ANNUAL REPORT 2016

› ›ROYAL BANKOF CANADA

Who we are

› ›

›80,000 employeesworldwide

16 million+ clients 38 countries

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.

Investor & Treasury Services provides asset and treasury services, custody, payments and transaction banking for financial institutions and other institutional investors worldwide.

Capital Markets is an investment bank that provides focused expertise in banking, finance and capital markets to corporations, institutional investors, asset managers, and governments.

Personal & Commercial Banking provides personal and business financial services in Canada, the Caribbean and the U.S.

Wealth Management in Canada, the U.S. and internationally offers solutions to affluent, high net worth, and ultra-high net worth clients. Global Asset Management provides investment management to retail clients and directly to institutional clients.

Insurance offers a full range of insurance products via proprietary channels and third-party distributors, and participates in reinsurance internationally.

Contents

Our strategy for success 1

Our solid performance 2

Innovating to help clients thrive 3

Delivering to help communitiesprosper 4

Message from Dave McKay 5

Message from Kathleen Taylor 7

Management’s Discussionand Analysis 8

Enhanced Disclosure Task ForceRecommendations Index 115

Reports and ConsolidatedFinancial Statements 116

Ten-Year Statistical Review 206

Glossary 207

Directors and Executive Officers 210

Principal Subsidiaries 211

Shareholder Information 212

To view our online annual report,please visit: rbc.com/ar2016

Our strategy for success

Our strategy is deeply rooted in our commitment to clients and communities. Our vision

and goals reflect our long-term focus, and our values guide our day-to-day actions. In a

rapidly changing environment, we have capabilities, strengths and a diversified business model

that position us well to achieve continued growth.

PURPOSE DRIVEN

Helping clients thrive and communities prosper

PERFORMANCE FOCUSED

Vision

To be among the world’s most trusted and successful financial institutions

Goals How We Will Win

Sustainable Growth

Exceptional Client Experience

Best Talent

Simplify. Agile. Innovate.

Community & Social Impact

In Canada: to be the undisputed leader in financial services

In the U.S.: to be the preferred partner to corporate, institutional and high net worth clients and their businesses

In select global financial centres:to be a leading financial services partner valued for our expertise

PRINCIPLES LED

Values

Client First:We will alwaysearn the rightto be our clients’first choice

Collaboration:We win asOne RBC

Accountability:We take owner-ship for personaland collectivehigh performance

Diversity &Inclusion:We embracediversity forinnovationand growth

Integrity:We hold ourselvesto the higheststandards tobuild trust

Royal Bank of Canada: Annual Report 2016 1

Our solid performance

In 2016, we delivered solid returns to shareholders. We grew earnings by 4%, increased

our dividend by 5%, achieved return on equity of 16.3% and strengthened our Common

Equity Tier 1 capital ratio to 10.8%. We are diversified by business and geography.

$9.0 $10.0 $10.5

161514

SolidEarningsNet Income (C$ billion)

$6.00 $6.73 $6.78

161514

DilutedEarningsper Share1

(C$)

ProfitableGrowth1

Return on Equity (ROE)

19.0% 18.6% 16.3%

161514

FinancialStrengthCommon Equity Tier 1Capital Ratio

9.9% 10.6% 10.8%

161514

SolidReturns toShareholdersDividends Declaredper Share

$2.84 $3.08 $3.24

161514

Annualizeddividend

increase of:

5% – one-year8% – ten-year2

50% Personal &Commercial Banking

22% Capital Markets

14% Wealth Management

8% Insurance

6% Investor & Treasury Services

Earnings bybusinesssegment3

Revenue bygeography3

62% Canada

22% United States

16% International

Financial Performance Metrics4

MEDIUM-TERMOBJECTIVES

2016

RESULTS

Diluted EPS Growth1 7%+ 0.7%

Return on Equity1 18%+ 16.3%

Capital Ratio (CET 1) Strong 10.8%

Dividend Payout Ratio 40%–50% 48%

Total Shareholder Return5

RBC GLOBAL PEERAVERAGE

Three-year 10% 8%

Five-year 16% 13%

Ten-year 10% 6%

1 Impacted in 2016 by our acquisition of City National Corporation (City National) due to the issuance of RBC common shares.2 Compound Annual Growth Rate.3 Excludes Corporate Support.4 Our focus is to maximize total shareholder returns (TSR) through the achievement of top half performance compared to our global peer group over the medium term (3-5 years), which we

believe reflects a longer-term view of strong and consistent financial performance.5 Reflects annualized TSR and is calculated based on the TSX common share price appreciation plus reinvested dividend income. Source: Bloomberg, as at October 31, 2016. RBC is

compared to our global peer group. The peer group average excludes RBC; for the list of peers, please refer to our financial performance objectives section of our 2016 Management’sDiscussion and Analysis.

