Exhibit 99.2

Royal Bank of Canada third quarter 2019 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.

Net Income $3.3 Billion Diversified earnings growth Diluted EPS⁽¹⁾ $2.22 Solid 6% growth YoY   ROE⁽²⁾ 16.7% Balanced capital deployment   CET1 Ratio 11.9% Strong capital ratio

TORONTO, August 21, 2019 — Royal Bank of Canada (RY on TSX and NYSE) today reported net income of $3,263 million for the quarter ended July 31, 2019, up $154 million or 5% from the prior year, with solid diluted EPS growth of 6%. Results reflected strong earnings growth in Personal & Commercial Banking, Wealth Management and Insurance. These were partially offset by lower earnings in Capital Markets and Investor & Treasury Services amidst challenging market conditions.

Compared to last quarter, net income was up $33 million with higher earnings in Personal & Commercial Banking, Wealth Management and Insurance, largely offset by lower earnings in Capital Markets and Investor & Treasury Services.

Provisions for credit losses (PCL) on impaired loans ratio of 25 basis points (bps) was up 8 bps from a year ago (down 4 bps compared to last quarter), largely due to higher provisions in Capital Markets compared to recoveries in the prior year. Higher provisions in Personal & Commercial Banking also contributed to the increase. Our capital position remained strong with a Common Equity Tier 1 (CET1) ratio of 11.9%, up 10 bps from last quarter. In addition, today we announced an increase to our quarterly dividend of $0.03 or 3% to $1.05 per share.

“Our focused strategy and diversified business mix continue to deliver strong returns for our shareholders as we leverage our scale and investments in technology to create new value streams for our clients. This commitment is underpinned by the strength of our balance sheet, disciplined risk and expense management, and the power of imagination and insight our people deliver every day. RBC is well-positioned to further grow our market share and navigate the evolving market environment.”

– Dave McKay, RBC President and Chief Executive Officer    

Q3 2019 Compared to Q3 2018	•  Net income of $ 3,263 million •  Diluted EPS(1) of $2.22 •  ROE(2) of 16.7% •  CET1 ratio of 11.9%	h  5% h  6% ¯  60 bps h  80 bps
Q3 2019 Compared to Q2 2019	•  Net income of $3,263 million •  Diluted EPS(1) of $2.22 •  ROE(2) of 16.7% •  CET1 ratio of 11.9%	h  1% h  1% ¯  80 bps h  10 bps
YTD 2019 Compared to YTD 2018	•  Net income of $9,665 million •  Diluted EPS(1) of $6.57 •  ROE(2) of 17.0%	h  5% h  7% ¯  60 bps

(1) Earnings per share (EPS).

(2) Return on Equity (ROE). 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 Q3 2019 Report to Shareholders.

Table of contents

1 Third 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

5 Financial performance

5 Overview

9 Business segment results

9 How we measure and report our business segments

9 Key performance and non-GAAP measures

13 Personal & Commercial Banking

14 Wealth Management

15 Insurance

16 Investor & Treasury Services

17 Capital Markets

18 Corporate Support

19 Quarterly results and trend analysis

21 Financial condition

21 Condensed balance sheets

21 Off-balance sheet arrangements

22 Risk management

22 Credit risk

29 Market risk

34 Liquidity and funding risk

42 Capital management

46 Capital, liquidity, and other regulatory developments

46 Accounting and control matters

46 Summary of accounting policies and estimates

46 Change in accounting policies and disclosures

47 Controls and procedures

47 Related party transactions

48 Enhanced Disclosure Task Force recommendations index

49 Interim Condensed Consolidated Financial Statements (unaudited)

55 Notes to the Interim Condensed Consolidated Financial Statements (unaudited)

79 Shareholder Information

2        Royal Bank of Canada        Third Quarter 2019

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 nine month periods ended or as at July 31, 2019, compared to the corresponding periods in the prior fiscal year and the three month period ended April 30, 2019. This MD&A should be read in conjunction with our unaudited Interim Condensed Consolidated Financial Statements for the quarter ended July 31, 2019 (Condensed Financial Statements) and related notes and our 2018 Annual Report. This MD&A is dated August 20, 2019. All amounts are in Canadian dollars, unless otherwise specified, and are based on financial statements prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB), unless otherwise noted.

Additional information about us, including our 2018 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.

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.

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 Q3 2019 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, market, and regulatory review and outlook for Canadian, U.S., European and global economies, the regulatory environment in which we operate, and the risk environment including our liquidity and funding risk, and includes our President and Chief Executive Officer’s statements. 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 sections of our 2018 Annual Report and the Risk management section of this Q3 2019 Report to Shareholders; including global uncertainty, Canadian housing and household indebtedness, information technology and cyber risk, regulatory changes, digital disruption and innovation, data and third party related risks, climate change, the business and economic conditions in the geographic regions in which we operate, the effects of changes in government fiscal, monetary and other policies, tax risk and transparency, and environmental and social 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 Q3 2019 Report to Shareholders are set out in the Economic, market and regulatory review and outlook section and for each business segment under the Strategic priorities and Outlook headings in our 2018 Annual Report, as updated by the Economic, market and regulatory review and outlook section of this Q3 2019 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 sections of our 2018 Annual Report and the Risk management section of this Q3 2019 Report to Shareholders.

Overview and outlook

About Royal Bank of Canada

Royal Bank of Canada is a global financial institution with a purpose-driven, principles-led approach to delivering leading performance. Our success comes from the 86,000+ employees who bring our vision, values and strategy to life so we can help our clients thrive and communities prosper. As Canada’s biggest bank, and one of the largest in the world based on market capitalization, we have a diversified business model with a focus on innovation and providing exceptional experiences to more than 16 million clients in Canada, the U.S. and 34 other countries. Learn more at rbc.com.

Royal Bank of Canada        Third Quarter 2019        3

Selected financial and other highlights

	As at or for the three months ended							As at or for the nine months ended
(Millions of Canadian dollars, except per share, number of and percentage amounts)	July 31 2019			April 30 2019		July 31 2018		July 31 2019		July 31 2018
Total revenue	$	11,544		$	11,499	$	11,025	$	34,632	$	31,907
Provision for credit losses (PCL)		425			426		346		1,365		954
Insurance policyholder benefits, claims and acquisition expense (PBCAE)		1,046			1,160		925		3,431		2,182
Non-interest expense		5,992			5,916		5,858		17,820		16,951
Income before income taxes		4,081			3,997		3,896		12,016		11,820
Net income	$	3,263		$	3,230	$	3,109	$	9,665	$	9,181
Segments – net income (loss)
Personal & Commercial Banking	$	1,664		$	1,549	$	1,510	$	4,784	$	4,490
Wealth Management		639			585		578		1,821		1,712
Insurance		204			154		158		524		457
Investor & Treasury Services		118			151		155		430		586
Capital Markets		653			776		698		2,082		2,111
Corporate Support		(15	)		15		10		24		(175	)
Net income	$	3,263		$	3,230	$	3,109	$	9,665	$	9,181
Selected information
Earnings per share (EPS) – basic	$	2.23		$	2.20	$	2.10	$	6.59	$	6.19
– diluted		2.22			2.20		2.10		6.57		6.16
Return on common equity (ROE) (1) (2)		16.7%			17.5%		17.3%		17.0%		17.6%
Average common equity (1)	$	75,800		$	74,000	$	69,650	$	74,450	$	68,000
Net interest margin (NIM) – on average earning assets (1)		1.62%			1.64%		1.66%		1.62%		1.66%
PCL on loans as a % of average net loans and acceptances		0.27%			0.29%		0.23%		0.30%		0.23%
PCL on performing loans as a % of average net loans and acceptances		0.02%			–%		0.06%		0.03%		0.02%
PCL on impaired loans as a % of average net loans and acceptances		0.25%			0.29%		0.17%		0.27%		0.21%
Gross impaired loans (GIL) as a % of loans and acceptances		0.47%			0.49%		0.40%		0.47%		0.40%
Liquidity coverage ratio (LCR) (3)		122%			127%		120%		122%		120%
Capital ratios and Leverage ratio
Common Equity Tier 1 (CET1) ratio		11.9%			11.8%		11.1%		11.9%		11.1%
Tier 1 capital ratio		13.0%			12.9%		12.3%		13.0%		12.3%
Total capital ratio		15.0%			14.8%		14.1%		15.0%		14.1%
Leverage ratio		4.4%			4.3%		4.3%		4.4%		4.3%
Selected balance sheet and other information (4)
Total assets	$	1,406,893		$	1,378,876	$	1,292,374	$	1,406,893	$	1,292,374
Securities, net of applicable allowance		240,661			240,991		217,132		240,661		217,132
Loans, net of allowance for loan losses		612,393			602,392		563,097		612,393		563,097
Derivative related assets		98,774			84,812		88,503		98,774		88,503
Deposits		881,211			864,101		832,261		881,211		832,261
Common equity		76,574			76,139		71,475		76,574		71,475
Total capital risk-weighted assets		510,664			510,463		498,896		510,664		498,896
Assets under management (AUM)		744,800			733,100		686,600		744,800		686,600
Assets under administration (AUA) (5)		5,588,600			5,655,600		5,486,200		5,588,600		5,486,200
Common share information
Shares outstanding (000s) – average basic		1,434,276			1,435,091		1,440,477		1,435,485		1,445,136
– average diluted		1,440,130			1,441,163		1,446,956		1,441,499		1,451,823
– end of period (6)		1,433,954			1,434,879		1,440,008		1,433,954		1,440,008
Dividends declared per common share	$	1.02		$	1.02	$	0.94	$	3.02	$	2.79
Dividend yield (7)		3.9%			3.9%		3.8%		4.1%		3.6%
Common share price (RY on TSX) (8)	$	104.22		$	106.77	$	101.55	$	104.22	$	101.55
Market capitalization (TSX) (8)		149,447			153,202		146,350		149,447		146,350
Business information (number of)
Employees (full-time equivalent) (FTE)		84,087			82,197		82,236		84,087		82,236
Bank branches		1,328			1,335		1,338		1,328		1,338
Automated teller machines (ATMs)		4,586			4,569		4,792		4,586		4,792
Period average US$ equivalent of C$1.00 (9)	$	0.754		$	0.751	$	0.767	$	0.751	$	0.780
Period-end US$ equivalent of C$1.00	$	0.757		$	0.746	$	0.769	$	0.757	$	0.769

(1) Average amounts are calculated using methods intended to approximate the average of the daily balances for the period. This includes Average common equity used in the calculation of ROE. 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) LCR is the average for the three months ended for each respective period and is calculated in accordance with Office of the Superintendent of Financial Institutions’ (OSFI) Liquidity Adequacy Requirements (LAR) guideline. For further details, refer to the Liquidity and funding risk section.

(4) Represents period-end spot balances.

(5) AUA includes $15.7 billion and $8.3 billion (April 30, 2019 – $16.2 billion and $8.3 billion; July 31, 2018 – $16.8 billion and $9.8 billion) of securitized residential mortgages and credit card loans, respectively.

(6) Effective Q4 2018, Common shares outstanding includes the impact of treasury shares. Comparative amounts have been adjusted to conform with this presentation.

(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.

4        Royal Bank of Canada        Third Quarter 2019

Economic, market and regulatory review and outlook – data as at August 20, 2019

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.

Economic and market review and outlook

Canada

The Canadian economy is expected to have grown by 3.0%¹ in the second calendar quarter of 2019, a substantial improvement on the previous calendar quarter’s 0.4%¹ increase. Stronger growth in the second calendar quarter partly reflects a rebound in the energy sector, which weighed on the economy in each of the prior three calendar quarters. The industry has been supported by easing production limits in Alberta and higher oil prices domestically and globally relative to late last calendar year. However, concerns about trade tensions and global growth have put downward pressure on oil prices more recently. Outside of the energy sector, growth has picked up with labour markets continuing to improve and housing markets stabilizing in most provinces. The Bank of Canada has left its overnight rate unchanged at 1.75% since October 2018. The central bank maintained a neutral policy bias in July but raised concerns about global developments.

U.S.

U.S. GDP growth moderated to 2.1%¹ in the second calendar quarter of 2019 from 3.1%¹ in the previous calendar quarter. However, the composition of growth was stronger with domestic spending rising at a faster rate. Household spending growth was particularly strong, helping dispel concerns about the health of U.S. consumers following two calendar quarters of slower growth. Government spending also increased, reversing earlier weakness related to the partial federal government shutdown around the turn of the calendar year. However, business investment declined for the first time since 2016. U.S. employment growth has slowed in calendar 2019 relative to the previous calendar year, particularly in some trade-sensitive sectors. Notwithstanding, the pace of job growth has remained strong enough to put modest downward pressure on the unemployment rate, which averaged 3.6% in the second calendar quarter of 2019. Concerns about rising trade tensions and slowing global growth and business investment, as well as below-target inflation, prompted the Federal Reserve (Fed) to lower its benchmark interest rate by 25 basis points to a range of 2.00-2.25% in July. The rate cut was framed as a “mid-cycle” policy adjustment and not the start of a longer-term easing cycle.

Europe

Euro area GDP growth slowed to 0.2% in the second calendar quarter of 2019 from 0.4% in the previous calendar quarter. A slowdown in the manufacturing sector continues to weigh on growth, though service industries have continued to grow and unemployment continued to decline. Inflation remains well below the European Central Bank (ECB)’s target and inflation expectations have declined. Concerns about the inflation and growth outlook prompted the ECB to introduce an easing bias in its forward guidance, with the potential to lower interest rates further and restart asset purchases. The United Kingdom (U.K.) GDP declined by 0.2% in the second calendar quarter of 2019. Ongoing uncertainty over Brexit continues to weigh on business sentiment, and rising odds of a no-deal Brexit pushed the Sterling to its lowest level in more than two years.

Financial markets

Government bond yields have continued to decline amid low inflation and expectations of easing monetary policy from a number of central banks. The latter supported equity markets despite growing concerns about global growth and uncertainty regarding trade policy. Oil prices have been under downward pressure due to trade tensions and global growth concerns. Yield curves have flattened further or inverted, signaling greater investor concern about the risk of an economic downturn.

Regulatory environment

We continue to monitor and prepare for regulatory developments and changes 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 laws or regulations and the expectations of those who enforce them. A high level summary of the key regulatory changes that have the potential to increase our costs, impact our profitability, and increase the complexity of our operations is included in the Legal and regulatory environment risk section of our 2018 Annual Report, as updated below.

Global Uncertainty

Trade policy remains a risk to the global economic outlook, including Brexit negotiations, and Canadian and U.S. trade tensions with China. In July 2019, the International Monetary Fund further lowered its 2019 and 2020 global growth projections, due to continued geopolitical uncertainty, weaker than anticipated global trade activity and softening inflation. The outcome and resulting impact of the Brexit negotiations, including the rising odds of a no-deal Brexit, remains uncertain. The Canadian economy is vulnerable to continued trade tensions given Canada’s trading relationships with the U.S. and China. Tensions also remain elevated between China and the U.S. as they continue to negotiate a trade deal. In August 2019, the U.S. announced a 10% tariff on US$300 billion of Chinese goods not previously subject to tariffs, some of which will not be effective until December 2019.

Climate Change

Climate change regulations, frameworks, and guidance that apply to banks, insurers and asset managers are rapidly evolving. The Bank of Canada and European Central Bank Financial System Reviews were published in May 2019 and address the

1 Annualized rate

Royal Bank of Canada        Third Quarter 2019        5

financial and economic risks of climate change. While no specific requirements have been released, we will continue to monitor developments and any resulting implications for us.

Canadian Anti-Money Laundering (AML) Regulations

In July 2019, amendments to Canada’s Proceeds of Crime (Money Laundering) and Terrorist Financing Act regulations were released and will be effective by June 2021. These amendments aim to improve the effectiveness of Canada’s anti-money laundering and counter-terrorism financing regime, and to improve compliance with international standards. New regulations, which represent increased oversight and regulatory monitoring, will require substantial changes to our client-facing systems, transaction and payment processing systems, and records management systems mainly due to the need for the capture of additional client data.

United States Regulatory Initiatives

Policymakers continue to evaluate and implement reforms to various U.S. financial regulations, which could result in either expansion or reduction to the U.S. regulatory requirements and associated changes in compliance costs. A regulation that establishes new standards of conduct for retail brokers and investment advisors will be effective June 2020. On August 20, 2019, the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC) approved a final rule to make changes to the Volcker Rule’s requirements regarding proprietary trading and compliance requirements. We expect the other financial regulatory agencies responsible for implementing the Volcker Rule to approve and publish their final rules within the next several weeks. We will continue to monitor developments and any resulting implications for us.

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 environment risk sections of our 2018 Annual Report and the Capital, liquidity and other regulatory developments section of our Q1 2019, Q2 2019 and of this Q3 2019 Report to Shareholders. For further details on our framework and activities to manage risks, refer to the risk and Capital management sections of our 2018 Annual Report and the Risk management and Capital management sections of this Q3 2019 Report to Shareholders.

Financial performance

Overview

Q3 2019 vs. Q3 2018

Net income of $3,263 million was up $154 million or 5% from a year ago. Diluted earnings per share (EPS) of $2.22 was up $0.12 or 6% and return on common equity (ROE) of 16.7% was down 60 bps from 17.3% last year. Our Common Equity Tier 1 (CET1) ratio of 11.9% was up 80 bps from a year ago.

Our results were driven by strong earnings growth in Personal & Commercial Banking, Wealth Management, and Insurance partially offset by lower results in Capital Markets and Investor & Treasury Services.

Personal & Commercial Banking earnings increased mainly due to average volume growth of 7% and higher spreads in Canadian Banking. These factors were partially offset by an increase in staff related costs as well as technology and related costs.

Wealth Management results were up mainly attributable to higher average fee-based client assets and an increase in net interest income. These factors were partially offset by higher costs in support of business growth, and higher variable compensation commensurate with revenue growth.

Insurance results increased primarily reflecting higher favourable investment-related experience and the impact of new longevity reinsurance contracts. These factors were partially offset by higher disability and life retrocession claims costs and favourable reinsurance contract renegotiations in the prior year.

Capital Markets results were down primarily due to lower revenue in Corporate and Investment Banking and Global Markets, and higher PCL. These factors were partially offset by a lower effective tax rate largely reflecting changes in earnings mix and lower compensation on decreased results.

Investor & Treasury Services earnings decreased primarily due to lower client deposit margins, lower revenue from our asset services business, and lower funding and liquidity revenue.

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

Q3 2019 vs. Q2 2019

Net income of $3,263 million was up $33 million or 1% from the prior quarter. Diluted EPS of $2.22 was up $0.02 or 1% and ROE of 16.7% was down 80 bps. Our CET1 ratio of 11.9% was up 10 bps.

Our results reflected strong earnings growth in Personal & Commercial Banking, Wealth Management, and Insurance largely offset by lower results in Capital Markets and Investor & Treasury Services.

Personal & Commercial Banking results were higher reflecting average volume growth of 2% in Canadian Banking, three more days in the quarter and lower PCL. An increase in service charges and higher balances driving higher mutual fund distribution fees also contributed to the increase. These factors were partially offset by higher staff related costs.

Wealth Management earnings increased primarily reflecting higher average fee-based client assets driven by net sales and market appreciation, and an increase in net interest income mainly due to average volume growth and three more days in the quarter. These factors were partially offset by higher variable compensation commensurate with revenue growth, and the net change in the fair value of our U.S. share-based compensation plans.

6        Royal Bank of Canada        Third Quarter 2019

Insurance results were up mainly due to higher favourable investment-related experience and the impact of new longevity reinsurance contracts. These factors were partially offset by favourable reinsurance contract renegotiations in the prior quarter.

Capital Markets earnings were down mainly due to lower fixed income trading largely in the U.S., lower debt origination primarily in Europe and the U.S., and higher PCL mainly on performing loans. Lower equity trading in North America also contributed to the decrease. These factors were partially offset by lower compensation on decreased results.

Investor & Treasury Services results decreased primarily due to lower client deposit margins, higher costs in support of efficiency initiatives as well as technology and related costs, and lower funding and liquidity revenue.

Q3 2019 vs. Q3 2018 (Nine months ended)

Net income of $9,665 million increased $484 million or 5% from a year ago. Nine month diluted EPS of $6.57 was up $0.41 or 7% and ROE of 17.0% was down 60 bps.

Our results reflected higher earnings in Personal & Commercial Banking, Wealth Management, and Insurance partially offset by lower results in Investor & Treasury Services and Capital Markets. Our results also reflected an increase due to foreign exchange translation and the impact in the prior year of the U.S. Tax Reform which resulted in the write-down of net deferred tax assets.

Personal & Commercial Banking earnings increased due to average volume growth of 7% and higher spreads. These factors were partially offset by an increase in PCL, and higher staff related costs.

Wealth Management results were higher primarily reflecting an increase in net interest income, and higher average fee-based client assets. These factors were partially offset by increased costs in support of business growth, higher variable compensation commensurate with revenue growth, and higher PCL.

Insurance earnings were up mainly due to higher favourable reinsurance contract renegotiations.

Investor & Treasury Services results were down largely due to lower funding and liquidity revenue, lower revenue from our asset services business and higher costs in support of efficiency and technology initiatives.

Capital Markets results decreased driven by lower revenue in Corporate and Investment Banking and higher PCL. These factors were partially offset by a lower effective tax rate largely reflecting changes in earnings mix, the impact of foreign exchange translation, and lower compensation on decreased results.

Corporate Support net income was $24 million, largely due to asset/liability management activities, partially offset by net unfavourable tax adjustments. Net loss was $175 million in the prior year, largely due to the impact of the U.S. Tax Reform of $178 million as noted above, partially offset by asset/liability management activities.

Impact of foreign currency translation

	For the three months ended						For the nine months ended
(Millions of Canadian dollars, except per share amounts)	Q3 2019 vs. Q3 2018			Q3 2019 vs. Q2 2019			Q3 2019 vs. Q3 2018
Increase (decrease):
Total revenue	$	30		$	(40	)	$	307
PCL		(3	)		(4	)		6
Non-interest expense		12			(33	)		186
Income taxes		3			–			12
Net income		18			(3	)		103
Impact on EPS
Basic	$	0.01		$	–		$	0.07
Diluted		0.01			–			0.07

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

(Average foreign currency equivalent of C$1.00) (1)	For the three months ended						For the nine months ended
	July 31 2019		April 30 2019		July 31 2018		July 31 2019		July 31 2018
U.S. dollar		0.754		0.751		0.767		0.751		0.780
British pound		0.603		0.573		0.581		0.586		0.573
Euro		0.673		0.667		0.656		0.665		0.650

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

Royal Bank of Canada        Third Quarter 2019        7

Total revenue

(Millions of Canadian dollars)	For the three months ended							For the nine months ended
	July 31 2019		April 30 2019		July 31 2018			July 31 2019		July 31 2018
Interest and dividend income	$	10,610	$	10,132	$	8,626		$	30,891	$	24,031
Interest expense		5,562		5,295		4,030			16,122		10,569
Net interest income	$	5,048	$	4,837	$	4,596		$	14,769	$	13,462
NIM		1.62%		1.64%		1.66%			1.62%		1.66%
Insurance premiums, investment and fee income	$	1,463	$	1,515	$	1,290		$	4,557	$	3,240
Trading revenue		140		250		234			748		788
Investment management and custodial fees		1,440		1,381		1,347			4,271		3,990
Mutual fund revenue		924		899		908			2,696		2,655
Securities brokerage commissions		324		316		334			982		1,023
Service charges		480		466		458			1,414		1,341
Underwriting and other advisory fees		488		554		541			1,387		1,539
Foreign exchange revenue, other than trading		252		243		273			744		831
Card service revenue		272		266		266			820		790
Credit fees		322		288		378			925		1,023
Net gains on investment securities		26		37		26			109		114
Share of profit in joint ventures and associates		21		14		(26	)		50		13
Other		344		433		400			1,160		1,098
Non-interest income	$	6,496	$	6,662	$	6,429		$	19,863	$	18,445
Total revenue	$	11,544	$	11,499	$	11,025		$	34,632	$	31,907
Additional information
Total trading revenue
Net interest income	$	573	$	619	$	577		$	1,793	$	1,651
Non-interest income		140		250		234			748		788
Total trading revenue	$	713	$	869	$	811		$	2,541	$	2,439

Q3 2019 vs. Q3 2018

Total revenue increased $519 million or 5% from last year, mainly due to higher net interest income and an increase in insurance premiums, investment and fee income (Insurance revenue). The impact of foreign exchange translation also increased total revenue by $30 million. These factors were partially offset by lower trading revenue.

Net interest income increased $452 million or 10%, largely due to volume growth in Canadian Banking and Wealth Management. Improved spreads in Canadian Banking and higher lending revenue in Capital Markets also contributed to the increase.

NIM was down 4 bps compared to last year, mainly due to changes in average earning asset mix with volume growth primarily in reverse repos. These factors were partially offset by higher interest rates resulting in improved spreads in Canadian Banking and Wealth Management.

Insurance revenue increased $173 million or 13%, primarily due to the change in fair value of instruments backing our policyholder liabilities, partially offset by lower group annuity sales, both of which are largely offset in PCBAE.

Trading revenue decreased $94 million or 40%, mainly due to lower equity trading revenue primarily in North America.

Q3 2019 vs. Q2 2019

Total revenue increased $45 million from the prior quarter, mainly due to higher net interest income, largely offset by lower trading revenue. The impact of foreign exchange translation decreased total revenue by $40 million.

Net interest income increased $211 million or 4%, driven by volume growth and three more days in the quarter in Canadian Banking and Wealth Management. These factors were partially offset by lower trading revenue in Capital Markets.

Trading revenue decreased $110 million or 44%, mainly due to lower equity trading revenue primarily in North America and lower foreign exchange trading revenue largely in Europe.

Q3 2019 vs. Q3 2018 (Nine months ended)

Total revenue increased $2,725 million or 9% from the prior year, mainly due to higher Insurance revenue, net interest income and investment management and custodial fees. The impact of foreign exchange translation also increased total revenue by $307 million. These factors were partially offset by lower underwriting and advisory fees.

Net interest income increased $1,307 million or 10%, largely due to volume growth and higher spreads in Personal and Commercial Banking and Wealth Management. Higher trading revenue and lending revenue in Capital Markets also contributed to the increase. Net interest income was also impacted by lower funding and liquidity revenue, which was largely offset by the related gains on non-trading derivatives in Other revenue.

Insurance revenue increased $1,317 million or 41%, mainly reflecting the change in fair value of instruments backing our policyholder liabilities and business growth including higher group annuity sales, both of which were largely offset in PBCAE.

Investment management and custodial fees increased $281 million or 7%, driven by higher average fee-based clients reflecting market appreciation and net sales in Wealth Management.

Underwriting and other advisory fees decreased $152 million or 10%, due to lower equity and debt origination primarily in North America.

8        Royal Bank of Canada        Third Quarter 2019

Provision for credit losses

Q3 2019 vs. Q3 2018

Total PCL in Q3 2019 of $425 million increased $79 million or 23%.

PCL on loans of $429 million increased $91 million, or 27% from the prior year, due to higher provisions in Capital Markets, Wealth Management and Personal & Commercial Banking. The PCL ratio on loans of 27 bps increased 4 bps.

Q3 2019 vs. Q2 2019

Total PCL decreased $1 million from the prior quarter.

PCL on loans of $429 million decreased $12 million, or 3% from the prior quarter, mainly due to lower provisions in Personal & Commercial Banking, partially offset by higher provisions in Capital Markets. The PCL ratio on loans improved 2 bps.

Q3 2019 vs. Q3 2018 (Nine months ended)

Total PCL increased $411 million or 43% from the prior year.

PCL on loans of $1,386 million increased $436 million, or 46% from the prior year, due to higher provisions in Capital Markets, Personal & Commercial Banking and Wealth Management. The PCL ratio on loans of 30 bps increased 7 bps.

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

Insurance policyholder benefits, claims and acquisition expense (PBCAE)

Q3 2019 vs. Q3 2018

PBCAE increased $121 million or 13% from a year ago, mainly reflecting the change in fair value of investments backing our policyholder liabilities, which is largely offset in revenue, higher disability and life retrocession claims costs, and favourable reinsurance contract renegotiations in the prior year. These factors were partially offset by lower group annuity sales, which is largely offset in revenue, higher favourable investment-related experience, and the impact of new longevity reinsurance contracts.

Q3 2019 vs. Q2 2019

PBCAE decreased $114 million or 10% from the prior quarter, primarily reflecting lower group annuity sales, which is largely offset in revenue and higher favourable investment-related experience. These factors were partially offset by favourable reinsurance contract renegotiations in the prior quarter.

Q3 2019 vs. Q3 2018 (Nine months ended)

PBCAE increased $1,249 million or 57% from the prior year, mainly reflecting the change in fair value of investments backing our policyholder liabilities, and business growth, including group annuity sales, both of which are largely offset in revenue. These factors were partially offset by higher favourable reinsurance contract renegotiations.

Non-interest expense

	For the three months ended						For the nine months ended
(Millions of Canadian dollars, except percentage amounts)	July 31 2019		April 30 2019		July 31 2018		July 31 2019		July 31 2018
Salaries	$	1,647	$	1,607	$	1,554	$	4,862	$	4,502
Variable compensation		1,413		1,430		1,442		4,231		4,164
Benefits and retention compensation		468		471		432		1,431		1,377
Share-based compensation		87		114		93		356		304
Human resources	$	3,615	$	3,622	$	3,521	$	10,880	$	10,347
Equipment		449		445		416		1,325		1,174
Occupancy		409		405		393		1,211		1,158
Communications		281		273		260		794		733
Professional fees		328		290		359		923		961
Amortization of other intangibles		299		299		271		888		798
Other		611		582		638		1,799		1,780
Non-interest expense	$	5,992	$	5,916	$	5,858	$	17,820	$	16,951
Efficiency ratio (1)		51.9%		51.4%		53.1%		51.5%		53.1%
Efficiency ratio adjusted (2)		53.7%		53.2%		53.4%		53.0%		53.0%

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

(2) Measures have been adjusted by excluding the change in fair value of investments backing our policyholder liabilities. These are non-GAAP measures. For further details, refer to the Key performance and non-GAAP measures section.

Q3 2019 vs. Q3 2018

Non-interest expense increased $134 million or 2% from the prior year, largely due to increased costs in support of business growth and higher staff-related costs, as well as an increase in technology and related costs, including digital initiatives.

Our efficiency ratio of 51.9% decreased 120 bps from 53.1% last year. Excluding the change in fair value of investments backing our policyholder liabilities, our efficiency ratio of 53.7% increased 30 bps from 53.4% last year.

Q3 2019 vs. Q2 2019

Non-interest expense increased $76 million or 1% from the prior quarter, primarily due to higher technology and related costs, staff-related costs, and professional fees. These factors were partially offset by the change in the fair value of our U.S. share-based compensation plans, which was largely offset in Other revenue, and the impact of foreign exchange translation.

Royal Bank of Canada        Third Quarter 2019        9

Our efficiency ratio of 51.9% increased 50 bps from 51.4% last quarter. Excluding the change in fair value of investments backing our policyholder liabilities, our efficiency ratio of 53.7% increased 50 bps from 53.2% last quarter.

Q3 2019 vs. Q3 2018 (Nine months ended)

Non-interest expense increased $869 million or 5% from the prior year, primarily attributable to increased costs in support of business growth and higher staff-related costs, the impact of foreign exchange translation and an increase in technology and related costs, including digital initiatives. Marketing costs and higher variable compensation commensurate with revenue growth also contributed to the increase.

Our efficiency ratio of 51.5% decreased 160 bps from 53.1%. Excluding the change in fair value of investments backing our policyholder liabilities, our efficiency ratio of 53.0% remained unchanged from last year.

Efficiency ratio excluding the change in fair value of investments backing our policyholder liabilities is a non-GAAP measure. For further details, including a reconciliation, refer to the Key performance and non-GAAP measures section.

