BMO’s profit jumps 38% in fourth quarter

The Bank of Montreal hiked its dividend as it reported a fourth-quarter profit that jumped 38% compared with a year ago and beat analyst estimates.

Canada’s fourth-largest bank said Tuesday it will now pay a quarterly dividend of $1 per share, up four cents from its previous payment.

The increase in payment to shareholders came as BMO reported its net income for the three months ended Oct. 31 rose to $1.7 billion or $2.57 per diluted share, up from to $1.23 billion or $1.81 in 2017.

The bank’s latest quarterly results were driven by strong performances from its Canadian and U.S. personal and commercial banking divisions as well as its wealth management business.

“This year, we continued to make good progress against our strategic objectives,” chief executive Darryl White said in a statement.

“We grew our U.S. segment at an accelerated pace, increased momentum in our commercial banking business, adding relationships, loans and deposits, and delivered real value to our personal customers with new and enhanced digital capabilities.”

Reported net income of $219 million for the bank’s wealth management business increased $44 million or 25%, the bank said. Insurance net income of $27 million increased $44 million from the prior year. Lower reinsurance claims were partially offset by the market dip in the latest quarter, a release said.

On an adjusted basis, BMO earned $1.53 billion or $2.32 per diluted share, compared with $1.31 billion or $1.94 per share a year ago.

Analysts on average had expected a profit of $2.29 per share, according to Thomson Reuters Eikon.

BMO’s domestic personal and commercial banking division reported fourth-quarter net income of $675 million, up 8% from the same three-month period a year ago. South of the border, its U.S. personal and commercial banking arm reported a 37% increase in net income to $372 million.

BMO wealth management reported net income of $219 million, up 25% from the prior year.

On an annual basis, BMO earned $5.45 billion, up 2% from its 2017 financial year, including the impact of a $425-million charge related to U.S. tax reform earlier this year. On an adjusted basis, the bank delivered net income of $6 billion, up 9% from the previous financial year.

Its key measure of financial health, called the common equity tier 1 ratio (CET1), was 11.3%, down from 11.4% a year ago and 11.4% in the previous quarter.

The lender also reported provisions for credit losses, or money set aside for bad loans, of $175 million during the latest quarter, compared with $202 million a year earlier.

However, under a new accounting standard implemented earlier this year, more variation in provisions amounts is expected. The new guidelines increase the emphasis on banks’ expected losses over the life of the loan, and in turn, introduce more volatility to the measure.

BMO demonstrated strong efficiency performance during the latest quarter, but it also benefited from lower provisions for credit losses and a low tax rate, said Gabriel Dechaine, an analyst with National Bank of Canada Financial Markets. Growth in its Canadian division was enhanced by a 21% drop year-over-year in provisions for credit losses, he said in a note to clients.

Better credit provisions generally drove the bank’s earnings beat, said Scott Chan, an analyst with Canaccord Genuity.

“Our initial reaction is neutral to slightly favourable as BMO delivered strong results in its core P&C business” with both Canadian and U.S. platforms benefiting from solid loan growth, particularly commercial, he said in a note to clients.