UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 6-K

Report of Foreign Private Issuer Pursuant to Rule 13a-16 or 15d-16

under the Securities Exchange Act of 1934

For the month of August, 2017

Commission File Number: 001-13928

Royal Bank of Canada

(Translation of registrant’s name into English)

(Address of principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F  ☐            Form 40-F  ☒

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):  ☐

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):  ☐

This report on Form 6-K, management’s discussion and analysis and unaudited interim condensed consolidated financial statements included in exhibit 99.2, and exhibit 99.3 hereto are incorporated by reference as exhibits into the Registration Statements on Form F-3 (File Nos. 333-203567 and 333-208507) and the Registration Statements on Form S-8 (File Nos. 333-12036, 333-12050, 333-13052, 333-13112, 333-14144, 333-110953, 333-117922, 333-178350, 333-207754, 333-207750, 333-207748 and 333-211680).

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

EXHIBIT INDEX

THIRD QUARTER 2017

EARNINGS RELEASE

All amounts are in Canadian dollars and are based on financial statements prepared in compliance with International Accounting Standard 34 Interim Financial Reporting, unless otherwise noted. Our Q3 2017 Report to Shareholders and Supplementary Financial Information are available on our website at rbc.com/investorrelations.

TORONTO, August 23, 2017 — Royal Bank of Canada (RY on TSX and NYSE) today reported net income of $2,796 million for the third quarter ended July 31, 2017, down $99 million or 3% from a year ago. Excluding an after-tax gain of $235 million from the sale of our home and auto insurance manufacturing business in the prior year, net income was up $136 million or 5%⁽¹⁾. Results reflect strong earnings growth in Wealth Management, Insurance excluding the prior year gain on sale⁽¹⁾, and Investor & Treasury Services, as well as solid earnings in Personal & Commercial Banking. These factors were partially offset by lower results in Capital Markets primarily due to less favourable market conditions.

Compared to last quarter, net income was relatively unchanged. Credit quality remains strong, with a provision for credit losses (PCL) ratio of 0.23%. We remain well-capitalized with a Common Equity Tier 1 (CET1) ratio of 10.9%. In addition, today we announced an increase to our quarterly dividend of $0.04 or 5% to $0.91 per share.

“RBC had a solid third quarter and strong results for the first nine months of the year, and we are proud to have been ranked highest in overall customer satisfaction for the second year in a row⁽²⁾. I am also pleased to announce a 5% increase to our quarterly dividend as part of our commitment to deliver long-term shareholder value,” said Dave McKay, RBC President and Chief Executive Officer. “We are driving sustainable growth by further investing in our people, digital capabilities, and key markets, while leveraging our strengths in data and technology to exceed our clients’ expectations.”

				•    Net income of $2,796 million •    Diluted EPS(3) of $1.85 •    ROE(4) of 16.3% •    CET1 ratio of 10.9%		i  3% i  2% i  170 bps h   40 bps		Excluding specified item(1): •    Net income of $2,796 million •    Diluted EPS of $1.85 •    ROE of 16.3%		h  5% h  8% i   20 bps
				•    Net income of $2,796 million •    Diluted EPS of $1.85 •    ROE of 16.3% •    CET1 ratio of 10.9%		g 0% g  0% i   90 bps h  30 bps
				•    Net income of $8,632 million •    Diluted EPS of $5.67 •    ROE of 17.2%		h  9% h  11% h  70 bps		Excluding specified items(1): •    Net income of $8,420 million •    Diluted EPS of $5.53 •    ROE of 16.8%		h  10% h  11% h   80 bps

Specified items as detailed on page 3 are: In Q1 2017, our share of a gain related to the sale of the U.S. operations of Moneris to Vantiv, Inc., which was $212 million (before- and after-tax). In Q3 2016, a gain of $287 million ($235 million after-tax) from the sale of our home and auto insurance manufacturing business, RBC General Insurance Company, to Aviva Canada Inc.

Q3 2017 Business Segment Performance

Net income of $1,399 million was up $77 million or 6% from a year ago. Canadian Banking net income of $1,349 million was up $65 million or 5% compared to last year, largely reflecting volume growth of 7% partially offset by lower spreads. Higher fee-based revenue and lower PCL also contributed to the increase. These factors were partially offset by increased staff-related costs including severance and higher costs in support of business growth reflecting ongoing investments in technology and marketing costs. Caribbean & U.S. Banking net income of $50 million was up $12 million from a year ago, mainly due to lower costs and higher net interest income, partially offset by higher PCL.

Compared to last quarter, Personal & Commercial Banking net income was up $39 million or 3%. Canadian Banking net income was up $33 million or 3%, largely reflecting the positive impact of additional days in the quarter, volume growth, and higher fee-based revenue. These factors were partially offset by higher costs in support of business growth and higher staff-related costs including severance. Caribbean & U.S. Banking net income was up $6 million.

- 1 -

Net income of $486 million was up $98 million or 25% from a year ago, mainly due to growth in average fee-based client assets reflecting capital appreciation and net sales, and higher net interest income reflecting the impact from higher U.S. interest rates and volume growth. These factors were partially offset by higher variable compensation on improved results, and higher costs in support of business growth.

Compared to last quarter, net income was up $55 million or 13%, mainly due to earnings from fee-based revenue reflecting higher net sales and capital appreciation, and higher net interest income reflecting the impact from higher U.S. interest rates and the favourable impact of additional days in the quarter. These factors were partially offset by higher variable compensation on improved results, and higher costs in support of business growth.

Net income of $161 million was down $203 million or 56% from a year ago. Excluding the gain from the sale of our home and auto insurance manufacturing business in the prior year, net income increased $32 million or 25%⁽⁵⁾, primarily reflecting higher investment-related gains.

Compared to last quarter, net income was down $5 million or 3%, largely due to higher claims costs, mainly in International Insurance, partially offset by business growth and favourable actuarial adjustments reflecting management actions and assumption changes.

Net income of $178 million was up $21 million or 13% from a year ago, primarily due to increased results from foreign exchange market execution driven by higher client activity, and higher funding and liquidity results reflecting interest rate movements.

Compared to last quarter, net income was down $15 million or 8%, primarily driven by lower funding and liquidity earnings as the results in the prior quarter benefitted from tightening credit spreads as well as interest rate movements.

Net income of $611 million was down $24 million or 4% from a year ago, primarily due to lower fixed income trading results reflecting reduced market volatility, higher costs related to changes in the timing of deferred compensation, and decreased results from Municipal Banking in the U.S. These factors were partially offset by higher equity trading results, a lower effective tax rate, and higher loan syndication and M&A activity.