2 Royal Bank of Canada: Annual Report 2016

Innovating to help clients thrive

Innovation is core to our thinking at RBC. We’re building a

digitally-enabled relationship bank, and changing how we work.

We’re also collaborating with a diverse set of partners to explore

new technology, and investing in the digital ecosystem to help

drive the future prosperity and economic success of Canada.

We’re building a digitally-enabled relationship bank» Providing an exceptional and secure experience that’s

available when, how, and where it’s most convenientfor clients

» Using digital channels to better understand our clients sothat we can deliver solutions tailored to their preferences

» We’re not just digitizing our existing products, but rethinkinghow we deliver services and advice

We’re changing the way we work and becoming more agile» Seeking better, smarter ways of working across teams and

fostering intrapreneurship within RBC» Using dynamic, agile teams to create and adjust offerings and

bring them to market more quickly» Working together with our clients to build new products and

platforms in an agile lab environment1

We’re bringing the outside in to RBC» Welcoming students through work-integrated learning

programs to help solve some of our toughest problems» Building innovation labs, partnering with startups and

conducting proof of concepts and pilots» Investing in FinTech focused venture funds and startups

to access emerging trends

We’re a leading partner in the Canadian digital ecosystem» Investing in innovation which will help drive Canada’s future

prosperity and economic success» Working with leading universities to partner with the best,

brightest and boldest minds» Supporting the advancement of machine learning and

artificial intelligence in Canada

RECENT INNOVATIONHIGHLIGHTS

2010

Launched mobile wallet

First investment bank to introduceproprietary smart order routertechnology

2013

Launched mobile payments service

First North American financial institutionto bring person-to-person electronicmoney transfers to Facebook Messenger‡

2015

First North American financial institutionto introduce a fully cloud-basedpayment solution

Launched SecureVoice conversationalbiometrics

2016

Introduced our new mobile banking app

Joined the first interbank group forglobal payments based on blockchaintechnology

Used blockchain technology to improvefunctionality for our loyalty program2

Executed 60% of all financial transactionsthrough digital and mobile channels3

1 Advanced Client Experience Program2 RBC Rewards®

3 Personal & Commercial Banking, excludingcash withdrawals

Royal Bank of Canada: Annual Report 2016 3

Delivering to help communities prosper

Our social and environmental initiatives and investments will deliver

a positive and lasting impact to shape the future. Our expertise, efforts

and energetic employees are the foundation of our leadership in corporate citizenship.

Creating value for society through our commitment to young people

Supporting the development of a clean economy

Using our capabilities as an engine for public good

Creating value for employees and fostering diversity & inclusion

WHAT WE’RE FOCUSED ON

Committed to unlocking the potentialof young people to be better preparedfor the future of work and pursue theirpath to success

Innovating new products and services that create positive social and environmental impact

Making it easier for employees to get involved in their communities

Sharing our learnings to advance the social and environmental sectors

Deepening our expertise in the way we measure, track and report our impacts

HOW WE EMBED CITIZENSHIP

Launched a one-stop digitalplatform that enables employees toidentify volunteer opportunities,apply for volunteer grants and donateto the charity of their choice

PERFORMANCE HIGHLIGHTS

$90 million+ $2.3 billion 200,000+ hoursCash donations and communityinvestments through more than11,500 donations to supportcommunities around the world1

Green bonds underwritten in 2016,bringing our total to $7.4 billionsince 2014

Volunteered by employees who tookpart in our volunteer grant programsin 20162

LEADERSHIP IN CITIZENSHIP

1 Includes employee volunteer grants and gifts-in-kind, as well as non-profitcontributions to non-registered charities. Figure does not include sponsorships.