Income taxes

	For the three months ended						For the nine months ended
(Millions of Canadian dollars, except percentage amounts)	July 31 2019		April 30 2019		July 31 2018		July 31 2019		July 31 2018
Income taxes	$	818	$	767	$	787	$	2,351	$	2,639
Income before income taxes	$	4,081	$	3,997	$	3,896	$	12,016	$	11,820
Effective income tax rate		20.0%		19.2%		20.2%		19.6%		22.3%

Q3 2019 vs. Q3 2018

Income tax expense increased $31 million or 4% from last year, primarily due to higher income before income taxes and lower favourable tax adjustments in the current year, partially offset by higher income from lower tax rate jurisdictions.

The effective income tax rate of 20.0% decreased 20 bps, mainly due to an increase in income from lower tax rate jurisdictions, partially offset by lower favourable tax adjustments in the current year.

Q3 2019 vs. Q2 2019

Income tax expense increased $51 million or 7% from last quarter, primarily due to higher favourable tax adjustments in the prior quarter and higher income before income taxes.

The effective income tax rate of 20.0% increased 80 bps, mainly due to higher favourable tax adjustments in the prior quarter.

Q3 2019 vs. Q3 2018 (Nine months ended)

Income tax expense decreased $288 million or 11% from last year, primarily due to the impact of the U.S. Tax Reform which resulted in the write-down of net deferred tax assets in the prior year, an increase in income from lower tax rate jurisdictions and higher favourable tax adjustments in the current year. These factors were partially offset by higher income before income taxes.

The effective income tax rate of 19.6% decreased 270 bps, primarily due to the impact of the U.S. Tax Reform which resulted in the write-down of net deferred tax assets in the prior year, an increase in income from lower tax rate jurisdictions and higher favourable tax adjustments 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. They remain unchanged from October 31, 2018.

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 2018 Annual Report.

Key performance and non-GAAP measures

Performance measures

Return on common equity

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. ROE does not have a standardized meaning under 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 of our 2018 Annual Report.

10        Royal Bank of Canada        Third Quarter 2019

The following table provides a summary of our ROE calculations:

	For the three months ended
	July 31 2019															April 30 2019		July 31 2018
(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	$	1,644	$	625	$	202	$	115	$	633	$	(22	)	$	3,197	$	3,161	$	3,031
Total average common equity (1) (2)		23,300		14,400		2,050		3,450		22,700		9,900			75,800		74,000		69,650
ROE (3)		28.0%		17.2%		39.2%		13.2%		11.1%		n.m.			16.7%		17.5%		17.3%
	For the nine months ended
	July 31 2019															July 31 2018
(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	$	4,716	$	1,781	$	518	$	420	$	2,019	$	–		$	9,454	$	8,939
Total average common equity (1) (2)		23,100		14,250		1,950		3,500		22,900		8,750			74,450		68,000
ROE (3)		27.3%		16.7%		35.6%		16.0%		11.8%		n.m.			17.0%		17.6%

(1) Total average common equity represents rounded figures.

(2) The amounts for the segments are referred to as attributed capital.

(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 nine months ended July 31, 2019 with the corresponding period in the prior year and the three months ended April 30, 2019, 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.

Royal Bank of Canada        Third Quarter 2019        11

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 shareholders’ equity, thus enabling users to identify relative contributions to shareholder value.

The capital charge includes a charge for common equity and preferred shares. For 2019, our cost of common equity remains unchanged at 8.5%.

Economic profit

	For the three months ended
	July 31 2019																April 30 2019			July 31 2018
(Millions of Canadian dollars)	Personal & Commercial Banking		Wealth Management			Insurance		Investor & Treasury Services		Capital Markets		Corporate Support			Total		Total			Total
Net income	$	1,664	$	639		$	204	$	118	$	653	$	(15	)	$	3,263	$	3,230		$	3,109
add: Non-controlling interests		–		(1	)		–		–		–		1			–		(4	)		(8	)
After-tax effect     of amortization     of other intangibles		4		43			–		2		–		–			49		56			55
Adjusted net income	$	1,668	$	681		$	204	$	120	$	653	$	(14	)	$	3,312	$	3,282		$	3,156
less: Capital charge		520		322			45		76		505		222			1,690		1,600			1,564
Economic profit (loss)	$	1,148	$	359		$	159	$	44	$	148	$	(236	)	$	1,622	$	1,682		$	1,592

	For the nine months ended
	July 31 2019																		July 31 2018
(Millions of Canadian dollars)	Personal & Commercial Banking			Wealth Management			Insurance		Investor & Treasury Services		Capital Markets		Corporate Support			Total			Total
Net income	$	4,784		$	1,821		$	524	$	430	$	2,082	$	24		$	9,665		$	9,181
add: Non-controlling interests		(5	)		(1	)		–		–		–		–			(6	)		(28	)
After-tax effect     of amortization     of other intangibles		9			143			–		7		–		–			159			164
Adjusted net income	$	4,788		$	1,963		$	524	$	437	$	2,082	$	24		$	9,818		$	9,317
less: Capital charge		1,533			944			129		233		1,517		583			4,939			4,537
Economic profit (loss)	$	3,255		$	1,019		$	395	$	204	$	565	$	(559	)	$	4,879		$	4,780

Results excluding specified item

• For the nine months ended July 31, 2017, our share of a gain related to the sale by our payment processing joint venture Moneris of its U.S. operations to Vantiv, Inc., which was $212 million (before- and after-tax) and recorded in Canadian Banking.

There were no specified items for the three months ended July 31, 2019, April 30, 2019, and July 31, 2018, or for the nine months ended July 31, 2019 and July 31, 2018.

12        Royal Bank of Canada        Third Quarter 2019

The following table provides calculations of our Canadian Banking results and measures excluding the specified item for the nine months ended July 31, 2017 for the purpose of calculating the adjusted operating leverage ratio for the nine months ended July 31, 2018, which is a non-GAAP measure:

Canadian Banking

	For the nine months ended
	July 31 2017
			Item excluded
(Millions of Canadian dollars, except percentage amounts)	As reported		Gain related to the sale by Moneris (1)			Adjusted
Total revenue	$	11,111	$	(212	)	$	10,899
PCL		765		–			765
Non-interest expense		4,738		–			4,738
Net income before income taxes	$	5,608	$	(212	)	$	5,396
Net income	$	4,211	$	(212	)	$	3,999
Other information
Non-interest expense	$	4,738	$	–		$	4,738
Total revenue		11,111		(212	)		10,899
Efficiency ratio		42.6%					43.5%
Revenue growth rate		6.5%					4.5%
Non-interest expense growth rate		3.8%					3.8%
Operating leverage		2.7%					0.7%

(1) Includes foreign currency translation.

Efficiency ratio excluding the change in fair value of investments in Insurance

Our efficiency ratio is impacted by the change in fair value of investments backing our policyholder liabilities, which is reported in revenue and largely offset in PBCAE.

The following table provides calculations of our consolidated efficiency ratio excluding the change in fair value of investments backing our policyholder liabilities:

	For the three months ended
		July 31 2019							April 30 2019							July 31 2018
				Item excluded							Item excluded							Item excluded
(Millions of Canadian dollars, except percentage amounts)		As reported		Change in fair value of investments backing policyholder liabilities			Adjusted		As reported		Change in fair value of investments backing policyholder liabilities			Adjusted		As reported		Change in fair value of investments backing policyholder liabilities			Adjusted
Total revenue	$	11,544	$	(385	)	$	11,159	$	11,499	$	(383	)	$	11,116	$	11,025	$	(55	)	$	10,970
Non-interest expense		5,992		–			5,992		5,916		–			5,916		5,858		–			5,858
Efficiency ratio		51.9%					53.7%		51.4%					53.2%		53.1%					53.4%

	For the nine months ended
		July 31 2019							July 31 2018
				Item excluded							Item excluded
(Millions of Canadian dollars, except percentage amounts)		As reported		Change in fair value of investments backing policyholder liabilities			Adjusted		As reported		Change in fair value of investments backing policyholder liabilities		Adjusted
Total revenue	$	34,632	$	(1,015	)	$	33,617	$	31,907	$	93	$	32,000
Non-interest expense		17,820		–			17,820		16,951		–		16,951
Efficiency ratio		51.5%					53.0%		53.1%				53.0%

Royal Bank of Canada        Third Quarter 2019        13

Personal & Commercial Banking

	As at or for the three months ended						As at or for the nine months ended
(Millions of Canadian dollars, except percentage amounts and as otherwise noted)	July 31 2019		April 30 2019		July 31 2018		July 31 2019		July 31 2018
Net interest income	$	3,221	$	3,060	$	3,001	$	9,415	$	8,709
Non-interest income		1,325		1,273		1,283		3,882		3,843
Total revenue		4,546		4,333		4,284		13,297		12,552
PCL on performing assets		15		9		31		59		90
PCL on impaired assets		326		363		308		1,002		866
PCL		341		372		339		1,061		956
Non-interest expense		1,959		1,887		1,910		5,761		5,539
Income before income taxes		2,246		2,074		2,035		6,475		6,057
Net income	$	1,664	$	1,549	$	1,510	$	4,784	$	4,490
Revenue by business
Canadian Banking	$	4,304	$	4,099	$	4,040	$	12,573	$	11,838
Caribbean & U.S. Banking		242		234		244		724		714
Selected balance sheet and other information
ROE		28.0%		27.2%		27.2%		27.3%		27.9%
NIM		2.86%		2.85%		2.80%		2.85%		2.77%
Efficiency ratio		43.1%		43.5%		44.6%		43.3%		44.1%
Operating leverage		3.5%		2.4%		3.3%		1.9%		1.6%
Effective income tax rate		25.9%		25.3%		25.8%		26.1%		25.9%
Average total earning assets, net	$	447,200	$	440,300	$	425,900	$	441,600	$	420,300
Average loans and acceptances, net		449,500		441,900		426,500		443,200		420,800
Average deposits		396,300		389,000		363,100		389,200		359,400
AUA (1)		282,200		283,300		276,700		282,200		276,700
Average AUA		280,600		277,900		274,800		274,100		270,700
PCL on impaired loans as a % of average net loans and acceptances		0.29%		0.34%		0.25%		0.30%		0.26%
Other selected information – Canadian Banking
Net income	$	1,609	$	1,460	$	1,491	$	4,613	$	4,397
NIM		2.80%		2.80%		2.74%		2.80%		2.72%
Efficiency ratio		41.5%		42.0%		42.2%		41.7%		42.1%
Operating leverage		1.7%		1.7%		5.0%		1.1%		1.3%
Operating leverage adjusted (2)		n.a.		n.a.		n.a.		n.a.		3.4%
Effective income tax rate		26.4%		26.2%		26.1%		26.3%		26.0%

(1) AUA represents period-end spot balances and includes securitized residential mortgages and credit card loans as at July 31, 2019 of $15.7 billion and $8.3 billion, respectively (April 30, 2019 – $16.2 billion and $8.3 billion; July 31, 2018 – $16.8 billion and $9.8 billion).

(2) This is a non-GAAP measure. The nine months ended July 31, 2018 operating leverage of 1.3% in Canadian Banking was impacted by our share of the gain related to the sale of the U.S. operations of Moneris of $212 million (before- and after-tax) in Q1 2017, which was a specified item. For further details, including a reconciliation, refer to the Key performance and non-GAAP measures section. The nine months ended July 31, 2018 revenue and expense growth rates in Canadian Banking were 6.5% and 5.2%, respectively. Excluding our share of the gain as noted above, the nine months ended July 31, 2018 adjusted revenue growth rate was 8.6%.

n.a. not applicable

Financial performance

Q3 2019 vs. Q3 2018

Net income increased $154 million or 10% from last year, mainly due to average volume growth of 7% and higher spreads in Canadian Banking. These factors were partially offset by an increase in staff related costs as well as technology and related costs.

Total revenue increased $262 million or 6%.

Canadian Banking revenue increased $264 million or 7% compared to last year, largely reflecting average volume growth of 5% in loans and 10% in deposits and improved spreads, as well as higher service charges.

Caribbean & U.S. Banking revenue decreased $2 million or 1% compared to last year.

Net interest margin was up 6 bps, mainly due to improved spreads on deposits in Canadian Banking, reflecting higher interest rates, partially offset by the impact of competitive pricing pressures.

PCL increased $2 million or 1%. PCL on impaired loans ratio increased 4 bps. For further details, refer to Credit quality performance in the Credit risk section.

Non-interest expense increased $49 million or 3%, primarily attributable to an increase in staff related costs as well as technology and related costs, including digital initiatives.

Q3 2019 vs. Q2 2019

Net income increased $115 million or 7% from last quarter, reflecting average volume growth of 2% in Canadian Banking, three more days in the quarter and lower PCL. An increase in service charges and higher balances driving higher mutual fund distribution fees also contributed to the increase. These factors were partially offset by higher staff related costs.

Net interest margin was up 1 bp.

Q3 2019 vs. Q3 2018 (Nine months ended)

Net income increased $294 million or 7% from last year, reflecting average volume growth of 7% and higher spreads. These factors were partially offset by an increase in PCL, and higher staff related costs.

Total revenue increased $745 million or 6% from last year, mainly driven by average volume growth of 5% in loans and 8% in deposits. Improved spreads on deposits reflecting higher interest rates, partially offset by the impact of competitive pricing pressures, also contributed to the increase.

14        Royal Bank of Canada        Third Quarter 2019

PCL increased $105 million or 11%, reflecting higher provisions on impaired loans in our commercial portfolios in Canadian Banking, partially offset by lower provisions on performing assets. PCL on impaired loans ratio increased 4 bps. For further details, refer to Credit quality performance in the Credit risk section.

Non-interest expense increased $222 million or 4%, largely reflecting an increase in staff related costs, technology and related costs, including digital initiatives, and marketing costs.

Wealth Management

	As at or for the three months ended							As at or for the nine months ended
(Millions of Canadian dollars, except number of, percentage amounts and as otherwise noted)	July 31 2019		April 30 2019		July 31 2018			July 31 2019		July 31 2018
Net interest income	$	773	$	731	$	679		$	2,248	$	1,923
Non-interest income
Fee-based revenue		1,740		1,663		1,626			5,117		4,785
Transaction and other revenue		516		585		493			1,591		1,478
Total revenue		3,029		2,979		2,798			8,956		8,186
PCL on performing assets		10		13		12			38		(16	)
PCL on impaired assets		17		17		(9	)		45		(3	)
PCL		27		30		3			83		(19	)
Non-interest expense		2,183		2,204		2,059			6,551		6,009
Income before income taxes		819		745		736			2,322		2,196
Net income	$	639	$	585	$	578		$	1,821	$	1,712
Revenue by business
Canadian Wealth Management	$	821	$	808	$	761		$	2,471	$	2,252
U.S. Wealth Management (including City National)		1,546		1,539		1,435			4,556		4,074
U.S. Wealth Management (including City National) (US$ millions)		1,168		1,155		1,101			3,426		3,178
Global Asset Management		567		538		507			1,648		1,579
International Wealth Management		95		94		95			281		281
Selected balance sheet and other information
ROE		17.2%		16.5%		16.4%			16.7%		16.5%
NIM		3.59%		3.66%		3.56%			3.63%		3.43%
Pre-tax margin (1)		27.0%		25.0%		26.3%			25.9%		26.8%
Number of advisors (2)		5,222		5,176		4,970			5,222		4,970
Average total earning assets, net	$	85,500	$	81,900	$	75,700		$	82,700	$	74,900
Average loans and acceptances, net		64,400		62,200		57,000			62,600		54,800
Average deposits		95,300		93,000		91,700			94,200		92,500
AUA (3)		1,050,800		1,050,900		985,800			1,050,800		985,800
U.S. Wealth Management (including City National) (3)		538,800		537,200		487,900			538,800		487,900
U.S. Wealth Management (including City National) (US$ millions) (3)		408,100		400,900		375,200			408,100		375,200
AUM (3)		738,300		726,600		680,500			738,300		680,500
Average AUA		1,039,700		1,027,300		975,600			1,017,800		953,800
Average AUM (4)		729,300		712,200		673,800			705,500		659,300
PCL on impaired loans as a % of average net loans and acceptances		0.11%		0.12%		(0.06)%			0.10%		(0.01)%

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 nine months ended
	Q3 2019 vs. Q3 2018		Q3 2019 vs. Q2 2019			Q3 2019 vs. Q3 2018
Increase (decrease):
Total revenue	$	17	$	(15	)	$	147
Non-interest expense		12		(12	)		116
Net income		4		(2	)		24
Percentage change in average U.S. dollar equivalent of C$1.00		(2)%		–%			(4)%
Percentage change in average British pound equivalent of C$1.00		4%		5%			2%
Percentage change in average Euro equivalent of C$1.00		3%		1%			2%

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

(2) Represents client-facing advisors across all our Wealth Management businesses.

(3) Represents period-end spot balances.

(4) Amounts in the prior year have been revised from those previously presented.

Financial performance

Q3 2019 vs. Q3 2018

Net income increased $61 million or 11%, primarily attributable to higher average fee-based client assets and an increase in net interest income. These factors were partially offset by higher costs in support of business growth, and higher variable compensation commensurate with revenue growth.

Total revenue increased $231 million or 8%.

Royal Bank of Canada        Third Quarter 2019        15

Canadian Wealth Management revenue increased $60 million or 8%, primarily due to higher average fee-based client assets reflecting net sales and market appreciation.

U.S. Wealth Management (including City National) revenue increased $111 million or 8%. In U.S. dollars, revenue increased $67 million or 6%, primarily attributable to an increase in net interest income due to average volume growth, and higher average fee-based client assets reflecting net sales and market appreciation. These factors were partially offset by a gain in the prior year related to the sale of a mutual fund product and transfer of its associated team.

Global Asset Management revenue increased $60 million or 12%, primarily due to higher average fee-based client assets reflecting market appreciation and net sales. In addition, the prior year included a loss on an investment in an international asset management joint venture.

PCL increased $24 million, largely on our impaired assets in U.S. Wealth Management (including City National Bank), mainly in a few accounts. PCL on impaired loans ratio increased 17 bps. For further details, refer to Credit quality performance in the Credit risk section.

Non-interest expense increased $124 million or 6%, primarily due to increased costs in support of business growth mainly reflecting higher staff-related costs, and higher variable compensation commensurate with revenue growth.

Q3 2019 vs. Q2 2019

Net income increased $54 million or 9%, primarily reflecting higher average fee-based client assets driven by net sales and market appreciation, and an increase in net interest income mainly due to average volume growth and three more days in the quarter. These factors were partially offset by higher variable compensation commensurate with revenue growth, and the net change in the fair value of our U.S. share-based compensation plans.

Q3 2019 vs. Q3 2018 (Nine months ended)

Net income increased $109 million or 6% from a year ago, primarily reflecting an increase in net interest income, and higher average fee-based client assets. These factors were partially offset by increased costs in support of business growth, higher variable compensation commensurate with revenue growth, and higher PCL.

Total revenue increased $770 million or 9%, mainly due to an increase in net interest income driven by average volume growth and higher interest rates, higher average fee-based client assets reflecting market appreciation and net sales. The impact of foreign exchange translation and the change in the fair value of the hedges related to our U.S. share-based compensation plans, which was largely offset in non-interest expense, also contributed to the increase.

PCL increased $102 million, primarily in U.S. Wealth Management (including City National). PCL on impaired loans ratio increased 11 bps. For further details, refer to Credit quality performance in the Credit risk section.

Non-interest expense increased $542 million or 9%, mainly due to increased costs in support of business growth largely reflecting higher staff-related costs, the impact of foreign exchange translation and higher variable compensation commensurate with revenue growth. Higher regulatory costs and the change in the fair value of our U.S. share-based compensation plans, which was largely offset in revenue, also contributed to the increase.

Insurance

	As at or for the three months ended						As at or for the nine months ended
(Millions of Canadian dollars, except percentage amounts and as otherwise noted)	July 31 2019		April 30 2019		July 31 2018		July 31 2019		July 31 2018
Non-interest income
Net earned premiums	$	914	$	964	$	1,047	$	3,040	$	2,810
Investment income (1)		505		515		181		1,401		260
Fee income		44		36		62		116		170
Total revenue		1,463		1,515		1,290		4,557		3,240
Insurance policyholder benefits and claims (1)		971		1,077		856		3,177		1,975
Insurance policyholder acquisition expense		75		83		69		254		207
Non-interest expense		149		150		153		453		443
Income before income taxes		268		205		212		673		615
Net income	$	204	$	154	$	158	$	524	$	457
Revenue by business
Canadian Insurance	$	991	$	1,004	$	746	$	3,034	$	1,677
International Insurance		472		511		544		1,523		1,563
Selected balances and other information
ROE		39.2%		32.4%		32.1%		35.6%		32.3%
Premiums and deposits (2)	$	1,079	$	1,106	$	1,197	$	3,499	$	3,273
Fair value changes on investments backing policyholder liabilities (1)		385		383		55		1,015		(93	)

(1) Investment income can experience volatility arising from fluctuation of assets designated as fair value through profit and loss (FVTPL). The investments which support actuarial liabilities are predominantly fixed income assets designated as FVTPL. Consequently, changes in the fair values of these assets are recorded 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, claims and acquisition expense.

(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.

16        Royal Bank of Canada        Third Quarter 2019

Financial performance

Q3 2019 vs. Q3 2018

Net income increased $46 million or 29% from a year ago, primarily reflecting higher favourable investment-related experience and the impact of new longevity reinsurance contracts. These factors were partially offset by higher disability and life retrocession claims costs and favourable reinsurance contract renegotiations in the prior year.

Total revenue increased $173 million or 13%.

Canadian Insurance revenue increased $245 million or 33%, primarily due to the change in fair value of investments backing our policyholder liabilities, partially offset by lower group annuity sales, both of which are largely offset in PBCAE as indicated below.

International Insurance revenue decreased $72 million or 13%, mainly due to the change in the fair value of investments backing our policyholder liabilities, which is largely offset in PBCAE as indicated below.

PBCAE increased $121 million or 13%, mainly reflecting the change in fair value of investments backing our policyholder liabilities, higher disability and life retrocession claims costs, and favourable reinsurance contract renegotiations in the prior year. These factors were partially offset by lower group annuity sales, higher favourable investment-related experience, and the impact of new longevity reinsurance contracts.

Non-interest expense decreased $4 million or 3%, largely reflecting reduced costs associated with efficiencies driven by technology investments, partially offset by increased costs in support of sales and client service activities.

Q3 2019 vs. Q2 2019

Net income increased $50 million or 32%, mainly due to higher favourable investment-related experience and the impact of new longevity reinsurance contracts. These factors were partially offset by favourable reinsurance contract renegotiations in the prior quarter.

Q3 2019 vs. Q3 2018 (Nine months ended)

Net income increased $67 million or 15% from a year ago, primarily reflecting higher favourable reinsurance contract renegotiations.

Total revenue increased $1,317 million or 41% compared to the prior year, mainly reflecting the change in fair value of investments backing our policyholder liabilities and business growth, including higher group annuity sales, both of which are largely offset in PBCAE as indicated below.

PBCAE increased $1,249 million or 57%, mainly reflecting the change in fair value of investments backing our policyholder liabilities, and business growth, including group annuity sales. These factors were partially offset by higher favourable reinsurance contract renegotiations.

Non-interest expense increased $10 million or 2%, largely reflecting increased costs in support of sales and client service activities.

Investor & Treasury Services

	As at or for the three months ended								As at or for the nine months ended
(Millions of Canadian dollars, except percentage amounts and as otherwise noted)	July 31 2019			April 30 2019			July 31 2018		July 31 2019			July 31 2018
Net interest income	$	(16	)	$	(34	)	$	32	$	(81	)	$	278
Non-interest income		577			621			588		1,860			1,689
Total revenue		561			587			620		1,779			1,967
PCL		1			–			1		1			1
Non-interest expense		411			388			416		1,217			1,196
Income before income taxes		149			199			203		561			770
Net income	$	118		$	151		$	155	$	430		$	586
Selected balance sheet and other information
ROE		13.2%			17.4%			19.8%		16.0%			24.9%
Average deposits	$	179,300		$	173,900		$	162,500	$	175,100		$	160,400
Average client deposits		60,100			58,200			60,200		59,200			58,400
Average wholesale funding deposits		119,200			115,700			102,300		115,900			102,000
AUA (1)		4,242,100			4,307,800			4,210,600		4,242,100			4,210,600
Average AUA		4,290,900			4,271,000			4,276,100		4,250,800			4,405,000

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 nine months ended
	Q3 2019 vs. Q3 2018			Q3 2019 vs. Q2 2019			Q3 2019 vs. Q3 2018
Increase (decrease):
Total revenue	$	(6	)	$	(5	)	$	(14	)
Non-interest expense		(5	)		(4	)		(13	)
Net income		(1	)		(1	)		(1	)
Percentage change in average U.S. dollar equivalent of C$1.00		(2)%			–%			(4)%
Percentage change in average British pound equivalent of C$1.00		4%			5%			2%
Percentage change in average Euro equivalent of C$1.00		3%			1%			2%

(1) Represents period-end spot balances.

Royal Bank of Canada        Third Quarter 2019        17

Financial performance

Q3 2019 vs. Q3 2018

Net income decreased $37 million or 24%, primarily due to lower client deposit margins, lower revenue from our asset services business, and lower funding and liquidity revenue.

Total revenue decreased $59 million or 10%, mainly due to lower client deposit revenue largely driven by margin compression primarily reflecting spread tightening, and lower revenue from our asset services business due to reduced client activity. Lower funding and liquidity revenue driven by lower gains from the disposition of certain securities and the impact of foreign exchange translation also contributed to the decrease.

Non-interest expense decreased $5 million or 1%.

Q3 2019 vs. Q2 2019

Net income decreased $33 million or 22%, primarily due to lower client deposit margins, higher costs in support of efficiency initiatives as well as technology and related costs, and lower funding and liquidity revenue.

Q3 2019 vs. Q3 2018 (Nine months ended)

Net income decreased $156 million or 27%, largely due to lower funding and liquidity revenue, lower revenue from our asset services business and higher costs in support of efficiency and technology initiatives.

Total revenue decreased $188 million or 10%, mainly due to lower funding and liquidity revenue driven by the impact of reduced money market opportunities in the current year and lower gains from the disposition of certain securities. Lower revenue from our asset services business due to challenging market conditions throughout the earlier part of 2019 and lower client activity also contributed to the decrease.

Non-interest expense increased $21 million or 2%, primarily driven by higher costs in support of efficiency and technology initiatives.

Capital Markets

	As at or for the three months ended									As at or for the nine months ended
(Millions of Canadian dollars, except percentage amounts and as otherwise noted)	July 31 2019			April 30 2019			July 31 2018			July 31 2019			July 31 2018
Net interest income (1)	$	1,048		$	1,057		$	913		$	3,111		$	2,620
Non-interest income (1)		986			1,112			1,244			3,190			3,722
Total revenue (1)		2,034			2,169			2,157			6,301			6,342
PCL on performing assets		3			(23	)		16			18			(30	)
PCL on impaired assets		53			48			(13	)		203			46
PCL		56			25			3			221			16
Non-interest expense		1,269			1,289			1,312			3,788			3,716
Income before income taxes		709			855			842			2,292			2,610
Net income	$	653		$	776		$	698		$	2,082		$	2,111
Revenue by business
Corporate and Investment Banking	$	962		$	969		$	1,065		$	2,858		$	3,026
Global Markets		1,106			1,235			1,148			3,568			3,461
Other		(34	)		(35	)		(56	)		(125	)		(145	)
Selected balance sheet and other information
ROE		11.1%			13.6%			12.3%			11.8%			13.4%
Average total assets	$	676,700		$	648,900		$	579,400		$	656,500		$	571,200
Average trading securities		101,400			101,200			95,600			101,600			98,500
Average loans and acceptances, net		101,100			101,800			85,000			100,400			83,100
Average deposits		76,900			79,100			73,000			78,300			69,600
PCL on impaired loans as a % of average net loans and acceptances		0.21%			0.19%			(0.06)%			0.27%			0.07%

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 nine months ended
	Q3 2019 vs. Q3 2018		Q3 2019 vs. Q2 2019			Q3 2019 vs. Q3 2018
Increase (decrease):
Total revenue	$	13	$	(18	)	$	136
Non-interest expense		3		(15	)		62
Net income		10		(1	)		60
Percentage change in average U.S. dollar equivalent of C$1.00		(2)%		–%			(4)%
Percentage change in average British pound equivalent of C$1.00		4%		5%			2%
Percentage change in average Euro equivalent of C$1.00		3%		1%			2%

(1) The taxable equivalent basis (teb) adjustment for the three months ended July 31, 2019 was $111 million (April 30, 2019 – $120 million; July 31, 2018 – $157 million) and for the nine months ended July 31, 2019 was $338 million (July 31, 2018 – $400 million). For further discussion, refer to the How we measure and report our business segments section of our 2018 Annual Report.

18        Royal Bank of Canada        Third Quarter 2019

Financial performance

Q3 2019 vs. Q3 2018

Net income decreased $45 million or 6%, primarily due to lower revenue in Corporate and Investment Banking and Global Markets, and higher PCL. These factors were partially offset by a lower effective tax rate largely reflecting changes in earnings mix and lower compensation on decreased results.

Total revenue decreased $123 million or 6%.

Corporate and Investment Banking revenue decreased $103 million or 10% due to lower loan syndication activity primarily in the U.S. and Europe and lower M&A mainly in Canada reflecting reduced client activity and contraction of the global fee pool. These factors were partially offset by higher lending revenue across all regions driven by increased client demand.

Global Markets revenue decreased $42 million or 4% due to lower equity trading revenue largely in the U.S. and lower foreign exchange trading revenue across all regions. These factors were partially offset by higher fixed income trading revenue across all regions.

Other revenue increased $22 million largely reflecting lower residual funding costs.

PCL increased $53 million, largely due to higher PCL on impaired loans mainly in a few accounts in the current year, while the prior year reflected higher recoveries. PCL on impaired loans ratio increased 27 bps. For further details, refer to Credit quality performance in the Credit risk section.

Non-interest expense decreased $43 million or 3%, mainly due to lower compensation on decreased results.

Q3 2019 vs. Q2 2019

Net income decreased $123 million or 16% mainly due to lower fixed income trading largely in the U.S., lower debt origination primarily in Europe and the U.S., and higher PCL mainly on performing loans. Lower equity trading mainly in North America also contributed to the decrease. These factors were partially offset by lower compensation on decreased results.

Q3 2019 vs. Q3 2018 (Nine months ended)

Net income decreased $29 million or 1%, driven by lower revenue in Corporate and Investment Banking and higher PCL. These factors were partially offset by a lower effective tax rate largely reflecting changes in earnings mix, the impact of foreign exchange translation, and lower compensation on decreased results.

Total revenue decreased $41 million or 1%, mainly driven by lower loan syndication activity primarily in the U.S. and Europe, and lower equity and debt origination primarily in North America. These factors were partially offset by the impact of foreign exchange translation, lower residual funding costs, higher lending revenue mainly in the U.S., and higher gains from the disposition of certain investment securities.

PCL increased $205 million, largely due to higher provisions on impaired loans mainly in a few accounts. PCL on impaired loans ratio increased 20 bps. For further details, refer to Credit quality performance in the Credit risk section.

Non-interest expense increased $72 million or 2%, largely reflecting the impact of foreign exchange translation and higher technology and related costs, partially offset by lower compensation on decreased results.

Corporate Support

	For the three months ended									For the nine months ended
(Millions of Canadian dollars)	July 31 2019			April 30 2019			July 31 2018			July 31 2019			July 31 2018
Net interest income (loss) (1)	$	22		$	23		$	(29	)	$	76		$	(68	)
Non-interest income (loss) (1)		(111	)		(107	)		(95	)		(334	)		(312	)
Total revenue (1)		(89	)		(84	)		(124	)		(258	)		(380	)
PCL		–			(1	)		–			(1	)		–
Non-interest expense		21			(2	)		8			50			48
Income (loss) before income taxes (1)		(110	)		(81	)		(132	)		(307	)		(428	)
Income taxes (recoveries) (1)		(95	)		(96	)		(142	)		(331	)		(253	)
Net income (loss) (2)	$	(15	)	$	15		$	10		$	24		$	(175	)

(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 July 31, 2019 was $(1) million (April 30, 2019 – $1 million; July 31, 2018 – $7 million) and for the nine months ended July 31, 2019 was $nil (July 31, 2018 – $23 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.

