![]()

Client Focused,

## Future Ready

#### Royal Bank of Canada

#### Annual Report 2025

![]()

# Who we are

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 100,000+ employees who leverage their imaginations and

insights to 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 our more than 19 million

clients in Canada, the U.S. and 27 other countries.

#### Table of contents

Why Invest

2

CEO Letter

4

Chair Letter

9

2025 Highlights

10

Management’s Discussion and Analysis

22

Enhanced Disclosure Task Force

136

Recommendations Index

Reports and Consolidated

137

Financial Statements

Ten-Year Statistical Review

242

Shareholder Information

243

#### 19+ million clients

#### 100,000+ employees

#### 29 countries

When we say ‘we’, ‘us’, ‘our’

or ‘the bank’ we mean

Royal Bank of Canada

or its subsidiaries

as applicable.

![]()

# Helping clients thrive and communities prosper

#### Our Purpose

#### Guided byour Visionto be among the world’s most trusted and successful financial institutions, and driven by

our Purpose, we aim to be:

In Canada: the

undisputed

leader

in financial services

#### Connect with us

We are guided byour Values:

In the United States: the preferred

partner to

institutional, corporate,

commercial and high-net-worth

clients

and their businesses

In select global financial centres:

a

leading financial services

partner

valued for our expertise

Accountability

Client First

Collaboration

Diversity & Inclusion

Integrity

For more information on how we are leading with Purpose in creating differentiated value for our clients, communities,

employees and shareholders, please visit RBC Stories.

x.com/@RBC

facebook.com/rbc

youtube.com/user/rbc

instagram.com/rbc

tiktok.com/@rbc

linkedin.com/company/rbc

Royal Bank of Canada Annual Report 2025

|

1

![]()

# Why invest

RBC

®

is driven by its vision, values and commitment to delivering long-term results.



Diversiﬁed business model and brand strength

with scale and market-leading franchises that

provide a full suite of products, advice and services for clients.



A holistic OneRBC approach

to creating client value by leveraging our bank’s scale.



Market leadership in Canada

with a goal of extending our lead by focusing on priority sectors

and deepening existing client relationships and attracting new ones.



Expanding our reach into the world’s largest fee pools

in Wealth Management, Capital Markets

and through the build-out of our Global Transaction Banking capabilities.



A track record of innovation

with signiﬁcant data scale to create value for clients and enhance

productivity, targeting the generation of $700 million to $1 billion in incremental enterprise value

from Artiﬁcial Intelligence (AI) by 2027.



Strong governance, prudent risk management and deep expertise

across our Board and

executive team.



Robust balance sheet

and a strong capital base with a leading Canadian core deposit franchise

that serves as a stable source of funding.



Premium Return on Equity (ROE)

underpinned by revenue productivity and disciplined expense

management while continuing to invest in strategic opportunities.



Long-term shareholder value creation

through the return of capital, including dividends and

share buybacks, to shareholders as well as book value per share

1

growth.

1

Calculated as common equity divided by the number of common shares outstanding at the end of the period.

2

|

Royal Bank of Canada Annual Report 2025

Why Invest

|

Client Focused, Future Ready

![]()

2

Refer to Glossary for deﬁnition on page 134.

3

Refer to Glossary for deﬁnition on page 133.

4

Common dividends and common shares purchased for cancellation as a percentage of net income available to common shareholders.

5

A medium-term (3-5 year) objective is considered to be achieved when the performance goal is met in either a 3- or 5- year period. These objectives assume a normal business

environment and our ability to achieve them in a period may be adversely affected by the macroeconomic backdrop and the cyclical nature of the credit cycle.

6

For ﬁscal 2026, we have revised our ROE ﬁnancial objective to 17%+ to reﬂect improving revenue productivity and cost efﬁciencies driven by the execution of our strategic

initiatives.

7

Annualized TSR is calculated based on the TSX common share price appreciation plus reinvested dividend income. Source: Bloomberg, as at October 31, 2025. Please refer to

page 26.

8

Beginning in ﬁscal 2026, the achievement of top half total shareholder returns (TSR) will no longer be a medium-term objective. TSR performance relative to peers will continue to

be a part of our overall evaluation of shareholder outcomes and in our compensation programs. However, we believe the achievement of our ﬁnancial performance objectives is a

better indication of our execution against strategic priorities.

9

Compound annual growth rate.

10 Excludes Corporate Support.

#### Financial performance metrics

Medium-Term Objectives

5

3-Year

5-Year

Diluted EPS growth of 7%+

8%

13%

ROE of 16%+

6

15.0%

16.0%

Strong capital ratio (CET1)

3

13.8%

13.5%

Dividend payout ratio of 40% -50%

48%

46%

Total shareholder return (TSR)

7, 8

3-Year

5-Year

RBC

22%

22%

Global peer average (excl. RBC)

26%

25%

#### Earnings

Net income (C$ billion)

Annualized

dividend

increase of:

7%

Five year

9

7%

Ten year

9

$16.2

2024

2025

$20.4

#### Revenue by business segment

10

(C$ billion)

$14.4

Capital

Markets

$22.4

Wealth

Management

$1.3

Insurance

$19.9

Personal

Banking

$8.6

Commercial

Banking

$11.3 billion of proﬁts returned

to our common shareholders

through dividends and share

repurchases; total payout ratio

of 57%

4

$6.04

dividends declared per share

,

up 7.9% from 2024; dividend payout

ratio of 43%

16.3%

return on common equity

2

up from

14.4% in 2024

13.5%

robust common equity tier 1

(CET1) ratio

3

Prudent risk management

with

37 basis points of provision for

credit losses (PCL) on impaired

loans

$14.07

diluted earnings per

share

(EPS), up from $11.25 in

2024

Strong funding proﬁle

100% ratio of loans to deposits in

Canadian Banking

Royal Bank of Canada Annual Report 2025

|

3

Why Invest

|

Client Focused, Future Ready

![]()

## A message from

Dave McKay,

## President & CEO

Dear fellow shareholders,

In 2025, we advanced our position as one of the world’s

most trusted and successful ﬁnancial institutions. Our

performance and strategic ambitions were a big part of

the story, but it’s the way we achieved our results that

continues to deﬁne our success.

RBC is a global team of 100,000+ colleagues who are

uniﬁed by our Purpose: to help clients thrive and

communities prosper. We strive to bring trusted advice

and real care to every interaction — from guiding clients

through major ﬁnancial decisions and life moments, to

helping businesses and entrepreneurs bring new ideas

to life. I receive feedback from clients all the time, and so

much of it reinforces the important moments where our

people shape a client’s future for the better.

In a rapidly changing economy and more complex world,

we believe that combining personalized insights and

advice with global connectivity and scale is the foundation

for how RBC will continue to create long-term value for

our 19+ million clients. This was at the heart of our all-

bank Investor Day this year, where we shared our plan to

expand our global reach and capabilities and continue

to transform the bank to exceed expectations for clients

and shareholders.

Our relentless client focus is shaping everything we do —

from the way we’re expanding our global franchises to how

we’re deepening relationships and delivering value in new

ways. You’ll see that focus reﬂected in our 2025 results and

the momentum that is carrying us forward.

#### Our 2025 results

RBC is an all-weather bank, with the ﬁnancial and strategic

strength to support our clients and deliver value to

shareholders through all economic cycles. This year, we

demonstrated that by delivering exceptional ﬁnancial

results across our businesses during a year of signiﬁcant

macroeconomic uncertainty and market volatility.

We generated earnings of $20.4 billion and a Return on

Equity of 16.3 per cent in 2025 as we continued to deepen

client relationships and build new ones across our market-

leading franchises.

Our share price increased by 22 per cent year-over-year,

and we returned $11.3 billion to our shareholders through

common dividends and share buybacks. I’m proud that

we’re delivering results that our shareholders have come

to expect, while maintaining strong governance and a

prudent approach to risk and cost management.

We entered the 2026 ﬁscal year as the 11

th

largest bank

globally and 6

th

largest in North America by market

#### In 2025, we advanced our position as one of the world’s most trusted and successful ﬁnancial institutions.

“

”

4

|

Royal Bank of Canada Annual Report 2025

![]()

capitalization.

1

Our ﬁnancial strength remains one of

our greatest advantages, underpinning our strong credit

ratings and giving us the capacity to fund future growth

and pursue big opportunities.

This comes together with our diversiﬁed business model

across segments and geographies, strong balance sheet,

technology and data scale, and a trusted brand that’s

number one in Canada and a top brand globally.

2

Importantly, we’re making progress on what we said

we’d do at our Investor Day: delivering premium returns

and creating more value for clients through insights and

trusted advice.

#### Accelerating our ambitions in 2026 and beyond

Looking ahead, we know expectations of RBC will continue

to be very high, and we need to work harder than ever to

achieve them.

To do that, we’re staying focused on tomorrow’s biggest

growth opportunities in Canada while scaling and

unlocking new revenue streams in key markets and

geographies, particularly the United States, the United

Kingdom and Europe. At the same time, we’re building new

capabilities in AI, payments and more to better support

our increasingly globally connected clients.

In our home market, 2025 challenged the Canadian

economy in fundamental ways. As a result, the country

is increasingly focused on building a better and more

prosperous future, leveraging Canada’s natural economic

strengths across sectors like energy, agriculture, critical

minerals, advanced manufacturing and technology. As

Canadian businesses look to diversify trade relationships,

advance major projects and bolster the Canadian

economy for the long-term, RBC is here to provide advice,

insight and support. This includes supporting our clients in

the transition to a low-carbon and resilient economy.

#### Extending our leadership position in Canada

While we’re number one in market share in our home

market among the Big Five banks

3

across Personal

Banking, Commercial Banking, Wealth Management

and Capital Markets, there is still signiﬁcant room for us

to deepen our existing client relationships, attract new

clients and create more value.

In

Personal Banking

, we’re focused on extending our

leadership position in Canada. Our market-leading

franchise is driven by our deep focus on providing

clients with unparalleled access, exceptional value and

personalized experiences, and that commitment continues

to earn important industry recognition.

This year, RBC was recognized with top honours in the

Ipsos 2025 Financial Service Excellence Awards for

outstanding client experience, and we were ranked highest

in Customer Satisfaction among the Big Five retail banks in

the J.D. Power Canada Retail Banking Satisfaction Study for

the 2

nd

consecutive year.

We also continued to expand our partnership and loyalty

offerings this year. We announced a long-term strategic

loyalty partnership with Canadian Tire Corporation and

an expanded partnership with Pattison Food Group.

1

As at October 31, 2025. Source: Bloomberg.

2

According to Kantar BrandZ’s 2025 Most Valuable Brands, RBC ranks #1 in Canada and is included in the list of Top 100 Global Brands.

3

RBC and Canadian peers (Bank of Montreal, The Bank of Nova Scotia, Canadian Imperial Bank of Commerce and The Toronto-Dominion Bank).

Royal Bank of Canada Annual Report 2025

|

5

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#### Beyond our home market, we’re increasingly competing as a top global bank with strong client franchises at scale.

“

”

In addition, we announced a multi-year partnership

with Live Nation Canada for the redevelopment of RBC

Amphitheatre™ into a year-round venue as well as the

opportunity for Avion Rewards

®

members to use their

Avion

®

points to pay for tickets to any Live Nation Canada

show

4

starting in 2026.

Reciprocity remains a core part of the value proposition

we bring to clients, and Avion Rewards — Canada’s largest

bank-owned loyalty program — remains a signiﬁcant point

of pride. With a market-leading travel value proposition

and an extensive roster of retail partners, Avion Rewards

was named International Loyalty Program of the Year

(Americas)

5

for the 3

rd

consecutive year.

RBC Insurance

®

, which serves close to 4.9 million clients,

was also recognized for the best digital insurance initiative,

best digital transformation program, and outstanding

customer relations and brand engagement initiative.

6

In

Commercial Banking

, we are number one in market

share for commercial loans and deposits

7

in Canada.

With our scale and expertise, RBC supports businesses

across a range of industries within the Canadian business

landscape. With the integration of HSBC Bank Canada,

we’re well-positioned as the bank of choice for commercial

clients with international needs and retail clients who

need global capabilities.

Going forward, we’re focused on further investing in digital

and AI, targeting priority segments and sectors to drive

premium growth, and differentiating through trade ﬁnance

and payments capabilities with international connectivity.

In

Wealth Management

, we have a leading holistic

Canadian wealth and asset management offering, with a

comprehensive suite of products and services across the

franchise. As the number one full-service wealth advisory

ﬁrm

8

and retail mutual fund company in Canada,

9

we’re

looking to replicate the strong success we’ve seen in our

Canadian business across our global wealth franchises,

including in the U.K., where we’re the 5

th

largest wealth

manager

10

as measured by assets under administration.

We are the number one Canadian bank-owned

Capital

Markets

ﬁrm

11

and the number one investment bank in

Canada,

12

with a leading market position in Canada across

products and services. In 2025, we successfully scaled

RBC Clear™ — our U.S. Transaction Banking platform —

onboarding new clients, growing deposits and earning

recognition as the Best Digital Banking Initiative at the

2025 Banking Tech Awards USA, as well as the 2025 Model

Celent Award for Reinventing Cash Management.

#### Expanding in key global markets and segments

Beyond our home market, we’re increasingly competing as

a top global bank with strong client franchises at scale.

In the U.S., we are growing from a position of strength.

RBC Capital Markets

®

is the largest Canadian investment

bank in the U.S.,

12

while RBC runs the 6

th

largest full-service

wealth management advisory ﬁrm by assets under

administration

13

and manages a leading ﬁnancial services

provider to the entertainment industry in City National

Bank – which remains a critical part of our U.S. ambitions

and growth story going forward.

Looking ahead, we’re focused on maximizing the

value we’re bringing to clients, and better integrating

our businesses across the U.S. to deliver a seamless

client experience based on the full strength of RBC.

We’ll do this through an increasingly integrated

technology platform, by driving efﬁciencies across

our businesses and by continuing to strengthen

our infrastructure and our governance model.

In the U.K. and Europe, there remains signiﬁcant market

opportunity that we’re ready to tap into.

4

On Ticketmaster.ca or the Ticketmaster Canada App.

5

2025 International Loyalty Awards.

6

The Digital Banker Global Insurance Innovation Awards 2025.

7

Market share is calculated based on deposit balances excluding term deposits from the Ofﬁce of the Superintendent of Financial Institutions (OSFI) (M4) and lending balances from the

Canadian Bankers Association (CBA), and is as at August 2025 and March 2025, respectively.

8

As measured by assets under administration based on industry information sourced from Investor Economics, as of June 2025.

9

Industry information sourced from the Securities and Investment Management Association (SIMA), as of September 2025.

10 Based on publicly available information for wealth management ﬁrms (excluding platform businesses) in the U.K., as of June 2025.

11

Based on externally disclosed capital markets revenue for Canadian peers (Bank of Montreal, The Bank of Nova Scotia, Canadian Imperial Bank of Commerce, The Toronto-Dominion Bank and

National Bank of Canada) for the last 12 months as of July 31, 2025.

12

Based on market share (ﬁscal 2025), Dealogic.

13

Based on publicly available information for full-service wealth advisory ﬁrms (excluding independent broker dealers) in the U.S. as of September 2025.

6

|

Royal Bank of Canada Annual Report 2025

![]()

In Wealth Management, we’re well positioned in this

attractive and consolidating market, and the integration

of RBC Brewin Dolphin has added important and

complementary scale to our existing ultra-high-net-

worth and private trust businesses. After many years of

investment, we’re now ready to accelerate our growth —

focusing on clients and advisors.

In Capital Markets, we continue to build scale in the U.K.

and targeted areas in Europe. As external forces of change

continue to drive increased client needs across multiple

sectors, we are well positioned to deliver value for clients

across target segments and geographies.

#### Building new businesses and capabilities

RBC’s global growth ambitions are bigger and bolder than

ever, and to deliver on those ambitions we’re building new

businesses and capabilities to better serve our clients.

In 2025, we focused on unlocking a bold Global Transaction

Banking opportunity that presents a signiﬁcant market

opportunity for RBC’s corporate and commercial

clients. This includes our capabilities across liquidity

management, payments, trade ﬁnance and ancillary

services. With the launch of RBC Clear and the successful

integration of HSBC Bank Canada, we’re focused on

integrating and scaling our platforms to build a truly

globally connected business, deepening our support for

clients in this signiﬁcant revenue pool.

Across the globe, we’re witnessing the rapid progression of

AI and its transformational impact on human society, all of

which accelerated this past year.

At RBC, we know AI is a generational technology that

empowers us to reimagine what a bank can do, and

we’re increasingly focused on leveraging AI across our

businesses to enhance how our teams support our clients.

This spirit of innovation and our drive to stay ahead of

the curve is at the core of RBC’s strong performance

and signiﬁcant momentum – and it’s why we’re moving

forward with a bold ambition to achieve up to $1 billion in

enterprise value generated from AI-driven beneﬁts by 2027.

Since launching RBC Borealis™ in 2016, we have built an AI

foundation underpinned by data scale, exceptional talent,

a culture of innovation and world-class security, and we

continue to build momentum. Across the organization, AI

is empowering our people, helping uncover opportunities

to better serve and understand our clients and enabling

productivity gains that help our teams focus on

higher-impact work.

Royal Bank of Canada Annual Report 2025

|

7

![]()

#### Our leadership

#### David McKay

#### President & Chief Executive Officer

#### Sean Amato-Gauci

#### Group Head, RBC Commercial Banking

#### Kelly Bradley

#### Chief Human Resources Officer

#### Maria Douvas

#### Chief Legal & Administrative Officer

#### Katherine Gibson

#### Chief Financial Officer

#### Graeme Hepworth

#### Chief Risk Officer

#### Neil McLaughlin

#### Group Head, RBC Wealth Management

#### Derek Neldner

#### CEO & Group Head, RBC Capital Markets

#### Erica Nielsen

#### Group Head, RBC Personal Banking

#### Jennifer Publicover

#### Group Head, RBC Insurance

#### Bruce Ross

#### Group Head, Technology & Operations

David McKay

President & CEO

Our decade-long investments in AI are reﬂected in our

leadership position. We’ve been recognized for four

straight years as the #1 ranked bank in Canada and

#3 ranked bank globally

14

in AI maturity based on the

annual Evident AI Index rankings – and we are conﬁdent

that our responsible approach to AI will play a greater role

in how we help clients thrive and communities prosper.

#### Thank you

I have never been prouder of Team RBC — for upholding

our Purpose, supporting our clients and communities and

bringing great ideas to life every day.

Across our industry and the diverse set of businesses and

geographies we support, the trend is clear: our clients are

navigating increasing complexity and volatility. In times of

uncertainty, we’re more focused than ever on tapping into

the full strength of RBC to deepen how we serve clients

and delivering exceptional advice, insights and value.

We’re a growing global bank with proud Canadian roots,

and our sights are set on our ambitions. I take great

conﬁdence knowing RBC is not just reacting to change but

leading with a strong vision for what will help our clients

and communities succeed.

I’m also deeply grateful for the trust of our clients and the

conﬁdence of our investors, which we are relentless in

earning and maintaining, as well as for the guidance and

oversight of our Board of Directors.

As always, our success begins and ends with our people —

our employees are truly the heartbeat of this organization.

We owe our continued success and momentum to their

hard work, dedication and commitment to our Purpose.

14 Out of 50 global ﬁnancial institutions ranked in the Evident AI Index.

8

|

Royal Bank of Canada Annual Report 2025

![]()

#### RBC’s impressive performance this year reﬂects its adaptability, disciplined approach and ﬁnancial strength.

“

”

## A message from

Jacynthe Côté,

## Chair of the Board

Jacynthe Côté

Chair of the Board

In a year marked by global uncertainty, RBC’s strength and

resilience stood out once again.

Amid major shifts in global trade, geopolitics and

technology, the Board remained focused on reinforcing

RBC’s role as an anchor of stability and trust in a world

where both are in short supply.

RBC’s impressive performance this year reﬂects its

adaptability, disciplined approach and ﬁnancial strength.

Even in a disrupted global environment, the bank continued

to grow the business and solidify its standing as a top global

ﬁnancial institution. This strong foundation positions RBC to

effectively compete against its peers and pursue its global

growth ambitions.

Such success does not occur by accident. It is powered by

RBC’s extraordinary people who exemplify its Purpose,

culture of innovation and client-ﬁrst mindset every day.

As Chair of the Board, I ﬁrmly believe that when talent is

nurtured, results follow. It is the Board’s duty to ensure

that RBC’s culture and leadership remain aligned with

its Purpose and its long-term ambitions. Throughout the

year, the Board oversaw succession planning, leadership

development and talent mobility to strengthen RBC’s

leadership pipeline, cultivating and empowering the leaders

of today and tomorrow. We were particularly proud that

the strong results in 2025 came on the heels of a number

of changes at the Group Executive level, highlighting the

strength of the bench.

As the management team shared at Investor Day, RBC’s

global growth ambitions are greater than ever. As the bank

looks to scale further, the Board is focused on supporting

responsible growth while maintaining RBC’s accountability

to clients, communities, shareholders, employees and

regulators.

AI continues to be a key area of the Board’s oversight.

While advancement in AI across society over the past year

has been rapid, RBC has been investing in and applying AI

capabilities for over a decade. Responsible governance in AI

is essential, and the Board supports the bank’s innovative

approach to using AI to better serve and understand clients

while magnifying the human potential of RBC’s employees.

For nearly a decade, I have learned and beneﬁted from my

brilliant Board colleagues. It is a privilege to serve on the

Board at this critical time and to constructively engage with

management as we continue to grow as a purpose-driven

bank while putting the client at the forefront of all decisions.

Under the leadership of Dave McKay and his executive

team, the Board is conﬁdent in RBC’s ability to navigate

change and pursue its bold ambitions — while upholding the

trust and stability that clients and communities count on.

Royal Bank of Canada Annual Report 2025

|

9

![]()

# Client focused

With over 150 years of creating value for our clients, we put

trust and relationships at the heart of everything we do.

Today, our aim is to bring the full strength of our bank

as OneRBC to our clients across every stage of their

financial journey.

Our client-focused culture, powered by our people and

technology, is designed to deliver long-term value through

trusted advice, data-driven insights and tailored solutions.

This commitment is reflected in industry recognition and the

momentum we have in expanding how we serve our clients.

10

|

Royal Bank of Canada Annual Report 2025

Clients

![]()

#### Leading franchises underpinned by the foundation of OneRBC

#### Personal Banking



~15 million clients in Canada



#1 ranking in market share for all key retail products

1

#### Commercial Banking



~1.4 million clients



#1 ranking in market share in commercial lending

and deposits

2

#### Capital Markets



22,900+ clients



#1 Canadian bank-owned capital markets ﬁrm

by revenue

3



#1 investment bank in Canada

4

based on market share

#### Wealth Management



6,200+ client-facing advisors



Largest full-service wealth advisory business in Canada,

5

6

th

largest full-service wealth advisory ﬁrm in the U.S.

6

and 5

th

largest wealth manager in the U.K.

7

as measured

by assets under administration (AUA)

8



Largest mutual fund company in Canada

9

as measured by

assets under management (AUM)

8

#### Insurance



~4.9 million clients



Largest Canadian bank-owned life insurance company

10

1

Market share is calculated using the most current data available from OSFI (M4), SIMA and CBA, and is as at August 2025 and June 2025. This is based on the following key product

categories: Personal Lending (including residential mortgages), Personal Core Deposits and Guaranteed Investment Certiﬁcates (GICs), Credit Cards and Long-term Mutual Funds.

2

Market share is calculated based on deposit balances excluding term deposits from OSFI (M4) and lending balances from CBA, and is as at August 2025 and March 2025, respectively.

3

Based on externally disclosed capital markets revenue for Canadian peers (Bank of Montreal, The Bank of Nova Scotia, Canadian Imperial Bank of Commerce, The Toronto-Dominion Bank

and National Bank of Canada) for the last 12 months as of July 31, 2025.

4

Fiscal 2025, Dealogic.

5

Industry information sourced from Investor Economics, as of June 2025.

6

Based on publicly available information for full-service wealth advisory ﬁrms (excluding independent broker dealers) in the U.S. as of September 2025.

7

Based on publicly available information for wealth management ﬁrms (excluding platform businesses) in the U.K. as of June 2025.

8

Refer to Glossary for deﬁnition on page 133.

9

Industry information sourced from SIMA, as of

September 2025.

10 Based on the most current total nine-month revenue for life insurance companies, as available from OSFI.

Royal Bank of Canada Annual Report 2025

|

11

Clients

![]()

#### Ranked highest in customer satisfactionfor the 2

nd

#### consecutive year in the J.D.

#### Power 2025 Canada Retail

#### Banking Satisfaction Study.

Top 10 Investment Bank globally,

11

#### Best Investment

#### Bankin Canada andBest

#### Research Bankin North

#### America.

12

#### RBC Global Asset

#### Management

®

#### was named

#### TopGun Investment Team of the Year for the 10

th

#### time.

15

#### Recognized as theMost

#### Valuable Canadian Brand for the 7

th

#### consecutive year.

19

#### RBC Insurance was recognized for theBest

DigitalInsurance Initiative,

#### Best Digital Transformation

#### Program andOutstanding

Customer Relations& Brand

#### Engagement Initiative.

18

#### RBC Clear — our U.S.

#### Transaction Banking platform

#### — was namedBest Digital

#### Banking Initiativeat the 2025

#### Banking Tech Awards USA and winner of the 2025 Model

#### Celent Award forReinventing

#### Cash Management.

#### Winner of 10 Ipsos 2025

#### Financial Service Excellence

Awardsamong the Big Five banks, including four solo wins in the categories:

Recommend to Friends or Family (Net Promoter Score),

Financial Planning & Advice,

#### ATM Banking Excellence and Online Banking Excellence.

#### NamedBest Private Bank in Canada

16

#### and Outstanding

#### Private Bank — North America and Global.

17

#### Avion Rewards was named

#### International Loyalty

#### Program of the Year

#### (Americas) for the 3

rd

#### consecutive year at the 2025

#### International Loyalty Awards.

#### Recognized for excellence

#### RBC Dominion Securities

®

#### ranked highestamong

#### Canadian bank-owned investment brokerage firms for the 19

th

#### consecutive year.

13

#### Best overall bank for cash management in Canada for the 4

th

#### consecutive year and the leading trade finance providerin Canada for the 13

th

#### consecutive year.

14

11

Euromoney MarketMap 2025.

12 Euromoney Award for Excellence 2025.

13

Investment Executive Brokerage Report Card 2025.

14 Global Finance Magazine, 2025.

15 Brendan Wood International, since 2013.

16 The Banker Global Private Banking Awards 2025.

17

Private Banker International Global Wealth Awards 2025.

18

The Digital Banker Global Insurance Innovation Awards 2025.

19 Kantar BrandZ, since 2019.

12

|

Royal Bank of Canada Annual Report 2025

Clients

![]()

#### Differentiated loyalty programs, partnerships, advice and solutions that create client value



Announced a long-term strategic loyalty partnership

between Avion Rewards and Canadian Tire

Corporation’s Triangle Rewards

‡

.



Launched two new credit cards and linked loyalty

partnership with Pattison Food Group — one of Western

Canada’s largest providers of food and health products

— and their More Rewards

‡

loyalty program, offering

clients the opportunity for exclusive savings.



Partnered with Visa

‡

, the ofﬁcial payment technology

partner for FI

FA World Cup 26

‡

, to offer eligible RBC Visa

cardholders a chance to win access to purchase select

tickets for FIFA World Cup 26.



Announced a multi-year partnership with Live Nation

Canada for the redevelopment of RBC Amphitheatre

in Toronto, formerly Budweiser Stage, into a

year-round venue.



Launched RBC Avion Concierge, a travel and lifestyle

provider for RBC Avion Visa Inﬁnite Privilege

‡

for Private

Banking cardholders, to provide luxury travel, lifestyle

experiences and exclusive access to brands and

events globally.



Launched RBC’s inaugural Reconciliation Action Plan,

20

a strategic framework outlining the bank’s measurable,

long-term commitment to Indigenous reconciliation

in Canada.

20 A strategic framework outlining the bank’s measurable commitment towards reconciliation in Canada that prioritizes actions and investments across ﬁve key pathways — Economy, People,

Community, Environment and Leadership — to help drive inclusive economic growth, create positive social change and advance reconciliation.

21 Since 2017.

#### Driving innovation and growth



RBCx™ banks, builds and invests in the innovation

ecosystem, backed by RBC’s institutional strength.

Its portfolio companies include:

•

Ownr

®

, a digital solution designed to help

entrepreneurs register and incorporate their

businesses online, while automating legal and

compliance ﬁlings. Since its 2017 launch, Ownr has

registered 239,000+ Canadian businesses.

•

Mydoh

®

, RBC’s money management application

designed to help families raise money-smart youth,

which has reached 320,000+ Canadians since its

2021 launch.



Scaled RBC Clear, onboarding new clients and

growing deposits.



Connected 5.1+ million Canadians to a personalized plan

through MyAdvisor

®

, our digital advice platform.

21



RBC Direct Investing

®

became the ﬁrst bank-owned

online brokerage in Canada to offer online international

trading in multiple foreign currencies, giving clients the

ﬂexibility to trade on global exchanges.



Announced a multi-year agreement with the Major

League Soccer (MLS) club LA Galaxy, with City National

Bank serving as the ofﬁcial bank and wealth

management partner. The agreement expands RBC

Wealth Management

®

U.S.’s existing sponsorship of MLS

and our strategic focus on serving the needs of the

sports industry in the region.

Royal Bank of Canada Annual Report 2025

|

13

Clients

![]()

#### Technology and innovation at scale



Partnered with Cohere

‡

, a leader in security and privacy-

focused enterprise AI, to co-develop and securely deploy

North

‡

for Banking — an enterprise generative AI (GenAI)

solution optimized for ﬁnancial services.



RBC Lumina™, our internal enterprise data and AI

platform, is built on a robust infrastructure that includes

one of the largest clusters of graphic processing units

(GPUs) among Canadian ﬁnancial institutions. RBC

Lumina is designed to drive innovation at scale within a

responsible AI framework for ﬁnancial services.



Announced a three-year membership in

FinTechAI@CSAIL, an initiative at the Massachusetts

Institute of Technology Computer Science and Artiﬁcial

Intelligence Laboratory (CSAIL), providing RBC with

access to talent and research across areas critical to the

future of ﬁnancial services including machine learning.



1,200+ patents ﬁled since 2019 with 635 related to AI,

highlighting our overall commitment to innovation.



ATOM™, RBC’s proprietary Asynchronous Temporal

Model, is securely trained using large-scale ﬁnancial

datasets, enabling RBC to leverage unique insights and

develop innovative solutions. In 2025, ATOM was used

across 15 RBC products and processes, including:

•

Enhanced credit adjudication with ATOM’s advanced

modelling capabilities, enabling better assessment of

Personal Banking clients’ needs and ability to pay.

•

Improved our ability to provide personalized

recommendations featured in our Avion Redemption

newsletter, allowing us to streamline offerings to

our members.



NOMI Find & Save

®

, a tool that uses predictive

technology to understand personalized transaction

patterns, has helped our clients set aside $9.6+ billion in

savings since its 2017 launch.



~1.3 million clients have used NOMI

®

Forecast to track

their future cash ﬂow since its 2021 launch.

We have a bold ambition to achieve $700 million to $1 billion in enterprise value

generated from AI-driven benefits by 2027.

RBC is preparing for a future where AI will play

a greater role in how we deliver advice and insights to our clients and enhance how we work.

With years of investment in AI, digital, cloud and cyber — including our research

institute RBC Borealis — RBC is well positioned to continue harnessing the power of

technology to create even more value for our clients.

#### Ranked#1 in Canadaand#3 globallyout of 50 global financial institutions for AI maturity in the 2025 Evident

#### AI Index for the 4

th

#### consecutive year.

# Technology and innovation

14

|

Royal Bank of Canada Annual Report 2025

Technology and Innovation

![]()

RBC’s

Responsible AI Principles

of privacy and security, accountability,

fairness and transparency and responsible disclosure guide our approach

to developing and deploying AI-powered solutions. Our robust risk

governance framework helps ensure that we consider, explore and build

GenAI tools safely.

1

Excludes City National Bank.

#### Exceptional AI talent and an AI-empowered workforce

Every day, RBC technologists aim to turn ideas into reality

— from cybersecurity to AI and machine learning, digital

to software development, architecture to data science

and more.



1,100+ technologists hired in 2025 for a total of

5,300+ core technology roles,

1

including in cybersecurity,

machine learning, software engineering and

data science.



25,000+

employees have been onboarded to RBC Assist,

our in-house developed GenAI tool, to help improve

productivity and efﬁciency.



Deployed GenAI solutions in our Personal Banking

Advice Centre to support advisors with a number of

tasks, from faster access to knowledge and insights to

executing activities on their behalf, saving the advisor

time to focus on clients.

#### Security and responsible AI

Deployment of our AI models continues to support

our overall security infrastructure and how we protect

our clients.



Launched Genesis, an in-house built graph analytics

tool in 2025 that proactively identiﬁes and contributes to

the timely mitigation of attempted ﬁnancial crimes.



Expanded User Behaviour Analytics, an application

developed in-house that utilizes eight AI models and

eight risk indicators to enhance visibility and enable

timely management of a range of threats, such as

phishing emails.



Joined the Canadian Anti-Scam Coalition, the country’s

ﬁrst uniﬁed cross-sector initiative to combat scams

targeting Canadian consumers.

Royal Bank of Canada Annual Report 2025

|

15

Technology and Innovation

![]()

1

Learning hours encompass the cumulative time devoted to various learning initiatives during ﬁscal 2025, including technical, business and compliance related training from our

Learning Management System, in addition to other web-based, instructor-led and informal learning hours. Excludes City National Bank as this subsidiary has not been integrated

onto our primary HR platform.

2

Excludes City National Bank as this subsidiary has not been integrated onto our primary HR platform.

3

Great Place to Work Institute.

4

LinkedIn.

5

MediaCorp Canada Inc.

RBC’s success starts with our people. Over 100,000

employees across 29 countries bring our

Purpose to life every day, helping clients thrive

and communities prosper. We are evolving from

a role-based to a skills-based organization,

providing employees with the tools, development

opportunities and career pathways to

align their skills with our clients’ and

our bank’s needs.

# Investing in our employees

#### Awards and recognition

Among Canada’s

Best Workplaces,

3

#### Top 25 Companies

4

#### and Top

#### 100 Employers

5

in 2025.

#### Highest ranking

among the Big Five banks on

#### Forbes’ Canada

#### Best Employers 2025

list.

One of Canada’s

#### Best Workplaces for Giving Back

and

#### Best Workplaces in Financial Services & Insurance

.

3

Named one of

#### Canada’s Top Employers for Young People

in 2025.

5

#### Developing talent, fostering growth



In 2025, we launched RBC Academies, a central resource

providing curated learning for foundational skills in

areas such as critical thinking, data and AI ﬂuency.



RBC employees collectively invested 3.7+ million hours

1

in developing their technical and business skills.



RBC employees continued to grow their careers and

access opportunities across the bank, with 69% of

positions ﬁlled by internal candidates in 2025.

2



RBC hired 3,000+ students globally through internships,

co-ops and work-term placements, including university,

college and high school students.

16

|

Royal Bank of Canada Annual Report 2025

Employees

![]()

6

This amount is part of a commitment of $2 billion in community investments by 2035.

7

Inclusive of grants provided from October 1, 2024 to September 30, 2025.

8

These ﬁgures are for calendar year 2024.

9

Date range is for volunteer program year October 1, 2024 – September 30, 2025.

#### A culture of community impact



In 2025, the RBC Communities Together Fund supported 3,100+ volunteer

projects across 10 countries, engaging 7,600+ employees, mobilizing

$4.8+ million in grants

6

and tracking 45,000+ volunteer hours.

7



Through the RBC Celebration of Impact, where RBC employees track

and celebrate community engagement, employees donated $30+ million

supporting 12,000+ charities in 61 countries.

8



20,000+ RBC employees and Canadian retirees tracked 340,000+ volunteer

hours through our myCommunity platform.

9



In 2025, RBC Race for the Kids™ raised $13.6+ million for local youth

charities globally. Since its inception in 2009, the event has engaged

525,000+ participants, including employees as racers and volunteers,

and raised $118+ million in total.

Royal Bank of Canada Annual Report 2025

|

17

Employees

![]()

# Helping communities prosper

At RBC, our Purpose of helping clients thrive and communities prosper is at the heart

of everything we do. Through global partnerships, sponsorships, employee initiatives

and community investments, we aim to invest in ideas that support a thriving future

and drive more inclusive opportunities for prosperity.

In 2025, we continued to make progress through various programs and actions,

including $209+ million in community investments made by RBC, RBC Foundation

®

#### and RBC Foundation USA.

1

1

Includes donations and community investments made by RBC, RBC Foundation or RBC Foundation USA, employee volunteer grants and gifts in kind, as well as contributions to non-proﬁts

and non-registered charities. Figure also includes community investments featured on pages 19 and 21 of this report. This amount is part of a commitment of $2 billion in community investments

by 2035.

18

|

Royal Bank of Canada Annual Report 2025

Communities

![]()

Royal Bank of Canada Annual Report 2025

|

19

2

This expanded access has in part been made available through RBC’s adherence to recent enhancements to the voluntary Commitment on Low-Cost and No-Cost Accounts, which came into

effect on December 1, 2025.

3

Since October 2019 for McGill University, January 2022 for University of Guelph and May 2022 for Western University.



Through RBC Future Launch

®

, RBC and RBC Foundation

provided $54+ million in 2025, fulﬁlling the program’s

$500-million commitment by 2025. Since its inception

in 2017, this initiative has reached 9.2+ million Canadian

youth in communities we operate in through

960+ partner programs, helping set them up with the

skills needed for a thriving future.



RBC announced a $5 million commitment over ﬁve years

to Windmill Microlending, a national charity offering

career loans to skilled immigrants and refugees. The

support will focus on helping internationally trained

physicians secure Canadian credentials and restart

their healthcare careers.



RBC and RBC Foundation provided $11+ million to

post-secondary institutions in Canada for programs that

support job readiness and address labour market gaps

in sectors facing talent shortages.



RBC Foundation provided $3+ million to hospitals across

Canada to help upskill healthcare workers and support

their resiliency.



RBC Training Ground™, a national talent identiﬁcation

and athlete funding program, hosted 20 events in eight

regions across Canada in 2025. Since its launch in 2016,

20,000+ athletes have participated, with alumni winning

14 Olympic medals for Canada to date.



Expanded access to no-cost banking accounts

2

for

Indigenous Peoples in Canada as well as anyone aged

24 and under, including non-students.



RBC, RBC Foundation and RBC Foundation USA

announced a $10-million commitment globally to

organizations addressing food insecurity.



My Money Matters

®

, RBC’s digital resource hub aimed at

helping Canadians navigate their personal relationships

with money, has been visited 7+ million times since its

2023 launch.



Since 2019, 398,000+ people have registered for free

online courses in ﬁnancial literacy, entrepreneurship

and agriculture management.

3

These courses were

developed by professors from McGill University, Ivey

Business School at Western University and University of

Guelph with support from RBC.

Communities

![]()

# Planet

#### Our goal is to be the bank of choice for the transition

1

#### to a low-carbon

2

#### and resilient

3

#### economy.

1

Refers to the economic, energy, technological and societal transformation that is required to achieve the signiﬁcant greenhouse gas (GHG) emissions reductions necessary for a low-carbon or

net-zero world. This will impact all sectors, and is highly dependent on substantial GHG emissions reductions in high-emitting sectors.

2

Refers to an economy with minimal output of GHG emissions.

3

Refers to the capacity to anticipate, cope with, recover from or adapt to shock, disruption, stress or changing factors in the external environment. In the context of climate, this refers to the

resilience of the economy to the effects of climate change. In the context of communities, this refers to communities being resilient to a wide range of risks while maintaining an acceptable

level of functioning without compromising long-term prospects of sustainability development, peace and security, human rights and wellbeing for all.

20

|

Royal Bank of Canada Annual Report 2025

Planet

![]()

4

Renewable energy is deﬁned as the construction, development, operation, acquisition, maintenance and connection of the following renewable energy generation sources: wind, solar,

geothermal with direct emissions of less than 100 g CO2e/kWh, waste biomass and renewable biofuels with life-cycle emissions less than 100 g CO2e/kWh sourced from sustainable agriculture

and forestry residues or from non-recyclable municipal solid waste, tidal and hydroelectricity. New hydroelectricity development projects >25 MW must have a power density of over 10 W/m2

or operate with lifecycle emissions below a threshold of 50 g CO2e/kWh (includes refurbishment of existing hydroelectricity facilities, provided the size of the dam or reservoir is not increased).

5

Mixed-energy entities have both low and high-carbon energy activities (and/or other unrelated activities). Renewable energy exposure is estimated based on the percentage of the RBC sector

industrial classiﬁcation codes (SIC codes) we have assigned to the business operations of the mixed-energy entity that fall into the Renewables category. We assign SIC codes to entities in line

with RBC’s enterprise standards for the allocation of industry codes to clients using the following information, as appropriate and available: revenue, power generation by fuel source (i.e., MWh),

capacity and/or another available proxy. For example, if the SIC code allocation for a mixed-energy entity is 40% to Renewable energy, 40% of the loan is allocated to renewable energy.

6

Technology, products, services or actions that help mitigate or adapt to the impacts of climate change. Solutions include those that support GHG emissions reductions and/or the low-carbon

transition, but also those that support outcomes linked to society’s resilience to the physical impacts of climate change (e.g., adaptation of infrastructure, nature and/or biodiversity gains).

7

While our approach may evolve over time under this category of investment, we intend to prioritize allocating capital toward fund and direct investments that are intended to lead to GHG

emissions reductions in Canada and globally. Our investment commitments eligible to count towards this goal may also include support for climate solutions with anticipated outcomes linked

to biodiversity, nature and/or adaptation, among others. We aspire to achieve this goal by 2030; however, market conditions, among other factors – many of which are beyond our control

and the effects of which can be difﬁcult to predict – could impact our ability to invest capital in fund and direct investments focused on climate solutions over this timeframe. For purposes of

tracking progress towards this goal, our eligible investment commitments made from 2022 onward are included.

#### Increased lending exposure to pure play renewable energy

4

entities and estimated exposure to renewable energy through lending to mixed-energy entities,

5

advancing towards our goal of tripling this lending by 2030 across

Capital Markets and Commercial Banking, relative to our 2023 baseline.

Enhanced

#### advisor training on climate topics in Commercial Banking

#### through a program developed in collaboration with Green

#### Economy Canada to help advisors support clients on their transition and resilience journeys.

#### Committed

#### $80+ million in fund and direct investments

, totalling $248+ million since 2022, to support the development and scaling of climate solutions,

6

#### progressing towards our goal of allocating $1 billion by 2030.

7

#### Supported

#### 190+ community investment partners

that are advancing climate mitigation

and/or nature-based solutions with $27+ million

in community investments through RBC,

RBC Foundation and RBC Foundation USA in

2025. This included $10 million towards RBC Tech

for Nature

®

, fulﬁlling RBC and RBC Foundation’s

$100 million commitment made in 2019.

Created a dedicated

#### Energy

#### Transition centre of excellence

#### within Capital

#### Markets to support clients on energy transition with advice and capital.

Royal Bank of Canada Annual Report 2025

|

21

Planet

![]()

### 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 fiscal

year ended October 31, 2025, compared to the preceding fiscal year. This MD&A should be read in conjunction with our 2025 Annual Consolidated

Financial Statements and related notes and is dated December 2, 2025. All amounts are in Canadian dollars, unless otherwise specified, and are based on

financial statements presented 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 2025

Annual Information Form, is available free of charge on our website at rbc.com/investorrelations, on

the Canadian Securities Administrators’ website, SEDAR+, at sedarplus.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 herein does not form part of this report. All references in this report to

websites are inactive textual references and are for your information only.

Table of contents

Caution regarding forward-looking

statements

22

Overview and outlook

23

Selected financial and other highlights

23

About Royal Bank of Canada

24

Vision and strategic goals

24

Economic, market and regulatory

review and outlook

24

Defining and measuring success

25

Financial performance

26

Overview

26

Impact of foreign currency translation

27

Total revenue

27

Provision for credit losses

28

Non-interest expense

29

Income and other taxes

30

Client assets

30

Business segment results

32

Results by business segment

32

How we measure and report our

business segments

32

Key performance and non-GAAP

measures

33

Personal Banking

35

Commercial Banking

40

Wealth Management

43

Insurance

50

Capital Markets

53

Corporate Support

59

Quarterly financial information

59

Fourth quarter performance

59

Quarterly results and trend analysis

60

Financial condition

61

Condensed balance sheets

61

Off-balance sheet arrangements

62

Risk management

65

Overview

65

Enterprise risk management

65

Top and emerging risks

69

Principal risks

72

Credit risk

72

Market risk

83

Liquidity and funding risk

88

Insurance risk

102

Operational risk

102

Compliance risk

105

Reputation risk

106

Strategic risk

106

Overview of other risks

107

Legal and regulatory environment risk

107

Government fiscal, monetary and

other policies

108

Tax risk and transparency

108

Environmental and social risk

109

Capital management

110

Accounting and control matters

121

Critical accounting policies and

estimates

121

Controls and procedures

124

Related party transactions

125

Supplementary information

125

Glossary

133

Enhanced Disclosure Task Force

recommendations index

136

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 2025 Annual Report, in other filings with

Canadian regulators or the SEC, in other reports to shareholders, and in other communications. In

addition, our representatives may communicate forward-looking statements orally to

analysts, investors, the media and others. Forward-looking statements

in this document include, but are not limited to, statements relating to our financial performance objectives, priorities, vision

and strategic goals, the

economic, market, and regulatory review and outlook for Canadian, U.S., United Kingdom (U.K.), Euro area and global economies, the regulatory

environment in which we operate, the Strategic priorities and Outlook sections for each of our business segments, the risk environment including our credit

risk, market risk, liquidity and funding risk as well as the effectiveness of our risk monitoring, our climate- and sustainability-related beliefs, targets and goals

and related legal and regulatory developments, and include statements made by our President and Chief Executive Officer and other members of

management. The forward-looking statements contained in this document represent the views of management and are 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, strategic goals and priorities and anticipated financial performance, and

may not be appropriate for other purposes. Forward-looking statements are typically identified by words such as “believe”, “expect”, “suggest”, “seek”,

“foresee”, “forecast”, “schedule”, “anticipate”, “intend”, “estimate”, “goal”, “commit”, “target”, “objective”, “plan”, “outlook”, “timeline” and “project” and

similar expressions of future or conditional verbs such as “will”, “may”, “might”, “should”, “could”, “can”, “would” or negative or grammatical variations

thereof.

By their very nature, forward-looking statements require us to make assumptions and are subject to inherent risks and uncertainties, both general and

specific in nature, 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, that our financial performance, environmental & social or other objectives, vision and strategic goals will not be

achieved, and that our actual results may differ materially from such predictions, forecasts, projections, expectations or conclusions.

We caution readers not to place undue reliance on our forward-looking 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, but are not limited to: business and economic conditions in the geographic regions in which we operate, Canadian

housing and household indebtedness, information technology, cyber and third-party risks, geopolitical uncertainty, environmental and social (E&S) risk,

digital disruption and innovation, privacy and data related risks, regulatory changes, culture and conduct risks, credit, market, liquidity and funding,

insurance, operational, compliance, reputation and strategic risks, other risks discussed in the risk sections of our 2025 Annual Report, including legal and

regulatory environment risk, the effects of changes in government fiscal, monetary and other policies and tax risk and transparency, risks associated with

escalating trade tensions, including protectionist trade policies such as the imposition of tariffs, risks associated with the adoption of emerging

technologies, such as cloud computing, artificial intelligence (AI), including generative AI (GenAI), and robotics, fraud risk and our ability to anticipate and

successfully manage risks arising from all of the foregoing factors. Additional factors that could cause actual results to differ materially from the

expectations in such forward-looking statements can be found in the risk sections of our 2025 Annual Report, as may be updated by subsequent quarterly

reports.

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, as well as the inherent uncertainty of forward-looking statements. Material economic assumptions underlying the

forward-looking statements contained in this 2025 Annual Report 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, as such sections may be updated by subsequent quarterly reports. Any forward-

looking statements contained in this document represent the views of management only as of the date hereof, and 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 this 2025 Annual Report, as may be updated by subsequent

quarterly reports.

22

Royal Bank of Canada: Annual Report 2025

Management’s Discussion and Analysis

![]()

Overview and outlook

Selected financial and other highlights

(1)

Table 1

(Millions of Canadian dollars, except per share, number of and percentage amounts)

2025

2024

2025 vs. 2024

Increase (decrease)

Total revenue

$

66,605

$

57,344

$

9,261

16.1%

Provision for credit losses (PCL)

4,362

3,232

1,130

n.m.

Non-interest expense

36,592

34,250

2,342

6.8%

Income before income taxes

25,651

19,862

5,789

29.1%

Net income

$

20,369

$

16,240

$

4,129

25.4%

Net income – adjusted

(2), (3)

$

20,870

$

17,430

$

3,440

19.7%

Segments – net income

Personal Banking

$

7,105

$

5,921

$

1,184

20.0%

Commercial Banking

3,020

2,818

202

7.2%

Wealth Management

4,289

3,422

867

25.3%

Insurance

828

729

99

13.6%

Capital Markets

5,393

4,573

820

17.9%

Corporate Support

(266)

(1,223)

957

n.m.

Net income

$

20,369

$

16,240

$

4,129

25.4%

Selected information

Earnings per share (EPS) – basic

$

14.10

$

11.27

$

2.83

25.1%

– diluted

14.07

11.25

2.82

25.1%

– basic adjusted

(2), (3)

14.46

12.11

2.35

19.4%

– diluted adjusted

(2), (3)

14.43

12.09

2.34

19.4%

Return on common equity (ROE)

(3)

16.3%

14.4%

n.m.

190 bps

ROE – adjusted

(2), (3)

16.7%

15.5%

n.m.

120 bps

Average common equity

(4)

$

122,050

$

110,650

$

11,400

10.3%

Net interest margin (NIM) – on average earning assets, net

(3)

1.62%

1.54%

n.m.

8 bps

PCL on loans as a % of average net loans and acceptances

0.43%

0.35%

n.m.

8 bps

PCL on performing loans as a % of average net loans and acceptances

0.06%

0.07%

n.m.

(1) bps

PCL on impaired loans as a % of average net loans and acceptances

0.37%

0.28%

n.m.

9 bps

Gross impaired loans (GIL) as a % of loans and acceptances

0.83%

0.59%

n.m.

24 bps

Liquidity coverage ratio (LCR)

(3), (5)

127%

128%

n.m.

(100) bps

Net stable funding ratio (NSFR)

(3), (5)

112%

114%

n.m.

(200) bps

Capital, Leverage and Total loss absorbing capacity (TLAC) ratios

(3), (6)

Common Equity Tier 1 (CET1) ratio

13.5%

13.2%

n.m.

30 bps

Tier 1 capital ratio

15.1%

14.6%

n.m.

50 bps

Total capital ratio

16.8%

16.4%

n.m.

40 bps

Leverage ratio

4.4%

4.2%

n.m.

20 bps

TLAC ratio

31.5%

29.3%

n.m.

220 bps

TLAC leverage ratio

9.2%

8.4%

n.m.

80 bps

Selected balance sheet and other information

(7)

Total assets

$ 2,325,006

$ 2,171,582

$

153,424

7.1%

Securities, net of applicable allowance

561,788

439,918

121,870

27.7%

Loans, net of allowance for loan losses

1,042,422

981,380

61,042

6.2%

Derivative assets

177,206

150,612

26,594

17.7%

Deposits

1,515,616

1,409,531

106,085

7.5%

Common equity

127,417

118,058

9,359

7.9%

Total risk-weighted assets (RWA)

(3), (6)

730,225

672,282

57,943

8.6%

Assets under management (AUM)

(3)

1,573,800

1,342,300

231,500

17.2%

Assets under administration (AUA)

(3), (8)

5,599,000

4,965,500

633,500

12.8%

Common share information

Shares outstanding (000s) – average basic

1,409,072

1,411,903

(2,831)

(0.2)%

– average diluted

1,411,589

1,413,755

(2,166)

(0.2)%

– end of period

1,400,114

1,414,504

(14,390)

(1.0)%

Dividends declared per common share

$

6.04

$

5.60

$

0.44

7.9%

Dividend yield

(3)

3.4%

3.9%

n.m.

(50) bps

Dividend payout ratio

(3)

43%

50%

n.m.

(700) bps

Common share price (RY on TSX)

(9)

$

205.47

$

168.39

$

37.08

22.0%

Market capitalization (TSX)

(9)

287,681

238,188

49,493

20.8%

Business information

(number of)

Employees (full-time equivalent) (FTE)

96,628

94,838

1,790

1.9%

Bank branches

1,263

1,292

(29)

(2.2)%

Automated teller machines (ATMs)

4,183

4,367

(184)

(4.2)%

Period average US$ equivalent of C$1.00

(10)

$

0.712

$

0.736

$

(0.024)

(3.3)%

Period-end US$ equivalent of C$1.00

$

0.713

$

0.718

$

(0.005)

(0.7)%

(1)

On March 28, 2024, we completed the acquisition of HSBC Bank Canada (HSBC Canada transaction). HSBC Bank Canada (HSBC Canada) results have been consolidated

from the closing date, and are included in our Personal Banking, Commercial Banking, Wealth Management and Capital Markets segments.

(2)

These are non-GAAP measures or ratios. For further details, including a reconciliation, refer to the Key performance and non-GAAP measures section.

(3)

See Glossary for composition of these measures.

(4)

Average amounts are calculated using methods intended to approximate the average of the daily balances for the period.

(5)

The LCR and NSFR are calculated in accordance with the Office of the Superintendent of Financial Institutions’ (OSFI) Liquidity Adequacy Requirements (LAR) guideline.

LCR is the average for the three months ended for each respective period. For further details, refer to the Liquidity and funding risk section.

(6)

Capital ratios and RWA are calculated using OSFI’s Capital Adequacy Requirements (CAR) guideline, the Leverage ratio is calculated using OSFI’s Leverage Requirements

(LR) guideline, and both the TLAC and TLAC leverage ratios are calculated using OSFI’s TLAC guideline. Both the CAR guideline and LR guideline are based on the Basel III

framework. For further details, refer to the Capital management section.

(7)

Represents period-end spot balances.

(8)

AUA includes $15 billion and $5 billion (2024 – $15 billion and $6 billion) of securitized residential mortgages and credit card loans, respectively.

(9)

Based on TSX closing market price at period-end.

(10)

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

n.m. not meaningful

Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2025

23

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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 100,000+ employees who leverage their imaginations and insights to 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 our more than 19 million clients in Canada, the U.S. and 27 other countries. Learn more at rbc.com.

Our business segments are described below.

Personal

Banking

Provides a broad suite of financial products and services to retail clients in Canada, the Caribbean

and the U.S. Our commitment to building and maintaining deep and meaningful relationships with our

clients is underscored by the delivery of exceptional client experiences, the breadth of our product

suite, our depth of expertise and the features of our digital solutions.

Commercial

Banking

Serves the end-to-end needs of Canadian businesses, including subsidiaries of multi-nationals. We

deliver a full spectrum of services to the market, ranging from lending and deposits to payments, cash

management and advisory services. Our comprehensive coverage teams with specialization across

industries and products give us the scale to deliver holistic solutions to our clients.

Wealth

Management

Primarily serves affluent, high-net-worth (HNW) and ultra-high-net-worth (UHNW) clients from our

offices in key financial centres across the globe. We offer a comprehensive suite of wealth,

investment, trust, banking, credit and other solutions to this client segment. We also provide a self-

directed investment service in Canada, as well as asset management products globally to

institutional and individual clients through our distribution channels and third-party distributors. We

offer asset services and investor services to financial institutions, asset managers and asset owners

in Canada.

Insurance

Offers a comprehensive suite of advice and solutions for individual and business clients including life,

health, wealth solutions, property & casualty, travel, group benefits, longevity reinsurance and

reinsurance solutions for creditor products. We provide tailored, client-led advice and solutions,

harnessing the power of technology and data and leveraging the strength and scale of the RBC

®

enterprise as our competitive advantage.

Capital Markets

Provides expertise in advisory & origination, sales & trading, lending & financing and transaction

banking to corporate, institutional, sponsor and government clients globally. We serve these clients

from 55 offices in 16 countries across North America, the U.K. & Europe, Australia, Asia and other

regions.

Vision and strategic goals

Our business strategies and actions are guided by our vision,

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

institutions.”

Our three strategic goals are:

•

In Canada, to be the undisputed leader in financial services;

•

In the U.S., to be the preferred partner to institutional, corporate, commercial and HNW clients and their businesses; and

•

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

For our progress in 2025 against our business strategies and strategic goals, refer to the Business segment results section.

Economic, market and regulatory review and outlook – data as at December 2, 2025

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

Economic growth is expected to remain positive across most advanced economies, including Canada, the Euro area, the U.K.

and the U.S. The outlook remains dependent on the evolution of U.S. international trade policy. U.S. tariff rates have increased

since April 2025 for most U.S. trade partners and are expected to slow U.S. economic growth. Tariffs imposed on U.S. imports

from Canada remain low relative to other U.S. trade partners with most Canadian exports maintaining duty free access to the

U.S. market through an exemption from tariffs for products compliant with the Canada-United States-Mexico Agreement

(CUSMA). Our forecast assumes that tariffs will remain elevated but that the exemption from tariffs for most products compliant

with CUSMA will be maintained. We expect the U.S. Federal Reserve (Fed) to reduce interest rates modestly in calendar 2026 as

slowing economic growth and rising unemployment partially offset concerns about the upward impact of tariffs on inflation. We

expect the Bank of England (BoE) will reduce interest rates once more before the end of calendar 2025 but we do not expect

additional reductions from the Bank of Canada (BoC) or the European Central Bank (ECB).

24

Royal Bank of Canada: Annual Report 2025

Management’s Discussion and Analysis

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Canada

Canadian GDP is expected to increase 1.2% in calendar 2025 following a 2.0% increase in calendar 2024. GDP contracted in the

second calendar quarter of 2025, impacted by reduced foreign demand for Canadian exports after U.S. tariffs were imposed, but

increased in the third calendar quarter of 2025. GDP growth is expected to remain slow but positive in calendar 2026, supported

by anticipated larger government deficit spending and lower interest rates even as trade uncertainty is expected to curtail

business investment and population growth slows. We expect most Canadian exports to the U.S. will remain duty free under the

exemption from tariffs for products compliant with the CUSMA; however, sector-specific tariffs, including those on lumber, steel

and aluminum, copper, the non-U.S. share of Canadian auto exports to the U.S. and China’s tariffs on Canadian products

including canola, still apply and will continue to slow production and exports in some affected sectors. The unemployment rate

declined to 6.9% in October 2025 after rising to 7.1% in August and September 2025 but is up 0.3% from a year earlier. The

unemployment rate is expected to remain elevated but gradually decline in calendar 2026 as hiring demand is expected to

stabilize and anticipated increases in government deficit spending support growth in GDP. The end of the consumer carbon tax

on energy products in most provinces has lowered the Canadian headline inflation rate, but excluding those changes, core

inflation measures are trending closer to the top of the BoC’s 1% to 3% inflation target range. Canadian population growth is

expected to continue to slow in calendar 2026, reflecting reduced federal immigration and nonpermanent resident population

targets. The BoC has already cut the overnight rate by 275 basis points since June 2024 and we do not expect additional

reductions.

U.S.

U.S. GDP has continued to grow but is expected to slow to a 1.8% increase in calendar 2025 following a 2.8% increase in calendar

2024. Consumer spending has been robust but employment growth has stalled, impacted by rising trade uncertainty, reduced

immigration and slower hiring in the industrial sector as tariffs have increased. The U.S. federal government shutdown has

prevented the release of key official economic data reports, but available data is consistent with gradually softening U.S. labour

markets. Layoffs have remained low but hiring demand has continued to slow, indicated by declining job openings. The

unemployment rate has edged higher but remains low at 4.4% as of the last reported rate in September 2025. We expect further

modest increases in the unemployment rate into early calendar 2026. U.S. inflation growth remains above the Fed’s 2% target

and has started to pick up as tariffs increase businesses’ input costs and consumer prices with a lag. Slower job growth in the

U.S. prompted the Fed to restart interest rate reductions in September 2025. We expect an additional 50 basis points of

reductions to the target range for the federal funds rate by the end of the second calendar quarter of 2026. A significant

government budget deficit is expected to keep GDP growth positive in calendar 2026 and prevent a larger increase in the

unemployment rate.

Euro area and the U.K.

Euro area GDP is expected to rise by 1.3% in calendar 2025 following a 0.8% increase in calendar 2024. Unemployment rates

remain very low across countries in the Euro area. Inflation in the Euro area has also remained low. The ECB has cut the deposit

rate by 200 basis points since the beginning of June 2024 and we expect no further reductions in calendar years 2025 or 2026.

U.K. GDP is projected to rise by 1.5% in calendar 2025 after a 1.1% rise in calendar 2024. The unemployment rate in the U.K. has

increased but is expected to stabilize in calendar 2026. U.K. inflation has moderated, allowing the BOE to begin gradually

lowering interest rates. The Bank rate has been reduced by 125 basis points since July 2024 to 4.0%. We expect one more

reduction by the BoE by the end of the calendar 2025 and no further reductions in calendar 2026.

Financial markets

Government bond yields have edged lower in Canada and the U.S. since the summer as concerns about the tariff impact on

economies and labour markets outweighed concerns about inflation and allowed the BoC and the Fed to reduce interest rates.

Government bond yields have also declined in the U.K. but are little changed in the Euro area. Equity markets remain close to

record highs. Commodity prices, on average, remain below peak levels from 2022 but are still historically high. Metal prices have

increased more significantly over the last three months. Oil prices have been volatile but have generally trended lower and are

below levels a year ago.

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 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 or decrease our costs and the complexity of our operations is included in the Legal and regulatory

environment risk section.

For a discussion on risk factors resulting from these and other developments which may affect our business and financial

results, refer to the risk sections of this 2025 Annual Report. For further details on our framework and activities to manage risks,

refer to the risk and Capital management sections of this 2025 Annual Report.

Defining and measuring success

Financial performance objectives are used to measure our performance and are used as goals as we execute against our

strategic priorities over the medium-term (3-5 years), which we believe reflects a longer-term view of strong and consistent

financial performance.

We review and revise these financial performance objectives as economic, market and regulatory environments change.

Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2025

25

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The following table provides a summary of our 3-year and 5-year performance against our medium-term financial

performance objectives:

Financial performance compared to our medium-term objectives

Table 2

Medium-term objectives

(1), (2)

3-year

(3)

5-year

(3)

Diluted EPS growth of 7% +

8%

13%

ROE of 16% +

15.0%

16.0%

Strong capital ratio (CET1)

(4)

13.8%

13.5%

Dividend payout ratio 40% – 50%

48%

46%

(1)

A medium-term (3-5 year) objective is considered to be achieved when the performance goal is met in either a 3- or 5-year period. These objectives assume a normal

business environment and our ability to achieve them in a period may be adversely affected by the macroeconomic backdrop and the cyclical nature of the credit cycle.

(2)

Our financial performance reflects the impact of specified items and the amortization of acquisition related intangibles.

(3)

Diluted EPS growth is calculated using a Compound Annual Growth Rate (CAGR). ROE, CET1 and dividend payout ratio are calculated using an average.

(4)

The CET1 ratio is calculated using OSFI’s CAR guideline. For further details on the CET1 ratio, refer to the Capital management section.

Our 3-year and 5-year medium-term financial performance objectives relating to diluted EPS growth, strong capital ratios and

dividend payout ratio will remain unchanged in fiscal 2026. For fiscal 2026, we have revised our ROE financial objective to 17%+

to reflect improving revenue productivity and cost efficiencies driven by the execution of our strategic initiatives.

We compare our TSR to that of a global peer group approved by our Board of Directors (the Board). The global peer group for

fiscal 2025 consisted of the following 9 financial institutions:

•

Canadian financial institutions:

Bank of Montreal, Canadian Imperial Bank of Commerce, Manulife Financial Corporation,

National Bank of Canada, The Bank of Nova Scotia and The Toronto-Dominion Bank.

•

U.S. banks:

JPMorgan Chase & Co. and Wells Fargo & Company.

•

International banks:

Westpac Banking Corporation.

Medium-term objectives – 3- and 5-year TSR vs. peer group average

Table 3

3-year TSR

(1)

5-year TSR

(1)

Royal Bank of Canada

22%

22%

Bottom half

Bottom half

Peer group average (excluding RBC)

26%

25%

(1)

The 3- and 5-year annualized TSR are calculated based on our common share price appreciation as per the TSX closing market price plus reinvested dividends for the

period October 31, 2022 to October 31, 2025 and October 31, 2020 to October 31, 2025.

Common share and dividend information

Table 4

For the year ended October 31

2025

2024

2023

2022

2021

Common share price (RY on TSX) – close, end of period

$ 205.47

$ 168.39

$ 110.76

$ 126.05

$ 128.82

Dividends paid per share

6.04

5.60

5.34

4.96

4.32

Increase (decrease) in share price

22.0%

52.0%

(12.1)%

(2.2)%

38.3%

Total shareholder return

26.2%

57.8%

(8.3)%

1.6%

43.8%

Beginning in fiscal 2026, the achievement of top half total shareholder returns (TSR) will no longer be a medium-term objective.

TSR performance relative to peers will continue to be a part of our overall evaluation of shareholder outcomes and in our

compensation programs. However, we believe the achievement of our financial performance objectives is a better indication of

our execution against strategic priorities.

Financial performance

Overview

2025 vs. 2024

Net income of $20,369 million was up $4,129 million or 25% from last year. Diluted EPS of $14.07 was up $2.82 or 25% and ROE of

16.3% was up 190 bps. Our CET1 ratio was 13.5%, up 30 bps from last year.

Adjusted net income of $20,870 million was up $3,440 million or 20%. Adjusted diluted EPS of $14.43 was up $2.34 or 19% and

adjusted ROE of 16.7% was up 120 bps.

Our earnings were up from last year, primarily driven by higher results across all of our business segments. Prior year

results also reflect higher HSBC Canada transaction and integration costs and the impact of management of closing capital

volatility related to the HSBC Canada transaction, both of which were treated as specified items and reported in Corporate

Support. Our earnings also reflect an increase due to the impact of foreign exchange translation.

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

management sections, respectively.

Adjusted results

Adjusted results exclude specified items and the after-tax impact of amortization of acquisition-related intangibles. Adjusted

results are non-GAAP measures. For further details, including a reconciliation, refer to the Key performance and non-GAAP

measures section.

26

Royal Bank of Canada: Annual Report 2025

Management’s Discussion and Analysis

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Impact of foreign currency translation

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

Table 5

(Millions of Canadian dollars, except per share amounts)

2025 vs. 2024

Increase (decrease):

Total revenue

$

1,022

PCL

33

Non-interest expense

592

Income taxes

43

Net income

354

Impact on EPS

Basic

$

0.25

Diluted

0.25

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

Table 6

(Average foreign currency equivalent of C$1.00) (1)

2025

2024

U.S. dollar

0.712

0.736

British pound

0.545

0.575

Euro

0.641

0.677

(1)

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

Total revenue

Table 7

(Millions of Canadian dollars, except percentage amounts)

2025

2024

Interest and dividend income

$

103,825

$

104,951

Interest expense

70,825

76,998

Net interest income

$

33,000

$

27,953

NIM

1.62%

1.54%

Insurance service result

$

867

$

777

Insurance investment result

284

294

Trading revenue

3,125

2,327

Investment management and custodial fees

10,647

9,325

Mutual fund revenue

5,084

4,437

Securities brokerage commissions

1,905

1,660

Service charges

2,425

2,294

Underwriting and other advisory fees

2,899

2,672

Foreign exchange revenue, other than trading

1,301

1,142

Card service revenue

1,333

1,273

Credit fees

1,670

1,592

Net gains on investment securities

120

170

Income (loss) from joint ventures and associates

73

(16)

Other

1,872

1,444

Non-interest income

$

33,605

$

29,391

Total revenue

$

66,605

$

57,344

2025 vs. 2024

Total revenue increased $9,261 million or 16% from last year, largely due to higher net interest income and investment

management and custodial fees. Higher trading revenue, mutual fund revenue, other revenue, securities brokerage commissions

and underwriting and other advisory fees also contributed to the increase. The impact of foreign exchange translation increased

revenue by $1,022 million.

Net interest income increased $5,047 million or 18%, mainly due to an increase in average deposits and loans and

acceptances in Personal Banking and Commercial Banking, which includes the impact of five additional months of HSBC Canada

results, and higher spreads in Personal Banking. Higher fixed income trading revenue across most regions in Capital Markets

and the impact of foreign exchange translation also contributed to the increase.

NIM was up 8 bps compared to last year, reflecting contributions from most of our business segments with Personal Banking

being the largest contributor, which was driven by favourable changes in product mix and the sustained impact of a higher

interest rate environment.

Trading revenue increased $798 million or 34%, largely due to higher equity trading revenue in Europe and the U.S. and

higher foreign exchange trading revenue across all regions.

Investment management and custodial fees increased $1,322 million or 14%, primarily due to higher fee-based client assets

reflecting market appreciation and net sales.

Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2025

27

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Mutual fund revenue increased $647 million or 15%, primarily due to higher fee-based client assets reflecting market

appreciation and net sales in Wealth Management, as well as higher average mutual fund balances driving higher distribution

fees in Personal Banking.

Securities brokerage commissions increased $245 million or 15%, primarily driven by client activity in Wealth Management.

Underwriting and other advisory fees increased $227 million or 8%, largely due to higher debt and equity origination across

most regions.

Other revenue increased $428 million or 30%, largely attributable to the impact of economic hedges, as well as the impact of

management of closing capital volatility related to the HSBC Canada transaction last year, which was treated as a specified

item.

Additional trading information

Table 8

(Millions of Canadian dollars)

2025

2024

Net interest income

(1)

$

2,335

$

1,742

Non-interest income

3,125

2,327

Total trading revenue

$

5,460

$

4,069

Total trading revenue by product

Interest rate and credit

$

2,773

$

2,371

Equities

1,492

817

Foreign exchange and commodities

1,195

881

Total trading revenue

$

5,460

$

4,069

(1)

Reflects net interest income arising from trading-related positions, including assets and liabilities that are classified or

designated at fair value through profit or loss (FVTPL).

2025 vs. 2024

Total trading revenue of $5,460 million, which is comprised of trading-related revenue recorded in Net interest income and

Non-interest income, increased $1,391 million or 34% from last year, largely due to higher equity trading revenue across most

regions, as well as higher fixed income and foreign exchange trading revenue across all regions. The impact of foreign exchange

translation also contributed to the increase.

Provision for credit losses

(1)

Table 9

For the year ended

(Millions of Canadian dollars, except percentage amounts)

October 31

2025

October 31

2024

Personal Banking

$

359

$

399

Commercial Banking

314

260

Wealth Management

(8)

(119)

Capital Markets

(43)

86

Corporate Support and other

(2)

–

1

PCL on performing loans

622

627

Personal Banking

$

1,757

$

1,418

Commercial Banking

1,236

714

Wealth Management

128

148

Capital Markets

613

340

Corporate Support and other

–

–

PCL on impaired loans

(2)

3,734

2,620

PCL – Loans

4,356

3,247

PCL – Other

(3)

6

(15)

Total PCL

$

4,362

$

3,232

PCL on loans is comprised of:

Retail

$

436

$

414

Wholesale

186

213

PCL on performing loans

622

627

Retail

1,961

1,586

Wholesale

1,773

1,034

PCL on impaired loans

3,734

2,620

PCL – Loans

$

4,356

$

3,247

PCL on loans as a % of average net loans and acceptances

0.43%

0.35%

PCL on impaired loans as a % of average net loans and

acceptances

0.37%

0.28%

(1)

Information on loans represents loans, acceptances and commitments.

(2)

Includes PCL recorded in Corporate Support and Insurance.

(3)

PCL – Other includes amounts related to debt securities measured at fair value through other comprehensive income

(FVOCI) and amortized cost, accounts receivable, and financial and purchased guarantees.

28

Royal Bank of Canada: Annual Report 2025

Management’s Discussion and Analysis

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2025 vs. 2024

Total PCL increased $1,130 million or 35% from last year, primarily due to higher provisions in Commercial Banking, Personal

Banking and Capital Markets.

PCL on performing loans decreased $5 million. The impact of the initial PCL on performing loans purchased in the HSBC

Canada transaction in the prior year, migration to impaired in Capital Markets and lower unfavourable changes in credit quality

were largely offset by unfavourable changes to our scenario weights, which include the impacts of trade disruptions (including

tariffs), and lower favourable changes to our macroeconomic forecast.

PCL on impaired loans increased $1,114 million or 43%, primarily due to higher provisions in Commercial Banking, Personal

Banking and Capital Markets.

Non-interest expense

Table 10

(Millions of Canadian dollars, except percentage amounts)

2025

2024

Salaries

$

9,426

$

8,878

Variable compensation

9,983

8,838

Benefits and retention compensation

2,711

2,408

Share-based compensation

1,002

959

Human resources

23,122

21,083

Equipment

2,790

2,537

Occupancy

1,679

1,805

Communications

1,497

1,369

Professional fees

2,177

2,525

Amortization of other intangibles

1,759

1,549

Other

3,568

3,382

Non-interest expense

$

36,592

$

34,250

Efficiency ratio

(1)

54.9%

59.7%

Efficiency ratio – adjusted

(1), (2)

54.0%

57.1%

(1)

See Glossary for composition of these measures.

(2)

This is a non-GAAP ratio. For further details, including a reconciliation, refer to the Key performance and non-GAAP

measures section.

2025 vs. 2024

Non-interest expense increased $2,342 million or 7% from last year, mainly due to higher staff costs and higher variable

compensation commensurate with increased results. The impact of foreign exchange translation, ongoing technology

investments and the impact of five additional months of HSBC Canada non-interest expenses also contributed to the increase.

These factors were partially offset by lower HSBC Canada transaction and integration costs, which is treated as a specified item,

and the realization of synergies related to the HSBC Canada transaction.

Our efficiency ratio of 54.9% decreased 480 bps. Our adjusted efficiency ratio of 54.0% decreased 310 bps.

Adjusted efficiency ratio is a non-GAAP ratio. For further details, including a reconciliation, refer to the Key performance and

non-GAAP measures section.

Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2025

29

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Income and other taxes

Table 11

(Millions of Canadian dollars, except percentage amounts)

2025

2024

Income taxes

$

5,282

$

3,622

Other taxes

Value added and sales taxes

724

680

Payroll taxes

1,183

1,060

Capital taxes

36

47

Property taxes

160

155

Insurance premium taxes

47

45

Business taxes

99

61

2,249

2,048

Total income and other taxes

$

7,531

$

5,670

Income before income taxes

$

25,651

$

19,862

Effective income tax rate

20.6%

18.2%

Effective total tax rate

(1)

27.0%

25.9%

Adjusted results

(2), (3)

Income taxes – adjusted

$

5,436

$

3,984

Income before income taxes – adjusted

26,306

21,414

Effective income tax rate – adjusted

20.7%

18.6%

(1)

Total income and other taxes as a percentage of income before income taxes and other taxes.

(2)

These are non-GAAP measures. For further details, including a reconciliation, refer to the Key performance and

non-GAAP measures section.

(3)

See Glossary for composition of these measures.

2025 vs. 2024

Income tax expense increased $1,660 million or 46% from last year, primarily due to higher income before income taxes.

Adjusted income tax expense increased $1,452 million or 36%.

The effective income tax rate of 20.6% increased 240 bps, primarily due to the impact of changes in earnings mix and Pillar Two

legislation, which became effective for us beginning November 1, 2024. The adjusted effective income tax rate of 20.7% increased 210

bps. For further details on Pillar Two legislation, refer to Note 21 of our 2025 Annual Consolidated Financial Statements.

Other taxes increased $201 million or 10% from last year, primarily due to higher payroll taxes driven by higher staff-related

costs and higher value added and sales taxes commensurate with increased purchase activity.

Adjusted income tax expense, adjusted income before income taxes and adjusted effective income tax rate are non-GAAP

measures or ratios. For further details, including a reconciliation, refer to the Key performance and non-GAAP measures section.

Client assets

Assets under administration

AUA are assets administered by us which are beneficially owned by our clients. We provide services that are administrative in

nature, including safekeeping, collecting investment income, settling purchase and sale transactions, and record keeping.

Underlying investment strategies within AUA are determined by our clients and generally do not impact the administrative fees

that we receive. Administrative fees can be impacted by factors such as asset valuation level changes from market movements,

types of services administered, transaction volumes, geography and client relationship pricing based on volumes or multiple

services.

Our Wealth Management business is the primary business segment that has AUA with approximately 94% of total AUA,

mainly in the Investor Services line of business with approximately 53% of AUA, as at October 31, 2025. The Personal Banking

business has approximately 5% of total AUA.

2025 vs. 2024

AUA increased $634 billion or 13% from last year, primarily due to market appreciation.

30

Royal Bank of Canada: Annual Report 2025

Management’s Discussion and Analysis

![]()

The following table summarizes AUA by geography and asset class:

AUA by geographic mix and asset class

Table 12

(Millions of Canadian dollars)

2025

2024

Canada

(1)

Money market

$

42,400

$

32,800

Fixed income

823,800

784,600

Equity

968,800

701,800

Multi-asset and other

1,554,300

1,458,300

Total Canada

3,389,300

2,977,500

U.S.

(1)

Money market

35,300

36,600

Fixed income

144,500

144,600

Equity

387,200

335,900

Multi-asset and other

515,700

432,900

Total U.S.

1,082,700

950,000

Other International

(1)

Money market

25,400

19,200

Fixed income

152,000

130,800

Equity

507,300

425,600

Multi-asset and other

442,300

462,400

Total International

1,127,000

1,038,000

Total AUA

$

5,599,000

$

4,965,500

(1)

Geographic information is based on the location from where our clients are serviced.

Assets under management

AUM are assets managed by us which are beneficially owned by our clients. Management fees are paid by the investment funds

and other clients for the investment capabilities of an investment manager and can also cover administrative services.

Management fees may be calculated daily, monthly or quarterly as a percentage of the AUM, depending on the distribution

channel, product and investment strategies. In general, equity strategies carry a higher fee rate than fixed income or money

market strategies. Fees are also impacted by asset mix and relationship pricing for clients using multiple services. Higher risk

assets generally produce higher fees, while clients using multiple services can take advantage of synergies which reduce the

fees they are charged. Certain funds may have performance fee arrangements where fees are recorded when certain

benchmarks or performance targets are achieved. These factors could lead to differences in fees earned by product and

therefore net return by asset class may vary despite similar average AUM. Our Wealth Management segment is the primary

business segment that has AUM with approximately 99% of total AUM as at October 31, 2025.

2025 vs. 2024

AUM increased $232 billion or 17% from last year, primarily due to market appreciation and net sales.

The following table presents the change in AUM for the year ended October 31, 2025:

Client assets – AUM

Table 13

2025

2024

(Millions of Canadian dollars)

Money market

Fixed income

Equity

Multi-asset

and other

Total

Total

AUM, beginning balance

(1)

$

62,800

$

281,300

$ 183,900

$ 814,300

$ 1,342,300

$ 1,067,500

Institutional inflows

233,900

57,000

12,400

9,100

312,400

318,400

Institutional outflows

(218,800)

(51,400)

(12,900)

(5,000)

(288,100)

(295,500)

Personal flows, net

1,800

5,000

4,200

24,700

35,700

19,800

Total net flows

16,900

10,600

3,700

28,800

60,000

42,700

Market impact

800

17,900

30,200

112,300

161,200

201,900

Acquisition/dispositions

–

–

–

–

–

20,600

Foreign exchange

500

2,600

200

7,000

10,300

9,600

Total market, acquisition/dispositions

and foreign exchange impact

1,300

20,500

30,400

119,300

171,500

232,100

AUM, balance at end of year

$

81,000

$

312,400

$ 218,000

$ 962,400

$ 1,573,800

$ 1,342,300

(1)

The amounts in the respective categories have been revised from those previously presented.

Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2025

31

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Business segment results

Results by business segments

Table 14

2025

2024

(Millions of Canadian dollars,

except percentage amounts)

Personal

Banking

(1)

Commercial

Banking

(1)

Wealth

Management

(1)

Insurance

Capital

Markets

(1), (2)

Corporate

Support

(2)

Total

Total

Net interest income

$

14,496

$

7,268

$

5,459

$

–

$

4,789

$

988

$

33,000

$

27,953

Non-interest income

5,358

1,294

16,919

1,321

9,637

(924)

33,605

29,391

Total revenue

19,854

8,562

22,378

1,321

14,426

64

66,605

57,344

PCL

2,105

1,550

120

–

587

–

4,362

3,232

Non-interest expense

8,001

2,833

16,769

315

7,966

708

36,592

34,250

Income before income

taxes

9,748

4,179

5,489

1,006

5,873

(644)

25,651

19,862

Income taxes

2,643

1,159

1,200

178

480

(378)

5,282

3,622

Net income

$

7,105

$

3,020

$

4,289

$

828

$

5,393

$

(266)

$

20,369

$

16,240

ROE

(3)

24.9%

14.9%

16.6%

40.7%

13.7%

n.m.

16.3%

14.4%

Average assets

$ 563,500

$ 192,200

$

188,400

$ 31,000

$ 1,326,300

$

97,000

$ 2,398,400

$ 2,108,500

(1)

On March 28, 2024, we completed the HSBC Canada transaction. HSBC Canada results have been consolidated from the closing date, and are included in our Personal

Banking, Commercial Banking, Wealth Management and Capital Markets segments.

(2)

Net interest income, non-interest income, total revenue, income before income taxes and income taxes are presented in Capital Markets on a taxable equivalent basis

(teb). The teb adjustment is eliminated in the Corporate Support segment. For a further discussion, refer to the How we measure and report our business segments

section.

(3)

For further details, refer to the Key performance and non-GAAP measures section.

n.m. not meaningful

How we measure and report our business segments

Our management reporting framework is intended to measure the performance of each business segment as if it were a stand-

alone business and reflects the way that the business segment is managed. This approach is intended to ensure that our

business segments’ results include all applicable revenue and expenses associated with the conduct of their business and

depicts how management views those results.

Key methodologies

The following outlines the key methodologies and assumptions used in our management reporting framework. These are

periodically reviewed by management to ensure they remain valid.

Expense and tax allocation

To ensure that our business segments’ results include expenses associated with the conduct of their business, we allocate costs

incurred or services provided by Technology & Operations and Functions, which are directly undertaken or provided on the

business segments’ behalf. For other costs not directly attributable to our business segments, including overhead costs and

other indirect expenses, we use our management reporting framework for allocating these costs to each business segment in a

manner that is intended to reflect the underlying benefits.

Capital attribution

Our management reporting framework also determines the attribution of capital to our business segments in a manner that is

intended to consistently measure and align economic costs with the underlying benefits and risks associated with the activities

of each business segment. The amount of capital assigned to each business segment is referred to as attributed capital.

Unattributed capital and associated amounts are reported in Corporate Support. Our attributed capital methodology includes

the allocation of leverage to our business segments to further align our allocation processes with evolving regulatory capital

requirements. Effective the first quarter of 2025, we increased our capital attribution rates to our business segments to better

align with our internal targets, which reduced the amount of unattributed capital retained in Corporate Support. For Insurance,

the allocation of capital remained unchanged in fiscal 2025 and continued to be based on fully diversified economic capital. For

further information, refer to the Capital management section.

Funds transfer pricing

Funds transfer pricing refers to the pricing of intra-company borrowing or lending for management reporting purposes. We

employ a funds transfer pricing process to enable risk-adjusted management reporting of segment results. This process

determines the costs and revenue for intra-company borrowing and lending of funds after taking into consideration our interest

rate risk and liquidity risk management objectives, as well as applicable regulatory requirements.

Provisions for credit losses

PCL is recorded to recognize expected credit losses on all financial assets, except for financial assets classified or designated as

FVTPL and equity securities designated as FVOCI, which are not subject to impairment assessment. For details on our

accounting policy on Allowance for credit losses (ACL), refer to Note 2 of our 2025 Annual Consolidated Financial Statements.

PCL is included in the results of each business segment to fully reflect the appropriate expenses related to the conduct of

each business segment.

32

Royal Bank of Canada: Annual Report 2025

Management’s Discussion and Analysis

![]()

In addition to the key methodologies described above, the following components of our management reporting framework also

impact how our business segments are managed and reported:

•

Wealth Management results include disclosure in U.S. dollars, primarily for U.S. Wealth Management (including City

National Bank (“City National”)) as we review and manage the results of this business largely in this currency.

•

Capital Markets results are reported on a teb basis, which grosses up total revenue from certain tax-advantaged sources

(U.S. tax credit business and Canadian taxable corporate dividends received on or before December 31, 2023) to their

effective taxable equivalent value with a corresponding offset recorded in income taxes. We record the elimination of the

teb adjustments in Corporate Support. We believe these adjustments are useful and reflect how Capital Markets manages

its business, since it enhances the comparability of revenue and related ratios across taxable revenue and our principal

tax-advantaged sources of revenue. The use of teb adjustments and measures may not be comparable to similar GAAP

measures or similarly adjusted amounts disclosed by other financial institutions.

•

Corporate Support results include all enterprise level activities that are undertaken for the benefit of the organization that

are not allocated to our five business segments, such as certain liquidity and cash management activities, including

amounts associated with unattributed capital, and consolidation adjustments, including the elimination of the teb gross-up

amounts. In addition, we record gains (losses) on economic hedges of our U.S. Wealth Management (including City

National) share-based compensation plans, which are reflected in revenue, and related variability in share-based

compensation expense driven by changes in the fair value of liabilities relating to these plans in Corporate Support as we

believe this presentation more closely aligns with how we view business performance and manage the underlying risks.

Key performance and non-GAAP measures

Performance measures

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. Certain financial metrics, including ROE, do not have a standardized meaning

under generally accepted accounting principles (GAAP) and may not be comparable to similar measures disclosed by other

financial institutions.

Return on common equity

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.

Our consolidated ROE calculation is based on net income available to common shareholders divided by total average

common equity for the period. Business segment ROE calculations are based on net income available to common shareholders

divided by average attributed capital for the period. For each segment, with the exception of Insurance, average attributed

capital includes the capital and leverage required to underpin various risks as described in the Capital management section and

amounts invested in goodwill and intangibles and other regulatory deductions. For Insurance, the allocation of capital remained

unchanged in fiscal 2025 and continued to be based on fully diversified economic capital.

The attribution of capital involves the use of assumptions, judgments and methodologies that are regularly reviewed and

revised by management as deemed necessary. Changes to such assumptions, judgments and methodologies can have a

material effect on the business segment ROE information that we report. Other companies that disclose information on similar

attributions and related return measures may use different assumptions, judgments and methodologies.

The following table provides a summary of our ROE calculations:

Calculation of ROE

Table 15

2025

2024

(Millions of Canadian dollars,

except percentage amounts)

Personal

Banking

(3)

Commercial

Banking

(3)

Wealth

Management

(3)

Insurance

Capital

Markets

(3)

Corporate

Support

Total

Total

Net income available to

common shareholders

$

6,985

$

2,940

$

4,187

$

820

$

5,244

$

(308)

$

19,868

$

15,908

Total average common

equity

(1), (2)

28,100

19,650

25,200

2,000

38,350

8,750

122,050

110,650

ROE

24.9%

14.9%

16.6%

40.7%

13.7%

n.m.

16.3%

14.4%

(1)

Total average common equity represents rounded figures.

(2)

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

(3)

Effective the first quarter of 2025, we increased our capital attribution rates. For further details, refer to the How we measure and report our business segments section.

n.m. not meaningful

Non-GAAP measures

Non-GAAP measures and ratios do not have a standardized meaning under GAAP and may not be comparable to similar

measures disclosed by other financial institutions.

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

Adjusted results and ratios

We believe that adjusted results are more reflective of our ongoing operating results and provide readers with a better

understanding of management’s perspective on performance. Specified items discussed below can lead to variability that could

obscure trends in underlying business performance and the amortization of acquisition-related intangibles can differ widely

between organizations. Excluding the impact of specified items and amortization of acquisition-related intangibles may enhance

comparability of our financial performance and enable readers to better assess trends in our underlying businesses.

Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2025

33

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Our results for all reported periods were adjusted for the following specified item:

•

HSBC Canada transaction and integration costs. Effective the third quarter of 2025, we no longer treated HSBC Canada

transaction and integration costs as a specified item. Integration activities have been completed.

Our results for the prior year were also adjusted for the following specified item:

•

Management of closing capital volatility related to the HSBC Canada transaction.

Adjusted ratios, including adjusted EPS (basic and diluted), adjusted ROE and adjusted efficiency ratio, which are derived from

adjusted results, are useful to readers because they may enhance comparability in assessing profitability on a per-share basis,

how efficiently profits are generated from average common equity and how efficiently costs are managed relative to revenues.

Adjusted results and ratios can also help inform and support strategic choices and capital allocation decisions.

Consolidated results, reported and adjusted

The following table provides a reconciliation of our reported results to our adjusted results and illustrates the calculation of

adjusted measures presented. The adjusted results and ratios presented below are non-GAAP measures or ratios.

Table 16

(Millions of Canadian dollars, except per share, number of and percentage amounts)

2025

2024

Total revenue

$

66,605

$

57,344

PCL

4,362

3,232

Non-interest expense

36,592

34,250

Income before income taxes

25,651

19,862

Income taxes

5,282

3,622

Net income

$

20,369

$

16,240

Net income available to common shareholders

$

19,868

$

15,908

Average number of common shares (thousands)

1,409,072

1,411,903

Basic earnings per share (in dollars)

$

14.10

$

11.27

Average number of diluted common shares (thousands)

1,411,589

1,413,755

Diluted earnings per share (in dollars)

$

14.07

$

11.25

ROE

16.3%

14.4%

Effective income tax rate

20.6%

18.2%

Total adjusting items impacting net income (before-tax)

$

655

$

1,552

Specified item: HSBC Canada transaction and integration costs

(1), (2)

43

960

Specified item: Management of closing capital volatility related to the HSBC Canada

transaction

(1)

–

131

Amortization of acquisition-related intangibles

(3)

612

461

Total income taxes for adjusting items impacting net income

$

154

$

362

Specified item: HSBC Canada transaction and integration costs

(1)

13

201

Specified item: Management of closing capital volatility related to the HSBC Canada

transaction

(1)

–

36

Amortization of acquisition-related intangibles

(3)

141

125

Adjusted results

Income before income taxes – adjusted

$

26,306

$

21,414

Income taxes – adjusted

5,436

3,984

Net income – adjusted

20,870

17,430

Net income available to common shareholders – adjusted

(4)

20,369

17,098

Average number of common shares (thousands)

1,409,072

1,411,903

Basic earnings per share (in dollars) – adjusted

$

14.46

$

12.11

Average number of diluted common shares (thousands)

1,411,589

1,413,755

Diluted earnings per share (in dollars) – adjusted

$

14.43

$

12.09

ROE – adjusted

16.7%

15.5%

Effective income tax rate – adjusted

20.7%

18.6%

Adjusted efficiency ratio

Total revenue

$

66,605

$

57,344

Add specified item: Management of closing capital volatility related to the HSBC Canada

transaction (before-tax)

(1)

–

131

Total revenue – adjusted

(4)

$

66,605

$

57,475

Non-interest expense

$

36,592

$

34,250

Less specified item: HSBC Canada transaction and integration costs (before-tax)

(1)

43

960

Less: Amortization of acquisition-related intangibles (before-tax)

(3)

612

461

Non-interest expense – adjusted

(4)

$

35,937

$

32,829

Efficiency ratio

54.9%

59.7%

Efficiency ratio – adjusted

54.0%

57.1%

(1)

These amounts have been recognized in Corporate Support.

(2)

As at October 31, 2025, the cumulative HSBC Canada transaction and integration costs (before-tax) incurred were $1.4 billion. Effective the third quarter of 2025, we no

longer treated HSBC Canada transaction and integration costs as a specified item. Integration activities have been completed.

(3)

Represents the impact of amortization of acquisition-related intangibles (excluding amortization of software), and any goodwill impairment.

(4)

See Glossary for composition of these measures.

34

Royal Bank of Canada: Annual Report 2025

Management’s Discussion and Analysis

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Personal Banking

Personal Banking provides a broad suite of financial products and services to retail clients for their day-to-day banking,

investing and financing needs. We are focused on building deep and meaningful relationships with our clients, underscored by

the delivery of exceptional client experiences, the breadth of our product suite, our depth of expertise and the features of our

digital solutions.

#### ~15 million#132,335

Number of Personal Banking –

Canada clients

Ranking in market share for all key

retail products

1

Employees (FTE)

2

Revenue by Business Lines

We operate through two businesses – Personal Banking – Canada and

Caribbean & U.S. Banking. Personal Banking – Canada serves our home market

in Canada. We have the largest branch network, the most ATMs and one of the

largest mobile sales forces across Canada, along with market-leading digital

capabilities. In Caribbean & U.S. Banking, we offer a broad range of financial

products and services in targeted markets.

In Canada, we compete with other Schedule 1 banks, independent trust

companies, foreign banks, credit unions, caisses populaires and auto financing

companies, as well as emerging entrants to the financial services industry.

In the Caribbean, our competition includes banks, emerging digital banks, trust

companies and investment management companies serving retail and

corporate clients, as well as public institutions. In the U.S., we compete

primarily with other Canadian banking institutions that have U.S. operations.

94%

Personal Banking - Canada

6% Caribbean & U.S. Banking

Total revenue

#### $19.9 billion

2025 Operating environment

›

Amidst a lower inflationary environment, the BoC overnight interest rate has decreased significantly through a series of

interest rate cuts since June 2024. This has been accompanied by a shift in deposit mix towards demand deposits, which has

contributed to our continued increase in NIM throughout fiscal 2025.

›

Residential real estate markets continued to be impacted by softening demand throughout 2025, driven by the imposition of

tariffs from the U.S. administration as well as general macroeconomic uncertainty. Despite slower mortgage volume growth,

mortgage originations were up from the prior year.

›

In an environment where a higher cost of living and economic uncertainty continue to weigh on consumer spending,

consumers are displaying cautious spending habits. Despite these financial pressures, overall credit card purchase volumes

continued to grow from the prior year.

›

We recorded growth in non-term deposit products, reflecting a shift in client preference away from term deposit products, as

BoC interest rates have decreased. We also maintained our number one market share position in Personal Core Deposits and

Guaranteed Investments Certificates (GICs).

›

Favourable equity market conditions throughout the majority of fiscal 2025 and client sales activity have driven higher

average mutual fund balances.

›

The credit environment was impacted by rising unemployment rates, slowing economic growth and the impacts of trade

disruptions, resulting in higher provisions on impaired and performing loans.

›

We continued to focus on investments in staff along with ongoing investments in technology, including in AI and digital

transformation.

›

The Caribbean region’s economy continued to expand at a healthy pace in 2025, with the inflation rate in the region remaining

low as the impacts of higher import costs fueled by tariffs are yet to have a downstream impact on consumers. Our Caribbean

Banking business benefitted from strong volume growth in both loans and deposits as we continued to invest in growing the

franchise.

›

The U.S. Banking business benefitted from continued loan and deposit growth and the sustained level of higher U.S. interest

rates, despite uncertainty associated with U.S. trade policy and a decline in Canadian travel to the U.S.

1

Market share is calculated using the most current data available from OSFI (M4), the Securities and Investment Management Association (SIMA) and the Canadian

Bankers Association (CBA), and is as at August 2025 and June 2025. This is based on the following key product categories: Personal Lending (including residential

mortgages), Personal Core Deposits and GICs, Credit Cards and Long-term Mutual Funds.

2

Includes FTE for all shared services across Personal Banking and Commercial Banking, for which the related non-interest expenses are allocated to both Personal

Banking and Commercial Banking.

Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2025

35

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Strategic priorities

OUR STRATEGY

PROGRESS IN 2025

PRIORITIES IN 2026

Enhance client value proposition

by providing exceptional value

and reciprocity

Received the highest ranking in customer satisfaction

for a second consecutive year in the J.D. Power 2025

Canada Retail Banking Satisfaction Study

Avion Rewards

®

was recognized for a third consecutive

year as the International Loyalty Program of the Year

(Americas) at the 2025 International Loyalty Awards.

The award recognizes the highest level of excellence

and innovation in loyalty programs on a global scale.

Avion Rewards also won top honors at the 2025

Loyalty360 Awards, recognizing the program’s creative

campaigns and data analytics innovations

Announced several strategic partnerships and

enhancements to expand our loyalty and credit card

offerings. These include a linked loyalty partnership

with Canadian Tire Corporation that links eligible RBC

cards and Triangle Rewards

‡

for clients to earn three

times Canadian Tire money, two new co-branded credit

cards and a linked loyalty partnership with Pattison

Food Group to offer exclusive everyday savings to

clients and allow them to earn more rewards on grocery

purchases. We also launched enhancements that

enabled WestJet

‡

RBC World Elite Mastercard and

WestJet RBC Mastercard

‡

cardholders to earn WestJet

points faster on everyday purchases and enjoy

expanded travel benefits and insurance options.

Additionally, we partnered with Visa

‡

to offer eligible

RBC Visa Cardholders a chance to win access to

purchase select tickets for FIFA World Cup 26

‡

Introduced credit at account opening under the RBC

Newcomer Advantage

®

program and continued to

engage HSBC Canada clients through proactive

marketing initiatives

Expanded access to no-cost banking accounts

1

for

Indigenous Peoples in Canada as well as anyone aged

24 and under, including non-students

Continue to build a suite of best-in-class value

propositions, digital experiences and ventures to

accelerate client acquisition and engage Canadians

earlier, more often and in more compelling ways

Focus on engaging key high-growth client segments

with superior advice and empower our advisors to build

new and deeper relationships to drive industry-leading

volume growth

Continue to support retail clients in achieving their

climate-related value propositions, including building

upon our existing portfolio of products, services and

advice

Continue to support the financial wellbeing of

Canadians through dedicated products, services and

advice

Optimize channels by servicing

clients through unparalleled

access and convenience

Won 10 Ipsos 2025 Financial Service Excellence Awards

among the Big 5 banks, including four solo wins in

“Recommend to Friends or Family (Net Promoter

Score)”, “Financial Planning & Advice”, “ATM Banking

Excellence” and “Online Banking Excellence”

Enabled clients to open GICs or Registered Savings

products through their mobile devices. Clients can now

open, purchase and set-up pre-authorized

contributions for Tax-free Savings Accounts and

Registered Retirement Savings Plans through their

mobile devices

Launched an easier and faster mortgage renewal

process for clients through a new streamlined, self-

serve option in the RBC Mobile app. Eligible clients can

now seamlessly and securely renew their RBC mortgage

from wherever is most convenient for them

Increased advisor sales power by digitizing

low-complexity tasks, leveraging alternate channels for

simpler servicing and expanding our remote sales

centres

Continue to deliver leading digital capabilities and

functionality through our mobile app

Continue to reimagine our branch network to meet the

evolving needs of our clients

Deliver anytime, anywhere solutions to our clients

across all channels

Upskill our expert advisor network to deliver more

personalized insights and address complex advice

needs

Leverage AI and hyper-

personalization to create

personalized client experiences,

improve efficiency and manage

risk

Scaled our proprietary AI foundation model for

financial services, ATOM

™

(Asynchronous Temporal

Model), which enables the bank to leverage unique

insights and develop innovative solutions within a

responsible AI framework that meets regulatory

requirements. ATOM has enhanced our credit

adjudication capabilities, enabling better assessment

of client needs and ability to pay. In addition, it has

enhanced our ability to provide personalized

recommendations, which are applied in our Avion

®

Redemption Newsletter, allowing us to streamline

offerings to our members

Deployed GenAI solutions in our Advice Centre to

support advisors with a number of tasks, from faster

access to knowledge and insights to executing

activities on their behalf, saving the advisor time to

focus on clients

Further scale ATOM in-market to hyper-personalize

client interactions across all client touchpoints,

leveraging offers across RBC’s product shelf and

insights on client behaviours and anticipating servicing

needs to create substantially deeper relationships with

existing RBC clients

Deploy agentic capabilities through our enterprise

GenAI platform to enable more automation across

workflows and enable AI to surface unique insights

from our data assets

1

This expanded access has in part been made available through RBC’s adherence to recent enhancements to voluntary Commitment on Low-Cost and No-Cost Accounts,

which came into effect on December 1, 2025.

36

Royal Bank of Canada: Annual Report 2025

Management’s Discussion and Analysis

![]()

OUR STRATEGY

PROGRESS IN 2025

PRIORITIES IN 2026

Attract, grow and retain future-

ready talent

Empowered teams to deliver against our strategy by

transforming our Personal Banking organizational

structure to align teams against our biggest growth

opportunities

Supported development of talent through targeted

employee moves to new and/or expanded roles to

develop in-demand skills and build key capabilities for

the future

Continued leadership development through various

enterprise and business segment programs, including

leadership summits, strategy seminars and people

manager enablement programs such as webinars,

workshops and learning programs

Further strengthened our culture of inclusion and

belonging by engaging employee participation in key

global enterprise events and Employee Resource

Groups

Build critical future skills through targeted

development experiences for leaders and employees

aligned to our bold ambitions

Inspire and enable teams to achieve ambitious

outcomes and high-performance

Develop and coach leaders to champion transformation

and growth and foster a client-focused culture

Empower our leaders and employees through AI to

reimagine what’s possible and accelerate innovation

In the Caribbean

Progressed and accelerated key initiatives including

data transformation, product innovation and

streamlining regulatory compliance by digitizing our

processes, expanding products and prioritizing

resources to modernize and simplify our business and

deliver an enhanced client and employee experience

Continue to deepen our focus in growth segments,

while maintaining momentum in operational excellence

by accelerating digital and process modernization and

further aligning our business model to deliver

differentiated value for clients and employees

In the U.S.

Continued to enable new client onboarding and cross-

border banking through deeper integration with

Canadian franchise product, channel and marketing

strategies

Continued to develop digital capabilities and

automation to enhance scalability, further integrate our

products, simplify processes and improve the client

experience

Further align with Canadian value proposition, product

strategies and channel experiences to drive new client

acquisition and anchor existing relationships

Continue the transformation of sales and service

channels to improve productivity and streamline client

acquisition and servicing processes

Outlook

For fiscal 2026, the macroeconomic outlook remains uncertain as markets and market participants navigate the impact of

geopolitical activity, including tariffs. Canadian labour markets have softened as tariff hikes from the U.S. administration have

led to job losses, particularly in the heavily trade-exposed North American industrial sector. U.S. trade policy remains a

significant source of uncertainty. Most Canadian exports to the U.S. have remained duty free under an exemption from tariffs on

products compliant with the CUSMA free trade agreement, which is expected to begin a formal review process in July 2026. GDP

growth is expected to remain slow but positive in 2026, supported by stabilizing domestic labour demand, resilient consumer

spending, planned increases in federal and provincial government spending and the lagged impact of the 2025 BoC interest rate

cuts. Home resales are expected to recover gradually in 2026 as lower interest rates and, in some markets, lower prices

stimulate buyer demand. The unemployment rate is expected to remain elevated but gradually decline in calendar 2026 as hiring

demand stabilizes. We do not expect further reductions in the BoC’s overnight rate in calendar 2026. We expect the continued

benefit of our structural hedges to reduce volatility in NIM from short-term rate movements.

In the U.S., GDP growth is also expected to remain slow but positive in 2026, with the negative impact of tariffs on growth in

the U.S. industrial sector expected to be offset by high levels of government spending and Federal Reserve interest rate cuts.

In the Caribbean region, GDP growth is expected to remain modest but positive in 2026, supported by historically high global

commodity prices as well as continued growth in key sources of tourism demand in the region including the Euro Area, the U.K.,

the U.S. and Canada.

We will continue to pursue industry-leading growth and will seek to deepen client relationships to meet the evolving needs

of our clients.

For further details on our general economic review and outlook, refer to the Economic, market and regulatory review and

outlook section.

Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2025

37

![]()

Personal Banking

(1)

Table 17

(Millions of Canadian dollars, except percentage amounts and as otherwise noted)

2025

2024

Net interest income

$

14,496

$

12,438

Non-interest income

5,358

4,904

Total revenue

19,854

17,342

PCL on performing assets

358

392

PCL on impaired assets

1,747

1,410

PCL

2,105

1,802

Non-interest expense

8,001

7,485

Income before income taxes

9,748

8,055

Net income

$

7,105

$

5,921

Revenue by business

Personal Banking – Canada

$

18,593

$

16,206

Caribbean & U.S. Banking

1,261

1,136

Key ratios

ROE

24.9%

24.8%

NIM

2.66%

2.43%

Efficiency ratio

40.3%

43.2%

Operating leverage

(2)

7.6%

2.2%

Selected balance sheet information

Average total assets

$

563,500

$

528,200

Average total earning assets, net

545,900

512,300

Average loans and acceptances, net

535,600

502,700

Average deposits

437,800

404,600

Other information

AUA

(3), (4)

$

288,500

$

255,400

Average AUA

267,400

235,500

AUM

(4)

6,100

6,400

Number of employees (FTE)

(5)

32,335

38,642

Credit information

PCL on impaired loans as a % of average net loans and acceptances

0.33%

0.28%

Other selected information – Personal Banking – Canada

Net income

$

6,717

$

5,550

NIM

2.58%

2.35%

Efficiency ratio

38.8%

41.6%

Operating leverage

7.5%

2.3%

(1)

On March 28, 2024, we completed the HSBC Canada transaction. HSBC Canada results have been consolidated from the closing date, which impacted results, balances

and ratios for all reported periods.

(2)

See Glossary for composition of this measure.

(3)

AUA includes securitized residential mortgages and credit card loans as at October 31, 2025 of $15 billion and $5 billion, respectively (October 31, 2024 – $15 billion and

$6 billion).

(4)

Represents year-end spot balances.

(5)

Includes FTE for all shared services across Personal Banking and Commercial Banking, for which the related non-interest expenses are allocated to both Personal

Banking and Commercial Banking. Effective the fourth quarter of 2025, approximately 5,500 FTE who were previously shared services and are now dedicated to

Commercial Banking were transferred from Personal Banking to Commercial Banking. As a result, FTE from the prior period may not be fully comparable.

Financial performance

2025 vs. 2024

Net income increased $1,184 million or 20% from last year, primarily driven by higher net interest income reflecting higher

spreads and average volume growth of 7% in Personal Banking – Canada. Higher non-interest income also contributed to the

increase. These factors were partially offset by higher non-interest expenses. Net income for the current year includes the

impact of five additional months of HSBC Canada results.

Total revenue increased $2,512 million or 14%, primarily due to higher net interest income reflecting higher spreads and an

increase of 8% in average deposits and 6% in average loans in Personal Banking – Canada, which includes the impact of five

additional months of HSBC Canada results. Higher average mutual fund balances driving higher distribution fees also

contributed to the increase.

NIM was up 23 bps, mainly due to favourable changes in product mix and the sustained impact of a higher interest rate

environment.

PCL increased $303 million or 17%, primarily due to higher provisions on impaired loans in our Canadian credit cards and

personal portfolios. This was partially offset by lower provisions on performing loans, primarily driven by lower unfavourable

changes in credit quality, partially offset by unfavourable changes to our scenario weights.

Non-interest expense increased $516 million or 7%, primarily due to higher staff-related costs, including severance, the

impact of five additional months of HSBC Canada non-interest expenses and ongoing technology investments, net of realized

synergies related to the HSBC Canada transaction.

Average loans and acceptances increased 7%, primarily driven by growth in residential mortgages and the impact of five

additional months of HSBC Canada balances.

Average deposits increased 8%, primarily reflecting an increase in demand and term deposits. The impact of five additional

months of HSBC Canada balances also contributed to the increase.

38

Royal Bank of Canada: Annual Report 2025

Management’s Discussion and Analysis

![]()

Business line review

Personal Banking – Canada

Personal Banking – Canada offers a full range of products focused on meeting the needs of our individual Canadian clients at

every stage of their lives through a wide range of financing and investment products and services. This includes home equity

financing, personal lending, chequing and savings accounts, private banking, indirect lending (including auto financing), mutual

funds, GICs, credit cards, and payment products and solutions.

We rank #1 in market share for all key Personal Banking products in Canada, supported by the largest retail banking network

in Canada, with 1,159 branches and 3,869 ATMs.

Financial performance

Total revenue increased $2,387 million or 15% compared to last year, primarily due to higher net interest income reflecting higher

spreads and an increase of 8% in average deposits and 6% in average loans, which includes the impact of five additional months

of HSBC Canada results. Higher average mutual fund balances driving higher distribution fees also contributed to the increase.

Average residential mortgages increased 7%, primarily reflecting an increase in mortgage originations and the impact of

five additional months of HSBC Canada balances.

Average deposits increased 8%, primarily reflecting an increase in demand and term deposits. The impact of five additional

months of HSBC Canada balances also contributed to the increase.

Selected highlights

(1)

Table 18

(Millions of Canadian dollars, except number of)

2025

2024

Total revenue

$

18,593

$

16,206

Other information

Average residential mortgages

414,100

388,500

Average other loans and acceptances, net

82,600

78,300

Average deposits

413,600

382,300

Average credit card balances

25,200

23,400

Credit card purchase volumes

196,600

185,000

Branch mutual fund balances

(2)

257,400

223,600

Average branch mutual fund balances

235,600

204,000

Number as at October 31:

Branches

(3)

1,159

1,189

ATMs

(3)

3,869

4,042

(1)

On March 28, 2024, we completed the HSBC Canada transaction. HSBC Canada

results have been consolidated from the closing date, which impacted results

for all reported periods.

(2)

Represents year-end spot balances.

(3)

Branches and ATMs are shared across Personal Banking and Commercial

Banking.

0

100,000

50,000

150,000

200,000

250,000

300,000

Other loans and

acceptances, net

Residential mortgages

Deposits

Average residential mortgages, loans and deposits

(Millions of Canadian dollars)

2025

2024

450,000

400,000

350,000

Caribbean & U.S. Banking

Our Caribbean Banking business provides personal and commercial banking to a range of clients, including individuals, small

businesses, general commercial entities, regional and multi-national corporations, and governments, supported by an extensive

branch, ATM, online and mobile banking network.

Our U.S. Banking business serves the needs of Canadian retail and small business clients providing personalized, digitally-

enabled cross-border banking solutions enabling a cross-border lifestyle in all 50 states across the U.S.

Financial performance

Total revenue increased $125 million or 11% from last year, mainly due to higher net interest income reflecting average volume

growth in loans and deposits. The impact of foreign currency translation and higher card service revenue also contributed to the

increase.

Average loans and acceptances increased 10% and average deposits increased 9%, primarily due to increased client activity

and the impact of foreign exchange translation.

Selected highlights

Table 19

(Millions of Canadian dollars,

except number of and percentage amounts)

2025

2024

Total revenue

$

1,261

$

1,136

Other information

NIM

4.20%

4.26%

Average loans and acceptances, net

13,700

12,500

Average deposits

24,200

22,300

AUA

(1)

11,500

11,000

Average AUA

11,200

10,700

AUM

(1)

6,100

5,700

Average AUM

5,800

5,600

Number as at October 31:

Branches

38

38

ATMs

247

259

(1)

Represents year-end spot balances.

2024

Loans and acceptances, net

Deposits

Average loans and deposits

(Millions of Canadian dollars)

0

10,000

12,500

15,000

17,500

5,000

7,500

2,500

20,000

2025

25,000

22,500

Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2025

39

![]()

Commercial Banking

Commercial Banking serves the end-to-end needs of Canadian businesses, including subsidiaries of multi-nationals. We deliver a

full spectrum of services to the market, ranging from lending and deposits to payments, cash management and advisory services.

Our comprehensive coverage teams with specialization across industries and products give us the scale to deliver holistic

solutions to our clients.

#### ~ 1.4 million#1> 3,500

Number of Commercial Banking

clients

Ranking in market share in

commercial lending and deposits

1

Client-facing advisors and

specialists

Revenue by Product

We are a market-leading, full-service commercial bank that meets the needs

of Canadian businesses, including subsidiaries of multi-nationals.

In Canada, we compete with other Schedule 1 banks, foreign banks, credit

unions, specialized financing companies, as well as emerging non-traditional

entrants to the financial services industry.

For small businesses, we offer convenience through 1,159 branches in Canada

and comprehensive digital solutions supported by experienced advisors. For

commercial clients, we provide customized banking advice through our

network of industry-specialized relationship managers and product

specialists. Our corporate clients benefit from tailored product solutions and

premium high-touch services via a broad team of specialists and market-

leading capabilities.

59%

Deposits and Cash Management

41% Lending

Total revenue

#### $8.6 billion

2025 Operating environment

›

In 2025, trade uncertainty negatively impacted the economy, eroding business confidence and reducing capital investment. As

a result, businesses delayed long-term strategic investments, leading to decreased business investment and weaker

employment. This cautious business environment led to a slowdown in lending growth.

›

Following the BoC’s monetary policy easing since June 2024, clients shifted towards demand deposits with a preference for

liquidity during this time of economic uncertainty. This led to a mix shift in our portfolio, with funds flowing from term products

towards demand deposits.

›

Despite unfavourable business sentiment and increased competition, our diversified Commercial Banking business achieved

volume growth across all major product lines and client segments.

›

The credit environment was impacted by rising unemployment rates, slowing economic growth and the impacts of trade

disruptions, resulting in higher provisions on impaired and performing loans.

1

Market share is calculated based on deposit balances excluding term deposits from OSFI (M4) and lending balances from CBA, and is as at August 2025 and March 2025,

respectively.

40

Royal Bank of Canada: Annual Report 2025

Management’s Discussion and Analysis

![]()

Strategic priorities

OUR STRATEGY

PROGRESS IN 2025

PRIORITIES IN 2026

Invest in digital and AI to drive

productivity and efficiency

Continued to invest in digitizing our business to drive

more convenience, efficiency and speed for our clients

Modernized our transaction banking platform RBC

Edge

TM

to better support clients’ increasingly complex

cash management needs

Continue to create a digitized and AI-enabled credit

experience for clients, including our modernized credit

platform and auto-adjudication capabilities

Further develop self-serve digital onboarding for our

clients, refining the experience in virtual accounts

management and liquidity management

Target segments and sectors to

drive premium growth

Realigned coverage teams to better match capabilities

with client needs to provide more effective support for

large commercial and corporate clients

Generated market growth in Indigenous Banking,

supported by the expansion of our team serving these

communities, cross-enterprise collaboration and active

engagement with Indigenous communities

Enhanced advisor training on climate topics through a

program developed in collaboration with Green

Economy Canada to help advisors support clients on

their transition and resilience journeys

Extended our leadership position in the small business

and core commercial banking segments through client

acquisition strategies and new value propositions

Develop and execute strategies for key growth sectors

Continue to deploy new tailored servicing model for

large commercial and corporate clients aimed at

driving simplicity and efficiency

Continue to execute on refined coverage model and

transition teams to a singular platform

Engage with clients to understand their plans for the

climate transition and where RBC can assist Canadian

businesses in achieving their growth and sustainability

goals

Differentiate through trade and

payments capabilities with

international connectivity

Recognized by Global Finance Magazine as the best

overall bank for cash management in Canada for the

fourth consecutive year and the leading trade finance

provider in Canada for the thirteenth consecutive year

Completed integration of HSBC Canada with minimal

client attrition

Unified transaction banking coverage group, bringing

together expertise from multiple teams within treasury

and trade solutions and product support to streamline

client experience and drive business growth

Built out global payments solutions, such as trade

finance and foreign exchange in conjunction with

Capital Markets

Established greater collaboration with City National to

support the U.S. banking needs of Canadian

commercial and corporate clients resulting in a

significant increase in cross-border activity

Developed key capabilities within RBC Edge for cross-

border cash management that are critical for our north-

south transaction banking strategy

Roll out dedicated support model tailored for the needs

of transaction banking clients with specialized

expertise

Continue to invest in best-in-class North American

liquidity solutions that enable clients to optimize

working capital on both sides of the border

Continue to invest in cross-border capabilities including

our RBC Edge platform in conjunction with RBC Clear

TM

Attract, grow and retain future-

ready talent

Empowered teams to deliver against our strategy by

transforming our Commercial Banking organizational

structure to align teams against our biggest growth

opportunities

Supported development of talent through targeted

employee moves to new and/or expanded roles to

develop in-demand skills and build key capabilities for

the future

Continued leadership development through various

enterprise and business segment programs, including

leadership summits, strategy seminars and people

manager enablement programs such as webinars,

workshops and learning programs

Further strengthened our culture of inclusion and

belonging by engaging employee participation in key

global enterprise events and Employee Resource

Groups

Build critical future skills through targeted

development experiences for leaders and employees

aligned to our bold ambitions

Inspire and enable teams to achieve ambitious

outcomes and high-performance

Develop and coach leaders to champion transformation

and growth and foster a client-focused culture

Empower our leaders and employees through AI to

reimagine what’s possible and accelerate innovation

Outlook

For fiscal 2026, the macroeconomic outlook remains uncertain as markets and market participants navigate the impact of geopolitical

activity, including tariffs. Tariffs imposed by the U.S. administration have slowed economic growth, particularly in the heavily trade-

exposed North American industrial sector. The outlook for Canadian economic growth remains highly contingent on the unpredictable

U.S. trade policy. However, an exemption from additional tariffs on most Canadian exports compliant with the CUSMA free trade

agreement and increased government spending are expected to support modest but positive growth in the Canadian economy in

calendar 2026. We do not expect further reductions in the BoC’s overnight rate following the reduction in October before the end of

calendar 2025. We do not expect further reductions in calendar 2026 with government spending providing the main source of policy

response to targeted sectors negatively impacted by tariffs.

With a well-diversified portfolio and market-leading solutions, we are well-positioned to support clients through all stages of the

economic cycle. Improvements in business sentiment and anticipated government programs are expected to provide relief for

economically sensitive sectors and support growth. However, ongoing trade uncertainty remains a headwind that could negatively

impact growth. Our investments in transaction banking, client coverage and servicing allow us to meet the evolving needs of our clients

and pursue industry-leading, durable growth.

For further details on our general economic review and outlook, refer to the Economic, market and regulatory review and outlook

section.

Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2025

41

![]()

Commercial Banking

(1)

Table 20

(Millions of Canadian dollars, except percentage amounts and as otherwise noted)

2025

2024

Net interest income

$

7,268

$

6,061

Non-interest income

1,294

1,321

Total revenue

8,562

7,382

PCL on performing assets

314

261

PCL on impaired assets

1,236

714

PCL

1,550

975

Non-interest expense

2,833

2,512

Income before income taxes

4,179

3,895

Net income

$

3,020

$

2,818

Key ratios

ROE

14.9%

18.5%

NIM

3.89%

4.06%

Efficiency ratio

33.1%

34.0%

Operating leverage

3.2%

5.2%

Selected balance sheet information

Average total assets

$

192,200

$

165,400

Average total earning assets, net

186,800

149,400

Average loans and acceptances, net

186,800

161,600

Average deposits

308,700

281,800

Other information

Number of employees (FTE)

(2)

7,012

1,290

Credit information

PCL on impaired loans as a % of average net loans and acceptances

0.66%

0.44%

(1)

On March 28, 2024, we completed the HSBC Canada transaction. HSBC Canada results have been consolidated from the closing date, which impacted results, balances

and ratios for all reported periods.

