BMO Q4 Earnings Dip, Stock Up on Projection of Fall in 2025 Provision

Shares of Bank of Montreal (BMO - Free Report) rose 8.5% on the NYSE following the announcement of their fourth-quarter fiscal 2024 results, which ended on October 31. Investors responded positively to management's expectation that provisions for credit losses may have reached their peak in the reported quarter. Over the past year, the company faced significant increases in credit loss provisions, but projections for fiscal 2025 indicate a slowdown in these expenses.

The adjusted earnings per share for the fourth quarter were C$1.90, reflecting a sharp decline of 35.2% year over year due to the elevated provisions for credit losses. Net interest income also saw a decrease during this period. Nevertheless, the bank benefited from gains in non-interest income, an increase in loans and deposits, and a reduction in expenses, providing some support to their earnings.

After accounting for non-recurring items, BMO reported a net income of C$2.3 billion (equivalent to $1.68 billion), which marks a year-over-year increase of 34.7% from the same quarter last year.

BMO’s Revenues Rise, Expenses Dip

In the fourth quarter, total revenues, adjusted for insurance claims, commissions, and policy benefit liabilities, amounted to C$8.37 billion ($6.13 billion), showing a slight increase from the previous year.

However, the bank's net interest income fell by 2.1% year over year to C$4.85 billion ($3.55 billion). Conversely, non-interest income rose to C$3.52 billion ($2.58 billion), marking a 4.2% increase.

Adjusted non-interest expenses decreased by 2% to C$4.88 billion ($3.57 billion), indicating a positive trend in expense management.

The adjusted efficiency ratio (excluding CCPB) improved to 58.3%, down from 59.7% as of October 31, 2023.

The provision for credit losses, when adjusted, was C$1.52 billion ($1.11 billion) during the reported quarter, representing a considerable rise compared to the previous year.

Loans & Deposits Rise for Bank of Montreal

As of October 31, 2024, BMO reported total assets of C$1.41 trillion ($1 trillion), which is an increase of nearly 1% from the end of the previous quarter.

The total net loans saw modest sequential growth to C$678.3 billion ($487.3 billion), while total deposits rose by 1.8% to C$982.4 billion ($705.8 billion).

BMO’s Profitability Ratios Decline, Capital Ratios Improve

For the fiscal fourth quarter, BMO’s return on common equity, as adjusted, was 7.4%, down from 12.4% on October 31, 2023. The adjusted return on tangible common equity was 9.7%, compared to 17.1% in the prior year's quarter.

As of October 31, 2024, the Common Equity Tier-I ratio increased to 13.6%, up from 12.5% a year prior. The Tier-I capital ratio also improved to 15.4%, compared to 14.1% from the previous year.

Our Take on Bank of Montreal

BMO’s ongoing focus on organic growth and business restructuring aims to support revenue generation in the near future. However, challenges such as high expenses and an unpredictable macroeconomic environment remain as obstacles to its performance.

Performance of BMO’s Peers

Toronto-Dominion Bank (TD - Free Report) reported disappointing fourth-quarter results with an adjusted net income of $3.2 billion ($2.34 billion), reflecting an 8% year-over-year decline. This drop was largely due to substantial increases in provisions for credit losses and rising expenses, despite improvements in net interest income, non-interest income, and higher loan balances.

Canadian Imperial Bank of Commerce (CM - Free Report) announced adjusted earnings per share of C$1.91, which is a 21.7% increase compared to the same quarter last year. CM's performance benefited from revenue growth and lower provisions, alongside increased loans and deposits. However, higher expenses posed a challenge.

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