RBC Centura Banks Inc., the U.S. banking arm of Royal Bank of Canada, said loan demand softened somewhat in its third fiscal quarter, which ended July 31, and its top executive said he expects the trend to continue.
Scott Custer, the Raleigh unit's chairman and chief executive, said growth may suffer "until the housing market lands on its feet" and removes the uncertainty about how the real estate shakeout will affect the economy.
He spoke Friday after the unit's parent reported earnings for its fiscal third quarter, which also ended July 31. The Toronto company said the operation that encompasses RBC Centura contributed slightly less to overall earnings than a year earlier. Though Royal Bank does not break out loan or deposit numbers, Mr. Custer said his unit is experiencing loan growth of 5% to 10%, which he described as "softer than we would like."
"It's a tougher market environment," he said. "I am hopeful that business conditions will improve, but I am also realistic enough to believe that we may be in for a few more months of tough going." To some extent RBC Centura is cushioned from broader credit trends because of its location in the Southeast, where the economy is growing at a faster pace than in the rest of the country, he said.
However, Royal Bank's credit-quality data for the U.S. loan portfolio shows that the nonperforming loan ratio in the quarter fell 8 basis points from a year earlier, to 0.76% of loans, and that its chargeoff ratio was negligible.
Mr. Custer said RBC Centura does not need access to the secondary market, because it has access to the balance sheet of its $567 billion-asset parent. "This has been a very good time for a bank of our size to be owned by a very strong and stable parent company like RBC," he said.
Mr. Custer's outlook on credit quality differs from that of at least one of his peers. Toronto-Dominion Bank reported earnings Thursday and said asset quality suffered somewhat at its U.S. banking unit, TD Banknorth Inc. in Portland, Maine. "Asset quality appears to have stabilized, although this could reverse if markets deteriorate," the company said.
But like Mr. Custer, Bharat B. Masrani, the CEO of TD Banknorth, said in an interview Thursday, "being a 100%-owned subsidiary can only help" in the current market. Though he said it is not yet clear whether credit market problems will spill over into the broader economy, his company's loan pipeline has remained "healthy" in recent months.
RBC Centura, which has $25.3 billion of assets, had "reasonable" revenue and profit growth in the quarter, Mr. Custer said Friday. Royal Bank said earnings from its U.S. and international operations, mainly RBC Centura, rose 9.5% from a year earlier - or 6.1% in Canadian dollars - to about $81.6 million. Banking revenue outside Canada rose 16.9%, to $283 million.
Royal Bank's profit rose 19% in Canadian dollars, to about $1.3 billion, driven by what analysts called broad-based earnings growth across all its businesses. Toronto-Dominion had reported a 32% profit rise, to about $1.1 billion, driven in large part by a jump in earnings from wholesale banking.
The contribution of U.S. and international businesses to Royal Bank's earnings fell to 6.4%, from 7% a year earlier.. TD Banknorth's contribution to Toronto-Dominion's earnings rose to 9.4%, from 7.7% a year earlier, boosted in April when the company increased its stake to 100% of TD Banknorth.
Mr. Custer said RBC Centura is "making good progress" at integrating its two most recent acquisitions. In March it bought Flag Financial Corp. in Atlanta, and in December it bought 39 AmSouth Bancorp. branches in Alabama. "We have the heavy lifting behind us," Mr. Custer said.
The company had gone through some rough patches with customer retention after the Flag acquisition, but now it is gaining loans and deposits, suggesting that customer attrition is no longer an issue, Mr. Custer said.
More acquisitions are possible, though deal pricing is still an issue, and the current market turmoil warrants caution in dealmaking, he said.
W. Edmund Clark, Toronto-Dominion's CEO, said Thursday that TD Banknorth plans to "focus on organic [growth] and get its game plan down." The company passed on several small deals recently because they were too expensive, he said.
