DBRS Confirms RBC Centura at AA (low); Trend Stable

DBRS has today confirmed the ratings of RBC Centura Banks, Inc. (RBC Centura or the Company) and its operating bank subsidiary, RBC Centura Bank. The rating action follows a detailed review of the Company’s operating results and financial fundamentals. All trends are 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, its solid community banking franchise and solid financial profile. The ratings also take into account the Company’s exposure to the builder-finance sector and limited fee-income generation. Moreover, the ratings consider RBC Centura’s below-peer profitability and elevated funding costs.

Over the past few quarters the Company’s builder-finance business, which accounts for less than 20% of total loans, has been under stress as a result of the difficult mortgage market, leading to higher-than-expected nonperforming assets and provisions. DBRS believes that the challenging housing markets may further pressure RBC Centura’s asset quality and earnings capacity due to the potential for higher credit costs and provisions. Nonetheless, DBRS takes comfort in the Company’s implicit support from its financially strong parent as well as RBC Centura’s conservative underwriting approach that has resulted in a solid track record through various real estate cycles.

Although RBC Centura accounts for only about 4% of RBC’s consolidated assets, it plays an important role in RBC’s overall U.S. strategy. Implicit in the ratings is DBRS’s expectation that RBC has the resources and motivation to support RBC Centura if 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 a top-five deposit market share position in half of its 60 metropolitan statistical areas (MSAs). Moreover, RBC Centura has roughly 50% of its total branches in MSAs, where it has a 10% or greater market share. Looking to enhance its franchise, RBC Centura announced its intention to acquire Alabama National BanCorporation, which is expected to close in early 2008.

Dependence on spread income is elevated as net interest income accounts for a high 80% of revenues. 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. Below-peer profitability has been the result of RBC Centura’s substantial reliance on spread income, generated from a mostly secured loan portfolio, and elevated funding costs. Moreover, such products as wealth management, brokerage and insurance, which diversify and enhance typical community banks’ earnings and profitability, are provided by RBC Centura’s sister companies that are not part of the earnings stream.

Headquartered in Raleigh, North Carolina, RBC Centura is a wholly owned U.S. subsidiary of Royal Bank of Canada, with over 350 branches located in the U.S. Southeast. RBC Centura reported $25.5 billion in assets as of September 30, 2007.

Note:
All figures are in U.S. dollars unless otherwise noted.