Bloomberg News

TORONTO — Royal Bank of Canada’s fiscal second-quarter profits rose 4.2% from a year earlier, to $390 million, as the country’s biggest bank made more loans and kept down costs.

The bank was helped by its acquisitions in the United States, which Royal Bank has made the cornerstone of its expansion plans. Since last year it bought the Minneapolis securities firm Dain Rauscher Corp. for $1.5 billion; two U.S. insurance units of Liberty Corp.; and Prism Financial Corp., a Chicago mortgage company.

Per-share earnings in the period that ended April 30 rose 3 cents from a year earlier, to 92 cents, a penny short of the average estimate of analysts polled by First Call/Thomson Financial.

Royal Bank derives its income from five business divisions: personal banking; commercial banking; wealth management; corporate and investment banking; and insurance and transaction processing.

The divisions that handle corporate and investment banking and wealth management fared the worst. RBC Dominion’s earnings dropped 42%, while the money management business, which includes mutual funds and discount brokerage, fell 22%. The bank said investors made fewer trades through its discount and full-service brokers during the quarter.

Falling interest rates spurred demand for loans, analysts said. Royal Bank, which does business with about one in three Canadians, said the value of loans outstanding rose by 4%.

“The fact that their earnings are somewhat lower than expected is disappointing, but there are some cyclical market factors that are affecting them,” said Greg Bay, a Vancouver fund manager with Cypress Capital Management Ltd., which owns Royal Bank shares.

The bank said a decline in financial markets led to a 12% drop in revenue from money management and a 4% decrease in revenue from corporate and investment banking, which includes advisory and underwriting fees at RBC Dominion Securities.

Royal Bank said it expects to complete its $2.2 billion acquisition of Centura Banks Inc., an $11 billion-asset Rocky Mount, N.C., retail banking company, in the next quarter. The bank also said it plans to buy back as many as 18 million shares after it completes the deal.

Mr. Bay said Royal Bank needs to make bigger acquisitions than Centura to compete successfully in the United States. “They’ve got to have more vision going forward.”

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