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R O Y A L B A N K o f C A N A D A

corporate profile

The cover of this annual report depicts a mind-set which is prevalent throughout our organization – despite our leadership position andlong string of successes, we are never content to stand still. Our focus on higher targets and standards is covered in the financial and operationaldiscussions on these pages. Small captions like this one throughout the report show specific examples of how Royal Bank is raising its sights.

whowe are

Royal Bank is Canada’s largest financialinstitution as measured by market capital-ization, revenues and net income.We haveleading positions in most Canadian finan-cial services markets and operations in36 countries.We serve nearly 10 millionindividual and business customers aroundthe world.

In Canada, we have leading marketshares in residential mortgages, personalloans and deposits, and business loans.We are the largest money manager and thethird largest provider of mutual funds (first

among bank-owned funds). Royal Bankowns the largest and most profitable invest-ment dealer, RBC Dominion Securities,and the second largest discount broker,Royal Bank Action Direct, and is asignificant provider of creditor life anddisability, individual life and travel insurance.

Our domestic delivery network includesmore than 1,400 branches, 4,200 auto-mated banking machines, 570 self-serviceaccount updaters, and 84,000 point of sale merchant terminals.With 1.3 millioncustomers,Royal Direct is among the world’s

largest alternative delivery channel providers,giving clients access to services via tele-phone, personal computer and the Internet.

Internationally, corporate and invest-ment banking, trade finance, correspondentbanking, treasury and securities custodyservices are provided to business customers.The bank has a retail network in theCaribbean and substantial global privatebanking operations. Our internationalnetwork includes 105 offices in 36countries.


operating highlights

Anywhere,anytime banking➤ Released Royal Direct PCTM Bankingwith Managing Your Money software, theonly fully-integrated financial manage-ment program offered by a Canadianfinancial institution. ➤ Royal DirectTM

multi-channel service reached the1.3 million customer mark, making it the world’s largest self-enrolled alternativedelivery channel banking provider.➤ Introduced a new service whichallows customers to apply for personalloans by phone in a matter of minutes.➤ MondexTM electronic cash marked its official Canadian launch in Guelph,Ontario and commercialized the firstmonetary consumer transaction utiliz-ing smart card technology in NorthAmerica. ➤ With the participation of

IBM and VeriFone Inc., implementedthe first Canadian open system forsecure credit card payments over theInternet, based on the internationally-recognized Secure Electronic Transaction(SET) protocol. ➤ Launched TradeviewTM,a suite of new electronic trade productsto help Canadians engaged in interna-tional trade do business from anywherein the world, any time of day.

Anticipating consumer needs ➤ Royal Bank Action DirectTM discountbrokerage introduced Action Direct ValueRSPTM which lets Canadians broadentheir retirement savings plan portfoliosby adding fixed income investments to700 mutual funds and guaranteed invest-ment certificates (GICs). ➤ Added two

new funds to the Royal Mutual FundsTM

family of 27 no-load mutual funds –Royal Premium Money Market FundTM

and Royal Monthly Income FundTM.➤ Launched Canada’s first Audio BankingMachineTM, providing easy access for cus-tomers who are blind, are partiallysighted, or prefer to do their banking via a friendly interactive voice system.➤ Introduced purchase security andextended warranty insurance featuresto Royal Bank and Royal Trust debitcards. ➤ Launched seven new GICstargeted to income-oriented clientssuch as seniors. ➤ Introduced live Internetchats on car loans, RSPs and other finan-cial subjects which provided consumerswith valuable advice from Royal Bankexperts.

Highpoints


operating highlights

1997Acquisitions, joint ventures and sales➤ Purchased the institutional and pension custody business ofMontreal Trust and Scotiabank.With this transaction, Royal Trustacquired approximately $120 billion of client assets underadministration, making the bank the tenth largest custodian inthe world and reinforcing its number one position in Canada.➤ Symcor Services Inc., the co-sourcing joint venture formedto handle cheque and information processing for Royal Bankand two other major Canadian banks, completed its first yearas a separate company. ➤ Sold the Payroll Technologies business

to ADP Canada, a wholly-owned subsidiary of Automatic DataProcessing, Inc.The two companies also formed a strategicmarketing alliance to provide enhanced payroll and humanresource information services to the bank’s business customersin Canada. ➤ Structured an asset-backed commercial paperprogram that enabled the bank to securitize $1.5 billion ofcredit card receivables. ➤ Reached an agreement with HBGroup Insurance Management Limited to purchase the tech-nology, systems and expertise to develop a direct responseproperty and casualty insurance operation.

Funding growth➤ Established a Toronto-based merchant banking subsidiary, RB Equity PartnersLimited, with an initial capital commitment of $500 million, to originate and struc-ture large, complex transactions. ➤ Committed an additional $200 million of capital tothe bank’s wholly-owned venture capital subsidiary, Royal Bank Capital Corporation,bringing its capital base to $350 million.The additional capital was aimed at financingthe growth of small and medium-sized Canadian companies.➤ Created a subsidiary, Royal Bank Canada Growth Co., with an initial $30 millioninvestment, to promote the creation of companies in growth sectors such as lifesciences, information technologies and advanced materials and manufacturing.

Banking for business➤ In a new strategic alliance with AT&T Canada, planned the introduction of Internet-based financial services to approximately 380,000 business banking customers.➤ Teamed up with AT&T Capital Canada to offer, by phone, fax, or mail, Royal BusinessLeaseTM and Royal Business LeaseLineTM which feature simple and fast access to credit and awide choice of equipment financing options in the $1,000 to $50,000 range.➤ Canada’s first card-based line of credit, Royal Bank CreditLine for small businessTM, extendedauthorized credit of $244 million one year after its launch in September 1996.

Global gains➤ Expanded presence in the United Stateswith a representative office in Houstonto develop the natural linkages betweenoil and gas companies in the U.S. andtheir extensive Canadian activities.➤ Royal Trust Global Securities ServicesTM

was ranked number one in the world for itsmajor and emerging networks by leadingindustry observer GSCS Benchmarks.

