Canada’s five biggest banks earned a combined $4.8 billion in third-quarter profit — nine per cent more than last year — as they cashed in on strong growth in mortgages, consumer and corporate loans and other retail operations.

While the results were higher than the $4.4 billion in profits booked in the same 2009 period, the banks took a major hit from weakness in their capital markets divisions as economic uncertainty affected returns on stock markets.

Overall, the third-quarter results were mixed with three of the five banks missing analyst expectations for the period.

The economic recovery in the last year and continued growth in the housing market helped boost the banks’ main lending businesses to ordinary consumers, homeowners and companies. As well, the healthier economy reduced the number of bad loans.

TD Bank chief executive Ed Clark said in an earnings release Thursday that the bank “saw the best credit quality and lowest credit losses in seven quarters across all of our businesses.”

However, it was hard to ignore some of the potential dangers that still threaten Canada’s banking industry, which has often been championed as one of the best in the world after surviving the financial crisis with little significant damage.

One key weakness was on full display in each of the Big Five banks’ capital markets results. Overall, earnings for the divisions were nearly halved to $1.05 billion, as trading revenues declined from lofty heights last year when the economy was first showing signs of a recovery.

Troubles in Europe and the continued weakness of the U.S. economy eroded global economic optimism and with that stock markets have taken a hit.

That has led to lower corporate financings and weaker profits on stock and bond trading.

The capital markets decline has put a major pressure on overall results when compared to the second quarter of this year, when big banks’ profits were a beefier $5.09 billion.

TD Bank (TSX:TD) was the last of the Canadian banks to report its third-quarter results, saying that its profits grew 29 per cent to $1.18 billion, narrowly missing analyst expectations.

The results released Thursday were equivalent to $1.29 per diluted share for the quarter, and compare to a net income of $912 million in the same period a year ago.

On an adjusted basis that excludes certain items, earnings were $1.43 a share, falling a penny short of analyst expectations according to Thomson Reuters.

Revenue rose to $4.74 billion from $4.66 billion a year earlier.

In its wholesale banking division, TD’s profits dropped about 45 per cent to $179 million on weaker trading results as economic uncertainty affected stock markets, leading to lower corporate financings and weaker profits on stock and bond trading.

“This quarter’s challenging markets were a clear contrast to the very favourable conditions of a year ago,” said TD Securities CEO Bob Dorrance in a release.

“We expect markets to remain challenging in the short term while we continue to build our franchises and strengthen our platforms for future success.”

TD’s North American retail banking operations were the high point of its results with the Canadian division’s profits increasing 24 per cent to a record $841 million.

However, the bank warned that a slowdown could be afoot in the domestic retail division which handles mortgage lending, credit cards, consumer loans and other financial services aimed at ordinary Canadians.

“We expect continued strong earnings growth, but not at the rate we’ve seen this year,” said Tim Hockey, chief executive officer of TD Canada Trust.

He added that the Canadian housing market is cooling and a competitive environment continues to put pressure on margins.

U.S. retail operations reported a profit up 30 per cent to US$271 million, as the bank continued to grow its operations in New England and parts of Florida.

TD now operates about 1,300 branches in the United States and bills itself as the bank with the widest presence across North America, having roughly 1,000 branches in Canada.

Provisions for credit losses dropped to $339 million versus $557 million in the comparable period of last year, as more of the bank’s corporate and retail clients paid their loans back on time. TD said it expects credit losses on personal loans will remain stable for the rest of this year.

Barclays Capital analyst John Aiken said that TD’s results are unlikely to surprise the market considering that it’s relatively close to expectations.

There’s “not enough of a disappointment to generate a significant decline in valuation, but not enough positives to produce near term valuation outperformance,” he wrote in a note.

TD Bank has more than 74,000 employees across its retail operations in both Canada and the United States.