Royal Bank of Canada (RY) Q1 2021 Earnings Call Transcript

Royal Bank of Canada (RY 0.33%)
Q1 2021 Earnings Call
Feb 24, 2021, 8:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning, ladies and gentlemen. Welcome to the RBC's conference call for the first-quarter 2021 financial results. Please be advised that this call is being recorded. I would now like to turn the meeting over to Nadine Ahn, head of investor relations.

Please go ahead, Ms. Ahn.

Nadine Ahn -- Head of Investor Relations

Thank you, and good morning, everyone. Speaking today will be Dave McKay, president and chief executive officer; Rod Bolger, chief financial officer; and Graeme Hepworth, chief risk officer. Also joining us today to answer your questions are Neil McLaughlin, group head, personal and commercial banking; Doug Guzman, group head, wealth management, insurance and I&TS and Derek Neldner, group head, capital markets. As noted on Slide 1, our comments may contain forward-looking statements, which involve assumptions and have inherent risks and uncertainties.

Actual results could differ materially. I would also remind listeners that the bank assesses its performance on a reported and adjusted basis and considers both to be useful in assessing underlying business performance. To give everyone a chance to ask questions, we ask that you limit your questions and then requeue. With that, I'll turn it over to Dave.

Dave McKay -- President and Chief Executive Officer

Thanks, Nadine, and good morning everyone. Thanks for joining us today and we hope you and your loved ones are keeping safe and well. Today, we reported very strong earnings of $3.8 billion with earnings per share up 11% year over year. Our results are a testament to our diversified business model and revenue streams.

We benefited from higher fee-based revenue in our capital markets and wealth management businesses and strong client-driven volume growth in both Canadian banking and City National. Expenses remained well controlled and top of mind even as we increasingly saw heightened client activity levels across the bank. We also saw small release of reserves this quarter, which Graeme will speak to later. These factors partly offset the impact of the 150 basis points of rate cuts in March of last year, which negatively impacted our earnings by approximately $400 million.

Strong volume growth, elevated client activity, and our diversified business model allowed us to earn through the significant headwind. Our strategy is also delivering results in the U.S. where we are capitalizing on our investments across capital markets and wealth management. This quarter we reported record results in our U.S.

operations generating over $2.5 billion in revenue and over $650 million in earnings. A robust capital ratio of 12.5% was flat quarter over quarter as record internal capital generation was effectively deployed to drive strong organic growth across our businesses, while also paying $1.5 billion in dividends. Our CET1 ratio provides a significant $19 billion surplus over the current OFSI minimum. Furthermore, our ACL on loans is over $2 billion higher than pre-pandemic levels in Q1 2020.

We remain well-positioned to continue funding organic growth opportunities that create value for our clients. I will now speak to how we see the macro environment unfolding. As we approach a year into -- into the global pandemic, we are encouraged by both the number and efficacy of vaccines. This in addition to significant pent-up demand, rising prospects of further stimulus programs, expectations of a gradual easing of lockdown measures, and pledges of continued low-interest rates to support a sustained economic recovery.

Recent data shows CEO confidence of corporate America has reached a 17-year high. We are also seeing the benefits of increasing public-private partnerships in the U.S. as companies are engaging with governments to distribute vaccines effectively in a timely manner. Canadian housing activity also remains elevated.

Our rising permit issuance is building up the new construction pipeline, we expect a lack of supply, low-interest rates, elevated savings rates, continuing work from home arrangements, and a potential resumption of immigration to underpin continued demand. While the timing and path of vaccination programs have been uncertain and even so far, particularly in Canada, we expect an accelerated pace of vaccination distribution over the coming months to drive a strong economic recovery through 2021, resulting in GDP growth of 4% to 5% across North America. Against this macro backdrop, we will continue our unwavering support for our clients as global economies pivot to recovery. I now want to speak to the strong volume growth and increased momentum across our largest businesses.

Part of our competitive advantage is how we leverage our scale investments in technology and our talented teams to deliver differentiated value and experiences to our clients. Our premier global capital markets platform crosses a record $1 billion in quarterly net income driven by very strong performance in global markets underpinned by robust equity trading and continued strength in credit trading. Corporate investment banking surpassed $1 billion in revenue for a third straight quarter benefiting from a constructive environment for new issuance and mergers and acquisitions. We continue to be awarded significant mandates by some of the largest global clients, including serving as M&A advisor to Blackstone and providing fully committed financing for their recently announced $6 billion acquisition of Signature Aviation.

Canadian banking records strong volume growth year over year adding over $100 billion of average volumes across lending and deposit products. While expanded central bank balance sheet, government's support, and reduced spending of added significant liquidity to the system, and increase the savings rate of Canadians, we have also seen market share gains of over 50 basis points in personal core deposits over the last two years, which is a reflection of our technology investments, clients support, and distribution strength. We have similarly added 100 basis points of market share in residential mortgages over the last two years. Our strong mortgage growth has been partly underpinned by the reengineering of the entire end-to-end process over a number of years from adjudication to fulfillment to retention, which reached an all-time high of 94% this quarter.

We've also seen elevated activity in our wealth management businesses which have remained resilient over the turbulence of the last 12 months. Our diversified RBC global asset management assets under management or AUM grew by $60 billion from last year to a new high of $540 billion as more clients chose RBC as a trusted steward for their investments. Our retail funds captured over 25% of industrywide Canadian net sales over the last 12 months adding to our leading 32% market share among bank-owned fund companies. Along with market appreciation, recent growth has been the result of investment outperformance with over 80% of AUM outperforming the benchmark on a three-year basis.

Assets under administration or AUA in Canadian wealth management crossed $450 billion for the first time. Strong net sales and history leading recruiting efforts added to our No. 1 high net worth and ultra-high net worth market share in Canada which is built on the trust of our clients. Similarly.

U.S. Wealth Management, the seventh-largest wealth advisory firm in the U.S., surpassed $460 billion in AUA for the first time, benefiting from our proven ability to bring both -- in both net sales and attract experienced advisors to meet the needs of our clients. City National continued to report double-digit loan and deposit growth as we continue to execute on our organic plus growth strategy. Our expanded jumbo mortgage platform is yielding results growing over 15% year over year.

Our market share gains across our businesses are not only a reflection of our scale but also our continued investments in technology and client-facing colleagues. We have seen an acceleration of digital trends as Canadians are increasingly reaching for their phone to fulfill their banking needs. Our active mobile user base increased 12% year over year to over $5 million this quarter as mobile sessions cross $100 million for the first time. New clients to RBC can now complete the full end-to-end account open in minutes on the RBC mobile app.

And now over 50% of personal deposit accounts are opened through our mobile browser. Since the launch of NOMI in 2017, our mobile clients have benefited from actively reading more than one 1.5 billion financial insights using its predictive analytics to help manage their finances. Over the years, we have also made significant investments beyond digital functionalities and into digital businesses. MyAdvisor, our digital platform for clients to activate their personalized financial plans, was launched in 2017 and now has 2.3 million clients online.

