Bank of Montreal (BMO) has reported a significant increase in first-quarter earnings compared to the previous year, despite a notable rise in its credit-loss provision. However, revenue growth fell short of market expectations.
Financial Highlights
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Net Income: BMO recorded net income of 1.29 billion Canadian dollars ($956.6 million), or C$1.73 per share, for the fiscal quarter, a substantial increase from the previous year’s C$133 million, or C$0.14 per share.
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Adjusted Basis: On an adjusted basis, reflecting the ongoing business performance, BMO reported earnings of C$2.56 per share for the three months to Jan. 31. This figure was below the consensus forecast of C$3.02 by analysts.
Revenue Growth and Performance
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Overall Revenue: Total revenue for the period saw a significant 50% increase to C$7.67 billion.
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Net Interest Income: Net interest income rose to C$4.72 billion from C$4.02 billion a year ago, slightly missing the market’s expectation of C$4.94 billion.
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Noninterest Revenue: Noninterest revenue climbed to C$2.95 billion, a substantial increase from C$1.08 billion in the same period the previous year, albeit slightly below the market expectation of C$3.3 billion.
The results were influenced by various one-off items, such as a loss of C$1.46 billion related to BMO’s acquisition of Bank of the West in the previous year and managing the impact of interest rate changes during the deal announcement and closure.
Despite some challenges, BMO’s strong performance and notable earnings growth showcase its resilience in navigating the market landscape.
Bank of Montreal’s Credit Losses Increase Significantly
The Bank of Montreal, one of Canada’s largest lenders, reported a total provision for credit losses of C$627 million, representing a substantial increase from the C$217 million set aside the previous year to account for potential losses due to credit risk.
Impaired Loans See Significant Increase in Provisions
The provision for credit losses specifically on impaired loans amounted to C$473 million, marking a C$277 million rise from the previous year. This increase was attributed to higher provisions across all of Bank of Montreal’s business lines.
Analysts Monitor Credit Performance amidst Economic Slowdown
Analysts are closely monitoring the banks’ credit performance in light of risks in commercial real estate and the slowing North American economies. There are expectations of heightened stresses in consumer lending as Canadians face renewing mortgages at higher interest rates following a series of central bank rate increases.
Strong Credit Quality Despite Rising Provisions
Bank of Montreal’s common equity tier 1 ratio stood at 12.8% for the quarter, with the bank emphasizing that its credit quality remains well managed and supported by robust underwriting practices. The country’s banking regulator decided against increasing capital requirements late last year, maintaining the CET1 target for major banks at no less than 11.5% of risk-weighted assets.