Royal Bank of Canada (RY) Q2 2022 Earnings Call Transcript

Royal Bank of Canada (RY -1.59%)
Q2 2022 Earnings Call
May 26, 2022, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning, ladies and gentlemen, and welcome to RBC's conference call for the second quarter 2022 financial results. Please be advised that the call is being recorded. I would now like to turn the meeting over to Asim Imran, head of investor relations. Please go ahead, Mr.

Imran.

Asim Imran -- Head of Investor Relations

Thank you, and good morning, everyone. Speaking today will be Dave McKay, president and chief executive officer; Nadine Ahn, chief financial officer; and Graeme Hepworth, chief risk officer. Also joining us today for your questions, Neil McLaughlin, group head, personal and commercial banking; Doug Guzman, group head, wealth management, 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. [Operator instructions] With that, I'll turn it over to Dave.

Dave McKay -- President and Chief Executive Officer

Thank you, Asim, and good morning, everyone. Thank you for joining us today. Today, we reported earnings of $4.3 billion with earnings per share -- excuse me, up 7% from last year. Revenues were modestly lower year over year, largely due to moderating capital markets revenues, given unfavorable market conditions.

This was partly offset by strong client-driven volume growth in Canadian banking and City National and solid wealth management client activity. Expense growth was only 1%. Before I share context on our earnings this quarter, I want to acknowledge the increasingly complex macro and geopolitical environment. As Russia's invasion of Ukraine drives on with devastating effects, we continue to stand with the people of Ukraine and consistent with our purpose of supporting the humanitarian effort, relief efforts in the region as well as the Ukrainian diaspora in Canada.

From a macro perspective, while I noted last quarter that we were closer to the mid-cycle economic growth, the ongoing impact of Russia's invasion has added further complexity to existing challenges from elevated inflation, a rapid tightening of monetary policy, supply chain disruptions and shortages in energy, labor and housing supply. Central Bank actions are having a profound impact on both bond and equity markets and, in turn, impacting capital markets activity. Central banks are facing increasingly difficult decisions in how to manage monetary policy to constrain inflation without impacting economic growth. Given low unemployment, rising wages and elevated liquidity, we believe the key ingredients are in place to help mitigate any sustained slowdown.

In this context, I will now speak to our proven business model, which generated a strong 18% ROE this quarter, underpinned by the strength of RBC's financial position, our diversified revenue streams and a balanced growth in capital deployment strategies. These helped drive significant book value per share growth of 15% from last year. Our balance sheet remains strong, giving us a solid foundation to grow at all points in the cycle. Our internal capital generation combined with a strong CET1 ratio of 13.2% enabled us to deploy capital in a balanced manner, allocated relatively equally between $20 billion of client-driven RWA growth, $1.7 billion of dividends and nearly $2 billion of share repurchases.

And this morning, we announced an $0.08 or 7% increase in our quarterly dividend. We also expect to take advantage of changing market conditions to complete our accretive normal course issuer bid in the second half of the year. With a strong foundation, we are well-positioned to continue executing on our key strategic priorities, including working to close the acquisition of Brewin Dolphin, which shareholders approved earlier this week. This proposed transaction meets our criteria of acquiring high-quality franchises, which provide value-added complex advice to a growing client base in a structurally attractive market.

We look forward to combining our complementary businesses and offering a breadth of wealth and banking products, advice and services to clients while adding yet another sustainable growth vector to both our wealth management and U.K. franchises. We also deployed our capital to drive balanced growth in our diversified loan portfolio, where year-over-year growth was split equally between the retail and wholesale sectors. Our commercial real estate portfolio is a good example of how we drive balanced growth.

The $12 billion year-over-year growth in the portfolio was not limited to Canadian banking, but well diversified across geographies and segments, including capital markets and City National. We expect our CET1 ratio will remain strong, above 12.5%, even after accounting for continued share buybacks and the proposed acquisition of Brewin Dolphin. Our capital strength continues to provide us the flexibility to deploy our capital in a balanced manner. While we did release a sizable portion of our COVID-related reserve build, Graeme will speak to the prudent increase in our reserves related to the increasingly challenging macroeconomic environment even as we operate with low unemployment and client liquidity at elevated levels with delinquencies and PCL on impaired loans at low levels.

Our results illustrate the importance of having diversified revenue streams. We expect the benefit of higher interest rates will more than offset some of the near-term headwinds in our market-sensitive businesses. The roughly $75 million benefit to Canadian banking from the recent Bank of Canada rate hikes is reflective of the strategic investments we have made in our core deposit franchise over many years, including last year's launch of RBC Vantage. In the last two years alone, we have gained over 70 basis points of market share in core checking accounts.

As Nadine will speak to shortly, rising short-term rates should provide a significant revenue lift across our businesses, benefiting from both increasing deposit margins in Canadian banking and our wealth management and custody franchises as well as higher asset yields at City National and our Wholesale businesses. Our results this quarter also highlight the balance within our various market-sensitive businesses. The strength of our investment management, mutual fund and corporate lending platforms partly offset pressures in origination activities and trading revenues. Expense growth was well contained at 1% year over year in part due to natural built-in hedge of variable compensation.

As market-sensitive revenues decreased, so does this large part of our cost base. I'll now expand on trends we're seeing across our core businesses. In Canadian banking, residential mortgage growth remained strong, up 11% year over year for the second straight quarter, and we continue to invest in further improving the home buying experience for our clients. With housing activity slowing as interest rates rise, we expect mortgage growth to slow in the second half of the year and come in at the high single-digit range for the year.

We anticipate the slowdown in mortgage growth to be offset by higher growth in commercial lending and credit cards, especially as utilization and revolve rates continue to increase off their recent lows. Credit and debit card transactions were 30% above pre-COVID levels in April with strong momentum carrying into May. Global airlines and credit card networks are noting higher travel bookings, and we are seeing increasing visits to restaurants and hotels. In our market-leading business banking franchise, loan growth was up 10% from last year as we saw increased confidence from business leaders.

We also saw the benefit of our past investments in our business, including adding bankers and growing our RBCx platform. Recovery to pre-pandemic commercial utilization and card payment rates from current levels will not only add to Canadian banking loan balances but also drive further margin expansion, potentially adding nearly $200 million of additional revenue over time. However, the best way to drive growth is to continue growing our 14 million client base as we have been doing through a differentiated products and services, including going beyond banking through innovative solutions, including RBC Vantage, our strategic partnerships with WestJet, Petro-Canada, and Rexel. Turning to wealth management.

We believe the diversity of our portfolio and the quality of our advice or strength in these volatile markets. In Canada, RBC Dominion Securities has the No. 1 market share for high and ultra-high net worth clients. Canadian wealth management AUA was up nearly $35 billion or 7% year over year, and despite the volatile environment, we continue to attract experienced investment advisors while also seeing very limited attrition rates.

RBC Global Asset Management includes the largest retail mutual fund company in Canada. Despite volatile market movements in both equity and bond markets, long-term net sales were $9 billion this quarter. In the U.S., we have multipronged growth vectors, including the sixth largest U.S. wealth advisory firm ranked by AUA, where we continue to add to our advisor base who are attracted to our technology and brand.

