Good morning, ladies and gentlemen. Welcome to RBC's Conference Call for the Second Quarter 2023 Financial Results. Please be advised that this call is being recorded. I would like to turn the meeting over to Asim Imran, Head of Investor Relations. Please go ahead, Mr. Imran.

Thank you, and good morning, everyone. Speaking today will be Dave McKay, President and Chief Executive Officer; Nadine Ahn, Chief Financial Officer; and Graeme Hepworth, Chief Risk Officer. Also joining us today for your questions, Neil McLaughlin, Group Head, Personal and Commercial Banking; Doug Guzman, Group Head, Wealth Management and Insurance; 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 questions, we ask that you limit your questions and then requeue. With that, I'll turn it over to Dave.

Thanks, Asim. Good morning, everyone, and thank you for joining us. Today, we reported second quarter earnings of $3.6 billion or adjusted earnings of $3.8 billion. Pre-provision pretax earnings of $5 billion were up 1% from last year. We also announced a $0.03 or 2% increase in our quarterly dividend as part of our cadence of twice-a-year increases in commitment to returning capital to our shareholders. Net interest income was up 16% from last year, benefiting from solid client-driven growth in Canadian Banking, and wealth management as well as higher interest rates. Capital Markets had yet another strong quarter, reporting over $1.1 billion in pre-provision pretax earnings despite a challenging environment for global investment banking fee pools. The revenue contribution was equally split between Global Markets and Corporate Investment Banking, reflecting the segment's well-diversified business model. Our all bank performance this quarter reflected the strength and diversity of our leading client franchises and strong balance sheet; however, shifting client deposit preferences, expenses and provisions for credit losses point to an increased cost of doing business. Before I provide context on our key growth strategies and the expense trajectory, I will speak to what remains a complex environment. Markets are facing structurally different circumstances following the end of an era of low inflation, low interest rates and increased globalization. This is in addition to absorbing game-changing challenges from technology and decarbonization as well as more near-term risks, including implications from U.S. debt ceiling negotiations. While recent stresses in the U.S. regional banking sector appear to have eased, the follow will likely include more liquidity and capital regulations and a subsequent tightening of lending capacity. The financial -- Canadian financial system is already subject to many of these liquidity and capital requirements and performed exceptionally well through the recent U.S. regional banking…

Thanks, Dave, and good morning, everyone. Starting on Slide 8, we reported earnings per share of $2.58 this quarter, adjusted diluted earnings per share of $2.65 was down 11% from last year, largely driven by the impact of prior year releases of PCL on performing loans. Strong client-driven revenue growth of 20% year-over-year or up 10% net of PBC AE was largely offset by higher expenses, resulting in pre-provision pretax earnings growth of 1%. Before focusing on more detailed drivers of our earnings, I will highlight the strength of our balance sheet. Starting with our strong capital ratios on Slide 9, our CET1 ratio improved to 13.7%, up 100 basis points from last quarter. Consistent with the guidance we provided in Q1, this quarter's increase reflected a 79 basis point benefit from Basel III regulatory reform. Next, turning to Slide 10, it is important to emphasize the diversity, strength and stability of our funding and liquidity profile. This quarter, we prudently managed to a higher LCR of 135% up 5 points from last quarter, which translates into a surplus of $102 billion. Our liquidity levels remain robust and provide us with flexibility to execute our strategy. Turning to our $900 billion client deposit franchise. Canadian Banking accounts for approximately 70% of total client deposits. Our Canadian retail banking franchise is well diversified, serving approximately 13 million personal banking clients with the median checking account balance of $2,000. Furthermore, over 85% of our mortgage clients have a personal banking account increasing the depth of the relationship. In the U.S., as Dave noted, City National deposits remained stable quarter-over-quarter, and our U.S. Wealth Management franchise has over $30 billion of sweep deposits. Across our North American corporate and commercial deposit franchises, we have long-tenured relationship-based clients that we support with strong advice…

