Q4 2022 Royal Bank of Canada Earnings Call

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Good morning ladies and gentlemen.

Welcome to the RBC's conference call for the 4th Quarter 2022 financial results.

Please be advised that this call is being recorded.

I would like to turn the meeting over to Asim Iman, Head of Investor Relations. Please go ahead, sir. Sorry, sir.

Thank you and good morning everyone. Speaking today will be Dave Mackay, President and Chief Executive Officer, Nadine Ahn, Chief Financial Officer and Graham Hepworth, Chief Risk Officer.

Also joining us today for your questions, Neil McLachlan, Group Head, Personal and Commercial Banking, Doug Guzman, Group Head, Wealth Management, Insurance and INTS, and Derek Nellner, 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. Field results could differ materially.

I would also remind listeners that the bank assesses its performance on a reported and adjusted basis and considers both to be useful in assessing underlying business performance.

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

Thanks, Awesome, and good morning everyone. Thank you for joining us. Today we reported fourth quarter earnings of $3.9 billion. That interest income increased over 20% from last year.

Underpinned by higher interest rates and client demand.

Higher net interest income was partly offset by headwinds in our market-related capital markets and wealth management businesses.

As macro and geopolitical uncertainty pushed our clients towards a risk-off stance.

Our results were also impacted by higher PCL on performing loans and an end-of-year true-up in capital markets variable compensation.

Looking back at the 2022 fiscal year, RBC delivered earnings of nearly $16 billion and revenue of nearly $49 billion.

Both are the second highest on record as we supported our clients' financing needs.

We met all of our medium-term objectives as we generated ROE of 16.4% while ending the year with a strong CT1 ratio of 12.6%.

Part of our commitment to delivering long-term value to our shareholders, we ended the year with an 80% total payout ratio, including paying out nearly $7 billion of common share dividends while buying back over $5 billion of stock.

And this morning we announced a 4 cent or 3 percent increase in our quarterly dividend.

Before I discuss the strategic initiatives that will drive our growth over the coming years, I will provide my perspective on the macro environment.

Elevated uncertainty continues to affect asset valuations and market volatility, which in turn is impacting investor sentiment and client activity in both public and private markets.

While strong labor markets paint a favorable picture and inflation appears to have peaked, we maintain our cautious stance on the outlook for economic growth. This caution stems from elevated housing and energy prices, political and geopolitical instability, a pressured manufacturing sector, and an aggressive monetary policy stance by central banks.

Although higher interest rates are needed to preserve long-term economic stability, the lagging impact of monetary policy combined with strong employment and significant liquidity in the system is likely delayed what may end up being a

a brief and moderate recession.

With this context, I will now expand on RBC's many organic growth vectors that position us to succeed in all credit cycles.

We believe our competitive advantages are underpinned by our strong balance sheet and continued investments to enhance the client value proposition.

I will start with our Canadian banking business.

Our clients are at the center of everything we do and we are proud to note that RBC was yet again ranked number one in overall customer satisfaction among the big five retail banks by J.D. Power.

while also being recognized with the J.D. Power Canada Award for Best in Customer Satisfaction for a mobile banking application.

We added a record 400,000 clients this year, more than the last two years combined.

Given the value-added initiatives that we have in place, we are well positioned to attract even more clients next year.

Our partnership with ICI Bank Canada to create a seamless banking experience for newcomers to Canada is expected to attract approximately 50,000 clients as immigration levels reach record highs.

Continuing on the theme of international connectivity, RBC recently launched SWIFT GO, a new solution that enables Canadian businesses to send cross-border payments of up to $10,000 in foreign currencies.

Our deposit and payments franchise, which we have built over two decades, is one of the crown jewels of the bank.

It is a source of low-cost funding to grow Canadian mortgages, credit cards and business lending.

and we believe our largely deposit funded balance sheet will be a key driver of profitability in a rising rate environment, a topic Nadine will discuss further.

Deposits are a core relationship product and a foundational reason why clients have consolidated their relationship with RBC at a rate that is 50% higher than the peer average.

This success is partly built on the broader money and continuum, helping our clients make the best decision between savings and investments in a volatile interest rate and market environment.

RBC Vantage.

further incentivizes this consolidation of our strong client relationships.

Over 1.5 million Canadians have adopted this expanded continuum of offerings.

We also remain a leader in residential mortgages.

growing this anchor product by over 30 billion dollars this year.

Our focus is to deliver a better home journey experience for clients while building an advanced end-to-end process to take out costs.

While mortgage origination volumes have declined from recent peaks, given rising interest rates in supply demand and balance, they remain in line with pre-pandemic levels.

We expect mortgage growth to be in the mid-single digits next year.

The near-term outlook for commercial lending appears to be more constructive.

We are confident growth will continue over the next couple of quarters given post-pandemic client recovery plans and investments.

We expect to see particular strengths in the agriculture and consumer discretionary sectors.

Regionally, commercial growth is expected to continue primarily in the Greater Toronto area and the Atlantic provinces.

We are also looking to build our position as the largest of the big five Canadian banks in Quebec.

where we are honoured to team up with the Montreal Canadiens, highlighting our commitment to the province.

RBC's new loyalty collaboration with Metro will launch with a co-branded credit card for Quebec consumers in 2023, adding to our national partnerships with Petro Canada, Rexall and WestJet.

We also continue to expand and move up the acquisition funnel.

Earlier this year, we announced an expansion of our health care strategy with the acquisition of MDBilling.ca, a cloud-based platform that simplifies medical billing for Canadian physicians.

joining our investment in Dr. Bill.

This is an addition to Owner on RBCxAdventure.

which has helped launch over 30,000 new Canadian businesses in 2022 alone, of which half open an RBC small business account.

Additionally, we continue to invest in talent and digital capabilities.

We added nearly 1,800 employees in Canadian banking this year, including client-facing roles such as mortgage specialists and commercial account managers.

Turning to our wealth management business, our diverse set of wealth and banking capabilities are well positioned to deliver customized client value propositions.

This is now truly a global platform with scale in Canada, the US and the UK.

Despite market volatility, Canadian Wealth Management added $20 billion of net new assets this year, highlighting the strength of client relationships, trusted advice, digital capabilities, and a wide range of solutions.

RBC Dominion Securities was ranked number one amongst bank-owned advisory firms in the most recent Investment Executive Brokerage Report Card.

We hired more than 25 experienced investment advisors last year and are looking to hire at least a similar level next year.

