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Bank of Montreal (BMO) Q4 Earnings Impress, Shares Up 3.6%

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Zacks Equity Research
·4 min read
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Bank of Montreal's BMO fourth-quarter fiscal 2020 (ended Oct 31) adjusted net income came in at C$1.61 billion ($1.22 billion), slightly up year over year.

The results reflect a significant rise in revenues. However, elevated provisions and expenses were on the downside. Moreover, loan and deposit balances declined.

The positive factors, along with encouraging management commentary — “We entered the year in a strong position with good momentum across our businesses. Throughout the challenges brought on by the pandemic we have been on the front line of the economic recovery, supporting our customers, communities and employees through uncertainty and hardship” — seem to have led to bullish investor sentiments. The stock gained 3.6% on the NYSE, following the release of the company’s results.

After considering non-recurring items, net income was C$1.58 billion ($1.19 billion), up 32.8% from the prior-year quarter.

For the fiscal year ended Oct 31, 2020, adjusted net income came in at C$5.2 billion ($3.9 billion), down 16.1% from the prior year.

Revenues Up, Expenses Escalate

Total revenues (on an adjusted basis) — net of insurance claims, commissions and changes in policy benefit liabilities (CCPB) — amounted to C$6 billion ($4.54 billion), up 4.3% year over year.

Net interest income grew 5.1% year over year to C$3.53 billion ($2.67 billion). Non-interest income came in at C$2.46 billion ($1.86 billion), down 9.6% from the prior-year quarter.

Adjusted non-interest expenses inched up 1.7% year over year to C$3.52 billion ($2.66 billion).

Adjusted efficiency ratio — net of CCPB — was 58.7%, down from 60% as of Oct 31, 2019. A fall in the efficiency ratio indicates improvement in profitability.

Provision for credit losses surged 70.8% year over year to C$432 million ($327 million).

Loans & Deposits Decline

Total assets decreased 2.5% from the prior quarter to C$949.3 billion ($712.4 billion) as of Oct 31, 2020. Further, total net loans were down 1.1% sequentially to C$458.5 ($344.1 billion), while total deposits declined slightly to C$659 billion ($494.6 billion).

Steady Profitability and Capital Ratios

Return on equity — as adjusted — came in at 12.6% for the fiscal fourth quarter compared with 13.5% on Oct 31, 2019. Adjusted return on tangible common equity was 14.5%, up from the prior year’s 11.9%.

As of Oct 31, 2020, common equity Tier I ratio was 11.9%, up from the year-ago period’s 11.4%. Tier I capital ratio was 13.6% compared with the previous year’s 13%.

Our Take

Bank of Montreal’s focus and efforts align with its organic and inorganic growth strategies, and anticipated to boost revenues in the upcoming period. 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 and EPS Surprise

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

Bank of Montreal currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.


Competitive Landscape

Barclays BCS reported third-quarter 2020 net income attributable to ordinary equity holders of £611 million ($789 million) against the net loss recorded in the prior-year quarter. Results were primarily hurt by an increase in credit impairment charges as well as lower revenues. Moreover, a rise in operating expenses was a major headwind.

UBS Group AG UBS reported third-quarter net profit attributable to shareholders of $2.09 billion, up significantly from the prior-year quarter’s $1.05 billion. The company’s performance was supported by a rise in net fee and commission income (up 8% year over year) along with a rise in net interest income (up 39%). Nonetheless, higher expenses posed as a headwind.

HSBC Holdings’ HSBC third-quarter 2020 pre-tax profit of $3.1 billion marked a decline of 36.4% from the prior-year quarter’s reported number. The company recorded lower revenues in the quarter along with a decline in expenses. Capital ratios were decent.

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