Compared to last quarter, net income was down $57 million or 9%, primarily due to lower equity origination activity mainly in the U.S. and higher costs related to changes in the deferred compensation plan. Decreased foreign exchange trading results largely in Canada, lower loan syndication activity mainly in the U.S., and higher PCL also contributed to the decrease. These factors were partially offset by a lower effective tax rate, and higher fixed income trading results in Canada.

Net loss was $39 million, largely reflecting severance costs. Net income last year was $29 million, largely reflecting asset/liability management activities. Net loss last quarter was $9 million, as asset/liability management activities were more than offset by higher legal and severance costs.

Capital – As at July 31, 2017, CET1 ratio was 10.9%, up 30 bps as compared to the prior quarter, as strong internal capital generation and the favourable impact of a higher discount rate in determining our pension and other post-employment benefit obligations were partially offset by higher risk-weighted assets largely reflecting business growth.

Credit Quality – Total PCL of $320 million was up $18 million or 6% as compared to last quarter, reflecting higher provisions in Capital Markets largely driven by a couple of accounts and higher provisions in Personal & Commercial Banking related to our Caribbean and Canadian lending portfolios, partially offset by lower provisions in Wealth Management. Total PCL ratio of 0.23% was flat as compared to last quarter.

Total gross impaired loans (GIL) of $2,896 million was down $353 million from last quarter, largely driven by the impact of foreign exchange translation. The decrease in GIL was also driven by repayments and a decline in acquired credit-impaired loans related to City National, and lower GIL in the energy sector in Capital Markets. These factors were partially offset by higher impaired loans in our Canadian commercial lending portfolio. Total GIL ratio of 0.53% was down 6 bps as compared to last quarter.

- 2 -

Non-GAAP Measures

Results and measures excluding the specified items outlined below are non-GAAP measures:

Given the nature and purpose of our management reporting framework, we use and report certain non-GAAP financial measures, which are not defined, do not have a standardized meaning under GAAP, and may not be comparable with similar information disclosed by other financial institutions. We believe that excluding these specified items from our results is more reflective of our ongoing operating results, will provide readers with a better understanding of our performance, and should enhance the comparability of our comparative periods. For further information, refer to the Key performance and non-GAAP measures section of our Q3 2017 Report to Shareholders.

- 3 -

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 Earnings Release, in filings with Canadian regulators or the U.S. Securities and Exchange Commission, in reports to shareholders and in other communications. Forward-looking statements include, but are not limited to, statements relating to our financial performance objectives, vision and strategic goals, and include our President and Chief Executive Officer’s statements. The forward-looking information contained in this Earnings Release is presented for the purpose of assisting the holders of our securities and financial analysts in understanding our financial position and results of operations as at and for the periods ended on the dates presented, as well as our financial performance objectives, vision and strategic goals, and may not be appropriate for other purposes. Forward-looking statements are typically identified by words such as “believe”, “expect”, “foresee”, “forecast”, “anticipate”, “intend”, “estimate”, “goal”, “plan” and “project” and similar expressions of future or conditional verbs such as “will”, “may”, “should”, “could” or “would”.

By their very nature, forward-looking statements require us to make assumptions and are subject to inherent risks and uncertainties, which give rise to the possibility that our predictions, forecasts, projections, expectations or conclusions will not prove to be accurate, that our assumptions may not be correct and that our financial performance objectives, vision and strategic goals will not be achieved. We caution readers not to place undue reliance on these statements as a number of risk factors could cause our actual results to differ materially from the expectations expressed in such forward-looking statements. These factors – many of which are beyond our control and the effects of which can be difficult to predict – include: credit, market, liquidity and funding, insurance, operational, regulatory compliance, strategic, reputation, legal and regulatory environment, competitive and systemic risks and other risks discussed in the Risk management and Overview of other risks sections of our 2016 Annual Report and in the Risk management section of our Q3 2017 Report to Shareholders, global uncertainty, the Brexit vote to have the United Kingdom leave the European Union, weak oil and gas prices, cyber risk, anti-money laundering, exposure to more volatile sectors, technological innovation and new Fintech entrants, increasing complexity of regulation, data management, litigation and administrative penalties, the business and economic conditions in the geographic regions in which we operate, the effects of changes in government fiscal, monetary and other policies, tax risk and transparency, and environmental risk.

We caution that the foregoing list of risk factors is not exhaustive and other factors could also adversely affect our results. When relying on our forward-looking statements to make decisions with respect to us, investors and others should carefully consider the foregoing factors and other uncertainties and potential events. Material economic assumptions underlying the forward looking-statements contained in this Earnings Release are set out in the Overview and outlook section and for each business segment under the heading Outlook and priorities in our 2016 Annual Report, as updated by the Overview and outlook section in our Q3 2017 Report to Shareholders. Except as required by law, we do not undertake to update any forward-looking statement, whether written or oral, that may be made from time to time by us or on our behalf.

Additional information about these and other factors can be found in the Risk management and Overview of other risks sections of our 2016 Annual Report and in the Risk management section of our Q3 2017 Report to Shareholders.

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

ACCESS TO QUARTERLY RESULTS MATERIALS

Interested investors, the media and others may review this quarterly Earnings Release, quarterly results slides, supplementary financial information and our Q3 2017 Report to Shareholders on our website at rbc.com/investorrelations.

Quarterly conference call and webcast presentation

Our quarterly conference call is scheduled for Wednesday August 23, 2017 at 8:00 a.m. (EDT) and will feature a presentation about our third quarter results by RBC executives. It will be followed by a question and answer period with analysts.

Interested parties can access the call live on a listen-only basis at:

rbc.com/investorrelations/quarterly-financial-statements.html or by telephone (416-340-2217, 866-696-5910, passcode 5135891#). Please call between 7:50 a.m. and 7:55 a.m. (EDT).

Management’s comments on results will be posted on the RBC website shortly following the call. A recording will be available by 5:00 p.m. (EDT) from August 23, 2017 until November 28, 2017 at rbc.com/investorrelations/quarterly-financial-statements.html or by telephone (905-694-9451 or 800-408-3053, passcode 6031721#).

Media Relations Contacts

Ka Yan Ng, Senior Manager, Financial Communications, kayan.ng@rbc.com, 416-974-3058

Tanis Feasby, Vice President, Communications, Wealth Management, Insurance & Finance, tanis.feasby@rbc.com, 416-955-5172

Investor Relations Contacts

Dave Mun, SVP & Head, Investor Relations, dave.mun@rbc.com, 416-974-4924

Asim Imran, Senior Director, Investor Relations, asim.imran@rbc.com, 416-955-7804

ABOUT RBC

Royal Bank of Canada is Canada’s largest bank, and one of the largest banks in the world, based on market capitalization. We are one of North America’s leading diversified financial services companies, and provide personal and commercial banking, wealth management, insurance, investor services and capital markets products and services on a global basis. We have approximately 81,000 full- and part-time employees who serve more than 16 million personal, business, public sector and institutional clients through offices in Canada, the U.S. and 35 other countries. For more information, please visit rbc.com. RBC helps communities prosper, supporting a broad range of community initiatives through donations, community investments and employee volunteer activities. For more information please see: http://www.rbc.com/community-sustainability/

Trademarks used in this Earnings Release include the LION & GLOBE Symbol, ROYAL BANK OF CANADA and RBC which are trademarks of Royal Bank of Canada used by Royal Bank of Canada and/or by its subsidiaries under license. All other trademarks mentioned in this Earnings Release, which are not the property of Royal Bank of Canada, are owned by their respective holders.