Our US wealth management business supports over $510 billion dollars of assets under administration

positioning RBC as the sixth largest full service wealth advisory firm in the US.

Advisor recruiting is a key source of growth.

having recruited more than 100 advisors, driving more than $18 billion of expected AUA growth.

Similar to our Canadian strategy, we've been adding banking products to support the needs of our U.S. clients. We've been adding banking products to support the needs of our clients.

Our lending portfolio now represents $9 billion US dollars. Our broader US strategy is further supported by sweep deposit balances.

We also welcome Bruin Dolphin.

one of the largest discretionary wealth managers.

in the UK and Ireland.

adding yet another secular growth.

platform in an attractive market, we will look to replicate our North American strategy and extend tailored banking capabilities in the future.

Net interest income was up from last year across our global wealth management businesses.

more than offsetting lower fee-based revenues.

Testament to the strength of the platform, RBC Global Asset Management was yet again recognized for its outstanding investment performance at the 2022 Canada Lipper Fund Awards.

While AUM has declined amongst a tough backdrop,

RBC GAM is a significant profit generator.

with a pre-tax margin of over 50%.

City National is now approaching almost $100 billion in assets.

Given its outsized growth over the years, our focus is increasingly on improving both the profitability and technology infrastructure and framework of the bank. Nonetheless, we expect higher net interest income to more than offset expense growth in the coming year.

Turning to our insurance segment, which continues to generate high ROE earnings and provides diversification against credit and interest rate risk.

RBC Insurance is the largest bank-owned insurer in Canada serving 5 million clients and holds a leadership position in individual disability.

Moving on to our Investor and Treasury Services platform.

Earlier this year, we announced the signing of a memorandum of understanding with a view for CASSIS to acquire our European asset servicing activities and its associated Malaysian Centre of Excellence.

This transaction will allow us to increasingly focus on our Canadian asset services franchise and our home market where we are investing to develop new capabilities and optimize our operation.

Markets generated $3.6 billion in pre-provision, pre-tax earnings in 2022. Not far off are expectations of generating $1 billion of pre-provision, pre-tax earnings per quarter in a more normalized environment.

Starting with our global markets platform, we are focusing on delivering our full product suite, while at the same time investing in solutions, execution and capabilities to better support our clients with aspirations to move up the lead table.

We recently launched Aiden Arrival, the next algorithm on our AI-based electronic trading platform.

which has continued to gain traction supporting our clients during these volatile times.

Shifting now to corporate investment banking, RBC Capital Markets has moved up to ninth in the global league tables from eleventh last year.

Our focus continues to be shifting revenue streams.

towards higher ROE advisory and activities while deepening client relationships.

We also benefit from having broad-based, strong relationships with both public market corporates and private capital sponsors.

Our success is also built on our investments in people.

We will look to add to the 50 managing directors we have hired over the last two years, particularly the technology and healthcare sectors.

Looking forward, our pipeline is healthy, but we expect some challenges in converting on deals as clients opt for a more cautious approach in response to the challenging market conditions including rising financing costs and access to markets.

Across our businesses, a key pillar of our climate strategy is to play a role in a just, orderly and inclusive transition to net zero, including helping clients execute on their own sustainability strategies.

We remain committed to providing $500 billion in sustainable financing by 2025 and continue to build towards this goal.

In accordance with our NZBA commitment to achieve net zero in our lending by 2050, we recently published our interim emissions reduction targets for three key high-emitting sectors, namely oil and gas, power generation, and automotive.

In conclusion, we made significant strides in our organic growth story.

You also would have heard of our excitement in welcoming our colleagues from Bruin Dolphin, and yesterday we announced the acquisition of HSBC Canada, with an implied consideration of approximately $12.5 billion net of the locked box agreement, or less than nine times fully synergized 2024 earnings.

And given expense synergies and potential revenue opportunities, this transaction is financially compelling.

It also offers the opportunity to add a client base in the market we know best.

It also positions us as a bank of choice for commercial clients and international needs, newcomers to Canada and affluent clients who need global banking and wealth management capabilities.

Nadine, over to you.

Thanks Dave and good morning everyone. I will start on slide 11.

We reported earnings per share of $2.74 this quarter. Adjusted diluted earnings per share of $2.78 was up 3% from last year.

Total revenue was up 2% year over year or up 10% net of PBCAE.

Accelerating growth and net interest income more than offset challenging market conditions, which impacted fee-based revenue in our asset management and investment banking businesses.

Pre-provision pre-tax earnings were up 10% from last year as strong revenue growth more than offset elevated expense growth, which I will discuss shortly.

Starting with our strong capital ratios on slide 12.

Our CT1 ratio declined 50 basis points from last quarter, largely due to the completion of the Bruin Dolphin acquisition, which more than offset strong capital generation of 35 basis points, net of $1.8 billion of dividends to our common shareholders.

Our balanced capital return strategy also included $1 billion of share buybacks this quarter.

We continued our multi-pronged organic growth strategy driven by strong growth in both commercial and personal lending. However, RWA business growth was lower than prior quarters, largely due to a reduction in loan underwriting commitments given a slowdown in market activity.

Looking ahead into fiscal 2023, we will continue to support client-driven organic RWA growth.

Furthermore, we expect the benefit from the implementation of the Basel III reforms in early 2023 to offset the combined impact of the Bruin Dolphin acquisition and the expected 20 basis point impact of the Canada Recovery Dividend.

However, in light of the uncertain macroeconomic environment, we are activating a 2% discount to be applied to our dividend reinvestment plan.

Furthermore, we will defer further share repurchases until the anticipated close of the HSBC Canada acquisition.

Moving to slide 13.

All bank net interest income was up 24% year over year, or up 30% excluding trading revenue.

These results highlight both the earning sensitivity to higher interest rates as well as the benefit from higher volume.

All bank net interest margin was up 4 basis points from last quarter due to higher margins in Canadian banking and wealth management.

Higher segment margins were partly offset by the cost of funding certain INTS transactions, which is recorded in interest expense, while the related gains are recorded in other revenue.

Citi National's asset-sensitive NIM was up 30 basis points quarter over quarter due to higher yields on its largely floating rate commercial loans.

We expect margin expansion at City National to moderate in the coming quarters due to higher funding costs driven by rising rates.

On to slide 14 with a deep dive on Canadian banking NIM, which was up 10 basis points from last quarter. On to slide 15 with a deep dive on Canadian banking NIM.

