Rivals Royal Bank of Canada, Toronto-Dominion Bank and Canadian Imperial Bank of Commerce have all reported results which were ahead of the market this quarter and analysts were underwhelmed by the scale of Scotiabank's beat.

"This bank-reporting-quarter 2 percent beats have been largely yawned at by the market," said Eight Capital analyst Steve Theriault. "We don't expect these results will be enough to move the needle."

Shares in Scotiabank were down 2.7 percent at 1015 ET.

The bank, Canada's third-biggest lender, said it earned C$1.70 per share for the quarter to March 31, compared with C$1.62 a year earlier. Analysts on average expected C$1.67, according to Thomson Reuters I/B/E/S data.

Barclays analyst John Aiken said Scotiabank's performance was at a level below what peers have reported to dates.

"We would not be surprised to see some relative underperformance from Scotia today," he said.

Like other Canadian lenders, Scotiabank has benefited from the Bank of Canada raising interest rates three times since July, increases that helped offset slower mortgage growth after Canada's banking regulator introduced stricter lending rules in January.

The regulations require stress-testing of borrowers taking out uninsured mortgages to determine their ability to make payments at a rate 200 basis points above their contracted mortgage.

Still, mortgage sales grew by 6 percent in the year to date, the bank's Canadian banking head, James O'Sullivan, told analysts. He reiterated the bank's target for mid-single digit growth for the whole year.

"It's steady as she goes on the mortgage side," he said.

The bank reported net income for the quarter of C$2.2 billion ($1.7 billion), compared with C$2.1 billion a year earlier. That included a 5 percent increase in net income at its domestic business to C$1 billion, helped by improved margins.

CEO Brian Porter said the bank had achieved double-digit earnings growth at its international business, where it is focusing its expansion on the Pacific Alliance trading bloc, which comprises Peru, Mexico, Chile and Colombia.

The bank recently announced acquisitions in Chile, Colombia and Peru.

Scotiabank's core Tier 1 capital ratio, a key measure of its financial strength, rose to 12 percent during the quarter, the highest of Canada's biggest banks. However, Chief Financial Officer Sean McGuckin said on a conference call with analysts that it is likely to fall to around 11 percent by the fourth quarter when the recently announced acquisitions are completed.

(Reporting by Matt Scuffham; Editing by Steve Orlofsky and Phil Berlowitz)

By Matt Scuffham