Good morning, ladies and gentlemen, and welcome to the RBC's 2025 Second 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 re-queue. With that, I'll turn it over to Dave.

Thanks, Asim, and good morning, everyone, and thank you for joining us. Today, we reported second quarter earnings of $4.4 billion. Adjusted earnings were $4.5 billion and included $260 million of earnings from the acquisition of HSBC Bank Canada. This quarter, we generated strong pre-provision pre-tax earnings of nearly $7 billion as we continue to execute the strategies we shared at our Investor Day. Adjusted pre-tax pre-provision growth was up 16% or $971 million from last year, more than offsetting a prudent reserve build of $568 million this quarter. Revenue growth of 11% year-over-year was underpinned by strong average volume growth in Personal Banking and Commercial Banking, as well as higher spreads in Personal Banking. We also reported robust fee-based revenue growth in Wealth Management and strong Global Markets revenue in Capital Markets. Our results demonstrate the strength of our diversified business model and earnings power as well as the value of the insights and advice we deliver for our clients as they navigate the uncertain macro environment. Our revenue growth is noteworthy considering the evolving market conditions. The strong performance was generated from a position of balance sheet strength, which continues to be through-the-cycle competitive and a strategic advantage for RBC. We continue to grow our core deposit franchises across our segments, including in Canadian Banking, whereas the loan-to-deposit ratio improved to 97%, helping fund loan growth in an efficient and stable manner. We ended the quarter with a common equity tier 1 ratio of 13.2%, well above regulatory minimums, translating to excess capital of approximately $5 billion relative to a mid-12% range. Underpinned by a robust capital and earnings power, this morning, we announced a $0.06 or 4% increase in our quarterly dividend. We also announced our intention, subject to relevant approvals, to commence a normal course issuer bid to repurchase for cancellation up to 35 million common shares. We also remain disciplined with respect to our risk management framework and risk appetite. The allowance for credit loss ratio increased to 74 basis points following a prudent reserve build, which included increasing weightings to our downside scenarios amidst heightened economic uncertainty. Our through-the-cycle approach to risk management takes into consideration elevated market volatility. We did not have any trading loss days this quarter. Furthermore, over the last four years, we've only seen five days where we generated trading losses. Our strong balance sheet creates a resilient foundation that allows us to navigate uncertainty while creating value for clients and shareholders. Turning to the macro environment, changes to long-standing U.S. and international trade policies have resulted in a volatile and uncertain operating environment given the potential for structural disruptions to global supply chains and capital flows. These changes are taking place concurrently with other large secular forces of change, including the increased role of artificial intelligence and private capital, magnifying the complexity that businesses are facing. We saw market volatility through much of the quarter evidenced by movements in credit spreads, the VIX, and bond market volatility indices. However, as the U.S. administration implemented a 90-day pause in reciprocal tariffs, the volatility of outcomes, sentiment, and markets narrowed significantly. While we can't say for certain where global trade policies will settle, we are cautiously optimistic about the path forward. Reciprocal tariffs imposed on Canada are currently at the lowest end of the global scale, reflecting strong bilateral trade in the CUSMA agreement. Although we are not projecting a recession in either Canada or the U.S., the prevailing uncertainty is dampening confidence, sentiment, and client activity in certain parts of the North American economy, including housing. North American consumers have remained resilient. They are continuing to spend, albeit less on discretionary items, and savings are growing. Businesses are in a holding pattern on large CapEx but have built inventory and shored up supply chains, moving consumption forward. It's under these complex circumstances that policymakers are looking to navigate the options to solve for inflation, unemployment, and growth. We expect the Bank of Canada will continue to take a more dovish stance to shore up consumer sentiment and growth. Furthermore, we hope to see the increased political uncertainty in Canada drive structural improvements in the country's productivity and competitiveness, including more effectively leveraging our abundant natural resources and skilled workforce. With the Federal Reserve signaling a holding pattern on interest rates, given opposing forces, we similarly expect a more dovish stance in U.S. monetary policy, albeit on a lagged timeline. To reiterate what I said earlier, we believe we're in a strong position to navigate this period of uncertainty given the strength of our balance sheet, our diversified business model, and our strong risk culture. With this context, I will now speak about the trends we're seeing across our businesses as we continue to focus on delivering advice, insights, and value to our clients. Starting with our leadership position in Canada. In Personal Banking, we have the leading distribution network in Canada with a full suite of award-winning products and solutions. Average