Bank Of Montreal (BMO) Stock Up 2.9% As Q3 Earnings Rise

ADRs of Bank of Montreal (TO:BMO) gained nearly 2.9% following the release of its third-quarter fiscal 2016 (ended Jul 31) results before the opening bell on Tuesday. Adjusted earnings of C$1.94 per share compared favorably with C$1.86 earned in the prior-year quarter. Moreover, adjusted net income came in at C$1.3 billion ($1 billion), up 5.3% year over year.

Results benefited primarily from robust growth in the top line. However, rise in expenses and higher provisions continued to weigh on the results. Profitability ratios also showed weakness. Nonetheless, growth in loans and total assets remained impressive.

Results reflected solid performance by Personal and Commercial Banking as well as the Capital Market segments. Notably, profits in the Canadian and U.S. Personal and Commercial Banking segments jumped 1% and 22% year over year, respectively while the profits were up 18% year over year in the Capital Market segment.

After considering certain non-recurring items, net income summed C$1.25 billion ($0.96 billion), up 4.4% year over year.

Revenues, Expenses & Provisions Depict A Rise

Total revenue (on an adjusted basis), net of insurance claims, commissions and changes in policy benefit liabilities (“CCPB”), amounted to C$4.94 billion ($3.81 billion), up 7.2% year over year. The rise was driven by growth in net interest income as well as non-interest income.

Net interest income rose 11.1% year over year to C$2.5 billion ($1.93 billion). Non-interest income came in at C$3.2 billion ($2.47 billion), up 21.5% year over year.

Adjusted non-interest expenses climbed 3.5% year over year to C$3.03 billion ($2.34 billion). Adjusted efficiency ratio, net of CCPB, stood at 61.2% at the quarter-end compared with 63.4% as of Jul 31, 2015. Fall in efficiency ratio indicates a rise in profitability.

Total provision for credit losses grew 60.6% year over year to C$257 million ($198.4 million).

Strong Balance Sheet

Total assets rose 1.5% sequentially to C$691.7 billion ($530.2 billion) as of Jul 31, 2016. Further, net loans and acceptances rose 2.9% from the prior month to C$364.1 billion ($279.1 billion), while deposits increased 5.2% sequentially to C$467.8 billion ($358.6 billion).

Profitability Declines While Capital Ratios Improve

Return on equity, as adjusted, came in at 13.5% in the reported quarter, down marginally from 14.0% as of Jul 31, 2015.

As of Jul 31, 2016, common equity Tier I ratio came in at 10.5% while the Tier I capital ratio was reported at 11.8%, both rising 10 basis points year over year.

Our Viewpoint

Bank of Montreal exhibited a strong quarterly performance. Focus and efforts were aligned with the company’s organic and inorganic growth strategies, and are expected to boost revenues, going forward. Also, the stock’s steady capital-deployment activities will help it gain investors’ confidence. However, mounting expenses and a stringent regulatory environment continue to strain the company’s profitability.

Bank of Montreal currently carries a Zacks Rank #2 (Buy).

Other Foreign Banks

Among other foreign banks, The Royal Bank of Scotland (LON:RBS) Group plc (TO:RBS) reported second-quarter 2016 (ended Jun 30) loss attributable to its shareholders of £1.08 billion ($1.55 billion). The company had posted a profit of £280 million in the prior-year quarter. Reduced net interest and non-interest income was a major drag. However, adjusted operating expenses decreased due to prudent expense management.

Deutsche Bank AG (NYSE:DB) reported net income of €20 million ($22.6 million) in the second quarter of 2016, significantly down on a year-over-year basis. Lower revenues and higher provisions negatively impacted the results. However, the reduction in non-interest expenses was a positive factor.

Brazil’s ItauUnibanco Holding S.A. (NYSE:ITUB) posted second-quarter 2016 recurring earnings of R$5.58 billion ($1.59 billion), down 9% year over year. Including non-recurring items, net income came in at R$5.52 billion ($1.57 billion), down 7.7% year over year. Results displayed decreased managerial financial margin along with lower revenues from insurance, pension plans and capitalization operations. Additionally, the increase in non-interest expenses was a headwind.