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Exhibit 99.2

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

TORONTO, August 23, 2017 – Royal Bank of Canada (RY on TSX and NYSE) today reported net income of $2,796 million for the third quarter ended July 31, 2017, down $99 million or 3% from a year ago. Excluding an after-tax gain of $235 million from the sale of our home and auto insurance manufacturing business in the prior year, net income was up $136 million or 5%⁽¹⁾. Results reflect strong earnings growth in Wealth Management, Insurance excluding the prior year gain on sale⁽¹⁾, and Investor & Treasury Services, as well as solid earnings in Personal & Commercial Banking. These factors were partially offset by lower results in Capital Markets primarily due to less favourable market conditions.

Compared to last quarter, net income was relatively unchanged. Credit quality remains strong, with a provision for credit losses (PCL) ratio of 0.23%. We remain well-capitalized with a Common Equity Tier 1 (CET1) ratio of 10.9%. In addition, today we announced an increase to our quarterly dividend of $0.04 or 5% to $0.91 per share.

“RBC had a solid third quarter and strong results for the first nine months of the year, and we are proud to have been ranked highest in overall customer satisfaction for the second year in a row⁽²⁾. I am also pleased to announce a 5% increase to our quarterly dividend as part of our commitment to deliver long-term shareholder value,” said Dave McKay, RBC President and Chief Executive Officer. “We are driving sustainable growth by further investing in our people, digital capabilities, and key markets, while leveraging our strengths in data and technology to exceed our clients’ expectations.”

The specified items comprise: In Q1 2017, our share of a gain recorded related to the sale of the U.S. operations of Moneris to Vantiv, Inc., which was $212 million (before- and after-tax); and in Q3 2016, a gain of $287 million ($235 million after-tax) from the sale of our home and auto insurance manufacturing business, RBC General Insurance Company, to Aviva Canada Inc.

Table of contents

2        Royal Bank of Canada        Third Quarter 2017

Management’s Discussion and Analysis (MD&A) is provided to enable a reader to assess our results of operations and financial condition for the three and nine month periods ended or as at July 31, 2017, compared to the corresponding periods in the prior fiscal year and the three month period ended April 30, 2017. This MD&A should be read in conjunction with our unaudited Interim Condensed Consolidated Financial Statements for the quarter ended July 31, 2017 (Condensed Financial Statements) and related notes and our 2016 Annual Report. This MD&A is dated August 22, 2017. All amounts are in Canadian dollars, unless otherwise specified, and are based on financial statements prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB), unless otherwise noted.

Additional information about us, including our 2016 Annual Information Form, is available free of charge on our website at rbc.com/investorrelations, on the Canadian Securities Administrators’ website at sedar.com and on the EDGAR section of the United States (U.S.) Securities and Exchange Commission’s (SEC) website at sec.gov.

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

From time to time, we make written or oral forward-looking statements within the meaning of certain securities laws, including the “safe harbour” provisions of the United States Private Securities Litigation Reform Act of 1995 and any applicable Canadian securities legislation. We may make forward-looking statements in this Q3 2017 Report to Shareholders, in other filings with Canadian regulators or the SEC, in other reports to shareholders and in other communications. Forward-looking statements in this document include, but are not limited to, statements relating to our financial performance objectives, vision and strategic goals, the economic and market review and outlook for Canadian, U.S., European and global economies, the regulatory environment in which we operate, the outlook and priorities for each of our business segments, the risk environment including our liquidity and funding risk, and includes our President and Chief Executive Officer’s statements. The forward-looking information contained in this document is presented for the purpose of assisting the holders of our securities and financial analysts in understanding our financial position and results of operations as at and for the periods ended on the dates presented, as well as our financial performance objectives, vision and strategic goals, and may not be appropriate for other purposes. Forward-looking statements are typically identified by words such as “believe”, “expect”, “foresee”, “forecast”, “anticipate”, “intend”, “estimate”, “goal”, “plan” and “project” and similar expressions of future or conditional verbs such as “will”, “may”, “should”, “could” or “would”.

By their very nature, forward-looking statements require us to make assumptions and are subject to inherent risks and uncertainties, which give rise to the possibility that our predictions, forecasts, projections, expectations or conclusions will not prove to be accurate, that our assumptions may not be correct and that our financial performance objectives, vision and strategic goals will not be achieved. We caution readers not to place undue reliance on these statements as a number of risk factors could cause our actual results to differ materially from the expectations expressed in such forward-looking statements. These factors – many of which are beyond our control and the effects of which can be difficult to predict – include: credit, market, liquidity and funding, insurance, operational, regulatory compliance, strategic, reputation, legal and regulatory environment, competitive and systemic risks and other risks discussed in the Risk management and Overview of other risks sections of our 2016 Annual Report and the Risk management section of this Q3 2017 Report to Shareholders; global uncertainty, the Brexit vote to have the United Kingdom leave the European Union (EU), weak oil and gas prices, cyber risk, anti-money laundering, exposure to more volatile sectors, technological innovation and new Fintech entrants, increasing complexity of regulation, data management, litigation and administrative penalties, the business and economic conditions in the geographic regions in which we operate, the effects of changes in government fiscal, monetary and other policies, tax risk and transparency, and environmental risk.

We caution that the foregoing list of risk factors is not exhaustive and other factors could also adversely affect our results. When relying on our forward-looking statements to make decisions with respect to us, investors and others should carefully consider the foregoing factors and other uncertainties and potential events. Material economic assumptions underlying the forward-looking statements contained in this Q3 2017 Report to Shareholders are set out in the Overview and outlook section and for each business segment under the heading Outlook and priorities in our 2016 Annual Report, as updated by the Overview and outlook section of this Q3 2017 Report to Shareholders. Except as required by law, we do not undertake to update any forward-looking statement, whether written or oral, that may be made from time to time by us or on our behalf.

Additional information about these and other factors can be found in the Risk management and Overview of other risks sections of our 2016 Annual Report and the Risk management section of this Q3 2017 Report to Shareholders.