deposits increased 13% year-over-year or 8% excluding the acquisition of HSBC Canada, led by outsized growth in our lower-cost core banking and savings products. As noted at our Investor Day, growing core deposits remains a priority. This provides us with data to support personalization, underpin risk models, and our interest rate hedging strategy while being an important source of funding. Residential mortgage growth was largely supported by stronger client renewals, higher origination volumes driven by strong mortgage switch in activity, partly offset by higher paydowns. We expect housing resell activity and mortgage growth to remain contained in the near term as the uncertainty around tariffs outweighs lower debt servicing costs from lower interest rates. Amidst ongoing intense competition, we will maintain the disciplined mortgage growth strategy we articulated over the past year. In our credit card business, spending remained relatively resilient despite low consumer sentiment. Going forward, we expect spending to soften and revolving balances to increase year-over-year should the current environment persist. Turning to Commercial Banking, where we have a leading market share across all segments. Average deposit growth remains strong, up 15% year-over-year, or 10% excluding deposits acquired through the acquisition of HSBC Canada. This growth continues to be supported by investments in our people and capabilities, including digital client onboarding and transaction banking. Average net loans and acceptances were up 22% year-over-year, or up 9% excluding loans acquired through HSBC Canada. Adjusting for these acquired loans, larger commercial and corporate loans and small business loans grew at a similar rate. Utilization rates have remained largely unchanged. While the lending pipeline and client activity remains solid across many parts of our diversified portfolio, we continue to see signs of cautious business sentiment in certain areas as clients assess how global tariffs could impact their strategies and investment plans. Loan demand was notably softer for companies in the automotive, consumer discretionary, and transportation sectors. Going forward, we continue to expect Commercial Banking loan growth in the high-single-digit range for next year, but moderate to mid- to high-single-digit growth range in the back half. Turning to HSBC Canada, we are continuing to bring new capabilities to market as we've now completed the migration of the largest and most complex commercial clients acquired through the acquisition of HSBC Canada pursuant to the transition services agreement. As we exit Q2, the execution of cost synergy initiatives is largely complete, and we are increasingly confident of achieving our targeted annualized cost synergies by next quarter. Now to segments in which we are expanding our reach in global fee pools. Starting with Capital Markets, which reported strong pre-provision pre-tax earnings of $1.4 billion or a record $3.1 billion in the first half of the year, reflecting its diversified business model. Global Markets had a strong quarter, driven by increased client activity amidst market volatility, which largely benefited our equities and broader macro trading businesses. This was partly offset by the impact of a challenging market backdrop on credit trading. The strong performance in both cash equities and equity derivatives was particularly notable as they are a key area of focus for market share gains over the medium term. Like Commercial Banking, utilization in the Corporate Banking loan book remained relatively steady. We continue to pursue our strategy to moderately grow lending activity with average loan balances up mid-single digits year-to-date. In contrast, Investment Banking activity was muted this quarter given the volatility in markets. Going forward, policy uncertainty could continue to impact activity as clients wait on the sidelines for clarity. While the second half of the year is seasonally lower or slower than the first half, client dialogue is robust and we are well-positioned to deliver as deal-making momentum improves. Moving to Wealth Management, where we reported assets under administration growth of 11% in Canada and 9% in the U.S. Our clients remain engaged, and we had solid net sales and transactional activity in our Canadian platforms, including in RBC Direct Investing. RBC Global Asset Management assets under management increased by 11% to $694 billion. Net sales were robust across asset classes with client flows shifting from fixed income and equity mandates earlier in the quarter to more balanced funds in April, highlighting our clients' confidence in our wider range of investment strategies across geographies. As a leading asset manager, RBC GAM consistently delivers strong performance through our leading distribution network. This point was underscored with RBC GAM yet again being named the TopGun Investment Team of the Year in Canada for 2025. To close, this quarter builds on the strong start we've had to fiscal 2025 amidst an evolving operating environment. While macro-related uncertainty remains, we are confident in our ability to pursue the ambitions of medium-term targets outlined at our Investor Day in March. This includes our OneRBC approach to extending our leadership in Canada, growing in global fee pools, and leveraging our strong balance sheet, data scale, and AI investments to create more value for clients. The key strategic initiatives designed to accelerate our ambitions are expected to continue to deliver leading risk-adjusted returns and long-term value for our shareholders through a wide range of economic cycles.

