* RBC ex-items EPS C$1.17 vs Street view C$1.18
* Loan growth concerns, European exposure hit stock
* Shares hit 2012 low, fall 2.9 pct
* TD ex-items EPS C$1.82 vs estimated C$1.78
* TD rises 0.33 pct (Add analyst, company comments)
By Cameron French
TORONTO, May 24 (Reuters) - Concerns about lending growth and European exposure pushed Royal Bank of Canada's shares down nearly 3 percent to a 2012 low on Thursday, while rival Toronto-Dominion Bank rose slightly after its quarterly profit topped estimates.
RBC, Canada's biggest bank, reported a 7 percent drop in second-quarter net profit due to an acquisition-related charge, but its core profit rose 5 percent and its adjusted earnings per share were C$1.17, just shy of analysts' average estimate of C$1.18.
Investors took a dim view of the results, however, nervous about the bank's relatively large C$39.5 billion ($38.5 billion) exposure to Europe and concerned that its performance will suffer as the market environment becomes more uncertain.
"(Profit) was supported by very strong capital markets and in this environment there are concerns about the sustainability of those revenues," said Barclays Capital analyst John Aiken. Overall revenue was lower than expected, analysts said.
Profit gains at Canadian banks in recent quarters have been underpinned by robust consumer loan growth, particularly in mortgages. But bank executives say they're beginning to see a weakening of that growth due to Canadians' reluctance to add to already high debt levels.
"I'd say loan growth is slowing down," Colleen Johnston, TD's chief financial officer, told Reuters. She cited recent moves by the Canadian government to tighten regulations on mortgage lending to try to avoid a housing bubble.
"I think we're starting to see the tapping on the brakes in terms of the market and we think that's exactly the right outcome," Johnston said.
Despite the signs of slowdown, TD's quarterly profit rose 20.7 percent. Adjusted EPS was C$1.82 a share, ahead of expectations of C$1.78.
TD shares ended the session up 0.33 percent at C$78.99.
RBC and TD were the second and third Canadian banks to report results for the fiscal second quarter. Smaller competitor Bank of Montreal reported a 27 percent profit gain on Wednesday, due largely to the impact of a major U.S. acquisition.
TD and RBC have also been active in the acquisition market, with TD expanding in U.S. retail banking and auto lending, and RBC expanding globally in wealth management.
RBC now has a sizeable capital-markets and wealth-management business in Europe, although its exposure there was down $1.7 billion from the first quarter. It has no exposure to Greece or Portugal, CFO Janet Fukakusa told Reuters.
"When you look at our European exposure overall, we're pretty comfortable with the nature of our exposure," she said.
However, analysts said the bank's European presence is likely hurting the stock as concerns rise that the euro zone could break apart.
"This is the bank that has the most global exposure," said Tom Lewandowski, an analyst at Edward Jones in St. Louis. "I think the ultimate result here will be immaterial exposure, but they do have it and that's the difference with the other Canadian banks."
RBC's shares closed C$1.52 at C$51.38 on Thursday, their lowest close since December.
RBC's Canadian banking income rose 5 percent to C$937 million due to stronger loan and deposit volumes, while capital markets income climbed 11 percent to C$449 million.
While Canadian loan growth for TD may have been slower than in recent quarters, its results were helped by its U.S. retail bank, which has about 1,300 branches and includes a sizeable auto lending business.
TD's U.S. retail banking unit earned C$356 million, up 20 percent on a net basis from the year-before quarter, eclipsing the 10.2 percent profit gain of its Canadian banking business.
All told, TD's profit was C$1.69 billion, or C$1.78 a share, up from a profit of C$1.40 billion, or a C$1.50, a year earlier.
Barclays' Aiken said TD's results were the strongest of the three banks that have so far reported.
Asked about acquisitions on a conference call, TD Chief Executive Ed Clark said the bank would still consider committing capital to U.S. acquisitions if the right one were to come up, but noted that it is facing tighter "Basel III" capital requirements.
Canada's banking regulator has said it expects the country's banks to be at a 7 percent Tier 1 common equity ratio as of next year, but Clark said the expectation is Canada's largest banks will be expected to push that level to 8. TD is currently at 7.4 percent.
$1=$1.03 Canadian Reporting By Cameron French; Editing by Peter Galloway