BMO Q2 Profit Nearly Doubles on Lower Provisions, Beat Estimates

Bank of Montreal (BMO), Canada’s fourth-largest bank, is kicking off Canada’s Big Banks Q2 earnings reporting with a solid performance. The bank beat profit estimates, mainly due to a sharp drop in bad debt provisions and a return to profitability from its capital markets activity.

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BMO Financial Group CEO Darryl White said the Canadian bank and its operating groups performed very well in the second quarter.

Revenue for the quarter increased 15.6% to C$6.08 billion from C$5.26 billion a year earlier. Net income ended April 30 rose to C$1.3 billion, up 88.7% from C$689 million a year earlier. Adjusted net income climbed to C$2.1 billion (C$3.13 per share) in Q2 2021, handily beating analysts’ expectations of C$2.75 per share.

Capital markets profits rose to C$563 million, a sharp reversal from a loss of C$74 million in the same quarter last year when the bank suffered trading losses in its structured products business.

One of the biggest factors driving the strong results has been falling provisions for credit losses. Indeed, BMO only set aside C$60 million in the quarter, compared to $1.12 billion in Q2 2020.

Darryl White said, “For the first half of the year, adjusted pre-provision pre-tax earnings of $5.5 billion increased 27% from a year ago, driven by revenue growth of 11% reflecting the benefits of our diversified business model, and very strong operating leverage. We enter the second half of the year with strong momentum.”

“We are continuing to build a strong, competitive bank, allocating capital to businesses that are positioned to grow and deliver strong returns, and we are highly focused on continuously improving our performance. Return on equity increased to 16.7%, we improved our efficiency ratio to 56.6% and strengthened our CET1 ratio to 13.0%, all underpinned by our strong balance sheet and differentiated risk and credit performance,” added White.

BMO announced a dividend of C$1.06 per common share for the third quarter of 2021, the same amount as for the previous quarter and the last fiscal year. (See Bank of Montreal stock analysis on TipRanks)

Last week, Scotiabank analyst Meny Grauman reiterated a Buy rating on BMO while lifting its price target to $137.00 (from $126.00), for 11% upside potential. Grauman raised its price target as she believes a higher valuation is justified, thanks to a strong post-pandemic economic recovery.

The rest of the Street is cautiously optimistic about BMO with a Moderate Buy consensus rating based on 7 Buys, 1 Hold, and 1 Sell. The average analyst price target of C$128.59 implies 4% upside potential to current levels.

TipRanks’ Smart Score

BMO scores an 8 out of 10 on TipRanks’ Smart Score rating system, indicating that the stock is likely to outperform the overall market.