- Bank of Montreal (TSX:BMO) posted net income of C$1.865 billion in Q3 2024 highlighted by increased activity in its capital markets and Canadian banking segments
- Read on to learn why the stock offers a mixed bag of green and red flags towards a long-term allocation
- BMO is the eighth-largest bank in North America by assets with C$1.4 trillion as of April 30, 2024
- BMO stock has given back 0.77 per cent year-over-year, but has gained 24.03 per cent since 2019
Bank of Montreal (TSX:BMO) posted net income of C$1.865 billion in Q3 2024 highlighted by increased activity in its capital markets and Canadian banking segments.
Year-over-year financial highlights for Q3
- Net income of $1.865 billion, up from C$1.565 billion, with adjusted net income of C$1.981 billion, down from C$2.148 billion.
- Reported earnings per share (EPS) of C$2.48, up from C$2.12, with adjusted EPS of C$2.64, down from C$2.94.
- Provision for credit losses (PCL) of C$906 million, up from C$492 million. This includes PCL on impaired loans of C$828 million, up by C$495 million because of higher provisions in U.S. personal and commercial banking, Canadian personal and commercial banking and BMO Capital Markets.
- Return on equity (ROE) of 10 per cent, up from 9 per cent, with adjusted ROE of 10.6 per cent, down from 12.5 per cent.
- Common equity tier 1 (CET1) ratio of 13 per cent, up from 12.3 per cent year-over-year and down from 13.1 per cent in Q2 2024, with internal capital generation more than offset by higher source currency risk-weighted assets.
- A Q4 dividend of C$1.55 per common share, representing an increase of C$0.08 or 5 per cent year-over-year.
Year-to-date highlights against 2023
- Net income of C$5.023 billion, up from C$2.727 billion, with adjusted net income of C$5.907 billion, down from C$6.492 billion.
- Reported EPS of C$6.57, up from C$3.56, with adjusted EPS of C$7.78, down from C$8.88.
- PCL of C$2.238 billion, up from C$1.732 billion on a reported basis and C$1.027 billion on an adjusted basis.
- ROE of 9 per cent, up from 5.1 per cent, with adjusted ROE of 10.7 per cent, down from 12.7 per cent.
Business segment performance in Q3
- Canadian personal and commercialbanking reported net income of C$914 million, up by C$33 million or 4 per cent year-over-year, driven by a 7 per cent increase in revenue and higher net interest income because of balance growth and higher margins, offset by higher expenses and a higher provision for credit losses.
- U.S. personal and commercial banking took in net income of C$470 million, down by C$32 million or 6 per cent year-over-year, driven by lower revenue stemming from a decrease in non-interest revenue and a higher provision for credit losses, offset by lower expenses.
- BMO Wealth Management reported net income of C$362 million, down by C$34 million or 9 per cent year-over-year. Wealth and asset management generated net income of C$300 million, up by C$91 million or 44 per cent, reflecting higher revenue from strong markets and growth in client assets. Insurance net income was C$62 million, down by C$125 million year-over-year, owing to changes in portfolio positioning during the transition to IFRS 17.
- BMO Capital Markets reported net income of C$389 million, up by C$94 million or 32 per cent year-over-year, thanks to higher revenue in global markets and investment and corporate banking because of higher trading, underwriting and advisory, as well as corporate banking-related revenue.
- Corporate services took a net loss of C$270 million, up from a loss of C$509 million year-over-year, owing to lower acquisition and integration costs and tax impacts from 2023.
Leadership insights
“This quarter, BMO delivered strong pre-provision, pre-tax earnings and met our commitment to positive operating leverage for the quarter and year-to-date, reflecting good cost discipline and the sustained strength of our operating performance,” Darryl White, Bank of Montreal’s chief executive officer, said in a statement. “While the cyclical increase in credit costs has resulted in loan loss provisions above our historical range, performance has been supported by operating momentum across our diversified businesses, including continued revenue growth in Canadian personal and commercial banking and stronger client activity in our market-sensitive businesses. Across our U.S. markets, we’re adding new customers and expanding capabilities, contributing to consistent pre-provision, pre-tax earnings in our U.S. segment.”
“With our strategic goals firmly in place, a strong balance sheet, robust capital and liquidity, we are well-positioned to deliver sustainable returns to our shareholders. How we live our purpose, to boldly grow the good in business and life, continues to be recognized, including being named to Corporate Knights’ ranking of Canada’s Best 50 Corporate Citizens for the 23rd consecutive year,” White added.
The case for investing in BMO stock today
When it comes to evaluating BMO for your portfolio, we must examine the bank’s historical track record for indications about what to expect in the future. Overall, the results are a mixed bag.
Green flags for a long-term allocation include:
- A 5 per cent compound annual growth rate (CAGR) on the dividend, rising from C$2.80 per year in 2009 to C$6.20 in 2024. BMO is the longest-running dividend paying company in Canada at more than 195 years.
- Robust growth potential in the United States as a top 10 bank by assets (US$441 billion) backed by a physical presence in 32 states, a digital presence in 50 states, an integrated business model and leadership positions in RV/marine lending, wine & spirits and equipment finance.
- More than 30-year historical average credit loss rates below peer banks.
- A customer deposits CAGR of 11.7 per cent between 2016 and Q2 2024.
The bank is also waving a number of red flags taking away from its investment prospects, including:
- A 46 per cent return over the past decade, slightly underperforming the TSX’s approximately 50 per cent return over the period.
- Highly variable profitability on a net income basis, including C$13.5 billion in 2022 and C$4.3 billion in 2023.
- Intense competition from fellow members of Canada’s Big Six banks, including Royal Bank of Canada, TD Bank, Scotiabank, CIBC and National Bank.
BMO is guiding for annual EPS growth of 7-10 per cent and at least a 15 per cent cumulative return on equity over the next three to five years, making anything more than modest expectations for the stock difficult to substantiate.
About Bank of Montreal
BMO is the eighth-largest bank in North America by assets with C$1.4 trillion as of April 30, 2024. The bank has been operating for more than 200 years and serves more than 13 million customers across Canada, the United States and select international markets.
BMO stock (TSX:BMO) opened with a loss of 5.18 per cent, trading at C$113.19 per share. The stock has given back 0.77 per cent year-over-year, but has gained 24.03 per cent since 2019.
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(Top photo of Bank of Montreal’s first net-zero energy branch in Kitchener, Ontario: Bank of Montreal)