21 November 2006

RBC Centura's Now in 6 US States

News & Observer, The (Raleigh, NC), 21 November 2006

With two acquisitions already this year, RBC Centura might be on the prowl for more.

The Raleigh bank is emboldened by two years of encouraging quarterly performance and a still-surging economy in many parts of the Southeast.

RBC announced its second deal in four months Nov. 1, when it agreed to pay an undisclosed sum for 39 AmSouth Bancorp branches in Alabama. In August, it paid $456 million for Flag Financial, which operates 17 branches in the metro Atlanta area.

Despite these moves, some analysts think that the company needs to make bigger plays to start producing larger returns for shareholders. RBC is owned by Toronto-based Royal Bank of Canada, for which it still contributes less than 10 percent of revenue.

"We're now in six states and that's where we want to continue to grow," said Scott Custer, president and CEO of RBC Centura. "But we don't have dominant share in any market we're in, so there is still a lot of opportunity."

Custer said that no deals are planned, but that the company would not pass on opportunities to expand its reach. The bank is now in Virginia, the Carolinas, Georgia and Florida. The AmSouth deal is expected to close in March.

Custer said he would eventually like to complement the AmSouth purchase -- which gives RBC strongholds in Huntsville, Mobile and Montgomery, Ala. -- with a banking presence in Birmingham, the state capital.

"Birmingham is an interesting and attractive market, and we will try to figure that out at some point down the road," Custer said. "Right now, our job and focus is to get in the markets where we bought banks and focus our execution there."

Custer declined to comment on merger speculation or possible acquisition targets. RBC will have a little more than $26 billion in assets once both deals close.

Custer said the company will add branches in Florida, Georgia and coastal South Carolina in the next 12 months.

It could be the right time to grow by acquisition, as well.

Small and regional banks are struggling with narrow lending margins, lower mortgage income and early signs of deteriorating credit quality, which many in the industry think will worsen next year.

"It is an extremely difficult operating environment for banks right now, so we believe more mergers and acquisitions are on the way," said Mark Muth, an analyst with FTN Midwest Research in Nashville.

That could mean opportunities for Royal Bank to use its soaring stock price to help RBC buy U.S. companies. Royal Bank's stock is up 30 percent from a year ago. It closed down 6 cents to $46.67 Monday.

Royal Bank could also be helped by weak U.S. currency. With the dollar down about 5 percent against the Canadian dollar, any deal would be less expensive for Royal Bank.

Possible targets being bandied about by stock analysts include Birmingham-based Superior Bancorp; Greenville, S.C.-based South Financial Group and BB&T, which is based in Winston-Salem. Last week, BB&T's CEO, John Allison, said the bank was ready to discuss a "merger of equals" with another bank, securities firm or insurance company.

"I think it's [a BB&T and RBC merger] a low likelihood, but I wouldn't rule it out," said Christopher Marinac, president of Fig Partners, an Atlanta-based investment bank.

BB&T is the fifth-largest bank in the Southeast, with a market value of $23.6 billion and assets of about $119 billion. Royal Bank has market value of $60 billion.

"That doesn't sound like a merger of equals," said Bob Denham, who heads corporate communications for BB&T. "The whole strategy behind a merger of equals is to remain independent. For John [Allison], that means keeping the culture, the BB&T way, the values."

Purchasing Superior Bank would give RBC a strong presence in Birmingham and boost its position in Alabama and Florida, said Garry Tenner, an analyst with SunTrust in Atlanta.

Superior has 57 branches from Huntsville, Ala., to Tampa, Fla. Its size matches RBC's traditional targets -- companies with $1 billion to $2 billion in assets. Superior has about $1.8 billion in assets.

South Financial group would give RBC 107 branches in the Carolinas and 65 in Florida, where RBC is eager to expand.

"It would be a great complement," Marinac said. "The question is whether RBC is willing to pay a lot more than $30 per share, which is what South Financial's board would want."