There are two ratios which are foundational to our sensitivity to rising interest rates as they demonstrate our ability to profitably fund the majority of our loan growth through a low-cost deposit base.

One is our largely matched funded balance sheet with a loan-to-deposit ratio of approximately 100%. As of right now this is for all loans to deposit.

The second is our zero to low cost deposit base, which represents 40% of segment deposit.

Turn to this quarter's drivers of NIM starting with deposit margins.

While higher interest rates are driving up deposit costs, these low beta deposits are a key driver of higher deposit margins.

Partly reflecting the spread relative to medium term swap rates invested over a period of time.

This strategy helps smooth the impact of changes in interest rates while also providing a latent benefit from past rate hikes.

As the illustrative example on the bottom right highlights...

These deposit margins should continue to expand as maturing ladders of deposits from the past low-rate environment are reinvested at higher yields.

Although we are seeing clients move out of checking accounts into higher yielding GICs, the shift in deposit mix has yet to have a significant impact on margins.

On the contrary, given the worsening spread between GICs and credit spreads, it is increasingly advantageous to use GICs to fund similar term assets.

Offsetting these positives are lower loan spreads due to intense mortgage competition, which have declined despite an offset of rising credit card revolve rates and commercial utilization level.

Furthermore, the compression of the spread between lagged prime rate increases and higher short-term rates in anticipation of Bank of Canada announcements had a short-term negative impact which we expect to reverse over time.

Looking forward, we expect a lower sensitivity to rising Canadian interest rates, largely reflecting strategic hedging activities. As Canadian rates may be closer to peaking, we are looking to protect against the downside while still benefiting from implied rate increases.

Our current expectation, based on the current rate outlook, is for Canadian Banking NIM to increase 10 to 15 basis points through next year, while most of the increase coming in the first quarter.

Thank you.

Moving to slide 15.

Non-interest expenses were up 9.5% from last year with full expenses up 3%.

The inclusion of Bruin Dolphin added 1% to expense growth this quarter.

The biggest driver of expense growth, which represented half of the NIE increase in the quarter, was the year-end true-up of variable compensation in capital markets, updating our best estimate accrual for the first nine months of the year.

While we have volatility on a year-over-year basis for the quarter, on a full year basis capital market expense growth was in the low single digits as we look to maintain a competitive level of compensation to attract and retain top talent to build on our premier capital market franchise.

Excluding variable and stock-based compensation, poorly expenses were up 8.5% year-over-year or 6.5% for fiscal 2022.

Salaries were up significantly, largely due to our strategic investments in sales capacity to support our multiple growth factors as well as base salary increases over the past year.

Inflationary pressures combined with costs to support client acquisition and relationships resulted in higher marketing and travel costs.

Technology and related costs were higher as we continue to add capabilities to support and expand our client value proposition.

At a segment level, the increase in US wealth management expenses included investments to improve City National's operational infrastructure as part of our focus to improve its longer term profitability.

In Canadian banking, we expect mid-single digit operating leverage for 2023, well above our historical 1-2% range, driving the full year efficiency ratio below 40% for 2023.

At an all-bank level, we expect operating leverage to be positive next year, driven by rising interest rates, a partial recovery in market-related revenue, and productivity benefits from our zero-based budgeting plan.

We expect these to more than offset the impact of growth-related investments and higher salaries.

I will now add color to segment trends beginning on slide 16.

Personal and commercial banking reported earnings of $2.1 billion this quarter, with Canadian banking pre-provision pre-tax earnings up 25% year over year.

Net interest income was up 23% from last year due to higher spreads and strong growth in our lending portfolios and term deposit.

While credit card balances have largely recovered to pre-pandemic levels, revolved balances remain well below those seen in 2019.

Similarly, commercial utilization levels remain low but should continue to tick higher towards 2019 levels supporting near-term growth.

Non-interest income was up 6% from last year due to higher credit card purchase volumes and foreign exchange revenue.

Turning to slide 17.

Wealth management earnings were up 47% from last year. Revenues were up 15% year over year as very strong interest income growth offset weaker fee based revenue.

Global asset management revenue decreased primarily due to lower fee-based client assets.

Challenging market conditions in both equity and bond markets have disrupted traditional asset class correlations.

Canadian long-term retail net redemptions were $3 billion this quarter, mainly in balanced Mandy.

Net redemptions were lower than elevated levels seen last quarter across the industry.

Turning to insurance on slide 18.

Net income remained relatively flat to last year, largely reflecting the impact of off-site items between revenue and PVCAE, which also included the impact of favorable annual actuarial assumption updates. For more information visit and check out www. 81ers.gov

Screen to INTS on slide 19.

Net income remained relatively flat year over year as the benefit from improved client deposit margins was largely offset by lower funding and liquidity revenue and lower revenue from our asset services businesses.

Turn to slide 20.

Capital markets earnings were down 33% year over year. While revenues were up 1% from last year, pre-provision pre-tax earnings were down 39% due to the end of year true up in variable compensation.

Investment banking revenue was down 24% from last year due to the challenging credit market environment and muted client activity.

However, results outperformed a more significant decline in global fee pools resulting in market share gains across most products.

Record lending revenue was on the strength of higher US loan balances.

Our macro businesses within global markets continue to perform well, supporting increased client activity in an environment of elevated volatility in rates, FX and commodities markets.

This offset a more challenging environment for credit trading.

Our equities business performed well despite challenging market conditions which impacted origination activities.

To conclude, our results this quarter were largely underpinned by our structural sensitivity to higher interest rates. Looking forward, we will continue to deploy our strong balance sheet to drive client-driven growth and deliver sustainable value to our shareholders.

With that, I will turn it over to Graham.

Thank you Nadine and good morning everyone.

Starting on slide 22, I'll discuss our allowances in the context of the macroeconomic environment.

Over the course of 2022, as the recovery from the COVID-19 pandemic continued, we saw robust economic strength.

This is being driven by record low unemployment rates, pent up consumer demand, peak housing prices and elevated savings into deposit levels.

The strength of the recovery allowed us to release the majority of our COVID-19-related reserves in the first half of the year.

However, as the year progressed, we saw signs the economy was overheating, persistent elevated inflation causing central banks to react aggressive rate hikes not seen for 40 years.

This in turn has created market volatility, downward pressure on asset prices, and the prospect of a recession as we head into 2023.

