Canada is in a positive mood — and it’s helping boost bank profits, analysts heard Tuesday.

Follow other big banks’ leads with earnings beats

• Canadi a n banks continued the trend of beating analyst expectat i ons on Tuesday, with Bank of Nova Scotia and Bank of Montreal posting profits buoyed by growth in wealth management and personal and commercial banking i n the domestic market.

Scotia said the strong results were behind a decision to return money to shareholders through a dividend increase of three cents, to 79¢ a share.

“The increase reflects our confidence in the strength and stability of our business,” Brian Porter, chief executive of the country’s third- largest bank, said on a conference call with analysts.

Scotia executives said domestic growth is e xpected to continue over the medium term even as new and proposed regulatory changes and government policy aimed at cooling the hot real estate market in pockets including Toronto and Vancouver take some wind out of mortgage loan growth.

“The mood in the country is pretty positive… We’re seeing it i n our results,” James O’Sullivan, group head of Canadian banking at Scotia, told analysts.

Earnings grew eight per cent at Scotia’s Canadian personal and commercial banking segment, while Bank of Montreal posted a nine per cent year- over- year increase in the segment.

O’Sullivan said Scotia’s overall domestic franchise, i ncluding wealth mana g e ment a nd c o mmercial banking, is expected to see growth of between six and nine per cent over t he medium t erm. This is in spite of what he described as “necessary” and “healthy” steps taken recently by government and regulators to soften recent spikes in home prices increases, particularly in Toronto.

He said Scotia executives are keeping a “watchful eye” on Canadians’ record level of consumer debt, something that could be a concern as the bank pushes further into credit cards.

But while household debt to income ratios are high, O’Sullivan said it is also important to pay attention to household “balance sheets,” which include high levels of equity. He added that there a few signs of problems in debt servicing by households, which should remain manageable even if interest rates rise.

Gabriel Dechaine, a bank analyst at National Bank Financial, described Scotia’s domestic loan growth mix in the latest quarter as “an optimal combination of ‘ not too frothy’ mortgage growth” and commercial growth.

In a note to clients, he said Scotia’s international operations delivered “impressive results,” including commercial loan growth, despite problems in individual countries such as flooding in Peru.

Overall, Bank of Nova Scotia posted net income of $2.1 billion in the third quarter ended June 30, up from $ 1.96 billion a year earlier. Adjusted earnings per share were $ 1.68, compared to an analyst forecasts of $1.64.

Bank of Montreal posted net income of $ 1.39 billion ($ 2.05 a share), up from $ 1.25 billion ($ 1.66) a year earlier. Adjusted earnings of $ 2.03, which accounted for a reversal in collective reserves, beat analyst esti- mates of $ 2. However, the performance of Canada’s fourth-largest bank was hurt by flat results from its U. S. operations, as well as from industry weakness in the capital markets segment.

“BMO reported a solid quarter that was ahead of expectations,” Barclays Capital analyst John Aiken wrote in a note to clients. “Unfortunately a decent quarter in its U. S. retail banking operations was partially obscured by moves in the CAD (Canadian dollar).”

Despite the bank’s earnings beat, BMO’s stock fell $2.36 or 2.5 per cent to close at $ 90.07 on Tuesday on the Toronto Stock Exchange. Shares of Scotiabank finished the day up 13 cents, or 0.17 per cent, to $77.33.

Tuesday’s results from Scotia and BMO came on the heels of last week’s analyst- beating earnings and dividend i ncreases f rom Royal Bank of Canada and Canadian Imperial Bank of Commerce. Toronto-Dominion Bank, the last of Canada’s Big Five, reports thirdquarter results on Thursday.