Total 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 and the U.S. tax credit investment business 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 July 31, 2019 was $111 million, as compared to $120 million in the prior quarter and $157 million last year. The teb amount for the nine months ended July 31, 2019 was $338 million, as compared to $400 million in the prior year.

Royal Bank of Canada        Third Quarter 2019        19

The following identifies the material items, other than the teb impacts noted previously, affecting the reported results in each period.

Q3 2019

Net loss was $15 million, mainly due to net unfavourable tax adjustments, largely offset by asset/liability management activities.

Q2 2019

Net income was $15 million, largely due to asset/liability management activities, partially offset by net unfavourable tax adjustments.

Q3 2018

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

Q3 2019 (Nine months ended)

Net income was $24 million, largely due to asset/liability management activities, partially offset by net unfavourable tax adjustments.

Q3 2018 (Nine months ended)

Net loss was $175 million, largely due to the impact of the U.S. Tax Reform of $178 million, partially offset by asset/liability management activities.

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)

	2019									2018												2017
(Millions of Canadian dollars, except per share and percentage amounts)	Q3			Q2			Q1			Q4			Q3			Q2			Q1			Q4
Personal & Commercial Banking	$	4,546		$	4,333		$	4,418		$	4,364		$	4,284		$	4,103		$	4,165		$	4,019
Wealth Management		3,029			2,979			2,948			2,740			2,798			2,605			2,783			2,562
Insurance		1,463			1,515			1,579			1,039			1,290			806			1,144			1,612
Investor & Treasury Services		561			587			631			624			620			671			676			602
Capital Markets (2)		2,034			2,169			2,098			2,056			2,157			2,010			2,175			1,954
Corporate Support (2)		(89	)		(84	)		(85	)		(154	)		(124	)		(141	)		(115	)		(226	)
Total revenue	$	11,544		$	11,499		$	11,589		$	10,669		$	11,025		$	10,054		$	10,828		$	10,523
PCL (3)		425			426			514			353			346			274			334			234
PBCAE		1,046			1,160			1,225			494			925			421			836			1,137
Non-interest expense		5,992			5,916			5,912			5,882			5,858			5,482			5,611			5,611
Income before income taxes	$	4,081		$	3,997		$	3,938		$	3,940		$	3,896		$	3,877		$	4,047		$	3,541
Income taxes		818			767			766			690			787			817			1,035			704
Net income	$	3,263		$	3,230		$	3,172		$	3,250		$	3,109		$	3,060		$	3,012		$	2,837
EPS – basic	$	2.23		$	2.20		$	2.15		$	2.21		$	2.10		$	2.06		$	2.02		$	1.89
– diluted		2.22			2.20			2.15			2.20			2.10			2.06			2.01			1.88
Segments – net income (loss)
Personal & Commercial Banking	$	1,664		$	1,549		$	1,571		$	1,538		$	1,510		$	1,459		$	1,521		$	1,404
Wealth Management		639			585			597			553			578			537			597			491
Insurance		204			154			166			318			158			172			127			265
Investor & Treasury Services		118			151			161			155			155			212			219			156
Capital Markets		653			776			653			666			698			665			748			584
Corporate Support		(15	)		15			24			20			10			15			(200	)		(63	)
Net income	$	3,263		$	3,230		$	3,172		$	3,250		$	3,109		$	3,060		$	3,012		$	2,837
Effective income tax rate		20.0%			19.2%			19.5%			17.5%			20.2%			21.1%			25.6%			19.9%
Period average US$ equivalent of C$1.00	$	0.754		$	0.751		$	0.749		$	0.767		$	0.767		$	0.778		$	0.794		$	0.792

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

(2) Teb adjusted. For further discussion, refer to the How we measure and report our business segments section of our 2018 Annual Report.

(3) Effective November 1, 2017, we adopted IFRS 9, Financial Instruments. Under IFRS 9, PCL relates primarily to loans, acceptances, and commitments, and also applies to all financial assets except for those classified or designated as FVTPL and equity securities designated as fair value through other comprehensive income (FVOCI). Prior to the adoption of IFRS 9, PCL related only to loans, acceptances, and commitments. PCL on loans, acceptances, and commitments is comprised of PCL on impaired loans (Stage 3 PCL under IFRS 9 and PCL on impaired loans under IAS 39) and PCL on performing loans (Stage 1 and Stage 2 PCL under IFRS 9 and PCL on loans not yet identified as impaired under IAS 39).

20        Royal Bank of Canada        Third Quarter 2019

Seasonality

Seasonal factors may impact our results in certain quarters. The first quarter has historically been 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 and fourth quarters include the summer months which results in lower client activity and may negatively impact the results of our Capital Markets brokerage business and our Wealth Management investment management business.

Trend analysis

Earnings have generally trended upward over the period. However, results in the first quarter of 2019 were impacted by challenging market conditions throughout the earlier part of the quarter. Quarterly earnings are also affected by the impact of foreign exchange translation.

Personal & Commercial Banking revenue has benefitted from solid volume growth, higher spreads since the beginning of the period, and higher fee-based revenue.

Wealth Management revenue has generally trended upwards primarily due to growth in average fee-based client assets which benefitted from net sales and market appreciation, and the impact of higher interest rates and volume growth driving higher net interest income over the period. The change in the fair value of the hedges related to our U.S. share-based compensation plans, which is largely offset in Non-interest expense, also contributed to fluctuations in revenue over the period.

Insurance revenue fluctuated over the period, primarily due to the impact of changes in the fair value of investments backing our policyholder liabilities. Since 2017, revenues have generally benefitted from the impact of new group annuity sales, which is largely offset in PBCAE. We have also benefitted from business growth in Canadian and International Insurance throughout 2018 and 2019.

Investor & Treasury Services revenue is impacted by fluctuations in market conditions and client activity. The first half of 2018 trended higher due to generally higher market volatility, growth in client deposits, and increased client activity from our asset services business, combined with an improvement in funding & liquidity performance. Revenue from our funding and liquidity business was impacted by reduced money market opportunities in the current year and our asset services business was impacted by challenging market conditions during the first half of 2019. The latter part of the period was impacted by lower client activity and lower client deposit margins.

Capital Markets revenue is influenced, to a large extent, by market conditions that impact client activity in our Corporate and Investment Banking and Global Markets businesses, with the first quarter results generally stronger than the remaining quarters. The second quarter of 2018 experienced lower equity originations driven by lower market activity, decreased fixed income trading across all regions, and lower equity trading revenue in the U.S. The decline experienced in the fourth quarter of 2018 largely resulted from lower fixed income trading revenue. Client activity in 2019 was impacted by challenging market conditions resulting in lower investment banking fee revenues experienced across the industry. The third quarter saw lower fixed income and equity trading.

On November 1, 2017, we adopted IFRS 9, which resulted in the introduction of PCL on performing financial assets. PCL on performing assets has fluctuated over the period as it is impacted by macroeconomic conditions and volume growth. PCL saw lower provisions on impaired assets for the majority of 2018. The fourth quarter of 2018 was also impacted by the restructuring of portfolios in Barbados. PCL experienced higher provisions on impaired loans, in the first half of 2019, mainly relating to a few accounts in Capital Markets and Personal & Commercial Banking.

PBCAE has fluctuated quarterly as it includes the changes to the fair value of investments backing our policyholder liabilities and the impact of group annuity sales, all of which are largely offset in Revenue. PBCAE has also increased due to business growth, and has fluctuated due to investment-related experience and claims volumes over the period. Since late 2018, PBCAE has been positively impacted by favourable reinsurance contract renegotiations. Actuarial adjustments, which generally occur in the fourth quarter of each year, also impact PBCAE results.

Non-interest expense generally trended upwards over the period. Growth mainly reflects higher costs in support of business growth and our ongoing investments in technology and related costs, including digital initiatives. Fiscal 2018 was impacted by higher regulatory costs, and the decrease over the second and fourth quarter of 2018 mainly reflects the change in the fair value of our U.S. share-based compensation plans, which was largely offset in Revenue. The gradual increase across the first three quarters of fiscal 2019 reflects higher technology and related costs.

Our effective income tax rate has fluctuated over the period, mostly due to various levels of tax adjustments and changes in earnings mix. The first quarter of 2018 was adversely impacted by the U.S. Tax Reform, which resulted in the write-down of net deferred tax assets, however, this was more than offset during 2018 by the ongoing lower corporate tax rate. The first quarter of 2019 included a write-down of deferred tax assets resulting from a change in the corporate tax rate in Barbados.

Royal Bank of Canada        Third Quarter 2019        21

Financial condition

Condensed balance sheets

	As at
(Millions of Canadian dollars)	July 31 2019			October 31 2018
Assets
Cash and due from banks	$	26,863		$	30,209
Interest-bearing deposits with banks		31,553			36,471
Securities, net of applicable allowance (1)		240,661			222,866
Assets purchased under reverse repurchase agreements and securities borrowed		309,640			294,602
Loans
Retail		416,583			399,452
Wholesale		198,941			180,278
Allowance for loan losses		(3,131	)		(2,912	)
Other – Derivatives		98,774			94,039
– Other (2)		87,009			79,729
Total assets	$	1,406,893		$	1,334,734
Liabilities
Deposits	$	881,211		$	837,046
Other – Derivatives		96,857			90,238
– Other (2)		336,629			318,364
Subordinated debentures		9,818			9,131
Total liabilities		1,324,515			1,254,779
Equity attributable to shareholders		82,279			79,861
Non-controlling interests		99			94
Total equity		82,378			79,955
Total liabilities and equity	$	1,406,893		$	1,334,734

(1) Securities are comprised of Trading and Investment securities.

(2) Other – Other assets and liabilities include Segregated fund net assets and liabilities, respectively.

Q3 2019 vs. Q4 2018

Total assets increased $72 billion or 5% from October 31, 2018. Foreign exchange translation increased total assets by $12 billion.

Cash and due from banks was down $3 billion or 11%, mainly due to lower deposits with central banks, reflecting our short-term cash management activities.

Interest-bearing deposits with banks decreased $5 billion or 13%, primarily due to lower deposits with central banks, reflecting our cash management activities.

Securities, net of applicable allowance, were up $18 billion or 8%, largely due to higher equity trading securities reflecting favourable market conditions. Higher government debt trading securities and corporate debt, reflecting our business activities, also contributed to the increase.

Assets purchased under reverse repurchase agreements (reverse repos) and securities borrowed increased $15 billion or 5%, driven by client activity, partially offset by higher financial netting.

Loans were up $36 billion or 6%, primarily due to volume growth, which led to higher wholesale loans and residential mortgages.

Derivative assets were up $5 billion or 5%, primarily attributable to the impact of foreign exchange translation and growth in interest rate contracts, partially offset by lower fair values on foreign exchange contracts.

Other assets were up $7 billion or 9%, largely reflecting higher cash collateral requirements. Higher commodities trading receivables and customers’ liability under acceptances, driven by client demand, also contributed to the increase.

Total liabilities increased $70 billion or 6%. Foreign exchange translation increased total liabilities by $12 billion.

Deposits increased $44 billion or 5%, mainly as a result of higher business and retail deposits driven by increased client activities.

Derivative liabilities were up $7 billion or 7%, primarily attributable to the impact of foreign exchange translation and higher fair values on interest rate contracts, partially offset by lower fair values on foreign exchange contracts.

Other liabilities increased $18 billion or 6%, mainly attributable to higher obligations related to repurchase agreements due to increased client activity and funding requirements, partially offset by higher financial netting.

Total equity increased $2 billion or 3%, largely reflecting earnings, net of dividends, the impact of lower discount rates on the remeasurement of our employee benefit plans and redemptions of preferred shares.

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, and liquidity and funding risk, which are discussed in the Risk management section of this Q3 2019 Report to Shareholders. Our significant off-balance sheet transactions include those described on pages 47 to 49 of our 2018 Annual Report.

22        Royal Bank of Canada        Third Quarter 2019

Risk management

Credit risk

Credit risk is the risk of loss associated with an obligor’s potential inability or unwillingness to fulfill its contractual obligations on a timely basis. Credit risk may arise directly from the risk of default of a primary obligor, indirectly from a secondary obligor, through off-balance sheet exposures, contingent credit risk and/or transactional risk.

Our Credit Risk Framework (CRF) and supporting credit policies are designed to clearly define roles and responsibilities, acceptable practices, limits and key controls. There have been no material changes to our CRF as described in our 2018 Annual Report.

Credit risk exposure by portfolio, sector and geography

The following table presents our credit risk exposures under the Basel regulatory defined classes and reflects exposures at default (EAD). The classification of our sectors aligns with our view of credit risk by industry.

	As at
	July 31 2019												April 30 2019
	Credit risk (1)						Counterparty credit risk (2)
	On-balance sheet amount		Off-balance sheet amount (3)				Repo-style transactions		Derivatives		Total exposure		Total exposure
(Millions of Canadian dollars)			Undrawn		Other (4)
Retail
Residential secured (5)	$	310,116	$	64,094	$	–	$	–	$	–	$	374,210	$	365,995
Qualifying revolving (6)		26,307		71,488		–		–		–		97,795		95,807
Other retail		59,175		15,290		72		–		–		74,537		71,701
Total retail	$	395,598	$	150,872	$	72	$	–	$	–	$	546,542	$	533,503
Wholesale
Agriculture	$	8,979	$	1,874	$	38	$	–	$	72	$	10,963	$	10,808
Automotive		10,541		6,605		362		–		998		18,506		18,822
Banking		43,334		1,938		600		47,177		16,742		109,791		122,097
Consumer discretionary		15,558		8,691		557		–		461		25,267		25,442
Consumer staples		5,078		7,162		360		–		1,100		13,700		13,405
Oil & gas		7,678		11,057		1,386		–		1,682		21,803		21,597
Financial services		27,610		20,892		2,670		118,117		18,431		187,720		185,396
Financing products		320		860		504		119		599		2,402		3,532
Forest products		1,472		681		116		–		33		2,302		2,229
Governments		101,038		7,499		1,431		3,920		6,888		120,776		122,573
Industrial products		7,582		8,721		570		–		652		17,525		17,022
Information technology		5,351		5,349		214		–		2,945		13,859		15,466
Investments		16,135		907		402		12		261		17,717		17,988
Mining & metals		1,977		4,234		883		–		212		7,306		7,444
Public works & infrastructure		2,040		1,712		488		–		193		4,433		4,308
Real estate & related		59,676		11,807		1,342		–		695		73,520		72,701
Other services		24,683		11,046		1,030		35		1,483		38,277		37,375
Telecommunication & media		8,605		9,782		111		–		1,842		20,340		20,620
Transportation		5,845		6,549		2,102		–		1,667		16,163		15,682
Utilities		8,766		19,758		4,231		–		3,056		35,811		35,441
Other sectors		1,794		453		1		14		19,384		21,646		21,650
Total wholesale	$	364,062	$	147,577	$	19,398	$	169,394	$	79,396	$	779,827	$	791,598
Total exposure (7)	$	759,660	$	298,449	$	19,470	$	169,394	$	79,396	$	1,326,369	$	1,325,101
By geography (8)
Canada	$	542,331	$	217,583	$	9,771	$	66,205	$	36,072	$	871,962	$	862,695
U.S.		140,146		59,667		8,099		54,374		17,211		279,497		270,134
Europe		45,605		18,232		1,439		43,443		21,938		130,657		146,789
Other International		31,578		2,967		161		5,372		4,175		44,253		45,483
Total exposure (7)	$	759,660	$	298,449	$	19,470	$	169,394	$	79,396	$	1,326,369	$	1,325,101

(1) EAD for standardized exposures are reported net of allowance for impaired assets and EAD for internal ratings based exposures are reported gross of all allowance for credit losses and partial write-offs as per regulatory definitions.

(2) Counterparty credit risk EAD reflects exposure amounts after netting. Collateral is included in EAD for repo-style transactions to the extent allowed by regulatory guidelines.

(3) EAD for undrawn credit commitments and other off-balance sheet amounts are reported after the application of credit conversion factors.

(4) Includes other off-balance sheet exposures such as letters of credit and guarantees.

(5) Includes residential mortgages and home equity lines of credit.

(6) Includes credit cards, unsecured lines of credit and overdraft protection products.

(7) Excludes securitization, banking book equities and other assets not subject to the standardized or internal ratings based approach.

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

Royal Bank of Canada        Third Quarter 2019        23

Q3 2019 vs. Q2 2019

Total credit risk exposure increased $1 billion from the prior quarter, primarily due to growth in loans and acceptances, mostly offset by the impact of foreign exchange translation, lower repo-style transactions and lower derivatives.

Retail exposure increased $13 billion or 2%, largely driven by growth in residential secured and other retail portfolios.

Wholesale exposure decreased $12 billion or 1%, primarily due to the impact of foreign exchange translation, lower repo-style transactions and lower derivatives, partially offset by growth in loans and acceptances.

The geographic mix of our credit risk exposure remained largely consistent to the prior quarter. Our exposure in Canada, the U.S., Europe and Other International was 66%, 21%, 10% and 3%, respectively (April 30, 2019 – 65%, 21%, 11% and 3%, respectively).

Net European exposure by country, asset type and client type (1) (2)
	As at
	July 31 2019																April 30 2019
	Asset type								Client type
(Millions of Canadian dollars)	Loans Outstanding		Securities (3)		Repo-style transactions		Derivatives		Financials		Sovereign		Corporate		Total		Total
U.K.	$	7,707	$	13,657	$	462	$	3,303	$	14,713	$	2,863	$	7,552	$	25,129	$	27,592
Germany		1,684		7,583		11		469		6,501		1,282		1,965		9,747		9,533
France		887		7,932		54		322		1,343		6,747		1,105		9,195		10,556
Total U.K., Germany, France	$	10,278	$	29,172	$	527	$	4,094	$	22,557	$	10,892	$	10,622	$	44,071	$	47,681
Ireland	$	825	$	46	$	362	$	45	$	514	$	2	$	762	$	1,278	$	1,329
Italy		55		84		–		19		82		14		62		158		171
Portugal		–		24		23		1		25		–		23		48		11
Spain		412		158		–		32		129		5		468		602		671
Total peripheral	$	1,292	$	312	$	385	$	97	$	750	$	21	$	1,315	$	2,086	$	2,182
Luxembourg (4)	$	2,339	$	5,754	$	234	$	40	$	1,816	$	5,244	$	1,307	$	8,367	$	10,072
Netherlands (4)		702		950		65		333		957		10		1,083		2,050		1,800
Norway		208		2,306		6		37		2,293		2		262		2,557		2,108
Sweden		269		2,781		16		44		2,304		517		289		3,110		4,284
Switzerland		1,057		5,814		163		262		805		5,528		963		7,296		5,504
Other		1,751		2,417		147		429		1,480		1,518		1,746		4,744		4,348
Total other Europe	$	6,326	$	20,022	$	631	$	1,145	$	9,655	$	12,819	$	5,650	$	28,124	$	28,116
Net exposure to Europe (5)	$	17,896	$	49,506	$	1,543	$	5,336	$	32,962	$	23,732	$	17,587	$	74,281	$	77,979

(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) Exposures are calculated on a fair value basis and net of collateral, which includes $130.9 billion against repo-style transactions (April 30, 2019 – $134.9 billion) and $13.1 billion against derivatives (April 30, 2019 – $9.7 billion).

(3) Securities include $11.4 billion of trading securities (April 30, 2019 – $13.7 billion), $22.5 billion of deposits (April 30, 2019 – $24.7 billion) and $15.6 billion of securities carried at FVOCI (April 30, 2019 – $16.5 billion).

(4) Excludes $2.5 billion (April 30, 2019 – $2.1 billion) of exposures to supranational agencies.

(5) Reflects $1.1 billion of mitigation through credit default swaps, which are largely used to hedge single name exposures and market risk (April 30, 2019 – $1.2 billion).

Q3 2019 vs. Q2 2019

Net credit risk exposure to Europe decreased $3.7 billion from last quarter, primarily driven by lower trading securities largely in the United Kingdom and lower deposits with central banks largely in Luxembourg, partially offset by higher derivatives primarily in the United Kingdom.

Our European corporate loan book is managed on a global basis with underwriting standards reflecting the same approach to the use of our balance sheet as we have applied in both Canada and the U.S. PCL on loans during the quarter was $40 million. The gross impaired loans ratio of this loan book was 21 bps, up 5 bps from last quarter, mainly due to one account.

24        Royal Bank of Canada        Third Quarter 2019

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 July 31, 2019
(Millions of Canadian dollars, except percentage amounts)	Residential mortgages										Home equity lines of credit
	Insured (1)				Uninsured				Total		Total
Region (2)
Canada
Atlantic provinces	$	7,639	53	%	$	6,877	47	%	$	14,516	$	1,860
Quebec		12,663	37			21,163	63			33,826		3,548
Ontario		36,881	30			87,546	70			124,427		16,815
Alberta		20,627	54			17,660	46			38,287		6,436
Saskatchewan and Manitoba		8,942	50			8,989	50			17,931		2,399
B.C. and territories		14,927	29			35,902	71			50,829		8,456
Total Canada (3)	$	101,679	36	%	$	178,137	64	%	$	279,816	$	39,514
U.S. (4)		–	–			15,980	100			15,980		1,683
Other International (4)		6	–			3,173	100			3,179		1,284
Total International	$	6	–	%	$	19,153	100	%	$	19,159	$	2,967
Total	$	101,685	34	%	$	197,290	66	%	$	298,975	$	42,481
	As at April 30, 2019
(Millions of Canadian dollars, except percentage amounts)	Residential mortgages										Home equity lines of credit
	Insured (1)				Uninsured				Total		Total
Region (2)
Canada
Atlantic provinces	$	7,542	53	%	$	6,681	47	%	$	14,223	$	1,876
Quebec		12,575	39			19,883	61			32,458		3,622
Ontario		36,960	31			83,228	69			120,188		16,796
Alberta		20,407	54			17,236	46			37,643		6,526
Saskatchewan and Manitoba		8,877	50			8,709	50			17,586		2,442
B.C. and territories		14,969	30			34,727	70			49,696		8,375
Total Canada (3)	$	101,330	37	%	$	170,464	63	%	$	271,794	$	39,637
U.S. (4)		–	–			15,130	100			15,130		2,040
Other International (4)		7	–			3,205	100			3,212		1,421
Total International	$	7	–	%	$	18,335	100	%	$	18,342	$	3,461
Total	$	101,337	35	%	$	188,799	65	%	$	290,136	$	43,098

(1) 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.

(2) Region is based upon address of the property mortgaged. The Atlantic provinces are comprised of Newfoundland and Labrador, Prince Edward Island, Nova Scotia and New Brunswick, and B.C. and territories are comprised of British Columbia, Nunavut, Northwest Territories and Yukon.

(3) Total consolidated residential mortgages in Canada of $280 billion (April 30, 2019 – $272 billion) was largely comprised of $256 billion (April 30, 2019 – $248 billion) of residential mortgages and $7 billion (April 30, 2019 – $7 billion) of mortgages with commercial clients, of which $4 billion (April 30, 2019 – $4 billion) are insured mortgages, both in Canadian Banking, and $17 billion (April 30, 2019 – $17 billion) of residential mortgages in Capital Markets held for securitization purposes.

(4) Home equity lines of credit include term loans collateralized by residential mortgages.

Home equity lines of credit are uninsured and reported within the personal loan category. As at July 31, 2019, home equity lines of credit in Canadian Banking were $39 billion (April 30, 2019 – $40 billion). Approximately 98% of these home equity lines of credit (April 30, 2019 – 98%) are secured by a first lien on real estate, and 7% (April 30, 2019 – 7%) of the total Homeline clients pay the scheduled interest payment only.

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
	July 31 2019									April 30 2019
	Canada			U.S. and other International			Total			Canada			U.S. and other International			Total
Amortization period
£ 25 years		72	%		39	%		69	%		71	%		41	%		69	%
> 25 years £ 30 years		23			61			26			23			59			25
> 30 years £ 35 years		4			–			4			4			–			4
> 35 years		1			–			1			2			–			2
Total		100	%		100	%		100	%		100	%		100	%		100	%

Royal Bank of Canada        Third Quarter 2019        25

Average loan-to-value (LTV) ratios

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 nine months ended
	July 31 2019						April 30 2019						July 31 2019
	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		74	%		75	%		72	%		75	%		73	%		74	%
Quebec		72			74			71			73			72			73
Ontario		70			68			70			68			70			68
Alberta		73			72			72			71			73			72
Saskatchewan and Manitoba		74			74			74			74			74			74
B.C. and territories		68			65			67			64			67			64
U.S.		74			n.m.			73			n.m.			74			n.m.
Other International		71			n.m.			71			n.m.			71			n.m.
Average of newly originated and acquired for the period (4), (5)		71	%		69	%		70	%		68	%		70	%		69	%
Total Canadian Banking residential mortgages portfolio (6)		57	%		50	%		57	%		50	%		57	%		50	%

(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) Region is based upon address of the property mortgaged. The Atlantic provinces are comprised of Newfoundland and Labrador, Prince Edward Island, Nova Scotia and New Brunswick, and B.C. and territories are comprised of British Columbia, Nunavut, Northwest Territories and Yukon.

(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

26        Royal Bank of Canada        Third Quarter 2019

Credit quality performance

The following credit quality performance tables and analysis provide information on loans, which represents loans, acceptances and commitments, and other financial assets.

Provision for credit losses

	For the three months ended									For the nine months ended
(Millions of Canadian dollars, except percentage amounts)	July 31 2019			April 30 2019			July 31 2018			July 31 2019			July 31 2018
Personal & Commercial Banking	$	345		$	385		$	330		$	1,077		$	948
Wealth Management		27			30			3			83			(19	)
Capital Markets		56			27			4			226			20
Corporate Support and other		1			(1	)		1			–			1
PCL – Loans	$	429		$	441		$	338		$	1,386		$	950
PCL – Other financial assets		(4	)		(15	)		8			(21	)		4
Total PCL	$	425		$	426		$	346		$	1,365		$	954
PCL on loans is comprised of:
Retail	$	23		$	30		$	44		$	86		$	90
Wholesale		7			(24	)		46			43			(11	)
PCL on performing loans	$	30		$	6		$	90		$	129		$	79
Retail	$	275		$	258		$	259		$	802		$	763
Wholesale		124			177			(11	)		455			108
PCL on impaired loans	$	399		$	435		$	248		$	1,257		$	871
PCL – Loans	$	429		$	441		$	338		$	1,386		$	950
PCL on loans as a % of average net loans and acceptances		0.27%			0.29%			0.23%			0.30%			0.23%
PCL on impaired loans as a % of average net loans and acceptances		0.25%			0.29%			0.17%			0.27%			0.21%
Additional information by geography (1)
Canada
Residential mortgages	$	7		$	6		$	10		$	23		$	27
Personal		118			116			117			355			337
Credit cards		128			122			115			366			341
Small business		11			9			9			25			24
Retail		264			253			251			769			729
Wholesale		62			113			3			216			58
PCL on impaired loans	$	326		$	366		$	254		$	985		$	787
U.S.
Retail	$	4		$	1		$	1		$	7		$	3
Wholesale		16			48			7			174			30
PCL on impaired loans	$	20		$	49		$	8		$	181		$	33
Other International
Retail	$	7		$	4		$	7		$	26		$	31
Wholesale		46			16			(21	)		65			20
PCL on impaired loans	$	53		$	20		$	(14	)	$	91		$	51
PCL on impaired loans	$	399		$	435		$	248		$	1,257		$	871

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

Q3 2019 vs. Q3 2018

Total PCL was $425 million. PCL on loans of $429 million increased $91 million, or 27% from the prior year, due to higher provisions in Capital Markets, Wealth Management and Personal & Commercial Banking.

The PCL ratio on loans of 27 bps increased 4 bps, and the PCL on impaired loans ratio of 25 bps increased 8 bps.

PCL on performing loans of $30 million decreased $60 million, mainly due to lower provisions in Personal & Commercial Banking and Capital Markets.

PCL on impaired loans of $399 million increased $151 million, due to higher provisions in Capital Markets, Personal & Commercial Banking and Wealth Management.

PCL on loans in Personal & Commercial Banking increased $15 million, largely reflecting higher provisions on impaired loans in Canadian Banking, mainly in our commercial portfolios. This was partially offset by lower provisions on performing loans in our Canadian Banking portfolios, as the prior year reflected unfavourable changes in macroeconomic factors.

PCL on loans in Wealth Management increased $24 million, due to higher provisions on impaired loans in U.S. Wealth Management (including City National Bank), mainly in a few accounts.

PCL on loans in Capital Markets increased $52 million, largely driven by higher provisions on impaired loans, mainly in a few accounts, while the prior year reflected higher recoveries. This was partially offset by lower provisions on performing loans in the current year.

Royal Bank of Canada        Third Quarter 2019        27

Q3 2019 vs. Q2 2019

PCL on loans of $429 million decreased $12 million, or 3% from the prior quarter, mainly due to lower provisions in Personal & Commercial Banking, partially offset by higher provisions in Capital Markets.

The PCL ratio on loans decreased 2 bps, and the PCL on impaired loans ratio decreased 4 bps.

PCL on performing loans of $30 million increased $24 million, primarily relating to higher provisions in Capital Markets.

PCL on impaired loans of $399 million decreased $36 million from the prior quarter, mainly due to lower provisions in Personal & Commercial Banking.

PCL on loans in Personal & Commercial Banking decreased $40 million, as the previous quarter included higher provisions on impaired loans in Canadian Banking, largely from a couple of accounts in our commercial portfolios.

PCL on loans in Capital Markets increased $29 million, largely driven by higher provisions on performing loans, due to unfavourable changes in macroeconomic factors compared to the prior quarter.

Q3 2019 vs. Q3 2018 (Nine months ended)

Total PCL was $1,365 million. PCL on loans of $1,386 million increased $436 million, or 46% from the prior year, due to higher provisions in Capital Markets, Personal & Commercial Banking and Wealth Management.

The PCL ratio on loans increased 7 bps, and the PCL on impaired loans ratio increased 6 bps.

PCL on performing loans of $129 million increased $50 million, reflecting higher provisions in Wealth Management and Capital Markets, partially offset by lower provisions in Personal & Commercial Banking.

PCL on impaired loans of $1,257 million increased $386 million from the prior year, mainly due to higher provisions in Personal & Commercial Banking and Capital Markets.

PCL on loans in Personal & Commercial Banking increased $129 million, reflecting higher provisions on impaired loans in Canadian Banking, mainly from a couple of accounts in our commercial portfolios. This was partially offset by lower provisions on performing loans, due to favourable credit migration in our Caribbean Banking portfolios, and favourable changes in macroeconomic factors compared to the prior year in our commercial portfolios in Canadian Banking.

PCL on loans in Wealth Management increased $102 million, primarily in U.S. Wealth Management (including City National). PCL on performing loans increased by $54 million, largely due to higher repayments and maturities in the prior year. The current year also reflected unfavourable changes in macroeconomic factors compared to last year. In addition, PCL on impaired loans increased $48 million, mainly in a few accounts.

PCL on loans in Capital Markets increased $206 million, largely driven by higher provisions on impaired loans, mainly in a few accounts. Higher provisions on performing loans, driven by unfavourable changes in macroeconomic factors compared to the prior year, also contributed to the increase.