2 Includes non-work time volunteer hours reported by employees globallyand pensioners in Canada.

For more information, please visit: rbc.com/community-sustainability/index.html

4 Royal Bank of Canada: Annual Report 2016

Dave McKay

President and Chief Executive Officer

We believe that we are

uniquely positioned

among our competitors

to achieve even greater

client relevance in the

digital world of the future.

Message from Dave McKay

We live in an uncertain and changing world.2016 offered continuing challenges for thefinancial services industry, from a subduedmacroeconomic outlook to political andtechnological disruption, to name just a few.

Amid this uncertainty, RBC moves with aclear purpose, helping clients thrive andcommunities prosper. This is our north starthat guides everything that we do. Ourperformance-focused and principles-ledstrategy enables us to navigate withconviction, to spot and create opportunitiesfor our clients and ultimately to createsustainable value for shareholders.

Our 2016 results demonstrate that thisstrategy continues to deliver success. Ourrecord earnings of $10.5 billion were up 4%from last year, driven by strong results inWealth Management, higher earnings inInsurance, solid results in Personal &Commercial Banking, and record earnings inInvestor & Treasury Services. We earned$6.78 per share on a diluted basis, delivereda return on equity of 16.3% and strengthenedour Common Equity Tier 1 capital ratio to10.8%. During 2016, we returned $5.2 billionto shareholders as we raised our dividendtwice for a combined increase of 5% andrepurchased 4.6 million common shares. Wedelivered compound annual Total ShareholderReturns of 10% and 16%, over the three- andfive-year periods.

These results, delivered against the backdropof a challenging economic environment, showhow RBC continues to bring our strengths andcapabilities to bear: strong client relationships;scale; an internationally-respected brand;prudent capital and risk management; a client-focused culture and highly-engagedemployees. We also continue to be wellpositioned given the strength of ourdiversification, by business and by geography,and our ability to effectively manage costs.

In addition, we believe that we are uniquelypositioned among our competitors to achieveeven greater client relevance in the digitalworld of the future. As our clients increasingly

move online, we are quickly transforming ourbusiness to build a truly digitally-enabledrelationship bank. This focus on digitizationwill ultimately help us realize our vision to beamong the world’s most trusted andsuccessful financial institutions.

Our strategic goals remain unchanged: to bethe undisputed financial services leader inCanada; the preferred partner to corporate,institutional and high net worth clients andtheir businesses in the U.S.; and a leadingfinancial services partner valued for ourexpertise in select global financial centresinternationally. In all of these markets we aretargeting high growth and high value clientsegments to achieve sustainable growth.

Achieving sustainable growth

We believe our focus on innovation andtechnology will help enable us to extend ourlead in Canada. In 2016, we maintained ournumber one or two market position in all keyretail categories and we remain the leader inbusiness banking. Our scale in Canadaaffords us the opportunity to leverageunrivalled digital and data insights. Itprovides our clients with an improvedexperience, leading to increased loyalty andimproved profitability, despite the challengingmacroeconomic environment.

Looking forward, as Canada’s top wealth andasset manager, we also see an opportunity tofurther grow our business serving high networth clients, including assisting our manybusiness owner clients with their successionand ownership transition plans. We will alsocontinue to focus on building our businesswith newcomers to Canada, an increasinglyimportant and growing market. And weexpect to prudently grow our Capital Marketsbusiness segment, currently the number oneinvestment bank in Canada and the 10thlargest global investment bank by fees.

Wherever we operate, our brand strength,breadth and scale enable us to bring the bestwe have to offer for the benefit of our clients.In the U.S., our acquisition of Los Angeles-

We continue to be well positioned given the strength of our diversification, by business and by geography.

Royal Bank of Canada: Annual Report 2016 5

Wherever we operate, our brand strength, breadth and scale enableus to bring the best we have to offer for the benefit of our clients.

based City National provides us withsignificant opportunities to deepen ourrelationship with high net worth and mid-market commercial clients. In its first year aspart of RBC, City National has generated$290 million of additional earnings,complementing our existing U.S. WealthManagement and Capital Markets franchises,and underlining the value of City National toour U.S. strategy. This helped us generate24% of revenue in the U.S. in 2016.

