Good morning, ladies and gentlemen. Welcome to RBC's Conference Call for the Third 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, Ms. Ahn.

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. 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. To give everyone a chance to ask a question, we ask that you limit your questions and then re-queue. With that, I'll turn it over to Dave.

Thanks, Nadine, and good morning, everyone. Thank you for joining us today. We hope you and your loved ones are keeping safe and well in this period of uncertainty. Our main focus remains ensuring the health and wellbeing of our employees and standing by our clients and communities in these challenging times. Against the pandemic backdrop, we are actively supporting our clients through numerous relief options through financial advice and proactive client outreach to meet their needs. Since the onset of the pandemic, we've enabled over 500,000 clients globally through our various payment deferral programs. At the end of July, the outstanding exposure that's been deferred has reduced significantly as many of our clients rolled off the deferral programs during the quarter. Many clients took deferrals as a precaution, and we expect most to resume payments when deferrals expire. We had noticed last quarter that Canada's finances were well-positioned should further actions be required. And since then, we have seen an extension of federal income support programs. The combination of these government and client support programs, strong equity in homes and elevated savings rates along with strong bank balance sheets provide us with comfort around transition to the next phase of the economic recovery. In Canada, in addition to client relief programs, we are also committed to supporting recovery in the small business sector, which is critical to the broader economic recovery. Through the launch of Canada United, we’re bringing together government business associations and more than 50 of Canada's leading brands to rally consumers and give local businesses the support they need to reopen during these uncertain times. We also launched Points for Canada, a program to help stimulate local economies by giving increased RBC Rewards to our clients as they dine and shop in Canadian restaurants and stores.…

Thanks, Dave, and good morning, everyone. Starting on slide 7, we reported earnings of $3.2 billion in EPS of $2.20 while absorbing $675 million of provisions for credit losses. Pre-provision pre-tax earnings of $4.8 billion were up 6% from last year, largely driven by significant strength in Capital Markets with solid growth in our insurance and our non-U.S. Wealth Management businesses. Before I turn to the segment results, I will discuss three key topics of interest, capital, net interest margins and expenses. Moving to slide eight and nine, we reported strong CET1 ratio of 12%, up 30 basis points from last quarter. Our capital build was underpinned by strong internal capital generation, adding 37 basis points to our CET1 ratio this quarter. In addition, we saw pay-downs of credit facilities and Capital Markets in contrast to last quarter. We have also seen Canadian commercial lending utilization levels trend lower from last quarter in nearly all sectors. And as credit spreads continue to normalize from their elevated peak in March, we saw a partial recovery and the unrealized losses we recorded in OCI last quarter. These positives were partially offset by higher market risk RWA underpinned by an update to the historical period used to compute stressed VaR to more reflect the market volatility seen earlier this year. I will now spend some time on RWA migration in our credit portfolios. This quarter, we recorded a further $2 billion of credit downgrades, adding to the over $9 billion we recorded last quarter. The downgrades have largely been in our corporate portfolios and Capital Markets, with over half related to COVID-19 vulnerable sectors. Following a detailed review of the corporate portfolio last quarter, the rate of corporate credit downgrades slowed materially this quarter. We did see a slight deterioration in our Canadian…

Thank you, Rod, and good morning, everyone. Starting on slide 17. This quarter, we continued to build our allowance for credit losses on loans to $6.1 billion, up $200 million from last quarter. The increase in our reserves is mainly attributable to provisions on performing loans in our retail portfolio, reflecting the ongoing uncertainty related to the COVID-19 pandemic. Our ACL is based on macroeconomic forecasts that were generally unchanged from last quarter. So, we did see some improvement in our equities, oil and housing price forecast. Also, the actual Canadian unemployment rate in calendar Q2 was better than we had forecast last quarter. We also updated our scenario weights to put greater emphasis on our downside scenarios to reflect the increasing uncertainty about how the economy will perform through the fall as a number of government support and payment deferral programs roll off. Overall, our ACL represents 0.89% of all loans outstanding, up from 0.53%, six months ago. This represents 4.3 times our net write-offs over the last 12 months and positions us well for an expected rise in impairments. Let me know discuss PCL on impaired loans on slide 18. Provisions of $398 million or 23 basis points were down 14 basis points from last quarter, largely reflecting lower provisions in Capital Markets and Personal & Commercial Banking. In Capital Markets, provisions were down $199 million from last quarter. While we continue to incur provisions in some of our more vulnerable sectors due to the pandemic, we took provisions in our oil and gas, and consumer discretionary sector this quarter compared to last. In Canadian Banking, provisions were down $75 million from last quarter, reflecting lower provisions across our retail portfolios, mainly due to the impact of payment deferral and government programs. This was partially offset by higher…