Thanks, Dave, and good morning, everyone. This quarter, we reported diluted earnings per share of $3.02. Adjusted diluted earnings per share of $3.12 was up 7% from last year, driven by strong revenue momentum across our businesses and prudent cost management. The acquisition of HSBC Canada and foreign exchange translation impact also benefited results. Turning to capital on Slide 10, we demonstrated our through-the-cycle capital strength and resilience despite the market disruption. Our CET1 ratio came in at 13.2%, flat sequentially. Solid internal capital generation, net of dividends, was partly offset by net credit migration, primarily in our wholesale portfolio. We also continue deploying organic capital across our businesses toward trading-related activities as well as wholesale and personal lending. A key part of our capital deployment strategy is returning capital to our shareholders. This quarter, we repurchased 3 million shares for $488 million, an increase from the 2.3 million shares repurchased over the last two quarters. We will continue to be tactical with the cadence of share repurchases while operating with a strong CET1 ratio. Next quarter, we expect a modest negative impact to our CET1 ratio as a result of changes to our retail capital parameters. Moving to Slide 11, all-bank net interest income was up 22% year-over-year or up 14% excluding trading revenue in HSBC Canada. All-bank net interest margin, excluding trading revenue, was down 2 basis points from last quarter, partly due to the impact of higher investment securities balances in Capital Markets. Lower rates on our funding and securities portfolio in corporate support also impacted all-bank NIM, as a benefit of certain hedging transactions this quarter was recorded in non-interest income with a related offset reported in net interest income. These factors were mostly offset by a favorable product mix in Personal Banking. Canadian Banking NIM was up 5 basis points from last quarter, benefiting from a favorable product mix, higher mortgage spreads, and continued benefits related to our tractor strategy, which provides protection in a declining rate environment. Benefits from changes in product mix were driven by strong growth in checking and savings accounts and seasonally higher credit card revolve rates, the latter of which we expect to reverse next quarter. In addition to our client acquisition strategies, declining interest rates and uncertainty in the markets are driving clients to hold cash in non-maturity deposits as shorter duration term deposits mature. While we expect to continue benefiting from these tailwinds in the near future, we don't anticipate this level of margin expansion to continue. Looking forward, we are maintaining our 2025 all-bank net interest income growth guidance of high-single-digit to low-double-digit net interest income, excluding trading. Moving to Slide 12, reported non-interest expenses were up 5% from last year. Our core expense growth was up 8% year-over-year. As a reminder, core expense growth includes run-rate costs related to the acquisition of HSBC Canada, which contributed 1% to expense growth, but excludes the impact of foreign exchange translation and share-based compensation, which are largely driven by macro variables. The main drivers of growth were higher staff-related costs, including higher-than-average severance, targeted amendments to our defined benefit pension, and higher variable compensation to measure it with strong results in Wealth Management. Going forward, we continue to expect all-bank core expense growth, which is off a base of reported 2024 expenses, to be at the upper end of our mid-single-digit guidance range for 2025. We remain prudent in managing our cost base amidst an uncertain macroeconomic backdrop and have proactively identified levers to do so. Higher-than-expected core expense growth outside our guidance range for this year will likely reflect higher-than-expected variable compensation to measure it with higher revenues in our market-sensitive businesses. Consequently, we continue to expect positive operating leverage for the year. On taxes, the adjusted non-TEB effective tax rate was 20.6% this quarter, up from 19.8% last year. The increase reflects the impact of changes in earnings mix and Pillar Two tax legislation, partly offset by the net impact of tax adjustments. Turning to our Q2 segment results beginning on Slide 13. Personal Banking reported earnings of $1.6 billion. Focusing on Personal Banking Canada, net income was up 15% year-over-year. Excluding HSBC Canada, Personal Banking Canada's net income rose 8% year-over-year as strong operating leverage of approximately 6% was partly offset by higher provisions for credit loss. Personal Banking's efficiency ratio improved to 41% this quarter, underpinned by strong revenue growth. Higher year-over-year revenues, excluding HSBC Canada, benefited from a 14% increase in net interest income and an 8% increase in non-interest income. We are maintaining the sub-40% efficiency ratio target noted at our Investor Day. However, as a reminder, benefits from the purchase accounting accretion of fair value adjustments from the HSBC Canada transaction are expected to largely run off by Q2 2026.