28        Royal Bank of Canada        Third Quarter 2019

Gross impaired loans

	As at
(Millions of Canadian dollars, except percentage amounts)	July 31 2019			April 30 2019			July 31 2018
Personal & Commercial Banking	$	1,704		$	1,786		$	1,632
Wealth Management		258			243			194
Capital Markets		1,028			1,013			495
Corporate Support and other		–			–			–
Total GIL	$	2,990		$	3,042		$	2,321
Canada (1)
Retail	$	727		$	763		$	710
Wholesale		664			630			383
GIL		1,391			1,393			1,093
U.S. (1)
Retail	$	31		$	31		$	32
Wholesale		929			969			354
GIL		960			1,000			386
Other International (1)
Retail	$	302		$	324		$	336
Wholesale		337			325			506
GIL		639			649			842
Total GIL	$	2,990		$	3,042		$	2,321
Impaired loans, beginning balance	$	3,042		$	2,782		$	2,655
Classified as impaired during the period (new impaired) (2)		686			1,162			387
Net repayments (2)		(223	)		(129	)		(249	)
Amounts written off		(437	)		(501	)		(395	)
Other (2), (3)		(78	)		(272	)		(77	)
Impaired loans, balance at end of period	$	2,990		$	3,042		$	2,321
GIL as a % of related loans and acceptances
Total GIL as a % of related loans and acceptances		0.47%			0.49%			0.40%
Personal & Commercial Banking		0.37%			0.40%			0.38%
Canadian Banking		0.28%			0.29%			0.26%
Caribbean Banking		5.72%			6.23%			6.63%
Wealth Management		0.39%			0.38%			0.34%
Capital Markets		1.02%			0.99%			0.57%

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

(2) 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 foreign exchange translation and other movements amounts are not reasonably determinable.

(3) Includes return to performing status during the period, recoveries of loans and advances previously written off, sold, and foreign exchange translation and other movements.

Q3 2019 vs. Q3 2018

Total GIL of $2,990 million increased $669 million or 29% from the prior year, and the total GIL ratio of 47 bps increased 7 bps, mainly reflecting higher impaired loans in Capital Markets.

GIL in Personal & Commercial Banking increased $72 million or 4%, primarily due to higher impaired loans in our commercial portfolios in Canadian Banking, partially offset by lower impaired loans in our Caribbean Banking portfolios.

GIL in Wealth Management increased $64 million or 33%, primarily reflecting higher impaired loans in U.S. Wealth Management (including City National), mainly due to a few accounts.

GIL in Capital Markets increased $533 million or 108%, mainly due to a few accounts in a couple of sectors.

Q3 2019 vs. Q2 2019

Total GIL decreased $52 million or 2% from the prior quarter, and the total GIL ratio of 47 bps improved 2 bps, mainly reflecting lower impaired loans in Personal & Commercial Banking.

GIL in Personal & Commercial Banking decreased $82 million or 5%, mainly due to repayments in Caribbean Banking and write-offs in Canadian Banking.

GIL in Wealth Management increased $15 million or 6%, primarily reflecting higher impaired loans in U.S. Wealth Management (including City National), mainly due to a few accounts, partially offset by repayments.

GIL in Capital Markets increased $15 million or 1%, as new impaired loans were partially offset by repayments.

Royal Bank of Canada        Third Quarter 2019        29

Allowance for credit losses (ACL)

	As at
(Millions of Canadian dollars)	July 31 2019		April 30 2019		July 31 2018
Personal & Commercial Banking	$	2,671	$	2,692	$	2,523
Wealth Management		243		218		196
Capital Markets		405		378		335
Corporate Support and other		2		2		3
ACL on loans	$	3,321	$	3,290	$	3,057
ACL on other financial assets		51		56		113
Total ACL	$	3,372	$	3,346	$	3,170
ACL on loans is comprised of:
Retail	$	1,839	$	1,818	$	1,724
Wholesale		678		677		614
ACL on performing loans	$	2,517	$	2,495	$	2,338
ACL on impaired loans		804		795		719
Additional information by geography (1)
Canada
Retail	$	174	$	169	$	161
Wholesale		163		192		104
ACL on impaired loans	$	337	$	361	$	265
U.S.
Retail	$	2	$	–	$	1
Wholesale		137		141		126
ACL on impaired loans	$	139	$	141	$	127
Other International
Retail	$	168	$	169	$	171
Wholesale		160		124		156
ACL on impaired loans	$	328	$	293	$	327
ACL on impaired loans	$	804	$	795	$	719

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

Q3 2019 vs. Q3 2018

Total ACL of $3,372 million increased $202 million or 6% from the prior year, reflecting an increase of $264 million in ACL on loans and a decrease of $62 million in ACL on other financial assets.

ACL on performing loans of $2,517 million increased $179 million from the prior year, reflecting higher ACL in Personal & Commercial Banking, Capital Markets and Wealth Management, mainly driven by volume growth and unfavourable changes in macroeconomic factors compared to the prior year.

ACL on impaired loans of $804 million increased $85 million from the prior year, mainly due to higher ACL in Personal & Commercial Banking and Capital Markets.

ACL on other financial assets decreased $62 million, mainly due to the restructuring of Barbados securities in Personal & Commercial Banking, in the fourth quarter of the prior year.

Q3 2019 vs. Q2 2019

Total ACL of $3,372 million increased $26 million or 1% from the prior quarter, largely due to higher ACL on performing loans.

For further details, refer to Note 5 of our Condensed Financial Statements.

Market risk

Market risk is defined to be the impact of market prices upon our financial condition. This includes potential gains or losses 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 2018 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 of Directors. 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).

Market risk controls are also in place to manage structural interest rate risk (SIRR) arising from traditional banking products. Factors contributing to SIRR include the mismatch between future asset and liability repricing dates, relative changes in asset and liability 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, we assess two primary financial metrics, Net Interest Income (NII) risk and Economic Value of Equity (EVE) risk, under a range of market shocks and scenarios. For further details on our approach to the management of market risk, refer to the Market risk section of our 2018

30        Royal Bank of Canada        Third Quarter 2019

Annual Report. There has been no material change to the SIRR measurement methodology, controls, or limits from those described in our 2018 Annual Report.

Market risk measures – FVTPL positions

VaR and SVaR

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

	July 31, 2019										April 30, 2019						July 31, 2018
	As at			For the three months ended							As at			For the three months ended			As at			For the three months ended
(Millions of Canadian dollars)				Average			High		Low					Average						Average
Equity	$	18		$	17		$	24	$	11	$	14		$	15		$	11		$	10
Foreign exchange		3			4			5		2		4			4			4			5
Commodities		3			1			3		1		1			1			2			2
Interest rate (1)		14			14			16		12		15			13			10			17
Credit specific (2)		4			4			5		4		5			5			4			5
Diversification (3)		(16	)		(17	)		n.m.		n.m.		(21	)		(18	)		(15	)		(17	)
Market risk VaR	$	26		$	23		$	29	$	17	$	18		$	20		$	16		$	22
Market risk Stressed VaR	$	113		$	106		$	123	$	84	$	86		$	96		$	57		$	66
	July 31, 2019										July 31, 2018
	As at			For the nine months ended							As at			For the nine months ended
(Millions of Canadian dollars)				Average			High		Low					Average
Equity	$	18		$	18		$	30	$	11	$	11		$	14
Foreign exchange		3			5			13		2		4			4
Commodities		3			2			4		1		2			2
Interest rate (1)		14			14			19		11		10			18
Credit specific (2)		4			5			6		4		4			5
Diversification (3)		(16	)		(18	)		n.m.		n.m.		(15	)		(18	)
Market risk VaR	$	26		$	26		$	45	$	15	$	16		$	25
Market risk Stressed VaR	$	113		$	109		$	161	$	79	$	57		$	81

(1) General credit spread risk and funding spread risk associated with uncollateralized derivatives are included under interest rate VaR.

(2) Credit specific risk captures issuer-specific credit spread volatility.

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

n.m. not meaningful

Q3 2019 vs. Q3 2018

Average market risk VaR of $23 million remained relatively stable as the effects of increased equity derivatives exposure in Q3 2019 were balanced out by lower average inventory levels in fixed income and other portfolios.

Average SVaR of $106 million increased $40 million from the prior year, largely due to growth in certain fixed income portfolios as well as increased equity derivatives exposure noted above.

Q3 2019 vs. Q2 2019

Average market risk VaR of $23 million increased $3 million and average SVaR of $106 million increased $10 million, mainly due to increased equity derivatives exposure and growth in certain fixed income portfolios.

Q3 2019 vs. Q3 2018 (Nine months ended)

Average market risk VaR of $26 million remained stable and average SVaR of $109 million increased $28 million from the prior year, both mainly reflecting the factors noted above.

Royal Bank of Canada        Third Quarter 2019        31

The following chart displays a bar graph of our daily trading profit and loss and a line graph of our daily market risk VaR. We incurred no net trading losses in the three months ended July 31, 2019 and April 30, 2019.

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 FVTPL. Consequently, changes in the fair values of these assets are recorded in investment income within Total revenue 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, claims and acquisition expense. As at July 31, 2019, we had liabilities with respect to insurance obligations of $11.4 billion, up from $11.0 billion in the prior quarter, and assets of $9.8 billion in support of the liabilities, up from $9.3 billion last quarter.

Market risk measures – Structural Interest Rate Sensitivities

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 our structural balance sheet, assuming no subsequent hedging. Rate floors are applied within the declining rates scenarios, with floor levels set based on rate changes experienced globally. Interest rate risk measures are based upon interest rate exposures at a specific time and continuously change as a result of business activities and management actions.

	July 31 2019																	April 30 2019					July 31 2018
	EVE risk								NII risk (1)
(Millions of Canadian dollars)	Canadian dollar impact			U.S. dollar impact (2)		Total			Canadian dollar impact			U.S. dollar impact (2)			Total			EVE risk		NII risk (1)			EVE risk		NII risk (1)
Before-tax impact of:
100bps increase in rates	$	(1,276	)		$  (9)		$  (1,285	)	$	268		$	119		$	387		$	(1,112)	$	469			$  (997)	$	580
100bps decrease in rates		1,132			(526)		606			(392	)		(156	)		(548	)		505		(612	)		583		(667	)

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

(2) Represents the impact on the SIRR portfolios held in our City National and U.S. banking operations.

As at July 31, 2019, an immediate and sustained -100 bps shock would have had a negative impact to our NII of $548 million, down from $612 million last quarter. An immediate and sustained +100 bps shock at the end of July 31, 2019 would have had a negative impact to the Bank’s EVE of $1,285 million, up from $1,112 million reported last quarter. The quarter-over-quarter changes in NII and EVE sensitivities are largely attributed to net growth in fixed rate assets. During the third quarter of 2019, NII and EVE risks remained well within approved limits.

Market risk measures for other material non-trading portfolios

Investment securities carried at FVOCI

We held $54.2 billion of investment securities carried at FVOCI as at July 31, 2019 compared to $54.9 billion in the prior quarter. We hold debt securities carried at FVOCI primarily as investments, as well as to manage liquidity risk and hedge interest rate risk in our non-trading banking balance sheet. Our portfolio of investment securities carried at FVOCI is interest rate sensitive and would impact OCI by a pre-tax change in value of $6 million as at July 31, 2019 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 change in value of $19 million, as measured by the change in value for a one basis point widening of credit spreads. The value

32        Royal Bank of Canada        Third Quarter 2019

of the investment securities carried at FVOCI included in our SIRR measure as at July 31, 2019 was $8.6 billion, up from $7.9 billion in the prior quarter. Our investment securities carried at FVOCI also include equity exposures of $0.4 billion as at July 31, 2019 compared to $0.5 billion last 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 $2.3 billion as at July 31, 2019 were down from $2.4 billion last quarter, and derivative liabilities of $2.3 billion as at July 31, 2019 were up from $2.2 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 $1.3 billion as at July 31, 2019, up from $0.9 billion as at April 30, 2019, and derivative liabilities of $1.8 billion as at July 31, 2019, unchanged from $1.8 billion last quarter. These derivative assets and liabilities are included in our SIRR measure and other internal non-trading market risk measures. We use interest rate swaps to manage our investment securities and SIRR. To the extent these swaps are considered effective, changes in their fair value are recognized in Other comprehensive income. The interest rate risk for the swaps designated as cash flow hedges, measured as the change in the fair value of the derivatives for a one basis point parallel increase in yields, was $10 million as of July 31, 2019, up from $7 million as of April 30, 2019.

Interest rate swaps are also used to hedge changes in the fair value of certain fixed-rate instruments. Changes in fair value of the hedged instruments that are related to interest rate movements and the corresponding interest rate swaps are reflected in the Consolidated Statements of 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, British pound, and Euro. 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

The derivative assets and liabilities related to non-trading activity also include interest rate swaps and foreign exchange derivatives that are not in designated hedge accounting relationships, which are used to manage other non-trading exposures. Changes in the fair value of these derivatives are reflected in the Consolidated Statements of Income. Derivative assets of $1.0 billion as at July 31, 2019 were down from $1.5 billion as at April 30, 2019, and derivative liabilities of $0.5 billion as at July 31, 2019 were up from $0.4 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 average value of the Canadian dollar relative to the average value of those currencies. Our most significant exposure is to the U.S. dollar, due to our 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 income 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 Risk-weighted Assets (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.

Royal Bank of Canada        Third Quarter 2019        33

Linkage of market risk to selected balance sheet items

The following tables provide 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 July 31, 2019
				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	$	26,863		$	–	$	26,863			Interest rate
Interest-bearing deposits with banks		31,553			17,404		14,149			Interest rate
Securities
Trading		140,421			130,575		9,846			Interest rate, credit spread
Investment, net of applicable allowance		100,240			–		100,240			Interest rate, credit spread, equity
Assets purchased under reverse repurchase agreements and securities borrowed		309,640			250,275		59,365			Interest rate
Loans
Retail		416,583			9,389		407,194			Interest rate
Wholesale		198,941			11,319		187,622			Interest rate
Allowance for loan losses		(3,131	)		–		(3,131	)		Interest rate
Segregated fund net assets		1,602			–		1,602			Interest rate
Other
Derivatives		98,774			96,454		2,320			Interest rate, foreign exchange
Other assets		79,708			4,238		75,470			Interest rate
Assets not subject to market risk (3)		5,699
Total assets	$	1,406,893		$	519,654	$	881,540
Liabilities subject to market risk
Deposits	$	881,211		$	102,681	$	778,530			Interest rate
Segregated fund liabilities		1,602			–		1,602			Interest rate
Other
Obligations related to securities sold short		33,602			33,602		–
Obligations related to assets sold under repurchase agreements and securities loaned		220,027			213,818		6,209			Interest rate
Derivatives		96,857			94,590		2,267			Interest rate, foreign exchange
Other liabilities		74,661			8,664		65,997			Interest rate
Subordinated debentures		9,818			–		9,818			Interest rate
Liabilities not subject to market risk (4)		6,737
Total liabilities	$	1,324,515		$	453,355	$	864,423
Total equity	$	82,378
Total liabilities and equity	$	1,406,893

(1) Traded risk includes positions that are classified or designated as FVTPL and positions whose revaluation gains and losses are reported in revenue. Market risk measures of VaR and 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 RBC Insurance and investment securities, net of applicable allowance, not included in SIRR.

(3) Assets not subject to market risk include $5,699 million of physical and other assets.

(4) Liabilities not subject to market risk include $6,737 million of payroll related and other liabilities.

34        Royal Bank of Canada        Third Quarter 2019

	As at April 30, 2019
				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	$	33,041		$	–	$	33,041		Interest rate
Interest-bearing deposits with banks		26,718			12,865		13,853		Interest rate
Securities
Trading		138,916			129,593		9,323		Interest rate, credit spread
Investment, net of applicable allowance		102,075			–		102,075		Interest rate, credit spread, equity
Assets purchased under reverse repurchase agreements and securities borrowed		309,520			239,657		69,863		Interest rate
Loans
Retail		407,222			7,770		399,452		Interest rate
Wholesale		198,263			9,236		189,027		Interest rate
Allowance for loan losses		(3,093	)		–		(3,093	)	Interest rate
Segregated fund net assets		1,561			–		1,561		Interest rate
Other
Derivatives		84,812			82,402		2,410		Interest rate, foreign exchange
Other assets		73,905			2,892		71,013		Interest rate
Assets not subject to market risk (3)		5,936
Total assets	$	1,378,876		$	484,415	$	888,525
Liabilities subject to market risk
Deposits	$	864,101		$	93,813	$	770,288		Interest rate
Segregated fund liabilities		1,561			–		1,561		Interest rate
Other
Obligations related to securities sold short		34,049			34,049		–
Obligations related to assets sold under repurchase agreements and securities loaned		223,980			218,288		5,692		Interest rate
Derivatives		82,168			79,957		2,211		Interest rate, foreign exchange
Other liabilities		76,895			8,814		68,081		Interest rate
Subordinated debentures		9,360			–		9,360		Interest rate
Liabilities not subject to market risk (4)		4,816
Total liabilities	$	1,296,930		$	434,921	$	857,193
Total equity	$	81,946
Total liabilities and equity	$	1,378,876

(1) Traded risk includes positions that are classified or designated as FVTPL and positions whose revaluation gains and losses are reported in revenue. Market risk measures of VaR and 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 RBC Insurance and investment securities, net of applicable allowance, not included in SIRR.

(3) Assets not subject to market risk include $5,936 million of physical and other assets.

(4) Liabilities not subject to market risk include $4,816 million of payroll related and other liabilities.

Liquidity and funding risk

Liquidity and funding risk (liquidity risk) is the risk that we may be unable to generate sufficient cash or its equivalents in a timely and cost-effective manner to meet our commitments as they come due. Liquidity risk arises from mismatches in the timing and value of on-balance sheet and off-balance sheet cash flows.

Our Liquidity Risk Management Framework (LRMF) is designed to ensure that we have sufficient liquidity to satisfy current and prospective commitments in both normal and stressed conditions. There have been no material changes to our LRMF as described in our 2018 Annual Report.

We continue to maintain liquidity and funding that is appropriate for the execution of our strategy. Liquidity risk remains well within our risk appetite.

Liquidity reserve

Our liquidity reserve consists of available unencumbered liquid assets as well as uncommitted and undrawn central bank borrowing facilities that could be accessed under extraordinary circumstances subject to satisfying certain preconditions as set by various Central Banks (e.g., BoC, the Fed, Bank of England, and Bank of France).

To varying degrees, unencumbered liquid assets represent a ready source of funding. Unencumbered assets are the difference between total and encumbered assets from both on- and off-balance sheet sources. Encumbered assets, in turn, are not considered a source of liquidity in measures of liquidity risk.

Although unused wholesale funding capacity, which is regularly assessed, could be another potential source of liquidity to mitigate stressed conditions, it is excluded in the determination of the liquidity reserve.

Royal Bank of Canada        Third Quarter 2019        35

	As at July 31, 2019
(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 due from banks	$	26,863	$	–	$	26,863	$	2,846	$	24,017
Interest-bearing deposits with banks		31,553		–		31,553		330		31,223
Securities issued or guaranteed by sovereigns, central banks or multilateral development banks (1)		197,020		307,372		504,392		342,783		161,609
Other securities		89,808		122,432		212,240		86,475		125,765
Undrawn credit lines granted by central banks (2)		11,380		–		11,380		–		11,380
Other assets eligible as collateral for discount (3)		106,819		–		106,819		–		106,819
Other liquid assets (4)		23,190		–		23,190		22,746		444
Total liquid assets	$	486,633	$	429,804	$	916,437	$	455,180	$	461,257

	As at April 30, 2019
(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 due from banks	$	33,041	$	–	$	33,041	$	2,758	$	30,283
Interest-bearing deposits with banks		26,718		–		26,718		335		26,383
Securities issued or guaranteed by sovereigns, central banks or multilateral development banks (1)		193,628		291,472		485,100		329,956		155,144
Other securities		89,309		129,715		219,024		97,427		121,597
Undrawn credit lines granted by central banks (2)		11,217		–		11,217		–		11,217
Other assets eligible as collateral for discount (3)		102,507		–		102,507		–		102,507
Other liquid assets (4)		19,466		–		19,466		19,072		394
Total liquid assets	$	475,886	$	421,187	$	897,073	$	449,548	$	447,525

	As at
(Millions of Canadian dollars)	July 31 2019		April 30 2019
Royal Bank of Canada	$	226,881	$	215,759
Foreign branches		71,360		73,112
Subsidiaries		163,016		158,654
Total unencumbered liquid assets	$	461,257	$	447,525

(1) 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).

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

(3) 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 BoC for advances under its Emergency Lending Assistance (ELA) program. ELA is not considered a source 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 collateral to meet requirements and mitigate further market liquidity disruption. The balance also includes our unencumbered mortgage loans that qualify as eligible collateral at Federal Home Loan Bank (FHLB).

(4) Encumbered liquid assets amount represents cash collateral and margin deposit amounts pledged related to over-the-counter (OTC) and exchange-traded derivative transactions.

The liquidity reserve is typically most affected by routine flows of client banking activity where liquid asset portfolios adjust to the change in cash balances, and additionally from capital markets activities where business strategies and client flows may also affect the addition or subtraction of liquid assets in the overall calculation of the liquidity reserve. Corporate Treasury also affects liquidity reserves through the management of funding issuances where reserves absorb timing mismatches between debt issuances and deployment into business activities.

Q3 2019 vs. Q2 2019

Total liquid assets increased $19 billion or 2%, primarily due to an increase in securities received as collateral under collateral swap and reverse repo transactions. Other assets eligible as collateral for discount resulting from higher balances of residential mortgages eligible to pledge to the FHLB and cash collateral received as margin also contributed to the increase. However, the increase in collateral received was offset by a corresponding increase in collateral pledged under encumbered liquid assets due to collateral swap transactions.

36        Royal Bank of Canada        Third Quarter 2019

Asset encumbrance

The table below provides a summary of cash, securities and other assets, distinguishing between those that are encumbered or available for sale or use as collateral in secured funding transactions. Other assets, such as mortgages and credit card receivables, can also be monetized, albeit over longer timeframes than those required for marketable securities. As at July 31, 2019, our Unencumbered assets available as collateral comprised 28% of total assets (April 30, 2019 – 28%).

Asset encumbrance

	As at
	July 31 2019												April 30 2019
	Encumbered				Unencumbered								Encumbered				Unencumbered
(Millions of Canadian dollars)	Pledged as collateral		Other (1)		Available as collateral (2)		Other (3)			Total			Pledged as collateral		Other (1)		Available as collateral (2)		Other (3)			Total
Cash and due from banks	$	–	$	2,846	$	24,017	$	–		$	26,863		$	–	$	2,758	$	30,283	$	–		$	33,041
Interest-bearing deposits with banks		–		330		31,223		–			31,553			–		335		26,383		–			26,718
Securities
Trading		38,675		–		99,037		2,709			140,421			42,029		–		94,404		2,483			138,916
Investment, net of applicable allowance		14,503		–		85,670		67			100,240			15,169		–		86,843		63			102,075
Assets purchased under reverse repurchase agreements and securities borrowed (4)		389,699		22,707		46,293		5,340			464,039			390,172		22,357		42,917		7,334			462,780
Loans
Retail
Mortgage securities		30,898		–		37,339		–			68,237			30,512		–		37,203		–			67,715
Mortgage loans		42,155		–		20,552		168,031			230,738			41,021		–		17,284		164,116			222,421
Non-mortgage loans		7,245		–		63,275		47,088			117,608			7,351		–		62,032		47,703			117,086
Wholesale		–		–		35,338		163,603			198,941			–		–		34,994		163,269			198,263
Allowance for loan losses		–		–		–		(3,131	)		(3,131	)		–		–		–		(3,093	)		(3,093	)
Segregated fund net assets		–		–		–		1,602			1,602			–		–		–		1,561			1,561
Other
Derivatives		–		–		–		98,774			98,774			–		–		–		84,812			84,812
Other (5)		22,746		–		444		62,217			85,407			19,072		–		394		60,375			79,841
Total assets	$	545,921	$	25,883	$	443,188	$	546,300		$	1,561,292		$	545,326	$	25,450	$	432,737	$	528,623		$	1,532,136

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

(2) 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 BoC for advances under its ELA program. It also includes our unencumbered mortgage loans that qualify as eligible collateral at FHLB. We also lodge loans that qualify as eligible collateral for the discount window facility available to us at the FRBNY. 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 collateral criteria during periods of extraordinary and severe disruption to market-wide liquidity.

(3) 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.

(4) Includes bank-owned liquid assets and securities received as collateral from off-balance sheet securities financing, derivative transactions, and margin lending. Includes $22.7 billion (April 30, 2019 – $22.4 billion) of collateral received through reverse repurchase transactions that cannot be rehypothecated in its current legal form.

(5) The Pledged as collateral amount represents cash collateral and margin deposit amounts pledged related to OTC and exchange-traded derivative transactions.

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 and funding profile

As at July 31, 2019, relationship-based deposits, which are the primary source of funding for retail loans and mortgages, were $578 billion or 51% of our total funding (April 30, 2019 – $571 billion or 51%). The remaining portion is comprised of short- and long-term wholesale funding.

Funding for highly liquid assets consists primarily of short-term wholesale funding that reflects the monetization period of those assets. Long-term wholesale funding is used mostly to fund less liquid wholesale assets and to support liquidity asset buffers.

On April 18, 2018, the Department of Finance published bail-in regulations under the Canada Deposit Insurance Corporation (CDIC) Act and the Bank Act, which became effective September 23, 2018. Senior long-term debt issued by the bank on or after September 23, 2018, that has an original term greater than 400 days and is marketable, subject to certain exceptions, is subject to the Canadian Bank Recapitalization (Bail-in) regime. Under the Bail-in regime, in circumstances when the Superintendent of Financial Institutions has determined that a bank may no longer be viable, the Governor in Council may, upon a recommendation of the Minister of Finance that he or she is of the opinion that it is in the public interest to do so, grant an order directing the CDIC to convert all or a portion of certain shares and liabilities of that bank into common shares. As at July 31, 2019, the notional value of issued and outstanding long-term debt subject to conversion under the Bail-in regime was $14,869 million (April 30, 2019 – $8,533 million).

For further details on our wholesale funding, refer to the Composition of wholesale funding tables below.

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.

Royal Bank of Canada        Third Quarter 2019        37

Programs by geography

Canada	U.S.	Europe/Asia
•  Canadian Shelf Program – $25 billion	•  U.S. Shelf Program – US$40 billion	•  European Debt Issuance Program – US$40 billion
		•  Global Covered Bond Program – €32 billion
		•  Japanese Issuance Programs – ¥1 trillion

We also raise long-term funding using Canadian Deposit Notes, Canadian National Housing Act 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, 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 both currency and product. 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

38        Royal Bank of Canada        Third Quarter 2019

The following table provides our composition of wholesale funding based on remaining term to maturity:

Composition of wholesale funding (1)

	As at July 31, 2019
(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)	$	6,922	$	–	$	–	$	389	$	7,311	$	–	$	–	$	7,311
Certificates of deposit and commercial paper		5,331		11,726		12,298		25,743		55,098		2,177		–		57,275
Asset-backed commercial paper (3)		2,671		3,956		4,808		4,395		15,830		–		–		15,830
Senior unsecured medium-term notes (4)		1,520		1,227		2,260		14,057		19,064		25,369		26,510		70,943
Senior unsecured structured notes (5)		81		297		1,578		543		2,499		2,345		4,400		9,244
Mortgage securitization		–		588		524		2,167		3,279		3,462		10,936		17,677
Covered bonds/asset-backed securities (6)		–		3,912		–		6,293		10,205		13,361		21,967		45,533
Subordinated liabilities		99		–		2,000		971		3,070		1,500		5,269		9,839
Other (7)		9,276		1,390		695		1,269		12,630		146		9,919		22,695
Total	$	25,900	$	23,096	$	24,163	$	55,827	$	128,986	$	48,360	$	79,001	$	256,347
Of which:
– Secured	$	11,110	$	9,069	$	5,332	$	12,855	$	38,366	$	16,823	$	32,903	$	88,092
– Unsecured		14,790		14,027		18,831		42,972		90,620		31,537		46,098		168,255
	As at April 30, 2019
(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)	$	6,925	$	569	$	188	$	60	$	7,742	$	–	$	–	$	7,742
Certificates of deposit and commercial paper		5,906		11,110		16,878		19,719		53,613		–		134		53,747
Asset-backed commercial paper (3)		2,081		4,660		5,056		4,176		15,973		–		–		15,973
Senior unsecured medium-term notes (4)		1,375		4,043		2,865		11,113		19,396		26,363		24,165		69,924
Senior unsecured structured notes (5)		94		327		446		1,640		2,507		2,382		4,668		9,557
Mortgage securitization		–		514		587		2,317		3,418		2,119		11,928		17,465
Covered bonds/asset-backed securities (6)		–		1,503		3,991		6,353		11,847		11,773		21,402		45,022
Subordinated liabilities		–		1,000		102		2,000		3,102		2,500		3,847		9,449
Other (7)		9,796		3,310		1,221		803		15,130		156		9,968		25,254
Total	$	26,177	$	27,036	$	31,334	$	48,181	$	132,728	$	45,293	$	76,112	$	254,133
Of which:
– Secured	$	10,777	$	8,353	$	10,706	$	12,846	$	42,682	$	13,892	$	33,331	$	89,905
– Unsecured		15,400		18,683		20,628		35,335		90,046		31,401		42,781		164,228

(1) Excludes bankers’ acceptances and repos.

(2) Excludes deposits associated with services we provide to 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 and mortgage loans.

(7) Includes tender option bonds (secured) of $7,996 million (April 30, 2019 – $8,094 million), bearer deposit notes (unsecured) of $3,878 million (April 30, 2019 – $3,999 million), other long-term structured deposits (unsecured) of $9,765 million (April 30, 2019 – $9,811 million), and FHLB advances (secured) of $1,056 million (April 30, 2019 – $3,350 million).

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, based on a number of factors including, but not limited to, our financial strength, competitive position, liquidity and other factors not completely within our control.

Other than as noted below, there have been no changes to our major credit ratings as disclosed in our 2018 Annual Report.

Credit ratings (1)

	As at August 20, 2019
	Short-term debt		Legacy senior long-term debt (2)		Senior long- term debt (3)		Outlook
Moody’s (4)		P-1		Aa2		A2		stable
Standard & Poor’s (5)		A-1+		AA-		A		stable
Fitch Ratings		F1+		AA		AA		stable
DBRS (6)		R-1(high)		AA (high)		AA		stable

(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.

(2) Includes senior long-term debt issued prior to September 23, 2018 and senior long-term debt issued on or after September 23, 2018 which is excluded from the Bail-in regime.

(3) Includes senior long-term debt issued on or after September 23, 2018 which is subject to conversion under the Bail-in regime.

(4) On August 1, 2019, Moody’s affirmed our ratings with a stable outlook.

(5) On June 24, 2019, Standard & Poor’s affirmed our ratings with a stable outlook.

(6) On June 18, 2019, DBRS revised our outlook to stable from positive, upgraded our legacy senior long-term debt rating to AA (high) from AA and upgraded our senior long-term debt rating to AA from AA (low).

Royal Bank of Canada        Third Quarter 2019        39

Additional contractual obligations for rating downgrades

We are required to deliver collateral to certain counterparties in the event of a downgrade to our current credit rating. The following table provides 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 that would lead to early prepayment of principal.

Additional contractual obligations for rating downgrades

	As at
	July 31 2019						April 30 2019
(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	$	169	$	69	$	125	$	211	$	70	$	181
Other contractual funding or margin requirements (1)		180		176		–		187		179		–

(1) Includes Guaranteed Investment Certificates (GICs) issued by our municipal markets business out of New York.

Liquidity Coverage Ratio (LCR)

The LCR is a Basel III metric that measures the sufficiency of high-quality liquid assets (HQLA) available to meet liquidity needs over a 30-day period in an acute stress scenario. The Basel Committee on Banking Supervision (BCBS) and OSFI regulatory minimum coverage level for LCR is currently 100%.

OSFI requires Canadian banks to disclose the LCR using the standard Basel disclosure template and calculated using the average of daily LCR positions during the quarter.

