Source: The Canadian Press

Bank of Montreal (TSX:BMO) started the Canadian banking sector’s second-quarter earnings season with a bang on Wednesday, posting a $745-million profit that beat analyst estimates.

BMO reported $1.26 per share of net earnings, or $1.28 per share of cash earnings — 18 cents per share ahead of analyst estimates in both cases — thanks to strong domestic banking and higher trading revenues.

In the comparable quarter last year, BMO had $358 million of net income, or 61 cents per share in net earnings or 63 cents per share of cash earnings.

Revenue was $3 billion, up from $2.65 billion in the second quarter of fiscal 2009.

“Our core businesses maintained the positive momentum — a trend which we expect to continue,” chief executive Bill Downe told investor in a conference call.

“We anticipate improving credit performance with some quarterly variability,” he added.

Downe said this marks the bank’s fifth consecutive quarter of higher revenue and net income.

As expected, the bank reduced its provisions for credit losses during the quarter, which helped results. Provisions for bad loans were reduced by $123 million from a year ago to $249 million for the three months ended April 30.

“Although the decline in provisions may slow in coming quarters, we believe that the groundwork for incremental revenue growth has been laid and that BMO can continue to grow its earnings outside of improving credit conditions,” wrote Barclays Capital analyst John Aiken in a note.

Canadian personal and commercial banking results were ahead 16% to $396 million, while private client banking was ahead 64% to $118 million helped by a stronger stock market.

Personal deposits fell 0.9% as more consumers opted to invest their money into the stock market, rather than keep it in a bank account.

U.S. personal and commercial banking was down 31% to $45 million on lower commercial loans.

BMO chief risk officer Thomas Flynn told analysts on a conference call that commercial loans are expected to continue to face the same challenges.

“Given a level of ongoing strains in commercial portfolio, provisions will likely be higher here for the next few quarters,” he said.

“Although the impact from the recession is not over, the capital markets portfolio is stabilizing as larger companies take advantage of better markets to strengthen their balance sheets and to benefit from the recovery.”

BMO Capital Markets posted a quarterly net income of $259 million, about 38% high than the same time last year, pushed by “significantly higher” trading revenues. The division also noted that investment banking results weakened from a year ago, though “activity is expected to increase due to our strong pipeline.”

The bank said it will keep its quarterly dividend unchanged at 70 cents per common share.

Stonecap Securities analyst Brad Smith described the earnings as “decent.”

“In terms of my expectations, nothing in the BMO results would make me want to pull back on the lever on any of the other banks,” he said in an interview.

In other developments, BMO has also announced it will launch several new ETFs, including ones with access to U.S. health care, U.S. banks and small-cap oil and gas.

Shares of the bank were ahead $1.40 to $60.11 in late trading Wednesday on the Toronto Stock Exchange.