Across our businesses in Canada, the U.S.and internationally, we continue to invest inareas where we see the greatest potential forsustainable growth, focusing on specificmarkets and client segments where we canbe a leader. In select global centres in theU.K., Europe and Asia, we continue toprudently grow our wealth management,asset management, capital markets, andinvestor and treasury services businesses.Meanwhile in the Caribbean, we’ve continuedto strengthen our retail business, followingour decision to exit non-core regions lastyear. In Canada, we made the decision thisyear to sell RBC General Insurance Company,our home and auto insurance business toAviva Canada, for $582 million. Under thedistribution agreement entered into as part ofthe sale, we maintained our deeprelationships with our clients, whilecontinuing to offer a full suite of property andcasualty insurance products.

Providing exceptional client experience

We are continually working to provide anexceptional client experience to our personal,institutional, and commercial clients,whether they choose to interact with us inperson, on the phone, or digitally. This year,we were immensely honoured to have beenawarded the rank of ‘Highest in CustomerSatisfaction Among the Big Five RetailBanks,’ by J.D. Power’s 2016 Canadian RetailBanking Satisfaction Study. This recognitionspeaks to our commitment to clients and our

ongoing efforts to put them first and isfurther evidenced by the fact that our netpromoter score, an indicator of client loyaltyand satisfaction, has doubled over the last15 years.

Our focus on innovationThanks to our focus on efficiency, we areable to reinvest in innovation and technologyin ways that others can’t. This innovationwill itself drive further efficiency, enablingus to simplify how we work and digitize ouroperations.

Today within Personal & CommercialBanking, 60% of all financial transactions,excluding cash withdrawals, come throughdigital and mobile channels. The insights thatwe are deriving from these channels arehelping us to provide an exceptional andsecure experience that is available to ourclients when, how and where it is mostconvenient for them.

In developing the technologies of the future,we know that we don’t hold all of theanswers. We are partnering with andinvesting in start-ups and universities totackle some of the most interestingopportunities in financial technology,bringing the outside in to RBC. While many ofthese ideas are being incubated through ourinnovation labs in Canada, the U.S. andEurope, we are also increasingly seeinginnovative ideas emerging from new andexciting avenues, including from studentsworking with RBC. As an example, this year,our new Amplify internship program withinour technology and operations division,challenged students to take on projects inagile teams. All of the projects have beenfunded for further development and two havebeen submitted for patent approval. This isjust one way that we believe our investmentin innovation will not only support futurebusiness opportunities, but will also helpdrive the future prosperity and economicsuccess of Canada and benefit each of thecommunities in which we operate.

Our colleagues continue to drive results

Our success this year would not have beenpossible without the dedication andprofessionalism of our colleagues, whosehigh engagement and client focus continuesto drive our results. We will ensure that weevolve for uncertain times and a digital age.We are creating a culture that nurturesinnovation and collaboration, and isincreasingly fast-paced, adaptive andexecution-focused, in order to meet clients’needs. We are building a better workplace forour colleagues that harnesses diversity andinclusion and where everyone has theopportunity to realize their full potential.

Helping our communities prosper

That potential is more likely achieved thanksto our colleagues’ pride in working for anorganization that is confident in its role inbuilding a future for clients, their families,their businesses and their communities. As apurpose-driven company – and as Canada’slargest corporation by market capitalization –we understand the important role that weplay in addressing societal challenges thatcould impact our business over time. That iswhy this year we announced a newcommitment aimed at unlocking the potentialof young people to thrive and drive Canada’sfuture prosperity ahead of Canada’s 150thanniversary year – #make150count. We arepassionate about making a positive socialimpact in all of the communities in which welive and work.

Our thanks to you

In a changing world, I’d like to thank all ourclients for putting their trust in RBC. I alsowant to thank our colleagues whosecommitment enables our ongoing success.And finally, to you, our shareholders, I wouldlike to reiterate our focus on delivering high-quality and sustainable earnings growth andmoving with clear purpose in 2017 andbeyond.