Thank you, Nadine, and good morning, everyone. Starting on Slide 19, I'll discuss our allowances in the context of the macroeconomic environment. During the quarter, we saw elevated volatility stemming from issues in the U.S. regional banking sector. However, the trajectory of the overall macroeconomic environment was consistent with our expectations. Inflation continues to moderate and central banks appear to be nearing the end of their rate rating cycle. Relative to this time last year, the probability of more severe inflation and interest rate outcomes has reduced. That said borrowers have been dealing with a higher rate environment for several months now. We are seeing insolvencies, impairments and losses increasing toward longer-term averages. The full impact of higher rates in the economy will take time to translate into credit losses. We are still in the early stages of the credit cycle we've been expecting for some time. As a result, we built reserves on performing loans for the fourth consecutive quarter. This quarter's provisions reflect the impacts of increasing levels of delinquencies and credit downgrades, lower forecasted housing and commercial real estate prices and portfolio growth. In the retail portfolio, most of this quarter's provisions on performing loans were taken on credit cards and unsecured revolving loans. The credit losses have been faced to normalize consistent with the traditional credit cycle. In the wholesale portfolio, the majority of our provisions on performing loans were taken in commercial real estate. As I discussed last quarter, risk in this sector continues to increase, driven by higher interest rates, weakening macroeconomic factors and behavioral trends. Having said that, our commercial real estate portfolio is well diversified, it has been originated to sound underwriting standards in support of a strong client base. With additional reserves added this quarter, our ACL on performing commercial real…

Thank you. We will now take questions from telephone lines. And the first question is from Meny Grauman from Scotiabank. Please go ahead.

I just wanted to touch on expenses. Dave, you talked about some of the levers that you have at your disposal in order to slow expense growth. One thing you touched on was attrition. My understanding is that companies are seeing attrition rates come down very, very significantly, which makes sense in the current environment. I'm wondering what you're seeing and how significant attrition can really be in your goal of getting expenses down?

Fair question and maybe I'll go back it's such an important part of our overall construct of improving our premium performance. First, I think we have to acknowledge that we have a number of complex strategic programs underway. HSBC, which is front-loaded, but not all of HSBC's costs could be quantified within a separate project. For example, Neil would be carrying more call center employees and maybe some more branch employees just to get ready for the conversion process. So there are some embedded costs in the business. There are the majority of the systems costs obviously we can isolate to do that. So there are some carry-on effects to getting ready and spending all that money upfront to get ready for an HSBC, a smooth HSBC conversion. We are still seeing attrition to your point it is slowing, having said that, we've seen our numbers turn negative month over month. So I think there is a way to manage this down while balancing the significant strategic programs we have in front of us. Don't forget, we're also in the process of selling and detaching our investor services business in IS Bank, which is a complex technology play we've got Brewin Dolphin, so we have a number of strategic initiatives that blend in a little bit. But having said that, we took a Nadine's point on moving this down to mid-single digits or better, we feel confident in managing all aspects of our cost base, including hiring. And like some other banks in the U.S., you've heard over the last few quarters, that this is a very difficult transition from the volatility and supply/demand shortages in the market that we're very prevalent last year. We had to react strongly in the latter half of 2022 to staffing shortages given the technology firms, the tech firms are hiring so aggressively in the latter part of 2022. We had to respond to that with aggressive hiring and anticipating high turnover rates persisting into the first half of 2023. Well, that was not the case almost overnight the tech firms started laying off instead of hiring and therefore, attrition came off very rapidly. And honestly, we overshot. -- overshot by thousands of people. And some of those people are, as I said, are being -- are there to help us make the transition with HSBC and some will come off through attrition. So I think we were caught a little bit by how quickly the labor markets changed in Canada and in the U.S. but largely Canada. We're adjusting to that overhang right now. And we feel we can manage this through all the levers that we have, but we have -- we're going to come at it aggressively. And if one method doesn't work, we have other plans and strategies to back that up to make sure that we address this. So, thank you for that question. It's an important construct to some of the challenges we faced this quarter.

And just a follow-up, just to understand the timing in terms of what's realistic, given all the moving parts that you're talking about. What's the time line for saying mission accomplished here from your perspective?

We're definitely expecting to see more significant improvement in Q4, but Q3 will be a transition quarter. We still expect to have strong off level overall in the latter half of this year. But we're going to execute a lot of this in Q3, and we expect a much better Q4. But Nadine, do you want to add to that?