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. After a stronger-than-expected start to the year, Canadian and U.S. economic indicators softened over the second quarter, as momentum stalled by global trade uncertainty. U.S. trade policy and bouts of market volatility are creating uncertain conditions, increasing the odds of a recession in North America. Although tariffs imposed on Canada were not as severe and broad-based as initially expected, global and sector-specific impacts are creating economic risks, including reduced trade, higher input costs, and supply chain disruptions. The final form of tariffs is still unknown and it is too soon to know how they will work through the economy. Against this backdrop, we continue to lean on our robust credit provisioning process to inform our allowances. As a reminder, we are not managing to one scenario or forecast. Within our IFRS 9 framework, we employ five separate scenarios: a base case, an optimistic scenario, and three downside scenarios of varying severity. This allows us to better handle forecasting uncertainty and incorporate a larger range of potential risks. Compared to last quarter, our base case reflects a greater slowdown in the North American economy from tariffs already known and imposed, which we expect will be in place for at least six months before easing. We expect Canada and the U.S. will narrowly avoid a recession as higher inflation and unemployment are expected to be offset by interest rate reductions in both countries, providing relief to borrowers and stimulating investments. Given the trade-related uncertainty, we implemented a new trade disruption downside scenario this quarter, which replaces our previous oil and gas downside scenario. This new scenario reflects the potential for a severe North American recession, driven by an escalating global trade war and rising geopolitical risks. That translates into a rapid rise in unemployment, higher inflation, disruptions in supply chains, and a sharpened decrease in asset prices. The trade disruption scenario and other downside scenarios help us evaluate risks that we have not yet observed. Given the high degree of geopolitical and economic uncertainty, we have reduced the weighting in our base case and reallocated it toward the trade disruption scenario. We would expect to decrease the weighting on our downside scenarios as and when there is greater clarity of tariff-related outcomes, and those are captured in our base case scenario. In the retail portfolio, clients continue to demonstrate resilience, with credit performance improving as interest rate cuts and wage growth have made it easier to service debt. Mortgage renewal pricing and refinancing risk have played out better than we anticipated. Housing prices have also generally held up well. While we are seeing more balanced conditions in the Canadian housing market with improving home affordability due to lower interest rates and rising inventory levels, we are monitoring risks, including a risk of further slowdown in the condo segment and certain regions harder hit by economic weakness. We remain well-provisioned on performing loans in the home equity finance portfolio, and we have built higher allowances in segments of the housing market where we see higher risk. We also continue to monitor our condo developer portfolio as new condo sales cool off. For context, our exposure to high-rise condo developers represents only about 1% of total loans and acceptances. This portfolio has a very strong credit profile that reflects our focus on top-tier developers supported by prudent underwriting standards such as minimum presales backed by buyer deposits, minimum borrower equity, and sufficient liquidity to support a project. Turning to Slide 19, we took a total of $568 million or 23 basis points of provisions on performing loans this quarter, an increase of $500 million from the prior quarter, mainly reflecting unfavorable changes to our macroeconomic forecasts and credit quality. The significant increase in provisions on performing loans is meant to capture a broad range of potential outcomes due to the heightened uncertainty I spoke to earlier. As a reference point, the ratio of allowances for credit losses to total loans and acceptances is 74 basis points, while we reached the COVID peak of 89 basis points in 2020. This marks the 12th consecutive quarter where we added reserves on performing loans resulting in a total allowance for credit losses of $7.5 billion. Moving to Slide 20, gross impaired loans of $8.9 billion were up $1.1 billion or 10 basis points from last quarter, primarily driven by Commercial Banking and Capital Markets. In Capital Markets, we saw new formations in the U.S. commercial real estate office portfolio, reflecting continued softness in the U.S. office market conditions. In Commercial Banking, while new formations increased $512 million quarter-over-quarter, the majority of this increase was driven by administrative factors that have subsequently been resolved. The largest ongoing impairment this quarter was related to the insolvency of a large retailer in Canada, where we had related commercial real estate exposure. Turning to Slide 21, provisions for credit loss on impaired loans of 35 basis points was down 4 basis points or $133 million quarter-over-quarter with lower provisions across most segments. In Personal Banking, provisions were down $17 million, driven by lower provisions in other personal lending and residential mortgages. Consumer clients continue to show resilience, but unemployment is expected to lead to higher losses in our unsecured portfolios. In our Commercial Banking portfolio, provisions were down $22 million, reflecting a moderation of provisions from the HSBC Canada commercial portfolio as we had anticipated. Overall, the commercial portfolio continues to be impacted by softer economic conditions and consumer spending in Canada. We expect provisions for credit loss in the commercial segment to remain elevated in the coming quarters considering the added uncertainty from tariffs. In Capital Markets, provisions were down $100 million as we had a large provision on one account in the other services sector in Q1, which is partially offset by a few new impairments in the U.S. office real estate this quarter. Within our broader commercial real estate portfolio, headwinds still exist and will continue to play out over an extended period. As we have seen, impairments can be uneven and less predictable on a quarterly basis. However, realized losses have been well contained on the back of our strong client base and underwriting standards. To conclude, despite the uncertainty in the macroeconomic and policy environment, we are pleased with the overall diversification and performance of our portfolios. While sustained trade uncertainty could create recessionary conditions, the range of outcomes are well within the stress and downside scenarios we currently consider, giving us confidence in our financial resilience through the cycle.

