The Canadian Press

Bank of Montreal’s (TSX:BMO) profit jumped by nearly 200% in its fiscal first quarter on the strength of its Canadian retail banking business and lower loan-loss provisions.

Strong growth in personal and commercial deposits helped BMO’s retail business earn $403 million in the quarter, accounting for the bulk of the bank’s total net income.

“(Personal and commercial) Canada again generated strong year-over-year performance… reflecting growth in each of our lines of business. This group has delivered revenue growth over 9% for six consecutive quarters,” BMO president and CEO Bill Downe said Tuesday on a conference call with analysts.

Meanwhile, BMO’s U.S. retail business, focused on the Midwest, saw strong growth in deposits, mortgages and auto loans, but net income fell 43% to $16 million due to the “continued pressure of impaired loans” related to high unemployment and weak real estate markets, Downe said.

However, signs of economic recovery are beginning to show in the Midwest, and Downe said he expects loan losses to begin to shrink in coming quarters.

To take advantage of the improving outlook for retail banking in the Midwest, BMO is moving a chunk of its U.S. client base from its capital markets business to its retail banking business.

“We believe this is an opportunity to take share from our competitors. To put this initiative into perspective, we expect it will more than double the size of our U.S. commercial banking business,” Downe said.

“We expect the U.S. commercial business to account for a much greater proportion of our revenue and profitability, and the (return on equity) of both (personal and commercial) U.S. and BMO Capital Markets to begin to improve,” he added.

BMO said 70% of its net income comes from its retail banking operations, while the other 30% comes from BMO Capital Markets.

The bank’s first-quarter profit of $657 million amounted to $1.12 per share, compared with $225 million or 39¢ per share a year earlier. This exceeded the expectations of analysts polled by Thomson Reuters, who expected EPS of $1.03.

BMO’s revenue in the three months ended Jan. 31 increased by $583 million from the comparable period a year before, rising to $3.02 billion — the first time the bank’s revenue has exceeded $3 billion.

Total loan-loss provisions — an expense set aside by banks as an allowance for bad loans, such as when consumers default on their mortgages — declined for the second consecutive quarter. Provisions fell by $95 million to $333 million, the bank said.

BMO’s Tier 1 capital ratio amounted to 12.5% in the quarter, a level that will make it easy for the bank to comply with any new international standards relating to capital levels, Downe said.

“While the new regulatory capital standards are not yet finalized, our expectation is BMO will be less impacted relative to many peers and competitors, and our business growth provides flexibility and positions us well to take advantage of strategic opportunities,” he said.

BMO also announced Tuesday a new 3.75% five-year fixed rate mortgage with a maximum 25-year amortization, instead of the usual 35-year amortization. This is partly in response to new government regulations meant to discourage homeowners from taking on too much debt.

The bank’s quarterly dividend will remain at 70¢ per common share.

Shares in BMO added $2.21 or 3.9% to $58.85 in Tuesday trading on the Toronto Stock Exchange.