accelerate in 2027? Or is that...

Yes, that's exactly it. Exactly. We're excited about it. We're doing well with it. As I said, we have all these strategic capabilities that have allowed us to accelerate the deployment.

Your next question comes from the line of Mario Mendonca with TD Securities.

I observed this morning that the growth in C&IB, the loan growth clearly has improved. So that bank has turned the corner. But one thing I want to follow up on this I've noticed the difference between Royal's growth in commercial in the U.S. and frankly, all the Canadian banks relative to the U.S. banks. and those banks that are located in the U.S., solely in the U.S.

And my question is, is there a difference in how capital -- or the capital requirements for the U.S. banks when they lend commercially and the Canadian banks. And I'm making this observation because OSFI has implemented the final rules on Basel III. It appears that in the U.S., a lot of that is on pause. So the first question is, is Royal at some kind of disadvantage in lending in the commercial space in the U.S. relative to the U.S. peers?

I might start with that and if others want to add in. For C&IB in our capital allocation rule, it is -- it starts with the OSFI's rules ultimately. And for C&IB, we are still on a standardized approach with that bank. AIRB is something we're working towards and would hopefully expect to get there. But it really is as these rules that we adhere to in our capital allocation methodology there.

I mean the U.S. rules would be kind of a combination of standardized approach as well as their CCAR methodology that falls into that. What we have to hold capital at our subsidiary level based on those rules. Ultimately from a parent level, we really would focus on the OSFI capital rules first and foremost.

But has Royal received any like exemptions from OSFI on how those loans are treated in the U.S.?

No.

So I would just add some color, Mario, that I think I've mentioned on previous calls, we've been rolling off lower ROE single-product relationship loans on the balance sheet and putting on kind of multiproduct relationship assets. And I think that is probably a bigger driver towards an improved ROE story and accelerated growth. It took us a while. So there's a lot of roll on, roll off.

Now we're starting to see kind of more roll on, both on -- not only on the lending side but also on the deposit side. And that's just good evidence of the strategy execution I talked about. That's going to have a much bigger ramp up, I think, on ROEs going forward. And we're pretty excited about the progress at City National.

My second question relates to capital markets. And I'm not so much talking about earnings now. I'm just talking about the revenue actually like trading, underwriting revenue, securities and brokerage commissions. Those are those big three items that make up your capital markets revenue. I mean, obviously, an enormous year up 21% year-over-year with trading something like 33%. Can you put a finer point on your outlook for capital markets-related revenue, the big three, like trading, underwriting and then securities brokerage commissions, what you'd expect in '26?

Sure. Thanks, Mario. I mean just a couple of high-level questions to frame that before I touch on '26. I would just emphasize -- the strategy we're taking in capital markets is really building sort of long-term franchises, long-term relationships with our clients. And we've obviously benefited from the very robust activity we've seen this year, but we're not sort of just pursuing where the trading revenue might be in the next quarter or 2, like it is really about building long-term client franchises.

A key part of that is the diversification of the business, which has, I think, really been a key to our ability to successfully deliver lower volatility results than our global peers. And so when you look at the diversification across all our businesses, obviously, corporate banking, investment banking, the various sectors and products within that. And then within Global Markets, a very balanced asset class portfolio across both FICC and equities, that diversification, while you may get volatility in certain areas has really allowed us to deliver greater stability over a cycle.

So if you take those two foundational elements to the strategy, and you then look at 2026. We're very constructive on the outlook overall. As Dave highlighted, there are some uncertainties and risks, and we can see cyclicality in the fee pools. But right now, we continue to see very high levels of activity across all three of our major businesses. So across trading, we're seeing a healthy level of volatility.

Obviously, there's uncertainty around the economy, the direction of rates, inflation, tariffs, et cetera. that is driving a fair bit of trading activity, and we expect that will continue. Within investment banking, there is a lot of secular trends. Dave alluded to a few of those that are driving strategic activity among our clients. That strategic activity combined with a strong market backdrop is driving good underwriting activity, both across debt and equity.

Our pipelines remain very strong there. So we expect that, that will continue. And then we are seeing a lot of clients, particularly outside of Canada, making strategic investments in their business, which is driving very good opportunities in our loan book. So right across all three businesses, we continue to have a very constructive outlook.

Even if we were to see a slowdown or a correction in fee pools, as you saw through our Investor Day strategy, we do believe -- we've got a number of key initiatives and investments underway that will allow us to continue to gain share that will offset any slowdown in fee activity. But at this point, our outlook is positive, we don't anticipate a slowdown.

Your next question comes from the line of Sohrab Movahedi with BMO.

Dave, not to take anything away from the excellent detail that you kind of shared with us. Is the ROE improvement simply reducing the targeted CET1, which at Investor Day was 14%, now down to around 13%? Therefore, 16% plus goes up to 17% plus?

I don't think that math is sufficient to get us there alone, right? It's also an improvement on return on assets. I don't know, Katherine, do you want to?

Yes. Why don't I jump in. So that change in the MTO is not dependent at all on us changing our CET1 outlook. At Investor Day, we gave you a path to 16% plus without having to pull down our CET1. And then we also showed you a path to 17% plus. And so what you're seeing today with us announcing that change in MTO is basically just confidence, ongoing confidence in our progress going forward, and that underpins it.

As you would have seen in our remarks, we have guided to operating in a range going forward of 12.5% to 13.5% and that provides prudence gives us opportunity on a variety of fronts and with the unknown environment ahead of us. It also gives us a bit of a buffer there. But as we go forward, if we see the right opportunities, the right actions to move lower in that range, that will result in a higher ROE, but we're not driving down to equate to a higher ROE.

At the end of the day, we're trying to drive shareholder value here, and total shareholder return. And therefore, not just optimizing the ROE, but it's driving growth and EPS growth at the same time. And we've obviously simulated all of the outcomes running the organization at 18-plus percent, which we can do, and we find a 17-plus percent at this point in time, allows us to drive more shareholder value through all the elements of having dividend growth and returning capital to shareholders and being the most efficient capital user. So I think when you get all of that together, it creates more shareholder value at this point in time with the variables that we're working with. If things change, we can certainly revisit it.

No, no, that's -- I just wanted to -- I just kind of wanted to understand how much of it was the numerator, how much of it was the denominator, if you will. But -- but you mentioned it just right now, Dave, and I think you answered -- you mentioned in an answer to another question that if I want -- if we -- if the bank wanted to solve for something higher there's a bit of a toggle basically with the growth end of the spectrum.

But like you're not adjusting your risk appetite here in any way. Are you -- like are you saying that within my risk appetite I can have accelerated growth that can drive 17% ROE, but within my risk appetite, I can still slow down my growth and get 18% ROE. I'm just trying to understand how I should be thinking about your risk appetite and the comment around the growth and the 17%, 18% type ROEs you're talking about?

We're absolutely not changing our risk appetite target. It's return on risk. That focus us and then causes us to make marginal decisions on whether we do a deal or don't do a deal. So no, we're not changing our risk appetite because what's an important part of our medium-term objective is that the volatility of our earnings, right? So it's a big part of how we overall think about the organization and our investor base.

So consistent risk appetite and risk strategy is critical through the cycle. It doesn't change. But as you look at the trade-offs between doing above cost of equity deals but below hurdle and what balance of that to -- you're above, you look at how you're growing and where the opportunities are, and you're trying to balance towards one of those targets and optimize all of your variables that I talked about. So it's more of the return on risk, the balance of that than is anything around the quantum of risk.

And is that toggle mostly in Eric's business then?

Yes, absolutely, that's one of the areas, but also within Commercial Banking within the United States. So it's in every business where we take risk, we're looking at the return on that risk. And how it's being priced and how we balance that to an overall 17% plus target with the premium growth objectives that we set.

Your next question comes from the line of Paul Holden with CIBC.

I thought dropping the extra 30 page slide deck on the day of earnings. It was a test to see how we're using AI, but Dave, your summary is more useful for me. So I guess, I just want to drive like a little bit of a finer point on the ROE versus growth target.

So obviously, you increased the ROE target. I would argue, if you're generating a higher ROE and as you also highlighted, are generating a lot of organic capital generation, like, why not increase the EPS growth target? Or is that something you kind of leave in your back pocket for when you find the right opportunities to deploy that excess capital?

Paul, it's Katherine. So to your question, why not changing the earnings per share target, it kind of goes back to when you looked at the variables and how they come together. We felt confident about moving at this time the ROE to 17%. We felt though the EPS keeping it at 7% plus is the right complement as we think about maximizing that shareholder value return. And I would also emphasize that they're not capped. There's pluses on both of those. And so we will continue to drive forward and drive those results that hit those medium-term objectives and deliver against those.

Okay. So maybe the way I'm going to look at it, I think it was 7% probably organically and then maybe the pluses from capital deployment.

Second question then -- and I guess, to Graeme. So as I think about the outlook you laid out for '26, I think you mentioned sort of expectation for improving GDP and unemployment rate through the year. Does that suggest then based on your 2026 PCL guidance that maybe we can expect the first half of the year to start higher and then moderate through the back half of the year. I think that's probably how it lines up, and maybe you can talk us through that.

Yes, Paul, it's a good question. I mean I think right now, as we look at it, I think I would focus, first and foremost, on the guidance we laid out for the year. We're kind of at these levels now, we would expect these kind of -- this kind of 35 to 39 basis point range to persist through next year. Well, yes, the macro, we do expect that will trend positively through the year.

I would say a lot of that though then won't really manifest itself in kind of credit outcomes until probably 2027. I would say it's hard to really project a trend broadly. Wholesale will be more volatile quarter-to-quarter I would say retail, there's probably some -- a bit more mix in the trends, I would say, as we progress through the year. The unsecured products could improve. They will react quicker to some of the macroeconomic indicators, but on something like mortgages where 2026 is the kind of big year of refinancing and the payment impacts, that will probably see a bit more pressure the other way, not maybe significantly from where we are, but it will see some upward pressure through the year, right?

So there's different portfolios that are going to react differently through the year. And that's kind of why we're looking at it. It's probably a bit of a plateau through the year before we start to see improvements going into 2027.

Your next question comes from the line of Jill Shea with UBS Financials.

I just wanted to touch on efficiency. You've made really good progress on the adjusted efficiency ratio of 54% relative to the medium-term target of the 53%. So just wanted you to maybe touch on that efficiency level. Could we get to a point where it's even lower than that 53% just given the scale of your business? Or is there like a philosophical, like reasoning behind like the 53% that you want to reinvest in the business? So maybe just help us think through that efficiency level over time.

Jill, it's Katherine. Thank you for the question. It's a great question. So as we think about the efficiency, we're obviously always striving to improve. And as you've noted, we've had significant improvement over -- when you compare where we are now to the last couple of years, a couple like significant improvement. And even throughout this year, we continue to improve.

To your question about do we see a cap? No, I would say that we continue to see opportunity as we go forward. Our first target, though, is what we've put out there for Investor Day is to hit the 53% for 2027. But as we think about our business, as we think about the opportunities going forward, there are the mechanisms. We've talked about artificial intelligence. We've got use cases underway. We've put a benefit target out there against that. And so that's all going to play into it as we continue to progress. But back to kind of that 53% is our target as we sit now, but we're always looking for opportunity to go further.

Your next question comes from the line of Mike Rizvanovic with Scotiabank.

A quick one for Katherine. I wanted to just ask about your deposit mix in Canada. So you had a nice uptick quarter-quarter on the noninterest-bearing. And when I look at the split between noninterest-bearing to total, it's still hovering in that sort of 14%, 15% range. I think you peaked out at about 20% a few years ago. And I'm wondering in the rate environment that we're in, where we maybe get a bit of down drift in rates going forward. Can you see that number reflate, like is there a margin benefit to that? Is there anything to be said on maybe the NIM pickup that you might get in the Canadian lending business, if you do get a greater portion in noninterest-bearing going forward?

Thanks, Mike, for the question. It's actually Erica. So when we look at our deposit business in the Canadian bank, A couple of things are happening. We are seeing rotations out of some of those interest-bearing on the GIC portfolio. We are aligned as this movement occurs to the needs of the client. So as we build that portfolio if you go -- sort of end of the pandemic through the last number of years and the attractiveness of the interest rates in the GIC portfolio at that time. We saw a lot of consumer deposits flowing into that category. Now as we see the markets pick up, we see more of a long-term home for some of those deposits into the markets business.

So you see a lot of demand, Katherine alluded to in her speech, the pickup that we've had in mutual fund sales in direct investing into our DS businesses as clients sort of seek access to market space. At the same time, we've built strength in our demand deposits in our account, checking and savings accounts built on the back of the strong client acquisition that we have on the back of the depth of relationship that we have. So I continue to see strength in those deposits, while I think we'll see continued movement from our GIC portfolio into the markets businesses.

Mike, I was just going to build on it because you had a commentary also around NIM and then Erica can say too. to what Erica has just outlined, as we continue to see the shift, our expectations as we go into 2026 is that we will have that as a positive momentum into NIM as we go forward. Just given the differences in the margin between term deposits and on term.

Okay. Got it. And just a quick one for Dave. Just in terms of M&A appetite, and I apologize if I missed this in your earlier remarks, but this whole CUSMA dynamic not being resolved just quite yet, it sounds like it might make you a little bit hesitant to sort of pull the trigger on M&A in the U.S. If you do intend to build out the City National franchise. Is that a fair way of looking at your appetite right now? It's a little bit hindered by the fact that there's still some uncertainty and you might -- it might preclude you from doing a deal in the near term. Is that fair?

No, I don't think CUSMA would impact given the strategy to grow wealth management and secondarily commercial activity in the U.S. in a very strong economy I don't think CUSMA would be the main driver. I honestly think that for the partners who we would execute that strategy with targets they may come to market at any time.

And therefore, you have to be ready and understand your playbook and understand your synergy levels and where you can play from a price point, given there's so much capital attracting quality so much capital and free capital available in the U.S. to go after some of these high-performing businesses, you expect a lot of competition.

Therefore, I think it's honestly -- it's more the timing than it is -- you might have to react to someone who goes into play or you get a bilateral opportunity to do something in a relationship you've cultivated over years. That's probably the bigger consideration. And that's why having the strategic optionality of all the capital and our organic capital, and I talked a lot about organic deployment of capital, but we didn't -- I didn't actually talk about inorganic deployment. So you didn't miss it.

That obviously remains an option, but buying back shares right now and returning capital to shareholders and accelerating organic growth remains a priority. So I hope that helps. It's really, I think, timing.

Your next question comes from the line of Doug Young with Desjardins.

