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Bank of Montreal (BMO) Q3 Earnings Improve, Revenues Rise

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Bank of Montreal (BMO - Free Report) reported third-quarter fiscal 2017 (ended Jul 31, 2017) net income of C$1.4 billion ($1.1 billion), up 11.4% from the prior-year quarter.

The rise was primarily driven by robust growth in the top line. Also, lower provisions were on the positive side. However, rise in expenses continued to weigh on the results. Profitability ratios also showed weakness.

Results reflected decent performance by Personal and Commercial Banking as well as the Capital Market segments. Notably, profits in the Canadian Personal and Commercial Banking segment jumped 9% while in the U.S. profits from the segment remained flat year over year. Profits were down 8% year over year in the Capital Market segment.

Revenues, Expenses Depict a Rise, Provisions Decline

Total revenues (on an adjusted basis), net of insurance claims, commissions and changes in policy benefit liabilities (CCPB), amounted to C$5.21 billion ($3.94 billion), up 5.3% year over year. The rise was driven by growth in net interest income.

Net interest income rose 2.4% year over year to C$2.5 billion ($1.92 billion). Non-interest income came in at C$2.9 billion ($2.22 billion), down 7.4% year over year.

Adjusted non-interest expenses climbed 6.5% year over year to C$3.22 billion ($2.44 billion). Adjusted efficiency ratio, net of CCPB, was 63% at the quarter-end compared with 62.6% as of Jul 31, 2016. Rise in efficiency ratio indicates a lower profitability.

Total provision for credit losses declined 47.9% year over year to C$134 million ($101.5 million).

Balance Sheet Position

Total assets declined 1.4% sequentially to C$708.6 billion ($569.3 billion) as of Jul 31, 2017. Further, net loans and acceptances declined 1.4% from the prior month to C$375.8 billion ($301.9 billion) while deposits decreased 3.1% sequentially to C$473.1 billion ($380.1 billion).

Profitability Declines While Capital Ratios Improve

Return on equity, as adjusted, came in at 13.3% in the reported quarter, down marginally from 13.5% as of Jul 31, 2016.

As of Jul 31, 2017, common equity Tier I ratio came in at 11.2% compared with 10% in the year-ago quarter. Tier I capital ratio was 12.9%, up from 11.2% as of Jul 31, 2016.

Our Viewpoint

Bank of Montreal exhibited a decent 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 supported by strong capital position will help it gain investors’ confidence. However, mounting expenses continue to strain the company’s profitability.

Bank Of Montreal Price and EPS Surprise

Bank of Montreal currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Performance of Other Foreign Banks

Royal Bank of Canada (RY - Free Report) reported third-quarter fiscal 2017 (ended Jul 31, 2017) net income of C$2.8 billion ($2.1 billion), down 3% from the prior-year quarter.

Itau Unibanco Holding S.A. (ITUB - Free Report) posted recurring earnings of R$6.2 billion ($1.9 billion) in second-quarter 2017, up 10.7% year over year. Including non-recurring items, net income came in at R$6.0 billion ($1.87 billion), up 9.1% year over year.

HSBC Holdings (HSBC - Free Report) reported net profit attributable to shareholders of $4 billion, up 55% from the year-ago quarter in second-quarter 2017.

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