Bank of Montreal profit tops $1 billion in first quarter, beating estimates

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A person walks by the Bank of Montreal in Toronto on August 28, 2012. THE CANADIAN PRESS/Michelle Siu

TORONTO - Bank of Montreal (TSX:BMO) delivered a number of surprises Tuesday, including an unexpected dividend increase and first-quarter results that beat analyst estimates, although its profit and revenue were both lower than a year before.

The bank said net income slipped to $1.05 billion or $1.53 per share from $1.12 billion or $1.63 per share a year earlier.

On an adjusted basis, earnings were $1.52, beating analyst expectations by four cents, according to a survey by Thomson Reuters.

Total revenue was down slightly from a year earlier, falling by one per cent to $4.08 billion from $4.12 billion. The consensus estimate had been for revenue to fall further to $3.9 billion and for adjusted earnings to drop to $1.48 per share.

Provisions for credit losses were one of the weaknesses of the results. The money set aside to cover bad loans increased to $178 million from $141 million.

Chief executive Bill Downe said all of the bank's major divisions in Canada and the United States — where it operates under the BMO Harris Bank brand — performed well during the three-month period, which ended Jan. 31.

"Looking ahead, we are well-positioned to leverage our North American platform and deliver sustained earnings growth," Downe said in a statement.

The bank also said its quarterly dividend will be going up two cents to 74 cents per share.

Most of Canada's big banks were expected to increase their dividends, but several analysts had said before the earnings report that they didn't anticipate Bank of Montreal to hike its payout to shareholders.

Barclays analyst John Aiken said that BMO's decision to raise its dividend came as a surprise to him.

"Given the importance of dividend yields to the banks' valuations, it will likely put some pressure on others who do not announce similar increases this quarter," he added.

Aiken noted that National Bank (TSX:NA) is the only exception, since it boosted its dividend last quarter.

In the Canadian personal and commercial banking division, BMO's net income rose four per cent to $458 million. Revenue was steady at $1.56 billion, while consumer loan growth increased 9.5 per cent.

"We are seeing more growth in loans with higher spreads and we would expect that to continue in future quarters," said Canadian personal and commercial banking president Frank Techar in a conference call with analysts.

He noted that BMO attracted a strong number of new customers with its five-year fixed, 25-year amortized mortgages, which helped it sell additional services to more people.

"For everyone that took that product last year, about 40 per cent of them were new customers," he said.

"For those new customers... we sold in excess of two other products to them."

In the U.S., BMO's net income increased 17 per cent to US$183 million, on lower costs and fewer bad loans. Revenues were down three per cent to $755 million.

Capital markets operations reported a profit increase of 38 per cent to $310 million as trading revenues improved, as well as more mergers and acquisitions and debt underwriting fees. Overall, the division's revenue grew to $904 million from $775 million.

The bank's return on equity dropped to 14.9 per cent from 17.2 per cent and adjusted ROE was 14.8 per cent, down from 15 per cent a year earlier, it said.

Bank of Montreal is the first of its peers to report first-quarter earnings.

Royal Bank (TSX:RY), CIBC (TSX:CM), TD Bank (TSX:TD) and National Bank (TSX:BA) post earnings on Thursday and Scotiabank (TSX:BNS) reports next week.

BMO shares closed Tuesday ahead 82 cents to $63.75 on the Toronto Stock Exchange.