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

Thanks, and good morning. Speaking today will be Dave McKay, President and Chief Executive Officer; Rod Bolger, Chief Financial Officer; and Graeme Hepworth, Chief Risk Officer. Then we'll open the call for questions. To give everyone a chance to ask a question, please limit your questions and then re-queue. We also have with us in the room, Neil McLaughlin, Group Head of Personal & Commercial Banking; Doug Guzman, Group Head, Wealth Management and Insurance; and Doug McGregor, Group Head, Capital Markets and Investor & Treasury Services. As noted on Slide 2, our comments may contain forward-looking statements, which involve assumptions and have inherent risks and uncertainties. Actual results could differ materially. With that, I'll turn it over to Dave.

Thanks, Dave, and good morning, everyone, and thanks for joining us today. We reported record earnings and record revenues in the third quarter against strong economic back drop. We’ve been investing to grow organically in our key markets and our investments are paying off. All of our large businesses saw strong earnings growth in the third quarter and we had market share gains in our core franchises. Our focus on risk and cost control is leading to strong credit quality, as well as efficiency improvements in our retail banking and wealth management businesses. We’re also managing capital efficiently to drive a premium ROE and long-term shareholder value. Our capital ratios grew in the quarter, even as we invested to grow client relationships and our CET1 ratio is now over 11%. I’m pleased to announce a $0.04 increase to our dividend this morning, bringing our quarterly dividend to $0.98 per share. Before expanding on our results, I would like to touch on the macro environment. Globally, we're seeing rising protectionism and trade uncertainty, which is translating into some volatility in financial markets, as well as instability in countries like Turkey and Venezuela where we do not have any material direct exposure. Although geopolitical and trade risks have risen, our core markets remain stable. GDP growth remains healthy and employment trends remain strong in North America, which bodes well for our near-term outlook. Against this solid economic backdrop, our Canadian Banking business generated record revenue this quarter surpassing $4 billion. We’re leveraging our unique assets such as scale and distribution and payments to drive client activity and market share growth. For example, we service our clients holistically across our broad product sweep, including deposits and investments, which are growing over 7%. We’re seeing strong industry demand for commercial credit and the investments…

Thanks Dave, and good morning everyone. Slot starting on Slide 6, we had strong third-quarter earnings of $3.1 billion, up 11% from last year. Diluted EPS of $2.10 was up 14%. We had higher than normal severance costs last year, which provided a left to earnings growth this quarter. This was mostly offset by a $90 million increase in PCL and performing loans, which I will touch on shortly. Revenue from retail banking was bolstered by strong client volumes and rising rates, and our wealth management franchise, continued to benefit from strong net sales and market appreciation. Our expenses were up 6% from a year ago or 8%, excluding the severance we took last year. While we’ve been investing strategically in technology and ventures, we have delivered strong operating leverage this quarter in both Canadian banking and Wealth Management. Our investment discipline is leading to revenue growth opportunities in our core franchises. And we expect to drive efficiencies as we set out at our Investor Day in June. The increase in PCL on performing loans largely reflects accounting rules, as well as solid volume growth. Cautionary elements were reflected in our Stage I and II provisions as external risks to macroeconomic outlook have risen. The complex nature of IFRS 9 accounting creates quarterly volatility despite strong underlying fundamentals. And I would point to our year-to-date PCL on performing loans, which was just $79 million or 2 basis points. Our credit quality remains strong as evidenced by lower impaired loans continued low PCL on impaired loans, and overall favorable credit trends. Our effective tax rate was slightly above 20% in Q3. Given our business mix outlook, we expect our total effective tax rate to be near the low end of a 21% to 23% range over the course of the year.…