And I'll try to keep this maybe high level, Dave. I mean lots of information. Thanks for that. Maybe if I can ask you to distill the message down to like what are three items that you're particularly excited by and that you think could surprise investors that maybe isn't well known or thought of in your story?

I came -- I mentioned this last quarter. I think when you have the management team focused on operating the business the way we are today, and you're seeing the results of that and all our businesses are performing well. All our businesses are outperforming from capital markets, investment banking and global markets right through to consumer banking, commercial banking, wealth management. I think you're seeing the results of a very focused management team focused on organic execution with the client at the center. And we've got so much we've shown you that we're investing in new products and the success of RBC Clear being one of them.

So we're bringing new services and capabilities to market even without the artificial intelligence input. So I'm very excited about the focus of the business, the performance of all our businesses outperforming. You saw that in the results in the last 2 quarters. And we're very excited about '26 in the future. So I would say that's kind of one. Two, I'm really excited about artificial intelligence. So as you look at the impact and the journey that we're on and how it's going to make us more productive, more effective, it's going to allow us to serve more clients with the same or lower cost base to create new products I think I'm very excited about the artificial intelligence journey.

I'm also excited about the improvement in our U.S. operations and in our European operations. So notwithstanding that we're doing well and we're leading in most of the things we do, we still have areas where we're not doing well. And we can continue to improve those that make a meaningful difference to the shareholder and the investment in particularly City National, our aspirations around RBC Clear and mid-corporate cash management and transaction banking and just as we deploy a full transaction banking solution into our treasury management solutions in the United States next year then connect kind of north, south from there and then globally, very excited about building out a global business that can compete.

I'm excited about deploying capital into new markets like potentially in the Middle East. As we go through a plan there and the accelerated growth in the Middle East and our ability to open up in new markets and use our strengths and wealth management and in capital markets to compete in new areas. The improvement in Asia has been incredibly significant for us, and we're excited there.

So they go through focus on the business, organic growth, AI deployment is transformational and improving underperforming businesses, all of it gives us very significant momentum forward. And one of the reasons we increased our MTOs and we certainly -- I certainly appreciate the ambition you have for us and pushing that ambition. I think that's great. We also have that ambition for ourselves.

That's helpful. And then just secondly, on capital markets. I think the guidance was pretax pre-provision earnings around $1.1 billion per quarter. Clearly, you've kind of moved past that. It sounds like the pipeline is fairly full. And potentially maybe the earnings power of this business is higher than when you put that out there. So is there a new number that you would kind of point to you for that capital market franchise?

Obviously, the $1.1 billion guidance on PPPT that we provided was a number of years ago. And I think as you've seen, we've continued to invest in and grow the franchise. We really sought to refresh that in our Investor Day target, where we signaled at from 2024, which is a reminder, in 2024, we delivered full year PPPT of $5 billion. So call that $1.25 billion a quarter.

From there, we signaled medium-term target of high single-digit annual growth in that PPPT number starting from that 2024 base. Obviously, given the activity in the market this year and the success executing on our strategy, we significantly exceeded that. We're not changing that at this point, but we continue to be very comfortable on how we can continue to deliver against that high single-digit target. And if fee pools remain constructive, we certainly believe we can outperform that.

Your next question comes from the line of Matthew Lee with Canaccord Genuity.

Maybe just one for Erica on the mortgage front. Most borrowers seem to be entering renewals and pretty healthy equity positions. Rates are stabilizing a bit. So is that changing how clients are shopping for products more towards fixed rate stability or variable rate optionality? And then how does that inform your product mix outlook for NIM and strategy for mortgage retention over the next couple of years?

Yes. Thanks for the question. Certainly, as the business goes onto the books. We see different dynamics in the fixed and variable rate businesses. So if you look at -- if you look at the acquisition pool, we see more variable rate acquisition than fixed rate acquisition at this moment in time. But if you wind the clock back a few months that was -- that actually had shifted and was the inverse of that. I think it has more to do on clients' expectations of where rates are going to be and where Bank of Canada is relative to the value of the variable rate mortgage at this time.

And so I think Canadians now, if you are looking, you're thinking the Bank of Canada has been suggesting that it's in a hold guidance at this point in time. And so variable rates in that time can become more attractive to a client than they were when we were in the up cycle of interest rates. And so as we look towards this next year, I don't think that it's necessarily -- we don't really think about it as factoring into how we impacting the revenue generation of that business or the potential because the oscillation gets guided by the client and their expectations for what either fixed or variable rates are going to do over the year. So I think we remain confident that the products are priced properly to hit the demand of the client over the next year and so that's the expectation as we think about the guidance for mortgages in the next year.

Your next question comes from the line of Mario Mendonca with TD Securities.

Your early comments, I think you referred -- someone referred to the second half of the year 2026 that fee income could be affected by the changes in the budget. Now I'm familiar with what was said in the budget, but I'm not really clear on what fees you'd be referring to here? Is it card fees, deposit fees, FX fees? Could you help me think through what you're referring to there?

Yes. Certainly, it's Erica. Just following up on a question on the bank fees. So certainly, as we go through the back half of this year, we do have the NSF fee reduction that occurs at late in the second quarter of the year that will come to full run rate as we go through the back half of the year and then into 2027.

As we commented before, that's largely immaterial. As you think about the guidance, the ability for us to earn through that is there. I will say that bank fees were also a key item related to the most recent budget that came out from the government, and we are working with the government to better understand their expectation on some of the fees that they specifically called out in that budget, but we don't have yet enough guidance on those -- their expectation for changes in those fees to be able to give you any sense of when we would expect that to go into play and whether that you should consider that material.

Most of the fee reductions that we've had in the portfolio over the last number of years as a bank we've been able to earn through and so we would look to do the same as we consider some of those new potential fee changes.

Just for clarity, the line item I would focus on there would be the deposit and payment services fees, but not the other, not cards or others. Is that right?

That's correct.

Okay. One other quick question on expenses. I think anybody who's been around the banks would acknowledge that this was an unusual year. It is not normal for any bank to have operating leverage of over 5%, nearly 6% in a given year and especially not a quarter like this month over 8%. So what I'm trying to get at is why? What was so different about 2025? Was it the mix of business? I mean, is AI starting to have an effect on expense growth? Why was this such an unusual year from an operating leverage perspective?

Hi, Mario, it's a great question. A couple of things that have really underpinned that high operating leverage. As you've called out, it has been quite a year where every business has performed very well. We've seen the market appreciation we've seen constructive markets for capital markets. And so part of it is that mix that's coming through. Another part of it is the HSBC synergies that's coming through, and we're seeing that predominantly in Commercial and Personal Banking, but also in capital markets, as well as in wealth management as well.

And then the other -- I guess, maybe another element to the mix, just to call out, is what we've seen on the NIM front. So from a deposit perspective, we've been seeing throughout that year, shift of GICs into non-term. So that's also been definitely positive to our top line and then positive to operating leverage as well.

But is the paradigm still 1% to 2% is normal for a bank -- is that still an appropriate benchmark I should use going forward?

I was just going to say that, that is our guidance for next year. It's a positive outlet for the organization going forward. And then for -- in particular, commercial and personal banking, guiding to still remain in that 1% to 2% going forward.

Your next question comes from the line of Sohrab Movahedi with BMO.

Really appreciate you squeezing me one more time. Katherine, lots of good outlook commentary. Can I get a sense of what you think would be a reasonable RWA growth for the bank in totality next year?

I would guide you for RWA to be in line with the guidance that I had noted on loans. And so just quickly going back over that, like mortgages was low to mid on the commercial side, it was mix high volume growth. And then capital markets or wholesale say moderate growth going forward. So you can look to that guidance to underpin what you can expense expect us for RWA growth going forward.

So no reason why RWA growth may be higher than loan growth?

No.

Okay. I think that's the end of our questions in the queue. This is Dave, so I'll just quickly close here and really appreciate all the time you spent with us and the questions this morning. I take the lack of questions on the quarter to mean that as we feel it was an outstanding quarter, and we performed well across our businesses.

We provided a lot of guidance going forward more than we normally provide. I think we appreciate all the questions around trying to see where the ambition for that guidance was you have a team that has outperformed and wants to continue to outperform. And I think you can face that in the philosophy that we set targets that we want to beat and want to outperform on we have confidence in the future that this is a growth story. This is a capital efficiency story. This is an outstanding franchise with great client segments that will continue to perform.

So I really appreciate your time. Your extended time this morning. Thank you for your questions. Have a great holiday season, and we'll see you in the new year. Thank you.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.

Good afternoon, and welcome back to our afternoon session. Our next presentation is from Royal Bank of Canada. Joining us from the company, we have Katherine Gibson, CFO. Welcome back, Katherine.

Thank you.

It's been quite a year since the last time you joined us, and you being named CFO on a full-time basis as well as your first Investor Day. Maybe just start off with some lessons learned on your first year in the role and how things shaped up against your expectations a year ago?

Well, let me start by saying thank you for having us back. This is one of my first conferences, and it's a fantastic conference that you put on. So thank you.

I can't believe though a year has gone by. It feels like we were on the stage not that long ago. And so, I would describe the year as fun, definitely busy. And a couple of items that I would kind of share as key moments throughout the year.

Start off, HSBC. When we were here last year, we were just a couple of months past our close of HSBC and really pleased with how our integration of HSBC has progressed. In Q3, we announced that we had hit our run rate on our cost synergies. So we hit that target of $740 million, slightly ahead of schedule. We -- another key date for us was completing the final conversion of our complex commercial clients. We hit our target date there in March as well.

And we're also making quite good progress on our revenue synergies. And as part of our Investor Day, we had called out $300 million in revenue synergies. So we're through our year 1, we've hit our milestones on that and looking to move forward now into year 2 and 3.

The other item, I think everyone probably here at this conference has had tariffs playing in and out of their day-to-day. And when I think about RBC, I would describe it as there's been upside from that and downside. And more from my direct role, top of mind has been ensuring we've got adequate capital, adequate liquidity, and prudent provisioning.

And as of Q3, I feel like we're in a good place on all three fronts there. We reported CET1 of 13.2%. We have an LCR of 128%. And in Q2, we took steps to increase our Stage 1 and 2 provisioning. So I feel like we're well placed on all the three fronts.

And I'd be remiss, you mentioned Investor Day, I'd be remiss if I didn't call that out as that was obviously a big part of my first year and a big event for the organization. It was the first time that we hosted Investor Day since 2018, and it was our very first time hosting an all-bank strategy session. So it was a big day. It was a very full day.

We received positive feedback from the day, positive feedback on the strategies that we presented. Overall, a really good experience for the organization, and we look forward to providing an update on our Investor Day targets as part of our Q4 analyst call. So it's been a full year, a great year.

Well, if that wasn't enough for your first year, you also have to manage with the ever-changing policies on tariffs. Maybe you talk about how have your customers been handling the uncertainty around tariffs? What is your perspective from Canada on the path forward as it relates to the tariff situation?

Our -- as you would know well, our business model is diversified. And when we look at tariffs, the impact of tariffs as it's flown through our business is positioned differently. We're seeing our clients react differently to tariffs.

So if I take you kind of through retail, commercial, wholesale. Starting with the retail, we are seeing the Canadian consumer continue to be resilient. Canadian consumer is sitting with higher liquidity than they were before the pandemic. We're also seeing them though continue to spend. Discretionary spend is happening. When we look at the credit card data, we're seeing the Canadian consumer build their liquidity, but at the same time, continue to go to restaurants, continue to travel. So we're seeing a good balance there.

We are seeing, though, a pause on mortgage originations. And so, that Canadian consumer with the uncertainty in the environment, we are seeing slower mortgage growth in line with our expectations and our guidance, really looking for, I'd say, that Canadian consumer uncertainty on the economic outlook before they make that major investment.

Turning to commercial. Commercial, we are seeing slowing growth. In the third quarter, we continue to see 6% loan growth year-over-year. And what we're seeing though is kind of a different, I guess, impact across the sectors. And there are some sectors that are having no impact at all. So it's business as usual, like healthcare, professional services, still seeing good growth. And then, others where there is a more direct impact like aluminum, steel, and we are definitely seeing slowing growth.

We're finding that clients are -- I'm describing it as kind of business as usual, continuing to operate, draw on their operating lines move forward. But any of the major infrastructure spend is similar to that retail clients and that they're looking for greater clarity on that economic outlook. So our pipelines are solid, but it is that pause. And we feel like we're well positioned when our clients are ready to help them through kind of the next step.

And the last one I would just close out with is wholesale. Obviously, wholesale is a major segment. And what we're seeing in Q2, it was very quiet on the M&A front. Q3, we started to see the transactions come back, the activity pick up. And as we're talking to clients regarding the outlook, we're hearing more and more around optimism and confidence and that outlook is sounding much more activity as we go into the fourth quarter. So that's a bit of a snapshot on how we're seeing kind of tariffs move through our business by the various client segments.

Okay. Great. Let's move on to credit. In the second quarter, investors were surprised by the relatively larger PCL build on performing loans for RBC. But still, there was a significant improvement in the third quarter.

Maybe can you walk us through the reserving process for 2Q as it pertains to performing loans? Were there any specific loan sectors that were particularly impacted? And were there any economic metrics impacting that as well? And how much of that was just uncertainty around tariffs? And as you sit here looking towards 4Q, what do you think will be the biggest drivers for PCLs on performing loans?

Okay. So let me come at it in components. I'll start with Q2. So in Q2, in response to the elevated, I would say, dialogue around tariffs and also the elevated uncertainty around what the path forward would look like with tariffs and discussions globally around tariffs would be, we took the steps in Q2, two things.

One, we introduced a new scenario into our downside calculation for IFRS 9, and we also shifted our weight from our base case to our downside. So let me -- maybe just a little bit of color on how we approach our IFRS 9 calculation.

So for our performing provision, we have five scenarios. And so we've got an upside scenario, we've got a base scenario and then we have three downside scenarios. And so back to that creating that new scenario, in the downside, we put in a scenario that we felt would represent potential kind of more severe impact if we had an escalating trade war across North America. So that was captured in the scenario.

And then in addition to that, because there was this elevated uncertainty around, would the path forward be aligned to our base case or would it be more aligned to one of these downside scenarios, we shifted weight from our base to our downside. So in Q2, we did have an outsized increase in our performing loans versus peers. It was up about $570 million or about 6 basis points quarter-over-quarter.

And so just to put that into perspective, though, about 40% of that increase was the result of the changes we made to the weightings to the downside in this new scenario. Nothing to do with what we were seeing in the portfolio. It was all to capture that potential, I guess, headwinds that could be coming at us.