And AUM at InvestEase, our robo-advisor, has continued to trend higher. Our success in commercial banking has also been underpinned by multi-year investments in cash management solutions and technology where we expect inside edge fueled by our data analytic capabilities to be a key differentiator. Aiden, our AI-based electronic trading platform in capital markets, continues to gain traction during these volatile times. The number of shares and notional volumes traded on this platform are up over 45% and 75% year over year respectively.

Investments in sales power have also been a key driver in the growth of our personal and commercial franchises. Whether mortgage specialists, advisors, and commercial account manager is benefiting from the investments that we've made in technology. And similarly, we've made investments in the bench strength of managing directors and capital markets which helps us deepen client relationships and win key mandates. Despite the significant increase in capital ratios, we delivered a premium ROE of over 18% this quarter.

We are focused on the continued creation of long-term shareholder value. Going forward, our priorities have not changed with respect to the point capital. We remain focused on building on our momentum and driving creative, organic growth. In capital markets, we will continue to deepen client relationships and further diversify our revenue stream toward less capital-intensive investment banking advisory revenue.

We will also look to further strengthen senior coverage teams in key sectors. In Canadian banking, we expect continued high single-digit mortgage growth and significant pent-up demand to drive a consumer-led recovery. And with commercial utilization rates, the low pre-pandemic levels, higher Canadian commercial volumes could further support the acceleration of economic activity. Continuing our innovative approach to loyalty-linked partnerships with leading team partners such as Petro-Canada, RBC and Rexall recently announced a new strategic partnership that will allow our clients to earn and receive even more value and savings while accessing Rexall's health and wellness resources.

And as we see increased online shopping, RBC has launched PayPlan, offering Canadians yet another solution for purchases at participating retailers and merchants throughout Canada. In our U.S. wealth management platform, we expect to see further benefits from our recent expansion into new geographies, investments in our treasury management platform and the hiring -- hiring of experienced private bankers and financial advisors. We are also expanding and deepening our existing client relationships through the interconnectedness of our businesses.

Over 65% of Canadian wealth management clients now have a Canadian banking product and we expect this to continue to grow over time as we expand the continuum of offerings to our retail and wealth clients. Also, 19% of Canadian banking clients have all four transaction account -- four of transaction accounts credit cards investments, and boring products with RBC. We're also looking to increase the collaboration between our capital markets and wealth management franchises to provide a broader set of capabilities to both sets of clients including acting as book runners for debt and equity issuances. City National has seen almost $2 billion of mortgage flow through U.S.

wealth management channels, benefiting from our team of bankers covering RBC wealth management offices in key markets. Looking forward, City National is looking to make a focused push into mid-market lending in the U.S. Not only am I proud of what we delivered but also how we continue to deliver on our purpose of helping clients thrive and communities prosper. In wealth management alongside our existing RBC vision ESG funds, the RBC iShares brand has launched a new ESG-focused ETFs.

And RBC capital markets is playing a leading role in helping clients meet their goals and objectives serving as exclusive financial advisor to both Eni SpA and to Greencoat UK Wind on acquisitions of offshore wind farms and demonstration of our growing role in Europe related to renewable power. RBC capital markets also act as a joint book runner on Ambridge's $1 billion sustainably linked revolving credit facility. The first such issuance by an energy bar in the North American market. Also, I'm proud to share RBC has received this year's Global Catalyst Award, an honor recognizing businesses dedicated to increasing the representation of woman in leadership and promoting equal access to career opportunities.

RBC is also recognized as an ESG leader by third-party rating agencies with a high 86 percentile ranking on priority -- priority ESG indices. And as a reminder, today, we're kicking off our first-ever RBC capital markets global ESG conference. So to sum up, our scale, innovation, and talent are our competitive advantage as we create even more value for our clients. We continue to execute on our strategy with the purpose to prudently invest in sustainable growth and strong returns for shareholders.

I'll now turn it over to Rod.

Rod Bolger -- Chief Financial Officer

Thanks, Dave, and good morning, everyone. Starting on Slide 9, we reported quarterly earnings of $3.8 billion. Earnings per share of $2.66 was up 11% from last year. Despite operating in a near-zero interest rate environment, we generated nearly $5 billion in pre-tax pre-provision earnings this quarter.

Moving to Slide 10, we reported a robust CET1 ratio of 12.5% unchanged from last quarter. We had a record internal capital generation of 41 basis points this quarter, higher than our historic average of 30 to 35 basis points. This was largely offset by higher risk-weighted assets. Outside of the impact of foreign exchange, RWA growth was underpinned by four key drivers.

First, strong client-driven volume growth in Canadian banking and City National. Second, elevated client-driven trading, derivative, and underwriting activity in capital markets. Third, approximately $3 billion of transitional methodology changes to our securitization framework and an additional $2 billion from maturities of existing securitization notes. Fourth, these factors were partially offset by a modest $1 billion benefit from net credit upgrades.

This partially offsets the cumulative $13 billion impact from net credit downgrades over the last three quarters of 2020. Our CET1 ratio was also impacted by a partial reversal of OSM's transitional capital modification, primarily driven by the reduction of the scalar rate from 70% to 50%. The remaining 19 basis point cumulative benefit should reverse over time given further reductions in scalers and migration to PCL and impaired loans we expect to continue generating significant capital as the economy recovers. Our strategy for capital allocation has not changed.

We will invest additional capital to support accelerated and prudent organic growth in order to further expand our market share in key businesses. Now moving on to Slide 11. All bank net interest income declined 4% year over year as strong volume growth in Canadian banking and City National was more than offset by the impact of lower interest rates and the impact of fiscal and monetary stimulus, which continues to drive excess liquidity into the financial system. However, after adjusting for trading results, net interest income has been steadily increasing after bottoming out in Q3 of 2020, up 3% on the back of strong volume growth.

All bank NIM declined 2 basis points from last quarter primarily due to changes in asset mix including toward lower-yielding securities. At the segment level, Canadian banking NIM declined 2 basis points quarter over quarter as the impact of low-interest rates and asset mix more than offset the benefit from strong deposit growth. Looking forward, we expect Canadian banking NIM to continue to decline modestly throughout 2021. City National's NIM was down 12 basis points relative to last quarter largely due to the influx of deposits being invested in low-yielding short-term securities.

However, City National's net interest income increased for the second consecutive quarter. Recall the City National has a more assets sensitive balance sheet with approximately 50% of its loans being floating rate commercial loans. Also, approximately 50% of deposits are noninterest-bearing. We expect the narrowing of City National's NIM in Q1 to largely reversed in Q2, given expectations for accelerated paycheck protection program loan forgiveness as well as an improved balance sheet mix as we redeploy our strong deposit growth into higher loan balances.

