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Canadian bank headquarters stand on Bay Street in Toronto.

Brent Lewin/Bloomberg

Two more major Canadian banks reported significant hikes in profit for the first fiscal quarter on Tuesday, but only one could live up to lofty investor expectations that are being reshaped on the fly as a result of surging results.

Bank of Montreal is riding high after posting a $1.5-billion profit, 39 per cent better than a year earlier. Even excluding a financial gain from the sale of Moneris Solutions Corp., the bank far exceeded analysts' predictions.

Over at Bank of Nova Scotia, profit was also stronger, up 11 per cent to $2-billion, a hair ahead of expectations. And the bank hiked its dividend. But, despite strong results across all business lines for both banks, analysts who were impressed with BMO's progress responded to Scotiabank's performance with a collective shrug.

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A string of strong results have stretched expectations as fears about fallout from oil-producing provinces begin to recede into the rear-view mirror. And, whereas BMO's share price climbed 2.2 per cent higher in trading on the Toronto Stock Exchange, Scotiabank's stock moved the other direction, closing down 2.8 per cent at Tuesday's close.

"Given [Scotiabank's] notional miss against expectations and moderating loan growth, we view this as expected," John Aiken, an analyst at Barclays Capital Canada Inc., said in a research note. "The market appears to be focusing on the [bank's] moderate loan growth and we believe it will ultimately look towards the prospects for ongoing earnings growth in [the international banking division]."

Even as Scotiabank recorded a 14-per-cent increase in profit in international banking, uncertainty about the fate of key Latin American economies where the bank does brisk business put a spotlight on its footprint in Peru, Chile, Colombia and especially Mexico. A weaker peso and U.S. sabre-rattling have Scotiabank predicting a modest slowdown.

In reply, the bank's executives repeatedly stressed that they believe the region's underlying fundamentals are still strong, while Mexico's demographics – its population has an average age of 28 – promise long-term growth.

"Our day-to-day business if somebody's purchasing a home or planning for retirement, that's not changing in terms of what's going on on somebody's Bloomberg screen," Scotiabank chief executive officer Brian Porter said on a conference call. "So I think it's important that what's going on on Main Street is different than what's going on in terms of the latest rhetoric out of Washington, or the latest tweet."

Scotiabank's chief financial officer, Sean McGuckin, also told reporters that Mexico has trade agreements with about 40 countries and remains closely entwined with the U.S. economy. "If the U.S. does well, they will do well, notwithstanding this talk about some trade changes."

Both banks reported robust capital levels, which regulators track closely through a measure known as the common-equity tier 1 ratio, or CET1. Scotiabank's ratio came in at 11.3 per cent, compared with 10.1 per cent a year earlier, while BMO's increased to 11.1 per cent from 10 per cent year over year.

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Those cushions helped fuel Scotiabank's 2.7-per-cent increase to its quarterly dividend, bringing it to 76 cents per common share, and allowed BMO to announce that it may buy back up to 2.3 per cent of its own common shares by the end of April, 2018.

BMO was the first of four large banks that have reported first-quarter earnings this month to hold its quarterly dividend steady, at 88 cents a share, as expected – the bank has followed an every-other-quarter schedule for increases, and hiked its payout after the fourth quarter of 2016.

Profit at BMO amounted to $2.22 a share, up 40 per cent from $1.58 a year earlier. Adjusted to exclude certain items, earnings per share were still well ahead of the $1.87 analysts expected, according to Bloomberg.

At Scotiabank, EPS rose to $1.57, from $1.43 in the same quarter last year. Adjusted to exclude certain items, EPS was $1.58, one penny ahead of what analysts expected.

Provisions for credit losses (PCL), or money set aside to cover bad loans, rose 3 per cent to $553-million at Scotiabank. But the bank recorded significantly lower provisions in the energy sector, which was cause for concern at this time last year. Scotiabank has one of the largest direct energy exposures among Canada's major banks.

BMO reported improved PCL of $173-million, down 5 per cent from $183-million a year ago and better than expected, mostly as a result of lower provisions in Canadian retail banking and recoveries in capital markets.

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"At a high level, we expect credit losses to be relatively stable," Tom Flynn, BMO's chief financial officer, said in an interview.

A trend of huge first-quarter increases in profit among big banks' capital markets arms, started by Canadian Imperial Bank of Commerce and Royal Bank of Canada last week, continued on Tuesday. Higher trading volumes helped push BMO's capital markets profit 46 per cent higher, to $376-million, while Scotiabank's global banking and markets division boosted profit by 28 per cent to $469-million – a new record.

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