Investor milestones➤ Increased the quarterly commonshare dividend in the first quarterfrom 34 to 37 cents and in the thirdquarter to 39 cents. ➤ The commonshare price closed the fiscal year at$75.35, up 70% from a year earlier.➤ Total return to common share-holders was 74%.


financial highlights

93 94 95 96 97

NET INCOME($ mill ions)

93 94 95 96 97

COMMON SHARE PRICE($, at October 31)

93 94 95 96 97

MARKET CAPITALIZATION($ bil l ions, at October 31)

93 94 95 96 97

BOOK VALUE PER SHARE($, at October 31)

8.6 8.9 9.5

13.8

23.2

18.0920.13

22.4224.67

27.91

27.25 28.38 30.13

44.30

75.35

300

1,1691,262

1,430

1,679

Top-performing bank stockRecord earnings Market cap 36% higher than #2 Canadian bank

Book value up 13%

% G ROW T H19 9 7 / 19 9 6 1997 1996 1995 1994 1993

Earnings (For the year ended October 31)

Gross revenues ($ millions) (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17% $9,311 $7,941 $7,317 $7,391 $6,550Provision for credit losses ($ millions) . . . . . . . . . . . . . . . . . . . . . (14) 380 440 580 820 1,750Non-interest expenses ($ millions) . . . . . . . . . . . . . . . . . . . . . . . . . 18 6,053 5,112 4,657 4,661 4,415Net income ($ millions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 1,679 1,430 1,262 1,169 300Return on assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – .70% .70% .69% .70% .21%Return on common shareholders’ equity . . . . . . . . . . 170 b.p. 19.3% 17.6% 16.6% 16.8% 2.4%

Balance sheet (As at October 31) ($ millions)

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6% $244,774 $231,498 $196,030 $173,079 $164,941Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 156,267 135,791 119,577 115,386 116,469Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 173,229 161,817 143,491 135,815 130,399Subordinated debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 4,227 3,602 3,528 3,481 3,410Preferred shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1,784 1,752 1,990 2,266 2,248Common shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 8,606 7,662 7,042 6,323 5,682

Capital ratios (As at October 31)

Tier 1 capital ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (20)b.p. 6.8% 7.0% 6.9% 6.4% 5.9%Total capital ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 b.p. 10.0 9.4 9.8 9.6 9.3Common equity to risk-adjusted assets . . . . . . . . . . . . . (20)b.p. 5.8 6.0 5.8 5.3 4.9

Common share information(For the year ended October 31)

Shares outstanding (thousands) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

– end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1)% 308,335 310,529 314,155 314,155 314,155– average . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2) 308,906 314,121 314,155 314,155 314,155

Earnings per share. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 $5.01 $ 4.09 $ 3.49 $ 3.19 $ 0.46Dividends per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 1.52 1.33 1.18 1.16 1.16Share price – High. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 76.45 44.40 31.38 31.88 28.88

– Low. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 44.00 29.75 25.88 25.13 22.00– Close – October 31 . . . . . . . . . . . . . . . . . . . . . 70 75.35 44.30 30.13 28.38 27.25

Book value per share – October 31 . . . . . . . . . . . . . . . . . . . 13 27.91 24.67 22.42 20.13 18.09Market capitalization ($ billions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 23.2 13.8 9.5 8.9 8.6

Number of: (As at October 31)

Employees –Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6% 58,133 54,728 55,721 55,987 60,064Full-time equivalent . . . . . . . . . . . . . . . . . . . . . . 5 50,719 48,205 49,011 49,208 52,745

Service delivery unitsDomestic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3) 1,453 1,493 1,577 1,596 1,731International (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 105 103 105 97 95

(2) 1,558 1,596 1,682 1,693 1,826

Automated banking machines . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 4,248 4,215 4,079 3,948 3,981

(1) Taxable equivalent net interest income and other income.(2) International service delivery units include branches, representative offices, agencies and subsidiaries.


performance for shareholders

Other indicatorsTotal return to commonshareholders (one-year)1997 Target: A one-year totalreturn in the top quartile of theTSE Banks and Trusts Index.Performance: Royal Bank wasthe number one performer inthe index, with a one-year totalreturn of 74%.This exceeded the61% return for the TSE Banksand Trusts Index:

Earnings per share 1997 Target: Annual growthof 10%+Performance: Earnings pershare were up 22% from a yearago, and 500 basis points greaterthan the percentage growth innet income due largely to therepurchase of 4.1 million sharesin the first half of the year.

Key goalsReturn on common share-holders’ equity (ROE) 1997 Target: 16-18%Performance: ROE was 19.3%,up from 17.6% in 1996, reflect-ing growth in high-return busi-nesses. ROE is a key measureof performance for each businessand important for determiningemployee bonuses. For themedium term (3-5 years), thebank has raised its ROE targetto 17-19%.

Dividend payout ratio 1997 Target: 30-40%Performance: The dividendpayout ratio in 1997 was 30.3%.Dividends per common sharewere $1.52, up 14% from 1996,reflecting a three cent increasein the first quarter and an addi-tional two cent increase in thethird quarter of 1997.

New sights mean new heights. In addition to a higher ROE target, we have raised our sights by aiming for higher growth in earnings pershare of 10-15% in 1998.

Overview Royal Bank is committed to providing superior rates of return to its shareholders. During 1997, the bank:➤ raised its quarterly dividend by three cents in the first quarter to 37 cents, and an additional two cents to 39 cents in the third quarter➤ repurchased 4.1 million common shares for $198 million, representing 1.4% of shares outstanding

The bank remains committed to enhancing shareholder value by setting and meeting medium term (3-5 year) financial goals,including those for return on equity and dividend payout.The bank also closely tracks its one-year total return to shareholders andgrowth in earnings per share, both of which are important measures for shareholders. Objectives for 1998 are provided on pages 9-10.

