6-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 6-K

Report of Foreign Private Issuer Pursuant to Rule 13a-16 or 15d-16 under the

Securities Exchange Act of 1934

For the month of May, 2016

Commission File Number: 001-13928

Royal Bank of Canada

(Translation of registrant’s name into English)

200 Bay Street Royal Bank Plaza Toronto, Ontario Canada M5J 2J5 Attention: Vice-President, Associate General Counsel & Secretary 1 Place Ville Marie Montreal, Quebec Canada H3C 3A9 Attention: Vice-President, Associate General Counsel & Secretary

(Address of principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F  ¨            Form 40-F  x

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):  ¨

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):  ¨

This report on Form 6-K, management’s discussion and analysis and unaudited interim condensed consolidated financial statements included in exhibit 99.2, exhibit 99.3 and exhibit 99.4 hereto are incorporated by reference as exhibits into the Registration Statements on Form F-3 (File Nos. 333-203567, 333-208507 and No. 333-202632 on the post-effective amendment #1 on Form F-3 to Form F-4) and the Registration Statements on Form S-8 (File Nos. 333-12036, 333-12050, 333-13052, 333-13112, 333-14144, 333-110953, 333-117922, 333-178350, 333-207754, 333-207750 and 333-207748).

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	ROYAL BANK OF CANADA
Date: May 26, 2016	By:	/s/ Janice R. Fukakusa
	Name:	Janice R. Fukakusa
	Title:	Chief Administrative Officer and Chief Financial Officer

EXHIBIT INDEX

Exhibit	Description of Exhibit
99.1	Second Quarter 2016 Earnings Release
99.2	Second Quarter 2016 Report to Shareholders (which includes management’s discussion and analysis and unaudited interim condensed consolidated financial statements)
99.3	Industry Guide 3 – Return on Equity and Assets Ratios
99.4	Consolidated Ratios of Earnings to Fixed Charges
	Rule 13a-14(a)/15d-14(a) Certifications
31.1	•    Certification of the Registrant’s Chief Executive Officer
31.2	•    Certification of the Registrant’s Chief Financial Officer

EX-99.1

Exhibit 99.1

SECOND QUARTER 2016

EARNINGS RELEASE

  ROYAL BANK OF CANADA REPORTS SECOND QUARTER 2016 RESULTS

All amounts are in Canadian dollars and are based on financial statements prepared in compliance with International Accounting Standard 34 Interim Financial Reporting, unless otherwise noted. Our Q2 2016 Report to Shareholders and Supplementary Financial Information are available on our website at rbc.com/investorrelations.

TORONTO, May 26, 2016—Royal Bank of Canada (RY on TSX and NYSE) today reported net income of $2,573 million for the second quarter ended April 30, 2016, up $71 million or 3% from a year ago. Net income was up $179 million or 7%, excluding a specified item⁽¹⁾ in the prior year as noted below. Results reflect strong earnings in Wealth Management, which benefited from the inclusion of City National Bank (City National), record earnings in Personal & Commercial Banking and higher earnings in Insurance. These factors were partially offset by lower results in Capital Markets and Investor & Treasury Services as compared to strong levels last year. Our results also include favourable foreign exchange translation and continuing benefits from our ongoing focus on efficiency management activities. Our total provision for credit losses (PCL) ratio of 0.36% is comprised of PCL on impaired loans ratio of 0.32% and PCL on loans not yet identified as impaired ratio of 0.04%. PCL on impaired loans ratio increased 7 basis points (bps) from the prior year primarily as a result of the sustained low oil price environment.

Compared to last quarter, net income increased $126 million or 5%, mainly reflecting higher earnings in Wealth Management, Insurance, Capital Markets and Personal & Commercial Banking, partially offset by lower earnings in Investor & Treasury Services. This quarter, PCL increased by $50 million ($37 million after-tax) for loans not yet identified as impaired. PCL on impaired loans ratio of 0.32% was relatively flat from last quarter.

Our Basel III Common Equity Tier 1 (CET1) ratio strengthened to 10.3%, up 40 bps from the prior quarter.

“We delivered a solid quarter, with earnings of over $2.5 billion, reflecting underlying strength across our businesses. I’m very pleased with our performance in the first half of the year with earnings of over $5 billion, particularly in the context of a challenging operating environment,” said Dave McKay, RBC President and CEO. “Underpinned by our culture and commitment to putting clients first, RBC continues to be well positioned going forward given the strength of our diversified business model, our prudent risk management and our ability to effectively manage costs.”

Q2 2016 compared to Q2 2015 •     Net income of $2,573 million (up 3% from $2,502 million) •     Diluted earnings per share (EPS) of $1.66 (down $0.02 from $1.68) •     Return on common equity (ROE)⁽²⁾ of 16.2% (down 310 bps from 19.3%) •     Basel III CET1 ratio of 10.3% (up 30 bps from 10.0%) YTD 2016 compared to YTD 2015 •     Net income of $5,020 million (up 1% from $4,958 million) •     Diluted EPS of $3.25 (down $0.08 from $3.33) •     ROE of 15.8% (down 350 bps from 19.3%)

Excluding specified item⁽¹⁾: Q2 2016 compared to
Q2 2015 •     Net income of $2,573 million (up 7% from $2,394 million) •     Diluted EPS of $1.66 (up $0.05 from $1.61) •     ROE of 16.2% (down 230 bps from 18.5%) Excluding specified item⁽¹⁾ : YTD 2016 compared to
YTD 2015 •     Net income of $5,020 million (up 4% from $4,850 million) •     Diluted EPS of $3.25 (down $0.01 from $3.26) •     ROE of 15.8% (down 310 bps from 18.9%)

The specified item from Q2 2015 is detailed on page 3 and relates to a gain of $108 million (before- and after-tax) from the wind-up of a U.S.-based subsidiary that resulted in the release of foreign currency translation adjustment that was previously booked in other components of equity.

Q2 2016 Business Segment Performance

Personal & Commercial Banking net income was a record $1,297 million, up $97 million or 8% compared to last year. Canadian Banking net income was $1,241 million, up $50 million or 4% compared to last year, driven by solid volume growth of 6% across most businesses, the positive impact of one additional day in February, and fee-based revenue growth. These factors were partially offset by higher PCL and lower spreads. Caribbean & U.S. Banking net income was $56 million, up $47 million from last year, largely reflecting fee-based revenue growth and lower provisions in the Caribbean portfolio. In addition, the prior year included a loss of $23 million (before- and after-tax) related to sale of RBC Royal Bank (Suriname) N.V. (RBC Suriname).

¹  Results and measures excluding the specified item are non-GAAP measures. For further information, including reconciliation, refer to the non-GAAP section on page 3 of this earnings release.

²  This measure does not have a standardized meaning under GAAP. For further information, refer to the Key performance and non-GAAP measures section of our Q2 2016 Report to Shareholders.

Compared to last quarter, Personal & Commercial Banking net income was up $7 million or 1%. Canadian Banking net income was up $10 million or 1% compared to last quarter as lower staff costs and higher spreads were partially offset by the negative impact of seasonal factors including fewer days in the current quarter, and higher PCL. Caribbean & U.S. Banking net income was down $3 million.

Wealth Management net income of $386 million was up $115 million or 42% from last year, reflecting the inclusion of our acquisition of City National, which contributed $66 million to net income; $108 million⁽¹⁾ excluding amortization of intangibles of $29 million after-tax and $13 million of after-tax integration costs. Results also reflect benefits from our efficiency management activities, lower PCL and lower restructuring costs related to our International Wealth Management business. These factors were partially offset by lower transaction volumes reflecting reduced client activity.

Compared to last quarter, net income was up $83 million or 27%, largely reflecting benefits from our efficiency management activities and lower variable compensation driven by lower revenue. Higher earnings in City National driven by loan growth, lower acquisition and integration costs, and higher transaction volumes also contributed to the increase. These factors were partially offset by lower foreign exchange translation.

Insurance net income of $177 million was up $54 million or 44% from last year, mainly due to the favourable impact of investment-related gains on our Canadian Life business, and lower net claims costs in both Canadian and International Insurance.

Compared to last quarter, net income was up $46 million or 35%, reflecting a tax recovery and lower net claims costs in Canadian Insurance.

Investor & Treasury Services net income of $139 million was down $20 million or 13% from last year, mainly driven by continued investment in technology initiatives and lower earnings from foreign exchange market execution reflecting a decrease in client activity. These factors were partially offset by higher earnings on growth in client deposits and the positive impact of foreign exchange translation.

Compared to last quarter, net income was down $4 million or 3%, primarily due to lower funding and liquidity results. This factor was partially offset by higher custodial fees and higher earnings on client deposits.

Capital Markets net income of $583 million was down $42 million or 7% from last year, primarily due to lower results in Global Markets and Corporate and Investment Banking driven by lower client activity, and higher PCL. These factors were partially offset by lower variable compensation, lower taxes and an increase due to foreign exchange translation.

Compared to last quarter, net income was up $13 million or 2%, mainly due to growth in debt and equity origination and higher loan syndication activity. These factors were partially offset by higher litigation and related legal costs, lower foreign exchange translation and lower M&A activity.

Corporate Support net loss was $9 million mainly due to the increase of $50 million ($37 million after-tax) in the allowance for credit losses for loans not yet identified as impaired, which was mostly offset by asset/liability management activities. Net income last year of $124 million largely reflected a gain of $108 million (before-and after-tax) from the wind-up of a U.S.-based subsidiary that resulted in the release of a cumulative translation adjustment (CTA) that was previously booked in other components of equity (OCE), as well as asset/liability management activities. In Q2 2015, the gain was identified as a specified item.

Capital – As at April 30, 2016, Basel III CET1 ratio was 10.3%, up 40 bps compared to last quarter, largely reflecting strong internal capital generation and lower risk-weighted assets in our market risk portfolios.

Credit Quality – Total PCL of $460 million was up $50 million or 12% from last quarter, reflecting an increase in provisions for loans not yet identified as impaired of $50 million ($37 million after-tax). Total PCL ratio was 0.36%, up 5 bps compared to last quarter. PCL on impaired loans of $410 million was flat from last quarter. PCL on impaired loans ratio of 0.32% was relatively flat, up 1 bp, from last quarter.

Total gross impaired loans (GIL) of $3,703 million was up $583 million or 19% from last quarter largely due to an increase in impaired oil & gas loans reflecting our bottom-up analysis of the portfolio and considering external factors. The increase in GIL did not warrant a proportionate increase in the allowance given the seniority of our loans and collateral received. Total GIL ratio was 0.71%, up 12 bps compared to last quarter.

¹  City National results excluding amortization of intangibles and acquisition and integration costs is a non-GAAP measure that provides readers with a better understanding of management’s perspective on our performance.

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Non-GAAP measures

Results and measures excluding

• A gain of $108 million (before- and after-tax) in Q2 2015 from the wind-up of a U.S.-based subsidiary that resulted in the release of CTA that was previously booked in OCE; and

• $29 million of after-tax amortization of intangibles and $13 million of after-tax integration costs in Q2 2016 related to our acquisition of City National

are non-GAAP measures

Given the nature and purpose of our management reporting framework, we use and report certain non-GAAP financial measures, which are not defined, do not have a standardized meaning under GAAP, and may not be comparable with similar information disclosed by other financial institutions. We believe that excluding this specified item from our results is more reflective of our ongoing operating results, will provide readers with a better understanding of our performance, and should enhance the comparability of our comparative periods. For further information, refer to the Key Performance and non-GAAP measures section of our Q2 2016 Report to Shareholders.

Net Income, excluding specified item
	For the three months ended April 30, 2015							For the six months ended April 30, 2015
(Millions of Canadian dollars, except per share and percentage amounts)		Reported		Release of CTA			Adjusted		Reported		Release of CTA			Adjusted
Net income	$	2,502	$	(108	)	$	2,394	$	4,958	$	(108	)	$	4,850
Basic earnings per share	$	1.68	$	(0.07	)	$	1.61	$	3.34	$	(0.07	)	$	3.27
Diluted earnings per share	$	1.68	$	(0.07	)	$	1.61	$	3.33	$	(0.07	)	$	3.26
ROE		19.3%					18.5%		19.3%					18.9%

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  CAUTION REGARDING FORWARD-LOOKING STATEMENTS

From time to time, we make written or oral forward-looking statements within the meaning of certain securities laws, including the “safe harbour” provisions of the United States Private Securities Litigation Reform Act of 1995 and any applicable Canadian securities legislation. We may make forward-looking statements in this earnings release, in filings with Canadian regulators or the U.S. Securities and Exchange Commission (SEC), in reports to shareholders and in other communications. Forward-looking statements include, but are not limited to, statements relating to our financial performance objectives, vision and strategic goals, and include our President and Chief Executive Officer’s statements. The forward-looking information contained in this earnings release is presented for the purpose of assisting the holders of our securities and financial analysts in understanding our financial position and results of operations as at and for the periods ended on the dates presented, our financial performance objectives, vision and strategic goals, and may not be appropriate for other purposes. Forward-looking statements are typically identified by words such as “believe”, “expect”, “foresee”, “forecast”, “anticipate”, “intend”, “estimate”, “goal”, “plan” and “project” and similar expressions of future or conditional verbs such as “will”, “may”, “should”, “could” or “would”.

By their very nature, forward-looking statements require us to make assumptions and are subject to inherent risks and uncertainties, which give rise to the possibility that our predictions, forecasts, projections, expectations or conclusions will not prove to be accurate, that our assumptions may not be correct and that our financial performance objectives, vision and strategic goals will not be achieved. We caution readers not to place undue reliance on these statements as a number of risk factors could cause our actual results to differ materially from the expectations expressed in such forward-looking statements. These factors – many of which are beyond our control and the effects of which can be difficult to predict – include: credit, market, liquidity and funding, insurance, operational, regulatory compliance, strategic, reputation, legal and regulatory environment, competitive and systematic risks and other risks discussed in the Risk management and Overview of other risks sections of our 2015 Annual Report and in the Risk management section of our Q2 2016 Report to Shareholders; weak oil and gas prices; the high levels of Canadian household debt; exposure to more volatile sectors, such as lending related to commercial real estate and leveraged financing; cybersecurity; anti-money laundering; the business and economic conditions in Canada, the U.S. and certain other countries in which we operate; the effects of changes in government fiscal, monetary and other policies; tax risk and transparency; and environmental risk.

We caution that the foregoing list of risk factors is not exhaustive and other factors could also adversely affect our results. When relying on our forward-looking statements to make decisions with respect to us, investors and others should carefully consider the foregoing factors and other uncertainties and potential events. Material economic assumptions underlying the forward looking-statements contained in this earnings release are set out in the Overview and outlook section and for each business segment under the heading Outlook and priorities in our 2015 Annual Report, as updated by the Overview and outlook section in our Q2 2016 Report to Shareholders. Except as required by law, we do not undertake to update any forward-looking statement, whether written or oral, that may be made from time to time by us or on our behalf.

Additional information about these and other factors can be found in the Risk management and Overview of other risks sections of our 2015 Annual Report to Shareholders and in the Risk management section of our Q2 2016 Report to Shareholders.

Information contained in or otherwise accessible through the websites mentioned does not form part of this earnings release. All references in this earnings release to websites are inactive textual references and are for your information only.

ACCESS TO QUARTERLY RESULTS MATERIALS

Interested investors, the media and others may review this quarterly earnings release, quarterly results slides, supplementary financial information and our Q2 2016 Report to Shareholders on our website at rbc.com/investorrelations.

Quarterly conference call and webcast presentation

Our quarterly conference call is scheduled for Thursday May 26^th, 2016 at 8:30 a.m. (EDT) and will feature a presentation about our second quarter results by RBC executives. It will be followed by a question and answer period with analysts.

Interested parties can access the call live on a listen-only basis at: www.rbc.com/investorrelations/ir_events_presentations.html or by telephone (416-340-2217, 866-696-5910, passcode 3790341#). Please call between 8:20 a.m. and 8:25 a.m. (EDT).

Management’s comments on results will be posted on RBC’s website shortly following the call. A recording will be available by 5:00 p.m. (EDT) from May 26, 2016 until August 23, 2016 at rbc.com/investorrelations/quarterly-financial-statements.html or by telephone (905-694-9451 or 800-408-3053, passcode 2318221#).

Media Relations Contacts

Claire Holland, Senior Director, Communications, claire.holland@rbc.com, 416-974-2239 or 1-888-880-2173 (toll-free outside Toronto)

Investor Relations Contacts

Amy Cairncross, VP & Head, Investor Relations, amy.cairncross@rbc.com, 416-955-7803

Stephanie Phillips, Director, Investor Relations, stephanie.phillips@rbc.com, 416-955-7809

Asim Imran, Director, Investor Relations, asim.imran@rbc.com, 416-955-7804

Brendon Buckler, Associate Director, Investor Relations, brendon.buckler@rbc.com, 416-955-7807

ABOUT RBC

Royal Bank of Canada is Canada’s largest bank, and one of the largest banks in the world, based on market capitalization. We are one of North America’s leading diversified financial services companies, and provide personal and commercial banking, wealth management, insurance, investor services and capital markets products and services on a global basis. We have over 80,000 full- and part-time employees who serve more than 16 million personal, business, public sector and institutional clients through offices in Canada, the U.S. and 36 other countries. For more information, please visit rbc.com. RBC helps communities prosper, supporting a broad range of community initiatives through donations, community investments, sponsorships and employee volunteer activities. In 2015, we contributed more than $121 million to causes around the world.

Trademarks used in this earnings release include the LION & GLOBE Symbol, ROYAL BANK OF CANADA and RBC which are trademarks of Royal Bank of Canada used by Royal Bank of Canada and/or by its subsidiaries under license. All other trademarks mentioned in this earnings release, which are not the property of Royal Bank of Canada, are owned by their respective holders.

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EX-99.2

Exhibit 99.2

Royal Bank of Canada | Second Quarter 2016 Helping clients thrive and communities prosper

Royal Bank of Canada second quarter 2016 results

All amounts are in Canadian dollars and are based on financial statements prepared in compliance with International Accounting Standard 34 Interim Financial Reporting, unless otherwise noted.

TORONTO, May 26, 2016 – Royal Bank of Canada (RY on TSX and NYSE) today reported net income of $2,573 million for the second quarter ended April 30, 2016, up $71 million or 3% from a year ago. Net income was up $179 million or 7%, excluding a specified item⁽¹⁾ in the prior year as noted below. Results reflect strong earnings in Wealth Management, which benefited from the inclusion of City National Bank (City National), record earnings in Personal & Commercial Banking and higher earnings in Insurance. These factors were partially offset by lower results in Capital Markets and Investor & Treasury Services as compared to strong levels last year. Our results also include favourable foreign exchange translation and continuing benefits from our ongoing focus on efficiency management activities. Our total provision for credit losses (PCL) ratio of 0.36% is comprised of PCL on impaired loans ratio of 0.32% and PCL on loans not yet identified as impaired ratio of 0.04%. PCL on impaired loans ratio increased 7 basis points (bps) from the prior year primarily as a result of the sustained low oil price environment.

Compared to last quarter, net income increased $126 million or 5%, mainly reflecting higher earnings in Wealth Management, Insurance, Capital Markets and Personal & Commercial Banking, partially offset by lower earnings in Investor & Treasury Services. This quarter, PCL increased by $50 million ($37 million after-tax) for loans not yet identified as impaired. PCL on impaired loans ratio of 0.32% was relatively flat from last quarter.

Our Basel III Common Equity Tier 1 (CET1) ratio strengthened to 10.3%, up 40 bps from the prior quarter.

“We delivered a solid quarter, with earnings of over $2.5 billion, reflecting underlying strength across our businesses. I’m very pleased with our performance in the first half of the year with earnings of over $5 billion, particularly in the context of a challenging operating environment,” said Dave McKay, RBC President and CEO. “Underpinned by our culture and commitment to putting clients first, RBC continues to be well positioned going forward given the strength of our diversified business model, our prudent risk management and our ability to effectively manage costs.”

Q2 2016 compared to Q2 2015

• Net income of $2,573 million (up 3% from $2,502 million)

• Diluted earnings per share (EPS) of $1.66 (down $0.02 from $1.68)

• Return on common equity (ROE)⁽²⁾ of 16.2% (down 310 bps from 19.3%)

• Basel III CET1 ratio of 10.3% (up 30 bps from 10.0%)

YTD 2016 compared to YTD 2015

• Net income of $5,020 million (up 1% from $4,958 million)

• Diluted EPS of $3.25 (down $0.08 from $3.33)

• ROE of 15.8% (down 350 bps from 19.3%)

Excluding specified item⁽¹⁾: Q2 2016 compared to Q2 2015

• Net income of $2,573 million (up 7% from $2,394 million)

• Diluted EPS of $1.66 (up $0.05 from $1.61)

• ROE of 16.2% (down 230 bps from 18.5%)

Excluding specified item⁽¹⁾: YTD 2016 compared to YTD 2015

• Net income of $5,020 million (up 4% from $4,850 million)

• Diluted EPS of $3.25 (down $0.01 from $3.26)

• ROE of 15.8% (down 310 bps from 18.9%)

The specified item from Q2 2015 relates to a gain of $108 million (before- and after-tax) from the wind-up of a U.S.-based subsidiary that resulted in the release of foreign currency translation adjustment that was previously booked in other components of equity.

(1) These measures are non-GAAP. For further information, including a reconciliation, refer to the Key performance and non-GAAP measures section of this Q2 2016 Report to Shareholders.

(2) This measure does not have a standardized meaning under GAAP. For further information, refer to the Key performance and non-GAAP measures section of this Q2 2016 Report to Shareholders.

Table of contents

1 Second quarter highlights

2 Management’s Discussion and Analysis

2 Caution regarding forward-looking statements

2 Overview and outlook

2 About Royal Bank of Canada

3 Selected financial and other highlights

4 Economic, market and regulatory review and outlook

6 Key corporate events of 2016

7 Financial performance

7 Overview

11  Business segment results

11 How we measure and report our business segments

11 Key performance and non-GAAP measures

14 Personal & Commercial Banking

16 Wealth Management

17 Insurance

18 Investor & Treasury Services

19 Capital Markets

20 Corporate Support

21 Results by geographic segment

22 Quarterly results and trend analysis

23 Financial condition

23 Condensed balance sheets

24 Off-balance sheet arrangements

26 Risk management

26 Credit risk

33 Market risk

38 Liquidity and funding risk

48 Capital management

53 Additional financial information

53 Accounting and control matters

53 Summary of accounting policies and estimates

53 Changes in accounting policies and disclosures

54 Future changes in regulatory disclosures and guidance

54 Controls and procedures

54 Related party transactions

55 Enhanced Disclosure Task Force recommendations index

56 Interim Condensed Financial Statements (unaudited)

62 Notes to the Interim Condensed Financial Statements (unaudited)

88 Shareholder information

2        Royal Bank of Canada        Second Quarter 2016

Management’s Discussion and Analysis

Management’s Discussion and Analysis (MD&A) is provided to enable a reader to assess our results of operations and financial condition for the three and six months periods ended or as at April 30, 2016, compared to the corresponding periods in the prior fiscal year and the three month period ended January 31, 2016. This MD&A should be read in conjunction with our unaudited Interim Condensed Consolidated Financial Statements for the quarter ended April 30, 2016 (Condensed Financial Statements) and related notes and our 2015 Annual Report. This MD&A is dated May 25, 2016. All amounts are in Canadian dollars, unless otherwise specified, and are based on financial statements prepared in accordance with International Accounting Standard (IAS) 34, Interim Financial Reporting, as issued by the International Accounting Standards Board (IASB), unless otherwise noted.

Additional information about us, including our 2015 Annual Information Form, is available free of charge on our website at rbc.com/investorrelations, on the Canadian Securities Administrators’ website at sedar.com and on the EDGAR section of the United States (U.S.) Securities and Exchange Commission’s (SEC) website at sec.gov.

Caution regarding forward-looking statements

From time to time, we make written or oral forward-looking statements within the meaning of certain securities laws, including the “safe harbour” provisions of the United States Private Securities Litigation Reform Act of 1995 and any applicable Canadian securities legislation. We may make forward-looking statements in this Q2 2016 Report to Shareholders, in other filings with Canadian regulators or the SEC, in other reports to shareholders and in other communications. Forward-looking statements in this document include, but are not limited to, statements relating to our financial performance objectives, vision and strategic goals, the economic and market review and outlook for Canadian, U.S., European and global economies, the regulatory environment in which we operate, the outlook and priorities for each of our business segments, and the risk environment including our liquidity and funding risk. The forward-looking information contained in this document is presented for the purpose of assisting the holders of our securities and financial analysts in understanding our financial position and results of operations as at and for the periods ended on the dates presented; as well as our financial performance objectives, vision and strategic goals, and may not be appropriate for other purposes. Forward-looking statements are typically identified by words such as “believe”, “expect”, “foresee”, “forecast”, “anticipate”, “intend”, “estimate”, “goal”, “plan” and “project” and similar expressions of future or conditional verbs such as “will”, “may”, “should”, “could” or “would”.

By their very nature, forward-looking statements require us to make assumptions and are subject to inherent risks and uncertainties, which give rise to the possibility that our predictions, forecasts, projections, expectations or conclusions will not prove to be accurate, that our assumptions may not be correct and that our financial performance objectives, vision and strategic goals will not be achieved. We caution readers not to place undue reliance on these statements as a number of risk factors could cause our actual results to differ materially from the expectations expressed in such forward-looking statements. These factors – many of which are beyond our control and the effects of which can be difficult to predict – include: credit, market, liquidity and funding, insurance, operational, regulatory compliance, strategic, reputation, legal and regulatory environment, competitive and systemic risks and other risks discussed in the Risk management and Overview of other risks sections of our 2015 Annual Report and the Risk management section of this Q2 2016 Report to Shareholders; weak oil and gas prices; the high levels of Canadian household debt; exposure to more volatile sectors, such as lending related to commercial real estate and leveraged financing; cybersecurity; anti-money laundering; the business and economic conditions in Canada, the U.S. and certain other countries in which we operate; the effects of changes in government fiscal, monetary and other policies; tax risk and transparency; and environmental risk.

We caution that the foregoing list of risk factors is not exhaustive and other factors could also adversely affect our results. When relying on our forward-looking statements to make decisions with respect to us, investors and others should carefully consider the foregoing factors and other uncertainties and potential events. Material economic assumptions underlying the forward-looking statements contained in this Q2 2016 Report to Shareholders are set out in the Overview and outlook section and for each business segment under the heading Outlook and priorities in our 2015 Annual Report, as updated by the Overview and outlook section of this Q2 2016 Report to Shareholders. Except as required by law, we do not undertake to update any forward-looking statement, whether written or oral, that may be made from time to time by us or on our behalf.

Additional information about these and other factors can be found in the Risk management and Overview of other risks sections of our 2015 Annual Report and the Risk management section of this Q2 2016 Report to Shareholders.

Information contained in or otherwise accessible through the websites mentioned does not form part of this report. All references in this report to websites are inactive textual references and are for your information only.

Overview and outlook

About Royal Bank of Canada

Royal Bank of Canada is Canada’s largest bank, and one of the largest banks in the world, based on market capitalization. We are one of North America’s leading diversified financial services companies, and provide personal and commercial banking, wealth management, insurance, investor services and capital markets products and services on a global basis. We have over 80,000 full- and part-time employees who serve more than 16 million personal, business, public sector and institutional clients through offices in Canada, the U.S. and 36 other countries. For more information, please visit rbc.com.

Royal Bank of Canada        Second Quarter 2016        3

Selected financial and other highlights

	As at or for the three months ended							As at or for the six months ended
(Millions of Canadian dollars, except per share, number of and percentage amounts)	April 30 2016			January 31 2016		April 30 2015		April 30 2016		April 30 2015
Total revenue	$	9,526		$	9,359	$	8,830	$	18,885	$	18,474
Provision for credit losses (PCL)		460			410		282		870		552
Insurance policyholder benefits, claims and acquisition expense (PBCAE)		988			829		493		1,817		2,015
Non-interest expense		4,887			4,960		4,736		9,847		9,356
Income before income taxes		3,191			3,160		3,319		6,351		6,551
Net income	$	2,573		$	2,447	$	2,502	$	5,020	$	4,958
Segments – net income
Personal & Commercial Banking	$	1,297		$	1,290	$	1,200	$	2,587	$	2,455
Wealth Management		386			303		271		689		501
Insurance		177			131		123		308		308
Investor & Treasury Services		139			143		159		282		301
Capital Markets		583			570		625		1,153		1,219
Corporate Support		(9	)		10		124		1		174
Net income	$	2,573		$	2,447	$	2,502	$	5,020	$	4,958
Selected information
Earnings per share (EPS) – basic	$	1.67		$	1.59	$	1.68	$	3.26	$	3.34
– diluted		1.66			1.58		1.68		3.25		3.33
Return on common equity (ROE) (1), (2)		16.2%			15.3%		19.3%		15.8%		19.3%
Total PCL as a % of average net loans and acceptances		0.36%			0.31%		0.25%		0.33%		0.24%
PCL on impaired loans as a % of average net loans and acceptances		0.32%			0.31%		0.25%		0.31%		0.24%
Gross impaired loans (GIL) as a % of loans and acceptances (3)		0.71%			0.59%		0.46%		0.71%		0.46%
Liquidity coverage ratio (LCR) (4)		133%			127%		113%		133%		n.a.
Capital ratios, Leverage ratio and multiples
Common Equity Tier 1 (CET1) ratio		10.3%			9.9%		10.0%		10.3%		10.0%
Tier 1 capital ratio		11.9%			11.3%		11.6%		11.9%		11.6%
Total capital ratio		14.0%			13.4%		13.5%		14.0%		13.5%
Leverage ratio		4.2%			4.0%		4.0%		4.2%		4.0%
Selected balance sheet and other information
Total assets	$	1,150,357		$	1,200,352	$	1,032,172	$	1,150,357	$	1,032,172
Securities		224,371			233,711		222,643		224,371		222,643
Loans (net of allowance for loan losses)		508,194			516,186		448,310		508,194		448,310
Derivative related assets		115,298			132,560		107,004		115,298		107,004
Deposits		741,454			769,568		651,551		741,454		651,551
Common equity		60,825			63,111		51,779		60,825		51,779
Average common equity (1)		62,400			61,450		51,500		61,950		50,350
Total capital risk-weighted assets		437,148			462,449		398,992		437,148		398,992
Assets under management (AUM) (5)		544,900			561,500		486,300		544,900		486,300
Assets under administration (AUA) (5), (6)		4,597,900			4,823,200		4,835,100		4,597,900		4,835,100
Common share information
Shares outstanding (000s) – average basic		1,487,346			1,486,560		1,442,078		1,486,871		1,442,339
– average diluted		1,495,609			1,495,035		1,448,651		1,495,245		1,449,037
– end of period		1,488,219			1,486,631		1,443,102		1,488,219		1,443,102
Dividends declared per common share	$	0.81		$	0.79	$	0.77	$	1.60	$	1.52
Dividend yield (7)		4.5%			4.4%		4.0%		4.5%		3.9%
Common share price (RY on TSX) (8)	$	77.92		$	72.55	$	80.11	$	77.92	$	80.11
Market capitalization (TSX) (8)		115,962			107,855		115,607		115,962		115,607
Business information (number of)
Employees (full-time equivalent) (FTE)		76,300			76,380		73,136		76,300		73,136
Bank branches		1,427			1,430		1,361		1,427		1,361
Automated teller machines (ATMs)		4,898			4,900		4,913		4,898		4,913
Period average US$ equivalent of C$1.00 (9)	$	0.768		$	0.728	$	0.806	$	0.748	$	0.822
Period-end US$ equivalent of C$1.00	$	0.797		$	0.714	$	0.829	$	0.797	$	0.829

(1) Average amounts are calculated using methods intended to approximate the average of the daily balances for the period. This includes ROE and Average common equity. For further details, refer to the Key performance and non-GAAP measures section.

(2) These measures may not have a standardized meaning under generally accepted accounting principles (GAAP) and may not be comparable to similar measures disclosed by other financial institutions. For further details, refer to the Key performance and non-GAAP measures section.

(3) GIL includes $531 million (January 31, 2016 – $636 million) related to the acquired credit impaired (ACI) loans portfolio from our acquisition of City National, with over 80% covered by loss-sharing agreements with the Federal Deposit Insurance Corporation (FDIC). ACI loans added 10 bps to our second quarter 2016 GIL ratio (January 31, 2016 – 9 bps). For further details, refer to Note 2 and 5 of our Condensed Financial Statements.

(4) LCR is a new regulatory measure under the Basel III Framework, and is calculated using the Liquidity Adequacy Requirements (LAR) guideline. Effective in the second quarter of 2015, LCR was adopted prospectively, and is not applicable for prior periods. For further details, refer to the Liquidity and funding risk section. LCR for Q1 2016 has been revised from the amount previously presented.

(5) Represents period-end spot balances.

(6) AUA includes $19.8 billion and $9.9 billion (January 31, 2016 – $20.4 billion and $9.7 billion; April 30, 2015 – $22.5 billion and $7.9 billion) of securitized residential mortgages and credit card loans, respectively.

(7) Defined as dividends per common share divided by the average of the high and low share price in the relevant period.

(8) Based on TSX closing market price at period-end.

(9) Average amounts are calculated using month-end spot rates for the period.

n.a. not applicable

4        Royal Bank of Canada        Second Quarter 2016

Economic, market and regulatory review and outlook – data as at May 25, 2016

The predictions and forecasts in this section are based on information and assumptions from sources we consider reliable. If this information or these assumptions are not accurate, actual economic outcomes may differ materially from the outlook presented in this section.

Canada

The Canadian economy is expected to grow in the first calendar quarter by an estimated annualized rate of 3.1% led by strong export performance and consumer spending. This was partially attributable to accommodative monetary policy and a weaker Canadian dollar, which has helped the economy compensate for declines in the energy sector. Motor vehicle sales reached record levels, though housing starts began to decline in April after increasing in the first calendar quarter of 2016. In addition, the labour market held steady, while wages continued to rise. The national unemployment rate decreased to 7.1%, compared to 7.2% in January, while Alberta’s unemployment rate decreased to 7.2% in April, compared to 7.4% in January, attributable to a shrinking labour force. In the March 22 budget, the federal government announced new spending measures, including infrastructure investment, which is expected to support economic growth. The recent improvement in oil prices as well as earlier indications of economic strength have provided a lift to the Canadian dollar. On May 25, the Bank of Canada (BoC) maintained its overnight rate at 0.5%, stating that the economy’s structural adjustment to the oil price shock continues. BoC also highlighted the impact of the Alberta wildfires, which will result in a weaker than expected second calendar quarter due to the halt in oil production. The economy is expected to rebound in the third calendar quarter as oil production resumes and reconstruction in Alberta begins.

In May, wildfires resulted in temporary production shutdowns at some oil sands facilities near Fort McMurray, Alberta. While the situation is still evolving, these shutdowns are currently expected to lower annualized GDP growth by one percentage point in the second calendar quarter of 2016. Growth is forecast to rebound in the third calendar quarter when production is expected to return to normal levels. Aside from this temporary setback, we continue to expect strengthening non-energy exports, solid consumer spending, and fiscal stimulus to offset declines in the energy sector. Net exports are expected to continue to increase as U.S. domestic spending picks up and the weak Canadian dollar boosts exporters’ competitiveness. Our 2016 growth forecast of 1.8% is unchanged from February 23, 2016. For the remainder of 2016, we expect fiscal stimulus measures to boost the economy as the energy industry continues to adjust to the lower price of oil. With these factors in consideration, we expect the BoC to maintain its overnight rate at 0.5% through calendar 2016 and begin raising interest rates in the first half of 2017.

U.S.

Growth in the U.S. economy slowed to an estimated annualized rate of 0.5% in the first calendar quarter of 2016 compared to the prior quarter’s growth of 1.4%, due to declining exports, slower growth in consumer spending, and weaker business investment. The strong U.S. dollar and subdued global growth continued to weaken export volumes. However, residential investments continued to improve as household income rose, while a rebound in government spending also helped offset the decline in business investment. The labour market remained stable and the unemployment rate of 5.0% in April was close to full employment. Despite further improvement in the labour market, the U.S. Federal Reserve Bank (Fed) maintained a cautious policy stance in April and held its funds target range at 0.25% to 0.5%.

We expect the U.S. economy to grow at a rate of 2.0% during calendar 2016, which is below our previous estimate of 2.3% as at February 23, 2016. We expect consumer spending to grow as indicators support income growth through higher wages and job creation throughout 2016. We also expect to see a modest rebound in non-energy business investment amid accommodative financial conditions and improving business sentiment.

Europe

The Euro area economy continued its recovery and grew at a rate of 0.5% in the first quarter of 2016, boosted by growing business investment and improving domestic consumption. The March unemployment rate of 10.2% reached its lowest level since August 2011, compared to 10.4% in December 2015. In March, the European Central Bank (ECB) also expanded its Asset Purchase Program, increasing monthly purchases by €20 billion to €80 billion and including non-financial corporate bonds in the program. Previously, only euro-denominated public sector securities, asset-based securities and covered bonds were eligible.

Overall, we expect the Euro area economy to grow at an estimated rate of 1.7% for calendar 2016, unchanged from February 23, 2016, as the economy benefits from the ECB stimulus and further weakening in the euro. However, policymakers remain concerned about low inflation and subdued inflation expectations. In March, the ECB announced that it would lower its deposit rate to (0.4)% from (0.3)%, which is consistent with our estimate in February.

Financial markets

Though markets saw significant fluctuations in the first part of the year, market volatility began to stabilize in the latter half of the quarter. Investor sentiment improved as companies posted higher-than-expected earnings due to the strengthening of oil prices and supportive economic data. In addition, the central banks around the world reaffirmed their commitment to historically low interest rates as a measure to stimulate sluggish growth and low inflation in developed economies. Credit spreads on corporate bonds widened earlier this year due to concerns over slowing global growth and continuing concerns from the energy sector, but corporate spreads have tightened since mid-February. Oil prices continued to recover with crude oil reaching a six-month high of $45 per barrel but prices continue to be lower compared to the same period in 2015. The recent increase in oil prices and strengthening government yields also boosted the Canadian dollar. Non-precious metals prices improved as signs of Chinese steel demand began to stabilize.

The macroeconomic headwinds discussed above, such as depressed oil prices, uncertainty in the Alberta oil sands and slower growth in the global economy may alter our outlook and results for the remainder of fiscal 2016 and future periods as these continuing pressures may lead to higher PCL in our wholesale and retail loan portfolios and impact the general business and economic conditions in the regions we operate.

Royal Bank of Canada        Second Quarter 2016        5

Regulatory environment

We continue to monitor and prepare for regulatory developments in a manner that seeks to ensure compliance with new requirements while mitigating any adverse business or financial impacts. Such impacts could result from new or amended regulations and the expectations of those who enforce them. Significant developments include continuing changes to global and domestic standards for capital and liquidity, over-the-counter (OTC) derivatives reform, initiatives to enhance requirements for institutions deemed systemically important to the financial sector, and changes to resolution regimes addressing bail-in and total loss-absorbing capacity. We also continue to implement rules adopted under the U.S. Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act), including those related to the Fed’s enhanced prudential standards for bank holding companies and foreign banking organizations (FBO Rule).

Enhanced Prudential Standards for Foreign Banking Organizations

We continue to make progress in bringing our non-branch and non-agency U.S. assets under our U.S. Intermediate Holding Company (IHC) in accordance with the FBO Rule, and in enhancing our existing risk management oversight and governance framework and practices in order to provide the governance and infrastructure needed to implement and support applicable requirements over the next several years. On March 4, 2016, the Fed re-proposed a separate rule to limit credit exposures of large banking organizations (including FBOs and IHCs) to any single counterparty or group or related counterparties, whether because of economic interdependence or control relationships. As proposed, the net credit exposure of our combined U.S. operations (IHC and U.S. branches and agencies) to any unaffiliated counterparty or group of related companies will be limited to 25% of our consolidated Tier I capital ($13 billion using April 30, 2016 as a proxy), 15% of our consolidated Tier I capital for net credit exposures to G-SIBs ($8 billion using April 30, 2016 as a proxy), and 25% of our IHC’s Tier I regulatory capital for net credit exposures of our IHC to any unaffiliated counterparty or group of related companies ($3 billion using March 31, 2016 as a proxy). We expect we will need to modify our existing systems and put in place appropriate monitoring and reporting mechanisms in order to comply with these prescribed limits by the implementation deadline established after final rule issuance. As proposed, compliance will be required to be met daily, with monthly reporting to the Fed evidencing compliance. These impacts are not expected to materially affect our overall results.

Canadian Bail-in Regime

On April 20, 2016, the Government of Canada (GoC) introduced legislation to create a bank recapitalization or “bail-in” regime for the six domestic systemically important banks (D-SIBs). Under the regime, if the Superintendent of Financial Institutions is of the opinion that a D-SIB has ceased or is about to cease to be viable and its viability cannot be restored through the exercise of the Superintendent’s powers, the GoC can, among other things, appoint the Canada Deposit Insurance Corporation (CDIC) as receiver of the bank and direct CDIC to convert certain shares and liabilities of the bank into common shares of the bank or any of its affiliates. The shares and liabilities that will be subject to the conversion, as well as the terms and conditions of conversion, are to be prescribed by regulations to be made at a future date. The legislation also provides that the Superintendent will require such designated D-SIBs to maintain a minimum capacity to absorb losses. Higher Loss Absorbency requirements would apply to ensure affected banks maintain sufficient capital to absorb the proposed conversions. The legislation may be amended prior to being approved by Parliament. While the specific parameters around conversion and loss-absorbency are not yet known, RBC expects these changes may increase our cost of long-term unsecured funding. However, these changes are not expected to materially impact our overall results.

Uniform Fiduciary Standards

On April 6, 2016, the U.S. Department of Labor issued a final rule establishing a uniform fiduciary standard for providers of investment advice and related services in connection with U.S. retirement plans and holders of individual retirement accounts. As expected, the rule, which will be effective April 10, 2017, will impose new regulatory requirements and costs on our U.S. Wealth Management brokers and investment advisors who provide individualized investment advice according to a “suitability” standard rather than a fiduciary standard. On April 28, 2016, the Canadian Securities Administrators proposed their own version of a regulatory “best interest standard” intended to replace the current requirement for registered advisors, dealers and representatives to deal “fairly, honestly, and in good faith” with their clients. Similar standards have been proposed or finalized in jurisdictions, such as the UK and Australia. While impacts of these delays are not expected to materially affect our overall results, they could require some modifications to our current Wealth Management business practices and the practices of similarly affected organizations.

Regulation of Asset Management Activities

The Financial Stability Board (FSB) and the International Organization of Securities Commissions (IOSCO) have committed to developing policy recommendations by the end of 2016 addressing structural vulnerabilities from asset management activities, to be delivered to G20 leaders in time for their September 2016 summit. Other jurisdictions, including the U.S. and U.K., are conducting similar analysis focused on the potential risks asset management activities may pose to financial stability. We expect these efforts could result in new regulations impacting our Canadian and International mutual funds in areas such as liquidity management, enhanced reporting to regulators, and additional disclosures to investors.

Global OTC Derivatives Reforms

Joint guidelines issued by the BCBS (Basel Committee on Banking Supervision) and the IOSCO in September 2013 include a requirement for mandatory exchange of initial and variation margin (i.e. margin held as collateral to protect against potential counterparty default) on bilateral OTC derivatives. On February 29, 2016, the Office of the Superintendent of Financial Institutions

6        Royal Bank of Canada        Second Quarter 2016

(OSFI) issued domestic rules implementing the joint BCBS/IOSCO guidelines, with compliance required by September 1, 2016. These new requirements represent a fundamental change in how non-centrally cleared OTC derivatives are traded and require all in-scope counterparties to be documented before the deadline. The amount of initial margin required may increase if banks are not able to rely on internal models-based approaches and instead must use standardized (less risk-sensitive) approaches.

On April 13, 2016, the SEC adopted final rules requiring securities-based swap dealers (SBSDs) to establish a supervisory regime for their securities-based swaps activities, including designating a Chief Compliance Officer. The final rule also requires SBSDs to disclose risks, conflicts, and other material information about a swap to a counterparty, and ensure any recommendations made to a counterparty are suitable. The U.S. Commodity Futures Trading Commission (CFTC) is expected to issue a final rule in 2016 establishing margin requirements for uncleared cross-border swaps (to the extent not already covered by its previously adopted uncleared swaps rules), a rule on capital requirements for swap dealers by mid-2016 and final rules on algorithmic trading by the end of 2016. The CFTC is also considering the adoption of final rules that would impose limits on the size of positions that may be entered into in certain derivatives contracts.

Regulatory capital and related requirements

On April 29, 2016, the Office of the Superintendent of Financial Institutions (OSFI) released proposed updates to the regulatory capital requirements for loans secured by residential real estate. These updates will ensure that capital requirements remain prudent in periods where housing prices are high relative to household income and introduces a risk-sensitive floor on internal ratings-based capital requirements to take into account periods where the value of properties pledged as collateral becomes less certain.

On April 6, 2016, the BCBS released some proposed revisions to the design and calibration of the leverage ratio. This included the adoption of a modified version of the standardized approach for measuring counterparty credit risk exposures (SA-CCR) to determine derivative exposures, alignment of the credit conversion factors for off-balance sheet items with those proposed for the revised standardized approach to credit risk under the Basel III risk-based framework, and additional requirements intended to align the unsettled trade exposures for entities under settlement-date accounting and trade-date accounting.

On March 24, 2016, BCBS proposed new measures to reduce the complexity of the current Basel III internal-ratings-based regulatory capital framework and improve comparability across institutions and jurisdictions, as well as address excess variability in certain capital requirements, particularly in areas with unreliable estimates.

On March 4, 2016, the BCBS proposed a revised Basel III operational risk capital framework, the Standardized Measurement Approach (SMA), to provide simplicity, comparability, and risk sensitivity to the current framework. The SMA is intended to simplify the framework by replacing three existing standardized approaches, as well as the Advanced Measurement Approach. The BCBS expects this proposal to have a relatively neutral impact on capital for most banks.

These papers were published on a consultative basis in order to obtain feedback and comments from various stakeholders. As such, the revisions proposed within the above documents are not yet final. We continue to monitor regulatory developments published by the BCBS and OSFI as they arise.

For a discussion on risk factors resulting from these and other regulatory developments which may affect our business and financial results, refer to the Risk management – Top and emerging risks and Legal and regulatory environmental risk sections of our 2015 Annual Report. For further details on our framework and activities to manage risks, refer to the Risk management and Capital management sections of our 2015 Annual Report and the Risk management and Capital management sections of this Q2 2016 Report to Shareholders.

Key corporate events of 2016

RBC General Insurance Company

On January 21, 2016, we announced that we have signed a 15-year strategic agreement with Aviva Canada Inc. In addition, Aviva Canada will purchase RBC General Insurance Company for $582 million, subject to closing adjustments. The transaction is expected to close in our third quarter of 2016 subject to customary closing conditions, including receipt of required regulatory approvals. A net after-tax gain on the transaction is currently estimated at $200 million. For further details, refer to Note 6 of our Condensed Financial Statements.

Certain Caribbean Wealth Management businesses

On November 4, 2015, we entered into a purchase and sale agreement to sell our trust, custody and fund administration businesses in the Caribbean to SMP Partners Group, subject to customary closing conditions and regulatory approvals. The transaction is expected to close in the latter half of calendar 2016. For further details, refer to Note 6 of our Condensed Financial Statements.

City National Corporation

On November 2, 2015, we completed the acquisition of City National Corporation (City National), the holding company for City National Bank. Total consideration of $7.1 billion (US$5.5 billion) was paid with $3.4 billion (US$2.6 billion) in cash, 41.6 million RBC common shares, and $360 million (US$275 million) of RBC first preferred shares. City National has been combined with the U.S. Wealth Management business within our Wealth Management segment. For further details, refer to Note 6 of our Condensed Financial Statements.

