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

Thank you, and good morning, everyone. Speaking today will be Dave McKay, President and Chief Executive Officer; Rod Bolger, Chief Financial Officer; and Graeme Hepworth, Chief Risk Officer. Then we'll open the call for questions. To give everyone a chance to ask a question, we ask that you limit your questions and then requeue. We also have with us in the room Neil McLaughlin, Group Head, Personal & Commercial Banking; Doug Guzman, Group Head, Wealth Management, Insurance and I&TS; and Derek Neldner, Group Head, Capital Markets. As noted on Slide 1, our comments may contain forward-looking statements, which involve assumptions and have inherent risks and uncertainties. Actual results could differ materially. I would also remind listeners that the bank assesses its performance on a reported and adjusted basis and considers both to be useful in assessing underlying business performance. With that, I'll turn it over to Dave.

Thank you, Nadine and good morning. Thanks for joining us in what is unprecedented and challenging times. We do hope you and your loved ones are keeping safe and well. Before I move into my comments on the macroeconomic environment, I do want to say how proud I’m of our employees for all they’ve been doing throughout the crisis to bring our purpose to life by supporting our clients and our communities. We moved quickly to support our clients, including granting payment relief to over 490,000 clients so they could redirect their money to where its most needed. Our various client relief programs represent over $76 billion of loans outstanding. Graeme will speak more on these programs later on the call. As the situation evolved, the regulatory monetary and fiscal actions taken by policy makers globally has helped provide stability and support to the economy and to the financial system. As Canada's largest financial institution, we also have an important role to play in helping lessen the financial impact of the crisis on our clients, while helping to restart our economies. In Canada, we've been working closely with the government in implementing various federal programs. And we provided access to $4.5 billion in available funding to over 115,000 clients through our CEBA program. And given Canada's relatively strong fiscal position, the country's finances are well positioned, should further actions be required. In the U.S., we provided over US$3.5 billion of funding to our clients through the Paycheck Protection Program. I'll now provide some highlights of our financial performance. Today, we reported earnings of $1.5 billion. In a quarter where we recorded a provision of $2.8 billion, which I will speak to shortly. We carried our strong momentum from the last quarter into Q2 and North American equity markets hit all-time…

Thanks, Dave and good morning, everyone. Starting on Slide 8, we reported earnings of $1.5 billion and EPS of $1, with results impacted by $2.8 billion of provisions for credit losses, up nearly 7x from last quarter, which Graeme will touch on shortly. Pre-provision, pre-tax earnings were up 3% from last year to $4.6 billion, driven by strength in Capital Markets, Investor Treasury Services and Insurance, a testament to the continued strength and success of our diversified business model. Our record pre-provision, pre-tax earnings through the first half of the year allowed us to prudently absorb over $3 billion of PCL and still generate nearly $5 billion of net income. A few thoughts on expenses, which were essentially flat year-over-year, excluding FX and $30 million of COVID related costs, mainly in Canadian banking, our expenses would have been down 1%. Given the current environment, we saw a slowdown in costs related to marketing and travel, which were collectively down close to $40 million from last year. And recall, variable compensation largely acts as a natural hedge to lower market sensitive revenue. As Dave noted, the crisis is changing client behavior and we’ve seen an accelerated shift towards digital engagement. We would expect to see opportunities for cost savings going forward, assuming client preferences continue to trend towards digital interactions. Early last year, we spoke about managing our costs based on the earnings outlook, and we remain diligent in this regard. However, as always, we will balance any project prioritization with our commitment to creating long-term value for our clients and shareholders. On taxes, our lower effective tax rate largely reflected changes in our earnings mix, given the elevated PCL taken in the quarter was largely in jurisdictions with higher tax rates. Before I get to the segment results, I wanted…