Hi, good morning. I'd like to ask about your increase in gross impaired loans, particularly since you mentioned that a significant portion is related to a large Canadian retailer. How much discretion are you using to classify loans as impaired? One view is that this might be a specific issue for your bank. We've observed a few quarters with higher gross impaired loans, but it could be that the bank is being more proactive in its classifications. They might still be making payments, but you're reevaluating the risk and deciding to classify them as impaired, which suggests a more conservative approach compared to other banks.

Hi, Gabriel. It's Graeme. Thanks for your question. To provide some context on the growth of GIL this quarter, we saw an increase of over $1 billion compared to the previous quarter. As I mentioned earlier, approximately 40% of that increase was due to some administrative issues, which have since been resolved. Therefore, the overall growth may not be as substantial as it initially appears. Regarding your question about discretion, I can't speak for other institutions, but we have clear processes and criteria for determining when a loan is considered impaired. These criteria are not solely based on a company's payment status; they also take into account our future outlook for that company. Some companies we've classified as impaired over the last two quarters are still making interest payments to us. We incorporate those payments into our reserves as we receive them. While there is some element of discretion, we maintain consistency in our processes and have not altered our approach in recent quarters. I should also mention that impairment in wholesale can be more variable from quarter to quarter compared to retail. Looking back to the latter half of last year, we observed very low impairment in our wholesale businesses, which we noted at the time was likely not reflective of the overall cycle. Therefore, it's important to examine trends over longer periods rather than viewing this quarter as something exceptional or indicative of a new trend.

Okay. Can you clarify that administrative comment? So, 40% of the $1 billion increase is related to administrative and technical matters, and those have been resolved. Am I correct in thinking that this will move in the opposite direction next quarter? Is that how it works?

Yeah, that's correct. Specifically, directly and indirectly to us just kind of finalizing some of the final pieces of integrating HSBC into our processes, and as we work through the final kind of credit elements of that, there were some queues, particularly related to some term loans that were up for renewal that just didn't get renewed on our normal timelines. And so, those tripped into impaired. None of those were credit issues, those have all been successfully renewed and resolved. And so, yes, those will go in the other direction next quarter.

Good morning. I wanted to follow-up actually Graeme with you on credit. So, sorry if I missed this. I'm not sure if you talked about what your expectations were on impaired PCL for the back half of the year. And just talk to us as you think about peak PCLs being pushed into 2026, are there new areas of stress within the book? So, are there areas within sort of the commercial book where you're seeing stress maybe due to tariffs or a prolonged kind of a slow economy that are emerging, which are informing that we own? I'm just trying to think about as we think about all these macro reserve builds, is it just conservative management of building reserves, or do you have a sense of a line of sight on how this plays out and the stress areas maybe already beginning to emerge where future losses could come through? Thanks.

Thanks, Ebrahim. To provide some insight on that, our slide on the ACL build outlines the various drivers contributing to it. The primary components include credit migration, which reflects our clients' risk and financial profiles. This quarter, credit migration accounted for about 20% of the build, which aligns with our previous trends but is actually lower than what we've observed in earlier quarters. Therefore, we aren't currently seeing new areas of credit concern related to our clients. The remaining 80% of the build is primarily influenced by our outlook for the future and the uncertainty surrounding it. Our base case this quarter is somewhat weaker, particularly as we've revised our expectations for unemployment upward and slightly adjusted our views on housing price index and GDP. This highlights the current market uncertainty. Moreover, we introduced a new scenario that increases the weights applied to existing pessimistic scenarios, although it hasn't led to a significant rise in reserves. This adjustment is our way of addressing the uncertain environment and proactively preparing for potential outcomes.

Understood. And maybe I guess just one for you, Katherine, around rate sensitivity as we think about on a go-forward basis. I appreciate you are sort of guiding to NII growth. Perhaps if you can tell us what would drive NII into that low-double-digits versus high-single-digits? Is it balance sheet growth, loan growth needs to pick up to get us there? And then, as we think about future sort of Bank of Canada rate cuts, how do you sort of think about the direct impact on NII relative to what the Bank of Canada or the Fed does? And I see the disclosure on Slide 26, but would love some color around that. Thank you.