40        Royal Bank of Canada        Third Quarter 2019

Liquidity coverage ratio common disclosure template (1)

		For the three months ended
	July 31 2019				April 30 2019
(Millions of Canadian dollars, except percentage amounts)	Total unweighted value (average) (2)		Total weighted value (average)		Total unweighted value (average) (2)		Total weighted value (average)
High-quality liquid assets
Total high-quality liquid assets (HQLA)		n.a.	$	224,629		n.a.	$	224,088
Cash outflows
Retail deposits and deposits from small business customers, of which:	$	258,989		19,680	$	258,262		19,749
Stable deposits (3)		88,841		2,665		86,823		2,605
Less stable deposits		170,148		17,015		171,439		17,144
Unsecured wholesale funding, of which:		302,672		142,038		294,733		137,808
Operational deposits (all counterparties) and deposits in networks of cooperative banks (4)		130,030		31,079		125,681		29,919
Non-operational deposits		148,207		86,524		142,231		81,068
Unsecured debt		24,435		24,435		26,821		26,821
Secured wholesale funding		n.a.		33,351		n.a.		35,654
Additional requirements, of which:		269,355		82,274		268,282		83,091
Outflows related to derivative exposures and other collateral requirements		66,828		44,430		63,802		44,671
Outflows related to loss of funding on debt products		6,080		6,080		6,884		6,884
Credit and liquidity facilities		196,447		31,764		197,596		31,536
Other contractual funding obligations (5)		20,370		20,370		19,547		19,547
Other contingent funding obligations (6)		431,682		7,842		431,700		7,714
Total cash outflows		n.a.	$	305,555		n.a.	$	303,563
Cash inflows
Secured lending (e.g., reverse repos)	$	327,511	$	56,368	$	302,587	$	59,777
Inflows from fully performing exposures		14,399		9,909		13,763		9,444
Other cash inflows		55,667		55,667		57,747		57,747
Total cash inflows		n.a.	$	121,944		n.a.	$	126,968
			Total adjusted value				Total adjusted value
Total HQLA			$	224,629			$	224,088
Total net cash outflows				183,611				176,595
Liquidity coverage ratio				122%				127%

(1) The LCR is calculated in accordance with OSFI’s Liquidity Adequacy Requirements (LAR) guideline, which, in turn, reflects liquidity-related requirements issued by the BCBS. The LCR for the quarter ended July 31, 2019 is calculated as an average of 64 daily positions.

(2) With the exception of other contingent funding obligations, unweighted inflow and outflow amounts are items maturing or callable in 30 days or less. Other contingent funding obligations also include debt securities with remaining maturity greater than 30 days.

(3) As defined by the 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.

(4) Operational deposits from customers other than retail and small and medium-sized enterprises (SMEs), 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.

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

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

n.a. not applicable

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 are actively managed to meet target LCR objectives. Our Level 1 assets, as calculated according to OSFI LAR and the BCBS LCR requirements, represent 82% of total HQLA. These assets consist of cash, placements with central banks and highly rated securities issued or guaranteed by governments, central banks and supranational 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 result from the application of withdrawal and non-renewal factors to demand and term deposits, 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 clients. Cash inflows arise primarily from maturing secured loans, interbank loans and non-HQLA securities.

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

Q3 2019 vs. Q2 2019

The average LCR for the quarter ended July 31, 2019 was 122%, which translates into a surplus of approximately $41 billion, compared to 127% in the prior quarter. The decrease in the LCR surplus from the previous quarter is primarily due to a change in funding and business mix.

Royal Bank of Canada        Third Quarter 2019        41

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 within the Liquidity and funding risk section of our 2018 Annual Report.

	As at July 31, 2019
(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	$	56,082	$	1	$	–	$	–	$	–	$	–	$	–	$	–	$	2,333		$	58,416
Securities
Trading (1)		89,430		28		89		23		10		80		67		8,529		42,165			140,421
Investment, net of applicable allowance		3,174		4,190		2,932		3,944		3,495		12,975		27,159		41,929		442			100,240
Assets purchased under reverse repurchase agreements and securities borrowed		186,792		65,378		29,239		12,108		7,207		558		–		–		8,358			309,640
Loans, net of applicable allowance		22,318		20,098		25,703		28,640		31,063		121,100		224,437		48,899		90,135			612,393
Other
Customers’ liability under acceptances		11,342		5,694		83		5		–		–		–		–		(23	)		17,101
Derivatives		4,985		6,740		6,651		3,756		2,981		10,504		18,316		44,841		–			98,774
Other financial assets		29,239		1,537		909		166		66		163		271		1,770		2,133			36,254
Total financial assets	$	403,362	$	103,666	$	65,606	$	48,642	$	44,822	$	145,380	$	270,250	$	145,968	$	145,543		$	1,373,239
Other non-financial assets		2,554		1,453		847		98		298		1,151		1,483		1,713		24,057			33,654
Total assets	$	405,916	$	105,119	$	66,453	$	48,740	$	45,120	$	146,531	$	271,733	$	147,681	$	169,600		$	1,406,893
Liabilities and equity
Deposits (2)
Unsecured borrowing	$	67,401	$	37,914	$	34,575	$	41,881	$	35,613	$	38,605	$	53,012	$	16,655	$	456,752		$	782,408
Secured borrowing		3,348		6,223		6,180		6,916		3,530		9,364		18,752		5,588		–			59,901
Covered bonds		1		2,986		–		4,825		–		13,493		11,925		5,672		–			38,902
Other
Acceptances		11,339		5,694		83		5		–		–		–		–		3			17,124
Obligations related to securities sold short		33,602		–		–		–		–		–		–		–		–			33,602
Obligations related to assets sold under repurchase agreements and securities loaned		181,479		26,230		4,685		290		461		–		–		–		6,882			220,027
Derivatives		4,859		7,511		6,042		3,386		3,303		10,479		17,219		44,047		11			96,857
Other financial liabilities		25,576		1,438		690		410		327		243		704		7,499		825			37,712
Subordinated debentures		100		–		–		–		–		–		317		9,401		–			9,818
Total financial liabilities	$	327,705	$	87,996	$	52,255	$	57,713	$	43,234	$	72,184	$	101,929	$	88,862	$	464,473		$	1,296,351
Other non-financial liabilities		1,204		915		2,245		1,830		248		779		734		11,132		9,077			28,164
Equity		–		–		–		–		–		–		–		–		82,378			82,378
Total liabilities and equity	$	328,909	$	88,911	$	54,500	$	59,543	$	43,482	$	72,963	$	102,663	$	99,994	$	555,928		$	1,406,893
Off-balance sheet items
Financial guarantees	$	435	$	1,424	$	2,915	$	2,165	$	2,843	$	847	$	5,303	$	16	$	42		$	15,990
Lease commitments		69		136		200		198		196		715		1,578		3,004		–			6,096
Commitments to extend credit		2,039		5,334		8,321		10,773		14,196		40,406		164,082		17,501		3,750			266,402
Other credit-related commitments		487		1,098		1,436		1,624		1,874		207		598		7		93,824			101,155
Other commitments		44		–		–		–		–		–		–		–		472			516
Total off-balance sheet items	$	3,074	$	7,992	$	12,872	$	14,760	$	19,109	$	42,175	$	171,561	$	20,528	$	98,088		$	390,159

(1) Trading debt securities classified as FVTPL 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 for our operations and liquidity needs, as explained in the preceding Deposit and funding profile section.

42        Royal Bank of Canada        Third Quarter 2019

	As at April 30, 2019
(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	$	57,442	$	3	$	–	$	–	$	–	$	–	$	–	$	–	$	2,314		$	59,759
Securities
Trading (1)		91,020		98		–		22		13		85		64		8,010		39,604			138,916
Investment, net of applicable allowance		1,745		5,373		2,819		2,589		4,104		12,080		29,869		42,989		507			102,075
Assets purchased under reverse repurchase agreements and securities borrowed		179,752		74,419		25,129		11,132		8,921		608		–		–		9,559			309,520
Loans, net of applicable allowance		23,935		20,676		25,332		25,340		30,879		121,194		218,327		49,019		87,690			602,392
Other
Customers’ liability under acceptances		10,415		5,666		11		2		5		–		–		–		(26	)		16,073
Derivatives		3,857		6,165		3,555		5,185		3,127		9,156		15,699		38,067		1			84,812
Other financial assets		25,014		1,287		611		390		75		149		264		1,814		2,226			31,830
Total financial assets	$	393,180	$	113,687	$	57,457	$	44,660	$	47,124	$	143,272	$	264,223	$	139,899	$	141,875		$	1,345,377
Other non-financial assets		2,080		1,352		35		1,014		333		1,503		1,482		1,468		24,232			33,499
Total assets	$	395,260	$	115,039	$	57,492	$	45,674	$	47,457	$	144,775	$	265,705	$	141,367	$	166,107		$	1,378,876
Liabilities and equity
Deposits (2)
Unsecured borrowing	$	56,402	$	40,044	$	43,148	$	33,069	$	37,624	$	37,183	$	50,801	$	16,205	$	451,183		$	765,659
Secured borrowing		2,689		6,277		7,458		4,043		5,420		6,827		21,373		6,432		–			60,519
Covered bonds		–		1,505		3,048		–		4,851		12,515		12,265		3,739		–			37,923
Other
Acceptances		10,406		5,666		11		2		5		–		–		–		9			16,099
Obligations related to securities sold short		34,049		–		–		–		–		–		–		–		–			34,049
Obligations related to assets sold under repurchase agreements and securities loaned		191,135		21,020		3,928		74		49		501		–		–		7,273			223,980
Derivatives		3,968		5,859		3,842		4,412		2,476		9,118		15,247		37,242		4			82,168
Other financial liabilities		26,724		2,180		1,798		319		433		220		684		7,664		885			40,907
Subordinated debentures		–		–		102		–		–		–		321		8,937		–			9,360
Total financial liabilities	$	325,373	$	82,551	$	63,335	$	41,919	$	50,858	$	66,364	$	100,691	$	80,219	$	459,354		$	1,270,664
Other non-financial liabilities		1,117		944		81		3,304		285		713		765		10,600		8,457			26,266
Equity		–		–		–		–		–		–		–		–		81,946			81,946
Total liabilities and equity	$	326,490	$	83,495	$	63,416	$	45,223	$	51,143	$	67,077	$	101,456	$	90,819	$	549,757		$	1,378,876
Off-balance sheet items
Financial guarantees	$	528	$	2,421	$	1,957	$	3,023	$	2,086	$	1,144	$	5,898	$	62	$	57		$	17,176
Lease commitments		69		136		200		195		192		716		1,561		3,044		–			6,113
Commitments to extend credit		2,460		5,004		7,629		9,382		14,389		37,045		165,072		18,321		2,608			261,910
Other credit-related commitments		842		1,170		1,130		1,425		1,539		357		669		121		101,324			108,577
Other commitments		98		–		–		–		–		–		–		–		482			580
Total off-balance sheet items	$	3,997	$	8,731	$	10,916	$	14,025	$	18,206	$	39,262	$	173,200	$	21,548	$	104,471		$	394,356

(1) Trading debt securities classified as FVTPL 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 for our operations and liquidity needs, as explained in the preceding Deposit and funding profile section.

Capital management

We continue to manage our capital in accordance with our Capital Management Framework as described in our 2018 Annual Report. In addition, we continue to monitor and prepare for new regulatory capital developments, including the BCBS Basel III reforms, in order to ensure timely and accurate compliance with these requirements. For additional details on new regulatory developments that relate to our Capital Management Framework, refer to the Capital, liquidity and other regulatory developments section of our Q1 2019, Q2 2019 and of this Q3 2019 Report to Shareholders.

OSFI expects Canadian banks to meet the Basel III targets for CET1, Tier 1 and Total capital ratios. Effective January 1, 2014, OSFI allowed Canadian banks to phase in the Basel III Credit Valuation Adjustment (CVA) risk capital charge over a five-year period ending December 31, 2018. As of January 1, 2019, the CVA scalars were fully phased-in for each tier of capital, resulting in all tiers of capital having the same risk-weighted assets value. In fiscal 2018, the CVA scalars were 80%, 83% and 86% for CET1, Tier 1 and Total capital, respectively.

The Financial Stability Board (FSB) has designated us as a Global Systemically Important Bank (G-SIB). This designation requires us to maintain a higher loss absorbency requirement (common equity as a percentage of risk-weighted assets) of 1%. As the Domestic Systemically Important Bank (D-SIB) requirement is equivalent to the G-SIB requirement of 1% of RWA, the G-SIB designation had no further impact to the loss absorbency requirements on our CET1 ratio.

On April 18, 2018, OSFI released its final guideline on Total Loss Absorbing Capacity (TLAC), which applies to Canadian D-SIBs as part of the Federal Government’s Bail-in regime. The guideline is consistent with the TLAC standard released on November 9, 2015 by the FSB for institutions designated as G-SIBs, but tailored to the Canadian context. The TLAC requirement is intended to address the sufficiency of a systemically important bank’s loss absorbing capacity in supporting its

Royal Bank of Canada        Third Quarter 2019        43

recapitalization in the event of its failure. TLAC is defined as the aggregate of Tier 1 capital, Tier 2 capital, and other TLAC instruments, which allow conversion in whole or in part into common shares under the CDIC Act and meet all of the eligibility criteria under the guideline.

TLAC requirements established two minimum standards, which are required to be met effective November 1, 2021: the risk-based TLAC ratio, which builds on the risk-based capital ratios described in the Capital Adequacy Requirements (CAR) guideline, and the TLAC leverage ratio, which builds on the leverage ratio described in OSFI’s Leverage Requirements guideline. OSFI has provided notification requiring systemically important banks to maintain a minimum TLAC ratio of 23.5%, which includes the revised Domestic Stability Buffer (DSB) effective October 31, 2019, as noted below, and a TLAC leverage ratio of 6.75%. We began issuing bail-in eligible debt in the fourth quarter of 2018 and this has contributed to improving our TLAC ratio. We expect our TLAC ratio to improve through normal course refinancing of maturing unsecured term debt.

Effective November 1, 2018, we were required to adopt OSFI’s revisions to the CAR guidelines relating to the securitization framework and the standardized approach for measuring counterparty credit risk.

The following table provides a summary of OSFI’s current regulatory target ratios under Basel III and Pillar 2 requirements. We are in compliance with all current capital and leverage requirements imposed by OSFI:

Basel III capital and leverage ratios

OSFI regulatory target requirements for large banks under Basel  III

RBC capital and leverage ratios as at July 31, 2019

Domestic Stability Buffer (3)

Minimum including Capital Buffers, D-SIB/G-SIB surcharge and Domestic Stability Buffer

Minimum

Capital Buffers (1)

Minimum including Capital Buffers

D-SIB/G-SIB Surcharge (2)

Minimum including Capital Buffers and D-SIB/G-SIB surcharge (2)

Common Equity Tier 1

> 4.5%

2.5%

> 7.0%

1.0%

> 8.0%

11.9%

1.75%

> 9.8%

Tier 1 capital

> 6.0%

2.5%

> 8.5%

1.0%

> 9.5%

13.0%

1.75%

> 11.3%

Total capital

> 8.0%

2.5%

> 10.5%

1.0%

> 11.5%

15.0%

1.75%

> 13.3%

Leverage ratio

> 3.0%

n.a.

> 3.0%

n.a.

> 3.0%

4.4%

n.a.

> 3.0%

(1) The capital buffers include the capital conservation buffer and the countercyclical capital buffer as prescribed by OSFI.

(2) A capital surcharge, equal to the higher of our D-SIB surcharge and the BCBS’s G-SIB surcharge, is applicable to risk-weighted capital.

(3) In 2018, OSFI required the public disclosure of their Pillar 2 DSB. Effective April 30, 2019, OSFI raised the level for the DSB to 1.75% of RWA from 1.5%. Effective October 31, 2019, OSFI has further raised the level for the DSB to 2.0% of RWA.

n.a. not applicable

The following table provides details on our regulatory capital, RWA, and capital and leverage ratios. Our capital position remains strong and our capital and leverage ratios remain well above OSFI regulatory targets.

	As at
(Millions of Canadian dollars, except percentage amounts and as otherwise noted)	July 31 2019		April 30 2019		October 31 2018
Capital (1)
CET1 capital	$	60,938	$	60,314	$	57,001
Tier 1 capital		66,615		65,992		63,279
Total capital		76,563		75,491		72,494
Risk-weighted Assets (RWA) used in calculation of capital ratios (1), (2)
CET1 capital RWA	$	510,664	$	510,463	$	495,528
Tier 1 capital RWA		510,664		510,463		495,993
Total capital RWA		510,664		510,463		496,459
Total capital RWA consisting of: (1)
Credit risk	$	415,977	$	414,523	$	401,534
Market risk		29,425		31,453		32,209
Operational risk		65,262		64,487		62,716
Total capital RWA	$	510,664	$	510,463	$	496,459
Capital ratios and Leverage ratio (1)
CET1 ratio		11.9%		11.8%		11.5%
Tier 1 capital ratio		13.0%		12.9%		12.8%
Total capital ratio		15.0%		14.8%		14.6%
Leverage ratio		4.4%		4.3%		4.4%
Leverage ratio exposure (billions)	$	1,529.4	$	1,521.2	$	1,450.8

(1) Capital, RWA, and capital ratios are calculated using OSFI’s CAR guideline based on the Basel III framework. The Leverage ratio is calculated using OSFI Leverage Requirements Guideline based on the Basel III framework.

(2) In fiscal 2018, amounts included CVA scalars of 80%, 83% and 86%, respectively.

44        Royal Bank of Canada        Third Quarter 2019

Q3 2019 vs. Q2 2019

(1) Represents rounded figures.

(2) Internal capital generation of $1.7 billion which represents Net income available to shareholders, less common and preferred shares dividends.

Our CET1 ratio was 11.9%, up 10 bps from last quarter, mainly reflecting internal capital generation, partially offset by higher RWA, the impact of lower discount rates in determining our pension and other post-employment benefit obligations, and share repurchases.

Our Tier 1 capital ratio of 13.0% was up 10 bps, reflecting the factors noted above under the CET1 ratio.

Our Total capital ratio of 15.0% was up 20 bps, reflecting the factors noted above under the Tier 1 ratio. Total capital ratio was also favourably impacted by the net issuance of subordinated debentures in the current quarter.

RWA increased $0.2 billion, mainly driven by business growth in wholesale and retail lending, largely offset by lower market risk and the impact of foreign exchange translation.

Our Leverage ratio of 4.4% was up 10 bps from last quarter, mainly reflecting internal capital generation, partially offset by higher leverage exposures and the impact of lower discount rates in determining our pension and other post-employment benefit obligations. The increase in leverage exposure was primarily attributable to lending, repo-style transactions, and other assets, partially offset by lower derivatives.

Selected capital management activity

The following table provides our selected capital management activity:

	For the three months ended July 31, 2019						For the nine months ended July 31, 2019
(Millions of Canadian dollars, except number of shares)	Number of shares (000s)			Amount			Number of shares (000s)			Amount
Tier 1 capital
Common shares activity
Issued in connection with share-based compensation plans (1)		545		$	38			1,230		$	87
Purchased for cancellation		(1,914	)		(24	)		(5,705	)		(70	)
Issuance of preferred shares, Series BO (2) (3)		–			–			14,000			350
Redemption of preferred shares, Series AD (2)		–			–			(10,000	)		(250	)
Redemption of preferred shares, Series AJ (2)		–			–			(13,579	)		(339	)
Redemption of preferred shares, Series AK (2)		–			–			(2,421	)		(61	)
Redemption of preferred shares, Series AL (2)		–			–			(12,000	)		(300	)
Tier 2 capital
Issuance of July 25, 2029 subordinated debentures (2) (3)					1,500						1,500
Redemption of July 17, 2024 subordinated debentures (2)					(1,000	)					(1,000	)

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

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

(3) Non-Viable Contingent Capital (NVCC) instruments.

On February 23, 2018, we announced a normal course issuer bid (NCIB) to purchase up to 30 million of our common shares. This NCIB was completed on February 26, 2019, with 9.7 million common shares repurchased and cancelled at a total cost of approximately $947 million.

On February 27, 2019, we announced an NCIB program to purchase up to 20 million of our common shares, commencing on March 1, 2019 and continuing until February 29, 2020, or such earlier date as we complete the repurchase of all shares permitted under the bid. Since the inception of this NCIB, the total number of common shares repurchased and cancelled was approximately 2.0 million, at a cost of approximately $208 million.

For the three months ended July 31, 2019, the total number of common shares repurchased and cancelled under our NCIB programs was approximately 1.9 million. The total cost of the shares repurchased was $197 million.

For the nine months ended July 31, 2019, the total number of common shares repurchased and cancelled under our NCIB programs was approximately 5.7 million. The total cost of the shares repurchased was $556 million.

We determine the amount and timing of the purchases under the NCIB, subject to prior consultation with OSFI. Purchases may be made through the TSX, the NYSE and other designated exchanges and alternative Canadian trading systems. The price paid for repurchased shares is at the prevailing market price at the time of acquisition.

Royal Bank of Canada        Third Quarter 2019        45

On February 24, 2019, we redeemed all 2.4 million Non-Cumulative Floating Rate First Preferred Shares Series AK, all 13.6 million Non-Cumulative 5-Year Rate Reset First Preferred Shares Series AJ, and all 12 million Non-Cumulative 5-Year Rate Reset First Preferred Shares Series AL, at a price of $25 per share.

On July 17, 2019, we redeemed all $1,000 million of our outstanding NVCC 3.04% subordinated debentures due on July 17, 2024 for 100% of their principal amount plus interest accrued to, but excluding, the redemption date.

On July 25, 2019, we issued $1,500 million of NVCC subordinated debentures. The notes bear interest at a fixed rate of 2.74% per annum until July 25, 2024, and at the three-month Canadian Dollar Offered Rate (CDOR) plus 0.98% thereafter until their maturity on July 25, 2029.

Selected share data

	As at July 31, 2019
(Millions of Canadian dollars, except number of shares and as otherwise noted)	Number of shares (000s)			Amount			Dividends declared per share
Common shares issued (1)		1,434,554		$	17,652			$    1.02
Treasury shares – common shares		(600	)		(59	)
Common shares outstanding		1,433,954		$	17,593
Stock options and awards
Outstanding		8,364
Exercisable		3,650
First preferred shares issued
Non-cumulative Series W (2)		12,000		$	300			$    0.31
Non-cumulative Series AA		12,000			300			0.28
Non-cumulative Series AC		8,000			200			0.29
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 AZ (3), (4)		20,000			500			0.23
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			0.34
Non-cumulative Series BM (3), (4)		30,000			750			0.34
Non-cumulative Series BO (3), (4)		14,000			350			0.30
Non-cumulative Series C-2 (5)		20			31			US$  16.88
Preferred shares issued		227,020		$	5,706
Treasury shares – preferred shares (6)		(36	)		(1	)
Preferred shares outstanding		226,984		$	5,705
Dividends
Common				$	1,464
Preferred (7)					66

(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 these shares into common shares at our option, subject to certain restrictions.

(3) Dividend rate will reset every five years.

(4) NVCC instruments.

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

(6) Positive amounts represent a short position in treasury shares.

(7) Dividends on preferred shares excludes distributions to non-controlling interests.

As at August 16, 2019, the number of outstanding common shares was 1,434,093,805 net of treasury shares held of 460,732, and the number of stock options and awards was 8,363,129.

NVCC provisions require the conversion of the capital instrument into a variable number of common shares in the event that OSFI deems a bank to be non-viable or a federal or provincial government in Canada publicly announces that a bank has accepted or agreed to accept a capital injection. If a NVCC trigger event were to occur, our NVCC capital instruments, which are the preferred shares Series AZ, BB, BD, BF, BH, BI, BJ, BK, BM, BO, and subordinated debentures due on September 29, 2026, June 4, 2025, January 20, 2026, January 27, 2026 and July 25, 2029, would be converted into RBC common shares pursuant to an automatic conversion formula with a conversion price based on the greater of: (i) a contractual 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 2,975 million RBC common shares, in aggregate, which would represent a dilution impact of 67.48% based on the number of RBC common shares outstanding as at July 31, 2019.

46        Royal Bank of Canada        Third Quarter 2019

Capital, liquidity, and other regulatory developments

Interest rate risk management guidelines

On May 30, 2019, OSFI revised its Interest Rate Risk Management guidelines which is a framework to identify, assess and manage interest rate risk. We will be required to implement the new guidelines on January 1, 2020. We are currently assessing the impact of the guidelines and do not anticipate any issues with meeting the January 1, 2020 effective date.

Domestic stability buffer (DSB)

In June 2019, OSFI announced that the DSB will be increased from 1.75% to 2.00% of total RWA, effective October 31, 2019. This change is to reflect OSFI’s view that key vulnerabilities such as Canadian household indebtedness, asset imbalances and institutional indebtedness to D-SIBs remain elevated. We do not anticipate any challenges in meeting this requirement by the effective date.

Basel III reforms

On July 18, 2019, OSFI revised its capital requirements for operational risk applicable to deposit taking institutions. Currently, we are required to apply the higher of the current Basel III Standardized Approach (SA) and the Advanced Measurement Approach (AMA) for measuring operational risk. Effective Q1 2020, institutions will be required to use the current SA as the use of AMA will no longer be effective. We do not expect an impact to our capital ratios resulting from this change. In addition, revisions to the Basel III Standardized Approach will be effective Q1 2021, one year in advance of BCBS requirements, and we are currently assessing the impact on adoption.

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 environment risk sections of our 2018 Annual Report and the Economic, market and regulatory review and outlook section of our Q1 2019, Q2 2019 and of this Q3 2019 Report to Shareholders. For further details on our framework and activities to manage risks, refer to the risk and Capital management sections of our 2018 Annual Report and the Risk management and Capital management sections of this Q3 2019 Report to Shareholders.

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. Our significant accounting policies are described in Note 2 of our audited 2018 Annual Consolidated Financial Statements and our Q3 2019 Condensed Financial Statements.

Changes in accounting policies and disclosures

Changes in accounting policies

During the first quarter, we adopted IFRS 15 Revenue from Contracts with Customers (IFRS 15). As permitted by the transition provisions of IFRS 15, we elected not to restate comparative period results; accordingly, all comparative period information prior to the first quarter of 2019 is presented in accordance with our previous accounting policies, as described in our 2018 Annual Report. As a result of the adoption of IFRS 15, we adjusted our opening retained earnings as at November 1, 2018 to align the recognition of certain fees with the transfer of the performance obligations. Refer to Note 2 of our Condensed Financial Statements for details of these changes.

Future changes in accounting policies and disclosures

In January 2016, the IASB issued IFRS 16 Leases (IFRS 16), which sets out the principles for the recognition, measurement, presentation and disclosure of leases. The standard removes 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. We plan to adopt IFRS 16 by adjusting our Consolidated Balance Sheet at November 1, 2019, the date of initial application, with no restatement of comparative periods.

Our transition to IFRS 16 includes a centralized enterprise-wide program and governance structure led by Finance to assess our existing lease portfolio and the impact on systems, processes, training, communication and financial reporting. We are finalizing upgrades to our systems, processes and internal controls as well as assessing the quantification of our lease assets and liabilities, the impact on the capital ratios and developing the additional disclosures required by the new standard.

As we prepare for our transition to IFRS 16, we will continue to monitor industry interpretations of the new standard and assess the potential impact to our implementation.

Other future changes in accounting policies and disclosures that are not yet effective for us are described in Note 2 of our audited 2018 Annual Consolidated Financial Statements.

Royal Bank of Canada        Third Quarter 2019        47

Controls and procedures

Disclosure controls and procedures

As of July 31, 2019, management evaluated, under the supervision of and with the participation of the President and Chief Executive Officer and the 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 Financial Officer concluded that our disclosure controls and procedures were effective as of July 31, 2019.

Internal control over financial reporting

No changes were made in our internal control over financial reporting during the quarter ended July 31, 2019 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 11 and 26 of our audited 2018 Annual Consolidated Financial Statements.

48        Royal Bank of Canada        Third Quarter 2019

EDTF recommendations index

We aim to present transparent, high-quality risk disclosures by providing disclosures in our 2018 Annual Report, Q3 2019 Report to Shareholders (RTS), Supplementary Financial Information package (SFI), and Pillar 3 Report, in accordance with recommendations from the Financial Stability Board’s (FSB) Enhanced Disclosure Task Force (EDTF). Information within the SFI and Pillar 3 Report is not and should not be considered incorporated by reference into our Q3 2019 Report to Shareholders.

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	48	112	1
	2	Define risk terminology and measures		50, 52-55 213-214	–
	3	Top and emerging risks		50-51	–
	4	New regulatory ratios	42-43	91-93	–
Risk governance, risk management and business model	5	Risk management organization		50, 52-55	–
	6	Risk culture		52-55	–
	7	Risk in the context of our business activities		98	–
	8	Stress testing		53-54, 67	–
Capital adequacy and risk-weighted assets (RWA)	9	Minimum Basel III capital ratios and Domestic systemically important bank surcharge	43	91-93	–
	10	Composition of capital and reconciliation of the accounting balance sheet to the regulatory balance sheet		–	20-23
	11	Flow statement of the movements in regulatory capital		–	24
	12	Capital strategic planning		90-93	–
	13	RWA by business segments		–	26
	14	Analysis of capital requirement, and related measurement model information		56-59	25,*
	15	RWA credit risk and related risk measurements		–	*
	16	Movement of risk-weighted assets by risk type		–	26
	17	Basel back-testing		53, 56-57	40
Liquidity	18	Quantitative and qualitative analysis of our liquidity reserve	34-35	73-75, 79-80	–
Funding	19	Encumbered and unencumbered assets by balance sheet category, and contractual obligations for rating downgrades	36, 39	75, 78	–
	20	Maturity analysis of consolidated total assets, liabilities and off-balance sheet commitments analyzed by remaining contractual maturity at the balance sheet date	41-42	80-81	–
	21	Sources of funding and funding strategy	36-38	75-77	–
Market risk	22	Relationship between the market risk measures for trading and non-trading portfolios and the balance sheet	33-34	71-72	–
	23	Decomposition of market risk factors	29-32	67-70	–
	24	Market risk validation and back-testing		67	–
	25	Primary risk management techniques beyond reported risk measures and parameters		67-70	–
Credit risk	26	Bank’s credit risk profile	22-29	56-66, 159-165	29-40,*
		Quantitative summary of aggregate credit risk exposures that reconciles to the balance sheet	66-70	106-111	*
	27	Policies for identifying impaired loans		57-59, 101-102, 123-126, 128-129	–
	28	Reconciliation of the opening and closing balances of impaired loans and impairment allowances during the year		–	31, 36
	29	Quantification of gross notional exposure for OTC derivatives or exchange-traded derivatives		60	42
	30	Credit risk mitigation, including collateral held for all sources of credit risk		59	39
Other	31	Other risk types		83-90	–
	32	Publicly known risk events		86-87, 202-203	–

* These disclosure requirements are satisfied or partially satisfied by disclosures provided in our Pillar 3 Reports as at July 31, 2019 and October 31, 2018.