Thank you, Rod, and good morning. During the quarter, we continued to see a strong micro economic backdrop in Canada and the United States as both economies exhibited low unemployment, steady inflation, and solid GDP growth. As macroeconomic backdrop continued to deliver a positive and stable credit environment, our baseline expectation is that it will continue in the near-term. However, as Dave mentioned earlier, there is some uncertainty related to trade and other geopolitical events. As such, we have taken this uncertainty into account in our credit provisions on performing loans this quarter. We’re actively monitoring our exposure to trade -related developments and remain confident that we can manage within our risk appetite. Overall, our credit quality remains strong as evidenced by PCL on impaired loans as shown on Slide 15. Slide 16 shows our PCL on impaired and performing loans by business line. In Canadian Banking, PCL on impaired loans remained relatively flat quarter-over-quarter with lower PCL and commercial offset by personal lending and HELOC. Caribbean banking also had lower PCL on impaired loans. In Wealth Management, PCL on impaired loans decreased 10 million from last quarter, primarily reflecting recoveries associated with loans returning to performing status at City National. In capital markets, the quarter-over-quarter decline was driven by recoveries on a few accounts, as well as low levels of new impaired loans. As mentioned earlier, the increase in PCL on performing loans reflects both volume growth, as well as greater uncertainty in the macroeconomic outlook. Year-to-date, PCL on performing loans is $79 million or 2 basis points, which is largely in-line with the growth of our portfolio. Turning to Slide 17, growth impaired loans have declined to a relatively low level of $2.3 billion. This was largely driven by our wholesale portfolio with repayments, loans returning to performing…

Thank you. [Operator Instructions] The first question is from Ebrahim Poonawala from BofA Merrill Lynch. Please go ahead.

Good morning. Rod, I just wanted to follow-up on your comments on the Canadian net interest margin outlook and one in terms of, you mentioned some pressure on the mortgage lending front, if you can help us understand as we look out over the next year, kind of, do we need overall volume growth for the economy to pick up that has less combination and spreads both on the asset and the funding side get better or do we need a change in sort of the yield curve to get sort of margin back to kind of what we previously expected, and does your update today change the disclosure you provided at the Investor Day where you kind of laid out your NII expectations through 2021 from current and future rate hikes?

Thanks, Ebrahim. On the last question, no, our outlook is not changed and that is partially because the outlook for interest rate increases in Canada is a little bit higher than it was in June, and I would say that there is a partial offset given the pressures that I outline, which are two-fold and you asked if it was pricing and or yield curve, and it is both. So, on the pricing side, certainly the competitive pricing is there, but part of that is driven by the yield curve. If you look back three months, when we gave the prior guidance, the overnight rate is up 25 basis points. The three-year swap rate is down 4 basis points, the five-year swap rate is down 16 basis points. As a result, the five-year fixed rate mortgage pricing in the market has not changed over that three months. So, while you had an increase in the overnight rate, the mortgage pricing did not increase. Part of that is competitive and volume driven, and part of that is the yield curve. So, as you look out and try to anticipate what’s going to happen in the future, I would look at the relationships between that overnight rate, the three-year and the five-year to look towards that. I would also say that the deposit betas have not behaved differently than what we would've expected.

Understood. And just as a follow-up to that, anything on the commercial loan spreads, obviously, all banks have seen strong growth there, but sort of tying it to Dave’s comments around business investment, NAFTA overhang, et cetera, do we start seeing pressure in commercial loan spread, have they behaved differently from mortgage over the last year?

They have behaved better. That’s a competitive market as all these markets are. So, there is always pressure there, but they’ve held up better in terms of spreads than the mortgage side.

Got it. Thank you.

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

Good morning. I appreciate the disclosure that you added in on the U.S. side of the equation in terms of the total revenues and earnings, but it begs the question, does the Royal actually have an optimal mix that you are looking towards call it, you know longer-term five years down the road, in terms of contribution from the U.S. and then within that, do you see any shifting of the components within wealth management and capital markets within that contribution?

Thanks, John. It’s Dave. I’ll start with that question and may be Rod wants to chime in. But certainly, one of the reasons we made the acquisition of City National was the ability to lever our existing wealth platform for growth and we’re very excited about the growth opportunities you saw, outstanding growth in City National. Not only the balance sheet growth, but also the P&L growth, margin expansion, a very exciting story and a very exciting growth opportunity. So, the answer is, yes. We do see increasingly a shift as we scale that operation in United States as we move into new markets as I talked about whether it’s Nashville, Washington expanding New York. We see a geographic expansion in that market. So, I would see the overall mix of the bank level as you see strong capital markets in U.S. wealth opportunities for growth and I would also say within the U.S. market you should see accelerated growth opportunities in U.S. wealth on the organic side. So, yes to both. at the top of the house and within the U.S.