Following this benefit in Q2, we expect City National's NIM to return back to current levels in the second half of the year. More importantly we expect strong volume growth at Canadian banking and City National to completely offset the headwinds of lower interest rates by Q3. And as a reminder, our results get impacted by fewer days in Q2 particularly Canadian banking. And while we don't expect short-term rates to increase in the near term.

the steepening yield curve serves as a good reminder of the value of our low data core deposits, including substantial noninterest-bearing checking accounts. Now turning to Slide 12, noninterest income, which represents 60% of revenue was up 4% year over year, providing an important countercyclical offset to the impact from low-interest rates. Our diversified business models performing as it should in times of stress, with strong trading results across our businesses, and our wealth management businesses continue to provide a growing revenue stream. Furthermore, we expect upside from our M&A advisory business as the economy strengthens.

In contrast, we continue to see certain fee-based revenue streams in Canadian banking being impacted by COVID-19, particularly those affected by lockdown measures and restrictions on travel. Targeted lockdowns have also lowered wholesale loan demand which in turn decreased credit fees. Looking forward, we would expect to see some of these revenue streams begin to pick up as economies open. Now on to Slide 13.

Expenses were up 2.6% year over year, largely commensurate with a strong performance. Excluding variable and stock-based compensation, expenses were down 1% from last year. This follows on a similar year-over-year decline last quarter after adjusting for severance and related costs associated with the repositioning of I&TS in Q4 '19. We also continue to benefit from reductions in discretionary costs such as marketing, travel, stationery, and printing, which were down approximately $80 million from last year.

However, we are cognizant that some of these costs could start to increase as economies begin to open back up. We will continue to balance investments in key growth areas such as technology and innovation with project prioritization in other areas. We already have a number of cost containment programs in place across our businesses, and we expect to generate efficiencies from the accelerated digital adoption that Dave spoke to earlier. Looking ahead, we expect full-year expense growth, excluding variable and stock-based compensation, to remain well-controlled in the very low single-digits.

Moving on to our bus -- business segment performance beginning on Slide 14. Personal and commercial banking reported earnings of over $1.7 billion. Canadian banking quarterly net income was up 8% from last year as the impact of lower interest rates and service charges was more than offset by strong volume growth, elevated market-related client activity, and reserve releases largely in our retail portfolios. Loan growth of 6% was largely driven by continued double-digit mortgage growth, which was a function of both a strong retention rate, as well as new originations, which were up over 40% from last year.

Commercial and credit card growth continues to be constrained by the impact of COVID-19. Growth in business deposits remain robust at 25%, and growth in core personal checking accounts was also very strong, up over 30% year over year. And RBC direct investing also saw a material increase in client activity by individual investors with average trading volumes up nearly 200% year over year. Turning to Slide 15.

Wealth Management reported quarterly earnings of $649 million, up 4% from last year. Canadian wealth management revenue was up 7% year over year, benefiting from higher average fee-based client assets with AUA and AUM up 7% and 12% respectively. Global asset management revenue increased 17% year over year, primarily due to higher average fee-based client assets. Results also benefited from higher performance fees as a result of strong investment performance.

These are generally earned in Q1, if at all. Favorable changes in the fair value of seed capital investments also contributed to the increase. GAM AUM increased by 13%, or over $60 billion year over year, with nearly 60% of the increase coming from total net sales. Net sales were $7 billion for the quarter.

Canadian long-term retail net sales remain strong at over $5 billion in Q1, particularly in the fixed income and balance products. Long-term institutional net sales largely from BlueBay partly offset money market outflows. Very strong buying growth at City National continues to be more than offset by lower interest rates. Deposit growth remains exceptionally strong at 36%, outpacing double-digit retail and wholesale loan growth.

We also saw solid growth in U.S. wealth management with AUA up nearly $50 billion in U.S. dollars from last year. Turning to insurance results on Slide 16.

Net income of $201 million increased 11% from last year, primarily due to improved claims experience and higher favorable investment-related experience. These factors were partially offset by the impact of lower new longevity reinsurance contracts and lower international life volumes. Turning to Slide 17. Investor and treasury services net income of $123 million decreased 14% a year -- from a year ago.

Earnings were up 35% quarter over quarter, partially due to seasonality. Both funding and liquidity in client deposit revenue declined year over year as they were negatively impacted by the current interest rate environment and elevated enterprise liquidity. This was partially offset by higher gains from the disposition of securities. Turning to Slide 18.

Capital markets reported quarterly earnings of over $1 billion. This was the fifth quarter in a row with pre-provision pre-tax earnings in excess of a billion. Corporate investment banking reported yet another strong quarter. M&A advisory fees generated this quarter was the second highest after the record fees reported in Q1 from a year ago.

We continue to see strong equity origination fees, underpinned by increased confidence and constructive markets. While debt underwriting has come down from elevated levels in 2020, they remain strong this quarter given the low-interest rate and narrow credit spread environment. Looking further into 2021, we remain actively engaged with our corporate investment banking clients across all regions with respect to their strategic objectives. Our ECM and M&A pipelines are strong.

Global markets had yet another strong quarter with revenue up 12% from last year to $1.6 billion, benefiting from favorable market conditions across multiple asset classes, as well as from an increase in primary activity. Trading remains strong as credit trading benefited from tightening spreads. Interest rate, FX, and commodity trading all saw increased client activity on market volatility. Client activity was also strong in equity trading.

Looking ahead, we expect trading activity to moderate over the coming quarters. In conclusion, we remain committed to improving productivity, attracting new clients through our differentiated products and services, and continuing to increase our market share over time. And with that, I'll turn it over to Graeme.

Graeme Hepworth -- Chief Risk Officer

Great. Thank you, Rod, and good morning, everyone. Starting on Slide 20. Allowance for credit losses on loans of $5.9 billion was down $201 million compared to last quarter.

This reflects PCL on impaired loans of $218 million, or 13 basis points, to down 2 basis points from last quarter as lower provisions in capital markets and wealth management were partially offset by higher provisions in Canadian banking. It also reflects the $97 million release of reserves on performing loans. Notably, this is the first quarter since the onset of the pandemic we have released reserves in relation to our performing loans. For context though, this represents less than 4% of the reserves taken during 2020.

Our lease balances the more optimistic economic outlook, driven by the introduction and approval of vaccines in December of last year, with concerns around the new variants and challenges with the rollout of vaccines. Turning to the credit performance of our key businesses starting with capital markets. Compared to last quarter, gross impaired loans of $857 million decreased $348 million. And PCL on impaired loans of $18 million decreased $50 million.

These decreases reflect limited new formations as clients continue to benefit from access to debt markets and substantial liquidity. As well, we saw a good resolution of previously impaired accounts mainly in the oil and gas sector as prices rebounded from the lows we saw in 2020. We also released $37 million of reserves on performing loans following a $38 million release -- $38 million release last quarter. This reflects a continuing improvement in our credit outlook for this business.