(2)

Excludes FTE for all shared services across Personal Banking and Commercial Banking, for which the related non-interest expenses are allocated to both Personal

Banking and Commercial Banking. Effective the fourth quarter of 2025, approximately 5,500 FTE who were previously shared services and are now dedicated to

Commercial Banking were transferred from Personal Banking to Commercial Banking. As a result, FTE from the prior period may not be fully comparable.

Financial performance

2025 vs. 2024

Net income increased $202 million or 7% from last year, as growth in total revenue was partially offset by higher PCL and non-

interest expense. Net income for the current year includes the impact of five additional months of HSBC Canada results.

Total revenue increased $1,180 million or 16%, primarily due to higher net interest income, reflecting an increase of 16% in

average loans and acceptances and 10% in average deposits, which includes the impact of five additional months of HSBC

Canada results. The increase in net interest income also includes the impact of the cessation of Bankers’ Acceptance-based

lending, which was largely offset in credit fees within non-interest income.

PCL increased $575 million or 59%, primarily due to higher provisions on impaired loans across most sectors. Higher

provisions on performing loans also contributed to the increase, primarily driven by unfavourable changes to our scenario

weights, credit quality and macroeconomic forecast, partially offset by the impact of the initial PCL on performing loans

purchased in the HSBC Canada transaction in the prior year.

Non-interest expense increased $321 million or 13%, primarily due to higher staff-related costs, the impact of five additional

months of HSBC Canada non-interest expenses and ongoing technology investments, net of realized synergies related to the

HSBC Canada transaction.

Average loans and acceptances, and average deposits increased 16% and 10%, respectively, primarily driven by growth

across all client segments and the impact of five additional months of HSBC Canada balances.

42

Royal Bank of Canada: Annual Report 2025

Management’s Discussion and Analysis

![]()

Wealth Management

Wealth Management primarily serves affluent, high-net-worth (HNW) and ultra-high-net-worth (UHNW) clients from our offices

in key financial centres across the globe. We offer a comprehensive suite of wealth, investment, trust, banking, credit and other

solutions to this client segment. We also provide a self-directed investment service in Canada, as well as asset management

products globally to institutional and individual clients through our distribution channels and third-party distributors. We offer

asset services and investor services to financial institutions, asset managers and asset owners in Canada.

#### $22.4 billion> 6,200~ 75%

Total revenue

Client-facing advisors

GAM AUM outperforming the benchmark

on a 5-year basis

1

Assets under Administration

(AUA)

Total AUA

#### $5,285 billion

42% Personal

57% Institutional

1% Mutual Funds

Assets under Management

(AUM)

Total AUM

#### $1,564 billion

51% Personal

25%

Mutual Funds

24% Institutional

Our lines of business include Canadian Wealth

Management, U.S. Wealth Management

(including City National), Global Asset

Management (GAM), International Wealth

Management and Investor Services.

•

Canadian Wealth Management includes a full-

service wealth advisory business serving HNW

and UHNW clients, as well as a leading self-

directed investment service in Canada. The full-

service wealth advisory business is the largest

in Canada, as measured by AUA.

•

U.S. Wealth Management (including City

National) encompasses our private client

group (PCG), clearing and custody (C&C)

businesses and City National. PCG is a full-

service wealth advisory firm in the U.S., C&C

provides a wide array of clearing and execution

services for independent broker dealers and

registered investment advisors. City National is

a U.S.-based relationship bank serving the

entertainment industry, mid-market

businesses, HNW and UHNW individuals and

other clients who value personalized banking

relationships.

•

GAM is the largest retail mutual fund company

in Canada as measured by AUM, as well as a

leading institutional asset manager.

•

International Wealth Management serves

affluent, HNW and UHNW clients, primarily

through key financial centres in the U.K.,

Ireland, the Channel Islands and Asia.

•

Investor Services delivers asset servicing

solutions to Canadian asset managers, asset

owners, insurance companies and private

wealth advisors. Investor Services also

provides sub-custody services to global

financial institutions and brokers.

2025 Operating environment

›

Earnings in the current fiscal year benefitted from strong growth in client assets, primarily driven by favourable market

conditions and positive net flows.

›

Our wealth advisory businesses continued to realize net positive flows of fee-based client assets reflecting the strength of our

business driven by the quality of our advice, the breadth of our investment and holistic wealth planning solutions and clients’

trust in our brand. Within our asset management businesses, we captured increased share in Canadian retail mutual fund

sales as the sector returned to positive net flows.

›

We continued to invest in our people and technology to maintain our competitive advantage and increase efficiencies in an

environment characterized by market volatility, changing client preferences and stringent regulatory expectations.

›

The credit environment reflected better-than-expected U.S. economic growth, tempered by elevated U.S. interest rates,

resulting in lower provisions on impaired loans.

1

The percentage of assets in funds beating the benchmark represents performance of RBC GAM Canadian retail mutual funds, excluding index funds. Past performance is no

guarantee of future results. Benchmarks used are total return indices. Performance is based on gross-of-fee returns using data available from SIMA as of October 2025.

Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2025

43

![]()

Strategic priorities

OUR STRATEGY

PROGRESS IN 2025

PRIORITIES IN 2026

In Canada, be the premier service

provider for HNW and UHNW clients,

and build on our leading position

serving self-directed investors

Further extended our position as an industry leader in

our full-service private wealth business

Continued to focus on holistic wealth planning, including

advisor training on intergenerational and business

wealth transfer

Continued to offer RBC Premier Banking solutions to our

clients to deepen banking relationships with Wealth

Management clients

Focused on the business owner client segment by

running business owner planning to deepen

collaboration and provide solutions to address financial

needs across business segments including Personal

Banking and Commercial Banking

Continued to enhance digital and data capabilities,

modernize infrastructure and invest in personalized

client experiences to boost client satisfaction and

advisor productivity

Focused on providing unique product capabilities that

are becoming increasingly important to our HNW and

UHNW client base, such as private alternative investment

products

Introduced commission-free ETF trading in RBC Direct

Investing

™

to strengthen our value proposition with

early-stage investors, and launched our Royal Distinction

program that provides dedicated support and exclusive

benefits to our HNW clients

Build on our existing entrepreneurial and diverse culture

and reward system that retains, attracts and motivates

top wealth management talent in Canada

Deliver a differentiated client experience through

enriched advisor-client interactions and seamless digital

experiences

Focus on strategic partnership opportunities that

support clients on healthy aging, philanthropic and

personal goals

Deepen client relationships by leveraging the combined

strengths across other business segments (Personal

Banking and Commercial Banking) with a focus on the

business owner client segment

Continue to invest in digital solutions to streamline and

improve efficiency and advisor productivity, including

emerging AI capabilities in partnership with RBC Borealis

™

Continue to win early-stage investors in RBC Direct

Investing through our low-cost acquisition funnel and

launch new products and services for the audience,

while simultaneously streamlining the transition of our

mass affluent and HNW investors into full-service

advice relationships

Full capabilities to serve U.S. clients

and deliver strong performance

through the cycle

Continued to invest in key areas needed to drive growth

in the U.S. market, including expanding our banking and

lending solutions with the introduction of RBC Premium

Savings, enhancements to the digital platform with

AI-powered insights and record high financial advisor

recruitment

At City National, we focused on enhancing our risk

management capabilities across the three lines of

defence for sustainable, organic growth in the future.

City National also continued to refine its business mix,

exit non-core segments and deepen client relationships

through new product capabilities

Continue to deliver an exceptional client experience for

targeted HNW and UHNW segments by deepening client

relationships with the expansion of our banking and

lending and wealth planning solutions and continuing the

recruitment of highly productive advisors

Increase investments in technology and leverage the

combined strengths within U.S. Wealth Management

(including City National) and Capital Markets to deepen

client relationships

At City National, we will continue to focus on enhancing

our risk management capabilities across the three lines

of defence, as well as improving profitability, stability

and scalability

In select global financial centres,

become the most trusted regional

private bank

Continued to deliver on growth initiatives, bringing the

full strength and breadth of RBC to our clients

Focused on delivering a differentiated client experience

by leveraging our global capabilities

Continued to leverage RBC Brewin Dolphin to support our

position as a top five largest wealth manager in the U.K.

Achieved growth and continued momentum in Asia

through the addition of experienced client-facing

advisors and net new assets

Continue to focus on growing market share in target

markets

Continue to leverage our global strengths to better serve

clients and deepen relationships, taking advantage of

our expanded product suite and distribution channels

Continue to deliver an exceptional client experience and

increase business effectiveness and talent capabilities

Continue to enhance client value proposition and

consolidation of position in the U.K. local market

In Asia, continue to focus on achieving scale by growing

the business through the hiring of experienced client-

facing advisors and leveraging our global capabilities

In asset management, be a leading,

diversified asset manager focused on

retail clients in Canada and wealth

platforms and institutional clients

globally

Maintained #1 market share in Canadian mutual fund

AUM

RBC

®

iShares strategic alliance maintained #1 market

share in Canadian ETFs

Completed the integration of RBC Indigo Asset

Management Inc., formerly HSBC Asset Management

Canada, into GAM

Continue to focus on delivering exceptional investment

performance and valued insights with client experience

at the centre of all that we do

Continue to expand our investment capabilities,

including alternative investment solutions, to meet

evolving client needs in our target distribution regions

Become Canada’s undisputed leader

in investment servicing by focusing

on our clients and employees,

investing for today and tomorrow and

leveraging OneRBC

Launched Ignite 2027, our strategy dedicated to our

Canadian Investor Services business with a focus on

client and employee experience, and significant

investment in technology and people

Continue with Ignite 2027 focused on client-centred

investments to deliver world-class solutions at scale that

help clients achieve their growth and efficiency

aspirations

Attract, grow and retain future-ready

talent

Empowered teams to deliver against our strategy by

transforming our Wealth Management organizational

structure to align teams against our biggest growth

opportunities

Supported development of talent through targeted

employee moves to new and/or expanded roles to

develop in-demand skills and build key capabilities for

the future

Continued leadership development through various

enterprise and business segment programs, including

leadership summits, strategy seminars and people

manager enablement programs such as webinars,

workshops and learning programs

Further strengthened our culture of inclusion and

belonging by engaging employee participation in key

global enterprise events and Employee Resource Groups

Build critical future skills through targeted development

experiences for leaders and employees aligned to our

bold ambitions

Inspire and enable teams to achieve ambitious outcomes

and high-performance

Develop and coach leaders to champion transformation

and growth and foster a client-focused culture

Empower our leaders and employees through AI to

reimagine what’s possible and accelerate innovation

44

Royal Bank of Canada: Annual Report 2025

Management’s Discussion and Analysis

![]()

Outlook

For fiscal 2026, the macroeconomic outlook remains uncertain, with markets and clients navigating the impact of trade policy

developments, including tariff developments and anticipated changes to trade agreements. Although the most severe tariff scenarios

earlier in calendar 2025 have not materialized, sluggish growth is still expected over the coming quarters as businesses and households

adapt. In the U.S., inflation is likely to be slightly higher than normal for a period due to increased import tariffs, but is not expected to

reach the levels seen during the 2022 inflation shock. In contrast, Canadian inflation is expected to be relatively stable due to the

significant withdrawal of retaliatory tariffs.

Despite this evolving landscape, we are well-positioned to deliver sustainable growth by leveraging our diversified business

model, global capabilities and scale. As businesses and households adjust to the new trade realities, we anticipate a period of

slow economic growth, which may present opportunities for strategic investment and wealth planning.

Our strategy is focused on delivering a differentiated client experience through holistic, goals-based advice, enhanced by

digital and AI capabilities that improve advisor productivity and personalization. We are also deepening client relationships by

addressing the growing demand for integrated banking, wealth planning and alternative investment solutions. To support these

efforts, we will continue to invest in our people and technology, while further enhancing our operational resilience, risk

management and compliance capabilities. Prioritizing these areas will enable us to continue to meet the heightened

expectations of our clients and regulators and to deliver long-term value for our stakeholders.

For further details on our general economic review and outlook, refer to the Economic, market and regulatory review and

outlook section.

Wealth Management

(1)

Table 21

(Millions of Canadian dollars, except number of, percentage amounts and as otherwise noted)

2025

2024

Net interest income

$

5,459

$

4,979

Non-interest income

16,919

14,647

Total revenue

22,378

19,626

PCL on performing assets

(8)

(119)

PCL on impaired assets

128

148

PCL

120

29

Non-interest expense

16,769

15,312

Income before income taxes

5,489

4,285

Net income

$

4,289

$

3,422

Revenue by business

Canadian Wealth Management

$

6,959

$

5,777

U.S. Wealth Management (including City National)

9,857

8,906

U.S. Wealth Management (including City National) (US$ millions)

7,023

6,550

Global Asset Management

3,368

2,948

International Wealth Management

1,406

1,295

Investor Services

788

700

Key ratios

ROE

16.6%

14.4%

NIM

3.33%

3.26%

Pre-tax margin

(2)

24.5%

21.8%

Selected balance sheet information

Average total assets

$

188,400

$

176,200

Average total earning assets, net

163,700

152,500

Average loans and acceptances, net

123,200

114,600

Average deposits

173,600

163,400

Other information

AUA

(3), (4)

$

5,284,800

$

4,685,900

AUM

(3)

1,563,900

1,332,500

Average AUA

4,920,400

4,384,200

Average AUM

1,428,500

1,218,900

PCL on impaired loans as a % of average net loans and acceptances

0.10%

0.13%

Number of employees (FTE)

26,374

25,672

Number of advisors

(5)

6,229

6,116

Estimated impact of U.S. dollar, British pound and Euro translation on key income statement items

(Millions of Canadian dollars, except percentage amounts)

2025 vs. 2024

Increase (decrease):

Total revenue

$

445

PCL

9

Non-interest expense

358

Net income

61

Percentage change in average U.S. dollar equivalent of C$1.00

(3)%

Percentage change in average British pound equivalent of C$1.00

(5)%

Percentage change in average Euro equivalent of C$1.00

(5)%

(1)

On March 28, 2024, we completed the HSBC Canada transaction. HSBC Canada results have been consolidated from the closing date, which impacted results, balances

and ratios for all reported periods.

(2)

Pre-tax margin is defined as income before income taxes divided by total revenue.

(3)

Represents year-end spot balances.

(4)

In addition to Canadian Wealth Management, U.S. Wealth Management (including City National), International Wealth Management and Investor Services, AUA includes

$8,000 million (2024 – $7,400 million) related to GAM.

(5)

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

Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2025

45

![]()

Client assets – AUA

Table 22

(Millions of Canadian dollars)

2025

2024

AUA, beginning balance

(1)

$

2,004,500

$

1,621,600

Asset inflows

504,000

474,000

Asset outflows

(486,200)

(458,800)

Total net flows

(1)

17,800

15,200

Market impact

267,800

341,700

Acquisitions/dispositions

–

21,400

Foreign exchange/other

16,600

4,600

Total market, acquisition/dispositions and foreign exchange/other impact

(1)

284,400

367,700

AUA, balance at end of year

(1)

2,306,700

2,004,500

Investor Services, balance at end of year

2,978,100

2,681,400

Total AUA

$

5,284,800

$

4,685,900

(1)

Includes AUA from the following lines of business: Canadian Wealth Management, U.S. Wealth Management (including City National), Global Asset Management and

International Wealth Management.

AUA by geographic mix and asset class

Table 23

(Millions of Canadian dollars)

2025

2024

Canada

(1), (2)

Money market

$

36,600

$

28,400

Fixed income

55,600

61,500

Equity

258,900

248,400

Multi-asset and other

640,200

510,300

Total Canada

991,300

848,600

U.S.

(1), (2)

Money market

35,100

36,300

Fixed income

144,500

144,600

Equity

387,200

335,900

Multi-asset and other

496,600

413,200

Total U.S.

1,063,400

930,000

Other International

(1), (2)

Money market

25,400

19,200

Fixed income

25,400

13,200

Equity

106,700

56,800

Multi-asset and other

94,500

136,700

Total International

252,000

225,900

AUA, balance at end of year

(2)

2,306,700

2,004,500

Investor Services, balance at end of year

2,978,100

2,681,400

Total AUA

$

5,284,800

$

4,685,900

(1)

Geographic information is based on the location from where our clients are served.

(2)

Includes AUA from the following lines of business: Canadian Wealth Management, U.S. Wealth Management (including City National), Global Asset Management and

International Wealth Management.

Client assets – AUM

Table 24

2025

2024

(Millions of Canadian dollars)

Money

market

Fixed

income

Equity

Multi-asset

and other

Total

Total

AUM, beginning balance

(1)

$

62,700

$ 278,500

$ 181,600

$ 809,700

$ 1,332,500

$ 1,058,900

Institutional inflows

233,900

56,900

12,400

8,500

311,700

317,900

Institutional outflows

(218,800)

(51,400)

(12,800)

(4,600)

(287,600)

(295,100)

Personal flows, net

1,800

5,000

4,200

24,700

35,700

19,800

Total net flows

16,900

10,500

3,800

28,600

59,800

42,600

Market impact

800

17,700

30,000

112,100

160,600

201,000

Acquisition/dispositions

–

–

–

–

–

20,600

Foreign exchange and other

500

2,600

900

7,000

11,000

9,400

Total market, acquisition/dispositions and

foreign exchange impact

1,300

20,300

30,900

119,100

171,600

231,000

AUM, balance at end of year

$

80,900

$ 309,300

$ 216,300

$ 957,400

$ 1,563,900

$ 1,332,500

(1)

The amounts in the respective categories have been revised from those previously presented.

46

Royal Bank of Canada: Annual Report 2025

Management’s Discussion and Analysis

![]()

Financial performance

2025 vs. 2024

Net income increased $867 million or 25% from last year, mainly due to higher fee-based client assets reflecting market

appreciation and net sales, which also drove higher variable compensation. Higher transactional revenue also contributed to

the increase.

Total revenue increased $2,752 million or 14%, largely due to higher fee-based client assets reflecting market appreciation

and net sales and the impact of foreign exchange translation. Higher transactional revenue driven by client activity as well as

higher net interest income reflecting average volume growth in loans and deposits and higher spreads also contributed to the

increase.

PCL increased $91 million, primarily due to lower releases of provisions on performing loans in U.S. Wealth Management

(including City National), largely driven by unfavourable changes to our scenario weights, and lower favourable changes to our

macroeconomic forecast.

Non-interest expense increased $1,457 million or 10%, largely due to higher variable compensation commensurate with

increased results, higher staff costs and the impact of foreign exchange translation. These factors were partially offset by the

cost of the Federal Deposit Insurance Corporation (FDIC) special assessment last year.

AUA increased $599 billion or 13%, primarily due to market appreciation.

AUM increased $231 billion or 17%, primarily due to market appreciation and net sales.

Business line review

Canadian Wealth Management

Canadian Wealth Management includes our full-service wealth advisory business as well as our self-directed investment service

in Canada. Our full-service wealth advisory business is the largest in Canada as measured by AUA, with approximately 2,000

investment advisors providing comprehensive financial solutions with a focus on the HNW and UHNW client segments including

business owners. We provide discretionary investment management and estate and trust services to our clients through over

140 investment counsellors and over 120 trust professionals across Canada.

We compete with domestic banks and trust companies, investment counselling firms, bank-owned full-service brokerages

and boutique brokerages, mutual fund companies and global private banks. In Canada, bank-owned wealth managers continue

to be the major players for the HNW and UHNW client segments. RBC Direct Investing represents our self-directed investment

brokerage service in Canada. Our business is the second-largest brokerage in Canada, as measured by AUA, with approximately

$228 billion of AUA and serves 1.3 million clients. RBC Direct Investing serves a diverse base of clients, from early-stage investors,

mass affluent and HNW individuals using our scalable digital direct-to-consumer business. RBC Direct Investing provides a wide

range of products for clients to grow their wealth, including multi-currency accounts and access to trading in the Canadian, U.S.

and international markets.

Financial performance

Revenue increased $1,182 million or 20% from last year, largely due to higher fee-based client assets reflecting market

appreciation and net sales, as well as higher net interest income reflecting average volume growth in deposits and higher

spreads. Higher transactional revenue driven by client activity also contributed to the increase.

Selected highlights

(1)

Table 25

(Millions of Canadian dollars)

2025

2024

Total revenue

$

6,959

$

5,777

Other information

Average loans and

acceptances, net

7,300

6,500

Average deposits

31,100

25,000

AUA

(2)

998,700

855,800

AUM

(2)

290,600

240,500

Average AUA

979,900

791,100

Average AUM

284,400

218,600

(1)

On March 28, 2024, we completed the HSBC Canada transaction. HSBC Canada

results have been consolidated from the closing date, which impacted results,

balances and ratios for all reported periods.

(2)

Represents year-end spot balances.

AUA

AUM

Average AUA and AUM

(Millions of Canadian dollars)

2025

2024

0

200,000

100,000

300,000

400,000

1,000,000

900,000

800,000

700,000

600,000

500,000

Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2025

47

![]()

U.S. Wealth Management (including City National)

U.S. Wealth Management (including City National) encompasses PCG and our C&C businesses and City National. PCG is a full-

service wealth advisory firm in the U.S. with over 2,200 financial advisors. Our C&C business delivers clearing and execution

services for small to mid-sized independent broker-dealers and registered investment advisors. City National provides a robust

offering of financial solutions to entrepreneurs, professionals, affluent individuals, their businesses and families, and other

clients who value personalized banking relationships. City National offers a broad range of lending, deposit, cash management,

equipment financing, wealth management and other products and services. City National specializes in strategic solutions for

unique industry needs, including in the fields of entertainment, sports, real estate, food and beverage, healthcare, technology,

legal, nonprofit and property management. Our competitors include other broker-dealers, commercial banks and other financial

institutions that service HNW and UHNW individuals, entrepreneurs and their businesses.

Financial performance

Revenue increased $951 million or 11% from last year. In U.S. dollars, revenue increased $473 million or 7%, largely due to higher

fee-based client assets reflecting market appreciation and net sales.

NIM was down 17 bps, mainly driven by changes in our cash sweep deposit program that resulted in largely offsetting

impacts between net interest income and non-interest income.

Selected highlights

Table 26

(Millions of Canadian dollars,

except as otherwise noted)

2025

2024

Total revenue

$

9,857

$

8,906

Other information

(Millions of U.S. dollars)

Total revenue

7,023

6,550

NIM

2.54%

2.71%

Average earning assets, net

104,500

100,600

Average loans, guarantees and

letters of credit, net

78,400

75,500

Average deposits

80,700

84,100

AUA

(1)

758,600

668,100

AUM

(1)

257,500

220,200

Average AUA

747,200

629,100

Average AUM

252,800

206,300

(1)

Represents year-end spot balances.

2025

2024

AUA

AUM

Average AUA and AUM

(Millions of U.S. dollars)

0

200,000

100,000

300,000

400,000

800,000

700,000

600,000

500,000

Global Asset Management

GAM provides global investment management services and solutions for individual and institutional investors in Canada, the

U.K., the U.S., Europe and Asia. We provide a broad range of investment management services through mutual, pooled and

private funds, fee-based accounts and separately managed portfolios. We distribute our investment solutions through a broad

network of bank branches, our self-directed and full-service wealth advisory businesses, independent third-party advisors and

private banks and directly to individual clients. We also provide investment solutions directly to institutional clients, including

pension plans, insurance companies, corporations, endowments and foundations.

We are the largest retail fund company in Canada measured by AUM, as well as a leading institutional asset manager. We

face competition in Canada from banks, insurance companies and asset management organizations. The Canadian fund

management industry is large and mature but remains a relatively fragmented industry.

In the U.S., our asset management business offers investment management solutions and services, primarily to institutional

investors and wealth management platforms including RBC Wealth Management

®

, and competes with independent asset

management firms, as well as those that are part of national and international banks and insurance companies.

Internationally, through our global capabilities distributed under the RBC BlueBay Asset Management brand, we offer

investment management solutions for institutions and, through private banks including RBC Wealth Management, to HNW and

UHNW investors. We face competition from asset managers that are owned by international banks, as well as national and

regional asset managers in the geographies where we serve clients.

Financial performance

Revenue increased $420 million or 14% from last year, largely due to higher fee-based client assets reflecting market

appreciation and net sales.

48

Royal Bank of Canada: Annual Report 2025

Management’s Discussion and Analysis

![]()

Selected highlights

(1)

Table 27

(Millions of Canadian dollars)

2025

2024

Total revenue

$

3,368

$

2,948

Other information

Canadian net long-term mutual

fund sales (redemptions)

(2)

9,609

1,935

Canadian net money market

mutual fund sales

(redemptions)

(2)

2,891

1,334

AUM

(3)

793,700

680,300

Average AUM

776,500

619,900

(1)

On March 28, 2024, we completed the HSBC Canada transaction. HSBC Canada

results have been consolidated from the closing date, which impacted results,

balances and ratios for all reported periods.

(2)

As reported to the Investment Funds Institute of Canada. Includes all

prospectus-based mutual funds across our Canadian GAM businesses.

(3)

Represents year-end spot balances.

0

2025

2024

Average AUM

(Millions of Canadian dollars)

100,000

200,000

300,000

500,000

400,000

600,000

800,000

700,000

International Wealth Management

International Wealth Management includes operations in the U.K., Ireland, the Channel Islands and Asia. We provide customized

and integrated wealth management solutions to affluent, HNW, UHNW and corporate clients in key financial centres.

Competitors to our International Wealth Management business include global wealth managers, traditional private banks and

domestic wealth managers.

Financial performance

Revenue increased $111 million or 9% from last year, largely due to the impact of foreign exchange translation.

Selected highlights

Table 28

(Millions of Canadian dollars)

2025

2024

Total revenue

$

1,406

$

1,295

Other information

Average loans, guarantees

and letters of credit, net

4,700

4,500

Average deposits

14,700

11,500

AUA

(1)

236,600

211,300

AUM

(1)

118,700

105,000

Average AUA

214,000

201,100

Average AUM

103,600

99,800

(1)

Represents year-end spot balances.

0

50,000

100,000

250,000

200,000

150,000

2025

2024

AUA

AUM

Average AUA and AUM

(Millions of Canadian dollars)

Investor Services

Investor Services delivers asset servicing solutions to Canadian asset managers, asset owners, insurance companies and

private wealth advisors, and provides sub-custody services for global financial institutions and brokers. Our product and service

offering includes custody services covering 102 markets, fund administration, accounting for insurance, pension and

institutional clients, shareholder services, pension benefit services, performance measurement and market services (including

foreign exchange, securities finance and liquidity and cash management services). Competitors to our business include

domestic and international custodians with Canadian-based entities and operations.

Financial performance

Revenue increased $88 million or 13% from last year, primarily due to higher net interest income reflecting higher spreads and

average volume growth in deposits, as well as higher transactional revenue largely driven by client activity.

Selected highlights

Table 29

(Millions of Canadian dollars)

2025

2024

Total revenue

$

788

$

700

Other information

Average deposits

13,200

11,600

AUA

(1)

2,978,100

2,681,400

Average AUA

2,932,500

2,529,400

(1)

Represents year-end spot balances.

0

4,000,000

3,000,000

2025

2024

Average AUA

(Millions of Canadian dollars)

2,000,000

1,000,000

Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2025

49

![]()

Insurance

RBC Insurance

®

provides insurance advice and protection to approximately 4.9 million clients. We provide tailored, client-led

advice and solutions, harnessing the power of technology and data and leveraging the strength and scale of the RBC enterprise.

#### $1.3 billion

#### ~ 4.9 million2,853

Total revenue

Number of clients

Employees (FTE)

Premiums and Deposits

Total premiums

and deposits

#### $7 billion

49% Annuity

40% Life and Health

9%

Segregated Fund Deposits

2%

Property and Casualty

RBC Insurance is the largest Canadian bank-owned life insurance company on a

total revenue basis.

1

We offer a comprehensive suite of advice and solutions for individual and

business clients, including life, health, wealth solutions, travel, group benefits

and reinsurance. We provide property & casualty insurance through a

distribution agreement with Aviva Canada. We also offer longevity reinsurance,

as well as reinsurance solutions for creditor life, disability and critical illness.

Our products and services are distributed through multiple channels, including

our proprietary sales force, digital platforms, and a network of independent

brokers and partners.

In Canada, many of our competitors specialize in life and health, wealth, or

property and casualty products. In our International Insurance business, we

compete in the global reinsurance market.

2025 Operating environment

›

Ongoing geopolitical uncertainty created headwinds for the Canadian economy, worsening affordability pressures on

Canadians, weighing on consumer confidence and challenging new business growth. Amidst this macroeconomic backdrop,

RBC Insurance delivered steady growth in total premiums and deposits, supported by the strength of our overall insurance

product portfolio.

›

Within individual insurance, term insurance remained a key driver of growth, supported by product enhancements and

improved pricing and underwriting. We sustained leading creditor insurance market share in a challenging environment,

achieving sales growth in home and loan protection products. We also maintained our market leadership position in disability

income insurance.

›

Driven by strong market growth in investment protection and retirement income products, we expanded our wealth offerings

with product and pricing enhancements to better serve our clients.

›

The trend of companies transferring pension risk management to specialists continued. Consequently, our Canadian group

annuity business delivered prudent growth driven by disciplined pricing within our risk tolerance.

›

With Canadian group sponsors placing greater emphasis on the need for more flexible and accessible group benefits

solutions, we strengthened our group benefits offering through digital advancements and improved product features, further

elevating the client experience.

›

Despite the travel market having been affected by changing travel patterns and softer spending, we experienced steady

growth in our travel business. Through embedded travel coverage we offer with RBC credit cards, we continue to offer our

clients new options and expanded benefits.

1

Based on the most current total nine-month revenue for life insurance companies, as available from OSFI.

50

Royal Bank of Canada: Annual Report 2025

Management’s Discussion and Analysis

![]()

Strategic priorities

OUR STRATEGY

PROGRESS IN 2025

PRIORITIES IN 2026

Deliver a market-leading client experience

Awarded A+ ratings by Fundata Canada for our

three Guaranteed Investment Funds, recognizing

their consistent outstanding risk adjusted

performance, a distinction earned by fewer than

2% of Canadian investment fund products

Ranked #1 for broker relationship management

capabilities and underwriting case coordinator

service in the 2025 NMG Consulting Canadian

individual life insurance study, reflecting strong

frontline engagement and service excellence

Repositioned our third-party sales force to expand

solution set for clients

Drive profitable business growth by continuing the

journey to become a client-led organization

underpinned by superior advice and solutions

Drive deep client relationships through

distribution excellence, including channel growth

and by supporting our agents and partners with

high quality tools and unique value propositions

Lead in digital, data and technology

Awarded three global insurance innovation

awards from The Digital Banker, including Best

Digital Insurance Initiative, Best Digital

Transformation Program, and Outstanding

Customer Relations & Brand Engagement

Initiative, recognizing our leadership in digital

innovation

Launched a redesigned public website, resulting in

a 17% increase in overall traffic and positioning us

well to quickly implement future enhancements

Drove 50%+ YoY increase in digital releases,

reflecting the impact of ongoing investments in

digital, data, technology and process

improvements

Create innovative client experiences, leveraging

data and analytics to proactively anticipate future

insurance needs

Harness the power of RBC and the RBC Brand to

grow our Insurance business – OneRBC

approach

Maintained leadership position in creditor

products as measured by total insured lending

balance

1

Featured creditor products in RBC’s home equity

finance spring campaign for the first time,

introducing important protection at a critical life

moment thereby deepening client engagement

Deepened our partnership with Wealth

Management to deliver insurance solutions,

supporting clients’ financial planning needs and

driving growth in term and disability insurance

solutions

Leveraged enterprise AI capabilities,

infrastructure and the RBC Borealis platform to

build and scale AI capabilities within RBC

Insurance

Harness the power of being a bank-owned insurer

by tapping into enterprise capabilities,

relationships, channels, best practices and the

RBC brand to maximize enterprise opportunities

Drive operational excellence through

automation and streamlined processes

Achieved a 35%+ reduction in critical illness

decision cycle time, elevating the overall client

experience

Enabled point-of-sale decisioning through the

deployment of an innovative underwriting rules

engine, with 39% of eligible term life cases now

being decisioned instantly, improving speed and

client experience

Launched our first fully-automated and integrated

GenAI solution, enhancing claims fraud detection

and driving greater operational efficiency

Reimagine our processes through automation,

advanced capabilities and resilient operations to

position us for scale and to deliver an enhanced

client experience

Attract, develop and retain future-ready talent

Empowered teams to deliver against our strategy

by transforming our Insurance organizational

structure to align teams against our biggest

growth opportunities

Supported development of talent through targeted

employee moves to new and/or expanded roles to

develop in-demand skills and build key

capabilities for the future

Continued leadership development through

various enterprise and business segment

programs, including leadership summits, strategy

seminars and people manager enablement

programs such as webinars, workshops and

learning programs

Further strengthened our culture of inclusion and

belonging by engaging employee participation in

key global enterprise events and Employee

Resource Groups

Build critical future skills through targeted

development experiences for leaders and

employees aligned to our bold ambitions

Inspire and enable teams to achieve ambitious

outcomes and high-performance

Develop and coach leaders to champion

transformation and growth and foster a client-

focused culture

Empower our leaders and employees through AI to

reimagine what’s possible and accelerate

innovation

1

Total insured lending balance calculated from latest available supplementary financial reports

Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2025

51

![]()

Outlook

The insurance industry is expected to continue evolving in response to macro trends, particularly demographic changes and

technological advancements, which are influencing client preferences and expectations. These trends have created

opportunities for us to provide Canadians with a range of life, health, wealth transfer and retirement solutions, supported by

industry-leading advice. Through both proprietary and third-party channels, we remain committed to investing in product

innovation and operational enhancements that will enable us to deliver industry-leading solutions to advisors, institutions and

consumers. By leveraging data and digital technologies, we will continue to seek to deliver exceptional customer experiences,

maintain our leadership position in core segments and expand into new markets. Ultimately, RBC Insurance will continue to

harness the strength and scale of RBC to help Canadians protect what matters most to them.

For further details on our general economic review and outlook, refer to the Economic, market and regulatory review and

outlook section.

Insurance

Table 30

(Millions of Canadian dollars, except percentage amounts and as otherwise noted)

2025

2024

Non-interest income

Insurance service result

$

867

$

777

Insurance investment result

284

294

Other income

170

153

Total revenue

1,321

1,224

PCL

–

2

Non-interest expense

315

285

Income before income taxes

1,006

937

Net income

$

828

$

729

Key ratios

ROE

40.7%

35.3%

Selected balance sheet information

Average total assets

$

31,000

$

26,400

Other information

Premiums and deposits

(1), (2)

$

7,016

$

6,136

Net insurance contract liabilities

(3)

23,746

21,643

Contractual service margin (CSM)

(4)

1,802

2,137

Number of employees (FTE)

2,853

2,788

(1)

Premiums and deposits include premiums on risk-based individual and group insurance and annuity products as well as segregated fund deposits, consistent with

insurance industry practices.

(2)

Comparative amounts have been revised from those previously presented.

(3)

Includes insurance contract liabilities net of insurance contract assets.

(4)

Represents the CSM of insurance contract assets and liabilities net of reinsurance contract held assets and liabilities. For insurance contracts, the CSM represents the

unearned profit (net inflows) for providing insurance coverage. For reinsurance contracts held, the CSM represents the net cost or net gain of purchasing reinsurance.

The CSM is not applicable to contracts measured using the premium allocation approach.

Financial performance

2025 vs. 2024

Net income increased $99 million or 14% from last year, primarily due to higher insurance service result driven by improved

claims experience in longevity reinsurance and life retrocession products. This was partially offset by the impact of

unfavourable annual actuarial assumption updates driven by life retrocession products. Lower taxes reflecting changes in

earnings mix also contributed to the increase.

Total revenue increased $97 million or 8%, primarily due to higher insurance service result, as noted above.

Non-interest expense increased $30 million or 11%, primarily due to higher staff-related costs, including severance.

52

Royal Bank of Canada: Annual Report 2025

Management’s Discussion and Analysis

![]()

Capital Markets

RBC Capital Markets

®

is a premier global investment bank providing expertise in advisory & origination, sales & trading,

lending & financing and transaction banking to corporate, institutional, sponsor and government clients globally. Our

professionals provide clients with the advice, products and services their businesses need from 55 offices in 16 countries. Our

presence extends across North America, the U.K. & Europe, Australia, Asia and other regions.

> 22,900#17,648

Number of clients

Canadian bank-owned capital

markets firm by revenue

1

Employees (FTE)

Revenue by Geography

Total revenue

#### $14.4 billion

49% U.S.

28% Canada

18% U.K. & Europe

5% Australia, Asia and

other regions

We operate two main business lines: Corporate & Investment Banking and

Global Markets.

In North America, we offer a full suite of products and services, including equity

and debt origination and distribution, advisory services, sales & trading and

transaction banking. In Canada, we are a market leader with a strategic

presence in all lines of capital markets businesses. In the U.S., where our

competitors include large global investment banks, we have a full industry

sector coverage and investment banking product range, as well as capabilities

in credit, secured lending, municipal finance, fixed income, currencies &

commodities and equities.

Outside North America, we have a targeted strategic presence in the U.K. &

Europe, Australia, Asia and other markets aligned to our global expertise. In the

U.K. & Europe, we offer a diversified set of capabilities in key industry sectors of

focus. In Australia and Asia, we compete with global and regional investment

banks in targeted areas aligned to our global expertise, including fixed income

distribution and currencies trading, secured financing, as well as corporate &

investment banking.

2025 Operating environment

›

The fiscal 2025 macroeconomic environment was characterized by modest global growth, declining interest rates and lower

inflation, alongside an increase in geopolitical uncertainty. These macro conditions supported a growing industry wallet

across most of our core businesses.

›

Investment banking fee pool growth slowed in the first half of 2025 amidst macroeconomic uncertainty and market volatility;

however, the fee pools increased in the second half of 2025. Against this backdrop, we continued to expand our client

coverage, which contributed to revenue growth.

›

Overall financial market activity was driven by elevated market volatility in the first half of 2025, which supported robust

client-driven trading flows, notably from equities, foreign exchange and interest rate trading. The second half of 2025 saw a

reduction in market volatility, which supported a recovery in credit trading, partly offset by slower growth in equities trading

volumes.

›

The credit environment reflected better-than-expected economic growth in the U.S., tempered by elevated U.S. interest rates,

while other economies experienced slowing growth and the impacts of trade disruptions. We saw higher provisions on

impaired loans driven by a few accounts in the other services and financing products sectors.

›

The Pillar Two legislation, which includes a 15% global minimum corporate tax, resulted in an increase in tax expenses.

1

Source: Based on externally disclosed capital markets revenue for Canadian peers (Bank of Montreal, The Bank of Nova Scotia, Canadian Imperial Bank of Commerce,

The Toronto-Dominion Bank and National Bank of Canada) for the last twelve months as of July 31, 2025

Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2025

53

![]()

Strategic priorities

OUR STRATEGY

PROGRESS IN 2025

PRIORITIES IN 2026

Build new and deepen client relationships

Expanded client coverage through our holistic

global coverage model. A notable client example is

our role as exclusive financial advisor to Advent

International on the US$6.3 billion take-private of

Nuvei and joint lead arranger on a US$3.2 billion

related financing

Awards include Best Investment Bank in Canada

(Euromoney), Top 10 Investment Bank globally

(Euromoney) and Best Bank for Research in North

America (Euromoney)

Grow corporate relationships with expanded

sector coverage

Leverage sponsors franchise including capturing

more private capital opportunities

Increase coverage of bank, insurance and hedge

fund clients

Strengthen and expand our capabilities

Expanded our U.S. Transaction Banking platform,

RBC Clear, onboarding new clients and growing

deposits

Awards include 2025 Model Celent Bank winner for

Reinventing Cash Management by Celent Model

Bank and 2025 Best Digital Banking Initiative –

RBC Clear awarded by Banking Tech Awards USA

Expanded capabilities and market presence

across equity derivatives, risk solutions,

structured products and commodities

Created a dedicated Energy Transition centre of

excellence within Investment Banking to support

clients on energy transition with advice and

capital. A notable client example is our role as

exclusive financial advisor to Canada Growth

Fund and Building Ontario Fund on $2 billion and

$1 billion equity investments in the world-leading

Ontario Power Generation Small Modular

Reactors project

Accelerated growth in Equity Capital Markets

(ECM) capabilities, with a notable client example

highlighted through our role as joint lead

manager, bookrunner and underwriter on

Goodman Group’s AU$4 billion institutional

placement

Grow Mergers & Acquisitions (M&A) and ECM

capabilities, in partnership with coverage

Expand foreign exchange (FX) and commodities

products and capabilities

Expand equity financing and derivatives

opportunities

Scale U.S. transaction banking solutions with

further domestic payment automation and launch

of FX capabilities

Deliver complete solutions as OneRBC

Grew structured products solutions targeted to

Wealth Management clients

Progressed the enterprise FX program across RBC

platforms to coordinate capabilities and grow

offerings

Deliver global transaction banking capabilities to

clients, in partnership with Commercial Banking

and City National

Partner with Commercial Banking and Personal

Banking to drive enterprise FX offerings

Connect Capital Markets clients with the best of

RBC capabilities across Wealth Management and

Global Asset Management products

Leverage digital, data and AI

Established an AI and digital centre of excellence

Scaled Aiden

®

, RBC Capital Markets’ AI solution,

to all RBC Capital Markets employees

Accelerate execution of agentic AI with bespoke

applications tailored to user needs

Generate differentiated insights with thought

leadership, leveraging alternative data and client

analytics

Modernize trading platform across rates, FX and

risk solutions

Simplify, scale and modernize our foundation

Delivered across large scale platform

modernization and execution capability projects

Leveraged digital and AI to streamline the end-to-

end technology ecosystem and provide an

improved client and employee experience

Further simplified our estate of applications while

ensuring security and soundness

Automate operations to deliver improved

end-to-end digital client journeys and drive

efficiencies from scale

Simplify and streamline technology and

operational infrastructures while amplifying

controls and risk management

Continue momentum in productivity and efficiency

program

Dynamically allocate resources for

maximum impact

Continued to invest in key areas of technology,

with a focus on client facing applications (e.g.,

RBC Clear) and operational efficiencies

Supported clients with financial resources and

tailored advice

Sustain technology investment, focused on

change the bank initiatives

Prioritize financial resource allocation to the

highest priority client opportunities

54

Royal Bank of Canada: Annual Report 2025

Management’s Discussion and Analysis

![]()

OUR STRATEGY

PROGRESS IN 2025

PRIORITIES IN 2026

Attract, grow and retain future-ready talent

Empowered teams to deliver against our strategy

by transforming our Capital Markets

organizational structure to align teams against

our biggest growth opportunities

Supported development of talent through targeted

employee moves to new and/or expanded roles to

develop in-demand skills and build key

capabilities for the future

Continued leadership development through

various enterprise and business segment

programs, including leadership summits, strategy

seminars and people manager enablement

programs such as webinars, workshops and

learning programs

Accelerated hiring to strengthen our leadership

capabilities in alignment with our global business

strategy

Further strengthened our culture of inclusion and

belonging by engaging employee participation in

key global enterprise events and Employee

Resource Groups

Build critical future skills through targeted

development experiences for leaders and

employees aligned to our bold ambitions

Inspire and enable teams to achieve ambitious

outcomes and high-performance

Develop and coach leaders to champion

transformation and growth and foster a client-

focused culture

Empower our leaders and employees through AI to

reimagine what’s possible and accelerate

innovation

Outlook

For fiscal 2026, the macroeconomic environment remains uncertain as financial markets and market participants navigate the

impact of continued geopolitical uncertainty including the impacts from tariffs and trade. The outlook is expected to continue to

be volatile, with limited further interest rate cuts, low growth and uneven unemployment. We expect strong momentum in global

investment banking fee pools through fiscal 2026, as well as stable global markets industry revenue, which is expected to

moderate from fiscal 2025. Amidst these market dynamics, we have a diversified business model which is well-positioned to

capture market share across our businesses. In Investment Banking, we will remain focused on key industry sectors as we

intensify investments in talent and technology. In Global Markets, our focus remains on accelerating cross-selling activities,

further deploying electronic and digital capabilities and building on our established risk management practices. In Corporate

Banking, we seek to maintain a disciplined growth approach underpinned by established credit risk management practices to

deepen relationships with lending clients and drive growth in our non-lending businesses. Across our businesses, our strategy

remains client-centric while seeking to optimize use of our financial resources, including growth objectives for our U.S.

Transaction Banking franchise. We believe our diversified business model positions us well to navigate the macroeconomic

environment.

For further details on our general economic review and outlook, refer to the Economic, market and regulatory review and

outlook section.

Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2025

55

![]()

Capital Markets

(1)

Table 31

(Millions of Canadian dollars, except percentage amounts and as otherwise noted)

2025

2024

Net interest income

(2)

$

4,789

$

3,183

Non-interest income

(2)

9,637

8,829

Total revenue

(2)

14,426

12,012

PCL on performing assets

(29)

84

PCL on impaired assets

616

340

PCL

587

424

Non-interest expense

7,966

7,016

Income before income taxes

5,873

4,572

Net income

$

5,393

$

4,573

Revenue by business

Corporate & Investment Banking

(3)

$

6,877

$

6,213

Global Markets

7,538

5,879

Other

(3)

11

(80)

Key ratios

ROE

13.7%

14.2%

Selected balance sheet information

Average total assets

$

1,326,300

$

1,134,300

Average trading securities

206,800

183,400

Average loans and acceptances, net

163,500

148,200

Average deposits

389,900

296,400

Other information

Number of employees (FTE)

7,648

7,424

Credit information

PCL on impaired loans as a % of average net loans and acceptances

0.38%

0.23%

Estimated impact of U.S. dollar, British pound and Euro translation on key income statement items

(Millions of Canadian dollars, except percentage amounts)

2025 vs. 2024

Increase (decrease):

Total revenue

$

490

PCL

23

Non-interest expense

211

Net income

225

Percentage change in average U.S. dollar equivalent of C$1.00

(3)%

Percentage change in average British pound equivalent of C$1.00

(5)%

Percentage change in average Euro equivalent of C$1.00

(5)%

(1)

On March 28, 2024, we completed the HSBC Canada transaction. HSBC Canada results have been consolidated from the closing date, which impacted results, balances

and ratios for all reported periods.

(2)

The teb adjustment for 2025 was $151 million (2024 – $294 million). For further discussion, refer to the How we measure and report our business segments section.

(3)

Comparative amounts have been revised from those previously presented.

2025

2024

Revenue by region

(Millions of Canadian dollars)

0

3,000

1,500

4,500

15,000

13,500

12,000

10,500

6,000

7,500

9,000

U.S.

U.K. & Europe

Canada

Australia, Asia & other regions

56

Royal Bank of Canada: Annual Report 2025

Management’s Discussion and Analysis

![]()

Financial performance

2025 vs. 2024

Net income increased $820 million or 18% from last year, primarily due to higher revenue in Global Markets and Corporate &

Investment Banking. The impact of foreign exchange translation also contributed to the increase. These factors were partially

offset by higher compensation on increased results and higher taxes reflecting the impact of Pillar Two legislation and changes

in earnings mix, net of favourable tax adjustments.

Total revenue increased $2,414 million or 20%, largely due to the impact of foreign exchange translation, higher equity

trading revenue across most regions, higher fixed income and foreign exchange trading revenue across all regions and higher

lending revenue across most regions. Higher revenue in treasury services and higher debt and equity origination across most

regions also contributed to the increase.

PCL increased $163 million or 38%, primarily due to higher provisions on impaired loans in a few sectors, including the other

services and financing products sectors, partially offset by lower provisions in the real estate and related sector. The current

year also reflects releases of provisions on performing loans, as compared to provisions taken last year, mainly due to one

account in the other services sector that migrated from performing to impaired in the current year and favourable changes to

our macroeconomic forecast, partially offset by unfavourable changes in credit quality.

Non-interest expense increased $950 million or 14%, mainly due to higher compensation on increased results, the impact of

foreign exchange translation and ongoing technology investments.

Business line review

Corporate & Investment Banking

Corporate & Investment Banking comprises our corporate lending, municipal finance, loan syndication, debt and equity

origination, M&A advisory services and transaction banking services. For debt and equity origination, revenue is allocated

between Corporate & Investment Banking and Global Markets based on the contribution of each group in accordance with an

established agreement.

Financial performance

Corporate & Investment Banking revenue of $6,877 million increased $664 million or 11% from last year.

Investment banking revenue increased $282 million or 10%, primarily due to higher loan syndication activity across most

regions, the impact of loan underwriting markdowns in the prior year and the impact of foreign exchange translation.

Lending and transaction banking revenue increased $382 million or 11%, largely due to average volume growth and the

impact of foreign exchange translation.

Selected highlights

Table 32

(Millions of Canadian dollars)

2025

2024

Total revenue

(1), (2)

$

6,877

$

6,213

Breakdown of total revenue

(1)

Investment banking

3,027

2,745

Lending and transaction

banking

(2), (3)

3,850

3,468

Other information

Average assets

143,000

129,000

Average loans and acceptances, net

134,000

121,000

(1)

The teb adjustment for the year ended October 31, 2025 was $152 million

(October 31, 2024 – $265 million). For further discussion, refer to the How we

measure and report our business segments section.

(2)

Comparative amounts have been revised from those previously presented.

(3)

Effective the second quarter of 2025, we renamed the “Lending and other”

business to “Lending and transaction banking”. The change had no impact to

how the business is managed or prior period comparatives.

0

1,000

8,000

7,000

5,000

2,000

3,000

4,000

2025

2024

Investment banking

Lending and transaction

bankin

g

Breakdown of total revenue

(Millions of Canadian dollars)

6,000

Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2025

57

![]()

Global Markets

Global Markets comprises our sales and trading businesses including fixed income, foreign exchange, commodities and equities,

as well as our repo and secured financing products.

Financial performance

Global Markets revenue of $7,538 million increased $1,659 million or 28% from last year.

Revenue in our Fixed income, currencies and commodities business increased $846 million or 19%, primarily due to the

impact of foreign exchange translation, as well as higher fixed income and foreign exchange trading revenue across all regions.

Revenue in our Equities business increased $813 million or 53%, largely due to higher equity trading revenue across most regions.

Selected highlights

Table 33

(Millions of Canadian dollars)

2025

2024

Total revenue

(1)

$

7,538

$

5,879

Breakdown of total revenue

(1)

Fixed income, currencies and

commodities

(2)

5,200

4,354

Equities

(2)

2,338

1,525

Other information

Average assets

1,163,000

995,000

(1)

The teb adjustment for the year ended October 31, 2025 was $(1) million

(October 31, 2024 – $29 million). For further discussion, refer to the How we

measure and report our business segments section.

(2)

Effective the second quarter of 2025, we reorganized our revenue reporting

hierarchy to collapse our Treasury services and funding business into our

Fixed income, currencies and commodities and Equities businesses.

Comparative amounts have been revised from those previously presented to

conform to this new basis of presentation.

0

1,000

2,000

8,000

7,000

6,000

5,000

3,000

4,000

2025

2024

Equities

Fixed income, currencies

and commodities

Breakdown of total revenue

(Millions of Canadian dollars)

Other

Other includes residual funding and capital costs, as well as bank-owned life insurance (BOLI) derivative contracts.

Financial performance

Other revenue improved $91 million, mainly reflecting lower residual funding and capital costs.

58

Royal Bank of Canada: Annual Report 2025

Management’s Discussion and Analysis

![]()

Corporate Support

Corporate Support consists of Technology & Operations, which provides the technological and operational foundation required

to effectively deliver products and services to our clients, Functions, which includes our finance, human resources, risk

management, internal audit and other functional groups, as well as our Corporate Treasury function. Reported results for

Corporate Support mainly reflect enterprise level activities which are not allocated to business segments. For further details,

refer to the How we measure and report our business segments section.

Corporate Support

Table 34

(Millions of Canadian dollars)

2025

2024

Net interest income (loss)

(1)

$

988

$

1,292

Non-interest income (loss)

(1), (2)

(924)

(1,534)

Total revenue

(1), (2)

64

(242)

Non-interest expense

(2)

708

1,640

Income (loss) before income taxes

(1)

(644)

(1,882)

Income taxes (recoveries)

(1)

(378)

(659)

Net income (loss)

$

(266)

$

(1,223)

(1)

Teb adjusted.

(2)

Revenue for the year ended October 31, 2025, included gains of $405 million (October 31, 2024 – gains of $499 million) on economic hedges of our U.S. Wealth Management

(including City National) share-based compensation plans, and non-interest expense included $391 million (October 31, 2024 – $473 million) of share-based compensation

expense driven by changes in the fair value of liabilities relating to our U.S. Wealth Management (including City National) share-based compensation plans.

Due to the nature of activities and consolidation adjustments reported in this segment, we believe that a comparative period

analysis is not relevant.

Total revenue and income taxes (recoveries) in Corporate Support include the deduction of the teb adjustment related to

gross-up of income from the U.S. tax credit business and income from Canadian taxable corporate dividends received on or

before December 31, 2023 that are recorded in Capital Markets.

The teb amount for the year ended October 31, 2025 was $151 million and was $294 million last year.

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

2025

Net loss was $266 million, primarily due to residual unallocated costs, including severance, partially offset by asset/liability

management activities.

2024

Net loss was $1,223 million, primarily due to the after-tax impact of the HSBC Canada transaction and integration costs of

$759 million, which was a specified item. Unallocated costs also contributed to the net loss.

For further details on specified items, refer to the Key performance and non-GAAP measures section.

Quarterly financial information

Fourth quarter performance

Q4 2025 vs. Q4 2024

Fourth quarter net income of $5,434 million was up $1,212 million or 29%. Diluted EPS of $3.76 was up $0.85 or 29% and ROE of

16.8% was up 250 bps. Our CET1 ratio of 13.5% was up 30 bps from a year ago. Our earnings were up primarily due to higher

earnings in Capital Markets, Wealth Management, Personal Banking and Commercial Banking, partially offset by lower earnings

in Insurance. Prior period results included HSBC Canada transaction and integration costs, which was treated as a specified

item and reported in Corporate Support.

Total revenue increased $2,135 million or 14%. The impact of foreign exchange translation increased revenue by $162 million.

Net interest income increased $974 million or 13%, mainly due to average volume growth in Personal Banking and

Commercial Banking, as well as higher spreads largely in Personal Banking. Higher fixed income trading revenue across all

regions in Capital Markets also contributed to the increase.

Non-interest income increased $1,161 million or 16%, mainly due to higher fee-based client assets reflecting market

appreciation and net sales in Wealth Management, changes in the fair value of the hedges related to our U.S. share-based

compensation plans, which was largely offset in non-interest expense, as well as the impact of economic hedges. Higher equity

trading revenue across most regions and higher M&A activity across all regions, both in Capital Markets, also contributed to the

increase.

Total PCL of $1,007 million increased $167 million or 20%, primarily due to higher provisions in Commercial Banking, Capital

Markets and Personal Banking. The PCL on loans ratio of 39 bps increased 4 bps. The PCL on impaired loans ratio of 38 bps

increased 12 bps.

Non-interest expense increased $355 million or 4%, primarily due to higher variable compensation commensurate with

increased results, higher staff costs and changes in the fair value of our U.S. share-based compensation plans, which was largely

offset in non-interest income. Ongoing technology investments and the impact of foreign exchange translation also contributed

to the increase. These factors were partially offset by HSBC Canada transaction and integration costs in the prior year, which

was treated as a specified item.

Income tax expense increased $401 million or 40%, primarily due to higher income before income taxes. The effective

income tax rate of 20.4% increased 140 bps from last year, primarily due to the impact of changes in earnings mix and Pillar Two

legislation, which became effective for us beginning November 1, 2024, partially offset by the net impact of tax adjustments.

Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2025

59

![]()

Q4 2025 vs. Q3 2025

Net income of $5,434 million was relatively flat compared to last quarter. Higher net interest income, largely reflecting higher

spreads and volume growth across most segments, was offset by higher non-interest expense, including ongoing investments in

technology and higher marketing expenses associated with new client acquisition campaigns, and higher PCL on both impaired

and performing loans.

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)

Table 35

2025

2024

(Millions of Canadian dollars,

except per share and percentage amounts)

Q4

(2)

Q3

(2)

Q2

(2)

Q1

(2)

Q4

(2)

Q3

(2)

Q2

(2)

Q1

Personal Banking

$ 5,178

$

5,060

$

4,805

$

4,811

$

4,658

$

4,490

$

4,163

$

4,031

Commercial Banking

2,221

2,152

2,062

2,127

2,077

2,036

1,656

1,613

Wealth Management

5,900

5,513

5,397

5,568

5,186

4,964

4,789

4,687

Insurance

209

368

338

406

278

285

298

363

Capital Markets

(3)

3,611

3,758

3,301

3,756

2,903

3,004

3,154

2,951

Corporate Support

(3)

90

134

(231)

71

(28)

(148)

94

(160)

Total revenue

17,209

16,985

15,672

16,739

15,074

14,631

14,154

13,485

PCL

1,007

881

1,424

1,050

840

659

920

813

Non-interest expense

9,374

9,232

8,730

9,256

9,019

8,599

8,308

8,324

Income before income taxes

6,828

6,872

5,518

6,433

5,215

5,373

4,926

4,348

Income taxes

1,394

1,458

1,128

1,302

993

887

976

766

Net income

$ 5,434

$

5,414

$

4,390

$

5,131

$

4,222

$

4,486

$

3,950

$

3,582

EPS – basic

$

3.77

$

3.76

$

3.03

$

3.54

$

2.92

$

3.09

$

2.75

$

2.50

– diluted

3.76

3.75

3.02

3.54

2.91

3.09

2.74

2.50

Effective income tax rate

20.4%

21.2%

20.4%

20.2%

19.0%

16.5%

19.8%

17.6%

Period average US$ equivalent

of C$1.00

$ 0.720

$

0.728

$

0.704

$

0.699

$

0.733

$

0.730

$

0.734

$

0.745

(1)

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

(2)

On March 28, 2024, we completed the HSBC Canada transaction. HSBC Canada results have been consolidated from the closing date, and are included in our Personal

Banking, Commercial Banking, Wealth Management and Capital Markets segments.

(3)

Teb adjusted. For further discussion, refer to the How we measure and report our business segments section.

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 generally results in

lower client activity and may negatively impact the results of our Capital Markets trading business.

Trend analysis

Earnings over the period have been impacted by the factors noted below.

Personal Banking revenue has benefitted from volume growth in loans and deposits over the period. NIM has been

favourably impacted by changes in product mix and the sustained impact of a higher interest rate environment. HSBC Canada

revenue has been included since the transaction closed on March 28, 2024.

Commercial Banking revenue has benefitted from volume growth in loans and deposits over the period. HSBC Canada

revenue has been included since the transaction closed on March 28, 2024.

Wealth Management revenue has generally benefitted from growth in fee-based client assets, which is influenced by market

conditions.

Insurance revenue reflects investment-related and insurance experience. New business gains are deferred through CSM and

new business losses are reflected through insurance service result.

Capital Markets revenue is influenced, to a large extent, by market conditions that impact client activity. Investment

banking fee pools saw increasing activity through most of 2024. However, fee pool growth started to slow in the first half of 2025

amidst macroeconomic uncertainty and market volatility, before showing signs of recovery in the second half of 2025. Sales &

trading activity carried strong momentum in 2024 and macroeconomic uncertainty has continued to keep client volumes robust

across the sales & trading business through 2025.

PCL comprises provisions taken on performing assets and provisions taken on impaired assets. PCL on performing assets

fluctuated over the period as it is impacted by changes in credit quality, macroeconomic conditions, which drive our forecasts

and influence our scenario weights, and exposures. Provisions on performing assets over the period have generally been

reflective of unfavourable changes in credit quality. Throughout the period, we have generally seen improvements to our

macroeconomic forecast, with the exception of the second quarter of 2025, where we saw unfavourable changes, driven by the

impacts of trade disruptions (including tariffs). The second quarter of 2024 included initial PCL on performing loans purchased

in the HSBC Canada transaction. PCL on impaired assets has generally trended upwards over the period.

60

Royal Bank of Canada: Annual Report 2025

Management’s Discussion and Analysis

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Non-interest expense has been impacted by fluctuations in variable compensation over the period, commensurate with

fluctuations in revenue and earnings. Changes in the fair value of our U.S. share-based compensation plans, which are largely

offset in revenue, have also contributed to fluctuations over the period and are impacted by market conditions. While we

continue to focus on efficiency management activities, expenses over the period also reflect investments in staff and

technology. Expenses also included HSBC Canada transaction and integration costs before the third quarter of 2025. HSBC

Canada non-interest expenses have been included since the transaction closed on March 28, 2024.

Our effective income tax rate has been impacted by varying levels of tax adjustments and changes in earnings mix.

Beginning in the first quarter of 2025, our effective income tax rate reflects the impact of Pillar Two legislation, which became

effective for us beginning November 1, 2024.

Financial condition

Condensed balance sheets

Table 36

As at October 31 (Millions of Canadian dollars)

2025

2024

Assets

Cash and due from banks

$

37,024

$

56,723

Interest-bearing deposits with banks

50,364

66,020

Securities, net of applicable allowance

(1)

561,788

439,918

Assets purchased under reverse repurchase agreements and securities borrowed

309,683

350,803

Loans

Retail

652,344

626,978

Wholesale

397,171

360,439

Allowance for loan losses

(7,093)

(6,037)

Other – Derivatives

177,206

150,612

– Other

146,519

126,126

Total assets

$

2,325,006

$ 2,171,582

Liabilities

Deposits

$

1,515,616

$ 1,409,531

Other – Derivatives

183,953

163,763

– Other

472,325

457,550

Subordinated debentures

13,961

13,546

Total liabilities

2,185,855

2,044,390

Equity attributable to shareholders

139,092

127,089

Non-controlling interests

59

103

Total equity

139,151

127,192

Total liabilities and equity

$

2,325,006

$ 2,171,582

(1)

Securities are comprised of trading and investment securities.

2025 vs. 2024

Total assets increased $153 billion or 7% from October 31, 2024, net of foreign exchange translation of $48 billion.

Cash and due from banks decreased $20 billion or 35%, primarily due to lower deposits with central banks reflecting short-

term liquidity and cash management activities.

Interest-bearing deposits with banks decreased $16 billion or 24%, primarily due to lower deposits with central banks

reflecting short-term liquidity and cash management activities.

Securities, net of applicable allowance, increased $122 billion or 28%, primarily due to higher government debt securities

reflecting liquidity and cash management activities and favourable market opportunities.

Assets purchased under reverse repurchase agreements (reverse repos) and securities borrowed decreased $41 billion or

12%, primarily due to decreased client financing activity.

Loans (net of Allowance for loan losses) increased $61 billion or 6%, primarily due to volume growth in wholesale loans and

residential mortgages.

Derivative assets increased $27 billion or 18%, net of foreign exchange translation, primarily attributable to higher fair

values on equity and foreign exchange contracts, partially offset by lower fair values on interest rate contracts.

Other assets increased $20 billion or 16%, largely due to higher cash collateral, commodity trading assets and precious

metals reflecting market conditions and client activity.

Total liabilities increased $141 billion or 7%, net of foreign exchange translation of $48 billion.

Deposits increased $106 billion or 8%, mainly due to higher demand deposits driven by client activity and higher business

and government term deposits driven by liquidity and cash management activities as well as client activity.

Derivative liabilities increased $20 billion or 12%, net of foreign exchange translation, mainly attributable to higher fair

values on equity contracts, partially offset by lower fair values on interest rate contracts.

Other liabilities increased $15 billion or 3%, mainly due to higher obligations related to securities sold short, commodity

liabilities and cash collateral due to client activity and higher short-term borrowings of subsidiaries, partially offset by lower

obligations related to repurchase agreements (repos).

Total equity increased $12 billion or 9%, mainly reflecting earnings, net of dividends.

Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2025

61

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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 purchase or issuance of guarantees. These transactions give rise to, among other risks, varying degrees of

market, credit, liquidity and funding risk, which are discussed in the Risk management section.

We use structured entities to securitize our financial assets as well as assist our clients in securitizing their financial assets.

These entities are not operating entities, typically have no employees, and may or may not be recorded on our Consolidated

Balance Sheets.

In the normal course of business, we engage in a variety of financial transactions that may qualify for derecognition. We

apply the derecognition rules to determine whether we have transferred substantially all the risks and rewards or control

associated with the financial assets to a third party. If the transaction meets specific criteria, it may qualify for full or partial

derecognition from our Consolidated Balance Sheets.

Securitizations of our financial assets

We periodically securitize our credit card receivables and residential and commercial mortgage loans primarily to diversify our

funding sources, enhance our liquidity position and for capital purposes. We also securitize residential and commercial

mortgage loans as part of our sales and trading activities.

We securitize our credit card receivables, on a revolving basis, through a consolidated structured entity. We securitize

single and multiple-family residential mortgages through the National Housing Act Mortgage-Backed Securities (NHA MBS)

program. The majority of our securitization activities are recorded on our Consolidated Balance Sheets as we do not meet the

derecognition criteria. During 2025, we derecognized $1,332 million (October 31, 2024 – $122 million) of mortgages securitized

through the NHA MBS program. For further details, refer to Note 7 and Note 8 of our 2025 Annual Consolidated Financial

Statements.

We also periodically securitize commercial mortgage loans by selling them in collateral pools, which meet certain

diversification, leverage and debt coverage criteria, to structured entities, one of which is sponsored by us. Securitized

commercial mortgage loans are derecognized from our Consolidated Balance Sheets as we have transferred substantially all of

the risks and rewards of ownership of the securitized assets. During the year ended October 31, 2025, we securitized $685 million

of commercial mortgages (October 31, 2024 – $nil). Our continuing involvement with the transferred assets includes servicing

certain of the underlying commercial mortgages sold. As at October 31, 2025, there was $2 billion of commercial mortgages

outstanding that we continue to service related to these securitization activities (October 31, 2024 – $1 billion).

Involvement with unconsolidated structured entities

In the normal course of business, we engage in a variety of financial transactions with structured entities to support our

customers’ financing and investing needs, including securitization of our clients’ financial assets, creation of investment

products, and other types of structured financing.

We have the ability to use credit mitigation tools such as third-party guarantees, credit default swaps, and collateral to

mitigate risks assumed through securitization and re-securitization exposures. The process in place to monitor the credit quality

of our securitization and re-securitization exposures involves, among other things, reviewing the performance data of the

underlying assets. We affirm our ratings each quarter and formally confirm or assign a new rating at least annually. For further

details on our activities to manage risks, refer to the Risk management section.

Below is a description of our activities with respect to certain significant unconsolidated structured entities. For a complete

discussion of our interests in consolidated and unconsolidated structured entities, refer to Note 8 of our 2025 Annual

Consolidated Financial Statements.

62

Royal Bank of Canada: Annual Report 2025

Management’s Discussion and Analysis

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Multi-seller conduits

We administer multi-seller conduits which are used primarily for the securitization of our clients’ financial assets. Our clients

primarily use our multi-seller conduits to diversify their financing sources and to reduce funding costs by leveraging the value of

high-quality collateral. The conduits offer us a favourable revenue stream and risk-adjusted return.

We provide services such as transaction structuring, administration, backstop liquidity facilities and credit enhancements to

the multi-seller conduits. Revenue for all such services amounted to $383 million during the year (October 31, 2024 – $437 million).

Our total commitment to the conduits in the form of backstop liquidity and credit enhancement facilities is shown below.

The total committed amount of these facilities exceeds the total amount of the maximum assets that may have to be purchased

by the conduits under the purchase agreements. As a result, the maximum exposure to loss attributable to our backstop liquidity

and credit enhancement facilities is less than the total committed amounts of these facilities.

Liquidity and credit enhancement facilities

Table 37

2025

2024

As at October 31 (Millions of Canadian dollars)

Notional of

committed

amounts

(1)

Allocable

notional

amounts

Maximum

exposure

to loss

(2)

Notional of

committed

amounts

(1)

Allocable

notional

amounts

Maximum

exposure

to loss

(2)

Backstop liquidity facilities

$ 64,359

$ 60,433

$ 60,642

$

56,511

$

53,011

$ 53,247

Credit enhancement facilities

(3)

3,926

3,926

3,926

3,500

3,500

3,500

Total

$ 68,285

$ 64,359

$ 64,568

$

60,011

$

56,511

$ 56,747

(1)

Based on total committed financing limit.

(2)

Not presented in the table above are derivative assets with a fair value of $23 million (October 31, 2024 – $32 million) which are a component of our total maximum

exposure to loss from our interests in the multi-seller conduits. Refer to Note 8 of our 2025 Annual Consolidated Financial Statements for more details.

(3)

Includes $32 million (October 31, 2024 – $18 million) of financial standby letters of credit.

As at October 31, 2025, the notional amount of backstop liquidity facilities we provide increased $8 billion or 14% from last year,

primarily due to an increase in outstanding securitized assets of the multi-seller conduits. The notional amount of credit

enhancement facilities we provide increased $426 million or 12% from last year, primarily due to an increase in the amount

required by the conduits.

Maximum exposure to loss by asset type

Table 38

2025

2024

As at October 31 (Millions of dollars)

US$

C$

Total C$

US$

C$

Total C$

Outstanding securitized assets

Auto and truck loans and leases

$ 15,316

$

5,407

$ 26,877

$

12,882

$

4,478

$

22,409

Consumer loans

5,179

–

7,260

4,931

–

6,864

Credit cards

2,601

510

4,156

3,180

510

4,937

Dealer floor plan receivables

1,312

683

2,523

1,063

683

2,163

Equipment receivables

1,282

786

2,583

1,639

236

2,517

Fleet finance receivables

2,906

159

4,233

2,227

255

3,355

Commercial loans

449

592

1,221

701

592

1,567

Residential mortgages

–

3,570

3,570

–

2,295

2,295

Student loans

2,678

143

3,896

1,789

142

2,632

Trade receivables

3,335

–

4,676

3,132

–

4,359

Transportation finance

2,469

112

3,573

2,512

153

3,649

Total

$ 37,527

$ 11,962

$ 64,568

$

34,056

$

9,344

$

56,747

Canadian equivalent

$ 52,605

$ 11,962

$ 64,568

$

47,403

$

9,344

$

56,747

Our overall exposure increased $8 billion or 14% compared to last year, primarily due to an increase in the outstanding

securitized assets of the multi-seller conduits. All of the multi-seller conduits transactions were internally rated A- or above. All

transactions funded by the unconsolidated multi-seller conduits are internally rated using a rating system as outlined in the

internal ratings map in the credit risk section.

Multiple independent debt rating agencies review all of the transactions in the multi-seller conduits. Transactions financed

in the U.S. multi-seller conduits are reviewed by Moody’s Investors Service (Moody’s‡), Standard & Poor’s (S&P‡) and Fitch

Ratings (Fitch‡). Transactions in two of the Canadian multi-seller conduits are reviewed by DBRS Morningstar (DBRS‡) and

Moody’s while one of the Canadian multi-seller conduits is also reviewed by S&P. Each applicable rating agency also reviews

ongoing transaction performance on a monthly basis and may publish reports detailing portfolio and program information

related to the conduits.

As at October 31, 2025, the total asset-backed commercial paper (ABCP) issued by the conduits amounted to $43 billion, an

increase of $6 billion or 16% from last year, primarily due to higher client usage. The rating agencies that rate the ABCP rated

100% (October 31, 2024 – 100%) of the total amount issued within the top ratings category.

Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2025

63

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Structured finance

We provide liquidity and/or credit facilities to certain municipal bond tender option bond trusts in which we have an interest but

do not consolidate because the residual certificates issued by the tender option bond trusts are held by third parties. As at

October 31, 2025, our maximum exposure to loss from these unconsolidated municipal bond tender option bond trusts was

$5 billion (October 31, 2024 – $4 billion).

We provide senior warehouse financing to unaffiliated structured entities that are established by third parties to acquire

loans and issue term collateralized loan obligations (CLO). Subordinated financing is provided during the warehouse phase by

either the collateral manager or third-party investors. Subordinated financing serves as the first loss tranche which absorbs

losses prior to ourselves as the senior lender. A portion of the proceeds from the sale of the term CLO is used to fully repay the

senior warehouse financing that we provide. As at October 31, 2025, our maximum exposure to loss associated with the

outstanding senior warehouse financing facilities was $1,319 million (October 31, 2024 – $704 million). The increase in our

maximum exposure to loss from last year was driven by the addition of new financing facilities partially offset by the repayment

of existing financing facilities.

We provide senior financing to unaffiliated structured entities that are established by third parties to acquire loans.

Subordinated financing is provided by either the collateral manager or third-party investors. Subordinated financing serves as

the first loss tranche which absorb losses prior to ourselves as the senior lender. These facilities tend to be longer in term than

the CLO warehouse facilities and benefit from credit enhancement designed to cover a multiple of historical losses. As at

October 31, 2025, our maximum exposure to loss associated with the outstanding senior financing facilities was $14 billion

(October 31, 2024 – $8 billion). The increase in our maximum exposure to loss from last year was driven by the addition of new

financing facilities partially offset by the repayment of existing financing facilities.

Non-RBC managed investment funds

We invest in hedge funds primarily to provide clients with desired exposures to reference funds. As we make investments in the

reference funds, exposures to the funds are simultaneously transferred to clients through derivative transactions. Our maximum

exposure to loss in the reference funds is limited to our investments in the funds. As at October 31, 2025, our maximum exposure

to loss was $3 billion (October 31, 2024 – $3 billion), largely flat from last year.

We also provide liquidity facilities to certain third-party investment funds. The funds issue unsecured variable-rate

preferred shares and invest in portfolios of tax-exempt bonds. As at October 31, 2025, our maximum exposure to loss on these

funds was $954 million (October 31, 2024 – $948 million), largely flat from last year.

Third-party securitization vehicles

We hold interests in certain unconsolidated third-party securitization vehicles, which are structured entities. We, as well as

other financial institutions, are obligated to provide funding to these entities up to our maximum commitment level and are

exposed to credit losses on the underlying assets after various credit enhancements. As at October 31, 2025, our maximum

exposure to loss in these entities was $26 billion (October 31, 2024 – $21 billion). The increase in our maximum exposure to loss

compared to last year reflects an increase in client activity with third-party securitization vehicles. Interest and non-interest

income earned in respect of these investments was $878 million (October 31, 2024 – $698 million).

Other

Other unconsolidated structured entities include managed investment funds, alternative asset entities, arrangements to pass

credit risk to third parties, credit investment products and tax credit funds. Refer to Note 8 of our 2025 Annual Consolidated

Financial Statements for more details regarding our other unconsolidated structured entities.

Guarantees, retail and commercial commitments

We provide our clients with guarantees and commitments that expose us to liquidity and funding risks. Our maximum potential

amount of future payments in relation to our commitments and guarantee products as at October 31, 2025 amounted to

$630 billion compared to $551 billion last year. The increase compared to last year was primarily driven by growth in other

commitments to extend credit and sponsored member guarantees. Refer to Liquidity and funding risk section and Note 23 of our

2025 Annual Consolidated Financial Statements for details regarding our guarantees and commitments.

64

Royal Bank of Canada: Annual Report 2025

Management’s Discussion and Analysis

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Risk management

We are in the business of managing the risks inherent to the financial services industry as we aim to create maximum value for

our shareholders, clients, employees and communities. The ability to manage risk is a core competency of the bank and is

supported by our risk-aware culture and risk management approach. Our view of risks is dynamic and reflects the pace of

change in the financial services industry and in the markets where we operate or have clients and counterparties.

Overview

Our risk management principles set an overall tone for balancing risk-reward trade-offs with the intention of ensuring the long-

term viability of our organization.

These risk management principles also are integral to allowing RBC to preserve and reinforce

our strong risk-aware culture and maintain a consistently ethical approach to conducting business.

Risk management principles

•

Assess the impact of risks arising from choosing and executing a strategy while effectively balancing risk and reward to

enable sustainable growth.

•

Collectively share the responsibility for risk management.

•

Undertake only risks we understand and make thoughtful and future-focused risk decisions, taking environmental and

social considerations into account.

•

Always uphold our Purpose and vision, and consistently abide by our values and Code of Conduct as well as applicable

laws, regulations and regulatory expectations to maintain our reputation and the trust of our clients, colleagues and

communities.

•

Maintain a healthy and robust control environment to protect our stakeholders.

•

Use judgment and common sense.

•

Always be operationally prepared and financially resilient for a potential crisis.

The dynamic nature of the financial services industry, and technological innovation, necessitate that our processes, tools and

practices are continuously improving and responding to the changing landscape and emerging risks. We seek to accomplish this

through an effective and evolving risk management approach. Our approach to managing risks is organized around the risk

management lifecycle, including defining and enabling, identifying and assessing, managing and mitigating, aggregating and

reporting, as well as the governance of the significant risks faced by the organization. The boundaries of the Board-approved

risk appetite seek to ensure that risk-taking activities and exposures are aligned with the overall risk posture of the bank. We

seek to ensure that our business activities and transactions provide an appropriate balance of return for the risks assumed and

the costs incurred. Our organizational design and governance processes are structured with the intent of maintaining the

independence of the second line of defence, performed primarily by Group Risk Management (GRM) and Regulatory Compliance,

and are intended to contribute to an effective control environment across RBC.

Principal Risks

We define risk as the potential vulnerabilities in the short-, medium- or long-term that may impact our financial results, financial

and operational resilience, reputation, business model or strategy. Risk can be realized through losses or an undesirable

outcome with respect to volatility of earnings in relation to expected earnings, capital adequacy or liquidity. Our Principal Risks

reflect the key risks that most significantly affect the achievement of our strategic objectives and include credit, market,

liquidity, insurance, operational, compliance, reputation and strategic risks. The classification of our Principal Risks provides a

common language and foundation for the broader risk taxonomy and enables a disciplined identification and assessment of

risks. There are certain activities that we undertake that will give rise to several risks. There are also certain risks that are

transverse (e.g., compliance, climate and conduct risks) that can impact or manifest in other risk types.

Enterprise risk management

Under the oversight of the Board and senior management, the Enterprise Risk Management Framework (ERMF) provides an

overview of our enterprise-wide programs for managing risk, including identifying, assessing, measuring, controlling, monitoring

and reporting on the significant risks that face the organization.

Risk governance

We seek to manage risk effectively and strategically, and to ensure that risk appetite, business strategies and risk-taking

activities are aligned across the enterprise. We have an effective and well-established risk governance framework in place that

seeks to ensure risks impacting our businesses are identified, appropriately categorized, assessed, managed and, where

applicable, communicated to the Board in a timely manner. This framework is maintained in alignment with the expectations of

OSFI, the Basel Committee on Banking Supervision’s (BCBS) corporate governance principles and the requirements and

expectations of other regulators in the jurisdictions in which we conduct business. The Board oversees the implementation of

our risk management framework, while employees at all levels of the organization are responsible for managing the day-to-day

risks that arise in the context of their mandates. As illustrated below, we use the three lines of defence governance model that

helps to enforce a clear segregation of duties so that risks are appropriately and adequately managed throughout the enterprise

to achieve our strategic objectives.

Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2025

65

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FIRST LINE OF DEFENCE

RISK OWNERS

RISK OWNERS

SECOND LINE OF DEFENCE

RISK OVERSIGHT

RISK OVERSIGHT

THIRD LINE OF DEFENCE

INDEPENDENT ASSURANCE

INDEPENDENT ASSURANCE

AUDIT COMMITTEE

RISK COMMITTEE

BOARD OF DIRECTORS

GOVERNANCE COMMITTEE

HUMAN RESOURCES COMMITTEE

THE GROUP EXECUTIVE AND GROUP RISK COMMITTEE AND SENIOR MANAGEMENT COMMITTEES

All employees across our businesses

and functional areas are responsible

for ensuring risk controls are in place

Accountable for:

Identiﬁcation;

Assessment;

Mitigation and management;

Monitoring; and

Reporting of risks against approved

policies and appetite

Establishes risk management practices, policies

and provides risk guidance

Oversees and challenges the effectiveness of

First Line risk management practices

Monitors and independently reports on the

level of risk against established risk appetite

Internal Audit

Independent assurance to management

and the Board on the effectiveness of risk

management practices of the

First Line and Second Line of Defence

The CRO, the CCO and the CAMLO have direct

access to the Risk Committee

While the following functional units perform First

Line activities where Risk Management provides

independent oversight and challenge, they also

provide advice and support across all three lines

of defence: CFO Group, Human Resources and

the Chief Legal and Administrative Ofﬁcer

(CLAO) Group

The

Board

approves our Code of Conduct and closely collaborates with management to set the tone from above and promote a strong governance culture

that inﬂuences RBC at every level and across all our global businesses. The Board also approves our risk appetite, provides oversight and carries out its

risk management mandate primarily through its committees:

The

Risk Committee

assists the Board in overseeing our risk management by seeking to ensure that policies, processes and procedures, as well as the

appropriate organizational structure, budget and resources are in place to manage RBC’s signiﬁcant and emerging risks. The Risk Committee oversees

the risk management function, annually assesses its effectiveness and periodically reviews the results of independent assessments. Its oversight activities

include evaluation of the risk management function’s success against its key priorities, and the mandates of the Chief Risk Ofﬁcer (CRO), the Chief Compliance

Ofﬁcer (CCO) and the Chief Anti-Money Laundering Ofﬁcer (CAMLO). It also oversees and assesses the effectiveness of our Regulatory Compliance and

Financial Crimes (including anti-money laundering and anti-terrorist ﬁnancing, global economic sanctions, anti-bribery and anti-corruption) functions.

The

Audit Committee

assists the Board in its oversight of the integrity of our ﬁnancial statements and other disclosure documents, including sustainability

reporting; the qualiﬁcations, performance, and independence of our external auditors; and the performance of our Internal Audit function and our internal

controls. In addition, it oversees the Chief Financial Ofﬁcer (CFO) Group and Internal Audit functions, having regard to their independence from the

businesses whose activities they review. It annually assesses the effectiveness of the CFO Group and Internal Audit functions, and it reviews and approves

their respective organizational structure, budget, resources and charter, as well as the mandates of the CFO and the Chief Audit Executive.

The

Governance Committee

recommends to the Board individuals for Board member election or re-election and oversees the process for evaluating Board,

committee and director effectiveness. Moreover, the Governance Committee serves at the conduct review committee and oversees the management of

culture and conduct. Additional responsibilities include (i) developing and recommending governance frameworks, principles and policies to the Board;

(ii) overseeing and coordinating matters, including sustainability matters, at the Board and its committees; (iii) monitoring developments in corporate

governance and adapting best practices to the bank’s needs and circumstances; and (iv) reviewing shareholder proposals and recommending responses

to the Board.

The

Human Resources Committee

assists the Board in its oversight of compensation policies and major compensation programs, compensation risk

management and the compensation for the CEO and other members of the Group Executive (GE). It also oversees management succession plans for key

senior leadership roles, key talent management and human resources strategies and practices, and pension plans of the Bank and participating subsidiaries.

Actively shapes enterprise risk appetite and recommends it for Board approval.

Visibly supports and communicates enterprise risk appetite, seeking to ensure that sufﬁcient resources and expertise are in place to help

provide effective oversight of adherence to the enterprise risk appetite.

Seeks to ensure principles, policies, authorities, resources, responsibilities and reporting are in place to support the control infrastructure

necessary for an effective enterprise-wide risk management program.

Oversees culture and conduct strategy and key activities.

Provides appropriate and timely information to the Board and its Committees with regard to the identiﬁcation, measurement and

management of the signiﬁcant risks to which we are exposed across all of our legal entities, businesses and operations globally.

Speciﬁcally, the Compensation Risk Management Oversight Committee (CRMOC) oversees the design of major compensation programs in an

effort to ensure alignment with sound risk management principles, and that risks that may not be fully captured in our current ﬁnancial

performance are appropriately considered in variable compensation payouts, including our enterprise risk proﬁle relative to risk appetite.

The CRMOC has responsibility for ensuring our compensation programs align with the Financial Stability Board (FSB) Principles for Sound

Compensation Practices and Implementation Standards and other applicable guidance and best practices.

66

Royal Bank of Canada: Annual Report 2025

Management’s Discussion and Analysis

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Risk appetite

Effective risk management helps protect us from unacceptable

losses or undesirable outcomes with respect to our earnings

volatility, concentration, capital adequacy or other Principal

Risks while supporting and enabling our overall business

strategy. It requires the clear articulation of our risk appetite,

which is the amount and type of risk that we are able and willing

to accept in the pursuit of our business objectives. Risk appetite

reflects our self-imposed upper bound to risk-taking, set at

levels inside of regulatory limits and constraints, and influences

our risk management philosophy, Code of Conduct, business

practices and resource allocation. It provides clear boundaries

and sets an overall tone for balancing risk-reward trade-offs

intended to ensure the long-term viability of the organization.

Our risk appetite is integrated into our strategic, financial

and capital planning processes, as well as ongoing business

decision-making processes, and is reviewed and approved

annually by the Board.

Our Enterprise Risk Appetite Framework (ERAF) outlines the

foundational aspects of our approach to risk appetite,

articulates our quantitative and qualitative risk appetite

statements and their supporting measures and associated

constraints, which can be applied at the enterprise, business

segment, business unit and legal entity level, and describes our

requirements and expectations to embed effective risk appetite

practices throughout the organization.

Risk Capacity

Risk Limits &

Management Delegated

Authorities

Risk Appetite &

Board Delegated Authorities

Risk Proﬁle

Risk Posture

R

i

s

k

A

p

p

e

t

i

t

e

C

o

m

p

o

n

e

n

t

s

Risk appetite statements

Quantitative statements

Qualitative statements

•

Manage earnings volatility and exposure to future

losses under normal and stressed conditions.

•

Avoid excessive concentrations of risk.

•

Ensure capital adequacy and sound management of

liquidity and funding risk.

•

Ensure sound management of operational and

regulatory compliance risk.

•

Maintain strong credit ratings and a risk profile in the

top half of our peer group.

•

Always uphold our Purpose and vision and

consistently abide by our values and Code of

Conduct to maintain our reputation and the trust of

our clients, colleagues and communities.

•

Undertake only risks we understand. Make thoughtful

and future-focused risk decisions, taking

environmental and social considerations into

account.

•

Assess the impact of the risks arising from choosing

and executing a strategy while effectively balancing

risk and reward to enable sustainable growth.

•

Maintain a healthy and robust control environment

to protect our stakeholders.

•

Always be operationally prepared and financially

resilient for a potential crisis.

The allocation of our risk appetite and Board-delegated authorities across the bank is supported by the establishment of

management-delegated authorities and/or risk limits. These delegated authorities or risk limits represent the maximum level of

risk permitted for a line of business, entity, portfolio, individual or group and are used to govern ongoing operations. Risk

posture, the anticipated shift in risk profile as a result of changes in objectives, strategies and external factors, is used to

provide insights on key areas that may require management attention to better enable strategies to be executed successfully

within our risk appetite.

Risk measurement

Quantifying risk is a key component of our enterprise-wide risk and capital management processes. Risk measurement and

planning processes are integrated across the enterprise, especially with regard to forward-looking projections and analyses,

including but not limited to, stress testing, recovery and resolution planning and credit provisioning.

Certain risks, such as credit, market, liquidity and insurance risks, can be more easily quantified than others such as

operational, strategic, compliance or related reputational risks. For the risks that are more difficult to quantify, greater

emphasis is placed on qualitative risk factors and assessment of activities to gauge the overall level of risk. In addition,

judgmental risk measures and techniques such as stress testing, and scenario and sensitivity analyses can be used to assess

and measure risks, and we are continually evolving our risk measures and techniques to manage our risks. Our primary methods

for measuring risk include:

•

Quantifying expected loss: losses that are statistically expected to occur as a result of conducting business in a given time

period;

•

Quantifying unexpected loss: an estimate of the deviation of actual earnings from expected earnings, over a specified time

horizon;

•

Stress testing evaluates, from a forward-looking perspective, the potential effects of a set of specified changes in risk

factors, corresponding to exceptional but plausible adverse economic and financial market events. RBC’s stress testing

programs are performed at different levels of the organization (enterprise-wide, subsidiary-level and risk-level) to allow

relevant risk profiles and concentrations to be reflected in scenario design, analysis and decision-making; and

•

Back-testing: the realized values are compared to the parameter estimates that are currently used in an effort to ensure the

parameters remain appropriate for regulatory and economic capital calculations.

Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2025

67

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Stress testing

Stress testing is an important component of our risk management framework. Stress testing results are used for:

•

Assessing the viability of long-term business plans and strategies;

•

Monitoring our risk profile relative to our risk appetite in terms of earnings and capital at risk;

•

Setting risk limits;

•

Identifying key risks to, and potential shifts in, our capital and liquidity levels, as well as our financial position;

•

Enhancing our understanding of available mitigating actions in response to potential adverse events; and

•

Assessing the adequacy of our capital and liquidity levels.

The enterprise-wide stress tests evaluate key balance sheet, income statement, leverage, capital and liquidity impacts arising

from risk exposures and changes in earnings across a range of scenarios and severities over a multi-year horizon. Generally, the

stress testing scenarios evaluate global recessions, equity market changes, elevated debt levels, changes in interest rates, real

estate price corrections, and shocks to credit spreads and commodity markets, among other factors. During our fiscal 2025

stress testing exercises, we addressed several top and emerging risks including but not limited to the increase in trade and tariff

uncertainties, geopolitical tensions, changing interest rates, currency shocks, cyber threats and climate risks with a focus on the

impacts of these risks on revenue, losses, net income, liquidity and capital projections.

Separately, ongoing stress testing and scenario analyses within specific risk types are performed, such as market risk

(including Interest Rate Risk in the Banking Book (IRRBB)), liquidity risk, retail and wholesale credit risk, operational risk and

insurance risk, which supplement and support our enterprise-wide analyses. Results from these risk-specific programs are used

in a variety of decision-making processes including risk limit setting, portfolio composition evaluation, risk appetite articulation

and business strategy implementation.

In addition to ongoing enterprise-wide and risk-specific stress testing, we use ad hoc and reverse stress testing to deepen

our knowledge of the risks we face. Ad hoc stress tests are one-off analyses used to investigate developing market conditions or

to stress a particular portfolio in greater depth. Reverse stress tests aim to reverse-engineer scenarios that might lead to a

particular severe outcome, such as bank non-viability, and are used in resolution & recovery planning and to improve our

understanding of risk/return boundaries.

In addition to internal stress tests, we participate in regulatory stress testing exercises, on a periodic basis, across several

jurisdictions.

Risk control

Our enterprise-wide risk management approach is supported by a comprehensive set of risk controls that are defined in our

ERMF. The ERMF serves as the foundation for our approach to risk management and promotes RBC’s risk management

principles, approach and governance. It further sets the expectations for the development and communication of policies, the

establishment of risk appetite, delegated risk approval authorities and risk limits. Enterprise-wide control programs are an

important risk control mechanism that seek to establish sufficient risk diversification and risk/return optimization.

The ERMF, the ERAF and the Enterprise Culture and Conduct Risks Framework (ECCRF) together with risk-specific

frameworks supported by risk-specific policies act as RBC’s governance structure and manage RBC’s Principal Risks and related

risks across the organization.

Enterprise Risk Management

Framework

Enterprise Risk Appetite

Framework

Enterprise Culture and

Conduct Risks

Framework

RBC Unit/Entity (Segment or Region-speciﬁc) Policy Documents and Addendums, where applicable

The approval hierarchy for risk frameworks and policy documents:

Board of Directors or Board Committees

Generally, by RBC Unit/Entity Governance Committee, Entity Board, or Business or Functional Unit management/committees.

Group Risk Management approval is required if there are signiﬁcant risk implications.

Enterprise Risk Policy Document Architecture

Credit Risk

Management

Framework

Market Risk

Management

Framework

Regulatory

Compliance

Management

Framework

Information

Technology

Risk

Management

Framework

Operational

Risk

Management

Framework

Liquidity

Risk

Management

Framework

Insurance

Risk

Management

Framework

Reputation

Risk

Management

Framework

Capital

Management

Framework

Information

Management

Risk

Framework

Financial

Crimes

Risk

Management

Framework

Senior Management Committees

(e.g., Policy Review Committee, Operational Risk Committee, Asset and Liability Committee) for most enterprise

policies. Board or Board Committee approval is required in some instances (e.g., RBC Code of Conduct, Dividend Policy)

Enterprise-Wide Policy Documents

Risk appetite, risk approval authorities and risk limits

The enterprise risk appetite is supported by risk approval authorities delegated by the Board to the President & Chief Executive

Officer (CEO), the CRO and/or the CFO of RBC, providing thresholds for escalation to the Risk Committee of the Board for

awareness and/or approval. To facilitate day-to-day business operations, the CRO (or delegate) may delegate risk approval

authorities or establish risk limits to other risk areas of the Bank including, but not limited to subsidiaries and branches. These

represent the maximum level of risk permitted for an entity, branch, line of business, portfolio, individual or other groups.

68

Royal Bank of Canada: Annual Report 2025

Management’s Discussion and Analysis

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Risk review and approval processes

Initial and subsequent risk review and approval processes for products, services, initiatives and projects provide an important

enterprise-wide risk management mechanism. They are established based on the nature, size and complexity of the risk, and

include a formal review and approval by an individual, group or committee that is independent from the originator. The review

and approval requirements of risks related to projects and initiatives or new products and services are set out in enterprise-

level risk policy documents.

Risk monitoring and reporting

Enterprise and business segment level risk monitoring and internal reporting are critical components of our enterprise risk

management program and support the ability of senior management and the Board to effectively perform their risk management

and oversight responsibilities. The ongoing monitoring of our risk profile, and the organization’s risk exposure against our risk

appetite, enables proactive risk management and oversight. It seeks to ensure that our businesses operate within established

and approved risk appetite; detect areas where business activity or growth may be constrained in the future; identify situations

where risk-taking may be overly conservative or aggressive; enable senior management to assess the impact of stress and

unanticipated events; and inform the development and implementation of risk mitigation strategies to operate within risk

appetite. At each meeting of the Risk Committee of the Board, the CRO provides a risk update that has been reviewed by senior

management, and which includes, among others, top and emerging risks, industry trends or other notable items. On a quarterly

basis, we provide our Enterprise Risk Report to senior management and the Risk Committee of the Board which includes, among

others, top and emerging risks, risk profile relative to our risk appetite, portfolio quality metrics and a range of risks we face

along with an analysis of the related issues, key trends and, when required, management actions. On an annual basis, we

provide a benchmarking review to the Board which compares our performance to peers across a variety of risk metrics and

includes a composite risk scorecard which provides an objective measure of our ranking relative to the peer group. In addition

to our regular risk monitoring, other risk-specific presentations are provided to, and discussed with, senior management and the

Board on top and emerging risks or changes in our risk profile. In addition, we publish external reports on risk matters to comply

with regulatory requirements.

Internal risk controls management

The monitoring, assessing and testing of internal controls is an important part of our risk management approach to evaluate

how effective the controls are in reducing the risks they are designed to mitigate. Our risk control governance structure is

outlined in the Enterprise Operational Risk Management Framework and supporting policies which establish a consistent,

principles-based approach to the identification of risk and the development and management of internal controls to mitigate

risks. They also define minimum roles and responsibilities across the three lines of defence that are applicable across all of

RBC’s Principal Risks and sub-risks.

Issue management is a risk management capability that facilitates the identification, rationalization and management of an

unacceptable risk exposure due to an internal control absence or failure in either design or operation. Our enterprise issue

management program has a standardized set of parameters for issue management, including a universal definition of issues,

sources, scope, taxonomies and severity of ratings of issues. Our approach to the issue management program is tailored to

individual issue sources across the three lines of defence and to specific needs of each business segment and functional unit,

including local governance processes, roles and responsibilities and regulatory expectations.

Escalation of risks and events

We actively monitor and manage risks inherent to our activities and consequently maintain processes and controls to manage

those activities. However, risk events may arise due to control failures or circumstances beyond our established processes and/

or controls, leading to elevated or unmitigated risks. Timely escalation of risks or events allows for appropriate awareness and

action (where required) by senior management, relevant committees and the Board, thereby mitigating or minimizing potential

impacts. All three lines of defence have processes in place that are intended to enable effective communication and escalation

of risks and events.

Top and emerging risks

An important component of our risk management approach is to seek to ensure that top and emerging risks, as they evolve, are

identified, managed and incorporated into our existing risk management assessment, measurement, monitoring and escalation

processes and are addressed in our risk frameworks and policies. These practices are intended to ensure a forward-looking risk

assessment is maintained by management in the course of business development and as part of the execution of ongoing risk

oversight responsibilities. Top and emerging risks are discussed by senior management and the Board on a regular basis.

We have developed supplementary internal guidance to support enterprise-wide identification and assessment of all

material risks, including those that are not readily apparent. Top and emerging risks encompass those that could materially

impact our financial results, financial and operational resilience, reputation, business model or strategy, as well as those that

may materially impact us as the risks evolve. The following represents our top and emerging risks:

Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2025

69

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Top & emerging risks

Description

Business and economic

conditions

Our financial results are affected to varying degrees by the general business and economic conditions in

the geographic regions in which we operate. These conditions may include factors such as: economic

growth or contraction trends, consumer saving and spending habits; consumer and corporate borrowing

and repayment patterns; unemployment rates; the differing economic trajectories among nations across

the globe; global tensions and geopolitical uncertainty and conflicts; the level of business investment

and overall business sentiment; trade policy developments; the emergence of a new pandemic outbreak

or other health crisis; the level of government spending, including developments relating to tariffs and

trade agreements, as well as fiscal and monetary policy; the level of activity and volatility of the

financial markets; disruptions to energy and other commodity markets; competitiveness; supply chain

challenges and labour shortages; the evolution of inflationary pressures; and possible stagflation or

deflation. Moreover, interest rate changes and actions taken by central banks to manage inflation,

deflation or the broader economy have implications for us. Our financial results are sensitive to changes

in interest rates, as described in the Government fiscal, monetary and other policies section.

For example, certain sectors, economies and markets have been adversely impacted by uncertainty

generated by geopolitical shocks, such as protectionist trade policy developments, which continue to

evolve. In addition, governments may face increasing fiscal challenges due to high debt-loads, ongoing

deficits, higher spending pressures, and changing demographic and immigration trends. These fiscal

challenges may limit future crisis response tools for governments and lead to higher taxes, spending

cuts and adverse economic, market, credit and/or liquidity impacts. Moreover, monetary policy

uncertainty, due to central bank challenges through a period of potential trade- or supply-related

inflationary pressures, could increase economic, credit and market risks.

A slowdown in economic growth or an economic downturn could adversely impact employment rates

and household incomes, consumer spending, housing prices, corporate earnings and business

investment, all of which could adversely affect our business, including, but not limited to, the demand for

our loan and other products, and result in lower earnings and higher credit losses.

There are also emerging risks related to technological developments and wealth and income inequality,

as well as the broader implications of changing demographics and immigration, which could impact the

labour market, productivity, the housing market, inflation, demand and consumer trends, and potentially

have widespread societal and government policy implications.

Canadian housing and

household indebtedness

Canadian housing and household indebtedness risks remain heightened given the current uncertain

economic environment and affordability challenges. Risks around the ability of Canadian households to

meet debt obligations could escalate if interest rates rise materially, if there is a resurgence in inflation

or if the job market deteriorates significantly amidst economic and other geopolitical uncertainty,

potentially resulting in, among other things, higher credit losses or reduced housing market activity.

Moreover, elevated interest rates, slowing economic growth or an economic downturn could further

adversely impact housing market activity and housing prices, which could push loan-to-value (LTV)

ratios higher and further increase credit losses in impacted regions.

While interest rates have started to decline, Canadian real estate activity generally remains soft, with

some markets showing signs of recovery. Challenging affordability conditions and an increase in

condominium supply and construction costs may have an adverse impact on future real estate

investment and demand. The combination of multiple challenges, including but not limited to elevated

home prices, high debt levels, an increasingly high cost of living, a rising unemployment rate and

government policy uncertainty (e.g., immigration policy), may make key Canadian housing markets

particularly vulnerable to a potential economic shock or financial instability.

Information technology,

cyber and third-party risks

Information technology (IT) risk, cyber risk and third-party risk remain top risks, not only for the financial

services sector, but for other industries worldwide. Geopolitical tensions have increased the risk of nation

state actors attacking critical infrastructure, including banks and critical third parties. We continue to be

subject to the heightened inherent risk of cyberattacks, data breaches, cyber extortion and similar

compromises, due to: (i) the size, scale and global nature of our operations; (ii) our heavy reliance on the

internet to conduct day-to-day business activities; (iii) our intricate technological infrastructure; and

(iv) our reliance on third-party service providers. Our potential exposure to these risks increases as we

continue to partner with third-party service providers and adopt new business models and technologies

(e.g., cloud computing, software-as-a-service (SAAS), GenAI and machine learning). Threat actors

gravitate towards vulnerabilities in an ecosystem, and the weakest link in the supply chain can be a

supplier or third-party service provider that may not have sufficiently robust controls. Other key drivers of

third-party risk include global economic pressures related to inflation, and concentration of suppliers and

fourth parties (i.e., suppliers of our third-party providers) within the broader supply chain. Third-party

providers critical to our operations are actively monitored for impacts on their ability to deliver services

to us, including impacts resulting from fourth parties.

Ransomware threats continue to grow in sophistication and ransomware is being used to launch major

supply chain attacks. Resulting implications could include business interruptions, client service

disruptions, financial loss, theft of intellectual property and confidential information, litigation, enhanced

regulatory attention and penalties, as well as reputational damage. Furthermore, the adoption of

emerging technologies, such as cloud computing; AI, including GenAI; and robotics, call for continued

focus and investment to manage risks effectively. For more details on how we are managing these risks,

refer to the Operational risk section.

70

Royal Bank of Canada: Annual Report 2025

Management’s Discussion and Analysis

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Top & emerging risks

Description

Geopolitical uncertainty

Elevated geopolitical risks and tensions, particularly from global fragmentation, U.S. policy uncertainty,

and recent and future trade-related developments, could continue to impact economies, markets and

our financial and non-financial risks.

Tensions remain elevated between China and the U.S. and its allies over issues, including trade,

technology, human rights, Taiwan, Hong Kong and Macau. Moreover, these trade tensions produce

additional vulnerabilities to the Canadian economy given the country’s trading relationships with the

U.S. and China, Canada’s two largest trading partners. Tensions between China and its neighbours over

territorial claims, and the prospect of even closer relations between China, Russia, Iran and North Korea,

add further global and economic uncertainty. Additionally, continued weakening in the Chinese economy

could negatively impact global economic growth.

The Russia-Ukraine conflict has continued to produce turmoil in the geopolitical landscape, with ongoing

impacts to the global economy and markets. Despite recent diplomatic efforts, the duration and path of

the conflict remains uncertain and could continue to exacerbate global tensions, energy and other

commodity shortages, supply chain disruptions, inflationary pressures, weakening sentiment and growth

prospects, market volatility, cyberattacks and the proliferation of sanctions and trade measures. In

particular, European countries continue to face uncertainty given their potential exposure to the conflict

and to U.S. foreign policy changes, including through the countries’ military and trade relationships with

impacted regions.

Geopolitical tensions in the Middle East and other regions could also add to economic and market

uncertainties. For example, ongoing tensions related to Iran’s nuclear program or those between Israel

and Iran and its proxies could broaden or escalate. This could destabilize global security, markets and

economic growth, along with key commodity markets. In addition, an uncertain geopolitical or economic

environment could lead to increases in polarization, social unrest or terrorism, each of which could have

direct or indirect impacts to the bank.

More broadly, the future of global trade remains uncertain, as countries look to decrease reliance on the

global supply chain and nations with differing values. Increased global polarization; protectionist measures,

including protectionist trade policies, the imposition of tariffs and the re-negotiation of trade agreements;

and economic nationalism could reshape global alliances and financial systems as the supply of critical

goods of economic and national importance (e.g., energy, critical minerals, semiconductors) remains one of

the top priorities of governments. Furthermore, a volatile geopolitical environment could generate an

increase in espionage and foreign interference activities that indirectly or directly impact the financial

services sector. We will continue to monitor these developments and others and will assess the implications

they have on us.

Environmental and social

(E&S) risk

We, like other organizations, are subject to regulatory requirements and stakeholder expectations to

address E&S risks.

E&S risks are unique and transverse in nature and may impact our Principal Risks in different ways and

to varying degrees, including but not limited to strategic, operational, credit and compliance risks.

For details on how we are managing E&S risk, refer to the Overview of other risks – Environmental and

social risk section and the Legal and regulatory environment risk section.

Digital disruption

and innovation

As the demand for digital banking services grows, the need to meet the rapidly evolving needs of clients

and compete with traditional and non-traditional competitors has increased our strategic and

reputation risks. Additional risks continue to emerge as demographic trends, evolving client

expectations, the increased power to analyze data and the emergence of disruptors are creating

competitive pressures across a number of sectors. Moreover, established technology companies, new

competitors, digital assets and other products and regulatory changes continue to foster new business

models that could challenge traditional banks and financial products. The regulatory landscape of

digital assets, in particular as it relates to stablecoins, has evolved materially in the past year across

multiple jurisdictions. RBC is closely monitoring and assessing emerging risks associated with wider

adoption of stablecoins by the market and the related regulatory requirements. Finally, while the

adoption of new technologies, such as AI (including GenAI) and machine learning, presents

opportunities for us, it is resulting or could result in new and complex strategic, operational, regulatory,

compliance and related reputational risks that would need to be managed effectively. RBC has

established risk and governance processes to provide oversight and support in the implementation of AI

use cases throughout the organization.

Privacy and data

related risks

The protection and responsible use of Personal Information (PI) are critical to maintaining our clients’

trust. PI is information entrusted to RBC that identifies an individual or can be reasonably used to

identify an individual and can relate to current, former and prospective clients, employees and

contractors. In addition, the management and governance of our data also remains a top risk given the

high value attributed to our data for the insights it can generate for clients and communities. Resulting

implications from failing to manage data and privacy risks could include financial loss, theft of

intellectual property and/or confidential information, litigation, enhanced regulatory attention and

penalties, reputational damage and damaged client and employee trust. With the proliferation of AI,

privacy regulators globally have begun issuing guidance around ensuring appropriate use of AI when

processing personal information, in addition to guardrails around transparency and ensuring the rights

of the individual are respected in the context of AI systems. Adherence to these guidelines and

guardrails and trusted integration into existing privacy programs continues to be a focal area for RBC.

For details on how we are managing these risks, refer to the Operational risk section.

Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2025

71

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72

Royal Bank of Canada: Annual Report 2025

Management’s Discussion and Analysis

Top & emerging risks

Description

Regulatory changes

The ongoing introduction of new or revised regulations requires enhanced focus across the organization

on meeting additional or modified regulatory requirements and expectations across the multiple

jurisdictions in which we operate. Regulatory reforms that have been implemented or are being

implemented across multiple jurisdictions, such as in areas of digital and operational resilience, data

and technology reforms, including AI, cyber security, capital, anti-money laundering and consumer

protection continue to impact our operations and strategies. For more details, refer to the Overview of

other risks – Legal and regulatory environment risk section.

Culture and conduct risks

Our Purpose, vision, values and risk management principles define RBC’s culture. We demonstrate our

culture through our conduct – the behaviours, decisions and actions or inactions of the organization and

our employees. Culture and conduct risks are considered top risks for the financial services industry due

to the impact that our choices, behaviours and overall risk governance can have on outcomes for our

clients, shareholders and other stakeholders. We embed client considerations into our decision-making

processes and continue to focus on the fair treatment of clients which also aligns with regulatory

direction. We seek to be responsive to evolving employee needs while expecting employees to always

act with integrity.

Regulators continue to focus on conduct risks, and heightened expectations generally from regulators

could lead to investigations, remediation requirements, higher compliance costs and enforcement

actions and fines, and potential criminal prosecutions or imposition of sanctions, which may involve

prohibitions or restrictions on some of our activities. While we take steps to continue to strengthen our

conduct practices and prevent and detect risk outcomes that are not in keeping with our responsibilities

to our stakeholders, such outcomes may not always be prevented or detected. Additionally, RBC

continues to focus efforts on enhancing and fostering a strong risk culture. A strong risk culture

reinforces risk-aware mindsets, competencies and behaviours by promoting responsible risk-taking

decisions across the bank. For more details, refer to the Culture and conduct risk section.

The shaded text along with the tables specifically marked with an asterisk (\*) in the following sections of the MD&A represent

our disclosures on credit, market and liquidity and funding risks in accordance with IFRS 7

, Financial Instruments: Disclosures

,

and include discussion on how we measure our risks and the objectives, policies and methodologies for managing these

risks. Therefore, these shaded text and marked tables represent an integral part of our 2025 Annual Consolidated Financial

Statements.

Principal Risks

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 and may arise directly from the risk of default of a primary obligor (e.g., issuer, debtor,

counterparty, borrower or policyholder), indirectly from a secondary obligor (e.g., guarantor or reinsurer), and/or through

off-balance sheet exposures, contingent credit risk, associated credit risk and/or transactional risk exposures. Credit risk

includes counterparty credit risk arising from both trading and non-trading activities. Exposure to credit risk occurs any time

funds are extended, committed or invested through an actual or implied contractual agreement.

The responsibility for managing credit risk is shared broadly across the organization following the three lines of defence

governance model. The allocation of the Board approved credit risk appetite is supported by the establishment of risk

approval authorities and risk limits, delegated by the Board to the President & CEO and CRO. Credit transactions in excess of

these authorities must be approved by the Risk Committee of the Board. To facilitate day-to-day business activities, the CRO

has been empowered to further delegate credit risk approval authorities to individuals within GRM, the business segments

and functional units, as deemed necessary.

We balance our risk and return by setting the following objectives for the management of credit risk:

•

Ensuring credit quality is not compromised for growth;

•

Managing credit risks in transactions, relationships and portfolios;

•

Avoiding excessive concentrations in correlated credit risks;

•

Using our credit risk rating and scoring systems or other approved credit risk assessment or rating methodologies,

policies and tools;

•

Pricing appropriately for the credit risk taken;

•

Detecting and preventing inappropriate credit risk through effective systems and controls;

•

Applying consistent credit risk exposure measurements;

•

Ongoing credit risk monitoring and administration;

•

Transferring credit risk to third parties where appropriate through approved credit risk mitigation techniques (e.g., sale,

hedging, insurance, securitization); and

•

Avoiding activities that are inconsistent with our values, Code of Conduct or policies.

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Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2025

73

The Enterprise Credit Risk Management Framework (ECRMF) provides an overview of our approach to the management of

credit risk including principles, methodologies, systems, roles and responsibilities, reports and controls. Additional

supporting policies exist that are designed to provide further clarification of roles and responsibilities, acceptable practices,

limits and key controls within the enterprise.

Credit risk measurement

We quantify credit risk at both the individual obligor and portfolio levels to manage expected credit losses and minimize

unexpected losses to limit earnings volatility and ensure we are adequately capitalized.

We employ a variety of risk measurement methodologies to measure and quantify credit risk for our wholesale and retail

credit portfolios. The wholesale portfolio comprises businesses, sovereigns, public sector entities, banks and other financial

institutions, as well as certain HNW individuals. The retail portfolio comprises residential mortgages, personal loans, credit

cards and small business loans. Our credit risk rating systems are designed to assess and quantify the risk inherent in credit

activities in an accurate and consistent manner. The resulting ratings and scores are then used for both client and

transaction-level risk decision-making and as key inputs for our risk pricing, measurement and capital calculations.

Measurement of economic and regulatory capital

Economic capital, which is our internal quantification of risks in terms of capital needed to ensure solvency, is also used for

limit setting. It is also used for internal capital adequacy and allocation of capital to the Insurance segment. Our

methodology for allocating capital to our business segments, other than Insurance, is based on regulatory requirements. For

further details, refer to the Capital management section.

In measuring credit risk to determine regulatory capital, two principal approaches are available: the Internal Ratings

Based (IRB) Approach and the Standardized Approach as per OSFI’s CAR guideline. The IRB Approach allows both a full

model-based approach referred to as the Advanced Internal Ratings Based (A-IRB) Approach and a more supervisory-based

approach known as the Foundation Internal Ratings Based (F-IRB) Approach.

The Standardized Approach applies primarily to Wealth Management, including our City National wholesale portfolio,

our Caribbean banking operations and certain non-mortgage retail portfolios acquired through the HSBC Canada transaction,

and is based on risk weights prescribed by OSFI that are used to calculate RWA for credit risk exposure.

The A-IRB Approach, which applies to most of our retail and wholesale credit risk exposures (excluding F-IRB exposures

discussed below), utilizes three key parameters which form the basis of our credit risk measures for both regulatory and

economic capital:

•

Probability of default (PD): An estimated percentage that represents the likelihood of default within a given time period

of an obligor for a specific rating grade or for a particular pool of exposure.

•

Exposure at default (EAD): An amount expected to be owed by an obligor at the time of default.

•

Loss given default (LGD): An estimated percentage of EAD that is not expected to be recovered during the collections and

recovery process following a default.

These parameters are determined based primarily on historical experience from internal credit risk rating systems

subject to supervisory standards and floors.

PD is estimated based on a long-run average of default rates for a specific rating grade or for a particular pool of

exposure. The PD assigned to a default grade(s) or pools, consistent with the definition of default, is 100%.

EAD is estimated based on the current exposure to the obligor and the possible future changes in that exposure driven by

factors such as the current utilization of approved limit. As with LGD, rates are estimated to reflect an economic downturn,

with added conservatism to reflect data and statistical uncertainties identified in the modelling process.

Each credit facility is assigned an estimated LGD rate that is largely driven by factors that impact the extent of losses

anticipated in the event the obligor defaults. These factors mainly include seniority of debt, collateral and the industry sector

in which the obligor operates. Estimated LGD rates draw primarily on internal loss experiences. Where we have limited

internal loss data, we also refer to appropriate external data to supplement the estimation process. LGD rates are estimated

to reflect conditions that might be expected to prevail in a period of an economic downturn, with additional conservatism

added to reflect data limitations and statistical uncertainties identified in the estimation process.

Estimates of PD, EAD and LGD are reviewed on an annual basis and updates are then validated by an independent

validation team within the bank. In addition, quarterly monitoring and back-testing is performed by the estimation team.

These ratings and risk measurements are used to determine our expected losses as well as economic and regulatory capital,

setting of risk limits, portfolio management and product pricing.

The F-IRB Approach is a prescribed regulatory approach that must be used to determine RWA related to our exposures to all

banks and large corporates defined as having total consolidated revenues in excess of $750 million annually. The F-IRB Approach

uses the same PD parameter as the A-IRB Approach but requires the use of supervisory-prescribed EAD and LGD parameters.

Financial and regulatory measurement distinctions

Expected loss models are used for both regulatory capital (Basel) and accounting (IFRS) purposes. Under both models,

expected losses are calculated as the product of PD, EAD and LGD. However, there are certain key differences under current

Basel and IFRS reporting frameworks which could lead to significantly different expected loss estimates, including:

•

Basel PDs are based on long-run averages over an entire economic cycle. IFRS PDs are based on current conditions,

adjusted for estimates of future conditions that will impact PD under probability-weighted macroeconomic scenarios.

•

Basel PDs consider the probability of default over the next 12 months. IFRS PDs consider the probability of default over

the next 12 months only for instruments in stage 1. Expected credit losses for instruments in stage 2 are calculated using

lifetime PDs.

•

Basel LGDs are based on severe but plausible downturn economic conditions. IFRS LGDs are based on current conditions,

adjusted for estimates of future conditions that will impact LGD under probability-weighted macroeconomic scenarios.

For further details, refer to the Critical accounting policies and estimates section.

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74

Royal Bank of Canada: Annual Report 2025

Management’s Discussion and Analysis

Gross credit risk exposure

Gross credit risk is categorized as i) lending-related and other credit risk or ii) trading-related credit risk, and is calculated

based on the Basel III framework. Under this method, EAD for all lending-related and other credit transactions and trading-

related repo-style transactions is calculated before taking into account any collateral and is inclusive of an estimate of

potential future changes to that credit exposure. EAD for derivatives is calculated inclusive of collateral in accordance with

regulatory guidelines.

Lending-related and other credit risk includes:

•

Loans and acceptances outstanding, undrawn commitments, and other exposures, including contingent liabilities such

as letters of credit and guarantees, debt securities carried at FVOCI or amortized cost and deposits with financial

institutions. Undrawn commitments represent an estimate of the contractual amount that may be drawn upon at the

time of default of an obligor.

Trading-related credit risk includes:

•

Repo-style transactions, which include repurchase and reverse repurchase agreements and securities lending and

borrowing transactions. For repo-style transactions, gross exposure represents the amount at which securities were

initially financed, before taking collateral into account.

•

Derivative amounts which represent the credit equivalent amount, as defined by OSFI as the replacement cost plus an

add-on amount for potential future credit exposure, scaled by a regulatory factor. For further details on replacement cost

and credit equivalent amounts, refer to Note 9 of our 2025 Annual Consolidated Financial Statements.

Credit risk assessment

Wholesale credit risk

The wholesale credit risk rating system is designed to measure the credit risk inherent in our wholesale credit activities.

Each obligor is assigned a borrower risk rating (BRR), reflecting an assessment of the credit quality of the obligor. Each

BRR has a PD calibrated against it. The BRR differentiates the riskiness of an obligor and represents our evaluation of the

obligor’s ability and willingness to meet its contractual obligations on time over a three-year time horizon. The determination

and assignment of BRRs is based on the evaluation of the obligor’s business and financial risks through fundamental credit

analysis, as well as data-driven modelling. The determination of the PD associated with each BRR relies primarily on internal

default history since 2006. PD estimates are designed to be a long-run average of our experience across the economic cycle

in accordance with regulatory guidelines.