Royal Bank of Canada is Canada’s largest bank, and one of the largest banks in the world, based on market capitalization. We are one of North America’s leading diversified financial services companies, and provide personal and commercial banking, wealth management, insurance, investor services and capital markets products and services on a global basis. We have approximately 81,000 full- and part-time employees who serve more than 16 million personal, business, public sector and institutional clients through offices in Canada, the U.S. and 35 other countries. For more information, please visit rbc.com.

Royal Bank of Canada        Third Quarter 2017        3

4        Royal Bank of Canada        Third Quarter 2017

The economic 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.

Canada

The Canadian economy is expected to have grown by an estimated rate of 3.7%⁽¹⁾ in the second calendar quarter, consistent with the first calendar quarter of 2017. The economy has shown broad growth across a majority of sectors and the energy sector has largely adjusted to the low oil price environment. July’s national unemployment rate was 6.3%, which is its lowest position in nearly nine years. Consumer confidence remains strong due to steady job growth and wealth effects from rising home prices and equity markets. Recent government intervention has had a dampening impact on the housing market at the national level, with resales declining 15.3% since March’s record sales pace. Furthermore, year-over-year growth in home prices slowed to 12.9% in July from a peak of 19.7% in April. Affordability remains stretched in Toronto and Vancouver and the Bank of Canada (BoC) continues to note financial system vulnerabilities stemming from housing market imbalances and household indebtedness. For the first time in seven years, the BoC raised its overnight rate, to 0.75% in July, citing broadening economic growth and limited slack in the economy. While inflation remains below the central bank’s target, policymakers have attributed some of the recent decline to temporary factors and expect inflation will return to the 2.0% target as those factors dissipate and remaining economic slack is absorbed.

We expect the Canadian economy to grow at a rate of 2.9% during calendar 2017, which is above our estimate from May 24, 2017 of 2.4%. Business investment has been improving and government spending on infrastructure is ramping up. In addition, consumer spending will remain a significant driver of growth. As the economic backdrop improves, we expect a further reduction of monetary policy stimulus. We anticipate the BoC will increase its overnight rate to 1.0% in the fourth calendar quarter of 2017, with additional rate hikes in the latter half of 2018.

U.S.

Based on advanced estimates, economic activity in the U.S. grew at a rate of 2.6%⁽¹⁾ in the second calendar quarter, compared to the previous quarter’s growth of 1.2%⁽¹⁾. Consumer spending improved due to a strong job market and rising disposable incomes, as well as wealth accumulation from rising stock markets and home prices. In July, the unemployment rate was 4.3%, matching a 16-year low reached in May. Business investment also contributed to growth with machinery and equipment investment rising and energy sector investment picking up. The Federal Reserve Board (Fed) noted that the labour market has continued to strengthen and economic activity has risen moderately; however, inflation remains below the Fed’s target of 2.0%. In light of improving economic conditions, the Fed raised its funds target range by 25 basis points to 1.00 to 1.25% in June, its third increase in six months.

We expect the U.S. economy to grow at a rate of 2.1% for calendar 2017, which is unchanged from our previous estimate on May 24, 2017, as consumers and businesses continue to contribute to the economic expansion. Stimulative fiscal policy, including corporate tax cuts and infrastructure investments, now looks less likely, but we expect the U.S. economy will continue to grow at an above-trend rate even without a fiscal boost. As such, the Fed is likely to continue gradually withdrawing monetary policy stimulus. We expect the Fed will begin tapering reinvestment of earlier asset purchases in October and raise short-term interest rates again in December.

Europe

The Euro area grew by 0.6% in the second calendar quarter of 2017, up slightly from a 0.5% increase in the prior quarter. Economic expansion has been supported by rising consumer confidence, more political stability following several pro-EU election results, particularly in France, and improving labour markets. The June unemployment rate fell to 9.1%, the lowest rate since February 2009. Policymakers in the European Central Bank (ECB) have continued to express confidence in the economic outlook. However, in their July announcement, the ECB left its monetary policy unchanged and plans to continue its monthly asset purchase program until December 2017, or beyond, if necessary, in order to meet its inflation objectives.

We expect the Euro area to grow by 2.0% during calendar 2017, which is above our previous estimate of 1.6% on May 24, 2017. With a strong economic backdrop and diminishing political risks, business investment is expected to help sustain growth. However, since inflation targets have not been met at sustainable levels, we expect the ECB to hold its negative deposit rates, while continuing its stimulus program and extending asset purchases beyond 2017, albeit with purchases tapering off by mid-2018.

Financial markets

There was a distinct shift in tone at a number of global central banks this quarter, with many attributing strong economic data to the success of the monetary policies employed, including aggressive interest rate cuts. As growth continues, central bankers have been revisiting their monetary policies, emphasizing their intentions to consider tighter monetary policies. Political uncertainty in Europe has subsided, but the potential for a more protective U.S. trade policy, with NAFTA renegotiations underway, and increased tensions with North Korea, remain among the top external risk factors. Globally, bond yields have moved up somewhat over the last year, but remain at historical lows. Equity markets continue to rebound as a result of the economic growth, while corporate bond spreads have declined, given the global growth.

The macroeconomic headwinds discussed above, such as the potential for greater uncertainty or financial market instability related to proposed policies by the U.S. administration, including the NAFTA renegotiations and possible further cuts by the BoC and the Fed to their respective stimulus measures may alter our outlook and results for fiscal 2017 and future periods. These continuing pressures may lead to higher PCL in our wholesale and retail loan portfolios and impact the general business and economic conditions in the regions where we operate.

Royal Bank of Canada        Third Quarter 2017        5

Regulatory environment

We continue to monitor and prepare for regulatory developments and changes in a manner that seeks to ensure compliance with new requirements while mitigating any adverse business or financial impacts. Such impacts could result from new or amended laws or regulations and the expectations of those who enforce them. As discussed below, political developments, such as proposals from the presidential administration in the U.S. and the United Kingdom (U.K.) negotiations to exit the European Union (EU), have resulted in uncertainty as to the implementation, scope and timing of regulatory reforms.

U.S. Regulatory and Tax Reform

On February 3, 2017, the U.S. President signed an Executive Order directing the Secretary of the Treasury to review the adequacy of U.S. federal financial regulations in meeting the “Core Principles” for financial regulation identified in the Executive Order. The first report of the Treasury Secretary’s recommendations to the President was issued on June 12, 2017 and recommends reform of multiple statutes and regulations, including those that pertain to the Volcker Rule, Comprehensive Capital Analysis and Review (CCAR), living wills, capital, liquidity, leverage, and the activities of non-U.S. banks. The U.S. Treasury Department expects to release three additional reports later in the year addressing: (i) capital markets (including securities and derivatives markets); (ii) insurance and asset management industries; and (iii) financial technology and innovation. These reports may lead to financial regulatory reforms, the extent, timing, and impact of which are unknown at this time.