Peakperformance

shareholdersfor

93 94 95 96 97

RETURN ON EQUITY(%)

93 94 95 96 97

DIVIDENDS PER SHARE($)

93 94 95 96 97

TOTAL RETURN TO SHAREHOLDERSone-year (%)

93 94 95 96 97

EARNINGS PER SHARE($)

17.7

8.4 10.3

51.4

73.5

0.46

3.193.49

4.09

5.01

1.16 1.16 1.18

1.52

1.33

2.4

16.8 16.617.6

19.3

OurFocus

OurVision

is to be Canada’s premier financial services provider,

with committed peopleworking as a team to create customer

and shareholder value.

is on improving performance in each of our businesses to achieve consistent andsuperior returns for our shareholders.

are to grow and diversify our revenues, improve our efficiency, maintain a high quality risk profile, effectivelymanage the balance sheet and capital, and provide opportunities for capable,committed employees.

OurStrategic

Priorities

VisionFocus

Priorities

vision, focus, priorities



chairman’s message

The blueprint for accelerating growth of the sales culture at Royal Bank, our Managing Priority Markets initiative, is alreadyshowing it has the legs for the climb. Sales-focused approaches in 250 high-impact branches have already yielded growth in businessof about 1% per month, a 5% increase in customer satisfaction and a 10% rise in employee capability. Imagine the possibilities whenother branches join the climb.

banking, securities custody, invest-ment management, retail brokerage,and investment banking and trading.This allowed other income to rise to46% of total revenues from 41% in1996.We also gained market shares inmortgages, personal loans and com-mercial loans through our sales andservice initiatives and new productintroductions.

Overall, earnings per share were up22%. And, since much of the earningsgrowth occurred in high-return busi-nesses, our return on equity (ROE)increased to 19.3% from 17.6% in1996.The wealth managementsegment, which accounted for 14%of earnings, had an ROE of 49.7%,while personal and commercialbanking, with a 61% contributionto total net income, recorded a27.9% ROE.

Shareholder returnsOur shareholders enjoyed a total returnof 74% this year, following last year’s51% return.The share price alone roseby 70% between October 31, 1996and 1997 – the highest gain in theTSE Banks and Trusts Index.TheIndex itself was up 56%, and the over-all TSE300 up 22% in that period.We also raised the common share dividend twice during fiscal 1997,for increases of 14% over 1996 and29% over 1995.

We benefited this year from astrong Canadian economy, describedon page 18. Against a backdrop oflow interest rates, low inflation andhealthy capital markets, we recordedsolid growth in personal and smallbusiness lending, and excellent perfor-mances from fee-based businessessuch as mutual funds, global private

Some financial highlights for the year:

Return on common share-holders’ equity was 19.3%, upsignificantly from last year’s17.6% and also above ourtarget range for 1997 of 16-18%. Earnings per shareof $5.01 were up 22% from1996. Revenues rose 17% to$9.3 billion. Credit qualityimproved with net impairedloans declining to .1% of totalloans and bankers’ accep-tances from .4% in 1996.Thebank added $50 million tothe general provision duringthe fourth quarter, raising itto $750 million.

raisingsightsour



Raising our sights for allour stakeholdersAre we pleased with our performance?Pleased, yes.But complacent,never.Ourmarket capitalization ranking amongNorth American banks, although upfrom 17th last year to 13th now, is notsatisfactory.We want to raise ourranking.Also, competition has neverbeen tougher than it is today. Banksworldwide are positioning themselvesfor long-term growth and leadership.This is why we continue to raise oursights – to do better for our share-holders, our customers, our employeesand our communities. Because we’renever content to stand still.

For our shareholders, we have raised the medium-term goal for ROEto a range of 17-19% from 16-18%.We want to continue to provide top-quartile returns to our shareholders by continuing to lead the industry in

ROE, earnings growth and valuation.We aim to do so by growing busi-nesses with high ROEs and high P/Emultiples both in Canada and interna-tionally, by improving the efficiencyratio to 59.5% within 3-5 years, bymaintaining superior asset quality, andby effectively managing our balancesheet and capital.

For our customers, we are raisingthe targets for customer satisfactionand providing our employees with thetraining, technology and time to devotecare and attention to their clients.Weare also expanding delivery channelsand products to meet clients’ needsfor speed, convenience and returns.

For our employees, we arebuilding a partnership which willengender the commitment, profession-alism and flexibility our customersexpect. Only committed employeescan deliver the performance we need

to satisfy customers and shareholders.In addition to leading-edgework/family/life, gender gap anddiversity policies and programs, ouremployees at all levels receive annualincentive compensation based largelyon the bank’s return on equity andtheir individual contributions. In 1997,we added customer satisfaction andperformance relative to the competi-tion as further criteria for the payouts.We also have share ownership require-ments for our senior executives. Inaddition, our Board members are eachrequired to hold close to $180,000worth of Royal Bank common shares.

For our communities, we con-tinue to support and encourage themin a variety of ways as an employer,taxpayer, substantial purchaser of goodsand services, and corporate donor.Further information can be foundon page 108.

never stand still”“to do better

for our shareholders, our customers, our employees and our communities, we will

98


Objective 1:Provide a total return tocommon shareholders that isin the top quartile of thereturn for the TSE Banks andTrusts Index.

Performance:74%, in top quartile andhighest in the sector.

Objective 2:Grow revenues by 5% in 1997and enhance market shares intraditional banking products.

Performance:Revenues up 17% from 1996.Compared to a year ago,market shares (of all financialinstitutions in Canada) up130 basis points to 16.4% forpersonal loans, up 50 basispoints to 14.4% for residentialmortgages, but down 50 basispoints to 16.6% for personaldeposits.

Objective 3:Improve efficiency ratio toat least 63.4% from 64.4%in 1996.

Performance:65.0%, but 64.0% excludingone-time items and a $65 million restructuringcharge for the acquisition ofRichardson Greenshields, and61.8% on further excludingall expenses and revenues forRBC Dominion Securities.

Objective 4:Lower the ratio of provisionfor credit losses to averageloans and bankers’ acceptancesfrom the 1996 level of .34%.

