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TMCNet: RBC has 2nd-quarter profit: After two quarters of losses, the bank reports a $16 million profit

[August 29, 2008]

RBC has 2nd-quarter profit: After two quarters of losses, the bank reports a $16 million profit

(News & Observer, The (Raleigh, NC) (KRT) Via Acquire Media NewsEdge) Aug. 29--Despite a tough environment for financial institutions, Raleigh-based RBC Bank returned to profitability in the second quarter.

RBC posted a profit of $16.4 million in the latest quarter, according to data filed with the Federal Deposit Insurance Corp. That's a decline of 39 percent compared with a year ago, but it comes after two straight quarters of losses.

"I don't think it was a bad quarter for them," said Buddy Howard of Equity Research Services, a Raleigh firm that tracks the banking industry. "The earnings are down, but earnings are down for a lot of banks these days."

Banks across the country have been plagued by problem real estate loans triggered by the staggering housing market, and by the narrowing of the gap between the interest banks pay on deposits and the interest rates they receive on loans.

RBC CEO Scott Custer said the $1.6 billion acquisition of Alabama National Bancorp and its 103 branch offices, a deal that closed in February, played a big part in RBC's improved earnings.

"What we are getting from that company, the contribution is more than we expected," Custer said.

Earnings the past two quarters were also depressed by problem loans made to home builders through its RBC Builder Finance unit. But the bank has taken a variety of steps to address them, including upping reserves and taking some one-time charges.

"You are seeing the results of some of that work," Custer said.

RBC previously announced it was folding the Builder Finance unit into the bank and scaling it back from 17 states to seven.

RBC is the U.S. subsidiary of Royal Bank of Canada, which reported Thursday that its profits fell for a third consecutive quarter.

Royal Bank, which had $1.2 billion in profits, doesn't break out earnings for its U.S. subsidiary. Royal Bank's earnings are for the three-month period that ended July 31. RBC Bank's report to the FDIC is for the three months that ended June 30.

The Canadian parent cited higher reserves for problem loans at RBC Bank and a $53 million before-tax decline in the value of RBC Bank's investment portfolio among the reasons for its 10 percent decline in profits.

Custer said the one-time writedown was for declines in investments such as mortgage-backed securities and preferred stock.

RBC's reserves for problem loans, according to FDIC data, totaled $53.3 million compared to $12.04 million a year ago and were mostly home builder loans.

Howard said reserves have been "trending down the last couple of quarters, which is a good sign."

Custer said the bank's core business and core markets look good going forward but there are challenges, including weakness in markets such as Florida and metropolitan Atlanta.

RBC Bank has 430 branches in North and South Carolina, Virginia, Georgia, Florida and Alabama.

david.ranii@newsobserver.com or (919) 829-4877

To see more of The News & Observer, or to subscribe to the newspaper, go to http://www.newsobserver.com.

Copyright (c) 2008, The News & Observer, Raleigh, N.C.
Distributed by McClatchy-Tribune Information Services.
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