Thank you, Rod, and good morning, everyone. As Dave -- sorry, excuse me. As Dave noted earlier, COVID-19 has had a significant impact on financial markets in the global economy. While significant progress has been made in slowing the virus and managing the economic fallout, the speed at which the economy recovers, the efficacy of government support, future potential waves of the virus and the availability of a treatment or vaccine, all remain highly uncertain and will continue to affect our risk profile going forward. In response to these events, we increased our allowance for credit losses by $2.4 billion since last quarter, as you will note on Slide 17. With this significant increase, we now have $5.9 billion in total allowances to absorb future loan losses. This represents 0.84% of all loans outstanding and 4.2x our net write-offs over the last 12 months. Nearly 90% of this increase in our allowance this quarter is a result of higher provisions on performing loans, up $2.1 billion from last quarter. This was primarily driven by unfavorable changes in our macro economic forecast to reflect the current economic conditions, was also impacted by ratings migrations and drawdowns mainly in our Capital Markets loan portfolio. Additionally, two-thirds of the increase related to our wholesale exposure, which spans Capital Markets, Personal & Commercial Banking and City National and one-third related to our retail exposure, which is predominantly in commercial -- Personal & Commercial Banking. The other 10% of the increase in allowances is due to higher PCL on impaired loans. Turning to Slide 18. PCL on impaired loans of $630 million or 37 basis points was up 16 basis points from last quarter, largely reflecting higher provisions in Capital Markets. These provisions were mainly related to the oil and gas and consumer discretionary sectors…

Thank you. We will now take questions from the telephone lines. [Operator Instructions] The first question is from Ebrahim Poonawala of Bank of America. Please go ahead.

Good morning. I guess I just wanted to follow-up on something that Rod you mentioned around expenses and operating leverage. Crises create opportunities. And when you look at Royal, I mean, it's hard to argue that you wouldn't be better off competitively than you were even coming into the crisis. Talk to us just in terms of how you're thinking about pulling back on discretionary expenses or investments versus any opportunities that are already beginning to emerge where -- either from a market share standpoint in retail or capital markets that you could be looking to sort of capitalize on.

Thanks, Ebrahim. I'll start and Dave might chime in. In terms of investments, we've been ramping up our investment spend on technology with a client focus and then obviously also an efficiency focus, but really on a client focus and market share growth focus over the last five years. And so that was done in anticipation that if and when a recession hit, we could dial that back and still be in a strong position. And so that holds, we will still continue to invest if it makes sense, but we are also taking back discretionary spending. And kind of bucketed into two or three buckets, which is what are the -- what's the low hanging fruit that you can dial back in a situation like this, which I mentioned in my comments, marketing and travel, then there's the investment spend where we have definitely curtailed the growth. We could take it down, we could keep it at the same level depending on what makes sense from an NPV and a investment in future growth standpoint. And then there's the other items which kind of ratchet up and down with the business volume such as variable compensation. So our strategy has not been significantly changed by this. We look to drive efficiency through the cycle and that has not changed.

I'll just add an example in City National, where we've been investing and expanding our network and opening new branches and new locations, whether its Nashville or New York City. So that will continue. We see enormous growth opportunity. You've seen the results in the City National kind of growth story. At the same time, we've been investing in digital capabilities there. We're launching -- we've have launched a new cash management system for City National and we're -- we've delayed the launch, but we'll launch this summer a new mobile banking platform. So those types of investments we use the tailwind of rates of that organization, obviously. City National is facing tougher revenue headwinds with a decline in rates and the rapid decline in rates. We've got a lot of that work behind us, but we still want to invest where there's growth. And I think there's an example of where we're going to be careful, but we still want to invest. So, as Rod said, we'll look at where there's opportunity, where there's client growth, we will continue to invest. But we have made a big chunk of our technology investments and if needed, we can pull back depending on the revenue profile going forward, knowing that we have very strong technology capabilities on a comparative basis.

Okay. Thank you.

Thank you. The following question is from Steve Theriault of Eight Capital. Please go ahead.

Thanks very much. Rod, that was great color on how your -- some of your most adverse stress tests would impact capital. You said you'd remain well above the regulatory minimum. Does that -- is it safe to say that translates into greater than 10% if we take that? You mentioned 115 basis points was the sort of what would weigh on CET1 off the 11.7% you're at this quarter. Just want to make sure what the messaging is there.

Yes. Thanks, Steve. So, our current buffer is 270 basis points above the regulatory minimum of 9%, including the domestic stability buffer of 100 basis points. You know, most of our scenario analysis would suggest that we are going to remain well above that 10% threshold that you mentioned. If we do take some of our more severe scenarios, we're still working through how those might play out, whether it's a W type recovery or others, we are fine tuning these scenarios consistently -- constantly. And as we work through those, we remain well above our risk appetite, which includes a buffer above that 9% minimum. And in a predominant number of cases, we are well above that 10%.