Performance:.25%

Objective 1:Total return to commonshareholdersProvide a total return tocommon shareholders that isin the top quartile of thereturn for the TSE BanksandTrusts Index.

Objective 2:Earnings growthGrow earnings per share by10-15%.

Objective 3:Revenue growthGrow total revenues by 5-10%and enhance market shares intraditional banking products.

Objective 4:EfficiencyImprove the efficiency ratioby 200 basis points to 63.0%.

Objective 5:Portfolio qualityAchieve a ratio of provisionfor credit losses to averageloans and bankers’ acceptancesclose to this year’s levelof .25%.

Objective 6:Balance sheet and capitalmanagementGrow risk-adjusted assets ata pace that will permit us toattain, by the first half of1998, capital ratio targetsof 6% for common equityto risk-adjusted assets and7% for the Tier 1 capital ratio.

Goal:Return on equity of 16% to 18%Performance:19.3%

Goal:Earnings per share growth of 10%+Performance:22%

Goal:Dividend payout ratio of 30% to 40%Performance:30.3%versus objectives

97performance

objectives

1997 performance versus other goals




A broader knowledge base means a more direct path to the top. Personal Learning Network, the Group’s multimedia, PC-baseddistributed learning platform, will shift 70% of training to the workplace on a just-in-time basis. Over all, we invested more than$100 million on training employees in 1997 to grow our knowledge and raise our collective sights.

Objectives for 1997 and 1998As shown on page 9,we met all theobjectives we had established for 1997,with the exception of the efficiencyratio target of 63.4%.We failed to meetthis target due to several one-timeitems this year including a restructuringcharge for the acquisition ofRichardson Greenshields, and unex-pectedly strong growth at RBCDominion Securities,which has a highefficiency ratio like its peers in theindustry.Excluding these factors, theefficiency ratio was 61.8% this year.

Our focus on growing businesseswith high ROEs, but high efficiencyratios, such as those in the wealth man-agement and personal and commercialbanking segments shown in the tablebelow,has led us to amend our 3-5 yearefficiency ratio target to a more achiev-able 59.5% from the earlier 58% goal.

For 1998, we have set more aggres-sive targets for growth in revenuesand earnings and for efficiencyimprovement than those establishedfor 1997.We have also set targetsfor capital ratios and intend tomore closely manage growth in risk-adjusted assets.

growthaggressive targets

in revenues and earnings,and for efficiency improvement”

“for 1998, we have set more

for

B U S I N E S S S E G M E N T C O N T R I B U T I O N 1997 contr ibut ion to

% Net income ROE Ef f ic iency (1)

Personal & commercial banking . . . . . . . . . . . . . . . . . . . . . . . . . . 61% 27.9% 64.4%Wealth management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 49.7 71.5Corporate & investment banking . . . . . . . . . . . . . . . . . . . . . . . . . 20 18.7 44.0Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 2.5 n/a

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% 19.3% 61.8%

(1) Excluding one-time items and RBC Dominion Securities.

Supporting a competitive financial services sectorNew technology, globalization and intensified competition are shaping Canada’s financial services indus-try. Influencing its direction will be government policy, which in turn will draw upon the recommen-dations of the Task Force on the Future of the Canadian Financial Services Sector. Royal Bank has sub-mitted a series of recommendations to the Task Force. We believe that Canadian regulatory policy shouldbe flexible and should allow financial institutions to respond to rapidly changing market conditions.We also believe in markets that are open to competition and in the principle of a level playing field.Accordingly, subject to appropriate risk control measures, all financial institutions should have direct accessto the payments system through in-house deposit taking powers. Similarly, all financial institutions shouldhave full powers in the areas of insurance distribution and auto leasing. Finally, we have suggested elimina-tion of the implicit government policy of ‘‘big shall not buy big’’, so that mergers would not automaticallybe viewed as negative.A flexible financial services industry will benefit consumers and shareholders alike.



Our strategic prioritiesThe pursuit of our objectives ofrevenue growth in high-return busi-nesses and geographic markets,efficiency enhancement, superior assetquality, and effective balance sheetand capital management should allowus to generate solid returns for ourshareholders.Revenue growth and diversificationWe intend to grow high-ROE fee-based businesses, as we have done inthe past. Our recent acquisitions, insecurities custody and retail brokerage(see page 19), have been in such businesses. In the more traditionalbusiness lines, we see further opportu-nities in card services, personallending and banking for small busi-nesses. Outside Canada, we will focuslargely on the wealth managementbusinesses (see page 15).

Efficiency enhancementThere are a number of initiatives inplace to take costs out of our expensebase and move us towards our 3-5 yeartarget of 59.5% for the efficiency ratio.They include more efficient procure-ment practices, reconfiguration of ourbranch system, and consolidation ofbackground functions.Of the $300 mil-lion of cost savings expected by theyear 2000, about $140 million havealready been realized.The alternativedelivery channels should also lowercosts over time.Superior asset quality Our lending practices remain conserva-tive, as demonstrated by the continuedstrength of our loan portfolio and lowratios for problem loans and creditlosses.A further $50 million additionto the general provision this year hasraised it to $750 million.We expectthe ratio for credit loss provisions toremain relatively stable in 1998.

Balance sheet and capital management We aim to reach our capital targetsquickly through internal capitalgeneration and careful growth inrisk-weighted assets. Once we achievethis, we will evaluate the re-instate-ment of the share repurchase plan.

Looking aheadWith our strong shareholder orienta-tion, solid fundamentals and clearobjectives, we believe that we cancontinue to generate superior returnsfor you, our shareholders.