At City National, wholesale loan growth was flat relative to last year or up 14%, excluding PPP loans, benefiting from our growing teams and the build-out of our mid-market lending platform. Retail loans were up 25% year over year, largely due to strong growth in our jumbo mortgage strategy. And as I noted earlier, the proposed acquisition of Brewin Dolphin will further diversify our revenue stream by expanding our footprint in the U.K. Although capital markets revenue was lower than in recent quarters, pre-provision, pre-tax earnings of $1 billion highlights the resilience of our diversified business in light of a challenging market environment.

Our lending business had a second consecutive quarter underpinned -- sorry, second consecutive record quarter, underpinned by increased demand, including acquisition financing mandates as well as more favorable yields. And we gained market share in global investment banking year to date, reflecting our continued investment in the business. As I have noted recently, we are strengthening our talent in key verticals, having hired approximately 20 managing directors year to date, and we'll look to continue to hire throughout the rest of the year. This is in addition to the 25 MDs hired last year.

It's also important to highlight our balance between growth and prudent risk management. Despite volatile market conditions, we have had zero days of trading losses over the last two years. While market conditions are proving to be a cyclical headwind, we still expect capital markets to continue to grow in 2023 as markets stabilize. In conclusion, our continued investments in our people, technology, products and services are creating more value for our clients and driving strong volume growth and client activity across our businesses.

We remain well-positioned to perform through the cycle given our strong balance sheet, diversified business model and balanced capital deployment strategy, including returning capital to our shareholders. And, Nadine, it's over to you.

Nadine Ahn -- Chief Financial Officer

Thanks, Dave, and good morning, everyone. I will start on Slide 9. As Dave noted earlier, we reported earnings per share of $2.96 this quarter, up 7% from last year. Revenues were down 3% year over year as strong volume growth and higher investment management and mutual fund revenue were more than offset by an expected slowdown from very strong capital markets results last year.

Expenses were up 1% from last year with pre-provision, pre-tax earnings down 2%. Our results benefited from a net release and provision for credit losses, which Graeme will speak to shortly. Our effective tax rate was down 270 basis points from last year, mainly due to the impact of net favorable tax adjustments. The legislation associated with the proposed federal budget tax changes has yet to be drafted, and as such, it is too early to comment on details associated with those changes, which we expect to increase our tax rate next fiscal year.

Before moving to segment results, I will spend some time on three key topics: our balanced capital deployment strategy, our broad-based sensitivity to higher interest rates and our focus on expenses. Starting with capital on Slide 10. Our CET1 ratio was a strong 13.2%, down 30 basis points from last quarter. Our earnings this quarter drove a premium ROE of 18%, generating 75 basis points of capital.

We continue to maintain a balanced capital deployment strategy, allocating capital fairly evenly between growth, dividends and buybacks. Inclusive of both dividends and buybacks, our total payout ratio was over 80% this quarter. At the midyear point, we have completed half our previously announced normal course issuer bid and have returned to our traditional policy of twice a year dividend increases. Our organic business growth was largely driven by strong financing across capital markets, City National and Canadian banking as we actively engage with both new and existing clients.

Looking ahead, we expect the benefit from the implementation of the Basel reforms in early 2023 to more than offset the approximate 40 basis point CET1 impact of the proposed acquisition of Brewin Dolphin, which is anticipated to close by the end of third calendar quarter this year. Moving on to Slide 11. Net interest income was up 9% year over year or up 10% excluding the impact of trading results, the highest growth rate since Q3 2019. Strong client-driven volume growth in Canadian banking and City National along with record lending revenue in capital markets more than offset the impact of lower spreads year over year.

Canadian banking NIM was up four basis points from last quarter, the highest such increase since Q2 2018, largely due to higher deposit margins on our leading low-beta core checking platform. This was partly offset by the impact of a continued decline in mortgage spreads. City National's NIM was up 14 basis points relative to last quarter. As expected, rising interest rates had a relatively higher impact on City National's asset-sensitive balance sheet with roughly half of its loans being floating rate commercial loans.

Now to Slide 12. We remain well-positioned to benefit from higher rates. A 100 basis point parallel shift is expected to provide a $1.1 billion benefit to net interest income in the first year, rising to approximately $1.8 billion in year two. To provide better visibility on our sensitivity to rising interest rates, we also highlight the expected benefit of a 25-basis-point rate hike.

Over the next 12 months, we estimate a flattening curve scenario that resulted in aggregate $200 million of additional revenue in our Canadian banking and U.S. wealth management businesses. We could also see a $60 million benefit over 12 months from our deposit-rich Canadian wealth management and asset services businesses. We anticipate an increase in client demand for repo should we see a normalization of surplus liquidity in wholesale markets.

This coupled with rising rates should serve as a catalyst for a recovery in repo spreads. And a recovery in commercial utilization and credit card revolve rates would not only be positive for growth, but to margins as well. We expect these benefits to revenue to more than offset the impact of competitive pricing pressures and rising funding costs. Turning to expenses on Slide 13.

Non-interest expenses were up 1% year over year. Our more control over costs or expenses, excluding variable and share-based compensation, were up 7%. Salaries were up 7% year over year, representing nearly 40% of the increase in our more controllable costs. As Dave noted, we continue to invest in sales capacity to meet the needs of our clients and drive growth.

Part of the increase was also driven by higher salaries offered to our employees at the end of last year. Higher professional fees and tech adjacent costs represented nearly 30% of the increase in controllable costs as we continue to invest for the future while improving our operational and regulatory infrastructure. The normalization of marketing and travel costs compared to low levels last year drove another 20% of the increase as we continue to meet the needs of our clients as economies opened up. Going forward, we are aware of the evolving operating environment, including inflationary risks and the need to strategically invest to ensure we remain well-positioned to provide even more value to our clients.

Nonetheless, we remain committed to prudently managing our cost structure. We continue to expect annual controllable expenses, excluding variable and share-based compensation, to grow at the higher end of the low single-digit range for the full 2022 fiscal year. We expect the year-over-year growth in all bank controllable costs to moderate in the second half of the year, even with rising salaries and higher discretionary costs off of COVID lows. Offsetting this would be our continued focus on productivity.

Also recall, we have made significant investments across the bank for a number of years, and going forward, we expect growth and amortization costs related to the capitalization of this historic check spend to begin to flow. And we expect our full-year Canadian banking efficiency ratio to fall under 40% in 2023 as we look to generate full-year segment operating leverage above the higher end of our historical 1% to 2% guidance. Moving to our business segment performance, beginning on Slide 14. personal and commercial banking reported earnings of $2.2 billion this quarter.

Canadian banking pre-provision, pre-tax earnings were up 4% year over year, in line with revenue growth. Canadian banking net interest income was up 5% year over year driven by strong volume growth. Noninterest income was up 3% from last year. Higher mutual fund distribution fees were offset by lower securities brokerage commissions from a normalization and direct investing client activity.

Increased client activity drove higher revenue from service charges. Higher consumer spending drove higher credit card balances as well as higher credit card purchase volumes and foreign exchange revenue as travel bookings increased, partially offsetting as were higher rewards cost commensurate with an increase in travel redemptions. Operating leverage was negative this quarter with expense growth up 6% on higher technology and staff-related costs and higher marketing costs. Year-to-date operating leverage was 1%, and we expect it to improve in the second half of the year.

Turning to Slide 15. wealth management reported earnings of $750 million. Pre-provision, pre-tax earnings were up 8% from last year. Revenues were up 11% year over year, including $84 million in pre-tax gains from the sale of certain noncore affiliates at City National.

