2nd Quarter Results

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http://www.rns-pdf.londonstockexchange.com/rns/5960Z_-2016-5-27.pdf

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

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

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

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

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

Q2 2016 compared to Q2 2015

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

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

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

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

YTD 2016 compared to YTD 2015

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Table of contents

1     Second quarter highlights 

2     Management's Discussion and Analysis 

2     Caution regarding forward-looking statements 

3     Overview and outlook 

3      About Royal Bank of Canada

4      Selected financial and other highlights

5      Economic, market and regulatory review and outlook

8     Key corporate events of 2016 

8     Financial performance 

8      Overview

13    Business segment results 

13    How we measure and report our business segments

14    Key performance and non-GAAP measures

16    Personal & Commercial Banking

19    Wealth Management

21    Insurance

22    Investor & Treasury Services

23    Capital Markets

24    Corporate Support

25    Results by geographic segment 

26    Quarterly results and trend analysis 

28    Financial condition 

28    Condensed balance sheets

29    Off-balance sheet arrangements

32    Risk management 

32    Credit risk

40    Market risk

45    Liquidity and funding risk

53    Capital management 

58    Additional financial information 

58    Accounting and control matters 

58    Summary of accounting policies and estimates

59    Changes in accounting policies and disclosures

59    Future changes in regulatory disclosures and guidance

59    Controls and procedures

60    Related party transactions 

60    Enhanced Disclosure Task Force recommendations index 

62    Interim Condensed Financial Statements (unaudited) 

68    Notes to the Interim Condensed Financial Statements (unaudited)

99    Shareholder information 

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

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

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

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

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

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

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

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