Okay. And then the 41 basis points of drawdowns and downgrades you mentioned, am I right to assume that the vast majority of that is the drawdowns we saw this quarter?

No, it's approximately a 50-50 split.

Okay.

41 basis points [figure] [ph] '20 for drawdowns and '21 for downgrades.

Okay. And if I could sneak one more on for …

[Multiple speakers] your question, Steve, we're -- well, could you requeue?

Sure. No problem, Dave.

Thanks.

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

Hi, good morning. I know you mentioned you expect a moderation in mortgage growth, but if I look at what we've seen through the quarter, definitely very strong and I'm wondering how you reconcile that strength with everything we know in terms of deferrals and lockdowns and just the depression level economic indicators that at least we will see in the short-term. So how does that all make sense to you?

Well, thanks for the question. We started the year exceptionally strong, so we were -- originations for the first quarter were exceptionally strong, so that was really fueling the early growth. As soon as we really saw the impacts of COVID, obviously you can't show a home and transactions just dried up. So right through till really the end of April, we were at annual lows for origination. We've since seen that come up a little bit, probably about a third from sort of peak to trough in May. But right now, we're -- on an annual basis, we're probably looking at an outlook for originations of about 80% to 85% of last year. And a lot of uncertainty, obviously, given we don't know what the measures are going to be and how much access that clients are going to have to go and actually look at home. So that's how we had really bridge the two. Strong start and then just a sudden braking, as you know, the inventory just dried up.

And then just in terms of your commentary on pricing, how would you contrast your outlook for condos versus single family in terms of the expectation for price declines?

I don't know if we’ve -- this is Graeme. I will answer that at a broad level. I don't know if I have a split between the different types of housing. But overall, in our forecasting, we built a 7% decline in house prices with a kind of recovery period ticking over about 2 years. Underneath the hood, that would split by different geographies and different property types. I just don't have those numbers with me. But the national level decline that we're forecasting and modeling right now is a peak to trough of 7%.

Thank you.

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

First of all, thanks for all the disclosures and especially on the impact of downgrades in your commentary, Rod. On one hand, I could say that you're conservative, but on the other hand, you also have about 43% of your wholesale portfolio with non-investment grade credit, like how would you address that dichotomy?

Well, so -- Gabby this is Graeme. I will maybe take it out of the migrations a little bit. So just to think through how this is happening. So, Rod, gave you was a sensitivity that reflects if we did a one notch downgrade across the whole portfolio, which would be very broad and pervasive, but it does give a good sensitivity against it. In terms of how we've approached this so far, we basically have gone through our corporate book and really taken the rating actions that we think are necessary in that space. And we're very much able to do that in such a kind of a timely manner there just because of the very public nature of those companies. We have a very visible data around them. They've got visible information in terms of markets and a very constant dialogue with the companies on that. And so we think we've taken the prudent rating actions as necessary there across the piece. Where there is more, I would say -- so any ratings actions there, I would say, we will come by company specific information or changes in macroeconomic environment that may have us change our view on these companies. On the commercial and retail side is where there is more ratings actions to come given the latent information set that we get there, many those are more model driven and as the model capture more information on our client activity, we will and do expect to see further credit action and migrations through the latter half of this year. To give you some context, though, on Rod's number -- so oil and gas is an example and we talked about it on our slides here would be one of the most highly impacted sectors in this environment. And with all the sectors that we saw, the most downgrades in. The average downgrade there, for a company that were downgraded was 1.8 notches. And so I just give you some context for kind of downgrade activity we would see on average, and that would be true regardless of whether it's investment grade or non-investment grade.

And while I have you, Graeme, we are -- people are going to ask about your PCL expectation for Q3 and Q4, and that's important. But I'd like to know and you alluded to it, the outlook for peak growth impaired loans, like when do you expect that take place and roughly what level, because that's ultimately going to dictate if the provisions you’re taking now and next quarter are sufficient or more than sufficient?