Yes. No. Obviously, given the headcount and coming off of Q1, we've been implementing into Q2, some of the cost reductions we already spoke about, but that's going to take a couple of quarters to really start to impact. So that's why, Meny, we're commenting that the mid-single-digit NIE growth will be for the second half, but staggered more towards Q4.

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

I just want to ask about the deposit growth trends in the Canadian bank. I'll use the word Chase, you might not, but it seems to me like Royal going out of its way to bring in more deposits to the bank. And then maybe you're not, but what is the motivation there? Is it market share? Do you want to -- you expect to convert some of these customers to core banking customers? Or is it a mix of factors, like the structure of your business. You've got a bigger wealth franchise. You've got a bigger independent broker business, the biggest in Canada. So some of the flows from wealth type and broker money that might have a disproportionate effect on your deposit growth and it's good, but it's also bad.

Yes. Thanks, Dave, it's Neil. I'll speak to it. I mean, the first thing we'd say is you touched on it, which was new client acquisition. So that aligns to the Investor Day goal we put out to grow that core checking account franchise. We do count that as that low beta, stable funding. And that has been going exceptionally well. And it's part of our the increased costs we've seen in the first couple of quarters because last year, we had pulled back on some of that marketing in biz dev just didn't see the returns on it, whereas right now, we'd say we've had the best Q2 we've ever had in terms of new client acquisition. So that would be the first pillar. The second pillar would be just to your point, on the franchise overall, we are -- we do have a very large financial planning business. We do benefit from GAM and a strong investment product manufacturing there. And so we are seeing this rotation that Maiden spoke of in terms of the GIC growth. Now when you look at the GIC growth, I think it's important to call out, about half of that growth has come from outside the Company. So we're seeing a good portion of that being attracted through those advisory sales forces into the Company. We're capturing that in the GIC product, which our full intention would be once we start to have an equity market that feel more normalized that we will then put those clients into long-term funds. And then about half of it is coming from internally from mostly savings and then some core checking. So that would be as you sort of asked about the flow and the mix, but it would be a combination of new clients, external consolidation and then rotation internally.

Okay and then a quick one on expenses. Just the way you display at 16% growth, about half of that, I get calling out the HSBC acquisition, but why should I look at Brewin Dolphin in a distinct manner because it's in the revenue line as well.

Agreed, Gabe, from an operating leverage standpoint, you're absolutely correct. We're just trying to explain the NIE growth trajectory since the comparative on a year-over-year basis, sometimes highlight.

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

Can we go to Slide 15 where you show the decline in your wealth deposits? That 15% sequential decline in deposits is noticeable. So, it's a big number. Help me understand how you fund that kind of deposit attrition? Is it through selling securities and maybe about where these deposits are going, presumably, they're not leaving the bank entirely. Help me think that through.

It's Nadine. I'll take that one, Mario. So in terms of the -- a lot of it is related to the deposit mix in City National. And so we have seen attrition on overall on the shift from non-interest-bearing into interest-bearing. So we've managed that through some of our broker CDs. The loan book trajectory has come off a bit. As you'll notice, though, when you look at it from our balance sheet when it comes to City National, we do have -- but we've increased from about 73% to about 88% our loan-to-deposit ratio. So what's happening there as it relates to the deposits coming off, you're seeing more of a shift into other forms of higher cost funding. So whether it be there's been in our FHLB that we noted primarily to increase our liquidity position overall. So, it's not a case that we're actually having to reduce our asset base. It's more that we're actually increasing it from a higher cost of funding and that's why you've noticed that you've seen the NIM drop on a quarter-over-quarter basis.

That's that '22 or whatever, maybe not '22. That's a meaningful drop in CNB's margin is reflective of this deterioration in deposits that I referred to. Those you'd connect those two presumably.

Correct. And on a year-over-year, we also would have removed Investor Services. On that as well given the -- given moving that a deposit balance sheet base to available for sale, that would have been on a year-over-year basis.

Okay. Then my follow-up -- my last question then relates to the LCR. That's, again, a meaningful increase of 5 points sequentially. Is there any way to size what that does to the all bank margin in a given quarter? When you take your LCR 5 points, are you able to provide some kind of estimate on what that means for the margin?