Last quarter, we began increasing our allowances on performing loans to reflect deterioration in the macroeconomic outlook.

This quarter, we started to see those headwinds manifest and credit outcomes have started to normalize toward pre-pandemic levels.

With this backdrop, we continue to prudently build our reserve.

Provisions on performing loans this quarter reflect changes to our base case scenario, to incorporate an earlier and modestly more severe recession than previously expected.

increases in delinquency rates, credit downgrades, and ongoing portfolio growth.

In total, our allowance for credit losses on loans increased by $170 million this quarter to $4.2 billion.

Moving to slide 23 and 24, gross impaired loans were up $140 million for one basis by this quarter.

noting new formations of impaired loans increased for the third consecutive quarter.

Provisions on impaired loans were up $84 million for four basis points compared to last quarter, with increases in each of our major lending businesses.

The increases in impaired loans and provisions were anticipated to reflect the normalization of credit outcomes I noted earlier.

I do want to emphasize that both impaired loans and provisions remain well below pre-pandemic levels.

For context, our PCL and impaired loans ratio of 12 basis plans remains less than half of 2019 levels.

I'll now briefly discuss the credit outcomes in our major businesses.

In Canadian banking, delinquency rates, new formations of impaired loans, and provisions of impaired loans were modestly higher across all retail products, as well as in the commercial portfolio.

Credit outcomes in the commercial portfolio remain relatively benign as our clients continue to benefit from strong consumer demand and many of these businesses are able to increase prices to pass through the impacts of rising costs.

Across our retail lending products, the link infuriates our note back to more historic norms or trending to those levels.

Even as delinquency rates increase, our portfolio remains resilient, supported by elevated deposit levels, low insolvency rates, and low unemployment rates.

Collectively, these forces have helped maintain our PCL and impaired loans well below pre-pandemic levels.

Shipping focus to our home equity finance portfolio, rapid rise in interest rates and office and housing demand and prices continue to act as headwinds.

As a result of higher rates, more of our client base will experience an increase in payments as they cross their trigger rate threshold.

As I discussed in detail last quarter, our mortgage portfolio and mortgage client base remain exceptionally strong, and our internal payment analysis indicates the majority of our clients will be able to absorb these anticipated payment increases.

Additionally, our enduring standards have been designed to ensure resilience to an economic cycle, and we believe we are adequately provisioned to expand economic stress, including our ACL ratio, and performing mortgages as well above pre-pandemic levels.

Moving toward capital markets business, during the quarter gross impaired loans increased by $74 million and PCL and impaired loans with $11 million, primarily driven by loans in the other services sector.

Well, inflation and higher rates have yet to materially impact credit outcomes in capital markets.

Elevated market volatility has impacted our market in terms of businesses.

Our loan underwriting business continues to be impacted by challenging market conditions.

However, through the quarter we continue to reduce exposure and exposure has shifted to higher rated credit. This concludes today's webinar.

Marked to market impacts in Q4 were largely offset by the underwriting fees on the associated transaction.

Our global markets business has been well positioned for a rising rate environment.

Our trading value at risk remains stable and notwithstanding substantial volatility, we only saw two days of net trading losses during the quarter.

Market volatility also increased our counterparty credit risk exposure and we saw a higher volume of margin and collateral call disorder.

Our counterparties remain strong and no negative outcomes have been observed today.

Finally, moving to our wealth management business, in Q4 gross impaired loans increased by $56 million from last quarter and we took $11 million of PCL on impaired loans. The new impairments and provisions were concentrated at City National and the consumer discretioning sector.

primarily in the franchise restaurant space, rising input costs and challenge our clients' ability to maintain margins.

Our portfolio here is focused on larger franchise operators and is generally performed consistently for economic downturns.

To conclude, we continue to be pleased with the ongoing performance of our portfolios, with provisions and impairments remaining well below pre-pandemic levels.

However, we are starting to see the normalization of delinquencies, credit downgrades, impairments, and provisions that we have been anticipating for a number of quarters.

We expect this normalization to continue through 2023 with TCL and impaired loans forecasted at 20 to 25 basis points.

Total PCL in 2023 is expected to be 25 to 30 basis points as a return to more normal levels of credit downgrades and continued portfolio growth increase provisions on performing loans.

As I noted last quarter, the timing and magnitude of increased credit costs will ultimately depend on the central bank's success in curbing inflation while creating a soft landing to the economy.

We continue to proactively manage risk to the cycle and we remain well capitalized to stand plausible yet more severe macroeconomic outcomes.

With that operator, let's open the lines for question and answer.

Thank you.

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The first question is from Ibrahim Poonawalla from Bank of America. Please go ahead, your line is now open.

Good morning.

Nadine thanks for the details on the NIM and how you're thinking about it. Just a question off of that I think one your comments on NIM outlook I assume were relative to the fourth quarter in terms of the expansion next year versus 4Q22 but I guess the real question is as we think about the balance sheet is still asset sensitive based on your disclosure just talk to us how you're thinking about locking in

asset sensitivity as I think Dave and you mentioned we're nearing the end of sort of rate hikes potentially in the first half of next year and And then just your comfort around the lower bound on the name if a year from now Bank of Canada the Fed are in an interstate cut mode late 23 into 24. Thanks

Thank you, Abraham. In terms of the interest rate sensitivity, you will notice that we – sorry, to answer your first question, yes, off of Q4 around the NIM increase. And then with respect to the interest rate sensitivity in our disclosure we provided, what we've been doing there is reducing it over time to ensure that we can encapsulate or capture the rate increases that we've seen to date.

The way that you do that, as we've commented, the interest rate sensitivity is being primarily driven off of that strong low-cost beta deposit base, client deposit base. The two options you have there is you start to invest more of that into longer-term investments to capture more stabilization in the rate environment as well as extend duration.

associated with some of the investments you also had. That stabilizes the NIM as you start to reprice slower through time and you also get the uplift as the lower rates come off and the higher rates come on. That gives you the stability but also gives you upwards momentum on the NIM going forward.

Just in terms of downside protection from central bank rate cuts maybe over the next 12 to 24 months.

So similarly then, what you've essentially done is you've slowed down the repricing, if you will, of that deposit base by extending out duration and also reducing the sensitivity of the portion of your deposit base if you want to think about that's invested in short rates. So as rates start to come off, you're not as exposed because you've got a smaller proportion that would be essentially repricing or reinvested at short-term rates.

