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File photo of a BMO branch in Toronto's Beach neighbourhood.Fred Lum/The Globe and Mail

Bank of Montreal shed more than 600 jobs, or 1.3 per cent of its work force, over the past quarter and is planning deeper cuts as the lender adapts to a dramatic shift toward online and mobile banking.

In total, the bank is seeking to cut a total of 4 per cent, or more than 1,800, of its workers – a bold restructuring plan that led to a charge of $132-million in the second quarter and weighed on the lender's financial results.

It also set aside $201-million to cover bad loans, an increase of nearly 10 per cent from the previous quarter even as the price of oil has rebounded toward $50 (U.S.) a barrel from recent lows below $30. The gain was largely associated with the struggling oil and gas sector.

"At current levels, there are still companies that won't survive in their current form," said Bill Downe, the chief executive officer of BMO.

BMO kicked off the second-quarter reporting season for the big banks on Wednesday with a profit of $973-million (Canadian), or a decline of 3 per cent from the same period last year.

It raised its quarterly dividend to 86 cents, up 2 cents.

Without the restructuring charges, Bank of Montreal said that its adjusted profit rose 1 per cent to $1.73 a share – in line with the expectations of analysts, even as many observers believe that charges stemming from job cuts have become standard in the banking sector.

"We think [the restructuring charge] represents a recurring cost pressure that BMO, and all its domestic Big Six banking peers, face: that is, the cost to defend its oligopoly position in Canada from technology-driven upstarts and more established but non-traditional companies encroaching on the oligopoly," Peter Routledge, an analyst at National Bank Financial, said in a note, alluding to the likes of Apple.

Last year, the big banks collectively took more than $1.2-billion in restructuring charges amid efforts to cut costs associated with traditional banking, where the number of transactions are falling sharply. At the same time, banks are accommodating consumer preferences for banking on computers and smartphones.

"There is a great deal that organizations like ours can do to meet their customers where they are, in terms of [branch] locations and formats and staffing," said Cam Fowler, BMO's head of Canadian personal and commercial banking, in a call with analysts. "But it seems likely in the medium term that branch counts will be slightly down."

At the same time, BMO has invested in services to appeal to more tech-savvy customers. It recently launched SmartFolio, a low-cost online portfolio-management service that aims to compete with so-called "robo-advisers."

Earlier this month, it announced – along with its Big Five competitors – that it would give its customers access to Apple Pay, the payment app for the iPhone, even though the service could mean BMO risks sharing its customers with Apple Inc.

"It's certainly a new competitor for us," Mr. Fowler said of the technology behemoth. However, "it's our job to ensure that what we offer stacks up against everything that's available, and in the process we're protecting critical things like safety, security and soundness [of the data]."

Despite BMO's declining profit in the quarter, two of the bank's core businesses performed well.

Profit from Canadian personal and commercial banking rose 8 per cent from last year. Profit from BMO's U.S. personal and commercial banking rose 29 per cent, boosted from a combination of a strong U.S. dollar and its recently acquired transportation finance business.

These gains were partly offset by falling profit from capital markets and wealth management.

While the bank's provisions for bad loans rose $18-million from the previous quarter, the provisions were still small compared with BMO's oil and gas loan portfolio of $7.3-billion, and were generally lower than analysts' estimates.

"Performance here is certainly better than we had forecast," Meny Grauman, an analyst at Cormark Securities, said in a note.

Editor's note: a previous version of this story suggested BMO set aside $201-million to cover bad loans mostly in the oil and gas sector, a 10-per-cent increase from the previous quarter. The increase was largely due to oil and gas loans, not the $201-million amount itself.

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