Bank of Montreal's profit jumped 17 per cent in the third quarter, driven by a strong wealth management operation and solid growth in its Canadian personal and commercial banking unit.
BMO's net income amounted to $1.14-billion, or $1.68 per share, beating analysts' average expectation of $1.53 per share. The quarterly profit is a record for the bank.
However, when the third quarter's numbers are combined with the previous two, BMO's net income in current fiscal year is up just 2 per cent from the first three quarters of 2012.
The latest set of earnings was also boosted by much better-than-expected loan-loss provisions. During the third quarter these provisions amounted to just $77-million, far lower than the average estimate for $189-million.
"Looking forward, we see opportunities for growth in each of our businesses in an improving North American economy led by the United States, and this gives us confidence we're well positioned heading into 2014," Bill Downe, the bank's president and chief executive officer said in a release.
After stripping out one-time charges, BMO's wealth management profit hit a record $131-million last quarter, jumping 37 per cent from the year prior on the back of higher assets under management, allowing the bank to earn better fees from managing this money, and healthy transaction volumes.
Profit from the Canadian personal and commercial banking unit climbed 9 per cent from 2012. Despite fears of a lending slowdown, retail loan growth hit 10 per cent last quarter, while commercial lending jumped 12 per cent.
Yet the volumes aren't boosting BMO's profit by the same amount. The bank said rising bond rates haven't been beneficial just yet, and BMO's net margin, or the spread between the rates at which it borrows and then lends money, took another hit, falling to 1.53 per cent across all units, the lowest level in two years.
BMO's capital markets group put up a healthy $280-million profit in the quarter on the back of stronger equities trading while t he bank's insurance unit benefited from higher bond yields, allowing BMO to book a $42-million after-tax benefit on the assumption that it will be better able to meet its long-term liabilities.
Despite its historical focus on commercial lending, BMO attempted to beef up its retail loan portfolio in the past year, particularly through mortgage lending. The bank aggressively marketed its 2.99 per cent mortgages in the spring, and has kept its rate relatively low since.
Recent mortgage data show that the efforts were successful. According to the latest figures from the Office of the Superintendent of Financial Institutions, the value of BMO's residential mortgage portfolio at the end of June climbed 3.8 per cent from the end of the bank's second fiscal quarter, or the three months ended April 30.
However, observers were skeptical because they weren't sure of the extent to which it would boost BMO's bottom line. When the bank started offering the low mortgage rates, multiple analysts noted that the tactic was more likely a play for market share, as the loans would not be very profitable at such low rates.
To boost profit, BMO instead resorted to other tactics, particularly cost cutting. At the end of the second quarter, BMO had endured $255-million of restructuring charges over the previous year and a half.
That trend appears to be catching on at other banks. Last quarter, both Toronto-Dominion Bank and Bank of Nova Scotia stressed the importance of cost control over the near future.