That's why we've been dropping the sensitivity and you'll notice that in our disclosure to a down rate shock. And should we expect that you could become liability sensitive in the next quarter or two where you actually benefit from rate cuts or no? That would require us taking a very significant interest rate position against our structural boundary because we are not truly benefit from rising rate environment.

Thanks for taking my questions.

Thank you.

The next question is from Doug Young from Desjardins Capital Markets. Please go ahead. Your line is now open.

Hi, good morning. Just going back, City National was mentioned a few times in the comments and when I look at the results, adjusted earnings were down 32% quarter over quarter, 42% year over year and you can layer in the NIM comments and NIM expansion has been – and that's on adjusted earnings obviously, but NIM expansion has been quite survey specific. Thank you.

but average earnings haven't, you know, it hasn't shown through in the bottom line. And so I'm just curious, is this all PCLs? Is this a continuation of the investments? It's hard to get a sense of this given the disclosure, but, and more importantly, when should we start to see a pivot in the bottom line?

Thanks for your question. In terms of we've been commenting over the last couple of quarters our continued investment in this business given the strength of growth we've had in terms of tripling the size of the bank. We have seen very favorable NIM expansion over the years as interest rates have been rising. We've seen very favorable NIM expansion over the years as interest rates have been rising. We've seen very favorable NIM expansion over the years as interest rates have been rising.

given the asset sensitivity of the City National's balance sheet. We have been similar to what I explained to Abraham in Canada. We have also been reducing some interest rate sensitivity in the City National as well to protect us from further downside to the extent that interest rates start to come off in the US. From what we're seeing from an operating leverage standpoint, for City National we do have the benefit of not only the very strong volume, but also the ability to reduce the risk of the pandemic.

invest in the infrastructure. So realistically, that's probably going to be a journey over the next year or two. Maybe Graham can speak to just the credit quality in the book and what we're seeing there.

Yeah, the credit quality is clear. City National is continuing to perform very strongly. We did increase the stage one and two allowances for City National this quarter. I would say that reflects kind of three parts for City National. One is the strong growth that's referenced there, so the stage one and two reserves will grow with that. Two is weaker economic forecasts that contributed to that. And thirdly, there were some downgrades there that pushed the city to a higher level.

both will have an impact just in terms of the quality side of it as well as the staging side of it. But I would say it was a mix between those three. But overall, the credit performance of the national disease is very, very strong.

If I could just sneak in a quick numbers one on HSBC, this should be quick. Nadine, yesterday you talked about the gross credit mark of $400 million pre-tax, but you didn't mention a day two allowance that you planned to set up. I assume there is a day two allowance that you would be setting up. Can you quantify that?

In terms of what we shared with you in the back of the deck, I think, in terms of the purchase accounting accretion mark, so you've got the gross credit mark and then you also have the interest rate mark. And I don't think we separated. I can get those numbers too. I think maybe we'll take it offline. Yeah, that's fine. I'm going to switch off my CD code. No.

That's fine. Thank you. Thank you.

The next question is from Paul Holden from CIBC. Please go ahead. Your line is now open. Thank you. Good morning. So I want to go back to the guidance on NIMS, Nadine, because you provided some very detailed outlook on the segmented basis, which is helpful. I just want to go back to the all bank.

bases to make sure I understand correctly. So it sounds like you're expecting more NIM expansion in Q1 mostly coming from Canadian P&C.

maybe sort of flatlining, possibly declining marginally for the rest of 2023? No, no. Is that a correct interpretation? No. So I said my guidance was to 10 to 15 basis points. Most of that will be coming in the first half but we will continue to see NIM expansion through the full year.

Despite the increase in hedge.

Okay, got it. And then, because that was a quick one, just second question then, looking at expense growth and I guess, I mean, part of it is, you know, the investments you're making in the business which are more discretionary. I just want to get a better flavour of sort of how inflationary enforces are sort of impacting expense growth and becoming more of a

harder to manage expenses, maybe with, you know, inflation peaking, maybe it's getting a little bit easier in the labor market, you know, slackening a little bit. I just want to get a sense of that.

Yes, the salary costs were the big driver of the NIE growth. I would say if I was to break that down, it was roughly half and half between FTE growth as we commented earlier, a lot of investment in not only our sales capacity but also investment in the business overall. So that was about half of it and then to your earlier point, another half of it relates to the inflationary pressures. So that's going to continue.

has kind of been a bit of a step up if you saw the big increase as it related to salaries, but that's about half of it. The large driver also was just our FTE growth, which we obviously manage as we start to see how the economic environment is playing out. Another portion of that, though, just to give you some context, was also related to just volume driven growth, so about 2%.

of the increase as it relates to the non-stock based comp growth was just around volume growth type of expenses. So that is something that will scale back as well depending upon our future outlook. But a large portion of it also was just continuing to invest in the business around our application development, our technology costs and providing for our clients. So that's another area where we continue to scale. So structurally I would say...

of the total growth in salaries, about half of that would have related to inflationary type...

components, the rest of it is really driven off of growth and scaling the business.

Got it. Okay. That's it for me. Thank you.

Thank you.

Thank you.

The next question is from Mario Mendoca from TD Securities. Please go ahead. Your call is now open.

Good morning. Can we go to slide 14?

Along the lines of looking at margins again, and I kind of like the way you presented this, especially the one on the bottom middle.

you can kind of back into a deposit data based on this disclosure. This is specifically for personal checking and savings.

it looks like roughly about a 30% beta, 33% beta just based on the change in the blended Bank of Canada and US fund rate and the increase in the deposit rates.

What I'm interested in understanding is what you feel that that cumulative deposit beta will end up being.

over time once rates stop rising, would you expect something in the 50 to 60 percent range the way we've seen in some of the US banks or something a little different? No, it would be probably closer to the 40 range Mario.

or whatever historical rate once we expect rates to peak out. So that is that just sort of based on some

This is based on your own experience over time that the personal checking and savings accounts round out to about 40%? Yes, yeah, I can maybe, Neil makes my jump in as well. Okay. Yeah, thanks Mario. If you look at, um, um, your meetings provide a lot of commentary in terms of the core deposits. It's been a big focus for us. If you look at, uh, as rates have moved up, um, in our high interest savings account, but not more traits, it research and development toward

That's where we actually pull a lever to make pricing decisions. We roll that all together and that's where we get to that. We're a little bit lower than the 40%, but we would say 40% is the right number to think about.