Yes. Sure, Gabriel, I will kind of walk you through how our thinking is on the PCL, because the growth impaired loans is really just that -- is really what we're forecasting through the day when we're calculating our expected credit losses and we're translating that back into provisions. And so, we have a lot of very rich tools in our toolbox. Certainly we've built a lot of very, very strong modeling capabilities for IFRS 9. We've had a lot of strong modeling capabilities for our stress testing. And so as we headed into the COVID pandemic that we're facing, that's a great starting point we have. But certainly the storyboard here is very unique and unlike anything we've ever seen. And so we really took those tools that we've kind of reset the storyboard. We really reset it to reflect the environment we think we're facing. So our base case started with a storyboard that talked about this pandemic being a situation where we're going to effectively be in an economic lockdown for three months to get the virus under control before the economy starts to reopen following that and reopen over a very extended period of time. And then we translate that into the macro variables and I think that you saw in our disclosures there, and then really took those all that information set and the modeling capabilities we have to try and forecast growth impaired loans ultimately and the translation into Stage 3 losses, which is ultimately then what we kind of discount back to get the expected credit losses that we established in our Stage 1 and 2 provisions. We talk about the severity of different scenarios. When we establish that base case, we are really trying to select the real acute severity of the…

So early 2021?

Sure. That’s the short answer.

Thanks.

Thanks, Gabriel. We shall take another question.

Thank you. The following question is from Sumit Malhotra of Scotiabank. Please go ahead.

Thank you. Good morning. Graeme, just to start with you. Towards the end of your prepared remarks, you were commenting on the increase in the allowance. Just wanted to make sure I heard you correctly. Did you indicate that the bank is of the view that the level of the aggregate allowance should not change too much from here going forward? Or were you talking about one specific part of the reserves?

Yes, thanks. No, we are talking about reserves in aggregate, right? I mean, we have built up a very significant allowance in Stage 1 and 2, that is our expected credit losses. And assuming the world plays out consistent with the forecasts we've made, then we would expect to drawdown on that. And that would offset the impaired loan losses that we would expect to increase over the coming months and quarters here. So we do -- all those being equal that we do see those as largely offsetting. Now there's a lot of uncertainty to that. And so all that will change, obviously, as the -- each and every quarter as we reestablish kind of our forecast, as we learn more about our client behavior relative to how we've modeled it, that will impact on our reserves each and every quarter. But on our baseline, that is how we would expect this to play out and that's how it is by design, set up to operate.

So said differently going forward for oil, the provisions and charge-offs essentially net off in the assumptions that you've made going forward?

That is the assumption subject to all the uncertainty that we've put out there.

The last question is for Rod Bolger. Thanks. I will echo the statements, really appreciate your upgraded disclosure this quarter. And specifically on capital, looking at your waterfall chart, the comment about 23 basis points of IFRS 9 capital modification, does that only reference the expected credit loss transition or have you also -- does that number also pick up the reduction in the stress VaR multiplier?

That's just for the 70% modification on the Stage 1, Stage 2 build. That falls to 50% next year and then 25% the year after. So it does not include the stress VaR.

And is the stress VaR, I think your methodology and policy line and market RWA was down -- I don't have in front of me, I think it was $4 billion to $5 billion. You talked about the VaR scenario updating next quarter to include the volatility in Q2. Just curious as to how you were expecting that market risk line to trend from here, given that change in VAR. And frankly, what is also you indicated would be the market environment in which that stressed VaR multiplier relief would be removed.

So on the first question, you'll see in the waterfall, the 6 basis points and the $2.7 billion, that's a net figure. So we did get about 11 basis points of benefit from the SVaR modification, and that's offset by other model and methodology increases that were about 5 basis points. We would actually expect as we roll through VaR and you get a full quarter in. The way our methodology works, we would expect market risk RWA to increase next quarter despite the 25% reduction that Graeme outlined. My understanding is that OSFI may change the multiplier back once we get to normal volatility levels and market conditions, which is not anytime soon that I would anticipate.

Thanks for your time.

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

Hey, thank you. Graeme, when the bank had hosted an Investor Day a couple of years ago, I think one of the benefits of the tech and the data infrastructure, I think that was highlighted was a better risk management, I guess, perspective. Is there any way to quantify how much of a benefit would have been reflected here? Or maybe put it differently, how much higher would your provisions had been? Had you not had the benefit of the investments you had made in technology and data and the like previously?

