We have responded to these challenging circumstances with energy and enthusiasm and by redoubling our efforts to meet and exceed the demands of our clients. Indeed, as the competitiveness of the financial services marketplace has intensified, we have sharpened our focus to realize our vision of always earning the right to be our clients’ first choice.

We are motivated to prove our ability to meet clients’ needs at every opportunity. Delivering a superior client experience became one of our strategic priorities this year. It guides all our business activities and reflects the imperative to help clients achieve their financial goals, while resolving quickly and satisfactorily any of their difficulties or concerns.

Our employees firmly believe that we are capable of giving clients across North America an integrated offering of financial services that uniquely addresses their objectives. Delivering on this pledge will significantly and positively impact us as we increase the amount of business existing clients have with us, attract new clients with our offerings and, importantly, increase client retention. In parallel, the benefits of enhanced employee satisfaction and retention cannot be overestimated as we continue to build a North American financial services platform.

Our goals
Our three key goals are to be recognized as the undisputed lead provider of integrated financial services in Canada, a best-in-class provider of personal and business financial services in the U.S. and a premier provider of selected global financial services. In Canada, we are committed to retaining our strong positions in all our businesses and offering our services in an integrated manner to provide a broader range of services and better value to our clients. By doing so, we expect to enhance client satisfaction and retention. As a diversified financial services company with more than 12 million clients and complementary banking, wealth management and insurance products and services, we are uniquely positioned to grow our revenues by increasing the number of products and services used by our clients. In the U.S., we have assembled a diversified platform with an emphasis on retail businesses – banking, wealth management and insurance, all businesses we know well and are very successful at in Canada. Our priority for the U.S. is to bring each of the businesses up to the high standards of operational and financial performance we have established, while recognizing the unique characteristics and needs of the local markets in which the businesses operate. Our intention is also to grow in a disciplined, shareholder-friendly manner. Outside North America, we continue to focus on successful niche businesses, such as custody, private banking and global trading in which we possess competitive advantages and are generating strong returns.

Our vision, goals, strategic priorities and values are shown in the corporate profile at the beginning of this report. These guide our decisions and we measure our performance, both individually and collectively, against them.

Our strategic priorities
To reach our goals, we have set four key priorities – strong fundamentals, superior client experience, North American expansion, and cross-enterprise leverage.

Strong fundamentals
We had a solid year, reporting net income of $3.04 billion, up 5 per cent from 2002, and diluted earnings per share of $4.43, up 8 per cent. We achieved these results despite ongoing weakness in the North American economies and a very tough capital markets environment during the first six months of the year.

Our goal is to maintain financial performance in the top quartile of North American financial companies and to meet or exceed our own objectives. As shown on page 7, our performance this past year was strong in the areas of ROE, portfolio quality and capital ratios, with ROE in line with the 17 to 19 per cent target, the provision for credit losses ratio below the target range, and capital ratios above our medium-term goals. However, expenses were unchanged while revenue growth was dampened by capital markets softness during the first six months of this fiscal year and the significant strengthening of the Canadian dollar, which lowered the translated value of U.S. dollar-denominated revenues by approximately $500 million.

Our common shares closed the year at $63.48, up 17 per cent from a year ago. This growth was achieved over a strong base, as we were fairly unique among the large Canadian banks in sustaining solid loan quality and financial and share price performance over the 2001 to 2002 period. Accordingly, as the industry’s loan quality improved this year, the S&P/TSX Composite Banks Index rose more than our shares did. We also increased dividends paid per common share by 13 per cent this past year. Over the past 10 years, an investment in our common shares has provided shareholders with a compound annual total return of 20.3 per cent, placing us third among the 15 leading North American financial services companies to which we compare ourselves.

Our objectives for 2004 are similar to those in place in 2003, with the exception of the specific provision for credit losses goal, which we are lowering to .35 to .45 per cent to reflect the improved credit markets environment, bringing it in line with our medium-term goal. We have not made any changes to our medium-term goals.