In wealth management, gross impaired loans of $289 million decreased $56 million from last quarter due to lower new formations at City National, mainly in the consumer discretionary and consumer staples sectors. Improvements in these same sectors also led to $27 million of recoveries on previously impaired loans. In Canadian banking, gross impaired loans of $1.4 billion was up $95 million, primarily in the residential mortgage and personal lending portfolios. PCL on impaired loans of $217 million was up $48 million from last quarter with increases across all portfolios with the exception of our cards portfolio.

As expected, delinquencies and impairments have begun to increase from the exceptionally low levels that were experienced last year when clients benefited from our deferral programs. While delinquencies and impairments are increasing, they continue to be at or below historical levels as government support programs remain in place benefiting many of our clients. We do expect delinquencies and impairments to increase through the remainder of 2021 as many government support programs are scheduled to conclude this summer. Additionally, this quarter, we released $63 million of reserves on performing loans in Canadian banking.

This release came primarily from our cards portfolio, reflecting lower outstanding balances, and from our residential mortgage portfolio, reflecting very strong housing market conditions. Before concluding, let me touch on our overall credit outlook. As you recall, in Q2 last year, we materially increased our reserves against performing loans. At that time, our expectations for credit losses were guided by a rapid deterioration of economic indicators caused by the significant uncertainty around the pandemic.

In particular, there was uncertainty around the speed and timing of an economic recovery, the degree of government support, the size and duration of additional waves of the virus, and the availability and the efficacy of a vaccine. To date, bank and government support programs have been robust and beneficial to our clients, resulting in better than expected credit performance. Additionally, the economy has outperformed our expectations since the onset of the pandemic with economic indicators such as GDP and unemployment faring better than we originally expected. Although some sectors continue to be severely impacted by containment measures, other expect -- other sectors are experiencing robust growth in this current environment.

Despite these positive developments, concerns around the new variants of COVID-19, including the efficacy of the vaccines against these new variants, and current vaccination delays could negatively impact the timing and pace of the economic recovery. Over the course of this year, we expect PCL on impaired loans to rise. But timing and level will be dependent on the success of the vaccine rollout and how and when government support programs come to an end. Concurrently, we would also expect our allowance on performing loans to decline as performing loans migrate to impaired.

As well, our performin -- performing loan allowance could be positively impacted as uncertainties around vaccination rollouts abate and the reopening of the economy supports more confident outlooks on unemployment rates and GDP growth. At 0.85% of loans and acceptances, our ACL continues to be well above our pre-pandemic levels to reflect the noted uncertainty. Thus far, we have been very pleased with the resiliency of our portfolio which reflects our disciplined approach to underwriting and the quality and diversity of our lending portfolios. As we've done since the start of the pandemic, we will continue to actively work with our clients to help them navigate through these uncertain times.

And with that, Operator, let's open the lines for Q&A.

Questions & Answers:

Operator

Thank you. We will now take the questions from the telephone lines. [Operator instructions] There will be a brief pause while the participant register for questions. Thank you for your patience.

The first question is from Ebrahim Poonawala from Bank of America Securities. Please go ahead. Your line is now open.

Ebrahim Poonawala -- Bank of America Merrill Lynch

Good morning. I guess, Dave, if I heard you correctly, you talked about making a push at City National, particularly in the mid-market side. I was wondering if you can elaborate on that relative to -- my sense was we had a little bit more for emphasis on private banking recently. So just talk to us, if you don't mind, around both middle-market push that you're making, what it entails, and how we, from the outside, should measure the success of that strategy?

Dave McKay -- President and Chief Executive Officer

Yes, thanks for that question. Those are two important parts of our growth strategy in City National. We're -- we're very excited how we run the business over the last five years. And as we look to the next phase of growth, I would say, Ebrahim, the first point is really important that balancing the growth between private banking, jumbo mortgages, and the commercial bank is a -- is a big priority of ours.

And we've made significant progress on the mortgage strategy, 15% growth year over year. But we originated $5 billion of mor -- jumbo mortgages last year in the U.S. And if you annual -- annualized the first quarter, it's up closer to $7.5 billion. So we're well under way with that strategy to grow the balance sheet and to balance the balance sheet off between private banking and commercial banking.

And we're doing a good job cross-selling those customers into -- into core banking. So the strategy as we've talked about for the last five years is really starting to play out and accelerate. We've built a strong back office to cre -- create a great client experience, and then we're executing the way I'd hoped we'd execute. That leaves us an ability to -- to continue to grow our commercial franchise.

And what we're thinking there is we have some really strategic advantages we think a couple of fronts. One, we have this fantastic capital markets business. Global capital markets business with very strong industry verticals that create ancillary fee-based opportunities on the advisory side for clients that will bring in through the mid-market strategy. We're thinking in a range of between $500 million and $2 billion in revenue as a target market to give some guidance there corporates.

And we've also just reinvested in our treasury management capabilities. So when you think about using our balance sheet and then cross-selling into fee-based products, which is our strategy across every business globally, this is very consistent with that. We put our balance sheet out to a new client. We come in with treasury management capabilities and great capital markets capabilities, and we drive the premium ROEs that we're looking to drive within our credit risk appetite.

So this is certainly within our credit risk appetite. And therefore, the ability to balance off private banking and -- and mid-market allows us to grow and accelerate growth at our target ROEs.

Ebrahim Poonawala -- Bank of America Merrill Lynch

Got it. And just guide to that, Dave, is M&A a distraction or a potential contributor to the strategy?

Dave McKay -- President and Chief Executive Officer

No, M&A would have to be meaningful enough to take management's attention away from the incredible opportunities we have to grow. And we were growing at double digits pre these strategies really taking off. So we feel very good about our organic opportunities in the U.S. And the more M&A that happens with our competitors and they're distracted from their clients, the more organic opportunity we feel we've had.

So we're -- we've been growing our [Inaudible], growing our private banking sales force and commercial banking sales force, anticipating some disruption in the marketplace. But if something fits that accelerates growth along those paradigms, commercial, private bank, then we'll look at it. But we've got significant organic opportunities to deploy capital in front of us.

Ebrahim Poonawala -- Bank of America Merrill Lynch

That's good. Thank you.

Operator

Thank you. The next question is from John Aiken from Barclays. Please go ahead. Your line is now open.

John Aiken -- Barclays -- Analyst

Good morning. Rod, since I don't really have any significant complaints on the results, I was hoping that you might be able to walk me through the -- the wealth accumulation plan in U.S. wealth management. Now, I know the net impact is not over material, but it does drive some variability within the segment's metrics.

Can you remind me what the purpose of the plan is? And then also what the mechanics are that caused the variability in both revenue and expense points?

Rod Bolger -- Chief Financial Officer

Yeah, sure. Thanks, John. The purpose of the plan is as -- as part of our compensation model and -- and pay for performance, and it allows our employees and our financial advisors to -- to basically put some of their deferred income into the market and -- and have it in earn in the market. And since that's what their profession is, that makes perfect sense.