David McKayPresident and Chief Executive Officer

6 Royal Bank of Canada: Annual Report 2016

Message from Kathleen Taylor

Dear fellow shareholders,

The key responsibility of your Board ofDirectors is to keep RBC focused ondelivering strong and positive outcomes forshareholders, customers, employees and thecommunities we serve. This means engagingactively with the Bank’s outstandingmanagement team to ensure we have theright strategy, talent and risk management toidentify suitable opportunities for growth andcontinue to create long-term value.

The right strategy

The Board of Directors and management sharea vision for RBC: to be among the world’smost trusted and successful financialinstitutions. To help realize this vision, theBoard oversees the organization’s strategicdirection, maintaining its focus on marketsand segments where RBC can apply itsstrengths to win business and deepenrelationships with clients and ourcommunities. Your Board is well suited to thetransformational nature of our industry,remaining agile and responsive to theevolving marketplace. At every board meetingwe examine and discuss aspects of enterpriseand business segment strategy to identifyopportunities for organic growth. We alsospend time analyzing prospects for the Bank’slong-term growth plans. Earlier this year RBCcompleted the acquisition of City National,which is already proving to be the rightplatform to complement our existing U.S.presence, advancing RBC toward our long-term strategic goal of becoming the preferredpartner to corporate, institutional, and highnet worth clients and their businesses in theU.S.

The right talent

The continued superior performance of RBC,including the ongoing, successful integrationof City National demonstrates that having theright strategy is critical to our success. Butequally essential is the leadership of atalented executive team and dedicatedemployees to execute our strategy withexcellence. A key responsibility of the Boardis talent management and successionplanning for the top executive team, in orderto ensure we have a strong pipeline ofleaders to drive both short and long-termperformance. This includes an in-depthevaluation of the strengths andopportunities for high-performance

executives who are key candidates in boththe near and medium term. Building diverseteams at every level is a priority that weembed into our talent managementstrategies, recognizing that a diversity ofviewpoints, backgrounds and experience isan important driver of innovation andprofitable growth.

Prudent risk management

In overseeing the ongoing operations andstrategic direction of RBC, the Board carefullyassesses whether management’s plansappropriately balance business opportunitieswith sound risk discipline. We seek to instilland support a strong risk culture, monitoringthe alignment of risk conduct with ourenterprise-wide framework. The Boardensures that the Bank’s risk managementfunction is independent from the businesses.We approve Risk Appetite, oversee strategicrisk management and regularly meet withregulators to discuss the Bank’s controlenvironment.

Fostering a culture of integrity andgood governance

Your Board also champions the strongcorporate values that are entrenched in theculture of RBC. We recognize that integrityand accountability are the foundation for theBank’s strong reputation and brand. Weestablish standards of integrity designed topromote ethical behaviour throughout theorganization, and foster a business approachin which we work to make a positive impacton society, the environment and theeconomy.

Beyond the setting of prudent structures andstrong policies, corporate governance atRBC is a matter of board culture where activeengagement and open and productive debateare not only encouraged but expected. Weregard certain characteristics and behavioursas essential for board members. Directorsmust be dedicated to the needs of RBC,engage fully, appropriately challenge thestatus quo, assess opportunities from astrategic context, exhibit sound businessjudgment and uphold RBC values. Ourgovernance approach continues to receiverecognition, with RBC winning Best OverallCorporate Governance – International at the2016 Corporate Governance Awards inNew York.

Kathleen Taylor

Chair of the Board

Creating long-term value for ourshareholders and other stakeholders

We place strong emphasis upon boardrenewal, assessing the strengths ofcandidates for the Board against the evolvingneeds of the Bank. We were pleased this yearto welcome Andrew Chisholm, the recentlyretired Advisory Director and Senior StrategyOfficer at Goldman Sachs & Co., who bringsto the Board extensive experience in strategicadvice, mergers and acquisitions, and capitalmarkets, as well as risk and capitalmanagement.

I would like to thank the members of yourBoard for delivering valuable advice andoversight throughout the year. In turn, theBoard extends its thanks to Dave McKay andhis leadership team for their dedication tohelping clients thrive, communities prosperand employees succeed. And finally, thankyou to all RBC employees, whose dailycommitment to our clients and communitiescontinues to drive our success.

Kathleen TaylorChair of the Board

Royal Bank of Canada: Annual Report 2016 7