As it relates to the Volcker Rule specifically, on July 21, 2017, the U.S. federal banking regulators published guidance stating that, prior to July 21, 2018, they do not plan to apply the proprietary trading restrictions to non-U.S. investment funds where certain conditions are satisfied. In their guidance, regulators acknowledged the concerns expressed by non-U.S. banks, government officials and other market participants regarding the unintended consequences and extraterritorial impact of the Volcker Rule and suggested that corrective amendments to the regulations or statute could be required. On August 2, 2017, the Office of the Comptroller of the Currency issued a notice requesting public input on potential revisions to the Volcker Rule.

The U.S. Administration has also proposed measures to reform the U.S. tax code by lowering corporate and individual tax rates, and by eliminating or revising certain tax provisions that would broaden the tax base for companies paying taxes in the U.S. The outcome of these proposals could be favourable for our U.S. operations in the form of lower U.S. federal tax rates and unfavourable to the extent the tax treatment of specific investments and activities is adversely impacted.

Uniform Fiduciary Standard

On April 6, 2016, the U.S. Department of Labor (DOL) issued a final rule establishing a uniform fiduciary standard for providers of investment advice and related services in connection with U.S. retirement plans and holders of individual retirement accounts, effective June 9, 2017. On February 3, 2017, the U.S. President directed the DOL to examine whether the rule may adversely affect the ability of Americans to gain access to retirement information and financial advice. The President further directed the Secretary of Labor to rescind or revise the rule as appropriate to ensure consistency with existing law. On May 22, 2017, the DOL released an enforcement bulletin indicating it will not pursue claims against fiduciaries who are working diligently and in good faith to comply with the rule and its exemptions, or treat those fiduciaries as being in violation of the rule and exemptions “during the phased implementation period ending on January 1, 2018”. On June 1, 2017, the SEC announced that they would undertake an “updated assessment of the current regulatory framework, the current state of the market for retail investment advice, and market trends” in order to “evaluate the range of potential regulatory actions” that the SEC may consider taking. On July 6, 2017, the DOL initiated a public consultation on: (i) whether the January 1, 2018 applicability date should be delayed, and (ii) whether and to what extent the rule should be modified. Further, on August 9, 2017, the DOL indicated its intention to propose an 18-month extension of the transition period for full compliance with the fiduciary standard’s prohibited transaction exemptions, from January 1, 2018 to July 1, 2019. There remains uncertainty about whether and to what extent the rule will be changed, although the 18-month extension would give the DOL time to further assess the rule and propose changes. In its current form, the rule presents significant operational challenges for our U.S. Wealth Management business and clients, but does not materially impact the financial results for that business or for RBC overall.

Global Over-the-Counter (OTC) Derivatives Reform

Global margin rules represent a fundamental change in how non-centrally cleared OTC derivatives are traded. The requirement to exchange regulatory margin is being phased in until 2020. We are already exchanging initial and variation margin on bilateral OTC derivatives with relevant counterparties in accordance with prior regulatory deadlines. U.S., EU and Canadian regulators provided a deferral to the March 1, 2017 deadline in respect of certain counterparties by allowing swap dealers up to September 1, 2017 to exchange variation margin and continue trading with counterparties that do not represent significant exposure. As of September 1, 2017, we will be required to exchange initial margin with the next category of market participants on a global basis.

In accordance with Canadian Securities Administrators (CSA) National Instrument 94-101, Mandatory Central Counterparty Clearing of Derivatives, effective April 4, 2017, as a subscribing clearing member of a regulated clearing agency, we began to clear specific OTC derivatives with other in-scope clearing members. The effective date for the clearing obligation on all other in-scope counterparties, which may include our affiliates with outstanding OTC derivatives exceeding a prescribed month-end amount, has been delayed to August 20, 2018.

On April 4, 2017, the CSA published proposed rules, National Instrument 93-101, Derivatives: Business Conduct, which seek to impose minimum business conduct standards to the OTC derivatives activities of derivatives firms with derivatives parties.

Effective April 10, 2017, we were required by the Commodity Futures Trading Commission (CFTC) to centrally clear expanded classes of OTC derivatives, including, among others, fixed-to-floating interest rate swaps and overnight index swaps denominated in Canadian dollars. The CFTC previously amended its recordkeeping requirement and is now focused on external business conduct standards and trade reporting.

6        Royal Bank of Canada        Third Quarter 2017

Regulatory Capital and Related Requirements

The Basel Committee on Banking Supervision (BCBS) issued consultations in 2015 and 2016 on a number of proposals that would reform the manner in which banks calculate, measure, and report regulatory capital and related risk-weighting measures, including the use of a bank’s own internal risk models. On January 3, 2017, the BCBS announced a delay in finalizing the proposed revisions. However, the G-20 Leaders and Financial Stability Board (FSB) have recently reconfirmed their commitment to finalizing these BCBS regulatory changes without significantly increasing overall capital requirements for the banking sector. As a result, the impact on our regulatory capital ratios will depend upon the final standards adopted by the BCBS and how those standards are ultimately implemented by the Office of the Superintendent of Financial Institutions (OSFI).

In January 2016, the BCBS finalized a revised framework for calculating market risk capital, the Fundamental Review of the Trading Book (FRTB). FRTB’s purpose is to revise the framework for large, internationally active banks by including: (i) a revised boundary between the trading book and banking book; (ii) a revised internal models approach for market risk; (iii) a revised standardized approach for market risk; (iv) a shift from value-at-risk to an expected shortfall measure of risk under stress; and (v) incorporation of the risk of market illiquidity. As with similarly affected organizations, the rule will result in significant changes to our systems and methodologies for calculating market risk capital, and may increase the level of market risk risk-weighted assets that we are required to hold. On July 20, 2017, OSFI communicated its intention to delay the BCBS framework implementation to early 2021 to allow banks sufficient time to build the required infrastructure and obtain rule clarifications from the BCBS.

With respect to capital assessment in the U.S., our Intermediate Holding Company (IHC) is subject to CCAR, and the Fed’s annual evaluation of the capital planning processes and capital adequacy of the largest U.S.-based bank holding companies and U.S. IHCs of Foreign Banking Organizations with total consolidated assets greater than US$50 billion. Under CCAR, the Fed also reviews planned capital actions such as dividend payments, share buybacks and issuances. Our U.S. IHC became subject to CCAR in 2017 and made its filing on a private basis. Publication of our quantitative and qualitative CCAR results will commence in 2018. We have incurred, and will continue to incur, costs to comply with these additional U.S. requirements, but the impacts are not expected to materially affect our overall results.