John E. CleghornChairman & Chief Executive Officer

93 94 95 96 97

GENERAL PROVISION($ mill ions)

550

300 300

700750

Further raised general provision


shareholder value enhancement

Sizeable presence in Canada,

leading market shares,

strong brand equity

➤ first among Canadian finan-cial institutions in marketcapitalization, revenues andnet income

➤ leading market shares inCanada in residential mort-gages, personal loans anddeposits, and business loans

➤ Canada’s largest private clientand institutional moneymanager, securities custodian, full-service retailbroker and creditor lifeinsurance provider

➤ number 2 discount brokerand number 3 mutual fundprovider (#1 among banks)

➤ committed to protecting and growing share of thesebusinesses

➤ among highest debt ratings inNorth America, with a seniordebt rating of Aa2 fromMoody’s

Matching size with superior results

➤ four straight years of record earnings➤ earnings per share growth of 22% in ’97 versus an annual target of 10%+➤ return on equity of 19.3% in ’97, up from 17.6% in ’96 and compared to a revised

medium term (3-5 year) target of 17-19%

Achieve strong,consistent earnings performance

Focus growth on high-ROE,high-P/E multiple businesses

TOP

enhancing shareholder value:

ten stepsto the

1

3Focusing investment

on high-potential segments

➤ wealth management and personal andcommercial banking had ROEs of49.7% and 27.9%, respectively, andtogether accounted for 75% of totalnet income in fiscal ’97

➤ money management, mutual funds,retail brokerage, card services, insurance

and personal financial services have high returns and growth prospects, andare intended to be grown aggressively

➤ recent acquisitions have been mainly in wealth management:

1997 - Richardson Greenshields -$17 billion of private client assetsand 580 investment advisors

1997 - Montreal Trust’s and Scotiabank’sinstitutional and pension custody business ($120 billion of assetsunder administration)

1996 - TD Bank and Trust’s institutionaland pension custody business($47 billion of assets underadministration)

1993 - Royal Trust (Canada’s largestmoney manager)

2

Compete from a position of strength


shareholder value enhancement

Manage balance sheet andcapital Rewarding investors for

choosing Royal Bank

➤ four quarterly dividend increases in thelast two years, representing totalgrowth of 34%Q4/95: 2 cents or 7% to 31 centsQ2/96:3 cents or 10% to 34 centsQ1/97:3 cents or 9% to 37 centsQ3/97: 2 cents or 5% to 39 cents

➤ repurchased 7.8 million commonshares from Sept. ’96 to April ’97 for$368 million – representing 2.5% ofshares outstanding

➤ securitization, mortgage insurance,internal capital generation and deben-ture financings supported capital ratios

Extend leadership in traditional servicesMoving ahead of the pack

➤ leading market shares in residential mortgages andpersonal loans rose by 50 and130 basis points, respectively,in ’97

➤ growth of 11% in residentialmortgages, 20% in studentloans and 21% in auto loans

➤ personal financial services andbusiness banking are profitablecornerstones of the franchiseand are committed to movingfurther ahead of the pack

Serving customers

on their terms

➤ telephone banking cus-tomers up to 1.3 millionby year-end ’97

➤ 98,000 PC bankingcustomers between launch in December ’96 andOctober ’97

➤ Internet options include

routine banking, car loans,residential mortgages, andtrade finance products➤ the Mondex “stored-value”

card launched in Guelph,Ontario in ’97

➤ new uses for ABMsintroduced in ’97,including traveller’scheques (some locations)and credit line access

➤ growing mobile commis-sioned sales force inmortgages and investmentand retirement planning.By year 2000, retirementplanning representativesexpected to double fromcurrent level of 225, andmortgage representativesexpected to grow 10-12%annually from current 228

Invest in anywhere/anytime banking

Seeking out profitable opportunities

➤ focusing on high-growth markets andbusinesses (see page 15)

➤ global private banking network uniqueamong Canadian financial institutions andtargeted for growth- 27 offices in 22 countries- $37 billion in assets under administration

➤ aim to be among the world’s top 20trade banks with a focus on financingreceivables, structured trade commodityfinance and trade processing

Selectively expand international operations

Control risk and maintain strong reservesRisk management now a competitive strength

➤ net impaired loans represent .1% of total loans and bankers’ acceptances, down from .4% a year ago

➤ consumer book has held up well, with net impaired loan ratio for residential mortgages andcredit card delinquency ratio down from the year-end ’96 levels

➤ credit losses of .25% of average loans and bankers’ acceptances in ’97, down from .34% in ’96

➤ general provision raised by $50 million to $750 million at October 31, ’97

Training, motivating employees

➤ provide employees at all levels withthe training, technology and time todevote attention to customers

➤ over $100 million invested inemployee training and developmentprograms in 1997

➤ employees own 4% of Royal Bankcommon shares through the Royal

Employee Savings and Share OwnershipPlanTM to which 89% of eligibleemployees belong

➤ annual bonus program available toemployees at all levels and is largelybased on ROE and employee perfor-mance

➤ minimum share ownership levels forboard, CEO & senior executives

Support a superior workforce

Improve efficiencyMany initiatives under way

➤ 59.5% revised medium-term (3-5 year) goal

➤ initiatives under way to remove$300 million from cost base byyear 2000, including adminis-trative and back-officerationalization ($140 millionalready achieved, includingpurchasing cost savings of $84 million)

➤ restructuring network (combining units of RoyalTrust, Royal Bank andRBC Dominion Securities)and reducing floor space andrationalizing back-offices

➤ alliances to share costs(Integrion Financial Networkand Symcor Services)

4 5

6

8

9

10

7


shareholder questions

?During 1997,

we were frequently asked the following

questions by investors and analysts.Here are our

answers.1. Are you planning to splityour common shares?

We are not contemplating a stocksplit for several reasons. First, thereis no hard evidence that a stock splitenhances shareholder value on asustainable basis. Second, there aresignificant costs incurred in splittingshares, such as the costs of issuing andmailing additional share certificatesand listing the additional shares withthe various stock exchanges.Third,a stock split can entail higher broker-age commissions for the buyer of theshares, who would be buying twice as many shares in the case of a two-for-one split.

2.Which of these avenues will Royal Bank pursue toenhance shareholder value –dividend increases, sharerepurchases or acquisitions?

