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Overview Of 2001 & First Quarter 2002
Financial Results

Peter W. Currie
Vice-Chairman & Chief Financial Officer
Royal Bank of Canada
to
133rd Annual Meeting

Royal Bank of Canada
at
Toronto, Ontario
February 22, 2002

Thank you, Gord. Good morning, ladies and gentlemen.

I will be discussing with you briefly this morning your company's financial results in 2001 and the first quarter of 2002, prepared in accordance with U.S. Generally Accepted Accounting Principles (US GAAP).

As Gord Nixon mentioned, despite significant challenges last year, we produced solid results. Net income was a record $2.4 billion, up 10% from 2000, while earnings per share were $3.55, up 4%.

Core cash net income was $2.5 billion, also up 10% from 2000, while core cash earnings per share were $3.68, again 4% higher than in 2000. These core cash numbers exclude the impact of special items and costs related to the amortization of goodwill and other intangible items, which makes our results more comparable to those of certain Canadian and American competitors. In 2001, special items totaling $204 million after-tax largely included gains on the sale of non-strategic businesses and costs related to restructuring our retail banking business in the U.S.. There were no special items in 2000.

Return on common equity was 16.6% and core cash return on common equity 17.1%.

We have a diversified group of businesses, which allowed us to perform well in 2001 despite the tough conditions. Strong performances by Personal & Commercial Banking, Insurance and Transaction Processing, which together accounted for nearly 70% of core cash net income, offset the impact of weak capital market conditions on our Wealth Management and Corporate & Investment Banking operations.

My discussion of last year's business segment results will be entirely on a core cash basis.

Personal & Commercial Banking's net income was up 24% over 2000, partially reflecting the contribution of RBC Centura. Return on equity, or ROE, was 20.0%.

Insurance net income increased 83% last year, reflecting the addition of RBC Liberty Insurance and strong performances by the Canadian life, creditor and travel insurance businesses. ROE for Insurance was 21.9% and reflected higher common equity attributed to the segment in 2001.

Wealth Management had a challenging year due to unfavourable capital market conditions. Its results also reflected costs associated with the acquisition of RBC Dain Rauscher. Net income was $352 million in 2001. ROE was 18.4%, reflecting additional capital attributed to the segment in 2001.

Corporate & Investment Banking results were also affected by weak capital markets and costs associated with the acquisition of Dain Rauscher Wessels. Net income was $417 million. ROE was 11.8%, reflecting additional average common equity attributed to the segment last year.

Our Transaction Processing segment continued to show growth, with net income up 7%. ROE was 31.1% in 2001.

Overall, we met many of our aggressive objectives last year, particularly in the areas of revenue growth and capital management. In addition, excluding acquisitions, we were able to meet our objective for expense growth. Our performance compared to our 2001 objectives is outlined on page 6 of last year's Annual Report, and I'd urge you to review it.

Gord Nixon described our strong shareholder returns over the five years ended October 31, 2001. Included in these numbers were common share dividends. Between the end of 1999 and 2001, we raised dividends four times, resulting in an increase of 50% over that period. During 2001, we raised the dividend twice, for a 20% increase, and as announced this morning, our dividend will increase by another $0.02 or 6% in the second quarter.

First quarter 2002

Now, I'd like to take a few minutes to discuss our very strong results in the first quarter of 2002, which we released earlier this morning. This quarter's results reflect the adoption of a new accounting standard in Canada and the U.S. under which goodwill is no longer amortized. As a result, I will no longer be discussing cash results as the new standard brings our accounting results very close to our cash results. We think this makes our financial reporting more straightforward.

Net income for the first quarter was a record $734 million, compared to $695 million a year ago. Last year's results included a $111 million after-tax gain from special items, resulting primarily from the sale of a non-strategic business and the formation of a card processing joint venture. Fully diluted earnings per share were $1.04, compared to $1.08 a year ago, which had included $0.17 of gains from these special items.

Excluding special items in the first quarter of last year, net income was up 26%. Fully diluted earnings per common share were 14% higher than a year ago, compared to our growth objective for 2002 of 5-10%.

The strong growth reflects a substantial increase in net income from our recent U.S. acquisitions largely due to the purchase of Centura Banks in June of last year. It also reflects ongoing cost discipline, as I will show you shortly.

Return on common equity was 17.1%, within the 17-19% range targeted for this year. A year ago, return on common equity was 21.9% and, excluding special items, it was 18.3%.

Our business segments maintained their solid performance in the first quarter, and the following discussion excludes any special items in last year's first quarter.

Personal & Commercial Banking generated net income of $389 million, up 37%. ROE was 18.8% compared to 20.9% a year ago.

Earnings for the Insurance segment were $42 million, up 8% from a year ago. ROE was 23.0%, up from 22.4%.

Wealth Management's net income was $88 million, down from $99 million in last year's first quarter due to retention compensation expenses relating to our acquisitions of Dain Rauscher Corp. and Tucker Anthony Sutro. These expenses are expected to decline starting next quarter. ROE was 11.1%, reflecting the lower earnings and additional average capital attributed to Wealth Management this quarter compared to last year.

Corporate & Investment Banking reported net income of $146 million, virtually unchanged from last year. ROE was 13.7%, reflecting additional average common equity attributed to the segment this quarter compared to a year ago.

Earnings from Transaction Processing were $40 million compared to $46 million in the first quarter of last year. ROE was 25.7% this quarter.

Our total revenues were up 22% over the same quarter last year, surpassing our 2002 objective of growth between 7% and 10%.

Operating expenses, which exclude special items, costs of Stock Appreciation Rights and certain acquisition expenses such as retention compensation, were up 19%, lower than the 22% growth in operating revenues. This was in line with our objective.

Excluding our recent U.S. acquisitions, operating expenses fell 7% while operating revenues were up 1%.

Our success in meeting our revenue, expense, earnings growth and ROE targets demonstrates our continued commitment to managing costs.

Our results in the area of portfolio quality also remain on target. Specific provisions for credit losses for the first quarter of this year were .55% of loans and bankers' acceptances, within our target range of 45 to 55 basis points.

The bank maintained strong capital ratios during the quarter. The Tier 1 capital ratio was 8.8% and the Total capital ratio was 12.3%. We also met our objectives for valuation, ranking in the top quartile of Canadian banks in both share price to book value and share price to analysts' earnings estimates for 2002.

In conclusion, our results for the first quarter of 2002 met our objectives. We remain focused on generating strong returns by improving our cost structure, seeking out opportunities for profitable revenue growth and paying careful attention to our risk profile. And we remain committed to being the premier financial services company in Canada, while expanding selectively and profitably in the U.S..

Thank you for your attention.

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