Canadian Bail-in Regime

Bail-in regimes are being implemented in a number of jurisdictions in an effort to limit taxpayer exposure to losses of a failing institution and ensure the institution’s shareholders and creditors remain responsible for bearing such losses. On June 22, 2016, legislation came into force, amending certain federal statutes pertaining to banks to create a bank recapitalization or “bail-in” regime for Canada’s six domestic systemically important banks (D-SIBs). On June 16, 2017, the Department of Finance announced the publication of draft regulations under the Canada Deposit Insurance Corporation (CDIC) Act and the Bank Act, which provide the final details of the conversion, issuance and compensation regimes for bail-in instruments issued by D-SIBs. Pursuant to the CDIC Act, in circumstances when the Superintendent of Financial Institutions has determined that a bank may no longer be viable, the Governor in Council may, upon a recommendation of the Minister of Finance that he or she is of the opinion that it is in the public interest to do so, grant an order directing the CDIC to convert all or a portion of certain shares and liabilities of that bank into common shares. These changes are not expected to have a material impact on our cost of long-term unsecured funding.

Total Loss Absorbing Capacity (TLAC)

On June 16, 2017, OSFI released a draft guideline on Total Loss Absorbing Capacity (TLAC), which will apply to Canada’s D-SIBs as part of the Federal Government’s bail-in regime. The draft guideline is consistent with the TLAC standard released on November 9, 2015 by the FSB for institutions designated as global systemically important banks (G-SIBs), but tailored to the Canadian context. The standards are intended to address the sufficiency of a systemically important bank’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 other TLAC instruments, which allow conversion in whole or in part into common shares under the CDIC Act and meet all of the eligibility criteria under the guideline. We are expected to comply with the disclosure requirements by November 1, 2018 and the remaining TLAC standard requirements by November 1, 2021. The final guidance is expected to be issued later in 2017. We do not anticipate any challenges in meeting these TLAC requirements.

U.K. and European Regulatory Reform

The Markets in Financial Instruments Directive II/Regulation (MiFID II/MiFIR) becomes effective January 2018 and will have a significant technological and procedural impact for certain of our businesses operating in the EU as it relates to changes to pre- and post-trade transparency, market structure, transaction reporting, algorithmic trading, and conduct of business rules. Unlike the current MiFID regime, which applies primarily to equities, MiFID II/MiFIR will also extend to fixed income and “equity-like” products.

The provision of benchmarks will become a regulated activity under the Benchmarks Regulation, requiring benchmark providers to obtain prior authorization and undergo supervision at a national and EU level, effective January 2018. The Regulation will introduce obligations for us as an administrator of, contributor to and a user of benchmarks.

The General Data Protection Regulation becomes effective in May 2018 and introduces a number of obligations that will apply globally to entities that control or process personal data pertaining to EU individuals. These include requirements relating to breach notification, the appointment of an appropriately qualified and experienced Data Protection Officer, more stringent requirements with respect to obtaining valid consent to process data, and significantly increased information provisions, compliance and documentation obligations.

The U.K. Criminal Finances Bill was enacted in April 2017. Among its provisions is the introduction of two new corporate criminal offences which will come into effect on September 30, 2017: facilitation of the evasion of U.K. tax and facilitation of the evasion of foreign tax, where there is a U.K. nexus, by associated persons of an entity, including its employees. Implementation of demonstrable “reasonable prevention procedures” provides a defense against prosecution.

Formal notification of the U.K.’s intention to withdraw from the EU under Article 50 of the Treaty of Lisbon was given on March 29, 2017, triggering the start of a two year negotiation period to determine the terms of withdrawal. Until those negotiations are concluded or the negotiation period expires, the U.K. will remain an EU Member State, subject to all EU legislation.

Royal Bank of Canada        Third Quarter 2017        7

For a discussion on risk factors resulting from these and other regulatory developments which may affect our business and financial results, refer to the Risk management – Top and emerging risks and Legal and regulatory environmental risk sections of our 2016 Annual Report; and the Regulatory environment sections of the Q1 2017 Report to Shareholders, Q2 2017 Report to Shareholders, and this Q3 2017 Report to Shareholders. For further details on our framework and activities to manage risks, refer to the Risk management and Capital management sections of our 2016 Annual Report and the Risk management and Capital management sections of this Q3 2017 Report to Shareholders.

Sale of certain Caribbean Wealth Management businesses

On May 12, 2017, we completed the previously announced sale of our trust, custody and fund administration businesses in the Caribbean to SMP Partners Group. The transaction did not have a significant impact on our financial statements. For further details, refer to Note 6 of our Condensed Financial Statements.

Sale of U.S. operations of Moneris Solutions Corporation

On November 10, 2016, our payment processing joint venture with Bank of Montreal, Moneris Solutions Corporation (Moneris), signed a Purchase and Sale agreement to sell its U.S. operations to Vantiv, Inc. The transaction closed on December 21, 2016. As a result, we recorded our share of the gain which was $212 million (before- and after-tax) in Non-interest income – Share of profit in joint ventures and associates. For further details, refer to Note 6 of our Condensed Financial Statements.

Q3 2017 vs. Q3 2016

Net income of $2,796 million was down $99 million or 3% from a year ago, mainly due to the gain from the sale of RBC General Insurance Company in the prior period. Diluted earnings per share (EPS) of $1.85 was down $0.03 or 2% and return on common equity (ROE) of 16.3% was down 170 bps from 18.0% last year, largely due to the gain on sale, as previously noted. Our Common Equity Tier 1 (CET1) ratio was 10.9%, up 40 bps from a year ago.

Excluding the gain from the sale of RBC General Insurance Company, which was a specified item in the prior year as noted above, net income was up $136 million or 5% from last year, diluted EPS was up $0.13 or 8% and ROE decreased 20 bps from 16.5%. Our results reflected strong earnings in Wealth Management, Insurance, and Investor & Treasury Services, as well as solid earnings in Personal & Commercial Banking. These factors were partially offset by lower results in Capital Markets.

Wealth Management results increased primarily due to growth in average fee-based client assets and higher net interest income. These factors were partially offset by higher variable compensation on improved results, and higher costs in support of business growth.

Personal & Commercial Banking results were higher mainly reflecting volume growth of 6%, partially offset by lower spreads in Canada. Higher fee-based revenue also contributed to the increase. These factors were partially offset by higher staff-related costs including severance and higher costs in support of business growth.

Excluding the gain noted previously, Insurance earnings were up largely reflecting higher investment-related gains.

Investor & Treasury Services earnings increased primarily due to increased results from foreign exchange market execution driven by higher client activity and higher funding and liquidity results reflecting interest rate movements.

Capital Markets earnings were down largely driven by lower fixed income trading results reflecting reduced market volatility, higher costs related to changes in the timing of deferred compensation, and decreased results from Municipal Banking in the U.S. These factors were partially offset by higher equity trading results, a lower effective tax rate due to a lower proportion of pre-tax earnings in the U.S., and higher loan syndication and mergers and acquisition (M&A) activity.

