BMO Q2 profit rises to $800 million as revenue shifts higher

“(Consumers) are listening to the conversation that’s playing out in the public space about consumer debt levels and they’re still feeling conservative at this time,” Frank Techar, CEO of the bank’s Canadian personal and commercial banking division said Wednesday.

BMO, the first of the big Canadian financial institutions to report its earnings for the quarter, reported Wednesday a strong second-quarter profit of $800 million, or $1.34 per share. That was above the $745 million or $1.26 per share it reported a year earlier.

Adjusted earnings were $1.35 per share, four cents ahead of analyst expectations collected by Thomson Reuters. Quarterly revenue increased to $3.21 billion, below expectations of $3.25 billion but ahead of the $3.04 billion reported a year earlier.

The results, which surpassed analysts’ expectations, were driven by improvements in the bank’s retail division, as fewer consumers and businesses defaulted on loans. But growth was muted in most divisions and included a decrease in profits in a number of areas.

Provisions for credit losses, the money needed to set aside for bad loans, were $145 million, a decrease of $104 million, as a lower number of its clients missed loan payments.

In its Canadian personal and commercial banking division, BMO reported a profit increase of 1.7% to $401 million from $394 million.

However, Techar said he is beginning to see a slowdown in consumer loan volume.

“In particular, we’ve seen a slowdown in credit card activity, not only the transaction volumes but also in the balances that our customers are holding.”

A high level of borrowing coming out of the recession has contributed to record levels of household debt, sparking staunch warnings from top economists that Canadians need to get their finances in order before interest rates inevitably rise.

Canadians’ shifting borrowing habits could signal that their financial positions are improving, or at least that they’ve decided to stop taking on so much debt and also indicate that the housing market is cooling.

“We believe they’re feeling they’re not out of the woods yet relative to their financial situations and the growth in the economy,” Techar said.

“Post-holiday season we saw a change in the usage of our credit cards and we’ve seen a clear change in their revolving balances.”

Meanwhile, the bank reported a 7.1% rise in commercial loans and said it is seeing the signs of a business-led recovery in both Canada and the United States. Business borrowing and investments in new staff, equipment and technology to improve productivity is crucial for economic growth.

On the Canadian commercial loan side, Techar said he expects strong growth and activity levels to hold up in the coming quarters.

The U.S. division posted US$43 million in profit, down 2.8% from $45 million on higher loan losses.

Insurance profits slipped to $1 million from $43 million, affected by an after-tax charge of $47 million on higher claims from its reinsurance business due to the earthquakes in New Zealand and Japan.

The bank kept its quarterly dividend steady at 70 cents per share.

In its capital markets division, profits slipped 9.4% to $235 million, affected by lower trading revenues. However, BMO noted that the division is experiencing higher merger and acquisition as well as debt underwriting activity this year.

Barclays Capital analyst John Aiken said he considered the quarterly results “solid,” with high-quality earnings overall.

“Improving credit quality within Canada was much stronger than we had anticipated and led to the significantly lower provisions than we had forecast,” he wrote in a note.

Aiken also said “BMO did show improvements in its U.S. credit, which could bode well for TD Bank and Royal Bank, and potentially Scotiabank, each of which have sizable credit portfolios south of the border.”

Bank of Montreal has more than 38,000 employees across its North American operations, which include retail banking, wealth management and investment banking, as well as its Chicago-based Harris Bank subsidiary.

Harris Bank has more than 300 branches in Illinois, Indiana and Wisconsin as well as locations in Arizona, California, Florida, Georgia, New York, New Jersey, Texas, Virginia and Washington.

Shares of BMO closed up 55 cents at $62.05 Wednesday on the Toronto Stock Exchange.