And then, as a company, what we do is we hedge that. So if because the compensation expense will rise and fall as markets move up, and as they've been moving up recently, especially in the first quarter of this year, our fiscal first quarter, our compensation expense would mark to market or mark up. And -- and hedge that, we basically buy a basket of securities to offset what is -- is -- what our clients -- our -- our financial advisors and employees are put into the market. And you can see that on Page 10 of the sup.

And we spell out the impact of revenue and expense there quite clearly. And you can see for the last two quarters, they've almost matched perfectly. But they won't match perfectly because the compensation expense amortizes in as -- as a best over the three years, whereas we have to buy the securities to hedge it immediately upfront. And you have seen that dislocation in Q2 and Q3 last year where there were about a $20 million difference.

But year over year, you'll see a big increase in revenue and a big increase in expense for that. And that's why we adjusted out when I talk about noninterest expense growth year over year because it has no economic impact, except to the financial advisors where it's a positive because it -- it allows them to invest in the market as their salaries and -- and compensation is deferred.

John Aiken -- Barclays -- Analyst

That's great, Rod. I think I almost got it. Thanks.

Operator

Thank you. The next question is from Paul Hoden --Holden, sorry, from CIBC. Please go ahead. Your line is now open.

Paul Holden -- CIBC -- Analyst

Thank you. Good morning. And, Rod, you -- you -- you've provided some very helpful commentary around the NIM outlook, as well as some helpful perspective on the -- on the slides. There is -- but there is an increasingly bullish narrative the banks probably around the steepening of the yield curve and I'm just wondering if there is beyond that deposit -- deposit benefit you highlighted, if there is any treasury opportunities or other opportunities within NIM today given that -- that curve steepening?

Rod Bolger -- Chief Financial Officer

Yeah, sure. Thanks, Paul. As -- as the yield curve steepens, it's important that you look at the five-year maybe even the seven-year swap rates. We don't play out at the 10 and 30-year end of the curve, except in our -- in our own pension plan and in our insurance business.

But when -- when you look at the benefits for the deposit book, it largely relates to the assets that we deploy those into. And those are largely five-year fixed-rate mortgages in -- in the retail book here in Canada, variable rate mortgage -- variable rate commercial product in the U.S., but also grow -- it's growing impact to the mortgage book in the U.S. And so -- and credit card balances also will benefit as -- and that has hurt us from a mix standpoint. As those balances have come down substantially, the spending down, those yields are usually much higher.

So that helps -- that will help NIM as it goes up. For us to take treasury actions, we would have to be hedging basically at the five-year swap rate these days or longer if we want to take a longer -- long-term interest rate position. But we would rather put those deposits into client-facing assets and we think the impact year over year of interest rates is really going to start moderating after the second quarter. Remember, the rates were cut by 150 basis points about halfway through our fiscal second quarter, so we'll see a little better year-over-year headwinds this year -- this quarter.

But starting in Q3, those headwinds are largely going to be behind us, and we're going to start to see more revenue growth from this strong balance and market share growth that we've been achieving. And I think that's going to be an important driver of our growth, an important driver of our growth story going forward.

Paul Holden -- CIBC -- Analyst

Right. If I hear you correctly, the NII story starting Q3 will be closely tied to revenue growth but not necessarily tied to NIM expansion?

Rod Bolger -- Chief Financial Officer

Correct. Yeah, NIM ex -- NIM is going to start to level off af -- after dropping precipitously since Q2 of last year with the 150 basis point cut by both the U.S. and Bank of Canada. Now, volume growth is going to translate better into revenue growth and more directly.

So that will be a significant positive for us as we continue to grow that market share.

Paul Holden -- CIBC -- Analyst

Got it. Got it. That makes sense. Thank you.

Operator

Thank you. The next question is from Meny Grauman from Scotiabank. Please go ahead. Your line is now open.

Meny Grauman -- Scotiabank -- Analyst

Hi, good morning. It's another quarter of outsized growth in the mortgage book and I'm just wondering -- I understand why it's happening, but I'm wondering is there a point where it's suboptimal to have that kind of call it lopsided growth in the Canadian banking business?

Neil McLaughlin -- Group Head, Personal and Commercial Banking

Yeah. Thank -- it's Neil, thanks for the question. We definitely don't look at it as a negative. Couple -- couple of reasons there.

I mean, one, it's a really sticky product. We like the risk. And this high -- high ROEs on -- on -- on mortgages. Our relations -- our -- our strategy is -- is to own the entire relationship of the customer, and the mortgage plays a huge part of that as one of the most profitable products that we can anchor with the client.

So no, we -- we still feel very strongly about the strategy and we're really I think encouraged by market share gains and just the volume we're able to pick up in the last three quarters.

Meny Grauman -- Scotiabank -- Analyst

And, Neil, just a follow-up on that. At -- at what point when you look out in your forecasts, when do you see the business mix balancing out a little more, on what quarter -- when -- when do you think that will happen?

Neil McLaughlin -- Group Head, Personal and Commercial Banking

Yeah, well, I think in -- in terms of the mark -- in terms of the -- the housing market, I mean we -- we feel good about them -- about the dynamics. So we expect, as Dave mentioned, still see strong growth throughout the rest of the year, high single-digits. Immigration was -- was dampened, and we expect to see that come back in Q4 and provide some more demand. In terms of other -- other parts of the business.

I mean our credit card business, Rod touched on in terms of the NIM impact. We were down $3 billion in balances there. So that's providing some real headwinds, not only in our NIM, but just in terms of revenue. Credit card spending will also we expect to bounce back.

That will provide a tailwind of revenue there. And I think part of the unknown is Dave mentioned utilization down in terms of commercial revolvers. Entrepreneurs need to have the confidence to invest and to tap into those revolvers. So I think as the economy opens up, entrepreneurs gain confidence.

You'll start to see -- commercial lending start to come back hopefully in the back part of the year.

Meny Grauman -- Scotiabank -- Analyst

Thanks, Neil.

Operator

Thank you. The next question is from Gabriel Dechaine from the National Bank Financial. Please go ahead. Your line is now open.

Gabriel Dechaine -- National Bank Financial -- Analyst

Hey, good morning. Again, sticking with Neil. Just looking at the your deposit growth in Canadian bank -- banking has been phenomenal. I'm just wondering about that $70 billion or so increase in deposits over the past year.

How -- how should we look at that retail commercial in terms of inhibiting your loan growth. Meaning, you know, it could push back consumer borrowing a few years because it is just going to tap into their -- their savings before they start borrowing again and I'm -- I'm talking about everything ex -- excluding mortgages, obviously, because that's growing. And, you know, if you can make a similar comment on -- on commercial lending. Just trying to figure out behavior and how that affects your loan growth outlook.

Dave McKay -- President and Chief Executive Officer

Yeah, great question, Gabriel. I mean, we are seeing, obviously, this -- this liquidity buildup. On the consumer side, with -- was somewhat attached to the -- the comment I made about the credit card book. There just isn't a place for consumers to -- to -- to spend right now.

You know, travel and dining and entertainment. Travel is our biggest category, we're just not seeing the consumer spending there. So, you know, some clients -- and in terms of credit cards, are paying it down more quickly. We've had customers that used to revolve with us that I don't have to revolve, they're able to pay in full.

