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 per cent and boosted its quarterly dividend.
The Toronto-based bank (TSX:BMO), 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 seven per cent from a year ago to $248 million, mainly due to higher provisions for credit losses.
BMO also hiked its quarterly dividend on Wednesday by two cents to 90 cents 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 per cent 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 per cent 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 (TSX:RY), TD Bank (TSX:TD) and CIBC (TSX:CM) will report their second-quarter results on Thursday. Scotiabank (TSX:BNS) 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 per cent, 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 per cent from a year ago, while its capital markets division grew its profit by 12 per cent year-over-year to $321 million.
BMO's Canadian personal and commercial banking segment had $531 million of reported net income, up one per cent 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.
TD Bank's Q2 net income grows 22% to $2.5B
Elsewhere, TD Bank (TSX:TD) had $2.5 billion of net income during the second quarter, up 22 per cent from a year ago
The earnings amounted to $1.31 per share.
That compared with $1.07 per share or $2.05 billion of net income during the same period last year.
The Toronto-based bank had $8.47 billion of revenue during the three-month period ended April 30, up from $8.26 billion a year ago.
And the Royal Bank of Canada (TSX:RY) has boosted its second-quarter net income by nine per cent to $2.81 billion.
That compares with $2.57 billion during the second quarter of 2016.
The profit amounted to $1.85 per share, compared with $1.66 per share during the same period last year.
The Toronto-based bank had $10.31 billion of revenue for the period ended April 30, up from $9.53 billion a year ago.