Yes. So overall, you're looking at moving from about $88 billion surplus to about $102 billion, and that's roughly at about a cost of -- you could think of Mario, around 55 basis points roughly. So from an all-bank margin perspective, it wouldn't be as material, maybe 1 basis point in the order.

Just back on the deposits, Mario, if you look in the footnote on that page, over half of that move is that IS change that Nadine mentioned.

Investor Services?

Yes.

On a quarter-over-quarter basis, the City National deposits were flat, if you think about it from the mix shift from an FHLB funding increase.

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

Good morning. Maybe for Derek, Capital Markets seems to have bucked the trend here. Hoping you can maybe talk a bit about the drivers. I think there was some impact from market reversals, if you can quantify that. And I know it's tough to kind of pull up the crystal ball, but I'll throw it out there. You have a $1 billion pretax pre-provision earnings target quarterly that you kind of set. How do you feel relative to that, given the business pipeline and then maybe you can mention just you're building out a cash management strategy here. How does that impact that outlook as well?

Sure. Thanks, Doug. I mean I'll start just with the macro drivers. I mean I think overall, where we feel we had a benefit this quarter was really, one, the diversified nature of our platform that while we've seen ebbing and flowing and activity across different products, the diversified nature of our business has helped us overall with strength in some of the areas that have been a little bit more active. And then second, I think we continue to see benefits of some of the strategic changes and investments we've made over the last three years that are driving market share growth that's helping to offset at least some of the weaker fee activity. So, if I touched on specific areas, obviously, a very solid quarter in our Sales & Trading business. That was really driven by our macro business with the volatility we saw in interest rate and FX markets and then our credit business. And you may recall last year, we've got a sizable and very successful credit trading franchise. That was a headwind in 2022 as we saw credit spreads widening as we've seen a little more stabilization this year, that's a business that has obviously benefited us and done well. I think within our corporate banking business, we've been very disciplined with a moderate growth strategy. So we have seen a moderate growth in that business. It's a little more pronounced year-over-year given the growth that we saw through 2022. And then with the addition of the transaction banking business into the Capital Markets segment this year, that's a business that has performed well against a higher interest rate environment and the spreads we're earning. And then finally, on investment banking, as Dave touched on, we have been successful in continuing to gain market share…

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

I guess maybe a big picture question, Dave, trying back to the ROE outlook. You mentioned how quickly the environment changed over the last six months. As you are managing the bank today, you talked about attrition capital liquidity, just across all of these measures. What are you managing for? Are you managing for my recession, deep recession when you look out over the next year? And is the outlook different for the U.S. versus Canada? Just talk through all of that. And within that framework, how do you think in terms of the resiliency of the ROE relative to where we are today?

Really important question. Thank you, Ebrahim. So, we are still forecasting and managing to a mild recession, hence, a series of tools that we're using to manage our cost structure around attrition. We still see strong demand coming from businesses and investments in. we see a strong employment in the economy, and therefore, the purchasing power of an active purchasing of our consumer clients is still strong. So, we are managing to as I've mentioned in my comments, a milder shallower recession, given the high interest rates, the drag on debt servicing. And the need for us to get strong control over inflation and get it out of an anchoring into leadership and business psyche. So, it's very important that we do that, and that is the priority of central banks, and we support that. So in doing that, then we are very much -- you saw our strong capital ratios. Our strong capital ratios allow us to grow organically and to acquire HSBC Canada remain above 12%. So I think that's a real strength of our balance sheet. There was a previous question around deposits, why you get deposits or the lifeblood of a bank and they allow us to continue to lend. We're the only bank there are match funded in Canadian dollars in Canada and the retail side. And that's very important. It leads to better margins over time, as you've seen. The movement of clients into higher cost deposits is a global trend, one that obviously, you've seen in both sides of the border with ourselves, but we're retaining the vast majority of those deposits. And I think a point that we have to stress around CNB, which is really important, is they were flat to slightly up throughout that crisis in the United States with…

And just on U.S. in terms of the market share opportunity, all did a great job of post-GFC in the capital market side in the U.S. When you look at it right now given what's happened with First Republicm, SVB, are the better opportunities in private bank, the regional bank turmoil, does that create some commercial opportunities? Like do you see those and like is RBC ready to act on those?

