Bank of Montreal carried on a trend of better-than-expected profits for Canada's largest banks, even as its absorbed a $425-million writedown due to U.S. tax changes.
BMO reported fiscal first-quarter profit of $973-million, or $1.43 per share, compared with $1.49-billion, or $2.22 a share, a year ago.
But overall results for Canada's fourth largest bank were strongly affected by the writedown due to U.S. tax reform, which will eventually provide a substantial lift to earnings. And the first-quarter results are also compared with earnings from 2017 that included a $133-million gain on sales of the bank's stake in a business and part of a U.S. auto loan portfolio.
Adjusted to account for certain items, BMO reported profit of $1.42-billion, or $2.12 per share, and the bank said its underlying net income grew 9 per cent. Analysts surveyed by Bloomberg LP had expected adjusted earnings per share of $2.06.
Revenue of $5.68-billion rose 5 per cent from $5.41-billion in the first quarter of 2017, driven by solid growth in personal and commercial banking, both in Canada and the U.S.
"BMO had a good start to the year," said chief executive officer Darryl White, in a news release, adding: "The constructive economic environment, particularly in the U.S., plays to the strengths of our business mix, with another quarter of increased contribution from our U.S. segment, which grew at a higher rate than the bank overall."
Growing profit from the bank's U.S. operations, which contributed about a quarter of total earnings in 2017, is a key priority for BMO. In U.S. personal and commercial banking, higher revenue pushed profit 24 per cent higher to $310-million, compared with a year ago, with added help from a more favourable U.S. tax rate. Commercial loans, which make up the largest share of BMO's U.S. business, grew 7 per cent, and chief financial officer said he expects "good growth over the balance of the year."
The U.S. banking performance "was the strongest we've had in a good number of quarters, so we're encouraged by that," Mr. Flynn said, in an interview. "And we do think with U.S. tax reform and robust consumer confidence, we're set up for a good year."
BMO expects U.S. tax cuts passed late last year will increase the bank's profit by US$100-million this year.
Lower loan losses made a major contribution to BMO's better-than-expected results. Provision for credit losses – the money banks set aside to cover soured loans – came in at $141-million, down from $167-million a year earlier. Expected losses were lower in Canadian retail banking, but higher in capital markets as well as U.S. personal and commercial banking.
Expenses rose 2 per cent, as BMO continues to push double-digit percentage increases in its technology spending.
"All-in this appears to be a relatively solid quarter for BMO," said Steve Theriault, an analyst at Eight Capital Corp., in a research note.
Profit from core Canadian personal and commercial banking fell 13 per cent to $647-million when compared with last year's results, which included a $187-million pre-tax gain on the sale of BMO's stake in payment processor Moneris Solutions Corp.'s U.S. operations.
BMO's mortgage portfolio grew by just 2 per cent. The bank had anticipated slower growth in home loans due to the introduction of a new stress test on uninsured mortgages in January, which makes it harder for some borrowers to qualify for loans. But BMO has also been reducing its reliance on third-party brokers, and the bank issued 4 per cent more mortgages through its own channels. "So we're growing really where we want to grow," Mr. Flynn said.
In wealth management, profit slipped to $266-million, from $269-million, due to lower earnings from its insurance business, which was affected by rising interest rates. But profit from traditional wealth management rose 12 per cent.
Capital markets profit was $271-million, down 26 per cent from $367-million a year ago, as lower revenue from trading products failed to keep pace with a record quarter a year ago. The first quarter was "a little slower overall," Mr. Flynn said, "but we do think that we'll have a good balance of the year in our capital markets business."
The bank held is quarterly dividend steady at 93 cents per share, and announced that it intends to buy back as many as 20 million common shares.