Canadian wealth management, RBC Global Asset Management and U.S. wealth management, all reported higher fee-based client assets, primarily reflecting net sales. This was partially offset by lower transactional revenue, mainly driven by reduced client activity as investor sentiment turns cautious. RBC GAM generated long-term net asset sales of $9 billion this quarter, especially in balance and equity mandates.

Outflows were largely driven by clients rethinking their fixed income strategies. Net interest income at City National was up a strong 10% year over year in U.S. dollars, driven by double-digit volume growth. Turning to insurance on Slide 16.

Net income of $206 million increased 10% from a year ago, primarily due to higher favorable investment-related experience. Canadian insurance reported higher group annuity sales and business growth across most products and international insurance recognized business growth and longevity reinsurance. Turning to I&TS on Slide 17. Net income of $121 million remained relatively flat year over year as higher client deposit revenue from higher interest rates was offset by higher technology-related costs, a favorable sales tax adjustment in the prior year and higher legal costs.

Turning to Slide 18. capital markets reported earnings of nearly $800 million. Pre-provision, pre-tax earnings of $1 billion were down 20% from last year's strong results. Corporate and investment banking revenue declined 6% from last year due to weaker origination activity as elevated volatility and macro uncertainty kept issuers on the sidelines.

This more than offset higher fees from M&A advisory and loan syndication as well as record lending revenue as we continue to deepen engagement with clients. Global markets revenue was down 14% year over year with lower results in both FICC and equities trading. In FICC, widening credit spreads negatively impacted our larger credit trading business, which more than offset strong trading performance in commodities and FX due to volatility-driven client activity. Equities revenues were solid, although down from our record results last year, which was characterized by robust primary activity and flow in derivatives.

To conclude, our diversified businesses are well-positioned to grow their franchise while building on the benefits from higher interest, and we remain disciplined in balancing our investments and capital deployment to continue delivering value for our shareholders and clients. With that, I'll turn it over to Graeme.

Graeme Hepworth -- Chief Risk Officer

Great. Thank you, Nadine, and good morning, everyone. Starting on Slide 20. Our gross impaired loans of $2.1 billion were stable this quarter and are at their lowest level in seven years.

New formations of $398 million increased quarter over quarter as they normalize from the 10-year lows experienced last quarter, yet remained below pre-pandemic levels. The increase was mainly in capital markets where we had a new impaired loan in each of our other services, include consumer staples sectors. Turning to PCL on impaired loans on Slide 21. During the quarter, we saw pandemic containment measures continue to use, doing an economic recovery that has resulted in better-than-expected unemployment rates and GDP growth.

These factors drove very strong trade outcomes in Q2 with PCL on impaired loans of $174 million or nine basis points, which is stable compared to last quarter and remained well below pre-pandemic levels and our historic norms. In the Canadian banking portfolio, PCL on impaired loans was down $40 million from last quarter, primarily driven by our commercial portfolio. Even though the benefits associated with government support core programs for commercial clients have largely concluded, performance has remained strong. Provisions on impaired loans to this portfolio came in at just $1 million this quarter with mid-stage delinquencies also declining from last quarter.

This strong performance is also observed more broadly with delinquency rates being lower across all of our Canadian banking portfolios. As clients continue to benefit from a combination of elevated savings, strong labor markets and the overall economic recovery. In capital markets, after four consecutive quarters with net PCL reversals, we have seen recoveries normalize as expected, given the low level of impaired balances remaining. These impaired loans was $27 million in the quarter due primarily to provisions on the newly impaired loan in the consumer staples sector.

And finally, in wealth management, PCL on impaired loans was less than $1 million this quarter with relatively small provisions on loans in the consumer discretionary sector, which were offset by reversal of provisions taken last quarter in the same sector. Moving to Slide 22. I'll provide some context on our allowances. As noted earlier, uncertainty associated with the end of government support has materially subsided and the impact of omicron has proven to be limited.

This has resulted in the release of the majority of our remaining COVID-related reserves on performing loans. However, new headwinds and concerns are emerging. The exceptionally strong economic recovery has created inflationary pressures that are proving to be greater and more sustained than previously anticipated. These pressures have been exacerbated by continued COVID-19 containment measures in China as well as by the Russian invasion of Ukraine, which is having a substantive impact on commodity and energy prices.

To curb the pace of inflation, central banks have increased interest rates, and we expect more increases are on the horizon. To account for a deteriorating macroeconomic outlook, we have prudently adjusted our provisions on performing loans. While our base case still call for positive economic growth, we have increased both the severity and likelihood of our downside scenarios, which has partially offset the COVID-19-related reserve release. The net result was a $504 million release of provisions on performing loans this quarter, which drove a $502 million reduction in our allowance for credit losses on loans from $4.4 billion to $3.9 billion.

Our ACL ratio of 49 basis points reflects our reserve releases over the last six quarters as well as a shift in portfolio mix driven by growth in our residential mortgage portfolio through the pandemic. Going forward, we will continue to monitor the evolving macroeconomic environment to ensure we are adequately provisioned. Let me now comment on the Canadian housing market and our residential mortgage portfolio. Following two years of exceptionally strong housing markets, we started to see markets cool and prices stabilized during the quarter on the heels of interest rate increases by the Bank of Canada.

Aligned with the rapid house price appreciation, we have also seen the income underpinning our mortgage originations grow at an accelerated rate. And the proportion of our mortgage relations with clients in the top quintile income bracket grow from about a third to just under half. This highlights the relative quality of our mortgage client base and the strong and consistent underwriting standards we employ. It also highlights the ongoing housing affordability challenge we have in Canada.

There have also been some notable origination trends in the market in relation to investor and variable rate mortgages. So we have provided some more color on these segments on Slide 23. Investor mortgages account for 13% of our Canadian banking and residential mortgage portfolio. For this client segment, we apply more stringent underwriting standards.

As such, the book has outperformed our broader mortgage portfolio with a significantly lower impaired grade and higher proportion of borrowers with the FICO score greater than 800. Variable rate mortgages account for 29% of our Canadian banking residential mortgage portfolio. For these mortgages, a client's monthly payment remains unchanged as interest rates increase until the mortgage matures, providing the borrower greater time and flexibility before their payment increases. The majority of these mortgages were originated or renewed in the past year and are of high credit quality with an average FICO of 793 and average current LTV of 52%.

Finally, in addition to the stress testing built into our origination process, we continuously review the resilience of our mortgage portfolio to higher interest rates. This provides us confidence that a large majority of our clients have the capacity to absorb the impact of further interest rate increases. To conclude, we continue to be pleased with the ongoing performance of our portfolio. Employment rates, housing prices, oil prices and other macroeconomic variables have come in stronger than projected this quarter.

As I noted earlier, the impact of COVID-19 on our portfolio have largely subsided. These factors contributed to the lower-than-expected PCL on impaired loans this quarter, we believe the return to more normal levels of PCL on impaired loans has likely been delayed later in 2023. However, during the quarter, we continued to see heightened market volatility driven by the increasing macroeconomic risk noted earlier. We are actively managing this increasing economic uncertainty.

