Friday, July 07, 2006

RBC to Grow in Georgia, Florida

Triangle Business Journal, Lee Weisbecker, 7 July 2006

Downtown Raleigh may be RBC Centura's choice as prime real estate for its headquarters, but a new plan for accelerated branch growth continues the bank's focus on areas outside North Carolina - in Atlanta and south Florida.

Bank officials, including RBC Centura President Scott Custer, initially had targeted 2007 for a growth spurt of up to 15 to 20 branches in high-growth markets in Georgia, primarily the Atlanta area, and in south Florida.

Under the altered scenario, RBC will develop 12 branches in those areas by the end of the summer with an additional 10 in fiscal 2007. "The plan has been accelerated," says spokesman Cameron Kelly.

As of March 31, RBC Centura, which is the U.S. retail banking operation of Royal Bank of Canada, had 277 branches - a large majority, 186, in North Carolina. In Georgia, the current tally stands at 30 branches, with 37 in Florida, according to the Federal Deposit Insurance Corp.

The addition of branch offices is intended to help spur both deposits and market share for RBC Centura, which lost money in 2004 but began turning around its bottom line in 2005.

In the period from March 31, 2005, to the same date in 2006, total assets climbed by 6 percent, to $20.5 billion, deposits and loans advanced by 9 percent and 10 percent, respectively, and net income shot up by 28 percent, to $27 million, according to the FDIC.

The only fly in the ointment was a 40 percent rise in loans either 90 days past due or classified as being in non-paying status.

That item rose from $77 million in 2005 to $108 million as of March 2006. Expressed in terms of noncurrent loans to total loans, the $108 million figure gave RBC Centura a performance ratio in the category of 0.84 percent - not yet cause for alarm.

"Generally you begin to get concerned when this number gets above 1 (percent)," says University of North Carolina at Charlotte finance professor Tony Plath. "And I would doubt that Centura has a systemic problem with its entire loan portfolio. Banks generally are not struggling with loan quality issues in the Southeast."

Kelly says the rise in nonperforming loans can be attributed to "two large credits" and doesn't reflect any deterioration in the bank's overall portfolio.

Since Royal Bank's purchase of Centura in 2001, the bank has expanded south either by building new branches or buying multiple branches in small acquisitions.

Kelly says acquisitions won't play a role in the next expansion phase.

The new offices, following the general rule of thumb in the industry, can cost up to $1.5 million each to outfit and/or build and staff. They generally are expected to lose up to $250,000 in the first year and begin to turn a profit after 18 months.

As far as the bank's overall strategy is concerned, analysts say Centura is right on the money in terms of its geographic choices of Atlanta and south Florida.

But Centura is far from alone in targeting those areas, and the concern is becoming whether both will become over-banked.

In Atlanta, for instance, as of June 30, 2005, that city and its environs had $94 billion in total deposits and was being served by 138 different banks.

Centura has 28 offices in the greater Atlanta area with $819 million in deposits and a 12th place market share of 0.87 percent.

Peyton Green, who covers southern banking for FTN Midwest Research in Memphis, says that when economic conditions and credit quality are good, as they are now, there is always a rush to add offices.

"The bigger banks do it, and there are a lot of new startups in these markets, so new branches are coming from both sources," he says. "When things turn softer, they'll begin realizing their numbers aren't living up to expectations and the market is rationalized. It's the normal cycle."

Neither Green nor members of his family own shares in Royal Bank.