Corporate Support net loss was $39 million in the current quarter, largely reflecting severance costs. Net income was $29 million in the prior year, largely reflecting asset/liability management activities.

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

Q3 2017 vs. Q2 2017

Net income of $2,796 million was down $13 million from the prior quarter. Diluted EPS was flat and ROE was down 90 bps from 17.2% last quarter. Our CET1 ratio was up 30 bps from 10.6% last quarter.

Our results were mainly driven by higher staff-related costs including severance and higher costs in support of business growth. Lower equity origination activity and higher costs related to changes in the deferred compensation plan in Capital Markets, and the impact of foreign exchange translation also contributed to the decrease. These factors were largely offset by the positive impact of additional days in the quarter, higher earnings from fee-based revenue in Wealth Management and Personal & Commercial Banking, and volume growth in Personal & Commercial Banking.

Q3 2017 vs. Q3 2016 (Nine months ended)

Net income of $8,632 million increased $717 million or 9% from a year ago. Nine month diluted EPS of $5.67 was up $0.54 or 11% and ROE of 17.2% was up 70 bps. Our results reflected increased earnings in Wealth Management, Personal & Commercial Banking, Capital Markets and Investor & Treasury Services, partially offset by lower earnings in Insurance.

8        Royal Bank of Canada        Third Quarter 2017

Wealth Management earnings increased primarily reflecting higher average fee-based client assets which benefited from capital appreciation and net sales, higher net interest income due to volume growth and the impact from higher U.S. interest rates, and higher transaction revenue. These factors were partially offset by higher variable compensation on improved results, and higher costs in support of business growth.

Personal & Commercial Banking earnings increased largely due to volume growth of 6% partially offset by lower spreads, and our share of a gain related to the sale of the U.S. operations of Moneris in the current year, which is a specified item and is described further below. Higher fee-based revenue in Canada and lower PCL also contributed to the increase. These factors were partially offset by higher costs in support of business growth.

Capital Markets results were up mainly driven by higher earnings in Corporate and Investment Banking and Global Markets reflecting increased fee-based revenue, and lower PCL. These factors were partially offset by higher costs related to changes in the timing of deferred compensation, and lower results in Other.

Investor & Treasury Services results increased largely due to higher funding and liquidity earnings reflecting interest rate movements, increased results from foreign exchange market execution driven by higher client activity, and higher custodial fees.

Insurance earnings decreased primarily due to the gain on sale of RBC General Insurance Company in the prior year, as previously noted. Excluding the gain on sale, Insurance earnings were up primarily reflecting higher investment-related gains and business growth in both Canadian and International Insurance. These items were partially offset by a tax recovery in the prior year and reduced earnings associated with the sale of RBC General Insurance Company, as previously noted.

Specified items

For the nine months ended July 31, 2017, our results were impacted by our share of a gain of $212 million (before- and after-tax) related to the sale of the U.S. operations of Moneris. For the three and nine months ended July 31, 2016, our results were impacted by a gain of $287 million ($235 million after-tax) from the sale of RBC General Insurance Company, our home and auto insurance manufacturing business, to Aviva Canada Inc. (Aviva). Results excluding these specified items are non-GAAP measures. For further details, including a reconciliation, refer to the Key performance and non-GAAP measures section.

Impact of foreign currency translation

Our foreign currency-denominated results are impacted by exchange rate fluctuations. Revenue, PCL, insurance policyholder benefits, claims and acquisition expense (PBCAE), non-interest expense and net income denominated in foreign currency are translated at the average rate of exchange for the period.

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

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

Royal Bank of Canada        Third Quarter 2017        9

Total revenue

Q3 2017 vs. Q3 2016

Total revenue decreased $269 million or 3% from last year, primarily due to the gain on sale of our home and auto insurance manufacturing business in the prior year. Excluding the gain as noted previously, total revenue increased $18 million as higher banking and investments revenue were partially offset by lower insurance and trading revenue, as well as the impact of foreign exchange translation.

Net interest income increased $134 million or 3%, mainly due to volume growth in both Canadian Banking and Wealth Management, and the impact of higher U.S. interest rates. These factors were partially offset by lower spreads in Canada.

NIM was flat compared to last year largely due to higher net interest margin in Wealth Management partially offset by lower net interest margin in Canadian Banking.

Investments revenue increased $179 million or 8%, mainly due to higher average fee-based client assets reflecting capital appreciation and net sales, and higher balances driving higher mutual fund distribution fees in Canadian Banking.

Insurance revenue decreased $525 million or 34%, mainly reflecting the change in fair value of investments backing our policyholder liabilities, which was largely offset in PBCAE, as well as lower premiums reflecting the impact of the sale of our home and auto insurance manufacturing business in the prior year. These factors were partially offset by business growth in Canadian Insurance, and the impact of restructured international life contracts, which was also largely offset in PBCAE.

Trading revenue in Non-interest income decreased $95 million or 31% compared to the prior year. Total trading revenue of $760 million, which comprises trading-related revenue recorded in Net interest income and Non-interest income, was down $121 million or 14%, primarily driven by decreased fixed income trading revenue reflecting reduced market volatility, partially offset by higher equity trading revenue across most regions.

Banking revenue increased $187 million or 16% as the prior year included the negative impact of foreign exchange translation on certain AFS securities which was offset in Other revenue. Higher loan syndication activity primarily in the U.S. and higher card service revenue also contributed to the increase.

Underwriting and other advisory revenue increased $13 million or 2%, primarily reflecting increased M&A activity, largely in Europe.

Other revenue decreased $162 million from last year, as the prior year included the gain related to the sale of our home and auto insurance manufacturing business as noted previously, and the change in fair value of certain derivatives used to economically hedge the AFS securities noted previously.

Q3 2017 vs. Q2 2017

Total revenue decreased $324 million or 3% from the prior quarter primarily due to the change in fair value of investments backing our policyholder liabilities, largely offset in PBCAE, and the impact of foreign exchange translation. These factors were partially offset by the positive impact of additional days in the quarter, volume growth and higher fee-based revenue in Wealth Management and Canadian Banking.

Q3 2017 vs. Q3 2016 (Nine months ended)

Total revenue increased $702 million or 2%. Excluding our share of the gain related to the sale of the U.S. operations of Moneris and the gain on sale of our home and auto insurance manufacturing business noted previously, total revenue of $29,630 million increased $777 million or 3%, primarily reflecting higher volume and fee-based revenue growth in Canadian Banking as well as higher average fee-based client assets, the impact from higher U.S. interest rates, and volume growth in Wealth Management. Higher funding

10        Royal Bank of Canada        Third Quarter 2017

and liquidity earnings reflecting interest rate movements in Investor & Treasury Services, increased loan syndication, M&A and debt origination activity in Capital Markets, as well as business growth in both Canadian and International Insurance also contributed to the increase. These factors were partially offset by the change in fair value of investments backing our policyholder liabilities, which was largely offset in PBCAE, reduced premiums associated with the sale of our home and auto insurance manufacturing business, as previously noted and the impact of foreign exchange translation.