Royal Bank of Canada        Third Quarter 2019        49

Interim Condensed Consolidated Financial Statements (unaudited)

Interim Condensed Consolidated Balance Sheets (unaudited)

	As at
(Millions of Canadian dollars)	July 31 2019			October 31 2018
Assets
Cash and due from banks	$	26,863		$	30,209
Interest-bearing deposits with banks		31,553			36,471
Securities
Trading		140,421			128,258
Investment, net of applicable allowance (Note 4)		100,240			94,608
		240,661			222,866
Assets purchased under reverse repurchase agreements and securities borrowed		309,640			294,602
Loans (Note 5)
Retail		416,583			399,452
Wholesale		198,941			180,278
		615,524			579,730
Allowance for loan losses (Note 5)		(3,131	)		(2,912	)
		612,393			576,818
Segregated fund net assets		1,602			1,368
Other
Customers’ liability under acceptances		17,101			15,641
Derivatives		98,774			94,039
Premises and equipment		3,058			2,832
Goodwill		11,115			11,137
Other intangibles		4,735			4,687
Other assets		49,398			44,064
		184,181			172,400
Total assets	$	1,406,893		$	1,334,734
Liabilities and equity
Deposits (Note 6)
Personal	$	287,929		$	270,154
Business and government		563,343			534,371
Bank		29,939			32,521
		881,211			837,046
Segregated fund net liabilities		1,602			1,368
Other
Acceptances		17,124			15,662
Obligations related to securities sold short		33,602			32,247
Obligations related to assets sold under repurchase agreements and securities loaned		220,027			206,814
Derivatives		96,857			90,238
Insurance claims and policy benefit liabilities		11,480			10,000
Other liabilities		52,794			52,273
		431,884			407,234
Subordinated debentures		9,818			9,131
Total liabilities		1,324,515			1,254,779
Equity attributable to shareholders
Preferred shares (Note 9)		5,705			6,309
Common shares (Note 9)		17,593			17,617
Retained earnings		54,716			51,112
Other components of equity		4,265			4,823
		82,279			79,861
Non-controlling interests		99			94
Total equity		82,378			79,955
Total liabilities and equity	$	1,406,893		$	1,334,734

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

50        Royal Bank of Canada        Third Quarter 2019

Interim Condensed Consolidated Statements of Income (unaudited)

	For the three months ended					For the nine months ended
	July 31		July 31			July 31		July 31
(Millions of Canadian dollars, except per share amounts)	2019		2018			2019		2018
Interest and dividend income (Note 3)
Loans	$	6,394	$	5,484		$	18,677	$	15,516
Securities		1,770		1,486			5,168		4,236
Assets purchased under reverse repurchase agreements and securities borrowed		2,353		1,501			6,692		3,894
Deposits and other		93		155			354		385
		10,610		8,626			30,891		24,031
Interest expense (Note 3)
Deposits and other		3,254		2,633			9,682		6,840
Other liabilities		2,218		1,312			6,165		3,494
Subordinated debentures		90		85			275		235
		5,562		4,030			16,122		10,569
Net interest income		5,048		4,596			14,769		13,462
Non-interest income
Insurance premiums, investment and fee income		1,463		1,290			4,557		3,240
Trading revenue		140		234			748		788
Investment management and custodial fees		1,440		1,347			4,271		3,990
Mutual fund revenue		924		908			2,696		2,655
Securities brokerage commissions		324		334			982		1,023
Service charges		480		458			1,414		1,341
Underwriting and other advisory fees		488		541			1,387		1,539
Foreign exchange revenue, other than trading		252		273			744		831
Card service revenue		272		266			820		790
Credit fees		322		378			925		1,023
Net gains on investment securities		26		26			109		114
Share of profit in joint ventures and associates		21		(26	)		50		13
Other		344		400			1,160		1,098
		6,496		6,429			19,863		18,445
Total revenue		11,544		11,025			34,632		31,907
Provision for credit losses (Notes 4 and 5)		425		346			1,365		954
Insurance policyholder benefits, claims and acquisition expense		1,046		925			3,431		2,182
Non-interest expense
Human resources (Note 7)		3,615		3,521			10,880		10,347
Equipment		449		416			1,325		1,174
Occupancy		409		393			1,211		1,158
Communications		281		260			794		733
Professional fees		328		359			923		961
Amortization of other intangibles		299		271			888		798
Other		611		638			1,799		1,780
		5,992		5,858			17,820		16,951
Income before income taxes		4,081		3,896			12,016		11,820
Income taxes		818		787			2,351		2,639
Net income	$	3,263	$	3,109		$	9,665	$	9,181
Net income attributable to:
Shareholders	$	3,263	$	3,101		$	9,659	$	9,153
Non-controlling interests		–		8			6		28
	$	3,263	$	3,109		$	9,665	$	9,181
Basic earnings per share (in dollars) (Note 10)	$	2.23	$	2.10		$	6.59	$	6.19
Diluted earnings per share (in dollars) (Note 10)		2.22		2.10			6.57		6.16
Dividends per common share (in dollars)		1.02		0.94			3.02		2.79

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

Royal Bank of Canada        Third Quarter 2019        51

Interim Condensed Consolidated Statements of Comprehensive Income (unaudited)

	For the three months ended						For the nine months ended
(Millions of Canadian dollars)	July 31 2019			July 31 2018			July 31 2019			July 31 2018
Net income	$	3,263		$	3,109		$	9,665		$	9,181
Other comprehensive income (loss), net of taxes
Items that will be reclassified subsequently to income:
Net change in unrealized gains (losses) on debt securities and loans at fair value through other comprehensive income
Net unrealized gains (losses) on debt securities and loans at fair value through other comprehensive income		79			43			218			5
Provision for credit losses recognized in income		(2	)		(9	)		(12	)		15
Reclassification of net losses (gains) on debt securities and loans at fair value through other comprehensive income to income		(15	)		(13	)		(75	)		(76	)
		62			21			131			(56	)
Foreign currency translation adjustments
Unrealized foreign currency translation gains (losses)		(1,246	)		415			(115	)		387
Net foreign currency translation gains (losses) from hedging activities		590			(78	)		126			(130	)
Reclassification of losses (gains) on foreign currency translation to income		–			–			2			–
Reclassification of losses (gains) on net investment hedging activities to income		–			–			2			–
		(656	)		337			15			257
Net change in cash flow hedges
Net gains (losses) on derivatives designated as cash flow hedges		(118	)		(45	)		(616	)		162
Reclassification of losses (gains) on derivatives designated as cash flow hedges to income		11			28			(88	)		19
		(107	)		(17	)		(704	)		181
Items that will not be reclassified subsequently to income:
Remeasurements of employee benefit plans (Note 7)		(581	)		464			(1,067	)		597
Net fair value change due to credit risk on financial liabilities designated as at fair value through profit or loss		118			(13	)		92			113
Net gains (losses) on equity securities designated at fair value through other comprehensive income		(10	)		2			27			1
		(473	)		453			(948	)		711
Total other comprehensive income (loss), net of taxes		(1,174	)		794			(1,506	)		1,093
Total comprehensive income (loss)	$	2,089		$	3,903		$	8,159		$	10,274
Total comprehensive income attributable to:
Shareholders	$	2,090		$	3,894		$	8,153		$	10,245
Non-controlling interests		(1	)		9			6			29
	$	2,089		$	3,903		$	8,159		$	10,274

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

	For the three months ended						For the nine months ended
(Millions of Canadian dollars)	July 31 2019			July 31 2018			July 31 2019			July 31 2018
Income taxes on other comprehensive income
Net unrealized gains (losses) on debt securities and loans at fair value through other comprehensive income	$	17		$	20		$	61		$	22
Provision for credit losses recognized in income		–			9			–			5
Reclassification of net losses (gains) on debt securities and loans at fair value through other comprehensive income to income		(7	)		(10	)		(39	)		(40	)
Unrealized foreign currency translation gains (losses)		–			1			2			1
Net foreign currency translation gains (losses) from hedging activities		207			(23	)		47			(43	)
Reclassification of losses (gains) on net investment hedging activities to income		–			–			1			–
Net gains (losses) on derivatives designated as cash flow hedges		(40	)		(16	)		(219	)		89
Reclassification of losses (gains) on derivatives designated as cash flow hedges to income		4			10			(32	)		(24	)
Remeasurements of employee benefit plans		(208	)		166			(378	)		216
Net fair value change due to credit risk on financial liabilities designated as at fair value through profit or loss		43			(4	)		33			42
Net gains (losses) on equity securities designated at fair value through other comprehensive income		12			1			5			(3	)
Total income tax expenses (recoveries)	$	28		$	154		$	(519	)	$	265

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

52        Royal Bank of Canada        Third Quarter 2019

Interim Condensed Consolidated Statements of Changes in Equity (unaudited)

	For the three months ended July 31, 2019
															Other components of equity
(Millions of Canadian dollars)	Preferred shares		Common shares			Treasury shares – preferred			Treasury shares – common			Retained earnings			Available- for-sale securities	FVOCI securities and loans		Foreign currency translation			Cash flow hedges			Total other components of equity			Equity attributable to shareholders			Non-controlling interests			Total equity
Balance at beginning of period	$	5,706	$	17,638		$	–		$	(104	)	$	53,640			$	57	$	4,817		$	91		$	4,965		$	81,845		$	101		$	81,946
Changes in equity
Issues of share capital		–		38			–			–			–				–		–			–			–			38			–			38
Common shares purchased for cancellation		–		(24	)		–			–			(173	)			–		–			–			–			(197	)		–			(197	)
Redemption of preferred shares		–		–			–			–			–				–		–			–			–			–			–			–
Sales of treasury shares		–		–			20			1,039			–				–		–			–			–			1,059			–			1,059
Purchases of treasury shares		–		–			(21	)		(994	)		–				–		–			–			–			(1,015	)		–			(1,015	)
Share-based compensation awards		–		–			–			–			(9	)			–		–			–			–			(9	)		–			(9	)
Dividends on common shares		–		–			–			–			(1,464	)			–		–			–			–			(1,464	)		–			(1,464	)
Dividends on preferred shares and other		–		–			–			–			(66	)			–		–			–			–			(66	)		(1	)		(67	)
Other		–		–			–			–			(2	)			–		–			–			–			(2	)		–			(2	)
Net income		–		–			–			–			3,263				–		–			–			–			3,263			–			3,263
Total other comprehensive income (loss), net of taxes		–		–			–			–			(473	)			62		(655	)		(107	)		(700	)		(1,173	)		(1	)		(1,174	)
Balance at end of period	$	5,706	$	17,652		$	(1	)	$	(59	)	$	54,716			$	119	$	4,162		$	(16	)	$	4,265		$	82,279		$	99		$	82,378
	For the three months ended July 31, 2018
															Other components of equity
(Millions of Canadian dollars)	Preferred shares		Common shares			Treasury shares – preferred			Treasury shares – common			Retained earnings			Available- for-sale securities	FVOCI securities and loans		Foreign currency translation			Cash flow hedges			Total other components of equity			Equity attributable to shareholders			Non-controlling interests			Total equity
Balance at beginning of period	$	6,306	$	17,634		$	(3	)	$	(95	)	$	47,405			$	84	$	3,465		$	629		$	4,178		$	75,425		$	600		$	76,025
Changes in equity
Issues of share capital		–		24			–			–			–				–		–			–			–			24			–			24
Common shares purchased for cancellation		–		(16	)		–			–			(112	)			–		–			–			–			(128	)		–			(128	)
Redemption of preferred shares		–		–			–			–			–				–		–			–			–			–			–			–
Redemption of trust capital securities		–		–			–			–			–				–		–			–			–			–			(500	)		(500	)
Sales of treasury shares		–		–			69			1,292			–				–		–			–			–			1,361			–			1,361
Purchases of treasury shares		–		–			(66	)		(1,306	)		–				–		–			–			–			(1,372	)		–			(1,372	)
Share-based compensation awards		–		–			–			–			(2	)			–		–			–			–			(2	)		–			(2	)
Dividends on common shares		–		–			–			–			(1,355	)			–		–			–			–			(1,355	)		–			(1,355	)
Dividends on preferred shares and other		–		–			–			–			(71	)			–		–			–			–			(71	)		(18	)		(89	)
Other		–		–			–			–			5				–		–			–			–			5			–			5
Net income		–		–			–			–			3,101				–		–			–			–			3,101			8			3,109
Total other comprehensive income (loss), net of taxes		–		–			–			–			453				21		336			(17	)		340			793			1			794
Balance at end of period	$	6,306	$	17,642		$	–		$	(109	)	$	49,424			$	105	$	3,801		$	612		$	4,518		$	77,781		$	91		$	77,872

Royal Bank of Canada        Third Quarter 2019        53

	For the nine months ended July 31, 2019
																Other components of equity
(Millions of Canadian dollars)	Preferred shares			Common shares			Treasury shares – preferred			Treasury shares – common			Retained earnings			Available- for-sale securities			FVOCI securities and loans			Foreign currency translation		Cash flow hedges			Total other components of equity			Equity attributable to shareholders			Non-controlling interests			Total equity
Balance at beginning of period	$	6,306		$	17,635		$	3		$	(18	)	$	51,112					$	(12	)	$	4,147	$	688		$	4,823		$	79,861		$	94		$	79,955
Transition adjustment (Note 2)		–			–			–			–			(70	)					–			–		–			–			(70	)		–			(70	)
Adjusted balance at beginning of period	$	6,306		$	17,635		$	3		$	(18	)	$	51,042					$	(12	)	$	4,147	$	688		$	4,823		$	79,791		$	94		$	79,885
Changes in equity
Issues of share capital		350			87			–			–			–						–			–		–			–			437			–			437
Common shares purchased for cancellation		–			(70	)		–			–			(486	)					–			–		–			–			(556	)		–			(556	)
Redemption of preferred shares		(950	)		–			–			–			–						–			–		–			–			(950	)		–			(950	)
Sales of treasury shares		–			–			145			3,840			–						–			–		–			–			3,985			–			3,985
Purchases of treasury shares		–			–			(149	)		(3,881	)		–						–			–		–			–			(4,030	)		–			(4,030	)
Share-based compensation awards		–			–			–			–			(15	)					–			–		–			–			(15	)		–			(15	)
Dividends on common shares		–			–			–			–			(4,337	)					–			–		–			–			(4,337	)		–			(4,337	)
Dividends on preferred shares and other		–			–			–			–			(205	)					–			–		–			–			(205	)		(1	)		(206	)
Other		–			–			–			–			6						–			–		–			–			6			–			6
Net income		–			–			–			–			9,659						–			–		–			–			9,659			6			9,665
Total other comprehensive income (loss), net of taxes		–			–			–			–			(948	)					131			15		(704	)		(558	)		(1,506	)		–			(1,506	)
Balance at end of period	$	5,706		$	17,652		$	(1	)	$	(59	)	$	54,716					$	119		$	4,162	$	(16	)	$	4,265		$	82,279		$	99		$	82,378
	For the nine months ended July 31, 2018
																Other components of equity
(Millions of Canadian dollars)	Preferred shares			Common shares			Treasury shares – preferred			Treasury shares – common			Retained earnings			Available- for-sale securities			FVOCI securities and loans			Foreign currency translation		Cash flow hedges			Total other components of equity			Equity attributable to shareholders			Non-controlling interests			Total equity
Balance at beginning of period	$	6,413		$	17,730		$	–		$	(27	)	$	45,359		$	378		$			$	3,545	$	431		$	4,354		$	73,829		$	599		$	74,428
Transition adjustment		–			–			–			–			(558	)		(378	)		299			–		–			(79	)		(637	)		–			(637	)
Adjusted balance at beginning of period	$	6,413		$	17,730		$	–		$	(27	)	$	44,801		$	–		$	299		$	3,545	$	431		$	4,275		$	73,192		$	599		$	73,791
Changes in equity
Issues of share capital		–			69			–			–			–						–			–		–			–			69			–			69
Common shares purchased for cancellation		–			(157	)		–			–			(1,118	)					–			–		–			–			(1,275	)		–			(1,275	)
Redemption of preferred shares		(107	)		–			–			–			2						–			–		–			–			(105	)		–			(105	)
Redemption of trust capital securities		–			–			–			–			–						–			–		–			–			–			(500	)		(500	)
Sales of treasury shares		–			–			202			4,061			–						–			–		–			–			4,263			–			4,263
Purchases of treasury shares		–			–			(202	)		(4,143	)		–						–			–		–			–			(4,345	)		–			(4,345	)
Share-based compensation awards		–			–			–			–			(6	)					–			–		–			–			(6	)		–			(6	)
Dividends on common shares		–			–			–			–			(4,030	)					–			–		–			–			(4,030	)		–			(4,030	)
Dividends on preferred shares and other		–			–			–			–			(214	)					–			–		–			–			(214	)		(37	)		(251	)
Other		–			–			–			–			125						(138	)		–		–			(138	)		(13	)		–			(13	)
Net income		–			–			–			–			9,153						–			–		–			–			9,153			28			9,181
Total other comprehensive income (loss), net of taxes		–			–			–			–			711						(56	)		256		181			381			1,092			1			1,093
Balance at end of period	$	6,306		$	17,642		$	–		$	(109	)	$	49,424					$	105		$	3,801	$	612		$	4,518		$	77,781		$	91		$	77,872

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

54        Royal Bank of Canada        Third Quarter 2019

Interim Condensed Consolidated Statements of Cash Flows (unaudited)

	For the three months ended						For the nine months ended
(Millions of Canadian dollars)	July 31 2019			July 31 2018			July 31 2019			July 31 2018
Cash flows from operating activities
Net income	$	3,263		$	3,109		$	9,665		$	9,181
Adjustments for non-cash items and others
Provision for credit losses		425			346			1,365			954
Depreciation		157			147			464			423
Deferred income taxes		(218	)		90			(504	)		403
Amortization and impairment of other intangibles		301			272			894			799
Net changes in investments in joint ventures and associates		(21	)		26			(49	)		(9	)
Losses (Gains) on investment securities		(27	)		(24	)		(123	)		(118	)
Losses (Gains) on disposition of business		–			(40	)		–			(40	)
Adjustments for net changes in operating assets and liabilities
Insurance claims and policy benefit liabilities		474			342			1,480			323
Net change in accrued interest receivable and payable		40			79			154			23
Current income taxes		458			(86	)		(77	)		(2,597	)
Derivative assets		(13,962	)		5,672			(4,735	)		6,520
Derivative liabilities		14,689			(4,808	)		6,619			(6,045	)
Trading securities		(1,505	)		4,782			(12,163	)		4,169
Loans, net of securitizations		(10,485	)		(12,012	)		(36,240	)		(30,286	)
Assets purchased under reverse repurchase agreements and securities borrowed		(120	)		(2,986	)		(15,038	)		(43,194	)
Deposits, net of securitizations		17,110			10,213			44,165			43,964
Obligations related to assets sold under repurchase agreements and securities loaned		(3,953	)		7,252			13,213			35,086
Obligations related to securities sold short		(447	)		145			1,355			3,184
Brokers and dealers receivable and payable		(485	)		1,302			(801	)		358
Other		(2,559	)		1,692			(6,456	)		448
Net cash from (used in) operating activities		3,135			15,513			3,188			23,546
Cash flows from investing activities
Change in interest-bearing deposits with banks		(4,835	)		(12,180	)		4,918			(16,497	)
Proceeds from sale of investment securities		5,438			5,497			14,294			15,994
Proceeds from maturity of investment securities		9,776			8,071			32,074			26,956
Purchases of investment securities		(15,291	)		(14,225	)		(52,177	)		(38,877	)
Net acquisitions of premises and equipment and other intangibles		(483	)		(521	)		(1,619	)		(1,395	)
Proceeds from dispositions		–			14			–			14
Cash used in acquisitions		(27	)		–			(27	)		–
Net cash from (used in) investing activities		(5,422	)		(13,344	)		(2,537	)		(13,805	)
Cash flows from financing activities
Redemption of trust capital securities		–			(500	)		–			(500	)
Issuance of subordinated debentures		1,500			–			1,500			–
Repayment of subordinated debentures		(1,000	)		–			(1,000	)		–
Issue of common shares, net of issuance costs		29			21			68			53
Common shares purchased for cancellation		(197	)		(128	)		(556	)		(1,275	)
Issue of preferred shares, net of issuance costs		–			–			350			–
Redemption of preferred shares		–			–			(950	)		(105	)
Sales of treasury shares		1,059			1,361			3,985			4,263
Purchases of treasury shares		(1,015	)		(1,372	)		(4,030	)		(4,345	)
Dividends paid		(1,531	)		(1,427	)		(4,495	)		(4,214	)
Dividends/distributions paid to non-controlling interests		(1	)		(18	)		(1	)		(37	)
Change in short-term borrowings of subsidiaries		(2,293	)		(898	)		793			–
Net cash from (used in) financing activities		(3,449	)		(2,961	)		(4,336	)		(6,160	)
Effect of exchange rate changes on cash and due from banks		(442	)		42			339			27
Net change in cash and due from banks		(6,178	)		(750	)		(3,346	)		3,608
Cash and due from banks at beginning of period (1)		33,041			32,765			30,209			28,407
Cash and due from banks at end of period (1)	$	26,863		$	32,015		$	26,863		$	32,015
Cash flows from operating activities include:
Amount of interest paid	$	5,183		$	3,662		$	14,978		$	9,668
Amount of interest received		10,135			8,278			29,612			22,967
Amount of dividends received		651			446			1,632			1,285
Amount of income taxes paid		625			908			2,374			5,076

(1) We are required to maintain balances with central banks and other regulatory authorities. The total balances were $2.3 billion as at July 31, 2019 (April 30, 2019 – $2.3 billion; October 31, 2018 – $2.4 billion; July 31, 2018 – $2.7 billion; April 30, 2018 – $2.6 billion; October 31, 2017 – $2.3 billion).

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

Royal Bank of Canada        Third Quarter 2019        55

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 2018 Annual Consolidated Financial Statements and the accompanying notes included on pages 113 to 211 in our 2018 Annual Report. Tabular information is stated in millions of Canadian dollars, except per share amounts and percentages. On August 20, 2019, 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 2018 Annual Consolidated Financial Statements. Our significant accounting policies and future changes in accounting policies and disclosures that are not yet effective for us are described in Note 2 of our audited 2018 Annual Consolidated Financial Statements.

Changes in accounting policies

During the first quarter, we adopted IFRS 15 Revenue from Contracts with Customers (IFRS 15). As permitted by the transition provisions of IFRS 15, we elected not to restate comparative period results; accordingly, all comparative period information is presented in accordance with our previous accounting policies, as described in our 2018 Annual Report. As a result of the adoption of IFRS 15, we reduced our opening retained earnings by $70 million, on an after tax basis as at November 1, 2018 (the date of initial application), to align the recognition of certain fees with the transfer of the performance obligations.

Commissions and fees

Commissions and fees primarily relate to Investment management and custodial fees, Mutual fund revenue, Securities brokerage commissions, Services charges, Underwriting and other advisory fees, Card service revenue and Credit fees, and are recognized based on the applicable service contracts with customers.

Investment management and custodial fees and Mutual fund revenue are generally calculated as a percentage of daily or period-end net asset values based on the terms of the contract with customers and are received monthly, quarterly, semi-annually or annually, depending on the terms of the contract. Investment management and custodial fees are generally derived from assets under management (AUM) when our clients solicit the investment capabilities of an investment manager or from assets under administration (AUA) where the investment strategy is directed by the client or a designated third party manager. Mutual fund revenue is derived from the daily net asset value (NAV) of the mutual funds. Investment management and custodial fees and Mutual fund revenue are recognized over time when the service is provided to the customer provided that it is highly probable that a significant reversal in the amount of revenue recognized will not occur.

Commissions earned on Securities brokerage services and Service charges that are related to the provision of specific transaction type services are recognized when the service is fulfilled. Where services are provided over time, revenue is recognized as the services are provided.

Underwriting and other advisory fees primarily relate to underwriting of new issuances of debt or equity and various advisory services. Underwriting fees are generally expressed as a percentage of the funds raised through issuance and are recognized when the service has been completed. Advisory fees vary depending on the scope and type of engagement and can be fixed in nature or contingent on a future event. Advisory fees are recognized over the period in which the service is provided and are recognized only to the extent that it is highly probable that a significant reversal in the amount of revenue will not occur.

Card service revenue primarily includes interchange revenue and annual card fees. Interchange revenue is calculated as a fixed percentage of the transaction amount and recognized when the card transaction is settled. Annual card fees are fixed fees and are recognized over a twelve month period.

Credit fees are primarily earned for arranging syndicated loans and making credit available on undrawn facilities. The timing of the recognition of credit fees varies based on the nature of the services provided.

When service fees and other costs are incurred in relation to commissions and fees earned, we record these costs on a gross basis in either Non-interest expense – Other or Non-interest expense – Human resources based on our assessment of whether we have primary responsibility to fulfill the contract with the customer and have discretion in establishing the price for the commissions and fees earned, which may require judgment.

56        Royal Bank of Canada        Third Quarter 2019

Note 3    Fair value of financial instruments

Carrying value and fair value of financial instruments

The following tables provide a comparison of the carrying and fair values for each classification of financial instruments. Embedded derivatives are presented on a combined basis with the host contracts. Refer to Note 2 and Note 3 of our audited 2018 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 July 31, 2019
	Carrying value and fair value									Carrying value		Fair value
(Millions of Canadian dollars)	Financial instruments classified as FVTPL			Financial instruments designated as FVTPL		Financial instruments classified as FVOCI		Financial instruments designated as FVOCI		Financial instruments measured at amortized cost		Financial instruments measured at amortized cost		Total carrying amount		Total fair value
Financial assets
Interest-bearing deposits with banks	$	–		$	17,403	$	–	$	–	$	14,150	$	14,150	$	31,553	$	31,553
Securities
Trading		131,515			8,906		–		–		–		–		140,421		140,421
Investment, net of applicable allowance		–			–		53,757		470		46,013		46,235		100,240		100,462
		131,515			8,906		53,757		470		46,013		46,235		240,661		240,883
Assets purchased under reverse repurchase agreements and securities borrowed		250,276			–		–		–		59,364		59,367		309,640		309,643
Loans, net of applicable allowance
Retail		182			240		96		–		413,989		415,474		414,507		415,992
Wholesale		9,129			1,713		477		–		186,567		185,858		197,886		197,177
		9,311			1,953		573		–		600,556		601,332		612,393		613,169
Other
Derivatives		98,774			–		–		–		–		–		98,774		98,774
Other assets (1)		1,445			–		–		–		51,910		51,910		53,355		53,355
Financial liabilities
Deposits
Personal	$	134		$	16,177					$	271,618	$	271,868	$	287,929	$	288,179
Business and government (2)		(44	)		115,832						447,555		448,732		563,343		564,520
Bank (3)		–			2,948						26,991		27,018		29,939		29,966
		90			134,957						746,164		747,618		881,211		882,665
Other
Obligations related to securities sold short		33,602			–						–		–		33,602		33,602
Obligations related to assets sold under repurchase agreements and securities loaned		–			213,818						6,209		6,210		220,027		220,028
Derivatives		96,857			–						–		–		96,857		96,857
Other liabilities (4)		(1,328	)		55						56,109		56,083		54,836		54,810
Subordinated debentures		–			–						9,818		9,953		9,818		9,953

Royal Bank of Canada        Third Quarter 2019        57

	As at October 31, 2018
	Carrying value and fair value									Carrying value		Fair value
(Millions of Canadian dollars)	Financial instruments classified as FVTPL			Financial instruments designated as FVTPL		Financial instruments classified as FVOCI		Financial instruments designated as FVOCI		Financial instruments measured at amortized cost		Financial instruments measured at amortized cost		Total carrying amount		Total fair value
Financial assets
Interest-bearing deposits with banks	$	–		$	20,274	$	–	$	–	$	16,197	$	16,197	$	36,471	$	36,471
Securities
Trading		121,031			7,227		–		–		–		–		128,258		128,258
Investment, net of applicable allowance		–			–		48,093		406		46,109		45,367		94,608		93,866
		121,031			7,227		48,093		406		46,109		45,367		222,866		222,124
Assets purchased under reverse repurchase agreements and securities borrowed		219,108			–		–		–		75,494		75,490		294,602		294,598
Loans, net of applicable allowance
Retail		69			190		94		–		397,102		394,051		397,455		394,404
Wholesale		7,129			1,540		458		–		170,236		168,087		179,363		177,214
		7,198			1,730		552		–		567,338		562,138		576,818		571,618
Other
Derivatives		94,039			–		–		–		–		–		94,039		94,039
Other assets (1)		1,373			–		–		–		46,205		46,205		47,578		47,578
Financial liabilities
Deposits
Personal	$	150		$	14,602					$	255,402	$	255,115	$	270,154	$	269,867
Business and government (2)		(11	)		103,446						430,936		431,158		534,371		534,593
Bank (3)		–			7,072						25,449		25,462		32,521		32,534
		139			125,120						711,787		711,735		837,046		836,994
Other
Obligations related to securities sold short		32,247			–						–		–		32,247		32,247
Obligations related to assets sold under repurchase agreements and securities loaned		–			201,839						4,975		4,976		206,814		206,815
Derivatives		90,238			–						–		–		90,238		90,238
Other liabilities (4)		(1,434	)		18						54,917		54,880		53,501		53,464
Subordinated debentures		–			–						9,131		9,319		9,131		9,319

(1) Includes Customers’ liability under acceptances and financial instruments recognized in Other assets.

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

(3) Bank deposits refer to deposits from regulated banks and central banks.

(4) Includes Acceptances and financial instruments recognized in Other liabilities.

58        Royal Bank of Canada        Third Quarter 2019

Note 3    Fair value of financial instruments (continued)

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

	As at
	July 31, 2019														October 31, 2018
	Fair value measurements using								Netting adjustments			Fair value			Fair value measurements using								Netting adjustments			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	$	–	$	17,403		$	–		$			$	17,403		$	–	$	20,274		$	–		$			$	20,274
Securities
Trading
Issued or guaranteed
Canadian government debt (1)
Federal		12,385		5,554			–						17,939			8,342		6,231			–						14,573
Provincial and municipal		–		11,043			–						11,043			–		11,350			–						11,350
U.S. state, municipal and agencies debt (1)		1,016		38,129			64						39,209			2,068		31,030			66						33,164
Other OECD government debt (2)		1,633		4,573			–						6,206			1,151		9,018			–						10,169
Mortgage-backed securities (1)		–		958			–						958			–		1,001			–						1,001
Asset-backed securities
Non-CDO securities (3)		–		844			2						846			–		1,023			110						1,133
Corporate debt and other debt		–		22,034			21						22,055			2		22,303			21						22,326
Equities		39,017		2,012			1,136						42,165			30,847		2,547			1,148						34,542
		54,051		85,147			1,223						140,421			42,410		84,503			1,345						128,258
Investment
Issued or guaranteed
Canadian government debt (1)
Federal		–		695			–						695			–		238			–						238
Provincial and municipal		–		2,098			–						2,098			–		1,554			–						1,554
U.S. state, municipal and agencies debt (1)		20		15,798			–						15,818			–		18,136			–						18,136
Other OECD government debt		–		4,692			–						4,692			–		1,470			–						1,470
Mortgage-backed securities (1)		–		2,544			27						2,571			–		2,174			–						2,174
Asset-backed securities
CDO		–		7,204			–						7,204			–		6,239			–						6,239
Non-CDO securities		–		853			–						853			–		863			–						863
Corporate debt and other debt		–		19,674			152						19,826			–		17,227			192						17,419
Equities		41		112			293						446			42		103			237						382
Loan substitute securities		–		24			–						24			–		24			–						24
		61		53,694			472						54,227			42		48,028			429						48,499
Assets purchased under reverse repurchase agreements and securities borrowed		–		250,276			–						250,276			–		219,108			–						219,108
Loans		–		11,269			568						11,837			–		8,929			551						9,480
Other
Derivatives
Interest rate contracts		–		42,885			321						43,206			1		33,862			222						34,085
Foreign exchange contracts		–		41,335			36						41,371			–		43,253			53						43,306
Credit derivatives		–		145			–						145			–		38			–						38
Other contracts		2,588		12,918			115						15,621			5,868		11,654			296						17,818
Valuation adjustments		–		(746	)		4						(742	)		–		(631	)		6						(625	)
Total gross derivatives		2,588		96,537			476						99,601			5,869		88,176			577						94,622
Netting adjustments										(827	)		(827	)										(583	)		(583	)
Total derivatives													98,774														94,039
Other assets		1,108		262			75						1,445			1,020		288			65						1,373
	$	57,808	$	514,588		$	2,814		$	(827	)		$574,383		$	49,341	$	469,306		$	2,967		$	(583	)	$	521,031
Financial Liabilities
Deposits
Personal	$	–	$	16,251		$	60		$			$	16,311		$	–	$	14,362		$	390		$			$	14,752
Business and government		–		115,788			–						115,788			–		103,440			(5	)					103,435
Bank		–		2,948			–						2,948			–		7,072			–						7,072
Other
Obligations related to securities sold short		17,690		15,912			–						33,602			17,732		14,515			–						32,247
Obligations related to assets sold under repurchase agreements and securities loaned		–		213,818			–						213,818			–		201,839			–						201,839
Derivatives
Interest rate contracts		–		35,986			902						36,888			–		29,620			726						30,346
Foreign exchange contracts		–		42,138			48						42,186			–		41,836			32						41,868
Credit derivatives		–		251			–						251			–		94			–						94
Other contracts		2,408		15,673			318						18,399			4,369		13,730			380						18,479
Valuation adjustments		–		(37	)		(3	)					(40	)		–		29			5						34
Total gross derivatives		2,408		94,011			1,265						97,684			4,369		85,309			1,143						90,821
Netting adjustments										(827	)		(827	)										(583	)		(583	)
Total derivatives													96,857														90,238
Other liabilities		166		(1,498	)		59						(1,273	)		170		(1,654	)		68						(1,416	)
	$	20,264	$	457,230		$	1,384		$	(827)		$	478,051		$	22,271	$	424,883		$	1,596		$	(583	)	$	448,167

(1) As at July 31, 2019, residential and commercial mortgage-backed securities (MBS) included in all fair value levels of trading securities were $20,898 million and $nil (October 31, 2018 – $16,776 million and $nil), respectively, and in all fair value levels of Investment securities were $5,558 million and $1,771 million (October 31, 2018 – $4,713 million and $1,348 million), respectively.

