BMO Q4 Earnings Slip, Stock Rises on Optimistic 2025 Provision Outlook

On the New York Stock Exchange, shares of Bank of Montreal (BMO) saw an impressive increase of 8.5% following the announcement of their fourth-quarter fiscal 2024 results, which ended on October 31. This surge can be attributed to management's forecast that provisions for credit losses have peaked in the reported quarter, leading investors to adopt a more bullish outlook on the stock. After experiencing a considerable uptick in provisions throughout the year, BMO is projecting that these provisions will stabilize in fiscal 2025.

For the fourth quarter of fiscal 2024, adjusted earnings per share dropped significantly to C$1.90, marking a 35.2% decline compared to the previous year, largely due to a substantial increase in provisions for credit losses. Additionally, net interest income faced a downturn. However, BMO benefitted from a rise in non-interest income, an increase in loan and deposit balances, and a reduction in expenses, which provided some support.

After accounting for non-recurring items, the bank's net income reached C$2.3 billion (approximately $1.68 billion), reflecting a 34.7% increase from the same quarter last year.

Revenue Growth and Expense Efficiency

Adjusted total revenues, net of insurance claims, commissions, and policy benefit changes (CCPB), amounted to C$8.37 billion ($6.13 billion), showing a slight rise year over year.

Despite a 2.1% decline in net interest income to C$4.85 billion ($3.55 billion), non-interest income grew by 4.2% to reach C$3.52 billion ($2.58 billion). Furthermore, adjusted non-interest expenses decreased by 2% to C$4.88 billion ($3.57 billion).

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

Provision for credit losses, on an adjusted basis, jumped to C$1.52 billion ($1.11 billion) in the reported quarter, a marked increase from the previous year.

Growing Loans and Deposits at Bank of Montreal

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

Total net loans saw a 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).

Profitability and Capital Ratios

BMO recorded an adjusted return on common equity of 7.4% for the fourth quarter, a drop from 12.4% reported on October 31, 2023. The adjusted return on tangible common equity also fell to 9.7% from the previous year's 17.1%.

On a positive note, the Common Equity Tier-I ratio improved to 13.6%, up from 12.5% a year ago, and the Tier-I capital ratio increased to 15.4%, compared to 14.1% in the previous year.

Outlook for Bank of Montreal

BMO's strategic focus on organic growth and business restructuring is expected to bolster revenues in the upcoming period. However, high expenses and an unpredictable macroeconomic environment could pose challenges.

Comparative Performance of Banking Peers

The results for Toronto-Dominion Bank (TD) in its fourth quarter of fiscal 2024 were less favorable. The bank reported an adjusted net income of $3.2 billion ($2.34 billion), an 8% decrease from the prior year.

Increased provisions for credit losses and higher expenses negatively impacted TD’s performance, notwithstanding a rise in net interest income, non-interest income, and loan balances.

Canadian Imperial Bank of Commerce (CM) posted adjusted earnings per share of C$1.91, showing a 21.7% increase from the previous year. Its positive results were due to improved revenues and lower provisions, although higher expenses also affected the outcomes.

BMO, earnings, stocks