Our exposure to Russia is nearly nonexistent, consistent with our strategy and risk appetite. We continue to made a defensive position in our trading business and did not experience any days with trading losses during the quarter. We continue to stress test our portfolio for inflation and interest rate risk, and we believe we are prudently provisioned and capitalized to stand plausible yet more severe macroeconomic outcomes. We expect that any elevated credit costs associated with these emerging macroeconomic headwinds are not likely to materialize until 2024.

As always, we believe the quality of our client base and our prudent risk management approach position us well to manage through this increasingly complex backdrop. We remain steadfast in our commitment to supporting our clients and delivering advice, products and insights to help them navigate the evolving macroeconomic and operating environment. With that, operator, let's open the lines for Q&A.

Questions & Answers:

Operator

[Operator instructions] The first question is from Ebrahim Poonawala from Bank of America. Please go ahead. Your line is open.

Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst

Good morning. I guess, Dave, just wanted to get your thought process around capital allocation. I think the macro environment is extremely uncertain. I think you used words such as central banks having a profound impact, the Ukraine war adding increased complexity, but on the other hand, of all your peers, you have most excess capital.

I think Nadine mentioned that the Basel IV will probably more than offset the Brewin impact to capital. So would love to hear as you think about on a go-forward basis, ex organic growth, like how do you think about capital allocation? Do you lean in and become opportunistic in terms of maybe looking at more M&A deals? Or do you hold back and leave some dry powder because things could get worse 6 to 12 months down the road?

Dave McKay -- President and Chief Executive Officer

Thanks, Ebrahim, it's a great question. I think we've benefited significantly already by being patient, obviously, as valuations change. And I think to your point, we're trying to present a balanced view of the economy right now and that we're mid-cycle, but many late cycle signals to your point. And as central banks struggle to contain inflation, they have to hit demand really hard, and therefore, it's difficult to predict from a macro perspective the impact of rates on demand combined with the impact of inflation on demand and lack of services to meet that demand.

So I think from that perspective, markets are struggling to predict how we land the economy, do we land it with a slight recession. And our message today is, it could go either way, it's 50-50. Having said that, there are strong underlying tenants to the economies of liquidity or kind of full of employment and therefore, there are good shock absorbers to absorb that uncertainty. However, the central banks will hit demand pretty hard, and we're forecasting demand or GDP next year to be roughly 2% in Canada.

So as you think about that trajectory in line with being opportunistic, I think to your point, patience has been rewarded, and therefore, do you really want to pick up someone else's credible at this point in time? Or do you want to see how this plays out a little bit further? So from that perspective, we remain in a balanced posture, which you heard us comment on all our speeches around RWA growth, around share buybacks and around dividends. So I think from that perspective, continue to see us focus on creating, we think, premium shareholder value -- shareholder TSR through those three balanced mechanisms. I think you'll expect that as our first strategy right now. And then always -- look, because we have such significant organic capital bill because of, as you referenced, the upcoming regulatory changes, we still have significant excess capital to be opportunistic and therefore, we think patience will be rewarded.

Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst

And as a follow-up to that, Dave, I think you were very clear last quarter when you talked about wealth management interest in U.S., Europe and then obviously, you announced the Brewin acquisition. If you had to sort of pin down to one or two things that would be of interest, is it still more stuff to do in Europe? Is it something on payments, digital? Any perspective would be helpful.

Dave McKay -- President and Chief Executive Officer

Yes. At the end of the day, we're very excited about the Brewin Dolphin opportunity. We're excited the shareholders fully approved that with, I think, a high 90s approval rate on Monday. It presents us No.

3 as an integrated full-service wealth player in the U.K., an attractive structural market. And therefore, over time, as we -- our first and foremost objective there is to execute on our synergies and our significant synergies, but having -- when we get into that, then the opportunity in a highly fragmented market to make further consolidations is obviously there. And we are -- we continue to pursue a strategy of creating value for clients, complex clients with complex needs, high net worth, ultra-high net worth. So therefore, we continue to look for those opportunities in North America and obviously, in Europe to diversify our revenue stream, diversify our balance sheet.

At the same time, my comments around the diversified commercial real estate sector, we have a uniquely diversified portfolio because we have high net worth clients that have real estate needs. We have capital markets clients that real estate needs globally. We have Canadian clients, and therefore, the diversification of our balance sheet through a cycle is a great asset to us, and that's why we continue to build and see these businesses, not just from a revenue diversification, but also balance sheet and risk. So I think all your questions are important.

We find out a very attractive sector that doesn't need a lot of capital to grow once you make an acquisition, and therefore, we continue to have dollars. At the same time, we are looking at and have made small acquisitions in the technology fintech world, we continue to look at medium-sized acquisitions there to continue to accelerate client acquisition and value creation in our commercial, consumer and wealth franchise. So yes to both. Great question.

Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst

Very comprehensive. Thank you, Dave.

Operator

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

Meny Grauman -- Scotiabank -- Analyst

Hi. Good morning. Just following up on that in terms of how low you'd be prepared to take your CET1 ratio? Again, Dave, given your comments on the complex macro environment, has anything changed for you there in terms of sort of, operationally, how low you would be prepared to go? Curious your thoughts on that.

Dave McKay -- President and Chief Executive Officer

Obviously, we have regulatory minimums and buffers above that, and given our strong capital generation ability and depending on the type of acquisition, you could take it down to kind of the regulatory threshold plus a buffer, conservatism buffer. Therefore, we have significant capital to work with on any type of potential acquisition. Nadine, would you like to add anything to that?

Nadine Ahn -- Chief Financial Officer

Yes. And I think you covered it, Dave. I mean, I think we sit at over $13 billion, right, at the levels of what Dave recommended. So realistically, I think many -- in the comments -- I referenced in the speech that we are looking at some positive impacts associated with Basel 3, I think that, to your point around prudency, around what's happening in the macroeconomic environment, we still have sufficient capital to make decisions around strategic opportunities as well.

Meny Grauman -- Scotiabank -- Analyst

And just to put a finer point on it, would 11%, like a 50 basis point buffer be acceptable even in this kind of environment?

Dave McKay -- President and Chief Executive Officer

Maybe a little higher, but not a lot. But not significant, you're in the right zone. Yes.

Meny Grauman -- Scotiabank -- Analyst

Got it. And then just in terms of those new impaired loans in the Cap Markets business, is there anything interesting about those? Again, is -- are those impairments in any way related to supply chain inflation? Any of the complex issues we're talking about or more idiosyncratic, if you're able to even sort of disentangle that?

Graeme Hepworth -- Chief Risk Officer

Yes. Sure. Meny, it's Graeme. Just a couple of comments there.

I mean we don't really comment on client-specific accounts. I would just say, we've kind of gone through a year here in capital markets where we've had basically no new impaired loan formation. So it's the fact that we have one or two. I wouldn't draw anything extraordinary out of that at this point in time, and I wouldn't say, there was anything somatic across the two accounts either.

I would just marry that up with -- if you look at the scoreboard of all of our kind of early credit indicators, those all continue to be very positive signals. And so I wouldn't treat this as something against that, if you will.

Meny Grauman -- Scotiabank -- Analyst

Thanks so much.

Operator

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

Gabriel Dechaine -- National Bank Financial -- Analyst

Hi. Good morning. Thanks. I want to ask about the net release and the big performing provision release.

