Net Profit Decline Can't Hide Core Momentum! Bank of Montreal (BMO.US) Q3 Adjusted Profit Beats Expectations, Plans to Launch Share Buyback Program for Up to 25 Million Shares

According to Zhitong Finance APP, Bank of Montreal (BMO.US) in Canada delivered a "superficially impacted, fundamentally improving" financial report for the latest fiscal quarter: net profit declined year-on-year due to one-off items such as the sale of its transportation and vendor finance business, but adjusted earnings per share and revenue both exceeded market expectations, and all business segments posted record pre-provision, pre-tax profits. The bank also announced plans to launch a share repurchase program for up to 25 million shares in the third quarter.

According to BMO’s financial results released for the third fiscal quarter ended July 31, net profit reached C$1.75 billion (approximately US$1.26 billion), or C$2.38 per share; by comparison, net profit in the same period last year was C$2.33 billion, or C$3.14 per share. The main reason for the decline in net profit was a series of one-time items, including a charge of C$962 million related to the sale of the transportation and vendor finance business, and C$10 million in costs from exiting 138 branches in the U.S.

However, on an adjusted basis used by the bank to reflect underlying business performance, BMO’s adjusted earnings per share for the third fiscal quarter were C$3.96, higher than analysts’ previous estimate of C$3.77. Total revenue for the quarter rose by 10% year-on-year to C$9.9 billion, also beating analysts’ expectations of C$9.73 billion. Net interest income edged up 1.3% to C$5.57 billion, while non-interest income saw a substantial increase of 24% to C$4.33 billion.

Record Results Across Business Segments; Momentum Continues in Capital Markets and Wealth Management

BMO CEO Darryl White stated that all business divisions achieved record pre-provision, pre-tax profits. In the earnings statement, he noted sustained momentum in capital markets and wealth management, and robust commercial loan growth in Canada and the U.S.

By segment, BMO’s U.S. banking division posted adjusted net profit of C$925 million, exceeding the average analyst estimate of C$846 million; capital markets posted adjusted net profit of C$649 million, also beating the average expectation of C$601 million. Global markets revenue reached C$1.34 billion, up 27% year-on-year, continuing North American banks' strong performance in equity trading and related areas.

BMO’s capital markets business has conventionally focused on equity trading. According to a recent report by National Bank of Canada analyst Gabriel Dechaine, large U.S. banks generally saw substantial growth in equity trading revenue in the three months ended June; BMO’s positioning in this sector allowed it to benefit from this trend.

In terms of credit performance, BMO’s credit loss provisions for the third fiscal quarter totaled C$722 million, lower than the previous quarter’s C$739 million and the C$797 million reported a year earlier, as well as analysts’ prior expectation of C$780 million. Both quarter-over-quarter and year-over-year declines in credit provisions indicate the bank’s asset quality is stabilizing and the credit environment is improving. White attributed this to the bank’s proactive risk management and diversified portfolio.

BMO’s Common Equity Tier 1 (CET1) ratio stood at 13%, unchanged from the prior quarter, slightly below last year’s 13.5%, but still well above the Canadian regulator’s 11% minimum requirement for large banks.

Due to goodwill impairment charges related to the sale of its transportation and vendor finance business, BMO’s return on equity (ROE) for the quarter narrowed to 8.4% from 11.6% a year earlier. However, on an adjusted basis, ROE rose to 14%, close to the bank’s target of reaching 15% by 2027.

Alongside the earnings report, BMO announced a Normal Course Issuer Bid (NCIB) to repurchase up to 25 million common shares. The bank plans to submit the notice to the Toronto Stock Exchange and aims to initiate the one-year buyback program around September 8.

U.S. Business Focus and Strategic Adjustments

The U.S. business has been central to BMO’s strategic realignment in recent years. The bank consolidated all U.S. operations into a single unit, exited some lower-profit loan portfolios, and sold several bank branches to focus resources on priority regions like California. The U.S. banking unit’s adjusted net profit exceeded expectations for the third fiscal quarter, indicating that these adjustments are gradually showing results.

Jefferies analyst John Aiken commented in a report that the strong performance of BMO’s U.S. retail banking unit is an “obvious positive,” meaning the outperformance is not solely dependent on wealth management and capital markets. He expects investors to respond positively to the report.

Additionally, BMO continued to expand its business footprint this quarter. The bank extended operations in Australia and, by acquiring the capital markets business of consulting firm Euroz Hartleys Group, strengthened its position in metals and mining. Earlier this month, BMO and Royal Bank of Canada (RBC) agreed to sell their jointly-owned payments platform Moneris for C$2 billion to technology investment firm Francisco Partners. These actions highlight BMO’s strategy of optimizing its asset portfolio and focusing on core competencies.

Peer Comparison: Scotiabank Also Beats Expectations

On the same day, Scotiabank (BNS.US) also released results that surpassed expectations. For the third fiscal quarter, Scotiabank reported adjusted earnings per share of C$2.28, exceeding market expectations of C$2.01; net income attributable to shareholders was C$2.91 billion, also above the C$2.63 billion expected by analysts.

Scotiabank CEO Scott Thomson called it “a record-breaking quarter for the bank, with all business lines reporting strong results.” Its international division posted earnings of C$725 million, beating the average estimate of C$629 million; capital markets earned C$647 million, far exceeding the C$514 million average estimate and increasing 37% year-on-year. Aiken called this an “unexpectedly strong” result, but also cautioned, “While we believe the market will respond positively to Scotiabank’s earnings, the 8% beat may not be fully reflected in its valuation.”

Scotiabank’s credit loss provisions for the third fiscal quarter came to C$1.08 billion, lower than the market expectation of C$1.13 billion, also pointing to a stabilizing credit environment. The bank is advancing a strategic transformation under Thomson’s nearly three-year tenure, including cost reduction, centralized management of international operations, the sale of some Latin American assets, and increased investment in the U.S., such as buying into Cleveland-based KeyCorp (KEY.US).

The earnings reports from BMO and Scotiabank have set a positive tone for the latest earnings season among Canada’s Big Six banks. Both banks benefited from active capital markets, improving U.S. and international businesses, and lower credit loss provisions. Of particular note, capital markets’ strong performance continued the trend from the previous quarter, reflecting ongoing robust trading activity in North American markets and significant revenue growth in equities and fixed income.

In terms of stock performance, Canada’s Big Six banks have generally risen this year, but individual stock gains have varied. BMO, benefiting from the initial success of its U.S. business restructuring, ranks among the top peers in share performance; Scotiabank has also risen along with the sector, but its gains have lagged some of its counterparts. As earnings season progresses, the market will closely watch whether other major Canadian banks can maintain this trend of outperforming expectations.