Royal Bank of Canada        Second Quarter 2016        7

Financial performance

Overview

Q2 2016 vs. Q2 2015

Net income of $2,573 million was up $71 million or 3%. Diluted earnings per share (EPS) of $1.66 was down $0.02 and return on common equity (ROE) of 16.2% was down 310 bps from 19.3% last year. Both our diluted EPS and ROE were impacted by our acquisition of City National due to the issuance of RBC common shares as noted above. Our Common Equity Tier 1 (CET1) ratio was 10.3%.

Excluding the prior year gain of $108 million (before- and after-tax) which was identified as a specified item and is described below, net income was up $179 million or 7% from last year, and diluted EPS of $1.66 was up $0.05. Our results reflected higher earnings in Wealth Management, Personal & Commercial Banking and Insurance. These factors were partially offset by lower earnings in Capital Markets and Investor & Treasury Services. Our results also included an increase due to foreign exchange translation.

Wealth Management earnings increased, primarily reflecting the inclusion of our acquisition of City National, which contributed $66 million to net income (see Wealth Management segment discussion on pages 16-17 for further details). Benefits from our efficiency management activities, lower PCL and lower restructuring costs related to our International Wealth Management business also contributed to the increase. These factors were partially offset by lower transaction volumes reflecting decreased client activity.

Personal & Commercial Banking earnings increased, mainly reflecting solid volume growth, the positive impact of one additional day in the current quarter and fee-based revenue growth in Canada, as well as higher earnings in the Caribbean. These factors were partially offset by higher PCL in Canada. In addition, the prior year included a loss of $23 million (before- and after-tax) related to the sale of RBC Royal Bank (Suriname) N.V. (RBC Suriname).

Insurance results increased mainly reflecting the favourable impact of investment-related gains on the Canadian Life business and lower net claims costs in both Canadian and International Insurance.

Capital Markets earnings decreased mainly due to lower results in our Global Markets and Corporate and Investment Banking businesses driven by lower client activity, and higher PCL. These factors were partly offset by lower variable compensation, lower taxes and an increase due to foreign exchange translation.

Investor & Treasury Services earnings decreased, largely due to increased investment in technology and lower earnings from foreign exchange market execution reflecting a decrease in client activity. These factors were partially offset by higher earnings on growth in client deposits and higher client deposit spreads, and an increase due to foreign exchange translation.

For further details on our business segment results and CET1 ratio, refer to the Business segment results and Capital management sections, respectively.

Q2 2016 vs. Q1 2016

Net income increased $126 million or 5% from the prior quarter. Diluted EPS was up $0.08 and ROE was up 90 bps from 15.3% last quarter.

Our results increased mainly due to higher earnings in Wealth Management driven by benefits from our efficiency management activities, lower variable compensation and higher earnings in City National due to loan growth and lower acquisition and integration costs. A tax recovery from a prior year tax loss and lower net claims costs in Insurance, growth in debt and equity origination and higher loan syndication activity in Capital Markets, and lower staff costs and higher spreads in Canadian Banking also contributed to the increase. These factors were partially offset by a lower impact from foreign exchange translation, a $50 million ($37 million after-tax) increase in the provision for credit losses for loans not yet identified as impaired, the impact of seasonal factors including fewer days in the quarter, and lower funding and liquidity revenue resulting from lower market volatility in Investor & Treasury Services.

Q2 2016 vs. Q2 2015 (Six months ended)

Net income of $5,020 million increased $62 million or 1% from a year ago. Six month diluted EPS of $3.25 was down $0.08 and ROE of 15.8% was down 350 bps. Both our diluted EPS and ROE were impacted by our acquisition of City National due to the issuance of RBC common shares as noted above.

Excluding the prior year specified item described below, net income was up $170 million or 4% from the prior year, and diluted EPS was down $0.01. Our results increased mainly reflecting higher earnings in Wealth Management and Personal & Commercial Banking, partially offset by lower earnings in Capital Markets and Investor & Treasury Services. Our results also included an increase due to foreign exchange translation.

Wealth Management earnings increased primarily reflecting the inclusion of our acquisition of City National, which contributed $119 million to net income. Lower restructuring costs, benefits from our efficiency management activities, and lower PCL also contributed to the increase. These factors were partially offset by lower transaction volumes and lower earnings on average fee-based client assets.

Personal & Commercial Banking earnings increased mainly reflecting solid volume growth across most businesses and fee-based revenue growth in Canada, as well as higher earnings in the Caribbean. These factors were partially offset by higher PCL in Canada, lower spreads and higher costs in support of business growth. In addition, the prior year included a loss related to the sale of RBC Suriname as noted above.

Insurance earnings were flat, as the favourable impact of investment-related gains on the Canadian Life business and new business volumes were offset by lower earnings from new U.K. annuity contracts and unfavourable life policyholder behaviour.

Capital Markets earnings decreased, mainly due to lower results in our Global Markets and Corporate and Investment Banking businesses reflecting lower client activity, and higher PCL. These factors were partly offset by lower variable compensation, a lower effective tax rate, an increase due to foreign exchange translation and lower litigation provisions and related legal costs.

Investor & Treasury Services earnings decreased, largely due to increased investment in technology and lower revenue from foreign exchange market execution resulting from lower client activity. These factors were partially offset by increased earnings on growth in client deposits and higher client deposit spreads, and an increase due to foreign exchange translation.

8        Royal Bank of Canada        Second Quarter 2016

Specified item – for the three and six months ended April 30, 2015

For the three and six months ended April 30, 2015, our results were impacted by a gain of $108 million (before- and after-tax) from the wind-up of a U.S.-based subsidiary that resulted in the release of foreign currency translation adjustment (CTA) that was previously booked in other components of equity (OCE), which was recorded in Corporate Support in the second quarter of 2015. Results excluding this specified item are non-GAAP measures. For further details, refer to the Key performance and non-GAAP measures section.

Impact of foreign currency translation

Our foreign currency-denominated results are impacted by exchange rate fluctuations. Revenue, PCL, insurance policyholder benefits, claims and acquisition expense (PBCAE), non-interest expense and net income denominated in foreign currency are translated at the average rate of exchange for the period.

The following table reflects the estimated impact of foreign exchange translation on key income statement items:

	For the three months ended					For the six months ended
(Millions of Canadian dollars, except per share amounts)	Q2 2016 vs. Q2 2015		Q2 2016 vs. Q1 2016			Q2 2016 vs. Q2 2015
Increase (decrease):
Total revenue	$	108	$	(202	)	$	422
PCL		6		(8	)		18
PBCAE		–		(23	)		27
Non-interest expense		59		(120	)		243
Income taxes		11		(13	)		42
Net income		32		(38	)		92
Impact on EPS
Basic	$	0.02		$  (0.03	)	$	0.06
Diluted		0.02		(0.03	)		0.06

The relevant average exchange rates that impact our business are shown in the following table:

	For the three months ended						For the six months ended
(Average foreign currency equivalent of C$1.00) (1)	April 30 2016		January 31 2016		April 30 2015		April 30 2016		April 30 2015
U.S. dollar		0.768		0.728		0.806		0.748		0.822
British pound		0.537		0.496		0.530		0.516		0.537
Euro		0.684		0.677		0.729		0.680		0.716

(1) Average amounts are calculated using month-end spot rates for the period.

Total revenue

	For the three months ended						For the six months ended
(Millions of Canadian dollars, except percentage amounts)	April 30 2016		January 31 2016		April 30 2015		April 30 2016		April 30 2015
Interest income	$	6,001	$	6,056	$	5,557	$	12,057	$	11,259
Interest expense		1,976		1,860		2,000		3,836		4,071
Net interest income	$	4,025	$	4,196	$	3,557	$	8,221	$	7,188
Net interest margin (on average earning assets)(1)		1.70%		1.71%		1.71%		1.71%		1.72%
Investments (2)	$	2,086	$	2,140	$	2,020	$	4,226	$	4,007
Insurance (3)		1,351		1,159		806		2,510		2,698
Trading		181		90		359		271		699
Banking (4)		1,344		1,092		1,195		2,436		2,190
Underwriting and other advisory		469		374		559		843		1,004
Other (5)		70		308		334		378		688
Non-interest income	$	5,501	$	5,163	$	5,273	$	10,664	$	11,286
Total revenue	$	9,526	$	9,359	$	8,830	$	18,885	$	18,474
Additional information
Total trading revenue
Net interest income	$	597	$	638	$	595	$	1,235	$	1,135
Non-interest income		181		90		359		271		699
Total trading revenue	$	778	$	728	$	954	$	1,506	$	1,834

(1) Net interest margin (on average earning assets) is calculated as net interest income divided by average earning assets.

(2) Includes securities brokerage commissions, investment management and custodial fees, and mutual fund revenue.

(3) Includes premiums and investment and fee income. Investment income includes the change in fair value of investments backing policyholder liabilities and is largely offset in PBCAE.

(4) Includes service charges, foreign exchange revenue other than trading, card service revenue and credit fees.

(5) Includes other non-interest income, net gain (loss) on available-for-sale (AFS) securities and share of profit in joint ventures and associates.

Royal Bank of Canada        Second Quarter 2016        9

Q2 2016 vs. Q2 2015

Total revenue increased $696 million or 8% from last year. Excluding the prior year gain related to the release of CTA as noted above, total revenue increased $804 million or 9% which includes the positive change in fair value of investments backing our policyholder liabilities of $525 million which was largely offset in PBCAE, and an increase due to foreign exchange translation this quarter, which increased our total revenue by $108 million.

Net interest income increased $468 million or 13%, mainly due to the inclusion of our acquisition of City National, solid volume growth across most of our businesses in Canadian Banking, and an increase due to foreign exchange translation.

Net interest margin was down 1 bp compared to last year, largely due to the continued low interest rate environment. The prior year included an unfavourable cumulative accounting adjustment.

Investments revenue increased $66 million or 3%, mainly due to the inclusion of our acquisition of City National and growth in average fee-based client assets, and an increase due to foreign exchange translation. These were partially offset by lower transaction volumes in Wealth Management, reflecting reduced client activity.

Insurance revenue increased $545 million or 68%, mainly reflecting the positive change in fair value of investments backing our policyholder liabilities of $525 million which was largely offset in PBCAE.

Trading revenue in Non-interest income decreased $178 million or 50%. Total trading revenue of $778 million, which comprises trading-related revenue recorded in Net interest income and Non-interest income, was down $176 million or 18%, due to lower equity trading revenue as compared to the strong levels last year and lower fixed income trading revenue. These factors were partially offset by an increase due to foreign exchange translation.

Banking revenue increased $149 million or 12%, mainly due to the change in fair value of certain available-for-sale (AFS) securities used for funding activities which is offset in Other revenue, as well as increased service fee revenue.

Underwriting and other advisory revenue decreased $90 million or 16%, largely reflecting lower equity and debt origination mainly in the U.S., and lower loan syndication revenue due to lower client activity. These factors were partially offset by higher client M&A activity in Canada, the U.S. and Europe, as well as an increase due to foreign exchange translation.

Other revenue decreased $264 million or 79% from last year mainly due to the change in fair value of certain derivatives used to economically hedge our funding activities noted above. In addition, the prior year included a gain related to the release of CTA as noted above.

Q2 2016 vs. Q1 2016

Total revenue increased $167 million or 2% from the prior quarter, primarily due to the positive change in fair value of investments backing our policyholder liabilities, which was largely offset in PBCAE. Higher debt and equity origination, and increased loan syndication also contributed to the increase. These factors were partially offset by a lower impact from foreign exchange translation and the negative impact of seasonal factors, including fewer days in the current quarter.

Q2 2016 vs. Q2 2015 (Six months ended)

Total revenue increased $411 million or 2%. Excluding the specified item last year noted above, total revenue increased $519 million or 3%, primarily reflecting an increase due to foreign exchange translation of $422 million. The inclusion of our acquisition of City National, as well as solid volume and fee-based revenue growth across most businesses in Canadian Banking also contributed to the increase. These factors were partially offset by lower equity and fixed income trading revenue, and lower debt and equity origination activity largely in the U.S., the negative change in fair value of investments backing our policyholder liabilities, largely offset in PBCAE, lower transaction volumes in Wealth Management reflecting reduced client activity and lower earnings on average fee-based client assets due to unfavourable market conditions.

Revenue excluding the prior year specified item noted above is a non-GAAP measure. For further details, including a reconciliation, refer to the Key performance and non-GAAP measures section.

Provision for credit losses (PCL)

Q2 2016 vs. Q2 2015

Total PCL increased $178 million or 63%, and the total PCL ratio of 36 bps deteriorated 11 bps from a year ago, mainly due to higher provisions in Capital Markets largely due to the sustained low oil price environment, higher provisions in Canadian Banking, and a $50 million ($37 million after-tax) increase in PCL for loans not yet identified as impaired reflecting volume growth and ongoing economic uncertainty. These factors were partially offset by lower provisions in Wealth Management. Total PCL ratio of 36 bps is comprised of PCL ratio on impaired loans of 32 bps and PCL ratio on loans not yet identified as impaired of 4 bps.

Q2 2016 vs. Q1 2016

Total PCL increased $50 million or 12%, and the total PCL ratio of 36 bps deteriorated 5 bps from the prior quarter, due to the increase in PCL for loans not yet identified as impaired as noted above.

Q2 2016 vs. Q2 2015 (Six months ended)

Total PCL increased $318 million or 58%, and the PCL ratio of 33 bps, deteriorated 9 bps from the prior year, mainly due to higher provisions in Capital Markets reflecting the sustained low oil price environment, higher provisions in Canadian Banking, and the increase in PCL for loans not yet identified as impaired as noted above. These factors were partially offset by lower provisions in Wealth Management.

For further details on PCL, refer to Credit quality performance in the Credit Risk section.

Insurance policyholder benefits, claims and acquisition expense

Q2 2016 vs. Q2 2015

PBCAE increased $495 million or 100% from a year ago, mainly due to the change in fair value of investments backing our policyholder liabilities, which was largely offset in revenue.

10        Royal Bank of Canada        Second Quarter 2016

Q2 2016 vs. Q1 2016

PBCAE increased $159 million or 19% from the prior quarter, mainly due to the change in fair value of investments backing our policyholder liabilities, largely offset in revenue.

Q2 2016 vs. Q2 2015 (Six months ended)

PBCAE decreased $198 million or 10% from the prior year, mainly due to the change in fair value of investments backing our policyholder liabilities, largely offset in revenue.

Non-interest expense

	For the three months ended						For the six months ended
(Millions of Canadian dollars, except percentage amounts)	April 30 2016		January 31 2016		April 30 2015		April 30 2016		April 30 2015
Salaries	$	1,445	$	1,492	$	1,273	$	2,937	$	2,540
Variable compensation		1,046		1,074		1,264		2,120		2,445
Benefits and retention compensation		430		464		421		894		853
Share-based compensation		93		46		38		139		173
Human resources	$	3,014	$	3,076	$	2,996	$	6,090	$	6,011
Equipment		358		356		311		714		608
Occupancy		382		393		356		775		691
Communications		224		203		224		427		422
Professional fees		247		240		204		487		402
Amortization of other intangibles		229		234		178		463		352
Other		433		458		467		891		870
Non-interest expense	$	4,887	$	4,960	$	4,736	$	9,847	$	9,356
Efficiency ratio(1)		51.3%		53.0%		53.6%		52.1%		50.6%

(1) Efficiency ratio is calculated as non-interest expense divided by total revenue.

Q2 2016 vs. Q2 2015

Non-interest expense increased $151 million or 3%, largely due to the inclusion of City National, which increased non-interest expense $392 million, and included $48 million related to the amortization of intangibles, and $21 million related to integration costs. An increase due to the impact of foreign exchange translation of $59 million, and higher costs in support of business growth also contributed to the increase. These factors were partially offset by lower variable compensation in Capital Markets and Wealth Management, and continuing benefits from our efficiency management activities. The prior year included a loss of $23 million related to the sale of RBC Suriname.

Our efficiency ratio of 51.3% decreased 230 bps from 53.6% last year. Excluding the gain of $108 million related to the release of CTA which favourably impacted revenue last year, our efficiency ratio decreased 300 bps from last year, mainly due to the positive change in fair value of investments backing our policyholder liabilities, which was largely offset in PBCAE, and continuing benefits from our efficiency management activities. These factors were partially offset by the inclusion of our acquisition of City National.

Q2 2016 vs. Q1 2016

Non-interest expense decreased $73 million or 1%, primarily reflecting a decrease of $120 million due to a lower impact from foreign exchange translation, the negative impact of seasonal factors including fewer days in the current quarter, and lower staff costs largely in Canadian Banking. These factors were partially offset by the change in fair value of our U.S. share-based compensation plan, and higher litigation and related legal costs in Capital Markets.

Our efficiency ratio of 51.3% decreased 170 bps from 53.0% last quarter, mainly due to the positive change in fair value of investments backing our policyholder liabilities, which was largely offset in PBCAE.

Q2 2016 vs. Q2 2015 (Six months ended)

Non-interest expense increased $491 million or 5% mainly due to the inclusion of City National, which increased non-interest expense $799 million, an increase due to foreign exchange translation of $243 million, and higher costs in support of business growth. These factors were partially offset by lower variable compensation in Capital Markets and Wealth Management, continuing benefits from our efficiency management activities, lower restructuring costs related to our International Wealth Management business, and lower litigation provisions and related legal costs in Capital Markets.

Our efficiency ratio of 52.1% increased 150 bps from 50.6% last year. Excluding the specified item in the prior year noted above, our efficiency ratio increased 120 bps from last year mainly due to the negative change in fair value of investments backing our policyholder liabilities, which was largely offset in PBCAE, and the inclusion of our acquisition of City National. These factors were partially offset by continuing benefits from our efficiency management activities.

The efficiency ratio excluding the specified item noted above is a non-GAAP measure. For further details, including a reconciliation, refer to the Key performance and non-GAAP measures section.

Royal Bank of Canada        Second Quarter 2016        11

Income taxes

	For the three months ended						For the six months ended
(Millions of Canadian dollars, except percentage amounts)	April 30 2016		January 31 2016		April 30 2015		April 30 2016		April 30 2015
Income taxes	$	618	$	713	$	817	$	1,331	$	1,593
Income before income taxes	$	3,191	$	3,160	$	3,319	$	6,351	$	6,551
Canadian statutory income tax rate (1)		26.5%		26.5%		26.3%		26.5%		26.3%
Lower average tax rate applicable to subsidiaries		(2.3)%		(1.5)%		(0.3)%		(1.9)%		(0.9)%
Tax-exempt income from securities		(3.9)%		(4.0)%		(2.7)%		(3.9)%		(2.7)%
Tax rate change		–%		–%		0.6%		–%		0.3%
Effect of previously unrecognized tax loss, tax credit or temporary differences		(0.8)%		–%		–%		(0.4)%		–%
Other		(0.1)%		1.6%		0.7%		0.7%		1.3%
Effective income tax rate		19.4%		22.6%		24.6%		21.0%		24.3%

(1) Blended Federal and Provincial statutory income tax rate

Q2 2016 vs. Q2 2015

Income tax expense decreased $199 million or 24% from last year, and the effective income tax rate of 19.4% decreased 520 bps mainly due to favourable tax adjustments and higher tax-exempt income in the current quarter.

Q2 2016 vs. Q1 2016

Income tax expense decreased $95 million or 13% from last quarter, despite higher income before income taxes. In addition, the effective income tax rate of 19.4% decreased 320 bps from 22.6% in the last quarter, mainly due to favourable tax adjustments in the current quarter.

Q2 2016 vs. Q2 2015 (Six months ended)

Income tax expense decreased $262 million or 16% from the prior year, and the effective income tax rate of 21.0% decreased 330 bps due to favourable tax adjustments and higher tax-exempt income in the current year.

Business segment results

How we measure and report our business segments

The key methodologies and assumptions used in our management reporting framework are periodically reviewed by management to ensure they remain valid and remain largely unchanged from October 31, 2015. Effective the first quarter of 2016, we increased our capital attribution rate to our business segments to better align with higher regulatory capital requirements. For further details on attributed capital, refer to Capital Management section.

For further details on our key methodologies and assumptions used in our management reporting framework, refer to the How we measure and report our business segments section of our 2015 Annual Report.

Key performance and non-GAAP measures

Performance measures

Return on common equity (ROE)

We measure and evaluate the performance of our consolidated operations and each business segment using a number of financial metrics, such as net income and ROE. We use ROE, at both the consolidated and business segment levels, as a measure of return on total capital invested in our business. Management views the business segment ROE measure as a useful measure for supporting investment and resource allocation decisions because it adjusts for certain items that may affect comparability between business segments and certain competitors. For further details, refer to the Key performance and non-GAAP measures section of our 2015 Annual Report.

12        Royal Bank of Canada        Second Quarter 2016

The following table provides a summary of our ROE calculations:

	For the three months ended
	April 30 2016														January 31 2016		April 30 2015
(Millions of Canadian dollars, except percentage amounts)	Personal & Commercial Banking		Wealth Management		Insurance		Investor & Treasury Services		Capital Markets		Corporate Support		Total		Total		Total
Net income available to common shareholders	$	1,271	$	371	$	175	$	135	$	561	$	(27)	$	2,486	$	2,366	$	2,426
Total average common equity (1), (2)		18,600		13,000		1,600		3,350		18,850		7,000		62,400		61,450		51,500
ROE (3)		27.8%		11.6%		44.3%		16.5%		12.1%		n.m.		16.2%		15.3%		19.3%

	For the six months ended
	April 30 2016														April 30 2015
(Millions of Canadian dollars, except percentage amounts)	Personal & Commercial Banking		Wealth Management		Insurance		Investor & Treasury Services		Capital Markets		Corporate Support		Total		Total
Net income available to common shareholders	$	2,541	$	661	$	304	$	275	$	1,114	$	(43)	$	4,852	$	4,820
Total average common equity (1), (2)		18,700		13,000		1,600		3,400		18,400		6,850		61,950		50,350
ROE (3)		27.3%		10.2%		38.3%		16.2%		12.2%		n.m.		15.8%		19.3%

(1) Average common equity represents rounded figures.

(2) The amounts for the segments are referred to as attributed capital. Effective the first quarter of 2016, we increased our capital attribution rate to better align with higher regulatory capital requirements.

(3) ROE is based on actual balances of average common equity before rounding.

n.m. not meaningful

Non-GAAP measures

We believe that certain non-GAAP measures described below are more reflective of our ongoing operating results, and provide readers with a better understanding of management’s perspective on our performance. These measures enhance the comparability of our financial performance for the three and six months ended April 30, 2016 with the corresponding periods in the prior year and the three months ended January 31, 2016 as well as, in the case of economic profit, measure relative contribution to shareholder value. Non-GAAP measures do not have a standardized meaning under GAAP and may not be comparable to similar measures disclosed by other financial institutions.

The following discussion describes the non-GAAP measures we use in evaluating our operating results.

Economic profit

Economic profit is net income excluding the after-tax effect of amortization of other intangibles less a capital charge for use of attributed capital. It measures the return generated by our businesses in excess of our cost of capital, thus enabling users to identify relative contributions to shareholder value.

The capital charge includes a charge for common equity and preferred shares. For 2016, our cost of capital remains unchanged at 9.0%.

The following table provides a summary of our Economic profit:

	For the three months ended
	April 30 2016																	January 31 2016			April 30 2015
(Millions of Canadian dollars)	Personal & Commercial Banking			Wealth Management		Insurance		Investor & Treasury Services		Capital Markets		Corporate Support			Total			Total			Total
Net income	$	1,297		$	386	$	177	$	139	$	583	$	(9	)	$	2,573		$	2,447		$	2,502
add: Non-controlling interests		(4	)		–		–		–		–		(9	)		(13	)		(21	)		(29	)
After-tax effect of amortization     of other intangibles		2			45		–		4		–		1			52			56			30
Intangibles write-down		–			–		–		–		–		–			–			–			4
Adjusted net income (loss)	$	1,295		$	431	$	177	$	143	$	583	$	(17	)	$	2,612		$	2,482		$	2,507
less: Capital charge		433			302		38		77		441		164			1,455			1,451			1,176
Economic profit (loss)	$	862		$	129	$	139	$	66	$	142	$	(181	)	$	1,157		$	1,031		$	1,331

Royal Bank of Canada        Second Quarter 2016        13

	For the six months ended
	April 30 2016																	April 30 2015
(Millions of Canadian dollars)	Personal & Commercial Banking			Wealth Management		Insurance		Investor & Treasury Services		Capital Markets		Corporate Support			Total			Total
Net income	$	2,587		$	689	$	308	$	282	$	1,153	$	1		$	5,020		$	4,958
add: Non-controlling interests		(6	)		–		–		–		–		(28	)		(34	)		(51	)
After-tax effect of amortization     of other intangibles		5			94		–		7		–		2			108			60
Intangibles write-down		–			–		–		–		–		–			–			4
Adjusted net income (loss)	$	2,586		$	783	$	308	$	289	$	1,153	$	(25	)	$	5,094		$	4,971
less: Capital charge		876			610		75		159		863		323			2,906			2,333
Economic profit (loss)	$	1,710		$	173	$	233	$	130	$	290	$	(348	)	$	2,188		$	2,638

Results excluding specified items

There were no specified items in the current period or the three months ended January 31, 2016. Our results for the three and six months ended April 30, 2015 were impacted by the following specified item:

• A gain of $108 million (before- and after-tax) from the wind-up of a U.S.-based subsidiary that resulted in the release of foreign currency translation adjustment (CTA) that was previously booked in other components of equity (OCE), which was recorded in Corporate Support.

The following table provides calculations of our consolidated results and measures excluding this specified item:

Consolidated

	For the three months ended (1)							For the six months ended (1)
	April 30 2015							April 30 2015
	Items excluded							Items excluded
(Millions of Canadian dollars, except per share and percentage amounts)	As reported		Release of CTA			Adjusted		As reported		Release of CTA			Adjusted
Continuing operations
Total revenue	$	8,830	$	(108	)	$	8,722	$	18,474	$	(108	)	$	18,366
PCL		282		–			282		552		–			552
PBCAE		493		–			493		2,015		–			2,015
Non-interest expense		4,736		–			4,736		9,356		–			9,356
Net income before income taxes	$	3,319	$	(108	)	$	3,211	$	6,551	$	(108	)	$	6,443
Income taxes		817		–			817		1,593		–			1,593
Net income	$	2,502	$	(108	)	$	2,394	$	4,958	$	(108	)	$	4,850
Net income available to common shareholders	$	2,426	$	(108	)	$	2,318	$	4,820	$	(108	)	$	4,712
Average number of common shares (thousands)		1,442,078					1,442,078		1,442,339					1,442,339
Basic earnings per share (in dollars)	$	1.68	$	(0.07	)	$	1.61	$	3.34	$	(0.07	)	$	3.27
Average number of diluted common shares (thousands)		1,448,651					1,448,651		1,449,037					1,449,037
Diluted earnings per share (in dollars)	$	1.68	$	(0.07	)	$	1.61	$	3.33	$	(0.07	)	$	3.26
Average common equity	$	51,500				$	51,500	$	50,350				$	50,350
ROE (2)		19.3%					18.5%		19.3%					18.9%
Efficiency ratio		53.6%					54.3%		50.6%					50.9%
Effective tax rate		24.6%					25.4%		24.3%					24.7%

(1) There were no specified items for the three months ended April 30, 2016 or January 31, 2016 or for the six months ended April 30, 2016.

(2) ROE is based on actual balances of average common equity before rounding.

14        Royal Bank of Canada        Second Quarter 2016

Personal & Commercial Banking

	As at or for the three months ended						As at or for the six months ended
(Millions of Canadian dollars, except number of and percentage amounts and as otherwise noted)	April 302016		January 31 2016		April 30 2015		April 302016		April 30 2015
Net interest income	$	2,527	$	2,572	$	2,399	$	5,099	$	4,892
Non-interest income		1,107		1,111		1,073		2,218		2,146
Total revenue		3,634		3,683		3,472		7,317		7,038
PCL		279		284		235		563		487
Non-interest expense		1,614		1,676		1,618		3,290		3,246
Income before income taxes		1,741		1,723		1,619		3,464		3,305
Net income	$	1,297	$	1,290	$	1,200	$	2,587	$	2,455
Revenue by business
Canadian Banking	$	3,380	$	3,422	$	3,244	$	6,802	$	6,580
Caribbean & U.S. Banking		254		261		228		515		458
Selected balances and other information
ROE		27.8%		26.9%		29.7%		27.3%		30.3%
Net interest margin (NIM) (1)		2.69%		2.68%		2.70%		2.68%		2.71%
Efficiency ratio (2)		44.4%		45.5%		46.6%		45.0%		46.1%
Operating leverage		4.9%		0.4%		2.1%		2.6%		4.7%
Operating leverage adjusted (3)		n.a.		n.a.		n.a.		n.a.		1.6%
Effective income tax rate		25.5%		25.1%		25.9%		25.3%		25.7%
Average total earning assets	$	382,200	$	382,300	$	365,100	$	382,300	$	363,700
Average loans and acceptances		380,600		380,300		363,800		380,500		362,600
Average deposits		314,600		314,600		294,400		314,600		294,100
AUA (4)		228,000		222,000		226,700		228,000		226,700
PCL on impaired loans as a % of average net loans and acceptances		0.30%		0.30%		0.26%		0.30%		0.27%

(1) NIM is calculated as Net interest income divided by Average total earning assets.

(2) Efficiency ratio is calculated as Non-interest expense divided by Total revenue.

(3) Measures have been adjusted by excluding the Q1 2014 loss of $60 million related to the sale of RBC Jamaica and the provision of $40 million related to post-employment benefits and restructuring charges in the Caribbean from non-interest expense. These are non-GAAP measures.

(4) AUA represents period-end spot balances and includes securitized residential mortgages and credit card loans as at April 30, 2016 of $19.8 billion and $9.9 billion, respectively (January 31, 2016 – $20.4 billion and $9.7 billion; April 30, 2015 – $22.5 billion and $7.9 billion).

Q2 2016 vs. Q2 2015

Net income increased $97 million or 8% compared to last year, largely reflecting solid volume growth, the positive impact of one additional day in the current quarter and fee-based revenue growth in Canada, as well as higher earnings in the Caribbean. These factors were partially offset by higher PCL in Canada. In addition, the prior year included a loss of $23 million (before- and after-tax) related to sale of RBC Royal Bank (Suriname) N.V. (RBC Suriname).

Total revenue increased $162 million or 5%.

Canadian Banking revenue increased $136 million or 4%, largely reflecting solid volume growth of 6% across most businesses, the positive impact of one additional day in the current quarter and fee-based revenue growth.

Caribbean & U.S. Banking revenue increased $26 million or 11% compared to last year, mainly due to fee-based revenue growth.

Net interest margin was down 1 bp, largely due to the continued low interest rate environment. The prior year included an unfavourable cumulative accounting adjustment.

PCL increased $44 million, with the PCL ratio deteriorating 4 bps, largely due to higher provisions in both our Canadian personal and commercial lending portfolios and higher write-offs in our Canadian credit cards portfolio. These were partially offset by lower provisions in our Caribbean Banking portfolios. For further details, refer to Credit quality performance in the Credit Risk section.

Non-interest expense decreased $4 million, largely reflecting continuing benefits from our efficiency management activities and lower marketing costs. These factors were mostly offset by higher costs in support of business growth. In addition, the prior year included a loss related to the sale of RBC Suriname.

Q2 2016 vs. Q1 2016

Net income increased $7 million or 1% from last quarter, largely reflecting lower staff costs and higher spreads. These factors were largely offset by the negative impact of seasonal factors, including fewer days in the quarter.

Net interest margin was relatively stable (increased 1 bp).

Q2 2016 vs. Q2 2015 (Six months ended)

Net income increased $132 million or 5% largely due to solid volume and fee-based revenue growth across most businesses in Canada, as well as higher earnings in the Caribbean. These factors were partially offset by higher PCL in Canada, lower spreads and higher costs in support of business growth. In addition, the prior year included a loss related to the sale of RBC Suriname.

Total revenue increased $279 million or 4% primarily attributable to solid volume and fee-based revenue growth across most businesses in Canada. These factors were partially offset by lower spreads.

PCL increased $76 million, with the PCL ratio deteriorating 3 bps, mainly due to higher provisions in both our Canadian personal and commercial lending portfolios and higher write-offs in our Canadian credit cards portfolio. These were partially offset by lower PCL in our Caribbean Banking portfolios. For further details, refer to Credit quality performance in the Credit Risk section.

Non-interest expense increased $44 million or 1% compared to last year largely due to higher costs in support of business growth. These factors were offset by continuing benefits from our efficiency management activities and lower marketing costs.

Royal Bank of Canada        Second Quarter 2016        15

Canadian Banking

	As at or for the three months ended						As at or for the six months ended
(Millions of Canadian dollars, except percentage amounts)	April 30 2016		January 31 2016		April 30 2015		April 30 2016		April 30 2015
Net interest income	$	2,367	$	2,403	$	2,248	$	4,770	$	4,589
Non-interest income		1,013		1,019		996		2,032		1,991
Total revenue		3,380		3,422		3,244		6,802		6,580
PCL		273		266		212		539		446
Non-interest expense		1,434		1,495		1,426		2,929		2,886
Net income before income taxes		1,673		1,661		1,606		3,334		3,248
Net income	$	1,241	$	1,231	$	1,191	$	2,472	$	2,411
Revenue by business
Personal Financial Services	$	1,908	$	1,932	$	1,843	$	3,840	$	3,729
Business Financial Services		773		792		745		1,565		1,537
Cards and Payment Solutions		699		698		656		1,397		1,314
Selected balances and other information
ROE		32.9%		31.8%		37.1%		32.3%		37.0%
NIM (1)		2.64%		2.62%		2.64%		2.63%		2.66%
Efficiency ratio (2)		42.4%		43.7%		44.0%		43.1%		43.9%
Operating leverage		3.6%		0.2%		2.4%		1.9%		1.2%
Effective income tax rate		25.8%		25.9%		25.8%		25.9%		25.8%
Average total earning assets	$	364,900	$	364,300	$	349,000	$	364,600	$	348,000
Average loans and acceptances		371,300		370,500		354,700		370,900		353,800
Average deposits		296,200		295,500		277,000		295,800		277,000
AUA (3)		218,800		211,900		216,900		218,800		216,900
PCL on impaired loans as a % of average net loans and acceptances		0.30%		0.29%		0.25%		0.29%		0.25%

(1) NIM is calculated as Net interest income divided by Average total earning assets.

(2) Efficiency ratio is calculated as Non-interest expense divided by Total revenue.

(3) AUA represents period-end spot balances and includes securitized residential mortgages and credit card loans as at April 30, 2016 of $19.8 billion and $9.9 billion respectively (January 31, 2016 – $20.4 billion and $9.7 billion; April 30, 2015 – $22.5 billion and $7.9 billion).

Q2 2016 vs. Q2 2015

Net income increased $50 million or 4% primarily due to solid volume growth of 6% across most businesses, the positive impact of one additional day in the current quarter and fee-based revenue growth. These factors were partially offset by higher PCL.

Total revenue increased $136 million or 4%, including the positive impact of one additional day in the current quarter.

Personal Financial Services revenue increased $65 million or 4%, mainly due to continued strong volume growth in residential mortgages and personal deposits, which was partially offset by lower spreads and lower volumes in certain other lending products.

Business Financial Services revenue increased $28 million or 4%, as solid volume growth in business deposits and loans was partially offset by lower spreads.

Cards and Payment Solutions revenue increased $43 million or 7%, mainly due to higher loan balances and transaction volumes.

Net interest margin was flat compared to last year, mainly reflecting the continued low interest rate environment. The prior year included an unfavourable cumulative accounting adjustment.

PCL increased $61 million, with the PCL ratio deteriorating 5 bps, due to higher provisions in both our personal and commercial lending portfolios and higher write-offs in our credit cards portfolio. For further details, refer to Credit quality performance in the Credit Risk section.

Non-interest expense increased $8 million or 1% as higher costs in support of business growth, were largely offset by continuing benefits from our efficiency management activities and lower marketing costs.

Q2 2016 vs. Q1 2016

Net income increased $10 million or 1% from last quarter, largely reflecting lower staff costs and higher spreads. These factors were partially offset by the negative impact of seasonal factors including fewer days in the current quarter and higher PCL.

Net interest margin increased 2 bps primarily reflecting higher credit card spreads and product mix.

Q2 2016 vs. Q2 2015 (six months ended)

Net income increased $61 million or 3% due to solid volume growth of 6% across most businesses, and fee-based revenue growth. These factors were partially offset by higher PCL and lower spreads.

Total revenue increased $222 million or 3% reflecting solid volume and fee-based revenue growth across most businesses. These factors were partially offset by lower spreads.

PCL increased $93 million, with the PCL ratio deteriorating 4 bps, mostly due to higher provisions in our personal and commercial lending portfolios, and higher write-offs in our credit cards portfolio. For further details, refer to Credit quality performance in the Credit Risk section.

Non-interest expense increased $43 million or 1% mainly due to higher costs in support of business growth which was partially offset by continuing benefits from our efficiency management activities and lower marketing costs.

16        Royal Bank of Canada        Second Quarter 2016

Wealth Management

(Millions of Canadian dollars, except number of and percentage amounts and as otherwise noted)	As at or for the three months ended						As at or for the six months ended
	April 30 2016		January 31 2016		April 30 2015		April 30 2016		April 30 2015
Net interest income	$	466	$	469	$	122	$	935	$	246
Non-interest income
Fee-based revenue		1,232		1,270		1,166		2,502		2,311
Transactional and other revenue		482		348		460		830		857
Total revenue		2,180		2,087		1,748		4,267		3,414
PCL		7		5		32		12		45
Non-interest expense		1,670		1,678		1,340		3,348		2,673
Income before income taxes		503		404		376		907		696
Net income	$	386	$	303	$	271	$	689	$	501
Revenue by business
Canadian Wealth Management (1)	$	601	$	595	$	582	$	1,196	$	1,141
U.S. Wealth Management (including City National)		1,038		940		538		1,978		1,003
U.S. Wealth Management (including City National) (US$ millions)		798		685		433		1,483		824
International Wealth Management		108		113		173		221		353
Global Asset Management		433		439		455		872		917
Selected balances and other information
ROE		11.6%		8.9%		18.3%		10.2%		16.9%
NIM (2)		2.88%		2.79%		2.49%		2.84%		2.48%
Pre-tax margin (3)		23.1%		19.4%		21.5%		21.3%		20.4%
Number of advisors (4)		4,695		4,648		4,074		4,695		4,074
Average total earning assets	$	65,700	$	66,900	$	20,100	$	66,300	$	20,000
Average loans and acceptances		47,900		49,500		17,900		48,700		17,900
Average deposits		82,200		83,100		40,600		82,600		40,100
AUA – total (5)		738,800		777,800		747,500		738,800		747,500
– U.S. Wealth Management (including City National) (5)		290,500		314,700		268,000		290,500		268,000
– U.S. Wealth Management (including City National) (US$ millions) (5)		231,400		224,700		222,200		231,400		222,200
AUM (5)		539,700		556,000		481,100		539,700		481,100
Average AUA		750,000		777,300		767,000		763,800		755,000
Average AUM		543,500		561,200		485,700		552,500		475,700

Estimated impact of U.S. dollar, British pound and Euro translation on key income statement items (Millions of Canadian dollars, except percentage amounts and as otherwise noted)	For the three months ended					For the six months ended
	Q2 2016 vs. Q2 2015		Q2 2016 vs. Q1 2016			Q2 2016 vs. Q2 2015
Increase (decrease):
Total revenue	$	29		$    (74	)	$	111
Non-interest expense		23		(60	)		94
Net income		3		(10	)		10
Percentage change in average US$ equivalent of C$1.00		(5)%		5%			(9)%
Percentage change in average British pound equivalent of C$1.00		1%		8%			(4)%
Percentage change in average Euro equivalent of C$1.00		(6)%		1%			(5)%

(1) Amounts have been revised from those previously presented.

(2) NIM is calculated as Net interest income divided by Average total earning assets.

(3) Pre-tax margin is defined as income before income taxes divided by Total revenue.

(4) Represents client-facing advisors across all our wealth management businesses.

(5) Represents period-end spot balances.

On November 2, 2015, we completed the acquisition of City National, which was combined with our U.S. Wealth Management business. Our U.S. & International Wealth Management business line was divided into two businesses: U.S. Wealth Management (including City National), and International Wealth Management.

Q2 2016 vs. Q2 2015

Net income increased $115 million or 42% from a year ago, largely reflecting the inclusion of our acquisition of City National, which contributed $66 million to net income. Benefits from our efficiency management activities, lower PCL and lower restructuring costs related to our International Wealth Management business also contributed to the increase. These factors were partially offset by lower transaction volumes reflecting reduced client activity.

Total revenue increased $432 million or 25% with our inclusion of City National contributing $468 million.

Canadian Wealth Management revenue increased $19 million or 3%, mainly due to higher earnings on average fee-based client assets reflecting strong net sales and higher net interest income from loan and deposit growth.

U.S. Wealth Management (including City National) revenue increased $500 million (US$365 million) or 93%, with our acquisition of City National contributing $468 million (US$360 million) to revenue.

International Wealth Management revenue decreased $65 million or 38%, mainly due to lower earnings on average fee-based client assets and lower transaction volumes, primarily due to the exit of certain international businesses.

Global Asset Management revenue decreased $22 million or 5%, mainly due to lower earnings on average fee-based client assets reflecting unfavourable market conditions.

Royal Bank of Canada        Second Quarter 2016        17

PCL decreased $25 million or 78% as the prior year included a provision on a single account related to our International Wealth Management business. In the current quarter, we recorded provisions of $7 million related to City National.

Non-interest expense increased $330 million or 25%, primarily due to the inclusion of our acquisition of City National which increased expenses $392 million and included $48 million related to the amortization of intangibles, and $21 million related to integration costs. These factors were partially offset by benefits from our efficiency management activities, the exit of certain international businesses, lower variable compensation driven by lower revenue, and lower restructuring costs related to our International Wealth Management business.

Q2 2016 vs. Q1 2016

Net income increased $83 million or 27% from the prior quarter, largely reflecting benefits from our efficiency management activities, lower variable compensation driven by lower revenue, higher earnings in City National due to loan growth and lower acquisition and integration costs, and higher transaction volumes. These factors were partially offset by a lower impact from foreign exchange translation.

Q2 2016 vs. Q2 2015 (Six months ended)

Net income increased $188 million or 38% largely reflecting the inclusion of our acquisition of City National, which contributed $119 million to net income. Lower restructuring costs, benefits from our efficiency management activities, and lower PCL also contributed to the increase. This was partially offset by lower transaction volumes and lower earnings on average fee-based client assets.

Total revenue increased $853 million or 25%, mainly due to our inclusion of City National of $937 million, and an increase due to foreign exchange translation. These factors were partially offset by lower transaction volumes reflecting reduced client activity and lower earnings on average fee-based client assets due to unfavourable market conditions.

PCL decreased $33 million or 73% as the prior year included provisions on a couple of accounts related to our International Wealth Management business. We recorded provisions of $12 million in the current year related to City National.

Non-interest expense increased $675 million or 25%, mainly reflecting our inclusion of City National which increased expenses $799 million, and an increase due to the impact of foreign exchange translation. These factors were partially offset by benefits from our efficiency management activities, lower restructuring costs related to our International Wealth Management business, and lower variable compensation driven by lower revenue.

Insurance

	As at for the three months ended							As at or for the six months ended
(Millions of Canadian dollars, except percentage amounts and as otherwise noted)	April 30 2016		January 31 2016		April 30 2015			April 30 2016		April 30 2015
Non-interest income
Net earned premiums	$	837	$	876	$	829		$	1,713	$	1,731
Investment income (1)		390		162		(164	)		552		736
Fee income		124		121		141			245		231
Total revenue		1,351		1,159		806			2,510		2,698
Insurance policyholder benefits and claims (1)		933		768		446			1,701		1,894
Insurance policyholder acquisition expense		55		61		47			116		121
Non-interest expense		157		160		156			317		302
Income before income taxes		206		170		157			376		381
Net income	$	177	$	131	$	123		$	308	$	308
Revenue by business
Canadian Insurance	$	894	$	747	$	337		$	1,641	$	1,827
International Insurance		457		412		469			869		871
Selected balances and other information
ROE		44.3%		32.4%		33.0%			38.3%		39.7%
Premiums and deposits (2)	$	1,184	$	1,214	$	1,217		$	2,398	$	2,455
Fair value changes on investments backing policyholder liabilities (1)		225		37		(300	)		262		475

(1) Investment income can experience volatility arising from fluctuation of fair value through profit or loss (FVTPL) assets. The investments which support actuarial liabilities are predominantly fixed income assets designated as at FVTPL. Consequently, changes in the fair values of these assets are recorded in investment income in the consolidated statement of income and are largely offset by changes in the fair value of the actuarial liabilities, the impact of which is reflected in insurance policyholder benefits and claims.

(2) Premiums and deposits include premiums on risk-based insurance and annuity products, and individual and group segregated fund deposits, consistent with insurance industry practices.

Q2 2016 vs. Q2 2015

Net income increased $54 million or 44% from a year ago, mainly due to the favourable impact of investment-related gains on the Canadian Life business, and lower net claims costs in both Canadian and International Insurance.

Total revenue increased $545 million or 68% from the prior year.

Canadian Insurance revenue increased $557 million, mainly due to the change in fair value of investments backing our policyholder liabilities, which was largely offset in PBCAE.

International Insurance revenue decreased $12 million or 3%, mainly due to the change in fair value of investments backing our policyholder liabilities, which was largely offset in PBCAE. This was partially offset by business growth.

PBCAE increased $495 million, mainly due to the change in fair value of investments backing our policyholder liabilities, which was largely offset in revenue. This was partially offset by favourable investment-related gains and lower net claims costs.

Non-interest expense increased $1 million or 1% compared to the prior year.

18        Royal Bank of Canada        Second Quarter 2016

Q2 2016 vs. Q1 2016

Net income increased $46 million or 35% from the prior quarter, reflecting a tax recovery from a prior year tax loss, and lower net claims costs in Canadian Insurance.

Q2 2016 vs. Q2 2015 (Six months ended)

Net income was flat from a year ago as the favourable impact of investment-related gains on the Canadian Life business and new business volumes were offset by lower earnings from new U.K. annuity contracts and unfavourable life policyholder behaviour.

Total revenue decreased $188 million or 7% mainly due to the change in fair value of investments backing our policyholder liabilities, which was largely offset in PBCAE. The decrease was also attributable to the reduction in revenue related to our retrocession contracts, which was largely offset in PBCAE. These factors were partially offset by growth in both Canadian and International Insurance.

PBCAE decreased $198 million or 10%, mainly due to the change in fair value of investments backing our policyholder liabilities, largely offset in revenue.

Non-interest expense increased $15 million or 5%, mainly in support of business growth and strategic initiatives, partially offset by efficiency management activities.

Investor & Treasury Services

	As at or for the three months ended						As at or for the six months ended
(Millions of Canadian dollars, except percentage amounts)	April 30 2016		January 31 2016		April 30 2015		April 30 2016		April 30 2015
Net interest income	$	190	$	226	$	198	$	416	$	394
Non-interest income		350		324		330		674		640
Total revenue		540		550		528		1,090		1,034
Non-interest expense		352		361		312		713		627
Net income before income taxes		188		189		216		377		407
Net income	$	139	$	143	$	159	$	282	$	301
Selected balances and other information
ROE		16.5%		15.9%		24.2%		16.2%		24.0%
Average deposits	$	138,100	$	151,700	$	136,200	$	145,000	$	132,200
Client deposits		53,900		53,600		48,800		53,700		46,400
Wholesale funding deposits		84,200		98,100		87,400		91,300		85,800
AUA (1)		3,617,700		3,807,300		3,846,900		3,617,700		3,846,900
Average AUA		3,627,000		3,864,300		3,798,500		3,747,000		3,730,900

Estimated impact of U.S. dollar, British pound and Euro translation on key income statement items (Millions of Canadian dollars, except percentage amounts)	For the three months ended					For the six months ended
	Q2 2016 vs. Q2 2015		Q2 2016 vs. Q1 2016			Q2 2016 vs. Q2 2015
Increase (decrease):
Total revenue	$	15	$	(7	)	$	38
Non-interest expense		9		(5	)		19
Net income		4		(1	)		12
Percentage change in average US$ equivalent of C$1.00		(5)%		5%			(9)%
Percentage change in average British pound equivalent of C$1.00		1%		8%			(4)%
Percentage change in average Euro equivalent of C$1.00		(6)%		1%			(5)%

(1) Represents period-end spot balances.