Our rating system is designed to stratify obligors into 22 grades. The following table aligns the relative rankings of our

22-grade internal risk ratings with the external ratings used by S&P and Moody’s.

|  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- |
| Internal ratings map\* |  |  |  |  |  | Table 39 |
|  | PD Bands | |  |  |  |  |
| Ratings | Business and Bank | Sovereign | BRR | S&P | Moody’s | Description |
| 1 | 0.0000% – 0.0500% | 0.0000% – 0.0150% | 1+ | AAA | Aaa |  |
| 2 | 0.0000% – 0.0500% | 0.0151% – 0.0250% | 1H | AA+ | Aa1 |  |
| 3 | 0.0000% – 0.0500% | 0.0251% – 0.0350% | 1M | AA | Aa2 |  |
| 4 | 0.0000% – 0.0500% | 0.0351% – 0.0450% | 1L | AA- | Aa3 |  |
| 5 | 0.0000% – 0.0550% | 0.0451% – 0.0550% | 2+H | A+ | A1 |  |
|  |  |  |  |  |  | Investment Grade |
| 6 | 0.0551% – 0.0650% | | 2+M | A | A2 |  |
| 7 | 0.0651% – 0.0750% | | 2+L | A- | A3 |  |
| 8 | 0.0751% – 0.0850% | | 2H | BBB+ | Baa1 |  |
| 9 | 0.0851% – 0.1030% | | 2M | BBB | Baa2 |  |
| 10 | 0.1031% – 0.1775% | | 2L | BBB- | Baa3 |  |
| 11 | 0.1776% – 0.3470% | | 2-H | BB+ | Ba1 |  |
| 12 | 0.3471% – 0.6460% | | 2-M | BB | Ba2 |  |
| 13 | 0.6461% – 1.0620% | | 2-L | BB- | Ba3 |  |
| 14 | 1.0621% – 1.5520% | | 3+H | B+ | B1 |  |
| 15 | 1.5521% – 2.2165% | | 3+M | B | B2 | Non-investment |
| 16 | 2.2166% – 4.5070% | | 3+L | B- | B3 | Grade |
| 17 | 4.5071% – 7.1660% | | 3H | CCC+ | Caa1 |  |
| 18 | 7.1661% – 13.1760% | | 3M | CCC | Caa2 |  |
| 19 | 13.1761% – 24.9670% | | 3L | CCC- | Caa3 |  |
| 20 | 24.9671% – 99.9990% | | 4 | CC | Ca |  |
| 21 | 100% | | 5 | D | C |  |
| 22 | 100% | | 6 | D | C | Impaired |

\*

This table represents an integral part of our 2025 Annual Consolidated Financial Statements.

Counterparty credit risk

Counterparty credit risk is the risk that a party with whom we have entered into a financial or non-financial contract will fail to

fulfill its contractual agreement and default on its obligation. It incorporates not only the contract’s current value, but also

considers how that value can move as market conditions change. Counterparty credit risk usually arises from trading-related

derivatives and repo-style transactions. Derivative transactions include forwards, futures, swaps and options, and can have

underlying references that are either financial (e.g., interest rate, foreign exchange, credit or equity) or non-financial (e.g.,

commodities). For further details on our derivative instruments and credit risk mitigation, refer to Note 9 of our 2025 Annual

Consolidated Financial Statements.

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Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2025

75

Trading counterparty credit activities are undertaken in a manner consistent with the relevant requirements under

enterprise Credit, Market and Model risk management frameworks and with approval in accordance with the appropriate

delegated authorities.

The primary risk mitigation techniques for trading counterparty credit risk are close-out netting and collateralization.

Close-out netting considers the net value of contractual obligations between counterparties in a default situation, thereby

reducing overall credit exposure. Collateralization is when a counterparty pledges certain assets as collateral, which serves to

mitigate credit exposure and losses in case of a default by the counterparty. The policies that we maintain in relation to the

recognition of risk mitigation from these techniques incorporate such considerations as:

•

The use of standardized agreements such as the International Swaps and Derivatives Association Master Agreement and

Credit Support Annex;

•

Generally restricting eligible collateral to high-quality liquid assets, primarily cash and highly-rated government securities,

subject to appropriate haircuts; and

•

The use of initial margin and variation margin arrangements in accordance with regulatory requirements and internal risk

standards.

Similarly, for securities finance and repurchase trading activity we mitigate counterparty credit risk via the use of

standardized securities finance agreements, and by taking collateral generally in the form of eligible liquid securities.

We also mitigate counterparty credit risk through the use of central counterparties (CCPs). These highly-regulated entities

intermediate trades between participating bilateral counterparties and mitigate credit risk through the use of initial and

variation margin and the ability to net offsetting trades amongst participants. The specific structure and capitalization, including

contingent capital arrangements, of individual CCPs are analyzed as part of assigning an internal counterparty credit risk rating

and determining appropriate counterparty credit risk limits.

Wrong-way risk

Wrong-way risk is the risk that exposure to a counterparty is adversely correlated with the credit quality of that counterparty.

There are two types of wrong-way risk:

•

Specific wrong-way risk, which exists when our exposure to a particular counterparty is positively correlated with the PD of

the counterparty due to the nature of our transactions with them (e.g., loans collateralized by shares or debt issued by the

counterparty or a related party). Specific wrong-way risk trades are permitted only on an exception basis and when

explicitly pre-approved by GRM. Factors considered in reviewing such trades include the counterparty’s credit quality and

collateral practices, the underlying exposure of the transaction and the existence of credit mitigation.

•

General wrong-way risk, which exists when our exposure to a particular counterparty is positively correlated with the PD of

the counterparty due to general macroeconomic or market factors. General wrong-way risk can arise in various

circumstances, depending on the transaction, collateral type, and the nature of the counterparty. We monitor general

wrong-way risk using a variety of metrics including but not limited to correlation analysis between relevant macroeconomic

or market factors and counterparty credit risk exposure.

Retail credit risk

Credit scoring is the primary risk rating system for assessing obligor and transaction risk for retail exposures. Scoring models

use internal and external data to assess and score borrowers, predict future performance and manage limits for existing

loans and collection activities. Credit scores are one of the factors employed in the acquisition of new clients and

management of existing clients. The credit score of the borrower is used to assess credit risk for each independent

acquisition or account management action, leading to an automated decision or guidance for an adjudicator. Credit scoring

improves credit decision quality, adjudication timeframes and consistency in the credit decision process and facilitates risk-

based pricing. We seek to continuously improve our credit scoring and analytic capabilities by exploring client behavioural

data and advanced analytical techniques to make sound credit decisions.

To arrive at a retail risk rating, borrower scores are categorized and associated with PDs for further grouping into risk

rating categories. The following table maps PD bands to various summarized risk levels for retail exposures:

|  |  |
| --- | --- |
| Internal ratings map\* | Table 40 |
| PD bands | Description |
| 0.050% – 3.965% | Low risk |
| 3.966% – 7.428% | Medium risk |
| 7.429% – 99.99% | High risk |
| 100% | Impaired/Default |

\*

This table represents an integral part of our 2025 Annual Consolidated Financial Statements.

Credit risk mitigation

We seek to reduce our exposure to credit risk through a variety of means, including the structuring of transactions and the

use of collateral.

Structuring of transactions

Specific credit policies and procedures set out the requirements for structuring transactions. Risk mitigants include the use of

guarantees, collateral, seniority, LTV requirements and covenants. Product-specific guidelines set out appropriate product

structuring as well as client and guarantor criteria.

Collateral

When we advance credit, we often require obligors to pledge collateral as security. Risk mitigation provided by collateral

depends on the amount, type and quality of collateral taken. Specific requirements relating to valuation and administration

of collateral are set out in our credit risk management policies.

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76

Royal Bank of Canada: Annual Report 2025

Management’s Discussion and Analysis

The types of collateral we use to secure credit or trading facilities within the bank vary. For example, our securities

financing and collateralized over-the-counter (OTC) derivatives activities are primarily secured by cash and highly-rated,

liquid government and agency securities. Wholesale lending to corporate clients is often secured by pledges of the assets of

the borrower, including accounts receivable, inventory, equipment and commercial real estate. In Personal Banking,

Commercial Banking and Wealth Management, collateral typically consists of a pledge over a real estate property, or a

portfolio of debt securities and equities trading on a recognized exchange.

To manage our exposure effectively, we follow a comprehensive approach that combines property valuation, active

portfolio management and oversight.

•

We employ a risk-based approach to property valuation. Property valuation methods include automated valuation

models, which rely on market data such as comparable sales or regional price trends, and appraisals.

•

We continue to actively manage our mortgage portfolio and perform stress testing, based on a combination of increasing

unemployment, rising interest rates and a downturn in real estate markets.

•

We seek to be in compliance with regulatory requirements that govern residential mortgage underwriting practices,

including LTV parameters and property valuation requirements.

There were no significant changes regarding our risk management policies on collateral or to the quality of the collateral

held during the period.

Credit risk approval

The Board, GE, GRC and other senior management committees work together to ensure the ECRMF and supporting policies,

processes and procedures exist to manage credit risk and approve related credit risk limits. Reports are provided to the

Board, the GRC, and senior executives to keep them informed of our risk profile, including significant credit risk issues, shifts

in exposures and trending information, to ensure appropriate and timely actions can be taken where necessary. Our

enterprise-wide credit risk policies set out the minimum requirements for the prudent management of credit risk in a variety

of borrower, transactional and portfolio management contexts.

Transaction approval

Credit transactions are governed by our Enterprise Policy on Risk Limits and Risk Approval Authorities that captures the

authorities and risk limits delegated to management as well as the Enterprise Policy on Credit Requirements and Rules, which

outlines the minimum requirements for managing credit risk at the individual client relationship, transaction and portfolio

levels. The Enterprise Policy on Credit Requirements and Rules is further supported by business and/or product-specific

policies and guidelines as appropriate. Where a transaction exceeds senior management’s authorities, the approval of the

Risk Committee of the Board is required.

Product approval

RBC’s proposals for credit products and services follow our Enterprise Client, Product and Suitability Risk Policy and are

comprehensively reviewed and approved under a product risk assessment process and are subject to product and suitability

risk approval authorities which increase as the level of risk increases. New and amended products must be reviewed relative

to all risk drivers, including credit risk. All existing products must be reviewed on a regular basis following a risk-based

assessment approach.

Credit risk limits

The allocation of risk appetite and Board delegated authorities are supported by the establishment of risk limits which take

both regulatory constraints and internal risk management judgment into account. Risk limits are established at the following

levels: single name; regional, country and industrial sector (notional and economic capital); regulatory large exposure;

product and portfolio; and underwriting and distribution. These limits apply across all businesses, portfolios, transactions

and products.

We actively manage credit exposures and limits to ensure alignment with our risk appetite, to maintain our target

business mix and to ensure that there is no undue concentration risk.

Concentration risk is defined as the risk arising from an overexposure in particular industry sectors, countries, or credit

products within the portfolio, reflecting the potential for credit deterioration and default to be relatively highly correlated.

Credit concentration limits are reviewed on a regular basis after considering business, economic, financial and regulatory

environments.

Credit risk administration

Loan forbearance

In our overall management of borrower relationships, economic, legal or other reasons may necessitate forbearance to certain

clients with respect to the original terms and conditions of their loans. We have specialized groups and formalized policies that

direct the management of high risk, delinquent or defaulted borrowers. We strive to identify borrowers in financial difficulty

early and modify their loan terms to minimize losses and assist clients in need. A forbearance agreement may be entered into

with the borrower where we will forbear from enforcing on security in exchange for concessions made by the borrower and/or

additional security provided by the borrower. Examples of concessions to borrowers may include rate reductions, payment

deferrals, term extensions, covenant relief, extensions of matured facilities, amendments or restructuring of agreements, or

relaxation of covenants, as applicable. The goal of a forbearance is to enhance our position in exchange for providing the

borrower additional time to meet the terms and obligations of the loan agreement. For such loans, the appropriate remediation

techniques are based on the specific borrower’s situation, our policy and the client’s willingness and capacity to meet the new

or modified loan terms.

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Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2025

77

Credit risk exposure by portfolio, sector and geography

The following table presents our credit risk exposures under the Basel regulatory defined classes and reflects EAD. The

classification of our sectors aligns with our view of credit risk by industry.

Credit risk exposure by portfolio, sector and geography

Table 41

As at

October 31

2025

October 31

2024

Credit risk

(1), (2)

Counterparty credit risk

(5)

Credit risk (1), (2)

Counterparty credit risk (5)

On-balance

sheet amount

Off-balance sheet

amount

(3)

Repo-style

transactions

Total

exposure

On-balance

sheet amount

Off-balance sheet

amount (3)

Repo-style

transactions

Total

exposure

(Millions of Canadian dollars)

Undrawn

Other

(4)

Derivatives

Undrawn

Other (4)

Derivatives

Retail

Residential secured

(6)

$

514,623

$

132,502

$

–

$

–

$

–

$

647,125

$

498,014

$ 124,743

$

–

$

–

$

–

$

622,757

Qualifying revolving

(7)

36,407

104,369

–

–

–

140,776

33,571

95,776

–

–

–

129,347

Other retail

57,003

22,522

164

–

–

79,689

53,257

21,530

162

–

–

74,949

Total retail

$

608,033

$ 259,393

$

164

$

–

$

–

$

867,590

$

584,842

$ 242,049

$

162

$

–

$

–

$

827,053

Wholesale

Agriculture

$

14,181

$

3,344

$

86

$

–

$

263

$

17,874

$

13,257

$

3,241

$

77

$

–

$

210

$

16,785

Automotive

14,188

9,602

677

–

1,053

25,520

14,424

9,605

639

–

1,454

26,122

Banking

96,268

3,674

1,797

97,585

32,577

231,901

87,601

3,187

2,967

91,791

32,949

218,495

Consumer discretionary

28,435

11,544

893

–

1,779

42,651

24,516

11,719

918

–

1,242

38,395

Consumer staples

11,355

10,393

957

–

2,299

25,004

10,094

8,631

795

–

1,907

21,427

Oil and gas

6,377

8,671

1,520

–

2,312

18,880

6,365

8,688

2,002

–

2,052

19,107

Financial services

62,170

29,087

4,508

78,257

33,739

207,761

51,313

23,405

4,103

73,020

29,958

181,799

Financing products

3,938

1,180

2,134

1,339

1,713

10,304

3,945

1,235

2,388

604

1,684

9,856

Forest products

2,499

1,524

373

–

76

4,472

2,225

1,589

387

–

84

4,285

Governments

330,943

8,762

2,251

18,150

10,031

370,137

283,893

7,891

2,149

13,334

7,933

315,200

Industrial products

15,966

12,871

1,121

–

922

30,880

15,526

12,463

940

–

1,052

29,981

Information technology

6,308

9,360

230

–

845

16,743

6,353

7,892

251

42

976

15,514

Investments

32,124

7,769

794

19

344

41,050

30,015

7,151

786

103

99

38,154

Mining and metals

2,795

4,004

1,848

–

520

9,167

2,821

3,950

1,684

–

427

8,882

Public works and

infrastructure

2,786

2,499

1,513

–

341

7,139

2,871

2,329

1,383

–

300

6,883

Real estate and related

123,801

24,890

2,289

169

1,478

152,627

115,332

26,197

2,209

83

1,115

144,936

Other services

37,857

17,367

3,293

–

1,621

60,138

35,980

15,870

3,461

–

1,236

56,547

Telecommunication and

media

9,123

6,837

151

–

2,674

18,785

7,814

7,210

159

–

2,874

18,057

Transportation

9,594

7,608

2,042

–

2,450

21,694

10,517

7,235

1,533

–

2,470

21,755

Utilities

14,281

23,822

6,302

–

5,845

50,250

14,652

21,110

5,993

–

5,451

47,206

Other sectors

7,632

1,526

1,467

276

31,090

41,991

11,119

2,578

1,887

227

24,520

40,331

Total wholesale

$

832,621

$ 206,334

$ 36,246

$ 195,795

$ 133,972

$ 1,404,968

$

750,633

$ 193,176

$

36,711

$ 179,204

$ 119,993

$ 1,279,717

Total exposure

(1)

$ 1,440,654

$ 465,727

$ 36,410

$ 195,795

$ 133,972

$ 2,272,558

$ 1,335,475

$ 435,225

$

36,873

$ 179,204

$ 119,993

$ 2,106,770

By geography

(8)

Canada

$

883,575

$

335,487

$

15,107

$

76,722

$

61,861

$

1,372,752

$

845,343

$ 320,434

$

15,533

$

72,852

$

51,427

$ 1,305,589

U.S.

421,280

96,502

16,939

60,424

25,020

620,165

360,803

84,633

15,277

56,415

22,201

539,329

Europe

58,568

24,150

2,141

40,398

31,158

156,415

55,936

21,879

3,432

31,987

31,555

144,789

Other International

77,231

9,588

2,223

18,251

15,933

123,226

73,393

8,279

2,631

17,950

14,810

117,063

Total exposure

(1)

$ 1,440,654

$ 465,727

$ 36,410

$ 195,795

$ 133,972

$ 2,272,558

$ 1,335,475

$ 435,225

$

36,873

$ 179,204

$ 119,993

$ 2,106,770

(1)

Excludes securitization, banking book equities and other assets not subject to the standardized or IRB approach.

(2)

EAD for standardized exposures are reported net of allowance for impaired assets and EAD for IRB exposures are reported gross of all ACL and partial write-offs as per

regulatory definitions.

(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)

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. Exchange traded derivatives are included in Other sectors.

(6)

Includes residential mortgages and home equity lines of credit.

(7)

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

(8)

Geographic profile is based on country of residence of the borrower.

2025 vs. 2024

Total credit risk exposure increased $166 billion or 8% from last year, primarily due to an increase in securities, higher

counterparty credit risk exposures and volume growth in loans and undrawn commitments.

![]()

Net International wholesale exposure by region, asset type and client type

(1), (2)

Table 42

As at

October 31

2025

October 31

2024

Asset type

Client type

(Millions of Canadian dollars)

Loans

Outstanding

Securities

(3)

Repo-style

transactions

Derivatives

Financials

Sovereign

Corporate

Total

Total

Europe (excluding U.K.)

$ 18,894

$ 25,402

$

8,612

$

3,307

$ 31,708

$

7,757

$ 16,750

$

56,215

$

52,307

U.K.

14,302

22,914

5,789

2,363

18,939

14,219

12,210

45,368

36,311

Caribbean

6,712

10,877

3,230

1,970

9,747

4,763

8,279

22,789

22,612

Asia-Pacific

7,502

31,708

5,295

1,646

20,670

20,543

4,938

46,151

43,874

Other

(4)

3,095

1,605

3,273

141

2,844

1,915

3,355

8,114

8,022

Net International

exposure

(5)

$ 50,505

$ 92,506

$

26,199

$

9,427

$ 83,908

$ 49,197

$ 45,532

$ 178,637

$ 163,126

(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 $467 billion against repo-style transactions (October 31, 2024 – $459 billion) and

$20 billion against derivatives (October 31, 2024 – $16 billion).

(3)

Securities include $26 billion of trading securities (October 31, 2024 – $14 billion), $24 billion of deposits (October 31, 2024 – $29 billion), and $43 billion of investment

securities (October 31, 2024 – $44 billion).

(4)

Includes exposures in the Middle East, Africa and Latin America.

(5)

Excludes $7,643 million (October 31, 2024 – $6,950 million) of exposures to supranational agencies.

78

Royal Bank of Canada: Annual Report 2025

Management’s Discussion and Analysis

![]()

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

(1)

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

breakdown by geographic region.

Residential mortgages and home equity lines of credit

Table 43

As at October 31, 2025

(Millions of Canadian dollars,

except percentage amounts)

Residential mortgages

Home equity

lines of credit

(2)

Insured

(3)

Uninsured

Total

Total

Region

(4)

Canada

Atlantic provinces

$

9,143

42%

$

12,883

58%

$

22,026

$

1,745

Quebec

11,504

24

35,859

76

47,363

3,537

Ontario

30,857

13

198,588

87

229,445

18,623

Alberta

17,888

40

26,517

60

44,405

4,646

Saskatchewan and

Manitoba

8,299

39

12,813

61

21,112

1,728

B.C. and territories

12,041

13

77,954

87

89,995

8,384

Total Canada

(5)

89,732

20

364,614

80

454,346

38,663

U.S.

–

–

35,673

100

35,673

2,227

Other International

–

–

3,394

100

3,394

1,387

Total International

–

–

39,067

100

39,067

3,614

Total

$ 89,732

18%

$ 403,681

82%

$ 493,413

$ 42,277

As at October 31, 2024

(Millions of Canadian dollars,

except percentage amounts)

Residential mortgages

Home equity

lines of credit

(2)

Insured

(3)

Uninsured

Total

Total

Region

(4)

Canada

Atlantic provinces

$

8,692

43%

$

11,688

57%

$

20,380

$

1,704

Quebec

11,781

25

35,129

75

46,910

3,346

Ontario

32,011

14

189,638

86

221,649

18,173

Alberta

18,804

43

24,459

57

43,263

4,448

Saskatchewan and

Manitoba

8,549

41

12,258

59

20,807

1,718

B.C. and territories

12,607

14

75,575

86

88,182

8,061

Total Canada

(5)

92,444

21

348,747

79

441,191

37,450

U.S.

–

–

33,092

100

33,092

2,144

Other International

–

–

3,261

100

3,261

1,421

Total International

–

–

36,353

100

36,353

3,565

Total

$ 92,444

19%

$ 385,100

81%

$ 477,544

$ 41,015

(1)

Disclosure is provided in accordance with the requirements of OSFI’s Guideline B-20 (Residential Mortgage Underwriting Practices and

Procedures).

(2)

Includes $42,260 million and $17 million of uninsured and insured home equity lines of credit, respectively (October 31, 2024 –

$40,998 million and $17 million, respectively), reported within the personal loan category. The amounts in the U.S. and Other

International include term loans collateralized by residential properties.

(3)

Insured residential mortgages are mortgages whereby our exposure to default is mitigated by insurance through the Canadian

Mortgage and Housing Corporation or other private mortgage default insurers.

(4)

Region is based upon the address of the property mortgaged. The Atlantic provinces comprise Newfoundland and Labrador, Prince

Edward Island, Nova Scotia and New Brunswick; B.C. and territories comprise British Columbia, Nunavut, Northwest Territories and

Yukon.

(5)

Total consolidated residential mortgages in Canada of $454 billion (October 31, 2024 – $441 billion) includes $12 billion

(October 31, 2024 – $12 billion) of mortgages with commercial clients in Commercial Banking, of which $9 billion (October 31, 2024 –

$9 billion) are insured mortgages, and $17 billion (October 31, 2024 – $18 billion) of residential mortgages in Capital Markets, of which

$17 billion (October 31, 2024 – $18 billion) are held for securitization purposes. All of the residential mortgages held for securitization

purposes are insured (October 31, 2024 – all insured).

Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2025

79

![]()

Residential mortgages portfolio by amortization period

(1)

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.

Residential mortgages portfolio by amortization period

Table 44

As at

October 31

2025

October 31

2024

Canada

(2)

U.S. and other

International

Total

Canada

(2)

U.S. and other

International

Total

Amortization period

≤

25 years

76%

38%

73%

62%

31%

60%

> 25 years

≤

30 years

24

62

27

28

69

30

> 30 years

≤

35 years

–

–

–

10

–

10

Total

100%

100%

100%

100%

100%

100%

(1)

Disclosure is provided in accordance with the requirements of OSFI’s Guideline B-20 (Residential Mortgage Underwriting Practices and

Procedures).

(2)

Our policy is to originate mortgages with amortization periods of 30 years or less. Amortization periods greater than 30 years reflect the

impact of increases in interest rates on our variable rate mortgage portfolios. For these loans, the amortization period resets to the

original amortization schedule upon renewal. We do not originate mortgage products with a structure that would result in negative

amortization, as payments on variable rate mortgages automatically increase to ensure accrued interest is covered.

Average loan-to-value (LTV) ratios

(1)

The following table provides a summary of our average LTV ratios for newly originated and acquired uninsured residential

mortgages and RBC Homeline Plan

®

products by geographic region, as well as the respective LTV ratios for our total Personal

Banking – Canada residential mortgage portfolio outstanding.

Average LTV ratios

Table 45

For the year ended

October 31

2025

October 31

2024

Uninsured

Uninsured

Residential

mortgages

(2)

RBC Homeline

Plan products

(3)

Residential

mortgages

(2)

RBC Homeline

Plan products

(3)

Average of newly originated and

acquired for the period, by

region

(4)

Atlantic provinces

70%

70%

68%

68%

Quebec

70

70

64

67

Ontario

70

65

63

60

Alberta

72

70

66

67

Saskatchewan and Manitoba

72

73

69

70

B.C. and territories

67

63

51

60

U.S.

72

n.m.

72

n.m.

Other International

71

n.m.

70

n.m.

Average of newly originated and

acquired for the period

(5), (6), (7)

70%

67%

60%

61%

Total Personal Banking – Canada

residential mortgages

portfolio

(8)

60%

49%

56%

47%

(1)

Disclosure is provided in accordance with the requirements of OSFI’s Guideline B-20 (Residential Mortgage Underwriting Practices and

Procedures).

(2)

Residential mortgages exclude residential mortgages within the RBC Homeline Plan products.

(3)

RBC Homeline Plan products comprise both residential mortgages and home equity lines of credit.

(4)

Region is based upon the address of the property mortgaged. The Atlantic provinces comprise Newfoundland and Labrador, Prince

Edward Island, Nova Scotia and New Brunswick; B.C. and territories comprise British Columbia, Nunavut, Northwest Territories and

Yukon.

(5)

The average LTV ratios for newly originated and acquired uninsured residential mortgages and RBC Homeline Plan products are

calculated on a weighted basis by mortgage amounts at origination.

(6)

For newly originated mortgages and RBC Homeline Plan products, LTV is calculated based on the total facility amount for the residential

mortgage and RBC Homeline Plan product divided by the value of the related residential property.

(7)

The year ended October 31, 2024 includes the impact of the HSBC Canada portfolio acquired in the second quarter of 2024. Excluding the

acquired HSBC Canada portfolio, the average of newly originated and acquired residential mortgages and RBC Homeline Plan products

for the year ended October 31, 2024 was 70% and 65%, respectively.

(8)

Weighted by mortgage balances and adjusted for property values based on the Teranet – National Bank

House Price Index

‡.

n.m.

not meaningful

80

Royal Bank of Canada: Annual Report 2025

Management’s Discussion and Analysis

![]()

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.

Gross impaired loans (GIL)

Table 46

As at and for the year ended

(Millions of Canadian dollars, except percentage amounts)

October 31

2025

October 31

2024

Personal Banking

(1)

$

2,091

$

1,652

Commercial Banking

(1)

3,362

2,372

Wealth Management

609

508

Capital Markets

2,620

1,335

Total GIL

$

8,682

$

5,867

Impaired loans, beginning balance

$

5,867

$

3,704

Classified as impaired during the period (new impaired)

(1)

9,687

6,272

Net repayments

(1)

(1,381)

(848)

Amounts written off

(3,326)

(2,521)

Other

(2)

(2,165)

(740)

Impaired loans, balance at end of period

$

8,682

$

5,867

GIL as a % of related loans and acceptances

Total GIL as a % of related loans and acceptances

0.83%

0.59%

Personal Banking

(1)

0.38%

0.31%

Personal Banking – Canada

0.34%

0.26%

Commercial Banking

(1)

1.74%

1.29%

Wealth Management

0.47%

0.42%

Capital Markets

1.52%

0.88%

(1)

Certain GIL movements for Personal Banking – Canada and Commercial Banking are generally allocated to new

impaired, as Net repayments and certain Other movements are not reasonably determinable.

(2)

Includes return to performing status during the period, recoveries of loans and advances previously written off, sold,

amounts related to foreclosed properties held as investment properties and interests in joint ventures for certain

co-lending arrangements, foreign exchange translation and other movements.

2025 vs. 2024

Total GIL increased $2,815 million or 48% from last year, primarily due to higher impaired loans in Capital Markets, Commercial

Banking and Personal Banking.

GIL in Personal Banking increased $439 million or 27%, primarily due to higher impaired loans in our Canadian residential

mortgages portfolio.

GIL in Commercial Banking increased $990 million or 42%, mainly due to higher impaired loans across most sectors,

including the real estate and related and agriculture sectors.

GIL in Wealth Management increased $101 million or 20%, mainly due to higher impaired loans in a few sectors, including the

telecommunication and media sector, and in our retail portfolios.

GIL in Capital Markets increased $1,285 million or 96%, primarily due to one account in the other services sector.

Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2025

81

![]()

Allowance for credit losses

Table 47

As at

(Millions of Canadian dollars)

October 31

2025

October 31

2024

Personal Banking

$

3,739

$

3,273

Commercial Banking

2,300

1,626

Wealth Management

496

466

Capital Markets

923

986

Corporate Support and other

1

1

ACL on loans

7,459

6,352

ACL on other financial assets

(1)

11

12

Total ACL

$

7,470

$

6,364

ACL on loans is comprised of:

Retail

$

3,454

$

3,011

Wholesale

2,019

1,825

ACL on performing loans

$

5,473

$

4,836

ACL on impaired loans

1,986

1,516

(1)

ACL on other financial assets mainly represents allowances on debt securities measured at FVOCI and amortized cost,

accounts receivable and financial guarantees.

2025 vs. 2024

Total ACL increased $1,106 million or 17% from last year, largely due to higher ACL on performing loans, primarily driven by

unfavourable changes in credit quality and scenario weights, which include the impacts of trade disruptions. Higher ACL on

impaired loans, primarily in Commercial Banking and Personal Banking, also contributed to the increase.

For further details, refer to Note 5 of our 2025 Annual Consolidated Financial Statements.

82

Royal Bank of Canada: Annual Report 2025

Management’s Discussion and Analysis

![]()

Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2025

83

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.

The measures of financial condition impacted by market risk include the following:

1.

Positions whose revaluation gains and losses are reported in revenue, which includes:

a)

Changes in the fair value of instruments classified or designated as FVTPL, and

b)

Hedge ineffectiveness.

2.

CET1 capital, which includes:

a)

All of the above, plus

b)

Changes in the fair value of FVOCI securities where revaluation gains and losses are reported as OCI,

c)

Changes in the Canadian dollar value of investments in foreign subsidiaries, net of hedges, due to foreign exchange

translation, and

d)

Changes in the fair value of employee benefit plan deficits.

3.

CET1 ratio, which includes:

a)

All of the above, plus

b)

Changes in RWA resulting from changes in traded market risk factors, and

c)

Changes in the Canadian dollar value of RWA due to foreign exchange translation.

4.

The economic value of the Bank, which includes:

a)

Points 1 and 2 above, plus

b)

Changes in the economic value of other non-trading positions, net interest income and fee based income, as a

result of changes in market risk factors.

Market risk controls – FVTPL positions, including trading portfolios

1

As an element of the ERAF, the Board approves our overall market risk appetite. The Market and Counterparty Credit Risk

function within GRM is responsible for creating and managing the controls and governance procedures that are designed to

ensure that risk taken is consistent with risk appetite constraints set by the Board. These controls include limits on

probabilistic measures of potential loss such as Value-at-Risk and stress tests as defined below:

Value-at-Risk (VaR)

is a statistical measure of potential loss for a financial portfolio computed at a given level of confidence

and over a defined holding period. We measure VaR at the 99th percentile confidence level for price movements over a

one-day holding period using historic simulation of the last two years of equally weighted historic market data. These

calculations are updated daily with current risk positions, with the exception of certain less material positions that are not

actively traded which are updated on at least a monthly basis.

Trading VaR captures potential loss for our trading portfolio

that excludes the impacts of non-trading FVTPL positions such as loan underwriting commitments. Total VaR captures

potential loss for all positions classified as FVTPL.

VaR is a statistical estimate based on historical market data and should be interpreted with knowledge of its limitations,

which include the following:

•

VaR will not be predictive of future losses if the realized market movements differ significantly from the historical

periods used to compute it.

•

VaR projects potential losses over a one-day holding period and does not project potential losses for risk positions held

over longer time periods.

•

VaR is measured using positions at close of business and does not include the impact of trading and hedging activity

over the course of a day.

We validate our VaR measures through a variety of means – including subjecting the models to vetting and validation by a

group of independent model developers and by back-testing the VaR against daily marked-to-market revenue to identify and

examine events in which actual outcomes in trading revenue exceed the VaR projections.

Stress tests

– Our market risk stress testing program is used to identify and control risk due to large changes in market

prices and rates. We conduct stress testing daily on positions that are marked-to-market. The stress tests simulate both

historical and hypothetical events which are severe and long-term in duration. Historical scenarios are taken from actual

market events and range in duration up to 90 days. Examples include the COVID-19 Pandemic of 2020, Global Financial Crisis

of 2008 and the Taper Tantrum of 2013. Hypothetical scenarios are designed to be forward-looking at potential future market

stresses and are designed to be severe but plausible. We are constantly evaluating and refining these scenarios as market

conditions change. Stress results are calculated assuming an instantaneous revaluation of our positions with no

management action.

1

Trading portfolios are comprised of trading instruments in accordance with OSFI’s Capital Adequacy Requirements (CAR) Guideline. Trading involves market-making,

positioning and arbitrage activities conducted primarily within our Global Markets business in the Capital Markets segment.

![]()

84

Royal Bank of Canada: Annual Report 2025

Management’s Discussion and Analysis

These measures are computed on all positions that are FVTPL for financial reporting purposes, with the exception of those in a

designated hedging relationship and those in RBC Insurance.

Market risk measures – FVTPL positions

|  |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Market risk measures\* |  |  |  |  |  |  |  | Table 48 |
|  | October 31, 2025 | | | | October 31, 2024 | | | |
|  |  | For the year ended | | |  | For the year ended | | |
| (Millions of Canadian dollars) | As at | Average | High | Low | As at | Average | High | Low |
| Equity | $  17 | $  16 | $  30 | $  11 | $  23 | $  14 | $  26 | $  6 |
| Foreign exchange | 5 | 4 | 13 | 2 | 6 | 5 | 10 | 2 |
| Commodities | 8 | 7 | 11 | 3 | 11 | 6 | 11 | 4 |
| Interest rate  (1) | 33 | 23 | 33 | 17 | 23 | 30 | 44 | 19 |
| Credit specific  (2) | 5 | 7 | 10 | 5 | 8 | 8 | 9 | 7 |
| Diversification  (3) | (38) | (32) | n.m. | n.m. | (37) | (34) | n.m. | n.m. |
| Trading VaR | $  30 | $  25 | $  35 | $  18 | $  34 | $  29 | $  41 | $  20 |
| Total VaR | $  40 | $  36 | $  56 | $  22 | $  34 | $  70 | $ 138 | $  26 |

\*

This table represents an integral part of our 2025 Annual Consolidated Financial Statements.

(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)

Trading VaR is less than the sum of the individual risk factor VaR results due to risk factor diversification.

n.m.

not meaningful

2025 vs. 2024

Average Trading VaR of $25 million decreased $4 million from last year, primarily driven by exposure changes in our fixed income

portfolio, partially offset by exposure changes in our equity portfolio.

Average total VaR of $36 million decreased $34 million, primarily driven by the impact of management of closing capital

volatility related to the HSBC Canada transaction last year.

The following chart displays a bar graph of our daily trading revenue and a line graph of our daily market risk Trading VaR. We

incurred no net trading losses in 2025.

Trading revenue

(teb), (1)

and Trading VaR

(Millions of Canadian dollars)

Nov 1, 2024

Jan 31, 2025

Apr 30, 2025

July 31, 2025

Oct 31, 2025

50

60

30

40

10

20

-20

-30

-10

0

-40

Tradin

g

Revenue

(teb) (1)

Trading VaR

(1)

Trading revenue (teb) in the chart above excludes the impact of loan underwriting commitments.

![]()

Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2025

85

The following chart displays the distribution of daily trading revenue in 2025 and 2024 with no net trading losses in both years.

The largest reported trading revenue was $50 million with an average daily revenue of $21 million.

Frequency in Number of Days

Daily net trading revenue (C$ millions)

2025

2024

0

10

20

30

40

50

60

70

80

90

Trading revenue for the year ended October

31, 2025

(teb), (1)

(teb), (1)

(1)

Trading revenue (teb) amounts in the chart above exclude the impact of loan underwriting commitments and structured entities.

Market risk measures for assets and liabilities of RBC Insurance

We offer a range of insurance products to clients and hold investments to meet future obligations to policyholders. The

investments which support actuarial liabilities are predominantly fixed income assets measured at FVTPL. Consequently,

changes in the fair values of these assets are largely offset by changes in the discount rates used in the measurement of

insurance and reinsurance contract assets and liabilities, and the impacts of both are reflected in Insurance investment

result in the Consolidated Statements of Income. As at October 31, 2025, we held assets in support of $22 billion of insurance

contract liabilities net of insurance contract assets and reinsurance contracts held balances (October 31, 2024 – $20 billion).

Market risk controls – Interest Rate Risk in the Banking Book (IRRBB) positions

2

IRRBB arises primarily from traditional customer-originated banking products such as deposits and loans, and includes

related hedges and interest rate risk from securities held for liquidity and cash management purposes. Factors contributing

to IRRBB include mismatches between asset and liability repricing dates, relative changes in asset and liability rates in

response to market rate scenarios, and other product features affecting the expected timing of cash flows, such as options to

pre-pay loans or redeem term deposits prior to contractual maturity. IRRBB sensitivities are regularly measured and

reported, and subject to limits and controls with independent oversight from GRM.

The Board approves the risk appetite for IRRBB, and the Asset Liability Committee (ALCO) and GRM provide ongoing

governance through IRRBB risk policies, limits, operating standards and other controls. IRRBB reports are reviewed regularly

by GRM, ALCO, the GRC, the Risk Committee of the Board and the Board.

IRRBB measurement

To monitor and control IRRBB, we assess two primary metrics, Net Interest Income (NII) risk and Economic Value of Equity

(EVE) risk, under a range of market shocks, scenarios and time horizons. Market scenarios include currency-specific parallel

and non-parallel yield curve changes, interest rate volatility shocks and interest rate scenarios prescribed by regulators.

In measuring NII risk, detailed banking book balance sheets and income statements are dynamically simulated to estimate

the impact of market stress scenarios on projected NII. Assets, liabilities and off-balance sheet positions are simulated over

various time horizons. The simulations incorporate maturities, renewals and new originations along with prepayment and

redemption behaviour. Product pricing and volumes are forecasted based on past experience to determine response

expectations under a given market shock scenario. EVE risk captures the market value sensitivity to changes in rates. In

measuring EVE risk, deterministic (single-scenario) and stochastic (multiple-scenario) valuation techniques are applied to spot

position data. NII and EVE risks are measured for a range of market risk stress scenarios which include extreme but plausible

changes in market rates and volatilities. IRRBB measures assume continuation of existing hedge strategies.

Management of NII and EVE risk is complementary and supports our efforts to generate a sustainable high-quality NII

stream. NII and EVE risks for specific units are measured daily, weekly or monthly depending on materiality, complexity and

hedge strategy.

A number of assumptions affecting cash flows, product re-pricing and the administration of rates underlie the models used

to measure NII and EVE risk. The key assumptions pertain to the projected funding date of mortgage rate commitments, fixed-

rate loan prepayment behaviour, term deposit redemption behaviour, and the term and rate profile of non-maturity deposits.

All assumptions are derived empirically based on historical client behaviour and product pricing with consideration of possible

forward-looking changes. All models and assumptions used to measure IRRBB are subject to independent oversight by GRM.

Market risk measures – IRRBB 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 EVE and 12-month NII, assuming no subsequent hedging. Interest rate risk measures are based on

current on and off-balance sheet positions which can change over time in response to business activity and management

actions.

2

IRRBB positions include the impact of derivatives in hedge accounting relationships, FVOCI securities used for interest rate risk management and economic hedges.

![]()

86

Royal Bank of Canada: Annual Report 2025

Management’s Discussion and Analysis

|  |  |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Market risk – IRRBB measures\* |  |  |  |  |  |  |  |  | Table 49 |
|  | October 31 | | | | | | | | October 31 | |
|  | 2025 | | | | | | | | 2024 | |
|  |  |  | EVE risk |  |  | NII risk  (1) |  |  |  |
|  | Canadian |  | U.S. dollar |  | Canadian | U.S. dollar |  |  |  |
|  | dollar |  | and other |  | dollar | and other |  |  |  |
| (Millions of Canadian dollars) | impact  (2) |  | impact  (2) | Total | impact  (2) | impact  (2) | Total | EVE risk | NII risk (1) |
| Before-tax impact of: |  |  |  |  |  |  |  |  |  |
| 100 bps increase in rates | $ (2,228) |  | $  (420) | $ (2,648) | $  105 | $  92 | $  197 | $ (2,076) | $  400 |
| 100 bps decrease in rates | 2,037 |  | (105) | 1,932 | (210) | (163) | (373) | 1,663 | (502) |

\*

This table represents an integral part of our 2025 Annual Consolidated Financial Statements.

(1)

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

(2)

Effective the third quarter of 2025, EVE and NII risk for currencies other than the Canadian and U.S. dollar are presented within the U.S. dollar and other impact category.

Previously, the impact of other currencies was presented in the Canadian dollar impact category.

As at October 31, 2025, an immediate and sustained -100 bps shock would have had a negative impact to our NII of $373 million,

down from $502 million last year, and an immediate and sustained +100 bps shock would have had a negative impact to our EVE

of $2,648 million, up from $2,076 million last year. The change in NII sensitivity reflects a change in product mix and the change in

EVE sensitivity can be attributed to net growth in fixed rate assets including growth in book capital. During 2025, NII and EVE

risks remained within approved limits.

Market risk measures for other material non-trading portfolios

Investment securities carried at FVOCI

Investment securities carried at FVOCI are primarily debt securities. We hold debt securities primarily as investments, as well as

to manage liquidity risk and hedge interest rate risk in our banking book balance sheet. While debt securities held by RBC

Insurance are managed separately, all other debt securities carried at FVOCI are included in our IRRBB measures.

For further details on the investment securities carried at FVOCI, refer to Notes 2 and 4 of our 2025 Annual Consolidated

Financial Statements.

Non-trading foreign exchange rate risk

Foreign exchange rate risk is the potential adverse impact on earnings and economic value due to changes in foreign

currency rates. Our revenue, expenses and income denominated in currencies other than the Canadian dollar are subject to

fluctuations as a result of changes in the value of the average Canadian dollar relative to the average value of those

currencies. Our most significant exposure is to the U.S. dollar, due to our operations in the U.S. and other activities conducted

in U.S. dollars. Our other significant exposure is to the British pound due to our activities conducted internationally in this

currency. A strengthening or weakening of the Canadian dollar compared to the U.S. dollar and British pound could reduce or

increase, as applicable, the translated value of our foreign currency denominated revenue, expenses and earnings and could

have a significant effect on the results of our operations. We are also exposed to foreign exchange rate risk arising from our

investments in foreign operations. For unhedged equity investments, when the Canadian dollar appreciates against other

currencies, the unrealized translation losses on net foreign investments decreases our shareholders’ equity through the

other components of equity and decreases the translated value of the RWA of the foreign currency-denominated asset. The

reverse is true when the Canadian dollar depreciates against other currencies. Consequently, we consider these impacts in

selecting an appropriate level of our investments in foreign operations to be hedged.

Derivatives related to non-trading activity

Derivatives are also used to hedge market risk exposure unrelated to our trading activity. Hedge accounting is elected where

applicable. These derivatives are included in our IRRBB measures and other internal non-trading market risk measures. We use

interest rate swaps to manage our IRRBB, funding and investment activities. Interest rate swaps are also used to hedge changes

in the fair value of certain fixed-rate instruments. We also use foreign exchange derivatives to manage our exposure to equity

investments in subsidiaries that are denominated in foreign currencies, particularly the U.S. dollar and British Pound.

For further details on the application of hedge accounting and the use of derivatives for hedging activities, refer to Notes 2 and 9

of our 2025 Annual Consolidated Financial Statements.

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Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2025

87

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:

Linkage of market risk to selected balance sheet items

Table 50

As at October 31, 2025

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

$

37,024

$

–

$

37,024

Interest rate

Interest-bearing deposits with banks

50,364

6

50,358

Interest rate

Securities

Trading

219,067

188,249

30,818

Interest rate, credit spread

Investment, net of applicable allowance

342,721

–

342,721

Interest rate, credit spread, equity

Assets purchased under reverse repurchase

agreements and securities borrowed

309,683

251,147

58,536

Interest rate

Loans

Retail

652,344

2

652,342

Interest rate

Wholesale

397,171

3,271

393,900

Interest rate

Allowance for loan losses

(7,093)

–

(7,093)

Interest rate

Other

Derivatives

177,206

171,721

5,485

Interest rate, foreign exchange

Other assets

138,647

62,521

76,126

Interest rate

Assets not subject to market risk

(3)

7,872

Total assets

$

2,325,006

$

676,917

$

1,640,217

Liabilities subject to market risk

Deposits

$

1,515,616

$

74,278

$

1,441,338

Interest rate

Other

Obligations related to securities sold short

49,891

49,428

463

Obligations related to assets sold under

repurchase agreements and securities

loaned

289,516

252,956

36,560

Interest rate

Derivatives

183,953

180,047

3,906

Interest rate, foreign exchange

Other liabilities

108,398

49,489

58,909

Interest rate

Subordinated debentures

13,961

–

13,961

Interest rate

Liabilities not subject to market risk

(4)

24,520

Total liabilities

$

2,185,855

$

606,198

$

1,555,137

Total equity

139,151

Total liabilities and equity

$

2,325,006

(1)

Traded risk includes positions that are classified or designated as FVTPL and positions whose revaluation gains and losses are reported in revenue within our trading

portfolios. Market risk measures of VaR and stress tests are used as risk controls for traded risk.

(2)

Non-traded risk includes positions used in the management of IRRBB 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 IRRBB.

(3)

Assets not subject to market risk primarily include insurance-related assets.

(4)

Liabilities not subject to market risk primarily include insurance contract liabilities.

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88

Royal Bank of Canada: Annual Report 2025

Management’s Discussion and Analysis

As at October 31, 2024

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

$

56,723

$

–

$

56,723

Interest rate

Interest-bearing deposits with banks

66,020

3

66,017

Interest rate

Securities

Trading

183,300

161,031

22,269

Interest rate, credit spread

Investment, net of applicable allowance

256,618

–

256,618

Interest rate, credit spread, equity

Assets purchased under reverse repurchase

agreements and securities borrowed

350,803

299,032

51,771

Interest rate

Loans

Retail

626,978

–

626,978

Interest rate

Wholesale

360,439

3,152

357,287

Interest rate

Allowance for loan losses

(6,037)

–

(6,037)

Interest rate

Other

Derivatives

150,612

147,017

3,595

Interest rate, foreign exchange

Other assets

115,133

47,936

67,197

Interest rate

Assets not subject to market risk

(3)

10,993

Total assets

$

2,171,582

$

658,171

$

1,502,418

Liabilities subject to market risk

Deposits

$

1,409,531

$

63,706

$

1,345,825

Interest rate

Other

Obligations related to securities sold short

35,286

34,985

301

Obligations related to assets sold under

repurchase agreements and securities

loaned

305,321

280,386

24,935

Interest rate

Derivatives

163,763

157,587

6,176

Interest rate, foreign exchange

Other liabilities

94,666

39,802

54,864

Interest rate

Subordinated debentures

13,546

–

13,546

Interest rate

Liabilities not subject to market risk

(4)

22,277

Total liabilities

$

2,044,390

$

576,466

$

1,445,647

Total equity

127,192

Total liabilities and equity

$

2,171,582

(1)

Traded risk includes positions that are classified or designated as FVTPL and positions whose revaluation gains and losses are reported in revenue within our trading

portfolios. Market risk measures of VaR and stress tests are used as risk controls for traded risk.

(2)

Non-traded risk includes positions used in the management of IRRBB 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 IRRBB.

(3)

Assets not subject to market risk primarily include insurance-related assets.

(4)

Liabilities not subject to market risk primarily include insurance contract 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. Liquidity risk arises from mismatches in the timing and value of

on-balance sheet and off-balance sheet cash flows.

Governance of liquidity risk

Our liquidity risk management activities are conducted in accordance with internal frameworks and policies, including the

Enterprise Risk Management Framework (ERMF), the Enterprise Risk Appetite Framework (ERAF), the Enterprise Liquidity Risk

Management Framework (LRMF), the Enterprise Liquidity Risk Policy and the Enterprise Pledging Policy. Collectively, our

frameworks and policies establish liquidity and funding management requirements appropriate for the execution of our

strategy and ensuring liquidity risk remains within our risk appetite.

Liquidity risk objectives, policies and risk appetite are reviewed regularly, and updated to reflect changes in industry

practice and relevant regulatory guidance. Enterprise policies are supported by subsidiary, operational, desk and product-

level policies and standards that specify risk control elements, such as parameters, methodologies, limits and authorities

governing the measurement and management of liquidity. Management practices, parameters, models and methodologies

are also subject to regular review, and are updated to reflect market conditions and business mix. Stress testing is employed

to assess the robustness of the control framework and inform liquidity contingency plans.

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Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2025

89

Responsibilities for liquidity risk oversight and management

The Board, the Risk Committee of the Board, the Group Risk committee (GRC), the Asset Liability Committee (ALCO) and the

Policy Review Committee (PRC) are accountable for the identification, assessment, control, monitoring and oversight of

liquidity risk. The GRC, PRC and/or the ALCO review liquidity reporting and policies prior to review by the Board or its

committees.

•

The Board, the Risk Committee of the Board, the GRC and the ALCO regularly review information on our consolidated

liquidity position;

•

The PRC approves the Liquidity Risk Policy, which establishes minimum risk control elements in accordance with the

Board-approved risk appetite and the LRMF, and the Pledging Policy, which outlines the requirements and authorities for

the management of our pledging activities;

•

The ALCO annually approves the Enterprise Liquidity Contingency Plan (ELCP) and provides strategic direction and

oversight to Corporate Treasury, other functions, and business segments on the management of liquidity and funding.

In addition to our committee oversight framework, liquidity risk management activities are subject to the three lines of

defence governance model. Corporate Treasury, the first line of defence for the management of liquidity risk, is subject to

independent second line challenge and oversight by GRM. RBC Internal Audit is the third line of defence. The three lines of

defence are independent of the business whose activities generate liquidity risks.

Liquidity risk mitigation strategies and techniques

Our liquidity management policies and practices are designed to ensure the soundness of our liquidity position. Our liquidity

profile is structured to ensure that we have sufficient liquidity to satisfy current and prospective commitments in both normal

and stressed conditions. For this purpose, we employ the following liquidity risk mitigation strategies and techniques:

•

Maintaining a sufficient buffer of cash, central bank reserves and unencumbered marketable securities, supported by a

demonstrated capacity to monetize these securities during stress;

•

Access to a broad range of funding sources, including a stable base of core client deposits and a diversified wholesale

funding mix;

•

Access to central bank funding facilities in Canada and the U.S., and select other jurisdictions in which we operate;

•

Timely and granular risk measurement and reporting to control and monitor liquidity sources and uses, and inform

liquidity risk management decisions;

•

A comprehensive program for liquidity stress testing and crisis management;

•

Governance of pledging activity through limits and designated liquid asset buffers to address potential increased pledging

activity;

•

Achieving an appropriate balance between the level of exposure allowed under our risk appetite and the cost of risk

mitigation;

•

Transparent liquidity transfer pricing and cost allocation mechanisms to align risk management with business strategies;

and

•

A three-lines-of-defence governance model providing effective oversight and challenge of liquidity risk strategies, metrics,

assumptions and controls.

Our dedicated liquid asset portfolios are managed and controlled in accordance with internal policies and are subject to

minimum asset quality and other relevant requirements (e.g., term to maturity, diversification and eligibility for central bank

advances). These securities, along with other unencumbered liquid assets held for trading or other activities, contribute to

our liquidity reserve, as reflected in the liquidity disclosures below.

Risk tolerance

Our liquidity risk appetite is reviewed at a minimum annually by ALCO, GRC and the Risk Committee of the Board before it is

recommended for approval to the Board. Risk appetite, a key element of our enterprise risk management framework, is

defined as the amount and type of risk that RBC is able and willing to take in pursuit of its business objectives.

Risk measurement and internal liquidity reporting

We maintain robust liquidity risk measurement capabilities to support timely and frequent reporting of information for the

management of our liquidity position and oversight of risk. This reporting, which includes internal and regulatory metrics, is

used to monitor adherence with our risk appetite and limits, and position relative to regulatory minimums. Regulatory metrics

used to manage and control liquidity risk include OSFI’s Liquidity Coverage Ratio (LCR), Net Stable Funding Ratio (NSFR) and

Net Cumulative Cash Flow (NCCF). The specificity with which we measure and manage liquidity allows us to make ongoing

informed assessments of the demands and mobility of liquidity, considering currency requirements, access to foreign

exchange markets and commitments, and expectations under local regulations.

Internal assessments of liquidity risk include application of scenario-specific assumptions against our assets and

liabilities, and various off-balance sheet commitments and obligations to project cash flows over varying time horizons and

degrees of stress. For example, certain government bonds could be quickly and easily converted to cash without significant

loss of value. In contrast, lower-rated securities may not be deemed appropriate sources of liquidity in times of stress, or may

incur higher potential monetization costs. While relationship-based deposits contractually can be withdrawn immediately, in

practice, these balances can be relatively stable sources of funding depending on several factors, such as the nature of the

client and their intended use. Assumptions and methodologies informing our assessment of liquidity risk are periodically

reviewed and validated to ensure alignment with our operating environment, expected economic and market conditions,

rating agency preferences, regulatory requirements and generally accepted industry practices.

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90

Royal Bank of Canada: Annual Report 2025

Management’s Discussion and Analysis

To manage liquidity risk within our liquidity risk appetite, we set limits on various metrics over a range of time horizons,

jurisdictions and currencies. We also consider various levels of stress conditions in our development of appropriate

contingency, recovery and resolution plans. Our liquidity risk measurement and control activities cover multiple areas:

Structural (longer-term) liquidity risk

We use both internal and regulatory metrics to manage and control the structural alignment between long-term illiquid

assets, the availability of core relationship deposits and longer-term funding. Conversely, we aim to align the use of shorter-

term wholesale funding with assets of equivalent liquidity-generating potential.

Tactical (shorter-term) liquidity risk

To address potential immediate cash flow risks during periods of stress, we use short-term net cash flow limits to control risk

at the unit, subsidiary and currency levels, as applicable. Net cash flow positions are determined by applying internally-

derived risk assumptions and parameters to known and anticipated cash flows for all material unencumbered assets,

liabilities and off-balance sheet activities. Additional product-level controls and limits are employed to manage

concentration risk and perceived market capacity limitations for more sensitive liquidity sources and uses. We also control

tactical liquidity by adhering to relevant regulatory standards, such as LCR.

Stress testing

Our comprehensive stress testing program informs internal assessments of the sufficiency of liquid assets and whether they

are adequately pre-positioned and accessible to meet stressed liquidity needs. Our stress tests, which include elements of

scenario and sensitivity analyses, measure our prospective exposure to systemic and RBC-specific events over periods of

time. Different degrees of severity are considered for each type of crisis with some scenarios reflecting multiple downgrades

to our credit ratings.

Contingency liquidity risk management and funding plans

Contingency liquidity risk planning assesses the impact of sudden stress on our liquidity risk position and identifies a range

of potential mitigating actions and plans. Corporate Treasury maintains the Enterprise Liquidity Contingency Plan (ELCP) and

regional liquidity contingency plans (LCPs) that identify potential sources of stress and guide our responses to liquidity

crises. Potential sources of stress are calibrated based on relevant historical experience and resulting contingent funding

needs, including those from draws on committed credit and liquidity lines, demands for increased collateral and deposit

run-offs. The ELCP also identifies alternative liquidity sources and considerations for their use.

Additionally, under the leadership of Corporate Treasury, enterprise and regional Liquidity Crisis Teams (LCTs) each

meet regularly to assess our liquidity status, review and approve the LCPs and during times of stress, provide linkages to the

front line and other functions to support effective and coordinated crisis management and oversight. Enterprise and local

LCTs include members from key business segments, GRM, Finance, Operations and Communications. The liquidity status

assessment and monitoring process informs management, the Board and regulatory agencies of our assessment of internal

and external events and their potential implications on liquidity risk.

Liquidity reserve and asset encumbrance

The following tables provide summaries of our liquidity reserve and asset encumbrance. To varying degrees, unencumbered

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 include: (i) bank-owned liquid assets that are either pledged as

collateral (e.g., repo financing and derivative pledging) or not freely available due to regulatory or internal policy requirements

(e.g., earmarked to satisfy mandatory reserve or regional capital adequacy requirements and to maintain continuous access to

payment and settlement systems); (ii) securities received as collateral from securities financing and derivative transactions

which have either been re-hypothecated where permissible (e.g., to obtain financing through repos or to cover securities sold

short) or have no liquidity value since re-hypothecation is prohibited; and (iii) illiquid assets that have been securitized and sold

into the market or that have been pledged as collateral in support of structured term funding vehicles. Encumbered assets are

not considered a source of liquidity.

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Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2025

91

Liquidity reserve

Our liquidity reserve consists only of available unencumbered liquid assets. Although unused wholesale funding capacity could

be another potential source of liquidity, it is excluded in the determination of the liquidity reserve.

Liquidity reserve

Table 51

As at October 31, 2025

(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 deposits with banks

$

87,388

$

–

$

87,388

$

3,195

$

84,193

Securities issued or guaranteed by sovereigns, central

banks or multilateral development banks

(1)

436,725

352,312

789,037

434,060

354,977

Other securities

179,279

156,840

336,119

207,703

128,416

Other liquid assets

(2)

50,082

–

50,082

40,974

9,108

Total liquid assets

$

753,474

$

509,152

$1,262,626

$

685,932

$

576,694

As at October 31, 2024

(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 deposits with banks

$

122,743

$

–

$

122,743

$

3,269

$

119,474

Securities issued or guaranteed by sovereigns, central

banks or multilateral development banks

(1)

323,826

385,479

709,305

426,552

282,753

Other securities

165,875

126,205

292,080

163,635

128,445

Other liquid assets

(2)

37,601

–

37,601

31,583

6,018

Total liquid assets

$

650,045

$

511,684

$ 1,161,729

$

625,039

$

536,690

As at

(Millions of Canadian dollars)

October 31

2025

October 31

2024

Royal Bank of Canada

$

279,012

$

243,915

Foreign branches

77,977

69,723

Subsidiaries

219,705

223,052

Total unencumbered liquid assets

$

576,694

$

536,690

(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)

Encumbered liquid assets amount represents cash collateral and margin deposit amounts pledged related to OTC and exchange-traded derivative transactions.

The liquidity reserve is typically most affected by routine flows of retail and commercial client banking activities, where liquid

asset portfolios reflect changes in deposit and loan balances, as well as business strategies and client flows related to the

activities in Capital Markets. Corporate Treasury also affects liquidity reserves through the management of funding issuances,

which could result in timing differences between when debt is issued and funds are deployed into business activities.

2025 vs. 2024

Total unencumbered liquid assets increased $40 billion or 7% from last year, primarily due to an increase in securities reflecting

growth in deposits and funding, partially offset by a decrease in cash and deposits with banks.

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92

Royal Bank of Canada: Annual Report 2025

Management’s Discussion and Analysis

Asset encumbrance

The table below provides a summary of our on- and off-balance sheet amounts for cash, securities and other assets,

distinguishing between those that are encumbered, and those 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 October 31, 2025, our unencumbered assets available as collateral

comprised 24% of total assets (October 31, 2024 – 25%).

Asset encumbrance

Table 52

As at October 31, 2025

Total Assets

Encumbered

Unencumbered

(Millions of Canadian dollars)

Bank-owned

assets

Securities

received as

collateral from

securities

financing and

derivative

transactions

Total

Pledged as

collateral

Other

(1)

Available as

collateral

(2)

Other

(3)

Cash and deposits with banks

$

87,388

$

–

$

87,388

$

–

$

3,195

$

84,193

$

–

Securities

(4)

575,466

573,672

1,149,138

670,404

33,437

441,458

3,839

Loans, net of allowance for loan losses

Mortgage securities

54,607

–

54,607

26,714

–

27,893

–

Mortgage loans

438,012

–

438,012

64,928

–

41,010

332,074

Other loans

549,803

–

549,803

5,244

–

26,496

518,063

Derivatives

177,206

–

177,206

–

–

–

177,206

Others

(5)

146,519

–

146,519

40,974

–

9,108

96,437

Total

$ 2,029,001

$

573,672

$ 2,602,673

$ 808,264

$

36,632

$

630,158

$

1,127,619

As at October 31, 2024

Total Assets

Encumbered

Unencumbered

(Millions of Canadian dollars)

Bank-owned

assets

Securities

received as

collateral from

securities

financing and

derivative

transactions

Total

Pledged as

collateral

Other (1)

Available as

collateral (2)

Other (3)

Cash and deposits with banks

$

122,743

$

–

$

122,743

$

–

$

3,269

$

119,474

$

–

Securities

(4)

450,719

571,869

1,022,588

614,654

31,156

373,206

3,572

Loans, net of allowance for loan losses

(6)

Mortgage securities

57,450

–

57,450

27,927

–

29,523

–

Mortgage loans

419,522

–

419,522

71,307

–

40,851

307,364

Other loans

504,408

–

504,408

6,343

–

25,250

472,815

Derivatives

150,612

–

150,612

–

–

–

150,612

Others

(5)

126,126

–

126,126

31,583

–

6,018

88,525

Total

$

1,831,580

$

571,869

$

2,403,449

$

751,814

$

34,425

$

594,322

$

1,022,888

(1)

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

(2)

Represents assets that are immediately available for use as collateral, including NHA MBS, our unencumbered mortgage loans that qualify as eligible collateral at FHLB,

as well as loans that qualify as eligible collateral for discount window facility available to us and lodged at the FRBNY.

(3)

Other unencumbered assets are not subject to any restrictions on their use to secure funding or as collateral but would not be considered immediately available.

(4)

Includes bank-owned liquid assets and securities received as collateral from off-balance sheet securities financing, derivative transactions and margin lending. Includes

$33 billion (October 31, 2024 – $31 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.

(6)

Effective the first quarter of 2025, mortgage securities, mortgage loans and other loans are presented net of allowance for loan losses. Comparative amounts have been

revised from those previously presented to conform to this presentation.

2025 vs. 2024

Total unencumbered assets available as collateral increased $36 billion or 6% from last year, primarily due to an increase in

securities reflecting growth in deposits and funding, partially offset by a decrease in cash and deposits with banks.

Funding

Funding strategy

Maintaining a diversified funding base is a key strategy for managing our liquidity risk profile.

Core funding, comprising capital, longer-term wholesale liabilities and a diversified pool of personal as well as the stable

portion of our commercial and institutional deposits, is the foundation of our structural liquidity position.

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 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.

We regularly assess our funding concentration and have implemented limits on certain funding sources to support

diversification of our funding base.

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Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2025

93

Deposit and funding profile

As at October 31, 2025, relationship-based deposits, which are the primary source of funding for retail and commercial lending,

were $1,009 billion or 54% of our total funding (October 31, 2024 – $977 billion or 55%). 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 liquid asset

buffers.

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 Canada Deposit Insurance Corporation (CDIC) to convert all or a

portion of certain shares and liabilities of that bank into common shares. As at October 31, 2025, the notional value of issued and

outstanding long-term debt subject to conversion under the Bail-in regime was $127 billion (October 31, 2024 – $111 billion).

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

Long-term debt issuance

During 2025, we continued to experience favourable unsecured wholesale funding access and pricing. We issued, either directly

or through our subsidiaries, unsecured long-term funding of $51 billion in various currencies and markets.

We use residential mortgage and credit card securitization programs as a source of funding and for liquidity and asset/

liability management purposes. Our total secured long-term funding includes outstanding MBS sold, covered bonds that are

collateralized with residential mortgages and securities backed by credit card receivables.

For further details, refer to the Off-balance sheet arrangements section.

|  |  |  |
| --- | --- | --- |
| Long-term funding sources\*  (1) |  | Table 53 |
|  | As at | |
|  | October 31 | October 31 |
| (Millions of Canadian dollars) | 2025 | 2024 |
| Unsecured long-term funding | $  169,621 | $  150,682 |
| Secured long-term funding | 76,550 | 83,353 |
| Subordinated debentures | 13,941 | 13,714 |
|  | $  260,112 | $  247,749 |

\*

This table represents an integral part of our 2025 Annual Consolidated Financial Statements.

(1)

Based on original term to maturity greater than 1 year.

The following table summarizes our registered programs and their authorized limits by geography.

Programs by geography

Table 54

Canada

U.S.

Europe/Asia

•

Canadian Shelf Program – $25 billion

•

U.S. Shelf Program – US$75 billion

•

European Debt Issuance Program – US$75 billion

•

Global Covered Bond Program –

€

75 billion

We also raise long-term funding using Canadian Senior Notes, 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).

As presented in the following charts, our current long-term debt profile is well-diversified by both currency and product.

Euro

21%

Canadian dollar

24%

U.S. dollar

45%

Other

10%

Long-term debt

(1)

– funding mix by currency of issuance

Covered bonds

21%

Unsecured

funding

66%

MBS/CMB (2)

6%

Cards

securitization

2%

Subordinated

debentures

5%

Long-term debt

(1)

– funding mix by product

(1)

Includes unsecured and secured long-term funding and subordinated

debentures with an original term to maturity greater than 1 year

(1)

Includes unsecured and secured long-term funding and subordinated

debentures with an original term to maturity greater than 1 year

(2)

Mortgage-backed securities and Canada Mortgage Bonds

![]()

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

Composition of wholesale funding

(1)

Table 55

As at October 31, 2025

(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)

$

3,255

$

311

$

243

$

1,014

$

4,823

$

–

$

–

$

4,823

Certificates of deposit and commercial paper

(3)

15,877

20,614

38,985

38,595

114,071

–

–

114,071

Asset-backed commercial paper

(4)

4,989

5,324

8,027

1,680

20,020

–

–

20,020

Senior unsecured medium-term notes

(5)

2,412

4,858

8,257

22,164

37,691

29,161

63,988

130,840

Senior unsecured structured notes

(6)

5,050

1,841

2,581

2,986

12,458

3,243

13,430

29,131

Mortgage securitization

–

509

200

1,202

1,911

2,479

12,249

16,639

Covered bonds/asset-backed securities

(7)

–

3,257

3,233

13,136

19,626

20,277

20,010

59,913

Subordinated liabilities

–

2,103

–

–

2,103

–

11,838

13,941

Other

(8)

11

60

2,876

90

3,037

256

23,181

26,474

Total

$ 31,594

$ 38,877

$ 64,402

$

80,867 $

215,740

$ 55,416

$ 144,696

$ 415,852

Of which:

– Secured

$

4,989

$

9,106

$ 14,264

$ 16,018

$

44,377

$ 22,756

$

36,883

$ 104,016

– Unsecured

26,605

29,771

50,138

64,849

171,363

32,660

107,813

311,836

As at October 31, 2024

(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)

$

7,248

$

118

$

120

$

1,025

$

8,511

$

–

$

–

$

8,511

Certificates of deposit and commercial paper

(3)

8,377

10,413

16,882

37,702

73,374

139

–

73,513

Asset-backed commercial paper

(4)

4,140

3,951

7,167

2,286

17,544

–

–

17,544

Senior unsecured medium-term notes

(5)

5,436

7,786

7,253

12,750

33,225

20,453

57,351

111,029

Senior unsecured structured notes

(6), (9)

1,354

1,698

3,638

3,404

10,094

4,414

13,125

27,633

Mortgage securitization

41

509

1,296

946

2,792

2,143

11,949

16,884

Covered bonds/asset-backed securities

(7)

–

2,243

1,514

7,451

11,208

19,017

36,245

66,470

Subordinated liabilities

–

–

–

–

–

2,088

11,626

13,714

Other

(8), (10)

–

116

108

64

288

160

20,671

21,119

Total

$

26,596

$

26,834

$

37,978

$

65,628

$

157,036

$

48,414

$

150,967

$

356,417

Of which:

– Secured

(10)

$

4,180

$

6,788

$

9,977

$

10,683

$

31,628

$

21,160

$

53,266

$

106,054

– Unsecured

(9), (10)

22,416

20,046

28,001

54,945

125,408

27,254

97,701

250,363

(1)

Excludes repos.

(2)

Excludes deposits associated with services we provide to banks (e.g., custody, cash management).

(3)

Includes bearer deposit notes (unsecured).

(4)

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

(5)

Includes deposit notes and floating rate notes (unsecured).

(6)

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

(7)

Includes covered bonds collateralized with residential mortgages and securities backed by credit card receivables.

(8)

Includes tender option bonds (secured) of $4,581 million (October 31, 2024 – $5,157 million), other long-term structured deposits (unsecured) of $18,851 million

(October 31, 2024 – $15,770 million), FHLB advances (secured) of $2,804 million (October 31, 2024 – $nil) and wholesale guaranteed interest certificates of $238 million

(October 31, 2024 – $192 million).

(9)

Effective the first quarter of 2025, we updated the scope of senior unsecured structured notes to better reflect the distribution channel used to issue these notes.

Comparative amounts have been revised from those previously presented to conform to this presentation.

(10)

Comparative amounts have been revised from those previously presented.

94

Royal Bank of Canada: Annual Report 2025

Management’s Discussion and Analysis

![]()

Credit ratings

Our ability to access unsecured funding markets and to engage in certain collateralized business activities on a cost-effective

basis are largely dependent on 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.

The following table presents our major credit ratings:

Credit ratings

(1)

Table 56

As at December 2, 2025

Short-term debt

Legacy senior long-term debt

(2)

Senior long-term debt

(3)

Outlook

Moody’s

(4)

P-1

Aa1

A1

stable

Standard & Poor’s

(5)

A-1+

AA-

A

stable

Fitch Ratings

(6)

F1+

AA

AA-

stable

DBRS

(7)

R-1 (high)

AA (high)

AA

stable

(1)

Credit ratings are not recommendations to purchase, sell or hold a financial obligation in as much 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 October 9, 2025, Moody’s announced completion of a periodic review of our ratings. There were no changes to our ratings.

(5)

On June 25, 2024, Standard & Poor’s affirmed our ratings with a stable outlook.

(6)

On June 3, 2025, Fitch Ratings affirmed our ratings with a stable outlook.

(7)

On May 9, 2025, DBRS affirmed our ratings with a stable outlook.

Additional contractual obligations for rating downgrades

We are required to deliver collateral to certain counterparties in the event of a downgrade from our current credit rating. The

following table shows the additional collateral obligations required at the reporting date in the event of a one-, two- or three-

notch downgrade. 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 due to 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. 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

Table 57

As at

October 31

2025

October 31

2024

(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

$

275

$

137

$

209

$

232

$

100

$

199

Other contractual funding or margin requirements

(1)

41

55

188

41

63

16

(1)

Includes GICs issued by our municipal markets business out of New York.

Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2025

95

![]()

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 BCBS and OSFI regulatory minimum coverage level for LCR is 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.

Liquidity coverage ratio common disclosure template

(1)

Table 58

For the three months ended

October 31

2025

(Millions of Canadian dollars, except percentage amounts)

Total unweighted

value (average)

(2)

Total weighted

value (average)

High-quality liquid assets

Total high-quality liquid assets (HQLA)

$

458,576

Cash outflows

Retail deposits and deposits from small business customers, of which:

$

414,423

$

38,905

Stable deposits

(3)

135,160

4,055

Less stable deposits

279,263

34,850

Unsecured wholesale funding, of which:

527,534

246,338

Operational deposits (all counterparties) and deposits in networks of cooperative

banks

(4)

185,037

43,435

Non-operational deposits

317,728

178,134

Unsecured debt

24,769

24,769

Secured wholesale funding

51,152

Additional requirements, of which:

445,456

94,078

Outflows related to derivative exposures and other collateral requirements

89,493

24,955

Outflows related to loss of funding on debt products

12,465

12,465

Credit and liquidity facilities

343,498

56,658

Other contractual funding obligations

(5)

22,841

22,841

Other contingent funding obligations

(6)

918,796

15,617

Total cash outflows

$

468,931

Cash inflows

Secured lending (e.g., reverse repos)

$

405,984

$

72,484

Inflows from fully performing exposures

23,609

10,168

Other cash inflows

24,760

24,760

Total cash inflows

$

107,412

Total adjusted

value

Total HQLA

$

458,576

Total net cash outflows

361,519

Liquidity coverage ratio

127%

July 31

2025

(Millions of Canadian dollars, except percentage amounts)

Total adjusted

value

Total HQLA

$

462,083

Total net cash outflows

358,716

Liquidity coverage ratio

129%

(1)

The LCR is calculated in accordance with OSFI’s LAR guideline, which, in turn, reflects liquidity-related requirements issued by the BCBS. The LCR for the quarter ended

October 31, 2025 is calculated as an average of 63 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, 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%).

96

Royal Bank of Canada: Annual Report 2025

Management’s Discussion and Analysis

![]()

We manage our LCR position within a target range that reflects our liquidity risk tolerance, business mix, asset composition and

funding capabilities. The range is subject to periodic review, considering changes to internal requirements and external

developments.

We maintain HQLA in major currencies with dependable market depth and breadth. Our liquidity management practices are

designed to 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 87% 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.

Q4 2025 vs. Q3 2025

The average LCR for the quarter ended October 31, 2025 was 127%, which translates into a surplus of approximately $97 billion,

compared to 129% and a surplus of approximately $103 billion in the prior quarter. Average LCR decreased from the prior

quarter, primarily due to loan growth and changes in securities mix. These factors were partially offset by growth in deposits and

funding.

Net Stable Funding Ratio (NSFR)

NSFR is a Basel III metric that measures the sufficiency of available stable funding relative to the amount of required stable

funding. The BCBS and OSFI regulatory minimum coverage level for NSFR is 100%.

Available stable funding is defined as the portion of capital and liabilities expected to be reliable over the one-year time

horizon considered by the NSFR. Required stable funding is a function of the liquidity characteristics and residual maturities of

various bank assets and off-balance sheet exposures.

OSFI requires Canadian D-SIBs to disclose the NSFR using the standard Basel disclosure template. Amounts presented in

this disclosure template are determined in accordance with the requirements of OSFI’s LAR guideline and are not necessarily

aligned with the classification requirements prescribed under IFRS.

Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2025

97

![]()

Net Stable Funding Ratio common disclosure template

(1)

Table 59

As at October 31, 2025

Unweighted value by residual maturity

(2)

Weighted value

(Millions of Canadian dollars, except percentage amounts)

No maturity

< 6 months

6 months to

< 1 year

≥

1 year

Available Stable Funding (ASF) Item

Capital:

$ 140,356

$

–

$

–

$

12,006

$

152,362

Regulatory Capital

140,356

–

–

12,006

152,362

Other Capital Instruments

–

–

–

–

–

Retail deposits and deposits from small business customers:

350,015

127,044

57,491

68,303

550,273

Stable deposits

(3)

106,148

54,260

28,305

29,640

208,918

Less stable deposits

243,867

72,784

29,186

38,663

341,355

Wholesale funding:

403,214

437,990

98,516

170,704

437,157

Operational deposits

(4)

194,308

–

–

–

97,154

Other wholesale funding

208,906

437,990

98,516

170,704

340,003

Liabilities with matching interdependent assets

(5)

–

1,644

2,191

21,993

–

Other liabilities:

61,160

306,298

22,909

NSFR derivative liabilities

58,238

All other liabilities and equity not included in the above

categories

61,160

224,884

532

22,644

22,909

Total ASF

$ 1,162,701

Required Stable Funding (RSF) Item

Total NSFR high-quality liquid assets (HQLA)

$

46,235

Deposits held at other financial institutions for operational

purposes

–

2,041

–

–

1,020

Performing loans and securities:

315,100

298,690

153,486

543,646

826,048

Performing loans to financial institutions secured by Level 1

HQLA

71

89,523

19,004

13

14,739

Performing loans to financial institutions secured by

non-Level 1 HQLA and unsecured performing loans to

financial institutions

10,158

102,048

23,946

30,734

63,748

Performing loans to non-financial corporate clients, loans to

retail and small business customers, and loans to

sovereigns, central banks and PSEs, of which:

205,779

56,029

39,956

178,150

372,669

With a risk weight of less than or equal to 35% under the

Basel II standardized approach for credit risk

–

–

–

11,122

7,229

Performing residential mortgages, of which:

41,373

47,988

67,366

309,202

301,295

With a risk weight of less than or equal to 35% under the

Basel II standardized approach for credit risk

36,581

47,937

67,312

302,107

291,138

Securities that are not in default and do not qualify as HQLA,

including exchange-traded equities

57,719

3,102

3,214

25,547

73,597

Assets with matching interdependent liabilities

(5)

–

1,644

2,191

21,993

–

Other assets:

9,202

446,594

124,399

Physical traded commodities, including gold

9,108

7,742

Assets posted as initial margin for derivative contracts and

contributions to default funds of CCPs

31,704

26,948

NSFR derivative assets

58,310

72

NSFR derivative liabilities before deduction of variation

margin posted

105,160

5,258

All other assets not included in the above categories

94

176,044

216

75,160

84,379

Off-balance sheet items

1,008,453

38,292

Total RSF

$ 1,035,994

Net Stable Funding Ratio (%)

112%

As at July 31, 2025

(Millions of Canadian dollars, except percentage amounts)

Weighted

value

Total ASF

$ 1,135,007

Total RSF

997,710

Net Stable Funding Ratio (%)

114%

(1)

The NSFR is calculated in accordance with OSFI’s Liquidity Adequacy Requirements (LAR) guideline, which, in turn, reflects liquidity-related requirements issued by the

BCBS.

(2)

Totals for the following rows encompass the residual maturity categories of less than 6 months, 6 months to less than 1 year, and greater than or equal to 1 year in

accordance with the requirements of the common disclosure template prescribed by OSFI: Other liabilities, NSFR derivative liabilities, Other assets, Assets posted as

initial margin for derivative contracts and contributions to default funds of CCPs, NSFR derivative assets, NSFR derivative liabilities before deduction of variation margin

posted, and Off-balance sheet items.

(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, 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)

Interdependent assets and liabilities represent National Housing Act Mortgage-Backed Securities (NHA MBS) liabilities, including liabilities arising from transactions

involving the Canada Mortgage Bond program and their corresponding encumbered mortgages.

98

Royal Bank of Canada: Annual Report 2025

Management’s Discussion and Analysis

![]()

Available stable funding is comprised primarily of a diversified pool of personal and commercial deposits, capital and long-term

wholesale liabilities. Required stable funding is driven mainly by the bank’s mortgage and loan portfolio, secured loans to

financial institutions and to a lesser extent by other less liquid assets. NSFR does not reflect any unused market funding

capacity that we believe would be available.

Volume and composition of available stable funding is actively managed to optimize our structural funding position and

meet NSFR objectives. Our NSFR is managed in accordance with our comprehensive LRMF.

Q4 2025 vs. Q3 2025

The NSFR as at October 31, 2025 was 112%, which translates into a surplus of approximately $127 billion, compared to 114% and a

surplus of approximately $137 billion in the prior quarter. NSFR decreased from the previous quarter, primarily due to higher

required stable funding on securities and securities financing transactions and loan growth. These factors were partially offset

by growth in deposits and funding.

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) and maturity profiles of assets and liabilities of insurance contracts and

reinsurance contracts held at their carrying value based on the estimated timing of when the settlement of the amounts are

expected to occur 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 and internal liquidity reporting

section.

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

Table 60

As at October 31, 2025

(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

$

84,814

$

17

$

–

$

–

$

6

$

–

$

–

$

–

$

2,551

$

87,388

Securities

Trading

(1)

100,479

905

1,362

1,395

849

220

455

14,329

99,073

219,067

Investment, net of applicable allowance

4,740

8,258

17,570

12,021

20,806

82,377

85,610

109,883

1,456

342,721

Assets purchased under reverse repurchase

agreements and securities borrowed

(2)

138,208

57,226

45,999

20,873

22,499

51

–

–

24,827

309,683

Loans, net of applicable allowance

22,203

34,947

49,746

66,956

55,741

297,199

302,691

83,739

129,200

1,042,422

Other

Derivatives

13,116

26,962

15,562

10,433

7,553

19,937

36,149

47,494

–

177,206

Other financial assets

52,621

5,568

2,636

769

766

452

148

4,582

5,327

72,869

Total financial assets

416,181

133,883

132,875

112,447

108,220

400,236

425,053

260,027

262,434

2,251,356

Other non-financial assets

4,137

2,055

2,568

364

1,436

2,661

4,479

6,413

49,537

73,650

Total assets

$ 420,318

$ 135,938

$ 135,443

$ 112,811

$ 109,656

$ 402,897

$ 429,532

$ 266,440

$ 311,971

$ 2,325,006

Liabilities and equity

Deposits

(3)

Unsecured borrowing

$ 106,190

$

80,883

$ 105,974

$

83,764

$

71,428

$

61,413

$

91,338

$

54,701

$ 750,271

$ 1,405,962

Secured borrowing

5,217

7,526

9,546

2,938

2,949

6,814

12,108

9,099

–

56,197

Covered bonds

–

3,259

3,214

5,088

6,416

19,323

11,929

4,228

–

53,457

Other

Obligations related to securities sold short

43,223

1,234

834

2,593

1,357

650

–

–

–

49,891

Obligations related to assets sold under

repurchase agreements and securities

loaned

(2)

166,329

71,225

16,610

6,446

4,214

1,672

–

–

23,020

289,516

Derivatives

13,292

28,955

17,532

11,248

8,664

20,821

36,809

46,632

–

183,953

Other financial liabilities

46,292

3,296

5,329

1,406

1,449

929

2,105

21,337

2,418

84,561

Subordinated debentures

–

2,091

–

–

–

–

–

11,870

–

13,961

Total financial liabilities

380,543

198,469

159,039

113,483

96,477

111,622

154,289

147,867

775,709

2,137,498

Other non-financial liabilities

1,426

6,513

435

239

223

2,261

1,860

23,506

11,894

48,357

Equity

–

–

–

–

–

–

–

–

139,151

139,151

Total liabilities and equity

$ 381,969

$ 204,982

$ 159,474

$ 113,722

$

96,700

$ 113,883

$ 156,149

$ 171,373

$ 926,754

$ 2,325,006

Off-balance sheet items

Financial guarantees

$

1,125

$

2,829

$

4,578

$

4,545

$

4,543

$

2,562

$

6,055

$

2,662

$

29

$

28,928

Commitments to extend credit

5,744

10,299

17,664

18,365

22,554

70,723

239,678

30,846

4,050

419,923

Other credit-related commitments

82,651

1,751

2,287

3,360

2,673

880

715

125

86,828

181,270

Other commitments

6

10

17

17

18

63

162

213

687

1,193

Total off-balance sheet items

$

89,526

$

14,889

$

24,546

$

26,287

$

29,788

$

74,228

$ 246,610

$

33,846

$

91,594

$

631,314

(1)

With the exception of debt securities within the Insurance segment, 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)

Open reverse repo and repo contracts, which have no set maturity date and are typically short-term, have been included in the with no specific maturity category.

(3)

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.

Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2025

99

![]()

As at October 31, 2024

(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

$ 120,584

$

6

$

–

$

–

$

–

$

–

$

–

$

–

$

2,153

$

122,743

Securities

Trading

(1)

80,203

148

380

22

34

229

707

11,903

89,674

183,300

Investment, net of applicable allowance

5,974

7,588

6,782

12,445

9,746

51,674

67,730

93,451

1,228

256,618

Assets purchased under reverse repurchase

agreements and securities borrowed

(2)

170,052

65,837

57,921

15,720

20,727

181

–

–

20,365

350,803

Loans, net of applicable allowance

(3)

24,706

32,131

45,916

52,362

50,303

287,726

288,213

79,641

120,382

981,380

Other

Derivatives

13,657

19,365

9,293

6,548

5,797

17,376

31,389

47,187

–

150,612

Other financial assets

42,601

4,575

2,168

423

671

175

743

1,829

4,229

57,414

Total financial assets

457,777

129,650

122,460

87,520

87,278

357,361

388,782

234,011

238,031

2,102,870

Other non-financial assets

11,393

2,158

1,450

259

233

1,941

3,122

9,501

38,655

68,712

Total assets

$ 469,170

$ 131,808

$ 123,910

$

87,779

$

87,511

$ 359,302

$

391,904

$

243,512

$

276,686

$

2,171,582

Liabilities and equity

Deposits

(4)

Unsecured borrowing

$ 122,083

$

72,933

$

83,574

$

84,252

$

77,207

$

55,196

$

85,458

$

44,264

$

668,975

$

1,293,942

Secured borrowing

4,437

6,000

9,513

3,939

1,956

7,447

14,969

9,050

–

57,311

Covered bonds

–

2,245

1,498

4,019

2,230

17,134

27,207

3,945

–

58,278

Other

Obligations related to securities sold short

35,286

–

–

–

–

–

–

–

–

35,286

Obligations related to assets sold under

repurchase agreements and securities

loaned

(2)

221,377

38,828

14,726

7,586

2

466

–

–

22,336

305,321

Derivatives

13,153

23,372

12,176

11,160

8,025

18,305

32,865

44,707

–

163,763

Other financial liabilities

40,944

3,334

2,917

2,060

2,024

1,073

2,404

16,788

1,293

72,837

Subordinated debentures

–

–

–

–

–

2,025

–

11,521

–

13,546

Total financial liabilities

437,280

146,712

124,404

113,016

91,444

101,646

162,903

130,275

692,604

2,000,284

Other non-financial liabilities

1,501

5,769

452

231

198

1,664

1,821

21,425

11,045

44,106

Equity

–

–

–

–

–

–

–

–

127,192

127,192

Total liabilities and equity

$ 438,781

$ 152,481

$ 124,856

$ 113,247

$

91,642

$ 103,310

$

164,724

$

151,700

$

830,841

$

2,171,582

Off-balance sheet items

Financial guarantees

$

917

$

2,929

$

4,485

$

3,818

$

4,368

$

1,563

$

7,140

$

1,977

$

25

$

27,222

Commitments to extend credit

7,317

9,060

15,891

17,305

20,109

63,200

217,555

25,580

2,950

378,967

Other credit-related commitments

51,645

1,600

2,360

2,927

2,534

460

1,299

113

81,379

144,317

Other commitments

7

12

19

20

19

70

179

260

926

1,512

Total off-balance sheet items

$

59,886

$

13,601

$

22,755

$

24,070

$

27,030

$

65,293

$

226,173

$

27,930

$

85,280

$

552,018

(1)

With the exception of debt securities within the Insurance segment, 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)

Open reverse repo and repo contracts, which have no set maturity date and are typically short-term, have been included in the with no specific maturity category.

(3)

Comparative amounts have been revised from those previously presented.

(4)

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.

100

Royal Bank of Canada: Annual Report 2025

Management’s Discussion and Analysis

![]()

Contractual maturities of financial liabilities and off-balance sheet items – undiscounted basis

The following tables provide remaining contractual maturity analysis of our financial liabilities and off-balance sheet items.

Disclosed amounts are the contractual undiscounted amounts due at payment dates of all financial liabilities (e.g., par value

or amount payable upon maturity). The amounts do not reconcile directly with those in our consolidated balance sheets as

the table incorporates only undiscounted amounts due at payment dates and do not recognize premiums, discounts,

expectations of early redemptions or mark-to-market adjustments recognized in the instruments’ carrying values as at the

balance sheet date. Financial liabilities are based upon the earliest period in which they are required to be paid. For

off-balance sheet items, the undiscounted amounts potentially payable under financial guarantees and commitments to

extend credit are classified based on the earliest date they can be called.

|  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- |
| Contractual maturities of financial liabilities and off-balance sheet items – undiscounted basis\* |  |  |  |  |  | Table 61 |
|  | As at October 31, 2025 | | | | | |
|  | On | Within | 1 year | 2 years | 5 years |  |
| (Millions of Canadian dollars) | demand | 1 year | to 2 years | to 5 years | and greater | Total |
| Financial liabilities |  |  |  |  |  |  |
| Deposits  (1) | $ 673,197 | $  572,391 | $  87,107 | $ 114,183 | $  72,916 | $ 1,519,794 |
| Other |  |  |  |  |  |  |
| Obligations related to securities sold short | – | 49,241 | 650 | – | – | 49,891 |
| Obligations related to assets sold under |  |  |  |  |  |  |
| repurchase agreements and securities loaned | 23,020 | 264,838 | 1,672 | – | – | 289,530 |
| Other liabilities | 1,842 | 57,701 | 1,010 | 2,503 | 21,082 | 84,138 |
| Lease liabilities | – | 694 | 799 | 1,947 | 1,877 | 5,317 |
| Subordinated debentures | – | 2,091 | – | – | 11,880 | 13,971 |
|  | 698,059 | 946,956 | 91,238 | 118,633 | 107,755 | 1,962,641 |
| Off-balance sheet items |  |  |  |  |  |  |
| Financial guarantees  (2) | $  26,806 | $  1,772 | $  240 | $  110 | $  – | $  28,928 |
| Other commitments  (3) | – | 68 | 63 | 162 | 213 | 506 |
| Commitments to extend credit  (2) | 4,206 | 134,908 | 61,746 | 207,249 | 11,814 | 419,923 |
|  | 31,012 | 136,748 | 62,049 | 207,521 | 12,027 | 449,357 |
| Total financial liabilities and off-balance sheet |  |  |  |  |  |  |
| items | $ 729,071 | $ 1,083,704 | $ 153,287 | $ 326,154 | $ 119,782 | $ 2,411,998 |

|  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- |
|  | As at October 31, 2024 | | | | | |
|  | On | Within | 1 year | 2 years | 5 years |  |
| (Millions of Canadian dollars) | demand | 1 year | to 2 years | to 5 years | and greater | Total |
| Financial liabilities |  |  |  |  |  |  |
| Deposits  (1) | $ 585,524 | $  560,583 | $  79,909 | $ 127,421 | $  58,193 | $ 1,411,630 |
| Other |  |  |  |  |  |  |
| Obligations related to securities sold short | – | 35,326 | – | – | – | 35,326 |
| Obligations related to assets sold under |  |  |  |  |  |  |
| repurchase agreements and securities loaned | 22,336 | 282,478 | 466 | – | – | 305,280 |
| Other liabilities | 563 | 51,216 | 382 | 742 | 15,011 | 67,914 |
| Lease liabilities | – | 709 | 631 | 1,566 | 1,767 | 4,673 |
| Subordinated debentures | – | – | 2,026 | – | 11,530 | 13,556 |
|  | 608,423 | 930,312 | 83,414 | 129,729 | 86,501 | 1,838,379 |
| Off-balance sheet items |  |  |  |  |  |  |
| Financial guarantees  (2) | $  25,553 | $  1,485 | $  10 | $  174 | $  – | $  27,222 |
| Other commitments  (3) | – | 77 | 70 | 179 | 260 | 586 |
| Commitments to extend credit  (2) | 3,081 | 121,652 | 54,443 | 190,073 | 9,718 | 378,967 |
|  | 28,634 | 123,214 | 54,523 | 190,426 | 9,978 | 406,775 |
| Total financial liabilities and off-balance sheet |  |  |  |  |  |  |
| items | $ 637,057 | $ 1,053,526 | $ 137,937 | $ 320,155 | $  96,479 | $ 2,245,154 |

\*

This table represents an integral part of our 2025 Annual Consolidated Financial Statements.

(1)

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.

(2)

We believe that it is highly unlikely that all or substantially all of these guarantees and commitments will be drawn or settled within one year, and contracts may expire

without being drawn or settled. The management of the liquidity risk associated with potential extensions of funds is outlined in the preceding Risk measurement and

internal liquidity reporting section.

(3)

Includes commitments related to short-term and low-dollar value leases, leases not yet commenced, and lease payments related to non-recoverable tax.

Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2025

101

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Insurance risk

Insurance risk refers to the potential financial loss that may arise where the amount, timing and/or frequency of benefit and/or

premium payments under insurance and reinsurance contracts are different than expected. Insurance risk is distinct from those

risks covered by other parts of our risk management framework (e.g., credit, market and operational risk) where those risks are

ancillary to, or accompany, the risk transfer. Our main insurance sub-risks are: morbidity, mortality, longevity, policyholder

behaviour (lapse) and travel risk. In addition, we are subject to expense risk, which is the exposure to the variability in future

expenses that are expected to be incurred in servicing insurance contracts.

Our Insurance Risk Management Framework provides an overview of our processes and tools for identifying, assessing,

managing, mitigating and reporting on the insurance risks that face the organization. These are also supported by our robust

three lines of defence governance structure, which is consistent with our ERMF.

Operational risk

Operational risk is the risk of loss or harm resulting from people, inadequate or failed internal processes, controls and systems

or from external events. Operational risk is inherent in all our activities and third-party activities and failure to manage

operational risk can result in direct or indirect financial loss, reputational impact or regulatory scrutiny and proceedings in the

various jurisdictions where we operate.

Our management of operational risk follows the three lines of defence governance model, encompassing the organizational

roles and responsibilities for a coordinated enterprise-wide approach. For further details on the structure and organization of

our operational risk management and control function, refer to the Risk management – Enterprise risk management section.

Operational risk framework

We have an Enterprise Operational Risk Framework which sets out the processes to identify, assess, monitor, measure, report

and communicate on operational risk. The processes are established through the following:

•

Risk identification and assessment tools, including the collection and analysis of risk event data, help risk owners

understand and proactively manage operational risk exposures. Risk assessments are intended to ensure alignment

between risk exposures and efforts to manage them. Management uses outputs of these tools to make informed risk

decisions.

•

Risk monitoring tools alert management to changes in the operational risk profile. When paired with escalation and

monitoring triggers, risk monitoring tools can identify risk trends, warn management of risk levels that approach or exceed

defined limits, as well as prompt actions and mitigation plans to be undertaken.

•

Risk capital measurement is designed to provide credible estimation of potential risk exposure, including surfacing risk

vulnerabilities, and informs strategic and capital planning decisions, which are ultimately intended to ensure that the bank

is sufficiently resilient to withstand operational risk losses both in normal times and under stress situations.

•

Risk reporting and communication processes seek to ensure that relevant operational risk information is made available to

management in a timely manner to support risk-informed business decisions.

Conclusions from our operational risk programs enable learning based on what has occurred, insights into whether it could

happen elsewhere in the organization, and what controls we need to amend or implement. These conclusions support the

articulation of our operational risk appetite and are used to inform the overall level of operational risk exposure which thereby

defines our operational risk profile. This profile includes significant operational risk exposures, potential new and emerging

exposures and trends, and overall conclusions on the control environment and risk outlook.

We consider the potential risks and rewards of our decisions to strike a balance between accepting potential losses versus

incurring costs of mitigation, the expression of which is in the form of our operational risk appetite. Our operational risk appetite

is established at the Board level and cascaded throughout each of our business segments. We proactively identify and

investigate corporate insurance opportunities to mitigate and reduce potential future impacts of operational risk.

Management reports have been implemented at various levels to support proactive management of operational risk and

transparency of risk exposures. These reports are provided to senior management on a regular basis and provide detail on the

main drivers of the risk status and trend for each of our business segments and the bank overall. In addition, changes to the

operational risk profile that are not aligned to our business strategy or operational risk appetite are identified and discussed at

the Operational Risk Committee (comprised of executives across the business and risk management) and presented to the

Group Risk Committee (GRC) and the Risk Committee of the Board.

Our operations expose us to many different operational risks, which may adversely affect our businesses and financial

results. The following list is not exhaustive, as other factors could also adversely affect our results.

102

Royal Bank of Canada: Annual Report 2025

Management’s Discussion and Analysis

![]()

Operational risk

Management strategy

Information technology

and cybersecurity risk

Information technology risk is the risk associated with the use, ownership, operation and adoption

of information systems that can result in business interruptions, client service disruptions and loss

of confidential information causing financial loss, reputational damage and regulatory fines and

penalties. We maintain a risk driven program to address the risks following our operational risk

framework supported by a global team of technology risk management experts.

Cybersecurity risk is the risk to the business associated with cyberattacks initiated to disrupt or

disable our operations or to expose or damage data. We have a dedicated team of technology and

cybersecurity professionals that manage a comprehensive program that seeks to protect the

organization against breaches and other incidents by ensuring appropriate security and

operational controls are in place. We continue to strengthen our cyber-control framework and to

improve our resilience and cybersecurity capabilities including through 24-hour monitoring, cyber

intelligence analysis of internal and external threats and alerting of potentially suspicious

security events and incidents. Throughout the year, we continued to invest in our cybersecurity

program. In addition, scenario-based testing, assessments and simulations were conducted to

test our resiliency strategy.

Information management

and privacy risk

Information management risk is the risk of failing to manage information appropriately through

its lifecycle due to inadequate processes, controls and technology resulting in legal and

regulatory consequences, reputational damage and/or financial loss. We continue to invest in the

Enterprise Chief Data Office (CDO) and functional and regional data management and data

governance units to promote awareness of and effectively manage information management risk.

Managing information management risk is fundamental to become a data-driven organization

that uses data effectively and efficiently to improve client experience and decision-making.

Privacy risk is defined as the risk of improper creation or collection, use, disclosure, retention or

destruction of PI, including the failure to safeguard PI against unauthorized access. PI is

information entrusted to RBC that identifies an individual or can be reasonably used to identity an

individual. PI can relate to current, former and prospective clients, employees and contractors.

The collection, use and sharing of data, as well as the management and governance of data, are

increasingly important as we continue to invest in digital solutions and innovation, as well as

expanding our business activities, which is also reflected through regulatory developments

relating to data privacy. GRM partners with cross-functional teams to develop and implement

enterprise-wide standards and practices that describe how data is obtained, used, protected,

managed and governed.

Financial crimes risk

Financial crimes risk is the risk that our products, services and delivery channels are misused to

facilitate the laundering of proceeds of crime, financing of terrorist activity, bribery, corruption

and other activities that may violate applicable economic sanctions. We maintain an enterprise-

wide program designed to deter, detect and report suspected money laundering and terrorist

financing or suspicious activities across our organization, while seeking to ensure compliance

with the laws and regulations of the various jurisdictions in which we operate. Our Enterprise

Financial Crimes program is dedicated to the continuous development and maintenance of robust

policies, guidelines, training, risk-assessment tools and models to enable our employees to

manage evolving money laundering and terrorist financing risks, economic sanctions and

regulatory expectations. The Enterprise Financial Crimes program is regularly evaluated in an

effort to ensure it remains current and aligned with industry standards, best practices and all

applicable laws, regulations and guidance. Risks of non-compliance can include enforcement

actions (which may involve substantial fines or limitations on our business activities), criminal

prosecutions and reputational damage.

Third-party risk

Third-party risk is a risk that arises if and when there is a failure to effectively manage third

parties which may expose us to service disruptions, regulatory action, financial loss, litigation or

reputational damage. We have a risk-based, enterprise-wide program designed to provide

oversight for third-party relationships, ensure compliance with global regulatory expectations and

enable effective responses to events that can cause service disruptions, financial loss or various

other risks that could impact us. Our approach to third-party risk mitigation is outlined in policies

and standards that establish the requirements for identifying and managing risks throughout the

engagement with a third-party (including risks resultant from supplier concentration and through

fourth parties across the supply chain). Third-party providers critical to our operations are

actively monitored for their ability to deliver services to us, including impacts resultant from

suppliers of our third-party providers (i.e., fourth parties).

Business continuity risk

Business continuity risk is the risk of being unable to maintain, continue or restore essential

business operations during and/or after an event that prevents us from conducting business in the

normal course. Exposure to disruptive operational events interrupts the continuity of our business

operations and could negatively impact our financial results, reputation, client outcomes and/or

result in harm to our employees. These operational events could result from the impact of severe

weather, outbreak of a pandemic or other health crisis, failed processes, technology failures or

cyber threats. Our risk-based enterprise-wide business continuity management program

considers multiple scenarios to address the consequences of a disruption and its effects on the

availability of our people, processes, facilities, technology and third-party arrangements. Our

approach to, and requirements for, business continuity management are outlined in policies and

standards embedded across the organization and the related risks are regularly measured,

monitored, reported and integrated into our operational risk management and control framework.

Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2025

103

![]()

Operational risk

Management strategy

Fraud risk

Fraud risk is the risk of intentional unauthorized activities designed to obtain benefits from RBC or

assets under our care, or from using RBC products. Fraud may be perpetrated by external parties

(external fraud) or by individuals inside the organization (internal fraud). It typically results in

financial loss, reputational damage or other harm to victims and involves intent to deceive for

improper or illegal gain. Examples include theft of cash or assets and unauthorized transactions.

To manage fraud risk effectively, we employ a comprehensive, multi-layered approach that

includes prevention, detection and response strategies. This approach is supported by policies

and procedures that clearly outline the responsibilities and expectations for all employees.

Additionally, we implement robust technical controls, such as advanced fraud detection software,

and internal business controls, including regular audits and compliance checks. These measures

are designed to work together to provide a strong defense against fraud, to protect both the

organization and our clients.

Model risk

Models are applications of theoretical, empirical, judgmental assumptions and/or statistical techniques, including AI and

machine learning methods, which process input data to generate results and present a useful and meaningful output to inform

business units and control functions across RBC. Models support valuation of financial products and positions; identification,

measurement and management of risk; stress testing and capital adequacy; business decision-making; financial and regulatory

reporting; operational efficiencies; and public disclosure. Model risk is the risk of adverse financial, operational or reputational

consequences arising from the misspecification or misuse of models at any stage throughout a model’s lifecycle.

Model risk governance and oversight

The model risk governance and oversight structure spans all stages of the model’s life cycle, and is founded on principles of

shared responsibility across the three lines of defence. The Enterprise Model Risk Policy sets out the requirements for managing

model risk across RBC, and compliance with the policy is monitored and reported on regularly to senior management and

periodically to the Risk Committee of the Board.

The model risk management lifecycle

Model risk is managed across all key stages of a model’s life cycle, with emphasis on: (i) maintaining a complete inventory of

models used across RBC; (ii) developing and comprehensively documenting all models; (iii) independently challenging the

efficacy of models through validation; (iv) model implementation, use and ongoing performance monitoring; and (v) periodic

re-validation of models to confirm they remain fit for purpose.

Model validation is a critical stage of a model’s life cycle, in which models are independently and comprehensively

evaluated for intended uses. This lifecycle activity is carried out by our enterprise model risk management function, a team of

modelling professionals organizationally independent from the model owners, developers and users. The independent

validation of a model seeks to ensure conceptual soundness and fitness for use, and to highlight model limitations and

uncertainties, which should reduce the risks associated with model use.

Following approval, models are subject to ongoing performance monitoring and periodic re-validation. As needed, models

are retired or replaced with more suitable models, which are also subject to the model risk management lifecycle.

Culture and conduct risk

Our culture is defined by our Purpose, vision, values and risk management principles with behaviours upheld through our Code

of Conduct. Our values set the foundation of our culture and are rooted in our respect for and our commitments to our clients,

communities and other stakeholders, and each other. Culture risk refers to the misalignment between our stated desired culture

and our actual culture as exemplified through leader actions, employee behaviours or organizational systems that may prevent

us from achieving our objectives.

Conduct is the manifestation of culture through the behaviours, judgment, decisions, actions and inactions of the

organization, our employees and third-party service providers operating on our behalf. Conduct risk is the risk that outcomes

are not in keeping with our responsibilities to our stakeholders, including clients, employees, financial markets and regulators,

suppliers, communities, our reputation and shareholders. This risk is managed through embedding conduct considerations into

business decision-making processes, enhancing existing business practices and control processes, and monitoring to avoid and

address poor outcomes for stakeholders. The desired outcomes from effective culture and conduct practices align with our

Purpose and values and support our risk appetite statements.

Risk culture is a subset of our overall culture that influences how, individually and collectively, we take and manage risks.

Our risk culture helps us identify and understand risks, openly discuss risks and act on the organization’s current and perceived

future risks. Our risk culture practices are grounded in our risk management and human resource practices and protocols. When

combined with the elements of effective leadership and values, these practices provide a base from which the resulting risk

culture and conduct outcomes can be assessed and monitored, and practices can be sustained and/or further enhanced.

Our Board-approved Enterprise Culture and Conduct Risks Framework provides organizational direction and describes our

approach to related topics applicable to all risk categories such as fair outcomes for clients and other stakeholders, and our

culture, including accountability and risk culture, conduct risk, sales conduct, client practices and misconduct.

104

Royal Bank of Canada: Annual Report 2025

Management’s Discussion and Analysis

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On a regular basis, management communicates behavioural expectations to our employees with an emphasis on culture,

conduct and values. Our leadership model also supports and encourages effective challenge between the businesses and

control functions. These behavioural expectations are supported by tools and resources which are designed to help employees

live our values, report misconduct and raise concerns, including those that might have ethical implications. We are committed to

fostering an environment where employees feel safe to speak up without retaliation. Employees have the ability to report

matters through a global anonymous Conduct Hotline. In addition, our Code of Conduct outlines an employee’s responsibility to

be truthful, respect others and comply with laws, regulations and our policies. Anyone who breaches or fails to report an actual

or possible breach of the Code of Conduct is subject to corrective or disciplinary action. This can range from reprimands and

impacts on performance ratings and compensation, to termination of employment relationships with the organization. As well,

Internal Audit conducts select behavioural science reviews to better understand and enhance employee attitudes and

behaviours as they relate to risk management.

Organizational Direction

articulated through:

Purpose

Values

Code of Conduct

Risk Appetite

Risk Management Principles

Outcomes for

Stakeholders:

Clients

Employees

Financial Markets

Regulators

Our Reputation

Shareholders

Individual &

Collective Conduct

Exhibited through:

Behaviours

Judgment

Decisions

Actions

Drives actual

Apply lessons learned

Sets expected

Inﬂuences

Shapes

Factors

Inﬂuential to Managing

Culture and Conduct Risks

Accountability

Tone from Above

Speaking Up

Incentives

Risk Culture

(Awareness)

Operational risk capital

Requirements for operational risk capital are determined in accordance with OSFI’s CAR guidelines using the Basel III

Standardized Approach (SA) for operational risk. The SA methodology is a formula-based calculation where a Business Indicator

Component (BIC) is multiplied by an Internal Loss Multiplier (ILM) to determine operational risk capital. The BIC is a financial

statement-based proxy for operational risk that reflects a three-year average of specified components of net income multiplied

by a set of supervisory provided coefficients. The ILM is a scaling factor that is based on our 10-year historical operational loss

average relative to the BIC. Operational risk losses are recorded in our operational risk management system, and robust

processes exist to support high quality internal loss data. For further details on operational risk capital, refer to the Capital

management section.

Operational risk loss events

As at October 31, 2025, our operational risk losses remain within our risk appetite. For further details on our contingencies,

including litigation, refer to Notes 23 and 24 of our 2025 Annual Consolidated Financial Statements.

Compliance risk

Compliance risk is the risk of potential non-conformance with laws, rules, regulations and prescribed practices in any

jurisdiction in which we operate. Issues regarding compliance with laws and regulations can arise in a number of areas in large

complex financial institutions, such as RBC, and are often the result of inadequate or failed internal processes, controls, people

or systems. We currently are, and may be at any given time, subject to legal and regulatory proceedings and subject to

governmental and regulatory examinations, investigations and other inquiries.

Laws and regulations are in place to protect the financial and other interests of our clients, shareholders and the public. As

a large-scale global financial institution, we are subject to numerous laws and extensive and evolving regulation by

governmental agencies, supervisory authorities and self-regulatory organizations in Canada, the U.S., the U.K., Europe and other

jurisdictions in which we operate. Such regulation continues to become increasingly extensive and complex. In addition,

regulatory scrutiny and expectations in Canada, the U.S., the U.K., Europe and other jurisdictions for large financial institutions

with respect to, among other things, governance, risk management practices and controls, and conduct, as well as the

enforcement of regulatory compliance matters, has intensified. Failure to comply with these regulatory requirements and

expectations or to resolve any identified deficiencies could result in increased regulatory oversight and restrictions. Resolution

of such matters can also result in the payment of substantial penalties, agreements with respect to future operation of our

business, actions with respect to relevant personnel, admission of wrongdoing, and guilty pleas with respect to criminal charges,

which in turn may result in us being prohibited from conducting certain types of business absent regulatory relief, receipt of

which cannot be assured.

Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2025

105

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Regulatory compliance risk includes the regulatory risks associated with financial crimes (which include, but are not limited

to, money laundering, terrorist financing, bribery, corruption and violations of economic sanctions), privacy, market conduct,

consumer protection and business conduct, as well as prudential and other generally applicable non-financial requirements.

Specific compliance policies, procedures and supporting frameworks have been developed to seek to manage regulatory

compliance risk.

Our Regulatory Compliance Management Framework outlines how we manage and mitigate the regulatory compliance risks

associated with failing to comply with, or adapt to, current and changing laws, regulations and expectations in the jurisdictions

in which we operate.

Operating in a complex regulatory environment and intense regulatory enforcement environment, we are and have been

subject to a variety of legal proceedings, including civil claims and lawsuits, criminal charges, regulatory scrutiny, examinations

and proceedings, investigations, audits and requests for information by various governmental regulatory agencies and law

enforcement authorities in various jurisdictions, and we anticipate that our ongoing business activities will give rise to such

matters in the future. The global scope of our operations also means that a single issue may give rise to overlapping regulatory

investigations, regulatory proceedings, or civil litigation claims and/or criminal prosecutions in different jurisdictions. RBC can

be subject to such proceedings due to alleged violations of law or, if determined by regulators, allegedly inadequate policies,

procedures, controls or remediation of deficiencies. Changes to laws, including tax laws, regulations or regulatory policies, as

well as the changes in how they are interpreted, implemented or enforced, could adversely affect us, for example, by lowering

barriers to entry in the businesses in which we operate, increasing our costs of compliance, or limiting our activities and ability

to execute our strategic plans. In addition, the severity of the remedies sought in legal and regulatory proceedings to which RBC

is subject have increased. Further, there is no assurance that we always will be, or be deemed to be, in compliance with laws,

regulations or regulatory policies or expectations. Accordingly, it is possible that we could receive a judicial or regulatory

enforcement judgment or decision that results in significant fines, damages, penalties, and other costs or injunctions, criminal

convictions, or loss of licenses or registrations that would damage our reputation and negatively impact our earnings and ability

to conduct some of our businesses. We may also be subject to litigation arising in the ordinary course of our business and the

adverse resolution of any litigation could have a significant adverse effect on our results or could give rise to significant related

reputational damage, which in turn could impact our future business prospects.

Reputation risk

Reputation risk is the risk of an adverse impact on stakeholders’ perception of RBC due to i) perceived or actual misalignment

between stakeholder perceptions of RBC and the actions or inactions of the bank, its employees or individuals or groups

affiliated with RBC, ii) negative or shifting public sentiment on existing, evolving or emerging industry or global issues, or

iii) negative outcomes relating to any risk inherent to the financial services industry, including ineffective management of these

risks, or situations beyond our control such as external events or systemic risks. A strong and trustworthy reputation will

generally strengthen our market position, reduce our cost of capital, increase shareholder value, attract and retain top talent

and help us weather a crisis. Conversely, damage to our reputation can result in reduced share price and market capitalization,

loss of strategic flexibility, inability to enter or expand into markets, loss of client loyalty and business, or regulatory fines and

penalties. The sources of reputation risk are widespread. Reputation risk is a transverse risk which can manifest as an outcome

of other risk types including but not limited to credit, regulatory, legal, operational and E&S risks. We can also experience

reputation risk from a failure to maintain an effective control environment, exhibit good conduct and maintain appropriate

cultural practices.

Managing our reputation risk is an integral part of our organizational culture and our overall enterprise risk management

approach, as well as a priority for employees and our Board. Our Board-approved Enterprise Reputation Risk Management

Framework provides an overview of our approach to identify, assess, manage, monitor and report on reputation risk. This

framework outlines governance authorities, roles and responsibilities, and controls and mechanisms to manage our reputation

risk, including our culture of integrity, compliance with our Code of Conduct and operating within our risk appetite.

Our governance of reputation risk aims to be holistic and provides an integrated view of potential reputation issues across

the organization. This governance structure is designed to support the understanding of ownership and accountability for

reputation risk across the enterprise, both proactive and reactive reputation risk decisions are escalated to senior management

for review and evaluation, and reporting on reputation risk is comprehensive and integrated.

Strategic risk

Strategic risk is the risk to earnings, capital or liquidity arising from adverse business decisions, improper implementation of

strategic initiatives or inadequate responses to changes in the external operating environment by the bank or a particular

business unit. To safeguard against unacceptable losses or unintended outcomes, we integrate risk management practices into

our strategic, financial and capital planning processes. This integration facilitates informed dialogue during strategic decision

making and serves as a foundational element of our planning cycle.

Accountability for the selection and execution of business strategies resides with the heads of each business segment. The

governance of strategic risk is the responsibility of these leaders and their operating committees, in conjunction with the

Enterprise Strategy & Transformation group, the GE and the Board. The Enterprise Strategy & Transformation group supports

the management of strategic risk through the strategic planning process, articulated within our Enterprise Strategic Planning

Policy. This is designed to ensure alignment across strategic, financial, capital and risk planning domains.

Our annual business portfolio review and project approval request processes serve as key mechanisms for identifying and

mitigating strategic risk. These processes aim to ensure that proposed initiatives, lines of business and overarching enterprise

strategies remain consistent with our defined risk appetite and posture. GRM oversees strategic risk by conducting independent

oversight and review and challenge of these processes, establishing enterprise risk frameworks, and independently monitoring

and reporting risk levels relative to risk appetite measures, consistent with the three lines of defence governance model.

For details on the key strategic priorities for our business segments, refer to the Business segment results section.

106

Royal Bank of Canada: Annual Report 2025

Management’s Discussion and Analysis

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Overview of other risks

In addition to the risks described in the risk sections, there are other risk factors, described below, which may affect our

businesses and financial results. The following discussion is not exhaustive as other factors could also adversely affect our

results.

Legal and regulatory environment risk

Legal and regulatory environment risk is the risk that new or modified laws and regulations, and the interpretation or

application of laws and regulations, will negatively impact the way in which we operate, both in Canada and in the other

jurisdictions in which we conduct business. The full impact of some of these changes on our business will not be known until

final rules are implemented and market practices have developed in response. We continue to respond to these and other

developments and are working to minimize any potential adverse business or economic impact. The following provides a high-

level summary of some of the key regulatory changes that have potential to increase or decrease our costs, impact our

profitability and increase the complexity of our operations.

Global uncertainty

In October 2025, the International Monetary Fund (IMF) projected global growth of 3.2% for 2025, up 0.2% from its July forecast,

reflecting an improvement due to easing of trade tensions, which were tempered as a result of trade deals and resets. The IMF

projected global growth for calendar 2026 to be 3.1%. The overall global economic outlook remains fragile and tilted to the

downside, driven by:

•

Failure to reach trade agreements and reliance on ad-hoc bilateral deals, which could lead to a shift away from global

economic integration, negatively impact productivity and further hurt growth prospects, especially for emerging markets

and developing economies;

•

Substantive projected fiscal deficits across major economies, which could lead to upward pressure on long-term interest

rates, financial market instability and/or deceleration in growth, along with their associated impact on consumer and

business confidence;

•

Diverging monetary policies in response to inflationary pressures, which could drive asset repricing, impact foreign

exchange rates and capital flows and heighten financial market volatility;

•

Shifting global policy priorities, including ongoing uncertainty around U.S. trade, foreign relations, defense and immigration

policies, which could disrupt global alliances and heighten economic, market and other risks, and intensifying political

pressures on policy institutions and policymaking, which could weaken policy credibility, reduce investor confidence and

heighten macroeconomic vulnerabilities;

•

Elevated asset valuations, including in technology and AI-linked sectors which could drive abrupt market corrections,

dampen investment, tighten financial conditions and weaken business and consumer confidence;

•

An aging demographic in advanced economies, as well as changing immigration policies, which could have an associated

long-term impact on labour supply, economic productivity and government fiscal capacity;

•

Ongoing conflicts including those between Russia and Ukraine, in the Middle East and Asia, and rising tensions between

China and Taiwan, together with increased polarization and social unrest; and

•

Extreme weather-related events.

Our diversified business model, as well as our product and geographic diversification, continue to help mitigate the risks posed

by global uncertainty.

Sustainability-related legal and regulatory activity

Applicable sustainability-related laws, regulations, policies, frameworks, methodologies and guidance continue to evolve in

inconsistent ways across the regions in which we operate. As such, new or heightened requirements could result in increased

regulatory, compliance or other costs or higher capital requirements, and may subject us to different and potentially conflicting

policies and requirements in the various jurisdictions in which we operate. We continue to monitor the development of

applicable laws, regulations, policies, frameworks, methodologies and guidance in this area, including but not limited to the

evolution of sustainability disclosure requirements and climate risk management requirements for financial institutions.

In Canada, OSFI’s Guideline B-15

Climate Risk Management,

issued in March 2023, sets expectations for managing and

disclosing climate-related risks. Subsequent updates in 2024 and 2025 aligned disclosure expectations with IFRS S2

Climate-

related Disclosures

issued by the International Sustainability Standards Board (ISSB) and extended certain implementation

timelines to fiscal 2028 and 2029. We expect to meet upcoming disclosure phases and continue to monitor further developments.

In the U.S., scrutiny of financial institutions relating to environmental and/or social matters, including climate, continues to

be heightened at both the federal and state levels, including through statutes, regulations and litigation. As environmental and

social issues remain heavily politicized, statutes or regulations in certain states may be interpreted to prohibit governmental

entities, such as public pension funds and issuers of municipal bonds, from doing business with certain financial institutions,

and political pressure may be placed upon governmental entities to not do business with certain financial institutions, based on

the financial institutions’ perceived positions on certain environmental and/or social matters. We continue to monitor

developments in this area and assess their impacts on our businesses.

In Europe, the European Union’s Corporate Sustainability Reporting Directive (CSRD) requires reporting under the European

Sustainability Reporting Standards (ESRS). The ESRS, which were adopted by the European Commission in July 2023, set out the

requirements for companies to report on sustainability-related impacts, opportunities and risks. We anticipate that we will be

subject to reporting obligations under the CSRD from fiscal 2029 at the consolidated level, and are currently assessing the

impact of these requirements.

We continue to monitor the development of applicable anti-greenwashing laws and regulations as well as climate-related

litigation and regulatory enforcement actions related to greenwashing, including amendments to the Competition Act (Canada)

which came into force on June 20, 2024, and which introduced new anti-greenwashing provisions. These provisions are in addition

to the pre-existing provisions of the Competition Act (Canada) that prohibit the making of claims that are materially false or

misleading. “Greenwashing” generally refers to the practice of conveying false or misleading information about an organization’s

products or services or operations to suggest that the organization is doing more to protect the environment than it is.

Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2025

107

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Model risk management

On September 11, 2025, OSFI released its final Guideline E-23 – Model Risk Management, which sets out expectations for

managing risks associated with traditional models as well as emerging technologies such as artificial intelligence and machine

learning.

This guideline will be effective May 1, 2027. We have assessed the requirements and do not anticipate any issues in

complying with the requirements by the effective date.

For further details on regulatory capital and related requirements, refer to the Risk management and Capital management

sections of this 2025 Annual Report.

Government fiscal, monetary and other policies

Our financial results are also sensitive to changes in interest rates. The Federal Reserve is expected to cut interest rates further

in calendar 2026 after reducing interest rates less than other global central banks since 2024, while additional interest rate cuts

from the Bank of Canada are not expected. Lower interest rates generally lead to spread compression across many of our

businesses, resulting in an unfavourable impact on NIM, but can also promote economic stimulation and drive higher volumes

for our business than otherwise would have occurred. Higher interest rates may be a potential benefit to our NIM but may

adversely impact household balance sheets by causing credit deterioration, hence negatively impacting our financial results. If

elevated interest rates are coupled with persistent inflation, this could increase market volatility, reduce asset values and

adversely impact household and corporate balance sheets. This could lead to credit deterioration and impact our financial

results, particularly in our Personal Banking, Commercial Banking, Wealth Management and Capital Markets businesses.