But they have no specific target that you are looking to achieve within a sustained period of time and the flip side to that is, then if the U.S. continues to grow there is no concern of being on a relative basis over with the U.S. relative to the Canadian contribution?

No. I think we don't set targets in the context of changing our strategy. We’re trying to grow long-term client franchises with deep client relationships with multiproduct cross-sell from capital markets through to our commercial and high network customers and we see strong growth opportunities. But given that, it’s a good return on investment for us, it represents a deep and attractive marketplace. We don't bound the growth there from that perspective. They are quality clients, quality assets, good credit risk. We like that customer franchise and you want to grow it, and it’s a deep market.

Thanks, Dave. I appreciate the color. I’ll requeue.

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

Hi, good morning. I just wanted to go back to the Canadian margin and in Q2 you mentioned that if mortgage balances grow at half your expected rate that the impact on 2019 revenue would be less than the benefit from one BoC rate hike, I am wondering whether that you would still stand by that statement or that changes in light of sort of discussion on margin pressure that you mentioned?

I would say that still holds, I mean if you look at the margin expansion over the course of the year, year-over-year it’s 13 basis points, so that’s given us quite a lift in net interest margin and revenue, and I would expect continued upward pressure on that, which is a good pressure to have, and as I also mentioned, our mortgage growth rate has held up, just shy of 6%. We had talked about if that had fallen by half the impact on revenue and the year would have been less than the benefits from the rate increase and that still holds.

Thanks for that. And then if I could just ask about capital markets U.S. financial regulators are proposing changes to the Volcker Rule to ease the Volcker Rule some U.S. banks have come out opposed to that wondering what your view is and does this potential change create an opportunity for Royal or is it a headwind, what’s your view?

I don't think any of the contemplated changes, at least the ones that I have read about and hard about would cause a problem. I think, the Volcker Rule is complicated and it is difficult to manage because of the issue of inventories and client demand and really just being compliant. I would say there is a significant expense in the compliance around Volcker, and hopefully we're going to get some relief from that. I don't think we’d go all the way back to prop trading, we had a significant business before the Volcker Rule came in, but I don't see that happening, but I think any of the changes that are contemplated will probably just give us some relief on some of the compliance cost.

Thank you.

Thank you. The next question is from Steve Theriault with Eight Capital. Please go ahead.

Thanks so much. A couple from me. First question on the capital schedule and capital accretion, when I look through the schedule on the side, it looks like capital markets drove a lot of the RWA increase in the quarter, and in the supplement, it was on Page 30, it looks like capital market strives about 6 billion of the closer to $10 billion increase in RWA this quarter. When looking the division, loans are up a couple of billion dollars. So, can I just get a better sense is the rest trading RWA is it currencies, is it a bunch of things, can you help reconcile that for me a bit?

Yes, it’s Doug. The biggest other contributor to that RWA increase is underwriting. So, in our U.S. business, we have been quite active as the market has been very active, both on the M&A side and the buyout side. And so, our leverage finance business has a number of mandates where we have put on underwriting risk and will sell down over the next couple of quarters and receive. We expect significant piece for that. So that’s the largest other contributor away from the core growth in the loan book, which has been growing more than it has the previous couple of years.

Is that more on the debt side?

Yes, it is finance with Private Equity customers, principally, and some underwriting for corporates and M&A transactions.

As I referenced in my comments, right around Disney and others.

Okay. And then just a follow-up for, probably for Rod, in your comments Rod you mentioned accounting rules as the driver of the $90 million of Stage I and Stage II PCL's, in just a little more detail, I’m wondering how as you went through the process, the Stage I and Stage II numbers came out as they did, like how prescriptive was that process, you know, we are early days here in terms of understanding the new PCL standards and testing it through time, but how much of that comes through judgement versus sort of a prescriptive approach to how the PCLs flow through?

