Bank of Montreal Stock Tanks 6.2% as High Provisions Hurt Q3 Earnings

Shares of Bank of Montreal BMO declined 6.2% on the NYSE in response to weak third-quarter fiscal 2024 (ended July 31) results. Adjusted earnings per share of C$2.64 declined 10.2% year over year.

A significant jump in provision for credit losses and lower net interest income (NII) primarily hurt the results. However, an increase in non-interest income, higher loans and deposit balance and lower expenses acted as a tailwind.

After considering non-recurring items, net income was C$1.87 billion ($1.37 billion), which grew 19.2% from the year-ago quarter.

BMO's Revenues Rise, Expenses Dip

Total revenues (on an adjusted basis), net of insurance claims, commissions and changes in policy benefit liabilities (CCPB), were C$8.21 billion ($5.99 billion), up marginally year over year.

NII declined 2% year over year to C$4.81 billion ($3.51 billion). On the other hand, non-interest income came in at C$3.4 billion ($2.48 billion), up 3.4%.

Adjusted non-interest expenses decreased 5% to C$4.7 billion ($3.43 billion).

The adjusted efficiency ratio (net of CCPB) was 57.3%, down from 60.3% as of July 31, 2023.

Provision for credit losses (adjusted) was C$906 million ($515.5 million) in the reported quarter, surging 84.1% from the year-ago quarter.

Loans & Deposits Rise for Bank of Montreal

As of July 31, 2024, total assets were C$1.4 trillion ($1 trillion), up 1.9% from the prior quarter end.

Bank of Montreal's total net loans grew 2.5% sequentially to C$673.2 billion ($486.9 billion). Total deposits increased 3% to C$965.2 billion ($698.1 billion).

BMO's Profitability Ratios Decline, Capital Ratios Improve

Bank of Montreal's return on common equity (as adjusted) was 10.6% in the fiscal third quarter compared with 12.5% on July 31, 2023. Adjusted return on tangible common equity was 14.2% compared with 17.1% in the year-ago quarter.

As of July 31, 2024, the Common Equity Tier-I ratio was 13%, up from 12.3% a year ago. The Tier-I capital ratio was 14.8% compared with the previous year's 14%.

Our Take on BMO

Bank of Montreal's focus and efforts align with its organic and business restructuring strategies and are anticipated to support revenues in the upcoming period. However, elevated expenses and an uncertain macroeconomic backdrop are headwinds.

Performance & Earnings Date Other Canadian Banks

Toronto-Dominion Bank TD incurred a loss on a GAAP basis in the third quarter of fiscal 2024 (ended July 31). The quarterly loss was primarily due to provisions for the penalties related to investigations concerning its anti-money laundering practices by the U.S. regulators.

Net loss (GAAP basis) was C$181 million ($132.2 million) against net income of $2.88 billion in the prior-year quarter.

Huge increases in provisions for credit losses and higher expenses acted as undermining factors. On the other hand, growth in NII and non-interest income and higher loan balance offered much-needed support to TD's quarterly performance.

Canadian Imperial Bank of Commerce CM is slated to announce quarterly numbers on Aug. 29.

Over the past seven days, the Zacks Consensus Estimate for CM's quarterly earnings has been revised marginally lower.

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