BMO’s Commercial Focus in U.S. Midwest Fuels Record Profit

(Bloomberg) -- Bank of Montreal has long seen its U.S. loan growth slanted more toward businesses than individual consumers, a focus that helped the lender post record earnings in its fiscal fourth quarter.

• The owner of Chicago-based BMO Harris Bank said commercial lending rose in the three months ended Oct. 31, with balances from the U.S. division jumping 10 percent to $59 billion, Bank of Montreal said Tuesday in its earnings statement.

Key Insights

• Commercial lending at Bank of Montreal's U.S. banking division has typically grown faster while personal and small-business banking has lagged behind. Yet after personal loan balances shrunk through 2016 and 2017, lending to consumers started to pick up through 2018, to surpass the growth of commercial lending. Personal loan balances rose 14 percent for the quarter.
• The Toronto-based bank is targeting small businesses in the Midwest and revamping its digital operations under a new U.S. strategy to attract more retail customers. Earnings from the company's U.S. personal-and-commercial division, which includes BMO Harris Bank, rose 38 percent to C$372 million ($283 million) in the quarter, the fourth consecutive quarter of record-breaking profit.
• “The U.S. segment remains a top priority, where we'll continue to grow earnings at a faster pace than the overall bank,” Chief Executive Officer Darryl White said Tuesday on the company's quarterly conference call.
• Canada's oldest bank made its first U.S. foray in 1818 by opening an agency office in New York, but its 1984 takeover of Chicago-based Harris Bank fueled a decades-long, acquisition-fueled expansion across the U.S. Midwest. Today, Bank of Montreal has 12.4 percent of deposits in greater Chicago, second only to JPMorgan Chase & Co.'s 22.4 percent share, according to data from the Federal Deposit Insurance Corp.

Market Reaction

• Bank of Montreal shares fell 2 percent to C$97.01 at 9:50 a.m. in Toronto trading. The shares have fallen 3.7 percent this year, outperforming the 5.7 percent decline of the eight-company S&P/TSX Commercial Banks index.

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• Net income for the quarter rose 38 percent to a record C$1.7 billion, or C$2.57 a share. Adjusted earnings were C$2.32 a share, beating the C$2.30 average estimate of 14 analysts in a Bloomberg survey.
• Bank of Montreal saw improvements in three of its four main operating divisions, with only its BMO Capital Markets division experiencing a decline.
• Earnings in Canadian banking, Bank of Montreal's biggest business, jumped 8.2 percent to C$675 million in the quarter.
• U.S. operations represented 28 percent of the bank's adjusted earnings for the year, up from 24 percent a year earlier, according to a company presentation Tuesday.
• The bank raised its quarterly dividend 4.1 percent to C$1.
• Read the quarterly statement here.

To contact the reporter on this story: Doug Alexander in Toronto at dalexander3@bloomberg.net

To contact the editors responsible for this story: Michael J. Moore at mmoore55@bloomberg.net, ;David Scanlan at dscanlan@bloomberg.net, Daniel Taub, Steve Dickson

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