That’s a great question and as you look at the 90 million increase on the Stage I and II for performing loans, we wouldn’t have had that last year, and I would think that as you compare performances globally that you will see inconsistency there because there is a lot of judgement. And the way that certain banks would interpret some of the tariffs and global trade risk, as well as the fact that many economists are calling that for full employment or below employment in the U.S. and Canada with the addition of the cycle being so long with the addition of interest rates moving up, there is heightened risk and it’s not to say that we’re in the ninth-inning of the nine-inning game, but maybe we’re in the eighth-inning of a 13-inning game then who is to say, right. So, each bank is going to apply judgement against those risk factors differently. There is no central clearinghouse for providing these sorts of assumptions. So, we might have a 90 million increase and another bank might have a 20 million decrease. So, I would encourage you to maybe look past some of that and look at the core underlying trends and our trends are quite strong. We did feel that it was prudent this quarter to build some of that Stage II because of potential storm class that aren't there now, but could be there in the future. And, if you also bifurcated between Stage I and Stage II, think of it about a third of it being growth in the portfolio and two-thirds of it being that prudent element that I mentioned.

Thanks for that Rod.

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

Good morning. I actually want to follow up on the Stage I and II stuff. Is there any additional granularity you can provide on which portfolios received that increase? We can see that Canadian PNC took about two-thirds of the 90 million, just wondering if that gets filtered out into small business loans or commercial loans or anything or credit card, stuff like that.

Yes, I mean, you could probably see a little bit of it in Page – in footnote 5 of our report to shareholders. You can see kind of the flow of that across the different portfolios. And so, you will see some, but there is some moment there between Stage I, and Stage II over to Stage III, so it is not a simple chart to understand, but I would say that it is across-the-board and it was applied ratably or evenly across the portfolio both on a commercial and a retail basis, as well as on a secured and unsecured basis.

Okay, and is there any merit to looking at these allowances in relation to your loan book, so you had about 40-basis points or so of gross loans? Is there any metric, or I guess its cycle-dependent, but is there a target of some sort that you guys have?

There is no target because it will change over the course of a cycle. You know, you look at coverage ratio, I would also encourage you to add in the expected loss Basel deduction that we have as part of our Tier 1 capital, which is over a common equity, which is over 600 million in addition to what we have in our GAAP books, and looked at the coverage ratios and an interesting way to look at that is that you would expect the coverage ratio to move up in terms of versus your trailing 12 months write-offs, you would expect that to move up as the unemployment rate moves down and there will be an inverse relationship because as unemployment moves up, your write-offs will also move up. So, there is a couple of tools that you could employ to kind of look at that, but I would say our coverage ratios are quite strong on a historical basis right now.

Got you. And then if I can ask about the cards. Your growth in the cards business has been phenomenal both in the fees and the – not phenomenal, maybe that's an overstatement, but strong, let's put it that way.

Probably.

Yes, okay. Are you seeing anything on the consumer behavior side like substitution, using more credit card balances that they have available as opposed to HELOC? Are they carrying higher balances than they normally would, making minimum payments or is this really net new customer growth that's driving that?

Yes, thanks to the question. I think there is a couple of primary drivers for the performance you are seeing. We're not really seeing any trends I would point to you in terms of products substitution from HELOC's and that sort of thing. What we're really seeing is, gaining, growing our customer base, actually acquiring more customers and then we are seeing customers consolidate their spending on to a couple of value propositions that we think are quite strong. So, our Avion value proposition continues to lead the marketplace, you know really powering our growth. Our RBC rewards program gives us customers an incentive to consolidate that spend. And in the third value proposition, in our WestJet MasterCard we're seeing great growth there. Customers, especially out west are finding that a really attractive product and we have a great partner helping us to originate those new customers. So, those would be the primary drivers.

Okay. Thank you.

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

Thank you, good morning. A couple on credit to get started. Probably for Neil, originally. Rate hikes over the last year for the bank account has now been four of them, and we’ve spent a lot of time talking about the benefit to net interest margin. There is some risk that the longer we go in a tightening cycle we start to see more pressure for consumers in terms of their ability to manage debt loads. Frankly, we’re not seeing any sign of that in your numbers, maybe more qualitatively, what if, what are the ratios or what are the metrics that you look at internally in terms of the ability of your customers to handle increased interest rate expense that they face with Bank of Canada hikes?

Thanks for the question. There is a couple of things we would look at. Obviously, the traditional metrics like delinquency and roll rate in terms of severity of delinquency of which, I think we're feeling really confident about. You know, qualitatively, we get a lot of feedback from our front-line sales advisors that these changes in interest rates and the housing market have been really well telegraphed that consumers are adjusting proactively. So, we were expecting to see customers be a little bit more – caught off guard and our front-line sales advisors really aren’t sharing that. That customers are – they are thinking about either extending M’s [ph] if they need to the manage the payments or mortgages. They are thinking about frankly just buying less expensive homes, and actually moving down. And in terms of our renewal rates, we’re actually seeing a real nice increase in the renewal rates on our mortgages, and that’s been a real positive.