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

(3) CDO stands for collateralized debt obligations.

Royal Bank of Canada        Third Quarter 2019        59

Fair value measurements using significant unobservable inputs (Level 3 Instruments)

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 the valuation of these Level 3 financial instruments.

During the three months ended July 31, 2019, there were no significant changes made to the valuation techniques and ranges and weighted averages of unobservable inputs used in the determination of fair value of Level 3 financial instruments. As at July 31, 2019, the impacts of adjusting one or more of the unobservable inputs by reasonably possible alternative assumptions did not change significantly from the impacts disclosed in our 2018 Annual Consolidated Financial Statements.

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

.	For the three months ended July 31, 2019
(Millions of Canadian dollars)	Fair value at beginning of period			Gains (losses) included in earnings			Gains (losses) included in OCI (1)			Purchases (issuances)			Settlement (sales) and other (2)			Transfers into Level 3			Transfers out of Level 3			Fair value at end of period			Gains (losses) included in earnings for positions still held
Assets
Securities
Trading
Issued or guaranteed
U.S. state, municipal and agencies debt	$	67		$	–		$	(1	)	$	–		$	(2	)	$	–		$	–		$	64		$	–
Asset-backed securities
Non-CDO securities		4			–			–			–			(2	)		–			–			2			1
Corporate debt and other debt		21			–			–			–			–			–			–			21			–
Equities		1,107			(20	)		(12	)		76			(34	)		20			(1	)		1,136			(9	)
		1,199			(20	)		(13	)		76			(38	)		20			(1	)		1,223			(8	)
Investment
Mortgage-backed securities		28			–			(1	)		–			–			–			–			27			n.a.
Corporate debt and other debt		146			–			5			–			1			–			–			152			n.a.
Equities		296			–			(6	)		5			(2	)		–			–			293			n.a.
Loan substitute securities		–			–			–			–			–			–			–			–			n.a.
		470			–			(2	)		5			(1	)		–			–			472			n.a.
Loans		759			9			–			276			(474	)		2			(4	)		568			(3	)
Other
Net derivative balances (3)
Interest rate contracts		(585	)		16			–			(2	)		(5	)		(9	)		4			(581	)		(4	)
Foreign exchange contracts		17			(14	)		(20	)		2			1			2			–			(12	)		4
Other contracts		(190	)		10			4			(48	)		12			2			7			(203	)		5
Valuation adjustments		6			–			–			–			1			–			–			7			–
Other assets		66			13			(1	)		–			(3	)		–			–			75			13
	$	1,742		$	14		$	(32	)	$	309		$	(507	)	$	17		$	6		$	1,549		$	7
Liabilities
Deposits
Personal	$	(192	)	$	(5	)	$	1		$	(16	)	$	16		$	(13	)	$	149		$	(60	)	$	4
Business and government		–			–			–			–			–			–			–			–			–
Other
Other liabilities		(56	)		(7	)		1			–			3			–			–			(59	)		(7	)
	$	(248	)	$	(12	)	$	2		$	(16	)	$	19		$	(13	)	$	149		$	(119	)	$	(3	)

60        Royal Bank of Canada        Third Quarter 2019

Note 3    Fair value of financial instruments (continued)

.	For the three months ended July 31, 2018
(Millions of Canadian dollars)	Fair value at beginning of period			Gains (losses) included in earnings			Gains (losses) included in OCI (1)			Purchases (issuances)			Settlement (sales) and other (2)			Transfers into Level 3			Transfers out of Level 3			Fair value at end of period			Gains (losses) included in earnings for positions still held
Assets
Securities
Trading
Issued or guaranteed
U.S. state, municipal and agencies debt	$	66		$	–		$	1		$	–		$	(2	)	$	–		$	–		$	65		$	–
Asset-backed securities
Non-CDO securities		115			1			2			–			(5	)		–			–			113			1
Corporate debt and other debt		23			–			–			–			(1	)		–			–			22			–
Equities		1,000			(27	)		12			87			(16	)		30			–			1,086			(11	)
		1,204			(26	)		15			87			(24	)		30			–			1,286			(10	)
Investment
Mortgage-backed securities		–			–			–			–			–			–			–			–			n.a.
Corporate debt and other debt		33			–			1			–			–			202			–			236			n.a.
Equities		246			(1	)		(2	)		–			–			–			–			243			n.a.
Loan substitute securities		4			–			–			–			–			–			–			4			n.a.
		283			(1	)		(1	)		–			–			202			–			483			n.a.
Loans		687			2			–			131			(284	)		–			(40	)		496			2
Other
Net derivative balances (3)
Interest rate contracts		(505	)		(18	)		–			21			72			–			(6	)		(436	)		(18	)
Foreign exchange contracts		34			(10	)		(7	)		12			–			(1	)		(2	)		26			(14	)
Other contracts		(112	)		(13	)		(1	)		(71	)		3			(42	)		39			(197	)		13
Valuation adjustments		(22	)		–			–			–			18			–			–			(4	)		–
Other assets		–			–			(1	)		71			–			–			–			70			–
	$	1,569		$	(66	)	$	5		$	251		$	(215	)	$	189		$	(9	)	$	1,724		$	(27	)
Liabilities
Deposits
Personal	$	(254	)	$	(13	)	$	(1	)	$	(54	)	$	7		$	(238	)	$	84		$	(469	)	$	(11	)
Business and government		–			–			–			–			–			–			–			–			–
Other
Other liabilities		(24	)		(2	)		–			(35	)		2			–			–			(59	)		–
	$	(278	)	$	(15	)	$	(1	)	$	(89	)	$	9		$	(238	)	$	84		$	(528	)	$	(11	)

Royal Bank of Canada        Third Quarter 2019        61

.	For the nine months ended July 31, 2019
(Millions of Canadian dollars)	Fair value at beginning of period			Gains (losses) included in earnings			Gains (losses) included in OCI (1)			Purchases (issuances)			Settlement (sales) and other (2)			Transfers into Level 3			Transfers out of Level 3			Fair value at end of period			Gains (losses) included in earnings for positions still held
Assets
Securities
Trading
Issued or guaranteed
U.S. state, municipal and agencies debt	$	66		$	(1	)	$	1		$	–		$	(2	)	$	–		$	–		$	64		$	–
Asset-backed securities
Non-CDO securities		110			15			–			–			(123	)		–			–			2			3
Corporate debt and other debt		21			1			–			–			(1	)		–			–			21			–
Equities		1,148			(67	)		4			226			(212	)		38			(1	)		1,136			(26	)
		1,345			(52	)		5			226			(338	)		38			(1	)		1,223			(23	)
Investment
Mortgage-backed securities		–			–			–			27			–			–			–			27			n.a.
Corporate debt and other debt		192			(3	)		18			–			(55	)		–			–			152			n.a.
Equities		237			–			14			5			37			–			–			293			n.a.
Loan substitute securities		–			–			–			–			–			–			–			–			n.a.
		429			(3	)		32			32			(18	)		–			–			472			n.a.
Loans		551			38			2			588			(478	)		55			(188	)		568			18
Other
Net derivative balances (3)
Interest rate contracts		(504	)		(79	)		–			(195	)		219			(6	)		(16	)		(581	)		(41	)
Foreign exchange contracts		21			(20	)		(11	)		3			1			1			(7	)		(12	)		4
Other contracts		(84	)		90			1			(63	)		2			(37	)		(112	)		(203	)		79
Valuation adjustments		1			–			–			–			6			–			–			7			–
Other assets		65			23			–			–			(13	)		–			–			75			23
	$	1,824		$	(3	)	$	29		$	591		$	(619	)	$	51		$	(324	)	$	1,549		$	60
Liabilities
Deposits
Personal	$	(390	)	$	(39	)	$	–		$	(49	)	$	27		$	(138	)	$	529		$	(60	)	$	(1	)
Business and government		5			–			–			–			–			–			(5	)		–			–
Other
Other liabilities		(68	)		(12	)		(1	)		1			21			–			–			(59	)		(10	)
	$	(453	)	$	(51	)	$	(1	)	$	(48	)	$	48		$	(138	)	$	524		$	(119	)	$	(11	)

62        Royal Bank of Canada        Third Quarter 2019

Note 3    Fair value of financial instruments (continued)

.	For the nine months ended July 31, 2018
(Millions of Canadian dollars)	Fair value at beginning of period			Gains (losses) included in earnings			Gains (losses) included in OCI (1)			Purchases (issuances)			Settlement (sales) and other (2)			Transfers into Level 3			Transfers out of Level 3			Fair value at end of period			Gains (losses) included in earnings for positions still held
Assets
Securities
Trading
Issued or guaranteed
U.S. state, municipal and agencies debt	$	508		$	16		$	(4	)	$	–		$	(455	)	$	–		$	–		$	65		$	(2	)
Asset-backed securities
Non-CDO securities		196			27			1			–			(111	)		–			–			113			12
Corporate debt and other debt		30			(2	)		–			–			(1	)		–			(5	)		22			(1	)
Equities		923			(127	)		27			320			(89	)		34			(2	)		1,086			(48	)
		1,657			(86	)		24			320			(656	)		34			(7	)		1,286			(39	)
Investment
Mortgage-backed securities		–			–			–			–			–			–			–			–			n.a.
Corporate debt and other debt		29			(5	)		6			–			–			206			–			236			n.a.
Equities		217			(1	)		25			–			2			–			–			243			n.a.
Loan substitute securities		3			–			1			–			–			–			–			4			n.a.
		249			(6	)		32			–			2			206			–			483			n.a.
Loans		477			4			(1	)		345			(289	)		–			(40	)		496			(3	)
Other
Net derivative balances (3)
Interest rate contracts		(455	)		16			–			71			73			–			(141	)		(436	)		(2	)
Foreign exchange contracts		21			(6	)		(4	)		11			3			4			(3	)		26			(11	)
Other contracts		(181	)		35			–			(87	)		(42	)		(55	)		133			(197	)		(8	)
Valuation adjustments		(16	)		–			–			–			12			–			–			(4	)		—
Other assets		–			–			(1	)		71			–			–			–			70			—
	$	1,752		$	(43	)	$	50		$	731		$	(897	)	$	189		$	(58	)	$	1,724		$	(63	)
Liabilities
Deposits
Personal	$	(465	)	$	(58	)	$	(3	)	$	(221	)	$	33		$	(398	)	$	643		$	(469	)	$	54
Business and government		–			–			–			–			–			–			–			–			—
Other
Other liabilities		(24	)		(3	)		–			(40	)		8			–			–			(59	)		—
	$	(489	)	$	(61	)	$	(3	)	$	(261	)	$	41		$	(398	)	$	643		$	(528	)	$	54

(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 on Investment securities recognized in OCI were $6 million for the three months ended July 31, 2019 (July 31, 2018 – gains of $1 million) and gains of $35 million for the nine months ended July 31, 2019 (July 31, 2018 – gains of $31 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 July 31, 2019 included derivative assets of $476 million (July 31, 2018 – $643 million) and derivative liabilities of $1,265 million (July 31, 2018 – $1,254 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 2 are dependent on whether fair value is obtained on the basis of quoted market prices in active markets (Level 1).

During the three months ended July 31, 2019, transfers out of Level 1 to Level 2 include Trading U.S. state, municipal and agencies debt of $610 million.

During the three months ended July 31, 2019 there were no significant transfers out of Level 2 to Level 1.

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 three months ended July 31, 2019 there were no significant transfers out of Level 2 to Level 3.

During the three months ended July 31, 2019, significant transfers out of Level 3 to Level 2 include $149 million in Personal deposits, due to changes in the significance of the unobservable inputs.

Royal Bank of Canada        Third Quarter 2019        63

Net interest income from financial instruments

Interest and dividend income arising from financial assets and financial liabilities and the associated costs of funding are reported in Net interest income.

	For the three months ended				For the nine months ended
(Millions of Canadian dollars)	July 31 2019		July 31 2018 (1)		July 31 2019		July 31 2018 (1)
Interest and dividend income (2), (3)
Financial instruments measured at fair value through profit or loss	$	3,210	$	2,109	$	8,997	$	5,617
Financial instruments measured at fair value through other comprehensive income		298		234		857		558
Financial instruments measured at amortized cost		7,102		6,283		21,037		17,856
		10,610		8,626		30,891		24,031
Interest expense (2)
Financial instruments measured at fair value through profit or loss	$	2,778	$	1,730	$	7,774	$	4,464
Financial instruments measured at amortized cost		2,784		2,300		8,348		6,105
		5,562		4,030		16,122		10,569
Net interest income	$	5,048	$	4,596	$	14,769	$	13,462

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

(2) Excludes the following amounts related to our insurance operations and included in Insurance premiums, investment and fee income in the Interim Consolidated Statements of Income: For the three months ended July 31, 2019, Interest income of $123 million (July 31, 2018 – $122 million), and Interest expense of $1 million (July 31, 2018 – $nil). For the nine months ended July 31, 2019, Interest income of $366 million (July 31, 2018 – $360 million), and Interest expense of $3 million (July 31, 2018 – $3 million).

(3) Includes dividend income for the three months ended July 31, 2019 of $614 million (July 31, 2018 – $417 million) and for the nine months ended July 31, 2019 of $1,508 million (July 31, 2018 – $1,177 million).

Note 4    Securities

Unrealized gains and losses on securities at FVOCI (1) (2)

	As at
	July 31, 2019									October 31, 2018
(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
Issued or guaranteed
Canadian government debt
Federal (3)	$	693	$	3	$	(1	)	$	695	$	244	$	–	$	(6	)	$	238
Provincial and municipal		2,033		66		(1	)		2,098		1,578		2		(26	)		1,554
U.S. state, municipal and agencies debt (3)		15,704		206		(92	)		15,818		18,000		285		(149	)		18,136
Other OECD government debt		4,693		2		(3	)		4,692		1,469		2		(1	)		1,470
Mortgage-backed securities (3)		2,577		2		(8	)		2,571		2,176		1		(3	)		2,174
Asset-backed securities
CDO		7,228		2		(26	)		7,204		6,248		1		(10	)		6,239
Non-CDO securities		847		7		(1	)		853		856		9		(2	)		863
Corporate debt and other debt		19,762		73		(9	)		19,826		17,439		22		(42	)		17,419
Equities		233		215		(2	)		446		197		186		(1	)		382
Loan substitute securities		25		–		(1	)		24		25		–		(1	)		24
	$	53,795	$	576	$	(144	)	$	54,227	$	48,232	$	508	$	(241	)	$	48,499

(1) Excludes $46,013 million of held-to-collect securities as at July 31, 2019 that are carried at amortized cost, net of allowance for credit losses (October 31, 2018 – $46,109 million).

(2) Gross unrealized gains and losses includes $(1) million of allowance for credit losses on debt securities at FVOCI as at July 31, 2019 (October 31, 2018 – $11 million) recognized in income and Other components of equity.

(3) The majority of the MBS are residential. Cost/Amortized cost, gross unrealized gains, gross unrealized losses and fair value related to commercial MBS are $1,775 million, $2 million, $6 million and $1,771 million, respectively as at July 31, 2019 (October 31, 2018 – $1,442 million, $nil, $6 million and $1,436 million, respectively).

Allowance for credit losses on investment securities

The following tables reconcile the opening and closing allowance for debt securities at FVOCI and amortized cost by stage. Reconciling items include the following:

• Transfers between stages, which are presumed to occur before any corresponding remeasurement of the allowance.

• Purchases, which reflect the allowance related to assets newly recognized during the period, including those assets that were derecognized following a modification of terms.

• Sales and maturities, which reflect the allowance related to assets derecognized during the period without a credit loss being incurred, including those assets that were derecognized following a modification of terms.

• Changes in risk, parameters and exposures, which comprise the impact of changes in model inputs or assumptions, including changes in forward-looking macroeconomic conditions; partial repayments; changes in the measurement following a transfer between stages; and unwinding of the time value discount due to the passage of time.

64        Royal Bank of Canada        Third Quarter 2019

Note 4    Securities (continued)

Allowance for credit losses – securities at FVOCI (1)

	For the three months ended
	July 31, 2019												July 31, 2018
	Performing						Impaired						Performing						Impaired
(Millions of Canadian dollars)	Stage 1			Stage 2			Stage 3			Total			Stage 1			Stage 2			Stage 3		Total
Balance at beginning of period	$	5		$	–		$	(4	)	$	1		$	40		$	5		$	–	$	45
Provision for credit losses
Transfers to stage 1		–			–			–			–			–			–			–		–
Transfers to stage 2		–			–			–			–			–			–			–		–
Transfers to stage 3		–			–			–			–			(36	)		–			36		–
Purchases		1			–			–			1			1			–			–		1
Sales and maturities		(1	)		–			–			(1	)		(1	)		–			–		(1	)
Changes in risk, parameters and exposures		–			–			(2	)		(2	)		–			–			–		–
Exchange rate and other		–			–			–			–			–			–			–		–
Balance at end of period	$	5		$	–		$	(6	)	$	(1	)	$	4		$	5		$	36	$	45
	For the nine months ended
	July 31, 2019												July 31, 2018
	Performing						Impaired						Performing						Impaired
(Millions of Canadian dollars)	Stage 1			Stage 2			Stage 3			Total			Stage 1			Stage 2			Stage 3		Total
Balance at beginning of period	$	4		$	7		$	–		$	11		$	3		$	22		$	–	$	25
Provision for credit losses
Transfers to stage 1		–			–			–			–			–			–			–		–
Transfers to stage 2		–			–			–			–			–			–			–		–
Transfers to stage 3		–			–			–			–			(36	)		–			36		–
Purchases		4			–			–			4			83			–			–		83
Sales and maturities		(2	)		(7	)		–			(9	)		(47	)		(17	)		–		(64	)
Changes in risk, parameters and exposures		(1	)		–			(6	)		(7	)		(1	)		1			–		–
Exchange rate and other		–			–			–			–			2			(1	)		–		1
Balance at end of period	$	5		$	–		$	(6	)	$	(1	)	$	4		$	5		$	36	$	45

(1) Expected credit losses on debt securities at FVOCI are not separately recognized on the balance sheet as the related securities are recorded at fair value. The cumulative amount of credit losses recognized in income is presented in Other components of equity.

Allowance for credit losses – securities at amortized cost

	For the three months ended
	July 31, 2019											July 31, 2018
	Performing						Impaired					Performing						Impaired
(Millions of Canadian dollars)	Stage 1			Stage 2			Stage 3		Total			Stage 1			Stage 2			Stage 3		Total
Balance at beginning of period	$	7		$	23		$	–	$	30		$	4		$	31		$	–	$	35
Provision for credit losses
Transfers to stage 1		–			–			–		–			–			–			–		–
Transfers to stage 2		–			–			–		–			–			–			–		–
Transfers to stage 3		–			–			–		–			–			(2	)		2		–
Purchases		2			–			–		2			1			–			–		1
Sales and maturities		(1	)		–			–		(1	)		–			–			–		–
Changes in risk, parameters and exposures		–			(3	)		–		(3	)		1			8			–		9
Exchange rate and other		(1	)		1			–		–			1			–			–		1
Balance at end of period	$	7		$	21		$	–	$	28		$	7		$	37		$	2	$	46
	For the nine months ended
	July 31, 2019											July 31, 2018
	Performing						Impaired					Performing						Impaired
(Millions of Canadian dollars)	Stage 1			Stage 2			Stage 3		Total			Stage 1			Stage 2			Stage 3		Total
Balance at beginning of period	$	6		$	32		$	–	$	38		$	9		$	45		$	–	$	54
Provision for credit losses
Transfers to stage 1		–			–			–		–			3			(3	)		–		–
Transfers to stage 2		–			–			–		–			(7	)		7			–		–
Transfers to stage 3		–			–			–		–			–			(2	)		2		–
Purchases		6			–			–		6			4			–			–		4
Sales and maturities		(1	)		–			–		(1	)		(2	)		(10	)		–		(12	)
Changes in risk, parameters and exposures		(3	)		(13	)		–		(16	)		(1	)		1			–		–
Exchange rate and other		(1	)		2			–		1			1			(1	)		–		–
Balance at end of period	$	7		$	21		$	–	$	28		$	7		$	37		$	2	$	46

Royal Bank of Canada        Third Quarter 2019        65

Credit risk exposure by internal risk rating

The following table presents the fair value of debt securities at FVOCI and gross carrying amount of securities at amortized cost. Risk ratings are based on internal ratings used in the measurement of expected credit losses, as at the reporting date as outlined in the internal ratings maps in the Credit risk section of our 2018 Annual Report.

	As at
	July 31, 2019								October 31, 2018
	Performing				Impaired				Performing				Impaired
(Millions of Canadian dollars)	Stage 1		Stage 2		Stage 3 (1)		Total		Stage 1		Stage 2		Stage 3 (1)		Total
Investment securities
Securities at FVOCI
Investment grade	$	53,219	$	1	$	–	$	53,220	$	46,956	$	479	$	–	$	47,435
Non-investment grade		383		10		–		393		500		33		–		533
Impaired		–		–		144		144		–		–		125		125
	$	53,602	$	11	$	144	$	53,757	$	47,456	$	512	$	125	$	48,093
Items not subject to impairment (2)								470								406
							$	54,227							$	48,499
Securities at amortized cost
Investment grade	$	44,820	$	44	$	–	$	44,864	$	44,958	$	119	$	–	$	45,077
Non-investment grade		616		561		–		1,177		367		703		–		1,070
Impaired		–		–		–		–		–		–		–		–
	$	45,436	$	605	$	–	$	46,041	$	45,325	$	822	$	–	$	46,147
Allowance for credit losses		7		21		–		28		6		32		–		38
Amortized cost	$	45,429	$	584	$	–	$	46,013	$	45,319	$	790	$	–	$	46,109

(1) Includes $144 million of purchased credit impaired securities (October 31, 2018 – $125 million).

(2) Investment securities at FVOCI not subject to impairment represent equity securities designated as FVOCI.

66        Royal Bank of Canada        Third Quarter 2019

Note 5    Loans and allowance for credit losses

Allowance for credit losses

	For the three months ended
	July 31, 2019													July 31, 2018
(Millions of Canadian dollars)	Balance at beginning of period		Provision for credit losses			Net write-offs			Exchange rate and other			Balance at end of period		Balance at beginning of period		Provision for credit losses		Net write-offs			Exchange rate and other			Balance at end of period
Retail
Residential mortgages	$	395	$	29		$	(10	)	$	(5	)	$	409	$	381	$	20	$	(12	)	$	–		$	389
Personal		922		127			(116	)		(1	)		932		876		138		(109	)		(3	)		902
Credit cards		790		130			(130	)		(1	)		789		694		129		(118	)		–			705
Small business		49		12			(7	)		(1	)		53		52		16		(7	)		–			61
Wholesale		1,108		133			(89	)		(37	)		1,115		1,012		34		(57	)		(5	)		984
Customers’ liability under acceptances		26		(2	)		–			(1	)		23		15		1		–			–			16
	$	3,290	$	429		$	(352	)	$	(46	)	$	3,321	$	3,030	$	338	$	(303	)	$	(8	)	$	3,057
Presented as:
Allowance for loan losses	$	3,093										$	3,131	$	2,808									$	2,837
Other liabilities – Provisions		171											167		206										203
Customers’ liability under acceptances		26											23		15										16
Other components of equity		–											–		1										1

	For the nine months ended
	July 31, 2019												July 31, 2018
(Millions of Canadian dollars)	Balance at beginning of period		Provision for credit losses		Net write-offs			Exchange rate and other			Balance at end of period		Balance at beginning of period		Provision for credit losses			Net write-offs			Exchange rate and other			Balance at end of period
Retail
Residential mortgages	$	382	$	60	$	(30	)	$	(3	)	$	409	$	378	$	52		$	(35	)	$	(6	)	$	389
Personal		895		398		(346	)		(15	)		932		826		405			(318	)		(11	)		902
Credit cards		760		405		(375	)		(1	)		789		693		363			(351	)		–			705
Small business		51		25		(20	)		(3	)		53		49		33			(19	)		(2	)		61
Wholesale		979		495		(305	)		(54	)		1,115		1,010		101			(93	)		(34	)		984
Customers’ liability under acceptances		21		3		–			(1	)		23		20		(4	)		–			–			16
	$	3,088	$	1,386	$	(1,076	)	$	(77	)	$	3,321	$	2,976	$	950		$	(816	)	$	(53	)	$	3,057
Presented as:
Allowance for loan losses	$	2,912									$	3,131	$	2,749										$	2,837
Other liabilities – Provisions		154										167		207											203
Customers’ liability under acceptances		21										23		20											16
Other components of equity		1										–		–											1

The following tables reconcile the opening and closing allowance for loans and commitments, by stage, for each major product category.

Reconciling items include the following:

• Transfers between stages, which are presumed to occur before any corresponding remeasurements of the allowance.

• Originations, which reflect the allowance related to assets newly recognized during the period, including those assets that were derecognized following a modification of terms.

• Maturities, which reflect the allowance related to assets derecognized during the period without a credit loss being incurred, including those assets that were derecognized following a modification of terms.

• Changes in risk, parameters and exposures, which comprise the impact of changes in model inputs or assumptions, including changes in forward-looking macroeconomic conditions; partial repayments and additional draws on existing facilities; changes in the measurement following a transfer between stages; and unwinding of the time value discount due to the passage of time in stage 1 and stage 2.

Royal Bank of Canada        Third Quarter 2019        67

Allowance for credit losses – Retail and wholesale loans

	For the three months ended
	July 31, 2019												July 31, 2018
	Performing						Impaired						Performing						Impaired
(Millions of Canadian dollars)	Stage 1			Stage 2			Stage 3			Total			Stage 1			Stage 2			Stage 3			Total
Residential mortgages
Balance at beginning of period	$	140		$	63		$	192		$	395		$	149		$	62		$	170		$	381
Provision for credit losses
Transfers to stage 1		21			(16	)		(5	)		–			10			(10	)		–			–
Transfers to stage 2		(4	)		4			–			–			(4	)		5			(1	)		–
Transfers to stage 3		(1	)		(6	)		7			–			–			(6	)		6			–
Originations		12			–			–			12			18			–			–			18
Maturities		(4	)		(3	)		–			(7	)		(3	)		(4	)		–			(7	)
Changes in risk, parameters and exposures		(19	)		28			15			24			(20	)		18			11			9
Write-offs		–			–			(12	)		(12	)		–			–			(14	)		(14	)
Recoveries		–			–			2			2			–			–			2			2
Exchange rate and other		(1	)		–			(4	)		(5	)		1			–			(1	)		–
Balance at end of period	$	144		$	70		$	195		$	409		$	151		$	65		$	173		$	389
Personal
Balance at beginning of period	$	238		$	555		$	129		$	922		$	253		$	488		$	135		$	876
Provision for credit losses
Transfers to stage 1		154			(154	)		–			–			154			(154	)		–			–
Transfers to stage 2		(20	)		20			–			–			(26	)		27			(1	)		–
Transfers to stage 3		–			(41	)		41			–			(1	)		(36	)		37			–
Originations		27			–			–			27			30			1			–			31
Maturities		(8	)		(30	)		–			(38	)		(9	)		(34	)		–			(43	)
Changes in risk, parameters and exposures		(148	)		210			76			138			(143	)		213			80			150
Write-offs		–			–			(148	)		(148	)		–			–			(139	)		(139	)
Recoveries		–			–			32			32			–			–			30			30
Exchange rate and other		–			–			(1	)		(1	)		–			–			(3	)		(3	)
Balance at end of period	$	243		$	560		$	129		$	932		$	258		$	505		$	139		$	902
Credit cards
Balance at beginning of period	$	166		$	624		$	–		$	790		$	199		$	495		$	–		$	694
Provision for credit losses
Transfers to stage 1		116			(116	)		–			–			153			(153	)		–			–
Transfers to stage 2		(19	)		19			–			–			(21	)		21			–			–
Transfers to stage 3		–			(88	)		88			–			(1	)		(53	)		54			–
Originations		1			–			–			1			4			1			–			5
Maturities		(2	)		(8	)		–			(10	)		(3	)		(12	)		–			(15	)
Changes in risk, parameters and exposures		(94	)		191			42			139			(113	)		188			64			139
Write-offs		–			–			(167	)		(167	)		–			–			(151	)		(151	)
Recoveries		–			–			37			37			–			–			33			33
Exchange rate and other		1			(2	)		–			(1	)		(1	)		1			–			–
Balance at end of period	$	169		$	620		$	–		$	789		$	217		$	488		$	–		$	705
Small business
Balance at beginning of period	$	15		$	17		$	17		$	49		$	15		$	17		$	20		$	52
Provision for credit losses
Transfers to stage 1		5			(5	)		–			–			5			(5	)		–			–
Transfers to stage 2		–			–			–			–			(1	)		1			–			–
Transfers to stage 3		–			(3	)		3			–			–			(2	)		2			–
Originations		2			–			–			2			3			–			–			3
Maturities		(1	)		(2	)		–			(3	)		(1	)		(3	)		–			(4	)
Changes in risk, parameters and exposures		(4	)		9			8			13			(5	)		15			7			17
Write-offs		–			–			(9	)		(9	)		–			–			(9	)		(9	)
Recoveries		–			–			2			2			–			–			2			2
Exchange rate and other		–			–			(1	)		(1	)		1			–			(1	)		–
Balance at end of period	$	17		$	16		$	20		$	53		$	17		$	23		$	21		$	61
Wholesale
Balance at beginning of period	$	293		$	358		$	457		$	1,108		$	254		$	295		$	463		$	1,012
Provision for credit losses
Transfers to stage 1		35			(34	)		(1	)		–			23			(23	)		–			–
Transfers to stage 2		(8	)		9			(1	)		–			(14	)		19			(5	)		–
Transfers to stage 3		(2	)		(15	)		17			–			–			(9	)		9			–
Originations		55			12			–			67			56			11			–			67
Maturities		(39	)		(39	)		–			(78	)		(34	)		(37	)		–			(71	)
Changes in risk, parameters and exposures		(51	)		86			109			144			(15	)		68			(15	)		38
Write-offs		–			–			(101	)		(101	)		–			–			(82	)		(82	)
Recoveries		–			–			12			12			–			–			25			25
Exchange rate and other		(3	)		(2	)		(32	)		(37	)		2			2			(9	)		(5	)
Balance at end of period	$	280		$	375		$	460		$	1,115		$	272		$	326		$	386		$	984

