RBC's City National Bank is back on 'front foot,' CEO says

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Royal Bank of Canada's U.S. banking unit, City National Bank, is continuing to make progress in its effort to rebound from a rough 2023.

City National, which is based in Los Angeles, reported net income of $114 million between May and July — its best bottom-line result in more than three years — as its credit outlook improved.

"City National is now on its front foot and recruiting commercial bankers, recruiting private bankers, adding clients," RBC CEO Dave McKay told analysts Wednesday. "So we feel very, very good about some of the potential to build the pipelines there and to see good overall loan growth and deposit growth in the franchise."

And there's another reason that RBC executives are expressing optimism about City National's outlook: After the bank invested significant financial resources into what executives describe as "remediation" at City National, they say those costs have started to fall.

"And we're expecting to see that continue as we progress into 2026," Chief Financial Officer Katherine Gibson told analysts.

City National, which reported $94 billion of assets at the end of June, was among the banks that took a major hit from rising interest rates in 2023. Its deposit costs rose, and it recorded large unrealized losses on underwater securities.

The Los Angeles-based bank was also hit by a pair of regulatory problems in January 2023 and February 2024. In the latter case, the Office of the Comptroller of the Currency imposed a $65 million fine in connection with what it characterized as systemic deficiencies in the bank's risk management practices.

The Canadian parent company has also been looking for ways to cut costs at City National, and to achieve greater integration between the U.S. banking unit, which RBC acquired in 2015, and the rest of the company.

Read more about RBC here: https://www.americanbanker.com/organization/rbc

During the quarter that ended on July 31, RBC recorded an 81.5% efficiency ratio in its U.S. operations —  which is still relatively high, but was 6.6 percentage points lower than the company reported during the same period last year. Banks strive for lower efficiency ratios, which measure noninterest expenses as a percentage of revenue.

"While there's still work to be done, we are seeing early signs of success as we continue to build a more cohesive U.S. operating model," McKay said Wednesday during the company's earnings call.

Following a leadership shake-up at City National that started in 2023, the U.S. banking unit is being led by former executives at Cincinnati-based Fifth Third Bancorp. Their current focus is not just on cost cutting. The bank is also growing its business organically in the Southeast U.S. That's the result of client demand, particularly in the commercial banking sector, a company spokesperson said Wednesday.

In March, RBC executives disclosed that the company's revised U.S. strategy will involve cross-selling more products to clients, expanding in the mortgage business and continuing to concentrate on certain longstanding niches, including lending to middle-market companies.

City National's most recent quarterly results were helped by the release of allowances due to what Chief Risk Officer Graeme Hepworth called "favorable credit quality and improvements in the U.S. macroeconomic forecast."

In addition to City National, RBC's U.S. operations include a wealth management unit and a capital markets business. On Wednesday, those stateside operations reported total quarterly net income of $635 million, which was up 21% from the same period in 2024, aided by higher fixed-income trading, greater fee revenue and the fact that the prior-year results included an impairment loss.

RBC as a whole reported net income of 5.4 billion Canadian dollars, which was up 21% from the same period a year earlier, reflecting stronger results in all of the company's business segments. 

Investors were impressed. The company's share price climbed 6.32% higher in midday trading on Wednesday.

John Aiken, an analyst at Jefferies, wrote in a research note that while he expects RBC's "fourth quarter to moderate from the frothy levels achieved in the third quarter," he also believes that "incremental upside remains available," in part because of "profitability enhancement opportunities with City National."