And is there, it seems a little too simplistic to ask you this way, but is there an interest rate level in terms of number of hikes where you start to have more concern about the ability of customers to finance because as I say, I mean, we’ve put on a 100 basis points over the last year and it doesn't look like your metrics are any different. If at all anything, they seem to be getting stronger?

Yes. I mean we do look at our TDS ratios and we are seeing some pressure there. The pressure on TDS ratios wasn't as high as we were expecting. And again, we attribute that back to customers really self-adjusting. So, it is something we keep an eye on and we have our advisors out there talking to clients are reaching out and making sure they can manage the credit we provided them.

And I’ll wrap up similar credit trend with Doug. Given the global scale of your business, you’re probably the best person to talk about this. In conversation with investors, there seems to be this emerging view that we’re in later cycle from a credit quality perspective, and I guess it has been a decade since the last real credit cycle, and it’s fair to say that a lot of that weakness originated in the U.S. capital market space before spreading into the broader economy, at least in terms of some of the transactions that you have seen, maybe that you have passed on, are you seeing, what I will call more stretching on the part of banks to get transactions done or have things been still relatively sanguine in terms of the risk appetite that investment banks are participating in and may be more specifically to bring that to RBC?

I would say in the investment grade space that I’m not seeing significant credit deterioration. We obviously saw some problems going back over a year ago in the energy space when the commodity price came off significantly, but we’ve kind of work through that and so things are back in line there. That is a lot of talk about the leverage finance base and EBITDA multiples and financing leverage multiples on these deals. Obviously, there is a lot of scrutiny around that, the regulators have been very vocal about it and have ben communicating with us regularly, and looking at the deals we’re doing. So, I would say, I don't think that’s out of hand right now. Clearly, valuations are up in the leverage space and leverage multiples are up, but we look at each transaction one at a time, we saw that risk, we underwrite risk that we like, if we don't like the risk we don't do it. And so, the book right now is really quite good and we’ll just continue to be careful and do what we do.

Thanks for your time.

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

Hi, good morning. Just, first one quick follow-up on the domestic margin, the renewal rates have been mentioned a couple of times, and I’m wondering if you are seeing the better margin that was anticipated on some of those renewals considering some of the changes under the revised B20?

Thanks for the question. It’s Neil. We have seen better margin on the renewables. I think the bigger driver in terms of performance of the book has been – we’ve seen over 200 basis point increase in those renewal rates. Some of the competitiveness I would say, we are seeing now starts to make us question if you if we could if we continue to see the trend, but we are quite happy with the 92% of the over 90% that Rod had mentioned.

So, when you talk about the pricing pressure it is more on the client acquisition front than?

It is.

Okay. And then just a quick one for Doug. When I look at the – or maybe it is for Rod. When I look at the average daily trading, I see a pretty big spike on the last day of the quarter, and I don't know if that’s accounting timing or just a really good day. And then, I also see through the quarter, just kind of eyeballing at a pretty meaningful drop in VaR over the period. Could I get maybe a bit of an explanation on both of those please?

It’s Doug. The trading on the last day was a trade in our equity derivatives business with a significant counterparty in Europe, and it’s just a structured trade that had a significant payoff and so that was much of the results for that day. And we work months to get those trades positioned and discuss with the client and it just really happened or occurred on that day. In terms of VaR, I mean, part of the reason for the VaR coming down this much because. well there was two things. One, we just got less complex trading books than we ever had, and less risk really in our trading books. The second thing is the dataset that you are using to calculate VaR has moved through the financial crisis period, and so are you getting calculations that are just lower as a result of that.

Okay. Thank you.

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

Good morning. Just a few questions. There has been a lot of questions on the Canadian margin, and I was just wondering about the U.S. margin, which continues to be robust looking at the sequential increase in NIM, may be talking about the near-term outlook there what we kind of expect on the U.S. front?

