BMO, Scotiabank open earnings season beating profit expectations

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Lower credit costs aided by an improving economic outlook helped both Bank of Montreal and Bank of Nova Scotia on Tuesday to deliver better-than-expected first-quarter earnings.

BMO said net income for the three-month period ended Jan. 31 was approximately $2 billion, an increase of 27 per cent compared to a year earlier. When adjusted for certain acquisition-related costs profit was still up 26 per cent, at around $2 billion.

On a per-share basis, BMO’s adjusted earnings for its fiscal first quarter clocked in at $3.06, up 27 per cent from the prior year. The consensus estimate of banking analysts had been for EPS of $2.15.

“All businesses performed well, particularly in our U.S. segment, which remains a key driver of diversified earnings growth now and in the future,” BMO CEO Darryl White said in a press release.

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BMO’s results were boosted by a sharp drop in the amount of money it had to set aside for possible loan losses. With the arrival of the coronavirus pandemic, banks had to hike those provisions for credit losses (PCLs) in order to guard against borrowers defaulting on their loans. However, PCLs for the quarter were $156 million for BMO, a year-over-year decrease of $193 million.

The first-quarter credit costs were helped by a $59-million recovery of PCLs on performing loans, or those that are still being paid back. The lender said the recovery “reflects an improving economic outlook and positive credit migration,” although that was largely offset by ongoing uncertainty about the future and the increased use of a bleaker scenario in calculating possible loan losses.

BMO also got a big lift from its U.S. personal and commercial banking unit, which saw net income rocket up by 66 per cent from the prior year, to $582 million. The lender said this was due to higher revenue, as well as lower expenses and credit costs, the latter being “primarily due” to fewer commercial provisions.

Scotiabank, meanwhile, said its first-quarter profit was nearly $2.4 billion, up three per cent from a year earlier.

When adjusted for various items, net income was $2.4 billion and earnings per share were $1.88, which was also an increase of three per cent compared to the prior year. Analysts had been expecting adjusted EPS of $1.57.

Like BMO, Scotiabank saw credit costs decline for its first quarter. PCLs were $764 million, down from $926 million a year earlier.

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Loan-loss provisions for performing loans ticked up on an adjusted basis because of the pandemic, “mostly offset by the more favourable macroeconomic outlook,” the bank noted in its investor presentation. Adjusted impaired loan PCLs fell, which the lender said reflected lower retail provisions taken in its Canadian banking unit “driven by lower delinquencies” among borrowers.

Scotiabank’s results were also helped by a strong quarter from its wealth-management and global banking and markets divisions, which reported year-over-year increases in earnings of 37 per cent and 46 per cent, respectively.

Wealth management results were powered in part by higher brokerage and mutual fund fees, while the capital-markets business saw strong fixed-income trading, mergers and acquisition activity and underwriting of share sales for clients.

However, net income from the bank’s international unit slid 21 per cent from a year earlier, to $389 million, as the lender’s results were affected by its sales of businesses abroad and increased credit costs.

“As we emerge from the pandemic, I am confident of continued strong performance across the bank,” said Brian Porter, president and CEO of Scotiabank, in a press release.

BMO and Scotiabank are the first of Canada’s Big Six lenders to report their first-quarter results. National Bank of Canada and Royal Bank of Canada are scheduled to report on Wednesday, followed by Canadian Imperial Bank of Commerce and Toronto-Dominion Bank on Thursday.

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