[Operator Instructions] The first question is from John Aiken with Barclays. Please go ahead.

Good morning. Rod, in your commentary, you discussed the enterprise-wide liquidity to a fair extent and wanted to find out -- you gave us an indication that you were expecting the liquidity to remain fairly high, but you also talked about the wholesale funding necessarily rolling off. Can we expect the liquidity level to stay at this balance on a relative basis? And then, going forward, what would you need to see in order to actually reduce the liquidity level and try to ease some of the burden it’s having on the margins?

Thanks, John, for your question. I mean, part of this is the liquidity that's in the system and RBC is going to take its fair share of that liquidity. And I think that will remain in the system as long as the Bank of Canada and Federal Reserve and other -- and Bank of England and ECB continue to flush appropriate liquidity into the system to help with the economic turmoil caused by the pandemic. So, I would expect that to continue for some time. And then, as clients, both retail and commercial and corporate start to utilize that cash and spend that cash and invest it -- and that cash starts to come down, then, I would think some of that liquidity would come down. Obviously, we would like to replace it with good client assets, but we're not going to change our risk appetite to accommodate that. And so, we will accept a little bit of margin compression. Again, this is not costing us a lot of money. A lot of these deposits are low cost deposits. So, the P&L impact is muted. The NIM impact, just because of the math is higher because the denominator is greater. But, we don't expect this to exit the system anytime soon, certainly not over the next 12 months. But, we do expect to reduce our wholesale funding. And then, we expect margin to improve a little bit on the heels of our asset mix as well. But, that said, the liquidity compression on our NIM is going to continue.

Thank you. The next question is from Ebrahim Poonawala with Bank of America Securities. Please go ahead.

Good morning. I guess, just a question for Graeme around outlook on the impact PCLs. If I heard you correctly, you mentioned the expectations of these will go higher as delinquencies rise. Just talk to us, you mentioned 19% of the deferrals were again renewed in terms of deferral. What was the process of granting that additional deferral, and your level of confidence that those borrowers because of this second deferral will go back to current. Just in terms of -- there's obviously a lot of concern around a cliff event when these differ will come to an end. And wanted to get some perspective on what led to that additional deferral and your thought process around the speed of the consumer once the deferrals come to an end?

Sure. Thanks for the question. I think, there's a few pieces there. One is kind of around the deferral programs; and then two, how that translates against expectations next year. I think, there's a key thing to understand in terms of the deferral program or what we call the client treatment plan and how that was executed and rolled out to-date versus what we would expect after that program comes to an end. And that's certainly why I referenced kind of the some of the operational pieces around that. And so, the program we rolled out starting back in March was really a broad-based program that that was really there to support client -- was not intended to really put a lot of friction into the system, and just really made it very much widely available. And that program on the retail side is open and continues to be open until I believe at the end of September. And I'll ask Neil to jump in here after I finish, if he's got any further comments. On the commercial side, that program came to an end in June. And so, when we look at things, like the early cohorts that we referenced here and how there's -- a proportion of those were -- they've extended their deferrals. Again, that was really an option of the client’s discretion. So, there wasn't a lot of friction when it came to that. When a program comes to an end and the broad majority of these deferrals will come to conclusion in Q4, on the retail side, I think the number there is 83% of them will conclude by the end of Q4; and commercial, it's something similar, then this program changes in a very dramatic way. And further deferrals or further actions with respect…

