Royal Bank of Canada reported record earnings for the third quarter as a big jump trading revenue more than offset higher loan-loss provisions.

The bank said Thursday that net income for the quarter ended July 31 was $1.56 billion, or $1.05 a share. That was up from $1.26 billion, or 92¢ a share, a year earlier.

Excluding one-time items, diluted earnings per share were $1.18, well above analysts’ expectations for earnings of 93¢ a share before exceptional items, according to Reuters Estimates.

“Our results this quarter demonstrate the strength of our franchise, the value of our diversified business model and our commitment to serving our clients,” said Gordon Nixon, RBC president and CEO, in a conference call on Thursday morning. “This focus has resulted in greater sales volume and deeper client relationships.”

Return on common equity was unchanged at 19.5%.

Provisions for loan losses more than doubled to $770 million, from $334 a year earlier. But the provisions were down from the second quarter of 2009, noted RBC chief risk officer Morten Friis, in Thursday’s conference call. In the U.S., this was partially due to lower provisions in U.S. banking and residential mortgages, and in Canada, the bank saw lower provisions in business loans, he said.

But credit card specific provisions in Canada rose by 30 basis points to 467 basis points during the quarter.

“This is within what we believe is an acceptable range in light of the sustained recessionary conditions and increased personal bankruptcies,” said Friis.

He warned that RBC’s loan portfolios would continue to be hurt by the economic downturn.

“In Canada, the high level of unemployment will likely continue to impact credit card and retail unsecured lending portfolios, despite the fact that signs of economic recovery emerged during the quarter,” Friis said.

On a sector basis, Canadian banking net income was $669 million, down $40 million from last year due to higher provision for credit losses and spread compression reflecting sharply lower interest rates. Still, Nixon called the group’s results “extremely strong.”

“We continue to grow volumes and profitably gain market share across our business by leveraging our distribution strength and scale,” he said.

Wealth management net income was $168 million, down $18 million from last year mainly due to the impact of the market decline. But the unit’s results improved over the last quarter.

“We started to see asset values recover and investor confidence return to the market,” said Nixon. He noted that the bank experienced strong sales of long-term funds, and added more than 100 advisors during the third quarter.

Insurance net income was $167 million, up $30 million over last year reflecting growth in all businesses and lower funding charges.

International Banking net loss of $95 million compares to a net loss of $16 million last year and a net loss of $1,126 million last quarter. The change from last year is due to higher PCL, largely in U.S. banking and reduced revenue at RBC Dexia IS. Nixon said RBC remains committed to refining its U.S. banking operating model to become more efficient and competitive.

Capital Markets net income was $562 million, up $293 million from a year ago due to stronger trading revenue particularly in UK, U.S. and Canadian fixed income and money markets, and U.S.-based equity businesses. Lower market environment-related losses also contributed to the increase.

The bank continued to build capital, boosting its Tier I capital ratio to 12.9%. Nixon said RBC’s strong capital base would allow it to explore growth and potential acquisition opportunities as they arise.

“Over the next two to five years, I believe there will be plenty of restructuring in the financial services industry. With this restructuring comes significant opportunity,” Nixon said. “Our strong financial position gives us the flexibility to invest in our businesses and to grow our asset base at a time when banks around the world will be shrinking theirs.”

In terms of potential acquisitions, Nixon said the bank was focused on exploring options that complement the bank’s existing businesses.

“Our priority with any acquisition is to enhance our platform in markets where we have an existing franchise and where we have the ability to generate a strong and reasonable return,” he said.

RBC’s dividend was unchanged at 50¢ a share.

IE