BMO reports profit up as loan growth continues, expenses also creep higher

“There’s certainly more uncertainty given some of the continued issues that we all know about, supply chain, inflation,” said David Casper, who leads North American commercial banking at BMO.

“But the demand for our clients’ products still is outstripping supply. So they’re still growing, they’re trying to keep up, and the other part of it is there continues to be, both in Canada and the U.S., more movement to onshoring, less reliance on foreign sourcing, more capital expenditure to improve productivity.”

The bank recorded average net loans up 9% year over year, as well as up 3% from the prior quarter, with commercial loans a little ahead of consumer balances.

While the bank says it hasn’t seen signs of an economic pullback, it has been ramping up its risk management, chief risk officer Patrick Cronin said.

“We did recognize the potential for economic headwinds by increasing the weighting of our adverse scenario, as well as reducing parts of our economic outlook in our base case scenario.”

The bank has also been working over the past two years to improve its automated and data-driven risk mitigation processes, which will serve the bank well in the face macroeconomic and geopolitical risk, he said.

Overall, the bank reported a second-quarter profit of $4.76 billion as it said it will now pay a quarterly dividend of $1.39 per share, up six cents from $1.33 per share.

The increased payment to shareholders came as BMO’s second-quarter profit amounted to $7.13 per diluted share, up from a profit of $1.30 billion or $1.91 per diluted share a year ago.

Revenue in the quarter totalled $9.32 billion, up from $6.08 billion in the same quarter last year, while the bank’s provision for credit losses amounted to $50 million compared with $60 million a year ago.

On an adjusted basis, BMO says it earned $3.23 per diluted share, up from an adjusted profit of $3.13 per diluted share a year ago.

Analysts on average had expected an adjusted profit of $3.21 per share, according to financial markets data firm Refinitiv.

BMO reported adjusted expenses were up 2% in the quarter from a year earlier, including an 11% jump in its Canadian personal and commercial division, as investments in technology and its sales force that started last year accumulate.

The bank is now expecting a year-over-year expense increase of about 2.5% this year, up from a previously guided 1.5%, as it sees more movement in salaries, said chief financial officer Tayfun Tuzun.

Scotiabank analyst Meny Grauman said in a note that the earnings growth at the bank was good, but the results were “not quite as red-hot as what we have been accustomed to seeing from this bank.”

“The good news from these results is that there is no sign of recession anywhere in the numbers,” Grauman wrote.

The bank said its Canadian personal and commercial banking business earned $940 million in net income, up from $777 million in the same quarter last year, while its U.S. personal and commercial banking operations earned $588 million, up from $538 million a year ago.

BMO’s wealth management business earned $314 million, down from $322 million a year earlier, while BMO Capital Markets earned $448 million, compared with $558 million a year ago.

Assets under management were $312.45 billion compared with $525.23 billion in Q2 2021.

The bank’s corporate services arm earned $2.47 billion in the latest quarter compared with a loss of $892 million a year ago as the bank recorded higher revenue from fair value management actions related to the announced acquisition of Bank of the West and lower expenses due to the write down of goodwill related to the sale of its EMEA asset management business a year ago.