Yes. Maybe just to put some color on the point about the 19% that Graeme mentioned that had opted for a second deferral. Operationally, what we did early on in the pandemic is we created online tools just for ease of use and sort of operational efficiencies to allow customers to go online and then self-select a one or two months deferral on these products digitally. And so, with those short-term referrals, a couple of things we saw. We saw, because of the ease of it, some customers just did it out of abundance and prudence, sort of making sure they had as much cash flow as they could, just given the uncertainty. And the other reality was some of these customers -- they could have walked into a branch or called the contact center, had a conversation qualified obviously for six months deferral, they chose not to do that and went on line for shorter term. So, when those shorter term deferrals came up and they did require it, then that would have counted as opting for a second deferral. So,, I think some of that was operational. And I would just reiterate Dave's point in his opening comments that this is a top priority for us. We're reaching out to both our retail and our commercial clients. We're getting really good response from both of them in terms of the support they are getting and the advice they are getting and we'll continue to do that through the fall and in Q4, and Graeme mentioned October really being the peak in which the deferrals will start to expire -- when the majority of deferrals will expire.

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

Thanks very much, thanks for Rod -- Rod, thanks for the additional disclosure on the NIMs. Could you give us a little bit of an outlook to the extent possible in terms of both, Canadian Banking and City National, and in particular, do you expect a very strong mortgage growth, which I expect you would tell us is going to continue at least in the short term, despite the uncertainty if that strong mortgage growth, you expect that to weigh in any meaningful way in terms of mix on the Canadian margin?

So, thanks for the question. Rod will talk about NIMs and Neil will talk about the mortgage growth.

So, yes, I would expect the impact to be muted going forward. I think, the biggest drop was this quarter because we had the full three months of the interest rate cuts in the results. And when you think -- you think through what the impacts are going to be going forward, the asset mix has certainly weighed on us this quarter in Canadian Banking. That should improve as credit card spending improves the balance of credit card, as a percent of total should improve, which would benefit the NIM. Also, I've mentioned the less wholesale funding, as our wholesale funding rolls down, we wouldn't need to replace it with more expensive wholesale funding, given the strength in our deposits that we see over the medium term. So, all of those factors should benefit us. But, we'll see -- on a year-over-year basis, we'll still see continued NIM compression. But on a quarter-over-quarter basis, it should be much more muted. Same thing with City National, the biggest impact was this quarter. The next few quarters, we would expect it to stabilize as well. So, I think looking at all things considered, such as that the wholesale funding should benefit us, the asset mix should benefit us. But on a period-over-period basis, the mortgage re-pricing is going to bring it down a little bit. So, the impact should be muted. Neil on mortgage growth?

Yes. In terms of mortgage growth, we had -- pre-pandemic, we had an awful lot of momentum. We've made I think some really foundational changes last year and that really had a great start to the year. So, in terms of outlook, yes, high-single-digit for the rest of 2020. We do see that starting to soften next year more sort of falling down into the mid single digit. We're seeing good demand across the country. Some of that we'd say was really delayed from very low volumes in April, May, beginning of June. So, some of that I would say has been pushed back. But we see, I think a real productive market. We're seeing really strong in Ontario, really strong in BC, two markets where we have a really good footprint, really strong team. So, I think those would be kind of the outlook and I guess really just sort of the shape of that demand curve, which was really strong. In terms of our originations and commitments up until April and then pandemic just put everything to a screeching halt. And now, we've seen that slingshot back to really take up some of that demand.

Thanks for that color. I guess, Neil, have you -- you're clearly taking share in real estate secured lending, but the decline in HELOC started a few years ago. And I noticed the last couple of quarters, it's accelerating. Is there anything you can offer out there in terms of what's driving that?

Yes. I mean, it's just really client advice in terms of -- as rates have come down more and more clients are saying, they want to lock into those lower rates. And so, our advisors are talking to clients about that choice. And it's -- it has accelerated, to your point, and we think it's good advice and makes that client that much more sticky.

Got you. Just more fixed versus floating.

That's right.

Thanks for that.