And we have seen a -- a decrease in utilization of the retail credit lines as well. So -- so, they are paying down debt. You know, in terms of mortgage, to your point, that hasn't dampened that at all. I think this will be -- it will release over time, I think, is probably the outlook.

And in terms of the trajectory of that coming back, you know, tied to liquidity, I think it's going to be tied to the economic recovery.

Gabriel Dechaine -- National Bank Financial -- Analyst

But does it change your outlook, though? I -- I think last quarter you said, second half you'll have positive revenue growth in Canadian Banking or -- or something along those lines. The -- the -- is it -- could it be a couple of years before the non-mortgage categories start to grow again?

Dave McKay -- President and Chief Executive Officer

No, no, no. I mean, in terms of just -- in terms -- in terms of the consumer lending portfolio?

Gabriel Dechaine -- National Bank Financial -- Analyst

Yes.

Dave McKay -- President and Chief Executive Officer

Yeah. I mean, the -- the -- there's really two categories within there. There's -- there's lending we do direct to consumer through our branches and then the autos -- our auto business. You know, auto last year was down dramatically and if you look at -- you take a -- an indicator from the commercial book, we were down over $1 billion, about 30% in terms of floor plan finance.

So, as that auto business starts to come back, you'll see that -- that portion -- portion of consumer lending spike back. And then just utilization of -- and consumer activity in terms of branch-based lending, yeah, back part of the year is -- is probably a -- a fair bet.

Gabriel Dechaine -- National Bank Financial -- Analyst

All right. Thanks.

Operator

Thank you. The next question is from Sohrab Movahedi from BMO. Please go ahead. Your line is now open.

Sohrab Movahedi -- BMO Capital Markets -- Analyst

Yeah. Thank you. Maybe a question for both Dave and Graeme. Dave, back in December, I thought your tone was a lot more cautious just around the outlook, the operating environment, and the like than it is today.

And obviously, with -- I don't remember, I think, I don't know if Graeme may have it up to top of his head. I remember the last time total bank PCLs would have been, you know, low-single digits or mid-single digits. What -- what has changed? And Graeme, what -- what should we be -- expect? I understand it's incredibly difficult environment to -- to -- to prepare for, but what caught you off guard or what was the pleasant surprise and -- and how would -- how are those, I guess, surprises going to manifest through the balance of year, do you think?

Dave McKay -- President and Chief Executive Officer

Sohrab, thanks for that. I'll start with kind of the macro view of what we're seeing and why -- or -- or certainly becoming more confident in the trajectory that we're -- we're seeing. You know, first and foremost to my points around the vaccine's, the effectiveness, the number of vaccines, the plans coming together, the progress Europe's making, particularly the U.K., a core market for us to progress, the United States is making and vaccinating its high-risk population and its ability to reopen its economy. And, you know, when -- even -- even though Canada has been delayed, we're talking months here, we're not talking quarters.

So, our -- our -- we're growing in confidence in the trajectory of -- of the vaccination of our population and the mitigation of risk. We're not there yet, so we're still, you know, waiting to see the execution of this but we're getting more confident that the timing is starting to narrow around this -- when this will happen. So, I think that certainly is no shock there, it's just an evolution of the process that we're going through in a very complex operational process. But it's coming together and I think that -- that allows us to see through to a more normal economic activity, increased credit card spend, you know, in the fall as Neil referenced.

Even that surplus cash -- there's $200 billion of cash sitting on Canadian consumers' accounts right now waiting for a place to use it. Some of it's going into the market, some of it's going to pay down debt as we just talked about, but a lot of it's poised to grow that service sector that's been shut down and most -- most impacted by, you know, the variants and -- and COVID right now. So, I think that's, you know, leading us to -- to feel very good about where we are as an organization, where the economy is, and how this should play out the rest of the year. And Graeme, why don't you talk about your view on -- on risk from that perspective?

Graeme Hepworth -- Chief Risk Officer

Yeah. Sure. So, with a few comments. I -- I, you know, I would say, you know, what's different now versus Q4.

Well, I would say by far, the way -- the most notable event is when we sat here at the end of Q4, there was no known vaccines nor approved vaccines. And so, that is absolutely a huge game-changer in terms of kind of putting a different lens on the uncertainty here. You know, I think one of the biggest issues that we were facing in 2020 was just the uncertainty around the timelines for this pandemic and -- and that was a huge factor. And so, with the introduction of vaccines in Q4, that certainly is a -- is a huge point of optimism.

Now, the flipside of that is we're obviously seeing challenges in getting vaccines rolled out, we're seeing variants come into play. And -- so, that still does leave a significant level of uncertainty and, you know, and -- and caution in play with us but that is really, I would say, the biggest point that kind of toggles this quarter -- or last quarter versus this quarter. As to how that translates through to provisioning, I mean, you -- you quoted the -- the total bank PCL. I would really kind of dissect that into the two components.

You know, what we're seeing in Stage 3 and then kind of the dynamics of -- of IFRS-9 and how we treat performing loan-loss allowances. So, certainly, in Stage 3, 13 basis points is a very low number. I think that would, you know, certainly be because the bottom end of our historic range. And that's really a byproduct of, I would say, two significant things.

We're certainly seeing, you know, the benefit and effects of the -- the deferral programs that we put in place, as well as certainly the, you know, the positive implications of the support programs that were provided by -- by governments across the board. You -- you know, if -- if the furloughs come to an end, we're starting to see those delinquencies tick back up since we do expect those Stage 3 impairments and -- and delinquencies to -- to trend positive or trend upwards over the remainder of 2021. Government support is a big part of this though and -- and, you know, right now, as it stands, government support is expected to conclude largely this summer. And -- and that really is what will kind of influence our expectations going forward as to the degree that that's extended or it's morphed into new forms of support.

That will really drive kind of the expectations and implications for our -- our credit performance in the latter half of the year. When it comes to the performing loan-loss allowance, this is more about kind of the expectations as opposed to the actuals that we're experiencing. And I said, so, certainly the vaccine is -- is positive and that's translated to a more positive macro-economic forecast with, you know, a robust recovery really starting in the latter half of 2021, as -- as Dave referenced. But still, some degree of caution on that at this point of uncertainty that I referenced.

And so, these are all the things that are in play. But, you know, when it comes to the Stage 1 and 2, that's why we did make a small release this quarter is because that -- that ACL, that globe quantum of risk, we see has abated to some degree since the -- since where we were standing at -- at the end of Q4.

Rod Bolger -- Chief Financial Officer

Just for posterity, our -- our last time at this level is Q1 of 2005 at 12 basis points.

Sohrab Movahedi -- BMO Capital Markets -- Analyst

Thank -- thank you.