The other -- another 40% that drove that increase was related to an update in the macro outlook. Every quarter, you refresh your macro outlook based on the next 12 months to come. And if you go back to kind of thinking about Q2 versus Q1, that macro outlook after a duration Variation Day had taken quite a turn. And so between the two of them, that was largely 80% of the increase that went through.

Pushing forward to Q3, uncertainty we felt hasn't changed. And so we've left our weights on the downside scenario. The small release that you saw in our Q3 numbers is all tied to that macro. So that 12-month outlook for the macro is slightly better than where it was in Q2. And that's what drove the majority of that Stage 1 and 2 release.

And then to the -- I think the last question around Q4 and kind of outlook. I would say that to have it, like a release on the Stage 1 and 2 will be highly dependent on kind of that uncertainty being removed from the market. So greater clarity on what does it look like for the tariffs and the negotiations going forward.

The flip side, there might be also a natural question of, okay, well, that's on the release, is there a possibility that you could have further significant build. And I would say, at this point, we feel like we're prudently provided based on what we know. However, if there was something that would come along and be kind of a significant impact to the macro, then it's part of normal course, we always go through and look at the macro and weave that into our calculation.

One thing I was thinking about is the -- so the USMCA agreement comes up for July -- renewal in July next year, but the trade representative has to start filing in the CFR in October. And then would make a recommendation, I think, 2 weeks -- 2 months later. Do you think that could have a significant impact or really would have to wait to see what those documents look like?

I think we have to wait to see what those documents look like. The -- between Canada and the U.S. at the moment, U.S. MCA governs about 90% of the trade. And the tariffs that are in place are on a limited portion of trade between Canada and U.S. So depending on how the discussions progress with the USMCA, that could be something that leads into the overall calculations. But at the moment, really seeing like that is like that timeline was set. We already -- it's nothing unique to the situation. That June timeline was set many years ago. And so it's really part of normal course working our way through it.

All right. Keeping with the big topics. In your recent Investor Day slide deck, you mentioned AI 51 times with the goal of generating $700 million to $1 billion in enterprise value from AI by 2027. Maybe can you just give us an update from Investor Day on your progress towards these AI goals across your business lines? And what is your role as CFO in implementing?

Yes. So you can tell we're a little bit excited. I love that someone counted and we talked about it 51 times. I would say that it's nothing like new for us. It's been top of mind for us for about the last decade when we stood up our Borealis Research Institute.

Today, we have over 100 PhDs in the team. We have over 850 engineers, data engineers, AI engineers. And for AI, kind of the differentiator, one of the key differentiators is data and scale of data. And we have access to over 360 petabytes of data. And as part of that 360 petabytes, that's capturing over 1 billion business events that's happening across our organization.

And for us, we are looking at using leading -- industry-leading AI models as well as creating our own proprietary models. So we're feeling like we've been at this for a while, really excited about it. And as we put out there as our Investor Day target, we see that there's value and by 2027, value in the range of $700 million to $1 billion. And that value is twofold. It's across costs or driving costs down or driving efficiencies as well as top line productivity. And we're seeing that across like all of our businesses. There's use cases that underpin that number that we put out, and it's across our businesses as well as across our functional areas as well. And so, we're looking forward to providing an update on that as part of our Investor Day targets as well at our Q4 analyst call.

Okay. And then maybe -- within the Canadian market, the consumer has still been surprisingly resilient despite concerns around tariffs, slowing economy, unemployment levels. We just got unemployment data last week and the impact of the residential mortgage renewals. Are there any segments or geographies that you're seeing signs for concern?

Great question. If I step back, the -- our credit -- the retail book is showing -- continuing to show strong signs of quality, strong signs of resilience. Our overall credit score for our retail book is 796. And if I break that down into like mortgages and cards and unsecured, our mortgages would be around 800 and our cards and unsecured are in the range of 730 to -- or 735 to 760. So just a little bit of color to highlight the overall kind of credit quality.

And what we're also seeing back to my earlier comments is around that resilience from our consumer clients. We've got wage inflation. We've seen an increase in net worth through higher markets. And we're also seeing the responsible spending behavior by those clients. And so overall, we're seeing a strong performance in the book.

Specific to the regions, when we look across Canada, what we're seeing is a bit more pressure in the Ontario, the Province of Ontario. And it's not across the board. It's really more tied into where there are segments that are -- or sectors, excuse me, that are feeling more of the pressure from tariffs. So for example, Windsor is an area that has more of our auto manufacturing. And we are seeing there a greater pressure. But overall, everything is still in line with our expectations for the book.

Okay. And then I'd say balance sheet growth for both loans and deposits seem to be a little bit better than peers in 3Q. Can you talk to what you're seeing from a loan demand side, particularly differences between commercial and retail customers?

Yes. Overall, I'd actually tie it back to my earlier comments that we are seeing slowing growth on both that retail side as well as the commercial side, but in line with our guidance. And I would say it's slowing growth, it's not no growth.

And where I would tie it then back into is our overall kind of top line resiliency. Loan growth, deposit growth, obviously a focus for net interest income. But what we're seeing is continued top line resiliency in both our net interest income as well as our other income. And that stability is really coming from that diversity in our book.

And what we're seeing back to the overall Canadian economy is like resilience. We're seeing near all-time high on equity markets. We're seeing near lows on -- for credit spreads around the cyclical lows. And so, we're seeing that overall with the diversification of our business performing well. We're earning through that maybe that lower loan growth in certain pockets of commercial and certain pockets of the retail side. But overall, that diversification is playing out well on that top line resiliency.

Great. Let's talk about, the one area to -- we haven't talked about too much is City National in the third quarter. City National, we witnessed improved earnings growth. What steps are you taking to support further EPS growth and return expansion in this business unit? And what is a reasonable return from City National that you believe is achievable over the next few years?

Yes. City National, we've been very pleased with the progress. In the third quarter, we reported earnings of USD 114 million and on an adjusted basis, USD 139 million. And it's really been a continuation of our areas of focus that we set up about 1.5 years ago when we brought in Greg Carmichael, in his leadership team, they've been doing an incredible job.

And I'd break it down into three areas. One is our top priority is continuing to build out the infrastructure in response to heightened standards from a regulatory expectation. So, number one priority is moving through on that regulatory front. Number two, has been around improving the profitability of the book. We grew quickly and didn't necessarily grow as profitable as we had the opportunity to do.

And so what the team has been really focused on is looking at our book, looking at how do we bring all of our products and services to our clients to deepen that relationship to have a loan, have a deposit and also ensure that as we are entering into new client relationships that we have that broader relationship with them within our thresholds that we set.

And I would say the third thing that has been a key focus for City National is driving our efficiency down. We've got opportunities to be reducing our costs, and the team has been doing a great job at looking at how do we optimize our real estate footprint, how do we optimize our operating model, looking at non-core businesses and removing them from the overall mix.

And so on that efficiency front, it's really -- there's a couple of pieces here. One is, overall our operating model. Two is, we are at a higher run rate for that number one priority that I commented on higher reg spend. And so we anticipate that, that will continue to come down as we go into the future.

And then another part of this, which ties into our broader kind of U.S. region strategy. For City National, we see it as a key part of our U.S. region strategy. And we talked about it at our Investor Day that we see it as a significant opportunity for growth, ROE improvement as we go forward and really looking at how do you bring our businesses across the U.S. to a more cohesive operating model. And in doing that, you're going to lower our cost profile for all of the businesses in the region.

And so at Investor Day, we put out some targets for the U.S. region to take our ROE from 9% to 12% by 2027, our efficiency from currently 83% to the low 70s by 2027. So City National, strong performance in the individual business. And then, as you put that into the mix of the broader kind of U.S. region, opportunity there as you bring the pieces together, we think about cross-sell opportunities, funding opportunities and this cost profile that I talked about as well.

Great. And then a couple of other banks that have presented here today have been talking about capital markets. Capital Markets business for RBC is relatively smaller on a global basis. Maybe kind of what areas are you investing in to gain market share? And do you believe increased scale is necessary to generate higher returns in this business?

Capital Markets had a fantastic quarter. Let me just start with that, and then we'll build into our areas of growth and our areas of targets.

So Capital Markets had a record quarter, reported revenue of $3.8 billion, PPPT of $1.7 billion and NIAT of $1.3 billion. And it's not just one quarter on its own. We've been having a very strong year, year-to-date revenue of $11 billion and NIAT of $4 billion. And we're really seeing that as strength across both our global markets as well as our corporate and our investment banking businesses.

For areas of, I guess, focus and then also targets, maybe let me start with our targets. Because in the Investor Day, very clear that capital markets is a key part of our growth strategy. And so we put out targets on a couple of fronts. One was, this business hitting an ROE of 14% by 2027. On a pretax pre-provision basis, looking at a CAGR growth in the high single digits. And also, it's important for us to be looking at revenue by RWA as that kind of looks at your volatility of revenue.

And so, we put out a target of increasing our revenue per RWA by 40 basis points. In addition to that, we also put out some market share targets. So for global markets, we were looking at moving that up to 2.5% versus a current basis of 2.1% in 2024 for market share. And then, on the investment banking side, taking that up to 2.75% versus our current level of 2.3%. So seeing bold targets across all that front.

And the natural question is, how are we going to do this? So it's really I'd market down into three areas. One is continuing to deepen our relationships with clients and expand into new clients areas.

Two would be increasing our capabilities and also deepening our capabilities when it comes to global markets, looking at equities, FX, commodities. There's a few areas to call out on the investment banking continuing to grow in FIG, invest in healthcare, invest in technology.

And another key part of our capability build has been the introduction of U.S. transaction banking that we started last year, and we're seeing really good progress. And we put out a target on that of hitting $50 billion in deposits over the medium term. So very pleased with the progress that we're seeing back to incredible results for Q3, like we have a really clear path of what we're focusing on and the bold target to give you an idea of where we see this business going.

Okay. Great. Maybe we talk a little bit about expenses. Core expense growth in 3Q was a bit elevated, though largely driven by revenue-related costs and technology investments. Maybe as you look towards 2026, are there areas where you see opportunity for improved efficiencies, and how long do you think before the benefits of AI become apparent in expenses?

Yes. No, great question. I've been really pleased with the disciplined cost management as we've operated throughout the year. Our expense growth has come in slightly above our guidance, but it's largely been the result of higher variable comp, which I'm always okay with, because that's coming with higher commissionable revenue.

So if I maybe break down Q3, it's a good basis for kind of the broader as we look forward. So Q3, we reported year-over-year growth on the NIE front of 7%. And if we take that to a core basis, so adjusting for FX, stock-based comp that gives some noise on the accounting front, we would have reported NIE growth of 8%. 3% of that is variable comp. And the 5% that's left over is really us investing in our team from an HR perspective.

You're always going to have your base salary increase. But in addition to that, back to some of the strategies that we've been talking about, investing into wealth management for FAs, investing into capital markets with MDs, investing into commercial banking with commercial bankers. And then technology investment is key investment in our operations as well as safety and soundness. So those really are the pieces that have been driving our growth.

Having said all that, we are always focused on driving a positive up. And the guidance we provided in Q3 or reinforced in Q3 is that for the fiscal 2025, we are expecting strong operating leverage to close out the year. And that is always top of mind for management. It's key that as we go forward, we're continuing to look at how are we driving that strong operating leverage, looking at how are we driving efficiencies across the base to fund items like AI.

And so to your question on AI and how quickly will it come through, we're already seeing it come through. I would expect like back to the target that we've put out that $700 million to $1 billion. We'll see that flow through more towards '26 and 2027 as we hit our run rate on those initiatives and implement them.

Great. Another big item at Investor Day, the discussion for the One RBC strategy. Maybe you could talk a little bit more about the One RBC strategy and how this has improved your ability to serve clients. And have you completely implemented this model? And do you expect incremental benefits from doing so?

Yes. No, it was a theme that we wanted to be kind of loud and clear throughout Investor Day, and we got actually quite positive feedback on how as we went through each of our segments, how that really resonated in that we're looking at our segment, but then also looking at from that client lens, how do we bring all of the products and offerings that RBC can offer.

And so we are, I would say, more advanced on that front in Canada. We've got a history of strong collaboration across our businesses and really supporting our clients as they're moving through the life cycle and looking for broader products and services.

We see that there's further opportunity in Canada to continue to advance that and greater opportunity even more as we look into our other footprints that we operate in, for example, in the U.S. and even in the U.K. There's a few examples that we called out at Investor Day, but maybe just to bring it to life for this conversation today, Wealth Management is a great example where we are looking at, say, in the U.S., our wealth management clients are looking for more banking products.

And so with that, we can bring all of kind of RBC around that or One RBC around that in the U.S., and City National has banking products, so credit cards and mortgages and bring that all together as one complement.

We're also looking at transaction banking. We have transaction banking in Canada. We're building out transaction banking in the U.S. We have clients that are going north-south, so Canada, U.S., how are we bringing that together is top of mind to again service our clients.

And then back to kind of the, I'll call it, the maturity of our model in Canada and what we're looking to replicate as we're moving to the other regions is that, we support our clients from that starting point and are with them as they progress through kind of a natural evolution. So a retail client comes in as they grow their wealth, for example, we have the products and services for private banking or we have opportunities in products and services within Dominion Securities for financial advice.

If they're a business, we have the commercial side of our business, so move into small business as they continue to grow, move into commercial, as they look at retiring or selling the business, we have those opportunities through capital markets back into Wealth Management with trust planning. So just to give you a little bit of bringing that to life when we think about One RBC, what we're able to do today and how we're looking at doing more of that across our broader footprint.

All right. Moving on to capital. The CET1 ratio has been very consistent in the low 13% range. What are your priorities for capital deployment? And are you looking to increase the pace of buyback? As you look at potential ways to deploy the capital, are there any geographies or segments that are particularly attractive?

Yes. So capital deployment, our strategy has remained kind of unchanged. We are always prioritizing capital deployment into organic initiatives that meet our cost of capital return and also have a timeline that's within short to medium. So that's always going to be our number one priority.

Number two on the list is dividends. We are committed to a dividend payout ratio of 40% to 50%. So always looking at optimizing within our dividend and that payout ratio.

Buybacks, you've referenced buybacks. You've seen we've been active in our buybacks throughout Q3. We view buybacks as a tactical lever. And depending on our capital needs for -- whether it's organic, whether it's dividends, et cetera, market conditions, you'll see us go kind of in and out on that.

But again, we view it as an important tactical lever. We believe strongly in the intrinsic value. We've obviously got comments around our price to book and our high share price, but we feel strongly in our intrinsic value and that confidence obviously showed in Q3 as we were elevating our buybacks through that window.