Are you talking from an organic perspective?

Organic

Absolutely, we've run in a number of new relationships from both all those challenged banks and failed banks, as you've mentioned, and we'll continue to do so, whether it's through teams coming in or clients approaching us directly at CNB and taking them on. Those accounts are starting to fund now so absolutely, there's a significant opportunity given the capital that we have to continue to grow organic. And that's our primary focus is to serve clients and integrate the HSBC acquisition. All that while remaining above 12%. I think it's a unique opportunity to create premium shareholder value and ROE.

Thank you. The next question is from Paul Holden from CIBC. Please go ahead.

First question for Graeme. With your revised PCL guidance or pushing to the upper end of the range, how are you thinking about commercial/corporate versus consumer? And I guess the reason I ask is consumer looks like it's still really strong for many reasons you've already cited where we're seeing some pockets of weakness, I think, on the business side. So is there any clear differentiation between the two?

Hi, Paul, thanks for the question. And we're going to break those down. I would say on the retail side, I would show say retail has been trending consistent with our expectations overall. I would say this quarter that the -- some of the trends we were seeing there started to decelerate and we saw some improvements, obviously, in the delinquencies I quoted. Having said that, we do expect retail to continue to increase as we go throughout the year because we're going to see a second leg of an effect here in terms of the employment environment, right? And so in our kind of baseline forecast, we do expect unemployment to tick up from the exceeding levels we're at right now. We're in that kind of 5.1 range. We expect that to kind of get into the kind of mid-six range as we trend through the end of the year and into 2024. And so, we had very strong performance there and so the recent trends have been good. We do expect that will continue to increase as we progress through 2023. The wholesale side, certainly, we saw a tick up this quarter. Wholesale is never quite as linear and quite as predictable. It will kind of move up and down from quarter-to-quarter as we see certain files come in and impaired. We had a period through 2021 and 2022, where wholesale was exceedingly low, right? We were at kind of near zero levels for a very extended period. And so last quarter, this quarter, we are starting to see the implications flow through corporate a little more, but I would say that's not unexpected. Although it just won't be quite as consistent in linear as we're seeing on the retail side. So again, on wholesale, similarly, we will continue to expect it to kind of trend back to more kind of longer-term averages as we progress through the year. So, the same economic factors will continue to play out in that space as we're seeing in retail, but it just won't be quite as kind of consistent path to get there.

And then anything worrying some on the commercial side at all?

Commercial in Canada, you're saying specifically?

Commercial either side of the border are really, I guess, both, right? Like obviously, there's been a lot of discussion on CRE, and you provided some additional details there. Are there other pockets of concern on the commercial side?

I mean I think you called out the biggest pocket of concern is certainly around commercial real estate. That's been an area of intense focus. We've been doing a lot of analysis and work there to make sure we -- we're taking all of the rate actions that I indicated in my comments, that has been -- that was one of the reasons we did increase our loan loss allowances or performing allowances this quarter is in anticipation of kind of more challenges and more headwinds in that sector. It will take time to play out, and you will see kind of different markets and different spaces, play out in different ways. But to give you just a little context on kind of how we've kind of changed our perspective on as a whole and maybe put the magnitude around that. If you look at the ACL ratios we have around commercial real estate now versus the pandemic, they're about 2x where we were pre-pandemic, if you will. And so pre-pandemic you some sense for what we were thinking about loss rates in a more normal environment. The aggregate portfolio, now we kind of would expect more of a 2x run rate there. And certainly, the U.S. is probably more acute within that. I think with our ratio is U.S. is about 2.5x higher than what we would see play out in Canada. That's the mix of the nature of our client base. We have more of an institutional mix in the U.S. than in Canada. But again, we've got, I think, very good client base. We've got good underwriting standards. Certainly in the commercial space as a whole as well as CRE, we tend to get a lot of guarantees from our clients in Canada, that's about 95% plus of our portfolio is guaranteed. So our clients are very invested in kind of working these situations out and working with us. So we do expect to see headwinds in commercial real estate for sure. But overall, we do expect the overall commercial portfolio will trend back to more normal levels as we progress through the year.