We don’t view the three as mutuallyexclusive.We have a dividend payouttarget of 30-40% and as we aretowards the lower end of that target,we expect that if earnings rise, sowill dividends.We halted our sharerepurchase program as the strong per-formance of the Canadian economyled risk-adjusted assets to rise fasterthan internally generated capital.Once we reach our capital ratiotargets, we will reconsider the meritsof a share buyback program. As foracquisitions, we constantly evaluatethem and proceed with those thatsupport our growth strategy and meetour return targets.

3. How prepared are you for the year 2000?

We commenced working on the year2000 issue in early 1995 and are plan-ning to complete the project byDecember 31, 1998.We started aworking group for the Canadianbanks in July 1996, which meetsmonthly and has a member from theBank of Canada. Royal Bank hadmore than 500 software applicationsto change and test and 40% of thosehave been converted. All fundamentalsystems including those relating todeposits, loans, mortgages, creditcards, mutual funds, custody, stockbroker accounts and bankingmachines are being converted.

More than 10% of Royal Bank’s$213 billion of earning assets arelocated in the U.S., where thebank provides corporate andinvestment banking, trade finance,treasury and capital market prod-ucts to U.S. multinationalcorporations and financial institu-tions and subsidiaries of Canadiancorporations. Royal Bank ranksamong the top 10 in both U.S.loan syndications and foreignexchange sales. Foreign exchangesales have more than doubledto U.S.$120 billion from 1993.Offices are located in New York,Chicago, Los Angeles, Boston,Miami and Houston.

Royal Bank has the largest presence inEurope of any Canadian bank and is theonly one with a presence in every majormarket in Europe. In addition to officesin the U.K., Germany, Spain, France, theNetherlands and Switzerland, the bankoperates in South Africa and the U.A.E.The bank provides global private banking,corporate banking, treasury, investmentbanking, global securities and corres-pondent banking services in this region.

From offices in Argentina, Brazil, Mexico,Venezuela,Uruguay, Chile and Colombia, Royal Bank provides services to leading financial institutions and large corpora-tions throughout South and Central America. Services are focused in correspondent banking, trade finance, trea-sury, multinational banking and global private banking.

The bank has established operations in 8 countries – Japan,Hong Kong, China, Singapore, South Korea,Taiwan,Thailandand Australia, where it is selectively focused in areas such asshort-term financing of inter-regional trade, global privatebanking, corporate and investment banking and trading.

Royal Bank has a 100-year tradition and major presence in the Caribbean withmore than 60 units and over 1,000 employees. Services offered include brokerage,global private banking, reinsurance, trust services and retail banking.The efficiencyratio in this market is much better than that of the overall group.

United States Europe,Middle East, Africa

Asia Pacific

Caribbean

Latin America

Our international presenceand strengths are outlinedbelow. We derive about30% of our core earningsfrom outside Canada andour objective over thelonger term is to raise thatproportion through selec-

tive international expan-sion.We expect to do solargely in fee-based busi-nesses such as investmentmanagement, global privatebanking, brokerage, special-ized insurance productsand trade finance. Our

priority markets for expan-sion are the United Statesand Europe.We will watchAsia and Latin Americaclosely and may grow therein a cautious, selectivefashion. Our acquisitionphilosophy is to acquire,

at reasonable prices, com-panies in predominantlyfee-based businesses thatwould provide goodrevenue and cost synergiesand fairly rapid contribu-tion to earnings.

4. What is your international strategy?


shareholder questions


financial services industry trends

PC/Internet home banking attracted98,000 customers between its launch inDecember 1996 and October 31, 1997.

Royal Bank customers already do86% of their routine banking taskselectronically (including by automatedbanking machines), and this proportionis expected to exceed 90% by the year2000.

Ten major Canadian financial insti-tutions are participating in Mondex –Canada’s “smart card” initiative to pro-vide “electronic cash” as a convenientalternative to notes and coins.The pilotproject was launched in Guelph, Ontariothis past year.

Meanwhile,most of the bank-owneddiscount brokerages launched on-linetrading services this year. Royal BankAction Direct offered on-line trades at aflat rate of $29 through PCActionTM.

Many of today’s investors are baby-boomers, who seek retirementplanning advice as well as more diversi-fied investment products. In response,banks are encouraging their branch per-sonnel to acquire financial planningexpertise and shift from a transaction to a sales culture.They are investingheavily in retraining personnel for thistransition. Royal Bank considers invest-ments in programs to enhance employeeprofessionalism and knowledge as a keystrategic imperative to help employeesmeet the changing expectations of cus-tomers. Royal Bank spent over $100 mil-lion in 1997 on enhancing the skills

of its people, and has launched RoyalLearning NetworkTM courses to provide avariety of learning platforms.

Canada’s banks are also developingmore mutual fund products. Royal Mutual Funds, Canada’s third largestmutual fund provider, this year launchedRoyal Monthly Income FundTM andRoyal Premium Money Market FundTM.

The impact of technologyThe development of alternate deliverychannels and new financial products hasboth stimulated, and been furthered by,a technology boom.Technology expen-ditures are climbing at a compoundannual rate of 7% versus only 2% duringthe first half of the 1990s. From 1995 to1996, spending on computer equipmentby North American banks rose by 20%to $5.2 billion. Royal Bank’s technologyexpenditures total approximately $1 billion per year.

While Royal Bank is committed toremaining at the forefront of technologydevelopment, keeping pace with changerequires a significant investment.Toderive the most value from their high-tech dollars, banks are forming allianceswith each other and with leading infor-mation technology businesses.

In that regard, Royal Bank this year:➤ finalized its partnership with IBM and 15 U.S. banks in the IntegrionFinancial Network, a consortium thatallows the bank to meet customers’increasing demand for electronic bankingvia a shared, North American common“middleware” framework, while preserv-ing the bank’s brand identity and itsunique relationship with its customers.Royal Bank is the only Canadian parti-cipant in this network.➤ announced a strategic alliance withAT&T Canada to provide comprehensiveand secure Internet-based financial ser-vices together with Internet access to

Financial services 1997

outlookinsights

Canadian banks traversed another yearof rapid change in 1997 as the followingforces that have made the ’90s such adynamic decade for financial servicesproviders continued:➤ Changing customer needs and

expectations➤ Technological developments➤ Globalization➤ Increased competition➤ De-regulation and consolidation

Changing customer needsFinancial services providers are havingto respond to more sophisticated anddemanding customers. Due to changesin lifestyle and demographics, clients areexpecting their banks to offer greaterconvenience in conducting transactionsand greater expertise in financialplanning.

