As his company prepares to close its deal for Alabama National BanCorp, Royal Bank of Canada's top U.S. banking executive said he feels comfortable about the parent firm's growing credit exposure in the United States.
On Tuesday and in a Jan. 17 interview, Scott Custer, the chairman and chief executive officer of RBC Centura Banks Inc., said the Raleigh company has vetted Alabama National's loan book a second time and is on track to close the $1.7 billion deal in mid-February.
At a conference in New York Tuesday, Mr. Custer said that real estate markets in North Carolina and Alabama "don't run hot, so they don't cool down so much." He told American Banker on Jan. 17 that another look through Alabama National's $5.8 billion loan book revealed "no surprises for the worse." While the review revealed some problems with loans to residential developers, Alabama National "doesn't have high-rise condos and the racy speculative stuff," Mr. Custer said.
The CEO also said on Jan. 17 that the $25.5 billion-asset RBC Centura was continuing to pare back its own exposure to residential development loans, though he was not specific. About 75% of the criticized assets in that business were in California, Georgia, and Arizona, Mr. Custer said. "We really don't have a big portfolio in Florida, and what we have there is doing fine," he said.
Shareholders of the $8 billion-asset Alabama National approved the RBC deal on Thursday. The Birmingham company has yet to report fourth-quarter earnings, which may not happen until after the RBC deal closes.
John H. Holcomb 3rd, Alabama National's chairman and chief executive, did not return a call seeking comment.
Kevin Fitzsimmons, an analyst at Sandler O'Neill & Partners LP, said Mr. Custer's comments should provide some assurance that RBC Centura is not buying a lemon.
Alabama National, despite having a large concentration of commercial real estate loans, "has been known to be one of the industry's top underwriters," the analyst said in an interview Tuesday. "I would have to imagine, though, that they are seeing similar pressure as other banks," Mr. Fitzsimmons said. "I would still expect them to come out better than their peers when it comes to losses, and I would expect that they're in a cleanup mode going into the merger."
During the interview, Mr. Custer also provided more details about how RBC Centura plans to integrate Alabama National. He said the plan is to close 16 of the two companies' branches, or about 3.5% of the combined total. RBC Centura could begin switching out the signs on Alabama National's 104 branches as early as April, when it plans to rename itself RBC Bank.
During the Citi conference, he said that RBC Centura had "essentially signed up every market manager" from Alabama National. Alabama National, meanwhile, has been receptive to the idea of putting its 11 banks under a single brand, Mr. Custer said.
He said he doubted RBC Centura would make another bank deal in the next few months, though he did not rule it out. After buying Alabama National, Royal Bank of Canada will have spent more than $2.1 billion in the last 14 months in three separate U.S. bank acquisitions after a lengthy absence from acquisitions here.
"The market continues to deteriorate and we haven't seen the bottom yet," Mr. Custer said on Jan. 17. "We have a very full plate dealing with Alabama National and the issues in our own residential construction portfolio. I'd say that we're at least six to eight months down the road … from being comfortable with how things are going" before returning to acquisitions.
