UPDATE 2-Bank of Montreal profit up; U.S. unit offsets bad energy loans

(Adds comments from analyst, portfolio manager; background on n
GE asset deal; share move)
By John Tilak
TORONTO, Feb 23 (Reuters) - Bank of Montreal BMO.TO ,
Canada's fourth-largest lender, posted a higher quarterly profit
that topped market expectations on Tuesday, lifted by growth in
its U.S. retail banking business.
However, bad loans in the energy sector shot up in the first
quarter, reflecting the impact of a collapse in the oil price
and signaling that the Canadian banks were not immune to the
oil-related slowdown in Western Canada.
Gross impaired loans in the oil and gas sector jumped C$162
million ($118.15 million), from none recorded in the
year-earlier period and C$102 million in the fourth quarter.
Provisions for that sector's credit losses climbed to C$22
million, from virtually zero a year earlier.
Energy sector loans account for 2 percent of BMO's total
loan portfolio, and the oil-producing province of Alberta makes
up about 6 percent of its loan book.
"There's no cause for panic at this point over the bank's
energy exposure and the increase in bad loans, said David
Cockfield, managing director and portfolio manager at Northland
Wealth Management, which owns shares of BMO.
"It's worth watching, but getting too excited about it? Not
yet," he said.
Cockfield said one area of concern in the numbers was the
increase in non-interest expense, which was up 8.8 percent at
C$3.27 billion.
BMO shares climbed 2.2 percent to C$75.48 in early trading
in Toronto.
The lender's earnings quality was somewhat weak and the
company benefited from a favorable tax rate, Edward Jones
analyst James Shanahan said.
"This is not a great quarter, but it's not a disaster
either," he said.
Net income for the first quarter ended Jan. 31 was C$1.07
billion, or C$1.58 per share, compared with C$1 billion, or
C$1.46 per share, a year earlier. Excluding special items,
earnings were C$1.75 per share.
Analysts on average had expected C$1.72 a share, according
to Thomson Reuters I/B/E/S.
The company recorded a 31 percent increase in earnings at
its U.S. personal and commercial banking division and an 18
percent rise at its capital markets unit. Canadian retail
banking earnings were 5 percent higher, while net income fell at
its wealth management unit.
The U.S. retail banking business benefited from the
completion of the acquisition of General Electric (N:GE) Capital Corp's
transportation finance business in the first quarter.