Royal Bank of Canada is keeping costs at bay, even with elevated spending on digital initiatives to woo more customers.

Revenue growth in Canadian banking outpaced expenses in the fiscal third quarter, pushing operating leverage at the lender’s biggest division closer to its target for the year. Operating leverage -- the difference between revenue and expense growth rates -- was 5 per cent for the period ended July 31, up from 0.7 per cent in the second quarter, the Toronto-based bank said Wednesday in announcing record earnings that beat analysts’ estimates. The gain helped lift domestic banking profit 11 per cent to $1.49 billion.

The bank’s chief financial officer also predicted economic strength south of the border, as long as trade risks don’t get out of hand.

“Absent any sort of protectionist trade war - which we don’t see on the horizon… we think that the economy should be strong for the foreseeable future,” CFO Rod Bolger told BNN Bloomberg in an interview on Wednesday.

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“The unemployment rates are at cyclical lows. The GDP growth is strong. There have been interest rate increases and that’s healthy, as real interest rates have been low,” he added, cautioning that “you are starting to see a little bit of wage pressure, a little bit of shortage on companies being able to hire, both here and in the U.S.”

Royal Bank’s spending had caught the attention of analysts including National Bank of Canada’s Gabriel Dechaine, who called expense-management efforts in domestic banking “a disappointment” amid a period of elevated spending on digital initiatives. The lender rolled out several programs in June: a loyalty plan with WestJet Airlines Ltd., a digital platform for new entrepreneurs, a mobile app for car owners and an online portal to help immigrants set up in Canada.

“We continue to invest in digital solutions and technology and we’ve also added bankers," Bolger said in a phone interview with Bloomberg News. “Although more and more transactions are being done through mobile and online solutions, people still need to go into the branches to get advice."

Royal Bank aims for annual domestic operating leverage of 1 per cent to 2 per cent, and has said the second-half range would be 2 per cent to 3 per cent. Operating leverage across the bank was 3.5 per cent in the quarter, compared with a negative operating leverage of 6.2 per cent in the second quarter and negative 9.3 per cent a year earlier.

Profit Climbs

Net income for the three months ended June 30 rose 11 per cent to $3.11 billion, or $2.10 a share, from  $2.8 billion, or $1.85, a year earlier, the bank said. Adjusted profit, which excludes some items, was  $2.14 a share, beating the $2.10 average estimate of 14 analysts surveyed by Bloomberg. The bank raised its quarterly dividend 4.3 per cent to 98 cents a share.

“The results this quarter were supportive of estimates and an outlook that expects solid growth to continue," Robert Sedran, a CIBC Capital Markets analyst, said in a note that described the earnings as “largely in line, but solid."

Royal Bank shares rose 0.3 per cent to $102.85 at 9:46 a.m. in Toronto. The stock has gained 0.2 per cent this year, trailing the 1.7 per cent advance of the eight-company S&P/TSX Canadian Commercial Banks Index.

RBC is the first of Canada’s biggest lenders to post third-quarter results. The six largest banks are expected to report earnings growth of 8 per cent for the period, according to average estimates of analysts surveyed by Bloomberg.

Here’s a summary of RBC’s results:

Revenue rose 9.3 per cent to $11 billion, while non-interest expenses climbed 5.8 per cent to $5.86 billion. The bank set aside $346 million for soured loans, up from $320 million a year earlier. Earnings from personal and commercial banking rose 7.9 per cent to $1.51 billion. Wealth-management profit jumped 19 per cent to $578 million. RBC Capital Markets had earnings of $698 million, up 14 per cent from a year earlier, driven by higher revenue from corporate and investment banking and global markets.

- with files from BNN Bloomberg