Yes, it’s Rod. I’ll take that and you can see the NIM movement on Page 23 of the slides as you pointed out. And it has been strong in the outlook in the US is for continued increases despite the tweets that are out there. And if that continues, we would expect there to be continued upward pressure on industry beta on deposit pricing in the U.S., which has impacted us a little bit less than some of our peers, and then continued improvement on the loan margin. So, we would expect to see a continued benefit from that and we included that in our Investor Day expectation and nothing has changed on that front.

So, what I would add, Dave here, is that one of the reasons we acquired Exactuals is to continue to build out of payments franchise, defend and grow value for our entertainment clients, but also create a source of lower cost, lower beta deposits in the future. So, investing in payments in Canada and the U.S. has been a big part of the strategy and therefore the deposit growth we’re looking for is at a lower beta deposit, and I think that’s been City National’s success is that they are strong core payments bank and core franchise bank and therefore we’ve seen lower betas today then maybe some of the industry. Having said that, you’re seeing a little bit lower growth in our deposit size because high network customers and ultra-high network customers are putting their money to work in different ways and we're seeing that across competitors in the industry.

And is the payment acquisition driving the employee increase, if I look at the FTE, it was up 4% quarter-over-quarter in both Canada and the U.S. If I look back at last quarter, it’s been pretty much flattish for the past two years so maybe just some explanation just on – maybe if it’s organic or inorganic growth on the FTE line?

City National has not made acquisitions other than the Exactuals, so it has not closed, so it would not include FTE numbers in this quarter. I would say, if you look at FTE growth, it is on two fronts. First, it is on the – we’re hiring private bankers, we’re hiring commercial bankers, we’re expanding into new markets. We’re growing our existing footprint, but we’re also beefing up the back office for future growth, particularly on the mortgage side as we have a new mortgage team that we’re building up the capability to accelerate our mortgage. I don’t know if you notice, but our mortgage growth is 19% this quarter year-over-year. And so, you're starting to see the strategy just play out now. We have strong ambition to increase customer acquisition using jumbo mortgage strategy. So, we had to build the back office to create the type of high-touch, high net worth experience that our target customers expect that’s part of the cost structure, and obviously as we went through the CCAR process for the first time, public CCAR, there is some expense base that had to go into that to build a regulatory compliance for the CCAR process. So, those are kind of the three fronts where we have been investing heavily in this franchise for growth or strong infrastructure and yet we still delivered almost 60% plus growth target year-over-year. So, very, very happy with the progress of the U.S. Wealth franchise.

Scott it is Rod. I’ll just add, if you look at this up on Page 11, you will see two things. One is, the growth that our year-over-year Q3 to Q3, 2016 to 2017 and 2017 to 2018 has been fairly consistent and a lot of that growth appears to take place in Q3 because of summer seasons. So, there is some seasonality to it, so I would encourage you to look more year-over-year and then growth I think over most of those time frames has been more consistent and not inorganic.

Got it. Thank you very much.

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

Thanks. Neil, you talked about – I think you basically mentioned there's a little bit of money in motion in Canada. You talked about that service ratio being helped a little bit or not as bad as you had anticipated. Your deposit growth, probably one of the better deposit franchises, but it's kind of a little bit below your loan growth, at least outside of your – outside of the commercial space. Can you talk a little bit about the dynamics in retail deposits and what you see happening there over the next, call it, 4 or 6 quarters?

Sure. Thanks for the question. Maybe start on personnel. We’ve shared that our personnel core banking product is critical to us. We’re seeing good growth there. Our new client acquisition in the personal market space is up over 10% year-over-year and benefiting from more activity this year. We are seeing quite a marked shift in terms of personal savings going from our high interest savings account into one-year cashable GICs as customers look for a substitution there. And in the trade-off, in terms of the expected growth has been almost one for one. So, we're seeing that as a real substitution effect. In terms of, on the business side, we feel quite good about business deposits, continues to see growth across all the segments from more small business up into our larger business customers, spreads, we have had a little bit of more competition than expected for our largest interest-bearing deposits on the business side. Other than that, pretty much as expected. In terms of growth, I think, one of the things we're focused on is that core checking account growth and that will be our focus for the next four quarters. Likely expect to see at least in the near term that continued substitution effect on personal savings in the GICs.

And are – and what about on the credit side? Are people paying down debt at a bit of a higher rate than they would have in the past?

I wouldn't say that we’ve seen that trend in any material way, no.

