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Noah Zivitz

Managing Editor, BNN Bloomberg

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Bank of Montreal's latest earnings surpassed profit expectations by a wide margin Tuesday as it released funds that were previously set aside for loans that could go bad and posted double-digit growth in its flagship domestic business.

BMO's net income for the fiscal third quarter, which ended July 31, was $2.28 billion, compared to $1.23 billion a year earlier. On an adjusted basis, BMO earned $3.44 per share; analysts, on average, expected $2.94.

"Our leadership in risk and balance sheet management remains a key differentiator and contributed to continued strong credit metrics and a robust capital position," said Darryl White, BMO's chief executive officer, in a release.

The bank announced on Tuesday that it released $70 million from its total provisions for credit losses during the most recent quarter. A year earlier, BMO set aside $1.05 billion for loans that could go bad. In the prior quarter, BMO had booked $60 million in provisions.

“While we don’t expect BMO to report net [provision for credit loss] recoveries on a recurring basis going forward, management’s near-term outlook on credit was still generally positive, suggesting that [provision for credit loss] levels could remain abnormally low for the next few quarters, even as losses on impaired loans begin to finally normalize post-pandemic,” said Credit Suisse Analyst Mike Rizvanovic in a note to clients Tuesday.

It wasn't just a credit quality story for BMO in the latest quarter, however.

Net income in its Canadian personal and commercial banking operations more than doubled year-over-year to $815 million as revenue rose 14 per cent to $2.24 billion. Notably, the bank's domestic mortgage book expanded to an average balance during the quarter of $113 billion, compared to almost $105 billion a year earlier.

BMO's U.S. banking division also saw profit more than double to US$448 million in the latest quarter amid revenue that climbed seven per cent year-over-year to US$1.1 billion.

Unlike Bank of Nova Scotia, the other lender that reported results Tuesday, BMO reported substantial gains from its capital markets division, where net income surged 31 per cent year-over-year to $558 million.

As of the end of the quarter, BMO said its Common Equity Tier 1 capital ratio was 13.4 per cent, compared to 13 per cent in the prior quarter.