Ten-year compound annual total return on common shares (1993–2003) (1)

(1) In Canadian dollars and assuming dividends reinvested (from October 31, 1993,
to October 31, 2003). Source: Bloomberg

Superior client experience
This new priority is consistent with our new vision statement – “Always earning the right to be our clients’ first choice” and it reinforces our commitment to client satisfaction, retention and growing our share of our clients’ business. This priority and our vision statement are extremely important within RBC Financial Group – particularly in motivating our front-line employees to deliver an excellent client experience that builds profitable relationships and lasting loyalty. To deliver a truly superior client experience, we are striving to serve clients the way they want to be served and provide them with a good and consistent client experience across all of our distribution channels. We have spent considerable time looking at how we can better meet the needs of our clients and, in this regard, we are transforming our processes to be more simple, flexible and efficient. We are also working hard to earn more of our clients’ business by tailoring solutions that include the products of more than one business segment.

A detailed discussion of our superior client experience priority and examples of what each of our business segments is doing to enhance the experiences of its clients is provided on pages 8 to 10.

North American expansion
We are continuing to focus on enhancing the operating performance of our U.S. operations through a variety of initiatives designed to grow revenues and improve operational efficiency.

Our priority for the U.S. in 2003 was to enhance performance. Net income from U.S. operations increased to $382 million from $210 million in 2002, despite the strengthening of the Canadian dollar relative to the U.S. dollar. This reflects higher earnings in the Capital Markets and Investments divisions largely due to a lower provision for credit losses and much stronger performance in the full-service brokerage and fixed income divisions, respectively.

During 2003, we continued to grow in the U.S. in a very disciplined and focused manner through add-on acquisitions that represent good strategic, economic and cultural fits. RBC Centura completed the acquisition of Admiralty Bancorp, Inc. for US$153 million, securing a footprint in the fast-growing Southern and Central Florida markets. It also closed the acquisition of the Florida branch operations of Provident Financial Group Inc. in mid-November 2003 for approximately US$80 million in cash, adding 13 branches to the 10 Florida branches acquired through the acquisition of Admiralty Bancorp. RBC Mortgage Company completed its acquisition of Sterling Capital Mortgage Company (SCMC) for approximately US$100 million. SCMC principally focuses on first-time home buyers and less on mortgage refinancings, providing good revenue diversification and a more stable business for RBC Mortgage. RBC Insurance and RBC Dain Rauscher acquired Kansas City–based Business Men’s Assurance Company of America and Jones & Babson Inc. from the Generali Group for US$207 million. In addition to an in-force block of approximately 135,000 traditional life insurance policies and annuities, this purchase provides us with the infrastructure to offer wealth management oriented insurance products.

A discussion of our North American banking, wealth management and insurance businesses and their expansion efforts is provided on pages 13 to 16.

Cross-enterprise leverage
We added cross-enterprise leverage as a strategic priority in 2002 in recognition of the fact that as an integrated financial services provider, the whole has the potential to be much greater than the sum of the parts. Cross-enterprise leverage is about working across our businesses and functions to grow revenues by improving client service, offering our broad array of products and services in a more integrated fashion to our clients and reducing costs by eliminating duplication that arises when businesses and functions operate autonomously. Since adding this key strategic priority, we have identified and eliminated duplication across the organization, created enterprise centres of expertise and further centralized purchasing. By doing so we were able to cut costs and improve efficiency across the organization. We have recently increased our focus on revenue and client-oriented initiatives to accelerate revenue growth and enhance the profitability of our client relationships. We are spending substantial time and effort to develop ways to encourage clients to use the products and services of more than one platform.

A detailed discussion of cross-enterprise leverage is provided on pages 11 to 12.

Diversified business mix
Net income contribution – 2003

Commitment to our shareholders
We will continue to target superior profitability and returns for our shareholders by further pursuing strategies and initiatives to grow our businesses profitably, manage our costs and risks effectively, and deploy our capital efficiently – reinvesting in our businesses and growth markets, and returning the excess to shareholders through share repurchases when appropriate as well as through dividend payments.

Corporate governance
Throughout our organization, corporate governance extends beyond complying with individual pieces of legislation or rules. Sound corporate governance reflects business practices and activities beyond ethical reproach. All employees recognize that the integrity of our organization and the trust of our stakeholders are cornerstones of our ongoing success.

Our employees
Finally, it is my pleasure to congratulate and celebrate the efforts of our more than 60,000 employees who have worked hard throughout the past year and have embraced, with a positive attitude, the opportunities and challenges in front of them. I am heartened but never surprised at their ability to excel in their creativity and responsiveness to the needs of their clients, their fellow colleagues and their communities. I am honoured to work with them as we continue to earn the right to be our clients’ first choice.

Gordon M. Nixon
President & Chief Executive Officer
December 16, 2003