BMO Reports Strong Q3 Results

Even While Provisioning Remains Elevated

Eric Compton 26 August, 2020 | 8:33AM

Bank Locker

Narrow-moat-rated Bank of Montreal (BMO) reported fairly strong third-quarter results, exceeding S&P Capital IQ consensus estimates. The bank managed to grow net revenue by 4% year over year, while expenses were down 2%, leading to an increase in preprovision pretax earnings of 12%. All things considered, this is a strong result, as lower interest rates and a more difficult economic backdrop have not managed to slow BMO down with its core earnings power. Provisioning remained elevated, coming in at a little over $ 1 billion, fairly close to second-quarter results, and still elevated compared with a prepandemic run rate of roughly $ 150 million to $ 300 million a quarter. Even with elevated provisioning, adjusted net income was only down about 20% year over year. We were already expecting another large reserve build in the current quarter, and barring a further deterioration in the macro environment, we wouldn’t be surprised to see provisioning trend lower for the next several quarters. There is, of course, a high degree of uncertainty here that will depend on the path of the virus and the economy. The adjusted return on tangible common equity came in at 11%, which is not bad, all things considered. Bank of Montreal's common equity Tier 1 ratio increased to 11.6% from 11% last quarter, as risk-weighted assets flowed off the balance sheet and internal profits both helped increase the ratio. Based on these results, we don’t expect to materially change our $72 ($ 100) fair value estimate for Bank of Montreal.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Bank of Montreal97.76 CAD0.44

About Author

Eric Compton

Eric Compton  Eric Compton is an equity analyst for Morningstar,

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