Q2 2016 vs. Q2 2015

Net income decreased $20 million or 13%, mainly driven by increased investment in technology and lower earnings from foreign exchange market execution reflecting a decrease in client activity. These factors were partially offset by higher earnings on growth in client deposits and higher client deposit spreads, and an increase due to foreign exchange translation.

Total revenue increased $12 million or 2%, largely due to an increase in foreign exchange translation and increased earnings on growth in client deposits and higher client deposit spreads, partially offset by lower revenue from foreign exchange market execution and funding and liquidity activities.

Non-interest expense increased $40 million or 13%, mainly due to increased investment in technology, an increase due to foreign exchange translation and higher staff costs.

Q2 2016 vs. Q1 2016

Net income decreased $4 million or 3%, primarily due to lower funding and liquidity revenue from lower market volatility. This factor was partially offset by higher custodial fees and increased earnings reflecting higher client deposit spreads.

Royal Bank of Canada        Second Quarter 2016        19

Q2 2016 vs. Q2 2015 (Six months ended)

Net income decreased $19 million or 6%, largely due to increased investment in technology and lower revenue from foreign exchange market execution resulting from lower client activity. These factors were partially offset by increased earnings on growth in client deposits and higher client deposit spreads, and an increase due to foreign exchange translation.

Total revenue increased $56 million or 5%, mainly due to an increase in foreign exchange translation, increased earnings from growth in client deposits and higher client deposit spreads. These factors were partially offset by lower revenue from foreign exchange market execution and funding and liquidity activities.

Non-interest expense increased $86 million or 14%, largely due to increased investment in technology, higher staff costs and an increase due to foreign exchange translation.

Capital Markets

	As at or for the three months ended								As at or for the six months ended
(Millions of Canadian dollars, except percentage amounts)	April 30 2016			January 31 2016		April 30 2015			April 30 2016			April 30 2015
Net interest income (1)	$	993		$	1,062	$	940		$	2,055		$	1,856
Non-interest income (1)		997			918		1,307			1,915			2,424
Total revenue(1)		1,990			1,980		2,247			3,970			4,280
PCL		123			120		15			243			20
Non-interest expense		1,080			1,075		1,280			2,155			2,437
Net income before income taxes		787			785		952			1,572			1,823
Net income	$	583		$	570	$	625		$	1,153		$	1,219
Revenue by business
Corporate and Investment Banking	$	892		$	870	$	958		$	1,762		$	1,844
Global Markets		1,125			1,110		1,323			2,235			2,472
Other		(27	)		–		(34	)		(27	)		(36	)
Selected balances and other information
ROE		12.1%			12.3%		14.9%			12.2%			14.8%
Average total assets	$	502,600		$	518,800	$	465,400		$	510,800		$	471,800
Average trading securities		100,700			108,900		118,800			104,800			118,500
Average loans and acceptances		89,600			89,700		77,700			89,700			75,800
Average deposits		62,200			63,100		60,000			62,600			57,500
PCL on impaired loans as a % of average net loans and acceptances		0.56%			0.53%		0.08%			0.54%			0.05%

Estimated impact of U.S. dollar, British pound and Euro translation on key income statement items (Millions of Canadian dollars, except percentage amounts and as otherwise noted)	For the three months ended				For the six months ended
	Q2 2016 vs. Q2 2015		Q2 2016 vs. Q1 2016		Q2 2016 vs. Q2 2015
Increase (decrease):
Total revenue	$	64	$	(92)	$	243
Non-interest expense		21		(45)		111
Net income		26		(26)		78
Percentage change in average US$ equivalent of C$1.00		(5)%		5%		(9)%
Percentage change in average British pound equivalent of C$1.00		1%		8%		(4)%
Percentage change in average Euro equivalent of C$1.00		(6)%		1%		(5)%

(1) The taxable equivalent basis (teb) adjustment for the three months ended April 30, 2016 was $203 million (January 31, 2016 – $151 million, April 30, 2015 – $115 million) and for the six months ended April 30, 2016 was $354 million (April 30, 2015 – $224 million). For further discussion, refer to the How we measure and report our business segments section of our 2015 Annual Report.

Q2 2016 vs. Q2 2015

Net income decreased $42 million or 7%, primarily due to lower results in our Global Markets and Corporate and Investment Banking businesses driven by lower client activity, and higher PCL. These factors were partly offset by lower variable compensation, lower taxes and an increase due to foreign exchange translation.

Total revenue decreased $257 million or 11%.

Corporate and Investment Banking revenue decreased $66 million or 7%, mainly due to lower equity and debt origination activity largely in the U.S. and lower loan syndication revenue reflecting lower client activity. These factors were partially offset by growth in M&A activity in Canada, the U.S. and Europe, and an increase due to foreign exchange translation.

Global Markets revenue decreased $198 million or 15%, due to lower equity trading revenue as compared to the strong levels last year, lower fixed income trading revenue, and decreased debt and equity origination activity across most regions. These factors were partially offset by an increase due to foreign exchange translation.

Other revenue increased $7 million.

PCL of $123 million increased $108 million, primarily due to provisions taken in the oil & gas sector. For further details, refer to the Credit quality performance in the Credit risk section.

Non-interest expense decreased $200 million or 16%, largely due to lower variable compensation and lower litigation provisions and related legal costs. These factors were partially offset by higher compliance costs and an increase due to foreign exchange translation.

20        Royal Bank of Canada        Second Quarter 2016

Q2 2016 vs. Q1 2016

Net income increased $13 million or 2%, mainly due to growth in debt and equity origination and higher loan syndication activity, partially offset by higher litigation and related legal costs, a lower impact from foreign exchange translation and lower M&A activity.

Q2 2016 vs. Q2 2015 (Six months ended)

Net income decreased $66 million or 5%, driven by lower results in our Global Markets and Corporate and Investment Banking businesses reflecting lower client activity, and higher PCL. These factors were partly offset by lower variable compensation, lower taxes, an increase due to foreign exchange translation and lower litigation provisions and related legal costs.

Total revenue decreased $310 million or 7%, mainly due to lower equity trading revenue as compared to the strong levels last year, lower debt and equity origination activity across most regions, lower fixed income trading revenue, and lower loan syndication activity largely in the U.S. These factors were partially offset by an increase due to foreign exchange translation.

PCL of $243 million increased $223 million from the prior year, primarily due to higher provisions in the oil & gas sector. For further details, refer to the Credit quality performance in the Credit risk section.

Non-interest expense decreased $282 million or 12%, largely due to lower variable compensation and lower litigation provisions and related legal costs, partially offset by an increase due to foreign exchange translation and higher compliance costs.

Corporate Support

	For the three months ended									For the six months ended
(Millions of Canadian dollars)	April 30 2016			January 31 2016			April 30 2015			April 30 2016			April 30 2015
Net interest income (loss) (1)	$	(151	)	$	(133	)	$	(102	)	$	(284	)	$	(200	)
Non-interest income (loss) (1)		(18	)		33			131			15			210
Total revenue(1)		(169	)		(100	)		29			(269	)		10
PCL		51			1			–			52			1
Non-interest expense		14			10			30			24			70
Net income (loss) before income taxes (1)		(234	)		(111	)		(1	)		(345	)		(61	)
Income taxes (recoveries) (1)		(225	)		(121	)		(125	)		(346	)		(235	)
Net income (loss)(2)	$	(9	)	$	10		$	124		$	1		$	174

(1) Teb adjusted.

(2) Net income reflects income attributable to both shareholders and Non-Controlling Interests (NCI). Net income attributable to NCI for the three months ended April 30, 2016 was $9 million (January 31, 2016 – $19 million; April 30, 2015 – $22 million) and for the six months ended April 30, 2016 was $28 million (April 30, 2015 – $45 million).

Due to the nature of activities and consolidation adjustments reported in this segment, we believe that a comparative period analysis is not relevant. The following identifies material items affecting the reported results in each period.

Revenue and income taxes (recoveries) in each period in Corporate Support include the deduction of the teb adjustments related to the gross-up of income from Canadian taxable corporate dividends recorded in Capital Markets. The amount deducted from revenue was offset by an equivalent increase in income taxes (recoveries). The teb amount for the three months ended April 30, 2016 was $203 million as compared to $151 million in the prior quarter and $115 million last year. For the six months ended April 30, 2016, the amount was $354 million as compared to $224 million in the prior year. For further discussion, refer to the How we measure and report our business segments section of our 2015 Annual Report.

In addition to the teb impacts noted above, the following identifies the other material items affecting the reported results in each period.

Q2 2016

Net loss was $9 million, mainly due to a $50 million ($37 million after-tax) increase in the provision for credit losses for loans not yet identified as impaired, which was mostly offset by asset/liability management activities.

Q1 2016

Net income was $10 million, largely reflecting asset/liability management activities.

Q2 2015

Net income was $124 million, largely reflecting a gain of $108 million (before-and after-tax) from the wind-up of a U.S.-based subsidiary that resulted in the release of CTA that was previously booked in OCE, and asset/liability management activities.

Q2 2016 (Six months ended)

Net income was $1 million, primarily reflecting asset/liability management activities, mostly offset by the increase in the provision for credit losses for loans not yet identified as impaired as noted above.

Q2 2015 (Six months ended)

Net income was $174 million, largely reflecting the gain of $108 million through the release of CTA as noted above, a gain on sale of a real estate asset and asset/liability management activities.

Royal Bank of Canada        Second Quarter 2016        21

Results by geographic segment (1)

For geographic reporting, our segments are grouped into the following: Canada, U.S., and Other International. Transactions are primarily recorded in the location that best reflects the risk due to negative changes in economic conditions and prospects for growth due to positive economic changes. The following table summarizes our financial results by geographic region:

	For the three months ended																		For the six months ended
	April 30 2016						January 31 2016						April 30 2015						April 30 2016						April 30 2015
(Millions of Canadian dollars)	Canada		U.S.		Other International		Canada		U.S.		Other International		Canada		U.S.		Other International		Canada		U.S.		Other International		Canada		U.S.		Other International
Total revenue	$	5,888	$	2,040	$	1,598	$	5,774	$	1,999	$	1,586	$	5,304	$	1,847	$	1,679	$	11,662	$	4,039	$	3,184	$	11,713	$	3,507	$	3,254
Net income	$	1,954	$	331	$	288	$	1,792	$	358	$	297	$	1,861	$	323	$	318	$	3,746	$	689	$	585	$	3,671	$	599	$	688

(1) For further details, refer to Note 30 of our audited 2015 Annual Consolidated Financial Statements.

Q2 2016 vs. Q2 2015

Net income in Canada was up $93 million or 5% from the prior year, mainly due to solid volume and fee-based revenue growth across most businesses in Canadian Banking, the positive impact of one additional day in the current quarter, lower variable compensation in Capital Markets, and favourable investment-related gains in Canadian Insurance. These factors were partially offset by higher PCL in Capital Markets and Canadian Banking, and increased investment in technology in Investor & Treasury Services. The prior year included a gain from the wind up of a U.S.-based subsidiary.

U.S. net income increased $8 million or 2% from the prior year, primarily reflecting lower taxes and a decrease in variable compensation in Capital Markets, the inclusion of our acquisition of City National, a tax recovery from a prior year loss in Insurance, lower PCL in Wealth Management, and an increase due to foreign exchange translation. These factors were partially offset by lower equity and fixed income trading results, decreased debt and equity origination activity, lower loan syndication, and higher PCL in Capital Markets.

Other International net income was down $30 million or 9% from the prior year, largely reflecting lower earnings from foreign exchange market execution in Investor & Treasury Services reflecting a decrease in client activity. The exit of certain international businesses and lower fee-based client assets in Wealth Management also contributed to the decrease. These factors were partially offset by an increase due to foreign exchange translation and higher earnings in the Caribbean. In addition, the prior year included a loss related to the sale of RBC Suriname.

Q2 2016 vs. Q1 2016

Net income in Canada was up $162 million or 9% from the prior quarter, mainly reflecting lower staff costs and higher spreads in Canadian Banking, higher trading revenue, increased equity origination activity, and higher M&A activity. Benefits from efficiency management activities and lower claims costs in Insurance also contributed to the increase. These factors were partially offset by the negative impact of seasonal factors, including fewer days in the quarter.

U.S. net income decreased $27 million or 8% from the prior quarter, primarily due to higher PCL and litigation and related legal costs, lower trading revenue and M&A activity reflecting unfavourable market conditions, and a lower impact from foreign exchange translation. These factors were partially offset by loan and deposit growth in Wealth Management, growth in debt and equity origination activities, a tax recovery from a prior year tax loss in Insurance, and higher earnings in City National.

Other International net income was down $9 million or 3% from the prior quarter, largely due to lower funding and liquidity results reflecting lower market volatility, and lower earnings from U.K. annuities contracts. These factors were partially offset by benefits from our efficiency management activities in Wealth Management.

Q2 2016 vs. Q2 2015 (Six months ended)

Net income in Canada was up $75 million or 2% from the prior year, mainly due to solid volume and fee-based revenue growth across most of our businesses in Canadian Banking, lower variable compensation and higher trading revenue both in Capital Markets, and favourable investment-related gains in Canadian Insurance. Higher average fee-based client assets reflecting strong net sales also contributed to the increase. These factors were partially offset by higher PCL in Capital Markets and Canadian Banking. The prior year included a gain from the wind up of a U.S.-based subsidiary.

U.S. net income was up $90 million or 15% from the prior year, primarily due to lower variable compensation in both Wealth Management and Capital Markets and the inclusion of our acquisition of City National, which contributed $119 million to net income. A tax recovery from a prior year tax loss in Insurance and an increase due to foreign exchange translation also contributed to the increase. These factors were partially offset by lower equity trading results, lower debt and equity origination activity, and lower loan syndication activity.

Other International net income was down $103 million or 15% from the prior year, largely reflecting lower transaction volumes and lower earnings on average fee-based client assets in Wealth Management. Lower revenue in Investor and Treasury Services from foreign exchange market execution reflecting lower client activity and investment in technology, and unfavorable policyholder behaviour and lower earnings from new U.K. annuity contracts in Insurance also contributed to the decrease. These factors were partially offset by benefits from our efficiency management activities, higher earnings in the Caribbean and an increase due to foreign exchange translation.

22        Royal Bank of Canada        Second Quarter 2016

Quarterly results and trend analysis

Our quarterly results are impacted by a number of trends and recurring factors, which include seasonality of certain businesses, general economic and market conditions, and fluctuations in the Canadian dollar relative to other currencies. The following table summarizes our results for the last eight quarters (the period):

Quarterly results (1)

	2016					2015								2014
(Millions of Canadian dollars, except per share and percentage amounts)	Q2			Q1		Q4		Q3		Q2		Q1		Q4		Q3
Net interest income	$	4,025		$	4,196	$	3,800	$	3,783	$	3,557	$	3,631	$	3,560	$	3,647
Non-interest income		5,501			5,163		4,219		5,045		5,273		6,013		4,822		5,343
Total revenue	$	9,526		$	9,359	$	8,019	$	8,828	$	8,830	$	9,644	$	8,382	$	8,990
PCL		460			410		275		270		282		270		345		283
PBCAE		988			829		292		656		493		1,522		752		1,009
Non-interest expense		4,887			4,960		4,647		4,635		4,736		4,620		4,340		4,602
Net income before income taxes	$	3,191		$	3,160	$	2,805	$	3,267	$	3,319	$	3,232	$	2,945	$	3,096
Income taxes		618			713		212		792		817		776		612		718
Net income	$	2,573		$	2,447	$	2,593	$	2,475	$	2,502	$	2,456	$	2,333	$	2,378
EPS – basic	$	1.67		$	1.59	$	1.74	$	1.66	$	1.68	$	1.66	$	1.57	$	1.59
– diluted		1.66			1.58		1.74		1.66		1.68		1.65		1.57		1.59
Segments – net income (loss)
Personal & Commercial Banking	$	1,297		$	1,290	$	1,270	$	1,281	$	1,200	$	1,255	$	1,151	$	1,138
Wealth Management		386			303		255		285		271		230		285		285
Insurance		177			131		225		173		123		185		256		214
Investor & Treasury Services		139			143		88		167		159		142		113		110
Capital Markets		583			570		555		545		625		594		402		641
Corporate Support		(9	)		10		200		24		124		50		126		(10	)
Net income	$	2,573		$	2,447	$	2,593	$	2,475	$	2,502	$	2,456	$	2,333	$	2,378
Effective income tax rate		19.4%			22.6%		7.6%		24.2%		24.6%		24.0%		20.8%		23.2%
Period average US$ equivalent of C$1.00	$	0.768		$	0.728	$	0.758	$	0.789	$	0.806	$	0.839	$	0.900	$	0.925

(1) Fluctuations in the Canadian dollar relative to other foreign currencies have affected our consolidated results over the period.

Seasonality

Seasonal factors may impact our results in certain quarters. The first quarter has historically been seasonally stronger for our capital markets businesses. The second quarter has fewer days than the other quarters, which generally results in a decrease in net interest income and certain expense items. The third quarter results for Investor & Treasury Services are generally favourably impacted by higher securities lending as a result of the European dividend season. The third and fourth quarters include the summer months during which market activity generally tends to slow, negatively impacting the results of our capital markets, brokerage and investment management businesses.

Specified items affecting our consolidated results

• In the second quarter of 2015, our results included a gain of $108 million (before- and after-tax) from the wind-up of a U.S.-based subsidiary that resulted in the release of a foreign currency translation adjustment that was previously booked in other components of equity.

• In the third quarter of 2014, our results included a loss of $40 million (before- and after-tax) which includes foreign currency translation related to the closing of the sale of RBC Jamaica.

Trend analysis

Since the third quarter of 2014, growth in Canada has moderated, with the economy expanding in the first calendar quarter of 2016 due to the recent recovery in global oil prices, strong export performance and consumer spending. In May, wildfires near Fort McMurray, Alberta resulted in temporary production shutdowns at some oil sands facilities. These shutdowns are expected to lower annualized GDP growth by one percentage point in the second calendar quarter of 2016 with growth forecasted to rebound in the third calendar quarter when production has returned to normal levels. The U.S. economy has seen growth over the period but experienced slower growth in the first calendar quarter of 2016, reflecting declining exports, slower growth in consumer spending, and weaker business investment. Global equity indices reached highs for the year despite significant volatility in the first part of the year as investor sentiment improved due to companies posting higher-than-expected earnings as well as better than forecasted economic data. For further details, refer to the Economic and market review and outlook section.

Earnings have generally trended upwards over the period. Since the latter half of 2015, earnings have remained relatively stable, driven by solid volume and fee-based revenue growth in our Canadian Banking businesses, and higher earnings from growth in average fee-based client assets reflecting capital appreciation and strong net sales in Wealth Management. Results of our acquisition of City National have been reflected in our Wealth Management segment since the first quarter of 2016. Capital Markets results have remained relatively stable over the period, and were negatively impacted in the fourth quarter of 2014 by the exit from certain proprietary trading strategies to comply with the Volcker Rule and the implementation of funding valuation adjustments. Results in our Insurance segment fluctuated in 2015, largely reflecting an unfavourable change in Canadian tax legislation impacting certain foreign affiliates, which became effective November 1, 2014. Investor & Treasury Services results have generally trended upwards over the period, and in the third quarter of 2015 benefited from an additional month of earnings as a result of aligning the reporting

Royal Bank of Canada        Second Quarter 2016        23

periods, while results in the fourth quarter of 2015 were impacted by lower funding and liquidity results due to widening credit spreads and unfavourable market conditions. Credit spreads have stabilized since the first quarter of 2016.

Revenue has generally fluctuated over the period as solid volume and fee-based revenue growth in our Canadian Banking businesses, and growth in average fee-based client assets in Wealth Management have increased revenue over the period. Wealth Management revenue in the first and second quarters of 2016 reflected the inclusion of our acquisition of City National. Trading revenue has generally trended upwards over the period, and was unfavourably impacted in the fourth quarter of 2014 by the exit of certain proprietary trading strategies and the implementation of funding valuation adjustments. Trading revenue in the second half of 2015 was negatively impacted due to widening credit spreads, which stabilized in the first quarter of 2016. Trading revenue was lower in the second quarter of 2016 reflecting lower client activity. Net interest income has trended upwards over the period, largely due to solid volume growth across our Canadian Banking businesses, and higher trading-related net interest income and solid lending activity in Capital Markets. Over the period, an increase from foreign exchange translation due to a generally weaker Canadian dollar has also contributed to the increase in revenue. Insurance revenue was primarily impacted by changes in the fair value of investments backing our policyholder liabilities, which is largely offset in PBCAE.

Asset quality remained strong over the period despite increased lending activity, with PCL remaining relatively stable over the period. PCL increased in Capital Markets and Canadian Banking in the first and second quarters of 2016 mainly reflecting the impact of the sustained low oil price environment.

PBCAE has fluctuated quarterly as it includes the changes to the fair value of investments backing our policyholder liabilities, which is largely offset in revenue. PBCAE has also increased due to business growth in Insurance, and has been impacted by actuarial liability adjustments and claims costs over the period.

While we continue to focus on efficiency management activities, non-interest expense has generally trended upwards over the period, mostly to support business growth. Non-interest expense in the first quarter of 2016 reflected the inclusion of our acquisition of City National. Restructuring costs related to our International Wealth Management business increased non-interest expense since the fourth quarter of 2014 until the first quarter of 2016. Non-interest expense in Q3 2014 was impacted by the loss related to the sale of RBC Jamaica. Over the period, non-interest expense has increased due to the impact of foreign exchange translation generally reflecting the weaker Canadian dollar.

Our effective income tax rate has fluctuated over the period, mostly due to varying levels of income being reported in jurisdictions with different tax rates, as well as fluctuating levels of income from tax-advantaged sources, principally Canadian taxable corporate dividends. Our effective income tax rate has generally been impacted over the period by higher earnings before income taxes, increased earnings in higher tax jurisdictions, and by net favourable tax adjustments.

Financial condition

Condensed balance sheets

The following table shows our condensed balance sheet:

	As at
(Millions of Canadian dollars)	April 30 2016			January 31 2016			October 31 2015			April 30 2015
Assets(1)
Cash and due from banks	$	14,845		$	17,050		$	12,452		$	18,393
Interest-bearing deposits with banks		29,229			24,636			22,690			4,402
Securities		224,371			233,711			215,508			222,643
Assets purchased under reverse repurchase agreements and securities borrowed		184,825			196,295			174,723			163,368
Loans
Retail		359,863			360,763			348,183			336,064
Wholesale		150,602			157,592			126,069			114,283
Allowance for loan losses		(2,271	)		(2,169	)		(2,029	)		(2,037	)
Segregated fund net assets		882			839			830			780
Other – Derivatives		115,298			132,560			105,626			107,004
– Other		72,713			79,075			70,156			67,272
Total assets	$	1,150,357		$	1,200,352		$	1,074,208		$	1,032,172
Liabilities (1)
Deposits	$	741,454		$	769,568		$	697,227		$	651,551
Segregated fund liabilities		882			839			830			780
Other – Derivatives		116,479			132,023			107,860			112,219
– Other		213,852			218,180			196,985			201,580
Subordinated debentures		9,564			9,854			7,362			7,795
Total liabilities		1,082,231			1,130,464			1,010,264			973,925
Equity attributable to shareholders		67,538			69,315			62,146			56,431
Non-controlling interests		588			573			1,798			1,816
Total equity		68,126			69,888			63,944			58,247
Total liabilities and equity	$	1,150,357		$	1,200,352		$	1,074,208		$	1,032,172

(1) Foreign currency-denominated assets and liabilities are translated to Canadian dollars.

Q2 2016 vs. Q2 2015

Total assets were up $118 billion or 11% from last year, including an increase of $13 billion due to foreign exchange translation.

24        Royal Bank of Canada        Second Quarter 2016

Interest-bearing deposits with banks increased $25 billion, largely reflecting higher deposits with central banks.

Securities were up $2 billion or 1% compared to last year, as the increase driven by our acquisition of City National and the increase from foreign exchange translation were largely offset by lower equity trading positions and lower corporate and government debt securities reflecting unfavourable market conditions and our management of liquidity and funding risk.

Assets purchased under reverse repurchase agreements (reverse repos) and securities borrowed increased $21 billion or 13%, mainly attributable to higher client and business activities, and an increase due to foreign exchange translation.

Loans were up $60 billion or 13%, largely due to our acquisition of City National, and continued volume growth in residential mortgages and wholesale loans reflecting increased client activity.

Derivative assets were up $8 billion or 8%, mainly attributable to higher fair values on foreign currency contracts and decreased financial netting, largely offset by lower fair values on interest rate swaps and a lower impact from foreign exchange translation.

Other assets were up $5 billion or 8%, largely reflecting higher goodwill and intangible assets related to our acquisition of City National, and an increase due to foreign exchange translation.

Total liabilities were up $108 billion or 11% from last year, primarily reflecting an increase of $13 billion due to foreign exchange translation.

Deposits increased $90 billion or 14%, mainly reflecting our acquisition of City National and our issuances of fixed term notes and covered bonds to satisfy our funding requirements. Growth in retail deposits and an increase due to foreign exchange translation further contributed to the increase.

Derivative liabilities were up $4 billion or 4%, mainly attributable to higher fair values on foreign currency contracts and decreased financial netting, largely offset by lower fair values on interest rate swaps and a lower impact from foreign exchange translation.

Other liabilities increased $12 billion or 6%, mainly reflecting increased obligations related to repurchase agreements reflecting higher client activity and an increase due to foreign exchange translation, partly offset by lower obligations related to securities sold short.

Total equity increased $10 billion or 17%, largely reflecting earnings, net of dividends, and the issuance of common shares relating to our acquisition of City National.

Q2 2016 vs. Q1 2016

Total assets decreased $50 billion or 4% from the prior quarter, mainly reflecting a lower impact from foreign exchange translation, partially offset by higher deposits with central banks, an increase in equity trading positions and government debt securities, and higher assets purchased under reverse repos and securities borrowed reflecting increased client and business activities.

Total liabilities decreased $48 billion or 4% from the prior quarter, primarily attributable to a lower impact from foreign exchange translation, partially offset by higher derivative liabilities mainly attributable to decreased financial netting and higher fair values on cross-currency interest rate swaps, and higher retail deposits.

Q2 2016 vs. Q4 2015

Total assets increased $76 billion or 7%, mainly attributable to the growth in wholesale loans and residential mortgages reflecting our acquisition of City National and continued volume growth, and higher derivative assets largely reflecting increased fair values on foreign exchange contracts. Higher assets purchased under reverse repos and securities borrowed due to increased client activity, and growth in securities largely due to our acquisition of City National further contributed to the increase. These factors were partially offset by a lower impact from foreign exchange translation.

Total liabilities increased $72 billion or 7%, mainly attributable to the increase in deposits reflecting our acquisition of City National, higher derivative liabilities due to the reasons noted above, and higher obligations related to repurchase agreements. These factors were partially offset by a lower impact from foreign exchange translation.

Off-balance sheet arrangements

In the normal course of business, we engage in a variety of financial transactions that, for accounting purposes, are not recorded on our Consolidated Balance Sheets. Off-balance sheet transactions are generally undertaken for risk, capital and funding management purposes which benefit us and our clients. These include transactions with structured entities and may also include the issuance of guarantees. These transactions give rise to, among other risks, varying degrees of market, credit, liquidity and funding risk, which are discussed in the Risk management section. Please refer to pages 45 to 47 of our 2015 Annual Report for a more detailed discussion of these types of arrangements.

We use structured entities to securitize our financial assets as well as assist our clients in securitizing their financial assets. These entities are not operating entities, typically have no employees, and may or may not be recorded on our Consolidated Balance Sheets.

In the normal course of business, we engage in a variety of financial transactions that may qualify for derecognition. We apply the derecognition rules to determine whether we have effectively transferred substantially all the risks and rewards or control associated with the financial assets to a third party. If the transaction meets specific criteria, it may qualify for full or partial derecognition from our Consolidated Balance Sheets.

Securitizations of our financial assets

We periodically securitize our credit card receivables, residential and commercial mortgage loans and bond participation certificates primarily to diversify our funding sources, enhance our liquidity position and for capital purposes. We also securitize residential and commercial mortgage loans for sales and trading activities.

The majority of our securitization activities are recorded on our Consolidated Balance Sheets. We securitize our credit card receivables, on a revolving basis, through a consolidated structured entity. We securitize single and multiple-family residential mortgages through the National Housing Act Mortgage-Backed Securities (NHA MBS) program, which are not derecognized from our Consolidated Balance Sheets. For details of these activities, refer to Note 6 and Note 7 of our audited 2015 Annual Consolidated Financial Statements.

Royal Bank of Canada        Second Quarter 2016        25

Involvement with unconsolidated structured entities

In the normal course of business, we engage in a variety of financial transactions with structured entities to support our customers’ financing and investing needs, including securitization of client financial assets, creation of investment products, and other types of structured financing.

We have the ability to use credit mitigation tools such as third party guarantees, credit default swaps, and collateral to mitigate risks assumed through securitization and re-securitization exposures. The process in place to monitor the credit quality of our securitization and re-securitization exposures involves, among other things, reviewing the performance data of the underlying assets. We affirm our ratings each quarter and formally confirm or assign a new rating at least annually. For further details on our activities to manage risks, refer to the Risk management section.

Below is a description of our activities with respect to certain significant unconsolidated structured entities. For a complete discussion of our interests in consolidated and unconsolidated structured entities, refer to Note 7 of our audited 2015 Annual Consolidated Financial Statements.

RBC-administered multi-seller conduits

We administer multi-seller conduits which are used primarily for the securitization of our clients’ financial assets. As at April 30, 2016, our maximum exposure to loss from these conduits was $39 billion (January 31, 2016 – $42 billion; April 30, 2015 – $39 billion), primarily representing backstop liquidity and partial credit enhancement facilities extended to the conduits.

As at April 30, 2016, the notional amount of backstop liquidity facilities we provided was $39 billion (January 31, 2016 – $42 billion; April 30, 2015 – $39 billion) and the partial credit enhancement facilities we provided were $2.4 billion (January 31, 2016 – $3.0 billion; April 30, 2015 – $2.7 billion). The decrease in the amount of backstop liquidity and credit enhancement facilities provided to the multi-seller conduits compared to the prior quarter primarily reflects the impact of foreign exchange translation. The decrease in the amount of credit enhancement facilities compared to the prior year primarily reflects fewer transactions requiring program-level credit enhancement due to support provided directly to those transactions.

Total loans extended to the multi-seller conduits under the backstop liquidity facilities were $716 million, a decrease of $97 million from the prior quarter mainly due to the impact of foreign exchange translation and a decrease of $190 million from the prior year mainly due to principal repayments offset by the impact of foreign exchange translation. Total assets of the multi-seller conduits as at April 30, 2016 were $38.4 billion (January 31, 2016 – $41.5 billion; April 30, 2015 – $38 billion). The decrease from the prior quarter was primarily due to the impact of foreign exchange translation and decreases in the Student loans and Credit cards asset classes. The increase from the prior year was primarily due to the impact of foreign exchange translation and increases in the Auto loans and leases and Consumer loans asset classes, partially offset by decreases in the Student loans and Credit cards asset classes.

As at April 30, 2016, the total asset-backed commercial paper (ABCP) issued by the conduits amounted to $26.4 billion (January 31, 2016 – $29.7 billion; April 30, 2015 – $26.2 billion). The rating agencies that rate the ABCP rated 67% of the total amount issued within the top ratings category (January 31, 2016 – 66%; April 30, 2015 – 71%) and the remaining amount in the second highest ratings category. We sometimes purchase ABCP issued by the multi-seller conduits in our capacity as a placement agent in order to facilitate overall program liquidity. As at April 30, 2016, the fair value of our inventory was $11 million, an increase of $6 million from the prior quarter and $4 million from the prior year. The fluctuations in inventory held reflect normal trading activity. This inventory is classified as Securities – Trading on our Consolidated Balance Sheets.

Structured finance

We invest in auction rate securities of trusts which fund their long-term investments in student loans by issuing short-term senior and subordinated notes. Our maximum exposure to loss in these auction rate securities trusts as at April 30, 2016 was $520 million (January 31, 2016 – $585 million; April 30, 2015 – $562 million). The decrease in our maximum exposure to loss relative to the prior quarter is primarily related to the impact of foreign exchange translation. The decrease relative to the prior year is primarily related to the sale of auction rate securities.

We also provide liquidity facilities to certain municipal bond Tender Option Bond (TOB) trusts in which we have an interest but do not consolidate because the residual certificates issued by the TOB trusts are held by third parties. As at April 30, 2016, our maximum exposure to loss from these unconsolidated municipal bond TOB trusts was $1.1 billion (January 31, 2016 – $1.2 billion; April 30, 2015 – $891 million). The decrease in our maximum exposure to loss relative to the prior quarter is primarily related to the impact of foreign exchange translation. The increase in our maximum exposure to loss relative to the prior year is primarily related to the addition of new TOB trusts.

We provide senior warehouse financing to discrete unaffiliated structured entities that are established by third parties to acquire loans and issue term collateralized loan obligations. A portion of the proceeds from the sale of the term collateralized loan obligations is used to fully repay the senior warehouse financing that we provide. As at April 30, 2016, our maximum exposure to loss associated with outstanding senior warehouse financing facilities was $563 million (January 31, 2016 – $652 million; April 30, 2015 – $318 million). The decrease in our maximum exposure to loss relative to the prior quarter is primarily due to repayments of outstanding loans amounts. The increase in our maximum exposure to loss relative to the prior year is primarily related to new outstanding facilities, partially offset by repayments of previous facilities.

Investment funds

We enter into fee-based equity derivative transactions with third parties, including mutual funds, unit investment trusts and other investment funds. These transactions provide their investors with the desired exposure to the reference funds, and we economically hedge our exposure from these derivatives by investing in those third party managed reference funds. Our maximum exposure to loss as at April 30, 2016, which is primarily related to our investments in such reference funds, was $2.6 billion (January 31, 2016 – $3.1 billion; April 30, 2015 – $3.2 billion). The decrease in our maximum exposure compared to the prior quarter is primarily due to net liquidation of funds in response to new regulatory requirements in the U.S and the impact of foreign exchange translation. The decrease in our maximum exposure compared to the prior year is primarily due to net liquidation of funds in response to new regulatory requirements in the U.S.

26        Royal Bank of Canada        Second Quarter 2016

We also provide liquidity facilities to certain third party investment funds that issue unsecured variable-rate preferred shares and invest in portfolios of tax exempt bonds. As at April 30, 2016, our maximum exposure to these funds was $714 million (January 31, 2016 – $797 million; April 30, 2015 – $686 million). The changes in our maximum exposure compared to the prior quarter and prior year are primarily due to the impact of foreign exchange translation.

Third-party securitization vehicles

We hold interests in certain unconsolidated third-party securitization vehicles, which are structured entities. We, as well as other financial institutions, are obligated to provide funding to these entities up to our maximum commitment level and are exposed to credit losses on the underlying assets after various credit enhancements. As at April 30, 2016, our maximum exposure to loss in these entities was $9.6 billion (January 31, 2016 – $10.1 billion; April 30, 2015 – $4.3 billion). The decrease in our maximum exposure to loss compared to the prior quarter reflects the impact of foreign exchange translation. The increase in our maximum exposure to loss compared to the prior year reflects additional securitized assets and the impact of foreign exchange translation.

Guarantees, retail and commercial commitments

We provide guarantees and commitments to our clients that expose us to liquidity and funding risks. Our maximum potential amount of future payments in relation to our commitments and guarantee products as at April 30, 2016 was $331 billion (January 31, 2016 – $349 billion; April 30, 2015 – $282 billion). The decrease compared to the prior quarter primarily relates to the impact of foreign exchange translation in Commitments to extend credit, partially offset by business growth in Securities lending indemnifications. The increase compared to the prior year relates primarily to business growth in Commitments to extend credit and Securities lending indemnifications. Refer to Liquidity and funding risk and Note 26 of our audited 2015 Annual Consolidated Financial Statements for details regarding our guarantees and commitments.

Risk management

Credit risk

Gross credit risk exposure by portfolio and sector

	As at
	April 30 2016												January 31 2016		October 31 2015
	Lending-related and other						Trading-related
	Loans and acceptances
(Millions of Canadian dollars)	Outstanding		Undrawn commitments (1)		Other (2)		Repo-style transactions		Derivatives (3)		Total exposure (4)		Total exposure (4)		Total exposure (4)
Residential mortgages	$	246,029	$	–	$	185	$	–	$	–	$	246,214	$	245,861	$	234,181
Personal		93,679		81,908		160		–		–		175,747		176,196		173,385
Credit cards		16,269		21,602		–		–		–		37,871		37,705		40,686
Small business (5)		3,886		5,693		5		–		–		9,584		9,464		9,382
Retail	$	359,863	$	109,203	$	350	$	–	$	–	$	469,416	$	469,226	$	457,634
Business (5)
Agriculture	$	6,399	$	1,162	$	80	$	–	$	66	$	7,707	$	7,838	$	7,502
Automotive		7,318		4,909		384		161		637		13,409		14,079		13,109
Consumer goods		8,994		7,706		651		–		575		17,926		19,900		15,303
Energy
Oil and gas		7,991		11,048		1,728		–		578		21,345		24,426		23,134
Utilities		6,863		12,961		3,049		–		1,669		24,542		27,475		23,242
Financing products		10,582		562		384		597		948		13,073		14,367		11,728
Forest products		1,233		503		93		–		45		1,874		1,898		1,852
Health services		7,111		6,023		1,935		–		770		15,839		15,352		15,362
Holding and investments		7,508		2,890		854		–		157		11,409		11,453		9,321
Industrial products		5,142		6,029		497		–		654		12,322		13,248		11,194
Mining & metals		1,514		3,425		1,095		–		102		6,136		6,967		6,446
Non-bank financial services		9,315		12,868		15,215		217,049		36,959		291,406		310,468		281,152
Other services		10,954		8,398		11,168		4,203		1,461		36,184		35,342		32,796
Real estate & related		39,196		10,388		1,893		67		397		51,941		53,293		45,358
Technology & media		9,521		13,028		629		2		1,675		24,855		29,368		23,064
Transportation & environment		6,288		4,201		2,975		–		1,289		14,753		15,970		14,641
Other		6,035		993		6,135		138		704		14,005		19,178		6,965
Sovereign (5)		10,561		6,039		76,073		44,911		13,075		150,659		144,712		113,947
Bank (5)		1,921		1,996		101,683		100,114		25,146		230,860		235,254		218,513
Wholesale	$	164,446	$	115,129	$	226,521	$	367,242	$	86,907	$	960,245	$	1,000,588	$	874,629
Total exposure	$	524,309	$	224,332	$	226,871	$	367,242	$	86,907	$	1,429,661	$	1,469,814	$	1,332,263

(1) Undrawn commitments represent an estimate of the contractual amount that may be drawn upon at the time of default of an obligor.

(2) Includes credit equivalent amounts for contingent liabilities such as letters of credit and guarantees, outstanding amounts for available-for-sale (AFS) debt securities, deposits with financial institutions and other assets.

(3) Credit equivalent amount after factoring in master netting agreements.

(4) Gross credit risk exposure is before allowance for loan losses. Exposures under Basel III asset classes of qualifying revolving retail and other retail are largely included within Personal and Credit cards, while home equity lines of credit (HELOC) are included in Personal.

(5) Refer to Note 5 of our audited 2015 Annual Consolidated Financial Statements for the definitions of these terms.

Royal Bank of Canada        Second Quarter 2016        27

Q2 2016 vs. Q1 2016

Total gross credit risk exposure decreased $40 billion or 3% from the prior quarter, mainly due to a lower impact from foreign exchange translation and a decrease in derivatives, which were partially offset by higher deposits with central banks and repo-style transactions.

Retail exposure increased slightly by $0.2 billion, as increases in residential mortgages and credit cards were offset by decreases in personal loans.

Wholesale exposure decreased $40 billion or 4%, primarily attributable to a lower impact from foreign exchange translation and a decrease in derivatives exposures, which were partially offset by higher deposits with central banks and repo-style transactions. Wholesale loan utilization of 41% increased 2% from 39% last quarter.

Gross credit risk exposure by geography (1)

	As at
	April 30 2016												January 31 2016		October 31 2015
	Lending-related and other						Trading-related
	Loans and acceptances
(Millions of Canadian dollars)	Outstanding		Undrawn commitments		Other		Repo-style transactions		Derivatives		Total exposure		Total exposure		Total exposure
Canada	$	419,139	$	145,095	$	74,622	$	74,312	$	25,076	$	738,244	$	741,293	$	721,680
U.S.		73,231		61,331		72,255		189,023		13,940		409,780		433,644		344,176
Europe		17,563		14,450		62,531		64,620		41,884		201,048		209,861		188,954
Other International		14,376		3,456		17,463		39,287		6,007		80,589		85,016		77,453
Total Exposure	$	524,309	$	224,332	$	226,871	$	367,242	$	86,907	$	1,429,661	$	1,469,814	$	1,332,263

(1) Geographic profile is based on country of residence of the borrower.

Q2 2016 vs. Q1 2016

The geographic mix of our gross credit exposure remains relatively unchanged from the prior quarter. Our exposure in Canada, the U.S., Europe and Other International were 51%, 29%, 14% and 6%, respectively (January 31, 2016 – 50%, 30%, 14% and 6% respectively). The slight shift in Canada and the U.S. was largely driven by the impact of foreign exchange translation.

European exposure

	As at
	April 30 2016														January 31 2016		October 31 2015
	Loans and acceptances				Other
(Millions of Canadian dollars)	Outstanding		Undrawn commitments (1)		Securities (2)		Letters of credit and guarantees		Repo-style transactions		Derivatives		Total European exposure		Total European exposure		Total European exposure
Gross exposure to Europe	$	17,563	$	14,450	$	29,356	$	33,175	$	64,620	$	41,884	$	201,048	$	209,861	$	188,954
Less: Collateral held against repo-style transactions		–		–		–		–		63,906		–		63,906		67,666		57,674
Potential future credit exposure add-on amount		–		–		–		–		–		24,708		24,708		28,093		29,875
Undrawn commitments		–		14,450		–		33,175		–		–		47,625		46,573		43,388
Gross drawn exposure to Europe	$	17,563	$	–	$	29,356	$	–	$	714	$	17,176	$	64,809	$	67,529	$	58,017
Less: Collateral applied against derivatives		–		–		–		–		–		11,817		11,817		12,293		10,721
Add: Trading securities		–		–		10,716		–		–		–		10,716		11,715		12,797
Net exposure to Europe(3)	$	17,563	$	–	$	40,072	$	–	$	714	$	5,359	$	63,708	$	66,951	$	60,093

(1) These amounts are comprised of $10.7 billion to corporate entities, $3.2 billion to financial entities and $0.6 billion to sovereign entities. On a country basis, exposure is comprised of $5.7 billion to the U.K., $2.7 billion to France, $1.9 billion to Germany, $0.6 billion to Ireland, $0.4 billion to Spain, and $0.1 billion to Italy, with the remaining $2.9 billion related to Other Europe. Of the undrawn commitments, over 82% are to investment grade entities.

(2) Securities include $10.7 billion of trading securities (January 31, 2016 – $11.7 billion), $15.8 billion of deposits (January 31, 2016 – $16.2 billion), and $13.6 billion of AFS securities (January 31, 2016 – $13.5 billion).

(3) Excludes $2.2 billion (January 31, 2016 – $2.0 billion) of exposures to supranational agencies.

Our gross credit risk exposure is calculated based on the definitions provided under the Basel III framework whereby risk exposure is calculated before taking into account any collateral and inclusive of an estimate of potential future changes to that credit exposure. On that basis, our total European exposure as at April 30, 2016 was $201 billion. Our gross drawn exposure to Europe was $65 billion, after taking into account collateral held against repo-style transactions of $64 billion, letters of credit and guarantees, and undrawn commitments for loans of $48 billion and potential future credit exposure to derivatives of $25 billion. Our net exposure to Europe was $64 billion, after taking into account $12 billion of collateral, primarily in cash, we hold against derivatives and the addition of trading securities of $11 billion held in our trading book. Our net exposure to Europe also reflected $1.7 billion of mitigation through credit default swaps, which are largely used to hedge single name exposures and market risk.

28        Royal Bank of Canada        Second Quarter 2016

Net European exposure by country (1)

	As at
	April 30 2016										January 31 2016		October 31 2015
(Millions of Canadian dollars)	Loans outstanding		Securities		Repo-style transactions		Derivatives		Total		Total		Total
U.K.	$	10,178	$	9,415	$	578	$	2,479	$	22,650	$	25,893	$	20,964
Germany		1,045		8,493		20		423		9,981		9,729		9,496
France		553		3,872		5		724		5,154		4,866		4,533
Total U.K., Germany, France	$	11,776	$	21,780	$	603	$	3,626	$	37,785	$	40,488	$	34,993
Greece	$	–	$	–	$	–	$	–	$	–	$	–	$	–
Ireland		591		20		36		316		963		1,387		1,319
Italy		94		92		–		46		232		226		100
Portugal		7		5		–		11		23		10		9
Spain		368		77		–		107		552		561		439
Total Peripheral(2)	$	1,060	$	194	$	36	$	480	$	1,770	$	2,184	$	1,867
Luxembourg	$	711	$	6,745	$	14	$	85	$	7,555	$	5,872	$	4,890
Netherlands		1,006		2,681		6		799		4,492		4,126		4,983
Norway		344		3,888		–		22		4,254		5,065		4,886
Sweden		304		2,854		20		31		3,209		3,652		3,376
Switzerland		1,184		660		11		148		2,003		2,433		1,753
Other		1,178		1,270		24		168		2,640		3,131		3,345
Total Other Europe	$	4,727	$	18,098	$	75	$	1,253	$	24,153	$	24,279	$	23,233
Total exposure to Europe	$	17,563	$	40,072	$	714	$	5,359	$	63,708	$	66,951	$	60,093

(1) Geographic profile is based on country of risk, which reflects our assessment of the geographic risk associated with a given exposure. Typically, this is the residence of the borrower.

(2) Gross credit risk exposure to peripheral Europe is comprised of Greece $nil (January 31, 2016 – $nil), Ireland $17.1 billion (January 31, 2016 – $15.8 billion), Italy $0.4 billion (January 31, 2016 – $0.4 billion), Portugal $0.1 billion (January 31, 2016 – $0.4 billion), and Spain $1.3 billion (January 31, 2016 – $1.4 billion).

There have been no material changes to the nature of our exposures to Europe as described in the Credit Risk section of our 2015 Annual Report.

Q2 2016 vs. Q1 2016

Net credit risk exposure to Europe decreased $3.2 billion from last quarter, largely driven by decreased exposure in the U.K., Norway and Other, partly offset by an increase in Luxembourg. Our net exposure to peripheral Europe, which includes Greece, Ireland, Italy, Portugal and Spain, remained minimal, with total outstanding exposure decreasing $0.4 billion during the quarter to $1.8 billion.

Our European corporate loan book is managed on a global basis and the underwriting standards for this loan book reflect the same approach to the use of our balance sheet as we have applied in both Canada and the U.S. PCL taken during the quarter on this portfolio was not material. The gross impaired loans ratio of this loan book was 0.6%, up 10 bps from last quarter.