Inorganic is that last item on the list when we talk about capital deployment strategy. Inorganic has a very high bar for us to meet. We need to see that it is squarely on strategy. We need it to be a strong cultural fit. We need to see it operationally how that comes together. We need to see that right fit. And then, we have to have the highest confidence that it will be accretive to shareholder value.

For areas that we would be open to hitting all those tough criteria, I would say that Wealth Management would be a space that we would be open to in the U.S., in the U.K., it plays on point with our strategy, our growth strategy. Wealth management is generally a little bit easier from an operational perspective. So there's some positives there. We'd also be open to, I would say, in the U.S. for commercial banking, if there is the right opportunity that came along to expand our commercial -- commercial banking, excuse me, footprint.

Okay. I have a couple of questions maybe towards like interest rates and the NIM. Maybe while RBC's balance sheet remains asset sensitive, you still have some NIM pressure in 3Q. Assuming rates remain stable from here, do you think you could start seeing some NIM expansion?

NIM expansion? We had a couple of things, because I know we -- like at an all-bank NIM level. I got to put my thoughts on the table. All-bank NIM level is a bit of a difficult metric to forecast. And one of the key reasons for that, you would have seen in our Q3 numbers that we were down 5 basis points, and that was largely due to transactions within capital markets, all normal course transactions.

The accounting for that, though results in one side being booked to net interest income. So part of, say, for example, wholesale funding, which would be similar to HQLA. So wholesale funding, you'd have the one side going through net interest income and then the other side, the hedge or the swap related to that typically financial instrument, and that's booked to other income.

So the two of them together is pretty nominal impact to revenue. But given only one side is being picked up in net interest income, you're seeing that negative impact on NIM quarter-over-quarter. So that's why I've always like trying to put the all-bank NIM aside, I do think like NIM is a relevant metric for personal banking and commercial banking. It can move around a lot. So we were guiding or changing our guidance to overall net interest income, excluding trading.

And what we're seeing from a growth projective, what we're guiding towards is mid-teens growth for fiscal 2025. To make that a little bit more helpful, maybe let me take it down into what do we see as kind of headwinds, tailwinds, and I put in the bucket of unknowns. So on the -- I guess, the tailwind front, we're continuing to see the positive benefit of our deposit tractor strategy. You've seen that play out now for several quarters, and we continue to expect that will be a tailwind for us as we move forward.

We're also seeing the continued benefit from the product mix shift. So as our term deposits are maturing, we're seeing those flows move into checking and savings, which is accretive to our NIM. GICs or term deposits are fiercely or the competition is high. And as a result, the margin is quite low. So as that moves into checking or savings, that is accretive to our bottom line.

Moving to the unknown buckets. I would put this as competitor behavior and consumer behavior. So competitive behavior back to the GICs and the mortgages. We're seeing improvement in spreads, but it's still an area where there's lots of competition. And as we move into the broader mortgage renewal strip, we expect that will continue.

And then on the consumer behavior front, back to that large portion of funds that's sitting in term deposits, as that matures, we are starting to see with increased confidence in the consumer that it's moving into investments. So again, it is positive to the top line as investments margins is higher than your GIC margins, but you will see that as a headwind to our NIM.

And then the last item, I mentioned it in my Q3 comments, is just around HSBC and purchase price equation. We had that flowing through our results, and that will kind of finish as of Q2. And so I just wanted to be clear that, that will be kind of a headwind. So all those pieces coming together, I expect that to still support that mid-teen guidance for net interest income.

Thanks. We only have a few minutes left before we open up to questions. Maybe there's any comments, things that we didn't cover or things that you -- comments that you want to leave us with?

No, thank you for the opportunity to close out. I would say that maybe a couple of things. If I start with the macro from the Canadian front, as we've mentioned, we're seeing continued resilience in the overall economy. We're seeing resilience in our client base.

RBC, we pride ourselves from our risk framework, our risk appetite in this environment, we're not looking to change. We are focused on supporting our clients as we move through the overall cycle. And then, I would maybe close out with the -- our Investor Day strategy. We put out bold targets that showed us a clear path to getting to 16% plus ROE by 2027. We're on our way. We reported really strong results in Q3. And then, we even put it out there upside to that ROE through the AI benefits of the path of 17% plus.

I'll close out with that. Let's open up to questions.

Anyone has any questions in the audience?

All right. Please join me in thanking Katherine for the presentation.

Thank you so much.

So we'd like to welcome our next guest today, which is Dave McKay, CEO of Royal Bank of Canada. Good morning, Dave. Very nice to see you.

You want me in the middle here?

Yes, middle should be good. Awesome. And so again, I'd like to start in the quarter, and in particular, just given the very, very strong results relative to expectations, it certainly was a bit of a blowout quarter for Royal. So if you want to pat yourself on the back, please do. But just any sort of high level...

You can do that for me.

Any sort of high-level thoughts without going into too much detail. I got a bunch of questions for you, but any high-level thoughts on the quarter, what you really liked and what you're excited about?

No, it was -- I mean it's quarters happen because you build towards them, right? And they are a culmination of a lot of work, and you saw that momentum over time. I think a couple of things are happening. One, we integrated HSBC, which was a major significant integration for us, our largest acquisition ever. And you just can't underestimate the amount of effort and time that took to do.

And it distracted us from other parts of operating the business. So now you've got the full force of RBC focused on operating the business from capital markets right through to the consumer bank, and you're seeing the results of the full focus of the organization. It was a real distraction to integrate HSBC.

So when you look across our businesses, every business is performing really, really well. Consumer Bank just knocked it out of the park. You see the efficiency ratio, the growth is strong, the margins are strong. Se Global Markets, which we've lagged in Global Markets, very strong quarter across credit, macro, FX, equities. We've lagged in equities. So Jonathan and the team have done a great job in rebuilding our equities business. So strong markets performance, strong investment banking performance.

You look at the flows that we've had, we're targeting double-digit growth of AUA, AUM, very strong market share gains in our fund flows. So when you look across the business and what -- I think the power of our earnings comes out of the diversification. When you think about our noninterest income growth and our other income growth, we're 50-50 roughly between the 2 as a share. And that's the strength of the organization, advisory, fee-based revenue, using the balance sheet, the 2 come together to holistically serve the client, and that really showed through in the quarter.

So I think from that perspective, when you look at the strength across the business, the balance between NII using the balance sheet and taking risk versus advisory, whether that's wealth consumer bank, commercial bank and obviously, capital markets. I mean the strength of the franchise and the focus of the team just started to show that build, and we're extremely excited about the opportunity as we articulated in our Investor Day early in the year of continuing to build on that.

So a really strong outcome, but just a combination of a lot of work and a lot of building in the core infrastructure that we're really happy about.

Got it. I think the obvious question that's being asked today about Royal is on your ROE target. You sort of blew right past it. I recall in your Investor Day, you did suggest some upside to that 16-plus target with AI and repurchases.

On the repurchases side, you've been pretty clear in terms of your priority there. But I guess the question is like would you consider maybe even upping the target just given you sound confident on the near-term outlook as well?

Yes. We'll go through that process. Yes, I think we helped the market understand where we thought we did exceptionally well in the quarter and where some areas might pull back a little bit. But overall, continue to build on year-over-year of the momentum that we've shown. And therefore, yes, we did show a 17.7% ROE in the quarter.

And as we go through the process, I think our only caution was we want to watch the economy, we want to watch CUSMA renegotiation, see where Canada comes out through that. So that's a source of potential volatility going forward, even though we still remain hopeful of a balanced outcome there that Canada can manage going forward. But so for us, give us a quarter to kind of digest some of the changes going on in the marketplace.

We're starting to see credit kind of stabilize in the economy. Economy has been incredibly resilient going forward. You're seeing strong equity markets. So as we indicated, so much of what drove our Q3 results show stability going forward. We had strong equity markets driving it. We had strong client activity in the advisory side and investment banking.

We had reasonably good consumer banking activity with very good margins and exceptional cost control and cost takeout. So when you look at our balance sheet and the stability there, you look at the advisory pipelines, so much of what we did as we signaled, continues from quarter-to-quarter. And therefore, the crosswinds that can change then can change client demand, generate from geopolitical instability and uncertainty. So let us watch that a little bit over the coming quarter, but so much of what we did is sustainable.

And then we'll update the market in Q4 as to where we think in the medium term, we can drive those ROEs. But our job is to -- and our investment thesis, as you know so well, is to have a premium ROE and driving a premium ROE is a big part of our investor thesis and story, and we're focused on that, continue to improve the premium. And to your point, we still have a significant amount of capital to buy back shares.

We know our intrinsic value is, and we'll continue to do that. And we still have a number of exciting projects on the AI side to implement that will drive further efficiencies. So we have a number of tools to continue to pull to drive those ROEs higher. Even though we showed you in the core machine keeps working so well, it can produce organically a 17-plus percent ratio on its own. It gives us so much flexibility to continue to improve on our ROE. So we're very excited about the momentum, but we'll communicate more formally in our Q4 -- after our Q4 results.

Got it. I'd love to talk about credit a little bit. Go back 2 quarters. It looks like the market had been a little bit spooked by the size of the reserve build. Fast forward to Q3, certainly a much better number. The impaired loan number was better as well.

And I think importantly, the guidance sounded a lot more constructive from your perspective. So if you had to use the baseball analogy, I know there's still a lot of uncertainty out there, but which inning do you think we're likely in with respect to the current credit cycle?

We're a conservative bank. We run a conservative -- that's again, part of the investment thesis. You want a premium ROE and you want lower volatility and premium growth. And we've delivered that, and we'll continue to deliver that is a big part of our valuation into our price to book and price to earnings ratio. So we're very conscious of growing within our risk appetite. And you saw us take a large Stage 1 and 2 build last quarter or Q2 because that's just a conservative thing to do, and we changed our outlook on the models and the economy, and it kind of drove mathematically that increase. So we took it. And we didn't override it way others might have done.

So there's a conservative built in there that may be confused the market a bit. But when you see the actual outcomes starting to stabilize in the economy, even on the consumer side and even in our book, particularly not every book, our book, you started to see the unsecured credit stabilize and come off a little bit and strengthen and that's an important signal of the resilience of the Canadian consumer in our book.

We have a more affluent consumer, so you would expect that a little bit that they have more resilience built into their income. So we started to see that. That gave us confidence on the consumer side. There's still some lumpiness, as you saw in the capital markets portfolio that we experienced in Q3 and a little bit of lumpiness again in the commercial portfolio. But all that indicated that things are stabilizing at kind of current levels.

And we kind of forecasted that it will bump along maybe at these levels for a number of quarters and start to come off in the latter part, hopefully, of next year as we get rid of this geopolitical uncertainty, we continue to build our economy. So I think it was a very positive signal. We're seeing kind of a stabilization and an improvement in some areas that you pointed out, and that gave us confidence that we didn't build at all in our -- really in our Stage 1 and 2 and that we released in certain areas, but we maintain an overall conservatism.

There wasn't a significant release because of that geopolitical uncertainty still. So net-net, kind of stabilization and a progression forward. And I think that gave the market confidence that we're through a lot of the uncertainty, but a little bit to go.

Got it. Maybe now switching over to some of the different business lines, starting with Personal Banking and not to ask you about the secret sauce, but certainly, Royal has been winning for a long time on the personal banking side. Can you just maybe shed some light on what it is that Royal does better to gain market share and basically win?

It comes down to our overall value proposition to the customer, right, where we offer convenience, the largest network to the consumer, whether it was historically ATMs and branches, now increasingly building a fantastic digital capability. So convenience is a big part of it, largest mobile mortgage specialists, largest mobile investment specialists.

So when you look at the convenience of going to the customer and being where the customer is, we offer unparalleled convenience to access advice and service. And the service we offer is best-in-class. I think we won J.D. Power, what, 6 out of the last 8 years or 7 out of the last 9 years. So we're one of the only institutions in the world that deliver premium service at scale.

There are small institutions that deliver a great experience. But when you talk about an institution top 10 in the world that delivers J.D. Power #1 service, that's pretty impressive. So again, differentiated service levels that go with differentiated distribution capability. We have some exceptional product, differentiated product, particularly around our rewards capability.

And then our overall personalization of that, a big part of the Investor Day that you saw the massive amount of data, we have brand scale, we have data scale, and we have operating scale. And we can package that into an offering to the customer that supports those dimensions I talked about on advice and convenience in an unparalleled way.

And the competitive premise now is increasingly evolving to data scale, brand scale and data scale. As you compete in a more digitally connected world, you need brand scale, and we invested heavily in brand scale. We have the #1 brand in the country, one of the top financial brands in the world. That brand scale is incredibly important. That brand scale comes with data scale.

You need data scale to train LLMs. You need data scale to work with partners. We've accumulated a partnership team with Canadian Tire with the Pattison Group coming in, with Rexall, with METRO in Quebec. When you look at the partnership and the value they put on the table for our customers, the data they bring, the connectivity, we help each other grow their businesses, that partnership scale is unprecedented. And no one can replicate it because there's not enough grocers and drug stores and gas stations and retailers to accumulate into a partnership team that we put together that helps create value for Canadians.

So you look at that, that is a differentiated capability that can't be replicated as well. So we've really focused on building moats over decades now that's created value propositions for customers that win in the marketplace. And it didn't happen overnight. It started 20 years ago, we started building this vision towards a very different world.

Part of it was designed to compete with Apple and Google. We saw them as long-term competitive threats. We still do. And that's played well into this digital world where you add LLMs on top of the data that enhance everything that we've done and accelerate it. So that storyline has allowed us to build a fantastic deposit base. It's allowed us to acquire more new accounts than any other competitor, and it's allowed us to build.

And we still cross-sell out of a core checking account better than we cross-sell off any other product. And we've invested heavily in building out vantage and reciprocity around that along with rewards. So it all ties into a holistic strategy that has a moat around it that we think is really, really hard to replicate, and we're very excited. And you see the efficiency ratio that, that cross-sell and that scale has brought.

We're running commercial and consumer bank now at a 35% efficiency ratio, which is best-in-class globally, I think, at this point. And that creates so much flexibility to get into a price war with a competitor that we have a 30% margin advantage.

Our competitors average 45% efficiency ratio. We have 10 points to play with an efficiency scale to create value for shareholders and compete. So when you wrap all that together, to your point, you've got this incredible franchise that is really propelling the organization.

Thank you for that color. Very insightful. What about the branch network? I know it's still an important part of your presence in the Canadian retail space. What about optimization? And just given where your efficiency ratio is and how low it is, like does it actually move the needle even further over time?