Our businesses and earnings are affected by monetary policies that are adopted by the BoC, the Fed in the U.S., the ECB in

the European Union (EU), the BoE in the U.K. and monetary authorities in other jurisdictions in which we operate. In addition,

our businesses and earnings may be affected by the fiscal, trade-related and other policies of the governments of Canada, the

U.S., the U.K., Europe and such other jurisdictions. Those policies may include protectionist trade policies and the imposition of

tariffs, as well as increased deficit spending intended to support economic growth. Such policies can have positive or adverse

affects on our clients and counterparties in Canada, the U.S. and internationally, which may decrease or increase the risk of

default by such clients and counterparties.

Tax risk and transparency

Tax risk refers to the risk of loss related to unexpected tax liabilities. The tax laws and systems that are applicable to us are

complex and wide-ranging. As a result, we seek to ensure that any decisions or actions related to tax always reflect our

assessment of the long-term costs and risks involved, including their impact on our reputation and our relationship with clients,

shareholders and regulators.

Our approach to taxation is grounded in principles which are reflected in our Code of Conduct, governed by our Enterprise

Tax Risk Management Policy and incorporates the fundamentals of our risk drivers. Oversight of our tax policy and the

management of tax risk is the responsibility of the GE, the CFO and the Senior Vice President, Taxation. We discuss our tax

strategy with the Audit Committee annually and provide updates on our tax position on a regular basis.

Our tax strategy is designed to provide transparency and support our business strategy, and is aligned with our corporate

vision and values. We seek to maximize shareholder value by structuring our businesses in a tax-efficient manner while

considering reputation risk by being in compliance with all laws and regulations. Our policy requires that we:

•

Act with integrity and in a straightforward, open and honest manner in all tax matters;

•

Ensure tax strategy is aligned with our business strategy supporting only bona fide transactions with a business

purpose and economic substance;

•

Ensure all intercompany transactions are conducted in accordance with applicable transfer pricing requirements;

•

Ensure our full compliance and full disclosure to tax authorities of our statutory obligations; and

•

Endeavour to work with the tax authorities to build positive long-term relationships and where disputes occur, address

them constructively.

With respect to assessing the needs of our clients, we consider a number of factors including the purpose of the transactions.

We seek to ensure that we only support bona fide client transactions with a business purpose and economic substance. Should

we become aware of client transactions that are aimed at evading their tax obligations, we will not proceed with the

transactions.

We operate in 29 countries worldwide. Our activities in these countries are subject to both Canadian and international tax

legislation and other regulations, and are fully disclosed to the relevant tax authorities. The Taxation group and GRM both

regularly review the activities of all entities in an effort to ensure compliance with tax requirements and other regulations.

Given that we operate globally, complex tax legislation and accounting principles have resulted in differing legal

interpretations by the respective tax authorities we deal with and ourselves, and we are at risk of tax authorities disagreeing

with prior positions we have taken for tax purposes. When this occurs, we are committed to an open and transparent dialogue

with the tax authorities to facilitate a quick assessment and prompt resolution of the issues where possible. Failure to

adequately manage tax risk and resolve issues with tax authorities in a satisfactory manner could adversely impact our results,

potentially to a material extent in a particular period, and/or significantly impact our reputation.

108

Royal Bank of Canada: Annual Report 2025

Management’s Discussion and Analysis

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Tax contribution

In 2025, total income and other tax expense, including income taxes in the Consolidated Statements of Comprehensive Income

and Changes in Equity, to various levels of governments globally totalled $7 billion (2024 – $5 billion). In Canada, total income

and other tax expense for the year ended October 31, 2025 to various levels of government totalled $5 billion (2024 – $4 billion).

Payroll taxes

Income taxes

Value added and

sales taxes

Capital taxes

Property taxes

Insurance premium taxes

Business taxes

0

2,000

1,000

7,000

6,000

5,000

4,000

3,000

2025

2024

Income and other tax expense – by category

(Millions of Canadian dollars)

8,000

0

2,000

1,000

7,000

6,000

5,000

4,000

3,000

Other International

U.S.

Canada

2025

2024

Income and other tax expense – by geography

(Millions of Canadian dollars)

8,000

For further details on income and other tax expense, refer to the Financial performance section.

Environmental and social risk

Environmental and social (E&S) risk is the risk of negative impacts in the short-, medium- or long-term on our financial results,

financial and operational resilience, reputation, business model or strategy resulting from E&S risk factors which can arise from

RBC, a client or a third-party. Because different stakeholders and communities may have divergent views on E&S issues, any

actual or perceived action or inaction by us in the management of an E&S issue may be perceived negatively by at least some

stakeholders and, as a result, may increase our E&S risk.

E&S risk factors include, but are not limited to, climate change, site contamination, waste management, land and resource

use, biodiversity, water quality and availability, environmental regulation, human rights (including, but not limited to, Indigenous

Peoples’ rights) and community engagement.

E&S risks are unique and transverse in nature and may impact our Principal Risks in different ways and to varying degrees,

including but not limited to strategic, operational, credit and compliance risks. See the Climate-related risk section below for

additional information specific to climate-related risk.

Governance

The Board and its Committees provide oversight of the bank’s strategic approach to sustainability matters, including climate

change, with specific subject-matter expertise, groups and functions responsible for relevant programs, products, policies and

performance rooted within business segments and functions across the bank. Committees of the Board have oversight of E&S

risks that are specific to their respective responsibilities, including the Governance Committee, which provides oversight and

coordination over sustainability matters, and the Risk Committee, which oversees significant and emerging risks to the bank,

including E&S risks. For further details on risk governance, refer to the Enterprise risk management – Risk governance section.

Roles and responsibilities related to E&S risk management are governed by the ERMF and the three lines of defence

governance model. Business segments and functional areas are responsible for incorporating E&S risk management

requirements within their own operations, while GRM is responsible for defining E&S risk management requirements, including

establishing policies, and performing effective oversight in relation to E&S risk.

Risk management

We seek to integrate E&S risk considerations into our risk management approach. We manage E&S risk by leveraging existing

policies and processes which govern our Principal Risks. Our Enterprise Policy on Environmental and Social Risk (E&S Risk

Policy)

1

supports these policies and processes by outlining our principles for E&S risk management and setting out standards for

how E&S risks arising from our activities are identified, assessed, measured, managed, mitigated, monitored and reported.

We continue to evolve our approach to E&S risk by leveraging existing risk management capabilities, and building new

capabilities where required, including for purposes of incorporating regulatory guidance, industry best practices and improved

data analytics to identify, assess, measure, manage, monitor and report on potential E&S impacts on clients, portfolios and our

operations. We recognize that the integration and maturity of our E&S risk management capabilities will continue to evolve, and

that achieving a mature level of E&S risk management will be iterative and take time.

1

The E&S Risk Policy is not inclusive of the activities of, and assets under management by, RBC Global Asset Management

®

(RBC GAM). RBC GAM has developed its own

policy with respect to these matters. RBC GAM includes, but is not limited to, the following wholly owned indirect subsidiaries of the Bank: RBC Global Asset Management

Inc. (including Phillips, Hager & North Investment Management), RBC Global Asset Management (U.S.) Inc., RBC Global Asset Management (UK) Limited, RBC Global Asset

Management (Asia) Limited.

Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2025

109

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Climate-related risk

We define climate-related risk as the potential negative impacts of climate change on our financial results, financial and

operational resilience, reputation, business model or strategy. Climate-related risk is categorized into transition risk and

physical risk. Transition risk is defined as the risks related to the process of adjustment towards a low-carbon economy. These

risks can emerge from current or future government policies, legislation, and regulation to limit carbon emissions as well as

technological advancements, and changes in market and customer sentiment towards a low-carbon economy. Physical risk is

defined to include the risks from the increasing severity and frequency of climate-related extremes and events (i.e., acute

physical risks), longer-term gradual shifts of the climate (i.e., chronic physical risks) and indirect effects of climate change, such

as public health implications (e.g., morbidity and mortality impacts).

We continue to make progress in our climate-related risk management capabilities by integrating climate-related risk

considerations into our existing risk management practices. Climate scenario analysis helps to inform future strategic planning,

evolve risk management strategies, and meet regulatory and stakeholder expectations. To help ensure that the bank is

adequately capitalized against unexpected events resulting from climate change, we assess the impact of climate-related risks

across multiple Principal Risks in our existing Enterprise-Wide Stress Testing program.

Human rights and codes of conduct

We continue to integrate our commitment to respect human rights into operational policies and procedures across the

organization, and we disclose the operationalization of this commitment in our various human rights related disclosures, such

as our Approach to Human Rights – which includes our Human Rights Position Statement and outlines our commitment to

respect human rights as set out in the United Nations Guiding Principles on Business and Human Rights. In addition, RBC’s

Statement Regarding Modern Slavery describes the policies and processes that are in place across our enterprise to help

prevent and reduce the risk that modern slavery is used in our operations and supply chain.

Our Code of Conduct establishes standards of desired behaviour for how we work together in a respectful, transparent and

fair environment. In addition, our Supplier Code of Conduct sets our expectations of suppliers to, among other things, abide by

relevant employment, labour, non-discrimination and human rights legislation and standards, and to respect human rights.

Voluntary commitments

We have made sustainability-related commitments that form part of our broader approach to managing E&S risks and

opportunities.

We may be exposed to legal, regulatory or reputational impacts for making or not fully meeting our sustainability-related

commitments, goals and targets either as a result of our own actions or due to external factors, which could cause our actual

results to differ materially from our expectations expressed in such objectives. More specifically, our ability to achieve our

sustainability-related commitments, goals and targets will depend on the collective efforts and actions across a wide range of

stakeholders outside of our control, and there can be no assurance that they will be achieved

2

.

In addition, our sustainability-related commitments, goals and targets are aspirational and may need to be changed, or

recalibrated in response to these external factors or as data improves and as climate science, transition pathways and market

practices regarding standards, methodologies, metrics and measurements evolve, which may result in us withdrawing from or

modifying our membership in certain frameworks, principles and initiatives.

Legal and regulatory developments

Applicable environmental and social-related laws, regulations, policies, frameworks, methodologies and guidance continue to

evolve. As such, new or heightened requirements could result in increased regulatory, compliance or other costs or higher

capital requirements, and may subject us to different and potentially conflicting requirements in the various jurisdictions in

which we operate. As regulatory requirements evolve, we will continue to monitor such developments and update our risk

management practices and disclosures as necessary. See the Legal and regulatory environment risk section for further details.

Capital management

We actively manage our capital to maintain strong capital ratios and high ratings while providing strong returns to our

shareholders. In addition to the regulatory requirements, we consider the expectations of credit rating agencies, depositors and

shareholders, as well as our business plans, stress tests, peer comparisons and our internal capital ratio targets. Our goal is to

optimize our capital usage and structure, and to provide support for our business segments and clients. We also aim to generate

optimal returns for our shareholders, while protecting depositors and creditors.

Capital management framework

Our capital management framework establishes policies and processes for defining, measuring, raising and investing all forms

of capital in a coordinated and consistent manner. It sets our overall approach to capital management, including guiding

principles and roles and responsibilities relating to capital adequacy and transactions, dividends, solo capital, and management

of RWA, leverage ratio exposures, TLAC capital and TLAC leverage ratios. We manage and monitor capital from several

perspectives, including regulatory capital, solo capital and TLAC.

2

For example, external factors that could cause our actual results to differ materially from such expectations include the availability, reliability, quality and verifiability of

climate data; the adoption of new and the evolution of existing climate-related standards, protocols and methodologies; the failure of clients, customers or other third

parties to implement or complete their transactions or their climate-related projects, programs and initiatives, or to do so when expected; the compliance of various

third parties with our policies and procedures and their commitment to us; the actions, policies and engagement of various stakeholders; technological advancements;

the evolution of markets and consumer behaviour, including the evolution and liquidity of the carbon markets; the status of adoption and implementation of

decarbonization efforts and climate policies around the world; the challenges of balancing emission reduction targets with an orderly, just and inclusive transition;

geopolitical factors that impact global energy needs; the legal and regulatory environment; and compliance considerations.

110

Royal Bank of Canada: Annual Report 2025

Management’s Discussion and Analysis

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Our capital planning process is dynamic and involves various teams including Finance, Corporate Treasury, GRM,

Economics and our businesses, and covers internal capital ratio targets, potential capital transactions as well as projected

dividend payouts and share repurchases. This process considers our business operating plans, enterprise-wide stress testing

and Internal Capital Adequacy Assessment Process (ICAAP), regulatory capital changes and supervisory requirements,

accounting changes, internal capital requirements, rating agency metrics and solo capital.

Our capital plan is established on an annual basis and is aligned with the management actions included in the annual

business operating plan, which includes forecast growth in assets and earnings, taking into account our business strategies, the

projected market and economic environment, and peer positioning. This includes incorporating potential capital transactions

based on our projected internal capital generation, business forecasts, market conditions and other developments, such as

accounting and regulatory changes that may impact capital requirements. All of the components in the capital plan are

monitored throughout the year and are revised as deemed appropriate.

Total capital requirements

Capital available and target

capital ratios

Capital impacts of

stress scenarios

Enterprise-wide

Stress Testing

ICAAP

Capital Plan and

Business

Operating Plan

Capital impacts of stress scenarios

Our enterprise-wide stress testing and annual ICAAP processes provide key inputs for capital planning, including setting

internal capital ratio targets. The stress scenarios are evaluated across the organization, and results are integrated to develop

an enterprise-wide view of financial impacts and capital requirements, which in turn facilitate the planning of mitigating actions

to absorb adverse events. ICAAP assesses capital adequacy and requirements covering all material risks, with a cushion for

plausible contingencies. In accordance with OSFI guidelines, major components of our ICAAP process include comprehensive

risk assessment, stress testing, capital assessment and planning, Board and senior management oversight, monitoring and

reporting and internal control review.

Our internal capital targets are established to maintain robust capital positions in excess of OSFI’s Basel III regulatory

targets. The results of our enterprise-wide stress testing and ICAAP processes are incorporated into the OSFI Capital Buffers,

Domestic Systemically Important Banks (D-SIB)/Globally Systemically Important Banks (G-SIB) surcharge, and Domestic

Stability Buffer (DSB), with a view to ensure that the bank has adequate capital to underpin risks and absorb losses under all

plausible stress scenarios given our risk profile and appetite. In addition, we include a discretionary cushion on top of OSFI’s

regulatory targets to reflect our risk appetite, our forecasts of potential negative downturns and to maintain our capital strength

for forthcoming regulatory and accounting changes, peer comparatives, rating agencies sensitivities, potential future

acquisitions and regulatory solo capital requirements.

The Board is responsible for the ultimate oversight of capital management, including the annual review and approval of the

capital plan. ALCO and GE share responsibility for capital management and receive regular reports detailing our compliance

with approved limits and guidelines. The Audit and Risk Committees jointly approve the ICAAP.

Basel III

Our consolidated regulatory capital requirements are determined by OSFI’s Capital Adequacy Requirements (CAR) guidelines,

which are based on the minimum Basel III capital ratio requirements adopted by the BCBS.

Under Basel III, banks select from two main approaches, the Standardized Approach (SA) or the IRB Approach, to calculate

their minimum regulatory capital required to support credit, market and operational risks. We apply the IRB approach to credit

risk to determine minimum regulatory capital requirements for the majority of our portfolios. Certain credit risk portfolios are

subject to the SA, primarily in Wealth Management, including our City National wholesale portfolio, our Caribbean Banking

operations and certain non-mortgage retail portfolios. For consolidated regulatory reporting of market risk capital and

operational risk capital, we use the revised SA based on OSFI requirements.

All federally regulated banks with a Basel III leverage ratio total exposure exceeding

€

200 billion at their financial year-end

are required, at a minimum, to publicly disclose in the first quarter following their year-end, the thirteen indicators used in the

annual G-SIB assessment methodology, with the goal of enhancing the transparency of the relative scale of banks’ potential

global systemic importance and data quality. The FSB publishes an updated list of G-SIBs annually. On November 27, 2025, we

were re-designated as a G-SIB by the FSB. This designation requires us to maintain a higher loss absorbency requirement

(common equity as a percentage of RWA) of 1% consistent with the D-SIB requirement. In addition to the Basel III targets, OSFI

established a Domestic Stability Buffer (DSB) applicable to all Canadian D-SIBs to further ensure the financial stability of the

Canadian financial system. The current OSFI requirement for the DSB is set at 3.5% of total RWA as reaffirmed by OSFI on

June 26, 2025.

Under OSFI’s TLAC guideline, D-SIBs are required to maintain a risk-based TLAC ratio, which builds on the risk-based capital

ratios described in the CAR guideline, and a TLAC leverage ratio, which builds on the leverage ratio described in OSFI’s LR

guideline. The TLAC requirement is intended to address the sufficiency of a D-SIB’s loss absorbing capacity in supporting its

recapitalization in the event of its failure. TLAC is defined as the aggregate of Tier 1 capital, Tier 2 capital and external 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 TLAC guideline.

Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2025

111

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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, leverage and TLAC requirements imposed by OSFI:

Basel III – OSFI regulatory targets

Table 62

Basel III

capital,

leverage and TLAC

ratios

OSFI regulatory target requirements

for large banks under Basel III

Domestic

Stability

Buffer

(3)

Minimum

including

Capital

Buffers,

D-SIB/G-SIB

surcharge and

Domestic

Stability

Buffer as at

October 31,

2025

(4)

RBC capital,

leverage

and TLAC

ratios

as at

October 31,

2025

Minimum

Capital

Buffers

Minimum

including

Capital

Buffers

D-SIB/G-SIB

surcharge

(1)

Minimum

including

Capital

Buffers and

D-SIB/G-SIB

surcharge

(1), (2)

Common Equity Tier 1

4.5%

2.6%

7.1%

1.0%

8.1%

3.5%

11.6%

13.5%

Tier 1 capital

6.0%

2.6%

8.6%

1.0%

9.6%

3.5%

13.1%

15.1%

Total capital

8.0%

2.6%

10.6%

1.0%

11.6%

3.5%

15.1%

16.8%

Leverage ratio

3.0%

n.a.

3.0%

0.5%

3.5%

n.a.

3.5%

4.4%

TLAC ratio

21.6%

n.a.

21.6%

n.a.

21.6%

3.5%

25.1%

31.5%

TLAC leverage ratio

7.25%

n.a.

7.25%

n.a.

7.25%

n.a.

7.25%

9.2%

(1)

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. For leverage ratio, only 50% of our

D-SIB surcharge for capital is the required surcharge.

(2)

The capital buffers include the capital conservation buffer of 2.5% and the countercyclical capital buffer (CCyB) as prescribed by OSFI. The CCyB, calculated in

accordance with OSFI’s CAR guidelines, was 0.06% as at October 31, 2025 (October 31, 2024 – 0.08%).

(3)

The DSB can range from 0% to 4% of total RWA and is currently set at 3.5%.

(4)

Minimum target requirements reflect CCyB requirements as at October 31, 2025 which are subject to change based on exposures held at the reporting date.

n.a.

not applicable

Regulatory capital, TLAC available, RWA, capital and TLAC ratios

Under Basel III, capital consists of CET1, Additional Tier 1, Tier 2 capital and external TLAC instruments.

CET1 capital comprises the highest quality of capital. Regulatory adjustments under Basel III include full deductions of

certain items and additional capital components that are subject to threshold deductions as prescribed in the CAR guidelines.

Tier 1 capital comprises predominantly CET1 and Additional Tier 1 items including non-cumulative preferred shares and

limited recourse capital notes (LRCNs) that meet certain criteria. Tier 2 capital includes subordinated debentures that meet

certain criteria, certain loan loss allowances and non-controlling interests in subsidiaries’ Tier 2 instruments. Total capital is

defined as the sum of Tier 1 and Tier 2 capital. Preferred shares, LRCNs, and subordinated debentures issued after January 1, 2013

require Non-viability contingent capital (NVCC) features to be included in regulatory capital. NVCC requirements ensure that

non-common regulatory capital instruments bear losses before banks seek government funding.

TLAC available is defined as the sum of Total capital and external TLAC instruments. External TLAC instruments comprise

predominantly senior bail-in debt, which includes eligible senior unsecured debt with an original term to maturity of greater than

400 days and remaining term to maturity of greater than 365 days.

Capital ratios are calculated by dividing CET1, Tier 1, Total capital and TLAC available by total RWA.

112

Royal Bank of Canada: Annual Report 2025

Management’s Discussion and Analysis

![]()

The following chart provides a summary of the major components of CET1, Additional Tier 1, Tier 2 capital and external TLAC

instruments.

Common Equity

Tier 1 (CET1)

Additional Tier 1 Capital

Tier 2 Capital

External TLAC

Instruments

+

+

+

Tier 1 Capital

TLAC Available

Total Capital

Deductions

Non-signiﬁcant investments in

Tier 1 instruments of ﬁnancial

institutions

(2)

Signiﬁcant investments in

other ﬁnancial institutions’

and insurance subsidiaries’

Tier 1 instruments

Preferred shares

Limited recourse capital notes

Non-controlling interests in

subsidiaries’ Tier 1 instruments

Subordinated debentures less

amortization

Senior bail-in debt

Amortized portion of

subordinated debentures

Investments in own TLAC

instruments

Certain loan loss allowances

Non-controlling interests in

subsidiaries’ Tier 2 instruments

Non-signiﬁcant investments in

Tier 2 and TLAC instruments

of ﬁnancial institutions

(2)

Signiﬁcant investments in

other ﬁnancial institutions’

and insurance subsidiaries’

Tier 2 and TLAC instruments

Goodwill and other intangibles

Deferred tax assets on loss

carryforwards

Deﬁned beneﬁt pension fund

assets

Non-signiﬁcant investments

in CET1 instruments of ﬁnancial

institutions

(2)

Shortfall of provisions to

expected losses

Prudential valuation

adjustments

Prepaid portfolio insurance

assets

Non-payment and non-delivery

of trades

Equity investment in funds

subject to the fall-back

approach

Threshold

Deductions

(1)

Higher quality

capital

Lower quality

capital

Signiﬁcant investments in

Insurance subsidiaries and

CET1 instruments in other

ﬁnancial institutions

Mortgage servicing rights

Deferred tax assets relating

to temporary differences

Common shares

Retained earnings

Other components of equity

Non-controlling interests in

subsidiaries’ CET1 instruments

Net Contractual Service

Margin under IFRS 17

(1)

First level: The amount by which each of the items exceeds a 10% threshold of CET1 capital (after all deductions but before threshold deductions) will be

deducted from CET1 capital. Second level: The aggregate amount of the three items not deducted from the first level above and in excess of 15% of CET1 capital

after regulatory adjustments will be deducted from capital, and the remaining balance not deducted will be risk-weighted at 250%.

(2)

Non-significant investments are subject to certain CAR criteria that drive the amount eligible for deduction.

Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2025

113

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The following tables provide details on our regulatory capital, TLAC available, RWA, and on ratios for capital, leverage and TLAC.

Our capital position remains strong and our capital, leverage and TLAC ratios remain well above OSFI regulatory targets:

Regulatory capital, TLAC available, RWA and capital, leverage and TLAC ratios

Table 63

As at

(Millions of Canadian dollars, except percentage amounts)

October 31

2025

October 31

2024

Capital

(1)

CET1 capital

$

98,748

$

88,936

Tier 1 capital

110,393

97,952

Total capital

122,399

110,487

Risk-weighted assets (RWA) used in calculation of capital ratios

(1)

Credit risk

$

590,306

$

548,809

Market risk

41,506

33,930

Operational risk

98,413

89,543

Total RWA

$

730,225

$

672,282

Capital ratios and Leverage ratio

(1)

CET1 ratio

13.5%

13.2%

Tier 1 capital ratio

15.1%

14.6%

Total capital ratio

16.8%

16.4%

Leverage ratio

4.4%

4.2%

Leverage ratio exposure

$ 2,491,090

$ 2,344,228

TLAC available and ratios

(2)

TLAC available

$

230,385

$

196,659

TLAC ratio

31.5%

29.3%

TLAC leverage ratio

9.2%

8.4%

(1)

Capital, RWA, and capital ratios are calculated using OSFI’s CAR guideline and the Leverage ratio is calculated using OSFI’s LR guideline.

Both the CAR guideline and LR guideline are based on the Basel III framework.

(2)

TLAC available and TLAC ratios are calculated using OSFI’s TLAC guideline. The TLAC standard is applied at the resolution entity level

which for us is deemed to be Royal Bank of Canada and its subsidiaries. A resolution entity and its subsidiaries are collectively called a

resolution group. The TLAC ratio and TLAC leverage ratio are calculated using TLAC available as a percentage of total RWA and leverage

exposure, respectively.

Regulatory capital and TLAC available

Table 64

As at

(Millions of Canadian dollars)

October 31

2025

October 31

2024

CET1 capital: instruments and reserves and regulatory adjustments

Directly issued qualifying common share capital (and equivalent for

non-joint stock companies) plus related stock surplus

$

21,085

$

21,243

Retained earnings

96,606

88,317

Contractual service margins regulatory adjustment

1,279

1,526

Accumulated other comprehensive income (and other reserves)

9,726

8,498

Common share capital issued by subsidiaries and held by third parties

(amount allowed in group CET1)

14

11

Regulatory adjustments applied to CET1 under Basel III

(29,962)

(30,659)

Common Equity Tier 1 capital (CET1)

$

98,748

$

88,936

Additional Tier 1 capital: instruments and regulatory adjustments

Directly issued qualifying Additional Tier 1 instruments plus related stock

surplus

$

11,643

$

9,014

Additional Tier 1 instruments issued by subsidiaries and held by third

parties (amount allowed in group AT1)

2

2

Additional Tier 1 capital (AT1)

$

11,645

$

9,016

Tier 1 capital (T1 = CET1 + AT1)

$

110,393

$

97,952

Tier 2 capital: instruments and provisions and regulatory adjustments

Directly issued qualifying Tier 2 instruments plus related stock surplus

$

11,404

$

11,412

Tier 2 instruments issued by subsidiaries and held by third parties

(amount allowed in group Tier 2)

4

3

Collective allowance

598

1,120

Tier 2 capital (T2)

$

12,006

$

12,535

Total capital (T1 + T2)

$

122,399

$

110,487

External TLAC: instruments and regulatory adjustments

External TLAC instruments

$

108,492

$

85,008

Amortized portion of T2 instruments where remaining maturity > 1 year

–

1,670

Regulatory adjustments applied to TLAC under Basel III

(506)

(506)

TLAC available (Total capital + External TLAC)

$

230,385

$

196,659

114

Royal Bank of Canada: Annual Report 2025

Management’s Discussion and Analysis

![]()

2025 vs. 2024

11 bps

Net credit

migration

Risk

parameter

changes

(8) bps

(10) bps

(22) bps

(41) bps

(68) bps

U.S rating

downgrade

(2) bps

Other

Share

repurchases

RWA growth

(3)

Fair value

OCI

adjustments

Continuity of CET1 ratio (

Basel III

)

(134) bps

Dividends

(2)

303 bps

Net income

(2)

October 31,

2024

(1)

13.5%

13.2%

October 31,

2025

(1)

(1)

Represents rounded figures.

(2)

Represents net internal capital generation of $11.4 billion or 169 bps consisting of Net income available to shareholders less common and preferred share

dividends and distributions on other equity instruments.

(3)

Excludes the impact of foreign exchange translation (included in Other), net credit migration, U.S. rating downgrade and risk parameter changes.

Our CET1 ratio was 13.5%, up 30 bps from last year, primarily reflecting net internal capital generation and favourable impact of

fair value OCI adjustments, partially offset by higher RWA and share repurchases.

Our Tier 1 capital ratio of 15.1% was up 50 bps, reflecting net issuance of Additional Tier 1 instruments as well as the factors

noted under the CET1 ratio.

Our Total capital ratio of 16.8% was up 40 bps, primarily reflecting the factors noted above under the Tier 1 capital ratio.

Our Leverage ratio of 4.4% was up 20 bps, primarily due to net internal capital generation and net issuance of Additional Tier 1

instruments, partially offset by growth in leverage exposures and share repurchases.

Total leverage exposures increased by $147 billion, driven by growth in securities, loans and undrawn commitments,

partially offset by lower repo-style transactions and due from banks.

Our TLAC ratio of 31.5% was up 220 bps, mainly reflecting a favourable impact from a net increase in eligible external TLAC

instruments, net internal capital generation and net issuance of Additional Tier 1 instruments. These factors were partially offset

by higher RWA.

Our TLAC leverage ratio of 9.2% was up 80 bps, reflecting a favourable impact from a net increase in eligible external TLAC

instruments.

External TLAC instruments include long-term debt subject to conversion under the Bail-in regime. For further details, refer to

Deposit and funding profile in the Liquidity and funding risk section.

Basel III RWA

OSFI requires banks to meet minimum risk-based capital requirements for exposures to credit risk, operational risk, and where

they have significant trading activity, market risk. RWA is calculated for each of these risk types and added together to

determine total RWA. In addition, a minimum capital floor requirement must be maintained as prescribed under OSFI’s CAR

guidelines which is currently set to 67.5% of RWA as calculated under current Basel III standardized credit risk, market and

operational risk approaches as defined in the CAR guidelines. If the capital requirement is less than the required threshold, a

floor adjustment to RWA must be applied to the reported RWA as prescribed by OSFI’s CAR guidelines.

On February 12, 2025, OSFI announced an indefinite delay to increases in the capital floor factor prescribed in its CAR

guideline and maintained the current 67.5% of RWA (as calculated using only the SA for credit, market and operational risk).

OSFI committed to providing at least two years notice to affected banks prior to resuming increases in the capital floor.

Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2025

115

![]()

Total capital risk-weighted assets

Table 65

2025

2024

Average

of risk-

weights

(2)

Risk-weighted assets All-in Basis

As at October 31 (Millions of Canadian dollars,

except percentage amounts)

Exposure

(1)

Standardized

approach

Advanced

approach

(A-IRB)

Foundation

approach

(F-IRB)

Other

Total

Total

Credit risk

Lending-related and other

Residential mortgages

$

647,159

9%

$

4,282

$

54,138

$

–

$

–

$

58,420

$

51,928

Other retail (personal, credit

cards and small business

treated as retail)

220,490

32%

5,401

64,729

–

–

70,130

62,679

Business (corporate,

commercial, medium-sized

enterprises and non-bank

financial institutions)

585,507

50%

64,610

129,972

96,927

–

291,509

282,595

Sovereign (government)

422,984

4%

2,151

15,046

–

–

17,197

14,116

Bank

59,287

43%

12,659

–

12,640

–

25,299

19,231

Total lending-related and other

$ 1,935,427

24%

$

89,103

$ 263,885

$ 109,567

$

–

$ 462,555

$

430,549

Trading-related

Repo-style transactions

$ 1,424,011

1%

$

156

$

369

$

8,720

$

80

$

9,325

$

8,528

Derivatives – including CVA

162,136

24%

636

2,269

15,279

20,784

38,968

36,704

Total trading-related

$ 1,586,147

3%

$

792

$

2,638

$

23,999

$

20,864

$

48,293

$

45,232

Total lending-related and other

and trading-related

$ 3,521,574

15%

$

89,895

$ 266,523

$ 133,566

$

20,864

$ 510,848

$

475,781

Bank book equities

7,481

198%

14,828

–

–

–

14,828

12,079

Securitization exposures

93,423

17%

9,594

6,704

–

–

16,298

15,181

Other assets

37,770

128%

n.a.

n.a.

n.a.

48,332

48,332

45,768

Total credit risk

$ 3,660,248

16%

$ 114,317

$ 273,227

$ 133,566

$

69,196

$ 590,306

$

548,809

Market risk

Interest rate

$

4,673

$

4,673

$

1,956

Equity

3,964

3,964

3,656

Foreign exchange

2,698

2,698

2,787

Commodities

1,136

1,136

1,787

Credit

10,671

10,671

8,374

Default risk charge

13,162

13,162

10,898

Other

(3)

5,202

5,202

4,472

Total market risk

$

41,506

$

41,506

$

33,930

Operational risk

$

98,413

$

98,413

$

89,543

Total risk-weighted assets

$ 3,660,248

$ 254,236

$ 273,227

$ 133,566

$

69,196

$ 730,225

$

672,282

(1)

Total exposure represents exposure at default (EAD) which is the expected gross exposure upon the default of an obligor. This amount excludes any allowance against

impaired loans or partial write-offs and does not reflect the impact of credit risk mitigation.

(2)

Represents the average of counterparty risk weights within a particular category.

(3)

Represents the market risk RWA for the residual risk add-on charge under the standardized approach and the capital surcharge for movements between the trading book

and banking book.

n.a.

not applicable

2025 vs. 2024

Total RWA was up $58 billion from last year, mainly due to business growth, net credit migration, the impact of a U.S. rating

downgrade and foreign exchange translation. Business growth primarily reflects higher retail and corporate lending, as well as

operational risk from higher revenues and trading-related activities. In our CET1 ratio, the impact of foreign exchange translation

on RWA is largely mitigated with economic hedges.

116

Royal Bank of Canada: Annual Report 2025

Management’s Discussion and Analysis

![]()

Selected capital management activity

Selected capital management activity

Table 66

For the year ended October 31, 2025

(Millions of Canadian dollars, except number of shares)

Issuance or

redemption date

Number of

shares

(000s)

Amount

Tier 1 capital

Common shares activity

Issued in connection with share-based

compensation plans

(1)

796

$

77

Purchased for cancellation

(2)

(15,241)

(227)

Issuance of LRCNs Series 5

(2), (3), (4)

November 1, 2024

1,000

1,396

Redemption of preferred shares, Series BD

(2), (3)

May 24, 2025

(24,000)

(600)

Issuance of LRCNs Series 6

(2), (3), (4)

June 11, 2025

1,250

1,708

Issuance of LRCNs Series 7

(2), (3), (4)

September 23, 2025

1,350

1,869

Redemption of LRCNs Series 1

(2), (3), (4)

October 24, 2025

(1,750)

(1,750)

Tier 2 capital

Redemption of December 23, 2029 subordinated

debentures

(3), (5)

December 23, 2024

$ (1,500)

Issuance of February 4, 2035 subordinated

debentures

(3), (5)

January 29, 2025

1,500

Redemption of June 30, 2030 subordinated

debentures

(3), (5)

June 30, 2025

(1,250)

Issuance of July 3, 2035 subordinated

debentures

(3), (5)

July 3, 2025

1,250

Issuance of July 17, 2035 subordinated

debentures

(3), (5)

July 17, 2025

241

(1)

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

(2)

For further details, refer to Note 19 of our 2025 Annual Consolidated Financial Statements.

(3)

Non-Viability Contingent Capital (NVCC) instruments.

(4)

For the LRCNs, the number of shares represents the number of notes issued.

(5)

For further details, refer to Note 18 of our 2025 Annual Consolidated Financial Statements.

On June 10, 2024, we announced a normal course issuer bid (NCIB) to purchase up to 30 million of our common shares. This NCIB

was completed on June 11, 2025, with 8,957 thousand common shares repurchased and cancelled at a total cost of approximately

$1,510 million.

On June 10, 2025, we announced an NCIB to purchase up to 35 million of our common shares, commencing on June 12, 2025

and continuing until June 11, 2026, 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

7,171 thousand, at a cost of approximately $1,398 million.

In 2025, the total number of common shares repurchased and cancelled under our NCIB programs was approximately

15 million. The total cost of the shares repurchased was $2,768 million.

We determine the amount and timing of 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 the prevailing market price at the time of acquisition.

On November 1, 2024, we issued US$1,000 million of LRCN Series 5 at a price of US$1,000 per note. The LRCN Series 5 bear interest

at a fixed rate of 6.35% per annum until November 24, 2034. Thereafter, the interest rate on the LRCN Series 5 will reset every five

years at a rate per annum equal to the prevailing 5-Year U.S. Treasury Rate plus 2.257% until their maturity on November 24, 2084.

On December 23, 2024, we redeemed all $1,500 million of our outstanding NVCC 2.88% subordinated debentures due

December 23, 2029 for 100% of their principal amount plus accrued interest to, but excluding, the redemption date.

On January 29, 2025, we issued $1,500 million of NVCC subordinated debentures. The notes bear interest at a fixed rate of

4.279% per annum until February 4, 2030, and at the Daily Compounded Canadian Overnight Repo Rate Average (CORRA) plus

1.45% thereafter until their maturity on February 4, 2035.

On May 24, 2025, we redeemed all 24 million of our issued and outstanding Non-Cumulative 5-Year Rate Reset First Preferred

Shares Series BD at a price of $25 per share.

On June 11, 2025, we issued US$1,250 million of LRCN Series 6 at a price of US$1,000 per note. The LRCN Series 6 bear interest

at a fixed rate of 6.75% per annum until August 24, 2030. Thereafter, the interest rate on the LRCN Series 6 will reset every five

years at a rate per annum equal to the prevailing 5-Year U.S. Treasury Rate plus 2.815% until their maturity on August 24, 2085.

On June 30, 2025, we redeemed all $1,250 million of our outstanding NVCC 2.088% subordinated debentures due June 30, 2030

for 100% of their principal amount plus accrued interest to, but excluding, the redemption date.

On July 3, 2025, we issued $1,250 million of NVCC subordinated debentures. The notes bear interest at a fixed rate of

4.214% per annum until July 3, 2030, and at the Daily Compounded CORRA plus 1.51% thereafter until their maturity on July 3, 2035.

On July 17, 2025, we issued ¥26,000 million of NVCC subordinated debentures. The notes bear interest at a fixed rate of

1.963% per annum until July 17, 2030, and at the 5-Year Tokyo Overnight Average Rate mid-swap rate plus 1.02% thereafter until

their maturity on July 17, 2035.

On September 23, 2025, we issued US$1,350 million of LRCN Series 7 at a price of US$1,000 per note. The LRCN Series 7 bear

interest at a fixed rate of 6.50% per annum until November 24, 2035. Thereafter, the interest rate on the LRCN Series 7 will reset

every five years at a rate per annum equal to the prevailing 5-Year U.S. Treasury Rate plus 2.462% until their maturity on

November 24, 2085.

On October 24, 2025, we redeemed all $1,750 million of our issued and outstanding Non-Cumulative 5-Year Fixed Rate Reset

First Preferred Shares Series BQ (Series BQ) at a price of $1,000 per share. As a result of the redemption of the Series BQ, we

automatically redeemed all $1,750 million of our outstanding NVCC 4.50% LRCN Series 1 on the same date, for 100% of their

principal amount plus accrued interest to, but excluding, the redemption date.

Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2025

117

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On October 24, 2025, we announced our intention to redeem all 6 million of our issued and outstanding Non-Cumulative

Fixed Rate First Preferred Shares Series BH and all 6 million of our issued and outstanding Non-Cumulative Fixed Rate First

Preferred Shares Series BI, at a price of $25 per share, which will occur on December 8, 2025.

On November 24, 2025, we redeemed all 12 million of our issued and outstanding Non-Cumulative 5-Year Rate Reset First

Preferred Shares Series BF at a price of $25 per share.

Dividends

Our common share dividend policy reflects our earnings outlook, payout ratio objective and the need to maintain adequate

levels of capital to support business plans. In 2025, our dividend payout ratio was 43%. Common share dividends paid during the

year were $9 billion.

Selected share data

(1)

Table 67

2025

2024

(Millions of Canadian dollars, except number of shares

and as otherwise noted)

Number of

shares

(000s)

Amount

Dividends

declared

per share

Number of

shares (000s)

Amount

Dividends

declared

per share

Common shares issued

1,400,635

$ 20,863

$

6.04

1,415,080

$ 21,013

$

5.60

Treasury shares – common shares

(2)

(521)

(110)

(576)

(61)

Common shares outstanding

1,400,114

$ 20,753

1,414,504

$ 20,952

Stock options and awards

Outstanding

7,490

7,375

Exercisable

3,522

3,212

Available for grant

16,381

2,291

First preferred shares issued

Non-cumulative Series BD

(3), (4), (5)

–

–

0.80

24,000

600

0.80

Non-cumulative Series BF

(3), (4), (6)

12,000

300

0.75

12,000

300

0.75

Non-cumulative Series BH

(4), (7)

6,000

150

1.23

6,000

150

1.23

Non-cumulative Series BI

(4), (7)

6,000

150

1.23

6,000

150

1.23

Non-cumulative Series BO

(3), (4)

14,000

350

1.47

14,000

350

1.40

Non-cumulative Series BT

(3), (4), (6)

750

750

4.20%

750

750

4.20%

Non-cumulative Series BU

(3), (4), (6)

750

750

7.408%

750

750

7.408%

Non-cumulative Series BW

(3), (4), (6)

600

600

6.698%

600

600

6.698%

Other equity instruments issued

LRCNs Series 1

(3), (4), (8), (9), (10)

–

–

4.50%

1,750

1,750

4.50%

LRCNs Series 2

(3), (4), (8), (9), (11)

1,250

1,250

4.00%

1,250

1,250

4.00%

LRCNs Series 3

(3), (4), (8), (9), (11)

1,000

1,000

3.65%

1,000

1,000

3.65%

LRCNs Series 4

(3), (4), (8), (9), (11)

1,000

1,370

7.50%

1,000

1,370

7.50%

LRCNs Series 5

(3), (4), (8), (9), (11)

1,000

1,396

6.35%

–

–

–

LRCNs Series 6

(3), (4), (8), (9), (11)

1,250

1,708

6.75%

–

–

–

LRCNs Series 7

(3), (4), (8), (9), (11)

1,350

1,869

6.50%

–

–

–

Preferred shares and other equity instruments

issued

46,950

$ 11,643

69,100

$

9,020

Treasury instruments – preferred shares and other

equity instruments

(2)

35

32

13

11

Preferred shares and other equity instruments

outstanding

46,985

$ 11,675

69,113

$

9,031

Dividends on common shares

$

8,502

$

7,916

Dividends on preferred shares and distributions on

other equity instruments

(12)

494

322

(1)

For further details, refer to Note 19 of our 2025 Annual Consolidated Financial Statements.

(2)

Positive amounts represent a short position and negative amounts represent a long position.

(3)

Dividend rate will reset every five years.

(4)

NVCC instruments.

(5)

On May 24, 2025, we redeemed all 24 million of our issued and outstanding Non-Cumulative 5-Year Rate Reset First Preferred Shares Series BD at a price of $25 per share.

(6)

On November 24, 2025, we redeemed all 12 million of our issued and outstanding Non-Cumulative 5-Year Rate Reset First Preferred Shares Series BF at a price of

$25 per share.

(7)

On October 24, 2025, we announced our intention to redeem all 6 million of our issued and outstanding Non-Cumulative Fixed Rate First Preferred Shares Series BH and

all 6 million of our issued and outstanding Non-Cumulative Fixed Rate First Preferred Shares Series BI, at a price of $25 per share.

(8)

The dividends declared per share represent the per annum dividend rate applicable to the shares issued as at the reporting date.

(9)

For LRCN Series, the number of shares represent the number of notes issued and the dividends declared per share represent the annual interest rate percentage

applicable to the notes issued as at the reporting date.

(10)

In connection with the redemption of LRCN Series 1, on October 24, 2025, we redeemed all $1,750 million of our issued and outstanding Non-Cumulative 5-Year Fixed Rate

Reset First Preferred Shares Series BQ.

(11)

In connection with the issuance of LRCN Series 2, on November 2, 2020, we issued $1,250 million of Non-Cumulative 5-Year Fixed Rate Reset First Preferred Shares Series

BR (Series BR); in connection with the issuance of LRCN Series 3, on June 8, 2021, we issued $1,000 million of Non-Cumulative 5-Year Fixed Rate Reset First Preferred

Shares Series BS (Series BS); in connection with the issuance of LRCN Series 4 on April 24, 2024, we issued US$1,000 million of Non-Cumulative 5-Year Fixed Rate Reset

First Preferred Shares Series BV (Series BV); in connection with the issuance of LRCN Series 5 on November 1, 2024, we issued US$1,000 million of Non-Cumulative 5-Year

Fixed Rate Reset First Preferred Shares Series BX (Series BX); in connection with the issuance of LRCN Series 6 on June 11, 2025, we issued US$1,250 million of Non-

Cumulative 5-Year Fixed Rate Reset First Preferred Shares Series BY (Series BY) ); and in connection with the issuance of LRCN Series 7 on September 23, 2025, we issued

US$1,350 million of Non-Cumulative 5-Year Fixed Rate Reset First Preferred Shares Series BZ (Series BZ). The Series BR and BS preferred shares were issued at a price of

$1,000 per share and the Series BV, BX, BY and BZ preferred shares were issued at a price of US$1,000 per share. The Series BR, BS, BV, BX, BY and BZ preferred shares

were issued to a consolidated trust to be held as trust assets in connection with the LRCN series. For further details, refer to Note 19 of our 2025 Annual Consolidated

Financial Statements.

(12)

Excludes distributions to non-controlling interests.

As at November 28, 2025, the number of outstanding common shares was 1,400,211,987, net of treasury shares held of 278,225, and

the number of stock options and awards was 7,458,856.

118

Royal Bank of Canada: Annual Report 2025

Management’s Discussion and Analysis

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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 as at

October 31, 2025, which were the preferred shares Series BF, BH, BI, BO, BT, BU, BW, LRCN Series 2, LRCN Series 3, LRCN Series 4,

LRCN Series 5, LRCN Series 6, LRCN Series 7 and subordinated debentures due on January 27, 2026, January 28, 2033,

November 3, 2031, May 3, 2032, February 1, 2033, April 3, 2034, August 8, 2034, February 4, 2035, July 3, 2035 and July 17, 2035,

would be converted into 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 (subject to adjustment in certain circumstances), and (ii) the current market

price of our common shares at the time of the trigger event (10-day volume 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

approximately 7 billion common shares, in aggregate, which would represent a dilution impact of 82.4% based on the number of

common shares outstanding as at October 31, 2025.

Attributed capital

Our methodology for allocating capital to our business segments is based on the Basel III regulatory capital requirements, with

the exception of Insurance. Our attributed capital methodology incorporates leverage requirements to allocate capital to our

business segments. Effective the first quarter of 2025, we increased our capital attribution rates to our business segments. Our

Insurance platform continued to allocate capital based on fully diversified economic capital in fiscal 2025. Effective the first

quarter of 2026, we plan to update our methodology for allocating capital to Insurance to more closely align with legal entity

capital requirements. Risk-based capital attribution provides a uniform base for performance measurement among business

segments, which compares to our overall corporate return objective and facilitates management decisions in resource

allocation in conjunction with other factors.

The calculation and attribution of capital involves a number of assumptions and judgments by management which are

monitored to ensure that the regulatory capital framework remains comprehensive and consistent. The models are

benchmarked to leading industry practices via participation in surveys, reviews of methodologies and ongoing interaction with

external risk management industry professionals.

Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2025

119

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For additional information on the risks highlighted below, refer to the Risk management section.

Royal Bank of

Canada

Attributed capital

(1)

Credit

47%

Market

4

Operational

8

Leverage

ratio

exposure

16

Goodwill

and other

intangibles

21

Other

(2)

4

Personal Banking

RWA (C$ millions)

(1)

Credit

$127,791

Market

284

Operational

32,357

$160,433

RWA

(C$ millions)

(1)

Credit

$125,299

Market

11

Operational

11,895

$137,205

RWA

(C$ millions)

(1)

Credit

$98,277

Market

659

Operational

32,596

$131,532

RWA

(C$ millions)

(1), (3)

Credit

$15,894

Market

0

Operational

0

$15,894

RWA

(C$ millions)

(1)

Credit

$208,877

Market

39,965

Operational

21,279

$270,121

Commercial

Banking

Insurance

Capital Markets

Wealth

Management

Attributed capital

(1)

Credit

42

%

Market

0

Operational

11

Leverage

ratio

exposure

15

Goodwill

and other

intangibles

28

Other

(2)

4

Attributed capital

(1)

Credit

61%

Market

0

Operational

6

Leverage

ratio

exposure

8

Goodwill

and other

intangibles

23

Other

(2)

2

Attributed capital

(1)

Credit

38%

Market

0

Operational

12

Leverage

ratio

exposure

5

Goodwill

and other

intangibles

39

Other

(2)

6

Attributed capital

(1)

Based on Economic

Capital:

Other

(2)

100%

Attributed capital

(1)

Credit

51%

Market

10

Operational

5

Leverage

ratio

exposure

26

Goodwill

and other

intangibles

6

Other

(2)

2

RWA (C$ millions)

(1)

Credit

$590,306

Market

41,506

Operational

98,413

$730,225

Leverage

ratio

exposure

(C$ million)

(1)

$2,491,090

(1)

RWA and Leverage ratio exposure amount represents period-end spot balances. Attributed Capital represents average balances.

(2)

Other includes (a) non-Insurance segments: equity required to underpin Basel III regulatory capital deductions other than Goodwill and other intangibles and

(b) Insurance segment: equity required to underpin risks associated with the business.

(3)

Insurance RWA represents our investments in the insurance subsidiaries capitalized at the regulatory prescribed rate as required under the OSFI CAR guideline.

Other considerations affecting capital

Capital treatment for equity investments in other entities is determined by a combination of accounting and regulatory

guidelines based on the size or nature of the investment. Three broad approaches apply as follows:

•

Consolidation: entities which we control are consolidated on our Consolidated Balance Sheets.

•

Deduction: certain holdings are deducted from our regulatory capital. These include all unconsolidated “substantial

investments”, as defined by the

Bank Act

(Canada) in the capital of financial institutions, as well as all investments in

insurance subsidiaries and certain equity investments in funds.

•

Risk-weighting: equity investments that are not deducted from capital are risk-weighted at a prescribed rate for

determination of capital charges.

Regulatory capital approach for securitization exposures

Our securitization regulatory capital approach reflects Chapter 6 of OSFI’s CAR guidelines. For our securitization exposures, we

use an internal assessment approach (IAA) for exposures related to our ABCP business, and as per regulatory guidelines for

other securitization exposures we use a combination of approaches including an external ratings-based approach, an IRB

approach and a standardized approach.

While our IAA rating methodologies are based in large part on criteria that are published by External Credit Assessment

Institutions (ECAIs) such as S&P and therefore are similar to the methodologies used by these institutions, they are not

identical. Our ratings process includes a comparison of the available credit enhancement in a securitization structure to a

stressed level of projected losses. The stress level used is determined by the desired risk profile of the transaction. As a result,

we stress the cash flows of a given transaction at a higher level in order to achieve a higher rating. Conversely, transactions that

only pass lower stress levels achieve lower ratings.

120

Royal Bank of Canada: Annual Report 2025

Management’s Discussion and Analysis

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Many of the other securitization exposures (non-ABCP) carry external ratings and we use the external ratings-based

approach, otherwise will follow the SA, for determining the proper capital allocation for these positions. We periodically

compare our own ratings to ECAIs ratings to ensure that the ratings provided by ECAIs are reasonable.

GRM is responsible for providing risk assessments for capital purposes in respect of all our banking book exposures. GRM is

independent of the business originating the securitization exposures and performs its own analysis, sometimes in conjunction

with but always independent of the applicable business. GRM has developed asset class specific criteria guidelines which

provide the rating methodologies for each asset class. The guidelines are reviewed periodically and are subject to the ratings

replication process mandated by Pillar I of the Basel rules.

Regulatory developments

Revisions to the CAR guidelines

On September 11, 2025, OSFI released a revised CAR guideline. The revised guideline introduces a new requirement for applying

PD and LGD floors for U.S. government sponsored entities, maintaining current income producing real estate identification rules

and providing an 18-month delay for combined loan products parameter changes sought by OSFI. Credit valuation adjustment

(CVA) and standardized approach for measuring counterparty credit risk adjustments exempt client-cleared derivatives and

allow exclusions for certain collateral. Market risk updates reduce default risk charge risk weights for certain sovereign

exposures and eligible multilateral development banks to 0%, with further guideline reviews of IRB coverage requirements, risk

weights and exemptions pending. The CAR guideline was effective for us on November 1, 2025, and the impact is not expected to

be material.

Accounting and control matters

Critical accounting policies and estimates

Application of critical accounting policies, judgments, estimates and assumptions

Our material accounting policies are described in Note 2 of our 2025 Annual Consolidated Financial Statements. Certain of these

policies and related estimates are recognized as critical because they require us to make particularly subjective or complex

judgments about matters that are inherently uncertain and significantly different amounts could be reported under different

conditions or using different assumptions. Our critical accounting judgments, estimates and assumptions relate to the fair value

of financial instruments, allowance for credit losses (ACL), goodwill and other intangible assets, employee benefits,

consolidation of structured entities, derecognition of financial assets, application of the effective interest method, provisions,

insurance and reinsurance contracts, and income taxes. Our critical accounting policies and estimates have been reviewed and

approved by our Audit Committee, in consultation with management, as part of their review and approval of our material

accounting policies, judgments, estimates and assumptions.

Fair value of financial instruments

The fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an

orderly transaction between market participants at the measurement date. We determine fair value by incorporating factors

that market participants would consider in setting a price, including commonly accepted valuation approaches.

We give priority to third-party pricing services and valuation techniques with the highest and most consistent accuracy. The level

of accuracy is determined over time by comparing third-party price values to traders’ or system values, other pricing service values

and, when available, actual trade data. Other valuation techniques are used when a price or quote is not available. Some valuation

processes use models to determine fair value. We have a systematic and consistent approach to control the use of models.

In determining fair value, a hierarchy is used which prioritizes the inputs to valuation techniques. The fair value hierarchy gives

the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to

unobservable inputs (Level 3). Determination of fair value based on this hierarchy requires the use of observable market data

whenever available. Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities that we have the

ability to access at the measurement date. Level 2 inputs include quoted prices for similar assets or liabilities in active markets,

quoted prices for identical or similar assets or liabilities in markets that are not active, and model inputs that are either observable,

or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 3 inputs include one

or more inputs that are unobservable and significant to the fair value of the asset or liability. Unobservable inputs are used to

measure fair value to the extent that observable inputs are not available at the measurement date. The availability of inputs for

valuation may affect the selection of valuation techniques. The classification of a financial instrument in the fair value hierarchy for

disclosure purposes is based upon the lowest level of input that is significant to the measurement of fair value.

Where observable prices or inputs are not available, management judgment is required to determine fair values by assessing

other relevant sources of information such as historical data, proxy information from similar transactions, and through extrapolation

and interpolation techniques. For more complex or illiquid instruments, significant judgment is required in the determination of the

model used, the selection of model inputs, and in some cases, the application of valuation adjustments to the model value or quoted

price for inactively traded financial instruments. The selection of model inputs may be subjective and the inputs may be

unobservable. Unobservable inputs are inherently uncertain as there is little or no market data available from which to determine the

level at which the transaction would occur under normal business circumstances. Appropriate parameter uncertainty and market risk

valuation adjustments for such inputs and other model risk valuation adjustments are assessed in all such instances.

Valuation adjustments may be subjective as they require significant judgment in the input selection, such as implied PD and

recovery rate, and are intended to arrive at a fair value that is determined based on assumptions that market participants would

use in pricing the financial instrument. The ultimate realized price for a transaction may differ from its recorded fair value

estimated using management judgment.

For further information on the fair value of financial instruments, refer to Notes 2 and 3 of our 2025 Annual Consolidated

Financial Statements.

Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2025

121

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Allowance for credit losses

An ACL is established for all financial assets, except for financial assets classified or designated as FVTPL and equity securities

designated as FVOCI, which are not subject to impairment assessment. Assets subject to impairment assessment include loans,

debt securities, interest-bearing deposits with banks, accounts and accrued interest receivable, and finance and operating lease

receivables. Off-balance sheet items subject to impairment assessment include financial guarantees and undrawn loan

commitments.

We measure the ACL on each balance sheet date according to a three-stage expected credit loss impairment model:

•

Performing financial assets

•

Stage 1 – From initial recognition of a financial asset to the date on which the asset has experienced a significant

increase in credit risk relative to its initial recognition, a loss allowance is recognized equal to the credit losses

expected to result from defaults occurring over the 12 months following the reporting date.

•

Stage 2 – Following a significant increase in credit risk relative to the initial recognition of the financial asset, a loss

allowance is recognized equal to the credit losses expected over the remaining lifetime of the asset.

•

Impaired financial assets

•

Stage 3 – When a financial asset is considered to be credit-impaired, a loss allowance is recognized equal to credit

losses expected over the remaining lifetime of the asset. Interest income is calculated based on the carrying

amount of the asset, net of the loss allowance, rather than on its gross carrying amount.

The ACL is a discounted probability-weighted estimate of the cash shortfalls expected to result from defaults over the relevant

time horizon. For loan commitments, credit loss estimates consider the portion of the commitment that is expected to be drawn

over the relevant time period. For financial guarantees, credit loss estimates are based on the expected payments required

under the guarantee contract. For finance lease receivables, credit loss estimates are based on cash flows consistent with the

cash flows used in measuring the lease receivable.

The ACL represents an unbiased estimate of expected credit losses on our financial assets as at the balance sheet date.

Judgment is required in making assumptions and estimations when calculating the ACL, including movements between the three

stages, the inclusion of forward-looking information and the application of expert credit judgment. The underlying assumptions

and estimates may result in changes to the provisions from period to period that significantly affect our results of operations.

For further information on ACL, refer to Notes 2, 4 and 5 of our 2025 Annual Consolidated Financial Statements.

Goodwill and other intangible assets

We allocate goodwill to groups of cash-generating units (CGU). Goodwill is not amortized and is tested for impairment on an

annual basis, or more frequently if there are objective indications of impairment. We test for impairment by comparing the

recoverable amount of a CGU with its carrying amount.

We estimate the value in use and fair value less costs of disposal of our CGUs primarily using a discounted cash flow

method which incorporates each CGU’s internal forecasts of revenues and expenses. Significant management judgment is

applied in the determination of expected future cash flows (uncertainty in timing and amount), discount rates (based on

CGU-specific risks) and terminal growth rates. CGU-specific risks include country risk, business/operational risk, geographic risk

(including political risk, devaluation risk and government regulation), currency risk and price risk (including product pricing risk

and inflation). If the future cash flows and other assumptions in future periods deviate significantly from the current amounts

used in our impairment testing, the value of our goodwill could become impaired.

We assess for indicators of impairment of our other intangible assets at each reporting period. If there is an indication that

an asset may be impaired, an impairment test is performed by comparing the carrying amount of the intangible asset to its

recoverable amount. Where it is not possible to estimate the recoverable amount of an individual asset, we estimate the

recoverable amount of the CGU to which the asset belongs. Significant judgment is applied in estimating the useful lives and

recoverable amounts of our intangible assets and assessing whether certain events or circumstances constitute objective

evidence of impairment.

For further details, refer to Notes 2 and 11 of our 2025 Annual Consolidated Financial Statements.

Employee benefits

We sponsor a number of benefit programs for eligible employees, including registered pension plans, supplemental pension

plans, health, dental, disability and life insurance plans.

The calculation of defined benefit expenses and obligations depends on various assumptions such as discount rates,

healthcare cost trend rates, projected salary increases, retirement age, and mortality and termination rates. Discount rates are

determined using a yield curve based on spot rates from high quality corporate bonds. All other assumptions are determined by

us and are reviewed by the actuaries. Actual experience that differs from the actuarial assumptions will affect the amounts of

benefit obligations and remeasurements that we recognize. The weighted average assumptions used and the sensitivity of key

assumptions are presented in Note 16 of our 2025 Annual Consolidated Financial Statements.

Consolidation of structured entities

Subsidiaries are those entities, including structured entities, over which we have control. We control an entity when we are

exposed, or have rights, to variable returns from our involvement with the entity and have the ability to affect those returns

through our power over the investee. We have power over an entity when we have existing rights that give us the current ability

to direct the activities that most significantly affect the entity’s returns (relevant activities). Power may be determined on the

basis of voting rights or, in the case of structured entities, other contractual arrangements.

We are not deemed to control an entity when we exercise power over an entity as the agent of a third party or parties. In

determining whether we are acting as an agent, we consider the overall relationship between us, the investee and other parties

to the arrangement with respect to the following factors: (i) the scope of our decision-making power; (ii) the rights held by other

parties; (iii) the remuneration to which we are entitled; and (iv) our exposure to variability of returns.

122

Royal Bank of Canada: Annual Report 2025

Management’s Discussion and Analysis

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The determination of control is based on the current facts and circumstances and is continuously assessed. In some

circumstances, different factors and conditions may indicate that various parties control an entity depending on whether those

factors and conditions are assessed in isolation or in totality. Significant judgment is applied in determining whether we control

an entity, specifically, assessing whether we have substantive decision-making rights over the relevant activities and whether

we are exercising our power as a principal or an agent.

We consolidate all subsidiaries from the date we obtain control, and cease consolidation when an entity is no longer

controlled by us. Our consolidation conclusions affect the classification and amount of assets, liabilities, revenues and

expenses reported in our Consolidated Financial Statements.

For further details, refer to Note 8 of our 2025 Annual Consolidated Financial Statements.

Derecognition of financial assets

We periodically enter into transactions in which we transfer financial assets such as loans or MBS to structured entities or trusts

that issue securities to investors. We derecognize the assets when our contractual rights to the cash flows from the assets have

expired; when we retain the rights to receive the cash flows of the assets but assume an obligation to pay those cash flows to a

third party subject to certain pass-through requirements; or when we transfer our contractual rights to receive the cash flows

and substantially all of the risks and rewards of the assets have been transferred. When we retain substantially all of the risks

and rewards of the transferred assets, the transferred assets are not derecognized from our Consolidated Balance Sheets and

are accounted for as secured financing transactions. When we neither retain nor transfer substantially all risks and rewards of

ownership of the assets, we derecognize the assets if control over the assets is relinquished. If we retain control over the

transferred assets, we continue to recognize the transferred assets to the extent of our continuing involvement. Management

judgment is applied in determining whether we have transferred or retained substantially all risk and rewards of ownership of

the transferred financial asset.

The majority of assets transferred under repurchase agreements, securities lending agreements, to our mortgage fund and

in our Canadian residential mortgage securitization transactions do not qualify for derecognition. As a result, we continue to

record the associated transferred assets on our Consolidated Balance Sheets and no gains or losses are recognized for those

securitization activities. Otherwise, a gain or loss is recognized on securitization by comparing the carrying amount of the

transferred asset with its fair value at the date of the transfer. For further information on derecognition of financial assets, refer

to Notes 2 and 7 of our 2025 Annual Consolidated Financial Statements.

Application of the effective interest method

Interest income and interest expense are generally recognized for all interest-bearing financial instruments using the effective

interest method. The effective interest rate is the rate that discounts estimated future cash flows over the expected life of the

financial asset or liability to the net carrying amount upon initial recognition. Significant judgment is applied in determining the

effective interest rate due to uncertainty in the timing and amounts of future cash flows.

Provisions

Provisions are liabilities of uncertain timing or amount and are recognized when we have a present legal or constructive

obligation as a result of a past event, it is probable that an outflow of resources will be required to settle the obligation, and a

reliable estimate can be made of the amount of the obligation. Provisions are measured as the best estimate of the

consideration required to settle the present obligation at the reporting date. Significant judgment is required in determining

whether a present obligation exists and in estimating the probability, timing and amount of any outflows. We record provisions

related to litigation, asset retirement obligations and other items.

The forward-looking nature of these estimates requires us to use a significant amount of judgment in projecting the timing

and amount of future cash flows. We record our provisions on the basis of all available information at the end of the reporting

period and make adjustments on a quarterly basis to reflect current expectations. Should actual results differ from our

expectations, we may incur expenses in excess of the provisions recognized.

Insurance and reinsurance contracts

For insurance and reinsurance contracts measured using the general measurement method or variable fee approach, the

carrying amount of a group of contracts is measured as the sum of the fulfilment cash flows and CSM. The fulfilment cash flows

consist of the present value of future cash flows and a risk adjustment for non-financial risk, discounted using the current rates

as at the reporting date determined using the discount rate methodologies below. The estimates of future cash flows consider

probability-weighted scenarios and include all future cash flows that are within the contract boundary. The risk adjustment for

non-financial risk is estimated using the margin approach and represents the compensation that we require for bearing the

uncertainty about the amount and timing of cash flows that arise from non-financial risk as the insurance contract is fulfilled.

The measurement of the group of contracts requires the use of judgment in setting methodologies and assumptions for

morbidity, mortality, longevity, policy lapses and other policyholder behaviour, discount rates, policy dividends, and directly

attributable expenses, including acquisition expenses allocated using a systematic and rational method. Changes to the

underlying assumptions and estimates may have a significant effect on Non-interest income – Insurance service result and

Insurance investment result.

Discount rates used reflect the time value of money and are based on the characteristics of the insurance and reinsurance

contracts. Cash flows that vary based on the returns on underlying items are discounted at rates reflecting that variability. For

cash flows that do not vary based on the returns on underlying items, we predominantly apply the top-down approach in

determining discount rates. Under this approach, the discount rates for the observable periods are determined using yield

curves implied from a reference portfolio of assets adjusted to eliminate factors (market and credit risk of the financial assets)

that are not relevant to the insurance contracts. For unobservable periods, the discount rates are interpolated using the last

observable point and the ultimate discount rate that is composed of a risk-free rate and illiquidity premium. For a selected

portfolio, the bottom-up approach is applied in determining the discount rate, which uses a risk-free rate plus an illiquidity

premium to reflect the characteristics of the contracts. Management judgment is required in estimating the market and credit

risk factors and illiquidity premiums in determining the discount rates.

Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2025

123

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For insurance contracts, the CSM represents the unearned profit (net inflows) for providing insurance coverage. For

reinsurance contracts held, the CSM represents the net cost or net gain of purchasing reinsurance. The CSM for insurance and

reinsurance contacts are released into income based on coverage units, which represent the quantity of service (insurance

coverage as well as investment-return and investment-related services) provided by a group of contracts and are determined by

considering the quantity of benefits provided under each contract and the expected coverage duration.

Refer to Note 2 of our 2025 Annual Consolidated Financial Statements for further information.

Income taxes

We are subject to income tax laws in various jurisdictions where we operate, and the complex tax laws are potentially subject to

different interpretations by us and the relevant taxation authority. Management judgment is applied in interpreting the relevant

tax laws, in assessing the probability of acceptance of our tax positions by the relevant tax authorities and in estimating the

expected timing and amount of the provision for current and deferred income taxes. A deferred tax asset or liability is

determined for each temporary difference based on the tax rates that are expected to be in effect in the period that the asset is

realized or the liability is settled, except for earnings related to our subsidiaries, branches, associates and interests in joint

ventures where the temporary differences will not reverse in the foreseeable future and we have the ability to control the timing

of reversal.

On a quarterly basis, we review whether it is probable that the benefits associated with our deferred tax assets will be

realized, using both positive and negative evidence. Refer to Note 21 of our 2025 Annual Consolidated Financial Statements for

further information.

Future changes in accounting policy and disclosure

Amendments to the Classification and Measurement of Financial Instruments

In May 2024, the IASB issued

Amendments to the Classification and Measurement of Financial Instruments

which amends IFRS 9

Financial Instruments

and IFRS 7

Financial Instruments: Disclosures

(the Amendments). The Amendments clarify the recognition

and derecognition of financial instruments and introduce an accounting policy option for financial liabilities settled through

electronic payment systems. The Amendments also clarify classification guidance for financial assets with contingent features

not directly related to changes in basic lending risks and introduce additional related disclosure requirements for financial

instruments with such contingent features. The Amendments will be effective for us on November 1, 2026 and will be applied

retrospectively with no restatement of comparative periods required. To manage the implementation of the Amendments, we

established a program to assess the impact on systems, processes and financial reporting. We continue to assess the impact of

adopting the Amendments on our Consolidated Financial Statements.

IFRS 18 Presentation and Disclosure in Financial Statements (IFRS 18)

In April 2024, the IASB issued IFRS 18, which sets out requirements for the presentation and disclosure of information in the

financial statements. IFRS 18 will replace IAS 1

Presentation of Financial Statements

and accompanies limited amendments to

other standards which will be effective upon the adoption of the new standard. The standard introduces new defined subtotals

to be presented in the Consolidated Statements of Income, disclosure of management-defined performance measures and

requirements for aggregation and disaggregation of information. This standard will be effective for us on November 1, 2027 and

will be applied retrospectively with restatement of comparative periods. To manage the transition to IFRS 18, we established a

program to assess the impact on systems, processes and financial reporting required for adoption. We continue to assess the

impact of adopting this standard on our Consolidated Financial Statements.

Controls and procedures

Disclosure controls and procedures

Our disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed

by us in reports filed or submitted under Canadian and U.S. securities laws is recorded, processed, summarized and reported

within the time periods specified under those laws and include controls and procedures that are designed to ensure that

information is accumulated and communicated to management, including the President and Chief Executive Officer, and the

Chief Financial Officer, to allow timely decisions regarding required disclosure.

As of October 31, 2025, 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 Canadian securities regulatory authorities and 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 October 31, 2025.

Internal control over financial reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control

over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the

preparation of financial statements for external purposes in accordance with IFRS. However, because of its inherent limitations,

internal control over financial reporting may not prevent or detect misstatements on a timely basis. See Management’s Report

on Internal Control over Financial Reporting and the Report of Independent Registered Public Accounting Firm.

There were no changes in our internal control over financial reporting during the year ended October 31, 2025 that have

materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

124

Royal Bank of Canada: Annual Report 2025

Management’s Discussion and Analysis

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Related party transactions

In the ordinary course of business, we provide normal banking services and operational services, and enter into other

transactions with associated and other related corporations, including our joint venture entities, on terms similar to those

offered to non-related parties. We grant loans to directors, officers and other employees at rates normally accorded to preferred

clients. In addition, we offer deferred share and other plans to non-employee directors, executives and certain other key

employees. For further information, refer to Notes 12 and 25 of our 2025 Annual Consolidated Financial Statements.

Supplementary information

Selected annual information

Table 68

(Millions of Canadian dollars, except per share amounts)

2025

2024

2023

Total revenue

$

66,605

$

57,344

$

51,464

Net income attributable to:

Shareholders

20,362

16,230

14,605

Non-controlling interest

7

10

7

$

20,369

$

16,240

$

14,612

Basic earnings per share

$

14.10

$

11.27

$

10.33

Diluted earnings per share

14.07

11.25

10.32

Dividends declared per common shares

6.04

5.60

5.34

Total assets

$ 2,325,006

$ 2,171,582

$ 2,006,531

Deposits

1,515,616

1,409,531

1,231,687

Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2025

125

![]()

Net interest income on average assets and liabilities

Table 69

Average balances

Interest

Average rate

(Millions of Canadian dollars, except for percentage amounts)

2025

2024

2025

2024

2025

2024

Assets

Deposits with other banks

Canada

$

19,134

$

13,170

$

905

$

1,468

4.73%

11.15%

U.S.

88,197

74,409

3,782

3,906

4.29

5.25

Other International

8,568

7,527

674

748

7.87

9.94

115,899

95,106

5,361

6,122

4.63

6.44

Securities

Trading

203,740

176,632

8,126

7,927

3.99

4.49

Investment, net of applicable allowance

303,673

226,256

11,929

9,741

3.93

4.31

507,413

402,888

20,055

17,668

3.95

4.39

Asset purchased under reverse repurchase agreements and securities

borrowed

407,516

396,552

22,367

27,121

5.49

6.84

Loans

(1)

Canada

Retail

575,950

541,468

29,989

29,663

5.21

5.48

Wholesale

197,115

165,911

13,697

12,295

6.95

7.41

773,065

707,379

43,686

41,958

5.65

5.93

U.S.

174,680

159,046

7,971

8,362

4.56

5.26

Other International

61,370

51,263

4,385

3,720

7.15

7.26

1,009,115

917,688

56,042

54,040

5.55

5.89

Total interest-earning assets

2,039,943

1,812,234

103,825

104,951

5.09

5.79

Non-interest-bearing deposits with other banks

56,823

60,220

–

–

–

–

Other assets

301,656

236,003

–

–

–

–

Total assets

$ 2,398,422

$ 2,108,457

$ 103,825

$ 104,951

4.33%

4.98%

Liabilities and shareholders’ equity

Deposits

(2)

Canada

$

995,471

$

892,275

$

33,883

$

36,999

3.40%

4.15%

U.S.

180,477

155,928

6,326

6,377

3.51

4.09

Other International

116,666

83,069

4,608

3,880

3.95

4.67

1,292,614

1,131,272

44,817

47,256

3.47

4.18

Obligations related to securities sold short

47,454

35,826

2,988

2,766

6.30

7.72

Obligations related to assets sold under repurchase agreements and

securities loaned

400,611

374,099

21,820

25,479

5.45

6.81

Subordinated debentures

13,540

12,641

637

775

4.70

6.13

Other interest-bearing liabilities

25,853

25,166

563

722

2.18

2.87

Total interest-bearing liabilities

1,780,072

1,579,004

70,825

76,998

3.98

4.88

Non-interest-bearing deposits

203,498

185,758

–

–

–

–

Other liabilities

281,918

224,480

–

–

–

–

Total liabilities

$ 2,265,488

$ 1,989,242

$

70,825

$

76,998

3.13%

3.87%

Equity

$

132,934

$

119,215

n.a.

n.a.

n.a.

n.a.

Total liabilities and shareholders’ equity

$ 2,398,422

$ 2,108,457

$

70,825

$

76,998

2.95%

3.65%

Net interest income and margin

$ 2,398,422

$ 2,108,457

$

33,000

$

27,953

1.38%

1.33%

Net interest income and margin (average earning assets, net)

(3)

Canada

$ 1,209,193

$ 1,088,773

$

26,416

$

22,281

2.18%

2.05%

U.S.

584,814

526,059

5,092

4,268

0.87

0.81

Other International

245,936

197,401

1,492

1,404

0.61

0.71

Total

$ 2,039,943

$ 1,812,233

$

33,000

$

27,953

1.62%

1.54%

(1)

Interest income includes loan fees of $1,212 million (2024 – $1,165 million; 2023 – $1,149 million).

(2)

Deposits include personal chequing and savings deposits with average balances of $277 billion (2024 – $254 billion; 2023 – $250 billion), interest expense of $2,610 million

(2024 – $3,580 million; 2023 – $2,840 million) and average rates of 0.94% (2024 – 1.41%; 2023 – 1.14%). Deposits also include term deposits with average balances of

$790 billion (2024 – $701 billion; 2023 – $624 billion), interest expense of $31,680 million (2024 – $31,520 million; 2023 – $24,260 million) and average rates of 4.00%

(2024 – 4.50%; 2023 – 3.89%).

(3)

Geographic classification for selected assets and liabilities is based on the domicile of the booking point of the subject assets and liabilities.

n.a.

not applicable

126

Royal Bank of Canada: Annual Report 2025

Management’s Discussion and Analysis

![]()

Change in net interest income

Table 70

2025 vs. 2024

2024 vs. 2023

Increase (decrease) due to

changes in

Increase (decrease) due to

changes in

(Millions of Canadian dollars)

Average

volume

(1)

Average

rate

(1)

Net change

Average

volume (1)

Average

rate (1)

Net change

Assets

Deposits with other banks

Canada

(2)

$

665

$

(1,228)

$

(563)

$

(55)

$

(175)

$

(230)

U.S.

(2)

724

(847)

(123)

(641)

583

(58)

Other international

(2)

103

(177)

(74)

(609)

166

(443)

Securities

Trading

1,217

(1,018)

199

1,056

(594)

462

Investment, net of applicable allowance

3,333

(1,145)

2,188

1,802

892

2,694

Asset purchased under reverse repurchase

agreements and securities borrowed

750

(5,504)

(4,754)

770

4,187

4,957

Loans

Canada

(2)

Retail

(2)

1,889

(1,563)

326

1,853

3,948

5,801

Wholesale

(2)

2,312

(910)

1,402

3,392

25

3,417

U.S.

(2)

822

(1,213)

(391)

26

1,445

1,471

Other international

(2)

733

(68)

665

36

(148)

(112)

Total interest income

$

12,548

$ (13,673)

$

(1,125)

$

7,630

$

10,329

$

17,959

Liabilities

Deposits

Canada

(2)

4,279

(7,394)

(3,115)

4,374

4,997

9,371

U.S.

(2)

1,004

(1,055)

(51)

73

921

994

Other international

(2)

1,569

(841)

728

(415)

626

211

Obligations related to securities sold short

898

(676)

222

(43)

(124)

(167)

Obligations related to assets sold under

repurchase agreements and securities loaned

1,806

(5,465)

(3,659)

1,265

3,781

5,046

Subordinated debentures

55

(193)

(138)

97

12

109

Other interest-bearing liabilities

20

(179)

(159)

(381)

(48)

(429)

Total interest expense

$

9,631

$ (15,803)

$

(6,172)

$

4,970

$

10,165

$

15,135

Net interest income

$

2,917

$

2,130

$

5,047

$

2,660

$

164

$

2,824

(1)

Volume/rate variance is allocated on the percentage relationships of changes in balances and changes in rates to the total net change in net interest income.

(2)

Geographic classification for selected assets and liabilities is based on the domicile of the booking point of the subject assets and liabilities.

Loans and acceptances by geography

Table 71

As at October 31 (Millions of Canadian dollars)

2025

2024

Canada

(1)

Residential mortgages

$

454,346

$

441,191

Personal

90,842

86,977

Credit cards

25,836

24,619

Small business

16,797

15,531

Retail

587,821

568,318

Wholesale

194,504

189,413

$

782,325

$

757,731

U.S.

(1)

Retail

57,309

51,893

Wholesale

143,441

119,231

200,750

171,124

Other International

(1)

Retail

7,214

6,767

Wholesale

59,245

51,830

66,459

58,597

Total loans and acceptances

$ 1,049,534

$

987,452

Total allowance for credit losses

(7,093)

(6,037)

Total loans and acceptances, net of allowance for credit losses

$ 1,042,441

$

981,415

(1)

Geographic information is based on residence of borrower.

Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2025

127

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Loans and acceptances by portfolio and sector

Table 72

As at October 31 (Millions of Canadian dollars)

2025

2024

Residential mortgages

$

493,413

$

477,544

Personal

115,345

108,338

Credit cards

26,789

25,565

Small business

16,797

15,531

Retail

$

652,344

$

626,978

Agriculture

13,958

13,065

Automotive

14,155

14,386

Banking

9,397

8,829

Consumer discretionary

27,132

23,670

Consumer staples

11,193

9,885

Oil and gas

6,352

6,362

Financial services

47,894

40,997

Financing products

27,826

18,161

Forest products

2,452

2,200

Governments

5,716

5,816

Industrial products

15,743

15,347

Information technology

5,875

5,788

Investments

23,842

21,454

Mining and metals

2,715

2,757

Public works and infrastructure

3,246

3,325

Real estate and related

111,132

102,885

Other services

34,096

31,758

Telecommunication and media

9,065

7,745

Transportation

10,440

10,450

Utilities

14,219

14,484

Other sectors

742

1,110

Wholesale

$

397,190

$

360,474

Total loans and acceptances

$ 1,049,534

$

987,452

Total allowance for credit losses

(7,093)

(6,037)

Total loans and acceptances, net of allowance for credit losses

$ 1,042,441

$

981,415

128

Royal Bank of Canada: Annual Report 2025

Management’s Discussion and Analysis

![]()

Gross impaired loans by portfolio and geography

Table 73

As at October 31 (Millions of Canadian dollars, except for percentage amounts)

2025

2024

Residential mortgages

$

1,681

$

1,233

Personal

437

408

Small business

411

321

Retail

2,529

1,962

Agriculture

$

283

$

127

Automotive

157

263

Banking

30

54

Consumer discretionary

555

401

Consumer staples

115

138

Oil and gas

28

9

Financial services

213

120

Financing products

324

228

Forest products

82

147

Governments

31

12

Industrial products

271

235

Information technology

106

74

Investments

63

82

Mining and metals

21

3

Public works and infrastructure

38

11

Real estate and related

1,759

1,404

Other services

1,588

263

Telecommunication and media

117

105

Transportation

303

172

Utilities

23

30

Other sectors

46

27

Wholesale

(1)

6,153

3,905

Total GIL

(2)

$

8,682

$

5,867

Canada

(3)

Residential mortgages

$

1,435

$

1,007

Personal

383

354

Small business

411

321

Retail

2,229

1,682

Agriculture

282

126

Automotive

155

238

Banking

30

54

Consumer discretionary

423

298

Consumer staples

42

67

Oil and gas

28

9

Financial services

19

24

Financing products

193

228

Forest products

82

147

Governments

31

10

Industrial products

231

137

Information technology

53

38

Investments

26

21

Mining and metals

21

3

Public works and infrastructure

32

6

Real estate and related

1,101

750

Other services

191

140

Telecommunication and media

19

15

Transportation

282

139

Utilities

23

–

Other sectors

1

1

Wholesale

3,265

2,451

Total

$

5,494

$

4,133

U.S.

(3)

Retail

$

172

$

125

Wholesale

1,096

1,165

Total

$

1,268

$

1,290

Other International

(3)

Retail

$

128

$

155

Wholesale

1,792

289

Total

$

1,920

$

444

Total GIL

$

8,682

$

5,867

Allowance on impaired loans

(1,986)

(1,516)

Net impaired loans

$

6,696

$

4,351

GIL as a % of loans and acceptances

Residential mortgages

0.34%

0.26%

Personal

0.38%

0.38%

Small business

2.45%

2.07%

Retail

0.39%

0.31%

Wholesale

1.55%

1.08%

Total

0.83%

0.59%

Allowance on impaired loans as a % of GIL

22.88%

25.85%

(1)

Includes $195 million of purchased or originated credit-impaired loans (October 31, 2024 – $109 million).

(2)

Past due loans greater than 90 days not included in impaired loans were $330 million in 2025 (2024 – $267 million). For further details, refer to Note 5 of our 2025 Annual

Consolidated Financial Statements.

(3)

Geographic information is based on residence of borrower.

Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2025

129

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Provision for credit losses by portfolio and geography

Table 74

For the year ended October 31 (Millions of Canadian dollars, except for percentage amounts)

2025

2024

Residential mortgages

$

141

$

86

Personal

821

680

Credit cards

828

670

Small business

171

150

Retail

1,961

1,586

Agriculture

$

43

$

24

Automotive

121

115

Banking

4

33

Consumer discretionary

299

97

Consumer staples

62

59

Oil and gas

6

(51)

Financial services

47

19

Financing products

110

40

Forest products

60

48

Governments

(7)

2

Industrial products

74

68

Information technology

35

21

Investments

23

3

Mining and metals

14

(1)

Public works and infrastructure

8

(6)

Real estate and related

230

403

Other services

427

40

Telecommunication and media

80

42

Transportation

117

63

Utilities

1

3

Other sectors

19

12

Wholesale

1,773

1,034

Total PCL on impaired loans

$

3,734

$

2,620

Canada

(1)

Residential mortgages

$

152

$

96

Personal

805

672

Credit cards

803

653

Small business

171

150

Retail

1,931

1,571

Agriculture

41

24

Automotive

121

114

Banking

4

36

Consumer discretionary

259

86

Consumer staples

13

33

Oil and gas

7

(4)

Financial services

5

11

Financing products

21

40

Forest products

60

48

Governments

(6)

2

Industrial products

82

61

Information technology

17

18

Investments

21

1

Mining and metals

14

(1)

Public works and infrastructure

8

(6)

Real estate and related

177

116

Other services

112

32

Telecommunication and media

8

8

Transportation

110

44

Utilities

4

–

Other sectors

8

–

Wholesale

1,086

663

Total

$

3,017

$

2,234

U.S.

(1)

Retail

$

52

$

33

Wholesale

225

366

Total

$

277

$

399

Other International

(1)

Retail

$

(22)

$

(19)

Wholesale

462

6

Total

$

440

$

(13)

Total PCL on impaired loans

$

3,734

$

2,620

Total PCL on performing loans

622

627

Total PCL on other financial assets

6

(15)

Total PCL

$

4,362

$

3,232

PCL on loans as a % of average net loans and acceptances

0.43%

0.35%

PCL on impaired loans as a % of average net loans and acceptances

(1)

0.37%

0.28%

(1)

Geographic information is based on residence of borrower.

130

Royal Bank of Canada: Annual Report 2025

Management’s Discussion and Analysis

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Allowance on loans by portfolio and geography

(1)

Table 75

As at and for the year ended October 31 (Millions of Canadian dollars, except percentage amounts)

2025

2024

Allowance against impaired loans

Canada

(2)

Residential mortgages

$

255

$

163

Personal

205

185

Small business

138

105

Retail

$

598

$

453

Agriculture

$

29

$

26

Automotive

141

104

Banking

18

34

Consumer discretionary

154

54

Consumer staples

40

40

Oil and gas

7

1

Financial services

14

11

Financing products

56

39

Forest products

16

45

Governments

–

1

Industrial products

77

57

Information technology

15

15

Investments

24

7

Mining and metals

14

1

Public works and infrastructure

12

5

Real estate and related

172

127

Other services

92

26

Telecommunication and media

7

6

Transportation

30

44

Utilities

4

–

Other sectors

15

–

Wholesale

$

937

$

643

Total

$

1,535

$

1,096

U.S.

(2)

Retail

$

23

$

19

Wholesale

160

237

Total

$

183

$

256

Other International

(2)

Retail

$

65

$

76

Wholesale

203

88

Total

$

268

$

164

Total allowance on impaired loans

$

1,986

$

1,516

Allowance on performing loans

Residential mortgages

$

480

$

341

Personal

1,406

1,272

Credit cards

1,356

1,232

Small business

212

166

Retail

$

3,454

$

3,011

Wholesale

$

2,019

$

1,825

Total allowance on performing loans

$

5,473

$

4,836

Total allowance on loans

$

7,459

$

6,352

Key ratios

Allowance on loans as a % of loans and acceptances

0.71%

0.64%

Net write-offs as a % of average net loans and acceptances

0.28%

0.22%

(1)

Includes loans, acceptances and commitments.

(2)

Geographic information is based on residence of borrower.

Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2025

131

![]()

Credit quality information by Canadian province

(1)

Table 76

As at and for the year ended October 31 (Millions of Canadian dollars)

2025

2024

Loans and acceptances

Atlantic provinces

(2)

$

37,937

$

35,501

Quebec

88,665

86,426

Ontario

378,521

369,949

Alberta

87,758

82,860

Other Prairie provinces

(3)

40,467

38,766

B.C. and territories

(4)

148,977

144,229

Total loans and acceptances in Canada

$

782,325

$

757,731

Gross impaired loans

Atlantic provinces

(2)

$

135

$

148

Quebec

691

366

Ontario

2,753

2,219

Alberta

706

666

Other Prairie provinces

(3)

282

181

B.C. and territories

(4)

927

553

Total GIL in Canada

$

5,494

$

4,133

PCL on impaired loans

Atlantic provinces

(2)

$

47

$

46

Quebec

270

168

Ontario

2,040

1,510

Alberta

274

217

Other Prairie provinces

(3)

121

80

B.C. and territories

(4)

265

213

Total PCL on impaired loans in Canada

$

3,017

$

2,234

(1)

Geographic information is based on residence of borrower.

(2)

Comprises Newfoundland and Labrador, Prince Edward Island, Nova Scotia and New Brunswick.

(3)

Comprises Manitoba and Saskatchewan.

(4)

Comprises British Columbia, Nunavut, Northwest Territories and Yukon.

132

Royal Bank of Canada: Annual Report 2025

Management’s Discussion and Analysis

![]()

#### Glossary

Adjusted results

For further details, including a reconciliation,

refer to the Key performance and non-GAAP

measures section.

•

Adjusted effective income tax rate

–

calculated as effective income tax rate

excluding the impact of specified items

and amortization of acquisition-related

intangibles.

•

Adjusted income before income taxes

–

calculated as income before income

taxes excluding the impact of specified

items and amortization of acquisition-

related intangibles.

•

Adjusted income taxes

– calculated as

income taxes excluding the impact of

specified items and amortization of

acquisition-related intangibles.

•

Adjusted net income

– calculated as net

income excluding the impact of specified

items and amortization of acquisition-

related intangibles.

•

Adjusted net income available to

common shareholders

– calculated as net

income available to common

shareholders excluding the impact of

specified items and amortization of

acquisition-related intangibles.

•

Adjusted non-interest expense

–

calculated as non-interest expense

excluding the impact of specified items

and amortization of acquisition-related

intangibles.

•

Adjusted total revenue

– calculated as

total revenue excluding the impact of

specified items.

Acceptances

A bill of exchange or negotiable instrument

drawn by the borrower for payment at

maturity and accepted by a bank. The

acceptance constitutes a guarantee of

payment by the bank and can be traded in the

money market. The bank earns a “stamping

fee” for providing this guarantee.

Allowance for credit losses (ACL)

The amount deemed adequate by

management to absorb expected credit losses

as at the balance sheet date. The allowance is

established for all financial assets subject to

impairment assessment, including certain

loans, debt securities, financial guarantees,

and undrawn loan commitments. The

allowance is changed by the amount of

provision for credit losses recorded, which is

charged to income, and decreased by the

amount of write-offs net of recoveries in the

period.

ACL on loans ratio

ACL on loans ratio is calculated as ACL on

loans as a percentage of total loans and

acceptances.

Asset-backed securities (ABS)

Securities created through the securitization

of a pool of assets, for example auto loans or

credit card loans.

Assets under administration (AUA)

Assets administered by us, which are

beneficially owned by clients, unless otherwise

noted. Services provided in respect of assets

under administration are of an administrative

nature, including safekeeping, collecting

investment income, settling purchase and sale

transactions, and record keeping.

Assets under management (AUM)

Assets managed by us, which are beneficially

owned by clients, unless otherwise noted.

Services provided in respect of assets under

management include the selection of

investments and the provision of investment

advice. We have assets under management

that are also administered by us and included

in assets under administration.

Attributed capital

Attributed capital to our business segments is

based on the Basel III regulatory capital and

leverage requirements other than for our

insurance segment for which we attribute

capital based only on economic capital.

Auction rate securities (ARS)

Debt securities whose interest rates are

regularly reset through an auction process.

Average earning assets, net

Average earning assets include interest-

bearing deposits with other banks, securities,

net of applicable allowance, assets purchased

under reverse repurchase agreements and

securities borrowed, loans, net of allowance,

cash collateral and margin deposits. Insurance

assets, and all other assets not specified are

excluded. The averages are based on the daily

balances for the period.

Basis point (bp)

One one-hundredth of a percentage point

(.01%).

Collateral

Assets pledged as security for a loan or other

obligation. Collateral can take many forms,

such as cash, highly rated securities, property,

inventory, equipment and receivables.

Collateralized debt obligation (CDO)

Securities with multiple tranches that are

issued by structured entities and

collateralized by debt obligations including

bonds and loans. Each tranche offers a varying

degree of risk and return so as to meet

investor demand.

Commitments to extend credit

Unutilized amount of credit facilities available

to clients either in the form of loans,

acceptances and other on-balance sheet

financing, or through off-balance sheet

products such as guarantees and letters of

credit.

Common Equity Tier 1 (CET1) capital

A regulatory Basel III capital measure

comprised mainly of common shareholders’

equity less regulatory deductions and

adjustments for goodwill and intangibles,

defined benefit pension fund assets, shortfall

in allowances and other specified items. The

CET1 capital is calculated in accordance with

OSFI’s CAR guideline. For more details, refer to

the Capital management section.

Common Equity Tier 1 capital ratio

A risk-based capital measure calculated as

CET1 capital divided by risk-weighted assets.

The CET1 ratio is calculated in accordance

with OSFI’s CAR guideline.

Contractual service margin (CSM)

For insurance contracts, the CSM represents

the unearned profit (net inflows) for providing

insurance coverage. For reinsurance contracts

held, the CSM represents the net cost or net

gain of purchasing reinsurance.

Covered bonds

Full recourse on-balance sheet obligations

issued by banks and credit institutions that

are fully collateralized by assets over which

investors enjoy a priority claim in the event of

an issuer’s insolvency.

Credit default swaps (CDS)

A derivative contract that provides the

purchaser with a one-time payment should the

referenced entity/entities default (or a similar

triggering event occur).

Derivative

A contract with the following characteristics:

(a) its value changes in response to the

change in an underlying (e.g., price of a

financial instrument, index or financial rate);

(b) it requires no initial net investment or an

initial net investment that is smaller than for

contracts with similar responses to changes in

market factors; and (c) it is settled at a future

date. Examples of derivatives include swaps,

options, forward rate agreements and futures.

Dividend payout ratio

Common dividends as a percentage of net

income available to common shareholders.

Dividend yield

Dividends per common share divided by the

average of the high and low share price in the

relevant period.

Earnings per share (EPS), basic

Calculated as net income available to common

shareholders divided by the average number

of shares outstanding. Adjusted EPS, basic is

calculated in the same manner, using adjusted

net income available to common

shareholders.

Earnings per share (EPS), diluted

Calculated as net income available to common

shareholders divided by the average number

of shares outstanding adjusted for the dilutive

effects of stock options and other convertible

securities. Adjusted EPS, diluted is calculated

in the same manner, using adjusted net

income available to common shareholders.

Efficiency ratio

Non-interest expense as a percentage of total

revenue. Adjusted efficiency ratio is calculated

in the same manner, using adjusted

non-interest expense and adjusted total

revenue.

Expected credit losses

The difference between the contractual cash

flows due to us in accordance with the

relevant contractual terms and the cash flows

that we expect to receive, discounted to the

balance sheet date.

Fair value

Fair value of a financial instrument is the price

that would be received to sell an asset or paid

to transfer a liability in an orderly transaction

between market participants at the

measurement date.

Funding valuation adjustment

Funding valuation adjustments are calculated

to incorporate cost and benefit of funding in

the valuation of uncollateralized and under-

collateralized OTC derivatives. Future expected

cash flows of these derivatives are discounted

to reflect the cost and benefit of funding the

derivatives by using a funding curve, implied

volatilities and correlations as inputs.

Guarantees and standby letters of credit

These primarily represent irrevocable

assurances that a bank will make payments in

the event that its client cannot meet its

financial obligations to third parties. Certain

other guarantees, such as bid and performance

bonds, represent non-financial undertakings.

Hedge

A risk management technique used to mitigate

exposure from market, interest rate or foreign

currency exchange risk arising from normal

banking operations. The elimination or

reduction of such exposure is accomplished by

establishing offsetting positions. For example,

assets denominated in foreign currencies can

be offset with liabilities in the same currencies

or through the use of foreign exchange hedging

instruments such as futures, options or foreign

exchange contracts.

Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2025

133

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Hedge funds

A type of investment fund, marketed to

accredited high net worth investors, that is

subject to limited regulation and restrictions

on its investments compared to retail mutual

funds, and that often utilize aggressive

strategies such as selling short, leverage,

program trading, swaps, arbitrage and

derivatives.

High-quality liquid assets (HQLA)

HQLA are cash or assets that can be converted

into cash quickly through sales (or by being

pledged as collateral) with no significant loss

of value.

Impaired loans

Loans are classified as impaired when there

has been a deterioration of credit quality to the

extent that management no longer has

reasonable assurance of timely collection of

the full amount of principal and interest in

accordance with the contractual terms of the

loan agreement. Credit card balances are not

classified as impaired as they are directly

written off after payments are 180 days past

due.

Insurance contracts

Contracts under which we accept significant

insurance risk from a policyholder by agreeing

to compensate the policyholder if a specified

uncertain future event adversely affects the

policyholder. Insurance contracts also include

reinsurance contracts issued by us to

compensate another company for claims

arising from underlying insurance contracts

issued by that other company.

Insurance investment result

Calculated as Net investment income from the

Insurance segment, Insurance finance income

(expense) from insurance contracts and

Reinsurance finance income (expense) from

reinsurance contracts held. Net investment

income primarily comprises interest and

dividend income and net gains (losses) on

financial instruments and derivatives relating

to the Insurance segment. Insurance and

reinsurance finance income (expense)

represents the net effect of and changes in the

time value of money and financial risks on

insurance contracts and reinsurance contracts

held, respectively.

Insurance service result

Calculated as Insurance revenue less

Insurance service expense from insurance

contracts and Net income (expense) from

reinsurance contracts held. Insurance revenue

represents the revenue recognized in the

period as we provide insurance services for the

groups of insurance contracts. Insurance

service expense represents the costs incurred

in providing insurance services in the period,

which includes incurred claims and other

directly attributable expenses, allocation of

acquisition costs, changes relating to past or

current services and changes in loss

components of onerous groups of contracts.

Net income (expense) from reinsurance

contracts held represents the amounts

recovered from the reinsurers less the

allocation of premiums paid on reinsurance

contracts held.

International Financial Reporting Standards

(IFRS)

IFRS are principles-based standards,

interpretations and the framework adopted by

the International Accounting Standards Board.

Leverage ratio

A Basel III regulatory measure, the ratio divides

Tier 1 capital by the leverage exposure

measure. The leverage ratio is a non-risk based

measure and is calculated in accordance with

OSFI’s LR guideline.

Leverage ratio exposure

The leverage ratio exposure is calculated in

accordance with OSFI’s LR guideline and is

defined as the sum of total assets plus

off-balance sheet items after certain

adjustments.

Liquidity Coverage Ratio (LCR)

The LCR is a Basel III standard that aims to

ensure that an institution has an adequate

stock of unencumbered HQLA that consists of

cash or assets that can be converted into cash

at little or no loss of value in private markets,

to meet its liquidity needs for a 30 calendar day

liquidity stress scenario. The LCR is calculated

in accordance with OSFI’s LAR guideline.

Loan-to-value (LTV) ratio

Calculated based on the total facility amount

for the residential mortgage and RBC Homeline

Plan product divided by the value of the related

residential property.

Master netting agreement

An agreement between us and a counterparty

designed to reduce the credit risk of multiple

derivative transactions through the creation of

a legal right of offset of exposure in the event

of a default.

Net interest income

The difference between what is earned on

assets such as loans and securities and what is

paid on liabilities such as deposits and

subordinated debentures.

Net interest margin (NIM) on average

earning assets, net

Calculated as net interest income divided by

average earning assets, net.

Net Stable Funding Ratio (NSFR)

The NSFR is a Basel III standard that requires

institutions to maintain a stable funding profile

defined as available amount of stable funding

(ASF) in relation to the composition of their

assets and off-balance sheet activities defined

as required amount of stable funding (RSF).

The ratio should be at least equal to 100% on

an ongoing basis. The NSFR is calculated in

accordance with OSFI’s LAR guideline.

Normal course issuer bid (NCIB)

A program for the repurchase of our own

shares for cancellation through a stock

exchange that is subject to the various rules of

the relevant stock exchange and securities

commission.

Notional amount

The contract amount used as a reference point

to calculate payments for derivatives.

Off-balance sheet financial instruments

A variety of arrangements offered to clients,

which include credit derivatives, written put

options, backstop liquidity facilities, stable

value products, financial standby letters of

credit, performance guarantees, credit

enhancements, mortgage loans sold with

recourse, commitments to extend credit,

securities lending, documentary and

commercial letters of credit, sponsor member

guarantees, securities lending indemnifications

and indemnifications.

Office of the Superintendent of Financial

Institutions Canada (OSFI)

The primary regulator of federally chartered

financial institutions and federally

administered pension plans in Canada. OSFI’s

mission is to safeguard policyholders,

depositors and pension plan members from

undue loss.

Operating leverage

The difference between our revenue growth

rate and non-interest expense growth rate.

Options

A contract or a provision of a contract that

gives one party (the option holder) the right,

but not the obligation, to perform a specified

transaction with another party (the option

issuer or option writer) according to specified

terms.

Provision for credit losses (PCL)

The amount charged to income necessary to

bring the allowance for credit losses to a level

determined appropriate by management. This

includes provisions on performing and

impaired financial assets.

PCL on loans ratio

PCL on loans ratio is calculated using PCL on

loans as a percentage of average net loans and

acceptances.

PCL on impaired loans ratio

PCL on impaired loans ratio is calculated as

PCL on impaired loans as a percentage of

average net loans and acceptances.

PCL on performing loans ratio

PCL on performing loans ratio is calculated as

PCL on performing loans as a percentage of

average net loans and acceptances.

RBC Homeline Plan products

This is comprised of residential mortgages and

secured personal loans whereby the borrower

pledges real estate as collateral.

Reinsurance contracts held

Contracts under which we transfer significant

insurance risk to a reinsurer that compensates

us for claims relating to underlying insurance

contracts issued by us and are accounted for

separately from the underlying insurance

contracts to which they relate.

Repurchase agreements

These involve the sale of securities for cash

and the simultaneous repurchase of the

securities for value at a later date. These

transactions normally do not constitute

economic sales and therefore are treated as

collateralized financing transactions.

Return on common equity (ROE)

Net income available to common shareholders,

expressed as a percentage of average common

equity. ROE is based on actual balances of

average common equity before rounding.

Adjusted ROE is calculated in the same

manner, using adjusted net income available to

common shareholders.

Reverse repurchase agreements

These involve the purchase of securities for

cash and the simultaneous sale of the

securities for value at a later date. These

transactions normally do not constitute

economic sales and therefore are treated as

collateralized financing transactions.

Risk-weighted assets (RWA)

Assets adjusted by a regulatory risk-weight

factor to reflect the riskiness of on- and

off-balance sheet exposures. Certain assets are

not risk-weighted, but deducted from capital.

The calculation is defined by OSFI’s CAR

guideline. For more details, refer to the Capital

management section.

Securities lending

Transactions in which the owner of securities

agrees to lend it under the terms of a

prearranged contract to a borrower for a fee.

Collateral for the loan consists of either high

quality securities or cash and collateral value

must be at least equal to the market value of

the loaned securities. Borrowers pay a

negotiated fee for loans collateralized by

securities, whereas for cash collateral lenders

pay borrowers interest at a negotiated rate and

reinvest the cash collateral to earn a return. An

intermediary such as a bank often acts as

agent lender for the owner of the security in

return for a share of the revenue earned by the

owner from lending securities. Most often,

agent lenders indemnify the owner against the

risk of the borrower’s failure to redeliver the

loaned securities – counterparty credit risk if a

borrower defaults and market risk if the value

of the non-cash collateral declines. The agent

lender does not indemnify against the

investment risk of re-investing cash collateral

which is borne by the owner.

134

Royal Bank of Canada: Annual Report 2025

Management’s Discussion and Analysis

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Securities sold short

A transaction in which the seller sells securities

and then borrows the securities in order to

deliver them to the purchaser upon settlement.

At a later date, the seller buys identical

securities in the market to replace the

borrowed securities.

Securitization

The process by which various financial assets

are packaged into newly issued securities

backed by these assets.

Standardized Approach (SA) for credit risk

Risk weights prescribed by OSFI are used to

calculate RWA for the credit risk exposures.

Credit assessments by OSFI-recognized

external credit rating agencies of Standard &

Poor’s Financial Services LLP; Moody’s Investor

Service, Inc.; Fitch Ratings, Inc.; Kroll Bond

Rating Agency, Inc. (KBRA

‡

); and DBRS Limited

are used to risk-weight our Sovereign,

Corporate and Bank exposures based on the

CAR guideline issued by OSFI.

Structured entities

A structured entity is an entity in which voting

or similar rights are not the dominant factor in

deciding who controls the entity, such as when

the activities that significantly affect the

entity’s returns are directed by means of

contractual arrangements. Structured entities

often have restricted activities, narrow and

well defined objectives, insufficient equity to

finance their activities, and financing in the

form of multiple contractually-linked

instruments.

Taxable equivalent basis (teb)

Income from certain specified tax advantaged

sources (U.S. tax credit business as well as

eligible Canadian taxable corporate dividends

received on or before December 31, 2023) is

increased to a level that would make it

comparable to income from taxable sources.

There is an offsetting adjustment in the tax

provision, thereby generating the same

after-tax net income.

Tier 1 capital and Tier 1 capital ratio

Tier 1 capital comprises predominantly of CET1

capital, with additional Tier 1 items such as

preferred shares, limited recourse capital

notes and non-controlling interests in

subsidiaries Tier 1 instruments. The Tier 1

capital ratio is calculated in accordance with

OSFI’s CAR guideline by dividing Tier 1 capital

by risk-weighted assets.

Tier 2 capital

Tier 2 capital consists mainly of subordinated

debentures that meet certain criteria, certain

loan loss allowances and non-controlling

interests in subsidiaries’ Tier 2 instruments.

Total loss absorbing capacity (TLAC)

The aggregate of Tier 1 capital, Tier 2 capital

and external TLAC instruments which allow

conversion in whole or in part into common

shares under the Canada Deposit Insurance

Corporation Act and meet all of the eligibility

criteria under OSFI’s TLAC guideline.

TLAC ratio

The risk-based TLAC ratio is defined as TLAC

divided by total risk-weighted assets. The TLAC

ratio is calculated in accordance with OSFI’s

TLAC guideline.

TLAC leverage ratio

The TLAC leverage ratio is defined as TLAC

divided by the leverage ratio exposure. The

TLAC leverage ratio is calculated in accordance

with OSFI’s TLAC guideline.

Total capital and total capital ratio

Total capital is defined as the total of Tier 1 and

Tier 2 capital. The total capital ratio is

calculated in accordance with OSFI’s CAR

guideline by dividing total capital by risk-

weighted assets.

Tranche

A security class created whereby the risks and

returns associated with a pool of assets are

packaged into several classes of securities

offering different risk and return profiles from

those of the underlying asset pool. Tranches

are typically rated by ratings agencies, and

reflect both the credit quality of underlying

collateral as well as the level of protection

based on the tranches’ relative subordination.

Unattributed capital

Unattributed capital represents common

equity in excess of common equity attributed

to our business segments and is reported in the

Corporate Support segment.

Value-at-Risk (VaR)

A generally accepted risk-measurement

concept that uses statistical models based on

historical information to estimate within a

given level of confidence the maximum loss in

market value we would experience in our

financial portfolio from an adverse one-day

movement in market rates and prices.

Management’s Discussion and Analysis

Royal Bank of Canada: Annual Report 2025

135

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Enhanced Disclosure Task Force recommendations index

We aim to present transparent, high-quality risk disclosures by providing disclosures in this 2025 Annual Report and

Supplementary Financial Information package (SFI), and Pillar 3 Report, in accordance with recommendations from the FSB’s

Enhanced Disclosure Task Force (EDTF). Information within the SFI and Pillar 3 Report is not and should not be considered

incorporated by reference into this 2025 Annual Report.

The following index summarizes our disclosure by EDTF recommendation:

Location of disclosure

Type of Risk

Recommendation

Disclosure

Annual Report page

SFI page

General

1

Table of contents for EDTF risk disclosure

136

1

2

Define risk terminology and measures

65-69, 133-135

–

3

Top and emerging risks

69-72

–

4

New regulatory ratios

110-116

–

Risk governance,

risk management

and business

model

5

Risk management organization

65-69

–

6

Risk culture

65-69

–

7

Risk in the context of our business activities

120

–

8

Stress testing

68, 83

–

Capital adequacy

and risk-weighted

assets (RWA)

9

Minimum Basel III capital ratios and

Domestic systemically important bank

surcharge

110-116

–

10

Composition of capital and reconciliation

of the accounting balance sheet to the

regulatory balance sheet

–

\*

11

Flow statement of the movements in

regulatory capital

–

19

12

Capital strategic planning

110-116

–

13

RWA by business segments

–

20

14

Analysis of capital requirement, and related

measurement model information

72-76

\*

15

RWA credit risk and related risk

measurements

–

\*

16

Movement of RWA by risk type

–

20

17

Basel back-testing

67, 72-74

31

Liquidity

18

Quantitative and qualitative analysis of our

liquidity reserve

90-91, 96-97

–

Funding

19

Encumbered and unencumbered assets by

balance sheet category, and contractual

obligations for rating downgrades

92, 95

–

20

Maturity analysis of consolidated total

assets, liabilities and off-balance sheet

commitments analyzed by remaining

contractual maturity at the balance sheet

date

99-100

–

21

Sources of funding and funding strategy

92-94

–

Market risk

22

Relationship between the market risk

measures for trading and non-trading

portfolios and the balance sheet

87-88

–

23

Decomposition of market risk factors

83-88

–

24

Market risk validation and back-testing

83

–

25

Primary risk management techniques

beyond reported risk measures and

parameters

83-86

–

Credit risk

26

Bank’s credit risk profile

72-82, 180-187

21-31\*

Quantitative summary of aggregate credit

risk exposures that reconciles to the

balance sheet

127-132

\*

27

Policies for identifying impaired loans

74-76, 122, 153-155

–

28

Reconciliation of the opening and closing

balances of impaired loans and

impairment allowances during the year

–

23, 28

29

Quantification of gross notional exposure

for OTC derivatives or exchange-traded

derivatives

77

32

30

Credit risk mitigation, including collateral

held for all sources of credit risk

75-76

\*

Other

31

Other risk types

102-110

–

32

Publicly known risk events

107-108, 230-231

–

\*

These disclosure requirements are satisfied or partially satisfied by disclosures provided in our Pillar 3 Report for the quarter ended October 31, 2025 and for the year

ended October 31, 2024.

136

Royal Bank of Canada: Annual Report 2025

Index for Enhanced Disclosure Task Force recommendations

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#### REPORTS AND CONSOLIDATED FINANCIAL STATEMENTS

Reports

138

Management’s Responsibility for Financial Reporting

138

Management’s Report on Internal Control over

Financial Reporting

139

Independent Auditor’s Report

142

Report of Independent Registered Public Accounting

Firm (PCAOB ID 271)

Consolidated Financial Statements

144

Consolidated Balance Sheets

145

Consolidated Statements of Income

146

Consolidated Statements of Comprehensive Income

147

Consolidated Statements of Changes in Equity

148

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

149

Note 1

General information

149

Note 2

Summary of significant accounting

policies, estimates and judgments

163

Note 3

Fair value of financial instruments

176

Note 4

Securities

180

Note 5

Loans and allowance for credit losses

187

Note 6

Significant acquisition

188

Note 7

Derecognition of financial assets

189

Note 8

Structured entities

193

Note 9

Derivative financial instruments and

hedging activities

205

Note 10

Premises and equipment

206

Note 11

Goodwill and other intangible assets

208

Note 12

Joint ventures and associated companies

208

Note 13

Other assets

209

Note 14

Deposits

210

Note 15

Insurance and reinsurance

214

Note 16

Employee benefits – Pension and other

post-employment benefits

219

Note 17

Other liabilities

219

Note 18

Subordinated debentures

220

Note 19

Equity

223

Note 20

Share-based compensation

225

Note 21

Income taxes

227

Note 22

Earnings per share

228

Note 23

Guarantees, commitments, pledged

assets and contingencies

230

Note 24

Legal and regulatory matters

231

Note 25

Related party transactions

232

Note 26

Results by business segment

235

Note 27

Nature and extent of risks arising from

financial instruments

236

Note 28

Capital management

237

Note 29

Offsetting financial assets and financial

liabilities

238

Note 30

Recovery and settlement of on-balance

sheet assets and liabilities

239

Note 31

Parent company information

241

Note 32

Principal subsidiaries

Consolidated Financial Statements

Royal Bank of Canada: Annual Report 2025

137

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Management’s Responsibility for Financial Reporting

The accompanying consolidated financial statements of Royal Bank of Canada were prepared by management, which is

responsible for the integrity and fairness of the information presented, including the many amounts that must of necessity be

based on estimates and judgments. These consolidated financial statements were prepared in accordance with the

Bank Act

(Canada) and International Financial Reporting Standards as issued by the International Accounting Standards Board. Financial

information appearing throughout our Management’s Discussion and Analysis is consistent with these consolidated financial

statements.

Our internal controls are designed to provide reasonable assurance that transactions are authorized, assets are

safeguarded and proper records are maintained. These controls include quality standards in hiring and training of employees,

policies and procedures manuals, a corporate code of conduct and accountability for performance within appropriate and well-

defined areas of responsibility.

The system of internal controls is further supported by a compliance function, which is designed to ensure that we and our

employees comply with securities legislation and conflict of interest rules, and by an internal audit staff, which conducts

periodic audits of all aspects of our operations.

The Board of Directors oversees management’s responsibilities for financial reporting through an Audit Committee, which is

composed entirely of independent directors. This Committee reviews our consolidated financial statements and recommends

them to the Board for approval. Other key responsibilities of the Audit Committee include reviewing our existing internal control

procedures and planned revisions to those procedures, and advising the directors on auditing matters and financial reporting

issues. Our Chief Compliance Officer and Chief Internal Auditor have full and unrestricted access to the Audit Committee.

The Office of the Superintendent of Financial Institutions Canada (OSFI) examines and inquires into our business and

affairs as deemed necessary to determine whether the provisions of the

Bank Act

are being complied with, and that we are in

sound financial condition. In carrying out its mandate, OSFI strives to protect the rights and interests of our depositors and

creditors.

PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm appointed by our shareholders upon the

recommendation of the Audit Committee and Board, has performed an independent audit of the consolidated financial

statements in accordance with Canadian generally accepted auditing standards and the standards of the Public Company

Accounting Oversight Board (United States) as stated in their Independent Auditor’s Report and Report of Independent

Registered Public Accounting Firm, respectively. The auditors have full and unrestricted access to the Audit Committee to

discuss their audit and related findings.

David I. McKay

President and Chief Executive Officer

Katherine Gibson

Chief Financial Officer

Toronto, December 2, 2025

Management’s Report on Internal Control over Financial Reporting

Management of Royal Bank of Canada is responsible for establishing and maintaining adequate internal control over financial

reporting. Internal control over financial reporting is a process designed by, or under the supervision of, the President and Chief

Executive Officer and Chief Financial Officer and effected by the Board of Directors, management and other personnel to provide

reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external

purposes in accordance with International Financial Reporting Standards as issued by the International Accounting Standards

Board. It includes those policies and procedures that:

•

Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions related to and

dispositions of our assets;

•

Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in

accordance with generally accepted accounting principles, and our receipts and expenditures are made only in accordance

with authorizations of our management and directors; and

•

Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our

assets that could have a material effect on our financial statements.

Due to its inherent limitations, internal control over financial reporting may not prevent or detect misstatements on a timely

basis. Also, projections of any evaluation of the effectiveness of internal control over financial reporting to future periods are

subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance

with the policies or procedures may deteriorate.

Management evaluated, under the supervision of and with the participation of the President and Chief Executive Officer and

Chief Financial Officer, the effectiveness of our internal control over financial reporting as of October 31, 2025, based on the

criteria set forth in

Internal Control – Integrated Framework (2013)

issued by the Committee of Sponsoring Organizations of the

Treadway Commission. Based on that evaluation, management concluded that, as of October 31, 2025, internal control over

financial reporting was effective based on the criteria established in the

Internal Control – Integrated Framework (2013).

The effectiveness of our internal control over financial reporting as of October 31, 2025, has been audited by

PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm, as stated in their Report of Independent

Registered Public Accounting Firm, which appears herein.

David I. McKay

President and Chief Executive Officer

Katherine Gibson

Chief Financial Officer

Toronto, December 2, 2025

138

Royal Bank of Canada: Annual Report 2025

Consolidated Financial Statements

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Independent Auditor’s Report

To the Shareholders and Board of Directors of Royal Bank of Canada

Our opinion

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position

of Royal Bank of Canada and its subsidiaries (together, the Bank) as of October 31, 2025 and 2024, and its financial performance

and its cash flows for the years then ended in accordance with International Financial Reporting Standards as issued by the

International Accounting Standards Board (IFRS Accounting Standards).

What we have audited

The Bank’s consolidated financial statements comprise:

•

the consolidated balance sheets as of October 31, 2025 and 2024;

•

the consolidated statements of income for the years then ended;

•

the consolidated statements of comprehensive income for the years then ended;

•

the consolidated statements of changes in equity for the years then ended;

•

the consolidated statements of cash flows for the years then ended; and

•

the notes to the consolidated financial statements, comprising material accounting policy information and other

explanatory information.

Certain required disclosures have been presented elsewhere in the Management’s Discussion and Analysis, rather than in the

notes to the consolidated financial statements. These disclosures are cross-referenced from the consolidated financial

statements and are identified as audited.

Basis for opinion

We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those

standards are further described in the

Auditor’s responsibilities for the audit of the consolidated financial statements

section of

our report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Independence

We are independent of the Bank in accordance with the ethical requirements that are relevant to our audit of the consolidated

financial statements in Canada. We have fulfilled our other ethical responsibilities in accordance with these requirements.

Key audit matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the

consolidated financial statements for the year ended October 31, 2025. These matters were addressed in the context of our audit

of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate

opinion on these matters.

Key audit matter

How our audit addressed the key audit matter

Allowance for Credit Losses on Loans Categorized as Stage 1

and Stage 2 (Stage 1 and Stage 2 ACL)

Refer to Note 2 – Summary of material accounting policies,

estimates and judgments and Note 5 – Loans and allowance for

credit losses to the consolidated financial statements.

The Bank’s allowance for credit losses on loans was

$7,459 million as of October 31, 2025 and represents

management’s estimate of expected credit losses on loans as of

the balance sheet date, of which a significant portion relates to

loans categorized as Stage 1 and Stage 2. Performing loans are

categorized as Stage 1 from initial recognition to the date on

which the loan has experienced a significant increase in credit

risk relative to its initial recognition. Performing loans transfer

into Stage 2 following a significant increase in credit risk

relative to the initial recognition. Loans are categorized as

Stage 3 when considered to be credit-impaired. As disclosed by

management, the measurement of expected credit losses on

loans is a complex calculation that involves a significant

number of interrelated inputs and assumptions such as

borrower risk ratings, forward-looking macroeconomic

conditions, scenario design and the weight assigned to each

scenario. The probability of default, loss given default and

exposure at default inputs are modelled based on the

macroeconomic variables that are most closely correlated with

credit losses.

Management’s estimation of expected credit losses on loans

categorized as Stage 1 and Stage 2 considers five distinct future

Our approach to addressing the matter included the

following procedures, among others:

•

Testing the effectiveness of controls relating to the

estimation of the Stage 1 and Stage 2 ACL, including

controls over:

O

The probability of default, loss given default and

exposure at default models.

O

The design of future macroeconomic scenarios, the

forecasting of certain macroeconomic variables, and

the probability-weighting of these scenarios.

O

The assignment of borrower risk ratings.

O

The completeness and accuracy of certain data

inputs underlying the Stage 1 and Stage 2 ACL

calculation.

•

Testing management’s process for estimating the Stage 1

and Stage 2 ACL, which consisted of:

O

Testing the completeness and accuracy of certain

underlying data used in the estimation of the Stage 1

and Stage 2 ACL.

O

Using professionals with specialized skill and

knowledge to assist in evaluating:

•

The appropriateness of the probability of

default, loss given default and exposure at

default models used in the estimation of the

Stage 1 and Stage 2 ACL.

Consolidated Financial Statements

Royal Bank of Canada: Annual Report 2025

139

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Key audit matter

How our audit addressed the key audit matter

macroeconomic scenarios, each of which includes a forecast of

relevant macroeconomic variables, designed to capture a wide

range of possible outcomes and which are probability-weighted

according to management’s expectation of the relative

likelihood of the range of outcomes that each scenario

represents at the reporting date. Significant management

judgment is required in making assumptions and estimations

when calculating the Stage 1 and Stage 2 ACL.

We considered this a key audit matter due to:

•

The significant judgment required by management when

estimating the Stage 1 and Stage 2 ACL.

•

A high degree of auditor judgment and subjectivity in

performing procedures related to management’s

assumptions for:

O

Designing future macroeconomic scenarios.