68        Royal Bank of Canada        Third Quarter 2019

Note 5    Loans and allowance for credit losses (continued)

	For the nine months ended
	July 31, 2019												July 31, 2018
	Performing						Impaired						Performing						Impaired
(Millions of Canadian dollars)	Stage 1			Stage 2			Stage 3			Total			Stage 1			Stage 2			Stage 3			Total
Residential mortgages
Balance at beginning of period	$	142		$	64		$	176		$	382		$	140		$	65		$	173		$	378
Provision for credit losses
Transfers to stage 1		64			(52	)		(12	)		–			49			(49	)		–			–
Transfers to stage 2		(9	)		11			(2	)		–			(15	)		17			(2	)		–
Transfers to stage 3		(2	)		(24	)		26			–			(1	)		(14	)		15			–
Originations		35			–			–			35			51			–			–			51
Maturities		(10	)		(6	)		–			(16	)		(9	)		(9	)		–			(18	)
Changes in risk, parameters and exposures		(76	)		77			40			41			(66	)		54			31			19
Write-offs		–			–			(34	)		(34	)		–			–			(39	)		(39	)
Recoveries		–			–			4			4			–			–			4			4
Exchange rate and other		–			–			(3	)		(3	)		2			1			(9	)		(6	)
Balance at end of period	$	144		$	70		$	195		$	409		$	151		$	65		$	173		$	389
Personal
Balance at beginning of period	$	242		$	512		$	141		$	895		$	278		$	427		$	121		$	826
Provision for credit losses
Transfers to stage 1		428			(422	)		(6	)		–			576			(576	)		–			–
Transfers to stage 2		(66	)		67			(1	)		–			(118	)		119			(1	)		–
Transfers to stage 3		(1	)		(125	)		126			–			(2	)		(114	)		116			–
Originations		73			1			–			74			81			4			–			85
Maturities		(20	)		(87	)		–			(107	)		(25	)		(99	)		–			(124	)
Changes in risk, parameters and exposures		(414	)		614			231			431			(530	)		745			229			444
Write-offs		–			–			(440	)		(440	)		–			–			(405	)		(405	)
Recoveries		–			–			94			94			–			–			87			87
Exchange rate and other		1			–			(16	)		(15	)		(2	)		(1	)		(8	)		(11	)
Balance at end of period	$	243		$	560		$	129		$	932		$	258		$	505		$	139		$	902
Credit cards
Balance at beginning of period	$	161		$	599		$	–		$	760		$	251		$	442		$	–		$	693
Provision for credit losses
Transfers to stage 1		344			(344	)		–			–			597			(597	)		–			–
Transfers to stage 2		(58	)		58			–			–			(102	)		102			–			–
Transfers to stage 3		(1	)		(251	)		252			–			(2	)		(145	)		147			–
Originations		3			–			–			3			10			2			–			12
Maturities		(4	)		(19	)		–			(23	)		(10	)		(55	)		–			(65	)
Changes in risk, parameters and exposures		(276	)		578			123			425			(526	)		738			204			416
Write-offs		–			–			(478	)		(478	)		–			–			(448	)		(448	)
Recoveries		–			–			103			103			–			–			97			97
Exchange rate and other		–			(1	)		–			(1	)		(1	)		1			–			–
Balance at end of period	$	169		$	620		$	–		$	789		$	217		$	488		$	–		$	705
Small business
Balance at beginning of period	$	17		$	16		$	18		$	51		$	15		$	15		$	19		$	49
Provision for credit losses
Transfers to stage 1		16			(16	)		–			–			20			(20	)		–			–
Transfers to stage 2		(2	)		2			–			–			(4	)		4			–			–
Transfers to stage 3		–			(8	)		8			–			–			(8	)		8			–
Originations		7			–			–			7			8			–			–			8
Maturities		(3	)		(6	)		–			(9	)		(3	)		(7	)		–			(10	)
Changes in risk, parameters and exposures		(18	)		28			17			27			(20	)		39			16			35
Write-offs		–			–			(26	)		(26	)		–			–			(25	)		(25	)
Recoveries		–			–			6			6			–			–			6			6
Exchange rate and other		–			–			(3	)		(3	)		1			–			(3	)		(2	)
Balance at end of period	$	17		$	16		$	20		$	53		$	17		$	23		$	21		$	61
Wholesale
Balance at beginning of period	$	274		$	340		$	365		$	979		$	251		$	352		$	407		$	1,010
Provision for credit losses
Transfers to stage 1		113			(103	)		(10	)		–			148			(148	)		–			–
Transfers to stage 2		(25	)		28			(3	)		–			(60	)		68			(8	)		–
Transfers to stage 3		(5	)		(48	)		53			–			(1	)		(28	)		29			–
Originations		182			39			–			221			167			28			–			195
Maturities		(128	)		(118	)		–			(246	)		(112	)		(145	)		–			(257	)
Changes in risk, parameters and exposures		(130	)		235			415			520			(123	)		199			87			163
Write-offs		–			–			(337	)		(337	)		–			–			(145	)		(145	)
Recoveries		–			–			32			32			–			–			52			52
Exchange rate and other		(1	)		2			(55	)		(54	)		2			–			(36	)		(34	)
Balance at end of period	$	280		$	375		$	460		$	1,115		$	272		$	326		$	386		$	984

Royal Bank of Canada        Third Quarter 2019        69

Credit risk exposure by internal risk rating

The following table presents the gross carrying amount of loans measured at amortized cost, and the full contractual amount of undrawn loan commitments subject to the impairment requirements of IFRS 9. Risk ratings are based on internal ratings used in the measurement of expected credit losses as at the reporting date, as outlined in the internal ratings maps for Wholesale and Retail facilities in the Credit risk section of our 2018 Annual Report.

	As at
	July 31, 2019								October 31, 2018
(Millions of Canadian dollars)	Stage 1		Stage 2		Stage 3		Total		Stage 1		Stage 2		Stage 3		Total
Retail
Loans outstanding – Residential mortgages
Low risk	$	232,712	$	6,367	$	–	$	239,079	$	222,026	$	3,688	$	–	$	225,714
Medium risk		13,221		1,289		–		14,510		13,681		1,369		–		15,050
High risk		2,727		2,619		–		5,346		2,577		2,897		–		5,474
Not rated (1)		38,301		608		–		38,909		34,670		578		–		35,248
Impaired		–		–		709		709		–		–		726		726
		286,961		10,883		709		298,553		272,954		8,532		726		282,212
Items not subject to impairment (2)								422								259
Total								298,975								282,471
Loans outstanding – Personal
Low risk	$	71,290	$	1,699	$	–	$	72,989	$	71,763	$	1,256	$	–	$	73,019
Medium risk		5,997		2,042		–		8,039		6,124		1,925		–		8,049
High risk		937		1,649		–		2,586		998		1,672		–		2,670
Not rated (1)		8,290		41		–		8,331		8,595		64		–		8,659
Impaired		–		–		300		300		–		–		303		303
Total		86,514		5,431		300		92,245		87,480		4,917		303		92,700
Loans outstanding – Credit cards
Low risk	$	13,767	$	102	$	–	$	13,869	$	13,185	$	100	$	–	$	13,285
Medium risk		2,185		1,727		–		3,912		2,234		1,632		–		3,866
High risk		130		1,335		–		1,465		139		1,331		–		1,470
Not rated (1)		819		32		–		851		764		30		–		794
Total		16,901		3,196		–		20,097		16,322		3,093		–		19,415
Loans outstanding – Small business
Low risk	$	2,228	$	45	$	–	$	2,273	$	2,004	$	46	$	–	$	2,050
Medium risk		2,321		109		–		2,430		2,230		102		–		2,332
High risk		118		197		–		315		95		178		–		273
Not rated (1)		197		–		–		197		166		1		–		167
Impaired		–		–		51		51		–		–		44		44
Total		4,864		351		51		5,266		4,495		327		44		4,866
Undrawn loan commitments – Retail
Low risk	$	197,881	$	1,943	$	–	$	199,824	$	182,426	$	1,270	$	–	$	183,696
Medium risk		7,832		240		–		8,072		10,794		239		–		11,033
High risk		727		207		–		934		3,740		166		–		3,906
Not rated (1)		2,730		29		–		2,759		2,584		35		–		2,619
Total		209,170		2,419		–		211,589		199,544		1,710		–		201,254
Wholesale – Loans outstanding
Investment grade	$	50,609	$	79	$	–	$	50,688	$	46,869	$	324	$	–	$	47,193
Non-investment grade		116,299		11,525		–		127,824		106,027		10,190		–		116,217
Not rated (1)		7,328		363		–		7,691		6,692		411		–		7,103
Impaired		–		–		1,896		1,896		–		–		1,096		1,096
		174,236		11,967		1,896		188,099		159,588		10,925		1,096		171,609
Items not subject to impairment (2)								10,842								8,669
Total								198,941								180,278
Undrawn loan commitments – Wholesale
Investment grade	$	220,061	$	–	$	–	$	220,061	$	222,970	$	93	$	–	$	223,063
Non-investment grade		90,263		8,030		–		98,293		88,828		7,069		–		95,897
Not rated (1)		4,557		–		–		4,557		4,291		–		–		4,291
Total		314,881		8,030		–		322,911		316,089		7,162		–		323,251

(1) In certain cases where an internal risk rating is not assigned, we use other approved credit risk assessment or rating methodologies, policies and tools to manage our credit risk.

(2) Items not subject to impairment are loans held at FVTPL.

70        Royal Bank of Canada        Third Quarter 2019

Note 5    Loans and allowance for credit losses (continued)

Loans past due but not impaired (1)

	As at
	July 31, 2019								October 31, 2018
(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	$	3,025	$	1,285	$	186	$	4,496	$	2,995	$	1,402	$	179	$	4,576
Wholesale		1,301		405		21		1,727		1,246		468		–		1,714
	$	4,326	$	1,690	$	207	$	6,223	$	4,241	$	1,870	$	179	$	6,290

(1) Amounts presented may include loans past due as a result of administrative processes, such as mortgage loans on which payments are restrained pending payout due to sale or refinancing. Past due loans arising from administrative processes are not representative of the borrowers’ ability to meet their payment obligations.

Note 6    Deposits

	As at
	July 31, 2019								October 31, 2018
(Millions of Canadian dollars)	Demand (1)		Notice (2)		Term (3)		Total		Demand (1)		Notice (2)		Term (3)		Total
Personal	$	140,474	$	48,659	$	98,796	$	287,929	$	135,101	$	48,873	$	86,180	$	270,154
Business and government		246,937		12,106		304,300		563,343		238,617		8,606		287,148		534,371
Bank		8,403		173		21,363		29,939		8,750		299		23,472		32,521
	$	395,814	$	60,938	$	424,459	$	881,211	$	382,468	$	57,778	$	396,800	$	837,046
Non-interest-bearing (4)
Canada	$	90,308	$	5,335	$	–	$	95,643	$	88,119	$	5,086	$	–	$	93,205
United States		32,451		–		–		32,451		34,098		–		–		34,098
Europe (5)		690		–		–		690		564		–		–		564
Other International		5,484		6		–		5,490		5,495		5		–		5,500
Interest-bearing (4)
Canada		226,187		15,167		330,119		571,473		213,747		15,112		292,641		521,500
United States		3,995		36,502		49,929		90,426		2,478		33,099		67,211		102,788
Europe (5)		31,384		873		32,973		65,230		32,930		1,412		26,598		60,940
Other International		5,315		3,055		11,438		19,808		5,037		3,064		10,350		18,451
	$	395,814	$	60,938	$	424,459	$	881,211	$	382,468	$	57,778	$	396,800	$	837,046

(1) Demand deposits are deposits for which we do not have the right to require notice of withdrawal, which include both savings and chequing accounts.

(2) Notice deposits are deposits for which we can legally require notice of withdrawal. These deposits are primarily savings accounts.

(3) Term deposits are deposits payable on a fixed date, and include term deposits, guaranteed investment certificates and similar instruments.

(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 July 31, 2019, deposits denominated in U.S. dollars, British pounds, Euro and other foreign currencies were $326 billion, $21 billion, $44 billion and $31 billion, respectively (October 31, 2018 – $309 billion, $20 billion, $38 billion and $32 billion, respectively).

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

Contractual maturities of term deposits

	As at
(Millions of Canadian dollars)	July 31 2019		October 31 2018
Within 1 year:
less than 3 months	$	117,873	$	89,553
3 to 6 months		40,755		59,109
6 to 12 months		92,765		80,773
1 to 2 years		61,462		51,798
2 to 3 years		36,338		45,550
3 to 4 years		21,616		21,127
4 to 5 years		25,735		23,863
Over 5 years		27,915		25,027
	$	424,459	$	396,800
Aggregate amount of term deposits in denominations of one hundred thousand dollars or more (1)	$	387,000	$	362,000

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

Royal Bank of Canada        Third Quarter 2019        71

Note 7    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 effects of 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)	July 31 2019			July 31 2018		July 31 2019		July 31 2018
Current service costs	$	74		$	90	$	10	$	10
Net interest expense (income)		(5	)		2		16		16
Remeasurements of other long term benefits		–			–		4		(1	)
Administrative expense		4			4		–		–
Defined benefit pension expense	$	73		$	96	$	30	$	25
Defined contribution pension expense		50			45		–		–
	$	123		$	141	$	30	$	25

.	For the nine months ended
	Pension plans					Other post-employment benefit plans
(Millions of Canadian dollars)	July 31 2019			July 31 2018		July 31 2019		July 31 2018
Current service costs	$	222		$	269	$	29	$	29
Net interest expense (income)		(15	)		6		49		50
Remeasurements of other long term benefits		–			–		10		(2	)
Administrative expense		12			11		–		–
Defined benefit pension expense	$	219		$	286	$	88	$	77
Defined contribution pension expense		161			140		–		–
	$	380		$	426	$	88	$	77

Pension and other post-employment benefit remeasurements (1)

	For the three months ended
	Defined benefit pension plans						Other post-employment benefit plans
(Millions of Canadian dollars)	July 31 2019			July 31 2018			July 31 2019			July 31 2018
Actuarial (gains) losses:
Changes in financial assumptions (2)	$	932		$	(378	)	$	63		$	(40	)
Experience adjustments		–			–			(3	)		(3	)
Return on plan assets (excluding interest based on discount rate)		(203	)		(209	)		–			–
	$	729		$	(587	)	$	60		$	(43	)

	For the nine months ended
	Defined benefit pension plans						Other post-employment benefit plans
(Millions of Canadian dollars)	July 31 2019			July 31 2018			July 31 2019			July 31 2018
Actuarial (gains) losses:
Changes in financial assumptions (2)	$	2,192		$	(571	)	$	180		$	(62	)
Experience adjustments		–			–			(6	)		(9	)
Return on plan assets (excluding interest based on discount rate)		(921	)		(171	)		–			–
	$	1,271		$	(742	)	$	174		$	(71	)

(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.

(2) Changes in financial assumptions in our defined benefit pension plans primarily relate to changes in discount rates.

Note 8    Income taxes

Tax examinations and assessments

During the third quarter, we received a reassessment from the Canada Revenue Agency (CRA), in respect of the 2014 taxation year, which suggests that Royal Bank of Canada owes additional taxes of approximately $295 million as they have denied the deductibility of certain dividends. This amount represents the maximum additional tax owing for that year. The reassessment is consistent with the previously received proposal letters and reassessments, which were described in Note 22 of our 2018 Annual Consolidated Financial Statements.

During the first quarter, we received reassessments that are consistent with the previously received proposal letters from the CRA in respect of the 2013 and 2012 taxation years.

In all cases, we are confident that our tax filing position was appropriate and intend to defend ourselves vigorously.

72        Royal Bank of Canada        Third Quarter 2019

Note 9     Significant capital and funding transactions

Preferred shares

On November 2, 2018, we issued 14 million Non-Cumulative 5-Year Rate Reset First Preferred Shares Series BO at a price of $25 per share, for total gross proceeds of $350 million. For the initial five year period to the earliest redemption date of February 24, 2024, the Series BO Preferred Shares pay quarterly cash dividends, if declared, at a rate of 4.8% 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 2.38%. Holders have the option to convert their shares into Non-Cumulative Floating Rate First Preferred Shares, Series BP, 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 2.38%. Subject to the consent of OSFI and the requirements of the Bank Act (Canada), we may redeem the Series BO Preferred Shares in whole or in part at a price per share of $25 on the earliest redemption date and every fifth year thereafter. The Series BO Preferred Shares include NVCC provisions which are necessary for the shares to qualify as Tier 1 regulatory capital.

On November 24, 2018, we redeemed all 10 million Non-Cumulative First Preferred Shares Series AD at a price of $25 per share.

On February 24, 2019, we redeemed all 2.4 million Non-Cumulative First Preferred Shares Series AK, all 13.6 million Non-Cumulative 5 year Rate Reset First Preferred Shares Series AJ, and all 12 million Non-Cumulative 5-year Rate Reset First Preferred Shares Series AL, at a price of $25 per share.

Subordinated Debt

On July 17, 2019, we redeemed all $1,000 million of our outstanding NVCC 3.04% subordinated debentures due on July 17, 2024 for 100% of their principal amount plus interest accrued to, but excluding, the redemption date.

On July 25, 2019, we issued $1,500 million of NVCC subordinated debentures. The notes bear interest at a fixed rate of 2.74% per annum until July 25, 2024, and at the three-month Canadian Dollar Offered Rate plus 0.98% thereafter until their maturity on July 25, 2029.

Common shares issued (1)

	For the three months ended
	July 31, 2019						July 31, 2018
(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)		545		$	38			440		$	24
Purchased for cancellation (3)		(1,914	)		(24	)		(1,283	)		(16	)
		(1,369	)	$	14			(843	)	$	8
	For the nine months ended
	July 31, 2019						July 31, 2018
(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)		1,230		$	87			1,105		$	69
Purchased for cancellation (3)		(5,705	)		(70	)		(12,837	)		(157	)
		(4,475	)	$	17			(11,732	)	$	(88	)

(1) The requirements of our dividend reinvestment plan (DRIP) are satisfied through either open market share purchases or shares issued from treasury. During the three and nine months ended July 31, 2019 and July 31, 2018, 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.

(3) During the three months ended July 31, 2019, we purchased for cancellation common shares at a total fair value of $197 million (average cost of $102.82 per share), with a book value of $24 million (book value of $12.28 per share). During the nine months ended July 31, 2019, we purchased for cancellation common shares at a total fair value of $556 million (average cost of $97.36 per share), with a book value of $70 million (book value of $12.26 per share). During the three months ended July 31, 2018, we purchased for cancellation common shares at a total fair value of $128 million (average cost of $99.21 per share), with a book value of $16 million (book value of $12.23 per share). During the nine months ended July 31, 2018, we purchased for cancellation common shares at a total fair value of $1,275 million (average cost of $99.28 per share), with a book value of $157 million (book value of $12.22 per share).

Royal Bank of Canada        Third Quarter 2019        73

Note 10    Earnings per share

	For the three months ended						For the nine months ended
(Millions of Canadian dollars, except share and per share amounts)	July 31 2019			July 31 2018			July 31 2019			July 31 2018
Basic earnings per share
Net income	$	3,263		$	3,109		$	9,665		$	9,181
Preferred share dividends		(66	)		(70	)		(205	)		(214	)
Net income attributable to non-controlling interests		–			(8	)		(6	)		(28	)
Net income available to common shareholders		3,197			3,031			9,454			8,939
Weighted average number of common shares (in thousands)		1,434,276			1,440,477			1,435,485			1,445,136
Basic earnings per share (in dollars)	$	2.23		$	2.10		$	6.59		$	6.19
Diluted earnings per share
Net income available to common shareholders	$	3,197		$	3,031		$	9,454		$	8,939
Dilutive impact of exchangeable shares		4			4			11			11
Net income available to common shareholders including dilutive impact of exchangeable shares		3,201			3,035			9,465			8,950
Weighted average number of common shares (in thousands)		1,434,276			1,440,477			1,435,485			1,445,136
Stock options (1)		2,056			2,547			2,102			2,776
Issuable under other share-based compensation plans		743			731			740			745
Exchangeable shares (2)		3,055			3,201			3,172			3,166
Average number of diluted common shares (in thousands)		1,440,130			1,446,956			1,441,499			1,451,823
Diluted earnings per share (in dollars)	$	2.22		$	2.10		$	6.57		$	6.16

(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 July 31, 2019, no outstanding options were excluded from the calculation of diluted earnings per share. For the three months ended July 31, 2018, an average of 738,258 outstanding options with an average exercise price of $102.33 were excluded from the calculation of diluted earnings per share. For the nine months ended July 31, 2019, an average of 765,267 outstanding options with an average price of $102.33 were excluded from the calculation of diluted earnings per share. For the nine months ended July 31, 2018, an average of 630,088 outstanding options with an average exercise price of $102.33 were excluded from the calculation of diluted earnings per share.

(2) Includes exchangeable preferred shares.

74        Royal Bank of Canada        Third Quarter 2019

Note 11    Legal and regulatory matters

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 after taking into account current accruals could be material to our results of operations in any particular period.

Our significant legal proceedings and regulatory matters are those disclosed in our audited 2018 Annual Consolidated Financial Statements as updated below:

LIBOR regulatory investigations and litigation

In January 2019, a number of financial institutions, including Royal Bank of Canada and RBC Capital Markets LLC, were named in a purported class action in New York alleging violations of the U.S. antitrust laws and common law principles of unjust enrichment in the setting of London interbank offered rate (LIBOR) after the Intercontinental Exchange took over administration of the benchmark interest rate from the British Bankers’ Association in 2014. Based on the facts currently known, it is not possible at this time for us to predict the ultimate outcome of these proceedings or the timing of their resolution.

Interchange fees litigation

Two of the proposed class action proceedings for interchange fees, Watson and 9085-4886 Quebec Inc. v. Visa Canada Corporation, et al. have had the following updates since our audited 2018 Annual Consolidated Financial Statements:

The trial in the Watson proceeding has been rescheduled from October 14, 2019 to October 19, 2020.

In 9085-4886 Quebec Inc. v. Visa Canada Corporation, et al., in 2018, the Quebec trial court authorized the proceeding as a class action for Quebec merchants from 2007 to the present but refused to authorize the claims for damages under section 45 of the Competition Act (the Act) after March 12, 2010 or under section 49 of the Act. The merchants appealed and on July 25, 2019, the Quebec Court of Appeal allowed the appeal to also authorize the merchants to proceed under section 45 of the Act for claims after March 12, 2010 and for claims under section 49 of the Act.

Note 12    Results by business segment

.	For the three months ended July 31, 2019
(Millions of Canadian dollars)	Personal & Commercial Banking		Wealth Management		Insurance		Investor & Treasury Services			Capital Markets (1)		Corporate Support (1)			Total
Net interest income (2)	$	3,221	$	773	$	–	$	(16	)	$	1,048	$	22		$	5,048
Non-interest income		1,325		2,256		1,463		577			986		(111	)		6,496
Total revenue		4,546		3,029		1,463		561			2,034		(89	)		11,544
Provision for credit losses		341		27		–		1			56		–			425
Insurance policyholder benefits, claims and acquisition expense		–		–		1,046		–			–		–			1,046
Non-interest expense		1,959		2,183		149		411			1,269		21			5,992
Net income (loss) before income taxes		2,246		819		268		149			709		(110	)		4,081
Income taxes (recoveries)		582		180		64		31			56		(95	)		818
Net income	$	1,664	$	639	$	204	$	118		$	653	$	(15	)	$	3,263
Non-interest expense includes:
Depreciation and amortization	$	159	$	144	$	12	$	36		$	105	$	–		$	456

.	For the three months ended July 31, 2018
(Millions of Canadian dollars)	Personal & Commercial Banking		Wealth Management		Insurance		Investor & Treasury Services		Capital Markets (1)		Corporate Support (1)			Total
Net interest income (2)	$	3,001	$	679	$	–	$	32	$	913	$	(29	)	$	4,596
Non-interest income		1,283		2,119		1,290		588		1,244		(95	)		6,429
Total revenue		4,284		2,798		1,290		620		2,157		(124	)		11,025
Provision for credit losses		339		3		–		1		3		–			346
Insurance policyholder benefits, claims and acquisition expense		–		–		925		–		–		–			925
Non-interest expense		1,910		2,059		153		416		1,312		8			5,858
Net income (loss) before income taxes		2,035		736		212		203		842		(132	)		3,896
Income taxes (recoveries)		525		158		54		48		144		(142	)		787
Net income	$	1,510	$	578	$	158	$	155	$	698	$	10		$	3,109
Non-interest expense includes:
Depreciation and amortization	$	147	$	138	$	9	$	30	$	94	$	–		$	418

Royal Bank of Canada        Third Quarter 2019        75

.	For the nine months ended July 31, 2019
(Millions of Canadian dollars)	Personal & Commercial Banking		Wealth Management		Insurance		Investor & Treasury Services			Capital Markets (1)		Corporate Support (1)			Total
Net interest income (2)	$	9,415	$	2,248	$	–	$	(81	)	$	3,111	$	76		$	14,769
Non-interest income		3,882		6,708		4,557		1,860			3,190		(334	)		19,863
Total revenue		13,297		8,956		4,557		1,779			6,301		(258	)		34,632
Provision for credit losses		1,061		83		–		1			221		(1	)		1,365
Insurance policyholder benefits, claims and acquisition expense		–		–		3,431		–			–		–			3,431
Non-interest expense		5,761		6,551		453		1,217			3,788		50			17,820
Net income (loss) before income taxes		6,475		2,322		673		561			2,292		(307	)		12,016
Income taxes (recoveries)		1,691		501		149		131			210		(331	)		2,351
Net income	$	4,784	$	1,821	$	524	$	430		$	2,082	$	24		$	9,665
Non-interest expense includes:
Depreciation and amortization	$	469	$	443	$	35	$	105		$	300	$	–		$	1,352

.	For the nine months ended July 31, 2018
(Millions of Canadian dollars)	Personal & Commercial Banking		Wealth Management			Insurance		Investor & Treasury Services		Capital Markets (1)		Corporate Support (1)			Total
Net interest income (2)	$	8,709	$	1,923		$	–	$	278	$	2,620	$	(68	)	$	13,462
Non-interest income		3,843		6,263			3,240		1,689		3,722		(312	)		18,445
Total revenue		12,552		8,186			3,240		1,967		6,342		(380	)		31,907
Provision for credit losses		956		(19	)		–		1		16		–			954
Insurance policyholder benefits, claims and acquisition expense		–		–			2,182		–		–		–			2,182
Non-interest expense		5,539		6,009			443		1,196		3,716		48			16,951
Net income (loss) before income taxes		6,057		2,196			615		770		2,610		(428	)		11,820
Income taxes (recoveries)		1,567		484			158		184		499		(253	)		2,639
Net income	$	4,490	$	1,712		$	457	$	586	$	2,111	$	(175	)	$	9,181
Non-interest expense includes:
Depreciation and amortization	$	432	$	401		$	27	$	90	$	271	$	–		$	1,221

(1) Taxable equivalent basis.

(2) Interest revenue is reported net of interest expense as we rely primarily on net interest income as a performance measure.

76        Royal Bank of Canada        Third Quarter 2019

Note 12    Results by business segment (continued)

Total assets and total liabilities by business segment

	As at July 31, 2019
(Millions of Canadian dollars)	Personal & Commercial Banking		Wealth Management		Insurance		Investor & Treasury Services		Capital Markets		Corporate Support			Total
Total assets	$	473,914	$	101,068	$	18,451	$	149,863	$	621,229	$	42,368		$	1,406,893
Total liabilities	$	473,942	$	101,276	$	18,429	$	149,802	$	620,925	$	(39,859	)	$	1,324,515
	As at October 31, 2018
(Millions of Canadian dollars)	Personal & Commercial Banking		Wealth Management		Insurance		Investor & Treasury Services		Capital Markets		Corporate Support			Total
Total assets	$	453,879	$	93,063	$	16,210	$	136,030	$	590,950	$	44,602		$	1,334,734
Total liabilities	$	453,878	$	93,162	$	16,289	$	135,944	$	590,582	$	(35,076	)	$	1,254,779

Royal Bank of Canada        Third Quarter 2019        77

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 third quarter of 2019, we complied with all capital and leverage requirements, including the domestic stability buffer, imposed by OSFI.

	As at
(Millions of Canadian dollars, except Capital ratios and leverage ratios)	July 31 2019		October 31 2018
Capital (1)
CET1 capital	$	60,938	$	57,001
Tier 1 capital		66,615		63,279
Total capital		76,563		72,494
Risk-weighted Assets (RWA) used in calculation of capital ratios (1) (2)
CET1 capital RWA	$	510,664	$	495,528
Tier 1 capital RWA		510,664		495,993
Total capital RWA		510,664		496,459
Total capital RWA consisting of: (1)
Credit risk	$	415,977	$	401,534
Market risk		29,425		32,209
Operational risk		65,262		62,716
Total Capital RWA	$	510,664	$	496,459
Capital ratios and Leverage ratios (1)
CET1 ratio		11.9%		11.5%
Tier 1 capital ratio		13.0%		12.8%
Total capital ratio		15.0%		14.6%
Leverage ratio		4.4%		4.4%
Leverage ratio exposure (billions)	$	1,529.4	$	1,450.8

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

(2) In fiscal 2018, amounts included CVA scalars of 80%, 83% and 86%, respectively.

78        Royal Bank of Canada        Third Quarter 2019

Note 14    Significant dispositions

Wealth Management

On June 3, 2019, we entered into a definitive agreement to sell our private debt Global Asset Management business in the United Kingdom to Dyal Capital Partners. The transaction is subject to customary closing conditions. The assets, liabilities and equity that are included in the disposal group are not significant.

Royal Bank of Canada        Third Quarter 2019        79

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-2. The related depository shares of the series C-2 preferred shares are listed on the NYSE.	Valuation day price For Canadian income tax purposes, Royal Bank of Canada’s common stock was quoted at $29.52 per share on the Valuation Day (December 22, 1971). This is equivalent to $7.38 per share after adjusting for the two-for-one stock split of March 1981 and the two-for- one stock split of February 1990. The one-for-one stock dividends in October 2000 and April 2006 did not affect the Valuation Day amount 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 (International) Fax: 1-888-453-0330 (Canada and 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 Financial analysts, portfolio managers, institutional investors For financial information inquiries, please contact: Investor Relations Royal Bank of Canada 200 Bay Street South Tower Toronto, Ontario M5J 2J5 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 Income Tax Act (Canada) and any corresponding provincial and territorial tax legislation, all dividends (and deemed dividends) paid by RBC to Canadian residents on both its common and preferred shares, are designated as “eligible dividends”, unless stated otherwise. Common share repurchases We are engaged in a Normal Course Issuer Bid (NCIB) which allows us to repurchase for cancellation, up to 20 million common shares during the period spanning from March 1, 2019 to February 29, 2020, when the bid expires, or such earlier date as we may complete the purchases pursuant to our Notice of Intention filed with the Toronto Stock Exchange.	A copy of our Notice of Intention to file a NCIB may be obtained, without charge, by contacting our Corporate Secretary at our Toronto mailing address. 2019 Quarterly earnings release dates First quarter  February 22 Second quarter  May 23 Third quarter   August 21 Fourth quarter December 4 2020 Annual Meeting The Annual Meeting of Common Shareholders will be held on Wednesday, April 8, 2020, in Toronto, Ontario, Canada
		Dividend dates for 2019 Subject to approval by the Board of Directors
			Record dates	Payment dates
		Common and preferred shares series W, AA, AC, AE, AF, AG, AZ, BB, BD, BF, BH, BI, BJ, BK, BM and BO	January 24 April 25 July 25 October 24	February 22 May 24 August 23 November 22
		Preferred shares series C-2 (US$)	January 28 April 26 July 26 October 28	February 7 May 7 August 7 November 7
		Governance Summaries 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 are 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 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.