We think there's more productivity opportunity in the branch. We have a number of programs. This is where LLMs could really help. So you take specialists and generalists with an LLM, you can create more capacity to do mortgages and to do advice through LLMs in the branch. And therefore, we have a strategy to enhance the channel. It's very important to new Canadians to have a personal connection when they come to the country. It's very hard for someone who's new to our financial system that doesn't understand our system, to sit down in their mobile phone.

So when we see a lot of our new account openings still coming through the branch, it's predominantly new Canadians looking for advice and looking to learn about the system. And as a country that's going to continue to bring new immigrants in to help us grow and innovate, it's really important to have that physical connection. It might morph into more digital face-to-face if you can call it that or we call it kind of a bionic capability.

But overall, those channels have been super important in attracting new clients into the organization, particularly on the core banking side. And therefore, we're focused more on increasing the efficiency and the productivity of those units than closing them right now. We think we can continue to build distribution and convenience advantage by reinventing them to be lower cost operation, but more productive, more flow-through through those markets.

And therefore, we think we can lower that 35% given the mix and the cost mix of our commission and noncommission channels, there's a better hybrid for the customer and a better hybrid for the shareholder there that involves the branch as well. So I think we're looking at it from that lens more than let's just close them because they have great potential to be part of an overall channel mix.

Got it. Got it. Switching over to commercial banking. And I guess if there's one sort of area where you might need to do a bit more work. I think you have a target of an 18% ROE by 2027. You're trending somewhere around 14% year-to-date. Maybe talk about the pathway of getting to that 18% and if you're still confident that you'll be able to achieve that by 2027.

Yes. We're very confident in achieving it. I think we reinforced that in the last call. And you look at where we've come from over the past year, one of the reasons -- the largest reason we're not at 18% now is the heightened PCL credit charges within the business. And we the areas where we were strong, the areas where HSBC was strong was predominantly in supply chain and supply chain in Ontario.

And therefore, we're running the business right now at a 60 basis point PCL ratio the last couple of quarters when our historic average has been 35 to 40. So we're running a 50% higher PCL ratio, some of that coming from HSBC.

On supply chain, transportation, manufacturing, moving goods in our society, a lot of those are showing weakness right now, and we've taken kind of a disproportionate loss. That will rectify. That will normalize, that will strengthen over time, where some of the weaker players in those industries are being weeded out given the slower demand.

And as we come through that, we feel we're coming through that pretty well, and we'll stabilize that when that turns down to more historic averages because we haven't taken, we feel more risk in the book. It's just a disproportionate share of supply chain, which should be an integral part of your economy, and it has been so strong for decades has turned sour, particularly in Ontario. And we've just taken a few losses there disappointingly.

When that works itself through alone, that's a significant enhancement to our ROEs. We still have a lot of opportunity to deploy AI into the business. We have just enormous scale. And then we have the cross-sell from HSBC, which is just starting to materialize. So cross-selling treasury management capabilities, FX services, multicurrency accounts, all that connectivity and all that amazing capability that came in from HSBC. We're just starting to get after that $300 million of cross-sell, a lot of that within the commercial bank as well.

We hit our year 1 numbers. So we're excited. We have a much bigger target for year 2 in 2026, and we're on track to do that. And that will enhance ROEs as well along with having all those HSBC commercial account managers, they've been in defensive mode for 3 years, 1.5 years before close, massive conversion effort over the past year that we just finished in the spring. So all those commercial account managers in HSBC were on defense, just protecting their client base, helping them convert the complexity of conversion to the RBC tech stack.

For the first time, they built their pipelines, and now they're out there selling and the pipelines are filling really nicely. So we're -- we got the whole team energized now, as I said, off the top on just running the bank really well for our customers.

Awesome. Awesome. Maybe switching over to City National. I do recall a few years back, ahead of rate hikes, there was a lot of excitement about the rate sensitivity on City National. And obviously, the rate environment kind of surprised everybody in terms of how quickly rates rose.

You've taken some actions to sort of right the ship and position City National for growth again. Maybe talk about that dynamic. And then in the context of the size of City National, does it need more scale? Do you sort of plan on scaling it over time just through organic means, maybe a bit of capital infusion? Or is it potentially some M&A tuck-ins there as well?

There's enormous organic capability. And Greg Carmichael and the entire team he's built around himself has transformed the organization in the last 18 months. For those of you who don't know Greg, he was prominent at our Investor Day. He was CEO and the Chair and CEO of Fifth Third for a decade and did an amazing job at Fifth Third, which is one of the largest regionals.

And we needed a leader like Greg, who knows how to build a regional bank, a large regional bank, and he's brought capabilities to -- and talent to City National that's allowing them to pursue a very different growth agenda. So to be more specific, we struggled to build a jumbo mortgage capability, to serve our affluent private banking and wealth clients within the U.S. wealth franchise. Greg has been able to build that, and we'll start for the first time to really truly cross-sell jumbo mortgages into both bases.

We're building a transaction banking capability for the private bank, but also for the wealth franchise in Neil's business in the U.S., and Greg is leading that. We're taking our higher-end RBC Clear corporate treasury management capability into mid-corporate and into commercial, and Greg will benefit from that.

So as you think about the capability expansion, it's very significant, doing mortgages and syndicating them selling more credit cards, opening transaction accounts and getting the transaction banking with that 450,000 wealth clients is significant, competing in mid-corporate. So we've got product capability expansion and then we have the geographic expansion at the same time.

So we're expanding into the South East and probably into the South, potentially looking at Texas again, getting back into Texas. He's done a great job in California, New York and a number of other markets. So we've got product capability, we've got geographic expansion. We're bringing teams in, he's seeding all of that growth. And we're back on our front foot in our core businesses, really looking at growing with all those capabilities, and he's built the team to do that. It took 1.5 years to bring the talent in.

So when you think about the organic capability in front of us and the momentum he's built in the business, as we come through and we continue to finish the remediation of the bank and to build a large regional infrastructure that can continue to grow prudently is a big focus. We've achieved so much, and we're very excited about the future. So that can stand alone, and that doesn't require us to buy anything to make that happen. We can -- we've built all that ourselves. We're just going to continue to run that playbook.

Having said that, growth -- if we could bring another organization in and put it on top of our tech stack like we did with HSBC and create cost synergies to do that, we'd be open to looking at that. But I'd say there's a lot of buyers and very few sellers out there. And you got to expect that the premiums on any type of M&A are going to get bid up so high that it's going to stress your playbook. That's going to stress your synergy story. And I can tell you, we're very much focused on creating shareholder value and accretion because we don't need to do M&A for capability reasons.

We can continue to grow, and that's the best way to drive a premium ROE. And therefore, the growth scale in U.S. wealth in City National and in Capital Markets, which we haven't talked about, is very significant. We don't want to distract the team like we chose to do with HSBC unless it's a meaningful opportunity to create premium shareholder value.

So it's got to check all those boxes. And I would expect the transaction is going to get tough to check all those boxes because there's a lot of buyers out there with excess capital, and they're going to bid everything up. And while there's some attractive properties out there, can you be the successful acquirer and achieve the creation of premium shareholder value. And I think that's going to be a challenging formula, honestly. It doesn't mean you don't look and you don't try. But I can tell you, we are super disciplined about creating premium ROE and not diluting the shareholder unnecessarily unless it has a great story to it.

But mostly, we do not want to dilute, and we want to create accretion. And it's going to be tough, I think, to execute something like that. So we're just focused on organic right now, and we'll keep our eyes open. And we're not going to miss anything, but we'll be disciplined. I know every CEO tells you that, but we've been through it.

And I think we've -- hopefully, we've earned your trust that we will not spend capital unless we really do drive premium shareholder value for it. That's really our commitment to you.

Got it. Maybe looking at another nondomestic opportunity for growth, the wealth business with Brewin Dolphin. Obviously, you've got scale there in the European market. Maybe talk a little bit about what the longer-term play is there as you think about capital allocation.

We operate in a highly fragmented distribution environment where no one has more than 3% or 4% market share in max. I think we're the #4 player in the market place right now with the acquisition of Brewin Dolphin.

I still think we're in our maturation process with Brewin Dolphin and that we achieved our cost synergies quite well. And on time, we achieved some revenue synergies, but we haven't achieved the majority of our revenue synergies yet, partly -- largely because it required new product capabilities that it's taken us longer to build than we expected when we made the acquisition.

We had a tech deficit that we fixed that we knew about. But then getting the new product capabilities built on top of that tech stack has taken us about 1.5 years to 2 years longer than we hoped. So we're just getting to the process of starting to offer those services to clients. And it will take us a little bit of time, quarters, a year to see that.

And those assumptions would be important in any further acquisition you made. You'll have some modest cost takeout in these wealth businesses. You're really trying to get after growth synergies, cross-sell of the same services we cross-sell into our U.S. consumer. We're going to cross-sell into our U.K. high net worth and we're going to cross-sell secured lending. We're going to cross-sell the advisory side. We're going to look at transaction banking. We're going to look at mortgage.

All those cross-sells, we're in the process of offering to the Brewin Dolphin client, and we're going to have to make assumptions of how you would cross-sell into any further acquisition. So I wish we are further along in proving our hypothesis to give us a huge confidence of doing that. But we've seen a lot, and we've learned a lot. And I wouldn't rule out the ability to continue to add on smaller U.S. wealth distribution companies that are similar to Brewin Dolphin where we can continue to push that playbook forward, and we'll have to make assumptions.

But again, we'll only run an accretive playbook for you, and we'll look at those capabilities. We've learned a lot with Brewin, but I have to say we haven't hit our numbers yet, and we're continuing to close that gap.

Okay. I have to ask a question on cap markets. It's just been such a great story for all the Canadian banks this year. Obviously, there's going to be an expectation for client activity to moderate if volatility comes down in the market, that should be expected. But maybe talk about Royal and how are you doing in market share in Canada to the extent that you measure it across your business lines?

And then maybe talk a little bit about the U.S. opportunity, which is a big part of the revenue driver for cap markets? And how do you compare those 2 markets and how you sort of position in those 2?

We really focus on global market share. We're a global business. We're 11th in the world. So overall, we're -- I focus a lot more on our global share of fees and revenue across our markets business and across our advisory and investment banking and corporate lending business. So I know those figures more.

We're kind of stable at around 2% of global fees, slightly down a few basis points from a couple of years ago. I think we were as high as 9th. We're 11th. We bounced around against a number of competitors in that range. The market has grown. So I think our revenues have grown very nicely in that space as we continue to invest in more MD capability.

I mean a big part of it is to continue to hire managing directors to cover your bigger sectors like health care and a number of others. We're strong in FIG and we're strong in tech, but we need bigger teams and more people to cover the sector. So we continue to hire into a very aggressive marketplace where there's a lot of hiring activity going on from the top 10 and then the bottom kind of 20 continue to look to grow their capabilities. So it's very competitive on the talent side.

So I think from that perspective, we are continuing to grow our business very well in line with the market largely right now. I think you've seen a significant improvement in our markets business. As I mentioned before, we lagged in equities. We've really closed that gap. We used to lag in FX. I think we're closing that gap very nicely now. We have strong credit business that ran against us in Q1 and Q2.

We have a very good credit trading performance in Q3 and the macro has obviously been super competitive. And the strategy, to your question then is to lever our scale in the United States to outperform our Canadian peers. So the Canadian market is, for us, 1/3 to half the size of our U.S. business right now.

Our U.S. capital markets business is well over half our revenues. And therefore, it's that U.S. scale and that U.S. differentiated capability that's important for us to lever to outperform our Canadian peer group is where we compete for capital with investors. And I think that story has -- can and we expect to have greater differentiation going forward. And that story has lagged a little bit. If there's anywhere where competitors have kept up and maybe outperformed us, it's in the markets business, and they've closed the gap on some of the performance differentiation in consumer and commercial banking and wealth.

And you're seeing us get after that now. And Q3 is a demonstration when you get after that business and you start to serve and seeing all that amazing outcomes in the markets business and how truly we can differentiate when all 4 of our major businesses are outperforming. So I'm excited.

I think Q3 really showed you when you start to close those gaps, you start to see that what ROI can do when everything is performing, and we're just focused on continuing to do that going forward, heads down serving our clients and trying to get every business to outperform organically. So -- and that came through in Q3 quite loudly, and we expect that to continue pushing that.

All right. Any final sort of key messages for investors?

No, I think you're seeing the diversification, the strength of this franchise and now the focus of the management team on running it. We've had a lot of stuff we've had to deal with. And when you start to execute the way we did with focus and continue to do that as a team, we're incredibly excited. You saw that in our Investor Day targets. At the end of the day, we're [Audio Gap].

Good morning, ladies and gentlemen. Welcome to the RBC 2025 Third Quarter Results Conference Call. Please be advised that this call is being recorded. I would now like to turn the meeting over to Asim Imran, Senior Vice President, Investor Relations. Please go ahead, sir.

Thank you, and good morning, everyone. Speaking today will be Dave McKay, President and Chief Executive Officer; Katherine Gibson, Chief Financial Officer; and Graeme Hepworth, Chief Risk Officer. Also joining us today for your questions Erica Nielsen, Group Head, Personal Banking; Sean Amato-Gauci, Group Head, Commercial Banking; Neil McLaughlin, Group Head, Wealth Management; Derek Neldner, Group Head, Capital Markets; and Jennifer Publicover, Group Head, Insurance.

As noted on Slide 2, 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 ask that you limit your questions and then requeue.

With that, I'll turn it over to Dave.

Thank you, Asim. Good morning, everyone, and thank you for joining us. Today, we reported record third quarter earnings of $5.4 billion, up 21% or over $900 million from last year. These results or these outstanding results underpinned a strong return on equity of over 17% for the quarter or over 16% year-to-date, supported by a robust capital ratio of 13.2%.

We are gaining momentum towards meeting our medium-term Investor Day targets and are confident in continuing to achieve an ROE of at least 16% in fiscal 2026 and beyond.

This quarter's strong earnings added 77 basis points of gross capital generation, truly showcasing the underlying earnings power of the bank including realizing our targeted annualized cost synergies related to the acquisition of HSBC Bank Canada.

Our diversified business model is built to drive strong risk-adjusted returns which in turn supports both our clients and the return of capital to shareholders, including increased share buybacks this quarter. Strong client-driven and risk-weighted asset growth supported revenue of $17 billion this quarter including record revenue in Capital Markets and double-digit growth in Personal Banking and Wealth Management.

We achieved our results in an environment of record equity markets and cyclically low investment-grade credit spreads while seeing an increased flow of client deposits and market-related client activity.