And then another important slide, I think, is slide 27 that was helpful as well.

it's clear from looking at this slide that Royal repo and securities lending business you can see an abrupt improvement in that yield as rates have increased and also a pretty big improvement in the securities yield as rates have increased so it seems clear to me that part of Royals advantage is

having these excess deposits which are invested in securities or this big repo and securities lending book.

Would I be correct in saying that those yields will be the first to flatline after rates stop rising because they are so abrupt in their adjustment?

I think we're still off, Mario, I would say on the repo book in particular, we're still off the margin differential between what you're seeing there on the reverse repo side and the funding associated with it. The margin expansion that you start to see there really is if you have a differential from a liquidity standpoint between what you're funding in the short end and what you're able to invest in in a bit.

further out the curve in terms of the short to like three months or so. So that's really going to benefit from two things. One is that having a bit of an upward sloping yield curve and also reduction in liquidity. So what you've seen is there's been a bit of an opportunity to put on some balance sheet Mario but part of its volume and part of its margin as well. The margins have been improving.

But we are sitting at a bit lower in terms of volumes as well from our matchbook just given the surplus liquidity still sitting in the market.

Okay, so pulling this all together, would I be correct in suggesting that

Royal's all bank margin is probably gonna peak out either in Q1 or Q2 and from there it either flat lines or bounces around a little bit based on what the rate environment is like. Would you think that's a fair way to characterize it? No, I think structurally there's a couple of comments that I made earlier. One is just around the continued benefit we will see from the margin expansion as I mentioned in our discussion.

retail deposit or sorry our deposit base for in Canadian banking.

So that will continue to benefit, as we mentioned, that the rising rates will still continue to price in and we will start to see that benefit continue.

In addition, as we think through our continued...

growth in certain of our more higher margin products as well as we commented around credit cards, etc. That will also contribute. So I wouldn't say that you would expect our margins to have been flat lined at this point. We definitely will still continue to see the expansion.

Okay, thank you.

Thank you. The next question is from Scott Chan from Canaccord Genuity. Please go ahead, your line is now open. Good morning, Cindy. I appreciate the trajectory on the Canadian P&C side on the margin. I'm just curious on the City National Bank side. You commented that margin should moderate in...

coming forward to the higher funding cost, does that suggest that margins could be reduced?

peak in the second half of the year and kind of look at the back half in 2024 based on the forward curve in the US that margins might actually decline from that point as it's very asset sensitive on the commercial clothing side.

So we are still expecting to see margin expansion through the year in City National. I would say that it's probably going to be a bit even through the year, but a little bit actually weighted towards, a bit more towards the second half. However...

We are seeing that the funding costs are increasing, mostly from, we have a combination of funding within City National. One of the step changes that happened is we improved our liquidity position in City National, so we would have increased our funding requirement. You may have seen that through our call reports on FHLB, which would have had a drag on our overall NIM, and that would have taken full effect in Q1 of next year.

So that is going to start to put some pressure on the NIM but what we expect to see similar to what we commented for Canadian banking, we have been more actively managing that interest rate sensitivity for that business. You commented it is very asset sensitive given the floating rate loan book but we've been trying to mitigate that so that we will not see a sharp decline to the extent that rates start to come off. Whatever that is we'll see who didn't think first would actually open up.

in past 2023. That's helpful. Thank you very much.

That's helpful. Thank you very much. Thank you. Thank you very much.

The next question is from Gabrielle Deschenes from National Bank Financial. Please go ahead. Your line is now open. The next question is from

I'm going to stick with this NIM stuff. Firstly, Nadine, if you can flesh out a bit more on the comment you made here. We're also seeing, other than higher betas, we're seeing the increase in consumption of GIC products. You said that's not necessarily a bad thing because I guess the dynamic between GIC spreads and credit spreads is still favorable. Can you expand a bit on that?

And then in your Canadian banking guidance, are you including any assumption of revolver balances increasing in the cards business? This is a big, big.

driver potentially.

Thanks, Gabriel. Yeah, I mean, maybe start in reverse order on the credit card book. So Nadine made a comment. We're close to back to where we were in total balances pre-COVID. We started to see the acceleration, I would say in the last...

four months in terms of revolver balances finally starting to move. So quarter over quarter on the credit card book that's where disproportionately we've seen the growth is in the revolver balances. You're going to get a step up in the yield coming out of the almost $20 billion in the credit card book. That's been a long time coming. Maybe just in terms of a little bit of context on the GIC,

question. Yeah, I mean we have seen a very, very strong shift out of both the core deposit accounts, savings accounts, but also retail investors coming out of mutual funds just given market uncertainty into GIC. So it has been kind of that safe haven for the retailaldiar trader.

And we would say over time compared to where we were a year ago and definitely two years ago margins in the GIC book are quite favorable.

Yes, so just in terms of what we've included in that, some of that would be to Neil's comment, a bit of a mix shift benefit. The offset of some of the deposits moving from a demand into a GIC, but we also have the positive benefit of coming in from mutual funds, which is where we've seen Neil's comments on some of the growth as well.

Not only is it a low cost of funding relative to wholesale funding for us, but in addition, as I commented in my speech, but in addition we get the benefit of the fact particularly given our connectivity across our client base, we're seeing a lot of the balances come in from mutual funds and coming into GIC which enhances our NIM overall.

Just a bit of quantum and I should have added this. We've seen the GIC book grow $25 billion in the last two quarters.

And so, you know, just the scale of moving into the product is probably something to call out.

Great. I'll probably follow up some other time. Thanks.

Thank you. The next question is from Saurabh Movahade from BMO Capital Markets. Please go ahead. Your line is now open. For the last question, no.

Thank you. Two quick questions. You didn't disclose the comp to revenue ratio in the capital market segment this quarter. Is there a reason for that?

I'll answer that one, Sarah. In terms of disclosure, we benchmark consistently across our peer group when we look at our disclosures. And so we determined that we are the only Canadian bank to be disclosing comp ratios. So we thought consistency when we look at our peer benchmarking. I would also just comment that it is a bit of a challenge to actually be comparative because there's differences.

It's a mathematical, it's not how we maybe look at MANDJIT internally.

Okay, well I'll follow up with you on that separately. Neil, I mean, lots of questions on the NIM and on the funding side. Can I just get you to talk maybe a little bit on the asset yield side, maybe specific to the mortgages where you guys are obviously a sizable player. What's happening with mortgage spreads? What sort of kind of competitive dynamics?

that you see with you taking out HSBC as a competitor, and just how that is impacting the NIM dynamics of your business segment in particular.

