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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 — The amount deemed adequate by management to absorb identified and probable credit related losses in the portfolio of loans, acceptances, guarantees, letters of credit, deposits with other banks and derivatives. The allowance is increased by the provision for credit losses, which is charged to income and decreased by the amount of write-offs, net of recoveries.

Assets-to-capital multiple — Total assets plus specified off-balance sheet items divided by total regulatory capital.

Assets under administration (AUA) — Assets administered by a financial institution, which are beneficially owned by clients and are therefore not reported on the Consolidated Balance Sheets. 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) — Asset managed by a financial institution, which are beneficially owned by clients and are therefore not reported on the Consolidated Balance Sheets. Services provided in respect of assets under management include the selection of investments and the provision of investment advice. Assets under management may also be administered by the financial institution.

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Basis point (bp) — One one-hundredth of a percentage point (.01%).

Beta — The measure of a security’s volatility relative to a market index.

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Canadian GAAP — Canadian generally accepted accounting principles.

Capital ratio — The percentage of risk-adjusted assets supported by capital using the guidelines of the Office of the Superintendent of Financial Institutions Canada based on standards issued by the Bank for International Settlements and Canadian GAAP financial information.

Cash capital position — Quantifies the extent to which illiquid assets are funded by non-core liabilities and represents a formula-based measure of both comparative and directional structural liquidity risk.

Collateralized Debt Obligation (CDO) — An investment-grade security backed by a pool of bonds, loans and/or any other type of debt instrument.

Commercial clients — Generally, private companies with revenue in excess of $20 million and less than $1 billion. Typically, clients with revenue of less than $100 million are served in Canada by our RBC Canadian Personal and Business segment and in the U.S. by RBC Centura in our RBC U.S. and International Personal and Business segment. Corporate and larger commercial clients with frequent need to access capital markets and more sophisticated financing requirements are served by our RBC Capital Markets segment.

Commitments to extend credit — Credit facilities available to clients either in the form of loans, bankers’ acceptances and other on-balance sheet financing, or through off-balance sheet products such as guarantees and letters of credit.

Cost of capital — Management’s estimate of its weighted average cost of equity and debt capital.

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Earnings per share (EPS), basic — Net income less preferred share dividends divided by the average number of shares outstanding.

Earnings per share (EPS), diluted — Net income less preferred share dividends divided by the average number of shares outstanding adjusted for the dilutive effects of stock options and other convertible securities.

Economic Capital (EC) — An estimate of the amount of equity capital required to underpin risks. It is calculated by estimating the level of capital that is necessary to support our various businesses, given their risks, consistent with our desired solvency standard and credit ratings.

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Guarantees and standby letters of credit — 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.

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Hedge — A risk management technique used to insulate financial results from market, interest rate or foreign currency exchange risk (exposure) 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.

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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 according to the contractual terms of the loan agreement.

Innovative capital instruments — RBC's innovative capital instruments are transferable trust units issued by the RBC Capital Trust and RBC Capital Trust II special purpose entities. Innovative capital can comprise up to 15% of net Tier 1 capital with an additional 3% eligible for Tier 2B capital.

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Life retrocession — Life insurance assumed from a reinsurer.

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Mark-to-market — Valuation of financial instruments using prevailing market prices or fair value as of the balance sheet date.

Master netting agreement — An agreement 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 — Net interest income as a percentage of average assets.

Normal course issuer bid — A repurchase of our own shares, for cancellation through a stock exchange; it is subject to the various rules of the relevant exchange and securities commission.

Notional amount — The contract amount used as a reference point to calculate payments for derivatives.

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Off-balance sheet financial instrument — A variety of products offered to clients which fall into two broad categories: (i) credit related arrangements, which generally provide clients with liquidity protection, and (ii) derivatives, which are defined on the previous page.

Office of the Superintendent of Financial Institutions Canada (OSFI) — The primary regulator of federally chartered financial institutions and federally administered pension plans in Canada. The OSFI's mission is to safeguard policyholders, depositors and pension plan members from undue loss.

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Prepaid pension benefit cost — A formal business structure between two or more people, with shared responsibilities and liabilities.

Provision for credit loss — The amount charged to income necessary to bring the allowance for credit losses to a level determined appropriate by management.

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Repurchase agreements (REPOS) — Involve the sale of securities for cash at a near value date and the simultaneous repurchase of the securities for value at a later date.

Return on common equity (ROE) — Net income, less preferred share dividends, expressed as a percentage of average common equity.

Reverse repurchase agreements (reverse REPOS) — Involve the purchase of securities for cash at a near value date and the simultaneous sale of the securities for value at a later date.

Risk — Financial institutions face a number of different risks that expose them to possible losses. These risks include credit risk, market risk, liquidity risk, insurance risk and operational risk.

Risk-adjusted assets — Used in the calculation of risk-based capital ratios. The face value of assets is discounted using risk-weighting factors in order to reflect a comparable risk per dollar among all types of assets. The risk inherent in off-balance sheet instruments is also recognized, first by determining a credit equivalent amount, and then by applying appropriate risk-weighting factors.

Securities lending — Transactions in which the owner of a security agrees to lend it under the terms of a prearranged contract to a borrower for a fee. The borrower must fully collateralize the security loan at all times. An intermediary such as a bank often acts as agent for the owner of the security. There are two types of securities lending arrangements, lending with and without credit or market risk indemnification. In securities lending without indemnification, the bank bears no risk of loss. For transactions in which the bank provides an indemnification, risk of loss occurs if the borrower defaults and the value of the collateral declines concurrently.

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 high-quality financial assets are packaged into newly issued securities backed by these assets.

Special purpose entities (SPEs) — SPEs are entities that are typically organized for a single discrete purpose, have a limited life and serve to legally isolate the financial assets held by the SPE from the selling organization. SPEs are principally used to securitize financial and other assets in order to obtain access to funding, to mitigate credit risk and to manage capital.

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Taxable equivalent basis (teb) — A non-GAAP measure that increases income from tax-advantaged sources 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 as reported under GAAP.

Trust Capital Securities (RBC TruCS)

Transferable trust units issued by RBC Capital Trust or RBC Capital Trust II for the purpose of raising Innovative Tier 1 capital.

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U.S. GAAP — U.S. generally accepted accounting principles.

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Value-At-Risk (VAR) — A loan whose interest rate moves up or down with changes in market interest rates.

Variable interest entity (VIE) — A variable interest entity is an entity which either does not have sufficient equity at risk to finance its activities without additional subordinated financial support or where the holders of the equity at risk lack the characteristics of a controlling financial interest.

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Will — A legal document stating how a person wishes his or her assets to be distributed after death.

Wire payments/wiring money — A safe way to transfer money electronically from a bank account into that of another person or business in Canada or other countries.

Withdraw/withdrawal — The act of taking money out of a bank account, by taking cash from an automated bank machine (ABM) or at a branch, by writing a cheque or by using a debit card.