However, the constructive environment for market-related revenue continues to be tempered by geopolitical risks and the uncertainty around trade policy particularly China's levy against Canada's canola exports and the potential review or renegotiation of CUSMA.

We continue to monitor the negotiations, and we encourage policymakers on all sides to build on the foundational strengths of current trade agreements, which have provided significant benefits to all parties. Should current CUSMA compliant goods largely maintain their qualified exemption to tariffs, Canada's effective tariff rate should remain low and the economy should remain resilient.

However, as trade tensions extend, there may be persistent impacts, including declining consumer confidence, lower corporate profit margins, rising inflation and softening labor markets across both the U.S. and Canada with uncertain implications to monetary policy and capital flows. Amidst the shifting landscape, we are operating from a position of strength. Our robust capital levels are reinforced by a strong allowance for credit loss of 74 basis points of loans, including elevated weightings to our downside scenarios.

We believe our well underwritten portfolio is prudently provisioned. The diversification of assets and revenue streams across client sectors, geographies, products and businesses, further mitigates the impact of heightened uncertainty and volatility.

As the country's largest financial institution by market capitalization, we have an important role to play in helping support our clients build an even better Canada while executing against the strategic priorities we highlighted at our Investor Day both within and outside of Canada. We are accelerating our investments in strategic initiatives by seeding growth across our segments and geographies, including new product and cross-border capabilities.

We're also improving and expanding our talent pool by hiring senior coverage and relationship talent and capital markets and client-facing account managers in commercial banking. In addition, we continue to attract experienced financial advisers in wealth management, especially in the United States, where we expect higher recurring revenue from this recruitment.

Our ongoing investments in technology built upon our leading competitive advantage and artificial intelligence, including our proprietary ATOM Foundation model and Lumina data platform. These investments underpin the enterprise value we expect to generate from AI over the medium term. Furthermore, our expansion into transaction banking continues to be on track, with RBC Clear receiving two awards at the recent Digital Bankers Global Transaction Banking Innovation Awards.

With this context, I will now speak to key trends we are seeing across our businesses, starting with Personal Banking. In our Canadian business, average deposits were up 2% from last year, including 7% growth in banking and savings accounts. We continue to focus on client acquisition while also capturing the shifting money in motion given the evolving interest rate and market outlook.

These core deposits provide a structural funding cost advantage. Average residential mortgages were up 3% year-over-year as we added $4 billion of average balances this quarter. While we have maintained discipline on both credit quality and pricing, we are benefiting from higher switch in volumes and an increase in mortgage retention rates.

While we see a pickup in housing starts, the signs of price stabilization and buyer confidence returning as affordability improves, we continue to expect Canadian housing resale activity to be dampened by underperformance in Ontario, particularly in the Greater Toronto area. In contrast, credit card growth was solid at 7% this quarter, driven by account acquisition, higher revolve rates and increased client engagement.

Our proprietary RBC consumer spending tracker highlights that Canadian cardholder spending remained resilient particularly in the retail and everyday categories. This quarter, we expanded our partnership with the Pattison Food Group into Western Canada and launched the WestJet RBC World Elite MasterCard credit card for business clients.

Turning to Commercial Banking. Average loan growth moderated to 6% year-over-year within the updated guidance we provided last quarter. Growth has been slower in more tariff sensitive sectors, including manufacturing, transportation and logistics, along with cyclical headwinds in commercial real estate.

While our pipelines in building -- while our pipelines are building in a competitive market, clients continue to hold back their capital and inventory spend. We are well positioned to support our clients when they are ready.

Moving to Wealth Management. We reported double-digit growth in assets under administration in both Canadian and U.S. Wealth Management to $935 billion and USD 718 billion, respectively. Our global wealth management franchises benefited from market appreciation while continuing to drive net new client assets along with increased volumes in our U.S. lending solutions.

We also launched RBC premium savings in the U.S. this year, a new nonsweep high-yield deposit product, which is seeing positive traction. Direct Investing trading volumes were supported by strong market activity. Assets under management and RBC Global Asset Management increased by 12% to a record $741 billion, reflecting net sales into both long-term institutional and retail mandates.

Like our wealth management businesses, we are seeing momentum in Canadian retail mutual fund net sales as our clients move back into markets across our broad set of strategies across fixed income, balanced and equity mandates.

Now to Capital Markets, which reported record revenue of $3.8 billion, pre-provision pretax earnings of $1.7 billion and net income of $1.3 billion this quarter. On a year-to-date basis, Capital Markets generated close to $11 billion in revenue and approximately $4 billion in net income. These are truly exceptional results across our diversified franchise. Global Markets reported revenue of over $1.9 billion with strong results in our FICC businesses, reflecting strength in spread and rates products, which are areas of traditional strength.

We also reported a strong performance in both cash equities and equity derivatives as we supported heightened client activity, benefiting from increasing investments in the franchise. Corporate Investment Banking generated revenue of over $1.7 billion, benefiting from an increased number of larger M&A advisory mandates along with higher lending revenue in the U.S. and Europe, reflecting the strength of our global franchise.

Looking forward, we continue to maintain a high level of engagement with our clients in what we deem a constructive environment for capital markets. While the second half of the year is seasonally lower or slower than the first, we are encouraged by the increased optimism and confidence amongst our corporate and sponsor clients, and we expect higher levels of transactions and deal closures over the next 12 months. We also expect our global markets franchise to remain resilient as we deepen our expertise across products.

Finally, I will comment on our broader U.S. region, which reported USD 635 million of net income this quarter. City National Bank reported earnings of USD 114 million or adjusted earnings of USD 139 million. geographic efficiency ratio improved 6.6 percentage points year-over-year to 81.5%. While there's still work to be done, we are seeing early signs of success as we continue to build a more cohesive U.S. operating model.

To close, despite the uncertain environment, we are confident in our ability to generate a strong return on equity while continuing to deepen client relationships, grow market share, drive operating leverage and returning capital to shareholders. The strategic vision we articulated at our Investor Day remains clear, and we are already seeing the outcomes unfolding.

We strive to further extend our leadership across Canada, while scaling growth and unlocking new revenue streams in key markets and geographies and including the United States. Finally, in the spirit of continued transparency and accountability, we will look to provide an update on how we are performing against our Investor Day financial targets when we report our fourth quarter results later this year.

And with that, Katherine, over to you.

Thanks, Dave, and good morning, everyone. Starting with Slide 8. This quarter, we reported earnings per share of $3.75 adjusted diluted earnings per share of $3.80 was up 18% from last year, driven by strong revenue momentum across our businesses and solid operating leverage, including the realization of the $740 million in annualized cost synergies from the acquisition of HSBC Bank Canada.

Turning to capital on Slide 9. We continue to demonstrate strong capital generation. Our CET1 ratio came in at 13.2%, in line with last quarter. Strong internal capital generation net of dividends was partly offset by the impact of an increase in risk-weighted assets in our U.S. agency and sovereign exposures, driven by a downgrade of U.S. sovereign debt rating.

Furthermore, changes to our credit risk parameters, which I called out last quarter, also had a modest negative impact to capital. We continue to deploy capital to drive organic growth. particularly in corporate lending and residential mortgages as well as increased loan underwriting commitments in capital markets.

Returning capital to our shareholders through share buybacks and dividends remains a key part of our deployment strategy. This quarter, we repurchased 5.4 million shares for $955 million, in line with the level purchased in aggregate over the last 3 quarters. Our total payout ratio was 56% year-to-date. We will continue to be tactical with the level of share repurchases based on prevailing market conditions.

Moving to Slide 10. All bank net interest income was up 14% year-over-year or up 12%, excluding trading revenue. All bank net interest margin, excluding trading revenue, was down 5 basis points from last quarter, mainly due to lower interest income on certain transactions in capital markets, which was offset in other noninterest income. We believe net interest margin is more of a relevant factor for our retail and commercial banking segments.

Canadian Banking NIM was up 2 basis points from last quarter, benefiting from a favorable product mix including a shift towards demand deposits in personal banking, which were up 1.5% from last quarter, offsetting a 1% sequential decline in GICs. We continue to benefit from tailwinds related to our structural hedging tractor strategy as 5-year swap rates remain elevated relative to historical levels. The combination of the above two factors more than offset competitive pricing pressures in residential mortgages.

As a reminder, benefits to net interest income from the purchase price accounting accretion and from the HSBC Canada acquisition of $118 million this quarter are expected to be largely run off by Q2 2026. Looking forward, we now expect our 2025 all bank net interest income growth to be in the mid-teens range, including benefits from a more favorable deposit mix.

Before moving on to expenses, one item I'd like to point out is that the increase in other noninterest income includes impacts from hedges of our U.S. share-based compensation plan, which is largely offset in noninterest expense as well as in net interest income, as I noted above, in my discussion on all bank NIM.

Moving to Slide 11. Reported noninterest expense was up 7%, and core noninterest expense was up 8% from last year. Core expense growth this quarter reflects higher staff-related costs, largely driven by variable compensation, commensurate with strong revenue growth in both wealth management and capital markets. as well as increased salaries and pensions and benefits. Higher expenses also reflect investments in technology and operations as well as hiring and priority growth areas.

Concurrently, we will continue operating with a disciplined expense management framework to prudently manage our cost base. Going forward, we expect all Bancorp expense growth which is based on reported 2024 expenses to now be in the mid- to high single-digit range, largely reflecting higher variable compensation. That said, we expect strong all bank operating leverage for the year, which is a key management priority.

On taxes, the adjusted non-TEB effective tax rate was 21.2% this quarter. relatively in line with the first half of 2025. Looking forward, we continue to expect the adjusted non-TEB effective tax rate to be in the 20% to 22% range. Turning to our Q3 segment results beginning on Slide 12.

Personal Banking reported results of over $1.9 billion. Focusing on Personal Banking in Canada, net income was up 23% from last year as a strong operating leverage of 12.5% was partly offset by higher provisions for credit losses. Personal banking efficiency ratio improved to 38.7% this quarter, underpinned by strong revenue and relatively flat expense growth, partly reflecting the benefits from realized cost synergies related to the acquisition of HSBC Canada. Higher revenues this quarter benefited from a 14% increase in net interest income and a 10% increase in noninterest income largely driven by higher mutual fund revenue.

Turning to Slide 13. Commercial Banking net income of $836 million rose 2% from a year ago. Pre-provision pretax earnings were up 8% from last year, driven by a strong operating leverage of 4.8%, reflecting solid average volume growth and well-managed expenses including the benefits of realized cost synergies related to the acquisition of HSBC Canada. This was offset partly by lower credit fees, reflecting the succession of VA-based lending, which was offset in net interest income.

Turning to Wealth Management on Slide 14. Net income of approximately $1.1 billion rose 15% from a year ago. Noninterest income was up 13% from last year, reflecting strong growth in fee-based client assets across our wealth and asset management businesses, benefiting from market appreciation and net new assets. Net interest income was up 6% from last year, including higher results in Canadian Wealth Management, reflecting average volume growth in deposits and higher spreads. This was partly offset by headwinds in U.S. Wealth Management.

Higher revenue this quarter was partly offset by higher variable compensation commensurate with increased compensable revenue and investments, including technology and the recruitment of financial advisers. City National generated USD 139 million in adjusted earnings, up 81% from last year and 58% from last quarter. Last year's results included an impairment loss on our interest in an associated company and the sale of a noncore investment.

Turning to our Capital Markets results on Slide 15. Net income of $1.3 billion increased 13% from last year, reflecting record revenues of $3.8 billion. On a preprovision pretax basis, results were up 36% year-over-year to $1.7 billion. Global Markets revenue was up 37% year-over-year, reflecting higher fixed income trading benefiting in part due to narrowing spreads.

Results also benefited from our robust equity and FX trading performance. Corporate and Investment Banking revenue was up 11% from last year. Investment Banking revenue was up 11% from last year, reflecting higher debt and equity origination and M&A activity across most regions. Lending and transaction banking revenue was also up 11%. And reflecting higher lending revenue in the U.S. and Europe. This was partly offset by lower municipal banking activity compared to a strong Q3 last year. Higher revenue was partly offset by higher variable compensation, investments in technology also contributed to higher expenses.

Turning to Slide 16. Insurance net income of $247 million was up 45% from last year, driven by higher insurance service results from improved life insurance claims experience and higher insurance investment results, reflecting lower capital funding costs. Looking ahead, we expect Q4 results to be negatively impacted primarily as a result of our annual actuarial assumption updates.

Lastly, results for corporate support in the quarter benefited from the elevated net impact of favorable markets in our U.S. share-based compensation plan. As we look forward to the fourth quarter, we expect corporate support to generate a net loss at the lower end of our $100 million to $150 million range.

To conclude, despite the market and macroeconomic uncertainty, we generated record results this quarter, underpinning an ROE of 17.3%, with a CET1 ratio of 13.2%. Our Q3 performance showcases the strength of our diversified business model and its ability to drive premium returns as highlighted at our Investor Day. And positions us well in the quarters ahead as we execute on those strategies.

With that, I'll turn it over to Graeme.

Great. Thank you, Katherine, and good morning, everyone. I'll now discuss our allowances in the context of the current macroeconomic environment and the ongoing trade uncertainty. Overall, the Canadian economy has shown greater resilience than initially expected, and both business and consumer confidence have rebounded from earlier lows. We began the quarter with signs of reduced trade tensions, but this was followed by renewed tariff threats and the escalation of sector and country-specific tariffs.

As the heightened uncertainty around trade policy stretches over an extended time frame, this also increases the risk of shrinking appetite for business investment in Canada. Against this backdrop, recall that last quarter, we increased our reserves to reflect the heightened uncertainty. We implemented a new trade-related scenario, reflecting the potential for a severe North American recession driven by an escalating global trade war and rising geopolitical risks. Given the ongoing uncertainty this quarter, we have maintained our prudent posture and retained the elevated waitings to our downside scenarios in line with last quarter.

Turning to Slide 18. We released a total of $28 million or 1 basis point of provisions on performing loans this quarter, mainly reflecting favorable changes to our macroeconomic forecast, partially offset by portfolio growth and unfavorable changes in portfolio composition.

We saw quarter-over-quarter improvements to our base case unemployment and GDP forecast with rising Canadian fiscal stimulus contributing to the lifting of our outlook. This translated to a minor release of allowances on our performing loans in wealth management and capital markets, offset by a small increase in provisions in Personal Banking. City National drove the bulk of the release of allowances due to favorable credit quality and improvements in the U.S. macroeconomic forecast.