Net European exposure by client type

	As at
	April 30 2016																								January 31 2016		October 31 2015
(Millions of Canadian dollars)	U.K.		Germany		France		Total U.K., Germany, France		Greece		Ireland		Italy		Portugal		Spain		Total Peripheral		Other Europe		Total Europe		Total Europe		Total Europe
Financials	$	9,325	$	7,716	$	1,020	$	18,061	$	–	$	184	$	150	$	7	$	100	$	441	$	11,195	$	29,697	$	29,236	$	27,835
Sovereign		4,152		728		3,449		8,329		–		20		–		4		103		127		8,794		17,250		19,565		14,815
Corporate		9,173		1,537		685		11,395		–		759		82		12		349		1,202		4,164		16,761		18,150		17,443
Total	$	22,650	$	9,981	$	5,154	$	37,785	$	–	$	963	$	232	$	23	$	552	$	1,770	$	24,153	$	63,708	$	66,951	$	60,093

Q2 2016 vs. Q1 2016

Our net exposure to Sovereign decreased $2.3 billion mainly due to decreases in the U.K., partly offset by increases in Other Europe. The increase in Financials of $0.5 billion was largely in Germany and the U.K., offset by decreases in Other Europe. The net exposure to Corporates decreased $1.4 billion mainly in Other Europe and U.K.

Royal Bank of Canada        Second Quarter 2016        29

Residential mortgages and home equity lines of credit (insured vs. uninsured)

Residential mortgages and home equity lines of credit are secured by residential properties. The following table presents a breakdown by geographic region:

	As at April 30, 2016
	Residential mortgages (1)										Home equity lines of credit  (3)
(Millions of Canadian dollars, except percentage amounts)	Insured (2)				Uninsured				Total		Total
Region (4)
Canada
Atlantic provinces	$	7,230	57	%	$	5,460	43	%	$	12,690	$	2,029
Quebec		13,442	49			14,133	51			27,575		4,108
Ontario		40,320	41			57,060	59			97,380		16,409
Alberta		21,035	57			15,585	43			36,620		7,046
Saskatchewan and Manitoba		8,364	52			7,706	48			16,070		2,657
B.C. and territories		16,657	38			27,148	62			43,805		8,938
Total Canada (5)	$	107,048	46	%	$	127,092	54	%	$	234,140	$	41,187
U.S.		–	–			8,393	100			8,393		1,514
Other International		13	–			3,078	100			3,091		2,740
Total International	$	13	–	%	$	11,471	100	%	$	11,484	$	4,254
Total	$	107,061	44	%	$	138,563	56	%	$	245,624	$	45,441

	As at January 31, 2016
	Residential mortgages (1)										Home equity lines of credit (3)
(Millions of Canadian dollars, except percentage amounts)	Insured (2)				Uninsured				Total		Total
Region (4)
Canada
Atlantic provinces	$	7,257	58	%	$	5,309	42	%	$	12,566	$	2,033
Quebec		13,489	49			13,776	51			27,265		4,093
Ontario		40,783	42			55,742	58			96,525		16,195
Alberta		21,169	58			15,420	42			36,589		7,057
Saskatchewan and Manitoba		8,414	52			7,626	48			16,040		2,685
B.C. and territories		17,016	39			26,684	61			43,700		8,832
Total Canada (5)	$	108,128	46	%	$	124,557	54	%	$	232,685	$	40,895
U.S.		–	–			8,996	100			8,996		1,651
Other International		14	–			3,493	100			3,507		3,039
Total International	$	14	–	%	$	12,489	100	%	$	12,503	$	4,690
Total	$	108,142	44	%	$	137,046	56	%	$	245,188	$	45,585

(1) The residential mortgages amounts exclude our third party mortgage-backed securities (MBS) of $405 million (January 31, 2016 – $440 million).

(2) Insured residential mortgages are mortgages whereby our exposure to default is mitigated by insurance through the Canada Mortgage and Housing Corporation (CMHC) or other private mortgage default insurers.

(3) HELOC includes revolving and non-revolving loans.

(4) Refer to the Risk management section of our 2015 Annual Report for the definitions of these regions.

(5) Total consolidated residential mortgages in Canada of $234 billion (January 31, 2016 – $233 billion) is largely comprised of $209 billion (January 31, 2016 – $208 billion) of residential mortgages and $6 billion (January 31, 2016 – $6 billion) of mortgages with commercial clients of which $3 billion (January 31, 2016 – $3 billion) are insured mortgages, both in Canadian Banking, and $19 billion (January 31, 2016 – $19 billion) of residential mortgages in Capital Markets held for securitization purposes.

Home equity lines of credit are uninsured and reported within the personal loan category. As at April 30, 2016, home equity lines of credit in Canadian Banking were $41 billion (January 31, 2016 – $41 billion). Approximately 98% of these home equity lines of credit (January 31, 2016 – 98%) are secured by a first lien on real estate, and 7% (January 31, 2016 – 7%) of the total homeline clients pay the scheduled interest payment only.

30        Royal Bank of Canada        Second Quarter 2016

Residential mortgages portfolio by amortization period

The following table provides a summary of the percentage of residential mortgages that fall within the remaining amortization periods based upon current customer payment amounts, which incorporate payments larger than the minimum contractual amount and/or higher frequency of payments:

	As at
	April 30 2016									January 31 2016
	Canada			U.S. and Other International			Total			Canada			U.S. and Other International			Total
Amortization period
£ 25 years		75	%		39	%		73	%		75	%		39	%		73	%
> 25 years £ 30 years		24			59			26			23			60			25
> 30 years £ 35 years		1			2			1			2			1			2
> 35 years		–			–			–			–			–			–
Total		100	%		100	%		100	%		100	%		100	%		100	%

Average loan-to-value (LTV) ratio for newly originated and acquired uninsured residential mortgages and homeline products

The following table provides a summary of our average LTV ratio for newly originated and acquired uninsured residential mortgages and homeline products by geographic region:

	For the three months ended												For the six months ended
	April 30 2016						January 31 2016						April 30 2016
	Uninsured						Uninsured						Uninsured
	Residential mortgages (1)			Homeline products (2)			Residential mortgages (1)			Homeline products (2)			Residential mortgages (1)			Homeline products (2)
Region (3)
Atlantic provinces		73	%		74	%		74	%		75	%		73	%		75	%
Quebec		70			73			70			73			70			73
Ontario		70			69			70			69			70			69
Alberta		72			72			73			73			72			73
Saskatchewan and Manitoba		74			74			74			74			74			74
B.C. and territories		69			65			68			66			68			65
U.S.		72			n.m.			74			n.m.			73			n.m.
Other International		63			n.m.			63			n.m.			63			n.m.
Average of newly originated and acquired for the year (4), (5)		70	%		69	%		70	%		69	%		70	%		69	%
Total Canadian Banking residential mortgages portfolio (6)		56	%		54	%		55	%		55	%		56	%		54	%

(1) Residential mortgages exclude residential mortgages within the homeline products.

(2) Homeline products are comprised of both residential mortgages and home equity lines of credit.

(3) Refer to the Risk management section of our 2015 Annual Report for the definitions of these regions.

(4) The average LTV ratio for newly originated and acquired uninsured residential mortgages and homeline products is calculated on a weighted basis by mortgage amounts at origination.

(5) For newly originated mortgages and homeline products, LTV is calculated based on the total facility amount for the residential mortgage and homeline product divided by the value of the related residential property.

(6) Weighted by mortgage balances and adjusted for property values based on the Teranet – National Bank National Composite House Price Index.

n.m. not meaningful

We employ a risk-based approach to property valuation. Property valuation methods include automated valuation models (AVM) and appraisals. An AVM is a tool that estimates the value of a property by reference to market data including sales of comparable properties and price trends specific to the Metropolitan Statistical Area in which the property being valued is located. Using a risk-based approach, we also employ appraisals which can include drive-by or full on-site appraisals.

We continue to actively manage our entire mortgage portfolio and perform stress testing, based on a combination of increasing unemployment, rising interest rates, and a downturn in real estate markets.

Royal Bank of Canada        Second Quarter 2016        31

Credit quality performance

Provision for (recovery of) credit loss

	For the three months ended								For the six months ended
(Millions of Canadian dollars, except percentage amounts)	April 30 2016			January 31 2016			April 30 2015		April 30 2016		April 30 2015
Personal & Commercial Banking	$	279		$	284		$	235	$	563	$	487
Wealth Management		7			5			32		12		45
Capital Markets		123			120			15		243		20
Corporate Support and Other (1)		51			1			–		52		–
Total PCL	$	460		$	410		$	282	$	870	$	552
Canada (2)
Residential mortgages	$	8		$	11		$	5	$	19	$	13
Personal		117			116			97		233		193
Credit cards		113			103			94		216		186
Small business		9			8			9		17		18
Retail		247			238			205		485		410
Wholesale		45			117			11		162		39
PCL on impaired loans		292			355			216		647		449
U.S. (2), (3)
Retail	$	–		$	–		$	1	$	–	$	1
Wholesale		112			38			10		150		17
PCL on impaired loans		112			38			11		150		18
Other International (2), (3)
Retail	$	(1	)	$	20		$	10	$	19	$	14
Wholesale		7			(3	)		45		4		71
PCL on impaired loans		6			17			55		23		85
PCL on loans not yet identified as impaired		50			–			–		50		–
Total PCL	$	460		$	410		$	282	$	870	$	552
PCL ratio
Total PCL ratio		0.36%			0.31%			0.25%		0.33%		0.24%
PCL on impaired loans ratio		0.32%			0.31%			0.25%		0.31%		0.24%
Personal & Commercial Banking		0.30%			0.30%			0.26%		0.30%		0.27%
Canadian Banking		0.30%			0.29%			0.25%		0.29%		0.25%
Caribbean Banking		0.32%			0.88%			1.06%		0.61%		1.00%
Wealth Management		0.06%			0.04%			0.73%		0.05%		0.51%
PCL ratio – loans		0.04%			0.02%			0.73%		0.03%		0.51%
PCL ratio – acquired credit-impaired loans		0.02%			0.02%			n.a.		0.02%		n.a.
Capital Markets		0.56%			0.53%			0.08%		0.54%		0.05%

(1) PCL in Corporate Support and Other primarily comprised of PCL for loans not yet identified as impaired. For further information, refer to the How we measure and report our business segments section of our 2015 Annual Report.

(2) Geographic information is based on residence of borrower.

(3) Includes acquired credit-impaired loans.

Q2 2016 vs. Q2 2015

Total PCL increased $178 million, or 63% from a year ago. The total PCL ratio of 36 bps deteriorated 11 bps and is comprised of PCL on impaired loans ratio of 32 bps and PCL on loans not yet identified as impaired ratio of 4 bps.

PCL in Personal & Commercial Banking increased $44 million or 19%, and the PCL ratio of 30 bps deteriorated 4 bps, largely due to higher provisions in both our Canadian personal and commercial lending portfolios and higher write-offs in our Canadian credit cards portfolio. These were partially offset by lower provisions in Caribbean Banking.

PCL in Wealth Management decreased $25 million as the prior year included a provision on a single account related to our International Wealth Management business. In the current quarter, we recorded provisions of $7 million related to City National.

PCL in Capital Markets increased $108 million, primarily due to provisions taken in the oil & gas sector reflecting the sustained low oil price environment.

PCL in Corporate Support and Other increased mainly due to a $50 million increase in PCL for loans not yet identified as impaired, reflecting volume growth and ongoing economic uncertainty.

Q2 2016 vs. Q1 2016

Total PCL increased $50 million, or 12% from last quarter largely reflecting a $50 million increase in PCL for loans not yet identified as impaired as noted above. The PCL ratio of 36 bps deteriorated 5 bps. PCL on Impaired Loans of $410 million is unchanged from last quarter, as small increases in the Capital Markets and Wealth Management portfolios were offset by a decrease in the Personal & Commercial Banking portfolio.

PCL in Personal & Commercial Banking decreased $5 million or 2%, and the PCL ratio of 30 bps remained unchanged, mainly reflecting a decrease in provisions in our Caribbean Banking portfolios. This was partially offset by higher write-offs in our Canadian credit cards portfolio.

PCL in Wealth Management increased $2 million, reflecting provisions related to City National as noted above.

PCL in Capital Markets increased $3 million.

PCL in Corporate Support and Other increased $50 million reflecting the increase in PCL for loans not yet identified as impaired as noted above.

32        Royal Bank of Canada        Second Quarter 2016

Q2 2016 vs. Q2 2015 (Six months ended)

Total PCL increased $318 million, or 58% from the prior year. PCL ratio of 33 bps, deteriorated 9 bps.

PCL in Personal & Commercial Banking increased $76 million or 16%, and the PCL ratio of 30 bps deteriorated 3 bps, mainly due to higher provisions in both our Canadian personal and commercial lending portfolios and higher write-offs in our Canadian credit cards portfolio. These were partially offset by lower PCL in our Caribbean Banking portfolios.

PCL in Wealth Management decreased $33 million as the prior year included provisions on a couple of accounts related to our International Wealth Management business. We recorded provisions of $12 million in the current year related to City National.

PCL in Capital Markets increased $223 million, mainly due to provisions taken in the oil & gas sector reflecting the sustained low oil price environment.

PCL in Corporate Support and Other increased, reflecting the increase in PCL for loans not yet identified as impaired as noted above.

Gross impaired loans (GIL)

	As at
(Millions of Canadian dollars, except percentage amounts)	April 30 2016			January 31 2016			April 30 2015
Personal & Commercial Banking	$	1,731		$	1,817		$	1,901
Wealth Management (1)		736			835			91
Capital Markets		1,234			466			151
Investor & Treasury Services		2			2			2
Total GIL	$	3,703		$	3,120		$	2,145
Canada (2)
Retail	$	651		$	624		$	675
Wholesale		591			604			490
GIL		1,242			1,228			1,165
U.S. (1), (2)
Retail	$	42		$	22		$	10
Wholesale		1,568			876			99
GIL		1,610			898			109
Other International (2)
Retail	$	330		$	392		$	360
Wholesale		521			602			511
GIL		851			994			871
Total GIL	$	3,703		$	3,120		$	2,145
Impaired loans, beginning balance	$	3,120		$	2,285		$	2,133
Classified as impaired during the period (new impaired) (3)		1,378			544			438
Net repayments (2), (3)		(148	)		(175	)		(44	)
Amounts written off		(345	)		(347	)		(323	)
Other (3), (4)		(302	)		813			(59	)
Impaired loans, balance at end of period (2)	$	3,703		$	3,120		$	2,145
GIL ratio (5)
Total GIL ratio		0.71%			0.59%			0.46%
Personal & Commercial Banking		0.45%			0.48%			0.52%
Canadian Banking		0.28%			0.27%			0.32%
Caribbean Banking		8.14%			8.99%			9.23%
Wealth Management		1.54%			1.69%			0.51%
GIL ratio – loans		0.43%			0.40%			0.51%
GIL ratio – acquired credit-impaired loans		1.11%			1.29%			–%
Capital Markets		1.38%			0.52%			0.19%

(1) Includes $531 million (January 31, 2016 – $636 million) related to acquired credit impaired loans, with over 80% covered by loss-sharing agreements with the Federal Deposit Insurance Corporation (FDIC). For further details refer to Notes 2 and 5 of our Condensed Financial Statements.

(2) Geographic information is based on residence of borrower.

(3) Certain GIL movements for Canadian Banking retail and wholesale portfolios are generally allocated to New Impaired, as Return to performing status, Net repayments, Sold, and Exchange and other movements amounts are not reasonably determinable. Certain GIL movements for Caribbean Banking retail and wholesale portfolios are generally allocated to Net repayments and New Impaired, as Return to performing status, Sold, and Exchange and other movements amounts are not reasonably determinable.

(4) Includes Return to performing status during the year, Recoveries of loans and advances previously written off, Sold, and Exchange and other movements. Includes $680 million of acquired credit impaired loans from City National at the acquisition date.

(5) GIL as a % of loans and acceptances.

Q2 2016 vs. Q2 2015

Total GIL increased $1,558 million or 73% from a year ago, and the GIL ratio of 71 bps increased 25 bps, largely reflecting higher impaired loans in our Capital Markets portfolio as well as acquired credit impaired loans (ACI) of $531 million related to our acquisition of City National, which contributed 10 bps to the increase. Over 80% of these ACI loans are covered by loss-sharing agreements with the FDIC. For further details on ACI loans, refer to Notes 2 and 5 of our Condensed Financial Statements.

GIL in Personal & Commercial Banking decreased $170 million, and the GIL ratio of 45 bps decreased 7 bps, mainly due to lower impaired loans in our Canadian commercial lending and residential mortgages portfolios, and in our Caribbean Banking portfolios.

Royal Bank of Canada        Second Quarter 2016        33

GIL in Wealth Management increased $645 million, mainly due to the inclusion of our acquisition of City National as noted above.

GIL in Capital Markets increased $1,083 million, primarily due to higher impaired loans in the oil and gas sector reflecting the sustained low oil price environment.

Q2 2016 vs. Q1 2016

Total GIL increased $583 million or 19% from the prior quarter, and the GIL ratio of 71 bps increased 12 bps largely reflecting higher impaired loans in our Capital Markets portfolio which was partially offset by lower impaired loans in Wealth Management and Personal & Commercial Banking.

GIL in Personal & Commercial Banking decreased $86 million, and the GIL ratio decreased 3 bps compared to the prior quarter, largely due to lower impaired loans in our Caribbean Banking portfolios, which was partially offset by higher impaired loans in our Canadian residential mortgages and personal loans portfolios.

GIL in Wealth Management decreased $99 million or 12%, mainly due to lower ACI loans related to City National.

GIL in Capital Markets increased $768 million, mainly due to higher impaired loans in the oil and gas sector, reflecting the sustained low oil price environment.

Allowance for credit losses (ACL)

	As at
(Millions of Canadian dollars)	April 30 2016		January 31 2016		April 30 2015
Allowance for impaired loans
Personal & Commercial Banking	$	544	$	587	$	584
Wealth Management (1)		53		51		45
Capital Markets		251		146		37
Investor & Treasury Services		2		2		2
Total allowance for impaired loans	$	850	$	786	$	668
Canada (2)
Retail	$	156	$	155	$	147
Wholesale		214		200		139
Allowance for impaired loans		370		355		286
U.S. (1), (2)
Retail	$	1	$	1	$	2
Wholesale		149		50		27
Allowance for impaired loans		150		51		29
Other International (2)
Retail	$	165	$	193	$	168
Wholesale		165		187		185
Allowance for impaired loans		330		380		353
Total allowance for impaired loans	$	850	$	786	$	668
Allowance for loans not yet identified as impaired		1,512		1,474		1,460
Total ACL	$	2,362	$	2,260	$	2,128

(1) Effective Q1 2016, includes ACL related to acquired credit-impaired loans from our acquisition of City National.

(2) Geographic information is based on residence of borrower.

Q2 2016 vs. Q2 2015

Total ACL increased $234 million or 11% from a year ago, mainly related to higher ACL in Capital Markets consistent with PCL recorded in the current quarter, and a $50 million increase in the allowance for loans not yet identified as impaired. These factors were partially offset by lower ACL in Personal & Commercial Banking.

Q2 2016 vs. Q1 2016

Total ACL increased $102 million or 5% from last quarter, mainly related to higher ACL in Capital Markets consistent with PCL recorded in the current quarter, and an increase in the allowance for loans not yet identified as impaired as noted above. These factors were partially offset by lower ACL in Personal & Commercial Banking.

Market risk

Market risk is defined to be the impact of market prices upon our financial condition. This includes potential gains or losses taken through revenue or Other Comprehensive Income due to changes in market determined variables such as interest rates, credit spreads, equity prices, commodity prices, foreign exchange rates and implied volatilities. There have been no material changes to our Market Risk Framework from the framework described in our 2015 Annual Report. We continue to manage the controls and governance procedures that ensure that our market risk exposure is consistent with risk appetite constraints set by the Board. These controls include limits on probabilistic measures of potential loss in trading positions, such as Value-at-Risk (VaR) and Stressed Value-at-Risk (SVaR). For further details of our approach to the management of market risk, refer to the Market risk section of our 2015 Annual Report.

Market risk controls are also in place to manage structural interest rate risk (SIRR) arising from non-trading positions. Factors contributing to SIRR include the mismatch between future asset and liability repricing dates, relative changes in asset and liability

34        Royal Bank of Canada        Second Quarter 2016

rates, and product features that could affect the expected timing of cash flows, such as options to pre-pay loans or redeem term deposits prior to contractual maturity. To monitor and control SIRR, the Bank assesses two primary financial metrics, 12-month Net Interest Income (NII) risk and Economic Value of Equity (EVE) risk, under a range of market shocks and scenarios. There has been no material change to the SIRR measurement methodology, controls, or limits from those described in our 2015 Annual Report.

Market risk measures – FVTPL positions

VaR and SVaR

The following table presents our Market risk VaR and Market risk SVaR figures.

	April 30, 2016												January 31, 2016						April 30, 2015
	As at Apr. 30			For the three months ended									As at Jan. 31			For the three months ended			As at Apr. 30			For the three months ended
(Millions of Canadian dollars)				Average			High			Low						Average						Average
Equity	$	13		$	18		$	28		$	11		$	21		$	22		$	9		$	11
Foreign exchange		5			5			8			4			4			4			4			4
Commodities		2			3			4			2			2			3			3			4
Interest rate		18			22			32			15			29			24			26			29
Credit specific (1)		7			5			7			4			5			6			8			8
Diversification (2)		(15	)		(16	)		(22	)		(11	)		(18	)		(19	)		(21	)		(22	)
Market risk VaR	$	30		$	37		$	51		$	25		$	43		$	40		$	29		$	34
Market risk Stressed VaR	$	86		$	102		$	147		$	53		$	114		$	106		$	86		$	105
	April 30, 2016												April 30, 2015
	As at Apr. 30			For the six months ended									As at Apr. 30			For the six months ended
(Millions of Canadian dollars)				Average			High			Low						Average
Equity	$	13		$	20		$	32		$	11		$	9		$	10
Foreign exchange		5			5			8			4			4			4
Commodities		2			3			4			2			3			4
Interest rate		18			23			32			15			26			28
Credit specific (1)		7			5			7			4			8			8
Diversification (2)		(15	)		(17	)		(23	)		(11	)		(21	)		(21	)
Market risk VaR	$	30		$	39		$	53		$	25		$	29		$	33
Market risk SVaR	$	86		$	104		$	150		$	53		$	86		$	106

(1) General credit spread risk is measured under interest rate VaR while credit specific risk captures issuer-specific credit spread volatility.

(2) Market risk VaR is less than the sum of the individual risk factor VaR results due to portfolio diversification.

Q2 2016 vs. Q2 2015

Average market risk VaR of $37 million was up $3 million compared to the prior year, mainly reflecting an increase due to foreign exchange translation. An increase in equity risk was largely offset by reduced inventories in fixed income and securitized product portfolios, as reflected in the lower averages for interest rate and credit specific VaR. The higher average VaR in the current quarter also reflected the heightened equity market volatility observed at the start of this calendar year in the historical window used to calculate VaR.

Average SVaR of $102 million was down $3 million compared to last year largely due to reduced risk in certain legacy businesses over the year, partially offset by an increase due to foreign exchange translation.

Q2 2016 vs. Q1 2016

Average market risk VaR of $37 million was down $3 million compared to the prior quarter, mainly reflecting a lower impact from foreign exchange translation and reduced client activity in our equity derivatives trading business. A reduction in fixed income and securitized product exposures further contributed to the decrease, as reflected in the lower averages for interest rate and credit specific VaR.

Average SVaR of $102 million was down $4 million compared to the prior quarter largely reflecting a lower impact from foreign exchange translation and reduced client activity in our equity derivatives trading business as noted above.

Q2 2016 vs. Q2 2015 (Six months ended)

Average market risk VaR of $39 million was up $6 million compared to the prior year, largely reflecting an increase due to foreign exchange translation. Higher equity risk driven by increased client activity in our equity derivatives trading business was largely offset by reduced inventories in fixed income and securitized product portfolios.

Average SVaR of $104 million was relatively flat compared to the prior year.

Royal Bank of Canada        Second Quarter 2016        35

The following chart graphically displays a bar chart of our daily trading profit and loss and a line chart of our daily Market risk VaR. We incurred net trading losses on 2 days during the quarter totalling $39 million, as compared to 3 days of losses totalling $13 million in the first quarter of 2016, with none of the losses exceeding VaR. The losses early in the current quarter were largely driven by volatility in equities and credit spreads resulting from global growth concerns that persisted from the prior quarter.

Market risk measures for other FVTPL positions – Assets and liabilities of RBC Insurance

We offer a range of insurance products to clients and hold investments to meet the future obligations to policyholders. The investments which support actuarial liabilities are predominantly fixed income assets designated as fair value through profit or loss (FVTPL). Consequently, changes in the fair values of these assets are recorded in investment income in the consolidated statements of income and are largely offset by changes in the fair value of the actuarial liabilities, the impact of which is reflected in insurance policyholder benefits and claims. As at April 30, 2016, we had liabilities with respect to insurance obligations of $8.6 billion and trading securities of $6.7 billion in support of the liabilities.

Market risk measures – Structural Interest Rate Positions

The following table shows the potential before-tax impact of an immediate and sustained 100 bps increase or decrease in interest rates on projected 12-month NII and EVE for the Bank’s non-trading balance sheet, assuming no subsequent hedging. Rate floors are applied within the declining rates scenarios, with floor levels set based on global rate movement experience. Interest rate risk measures are based upon interest rate exposures at a specific time and continuously change as a result of business activities and risk management actions.

	April 30 2016																January 31 2016					April 30 2015
	Economic value of equity risk							Net interest income risk (1)
(Millions of Canadian dollars)	Canadian dollar impact		U.S. dollar impact (2)			Total		Canadian dollar impact			U.S. dollar impact (2)			Total			Economic value of equity risk		Net interest income risk (1)			Economic value of equity risk			Net interest income risk (1)
Before-tax impact of:
100bps increase in rates	$	(1,199)	$	7		$	(1,192)	$	258		$	163		$	421		$	(1,286)	$	427		$	(877	)	$	357
100bps decrease in rates		931		(360	)		571		(328	)		(122	)		(450	)		593		(457	)		622			(353	)

(1) Represents the 12-month Net interest income exposure to an instantaneous and sustained shift in interest rates.

(2) Represents the impact on the non-trading portfolios held in our U.S. banking operations.

As at April 30, 2016, an immediate and sustained -100 bps shock would have had a negative impact to the Bank’s NII of $450 million, down from $457 million last quarter. An immediate and sustained +100bps shock as at April 30, 2016 would have had a negative impact to the Bank’s EVE of $1,192 million, down from $1,286 million last quarter. There was no material quarter-over-quarter change to the NII risk profile. The quarter-over-quarter decrease in EVE risk is primarily attributed to growth of low-rate USD deposits. During the second quarter of 2016, NII and EVE risks were maintained well within approved limits.

Market risk measures for other material non-trading portfolios

AFS securities

We held $59 billion of securities classified as AFS as at April 30, 2016, unchanged from January 31, 2016. We hold debt securities designated as AFS primarily as investments and to manage liquidity and interest rate risk in our non-trading banking activity. Certain legacy debt portfolios are also classified as AFS. As at April 30, 2016, our portfolio of AFS securities exposes us to interest rate risk of

36        Royal Bank of Canada        Second Quarter 2016

a pre-tax loss of $5.0 million as measured by the change in the value of the securities for a one basis point parallel increase in yields. The portfolio also exposes us to credit spread risk of a pre-tax loss of $15.3 million, as measured by the change in value for a one basis point widening of credit spreads. Changes in the value of these securities are reported in other comprehensive income. The value of the AFS securities included in our Structural Interest Rate Risk measure as at April 30, 2016 was $44.4 billion. Our AFS securities also include equity exposures of $1.7 billion as at April 30, 2016, down from $1.8 billion in the prior quarter.

Derivatives related to non-trading activity

Derivatives are also used to hedge market risk exposures unrelated to our trading activity. In aggregate, derivative assets not related to trading activity of $6.0 billion as at April 30, 2016 were down from $9.0 billion last quarter, and derivative liabilities of $4.9 billion as at April 30, 2016 were down from $5.4 billion last quarter.

Non-trading derivatives in hedge accounting relationships

The derivative assets and liabilities described above include derivative assets in a designated hedge accounting relationship of $2.8 billion as at April 30, 2016, down from $3.4 billion in the last quarter, and derivative liabilities of $1.7 billion as at April 30, 2016, down from $2.5 billion in the last quarter. These derivative assets and liabilities are included in our Structural Interest Rate Risk measure and other internal non-trading market risk measures. We use interest rate swaps to manage our AFS securities and structural interest rate risk, as described above. To the extent these swaps are considered effective hedges, changes in their fair value are recognized in other comprehensive income. The interest rate risk for the designated cash flow hedges, measured as the change in the fair value of the derivatives for a one basis point parallel increase in yields, was $4.0 million as of April 30, 2016.

Interest rate swaps are also used to hedge changes in the fair value of certain fixed-rate instruments. Changes in fair value of the interest rate swaps and the hedged instruments that are related to interest rate movements are reflected in income.

We also use foreign exchange derivatives to manage our exposure to equity investments in subsidiaries that are denominated in foreign currencies, particularly the U.S. dollar and British pound. Changes in the fair value of these hedges and the cumulative translation adjustment related to our structural foreign exchange risk are reported in other comprehensive income.

Other non-trading derivatives

Derivatives including interest rate swaps and foreign exchange derivatives, that are not in designated hedge accounting relationships are used to manage other non-trading exposures. These derivatives have been designated as FVTPL, with changes in the fair value of these derivatives reflected in income. Derivative assets of $3.2 billion as at April 30, 2016 on these trades were down from $5.6 billion last quarter, and derivative liabilities of $3.2 billion as at April 30, 2016 were up from $2.9 billion last quarter.

Non-trading foreign exchange rate risk

Foreign exchange rate risk is the potential adverse impact on earnings and economic value due to changes in foreign currency rates. Our revenue, expenses and income denominated in currencies other than the Canadian dollar are subject to fluctuations as a result of changes in the value of the average Canadian dollar relative to the average value of those currencies. Our most significant exposure is to the U.S. dollar, due to our level of operations in the U.S. and other activities conducted in U.S. dollars. Other significant exposures are to the British pound and the Euro, due to our activities conducted internationally in these currencies. A strengthening or weakening of the Canadian dollar compared to the U.S. dollar, British pound and the Euro could reduce or increase, as applicable, the translated value of our foreign currency denominated revenue, expenses and earnings and could have a significant effect on the results of our operations. We are also exposed to foreign exchange rate risk arising from our investments in foreign operations. For unhedged equity investments, when the Canadian dollar appreciates against other currencies, the unrealized translation losses on net foreign investments decreases our shareholders’ equity through the other components of equity and decreases the translated value of the RWA of the foreign currency-denominated asset. The reverse is true when the Canadian dollar depreciates against other currencies. Consequently, we consider these impacts in selecting an appropriate level of our investments in foreign operations to be hedged.

Our overall trading and non-trading market risk objectives, policies and methodologies have not changed significantly from 2015.

Royal Bank of Canada        Second Quarter 2016        37

Linkage of market risk to selected balance sheet items

The following table provides the linkages between selected balance sheet items with positions included in our trading market risk and non-trading market risk disclosures, which illustrates how we manage market risk for our assets and liabilities through different risk measures.

	As at April 30, 2016
				Market risk measure
(Millions of Canadian dollars)	Balance sheet amount			Traded risk (1)		Non-traded risk (2)			Non-traded risk primary risk sensitivity
Assets subject to market risk
Cash and due from banks (3)	$	14,845		$	7,240	$	7,605			Interest rate
Interest-bearing deposits with banks (4)		29,229			17,222		12,007			Interest rate
Securities
Trading (5)		151,952			144,814		7,138			Interest rate, credit spread
Available-for-sale (6)		72,419			–		72,419			Interest rate, credit spread, equity
Assets purchased under reverse repurchase agreements and securities borrowed (7)		184,825			184,574		251			Interest rate
Loans
Retail (8)		359,863			8,616		351,247			Interest rate
Wholesale (9)		150,602			133		150,469			Interest rate
Allowance for loan losses		(2,271	)		–		(2,271	)		Interest rate
Segregated fund net assets (10)		882			–		882			Interest rate
Derivatives		115,298			109,347		5,951			Interest rate, foreign exchange
Other assets (11)		66,540			19,951		46,589			Interest rate
Assets not subject to market risk(12)		6,173
Total assets	$	1,150,357		$	491,897	$	652,287
Liabilities subject to market risk
Deposits (13)	$	741,454		$	131,841	$	609,613			Interest rate
Segregated fund liabilities (14)		882			–		882			Interest rate
Other
Obligations related to securities sold short		47,121			47,121		–
Obligations related to assets sold under repurchase agreements and securities loaned		96,574			96,574		–			Interest rate
Derivatives		116,479			111,605		4,874			Interest rate, foreign exchange
Other liabilities (15)		62,999			18,902		44,097			Interest rate
Subordinated debentures		9,564			–		9,564			Interest rate
Liabilities not subject to market risk(16)		7,158
Total liabilities	$	1,082,231		$	406,043	$	669,030
Total equity	$	68,126
Total liabilities and equity	$	1,150,357

(1) Traded risk includes FVTPL positions whose revaluation gains and losses are reported in revenue. Market risk measures of VaR, SVaR and Stress testing are used as risk controls for traded risk.

(2) Non-traded risk includes positions used in the management of the SIRR and other non-trading portfolios. Other material non-trading portfolios include positions from our Insurance business and AFS securities not included in SIRR.

The following footnotes provide additional information on the Non-traded risk amounts:

(3) Cash and due from banks includes $6,589 million included in SIRR. An additional $1,016 million is included in other risk controls.

(4) Interest-bearing deposits with banks of $12,007 million are included in SIRR.

(5) Trading securities include $7,138 million in securities used in the management of the SIRR of RBC Insurance, which is not included in our disclosed SIRR measure.

(6) Includes available-for-sale securities of $59,228 million and held-to-maturity securities of $13,191 million. $57,549 million of the total securities are included in SIRR. An additional $1,513 million are held by our insurance businesses that do not contribute to our disclosed SIRR measures. The remaining $13,357 million are captured in other internal non-trading market risk reporting.

(7) Assets purchased under reverse repurchase agreements include $251 million reflected in SIRR.

(8) Retail loans include $351,247 million reflected in SIRR.

(9) Wholesale loans include $149,191 million reflected in SIRR. An additional $1,278 million is used in the management of the SIRR of RBC Insurance.

(10) Investments for the account of segregated fund holders are included in the management of the SIRR of RBC Insurance.

(11) Other assets include $42,523 million reflected in SIRR. An additional $4,066 million is used in the management of the SIRR of RBC Insurance.

(12) Assets not subject to market risk include $6,173 million of physical and other assets.

(13) Deposits include $609,613 million reflected in SIRR.

(14) Insurance and investment contracts for the account of segregated fund holders are included in the management of the SIRR of RBC Insurance.

(15) Other liabilities include $10,611 million used in the management of the SIRR of RBC Insurance and $33,486 million contribute to our SIRR measure.

(16) Liabilities not subject to market risk include $7,158 million of payroll related and other liabilities.

38        Royal Bank of Canada        Second Quarter 2016

	As at January 31, 2016
				Market risk measure
(Millions of Canadian dollars)	Balance sheet amount			Traded risk (1)		Non-traded risk (2)			Non-traded risk primary risk sensitivity
Assets subject to market risk
Cash and due from banks (3)	$	17,050		$	10,193	$	6,857			Interest rate
Interest-bearing deposits with banks (4)		24,636			16,179		8,457			Interest rate
Securities
Trading (5)		161,442			154,671		6,771			Interest rate, credit spread
Available-for-sale (6)		72,269			–		72,269			Interest rate, credit spread, equity
Assets purchased under reverse repurchase agreements and securities borrowed (7)		196,295			195,897		398			Interest rate
Loans
Retail (8)		360,763			8,711		352,052			Interest rate
Wholesale (9)		157,592			149		157,443			Interest rate
Allowance for loan losses		(2,169	)		–		(2,169	)		Interest rate
Segregated fund net assets (10)		839			–		839			Interest rate
Derivatives		132,560			123,521		9,039			Interest rate, foreign exchange
Other assets (11)		73,185			26,199		46,986			Interest rate
Assets not subject to market risk(12)		5,890
Total assets	$	1,200,352		$	535,520	$	658,942
Liabilities subject to market risk
Deposits (13)	$	769,568		$	156,819	$	612,749			Interest rate
Segregated fund liabilities (14)		839			–		839			Interest rate
Other
Obligations related to securities sold short		51,931			51,931		–
Obligations related to assets sold under repurchase agreements and securities loaned (15)		99,310			99,198		112			Interest rate
Derivatives		132,023			126,572		5,451			Interest rate, foreign exchange
Other liabilities (16)		59,319			20,447		38,872			Interest rate
Subordinated debentures		9,854			–		9,854			Interest rate
Liabilities not subject to market risk(17)		7,620
Total liabilities	$	1,130,464		$	454,967	$	667,877
Total equity	$	69,888
Total liabilities and equity	$	1,200,352

(1) Traded risk includes FVTPL positions whose revaluation gains and losses are reported in revenue. Market risk measures of VaR, SVaR and Stress testing are used as risk controls for traded risk.

(2) Non-traded risk includes positions used in the management of the SIRR and other non-trading portfolios. Other material non-trading portfolios include positions from our Insurance business and AFS securities not included in SIRR.

The following footnotes provide additional information on the Non-traded risk amounts:

(3) Cash and due from banks includes $6,181 million included in SIRR. An additional $676 million is included in other risk controls.

(4) Interest-bearing deposits with banks of $8,457 million are included in SIRR.

(5) Trading securities include $6,771 million in securities used in the management of the SIRR of RBC Insurance, which is not included in our disclosed SIRR measure.

(6) Includes available-for-sale securities of $59,032 million and held-to-maturity securities of $13,237 million. $58,675 million of the total securities are included in SIRR. An additional $1,524 million are held by our insurance businesses that do not contribute to our disclosed SIRR measures. The remaining $12,070 million are captured in other internal non-trading market risk reporting.

(7) Assets purchased under reverse repurchase agreements include $398 million reflected in SIRR.

(8) Retail loans include $352,052 million reflected in SIRR.

(9) Wholesale loans include $156,208 million reflected in SIRR. An additional $1,235 million is used in the management of the SIRR of RBC Insurance.

(10) Investments for the account of segregated fund holders are included in the management of the SIRR of RBC Insurance.

(11) Other assets include $43,010 million reflected in SIRR. An additional $3,976 million is used in the management of the SIRR of RBC Insurance.

(12) Assets not subject to market risk include $5,890 million of physical and other assets.

(13) Deposits include $612,749 million reflected in SIRR.

(14) Insurance and investment contracts for the account of segregated fund holders are included in the management of the SIRR of RBC Insurance.

(15) Obligations related to assets sold under repurchase agreements include $112 million reflected in SIRR.

(16) Other liabilities include $10,248 million used in the management of the SIRR of RBC Insurance and $28,624 million contribute to our SIRR measure.

(17) Liabilities not subject to market risk include $7,620 million of payroll related and other liabilities.

Liquidity and funding risk

There have been no material changes to our Liquidity Risk Management Framework as described in our 2015 Annual Report. We continue to maintain liquidity and funding that is appropriate for the execution of our strategy and position ourselves for the implementation of pending regulatory reforms in the jurisdictions we operate. Our liquidity and funding risk remains well within our risk appetite.

Regulatory environment

There have been no material changes to the regulatory environment as described in our 2015 Annual Report. For a discussion on regulatory developments, refer to the Economic, market and regulatory review and outlook section of this Q2 2016 Report to Shareholders.

Risk measurement

Liquidity risk is measured by applying scenario-specific assumptions to our assets and liabilities and off-balance sheet commitments to derive expected cash flow profiles over varying time horizons. Thus, the liquidity cash flow profile of a particular product may differ from those derived based on its contractual figures. For instance, holdings of unencumbered high-quality government bonds are

Royal Bank of Canada        Second Quarter 2016        39

considered a ready and reliable source of cash inflows prior to their contractual maturities. Risk methodologies and assumptions are periodically reviewed and validated to ensure alignment with our operating environment, expected economic and market conditions, rating agency preferences, regulatory requirements and accepted practices.

To manage within our liquidity risk appetite, we set limits on various metrics reflecting a range of time horizons and severity of stress conditions. For further details on our methodologies and measurement, refer to the Liquidity and funding risk section of our 2015 Annual Report.

Risk profile

As at April 30, 2016, relationship-based deposits, which are the primary source of funding for retail loans and mortgages, were $472 billion or 53% of our total funding (January 31, 2016 – $478 billion or 52%). Funding for highly liquid assets consisted primarily of short-term wholesale funding that reflects the expected monetization period of these assets. This wholesale funding is comprised of unsecured short-term liabilities of $102 billion and secured (repos and short sales) liabilities of $161 billion, and represented 11% and 18% of total funding as at April 30, 2016, respectively (January 31, 2016 – $122 billion and $170 billion or 13% and 18% of total funding, respectively). Long-term wholesale funding is mostly used to fund less liquid wholesale assets and support liquidity asset buffers. Additional quantitative information is provided in the Funding section below.

As at April 30, 2016, we held earmarked contingency liquidity assets of $15 billion, with $9 billion and $6 billion which were denominated in U.S. and Canadian dollars, respectively (January 31, 2016 – $16 billion, with $10 billion and $6 billion which were denominated in U.S. and Canadian dollars, respectively). During the quarter ended April 30, 2016, we held on average $16 billion, of which $10 billion was in U.S. currency and $6 billion was in Canadian currency (January 31, 2016 – $16 billion, of which $10 billion was in U.S. currency and $6 billion was in Canadian currency). We also held a derivatives pledging liquid asset buffer of US$4 billion as at April 30, 2016 to mitigate the volatility of our net pledging requirements for derivatives trading (January 31, 2016 – US$4 billion). This buffer averaged US$4 billion during the quarter ended April 30, 2016 (January 31, 2016 – US$4 billion). These assets are included in our high-quality liquid asset (HQLA) pool.

Liquidity Coverage Ratio

The Liquidity Coverage Ratio (LCR) is a Basel III metric that measures the sufficiency of HQLA available to meet liquidity needs over a 30 day period in an acute stress scenario. OSFI adopted a minimum LCR requirement of 100% for Canadian banks in the Liquidity Adequacy Requirements (LAR) Guideline, effective January 1, 2015. Our disclosed LCR is the average of month-end positions during the quarter, and is shown using the Basel III template.

40        Royal Bank of Canada        Second Quarter 2016

Liquidity coverage ratio common disclosure template (1)
		As at
	April 30 2016				January 31 2016 (2)
(Millions of Canadian dollars, except percentage amount)	Total unweighted value (average)		Total weighted value (average)		Total unweighted value (average)		Total weighted value (average)
High-quality liquid assets
Total high-quality liquid assets (HQLA)			$	217,656			$	211,911
Cash outflows
Retail deposits and deposits from small business customers, of which: (3)	$	209,340	$	16,087	$	208,696	$	16,236
Stable deposits (4)		69,254		2,078		66,203		1,987
Less stable deposits		140,086		14,009		142,493		14,249
Unsecured wholesale funding, of which:		228,012		97,842		232,904		101,341
Operational deposits (all counterparties) and deposits (5) in networks of cooperative banks		104,278		25,048		104,370		25,084
Non-operational deposits		106,171		55,231		111,159		58,882
Unsecured debt		17,563		17,563		17,375		17,375
Secured wholesale funding				27,019				29,209
Additional requirements, of which:		215,163		56,572		228,127		62,023
Outflows related to derivative exposures and other collateral requirements		47,248		23,556		53,044		26,260
Outflows related to loss of funding on debt products		4,800		4,800		5,978		5,978
Credit and liquidity facilities		163,115		28,216		169,105		29,785
Other contractual funding obligations (6)		28,975		28,975		27,618		27,618
Other contingent funding obligations (7)		437,877		6,384		440,424		6,331
Total cash outflows			$	232,879			$	242,758
Cash inflows
Secured lending (e.g. reverse repos)	$	137,022	$	30,715	$	121,619	$	30,550
Inflows from fully performing exposures		11,414		6,968		12,106		8,024
Other cash inflows		31,902		31,902		37,612		37,612
Total Cash inflows			$	69,585			$	76,186
			Total adjusted value				Total adjusted value
Total HQLA			$	217,656			$	211,911
Total net cash outflows				163,294				166,572
Liquidity coverage ratio				133%				127%

(1) LCR is calculated in accordance with OSFI’s LAR guideline, which, in turn, reflects liquidity-related requirements issued by the BCBS.

(2) Prior period amounts have been revised from those previously presented.

(3) Excludes deposits with 0% cash outflow rates.

(4) As defined by BCBS, stable deposits from retail and small business customers are deposits that are insured and are either held in transactional accounts or the bank has an established relationship with the client making the withdrawal unlikely.

(5) Operational deposits from non-retail and non-small and medium-sized enterprise customers are deposits which clients need to keep with the bank in order to facilitate their access and ability to use payment and settlement systems primarily for clearing, custody and cash management activities.

(6) Other contractual funding obligations primarily include outflows from unsettled securities trades and outflows from obligations related to securities sold short.

(7) Other contingent funding obligations include outflows related to other off-balance sheet facilities that carry low LCR runoff factors (0% – 5%).

We manage our LCR position within a target range that reflects our liquidity risk tolerance and takes into account business mix, asset composition and funding capabilities. The range is subject to periodic review in light of changes to internal requirements and external developments.

We maintain HQLAs in major currencies with dependable market depth and breadth. Our treasury management practices ensure that the levels of HQLA, including contingency and cash management liquid assets, are actively managed to meet our target LCR objectives. Our Level 1 assets, as calculated according to OSFI LAR and the BCBS LCR requirements, represent 81% of total HQLA. These assets consist of cash, placements with central banks, and highly rated securities issued or guaranteed by governments, central banks and supra-national entities.

LCR captures cash flows from on- and off-balance sheet activities that are either expected or could potentially occur within 30 days in an acute stress scenario. Cash outflows are derived by applying withdrawal and non-renewal factors to demand and term deposits which are differentiated by client type (wholesale, retail and small- and medium-sized enterprises). Cash outflows also arise from business activities that create contingent funding and collateral requirements, such as repo funding, derivatives, short sales of securities and the extension of credit and liquidity commitments to client. Cash inflows arise primarily from maturing secured loans, interbank loans and non-HQLA securities.

LCR does not reflect any market funding capacity that management believes would be available to the Bank in a stress situation. All maturing wholesale debt is assigned 100% outflow in the LCR calculation.

Q2 2016 vs. Q1 2016

As at April 30, 2016, our LCR was 133%, which translates into a surplus of approximately $54 billion, which is $9 billion higher than our surplus in the last quarter. The increase was largely attributed to higher HQLA as a result of higher long-term funding and deposits.

Royal Bank of Canada        Second Quarter 2016        41

Liquidity reserve and asset encumbrance

As recommended by the Enhanced Disclosure Task Force (EDTF), the following tables provide summaries of our liquidity reserve and asset encumbrance. In both tables, unencumbered assets represent, for the most part, a ready source of funding that can be accessed quickly, when required. For the purpose of constructing the following tables, encumbered assets include: (i) bank-owned liquid assets that are either pledged as collateral (e.g. repo financing and derivative pledging) or not freely available due to regulatory or internal policy requirements (e.g. earmarked to satisfy mandatory reserve or local capital adequacy requirements and to maintain continuous access to payment and settlement systems); (ii) securities received as collateral from securities financing and derivative transactions which have either been re-hypothecated where permissible (e.g. to obtain financing through repos or to cover securities sold short) or have no liquidity value since re-hypothecation is prohibited; and (iii) illiquid assets that have been securitized and sold into the market or that have been pledged as collateral in support of structured term funding vehicles. We do not include encumbered assets as a source of available liquidity in measuring liquidity risk. Unencumbered assets are the difference between total and encumbered assets from both on- and off-balance sheet sources.

Liquidity reserve

In the liquidity reserve table, available liquid assets consist of on-balance sheet cash and securities holdings as well as securities received as collateral from securities financing (reverse repos and off-balance sheet collateral swaps) and derivative transactions and constitute the preferred source for quickly accessing liquidity. The other component of our liquidity reserve consists primarily of uncommitted and undrawn central bank credit facilities that could be accessed under exceptional circumstances provided certain pre-conditions could be met and where advances could be supported by eligible assets (e.g. certain unencumbered loans) not included in the liquid assets category.

