U.S. retail banking profits surge at Bank of Montreal

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For Bank of Montreal, business lending is where the action is, rather than mortgages, credit cards or consumer loans.

Growth in loans to business and government outstripped consumer lending in the second half of the last fiscal year, a trend that continued in the fiscal first quarter. Bank of Montreal saw a 22% jump in commercial loans, compared with a 2.8% increase from consumer lending. The Toronto-based lender now has C$229.3 billion ($173.5 billion) of business and government loans, representing 54% of its overall loan book.

That helped Canada’s fourth-largest lender by assets post quarterly earnings that beat analysts’ expectations. U.S. retail banking results provided a boost, too.

Key insights

  • Bank of Montreal’s reliance on business is outsize compared with its peers. TD Securities analyst Mario Mendonca said in a Feb. 15 report that Bank of Montreal’s exposure to Canadian business loans accounts for more than 30% of its domestic loans, compared with 21% for the big Canadian banks.
  • Elsewhere at Bank of Montreal, earnings declined in two of the four main operating divisions: capital markets and wealth management. Canadian banking, Bank of Montreal’s biggest business, posted a profit that was little changed amid a slowdown in the nation’s mortgage market.
  • At the bank’s U.S. retail banking division, earnings rose 43% to a record C$444 million ($337.5 million). After margins shrank for some of last year, lending is getting more profitable at that unit: In the first quarter, U.S. margins were 3.71%, up from 3.7% a year earlier and 3.69% in the fourth quarter.
  • First-quarter net income rose 55% to C$1.51 billion ($1.15 billion), or C$2.28 a share, from C$973 million ($739.7 million), or C$1.43, a year earlier, Bank of Montreal said Tuesday. Adjusted per-share earnings totaled C$2.32, beating the C$2.24 estimate of 11 analysts in a Bloomberg survey.
  • Bank of Montreal shares had fallen 0.3% in the 12 months through Monday, compared with the 0.5% decline in Canada’s eight-company S&P/TSX Commercial Banks index.
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Earnings Commercial lending Consumer lending Net interest margin Bank of Montreal