Retail clients have shown resilience in uncertain economic environment have largely managed through the impact of increasing mortgage payments. And overall, we are well reserved after building up allowances over the past 3 years. We will continue to prudently manage our allowances given the backdrop of ongoing uncertainty.

Moving to Slide 19. Gross impaired loans of $8.8 billion were down $0.2 billion or 3 basis points from last quarter, primarily driven by our wholesale portfolios, which saw lower new formations. The decrease in GIL reflects several accounts moving back to performing status and the resolution of the administrative issues outlined in the prior quarter. While GIL remained elevated, we are seeing a moderation in the pace of exposures moving on to our watch list and our wholesale portfolios are showing more balance with moderating formations in capital markets, positive trends in City National and a soft Canadian economy contributing to elevated impairments in the commercial portfolio.

In Capital Markets, new formations decreased $453 million quarter-over-quarter. Impairments this quarter were mainly driven by two accounts, one in each of the financing products and telecom and media sectors. We also saw a couple of clients in the real estate and related and industrial product sectors returned to performing status, resulting in a net reduction to GIL.

In Commercial Banking, new formations decreased $399 million quarter-over-quarter. The largest new formations in the quarter related to borrowers in the real estate-related and agriculture sectors. While the information in the wholesale portfolio are playing out as we anticipated, they are expected to remain at elevated levels through the first half of 2026. We expect to see more moderate outcomes as we work through the watch list in special loan pipelines as the economy gains momentum through 2026.

As a reminder, impairments and recognized losses in our wholesale portfolios are inherently more difficult to predict quarter-over-quarter and can be volatile.

Turning to Slide 20. PCL on impaired loans of 36 basis points was up 1 basis point or $61 million quarter-over-quarter, in line with our expectations. In Capital Markets, provisions were up $83 million, driven by additional provisions taken on a previously impaired account in the other services sector, which is undergoing a challenging and complex workout process.

There is also a new impairment in the financing product sector. In our commercial banking portfolio, provisions of $296 million were up $10 million, led by provisions in the real estate related, consumer discretion and transportation sectors.

Overall, the commercial portfolio continues to be impacted by softer economic conditions and consumer spending in Canada. Elevated impaired provisions over the last 12 months primarily reflect exposure to cyclical supply chain-related sectors like automotive, transportation and industrial products, as well as consumer discretionary and real estate-related sectors, which have all been impacted by the higher rate environment and post-pandemic trends. We continue to expect commercial PCLs to remain elevated in the coming quarters, reflecting the weaker Canadian economic backdrop and ongoing trade uncertainty.

In the retail portfolio, we saw higher losses this quarter in line with expectations, largely in the unsecured portfolios. While delinquencies across retail products remain elevated above historical levels, we are beginning to see stabilizing trends in early delinquencies.

To conclude, despite persistent uncertainty in the macroeconomic and policy environment, we remain confident in the overall quality, the diversification and the resilience of our portfolios. A robust provisioning framework, our prudent allowances and additional monitoring allow us to assess a wide range of potential outcomes and impacts to our portfolio.

We continue to expect PCL impaired loans to remain elevated for the next few quarters, in a similar overall range to what we've experienced over the first 3 quarters of the year, potentially offset by releases and performing allowances as credit outcomes improve. The likelihood timing and direction of allowances in PCL will continue to be dependent on the extended duration of the tariffs, potential fiscal support and stimulus measures, along with the performance of labor markets, interest rates and real estate prices.

As always, we continue to proactively manage risk through the cycle, and we remain well capitalized to withstand a broad range of macroeconomic and geopolitical outcomes. And with that, operator, let's open the lines for Q&A.

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

I guess, maybe a question for you, Dave. There's a lot of conversation just investor focus around where some of these ROEs are heading? And when we look at Royal's performance today, if you look at the 17.7% ROE for this quarter, 16.5% year-to-date.

And I think you said in your prepared remarks, at least 16%. I would love to hear that at least 16% in reality is more like at least 17% and two questions there. One, do you think the bank is over earning anywhere within the P&L? Or do you think there is upside? And second, give us a sense of your appetite to build capital from here versus just keeping it at least relatively neutral from a CET1 perspective, which obviously is helpful to the ROE?

Well, thanks for that mitt full of questions. I'll try to work my way through them because they're all really important questions. So maybe I'll start with the earnings strength because that kind of feeds into the narrative of our ROE expectations and the potential of the organization.

And I'd say No, I think we captured a disproportionate share of client flow this quarter across all our businesses, whether it was in consumer banking, commercial banking, certainly, capital markets, our clients are active trading, wealth management, positive inflows. So you look at where we did exceptionally well was on the revenue line. Therefore, you look at the sustainable factors to that revenue line, while our deposit base is a huge strength, but it's well tracked or that's stable. .

So we're looking at client flows in our advisory businesses that are also stable as well. So we do have strong expectations, as I said in my speech, to continue to serve clients on the advisory side. remains to be seen where tariffs go as it affects confidence in the overall ability to invest in certain sectors. So some activity, I think, is still muted in the economy, particularly in commercial banking because the tariff uncertainty affects the ability to raise capital.

So I would overall say our results are based on really strong client activity. And our ability to capture a disproportionate share of client activity, and we're seeing a very resilient economy, and therefore, we remain confident in our ability to continue to serve and use our scale to disproportionately drive the bottom line our investors.

So with that, we're feeling very good about the sustainability of what we're doing. Notwithstanding some of the questions around insurance being a little volatile, and we expect to earn through some of those in other areas. So with that, then that led us to a very strong ROE this quarter of 17.7%. As you mentioned, and we kind of reaffirmed our guidance around at least 16-plus percent this year and into next year.

I think the only thing that's holding us back from sitting down and kind of reaffirming and updating guidance is our uncertainty around the tariff scenario right now and the impact on investments, the impact on our clients. And therefore, we do want to kind of watch a little bit as we go through Q4 to see how negotiations kind of unfold, and we better understand the sectoral impacts and the overall impact to the Canadian economy and our ability to diversify. And as we do that, as Katherine mentioned, we're going to sit down and kind of review our overall expectations for 2026, and we'll communicate that to you at the next call in Q4.

So give us a little bit of time to read the environment, but we feel very good about our results. We feel good about the client resilience. You heard Graeme talk about kind of credit kind of plateauing and that's the resilience of our customers again. And therefore, we feel really good going into Q4 and into 2026, and that reflects in the overall confidence around meeting our investor targets and accelerating towards those investor targets, as you pointed out. So I think, hopefully, that answers your question. As far as then the significant capital build of 77 basis points this quarter, and how do we deploy that.

I think we would let -- because we're able to earn a 17.7% return on a 13.2% CET1 ratio, we have the ability to earn through that as some of the strongest banks in the world do like us. And therefore, I'm okay letting it creep up. We will continue to return capital to shareholders through share buybacks. We have that strong capital generation and dividend increases. And therefore, we will manage that overall scenario with the ability to continue to invest in organic growth over time and potentially inorganic growth if it makes sense for the shareholder and for the strategic franchise.

So you'll see a bit of creep, I think, over time, but we will continue to manage towards accelerating towards those overall ROE targets of 17-plus percent. I think we have the financial power to do that. With our capital return and our growth expectations for the business. So I hope that helps. It gives you a context of how we feel about the underlying strength and therefore, how we're going to manage capital and how we're going to manage ROEs.

Our following question is from John Aiken from Jefferies.

I was hoping that you'd be able to give us a little bit of detail on City National. Can you update us in terms of the progress of where we sit now and also what levers are still yet to be pulled in terms of future profitability expansion?

Yes. Thanks for that. We're extremely happy with the progress we're making at City National as we signaled over the last year in our Investor Day. We continue to progress well and remediation of the platform and are building the platform, and we do. We've allocated a very significant financial resources to do that, which is embedded in the P&L.

So earning $149 million with carrying that is really, really impressive part of what City National is doing. City National is now on its kind of front foot and recruiting commercial bankers, recruiting private bankers, adding clients. So we feel very, very good about some of the potential to build the pipelines there and to see good overall loan growth and deposit growth in the franchise going forward.

We have work to do on our replatforming through 2026, but we do expect to be able to bring expenses down as we progress through 2026 because there's certainly, I think, in 2025, we're at their peak as far as building out our platform and then the strength of our second and third lines of defense. So overall, we feel good about our ability to continue to earn through. And that was a very strong quarter given some of the one-offs, but we don't think it's going to back off too much from that, and we'll be able to replicate growth story from '25 into '26 for City National.

Just a point of clarification. When you talk about expenses coming down in 2026 and further, is that on an absolute basis? Or is that just incremental operating leverage?

Do you want me -- why don't I jump in?

So for City National, we are viewing that on an absolute basis. And you have heard us talk before about the costs related to remediation being fully loaded. And what we're seeing is that those costs are already starting to come down, and we're expecting to see that to continue as we progress into 2026.

Our following question is from Gabriel Dechaine from National Bank Financial.

A quick one on the trading result, which was quite strong this quarter. I know client-driven is often the factor here. I'm just wondering if any of the shift in market dynamics between Q2 and Q3 played a role in accounting sense. I know the high-yield business or the leverage finance business was weak in Q2, and the marks must have been much more favorable in Q3.

Sure. Thanks for the question, Gabe. I wouldn't say there was anything particularly abnormal in terms of marks or anything. If you step back and you look at the results, we had very strong results in FICC that was up about 35%. Part of FICC is obviously the credit trading business, where we did see spreads tighten from the end of April through the end of July. That might have been a 5% or 10% positive benefit but not overly material. A lot of it was client-driven. .

Within FICC as well then we obviously have our repo business, our foreign exchange business that performed very well in our core rates business plus commodities. So we did see very good strength right across the broad array of products. It wasn't just driven by credit. Credit obviously did help us relative to Q2, but I would say it was modest overall.

And then on the equity side, where we've been strategically focused on making a lot of investments, we feel we're making very good headway there. We had over a 40% revenue uplift year-over-year. Obviously, a constructive environment, but we do feel that a number of the investments and strategic pivots we've made in that business are bearing fruit in driving outperformance in terms of market share capture.

Okay. Great. And then a question on the credit outlook. I know, Graeme, you gave a lot to chew on there, and I'll definitely go over the transcript. But I just want to kind of look at a couple of things here. One, you released some performing provision, and I see there's a favorable change to your macro outlook which reflects the -- some of the support programs that you're anticipating, one that have been announced as well.

Against -- and then maybe some signs that -- well, not maybe some signs that there is deterioration in the health of the Canadian consumer. We're seeing rising 90-day delinquency rates in certain categories, unemployment is going up, especially in the major urban centers. And I don't know if this is related, but some of your fastest-growing categories in the Canadian business are HELOCs and credit cards. I'm wondering if that's a sign of stress as well. So balance all these factors are you still anticipating peak loan losses sometime in 2026? Or are you getting more or less optimistic? How would you describe it?

Yes. Thanks, Gabe. Yes, maybe just to kind of work through some of your elements of the credit question. I mean, generally we characterize, obviously, we're still in a very kind of elevated level or part of the credit cycle and shipping a little bit is I think we're moving into a period, we're seeing a little bit more stability as we look forward.

And I think that's true both on retail and wholesale, I think, for some time on the retail portfolio, we've been pointing to the fact that the unsecured products have been the ones that we continue to drive our PCL upwards, and that has been very much playing out through 2025. But as we start to look at some of the trends in early delinquencies there, that would start to point to that we're kind of getting closer to that range of being at peak levels, if you will.

The mortgage side, I would say, in '25 and going into '26, there's still some headwinds there as we're very much at the heart of that refinancing period that will put pressure on the mortgage portfolio. But so far, that's playing out very much as we expected. And I think the -- again, the portfolio is very resilient there in terms of both the quality of the client base as well as the very strong underwriting standards that have been in place.

On that part, I would point to our write-offs is just a good indicator of kind of the recoveries strength we've had so far in that space. Wholesale -- and we've seen elevated levels in wholesale in 2025, with the ongoing uncertainty, we would expect that to continue to persist into 2026, particularly around our commercial portfolio and the softness in Canada and the impact of that uncertainty in Canada. But it is a bit more balanced. As I noted, City National in the U.S. side of the portfolio, showing a little more strength right now.

Capital markets, I think, has had some more specific issues that I don't expect would repeat as we look forward. And so overall, I think wholesale, again, will continue to be elevated, but I don't necessarily see anything playing at kind of increasing trends there.

So you put it all together, I think it's just a bit more of a balanced story than kind of the -- kind of increasing levels we've seen through 2025. And we'll get a bit more, I guess, specific in our outlook in Q4 on 2026. But just trying to provide a bit of sense for that trajectory that, again, a difficult part of the credit cycle we're in, but I think kind of that acceleration is slowing down at this point.

So no major shift up or down from what you were seeing in Q2? I know there's a lot more going on in queue, but it sounds sort of stable.

Q2 to Q3, again, Q2, we were coming off -- that was really kind of the actions we took with our performing reserves and allowances. And that was really reflecting coming off the back of liberation Day and really that kind of acute increase in that political and policy uncertainty that we really felt we needed to up our reserves against that possibility, right? And so that was really that new scenario we put in, we really weighted more against that uncertainty.

As this plays out, and as Dave called out as we get more clarity on kind of what's happening on kind of CUSMA trade negotiations, that will either give us the opportunity to release some of that back if that negotiation comes out favorably or we're operating from a position of strength that we've got good reserves in place if that proves to be more negative, if you will. So that was really what we were reacting to in Q2 as opposed to something we were seeing specifically at that point in time in our own portfolio.

Our following question is from Sohrab Movahedi from BMO Capital Markets.

Dave, I just thought I'd maybe go to you. I mean, obviously, you feel good about the quarter. I think the commentary you suggested you made us believe anyway that you feel good about meeting the targets. I think you actually inadvertently slipped up and called it a 17% plus ROE as opposed to the 16%. So like I think you're feeling really good about that.

And Graeme is talking about certainly the uncertainties for sure, but probably a little bit less so quarter-over-quarter. And I guess what I'm trying to kind of figure out here is, is the uncertainty enough to outweigh the feel good if an inorganic opportunity presented itself? Or are you feeling good enough about the fundamentals of the franchise that notwithstanding some of the uncertainties that we're all kind of talking about, you would be willing to be opportunistic in an inorganic situation?

Yes. Thank you for that question. I hope you did pick up from my tone and feeling very good about our results and the strength of those results and the sustainability of the results because they're based on client activity and our ability to take a disproportionate share of what our clients are doing. And anything going forward, obviously requires our clients to be healthy and active. And we're seeing that resilience.