Right. In the interest of time, I'll leave it there.

The next question is from Lemar Persaud from Cormark Securities. Please go ahead.

This maybe for Dave, but the other group has might want to chime in as well. I think you referred to increased regulation in the U.S. from the follow that failed at U.S. regional banks. I'm wondering if you can maybe offer your thoughts on how much of a magnitude is increased potential capital regulations, liquidity changes and tightening of lending capacity or impact to oil U.S. operations. Are you guys actively making changes with respect to how you operate in the U.S. and then it sounds like it's a net positive for City National, but then what about the capital markets business?

Maybe I'll start and I don't know if Graeme you want to jump in on that side. So yes, as we look at some of the root causes to the challenges the banks under question based in the narrative back and forth between the industry and leaders on the regulatory side, we do expect to see some type of -- whether the liquidity or capital rules or combined rules around positive concentration, overall liquidity levels the nature of duration in your asset for all the things that we account for. How you account for that in your balance sheet and charges to your equity base and AOCL. All those things that we do in Canada, we do expect to see -- and we should all expect to see and there's been a strong public narrative on it, some of those changes, and therefore, that will have some industry impact on margins. And on profitability and a requirement for, we would think at a minimum, increased liquidity. That, to some degree, may also impact CNB. In addition, there's a recovery charge from the FDIC to the industry on the recovery costs of Signature Bank and obviously, SVB to start, and we haven't heard what that is for First Republic, yet and it's a fairly material recovery cost that you'll see. We expect CNB would be part of that over recovery charge a very small part. So from that perspective, longer term, how does that impact the way we think, certainly want to make sure you watch your concentrations in your depositor side doesn't really mean as much insured, uninsured, but overall, where do you have significant commercial or ultra-high net worth concentrations. We saw those debt quite stable to very stable, while they were unstable at many other banks, and we…

Maybe just jump in with one extra comment there, Dave. You'd asked about impact potentially the capital markets. I mean, I was just remind you that some of the standards that are being considered, the policy changes that Dave referenced, there are all standards in policies that RBC as a group is subject to inherently have to adhere to. And so in the U.S., likewise, our U.S. operations in aggregate, has been treated as a large bank and subject to things like CCAR, et cetera. And so Capital Markets has been kind of living in a part of that for a long time. And so, we would certainly expect the policy changes or uncertain at this point in time. Dave, as Dave indicated, there are impacts that the margin would be more in City National Bank and capital markets.

And we aggregate City National into RBC. And therefore, all of those positions are already aggregated into our balance sheet and our income statement. So, it'd just be how they're distributed with it internally wouldn't be a top-of-the-house impact.

I'll limit myself to that just in the interest of time.

That's an important question. Thank you.

The next question is from Joo Ho Kim from Credit Suisse. Please go ahead.

Just a quick number ones for me. That NII growth target of low double digit, but was that for all of 2023 or just the second half of the year?

That would be a full year 2023.

Okay, thanks. And just last one for me on your expense outlook for the remainder of the year. I'm just trying to get a sense of what the levers you have to do dial this down, and I think you've got a good job of quite talking about on the FTE side, but just wondering if capital markets expenses could play a big role here. I do see over the last few years, seasonal decline in capital markets expenses for the first half to the second half. So, I'm wondering, if we could see a similar dynamic play out this year and then whether that's a big driver of your expense growth follow?

Yes. Thank you. Good question. I mean I'll tackle that a few ways. I think I would be careful a little bit looking at the last few years because as we've discussed on a few of the prior calls, given the volatility we saw coming through the pandemic and post, we saw more intra-year movement in our compensation accrual, where in 2021, we had a sort of larger accruals through the first part of the year, and we were able to scale that back in the second half. And then last year, with a number of the environmental surprises and challenges we saw in the second half, it was the opposite. So, we ended up having to increase our accruals through the second half. So the last two years, I would say the compensation was less linear throughout the year as we would normally like, and we are very focused on being more consistent or linear, if you will, on how we're accruing throughout the year. So, I would just maybe caution away from looking at that too much over the last few years. I think in terms of our expense profile overall, I think, first, we're actually there's more to do, but we're reasonably pleased with our expenses in the second quarter where you saw revenue was up 5%. Our expenses were up 6%. So, we did have negative operating leverage but a number of initiatives that we've been implementing have kept NIE to a reasonable level, taking into account some of the strategic technology investments, cash management investments, other things we're doing. When you look at the second half of the year, given the revenue environment was quite weak for capital markets in H2 last year, we do expect very strong positive operating leverage in the second half. So I think we will continue to execute on some of our cost programs. But in a stronger revenue environment than last year, which we expect, that should contribute to a very positive operating leverage in the second half.