42        Royal Bank of Canada        Second Quarter 2016

Liquidity reserve (1)

	As at April 30, 2016
(Millions of Canadian dollars)	Bank-owned liquid assets		Securities received as collateral from securities financing and derivative transactions		Total liquid assets		Encumbered liquid assets		Unencumbered liquid assets
Cash and holding at central banks	$	32,191	$	–	$	32,191	$	1,676	$	30,515
Deposits in other banks available overnight		2,497		–		2,497		295		2,202
Securities issued or guaranteed by sovereigns, central banks or multilateral development banks (2), (3)		290,247		19,952		310,199		146,084		164,115
Other (2)		135,699		29,459		165,158		73,981		91,177
Liquidity assets eligible at central banks (not included above) (4)		565		–		565		–		565
Undrawn credit lines granted by central banks (5)		13,336		–		13,336		–		13,336
Other assets eligible as collateral for discount (6)		135,504		–		135,504		–		135,504
Other liquid assets (7)		18,533		–		18,533		18,533		–
Total liquid assets	$	628,572	$	49,411	$	677,983	$	240,569	$	437,414

	As at January 31, 2016
(Millions of Canadian dollars)	Bank-owned liquid assets		Securities received as collateral from securities financing and derivative transactions		Total liquid assets		Encumbered liquid assets		Unencumbered liquid assets
Cash and holding at central banks	$	29,205	$	–	$	29,205	$	1,903	$	27,302
Deposits in other banks available overnight		3,793		–		3,793		292		3,501
Securities issued or guaranteed by sovereigns, central banks or multilateral development banks (2), (3)		294,921		24,288		319,209		147,715		171,494
Other (2)		146,338		31,417		177,755		83,845		93,910
Liquidity assets eligible at central banks (not included above) (4)		638		–		638		–		638
Undrawn credit lines granted by central banks (5)		12,718		–		12,718		–		12,718
Other assets eligible as collateral for discount (6)		136,646		–		136,646		–		136,646
Other liquid assets (7)		23,584		–		23,584		23,584		–
Total liquid assets	$	647,843	$	55,705	$	703,548	$	257,339	$	446,209

	As at
(Millions of Canadian dollars)	April 30 2016		January 31 2016
Royal Bank of Canada	$	256,429	$	260,636
Foreign branches		64,506		65,828
Subsidiaries		116,479		119,745
Total unencumbered liquid assets	$	437,414	$	446,209

(1) Information is provided from an enterprise-wide perspective and amounts shown are based on face value. In managing liquidity risk, we consider legal, regulatory, tax and other constraints that may impede transferability of liquidity among RBC units.

(2) The Bank-owned liquid assets amount includes securities owned outright by the Bank or acquired via on-balance sheet securities finance transactions.

(3) Includes liquid securities issued by provincial governments and U.S. government sponsored entities working under U.S. Federal government’s conservatorship (e.g. Federal National Mortgage Association and Federal Home Loan Mortgage Corporation).

(4) Includes Auction Rate Securities.

(5) Includes loans that qualify as eligible collateral for the discount window facility available to us at the Federal Reserve Bank of New York. Amounts are face value and would be subject to collateral margin requirements applied by the Federal Reserve Bank to determine collateral value/borrowing capacity. Access to the discount window borrowing program is conditional on meeting requirements set by the Federal Reserve Bank and borrowings are typically expected to be infrequent and due to uncommon occurrences requiring temporary accommodation.

(6) Represents our unencumbered Canadian dollar non-mortgage loan book (at face value) that could, subject to satisfying conditions precedent to borrowing and application of prescribed collateral margin requirements, be pledged to the Bank of Canada for advances under its Emergency Lending Assistance (ELA) program. ELA and other central bank facilities are not considered sources of available liquidity in our normal liquidity risk profile but could in extraordinary circumstances, where normal market liquidity is seriously impaired, allow us and other banks to monetize assets eligible as central bank collateral to meet requirements and mitigate further market liquidity disruption.

(7) Represents pledges related to OTC and exchange-traded derivative transactions.

Q2 2016 vs. Q1 2016

Total liquid assets decreased $26 billion or 4%, mainly due to the impact of foreign currency translation and shifts in client collateral mix.

Asset encumbrance

The Asset encumbrance table provides a comprehensive view of the assets available to the Bank, not just the liquidity reserve, and identifies assets already pledged as well as those available for use as collateral (including unencumbered assets from the Liquidity reserve table) for secured funding purposes. A portion of assets, such as mortgage and credit card receivables can be monetized, however, this generally requires more lead time than liquid assets. As at April 30, 2016, our assets available as collateral comprised 68% of our total liquid assets.

Royal Bank of Canada        Second Quarter 2016        43

Asset encumbrance (1)

	As at
	April 30 2016												January 31 2016
	Encumbered				Unencumbered								Encumbered				Unencumbered
(Millions of Canadian dollars)	Pledged as collateral		Other (2)		Available as collateral (3)		Other (4)			Total (5)			Pledged as collateral		Other (2)		Available as collateral (3)		Other (4)			Total (5)
Cash and due from banks	$	–	$	1,676	$	13,169	$	–		$	14,845		$	–	$	1,903	$	15,147	$	–		$	17,050
Interest-bearing deposits with banks		–		295		28,934		–			29,229			–		292		24,344		–			24,636
Securities
Trading		66,277		–		84,419		1,256			151,952			73,968		–		85,848		1,626			161,442
Available-for-sale		6,918		–		62,830		2,671			72,419			8,237		49		61,125		2,858			72,269
Assets purchased under reverse repurchase agreements and securities borrowed		158,437		–		90,621		15,887			264,945			164,460		–		96,425		18,920			279,805
Loans
Retail
Mortgage securities		34,428		–		34,609		–			69,037			34,767		–		35,436		–			70,203
Mortgage loans		43,242		–		11,183		122,567			176,992			35,593		–		11,990		127,842			175,425
Non-mortgage loans		11,380		–		96,993		5,461			113,834			10,839		–		97,326		6,970			115,135
Wholesale		3,629		–		40,822		106,151			150,602			2,869		–		41,083		113,640			157,592
Allowance for loan losses		–		–		–		(2,271	)		(2,271	)		–		–		–		(2,169	)		(2,169	)
Segregated fund net assets		–		–		–		882			882			–		–		–		839			839
Other – Derivatives		–		–		–		115,298			115,298			–		–		–		132,560			132,560
– Others (6)		18,533		–		–		54,180			72,713			23,584		–		–		55,491			79,075
Total assets	$	342,844	$	1,971	$	463,580	$	422,082		$	1,230,477		$	354,317	$	2,244	$	468,724	$	458,577		$	1,283,862

(1) Amounts shown are based on face value. In managing liquidity risk, we consider legal, regulatory, tax and other constraints that may impede transferability of liquidity among RBC units.

(2) Includes assets restricted from use to generate secured funding due to legal or other constraints.

(3) Includes loans that could be used to collateralize central bank advances. Our unencumbered Canadian dollar non-mortgage loan book (at face value) could, subject to satisfying conditions for borrowing and application of prescribed collateral margin requirements, be pledged to the Bank of Canada for advances under its ELA program. We also lodge loans that qualify as eligible collateral for the discount window facility available to us at the Federal Reserve Bank of New York. ELA and other central bank facilities are not considered sources of available liquidity in our normal liquidity risk profile. However, banks could monetize assets meeting central bank collateral criteria during periods of extraordinary and severe disruption to market-wide liquidity.

(4) Other unencumbered assets are not subject to any restrictions on their use to secure funding or as collateral but would not be considered readily available since they may not be acceptable at central banks or for other lending programs.

(5) Includes bank-owned liquid assets and securities received as collateral from off-balance sheet securities financing and derivative transactions.

(6) The Pledged as collateral amounts relate to OTC and exchange traded derivative transactions.

Other sources of liquidity that could be available to mitigate stressed conditions include: (i) unused wholesale funding capacity, which is regularly assessed, and (ii) central bank borrowing facilities if, in extraordinary circumstances, market sources were insufficient to allow us to monetize our assets available as collateral to meet our requirements (e.g. Bank of Canada, Federal Reserve Bank, Bank of England, and Bank of France).

Funding

Funding strategy

Core funding, comprising capital, longer-term wholesale liabilities and a diversified pool of personal and, to a lesser extent, commercial and institutional deposits, is the foundation of our structural liquidity position.

Deposit profile

Core deposits consist of our own statistically derived liquidity adjusted estimates of the highly stable portions of our relationship-based balances (demand, notice and fixed-term) together with wholesale funds maturing beyond one year and as at April 30, 2016 represented 67% of our total deposits (January 31, 2016 – 66%). Over the past quarter, the core deposit balance has remained relatively stable. For further details on the gross dollar amounts of our relationship-based deposits and our wholesale funding maturity schedule, refer to the Risk profile section and the following Composition of wholesale funding table, respectively.

44        Royal Bank of Canada        Second Quarter 2016

Long-term debt issuance

Our wholesale funding activities are well-diversified by geography, investor segment, instrument, currency, structure and maturity. We maintain an ongoing presence in different funding markets, which allows us to continuously monitor market developments and trends, identify opportunities and risks, and take appropriate and timely actions. We operate longer-term debt issuance registered programs. The following table summarizes these programs with their authorized limits by geography.

    Programs by geography

Canada	U.S.	Europe/Asia
•   Canadian Shelf – $25 billion	•   SEC Registered Medium Term Note Program – US$40 billion	•   European Debt Issuance Program – US$40 billion
	•   SEC Registered Covered Bond Program – US$15 billion (1)	•   Global Covered Bond Program – €32 billion
		•   Japanese Issuance Programs – ¥1 trillion

(1) Subject to the €32 billion Global Covered Bond Program limit.

We also raise long-term funding using Canadian Deposit Notes, Canadian NHA MBS, Canada Mortgage Bonds, credit card receivable-backed securities, Kangaroo Bonds (issued in the Australian domestic market by foreign firms) and Yankee Certificates of Deposit (issued in the U.S. domestic market by foreign firms). We continuously evaluate opportunities to expand into new markets and untapped investor segments since diversification expands our wholesale funding flexibility and minimizes funding concentration and dependency, and generally reduces financing costs. As presented in the following charts, our current long-term debt profile is well diversified by currency as well as by long-term funding products. Maintaining competitive credit ratings is also critical to cost-effective funding.

(1)     Based on original term to maturity greater than 1 year	(1)     Based on original term to maturity greater than 1 year
	(2)     Mortgage-backed securities and Canada Mortgage Bonds

Royal Bank of Canada        Second Quarter 2016        45

The following table provides our composition of wholesale funding based on remaining term to maturity and represents our enhanced disclosure in response to EDTF recommendations.

Composition of wholesale funding ⁽¹⁾

	As at April 30, 2016
(Millions of Canadian dollars)	Less than 1 month		1 to 3 months		3 to 6 months		6 to 12 months		Less than 1 year sub-total		1 year to 2 years		2 years and greater		Total
Deposits from banks (2)	$	2,555	$	10	$	19	$	68	$	2,652	$	–	$	–	$	2,652
Certificates of deposit and commercial paper		6,757		12,965		9,817		5,694		35,233		905		248		36,386
Asset-backed commercial paper (3)		1,235		3,920		4,278		1,843		11,276		–		–		11,276
Senior unsecured medium-term notes (4)		8		4,202		7,327		16,736		28,273		10,476		46,637		85,386
Senior unsecured structured notes (5)		1,146		281		211		480		2,118		718		6,512		9,348
Mortgage securitization		–		1,275		838		1,202		3,315		3,322		14,871		21,508
Covered bonds/asset-backed securities (6)		1,200		2,196		1,946		2,179		7,521		9,797		34,598		51,916
Subordinated liabilities		–		–		–		–		–		94		9,329		9,423
Other (7)		4,291		2,826		504		1,003		8,624		7		4,154		12,785
Total	$	17,192	$	27,675	$	24,940	$	29,205	$	99,012	$	25,319	$	116,349	$	240,680
Of which:
– Secured	$	6,154	$	9,401	$	7,062	$	5,224	$	27,841	$	13,120	$	49,469	$	90,430
– Unsecured		11,038		18,274		17,878		23,981		71,171		12,199		66,880		150,250
(Millions of Canadian dollars)	As at January 31, 2016
	Less than 1 month		1 to 3 months		3 to 6 months		6 to 12 months		Less than 1 year sub-total		1 year to 2 years		2 years and greater		Total
Deposits from banks (2)	$	2,586	$	329	$	25	$	82	$	3,022	$	–	$	–	$	3,022
Certificates of deposit and commercial paper		5,894		16,256		21,423		8,481		52,054		–		221		52,275
Asset-backed commercial paper (3)		2,545		4,774		5,031		245		12,595		–		–		12,595
Senior unsecured medium-term notes (4)		368		4,045		4,402		17,998		26,813		15,276		45,291		87,380
Senior unsecured structured notes (5)		76		469		457		648		1,650		788		6,903		9,341
Mortgage securitization		30		606		1,395		1,528		3,559		2,528		15,792		21,879
Covered bonds/asset-backed securities (6)		700		–		3,651		3,810		8,161		8,620		31,403		48,184
Subordinated liabilities		–		–		–		–		–		116		9,515		9,631
Other (7)		3,868		2,682		1,277		1,538		9,365		8		4,678		14,051
Total	$	16,067	$	29,161	$	37,661	$	34,330	$	117,219	$	27,336	$	113,803	$	258,358
Of which:
– Secured	$	7,080	$	7,769	$	10,077	$	5,583	$	30,509	$	11,148	$	47,196	$	88,853
– Unsecured		8,987		21,392		27,584		28,747		86,710		16,188		66,607		169,505

(1) Excludes bankers’ acceptances.

(2) Only includes deposits raised by treasury. Excludes deposits associated with services we provide to these banks (e.g. custody, cash management).

(3) Only includes consolidated liabilities, including our collateralized commercial paper program.

(4) Includes deposit notes.

(5) Includes notes where the payout is tied to movements in foreign exchange, commodities and equities.

(6) Includes credit card, auto and mortgage loans.

(7) Includes tender option bonds (secured) of $5,729 million (January 31, 2016 – $6,193 million), bearer deposit notes (unsecured) of $3,163 million (January 31, 2016 – $3,473 million) and other long-term structured deposits (unsecured) of $3,893 million (January 31, 2016 – $4,387 million).

46        Royal Bank of Canada        Second Quarter 2016

Contractual maturities of financial assets, financial liabilities and off-balance sheet items

The following tables provide remaining contractual maturity profiles of all our assets, liabilities, and off-balance sheet items at their carrying value (e.g. amortized cost or fair value) at the balance sheet date. Off-balance sheet items are allocated based on the expiry date of the contract.

Details of contractual maturities and commitments to extend funds are a source of information for the management of liquidity risk. Among other purposes, these details form a basis for modelling a behavioural balance sheet with effective maturities to calculate liquidity risk measures. For further details, refer to the Risk measurement section.

Contractual maturities of financial assets, financial liabilities and off-balance sheet items

	As at April 30, 2016
(Millions of Canadian dollars)	Less than 1 month		1 to 3 months		3 to 6 months		6 to 9 months		9 to 12 months		1 year to 2 years		2 years to 5 years		5 years and greater		With no specific maturity		Total
Assets
Cash and deposits with banks	$	41,045	$	78	$	9	$	411	$	–	$	–	$	–	$	–	$	2,531	$	44,074
Securities
Trading (1)		97,686		6		34		6		18		62		146		5,878		48,116		151,952
Available-for-sale		848		8,378		1,534		1,257		1,949		8,223		20,183		28,277		1,770		72,419
Assets purchased under reverse repurchase agreements and securities borrowed		99,554		37,806		22,915		5,521		8,613		3,099		–		–		7,317		184,825
Loans (net of allowance for loan losses)		15,820		15,883		18,557		18,352		17,393		104,260		197,460		36,090		84,379		508,194
Other
Customers’ liability under acceptances		9,176		4,591		70		–		6		–		1		–		–		13,844
Derivatives		9,635		9,434		4,522		5,290		2,677		10,922		27,368		45,439		11		115,298
Other financial assets		24,625		2,394		1,428		239		22		70		34		394		1,501		30,707
Total financial assets	$	298,389	$	78,570	$	49,069	$	31,076	$	30,678	$	126,636	$	245,192	$	116,078	$	145,625	$	1,121,313
Other non-financial assets		1,092		852		314		889		126		1,179		1,649		2,721		20,222		29,044
Total assets	$	299,481	$	79,422	$	49,383	$	31,965	$	30,804	$	127,815	$	246,841	$	118,799	$	165,847	$	1,150,357
Liabilities and equity
Deposits (2)
Unsecured borrowing	$	37,033	$	28,345	$	33,397	$	33,648	$	25,454	$	21,210	$	60,388	$	14,194	$	383,178	$	636,847
Secured borrowing		2,718		8,805		6,363		4,976		1,846		9,706		18,177		9,642		–		62,233
Covered bonds		–		2,196		1,193		–		–		6,216		30,076		2,693		–		42,374
Other
Acceptances		9,176		4,591		70		–		6		–		1		–		–		13,844
Obligations related to securities sold short		47,121		–		–		–		–		–		–		–		–		47,121
Obligations related to assets sold under repurchase agreements and securities loaned		81,903		3,522		3,728		510		950		13		20		–		5,928		96,574
Derivatives		9,107		9,933		5,883		6,849		3,518		10,630		28,156		42,396		7		116,479
Other financial liabilities		24,403		2,652		1,290		186		204		96		239		3,853		534		33,457
Subordinated debentures		–		–		–		–		–		–		110		9,454		–		9,564
Total financial liabilities	$	211,461	$	60,044	$	51,924	$	46,169	$	31,978	$	47,871	$	137,167	$	82,232	$	389,647	$	1,058,493
Other non-financial liabilities		653		399		188		2,072		262		909		2,328		8,978		7,949		23,738
Equity		–		–		–		–		–		–		–		–		68,126		68,126
Total liabilities and equity	$	212,114	$	60,443	$	52,112	$	48,241	$	32,240	$	48,780	$	139,495	$	91,210	$	465,722	$	1,150,357
Off-balance sheet items
Financial guarantees	$	592	$	1,381	$	1,579	$	2,869	$	1,995	$	3,131	$	6,125	$	258	$	64	$	17,994
Lease commitments		58		114		175		176		173		649		1,536		2,101		–		4,982
Commitments to extend credit		4,358		6,580		6,839		13,747		10,437		29,904		127,635		17,722		4,085		221,307
Other credit-related commitments		364		945		994		1,224		1,420		304		1,020		239		83,953		90,463
Other commitments		740		2		–		–		–		–		61		–		–		803
Total off-balance sheet items	$	6,112	$	9,022	$	9,587	$	18,016	$	14,025	$	33,988	$	136,377	$	20,320	$	88,102	$	335,549

(1) Trading debt securities classified as fair value through profit or loss have been included in the less than 1 month category as there is no expectation to hold these assets to their contractual maturity.

(2) A major portion of relationship-based deposits are repayable on demand or at short notice on a contractual basis while, in practice, these customer balances form a core base, as explained in the preceding Deposit profile section, for our operations and liquidity needs.

Royal Bank of Canada        Second Quarter 2016        47

	As at January 31, 2016
(Millions of Canadian dollars)	Less than 1 month		1 to 3 months		3 to 6 months		6 to 9 months		9 to 12 months		1 year to 2 years		2 years to 5 years		5 years and greater		With no specific maturity		Total
Assets
Cash and deposits with banks	$	38,490	$	64	$	–	$	311	$	–	$	–	$	–	$	–	$	2,821	$	41,686
Securities
Trading (1)		108,441		23		14		3		6		66		150		5,654		47,085		161,442
Available-for-sale		1,613		4,877		4,140		1,446		1,324		6,974		20,822		29,149		1,924		72,269
Assets purchased under reverse repurchase agreements and securities borrowed		95,403		40,633		33,983		9,714		5,092		2,926		–		–		8,544		196,295
Loans (net of allowance for loan losses)		16,692		16,623		22,164		18,967		19,680		98,362		200,928		38,875		83,895		516,186
Other
Customers’ liability under acceptances		8,357		4,495		23		–		–		6		1		–		–		12,882
Derivatives		9,629		12,403		5,410		3,819		5,101		11,110		30,070		55,002		16		132,560
Other financial assets		31,381		829		456		1,889		50		43		31		426		1,486		36,591
Total financial assets	$	310,006	$	79,947	$	66,190	$	36,149	$	31,253	$	119,487	$	252,002	$	129,106	$	145,771	$	1,169,911
Other non-financial assets		881		1,417		525		394		285		1,039		1,642		2,690		21,568		30,441
Total assets	$	310,887	$	81,364	$	66,715	$	36,543	$	31,538	$	120,526	$	253,644	$	131,796	$	167,339	$	1,200,352
Liabilities and equity
Deposits (2)
Unsecured borrowing	$	46,190	$	33,278	$	39,203	$	29,414	$	31,645	$	23,361	$	57,760	$	15,500	$	390,170	$	666,521
Secured borrowing		3,276		6,193		11,162		2,532		4,271		9,340		19,442		8,725		–		64,941
Covered bonds		–		–		2,452		1,239		–		5,576		25,244		3,595		–		38,106
Other
Acceptances		8,357		4,495		23		–		–		6		1		–		–		12,882
Obligations related to securities sold short		51,931		–		–		–		–		–		–		–		–		51,931
Obligations related to assets sold under repurchase agreements and securities loaned		82,558		4,104		2,974		846		542		769		30		–		7,487		99,310
Derivatives		7,845		9,794		6,471		5,200		6,403		12,496		32,451		51,353		10		132,023
Other financial liabilities		24,102		1,048		235		1,593		233		99		261		4,344		596		32,511
Subordinated debentures		–		–		–		–		–		–		125		9,729		–		9,854
Total financial liabilities	$	224,259	$	58,912	$	62,520	$	40,824	$	43,094	$	51,647	$	135,314	$	93,246	$	398,263	$	1,108,079
Other non-financial liabilities		819		523		126		163		1,339		783		2,195		8,874		7,563		22,385
Equity		–		–		–		–		–		–		–		–		69,888		69,888
Total liabilities and equity	$	225,078	$	59,435	$	62,646	$	40,987	$	44,433	$	52,430	$	137,509	$	102,120	$	475,714	$	1,200,352
Off-balance sheet items
Financial guarantees	$	417	$	1,621	$	2,504	$	1,534	$	3,135	$	3,124	$	6,537	$	183	$	66	$	19,121
Lease commitments		63		122		179		180		180		668		1,577		1,914		–		4,883
Commitments to extend credit		4,504		5,565		13,865		10,488		16,267		31,485		144,110		15,108		5,417		246,809
Other credit-related commitments		426		896		1,222		1,029		1,265		383		929		276		76,162		82,588
Other commitments		323		166		55		–		–		–		–		–		–		544
Total off-balance sheet items	$	5,733	$	8,370	$	17,825	$	13,231	$	20,847	$	35,660	$	153,153	$	17,481	$	81,645	$	353,945

(1) Trading debt securities classified as fair value through profit or loss have been included in the less than 1 month category as there is no expectation to hold these assets to their contractual maturity.

(2) A major portion of relationship-based deposits are repayable on demand or at short notice on a contractual basis while, in practice, these customer balances form a core base, as explained in the preceding Deposit profile section, for our operations and liquidity needs.

Credit ratings

Our ability to access unsecured funding markets and to engage in certain collateralized business activities on a cost-effective basis are primarily dependent upon maintaining competitive credit ratings. Credit ratings and outlooks provided by rating agencies reflect their views and methodologies. Ratings are subject to change from time to time, based on a number of factors including, but not limited to, our financial strength, competitive position and liquidity and other factors not completely within our control.

On December 11, 2015, S&P revised our outlook from negative to stable, along with the outlooks of the other five largest Canadian banks. Our ratings remained unchanged.

On January 25, 2016, Fitch Ratings revised our outlook to negative from stable and affirmed our rating along with the ratings of the other five largest Canadian banks.

On May 2, 2016, Moody’s confirmed our ratings with a negative outlook along with the ratings of the other five largest Canadian banks.

48        Royal Bank of Canada        Second Quarter 2016

The following table presents our major credit ratings⁽¹⁾ and outlooks:

Credit ratings

	As at May 25, 2016
	Short-term debt		Senior long- term debt		Outlook
Moody’s		P-1		Aa3		negative
Standard & Poor’s		A-1+		AA-		stable
Fitch Ratings		F1+		AA		negative
Dominion Bond Rating Services		R-1(high)		AA		negative

(1) Credit ratings are not recommendations to purchase, sell or hold a financial obligation inasmuch as they do not comment on market price or suitability for a particular investor. Ratings are determined by the rating agencies based on criteria established from time to time by them, and are subject to revision or withdrawal at any time by the rating organization.

Additional contractual obligations for rating downgrades

A lowering of our credit rating may have potentially adverse consequences for our funding capacity or access to the capital markets. It may also affect our ability, and the cost, to enter into normal course derivative or hedging transactions and may require us to post additional collateral under certain contracts. However, we estimate, based on periodic reviews of ratings triggers embedded in our existing businesses and of our funding capacity sensitivity, that a minor downgrade would not significantly influence our liability composition, funding access, collateral usage and associated costs. The following table presents the additional collateral obligations required at the reporting date in the event of a one-, two- or three-notch downgrade to our credit ratings. These additional collateral obligations are incremental requirements for each successive downgrade and do not represent the cumulative impact of multiple downgrades. The amounts reported change periodically as a result of several factors, including the transfer of trading activity to centrally cleared financial market infrastructures and exchanges, the expiration of transactions with downgrade triggers, the imposition of internal limitations on new agreements to exclude downgrade triggers, as well as normal course mark to market of positions with collateralized counterparties moving from a negative to a positive position. There is no outstanding senior debt issued in the market that contains rating triggers which would lead to early prepayment of principal.

Additional contractual obligations for rating downgrades

	As at
	April 30 2016						January 31 2016
(Millions of Canadian dollars)	One-notch downgrade		Two-notch downgrade		Three-notch downgrade		One-notch downgrade		Two-notch downgrade		Three-notch downgrade
Contractual derivatives funding or margin requirements	$	503	$	152	$	850	$	627	$	166	$	1,109
Other contractual funding or margin requirements (1)		389		104		–		455		121		–

(1) Includes GICs issued by our municipal markets business out of New York and London.

Capital management

We continue to manage our capital in accordance with our Capital Management Framework as described in our 2015 Annual Report. In addition, we continue to monitor and prepare for new regulatory capital developments in order to ensure timely and accurate compliance with these requirements. For details on new regulatory developments that relate to our Capital Management Framework, including the proposed Canadian bail-in regime for D-SIBs, refer to the Economic and market review outlook section of this Q2 2016 Report to Shareholders.

OSFI expects Canadian banks to currently meet the Basel III “all-in” targets (BCBS January 1, 2019 requirements – minimum ratios plus the capital conservation buffer) for CET1 ratio, Tier 1 and Total capital. To ensure consistent implementation similar to that in other countries, effective January 1, 2014, OSFI allowed Canadian banks to phase in the Basel III CVA capital charge over a five-year period ending December 31, 2018. In 2016, the CVA scalars remain unchanged at 64%, 71%, and 77% for CET1, Tier 1 and Total Capital respectively, and will reach 100% for each tier of capital by 2019.

Commencing January 1, 2016, we are required to include an additional 1% risk-weighted capital surcharge given our designation as a D-SIB by OSFI in 2013 (along with five other Canadian banks) as referenced in the table below.

The following table provides a summary of OSFI regulatory target ratios under Basel III:

Basel III Capital ratios and leverage

OSFI regulatory target requirements for large banks under Basel III

RBC capital and leverage ratios as at April 30, 2016

Meet or exceed OSFI regulatory target ratios

Minimum

Capital Conservation Buffer

Minimum including Capital Conservation Buffer

D-SIBs Surcharge (1)

Minimum including Capital Conservation Buffer and D-SIBs surcharge(1)

Common Equity Tier 1

> 4.5%

2.5%

> 7.0%

1.0%

> 8.0%

10.3%

ü

Tier 1 capital

> 6.0%

2.5%

> 8.5%

1.0%

> 9.5%

11.9%

ü

Total capital

> 8.0%

2.5%

> 10.5%

1.0%

>11.5%

14.0%

ü

Leverage ratio

> 3.0%

n.a.

> 3.0%

n.a.

> 3.0%

4.2%

ü

(1) Effective January 1, 2016, the D-SIBs surcharge is applicable to risk-weighted capital.

Royal Bank of Canada        Second Quarter 2016        49

Regulatory capital, RWA and capital ratios

The following table provides details on our regulatory capital, RWA and capital ratios. Our capital position remained strong during the year and our capital ratios remain well above OSFI regulatory targets.

	As at
(Millions of Canadian dollars, except percentage and multiple amounts and as otherwise noted)	April 30 2016		January 31 2016		October 31 2015		April 30 2015
Capital(1)
CET 1 capital	$	44,717	$	45,672	$	43,715	$	39,608
Tier 1 capital		51,807		51,992		50,541		45,989
Total capital		61,312		61,752		58,004		53,932
Risk-weighted Assets (RWA) used in calculation of capital ratios(1), (2)
CET1 capital RWA		434,797		459,929		411,756		396,874
Tier 1 capital RWA		436,063		461,286		412,941		398,014
Total capital RWA		437,148		462,449		413,957		398,992
Total capital RWA consisting of: (1)
Credit risk	$	352,819	$	372,125	$	323,870	$	306,831
Market risk		30,311		37,232		39,786		42,915
Operational risk		54,018		53,092		50,301		49,246
Total capital RWA	$	437,148	$	462,449	$	413,957	$	398,992
Capital ratios and Leverage ratio (1), (3)
CET1 ratio		10.3%		9.9%		10.6%		10.0%
Tier 1 capital ratio		11.9%		11.3%		12.2%		11.6%
Total capital ratio		14.0%		13.4%		14.0%		13.5%
Leverage ratio		4.2%		4.0%		4.3%		4.0%
Leverage ratio exposure (billions)	$	1,228.3	$	1,288.5	$	1,170.2	$	1,137.8

(1) Capital, RWA, and capital ratios are calculated using OSFI Capital Adequacy Requirements based on the Basel III framework. Leverage ratios are calculated using OSFI Leverage Requirements Guideline based on the Basel III framework.

(2) In 2015, the CVA scalars 64%, 71% and 77% were applied to CET 1, Tier 1 and Total Capital, respectively. In fiscal 2016, the scalars remain unchanged.

(3) To enhance comparability among other global financial institutions, our transitional CET1, Tier 1, Total capital and leverage ratios as at April 30, 2016 were 11.6%, 12.1%, 14.2% and 4.3%, respectively. Transitional is defined as capital calculated according to the current year’s phase-in of regulatory adjustments and phase-out of non-qualifying capital instruments.

Q2 2016 vs. Q1 2016

(1) Represents rounded figures.

(2) Internal capital generation includes $1.3 billion which represents Net income available to shareholders less common and preferred shares dividends.

Our CET1 ratio was 10.3%, up 40 bps from last quarter, mainly reflecting internal capital generation and lower RWA (excluding the impact of foreign exchange translation) in our market risk portfolios due to continued balance sheet optimization.

CET1 capital RWA decreased $25 billion, primarily as a result of the net impact of foreign exchange translation and lower RWA as noted above.

Our Tier 1 capital ratio of 11.9% was up 60 bps, mainly reflecting the factors noted under the CET1 ratio and the issuance of preferred shares.

Our Total capital ratio of 14.0% was up 60 bps, mainly reflecting the factors noted under the Tier 1 capital ratio.

Our Leverage ratio of 4.2% was up 20 bps, mainly reflecting internal capital generation, the impact of foreign exchange translation, and the issuance of preferred shares. These factors were partially offset by higher leverage ratio exposures reflecting business growth, primarily due to cash and interest-bearing deposits, securities, loans, and off-balance sheet commitments.

50        Royal Bank of Canada        Second Quarter 2016

Q2 2016 vs. Q4 2015

Our CET1 ratio was down 30 bps from October 31, 2015, mainly due to the acquisition of City National and the impact of lower discount rates in determining our pension and other post-employment benefit obligations, partially offset by internal capital generation and the impact of foreign exchange translation.

CET1 capital RWA was up $23 billion, primarily as a result of the acquisition of City National, partially offset by the impact of foreign exchange translation and lower RWA (excluding the impact of foreign exchange translation) mainly in market risk portfolios.

Our Tier 1 capital ratio was down 30 bps, mainly reflecting the factors noted under the CET1 ratio and the net issuance of additional Tier 1 capital instruments.

Our Total capital ratio was flat from the prior year, as the impact of the factors noted under the Tier 1 capital ratio was offset by the net issuance of subordinated debentures.

Our Leverage ratio was down 10 bps, mainly reflecting the acquisition of City National and higher leverage ratio exposures reflecting business growth, primarily in repo-style transactions, off-balance sheet commitments, loans, and cash and interest-bearing deposits. These factors were partially offset by internal capital generation and the impact of foreign exchange translation.

Selected capital management activity

The following table provides our selected capital management activity:

	For the three months ended April 30, 2016						For the six months ended April 30, 2016
(Millions of Canadian dollars, except number of shares)	Number of shares (000s)			Amount			Number of shares (000s)			Amount
Tier 1 capital
Common shares issued
Issued in connection with share-based compensation plans (1)		1,588		$	109			3,177		$	195
Issued in connection with the acquisition of City National		–			–			41,619			3,115
Issuance of preferred shares Series BK (2), (3), (4)		–			–			29,000			725
Issuance of preferred shares Series BM (2), (3), (4)		30,000			750			30,000			750
Tier 2 capital
Issuance of January 20, 2026 subordinated debentures (2), (4)					–						1,500
Issuance of January 27, 2026 subordinated debentures (2), (4)					–						2,106
Redemption of RBC Trust Capital Securities – Series 2015 (2)					–						(1,200	)
Redemption of November 2, 2020 subordinated debentures (2)					–						(1,500	)
Other
Issuance of preferred shares Series C-1 (2), (3)		–			–			175			227
Issuance of preferred shares Series C-2 (2), (3)		–			–			100			153
Purchase for cancellation of preferred shares Series C-1 (2), (3)		(93	)		(120	)		(93	)		(120	)
Purchase for cancellation of preferred shares Series C-2 (2), (3)		(80	)		(122	)		(80	)		(122	)

(1) Amounts include cash received for stock options exercised during the period and the fair value adjustments to stock options.

(2) For further details, refer to Note 9 of our Condensed Financial Statements.

(3) Based on gross amount.

(4) Non-Viable Contingent Capital (NVCC) capital instruments.

Royal Bank of Canada        Second Quarter 2016        51

Selected share data (1)

	As at April 30, 2016
(Millions of Canadian dollars, except number of shares and as otherwise noted)	Number of shares (000s)			Amount			Dividends declared per share
Common shares outstanding		1,488,219			$  17,883			$    0.81
First preferred shares outstanding
Non-cumulative Series W (2)		12,000			300			0.31
Non-cumulative Series AA		12,000			300			0.28
Non-cumulative Series AB		12,000			300			0.29
Non-cumulative Series AC		8,000			200			0.29
Non-cumulative Series AD		10,000			250			0.28
Non-cumulative Series AE		10,000			250			0.28
Non-cumulative Series AF		8,000			200			0.28
Non-cumulative Series AG		10,000			250			0.28
Non-cumulative Series AJ (3)		13,579			339			0.22
Non-cumulative Series AK (3)		2,421			61			0.14
Non-cumulative Series AL (3)		12,000			300			0.27
Non-cumulative Series AZ (3), (4)		20,000			500			0.25
Non-cumulative Series BB (3), (4)		20,000			500			0.24
Non-cumulative Series BD (3), (4)		24,000			600			0.23
Non-cumulative Series BF (3), (4)		12,000			300			0.23
Non-cumulative Series BH (4)		6,000			150			0.31
Non-cumulative Series BI (4)		6,000			150			0.31
Non-cumulative Series BJ (4)		6,000			150			0.33
Non-cumulative Series BK (3), (4)		29,000			725			0.60
Non-cumulative Series BM (3), (4)		30,000			750			–
Non-cumulative Series C-1 (5)		82			107			US$  13.75
Non-cumulative Series C-2 (5)		20			31			US$  16.88
Treasury shares held – preferred		5			–
Treasury shares held – common		(1,324	)		(87	)
Stock options
Outstanding		13,176
Exercisable		8,718
Dividends
Common					1,206
Preferred					74

(1) For further details about our capital management activity, refer to Note 9 of our Condensed Financial Statements.

(2) Effective February 24, 2010, we have the right to convert into common shares at our option, subject to certain restrictions.

(3) Dividend rate will reset every five years.

(4) NVCC capital instruments.

(5) Represents 3,282,000 and 815,400 depositary shares relating to preferred shares Series C-1 and Series C-2, respectively. Each depositary share represents one-fortieth interest in a share of Series C-1 and Series C-2, respectively.

On March 7, 2016, we issued 30 million Non-Cumulative 5-Year Rate Reset First Preferred Shares, Series BM for gross proceeds of $750 million. Net proceeds will be used for general business purposes.

As at May 20, 2016, the number of outstanding common shares and stock options and awards was 1,488,261,713 and 13,127,701, respectively, and the number of Treasury shares – preferred and Treasury shares – common was 16,916 and (1,330,449), respectively.

NVCC provisions require the conversion of the capital instrument into a variable number of common shares in the event that OSFI deems the Bank to be non-viable or a federal or provincial government in Canada publicly announces that the Bank has accepted or agreed to accept a capital injection. If a NVCC trigger event were to occur, our NVCC capital instruments preferred shares Series AZ, preferred shares Series BB, preferred shares Series BD, preferred shares Series BF, preferred shares Series BH, preferred shares Series BI, preferred shares Series BJ, preferred shares Series BK, preferred shares Series BM, subordinated debentures due on July 17, 2024, subordinated debentures due on September 29, 2026, subordinated debentures due on June 4, 2025, subordinated debentures due on January 20, 2026 and subordinated debentures due on January 27, 2026 would be converted into RBC common shares pursuant to an automatic conversion formula with a conversion price based on the greater of: (i) a floor price of $5.00, and (ii) the current market price of our common shares at the time of the trigger event (10-day weighted average). Based on a floor price of $5.00 and including an estimate for accrued dividends and interest, these NVCC capital instruments would convert into a maximum of 2,722 million RBC common shares, on aggregate, which would represent a dilution impact of 64.66% based on the number of RBC common shares outstanding as at April 30, 2016.

Attributed capital

Our methodology for allocating capital to our business segments is based on the higher of fully diversified economic capital and the Basel III regulatory capital requirements. Risk-based capital attribution provides a uniform base for performance measurement among business segments, which compares to our overall corporate return objective and facilitates management decisions in resource allocation in conjunction with other factors. Effective the first quarter of 2016, we increased our capital attribution rate to the segments to better align with higher regulatory capital requirements.

52        Royal Bank of Canada        Second Quarter 2016

The following outlines our attributed capital:

Attributed capital

	For the three months ended
(Millions of Canadian dollars)	April 30 2016		January 31 2016		October 31 2015		April 30 2015
Credit risk	$	20,600	$	20,450	$	17,650	$	16,050
Market risk (trading and non-trading)		3,050		3,550		3,800		3,900
Operational risk		4,900		4,750		4,300		4,800
Business and fixed asset risk		3,100		3,100		2,700		3,050
Insurance risk		650		650		550		550
Goodwill and other intangibles		16,100		16,650		12,150		11,850
Regulatory capital allocation		10,000		8,500		6,500		5,400
Attributed capital	$	58,400	$	57,650	$	47,650	$	45,600
Under attribution of capital		4,000		3,800		8,150		5,900
Average common equity	$	62,400	$	61,450	$	55,800	$	51,500

Q2 2016 vs. Q1 2016

Attributed capital increased $0.8 billion largely due to higher Regulatory capital allocation, as well as higher Credit risk and Operational risk, due to business growth. These factors were partially offset by lower Market risk, largely reflecting portfolio reductions, and lower Goodwill and other intangibles, as a result of the impact of foreign exchange translation.

We remain well capitalized with current levels of available capital exceeding the attributed capital required to underpin all of our material risks.

Global systemically important banks (G-SIBs) 12 assessment indicators (1)

The BCBS and FSB use 12 indicators in the assessment methodology for determining the systemic importance of large global banks. As at October 31, 2015, RBC was not identified as a G-SIB. The following table provides the 12 indicators used in the G-SIB assessment.

	As at
(Millions of Canadian dollars)	October 31 2015		October 31 2014
Cross-jurisdictional activity(2)
Cross-jurisdictional claims	$	401,488	$	331,383
Cross-jurisdictional liabilities		273,742		195,069
Size(3)
Total exposures as defined for use in the Basel III leverage ratio		1,183,027		1,049,983
Interconnectedness(4)
Intra-financial system assets (5)		127,856		90,174
Intra-financial system liabilities (5)		142,955		137,079
Securities outstanding		284,360		256,828
Substitutability/financial institution infrastructure(6)
Payment activity		37,729,748		28,521,639
Assets under custody		3,419,329		3,533,655
Underwritten transactions in debt and equity markets (5)		202,055		178,366
Complexity(7)
Notional amount of over-the-counter derivatives		12,104,451		9,752,885
Trading and available-for-sale securities (5)		67,562		62,118
Level 3 assets		5,626		6,288

(1) The G-SIBs indicators are prepared based on the methodology prescribed in BCBS guideline published in July 2013 and instructions and guidelines provided by BCBS and OSFI in January 2014. The indicators are based on regulatory scope of consolidation, which excludes RBC insurance subsidiaries.

(2) Represents a bank’s level of interaction with foreign banks.

(3) Represents the total on- and off- balance sheet exposures of the bank determined as per the Basel III leverage ratio rules before regulatory adjustments.

(4) Represents transactions with other financial institutions.

(5) Amounts have been revised from those previously presented.

(6) Represents the extent to which the bank’s services could be substituted by other institutions.

(7) Includes the level of complexity and volume of a bank’s trading activities represented through derivatives, trading securities, available-for-sale securities and level 3 assets.

Q4 2015 vs. Q4 2014

Cross-jurisdictional claims increased $70 billion or 21% and cross-jurisdictional liabilities increased $79 billion or 40%, mainly due to the increase in cross-jurisdictional activity driven by the growth in our balance sheet.

Payment activity increased $9,208 billion or 32%, mainly due to higher U.S. dollar, Euro, and British pound denominated payments.

Assets under custody decreased $114 billion or 3%, mainly reflecting changes in client asset mix and unfavourable market conditions, partially offset by the impact of foreign exchange translation.

Notional amount of over-the-counter derivatives increased $2,352 billion or 24%, mainly due to the impact of foreign exchange translation and higher fair values on interest rate swaps.

Royal Bank of Canada        Second Quarter 2016        53

Additional financial information

Exposure to U.S. subprime and Alt-A through RMBS, CDOs and mortgages

Certain activities and transactions we enter into expose us to the risk of default of U.S. subprime and Alt-A residential mortgages. Our exposures to U.S. subprime and Alt-A residential mortgages of $257 million represented less than 0.1% of our total assets as at April 30, 2016, compared to $525 million or less than 0.1% last year. The decrease of $268 million was primarily due to the sale of certain securities.

Commercial mortgage-backed securities

The fair value of our total direct holdings of Canadian and U.S. commercial mortgage-backed securities was $395 million as at April 30, 2016.

Assets and liabilities measured at fair value

Our financial instruments carried at fair value are classified as Level 1, 2 or 3, in accordance with the fair value hierarchy set out in International Financial Reporting Standards (IFRS) 13, Fair Value Measurement. For further details on the fair value of our financial instruments and transfers between levels of the fair value hierarchy, refer to Note 3 of our audited 2015 Annual Consolidated Financial Statements.

The following table presents the total fair value of each major class of financial assets and financial liabilities measured at fair value and the percentage of the fair value of each class categorized as Level 1, 2 or 3 as at April 30, 2016.

	As at April 30, 2016
(Millions of Canadian dollars, except percentage amounts)	Fair value (1)		Level 1 (1)			Level 2 (1)			Level 3 (1)			Total
Financial assets
Securities at FVTPL	$	151,952		39	%		61	%		–	%		100	%
Available-for-sale		59,144		9			85			6			100
Assets purchased under reverse repurchase agreements and securities borrowed		127,205		–			100			–			100
Loans		2,085		–			81			19			100
Derivatives		203,257		1			99			–			100
Financial liabilities
Deposits	$	110,840		–	%		100	%		–	%		100	%
Obligations related to securities sold short		47,121		64			36			–			100
Obligations related to assets sold under repurchase agreements and securities loaned		82,601		–			100			–			100
Derivatives		203,893		2			97			1			100

(1) The derivative assets and liabilities presented in the table above do not reflect the impact of netting.

Accounting and control matters

Summary of accounting policies and estimates

Our Condensed Financial Statements are presented in compliance with International Accounting Standard (IAS) 34 Interim Financial Reporting. The significant accounting policies are described in Note 2 of our Condensed Financial Statements and Note 2 of our audited 2015 Annual Consolidated Financial Statements.

Changes in accounting policies and disclosures

Changes in accounting policies

As a result of the acquisition of City National, we updated our accounting policies in the first quarter to reflect policies on Acquired Loans, Acquired Credit-Impaired Loans and Federal Deposit Insurance Corporation Covered Loans. Refer to Note 2 of our Condensed Financial Statements for details of these changes.

Future changes in accounting policies and disclosures

During the second quarter, the International Accounting Standards Board (IASB) issued amendments to IFRS 15, Revenue from Contracts with Customers (IFRS 15), which clarify the underlying principles of IFRS 15 and provide additional transitional relief on initial application.

During the first quarter, the IASB issued IFRS 16, Leases, which sets out the principles for recognition, measurement, presentation and disclosure of leases. The IASB also issued amendments to IAS 7, Statement of Cash Flows, which will require disclosure for movements of certain liabilities in the statement of cash flows.

Please refer to Note 2 of our Condensed Financial Statements for details of these changes and to Note 2 of our audited 2015 Annual Consolidated Financial Statements for details of other future changes in accounting policies and disclosures.

54        Royal Bank of Canada        Second Quarter 2016

Future changes in regulatory disclosures and guidance

OSFI draft guideline: IFRS 9, Financial Instruments and Disclosures

On March 10, 2016, OSFI issued for comment a draft guideline on IFRS 9. The draft guideline provides guidance to Federally Regulated Entities on the application of IFRS 9. The draft guideline is consistent with the BCBS Guidance on credit risk and accounting for expected credit losses. The final version of the guidance will be effective for us on November 1, 2017.

BCBS revised Pillar 3 disclosure requirements

On March 11, 2016, the BCBS released a consultation paper entitled, “Pillar 3 disclosure requirements – consolidated and enhanced framework”. The proposed enhancements include the addition of a “dashboard” of key metrics, a draft disclosure requirement of hypothetical risk-weighted assets calculated based on the Basel framework’s standardized approaches, and enhanced granularity for disclosure of prudent valuation adjustments and incorporates additions to the Pillar 3 framework to reflect ongoing reforms to the regulatory framework such as the total loss-absorbing capacity regime for global systemically important banks, the proposed operational risk framework, and the final standard for market risk. The BCBS’s proposal would also consolidate all existing Pillar 3 disclosure requirements of the Basel framework, including the leverage ratio and liquidity ratios disclosure templates. Together with the Revised Pillar 3 disclosure requirements issued in January 2015, the proposed disclosure requirements included in this consultation paper would comprise the single Pillar 3 framework.

In January 2016, OSFI issued a draft guideline indicating that all domestic systemically important banks are expected to implement the Basel Pillar 3 disclosure requirements for the reporting period ending October 31, 2017. The final guideline is expected to be issued in the third quarter of 2016.

BCBS guidance on credit risk and accounting for expected credit losses

On December 18, 2015, the BCBS issued its final guidance on “Sound Credit Risk Assessment and Valuation for Loans”. The guidance sets out supervisory expectations on sound credit risk practices associated with the implementation of expected credit loss accounting models as required under IFRS 9, effective for us on November 1, 2017.