O

Forecasting certain macroeconomic variables.

O

Probability-weighting scenarios.

O

Assigning borrower risk ratings.

•

The significant audit effort necessary to evaluate audit

evidence as the estimation of the Stage 1 and Stage 2 ACL is a

complex calculation that involves a large volume of data,

interrelated inputs and assumptions, some of which are

model-based.

•

The audit effort involved the use of professionals with

specialized skill and knowledge.

•

The reasonableness of significant inputs and

assumptions used in the estimation of the

Stage 1 and Stage 2 ACL related to:

•

The design of future macroeconomic

scenarios.

•

Certain forecasted macroeconomic

variables.

•

The probability-weights assigned to these

scenarios.

•

The assignment of borrower risk ratings

for samples of loans.

Uncertain Tax Positions

Refer to Note 2 – Summary of material accounting policies,

estimates and judgments and Note 21 – Income taxes to the

consolidated financial statements.

The Bank is subject to income tax laws in various jurisdictions

where it operates and the complex tax laws are potentially

subject to different interpretations by management and the

relevant taxation authorities. As disclosed by management,

significant judgment is required in the interpretation of the

relevant tax laws, and in assessing the probability of

acceptance of the Bank’s tax positions to determine tax

provisions, which includes management’s estimate of uncertain

tax positions that are under audit or appeal by the relevant

taxation authorities. Management performs a review on a

quarterly basis to incorporate its assessment based on

information available, but additional liability and income tax

expense could result based on the acceptance of the Bank’s tax

positions by the relevant taxation authorities. In some cases,

the Bank has received reassessments denying the tax

deductibility of dividends from certain transactions including

those with Tax Indifferent Investors.

We considered this a key audit matter due to:

•

The significant judgment required by management, including

a high degree of estimation uncertainty, when:

O

Interpreting the relevant tax laws.

O

Assessing the probability of acceptance of the Bank’s

tax positions, which includes management’s estimate of

uncertain tax positions that are under audit or appeal

by the relevant taxation authorities.

•

A high degree of auditor judgment and subjectivity in

evaluating the uncertain tax positions.

•

The audit effort involved the use of professionals with

specialized skill and knowledge.

Our approach to addressing the matter included the

following procedures, among others:

•

Testing the effectiveness of controls relating to the

evaluation of uncertain tax positions and the impact on tax

provisions.

•

Testing management’s process for (i) assessing the

probability of acceptance of the Bank’s tax positions; and

(ii) estimating provisions relating to uncertain tax

positions, if applicable, which reflects management’s

estimate of uncertain tax positions that are under audit or

appeal by the relevant taxation authorities. This

consisted of:

O

Reviewing correspondence with relevant taxation

authorities.

O

Evaluating the appropriateness of the methods

used.

O

Testing the completeness and accuracy of

underlying data used in the estimate.

O

Making inquiries of the Bank’s internal and external

legal counsel.

O

Evaluating, with the assistance of professionals with

specialized skill and knowledge:

•

Application of relevant tax laws.

•

The reasonableness of management’s

assessment of whether it is probable that the

relevant taxation authorities will accept the

Bank’s tax positions.

•

Evidence used by management.

Other information

Management is responsible for the other information. The other information comprises the Management’s Discussion and

Analysis and the information, other than the consolidated financial statements and our auditor’s report thereon, included in the

annual report.

Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of

assurance conclusion thereon.

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Royal Bank of Canada: Annual Report 2025

Consolidated Financial Statements

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In connection with our audit of the consolidated financial statements, our responsibility is to read the other information

identified above and, in doing so, consider whether the other information is materially inconsistent with the consolidated

financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.

If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are

required to report that fact. We have nothing to report in this regard.

Responsibilities of management and those charged with governance for the consolidated financial statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance

with IFRS Accounting Standards, and for such internal control as management determines is necessary to enable the

preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management is responsible for assessing the Bank’s ability to continue as a

going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting

unless management either intends to liquidate the Bank or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Bank’s financial reporting process.

Auditor’s responsibilities for the audit of the consolidated financial statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free

from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion.

Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian

generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from

fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence

the economic decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and

maintain professional skepticism throughout the audit. We also:

•

Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or

error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and

appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is

higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations,

or the override of internal control.

•

Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in

the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Bank’s internal control.

•

Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related

disclosures made by management.

•

Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit

evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on

the Bank’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw

attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures

are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our

auditor’s report. However, future events or conditions may cause the Bank to cease to continue as a going concern.

•

Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures,

and whether the consolidated financial statements represent the underlying transactions and events in a manner that

achieves fair presentation.

•

Plan and perform the group audit to obtain sufficient appropriate audit evidence regarding the financial information of the

entities or business units within the Bank as a basis for forming an opinion on the consolidated financial statements. We are

responsible for the direction, supervision and review of the audit work performed for purposes of the group audit. We

remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the

audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements

regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to

bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most

significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters.

We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when,

in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse

consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

The engagement partner on the audit resulting in this independent auditor’s report is Lona Mathis.

/s/ PricewaterhouseCoopers LLP

Chartered Professional Accountants, Licensed Public Accountants

Toronto, Canada

December 2, 2025

Consolidated Financial Statements

Royal Bank of Canada: Annual Report 2025

141

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Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors of Royal Bank of Canada

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Royal Bank of Canada and its subsidiaries (together, the

Bank) as of October 31, 2025 and 2024, and the related consolidated statements of income, comprehensive income, changes in

equity and cash flows for the years then ended, including the related notes (collectively referred to as the consolidated financial

statements). We also have audited the Bank’s internal control over financial reporting as of October 31, 2025, based on criteria

established in

Internal Control – Integrated Framework

(2013) issued by the Committee of Sponsoring Organizations of the

Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial

position of the Bank as of October 31, 2025 and 2024, and its financial performance and its cash flows for the years then ended in

conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board. Also in

our opinion, the Bank maintained, in all material respects, effective internal control over financial reporting as of

October 31, 2025, based on criteria established in

Internal Control – Integrated Framework

(2013) issued by the COSO.

Basis for Opinions

The Bank’s management is responsible for these consolidated financial statements, for maintaining effective internal control

over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the

accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on

the Bank’s consolidated financial statements and on the Bank’s internal control over financial reporting based on our audits. We

are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are

required to be independent with respect to the Bank in accordance with the U.S. federal securities laws and the applicable rules

and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the

audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement,

whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material

respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material

misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond

to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the

consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates

made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of

internal control over financial reporting included obtaining an understanding of internal control over financial reporting,

assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal

control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in

the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

An entity’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the

reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally

accepted accounting principles. An entity’s internal control over financial reporting includes those policies and procedures that

(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and

dispositions of the assets of the entity; (ii) provide reasonable assurance that transactions are recorded as necessary to permit

preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and

expenditures of the entity are being made only in accordance with authorizations of management and directors of the entity;

and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition

of the entity’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,

projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate

because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial

statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or

disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or

complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated

financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate

opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Allowance for Credit Losses on Loans Categorized as Stage 1 and Stage 2 (Stage 1 and Stage 2 ACL)

As described in Notes 2 and 5 to the consolidated financial statements, the Bank’s allowance for credit losses on loans was

$7,459 million as of October 31, 2025 and represents management’s estimate of expected credit losses on loans as of the balance

sheet date, of which a significant portion relates to loans categorized as Stage 1 and Stage 2. Performing loans are categorized

as Stage 1 from initial recognition to the date on which the loan has experienced a significant increase in credit risk relative to

its initial recognition. Performing loans transfer into Stage 2 following a significant increase in credit risk relative to the initial

recognition. Loans are categorized as Stage 3 when considered to be credit-impaired. As disclosed by management, the

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Royal Bank of Canada: Annual Report 2025

Consolidated Financial Statements

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measurement of expected credit losses on loans is a complex calculation that involves a significant number of interrelated

inputs and assumptions such as borrower risk ratings, forward-looking macroeconomic conditions, scenario design and the

weight assigned to each scenario. The probability of default, loss given default and exposure at default inputs are modelled

based on the macroeconomic variables that are most closely correlated with credit losses. Management’s estimation of

expected credit losses on loans categorized as Stage 1 and Stage 2 considers five distinct future macroeconomic scenarios, each

of which includes a forecast of relevant macroeconomic variables, designed to capture a wide range of possible outcomes and

which are probability-weighted according to management’s expectation of the relative likelihood of the range of outcomes that

each scenario represents at the reporting date. Significant management judgment is required in making assumptions and

estimations when calculating the Stage 1 and Stage 2 ACL.

The principal considerations for our determination that performing procedures relating to the Stage 1 and Stage 2 ACL is a

critical audit matter are (i) the significant judgment required by management when estimating the Stage 1 and Stage 2 ACL; (ii) a

high degree of auditor judgment and subjectivity in performing procedures related to management’s assumptions for

(a) designing future macroeconomic scenarios, (b) forecasting certain macroeconomic variables, (c) probability-weighting

scenarios, and (d) assigning borrower risk ratings; (iii) the significant audit effort necessary to evaluate audit evidence as the

estimation of the Stage 1 and Stage 2 ACL is a complex calculation that involves a large volume of data, interrelated inputs and

assumptions, some of which are model-based; and (iv) the audit effort involved the use of professionals with specialized skill

and knowledge.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall

opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the

estimation of the Stage 1 and Stage 2 ACL, including controls over (i) the probability of default, loss given default and exposure

at default models; (ii) the design of future macroeconomic scenarios, the forecasting of certain macroeconomic variables, and

the probability-weighting of these scenarios; (iii) the assignment of borrower risk ratings; and (iv) the completeness and

accuracy of certain data inputs underlying the Stage 1 and Stage 2 ACL calculation. These procedures also included, among

others, testing management’s process for estimating the Stage 1 and Stage 2 ACL. This consisted of (i) testing the completeness

and accuracy of certain underlying data used in the estimation of the Stage 1 and Stage 2 ACL; and (ii) with the assistance of

professionals with specialized skill and knowledge, evaluating (a) the appropriateness of the probability of default, loss given

default and exposure at default models used in the estimation of the Stage 1 and Stage 2 ACL, and (b) the reasonableness of

significant inputs and assumptions used in the estimation of the Stage 1 and Stage 2 ACL related to (1) the design of future

macroeconomic scenarios, (2) certain forecasted macroeconomic variables, (3) the probability-weights assigned to these

scenarios, and (4) the assignment of borrower risk ratings for samples of loans.

Uncertain Tax Positions

As described in Note 2 to the consolidated financial statements, the Bank is subject to income tax laws in various jurisdictions

where it operates and the complex tax laws are potentially subject to different interpretations by management and the relevant

taxation authorities. As disclosed by management, significant judgment is required in the interpretation of the relevant tax laws,

and in assessing the probability of acceptance of the Bank’s tax positions to determine tax provisions, which includes

management’s estimate of uncertain tax positions that are under audit or appeal by the relevant taxation authorities.

Management performs a review on a quarterly basis to incorporate its assessment based on information available, but

additional liability and income tax expense could result based on the acceptance of the Bank’s tax positions by the relevant

taxation authorities. In some cases, as described in Note 21 to the consolidated financial statements, the Bank has received

reassessments denying the tax deductibility of dividends from certain transactions including those with Tax Indifferent

Investors.

The principal considerations for our determination that performing procedures relating to uncertain tax positions is a critical

audit matter are (i) the significant judgment required by management, including a high degree of estimation uncertainty, when

(a) interpreting the relevant tax laws, and (b) assessing the probability of acceptance of the Bank’s tax positions, which includes

management’s estimate of uncertain tax positions that are under audit or appeal by the relevant taxation authorities; (ii) a high

degree of auditor judgment and subjectivity in evaluating the uncertain tax positions; and (iii) the audit effort involved the use of

professionals with specialized skill and knowledge.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall

opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the

evaluation of uncertain tax positions and the impact on tax provisions. These procedures also included, among others, testing

management’s process for (i) assessing the probability of acceptance of the Bank’s tax positions; and (ii) estimating provisions

relating to uncertain tax positions, if applicable, which reflects management’s estimate of uncertain tax positions that are under

audit or appeal by the relevant taxation authorities. This consisted of (i) reviewing correspondence with relevant taxation

authorities; (ii) evaluating the appropriateness of the methods used; (iii) testing the completeness and accuracy of underlying

data used in the estimate; (iv) making inquiries of the Bank’s internal and external legal counsel; and (v) evaluating, with the

assistance of professionals with specialized skill and knowledge, the application of relevant tax laws, the reasonableness of

management’s assessment of whether it is probable that the relevant taxation authorities will accept the Bank’s tax positions,

and evidence used by management.

/s/ PricewaterhouseCoopers LLP

Chartered Professional Accountants, Licensed Public Accountants

Toronto, Canada

December 2, 2025

We have served as the Bank’s auditor since 2016.

Consolidated Financial Statements

Royal Bank of Canada: Annual Report 2025

143

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Consolidated Balance Sheets

As at

(Millions of Canadian dollars)

October 31

2025

October 31

2024

Assets

Cash and due from banks

$

37,024

$

56,723

Interest-bearing deposits with banks

50,364

66,020

Securities

(Note 4)

Trading

219,067

183,300

Investment, net of applicable allowance

342,721

256,618

561,788

439,918

Assets purchased under reverse repurchase agreements and securities borrowed

309,683

350,803

Loans

(Note 5)

Retail

652,344

626,978

Wholesale

397,171

360,439

1,049,515

987,417

Allowance for loan losses

(Note 5)

(7,093)

(6,037)

1,042,422

981,380

Other

Derivatives

(Note 9)

177,206

150,612

Premises and equipment

(Note 10)

6,819

6,852

Goodwill

(Note 11)

19,405

19,286

Other intangibles

(Note 11)

7,402

7,798

Other assets

(Note 13)

112,893

92,190

323,725

276,738

Total assets

$

2,325,006

$

2,171,582

Liabilities and equity

Deposits

(Note 14)

Personal

$

529,740

$

522,139

Business and government

946,314

839,670

Bank

39,562

47,722

1,515,616

1,409,531

Other

Obligations related to securities sold short

49,891

35,286

Obligations related to assets sold under repurchase agreements and securities loaned

289,516

305,321

Derivatives

(Note 9)

183,953

163,763

Insurance contract liabilities

(Note 15)

24,327

22,231

Other liabilities

(Note 17)

108,591

94,712

656,278

621,313

Subordinated debentures

(Note 18)

13,961

13,546

Total liabilities

2,185,855

2,044,390

Equity attributable to shareholders

Preferred shares and other equity instruments

(Note 19)

11,675

9,031

Common shares

(Note 19)

20,753

20,952

Retained earnings

96,938

88,608

Other components of equity

9,726

8,498

139,092

127,089

Non-controlling interests

59

103

Total equity

139,151

127,192

Total liabilities and equity

$

2,325,006

$

2,171,582

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

David I. McKay

Cynthia Devine

President and Chief Executive Officer

Director

144

Royal Bank of Canada: Annual Report 2025

Consolidated Financial Statements

![]()

Consolidated Statements of Income

For the year ended

(Millions of Canadian dollars, except per share amounts)

October 31

2025

October 31

2024

Interest and dividend income

(Note 3)

Loans

$

56,042

$

54,040

Securities

20,055

17,668

Assets purchased under reverse repurchase agreements and securities borrowed

22,367

27,121

Deposits and other

5,361

6,122

103,825

104,951

Interest expense

(Note 3)

Deposits and other

44,817

47,256

Other liabilities

25,371

28,967

Subordinated debentures

637

775

70,825

76,998

Net interest income

33,000

27,953

Non-interest income

Insurance service result

(Note 15)

867

777

Insurance investment result

(Note 15)

284

294

Trading revenue

3,125

2,327

Investment management and custodial fees

10,647

9,325

Mutual fund revenue

5,084

4,437

Securities brokerage commissions

1,905

1,660

Service charges

2,425

2,294

Underwriting and other advisory fees

2,899

2,672

Foreign exchange revenue, other than trading

1,301

1,142

Card service revenue

1,333

1,273

Credit fees

1,670

1,592

Net gains on investment securities

120

170

Income (loss) from joint ventures and associates

(Note 12)

73

(16)

Other

1,872

1,444

33,605

29,391

Total revenue

66,605

57,344

Provision for credit losses

(Notes 4 and 5)

4,362

3,232

Non-interest expense

Human resources

(Notes 16 and 20)

23,122

21,083

Equipment

2,790

2,537

Occupancy

1,679

1,805

Communications

1,497

1,369

Professional fees

2,177

2,525

Amortization of other intangibles

(Note 11)

1,759

1,549

Other

3,568

3,382

36,592

34,250

Income before income taxes

25,651

19,862

Income taxes

(Note 21)

5,282

3,622

Net income

$

20,369

$

16,240

Net income attributable to:

Shareholders

$

20,362

$

16,230

Non-controlling interests

7

10

$

20,369

$

16,240

Basic earnings per share

(in dollars) (Note 22)

$

14.10

$

11.27

Diluted earnings per share

(in dollars) (Note 22)

14.07

11.25

Dividends per common share

(in dollars)

6.04

5.60

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

Consolidated Financial Statements

Royal Bank of Canada: Annual Report 2025

145

![]()

Consolidated Statements of Comprehensive Income

For the year ended

(Millions of Canadian dollars)

October 31

2025

October 31

2024

Net income

$

20,369

$

16,240

Other comprehensive income (loss), net of taxes

(Note 21)

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

758

1,104

Provision for credit losses recognized in income

(5)

(1)

Reclassification of net losses (gains) on debt securities and loans at fair value through other

comprehensive income to income

(121)

(140)

632

963

Foreign currency translation adjustments

Unrealized foreign currency translation gains (losses)

826

1,029

Net foreign currency translation gains (losses) from hedging activities

(315)

(514)

Reclassification of losses (gains) on foreign currency translation to income

(25)

–

Reclassification of losses (gains) on net investment hedging activities to income

–

1

486

516

Net change in cash flow hedges

Net gains (losses) on derivatives designated as cash flow hedges

780

338

Reclassification of losses (gains) on derivatives designated as cash flow hedges to income

(669)

(827)

111

(489)

Items that will not be reclassified subsequently to income:

Remeasurement gains (losses) on employee benefit plans

(Note 16)

329

531

Net gains (losses) from fair value changes due to credit risk on financial liabilities

designated at fair value through profit or loss

(894)

(1,041)

Net gains (losses) on equity securities designated at fair value through other

comprehensive income

109

117

(456)

(393)

Total other comprehensive income (loss), net of taxes

773

597

Total comprehensive income (loss)

$

21,142

$

16,837

Total comprehensive income attributable to:

Shareholders

$

21,134

$

16,827

Non-controlling interests

8

10

$

21,142

$

16,837

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

146

Royal Bank of Canada: Annual Report 2025

Consolidated Financial Statements

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Consolidated Statements of Changes in Equity

For the year ended October 31, 2025

Other components of equity

(Millions of Canadian dollars)

Preferred

shares and

other equity

instruments

Common

shares

Treasury –

preferred

shares and

other equity

instruments

Treasury –

common

shares

Retained

earnings

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

$

9,020

$ 21,013

$

11

$

(61)

$ 88,608

$

(897)

$

7,128

$

2,267

$

8,498

$

127,089

$

103

$ 127,192

Changes in equity

Issues of share capital and other equity instruments

4,973

77

–

–

(28)

–

–

–

–

5,022

–

5,022

Common shares purchased for cancellation

–

(227)

–

–

(2,541)

–

–

–

–

(2,768)

–

(2,768)

Redemption of preferred shares and other equity instruments

(2,350)

–

–

–

–

–

–

–

–

(2,350)

–

(2,350)

Sales of treasury shares and other equity instruments

–

–

4,937

5,762

–

–

–

–

–

10,699

–

10,699

Purchases of treasury shares and other equity instruments

–

–

(4,916)

(5,811)

–

–

–

–

–

(10,727)

–

(10,727)

Share-based compensation awards

–

–

–

–

29

–

–

–

–

29

–

29

Dividends on common shares

–

–

–

–

(8,502)

–

–

–

–

(8,502)

–

(8,502)

Dividends on preferred shares and distributions on other

equity instruments

–

–

–

–

(494)

–

–

–

–

(494)

(52)

(546)

Other

–

–

–

–

(40)

–

–

–

–

(40)

–

(40)

Net income

–

–

–

–

20,362

–

–

–

–

20,362

7

20,369

Total other comprehensive income (loss), net of taxes

–

–

–

–

(456)

632

485

111

1,228

772

1

773

Balance at end of period

$

11,643

$ 20,863

$

32

$

(110)

$ 96,938

$

(265)

$

7,613

$

2,378

$

9,726

$

139,092

$

59

$ 139,151

For the year ended October 31, 2024

Other components of equity

(Millions of Canadian dollars)

Preferred

shares and

other equity

instruments

Common

shares

Treasury –

preferred

shares and

other equity

instruments

Treasury –

common

shares

Retained

earnings

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

$

7,323

$

19,398

$

(9)

$

(231)

$

81,059

$

(1,860)

$

6,612

$

2,756

$

7,508

$

115,048

$

99

$

115,147

Changes in equity

Issues of share capital and other equity instruments

2,720

1,628

–

–

(18)

–

–

–

–

4,330

–

4,330

Common shares purchased for cancellation

–

(13)

–

–

(127)

–

–

–

–

(140)

–

(140)

Redemption of preferred shares and other equity instruments

(1,023)

–

–

–

2

–

–

–

–

(1,021)

–

(1,021)

Sales of treasury shares and other equity instruments

–

–

1,245

5,472

–

–

–

–

–

6,717

–

6,717

Purchases of treasury shares and other equity instruments

–

–

(1,225)

(5,302)

–

–

–

–

–

(6,527)

–

(6,527)

Share-based compensation awards

–

–

–

–

69

–

–

–

–

69

–

69

Dividends on common shares

–

–

–

–

(7,916)

–

–

–

–

(7,916)

–

(7,916)

Dividends on preferred shares and distributions on other

equity instruments

–

–

–

–

(322)

–

–

–

–

(322)

(6)

(328)

Other

–

–

–

–

24

–

–

–

–

24

–

24

Net income

–

–

–

–

16,230

–

–

–

–

16,230

10

16,240

Total other comprehensive income (loss), net of taxes

–

–

–

–

(393)

963

516

(489)

990

597

–

597

Balance at end of period

$

9,020

$

21,013

$

11

$

(61)

$

88,608

$

(897)

$

7,128

$

2,267

$

8,498

$

127,089

$

103

$

127,192

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

Consolidated Financial Statements

Royal Bank of Canada: Annual Report 2025

147

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Consolidated Statements of Cash Flows

For the year ended

(Millions of Canadian dollars)

October 31

2025

October 31

2024

Cash flows from operating activities

Net income

$

20,369

$

16,240

Adjustments for non-cash items and others

Provision for credit losses

4,362

3,232

Depreciation

1,286

1,364

Deferred income taxes

(216)

(1,529)

Amortization and impairment of other intangibles

1,793

1,617

(Income) loss from joint ventures and associates

(73)

16

Losses (gains) on investment securities

(132)

(170)

Losses (gains) on disposition of business

–

29

Adjustments for net changes in operating assets and liabilities

Insurance contract liabilities

2,096

3,205

Net change in accrued interest receivable and payable

(1,880)

1,674

Current income taxes

(936)

945

Derivative assets

(26,594)

(4,797)

Derivative liabilities

20,190

17,593

Trading securities

(35,767)

8,886

Loans

(62,098)

(55,007)

Assets purchased under reverse repurchase agreements and securities borrowed

41,120

(10,168)

Obligations related to assets sold under repurchase agreements and securities loaned

(15,805)

(35,581)

Obligations related to securities sold short

14,605

727

Deposits

106,085

91,596

Brokers and dealers receivable and payable

(107)

(304)

Other

(13,078)

(16,429)

Net cash from (used in) operating activities

55,220

23,139

Cash flows from investing activities

Change in interest-bearing deposits with banks

15,656

5,066

Proceeds from sales and maturities of investment securities

232,439

182,335

Purchases of investment securities

(314,421)

(193,307)

Net acquisitions of premises and equipment and other intangibles

(2,243)

(2,280)

Net proceeds from (cash transferred for) dispositions

–

15

Cash used in acquisitions, net of cash acquired

–

(12,716)

Net cash from (used in) investing activities

(68,569)

(20,887)

Cash flows from financing activities

Issuance of subordinated debentures

2,991

3,250

Repayment of subordinated debentures

(2,750)

(1,500)

Issue of common shares, net of issuance costs

72

159

Common shares purchased for cancellation

(2,768)

(140)

Issue of preferred shares and other equity instruments, net of issuance costs

4,945

2,702

Redemption of preferred shares and other equity instruments

(2,350)

(1,021)

Sales of treasury shares and other equity instruments

10,699

6,717

Purchases of treasury shares and other equity instruments

(10,727)

(6,527)

Dividends paid on shares and distributions paid on other equity instruments

(8,800)

(6,637)

Dividends/distributions paid to non-controlling interests

(39)

(6)

Change in short-term borrowings of subsidiaries

2,804

(4,507)

Repayment of lease liabilities

(788)

(636)

Net cash from (used in) financing activities

(6,711)

(8,146)

Effect of exchange rate changes on cash and due from banks

361

628

Net change in cash and due from banks

(19,699)

(5,266)

Cash and due from banks at beginning of period

(1)

56,723

61,989

Cash and due from banks at end of period

(1)

$

37,024

$

56,723

Cash flows from operating activities include:

Amount of interest paid

$

70,976

$

73,639

Amount of interest received

100,508

102,127

Amount of dividends received

3,982

3,502

Amount of income taxes paid

6,087

3,410

(1)

We are required to maintain balances due to regulatory requirements or contractual restrictions from central banks, other regulatory authorities, and other

counterparties. The total balances were $3 billion as at October 31, 2025 (October 31, 2024 – $2 billion; October 31, 2023 – $3 billion).

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

148

Royal Bank of Canada: Annual Report 2025

Consolidated Financial Statements

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Consolidated Financial Statements

Royal Bank of Canada: Annual Report 2025

149

Note 1

General information

Royal Bank of Canada and its subsidiaries (the Bank) provide diversified financial services including Personal Banking,

Commercial Banking, Wealth Management, Insurance and Capital Markets products and services on a global basis. Refer to

Note 26 for further details on our business segments.

The parent bank, Royal Bank of Canada, is a Schedule I Bank under the

Bank Act

(Canada) incorporated and domiciled in

Canada. Our corporate headquarters are located at Royal Bank Plaza, 200 Bay Street, Toronto, Ontario, Canada and our head

office is located at 1 Place Ville-Marie, Montreal, Quebec, Canada. Our common shares are listed on the Toronto Stock Exchange

and New York Stock Exchange with the ticker symbol RY.

These Consolidated Financial Statements are prepared in compliance with International Financial Reporting Standards

(IFRS) as issued by the International Accounting Standards Board (IASB). Unless otherwise stated, monetary amounts are stated

in Canadian dollars. Tabular information is stated in millions of dollars, except as noted. These Consolidated Financial

Statements also comply with Subsection 308 of the

Bank Act

(Canada), which states that, except as otherwise specified by the

Office of the Superintendent of Financial Institutions Canada (OSFI), our Consolidated Financial Statements are to be prepared

in accordance with IFRS. The accounting policies outlined in Note 2 have been consistently applied to all periods presented.

On December 2, 2025, the Board of Directors authorized the Consolidated Financial Statements for issue.

Note 2

Summary of material accounting policies, estimates and judgments

The material accounting policies used in the preparation of these Consolidated Financial Statements, including the accounting

requirements prescribed by OSFI, are summarized below. These accounting policies conform, in all material respects, to IFRS.

The same accounting policies have been applied to all periods presented.

General

Use of estimates and assumptions

In preparing our Consolidated Financial Statements, management is required to make subjective estimates and assumptions

that affect the reported amount of assets, liabilities, net income and related disclosures. Estimates made by management are

based on historical experience and other assumptions that are believed to be reasonable. Key sources of estimation uncertainty

include: determination of fair value of financial instruments, allowance for credit losses, insurance and reinsurance contracts,

pensions and other post-employment benefits, income taxes, goodwill and other intangible assets, and provisions. Accordingly,

actual results may differ from these and other estimates thereby impacting our future Consolidated Financial Statements. Refer

to the relevant accounting policies in this Note for details on our use of estimates and assumptions.

Significant judgments

In preparation of these Consolidated Financial Statements, management is required to make significant judgments that affect

the carrying amounts of certain assets and liabilities, and the reported amounts of revenues and expenses recorded during the

period. Significant judgments have been made in the following areas and discussed as noted in the Consolidated Financial

Statements:

|  |  |  |  |
| --- | --- | --- | --- |
| Consolidation of structured entities | Note 2 | Goodwill and other intangibles | Note 2 |
|  | Note 8 |  | Note 11 |
| Fair value of financial instruments | Note 2 | Application of the effective interest method | Note 2 |
|  | Note 3 |  |  |
| Allowance for credit losses | Note 2 | Derecognition of financial assets | Note 2 |
|  | Note 4 |  | Note 7 |
|  | Note 5 |  |  |
| Insurance and reinsurance contracts | Note 2 | Income taxes | Note 2 |
|  | Note 15 |  | Note 21 |
| Employee benefits | Note 2 | Provisions | Note 2 |
|  | Note 16 |  | Note 23 |
|  |  |  | Note 24 |

Basis of consolidation

Our Consolidated Financial Statements include the assets and liabilities and results of operations of the parent company, Royal

Bank of Canada, and its subsidiaries including certain structured entities, after elimination of intercompany transactions,

balances, revenues and expenses.

Consolidation

Subsidiaries are those entities, including structured entities, over which we have control. We control an entity when we are

exposed, or have rights, to variable returns from our involvement with the entity and have the ability to affect those returns

through our power over the investee. We have power over an entity when we have existing rights that give us the current ability

to direct the activities that most significantly affect the entity’s returns (relevant activities). Power may be determined on the

basis of voting rights or, in the case of structured entities, other contractual arrangements.

We are not deemed to control an entity when we exercise power over an entity as the agent of a third-party or parties. In

determining whether we are acting as an agent, we consider the overall relationship between us, the investee and other parties

to the arrangement with respect to the following factors: (i) the scope of our decision-making power; (ii) the rights held by other

parties; (iii) the remuneration to which we are entitled; and (iv) our exposure to variability of returns.

![]()

(continued)

Note 2

Summary of material accounting policies, estimates and judgments

150

Royal Bank of Canada: Annual Report 2025

Consolidated Financial Statements

The determination of control is based on the current facts and circumstances and is continuously assessed. In some

circumstances, different factors and conditions may indicate that various parties control an entity depending on whether those

factors and conditions are assessed in isolation or in totality. Significant judgment is applied in determining whether we control

an entity, specifically, assessing whether we have substantive decision-making rights over the relevant activities and whether

we are exercising our power as a principal or an agent.

We consolidate all subsidiaries from the date we obtain control and cease consolidation when an entity is no longer

controlled by us. Our consolidation conclusions affect the classification and amount of assets, liabilities, revenues and

expenses reported in our Consolidated Financial Statements.

Non-controlling interests in subsidiaries that we consolidate are shown on our Consolidated Balance Sheets as a separate

component of equity which is distinct from equity attributable to our shareholders. The net income attributable to

non-controlling interests is separately disclosed in our Consolidated Statements of Income.

Investments in joint ventures and associates

Our investments in associated corporations and limited partnerships over which we have significant influence are accounted for

using the equity method. The equity method is also applied to our interests in joint ventures over which we have joint control.

Under the equity method of accounting, investments are initially recorded at cost, and the carrying amount is increased or

decreased to recognize our share of the investee’s net profit or loss, including our proportionate share of the investee’s Other

comprehensive income (OCI), subsequent to the date of acquisition.

Financial Instruments

Classification of financial assets

Financial assets are measured at initial recognition at fair value, and are classified and subsequently measured at fair value

through profit or loss (FVTPL), fair value through other comprehensive income (FVOCI) or amortized cost based on our business

model for managing the financial instruments and the contractual cash flow characteristics of the instrument.

Debt instruments are measured at amortized cost if both of the following conditions are met and the asset is not designated

as FVTPL: (a) the asset is held within a business model that is Held-to-Collect (HTC) as described below, and (b) the contractual

terms of the instrument give rise to cash flows that are solely payments of principal and interest on the principal amount

outstanding (SPPI).

Debt instruments are measured at FVOCI if both of the following conditions are met and the asset is not designated as

FVTPL: (a) the asset is held within a business model that is Held-to-Collect-and-Sell (HTC&S) as described below, and (b) the

contractual terms of the instrument give rise, on specified dates, to cash flows that are SPPI.

All other debt instruments are measured at FVTPL.

Equity instruments are measured at FVTPL, unless the asset is not held for trading purposes and we make an irrevocable

election to designate the asset as FVOCI. This election is made on an instrument-by-instrument basis.

Business model assessment

We determine our business models at the level that best reflects how we manage portfolios of financial assets to achieve our

business objectives. Judgment is used in determining our business models, which is supported by relevant, objective evidence

including:

•

How the economic activities of our businesses generate benefits, for example through trading revenue, enhancing

yields or hedging funding or other costs and how such economic activities are evaluated and reported to key

management personnel;

•

The significant risks affecting the performance of our businesses, for example, market risk, credit risk, or other risks as

described in the Risk Management section of the MD&A, and the activities undertaken to manage those risks;

•

Historical and future expectations of sales of the loans or securities portfolios managed as part of a business model;

and

•

The compensation structures for managers of our businesses, to the extent that these are directly linked to the

economic performance of the business model.

Our business models fall into three categories, which are indicative of the key strategies used to generate returns:

•

HTC: The objective of this business model is to hold loans and securities to collect contractual principal and interest

cash flows. Sales are incidental to this objective and are expected to be insignificant or infrequent.

•

HTC&S: Both collecting contractual cash flows and sales are integral to achieving the objective of the business model.

•

Other fair value business models: These business models are neither HTC nor HTC&S, and primarily represent business

models where assets are held-for-trading or managed on a fair value basis.

SPPI assessment

Instruments held within a HTC or HTC&S business model are assessed to evaluate if their contractual cash flows are comprised

of solely payments of principal and interest. SPPI payments are those which would typically be expected from basic lending

arrangements. Principal amounts include par repayments from lending and financing arrangements, and interest primarily

relates to basic lending returns, including compensation for credit risk and the time value of money associated with the principal

amount outstanding over a period of time. Interest can also include other basic lending risks and costs (for example, liquidity

risk, servicing or administrative costs) associated with holding the financial asset for a period of time, and a profit margin.

Where the contractual terms introduce exposure to risk or variability of cash flows that are inconsistent with a basic lending

arrangement, the related financial asset is classified and measured at FVTPL.

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Securities

Trading securities include all securities that are classified as FVTPL by nature and securities designated as FVTPL. Obligations to

deliver trading securities sold but not yet purchased are recorded as liabilities and carried at fair value. Realized and unrealized

gains and losses on these securities are generally recorded in Non-interest income – Trading revenue or Non-interest income –

Other except for amounts relating to the Insurance segment, which are recorded in Non-interest income – Insurance investment

result. Dividends and interest income accruing on Trading securities are recorded in Interest and dividend income except for

amounts relating to the Insurance segment, which are recorded in Non-interest income – Insurance investment result. Interest

and dividends accrued on securities sold short are recorded in Interest expense.

Investment securities include all securities classified as FVOCI and amortized cost. All investment securities are initially

recorded at fair value and subsequently measured according to the respective classification.

Investment securities carried at amortized cost are measured using the effective interest method, and are presented net of

any allowance for credit losses, calculated in accordance with our policy for Allowance for credit losses, as described below.

Interest income, including the amortization of premiums and discounts on securities measured at amortized cost are recorded

in Interest and dividend income. Impairment gains or losses recognized on amortized cost securities are recorded in Provision

for credit losses (PCL). When a debt instrument measured at amortized cost is sold, the difference between the sale proceeds

and the amortized cost of the security at the time of the sale is recorded as Net gains on investment securities in Non-interest

income.

Debt securities carried at FVOCI are measured at fair value with unrealized gains and losses arising from changes in fair

value included in Other components of equity. Impairment gains and losses are included in PCL and correspondingly reduce the

accumulated changes in fair value included in Other components of equity. When a debt instrument measured at FVOCI is sold,

the cumulative gain or loss is reclassified from Other components of equity to Non-interest income – Net gains on investment

securities, or Non-interest income – Insurance investment result if relating to the Insurance segment.

Equity securities carried at FVOCI are measured at fair value. Unrealized gains and losses arising from changes in fair value

are recorded in Other components of equity and not subsequently reclassified to profit or loss when realized. Dividends from

FVOCI equity securities are recognized in Interest and dividend income except for amounts relating to the Insurance segment,

which are recorded in Non-interest income – Insurance investment result.

We account for all of our securities using settlement date accounting and changes in fair value between the trade date and

settlement date are reflected in income for securities measured at FVTPL, and changes in the fair value of securities measured

at FVOCI between the trade and settlement dates are recorded in OCI except for changes in foreign exchange rates on debt

securities, which are recorded in Non-interest income.

Fair value option

A financial instrument with a reliably measurable fair value can be designated as FVTPL (the fair value option) on its initial

recognition even if the financial instrument was not acquired or incurred principally for the purpose of selling or repurchasing.

The fair value option can be used for financial assets if it eliminates or significantly reduces a measurement or recognition

inconsistency that would otherwise arise from measuring assets or liabilities, or recognizing related gains and losses on a

different basis (an accounting mismatch). The fair value option can be elected for financial liabilities if: (i) the election

eliminates an accounting mismatch; (ii) the financial liability is part of a portfolio that is managed on a fair value basis, in

accordance with a documented risk management or investment strategy; or (iii) there is an embedded derivative in the financial

or non-financial host contract and the derivative is not closely related to the host contract. These instruments cannot be

reclassified out of the FVTPL category while they are held or issued.

Financial assets designated as FVTPL are recorded at fair value and any unrealized gain or loss arising due to changes in

fair value is included in Non-interest income – Trading revenue or Non-interest income – Other, depending on our business

purpose for holding the financial asset.

Financial liabilities designated as FVTPL are recorded at fair value and fair value changes attributable to changes in our

own credit risk are recorded in OCI. Own credit risk amounts recognized in OCI will not be reclassified subsequently to net

income. The remaining fair value changes not attributable to changes in our own credit risk are recorded in Non-interest

income – Trading revenue or Non-interest income – Other, depending on our business purpose for holding the financial liability,

except for amounts relating to the Insurance segment, which are recorded in Non-interest income – Insurance investment result.

Upon initial recognition, if we determine that presenting the effects of own credit risk changes in OCI would create or enlarge an

accounting mismatch in net income, the full fair value change in our debt designated as FVTPL is recognized in net income. To

make that determination, we assess whether we expect that the effects of changes in the liability’s credit risk will be offset in

profit or loss by a change in the fair value of another financial instrument measured at FVTPL. Such an expectation is based on

an economic relationship between the characteristics of the liability and the characteristics of the other financial instrument.

The determination is made at initial recognition and is not reassessed. To determine the fair value adjustments on our debt

instruments designated as FVTPL, we calculate the present value of the instruments based on the contractual cash flows over

the term of the arrangement by using our effective funding rate at the beginning and end of the period.

Determination of fair value

The fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an

orderly transaction between market participants at the measurement date. We determine fair value by incorporating factors

that market participants would consider in setting a price, including commonly accepted valuation approaches.

The Board of Directors provides oversight on valuation of financial instruments, primarily through the Audit Committee and

Risk Committee. The Audit Committee reviews the presentation and disclosure of financial instruments that are measured at fair

value, while the Risk Committee assesses the adequacy of governance structures and control processes for the valuation of

these instruments.

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We have established policies, procedures and controls for valuation methodologies and techniques to ensure that fair value

is reasonably estimated. Major valuation processes and controls include, but are not limited to, profit and loss decomposition,

independent price verification (IPV) and model validation standards. These control processes are managed by either Finance or

Group Risk Management and are independent of the relevant businesses and their trading functions. Profit and loss

decomposition is a process to explain the fair value changes of certain positions and is performed daily for trading portfolios. All

fair value instruments are subject to IPV, a process whereby trading function valuations are verified against external market

prices and other relevant market data. Market data sources include traded prices, brokers and price vendors. We give priority to

those third-party pricing services and prices having the highest and most consistent accuracy. The level of accuracy is

determined over time by comparing third-party price values to traders’ or system values, other pricing service values and, when

available, actual trade data. Quoted prices for identical instruments from pricing services or brokers are generally not adjusted

unless there are issues such as stale prices. If multiple quotes for identical instruments are received, fair value is based on an

average of the prices received or the quote from the most reliable vendor, after the outlier prices that fall outside of the pricing

range are removed. Other valuation techniques are used when a price or quote is not available. Some valuation processes use

models to determine fair value. We have a systematic and consistent approach to control the use of models. Valuation models

are approved for use within our model risk management framework. The framework addresses, among other things, model

development standards, validation processes and procedures and approval authorities. Model validation ensures that a model

is suitable for its intended use and sets parameters for its use. All models are revalidated regularly by qualified personnel who

are independent of the model design and development. Annually, our model risk profile is reported to the Board of Directors.

IFRS 13

Fair Value Measurement

permits an exception, through an accounting policy choice, to measure the fair value of a

portfolio of financial instruments on a net open risk position basis when certain criteria are met. We have elected to use this

policy choice to determine the fair value of certain portfolios of financial instruments, primarily derivatives, based on a net

exposure to market or credit risk.

We record valuation adjustments to appropriately reflect counterparty credit quality of our derivative portfolio, differences

between the actual counterparty collateral discount curve and standard overnight index swap (OIS) discounting for

collateralized derivatives, funding valuation adjustments (FVA) for uncollateralized and under-collateralized over-the-counter

(OTC) derivatives, unrealized gains or losses at inception of the transaction, bid-offer spreads, unobservable parameters and

model limitations. These adjustments may be subjective as they require significant judgment in the input selection, such as

implied probability of default (PD) and recovery rate, and are intended to arrive at a fair value that is determined based on

assumptions that market participants would use in pricing the financial instrument. The ultimate realized price for a transaction

may differ from its fair recorded value previously estimated using management judgment.

Valuation adjustments are recorded for the credit risk of our derivative portfolios in order to arrive at their fair values.

Credit valuation adjustments (CVA) take into account our counterparties’ creditworthiness, the current and potential future

mark-to-market of transactions and the effects of credit mitigants such as master netting and collateral agreements. CVA

amounts are derived from estimates of exposure at default (EAD), PD, recovery rates on a counterparty basis and market and

credit factor correlations. EAD is the value of expected derivative assets and liabilities at the time of default, estimated through

modelling using underlying risk factors. PD is implied from the market prices for credit protection and the credit ratings of the

counterparty. When market data is unavailable, it is estimated by incorporating assumptions and adjustments that market

participants would use for determining fair value using these inputs. Correlation is the statistical measure of how credit and

market factors may move in relation to one another. Correlation is estimated using historical data. CVA is calculated daily and

changes are recorded in Non-interest income – Trading revenue.

FVA is also calculated to incorporate the cost and benefit of funding in the valuation of uncollateralized and under-

collateralized OTC derivatives. Future expected cash flows of these derivatives are discounted to reflect the cost and benefit of

funding the derivatives by using a funding curve, implied volatilities and correlations as inputs.

Where required, a valuation adjustment is made to reflect the unrealized gain or loss at inception of a financial instrument

contract where the fair value of that financial instrument is not obtained from a quoted market price or cannot be evidenced by

other observable market transactions based on a valuation technique incorporating observable market data.

A bid-offer valuation adjustment is required when a financial instrument is valued at the mid-market price, instead of the bid

or offer price for asset or liability positions, respectively. The valuation adjustment takes into account the spread from the

mid-market price to either the bid or offer price.

Some valuation models require parameter calibration from such factors as market observable option prices. The calibration

of parameters may be sensitive to factors such as the choice of instruments or optimization methodology. A valuation

adjustment is also estimated to mitigate the uncertainties of parameter calibration and model limitations.

In determining fair value, a hierarchy is used which prioritizes the inputs to valuation techniques. The fair value hierarchy

gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest

priority to unobservable inputs (Level 3). Determination of fair value based on this hierarchy requires the use of observable

market data whenever available. Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities

that we have the ability to access at the measurement date. Level 2 inputs include quoted prices for similar assets or liabilities

in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and model inputs that

are either observable, or can be corroborated by observable market data for substantially the full term of the assets or

liabilities. Level 3 inputs include one or more inputs that are unobservable and significant to the fair value of the asset or

liability. Unobservable inputs are used to measure fair value to the extent that observable inputs are not available at the

measurement date. The availability of inputs for valuation may affect the selection of valuation techniques. The classification of

a financial instrument in the fair value hierarchy for disclosure purposes is based upon the lowest level of input that is

significant to the measurement of fair value.

Where observable prices or inputs are not available, management judgment is required to determine fair values by

assessing other relevant sources of information such as historical data, proxy information from similar transactions, and

through extrapolation and interpolation techniques. For more complex or illiquid instruments, significant judgment is required in

the determination of the model used, the selection of model inputs, and in some cases, the application of valuation adjustments

to the model value or quoted price for inactively traded financial instruments. The selection of model inputs may be subjective

and the inputs may be unobservable. Unobservable inputs are inherently uncertain as there is little or no market data available

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from which to determine the level at which the transaction would occur under normal business circumstances. Appropriate

parameter uncertainty and market risk valuation adjustments for such inputs and other model risk valuation adjustments are

assessed in all such instances.

Loans

Loans are debt instruments recognized initially at fair value and are subsequently measured in accordance with the

Classification of financial assets policy provided above. The majority of our loans are carried at amortized cost using the

effective interest method, which represents the gross carrying amount less allowance for credit losses.

Interest on loans is recognized using the effective interest method and recorded in Interest income except for amounts

relating to the Insurance segment, which are recorded in Non-interest income – Insurance investment. The estimated future

cash flows used in this calculation include those determined by the contractual term of the asset and all fees that are

considered to be integral to the effective interest rate. Also included in this amount are transaction costs and all other premiums

or discounts. Fees that relate to activities such as originating, restructuring or renegotiating loans are deferred and recognized

as Interest income over the expected term of such loans using the effective interest method. Where there is a reasonable

expectation that a loan will be originated, commitment and standby fees are also recognized as interest income over the

expected term of the resulting loans using the effective interest method. Otherwise, such fees are recorded as other liabilities

and amortized into Non-interest income over the commitment or standby period. Future prepayment fees on mortgage loans are

not included as part of the effective interest rate at origination. If prepayment fees are received on a renewal of a mortgage loan

before maturity, the fee is included as part of the effective interest rate, and if not renewed, the prepayment fee is recognized in

interest income at the prepayment date.

For loans carried at amortized cost or FVOCI, impairment losses are recognized at each balance sheet date in accordance

with the three-stage impairment model outlined below.

Allowance for credit losses

An allowance for credit losses (ACL) is established for all financial assets, except for financial assets classified or designated as

FVTPL and equity securities designated as FVOCI, which are not subject to impairment assessment. Assets subject to impairment

assessment include loans, debt securities, interest-bearing deposits with banks, accounts and accrued interest receivable, and

finance and operating lease receivables. ACL on loans measured at amortized cost is presented in Allowance for loan losses.

ACL on debt securities measured at FVOCI is presented in Other components of equity. Other financial assets carried at

amortized cost are presented net of ACL on our Consolidated Balance Sheets.

Off-balance sheet items subject to impairment assessment include financial guarantees and undrawn loan commitments.

ACL on off-balance sheet items is separately calculated and included in Other Liabilities – Provisions.

We measure the ACL on each balance sheet date according to a three-stage expected credit loss impairment model:

•

Performing financial assets

•

Stage 1 – From initial recognition of a financial asset to the date on which the asset has experienced a significant

increase in credit risk relative to its initial recognition, a loss allowance is recognized equal to the credit losses

expected to result from defaults occurring over the 12 months following the reporting date.

•

Stage 2 – Following a significant increase in credit risk relative to the initial recognition of the financial asset, a loss

allowance is recognized equal to the credit losses expected over the remaining lifetime of the asset.

•

Impaired financial assets

•

Stage 3 – When a financial asset is considered to be credit-impaired, a loss allowance is recognized equal to credit

losses expected over the remaining lifetime of the asset. Interest income is calculated based on the carrying

amount of the asset, net of the loss allowance, rather than on its gross carrying amount.

The ACL is a discounted probability-weighted estimate of the cash shortfalls expected to result from defaults over the relevant

time horizon. For loan commitments, credit loss estimates consider the portion of the commitment that is expected to be drawn

over the relevant time period. For financial guarantees, credit loss estimates are based on the expected payments required

under the guarantee contract. For finance lease receivables, credit loss estimates are based on cash flows consistent with the

cash flows used in measuring the lease receivable.

Increases or decreases in the required ACL attributable to model changes and new originations, sales or maturities, and

changes in risk, parameters and exposures due to changes in loss expectations or stage transfers are recorded in PCL. Write-offs

and recoveries of amounts previously written off are recorded against ACL.

The ACL represents an unbiased estimate of expected credit losses on our financial assets as at the balance sheet date.

Judgment is required in making assumptions and estimations when calculating the ACL, including movements between the three

stages, the inclusion of forward-looking information and the application of expert credit judgment. The underlying assumptions

and estimates may result in changes to the provisions from period to period that significantly affect our results of operations.

Measurement of expected credit losses

Expected credit losses are based on a range of possible outcomes and consider all available reasonable and supportable

information, including internal and external ratings, historical credit loss experience and expectations about future cash flows.

The measurement of expected credit losses is based primarily on the product of the instrument’s PD, loss given default (LGD),

and EAD discounted to the reporting date. The main difference between Stage 1 and Stage 2 expected credit losses for

performing financial assets is the respective calculation horizon. Stage 1 estimates project PD, LGD and EAD over a maximum

period of 12 months while Stage 2 estimates project PD, LGD and EAD over the remaining lifetime of the instrument.

An expected credit loss estimate is produced for each individual exposure. Relevant parameters are modelled on a

collective basis using portfolio segmentation that allows for appropriate incorporation of forward-looking information. To

reflect other characteristics that are not already considered through modelling, expert credit judgment is exercised in

determining the final expected credit losses.

For a small percentage of our portfolios which lack detailed historical information and/or loss experience, we apply

simplified measurement approaches that may differ from what is described above. These approaches have been designed to

maximize the available information that is reliable and supportable for each portfolio and may be collective in nature.

Expected credit losses are discounted to the reporting period date using the effective interest rate.

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Note 2

Summary of material accounting policies, estimates and judgments

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Expected life

For instruments in Stage 2 or Stage 3, loss allowances reflect expected credit losses over the expected remaining lifetime of the

instrument. For most instruments, the expected life is limited to the remaining contractual life.

An exemption is provided for certain instruments with the following characteristics: (a) the instrument includes both a loan

and undrawn commitment component; (b) we have the contractual ability to demand repayment and cancel the undrawn

commitment; and (c) our exposure to credit losses is not limited to the contractual notice period. For products in scope of this

exemption, the expected life may exceed the remaining contractual life and is the period over which our exposure to credit

losses is not mitigated by our normal credit risk management actions. This period varies by product and risk category and is

estimated based on our historical experience with similar exposures and consideration of credit risk management actions taken

as part of our regular credit review cycle. Products in scope of this exemption include credit cards, overdraft balances and

certain revolving lines of credit. Judgment is required in determining the instruments in scope for this exemption and estimating

the appropriate remaining life based on our historical experience and credit risk mitigation practices.

Assessment of significant increase in credit risk

The assessment of significant increase in credit risk requires significant judgment. Movements between Stage 1 and Stage 2 are

based on whether an instrument’s credit risk as at the reporting date has increased significantly relative to the date it was

initially recognized. For the purposes of this assessment, credit risk is based on an instrument’s lifetime PD, not the losses we

expect to incur. The assessment is generally performed at the instrument level.

Our assessment of significant increases in credit risk is performed at least quarterly based on three factors. If any of the

following factors indicates that a significant increase in credit risk has occurred, the instrument is moved from Stage 1 to Stage 2:

(1)

We have established thresholds for significant increases in credit risk based on both a percentage and absolute change

in lifetime PD relative to initial recognition. For our wholesale portfolio, a decrease in the borrower’s risk rating is also

required to determine that credit risk has increased significantly.

(2)

Additional qualitative reviews may be performed, as necessary, to assess the staging results, which may lead to

adjustments to better reflect the positions whose credit risk has increased significantly. These reviews are completed

at both the individual borrower levels and the portfolio level and may result in an instrument, a portfolio or a portion of

a portfolio moving from Stage 1 to Stage 2.

(3)

Instruments which are 30 days past due are generally considered to have experienced a significant increase in credit

risk, even if our other metrics do not indicate that a significant increase in credit risk has occurred.

The thresholds for movement between Stage 1 and Stage 2 are symmetrical. After a financial asset has transferred to Stage 2, if

its credit risk is no longer considered to have significantly increased relative to its initial recognition, the financial asset will

move back to Stage 1.

For certain instruments with low credit risk as at the reporting date, it is presumed that credit risk has not increased

significantly relative to initial recognition. Credit risk is considered to be low if the instrument has a low risk of default, and the

borrower has the ability to fulfill their contractual obligations both in the near term and in the longer term, including periods of

adverse changes in the economic or business environment. Certain interest-bearing deposits with banks, assets purchased

under reverse repurchase agreements, insurance policy loans, and liquidity facilities extended to our multi-seller conduits have

been identified as having low credit risk.

Use of forward-looking information

The measurement of expected credit losses for each stage and the assessment of significant increase in credit risk considers

information about past events and current conditions as well as reasonable and supportable projections of future events and

economic conditions. The estimation and application of forward-looking information requires significant judgment.

The PD, LGD and EAD inputs used to estimate Stage 1 and Stage 2 credit loss allowances are modelled based on the

macroeconomic variables (or changes in macroeconomic variables) that are most closely correlated with credit losses in the

relevant portfolio. Each macroeconomic scenario used in our expected credit loss calculation includes a projection of all

relevant macroeconomic variables used in our models for a five-year period, subsequently reverting to long-run averages.

Macroeconomic variables used in our expected credit loss models include, but are not limited to, unemployment rates, gross

domestic product growth rates, equity return indices, commodity prices and Canadian housing prices. Depending on their usage

in the models, macroeconomic variables may be projected at a country, province/state or more granular level.

Our estimation of expected credit losses in Stage 1 and Stage 2 is a discounted probability-weighted estimate that considers

a minimum of three future macroeconomic scenarios. Our base case scenario is based on macroeconomic forecasts published

by our internal economics group. The published forecasts are developed from models based on historical macroeconomic data,

derived from public sources and financial markets. Upside and downside scenarios vary relative to our base case scenario

based on reasonably possible alternative macroeconomic conditions. Additional and more severe downside scenarios are

designed to capture a broader range of potential credit losses in certain sectors. Scenario design, including the identification of

additional downside scenarios, occurs at least on an annual basis and more frequently if conditions warrant.

Scenarios are designed to capture a wide range of possible outcomes and weighted according to our best estimate of the

relative likelihood of the range of outcomes that each scenario represents. Scenario weights take into account historical

frequency, current trends, and forward-looking conditions and are updated on a quarterly basis. All scenarios considered are

applied to all portfolios subject to expected credit losses with the same probabilities.

Our assessment of significant increases in credit risk is based on changes in probability-weighted forward-looking lifetime

PDs as at the reporting date, using the same macroeconomic scenarios as the calculation of expected credit losses.

Definition of default

The definition of default used in the measurement of expected credit losses is consistent with the definition of default used for

our internal credit risk management purposes. Our definition of default may differ across products and consider both

quantitative and qualitative factors, such as the terms of financial covenants and days past due. For retail and wholesale

borrowers, except as detailed below, default occurs when the borrower is more than 90 days past due on any material obligation

to us, and/or we consider the borrower unlikely to make their payments in full without recourse action on our part, such as

taking formal possession of any collateral held. For certain credit card balances, default occurs when payments are 180 days

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past due. For these balances, the use of a period in excess of 90 days past due is reasonable and supported by observable data

on write-off and recovery rates experienced on historical credit card portfolios. The definition of default used is applied

consistently from period to period and to all financial instruments, unless it can be demonstrated that circumstances have

changed such that another definition of default is more appropriate.

Credit-impaired financial assets (Stage 3)

Financial assets are assessed for credit-impairment at each balance sheet date and more frequently when circumstances

warrant further assessment. Evidence of credit-impairment may include indications that the borrower is experiencing significant

financial difficulty, probability of bankruptcy or other financial reorganization, as well as a measurable decrease in the

estimated future cash flows evidenced by the adverse changes in the payments status of the borrower or economic conditions

that correlate with defaults.

An asset that is in Stage 3 will move back to Stage 2 when, as at the reporting date, it is no longer

considered to be credit-impaired. The asset will transfer back to Stage 1 when its credit risk at the reporting date is no longer

considered to have increased significantly from initial recognition, which could occur during the same reporting period as the

transfer from Stage 3 to Stage 2.

When a financial asset has been identified as credit-impaired, expected credit losses are measured as the difference

between the asset’s gross carrying amount and the present value of estimated future cash flows discounted at the instrument’s

original effective interest rate. For impaired financial assets with drawn and undrawn components, expected credit losses also

reflect any credit losses related to the portion of the loan commitment that is expected to be drawn down over the remaining life

of the instrument.

When a financial asset is credit-impaired, interest ceases to be recognized on the regular accrual basis, which accrues

income based on the gross carrying amount of the asset. Rather, interest income is calculated by applying the original effective

interest rate to the amortized cost of the asset, which is the gross carrying amount less the related ACL.

ACL for credit-impaired loans in Stage 3 are established at the borrower level, where losses related to impaired loans are

identified on individually significant loans, or collectively assessed and determined through the use of portfolio-based rates,

without reference to particular loans.

Individually assessed loans (Stage 3)

When individually significant loans are identified as impaired, we reduce the carrying value of the loans to their estimated

realizable value by recording an individually assessed ACL to cover identified credit losses. The individually assessed ACL

reflects the expected amount of principal and interest calculated under the terms of the original loan agreement that will not be

recovered, and the impact of time delays in collecting principal and/or interest (time value of money). The estimated realizable

value for each individually significant loan is the present value of expected future cash flows discounted using the original

effective interest rate for each loan. When the amounts and timing of future cash flows cannot be estimated with reasonable

reliability, the estimated realizable amount may be determined using observable market prices for comparable loans, the fair

value of collateral underlying the loans, and other reasonable and supported methods based on management judgment.

Individually-assessed allowances are established in consideration of a range of possible outcomes, which may include

macroeconomic or non-macroeconomic scenarios, to the extent relevant to the circumstances of the specific borrower being

assessed. Assumptions used in estimating expected future cash flows reflect current and expected future economic conditions

and are generally consistent with those used in Stage 1 and Stage 2 measurement.

Significant judgment is required in assessing evidence of credit-impairment and estimation of the amount and timing of

future cash flows when determining expected credit losses. Changes in the amount expected to be recovered would have a

direct impact on PCL and may result in a change in the ACL.

Collectively assessed loans (Stage 3)

Loans that are collectively assessed are grouped on the basis of similar risk characteristics, taking into account loan type,

industry, geographic location, collateral type, past due status and other relevant factors.

The collectively-assessed ACL reflects: (i) the expected amount of principal and interest calculated under the terms of the

original loan agreement that will not be recovered, and (ii) the impact of time delays in collecting principal and/or interest (time

value of money).

The expected principal and interest collection is estimated on a portfolio basis and references historical loss experience of

comparable portfolios with similar credit risk characteristics, adjusted for the current environment and expected future

conditions. A portfolio specific coverage ratio is applied against the impaired loan balance in determining the collectively-

assessed ACL. The time value of money component is calculated by using the discount factors applied to groups of loans sharing

common characteristics. The discount factors represent the expected recovery pattern of the comparable group of loans, and

reflect the historical experience of these groups adjusted for current and expected future economic conditions and/or industry

factors. Significant judgment is required in assessing evidence of credit-impairment and estimation of the amount and timing of

future cash flows when determining expected credit losses. Changes in the amount expected to be recovered would have a

direct impact on PCL and may result in a change in the ACL.

Write-off of loans

Loans and the related ACL are written off, either partially or in full, when there is no realistic prospect of recovery. Where loans

are secured, they are generally written off after receipt of any proceeds from the realization of collateral. In circumstances

where the net realizable value of any collateral has been determined and there is no reasonable expectation of further recovery,

write off may be earlier. For credit cards, the balances and related ACL are generally written off when payment is 180 days past

due. Personal loans are generally written off at 150 days past due.

Modifications

The original terms of a financial asset may be renegotiated or otherwise modified, resulting in changes to the contractual terms

of the financial asset that affect the contractual cash flows. The treatment of such modifications is primarily based on the

process undertaken to execute the renegotiation and the nature and extent of the expected changes. In the normal course of

business, modifications which are performed for credit reasons, primarily related to troubled debt restructurings, are generally

treated as modifications of the original financial asset. Modifications which are performed for other than credit reasons are

generally considered to be an expiry of the original cash flows; accordingly, such renegotiations are treated as a derecognition

of the original financial asset and recognition of a new financial asset.

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Summary of material accounting policies, estimates and judgments

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If a modification of terms does not result in derecognition of the financial asset, the carrying amount of the financial asset

is recalculated as the present value of the renegotiated or modified contractual cash flows, discounted at the original effective

interest rate and a gain or loss is recognized. The financial asset continues to be subject to the same assessments for significant

increase in credit risk relative to initial recognition and credit-impairment, as described above. A modified financial asset will

transfer out of Stage 3 if the conditions that led to it being identified as credit-impaired are no longer present and relate

objectively to an event occurring after the original credit-impairment was recognized. A modified financial asset will transfer out

of Stage 2 when it no longer satisfies the relative thresholds set to identify significant increases in credit risk, which are based

on changes in its lifetime PD, days past due and other qualitative considerations. The financial asset continues to be monitored

for significant increases in credit risk and credit-impairment.

If a modification of terms results in derecognition of the original financial asset and recognition of the new financial asset,

the new financial asset will generally be recorded in Stage 1, unless it is determined to be credit-impaired at the time of the

renegotiation. For the purposes of assessing for significant increases in credit risk, the date of initial recognition for the new

financial asset is the date of the modification.

Derivatives

When derivatives are embedded in other financial instruments or host contracts, such combinations are known as hybrid

instruments. If the host contract is a financial asset within the scope of IFRS 9

Financial Instruments

(IFRS 9), the classification

and measurement criteria are applied to the entire hybrid instrument as described in the Classification of financial assets

section of Note 2. If the host contract is a financial liability or an asset that is not within the scope of IFRS 9, embedded

derivatives are separately recognized if the economic characteristics and risks of the embedded derivative are not clearly and

closely related to the host contract, unless an election has been made to elect the fair value option, as described above. The

host contract is accounted for in accordance with the relevant standards. Embedded derivatives are presented on a combined

basis with the host contracts.

All derivative instruments are recorded on our Consolidated Balance Sheets at fair value, inclusive of valuation

adjustments. When derivatives are used in trading activities, the realized and unrealized gains and losses on these derivatives

are recognized in Non-interest income – Trading revenue. When derivatives are used to manage our own exposures, we

determine for each derivative whether hedge accounting can be applied, as discussed in the Hedge accounting section below.

For derivatives used to manage our own exposures where we do not apply hedge accounting, the realized and unrealized gains

and losses are primarily recognized in Non-interest income – Other.

Derecognition of financial assets

Financial assets are derecognized from our Consolidated Balance Sheets when our contractual rights to the cash flows from the

assets have expired, when we retain the rights to receive the cash flows of the assets but assume an obligation to pay those

cash flows to a third-party subject to certain pass-through requirements or when we transfer our contractual rights to receive

the cash flows and substantially all of the risks and rewards of the assets have been transferred. When we retain substantially

all of the risks and rewards of the transferred assets, the transferred assets are not derecognized from our Consolidated

Balance Sheets and are accounted for as secured financing transactions. When we neither retain nor transfer substantially all

risks and rewards of ownership of the assets, we derecognize the assets if control over the assets is relinquished. If we retain

control over the transferred assets, we continue to recognize the transferred assets to the extent of our continuing involvement.

Management judgment is applied in determining whether the contractual rights to the cash flows from the transferred

assets have expired or whether we retain the rights to receive cash flows on the assets but assume an obligation to pay for

those cash flows. We derecognize transferred financial assets if we transfer substantially all the risks and rewards of the

ownership in the assets. When assessing whether we have transferred substantially all of the risk and rewards of the transferred

assets, management considers our exposure before and after the transfer with the variability in the amount and timing of the

net cash flows of the transferred assets. In transfers in which we retain the servicing rights, management has applied judgment

in assessing the benefits of servicing against market expectations. When the benefits of servicing are greater than fair value, a

servicing asset is recognized in Other assets in our Consolidated Balance Sheets. When the benefits of servicing are less than

fair value, a servicing liability is recognized in Other liabilities in our Consolidated Balance Sheets.

Derecognition of financial liabilities

We derecognize a financial liability from our Consolidated Balance Sheets when our obligation specified in the contract expires,

or is discharged or cancelled. We recognize the difference between the carrying amount of a financial liability transferred and

the consideration paid in our Consolidated Statements of Income.

Interest

Interest is recognized in Interest income and Interest expense in the Consolidated Statements of Income for all interest-bearing

financial instruments except for amounts relating to the Insurance segment, which are recorded in Non-interest income –

Insurance investment result. The effective interest rate is the rate that discounts estimated future cash flows over the expected

life of the financial asset or liability to the net carrying amount upon initial recognition. Significant judgment is applied in

determining the effective interest rate due to uncertainty in the timing and amounts of future cash flows.

Dividend income

Dividend income is recognized when the right to receive payment is established and is recorded in Interest and dividend income

except for amounts relating to the Insurance segment, which are recorded in Non-interest income – Insurance investment result.

This is the ex-dividend date for listed equity securities, and usually the date when shareholders have approved the dividend for

unlisted equity securities.

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157

Transaction costs

Transaction costs are expensed as incurred for financial instruments classified or designated as FVTPL. For other financial

instruments, transaction costs are capitalized on initial recognition. For financial assets and financial liabilities measured at

amortized cost and debt financial assets measured at FVOCI, capitalized transaction costs are amortized through net income

over the estimated life of the instrument using the effective interest method.

Offsetting financial assets and financial liabilities

Financial assets and financial liabilities are offset on the Consolidated Balance Sheets when there exists both a legally

enforceable right to offset the recognized amounts and an intention to settle on a net basis, or realize the asset and settle the

liability simultaneously.

Assets purchased under reverse repurchase agreements and sold under repurchase agreements

We purchase securities under agreements to resell (reverse repurchase agreements) and take possession of these securities.

We monitor the market value of the securities purchased and additional collateral is obtained when appropriate. We have the

right to liquidate the collateral held in the event of counterparty default. Reverse repurchase agreements are treated as

collateralized lending transactions. We also sell securities under agreements to repurchase (repurchase agreements), which are

treated as collateralized borrowing transactions. The securities received under reverse repurchase agreements and securities

delivered under repurchase agreements are not recognized on, or derecognized from, our Consolidated Balance Sheets,

respectively, unless the risks and rewards of ownership are obtained or relinquished.

Reverse repurchase agreements and repurchase agreements are carried on our Consolidated Balance Sheets at the

amounts at which the securities were initially acquired or sold, except when they are classified or designated as FVTPL and are

recorded at fair value. Interest earned on reverse repurchase agreements is included in Interest income, and interest incurred

on repurchase agreements is included in Interest expense in our Consolidated Statements of Income while changes in fair value

for reverse repurchase agreements and repurchase agreements classified or designated as FVTPL are included in Trading

revenue or Other in Non-interest income except for amounts relating to the Insurance segment, which are recorded in

Non-interest income – Insurance investment result.

Hedge accounting

We have elected to continue to apply the hedge accounting principles under IAS 39 instead of those under IFRS 9.

We use derivatives and non-derivatives in our hedging strategies to manage our exposure to interest rate, currency, credit

and other market risks. Our hedging strategies include the use of fair value hedges, cash flow hedges and net investment

hedges. Derivatives used in hedging relationships are recorded in Other Assets – Derivatives or Other Liabilities – Derivatives on

our Consolidated Balance Sheets. Foreign currency-denominated liabilities used in net investment hedging relationships are

recorded in Deposits – Business and Government and Subordinated debentures on our Consolidated Balance Sheets. We assess,

both at the inception of the hedge and on an ongoing basis, whether the hedging instruments are ‘highly effective’ in offsetting

changes in the fair value or cash flows of the hedged items. A hedge is regarded as highly effective only if the following criteria

are met: (i) at inception of the hedge and throughout its life, the hedge is expected to be highly effective in achieving offsetting

changes in fair value or cash flows attributable to the hedged risk, and (ii) actual results of the hedge are within a

pre-determined range. We perform effectiveness testing to demonstrate that the relationship has been and is expected to be

effective over the remaining term of the hedge. In the case of hedging a forecast transaction, the transaction must have a high

probability of occurring and must present an exposure to variations in cash flows that could ultimately affect the reported net

profit or loss. Hedge accounting is discontinued when it is determined that the hedging instrument is no longer effective as a

hedge, the hedging instrument or hedged item is terminated or sold, or the forecast transaction is no longer deemed highly

probable. Refer to Note 9 for the fair value of derivatives and non-derivative instruments categorized by their hedging

relationships, as well as derivatives that are not designated in hedging relationships.

Fair value hedges

In a fair value hedging relationship, the carrying value of the hedged item is adjusted for changes in fair value attributable to the

hedged risk and recognized in Non-interest income – Other. Changes in fair value of the hedged item, to the extent that the

hedging relationship is effective, are offset by changes in the fair value of the hedging derivative, which are also recognized in

Non-interest income – Other. When hedge accounting is discontinued, the carrying value of the hedged item is no longer

adjusted and the cumulative fair value adjustments to the carrying value of the hedged items are amortized to Non-interest

income – Other over the expected remaining life of the hedged items.

We predominantly use interest rate swaps to hedge our exposure to changes in a fixed interest rate instrument’s fair value

caused by changes in interest rates.

Cash flow hedges

In a cash flow hedging relationship, the effective portion of the change in the fair value of the hedging derivative, net of taxes, is

recognized in OCI and reclassified to profit or loss as the associated hedged forecast transaction occurs, while the ineffective

portion is recognized in Non-interest income – Other. When hedge accounting is discontinued, the cumulative amounts

previously recognized in OCI are reclassified to Net interest income during the periods when the variability in the cash flows of

the hedged item affects Net interest income. Unrealized gains and losses on derivatives are reclassified immediately to

Non-interest income – Other when the hedged item is sold or terminated early, or when the forecast transaction is no longer

expected to occur.

We predominantly use interest rate swaps to hedge the variability in cash flows related to a variable-rate asset or liability.

Net investment hedges

In hedging our foreign currency exposure to a net investment in a foreign operation, the effective portion of foreign exchange

gains and losses on the hedging instruments, net of applicable taxes, is recognized in OCI and the ineffective portion is

recognized in Non-interest income – Other. The amounts, or a portion thereof, previously recognized in Other components of

equity are recognized in Net income on the disposal, or partial disposal, of the foreign operation.

We use foreign exchange contracts and foreign currency-denominated liabilities to manage our foreign currency exposures

to net investments in foreign operations having a functional currency other than the Canadian dollar.

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(continued)

Note 2

Summary of material accounting policies, estimates and judgments

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Royal Bank of Canada: Annual Report 2025

Consolidated Financial Statements

Guarantees

Financial guarantee contracts are contracts that contingently require us to make specified payments (in cash, other assets, our

own shares or provision of services) to reimburse the holder for a loss it incurs because a specified debtor fails to make

payment when due in accordance with the original or modified terms of a debt instrument. Liabilities are recognized on our

Consolidated Balance Sheets at the inception of a guarantee for the fair value of the obligation undertaken in issuing the

guarantee. Financial guarantees are subsequently remeasured at the higher of (i) the amount of expected credit losses and

(ii) the amount initially recognized less, when appropriate, the cumulative amount of income recognized.

If the financial guarantee contract meets the definition of a derivative, it is measured at fair value at each balance sheet

date and reported under Derivatives on our Consolidated Balance Sheets.

Insurance and reinsurance contracts

Contracts under which we accept significant insurance risk from a policyholder by agreeing to compensate the policyholder if a

specified uncertain future event adversely affects the policyholder are insurance contracts, which includes reinsurance

contracts issued. Contracts under which we transfer significant insurance risk to a reinsurer that compensates us for claims

relating to underlying insurance contracts issued by us are reinsurance contracts held, and are accounted for separately from

the underlying insurance contracts to which they relate. Embedded derivatives, investment components and promises to

provide non-insurance services are separated from the insurance or reinsurance contract provided specific criteria are met.

Insurance and reinsurance contracts are aggregated into portfolios that are subject to similar risks and are managed together,

and then divided into groups based on the period of issuance and expected profitability. Groups are separately recognized and

measured using one of three measurement models depending on the characteristics of the contracts:

•

For insurance contracts with direct participating features (applicable primarily to our segregated fund insurance

contracts), the variable fee approach (VFA) is applied.

•

For insurance contracts and reinsurance contracts held with a short duration of one year or less (applicable primarily

to our creditor reinsurance contracts issued, group life and health insurance contracts and travel insurance contracts),

the premium allocation approach (PAA) is applied.

•

The general measurement method (GMM) is applied to all remaining contracts.

Under the GMM and VFA, the carrying amount of a group of insurance or reinsurance contracts is measured as the sum of the

fulfilment cash flows and the contractual service margin (CSM). The carrying amount is also the sum of the liability for remaining

coverage and the liability for incurred claims. The liability for remaining coverage comprises the fulfilment cash flows that relate

to services that will be provided under the contracts in future periods and any remaining CSM at that date. The liability for

incurred claims includes the fulfilment cash flows for incurred claims and expenses that have not yet been paid, including claims

that have been incurred but not yet reported. The fulfilment cash flows consist of the present value of future cash flows and a risk

adjustment for non-financial risk, discounted using the current rates as at the reporting date determined using the discount rate

methodology disclosed in Note 15. The estimates of future cash flows consider probability-weighted scenarios and include all

future cash flows that are within the contract boundary. The risk adjustment for non-financial risk represents the compensation

that we require for bearing the uncertainty about the amount and timing of cash flows that arise from non-financial risk as the

insurance contract is fulfilled and is estimated using the margin approach disclosed in Note 15. The measurement of the groups of

contracts requires the use of judgment in setting methodologies and assumptions for morbidity, mortality, longevity, policy lapses

and other policyholder behaviour, policy dividends and directly attributable expenses, including acquisition costs allocated using

a systematic and rational method. Changes to the underlying assumptions and estimates may have a significant effect on

Non-interest income – Insurance service result and Insurance investment result. Subsequent changes in fulfilment cash flows

related to future services adjust the CSM, unless the group is onerous in which case such changes are recognized in Non-interest

income – Insurance service result along with changes related to past or current services.

For insurance contracts, the CSM represents the unearned profit (net inflows) for providing insurance coverage. For

reinsurance contracts held, the CSM represents the net cost or net gain of purchasing reinsurance. The CSM for insurance and

reinsurance contacts are released into income based on coverage units, which represent the quantity of service (insurance

coverage as well as investment-return and investment-related services) provided by a group of contracts and are determined by

considering the quantity of benefits provided under each contract and the expected coverage duration. Under the GMM, the

CSM is adjusted for interest accretion using the discount rates that were locked-in at initial recognition of the groups or the

discount rates that were locked-in at the transition date for groups where the fair value approach was applied. Under the VFA,

the CSM is adjusted for changes in the amount of our share of the fair value of the underlying items, while the changes to the fair

value of the underlying items, reflecting changes in the obligation to pay the policyholder, are recognized in Non-interest

income – Insurance investment result.

Under the PAA, the liability for remaining coverage for each group is measured as the premiums received less insurance

revenue recognized for services provided, while the liability for incurred claims is measured as the fulfillment cash flows for

incurred claims.

Losses from the recognition of onerous groups of insurance contracts, regardless of the measurement model applied, are

recognized in Non-interest income – Insurance service result immediately. Any losses recognized relating to future service can

be reversed in subsequent periods if the group of contracts is no longer onerous.

The insurance and reinsurance contract balances are remeasured at the end of each reporting period. We have elected to

update the accounting estimates made in the previous interim period when remeasuring the insurance and reinsurance

contracts in subsequent interim and annual reporting periods.

An insurance or reinsurance contract is derecognized when it is extinguished or modified such that the modification results

in a change in the measurement model, a substantially different contract boundary or a change in the scope of the applicable

standard for measuring a component of the contract.

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Royal Bank of Canada: Annual Report 2025

159

Insurance service result comprises Insurance revenue less Insurance service expense and Net income (expense) from

reinsurance contracts held.

•

Insurance revenue is recognized as we provide insurance contract services under the groups of insurance contracts.

For contracts measured using the PAA, the insurance revenue is generally recognized based on allocating expected

premium receipts over the passage of time. For contracts measured using the GMM and VFA, insurance revenue

represents the amount of consideration we expect to be entitled to in exchange for services in the period, which

includes expected claims and expenses directly attributable to fulfilling insurance contracts (excluding any investment

components), release of the risk adjustment for the period, CSM amortization to reflect services provided in the period,

an allocation of premiums that relates to recovering insurance acquisition expenses and experience adjustments for

premium receipts relating to current or past services.

•

Insurance service expense arising from insurance contracts includes incurred claims and other directly attributable

expenses in the current period (excluding investment components), amortization and impairment losses relating to

insurance acquisition cash flows where applicable, changes relating to past or current services and changes in loss

components of onerous groups of contracts.

•

Net income (expense) from reinsurance contracts held represents the amounts recovered from the reinsurers less the

allocation of premiums paid on reinsurance contracts held.

Insurance investment result comprises Net investment income, Net insurance finance income (expense) and Net

reinsurance finance income (expense) from reinsurance contracts held.

•

Net investment income primarily comprises interest and dividend income and net gains (losses) on financial

instruments, including segregated fund assets, and derivatives relating to the Insurance segment. Financial assets

supporting the Insurance segment are primarily measured at FVTPL and FVOCI.

•

Insurance and reinsurance finance income (expense) represents the net effect of and changes in the time value of

money (including the time value of money relating to risk adjustment on non-financial risks) and financial risks on

insurance contracts and reinsurance contracts held, respectively.

Employee benefits – Pensions and other post-employment benefits

Our defined benefit pension expense, which is included in Non-interest expense – Human resources, consists of the cost of

employee pension benefits for the current year’s service, net interest on the net defined benefit liability (asset), past service

cost and gains or losses on settlement. Remeasurements of the net defined benefit obligation, which comprise actuarial gains

and losses and return on plan assets (excluding amounts included in net interest on the net defined benefit liability), are

recognized immediately in OCI in the period in which they occur. Actuarial gains and losses comprise experience adjustments

(the effects of differences between the previous actuarial assumptions and what has actually occurred), as well as the effects of

changes in actuarial assumptions. Amounts recognized in OCI will not be reclassified subsequently to net income. Past service

cost is the change in the present value of the defined benefit obligation resulting from a plan amendment or curtailment and is

charged immediately to income.

For each defined benefit pension plan, we recognize the present value of our defined benefit obligations less the fair value

of the plan assets as a defined benefit liability reported in Other liabilities on our Consolidated Balance Sheets. For plans where

there is a net defined benefit asset, the amount is reported as an asset in Other assets on our Consolidated Balance sheets.

The calculation of defined benefit expenses and obligations requires significant judgment as the recognition is dependent

on discount rates and various actuarial assumptions such as healthcare cost trend rates, projected salary increases, retirement

age and mortality and termination rates. Due to the long-term nature of these plans, such estimates and assumptions are

subject to inherent risks and uncertainties. For our pension and other post-employment benefit plans, the discount rate is

determined by reference to market yields on high quality corporate bonds. Since the discount rate is based on currently

available yields, and involves management’s assessment of market liquidity, it is only a proxy for future yields. Actuarial

assumptions, set in accordance with current practices in the respective countries of our plans, may differ from actual

experience as country specific statistics are only estimates of future employee behaviour. These assumptions are determined by

management and are reviewed by actuaries at least annually. Changes to any of the above assumptions may affect the amounts

of benefits obligations, expenses and remeasurements that we recognize.

Our contributions to defined contribution pension plans are expensed when employees have rendered services in exchange

for such contributions. Defined contribution pension expense is included in Non-interest expense – Human resources.

Share-based compensation

We offer share-based compensation plans to certain key employees and to our non-employee directors.

To account for stock options granted to employees, compensation expense is recognized over the applicable vesting period

with a corresponding increase in equity. Fair value is determined by using option valuation models, which take into account the

exercise price of the option, the current share price, the risk free interest rate, the expected volatility of the share price over the

life of the option and other relevant factors. When the options are exercised, the exercise price proceeds together with the

amount initially recorded in equity are credited to common shares. Our other share-based compensation plans include

performance deferred share plans and deferred share unit plans for key employees (the Plans). The obligations for the Plans are

accrued over their vesting periods. The Plans are generally settled in cash.

For cash-settled awards, our accrued obligations are adjusted to their fair value at each balance sheet date. For share-

settled awards, our expected obligations recognized in equity are based on the fair value of our common shares at the date of

grant. Changes in our obligations, net of related hedges, are recorded as Non-interest expense – Human resources in our

Consolidated Statements of Income with a corresponding increase in Other liabilities for cash-settled awards and in Retained

earnings for share-settled awards. Compensation expense is recognized in the year the awards are earned by plan participants

based on the vesting schedule of the relevant plans, net of estimated forfeitures.

The compensation cost attributable to options and awards granted to employees who are eligible to retire or will become

eligible to retire during the vesting period, is recognized immediately if the employee is eligible to retire on the grant date or

over the period between the grant date and the date the employee becomes eligible to retire.

Our contributions to the employee savings and share ownership plans are expensed as incurred.

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(continued)

Note 2

Summary of material accounting policies, estimates and judgments

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Royal Bank of Canada: Annual Report 2025

Consolidated Financial Statements

Income taxes

Income tax comprises current tax and deferred tax and is recognized in our Consolidated Statements of Income except to the

extent that it relates to items recognized directly in equity, in which case it is recognized in equity.

Current income tax payable on profits is recognized as an expense based on the applicable tax laws in each jurisdiction in

the period in which profits arise, calculated using tax rates enacted or substantively enacted by the balance sheet date.

Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities for accounting and

tax purposes. A deferred income tax asset or liability is determined for each temporary difference, except for earnings related to

our subsidiaries, branches, associates and interests in joint ventures where the temporary differences will not reverse in the

foreseeable future and we have the ability to control the timing of reversal. Deferred tax assets and liabilities are determined

based on the tax rates that are expected to be in effect in the period that the asset is realized or the liability is settled, based on

tax rates and tax laws that have been enacted or substantively enacted at the balance sheet date. Current tax assets and

liabilities are offset when they are levied by the same taxation authority on either the same taxable entity or different taxable

entities within the same tax reporting group (which intends to settle on a net basis), and when there is a legal right to offset.

Deferred tax assets and liabilities are offset when the same conditions are satisfied. Our Consolidated Statements of Income

include items that are non-taxable or non-deductible for income tax purposes and, accordingly, this causes the income tax

provision to be different from what it would be if based on statutory rates.

Deferred income taxes accumulated as a result of temporary differences and tax loss carryforwards are included in Other

assets and Other liabilities. On a quarterly basis, we review our deferred income tax assets to determine whether it is probable

that the benefits associated with these assets will be realized; this review involves evaluating both positive and negative

evidence.

We are subject to income tax laws in various jurisdictions where we operate, and the complex tax laws are potentially

subject to different interpretations by us and the relevant taxation authorities. Significant judgment is required in the

interpretation of the relevant tax laws and in assessing the probability of acceptance of our tax positions to determine our tax

provision, which includes our best estimate of uncertain tax positions that are under audit or appeal by the relevant tax

authorities. We perform a review on a quarterly basis to incorporate our best assessment based on information available, but

additional liability and income tax expense could result based on the acceptance of our tax positions by the relevant tax

authorities.

The determination of our deferred tax asset or liability also requires significant management judgment as the recognition is

dependent on our projection of future taxable profits and tax rates that are expected to be in effect in the period the asset is

realized or the liability is settled. Any changes in our projection will result in changes in deferred tax assets or liabilities on our

Consolidated Balance Sheets, and also deferred tax expense on our Consolidated Statements of Income. We have applied the

exception in IAS 12

Income Taxes

from recognizing and disclosing Pillar Two deferred tax assets and liabilities. Refer to Note 21

for disclosure of Pillar Two tax information.

Business combinations, goodwill and other intangibles

All business combinations are accounted for using the acquisition method. Non-controlling interests, if any, are recognized at

their proportionate share of the fair value of identifiable assets and liabilities, unless otherwise indicated. Identifiable intangible

assets are recognized separately from goodwill and included in Other intangibles. Goodwill represents the excess of the price

paid for the business acquired over the fair value of the net identifiable assets acquired on the date of acquisition.

Goodwill

Goodwill is allocated to cash-generating units or groups of cash-generating units for the purpose of impairment testing, which is

undertaken at the lowest level at which goodwill is monitored for internal management purposes. Impairment testing is

performed annually as at August 1, or more frequently if there are objective indicators of impairment, by comparing the

recoverable amount of a cash-generating unit (CGU) with its carrying amount. The recoverable amount of a CGU is the higher of

its value in use (VIU) and its fair value less costs of disposal (FVLCD). The fair value of a CGU is estimated using valuation

techniques such as a discounted cash flow method, adjusted to reflect the considerations of a prospective third-party buyer.

External evidence such as binding sale agreements or recent transactions for similar businesses within the same industry is

considered to the extent that it is available.

Significant judgment is involved in estimating the model inputs used to determine the recoverable amount of our CGUs, in

particular future cash flows, discount rates and terminal growth rates, due to the uncertainty in the timing and amount of cash

flows and the forward-looking nature of these inputs. Future cash flows are based on financial plans agreed by management

which are estimated based on forecast results, business initiatives, planned capital investments and returns to shareholders.

Discount rates are based on the bank-wide cost of capital, adjusted for CGU-specific risks and currency exposure as reflected by

differences in expected inflation. Bank-wide cost of capital is based on the Capital Asset Pricing Model, the Dividend Growth

Model and peer analysis. CGU-specific risks include country risk, business/operational risk, geographic risk (including political

risk, devaluation risk and government regulation), currency risk and price risk (including product pricing risk and inflation).

Terminal growth rates are based on the long-term steady state growth expectations in the countries within which the CGU

operates. If the future cash flows and other assumptions in future periods deviate significantly from the current amounts used in

our impairment testing, the value of our goodwill could become impaired, with any such impairment loss recognized in

Non-interest expense.

The carrying amount of a CGU includes the carrying amount of assets, liabilities and goodwill allocated to the CGU. If the

recoverable amount is less than the carrying value, the impairment loss is allocated first to reduce the carrying amount of any

goodwill allocated to the CGU and then to the other non-financial assets of the CGU proportionately based on the carrying

amount of each asset. Any impairment loss is charged to income in the period in which the impairment is identified. Goodwill is

stated at cost less accumulated impairment losses. Subsequent reversals of goodwill impairment are prohibited.

Upon disposal of a portion of a CGU, the carrying amount of goodwill related to the portion of the CGU sold is included in

the determination of gains or losses on disposal. The carrying amount is determined based on the relative fair value of the

disposed portion to the total CGU.

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161

Other intangibles

Intangible assets represent identifiable non-monetary assets and are acquired either separately or through a business

combination, or generated internally. Intangible assets acquired through a business combination are recognized separately from

goodwill when they are separable or arise from contractual or other legal rights, and their fair value can be measured reliably. The

cost of a separately acquired intangible asset includes its purchase price and directly attributable costs of preparing the asset for

its intended use. In respect of internally generated intangible assets, cost includes all directly attributable costs necessary to

create, produce and prepare the asset to be capable of operating in the manner intended by management. Research and

development costs that are not eligible for capitalization are expensed. After initial recognition, an intangible asset is carried at

its cost less any accumulated amortization and accumulated impairment losses, if any. Intangible assets with a finite-life are

amortized on a straight-line basis over their estimated useful lives as follows: computer software – 3 to 10 years; and customer list

and relationships – 7 to 20 years. Intangible assets with indefinite useful lives represent mutual fund management contracts.

Intangible assets are assessed for indicators of impairment at each reporting period. If there is an indication that an

intangible asset may be impaired, an impairment test is performed by comparing the carrying amount of the intangible asset to

its recoverable amount. Where it is not possible to estimate the recoverable amount of an individual asset, we estimate the

recoverable amount of the CGU to which the asset belongs. If the recoverable amount of the asset (or CGU) is less than its

carrying amount, the carrying amount of the intangible asset is written down to its recoverable amount as an impairment loss.

An impairment loss recognized previously is reversed if there is a change in the estimates used to determine the

recoverable amount of the asset (or CGU) since the last impairment loss was recognized. If an impairment loss is subsequently

reversed, the carrying amount of the asset (or CGU) is revised to the lower of its recoverable amount and the carrying amount

that would have been determined (net of amortization) had there been no prior impairment.

Due to the subjective nature of these estimates, significant judgment is required in determining the useful lives and

recoverable amounts of our intangible assets, and assessing whether certain events or circumstances constitute objective

evidence of impairment. Estimates of the recoverable amounts of our intangible assets rely on certain key inputs, including

future cash flows and discount rates. Future cash flows are based on sales projections and allocated costs which are estimated

based on forecast results and business initiatives. Discount rates are based on the bank-wide cost of capital, adjusted for asset-

specific risks. Changes in these assumptions may impact the amount of impairment loss recognized in Non-interest expense.

Other

Translation of foreign currencies

Monetary assets and liabilities denominated in foreign currencies are translated into Canadian dollars at rates prevailing at the

balance sheet date. Foreign exchange gains and losses resulting from the translation and settlement of these items are

recognized in Non-interest income in the Consolidated Statements of Income.

Non-monetary assets and liabilities that are measured at historical cost are translated into Canadian dollars at historical

rates.

Assets and liabilities of our foreign operations with functional currencies other than Canadian dollars are translated into

Canadian dollars at rates prevailing at the balance sheet date, and income and expenses of these foreign operations are

translated at average rates of exchange for the reporting period.

Unrealized gains or losses arising as a result of the translation of our foreign operations along with the effective portion of

related hedges are reported in Other components of equity. Upon disposal or partial disposal of a foreign operation, an

appropriate portion of the accumulated net translation gains or losses is included in Non-interest income.

Premises and equipment

Premises and equipment includes land, buildings, leasehold improvements, computer equipment, furniture, fixtures and other

equipment, and are stated at cost less accumulated depreciation, except for land which is not depreciated, and accumulated

impairment losses. Cost comprises the purchase price, any costs directly attributable to bringing the asset to the location and

condition necessary for its intended use, and the initial estimate of any disposal costs. Depreciation is recorded principally on a

straight–line basis over the estimated useful lives of the assets, which are 25 to 50 years for buildings, 3 to 10 years for computer

equipment, and 5 to 10 years for furniture, fixtures and other equipment. The amortization period for leasehold improvements is

the lesser of the useful life of the leasehold improvements or the lease term plus the first renewal period, if reasonably assured

of renewal. Depreciation methods, useful lives, and residual values are reassessed at each reporting period and adjusted as

appropriate. Gains and losses on disposal are recorded in Non–interest income.

Premises and equipment are assessed for indicators of impairment at each reporting period. If there is an indication that an

asset may be impaired, an impairment test is performed by comparing the asset’s carrying amount to its recoverable amount.

After the recognition of impairment, the depreciation charge is adjusted in future periods to reflect the asset’s revised

carrying amount. If an impairment is later reversed, the carrying amount of the asset is revised to the lower of the asset’s

recoverable amount and the carrying amount that would have been determined (net of depreciation) had there been no prior

impairment loss. The depreciation charge in future periods is adjusted to reflect the revised carrying amount.

Right-of-use assets are also included in premises and equipment.

Leasing

At inception of a contract, we assess whether a contract is or contains a lease. A contract is, or contains, a lease if the contract

conveys the right to obtain substantially all of the economic benefits from, and direct the use of, an identified asset for a period

of time in return for consideration.

When we are the lessee in a lease arrangement, we initially record a right-of-use asset and corresponding lease liability,

except for short-term leases and leases of low-value assets. Short-term leases are leases with a lease term of 12 months or less.

Low-value assets are unspecialized, common, technologically unsophisticated, widely available and widely used

non-infrastructure assets. For short-term leases and leases of low-value assets, we record the lease payments as an operating

expense on a straight-line basis over the lease term.

Where we are reasonably certain to exercise extension and termination options, they are included in the lease term.

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement

date, discounted at our incremental borrowing rate. The lease liability is subsequently measured at amortized cost using the

effective interest method, recorded in Interest expense.

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(continued)

Note 2

Summary of material accounting policies, estimates and judgments

162

Royal Bank of Canada: Annual Report 2025

Consolidated Financial Statements

The right-of-use asset is initially measured based on the initial amount of the lease liability, adjusted for lease payments

made on or before the commencement date, initial direct costs incurred, and an estimate of costs to dismantle, remove, or

restore the asset, less any lease incentives received. Costs related to dismantling and removing leasehold improvements are

capitalized as part of the leasehold improvement asset (rather than the right-of-use asset of the lease) when the leasehold

improvements are separately capitalized.

The right-of-use asset is depreciated to the earlier of the lease term and the useful life, unless ownership will transfer to

RBC or we are reasonably certain to exercise a purchase option, in which case the useful life of the right-of-use asset is used. We

determine whether a right-of-use asset is impaired and account for any identified impairment loss as described in the premises

and equipment accounting policies above.

Provisions

Provisions are liabilities of uncertain timing or amount and are recognized when we have a present legal or constructive

obligation as a result of a past event, it is probable that an outflow of resources will be required to settle the obligation, and a

reliable estimate can be made of the amount of the obligation. Provisions are measured as the best estimate of the

consideration required to settle the present obligation at the reporting date. Significant judgment is required in determining

whether a present obligation exists and in estimating the probability, timing and amount of any outflows. We record provisions

related to litigation, asset retirement obligations and other items.

We are required to estimate the results of ongoing legal proceedings, and expenses to be incurred to dispose of capital

assets. The forward-looking nature of these estimates requires us to use a significant amount of judgment in projecting the

timing and amount of future cash flows. We record our provisions on the basis of all available information at the end of the

reporting period and make adjustments on a quarterly basis to reflect current expectations. It may not be possible to predict the

resolution of these matters or the timing of their ultimate resolution. Should actual results differ from our expectations, we may

incur expenses in excess of the provisions recognized. Where appropriate, we apply judgment in limiting the extent of our

provisions-related disclosures as not to prejudice our positions in matters of dispute.

When some or all of the economic benefits required to settle a provision are expected to be recovered from a third-party,

such as an insurer, a separate asset is recognized if it is virtually certain that reimbursement will be received.

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 clients.

Investment management and custodial fees and Mutual fund revenue are generally calculated as a percentage of daily,

monthly or period-end net asset values (NAV) based on the terms of the contract with clients and are received monthly,

quarterly, semiannually 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 generally derived from the daily 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 client, 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 12-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 client and have discretion in establishing the price for the

commissions and fees earned, which may require judgment.

Earnings per share

Earnings per share is computed by dividing Net income available to common shareholders by the weighted average number of

common shares outstanding for the period. Net income available to common shareholders is determined after deducting dividend

entitlements of preferred shareholders and distributions on other equity instruments, any gains (losses) on redemption of preferred

shares and other equity instruments net of related income taxes and the net income attributable to non-controlling interests.

Diluted earnings per share reflects the potential dilution that could occur if additional common shares are assumed to be

issued under securities or contracts that entitle their holders to obtain common shares in the future, to the extent such

entitlement is not subject to unresolved contingencies. For contracts that may be settled in cash or in common shares at our

option, diluted earnings per share is calculated based on the assumption that such contracts will be settled in shares. Income

and expenses associated with these types of contracts are excluded from the Net income available to common shareholders,

and the additional number of shares that would be issued is included in the diluted earnings per share calculation. For stock

options whose exercise price is less than the average market price of our common shares, using the treasury stock method, they

are assumed to be exercised and the proceeds are used to repurchase common shares at the average market price for the

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Consolidated Financial Statements

Royal Bank of Canada: Annual Report 2025

163

period. The incremental number of common shares issued under stock options and repurchased from proceeds is included in

the calculation of diluted earnings per share.

Share capital and other equity instruments

We classify a financial instrument that we issue as a financial asset, financial liability or an equity instrument in accordance

with the substance of the contractual arrangement.

Our common shares held by us are classified as treasury shares in equity and accounted for at weighted average cost. Upon

the sale of treasury shares, the difference between the sale proceeds and the cost of the shares is recognized in Retained

earnings. Financial instruments issued by us are classified as equity instruments when there is no contractual obligation to

transfer cash or other financial assets. Incremental costs directly attributable to the issue of equity instruments are included in

equity as a deduction from the proceeds, net of tax. Financial instruments that will be settled by a variable number of our

common shares upon their conversion by the holders as well as the related accrued distributions are classified as liabilities on

our Consolidated Balance Sheets. Dividends and yield distributions on these instruments are classified as Interest expense in

our Consolidated Statements of Income. For compound instruments comprised of both liability and equity components, the

liability component is initially measured at fair value with any residual amount assigned to the equity component.

Future changes in accounting policy and disclosure

Amendments to the Classification and Measurement of Financial Instruments

In May 2024, the IASB issued

Amendments to the Classification and Measurement of Financial Instruments

which amends IFRS 9

Financial Instruments

and IFRS 7

Financial Instruments: Disclosures

(the Amendments). The Amendments clarify the recognition

and derecognition of financial instruments and introduce an accounting policy option for financial liabilities settled through

electronic payment systems. The Amendments also clarify classification guidance for financial assets with contingent features

not directly related to changes in basic lending risks and introduce additional related disclosure requirements for financial

instruments with such contingent features. The Amendments will be effective for us on November 1, 2026 and will be applied

retrospectively with no restatement of comparative periods required. To manage the implementation of the Amendments, we

established a program to assess the impact on systems, processes and financial reporting. We continue to assess the impact of

adopting the Amendments on our Consolidated Financial Statements.

IFRS 18 Presentation and Disclosure in Financial Statements (IFRS 18)

In April 2024, the IASB issued IFRS 18, which sets out requirements for the presentation and disclosure of information in the

financial statements. IFRS 18 will replace IAS 1 Presentation of Financial Statements and accompanies limited amendments to

other standards which will be effective upon the adoption of the new standard. The standard introduces new defined subtotals

to be presented in the Consolidated Statements of Income, disclosure of management-defined performance measures and

requirements for aggregation and disaggregation of information. This standard will be effective for us on November 1, 2027 and

will be applied retrospectively with restatement of comparative periods. To manage the transition to IFRS 18, we established a

program to assess the impact on systems, processes and financial reporting required for adoption. We continue to assess the

impact of adopting this standard on our Consolidated Financial Statements.

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 in the Consolidated Balance Sheets. For

measurement purposes, they are carried at fair value when conditions requiring separation are met.

|  |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | As at October 31, 2025 | | | | | | | |
|  | Carrying value and fair value | | | | Carrying value | Fair value |  |  |
|  | Financial | Financial | Financial | Financial | Financial | Financial |  |  |
|  | instruments | instruments | instruments | instruments | instruments | instruments | Total |  |
|  | classified as | designated as | classified as | designated as | measured at | measured at | carrying | Total |
| (Millions of Canadian dollars) | FVTPL | FVTPL | FVOCI | FVOCI | amortized cost | amortized cost | amount | fair value |
| Financial assets |  |  |  |  |  |  |  |  |
| Interest-bearing deposits with banks | $  – | $  40,455 | $  – | $  – | $  9,909 | $  9,909 | $  50,364 | $  50,364 |
| Securities |  |  |  |  |  |  |  |  |
| Trading | 212,878 | 6,189 | – | – | – | – | 219,067 | 219,067 |
| Investment, net of applicable allowance | – | – | 240,299 | 1,496 | 100,926 | 98,728 | 342,721 | 340,523 |
|  | 212,878 | 6,189 | 240,299 | 1,496 | 100,926 | 98,728 | 561,788 | 559,590 |
| Assets purchased under reverse repurchase |  |  |  |  |  |  |  |  |
| agreements and securities borrowed | 226,213 | – | – | – | 83,470 | 83,470 | 309,683 | 309,683 |
| Loans, net of applicable allowance |  |  |  |  |  |  |  |  |
| Retail | 1,128 | – | 442 | – | 646,832 | 648,413 | 648,402 | 649,983 |
| Wholesale | 9,724 | – | 690 | – | 383,606 | 382,551 | 394,020 | 392,965 |
|  | 10,852 | – | 1,132 | – | 1,030,438 | 1,030,964 | 1,042,422 | 1,042,948 |
| Other |  |  |  |  |  |  |  |  |
| Derivatives | 177,206 | – | – | – | – | – | 177,206 | 177,206 |
| Other assets  (1) | 14,382 | – | – | – | 58,487 | 58,487 | 72,869 | 72,869 |
| Financial liabilities |  |  |  |  |  |  |  |  |
| Deposits |  |  |  |  |  |  |  |  |
| Personal | $  942 | $  41,302 |  |  | $  487,496 | $  488,644 | $  529,740 | $  530,888 |
| Business and government  (2) | 313 | 168,690 |  |  | 777,311 | 779,130 | 946,314 | 948,133 |
| Bank  (3) | – | 2,908 |  |  | 36,654 | 36,657 | 39,562 | 39,565 |
|  | 1,255 | 212,900 |  |  | 1,301,461 | 1,304,431 | 1,515,616 | 1,518,586 |
| Other |  |  |  |  |  |  |  |  |
| Obligations related to securities sold short | 49,891 | – |  |  | – | – | 49,891 | 49,891 |
| Obligations related to assets sold under |  |  |  |  |  |  |  |  |
| repurchase agreements and securities |  |  |  |  |  |  |  |  |
| loaned | – | 242,916 |  |  | 46,600 | 46,600 | 289,516 | 289,516 |
| Derivatives | 183,953 | – |  |  | – | – | 183,953 | 183,953 |
| Other liabilities  (4) | – | 21,688 |  |  | 58,287 | 58,293 | 79,975 | 79,981 |
| Subordinated debentures | – | 232 |  |  | 13,729 | 13,887 | 13,961 | 14,119 |

![]()

(continued)

Note 3

Fair value of financial instruments

164

Royal Bank of Canada: Annual Report 2025

Consolidated Financial Statements

|  |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | As at October 31, 2024 | | | | | | | |
|  | Carrying value and fair value | | | | Carrying value | Fair value |  |  |
|  | Financial | Financial | Financial | Financial | Financial | Financial |  |  |
|  | instruments | instruments | instruments | instruments | instruments | instruments | Total |  |
|  | classified as | designated as | classified as | designated as | measured at | measured at | carrying | Total |
| (Millions of Canadian dollars) | FVTPL | FVTPL | FVOCI | FVOCI | amortized cost | amortized cost | amount | fair value |
| Financial assets |  |  |  |  |  |  |  |  |
| Interest-bearing deposits with banks | $  – | $  53,996 | $  – | $  – | $  12,024 | $  12,024 | $  66,020 | $  66,020 |
| Securities |  |  |  |  |  |  |  |  |
| Trading | 182,346 | 954 | – | – | – | – | 183,300 | 183,300 |
| Investment, net of applicable allowance | – | – | 155,118 | 1,242 | 100,258 | 96,336 | 256,618 | 252,696 |
|  | 182,346 | 954 | 155,118 | 1,242 | 100,258 | 96,336 | 439,918 | 435,996 |
| Assets purchased under reverse repurchase |  |  |  |  |  |  |  |  |
| agreements and securities borrowed | 284,311 | – | – | – | 66,492 | 66,492 | 350,803 | 350,803 |
| Loans, net of applicable allowance |  |  |  |  |  |  |  |  |
| Retail | 915 | – | 580 | – | 622,098 | 619,320 | 623,593 | 620,815 |
| Wholesale | 6,177 | 2,030 | 1,003 | – | 348,577 | 345,561 | 357,787 | 354,771 |
|  | 7,092 | 2,030 | 1,583 | – | 970,675 | 964,881 | 981,380 | 975,586 |
| Other |  |  |  |  |  |  |  |  |
| Derivatives | 150,612 | – | – | – | – | – | 150,612 | 150,612 |
| Other assets  (1) | 11,770 | – | – | – | 50,093 | 50,093 | 61,863 | 61,863 |
| Financial liabilities |  |  |  |  |  |  |  |  |
| Deposits |  |  |  |  |  |  |  |  |
| Personal | $  508 | $  33,799 |  |  | $  487,832 | $  490,170 | $  522,139 | $  524,477 |
| Business and government  (2) | 191 | 156,238 |  |  | 683,241 | 684,748 | 839,670 | 841,177 |
| Bank  (3) | – | 10,530 |  |  | 37,192 | 37,183 | 47,722 | 47,713 |
|  | 699 | 200,567 |  |  | 1,208,265 | 1,212,101 | 1,409,531 | 1,413,367 |
| Other |  |  |  |  |  |  |  |  |
| Obligations related to securities sold short | 35,286 | – |  |  | – | – | 35,286 | 35,286 |
| Obligations related to assets sold under |  |  |  |  |  |  |  |  |
| repurchase agreements and securities |  |  |  |  |  |  |  |  |
| loaned | – | 270,663 |  |  | 34,658 | 34,658 | 305,321 | 305,321 |
| Derivatives | 163,763 | – |  |  | – | – | 163,763 | 163,763 |
| Other liabilities  (4) | (1,407) | – |  |  | 69,597 | 69,850 | 68,190 | 68,443 |
| Subordinated debentures | – | – |  |  | 13,546 | 13,602 | 13,546 | 13,602 |

(1)

Includes 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 financial instruments recognized in Other liabilities.

Financial assets designated as fair value through profit or loss

For our financial assets designated as FVTPL, we measure the change in fair value attributable to changes in credit risk as the

difference between the total change in the fair value of the instrument during the period and the change in fair value calculated

using the appropriate risk-free yield curves. For the year ended October 31, 2025, the change in fair value during the period

attributable to changes in credit risk for positions still held was a loss of $1 million and the cumulative change in fair value

attributable to changes in credit risk for positions still held was a loss of $5 million. For the year ended October 31, 2024, the

change in fair value during the period attributable to changes in credit risk for positions still held was a gain of $45 million and

the cumulative change in fair value attributable to changes in credit risk for positions still held was a loss of $9 million. As at

October 31, 2025, the extent to which credit derivatives or similar instruments mitigate the maximum exposure to credit risk was

$1,035 million (October 31, 2024 – $954 million).

Financial liabilities designated as fair value through profit or loss

For our financial liabilities designated as FVTPL, we take into account changes in our own credit spread and the expected

duration of the instrument to measure the change in fair value attributable to changes in credit risk.

|  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- |
|  | As at or for the year ended October 31, 2025  (1) | | | | |
|  | Contractual  maturity |  | Difference  between  carrying value  and contractual | Changes in fair value attributable  to changes in credit risk included  in OCI for positions still held | |
| (Millions of Canadian dollars) | amount  (2) | Carrying value | maturity amount | During the period | Cumulative  (3) |
| Term deposits |  |  |  |  |  |
| Personal | $  40,965 | $  41,302 | $  337 | $  72 | $  229 |
| Business and government  (4) | 174,268 | 168,690 | (5,578) | 744 | 926 |
| Bank  (5) | 2,903 | 2,908 | 5 | – | – |
|  | 218,136 | 212,900 | (5,236) | 816 | 1,155 |
| Other |  |  |  |  |  |
| Obligations related to assets sold under |  |  |  |  |  |
| repurchase agreements and securities |  |  |  |  |  |
| loaned | 242,931 | 242,916 | (15) | – | – |
| Other liabilities | 26,925 | 21,688 | (5,237) | 401 | 401 |
| Subordinated debentures | 236 | 232 | (4) | – | – |
|  | $  488,228 | $  477,736 | $  (10,492) | $  1,217 | $  1,556 |

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Consolidated Financial Statements

Royal Bank of Canada: Annual Report 2025

165

|  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- |
|  | As at or for the year ended October 31, 2024 (1) | | | | |
|  | Contractual  maturity |  | Difference  between  carrying value  and contractual | Changes in fair value attributable  to changes in credit risk included  in OCI for positions still held | |
| (Millions of Canadian dollars) | amount  (2) | Carrying value | maturity amount | During the period | Cumulative (3) |
| Term deposits |  |  |  |  |  |
| Personal | $  33,552 | $  33,799 | $  247 | $  221 | $  163 |
| Business and government  (4) | 162,648 | 156,238 | (6,410) | 1,204 | 177 |
| Bank  (5) | 10,520 | 10,530 | 10 | – | – |
|  | 206,720 | 200,567 | (6,153) | 1,425 | 340 |
| Other |  |  |  |  |  |
| Obligations related to assets sold under |  |  |  |  |  |
| repurchase agreements and securities |  |  |  |  |  |
| loaned | 270,625 | 270,663 | 38 | – | – |
| Other liabilities | – | – | – | – | – |
| Subordinated debentures | – | – | – | – | – |
|  | $  477,345 | $  471,230 | $  (6,115) | $  1,425 | $  340 |

(1)

$5 million in changes in fair value attributable to changes in credit risk were recognized in income for the year ended October 31, 2025, and $17 million in cumulative

changes in credit risk were included in income for positions still held life-to-date (October 31, 2024 – $1 million and $9 million, respectively).

(2)

Reflects the contractual undiscounted amounts due at payment dates for these financial instruments. These amounts do not reconcile directly with their associated

carrying values as these amounts incorporate only undiscounted amounts due at payment dates and do not recognize premiums, discounts, expectations of early

redemptions or mark-to-market adjustments that are recognized in the instruments’ carrying values as at the balance sheet date.

(3)

The cumulative change is measured from the initial designation of the liabilities as FVTPL. For the year ended October 31, 2025, $19 million of fair value gains previously

included in OCI relate to financial liabilities derecognized during the year (October 31, 2024 – $15 million of fair value gains).

(4)

Business and government term deposits include amounts from regulated deposit-taking institutions other than regulated banks.

(5)

Bank term deposits refer to amounts from regulated banks and central banks.

Net gains (losses) from financial instruments classified and designated as fair value through profit or loss

Financial instruments classified as FVTPL, which includes mainly trading securities, derivatives, trading liabilities, and financial

assets and liabilities designated as FVTPL are measured at fair value with realized and unrealized gains and losses recognized

in Non-interest income.

|  |  |  |
| --- | --- | --- |
|  | For the year ended | |
|  | October 31 | October 31 |
| (Millions of Canadian dollars) | 2025 | 2024 |
| Net gains (losses)  (1) |  |  |
| Classified as fair value through profit or loss  (2) | $  6,689 | $  8,996 |
| Designated as fair value through profit or loss  (3) | (2,547) | (5,847) |
|  | $  4,142 | $  3,149 |
| By product line  (1) |  |  |
| Interest rate and credit  (4) | $  2,556 | $  2,580 |
| Equities | 764 | 389 |
| Foreign exchange and commodities | 822 | 180 |
|  | $  4,142 | $  3,149 |

(1)

Excludes net gains from financial instruments classified as FVTPL of $395 million (October 31, 2024 – net gains of $2,251 million for financial instruments classified or

designated as FVTPL) presented in Insurance investment result in the Consolidated Statements of Income.

(2)

Excludes derivatives designated in a hedging relationship. Refer to Note 9 for net gains (losses) on these derivatives.

(3)

For the year ended October 31, 2025, $2,555 million of net fair value losses on financial liabilities designated as FVTPL, other than those attributable to changes in our own

credit risk, were included in Non-interest income (October 31, 2024 – losses of $5,838 million).

(4)

Includes gains (losses) recognized on cross currency interest rate swaps.

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 year ended | |
|  | October 31 | October 31 |
| (Millions of Canadian dollars) | 2025 | 2024 |
| Interest and dividend income  (1), (2) |  |  |
| Financial instruments measured at fair value through profit or loss | $  30,502 | $  35,550 |
| Financial instruments measured at fair value through other comprehensive income | 8,778 | 7,109 |
| Financial instruments measured at amortized cost | 64,545 | 62,292 |
|  | 103,825 | 104,951 |
| Interest expense  (1) |  |  |
| Financial instruments measured at fair value through profit or loss | $  30,642 | $  34,150 |
| Financial instruments measured at amortized cost | 40,183 | 42,848 |
|  | 70,825 | 76,998 |
| Net interest income | $  33,000 | $  27,953 |

(1)

Excludes interest and dividend income for the year end October 31, 2025 of $1,244 million (October 31, 2024 – $958 million) and interest expense of $226 million

(October 31, 2024 – $120 million) presented in Insurance investment result in the Consolidated Statements of Income.

(2)

Includes dividend income for the year ended October 31, 2025 of $3,803 million (October 31, 2024 – $3,319 million), which is presented in Interest and dividend income in

the Consolidated Statements of Income.

![]()

(continued)

Note 3

Fair value of financial instruments

166

Royal Bank of Canada: Annual Report 2025

Consolidated Financial Statements

Fee income arising from financial instruments

For the year ended October 31, 2025, we earned $6,803 million in fees from banking services (October 31, 2024 – $6,347 million).

For the year ended October 31, 2025, we also earned $19,850 million in fees from investment management, trust, custodial,

underwriting, brokerage and other similar fiduciary services to retail and institutional clients (October 31, 2024 – $17,467 million).

These fees are included in Non-interest income.

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

|  |  |  |  |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | As at | | | | | | | | | |  |
|  | October 31, 2025 | | | | | October 31, 2024 | | | | |
|  | Fair value | | |  |  | Fair value | | |  |  |
|  | measurements using | | |  |  | measurements using | | |  |  |
|  |  |  |  | Netting |  |  |  |  | Netting |  |
| (Millions of Canadian dollars) | Level 1 | Level 2 | Level 3 | adjustments | Fair value | Level 1 | Level 2 | Level 3 | adjustments | Fair value |
| Financial assets |  |  |  |  |  |  |  |  |  |  |
| Interest-bearing deposits with banks | $  – | $  40,455 | $  – | $ | $  40,455 | $  – | $ 53,996 | $  – | $ | $  53,996 |
| Securities |  |  |  |  |  |  |  |  |  |  |
| Trading |  |  |  |  |  |  |  |  |  |  |
| Debt issued or guaranteed by: |  |  |  |  |  |  |  |  |  |  |
| Canadian government |  |  |  |  |  |  |  |  |  |  |
| Federal | 17,707 | 2,864 | – |  | 20,571 | 11,611 | 2,173 | – |  | 13,784 |
| Provincial and municipal | – | 16,891 | – |  | 16,891 | – | 16,588 | – |  | 16,588 |
| U.S. federal, state, municipal and agencies  (1) | 435 | 40,322 | – |  | 40,757 | 1,852 | 29,136 | – |  | 30,988 |
| Other OECD government  (2) | 7,152 | 7,265 | – |  | 14,417 | 2,481 | 2,153 | – |  | 4,634 |
| Mortgage-backed securities | – | 74 | – |  | 74 | – | 3 | – |  | 3 |
| Asset-backed securities | – | 1,295 | – |  | 1,295 | – | 1,434 | – |  | 1,434 |
| Corporate debt and other debt | – | 25,957 | 32 |  | 25,989 | – | 26,195 | – |  | 26,195 |
| Equities | 93,397 | 2,813 | 2,863 |  | 99,073 | 84,814 | 2,316 | 2,544 |  | 89,674 |
|  | 118,691 | 97,481 | 2,895 |  | 219,067 | 100,758 | 79,998 | 2,544 |  | 183,300 |
| Investment |  |  |  |  |  |  |  |  |  |  |
| Debt issued or guaranteed by: |  |  |  |  |  |  |  |  |  |  |
| Canadian government |  |  |  |  |  |  |  |  |  |  |
| Federal | 30,110 | 9,756 | – |  | 39,866 | 4,623 | 8,546 | – |  | 13,169 |
| Provincial and municipal | – | 11,318 | – |  | 11,318 | – | 7,554 | – |  | 7,554 |
| U.S. federal, state, municipal and agencies  (1) | 196 | 130,495 | – |  | 130,691 | 42 | 80,224 | – |  | 80,266 |
| Other OECD government  (2) | 1,600 | 10,333 | – |  | 11,933 | 2,370 | 7,786 | – |  | 10,156 |
| Mortgage-backed securities | – | 2,645 | 29 |  | 2,674 | – | 2,603 | 31 |  | 2,634 |
| Asset-backed securities | – | 10,139 | – |  | 10,139 | – | 9,357 | – |  | 9,357 |
| Corporate debt and other debt | – | 33,544 | 134 |  | 33,678 | – | 31,839 | 143 |  | 31,982 |
| Equities | 547 | 367 | 582 |  | 1,496 | 432 | 304 | 506 |  | 1,242 |
|  | 32,453 | 208,597 | 745 |  | 241,795 | 7,467 | 148,213 | 680 |  | 156,360 |
| Assets purchased under reverse repurchase agreements and |  |  |  |  |  |  |  |  |  |  |
| securities borrowed | – | 226,213 | – |  | 226,213 | – | 284,311 | – |  | 284,311 |
| Loans | – | 10,710 | 1,274 |  | 11,984 | – | 8,924 | 1,781 |  | 10,705 |
| Other |  |  |  |  |  |  |  |  |  |  |
| Derivatives |  |  |  |  |  |  |  |  |  |  |
| Interest rate contracts | – | 25,871 | 293 |  | 26,164 | – | 27,719 | 354 |  | 28,073 |
| Foreign exchange contracts | – | 100,604 | 102 |  | 100,706 | – | 98,480 | 3 |  | 98,483 |
| Credit derivatives | – | 350 | 2 |  | 352 | – | 273 | – |  | 273 |
| Other contracts | 11,478 | 41,543 | 110 |  | 53,131 | 2,553 | 23,830 | 21 |  | 26,404 |
| Valuation adjustments | – | (1,035) | (45) |  | (1,080) | – | (1,067) | 14 |  | (1,053) |
| Total gross derivatives | 11,478 | 167,333 | 462 |  | 179,273 | 2,553 | 149,235 | 392 |  | 152,180 |
| Netting adjustments |  |  |  | (2,067) | (2,067) |  |  |  | (1,568) | (1,568) |
| Total derivatives |  |  |  |  | 177,206 |  |  |  |  | 150,612 |
| Other assets | 6,108 | 8,270 | 4 |  | 14,382 | 5,291 | 6,472 | 7 |  | 11,770 |
|  | $ 168,730 | $ 759,059 | $ 5,380 | $  (2,067) | $ 931,102 | $116,069 | $731,149 | $  5,404 | $  (1,568) | $ 851,054 |
| Financial liabilities |  |  |  |  |  |  |  |  |  |  |
| Deposits |  |  |  |  |  |  |  |  |  |  |
| Personal | $  – | $  41,943 | $  301 | $ | $  42,244 | $  – | $ 33,829 | $  478 | $ | $  34,307 |
| Business and government | – | 169,003 | – |  | 169,003 | – | 156,429 | – |  | 156,429 |
| Bank | – | 2,908 | – |  | 2,908 | – | 10,530 | – |  | 10,530 |
| Other |  |  |  |  |  |  |  |  |  |  |
| Obligations related to securities sold short | 18,678 | 31,213 | – |  | 49,891 | 15,172 | 20,114 | – |  | 35,286 |
| Obligations related to assets sold under repurchase agreements and |  |  |  |  |  |  |  |  |  |  |
| securities loaned | – | 242,916 | – |  | 242,916 | – | 270,663 | – |  | 270,663 |
| Derivatives |  |  |  |  |  |  |  |  |  |  |
| Interest rate contracts | – | 20,679 | 901 |  | 21,580 | – | 24,852 | 847 |  | 25,699 |
| Foreign exchange contracts | – | 95,045 | 46 |  | 95,091 | – | 93,164 | 54 |  | 93,218 |
| Credit derivatives | – | 262 | – |  | 262 | – | 218 | – |  | 218 |
| Other contracts | 12,657 | 56,287 | 366 |  | 69,310 | 3,212 | 42,961 | 324 |  | 46,497 |
| Valuation adjustments | – | (257) | 34 |  | (223) | – | (297) | (4) |  | (301) |
| Total gross derivatives | 12,657 | 172,016 | 1,347 |  | 186,020 | 3,212 | 160,898 | 1,221 |  | 165,331 |
| Netting adjustments |  |  |  | (2,067) | (2,067) |  |  |  | (1,568) | (1,568) |
| Total derivatives |  |  |  |  | 183,953 |  |  |  |  | 163,763 |
| Other liabilities | – | 21,688 | – |  | 21,688 | 287 | (1,694) | – |  | (1,407) |
| Subordinated debentures | – | 232 | – |  | 232 | – | – | – |  | – |
|  | $  31,335 | $ 681,919 | $ 1,648 | $  (2,067) | $ 712,835 | $ 18,671 | $650,769 | $  1,699 | $  (1,568) | $ 669,571 |

(1)

United States (U.S.).