Good morning, Ebrahim. Thanks for the question. So, in relation to our outlook on the NII excluding trading, maybe I'll just take you through our underlying kind of assumptions on how we arrived at that guidance. And as I go through that, you'll get a sense of what could move us in that range. So, if I start off with volume, our volume, we're holding to the guidance that we disclosed actually back in Q4. So, on a mortgage basis, we are still targeting low-single-digits. And as Dave would have mentioned in his remarks, we're cautious on the outlook on that front, but we're still seeing progress in that low-single-digit. As it relates to Commercial, for the full year, looking to still hold volumes at high-single-digits, but for the second half, again, given the cautiousness that we are seeing from some clients, we're expecting that to be more towards mid-to-high in the second half of the year. And then, on our Corporate Banking, continuing to see moderate growth, and we're expecting that to hold as we go through the second half of the year. So overall, on the volumes, those are our expectations where it could shift is really around the client behavior for the second half of the year and around the cautiousness and how we see that play out. As we move to NIM, that was obviously another key part of our guidance, a couple of items there. So, on the tractor front, continue to see that positive moving through. What could continue to underpin that is a strong growth in deposits that we're seeing, which is obviously key to our overall deposit acquisition strategy. And so, what we're seeing with that higher growth is we're putting more into tractors. It's not an immediate impact, but it's positive overall. As I said in my remarks, we have the seasonal movement, so that will impact NIM as we go forward. And then, I guess, a couple of the unknowns that I've spoken about before really ties into the mix shift as well as competitive behaviors. On the mix shift, we've been seeing that as a positive tailwind as we're seeing GICs start to come down. We're seeing the non-term maturities continue to grow and clients are holding their funds there. So that's accretive to NIM. So, as we go throughout the rest of the year, if we continue to see that trend, that would be accretive. And then, on the competition front, we continue to see pressures on the GIC front, a little bit on the mortgages. It's starting to pull back. But depending on how that plays out through the second half of the year, that's another item that could move us in our guidance on the net interest income excluding trading.

Good morning. Graeme, you sound a little bit more cautious on credit than I'm hearing from other banks. Like your point about PCLs peaking in 2026 is a little different. We're hearing slightly different sentiment from the other banks. This morning, you probably would have seen that the U.S. Court of International Trade has sort of struck down the reciprocal tariffs, the 10% baseline tariffs. I know this is hot off the press, but does that change your outlook if in fact this whole tariff scare was just one giant head fake? Would that build greater confidence for you on PCLs for Royal?

It's a valid question. I'll start with the macro perspective. We established our scenarios over a month ago, and the situation is dynamic and continues to be unpredictable, which is part of our challenge and a key reason we created formations. We still need to navigate the CUSMA renegotiation with the U.S., and the implications for the auto industry, dairy industry, agriculture, and forestry are uncertain. Even though the short-term reciprocal tariffs seem to be permissible, it doesn't guarantee a long-term agreement with the United States regarding trade. Hence, we need to manage our approach moving forward. The medium-term uncertainty remains as we work through various factors. The shorter-term volatility, along with reciprocal tariffs and associated costs, contributes to this uncertainty, affecting capital allocation in areas ranging from mortgages to mergers and acquisitions. This uncertainty continues to impact the Canadian economy and its forward momentum. While the recent ruling offers some clarity, it doesn't significantly reduce the overall uncertainty, but it does help set the groundwork for potential renegotiations of USMCA over the next six months.

Yeah. I think, Dave covered it all. I mean, certainly, what's transpired in May, there would be some positive signals in May that didn't exist in April. I would also say I'm not sure those positive signals are taking us anywhere towards conclusion on kind of where this is going to land, where it's going to land or quite frankly when it's going to land either. So, I think, yes, we'd have a degree of caution with that, Mario, and we'll certainly evaluate kind of what we learn in the coming months and adjust accordingly. If we feel a lot stronger that this is going to land sooner and better than we are thinking right now, then that will lead us to kind of adjust our weights and reserves accordingly. They are intended to be dynamic, but I think at this point in time, it was prudent to be building against that uncertainty.

I think it's important to note that this is a Stage 1 and 2 provision. We haven't utilized it; it's still available to us. If we find that our initial assessment was incorrect, we can release it today. There's no downside to being cautious given the current uncertainty.

Thank you. Good morning. Two quick questions or hopefully they're quick. First one maybe for Derek and sort of dovetailing off what Mario just asked. Given your pipeline for, say, M&A, ECM, et cetera and maybe some improvement and certainty around tariffs, like how quickly do you think IB activity can bounce back if the market gets more comfortable with the tariff outlook?