It's Graeme. Maybe I'll start with -- I don't know if there's a way to quantify what our provisions would have been if we didn't have the capabilities we have today. The capabilities we have today, I think are just inherent to how effective we are capable -- we are at managing risk. And those credit models can -- that we build and leverage all the data and infrastructure we have can really benefit in two ways, through a cycle. One is we can use it to mitigating and not originate risks that we otherwise might have originated, or we can use those models to take on new revenues for the risks that we're quite comfortable with. So, it's not as simple as just saying how does it trim one part or the other. When I look at this quarter in particular and how valuable those capabilities and that modeling was, we were really able to take that that infrastructure, the data and really the people and capabilities we have there to really get down into account level modeling to understand income disruption with our clients, to understand the impact of payment deferrals at the account level, the government programs and really, really help support the loan losses we established here today. I mean, likewise on the fraud side, which is such an acute risk in this environment that we've really been able to leverage that data to ensure a really strong performance on a fraud front. Cyber would be another example of that. I mean, we just -- these are all just incredibly strong capabilities we have that really help manage risk effectively through the environment. To quantify that for you, I just I don't know how to put a number to that.

The only data point I would add is you've heard me talk about our retail scoring systems and bringing an expansive dataset, which we continue to do. When we first implemented it 15 years ago, we got about a 30% lift. So we've seen a material shift in the more data, the more insight you bring to decisioning, that investment in managing data, which allowed us to really focus on core checking accounts. As I’ve told you before, that the information value of our core checking business is not just on purchasing habits and lifestyle habits of clients, it also comes down to risk management allowing us to manage our book appropriately. So we've seen -- to Graeme's point, really significant return on the investment of technology and data and why we continue to make it a big part of our strategic site going forward.

Okay. Thank you.

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

Good morning. I think rightfully everyone on these calls is focused on the here and now the short-term because it's so meaningful. But now with a few of the banks under our belt, I want to just take a longer term perspective. Coming out of the financial crisis, every banks ROE dropped pretty significantly from we had like 20% plus ROEs. And Dave, as you said, the banks average of 13 -- sorry, a 17% ROE over the last three years. I’m not sure if it's possible yet, but when you look out to the end of this crisis, could we be looking at a Canadian banking sector led by Royal with ROEs that are substantially lower than 17%, either because of higher capital requirements or much lower interest rates or just a much weaker Canadian consumer? Are you able to think that far out yet? And look at what ROE potential Royal has when this is all said and done?

Well, maybe I'll start and I'll hand it -- turn to Rod for more detailed balance sheet comments. But if you look at our strategy, Mario, it's a strategy of driving a premium ROE. And we've invested in businesses and in customer franchises and geographic expansion that allows us to drive a premium ROE strategy. And we're not moving away from that. We still think our collection of client franchises businesses, our scale, our diversification, technology investments and a comparative advantage there allows us to drive a premium ROE in the marketplace, and that continues to be our medium term objective. And will be how we manage this organization going forward. We're learning a lot about the business as it stands through a crisis. We'll look at our businesses going forward. We'll look at how customers have changed and we will continue to invest in driving a client franchise that has a premium ROE to it. And we'll have to exit businesses that we don't think can drive that premium going forward. And so we've going through a world of change. It's early to call exactly which customer franchises or products may not be part of the set going forward, but we're keeping a list to see, okay, this business has been impacted significantly. Will it recover? How it recover? Is there going to be a new capital ratio applied? How does liquidity perform? So all of that will be taken into consideration. But we're starting from a position, as you referenced, of enormous strength. And I don't see a significant change from the premium retail franchise, we have a premium wealth and are focused on wealth growth in the United States and Canada. Having said that, as you said, we are expecting that a medium term headwinds from a low rate environment in the U.S. that impacts our U.S. wealth franchise significantly, as you saw the results. But that will recover, but volume growth is helping offset that. And we continue to see enormous opportunities to drive good volume growth. So we will manage the business accordingly. And we're very much focused, as you heard at the end of my comments on emerging from this as even stronger and more focused company, knowing that we can continue to lever all of the capabilities, the brand, the technology, the fortress balance sheet, the team and the people that we have to drive a premium ROE. And I think that's what you should expect from us.

Yes, I will just add on two structural elements, Mario. The -- looking at the financial crisis versus now different Basel mechanisms. But if you if you do like-for-like and that kind of pro forma to Basel 3.5 back to the pre-financial crisis were 3x the capital ratio we were entering then, we did pretty well through that crisis. We did do a small equity issuance. We don't expect to do any equity issuance this time and we expect to maintain well, well above much higher regulatory buffers. So we don't think there's a structural need for more capital in the banking system. We think it's been elevated to levels that needs to be, which means that we should be able to return to pre-COVID premium ROE as well. You won't see that immediately because you're going to see inflated RWA, which means that you're going to be holding denser equity, if you will. So there will be a couple of years where that's going to be suppressed. But structurally, we don't think there's going to be a seismic shift up in the equity, which would dampen those returns.