(2)

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

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Consolidated Financial Statements

Royal Bank of Canada: Annual Report 2025

167

Fair values of our significant assets and liabilities measured on a recurring basis are determined and classified in the fair value

hierarchy table using the following valuation techniques and inputs.

Interest-bearing deposits with banks

The majority of our Interest-bearing deposits with banks are designated as FVTPL. These FVTPL deposits are composed of short-

dated deposits placed with banks, and are included in Interest-bearing deposits with banks in the fair value hierarchy table. The

fair values of these instruments are determined using the discounted cash flow method. The inputs to the valuation models

include interest rate swap curves and credit spreads, where applicable. They are classified as Level 2 instruments in the

hierarchy as the inputs are observable.

Government bonds (Canadian, U.S. and other OECD governments)

Government bonds are included in Canadian government debt, U.S. federal, state, municipal and agencies debt, Other OECD

government debt and Obligations related to securities sold short in the fair value hierarchy table. The fair values of government

issued or guaranteed debt securities in active markets are determined by reference to recent transaction prices, broker quotes,

or third-party vendor prices and are classified as Level 1 in the hierarchy. The fair values of securities that are not traded in

active markets are based on either security prices, or valuation techniques using implied yields and risk spreads derived from

prices of actively traded and similar government securities. Securities with observable prices or rate inputs as compared to

transaction prices, dealer quotes or vendor prices are classified as Level 2 in the hierarchy. Securities where inputs are

unobservable are classified as Level 3 in the hierarchy.

Corporate and U.S. municipal bonds

The fair values of corporate and U.S. municipal bonds, which are included in Corporate debt and other debt, U.S. federal, state,

municipal and agencies debt and Obligations related to securities sold short in the fair value hierarchy table, are determined

using either recently executed transaction prices, broker quotes, pricing services, or in certain instances, the discounted cash

flow method using rate inputs such as benchmark yields (Canadian Overnight Repo Rate Average (CORRA), Secured Overnight

Financing Rate (SOFR) and other similar reference rates) and risk spreads of comparable securities. Securities with observable

prices or rate inputs are classified as Level 2 in the hierarchy. Securities where inputs are unobservable are classified as Level 3

in the hierarchy.

Asset-backed securities (ABS) and Mortgage-backed securities (MBS)

ABS and MBS are included in Asset-backed securities, Mortgage-backed securities, Canadian government debt, U.S. federal,

state, municipal and agencies debt, and Obligations related to securities sold short in the fair value hierarchy table. Inputs for

valuation of ABS and MBS are, when available, traded prices, dealer or lead manager quotes, broker quotes and vendor prices of

the identical securities. When prices of the identical securities are not readily available, we use industry standard models with

inputs such as discount margins, yields, default, prepayment and LGD that are implied from transaction prices, dealer quotes or

vendor prices of comparable instruments. Where security prices and inputs are observable, ABS and MBS are classified as

Level 2 in the hierarchy. Otherwise, they are classified as Level 3 in the hierarchy.

Equities

Equities consist of listed and unlisted common shares, private equities, mutual funds and hedge funds with certain redemption

restrictions and are included in equities and obligations for securities sold short. The fair values of common shares are based on

quoted prices in active markets, where available, and are classified as Level 1 in the hierarchy. Where quoted prices in active

markets are not readily available, fair value is determined based on quoted market prices for similar securities or through

valuation techniques, such as multiples of earnings and the discounted cash flow method with forecasted cash flows and

discount rate as inputs. Private equities are classified as Level 3 in the hierarchy as their inputs are not observable. Hedge funds

are valued using Net Asset Values (NAV). If we can redeem a hedge fund at NAV prior to the next quarter end, the fund is

classified as Level 2 in the hierarchy. Otherwise, it is classified as Level 3 in the hierarchy.

Loans

Loans include base metal loans, corporate loans and asset-backed financing loans. Fair values are determined based on market

prices, if available, or discounted cash flow method using the following inputs: market interest rates, base metal commodity

prices, market based spreads of assets with similar credit ratings and terms to maturity, LGD, expected default frequency

implied from credit derivative prices, if available, and relevant pricing information such as contractual rate, origination and

maturity dates, redemption price, coupon payment frequency and day count convention. Loans with market prices or observable

inputs are classified as Level 2 in the hierarchy and loans with unobservable inputs that have significant impacts on the fair

values are classified as Level 3 in the hierarchy.

Derivatives

The fair values of exchange-traded derivatives, such as interest rate and equity options and futures, are based on quoted market

prices and are typically classified as Level 1 in the hierarchy. OTC derivatives primarily consist of interest rate contracts, foreign

exchange contracts, commodity derivatives, equity derivatives and credit derivatives. The exchange-traded or OTC interest rate,

foreign exchange and commodity and equity derivatives are included in Interest rate contracts, Foreign exchange contracts and

Other contracts, respectively, in the fair value hierarchy table. The fair values of OTC derivatives are determined using valuation

models when quoted market prices or third-party consensus pricing information are not available. The valuation models, such

as discounted cash flow method or Black-Scholes option model, incorporate observable or unobservable inputs for interest and

foreign exchange rates, equity and commodity prices (including indices), credit spreads, corresponding market volatility levels,

and other market-based pricing factors. Other adjustments to fair value include bid-offer, CVA, FVA, OIS, parameter and model

uncertainties, and unrealized gain or loss at inception of a transaction. A derivative instrument is classified as Level 2 in the

hierarchy if observable market inputs are available or the unobservable inputs are not significant to the fair value. Otherwise, it

is classified as Level 3 in the hierarchy.

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(continued)

Note 3

Fair value of financial instruments

168

Royal Bank of Canada: Annual Report 2025

Consolidated Financial Statements

Securities borrowed or purchased under resale agreements and securities loaned or sold under repurchase agreements

In the fair value hierarchy table, these instruments are included in Assets purchased under reverse repurchase agreements and

securities borrowed, and Obligations related to assets sold under repurchase agreements and securities loaned. The fair values

of these contracts are determined using valuation techniques such as the discounted cash flow method using interest rate

curves as inputs. They are classified as Level 2 instruments in the hierarchy as the inputs are observable.

Deposits

A majority of our deposits are measured at amortized cost but certain deposits are designated as FVTPL. These FVTPL deposits

include deposits taken from clients, issuances of certificates of deposits and promissory notes, and interest rate and equity

linked notes. The fair values of these instruments are determined using the discounted cash flow method and derivative option

valuation models. The inputs to the valuation models include benchmark yield curves, credit spreads, interest rates, equity and

interest rate volatility, dividends and correlation, where applicable. They are classified as Level 2 or 3 instruments in the

hierarchy, depending on the significance of the unobservable credit spreads, volatility, dividend and correlation rates.

Other liabilities

Other liabilities primarily consist of financial liabilities related to commodities such as gas and precious metals, which are

designated as FVTPL. The fair values of these liabilities are calculated by the discounted cash flow method using applicable

inputs such as market interest rates, our funding spreads, commodity forward prices and spot prices. These commodity-related

financial liabilities are classified as Level 2 instruments in the hierarchy as the inputs are observable.

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

The following table presents fair values of our significant Level 3 financial instruments, valuation techniques used to determine

their fair values, ranges and weighted averages of unobservable inputs.

|  |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| As at October 31, 2025 (Millions of Canadian dollars, except for prices, percentages and ratios) | | | | | | | | |
|  |  | Fair value | |  |  | Range of input values  (1), (2) | | |
|  |  |  |  |  |  |  |  | Weighted |
|  |  |  |  |  | Significant |  |  | average / |
|  | Reporting line in the fair value |  |  | Valuation | unobservable |  |  | Inputs |
| Products | hierarchy table | Assets | Liabilities | techniques | inputs  (3) | Low | High | distribution |
| Corporate debt and related | Corporate debt and other debt | $  – |  | Price-based | Prices | $  61.56 | $ 225.00 | $  88.89 |
| derivatives | Loans | 1,274 |  | Discounted cash flows | Credit spread | 1.27% | 11.23% | 6.25% |
|  | Derivative liabilities |  | $  – |  | Credit enhancement | 11.36% | 15.15% | 12.63% |
| Government debt and | Corporate debt and other debt | 166 |  | Discounted cash flows | Yields | 3.93% | 9.00% | 6.44% |
| municipal bonds |  |  |  |  |  |  |  |  |
| Private equities, hedge fund | Equities | 3,445 |  | Market comparable | EV/EBITDA multiples | 4.39X | 16.40X | 7.14X |
| investments and related | Derivative liabilities |  | – | Discounted cash flows | EV/Rev multiples | 0.91X | 6.36X | 2.45X |
| equity derivatives |  |  |  | Price-based | P/E multiples | 6.27X | 25.20X | 10.34X |
|  |  |  |  |  | Liquidity discounts (4) | 10.00% | 40.00% | 10.29% |
|  |  |  |  |  | Discount rate | 8.50% | 8.50% | 8.50% |
|  |  |  |  |  | NAV / prices (5) | n.a. | n.a. | n.a. |
| Interest rate derivatives and | Derivative assets | 293 |  | Discounted cash flows | Interest rates | 2.60% | 4.63% | Even |
| interest-rate-linked | Derivative liabilities |  | 901 | Option pricing model | CPI swap rates | 1.98% | 2.08% | Even |
| structured notes  (6), (7) |  |  |  |  | IR-IR correlations | 46.50% | 94.30% | Even |
|  |  |  |  |  | FX-IR correlations | (48.50)% | 81.90% | Even |
|  |  |  |  |  | FX-FX correlations | (80.10)% | 77.70% | Even |
| Equity derivatives and | Derivative assets | 110 |  | Discounted cash flows | Dividend yields | 0.00% | 8.55% | Lower |
| equity-linked structured | Deposits |  | 301 | Option pricing model | EQ correlations | 6.30% | 95.85% | Middle |
| notes  (6), (7) | Derivative liabilities |  | 324 |  | EQ-FX correlations | (77.11)% | 50.38% | Middle |
|  |  |  |  |  | EQ volatilities | 6.00% | 146.87% | Lower |
| Other  (8) | Derivative assets | 59 |  |  |  |  |  |  |
|  | Other assets | 4 |  |  |  |  |  |  |
|  | Mortgage-backed securities | 29 |  |  |  |  |  |  |
|  | Derivative liabilities |  | 122 |  |  |  |  |  |
| Total |  | $ 5,380 | $  1,648 |  |  |  |  |  |

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Consolidated Financial Statements

Royal Bank of Canada: Annual Report 2025

169

|  |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| As at October 31, 2024 (Millions of Canadian dollars, except for prices, percentages and ratios) | | | | | | | | |
|  |  | Fair value | |  |  | Range of input values  (1), (2) | | |
|  |  |  |  |  |  |  |  | Weighted |
|  |  |  |  |  | Significant |  |  | average / |
|  | Reporting line in the fair value |  |  | Valuation | unobservable |  |  | Inputs |
| Products | hierarchy table | Assets | Liabilities | techniques | inputs  (3) | Low | High | distribution |
| Corporate debt and related | Corporate debt and other debt | $  – |  | Price-based | Prices | $  64.67 | $ 116.25 | $  92.07 |
| derivatives | Loans | 1,781 |  | Discounted cash flows | Credit spread | 1.45% | 10.90% | 6.17% |
|  | Derivative liabilities |  | $  2 |  | Credit enhancement | 11.70% | 15.60% | 13.00% |
| Government debt and | Corporate debt and other debt | 143 |  | Discounted cash flows | Yields | 6.54% | 9.55% | 7.54% |
| municipal bonds |  |  |  |  |  |  |  |  |
| Private equities, hedge fund | Equities | 3,050 |  | Market comparable | EV/EBITDA multiples | 3.20X | 17.20X | 7.94X |
| investments and related | Derivative liabilities |  | – | Discounted cash flows | EV/Rev multiples | 0.70X | 5.72X | 2.59X |
| equity derivatives |  |  |  | Price-based | P/E multiples | 7.30X | 22.60X | 11.27X |
|  |  |  |  |  | Liquidity discounts  (4) | 10.00% | 40.00% | 10.40% |
|  |  |  |  |  | Discount rate | 8.50% | 8.50% | 8.50% |
|  |  |  |  |  | NAV / prices  (5) | n.a. | n.a. | n.a. |
| Interest rate derivatives and | Derivative assets | 355 |  | Discounted cash flows | Interest rates | 1.89% | 4.59% | Even |
| interest-rate-linked | Derivative liabilities |  | 900 | Option pricing model | CPI swap rates | 1.84% | 1.96% | Even |
| structured notes  (6), (7) |  |  |  |  | IR-IR correlations | 48.00% | 86.00% | Even |
|  |  |  |  |  | FX-IR correlations | (76.00)% | 66.00% | Even |
|  |  |  |  |  | FX-FX correlations | (74.00)% | 61.00% | Even |
| Equity derivatives and | Derivative assets | 21 |  | Discounted cash flows | Dividend yields | 0.00% | 10.60% | Lower |
| equity-linked structured | Deposits |  | 478 | Option pricing model | EQ correlations | 6.30% | 95.85% | Middle |
| notes  (6), (7) | Derivative liabilities |  | 283 |  | EQ-FX correlations | (77.11)% | 50.38% | Middle |
|  |  |  |  |  | EQ volatilities | 6.00% | 146.87% | Lower |
| Other  (8) | Derivative assets | 16 |  |  |  |  |  |  |
|  | Other assets | 7 |  |  |  |  |  |  |
|  | Mortgage-backed securities | 31 |  |  |  |  |  |  |
|  | Derivative liabilities |  | 36 |  |  |  |  |  |
| Total |  | $  5,404 | $  1,699 |  |  |  |  |  |

(1)

The low and high input values represent the actual highest and lowest level inputs used to value a group of financial instruments in a particular product category. These

input ranges do not reflect the level of input uncertainty, but are affected by the different underlying instruments within the product category. The input ranges will

therefore vary from period to period based on the characteristics of the underlying instruments held at each balance sheet date. Where provided, the weighted average

of the input values is calculated based on the relative fair values of the instruments within the product category. The weighted averages for derivatives are not presented

in the table as they would not provide a comparable metric; instead, distribution of significant unobservable inputs within the range for each product category is

indicated in the table.

(2)

Price-based inputs are significant for certain debt securities and are based on external benchmarks, comparable proxy instruments or pre-quarter-end trade data. For

these instruments, the price input is expressed in dollars for each $100 par value. For example, with an input price of $105, an instrument is valued at a premium over its

par value.

(3)

Enterprise Value (EV); Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA); Price / Earnings (P/E); Revenue (Rev); Consumer Price Index (CPI);

Interest Rate (IR); Foreign Exchange (FX); Equity (EQ)

(4)

Fair value of securities with liquidity discount inputs totalled $624 million (October 31, 2024 – $541 million).

(5)

NAV of a hedge fund is total fair value of assets less liabilities divided by the number of fund units. Private equities are valued based on NAV or valuation techniques. The

range for NAV per unit or price per share has not been disclosed for the hedge funds or private equities due to the dispersion of prices given the diverse nature of the

investments.

(6)

The level of aggregation and diversity within each derivative instrument category may result in certain ranges of inputs being wide and inputs being unevenly distributed

across the range. In the table, we indicated whether the majority of the inputs are concentrated toward the upper, middle, or lower end of the range, or evenly distributed

throughout the range.

(7)

The structured notes contain embedded equity or interest rate derivatives with unobservable inputs that are similar to those of the equity or interest rate derivatives.

(8)

Other primarily includes certain insignificant instruments such as auction rate securities, commodity derivatives, foreign exchange derivatives, contingent

considerations, bank-owned life insurance and retractable shares.

n.a.

not applicable

Sensitivity to unobservable inputs and interrelationships between unobservable inputs

Yield, credit spreads/discount margins

A financial instrument’s yield is the interest rate used to discount future cash flows in a valuation model. An increase in the yield,

in isolation, would result in a decrease in a fair value measurement and vice versa. A credit spread/discount margin is the

difference between a debt instrument’s yield and a benchmark instrument’s yield. Benchmark instruments have high credit

quality ratings, similar maturities and are often government bonds. The credit spread/discount margin therefore represents the

discount rate used to determine the present value of future cash flows of an asset to reflect the market return required for

uncertainty in the estimated cash flows. The credit spread/discount margin for an instrument forms part of the yield used in a

discounted cash flow method.

Funding spread

Funding spreads are credit spreads specific to funding or deposit rates. A decrease in funding spreads, on its own, will increase

the fair value of our liabilities, and vice versa.

Default rates

A default rate is the rate at which borrowers fail to make scheduled loan payments. A decrease in the default rate will typically

increase the fair value of the loan, and vice versa. This effect will be significantly more pronounced for a non-government

guaranteed loan than a government guaranteed loan.

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(continued)

Note 3

Fair value of financial instruments

170

Royal Bank of Canada: Annual Report 2025

Consolidated Financial Statements

Prepayment rates

A prepayment rate is the rate at which a loan will be repaid in advance of its expected amortization schedule. Prepayments

change the future cash flows of a loan. An increase in the prepayment rate in isolation will result in an increase in fair value

when the loan interest rate is lower than the current reinvestment rate, and a decrease in the prepayment rate in isolation will

result in a decrease in fair value when the loan interest rate is lower than the current reinvestment rate. Prepayment rates are

generally negatively correlated with interest rates.

Recovery and LGD

A recovery rate is an estimation of the amount that can be collected in a loan default scenario. The recovery rate is the

recovered amount divided by the loan balance due, expressed as a percentage. The inverse concept of recovery is LGD. LGD is

an estimation of the loan amount not collected when a loan defaults. The LGD is the loss amount divided by the loan balance

due, expressed as a percentage. Generally, an increase in the recovery rate or a decrease in the LGD will increase the loan fair

value, and vice versa.

Volatility rates

Volatility measures the potential variability of future prices and is often measured as the standard deviation of price

movements. Volatility is an input to option pricing models used to value derivatives and issued structured notes. Volatility is

used in valuing equity, interest rate, commodity and foreign exchange options. A higher volatility rate means that the underlying

price or rate movements are more likely to occur. Higher volatility rates may increase or decrease an option’s fair value

depending on the option’s terms. The determination of volatility rates is dependent on various factors, including but not limited

to, the underlying’s market price, the strike price and maturity.

Dividend yields

A dividend yield is the underlying equity’s expected dividends expressed as an annual percentage of its price. Dividend yield is

used as an input for forward equity price and option models. Higher dividend yields will decrease the forward price, and vice

versa. A higher dividend yield will increase or decrease an option’s value, depending on the option’s terms.

Correlation rates

Correlation is the linear relationship between the movements in two different variables. Correlation is an input to the valuation

of derivative contracts and issued structured notes when an instrument’s payout is determined by correlated variables. When

variables are positively correlated, an increase in one variable will result in an increase in the other variable. When variables

are negatively correlated, an increase in one variable will result in a decrease in the other variable. The referenced variables

can be within a single asset class or market (equity, interest rate, commodities, credit and foreign exchange) or between

variables in different asset classes (equity to foreign exchange, or interest rate to foreign exchange). Changes in correlation will

either increase or decrease a financial instrument’s fair value depending on the terms of the instrument.

Interest rates

An interest rate is the percentage amount charged on a principal or notional amount. Increasing interest rates will decrease the

discounted cash flow value of a financial instrument, and vice versa.

Consumer Price Index swap rates

A CPI swap rate is expressed as a percentage of an increase in the average price of a basket of consumer goods and services,

such as transportation, food and medical care. An increase in the CPI swap rate will cause inflation swap payments to be larger,

and vice versa.

EV/EBITDA multiples, P/E multiples, EV/Rev multiples, and liquidity discounts

Private equity valuation inputs include EV/EBITDA multiples, P/E multiples and EV/Rev multiples. These are used to calculate

either enterprise value or share value of a company based on a multiple of earnings or revenue estimates. Higher multiples

equate to higher fair values for all multiple types, and vice versa. A liquidity discount may be applied when few or no

transactions exist to support the valuations.

Credit Enhancement

Credit enhancement is an input to the valuation of securitized transactions and is the amount of loan loss protection for a

senior tranche. Credit enhancement is expressed as a percentage of the transaction sizes. An increase in credit enhancement

will cause the credit spread to decrease and the tranche fair value to increase, and vice versa.

Interrelationships between unobservable inputs

Unobservable inputs, including the above discount margin, default rate, prepayment rate, and recovery and LGD, may not be

independent of each other. For example, the discount margin can be affected by a change in default rate, prepayment rate, or

recovery and LGD. Discount margins will generally decrease when default rates decline or when recovery rates increase.

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Consolidated Financial Statements

Royal Bank of Canada: Annual Report 2025

171

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

|  |  |  |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | For the year ended October 31, 2025 | | | | | | | | | |
|  |  | Gains | Gains |  |  |  |  |  | Gains |
|  | Fair value | (losses) | (losses) |  | Settlement | Transfers | Transfers | Fair value | (losses) included |
|  | at beginning | included in | included | Purchases | (sales) and | into | out of | at end of | in earnings for |
| (Millions of Canadian dollars) | of period | earnings | in OCI  (1) | (issuances) | other  (2) | Level 3 | Level 3 | period | positions still held |
| Assets |  |  |  |  |  |  |  |  |  |
| Securities |  |  |  |  |  |  |  |  |  |
| Trading |  |  |  |  |  |  |  |  |  |
| Debt issued or guaranteed by: |  |  |  |  |  |  |  |  |  |
| Corporate debt and other debt | $  – | $  – | $  – | $  3 | $  (3) | $  83 | $  (51) | $  32 | $  – |
| Equities | 2,544 | (188) | 9 | 732 | (233) | 7 | (8) | 2,863 | (87) |
|  | 2,544 | (188) | 9 | 735 | (236) | 90 | (59) | 2,895 | (87) |
| Investment |  |  |  |  |  |  |  |  |  |
| Mortgage-backed securities | 31 | 2 | (2) | – | (2) | – | – | 29 | 2 |
| Corporate debt and other debt | 143 | 6 | 9 | – | (24) | – | – | 134 | 6 |
| Equities | 506 | 21 | 48 | 32 | (25) | – | – | 582 | 21 |
|  | 680 | 29 | 55 | 32 | (51) | – | – | 745 | 29 |
| Loans | 1,781 | 66 | – | 248 | (817) | 10 | (14) | 1,274 | (3) |
| Other |  |  |  |  |  |  |  |  |  |
| Net derivative balances  (3) |  |  |  |  |  |  |  |  |  |
| Interest rate contracts | (493) | (103) | 3 | 24 | (29) | (11) | 1 | (608) | (116) |
| Foreign exchange contracts | (51) | (4) | 2 | 4 | (1) | 100 | 6 | 56 | 3 |
| Credit derivatives | – | – | – | 2 | – | – | – | 2 | – |
| Other contracts | (303) | 5 | (1) | (127) | 19 | (360) | 511 | (256) | (35) |
| Valuation adjustments | 18 | – | – | (33) | (64) | – | – | (79) | – |
| Other assets | 7 | – | – | – | (3) | – | – | 4 | – |
|  | $ 4,183 | $ (195) | $  68 | $  885 | $ (1,182) | $ (171) | $  445 | $ 4,033 | $ (209) |
| Liabilities |  |  |  |  |  |  |  |  |  |
| Deposits | $  (478) | $  (79) | $  (2) | $ (674) | $  156 | $ (274) | $ 1,050 | $  (301) | $  16 |
|  | $  (478) | $  (79) | $  (2) | $ (674) | $  156 | $ (274) | $ 1,050 | $  (301) | $  16 |

|  |  |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | For the year ended October 31, 2024 | | | | | | | | |
|  |  | Gains | Gains |  |  |  |  |  | Gains |
|  | Fair value | (losses) | (losses) |  | Settlement | Transfers | Transfers | Fair value | (losses) included |
|  | at beginning | included in | included | Purchases | (sales) and | into | out of | at end of | in earnings for |
| (Millions of Canadian dollars) | of period | earnings | in OCI (1) | (issuances) | other (2) | Level 3 | Level 3 | period | positions still held |
| Assets |  |  |  |  |  |  |  |  |  |
| Securities |  |  |  |  |  |  |  |  |  |
| Trading |  |  |  |  |  |  |  |  |  |
| Corporate debt and other debt | $  – | $  – | $  – | $  – | $  – | $  – | $  – | $  – | $  – |
| Equities | 2,266 | (195) | 5 | 577 | (88) | 1 | (22) | 2,544 | (128) |
|  | 2,266 | (195) | 5 | 577 | (88) | 1 | (22) | 2,544 | (128) |
| Investment |  |  |  |  |  |  |  |  |  |
| Mortgage-backed securities | 29 | – | 2 | – | – | – | – | 31 | n.s. |
| Corporate debt and other debt | 149 | – | 11 | – | (17) | – | – | 143 | n.s. |
| Equities | 466 | – | 35 | 6 | (3) | 2 | – | 506 | n.s. |
|  | 644 | – | 48 | 6 | (20) | 2 | – | 680 | n.s. |
| Loans | 1,859 | (25) | 37 | 513 | (445) | 70 | (228) | 1,781 | 63 |
| Other |  |  |  |  |  |  |  |  |  |
| Net derivative balances  (3) |  |  |  |  |  |  |  |  |  |
| Interest rate contracts | (662) | 46 | 1 | (47) | 145 | 30 | (6) | (493) | 51 |
| Foreign exchange contracts | (49) | (15) | 7 | 14 | 3 | 3 | (14) | (51) | (9) |
| Credit derivatives | – | – | – | – | – | – | – | – | – |
| Other contracts | (438) | (139) | 2 | (106) | 8 | (330) | 700 | (303) | 31 |
| Valuation adjustments | 3 | – | – | (4) | 19 | – | – | 18 | – |
| Other assets | 11 | – | – | – | (4) | – | – | 7 | – |
|  | $  3,634 | $ (328) | $ 100 | $  953 | $  (382) | $ (224) | $  430 | $ 4,183 | $  8 |
| Liabilities |  |  |  |  |  |  |  |  |  |
| Deposits | $  (383) | $ (119) | $  – | $ (583) | $  165 | $ (120) | $  562 | $  (478) | $  (40) |
|  | $  (383) | $ (119) | $  – | $ (583) | $  165 | $ (120) | $  562 | $  (478) | $  (40) |

(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 $35 million for the year ended October 31, 2025 (October 31, 2024 – gains of $38 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 October 31, 2025 included derivative assets of $462 million (October 31, 2024 – $392 million) and derivative liabilities of $1,347 million

(October 31, 2024 – $1,221 million).

n.s.

not significant

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(continued)

Note 3

Fair value of financial instruments

172

Royal Bank of Canada: Annual Report 2025

Consolidated Financial Statements

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

Transfers between Level 1 and Level 2, and transfers into and out of Level 3 are assumed to occur at the end of the period. For an

asset or a liability that transfers into Level 3 during the period, the entire change in fair value for the period is excluded from the

Gains (losses) included in earnings for positions still held column of the above reconciliation, whereas for transfers out of

Level 3 during the period, the entire change in fair value for the period is included in the same column of the above

reconciliation.

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 year ended October 31, 2025, transfers out of Level 1 to Level 2 included Trading U.S. federal, state, municipal and

agencies debt of $1,309 million. During the year ended October 31, 2024, transfers out of Level 1 to Level 2 included Investment

U.S. federal, state, municipal and agencies debt of $1,038 million and Trading U.S. federal, state, municipal and agencies debt of

$822 million.

During the years ended October 31, 2025 and October 31, 2024, 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 year ended October 31, 2025, transfers out of Level 2 to Level 3 included Other contracts and Deposits due to

changes in the significance of unobservable inputs and changes in the market observability of inputs. During the year ended

October 31, 2024, transfers out of Level 2 to Level 3 included Other contracts and Deposits due to changes in the significance of

unobservable inputs and changes in the market observability of inputs.

During the year ended October 31, 2025, transfers out of Level 3 to Level 2 included Deposits and Other contracts due to

changes in the significance of unobservable inputs and changes in the market observability of inputs. During the year ended

October 31, 2024, transfers out of Level 3 to Level 2 included Other contracts, Deposits and Loans due to changes in the

significance of unobservable inputs and changes in the market observability of inputs.

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

assumptions

A financial instrument is classified as Level 3 in the fair value hierarchy if one or more of its unobservable inputs may

significantly affect the measurement of its fair value. In preparing the financial statements, appropriate levels for these

unobservable input parameters are chosen so that they are consistent with prevailing market evidence or management

judgment. Due to the unobservable nature of the prices or rates, there may be uncertainty about the valuation of these Level 3

financial instruments.

The following table summarizes the impacts to fair values of Level 3 financial instruments using reasonably possible

alternative assumptions. This sensitivity disclosure is intended to illustrate the potential impact of the relative uncertainty in the

fair value of Level 3 financial instruments. In reporting the sensitivities below, we offset balances in instances where: (i) the

move in valuation factors cause an offsetting positive and negative fair value movement, (ii) both offsetting instruments are in

Level 3, and (iii) exposures are managed and reported on a net basis. With respect to overall sensitivity, it is unlikely in practice

that all reasonably possible alternative assumptions would simultaneously be realized.

|  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- |
|  | As at | | | | | |
|  | October 31, 2025 | | | October 31, 2024 | | |
|  |  | Positive fair value | Negative fair value |  | Positive fair value | Negative fair value |
|  |  | movement from | movement from |  | movement from | movement from |
|  |  | using reasonably | using reasonably |  | using reasonably | using reasonably |
|  | Level 3 | possible | possible | Level 3 | possible | possible |
| (Millions of Canadian dollars) | fair value | alternatives | alternatives | fair value | alternatives | alternatives |
| Securities |  |  |  |  |  |  |
| Trading |  |  |  |  |  |  |
| Corporate debt and other debt | $  32 | $  4 | $  (4) | $  – | $  – | $  – |
| Equities | 2,863 | 24 | (23) | 2,544 | 50 | (46) |
| Investment |  |  |  |  |  |  |
| Mortgage-backed securities | 29 | 4 | (4) | 31 | 4 | (4) |
| Corporate debt and other debt | 134 | 8 | (7) | 143 | 9 | (8) |
| Equities | 582 | 53 | (52) | 506 | 45 | (44) |
| Loans | 1,274 | 13 | (13) | 1,781 | 19 | (20) |
| Derivatives | 462 | 11 | (10) | 392 | 5 | (4) |
| Other assets | 4 | – | – | 7 | – | – |
|  | $  5,380 | $  117 | $  (113) | $  5,404 | $  132 | $  (126) |
| Deposits | $  (301) | $  3 | $  (3) | $  (478) | $  15 | $  (15) |
| Derivatives | (1,347) | 55 | (68) | (1,221) | 54 | (57) |
|  | $  (1,648) | $  58 | $  (71) | $ (1,699) | $  69 | $  (72) |

Sensitivity results

As at October 31, 2025, the effects of applying other reasonably possible alternative assumptions to the Level 3 asset positions

would be an increase of $117 million and a reduction of $113 million in fair value, of which $65 million and $63 million would be

recorded in Other components of equity, respectively. The effects of applying these assumptions to the Level 3 liability positions

would result in a decrease of $58 million and an increase of $71 million in fair value.

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Consolidated Financial Statements

Royal Bank of Canada: Annual Report 2025

173

Level 3 valuation inputs and approaches to developing reasonably possible alternative assumptions

The following is a summary of the unobservable inputs used in the valuation of the Level 3 instruments and our approaches to

developing reasonably possible alternative assumptions used to determine sensitivity.

|  |  |
| --- | --- |
| Financial assets or | Sensitivity methodology |
| liabilities |  |
| Asset-backed securities, | Sensitivities are determined based on adjusting, plus or minus one standard deviation, the |
| corporate debt, government | bid-offer spreads or input prices if a sufficient number of prices are received, adjusting input |
| debt, municipal bonds and | parameters such as credit spreads or using high and low vendor prices as reasonably possible |
| loans | alternative assumptions. |
| Private equities, hedge fund | Sensitivity of direct private equity investments is determined by (i) adjusting the discount rate |
| investments and related | by 2% when the discounted cash flow method is used to determine fair value, (ii) adjusting the |
| equity derivatives | price multiples based on the range of multiples of comparable companies when price-multiples- |
|  | based models are used, or (iii) using an alternative valuation approach. The private equity fund, |
|  | hedge fund and related equity derivative NAVs are provided by the fund managers, and as a |
|  | result, there are no other reasonably possible alternative assumptions for these investments. |
| Interest rate derivatives | Sensitivities of interest rate and cross currency swaps are derived using plus or minus one |
|  | standard deviation of the inputs, and an amount representing model and parameter uncertainty, |
|  | where applicable. |
| Equity derivatives | Sensitivity of the Level 3 position is determined by shifting the unobservable model inputs by |
|  | plus or minus one standard deviation of the pricing service market data including volatility, |
|  | dividends or correlations, as applicable. |
| Bank funding and deposits | Sensitivities of deposits are calculated by shifting the funding curve by plus or minus certain |
|  | basis points. |
| Structured notes | Sensitivities for interest-rate-linked and equity-linked structured notes are derived by adjusting |
|  | inputs by plus or minus one standard deviation, and for other deposits, by estimating a |
|  | reasonable move in the funding curve by plus or minus certain basis points. |

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(continued)

Note 3

Fair value of financial instruments

174

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Consolidated Financial Statements

Fair value for financial instruments that are carried at amortized cost and classified using the fair value hierarchy

|  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- |
|  | As at October 31, 2025 | | | | | |
|  | Fair value | Fair value may not approximate carrying value | | | |  |
|  | approximates | Fair value measurements using | | |  | Total |
| (Millions of Canadian dollars) | carrying value  (1) | Level 1 | Level 2 | Level 3 | Total | fair value |
| Interest-bearing deposits with banks | $  9,909 | $  – | $  – | $  – | $  – | $  9,909 |
| Amortized cost securities  (2) | – | 115 | 98,613 | – | 98,728 | 98,728 |
| Assets purchased under reverse |  |  |  |  |  |  |
| repurchase agreements and |  |  |  |  |  |  |
| securities borrowed | 72,713 | – | 10,757 | – | 10,757 | 83,470 |
| Loans |  |  |  |  |  |  |
| Retail | 83,459 | – | 558,699 | 6,255 | 564,954 | 648,413 |
| Wholesale | 8,135 | – | 365,890 | 8,526 | 374,416 | 382,551 |
|  | 91,594 | – | 924,589 | 14,781 | 939,370 | 1,030,964 |
| Other assets | 57,685 | – | 552 | 250 | 802 | 58,487 |
|  | 231,901 | 115 | 1,034,511 | 15,031 | 1,049,657 | 1,281,558 |
| Deposits |  |  |  |  |  |  |
| Personal | 289,651 | – | 198,695 | 298 | 198,993 | 488,644 |
| Business and government | 504,918 | – | 273,643 | 569 | 274,212 | 779,130 |
| Bank | 23,643 | – | 13,000 | 14 | 13,014 | 36,657 |
|  | 818,212 | – | 485,338 | 881 | 486,219 | 1,304,431 |
| Obligations related to assets sold |  |  |  |  |  |  |
| under repurchase agreements and |  |  |  |  |  |  |
| securities loaned | 46,109 | – | 491 | – | 491 | 46,600 |
| Other liabilities | 53,331 | – | 4,714 | 248 | 4,962 | 58,293 |
| Subordinated debentures | – | – | 13,887 | – | 13,887 | 13,887 |
|  | $ 917,652 | $  – | $ 504,430 | $  1,129 | $ 505,559 | $ 1,423,211 |

|  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- |
|  | As at October 31, 2024 | | | | | |
|  | Fair value | Fair value may not approximate carrying value | | | |  |
|  | approximates | Fair value measurements using | | |  | Total |
| (Millions of Canadian dollars) | carrying value  (1) | Level 1 | Level 2 | Level 3 | Total | fair value |
| Interest-bearing deposits with banks | $  12,024 | $  – | $  – | $  – | $  – | $  12,024 |
| Amortized cost securities  (2) | – | 68 | 96,268 | – | 96,336 | 96,336 |
| Assets purchased under reverse |  |  |  |  |  |  |
| repurchase agreements and |  |  |  |  |  |  |
| securities borrowed | 54,331 | – | 12,161 | – | 12,161 | 66,492 |
| Loans |  |  |  |  |  |  |
| Retail | 79,960 | – | 533,708 | 5,652 | 539,360 | 619,320 |
| Wholesale | 16,022 | – | 321,684 | 7,855 | 329,539 | 345,561 |
|  | 95,982 | – | 855,392 | 13,507 | 868,899 | 964,881 |
| Other assets | 49,414 | – | 412 | 267 | 679 | 50,093 |
|  | 211,751 | 68 | 964,233 | 13,774 | 978,075 | 1,189,826 |
| Deposits |  |  |  |  |  |  |
| Personal | 273,228 | – | 216,675 | 267 | 216,942 | 490,170 |
| Business and government | 443,077 | – | 241,204 | 467 | 241,671 | 684,748 |
| Bank | 23,942 | – | 13,241 | – | 13,241 | 37,183 |
|  | 740,247 | – | 471,120 | 734 | 471,854 | 1,212,101 |
| Obligations related to assets sold |  |  |  |  |  |  |
| under repurchase agreements and |  |  |  |  |  |  |
| securities loaned | 34,658 | – | – | – | – | 34,658 |
| Other liabilities | 51,561 | – | 1,983 | 16,306 | 18,289 | 69,850 |
| Subordinated debentures | – | – | 13,602 | – | 13,602 | 13,602 |
|  | $  826,466 | $  – | $  486,705 | $ 17,040 | $  503,745 | $  1,330,211 |

(1)

Certain financial instruments have not been assigned to a level as the carrying amount approximates their fair values.

(2)

Included in Securities – Investment, net of applicable allowance on the Consolidated Balance Sheets.

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Consolidated Financial Statements

Royal Bank of Canada: Annual Report 2025

175

Fair values of financial assets and liabilities carried at amortized cost and disclosed in the table above are determined using the

following valuation techniques and inputs.

Amortized cost securities

Fair values of government bonds, corporate bonds, and ABS are based on quoted prices if available for identical securities.

When prices of the identical securities are not readily available, we use industry standard models with inputs such as discount

margins, yields, default, prepayment and LGD that are implied from transaction prices, dealer quotes or vendor prices of

comparable instruments.

Assets purchased under reverse repurchase agreements and securities borrowed, and Obligations related to assets sold

under repurchase agreements and securities loaned

Valuation methods used for the long-term instruments are described in the Fair value of assets and liabilities measured on a

recurring basis and classified using the fair value hierarchy section of this note. The carrying values of short-term instruments

generally approximate their fair values.

Loans – Retail

Retail loans include residential mortgages, personal and small business loans and credit cards. For residential mortgages, and

personal and small business loans, we segregate the portfolio based on certain attributes such as product type, contractual

interest rate, term to maturity and credit scores, if applicable. Fair values of these loans are determined by the discounted cash

flow method using applicable inputs such as prevailing interest rates, contractual and posted client rates, client discounts,

credit spreads, default rates, prepayment rates, LGD and loan-to-value (LTV) ratios. Fair values of credit card receivables are

also calculated based on a discounted cash flow method with portfolio yields, write-offs and monthly payment rates as inputs.

The carrying values of short-term and variable rate loans generally approximate their fair values.

Loans – Wholesale

Where market prices are available, wholesale loans are valued based on market prices. Otherwise, fair value is determined by

the discounted cash flow method using the following inputs: market interest rates and market based spreads of assets with

similar credit ratings and terms to maturity, LGD, expected default frequency implied from credit default swap prices, if

available, and relevant pricing information such as contractual rate, origination and maturity dates, redemption price, coupon

payment frequency and date convention.

Deposits

Deposits are comprised of demand, notice, and term deposits which include senior deposit notes we have issued to provide us

with long-term funding. Fair values of term deposits are determined by one of several valuation techniques: (i) for term deposits

and similar instruments, we segregate the portfolio based on term to maturity. Fair values of these instruments are determined

by the discounted cash flow method using inputs such as client rates for new sales of the corresponding terms; and (ii) for

senior deposit notes, we use actual traded prices, vendor prices or the discounted cash flow method using a market interest rate

curve and our funding spreads as inputs. The carrying values of demand, notice, and short-term term deposits generally

approximate their fair values.

Other assets and Other liabilities

Other assets and Other liabilities include financial instruments relating to certain commodities. Fair values of these instruments

are calculated by the discounted cash flow method using applicable inputs such as market interest rates, counterparties’ credit

spreads, our funding spreads, commodity forward prices and spot prices.

Subordinated debentures

Fair values of Subordinated debentures are based on market prices, dealer quotes or vendor prices when available. Where

prices cannot be observed, fair value is determined using the discounted cash flow method, with applicable inputs such as

market interest rates and credit spreads.

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176

Royal Bank of Canada: Annual Report 2025

Consolidated Financial Statements

Note 4

Securities

Carrying value of securities

|  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- |
|  | As at October 31, 2025 | | | | | | |
|  | Term to maturity  (1) | | | | |  |  |
|  |  |  |  |  |  | With no |  |
|  | Within | 3 months | 1 year to 5 | 5 years to | Over | specific |  |
| (Millions of Canadian dollars) | 3 months | to 1 year | years | 10 years | 10 years | maturity | Total |
| Trading  (2) |  |  |  |  |  |  |  |
| Debt issued or guaranteed by: |  |  |  |  |  |  |  |
| Canadian government | $  5,832 | $  7,418 | $  7,068 | $  5,529 | $ 11,615 | $  – | $  37,462 |
| U.S. federal, state, municipal |  |  |  |  |  |  |  |
| and agencies | 2,883 | 1,906 | 20,494 | 4,981 | 10,493 | – | 40,757 |
| Other OECD government | 3,976 | 4,445 | 3,064 | 1,207 | 1,725 | – | 14,417 |
| Mortgage-backed securities | – | – | – | 1 | 73 | – | 74 |
| Asset-backed securities | 138 | 118 | 348 | 415 | 276 | – | 1,295 |
| Corporate debt and other debt  (3) | 1,909 | 3,606 | 6,736 | 4,906 | 8,832 | – | 25,989 |
| Equities |  |  |  |  |  | 99,073 | 99,073 |
|  | 14,738 | 17,493 | 37,710 | 17,039 | 33,014 | 99,073 | 219,067 |
| Fair value through other |  |  |  |  |  |  |  |
| comprehensive income  (2) |  |  |  |  |  |  |  |
| Debt issued or guaranteed by: |  |  |  |  |  |  |  |
| Canadian government |  |  |  |  |  |  |  |
| Federal |  |  |  |  |  |  |  |
| Amortized cost | 368 | 15,974 | 23,215 | 270 | – | – | 39,827 |
| Fair value | 368 | 15,978 | 23,250 | 270 | – | – | 39,866 |
| Yield  (4) | 2.1% | 3.4% | 2.9% | 2.5% | – | – | 3.1% |
| Provincial and municipal |  |  |  |  |  |  |  |
| Amortized cost | – | 1,892 | 8,225 | 666 | 585 | – | 11,368 |
| Fair value | – | 1,893 | 8,222 | 670 | 533 | – | 11,318 |
| Yield  (4) | – | 3.4% | 3.3% | 3.1% | 4.6% | – | 3.4% |
| U.S. federal, state, municipal |  |  |  |  |  |  |  |
| and agencies |  |  |  |  |  |  |  |
| Amortized cost | 1,723 | 7,455 | 56,949 | 51,353 | 13,905 | – | 131,385 |
| Fair value | 1,695 | 7,455 | 57,164 | 51,532 | 12,845 | – | 130,691 |
| Yield  (4) | 4.5% | 3.0% | 3.9% | 3.7% | 3.6% | – | 3.8% |
| Other OECD government |  |  |  |  |  |  |  |
| Amortized cost | 358 | 2,847 | 8,722 | 48 | – | – | 11,975 |
| Fair value | 357 | 2,835 | 8,693 | 48 | – | – | 11,933 |
| Yield  (4) | 2.5% | 2.5% | 3.7% | 3.7% | – | – | 3.4% |
| Mortgage-backed securities |  |  |  |  |  |  |  |
| Amortized cost | – | – | 70 | 87 | 2,517 | – | 2,674 |
| Fair value | – | – | 70 | 85 | 2,519 | – | 2,674 |
| Yield  (4) | – | – | 5.4% | 5.6% | 5.6% | – | 5.6% |
| Asset-backed securities |  |  |  |  |  |  |  |
| Amortized cost | – | – | 5 | 3,356 | 6,765 | – | 10,126 |
| Fair value | – | – | 5 | 3,357 | 6,777 | – | 10,139 |
| Yield  (4) | – | – | 5.3% | 5.3% | 5.5% | – | 5.4% |
| Corporate debt and other debt |  |  |  |  |  |  |  |
| Amortized cost | 5,337 | 8,239 | 18,761 | 985 | 280 | – | 33,602 |
| Fair value | 5,338 | 8,245 | 18,827 | 1,000 | 268 | – | 33,678 |
| Yield  (4) | 2.2% | 2.4% | 3.7% | 4.4% | 5.3% | – | 3.2% |
| Equities |  |  |  |  |  |  |  |
| Cost |  |  |  |  |  | 832 | 832 |
| Fair value  (5) |  |  |  |  |  | 1,496 | 1,496 |
| Cost/Amortized cost | 7,786 | 36,407 | 115,947 | 56,765 | 24,052 | 832 | 241,789 |
| Fair value | 7,758 | 36,406 | 116,231 | 56,962 | 22,942 | 1,496 | 241,795 |
| Amortized cost  (2) |  |  |  |  |  |  |  |
| Debt issued or guaranteed by: |  |  |  |  |  |  |  |
| Canadian government | 1,302 | 3,188 | 19,544 | 5,355 | 36 | – | 29,425 |
| Yield  (4) | 1.4% | 1.9% | 3.1% | 2.6% | 3.8% | – | 2.8% |
| U.S. federal, state, municipal |  |  |  |  |  |  |  |
| and agencies | 2,095 | 4,607 | 18,716 | 4,778 | 19,366 | – | 49,562 |
| Yield  (4) | 3.1% | 3.9% | 3.0% | 3.4% | 2.9% | – | 3.1% |
| Other OECD government | 795 | 2,096 | 4,367 | 137 | – | – | 7,395 |
| Yield  (4) | 2.6% | 2.7% | 3.8% | 4.1% | – | – | 3.4% |
| Asset-backed securities | – | – | 21 | – | 126 | – | 147 |
| Yield  (4) | – | – | 4.7% | – | 5.4% | – | 5.3% |
| Corporate debt and other debt | 1,019 | 4,099 | 9,102 | 162 | 15 | – | 14,397 |
| Yield  (4) | 3.2% | 3.1% | 3.6% | 3.7% | 4.8% | – | 3.4% |
| Amortized cost, net of allowance | 5,211 | 13,990 | 51,750 | 10,432 | 19,543 | – | 100,926 |
| Fair value | 5,210 | 14,011 | 52,093 | 10,051 | 17,363 | – | 98,728 |
| Total carrying value of securities | $ 27,707 | $ 67,889 | $ 205,691 | $ 84,433 | $ 75,499 | $ 100,569 | $ 561,788 |

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Consolidated Financial Statements

Royal Bank of Canada: Annual Report 2025

177

|  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- |
|  | As at October 31, 2024 | | | | | | |
|  | Term to maturity  (1) | | | | |  |  |
|  |  |  |  |  |  | With no |  |
|  | Within | 3 months | 1 year to 5 | 5 years to | Over | specific |  |
| (Millions of Canadian dollars) | 3 months | to 1 year | years | 10 years | 10 years | maturity | Total |
| Trading  (2) |  |  |  |  |  |  |  |
| Debt issued or guaranteed by: |  |  |  |  |  |  |  |
| Canadian government | $  2,026 | $  8,712 | $  6,054 | $  3,509 | $ 10,071 | $  – | $  30,372 |
| U.S. federal, state, municipal |  |  |  |  |  |  |  |
| and agencies | 2,599 | 1,423 | 13,648 | 4,336 | 8,982 | – | 30,988 |
| Other OECD government | 710 | 246 | 1,578 | 972 | 1,128 | – | 4,634 |
| Mortgage-backed securities | – | – | – | – | 3 | – | 3 |
| Asset-backed securities | 289 | 213 | 387 | 406 | 139 | – | 1,434 |
| Corporate debt and other debt  (3) | 2,030 | 3,178 | 8,170 | 4,200 | 8,617 | – | 26,195 |
| Equities |  |  |  |  |  | 89,674 | 89,674 |
|  | 7,654 | 13,772 | 29,837 | 13,423 | 28,940 | 89,674 | 183,300 |
| Fair value through other |  |  |  |  |  |  |  |
| comprehensive income  (2) |  |  |  |  |  |  |  |
| Debt issued or guaranteed by: |  |  |  |  |  |  |  |
| Canadian government |  |  |  |  |  |  |  |
| Federal |  |  |  |  |  |  |  |
| Amortized cost | 2,068 | 2,810 | 7,893 | 394 | – | – | 13,165 |
| Fair value | 2,068 | 2,803 | 7,904 | 394 | – | – | 13,169 |
| Yield  (4) | 3.2% | 2.4% | 2.9% | 2.9% | – | – | 2.9% |
| Provincial and municipal |  |  |  |  |  |  |  |
| Amortized cost | 154 | 2,768 | 3,827 | 334 | 480 | – | 7,563 |
| Fair value | 154 | 2,767 | 3,833 | 333 | 467 | – | 7,554 |
| Yield  (4) | 3.6% | 2.2% | 3.3% | 2.7% | 4.3% | – | 3.0% |
| U.S. federal, state, municipal |  |  |  |  |  |  |  |
| and agencies |  |  |  |  |  |  |  |
| Amortized cost | 1,154 | 1,198 | 30,773 | 33,906 | 14,601 | – | 81,632 |
| Fair value | 1,182 | 1,196 | 30,797 | 33,831 | 13,260 | – | 80,266 |
| Yield  (4) | 5.6% | 2.1% | 3.1% | 3.9% | 3.3% | – | 3.5% |
| Other OECD government |  |  |  |  |  |  |  |
| Amortized cost | 300 | 1,510 | 8,389 | – | – | – | 10,199 |
| Fair value | 300 | 1,511 | 8,345 | – | – | – | 10,156 |
| Yield  (4) | 1.2% | 3.6% | 3.5% | – | – | – | 3.4% |
| Mortgage-backed securities |  |  |  |  |  |  |  |
| Amortized cost | – | – | – | 58 | 2,588 | – | 2,646 |
| Fair value | – | – | – | 56 | 2,578 | – | 2,634 |
| Yield  (4) | – | – | – | 6.1% | 5.9% | – | 5.9% |
| Asset-backed securities |  |  |  |  |  |  |  |
| Amortized cost | – | – | – | 4,258 | 5,085 | – | 9,343 |
| Fair value | – | – | – | 4,263 | 5,094 | – | 9,357 |
| Yield  (4) | – | – | – | 6.2% | 6.4% | – | 6.3% |
| Corporate debt and other debt |  |  |  |  |  |  |  |
| Amortized cost | 7,028 | 2,703 | 20,830 | 991 | 380 | – | 31,932 |
| Fair value | 7,027 | 2,707 | 20,858 | 1,010 | 380 | – | 31,982 |
| Yield  (4) | 3.2% | 3.8% | 4.0% | 5.0% | 5.3% | – | 3.9% |
| Equities |  |  |  |  |  |  |  |
| Cost |  |  |  |  |  | 728 | 728 |
| Fair value  (5) |  |  |  |  |  | 1,242 | 1,242 |
| Cost/Amortized cost | 10,704 | 10,989 | 71,712 | 39,941 | 23,134 | 728 | 157,208 |
| Fair value | 10,731 | 10,984 | 71,737 | 39,887 | 21,779 | 1,242 | 156,360 |
| Amortized cost  (2) |  |  |  |  |  |  |  |
| Debt issued or guaranteed by: |  |  |  |  |  |  |  |
| Canadian government | 216 | 7,516 | 17,571 | 6,160 | – | – | 31,463 |
| Yield  (4) | 2.4% | 1.7% | 3.0% | 2.0% | – | – | 2.4% |
| U.S. federal, state, municipal |  |  |  |  |  |  |  |
| and agencies | 2,029 | 5,659 | 13,197 | 4,882 | 20,221 | – | 45,988 |
| Yield  (4) | 2.5% | 3.6% | 3.4% | 3.2% | 2.6% | – | 3.0% |
| Other OECD government | 61 | 1,133 | 5,169 | 202 | – | – | 6,565 |
| Yield  (4) | 0.9% | 2.3% | 3.2% | 3.3% | – | – | 3.0% |
| Asset-backed securities | – | – | 2 | 32 | – | – | 34 |
| Yield  (4) | – | – | 0.3% | 5.6% | – | – | 5.2% |
| Corporate debt and other debt | 526 | 3,677 | 11,724 | 259 | 22 | – | 16,208 |
| Yield  (4) | 2.9% | 3.1% | 3.6% | 3.5% | 5.3% | – | 3.5% |
| Amortized cost, net of allowance | 2,832 | 17,985 | 47,663 | 11,535 | 20,243 | – | 100,258 |
| Fair value | 2,826 | 17,855 | 47,481 | 10,701 | 17,473 | – | 96,336 |
| Total carrying value of securities | $ 21,217 | $ 42,741 | $ 149,237 | $ 64,845 | $ 70,962 | $ 90,916 | $ 439,918 |

(1)

Actual maturities may differ from contractual maturities shown above as borrowers may have the right to extend or prepay obligations with or without penalties.

(2)

Trading securities and FVOCI securities are recorded at fair value. Amortized cost securities, included in Investment securities, are recorded at amortized cost and

presented net of allowance for credit losses.

(3)

Primarily composed of corporate debt, supra-national debt and commercial paper.

(4)

The weighted average yield is derived using the contractual interest rate and the carrying value at the end of the year for the respective securities.

(5)

Certain equity securities that are not held-for-trading purposes are designated as FVOCI.

![]()

(continued)

Note 4

Securities

178

Royal Bank of Canada: Annual Report 2025

Consolidated Financial Statements

Unrealized gains and losses on securities at FVOCI

(1), (2)

|  |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | As at | | | | | | | |
|  | October 31, 2025 | | | | October 31, 2024 | | | |
|  | Cost/ | Gross | Gross |  | Cost/ | Gross | Gross |  |
|  | Amortized | unrealized | unrealized |  | Amortized | unrealized | unrealized |  |
| (Millions of Canadian dollars) | cost | gains | losses | Fair value | cost | gains | losses | Fair value |
| Debt issued or guaranteed by: |  |  |  |  |  |  |  |  |
| Canadian government |  |  |  |  |  |  |  |  |
| Federal | $  39,827 | $  46 | $  (7) | $  39,866 | $  13,165 | $  31 | $  (27) | $  13,169 |
| Provincial and municipal | 11,368 | 39 | (89) | 11,318 | 7,563 | 27 | (36) | 7,554 |
| U.S. federal, state, municipal and |  |  |  |  |  |  |  |  |
| agencies | 131,385 | 622 | (1,316) | 130,691 | 81,632 | 333 | (1,699) | 80,266 |
| Other OECD government | 11,975 | 14 | (56) | 11,933 | 10,199 | 6 | (49) | 10,156 |
| Mortgage-backed securities | 2,674 | 7 | (7) | 2,674 | 2,646 | 3 | (15) | 2,634 |
| Asset-backed securities | 10,126 | 15 | (2) | 10,139 | 9,343 | 17 | (3) | 9,357 |
| Corporate debt and other debt | 33,602 | 122 | (46) | 33,678 | 31,932 | 101 | (51) | 31,982 |
| Equities | 832 | 669 | (5) | 1,496 | 728 | 519 | (5) | 1,242 |
|  | $ 241,789 | $  1,534 | $  (1,528) | $ 241,795 | $ 157,208 | $  1,037 | $  (1,885) | $ 156,360 |

(1)

Excludes $100,926 million of held-to-collect securities as at October 31, 2025 that are carried at amortized cost, net of allowance for credit losses (October 31, 2024 –

$100,258 million).

(2)

Gross unrealized gains and losses includes $(40) million of allowance for credit losses on debt securities at FVOCI as at October 31, 2025 (October 31, 2024 – $(35) million)

recognized in income and Other components of equity.

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.

Allowance for credit losses – securities at FVOCI

(1)

|  |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | For the year ended | | | | | | | |
|  | October 31, 2025 | | | | October 31, 2024 | | | |
|  | Performing | | Impaired |  | Performing | | Impaired |  |
| (Millions of Canadian dollars) | Stage 1 | Stage 2 | Stage 3  (2) | Total | Stage 1 | Stage 2 | Stage 3 (2) | Total |
| Balance at beginning of period | $  6 | $  – | $  (41) | $  (35) | $  4 | $  – | $  (37) | $  (33) |
| Provision for credit losses |  |  |  |  |  |  |  |  |
| Transfers to stage 1 | – | – | – | – | – | – | – | – |
| Transfers to stage 2 | – | – | – | – | – | – | – | – |
| Transfers to stage 3 | – | – | – | – | – | – | – | – |
| Purchases | 7 | – | – | 7 | 10 | – | – | 10 |
| Sales and maturities | (4) | – | – | (4) | (4) | – | – | (4) |
| Changes in risk, parameters and |  |  |  |  |  |  |  |  |
| exposures | (4) | – | (10) | (14) | (4) | – | (8) | (12) |
| Exchange rate and other | – | – | 6 | 6 | – | – | 4 | 4 |
| Balance at end of period | $  5 | $  – | $  (45) | $  (40) | $  6 | $  – | $  (41) | $  (35) |

(1)

Expected credit losses on debt securities at FVOCI are not separately recognized on the Consolidated Balance Sheets 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.

(2)

Reflects changes in the allowance for purchased credit-impaired securities.

![]()

Consolidated Financial Statements

Royal Bank of Canada: Annual Report 2025

179

Allowance for credit losses – securities at amortized cost

|  |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | For the year ended | | | | | | | |
|  | October 31, 2025 | | | | October 31, 2024 | | | |
|  | 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 | $  8 | $  – | $  14 | $  8 | $  15 | $  – | $  23 |
| Provision for credit losses |  |  |  |  |  |  |  |  |
| Transfers to stage 1 | – | – | – | – | – | – | – | – |
| Transfers to stage 2 | – | – | – | – | – | – | – | – |
| Transfers to stage 3 | – | – | – | – | – | – | – | – |
| Purchases | 7 | – | – | 7 | 7 | – | – | 7 |
| Sales and maturities | – | – | – | – | (2) | – | – | (2) |
| Changes in risk, parameters and |  |  |  |  |  |  |  |  |
| exposures | (6) | (2) | – | (8) | (8) | (6) | – | (14) |
| Exchange rate and other | 1 | – | – | 1 | 1 | (1) | – | – |
| Balance at end of period | $  8 | $  6 | $  – | $  14 | $  6 | $  8 | $  – | $  14 |

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 Management’s Discussion and Analysis.

|  |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | As at | | | | | | | |
|  | October 31, 2025 | | | | October 31, 2024 | | | |
|  | 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 | $ 239,375 | $  – | $  – | $ 239,375 | $ 154,100 | $  – | $  – | $ 154,100 |
| Non-investment grade | 786 | 4 | – | 790 | 875 | – | – | 875 |
| Impaired | – | – | 134 | 134 | – | – | 143 | 143 |
|  | 240,161 | 4 | 134 | 240,299 | 154,975 | – | 143 | 155,118 |
| Items not subject to impairment  (2) |  |  |  | 1,496 |  |  |  | 1,242 |
|  |  |  |  | $ 241,795 |  |  |  | $ 156,360 |
| Securities at amortized cost |  |  |  |  |  |  |  |  |
| Investment grade | $  99,673 | $  – | $  – | $  99,673 | $  99,224 | $  – | $  – | $  99,224 |
| Non-investment grade | 1,098 | 169 | – | 1,267 | 856 | 192 | – | 1,048 |
|  | 100,771 | 169 | – | 100,940 | 100,080 | 192 | – | 100,272 |
| Allowance for credit losses | 8 | 6 | – | 14 | 6 | 8 | – | 14 |
|  | $ 100,763 | $  163 | $  – | $ 100,926 | $ 100,074 | $  184 | $  – | $ 100,258 |

(1)

Reflects $134 million of purchased credit-impaired securities (October 31, 2024 – $143 million).

(2)

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

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180

Royal Bank of Canada: Annual Report 2025

Consolidated Financial Statements

Note 5

Loans and allowance for credit losses

Loans by geography and portfolio net of allowance

|  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- |
|  | As at October 31, 2025 | | | | | |
|  |  | United | Other |  | Allowance for | Total net |
| (Millions of Canadian dollars) | Canada | States | International | Total | loan losses  (1) | of allowance |
| Retail  (2) |  |  |  |  |  |  |
| Residential mortgages | $ 454,346 | $  35,673 | $  3,394 | $  493,413 | $  (794) | $  492,619 |
| Personal | 90,842 | 20,984 | 3,519 | 115,345 | (1,541) | 113,804 |
| Credit cards  (3) | 25,836 | 652 | 301 | 26,789 | (1,273) | 25,516 |
| Small business  (4) | 16,797 | – | – | 16,797 | (334) | 16,463 |
| Wholesale  (2), (5) | 194,487 | 143,439 | 59,245 | 397,171 | (3,151) | 394,020 |
| Total loans | $ 782,308 | $ 200,748 | $  66,459 | $ 1,049,515 | $  (7,093) | $ 1,042,422 |
| Undrawn loan commitments – Retail | 311,332 | 9,434 | 4,913 | 325,679 | (197) |  |
| Undrawn loan commitments – Wholesale | 183,589 | 309,469 | 101,511 | 594,569 | (168) |  |

|  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- |
|  | As at October 31, 2024 | | | | | |
|  |  | United | Other |  | Allowance for | Total net |
| (Millions of Canadian dollars) | Canada | States | International | Total | loan losses  (1) | of allowance |
| Retail  (2) |  |  |  |  |  |  |
| Residential mortgages | $ 441,191 | $  33,092 | $  3,261 | $  477,544 | $  (572) | $  476,972 |
| Personal | 86,977 | 18,148 | 3,213 | 108,338 | (1,389) | 106,949 |
| Credit cards  (3) | 24,619 | 653 | 293 | 25,565 | (1,164) | 24,401 |
| Small business  (4) | 15,531 | – | – | 15,531 | (258) | 15,273 |
| Wholesale  (2), (5) | 189,378 | 119,231 | 51,830 | 360,439 | (2,654) | 357,785 |
| Total loans | $ 757,696 | $ 171,124 | $  58,597 | $  987,417 | $  (6,037) | $  981,380 |
| Undrawn loan commitments – Retail | 300,071 | 5,099 | 4,100 | 309,270 | (172) |  |
| Undrawn loan commitments – Wholesale | 180,687 | 264,309 | 88,787 | 533,783 | (139) |  |

(1)

Excludes allowance for loans measured at FVOCI of $1 million (October 31, 2024 – $4 million).

(2)

Geographic information is based on residence of the borrower.

(3)

The credit cards business is managed as a single portfolio and includes both consumer and business cards.

(4)

Includes small business exposure managed on a pooled basis.

(5)

Includes small business exposure managed on an individual client basis.

Loans maturity and rate sensitivity

|  |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | As at October 31, 2025 | | | | | | | |
|  | Maturity term  (1) | | |  | Rate sensitivity | | |  |
|  | Under | 1 to 5 | Over 5 |  |  | Fixed | Non-rate- |  |
| (Millions of Canadian dollars) | 1 year  (2) | years | years | Total | Floating | Rate | sensitive | Total |
| Retail | $ 395,387 | $ 215,783 | $ 41,174 | $  652,344 | $ 253,592 | $ 389,868 | $  8,884 | $  652,344 |
| Wholesale | 338,854 | 43,992 | 14,325 | 397,171 | 84,295 | 309,440 | 3,436 | 397,171 |
| Total loans | $ 734,241 | $ 259,775 | $ 55,499 | $ 1,049,515 | $ 337,887 | $ 699,308 | $  12,320 | $ 1,049,515 |
| Allowance for loan losses |  |  |  | (7,093) |  |  |  | (7,093) |
| Total loans net of allowance for loan losses | $ 734,241 | $ 259,775 | $ 48,406 | $ 1,042,422 | $ 337,887 | $ 699,308 | $  5,227 | $ 1,042,422 |

|  |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | As at October 31, 2024 | | | | | | | |
|  | Maturity term  (1) | | |  | Rate sensitivity | | |  |
|  | Under | 1 to 5 | Over 5 |  |  | Fixed | Non-rate- |  |
| (Millions of Canadian dollars) | 1 year  (2) | years | years | Total | Floating | Rate | sensitive | Total |
| Retail | $ 342,552 | $ 240,995 | $ 43,431 | $  626,978 | $ 211,027 | $ 407,455 | $  8,496 | $  626,978 |
| Wholesale | 302,024 | 44,977 | 13,438 | 360,439 | 80,385 | 277,599 | 2,455 | 360,439 |
| Total loans | $ 644,576 | $ 285,972 | $ 56,869 | $  987,417 | $ 291,412 | $ 685,054 | $  10,951 | $  987,417 |
| Allowance for loan losses |  |  |  | (6,037) |  |  |  | (6,037) |
| Total loans net of allowance for loan losses | $ 644,576 | $ 285,972 | $ 50,832 | $  981,380 | $ 291,412 | $ 685,054 | $  4,914 | $  981,380 |

(1)

Generally, based on the earlier of contractual repricing or maturity date.

(2)

Includes variable rate loans that can be repriced at the clients’ discretion without penalty.

![]()

Consolidated Financial Statements

Royal Bank of Canada: Annual Report 2025

181

Allowance for credit losses

|  |  |  |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | For the year ended | | | | | | | | | |
|  | October 31, 2025 | | | | | October 31, 2024 | | | | |
|  | Balance at | Provision |  | Exchange | Balance | Balance at | Provision |  | Exchange | Balance |
|  | beginning | for credit | Net | rate and | at end | beginning | for credit | Net | rate and | at end |
| (Millions of Canadian dollars) | of period | losses | write-offs  (1) | other | of period | of period | losses | write-offs  (1) | other | of period |
| Retail |  |  |  |  |  |  |  |  |  |  |
| Residential mortgages | $  572 | $  280 | $  (9) | $  (49) | $  794 | $  481 | $  114 | $  (10) | $  (13) | $  572 |
| Personal | 1,482 | 956 | (779) | (20) | 1,639 | 1,228 | 877 | (616) | (7) | 1,482 |
| Credit cards | 1,233 | 952 | (829) | – | 1,356 | 1,069 | 831 | (669) | 2 | 1,233 |
| Small business | 272 | 209 | (104) | (26) | 351 | 194 | 178 | (84) | (16) | 272 |
| Wholesale | 2,793 | 1,959 | (1,163) | (270) | 3,319 | 2,326 | 1,297 | (700) | (130) | 2,793 |
| Customers’ liability under |  |  |  |  |  |  |  |  |  |  |
| acceptances | – | – | – | – | – | 50 | (50) | – | – | – |
|  | $ 6,352 | $ 4,356 | $  (2,884) | $  (365) | $ 7,459 | $  5,348 | $ 3,247 | $  (2,079) | $  (164) | $ 6,352 |
| Presented as: |  |  |  |  |  |  |  |  |  |  |
| Allowance for loan losses | $ 6,037 |  |  |  | $ 7,093 | $  5,004 |  |  |  | $ 6,037 |
| Other liabilities – Provisions | 311 |  |  |  | 365 | 288 |  |  |  | 311 |
| Other assets – Other | – |  |  |  | – | 50 |  |  |  | – |
| Other components of equity | 4 |  |  |  | 1 | 6 |  |  |  | 4 |

(1)

Loans written-off are generally subject to continued collection efforts for a period of time following write-off. The contractual amount outstanding on loans written-off

during the year ended October 31, 2025 that are no longer subject to enforcement activity was $285 million (October 31, 2024 – $359 million).

The following table reconciles the opening and closing allowance for each major product of loans and commitments as

determined by our modelled, scenario-weighted allowance and the application of expert credit judgment as applicable.

Reconciling items include the following:

•

Model changes, as applicable, which generally comprise the impact of significant changes to the quantitative models used

to estimate expected credit losses and any staging impacts that may arise.

•

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.

![]()

(continued)

Note 5

Loans and allowance for credit losses

182

Royal Bank of Canada: Annual Report 2025

Consolidated Financial Statements

Allowance for credit losses – Retail and wholesale loans

|  |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | For the year ended | | | | | | | |
|  | October 31, 2025 | | | | October 31, 2024 | | | |
|  | 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 | $  215 | $  126 | $  231 | $  572 | $  223 | $  90 | $  168 | $  481 |
| Provision for credit losses |  |  |  |  |  |  |  |  |
| Transfers to stage 1 | 157 | (153) | (4) | – | 99 | (97) | (2) | – |
| Transfers to stage 2 | (41) | 49 | (8) | – | (23) | 36 | (13) | – |
| Transfers to stage 3 | (7) | (45) | 52 | – | (5) | (42) | 47 | – |
| Originations | 100 | – | – | 100 | 94 | – | – | 94 |
| Maturities | (25) | (29) | – | (54) | (19) | (17) | – | (36) |
| Changes in risk, parameters and |  |  |  |  |  |  |  |  |
| exposures | (123) | 256 | 101 | 234 | (155) | 157 | 54 | 56 |
| Write-offs | – | – | (20) | (20) | – | – | (23) | (23) |
| Recoveries | – | – | 11 | 11 | – | – | 13 | 13 |
| Exchange rate and other | – | – | (49) | (49) | 1 | (1) | (13) | (13) |
| Balance at end of period | $  276 | $  204 | $  314 | $  794 | $  215 | $  126 | $  231 | $  572 |
| Personal |  |  |  |  |  |  |  |  |
| Balance at beginning of period | $  305 | $  966 | $  211 | $  1,482 | $  280 | $  793 | $  155 | $  1,228 |
| Provision for credit losses |  |  |  |  |  |  |  |  |
| Transfers to stage 1 | 594 | (593) | (1) | – | 537 | (537) | – | – |
| Transfers to stage 2 | (96) | 100 | (4) | – | (75) | 78 | (3) | – |
| Transfers to stage 3 | (4) | (163) | 167 | – | (3) | (130) | 133 | – |
| Originations | 105 | – | – | 105 | 116 | – | – | 116 |
| Maturities | (53) | (233) | (1) | (287) | (51) | (186) | – | (237) |
| Changes in risk, parameters and |  |  |  |  |  |  |  |  |
| exposures | (562) | 1,040 | 660 | 1,138 | (499) | 947 | 550 | 998 |
| Write-offs | – | – | (935) | (935) | – | – | (745) | (745) |
| Recoveries | – | – | 156 | 156 | – | – | 129 | 129 |
| Exchange rate and other | 2 | (2) | (20) | (20) | – | 1 | (8) | (7) |
| Balance at end of period | $  291 | $  1,115 | $  233 | $  1,639 | $  305 | $  966 | $  211 | $  1,482 |
| Credit cards |  |  |  |  |  |  |  |  |
| Balance at beginning of period | $  207  $ | 1,026  $ | – | $  1,233 | $  203 | $  866 | $  – | $  1,069 |
| Provision for credit losses |  |  |  |  |  |  |  |  |
| Transfers to stage 1 | 662 | (662) | – | – | 559 | (559) | – | – |
| Transfers to stage 2 | (112) | 112 | – | – | (111) | 111 | – | – |
| Transfers to stage 3 | (2) | (595) | 597 | – | (2) | (483) | 485 | – |
| Originations | 14 | – | – | 14 | 25 | – | – | 25 |
| Maturities | (4) | (56) | – | (60) | (5) | (48) | – | (53) |
| Changes in risk, parameters and |  |  |  |  |  |  |  |  |
| exposures | (546) | 1,313 | 231 | 998 | (465) | 1,139 | 185 | 859 |
| Write-offs | – | – | (1,010) | (1,010) | – | – | (892) | (892) |
| Recoveries | – | – | 181 | 181 | – | – | 223 | 223 |
| Exchange rate and other | (2) | 1 | 1 | – | 3 | – | (1) | 2 |
| Balance at end of period | $  217  $ | 1,139  $ | – | $  1,356 | $  207 | $  1,026 | $  – | $  1,233 |
| Small business |  |  |  |  |  |  |  |  |
| Balance at beginning of period | $  80 | $  86 | $  106 | $  272 | $  70 | $  66 | $  58 | $  194 |
| Provision for credit losses |  |  |  |  |  |  |  |  |
| Transfers to stage 1 | 54 | (54) | – | – | 35 | (35) | – | – |
| Transfers to stage 2 | (23) | 23 | – | – | (20) | 20 | – | – |
| Transfers to stage 3 | (1) | (14) | 15 | – | (1) | (10) | 11 | – |
| Originations | 39 | – | – | 39 | 43 | – | – | 43 |
| Maturities | (19) | (24) | – | (43) | (17) | (21) | – | (38) |
| Changes in risk, parameters and |  |  |  |  |  |  |  |  |
| exposures | (41) | 98 | 156 | 213 | (31) | 65 | 139 | 173 |
| Write-offs | – | – | (124) | (124) | – | – | (98) | (98) |
| Recoveries | – | – | 20 | 20 | – | – | 14 | 14 |
| Exchange rate and other | 6 | 2 | (34) | (26) | 1 | 1 | (18) | (16) |
| Balance at end of period | $  95 | $  117 | $  139 | $  351 | $  80 | $  86 | $  106 | $  272 |
| Wholesale |  |  |  |  |  |  |  |  |
| Balance at beginning of period | $  787 | $  1,038 | $  968 | $  2,793 | $  774 | $  785 | $  767 | $  2,326 |
| Provision for credit losses |  |  |  |  |  |  |  |  |
| Transfers to stage 1 | 277 | (275) | (2) | – | 284 | (282) | (2) | – |
| Transfers to stage 2 | (124) | 133 | (9) | – | (152) | 159 | (7) | – |
| Transfers to stage 3 | (15) | (273) | 288 | – | (9) | (77) | 86 | – |
| Originations | 755 | – | – | 755 | 737 | – | – | 737 |
| Maturities | (543) | (418) | – | (961) | (438) | (379) | – | (817) |
| Changes in risk, parameters and |  |  |  |  |  |  |  |  |
| exposures | (243) | 912 | 1,496 | 2,165 | (407) | 827 | 957 | 1,377 |
| Write-offs | – | – | (1,237) | (1,237) | – | – | (763) | (763) |
| Recoveries | – | – | 74 | 74 | – | – | 63 | 63 |
| Exchange rate and other | 2 | 6 | (278) | (270) | (2) | 5 | (133) | (130) |
| Balance at end of period | $  896 | $  1,123 | $  1,300 | $  3,319 | $  787 | $  1,038 | $  968 | $  2,793 |

![]()

Consolidated Financial Statements

Royal Bank of Canada: Annual Report 2025

183

Key inputs and assumptions

The measurement of expected credit losses is a complex calculation that involves a significant number of interrelated inputs

and assumptions and the allowance is not sensitive to any one single factor. The key drivers of changes in expected credit

losses include the following:

•

Changes in the credit quality of the borrower or instrument, primarily reflected in changes in internal risk ratings;

•

Changes in forward-looking macroeconomic conditions, specifically the macroeconomic variables to which our models

are calibrated, which are those most closely correlated with credit losses in the relevant portfolio;

•

Changes in scenario design and the weight assigned to each scenario; and

•

Transfers between stages, which can be triggered by changes to any of the above inputs.

To reflect relevant risk factors not captured in our modelled results, we applied expert credit judgment in determining the

measurement of our weighted allowance for credit losses. The measurement of expected credit losses, including scenario design

and weightings, determining significant increases in credit risk since origination and application of expert credit judgment, is

overseen by a senior management committee that includes representation from Finance, Group Risk Management and

Economics.

Internal risk ratings

Internal risk ratings are assigned according to the risk management framework outlined under the headings Wholesale credit

risk and Retail credit risk of the Credit risk section of Management’s Discussion and Analysis. Changes in internal risk ratings are

primarily reflected in the PD parameters, which are estimated based on our historical loss experience at the relevant risk

segment or risk rating level, adjusted for forward-looking information.

Scenario design and weightings

Our estimation of expected credit losses in Stage 1 and Stage 2 considers five distinct future macroeconomic scenarios.

Scenarios are designed to capture a wide range of possible outcomes and are weighted according to our expectation of the

relative likelihood of the range of outcomes that each scenario represents at the reporting date. We weight each scenario to

take into account historical frequency, current trends, and forward-looking conditions which will change over time. Scenario

weightings take into consideration the extent to which the base case scenario includes both favourable and unfavourable

economic expectations, and upside and downside risks to the base scenario materializing in the future. The base case scenario

is based on forecasts of the expected rate, value, or yield for each relevant macroeconomic variable. The upside and downside

scenarios are set by adjusting our base projections to construct reasonably possible scenarios and weightings that are more

optimistic and pessimistic, respectively, than the base case. Two additional downside scenarios capture the non-linear nature of

potential credit losses across our portfolios. When the economy is at or near equilibrium, the severity of the downside scenario

generally reflects an adverse event typical for a business cycle and both the non-linear downside scenarios reflect an outcome

that is materially more adverse than the downside scenario.

The impact of each of our five scenarios varies across our portfolios given the portfolios have different sensitivities to

movements in each macroeconomic variable.

The impact of weighting these multiple scenarios increased our ACL on performing loans, relative to our base scenario, by

$1,268 million as at October 31, 2025 (October 31, 2024 – $945 million).

Forward looking macroeconomic variables

The PD, LGD and EAD inputs used to estimate Stage 1 and Stage 2 credit loss allowances are modelled based on the

macroeconomic variables (or changes in macroeconomic variables) that are most closely correlated with credit losses in the

relevant portfolio. Each macroeconomic scenario used in our expected credit loss calculation includes a projection of all

relevant macroeconomic variables used in our models for a five-year horizon, reverting to long-run averages generally within

the 2 to 5 year period. Depending on their usage in the models, macroeconomic variables are projected at a country, province/

state or more granular level. These include one or more of the variables described below, which differ by portfolio and region.

Our allowance for credit losses reflects our economic outlook as at October 31, 2025. Subsequent changes to this forecast and

related estimates will be reflected in our allowance for credit losses in future periods.

Our base scenario reflects the Canadian unemployment rate peaking in calendar Q4 2025, followed by gradual declines

beginning in early calendar 2026 and for the U.S. unemployment rate to rise, peaking in calendar Q1 2026, followed by a return to

equilibrium by calendar Q4 2026. The central bank policy rate in Canada is expected to remain unchanged until the end of

calendar 2026 and cuts are expected in the U.S. until the middle of calendar 2026.

Our downside scenarios include two additional and more severe downside scenarios designed for trade disruptions and the

real estate sector. During Q2 2025, in response to U.S. international trade policy, we designed a trade disruption scenario to

replace our energy sector scenario. Our downside scenarios reflect the possibility of moderate and escalating macroeconomic

shocks beginning in calendar Q1 2026 relative to our base scenario. In these scenarios, conditions are expected to deteriorate

from calendar Q4 2025 levels for up to 18 months, followed by a recovery for the remainder of the period. These scenarios

assume monetary policy responses that return the economy to a long-run, sustainable growth rate within the forecast period.

Our upside scenario reflects slightly stronger economic growth than the base scenario, without prompting a further

offsetting monetary policy response as compared to our base scenario, followed by a return to a long-run sustainable growth

rate within the forecast period.

We increased weight to our downside scenarios relative to October 31, 2024 to reflect the heightened economic uncertainty

related to U.S. international trade policy as compared to our base scenario.

![]()

(continued)

Note 5

Loans and allowance for credit losses

184

Royal Bank of Canada: Annual Report 2025

Consolidated Financial Statements

The following provides additional detail about our calendar quarter forecasts for certain key macroeconomic variables used in

the models to estimate ACL:

•

Unemployment rates

– In our base forecast, we expect the Canadian unemployment rate to peak at 7.1% in calendar

Q4 2025, then returning to its long run equilibrium by calendar Q1 2028. The U.S. unemployment rate is expected to rise to

4.5% in calendar Q4 2025, peaking at 4.6% in calendar Q1 2026, then returning to its long run equilibrium level by calendar

Q4 2026.

4

5

6

7

8

11

9

Range of alternative scenarios (October 31, 2025)

Q4-2028

Q1-2029

Q2-2029

Q3-2029

Q4-2029

Q1-2030

Q2-2030

Q3-2030

Q4-2024

Q1-2025

Q2-2025

Q3-2025

Q4-2025

Q1-2026

Q2-2026

Q3-2026

Q4-2026

Q1-2027

Q2-2027

Q3-2027

Q4-2027

Q1-2028

Q2-2028

Q3-2028

Base scenario (October 31, 2025)

Base scenario (October 31, 2024)

%

Canada Unemployment Rate

(1)

(1)

Represents the average quarterly unemployment level over the calendar quarters presented.

10

2

4

3

6

5

7

9

8

Range of alternative scenarios (October 31, 2025)

Base scenario (October 31, 2024)

Base scenario (October 31, 2025)

%

U.S. Unemployment Rate

(1)

(1)

Represents the avera

g

e quarterly unemployment level over the calendar quarters presented.

Q4-2024

Q1-2025

Q2-2025

Q3-2025

Q4-2025

Q1-2026

Q2-2026

Q3-2026

Q4-2026

Q1-2027

Q2-2027

Q3-2027

Q4-2027

Q1-2028

Q2-2028

Q3-2028

Q4-2028

Q1-2029

Q2-2029

Q3-2029

Q4-2029

Q1-2030

Q2-2030

Q3-2030

•

Gross Domestic Product (GDP)

– In our base forecast, we expect both Canadian and U.S. GDP to continuously grow in

calendar Q4 2025 and thereafter. GDP in calendar Q4 2026 is expected to be 1.8% above Q4 2025 levels in Canada, and 1.5%

above Q4 2025 levels in the U.S.

2.2

2.3

2.4

2.5

2.6

2.8

2.7

Range of alternative scenarios (October 31, 2025)

Base scenario (October 31, 2025)

Base scenario (October 31, 2024)

Trillions of Canadian dollars

Canada Real GDP

(1)

(1)

Represents the seasonally adjusted annual rate indexed to 2017 Canadian dollars over the calendar

quarters presented.

Q4-2024

Q1-2025

Q2-2025

Q3-2025

Q4-2025

Q1-2026

Q2-2026

Q3-2026

Q4-2026

Q1-2027

Q2-2027

Q3-2027

Q4-2027

Q1-2028

Q2-2028

Q3-2028

Q4-2028

Q1-2029

Q2-2029

Q3-2029

Q4-2029

Q1-2030

Q2-2030

Q3-2030

21.0

25.0

24.0

23.0

22.0

28.0

27.0

26.0

Range of alternative scenarios (October 31, 2025)

Base scenario (October 31, 2025)

Base scenario (October 31, 2024)

(1)

Represents the seasonally adjusted annual rate indexed to 2017 U.S. dollars over the calendar

quarters presented.

Q4-2024

Q1-2025

Q2-2025

Q3-2025

Q4-2025

Q1-2026

Q2-2026

Q3-2026

Q4-2026

Q1-2027

Q2-2027

Q3-2027

Q4-2027

Q1-2028

Q2-2028

Q3-2028

Q4-2028

Q1-2029

Q2-2029

Q3-2029

Q4-2029

Q1-2030

Q2-2030

Q3-2030

Trillions of U.S. dollars

U.S. Real GDP

(1)

•

Canadian housing price index

– In our base forecast, we expect housing prices to increase by 0.3% over the next 12 months

from calendar Q4 2025, with a compound annual growth rate of 3.4% for the following 2 to 5 years. The range of annual

housing price growth (contraction) in our alternative real estate downside and upside scenarios is (29.2)% to 10.9% over the

next 12 months and 4.2% to 9.6% for the following 2 to 5 years. As at October 31, 2024, our base forecast included housing

price growth of 0.7% from calendar Q4 2024 for the next 12 months and housing price growth of 3.0% for the following 2 to

5 years.

![]()

Consolidated Financial Statements

Royal Bank of Canada: Annual Report 2025

185

The primary variables driving credit losses in our retail portfolios are Canadian unemployment rates, the Canadian housing

price index and Canadian GDP. The Canadian overnight interest rate also impacts our retail portfolios. Our wholesale portfolios

are affected by all of the variables discussed above; however, the specific variables differ by sector. Other variables also impact

our wholesale portfolios including, but not limited to, Canadian and U.S. 10 year BBB corporate bond credit spreads, Canadian

and U.S. 10 year government bond yields, U.S. 10 year BBB corporate bond yield, Canadian consumer confidence index, Canadian

and U.S. commercial real estate price indices, U.S. housing price index, and natural gas prices (Henry Hub).

Increases in the following macroeconomic variables will generally correlate with higher expected credit losses: Canadian

and U.S. unemployment rates, Canadian overnight interest rates, Canadian and U.S. 10 year BBB corporate bond credit spreads,

Canadian and U.S. 10 year government bond yields, and U.S. 10 year BBB corporate bond yield.

Increases in the following macroeconomic variables will generally correlate with lower expected credit losses: Canadian

and U.S. housing price indices, Canadian and U.S. GDP, Canadian consumer confidence index, Canadian and U.S. commercial

real estate price indices and natural gas prices.

Transfers between stages

Transfers between Stage 1 and Stage 2 are based on the assessment of significant increases in credit risk relative to initial

recognition, as described in Note 2. The impact of moving from 12 months expected credit losses to lifetime expected credit

losses, or vice versa, varies by product and is dependent on the expected remaining life at the date of the transfer. Stage

transfers may result in significant fluctuations in expected credit losses.

The following table illustrates the impact of staging on our ACL by comparing our allowance if all performing loans were in

Stage 1 to the actual ACL recorded on these assets.

|  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- |
|  | As at | | | | | |
|  | October 31, 2025 | | | October 31, 2024 | | |
|  | ACL – All performing | Impact of | Stage 1 and 2 | ACL – All performing | Impact of | Stage 1 and 2 |
| (Millions of Canadian dollars) | loans in Stage 1 | staging | ACL | loans in Stage 1 | staging | ACL |
| Performing loans  (1) | $ 3,775 | $ 1,698 | $ 5,473 | $ 3,313 | $ 1,523 | $ 4,836 |

(1)

Represents loans and commitments in Stage 1 and Stage 2.

![]()

(continued)

Note 5

Loans and allowance for credit losses

186

Royal Bank of Canada: Annual Report 2025

Consolidated Financial Statements

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 Management’s Discussion and Analysis.

|  |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | As at | | | | | | | |
|  | October 31, 2025 | | | | October 31, 2024 | | | |
| (Millions of Canadian dollars) | Stage 1 | Stage 2 | Stage 3  (1), (2) | Total | Stage 1 | Stage 2 | Stage 3 (1), (2) | Total |
| Retail |  |  |  |  |  |  |  |  |
| Loans outstanding – Residential |  |  |  |  |  |  |  |  |
| mortgages |  |  |  |  |  |  |  |  |
| Low risk | $ 386,060 | $ 16,495 | $  – | $ 402,555 | $ 388,742 | $  1,354 | $  – | $ 390,096 |
| Medium risk | 20,622 | 2,571 | – | 23,193 | 18,419 | 4,479 | – | 22,898 |
| High risk | 2,131 | 6,532 | – | 8,663 | 1,761 | 6,593 | – | 8,354 |
| Not rated  (3) | 54,253 | 1,940 | – | 56,193 | 52,569 | 1,479 | – | 54,048 |
| Impaired | – | – | 1,681 | 1,681 | – | – | 1,233 | 1,233 |
|  | 463,066 | 27,538 | 1,681 | 492,285 | 461,491 | 13,905 | 1,233 | 476,629 |
| Items not subject to impairment  (4) |  |  |  | 1,128 |  |  |  | 915 |
| Total |  |  |  | $ 493,413 |  |  |  | $ 477,544 |
| Loans outstanding – Personal |  |  |  |  |  |  |  |  |
| Low risk | $  87,536 | $  2,712 | $  – | $  90,248 | $  82,904 | $  1,680 | $  – | $  84,584 |
| Medium risk | 4,035 | 3,768 | – | 7,803 | 5,525 | 3,063 | – | 8,588 |
| High risk | 601 | 2,583 | – | 3,184 | 592 | 2,365 | – | 2,957 |
| Not rated  (3) | 12,493 | 1,180 | – | 13,673 | 11,303 | 498 | – | 11,801 |
| Impaired | – | – | 437 | 437 | – | – | 408 | 408 |
| Total | $ 104,665 | $ 10,243 | $  437 | $ 115,345 | $ 100,324 | $  7,606 | $  408 | $ 108,338 |
| Loans outstanding – Credit cards |  |  |  |  |  |  |  |  |
| Low risk | $  18,279 | $  161 | $  – | $  18,440 | $  17,363 | $  177 | $  – | $  17,540 |
| Medium risk | 2,123 | 2,291 | – | 4,414 | 1,999 | 2,436 | – | 4,435 |
| High risk | 70 | 2,423 | – | 2,493 | 75 | 2,289 | – | 2,364 |
| Not rated  (3) | 1,133 | 309 | – | 1,442 | 1,173 | 53 | – | 1,226 |
| Total | $  21,605 | $  5,184 | $  – | $  26,789 | $  20,610 | $  4,955 | $  – | $  25,565 |
| Loans outstanding – Small business |  |  |  |  |  |  |  |  |
| Low risk | $  10,628 | $  595 | $  – | $  11,223 | $  9,428 | $  773 | $  – | $  10,201 |
| Medium risk | 2,550 | 924 | – | 3,474 | 2,740 | 962 | – | 3,702 |
| High risk | 259 | 1,422 | – | 1,681 | 214 | 1,086 | – | 1,300 |
| Not rated  (3) | 8 | – | – | 8 | 7 | – | – | 7 |
| Impaired | – | – | 411 | 411 | – | – | 321 | 321 |
| Total | $  13,445 | $  2,941 | $  411 | $  16,797 | $  12,389 | $  2,821 | $  321 | $  15,531 |
| Undrawn loan commitments – |  |  |  |  |  |  |  |  |
| Retail |  |  |  |  |  |  |  |  |
| Low risk | $ 293,300 | $  3,700 | $  – | $ 297,000 | $ 284,036 | $  592 | $  – | $ 284,628 |
| Medium risk | 12,451 | 427 | – | 12,878 | 12,110 | 381 | – | 12,491 |
| High risk | 805 | 758 | – | 1,563 | 746 | 602 | – | 1,348 |
| Not rated  (3) | 13,964 | 274 | – | 14,238 | 10,715 | 88 | – | 10,803 |
| Total | $ 320,520 | $  5,159 | $  – | $ 325,679 | $ 307,607 | $  1,663 | $  – | $ 309,270 |
| Wholesale – Loans outstanding |  |  |  |  |  |  |  |  |
| Investment grade | $ 130,322 | $  2,117 | $  – | $ 132,439 | $ 116,549 | $  1,471 | $  – | $ 118,020 |
| Non-investment grade | 207,239 | 26,399 | – | 233,638 | 189,889 | 26,826 | – | 216,715 |
| Not rated  (3) | 14,714 | 503 | – | 15,217 | 12,871 | 721 | – | 13,592 |
| Impaired | – | – | 6,153 | 6,153 | – | – | 3,905 | 3,905 |
|  | 352,275 | 29,019 | 6,153 | 387,447 | 319,309 | 29,018 | 3,905 | 352,232 |
| Items not subject to impairment  (4) |  |  |  | 9,724 |  |  |  | 8,207 |
| Total |  |  |  | $ 397,171 |  |  |  | $ 360,439 |
| Undrawn loan commitments – |  |  |  |  |  |  |  |  |
| Wholesale |  |  |  |  |  |  |  |  |
| Investment grade | $ 393,167 | $  1,593 | $  – | $ 394,760 | $ 345,236 | $  516 | $  – | $ 345,752 |
| Non-investment grade | 182,223 | 16,158 | – | 198,381 | 170,212 | 14,512 | – | 184,724 |
| Not rated  (3) | 1,407 | 21 | – | 1,428 | 3,290 | 17 | – | 3,307 |
| Total | $ 576,797 | $ 17,772 | $  – | $ 594,569 | $ 518,738 | $ 15,045 | $  – | $ 533,783 |

(1)

As at October 31, 2025, 91% of credit-impaired loans were either fully or partially collateralized (October 31, 2024 – 88%). For details on the types of collateral held against

credit-impaired assets and our policies on collateral, refer to the Credit risk mitigation section of Management’s Discussion and Analysis.

(2)

Includes $195 million of purchased or originated credit-impaired loans (October 31, 2024 – $109 million).

(3)

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

credit risk.

(4)

Items not subject to impairment are loans held at FVTPL.

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Consolidated Financial Statements

Royal Bank of Canada: Annual Report 2025

187

Loans past due but not impaired

(1), (2)

|  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- |
|  | As at | | | | | |
|  | October 31, 2025 | | | October 31, 2024 | | |
|  |  | 90 days |  |  | 90 days |  |
| (Millions of Canadian dollars) | 30 to 89 days | and greater | Total | 30 to 89 days | and greater | Total |
| Retail | $  2,634 | $  323 | $ 2,957 | $  2,542 | $  263 | $ 2,805 |
| Wholesale | 1,143 | 7 | 1,150 | 1,454 | 4 | 1,458 |
|  | $  3,777 | $  330 | $ 4,107 | $  3,996 | $  267 | $ 4,263 |

(1)

Excludes loans less than 30 days past due as they are not generally representative of the borrowers’ ability to meet their payment obligations.

(2)

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

Significant acquisition

HSBC Bank Canada

On March 28, 2024, we completed the acquisition of HSBC Bank Canada (HSBC Canada). The acquisition of HSBC Canada (the

HSBC Canada transaction) gave us the opportunity to enhance our existing businesses in line with our strategic goals and to

better position us to be the bank of choice for commercial clients with international needs, newcomers to Canada and globally

connected clients. HSBC Canada results have been consolidated from the closing date and included in our Personal Banking,

Commercial Banking, Wealth Management and Capital Markets segments.

Total consideration of $15.5 billion in cash included $13.5 billion for 100% of the common shares of HSBC Canada, $2.1 billion

for the preferred shares and subordinated debt held directly or indirectly by HSBC Holdings plc, $(0.5) billion for the settlement of

pre-existing relationships with HSBC Canada and $0.4 billion for an additional amount that accrued from August 30, 2023 to the

closing date. This additional amount was calculated based on the $13.5 billion all-cash purchase price for the common shares of

HSBC Canada and the Canadian Overnight Repo Rate Average. Relatedly, under a locked box mechanism, HSBC Canada’s

earnings from June 30, 2022 to the closing date accrued to RBC and were reflected in the acquired net assets on closing.

Our purchase price allocation assigned $108.1 billion to assets and $99.1 billion to liabilities on the acquisition date. Goodwill

of $6.5 billion reflected the expected expense synergies from our Personal Banking, Commercial Banking, Wealth Management

and Capital Markets operations, expected growth of the platforms, and the ability to cross-sell products between segments.

Goodwill is not deductible for tax purposes.

The following table presents the estimated fair value of the assets acquired and liabilities assumed as at the acquisition date.

|  |  |
| --- | --- |
| (Millions of Canadian dollars, except percentage amounts) | |
| Percentage of shares acquired | 100% |
| Purchase consideration | $  15,488 |
| Fair value of identifiable assets acquired |  |
| Cash and due from banks | $  2,772 |
| Securities |  |
| Trading | 1,110 |
| Investment | 21,305 |
| Loans  (1) |  |
| Retail  (2) | 35,351 |
| Wholesale | 39,282 |
| Derivatives | 3,365 |
| Intangible assets  (3) | 2,342 |
| Other  (4) | 2,570 |
| Total fair value of identifiable assets acquired | $ 108,097 |
| Fair value of identifiable liabilities assumed |  |
| Deposits |  |
| Personal | $  42,037 |
| Business and government  (2) | 44,211 |
| Obligations related to assets sold under repurchase agreements and securities loaned | 5,664 |
| Derivatives | 3,541 |
| Other  (5) | 3,692 |
| Total fair value of identifiable liabilities assumed | $  99,145 |
| Fair value of identifiable net assets acquired | $  8,952 |
| Goodwill | 6,536 |
| Total purchase consideration | $  15,488 |

(1)

The fair value of loans reflects estimates of incurred and expected future credit losses as at the acquisition date and interest rate premiums or discounts relative to

prevailing market rates. As at March 28, 2024, the gross contractual value of the loans was $75,752 million. The estimate of contractual cash flows not expected to be

collected was $575 million, of which $135 million related to purchased credit-impaired loans.

(2)

Loans – Retail includes $1.7 billion of Canadian residential mortgages sold with recourse to a mutual fund that do not qualify for derecognition, and Deposits – Business

and government includes $1.7 billion of the related secured borrowing liability.

(3)

Intangible assets include $1,972 million of core deposit intangibles and $111 million of customer relationships, which are amortized on a straight-line basis over estimated

useful lives of 7 years, and $259 million of mutual fund management contracts with indefinite useful lives.

(4)

Includes Assets purchased under reverse repurchase agreements and securities borrowed and Other assets.

(5)

Includes Obligations related to securities sold short and Other liabilities.

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(continued)

Note 6

Significant acquisition

188

Royal Bank of Canada: Annual Report 2025

Consolidated Financial Statements

For the period from March 28, 2024 to October 31, 2024, the HSBC Canada transaction contributed revenue of $1,716 million and

net income of $453 million to RBC’s consolidated results. The net income of $453 million included initial PCL on purchased

performing financial assets of $200 million ($145 million after-tax).

Assuming we acquired HSBC Canada on November 1, 2023, using the same fair value estimates and not reflecting any

potential synergies, we estimated that RBC’s consolidated revenue and net income for the year ended October 31, 2024 would

have been $58.6 billion and $16.6 billion, respectively.

RBC’s consolidated results included transaction and integration costs of $960 million for the year ended October 31, 2024,

recognized in Non-interest expense.

Note 7

Derecognition of financial assets

We enter into transactions in which we transfer financial assets such as loans or securities to structured entities or other third

parties. The majority of assets transferred under repurchase agreements, securities lending agreements, and in our Canadian

residential mortgage securitization transactions do not qualify for derecognition as we continue to be exposed to substantially

all of the risks and rewards of the transferred assets, such as prepayment, credit, price, interest rate and foreign exchange risks.

Transferred financial assets not derecognized

Securitization of Canadian residential mortgage loans

We periodically securitize insured single and multi-family Canadian residential mortgage loans through the creation of MBS

pools under the National Housing Act MBS (NHA MBS) program. All loans securitized under the NHA MBS program are required

to be insured by the Canadian Mortgage and Housing Corporation (CMHC) or a third-party insurer. We require the borrower to

pay for mortgage insurance when the loan amount is greater than 80% of the original appraised value of the property (LTV

ratio). For residential mortgage loans securitized under this program with LTV ratios less than 80%, we are required to insure the

mortgages at our own expense. Under the NHA MBS program, we are responsible for making all payments due on our issued

MBS, regardless of whether we collect the necessary funds from the mortgagor or the insurer. When a borrower defaults on a

mortgage, we submit a claim to the insurer if the amount recovered from the collection or foreclosure process is lower than the

sum of the principal balance, accrued interest and collection costs on the outstanding loan. The insurance claim process is

managed by the insurance provider in accordance with the insurer’s policies and covers the entire unpaid loan balance plus

generally up to 12 months of interest, selling costs and other eligible expenses.

We sell the NHA MBS pools primarily to Canada Housing Trust (CHT), a government-sponsored structured entity under the

Canada Mortgage Bond (CMB) program. The entity periodically issues CMBs, which are guaranteed by the government, and sells

them to third-party investors. Proceeds of the CMB issuances are used by the entity to purchase the NHA MBS pools from eligible

NHA MBS issuers who participate in the issuance of a particular CMB series. Our continuing involvement includes servicing the

underlying residential mortgage loans we have securitized, either ourselves or through a third-party servicer. We also act as

counterparty in interest rate swap agreements where we pay the entity the interest due to CMB investors and receive the

interest on the underlying MBS and reinvested assets. As part of the swaps, we are also required to maintain a principal

reinvestment account for principal payments received on the underlying mortgage loans to meet the repayment obligation upon

maturity of the CMB. We reinvest the collected principal payments in permitted investments as outlined in the swap agreements.

We have determined that certain of the NHA MBS program loans transferred to CHT do not qualify for derecognition as we

have not transferred substantially all of the risks and rewards of ownership. As a result, these transferred MBS continue to be

classified as residential mortgage loans and recognized on our Consolidated Balance Sheets. The cash received for these

transferred MBS is treated as a secured borrowing and a corresponding liability is recorded in Deposits – Business and

government on our Consolidated Balance Sheets.

We have determined that certain of the NHA MBS program loan transfers qualify for derecognition as we have transferred

substantially all of the risks and rewards of ownership. During the year ended October 31, 2025, we transferred $1,332 million

(October 31, 2024 – $122 million) of NHA MBS program loans that qualified for derecognition.

Canadian residential mortgages sold with recourse

The RBC Indigo Mortgage Fund was closed effective April 17, 2025. Prior to its closure, we periodically transferred conventional

uninsured mortgages into this fund in accordance with its investment parameters. We have determined that these mortgages,

which were sold with recourse, did not qualify for derecognition. As a result, these transferred mortgages were classified as

residential mortgage loans and recognized on our Consolidated Balance Sheets. The cash received for these transferred

mortgages was treated as a secured borrowing and a corresponding liability was recorded in Deposits – Business and

government on our Consolidated Balance Sheets. We also provided a liquidity arrangement whereby we would either

repurchase or facilitate the sale of mortgages to third parties if deemed necessary to satisfy liquidity requirements of the fund.

Securities sold under repurchase agreements and securities loaned

We also enter into transactions such as repurchase agreements and securities lending agreements where we transfer assets

under agreements to repurchase them at a future date and retain substantially all of the risks and rewards associated with the

assets. These transferred assets remain on our Consolidated Balance Sheets and are accounted for as collateralized borrowing

transactions.

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Consolidated Financial Statements

Royal Bank of Canada: Annual Report 2025

189

The following table provides information on the carrying amount and fair value of the transferred assets that did not qualify for

derecognition, and their associated liabilities.

|  |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | As at | | | | | | | |
|  | October 31, 2025 | | | | October 31, 2024 | | | |
|  | Canadian | Securities |  |  | Canadian | Securities |  |  |
|  | residential | sold under |  |  | residential | sold under |  |  |
|  | mortgage | repurchase | Securities |  | mortgage | repurchase | Securities |  |
| (Millions of Canadian dollars) | loans  (1), (2) | agreements  (3) | loaned  (3) | Total | loans  (1), (2) | agreements  (3) | loaned  (3) | Total |
| Carrying amount of transferred |  |  |  |  |  |  |  |  |
| assets that do not qualify for |  |  |  |  |  |  |  |  |
| derecognition | $ 28,604 | $ 276,163 | $ 13,353 | $ 318,120 | $ 33,101 | $ 291,543 | $ 13,778 | $ 338,422 |
| Carrying amount of associated |  |  |  |  |  |  |  |  |
| liabilities | 27,900 | 276,163 | 13,353 | 317,416 | 31,522 | 291,543 | 13,778 | 336,843 |
| Fair value of transferred assets | $ 28,137 | $ 276,163 | $ 13,353 | $ 317,653 | $ 31,760 | $ 291,543 | $ 13,778 | $ 337,081 |
| Fair value of associated |  |  |  |  |  |  |  |  |
| liabilities | 28,275 | 276,163 | 13,353 | 317,791 | 31,445 | 291,543 | 13,778 | 336,766 |
| Fair value of net position | $  (138) | $  – | $  – | $  (138) | $  315 | $  – | $  – | $  315 |

(1)

Includes Canadian residential mortgage loans transferred primarily to Canada Housing Trust at the initial securitization and other permitted investments used for

funding requirements after the initial securitization, as well as Canadian residential mortgages transferred into the RBC Indigo Mortgage Fund.

(2)

CMB investors have legal recourse only to the transferred assets, and do not have recourse to our general assets.

(3)

Does not include over-collateralization of assets pledged.

Note 8

Structured entities

In the normal course of business, we engage in a variety of financial transactions with structured entities to support our

financing and investing needs as well as those of our clients. A structured entity is an entity in which voting or similar rights are

not the dominant factor in deciding control. Structured entities are generally created to achieve a narrow and well defined

objective with restrictions around their ongoing activities. We consolidate a structured entity when we control the entity in

accordance with our accounting policy as described in Note 2. In other cases, we may sponsor or have an interest in such an

entity but may not consolidate it.

Consolidated structured entities

We consolidate the following structured entities, whose assets and liabilities are recorded on our Consolidated Balance Sheets.

Third-party investors in these structured entities generally have recourse only to the assets of the related entity and do not have

recourse to our general assets unless we breach our contractual obligations to those entities. In the ordinary course of

business, the assets of each consolidated structured entity can generally only be used to settle the obligations of that entity.

Multi-seller conduits

We generally do not maintain ownership in the multi-seller conduits that we administer and generally do not have rights to, or

control of, their assets. However, we issue asset-backed commercial paper (ABCP) through a multi-seller conduit that does not

have an expected loss investor with substantive power to direct the significant operating activities of the conduit. This conduit is

consolidated because we have exposure to variability of returns from performance in the multi-seller arrangements through

providing transaction-specific and program-wide liquidity, credit and loan facilities to the conduit and have decision-making

power over the relevant activities. As of October 31, 2025, $2,340 million of financial assets held by the conduit were included in

Loans (October 31, 2024 – $1,718 million) and $ 1,613 million of ABCP issued by the conduit was included in Deposits

(October 31, 2024 – $1,600 million) on our Consolidated Balance Sheets.

Credit card securitization vehicle

We securitize a portion of our credit card receivables through a structured entity on a revolving basis. The entity purchases

co-ownership interests in a pool of credit card receivables and issues senior and subordinated term notes collateralized by that

co-ownership interest in the underlying pool of credit card receivables. Investors who purchase the term notes have recourse

only to that co-ownership interest in the underlying pool of credit card receivables.

We continue to service the credit card receivables and perform an administrative role for the entity. We also retain risk in

the underlying pool of credit card receivables through our retained interest in the transferred assets, the cash reserve balance

we fund from time to time, and also through certain senior or subordinated notes which we may retain. Additionally, we may own

some senior or subordinated notes as investments or for market-making activities and we act as counterparty to interest rate

and cross currency swap agreements which hedge the entity’s interest rate and currency risk exposures.

We consolidate the structured entity because we have decision-making power over the timing and size of future issuances

and other relevant activities which were predetermined by us at inception. We also obtain significant funding benefits and are

exposed to variability from the performance of the underlying credit card receivables through our retained interest. As at

October 31, 2025, $5 billion of notes issued by our credit card securitization vehicle were included in Deposits on our

Consolidated Balance Sheets (October 31, 2024 – $6 billion).

Collateralized commercial paper vehicle

We established a funding vehicle that provides loans to us and finances those loans by issuing commercial paper to third-party

investors. The structured entity’s commercial paper carries an equivalent credit rating to RBC because we are obligated to

advance funds to the entity in the event there are insufficient funds from other sources to settle maturing commercial paper. We

pledge collateral to secure the loans and are exposed to the market and credit risks of the pledged securities.

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(continued)

Note 8

Structured entities

190

Royal Bank of Canada: Annual Report 2025

Consolidated Financial Statements

We consolidate the structured entity because we have decision-making power over the relevant activities, are the sole

borrower from the structure, and are exposed to a majority of the residual ownership risks through the credit support provided.

As at October 31, 2025, $20 billion of commercial paper issued by the vehicle was included in Deposits on our Consolidated

Balance Sheets (October 31, 2024 – $18 billion).

Covered bonds

We periodically transfer mortgages to RBC Covered Bond Guarantor Limited Partnership (the Guarantor LP) to support funding

activities and asset coverage requirements under our covered bonds program. The Guarantor LP was created to guarantee

interest and principal payments under the covered bond program. The covered bonds guaranteed by the Guarantor LP are

direct, unsecured and unconditional obligations of RBC; therefore, investors have a claim against the Bank which will continue if

the covered bonds are not paid by the Bank and the mortgage assets in the Guarantor LP are insufficient to satisfy the

obligations owing on the covered bonds. We act as general partner, limited partner, swap counterparty, lender and liquidity

provider to the Guarantor LP, servicer for the underlying mortgages as well as the registered issuer of the covered bonds.

We consolidate the Guarantor LP as we have the decision-making power over the relevant activities through our role as

general partner and are exposed to variability from the performance of the underlying mortgages. As at October 31, 2025, the

total amount of mortgages transferred and outstanding was $86 billion (October 31, 2024 – $107 billion) and $53 billion of

covered bonds were recorded as Deposits on our Consolidated Balance Sheets (October 31, 2024 – $58 billion).

Structured finance

We sell taxable and tax-exempt municipal bonds into Tender Option Bond (TOB) trusts, which consist of a bond that is credit

enhanced by us and purchased by a TOB trust. The TOB trust finances the purchase from us by issuing interest-bearing

certificates to short-term investors and a residual certificate that is purchased by us. We are the remarketing agent for the

interest-bearing certificates and provide a liquidity facility to the short-term investors which requires us to purchase any

certificates tendered but not successfully remarketed. We credit enhance the bond purchased by the TOB trust with a letter of

credit under which we are required to extend funding if there are any losses on the underlying bonds. We earn interest on the

residual certificate and receive market-based fees for acting as remarketing agent and providing the liquidity facility and letter

of credit.

We consolidate the TOB trust when we are the holder of the residual certificate as we have decision-making power over the

relevant activities, including the selection of the underlying municipal bonds and the ability to terminate the trust, and are

exposed to variability from the performance of the underlying municipal bonds. As at October 31, 2025, $5 billion of municipal

bonds were included in Securities related to consolidated TOB trusts (October 31, 2024 – $5 billion) and a corresponding

$5 billion of interest-bearing certificates were included in Deposits on our Consolidated Balance Sheets (October 31, 2024 –

$5 billion).

We establish structured entities to acquire loans for the purposes of issuing term collateralized loan obligation (CLO)

transactions and act as collateral manager. During the warehouse phase, we provide subordinated financing and, for certain

term CLO transactions, act as the arranger and placement agent, and may provide senior warehouse financing. Proceeds from

the sale of the term CLO are used to repay our warehouse financing. During the term CLO phase, we continue to provide

subordinated financing, which serves as the first loss tranche that absorbs losses prior to the senior tranches, and may also

directly invest in the other tranches.

We consolidate these CLO structures as we have decision-making power over the relevant activities of the entity, which

include the initial selection and subsequent management of the underlying debt portfolio, and when our interests, including

direct investment plus collateral management fees, indicate that we are acting as a principal. As at October 31, 2025, $317 million

of Cash and due from banks and $1,770 million of Loans related to consolidated CLO structures (October 31, 2024 – $194 million

and $2,030 million, respectively) and $1,900 million of Deposits representing the subordinated and senior tranches held by third

parties (October 31, 2024 – $1,143 million) were recorded on our Consolidated Balance Sheets.

RBC managed investment funds

We are sponsors and investment managers of mutual and pooled funds, which give us the ability to direct the investment

decisions of the funds. We consolidate those mutual and pooled funds in which our interests, which include direct investment in

seed capital plus management or performance fees, indicate that we are acting as a principal. As at October 31, 2025,

$1,004 million of assets in the consolidated funds, primarily relating to Trading securities (October 31, 2024 – $799 million) and

$362 million of Other liabilities representing the fund units held by third parties (October 31, 2024 – $377 million) were recorded

on our Consolidated Balance Sheets.

Unconsolidated structured entities

We have interests in certain structured entities that we do not consolidate but have recorded assets and liabilities on our

Consolidated Balance Sheets related to our transactions and involvement with these entities.

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Consolidated Financial Statements

Royal Bank of Canada: Annual Report 2025

191

The following table presents the assets and liabilities recorded on our Consolidated Balance Sheets and our maximum

exposure to loss related to our interests in unconsolidated structured entities. It also presents the size of each category of

unconsolidated structured entity, as measured by the total assets of the entities in which we have an interest. The total assets

as presented for each category do not necessarily represent the assets we have either rights or recourse to.

|  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- |
|  | As at October 31, 2025 | | | | | |
|  |  |  | Non-RBC |  |  |  |
|  |  |  | managed | Third-party |  |  |
|  | Multi-seller | Structured | investment | securitization |  |  |
| (Millions of Canadian dollars) | conduits  (1) | finance | funds | vehicles | Other | Total |
| On-balance sheet assets |  |  |  |  |  |  |
| Securities | $  3 | $  – | $  2,753 | $  – | $  1,187 | $  3,943 |
| Loans | 209 | 12,386 | – | 16,673 | 2,161 | 31,429 |
| Derivatives | 23 | – | – | – | 217 | 240 |
| Other assets | – | – | – | – | 747 | 747 |
|  | $  235 | $ 12,386 | $  2,753 | $  16,673 | $  4,312 | $  36,359 |
| On-balance sheet liabilities |  |  |  |  |  |  |
| Deposits | $  – | $  – | $  – | $  – | $  5 | $  5 |
| Derivatives | 281 | – | 3 | – | 22 | 306 |
| Other liabilities | – | – | – | – | – | – |
|  | $  281 | $  – | $  3 | $  – | $  27 | $  311 |
| Maximum exposure to loss  (2) | $  64,591 | $ 19,672 | $  3,710 | $  26,094 | $  7,796 | $  121,863 |
| Total assets of unconsolidated structured entities | $  63,306 | $ 54,840 | $ 515,340 | $ 161,430 | $ 961,750 | $  1,756,666 |

|  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- |
|  | As at October 31, 2024 | | | | | |
|  |  |  | Non-RBC |  |  |  |
|  |  |  | managed | Third-party |  |  |
|  | Multi-seller | Structured | investment | securitization |  |  |
| (Millions of Canadian dollars) | conduits  (1) | finance | funds | vehicles | Other | Total |
| On-balance sheet assets |  |  |  |  |  |  |
| Securities | $  1 | $  – | $  2,541 | $  – | $  1,384 | $  3,926 |
| Loans | 236 | 6,688 | – | 12,788 | 1,805 | 21,517 |
| Derivatives | 32 | – | – | – | 98 | 130 |
| Other assets | – | – | – | – | 455 | 455 |
|  | $  269 | $  6,688 | $  2,541 | $  12,788 | $  3,742 | $  26,028 |
| On-balance sheet liabilities |  |  |  |  |  |  |
| Deposits | $  – | $  – | $  – | $  – | $  167 | $  167 |
| Derivatives | 115 | – | 3 | – | 4 | 122 |
| Other liabilities | – | – | – | – | 7 | 7 |
|  | $  115 | $  – | $  3 | $  – | $  178 | $  296 |
| Maximum exposure to loss  (2) | $  56,779 | $  12,963 | $  3,487 | $  21,195 | $  6,248 | $  100,672 |
| Total assets of unconsolidated structured entities | $  55,639 | $  45,315 | $  459,976 | $  119,766 | $  798,228 | $  1,478,924 |

(1)

Total assets of unconsolidated structured entities represent the maximum assets that may have to be purchased by the conduits under purchase commitments

outstanding. Of the purchase commitments outstanding, the conduits have purchased financial assets totalling $43 billion as at October 31, 2025 (October 31, 2024 –

$37 billion).

(2)

The maximum exposure to loss resulting from our interests in these entities consists mostly of investments, loans, fair value of derivatives, liquidity and credit

enhancement facilities. The maximum exposure to loss of the multi-seller conduits is higher than the on-balance sheet assets primarily because of the notional amounts

of the backstop liquidity and credit enhancement facilities. Refer to Note 23 for further details.

Below is a description of our involvement with each significant category of unconsolidated structured entity.

Multi-seller conduits

We administer multi-seller ABCP conduit programs. Multi-seller conduits primarily purchase financial assets from clients and

finance those purchases by issuing ABCP.

In certain multi-seller conduit arrangements, we do not maintain any ownership of the multi-seller conduits that we

administer and have no rights to, or control of, its assets. As the administrative agent, we earn a residual fee for providing

services such as coordinating funding activities, transaction structuring, documentation, execution and monitoring. The ABCP

issued by each multi-seller conduit is in the conduit’s own name with recourse to the financial assets owned by the multi-seller

conduit, and is non-recourse to us except through our participation in liquidity and/or credit enhancement facilities.

We provide transaction-specific and program-wide liquidity facilities to the multi-seller conduits. In addition, we provide

program-wide credit enhancement to the multi-seller conduits which obligate us to purchase assets or advance funds in the

event the multi-seller conduit does not otherwise have funds from other sources, such as from the liquidity facilities, to settle

maturing ABCP. In some cases, we or another third-party may provide transaction-specific credit enhancement which can take

various forms. We receive market-based fees for providing these liquidity and credit facilities.

For certain transactions, we act as counterparty to various hedging contracts to facilitate our clients’ securitization of fixed

rate and/or foreign currency denominated assets through the conduits. These may take the form of forward contracts, interest

rate swaps or cross currency swaps. These derivatives expose us to foreign exchange and interest rate risks that are centrally

managed by our foreign exchange trading and swap desks, respectively, and credit risk on the underlying assets that is

mitigated by the credit enhancement described below.