Controls and procedures

Disclosure controls and procedures

As of April 30, 2016, management evaluated, under the supervision of and with the participation of the President and Chief Executive Officer and the Chief Administrative Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures as defined under rules adopted by the U.S. SEC. Based on that evaluation, the President and Chief Executive Officer and the Chief Administrative Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of April 30, 2016.

Internal control over financial reporting

No changes were made in our internal control over financial reporting during the quarter ended April 30, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Related party transactions

In the ordinary course of business, we provide normal banking services and operational services, and enter into other transactions with associated and other related corporations, including our joint venture entities, on terms similar to those offered to non-related parties. We grant loans to directors, officers and other employees at rates normally accorded to preferred clients. In addition, we offer deferred share and other plans to non-employee directors, executives and certain other key employees. For further information, refer to Notes 12 and 29 of our audited 2015 Annual Consolidated Financial Statements.

Royal Bank of Canada        Second Quarter 2016        55

EDTF recommendations index

On October 29, 2012, the Enhanced Disclosure Task Force (EDTF), established by the Financial Stability Board, issued its report Enhancing the Risk Disclosures of Banks, which included 32 recommendations aimed at achieving transparent, high-quality risk disclosures. As a result, our enhanced disclosures have been provided in our 2015 Annual Report, Q2 2016 Report to Shareholders (RTS) and Supplementary Financial Information package (SFI).

The following index summarizes our disclosure by EDTF recommendation:

			Location of disclosure
Type of Risk	Recommendation	Disclosure	RTS page	Annual Report page	SFI page
General	1	Table of contents for EDTF risk disclosure	55	115	1
	2	Define risk terminology and measures		50-55 207-209	—
	3	Top and emerging risks		49-50	—
	4	New regulatory ratios	38-40, 48	73,92-93	—
Risk governance, risk management and business model	5	Risk management organization		50-55	—
	6	Risk culture		50-52	—
	7	Risk in the context of our business activities		100	—
	8	Stress testing		52-53	—
Capital adequacy and risk-weighted assets (RWA)	9	Minimum Basel III capital ratios and Domestic systemically important bank surcharge	48	92-93	—
	10	Composition of capital and reconciliation of the accounting balance sheet to the regulatory balance sheet		—	21-24
	11	Flow statement of the movements in regulatory capital		—	25
	12	Capital strategic planning		91-93	—
	13	RWA by business segments		—	28
	14	Analysis of capital requirement, and related measurement model information		56-59	26-27
	15	RWA credit risk and related risk measurements		—	42-44
	16	Movement of risk-weighted assets by risk type		—	28
	17	Basel back-testing		53,57	42
Liquidity	18	Quantitative and qualitative analysis of our liquidity reserve	41-42	74-77	—
Funding	19	Encumbered and unencumbered assets by balance sheet category, and contractual obligations for rating downgrades	42-43, 47-48	77,84	—
	20	Maturity analysis of consolidated total assets, liabilities and off-balance sheet commitments analyzed by remaining contractual maturity at the balance sheet date	46-47	81-82	—
	21	Sources of funding and funding strategy	43-44	78-79	—
Market risk	22	Relationship between the market risk measures for trading and non-trading portfolios and the balance sheet	37-38	71-72	—
	23	Decomposition of market risk factors	33-35	67-70	—
	24	Market risk validation and back-testing		69	—
	25	Primary risk management techniques beyond reported risk measures and parameters		67-69	—
Credit risk	26	Bank’s credit risk profile	26-33	56-67 154-156	31-44
		Quantitative summary of aggregate credit risk exposures that reconciles to the balance sheet	76-78	108-114	40
	27	Policies for identifying impaired loans		58,103 130-131	—
	28	Reconciliation of the opening and closing balances of impaired loans and impairment allowances during the year		—	33,37
	29	Quantification of gross notional exposure for OTC derivatives or exchange-traded derivatives		60	46
	30	Credit risk mitigation, including collateral held for all sources of credit risk		58	41
Other	31	Other risk types		84-91	—
	32	Publicly known risk events		87-89 192-193	—

56        Royal Bank of Canada        Second Quarter 2016

Interim Condensed Consolidated Financial Statements (unaudited)

Interim Condensed Consolidated Balance Sheets (unaudited)

	As at
(Millions of Canadian dollars)	April 30 2016			January 31 2016			October 31 2015			April 30 2015
Assets
Cash and due from banks	$	14,845		$	17,050		$	12,452		$	18,393
Interest-bearing deposits with banks		29,229			24,636			22,690			4,402
Securities (Note 4)
Trading		151,952			161,442			158,703			169,763
Available-for-sale		72,419			72,269			56,805			52,880
		224,371			233,711			215,508			222,643
Assets purchased under reverse repurchase agreements and securities borrowed		184,825			196,295			174,723			163,368
Loans(Note 5)
Retail		359,863			360,763			348,183			336,064
Wholesale		150,602			157,592			126,069			114,283
		510,465			518,355			474,252			450,347
Allowance for loan losses (Note 5)		(2,271	)		(2,169	)		(2,029	)		(2,037	)
		508,194			516,186			472,223			448,310
Segregated fund net assets		882			839			830			780
Other
Customers’ liability under acceptances		13,844			12,882			13,453			12,637
Derivatives		115,298			132,560			105,626			107,004
Premises and equipment, net		2,970			3,084			2,728			2,595
Goodwill		11,200			12,016			9,289			8,890
Other intangibles		4,526			4,872			2,814			2,779
Other assets		40,173			46,221			41,872			40,371
		188,011			211,635			175,782			174,276
Total assets	$	1,150,357		$	1,200,352		$	1,074,208		$	1,032,172
Liabilities and equity
Deposits(Note 7)
Personal	$	243,882		$	239,190		$	220,566		$	215,903
Business and government		479,821			510,231			455,578			415,311
Bank		17,751			20,147			21,083			20,337
		741,454			769,568			697,227			651,551
Segregated fund net liabilities		882			839			830			780
Other
Acceptances		13,844			12,882			13,453			12,637
Obligations related to securities sold short		47,121			51,931			47,658			54,314
Obligations related to assets sold under repurchase agreements and securities loaned		96,574			99,310			83,288			81,207
Derivatives		116,479			132,023			107,860			112,219
Insurance claims and policy benefit liabilities		8,644			8,319			9,110			9,373
Other liabilities		47,669			45,738			43,476			44,049
		330,331			350,203			304,845			313,799
Subordinated debentures (Note 9)		9,564			9,854			7,362			7,795
Total liabilities		1,082,231			1,130,464			1,010,264			973,925
Equity attributable to shareholders
Preferred shares (Note 9)		6,713			6,204			5,098			4,652
Common shares (shares issued — 1,486,894,941, 1,487,824,278, 1,443,954,789 and 1,441,744,354) (Note 9)		17,796			17,862			14,611			14,452
Retained earnings		39,590			38,856			37,811			34,142
Other components of equity		3,439			6,393			4,626			3,185
		67,538			69,315			62,146			56,431
Non-controlling interests		588			573			1,798			1,816
Total equity		68,126			69,888			63,944			58,247
Total liabilities and equity	$	1,150,357		$	1,200,352		$	1,074,208		$	1,032,172

The accompanying notes are an integral part of these Interim Condensed Consolidated Financial Statements.

Royal Bank of Canada        Second Quarter 2016        57

Interim Condensed Consolidated Statements of Income (unaudited)

	For the three months ended						For the six months ended
(Millions of Canadian dollars, except per share amounts)	April 30 2016		January 31 2016		April 30 2015		April 30 2016		April 30 2015
Interest income
Loans	$	4,374	$	4,434	$	4,130	$	8,808	$	8,438
Securities		1,138		1,184		1,111		2,322		2,183
Assets purchased under reverse repurchase agreements and securities borrowed		445		405		298		850		599
Deposits and other		44		33		18		77		39
		6,001		6,056		5,557		12,057		11,259
Interest expense
Deposits and other		1,368		1,293		1,460		2,661		2,961
Other liabilities		547		530		477		1,077		984
Subordinated debentures		61		37		63		98		126
		1,976		1,860		2,000		3,836		4,071
Net interest income		4,025		4,196		3,557		8,221		7,188
Non-interest income
Insurance premiums, investment and fee income		1,351		1,159		806		2,510		2,698
Trading revenue		181		90		359		271		699
Investment management and custodial fees		1,031		1,054		943		2,085		1,870
Mutual fund revenue		695		719		716		1,414		1,411
Securities brokerage commissions		360		367		361		727		726
Service charges		435		431		391		866		783
Underwriting and other advisory fees		469		374		559		843		1,004
Foreign exchange revenue, other than trading		376		182		301		558		455
Card service revenue		226		216		192		442		396
Credit fees		307		263		311		570		556
Net gains on available-for-sale securities (Note 4)		15		52		42		67		69
Share of profit in joint ventures and associates		41		47		39		88		81
Other		14		209		253		223		538
		5,501		5,163		5,273		10,664		11,286
Total revenue		9,526		9,359		8,830		18,885		18,474
Provision for credit losses(Note 5)		460		410		282		870		552
Insurance policyholder benefits, claims and acquisition expense		988		829		493		1,817		2,015
Non-interest expense
Human resources (Note 8)		3,014		3,076		2,996		6,090		6,011
Equipment		358		356		311		714		608
Occupancy		382		393		356		775		691
Communications		224		203		224		427		422
Professional fees		247		240		204		487		402
Amortization of other intangibles		229		234		178		463		352
Other		433		458		467		891		870
		4,887		4,960		4,736		9,847		9,356
Income before income taxes		3,191		3,160		3,319		6,351		6,551
Income taxes		618		713		817		1,331		1,593
Net income	$	2,573	$	2,447	$	2,502	$	5,020	$	4,958
Net income attributable to:
Shareholders	$	2,560	$	2,426	$	2,473	$	4,986	$	4,907
Non-controlling interests		13		21		29		34		51
	$	2,573	$	2,447	$	2,502	$	5,020	$	4,958
Basic earnings per share (in dollars) (Note 10)	$	1.67	$	1.59	$	1.68	$	3.26	$	3.34
Diluted earnings per share (in dollars) (Note 10)		1.66		1.58		1.68		3.25		3.33
Dividends per common share(in dollars)		0.81		0.79		0.77		1.60		1.52

The accompanying notes are an integral part of these Interim Condensed Consolidated Financial Statements.

58        Royal Bank of Canada        Second Quarter 2016

Interim Condensed Consolidated Statements of Comprehensive Income (unaudited)

	For the three months ended									For the six months ended
(Millions of Canadian dollars)	April 30 2016			January 31 2016			April 30 2015			April 30 2016			April 30 2015
Net income	$	2,573		$	2,447		$	2,502		$	5,020		$	4,958
Other comprehensive income (loss), net of taxes
Items that will be reclassified subsequently to income:
Net change in unrealized gains (losses) on available-for-sale securities
Net unrealized gains (losses) on available-for-sale securities		50			19			(122	)		69			86
Reclassification of net losses (gains) on available-for-sale securities to income		(18	)		(35	)		(20	)		(53	)		(20	)
		32			(16	)		(142	)		16			66
Foreign currency translation adjustments
Unrealized foreign currency translation gains (losses)		(5,152	)		3,019			(2,116	)		(2,133	)		2,440
Net foreign currency translation gains (losses) from hedging activities		2,016			(1,172	)		1,096			844			(1,509	)
Reclassification of losses (gains) on foreign currency translation to income		–			–			(167	)		–			(178	)
Reclassification of losses (gains) on net investment hedging activities to income		–			–			59			–			69
		(3,136	)		1,847			(1,128	)		(1,289	)		822
Net change in cash flow hedges
Net gains (losses) on derivatives designated as cash flow hedges		230			(89	)		36			141			(346	)
Reclassification of losses (gains) on derivatives designated as cash flow hedges to income		(88	)		30			79			(58	)		230
		142			(59	)		115			83			(116	)
Items that will not be reclassified subsequently to income:
Remeasurements of employee benefit plans (Note 8)		(216	)		(454	)		413			(670	)		(77	)
Net fair value change due to credit risk on financial liabilities designated as at fair value through profit or loss		(265	)		120			(79	)		(145	)		(4	)
		(481	)		(334	)		334			(815	)		(81	)
Total other comprehensive income (loss), net of taxes		(3,443	)		1,438			(821	)		(2,005	)		691
Total comprehensive income (loss)	$	(870	)	$	3,885		$	1,681		$	3,015		$	5,649
Total comprehensive income (loss) attributable to:
Shareholders	$	(875	)	$	3,859		$	1,657		$	2,984		$	5,593
Non-controlling interests		5			26			24			31			56
	$	(870	)	$	3,885		$	1,681		$	3,015		$	5,649

The income tax effect on the Interim Condensed Consolidated Statements of Comprehensive Income is shown in the table below:

(Millions of Canadian dollars)	For the three months ended									For the six months ended
	April 30 2016			January 31 2016			April 30 2015			April 30 2016			April 30 2015
Income taxes on other comprehensive income
Net unrealized gains (losses) on available-for-sale securities	$	15		$	30		$	(35	)	$	45		$	33
Reclassification of net losses (gains) on available-for-sale securities to income		(6	)		(15	)		(5	)		(21	)		(3	)
Unrealized foreign currency translation gains (losses)		(6	)		4			(3	)		(2	)		3
Net foreign currency translation gains (losses) from hedging activities		705			(417	)		387			288			(535	)
Reclassification of losses (gains) on net investment hedging activities to income		–			–			19			–			23
Net gains (losses) on derivatives designated as cash flow hedges		83			(32	)		14			51			(123	)
Reclassification of losses (gains) on derivatives designated as cash flow hedges to income		(32	)		11			28			(21	)		82
Remeasurements of employee benefit plans		(89	)		(152	)		147			(241	)		(26	)
Net fair value change due to credit risk on financial liabilities designated as at fair value through profit or loss		(99	)		43			(29	)		(56	)		(1	)
Total income tax expenses (recoveries)	$	571		$	(528	)	$	523		$	43		$	(547	)

The accompanying notes are an integral part of these Interim Condensed Consolidated Financial Statements.

Royal Bank of Canada        Second Quarter 2016        59

Interim Condensed Consolidated Statements of Changes in Equity (unaudited)

															Other components of equity
(Millions of Canadian dollars)	Preferred shares			Common shares		Treasury shares - preferred			Treasury shares - common			Retained earnings			Available- for-sale securities			Foreign currency translation			Cash flow hedges			Total other components of equity			Equity attributable to shareholders			Non-controlling interests			Total equity
Balance at January 31, 2015	$	4,350		$	14,531	$	1		$	(57	)	$	32,505		$	640		$	3,831		$	(136	)	$	4,335		$	55,665		$	1,756		$	57,421
Changes in equity
Issues of share capital		300			25		–			–			(6	)		–			–			–			–			319			–			319
Sales of treasury shares		–			–		56			1,887			–			–			–			–			–			1,943			–			1,943
Purchases of treasury shares		–			–		(55	)		(1,934	)		–			–			–			–			–			(1,989	)		–			(1,989	)
Share-based compensation awards		–			–		–			–			(2	)		–			–			–			–			(2	)		–			(2	)
Dividends on common shares		–			–		–			–			(1,111	)		–			–			–			–			(1,111	)		–			(1,111	)
Dividends on preferred shares and other		–			–		–			–			(47	)		–			–			–			–			(47	)		–			(47	)
Other		–			–		–			–			(4	)		–			–			–			–			(4	)		36			32
Net income		–			–		–			–			2,473			–			–			–			–			2,473			29			2,502
Total other comprehensive income (loss), net of taxes		–			–		–			–			334			(142	)		(1,123	)		115			(1,150	)		(816	)		(5	)		(821	)
Balance at April 30, 2015	$	4,650		$	14,556	$	2		$	(104	)	$	34,142		$	498		$	2,708		$	(21	)	$	3,185		$	56,431		$	1,816		$	58,247
Balance at October 31, 2015	$	5,100		$	14,573	$	(2	)	$	38		$	37,811		$	315		$	4,427		$	(116	)	$	4,626		$	62,146		$	1,798		$	63,944
Changes in equity
Issues of share capital		1,105			3,201		–			–			(7	)		–			–			–			–			4,299			–			4,299
Redemption of trust capital securities		–			–		–			–			–			–			–			–			–			–			(1,200	)		(1,200	)
Sales of treasury shares		–			–		40			989			–			–			–			–			–			1,029			–			1,029
Purchases of treasury shares		–			–		(39	)		(939	)		–			–			–			–			–			(978	)		–			(978	)
Share-based compensation awards		–			–		–			–			(6	)		–			–			–			–			(6	)		–			(6	)
Dividends on common shares		–			–		–			–			(1,175	)		–			–			–			–			(1,175	)		–			(1,175	)
Dividends on preferred shares and other		–			–		–			–			(60	)		–			–			–			–			(60	)		(46	)		(106	)
Other		–			–		–			–			201			–			–			–			–			201			(5	)		196
Net income		–			–		–			–			2,426			–			–			–			–			2,426			21			2,447
Total other comprehensive income (loss), net of taxes		–			–		–			–			(334	)		(16	)		1,842			(59	)		1,767			1,433			5			1,438
Balance at January 31, 2016	$	6,205		$	17,774	$	(1	)	$	88		$	38,856		$	299		$	6,269		$	(175	)	$	6,393		$	69,315		$	573		$	69,888
Changes in equity
Issues of share capital		750			109		–			–			(9	)		–			–			–			–			850			–			850
Preferred shares purchased for cancellation		(242	)		–		–			–			(22	)		–			–			–			–			(264	)		–			(264	)
Sales of treasury shares		–			–		64			1,425			–			–			–			–			–			1,489			–			1,489
Purchases of treasury shares		–			–		(63	)		(1,600	)		–			–			–			–			–			(1,663	)		–			(1,663	)
Share-based compensation awards		–			–		–			–			(26	)		–			–			–			–			(26	)		–			(26	)
Dividends on common shares		–			–		–			–			(1,206	)		–			–			–			–			(1,206	)		–			(1,206	)
Dividends on preferred shares and other		–			–		–			–			(74	)		–			–			–			–			(74	)		–			(74	)
Other		–			–		–			–			(8	)		–			–			–			–			(8	)		10			2
Net income		–			–		–			–			2,560			–			–			–			–			2,560			13			2,573
Total other comprehensive income (loss), net of taxes		–			–		–			–			(481	)		32			(3,128	)		142			(2,954	)		(3,435	)		(8	)		(3,443	)
Balance at April 30, 2016	$	6,713		$	17,883	$	–		$	(87	)	$	39,590		$	331		$	3,141		$	(33	)	$	3,439		$	67,538		$	588		$	68,126

60        Royal Bank of Canada        Second Quarter 2016

															Other components of equity
(Millions of Canadian dollars)	Preferred shares			Common shares		Treasury shares - preferred			Treasury shares - common			Retained earnings			Available- for-sale securities		Foreign currency translation			Cash flow hedges			Total other components of equity			Equity attributable to shareholders			Non-controlling interests			Total equity
Balance at October 31, 2014	$	4,075		$	14,511	$	–		$	71		$	31,615		$	432	$	1,891		$	95		$	2,418		$	52,690		$	1,813		$	54,503
Changes in equity
Issues of share capital		900			45		–			–			(13	)		–		–			–			–			932			–			932
Preferred shares redeemed		(325	)		–		–			–			–			–		–			–			–			(325	)		–			(325	)
Sales of treasury shares		–			–		71			3,668			–			–		–			–			–			3,739			–			3,739
Purchases of treasury shares		–			–		(69	)		(3,843	)		–			–		–			–			–			(3,912	)		–			(3,912	)
Share-based compensation awards		–			–		–			–			–			–		–			–			–			–			–			–
Dividends on common shares		–			–		–			–			(2,192	)		–		–			–			–			(2,192	)		–			(2,192	)
Dividends on preferred shares and other		–			–		–			–			(87	)		–		–			–			–			(87	)		(46	)		(133	)
Other		–			–		–			–			(7	)		–		–			–			–			(7	)		(7	)		(14	)
Net income		–			–		–			–			4,907			–		–			–			–			4,907			51			4,958
Total other comprehensive income (loss), net of taxes		–			–		–			–			(81	)		66		817			(116	)		767			686			5			691
Balance at April 30, 2015	$	4,650		$	14,556	$	2		$	(104	)	$	34,142		$	498	$	2,708		$	(21	)	$	3,185		$	56,431		$	1,816		$	58,247
Balance at October 31, 2015	$	5,100		$	14,573	$	(2	)	$	38		$	37,811		$	315	$	4,427		$	(116	)	$	4,626		$	62,146		$	1,798		$	63,944
Changes in equity
Issues of share capital		1,855			3,310		–			–			(16	)		–		–			–			–			5,149			–			5,149
Preferred shares purchased for cancellation		(242	)		–		–			–			(22	)		–		–			–			–			(264	)		–			(264	)
Redemption of trust capital securities		–			–		–			–			–			–		–			–			–			–			(1,200	)		(1,200	)
Sales of treasury shares		–			–		104			2,414			–			–		–			–			–			2,518			–			2,518
Purchases of treasury shares		–			–		(102	)		(2,539	)		–			–		–			–			–			(2,641	)		–			(2,641	)
Share-based compensation awards		–			–		–			–			(32	)		–		–			–			–			(32	)		–			(32	)
Dividends on common shares		–			–		–			–			(2,381	)		–		–			–			–			(2,381	)		–			(2,381	)
Dividends on preferred shares and other		–			–		–			–			(134	)		–		–			–			–			(134	)		(46	)		(180	)
Other		–			–		–			–			193			–		–			–			–			193			5			198
Net income		–			–		–			–			4,986			–		–			–			–			4,986			34			5,020
Total other comprehensive income (loss), net of taxes		–			–		–			–			(815	)		16		(1,286	)		83			(1,187	)		(2,002	)		(3	)		(2,005	)
Balance at April 30, 2016	$	6,713		$	17,883	$	–		$	(87	)	$	39,590		$	331	$	3,141		$	(33	)	$	3,439		$	67,538		$	588		$	68,126

The accompanying notes are an integral part of these Interim Condensed Consolidated Financial Statements.

Royal Bank of Canada        Second Quarter 2016        61

Interim Condensed Consolidated Statements of Cash Flows (unaudited)

	For the three months ended									For the six months ended
(Millions of Canadian dollars)	April 30 2016			January 31 2016			April 30 2015			April 30 2016			April 30 2015
Cash flows from operating activities
Net income	$	2,573		$	2,447		$	2,502		$	5,020		$	4,958
Adjustments for non-cash items and others
Provision for credit losses		460			410			282			870			552
Depreciation		136			152			134			288			261
Deferred income taxes		(188	)		91			98			(97	)		103
Amortization and Impairment of other intangibles		232			234			184			466			359
Impairment of investments in joint ventures and associates		4			6			9			10			15
Losses (Gains) on sale of premises and equipment		2			1			(1	)		3			(39	)
Losses (Gains) on available-for-sale securities		(32	)		(75	)		(60	)		(107	)		(101	)
Losses (Gains) on disposition of business		6			8			23			14			23
Impairment of available-for-sale securities		14			24			18			38			32
Share of loss (profit) in joint ventures and associates		(41	)		(47	)		(39	)		(88	)		(81	)
Adjustments for net changes in operating assets and liabilities
Insurance claims and policy benefit liabilities		325			195			(67	)		520			809
Net change in accrued interest receivable and payable		148			(221	)		262			(73	)		(56	)
Current income taxes		1,081			(204	)		738			877			(405	)
Derivative assets		17,262			(26,840	)		43,560			(9,578	)		(19,602	)
Derivative liabilities		(15,544	)		24,066			(40,650	)		8,522			23,237
Trading securities		9,531			(3,364	)		11,231			6,167			(18,514	)
Loans, net of securitizations		7,835			(13,956	)		(1,380	)		(6,121	)		(14,449	)
Assets purchased under reverse repurchase agreements and securities borrowed		11,418			(21,310	)		205			(9,892	)		(27,788	)
Deposits, net of securitizations		(27,303	)		30,099			(1,610	)		2,796			38,997
Obligations related to assets sold under repurchase agreements and securities loaned		(2,736	)		16,022			(94	)		13,286			16,876
Obligations related to securities sold short		(4,810	)		4,273			(5,171	)		(537	)		3,969
Brokers and dealers receivable and payable		(411	)		616			(538	)		205			632
Other		9,859			(6,512	)		(4,573	)		3,347			(6,517	)
Net cash from (used in) operating activities		9,821			6,115			5,063			15,936			3,271
Cash flows from investing activities
Change in interest-bearing deposits with banks		(5,320	)		833			(581	)		(4,487	)		4,191
Proceeds from sale of available-for-sale securities		1,341			2,625			2,824			3,966			5,051
Proceeds from maturity of available-for-sale securities		7,157			6,658			8,365			13,815			16,671
Purchases of available-for-sale securities		(13,407	)		(9,493	)		(15,826	)		(22,900	)		(24,007	)
Proceeds from maturity of held-to-maturity securities		98			978			–			1,076			–
Purchases of held-to-maturity securities		(619	)		(548	)		(122	)		(1,167	)		(1,729	)
Net acquisitions of premises and equipment and other intangibles		(150	)		(407	)		(218	)		(557	)		(499	)
Cash used in acquisitions		–			(2,964	)		–			(2,964	)		–
Net cash from (used in) investing activities		(10,900	)		(2,318	)		(5,558	)		(13,218	)		(322	)
Cash flows from financing activities
Redemption of trust capital securities		–			(1,200	)		–			(1,200	)		–
Issue of subordinated debentures		–			3,606			–			3,606			–
Repayment of subordinated debentures		–			(1,500	)		–			(1,500	)		(200	)
Issue of common shares		109			86			25			195			45
Issue of preferred shares		750			725			300			1,475			900
Redemption of preferred shares		–			–			–			–			(325	)
Preferred shares purchased for cancellation		(264	)		–			–			(264	)		–
Sales of treasury shares		1,489			1,029			1,943			2,518			3,739
Purchases of treasury shares		(1,663	)		(978	)		(1,989	)		(2,641	)		(3,912	)
Dividends paid		(1,235	)		(1,195	)		(1,121	)		(2,430	)		(2,246	)
Issuance costs		(9	)		(7	)		(6	)		(16	)		(13	)
Dividends/distributions paid to non-controlling interests		–			(46	)		–			(46	)		(46	)
Change in short-term borrowings of subsidiaries		(11	)		2			(111	)		(9	)		(87	)
Net cash from (used in) financing activities		(834	)		522			(959	)		(312	)		(2,145	)
Effect of exchange rate changes on cash and due from banks		(292	)		279			(180	)		(13	)		168
Net change in cash and due from banks		(2,205	)		4,598			(1,634	)		2,393			972
Cash and due from banks at beginning of period (1)		17,050			12,452			20,027			12,452			17,421
Cash and due from banks at end of period(1)	$	14,845		$	17,050		$	18,393		$	14,845		$	18,393
Cash flows from operating activities include:
Amount of interest paid	$	1,639		$	1,818		$	1,588		$	3,457		$	3,620
Amount of interest received		5,746			5,710			5,349			11,456			10,515
Amount of dividend received		382			424			483			805			888
Amount of income taxes paid		412			212			586			624			1,151

(1) We are required to maintain balances with central banks and other regulatory authorities. The total balances were $2.0 billion as of April 30, 2016 (January 31, 2016 – $2.2 billion; October 31, 2015 – $2.6 billion; April 30, 2015 – $2.3 billion; January 31, 2015 – $2.8 billion; October 31, 2014 – $2.0 billion).

The accompanying notes are an integral part of these Interim Condensed Consolidated Financial Statements.

62        Royal Bank of Canada        Second Quarter 2016

Note 1    General information

Our unaudited Interim Condensed Consolidated Financial Statements (Condensed Financial Statements) are presented in compliance with International Accounting Standard (IAS) 34 Interim Financial Reporting. The Condensed Financial Statements do not include all the information and disclosures required in the annual financial statements and should be read in conjunction with our audited 2015 Annual Consolidated Financial Statements and the accompanying notes included on pages 116 to 204 in our 2015 Annual Report. Tabular information is stated in millions of Canadian dollars, except per share amounts and percentages. On May 25, 2016, the Board of Directors authorized the Condensed Financial Statements for issue.

Note 2    Summary of significant accounting policies, estimates and judgments

Except as indicated below, the Condensed Financial Statements have been prepared using the same accounting policies and methods used in preparation of our audited 2015 Annual Consolidated Financial Statements.

Changes in accounting policies

During the first quarter, we adopted the following accounting policies as a result of the acquisition of City National Corporation (City National):

Acquired Loans

Acquired loans are initially measured at fair value, which reflects estimates of incurred and expected future credit losses at the acquisition date and interest rate premiums or discounts relative to prevailing market rates. No allowance for credit losses is recorded on acquisition. At the purchase date, acquired loans are classified as performing where we expect timely collection of all amounts due according to the original contractual terms and as acquired credit-impaired (ACI) where it is probable that we will be unable to collect all amounts due according to the original contractual terms.

Acquired performing loans are subsequently accounted for at amortized cost using the effective interest method. The expected future cash flows used in this calculation are based on the contractual terms of the asset and any acquisition-related premiums and discounts. Credit-related discounts relating to incurred losses for acquired loans are not accreted. Acquired loans are assessed for impairment at each balance sheet date in a manner consistent with assessments performed for our originated loan portfolio.

Acquired Credit-Impaired Loans

ACI loans, which include Federal Deposit Insurance Corporation (FDIC) covered loans, are identified as impaired on acquisition based on the specific risk characteristics of the loans, including indications that the borrower is experiencing significant financial difficulty, probability of bankruptcy or other financial reorganization, payment status or economic conditions that correlate with defaults.

ACI loans are measured at fair value on acquisition based on the present value of expected future cash flows. Estimates of expected future cash flows are reassessed at each balance sheet date for changes in expected default rates, loss severities, the amount and timing of prepayments, and other factors that are reflective of current market conditions. Probable decreases in expected future cash flows result in an impairment loss, which is measured as the difference between the carrying amount of the loan and the present value of the revised expected future cash flows, discounted at the loan’s effective interest rate. Impairment losses result in an increase to the Allowance for credit losses which is recorded through the Provision for credit losses in our Consolidated Statements of Income. Probable increases in expected future cash flows result in a reversal of previous impairment losses, with the present value of any remaining increase recognized as Interest income.

Federal Deposit Insurance Corporation Covered Loans

FDIC covered loans are loans subject to loss-share agreements with the FDIC. Under these agreements, the FDIC reimburses us for 80% of the net losses incurred on the underlying loan portfolio. Impairment losses are recognized on acquired FDIC covered loans consistent with other ACI loans, as described above. The amounts expected to be reimbursed by the FDIC are recognized separately as indemnification assets.

Indemnification assets are initially recorded at fair value and subsequently adjusted for any changes in estimates related to the overall collectability of the underlying loan portfolio. Additional impairment losses on the underlying loan portfolio generally result in an increase of the indemnification asset through the Provision for credit losses. Decreases in expected losses on the underlying loan portfolio generally result in a decrease of the indemnification asset through the Provision for credit losses to the extent that impairment losses were previously taken, or through net interest income. The indemnification asset is drawn down as payments are received from the FDIC pertaining to the loss-share agreements. Indemnification assets are recorded in Other – Other assets on the Consolidated Balance Sheets.

In accordance with each loss-share agreement, we may be required to make a payment to the FDIC if actual losses incurred are less than the intrinsic loss estimate as defined in the loss-share agreements (clawback liability). The clawback liability is determined as 20% of the excess between the intrinsic loss estimate and actual covered losses determined in accordance with each loss-share agreement, net of specified servicing costs. Subsequent changes to the estimated clawback liability are considered in determining the adjustment to the indemnification asset as described above. Clawback liabilities are recorded in Other – Other liabilities on the Consolidated Balance Sheets.

Royal Bank of Canada        Second Quarter 2016        63

Future changes in accounting policy and disclosure

The following are developments in new accounting standards that took place during the six months to date:

International Financial Reporting Standards (IFRS) 15 Revenue from Contracts with Customers (IFRS 15)

In April 2016, the International Accounting Standards Board (IASB) issued amendments to IFRS 15, which clarify the underlying principles of IFRS 15 and provide additional transitional relief on initial application. These amendments have the same effective date as the IFRS 15 standard and will be effective for us on November 1, 2018.

IFRS 16 Leases (IFRS 16)

In January 2016, the IASB issued IFRS 16 which sets out the principles for the recognition, measurement, presentation and disclosure of leases. The standard removed the current requirement for lessees to classify leases as finance leases or operating leases by introducing a single lessee accounting model that requires the recognition of lease assets and lease liabilities on the balance sheet for most leases. Lessees will also recognize depreciation expense on the lease asset and interest expense on the lease liability in the statement of income. There are no significant changes to lessor accounting aside from enhanced disclosure requirements. IFRS 16 will be effective for us on November 1, 2019.

IAS 7 Statement of Cash Flows (IAS 7)

In January 2016, the IASB issued amendments to IAS 7, which will require specific disclosures for movements in certain liabilities on the statement of cash flow. These amendments will be effective for us on November 1, 2017.

Note 3    Fair value of financial instruments

Carrying value and fair value of selected financial instruments

The following tables provide a comparison of the carrying and fair values for each classification of financial instruments. Refer to Note 2 and Note 3 of our audited 2015 Annual Consolidated Financial Statements for a description of the valuation techniques and inputs used in the fair value measurement of our financial instruments. There have been no significant changes to our determination of fair value during the quarter.

	As at April 30, 2016
	Carrying value and fair value						Carrying value		Fair value
(Millions of Canadian dollars)	Financial instruments classified as at FVTPL		Financial instruments designated as at FVTPL		Available- for-sale instruments measured at fair value		Financial instruments measured at amortized cost		Financial instruments measured at amortized cost		Total carrying amount		Total fair value
Financial assets
Securities
Trading	$	142,333	$	9,619	$	–	$	–	$	–	$	151,952	$	151,952
Available-for-sale (1)		–		–		59,228		13,191		13,420		72,419		72,648
		142,333		9,619		59,228		13,191		13,420		224,371		224,600
Assets purchased under reverse repurchase agreements and securities borrowed		–		127,205		–		57,620		57,622		184,825		184,827
Loans
Retail		203		–		–		358,431		358,158		358,634		358,361
Wholesale		1,096		786		–		147,678		145,702		149,560		147,584
		1,299		786		–		506,109		503,860		508,194		505,945
Other
Derivatives		115,298		–		–		–		–		115,298		115,298
Other assets (2)		2		890		–		40,994		40,983		41,886		41,875
Financial liabilities
Deposits
Personal	$	86	$	15,619			$	228,177	$	228,275	$	243,882	$	243,980
Business and government (3)		–		91,715				388,106		389,461		479,821		481,176
Bank (4)		–		3,420				14,331		14,337		17,751		17,757
		86		110,754				630,614		632,073		741,454		742,913
Other
Obligations related to securities sold short		47,121		–				–		–		47,121		47,121
Obligations related to assets sold under repurchase agreements and securities loaned		–		82,601				13,973		13,973		96,574		96,574
Derivatives		116,479		–				–		–		116,479		116,479
Other liabilities (5)		287		4				44,672		44,632		44,963		44,923
Subordinated debentures		–		120				9,444		9,235		9,564		9,355

64        Royal Bank of Canada        Second Quarter 2016

Note 3    Fair value of financial instruments (continued)

	As at January 31, 2016
	Carrying value and fair value						Carrying value		Fair value
(Millions of Canadian dollars)	Financial instruments classified as at FVTPL		Financial instruments designated as at FVTPL		Available- for-sale instruments measured at fair value		Financial instruments measured at amortized cost		Financial instruments measured at amortized cost		Total carrying amount		Total fair value
Financial assets
Securities
Trading	$	151,588	$	9,854	$	–	$	–	$	–	$	161,442	$	161,442
Available-for-sale (1)		–		–		59,032		13,237		13,495		72,269		72,527
		151,588		9,854		59,032		13,237		13,495		233,711		233,969
Assets purchased under reverse repurchase agreements and securities borrowed		–		132,395		–		63,900		63,901		196,295		196,296
Loans
Retail		202		–		–		359,297		359,755		359,499		359,957
Wholesale		1,198		1,744		–		153,745		151,462		156,687		154,404
		1,400		1,744		–		513,042		511,217		516,186		514,361
Other
Derivatives		132,560		–		–		–		–		132,560		132,560
Other assets (2)		3		931		–		46,808		46,801		47,742		47,735
Financial liabilities
Deposits
Personal	$	56	$	16,897			$	222,237	$	222,556	$	239,190	$	239,509
Business and government (3)		–		105,581				404,650		405,386		510,231		510,967
Bank (4)		–		2,590				17,557		17,562		20,147		20,152
		56		125,068				644,444		645,504		769,568		770,628
Other
Obligations related to securities sold short		51,931		–				–		–		51,931		51,931
Obligations related to assets sold under repurchase agreements and securities loaned		–		90,450				8,860		8,860		99,310		99,310
Derivatives		132,023		–				–		–		132,023		132,023
Other liabilities (5)		352		8				43,616		43,559		43,976		43,919
Subordinated debentures		–		119				9,735		9,482		9,854		9,601

	As at October 31, 2015
	Carrying value and fair value						Carrying value		Fair value
(Millions of Canadian dollars)	Financial instruments classified as at FVTPL		Financial instruments designated as at FVTPL		Available- for-sale instruments measured at fair value		Financial instruments measured at amortized cost		Financial instruments measured at amortized cost		Total carrying amount		Total fair value
Financial assets
Securities
Trading	$	148,939	$	9,764	$	–	$	–	$	–	$	158,703	$	158,703
Available-for-sale (1)		–		–		48,164		8,641		8,759		56,805		56,923
		148,939		9,764		48,164		8,641		8,759		215,508		215,626
Assets purchased under reverse repurchase agreements and securities borrowed		–		114,692		–		60,031		60,071		174,723		174,763
Loans
Retail		166		–		–		346,795		348,513		346,961		348,679
Wholesale		1,280		1,327		–		122,655		121,316		125,262		123,923
		1,446		1,327		–		469,450		469,829		472,223		472,602
Other
Derivatives		105,626		–		–		–		–		105,626		105,626
Other assets (2)		–		925		–		44,852		44,852		45,777		45,777
Financial liabilities
Deposits
Personal	$	69	$	16,828			$	203,669	$	204,019	$	220,566	$	220,916
Business and government (3)		–		93,319				362,259		363,305		455,578		456,624
Bank (4)		–		5,376				15,707		15,713		21,083		21,089
		69		115,523				581,635		583,037		697,227		698,629
Other
Obligations related to securities sold short		47,658		–				–		–		47,658		47,658
Obligations related to assets sold under repurchase agreements and securities loaned		–		73,362				9,926		9,928		83,288		83,290
Derivatives		107,860		–				–		–		107,860		107,860
Other liabilities (5)		192		13				43,251		43,196		43,456		43,401
Subordinated debentures		–		112				7,250		7,078		7,362		7,190

Royal Bank of Canada        Second Quarter 2016        65

	As at April 30, 2015
	Carrying value and fair value						Carrying value		Fair value
(Millions of Canadian dollars)	Financial instruments classified as at FVTPL		Financial instruments designated as at FVTPL		Available- for-sale instruments measured at fair value		Financial instruments measured at amortized cost		Financial instruments measured at amortized cost		Total carrying amount		Total fair value
Financial assets
Securities
Trading	$	159,077	$	10,686	$	–	$	–	$	–	$	169,763	$	169,763
Available-for-sale (1)		–		–		49,622		3,258		3,370		52,880		52,992
		159,077		10,686		49,622		3,258		3,370		222,643		222,755
Assets purchased under reverse repurchase agreements and securities borrowed		–		102,395		–		60,973		60,979		163,368		163,374
Loans
Retail		–		–		–		334,837		336,726		334,837		336,726
Wholesale		2,248		1,806		–		109,419		108,725		113,473		112,779
		2,248		1,806		–		444,256		445,451		448,310		449,505
Other
Derivatives		107,004		–		–		–		–		107,004		107,004
Other assets (2)		–		939		–		41,091		41,091		42,030		42,030
Financial liabilities
Deposits
Personal	$	104	$	17,563			$	198,236	$	198,699	$	215,903	$	216,366
Business and government (3)		–		74,021				341,290		343,158		415,311		417,179
Bank (4)		–		6,999				13,338		13,340		20,337		20,339
		104		98,583				552,864		555,197		651,551		653,884
Other
Obligations related to securities sold short		54,314		–				–		–		54,314		54,314
Obligations related to assets sold under repurchase agreements and securities loaned		–		71,218				9,989		9,989		81,207		81,207
Derivatives		112,219		–				–		–		112,219		112,219
Other liabilities (5)		131		21				42,865		42,834		43,017		42,986
Subordinated debentures		–		106				7,689		7,667		7,795		7,773

(1) Available-for-sale (AFS) securities include held-to-maturity securities that are recorded at amortized cost.

(2) Total carrying amount is comprised of Customers’ liability under acceptances and financial instruments included in Other assets of $13.8 billion and $28.1 billion (January 31, 2016 – $12.9 billion and $34.8 billion; October 31, 2015 – $13.5 billion and $32.3 billion; April 30, 2015 – $12.6 billion and $29.4 billion), respectively.

(3) Business and government deposits include deposits from regulated deposit-taking institutions other than regulated banks.

(4) Bank deposits refer to deposits from regulated banks.

(5) Total carrying amount is comprised of Acceptances and financial instruments included in Other liabilities of $13.8 billion and $31.2 billion (January 31, 2016 – $12.9 billion and $31.1 billion; October 31, 2015 – $13.5 billion and $30 billion; April 30, 2015 – $12.6 billion and $30.4 billion), respectively.

66        Royal Bank of Canada        Second Quarter 2016

Note 3    Fair value of financial instruments (continued)

Fair value of assets and liabilities measured on a recurring basis and classified using the fair value hierarchy

The following tables present the financial instruments that are measured at fair value on a recurring basis and classified by the fair value hierarchy.

	As at
	April 30, 2016																	January 31, 2016
	Fair value measurements using								Total gross fair value			Netting adjustments			Assets/ liabilities at fair value			Fair value measurements using								Total gross fair value			Netting adjustments			Assets/ liabilities at fair value
(Millions of Canadian dollars)	Level 1		Level 2			Level 3												Level 1		Level 2			Level 3
Financial assets
Interest bearing deposits with banks	$	–	$	17,187		$	–		$	17,187		$			$	17,187		$	–	$	16,060		$	–		$	16,060		$			$	16,060
Securities
Trading
Canadian government debt (1)
Federal		11,779		8,495			–			20,274						20,274			11,802		8,234			–			20,036						20,036
Provincial and municipal		–		12,588			–			12,588						12,588			–		13,323			5			13,328						13,328
U.S. state, municipal and agencies debt (1)		1,129		37,879			4			39,012						39,012			906		41,280			11			42,197						42,197
Other OECD government debt (2)		1,711		6,996			–			8,707						8,707			2,684		8,825			–			11,509						11,509
Mortgage-backed securities (1)		–		1,796			–			1,796						1,796			–		2,530			24			2,554						2,554
Asset-backed securities
CDO (3)		–		8			–			8						8			–		42			1			43						43
Non-CDO securities		–		847			9			856						856			–		1,476			20			1,496						1,496
Corporate debt and other debt		24		20,426			145			20,595						20,595			31		22,866			297			23,194						23,194
Equities		45,277		2,472			367			48,116						48,116			43,744		2,963			378			47,085						47,085
		59,920		91,507			525			151,952						151,952			59,167		101,539			736			161,442						161,442
Available-for-sale (4)
Canadian government debt (1)
Federal		23		1,723			–			1,746						1,746			349		2,361			–			2,710						2,710
Provincial and municipal		–		1,813			–			1,813						1,813			–		1,774			–			1,774						1,774
U.S. state, municipal and agencies debt (1)		46		20,135			713			20,894						20,894			–		19,705			831			20,536						20,536
Other OECD government debt		4,938		8,255			–			13,193						13,193			4,537		7,746			–			12,283						12,283
Mortgage-backed securities (1)		–		324			–			324						324			–		417			–			417						417
Asset-backed securities
CDO		–		1,080			–			1,080						1,080			–		1,658			–			1,658						1,658
Non-CDO securities		–		795			191			986						986			–		929			215			1,144						1,144
Corporate debt and other debt		–		15,758			1,664			17,422						17,422			–		14,644			1,942			16,586						16,586
Equities		403		317			893			1,613						1,613			390		351			997			1,738						1,738
Loan substitute securities		48		25			–			73						73			64		24			–			88						88
		5,458		50,225			3,461			59,144						59,144			5,340		49,609			3,985			58,934						58,934
Assets purchased under reverse repurchase agreements and securities borrowed		–		127,205			–			127,205						127,205			–		132,395			–			132,395						132,395
Loans		–		1,691			394			2,085						2,085			–		2,693			451			3,144						3,144
Other
Derivatives
Interest rate contracts		2		142,784			494			143,280						143,280			6		165,061			459			165,526						165,526
Foreign exchange contracts		–		54,388			49			54,437						54,437			–		61,984			84			62,068						62,068
Credit derivatives		–		79			2			81						81			–		99			4			103						103
Other contracts		2,843		3,490			444			6,777						6,777			4,006		4,453			407			8,866						8,866
Valuation adjustments		–		(1,286	)		(32	)		(1,318	)					(1,318	)		–		(1,535	)		(36	)		(1,571	)					(1,571	)
Total gross derivatives		2,845		199,455			957			203,257						203,257			4,012		230,062			918			234,992						234,992
Netting adjustments													(87,959	)		(87,959	)													(102,432	)		(102,432	)
Total derivatives																115,298																	132,560
Other assets		749		141			2			892						892			762		170			2			934						934
	$	68,972	$	487,411		$	5,339		$	561,722		$	(87,959	)	$	473,763		$	69,281	$	532,528		$	6,092		$	607,901		$	(102,432	)	$	505,469
Financial Liabilities
Deposits
Personal	$	–	$	15,203		$	502		$	15,705		$			$	15,705		$	–	$	16,552		$	401		$	16,953		$			$	16,953
Business and government		–		91,713			2			91,715						91,715			–		105,581			–			105,581						105,581
Bank		–		3,420			–			3,420						3,420			–		2,590			–			2,590						2,590
Other
Obligations related to securities sold short		30,327		16,794			–			47,121						47,121			31,956		19,975			–			51,931						51,931
Obligations related to assets sold under repurchase agreements and securities loaned		–		82,601			–			82,601						82,601			–		90,450			–			90,450						90,450
Derivatives
Interest rate contracts		–		135,653			916			136,569						136,569			4		157,626			930			158,560						158,560
Foreign exchange contracts		–		57,812			43			57,855						57,855			–		65,105			29			65,134						65,134
Credit derivatives		–		127			2			129						129			–		106			6			112						112
Other contracts		3,383		5,392			727			9,502						9,502			3,756		6,654			741			11,151						11,151
Valuation adjustments		–		(170	)		8			(162	)					(162	)		–		(375	)		10			(365	)					(365	)
Total gross derivatives		3,383		198,814			1,696			203,893						203,893			3,760		229,116			1,716			234,592						234,592
Netting adjustments													(87,414	)		(87,414	)													(102,569	)		(102,569	)
Total derivatives																116,479																	132,023
Other liabilities		142		5			144			291						291			189		9			162			360						360
Subordinated debentures		–		120			–			120						120			–		119			–			119						119
	$	33,852	$	408,670		$	2,344		$	444,866		$	(87,414	)	$	357,452		$	35,905	$	464,392		$	2,279		$	502,576		$	(102,569	)	$	400,007

Royal Bank of Canada        Second Quarter 2016        67

	As at
	October 31, 2015																	April 30, 2015
	Fair value measurements using								Total gross fair value			Netting adjustments			Assets/ liabilities at fair value			Fair value measurements using								Total gross fair value			Netting adjustments			Assets/ liabilities at fair value
(Millions of Canadian dollars)	Level 1		Level 2			Level 3												Level 1		Level 2			Level 3
Financial assets
Interest bearing deposits with banks	$	–	$	15,717		$	–		$	15,717		$			$	15,717		$	–	$	728		$	–		$	728		$			$	728
Securities
Trading
Canadian government debt (1)
Federal		10,793		9,364			–			20,157						20,157			10,468		7,090			–			17,558						17,558
Provincial and municipal		–		13,888			5			13,893						13,893			–		12,797			–			12,797						12,797
U.S. state, municipal and agencies debt (1)		1,641		32,798			16			34,455						34,455			5,368		31,456			1			36,825						36,825
Other OECD government debt (2)		3,131		9,215			–			12,346						12,346			4,619		10,026			–			14,645						14,645
Mortgage-backed securities (1)		–		2,907			15			2,922						2,922			–		2,472			9			2,481						2,481
Asset-backed securities
CDO (3)		–		67			5			72						72			–		17			54			71						71
Non-CDO securities		–		1,636			23			1,659						1,659			–		2,359			41			2,400						2,400
Corporate debt and other debt		16		24,502			191			24,709						24,709			21		28,412			166			28,599						28,599
Equities		45,811		2,556			123			48,490						48,490			50,312		3,900			175			54,387						54,387
		61,392		96,933			378			158,703						158,703			70,788		98,529			446			169,763						169,763
Available-for-sale (4)
Canadian government debt (1)
Federal		346		2,198			–			2,544						2,544			319		11,421			–			11,740						11,740
Provincial and municipal		–		1,600			–			1,600						1,600			–		1,044			–			1,044						1,044
U.S. state, municipal and agencies debt (1)		–		12,051			797			12,848						12,848			–		7,506			682			8,188						8,188
Other OECD government debt		4,752		7,535			–			12,287						12,287			6,619		6,995			12			13,626						13,626
Mortgage-backed securities (1)		–		318			–			318						318			–		124			–			124						124
Asset-backed securities
CDO		–		1,510			–			1,510						1,510			–		925			30			955						955
Non-CDO securities		–		881			197			1,078						1,078			–		441			165			606						606
Corporate debt and other debt		–		12,372			1,757			14,129						14,129			–		9,824			1,734			11,558						11,558
Equities		431		323			987			1,741						1,741			146		502			1,010			1,658						1,658
Loan substitute securities		94		–			–			94						94			83		25			–			108						108
		5,623		38,788			3,738			48,149						48,149			7,167		38,807			3,633			49,607						49,607
Assets purchased under reverse repurchase agreements and securities borrowed		–		114,692			–			114,692						114,692			–		102,395			–			102,395						102,395
Loans		–		2,301			472			2,773						2,773			–		3,437			617			4,054						4,054
Other
Derivatives
Interest rate contracts		7		142,096			374			142,477						142,477			88		143,875			441			144,404						144,404
Foreign exchange contracts		–		41,021			91			41,112						41,112			–		45,569			54			45,623						45,623
Credit derivatives		–		90			4			94						94			–		127			8			135						135
Other contracts		4,424		5,637			712			10,773						10,773			2,678		4,661			423			7,762						7,762
Valuation adjustments		–		(1,265	)		(38	)		(1,303	)					(1,303	)		–		(910	)		(36	)		(946	)					(946	)
Total gross derivatives		4,431		187,579			1,143			193,153						193,153			2,766		193,322			890			196,978						196,978
Netting adjustments													(87,527	)		(87,527	)													(89,974	)		(89,974	)
Total derivatives																105,626																	107,004
Other assets		723		202			–			925						925			730		209			–			939						939
	$	72,169	$	456,212		$	5,731		$	534,112		$	(87,527	)	$	446,585		$	81,451	$	437,427		$	5,586		$	524,464		$	(89,974	)	$	434,490
Financial Liabilities
Deposits
Personal	$	–	$	16,508		$	389		$	16,897		$			$	16,897		$	–	$	17,032		$	635		$	17,667		$			$	17,667
Business and government		–		93,311			8			93,319						93,319			–		73,938			83			74,021						74,021
Bank		–		5,376			–			5,376						5,376			–		6,999			–			6,999						6,999
Other
Obligations related to securities sold short		31,945		15,713			–			47,658						47,658			35,910		18,404			–			54,314						54,314
Obligations related to assets sold under repurchase agreements and securities loaned		–		73,362			–			73,362						73,362			–		71,218			–			71,218						71,218
Derivatives
Interest rate contracts		3		135,455			820			136,278						136,278			70		137,484			899			138,453						138,453
Foreign exchange contracts		–		46,675			33			46,708						46,708			–		52,075			30			52,105						52,105
Credit derivatives		–		166			5			171						171			–		256			9			265						265
Other contracts		3,835		8,075			1,025			12,935						12,935			2,561		7,667			914			11,142						11,142
Valuation adjustments		–		(281	)		9			(272	)					(272	)		–		(42	)		15			(27	)					(27	)
Total gross derivatives		3,838		190,090			1,892			195,820						195,820			2,631		197,440			1,867			201,938						201,938
Netting adjustments													(87,960	)		(87,960	)													(89,719	)		(89,719	)
Total derivatives																107,860																	112,219
Other liabilities		145		13			47			205						205			89		21			42			152						152
Subordinated debentures		–		112			–			112						112			–		106			–			106						106
	$	35,928	$	394,485		$	2,336		$	432,749		$	(87,960	)	$	344,789		$	38,630	$	385,158		$	2,627		$	426,415		$	(89,719	)	$	336,696

(1) As at April 30, 2016, residential and commercial MBS included in all fair value levels of trading securities were $14,335 million and $142 million (January 31, 2016 – $16,883 million and $217 million; October 31, 2015 – $10,315 million and $137 million; April 30, 2015 – $11,534 million and $130 million), respectively, and in all fair value levels of AFS securities were $9,293 million and $253 million (January 31, 2016 – $9,273 million and $315 million; October 31, 2015 – $3,394 million and $242 million; April 30, 2015 – $7,545 million and $32 million), respectively.

