BMO reports surge in provisions, higher earnings

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BMO Financial Group on Thursday reported another quarterly surge in provisions for potential loan losses and announced plans to repurchase up to 20 million shares of its common stock.

The Toronto-based bank’s provisions for credit losses totaled $1.5 billion Canadian dollars ($1 billion) during its fiscal fourth quarter, more than three times what it set aside in the same quarter last year.

BMO’s “overall results were impacted by elevated provisions,” but the bank expects provisions “to moderate through 2025 as the business environment improves,” CEO Darryl White said in a press release.

In a research note, analyst John Aiken of Jefferies wrote that “provisions came in significantly higher than expectations as BMO appears to be trying to clear the decks.” 

Net income for the quarter, which ended Oct. 31, was CA$2.3 billion, up from CA$1.7 billion in the year-ago period. Earnings per share were CA$2.94, falling short of analysts’ expectations of CA$3.44, according to S&P Capital IQ.

On an adjusted basis, which includes acquisition and integration expenses and other items, earnings were CA$1.90 a share, below analysts’ expectations of CA$2.39 a share according to S&P Capital IQ.

Full-year 2024 provisions totaled CA$3.8 billion, up from CA$2.2 billion in 2023. 

White warned on a conference call in August that the company had not topped out on credit costs. On the same call with analysts, Chief Risk Officer Piyush Agrawal said the company expected provisions for at-risk loans to keep putting pressure on profits for the rest of the year, but that costs aren’t indicative of underlying issues with the bank’s underwriting.

BMO’s U.S. business, which expanded with the 2023 acquisition of Bank of the West in San Francisco, had a challenging quarter. Net income for the U.S. personal and commercial banking segment was CA$256 million, down 57% year over year, the company said. 

Revenue for business south of the border was impacted by lower net interest margins and higher provisions of potentially souring loans, primarily in commercial banking, the bank said. 

BMO also announced Thursday that it would establish a normal course issuer bid to buy back as many as 20 million common shares. The deal, which would allow BMO to buy the shares for the purpose of cancellation, must be approved by the Office of the Superintendent of Financial Institutions and the Toronto Stock Exchange, the company said. 

When the buybacks happen and how many shares are repurchased depend on regulatory approvals and management discretion based on market conditions and capital levels, BMO said.

In another boost for shareholders, BMO increased its first quarter dividend by 5% from a year ago to CA$1.59.

Overall, revenue was almost CA$9 billion, up from CA$8.3 billion a year ago and beating analysts’ expectations of CA$8.4 billion, according to S&P Capital IQ. The gains came in part from the reversal of accrued interest on a fiscal 2022 legal provision. 

“Revenue increased in Canadian [Personal and Commercial Banking] and BMO Wealth Management, and decreased in Corporate Services, BMO Capital Markets and U.S. P&C,” BMO said.

Net interest income rose 10% from a year ago to CA$5.4 billion, while noninterest revenue gained 4.2% to CA$3.5 billion.

BMO’s Common Equity Tier 1 ratio rose to 13.5% from 12.5% a year ago.

BMO shares were down 1.4% to $93.89 in premarket trade on the New York Stock Exchange.