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(continued)

Note 8

Structured entities

192

Royal Bank of Canada: Annual Report 2025

Consolidated Financial Statements

Each transaction is structured with transaction-specific first loss protection provided by the third-party seller. This

enhancement can take various forms, including but not limited to overcollateralization, excess spread, subordinated classes of

financial assets, guarantees or letters of credit. The amount of this enhancement varies but is generally designed to cover a

multiple of historical losses.

An unrelated third-party (expected loss investor) absorbs losses, up to a maximum contractual amount, that may occur in

the future on the assets in the multi-seller conduits before the multi-seller conduits’ debt holders and us. In return for assuming

this multi-seller conduit first-loss position, each multi-seller conduit pays the expected loss investor a return commensurate

with its risk position. The expected loss investor has substantive power to direct the majority of the activities which significantly

impact the conduit’s economic performance, including initial selection and approval of the asset purchase commitments and

liquidity facilities, approval of renewal and amendment of these transactions and facilities, sale or transfer of assets, ongoing

monitoring of asset performance, mitigation of losses, and management of the ABCP liabilities.

We do not consolidate these multi-seller conduits as we do not control the conduits as noted above.

Structured finance

We participate in certain municipal bond TOB structures that we do not consolidate. These structures are similar to those

consolidated municipal bond TOB structures described above; however, the residual certificates are held by third parties. We

provide liquidity facilities for the benefit of floating-rate certificate holders which may be drawn if certificates are tendered but

not able to be remarketed. For a portion of these trusts, we also provide a letter of credit for the underlying bonds held in the

trust. We do not have decision-making power over the relevant activities of the structures; therefore, we do not consolidate

these structures.

We provide senior warehouse financing to unaffiliated structured entities that are established by third parties to acquire

loans for the purposes of issuing a term CLO transaction. Subordinated financing is provided during the warehouse phase by

either the collateral manager or third-party investors. Subordinated financing serves as the first loss tranche which absorbs

losses prior to ourselves as the senior lender. We act as the arranger and placement agent for the term CLO transaction.

Proceeds from the sale of the term CLO are used to repay our senior warehouse financing, at which point we have no further

involvement with the transaction. We do not consolidate these CLO structures as we do not have decision-making power over

the relevant activities of the entity, which include the initial selection and subsequent management of the underlying debt

portfolio.

We provide senior financing to unaffiliated structured entities that are established by third parties to acquire loans.

Subordinated financing is provided by either the collateral manager or third-party investors. Subordinated financing serves as

the first loss tranche which absorbs losses prior to ourselves as the senior lender. These facilities tend to be longer in term than

the CLO warehouse facilities and benefit from credit enhancement generally designed to cover a multiple of historical losses.

We may also invest in the senior-most tranches issued by third-party structured entities. We do not consolidate these structures

as we do not have decision-making power over the relevant activities of the entity, which include the initial selection and

subsequent management of the underlying debt portfolio.

Non-RBC managed investment funds

We enter into fee-based equity derivative transactions with third parties including mutual funds, unit investment trusts and

other investment funds. These transactions provide their investors with the desired exposure to reference funds, and we

economically hedge our exposure to these derivatives by investing in those reference funds. We also act as custodian for

several funds. We do not consolidate those reference funds that are managed by third parties as we do not have power to direct

their investing activities.

We provide liquidity facilities to certain third-party investment funds. The funds issue unsecured variable-rate preferred

shares and invest in portfolios of tax-exempt municipal bonds. Undrawn liquidity commitments expose us to the liquidity risk of

the preferred shares and drawn commitments expose us to the credit risk of the underlying municipal bonds. We do not

consolidate these third-party managed funds as we do not have power to direct their investing activities.

Third-party securitization vehicles

We hold interests in securitization vehicles that provide funding to certain third parties on whose behalf the entities were

created. The activities of these entities are limited to the purchase and sale of specified financial assets from the sponsor. We,

as well as other financial institutions, are obligated to provide funding up to our maximum commitment level and are exposed to

credit losses on the underlying assets after various credit enhancements. Enhancements can take various forms, including but

not limited to overcollateralization, excess spread, subordinated classes of financial assets, guarantees or letters of credit. The

amount of this enhancement varies but is generally designed to cover a multiple of historical losses. We do not consolidate

these entities as we do not have decision-making power over the relevant activities, including the entities’ investing and

financing activities.

Other

Other unconsolidated structured entities include managed investment funds, alternative asset entities, arrangements to pass

credit risk to third parties, credit investment products and tax credit funds.

We are sponsors and investment managers of mutual funds, pooled funds and alternative asset entities, which gives us the

ability to direct the investment decisions of these entities. We do not consolidate these entities if we only exercise our

decision-making power as an agent on behalf of other unit holders.

We use structured entities to generally transform credit derivatives into cash instruments, to distribute credit risk and to

create customized credit products to meet investors’ specific requirements. We enter into derivative contracts, including credit

derivatives, to purchase protection from these entities (credit protection) and convert various risk factors such as yield,

currency or credit risk of underlying assets to meet the needs of the investors. We act as sole arranger and swap provider for

certain entities and, in some cases, fulfill other administrative functions for the entities. We do not consolidate these credit

investment product entities as we do not have decision-making power over the relevant activities, which include selection of the

collateral and reference portfolio, and are not exposed to a majority of the benefits or risks of the entities.

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Consolidated Financial Statements

Royal Bank of Canada: Annual Report 2025

193

We created certain funds to pass through tax credits received from underlying low-income housing, historic rehabilitation

real estate projects to third parties, new market tax credits or renewable energy tax credits to third parties (tax credit funds). We

are sponsors of the tax credit funds as a result of our responsibility to manage the funds, arrange the financing, and perform the

administrative duties of these tax credit funds. We do not consolidate the tax credit funds as the third-party investors in these

funds have the decision-making power to select the underlying investments and are exposed to the majority of the residual

ownership and tax risks of the funds.

We also purchase passive interests in renewable energy tax credit entities created and controlled by third parties. We do

not consolidate these third-party funds as we do not have decision-making power over the relevant activities and our

investments are managed as part of larger portfolios which are held for trading purposes.

Other interests in unconsolidated structured entities

In the normal course of business, we buy and sell passive interests in certain third-party structured entities, including mutual

funds, exchange traded funds, and government-sponsored ABS vehicles. Our investments in these entities are managed as part

of larger portfolios which are held for trading, liquidity or hedging purposes. We did not create or sponsor these entities and do

not have any decision-making power over their ongoing activities. Our maximum exposure to loss is limited to our on-balance

sheet investments in these entities, which are not included in the table above. As at October 31, 2025 and 2024, our investments

in these entities were included in Trading and Investment securities on our Consolidated Balance Sheets. Refer to Note 3 and

Note 4 for further details on our Trading and Investment securities.

Sponsored entities

We are a sponsor of certain structured entities in which we have interests but do not consolidate. In determining whether we are

a sponsor of a structured entity, we consider both qualitative and quantitative factors, including the purpose and nature of the

entity, our initial and continuing involvement and whether we hold subordinated interests in the entity. We are considered to be

the sponsor of certain credit investment products, tax credit entities, RBC managed mutual funds and a commercial mortgage

securitization vehicle. During the year ended October 31, 2025, we transferred commercial mortgages with a carrying amount of

$685 million (October 31, 2024 – $nil) to a sponsored securitization vehicle in which we did not have any interests as at the end of

the reporting period.

Note 9

Derivative financial instruments and hedging activities

Derivative instruments are categorized as either financial or non-financial derivatives. Financial derivatives are financial

contracts whose value is derived from an underlying interest rate, foreign exchange rate, credit risk, and equity or equity index.

Non-financial derivatives are contracts whose value is derived from a precious metal, commodity instrument or index. The

notional amount of derivatives represents the contract amount used as a reference point to calculate payments.

Financial derivatives

Forwards and futures

Forward contracts are non-standardized agreements that are transacted between counterparties in the OTC market, whereas

futures are standardized contracts with respect to amounts and settlement dates, and are traded on regular futures exchanges.

Examples of forwards and futures are described below.

Interest rate forwards (forward rate agreements) and futures are contractual obligations to buy or sell an interest-rate

sensitive financial instrument on a predetermined future date at a specified price.

Foreign exchange forwards and futures are contractual obligations to exchange one currency for another at a specified

price for settlement at a predetermined future date.

Equity forwards and futures are contractual obligations to buy or sell at a fixed value (the specified price) of an equity

index, a basket of stocks or a single stock at a predetermined future date.

Swaps

Swaps are OTC contracts in which two counterparties exchange a series of cash flows based on agreed upon rates applied to a

notional amount. Examples of swap agreements are described below.

Interest rate swaps are agreements where two counterparties exchange a series of payments based on different interest

rates applied to a notional amount in a single currency. Certain interest rate swaps are transacted and settled through clearing

houses which act as central counterparties. Cross currency swaps involve the exchange of fixed payments in one currency for

the receipt of fixed payments in another currency. Cross currency interest rate swaps involve the exchange of both interest and

notional amounts in two different currencies.

Equity swaps are contracts in which one counterparty agrees to pay or receive from the other cash flows based on changes

in the value of an equity index, a basket of stocks or a single stock.

Options

Options are contractual agreements under which the seller (writer) grants the purchaser the right, but not the obligation, either

to buy (call option) or sell (put option) a security, exchange rate, interest rate, or other financial instrument or commodity at a

specified price, at or by a predetermined future date. The seller (writer) of an option can also settle the contract by paying the

cash settlement value of the purchaser’s right. The seller (writer) receives a premium from the purchaser for this right. The

various option agreements that we enter into include but are not limited to interest rate options, foreign currency options,

equity options and index options.

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(continued)

Note 9

Derivative financial instruments and hedging activities

194

Royal Bank of Canada: Annual Report 2025

Consolidated Financial Statements

Credit derivatives

Credit derivatives are OTC contracts that transfer credit risk related to an underlying financial instrument (referenced asset)

from one counterparty to another. Certain credit default swaps are transacted and settled through clearing houses which act as

central counterparties. Credit derivatives include credit default swaps, credit default baskets and total return swaps with debt

securities as the underlying asset(s).

Credit default swaps provide protection against the decline in the value of the referenced asset as a result of specified

credit events such as default or bankruptcy. They are similar in structure to an option, whereby the purchaser pays a premium to

the seller of the credit default swap in return for payment contingent on a credit event affecting the referenced asset.

Credit default baskets are similar to credit default swaps except that the underlying referenced financial instrument is a

group of assets instead of a single asset.

Total return swaps are contracts where one counterparty agrees to pay or receive from the other cash amounts based on

changes in the value of a referenced asset or group of assets, including any returns such as interest earned on these assets, in

exchange for amounts that are based on prevailing market funding rates.

Other derivative products

Other derivative products include stable value derivatives.

Non-financial derivatives

Other contracts also include non-financial derivative products such as precious metal and commodity derivative contracts in

both the OTC and exchange markets.

Derivatives issued for trading purposes

Most of our derivative transactions relate to client-driven sales and trading activities, and associated market risk hedging. Sales

activities include the structuring and marketing of derivative products to clients, enabling them to modify or reduce risks.

Trading involves market-making, positioning and arbitrage activities. Market-making involves quoting bid and offer prices to

other market participants with the intention of generating revenue based on spread and volume. Positioning involves the active

management of derivative transactions with the expectation of profiting from favourable movements in prices, rates, or indices.

Arbitrage activities involve identifying and profiting from price differentials between markets and product types.

Derivatives issued for other-than-trading purposes

We also use derivatives for purposes other than trading, primarily for hedging, in conjunction with the management of interest

rate, credit, equity and foreign exchange risk related to our funding, lending, investment activities and asset/liability

management.

Interest rate swaps are used to manage our exposure to interest rate risk by modifying the repricing or maturity

characteristics of existing and/or forecasted assets and liabilities, including funding and investment activities. Purchased

options are used to hedge redeemable deposits and other options embedded in consumer products. We manage our exposure to

foreign currency risk with cross currency swaps and foreign exchange forward contracts. We predominantly use credit

derivatives to manage our credit exposures. We mitigate industry sector concentrations and single-name exposures related to

our credit portfolio by purchasing credit derivatives to transfer credit risk to third parties.

Certain derivatives and cash instruments are specifically designated and qualify for hedge accounting. We also enter into

derivative transactions to economically hedge certain exposures that do not otherwise qualify for hedge accounting, or where

hedge accounting is not considered economically feasible to implement.

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Consolidated Financial Statements

Royal Bank of Canada: Annual Report 2025

195

Notional amount of derivatives by term to maturity (absolute amounts)

(1)

|  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- |
|  | As at October 31, 2025 | | | | | |
|  | Term to maturity | | | |  |  |
|  | Within | 1 through | Over |  |  | Other than |
| (Millions of Canadian dollars) | 1 year | 5 years | 5 years | Total | Trading | Trading |
| Over-the-counter contracts |  |  |  |  |  |  |
| Interest rate contracts |  |  |  |  |  |  |
| Forward rate agreements | $  1,920,284 | $  1,292,557 | $  11,515 | $  3,224,356 | $  3,224,356 | $  – |
| Swaps | 7,198,664 | 9,391,086 | 6,401,414 | 22,991,164 | 21,509,530 | 1,481,634 |
| Options purchased | 553,914 | 431,667 | 189,250 | 1,174,831 | 1,174,715 | 116 |
| Options written | 493,070 | 445,756 | 207,892 | 1,146,718 | 1,146,491 | 227 |
| Foreign exchange contracts |  |  |  |  |  |  |
| Forward contracts | 3,184,117 | 151,308 | 9,319 | 3,344,744 | 3,192,939 | 151,805 |
| Cross currency swaps | 22,869 | 121,493 | 101,765 | 246,127 | 238,380 | 7,747 |
| Cross currency interest rate swaps | 1,575,261 | 2,557,260 | 1,395,392 | 5,527,913 | 5,452,212 | 75,701 |
| Options purchased | 656,329 | 118,521 | 1,734 | 776,584 | 776,175 | 409 |
| Options written | 667,756 | 107,799 | 1,163 | 776,718 | 776,716 | 2 |
| Credit derivatives  (2) | 11,069 | 267,007 | 145,178 | 423,254 | 422,213 | 1,041 |
| Other contracts  (3) | 572,876 | 213,935 | 26,947 | 813,758 | 796,157 | 17,601 |
| Exchange-traded contracts |  |  |  |  |  |  |
| Interest rate contracts |  |  |  |  |  |  |
| Futures – long positions | 263,750 | 155,590 | 2,614 | 421,954 | 421,954 | – |
| Futures – short positions | 660,032 | 159,865 | 2,739 | 822,636 | 822,333 | 303 |
| Options purchased | 47,629 | 5,684 | – | 53,313 | 53,313 | – |
| Options written | 65,477 | 10,429 | – | 75,906 | 75,906 | – |
| Foreign exchange contracts |  |  |  |  |  |  |
| Futures – long positions | 15 | – | – | 15 | 15 | – |
| Other contracts | 714,199 | 190,536 | 28,799 | 933,534 | 933,534 | – |
|  | $ 18,607,311 | $ 15,620,493 | $ 8,525,721 | $ 42,753,525 | $ 41,016,939 | $ 1,736,586 |

|  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- |
|  | As at October 31, 2024 | | | | | |
|  | Term to maturity | | | |  |  |
|  | Within | 1 through | Over |  |  | Other than |
| (Millions of Canadian dollars) | 1 year | 5 years | 5 years | Total | Trading | Trading |
| Over-the-counter contracts |  |  |  |  |  |  |
| Interest rate contracts |  |  |  |  |  |  |
| Forward rate agreements | $  1,097,367 | $  672,436 | $  7,017 | $  1,776,820 | $  1,776,820 | $  – |
| Swaps | 6,181,369 | 8,714,891 | 5,597,447 | 20,493,707 | 19,291,405 | 1,202,302 |
| Options purchased | 206,649 | 407,730 | 155,843 | 770,222 | 770,181 | 41 |
| Options written | 217,379 | 384,448 | 179,408 | 781,235 | 781,113 | 122 |
| Foreign exchange contracts |  |  |  |  |  |  |
| Forward contracts | 2,939,019 | 136,442 | 7,465 | 3,082,926 | 2,966,914 | 116,012 |
| Cross currency swaps | 23,204 | 108,912 | 75,843 | 207,959 | 199,481 | 8,478 |
| Cross currency interest rate swaps | 1,298,173 | 2,544,878 | 1,380,858 | 5,223,909 | 5,168,677 | 55,232 |
| Options purchased | 475,980 | 75,804 | 2,015 | 553,799 | 553,799 | – |
| Options written | 488,878 | 66,828 | 983 | 556,689 | 556,689 | – |
| Credit derivatives  (2) | 4,055 | 135,505 | 118,732 | 258,292 | 257,333 | 959 |
| Other contracts  (3) | 389,424 | 149,475 | 10,122 | 549,021 | 538,604 | 10,417 |
| Exchange-traded contracts |  |  |  |  |  |  |
| Interest rate contracts |  |  |  |  |  |  |
| Futures – long positions | 93,985 | 45,015 | 56 | 139,056 | 139,056 | – |
| Futures – short positions | 114,425 | 64,759 | 301 | 179,485 | 179,244 | 241 |
| Options purchased | 7,075 | 991 | – | 8,066 | 8,066 | – |
| Options written | 2,262 | 14 | – | 2,276 | 2,276 | – |
| Foreign exchange contracts |  |  |  |  |  |  |
| Futures – long positions | 1 | – | – | 1 | 1 | – |
| Other contracts | 367,023 | 68,132 | 2,574 | 437,729 | 437,729 | – |
|  | $  13,906,268 | $  13,576,260 | $  7,538,664 | $  35,021,192 | $  33,627,388 | $  1,393,804 |

(1)

The derivative notional amounts are determined using the standardized approach for measuring counterparty credit risk (SA-CCR) in accordance with the Capital

Adequacy Requirements (CAR).

(2)

Credit derivatives with a notional value of $1 billion (October 31, 2024 – $1 billion) are economic hedges. Trading credit derivatives comprise protection purchased of

$218 billion (October 31, 2024 – $135 billion) and protection sold of $204 billion (October 31, 2024 – $122 billion).

(3)

Other contracts exclude loan underwriting commitments of $8 billion (October 31, 2024 – $3 billion), which are not classified as derivatives under CAR guidelines.

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(continued)

Note 9

Derivative financial instruments and hedging activities

196

Royal Bank of Canada: Annual Report 2025

Consolidated Financial Statements

Fair value of derivative instruments

(1)

|  |  |  |  |  |
| --- | --- | --- | --- | --- |
|  | As at | | | |
|  | October 31, 2025 | | October 31, 2024 | |
| (Millions of Canadian dollars) | Positive | Negative | Positive | Negative |
| Held or issued for trading purposes |  |  |  |  |
| Interest rate contracts |  |  |  |  |
| Forward rate agreements | $  112 | $  153 | $  147 | $  68 |
| Swaps | 20,887 | 15,644 | 21,155 | 16,482 |
| Options purchased | 4,872 | – | 5,556 | – |
| Options written | – | 5,330 | – | 6,049 |
|  | 25,871 | 21,127 | 26,858 | 22,599 |
| Foreign exchange contracts |  |  |  |  |
| Forward contracts | 27,599 | 22,562 | 26,339 | 23,758 |
| Cross currency swaps | 9,202 | 5,545 | 7,316 | 4,912 |
| Cross currency interest rate swaps | 55,475 | 61,017 | 60,105 | 59,733 |
| Options purchased | 3,382 | – | 2,407 | – |
| Options written | – | 2,577 | – | 1,800 |
|  | 95,658 | 91,701 | 96,167 | 90,203 |
| Credit derivatives | 349 | 258 | 270 | 216 |
| Other contracts | 52,988 | 69,249 | 26,325 | 46,420 |
|  | 174,866 | 182,335 | 149,620 | 159,438 |
| Held or issued for other-than-trading purposes |  |  |  |  |
| Interest rate contracts |  |  |  |  |
| Swaps | 293 | 453 | 1,215 | 3,100 |
|  | 293 | 453 | 1,215 | 3,100 |
| Foreign exchange contracts |  |  |  |  |
| Forward contracts | 2,311 | 1,929 | 1,235 | 682 |
| Cross currency swaps | 482 | 73 | 207 | 46 |
| Cross currency interest rate swaps | 2,255 | 1,388 | 874 | 2,287 |
|  | 5,048 | 3,390 | 2,316 | 3,015 |
| Credit derivatives | 3 | 4 | 3 | 2 |
| Other contracts | 143 | 61 | 79 | 77 |
|  | 5,487 | 3,908 | 3,613 | 6,194 |
| Total gross fair values before: | 180,353 | 186,243 | 153,233 | 165,632 |
| Valuation adjustments determined on a pooled basis | (1,080) | (223) | (1,053) | (301) |
| Impact of netting agreements that qualify for balance sheet offset | (2,067) | (2,067) | (1,568) | (1,568) |
|  | $ 177,206 | $ 183,953 | $ 150,612 | $ 163,763 |

(1)

The fair value reflects the impact of characterizing the daily variation margin as settlement of the related derivative fair values as permitted by certain central

counterparties.

Fair value of derivative instruments by term to maturity

(1)

|  |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | As at | | | | | | | |
|  | October 31, 2025 | | | | October 31, 2024 | | | |
|  | Less than | 1 through | Over |  | Less than | 1 through | Over |  |
| (Millions of Canadian dollars) | 1 year | 5 years | 5 years | Total | 1 year | 5 years | 5 years | Total |
| Derivative assets | $ 73,626 | 56,086 | 47,494 | $ 177,206 | $ 54,660 | 48,765 | 47,187 | $ 150,612 |
| Derivative liabilities | 79,691 | 57,630 | 46,632 | 183,953 | 67,886 | 51,170 | 44,707 | 163,763 |

(1)

The fair value reflects the impact of characterizing the daily variation margin as settlement of the related derivative fair values as permitted by certain central

counterparties.

Derivative-related credit risk

Credit risk from derivative transactions is generated by the potential for the counterparty to default on its contractual

obligations when one or more transactions have a positive market value to us. Therefore, derivative-related credit risk is

represented by the positive fair value of the financial instrument and is normally a small fraction of the contract’s notional

amount.

We subject our derivative transactions to the same credit approval, limit and monitoring standards that we use for

managing other transactions that create credit exposure. This includes evaluating the creditworthiness of counterparties, and

managing the size, diversification and maturity structure of the portfolio. Credit utilization for all products is compared with

established limits on a continual basis and is subject to a standard exception reporting process. We use a single internal rating

system for all credit risk exposure, as outlined in the internal ratings maps in the Credit risk section of Management’s Discussion

and Analysis.

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Consolidated Financial Statements

Royal Bank of Canada: Annual Report 2025

197

Offsetting is a technique that can reduce credit exposure from derivatives and is generally facilitated through the use of

master netting agreements and achieved when specific criteria are met in accordance with our accounting policy in Note 2. A

master netting agreement provides for a single net settlement of all financial instruments covered by the agreement in the event

of default. However, credit risk is reduced only to the extent that our financial obligations to the same counterparty can be set

off against obligations of the counterparty to us. We maximize the use of master netting agreements to reduce derivative-

related credit exposure. Our overall exposure to credit risk that is reduced through master netting agreements may change

substantially following the reporting date as the exposure is affected by each transaction subject to the agreement as well as by

changes in underlying market factors. Measurement of our credit exposure arising out of derivative transactions is reduced to

reflect the effects of netting in cases where the enforceability of that netting is supported by appropriate legal analysis as

documented in our trading credit risk policies.

The use of collateral is another significant credit mitigation technique for managing derivative-related counterparty credit

risk. Mark-to-market provisions in our agreements with some counterparties, typically in the form of a Credit Support Annex,

provide us with the right to request that the counterparty collateralize the current market value of its derivatives positions when

the value exceeds a specified threshold amount.

Replacement cost and credit equivalent amounts are determined using SA-CCR in accordance with the OSFI CAR guidelines.

The replacement cost represents the total fair value of all outstanding contracts in a gain position after factoring in the master

netting agreements and applicable margins. The credit equivalent amount is defined as the replacement cost plus an additional

amount for potential future credit exposure, scaled by a regulatory factor. The risk-weighted equivalent is determined by

applying appropriate risk weights to the credit equivalent amount, including those risk weights reflective of model approval

under the internal ratings-based approach.

Derivative-related credit risk

(1)

|  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- |
|  | As at | | | | | |
|  | October 31, 2025 | | | October 31, 2024 | | |
|  |  | Credit |  |  | Credit |  |
|  | Replacement | equivalent | Risk-weighted | Replacement | equivalent | Risk-weighted |
| (Millions of Canadian dollars) | cost | amount | equivalent  (2) | cost | amount | equivalent  (2) |
| Over-the-counter contracts |  |  |  |  |  |  |
| Interest rate contracts |  |  |  |  |  |  |
| Forward rate agreements | $  43 | $  700 | $  136 | $  8 | $  231 | $  43 |
| Swaps | 7,674 | 20,723 | 3,045 | 6,926 | 17,760 | 2,747 |
| Options purchased | 90 | 752 | 147 | 317 | 859 | 135 |
| Options written | 62 | 474 | 137 | 49 | 398 | 104 |
| Foreign exchange contracts |  |  |  |  |  |  |
| Forward contracts | 7,412 | 35,560 | 6,425 | 8,077 | 33,908 | 6,693 |
| Swaps | 3,432 | 21,172 | 2,730 | 3,915 | 21,709 | 2,703 |
| Options purchased | 871 | 2,614 | 665 | 877 | 2,315 | 587 |
| Options written | 136 | 611 | 128 | 117 | 476 | 98 |
| Credit derivatives | 838 | 2,614 | 132 | 608 | 2,336 | 191 |
| Other contracts | 1,446 | 24,385 | 4,915 | 1,773 | 20,981 | 4,756 |
| Exchange-traded contracts | 12,034 | 24,367 | 508 | 10,084 | 19,023 | 380 |
|  | $ 34,038 | $ 133,972 | $ 18,968 | $ 32,751 | $ 119,996 | $ 18,437 |

(1)

The amounts presented are net of master netting agreements in accordance with CAR guidelines.

(2)

The risk-weighted balances are calculated in accordance with CAR guidelines and exclude CVA of $20 billion (October 31, 2024 – $18 billion).

Replacement cost of derivative instruments by risk rating and by counterparty type

|  |  |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | As at October 31, 2025 | | | | | | | | |
|  | Risk rating  (1) | | | |  | Counterparty type  (2) | | |  |
|  |  |  |  |  |  |  | OECD |  |  |
| (Millions of Canadian dollars) | AAA, AA | A | BBB | BB or lower | Total | Banks | governments | Other | Total |
| Gross positive fair values | $ 28,649 | $ 85,952 | $ 28,251 | $ 37,501 | $ 180,353 | $ 75,797 | $ 44,072 | $ 60,484 | $ 180,353 |
| Impact of master netting agreements and |  |  |  |  |  |  |  |  |  |
| applicable margins | 15,681 | 76,267 | 21,738 | 32,629 | 146,315 | 74,434 | 43,386 | 28,495 | 146,315 |
| Replacement cost (after netting agreements) | $ 12,968 | $  9,685 | $  6,513 | $  4,872 | $  34,038 | $  1,363 | $  686 | $ 31,989 | $  34,038 |

|  |  |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | As at October 31, 2024 | | | | | | | | |
|  | Risk rating  (1) | | | |  | Counterparty type  (2) | | |  |
|  |  |  |  |  |  |  | OECD |  |  |
| (Millions of Canadian dollars) | AAA, AA | A | BBB | BB or lower | Total | Banks | governments | Other | Total |
| Gross positive fair values | $ 31,561 | $ 77,933 | $ 25,206 | $ 18,533 | $ 153,233 | $ 75,119 | $ 24,655 | $ 53,459 | $ 153,233 |
| Impact of master netting agreements and |  |  |  |  |  |  |  |  |  |
| applicable margins | 18,644 | 67,995 | 19,046 | 14,797 | 120,482 | 73,763 | 24,289 | 22,430 | 120,482 |
| Replacement cost (after netting agreements) | $ 12,917 | $  9,938 | $  6,160 | $  3,736 | $  32,751 | $  1,356 | $  366 | $ 31,029 | $  32,751 |

(1)

Our internal risk ratings of AAA, AA, A and BBB represent investment grade ratings and ratings of BB or lower represent non-investment grade ratings, as outlined in the

internal ratings maps in the Credit risk section of Management’s Discussion and Analysis.

(2)

Counterparty type is defined in accordance with CAR guidelines.

![]()

(continued)

Note 9

Derivative financial instruments and hedging activities

198

Royal Bank of Canada: Annual Report 2025

Consolidated Financial Statements

Derivatives in hedging relationships

We apply hedge accounting to minimize volatility in earnings and capital caused by changes in interest rates or foreign

exchange rates. Interest rate and currency fluctuations will either cause assets and liabilities to appreciate or depreciate in

market value or cause variability in forecasted cash flows. When a hedging relationship is effective, gains, losses, revenue and

expenses of the hedging instrument will offset the gains, losses, revenue and expenses of the hedged item. Refer to Note 2 for

our policies on hedge accounting including presentation of hedge effectiveness and ineffectiveness amounts.

We assess and measure the effectiveness of a hedging relationship based on the change in the fair value or cash flows of

the derivative hedging instrument relative to the change in the fair value or cash flows of the hedged item attributable to the

hedged risk. When cash instruments are designated as hedges of foreign exchange risks, only changes in their value due to

foreign exchange risk are included in the assessment and measurement of hedge effectiveness. Potential sources of

ineffectiveness can be attributed to differences between hedging instruments and hedged items:

•

Mismatches in the terms of hedged items and hedging instruments, for example the frequency and timing of when

interest rates are reset and frequency of payment.

•

Difference in the discounting factors between the hedged item and the hedging instrument, taking into consideration

the different reset frequency of the hedged item and hedging instrument.

•

Hedging derivatives with a non-zero fair value at inception date of the hedging relationship, resulting in mismatch in

terms with the hedged item.

Below is a description of our risk management strategy for each risk exposure that we decide to hedge:

Interest rate risk

We use interest rate contracts to manage our exposure to interest rate risk by modifying the repricing characteristics of existing

and/or forecasted assets and liabilities, including funding and investment activities. The swaps are designated in either a fair

value hedge or a cash flow hedge.

For fair value hedges, we use interest rate contracts to manage the fair value movements of our fixed rate instruments due

to changes in benchmark interest. The interest rate swaps are entered into on a one-to-one basis to manage the benchmark

interest rate risk, and its terms are critically matched to the specified fixed rate instruments.

We also use interest rate swaps in fair value hedges to manage interest rate risk from residential mortgage assets and

funding liabilities. Our exposure from this portfolio changes with the origination of new loans, repayments of existing loans and

sale of securitized mortgages. Accordingly, we have adopted dynamic hedging for that portfolio, in which the hedge relationship

is rebalanced on a more frequent basis, such as on a bi-weekly or on a monthly basis.

For cash flow hedges, we use interest rate contracts to manage the exposure to cash flow variability of our variable rate

instruments as a result of changes in benchmark interest rates. Whilst some of the interest rate swaps are entered into on a one-

to-one basis to manage a specific exposure, other interest rate swaps may be entered into for managing interest rate risks of a

portfolio of assets and liabilities.

Foreign exchange risk

We manage our exposure to foreign currency risk with cross currency swaps in a cash flow hedge, and foreign exchange forward

contracts in a net investment hedge. Certain cash instruments may also be designated in a net investment hedge, where

applicable.

For cash flow hedges, we use cross currency swaps and forward contracts to manage the cash flow variability arising from

fluctuations in foreign exchange rates on our issued foreign denominated fixed rate liabilities and highly probable forecasted

transactions. The maturity profile and repayment terms of these swaps are matched to those of our foreign denominated

exposures to limit our cash flow volatility from changes in foreign exchange rates.

For net investment hedges, we use a combination of foreign exchange forwards and cash instruments, such as foreign

denominated deposit liabilities, to manage our foreign exchange risk arising from our investments in foreign operations. Our

most significant exposures include USD, GBP and Euro. When hedging net investments in foreign operations using foreign

exchange forwards, only the undiscounted spot element of the foreign exchange forward is designated as the hedging

instrument. Accordingly, changes in the fair value of the hedging instrument as a result of changes in forward rates and the

effects of discounting are not included in the hedging effectiveness assessment. Foreign operations are only hedged to the

extent of the principal of the foreign denominated deposit liabilities or notional amount of the derivative; we generally do not

expect to incur significant ineffectiveness on hedges of net investments in foreign operations.

Equity price risk

We use total return swaps in cash flow hedges to mitigate the cash flow variability of the expected payment associated with our

cash settled share-based compensation plan for certain key employees by exchanging interest payments for indexed RBC share

price change and dividend returns.

Credit risk

We predominantly use credit derivatives to economically hedge our credit exposures. We mitigate industry sector

concentrations and single-name exposures related to our credit portfolio by purchasing credit derivatives to transfer credit risk

to third parties.

![]()

Consolidated Financial Statements

Royal Bank of Canada: Annual Report 2025

199

Derivative instruments designated in hedging relationships

(1)

The following table presents the fair values of the derivative instruments and the principal amounts of the non-derivative

liabilities, categorized by their hedging relationships, as well as derivatives that are not designated in hedging relationships.

|  |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | As at | | | | | | | |
|  | October 31, 2025 | | | | October 31, 2024 | | | |
|  | Designated as hedging instruments | | |  | Designated as hedging instruments | | |  |
|  | in hedging relationships | | |  | in hedging relationships | | |  |
|  |  |  |  | Not designated |  |  |  | Not designated |
|  | Fair | Cash | Net | in a hedging | Fair | Cash | Net | in a hedging |
| (Millions of Canadian dollars) | value | flow | investment | relationship | value | flow | investment | relationship |
| Assets |  |  |  |  |  |  |  |  |
| Derivative instruments | $  22 | $  538 | $  21 | $  176,625 | $  18 | $  298 | $  4 | $  150,292 |
| Liabilities |  |  |  |  |  |  |  |  |
| Derivative instruments | 5 | 73 | 120 | 183,755 | 59 | 27 | 433 | 163,244 |
| Non-derivative instruments | – | – | 45,106 | n.a. | – | – | 37,833 | n.a. |

(1)

The fair value reflects the impact of characterizing the daily variation margin as settlement of the related derivative fair values as permitted by certain central

counterparties.

n.a.

not applicable

The following tables provide the remaining term to maturity analysis of the notional amounts and the weighted average rates of

the hedging instruments and their carrying amounts by types of hedging relationships:

Fair value hedges

|  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- |
|  | As at October 31, 2025 | | | | | |
|  | Notional amounts | | | | Carrying amount  (1) | |
|  | Within | 1 through | Over |  |  |  |
| (Millions of Canadian dollars, except average rates) | 1 year | 5 years | 5 years | Total | Assets | Liabilities |
| Interest rate risk |  |  |  |  |  |  |
| Interest rate contracts |  |  |  |  |  |  |
| Hedge of fixed rate assets | $ 30,131 | $ 112,640 | $ 52,846 | $ 195,617 | $  17 | $  5 |
| Hedge of fixed rate liabilities | 31,934 | 67,365 | 13,277 | 112,576 | 5 | – |
| Weighted average fixed interest rate |  |  |  |  |  |  |
| Hedge of fixed rate assets | 2.9% | 3.4% | 3.6% | 3.4% |  |  |
| Hedge of fixed rate liabilities | 2.3% | 3.3% | 2.9% | 3.0% |  |  |

|  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- |
|  | As at October 31, 2024 | | | | | |
|  | Notional amounts | | | | Carrying amount  (1) | |
|  | Within | 1 through | Over |  |  |  |
| (Millions of Canadian dollars, except average rates) | 1 year | 5 years | 5 years | Total | Assets | Liabilities |
| Interest rate risk |  |  |  |  |  |  |
| Interest rate contracts |  |  |  |  |  |  |
| Hedge of fixed rate assets | $  11,396 | $  68,563 | $  38,343 | $  118,302 | $  10 | $  55 |
| Hedge of fixed rate liabilities | 32,496 | 71,668 | 17,267 | 121,431 | 8 | 4 |
| Weighted average fixed interest rate |  |  |  |  |  |  |
| Hedge of fixed rate assets | 3.8% | 3.8% | 3.5% | 3.7% |  |  |
| Hedge of fixed rate liabilities | 2.9% | 2.8% | 3.1% | 2.8% |  |  |

(1)

The carrying amount reflects the impact of characterizing the daily variation margin as settlement of the related derivative fair values as permitted by certain central

counterparties.

![]()

(continued)

Note 9

Derivative financial instruments and hedging activities

200

Royal Bank of Canada: Annual Report 2025

Consolidated Financial Statements

Cash flow hedges

|  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- |
|  | As at October 31, 2025 | | | | | |
|  | Notional amounts | | | | Carrying amount  (1) | |
|  | Within | 1 through | Over |  |  |  |
| (Millions of Canadian dollars, except average rates) | 1 year | 5 years | 5 years | Total | Assets | Liabilities |
| Interest rate risk |  |  |  |  |  |  |
| Interest rate contracts |  |  |  |  |  |  |
| Hedge of variable rate assets | $ 95,516 | $ 136,952 | $  9,274 | $ 241,742 | $  – | $  – |
| Hedge of variable rate liabilities | 47,782 | 73,620 | 31,296 | 152,698 | – | – |
| Weighted average fixed interest rate |  |  |  |  |  |  |
| Hedge of variable rate assets | 3.1% | 3.2% | 3.4% | 3.2% |  |  |
| Hedge of variable rate liabilities | 4.0% | 3.1% | 2.9% | 3.3% |  |  |
| Foreign exchange risk |  |  |  |  |  |  |
| Cross currency swaps |  |  |  |  |  |  |
| Hedge of fixed rate assets | $  183 | $  1,000 | $  – | $  1,183 | $  – | $  73 |
| Hedge of fixed rate liabilities | 1,212 | 3,233 | – | 4,445 | 482 | – |
| Weighted average CAD-EUR exchange rate | 1.49 | 1.41 | n.a. | 1.43 |  |  |
| Weighted average CAD-USD exchange rate | 1.34 | 1.34 | n.a. | 1.34 |  |  |

|  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- |
|  | As at October 31, 2024 | | | | | |
|  | Notional amounts | | | | Carrying amount  (1) | |
|  | Within | 1 through | Over |  |  |  |
| (Millions of Canadian dollars, except average rates) | 1 year | 5 years | 5 years | Total | Assets | Liabilities |
| Interest rate risk |  |  |  |  |  |  |
| Interest rate contracts |  |  |  |  |  |  |
| Hedge of variable rate assets | $  91,698 | $ 133,684 | $  6,831 | $  232,213 | $  – | $  – |
| Hedge of variable rate liabilities | 46,390 | 101,339 | 33,845 | 181,574 | – | – |
| Weighted average fixed interest rate |  |  |  |  |  |  |
| Hedge of variable rate assets | 4.1% | 3.5% | 3.5% | 3.7% |  |  |
| Hedge of variable rate liabilities | 4.1% | 3.6% | 2.9% | 3.6% |  |  |
| Foreign exchange risk |  |  |  |  |  |  |
| Cross currency swaps |  |  |  |  |  |  |
| Hedge of fixed rate assets | $  – | $  936 | $  – | $  936 | $  9 | $  21 |
| Hedge of fixed rate liabilities | – | 4,163 | – | 4,163 | 198 | 6 |
| Weighted average CAD-EUR exchange rate | n.a. | 1.43 | n.a. | 1.43 |  |  |
| Weighted average CAD-USD exchange rate | n.a. | 1.34 | n.a. | 1.34 |  |  |

(1)

The carrying amount reflects the impact of characterizing the daily variation margin as settlement of the related derivative fair values as permitted by certain central

counterparties.

n.a.

not applicable

Net investment hedges

|  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- |
|  | As at October 31, 2025 | | | | | |
|  | Notional/Principal | | | | Carrying amount | |
|  | Within | 1 through | Over |  |  |  |
| (Millions of Canadian dollars, except average rates) | 1 year | 5 years | 5 years | Total | Assets | Liabilities |
| Foreign exchange risk |  |  |  |  |  |  |
| Foreign currency liabilities | $ 12,069 | $  29,973 | $  3,290 | $  45,332 | n.a. | $ 45,106 |
| Weighted average CAD-USD exchange rate | 1.31 | 1.38 | 1.34 | 1.36 |  |  |
| Weighted average CAD-EUR exchange rate | n.a. | n.a. | n.a. | n.a. |  |  |
| Weighted average CAD-GBP exchange rate | n.a. | 1.78 | n.a. | 1.78 |  |  |
| Forward contracts | $ 11,388 | $  – | $  – | $  11,388 | $  21 | $  120 |
| Weighted average CAD-USD exchange rate | 1.39 | n.a. | n.a. | 1.39 |  |  |
| Weighted average CAD-EUR exchange rate | 1.62 | n.a. | n.a. | 1.62 |  |  |
| Weighted average CAD-GBP exchange rate | 1.86 | n.a. | n.a. | 1.86 |  |  |

|  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- |
|  | As at October 31, 2024 | | | | | |
|  | Notional/Principal | | | | Carrying amount | |
|  | Within | 1 through | Over |  |  |  |
| (Millions of Canadian dollars, except average rates) | 1 year | 5 years | 5 years | Total | Assets | Liabilities |
| Foreign exchange risk |  |  |  |  |  |  |
| Foreign currency liabilities | $  4,540 | $  27,649 | $  6,505 | $  38,694 | n.a. | $  37,833 |
| Weighted average CAD-USD exchange rate | 1.33 | 1.34 | 1.34 | 1.34 |  |  |
| Weighted average CAD-EUR exchange rate | n.a. | n.a. | n.a. | n.a. |  |  |
| Weighted average CAD-GBP exchange rate | 1.71 | 1.76 | n.a. | 1.73 |  |  |
| Forward contracts | $  19,926 | $  – | $  – | $  19,926 | $  4 | $  433 |
| Weighted average CAD-USD exchange rate | 1.36 | n.a. | n.a. | 1.36 |  |  |
| Weighted average CAD-EUR exchange rate | 1.50 | n.a. | n.a. | 1.50 |  |  |
| Weighted average CAD-GBP exchange rate | 1.79 | n.a. | n.a. | 1.79 |  |  |

n.a.

not applicable

![]()

Consolidated Financial Statements

Royal Bank of Canada: Annual Report 2025

201

The following tables present the details of the hedged items categorized by their hedging relationships:

Fair value hedges – Assets and liabilities designated as hedged items

|  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- |
|  | As at and for the year ended October 31, 2025 | | | | | |
|  |  |  | Accumulated amount of fair | |  |  |
|  |  |  | value adjustments on the | |  |  |
|  |  |  | hedged item included in the | |  |  |
|  | Carrying amount | | carrying amount | |  |  |
|  |  |  |  |  |  | Changes in fair |
|  |  |  |  |  |  | values used for |
|  |  |  |  |  |  | calculating hedge |
| (Millions of Canadian dollars) | Assets | Liabilities | Assets | Liabilities | Consolidated Balance Sheet items: | ineffectiveness |
| Interest rate risk |  |  |  |  |  |  |
| Fixed rate assets  (1) |  |  |  |  | Securities – Investment, net of |  |
|  |  |  |  |  | applicable allowance; Loans – Retail; |  |
|  | $ 192,744 | $  – | $ 1,027 | $  – | Loans – Wholesale | $ 1,698 |
| Fixed rate liabilities  (1) |  |  |  |  | Deposits – Personal; |  |
|  |  |  |  |  | Deposits – Business and government; |  |
|  |  |  |  |  | Subordinated debentures; |  |
|  | – | 109,255 | – | (499) | Deposits – Bank | (1,812) |

|  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- |
|  | As at and for the year ended October 31, 2024 | | | | | |
|  |  |  | Accumulated amount of fair | |  |  |
|  |  |  | value adjustments on the | |  |  |
|  |  |  | hedged item included in the | |  |  |
|  | Carrying amount | | carrying amount | |  |  |
|  |  |  |  |  |  | Changes in fair |
|  |  |  |  |  |  | values used for |
|  |  |  |  |  |  | calculating hedge |
| (Millions of Canadian dollars) | Assets | Liabilities | Assets | Liabilities | Consolidated Balance Sheet items: | ineffectiveness |
| Interest rate risk |  |  |  |  |  |  |
| Fixed rate assets  (1) |  |  |  |  | Securities – Investment, net of |  |
|  |  |  |  |  | applicable allowance; Loans – Retail; |  |
|  | $  114,354 | $  – | $  (666) | $  – | Loans – Wholesale | $  2,702 |
| Fixed rate liabilities  (1) |  |  |  |  | Deposits – Personal; |  |
|  |  |  |  |  | Deposits – Business and government; |  |
|  |  |  |  |  | Subordinated debentures; |  |
|  | – | 118,116 | – | (2,312) | Deposits – Bank | (3,963) |

(1)

As at October 31, 2025, the accumulated amount of fair value hedge adjustments remaining on our Consolidated Balance Sheets for hedged items that have ceased to be

adjusted for hedging gains and losses is a loss of $78 million for fixed rate assets and a gain of $9 million for fixed rate liabilities (October 31, 2024 – loss of $238 million

and gain of $118 million, respectively).

![]()

(continued)

Note 9

Derivative financial instruments and hedging activities

202

Royal Bank of Canada: Annual Report 2025

Consolidated Financial Statements

Cash flow and net investment hedges – Assets and liabilities designated as hedged items

|  |  |  |  |  |
| --- | --- | --- | --- | --- |
|  | As at and for the year ended October 31, 2025 | | | |
|  |  | Changes in fair | Cash flow hedge/foreign | |
|  |  | values used for | currency translation reserve | |
|  |  | calculating hedge | Continuing | Discontinued |
| (Millions of Canadian dollars) | Consolidated Balance Sheet items: | ineffectiveness | hedges | hedges |
| Cash flow hedges |  |  |  |  |
| Interest rate risk |  |  |  |  |
| Variable rate assets | Securities – Investment, net of |  |  |  |
|  | applicable allowance; Loans – Retail; |  |  |  |
|  | Loans – Wholesale; | $  (1,561) | $  2,934 | $  (481) |
|  | Interest bearing deposits with banks; |  |  |  |
|  | Assets purchased under reverse |  |  |  |
|  | repurchase agreements and securities borrowed |  |  |  |
| Variable rate liabilities | Deposits – Business and government; | 976 | (1,643) | 2,520 |
|  | Deposits – Personal; |  |  |  |
|  | Obligations related to assets sold under |  |  |  |
|  | repurchase agreements and securities loaned |  |  |  |
| Foreign exchange risk |  |  |  |  |
| Fixed rate assets | Securities – Investment, net of |  |  |  |
|  | applicable allowance | 56 | 13 | – |
| Fixed rate liabilities | Deposits – Business and government | (305) | (51) | – |
| Net investment hedges |  |  |  |  |
| Foreign exchange risk |  |  |  |  |
| Foreign subsidiaries | n.a. | 433 | (8,514) | (306) |

|  |  |  |  |  |
| --- | --- | --- | --- | --- |
|  | As at and for the year ended October 31, 2024 | | | |
|  |  | Changes in fair | Cash flow hedge/foreign | |
|  |  | values used for | currency translation reserve | |
|  |  | calculating hedge | Continuing | Discontinued |
| (Millions of Canadian dollars) | Consolidated Balance Sheet items: | ineffectiveness | hedges | hedges |
| Cash flow hedges |  |  |  |  |
| Interest rate risk |  |  |  |  |
| Variable rate assets | Securities – Investment, net of | $  (4,415) | $  2,645 | $  (2,216) |
|  | applicable allowance; Loans – Retail; |  |  |  |
|  | Loans – Wholesale; |  |  |  |
|  | Interest bearing deposits with banks; |  |  |  |
|  | Assets purchased under reverse |  |  |  |
|  | repurchase agreements and securities borrowed |  |  |  |
| Variable rate liabilities | Deposits – Business and government; | 4,437 | (1,801) | 4,557 |
|  | Deposits – Personal; |  |  |  |
|  | Obligations related to assets sold under |  |  |  |
|  | repurchase agreements and securities loaned |  |  |  |
| Foreign exchange risk |  |  |  |  |
| Fixed rate assets | Securities – Investment, net of |  |  |  |
|  | applicable allowance | 7 | 13 | – |
| Fixed rate liabilities | Deposits – Business and government | (106) | (52) | – |
| Net investment hedges |  |  |  |  |
| Foreign exchange risk |  |  |  |  |
| Foreign subsidiaries | n.a. | 710 | (8,005) | (382) |

n.a.

not applicable

![]()

Consolidated Financial Statements

Royal Bank of Canada: Annual Report 2025

203

Effectiveness of designated hedging relationships

|  |  |  |  |  |
| --- | --- | --- | --- | --- |
|  | For the year ended October 31, 2025 | | | |
|  |  | Hedge |  |  |
|  | Change in fair value | ineffectiveness | Changes in the value of | Amount reclassified |
|  | of hedging | recognized in | the hedging instrument | from hedge reserves |
| (Millions of Canadian dollars) | instrument | income  (1) | recognized in OCI | to income |
| Fair value hedges |  |  |  |  |
| Interest rate risk |  |  |  |  |
| Interest rate contracts – fixed rate assets | $  (1,773) | $  (75) | n.a. | n.a. |
| Interest rate contracts – fixed rate liabilities | 1,808 | (4) | n.a. | n.a. |
| Cash flow hedges |  |  |  |  |
| Interest rate risk |  |  |  |  |
| Interest rate contracts – variable rate assets | 1,543 | (13) | $  1,604 | $  (344) |
| Interest rate contracts – variable rate liabilities | (941) | 17 | (974) | 828 |
| Foreign exchange risk |  |  |  |  |
| Cross currency swap – fixed rate assets | (56) | – | (50) | (50) |
| Cross currency swap – fixed rate liabilities | 305 | – | 246 | 246 |
| Net investment hedges |  |  |  |  |
| Foreign exchange risk |  |  |  |  |
| Foreign currency liabilities | (92) | – | (92) | – |
| Forward contracts | (341) | – | (341) | – |

|  |  |  |  |  |
| --- | --- | --- | --- | --- |
|  | For the year ended October 31, 2024 | | | |
|  |  | Hedge |  |  |
|  | Change in fair value | ineffectiveness | Changes in the value of | Amount reclassified |
|  | of hedging | recognized in | the hedging instrument | from hedge reserves |
| (Millions of Canadian dollars) | instrument | income  (1) | recognized in OCI | to income |
| Fair value hedges |  |  |  |  |
| Interest rate risk |  |  |  |  |
| Interest rate contracts – fixed rate assets | $  (2,761) | $  (59) | n.a. | n.a. |
| Interest rate contracts – fixed rate liabilities | 3,961 | (2) | n.a. | n.a. |
| Cash flow hedges |  |  |  |  |
| Interest rate risk |  |  |  |  |
| Interest rate contracts – variable rate assets | 4,416 | 15 | $  2,559 | $  (3,195) |
| Interest rate contracts – variable rate liabilities | (4,325) | (19) | (2,600) | 3,872 |
| Foreign exchange risk |  |  |  |  |
| Cross currency swap – fixed rate assets | (6) | – | 1 | (12) |
| Cross currency swap – fixed rate liabilities | 107 | 2 | 70 | 122 |
| Net investment hedges |  |  |  |  |
| Foreign exchange risk |  |  |  |  |
| Foreign currency liabilities | (455) | – | (455) | – |
| Forward contracts | (255) | – | (254) | (1) |

(1)

Hedge ineffectiveness recognized in income included losses of $105 million that are excluded from the assessment of hedge effectiveness and are offset by economic

hedges (October 31, 2024 – losses of $50 million).

n.a.

not applicable

![]()

(continued)

Note 9

Derivative financial instruments and hedging activities

204

Royal Bank of Canada: Annual Report 2025

Consolidated Financial Statements

Reconciliation of components of equity

The following table provides a reconciliation by risk category of each component of equity and an analysis of other

comprehensive income relating to hedge accounting:

|  |  |  |  |  |
| --- | --- | --- | --- | --- |
|  | For the year ended October 31, 2025 | | For the year ended October 31, 2024 | |
|  | Cash flow hedge | Foreign currency | Cash flow hedge | Foreign currency |
| (Millions of Canadian dollars) | reserve | translation reserve | reserve | translation reserve |
| Balance at the beginning of the year | $  2,267 | $  7,128 | $  2,756 | $  6,612 |
| Cash flow hedges |  |  |  |  |
| Effective portion of changes in fair value: |  |  |  |  |
| Interest rate risk | 630 |  | (40) |  |
| Foreign exchange risk | 196 |  | 71 |  |
| Equity price risk | 243 |  | 413 |  |
| Net amount reclassified to profit or loss: |  |  |  |  |
| Ongoing hedges: |  |  |  |  |
| Interest rate risk | (81) |  | 134 |  |
| Foreign exchange risk | (196) |  | (110) |  |
| Equity price risk | (245) |  | (350) |  |
| De-designated hedges: |  |  |  |  |
| Interest rate risk | (403) |  | (811) |  |
| Hedges of net investment in foreign operations |  |  |  |  |
| Foreign exchange denominated debt |  | (92) |  | (455) |
| Forward foreign exchange contracts |  | (341) |  | (254) |
| Foreign currency translation differences for foreign |  |  |  |  |
| operations |  | 826 |  | 1,018 |
| Reclassification of losses (gains) on foreign currency |  |  |  |  |
| translation to income |  | (25) |  | – |
| Reclassification of losses (gains) on net investment |  |  |  |  |
| hedging activities to income |  | – |  | 1 |
| Tax on movements on reserves during the period | (33) | 117 | 204 | 206 |
| Balance at the end of the year | $  2,378 | $  7,613 | $  2,267 | $  7,128 |

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Consolidated Financial Statements

Royal Bank of Canada: Annual Report 2025

205

Note 10

Premises and equipment

|  |  |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | For the year ended October 31, 2025 | | | | | | | | |
|  | Owned by the Bank  (1) | | | | | | Right-of-use lease assets | |  |
|  |  |  |  | Furniture, |  |  |  |  |  |
|  |  |  |  | fixtures |  |  |  |  |  |
|  |  |  | Computer | and other | Leasehold | Work in |  |  |  |
| (Millions of Canadian dollars) | Land | Buildings | equipment | equipment | improvements | process | Buildings | Equipment | Total  (2) |
| Cost |  |  |  |  |  |  |  |  |  |
| Balance at beginning of period | $  244 | $  1,325 | $  1,411 | $  900 | $  3,169 | $  129 | $  6,432 | $  319 | $  13,929 |
| Additions | – | 11 | 45 | 11 | 48 | 641 | 518 | 159 | 1,433 |
| Acquisition through business |  |  |  |  |  |  |  |  |  |
| combination | – | – | – | – | – | – | – | – | – |
| Transfers from work in process | – | 26 | 317 | 61 | 166 | (570) | – | – | – |
| Disposals | – | (16) | (290) | (74) | (288) | – | (61) | (36) | (765) |
| Foreign exchange translation | – | 5 | 7 | 3 | 15 | 1 | 42 | – | 73 |
| Other | (90) | (56) | 2 | (38) | (37) | – | 52 | – | (167) |
| Balance at end of period | $  154 | $  1,295 | $  1,492 | $  863 | $  3,073 | $  201 | $  6,983 | $  442 | $  14,503 |
| Accumulated depreciation |  |  |  |  |  |  |  |  |  |
| Balance at beginning of period | $  – | $  694 | $  834 | $  554 | $  2,072 | $  – | $  2,685 | $  238 | $  7,077 |
| Depreciation | – | 53 | 260 | 81 | 231 | – | 581 | 80 | 1,286 |
| Disposals | – | (19) | (289) | (68) | (287) | – | (19) | (32) | (714) |
| Foreign exchange translation | – | 2 | 5 | 2 | 7 | – | 14 | – | 30 |
| Other | – | 9 | 12 | (31) | 15 | – | – | – | 5 |
| Balance at end of period | $  – | $  739 | $  822 | $  538 | $  2,038 | $  – | $  3,261 | $  286 | $  7,684 |
| Net carrying amount at end of |  |  |  |  |  |  |  |  |  |
| period | $  154 | $  556 | $  670 | $  325 | $  1,035 | $  201 | $  3,722 | $  156 | $  6,819 |

|  |  |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | For the year ended October 31, 2024 | | | | | | | | |
|  | Owned by the Bank  (1) | | | | | | Right-of-use lease assets | |  |
|  |  |  |  | Furniture, |  |  |  |  |  |
|  |  |  |  | fixtures |  |  |  |  |  |
|  |  |  | Computer | and other | Leasehold | Work in |  |  |  |
| (Millions of Canadian dollars) | Land | Buildings | equipment | equipment | improvements | process | Buildings | Equipment | Total  (2) |
| Cost |  |  |  |  |  |  |  |  |  |
| Balance at beginning of period | $  140 | $  1,251 | $  1,283 | $  835 | $  3,007 | $  108 | $  5,893 | $  317 | $  12,834 |
| Additions | 103 | 77 | 21 | 11 | 50 | 522 | 526 | 2 | 1,312 |
| Acquisition through business |  |  |  |  |  |  |  |  |  |
| combination | – | – | – | 13 | 59 | – | 226 | – | 298 |
| Transfers from work in process | – | 5 | 240 | 132 | 102 | (479) | – | – | – |
| Disposals | – | (6) | (140) | (82) | (29) | – | (165) | – | (422) |
| Foreign exchange translation | 1 | 2 | 10 | 3 | 19 | – | 61 | – | 96 |
| Other | – | (4) | (3) | (12) | (39) | (22) | (109) | – | (189) |
| Balance at end of period | $  244 | $  1,325 | $  1,411 | $  900 | $  3,169 | $  129 | $  6,432 | $  319 | $  13,929 |
| Accumulated depreciation |  |  |  |  |  |  |  |  |  |
| Balance at beginning of period | $  – | $  646 | $  723 | $  550 | $  1,863 | $  – | $  2,149 | $  154 | $  6,085 |
| Depreciation | – | 59 | 249 | 73 | 279 | – | 620 | 84 | 1,364 |
| Disposals | – | (6) | (140) | (82) | (25) | – | (54) | – | (307) |
| Foreign exchange translation | – | 1 | 8 | 2 | 7 | – | 21 | – | 39 |
| Other | – | (6) | (6) | 11 | (52) | – | (51) | – | (104) |
| Balance at end of period | $  – | $  694 | $  834 | $  554 | $  2,072 | $  – | $  2,685 | $  238 | $  7,077 |
| Net carrying amount at end of |  |  |  |  |  |  |  |  |  |
| period | $  244 | $  631 | $  577 | $  346 | $  1,097 | $  129 | $  3,747 | $  81 | $  6,852 |

(1)

As at October 31, 2025, we had total contractual commitments of $160 million to purchase premises and equipment (October 31, 2024 – $137 million).

(2)

Includes investment properties with a cost of $34 million (October 31, 2024 – $186 million) which are subject to operating leases and carried at cost less accumulated

amortization. The fair value, determined by a combination of internal investment professionals and external independent property appraisers with the relevant

professional qualifications and experience, is $34 million (October 31, 2024 – $188 million).

Lease payments

Total lease payments for the year ended October 31, 2025 were $1,668 million, of which $778 million or 47% relates to variable

payments and $890 million or 53% relates to fixed payments. Total lease payments for the year ended October 31, 2024 were

$1,440 million

,

of which $708 million or 49% relates to variable payments and $732 million or 51% relates to fixed payments.

Total variable lease payments not included in the measurement of lease liabilities were $726 million for the year ended

October 31, 2025 (October 31, 2024 – $697 million).

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206

Royal Bank of Canada: Annual Report 2025

Consolidated Financial Statements

Note 11

Goodwill and other intangible assets

Goodwill

|  |  |  |  |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | For the year ended October 31, 2025 | | | | | | | | | | |
|  |  |  |  |  |  | U.S. Wealth |  |  |  |  |  |
|  | Personal |  |  | Canadian |  | Management | International |  |  |  |  |
| (Millions of | Banking – | Caribbean | Commercial | Wealth | Global Asset | (including | Wealth | Investor |  | Capital |  |
| Canadian dollars) | Canada | Banking | Banking | Management | Management | City National) | Management | Services | Insurance | Markets | Total |
| Balance at beginning |  |  |  |  |  |  |  |  |  |  |  |
| of period | $  4,994 | $  1,798 | $  3,815 | $  877 | $  2,164 | $  3,091 | $  1,198 | $  29 | $  112 | $ 1,208 | $ 19,286 |
| Acquisitions | – | – | – | – | – | – | – | – | – | – | – |
| Currency translations |  |  |  |  |  |  |  |  |  |  |  |
| and other | (25) | 21 | (25) | 6 | 79 | 22 | 34 | – | – | 7 | 119 |
| Balance at end |  |  |  |  |  |  |  |  |  |  |  |
| of period | $  4,969 | $  1,819 | $  3,790 | $  883 | $  2,243 | $  3,113 | $  1,232 | $  29 | $  112 | $ 1,215 | $ 19,405 |

|  |  |  |  |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | For the year ended October 31, 2024 | | | | | | | | | | |
|  |  |  |  |  |  | U.S. Wealth |  |  |  |  |  |
|  | Personal |  |  | Canadian |  | Management | International |  |  |  |  |
| (Millions of | Banking – | Caribbean | Commercial | Wealth | Global Asset | (including | Wealth | Investor |  | Capital |  |
| Canadian dollars) | Canada | Banking | Banking | Management | Management | City National) | Management | Services | Insurance | Markets | Total |
| Balance at beginning |  |  |  |  |  |  |  |  |  |  |  |
| of period | $  1,851 | $  1,791 | $  793 | $  593 | $  2,016 | $  3,080 | $  1,124 | $  29 | $  112 | $ 1,205 | $ 12,594 |
| Acquisitions | 3,159 | – | 3,022 | 283 | 72 | – | – | – | – | – | 6,536 |
| Currency translations |  |  |  |  |  |  |  |  |  |  |  |
| and other | (16) | 7 | – | 1 | 76 | 11 | 74 | – | – | 3 | 156 |
| Balance at end |  |  |  |  |  |  |  |  |  |  |  |
| of period | $  4,994 | $  1,798 | $  3,815 | $  877 | $  2,164 | $  3,091 | $  1,198 | $  29 | $  112 | $ 1,208 | $ 19,286 |

We perform our annual impairment test by comparing the carrying amount of each CGU to its recoverable amount. The

recoverable amount of a CGU is represented by its VIU, except in circumstances where the carrying amount of a CGU exceeds its

VIU. In such cases, the greater of the CGU’s FVLCD and its VIU is the recoverable amount. Our annual impairment test is

performed as at August 1.

In our 2025 and 2024 annual impairment tests, the recoverable amount of our Caribbean Banking CGU was based on its

FVLCD and the recoverable amounts of all other CGUs tested were based on their VIU.

Value in use

We calculate VIU using a five-year discounted cash flow method, with the exception of our International Wealth Management

CGU where cash flow projections covering a seven-year period were used, which more closely aligns with the strategic growth

plan resulting from the acquisition of RBC Brewin Dolphin. Future cash flows are based on financial plans agreed by

management, estimated based on forecast results, business initiatives, capital required to support future cash flows and returns

to shareholders. Key drivers of future cash flows include net interest margins and average interest-earning assets. The values

assigned to these drivers over the forecast period are based on past experience, external and internal economic forecasts, and

management’s expectations of the impact of economic conditions on our financial results. Beyond the initial cash flow

projection period, cash flows are assumed to increase at a constant rate using a nominal long-term growth rate (terminal growth

rate). Terminal growth rates are based on the long-term steady state growth expectations in the countries within which the CGU

operates. The discount rates used to determine the present value of each CGU’s projected future cash flows are based on the

bank-wide cost of capital, adjusted for the risks to which each CGU is exposed. CGU-specific risks include: country risk, business/

operational risk, geographic risk (including political risk, devaluation risk, and government regulation), currency risk, and price

risk (including product pricing risk and inflation).

The estimation of VIU involves significant judgment in the determination of inputs to the discounted cash flow model and is

most sensitive to changes in future cash flows, discount rates and terminal growth rates applied to cash flows beyond the

forecast period. The sensitivity of the VIU to key inputs and assumptions used was tested by recalculating the recoverable amount

using reasonably possible changes to those parameters. As at August 1, 2025, no reasonably possible change in an individual key

input or assumption, as described, would result in a CGU’s carrying amount exceeding its recoverable amount based on VIU.

The terminal growth rates and pre-tax discount rates used in our discounted cash flow models are summarized below.

|  |  |  |  |  |
| --- | --- | --- | --- | --- |
|  | As at | | | |
|  | August 1, 2025 | | August 1, 2024 | |
|  |  | Terminal |  | Terminal |
|  | Discount | growth | Discount | growth |
|  | rate  (1) | rate | rate  (1) | rate |
| Group of cash generating units |  |  |  |  |
| Personal Banking – Canada | 10.8% | 3.0% | 11.7% | 3.0% |
| Caribbean Banking | 12.9 | 3.5 | 13.7 | 3.5 |
| Commercial Banking | 11.5 | 3.0 | 11.7 | 3.0 |
| Canadian Wealth Management | 11.8 | 3.0 | 12.5 | 3.0 |
| Global Asset Management | 11.8 | 3.0 | 12.4 | 3.0 |
| U.S. Wealth Management (including City National) | 12.4 | 3.0 | 12.6 | 3.0 |
| International Wealth Management | 12.1 | 3.0 | 12.3 | 3.0 |
| Investor Services | 11.9 | 3.0 | 12.5 | 3.0 |
| Insurance | 11.5 | 3.0 | 12.5 | 3.0 |
| Capital Markets | 13.0 | 3.0 | 12.7 | 3.0 |

(1)

Pre-tax discount rates are determined implicitly based on post-tax discount rates.

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Consolidated Financial Statements

Royal Bank of Canada: Annual Report 2025

207

Fair value less costs of disposal – Caribbean Banking

We calculated FVLCD using a discounted cash flow method that projects future cash flows over a 5-year period. Cash flows are

based on management forecasts, adjusted to approximate the considerations of a prospective third-party buyer. Cash flows

beyond the initial 5-year period are assumed to increase at a constant rate using a nominal long-term growth rate. Future cash

flows, terminal growth rates, and discount rates are based on the same factors noted above. This fair value measurement is

categorized as level 3 in the fair value hierarchy as certain significant inputs are not observable.

The estimation of FVLCD involves significant judgment in the determination of inputs to the discounted cash flow model and

is most sensitive to changes in future cash flows, discount rates and terminal growth rates applied to cash flows beyond the

forecast period. The sensitivity of the FVLCD to key inputs and assumptions was tested by recalculating the recoverable amount

using reasonably possible changes to those parameters. As at August 1, 2025, no reasonably possible change in an individual key

input or assumption, as described, would result in the CGU’s carrying amount exceeding its recoverable amount.

Other intangible assets

|  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- |
|  | For the year ended October 31, 2025 | | | | | |
|  | Internally |  | Core | Customer |  |  |
|  | generated | Other | deposit | list and | In process |  |
| (Millions of Canadian dollars) | software | software | intangibles | relationships  (1) | software | Total |
| Gross carrying amount |  |  |  |  |  |  |
| Balance at beginning of period | $  5,574 | $  1,074 | $  3,637 | $  2,941 | $  1,357 | $  14,583 |
| Additions | 175 | 12 | – | – | 1,165 | 1,352 |
| Acquisition through business combination | – | – | – | – | – | – |
| Transfers | 844 | 83 | – | – | (927) | – |
| Dispositions | (585) | (43) | – | – | (2) | (630) |
| Impairment losses | (37) | (1) | – | – | (10) | (48) |
| Currency translations | 19 | 11 | 11 | 52 | 8 | 101 |
| Other changes | 111 | (42) | – | (13) | (89) | (33) |
| Balance at end of period | $  6,101 | $  1,094 | $  3,648 | $  2,980 | $  1,502 | $  15,325 |
| Accumulated amortization |  |  |  |  |  |  |
| Balance at beginning of period | $  (3,387) | $  (729) | $  (1,663) | $  (1,006) | $  – | $  (6,785) |
| Amortization charge for the year | (1,068) | (79) | (448) | (164) | – | (1,759) |
| Dispositions | 591 | 42 | – | – | – | 633 |
| Impairment losses | 13 | 1 | – | – | – | 14 |
| Currency translations | (13) | (8) | (10) | (11) | – | (42) |
| Other changes | 23 | (28) | – | 21 | – | 16 |
| Balance at end of period | $  (3,841) | $  (801) | $  (2,121) | $  (1,160) | $  – | $  (7,923) |
| Net balance at end of period | $  2,260 | $  293 | $  1,527 | $  1,820 | $  1,502 | $  7,402 |

|  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- |
|  | For the year ended October 31, 2024 | | | | | |
|  | Internally |  | Core | Customer |  |  |
|  | generated | Other | deposit | list and | In process |  |
| (Millions of Canadian dollars) | software | software | intangibles | relationships  (1) | software | Total |
| Gross carrying amount |  |  |  |  |  |  |
| Balance at beginning of period | $  5,595 | $  1,097 | $  1,658 | $  2,456 | $  1,527 | $  12,333 |
| Additions | 31 | 4 | – | 9 | 1,090 | 1,134 |
| Acquisition through business combination | – | – | 1,972 | 370 | – | 2,342 |
| Transfers | 1,204 | 42 | – | – | (1,246) | – |
| Dispositions | (1,204) | (67) | – | (9) | (1) | (1,281) |
| Impairment losses | (37) | (18) | – | – | (30) | (85) |
| Currency translations | 32 | 17 | 7 | 115 | 3 | 174 |
| Other changes | (47) | (1) | – | – | 14 | (34) |
| Balance at end of period | $  5,574 | $  1,074 | $  3,637 | $  2,941 | $  1,357 | $  14,583 |
| Accumulated amortization |  |  |  |  |  |  |
| Balance at beginning of period | $  (3,596) | $  (658) | $  (1,330) | $  (846) | $  – | $  (6,430) |
| Amortization charge for the year | (986) | (102) | (325) | (136) | – | (1,549) |
| Dispositions | 1,204 | 66 | – | 7 | – | 1,277 |
| Impairment losses | 12 | 5 | – | – | – | 17 |
| Currency translations | (21) | (7) | (8) | (31) | – | (67) |
| Other changes | – | (33) | – | – | – | (33) |
| Balance at end of period | $  (3,387) | $  (729) | $  (1,663) | $  (1,006) | $  – | $  (6,785) |
| Net balance at end of period | $  2,187 | $  345 | $  1,974 | $  1,935 | $  1,357 | $  7,798 |

(1)

Includes $259 million (October 31, 2024 – $259 million) of mutual fund management contracts with indefinite useful lives in the Global Asset Management CGU acquired in

the HSBC Canada transaction.

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208

Royal Bank of Canada: Annual Report 2025

Consolidated Financial Statements

Note 12

Joint ventures and associated companies

We do not have any joint ventures or associated companies that are individually material to our financial results. The following

table summarizes the carrying value of our interests in joint ventures and associated companies accounted for under the equity

method as well as our share of the income of those entities.

|  |  |  |  |  |
| --- | --- | --- | --- | --- |
|  | Joint ventures | | Associated companies | |
|  | As at and for the year ended | | | |
|  | October 31 | October 31 | October 31 | October 31 |
| (Millions of Canadian dollars) | 2025 | 2024 | 2025 | 2024 |
| Carrying amount | $  572 | $  542 | $  257 | $  293 |
| Share of: |  |  |  |  |
| Net income  (1) | $  82 | $  64 | $  1 | $  (41) |

(1)

Excludes impairment losses recognized on our interests in joint ventures and associated companies. During the year ended October 31, 2025, we recognized impairment

losses of $10 million in Non-interest income – Income (loss) from joint ventures and associates with respect to our interest in an associated company in our Wealth

Management segment (October 31, 2024 – $38 million).

Note 13

Other assets

|  |  |  |
| --- | --- | --- |
|  | As at | |
|  | October 31 | October 31 |
| (Millions of Canadian dollars) | 2025 | 2024 |
| Accounts receivable and prepaids | $  5,027 | $  4,389 |
| Accrued interest receivable | 8,342 | 7,904 |
| Cash collateral | 27,418 | 20,475 |
| Commodity trading assets  (1) | 14,475 | 9,834 |
| Deferred income tax asset | 4,486 | 4,328 |
| Employee benefit assets | 4,012 | 3,630 |
| Insurance-related assets |  |  |
| Insurance contract assets | 581 | 588 |
| Reinsurance contracts held assets | 1,774 | 1,758 |
| Segregated fund net assets | 3,810 | 3,378 |
| Collateral loans and other | 554 | 517 |
| Investments in joint ventures and associates | 829 | 835 |
| Margin deposits | 13,556 | 11,108 |
| Precious metals  (1) | 9,108 | 6,018 |
| Receivable from brokers, dealers and clients | 4,667 | 3,343 |
| Taxes receivable | 8,696 | 7,418 |
| Other | 5,558 | 6,667 |
|  | $  112,893 | $  92,190 |

(1)

Amounts include financial assets disclosed in Note 3 and non-financial assets. Non-financial assets primarily consist of commodities measured at fair value less cost to

sell. The fair values are determined by applying valuation techniques using commodity futures’ prices and are classified as Level 2 in our fair value hierarchy as the

inputs are observable.

![]()

Consolidated Financial Statements

Royal Bank of Canada: Annual Report 2025

209

Note 14

Deposits

|  |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | As at | | | | | | | |
|  | October 31, 2025 | | | | October 31, 2024 | | | |
| (Millions of Canadian dollars) | Demand  (1) | Notice  (2) | Term  (3) | Total | Demand  (1) | Notice  (2) | Term  (3) | Total |
| Personal | $  228,282 | $ 56,988 | $ 244,470 | $  529,740 | $  205,714 | $  62,845 | $ 253,580 | $  522,139 |
| Business and government | 431,239 | 20,274 | 494,801 | 946,314 | 369,943 | 20,157 | 449,570 | 839,670 |
| Bank | 13,488 | – | 26,074 | 39,562 | 9,675 | 641 | 37,406 | 47,722 |
|  | $  673,009 | $ 77,262 | $ 765,345 | $ 1,515,616 | $  585,332 | $  83,643 | $ 740,556 | $ 1,409,531 |
| Non-interest-bearing  (4) |  |  |  |  |  |  |  |  |
| Canada | $  158,771 | $  9,469 | $  292 | $  168,532 | $  144,712 | $  7,164 | $  203 | $  152,079 |
| United States | 38,009 | – | – | 38,009 | 38,520 | – | – | 38,520 |
| Europe  (5) | 5 | – | – | 5 | 11 | – | – | 11 |
| Other International | 8,133 | – | – | 8,133 | 7,758 | – | – | 7,758 |
| Interest-bearing  (4) |  |  |  |  |  |  |  |  |
| Canada | 392,120 | 16,417 | 591,636 | 1,000,173 | 355,221 | 14,468 | 594,066 | 963,755 |
| United States | 63,745 | 50,497 | 73,147 | 187,389 | 28,389 | 61,087 | 75,933 | 165,409 |
| Europe  (5) | 6,354 | 742 | 76,972 | 84,068 | 5,013 | 851 | 53,295 | 59,159 |
| Other International | 5,872 | 137 | 23,298 | 29,307 | 5,708 | 73 | 17,059 | 22,840 |
|  | $  673,009 | $ 77,262 | $ 765,345 | $ 1,515,616 | $  585,332 | $  83,643 | $ 740,556 | $ 1,409,531 |

(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 October 31, 2025, deposits

denominated in U.S. dollars, British pounds, Euro and other foreign currencies were $570 billion, $42 billion, $76 billion and $36 billion, respectively (October 31, 2024 –

$511 billion, $34 billion, $53 billion and $29 billion, respectively).

(5)

Europe includes the United Kingdom and the Channel Islands.

Contractual maturities of term deposits

(1)

|  |  |  |
| --- | --- | --- |
|  | As at | |
|  | October 31 | October 31 |
| (Millions of Canadian dollars) | 2025 | 2024 |
| Within 1 year: |  |  |
| less than 3 months | $  203,075 | $  207,698 |
| 3 to 6 months | 118,734 | 94,585 |
| 6 to 12 months | 172,583 | 173,603 |
| 1 to 2 years | 87,550 | 79,777 |
| 2 to 3 years | 58,170 | 61,175 |
| 3 to 4 years | 33,158 | 45,767 |
| 4 to 5 years | 24,047 | 20,692 |
| Over 5 years | 68,028 | 57,259 |
|  | $  765,345 | $  740,556 |

(1)

The aggregate amount of term deposits in denominations of one hundred thousand dollars or more is $704 billion (October 31, 2024 – $670 billion).

Average deposit balances and average rates of interest

|  |  |  |  |  |
| --- | --- | --- | --- | --- |
|  | For the year ended | | | |
|  | October 31, 2025 | | October 31, 2024 | |
|  | Average | Average | Average | Average |
| (Millions of Canadian dollars, except for percentage amounts) | balances | rates | balances | rates |
| Canada | $  1,155,147 | 2.93% | $  1,035,064 | 3.57% |
| United States | 215,460 | 2.94 | 191,257 | 3.33 |
| Europe | 85,570 | 4.24 | 58,693 | 5.26 |
| Other International | 39,935 | 2.45 | 32,016 | 2.48 |
|  | $  1,496,112 | 3.00% | $  1,317,030 | 3.59% |

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210

Royal Bank of Canada: Annual Report 2025

Consolidated Financial Statements

Note 15

Insurance and reinsurance

Our insurance contracts issued include life, health, travel, annuity and segregated fund insurance products provided to

individuals and businesses across Canada. Outside Canada, we have reinsurance and retrocession contracts issued with

respect to longevity reinsurance, life retrocession and reinsurance for creditor life, disability and critical illness. Reinsurance

contracts issued are presented within insurance contract balances on the Consolidated Balance Sheets.

In the normal course of business, we also enter into reinsurance contracts held to reinsure risks to other insurance and

reinsurance companies in order to lower our risk profile, limit loss exposure to large risks, and provide additional capacity for

future growth. The reinsurance contracts held do not relieve our obligations from the direct insurance contracts issued. We

evaluate the financial condition of the reinsurers and monitor our concentrations of credit risks to minimize our exposure to

losses from reinsurer insolvency. The carrying amounts of reinsurance contract held assets as disclosed in Note 13 represents

our maximum exposure to credit risk at the reporting date.

The insurance and reinsurance contracts are presented on a portfolio basis such that portfolios of contracts that are in an

asset position are presented separately from those that are in a liability position.

Insurance service and insurance investment results

The following table provides the composition of Insurance service result and Insurance investment result for insurance

contracts issued and reinsurance contracts held.

|  |  |  |
| --- | --- | --- |
|  | For the year ended | |
|  | October 31 | October 31 |
| (Millions of Canadian dollars) | 2025 | 2024 |
| Insurance revenue |  |  |
| Amounts recognized for contracts using the GMM and VFA: |  |  |
| Relating to changes in liabilities for remaining coverage: |  |  |
| Expected incurred claims and other insurance services expenses | $  3,131 | $  2,970 |
| Release of risk adjustment for non-financial risk and other | 214 | 191 |
| CSM recognized for services provided | 324 | 255 |
| Recovery of insurance acquisition cash flows | 98 | 81 |
|  | 3,767 | 3,497 |
| Amounts recognized for contracts using the PAA | 1,615 | 1,576 |
|  | 5,382 | 5,073 |
| Insurance service expense  (1) |  |  |
| Incurred claims and other expenses | (3,978) | (3,901) |
| Losses on onerous contracts and reversals of such losses (future service) | (313) | (246) |
| Adjustments to liability for incurred claims (past service) | (64) | (2) |
| Amortization of insurance acquisition cash flows | (98) | (81) |
|  | (4,453) | (4,230) |
| Net income (expense) from reinsurance contracts held | (62) | (66) |
| Insurance service result | $  867 | $  777 |
| Net investment income  (2) | $  1,453 | $  3,259 |
| Insurance finance income (expense) |  |  |
| Interest accreted  (3) | (791) | (783) |
| Effect of changes in discount rates and other financial assumptions  (3), (4) | 35 | (1,509) |
| Changes in fair value of underlying items for contracts using the VFA | (467) | (746) |
| Other | 3 | (93) |
|  | (1,220) | (3,131) |
| Reinsurance finance income (expense) | 51 | 166 |
| Insurance investment result | $  284 | $  294 |
| Insurance service and insurance investment results | $  1,151 | $  1,071 |

(1)

Includes Insurance service expense of $977 million (October 31, 2024 – $948 million) relating to insurance contracts measured using the PAA.

(2)

Refer to Note 3 for amounts of interest, dividend and net gains (losses) from FVTPL financial instruments relating to the Insurance segment.

(3)

Comparative amounts have been revised from those previously presented.

(4)

Includes the effect of changes in fulfillment cash flows at current rates when the corresponding effect through CSM is at locked-in rates.

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Consolidated Financial Statements

Royal Bank of Canada: Annual Report 2025

211

Insurance contracts by remaining coverage and incurred claims

The following table shows the changes in net liabilities for insurance contracts for remaining coverage and incurred claims for

short duration insurance contracts measured using the PAA and long duration insurance contracts measured using the GMM

and VFA.

|  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- |
|  | As at or for the year ended | | | | | |
|  | October 31, 2025 | | | October 31, 2024 | | |
|  | Liabilities for | Liabilities for |  | Liabilities for | Liabilities |  |
|  | remaining | incurred |  | remaining | for incurred |  |
| (Millions of Canadian dollars) | coverage  (1) | claims  (2) | Total | coverage  (1) | claims  (2) | Total |
| Balance at beginning of period: |  |  |  |  |  |  |
| Insurance contract assets | $  1,805 | $  (1,217) | $  588 | $  1,531 | $  (850) | $  681 |
| Insurance contract liabilities | (20,866) | (1,365) | (22,231) | (17,858) | (1,168) | (19,026) |
| Net insurance contract liabilities | $  (19,061) | $  (2,582) | $ (21,643) | $  (16,327) | $  (2,018) | $ (18,345) |
| Insurance revenue | $  5,382 | $  – | $  5,382 | $  5,073 | $  – | $  5,073 |
| Insurance service expense | (405) | (4,048) | (4,453) | (358) | (3,872) | (4,230) |
| Insurance finance income (expense) | (1,193) | (27) | (1,220) | (2,974) | (157) | (3,131) |
| Investment components | 708 | (708) | – | 705 | (705) | – |
| Cash flows: |  |  |  |  |  |  |
| Premiums received | (6,911) | – | (6,911) | (5,940) | – | (5,940) |
| Claims and other insurance service |  |  |  |  |  |  |
| expenses paid | – | 4,650 | 4,650 | – | 4,388 | 4,388 |
| Insurance acquisition cash flows |  |  |  |  |  |  |
| and other | 498 | – | 498 | 417 | – | 417 |
| Total cash flows | $  (6,413) | $  4,650 | $  (1,763) | $  (5,523) | $  4,388 | $  (1,135) |
| Other movements | (911) | 862 | (49) | 343 | (218) | 125 |
| Balance at end of period: |  |  |  |  |  |  |
| Insurance contract assets | $  1,189 | $  (608) | $  581 | $  1,805 | $  (1,217) | $  588 |
| Insurance contract liabilities | (23,082) | (1,245) | (24,327) | (20,866) | (1,365) | (22,231) |
| Net insurance contract liabilities | $  (21,893) | $  (1,853) | $ (23,746) | $  (19,061) | $  (2,582) | $ (21,643) |

(1)

The ending liabilities for remaining coverage include loss component amounts of $702 million (October 31, 2024 – $366 million).

(2)

The ending liabilities for incurred claims includes $941 million (October 31, 2024 – $914 million) attributable to insurance contracts measured under the PAA.

Insurance contracts by measurement components using the GMM or VFA

The following table shows the changes in the measurement components of net liabilities for insurance contracts measured using

the GMM and VFA by estimates of present value of future cash flows, risk adjustment for non-financial risk and CSM.

|  |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | As at or for the year ended | | | | | | | |
|  | October 31, 2025 | | | | October 31, 2024 | | | |
|  | Estimates of | Risk |  |  | Estimates of | Risk |  |  |
|  | present value | adjustment |  |  | present value | adjustment |  |  |
|  | of future | for non- |  |  | of future | for non- |  |  |
| (Millions of Canadian dollars) | cash flows | financial risk | CSM  (1) | Total | cash flows | financial risk | CSM  (1) | Total |
| Balance at beginning of |  |  |  |  |  |  |  |  |
| period: |  |  |  |  |  |  |  |  |
| Insurance contract assets | $  1,824 | $  (568) | $  (719) | $  537 | $  1,591 | $  (544) | $  (565) | $  482 |
| Insurance contract |  |  |  |  |  |  |  |  |
| liabilities | (17,275) | (1,986) | (2,072) | (21,333) | (14,079) | (1,759) | (2,195) | (18,033) |
| Net insurance contract |  |  |  |  |  |  |  |  |
| liabilities | $  (15,451) | $  (2,554) | $  (2,791) | $ (20,796) | $  (12,488) | $  (2,303) | $  (2,760) | $ (17,551) |
| Insurance service result | $  (169) | $  25 | $  435 | $  291 | $  33 | $  13 | $  176 | $  222 |
| Insurance finance expense |  |  |  |  |  |  |  |  |
| (income) | (1,076) | 16 | (134) | (1,194) | (2,504) | (324) | (128) | (2,956) |
| Cash flows: |  |  |  |  |  |  |  |  |
| Premiums received | (5,255) | – | – | (5,255) | (4,443) | – | – | (4,443) |
| Claims and other |  |  |  |  |  |  |  |  |
| insurance service |  |  |  |  |  |  |  |  |
| expenses paid | 3,633 | – | – | 3,633 | 3,487 | – | – | 3,487 |
| Insurance acquisition |  |  |  |  |  |  |  |  |
| cash flows and other | 498 | – | – | 498 | 373 | – | – | 373 |
| Total cash flows | $  (1,124) | $  – | $  – | $  (1,124) | $  (583) | $  – | $  – | $  (583) |
| Other movements | (13) | (54) | 14 | (53) | 91 | 60 | (79) | 72 |
| Balance at end of period: |  |  |  |  |  |  |  |  |
| Insurance contract assets | $  1,665 | $  (498) | $  (643) | $  524 | $  1,824 | $  (568) | $  (719) | $  537 |
| Insurance contract |  |  |  |  |  |  |  |  |
| liabilities  (2) | (19,498) | (2,069) | (1,833) | (23,400) | (17,275) | (1,986) | (2,072) | (21,333) |
| Net insurance contract |  |  |  |  |  |  |  |  |
| liabilities | $  (17,833) | $  (2,567) | $  (2,476) | $ (22,876) | $  (15,451) | $  (2,554) | $  (2,791) | $ (20,796) |

(1)

The ending balance for CSM includes $2.4 billion (October 31, 2024 – $2.6 billion) relating to groups of insurance contracts initially recognized at transition date using the

fair value approach. For the year ended October 31, 2025, CSM from contracts initially recognized was $86 million (October 31, 2024 – $89 million).

(2)

Includes segregated fund insurance contract liabilities of $3,877 million (October 31, 2024 – $3,375 million) measured using the VFA. The fair value of the underlying items

for segregated fund insurance contracts amount to $3,810 million (October 31, 2024 – $3,378 million), which are substantially investments in mutual funds.

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(continued)

Note 15

Insurance and reinsurance

212

Royal Bank of Canada: Annual Report 2025

Consolidated Financial Statements

Expected recognition of contractual service margin

The following table presents the expected timing of CSM amortization into Non-interest income – Insurance service result

applicable for insurance contracts issued and reinsurance contracts held measured using the GMM and VFA.

|  |  |  |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | As at | | | | | | | | | |
|  | October 31, 2025 | | | | | October 31, 2024 | | | | |
| (Millions of Canadian | Within 1 | 1 to 5 | 5 to 10 |  |  | Within 1 | 1 to 5 | 5 to 10 |  |  |
| dollars) | year | year | years | Thereafter | Total | year | year | years | Thereafter | Total |
| Insurance contracts |  |  |  |  |  |  |  |  |  |  |
| issued | $  (222) | $  (814) | $  (634) | $  (806) | $  (2,476) | $  (243) | $  (894) | $  (705) | $  (949) | $  (2,791) |
| Reinsurance |  |  |  |  |  |  |  |  |  |  |
| contracts held | 68 | 213 | 167 | 226 | 674 | 66 | 208 | 163 | 217 | 654 |
| Total | $  (154) | $  (601) | $  (467) | $  (580) | $  (1,802) | $  (177) | $  (686) | $  (542) | $  (732) | $  (2,137) |

Insurance risk

Insurance risk is the risk of loss due to actual experience emerging differently than that we assumed at the time of underwriting.

Our main insurance risks include morbidity, mortality, longevity, policyholder behaviour (lapse) and travel risk. We developed

an insurance risk management framework that is designed to identify, assess, manage, mitigate and report the insurance risks

associated with our insurance businesses. In addition, we are subject to expense risk, which is the exposure to the variability in

future expenses that are expected to be incurred in servicing insurance contracts. Our insurance risks are managed through the

implementation of robust policies and controls over product design, pricing, underwriting and claim adjudication as well as

reinsurance arrangements. Regular reviews are conducted on valuation models, experience studies for key actuarial

assumptions, exposure concentration, retention limits, and expense budgets.

Market risk

We are exposed to market risk, which is the risk that the carrying value or future cash flows of insurance and reinsurance

contract balances or financial assets fluctuate because of changes or volatility in market prices. Market risk includes equity,

interest rate and spread, foreign currency and inflation risks. Our exposure to market risk is managed through our asset/liability

management activities, developed to ensure our risk profile remains within the Bank’s risk appetite.

Methods and assumptions

The measurement of insurance and reinsurance contract balances requires various estimates and assumptions. The following

summarizes the significant estimates and assumptions used which should be read in conjunction with the accounting policies

for insurance and reinsurance contracts disclosed in Note 2.

Estimates of future cash flows

The significant non-financial assumptions used to determine the estimates of future cash flows for insurance and reinsurance

contract balances are as follows:

•

Mortality, longevity and morbidity

– Mortality estimates for life insurance contracts are based on standard industry insured

mortality tables, adjusted where appropriate to reflect our own experience. Longevity estimates for annuity insurance

contracts are developed based on industry longevity experience for pensioners, adjusted where appropriate to reflect our

own experience. Morbidity assumptions are made with respect to the rates of claim incidence and claim termination for

health insurance contracts and are based on a combination of industry and our own experience.

•

Policyholder behaviour

– Under certain policies, the policyholder has a contractual right to change benefits and premiums,

as well as convert policies to permanent forms of insurance. All policyholders have the right to terminate their policies

through lapse. Lapses represent the termination of policies due to non-payment of premiums. Lapse assumptions are

primarily based on our recent experience adjusted for emerging industry experience where applicable.

•

Expense

– Directly attributable future expense and directly attributable acquisition expense assumptions are derived from

internal cost studies and established allocation methodologies, with inflation as a financial assumption reflected in the

estimate of future expenses.

Discount rates

Discount rates used to present value future cash flows reflect the time value of money, currency of the cash flows, and the

characteristics of the insurance and reinsurance contracts. Cash flows that vary based on the returns on underlying items are

discounted at rates reflecting that variability. For cash flows that do not vary based on the returns on underlying items, we

predominantly apply the top-down approach in determining the discount rates. Under this approach, the discount rates for the

observable periods are determined using yield curves implied from a reference portfolio of assets adjusted to eliminate factors

(credit and market risk of the financial assets) that are not relevant to the insurance contracts. For unobservable periods, the

discount rates are interpolated using the last observable point and the ultimate discount rate, composed of a risk-free rate and

illiquidity premium. For a selected portfolio, the bottom-up approach is applied in determining the discount rate, which uses a

risk-free rate plus an illiquidity premium to reflect the characteristics of the contracts. Management judgment is required in

estimating the market and credit risk factors and illiquidity premiums in determining the discount rates.

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Consolidated Financial Statements

Royal Bank of Canada: Annual Report 2025

213

The following table provides the current discount yields relating to the Canadian dollar that are primarily used to present

value cash flows that do not vary based on returns on underlying items for insurance and reinsurance contracts.

|  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- |
|  | 5 year | 10 year | 20 year | 30 year | Ultimate |
| October 31, 2025 | 4.3% | 6.0% | 7.3% | 5.1% | 4.1% |
| October 31, 2024 | 4.2% | 5.6% | 6.0% | 4.2% | 4.1% |

Risk adjustment

The risk adjustment for non-financial risk represents the compensation that we require for bearing the uncertainty about the

amount and timing of cash flows that arises from non-financial risks as we fulfil the insurance contracts. Non-financial risks are

insurance risks such as mortality, morbidity, and other risks such as lapse and expense. We used a margin approach to set the

risk adjustment by applying a margin to non-financial assumptions and discounting the resulting margin cash flows at the same

discount rates used to present value future cash flows. The risk adjustment for insurance and reinsurance contracts

corresponds to a confidence level of approximately 85% overall as at October 31, 2025 (October 31, 2024 – 85%). The confidence

level represents the probability that the variability in the actual cash flows will be lower than our risk adjustment for

non-financial risk.

Sensitivity analysis

The following table demonstrates the effects on net income, total equity and balance sheet CSM of reasonably possible changes

in key market and non-financial assumptions in the measurement of our insurance contracts on a net of reinsurance contracts

held basis, which do not differ materially from the sensitivities on a gross basis. The impact of changing non-financial

assumptions is primarily absorbed in the CSM recorded on the Consolidated Balance Sheets, unless contracts are onerous in

which case the effects are reflected in net income. The effects on net income reflect the impact of changes to market

assumptions and the impact of changes to the CSM that is released to income for the year. The percentage change in each

variable is applied to a range of existing actuarial modelling assumptions to derive the possible impact on net income and total

equity, as well as CSM recorded on the Consolidated Balance Sheets. The analyses are performed where a single assumption is

changed while holding other assumptions constant, which is unlikely to occur in practice. Combining the effects presented in the

table may not reflect the total actual effects of changing multiple assumptions at the same time. Actual results can differ

materially from these estimates.

|  |  |  |  |  |
| --- | --- | --- | --- | --- |
|  | As at and for the year ended | | | |
|  | October 31, 2025 | | October 31, 2024 | |
|  | Increase |  | Increase |  |
|  | (decrease) to | Increase | (decrease) to | Increase |
| net income and |  | (decrease) to | net income and | (decrease) to |
| (Millions of Canadian dollars) | total equity | CSM | total equity | CSM |
| Market variables: |  |  |  |  |
| 1% increase in market interest rates  (1) | $  (10) | $  – | $  3 | $  – |
| 1% decrease in market interest rates  (1) | 5 | – | (2) | – |
| 10% increase in equity market values  (2) | 2 | 14 | – | 16 |
| 10% decrease in equity market values  (2) | (2) | (16) | – | (18) |
| Non-financial variables: |  |  |  |  |
| 2% adverse change in life mortality rates | (32) | (17) | (45) | (17) |
| 2% adverse change in annuitant mortality rates | (12) | (147) | (1) | (151) |
| 5% adverse change in morbidity rates | (61) | (187) | (57) | (179) |
| 10% adverse change in lapse rates | (21) | (360) | (16) | (334) |
| 5% increase in expenses | (6) | (53) | (5) | (52) |

(1)

Interest rate sensitivities assume a parallel shift of 100 basis points across the entire yield curves as at the reporting date with no change to the ultimate risk-free rate.

The impacts are net of the changes in fair value of financial assets held in respect of insurance activities.

(2)

Equity market value sensitivities assume a 10% change across all equity markets as at the reporting date reflecting the changes in fair value of the underlying financial

assets on the insurance contracts measured using the VFA.

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214

Royal Bank of Canada: Annual Report 2025

Consolidated Financial Statements

Note 16

Employee benefits – Pension and other post-employment benefits

Plan characteristics

We sponsor a number of programs that provide pension and post-employment benefits to eligible employees. The majority of

beneficiaries of the pension plans are located in Canada and other beneficiaries of the pension plans are primarily located in

the U.S., the U.K. and the Caribbean. The pension arrangements including investment, plan benefits and funding decisions are

governed by local pension committees or trustees, who are legally segregated from the Bank, or management. Significant plan

changes require the approval of the Board of Directors.

Our defined benefit pension plans provide pension benefits based on years of service, contributions and average earnings

at retirement. Our primary defined benefit pension plans are closed to new members. New employees are generally eligible to

join defined contribution pension plans. The specific features of these plans vary by location. We also provide supplemental

non-registered (non-qualified) pension plans for certain executives and senior management that are typically unfunded or

partially funded.

Our defined contribution pension plans provide pension benefits based on accumulated employee and Bank contributions.

The Bank contributions are based on a percentage of an employee’s annual earnings and a portion of the Bank contribution may

be dependent on the amount being contributed by the employee and their years of service.

Our primary other post-employment benefit plans provide health, dental, disability and life insurance coverage and cover a

number of current and retired employees who are mainly located in Canada. These plans are unfunded unless required by

legislation.

We measure our benefit obligations and pension assets as at October 31 each year. All plans are valued using the projected

unit-credit method. We fund our registered defined benefit pension plans in accordance with actuarially determined amounts

required to satisfy employee benefit obligations under current pension regulations. For our principal pension plan, the most

recent funding actuarial valuation was completed on January 1, 2025, and the next valuation is required no later than

January 1, 2028.

For the year ended October 31, 2025, total contributions to our pension plans (defined benefit and defined contribution

plans) and other post-employment benefit plans were $593 million and $95 million (October 31, 2024 – $455 million and

$91 million), respectively. For 2026, total contributions to our pension plans and other post-employment benefit plans are

expected to be $651 million and $98 million, respectively.

Risks

By their design, the defined benefit pension and other post-employment benefit plans expose the Bank to various risks such as

investment performance, reductions in discount rates used to value the obligations, increased longevity of plan members, future

inflation levels impacting future salary increases as well as future increases in healthcare costs. These risks will reduce over

time due to the membership closure of our primary defined benefit pension plans and migration to defined contribution pension

plans.

The following table presents the financial position related to all of our material pension and other post-employment benefit

plans worldwide, including executive retirement arrangements.

|  |  |  |  |  |
| --- | --- | --- | --- | --- |
|  | As at | | | |
|  | October 31, 2025 | | October 31, 2024 | |
|  |  | Other post- |  | Other post- |
|  | Defined benefit | employment | Defined benefit | employment |
| (Millions of Canadian dollars) | pension plans | benefit plans | pension plans | benefit plans |
| Canada |  |  |  |  |
| Fair value of plan assets | $  17,212 | $  – | $  16,421 | $  – |
| Present value of defined benefit obligation | 13,558 | 1,610 | 13,142 | 1,563 |
| Net surplus (deficit) | $  3,654 | $  (1,610) | $  3,279 | $  (1,563) |
| International |  |  |  |  |
| Fair value of plan assets | $  745 | $  – | $  741 | $  – |
| Present value of defined benefit obligation | 650 | 73 | 638 | 76 |
| Net surplus (deficit) | $  95 | $  (73) | $  103 | $  (76) |
| Total |  |  |  |  |
| Fair value of plan assets | $  17,957 | $  – | $  17,162 | $  – |
| Present value of defined benefit obligation | 14,208 | 1,683 | 13,780 | 1,639 |
| Total net surplus (deficit) | $  3,749 | $  (1,683) | $  3,382 | $  (1,639) |
| Effect of asset ceiling | (20) | – | (37) | – |
| Total net surplus (deficit), net of effect of asset ceiling | $  3,729 | $  (1,683) | $  3,345 | $  (1,639) |
| Amounts recognized in our Consolidated Balance |  |  |  |  |
| Sheets |  |  |  |  |
| Employee benefit assets | $  4,012 | $  – | $  3,630 | $  – |
| Employee benefit liabilities | (283) | (1,683) | (285) | (1,639) |
| Total net surplus (deficit), net of effect of asset ceiling | $  3,729 | $  (1,683) | $  3,345 | $  (1,639) |

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Consolidated Financial Statements

Royal Bank of Canada: Annual Report 2025

215

The following table presents an analysis of the movement in the financial position related to all of our material pension and

other post-employment benefit plans worldwide, including executive retirement arrangements.

|  |  |  |  |  |
| --- | --- | --- | --- | --- |
|  | As at or for the year ended | | | |
|  | October 31, 2025 | | October 31, 2024 | |
|  |  | Other post- |  | Other post- |
|  | Defined benefit | employment | Defined benefit | employment |
| (Millions of Canadian dollars) | pension plans  (1) | benefit plans | pension plans  (1) | benefit plans |
| Fair value of plan assets at beginning of period | $  17,162 | $  – | $  14,368 | $  – |
| Interest income | 812 | – | 818 | – |
| Remeasurements |  |  |  |  |
| Return on plan assets (excluding interest income) | 631 | – | 1,991 | – |
| Change in foreign currency exchange rate | 18 | – | 46 | – |
| Contributions – Employer | 31 | 95 | 29 | 91 |
| Contributions – Plan participant | 41 | 27 | 42 | 24 |
| Payments | (716) | (122) | (675) | (115) |
| Business combinations/Disposals | – | – | 561 | – |
| Other | (22) | – | (18) | – |
| Fair value of plan assets at end of period | $  17,957 | $  – | $  17,162 | $  – |
| Benefit obligation at beginning of period | $  13,780 | $  1,639 | $  11,727 | $  1,417 |
| Current service costs | 210 | 34 | 188 | 34 |
| Past service costs | 49 | – | – | (6) |
| Interest expense | 648 | 76 | 668 | 81 |
| Remeasurements |  |  |  |  |
| Actuarial losses (gains) from demographic |  |  |  |  |
| assumptions | 7 | 15 | (167) | (60) |
| Actuarial losses (gains) from financial |  |  |  |  |
| assumptions | 142 | 8 | 1,337 | 132 |
| Actuarial losses (gains) from experience |  |  |  |  |
| adjustments | 28 | 5 | 2 | 8 |
| Change in foreign currency exchange rate | 19 | 1 | 37 | 3 |
| Contributions – Plan participant | 41 | 27 | 42 | 24 |
| Payments | (716) | (122) | (675) | (115) |
| Business combinations/Disposals | – | – | 621 | 121 |
| Benefit obligation at end of period | $  14,208 | $  1,683 | $  13,780 | $  1,639 |
| Unfunded obligation | $  84 | $  1,683 | $  83 | $  1,639 |
| Wholly or partly funded obligation | 14,124 | – | 13,697 | – |
| Total benefit obligation | $  14,208 | $  1,683 | $  13,780 | $  1,639 |

(1)

For pension plans with funding deficits, the benefit obligations and fair value of plan assets as at October 31, 2025 were $890 million and $607 million, respectively

(October 31, 2024 – $929 million and $665 million, respectively).

Pension and other post-employment benefit expense

The following table presents the composition of our pension and other post-employment benefit expense related to our material

pension and other post-employment benefit plans worldwide.

|  |  |  |  |  |
| --- | --- | --- | --- | --- |
|  | For the year ended | | | |
|  |  | | Other post-employment | |
|  | Pension plans | | benefit plans | |
|  | October 31 | October 31 | October 31 | October 31 |
| (Millions of Canadian dollars) | 2025 | 2024 | 2025 | 2024 |
| Current service costs | $  210 | $  188 | $  34 | $  34 |
| Past service costs | 49 | – | – | (6) |
| Net interest expense (income) | (164) | (150) | 76 | 81 |
| Remeasurements of other long-term benefits | – | – | 10 | 3 |
| Administrative expense | 22 | 18 | – | – |
| Defined benefit pension expense | $  117 | $  56 | $  120 | $  112 |
| Defined contribution pension expense | 562 | 426 | – | – |
|  | $  679 | $  482 | $  120 | $  112 |

Service costs for the year ended October 31, 2025 totalled $257 million (October 31, 2024 – $186 million) for pension plans in

Canada and $2 million (October 31, 2024 – $2 million) for International plans. Net interest expense (income) for the year ended

October 31, 2025 totalled $(158) million (October 31, 2024 – $(145) million) for pension plans in Canada and $(6) million

(October 31, 2024 – $(5) million) for International plans.

![]()

(continued)

Note 16

Employee benefits – Pension and other post-employment benefits

216

Royal Bank of Canada: Annual Report 2025

Consolidated Financial Statements

Pension and other post-employment benefit remeasurements

The following table presents the composition of our remeasurements recorded in OCI related to our material pension and other

post-employment benefit plans worldwide.

|  |  |  |  |  |
| --- | --- | --- | --- | --- |
|  | For the year ended | | | |
|  | Defined benefit pension | | Other post-employment | |
|  | plans | | benefit plans | |
|  | October 31 | October 31 | October 31 | October 31 |
| (Millions of Canadian dollars) | 2025 | 2024 | 2025 | 2024 |
| Actuarial (gains) losses: |  |  |  |  |
| Changes in demographic assumptions | $  7 | $  (167) | $  14 | $  (50) |
| Changes in financial assumptions | 142 | 1,337 | 6 | 122 |
| Experience adjustments | 28 | 2 | (2) | 5 |
| Return on plan assets (excluding interest based on discount rate) | (631) | (1,991) | – | – |
| Change in asset ceiling (excluding interest income) | (17) | (4) | – | – |
|  | $  (471) | $  (823) | $  18 | $  77 |

Remeasurements recorded in OCI for the year ended October 31, 2025 were gains of $491 million (October 31, 2024 – gains of

$818 million) for pension plans in Canada and losses of $20 million (October 31, 2024 – gains of $5 million) for International

plans.

Investment policy and strategies

Defined benefit pension plan assets are invested prudently in order to meet our longer-term pension obligations. The pension

plan’s investment strategy is to hold a diversified mix of investments by asset class and geographic location in order to reduce

investment-specific risk to the funded status while maximizing the expected returns to meet pension obligations. Investment of

the plan’s assets follows an asset/liability framework as investment is conducted with careful consideration of the pension

obligation’s sensitivity to interest rates and credit spreads which are key risk factors impacting the obligation’s value. Factors

taken into consideration in developing our asset mix include but are not limited to the following:

•

the nature of the underlying benefit obligations, including the duration and term profile of the liabilities;

•

the member demographics, including expectations for normal retirements, terminations, and deaths;

•

the financial position of the pension plans;

•

the diversification benefits obtained by the inclusion of multiple asset classes; and

•

expected asset returns, including asset and liability correlations, along with liquidity requirements of the plan.

To implement our asset mix policy, we may invest in debt securities, equity securities and alternative investments. Our holdings

in certain investments, including common shares, debt securities rated lower than BBB and residential and commercial

mortgages, cannot exceed a defined percentage of the market value of our defined benefit pension plan assets. We may use

derivative instruments as either a synthetic investment to more efficiently replicate the performance of an underlying security,

or as a hedge against financial risks within the plan. To manage our credit risk exposure, where derivative instruments are not

centrally cleared, counterparties are required to meet minimum credit ratings and enter into collateral agreements.

Our defined benefit pension plan assets are primarily comprised of debt and equity securities and alternative investments.

Our equity securities generally have unadjusted quoted market prices in an active market (Level 1) and our debt securities

generally have quoted market prices for similar assets in an active market (Level 2). Alternative investments and other includes

cash, hedge funds, and private fund investments including infrastructure equity, real estate, private debt and private equity. In

the case of private fund investments, no quoted market prices are usually available (Level 2 or Level 3). These fund assets are

either valued by an independent valuator or priced using observable market inputs.

During the year ended October 31, 2025, the management of defined benefit pension investments focused on increased

allocation to risk reducing investments and strategies, while improving diversification and striving to maintain expected

investment return. An allocation to debt securities is being used to reduce asset/liability duration mismatch and hence

variability of the plan’s funded status due to interest rate movement. Longer maturity debt securities, given their price

sensitivity to movements in interest rates, are considered to be a good economic hedge to risk associated with the plan’s

liabilities, which are discounted using predominantly long maturity bond interest rates as inputs.

![]()

Consolidated Financial Statements

Royal Bank of Canada: Annual Report 2025

217

Asset allocation of defined benefit pension plans

(1), (2)

|  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- |
|  | As at | | | | | |
|  | October 31, 2025 | | | October 31, 2024 | | |
|  |  | Percentage | Quoted |  | Percentage | Quoted |
|  |  | of total | in active |  | of total | in active |
| (Millions of Canadian dollars, except percentages) | Fair value | plan assets | market  (3) | Fair value | plan assets | market  (3) |
| Equity securities |  |  |  |  |  |  |
| Domestic | $  1,198 | 7% | 100% | $  926 | 5% | 100% |
| Foreign | 3,227 | 18 | 100 | 2,306 | 13 | 100 |
| Debt securities |  |  |  |  |  |  |
| Domestic government bonds  (4) | 5,312 | 30 | – | 5,608 | 33 | – |
| Foreign government bonds | 84 | – | – | 145 | 1 | – |
| Corporate and other bonds | 3,489 | 19 | – | 3,788 | 22 | – |
| Alternative investments and other | 4,647 | 26 | 7 | 4,389 | 26 | 8 |
|  | $  17,957 | 100% | 26% | $  17,162 | 100% | 21% |

(1)

The asset allocation is based on the underlying investments held directly and indirectly through the funds as this is how we manage our investment policy and strategies.

(2)

Represents the total plan assets held in our Canadian and International pension plans.

(3)

If our assessment of whether or not an asset was quoted in an active market was based on direct investments, 30% of our total plan assets would be classified as quoted

in an active market (October 31, 2024 – 25%).

(4)

Amounts are net of securities sold under repurchase agreements.

As at October 31, 2025, the plan assets include 0.4 million (October 31, 2024 – 0.4 million) of our common shares with a fair

value of $83 million (October 31, 2024 – $66 million) and $60 million (October 31, 2024 – $74 million) of our debt securities. For the

year ended October 31, 2025, dividends received on our common shares held in the plan assets were $2 million (October 31, 2024 –

$2 million).

Maturity profile

The following table presents the maturity profile of our defined benefit pension plan obligation.

|  |  |  |  |
| --- | --- | --- | --- |
|  | As at October 31, 2025 | | |
| (Millions of Canadian dollars, except participants and years) | Canada | International | Total |
| Number of plan participants | 68,421 | 5,851 | 74,272 |
| Actual benefit payments 2025 | $  680 | $  36 | $  716 |
| Benefits expected to be paid 2026 | 740 | 37 | 777 |
| Benefits expected to be paid 2027 | 767 | 36 | 803 |
| Benefits expected to be paid 2028 | 789 | 35 | 824 |
| Benefits expected to be paid 2029 | 807 | 37 | 844 |
| Benefits expected to be paid 2030 | 827 | 39 | 866 |
| Benefits expected to be paid 2031-2035 | 4,348 | 200 | 4,548 |
| Weighted average duration of defined benefit payments | 13.0 years | 13.2 years | 13.0 years |

Significant assumptions

Our methodologies to determine significant assumptions used in calculating the defined benefit pension and other post-

employment benefit expense are as follows:

Discount rate

For the Canadian pension and other post-employment benefit plans, all future expected benefit payments at each measurement

date are discounted at spot rates from a derived Canadian AA corporate bond yield curve. The derived curve is based on actual

short and mid-maturity corporate AA rates and extrapolated longer term rates. The extrapolated corporate AA rates are derived

from observed corporate A, corporate AA and provincial AA yields. For the International pension and other post-employment

benefit plans, all future expected benefit payments at each measurement date are discounted at spot rates from a local AA

corporate bond yield curve. Spot rates beyond 30 years are set to equal the 30-year spot rate. The discount rate is the equivalent

single rate that produces the same discounted value as that determined using the entire discount curve. This valuation

methodology does not rely on assumptions regarding reinvestment returns.

Rate of increase in future compensation

The assumptions for increases in future compensation are developed separately for each plan, where relevant. Each

assumption is set based on the price inflation assumption and compensation policies in each market, as well as relevant local

statutory and plan-specific requirements.

Healthcare cost trend rates

Healthcare cost calculations are based on both short and long-term trend assumptions established using the plan’s recent

experience as well as market expectations.

![]()

(continued)

Note 16

Employee benefits – Pension and other post-employment benefits

218

Royal Bank of Canada: Annual Report 2025

Consolidated Financial Statements

Weighted average assumptions to determine benefit obligation

|  |  |  |  |  |
| --- | --- | --- | --- | --- |
|  | As at | | | |
|  | Defined benefit pension | | Other post-employment | |
|  | plans | | benefit plans | |
|  | October 31 | October 31 | October 31 | October 31 |
|  | 2025 | 2024 | 2025 | 2024 |
| Discount rate | 4.7% | 4.8% | 4.9% | 4.9% |
| Rate of increase in future compensation | 3.0% | 3.0% | n.a. | n.a. |
| Healthcare cost trend rates  (1) |  |  |  |  |
| – Medical | n.a. | n.a. | 3.5% | 3.5% |
| – Dental | n.a. | n.a. | 3.5% | 3.5% |

(1)

For our other post-employment benefit plans, the assumed trend rates used to measure the expected benefit costs of the defined benefit obligations are also the

ultimate trend rates.

n.a.

not applicable

Mortality assumptions

Mortality assumptions are significant in measuring our obligations under the defined benefit pension plans. These assumptions

have been set based on country specific statistics. Future longevity improvements have been considered and included where

appropriate. The following table summarizes the mortality assumptions used for material plans.

|  |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | As at | | | | | | | |
|  | October 31, 2025 | | | | October 31, 2024 | | | |
|  | Life expectancy at 65 for a member currently at | | | | Life expectancy at 65 for a member currently at | | | |
|  | Age 65 | | Age 45 | | Age 65 | | Age 45 | |
| (In years) | Male | Female | Male | Female | Male | Female | Male | Female |
| Country |  |  |  |  |  |  |  |  |
| Canada | 23.3 | 24.4 | 24.3 | 25.4 | 23.2 | 24.4 | 24.2 | 25.3 |
| United Kingdom | 22.3 | 24.5 | 23.6 | 25.8 | 22.1 | 24.4 | 23.4 | 25.7 |

Sensitivity analysis

Assumptions adopted can have a significant effect on the value of the obligations for defined benefit pension and other post-

employment benefit plans and are based on historical experience and market inputs. The increase (decrease) in obligation in

the following table has been determined for key assumptions assuming all other assumptions are held constant. In practice, this

is unlikely to occur, as changes in some of the assumptions may be correlated. The following table presents the sensitivity

analysis of key assumptions for 2025.

|  |  |  |
| --- | --- | --- |
|  | Increase (decrease) | |
|  | in obligation | |
|  |  | Other post- |
|  | Defined benefit | employment |
| (Millions of Canadian dollars) | pension plans | benefit plans |
| Discount rate |  |  |
| Impact of 100 bps increase in discount rate | $  (1,597) | $  (182) |
| Impact of 100 bps decrease in discount rate | 1,967 | 224 |
| Rate of increase in future compensation |  |  |
| Impact of 50 bps increase in rate of increase in future compensation | 24 | – |
| Impact of 50 bps decrease in rate of increase in future compensation | (25) | – |
| Mortality rate |  |  |
| Impact of an increase in longevity by one additional year | 380 | 23 |
| Healthcare cost trend rate |  |  |
| Impact of 100 bps increase in healthcare cost trend rate | n.a. | 51 |
| Impact of 100 bps decrease in healthcare cost trend rate | n.a. | (43) |

n.a.

not applicable

![]()

Consolidated Financial Statements

Royal Bank of Canada: Annual Report 2025

219

Note 17

Other liabilities

|  |  |  |
| --- | --- | --- |
|  | As at | |
|  | October 31 | October 31 |
| (Millions of Canadian dollars) | 2025 | 2024 |
| Accounts payable and accrued expenses | $  1,663 | $  1,475 |
| Accrued interest payable | 11,784 | 13,226 |
| Cash collateral | 22,133 | 19,582 |
| Commodity liabilities | 17,692 | 13,996 |
| Deferred income | 4,277 | 4,149 |
| Deferred income taxes | 484 | 542 |
| Dividends payable | 2,306 | 2,123 |
| Employee benefit liabilities | 1,966 | 1,924 |
| Lease liabilities | 4,586 | 4,673 |
| Negotiable instruments | 1,609 | 1,702 |
| Payable to brokers, dealers and clients | 9,487 | 8,270 |
| Payroll and related compensation | 13,574 | 11,781 |
| Precious metals liabilities | 3,196 | 743 |
| Provisions | 782 | 793 |
| Short-term borrowings of subsidiaries | 2,804 | – |
| Taxes payable | 2,852 | 2,398 |
| Other | 7,396 | 7,335 |
|  | $  108,591 | $  94,712 |

Note 18

Subordinated debentures

The debentures are unsecured obligations and are subordinated in right of payment to the claims of depositors and certain

other creditors. The amounts presented below are net of our own holdings in these debentures, and include the impact of fair

value hedges used for managing interest rate risk.

|  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- |
| (Millions of Canadian dollars, except percentage and foreign currency) |  |  |  |  | As at | |
|  |  |  | Denominated in | |  |  |
|  | Earliest par value | Interest | foreign currency | | October 31 | October 31 |
| Maturity | redemption date | rate | (millions) | | 2025 | 2024 |
| January 27, 2026  (1) |  | 4.65% | US$ | 1,500 | $  2,091 | $  2,026 |
| December 23, 2029  (1)  ,  (2) | December 23, 2024 | 2.88% |  |  | – | 1,495 |
| June 30, 2030  (1), (3) | June 30, 2025 | 2.088% |  |  | – | 1,219 |
| November 3, 2031  (1) | November 3, 2026 | 2.14%  (4) |  |  | 1,628 | 1,708 |
| May 3, 2032  (1) | May 3, 2027 | 2.94%  (5) |  |  | 984 | 955 |
| January 28, 2033  (1) | January 28, 2028 | 1.67%  (6) |  |  | 967 | 935 |
| February 1, 2033  (1) | February 1, 2028 | 5.01%  (7) |  |  | 1,520 | 1,461 |
| April 3, 2034  (1) | April 3, 2029 | 5.096%  (8) |  |  | 2,038 | 2,020 |
| August 8, 2034  (1) | August 8, 2029 | 4.829%  (9) |  |  | 1,273 | 1,263 |
| February 4, 2035  (1) | February 4, 2030 | 4.279%  (10) |  |  | 1,512 | – |
| July 3, 2035  (1) | July 3, 2030 | 4.214%  (11) |  |  | 1,250 | – |
| July 17, 2035  (1) | July 17, 2030 | 1.963%  (12) | ¥ | 26,000 | 232 | – |
| October 1, 2083 | Any interest payment date | (13) |  |  | 224 | 224 |
| November 1, 2083 | Any interest payment date | (14) |  |  | 9 | 9 |
| June 29, 2085 | Any interest payment date | (15) | US$ | 174 | 243 | 241 |
|  |  |  |  |  | $  13,971 | $  13,556 |
| Deferred financing costs |  |  |  |  | (10) | (10) |
|  |  |  |  |  | $  13,961 | $  13,546 |

(1)

The notes include non-viability contingent capital (NVCC) provisions, necessary for the notes to qualify as Tier 2 regulatory capital under Basel III. NVCC provisions

require the conversion of the instrument into a variable number of common shares in the event that OSFI deems the Bank non-viable or a federal or provincial

government in Canada publicly announces that the Bank has accepted or agreed to accept a capital injection. In such an event, each note is convertible into common

shares pursuant to an automatic conversion formula with a multiplier of 1.5 and a conversion price based on the greater of: (i) a floor price of $5.00 (subject to

adjustment in certain circumstances), and (ii) the current market price of our common shares based on the volume weighted average trading price of our common

shares on the Toronto Stock Exchange. The number of shares issued is determined by multiplying the par value of the note (including accrued and unpaid interest on

such note) by the multiplier and then dividing the total by the conversion price.

