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A Royal Bank of Canada (RBC) sign is seen in downtown Toronto in this March 3, 2011 file photo.

MARK BLINCH/REUTERS

Royal Bank of Canada proved that it still has earnings power, posting a second-quarter profit of $1.94-billion.

Though the country's biggest bank couldn't match its blockbuster first-quarter profit of $2.1-billion, its bottom line jumped 26 per cent relative to the same period in 2012.

The earnings amounted to $1.27 per share, just shy of analysts' expectations of $1.29 per share. After stripping out one-time items, RBC made $1.97-billion, or $1.29 per share.

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Personal and commercial banking, a sore spot for some banks this quarter, was particularly encouraging, with a profit of $1.06-billion, up 12 per cent over 2012.

Canadian banking was boosted slightly by RBC's acquisition of Ally Canada, but even after stripping out its $12-million profit contribution, the unit still made more than $1-billion, something the division's managed to accomplish for the past four quarters.

However, the results leave investors wondering where future growth will come from. Loan growth, after stripping out the Ally acquisition, was up 6 per cent year over year, but rose only 1 per cent from the first quarter.

And RBC's net interest margin, or the spread between its borrowing costs and the rate at which it lends money out, fell both relative to 2012 and last quarter. The margin of 2.68 per cent is RBC's lowest in the past year.

Capital markets saw its profit jump year-over-year to $386-million, however the division slumped relative to the strong numbers it posted in the past three quarters when it averaged earnings of $434-million.

The division saw encouraging growth in U.S. loan syndication and lending, but made less money in fixed-income trading. Revenue from the fixed-income, currencies and commodities unit dropped 25 per cent from the year prior, and 39 per cent from the first quarter. Toronto-Dominion Bank and Bank of Nova Scotia, by contrast, saw their wholesale banking earnings rise because of better fixed-income returns in the second quarter.

Much like its Big Six peers, RBC's wealth management division performed well last quarter with a profit of $225-million, up 6 per cent from 2012. Rising markets boosted the value of assets under management, and that helped the bank earn more fees, which are calculated as a percentage of this value.

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Earnings from RBC's investor services division – formerly known as RBC Dexia – climbed to $67-million in the second quarter from a loss of $121-million in 2012. The latest figure included a restructuring charge related to acquiring the remaining 50 per cent of the business.

Editor's note: Certain results from RBC's investor service and capital markets divisions have been corrected in an updated version of this story.

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