* Q1 EPS C$1.00 vs C$0.78 yr-ago

Stocks | Bonds | Financials

* Q1 cash EPS C$1.03 versus expectations C$1.04

* Loan loss provisions C$493 mln vs C$786 yr-ago (Adds analyst comment, context)

By Andrea Hopkins

TORONTO, March 3 (Reuters) – Royal Bank of Canada (RY.TO) said on Wednesday that first-quarter profit rose about 35 percent on strong domestic banking and lower loan losses, but the results were weaker than some had expected and shares were expected to ebb when trading opens in Toronto.

Canada’s largest bank showed profit growth across most segments — except for perennially weak U.S. banking — but domestic rivals had surpassed market expectations with earlier results, so RBC’s looked slightly less robust by comparison.

“With expectations likely raised by the results of the previous three banks, we cannot help but believe the market will be disappointed by these results,” Barclays Capital analyst John Aiken said in a note to clients.

“Unless we get some very reassuring answers on the conference call this morning, we would expect the lack of revenue growth and rising expenses to offset the benefit of the declining (credit loss) provisions, and begin to eat away at some of (RBC’s) premium valuation,” Aiken said.

The company’s shares closed at C$58.24 on Tuesday, near the 52-week high of C$58.66 reached in November. The stock has more than doubled in value from its year-low C$28.56 at this time last year.

Toronto-based RBC said net income increased to C$1.5 billion ($1.5 billion), or C$1.00 a share, for the first quarter ended Jan. 31 from C$1.1 billion, or C$0.78 a share, a year earlier.

Cash earnings per share, which include the amortization of intangibles like acquisitions, were C$1.03, the bank said.

That’s just below average analysts’ expectations of C$1.04 per share, according to Thomson Reuters I/B/E/S.

Toronto-based RBC said provisions for loan losses fell to C$493 million, down from C$786 million a year earlier and C$883 million in the fourth quarter. The drop in bad loans both year-over-year and sequentially suggests the worst of the recession-linked credit woes may be behind the bank.

The dividend was unchanged at 50 Canadian cents a share.

Domestic banking was strong, with income up 12 percent to C$777 million despite slightly higher provisions for loan losses in that segment.

But international banking remained a weak spot. The segment lost C$57 million in the quarter — an improvement from the C$100 million loss a year earlier and the C$125 million lost in the fourth quarter.

RBC’s U.S. banking operations are concentrated in the Southeastern states, which have been hard hit by the recession and housing downturn. The bank said provisions for loan losses have eased there, however, and it is working to cut costs.

“We continue to see signs of improvement in our U.S. banking loan portfolio, and we are working hard to restructure the business to improve client service and achieve greater operational efficiency,” Chief Executive Gord Nixon said in a statement.

Capital markets income was up again for RBC, a big player in investment banking and trading. Net income rose to C$571 million, up from C$225 million a year earlier and C$561 million in the fourth quarter.

Wealth management income rose C$91 million from a year earlier to C$219 million, boosted by improved financial markets and a return of investor confidence.

RBC continued to boast strong capital levels, with Tier 1 capital of 12.7 percent, down slightly from 13.0 percent in the fourth quarter. That’s in line with domestic rivals and higher than most global peers.

The pile of cash puts the bank in a strong position to make acquisitions or invest in internal growth.

“We continue to see signs of improvement in market and economic conditions, and we are taking advantage of opportunities,” Nixon said.

RBC has previously said it is interested in building its international wealth management business. ($1=$1.03 Canadian) (Reporting by Andrea Hopkins; Editing by Lisa Von Ahn and Gerald E. McCormick)