We are committed to generating top quartile financial performance by successfully executing our strategic priorities. We are creating a more efficient organization that can move quickly to identify and act on opportunities to deliver creative solutions that increase client satisfaction.

The title of this report, First for you, reflects our approach to all our clients, shareholders, employees and communities. We want to continually earn their respect by acting responsibly.

I believe our Client First Initiative will be very beneficial for each of these stakeholders. By reorganizing our business segments along client and geographic lines, we expect to be more responsive to client needs and to have simpler processes, faster decision-making and quicker implementation, all leading to higher employee and client satisfaction and better revenue growth.

This business realignment, combined with integrated operations and technology capabilities and restructured functional groups, should lead to higher efficiency. We expect to be able to channel some of the resulting savings to provide more resources to our client facing employees, which should enhance their success and, in turn, their own satisfaction. Our shareholders should benefit from improved financial performance and higher share valuation, and our communities from our continued support as we prosper.

As a result of the realignment, we now have three major business segments focused on our vision of “Always earning the right to be our clients’ first choice.”

Our Canadian personal and business segment now combines our Canadian banking, investments and global insurance businesses, including Canadian, U.S. and international insurance operations. Within Canada our goal is very straightforward – to lead in all areas of financial services. We believe we can further grow by focusing on specific high-potential personal and business segments, by offering products and services that attract new clients to RBC and by increasing the number of products and services used by our existing clients.

Our domestic banking, investments and insurance groups have been partnering for some time now in a number of areas, including client segmentation, and that teamwork is accelerating under our new structure. By bringing management of these groups together, we are improving our prospects for attracting more of our clients’ business as we gain a holistic understanding of their financial needs, to the extent allowed by current regulations. Strong management of our sales and distribution networks, client segmentation strategies and product innovation should lead to higher revenue growth and market share gains. In 2004, we increased market share in key areas such as credit cards, personal loans, residential mortgages and mutual funds in Canada.

Our U.S. and international segment includes banking and investments in the U.S., banking and brokerage in the Caribbean, and Global Private Banking internationally.

Led by a new management team focused on strengthening financial performance, this group approaches the business on a geographic basis, recognizing that market dynamics in the U.S. are different to those in Canada. Our new structure will allow us to better leverage our capabilities and work together to maximize returns. It will also increase accountability for performance and promote the flexibility necessary to manage our various businesses.

In the U.S., we will focus on growing banking and brokerage services. We recognize that our ability to bring our U.S. banking business to an acceptable level of profitability will be critical to re-establishing our valuation leadership among our peers. In that regard, we are seeking ways to grow U.S. revenues, including opening new branches selectively in high-growth markets and by enhancing loan and deposit volumes and mix. Concurrently, we are cutting costs in a number of areas – for example, by closing low-return branches in 2005. As a result of these actions, we are targeting improved profitability of our U.S. banking operations in 2005. The performance of RBC Dain Rauscher over the past year has been solid and we will continue to capitalize on its strengths.

In Global Private Banking, we will continue exploring growth opportunities in the Americas, Europe and Asia, with increasingly aggressive sales and marketing programs.

Our global capital markets segment also includes corporate banking, which serves corporate and larger commercial clients. Our strategy in Canada is to deepen relationships with top-tier corporate, institutional and government clients, and to penetrate the Canadian mid market. We will also grow our mid-market investment banking and equity businesses in the U.S., and will expand our specialized global businesses such as fixed income, credit products, equity derivatives and foreign exchange.

These business groups are supported by an efficient operational and functional structure that is designed to increase innovation, speed of decision-making and lower costs of delivering products and services. Our global technology and operations group is responsible for the infrastructure behind all of our activities. We are also realigning our businesses’ functional support to be more efficient, flexible and attentive to facilitating business growth.

The changes described are also intended to address the fact that our costs have been growing faster than our revenues. This imbalance has kept us from making larger investments in customer service and business growth initiatives. Some of the savings generated from our realignment are expected to be redeployed to areas that make us more responsive to clients’ needs, which should generate higher revenue growth and value for our shareholders.

2004 performance review
Our performance in 2004, compared to our objectives for the year, is shown on page 7. We performed well in the areas of portfolio quality and capital ratios and met our dividend payout ratio objective. However, our revenue, expense, earnings growth and return on equity (ROE) objectives were not met. Revenue grew 2 per cent (despite a stronger Canadian dollar relative to the U.S. dollar, which reduced revenues by $500 million or 3 per cent) primarily reflecting weaker results from our U.S. banking operations. The 8 per cent expense increase for the year, which occurred despite a reduction in expenses of $345 million due to the stronger Canadian dollar, largely reflected higher benefit costs and higher variable compensation costs (driven by an increase in revenues), and costs of the Rabobank settlement in the first quarter. The above-mentioned factors, together with the fourth quarter’s business realignment charges and goodwill impairment charge, led to far lower earnings growth and ROE than we had targeted for this year. Also, our valuation as measured by our share price performance did not meet our objectives.

2005 objectives and medium-term goals
Our new approach, founded on our corporate vision, gives us great confidence that we can regain a leading position in financial performance. Our solid operational foundation combined with the efficiencies and opportunities for revenue growth that we expect to arise from our business realignment have prompted us to set more aggressive financial objectives for 2005 in the areas of revenue growth, expense control, earnings growth and ROE. We have also established specific capital ratio objectives for 2005, similar to our medium-term goals. These objectives are outlined in the table on page 7.

We have made three changes to our medium-term goals this year. We have raised the earnings per share growth goal to 15+ per cent from 10 to 15 per cent, introduced a new goal for expense control, which is to grow expenses at no more than half the rate of revenue growth, and raised the portfolio quality goal in light of a more meaningful method of measuring it.

Top priorities for 2005
Our top priorities for 2005 are to achieve these strong financial objectives, continue to successfully roll out the various initiatives that are a part of our business realignment and significantly re-profile our U.S. operations and increase their returns.

By doing so, we seek to achieve superior financial performance and returns for our shareholders.

Corporate responsibility and governance
At RBC, success is founded on ethical leadership, teamwork and a commitment to providing value for all stakeholders. Corporate governance at RBC starts at the top, with a non-executive Chairman leading a board composed of experienced and well-informed directors, whose major concerns include strategic planning, ensuring that group-wide standards exist to promote ethical behaviour and seeking constant improvement in board practices. I am the only member of management who sits on our board.

Our system of governance is described in detail on pages 124 to 125. Our ongoing objective is to ensure that our proactive governance culture is evident throughout the organization, and throughout each business platform and subsidiary of our global network. Our employees understand that the integrity of our organization and the trust of our stakeholders are cornerstones of our ongoing success.

Our employees
I would like to acknowledge the contribution of our people throughout the past year and their dedication to serving our clients to the best of their abilities, making us one of North America’s finest companies.

Gordon M. Nixon
President and Chief Executive Officer
December 20, 2004

Royal Bank of Canada
Group Executive

(L to R): Martin J. Lippert, Group Head Global Technology & Operations; Barbara G. Stymiest, Chief Operating Officer; Gordon M. Nixon, President & Chief Executive Officer; W. James Westlake, Group Head Personal & Business Clients Canada; Elisabetta Bigsby, Group Head Transformation Office & Human Resources;
Peter Armenio, Group Head U.S. & International; Charles M. Winograd, Group Head Global Capital Markets