Bank of Montreal (BMO) Up 5.9% Despite Lower Q3 Earnings

Bank of Montreal’s BMO third-quarter fiscal 2020 (ended Jul 31) adjusted net income was C$1.26 billion ($0.92 billion), down 20% year over year.

The results reflect a significant rise in credit costs and lower loan balance. However, increase in revenues, lower expenses and improvement in deposit balance offered some support.

These factors, along with encouraging management commentary related to provisions on performing loans — which are expected to decrease “quite substantially" even if delinquencies rise — seem to have led to bullish investor sentiments. The stock gained 5.9% on the NYSE, following the release of the company’s results.

After considering non-recurring items, net income was C$1.23 ($0.9 billion), down 21% from the prior-year quarter.

Revenues Up, Expenses Down

Total revenues (on an adjusted basis) — net of insurance claims, commissions and changes in policy benefit liabilities (CCPB) — amounted to C$6 billion ($4.39 billion), up 4% year over year.

Net interest income grew 10% year over year to C$3.54 billion ($2.59 billion). Non-interest income came in at C$3.65 billion ($2.67 billion), up 6% from the prior-year quarter.

Adjusted non-interest expenses declined 2% year over year to C$3.41 billion ($2.49 billion).

Adjusted efficiency ratio — net of CCPB — was 56.8%, down from 59.9% as of Apr 30, 2019. A fall in the efficiency ratio indicates improvement in profitability.

Provision for credit losses surged substantially year over year to C$1.05 billion ($0.77 billion).

Loans Decline, Deposits Rise

Total assets decreased 1% from the prior quarter to C$973.5 billion ($725.6 billion) as of Jul 31, 2020. Further, total net loans were down 5% sequentially to C$445.2 ($331.9 billion), while total deposits rose 1% to C$660.6 billion ($492.4 billion).

Profitability Deteriorate, Capital Ratios Improve

Return on equity — as adjusted — came in at 9.6% for the fiscal third quarter compared with 13.5% on Jul 31, 2019. Return on average assets was 0.51%, down from 0.75% in the prior year.

As of Jul 31, 2020, common equity Tier I ratio was 11.6%, up from 11.4% in the comparable year-ago period. Tier I capital ratio was 13.1% compared with 13.0% a year ago.

Our Take

Bank of Montreal’s focus and efforts are aligned with organic and inorganic growth strategies, and are expected to boost revenues going forward. However, mounting expenses and economic slowdown are expected to strain the company’s profitability.

Bank Of Montreal Price, Consensus and EPS Surprise

Bank Of Montreal Price, Consensus and EPS Surprise

Bank Of Montreal price-consensus-eps-surprise-chart | Bank Of Montreal Quote

Bank of Montreal currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance & Earnings Release Date of Other Canadian Banks

The Bank of Nova Scotia BNS reported third-quarter fiscal 2020 (ended Jul 31) adjusted net income of C$1.31 billion ($0.96 billion), down 47% year over year. The results excluded certain one-time items.

Toronto-Dominion Bank TD and Canadian Imperial Bank of Commerce CM are scheduled to announce quarterly numbers of Aug 27.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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