Bank of Montreal opened fiscal first-quarter reporting season for Canada's Big Six banks Tuesday morning with a substantial profit beat, fueled by growth in all its major divisions and a sharp drop in loan loss provisions.

BMO's net income for the three months ending Jan. 31 rose 27 per cent year over year to $2.02 billion. On an adjusted basis, the bank earned $3.06 per share; analysts, on average, were expecting $2.15 in quarterly profit excluding one-time items.

The bank's U.S. operations posted the most substantial growth, as adjusted profit in that division surged 67 per cent year-over-year to US$459 million. BMO attributed the improvement to revenue gains, lower expenses, and a drop in funds that had been set aside for loans that could go bad.

On that front, BMO's bank-wide provisions for potential loan losses fell to $156 million in the quarter from $432 million in its fiscal fourth quarter.

"Credit performance was very strong, reflecting both the credit quality of our loan portfolio and our commitment to superior risk management. All businesses performed well, particularly in our U.S. segment, which remains a key driver of diversified earnings growth now and in the future," said BMO CEO Darryl White in a release.

The bank's core Canadian banking operations posted more muted profit growth, with earnings rising five per cent to $737 million.

Meanwhile, BMO's capital markets unit delivered $489 million in adjusted earnings, representing a 36 per cent increase from a year earlier.  While BMO said the gains were powered by global markets operations, the bank did note that profit was held back by a rise in performance-based expenses.

The bank also reported that its Tier 1 capital ratio rose to 12.4 per cent in the quarter, up from 11.9 per cent in the previous quarter.

Canada’s big banks are in a holding pattern on raising their dividends or buying back shares due to a moratorium imposed by the Office of the Superintendent of Financial Institutions (OSFI) in the early days of the pandemic. Although OSFI hasn’t provided a timeline for when it will loosen or lift its restrictions on those high-profile usages of capital, analysts have pointed to that eventuality as one of the upcoming drivers for the Big Six banks’ share prices.

“We continue to believe in buybacks as a big catalyst that is being under appreciated by the market,” said Scotia Capital Analyst Meny Grauman in his assessment of BMO’s quarter Tuesday