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

Good morning. I want to rotate back to the deferral stuff and on one hand, we see a pretty big decline in the mortgage balances that are deferring payment, but commercial was up a bit. I would have expected that to be down because the deferrals, as I -- periods as I understand they were three months not six months. What's going on there? Are you providing lot more extensions? And then, in any cohort, I guess, that's coming off deferral, do you have any stats on how many are current versus extensions versus impaired?

Yes. Thanks for the question. It's Neil. I'll start. Yes. Our deferrals for our commercial book were six months deferrals.

Okay.

Yes. So that's what's driving that. We have seen about 25% of the clients already roll off of those deferrals. Again, the bulk of those will come in October. Now, of those clients, who are on deferrals, we have seen almost 30% of them still make payments. So, we're still seeing, I think some really good trends there. And the other point I'd make, I think qualitatively, as we've mentioned, we're reaching out to these clients. I think we're quite encouraged by the feedback we're getting from clients and their ability to resume these payments. So, whether it's on mortgages and having clients ask if they can catch up on the payments they had deferred, and generally just more -- little bit more strength than we would have anticipated as we started to follow up. But, I don't know, Graeme, anymore…

No. I think, that's the critical piece is that the program nature and such that that's why we haven't seen the material decline there. But just to give context, again, some of the early proof points we have that we do expect those balances to dramatically shrink in Q4. Similar to retail, we'll be -- kind of the early cohorts that we have that it is less than six months, which is much smaller here than was in retail. We saw it again very similar -- there wasn't anyone that reupped in the deferral sense, but the deferral -- the delinquency component of that was very small. And then, the second piece outside of deferral programs, which is what everyone is very focused on in a market context, we did have other parts of our client support program. And so, one of those was we did provide clients with temporary increases to operating facilities -- operating lines that they had. And so, that was largely a three-month program for us. We do have the read on that. Well, it was a small program, almost all of that has now been repaid and clients have either didn't use it, they no longer need it or have paid down that incremental access. So again, that's just another data point there that gives us the comfort and confidence that these programs, these client support programs we put in place back in March are kind of meeting back down to much more manageable balances that we can now engage with clients on a more effective basis with.

Thanks. And my next question for Derek…

We ask you to requeue and we've got a bunch of…

Yes, okay. All right.

[Multiple Speakers]. So, we're going to give you some more time given the length of our speeches today.

Thank you.

So, please requeue. And we'll try to get back to you.

Thank you. The next question is from Doug Young with Desjardins Capital. Please go ahead.

Hi. Good morning. Just back to Canadian Banking, and I guess, this is probably for you, Neil. Pre-tax preprovision basis earnings down 8%. We talked about the NIM compression, and Rod talked a bit about the outlook. Just wondering, what are the levers do you have to pull here maybe on the mix or expense side to kind of support pretax pre-provision earnings because obviously modeling out our PCLs is a crapshoot. So, I was just trying to figure out what are the levers you have to support this? Thanks.

Well, I mean, I'll speak a little bit in terms of some of the trends that are really impacting NIM and which ones we expect to stick around and which ones will be more transient. Rod mentioned interest rates. So, we don't -- that's going to be obviously biggest driver of the NIM decrease. And it's going to be the -- a factor that's going to be in the book for quite a while. On the pricing side, and we talked about our mortgage book and just mortgage growth there. We're feeling better about the returns on the mortgage volumes we’re bookings. So we'd say as that kind of rolls on, and if that market stays still competitive, but we'd say a lot more constructive than it was that would help. In terms of I think Rod mentioned it in his opening comments, but definitely a transitory part of what's impacting NIM is the credit card business. So, as part of our client treatment plan, we also did offer all those balances that went into the cards treatment plan, a 50% reduction in the rate that they pay. As those credit card treatment plans roll off, that margin will reset and go back. And then, the other part Dave mentioned in his opening comments just about the velocity of spending by the consumer. So, we're starting to see that pick up. Our card services revenue has been impacted quite a bit. Obviously, as we -- as clients aren't spending, we're not creating that interchange that credit card service fee revenue. So, we still have a couple of categories like travel as an -- obviously that are way down, dining is way down. We're starting to see the everyday spend pick up and now we're into a positive territory year-over-year. So, I think those are some of the things that -- and then obviously just volumes. I think, we're feeling really good about our ability to capture deposits and how clients make RBC their choice, and whether that's on the core deposit account or again on the strength of the mortgage business. And then, the last one would be, Rod mentioned, where we're on our cost. We have had COVID costs in the quarter, which we think are mostly behind us, some incremental compensation costs. And then, if we take out those COVID-related costs, we would actually have -- have had negative NIE year-over-year. So, cost is, to Dave's point will continue to be another lever.

