Bank of Montreal misses analysts’ expectations as provisions for loan defaults top estimates

Bank of Montreal reported higher second-quarter profit but missed analysts’ estimates as the lender set aside more money for loans that could default.

BMO earned $1.87-billion, or $2.36 per share, in the three months that ended April 30. That compared with $1.03-billion, or $1.26 per share, in the same quarter last year.

Adjusted to exclude certain items, the bank said it earned $2.59 per share. That fell below the $2.77 per share analysts expected, according to S&P Capital IQ.

“We’ve delivered on our commitments with expenses down, compared with last year and last quarter,” BMO chief executive officer Darryl White said in a statement. “Our balance sheet strength is evident in a CET1 ratio above 13 per cent, robust customer deposit growth and appropriate provisioning for the credit environment, which continues to be impacted by prolonged high interest rates and a slowing economy.”

The bank raised its quarterly dividend by 4 cents from the prior quarter to $1.55 per share.

BMO is the third major Canadian bank to report earnings for the second quarter. Toronto-Dominion Bank and Bank of Nova Scotia posted second-quarter results that beat analysts’ estimates. National Bank of Canada also releases earnings Wednesday, and Royal Bank of Canada and Canadian Imperial Bank of Commerce report on Thursday.

In the quarter, BMO set aside $705-million in provisions for credit losses – the funds banks set aside to cover loans that may default. That was higher than analysts anticipated, and included $658-million against loans that the bank believes may not be repaid, based on models that use economic forecasting to predict future losses.

In the same quarter last year, BMO had set aside $1.02-billion in provisions.

Total revenue rose 2 per cent in the quarter to $7.97-billion, while expenses fell 12 per cent to $4.84-billion.

Profit from Canadian personal and commercial banking was $872-million, up 6 per cent from a year earlier, on higher net interest income and non-interest revenue, offset slightly by higher expenses and provisions.

Profit from the bank’s U.S. arm was down 26 per cent at $543-million, driven by lower revenue on a decrease in net interest income, lower non-interest revenue and expenses, and higher provisions.

The wealth management division generated $320-million of profit, up 33 per cent on higher revenue from growth in client assets, including stronger global markets, partially offset by lower deposit balances and net interest margins.

And capital markets profit rose 24 per cent to $459-million on higher revenue, primarily from global markets driven with higher interest rate trading and higher debt and equity issuance activity, and lower expenses.