Okay. And if I can just sneak one more in for – on the PCL side, the Stage I, II kind of, build-up, if you will, in anticipation of some macro or geopolitical type stuff that you mentioned. I mean, if you had to think about where the needle is on that geopolitical factor alone, you mentioned Turkey, you mentioned Venezuela, I guess, tweets and all of that stuff is part of it. But just to try and gauge it, given what we know today, is the direction now – or is that factor at a 9 out of 10 or at a 5 out of 10?

I’ll start. And Graeme can also add in. I’d say it’s much lower than that. I would say the economic outlook is strong, it is favorable, it’s a robust across Canada, across the U.S. which are larger markets, you're seeing a little bit of slowdown in Europe, but in the core European markets it’s still seeing growth. So, I would not say that it is at a high rate. I’d say people always worry about things, the last 10 years of bull market, people have had some to worry about every year, and it’s consistent and it’s natural. So, I would not say…

Just to clarify, I wanted to try and disaggregate your credit cycle from the geopolitical factor. I know they're probably both one and the same as you talked to us about it, but I think you've made a good case that the credit cycle has still some room to run. So, with that said, you've still increased because of, I think, ultimately, some geopolitical concerns, the Stage I and II, and I think you specifically mentioned Venezuela, Turkey, and I'm just trying to get a sense for, if that's as bad as it gets on the geopolitical factor or it could get way worse, I guess, with North Korea and a variety of other factors. That's what I'm trying to figure out. Where are we on that tail risk-type metric on the geopolitical scale?

Sohrab, it is Dave. I would also add NAFTA in there as probably more of a primary driver of the Stage I, Stage II and when we sat down and think about the impacts of macro drivers on our portfolio and our credit quality, we talk about more like things like NAFTA, and trade agreements and auto tariffs, which were still at the time the cycle and now recently in the last couple of days seems to ease off. So, there is volatility around these macro factors and the time that we made these judgements, there was uncertainty around things like NAFTA. I would say, things like Venezuela and Turkey had nominal impact. As I said, we don’t have direct exposure to those countries. I have mentioned sources of volatility in the market, but not weighing heavily on our decision around Stage I and II, as one of the direct geopolitical macro drivers that have impacted on our core markets of North America and Europe, and those are really more NAFTA driven and those types of uncertainty. And this – where are you on the credit cycle. So, at a prudence we use some judgement to take a bit of Stage I and II this quarter and it is simple as that. It is not that we’ve lost money, it goes into an ACL reserve and if those judgements change it will be released.

I'll take it offline, Dave, but I'm actually pleasantly surprised that given everything you said, the number is only 90 million. That's it for me.

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

Good morning. One of the bigger issues or concerns expressed from accounts throughout the quarter was related to commercial loan growth, specifically how long it’s been, how long and strong a run it’s been with very good commercial loan growth and when I look through your supplement, I don't really see any individual category that is dominating the growth, it does look well diversified, but maybe this is for Neil or Doug, can you just speak to the sustainability of this commercial or wholesale loan growth that we’ve seen, what’s driving and how long you expect this to continue?

Yes, thanks Mario, I’ll start. To your point, the growth has been well-diversified. So, we have targeted a couple of sectors that we wanted to grow because we thought they had really strong risk-adjusted returns in the retail bank. Those are moving, those are the ones that we are really investing time and energy into, but we are seeing good diversification across all sectors. We are seeing good diversification across the geography in Canada. In terms of when we look out, you know how long we will continue to grow, we are connecting with business owners, there still we would say a very positive and optimistic sense from our entrepreneurs. They continue to see good demand for the products they are selling. I think what we're monitoring is, Dave mentioned, trade uncertainty. We think that would be a limiter, and then interest rates would be the other limiter over time, but as we look for the next – in the near term at least for the next few quarters, we continue to expect strong growth in the commercial franchise.

And when you said there were two areas you were targeting, what were those?

There are is a few areas. So, one of them was supply chain. We are doing some work in agriculture, and also in healthcare – in seeing good strong momentum in each of those.

And could you just sort of help me think through, just philosophically, why would commercial loan growth be running so much faster than nominal GDP growth for – and I can understand it over a short period of time, but over a long period of time, what supports that?