So just to put a final point on it, the denominator doesn't change much because unlike the financial crisis, I would hope we're not going to go through yet another update to capital requirements. But I guess what I'm hearing is maybe we've got to be a little careful about the numerator of ROE calculation that earnings could be somewhat depressed for some time. Is that fair?

You're going to see earnings suppressed in the short-term until the economy recovers, absolutely. And then once the economy gets back, if you look at the chart 30 that we shared, if the economy gets back to those levels in 2022, we should start to see that ROE pick up again.

Okay. Thank you.

Thank you. The following question is from Scott Chan of Canaccord Genuity. Please go ahead.

Good morning. Rod, you talked about the U.S. NIM at CNB, and was down another 20 bps quarter-over-quarter. And I think you talked about a bit of a decline short-term. But do you have any color on when you expect that margin to stabilize from what you know right now?

Yes, we expect a couple more quarters of compression just because it's going to take a little of time for that to flow through. Now, we have seen of very significant deposit growth, which has continued. So that's helped displace some wholesale funding with retail and core deposit funding, but we would expect that to continue. And it's fairly consistent. If you look at the impact, it's fairly consistent with the impacts that we had disclosed previously in terms of the earnings compression. And we're managing the business that way. Dave outlined our continued investment in that business. The core franchise is growing extremely well. And obviously, we have some margin compression to deal with and work through. And so it's not unexpected, but we would expect it continue for at least two more quarters.

Okay. And then just quickly on Slide 7, I appreciate the disclosure on the client activity. Just on that Canadian retail AUM, have you noticed a notable shift with your clients in terms of penetration into active mutual funds versus ETFs? Kind of pre-COVID and what you're seeing right now?

Yes, Doug, I'll take that. So I wouldn't say there's been a real change because of COVID. The shift from active to passive has been much lower in Canada than the U.S. We've built the product shelf to address whatever the rate of changes in that direction and in terms of the alliance that we've arranged with BlackRock around ETFs. What we have seen in disrupted markets is a higher than normal share of gathering assets, and a lot of that ends up in cash deposits in the retail bank and slower mutual funds sales across the industry. Our share of those sales has been very strong, disproportionately strong, and so our market share of the active long-term funds continues to rise. And we [technical difficulty] like we've seen in prior disruptions that as markets normalize, people will do what they should with their savings, which is start to invest across asset classes, and we'd expect it to slide over into mutual funds. So that business remains extremely healthy from our perspective.

Thank you.

Operator, next question please.

Thank you. The following question is from Steve Theriault of Eight Capital. Please go ahead.

Thanks very much. I just want to ask a question on cards for Neil. We've heard from some of the other banks that activity levels bounce back pretty close to pre-COVID levels. Maybe that's temporary, maybe not. But can you give a bit of an update there on what you're seeing in your card book? And in particular for your WestJet portfolio, how much impact are you seeing there from -- with air travel being mostly on pause.

Yes, thanks for the question. Yes, I mean, to look at -- if you break down the categories, I mean, for the quarter travel was down about 90%. Largest airlines, we're seeing, it's just evaporated. Dining is down about 50%. Gas sort of these large categories down about 50%. It's really only kind of the daily essentials, it's food. it's things like pharmacy, they're up about 20%. So those are the -- I think the big category swings. Net-net for the quarter, we were down about 12% or 13% in terms of spending. So that would translate. There's about $5 billion of purchase volume that we'd anticipated that did not materialize because of the COVID measures. In terms of splitting it between the WestJet, Steve to your question, we're seeing if we lump sort of all of the reward products together, spending was down about 30%. When we look at the portfolio that does not carry rewards, it was down 20% for the quarter. If you look at sort of through the quarter, I wouldn't say it is -- we've bounced off the bottom, but we're nowhere near kind of back to normal.

And for that, for the WestJet card that earns WestJet dollars, is there ability to earn sort of regular RBC loyalty points?

No. No. So those -- they earn those dollars and we immediately pay WestJet for those and that liability is transferred over to WestJet.

And that 30% you mentioned for the loyalty type products like the WestJet sort of in line with that.

Yes.

