Bank reports begin with BMO profit up 28%

TORONTO — The Bank of Montreal grew its second-quarter net income by 28 per cent and boosted its quarterly dividend, even as profits in its U.S. personal and commercial banking business declined.

The Toronto-based bank (TSX:BMO), the first of the big Canadian lenders to report its second-quarter results, had $1.25 billion of net income, helped by higher earnings from its wealth management and capital markets divisions.

But earnings from its U.S. personal and commercial banking segment decreased by seven per cent from a year ago to $248 million, mainly due to higher provisions for credit losses.

BMO also hiked its quarterly dividend on Wednesday by two cents to 90 cents per share, payable on Aug. 28.

Edward Jones analyst Jim Shanahan said he had been looking for stronger results out of BMO’s U.S. franchise to compensate for the challenging operating environment at home.

Canadian banks face a number of headwinds, including overstretched borrowers and worries about high house prices and the health of the mortgage market.

“When we’re really concerned about some of the other challenges in Canada with consumer leverage and home prices, we would look to the U.S. to be a source of strength in earnings stability — and for there to be softness here is a little bit disconcerting,” Shanahan said.

The company’s shares were down $2.82, or nearly three per cent, to $92.31 on the Toronto Stock Exchange in late morning trading Wednesday.

Analysts noted that BMO reported no deterioration in Canadian residential mortgages. In spite of that, questions about the mortgage market and the recent liquidity crisis at mortgage lender Home Capital are likely to dominate upcoming conference calls for all of the major Canadian banks, Shanahan said.

Royal Bank (TSX:RY), TD Bank (TSX:TD) and CIBC (TSX:CM) will report their second-quarter results on Thursday. Scotiabank (TSX:BNS) will release its earnings next Tuesday.

“I imagine there will be a lot of questions about Home Capital and the mortgage broker part of the market,” Shanahan said.

BMO CEO Bill Downe said the bank — which reported $5.74 billion in quarterly revenue, up from $5.10 billion a year ago — benefited from having a diversified business model.

Its wealth management arm had $251 million of reported net income, up 86 per cent from a year ago, while its capital markets division grew its profit by 12 per cent year-over-year to $321 million.

BMO’s Canadian personal and commercial banking segment had $531 million of reported net income, up one per cent from a year ago.

“While there has been a moderation in loan and deposit growth in the United States reflective of slower than anticipated business activity in the first calendar quarter, we are well-positioned to continue to build on the strength of our U.S. franchise,” Downe said in a statement.

BMO’s net income was equal to $1.84 per share, up from $1.45 per share during the second quarter of 2016 when its net income was $973 million.

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