I think we have time for one more question.

Thank you. And the last question will be from Mike Rizvanovic from RBW (sic) Research. Please go ahead.

This one is probably best for Neil. I just wanted to go into the deposit growth since pre-pandemic in Canada in a bit more detail. So one thing that I think is a bit surprising is Royal underperformed the peer group a little bit on the demand and notice side? And then on the fixed term side, you've had a lot better growth than anyone else. So what's driven that underperformance in the demand and notice category, in your view?

We've actually been growing our checking market share. So our core checking business in the Canadian retail bank is actually up over the last year. And I would say, in the last while, if we look on a combined demand and term basis, the market share is also up. So I think we do have a lot of confidence just about the momentum we see in consumer deposits. So that would be the take there. And I think part of that is also related to the new client acquisition we spoke of. I had mentioned earlier, we've had very aggressive targets in terms of new clients. And after the pause we put in place during the pandemic. We're back out playing offense, investing with that biz dev expense to drive that new client acquisition, and it's pulling well. So, we feel quite bullish on consumer deposits.

And just in terms of the mix shift. So, if I look at your demand and notice as a percentage of your total Canadian deposits as of March, this is just the OSFI data. You're about 5% lower than you were pre-pandemic. And this is the lowest level that I can see since 2012. I'm wondering how this mix sort of what's the trajectory going forward, assuming rates drop later this year, early next year? I'm just trying to understand do you now have maybe for having that bigger concentration in the demand and notice category than you maybe would typically see a benefit from? It looks like it's diminished a little bit. I'm wondering how that sort of moves from here.

Yes. I mean I've spoken to the consumer side, and I would say just everything we would look at, we're seeing increased market share on both sides of that quarter-over-quarter, year-over-year. We have seen, I'd say, where we feel -- we don't feel satisfied is where we see the higher-end commercial deposits and particularly where we service cash management in some of the larger corporates. So, we have seen about 10% rotation on our commercial and corporate deposit balances into those term categories. So that would be one very strong trend there. And then we have seen our energy book, we've seen some large deposits move out for capital expenses. We've seen a couple of public sector. Clients spread those deposits out -- but other than that, I would need to sort of really maybe take the question offline. Those will be the trends we're we going at.

Okay. That's helpful. Maybe we can take it offline.

Okay. Well, thank you. Dave here. Thank you for all the questions today. And I'll summarize kind of where we feel we came out over the first -- last quarter and the first six months of the year. And I think on the real strong positive story is our core client franchises, very strong performance across the board from Derek and the capital markets team and hitting our targets and good momentum, client momentum moving up to seventh overall market share talks to the strategy, really working. Very strong performance, relative performance in our Canadian wealth asset management and U.S. wealth franchises continuing to execute organically, grow clients, growing AUA, AUM at high ROEs and really executing very well on our plan. Our funding continues to be a real advantage. And as Neil talked to, we continue to aim to match fund our portfolio. It's our real strength, we continue to gain overall market share in deposits as to the last question. We see more money in motion. Clearly, it's a global phenomenon, including our own client base, which tends to be an affluent client base in many parts of the organization. So strong volume growth, couple of areas we can definitely do better that were pointed out on the volume side. But our client franchise is healthy. We're building it for the medium and long term, and we feel very good. We have very strong capital, I think, exceeded expectations continue to build capital very well in a number of ways, as we've guided you to. And that allows us to do both organic and inorganic execution the way we thought. Having said that, we were caught out on a couple of things which have hurt our results, one answer that length, too, we didn't foresee this environment nine…

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