Bank of Montreal is reporting a drop in second-quarter profit.

Net income for the quarter ended April 30 was $301 million, or 57¢ diluted, down $121 million from the prior-year period.

BMO says net income in the Personal and Commercial Client Group rose 26%, and was accompanied by solid growth in volumes.

Revenues were $2.2 billion in the quarter, down $263 million from last year. BMO says revenue growth remains a challenge as loan loss provisions and weak capital markets continue to affect the bank’s results.

Return on equity fell to 11.6% in the quarter from 16.2%.

“Improved performance in retail banking and success in limiting cost increases position the Bank well for the continued improvements expected in the economy,” said Tony Comper, chairman and CEO, Bank of Montreal. “While results continue to be affected by increased loss provisions and weak capital markets, we continue to invest in our growth strategies and aggressively compete for market share to benefit from the return to a more robust business environment.”

The bank stuck to previously stated guidance for loan loss provisions as it copes with its credit exposure to BCE Inc.unit Teleglobe. It says expected loan losses for the year are unchanged from the previously announced $775 million to $825 million.

Following in the footsteps of TD Financial Group, BMO says stock options costs will be expensed starting in fiscal 2003.