So I see from your note, the graphics there showing your base case assumptions for GDP unemployment and all that looks like it's become a bit more conservative than what you had at the last quarter or the start of -- end of last year. Your loans classified as stage two, the higher-risk performing category, up 14% quarter over quarter. And then I see this, whatever, $504 million performing ACL release. That's the second biggest number since the release cycle started in 2021.

Can you help me understand the moving pieces here? On one hand, it looks like deterioration, but then from a provisioning standpoint, clearly not.

Graeme Hepworth -- Chief Risk Officer

Yes. Sure, Gabriel. It's Graeme. I'll speak to that.

Certainly, there are the competing factors. As I made comments in my notes, certainly, we're seeing a lot of positive economic signals right now, right? And that's translating into very strong credit performance in terms of stage three results, and looking forward from that, we've got strong cash balances, still low utilization rates. We're still seeing upgrades out on bring downgrades, delinquencies at low kind of performing levels. So we have a very strong kind of near-term credit environment.

But if we back up what's driving that, we -- in driving the release here, I would really kind of break it into those two parts. One is, we put in significant reserves back in 2020 in light of the kind of the extraordinary environment we were in with the kind of complete economic shutdown, and we gradually released those through 2021 and into 2022. But nonetheless, we've not got to kind of the pre-pandemic levels that we were at back in 2019, if you will, to early 2020. I mean we've hold on to significant reserves there based on the uncertainty that we've still been facing.

And I would say that uncertainty was still tied to two proof point for us. One was around kind of what was going to happen following the end of government support. And with government support largely concluding in the fall, we really wanted to see the signals and the outcomes of that. And then going back to the data points I referenced earlier, we're not seeing the kind of negative consequences we were worried about as government support came to an end.

On top of that, we saw earlier this year, we were obviously kind of facing omicron and that created another uncertainty here, whether society was going to learn to live with it or we are going to be on this roller coaster of kind of shutdowns and reopenings. Again, I think we've seen that the economy has remade open and resilient through omicron. And so you take those two proof points together and that really kind of puts a spot that we just really thought we can't justify the kind of ongoing overlays we've had in place in relation to the pandemic. Having said that, we're very mindful of kind of the new and emerging headwinds that we're seeing out there.

The supply chain issues, the inflationary pressures, the constrained labor markets out there. And so we did factor those into our reserves, and as you said, we did that by way of monitoring our base case scenario. We put more severity into our downside scenarios, and we attach greater weight to those. So we still do have a positive economic growth as our baseline scenario, but we certainly weighted those downside scenarios and made them more severe reflecting kind of those headwinds.

And so those are the two offsetting factors that ultimately led to the $500 million release that we undertook on stage one and two.

Gabriel Dechaine -- National Bank Financial -- Analyst

OK. That's very clear. Just a technical question though. I've heard Dave talk about it on numerous occasions there, labor shortages and inflation, I mean obvious challenges to the economy.

Where does that all -- and yourself for that matter, where does that factor in? When I look at these forward-looking indicators, that primarily a tag on your GDP forecast. Like it's not -- it's something that -- these are the major risks to the economic outlook, I guess. And just wondering where I would see that reflected?

Dave McKay -- President and Chief Executive Officer

Yes. So the inflation, so that's one of a number of macroeconomic variables that we factor into our kind of our loan loss considerations. Really we're transiting that through to kind of the direct impacts that we would see, say, on interest rates, the rising rate environment, and that's just kind of a direct rate, the uncertainty that creates around widening credit spreads, which is another factor; higher yield, which is another factor; GDP itself is a factor. So it indirectly, if you will, translates into all those variables, which do drive kind of our models and our other analytics that we bring to bear as we decide on our loan loss allowances.

Gabriel Dechaine -- National Bank Financial -- Analyst

OK. Thanks.

Operator

The next question from Paul Holden, CIBC. Please go ahead. Your line is open.

Paul Holden -- CIBC World Markets -- Analyst

Thank you. Good morning. I want to go back to the discussion around capital allocation, but a little bit of a different angle to it. Just with respect to organic capital allocation in light of your more balanced view on economic risks, like does your risk appetite changed at all with respect to underwriting new loans, whether that's on a broad basis or specific areas you're pulling back risk?

Dave McKay -- President and Chief Executive Officer

Maybe I'll start with a high-level view of how we approach it strategically and I don't know, Graeme, if you want to jump in after that. Certainly, we take a through the cycle approach, right? We look at long-term client relationships. You can't time markets. You can't pulling out of client deals once the clients on the books are there for a while.

So therefore, our risk strategy is consistent through a cycle based on kind of our overall client and business strategy. So we don't tweak nor do we materially change how we approach that, and obviously, when you're looking at market deterioration and other things, you may miss more deals because of that, and you're certainly seeing that now in a number of kind of lending sectors where competition -- and I call end-of-cycle practice is not everywhere across the credit spectrum, but certainly, in some significant pockets of the credit spectrum, you're seeing end-of-cycle pricing behavior, end-of-cycle terms and condition behavior. And that could cause you to miss deals with a consistent lending structure, which is obviously happening today. But, Graeme, did you want to elaborate on that?

Graeme Hepworth -- Chief Risk Officer

Yes. I think Dave kind of hit that key phrase, which is that through the cycle approach. We've designed our risk appetite so that we can be that very consistent and persistent support for our client base and know that we can operate effectively through the cycle. So when times are good, we're not out there stepping hard on the gas pedal.

We are constantly reviewing and stress testing our portfolio to make sure that we are resilient for when we get into more difficult periods and continue to lend into that and support our clients on that, and I think that's critically important. And as Dave mentioned earlier, I think the other piece that quickly feeds into that is the diversification we have and not just the value that is from kind of the top line, but the importance that plays in kind of our ability to be that consistent support provider, if you will, through the cycle.

Paul Holden -- CIBC World Markets -- Analyst

All right. OK. And then second question is with respect to management of liquidity and potential shift in deposit trends. So you obviously saw good deposit growth quarter over quarter little bit of a pullback in the U.S., I guess, because of higher deposit betas.

Maybe you can address that a bit. But how are you thinking about the risk of QT given inflationary pressures on retail customers, etc., and management of deposits and liquidity?

Nadine Ahn -- Chief Financial Officer

That is an excellent question, Paul. I think it's something that everyone looks in. As was announced with the Bank of Canada, they would start allowing some of their bonds to mature at about 20% per year. When we look at it from our deposit base, I mean we would expect that with quantity of trying to withdraw some of the liquidity from the system and have a modest dampening effect on deposits.

But I think given our franchise overall, we're not really expecting that to have a material impact because we do expect that it will occur over time. So what you have seen is a slight slowdown in our deposit growth, if you will, but still growth in another event. So I think as it relates to overall liquidity, I mean we do keep that in mind when we saw the big ramp up in our deposit base have gone through the period and evaluating how that may transition into either paying down that surplus liquidity has definitely been an asset in the economy overall, but we take that into consideration when evaluating how we deploy those deposits. But we don't think that it will have a material impact, as I mentioned, is expected to be for over an extended period of time.

I would also say that, that deposit base has been a strategic complement to our advantage overall and funding advantage given the fact that not only has the low beta on it and I'll reference the U.S. in a moment, but in Canada, in particular, how that's accelerating our NII growth, but also a funding advantage overall to support our strong asset growth, both in Canada and the U.S. In the U.S., it's a bit of a different dynamic. I would think that you saw that part of our deposit slowdown in the quarter before.