And can you just quantify the credit cards reduction in rate and as that comes off that will have a positive impact. Can you quantify how much that weighed on NIMs, is it possible?

Yes. It was -- if we look at that the credit card as a category both inclusive of the lower rate from the treatment plans as well as the business mix, so our -- having lower balances, and we have seen a lower revolve rate with more liquidity in clients accounts, that made up over six basis points of the NIM decline.

Thank you. The next question is from Meny Grauman with Scotiabank. Please go ahead.

Just a question on capital. Assuming no further spike in COVID, do you expect your CET1 to climb from here? How do you see the flight path?

It's Rod. I'll take that, Meny. Thanks. So, I would expect us to have absent the downturn, as you mentioned [Technical Difficulty] if you will. I would expect this to be an upward trajectory with the exception of Q1 next year as the OSFI modification on the stage 1, stage 2 build starts to go back from a 70% relief to a 50% relief. That would impact us, as would any migration from stage 1, stage 2 into stage 3. As soon as it goes into stage 3, there is no modification. It's an immediate hit for either the 70% this year or 50% next year. But absent that, our internal capital generation has been quite strong, and we expect it to continue to be strong. We saw a slight uptick in market risk. RWA this quarter, as I mentioned in my comments, we would expect a little bit of relief next quarter on that, and everything else should be equal. We took a big hit on pension with discount rate. I'm not sure how much lower the pension discount rate can go. So, that shouldn't have a big impact. And I don't see a whole lot of RWA migration. We took our big increase in Q2 with a modest one this quarter. Obviously, we're planning for it, and we're taking into our capital forecast, but it's not going to be dramatic. So, I would see a slight uptick in just about every quarter with the exception of the first quarter next year.

Thanks for that Rod. And just as a follow-up. So, we've seen the biggest stress test ever and you're at 12%. So, what lessons do you draw from that? Is it reasonable to say that you entered this crisis with just too much capital? Would you agree with that statement?

No. No. I would say no. We're appropriately reserved that therefore -- there was a lot of learnings from the first crisis that we went through 10 years ago. We needed more liquidity and more capital in the system. I think -- the investment we've made in risk management has helped, but we still have uncertainty ahead of us. We're not out of this yet. We've got the fall to get through. We have re-contagion and therefore -- the capital is not burning a hole in our pocket. So, rest assured that we will allocate capital judiciously. We have strong growth opportunities as you see with strong momentum and all our businesses that will consume some capital. To Rod's point, even with our normal growth perspective and the momentum we have, we will likely have surplus capital that will build, and we'll be very careful with it. And therefore, if we carry excess capital for a couple of years and it depresses ROEs, I think that's a good thing. I think the overall kind of perspective is we're going to remain somewhat defensive and careful through still what I think will be a fairly challenging year.

Thanks for that.

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

Good morning. I want to sort of try to get to the heart of the matter on impaired credit losses. I think what we're all trying to do is in asking the questions about the deferrals is make an estimate of where impaired PCLs could be. Graeme, could you offer an outlook, perhaps a range, if you will, where impaired loan PCLs could be over the next few quarters?