Yes. Okay. Thank you.

Operator, next question please.

Thank you. The following question is from Nigel D'Souza of Veritas Investment. Please go ahead.

Thank you. Good morning. So I wanted to tackle your commentary on impaired -- the outlook for impaired loans and delinquencies towards the end of the year. And a lot of that will depend on how fiscal support programs play out and then how the deferral loan programs wind down. So I was wondering if you could maybe give us a sense of what's already baked into your performing loan loss this year. So in other words, of the deferred loans you currently have, which is pretty sizable for mortgages and wholesale, for example, which of those loans are currently classified as Stage 2 or are the majority of them still in Stage 1?

This is Graeme. I'd have to -- I don't have that breaks down off the top of my head. I would say, again, going back to the commentary we had on the modeling we've done, that's exactly what we've been playing out. We go down to the account level and really trying to understand the income disruption there, overlay our views on the unemployment situation that we talked about earlier. And then in the government support, ultimately, to kind of model out what we think the delinquencies and impairments will be and thus the loan losses. The disclosure we provided on the payment deferral programs, which is to give some context, as you as you said, certainly the biggest balance has come in the mortgage space. A couple of pieces I would maybe just give you for context on that. One is -- so in the deferrals, about 40% of our clients took a one month deferral on that. So that's the first cohort we've been able to look at a little bit. We've just gotten some early insights on that. And about 50% of those clients have returned back into a payment status. There's just one point of contact. So that's a bit of the earliest data we have to start to validate the assumptions we've been making. The other piece, just in terms of the kind of the higher risk piece there, if you if you take kind of that, again, those clients that have opted for a deferral plan programs and you look at our mortgage book, the uninsured component of it and kind of the high LTV, the over 80%, we're talking about $900 million in balances right now that fit that kind of high risk category. So those are just kind of the points. But I got to know, the modeling we do is obviously much richer than just kind of capturing those points. And certainly, as we kind of see our client behavior going forward, we will continue to reflect that into our modeling and the adjustments we need to make in our provisions. But right now that's very much the granular approach we've taken to it.

Yes, if you really want to get into the details, Nigel, you can look at page 77 of the RTS where we break out the staging by risk category, by product, which includes residential mortgages. So about 8% of our portfolio is currently in Stage 2. So that is up from year-end and from the prior quarter.

Okay. That's a really useful commentary, I appreciate it. Thanks.

Thank you, operator. I think we’re done with the call. We will turn it over to Dave McKay.

Thanks, Nadine, and thanks, everyone for your calls. I recognize how difficult the last two days have been for the analysts, and particularly this morning with two banks reporting. It's really kind of three teams that I wanted -- we are hoping that you took away from our commentary. And as many of you have noted, the enhanced disclosure that we provided to give clarity on the strength and power of our franchise. Number one, our strong financial position. Diversification of our business model and the scale we talk about on almost every call for the last 5 or 6 years, and I think it really showed, again, at a time of crisis and with balance sheet strength we've been preparing, as we said in our comments, for a recession sometime in 2022. It caused us to approach and build our capital, to not make acquisitions, to not buy back shares and therefore, we started this crisis, which we didn't see with a very, very strong 12% CET1 ratio. And you see after a crisis where we took over $2.8 billion of charges, 11.7% CET1 ratio. So there, our diversified model, the size and scale of our business, the capital base, the fortress balance sheet, really give us an opportunity to support our clients to absorb the uncertainty with resilience and to take advantage of opportunities going forward. I think we're in a very good position to do all three. I also hope from our disclosure, from the commentary, from how we've approached the uncertainty of the health and economic outcomes, the conservatism with which the management team here at RBC has approached this from the reserves we've taken from our approach in the discussions that we're taking a very conservative -- our base case, as you heard Graeme describe is quite a severe scenario and you should dig into that. But we've approached this entire crisis with a very conservative approach to protect our balance sheet, to protect our shareholders. The third is a very strong earnings power. We exited Q1 2020 with a fantastic quarter, we carry that momentum in. You saw very strong pre-tax, pre-provision earnings and that talks again to the diversification, the quality of our client franchise. So a conservatism, a strength, a diversification and an earnings capability position as well to withstand the uncertainty and turnaround and exit this a stronger bank and a bank that can take advantage of the opportunities that will present itself in the future. So thank you very much for your questions. And we look forward to talking to you over the coming quarter.

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