We did anticipate that given the fact that there is a higher deposit beta in the U.S., but we still do expect that only to ramp up very slowly over time with the Fed rate hikes getting up to 200 basis points roughly before we start to see that deposit beta around the 39% trajectory move up.

Paul Holden -- CIBC World Markets -- Analyst

OK. Those details are helpful. Thank you. That's all I had.

Operator

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

Doug Young -- Desjardins Capital Markets -- Analyst

Hi. Good morning. I think, Nadine, in your prepared remarks, you talked about Canadian banking op leverage being negative this quarter, 1% -- or just under 1% year to date. But I think you also mentioned driving operating leverage to above 1% to 2%, which is your historical range or target area for fiscal '23.

And the mix ratio below 40% in fiscal '23, although I don't think that's new news. But I'm just more curious about what gets you to where -- from where we are today to where you think you're going to get to next year?

Nadine Ahn -- Chief Financial Officer

Maybe I'll start and then I'll turn it over to Neil. I think what you started to see particularly this quarter was around our margin expansion, up 40 basis points on a quarter-over-quarter basis, and we would expect that continued run rate as we start to see the interest rate increases. And I mentioned, a lot of the benefit of that coming from our low beta, strong deposit base and so that is really driving a lot of the growth we're going to see, not only off of the increase in interest rates, but continued strong volume growth. In addition, just around the management of our expenses, and I'll turn it over to Neil as well, but we're very -- we obviously hit a very low period in Q2 last year, a very difficult comparative as we've been increasing some of our spend, not only on the increase in sales force, but also in some of our marketing as well that we've come off very low levels from last year, but we're managing that expense base.

I mean we can talk to you a number of areas where we are not only improved our productivity from our frontline perspective, but also some of the initiatives that we've undertaken in our investments in digital and technology, which are also helping on the back office side. So that's why we're looking for the expansion in operating leverage. And I'll turn it over to Neil for comments.

Neil McLaughlin -- Group Head, Personal and Commercial Banking

Yes. I mean just a little more color on what Nadine already provided. I mean our outlook on NIM is four to five basis points per quarter for the next couple of quarters. So just to kind of dimensionalize the trajectory there.

The deposits will play a big part, and we spoke about the market share gains on the core deposit with relatively low betas. The other things I think we've talked about thematically, but getting with the revolve rates back in the credit card book, as Dave mentioned in his prepared comments, that's one of the drivers of NIM. I haven't talked as much about just the other income, and there's a couple of things as we look quarter – year over year for Q2 in that line. Mutual funds, obviously, with equity markets down or a headwind, we talked about a normalization of direct investing.

Our credit card service revenue, last year, we benefited dramatically from a lower redemption experience with travel not being available as an option. That's obviously opened up when we had higher redemption experiences. And we also had to take upfront the cost of new card acquisition bonus points. So that was about $45 million for the quarter.

Relatively flat card services revenue for Q2. We'd start to see that normalize as we move forward getting into sort of more parallel to the purchase volume growth rates, which we're over 20% for the quarter. So I think those are some of the things. And then just new client acquisition and strong volumes.

So about almost 10% volume growth on the collective business and just really pleased with how we're onboarding new clients in the platform.

Doug Young -- Desjardins Capital Markets -- Analyst

Perfect. And then just secondly, Graeme, I think you mentioned in your remarks, you -- correct me if I'm wrong, credit challenge is not likely to surface in fiscal '24. And I'm just trying to get a sense of what you're kind of meaning here. Is that when you think that you're going to get a peak out in PCLs? Or I'm just trying to get a sense of what's the thinking behind that.

Graeme Hepworth -- Chief Risk Officer

So a good question, a good follow-up there. Just to make sure I clarify. So I think there's two things. There's the kind of normalization of credit cost.

I was talking about -- we've obviously had very strong credit outcomes and as kind of the actuals that have come in over the last few quarters have proven to be stronger than we'd anticipated. Obviously, that's reflective of things like 40-year lows on unemployment. And so we expect that will kind of extend out longer than we thought, and thus, kind of the return to more normal levels of stage three losses, probably down deeper into 2023. Separately, when I kind of reference 2024 is really more getting into some of these emerging headwinds that we're seeing, right? So the impacts of rising rates and the potential for higher inflationary environment, kind of those will -- certainly will have an impact in terms of forward credit costs.

I just was saying, I think the timing of those, the impact of those are even, if you will, more deferred. When you look at some -- certainly some portfolios like maybe our unsecured credits or small business could see that kind of impacted sooner, but many of our businesses were kind of the loan profile or debt profile has been termed out. It's not so that kind of profile starts to turn over that you'd start to kind of see the impact on kind of delinquencies and impairments come through. And so whether that's our res mortgage portfolio, our commercial real estate portfolio or even many parts of our capital markets kind of wholesale portfolio, the impacts there are probably more latent due to those kind of emerging headwinds.

Doug Young -- Desjardins Capital Markets -- Analyst

That's true. Thank you very much.

Operator

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

Lemar Persaud -- Cormark Securities -- Analyst

Yeah. Thanks. Maybe flipping back to Graeme here. I think you covered off some of this in earlier responses on credit.

But following this quarter's release, you're actually now at an ACL coverage ratio below what the bank had at the end of Q4 '19 with prepandemic. But it looks like to me there's a lot more economic uncertainty today than at the end of 2019. So could you maybe help me understand why you're comfortable with the kind of 49 basis points coverage on -- I think it's Slide 22 versus, I think, the 53 basis points you had at the end of 2019. Like perhaps, at a high level, there's some up-tiering in the portfolio, changes in business mix or just maybe you're just overall more comfortable operating under IFRS 9 now, just given that you've gone through a period of stress.

So any thoughts there would be helpful.

Graeme Hepworth -- Chief Risk Officer

Yes. That's a good question. Thank you. So I think you hit on one of the key points there, which is mix, right? And so if you adjust for mix, we would still be about 8% to 10% higher than where we were back in 2019.

So I think that's a key variable. Most of the growth, I don't know, over the last two years on the balance sheet has come from the residential mortgage portfolio, which is kind of one of a lower coverage ratio for it. On the other end of the spectrum, obviously and Neil alluded to this earlier, on the cards business, which is a high coverage ratio business, obviously, we have lower balances there and even the balances we do have are much more toward the transactor and not the revolver, which is a lower risk profile. So mix is a significant contributor to that.

I would say also, if you go back to 2019, we were building our reserves then because we're feeling we were getting toward the end of cycle. So we were already, I think, playing ourselves into a more prudent posture with our reserves back in kind of late 2019. Obviously, 2020 presented a whole different level of magnitude of concern, but as we get back to now, we obviously are facing an uncertain environment, and we do factor that into our framework, as I talked about earlier. And certainly, $200-plus million increase in our loan loss reserves related to those factors, it's certainly considerable by any kind of non-COVID kind of norm.

And so we are taking the right actions to make sure we are truly reserved kind of for these new headwinds.

Lemar Persaud -- Cormark Securities -- Analyst

OK. That's helpful. And then I just want to come back to Slide 5, where you talk about the kind of utilization in Canadian commercial banking. How much of that sequential increase at 84.9 from Q1 '22 to 87.9 was driven by the utilization? Because I think there's other factors in their paydowns.

New customers of the bank, etc. So just wondering if we could just isolate for the utilization.