Operator

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

Mario Mendonca -- TD Securities -- Analyst

Good morning. Graeme, I just -- I want to put a -- maybe a slightly finer point of what you just went through. If we -- if we look at credit cards as a proxy for the Canadian consumer, credit card loss rates were like 150, 160 basis points this quart -- this quarter, about half of what we saw before the pandemic even played out. When you think about credit card losses and how they play out over the next, say, year or two, how should we think of that? Should we think of the deferrals as -- the expiry of the deferrals and the -- and maybe the end of government support causing those loss rates to go through 300 basis points and then migrate back down to normal? Or do you think of that as the upper bound that, you know, we're unlikely to even get through what we were before the pandemic? I -- I guess what I'm trying to get at is has this government support essentially negated that -- that spike in PCLs that we're all sort of bracing for earlier on in 2020?

Graeme Hepworth -- Chief Risk Officer

Yeah. Thanks, Mario. I think it's a really good question. I think this whole debate around the degree to which loan losses have been deferred or mitigated is a really great question right now and it's part of the uncertainty that I -- I think we're facing.

So, well, yes. Right now, we are experiencing exceptionally low levels of loan losses and quite contrary to where -- where you'd expect it to be at this point of the cycle. That is certainly a byproduct of the deferrals and -- and the government support, as you've noted. You know, putting the government support aside for a second, you know, credit cards was down for us this quarter -- this quarter which is different than the other retail products.

But that's a byproduct of the fact that credit cards have a 180-day impairment as opposed to a 90-day impairment. So, we would expect the -- the -- the flow-through of deferrals to start to tick that up over the coming quarters. The implications of the government support part are the -- are the other and very material part of this, right? And -- and so -- and I indicated earlier we do expect on the retail side our -- our delinquencies, impairments across the board to increase throughout 2021. The level that it gets to the degree that that's deferred versus mitigated, I think, is really dependent on -- on, you know, this -- this bridge that the government's created and whether it's not just robust enough.

But whether it really extends to the other side and -- and thus, fully mitigate losses or whether these are really just deferred to kind of more elevated levels of the latter half of this year and early 2022. But that is a big point of the uncertainty that's really difficult to work out at this point in time.

Mario Mendonca -- TD Securities -- Analyst

OK. Real quickly then for Rod. Rod, help me think through what's going on with the -- the non-loan earning assets. So, think of all the liquid assets the bank has, it dropped last quarter, increased a little bit this quarter.

What it -- what are -- what are the big drivers of that? Is it as simple as saying, if loan growth reemerges in the second half that loans will sort of crowd out some of this liquidity, or is it really being driven by just client demand right now?

Rod Bolger -- Chief Financial Officer

I think it is. It's a combination of both. I mean, if you look at City National in particular and -- and, you know, we don't pull the -- all the money because of -- of, you know, different bank requirements and -- and regulations and -- and the, you know, fact that we have legal vehicles and -- and -- and government requirements. So, if you look at just City National over the last year, we've had $9 billion of loan growth which is very strong, but we've also had $18 billion of deposit growth.

So, that extra $9 billion has basically displaced wholesale funding. And we've done the same thing in Canadian Banking, the numbers are slightly different but we've displaced wholesale funding with that loan growth, but the deposit growth has been much higher. So, as we kind of grow loans into that, that will be able to take our -- take lower-yielding securities down and put -- and replace those with higher-earning client assets.

Nadine Ahn -- Head of Investor Relations

Thank you. Operator?

Mario Mendonca -- TD Securities -- Analyst

Thank you.

Nadine Ahn -- Head of Investor Relations

Call -- we're going to run --

Dave McKay -- President and Chief Executive Officer

We're going to run over to get through the -- yeah. Next question, please.

Operator

Thank you. The next question is from Lemar Persaud from Cormark Securities. Please go ahead. Your line is now open.

Lemar Persaud -- Cormark Securities -- Analyst

Thanks. Maybe for Rod, I think you've mentioned that some of the discretionary costs could be coming back and -- as we begin to -- the economy is beginning to reopen. How much of that -- I think it was $80 million in discretionary costs are you baking back coming back post-pandemic in your expense outlook?

Rod Bolger -- Chief Financial Officer

A portion of it. You know, some of that is -- is certainly travel which, you know, may not return to pre-pandemic levels. We will see. Some of that is marketing which, you know, as the economy opens back up, as people venture out, there will be more opportunity to -- to grow the client base.

So, some of that certainly will return but I wouldn't expect all of it to return. So, you -- you -- you can factor a portion of that coming back. But again, we're going to grow earnings and revenue faster than that. Expense growth is going to resume -- is going to resume.

Lemar Persaud -- Cormark Securities -- Analyst

So, then where -- where -- where -- what areas are you expecting expenses to -- to grow in your -- in your low-single-digit expense outlook then?

Rod Bolger -- Chief Financial Officer

So, this is everything outside of variable comp and stock-based comp is -- is that very low-single digits. That's basically all other expenses and that includes, you know, our -- our continued investment in technology and digital capabilities. You know, we still have to invest in -- in new regulatory requirements, invest in people. So, I'm not excluding people from that very low-single digits and we've continued to add headcount so that we could continue to grow market share.

So, we've, you know, we've added over 1,500 people over the last year to -- to respond to the market growth.

Dave McKay -- President and Chief Executive Officer

And to Rod's point, this is Dave. Neil has added private bankers telling -- co-op in the team have added private bankers, right, and commercial bankers. So, we are growing our capacity to serve clients, expecting, you know, the market to -- to surge and client demand to surge yet again. And this is on top of the, you know, outstanding growth that we've got now.

So, we've been seeding growth expecting the recovery and it's playing well for us right now.

Lemar Persaud -- Cormark Securities -- Analyst

Thank you.

Operator

Thank you. The next question is from Scott Chan from Canaccord Genuity. Please go ahead. Your line is now open.

Scott Chan -- Canaccord Genuity -- Analyst

Good morning. Dave, in your opening remarks, you talked a lot about wealth management specifically on the U.S. side. And if I look at Slide 4, you've onboarded $40 billion-plus with new advisors over the past few years which is a significant amount.

Maybe you can kind of talk about that onboarding process. Is it benefiting from new geographies? And -- and -- and kind of looking out over the next two years, is that going to continue?

Dave McKay -- President and Chief Executive Officer

We've been doing that both in -- in Canada and the U.S. as core strategy. So, I'll talk to the U.S. and maybe Doug can talk to the Canadian process.

But certainly, I think, the value proposition we've invested heavily in -- in financial planning technology, our core margin lending capabilities. So, the infrastructure that was lacking in the platform five years ago, we have a very strong advisor offering platform right now with a -- with a great culture. And we're attracting advisors from the big platforms and that's been a consistent, consolidated effort. Culture is a big part of it where we sell the culture that we have in Canada in the U.S.

You know, the capabilities we have, the teamwork we have, the cross-sell and -- and ref -- referrals that we get through our -- our banking partners on both north and south of the border. All that combines to a -- be a very attractive offer to -- to financial advisors and FAs, IAs in Canada and the U.S. So, that's been a core success of ours in Canada and in the U.S. for -- for many years and we see an opportunity to really accelerate that.

