Source: The Canadian Press

Canada’s five biggest banks raked in a collective $5.01 billion in profits during the second quarter, a huge improvement over last year’s result that nonetheless fell short of analyst expectations.

But to call the second quarter a disappointment would be an overstatement, suggested John Kinsey, a portfolio manager at Caldwell Securities.

“The first quarter was so good, unexpectedly, that it blew by all the earnings (forecasts) and that increased the expectations for the second quarter,” Kinsey said in an interview Tuesday.

The big Canadian banks earned a total of $5.09 billion in the first quarter of the year, when growth was starting to regain momentum on fewer bad loans and some pickup in mortgages.

“Expectations were a little bit too high and, on balance, I think it’s shaping up as a pretty good year for the banks,” Kinsey said.

Missed expectations aside, Canada’s banks showed significant gains when stacked to a year ago.

In the second quarter of 2009, the five biggest banks posted a $1.75-billion profit, dragged down by lower results across the board including losses at both Royal Bank (TSX:RY) and CIBC (TSX:CM).

Since then, loan losses have abated and the pickup in the economy has helped drive mortgages as well as results from other banking divisions, giving the banks a more solid foundation for future growth.

On Tuesday, Scotiabank (TSX:BNS) wrapped up the second-quarter for Canadian banks with a profit of nearly $1.1 billion. Net income for the three-month period was the equivalent of $1.02 per share — beating analyst estimates of about 93 cents per share.

The bank said the profit was a quarterly record and up $225 million or 26% from the same time last year.

Revenue was just under $3.9 billion, up nearly $300 million from a year earlier, while the bank’s provisions for credit losses was reduced to $338 million, down $151 million from the same time last year.

“Our results reflected strong contributions from personal and commercial banking, wealth management, as well as the excellent performance of our wholesale businesses,” Scotiabank chief executive Rick Waugh said in a conference call.

More than half of the quarterly profit — $584 million — was generated by Canadian banking operations, which saw growth in residential mortgages, lines of credit and business accounts. The Canadian banking contribution was up 42% from $410 million in the second quarter of 2009.

International banking results were weakened partly by the stronger loonie, dropping to a $288-million profit versus $332 million a year ago.

“International banking has not reached its potential due to foreign exchange and global economic headwinds, however it is substantially achieving the plan we set out for it at the beginning of the year,” Waugh said.

“Its underlying operations are sound and we expect improvement going forward.”

Provisions for credit losses in the international division were also higher, rising to $173 million from $115 million in the comparable period, mostly because of a commercial account in the Caribbean.

Scotia Capital’s profit rose to $391 million from $328 million.

The division’s co-CEO Stephen McDonald said that markets have “normalized considerably” compared to a year ago.

“In the face of uncertainty surrounding global marketing conditions, client flows are somewhat reduced at present,” McDonald said.

“It is unlikely that trading revenues will continue at these same high levels.”

Shares of Scotiabank rose 4%, or $1.95, to $50.20 in the final hour of trading Tuesday on the Toronto Stock Exchange.

Last week, Bank of Montreal (TSX:BMO) launched the earnings period with the strongest results, including a quarterly profit of $745-million that was far ahead of analyst estimates.

However, the rest of the big banks fell short of expectations even as most of them delivered impressive profit gains over a year earlier when the financial meltdown was scorching their results.

Royal Bank posted a $1.3-billion profit, while CIBC turned around a loss a year ago to earn $660 million, but both banks fell short of analyst estimates.

TD Bank (TSX:TD) more than doubled its second-quarter profit to nearly $1.2 billion, but was still below analyst targets.