It is something we have talked about. I think, we come back to what is our risk appetite, what type of credit are we putting into the portfolio. And we haven't deviated from our risk appetite. We continue to revisit policies and continue to have confidence, but it is something Mario we have debated over time.

And Mario if you look at the Bank of Canada report, and if you look at over the last six years or seven years, business investment has lagged the cycle, right. So, you're starting to see a bit of that catch up right now on equipment and machinery, you’re seeing fairly bullish outlook, as far as future growth goes and any opportunities to grow, notwithstanding some of the uncertainty around trade, it’s having a little bit of a mitigating impact, but business investment has lagged the cycle a little bit, and you are seeing that catch up. So, I think that kind of, those macro drivers do support healthy growth and prudent growth in our commercial segment.

Yes, it’s helpful. The final thing for Dave, is this, what do you – when you look at now is, now is the time when you want to take market share in mortgage and commercial loan growth in Canada, does this feel like the right time to be doing that?

Thanks Mario it is Neil. Yes, our strategy – we will start with commercial, our strategy within commercial has been very purposeful. So, we sat down a couple of years ago, looked at each of those sectors, I mentioned three, we actually looked at quite a few more. We looked at our policies. We looked at our sales power and distribution and set on a very purposeful path to actually restart what we looked at as an underperforming franchise at the time. So, the commercial results you are seeing are execution on a very deliberate strategy. So, yes, the answer is – the intention is to take market share in commercial and we believe we understand the risks we’re taking on and we like the performance and the return on those risks. In terms of return to the mortgage market, we would look at that or say over the last 36 months, and we have really maintained our discipline around risk. We haven't deviated from the deals that we thought we should be putting on the books. We saw some competitive pressures make the overall market bigger and start to originate deals that frankly we did not have appetite for. And we’re not growing the mortgage book, we’re growing the mortgage book. We're not growing the market share in the same way we’re seeing some competitors do that. So, again, prudence and maintaining our risk appetite in the mortgage business and what we're really doing is, we’re competing on distribution, competitive pricing, but leading with distribution.

We don't change our credit strategy through a cycle. So, we are looking for a consistent customer franchise and risk profile and therefore you don't have to worry about the timing as much because you are consistent through the cycle. It is not I get to turn something of that you have been aggressive with, and I think that’s the [indiscernible] our lower volatility and high-performance through a cycle on our credit book.

And then just really quickly, was there anything you could highlight in the Caribbean from a credit perspective that was worrisome or is just status quo?

In the Caribbean, there was slightly higher PCL. We had some expenses that came through in the quarter that a number of them were one-time non-repeatable expenses and would really expect that to return to more normalized levels in Q4.

Thank you.

I think we have time to take one more question and then that will be it and I'll wrap.

Thank you. That will be Doug Young from Desjardins Capital. Please go ahead.

Thanks. I’ll keep this quick. So, wealth management obviously quite strong and I think we covered of City National, but if I exclude City National out of wealth management and correct me if I’m wrong, it looks like earnings was up 5%, but your assets under management, up 14%; AUA, up 13%, I'm just wondering if there is some unusual items in there, why the divergence?

That’s just pretty straightforward actually. Rod mentioned the accounting adjustment we made on one of our joint ventures internationally that was flow through Global Asset Management. So, if you reverse that back out of the asset management segment, what you will see is fee-based income grow or non-revenue, and earnings growing in a logical fashion in relation to assets under management. And so, the derivative of that is that we have not seen earn rate pressure or fee pressure on our asset management business. So, the piece that’s not made perhaps obvious is that that accounting adjustment on the joint venture went through the revenue line in global asset management.

But I'm talking more earnings because I thought both of the adjustments went through wealth management and both where outside of City National. I can take off-line if it is…

The offsetting gain was in City National.

It was in City National, okay.

So, the one gain was in City National and the loss was in asset management.

Okay, perfect. Thank you.

Thank you for your questions and your participation in today's call. I think, to characterize our quarter, we are very happy with the results. As you saw, strong core growth across our core businesses and capital markets and retail, commercial, and in wealth management both in Canada and in the United States. So, we're very happy with the customer franchise growth, market share gains, and good cost control, strong capital levels, and ROE. So, overall, we’re feeling good about the momentum and looking very positively towards Q4. So, thank you and we will see you next quarter.

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