So, maybe just a few comments. I'll reiterate a bit of I think some of the commentary I’ve provided. I think certainly, we're facing a lot of uncertainty. And so, I think in the face of all that uncertainty, we're not inclined to provide a very specific forecast at this point in time is. I think, there's just too many factors that go into that. I think, the general guidance I would provide and just to confirm what I said before, certainly, the impaired loan situation and the PCL that come with that this quarter have trended down in large part because of all the deferral and government support programs that are out there. And I think that was kind of our view as to how this could play out last quarter. And we would expect a good part of that to continue to play out in Q4. And that's why we kind of really see the impaired situation really starting to kick in, in 2021 and really seeing it ramp up kind of through the first half and peaking kind of in the middle of 2021 next year. But, that's all very much contingent on again that the macroeconomic forecast plays out consistent -- or the reality plays out with the forecast that we're operating under. But certainly, we don't see kind of future downturns associated with COVID. And that the translation kind of that we have expected off the back of the macroeconomic situation is consistent with what we're looking at. So, really difficult to put a forecast out there at this point in time and something certainly, as we work through Q4 and kind of get better transparency on the transition into delinquencies and impairments that I think we can have hopefully better conversation with that at that time.

Okay. Let me just go real quickly through, I think Rod, you made the comment about one third of a review of probability of default was completed. I didn't follow you there. What did you refer to when you said one-third?

So, we're talking about credit migrations. And so, if you break that up into three broad chunks, the capital markets portfolio because of the kind of the real time information we get there on our clients because they're public, we were certainly able to really reassess our credit ratings largely in Q2 to be consistent with the COVID-19 kind of environment. Our commercial or mid market are smaller clients that -- that's a more difficult assessment to make. We don't have real time information on those clients, we don't have the financial statements every quarter or Bloomberg's to give us kind of the insights there. So, that's a longer process we go through with our clients. And so, we're working through that now. And so, that's the piece I said it's about one-third done. To give you a context, we think RWA in that space could increase by $7 billion to $9 billion range, but we would expect that to happen kind of over the next six months. And so, that kind of feeds back to Rod's comments, but that's kind of built into that plan in the forecast on the capital side. And then, the retail piece, the retail piece has been the side it's been interesting. While certainly on one hand, we're seeing those more distressed and challenged clients and then the downgrades happening there in our rating models, the flip side is the broader client base is seeing an upgrade there. And that's just reflective of these cash balances and the lower spend that's really improving their credit ratings. And so, that's really offset that piece of it. And so, over time, we would expect, there'll be -- to be some ratings migration and some RWA inflation on the retail side. But, we really are seeing that play out over a much longer horizon now than we had originally expected. And so, again, to Rod's comment, we expect that to be much more really absorbed through ongoing earnings.

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

Graeme, I don't know if you could give us some color on the deferrals maybe pick the mortgages as to geographic breakdown, number one; and vintage year of the origination of those mortgages. And whether or not the 1% that you say have gone delinquent, if that also follows the same kind of pattern, or is there something a bit more specific for geography or your origination? Thanks.

Sure. Thanks for the question. I'll provide a few dimensions. I don't have all the pieces you were asking about on that. But, if you look at -- I guess, I think few things, we're trying to make sure people are traveling with here is on one hand, appreciating that this large balance is $57 billion that because of the opening to that program that we really do expect that to compress to a much smaller, a much more manageable number. And we provided the proof point there around the early cohorts and what we're seeing on that. When you look at -- you asked about the regional segmentation on that. You would see a bit of what you would expect kind of where -- what we call here affected. So kind of the highest deferral rates would be in Alberta, consistent with the kind of macroeconomic -- the kind of dual impact that Alberta is facing, both with the pandemic and the impact on the oil and gas environment. GTA would be next highest there. And again, that's a reflection of two things, I would say. One is kind of a lot of the service economy that comes out of Toronto, but also kind of the higher level of home prices. And then, on the lower side, you'd see Quebec and some of the other parts of Ontario outside of the GTA. Other segments that we would look at, when you look at kind of investor versus homeowner segmentations, we don't really see a differential there in deferral rate. So, that's not really been a risk indicator at this point in time. And then, you look at say, condo and non-condo. Condos, we're seeing a lower deferral rate on. So, those are skewing better from a risk perspective than non-condos right now. So, those are some of the dimensions I think we're seeing. I might invite Neil though if he's got any other kind of aspects he would want to call out here.

