DBRS Confirms RBC Centura Banks, Inc. at AA (low) with Stable Trend

Dominion Bond Rating Service (DBRS) has today confirmed the ratings of RBC Centura Banks, Inc. (RBC Centura or the Company) and its operating bank subsidiary, RBC Centura Bank, as indicated below. The rating action follows a detailed review of the Company’s operating results and financial fundamentals. The trend on all ratings remains Stable.

The ratings of RBC Centura, a wholly owned subsidiary of Royal Bank of Canada (RBC – rated AA), are underpinned by its strategic role in RBC’s U.S. strategy, strong community banking franchise and robust financial profile. The confirmed ratings also take into account the Company’s limited fee income contribution, elevated funding costs and below-peer profitability.

For the first half of 2006, RBC Centura’s profitability improved as a result of aggressive focus on improving financial performance. Deposit growth slowed relative to prior years reflecting the challenging interest rate and competitive environment across RBC Centura’s footprint. Overall loan portfolio growth was modest while the Company was able to maintain strong asset quality.

RBC Centura accounts for only about 5% of RBC’s consolidated assets and revenues but plays an important role in RBC’s overall U.S. strategy, accounting for an estimated one-third of revenues generated by RBC’s U.S. and International Personal & Business segment. Implicit in the ratings is DBRS’s expectation that RBC has the resources and motivation to support RBC Centura in the unlikely event that financial support is needed.

The Company benefits from an established community-focused commercial and consumer banking franchise principally in North Carolina, and to a lesser extent in Florida, Virginia, Georgia and South Carolina. The Company holds the top five deposit market share position for 40% of its 61 MSAs. Moreover, RBC Centura has about 28% of its total branches in MSAs where it has a 10% or greater market share. The Company’s franchise will be further strengthened by the recently closed Flag Financial acquisition with its principal locations in the Atlanta market and the pending AmSouth branch acquisition which launches RBC Centura into four of the five largest MSAs in Alabama. RBC’s robust risk profile, resulting from its conservative management, is evidenced by the above-peer asset quality, sufficient liquidity and ample capital.

Dependence on the loan product is high as net interest income accounts for 82% of revenues. Net interest income arises from a loan portfolio sufficiently diversified among various commercial, real estate and consumer loans, and from a high quality and relatively short-term securities portfolio. Non-interest income is generated from a narrow range of sources, including fees on deposit accounts, and to a lesser extent by the mortgage business and operating services.

The composition of the Company’s deposits is good; however, the aggregate level of core deposits is relatively low at about 67% of loans, resulting in substantial reliance on more expensive wholesale funding. Below-peer profitability has been the result of RBC Centura’s substantial reliance on spread income and elevated funding costs, coupled with an inverted yield curve, higher short-term rates and heightened competitive pricing pressures. Moreover, such products as wealth management, brokerage and insurance, which enhance typical community banks’ earnings and profitability, are provided by the Company’s sister companies that are not part of the earnings stream.

Headquartered in Raleigh, North Carolina, RBC Centura reported assets of $21 billion at September 30, 2006.

Notes:
On October 6, 2006, the Short-Term Instruments and Senior Debt ratings for RBC Centura and the Deposits & Senior Debt rating for its subsidiary, RBC Centura Bank, were upgraded based on the implementation of DBRS’s new support assessment methodology for banks. These upgrades were based on RBC Centura’s SA-1 designation which implies strong and predictable timely support from its ultimate parent, RBC (rated AA), ranging from a guarantee to ownership and control.
All figures are in U.S. dollars unless otherwise noted.