Increasingly strapped for time,customers want banking services to beavailable anywhere, anytime. Banks there-fore are continuing to emphasize “virtualbanking”, into which new entities suchas ING Canada and Vancouver-basedCitizens Bank entered this year.

At Royal Bank, Royal DirectTM offerscustomers round-the-clock banking bytelephone, Internet or personal computer(PC).The latter includes the ManagingYour Money personal finance software.Royal Direct is now one of the fastestgrowing telephone banking programs inthe world, with customers conductingmore than 2.5 million calls per month.

and


financial services industry trends

of employment in the industry.Thefederal Task Force on the Future of theCanadian Financial Services Sector, whichis due to report by September 1998, isexamining these issues.The CanadianBankers Association (CBA) and each ofthe six major Canadian banks have out-lined their views to the Task Force.

Royal Bank favours a regulatory frame-work that serves consumers by being opento new domestic and foreign competitors.The myth exists that banks enjoy certainprivileges, and Royal Bank has clearlystated that Canada’s banks neither seek norrequire special protection or privileges.

To this end, the bank supports therecent government announcement per-mitting foreign banks to establish branchesof their parent in Canada.Moreover, thegovernment should not try to resist theincreased potential for delivery of cross-border services into Canada; rather, itshould devote resources to educatingconsumers about the risk and their ‘‘duediligence’’ responsibilities.The submissionalso supports increased competition andconsumer choice in the areas of auto-mobile leasing, insurance networking,and payments system access, and in-housefiduciary powers.

On ownership policy,Royal Bankurges that the 10% foreign ownership ceil-ing for Canadian banks be reviewed.Widermembership in the payments system areencouraged, provided that the attributesof the system that serve Canadians well arenot diminished.The bank also favoursnational regulation of all financial services(for those provinces wishing to partici-pate).Regulated institutions, however,should have the flexibility to pursue theirunique strategic business plans with thecorporate structure of their choice.

Royal Bank’s position is in keepingwith the rest of the industry, as denoted in the CBA’s submission.

The Task Force’s recommendations,and the federal Government’s action onthem,will have a major impact on thefinancial services landscape as we enterthe new century.

tative office in Houston. It also launcheda leveraged finance group in New York.The bank’s international strategy isdiscussed on page 15.

Canada’s banks are also preparingfor more foreign competition in theirdomestic market. As well, the U.S.monoline credit card provider, MBNA,has announced plans to enter Canada.Wells Fargo plans to use direct marketingto offer unsecured lines of credit toestablished small businesses in Canadafrom its U.S. base. Anticipating suchcompetition, Royal Bank introducedRoyal Bank CreditLine for small businessTM,Canada’s first card-based line of credit,one year ago. Between its launch inSeptember 1996 and October 31, 1997,CreditLine had extended authorizedcredit of $244 million.

Industry consolidationFurther integration and consolidationof financial services providers continuedin 1997. In the past year, independentlyowned brokerage firms and trust companies have merged with banks.RBC Dominion Securities acquired full-service broker Richardson Greenshieldsto become, once again, the largestsecurities firm in Canada.

Royal Bank made a bid for LondonInsurance Group, which was ultimatelyacquired by another Canadian insurer,furthering the consolidation currentlyunder way in the insurance industry.This result did not affect Royal Bank’soverall insurance strategy which is pro-ceeding as planned. In the best interest ofconsumers and shareholders, Royal Bankand other banks are still pressing Ottawafor the right to sell a broad range ofinsurance products in their branches.

The future of financialservicesAs the financial services sector consoli-dates, public concern has focused onissues such as the level of competititon indomestic markets, the powers financialinstitutions may exercise, and the level

the bank’s 380,000 business bankingcustomers.➤ moved forward with two otherCanadian banks to create SymcorServices Inc., a co-sourcing initiative to handle cheque and information pro-cessing for all three institutions. In June,Symcor assumed the management of the banks’ 19 processing centres.

Royal Bank was also one of the firstcompanies in Canada to acknowledgethe Year 2000 problem – the dangerof computer systems problems occurringon January 1, 2000 unless systems andsoftware programs are modified.Thebank has had a Year 2000 project for overtwo years.To galvanize its business andindividual customers into action, RoyalBank has also launched an awarenesscampaign, including a “Year 2000Conversion Kit” that is downloadablefrom its Internet web site.

Globalization andcompetitionThe exponential growth of computerpower and telecommunications capacityhas encouraged the globalization offinancial markets.This, in turn, hasprompted Canadian banks to seek nicheopportunities outside Canada.While the banks cannot be all things to all clients,they are building on existing strengths as they undertake selective initiatives in the United States and other foreignmarkets.

In the past 12 months, one ofRoyal Bank’s domestic competitorshas increased its holdings in LatinAmerican banks; another has added to its presence on Wall Street by acquiring an investment bank and yet another hasacquired U.S. and Australian discountbrokerage firms.

While actively assessing foreignacquisition candidates, Royal Bank didnot find one that was expected to enhanceshareholder value. However, to pursuegrowth, and build on the expertise andcontacts developed with Canadianenergy companies, it opened a represen-


canadian economy and cautionary statement

Royal Bank, from time totime, makes written and oralforward-looking statements,including in this AnnualReport, in other filings withCanadian regulators or theU.S. Securities and ExchangeCommission, in reports toshareholders and in othercommunications. Suchforward-looking statementsinclude objectives for 1998and the medium-term,and

strategies to achieve thoseobjectives, set forth herein.