Yes. I think, just two other points I'd make is, if we look at the LTVs and the FICO scores on the uninsured book, I think that's the place we take a lot of comfort in, in terms of the underlying risk. LTVs in the sort of the mid 50, sort of 56%, and then average FICO at 758. I mean, these are strong credit clients with a lot of absorption capability. The other thing we look at it just how long we know these clients. And 75% of the clients, he would pay mortgage deferral have been clients for more than 10 years, another 20% somewhere between 3 and 10 years. So, we know these clients well. There is a lot of capacity in these transactions. And we have a good history in terms of repayment from the FICO score. So, I think that maybe the only other thing that I'd add to Graeme's comment.

So just to clarify, Neil, about 5%, if 75 to 10 plus 20, I guess it's 3 to 10, then about 5% is less than 3-year relationships?

Yes. That’s right.

Okay. And the percentage that have gone delinquent, they would follow the same geographic pattern as well, the 1% that you say up on delinquent?

I don't have that breakdown at hand. So, we'd have to follow up with you on that.

Okay. Thank you very much.

Thanks, Sohrab. We've got a couple of more to get to before we have to break here. So, we'll try to get a couple more in.

Thank you. The next question is from Mike Rizvanovic with Credit Suisse Canada. Please go ahead.

Hi. Good morning. I have a two-part question on the mortgage deferrals, more of a high level question. But, correct me if I'm too pessimistic here. But, what if that 12% of balances currently in deferral? What does that settle somewhere in the 3% or 4% range in the next few months? How would you view that with respect to just the broader risk to the Canadian housing market, if you get a lot of potentially foreclosed properties coming to the market? And my follow-up to that is, if there was a perceived risk and things were -- and there were legitimate concerns, should we even be thinking about a crises then? Or should we maybe be thinking about the likelihood that maybe the banks get together with the government and perhaps figure out a way for a more gradual unwind of those problematic loans?

Yes. Thanks for the question. I think just maybe to kind of level set on I think some key pieces here that. There's a lot of focus on a big cliff event here, but to me this is more just a transition from kind of one phase of how we're going to manage with our -- do with our clients on this to the next phase. I think, Neil brought up a pretty critical stat in his last comment there around the LTV. And so, when we look at those deferral clients, as Neil said, they have a very high FICO, which indicates just a strong willingness to pay, and they have a very low LTV on average. So, we have a LTV in the kind of mid 50%. And so, clients having -- being distressed is going to be a critical challenge. But, our ability to work with them and work with the equity that they have in their homes, work with the income they have, even it is diminished to make sure that we can reset and reprofile kind of a lending situation that works for them, but it's also still consistent with our lending standards and appetite, really it's going to be critical to helping prevent kind of the pieces I think you're really worrying about and concerning yourself, which I think we all worry about at the end of the day. And so, this isn't really kind of a cliff event that goes from deferrals into some broad-based set of foreclosures that there is a whole lot of tools in our tool kits and there is a whole lot of liquidity, cash, equity and income the clients have to work with that we can really extend this out over a much longer period of time and really not create that cliff event for the economy and the housing market that I think that you're pointing to.

And that -- sorry, the 3% to 4% that I mentioned, is that something that you would see realistic? And I'm just trying to get a sense of at that level, would there be concerns on your end for just the overall sort of health of the housing market and confidence levels.

[Multiple Speakers] I'm traveling with directly. So, I have to think about that more specifically. But certainly, the expectations that we've built in our macros don't put us in a spot that we think the scenario you're describing is one that we're immediately worried about.

Yes. Okay. That's helpful. Thanks.

Thank you. The next question is from Scott Chan with Canaccord Genuity. Please go ahead.

Good morning. Graeme, you offered some advice on the perhaps the impaired loan trajectory over the next few quarters. What about performing loans? Can you maybe kind of talk about some of the stuff that we should think about? And I don't know if you have any guidance. I know, your coverage ratios are probably peer high right now, but any guidance on that front over the next few quarters would be helpful.