Sure, thanks for the question and this is I think very consistent with what we spoke about yesterday. The mortgage market is exceptionally, what I say is exceptionally efficient.

We track all of, you know, through mystery shopping, all the competitor prices to make sure we stay in market. And, you know, we mentioned there's different ways to go to market, but the actual end client rate is very, very similar across the industry.

Overall, you heard Nadine talk a little bit about on the variable side.

between prime VA spreads, there is some compression on that product that will reset as rates move up. And on the fixed rate side, it is just a very, very competitive market. So it's tough, but we look at it as an important product. It's a relationship product. It's a moment of truth in the client's relationship with us. And we just put a lot of importance around.

and retaining that relationship with the client. Just to put maybe some historical bearings on it, would you say the mortgage spreads are as tight as you've ever seen them, let's say, compared to the last five years? Or how would you quantify it? How would you kind of...

relationship with the client. Just to put maybe some historical bearings on it, would you say the mortgage spreads are as tight as you've ever seen them, let's say compared to the last five years? How would you quantify it? How would you kind of contextualize it, I guess?

Yeah, I mean the spreads are definitely a lot tighter than we have seen over the last five years. Fair to say.

I mean, the spreads are definitely a lot tighter than we've seen over the last five years. That would be fair to say. Are they negative?

No. Thank you.

Thank you. The next question is from Minnie Gromen from Scotiabank. Please go ahead. Your line is now open. Okay. Thank you.

I just wanted to ask on the 2% discounted drip, when you provided the 11.5% guidance target on your capital ratio for the deal close of HSBC Canada, were you factoring in this drip?

Not for the 11.5% number many, but as when I commented to be above.

We expect the drip to add about $2 billion in capital just to give us some further cushion.

And then I'm trying to understand the caution around capital that that announcement sort of signals. I mean Dave you talked about a brief and moderate recession so I don't think it has to do so much with your macro outlook. I'm wondering... You think we do quite good off meatballs. We minimise we don't go out very well on those.

How much of it is related to just where you see the regulatory environment going? Curious your risk that minimum capital ratios will climb in Canada it would seem that

This is a reflection of a view that that might actually happen. We know in other jurisdictions we're seeing capital ratios move higher for regulators. So I'm wondering if you could comment on that.

I would look at it from our perspective, and I can't comment on regulatory intent.

But I would look at it that you've heard of the expansion and in the NIE expense expansion we're being front-footed as far as our expectation to your point of a relatively mild recession. We're adding frontline customer-facing employees. We're growing our portfolio. But you still face a fairly significant geopolitical instability and uncertainty of the ongoing war.

in Russia and Ukraine. You've got enormous uncertainty still around manufacturing.

the uncertainty of using such aggressive monetary policy at the end of the day. And while we have a means expectation,

and we're growing towards that. There's a higher level of uncertainty and therefore you kind of have higher tail risk right now. It could be low probability, but still higher tail risk. So from that perspective, consistent with how we've managed the bank over the long term, we're being conservative and therefore we're building a little bit of a capital buffer for uncertainty. Capital has no half-life. It can only be used for half-life.

and which we're very proud of how we've used it over the last 24 hours. But we're just being conservative in building a buffer.

against the uncertainty out there that we all face and we all acknowledge that we have mean expectations but there's greater volatility around that.

Thanks, Matt.

Thanks for that. Thank you.

The next question is from Lamar Persaud for Coremark Securities. Please go ahead. Your line is now open. Your line is now open.

I want to go back to HSBC and I'm wondering if you guys could talk about the reasoning behind the lockbox agreement on the deal. Just a bit unusual in nature. Couldn't you guys have just reduced the purchase price by the expected earnings up close that are going to accrue to Royal or should I be really thinking of it as just a sweetener offered by Royal to get the deal done since essentially you're just paying up front for a few turnings on the day.

Is there kind of some other underlying reason?

Thanks for the question. So there's always a mechanism that you have to agree on as you go through an extended, potentially extended approval period and a transition and conversion period that, you know, to use.

Do you allow the seller to dividend out, retain capital at a certain level at the end of that transaction and how do you do that and what's the efficacy of dividend out earnings over the prescribed period or you could set up a lockbox where you settle that up front and it makes it a seamless easier transition at the other end. So I would look at it as a very effective mechanism to deal with that.

Therefore, these are earnings that are going to be retained on the balance sheet that we acquire and therefore should be viewed as a net off the gross purchase price of $13.5. It's a very effective means of doing the transition at close.

Thanks, that's helpful. And then if I could squeeze another really quick one in for Nadine, can you just add some additional color on what drove the under provisioning for variable comp throughout 2022? Like what I'm trying to understand is it plausible we could see this again going forward or should we just think about this as strictly one time in nature?

I think there's two dynamics. Maybe I'll let Derek weigh in.

given his perspective on how he manages his business. But just from an accounting perspective, we plan for a comp ratio, the business plans for that, and then we work through the year, and obviously given capital markets, I would say two things. If you look at the last two years, there's been quite a bit of volatility through the year in terms of how the markets have performed, which makes it very difficult, unlike the rest of the banks.

the question. Building off of Nadine's comments, obviously we often and I think most banks all approach this similarly, they use Q4 as a period to true up on the year-end variable compensation. To your question, the last few years have been much more volatile than we've seen in other years. We obviously saw very robust years in 2020 and 2021 and then obviously some unforeseen challenges in the macro environment that impacted.

2022. So I would expect that the last few years we've seen a little more magnitude to that Q4 true up than we would in more normalized times. Just importantly to highlight the true up and the change you're seeing year over year isn't just a function of this year. It really reflects two things. Last year we had a very strong year so we actually had a, we...

had a healthy accrual and we released some of that in Q4 of 2021. This year, given some of the headwinds, we've increased the accrual in aggregate. That's about a $307 million swing year over year, roughly half of that from a release last year and half of it from an additional accrual this year.

When you adjust for that, the NIE for the quarter would have been up 12% and compensation would have been up 8%, which is roughly in line with the 7% growth that we've seen in FTE. And two comments that Dave made, that's really reflective of the opportunity we see to continue to build the business in strategic areas. I think it's consistent with our strategic plan.