By their very nature,forward-looking statementsinvolve inherent risks anduncertainties, both generaland specific, and risks existthat predictions, forecasts,projections and otherforward-looking statementswill not be achieved. RoyalBank cautions readers not toplace undue reliance on these

statements as a number ofimportant factors could causeactual results to differ materi-ally from the plans, objectives,expectations, estimates andintentions expressed in suchforward-looking statements.These factors include, but arenot limited to, changes in eco-nomic conditions includingfluctuations in interest rates andinflation, regulatory develop-ments, technological changes

and the effects of competitionin the geographic and businessareas where the bank operates.

Royal Bank cautions thatthe foregoing list of importantfactors is not exhaustive; whenrelying on forward-lookingstatements to make decisionswith respect to the bank,investors and others shouldcarefully consider the forego-ing factors and other uncer-tainties and events.

Caution regarding forward-looking statements

CanadianThe

➤ Real GDP growth in Canada will be at least 3.5% in 1997, up from 1.5% lastyear.This increase is due primarily togreater strength in the domesticeconomy, both households and business-es. Largely as a result of low interest rates,there has been a strong upsurge in bothcapital spending by business and con-sumer spending by households. Businesshas been buoyed by these low interestrates, as well as by improved fundamentalsin the areas of low inflation and a radicalimprovement in the country’s fiscal posi-tion. Households have responded withhigher retail sales and a firming trend inpurchases of big-ticket items from cars tohouses. Looking forward to 1998, weexpect this domestic momentum to carryus through to another year of good

economic growth, although the economywill also be challenged by the fallout ofevents in Asia.

➤ At the time of writing, Canadian long-term yields are below 6%, while three-month treasury bill rates have beenedging up to near 4%.We see short-terminterest rates edging up further but onlyby relatively modest amounts. At the longend, we see interest rates flat or slightlylower as a result of continuing low infla-tion, moderate growth, and a “flight toquality”. In these turbulent times, we canbe thankful that our fiscal house has beenput in order.

➤ Owing to a perceived softening ofcommodity prices and other factors, the

Canadian dollar in early December 1997was hovering just above 70 cents U.S.While this dollar weakness cannot beseen as a lack of confidence in Canada(witness the low long term interest ratesjust described), we think the Canadiandollar will remain weaker than had beenexpected prior to the Asian crisis.Weanticipate a modest strengthening of theCanadian dollar as a consequence ofmodest Bank of Canada tightening.

➤ As a consequence of Canada’s continu-ing high unemployment and thedisinflationary effects of the Asian crisis,we anticipate that Canadian inflation willremain below the midpoint of the Bankof Canada’s 1-3% target range.

economy Canada’s fundamentals have seldom been better, and we expect Canada to lead theG7 countries in economic growth over the next couple of years.That said, at thetime of writing in early December 1997, storm clouds arising from the Asian crisismake it unusually difficult to predict the future course of the Canadian and globaleconomies. Notwithstanding these uncertainties, our attitude towards the Canadianeconomy remains one of guarded confidence.

Throughout the 1990s, Royal Bank has transformed itself from an institution delivering tradi-tional banking products to one of North America’s largest institutions offering a wider rangeof financial services. Driving this change are a variety of factors including deregulation of thefinancial services industry, the bank’s focus on increasing fee-based earnings, and increaseddemand by customers for more comprehensive financial services and alternative delivery chan-nels.To meet these challenges, the bank has acquired full-service brokerage firms (beginningwith the purchase of RBC Dominion Securities in 1988), insurance companies, a trust companywith wealth management operations, and institutional and pension custody operations. Keyacquisitions in the last five years are summarized below.


general development of the business

how we’ve grown:

generaldevelopment

businessof the

CompetitionAs the group has entered and expanded into new lines of business, its competition has grown toinclude investment dealers, mutual fund providers, money managers, custody service providers,insurance companies, virtual banks and specialty financial service providers. Key competitivefactors include types and numbers of products, pricing, distribution and service quality.Additionalinformation on trends and competition in the industry can be found in the “Financial services1997 insights and outlook” section on pages 16-17 of this report.

These acquisitions have con-tributed to the followingtrends since 1992:➤ Other income has risen to46% of total revenue in 1997from 35%➤ Capital market fees haveincreased 229% to $1,172million from $356 million➤ Fees from investmentmanagement and custodialservices, and from mutualfunds, have grown to repre-sent 18% of total otherincome from 6% in 1992

Higher fees have accom-panied a sharp increase inoff-balance sheet assets.Assets under managementwere $68 billion at October31, 1997, up significantly inthe last five years.

During this transition,Royal Bank has maintained itsleading position in its tradi-tional businesses. It continuesto be ranked number one inresidential mortgages, personalloans and deposits, and busi-ness loans.

To support this growth andreduce costs, the bank hasinvested in alternative deliverychannels such as telephonebanking, PC banking, secureInternet banking, debit cardsand stored value cards.

A C Q U I S I T I O N K E Y B E N E F I T S ( 1 )

Voyageur Insurance Company – Canada’s largest travel insurance 1993 provider

Royal Trust – 1993 Canada’s largest money managerHighly ranked in global custodyLarge mutual fund familyStrong in global private bankingUpscale banking business

Kidder Peabody’s equity Broadens product offering to retail,derivatives team (acquired by institutional and corporate clients RBC Dominion Securities) – 1995

Westbury Canadian Life $90 million in annual premiumsInsurance Company – 1996 Strong balance sheet

Innovative products

TD Bank and Trust’s institutional $47 billion in assets under and pension custody business – 1996 administration

A blue-chip client base Greater economies of scaleIncremental revenues

Richardson Greenshields Over $300 million in revenues(investment dealer) – 1997 $17 billion in private client assets

580 investment advisorsStrong international capabilities

Montreal Trust’s and Scotiabank’s $120 billion in assets underinstitutional and pension custody administrationbusiness – 1997 Strong pension and fund

manager client baseGreater economies of scaleIncremental revenues

(1) At time of acquisition.

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