BMO signage in Indianapolis

Canada’s biggest banks earned more than $11 billion in the latest quarter, up 14% from a year ago, closing out a financial year in which these lenders collectively generated some $43 billion in profits, brushing off worries over tightened lending rules and trade uncertainty.

The Bank of Montreal (BMO) on Tuesday was the last of the country’s Big Five lenders to post its earnings for its financial fourth quarter and 2018 financial year, with all delivering quarterly profit increases but some falling short of market expectations.

Despite the mixed market reaction, the banks’ performance during the three months ended Oct. 31 was generally “strong” across the board, with good revenue growth led by commercial lending as mortgage growth moderated under after new guidelines were introduced this year, said Robert Colangelo, the senior vice-president of financial institutions at ratings agency DBRS.

The banks also got an earnings boost from their U.S. or international footprints, he added.

“A good, solid quarter for all the banks, with good contributions from all their businesses… There might be some headwinds going into 2019 with some of that uncertainty, but at the end of the day, we think the banks are very well-positioned.”

BMO on Tuesday reported a 38% jump in quarterly net income to $1.7 billion or $2.57 per diluted share, up from $1.23 billion or $1.81 in 2017. Canada’s fourth-largest lender also said Tuesday it will now pay a quarterly dividend of $1 per share, up four cents from its previous payment.

On an adjusted basis, BMO earned $1.53 billion or $2.32 per diluted share, compared with $1.31 billion or $1.94 per share a year ago. Analysts on average had expected a profit of $2.29 per share, according to Thomson Reuters Eikon.

Still, BMO’s shares slipped by as much as 3.2% in Toronto on Tuesday to $95.85.

Canada’s two biggest lenders, Toronto-Dominion Bank (TD) and Royal Bank of Canada (RBC), beat estimates with quarterly net income of $2.96 billion and $3.25 billion, respectively. Canadian Imperial Bank of Commerce (CIBC) and Bank of Nova Scotia posted net income for the period of $1.27 billion and $2.27 billion, respectively, falling just short of analyst estimates.

The latest quarterly results for Canada’s banks were helped by strong contributions from their international operations, whether in the U.S. or in Latin America and the Caribbean, and BMO was no exception.

BMO’s U.S. personal and commercial banking arm reported a 37% increase in net income to $372 million. At home, the bank’s domestic personal and commercial banking division reported fourth-quarter net income of $675-million, up 8% from the same three-month period a year ago. BMO wealth management reported net income of $219 million, up 25% from the prior year.

The bank’s capital markets arm reported net income of $298 million, down 6% from the same period a year ago, as higher investment and corporate banking revenue and lower taxes were more than offset by higher expenses and lower trading products revenue.

On an annual basis, BMO earned $5.45 billion, up 2% cent from its 2017 financial year, including the impact of a $425-million charge related to U.S. tax reform earlier this year. On an adjusted basis, the bank delivered net income of $6 billion, up 9% from the previous financial year.

“We have made good progress against the areas we’ve been focused on,” said BMO’s chief executive Darryl White on a conference call with analysts. “Growing the contribution from our U.S. operation, improving efficiency while at the same time, investing in our digital innovation agenda.”

Overall, the five biggest Canadian lenders reported an increase in net income for the 2018 financial year, for a collective total of $43.2 billion, up nearly 7.2% from 2017.

CIBC saw the biggest increase in annual net income at 12% to $5.3 billion, followed by RBC at 8.4% to $12.4 billion. TD delivered annual profits of $11.3 billion, up 7.8%, while Scotiabank and BMO saw net income for the year increase 5.8% and 1.8%, respectively, to $8.7 billion and $5.45 billion.

However, many of the lenders signalled during their conference calls that volatility seen in the equity markets — which has also weighed on Canadian bank valuations — could present some headwinds in the next financial year.

“Looking ahead, while there’s been some volatility in equity markets recently, the economic fundamentals remain strong, and we’re leveraging our competitive strengths to grow our businesses,” said White.

As well, the raft of rate hikes on both sides of the border which have padded the banks’ net interest margins — the difference between the money they earn on the loans they make and what they pay out to savers — may be less beneficial in the quarters ahead.

Pressure has mounted on banks to increase the amount they pay to depositors, particularly south of the border, said James Shanahan, an analyst with Edward Jones.

“It’s pretty competitive right now… The banks were slow to raise deposit costs. and it began to accelerate about three quarters ago,” he said.

While the banks were positive about the coming financial year, other looming risks cited by executives included both macroeconomic and geopolitical uncertainty and strains in the energy and automotive sectors.

The lenders also gave additional guidance on their exposure to the Canadian oil and gas sector in light of the recent decline in market prices, signalling that the size of these portfolios were relatively small and the bulk of the companies were investment grade.

This emerged as major concern looming over Canada’s banks in 2014 and 2015, when crude was hit was a sustained decline, but the overall dollar loss for these lenders was “minuscule,” said Shanahan.

“The banks are probably in a better position today than we were the last time we had a concern when it relates to oil prices… This is a relatively small portfolio compared to, I would say, other pockets of risk.”