And you know, Frankie, we feel we're not withstanding the more challenging environment. We're seeing good results of that with market share gains in a number of our key areas. So it really is reflective of a timing difference. I think it is exacerbated by the volatile environment we've been in the last year or two and would not expect it in more normalized times to be as much of a variance as you've seen this year. We're second in all for your comments and we're going to continue to find out what you're thinking as we move to rekindles in the future. Thank you so much, and we appreciate the opportunity to speak to and to look forward to helping as we prepare for this important event. melody. We possibly won't share if it will not cause us to break free60. Let me get back to various challenges with the presentation that we've had to do since

we feel we're not withstanding the more challenging environment. We're seeing good results of that with market share gains in a number of our key areas. So it really is reflective of a timing difference. I think it is exacerbated by the volatile environment we've been in the last year or two and would not expect it in more normalized times to be as as much of a variance as you've seen this year.

The day two impact of the provisioning for HSBC Canada acquisition is $300 million.

The day two impact of the provisioning for HSBC Canada acquisition is $300 million. Sorry to interrupt you.

I think we'll continue to run over for about 10 minutes. I think we have a couple of questions in the queue.

Thank you. The next question is from Mike Brzanovic from KBW Research. Please go ahead. Your line is now open. Thanks. Good morning. A question on business lending. So maybe for Neil or for Derek, I know it's impacting both segments, but if you sort of look at the drivers there, I'm just wondering about the acceleration. It doesn't look normal given the rates of news, given the macroeconomic head.

of new market share coming into the banking space that's been driving part of this over the last few quarters where maybe non-bank lenders are pulling out and Canadian banks have been able to sort of step in here. If you could talk to that, I think it would just help sort of frame how quickly this could potentially decelerate into next year.

Sure, it's Derek. Just to start, just to clarify your question, I think relates broadly to overall growth in lending activity.

In the business lending side, yes. Yeah, yeah. So I'll start from the corporate or wholesale side and then you may want to chime in on the commercial side. So you know I think as we saw a couple of years ago right after the pandemic, when you get into periods of market disruption you'll often see clients pivot more to the bank lines as opposed to going to the capital markets. And so as we saw some dislocation.

to capital markets takeouts once markets stabilize or normalize to some extent. I do think that that's obviously driven very robust growth this year. We are starting to see that taper off and I think as we see capital markets normalize, an increase in DCM and ECM activity which we are in the early days of starting to see, we will see growth normalized to more moderate levels consistent with our plan. For more information, visit www.fema.gov

It's Neil. In terms of the retail business and commercial, I think a couple things. So similar to Derek, utilization of revolvers amongst commercial clients. Early on we saw those drop. We've seen them come back about 400 basis points year over year, but we're still not back to pre-pandemic use of those operating facilities.y

In terms of, you know, there is some differences by sector as well. We're seeing, you know, not unexpectedly supply chain starting to come back. Some of those supply chain disruptions.

you know, starting to ease. And then I would say maybe the last thing just in terms of, you know, the forward look. We've been growing and sort of accelerating growth, you know, through the last couple of quarters. And they sort of two factors there. You're seeing on a client side, a lot of clients just saying, you know, I need to get on with some of the delayed investment I was putting into capital equipment, expanding their business. And then...

The second factor would be just investments we've made in terms of the FTE you heard Nadine speak about. So we've invested really across the country, across sectors, particularly targeting larger commercial clients. We

Thanks for the call. So it sounds like the late environment really is impacting this and is it fair to say that we could see this elevated for the foreseeable future?

On the commercial side of the business, we do see really strong growth continuing into 2023 for sure.

Thanks for your time.

Thanks for your time. This will be our last question.

Okay, one more question. Sorry. Okay.

This is the last question from Joo Ho Kim from Credit Suisse. Please go ahead. The line is now open.

Hi, good morning and thanks for taking my question. Just wanted to go back to Canadian banking and in one of the slides you mentioned 400,000 net new clients in that segment. Just wondering how much success you had in cross-selling into these new clients and I asked this in the context of the HSBC acquisition. It seems like revenue synergies could be significant if cross-selling can be realized there as well.

Thanks for the question. Yeah, listen, we'll go right back to our investor day presentation where we laid out, you know, part of our strategy was just it was to grow the franchise and add two and a half million net new clients and we got off to a good start. We needed to obviously pause that during COVID and what you're seeing now is that real step up here. Dave mentioned his comments. So 2022, very strong overall net client growth.

of $400,000. We'll continue to see that accelerate into next year. The cross-sell rates, and we laid some of those out in the slides yesterday around the four different retail categories and our penetration there. The new cohorts we're bringing on, you heard Dave talk about the Vantage program, that mechanism of giving the client an incentive to consolidate their business with us is pulling extremely strong. So we're very, very happy with what we're seeing in terms of those cross-sell rates.

and cross our rates and credit cards and savings accounts are actually up. So, I'd say we're feeling really bullish about new client acquisition.

Thank you. Okay, so maybe I'll just wrap things up and thanks everyone for your questions. We did expect a lot of questions around NIM today because it really helps focus on the strength of our franchise, which is our fantastic composite franchise, our low beta payments and cash management capability. And it's important for you to understand the impact of that and the expanding NIM, albeit slower expanding NIM because of rate increases.

The Dean so effectively answered all your questions, continuing expanding them in Canadian banking and in CNB, despite slightly higher expected deposit.

That is the strength of the franchise. It's further fed with growth from the 400,000 new clients that come in that continue to feed into the low beta deposit growth. You can see how our strategy over the last 20 years is playing out into the overall franchise strength. You also heard us talk about expenses and being front-footed on growth, whether it's capital markets, hiring MDs and building out our advisory, investment banking capability, our commercial banking capability, our mortgage and frontline.

branch officer capability to handle these 400,000 new clients.

that we hope to do again next year or more. Therefore being front-footed and then.

You heard our capital story. We are very proud of our ability and our earnings power to be back to just under 12% with the drip, as you heard Nadine mention, but very strong capital ratios, even with the acquisition, our largest acquisition in our history. We're back to an ability to have flexibility again to continue to grow and position our banks. So thank you for your questions. I think all the strengths of our franchise were highlighted in your great questions.

I wish you all a great holiday season and be well over the holidays and we'll see you in the new year. Thanks, operator. We'll see you at the end of our call.

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

The conference has now ended. Please disconnect your lines at this time and we thank you for your participation. This conference is no longer being recorded. This conference is no longer being recorded.

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