We always do put out that caution that things can change, and there's still a big uncertainty around CUSMA and tariff negotiations that kind of, I think hold investors and hold commercial clients from investing capital and therefore, make us a little bit cautious about nailing down certain commitments about the future right now.

So we're going to take a quarter to look at that. That 17.7% was for this quarter, but we have really strong flows to support that 16-plus percent as we talked about, and we'll see how quickly we grow and accelerate through our Investor Day targets over the coming quarters. So you just stay with us on that, and we'll get to that over the next 2 or 3 months as we continue to build the franchise.

So I think -- that's certainly how -- when it comes to how do you continue to grow, we've got a lot of great inorganic growth opportunities that you saw in my investments, whether it's RBC Clear and the global transaction banking business. We continue to hire in every part of our client-facing business from private banking to wealth management to capital markets, U.S., Canada, Europe, in particular.

And therefore, we are on our front foot as far as continuing to grow the franchise organically with new products and expanded capacity and expanded geographic capacity with City National as well expanding into the Southeast very successfully already.

With that though, however, we continue to think about what inorganic opportunities would look like as any company should do. And we have basically the same kind of objectives, as I articulated over the last 5 years of where we want to grow. We want to grow our wealth franchise, particularly in the United States, but also potentially in Europe as we did with Brewin Dolphin, and we'll continue to look at opportunities. But we have a very high bar on dilution and accretion to the shareholder because of our organic capabilities.

I think what you're seeing, Sohrab and the real strength of our results this year and this quarter is how distracting and how complicated it is to do M&A. And it takes the entire management team to land an HSBC and it takes you away from kind of full focus and attention on your current business. And now you're seeing the RBC management team fully focused on the franchise in front of us and growing the franchise, and these are the results.

So when you look at any acquisition and the time it takes from your management team to integrate that, you've got to put it against type results that this team can put together when it focuses organically. And I always look at that trade-off to say, does this justify taking attention away from the great momentum we have in building out our inorganic capabilities.

Having said that, there are opportunities that could present themselves that I think are very accretive to you as an investor and to our strategic franchise, particularly in the wealth area. But only if it comes at a price, and a set of terms that allows us to do both.

And that's what we loved about our HSBC acquisition. We didn't lose the momentum in our core business while we made this very complex significant integration. And we would look to make sure that was a set of conditions as well in any other organic. So we have the capital. We have some strategic needs to grow wealth and commercial bank in the United States and in Europe, and we'll continue to think about it and to be prepared to act if it makes sense.

A following question is from Mario Mendonca from TD Securities.

Dave, can we stick with you? $3.84 this quarter, if you annualize that, you're getting to a number well above what the Street is forecasting for 2026. So I think -- I don't think you would want us to annualize this number. So what I'm asking is if you could do my job for me to this morning. And tell me what you think Royal overearned this quarter? Like is there some way you can help us think? Because I don't suspect you want us to annualize this quarter. You don't want to set yourself up that way. So help me think through how much you overearned.

I'm going to let Katherine start, and then I'll jump in at the end. But Katherine, why don't you take a swing at that? And then I'll follow up.

I like the question. The way I would come at it, I would actually anchor you back to the guidance that we've provided to give you that I guess, trend line as we go into the last quarter of the year. And so I take you back to the key components of what drives our results. So if I start with our net interest income.

The full year guidance, I increased this quarter, and so we are targeting a mid-teen growth for that. That is continuing with the volume, the resilience that Dave was talking to on the volume. So no change to the guidance that we've provided for mortgage volume. We're seeing moderate growth on the commercial side, we're seeing mid- to high for the second half of the year for capital markets we're continuing down the path of mid growth on that front.

On other income, we don't give specific guidance, but I would take you back to Dave's comments where we do see seasonality in the fourth quarter for capital markets, but we are also seeing optimism from our sponsors from our corporate clients. On the insurance front, really strong quarter.

But Q4, we do, I'll call it, seasonality as we do update our annual actuarial assumptions there. If I take us to NIE, updated our guidance there to say mid to high. And really, we're at that high end because of the variable comp where the expected continued growth on our commissionable revenue. Taxes no change, still in the range of 20% to 22%. And then you've heard Graeme with his comments on the overall PCL.

And the last item that is a significant item, but it can move is their corporate support, and we're looking for that in Q4 to be towards the lower end of the range. Putting that all together, we're expecting still positive strong outlet going into the fourth quarter. So I hope you take away from that. I guess I'm giving you still a little bit of work on that front, Mario, but I hope you can step away from that and arrive at a view for the fourth quarter.

I'll do my best. But on this assumption review in insurance, can you give us a order of magnitude, like is this something meaningful -- you've mentioned a couple of times, so I suspect it matters.

It's Jennifer. So as far as just, I guess, broader context on insurance for a second, as you heard at Investor Day, we are looking to mid-single digits in terms of overall earning capacity year-over-year. So we're still guiding to that for the year. We have had some lumpiness. In Q1, we had a significant recapture client-driven that is not something that we would expect to sustain.

On the actuarial assumptions, we're still working through them. We do have a book of business that we're continuing to run off. And we actually recaptured a couple of those treaties in Q2 to reduce that volatility. But it's going to be actually in line with what we've had in previous years on this book of business. So it's not -- it's a significant adjustment, but there will be -- we will expect Q4 to be lower.

All right. And if I could, let me just finish up with Graeme. We -- on these calls, we often listen to what you say and we try to parse your words, and you sound as others have suggested more comfortable today than you did in Q2. Your peers, however, several of them are sending less comfortable.

And I'm referring specifically now to the retail book. And how you think about your write-offs in retail, I think it's something worth looking at, I believe it's page maybe it was Page 25 or something of your supplement. So the write-offs in retail continue to move higher, but you're suggesting that, that's starting to stabilize.

Your peers, several of them refer to some -- they use the pig in the python analogy in describing how things would continue to deteriorate right until 2026. So I'm trying to figure out if there's a difference between Royal's book of personal loans, cards, lines of credit, at all that sort of thing. If it's different from some of the other peers that are giving us the pig in the python analogy.

Does it matter that Royal's business mix and exposure is to the more affluent versus, say, the mass affluent and some of the other banks? Does that matter? And have you ever seen periods where that difference has appeared in Royal's results?

Thanks, Mario. I'm not sure how to respond to the pig in the python comment, it's not credit terminology we use here. But Again, I wouldn't say a lot has changed quarter-over-quarter. I think we've just progressed closer to kind of that end state. And I just maybe pick on a word Dave used earlier, I know everyone is always interested in when we're going to see kind of that peak of the credit cycle. .

I think what we try to guide to a little bit is we're kind of in that range now, and we would expect to persist in that range now. And so it's not going to be some singular magical quarter where we hit that peak and then instantly it comes down quick off of that. We're just -- we are in a difficult part of the credit cycle that's going to persist into 2026, but we're probably in that range right now.

When we look at our retail franchise, we absolutely do have a very strong client base there, and that has always produced, I think, very strong results for us from a credit perspective. I would look at point at products like our cards business, for example, and kind of the nature of that product set, the nature of who we attract as a bank means that product has always been a very, very strong performer for us from a PCL perspective both on an absolute and a relative basis.

And so we glean a lot from that, from data and insights as well and how that feeds our overall risk programs. But it's -- that is often a good leading indicator for us. It is the one that drives the PCL as we go up. But we're certainly are looking at trends around products like that as we go forward. And so as I said, we're seeing more stability there, and that helps kind of point and guide us as we think about what may play out in 2026.

I would say likewise, as we've been going through the cycle, we've been taking actions to help kind of manage the front book and as flows come in. We've been taking actions to kind of get the clients earlier and ensure we kind of create the best outcomes possible. And again, likewise, in many of these products, we'll start to see some of the benefits of those to offset kind of the ongoing headwinds of weakness in the Canadian economy.

To put all together, again, the quality of that client base, I think the good underwriting standards I think very high discipline we have around our credit processes in retail. That's all kind of what kind of plans to -- how we're thinking about the book now and how that might play out in 2026.

Following question is from Mike Rizvanovic.

I have a couple of quick questions. I wanted to start with Erica. On Slide 6, caught my eye is the chart on the top left quadrant. So it's that recent outperformance in discretionary and travel spend on the cards. Just trying to get my head wrapped around just in light of tariff risk and the unemployment market not looking as robust as it has been as it had been prior to the tariffs dynamic coming into play. What's driving that? Is this just largely unit gains and in gaining market share? Or I'm not sure what I'm missing here. Is it inflation, but what do you think is driving that?

Yes. Thanks for the question, Mike. A couple of things I would say. The cards portfolio for us has been pleasing well from a growth perspective in terms of balance formations and the spend that we're seeing on cards with clients, as Graeme just alluded to, that we feel very comfortable with. And so when we dissect what you're seeing on the top left of that chart, that is the core RBC client who has been performing well from a loss perspective, demonstrating increased confidence in -- as a consumer and their willingness to spend.

And so we've seen those green shoots across the portfolio from the Canadian consumer over this quarter. And so that's what we see on that trend. The other side I would say is that we have taken a lot of action.

We talked today about some of the work that we've done from an AI and modeling perspective, and Dave alluded to it in his remarks related to the Adam model and what we're seeing. We are seeing our ability to deeper penetrate into our client base for those clients demonstrate results for us in our cards portfolio, and you're seeing that in the aggregate balance growth we're seeing, and we're seeing that in the purchase volumes that we're seeing on our cards. And so that I think is just reflective of the strength of the portfolio as well as the consumer becoming more confident.

Our next question is from Paul Holden from CIBC.

It's for Sean. So trying to really figure out the outlook for commercial lending, and let me frame it quickly, if I can. Like I think Dave made comments around commercial customers a little bit more cautious. I think Graeme has suggested something similar in terms of the sort of credit outlook for commercial.

But then at the same time, I think corporate clients, some more positive outlook? And then also when I look at your actual loan growth, it's pretty good, including a small business. So just trying to figure out what is kind of the right outlook here, robust growth, sort of lukewarm growth or is the potential for something that get better, particularly if we get a final trade negotiation with the U.S. done?

Yes. Thanks for the question, Paul. Let me just maybe add some context of Q3, and I'll give some guidance on Q4. So to your point, our sequential growth in Q3 was 1.2%, so in line with the guidance from last quarter of 1% to 1.5%.

Just for context, so that's quite a bit lower than sort of on a rolling 4-quarter basis, we were averaging about 1.7% to 2% growth. At this point, we're maintaining our guidance into Q4 of about 1% to 1.5% with potential to be at the upper end of that range.

As you mentioned, sort of the Q1, Q2 levels of uncertainty and I'd say, historically low business sentiment definitely drove a significant reduction in sort of the conversion onto the balance sheet from our pipelines. But I'd say, relative to 4 to 6 months ago, uncertainty has definitely improved. The business sentiment has definitely improved. But those pipeline conversions haven't really activated yet to, let's say, previous levels. So that's partially why we're maintaining our guidance into the back half of the year.

I'd say we're also encouraged by the narrative around fiscal stimulus. But as you know, action hasn't really sort of driven the activity yet in the marketplace. But the other factors maybe I'd guide you to with respect to our portfolio and why we continue to support our confidence in our Investor Day target, obviously, we benefit from having the largest, most diversified portfolio, as you mentioned, from small business to large corporates across every segment, segment, sector and geography. And we are looking to extend our leadership position in all of those sectors.

We will see the increased contribution from the HSBC portfolio as well. Those pipelines remain quite robust. But similar to the broader RBC portfolio, and I'd say similar to the broader commercial industry, kind of that uncertainty is what's driven the pause in some of the investment activity. And so that's -- those are how I would think about it. We -- slower than recent growth. Outlook remains consistent with Q3 with some sort of green shoots that could drive that to higher growth levels in the midterm.

That's helpful. And I'll leave it there in the interest of time.

Last question is from Matthew Lee from Canaccord Genuity.

Maybe on the Canadian business, both personal and commercial, you delivered really substantial improvements in efficiency I know you called out HSBC synergies, but are there any other items you can talk about that contributing to that cost depression?

Yes. So maybe on the personal bank as it relates to the efficiency ratio, I think the team has done very good job of just general expense management control. You saw that reflected in the results that we have there. So in addition to the HSBC synergies, we're seeing good cost discipline as we think about balancing both the growth that's necessary in the platform and driving that growth and the spend that we need to drive that growth, but as well as making sure that we are disciplined in our costs.

And obviously, the revenue line perspective, we've seen strong revenue growth in the franchise. And as Dave alluded to, that's really on the back of how we're supporting our clients, both strong acquisition and client growth from that side as well as the consolidation of their business at RBC, which is playing off on both sides of the balance sheet, both in our deposit franchise and our lending franchise.

And quickly on the commercial side, to -- consistent with the enterprise and to Katherine's comments, we did achieve 100% of the HSBC cost synergies this quarter. We also had some tailwind from the PPA, which will start to roll off into next year. But given the size of the platform, we have similar to Erica's points, very strong cost discipline within the business while continuing to invest in product platform and coverage to drive growth going forward, both on the volume side and the revenue side. So we're pretty confident in sort of maintaining this level of efficiency ratio based on those factors.

Yes. So this is Dave. So let me try to bring this home. And I appreciate all your comments and trying to understand how to project these outstanding results going forward, and I'm sensitive to that. We are very proud of what we achieved. I think you've gotten a lot of good feedback on where we think results are very sustainable across wealth, capital markets, commercial banking, consumer banking, where they might be a little bit spiky like insurance and some of the changes that might come in Q4. And therefore, let me try to help you kind of forecast this.

I would say, given the significant difference between what we achieved at $5.5 billion versus where consensus was, I would expect as we look at these -- all these factors going forward and all -- again, all conditional on clients continue to transact and no material falloff in our clients' sentiment and ability to continue to do business. I would expect we can produce results in the next quarter that are closer to what we achieved than where consensus was.

So if you look at the difference between the two, I think we can -- we're slightly better than the halfway point and use that as kind of a rough guide on where we think we can come out and all dependent on where clients and where tariffs go and how the world evolves. But I think we're closer to what -- being able continue to achieve what we did than where you thought we were. I hope that helps.

I think it shows the enormous strength of the franchise and ability to earn $5.5 billion to 17.7% ROE and the strength of all our businesses and investments we've made and we're going to continue to build on this going forward is we've got a couple of businesses that can do better as you pointed out, and therefore, our investments that we continue to make, we'll see further growth, and we'll keep moving forward. So thank you for your questions. Thank you for your time. We look forward to seeing you at year-end with a further update. Thanks.

Thank you. That's all the time we had for questions. I would now like to turn the meeting back over to Mr. McKay.

That would be it from our end. Thank you.

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