Sure. Thanks for the question. Yes. So, I think what you've seen to date and kind of what you expect going forward, just a few comments there. So, certainly, we took a substantial increase in our provisions and reset our ACL at a much higher level on performing loans in Q2. And that was really just reflecting the step change that we saw as COVID- 19 came into play. And to do that, we undertook a lot of work to kind of reset the scenarios to make sure they were reflective of the COVID-19 world. We did a lot of work with our data and our analytics and our model to make sure that they were capturing kind of the unique features and elements of the macroeconomic situation we're facing reflective of two and including aspects like the CERB and the government approved program, the deferral pieces, et cetera. And so, we reset that in Q2. As we moved into Q3, I would say, we didn't take nearly the same level of provisions. And that's a factor of a number of things. One, the macroeconomic situation in our forecast were largely consistent with what we laid out in Q2. We did increase our weights a little bit, so that goes to the opposite direction, and just reflects the uncertainty of how long this recovery could take. We did see a decline in balances, which would again influence the ACL down. And then the fourth factor was it's just the credit side of it, how we factor that into our provisions this quarter. It's really that last piece that caused us to take any further provisions this quarter I guess that, plus the scenario we're [weighting]. And that was really just -- that's kind of I would say fine tuning and reflecting the impact these government programs and deferral programs have had on effectively suppressing some of the delinquencies. And so, we want to make sure we continue to reflect that in our reserves, particularly on retail. And so, when you go forward though, again, absent a real material change in one of those factors, we wouldn't see us having to materially change our ACL and performing loans in a significant way. And as you roll out further, over time, as we get much more certain in that economic recovery, assuming we are traveling along the path that we forecast now, we would expect that ACL to come down over time. But, the timing of that is really difficult to kind of project. And then, that's really going to depend on how the macroeconomic situation and how the COVID situation plays out over 2021.

Thank you very much.

Thank you, operator. We are going to turn it back over to Dave now. We’re running out of time. Thanks everyone for your questions.

Thanks, Nadine. Maybe I'll summarize some of the key themes, some of which came out in our speeches but not necessarily in the Q&A. One is, diversification of our business. Again, through a challenging time, we saw the benefits of our diversified model. We had exceptionally strong results in our capital markets operation, we didn't get to touch on that in the Q&A, but again helped us provide our earnings buffer against any uncertainty around our credit position. We saw very strong client volumes across our businesses, as you saw from the retail bank, mortgages, core banking, capital markets, institutional, trading, equities, credit trading, great DCM volumes. We saw very strong volumes on the lending and deposit side in City National and then very strong Wealth Management Canada performance. So, client activity remains strong. We continue to take a prudent market share, and it's really the investment in technology we've made. We have increased our channel capabilities. We've increased our risk capabilities, our analytics capabilities. And that investment in technology is playing through all our capabilities. And it's really started to I think show the benefits, particularly this quarter. Strength and resilience of our balance sheet and our reserving and our risk management capability, I think was strongly represented this quarter. We're being very prudent. As I said, we've seen strong recovery so far and whatever it is a Checkmark or Swish or whatever recovery scenario, you're planning for. We've seen strong recovery, but we're not all the way back to where we were pre-COVID, obviously. And therefore, we're taking a prudent view. And it may take one or two years for us to get back to where we were before and recover all the jobs. And therefore, with that uncertainty, with the uncertainty of re-contagion, we are being cautious. We're being cautious with the strength of a strong balance sheet, strong liquidity. And as a number of you’ve asked and the responses Graeme and Neil gave, with the ability to work with clients and be patient, amount of equity Canadians have in their homes is quite significant, particularly those who have deferred payments with us. And therefore, the ability for us to be patient and work with them, help them through this is a significant asset. And therefore, that combined with appropriate reserving for those situations that may not work out, we feel very good about where we are. Our ability to continue to grow the business, continue to manage our franchise in uncertain times. So, I think those are some of the themes that I wanted to reinforce. We really appreciate your questions and your comments. Thank you for attending our Q3 call. We look forward to talking to you again in Q4. Thanks, operator. We'll close the call.

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