So, we've -- we've got plans to -- to increase that growth, particularly in the United States over the coming years and ramping up our -- our branch manager and sales efforts to do that. So, we're -- we're pretty excited about that opportunity. Doug, do you -- you've been executing this in your team Dave Agnew for years. It's a -- it's a well-proven formula for us.

Doug Guzman -- Group Head, Wealth Management, Insurance, and Investor & Treasury

Yeah, it is and it's -- the story for those of you who were at the Investor Day a few years ago, the flywheel that I put up is really working. And I'd add in the U.S. Today's comments a couple of things. One is the shift to fee-based, in some cases, discretionary assets.

And the addition of a credit product allowed our advisors to have more to serve for their -- for their clients. But in Canada, the -- the story we told at Investor Day was an ability that exceeds our competitors to invest in -- in highly skilled subject matter experts at the center allowing our advisors to become much more than investment advisors obviously anchored in goals-based discovery and planning but bringing in real expertise in -- in insurance and philanthropy, in trust in a state. And giving advisors, frankly, more to sell than our competitors have or more to provide clients than our competitors have, which makes us the destination of choice for advisors. So, we're seeing through the last number of quarters of disruption, you know, as were stronger-than-ever interest from other firms' advisors to join our platform because we've got just more -- more firepower for them to fit the client base.

Scott Chan -- Canaccord Genuity -- Analyst

Right. Thank you very much.

Operator

Thank you. The next question is from Mike Rizvanovic from that Credit Suisse Securities. Please go ahead. Your line is now open.

Mike Rizvanovic -- Credit Suisse Securities -- Analyst

Hi. Good morning. A quick one for Neil. Just wanted to go back to the gains that you've been making on the deposit -- the retail deposit share in Canada.

And it seems like it's a -- it's a pretty competitive market like with the incentives provided where there's like the $300 cash upfront or -- or I guess, over time for a new checking account. It just seems like a very competitive market. I'm wondering given that you have to pay for that growth to some degree, how long does that typically translate into gains in other areas? Like we've clearly seen it in the mortgage side, but I haven't seen it in the other retail loan balances in terms of your share. So -- so, how -- how is that trending? Is that just the lag or -- or do you expect that to maybe accelerate at some point in the near term?

Neil McLaughlin -- Group Head, Personal and Commercial Banking

Yeah. Thanks for the question. Absolutely, it's competitive. You know, we've had, as you know, since Investor Day, we put out our goals in terms of new client acquisition.

It's been a real focus. We were really pleased with the -- the trajectory of acquiring new consumers and -- and making RBC their home bank. Pre-COVID, obviously, you know, we needed to really sort of shut things down once that hit. We have opened things back up, you know, really starting late Q3 and I've -- I've been really pleased about the rebound in terms of being able to go out and -- and connect with consumers and -- and have them join the franchise.

In terms of the -- the incentive costs and -- and our -- our ability to cross-sell which we track it literally by cohort and channels. So, we're able to get down and understand, you know, what product the -- the consumer came in on, what channel they came in on, what offer they came in on. And then we see the curves in terms of when we know, you know, over what period of time, what investment products, boring products, card products, or mortgage products they're going to add. And, you know, at this point, we continue to invest because those cross-sell rates continue to hold really really solid.

And so, our conviction around the strategy and ability to consolidate to be the core bank and earn that extra business, you know, is exactly where it was a couple of years ago. The other thing, you know, underpinning that strategy to Doug's point we talked about at Investor Day, unlike some of our competitors, we actually incent the client to consolidate their business. We don't have a minimum balance deposit product and we would point to that as one of the reasons that we're able to cross-sell at a higher rate.

Mike Rizvanovic -- Credit Suisse Securities -- Analyst

So, you are seeing some -- some good cross-sell, I -- I guess. We just don't see the numbers. And any metrics you could offer on that?

Neil McLaughlin -- Group Head, Personal and Commercial Banking

I mean, the -- the metrics are essentially as we look -- we break it down into four categories: the transaction account, investment account, boring account, and card. And we have the highest cross-sell rate both in terms of, you know, third-party benchmarking studies. And like I said, the -- across each of those four product categories, we've seen consistent cross-sell rates over time. So, it -- that's probably the best way to describe it.

Mike Rizvanovic -- Credit Suisse Securities -- Analyst

OK. Appreciate the color. Thanks.

Dave McKay -- President and Chief Executive Officer

Go.

Operator

Thank --

Dave McKay -- President and Chief Executive Officer

Go ahead, operator. Do we have any -- any more?

Operator

Thank you. That is all the time we have today for questions. I would now like to turn the meeting over back to Dave.

Dave McKay -- President and Chief Executive Officer

Thank you. Thanks, everyone, for your -- for your questions today. You know, a few things that we really wanted you to take away and it's, you know, first and foremost, the very strong client franchise growth that we saw across capital markets, wealth platforms, both north and south in U.S. and Canada, and our -- obviously, our retail bank with over $100 billion of client growth.

That really allowed us to earn through very significant interest rate headwinds. And we talked about a $400 million [Inaudible] impact to the interest rates on our U.S. and Canadian businesses and we're very happy to have earned through that. And that positions us very well as those -- as Rod referenced, as those headwinds start to diminish through Q2 into Q3, that strong momentum that we have is going to be even further accelerated by of return of the credit card business, return of the commercial businesses as we reopen the rest of the economy in the second half of the year.

So, we feel very good about where we are. Our ROEs of 18.6% stand out? So, we're earning a premium on -- on our -- the capital we're investing in the business because we're cross-selling because we're -- we've got multi-product relationships and stands out in our fee-based revenue. While NII was challenged, you saw very strong fee-based growth which I think there's a proof point of the cross-sell of -- of our balance sheet activity. So, all of that, we feel very good, we're very proud of our quarter.

Thank you for your questions and we'll see you in -- in three months.

Operator

[Operator signoff]

Duration: 70 minutes

Call participants:

Nadine Ahn -- Head of Investor Relations

Dave McKay -- President and Chief Executive Officer

Rod Bolger -- Chief Financial Officer

Graeme Hepworth -- Chief Risk Officer

Ebrahim Poonawala -- Bank of America Merrill Lynch

John Aiken -- Barclays -- Analyst

Paul Holden -- CIBC -- Analyst

Meny Grauman -- Scotiabank -- Analyst

Neil McLaughlin -- Group Head, Personal and Commercial Banking

Gabriel Dechaine -- National Bank Financial -- Analyst

Sohrab Movahedi -- BMO Capital Markets -- Analyst

Mario Mendonca -- TD Securities -- Analyst

Lemar Persaud -- Cormark Securities -- Analyst

Scott Chan -- Canaccord Genuity -- Analyst

Doug Guzman -- Group Head, Wealth Management, Insurance, and Investor & Treasury

Mike Rizvanovic -- Credit Suisse Securities -- Analyst

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