Sure. Thanks for the question, Paul. I'd really break it into two things, sort of how quickly does activity bounce back and then how quickly does activity actually lead to consummated transactions and revenue in the business because there obviously is a time lag depending on the nature of the transaction. I think if you look at where we were sitting in April at the peak of uncertainty around tariffs and the economic outlook, we saw a very short but very pronounced slowdown in activity. As Dave alluded to, there was a lot of uncertainty and clients really hit pause, whether that be on financing activity or longer-term strategic capital allocation decisions, including M&A. As we have seen more signs of optimism, including obviously some of the announcements last night and this morning, we certainly are seeing a pickup in activity as we've come through recent weeks. You tend to see that in different phases. So, the first is you see that pickup in your flow financing activity, whether that be DCM, ECM, high-yield issuance, term loan issuance. And already in May, there's been a reasonably healthy improvement in that regard, both in terms of activity, but also just client dialogue. Any of that kind of flow activity also then results in transactions being completed quite quickly. The second part then is longer-term, more strategic M&A activity. We certainly are seeing an improvement in sentiment and more dialogue and lots of client dialogue going on. But where there still is uncertainty is how quickly does that actually translate into announced transactions and then what's the period of time through closing. I think in the month of May across all of our geographies, we've seen some very nice transaction activity and some deals being announced, but there's a lot where Boards and executive management teams are still evaluating what the world's going to look like over the next 12 to 24 months. So, there will be a delay in some of that coming to fruition. And then obviously, depending on the sector or the nature of the transaction, closing can be anywhere from three months to 18 months depending on regulatory approvals or otherwise. But overall, certainly, the outlook is notably improved from where we were six weeks ago.

Okay. That's very helpful. Thank you. And then I'll just sneak in a second quick one, if you don't mind. For Sean, just very strong growth in Commercial Banking and we heard from Katherine sort of the outlook somewhat slowing in the second half. But just maybe a reminder on where you're growing in Commercial, because it looks like you're picking up some share based on what we've seen from your peer banks. And then, two, quite a big difference in the net interest margin Q-over-Q in Commercial Banking versus the Personal Bank. So maybe just want to better understand why the NIM is going lower in Commercial Banking given the strong loan growth.

Thank you for the question, Paul. I'll address the second one first. The changes are mainly due to migrations and the transition between net interest margin and other income, which are largely offset by other revenue contributors. Year-over-year, this impact will lessen as we complete the transition in the next quarter. Regarding growth in the portfolio, this reflects the ongoing implementation of our multi-year strategy to enhance coverage and underwriting expertise and to improve structured banking capabilities to foster growth in larger segments of our portfolio, particularly within our senior commercial and corporate client groups. This has been executed effectively and is also a recovery from previous underperformance earlier in the decade. Over the past five years, our growth rate is close to the industry average, approximately 1% higher. As Dave pointed out, amidst the uncertainty, we are indeed witnessing a slowdown in sequential growth. For instance, our rolling four-quarter average for sequential growth was about 2.5%. In Q1, it was 1.8%, and in this quarter, compared to Q1, it measured at 1.6%. As Katherine mentioned, our outlook for the second half of this year is in the mid-single digits to the lower end of high-single digits, which would translate to around 1% to 1.5% sequential growth quarter-over-quarter for the next two quarters.

Okay. Thank you. Graeme, roughly half of the performing build looks to have been kind of charged to the Commercial Bank. Can you talk a little bit about the industry sectors there that were targeted by the build?

Thank you, Sohrab. In terms of the commercial outlook, we are focused on the ongoing macroeconomic environment and how we anticipate developments in the future. I would note that the same sectors under pressure continue to experience challenges, specifically the supply chain, industrial, manufacturing, and transportation sectors. These are the main areas we identify as being affected. We have conducted a detailed analysis to understand which sectors may be most significantly impacted by tariffs. This is challenging because tariffs can fluctuate frequently in terms of their impact and application. We examine those sectors with substantial import/export dependencies and evaluate their capacity to absorb additional costs. Ultimately, our analysis indicates that significant portions of the affected sectors align with those that have already faced difficulties.

Yeah. As we articulated in our Investor Day presentation, that's a three-year target. So, to your point, there's a number of contributing factors that's driven at lower than the recency. Obviously, the reserve build this quarter, as Katherine highlighted last quarter, the allocation of the capital methodology into the businesses was about 70 basis points. And then, about 90 basis points of the reductions also the goodwill allocation from the HSBC acquisition. And so, our projections are to rebuild to 18% in three years.

Hey, good morning. A question for Graeme, and this is more of a qualitative question. But when I look at your GIL ratio on the mortgage book, I get it that it's relatively low among your peers, but it's actually deteriorated the most over the past year. And I'm sort of wondering if that's largely related to the HSBC client base coming in. I do think there's a perception in the market that Royal's customer base, including on the retail side, tends to be of better quality, lower risk, probably better FICO score. Are you still sticking with that narrative if you do agree with it? And is this largely HSBC related?