(2) OECD stands for Organisation for Economic Co-operation and Development.

(3) CDO stands for collateralized debt obligations.

(4) Excludes $84 million of AFS securities (January 31, 2016 – $98 million; October 31, 2015 – $15 million; April 30, 2015 – $15 million) that are carried at cost.

68        Royal Bank of Canada        Second Quarter 2016

Note 3    Fair value of financial instruments (continued)

Quantitative information about fair value measurements using significant unobservable inputs (Level 3 Instruments)

During the six months ended April 30, 2016, there were no significant changes made to the valuation techniques, sensitivities to, and interrelationships between unobservable inputs used in the determination of fair value of Level 3 financial instruments. During the quarter and the six months ended April 30, 2016, changes in the ranges and weighted averages of unobservable inputs did not have a significant impact to the fair values of the Level 3 financial instruments. Refer to Note 3 of our audited 2015 Annual Consolidated Financial Statements for quantitative information about fair value measurements using significant unobservable inputs.

Changes in fair value measurement for instruments measured on a recurring basis and categorized in Level 3

The following tables present the changes in fair value measurements on a recurring basis for instruments included in Level 3 of the fair value hierarchy.

	For the three months ended April 30, 2016
(Millions of Canadian dollars)	Fair value at beginning of period			Total realized/ unrealized gains (losses) included in earnings			Total unrealized gains (losses) included in other comprehensive income (1)			Purchases of assets/ issuances of liabilities			Sales of assets/ settlements of liabilities and other (2)			Transfers into Level 3			Transfers out of Level 3			Fair value at end of period			Changes in unrealized gains (losses) included in earnings for assets and liabilities for positions still held
Assets
Securities
Trading
Canadian government debt Provincial and municipal	$	5		$	–		$	–		$	–		$	–		$	–		$	(5	)	$	–		$	–
U.S. state, municipal and agencies debt		11			–			(1	)		8			(14	)		–			–			4			–
Other OECD government debt		–			–			–			–			–			–			–			–			–
Mortgage-backed securities		24			(1	)		(1	)		–			(22	)		–			–			–			–
Asset-backed securities
CDO		1			–			–			–			–			–			(1	)		–			–
Non-CDO securities		20			(2	)		(2	)		–			(7	)		–			–			9			(1	)
Corporate debt and other debt		297			(1	)		(3	)		69			(172	)		19			(64	)		145			–
Equities		378			(35	)		(38	)		89			(33	)		7			(1	)		367			(35	)
		736			(39	)		(45	)		166			(248	)		26			(71	)		525			(36	)
Available-for-sale
U.S. state, municipal and agencies debt		831			–			(61	)		–			(57	)		–			–			713			n.a.
Other OECD government debt		–			–			–			–			–			–			–			–			n.a.
Asset-backed securities
CDO		–			–			–			–			–			–			–			–			n.a.
Non-CDO securities		215			–			(9	)		–			(15	)		–			–			191			n.a.
Corporate debt and other debt		1,942			–			(190	)		622			(705	)		8			(13	)		1,664			n.a.
Equities		997			(2	)		(79	)		7			(30	)		–			–			893			n.a.
		3,985			(2	)		(339	)		629			(807	)		8			(13	)		3,461			n.a.
Loans – Wholesale		451			9			(53	)		–			(9	)		–			(4	)		394			12
Other
Net derivative balances (3)
Interest rate contracts		(471	)		15			–			3			1			30			–			(422	)		14
Foreign exchange contracts		55			(20	)		(4	)		(19	)		(2	)		–			(4	)		6			(20	)
Credit derivatives		(2	)		2			–			–			–			–			–			–			(1	)
Other contracts		(334	)		(19	)		36			3			59			(50	)		22			(283	)		70
Valuation adjustments		(46	)		–			2			–			4			–			–			(40	)		–
Other assets		2			–			–			–			–			–			–			2			–
	$	4,376		$	(54	)	$	(403	)	$	782		$	(1,002	)	$	14		$	(70	)	$	3,643		$	39
Liabilities
Deposits
Personal	$	(401	)	$	(31	)	$	16		$	(57	)	$	11		$	(183	)	$	143		$	(502	)	$	(40	)
Business and government		–			–			–			–			(2	)		–			–			(2	)		1
Other
Obligations related to securities sold short		–			–			–			–			–			–			–			–			–
Other liabilities		(162	)		(11	)		17			–			12			–			–			(144	)		(7	)
Subordinated debentures		–			–			–			–			–			–			–			–			–
	$	(563	)	$	(42	)	$	33		$	(57	)	$	21		$	(183	)	$	143		$	(648	)	$	(46	)

Royal Bank of Canada        Second Quarter 2016        69

	For the three months ended January 31, 2016
(Millions of Canadian dollars)	Fair value at beginning of period			Total realized/ unrealized gains (losses) included in earnings			Total unrealized gains (losses) included in other comprehensive income (1)			Purchases of assets/ issuances of liabilities			Sales of assets/ settlements of liabilities and other (2)			Transfers into Level 3			Transfers out of Level 3			Fair value at end period			Changes in unrealized gains (losses) included in earnings for assets and liabilities for positions  still held
Assets
Securities
Trading
Canadian government debt
Provincial and municipal	$	5		$	–		$	–		$	–		$	–		$	–		$	–		$	5		$	–
U.S. state, municipal and agencies debt		16			–			1			–			(6	)		–			–			11			–
Other OECD government debt		–			–			–			–			–			–			–			–			–
Mortgage-backed securities		15			–			1			8			–			–			–			24			–
Asset-backed securities
CDO		5			–			–			–			(5	)		1			–			1			–
Non-CDO securities		23			(2	)		2			18			(21	)		–			–			20			(3	)
Corporate debt and other debt		191			(1	)		7			32			(63	)		140			(9	)		297			–
Equities		123			(5	)		20			246			(9	)		3			–			378			(5	)
		378			(8	)		31			304			(104	)		144			(9	)		736			(8	)
Available-for-sale
U.S. state, municipal and agencies debt		797			–			39			93			(98	)		–			–			831			n.a.
Other OECD government debt		–			–			–			–			–			–			–			–			n.a.
Asset-backed securities
CDO		–			–			–			–			–			–			–			–			n.a.
Non-CDO securities		197			–			6			7			5			–			–			215			n.a.
Corporate debt and other debt		1,757			–			114			772			(712	)		13			(2	)		1,942			n.a.
Equities		987			31			16			42			(79	)		–			–			997			n.a.
		3,738			31			175			914			(884	)		13			(2	)		3,985			n.a.
Loans – Wholesale		472			8			31			–			(60	)		–			–			451			8
Other
Net derivative balances (3)
Interest rate contracts		(446	)		(28	)		–			20			(15	)		–			(2	)		(471	)		(29	)
Foreign exchange contracts		58			1			–			–			–			1			(5	)		55			1
Credit derivatives		(1	)		(1	)		–			–			–			–			–			(2	)		–
Other contracts		(313	)		(90	)		(22	)		(40	)		122			(15	)		24			(334	)		(22	)
Valuation adjustments		(47	)		–			(1	)		–			2			–			–			(46	)		–
Other assets		–			–			–			2			–			–			–			2			–
	$	3,839		$	(87	)	$	214		$	1,200		$	(939	)	$	143		$	6		$	4,376		$	(50	)
Liabilities
Deposits
Personal	$	(389	)	$	37		$	(11	)	$	(82	)	$	11		$	(108	)	$	141		$	(401	)	$	32
Business and government		(8	)		–			–			–			8			–			–			–			–
Other
Obligations related to securities sold short		–			–			–			–			–			–			–			–			–
Other liabilities		(47	)		(24	)		(10	)		(92	)		11			–			–			(162	)		(23	)
Subordinated debentures		–			–			–			–			–			–			–			–			–
	$	(444	)	$	13		$	(21	)	$	(174	)	$	30		$	(108	)	$	141		$	(563	)	$	9

70        Royal Bank of Canada        Second Quarter 2016

Note 3     Fair value of financial instruments (continued)

	For the three months ended April 30, 2015
(Millions of Canadian dollars)	Fair value at beginning of period			Total realized/ unrealized gains (losses) included in earnings			Total unrealized gains (losses) included in other comprehensive income (1)			Purchases of assets/ issuances of liabilities			Sales of assets/ settlements of liabilities and other (2)			Transfers into Level 3			Transfers out of Level 3			Fair value at end of period			Changes in unrealized gains (losses) included in earnings for assets and liabilities for positions  still held
Assets
Securities
Trading
Canadian government debt Provincial and municipal	$	–		$	–		$	–		$	–		$	–		$	–		$	–		$	–		$	–
U.S. state, municipal and agencies debt		1			–			–			–			–			–			–			1			–
Other OECD government debt		20			–			–			–			–			–			(20	)		–			–
Mortgage-backed securities		21			(1	)		(1	)		1			(8	)		4			(7	)		9			–
Asset-backed securities
CDO		73			8			(2	)		28			(66	)		13			–			54			8
Non-CDO securities		55			–			(2	)		56			(56	)		–			(12	)		41			(1	)
Corporate debt and other debt		205			(1	)		(1	)		15			(61	)		55			(46	)		166			–
Equities		178			4			(9	)		8			(30	)		26			(2	)		175			3
		553			10			(15	)		108			(221	)		98			(87	)		446			10
Available-for-sale
U.S. state, municipal and agencies debt		1,500			8			(27	)		–			(753	)		–			(46	)		682			n.a.
Other OECD government debt		13			–			–			2			(3	)		–			–			12			n.a.
Asset-backed securities
CDO		–			–			–			30			–			–			–			30			n.a.
Non-CDO securities		199			(1	)		4			–			(37	)		–			–			165			n.a.
Corporate debt and other debt		1,733			–			(93	)		640			(509	)		–			(37	)		1,734			n.a.
Equities		1,092			24			(53	)		11			(64	)		–			–			1,010			n.a.
		4,537			31			(169	)		683			(1,366	)		–			(83	)		3,633			n.a.
Loans – Wholesale		836			(3	)		(27	)		137			(248	)		–			(78	)		617			(2	)
Other
Net derivative balances (3)
Interest rate contracts		(494	)		47			4			(2	)		–			7			(20	)		(458	)		48
Foreign exchange contracts		31			(16	)		(1	)		18			(13	)		3			2			24			(15	)
Credit derivatives		(7	)		(4	)		–			–			9			(1	)		2			(1	)		(1	)
Other contracts		(565	)		(41	)		32			(27	)		81			(54	)		83			(491	)		33
Valuation adjustments		(69	)		2			1			–			17			(2	)		–			(51	)		–
Other assets		–			–			–			–			–			–			–			–			–
	$	4,822		$	26		$	(175	)	$	917		$	(1,741	)	$	51		$	(181	)	$	3,719		$	73
Liabilities
Deposits
Personal	$	(415	)	$	(19	)	$	11		$	(264	)	$	20		$	(104	)	$	136		$	(635	)	$	(17	)
Business and government		(88	)		(2	)		5			(32	)		34			–			–			(83	)		1
Other
Obligations related to securities sold short		(6	)		–			–			(1	)		7			–			–			–			–
Other liabilities		(68	)		21			3			–			2			–			–			(42	)		22
Subordinated debentures		–			–			–			–			–			–			–			–			–
	$	(577	)	$	–		$	19		$	(297	)	$	63		$	(104	)	$	136		$	(760	)	$	6

Royal Bank of Canada        Second Quarter 2016        71

	For the six months ended April 30, 2016
(Millions of Canadian dollars)	Fair value at beginning of period			Total realized/ unrealized gains (losses) included in earnings			Total unrealized gains (losses) included in other comprehensive income (1)			Purchases of assets/ issuances of liabilities			Sales of assets/ settlements of liabilities and other (2)			Transfers into Level 3			Transfers out of Level 3			Fair value at end of period			Changes in unrealized gains (losses) included in earnings for assets and liabilities for positions still held
Assets
Securities
Trading
Canadian government debt Provincial and municipal	$	5		$	–		$	–		$	–		$	–		$	–		$	(5	)	$	–		$	–
U.S. state, municipal and agencies debt		16			–			–			8			(20	)		–			–			4			–
Other OECD government debt		–			–			–			–			–			–			–			–			–
Mortgage-backed securities		15			(1	)		–			8			(22	)		–			–			–			–
Asset-backed securities
CDO		5			–			–			–			(5	)		1			(1	)		–			–
Non-CDO securities		23			(4	)		–			18			(28	)		–			–			9			–
Corporate debt and other debt		191			(2	)		4			101			(235	)		159			(73	)		145			–
Equities		123			(40	)		(18	)		335			(42	)		10			(1	)		367			(42	)
		378			(47	)		(14	)		470			(352	)		170			(80	)		525			(42	)
Available-for-sale
U.S. state, municipal and agencies debt		797			–			(22	)		93			(155	)		–			–			713			n.a.
Other OECD government debt		–			–			–			–			–			–			–			–			n.a.
Asset-backed securities
CDO		–			–			–			–			–			–			–			–			n.a.
Non-CDO securities		197			–			(3	)		7			(10	)		–			–			191			n.a.
Corporate debt and other debt		1,757			–			(76	)		1,394			(1,417	)		21			(15	)		1,664			n.a.
Equities		987			29			(63	)		49			(109	)		–			–			893			n.a.
		3,738			29			(164	)		1,543			(1,691	)		21			(15	)		3,461			n.a.
Loans – Wholesale		472			17			(22	)		–			(69	)		–			(4	)		394			22
Other
Net derivative balances (3)
Interest rate contracts		(446	)		(13	)		–			23			(14	)		30			(2	)		(422	)		(15	)
Foreign exchange contracts		58			(19	)		(4	)		(19	)		(2	)		1			(9	)		6			(19	)
Credit derivatives		(1	)		1			–			–			–			–			–			–			(1	)
Other contracts		(313	)		(109	)		14			(37	)		181			(65	)		46			(283	)		45
Valuation adjustments		(47	)		–			1			–			6			–			–			(40	)		–
Other assets		–			–			–			2			–			–			–			2			–
	$	3,839		$	(141	)	$	(189	)	$	1,982		$	(1,941	)	$	157		$	(64	)	$	3,643		$	(10	)
Liabilities
Deposits
Personal	$	(389	)	$	6		$	5		$	(139	)	$	22		$	(291	)	$	284		$	(502	)	$	(4	)
Business and government		(8	)		–			–			–			6			–			–			(2	)		1
Other
Obligations related to securities sold short		–			–			–			–			–			–			–			–			–
Other liabilities		(47	)		(35	)		7			(92	)		23			–			–			(144	)		(30	)
Subordinated debentures		–			–			–			–			–			–			–			–			–
	$	(444	)	$	(29	)	$	12		$	(231	)	$	51		$	(291	)	$	284		$	(648	)	$	(33	)

72        Royal Bank of Canada        Second Quarter 2016

Note 3     Fair value of financial instruments (continued)

	For the six months ended April 30, 2015
(Millions of Canadian dollars)	Fair value at beginning of period			Total realized/ unrealized gains (losses) included in earnings			Total unrealized gains (losses) included in other comprehensive income (1)			Purchases of assets/ issuances of liabilities			Sales of assets/ settlements of liabilities and other (2)			Transfers into Level 3			Transfers out of Level 3			Fair value at end of period			Changes in unrealized gains (losses) included in earnings for assets and liabilities for positions still held
Assets
Securities
Trading
Canadian government debt Provincial and municipal	$	–		$	–		$	–		$	–		$	–		$	–		$	–		$	–		$	–
U.S. state, municipal and agencies debt		6			–			1			–			(6	)		–			–			1			–
Other OECD government debt		–			–			–			–			–			20			(20	)		–			–
Mortgage-backed securities		4			(2	)		(1	)		23			(24	)		16			(7	)		9			–
Asset-backed securities
CDO		74			24			(14	)		52			(81	)		13			(14	)		54			8
Non-CDO securities		364			(2	)		44			100			(279	)		5			(191	)		41			(1	)
Corporate debt and other debt		149			–			–			18			(69	)		119			(51	)		166			–
Equities		166			(6	)		11			13			(48	)		44			(5	)		175			(6	)
		763			14			41			206			(507	)		217			(288	)		446			1
Available-for-sale
U.S. state, municipal and agencies debt		1,389			8			117			–			(786	)		–			(46	)		682			n.a.
Other OECD government debt		11			–			–			2			(1	)		–			–			12			n.a.
Asset-backed securities
CDO		24			–			1			30			–			–			(25	)		30			n.a.
Non-CDO securities		182			(1	)		10			–			(26	)		–			–			165			n.a.
Corporate debt and other debt		1,573			–			108			1,162			(1,109	)		37			(37	)		1,734			n.a.
Equities		1,028			42			26			27			(106	)		–			(7	)		1,010			n.a.
		4,207			49			262			1,221			(2,028	)		37			(115	)		3,633			n.a.
Loans – Wholesale		461			(3	)		31			459			(253	)		–			(78	)		617			(2	)
Other
Net derivative balances (3)
Interest rate contracts		(370	)		(51	)		2			9			(9	)		(15	)		(24	)		(458	)		(22	)
Foreign exchange contracts		9			22			3			27			(7	)		3			(33	)		24			16
Credit derivatives		(5	)		(14	)		(1	)		–			18			(1	)		2			(1	)		(2	)
Other contracts		(502	)		(127	)		(37	)		(34	)		154			(140	)		195			(491	)		29
Valuation adjustments		(85	)		(1	)		(1	)		–			39			(3	)		–			(51	)		–
Other assets		–			–			–			–			–			–			–			–			–
	$	4,478		$	(111	)	$	300		$	1,888		$	(2,593	)	$	98		$	(341	)	$	3,719		$	20
Liabilities
Deposits
Personal	$	(497	)	$	11		$	(14	)	$	(375	)	$	33		$	(166	)	$	373		$	(635	)	$	(2	)
Business and government		(70	)		(4	)		1			(78	)		50			–			18			(83	)		–
Other
Obligations related to securities sold short		(4	)		–			–			(11	)		15			–			–			–			–
Other liabilities		(20	)		(22	)		(2	)		–			2			–			–			(42	)		(19	)
Subordinated debentures		–			–			–			–			–			–			–			–			–
	$	(591	)	$	(15	)	$	(15	)	$	(464	)	$	100		$	(166	)	$	391		$	(760	)	$	(21	)

(1) These amounts include the foreign currency translation gains or losses arising on consolidation of foreign subsidiaries relating to the Level 3 instruments, where applicable. The unrealized gains or losses on AFS securities recognized in OCI were $nil for the three months ended April 30, 2016 (January 31, 2016 – losses of $41 million; April 30, 2015 – gains of $38 million) and losses of $41 million for the six months ended April 30, 2016 (April 30, 2015 – gains of $8 million), excluding the translation gains or losses arising on consolidation.

(2) Other includes amortization of premiums or discounts recognized in net income.

(3) Net derivatives as at April 30, 2016 included derivative assets of $957 million (January 31, 2016 – $918 million; October 31, 2015 – $1,143 million; April 30, 2015 – $890 million) and derivative liabilities of $1,696 million (January 31, 2016 – $1,716 million; October 31, 2015 – $1,892 million; April 30, 2015 – $1,867 million).

n.a. not applicable

Transfers between fair value hierarchy levels for instruments carried at fair value on a recurring basis

Transfers between Level 1 and Level 2 are dependent on whether fair value is obtained on the basis of quoted market prices in active markets (Level 1) as opposed to fair value estimated using observable inputs in a discounted cash flow method (Level 2).

During the three months ended April 30, 2016, transfers out of Level 1 to Level 2 included Trading U.S. state, municipal and agencies debt and Obligations related to securities sold short of $138 million and $28 million (January 31, 2016 – $62 million and $164 million), respectively.

Royal Bank of Canada        Second Quarter 2016        73

During the three months ended April 30, 2016, transfers out of Level 2 to Level 1 included $75 million of Trading and AFS U.S. state, municipal and agencies debt. There were no transfers out of Level 2 to Level 1 during the three months ended January 31, 2016.

Transfers between Level 2 and Level 3 are primarily due to either a change in the market observability for an input, or a change in an unobservable input’s significance to a financial instrument’s fair value.

During the first and second quarter of 2016, transfers for equity-linked structured notes and the over-the-counter (OTC) equity options were due to changes in the significance of unobservable inputs to their fair value, and transfers relating to corporate bonds were due to changes in the market observability of pricing inputs.

During the three months ended April 30, 2016, significant transfers out of Level 3 to Level 2 included $143 million of equity-linked structured notes in Personal Deposits (January 31, 2016 – $141 million). In addition, during the three months ended January 31, 2016, significant transfers out of Level 3 to Level 2 included $51 million (net assets) of OTC equity options in Other contracts comprised of $383 million of derivative-related assets and $332 million of derivative-related liabilities.

During the three months ended April 30, 2016, significant transfers into Level 3 included $183 million of equity-linked structured notes in Personal Deposits and $48 million (net liabilities) of OTC equity options in Other contracts comprised of $99 million of derivative-related assets and $147 million of derivative-related liabilities (January 31, 2016 - $108 million and $47 million (net assets) comprised of $117 million of derivative-related assets and $70 million of derivative-related liabilities). In addition, during the three months ended January 31, 2016, significant transfers into Level 3 included $140 million of corporate bonds in Trading Corporate debt and other debt.

Total realized/unrealized gains (losses) of Level 3 instruments recognized in earnings

	For the three months ended
	April 30, 2016									January 31, 2016									April 30, 2015
(Millions of Canadian dollars)	Assets			Liabilities			Total			Assets			Liabilities			Total			Assets			Liabilities			Total
Non-interest income
Insurance premiums, investment and fee income	$	1		$	–		$	1		$	(1	)	$	–		$	(1	)	$	(1	)	$	–		$	(1	)
Trading revenue		35			(92	)		(57	)		70			(175	)		(105	)		51			(47	)		4
Net gain on available-for-sale securities		(2	)		–			(2	)		31			–			31			32			–			32
Credit fees and Other		(35	)		(3	)		(38	)		(1	)		2			1			(1	)		(8	)		(9	)
	$	(1	)	$	(95	)	$	(96	)	$	99		$	(173	)	$	(74	)	$	81		$	(55	)	$	26

	For the six months ended
	April 30, 2016									April 30, 2015
(Millions of Canadian dollars)	Assets			Liabilities			Total			Assets			Liabilities			Total
Non-interest income
Insurance premiums, investment and fee income	$	–		$	–		$	–		$	–		$	–		$	–
Trading revenue		105			(267	)		(162	)		356			(518	)		(162	)
Net gain on available-for-sale securities		29			–			29			50			–			50
Credit fees and Other		(36	)		(1	)		(37	)		(2	)		(12	)		(14	)
	$	98		$	(268	)	$	(170	)	$	404		$	(530	)	$	(126	)

Changes in unrealized gains (losses) recognized in earnings for assets and liabilities still held at period ends

	For the three months ended
	April 30, 2016									January 31, 2016								April 30, 2015
(Millions of Canadian dollars)	Assets			Liabilities			Total			Assets		Liabilities			Total			Assets			Liabilities		Total
Non-interest income
Insurance premiums, investment and fee income	$	1		$	–		$	1		$	2	$	–		$	2		$	–		$	–	$	–
Trading revenue		(27	)		56			29			64		(108	)		(44	)		(55	)		135		80
Credit fees and Other		(36	)		(1	)		(37	)		–		1			1			(1	)		–		(1	)
	$	(62	)	$	55		$	(7	)	$	66	$	(107	)	$	(41	)	$	(56	)	$	135	$	79

	For the six months ended
	April 30, 2016									April 30, 2015
(Millions of Canadian dollars)	Assets			Liabilities			Total			Assets			Liabilities			Total
Non-interest income
Insurance premiums, investment and fee income	$	–		$	–		$	–		$	–		$	–		$	–
Trading revenue		–			(4	)		(4	)		123			(122	)		1
Credit fees and Other		(39	)		–			(39	)		(2	)		–			(2	)
	$	(39	)	$	(4	)	$	(43	)	$	121		$	(122	)	$	(1	)

Positive and negative fair value movement of Level 3 financial instruments from using reasonably possible alternative assumptions

A financial instrument is classified as Level 3 in the fair value hierarchy if one or more of its unobservable inputs may significantly affect the measurement of its fair value. In preparing the financial statements, appropriate levels for these unobservable input parameters are chosen so that they are consistent with prevailing market evidence or management judgment. Due to the unobservable nature of the prices or rates, there may be uncertainty about valuation of these Level 3 financial instruments.

74        Royal Bank of Canada        Second Quarter 2016

Note 3     Fair value of financial instruments (continued)

The following table summarizes the impact to fair values of Level 3 financial instruments using reasonably possible alternative assumptions. This sensitivity disclosure is intended to illustrate the potential impact of the relative uncertainty in the fair value of Level 3 financial instruments. In reporting the sensitivities below, we offset balances in instances where: (i) the move in valuation factor caused an offsetting positive and negative fair value movement, (ii) both offsetting instruments are in Level 3, and (iii) when exposures are managed and reported on a net basis. With respect to overall sensitivity, it is unlikely in practice that all reasonably possible alternative assumptions would simultaneously be realized.

	As at
	April 30, 2016								January 31, 2016
(Millions of Canadian dollars)	Level 3 fair value			Positive fair value movement from using reasonably possible alternatives		Negative fair value movement from using reasonably possible alternatives			Level 3 fair value			Positive fair value movement from using reasonably possible alternatives		Negative fair value movement from using reasonably possible alternatives
Securities
Trading
Canadian government debt
Provincial and municipal	$	–		$	–	$	–		$	5		$	–	$	–
U.S. state, municipal and agencies debt		4			–		–			11			–		–
Mortgage-backed securities		–			–		–			24			3		(3	)
Asset-backed securities		9			1		(2	)		21			2		(3	)
Corporate debt and other debt		145			2		(2	)		297			4		(4	)
Equities		367			–		–			378			–		–
Available-for-sale
U.S. state, municipal and agencies debt		713			16		(27	)		831			13		(36	)
Other OECD government debt		–			–		–			–			–		–
Asset-backed securities		191			11		(15	)		215			12		(17	)
Corporate debt and other debt		1,664			10		(10	)		1,942			12		(11	)
Equities		893			74		(19	)		997			75		(23	)
Loans		394			5		(19	)		451			8		(23	)
Derivatives		957			21		(19	)		918			14		(13	)
Other assets		2			–		–			2			–		–
	$	5,339		$	140	$	(113	)	$	6,092		$	143	$	(133	)
Deposits	$	(504	)	$	16	$	(16	)	$	(401	)	$	14	$	(14	)
Derivatives		(1,696	)		40		(56	)		(1,716	)		31		(49	)
Other
Securities sold short, other liabilities and subordinated debentures		(144	)		–		–			(162	)		–		–
	$	(2,344	)	$	56	$	(72	)	$	(2,279	)	$	45	$	(63	)

	As at
	October 31, 2015								April 30, 2015
(Millions of Canadian dollars)	Level 3 fair value			Positive fair value movement from using reasonably possible alternatives		Negative fair value movement from using reasonably possible alternatives			Level 3 fair value			Positive fair value movement from using reasonably possible alternatives		Negative fair value movement from using reasonably possible alternatives
Securities
Trading
Canadian government debt
Provincial and municipal	$	5		$	–	$	–		$	–		$	–	$	–
U.S. state, municipal and agencies debt		16			1		(1	)		1			–		–
Mortgage-backed securities		15			1		(1	)		9			1		(1	)
Asset-backed securities		28			2		(3	)		95			2		(3	)
Corporate debt and other debt		191			2		(2	)		166			6		(6	)
Equities		123			–		–			175			–		–
Available-for-sale
U.S. state, municipal and agencies debt		797			12		(36	)		682			12		(30	)
Other OECD government debt		–			–		–			12			–		–
Asset-backed securities		197			11		(16	)		195			11		(16	)
Corporate debt and other debt		1,757			11		(11	)		1,734			9		(8	)
Equities		987			76		(33	)		1,010			77		(24	)
Loans		472			8		(23	)		617			24		(34	)
Derivatives		1,143			16		(10	)		890			20		(18	)
Other assets		–			–		–			–			–		–
	$	5,731		$	140	$	(136	)	$	5,586		$	162	$	(140	)
Deposits	$	(397	)	$	13	$	(13	)	$	(718	)	$	17	$	(17	)
Derivatives		(1,892	)		33		(43	)		(1,867	)		27		(43	)
Other
Securities sold short, other liabilities and subordinated debentures		(47	)		–		–			(42	)		–		–
	$	(2,336	)	$	46	$	(56	)	$	(2,627	)	$	44	$	(60	)

Royal Bank of Canada        Second Quarter 2016        75

Note 4    Securities

Unrealized gains and losses on available-for-sale securities (1), (2)

	As at
	April 30, 2016									January 31, 2016
(Millions of Canadian dollars)	Cost/ Amortized cost		Gross unrealized gains		Gross unrealized losses			Fair value		Cost/ Amortized cost		Gross unrealized gains		Gross unrealized losses			Fair value
Canadian government debt
Federal	$	1,742	$	5	$	(1	)	$	1,746	$	2,706	$	6	$	(2	)	$	2,710
Provincial and municipal		1,805		12		(4	)		1,813		1,774		8		(8	)		1,774
U.S. state, municipal and agencies debt (3)		20,891		77		(74	)		20,894		20,563		90		(117	)		20,536
Other OECD government debt		13,184		30		(21	)		13,193		12,274		30		(21	)		12,283
Mortgage-backed securities		324		3		(3	)		324		414		5		(2	)		417
Asset-backed securities
CDO		1,086		1		(7	)		1,080		1,662		8		(12	)		1,658
Non-CDO securities		1,057		2		(73	)		986		1,216		9		(81	)		1,144
Corporate debt and other debt		17,411		73		(62	)		17,422		16,628		52		(94	)		16,586
Equities		1,449		268		(20	)		1,697		1,572		291		(27	)		1,836
Loan substitute securities		70		3		–			73		89		–		(1	)		88
	$	59,019	$	474	$	(265	)	$	59,228	$	58,898	$	499	$	(365	)	$	59,032
	As at
	October 31, 2015									April 30, 2015
(Millions of Canadian dollars)	Cost/ Amortized cost		Gross unrealized gains		Gross unrealized losses			Fair value		Cost/ Amortized cost		Gross unrealized gains		Gross unrealized losses			Fair value
Canadian government debt
Federal	$	2,541	$	7	$	(4	)	$	2,544	$	11,291	$	449	$	–		$	11,740
Provincial and municipal		1,599		8		(7	)		1,600		1,028		17		(1	)		1,044
U.S. state, municipal and agencies debt (3)		12,940		14		(106	)		12,848		8,271		10		(93	)		8,188
Other OECD government debt		12,278		24		(15	)		12,287		13,590		38		(2	)		13,626
Mortgage-backed securities		315		4		(1	)		318		120		4		–			124
Asset-backed securities
CDO		1,506		12		(8	)		1,510		939		18		(2	)		955
Non-CDO securities		1,137		7		(66	)		1,078		677		7		(78	)		606
Corporate debt and other debt		14,171		39		(81	)		14,129		11,504		69		(15	)		11,558
Equities		1,457		314		(15	)		1,756		1,345		334		(6	)		1,673
Loan substitute securities		95		–		(1	)		94		108		–		–			108
	$	48,039	$	429	$	(304	)	$	48,164	$	48,873	$	946	$	(197	)	$	49,622

(1) Excludes $13,191 million of held-to-maturity securities as at April 30, 2016 (January 31, 2016 – $13,237 million; October 31, 2015 – $8,641 million; April 30, 2015 – $3,258 million) that are carried at amortized cost.

(2) The majority of the mortgage-backed securities (MBS) are residential. Cost/Amortized cost, gross unrealized gains, gross unrealized losses and fair value related to commercial MBS are $255 million, $nil, $2 million and $253 million, respectively as at April 30, 2016 (January 31, 2016 – $317 million, $nil, $2 million, and $315 million; October 31, 2015 – $243 million, $nil, $1 million, and $242 million; April 30, 2015 – $32 million, $nil, $nil, and $32 million).

(3) Includes securities issued by U.S. non-agencies backed by government insured assets, MBS and asset-backed securities issued by U.S. government agencies.

AFS securities are assessed for objective evidence of impairment at each reporting date and more frequently when conditions warrant. Depending on the nature of the securities under review, we apply specific methodologies to assess whether the cost/amortized cost of the security would be recovered. As at April 30, 2016, our gross unrealized losses on AFS securities were $265 million (January 31, 2016 – $365 million; October 31, 2015 – $304 million; April 30, 2015 – $197 million). We believe that there is no objective evidence of impairment on our AFS securities that are in an unrealized loss position as at April 30, 2016.

Net gain and loss on available-for-sale securities (1)

	For the three months ended									For the six months ended
(Millions of Canadian dollars)	April 30 2016			January 31 2016			April 30 2015			April 30 2016			April 30 2015
Realized gains	$	30		$	73		$	60		$	103		$	104
Realized losses		(1	)		(1	)		–			(2	)		(4	)
Impairment losses		(14	)		(20	)		(18	)		(34	)		(31	)
	$	15		$	52		$	42		$	67		$	69

(1) The following related to our insurance operations are excluded from Net gains on AFS securities and included in Insurance premiums, investment and fee income on the Interim Condensed Consolidated Statements of Income for the three months ended April 30, 2016: Realized gains of $3 million (January 31, 2016 – $3 million; April 30, 2015 – $nil) and $nil in impairment losses related to our insurance operations (January 31, 2016 – $4 million; April 30, 2015 – $nil); for the six months ended April 30, 2016: Realized gains of $6 million (April 30, 2015 – $1 million) and $4 million in impairment losses (April 30, 2015 – $1 million); there were no realized losses for the three and six months ended April 30, 2016 and April 30, 2015 related to our insurance operations.

During the three months ended April 30, 2016, $15 million of net gains were recognized in Non-interest income as compared to $52 million in the prior quarter. The current quarter reflects net realized gains of $29 million mainly comprised of distributions from, and gains on sales of, certain Equities. Also included in the net gains are $14 million of impairment losses primarily on certain Equities.

76        Royal Bank of Canada        Second Quarter 2016

Note 4    Securities (continued)

For the six months ended April 30, 2016, $67 million of net gains were recognized in Non-interest income as compared to $69 million in the prior year. The current period reflects net realized gains of $101 million mainly comprised of distributions from, and gains on sales of, certain Equities and U.S. state, municipal and agencies debt. Also included in the net gains are $34 million of impairment losses primarily on certain Equities and Loan substitute securities.

Held-to-maturity securities

Held-to-maturity securities measured at amortized cost are subject to periodic impairment review and are classified as impaired when, in management’s opinion, there is no longer reasonable assurance of the timely collection of the full amount of principal and interest. The impairment review of held-to-maturity securities is primarily based on the impairment model for loans. We believe that there is no objective evidence of impairment on our held-to-maturity securities as at April 30, 2016.

Note 5     Allowance for credit losses and impaired loans

Allowance for credit losses

	For the three months ended April 30, 2016
(Millions of Canadian dollars)	Balance at beginning of period		Provision for credit losses		Write-offs			Recoveries		Unwind of discount			Exchange rate changes/ other			Balance at end of period
Retail
Residential mortgages	$	266	$	9	$	(11	)	$	3	$	(6	)	$	(19	)	$	242
Personal		548		112		(144	)		28		(3	)		(7	)		534
Credit cards		386		116		(146	)		31		–			(1	)		386
Small business		64		9		(8	)		2		–			–			67
		1,264		246		(309	)		64		(9	)		(27	)		1,229
Wholesale
Business		901		212		(36	)		13		(11	)		(43	)		1,036
Bank (1)		2		–		–			–		–			–			2
		903		212		(36	)		13		(11	)		(43	)		1,038
Acquired credit-impaired loans		2		2		–			–		–			–			4
Total allowance for loan losses		2,169		460		(345	)		77		(20	)		(70	)		2,271
Allowance for off-balance sheet and other items (2)		91		–		–			–		–			–			91
Total allowance for credit losses	$	2,260	$	460	$	(345	)	$	77	$	(20	)	$	(70	)	$	2,362
Individually assessed	$	340	$	136	$	(14	)	$	9	$	(7	)	$	(34	)	$	430
Collectively assessed		1,920		324		(331	)		68		(13	)		(36	)		1,932
Total allowance for credit losses	$	2,260	$	460	$	(345	)	$	77	$	(20	)	$	(70	)	$	2,362

	For the three months ended January 31, 2016
(Millions of Canadian dollars)	Balance at beginning of period		Provision for credit losses		Write-offs			Recoveries		Unwind of discount			Exchange rate changes/ other		Balance at end of period
Retail
Residential mortgages	$	242	$	28	$	(10	)	$	–	$	(6	)	$	12	$	266
Personal		530		118		(130	)		26		(3	)		7		548
Credit cards		386		104		(132	)		28		–			–		386
Small business		64		8		(10	)		3		(1	)		–		64
		1,222		258		(282	)		57		(10	)		19		1,264
Wholesale
Business		805		150		(65	)		6		(10	)		15		901
Bank (1)		2		–		–			–		–			–		2
		807		150		(65	)		6		(10	)		15		903
Acquired credit-impaired loans		–		2		–			–		–			–		2
Total allowance for loan losses		2,029		410		(347	)		63		(20	)		34		2,169
Allowance for off-balance sheet and other items (2)		91		–		–			–		–			–		91
Total allowance for credit losses	$	2,120	$	410	$	(347	)	$	63	$	(20	)	$	34	$	2,260
Individually assessed	$	252	$	122	$	(43	)	$	4	$	(9	)	$	14	$	340
Collectively assessed		1,868		288		(304	)		59		(11	)		20		1,920
Total allowance for credit losses	$	2,120	$	410	$	(347	)	$	63	$	(20	)	$	34	$	2,260

Royal Bank of Canada        Second Quarter 2016        77

	For the three months ended April 30, 2015
(Millions of Canadian dollars)	Balance at beginning of period		Provision for credit losses		Write-offs			Recoveries		Unwind of discount			Exchange rate changes/ other			Balance at end of period
Retail
Residential mortgages	$	248	$	9	$	(15	)	$	2	$	(6	)	$	(5	)	$	233
Personal		553		103		(127	)		25		(5	)		(7	)		542
Credit cards		386		95		(125	)		30		–			–			386
Small business		65		9		(10	)		2		–			–			66
		1,252		216		(277	)		59		(11	)		(12	)		1,227
Wholesale
Business		803		66		(46	)		11		(9	)		(17	)		808
Bank (1)		2		–		–			–		–			–			2
		805		66		(46	)		11		(9	)		(17	)		810
Total allowance for loan losses		2,057		282		(323	)		70		(20	)		(29	)		2,037
Allowance for off-balance sheet and other items (2)		91		–		–			–		–			–			91
Total allowance for credit losses	$	2,148	$	282	$	(323	)	$	70	$	(20	)	$	(29	)	$	2,128
Individually assessed	$	241	$	42	$	(28	)	$	7	$	(6	)	$	(11	)	$	245
Collectively assessed		1,907		240		(295	)		63		(14	)		(18	)		1,883
Total allowance for credit losses	$	2,148	$	282	$	(323	)	$	70	$	(20	)	$	(29	)	$	2,128

Allowance for credit losses

	For the six months ended April 30, 2016
(Millions of Canadian dollars)	Balance at beginning of period		Provision for credit losses		Write-offs			Recoveries		Unwind of discount			Exchange rate changes/ other			Balance at end of period
Retail
Residential mortgages	$	242	$	37	$	(21	)	$	3	$	(12	)	$	(7	)	$	242
Personal		530		230		(274	)		54		(6	)		–			534
Credit cards		386		220		(278	)		59		–			(1	)		386
Small business		64		17		(18	)		5		(1	)		–			67
		1,222		504		(591	)		121		(19	)		(8	)		1,229
Wholesale
Business		805		362		(101	)		19		(21	)		(28	)		1,036
Bank (1)		2		–		–			–		–			–			2
		807		362		(101	)		19		(21	)		(28	)		1,038
Acquired credit-impaired loans		–		4		–			–		–			–			4
Total allowance for loan losses		2,029		870		(692	)		140		(40	)		(36	)		2,271
Allowance for off-balance sheet and other items (2)		91		–		–			–		–			–			91
Total allowance for credit losses	$	2,120	$	870	$	(692	)	$	140	$	(40	)	$	(36	)	$	2,362
Individually assessed	$	252	$	258	$	(57	)	$	13	$	(16	)	$	(20	)	$	430
Collectively assessed		1,868		612		(635	)		127		(24	)		(16	)		1,932
Total allowance for credit losses	$	2,120	$	870	$	(692	)	$	140	$	(40	)	$	(36	)	$	2,362

	For the six months ended April 30, 2015
(Millions of Canadian dollars)	Balance at beginning of period		Provision for credit losses			Write-offs			Recoveries		Unwind of discount			Exchange rate changes/ other		Balance at end of period
Retail
Residential mortgages	$	240	$	22		$	(35	)	$	3	$	(12	)	$	15	$	233
Personal		535		196			(241	)		50		(7	)		9		542
Credit cards		385		189			(247	)		58		–			1		386
Small business		64		18			(21	)		5		–			–		66
		1,224		425			(544	)		116		(19	)		25		1,227
Wholesale
Business		768		128			(94	)		18		(18	)		6		808
Bank (1)		2		(1	)		–			1		–			–		2
		770		127			(94	)		19		(18	)		6		810
Total allowance for loan losses		1,994		552			(638	)		135		(37	)		31		2,037
Allowance for off-balance sheet and other items (2)		91		–			–			–		–			–		91
Total allowance for credit losses	$	2,085	$	552		$	(638	)	$	135	$	(37	)	$	31	$	2,128
Individually assessed	$	214	$	77		$	(55	)	$	11	$	(12	)	$	10	$	245
Collectively assessed		1,871		475			(583	)		124		(25	)		21		1,883
Total allowance for credit losses	$	2,085	$	552		$	(638	)	$	135	$	(37	)	$	31	$	2,128

(1) Bank refers primarily to regulated deposit-taking institutions and securities firms.

(2) The allowance for off-balance sheet and other items is reported separately in Other liabilities.