Neil McLaughlin -- Group Head, Personal and Commercial Banking

Yes. So maybe I'll just -- it's Neil. I'll just speak to the utilization question. So utilization, we'd say, has trough, has begun to tick up.

But it's only -- it's not even, I would say, back to the sort of halfway from trough to where we were pre-pandemic. So a couple of the drivers in there, just demand loans and operators sort of in the diversified book. But I think differentiated versus other lenders is, we're a leader in the automotive floor plan finance business and that has only just started last month to come back. So we're negative growth actually in the book for basically the entire of the pandemic.

So still room to go. We would count that as one of the opportunity areas with, we believe, having a higher risk-rated customer, we feel comfortable putting operators out to them and then just business confidence leaning into using those operating lines.

Lemar Persaud -- Cormark Securities -- Analyst

OK. That's helpful. But specifically, what I'm getting at is the 84.9 to the 87.9 sequential. It looks like utilization went up 1.3 points.

So you like how much of that $3 billion would do that 1.3 points of utilization from Q1?

Neil McLaughlin -- Group Head, Personal and Commercial Banking

Yes. We'll have to circle back to break down the number. I've given the utilization tick up, but we can break out how much of that is new exposure and then how much of that is utilization. We're going to try to get through, I think, three or four questions quickly here, and as everyone's been waiting patiently.

Next question, please.

Operator

So the next question will be from Sohrab Movahedi from BMO Capital Markets. Please go ahead. Your line is open.

Sohrab Movahedi -- BMO Capital Markets -- Analyst

Thanks. Graeme, I wanted to just come back to you. I mean I think you've done a excellent job of explaining the challenges of providing provisions under IFRS 9. I guess what I would like to understand is, is the net result that provisioning now just becomes a lot more reactionary than forward looking? I guess, number one.

And number two, what would have been then one or two key drivers that would have contributed to the bank's decision to put so much reserves aside during COVID that have now, I guess, reversed? And I'm hoping for more than just, well, the economy is reopening. And I'd just like to understand what did you anticipate was going to happen and to what order of magnitude? And how has that not transpired?

Graeme Hepworth -- Chief Risk Officer

So your comment over on reactionary versus forward looking, I mean inherently, IFRS 9 is intended to be forward-looking, and it is fundamentally based off on our forward projections of a whole series of macroeconomic variables. And that is -- pre-pandemic, that was largely what drove it. When we kind of found ourselves in the pandemic, very extraordinary situation where the broad economy had shut down, that is where we kind of had introduced, if you will, other lenses, other kind of analytics we brought to bear to kind of consider the real consequences of that. I think as you saw through 2021 as the broad economy did recover, and again, these are the forward-looking indicators, we did bring it down through that period.

Certainly, we brought it down at a rate slower than you would have seen in other jurisdictions, despite kind of the strong kind of forecast on that recovery at the time. And that's because there's really two factors that go into IFRS 9. There's kind of what is your baseline expectations, but what is the uncertainty around that? And that is the piece that we continue to hold back on with IFRS 9 and ratio of the pandemic was the kind of level of uncertainty. And the government support was a huge factor in that and really trying to get our heads wrapped around to what degree that was just pushing back negative credit outcomes versus truly mitigating them.

And so that was what I mentioned earlier, we really wanted to see kind of the proof points come off the back end of government support concluding. And so that is a big factor of kind of why we are kind of taking the further steps now to say, we don't have that same uncertainty with the pandemic that we had in place three and six and nine months ago. The other one was, again, these subsequent ways. And sitting here in Q1, we are obviously kind of facing omicron as a huge new wave coming at us, and we need to see that the tools we now have in place with vaccinations and treatments, we're going to allow the economy to remain open or we're going to be back on this roller coaster.

And so we had two, in my view, big proof points that we needed to kind of get to a spot that we were more comfortable going back on this uncertainty reserve, if you will, that we've had in place and now kind of trend back toward more focusing on those macroeconomic variables that kind of give us the insights we need going forward, and that's kind of the two big competing factors.

Sohrab Movahedi -- BMO Capital Markets -- Analyst

I mean not to belabor the point, but I could argue back that -- or what would you say if I argue back and say, yes, but Canadian consumer leverage at an all-time high. Interest rates going up. Higher funding costs for the corporate borrowers. Higher energy costs for your corporate borrowers.

Higher labor costs for your corporate borrowers compliance with ESG going to eat away. Like I mean are we not going to see corporate profit margins if your borrowers deteriorate. And maybe you're saying, yes, but not until 2024, so I'll worry about it later. But like how do you factor all of that in? Or do you disagree with that assessment?

Graeme Hepworth -- Chief Risk Officer

I don't disagree with the assessment. I think those are exactly the kind of ingredients that go into the reason we increased our reserves over $200 million. So as I said, we've got this, if you will, latency coming off of the pandemic that we've said that uncertainty just isn't there in the same way, but we have a whole new set of uncertainties coming into play. There are different magnitudes in our view, and that's why one hand, we're leasing $700 million.

On the other hand, we're taking in over $200 million on that. And so yes, you are outlining a set of risks and outcomes that we are worried, and we're attaching kind of greater weight to, if you will, about our baseline, if you will, to have kind of a recessionary environment, but certainly, that's a higher risk. I would say, all the things you're talking about, though, do factor into our fundamental credit processes. These are the kind of matters that get them pounded into our ratings processes, if you will.

And those are the core drivers that go into our estimates of forward credit losses.

Dave McKay -- President and Chief Executive Officer

Thanks, Sohrab. We have to answer a couple of more questions before we wrap up.

Operator

Next question from Mario Mendonca from TD Securities. Please go ahead. Your line is open.

Mario Mendonca -- TD Securities -- Analyst

We can go through these relatively quickly. Any impacts of IFRS 17 on the insurance results? If the answer is, it's not material, that's good enough for me.

Nadine Ahn -- Chief Financial Officer

Yes. Not material to what we have now today, no.

Mario Mendonca -- TD Securities -- Analyst

OK. Another thing. The -- in your other revenue, the other line, the $85 million, obviously down a lot from last quarter. Last time we saw this was back in Q2 '20 when there were mark-to-market losses on certain investments and some hedging activity, but it bounced back pretty sharply the very next quarter.

Can you just take me through what caused that decline this quarter? And is it appropriate to assume it bounces back next quarter?

Nadine Ahn -- Chief Financial Officer

Right. I just want to confirm, you're referring to the other --

Mario Mendonca -- TD Securities -- Analyst

Yes. Yes.

Nadine Ahn -- Chief Financial Officer

OK. So that one relates -- there's a couple of things in there primarily, though, I think you may have seen this before, also relates to what's in there from our what we call wealth accumulation plan, which is related to our stock plan. So that's the volatility associated with our share price.

Mario Mendonca -- TD Securities -- Analyst

And were there mark-to-market losses in there as well?

Nadine Ahn -- Chief Financial Officer

Yes. So that – yes. Exactly. That's exactly what you're seeing, and then we have the other offset to that on NIE and that was partially offset by the wealth management gains that I referenced in our sale in City National for some of the noncore affiliates, but primarily, it relates to the wealth accumulation plan.

That's our slide that we provided for you the breakdown of that, Mario, in the pack.

Mario Mendonca -- TD Securities -- Analyst

So very much like what happened in Q2 '20. These things tend to bounce back relatively quickly. Is that right?

