Bank of Montreal profits increase

The Bank of Montreal surprised Bay Street by reporting higher third-quarter profits on Tuesday.

BMO said it made $557 million in Q3,up 6.9 per cent overthe same quarter last year. Revenue jumped 8.4 per cent to a record $2.98 billion.

The unexpected profit increase came about because of lower loan loss provisions. The bank set aside $417 million to cover specific and expected loans gone bad.

That was $67 million less than last year's Q3 loan loss provision. The bank said last year's results featured$247 million in charges related to the slumping U.S. housing market.

The anemic commercial real estate market remains a concern, but the bank has relatively little exposure to the sector. Only $4 billion, or 2.5 per cent of the bank's total loan portfolio, is tied to commercial real estate, CEO Bill Downe said.

The results handily beat analysts' consensus. Adjusted cash earnings, which exclude one-time items, came in at $1.05 a share, topping the 95-cent-a-share consensus of11 analysts polled byThomson Financial.

Back to basics

Downe credited a rebalancing of the business with thestrong performance. The personal banking division had a 15 per cent year-over-year increase in loans, increasing its market share by 32 basis points, Downe said.

"We're focused on containing costs and adding new customers," Downe said.

The investment banking business also had a strong quarter, with low interest rates giving rise to opportunities,he said.Trading revenues and corporate banking profits increased.

"We are seeing positive signs that the economic environment is starting to turn from challenging to more normal conditions, and BMO is well-positioned for further growth as conditions continue to improve," Downe said in a release.

'We're focused on containing costs and adding new customers.' Bill Downe, BMO CEO

The bank'stier onecapitalization level a measure to what extent banks are leveraged sat at 11.7 per cent after the bank consciously worked on improving it during the turmoil, CFO Russ Robertson said. Tier one levels are seen asa loose metric of how easily bank's could withstand future losses.

"BMO and other Canadian banks went into the downturnat much stronger capitalization levels than the U.S. banks," he noted.

"Looking forward, we expect rations to decline through 2010 as the market for loans increases," he said.

The lenderleft its 70-cent quarterly dividend unchanged.

BMO shares surged on the better-than-expected results. The stock jumped$3.29 to close at $52.30 in heavy TSX trading.

Other banks also recorded big gains on expectations that they too will report better Q3 results when they release their numbers later this week.