05/22/2014 08:06 EDT | Updated 07/22/2014 05:59 EDT

Royal Bank says U.S. retail banking not in the cards as shares hit all-time high

TORONTO - Royal Bank (TSX:RY) is looking for ways to grow its already big and profitable business but its incoming chief executive says he doesn't plan a return to the type of retail banking it once offered in the United States.

Dave McKay, who officially takes over from CEO Gord Nixon in August, told analysts on Thursday that he's open to deals that would complement RBC's existing operations, with some limitations.

"We're not interested in mass-market banking through a bricks and mortar model," McKay said of the U.S. market.

"Nothing is imminent from an acquisition perspective. We have a very strong franchise and remain focused on executing our current strategy."

RBC has a large and profitable Canadian retail banking network, which remains the core of its business, as well as other major divisions that provide wealth management products for consumers, capital markets services for businesses, insurance and other financial services.

On Thursday, Royal Bank extended its solid performance with second-quarter profit growth.

For the quarter ended April 30, Royal Bank's profits grew to $2.2 billion from $1.9 billion a year earlier, helped by record earnings in its wealth management segment, as well as solid growth in Canadian banking and other key divisions. On a per share basis, earnings were $1.47 compared to $1.25 a share in the same period a year ago.

The results helped send RBC's stock price briefly to an all-time high on the Toronto Stock Exchange. Its shares closed Thursday at $75.46, up $1.17 for the day. Earlier, they traded as high as $75.93.

Some analysts have questioned whether Royal Bank can maintain the growth momentum in the face of widespread challenges in lending growth for domestic mortgages and higher consumer debt levels.

Several years ago Royal Bank sold off its money-losing U.S. retail banking operation, reducing its exposure to the troubled United States as the world's largest economy struggled to recover from the deep and prolonged downturn that followed a 2008 financial crisis and an earlier downturn in the U.S. housing industry.

For the most part, Canada's real estate and lending industries were much less affected that their counterparts in the United States and Western Europe.

As a recovery picks up steam south of the border, McKay says his priorities lie outside of traditional community branches that were part of RBC's previous venture into the U.S. retail banking under Nixon's tenure as chief executive.

"We have a U.S.-based bank which serves over 190,000 clients through the Internet, many of whom are Canadian clients who live or have homes in the U.S.," Mackay said.

"We still see very good opportunities to deploy capital for organic growth in the U.S. through our capital markets business," Mackay added.

Royal Bank's U.S. wealth management business has room to grow, he said, with the possibility of expanding its corporate loan business and private banking for high net-worth clients.

McKay takes the top position at Royal Bank after serving as RBC's head of personal and commercial banking.

The bank's cash diluted earnings per share were $1.49, beat analyst's estimates by five cents a share, according to data from Thomson Reuters.

Growth in Royal Bank's wealth management operations continued in the quarter, rising 25 per cent to $278 million from a year earlier.

Profits in the capital markets segment increased 32 per cent to $507 million compared to last year, largely due to strong trading results and growth in its U.S. loan book.

Net income from RBC's Canadian banking segment, its biggest operation, grew seven per cent to $1.11 billion.

Excluding certain items, Royal Bank had an adjusted net income of $1.94 billion, up 13 per cent, and adjusted earnings per share was up 20 cents from $1.27 year-over-year.

While most of the banking segments showed improvement, Royal Bank's insurance division posted lower net income of $154 million, down $10 million or six per cent year-over-year.

RBC had a return on common equity of 19.1 per cent in the quarter ended April 30, up from 18.7 per cent year-over-year.

Barclays analyst John Aiken said RBC largely beat expectations because its provisions for credit losses "continue to defy expectations."

RBC's overall provision for credit losses — which reflect the possibility that some loans may not be repaid in full and on time — was $244 million, down $43 million from a year earlier.

TD Bank (TSX:TD) was the other big Canadian bank to report second-quarter financial results on Thursday, with its net income rising to $1.98 billion from $1.71 billion a year before. The rest of the Big 6 are scheduled to issue results next week.

Royal Bank is the country's largest bank by assets and market capitalization and has 79,000 employees serving more than 15 million clients. The bank has operations across North America and in 44 other countries.