Nadine Ahn -- Chief Financial Officer

It's based on how the market value of our share price, so --

Mario Mendonca -- TD Securities -- Analyst

OK. And then the final thing is on credit fees. It's not unique to Royal, but syndication activity down declined sharply in Q2. Maybe just an outlook on the syndication market in the U.S.

that continue to trend down from Q2 levels? Or has it sort of snap back?

Derek Neldner -- Group Head, Capital Markets

Mario, it's Derek. Maybe I'll take that one. I think, obviously, in the last couple of months, we've gone through quite an adjustment in credit markets, fairly pronounced through March and April. That did continue through the early part of May.

We are starting to see a little bit of stabilization just in the last few days, and so that did impact volumes of new loan syndications activity in the second quarter. I think we're seeing still a very robust M&A pipeline and so that is leading to very reasonable activity, but obviously, with the ongoing market uncertainty, both clients are a little bit more cautious, and we're obviously trying to take a prudent approach to risk on new loan syndication activity against that backdrop until we get greater clarity. So still active, but you're certainly seeing a little bit of a slowdown that was in Q2 persist relative to what we saw against a very robust 2021 and the first quarter of this year.

Mario Mendonca -- TD Securities -- Analyst

OK. I got it. Thank you.

Derek Neldner -- Group Head, Capital Markets

Thanks, Mario.

Operator

The next question is from Mike Rizvanovic from Stifel GMP. Please go ahead. Your line is open.

Mike Rizvanovic -- Stifel Financial Corp. -- Analyst

Good morning. Just a quick one for Graeme. Just wondering if you can provide any insights on the excess deposits that are currently on your book for retail. You did mention the mortgage portfolio trending toward the higher income borrower.

Are you seeing something similar in that excess deposit base? The reason I ask you, I'm trying to get a sense of how meaningful excess deposits is on PCLs. I mean if it's held by people that normally would not go through an insolvency anyway, maybe it's not as much of an impact. So any thoughts you can provide there would be helpful.

Neil McLaughlin -- Group Head, Personal and Commercial Banking

Yes. It's Neil. Mike, I'll start it off and then see if Graeme wants to add anything. I mean in terms of the consumer deposit book, I mean we're still seeing double-digit growth year over year, 15% growth in terms of the checking account.

So still very strong, and we're still seeing growth, albeit slowing growth on the savings side. So I think that kind of speaks to just where the consumer is in terms of deposits. Maybe just put a little more color on some of the comments that Graeme made. We are seeing in the mortgage book that just given home prices and our underwriting standards, we're seeing just the overall income and the net worth of a mortgage buyer increase over time.

And I think a bit of a systemic issue is that first-time homebuyer is becoming less and less a part of our portfolio. There may be non-D-SIB lenders that are picking up some of that business that isn't able to be done under the D-20 guidelines, but I think it is a bit of a sad commentary in terms of young people being able to get into some of these markets. But it does underpin that overall net worth and just the income Graeme's points about the confidence in the mortgage portfolio.

Graeme Hepworth -- Chief Risk Officer

Yes. The only thing I was going to add just more specifically to your question there, Mike, was just that when we look at deposit and savings balances stratified by risk class, we see those elevated and persistently elevated across all risk classes. So it's not just narrow, if you will, to the highest kind of rated and highest income clients, if you will. And so those kind of elevated levels relative to prepandemic maybe have started to flatten, but we certainly haven't seen them draw down and it just kind of gain points back to that there's a lot of liquidity available to the consumer out there still.

Mike Rizvanovic -- Stifel Financial Corp. -- Analyst

OK. Appreciate the color. And then just quickly with Nadine. Can we -- should we still expect the corporate segment to continue to sort of be at that roughly breakeven level on a go-forward basis? I know you had the big tax gain that I think showed up in corporate this quarter.

I'm guessing that's onetime as we sort of get back to that previous run rate.

Nadine Ahn -- Chief Financial Officer

Yes. I mean corporate support, we note in there the comment that Mario made has the volatility associated with the wealth accumulation plan in there, but that is in both in other revenue and in other expenses. We tend to distribute out of our corporate support. We don't keep elements in there.

So the one thing that you did see in there, you referenced was our income tax provision change. But I think to your point, we do keep it what you normally have from a run rate, so you can expect that going forward.

Operator

So the last question will be from Scott Chan from Canaccord Genuity. Please go ahead. Your line is open.

Scott Chan -- Canaccord Genuity -- Analyst

I'll just keep it to one. Dave, just going back to the dividend, the 7% dividend increase, is RBC trying to signal something with that above-average dividend increase, maybe near-term confidence, EPS growth, especially since I heard Nadine say that the Board would look at dividend or the other quarter going forward?

Dave McKay -- President and Chief Executive Officer

Yes. Our cycle is -- has been historically to look at dividends rate sets twice a year and that's -- we'll continue to do that process internally. It does absolutely signal our confidence for all the reasons you heard and I think you just let me into a great wrap up as to how we feel about things, but you see the strong volumes. You see the significant outperformance on the deposit.

I do keep thinking and keep saying that deposits and funding is a strategic imperative or particularly in the future. We've really focused on core deposits and deposit gathering in north and south of the border, a very important part. You're starting to see the margin lift. You're starting to see finally after a decade, those deposits are really going to start to pay.

And I think you heard that -- the NIM lift. You heard the revenue lift. You heard the operating leverage that's going to come from that continued asset growth along with that. So from that perspective, yes, you heard all the elements of that confidence and why we felt we would move $0.08, and we look at it twice a year.

So thanks for your comments and questions, great questions. Just to sum up, we had, as Nadine mentioned, a tough year-over-year comp on our particular capital markets business and some of our expenses. We saw a great quarter-over-quarter volume growth. You saw the margin return and the NIM start to return the way we predicted.

You heard from both Nadine and Neil that we expect good secular quarter-over-quarter margin improvement as we continue through to benefit from the rate increases, at least very strong margin improvement coming from City National as well and revenue growth, probably closer to 30 basis points over the next quarter and again, the following quarter. So that's having an impact. All the investment we've made in growing those deposits, but also growing our diversified lending capability and managing through a cycle. We're very confident of our ability to drive operating leverage, improved operating leverage and create shareholder value.

So thank you very much for all your questions, and we look forward to talking again next quarter. Thank you, operator.

Operator

[Operator signoff]

Duration: 76 minutes

Call participants:

Asim Imran -- Head of Investor Relations

Dave McKay -- President and Chief Executive Officer

Nadine Ahn -- Chief Financial Officer

Graeme Hepworth -- Chief Risk Officer

Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst

Meny Grauman -- Scotiabank -- Analyst

Gabriel Dechaine -- National Bank Financial -- Analyst

Paul Holden -- CIBC World Markets -- Analyst

Doug Young -- Desjardins Capital Markets -- Analyst

Neil McLaughlin -- Group Head, Personal and Commercial Banking

Lemar Persaud -- Cormark Securities -- Analyst

Sohrab Movahedi -- BMO Capital Markets -- Analyst

Mario Mendonca -- TD Securities -- Analyst

Derek Neldner -- Group Head, Capital Markets

Mike Rizvanovic -- Stifel Financial Corp. -- Analyst

Scott Chan -- Canaccord Genuity -- Analyst

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