78        Royal Bank of Canada        Second Quarter 2016

Note 5     Allowance for credit losses and impaired loans (continued)

Loans past due but not impaired

	As at
	April 30, 2016								January 31, 2016
(Millions of Canadian dollars)	1 to 29 days		30 to 89 days		90 days and greater		Total		1 to 29 days		30 to 89 days		90 days and greater		Total
Retail	$	3,102	$	1,382	$	353	$	4,837	$	3,525	$	1,441	$	346	$	5,312
Wholesale		1,117		219		2		1,338		1,215		389		2		1,606
	$	4,219	$	1,601	$	355	$	6,175	$	4,740	$	1,830	$	348	$	6,918
	As at
	October 31, 2015								April 30, 2015
(Millions of Canadian dollars)	1 to 29 days		30 to 89 days		90 days and greater		Total		1 to 29 days		30 to 89 days		90 days and greater		Total
Retail	$	3,054	$	1,298	$	314	$	4,666	$	2,937	$	1,320	$	309	$	4,566
Wholesale		417		184		–		601		413		214		–		627
	$	3,471	$	1,482	$	314	$	5,267	$	3,350	$	1,534	$	309	$	5,193

Gross carrying value of loans individually determined to be impaired (1)

	As at
(Millions of Canadian dollars)	April 30 2016		January 31 2016		October 31 2015		April 30 2015
Retail (2)	$	–	$	–	$	–	$	–
Wholesale (2)
Business		1,861		1,184		991		766
Bank (3)		2		2		2		2
Acquired credit-impaired loans (4)		531		636		–		–
Total	$	2,394	$	1,822	$	993	$	768

(1) Average balance of gross individually assessed impaired loans for the three months ended April 30, 2016 was $2.1 billion (January 31, 2016 – $1.4 billion; October 31, 2015 – $1.0 billion; April 30, 2015 – $757 million).

(2) Excludes ACI loans.

(3) Bank refers primarily to regulated deposit-taking institutions and securities firms.

(4) ACI loans were recognized as part of the acquisition of City National.

Acquired Credit-Impaired Loans

ACI loans resulting from the acquisition of City National include Retail, Wholesale and FDIC covered loans with outstanding unpaid principal balances of $27 million, $73 million, and $642 million and fair values of $22 million, $62 million, and $596 million, respectively, as at November 2, 2015 (the acquisition date).

The following table provides further details of our ACI loans:

	As at
(Millions of Canadian dollars)	April 30 2016			January 31 2016
City National
Unpaid principal balance (1)	$	570		$	690
Credit related fair value adjustments		(58	)		(74	)
Interest rate and other related premium/(discount)		19			20
Carrying value		531			636
Individually assessed allowance		(3	)		(2	)
Carrying value net of related allowance (2)	$	528		$	634

(1) Represents contractual amount owed net of write-offs since the acquisition of the loan.

(2) Carrying value does not include the effect of the FDIC loss sharing agreement.

FDIC Covered Loans

As at April 30, 2016, the balance of FDIC covered loans was $480 million and was recorded in Loans on the Consolidated Balance Sheets (January 31, 2016 – $576 million). As at April 30, 2016, the balances for indemnification assets and clawback liabilities were $19 million and $23 million (January 31, 2016 – $25 million and $26 million), respectively.

Royal Bank of Canada        Second Quarter 2016        79

Note 6    Significant acquisition and dispositions

Acquisition

Wealth Management

On November 2, 2015, we completed the acquisition of City National. City National’s business will give us an expansion platform for long-term growth in the U.S. By acquiring 100% of the voting equity interests, the acquisition provides us with the opportunity to enhance and complement our existing U.S. businesses in line with our strategic goals.

Total consideration of $7.1 billion (US$5.5 billion) at the date of close included US$2.6 billion in cash, 41.6 million RBC common shares issued at a price of US$57.16 per share, US$275 million of first preferred shares, (Series C-1 and Series C-2) with a fair value of US$290 million, as well as share based compensation amounts of US$156 million, including the conversion of 3.8 million stock options with a fair value of US$112 million, based on the Black-Scholes model.

Our purchase price allocation assigns $47.8 billion to assets and $44.9 billion to liabilities on the acquisition date. Goodwill of $2.3 billion reflects the expected synergies from the combined U.S. Wealth Management operations, expected growth of the platform, and the ability to cross sell products between segments. Goodwill is not expected to be deductible for tax purposes. The following table presents the estimated fair value of the assets acquired and liabilities assumed as at the acquisition date.

(Millions of Canadian dollars, except percentage)
Percentage of shares acquired		100%
Purchase consideration	$	7,138
Fair value of identifiable assets acquired
Cash and due from banks	$	499
Interest-bearing deposits with Banks		2,779
Securities
Trading		321
Available-for-sale		7,414
Held-to-maturity		4,723
Loans (1)
Retail		9,595
Wholesale		20,553
Other assets		1,957
Total fair value of identifiable assets acquired	$	47,841
Fair value of identifiable liabilities assumed
Deposits
Personal	$	10,481
Business and government		31,592
Bank		169
Other liabilities		2,687
Total fair value of identifiable liabilities assumed	$	44,929
Fair value of identifiable net assets acquired	$	2,912
Intangible assets (2)		1,880
Goodwill		2,346
Total purchase consideration	$	7,138

(1) The fair value for loans reflects estimates of incurred and expected future credit losses at the acquisition date and interest rate premiums or discounts relative to prevailing market rates. Gross contractual receivables amount to $30.1 billion.

(2) Intangible assets primarily include core deposits and customer relationships which are amortized on a straight-line basis over an estimated useful life of 10 years.

The estimates for the fair values of the assets acquired and liabilities assumed may be retroactively adjusted to reflect new information obtained about facts and circumstances that existed as at the acquisition date during the measurement period.

Since the acquisition date, City National increased our consolidated revenue and net income by $937 million and $119 million, respectively. All results of operations are included in our Wealth Management segment and goodwill is allocated to our U.S. Wealth Management (including City National) cash-generating unit (previously called U.S. Wealth Management).

80        Royal Bank of Canada        Second Quarter 2016

Note 6    Significant acquisition and dispositions (continued)

Dispositions

Investor & Treasury Services

On March 11, 2016, we entered into a definitive agreement to sell RBC Investor Services España S.A.U. and its wholly-owned subsidiary to Banco Inversis, S.A. The transaction is expected to close before the end of the year and is subject to customary closing conditions, including the receipt of regulatory approvals. As a result of the disposition, the assets and liabilities included in the disposal group are classified as held for sale, measured at the lower of their carrying amount and fair value less costs to sell and presented in Other assets and Other liabilities.

The following major classes of assets and liabilities are included in the disposal group as held for sale:

	As at
(Millions of Canadian dollars)	April 30 2016
Assets
Cash and deposits with banks	$	783
Other assets		195
Total assets of disposal group included in Other assets	$	978
Liabilities
Deposits	$	812
Other liabilities		110
Total liabilities of disposal group included in Other liabilities	$	922

Insurance

On January 21, 2016, we announced that we have entered into a definitive agreement to sell our home and auto insurance manufacturing business, including claims, underwriting and product development capabilities, to Aviva Canada Inc. We have also entered into an exclusive 15-year distribution agreement to market and sell a full suite of property and casualty insurance products to our existing and new clients. The transaction is expected to close in the third quarter and is subject to customary closing conditions, including the receipt of required regulatory approvals. As a result of the disposition, the assets and liabilities included in the disposal group are classified as held for sale, measured at the lower of their carrying amount and fair value less costs to sell, and presented in Other assets and Other liabilities.

The following major classes of assets, liabilities and equity are included in the disposal group as held for sale:

	As at
(Millions of Canadian dollars)	April 30 2016
Assets
Securities	$	1,277
Other assets		400
Total assets of disposal group included in Other assets	$	1,677
Liabilities
Insurance claims and policy benefit liabilities	$	984
Other liabilities		428
Total liabilities of disposal group included in Other liabilities	$	1,412
Total Other components of equity of the disposal group	$	3

Wealth Management

On November 4, 2015, we entered into a definitive agreement to sell our trust, custody and fund administration business in the Caribbean to SMP Group Limited. The transaction is subject to customary closing conditions, including the receipt of required regulatory approvals. As a result of the disposition, the assets and liabilities included in the disposal group are classified as held for sale, measured at the lower of their carrying amount and fair value less costs to sell and presented in Other assets and Other liabilities.

The major classes of assets, liabilities and equity that are included in the disposal group are not significant.

Royal Bank of Canada        Second Quarter 2016        81

Note 7     Deposits

The following table details our deposit liabilities:

	As at
	April 30, 2016								January 31, 2016
(Millions of Canadian dollars)	Demand (1)		Notice (2)		Term (3)		Total		Demand (1)		Notice (2)		Term (3)		Total
Personal	$	128,556	$	39,663	$	75,663	$	243,882	$	135,875	$	28,414	$	74,901	$	239,190
Business and government		198,801		8,628		272,392		479,821		201,127		16,385		292,719		510,231
Bank		7,500		30		10,221		17,751		8,344		25		11,778		20,147
	$	334,857	$	48,321	$	358,276	$	741,454	$	345,346	$	44,824	$	379,398	$	769,568
Non-interest-bearing (4)
Canada	$	73,570	$	4,163	$	–	$	77,733	$	71,789	$	3,839	$	–	$	75,628
United States		29,230		61		–		29,291		28,521		43		–		28,564
Europe (5)		1,607		–		–		1,607		1,569		–		–		1,569
Other International		6,526		5		–		6,531		7,272		6		–		7,278
Interest-bearing (4)
Canada		187,450		14,344		278,675		480,469		194,530		14,250		280,016		488,796
United States		1,293		25,342		53,182		79,817		4,576		22,103		72,056		98,735
Europe (5)		31,858		709		15,865		48,432		33,475		655		17,512		51,642
Other International		3,323		3,697		10,554		17,574		3,614		3,928		9,814		17,356
	$	334,857	$	48,321	$	358,276	$	741,454	$	345,346	$	44,824	$	379,398	$	769,568
	As at
	October 31, 2015								April 30, 2015
(Millions of Canadian dollars)	Demand (1)		Notice (2)		Term (3)		Total		Demand (1)		Notice (2)		Term (3)		Total
Personal	$	128,101	$	19,758	$	72,707	$	220,566	$	122,535	$	18,825	$	74,543	$	215,903
Business and government		175,931		6,854		272,793		455,578		166,152		5,177		243,982		415,311
Bank		7,711		23		13,349		21,083		6,138		22		14,177		20,337
	$	311,743	$	26,635	$	358,849	$	697,227	$	294,825	$	24,024	$	332,702	$	651,551
Non-interest-bearing (4)
Canada	$	70,286	$	3,754	$	–	$	74,040	$	64,869	$	3,793	$	–	$	68,662
United States		1,158		31		–		1,189		776		49		–		825
Europe (5)		1,172		–		–		1,172		3,435		1		–		3,436
Other International		6,706		6		–		6,712		5,938		450		–		6,388
Interest-bearing (4)
Canada		192,736		13,529		269,395		475,660		183,414		12,204		255,033		450,651
United States		4,177		4,966		67,710		76,853		3,561		3,199		56,536		63,296
Europe (5)		31,554		606		12,270		44,430		29,581		507		12,485		42,573
Other International		3,954		3,743		9,474		17,171		3,251		3,821		8,648		15,720
	$	311,743	$	26,635	$	358,849	$	697,227	$	294,825	$	24,024	$	332,702	$	651,551

(1) Deposits payable on demand include all deposits for which we do not have the right to require notice of withdrawal. These deposits include both savings and chequing accounts.

(2) Deposits payable after notice include all deposits for which we can legally require notice of withdrawal. These deposits are primarily savings accounts.

(3) Term deposits include deposits payable on a fixed date. These deposits include term deposits, guaranteed investment certificates and similar instruments. As at April 30, 2016, the balance of term deposits also includes senior deposit notes we have issued to provide long-term funding of $187 billion (January 31, 2016 – $187 billion; October 31, 2015 – $182 billion; April 30, 2015 – $159 billion).

(4) The geographical splits of the deposits are based on the point of origin of the deposits and where the revenue is recognized. As at April 30, 2016, deposits denominated in U.S. dollars, British pounds, Euro and other foreign currencies were $259 billion, $15 billion, $38 billion and $30 billion, respectively (January 31, 2016 – $295 billion, $17 billion, $36 billion and $29 billion; October 31, 2015 – $235 billion, $13 billion, $32 billion and $28 billion; April 30, 2015 – $209 billion, $12 billion, $24 billion and $25 billion).

(5) Europe includes the United Kingdom, Luxembourg and the Channel Islands.

The following table presents the contractual maturities of our term deposit liabilities:

	As at
(Millions of Canadian dollars)	April 30 2016		January 31 2016		October 31 2015		April 30 2015
Within 1 year:
less than 3 months		$    79,097	$	88,937	$	78,735	$	66,298
3 to 6 months		40,953		52,817		49,900		32,203
6 to 12 months		65,924		69,101		61,096		67,303
1 to 2 years		37,132		38,277		43,674		53,508
2 to 3 years		46,405		42,652		39,809		30,541
3 to 4 years		27,730		24,393		26,792		29,696
4 to 5 years		34,506		35,401		30,184		27,516
Over 5 years		26,529		27,820		28,659		25,637
		$  358,276	$	379,398	$	358,849	$	332,702
Aggregate amount of term deposits in denominations of one hundred thousand dollars or more		$  324,000	$	345,000	$	331,000	$	300,000

82        Royal Bank of Canada        Second Quarter 2016

Note 8    Employee benefits – Pension and other post-employment benefits

We offer a number of defined benefit and defined contribution plans which provide pension and post-employment benefits to eligible employees. The following tables present the composition of our pension and other post-employment benefit expense and the composition of our remeasurements recorded in other comprehensive income.

Pension and other post-employment benefit expense

	For the three months ended
	Pension plans							Other post-employment benefit plans
(Millions of Canadian dollars)	April 30 2016		January 31 2016			April 30 2015		April 30 2016		January 31 2016		April 30 2015
Current service costs	$	78	$	78		$	86	$	9	$	9	$	8
Net interest expense (income)		–		(1	)		8		18		18		19
Remeasurements of other long term benefits		–		–			–		4		4		6
Administrative expense		3		3			3		–		–		–
Defined benefit pension expense	$	81	$	80		$	97	$	31	$	31	$	33
Defined contribution pension expense		35		52			37		–		–		–
	$	116	$	132		$	134	$	31	$	31	$	33

	For the six months ended
	Pension plans					Other post-employment benefit plans
(Millions of Canadian dollars)	April 30 2016			April 30 2015		April 30 2016		April 30 2015
Current service costs	$	156		$	173	$	18	$	17
Net interest expense (income)		(1	)		16		36		37
Remeasurements of other long term benefits		–			–		8		7
Administrative expense		6			6		–		–
Defined benefit pension expense	$	161		$	195	$	62	$	61
Defined contribution pension expense		87			82		–		–
	$	248		$	277	$	62	$	61

Remeasurements of employee benefit plans (1)

	For the three months ended
	Defined benefit pension plans								Other post-employment benefit plans
(Millions of Canadian dollars)	April 30 2016			January 31 2016		April 30 2015			April 30 2016			January 31 2016			April 30 2015
Actuarial (gains) losses:
Changes in financial assumptions	$	383		$	358	$	(571	)	$	24		$	61		$	(79	)
Experience adjustments		–			–		–			(5	)		(1	)		(4	)
Return on plan assets (excluding interest based on discount rate)		(96	)		188		94			(1	)		–			–
	$	287		$	546	$	(477	)	$	18		$	60		$	(83	)

	For the six months ended
	Defined benefit pension plans					Other post-employment benefit plans
(Millions of Canadian dollars)	April 30 2016		April 30 2015			April 30 2016			April 30 2015
Actuarial (gains) losses:
Changes in financial assumptions	$	741	$	626		$	85		$	75
Experience adjustments		–		2			(6	)		(8	)
Return on plan assets (excluding interest based on discount rate)		92		(592	)		(1	)		–
	$	833	$	36		$	78		$	67

(1) Market based assumptions, including Changes in financial assumptions and Return on plan assets, are reviewed on a quarterly basis. All other assumptions are updated during our annual review of plan assumptions.

Royal Bank of Canada        Second Quarter 2016        83

Note 9    Significant capital and funding transactions

Subordinated debentures

On January 27, 2016, we issued US$1.5 billion ($2.1 billion) of subordinated debentures. The notes bear interest at a fixed rate of 4.65% per annum until their maturity on January 27, 2026. The notes include non-viability contingent capital (NVCC) provisions which are necessary for the notes to qualify as Tier 2 regulatory capital.

On January 20, 2016, we issued $1.5 billion of subordinated debentures. The notes bear interest at a fixed rate of 3.31% per annum until January 20, 2021, and at the 3-month banker’s acceptance rate plus 2.35% thereafter until their maturity on January 20, 2026. The notes include NVCC provisions which are necessary for the notes to qualify as Tier 2 regulatory capital.

On November 2, 2015, we redeemed all $1.5 billion outstanding 3.18% subordinated debentures due on November 2, 2020 for 100% of their principal amount plus accrued interest to the redemption date.

Preferred shares

On March 7, 2016, we issued 30 million Non-Cumulative 5-Year Rate Reset First Preferred Shares, Series BM (BM Shares), for total gross proceeds of $750 million. For the initial five year period to the earliest redemption date of August 24, 2021, the BM shares pay quarterly cash dividends, if declared, at a rate of 5.5% per annum. The dividend rate will reset on the earliest redemption date and every fifth year thereafter at a rate equal to the 5-year Government of Canada bond yield plus a premium of 4.8%. Holders have the option to convert their shares into Non-Cumulative Floating Rate First Preferred Shares, Series BN, subject to certain conditions, on the earliest redemption date and every fifth year thereafter at a rate equal to the 3-month Government of Canada Treasury Bill yield plus 4.8%. Subject to the consent of OSFI and the requirements of the Bank Act (Canada), we may redeem the BM shares in whole or in part at a price per share of $25 on the earliest redemption date and every fifth year thereafter. The BM Shares include NVCC provisions which are necessary for the shares to qualify as Tier 1 regulatory capital.

On February 24, 2016, we purchased for cash 3,717,969 depositary shares, each representing a one-fortieth interest in a share of our Non-Cumulative Perpetual First Preferred Shares, Series C-1 (C-1 Preferred Shares) and 3,184,562 depositary shares, each representing a one-fortieth interest in a share of our Fixed Rate/Floating Rate Non-Cumulative First Preferred Shares, Series C-2 (C-2 Preferred Shares), for aggregate total consideration, including accrued dividends, of US$193 million. The purchased depositary and underlying C-1 and C-2 Preferred Shares were subsequently cancelled. On November 2, 2015, 175 thousand C-1 Preferred Shares and 100 thousand C-2 Preferred Shares with a total fair value of US$290 million ($380 million) were issued in connection with the acquisition of City National, upon the cancellation of all outstanding City National preferred shares. C-1 Preferred Shares pay quarterly cash dividends, if declared, at a rate of 5.5% per annum. We may redeem the C-1 Preferred Shares in whole or in part at a price per share of US$1,000 on any dividend payment date on or after November 13, 2017. For the initial eight year period to the earliest redemption date of November 7, 2023, the C-2 Preferred Shares pay quarterly cash dividends, if declared, at a rate of 6.75% per annum. The dividend rate will reset on the earliest redemption date at a rate equal to the 3-month LIBOR plus 4.052%. We may redeem the C-2 Preferred Shares in whole or in part at a price per share of US$1,000 on any dividend payment date on or after the earliest redemption date. The C-1 and C-2 Preferred Shares do not qualify as Tier 1 regulatory capital.

On December 16, 2015, we issued 27 million Non-Cumulative 5-Year Rate Reset First Preferred Shares, Series BK (BK Shares) and, on December 31, 2015, we issued an additional 2 million BK Shares pursuant to the exercise in full by the underwriters of their option to purchase additional BK Shares, for total gross proceeds of $725 million. For the initial five year period to the earliest redemption date of May 24, 2021, the BK Shares pay quarterly cash dividends, if declared, at a rate of 5.5% per annum. The dividend rate will reset on the earliest redemption date and every fifth year thereafter at a rate equal to the 5-year Government of Canada bond yield plus a premium of 4.53%. Holders have the option to convert their shares into Non-Cumulative Floating Rate First Preferred Shares, Series BL, subject to certain conditions, on the earliest redemption date and every fifth year thereafter at a rate equal to the 3-month Government of Canada Treasury Bill yield plus 4.53%. Subject to the consent of OSFI and the requirements of the Bank Act (Canada), we may redeem the BK shares in whole or in part at a price per share of $25 on the earliest redemption date and every fifth year thereafter. The BK Shares include NVCC provisions which are necessary for the shares to qualify as Tier 1 regulatory capital.

Trust capital securities

On December 31, 2015, RBC Capital Trust, a closed-end unit trust established by RBC, redeemed all issued and outstanding $1.2 billion principal amount of Trust Capital Securities – Series 2015 for cash at a redemption price of $1,000 per unit.

84        Royal Bank of Canada        Second Quarter 2016

Note 9    Significant capital and funding transactions (continued)

Common shares issued (1)

	For the three months ended
	April 30, 2016				January 31, 2016				April 30, 2015
(Millions of Canadian dollars, except number of shares)	Number of shares (thousands)		Amount		Number of shares (thousands)		Amount		Number of shares (thousands)		Amount
Issued in connection with share-based compensation plans (2)		1,588	$	109		1,589	$	86		510	$	25
Issued in connection with the acquisition of City National		–		–		41,619		3,115		–		–
		1,588	$	109		43,208	$	3,201		510	$	25

	For the six months ended
	April 30, 2016				April 30, 2015
(Millions of Canadian dollars, except number of shares)	Number of shares (thousands)		Amount		Number of shares (thousands)		Amount
Issued in connection with share-based compensation plans (2)		3,177	$	195		869	$	45
Issued in connection with the acquisition of City National		41,619		3,115		–		–
		44,796	$	3,310		869	$	45

(1) The requirements of our dividend reinvestment plan (DRIP) are satisfied through either open market share purchases or shares issued from treasury. During the six months ended April 30, 2016, and April 30, 2015, our DRIP’s requirements were satisfied through open market share purchases.

(2) Amounts include cash received for stock options exercised during the period and the fair value adjustment to stock options.

Note 10    Earnings per share

	For the three months ended									For the six months ended
(Millions of Canadian dollars, except share and per share amounts)	April 30 2016			January 31 2016			April 30 2015			April 30 2016			April 30 2015
Basic earnings per share
Net income	$	2,573		$	2,447		$	2,502		$	5,020		$	4,958
Preferred share dividends		(74	)		(60	)		(47	)		(134	)		(87	)
Net income attributable to non-controlling interest		(13	)		(21	)		(29	)		(34	)		(51	)
Net income available to common shareholders		2,486			2,366			2,426			4,852			4,820
Weighted average number of common shares (in thousands)		1,487,346			1,486,560			1,442,078			1,486,871			1,442,339
Basic earnings per share (in dollars)	$	1.67		$	1.59		$	1.68		$	3.26		$	3.34
Diluted earnings per share
Net income available to common shareholders	$	2,486		$	2,366		$	2,426		$	4,852		$	4,820
Dilutive impact of exchangeable shares		3			4			3			7			7
Net income available to common shareholders including dilutive impact of exchangeable shares		2,489			2,370			2,429			4,859			4,827
Weighted average number of common shares (in thousands)		1,487,346			1,486,560			1,442,078			1,486,871			1,442,339
Stock options (1)		3,133			3,384			2,470			3,264			2,654
Issuable under other share-based compensation plans		732			718			–			725			–
Exchangeable shares (2)		4,398			4,373			4,103			4,385			4,044
Average number of diluted common shares (in thousands)		1,495,609			1,495,035			1,448,651			1,495,245			1,449,037
Diluted earnings per share (in dollars)	$	1.66		$	1.58		$	1.68		$	3.25		$	3.33

(1) The dilutive effect of stock options was calculated using the treasury stock method. When the exercise price of options outstanding is greater than the average market price of our common shares, the options are excluded from the calculation of diluted earnings per share. For the three months ended April 30, 2016, an average of 2,730,358 outstanding options with an average exercise price of $75.13 were excluded from the calculation of diluted earnings per share (January 31, 2016 – 2,096,192; April 30, 2015 – 800,522). For the six months ended April 30, 2016, an average of 2,409,791 outstanding options with an average exercise price of $75.23 were excluded from the calculation of diluted earnings per share (April 30, 2015 – 606,660).

(2) Includes exchangeable preferred shares and trust capital securities.

Note 11    Litigation

We are a large global institution that is subject to many different complex legal and regulatory requirements that continue to evolve. As a result, we are and have been subject to a variety of legal proceedings, including civil claims and lawsuits, regulatory examinations, investigations, audits and requests for information by various governmental regulatory agencies and law enforcement authorities in various jurisdictions. Some of these matters may involve novel legal theories and interpretations and may be advanced under criminal as well as civil statutes, and some proceedings could result in the imposition of civil, regulatory enforcement or criminal penalties. We review the status of all proceedings on an ongoing basis and will exercise judgment in resolving them in such manner as we believe to be in our best interest. This is an area of significant judgment and uncertainty and the extent of our financial and other exposure to these proceedings could be material to our results of operations in any particular period.

Our significant legal proceedings include all of the matters disclosed in Note 27 to our audited 2015 Annual Consolidated Financial Statements as updated below:

LIBOR regulatory investigations and litigation

Various regulators and competition and enforcement authorities around the world, including in Canada, the United Kingdom, and the U.S., are conducting investigations related to certain past submissions made by panel banks in connection with the setting of the

Royal Bank of Canada        Second Quarter 2016        85

U.S. dollar London interbank offered rate (LIBOR). These investigations focus on allegations of collusion between the banks that were on the panel to make submissions for certain LIBOR rates. As Royal Bank of Canada is a member of certain LIBOR panels, including the U.S. dollar LIBOR panel, we have been the subject of regulatory requests for information and are cooperating with those investigations.

In addition, Royal Bank of Canada and other U.S. dollar panel banks have been named as defendants in private lawsuits filed in the U.S. with respect to the setting of LIBOR including a number of class action lawsuits which have been consolidated before the U.S. District Court for the Southern District of New York (the District Court). The complaints in those actions assert claims against us and other panel banks under various U.S. laws, including U.S. antitrust laws, the U.S. Commodity Exchange Act, and state law. The District Court has issued detailed rulings on various motions in the consolidated cases and based on the District Court’s decisions to date, certain of the claims against Royal Bank of Canada have been dismissed; however, these decisions are subject to appeal and the claims that have been dismissed may be refiled based upon the appeal decisions. On May 23, 2016, the Second Circuit issued an opinion vacating the District Court’s earlier dismissal of the antitrust claims, and remanded for further proceedings on the question of antitrust standing.

Based on the facts currently known, it is not possible at this time for us to predict the ultimate outcome of these investigations or proceedings or the timing of their resolution.

Royal Bank of Canada Trust Company (Bahamas) Limited Proceedings

On April 13, 2015, a French investigating judge notified Royal Bank of Canada Trust Limited (RBC Bahamas) of the issuance of an ordonnance de renvoi referring RBC Bahamas and other unrelated persons to the French tribunal correctionnel to face the charge of complicity in estate tax fraud relating to actions taken relating to a trust for which RBC Bahamas serves as trustee. RBC Bahamas believes that its actions did not violate French law and intends to contest the charge in the French court. The trial, which was suspended on January 6, 2016, is currently scheduled to resume on September 22, 2016.

Panama papers inquiries

Following media reports on the contents of files misappropriated from a Panamanian-based law firm, Mossack Fonseca & Co about special purpose entities associated with that firm, regulatory, tax and enforcement authorities are conducting inquiries. The inquiries focus on, among other issues, the potential use of such entities by third parties to avoid tax and disclosure obligations. Royal Bank of Canada has received, and is responding to, information and document requests by a number of such authorities.

Note 12    Results by business segment

	For the three months ended April 30, 2016
(Millions of Canadian dollars)	Personal & Commercial Banking		Wealth Management (1)		Insurance		Investor & Treasury Services		Capital Markets (2)		Corporate Support (2)			Total
Net interest income (3), (4)	$	2,527	$	466	$	–	$	190	$	993	$	(151	)	$	4,025
Non-interest income		1,107		1,714		1,351		350		997		(18	)		5,501
Total revenue		3,634		2,180		1,351		540		1,990		(169	)		9,526
Provision for credit losses		279		7		–		–		123		51			460
Insurance policyholder benefits, claims and acquisition expense		–		–		988		–		–		–			988
Non-interest expense		1,614		1,670		157		352		1,080		14			4,887
Net income (loss) before income taxes		1,741		503		206		188		787		(234	)		3,191
Income taxes (recoveries)		444		117		29		49		204		(225	)		618
Net income	$	1,297	$	386	$	177	$	139	$	583	$	(9	)	$	2,573
Non-interest expense includes:
Depreciation and amortization	$	82	$	101	$	5	$	13	$	4	$	160		$	365
Restructuring provisions		–		–		–		–		–		–			–
Total assets	$	401,491	$	80,376	$	14,773	$	147,994	$	479,780	$	25,943		$	1,150,357
Total liabilities	$	401,495	$	80,389	$	14,803	$	147,927	$	480,014	$	(42,397	)	$	1,082,231
	For the three months ended January 31, 2016
(Millions of Canadian dollars)	Personal & Commercial Banking		Wealth Management (1)		Insurance		Investor & Treasury Services		Capital Markets (2)		Corporate Support (2)			Total
Net interest income (3), (4)	$	2,572	$	469	$	–	$	226	$	1,062	$	(133	)	$	4,196
Non-interest income		1,111		1,618		1,159		324		918		33			5,163
Total revenue		3,683		2,087		1,159		550		1,980		(100	)		9,359
Provision for credit losses		284		5		–		–		120		1			410
Insurance policyholder benefits, claims and acquisition expense		–		–		829		–		–		–			829
Non-interest expense		1,676		1,678		160		361		1,075		10			4,960
Net income (loss) before income taxes		1,723		404		170		189		785		(111	)		3,160
Income taxes (recoveries)		433		101		39		46		215		(121	)		713
Net income	$	1,290	$	303	$	131	$	143	$	570	$	10		$	2,447
Non-interest expense includes:
Depreciation and amortization	$	82	$	106	$	4	$	13	$	7	$	174		$	386
Restructuring provisions		–		8		–		–		–		–			8
Total assets	$	401,718	$	82,680	$	14,423	$	148,867	$	526,650	$	26,014		$	1,200,352
Total liabilities	$	401,769	$	82,702	$	14,448	$	148,824	$	526,523	$	(43,802	)	$	1,130,464

86        Royal Bank of Canada        Second Quarter 2016

Note 12    Results by business segment (continued)

	For the three months ended April 30, 2015
(Millions of Canadian dollars)	Personal & Commercial Banking		Wealth Management		Insurance		Investor & Treasury Services		Capital Markets (2)		Corporate Support (2)			Total
Net interest income (3), (4)	$	2,399	$	122	$	–	$	198	$	940	$	(102	)	$	3,557
Non-interest income		1,073		1,626		806		330		1,307		131			5,273
Total revenue		3,472		1,748		806		528		2,247		29			8,830
Provision for credit losses		235		32		–		–		15		–			282
Insurance policyholder benefits, claims and acquisition expense		–		–		493		–		–		–			493
Non-interest expense		1,618		1,340		156		312		1,280		30			4,736
Net income (loss) before income taxes		1,619		376		157		216		952		(1	)		3,319
Income taxes (recoveries)		419		105		34		57		327		(125	)		817
Net income	$	1,200	$	271	$	123	$	159	$	625	$	124		$	2,502
Non-interest expense includes:
Depreciation and amortization	$	87	$	39	$	4	$	13	$	7	$	162		$	312
Restructuring provisions		–		20		–		–		–		–			20
Total assets	$	383,278	$	28,835	$	13,753	$	119,198	$	465,304	$	21,804		$	1,032,172
Total liabilities	$	383,266	$	28,825	$	13,757	$	119,126	$	465,280	$	(36,329	)	$	973,925

	For the six months ended April 30, 2016
(Millions of Canadian dollars)	Personal & Commercial Banking		Wealth Management (1)		Insurance		Investor & Treasury Services			Capital Markets (2)		Corporate Support (2)			Total
Net interest income (3), (4)	$	5,099	$	935	$	–	$	416		$	2,055	$	(284	)	$	8,221
Non-interest income		2,218		3,332		2,510		674			1,915		15			10,664
Total revenue		7,317		4,267		2,510		1,090			3,970		(269	)		18,885
Provision for credit losses		563		12		–		–			243		52			870
Insurance policyholder benefits, claims and acquisition expense		–		–		1,817		–			–		–			1,817
Non-interest expense		3,290		3,348		317		713			2,155		24			9,847
Net income (loss) before income taxes		3,464		907		376		377			1,572		(345	)		6,351
Income taxes (recoveries)		877		218		68		95			419		(346	)		1,331
Net income	$	2,587	$	689	$	308	$	282		$	1,153	$	1		$	5,020
Non-interest expense includes:
Depreciation and amortization	$	164	$	207	$	9	$	26		$	11	$	334		$	751
Restructuring provisions		–		8		–		–			–		–			8
Total assets	$	401,491	$	80,376	$	14,773	$	147,994		$	479,780	$	25,943		$	1,150,357
Total liabilities	$	401,495	$	80,389	$	14,803	$	147,927		$	480,014	$	(42,397	)	$	1,082,231
	For the six months ended April 30, 2015
(Millions of Canadian dollars)	Personal & Commercial Banking		Wealth Management		Insurance		Investor & Treasury Services			Capital Markets (2)		Corporate Support (2)			Total
Net interest income (3), (4)	$	4,892	$	246	$	–	$	394		$	1,856	$	(200	)	$	7,188
Non-interest income		2,146		3,168		2,698		640			2,424		210			11,286
Total revenue		7,038		3,414		2,698		1,034			4,280		10			18,474
Provision for credit losses		487		45		–		(1	)		20		1			552
Insurance policyholder benefits, claims and acquisition expense		–		–		2,015		–			–		–			2,015
Non-interest expense		3,246		2,673		302		628			2,437		70			9,356
Net income (loss) before income taxes		3,305		696		381		407			1,823		(61	)		6,551
Income taxes (recoveries)		850		195		73		106			604		(235	)		1,593
Net income	$	2,455	$	501	$	308	$	301		$	1,219	$	174		$	4,958
Non-interest expense includes:
Depreciation and amortization	$	173	$	77	$	8	$	27		$	15	$	313		$	613
Restructuring provisions		–		57		–		–			–		–			57
Total assets	$	383,278	$	28,835	$	13,753	$	119,198		$	465,304	$	21,804		$	1,032,172
Total liabilities	$	383,266	$	28,825	$	13,757	$	119,126		$	465,280	$	(36,329	)	$	973,925

(1) In the first quarter of 2016, we changed the organizational structure of our Wealth Management operations resulting in a new operating segment U.S. Wealth Management (including City National) representing our legacy U.S. Wealth Management operations and City National. This new operating segment is combined with our other Wealth Management operations as a single reportable segment because they have comparable products, regulatory frameworks, processes, customers and distribution channels, and show similar economic characteristics (such as pre-tax margin).

(2) Taxable equivalent basis (Teb).

(3) Inter-segment revenue and share of profits in joint ventures and associates are not material.

(4) Interest revenue is reported net of interest expense as management relies primarily on net interest income as a performance measure.

Royal Bank of Canada        Second Quarter 2016        87

Note 13    Capital management

Regulatory capital and capital ratios

OSFI formally establishes risk-based capital and leverage targets for deposit-taking institutions in Canada. During the second quarter of 2016, we complied with all capital and leverage requirements imposed by OSFI.

	As at
(Millions of Canadian dollars, except percentages)	April 30 2016		January 31 2016		October 31 2015		April 30 2015
Capital(1)
Common Equity Tier 1 capital	$	44,717	$	45,672	$	43,715	$	39,608
Tier 1 capital		51,807		51,992		50,541		45,989
Total capital		61,312		61,752		58,004		53,932
Risk-weighted assets used in calculation of capital ratios(1), (2)
Common Equity Tier 1 capital ratio		434,797		459,929		411,756		396,874
Tier 1 capital ratio		436,063		461,286		412,941		398,014
Total capital ratio		437,148		462,449		413,957		398,992
Total capital risk-weighted assets(1)
Credit risk		352,819		372,125		323,870		306,831
Market risk		30,311		37,232		39,786		42,915
Operational risk		54,018		53,092		50,301		49,246
	$	437,148	$	462,449	$	413,957	$	398,992
Capital ratios and leverage ratios(1)
Common Equity Tier 1 capital ratio		10.3%		9.9%		10.6%		10.0%
Tier 1 capital ratio		11.9%		11.3%		12.2%		11.6%
Total capital ratio		14.0%		13.4%		14.0%		13.5%
Leverage ratio		4.2%		4.0%		4.3%		4.0%
Leverage ratio exposure (billions)	$	1,228.3	$	1,288.5	$	1,170.2	$	1,137.8

(1) Capital, risk-weighted assets and capital ratios are calculated using OSFI Capital Adequacy Requirements. Leverage ratio is calculated using OSFI Leverage Requirements.

(2) Effective the third quarter of 2014, the credit valuation adjustment to our risk-weighted asset calculation implemented in the first quarter of 2014 must reflect different percentages for each tier of capital. This change reflects a phase-in of credit valuation adjustments ending in the fourth quarter of 2018. During this phase-in period, risk-weighted assets for Common Equity Tier 1, Tier 1 and Total capital ratios will be subject to different annual credit valuation adjustment percentages.

Note 14    Subsequent events

Subsequent to April 30, 2016, Fort McMurray, Alberta was struck by severe wildfires which have caused significant damages to residences, communities and businesses of our clients. Based on a preliminary estimate of the damage, we do not expect the wildfires to have a material financial impact on us, including on our Allowance for loan losses and Insurance claims and policy benefit liabilities.

88        Royal Bank of Canada        Second Quarter 2016

Shareholder Information

Corporate headquarters Street address: Royal Bank of Canada 200 Bay Street Toronto, Ontario M5J 2J5 Canada Tel: 1-888-212-5533   Mailing address: P.O. Box 1 Royal Bank Plaza Toronto, Ontario M5J 2J5 Canada website: rbc.com   Transfer Agent and Registrar Main Agent: Computershare Trust Company of Canada 1500 Robert Bourassa Blvd. Suite 700 Montreal, Quebec H3A 3S8 Canada Tel: 1-866-586-7635 (Canada and the U.S.) or 514-982-7555 (International) Fax: 514-982-7580 website: computershare.com/rbc   Co-Transfer Agent (U.S.): Computershare Trust Company, N.A. 250 Royall Street Canton, Massachusetts 02021 U.S.A.   Co-Transfer Agent (U.K.): Computershare Investor Services PLC Securities Services – Registrars P.O. Box 82, The Pavilions, Bridgwater Road, Bristol BS99 6ZZ U.K. Stock exchange listings (Symbol: RY)   Common shares are listed on: Canada – Toronto Stock Exchange (TSX) U.S. – New York Stock Exchange (NYSE) Switzerland – Swiss Exchange (SIX)   All preferred shares are listed on the TSX with the exception of the series C-1 and C-2. The related depository shares of the series C-1 and C-2 preferred shares are listed on the NYSE.   Valuation day price For capital gains purposes, the Valuation Day (December 22, 1971) cost base for our common shares is $7.38 per share. This amount has been adjusted to reflect the two-for-one share split of March 1981 and the two-for- one share split of February 1990. The one-for-one share dividends paid in October 2000 and April 2006 did not affect the Valuation Day value for our common shares.   Shareholder contacts For dividend information, change in share registration or address, lost stock certificates, tax forms, estate transfers or dividend reinvestment, please contact: Computershare Trust Company of Canada 100 University Avenue, 8th Floor Toronto, Ontario M5J 2Y1 Canada   Tel: 1-866-586-7635 (Canada and the U.S.) or 514-982-7555 Financial analysts, portfolio managers, institutional investors For financial information inquiries, please contact: Investor Relations Royal Bank of Canada 200 Bay Street North Tower Toronto, Ontario M5J 2W7 Canada Tel: 416-955-7802   or visit our website at rbc.com/investorrelations   Direct deposit service Shareholders in Canada and the U.S. may have their RBC common share dividends deposited directly to their bank account by electronic funds transfer. To arrange for this service, please contact our Transfer Agent and Registrar, Computershare Trust Company of Canada.   Eligible dividend designation For purposes of the enhanced dividend tax credit rules contained in the Income Tax Act (Canada) and any corresponding provincial and territorial tax legislation, all dividends (and deemed dividends) paid by us to Canadian residents on our common and preferred shares after December 31, 2005, are designated as “eligible dividends”.   Unless stated otherwise, all dividends (and deemed dividends) paid by us hereafter are designated as “eligible dividends” for the purposes of such rules. 2016 Quarterly earnings release dates First quarter            February 24 Second quarter      May 26 Third quarter          August 24 Fourth quarter        November 30

(International) Fax: 1-888-453-0330 (Canada and	Dividend dates for 2016
	Subject to approval by the Board of Directors
the U.S.) or 416-263-9394 (International) email: service@computershare.com For other shareholder inquiries, please contact: Shareholder Relations Royal Bank of Canada 200 Bay Street South Tower Toronto, Ontario M5J 2J5 Canada Tel: 416-955-7806		Ex-dividend dates	Record dates	Payment dates
	Common and preferred shares series W, AA, AB, AC, AD, AE, AF, AG, AJ, AK, AL, AZ, BB, BD, BF, BH, BI, and BJ	January 22 April 21 July 22 October 24	January 26 April 25 July 26 October 26	February 24 May 24 August 24 November 24
	Preferred shares series BK	April 21 July 22 October 24	April 25 July 26 October 26	May 24 August 24 November 24
	Preferred shares series BM	July 22 October 24	July 26 October 26	August 24 November 24
	Preferred shares series C-1 (US$)	February 3 April 29 August 3 November 2	February 5 May 3 August 5 November 4	February 16 May 13 August 15 November 14
	Preferred shares series C-2 (US$)	January 27 April 27 July 27 October 26	January 29 April 29 July 29 October 28	February 8 May 9 August 8 November 7

Governance

A summary of the significant ways in which corporate governance practices followed by RBC differ from corporate governance practices required to be followed by U.S. domestic companies under the NYSE listing standards is available on our website at rbc.com/governance.

Information contained in or otherwise accessible through the websites mentioned in this report to shareholders does not form a part of this report. All references to websites are inactive textual references and are for your information only.

Trademarks used in this report include the LION & GLOBE Symbol, ROYAL BANK OF CANADA, RBC, RBC CAPITAL TRUST and RBC INSURANCE which are trademarks of Royal Bank of Canada used by Royal Bank of Canada and/or by its subsidiaries under license. All other trademarks mentioned in this report, which are not the property of Royal Bank of Canada, are owned by their respective holders.

EX-99.3

Exhibit 99.3

Industry Guide 3 – Return on Equity and Assets Ratios

	Q2 2016		Q1 2016		Six months ended April 30, 2016		For the year-ended October 2015
Return on Assets		0.90%		0.83%		0.86%		0.95%
Return on Equity		16.2%		15.3%		15.8%		18.6%
Dividend Payout Ratio		49%		50%		49%		46%
Equity to Asset Ratio		5.96%		5.83%		5.89%		5.57%

Results are from Consolidated Financial Statements.

EX-99.4

Exhibit 99.4

CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES

The tables below set forth our consolidated ratios of earnings to fixed charges, calculated in accordance with International Financial Reporting Standards (IFRS), for the six months ended April 30, 2016 and for five-year period ended October 31, 2015:

	IFRS
	Six months ended  April 30, 2016		Year ended October 31, 2015		Year ended October 31, 2014		Year ended October 31, 2013		Year ended October 31, 2012		Year ended October 31, 2011
Excluding Interest on Deposits		5.89		6.14		6.23		5.34		4.88		3.47
Including Interest on Deposits		2.59		2.53		2.43		2.28		2.12		1.84

For purposes of computing these ratios, earnings represent net income plus income taxes and fixed charges (excluding capitalized interest). Fixed charges represent (i) estimated interest within rental expense, (ii) amortization of debt issuance costs, and (iii) interest (including capitalized interest), including or excluding deposit interest as indicated.

Royal Bank of Canada and Subsidiaries – IFRS

Ratio of Earnings to Fixed Charges and Preferred Dividends

	Six months ended April  30 2016			Year ended October 31 2015			Year ended October 31 2014			Year ended October 31 2013			Year ended October 31 2012			Year ended October 31 2011
(Canadian dollars in millions)
Excluding Interest on Deposits
Net Income before income taxes	$	6,351		$	12,623		$	11,710		$	10,447		$	9,513		$	8,191
Less: Income/(loss) from equity investees (Note 1)	$	(78	)		(146	)		(162	)		(139	)		6			9		Note 1
Fixed Charges:
Interest expense (excl. Deposits)	$	1,175		$	2,235		$	2,030		$	2,205		$	2,298		$	3,164
Estimated interest within rental expense		109			193			177			169			155			156
Total fixed charges		1,284			2,428			2,207			2,374			2,453			3,320
Preferred dividend requirements (note 2)		170			240			277			317			328			326		Note 2
Fixed charges and preferred dividends		1,454			2,668			2,484			2,691			2,781			3,645
Earnings		7,557			14,905			13,755			12,682			11,972			11,520
Ratio of earnings to fixed charges		5.89			6.14			6.23			5.34			4.88			3.47
Ratio of earnings to fixed charges and preferred dividends		5.20			5.59			5.54			4.71			4.31			3.16
Including Interest on Deposits
Net Income before income taxes	$	6,351		$	12,623		$	11,710		$	10,447		$	9,513		$	8,191
Less: Income/(loss) from equity investees (Note 1)		(78	)		(146	)		(162	)		(139	)		6			9		Note 1
Fixed Charges:
Interest expense (incl. Deposits)	$	3,836		$	7,958		$	7,903		$	7,899		$	8,379		$	9,626
Estimated interest within rental expense		109			193			177			169			155			156
Total fixed charges		3,945			8,151			8,080			8,068			8,534			9,782
Preferred dividend requirements (note 2)		170			240			277			317			328			328		Note 2
Fixed charges and preferred dividends		4,115			8,391			8,357			8,385			8,862			10,110
Earnings		10,218			20,628			19,628			18,376			18,053			17,982
Ratio of earnings to fixed charges		2.59			2.53			2.43			2.28			2.12			1.84
Ratio of earnings to fixed charges and preferred dividends		2.48			2.46			2.35			2.19			2.04			1.78
Note (1)	Six months ended April  30 2016			2015			2014			2013			2012			2011
Equity in Undistributed Earnings of Unconsolidated Subsidiaries Calculation (C $’000s):
Associated Corporations
(equity accounted investments – IFRS)		88			149			162			159			162			(8,890	)
Impairment of investments in JV and associates		(10	)		(3	)					(20	)		(168	)
JV
(proportionate consolidation Cdn. GAAP)
		78			146			162			139			(6	)		(8,890	)
Note: Losses are presented with a negative sign in this calculation.
Note (2)
Preferred Dividend Requirements Calculation (C $ millions):
Preferred Dividends (per Income Statement)		134			191			213			253			258			258
Taxable Equivalent Gross-up
(1-Effective Tax Rate for period)		79.0	%		79.4	%		76.9	%		79.9	%		78.9	%		78.7	%
Preferred Dividend Requirement		170			240			277			317			327			328
Effective Tax Rate		21.0	%		20.6	%		23.1	%		20.1	%		21.1	%		21.3	%

EX-31.1

Exhibit 31.1

SOX 302 Certification

I, David I. McKay, certify that:

1. I have reviewed this quarterly report for the period ended April 30, 2016 (the “report”) of Royal Bank of Canada (the “registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 26, 2016

/s/ David I. McKay

Name: David I. McKay

Title: President and Chief Executive Officer

EX-31.2

Exhibit 31.2

SOX 302 Certification

I, Janice R. Fukakusa, certify that:

1. I have reviewed this quarterly report for the period ended April 30, 2016 (the “report”) of Royal Bank of Canada (the “registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 26, 2016
/s/ Janice R. Fukakusa
Name:	Janice R. Fukakusa
Title:	Chief Administrative Officer and Chief Financial Officer