Yeah. Thanks, Mike. No, I do not think that's HSBC related. The client base we absorb from HSBC is very high quality and actually skews higher than the rest of our consumer book and mortgage book. So, though that is not what's driving that narrative. I think partly what's driving that is a mixed question and the markets that are more challenged by kind of the higher payment environment, this would be the GPAs of the world that are really driving our impairments these days. So, I think, again, overall, the quality of our client base continues to be very strong. The performance there continues to be very strong. We feel very good about that book and the structure there. And the ultimate write-offs, if you follow that through, have been very low because of that. But we are seeing impairments as more clients are facing more challenges in this higher rate environment at the end of the day.

I believe that over the past year in our mortgage portfolio, we have observed the balance we mentioned earlier, looking at the volume we are adding and the margins associated with that business. Year-over-year, we are witnessing our capacity to revive the mortgage business from previously low profitability levels, especially when our spreads had decreased to a point where we need to improve our return on equity. We continue to see positive signs in this sector contributing more to the overall profitability of the Personal Bank. However, we are still not at the profitability levels we experienced 24 to 36 months ago regarding the contribution of our mortgage portfolio to the Personal Bank's earnings. We are carefully balancing our growth targets with the returns from this market as we work towards achieving higher earnings from our overall mortgage business.

I'm not sure if you're comfortable providing a rough estimate or if we should discuss it later, but is 10% a reasonable figure? Would the mortgage business account for about 10% of the segment revenue, or is it somewhat higher or lower than that?

Yeah. So, let's take that question offline and we can discuss post.

Yeah. Thanks. My question is for Graeme. I guess going back to last quarter, I guess the bank felt the downside scenario appropriately accounted for trade uncertainty. Can you walk me through what drove your decision to introduce another scenario? Because I would have thought that with a sufficiently conservative downside scenario before the ability to shift weights between scenarios and layer in ECJ, there would have been a very compelling reason to introduce a whole new scenario. So, I guess walk me through why you decided you needed to go through the trouble of introducing a new scenario rather than using some of the levers I mentioned, because those seem to me much simpler than introducing a new scenario. Does it feel like perhaps a trade war has a real risk of persisting far longer into the future than perhaps the banks are messaging this quarter?

Thank you. After Q1, things began to unfold in early February when we closed our quarter. We had been analyzing the situation in the background, but as we moved through Q2, especially around April with Liberation Day, the level of concern and uncertainty increased significantly. While we had a general pessimistic scenario of similar severity, we wanted to create something that directly addressed the specific current concerns and the risks we're facing now. Although this didn't change our overall numbers, it did affect how we allocate reserves and highlighted the areas of risk we are more worried about. This approach allows us to effectively leverage our framework instead of relying solely on overlays and management judgment, which can be more subjective. We prefer to utilize our framework as it is rather than overriding it with our own judgments.

Okay. So, I think that's our last question, and I will wrap things up. We appreciate your comments. As we went through the quarter and we prepared for the call today, we knew that your focus would be on our reserve build and the GILs in the portfolio. And let me just take us back to the top, though. We did show very strong pre-tax pre-provision growth, very strong client levels, activity levels, particularly in Personal and Commercial Banking and on the deposit side. We delivered really good revenue growth. We had very strong operating leverage. And as you heard in the credit side, as we went through these scenarios in our Stage 1 and 2 reserve build, we knew there's conservatism. We didn't know it would be that different than our peers at the end of the day, but we do these things obviously in isolation. We knew that would cause us at the top of the house to miss expectations, but we still took them at the end of the day, because that's what the scenarios advised us. But they are a conservative scenario where 80% of that reserve build is macroeconomic estimates of the future. And everyone can have a different view, but we took that. It's not like we spent that money that goes into an ACL. And if we're wrong, we'll release it. So, we knew that conservatism may cause the types of questions you asked today. But don't forget the very strong overall performance we saw executing on HSBC, we saw execution on City National, all that led to very strong overall revenue and pre-tax pre-provision profit results and strong net income results. And I'll remind you again, we increased our dividend by $0.06, showing our confidence. And we continue to do buybacks because we know where the intrinsic value of the firm is, and we'll continue to buy back shares even at these elevated evaluations. All that signifies, notwithstanding, we took some prudent reserves that you're reacting to our confidence in the future. So, thanks very much for your questions, and we look forward to seeing you next quarter.

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