(2)

On December 23, 2024, we redeemed all $1,500 million of our outstanding 2.88% subordinated debentures due December 23, 2029 for 100% of their principal amount plus

interest accrued to, but excluding, the redemption date.

(3)

On June 30, 2025, we redeemed all $1,250 million of our outstanding 2.088% subordinated debentures due June 30, 2030 for 100% of their principal amount plus interest

accrued to, but excluding, the redemption date.

(4)

Interest at stated interest rate until earliest par value redemption date, and thereafter at a rate of 0.93% above the Daily Compounded CORRA.

(5)

Interest at stated interest rate until earliest par value redemption date, and thereafter at a rate of 1.08% above the Daily Compounded CORRA.

(6)

Interest at stated interest rate until earliest par value redemption date, and thereafter at a rate of 0.87% above the Daily Compounded CORRA.

(7)

Interest at stated interest rate until earliest par value redemption date, and thereafter at a rate of 2.12% above the Daily Compounded CORRA.

(8)

Interest at stated interest rate until earliest par value redemption date, and thereafter at a rate of 1.56% above the Daily Compounded CORRA.

(9)

Interest at stated interest rate until earliest par value redemption date, and thereafter at a rate of 1.55% above the Daily Compounded CORRA.

(10)

Interest at stated interest rate until earliest par value redemption date, and thereafter at a rate of 1.45% above the Daily Compounded CORRA.

(11)

Interest at stated interest rate until earliest par value redemption date, and thereafter at a rate of 1.51% above the Daily Compounded CORRA.

(12)

Interest at stated interest rate until earliest par value redemption date, and thereafter at a rate of 1.02% above the 5-Year Tokyo Overnight Average Rate mid-swap rate.

(13)

Interest at a rate of 0.50% plus the average of mid-market quotations for Government of Canada Treasury Bills maturing in or about 30 days from the date of quotation.

(14)

Interest at a rate of 0.75% plus the average of mid-market quotations for Government of Canada Treasury Bills maturing in or about 30 days from the date of quotation.

(15)

Interest at a rate of 0.44911% plus compounded SOFR. In the event of a reduction of the annual dividend we declare on our common shares, the interest payable on the

debentures is reduced pro rata to the dividend reduction and the interest reduction is payable with the proceeds from the sale of newly issued common shares.

![]()

(continued)

Note 18

Subordinated debentures

220

Royal Bank of Canada: Annual Report 2025

Consolidated Financial Statements

All redemptions, cancellations and exchanges of subordinated debentures are subject to the consent and approval of OSFI.

Maturity schedule

The aggregate maturities of subordinated debentures, based on the maturity dates under the terms of issue, are as follows:

|  |  |
| --- | --- |
|  | As at |
|  | October 31 |
| (Millions of Canadian dollars) | 2025 |
| Within 1 year | $  2,091 |
| 1 to 5 years | – |
| 5 to 10 years | 11,404 |
| Thereafter | 476 |
|  | $  13,971 |

Note 19

Equity

Share capital

Authorized share capital

Preferred – An unlimited number of First Preferred Shares and Second Preferred Shares without nominal or par value, issuable in

series; provided that the maximum aggregate consideration for all First Preferred Shares outstanding at any time may not

exceed $30 billion, and for all Second Preferred Shares that may be issued may not exceed $5 billion.

Common – An unlimited number of shares without nominal or par value may be issued.

![]()

Consolidated Financial Statements

Royal Bank of Canada: Annual Report 2025

221

Outstanding share capital

The following table details our common and preferred shares and other equity instruments outstanding.

|  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- |
|  | As at and for the year ended | | | | | |
|  | October 31, 2025 | | | October 31, 2024 | | |
|  | Number of |  | Dividends | Number of |  | Dividends |
| (Millions of Canadian dollars, except the number | shares |  | declared | shares |  | declared |
| of shares and as otherwise noted) | (thousands) | Amount | per share | (thousands) | Amount | per share |
| Common shares issued |  |  |  |  |  |  |
| Balance at beginning of period | 1,415,080 | $ 21,013 |  | 1,402,373 | $ 19,398 |  |
| Issued in connection with share-based |  |  |  |  |  |  |
| compensation plans  (1) | 796 | 77 |  | 1,746 | 168 |  |
| Issued in connection with dividend |  |  |  |  |  |  |
| reinvestment plan | – | – |  | 11,850 | 1,460 |  |
| Purchased for cancellation  (2) | (15,241) | (227) |  | (889) | (13) |  |
| Balance at end of period | 1,400,635 | $ 20,863 | $  6.04 | 1,415,080 | $ 21,013 | $  5.60 |
| Treasury – common shares |  |  |  |  |  |  |
| Balance at beginning of period  (3) | (576) | $  (61) |  | (1,862) | $  (231) |  |
| Purchases | (41,204) | (5,811) |  | (43,995) | (5,302) |  |
| Sales | 41,259 | 5,762 |  | 45,281 | 5,472 |  |
| Balance at end of period  (3) | (521) | $  (110) |  | (576) | $  (61) |  |
| Common shares outstanding | 1,400,114 | $ 20,753 |  | 1,414,504 | $ 20,952 |  |
| Preferred shares and other equity |  |  |  |  |  |  |
| instruments issued |  |  |  |  |  |  |
| First preferred  (4) |  |  |  |  |  |  |
| Non-cumulative, fixed rate |  |  |  |  |  |  |
| Series BH | 6,000 | $  150 | $  1.23 | 6,000 | $  150 | $  1.23 |
| Series BI | 6,000 | 150 | 1.23 | 6,000 | 150 | 1.23 |
| Non-cumulative, 5-Year Rate Reset |  |  |  |  |  |  |
| Series BD  (5) | – | – | 0.80 | 24,000 | 600 | 0.80 |
| Series BF  (6) | 12,000 | 300 | 0.75 | 12,000 | 300 | 0.75 |
| Series BO | 14,000 | 350 | 1.47 | 14,000 | 350 | 1.40 |
| Series BT  (7) | 750 | 750 | 4.20% | 750 | 750 | 4.20% |
| Series BU  (7) | 750 | 750 | 7.408% | 750 | 750 | 7.408% |
| Series BW  (7) | 600 | 600 | 6.698% | 600 | 600 | 6.698% |
| Other equity instruments |  |  |  |  |  |  |
| Limited recourse capital notes (LRCNs) |  |  |  |  |  |  |
| Series 1  (8) | – | – | 4.50% | 1,750 | 1,750 | 4.50% |
| Series 2  (9), (10) | 1,250 | 1,250 | 4.00% | 1,250 | 1,250 | 4.00% |
| Series 3  (9), (10) | 1,000 | 1,000 | 3.65% | 1,000 | 1,000 | 3.65% |
| Series 4  (9), (10) | 1,000 | 1,370 | 7.50% | 1,000 | 1,370 | 7.50% |
| Series 5  (9), (10) | 1,000 | 1,396 | 6.35% | – | – | – |
| Series 6  (9), (10) | 1,250 | 1,708 | 6.75% | – | – | – |
| Series 7  (9), (10) | 1,350 | 1,869 | 6.50% | – | – | – |
|  | 46,950 | $ 11,643 |  | 69,100 | $  9,020 |  |
| Treasury – preferred shares and other equity |  |  |  |  |  |  |
| instruments |  |  |  |  |  |  |
| Balance at beginning of period  (3) | 13 | $  11 |  | (9) | $  (9) |  |
| Purchases | (4,431) | (4,916) |  | (1,921) | (1,225) |  |
| Sales | 4,453 | 4,937 |  | 1,943 | 1,245 |  |
| Balance at end of period  (3) | 35 | $  32 |  | 13 | $  11 |  |
| Preferred shares and other equity |  |  |  |  |  |  |
| instruments outstanding | 46,985 | $ 11,675 |  | 69,113 | $  9,031 |  |

(1)

Includes fair value adjustments to stock options of $5 million (October 31, 2024 – $10 million).

(2)

Our previous NCIB to purchase up to 30 million of our common shares ended June 11, 2025. On June 10, 2025, we announced a new NCIB to purchase up to 35 million of our

common shares, commencing on June 12, 2025, and continuing until June 11, 2026, or such earlier date as we complete the repurchase of all shares permitted under the

bid. During the year ended October 31, 2025, under the NCIB programs we purchased for cancellation common shares at a total fair value of $2,768 million (average cost

of $181.59 per share), with a book value of $227 million (book value of $14.88 per share). During the year ended October 31, 2024, under the previous NCIB we purchased

for cancellation common shares at a total fair value of $140 million (average cost of $157.74 per share), with a book value of $13 million (book value of $14.83 per share).

(3)

Positive amounts represent a short position and negative amounts represent a long position.

(4)

First Preferred Shares were issued at $25 per share with the exception of Non-Cumulative 5-Year Fixed Rate Reset First Preferred Shares Series BT (Series BT),

Non-Cumulative 5-Year Fixed Rate Reset First Preferred Shares Series BU (Series BU) and Non-Cumulative 5-Year Fixed Rate Reset First Preferred Shares Series BW

(Series BW) which were issued at $1,000 per share.

(5)

On May 24, 2025, we redeemed all 24 million of our issued and outstanding Non-Cumulative 5-Year Rate Reset First Preferred Shares Series BD at a redemption price of

$25.00 per share.

(6)

On November 24, 2025, we redeemed all 12 million of our issued and outstanding Non-Cumulative 5-Year Rate Reset First Preferred Shares Series BF at a redemption price of

$25.00 per share.

(7)

The dividends declared per share represent the per annum dividend rate applicable to the shares issued as at the reporting date.

(8)

On October 24, 2025, we redeemed all 1.75 million of our issued and outstanding Non-Cumulative 5-Year Fixed Rate Reset First Preferred Shares Series BQ at a redemption price of

$1,000 per share. As a result of the redemption of the Series BQ Shares, we automatically redeemed all $1.75 billion outstanding Series 1 LRCN on the same date for 100% of their

principal amount plus accrued interest to, but excluding, the redemption date.

(9)

LRCN Series 2 and 3 were issued at a $1,000 per note. LRCN Series 4, 5, 6 and 7 were issued at US$1,000 per note. The number of shares represent the number of notes issued and

the dividends declared per share represent the annual interest rate percentage applicable to the notes issued as at the reporting date.

(10)

In connection with the issuance of LRCN Series 2, we issued $1,250 million of Non-Cumulative 5-Year Fixed Rate Reset First Preferred Shares Series BR (Series BR); in

connection with the issuance of LRCN Series 3, we issued $1,000 million of Non-Cumulative 5-Year Fixed Rate Reset First Preferred Shares Series BS (Series BS); in

connection with the issuance of LRCN Series 4, we issued US$1,000 million of Non-Cumulative 5-Year Fixed Rate Reset First Preferred Shares Series BV (Series BV); in

connection with the issuance of LRCN Series 5, we issued US$1,000 million of Non-Cumulative 5-Year Fixed Rate Reset First Preferred Shares Series BX (Series BX); in

connection with the issuance of LRCN Series 6, we issued US$1,250 million of Non-Cumulative 5-Year Fixed Rate Reset First Preferred Shares Series BY (Series BY); in

connection with the issuance of LRCN Series 7, we issued US$1,350 million of Non-Cumulative 5-Year Fixed Rate Reset First Preferred Shares Series BZ (Series BZ). The

Series BR and BS preferred shares were issued at a price of $1,000 per share and the Series BV, BX, BY and BZ preferred shares were issued at a price of US$1,000 per

share. These preferred shares were issued to a consolidated trust to be held as trust assets in connection with each respective LRCN Series.

![]()

(continued)

Note 19

Equity

222

Royal Bank of Canada: Annual Report 2025

Consolidated Financial Statements

Significant terms and conditions of preferred shares and other equity instruments

|  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- |
|  |  |  | Current | Earliest |  |  |
|  | Current |  | dividend | redemption |  | Redemption |
| As at October 31, 2025 | annual yield | Premium | per share  (1) | date  (2) | Issue date | price  (2), (3) |
| Preferred shares |  |  |  |  |  |  |
| First preferred |  |  |  |  |  |  |
| Non-cumulative, fixed rate |  |  |  |  |  |  |
| Series BH  (4) | 4.90% |  | $  0.30625 | November 24, 2020 | June 5, 2015 | $  25.00 |
| Series BI  (4) | 4.90% |  | 0.30625 | November 24, 2020 | July 22, 2015 | 25.00 |
| Non-cumulative, 5-Year Rate |  |  |  |  |  |  |
| Reset  (5) |  |  |  |  |  |  |
| Series BF  (4) | 3.00% | 2.62% | 0.1875 | November 24, 2020 | March 13, 2015 | 25.00 |
| Series BO  (4) | 5.885% | 2.38% | 0.3678125 | February 24, 2024 | November 2, 2018 | 25.00 |
| Series BT  (4) | 4.20% | 2.71% | 21.00 | January 24, 2027 | November 5, 2021 | 1,000.00 |
| Series BU  (4) | 7.408% | 3.90% | 37.04 | January 25, 2029 | January 25, 2024 | 1,000.00 |
| Series BW  (4) | 6.698% | 3.40% | 33.49 | October 24, 2029 | July 24, 2024 | 1,000.00 |
| Other equity instruments |  |  |  |  |  |  |
| Limited recourse capital |  |  |  |  |  |  |
| notes  (6) |  |  |  |  |  |  |
| Series 2  (7) | 4.00% | 3.617% | n.a. | January 24, 2026 | November 2, 2020 | 1,000.00 |
| Series 3  (8) | 3.65% | 2.665% | n.a. | October 24, 2026 | June 8, 2021 | 1,000.00 |
| Series 4  (9) | 7.50% | 2.887% | n.a. | May 2, 2029 | April 24, 2024 | US$1,000.00 |
| Series 5  (10) | 6.35% | 2.257% | n.a. | November 24, 2034 | November 1, 2024 | US$1,000.00 |
| Series 6  (11) | 6.75% | 2.815% | n.a. | August 24, 2030 | June 11, 2025 | US$1,000.00 |
| Series 7  (12) | 6.50% | 2.462% | n.a. | November 24, 2035 | September 23, 2025 | US$1,000.00 |

(1)

With the exception of Series BT, BU and BW, non-cumulative preferential dividends of each Series are payable quarterly, as and when declared by the Board of Directors,

on or about the 24th day of February, May, August and November. In the case of Series BT, BU and BW, non-cumulative preferential dividends are payable semi-annually,

as and when declared by the Board of Directors.

(2)

Subject to the consent of OSFI and the requirements of the

Bank Act

(Canada), we may, on or after the dates specified above, redeem First Preferred Shares. In the case

of Series BF and BO, these may be redeemed for cash at a price per share of $25 if redeemed on the earliest redemption date and on the same date every fifth year

thereafter. In the case of Series BH and BI, these may be redeemed for cash at a price per share of $26 if redeemed during the 12 months commencing on the earliest

redemption date and decreasing by $0.25 each 12-month period thereafter to a price per share of $25 if redeemed four years from the earliest redemption date or

thereafter. In the case of Series BT and BW, these may be redeemed for cash at a price of $1,000 if redeemed during the earliest redemption period of January 24, 2027 to

February 24, 2027 and October 24, 2029 to November 24, 2029, respectively, and during the same redemption period every fifth year thereafter. In the case of Series BU,

these may be redeemed for cash at a price of $1,000 if redeemed during the earliest redemption period from January 25, 2029 to February 24, 2029 and during the period

from January 24 to and including February 24 every fifth year thereafter.

(3)

Subject to the consent of OSFI and the requirements of the

Bank Act

(Canada), we may purchase the First Preferred Shares of each Series for cancellation at the lowest

price or prices at which, in the opinion of the Board of Directors, such shares are obtainable.

(4)

The preferred shares include NVCC provisions, necessary for the shares to qualify as Tier 1 regulatory capital under Basel III. NVCC provisions require the conversion of

the instrument into a variable number of common shares in the event that OSFI deems the Bank non-viable or a federal or provincial government in Canada publicly

announces that the Bank has accepted or agreed to accept a capital injection. In such an event, each preferred share is convertible into common shares pursuant to an

automatic conversion formula with a multiplier of 1 and with a conversion price based on the greater of: (i) a floor price of $5 (subject to adjustment in certain

circumstances), and (ii) the current market price of our common shares based on the volume weighted average trading price of our common shares on the Toronto Stock

Exchange. The number of shares issued is determined by dividing the preferred share value by the conversion price.

(5)

The dividend rate will reset on the earliest redemption date or on the last day of the redemption period, as applicable, and every fifth year thereafter at a rate equal to

the 5-Year Government of Canada bond yield plus the premium indicated. The holders of Series BF and BO shares have the option to convert their shares into

non-cumulative floating rate First Preferred Shares subject to certain conditions on the earliest redemption date and every fifth year thereafter at a rate equal to the

three-month Government of Canada Treasury Bill rate plus the premium indicated.

(6)

The current annual yield on each LRCN Series represents the annual interest rate applicable to the notes issued as at the reporting date. The payments of interest and

principal in cash on the LRCN Series are made at our discretion, and non-payment of interest and principal in cash does not constitute an event of default. In the event of

(i) non-payment of interest on any interest payment date, (ii) non-payment of the redemption price in case of a redemption of a LRCN Series, (iii) non-payment of

principal at the maturity of a LRCN Series, or (iv) an event of default on a LRCN Series, holders of such LRCN Series will have recourse only to the assets (Trust Assets)

held by a third-party trustee in a consolidated trust in respect of such LRCN Series and each such noteholder will be entitled to receive its pro rata share of the Trust

Assets. In such an event, the delivery of the Trust Assets for each LRCN Series will represent the full and complete extinguishment of our obligations under the related

LRCN Series. The LRCNs include NVCC provisions, necessary for the shares to qualify as Tier 1 regulatory capital under Basel III. NVCC provisions require the conversion

of the instrument into a variable number of common shares in the event that OSFI deems the Bank non-viable or a federal or provincial government in Canada publicly

announces that the Bank has accepted or agreed to accept a capital injection. In such an event, each note is automatically redeemed and the redemption price will be

satisfied by the delivery of Trust Assets, which will consist of common shares pursuant to an automatic conversion of the series of preferred shares that were issued

concurrently with the related LRCN Series. Each series of preferred shares include an automatic conversion formula with a conversion price based on the greater of: (i) a

floor price of $5 (subject to adjustment in certain circumstances), and (ii) the current market price of our common shares based on the volume weighted average trading

price of our common shares on the Toronto Stock Exchange. The number of common shares issued in respect of each series of preferred shares will be determined by

dividing the preferred share value ($1,000 plus declared and unpaid dividends) by the conversion price. The number of common shares delivered to each noteholder will

be based on such noteholder’s pro rata interest in the Trust Assets. Subject to the consent of OSFI, we may purchase LRCNs for cancellation at such price or prices and

upon such terms and conditions as we in our absolute discretion may determine, subject to any applicable law restricting the purchase of notes.

(7)

LRCN Series 2 bear interest at a fixed rate of 4.0% per annum until February 24, 2026, and thereafter at a rate per annum, reset every fifth year, equal to the 5-Year

Government of Canada Yield plus 3.617% until maturity on February 24, 2081. The interest is paid semi-annually on or about the 24th day of February and August. LRCN

Series 2 is redeemable during the period from January 24 to and including February 24, commencing in 2026 and every fifth year thereafter to the extent we redeem

Series BR pursuant to their terms and subject to the consent of OSFI and requirements of the

Bank Act

(Canada).

(8)

LRCN Series 3 bear interest at a fixed rate of 3.65% per annum until November 24, 2026, and thereafter at a rate per annum, reset every fifth year, equal to the 5-Year

Government of Canada Yield plus 2.665% until maturity on November 24, 2081. The interest is paid semi-annually on or about the 24th day of May and November. LRCN

Series 3 is redeemable during the period from October 24 to and including November 24, commencing in 2026 and every fifth year thereafter to the extent we redeem

Series BS pursuant to their terms and subject to the consent of OSFI and requirements of the

Bank Act

(Canada).

(9)

LRCN Series 4 bear interest at a fixed rate of 7.5% per annum until May 2, 2029, and thereafter at a rate per annum, reset every fifth year, equal to the 5-Year U.S. Treasury

Rate plus 2.887% until maturity on May 2, 2084. The interest is paid quarterly on or about the 2nd day of February, May, August and November. LRCN Series 4 is

redeemable on May 2, 2029 and on each 2nd day of February, May, August and November thereafter to the extent we redeem Series BV pursuant to their terms and

subject to the consent of OSFI and requirements of the

Bank Act

(Canada).

(10)

LRCN Series 5 bear interest at a fixed rate of 6.35% per annum until November 24, 2034, and thereafter at a rate per annum, reset every fifth year, equal to the 5-Year U.S.

Treasury Rate plus 2.257% until maturity on November 24, 2084. The interest is paid quarterly on or about the 24th day of February, May, August and November. LRCN

Series 5 is redeemable on November 24, 2034 and on each 24th day of February, May, August and November thereafter to the extent we redeem Series BX pursuant to

their terms and subject to the consent of OSFI and requirements of the

Bank Act

(Canada).

(11)

LRCN Series 6 bear interest at a fixed rate of 6.75% per annum until August 24, 2030, and thereafter at a rate per annum, reset every fifth year, equal to the 5-Year U.S.

Treasury Rate plus 2.815% until maturity on August 24, 2085. The interest is paid quarterly on or about the 24th day of February, May, August and November. LRCN

Series 6 is redeemable on August 24, 2030 and on each 24th day of February, May, August and November thereafter to the extent we redeem Series BY pursuant to their

terms and subject to the consent of OSFI and requirements of the

Bank Act

(Canada).

(12)

LRCN Series 7 bear interest at a fixed rate of 6.50% per annum until November 24, 2035, and thereafter at a rate per annum, reset every fifth year, equal to the 5-Year U.S.

Treasury Rate plus 2.462% until maturity on November 24, 2085. The interest is paid quarterly on or about the 24th day of February, May, August and November. LRCN

Series 7 is redeemable on November 24, 2035 and on each 24th day of February, May, August and November thereafter to the extent we redeem Series BZ pursuant to

their terms and subject to the consent of OSFI and requirements of the

Bank Act

(Canada).

n.a.

not applicable

![]()

Consolidated Financial Statements

Royal Bank of Canada: Annual Report 2025

223

Restrictions on the payment of dividends

We are prohibited by the

Bank Act

(Canada) from declaring any dividends on our preferred or common shares when we are, or

would be placed as a result of the declaration, in contravention of the capital adequacy and liquidity regulations or any

regulatory directives issued under the Act. We may not pay dividends on our common shares at any time unless all dividends to

which preferred shareholders are then entitled have been declared and paid or set apart for payment. Currently, these

limitations do not restrict the payment of dividends on our preferred or common shares.

Dividend reinvestment plan

Our dividend reinvestment plan (DRIP) provides common and preferred shareholders with a means to receive additional

common shares rather than cash dividends. The plan is only open to shareholders residing in Canada or the U.S. The

requirements of our DRIP are satisfied through either open market share purchases or shares issued from treasury. During the

year ended October 31, 2025 and the third and fourth quarters of the year ended October 31, 2024, the requirements of our DRIP

were satisfied through open market share purchases. During the first and second quarters of the year ended October 31, 2024,

the requirements of our DRIP were satisfied through shares issued from treasury at a discount.

Shares available for future issuances

As at October 31, 2025, 14.8 million common shares are available for future issue relating to our DRIP and potential exercise of

stock options and awards outstanding. In addition, we may issue up to 38.9 million common shares from treasury under the RBC

Umbrella Savings and Securities Purchase Plan that was approved by shareholders on February 26, 2009.

Note 20

Share-based compensation

Stock option plans

We have stock option plans for certain key employees. Under the plans, options are periodically granted to purchase common

shares. The exercise price for the majority of the grants is determined as the higher of the volume-weighted average of the

trading prices per board lot (100 shares) of our common shares on the Toronto Stock Exchange (i) on the day preceding the day

of grant; and (ii) the five consecutive trading days immediately preceding the day of grant. The exercise price for the remaining

grants is the closing market share price of our common shares on the New York Stock Exchange on the date of grant. All options

vest over a four-year period, and are exercisable for a period not exceeding 10 years from the grant date.

The compensation expense recorded for the year ended October 31, 2025, in respect of the stock option plans was $18 million

(October 31, 2024 – $16 million). The compensation expense related to non-vested options was $9 million at October 31, 2025

(October 31, 2024 – $9 million), to be recognized over the weighted average period of 2.0 years (October 31, 2024 – 2.0 years).

Analysis of the movement in the number and weighted average exercise price of options is set out below.

A summary of our stock option activity and related information

|  |  |  |  |  |
| --- | --- | --- | --- | --- |
|  | For the year ended | | | |
|  | October 31, 2025 | | October 31, 2024 | |
|  | Number of | Weighted | Number of | Weighted |
|  | options | average | options | average |
| (Canadian dollars per share except option amounts) | (thousands) | exercise price  (1) | (thousands) | exercise price  (1) |
| Outstanding at beginning of period | 7,375 | $  113.00 | 7,767 | $ 106.01 |
| Granted | 916 | 177.97 | 1,666 | 125.37 |
| Exercised  (2), (3) | (796) | 90.31 | (1,720) | 91.03 |
| Forfeited | (5) | 114.04 | (338) | 124.64 |
| Outstanding at end of period | 7,490 | $  123.37 | 7,375 | $ 113.00 |
| Exercisable at end of period | 3,522 | $  105.02 | 3,212 | $  97.02 |

(1)

The weighted average exercise prices reflect the conversion of foreign currency-denominated options at the exchange rates as of October 31, 2025 and October 31, 2024.

For foreign currency-denominated options exercised during the year, the weighted average exercise prices are translated using exchange rates as at the settlement date.

(2)

Cash received for options exercised during the year was $72 million (October 31, 2024 – $157 million) and the weighted average share price at the date of exercise was

$179.45 (October 31, 2024 – $144.69).

(3)

New shares were issued for all stock options exercised in 2025 and 2024.

Options outstanding as at October 31, 2025 by range of exercise price

|  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- |
|  | Options outstanding | | | Options exercisable | |
|  |  |  | Weighted |  |  |
|  |  |  | average |  |  |
|  | Number | Weighted | remaining | Number | Weighted |
| (Canadian dollars per share except | outstanding | average | contractual | exercisable | average |
| option amounts and years) | (thousands) | exercise price  (1) | life (years) | (thousands) | exercise price  (1) |
| $74.39 – $96.55 | 1,031 | $  93.27 | 2.04 | 1,031 | $  93.27 |
| $102.33 – $104.70 | 1,067 | 103.95 | 3.46 | 1,067 | 103.95 |
| $106.00 – $106.00 | 930 | 106.00 | 5.12 | 930 | 106.00 |
| $125.37 – $129.99 | 2,579 | 127.21 | 7.32 | 494 | 129.99 |
| $131.64 – $177.97 | 1,883 | 154.17 | 8.10 | – | – |
|  | 7,490 | $ 123.37 | 5.97 | 3,522 | $ 105.02 |

(1)

The weighted average exercise prices reflect the conversion of foreign currency-denominated options at the exchange rate as of October 31, 2025.

![]()

(continued)

Note 20

Share-based compensation

224

Royal Bank of Canada: Annual Report 2025

Consolidated Financial Statements

The weighted average fair value of options granted during the year ended October 31, 2025 was estimated at $20.45

(October 31, 2024 – $13.60). This was determined by applying the Black-Scholes model on the date of grant, taking into account

the specific terms and conditions under which the options are granted, such as the vesting period and expected share price

volatility estimated by considering the historic average share price volatility over a historical period corresponding to the

expected option life. The following table summarizes the assumptions used to determine the fair value of options granted.

Weighted average assumptions

|  |  |  |
| --- | --- | --- |
|  | For the year ended | |
|  | October 31 | October 31 |
| (Canadian dollars per share except percentages and years) | 2025 | 2024 |
| Share price at grant date | $  177.97 | $  128.62 |
| Risk-free interest rate | 3.00% | 3.29% |
| Expected dividend yield | 3.85% | 4.20% |
| Expected share price volatility | 17% | 16% |
| Expected life of option | 6 Years | 6 Years |

Employee savings and share ownership plans

We offer many employees an opportunity to own our common shares through savings and share ownership plans. Under these

plans, the employees can generally contribute between 1% and 10% of their annual salary or benefit base for commission-based

employees. For each contribution between 1% and 6%, we will generally match 50% of the employee contributions in our

common shares. For the RBC Dominion Securities Savings

®

Plan, our maximum annual contribution is $4,500 per employee. For

the RBC U.K. Share Incentive Plan, our maximum annual contribution is £1,500 per employee. For the year ended October 31,

2025, we contributed $164 million (October 31, 2024 – $154 million) under the terms of these plans towards the purchase of our

common shares. As at October 31, 2025 an aggregate of 34 million common shares were held under these plans (October 31, 2024

– 35 million common shares).

Deferred share and other plans

We offer deferred share unit plans to executives, certain key employees and non-employee directors of the Bank. Under these

plans, participants may choose to receive all or a percentage of their annual variable short-term incentive bonus, commission,

or directors’ fee in the form of deferred share units (DSUs). The participants must elect to participate in the plan prior to the

beginning of the year. DSUs earn dividend equivalents in the form of additional DSUs at the same rate as dividends on common

shares. The participant is not allowed to convert the DSUs until retirement or termination of employment/directorship. The cash

value of the DSUs is equivalent to the market value of common shares when conversion takes place.

We offer unit awards for certain key employees within Capital Markets. The bonus is invested as RBC share units and a

specified percentage vests on a specified number of anniversary dates each year. Each vested amount is paid in cash and is

based on the original number of share units granted plus accumulated dividends, valued using the average closing price of

RBC common shares during the five trading days immediately preceding the vesting date.

We offer performance deferred share award plans to certain key employees, all of which vest at the end of three years.

Upon vesting, the award is generally paid in cash and is based on the original number of RBC share units granted plus

accumulated dividends, valued using the average closing price of RBC common shares during the five trading days immediately

preceding the vesting date. A portion of the award under certain plans may be increased or decreased up to 25%, depending on

our total shareholder return compared to a defined peer group of global financial institutions.

We maintain non-qualified deferred compensation plans for certain key employees in the U.S. These plans allow eligible

employees to defer a portion of their annual income and a variety of productivity and recruitment bonuses and allocate the

deferrals among specified fund choices, including a RBC Share Account fund that tracks the value of our common shares.

The following table presents the units granted under the deferred share and other plans for the year.

Units granted under deferred share and other plans

|  |  |  |  |  |
| --- | --- | --- | --- | --- |
|  | For the year ended | | | |
|  | October 31, 2025 | | October 31, 2024 | |
|  |  | Weighted |  | Weighted |
|  | Units | average | Units | average |
|  | granted | fair value | granted | fair value |
| (Units and per unit amounts) | (thousands) | per unit | (thousands) | per unit |
| Deferred share unit plans | 438 | $  176.00 | 550 | $  134.64 |
| Capital Markets compensation plan unit awards | 3,147 | 203.17 | 3,053 | 167.79 |
| Performance deferred share award plans | 2,202 | 178.57 | 2,848 | 123.83 |
| Deferred compensation plans | 85 | 172.35 | 86 | 132.99 |
| Other share-based plans | 886 | 177.42 | 1,108 | 129.38 |
|  | 6,758 | $  189.63 | 7,645 | $  143.07 |

Our liabilities for the awards granted under the deferred share and other plans are measured at fair value, determined based on

the quoted market price of our common shares and specified fund choices as applicable. Annually, our obligation is increased

by additional units earned by plan participants, and is reduced by forfeitures, cancellations, and the settlement of vested units.

In addition, our obligation is impacted by fluctuations in the market price of our common shares and specified fund units. For

performance deferred share award plans, the estimated outcome of meeting the performance conditions also impacts our

obligation.

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Consolidated Financial Statements

Royal Bank of Canada: Annual Report 2025

225

The following tables present the units that have been earned by the participants, our obligations for these earned units

under the deferred share and other plans, and the related compensation expenses (recoveries) recognized for the year.

Obligations under deferred share and other plans

|  |  |  |  |  |
| --- | --- | --- | --- | --- |
|  | As at | | | |
|  | October 31, 2025 | | October 31, 2024 | |
|  | Units | Carrying | Units | Carrying |
| (Millions of Canadian dollars except units) | (thousands) | amount | (thousands) | amount |
| Deferred share unit plans | 6,324 | $ 1,299 | 6,243 | $ 1,051 |
| Capital Markets compensation plan unit awards | 8,762 | 1,788 | 9,593 | 1,603 |
| Performance deferred share award plans | 6,170 | 1,267 | 6,068 | 1,022 |
| Deferred compensation plans  (1) | 1,972 | 405 | 2,109 | 355 |
| Other share-based plans | 2,258 | 434 | 2,394 | 363 |
|  | 25,486 | $ 5,193 | 26,407 | $ 4,394 |

(1)

Excludes obligations not determined based on the quoted market price of our common shares.

Compensation expenses recognized under deferred share and other plans

|  |  |  |
| --- | --- | --- |
|  | For the year ended | |
|  | October 31 | October 31 |
| (Millions of Canadian dollars) | 2025 | 2024 |
| Deferred share unit plans | $  292 | $  395 |
| Capital Markets compensation plan unit awards | 519 | 643 |
| Performance deferred share award plans | 645 | 685 |
| Deferred compensation plans | 645 | 797 |
| Other share-based plans | 237 | 276 |
|  | $  2,338 | $  2,796 |

Note 21

Income taxes

Components of tax expense

|  |  |  |
| --- | --- | --- |
|  | For the year ended | |
|  | October 31 | October 31 |
| (Millions of Canadian dollars) | 2025 | 2024 |
| Income taxes (recoveries) in Consolidated Statements of Income |  |  |
| Current tax |  |  |
| Tax expense for current year | $  5,534 | $  4,829 |
| Adjustments for prior years | 106 | 298 |
| Recoveries arising from previously unrecognized tax loss, tax credit or temporary difference of a |  |  |
| prior period | (4) | (4) |
|  | 5,636 | 5,123 |
| Deferred tax |  |  |
| Origination and reversal of temporary difference | (118) | (1,118) |
| Adjustments for prior years | (235) | (383) |
| Recoveries arising from previously unrecognized tax loss, tax credit or temporary difference of a |  |  |
| prior period, net | (1) | – |
|  | (354) | (1,501) |
|  | 5,282 | 3,622 |
| Income taxes (recoveries) in Consolidated Statements of Comprehensive Income and Changes |  |  |
| in Equity |  |  |
| Other comprehensive income |  |  |
| Net unrealized gains (losses) on debt securities and loans at fair value through other |  |  |
| comprehensive income | 219 | 302 |
| Provision for credit losses recognized in income | (1) | (3) |
| Reclassification of net losses (gains) on debt securities and loans at fair value through other |  |  |
| comprehensive income to income | (39) | (39) |
| Unrealized foreign currency translation gains (losses) | 1 | (11) |
| Net foreign currency translation gains (losses) from hedging activities | (118) | (195) |
| Reclassification of losses (gains) on net investment hedging activities to income | – | – |
| Net gains (losses) on derivatives designated as cash flow hedges | 287 | 105 |
| Reclassification of losses (gains) on derivatives designated as cash flow hedges to income | (255) | (309) |
| Remeasurement gains (losses) on employee benefit plans | 124 | 202 |
| Net gains (losses) from fair value change due to credit risk on financial liabilities designated at |  |  |
| fair value through profit or loss | (342) | (399) |
| Net gains (losses) on equity securities designated at fair value through other comprehensive income | 39 | 43 |
| Share-based compensation awards | (36) | (12) |
| Distributions on other equity instruments and issuance costs | (134) | (69) |
|  | (255) | (385) |
| Total income taxes | $  5,027 | $  3,237 |

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(continued)

Note 21

Income taxes

226

Royal Bank of Canada: Annual Report 2025

Consolidated Financial Statements

The following is an analysis of the differences between the income tax expense reflected in the Consolidated Statements of

Income and the amounts calculated at the Canadian statutory tax rate.

Reconciliation to statutory tax rate

|  |  |  |  |  |
| --- | --- | --- | --- | --- |
|  | For the year ended | | | |
| (Millions of Canadian dollars, except for percentage amounts) | October 31, 2025 | | October 31, 2024 | |
| Income taxes at Canadian statutory tax rate | $  7,105 | 27.7% | $  5,502 | 27.7% |
| Increase (decrease) in income taxes resulting from: |  |  |  |  |
| Lower average tax rate applicable to subsidiaries  (1) | (1,810) | (7.1) | (1,971) | (9.9) |
| Tax-exempt income from securities | (34) | (0.1) | (52) | (0.3) |
| Other | 21 | 0.1 | 143 | 0.7 |
| Income taxes in Consolidated Statements of Income / effective tax rate | $  5,282 | 20.6% | $  3,622 | 18.2% |

(1)

Includes Pillar Two current tax expense. The Organisation for Economic Co-operation and Development’s two-pillar plan to combat tax base erosion and profit sharing

includes a 15% global minimum corporate tax on certain multinational enterprises (Pillar Two). Pillar Two legislation in certain countries in which RBC operates became

effective for us beginning November 1, 2024, including under the Global Minimum Tax Act in Canada. Pillar Two current tax expense includes both domestic top up taxes

payable in foreign jurisdictions and income taxes payable in Canada under the Income Inclusion Rule. Pillar Two current tax expense increased RBC’s effective tax rate by

approximately 1.4% for the year ended October 31, 2025 (October 31, 2024 – not applicable).

The effective income tax rate of 20.6% increased 240 bps, primarily due to higher income in higher tax rate jurisdictions and the

impact of Pillar Two legislation.

Deferred tax assets and liabilities result from tax loss and tax credit carryforwards and temporary differences between the tax

basis of assets and liabilities and their carrying amounts on our Consolidated Balance Sheets.

Significant components of deferred tax assets and liabilities

|  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- |
|  | As at and for the year ended October 31, 2025 | | | | | |
|  | Net asset | Change | Change | Exchange |  | Net asset |
|  | beginning of | through | through | rate | Acquisitions/ | end of |
| (Millions of Canadian dollars) | period | equity | profit or loss | differences | disposals | period |
| Net deferred tax asset/(liability) |  |  |  |  |  |  |
| Allowance for credit losses | $  1,394 | $  – | $  150 | $  2 | $  – | $  1,546 |
| Deferred compensation | 2,167 | 36 | 243 | 34 | – | 2,480 |
| Business realignment charges | 43 | – | 22 | 1 | – | 66 |
| Tax loss and tax credit carryforwards | 331 | – | 20 | 2 | – | 353 |
| Deferred (income) expense | 1,318 | 8 | (433) | 7 | – | 900 |
| Financial instruments measured at fair value |  |  |  |  |  |  |
| through other comprehensive income | (158) | (93) | 9 | 15 | – | (227) |
| Premises and equipment and intangibles | (1,476) | – | 182 | (26) | – | (1,320) |
| Pension and post-employment related | (463) | (127) | 33 | (1) | – | (558) |
| Other | 630 | 2 | 128 | 2 | – | 762 |
|  | $  3,786 | $  (174) | $  354 | $  36 | $  – | $  4,002 |
| Comprising |  |  |  |  |  |  |
| Deferred tax assets | $  4,328 |  |  |  |  | $  4,486 |
| Deferred tax liabilities | (542) |  |  |  |  | (484) |
|  | $  3,786 |  |  |  |  | $  4,002 |

|  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- |
|  | As at and for the year ended October 31, 2024 | | | | | |
|  | Net asset | Change | Change | Exchange |  | Net asset |
|  | beginning of | through | through | rate | Acquisitions/ | end of |
| (Millions of Canadian dollars) |  | period | equity  profit or loss | differences | disposals | period |
| Net deferred tax asset/(liability) |  |  |  |  |  |  |
| Allowance for credit losses | $  1,174 | $  4 | $  217 | $  (1) | $  – | $  1,394 |
| Deferred compensation | 1,522 | 12 | 614 | 19 | – | 2,167 |
| Business realignment charges | 23 | – | 16 | – | 4 | 43 |
| Tax loss and tax credit carryforwards | 261 | – | 71 | (1) | – | 331 |
| Deferred (income) expense | 651 | 4 | 641 | 2 | 20 | 1,318 |
| Financial instruments measured at fair value |  |  |  |  |  |  |
| through other comprehensive income | (321) | 164 | (1) | – | – | (158) |
| Premises and equipment and intangibles | (967) | – | 136 | (22) | (623) | (1,476) |
| Pension and post-employment related | (333) | (206) | 20 | (1) | 57 | (463) |
| Other | 680 | – | (213) | – | 163 | 630 |
|  | $  2,690 | $  (22) | $1,501 | $  (4) | $(379) | $  3,786 |
| Comprising |  |  |  |  |  |  |
| Deferred tax assets | $  3,116 |  |  |  |  | $  4,328 |
| Deferred tax liabilities | (426) |  |  |  |  | (542) |
|  | $  2,690 |  |  |  |  | $  3,786 |

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Consolidated Financial Statements

Royal Bank of Canada: Annual Report 2025

227

The tax loss and tax credit carryforwards amount of deferred tax assets primarily relates to losses and tax credits in our

Canadian, U.S., and Caribbean operations. Deferred tax assets of $353 million were recognized at October 31, 2025

(October 31, 2024 – $331 million) in respect of tax losses and tax credits incurred in current or preceding years for which

recognition is dependent on the projection of future taxable profits. Management’s forecasts support the assumption that it is

probable that the results of future operations will generate sufficient taxable income to utilize the deferred tax assets. The

forecasts rely on continued liquidity and capital support to our business operations, including tax planning strategies

implemented in relation to such support.

As at October 31, 2025, unused tax losses and tax credits of $408 million and $18 million (October 31, 2024 – $412 million and

$18 million) available to be offset against potential tax adjustments or future taxable income were not recognized as deferred

tax assets. There are no unused tax losses that will expire within one year (October 31, 2024 – $nil), or in two to four years

(October 31, 2024 – $nil) and there are $408 million of unused tax losses that will expire after four years (October 31, 2024 –

$412 million). There are no tax credits that will expire in one year (October 31, 2024 – $nil), or in two to four years

(October 31, 2024 – $nil) and there are $18 million that will expire after four years (October 31, 2024 – $18 million).

The amount of temporary differences associated with investments in subsidiaries, branches and associates and interests in

joint ventures for which deferred tax liabilities have not been recognized in the parent bank is $37 billion as at October 31, 2025

(October 31, 2024 – $30 billion).

Tax examinations and assessments

During the year, we received a reassessment from the Canada Revenue Agency (CRA) in respect of the 2020 taxation year, which

suggested that Royal Bank of Canada owes additional taxes of approximately $411 million as the CRA denied the deductibility of

certain dividends. The reassessment received is consistent with the reassessments received for taxation years 2012 to 2019 of

approximately $2,133 million of additional income taxes and the reassessments received for taxation years 2009 to 2011 of

approximately $434 million of additional income taxes and interest in respect of the same matter. These amounts represent the

maximum additional taxes owing for those years.

Legislative amendments introduced in the 2015 Canadian Federal Budget resulted in disallowed deduction of dividends from

transactions with Taxable Canadian Corporations including those hedged with Tax Indifferent Investors, namely pension funds

and non-resident entities with prospective application effective May 1, 2017. The dividends to which the reassessments relate

include both dividends in transactions similar to those which are the target of the 2015 legislative amendments and dividends

which are unrelated to the legislative amendments.

It is possible that the CRA will reassess us for significant additional income tax for subsequent years on the same basis. In

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

Note 22

Earnings per share

|  |  |  |
| --- | --- | --- |
|  | For the year ended | |
|  | October 31 | October 31 |
| (Millions of Canadian dollars, except share and per share amounts) | 2025 | 2024 |
| Basic earnings per share |  |  |
| Net income | $  20,369 | $  16,240 |
| Dividends on preferred shares and distributions on other equity instruments | (494) | (322) |
| Net income attributable to non-controlling interests | (7) | (10) |
| Net income available to common shareholders | $  19,868 | $  15,908 |
| Weighted average number of common shares (in thousands) | 1,409,072 | 1,411,903 |
| Basic earnings per share (in dollars) | $  14.10 | $  11.27 |
| Diluted earnings per share |  |  |
| Net income available to common shareholders | $  19,868 | $  15,908 |
| Weighted average number of common shares (in thousands) | 1,409,072 | 1,411,903 |
| Stock options  (1) | 2,517 | 1,833 |
| Issuable under other share-based compensation plans | – | 19 |
| Average number of diluted common shares (in thousands) | 1,411,589 | 1,413,755 |
| Diluted earnings per share (in dollars) | $  14.07 | $  11.25 |

(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 years ended October 31, 2025 and October 31, 2024, no

outstanding options were excluded from the calculation of diluted earnings per share.

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228

Royal Bank of Canada: Annual Report 2025

Consolidated Financial Statements

Note 23

Guarantees, commitments, pledged assets and contingencies

Guarantees and commitments

We use guarantees and other off-balance sheet credit instruments to meet the financing needs of our clients.

The table below summarizes our maximum exposure to credit losses related to our guarantees and commitments provided

to third parties. The maximum exposure to credit risk relating to a guarantee is the maximum risk of loss if there was a total

default by the guaranteed parties, without consideration of possible recoveries under recourse provisions, insurance policies or

from collateral held or pledged. The maximum exposure to credit risk relating to a commitment to extend credit is the full

amount of the commitment. In both cases, the maximum risk exposure is significantly greater than the amount recognized as a

liability in our Consolidated Balance Sheets.

|  |  |  |
| --- | --- | --- |
|  | Maximum exposure | |
|  | to credit losses | |
|  | As at | |
|  | October 31 | October 31 |
| (Millions of Canadian dollars) | 2025 | 2024 |
| Financial guarantees |  |  |
| Financial standby letters of credit | $  28,928 | $  27,222 |
| Commitments to extend credit |  |  |
| Backstop liquidity facilities | 60,520 | 53,090 |
| Credit enhancements | 3,895 | 3,482 |
| Documentary and commercial letters of credit | 295 | 559 |
| Other commitments to extend credit | 355,213 | 321,836 |
| Other credit-related commitments |  |  |
| Securities lending indemnifications | 86,782 | 81,347 |
| Performance guarantees | 12,691 | 12,283 |
| Sponsored member guarantees | 81,681 | 50,241 |
| Other | 116 | 446 |

Our credit review process, our policy for requiring collateral security, and the types of collateral security held are generally the

same for guarantees and commitments as for loans. Our clients generally have the right to request settlement of, or draw on,

our guarantees and commitments within one year. However, certain guarantees can only be drawn if specified conditions are

met. These conditions, along with collateral requirements, are described below. We believe that it is highly unlikely that all or

substantially all of the guarantees and commitments will be drawn or settled within one year, and contracts may expire without

being drawn or settled.

Financial guarantees

Financial standby letters of credit

Financial standby letters of credit represent irrevocable assurances that we will make payments in the event that a client cannot

meet its payment obligations to the third-party. For certain guarantees, the guaranteed party can request payment from us even

though the client has not defaulted on its obligations. These guarantees generally have a term of five to seven years.

Our policy for requiring collateral security with respect to these instruments and the types of collateral security held is

generally the same as for loans. When collateral security is taken, it is determined on an account-by-account basis according to

the risk of the borrower and the specifics of the transaction. Collateral security may include cash, securities and other assets

pledged.

Commitments to extend credit

Backstop liquidity facilities

Backstop liquidity facilities are provided to ABCP conduit programs administered by us and third parties as an alternative

source of financing in the event that such programs are unable to access commercial paper markets, or in limited

circumstances, when predetermined performance measures of the financial assets acquired or financed by these programs are

not met. The average remaining term of these liquidity facilities is approximately four years. We also provide backstop liquidity

facilities to certain third-party and RBC-sponsored commercial mortgage securitization vehicles. The average remaining term of

these liquidity facilities is approximately five years.

The terms of the backstop liquidity facilities do not require us to advance money to these programs in the event of

bankruptcy or insolvency and generally do not require us to purchase non-performing or defaulted assets.

Credit enhancements

We provide partial credit enhancement to multi-seller ABCP programs administered by us to protect commercial paper investors

in the event that the collections on the underlying assets together with the transaction-specific credit enhancements or the

liquidity facilities prove to be insufficient to pay for maturing commercial paper. Each of the asset pools is structured to achieve

a high investment grade credit profile through credit enhancements required to be provided by the third-party sellers related to

each transaction. The average remaining term of the credit facilities provided by RBC is approximately three years.

Documentary and commercial letters of credit

Documentary and commercial letters of credit, which are written undertakings by us on behalf of a client authorizing a third-

party to draw drafts on us up to a stipulated amount under specific terms and conditions, where some are collateralized based

on the underlying agreement with the client and others are collateralized by cash deposits or other assets of the client.

Other commitments to extend credit

Commitments to extend credit represent unused portions of authorizations to extend credit in the form of loans, reverse

repurchase agreements or letters of credit where we do not have the ability to unilaterally withdraw the credit extended to the

borrower.

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Consolidated Financial Statements

Royal Bank of Canada: Annual Report 2025

229

Other credit-related commitments

Securities lending indemnifications

In securities lending transactions, we act as an agent for the owner of a security, who agrees to lend the security to a borrower

for a fee, under the terms of a pre-arranged contract. The borrower must fully collateralize the security loaned at all times. As

part of this custodial business, an indemnification may be provided to securities lending customers to ensure that the fair value

of securities loaned will be returned in the event that the borrower fails to return the borrowed securities and the collateral held

is insufficient to cover the fair value of those securities. These indemnifications normally terminate without being drawn upon.

The term of these indemnifications varies, as the securities loaned are recallable on demand. Collateral held for our securities

lending transactions typically includes cash, securities that are issued or guaranteed by the Canadian government, U.S.

government or other OECD countries or high quality debt or equity instruments.

Performance guarantees

Performance guarantees represent irrevocable assurances that we will make payments to third-party beneficiaries in the event

that a client fails to perform under a specified non-financial contractual obligation. Such obligations typically include works and

service contracts, performance bonds, and warranties related to international trade. The term of these guarantees can range up

to three to seven years.

Our policy for requiring collateral security with respect to these instruments and the types of collateral security held is

generally the same as for loans. When collateral security is taken, it is determined on an account-by-account basis according to

the risk of the borrower and the specifics of the transaction. Collateral security may include cash, securities and other assets

pledged.

Sponsored member guarantees

For certain overnight repurchase and reverse repurchase transactions, we act as a sponsoring member to eligible clients to

clear transactions through the Fixed Income Clearing Corporation (FICC). We also provide a guarantee to FICC for the prompt

and full payment and performance of our sponsored member clients’ respective obligations under the FICC rules. The

guarantees are fully collateralized by cash and securities issued or guaranteed by the U.S. government.

Indemnifications

In the normal course of our operations, we provide indemnifications which are often standard contractual terms to

counterparties in transactions such as purchase and sale contracts, fiduciary, agency, licensing, custodial and service

agreements, clearing system arrangements, participation as a member of exchanges, director/officer contracts and leasing

transactions. These indemnification agreements may require us to compensate the counterparties for costs incurred as a result

of changes in laws and regulations (including tax legislation) or as a result of litigation claims or statutory sanctions that may be

suffered by the counterparty as a consequence of the transaction. The terms of these indemnification agreements vary based on

the contract. The nature of the indemnification agreements prevents us from making a reasonable estimate of the maximum

potential amount we could be required to pay to counterparties. Historically, we have not made any significant payments under

such indemnifications.

Uncommitted amounts

Uncommitted amounts represent undrawn credit facilities for which we have the ability to unilaterally withdraw the credit

extended to the borrower at any time. These include both retail and commercial commitments. As at October 31, 2025, the total

balance of uncommitted amounts was $496 billion (October 31, 2024 – $470 billion).

Other commitments

We invest in private companies, directly or through third-party investment funds, including venture capital funds, private equity

funds, Small Business Investment Companies, real estate funds and Low Income Housing Tax Credit funds. These funds are

generally structured as closed-end limited partnerships wherein we hold a limited partner interest. For the year ended

October 31, 2025, we have unfunded commitments of $1,664 million (October 31, 2024 – $1,922 million) representing the aggregate

amount of cash we are obligated to contribute as capital to these partnerships under the terms of the relevant contracts.

Pledged assets and collateral

In the ordinary course of business, we pledge assets and enter into collateral agreements with terms and conditions that are

customary to our regular lending, borrowing and trading activities that require us to pledge assets or provide collateral. The

following are examples of our general terms and conditions on pledged assets and collateral:

•

The risks and rewards of the pledged assets reside with the pledgor.

•

The pledged asset is returned to the pledgor when the necessary conditions have been satisfied.

•

The right of the pledgee to sell or re-pledge the asset is dependent on the specific agreement under which the collateral

is pledged.

•

If there is no default, the pledgee must return the comparable asset to the pledgor upon satisfaction of the obligation.

![]()

(continued)

Note 23

Guarantees, commitments, pledged assets and contingencies

230

Royal Bank of Canada: Annual Report 2025

Consolidated Financial Statements

The following table summarizes our pledged assets and collateral, and the activities to which they relate:

Assets pledged against liabilities and collateral assets held or re-pledged

|  |  |  |
| --- | --- | --- |
|  | As at | |
|  | October 31 | October 31 |
| (Millions of Canadian dollars) | 2025 | 2024 |
| Sources of pledged assets and collateral |  |  |
| Bank assets |  |  |
| Loans | $  96,886 | $  105,577 |
| Securities | 139,671 | 105,061 |
| Other assets | 40,974 | 31,583 |
|  | 277,531 | 242,221 |
| Client assets  (1) |  |  |
| Collateral received and available for sale or re-pledging | 539,344 | 539,630 |
| Less: not sold or re-pledged | (8,611) | (30,767) |
|  | 530,733 | 508,863 |
|  | $ 808,264 | $  751,084 |
| Uses of pledged assets and collateral |  |  |
| Securities borrowing and lending | $ 238,301 | $  198,887 |
| Obligations related to securities sold short | 56,382 | 46,088 |
| Obligations related to securities loaned or sold under repurchase agreements | 292,335 | 305,788 |
| Securitization | 36,797 | 39,769 |
| Covered bonds | 64,926 | 71,307 |
| Derivative transactions | 73,686 | 50,100 |
| Foreign governments and central banks | 11,510 | 8,469 |
| Clearing systems, payment systems and depositories | 12,194 | 11,261 |
| Other | 22,133 | 19,415 |
|  | $ 808,264 | $  751,084 |

(1)

Primarily relates to Obligations related to securities loaned or sold under repurchase agreements, Securities loaned and Derivative transactions.

Note 24

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. 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. In many proceedings, it is inherently difficult to

determine whether any loss is probable or to reliably estimate the amount of any loss. 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

provisions could be material to our results of operations in any particular period though we do not believe that the ultimate

resolution of any such matter will have a material effect on our consolidated financial condition. The following is a description

of our significant legal proceedings. Based on the facts currently known, except as may otherwise be noted, it is not possible at

this time for us to predict the ultimate outcome of these proceedings or the timing of their resolution.

Royal Bank of Canada Trust Company (Bahamas) Limited proceedings

On April 13, 2015, a French investigating judge notified Royal Bank of Canada Trust Company (Bahamas) Limited (RBC Bahamas)

of the issuance of an

ordonnance de renvoi

referring RBC Bahamas and other unrelated persons to the French

tribunal

correctionnel

to face the charge of complicity in estate tax fraud relating to actions taken relating to a trust for which RBC

Bahamas serves as trustee. RBC Bahamas contested the charge in the French court. On January 12, 2017, the French court

acquitted all parties including RBC Bahamas and on June 29, 2018, the French appellate court affirmed the acquittals. The

acquittals were appealed and on January 6, 2021, the French Supreme Court issued a judgment reversing the decision of the

French Court of Appeal and sent the case back to the French Court of Appeal for rehearing. The retrial before the Court of Appeal

commenced on September 18, 2023 and on March 5, 2024, the Court of Appeal rendered a judgment of conviction (the

Conviction) against RBC Bahamas and the other parties. RBC Bahamas was ordered by the Court of Appeal to pay a fine of

€

5,000 in connection with the Conviction. In addition, the Court of Appeal ordered that certain of those convicted of complicity in

the matter, including RBC Bahamas, are jointly liable for the allegedly unpaid inheritance taxes owing, plus penalties and

interest (such aggregate amount will be determined in separate proceedings before the tax courts, to which RBC Bahamas is not

a party). RBC Bahamas believes that its actions did not violate French law and has appealed the Conviction to the French

Supreme Court. Under French law, upon the filing of an appeal by RBC Bahamas, the Conviction, as well as its effects (fine and

joint liability) were stayed pending the outcome of the appeal. The French Supreme Court has scheduled the hearing for the

appeal for December 10, 2025.

On October 28, 2016, Royal Bank of Canada was granted an exemption by the U.S. Department of Labor (DOL) that allows

Royal Bank of Canada and its current and future affiliates to continue to qualify for the Qualified Professional Asset Manager

(QPAM) exemption under the Employee Retirement Income Security Act despite any potential conviction of RBC Bahamas in the

French proceeding for a temporary one-year period from the date of conviction. On December 11, 2023, the DOL published a

technical correction to the prior one-year exemption reflecting the fact that the pending French Court of Appeal’s decision would

be rendered by an appellate court, and not the district court. As a result of the Conviction, the temporary one-year period

commenced on March 5, 2024.

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Consolidated Financial Statements

Royal Bank of Canada: Annual Report 2025

231

On January 17, 2025, the DOL proposed exemptive relief to allow Royal Bank of Canada to continue to qualify for the QPAM

exemption under the Employee Retirement Income Security Act from March 5, 2025 through March 4, 2030. On March 5, 2025, the

DOL granted an extension of the original relief granted to Royal Bank of Canada in 2016 until the earlier of September 4, 2025 or

the effective date of a final agency action in connection with the proposed exemption published on January 17, 2025. The DOL

granted the exemptive relief it proposed on January 17, 2025, with immaterial amendments, with effect from August 12, 2025

through March 4, 2030. Royal Bank of Canada anticipates seeking further exemptive relief from the DOL prior to the expiration of

the existing relief in the future to the extent deemed necessary or advisable. No assurances can be provided that such relief, if

requested, would be forthcoming.

RBC Bahamas continues to review the trustee’s and the trust’s legal obligations, including liabilities and potential liabilities

under applicable tax and other laws.

U.K. Competition and Markets Authority investigation

In November 2018, the U.K. Competition and Markets Authority (CMA) started an investigation of Royal Bank of Canada and RBC

Europe Limited relating to alleged anti-competitive conduct between 2009 and 2013, involving U.K. government bonds and

related derivatives. In May 2023, the CMA issued a statement of objections to Royal Bank of Canada and RBC Europe Limited,

and certain other financial institutions. Royal Bank of Canada and RBC Europe Limited contested the CMA’s case. In February

2025, Royal Bank of Canada and RBC Europe Limited entered into a settlement with the CMA and agreed to make payment of

£34.2 million in full and final resolution of the matter.

In June 2023, RBC Europe Limited and RBC Capital Markets, LLC, among other financial institutions, were named as

defendants in a putative class action filed in the U.S. by plaintiffs alleging anti-competitive conduct in the U.K. government bonds

market. In September 2023, the defendants filed a motion to dismiss the complaint which motion was granted, without prejudice,

in September 2024. Subsequently, on October 31, 2024, RBC Europe Limited, RBC Capital Markets, LLC and certain of the other

defendants executed an agreement to dismiss the action, with prejudice, against those defendants. In March 2025, the court

preliminarily approved the settlement agreement. The settlement agreement, which entails dismissal of the case as to the settling

defendants for an immaterial amount, remains subject to final court approval.

Vacation pay class action

On December 29, 2022, the Ontario Superior Court of Justice certified a class in an action against RBC Dominion Securities

Limited and RBC Dominion Securities Inc. (together, RBC DS). The action commenced in July 2020, asserting claims relating to

statutory vacation pay and public holiday pay for investment advisors, associates and assistants in our Canadian Wealth

Management business, with the exception of those employed in Alberta and British Columbia.

Other matters

We are a defendant in a number of other actions alleging that certain of our practices and actions were improper. The lawsuits

involve a variety of complex issues and the timing of their resolution is varied and uncertain. Management believes that we will

ultimately be successful in resolving these lawsuits, to the extent that we are able to assess them, without material financial

impact to the Bank. This is, however, an area of significant judgment and the potential liability resulting from these lawsuits

could be material to our results of operations in any particular period.

Various other legal proceedings are pending that challenge certain of our other practices or actions. While this is an area of

significant judgment and some matters are currently inestimable, we consider that the aggregate liability, to the extent that we

are able to assess it, resulting from these other proceedings will not be material to our consolidated financial position or results

of operations.

Note 25

Related party transactions

Related parties

Related parties include associated companies over which we have direct or indirect control or have significant influence and

post-employment benefit plans for the benefit of our employees. Related parties also include key management personnel (KMP),

the Board of Directors (Directors), close family members of KMP and Directors, and entities which are, directly or indirectly,

controlled by or jointly controlled by KMP, Directors or their close family members.

Key management personnel and Directors

KMP are defined as those persons having authority and responsibility for planning, directing and controlling our activities, directly

or indirectly. They include the senior members of our organization called the Group Executive (GE). The GE is comprised of the

President and Chief Executive Officer (CEO), and the Chief Officers and Group Heads, who report directly to the CEO. The Directors

do not plan, direct or control the activities of the entity; they oversee the management of the business and provide stewardship.

Compensation of Key management personnel and Directors

|  |  |  |
| --- | --- | --- |
|  | For the year ended | |
|  | October 31 | October 31 |
| (Millions of Canadian dollars) | 2025 | 2024 |
| Salaries and other short-term employee benefits  (1) | $  35 | $  31 |
| Post-employment benefits  (2) | 4 | 3 |
| Share-based payments  (3) | 70 | 67 |
|  | $  109 | $  101 |

(1)

Includes the portion of the annual variable short-term incentive bonus that certain executives elected to receive in the form of DSUs. Refer to Note 20 for further details.

Directors receive retainers but do not receive salaries and other short-term employee benefits.

(2)

Directors do not receive post-employment benefits.

(3)

The Bank offers share-based compensation plans to KMP and Directors. Refer to Note 20 for further details.

![]()

(continued)

Note 25

Related party transactions

232

Royal Bank of Canada: Annual Report 2025

Consolidated Financial Statements

Transactions, arrangements and agreements involving Key management personnel, Directors and their close family

members

In the normal course of business, we provide certain banking services to KMP, Directors and their close family members. These

transactions were made on substantially the same terms, including interest rates and security, as for comparable transactions

with persons of a similar standing and did not involve more than the normal risk of repayment or present other unfavourable

features.

As at October 31, 2025, total loans to KMP, Directors and their close family members were $16 million (October 31, 2024 –

$16 million). We have no Stage 3 allowance or provision for credit losses relating to these loans as at and for the years ended

October 31, 2025 and October 31, 2024. No guarantees, pledges or commitments have been given to KMP, Directors or their close

family members.

Joint ventures and associates

In the normal course of business, we provide certain banking and financial services to our joint ventures and associates,

including loans, interest and non-interest bearing deposits. These transactions meet the definition of related party transactions

and were made on substantially the same terms as for comparable transactions with third parties.

As at October 31, 2025, loans to joint ventures and associates were $174 million (October 31, 2024 – $184 million) and

deposits from joint ventures and associates were $100 million (October 31, 2024 – $58 million). We have no Stage 3 allowance or

provision for credit losses relating to loans to joint ventures and associates as at and for the years ended October 31, 2025 and

October 31, 2024. $1 million of guarantees have been given to joint ventures and associates for the year ended October 31, 2025

(October 31, 2024 – $1 million).

Other transactions, arrangements or agreements involving joint ventures and associates

|  |  |  |
| --- | --- | --- |
|  | As at or for the year ended | |
|  | October 31 | October 31 |
| (Millions of Canadian dollars) | 2025 | 2024 |
| Commitments and other contingencies | $  1,207 | $  1,226 |
| Other fees received for services rendered | 105 | 73 |
| Other fees paid for services received | 121 | 119 |

Note 26

Results by business segment

Composition of business segments

For management purposes, based on the products and services offered, we are organized into five business segments: Personal

Banking, Commercial Banking, Wealth Management, Insurance and Capital Markets.

Personal Banking provides a broad suite of financial products and services to retail clients for their day-to-day banking,

investing and financing needs through three geographies: Canada, the Caribbean and the U.S. In Canada, we provide a broad

suite of financial products and services through our large branch network, ATMs, and mobile sales network. In the Caribbean

and the U.S., we offer a broad range of financial products and services in targeted markets. Non-interest income in Personal

Banking mainly comprises Mutual fund revenue, Service charges and Card service revenue.

Commercial Banking offers a wide range of lending, deposit and transaction banking products and services to Canadian

companies and foreign businesses in Canada at every stage of their business lifecycle through digital solutions, customized

banking advice and services by experienced advisors, relationship managers and our broad team of specialists. Non-interest

income in Commercial Banking mainly comprises Service charges, Foreign exchange revenue, other than trading and Credit fees.

Wealth Management primarily serves high-net-worth and ultra-high-net-worth individual and institutional clients with a

comprehensive suite of advice-based solutions and investment strategies, as well as personalized banking relationships and

self-directed investment service through our lines of businesses in Canada, the U.S., the U.K., Europe and Asia, including

Canadian Wealth Management, U.S. Wealth Management (including City National), Global Asset Management, International

Wealth Management, and Investor Services. Non-interest income in Wealth Management mainly comprises Investment

management and custodial fees, Mutual fund revenue and Securities brokerage commissions.

Insurance has operations in Canada and globally providing a wide range of advice and solutions for individual and business

clients including life, health, wealth, property & casualty, travel, group benefits, annuities, and reinsurance. We offer our

products and services through a wide variety of channels, comprised of mobile advisors, advice centres, RBC Insurance

®

stores

and digital platforms, as well as through independent brokers and partners. We also operate in reinsurance and retrocession

markets globally offering life, critical illness, disability and longevity reinsurance products. Non-interest income in Insurance

primarily comprises Insurance service result and Insurance investment result.

Capital Markets provides expertise in advisory & origination, sales & trading, lending & financing and transaction banking to

corporate, institutional, sponsor and government clients globally in our two main business lines: Corporate & Investment

Banking and Global Markets. In North America, we offer a full suite of products and services which include equity and debt

origination and distribution, advisory services and sales & trading. Outside North America, we have a targeted strategic

presence in the U.K. & Europe, Australia, Asia and other markets aligned to our global expertise. In the U.K. & Europe, we offer a

diversified set of capabilities in key industry sectors of focus. In Australia and Asia, we compete with global and regional

investment banks in targeted areas aligned to our global expertise, including fixed income distribution and currencies trading,

secured financing, as well as corporate and investment banking. Non-interest income in Capital Markets mainly includes Trading

revenue, Underwriting and other advisory fees and Credit fees.

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Consolidated Financial Statements

Royal Bank of Canada: Annual Report 2025

233

All other enterprise level activities that are not allocated to these five business segments, such as certain liquidity and cash

management activities, including amounts associated with unattributed capital, and consolidation adjustments, including the

elimination of the taxable equivalent basis (teb) gross-up amounts, are included in Corporate Support. Teb adjustments gross

up income from certain tax-advantaged sources (U.S. tax credit business and Canadian taxable corporate dividends received on

or before December 31, 2023) that are recorded in Capital Markets to their effective tax equivalent value with the corresponding

offset recorded in income taxes. Management believes that these teb adjustments are necessary for Capital Markets to reflect

how it is managed and enhances the comparability of revenue across our taxable and tax-advantaged sources. Our use of teb

adjustments may not be comparable to similarly adjusted amounts at other financial institutions. The teb adjustment for the

year ended October 31, 2025 was $151 million (October 31, 2024 – $294 million). Gains (losses) on economic hedges of our U.S.

Wealth Management (including City National) share-based compensation plans, which are reflected in revenue, and related

variability in share-based compensation expense driven by changes in the fair value of liabilities relating to these plans are also

included in Corporate Support as this presentation more closely aligns with how we view business performance and manage the

underlying risks.

Management reporting framework

Our management reporting framework is intended to measure the performance of each business segment as if it were a stand-

alone business and reflects the way that the business segment is managed. This approach is intended to ensure that our

business segments’ results include all applicable revenue and expenses associated with the conduct of their business and

depicts how management views those results. We regularly monitor these segment results for the purpose of making decisions

about resource allocation and performance assessment.

The expenses in each business segment may include costs or services directly incurred or provided on their behalf at the

enterprise level. For other costs not directly attributable to one of our business segments, we use a management reporting

framework that uses assumptions and methodologies for allocating overhead costs and indirect expenses to our business

segments and that assists in the attribution of capital and the transfer pricing of funds to our business segments in a manner

that consistently measures and aligns the economic costs with the underlying benefits and risks of that specific business

segment. Activities and business conducted between our business segments are generally at market rates. All other enterprise

level activities that are not allocated to our five business segments are reported under Corporate Support.

Our assumptions and methodologies used in our management reporting framework are periodically reviewed by us to

ensure that they remain valid. The capital attribution methodologies involve a number of assumptions that are revised

periodically.

|  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- |
|  | As at or for the year ended October 31, 2025 | | | | | | |
|  | Personal | Commercial | Wealth |  | Capital | Corporate |  |
| (Millions of Canadian dollars) | Banking  (1) | Banking  (1) | Management  (1) | Insurance | Markets  (1), (2) | Support  (2) | Total |
| Net interest income  (3) | $  14,496 | $  7,268 | $  5,459 | $  – | $  4,789 | $  988 | $  33,000 |
| Non-interest income | 5,358 | 1,294 | 16,919 | 1,321 | 9,637 | (924) | 33,605 |
| Total revenue | 19,854 | 8,562 | 22,378 | 1,321 | 14,426 | 64 | 66,605 |
| Provision for credit losses | 2,105 | 1,550 | 120 | – | 587 | – | 4,362 |
| Non-interest expense | 8,001 | 2,833 | 16,769 | 315 | 7,966 | 708 | 36,592 |
| Net income (loss) before income taxes | 9,748 | 4,179 | 5,489 | 1,006 | 5,873 | (644) | 25,651 |
| Income taxes (recoveries) | 2,643 | 1,159 | 1,200 | 178 | 480 | (378) | 5,282 |
| Net income | $  7,105 | $  3,020 | $  4,289 | $  828 | $  5,393 | $  (266) | $  20,369 |
| Non-interest expense includes: |  |  |  |  |  |  |  |
| Depreciation and amortization | $  1,085 | $  105 | $  1,237 | $  46 | $  570 | $  2 | $  3,045 |
| Impairment of other intangibles | 9 | – | 22 | 1 | 2 | – | 34 |
| Total assets | $574,456 | $196,254 | $  196,129 | $32,405 | $ 1,223,853 | $101,909 | $2,325,006 |
| Total assets include: |  |  |  |  |  |  |  |
| Additions to premises and equipment and intangibles | $  476 | $  50 | $  912 | $  8 | $  365 | $  974 | $  2,785 |
| Total liabilities | $574,462 | $196,252 | $  194,689 | $32,234 | $ 1,223,212 | $ (34,994) | $2,185,855 |

![]()

(continued)

Note 26

Results by business segment

234

Royal Bank of Canada: Annual Report 2025

Consolidated Financial Statements

|  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- |
|  | As at or for the year ended October 31, 2024 | | | | | | |
|  | Personal | Commercial | Wealth |  | Capital | Corporate |  |
| (Millions of Canadian dollars) | Banking (1) | Banking (1) | Management (1) | Insurance | Markets (1), (2) | Support (2) | Total |
| Net interest income  (3) | $  12,438 | $  6,061 | $  4,979 | $  – | $  3,183 | $  1,292 | $  27,953 |
| Non-interest income | 4,904 | 1,321 | 14,647 | 1,224 | 8,829 | (1,534) | 29,391 |
| Total revenue | 17,342 | 7,382 | 19,626 | 1,224 | 12,012 | (242) | 57,344 |
| Provision for credit losses | 1,802 | 975 | 29 | 2 | 424 | – | 3,232 |
| Non-interest expense | 7,485 | 2,512 | 15,312 | 285 | 7,016 | 1,640 | 34,250 |
| Net income (loss) before income taxes | 8,055 | 3,895 | 4,285 | 937 | 4,572 | (1,882) | 19,862 |
| Income taxes (recoveries) | 2,134 | 1,077 | 863 | 208 | (1) | (659) | 3,622 |
| Net income | $  5,921 | $  2,818 | $  3,422 | $  729 | $  4,573 | $  (1,223) | $  16,240 |
| Non-interest expense includes: |  |  |  |  |  |  |  |
| Depreciation and amortization | $  1,105 | $  62 | $  1,223 | $  6 | $  528 | $  (11) | $  2,913 |
| Impairment of other intangibles | 21 | – | 23 | 2 | 22 | – | 68 |
| Total assets | $ 555,029 | $ 187,142 | $  184,503 | $ 29,288 | $  1,127,661 | $  87,959 | $  2,171,582 |
| Total assets include: |  |  |  |  |  |  |  |
| Additions to premises and equipment and intangibles | $  2,274 | $  740 | $  887 | $  11 | $  494 | $  680 | $  5,086 |
| Total liabilities | $ 554,970 | $ 187,135 | $  183,055 | $ 29,158 | $  1,127,564 | $ (37,492) | $  2,044,390 |

(1)

On March 28, 2024, we completed the HSBC Canada transaction. HSBC Canada results have been consolidated from the closing date, and are included in our Personal

Banking, Commercial Banking, Wealth Management and Capital Markets segments. For further details, refer to Note 6.

(2)

Taxable equivalent basis.

(3)

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

Geographic segments

For geographic reporting, our segments are grouped into Canada, the U.S. and Other International. Transactions are primarily

recorded in the location that best reflects the risk due to negative changes in economic conditions and prospects for growth due

to positive economic changes. This location frequently corresponds with the location of the legal entity through which the

business is conducted and the location of our clients. Transactions are recorded in the local currency and are subject to foreign

exchange rate fluctuations with respect to the movement in the Canadian dollar.

|  |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | As at or for the year ended | | | | | | | |
|  | October 31, 2025 | | | | October 31, 2024 | | | |
|  |  | United | Other |  |  | United | Other |  |
| (Millions of Canadian dollars) | Canada | States | International | Total | Canada | States | International | Total |
| Total revenue | $  41,861 | $ 17,200 | $  7,544 | $  66,605 | $  35,847 | $ 15,034 | $  6,463 | $  57,344 |
| Net income | 14,537 | 3,804 | 2,028 | 20,369 | 11,266 | 2,880 | 2,094 | 16,240 |
| Total assets | 1,278,626 | 681,125 | 365,255 | 2,325,006 | 1,205,561 | 615,747 | 350,274 | 2,171,582 |

![]()

Consolidated Financial Statements

Royal Bank of Canada: Annual Report 2025

235

Note 27

Nature and extent of risks arising from financial instruments

We are exposed to credit, market and liquidity and funding risks as a result of holding financial instruments. Our risk

measurement and objectives, policies and methodologies for managing these risks are disclosed in the shaded text along with

those tables specifically marked with an asterisk (\*) in the Credit risk, Market risk and Liquidity and funding risk sections of

Management’s Discussion and Analysis. These shaded text and tables are an integral part of these Consolidated Financial

Statements.

Concentrations of credit risk exist if a number of our counterparties are engaged in similar activities, are located in the

same geographic region or have comparable economic characteristics such that their ability to meet contractual obligations

would be similarly affected by changes in economic, political or other conditions.

Concentrations of credit risk indicate the relative sensitivity of our performance to developments affecting a particular

industry or geographic location. The amounts of credit exposure associated with certain of our on- and off-balance sheet

financial instruments are summarized in the following tables.

|  |  |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | As at October 31, 2025 | | | | | | | | |
| (Millions of Canadian dollars, |  |  | United |  |  |  | Other |  |  |
| except percentage amounts) | Canada | % | States | % | Europe | % | International | % | Total |
| On-balance sheet assets other than |  |  |  |  |  |  |  |  |  |
| derivatives  (1) | $ 895,328 | 66% | $ 315,466 | 23% | $  92,304 | 7% | $  56,119 | 4% | $ 1,359,217 |
| Derivatives before master netting |  |  |  |  |  |  |  |  |  |
| agreements  (2), (3) | 20,508 | 11% | 70,345 | 39% | 74,177 | 42% | 15,323 | 8% | 180,353 |
|  | $ 915,836 | 59% | $ 385,811 | 25% | $ 166,481 | 11% | $  71,442 | 5% | $ 1,539,570 |
| Off-balance sheet credit |  |  |  |  |  |  |  |  |  |
| instruments  (4) |  |  |  |  |  |  |  |  |  |
| Committed and uncommitted  (5) | $ 506,219 | 55% | $ 318,215 | 35% | $  60,389 | 7% | $  30,923 | 3% | $  915,746 |
| Other | 86,735 | 41% | 100,512 | 48% | 18,665 | 9% | 4,286 | 2% | 210,198 |
|  | $ 592,954 | 53% | $ 418,727 | 37% | $  79,054 | 7% | $  35,209 | 3% | $ 1,125,944 |

|  |  |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | As at October 31, 2024 | | | | | | | | |
| (Millions of Canadian dollars, |  |  | United |  |  |  | Other |  |  |
| except percentage amounts) | Canada | % | States | % | Europe | % | International | % | Total |
| On-balance sheet assets other than |  |  |  |  |  |  |  |  |  |
| derivatives  (1) | $ 897,614 | 67% | $ 297,335 | 22% | $  88,394 | 7% | $  54,912 | 4% | $ 1,338,255 |
| Derivatives before master netting |  |  |  |  |  |  |  |  |  |
| agreements  (2), (3) | 21,555 | 14% | 47,204 | 31% | 71,198 | 46% | 13,276 | 9% | 153,233 |
|  | $ 919,169 | 61% | $ 344,539 | 23% | $ 159,592 | 11% | $  68,188 | 5% | $ 1,491,488 |
| Off-balance sheet credit |  |  |  |  |  |  |  |  |  |
| instruments  (4) |  |  |  |  |  |  |  |  |  |
| Committed and uncommitted  (5) | $ 487,142 | 57% | $ 282,907 | 34% | $  51,516 | 6% | $  27,615 | 3% | $  849,180 |
| Other | 82,910 | 48% | 67,322 | 39% | 18,162 | 11% | 3,145 | 2% | 171,539 |
|  | $ 570,052 | 56% | $ 350,229 | 34% | $  69,678 | 7% | $  30,760 | 3% | $ 1,020,719 |

(1)

Includes Assets purchased under reverse repurchase agreements and securities borrowed and Loans. The largest concentrations in Canada are Ontario at 54%

(October 31, 2024 – 57%), Alberta, Saskatchewan and Manitoba at 15% (October 31, 2024 – 13%), British Columbia and the territories at 17% (October 31, 2024 – 16%) and

Quebec at 10% (October 31, 2024 – 10%). No industry accounts for more than 20% (October 31, 2024 – 20%) of total on-balance sheet credit instruments, with the

exception of Banking, which accounted for 22% (October 31, 2024 – 24%), and Government, which accounted for 31% (October 31, 2024 – 28%). The classification of our

sectors aligns with our view of credit risk by industry.

(2)

A further breakdown of our derivative exposures by risk rating and counterparty type is provided in Note 9.

(3)

Excludes valuation adjustments determined on a pooled basis.

(4)

Balances presented are contractual amounts representing our maximum exposure to credit risk.

(5)

Represents our maximum exposure to credit risk. Retail and wholesale commitments respectively comprise 43% and 57% of our total commitments (October 31, 2024 –

40% and 60%). The largest concentrations in the wholesale portfolio relate to Financial services at 17% (October 31, 2024 – 14%), Real estate and related at 12%

(October 31, 2024 – 12%), Investments at 10% (October 31, 2024 – 10%), Utilities at 8% (October 31, 2024 – 10%), and Other services at 9% (October 31, 2024 – 7%). The

classification of our sectors aligns with our view of credit risk by industry.

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236

Royal Bank of Canada: Annual Report 2025

Consolidated Financial Statements

Note 28

Capital management

Regulatory capital and capital ratios

OSFI formally establishes risk-based capital and leverage minimums and Total Loss Absorbing Capacity (TLAC) ratios for

deposit-taking institutions in Canada. We are required to calculate our capital ratios using the Basel III framework. Under Basel

III, regulatory capital includes Common Equity Tier 1 (CET1), Tier 1 and Tier 2 capital. CET1 capital mainly consists of common

shares, retained earnings and other components of equity. Regulatory adjustments under Basel III include deductions of

goodwill and other intangibles, certain deferred tax assets, defined benefit pension fund assets, investments in banking,

financial and insurance entities, the shortfall of provisions to expected losses, prudential valuation adjustments, prepaid

portfolio insurance assets, non-payment and non-delivery of trades and equity investment in funds subject to the fall-back

approach. Tier 1 capital comprises predominantly CET1 and Additional Tier 1 items including non-cumulative preferred shares

and LRCNs that meet certain criteria. Tier 2 capital includes subordinated debentures that meet certain criteria, certain loan

loss allowances and non-controlling interests in subsidiaries’ Tier 2 instruments. Total capital is the sum of Tier 1 and Tier 2

capital. TLAC available is defined as the sum of Total capital and external TLAC instruments. External TLAC instruments

comprise predominantly senior bail-in debt, which includes eligible senior unsecured debt with an original term to maturity of

greater than 400 days and remaining term to maturity of greater than 365 days.

Regulatory capital ratios are calculated by dividing CET1, Tier 1, Total capital and TLAC available by risk-weighted assets.

The leverage ratio is calculated by dividing Tier 1 capital by an exposure measure. The exposure measure consists of total assets

(excluding items deducted from Tier 1 capital) and certain off-balance sheet items converted into credit exposure equivalents.

Adjustments are also made to derivatives and secured financing transactions to reflect credit and other risks. The TLAC leverage

ratio is calculated by dividing TLAC available by the leverage ratio exposure.

During 2025 and 2024, we complied with all applicable capital, leverage and TLAC requirements, including the domestic stability

buffer, imposed by OSFI.

|  |  |  |
| --- | --- | --- |
|  | As at | |
|  | October 31 | October 31 |
| (Millions of Canadian dollars, except percentage amounts) | 2025 | 2024 |
| Capital  (1) |  |  |
| CET1 capital | $  98,748 | $  88,936 |
| Tier 1 capital | 110,393 | 97,952 |
| Total capital | 122,399 | 110,487 |
| Risk-weighted assets (RWA) used in calculation of capital ratios  (1) |  |  |
| Credit risk | $  590,306 | $  548,809 |
| Market risk | 41,506 | 33,930 |
| Operational risk | 98,413 | 89,543 |
| Total RWA | $  730,225 | $  672,282 |
| Capital ratios and Leverage ratio  (1) |  |  |
| CET1 ratio | 13.5% | 13.2% |
| Tier 1 capital ratio | 15.1% | 14.6% |
| Total capital ratio | 16.8% | 16.4% |
| Leverage ratio | 4.4% | 4.2% |
| Leverage ratio exposure | $ 2,491,090 | $ 2,344,228 |
| TLAC available and ratios  (2) |  |  |
| TLAC available | $  230,385 | $  196,659 |
| TLAC ratio | 31.5% | 29.3% |
| TLAC leverage ratio | 9.2% | 8.4% |

(1)

Capital, RWA and capital ratios are calculated using OSFI’s Capital Adequacy Requirements (CAR) guideline and the Leverage ratio is calculated using OSFI’s Leverage

Requirements (LR) guideline. Both the CAR guideline and LR guideline are based on the Basel III framework.

(2)

TLAC available and TLAC ratios are calculated using OSFI’s TLAC guideline. The TLAC standard is applied at the resolution entity level which for us is deemed to be Royal

Bank of Canada and its subsidiaries. A resolution entity and its subsidiaries are collectively called a resolution group. The TLAC ratio and TLAC leverage ratio are

calculated using TLAC available as a percentage of total RWA and leverage exposure, respectively.

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Consolidated Financial Statements

Royal Bank of Canada: Annual Report 2025

237

Note 29

Offsetting financial assets and financial liabilities

Offsetting within our Consolidated Balance Sheets may be achieved where financial assets and liabilities are subject to master

netting arrangements that provide the currently enforceable right of offset and where there is an intention to settle on a net

basis or realize the assets and settle the liabilities simultaneously. For derivative contracts and repurchase and reverse

repurchase arrangements, this is generally achieved when there is a market mechanism for settlement (e.g., central

counterparty exchange or clearing house) which provides daily net settlement of cash flows arising from these contracts. Margin

receivables and margin payables are generally offset as they settle simultaneously through a market settlement mechanism.

Amounts that do not qualify for offsetting include master netting arrangements that only permit outstanding transactions

with the same counterparty to be offset in an event of default or occurrence of other predetermined events. Such master netting

arrangements include the International Swaps and Derivatives Association Master Agreement or certain derivative exchange or

clearing counterparty agreements for derivative contracts, global master repurchase agreements and global master securities

lending agreements for repurchase, reverse repurchase and other similar secured lending and borrowing arrangements.

The amount of financial collateral received or pledged subject to master netting arrangements or similar agreements that

do not qualify for offsetting refers to the collateral received or pledged to cover the net exposure between counterparties by

enabling the collateral to be realized in an event of default or the occurrence of other predetermined events. Certain amounts of

collateral are restricted from being sold or re-pledged unless there is an event of default or the occurrence of other

predetermined events.

The following tables provide the financial instrument amounts that have been offset on the Consolidated Balance Sheets

and the amounts that do not qualify for offsetting but are subject to enforceable master netting arrangements or similar

agreements. The amounts presented are not intended to represent our actual exposure to credit risk.

Financial instruments subject to enforceable master netting arrangements or similar agreements

|  |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | As at October 31, 2025 | | | | | | | |
|  | Amounts subject to enforceable netting arrangements | | | | | |  |  |
|  |  |  |  | Related amounts not | |  |  |  |
|  |  |  |  | offset on the Consolidated | |  |  |  |
|  |  |  |  | Balance Sheets  (1) | |  |  |  |
|  |  |  |  |  |  |  | Amounts not | Net amounts |
|  | Gross amounts | Gross amounts | Net amounts | Impact of |  |  | subject to | presented |
|  | of recognized | offset on the | presented in the | master |  |  | enforceable | on the |
|  | financial | Consolidated | Consolidated | netting | Financial |  | netting | Consolidated |
| (Millions of Canadian dollars) | instruments | Balance Sheets | Balance Sheets | agreements | collateral  (2) | Net amounts | arrangements | Balance Sheets |
| Financial assets |  |  |  |  |  |  |  |  |
| Assets purchased under reverse |  |  |  |  |  |  |  |  |
| repurchase agreements and |  |  |  |  |  |  |  |  |
| securities borrowed | $  467,653 | $  157,970 | $  309,683 | $  101 | $ 308,751 | $  831 | $  – | $  309,683 |
| Derivative assets | 173,512 | 2,067 | 171,445 | 127,728 | 19,425 | 24,292 | 5,761 | 177,206 |
| Other financial assets | 2,364 | 540 | 1,824 | 30 | 382 | 1,412 | – | 1,824 |
|  | $  643,529 | $  160,577 | $  482,952 | $  127,859 | $ 328,558 | $  26,535 | $  5,761 | $  488,713 |
| Financial liabilities |  |  |  |  |  |  |  |  |
| Obligations related to assets sold |  |  |  |  |  |  |  |  |
| under repurchase agreements |  |  |  |  |  |  |  |  |
| and securities loaned | $  447,486 | $  157,970 | $  289,516 | $  101 | $ 287,612 | $  1,803 | $  – | $  289,516 |
| Derivative liabilities | 172,461 | 2,067 | 170,394 | 127,728 | 23,520 | 19,146 | 13,559 | 183,953 |
| Other financial liabilities | 1,457 | 540 | 917 | 30 | – | 887 | – | 917 |
|  | $  621,404 | $  160,577 | $  460,827 | $  127,859 | $ 311,132 | $  21,836 | $  13,559 | $  474,386 |

|  |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | As at October 31, 2024 | | | | | | | |
|  | Amounts subject to enforceable netting arrangements | | | | | |  |  |
|  |  |  |  | Related amounts not | |  |  |  |
|  |  |  |  | offset on the Consolidated | |  |  |  |
|  |  |  |  | Balance Sheets  (1) | |  |  |  |
|  |  |  |  |  |  |  | Amounts not | Net amounts |
|  | Gross amounts | Gross amounts | Net amounts | Impact of |  |  | subject to | presented |
|  | of recognized | offset on the | presented in the | master |  |  | enforceable | on the |
|  | financial | Consolidated | Consolidated | netting | Financial |  | netting | Consolidated |
| (Millions of Canadian dollars) | instruments | Balance Sheets | Balance Sheets | agreements | collateral  (2) | Net amounts | arrangements | Balance Sheets |
| Financial assets |  |  |  |  |  |  |  |  |
| Assets purchased under reverse |  |  |  |  |  |  |  |  |
| repurchase agreements and |  |  |  |  |  |  |  |  |
| securities borrowed | $  495,881 | $  145,078 | $  350,803 | $  112 | $  349,044 | $  1,647 | $  – | $  350,803 |
| Derivative assets | 145,420 | 1,568 | 143,852 | 105,433 | 16,806 | 21,613 | 6,760 | 150,612 |
| Other financial assets | 2,940 | 527 | 2,413 | 58 | 288 | 2,067 | – | 2,413 |
|  | $  644,241 | $  147,173 | $  497,068 | $  105,603 | $  366,138 | $  25,327 | $  6,760 | $  503,828 |
| Financial liabilities |  |  |  |  |  |  |  |  |
| Obligations related to assets sold |  |  |  |  |  |  |  |  |
| under repurchase agreements |  |  |  |  |  |  |  |  |
| and securities loaned | $  450,399 | $  145,078 | $  305,321 | $  112 | $  302,779 | $  2,430 | $  – | $  305,321 |
| Derivative liabilities | 151,564 | 1,568 | 149,996 | 105,433 | 17,727 | 26,836 | 13,767 | 163,763 |
| Other financial liabilities | 1,941 | 527 | 1,414 | 58 | – | 1,356 | – | 1,414 |
|  | $  603,904 | $  147,173 | $  456,731 | $  105,603 | $  320,506 | $  30,622 | $  13,767 | $  470,498 |

(1)

Financial collateral is reflected at fair value. The financial instrument amounts and financial collateral disclosed are limited to the net balance sheet exposure, and any

over-collateralization is excluded from the table.

(2)

Includes cash collateral of $16 billion (October 31, 2024 – $14 billion) and non-cash collateral of $312 billion (October 31, 2024 – $352 billion) received for financial assets

and cash collateral of $19 billion (October 31, 2024 – $14 billion) and non-cash collateral of $292 billion (October 31, 2024 – $307 billion) pledged for financial liabilities.

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238

Royal Bank of Canada: Annual Report 2025

Consolidated Financial Statements

Note 30

Recovery and settlement of on-balance sheet assets and liabilities

The table below presents an analysis of assets and liabilities recorded on our Consolidated Balance Sheets by amounts to be

recovered or settled within one year and after one year, as at the balance sheet date, based on contractual maturities and certain

other assumptions outlined in the footnotes below. As warranted, we manage the liquidity risk of various products based on

historical behavioural patterns that are often not aligned with contractual maturities. Amounts to be recovered or settled within one

year, as presented below, may not be reflective of our long-term view of the liquidity profile of certain balance sheet categories.

|  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- |
|  | As at | | | | | |
|  | October 31, 2025 | | | October 31, 2024 | | |
|  | Within one | After one |  | Within one | After one |  |
| (Millions of Canadian dollars) | year | year | Total | year | year | Total |
| Assets |  |  |  |  |  |  |
| Cash and due from banks  (1) | $  35,136 | $  1,888 | $  37,024 | $  55,003 | $  1,720 | $  56,723 |
| Interest-bearing deposits with |  |  |  |  |  |  |
| banks | 50,364 | – | 50,364 | 66,020 | – | 66,020 |
| Securities |  |  |  |  |  |  |
| Trading  (2) | 204,063 | 15,004 | 219,067 | 170,460 | 12,840 | 183,300 |
| Investment, net of applicable |  |  |  |  |  |  |
| allowance | 70,438 | 272,283 | 342,721 | 45,418 | 211,200 | 256,618 |
| Assets purchased under reverse |  |  |  |  |  |  |
| repurchase and securities |  |  |  |  |  |  |
| borrowed | 309,632 | 51 | 309,683 | 350,622 | 181 | 350,803 |
| Loans |  |  |  |  |  |  |
| Retail | 200,928 | 451,416 | 652,344 | 174,761 | 452,217 | 626,978 |
| Wholesale | 98,494 | 298,677 | 397,171 | 89,492 | 270,947 | 360,439 |
| Allowance for loan losses |  |  | (7,093) |  |  | (6,037) |
| Other |  |  |  |  |  |  |
| Derivatives  (2) | 174,943 | 2,263 | 177,206 | 148,605 | 2,007 | 150,612 |
| Premises and equipment | 109 | 6,710 | 6,819 | 156 | 6,696 | 6,852 |
| Goodwill | – | 19,405 | 19,405 | – | 19,286 | 19,286 |
| Other intangibles | – | 7,402 | 7,402 | – | 7,798 | 7,798 |
| Other assets | 90,520 | 22,373 | 112,893 | 69,287 | 22,903 | 92,190 |
|  | $ 1,234,627 | $ 1,097,472 | $ 2,325,006 | $ 1,169,824 | $ 1,007,795 | $ 2,171,582 |
| Liabilities |  |  |  |  |  |  |
| Deposits  (3) | $ 1,244,662 | $  270,954 | $ 1,515,616 | $ 1,144,860 | $  264,671 | $ 1,409,531 |
| Other |  |  |  |  |  |  |
| Obligations related to securities |  |  |  |  |  |  |
| sold short | 49,241 | 650 | 49,891 | 32,824 | 2,462 | 35,286 |
| Obligations related to assets sold |  |  |  |  |  |  |
| under repurchase agreements |  |  |  |  |  |  |
| and securities loaned | 287,844 | 1,672 | 289,516 | 304,855 | 466 | 305,321 |
| Derivatives  (2) | 182,415 | 1,538 | 183,953 | 158,622 | 5,141 | 163,763 |
| Insurance contract liabilities  (4) | 382 | 23,945 | 24,327 | 459 | 21,772 | 22,231 |
| Other liabilities | 73,000 | 35,591 | 108,591 | 70,499 | 24,213 | 94,712 |
| Subordinated debentures | 2,091 | 11,870 | 13,961 | – | 13,546 | 13,546 |
|  | $ 1,839,635 | $  346,220 | $ 2,185,855 | $ 1,712,119 | $  332,271 | $ 2,044,390 |

(1)

Cash and due from banks are assumed to be recovered within one year, except for cash balances not available for use by the Bank beyond one year.

(2)

Trading securities classified as FVTPL and trading derivatives are presented as within one year as this best represents in most instances the short-term nature of our

trading activities, except for debt securities relating to the Insurance segment which are presented based on contractual maturity. Trading securities designated as

FVTPL are generally presented based on contractual maturity. Non-trading derivatives are presented according to the recovery or settlement of the hedging transaction.

(3)

Demand deposits of $673 billion (October 31, 2024 – $585 billion) are presented as within one year due to their being repayable on demand or at short notice on a

contractual basis. In practice, these deposits relate to a broad range of individuals and customer-types which form a stable base for our operations and liquidity needs.

(4)

Insurance contract liabilities reflect the estimated timing of when settlement of those amounts are expected to occur. The amounts payable on demand relating to

policyholders’ cash and/or account values for insurance contract liabilities, including segregated fund insurance contract liabilities, is $8 billion (October 31, 2024 –

$8 billion).

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Consolidated Financial Statements

Royal Bank of Canada: Annual Report 2025

239

Note 31

Parent company information

The following table presents information regarding the legal entity of Royal Bank of Canada with its subsidiaries presented on

an equity accounted basis.

Condensed Balance Sheets

|  |  |  |
| --- | --- | --- |
|  | As at | |
|  | October 31 | October 31 |
| (Millions of Canadian dollars) | 2025 | 2024 |
| Assets |  |  |
| Cash and due from banks | $  24,132 | $  40,944 |
| Interest-bearing deposits with banks | 40,455 | 54,009 |
| Securities | 311,972 | 233,376 |
| Investments in bank subsidiaries and associated companies  (1) | 67,055 | 57,926 |
| Investments in other subsidiaries and associated companies | 122,842 | 117,362 |
| Assets purchased under reverse repurchase agreements and securities borrowed | 155,843 | 174,131 |
| Loans, net of allowance for loan losses | 887,465 | 839,424 |
| Net balances due from bank subsidiaries  (1) | – | 97 |
| Other assets | 259,121 | 216,003 |
|  | $  1,868,885 | $  1,733,272 |
| Liabilities and shareholders’ equity |  |  |
| Deposits | $  1,261,032 | $  1,168,765 |
| Net balances due to bank subsidiaries  (1) | 16,320 | – |
| Net balances due to other subsidiaries | 15,050 | 17,840 |
| Other liabilities | 423,430 | 406,032 |
|  | 1,715,832 | 1,592,637 |
| Subordinated debentures | 13,961 | 13,546 |
| Shareholders’ equity | 139,092 | 127,089 |
|  | $  1,868,885 | $  1,733,272 |

(1)

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

Condensed Statements of Income and Comprehensive Income

|  |  |  |
| --- | --- | --- |
|  | For the year ended | |
|  | October 31 | October 31 |
| (Millions of Canadian dollars) | 2025 | 2024 |
| Interest and dividend income  (1) | $  70,321 | $  70,603 |
| Interest expense | 53,966 | 57,094 |
| Net interest income | 16,355 | 13,509 |
| Non-interest income  (2) | 8,916 | 5,080 |
| Total revenue | 25,271 | 18,589 |
| Provision for credit losses | 4,039 | 2,964 |
| Non-interest expense | 14,234 | 13,543 |
| Income before income taxes | 6,998 | 2,082 |
| Income taxes | 2,526 | 1,031 |
| Net income before equity in undistributed income of subsidiaries | 4,472 | 1,051 |
| Equity in undistributed income of subsidiaries | 15,890 | 15,179 |
| Net income | $  20,362 | $  16,230 |
| Other comprehensive income (loss), net of taxes | 772 | 597 |
| Total comprehensive income | $  21,134 | $  16,827 |

(1)

Includes dividend income from investments in subsidiaries and associated companies of $1 million (October 31, 2024 – $9 million).

(2)

Includes a nominal share of income (loss) from associated companies (October 31, 2024 – nominal).

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(continued)

Note 31

Parent company information

240

Royal Bank of Canada: Annual Report 2025

Consolidated Financial Statements

Condensed Statements of Cash Flows

|  |  |  |
| --- | --- | --- |
|  | For the year ended | |
|  | October 31 | October 31 |
| (Millions of Canadian dollars) | 2025 | 2024 |
| Cash flows from operating activities |  |  |
| Net income | $  20,362 | $  16,230 |
| Adjustments to determine net cash from operating activities: |  |  |
| Change in undistributed earnings of subsidiaries | (15,890) | (15,179) |
| Change in deposits | 92,267 | 77,327 |
| Change in loans | (49,013) | (56,572) |
| Change in trading securities | (26,471) | 3,162 |
| Change in obligations related to assets sold under repurchase agreements and securities |  |  |
| loaned | (26,361) | (2,860) |
| Change in assets purchased under reverse repurchase agreements and securities borrowed | 18,288 | (24,203) |
| Change in obligations related to securities sold short | 14,955 | (1,721) |
| Other operating activities, net | (9,112) | (2,565) |
| Net cash from (used in) operating activities | 19,025 | (6,381) |
| Cash flows from investing activities |  |  |
| Change in interest-bearing deposits with banks | 13,554 | 7,247 |
| Proceeds from sales and maturities of investment securities | 150,541 | 167,772 |
| Purchases of investment securities | (202,133) | (152,935) |
| Net acquisitions of premises and equipment and other intangibles | (1,842) | (1,277) |
| Cash used in an acquisition, net of cash acquired | – | (12,872) |
| Change in cash invested in subsidiaries | (643) | 1,252 |
| Change in net funding provided to subsidiaries | 13,627 | (166) |
| Net cash from (used in) investing activities | (26,896) | 9,021 |
| Cash flows from financing activities |  |  |
| Issuance of subordinated debentures | 2,991 | 3,239 |
| Repayment of subordinated debentures | (2,750) | (1,500) |
| Issue of common shares, net of issuance costs | 72 | 159 |
| Common shares purchased for cancellation | (2,768) | (140) |
| Issue of preferred shares and other equity instruments, net of issuance costs | 4,945 | 2,702 |
| Redemption of preferred shares and other equity instruments | (2,350) | (1,021) |
| Dividends paid on shares and distributions paid on other equity instruments | (8,800) | (6,637) |
| Repayment of lease liabilities | (281) | (268) |
| Net cash from (used in) financing activities | (8,941) | (3,466) |
| Net change in cash and due from banks | (16,812) | (826) |
| Cash and due from banks at beginning of year | 40,944 | 41,770 |
| Cash and due from banks at end of year | $  24,132 | $  40,944 |
| Supplemental disclosure of cash flow information |  |  |
| Amount of interest paid | $  53,560 | $  55,119 |
| Amount of interest received | 65,880 | 67,857 |
| Amount of dividends received | 3,388 | 2,869 |
| Amount of income taxes paid | 2,599 | 504 |

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Consolidated Financial Statements

Royal Bank of Canada: Annual Report 2025

241

Note 32

Principal subsidiaries

|  |  |  |
| --- | --- | --- |
| (Millions of Canadian dollars) |  | As at October 31, 2025 |
|  |  | Carrying value of |
|  |  | voting shares owned |
| Principal subsidiaries  (1) | Principal office address  (2) | by the Bank  (3) |
| Royal Bank Holding Inc. | Toronto, Ontario, Canada | $  103,027 |
| RBC Direct Investing Inc. | Toronto, Ontario, Canada |  |
| RBC Insurance Holdings Inc. | Mississauga, Ontario, Canada |  |
| RBC Life Insurance Company | Mississauga, Ontario, Canada |  |
| Investment Holdings (Cayman) Limited | George Town, Grand Cayman, Cayman Islands |  |
| RBC (Cayman) Funding Ltd. | George Town, Grand Cayman, Cayman Islands |  |
| Capital Funding Alberta Limited | Calgary, Alberta, Canada |  |
| RBC Global Asset Management Inc. | Toronto, Ontario, Canada |  |
| RBC Investor Services Trust | Toronto, Ontario, Canada |  |
| RBC (Barbados) Trading Bank Corporation | St. James, Barbados |  |
| RBC US Group Holdings LLC  (2) | Toronto, Ontario, Canada | 38,425 |
| RBC USA Holdco Corporation | New York, New York, U.S. |  |
| RBC Capital Markets, LLC | New York, New York, U.S. |  |
| City National Bank | Los Angeles, California, U.S. |  |
| RBC Dominion Securities Limited | Toronto, Ontario, Canada | 19,306 |
| RBC Dominion Securities Inc. | Toronto, Ontario, Canada |  |
| Royal Bank Mortgage Corporation | Toronto, Ontario, Canada | 7,420 |
| RBC Europe Limited | London, England | 5,822 |
| The Royal Trust Company | Montreal, Quebec, Canada | 1,782 |
| Royal Trust Corporation of Canada | Toronto, Ontario, Canada | 785 |

(1)

The Bank directly or indirectly controls each subsidiary.

(2)

Each subsidiary is incorporated or organized under the laws of the state, province or country in which the principal office is situated, except for RBC US Group Holdings

LLC and RBC USA Holdco Corporation, which are incorporated under the laws of the State of Delaware, U.S.; RBC Capital Markets, LLC, which is organized under the laws

of the State of Minnesota, U.S.; and City National Bank, which is a national bank, chartered under the laws of the United States of America.

(3)

The carrying value of voting shares is stated as the Bank’s equity in such investments.

Certain of our subsidiaries, joint ventures and associates are subject to regulatory requirements of the jurisdictions in which

they operate. When these subsidiaries, joint ventures and associates are subject to such requirements, they may be restricted

from transferring to us our share of their assets in the form of cash dividends, loans or advances. As at October 31, 2025,

restricted net assets of these subsidiaries, joint ventures and associates were $61 billion (October 31, 2024 – $56 billion).

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242

Royal Bank of Canada: Annual Report 2025

Ten-Year Statistical Review

Ten-Year Statistical Review

Condensed Balance Sheets

|  |  |  |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| (Millions of Canadian dollars) (1) | 2025 | 2024 | 2023 | 2022 | 2021 | 2020 | 2019 | 2018 | 2017 | 2016 |
| Assets |  |  |  |  |  |  |  |  |  |  |
| Cash and due from banks | $  37,024 | $  56,723 | $  61,989 | $  72,397 | $  113,846 | $  118,888 | $  26,310 | $  30,209 | $  28,407 | $  14,929 |
| Interest-bearing deposits with banks | 50,364 | 66,020 | 71,086 | 108,011 | 79,638 | 39,013 | 38,345 | 36,471 | 32,662 | 27,851 |
| Securities, net of applicable allowance | 561,788 | 439,918 | 409,730 | 318,223 | 284,724 | 275,814 | 249,004 | 222,866 | 218,379 | 236,093 |
| Assets purchased under reverse repurchase |  |  |  |  |  |  |  |  |  |  |
| agreements and securities borrowed | 309,683 | 350,803 | 340,191 | 317,845 | 307,903 | 313,015 | 306,961 | 294,602 | 220,977 | 186,302 |
| Loans, net of allowance | 1,042,422 | 981,380 | 852,773 | 819,965 | 717,575 | 660,992 | 618,856 | 576,818 | 542,617 | 521,604 |
| Other | 323,725 | 276,738 | 270,762 | 280,778 | 202,637 | 216,826 | 189,459 | 173,768 | 169,811 | 193,479 |
| Total assets | $2,325,006 | $2,171,582 | $2,006,531 | $1,917,219 | $1,706,323 | $1,624,548 | $1,428,935 | $1,334,734 | $1,212,853 | $1,180,258 |
| Liabilities |  |  |  |  |  |  |  |  |  |  |
| Deposits (2) | $1,515,616 | $1,409,531 | $1,231,687 | $1,208,814 | $1,100,831 | $1,011,885 | $  886,005 | $  836,197 | $  789,036 | $  757,589 |
| Other (2) | 656,278 | 621,313 | 648,311 | 590,205 | 497,137 | 516,029 | 449,490 | 409,451 | 340,124 | 341,295 |
| Subordinated debentures | 13,961 | 13,546 | 11,386 | 10,025 | 9,593 | 9,867 | 9,815 | 9,131 | 9,265 | 9,762 |
| Total liabilities | $2,185,855 | $2,044,390 | $1,891,384 | $1,809,044 | $1,607,561 | $1,537,781 | $1,345,310 | $1,254,779 | $1,138,425 | $1,108,646 |
| Equity attributable to shareholders | 139,092 | 127,089 | 115,048 | 108,064 | 98,667 | 86,664 | 83,523 | 79,861 | 73,829 | 71,017 |
| Non-controlling interest | 59 | 103 | 99 | 111 | 95 | 103 | 102 | 94 | 599 | 595 |
| Total equity | 139,151 | 127,192 | 115,147 | 108,175 | 98,762 | 86,767 | 83,625 | 79,955 | 74,428 | 71,612 |
| Total liabilities and equity | $2,325,006 | $2,171,582 | $2,006,531 | $1,917,219 | $1,706,323 | $1,624,548 | $1,428,935 | $1,334,734 | $1,212,853 | $1,180,258 |
| Condensed Income Statements |  |  |  |  |  |  |  |  |  |  |
| (Millions of Canadian dollars) (1) | 2025 | 2024 | 2023 | 2022 | 2021 | 2020 | 2019 | 2018 | 2017 | 2016 |
| Net interest income (2) | $  33,000 | $  27,953 | $  25,129 | $  22,717 | $  20,002 | $  20,835 | $  19,749 | $  17,952 | $  16,926 | $  16,531 |
| Non-interest income (2) | 33,605 | 29,391 | 26,335 | 26,268 | 29,691 | 26,346 | 26,253 | 24,624 | 23,743 | 22,264 |
| Total revenue | 66,605 | 57,344 | 51,464 | 48,985 | 49,693 | 47,181 | 46,002 | 42,576 | 40,669 | 38,795 |
| Provision for credit losses | 4,362 | 3,232 | 2,468 | 484 | (753) | 4,351 | 1,864 | 1,307 | 1,150 | 1,546 |
| Insurance policyholder benefits, claims and |  |  |  |  |  |  |  |  |  |  |
| acquisition expense | n.a. | n.a. | n.a. | 1,783 | 3,891 | 3,683 | 4,085 | 2,676 | 3,053 | 3,424 |
| Non-interest expense | 36,592 | 34,250 | 30,813 | 26,609 | 25,924 | 24,758 | 24,139 | 22,833 | 21,794 | 20,526 |
| Net income | $  20,369 | $  16,240 | $  14,612 | $  15,807 | $  16,050 | $  11,437 | $  12,871 | $  12,431 | $  11,469 | $  10,458 |
| Other Statistics – reported |  |  |  |  |  |  |  |  |  |  |
| (Millions of Canadian dollars, except |  |  |  |  |  |  |  |  |  |  |
| percentages and per share amounts) (1) | 2025 | 2024 | 2023 | 2022 | 2021 | 2020 | 2019 | 2018 | 2017 | 2016 |
| PROFITABILITY MEASURES |  |  |  |  |  |  |  |  |  |  |
| Earnings per shares – basic | $  14.10 | $  11.27 | $  10.33 | $  11.08 | $  11.08 | $  7.84 | $  8.78 | $  8.39 | $  7.59 | $  6.80 |
| – diluted | $  14.07 | $  11.25 | $  10.32 | $  11.06 | $  11.06 | $  7.82 | $  8.75 | $  8.36 | $  7.56 | $  6.78 |
| Return on common equity (3) | 16.3% | 14.4% | 14.3% | 16.4% | 18.6% | 14.2% | 16.8% | 17.6% | 17.0% | 16.3% |
| Return on risk-weighted assets | 2.84% | 2.52% | 2.44% | 2.68% | 2.90% | 2.10% | 2.52% | 2.55% | 2.49% | 2.34% |
| Efficiency ratio | 54.9% | 59.7% | 59.9% | 54.3% | 52.2% | 52.5% | 52.5% | 53.6% | 53.6% | 52.9% |
| KEY RATIOS |  |  |  |  |  |  |  |  |  |  |
| PCL on impaired loans as a % of average |  |  |  |  |  |  |  |  |  |  |
| net loans and acceptances (4) | 0.37% | 0.28% | 0.21% | 0.10% | 0.10% | 0.24% | 0.27% | 0.20% | 0.21% | 0.28% |
| Net interest margin |  |  |  |  |  |  |  |  |  |  |
| (average earning assets, net) (2), (4) | 1.62% | 1.54% | 1.50% | 1.48% | 1.48% | 1.55% | 1.61% | 1.64% | 1.69% | 1.70% |
| SHARE INFORMATION |  |  |  |  |  |  |  |  |  |  |
| Common shares outstanding (000s) – |  |  |  |  |  |  |  |  |  |  |
| end of period | 1,400,114 | 1,414,504 | 1,400,511 | 1,382,911 | 1,424,525 | 1,422,473 | 1,430,096 | 1,438,794 | 1,452,535 | 1,484,235 |
| Dividends declared per common share | $  6.04 | $  5.60 | $  5.34 | $  4.96 | $  4.32 | $  4.29 | $  4.07 | $  3.77 | $  3.48 | $  3.24 |
| Dividend yield (5) | 3.4% | 3.9% | 4.3% | 3.7% | 3.8% | 4.7% | 4.1% | 3.7% | 3.8% | 4.3% |
| Dividend payout ratio | 43% | 50% | 52% | 45% | 39% | 55% | 46% | 45% | 46% | 48% |
| Book value per share (6) | $  91.00 | $  83.46 | $  76.92 | $  72.85 | $  64.57 | $  56.75 | $  54.41 | $  51.12 | $  46.41 | $  43.32 |
| Common share price (RY on TSX) (7) | $  205.47 | $  168.39 | $  110.76 | $  126.05 | $  128.82 | $  93.16 | $  106.24 | $  95.92 | $  100.87 | $  83.80 |
| Market capitalization (TSX) (7) | 287,681 | 238,188 | 155,121 | 174,316 | 183,507 | 132,518 | 151,933 | 138,009 | 146,554 | 124,476 |
| Market price to book value | 2.26 | 2.02 | 1.44 | 1.73 | 2.00 | 1.64 | 1.95 | 1.88 | 2.17 | 1.93 |
| CAPITAL MEASURES – CONSOLIDATED  (8) |  |  |  |  |  |  |  |  |  |  |
| Common Equity Tier 1 capital ratio | 13.5% | 13.2% | 14.5% | 12.6% | 13.7% | 12.5% | 12.1% | 11.5% | 10.9% | 10.8% |
| Tier 1 capital ratio | 15.1% | 14.6% | 15.7% | 13.8% | 14.9% | 13.5% | 13.2% | 12.8% | 12.3% | 12.3% |
| Total capital ratio | 16.8% | 16.4% | 17.6% | 15.4% | 16.7% | 15.5% | 15.2% | 14.6% | 14.2% | 14.4% |
| Leverage ratio | 4.4% | 4.2% | 4.3% | 4.4% | 4.9% | 4.8% | 4.3% | 4.4% | 4.4% | 4.4% |
| TLAC ratio | 31.5% | 29.3% | 31.0% | 26.4% | n.a. | n.a. | n.a. | n.a. | n.a. | n.a. |
| TLAC leverage ratio | 9.2% | 8.4% | 8.5% | 8.5% | n.a. | n.a. | n.a. | n.a. | n.a. | n.a. |

(1)

On March 28, 2024, we completed the acquisition of HSBC Bank Canada (HSBC Canada). HSBC Canada results have been consolidated from the closing date. Effective

November 1, 2023, we adopted IFRS 17

Insurance Contracts

retrospectively and restated the results for the year ended October 31, 2023. Results from years prior to

November 1, 2022 are reported in accordance with IFRS 4

Insurance Contracts

. Effective November 1, 2019, we adopted IFRS 16

Leases

. Results from years prior to

November 1, 2019 are reported in accordance with IAS 17

Leases

. Effective November 1, 2018, we adopted IFRS 15

Revenue from Contracts with Customers

. Results from

years prior to November 1, 2018 are reported in accordance with IAS 18

Revenue

. Effective November 1, 2017, we adopted IFRS 9

Financial Instruments

(IFRS 9). Results

from years prior to November 1, 2017 are reported in accordance with IAS 39

Financial Instruments: Recognition and Measurement

(IAS 39).

(2)

Commencing the fourth quarter of 2019, the interest component and the accrued interest payable recorded on certain deposits carried at FVTPL previously presented in

trading revenue and deposits, respectively are presented in net interest income and other liabilities respectively. As at November 1, 2016, comparative amounts have

been reclassified to conform with this presentation.

(3)

This measure 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 of the MD&A.

(4)

Average amounts are calculated using methods intended to approximate the average of the daily balances for the period.

(5)

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

(6)

Calculated as common equity divided by the number of common shares outstanding at the end of the period.

(7)

Based on TSX closing market price at period-end.

(8)

Capital ratios are calculated using OSFI’s CAR guideline, the Leverage ratio is calculated using OSFI’s LR guideline and both the TLAC and TLAC leverage ratios are

calculated using OSFI’s TLAC guideline. The results for the year ended October 31, 2023 reflect our adoption of the revised CAR and LR guidelines as part of OSFI’s

implementation of the Basel III reforms. The results for the year ended October 31, 2024 reflect our adoption of the revised market risk and CVA frameworks. The results for

years ended prior to October 31, 2024 were not restated for the adoption of IFRS 17. For further details, refer to the Capital management section of the MD&A.

n.a.

not applicable

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#### 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

320 Bay Street, 14th Floor

Toronto, Ontario M5H 4A6

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)

website: www.investorcentre.com/rbc

email: rbc@computershare.com

Co-Transfer Agent (U.S.):

Computershare Trust

Company, N.A.

150 Royall Street, Suite 101

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)

Preferred shares BH

1

, BI

1

and BO

are listed on the TSX.

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, direct registration or

dividend reinvestment, please

contact: Computershare Trust

Company of Canada

320 Bay Street, 14th Floor

Toronto, Ontario M5H 4A6 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: rbc@computershare.com

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

email: invesrel@rbc.com

or visit our website at

rbc.com/investorrelations

Direct deposit service

Shareholders in Canada and

the U.S. may have their

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.

International shareholders

(other than holders in the

U.S. or Canada) may be able

to receive their dividend

and/or distribution payments

in the currency of their

choice. Computershare

offers an International

Currency Exchange service

that enables RBC’s

international shareholders to

receive their dividend and/or

distribution payments in the

currency of their choice.

Please refer to

investorcentre.com/rbc.

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 35 million

common shares during the

period spanning from June 12,

2025 to June 11, 2026, when the

bid expires or such earlier date

as we may complete the

purchases pursuant to our

notice of intention filed with the

TSX.

We determine the amount and

timing of the purchases under the

NCIB, subject to prior consultation

with the Office of the

Superintendent of Financial

Institutions Canada. For further

details, refer to the Capital

management section.

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.

2026 Quarterly earnings release

dates

First quarter

February 26

Second quarter

May 28

Third quarter

August 27

Fourth quarter

December 3

2026 Annual Meeting

The Annual Meeting of Common

Shareholders will be held on

Thursday, April 9, 2026.

Dividend dates for 2025

Subject to approval by the Board of Directors

Record

dates

Payment

dates

Common and preferred shares

series BH

1

, BI

1

and BO

January 27

April 24

July 24

October 27

February 24

May 23

August 22

November 24

Preferred shares series BT

February 17

August 15

February 24

August 22

Preferred shares series BU

February 17

August 15

February 24

August 22

Preferred shares series BW

May 16

November 17

May 23

November 24

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.

1

On October 24, 2025, we announced our intention to redeem all of our issued and outstanding Non-Cumulative Fixed Rate First Preferred Shares Series BH and

Series BI. The final dividend for the Series BH and Series BI shares will be payable on the redemption date December 8, 2025, to shareholders of record at the

close of business on November 10, 2025.

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.

®

/

TM

Trademarks of Royal Bank of Canada. ‡ All other trademarks are the property of their respective owner(s).

Shareholder Information

Royal Bank of Canada: Annual Report 2025

243

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#### rbc.com/ar2025

81104 (12/2025)