The Bank of Montreal saw second-quarter profits from its U.S. personal and commercial banking business dip from a year ago, but it still increased its net income by 28% and boosted its quarterly dividend.
The Toronto-based bank, the first of the big Canadian lenders to report its second-quarter results, had $1.25 billion of net income, helped by higher earnings from its wealth management and capital markets divisions.
But earnings from its U.S. personal and commercial banking segment decreased by 7% from a year ago to $248 million, mainly due to higher provisions for credit losses.
BMO also hiked its quarterly dividend on Wednesday by 2¢ to 90¢ per share, payable on Aug. 28.
Edward Jones analyst Jim Shanahan said he had been looking for stronger results out of BMO's U.S. franchise to compensate for the challenging operating environment at home.
Canadian banks face a number of headwinds, including overstretched borrowers and worries about high house prices and the health of the mortgage market.
"When we're really concerned about some of the other challenges in Canada with consumer leverage and home prices, we would look to the U.S. to be a source of strength in earnings stability — and for there to be softness here is a little bit disconcerting," Shanahan said.
So far there are no signs of deterioration in BMO's portfolio of Canadian residential mortgage loans, analysts said.
During a conference call to discuss the results, BMO CEO Bill Downe highlighted the size of the bank's mortgage loan book.
"Today our mortgage portfolio represents just 27% of our total loan book, well below the Canadian peer average," Downe said.
Cameron Fowler, BMO's group head of Canadian personal and commercial banking, said there are early signs of cooling in the Toronto housing market, following an announcement from the Ontario government last month that it plans to implement a 15% tax on foreign real estate speculators, among other measures.
Fowler said it's too soon to tell what the impact of the proposed tax will be.
"But early indicators are that we will start to see some softening," Fowler said. "And from my own perspective, that is good. Softening in the Toronto market is a good thing, and it looks like that may be where we're headed."
Real estate is likely to dominate the conference calls for the banking sector this quarter, particularly in light of the recent liquidity crisis at mortgage lender Home Capital, Shanahan said.
Royal Bank of Canada, Toronto-Dominion Bank and Canadian Imperial Bank of Commerce will report their second-quarter results on Thursday. Bank of Nova Scotia will release its earnings next Tuesday.
"I imagine there will be a lot of questions about Home Capital and the mortgage broker part of the market," Shanahan said.
BMO's shares closed down $3.15, or 3.31%, to $91.98 on the Toronto Stock Exchange.
Downe said the bank — which reported $5.74 billion in quarterly revenue, up from $5.10 billion a year ago — benefited from having a diversified business model.
Its wealth management arm had $251 million of reported net income, up 86% from a year ago, while its capital markets division grew its profit by 12% year-over-year to $321 million.
BMO's Canadian personal and commercial banking segment had $531 million of reported net income, up 1% from a year ago.
"While there's been a general moderation in loan and deposit growth in the U.S., reflective of slower-than-anticipated business activity in the quarter, we're well positioned to continue to build on the strength of our U.S. franchise," Downe said.
BMO's net income was equal to $1.84 per share, up from $1.45 per share during the second quarter of 2016 when its net income was $973 million.