Revenue excluding the specified items noted previously are non-GAAP measures. For further details, including a reconciliation, refer to the Key performance and non-GAAP measures section.

Provision for credit losses

Q3 2017 vs. Q3 2016

Total PCL of $320 million increased $2 million or 1% from a year ago, mainly due to higher provisions in Capital Markets, partially offset by a recovery in Wealth Management. The total PCL ratio of 23 bps improved 1 bp.

Q3 2017 vs. Q2 2017

Total PCL increased $18 million or 6% as compared to prior quarter, and the total PCL ratio of 23 bps remained flat, mainly due to higher provisions in Capital Markets and Personal & Commercial Banking, partially offset by a recovery in Wealth Management.

Q3 2017 vs. Q3 2016 (Nine months ended)

Total PCL of $916 million decreased $272 million or 23% and the total PCL ratio of 23 bps, improved 7 bps from the prior year, mainly due to lower provisions in Capital Markets and Personal & Commercial Banking, partially offset by higher provisions in Wealth Management. In addition, the prior year included a $50 million increase in PCL for loans not yet identified as impaired.

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

Insurance policyholder benefits, claims and acquisition expense

Q3 2017 vs. Q3 2016

PBCAE of $643 million decreased $567 million or 47% from a year ago, primarily reflecting the change in fair value of investments backing our policyholder liabilities, largely offset in revenue. The impact of the sale of our home and auto insurance manufacturing business in the prior year and higher investment-related gains also contributed to the decrease. These factors were partially offset by business growth and the impact of restructured international life contracts, largely offset in revenue.

Q3 2017 vs. Q2 2017

PBCAE decreased $447 million from the prior quarter, mainly due to the change in fair value of investments backing our policyholder liabilities, largely offset in revenue. This factor was partially offset by business growth in Canadian Insurance.

Q3 2017 vs. Q3 2016 (Nine months ended)

PBCAE of $1,916 million decreased $1,111 million or 37% from the prior year, mainly reflecting the change in fair value of investments backing our policyholder liabilities, largely offset in revenue, lower claims reflecting the impact of the sale of our home and auto insurance manufacturing business in the prior year, and higher investment-related gains. These factors were partially offset by business growth and the impact of restructured international life contracts, largely offset in revenue.

Non-interest expense

Royal Bank of Canada        Third Quarter 2017        11

Q3 2017 vs. Q3 2016

Non-interest expense increased $344 million or 7%, largely due to higher staff-related costs including severance and increased costs in support of business growth. Higher costs reflecting ongoing investments in technology including digital initiatives, and higher marketing costs in Personal & Commercial Banking also contributed to the increase. These factors were partially offset by lower legal costs in Capital Markets and continued benefits from our efficiency management activities.

Our efficiency ratio of 54.4% increased 480 bps from 49.6% last year. Excluding the change in fair value of investments backing our policyholder liabilities and the gain on the sale of RBC General Insurance Company in the prior year, our efficiency ratio of 53.2% decreased 80 bps from 54.0% last year largely due to continued benefits from our efficiency management activities.

Q3 2017 vs. Q2 2017

Non-interest expense increased $206 million or 4%, mainly driven by higher staff-related costs including severance, the unfavourable impact of additional days in the quarter, and higher costs in support of business growth. These factors were partially offset by the impact of foreign exchange translation.

Our efficiency ratio of 54.4% increased 370 bps from 50.7% last quarter. Excluding the change in fair value of investments backing our policyholder liabilities, our efficiency ratio of 53.2% increased 60 bps from last quarter, largely driven by increased severance costs and higher costs in support of business growth.

Q3 2017 vs. Q3 2016 (Nine months ended)

Non-interest expense increased $941 million or 6% mainly due to higher staff-related costs including severance, increased costs in support of business growth, and higher costs reflecting ongoing investments in technology including digital initiatives. Higher marketing costs in Personal & Commercial Banking and an impairment related to properties held for sale in the Caribbean also contributed to the increase. These factors were partially offset by the impact of foreign exchange translation and continued benefits from our efficiency management activities.

Our efficiency ratio of 53.2% increased 190 bps from 51.3% last year. Excluding the change in fair value of investments backing our policyholder liabilities, our share of the gain related to the sale of the U.S. operations of Moneris, and the gain on the sale of RBC General Insurance Company noted previously, our efficiency ratio of 53.0% decreased 30 bps from last year mainly driven by continued benefits from our efficiency management activities, partially offset by higher costs in support of business growth and increased severance costs.

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

Income taxes

Q3 2017 vs. Q3 2016

Income tax expense increased $51 million or 7% from last year, despite lower income before income taxes, as the effective income tax rate of 22.1% increased 170 bps reflecting more favourable tax adjustments in the prior year, the impact from the gain on sale of RBC General Insurance Company in 2016, and lower tax-exempt income from securities.

Q3 2017 vs. Q2 2017

Income tax expense decreased $88 million from last quarter, due to lower income before income taxes and the effective income tax rate of 22.1% decreased 180 bps from 23.9% in the last quarter due to more favourable tax adjustments.

Q3 2017 vs. Q3 2016 (Nine months ended)

Income tax expense increased $427 million or 21% from the prior year, and the effective tax rate of 22.5% increased 180 bps, mainly due to lower tax-exempt income from securities. The prior year also included more favourable tax adjustments and the gain on sale of RBC General Insurance Company. These factors were partially offset by the impact from our share of a gain related to the sale of our U.S. operations of Moneris in the current year.

12        Royal Bank of Canada        Third Quarter 2017

The key methodologies and assumptions used in our management reporting framework are periodically reviewed by management to ensure they remain valid and remain largely unchanged from October 31, 2016. For further details on attributed capital, refer to the Capital management section.

For further details on our key methodologies and assumptions used in our management reporting framework, refer to the How we measure and report our business segments section of our 2016 Annual Report.

Performance measures

Return on common equity (ROE)

We measure and evaluate the performance of our consolidated operations and each business segment using a number of financial metrics, such as net income and ROE. We use ROE, at both the consolidated and business segment levels, as a measure of return on total capital invested in our business. Management views the business segment ROE measure as a useful measure for supporting investment and resource allocation decisions because it adjusts for certain items that may affect comparability between business segments and certain competitors. ROE does not have a standardized meaning under GAAP and may not be comparable to similar measures disclosed by other financial institutions. For further details, refer to the Key performance and non-GAAP measures section of our 2016 Annual Report.

The following table provides a summary of our ROE calculations: