Bank of Montreal's Quarterly Earnings Fall Short of Expectations Amid Rising Loan Loss Provisions
The Bank of Montreal (BMO) recently reported its fiscal fourth-quarter results, which showed a rise in profits compared to last year, but still missed analyst expectations by a significant margin. For the quarter ending on October 31, BMO posted a profit of $2.3 billion, or $2.94 per share, which is a substantial increase from the $1.71 billion, or $2.19 per share, it earned in the same quarter of 2023. While the overall profit is up, when adjusted for certain items, the bank’s earnings per share were $1.90—falling short of the $2.41 per share analysts had anticipated.
The main reason behind this miss was the significant increase in provisions for credit losses. These are funds that banks set aside to cover potential defaults on loans, and in this case, BMO allocated $1.52 billion in provisions, much higher than the $446 million set aside in the same quarter the previous year. A large portion of this increase was linked to the bank’s U.S. commercial loan portfolio, especially after its acquisition of Bank of the West in 2023. This spike in provisions reflects growing concerns over the risk of defaults, particularly in commercial banking.
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Despite this, BMO's CEO, Darryl White, noted that the bank had achieved strong pre-provision, pre-tax earnings growth across all its business segments in 2024. He also emphasized that the higher loan loss provisions were a temporary factor and that the bank expects provisions to moderate as the economic environment improves throughout 2025. However, the higher provisions still impacted several areas of the bank’s business.
The Canadian personal and commercial banking division saw a profit of $750 million for the quarter, down 18% from the same period last year. This was due to a combination of lower non-interest revenue, higher expenses, and increased provisions for credit losses. However, loan balances and deposits both saw solid year-over-year growth, with loan balances up by 6% and deposits increasing by 10%.
On the U.S. side, profits from BMO’s U.S. personal and commercial banking business dropped by 57% to $256 million, as revenue fell and provisions rose, particularly for loans in commercial banking. BMO’s wealth management business also experienced a slight decline, reporting a profit of $326 million, down 7% from last year. Additionally, capital markets profits fell 47% to $251 million, due to lower revenues, higher expenses, and again, increased provisions for credit losses.
Despite these challenges, BMO did announce a 3% increase in its quarterly dividend, raising it to $1.59 per share. This shows the bank's commitment to returning value to shareholders even in the face of a tougher economic environment.
In the broader context, BMO is one of the first of Canada's big banks to report its Q4 results, and the trends in its earnings reflect the challenging environment facing the banking sector. Rising credit losses, particularly in the wake of increased loan defaults, have weighed heavily on banks’ results, even as they continue to deliver revenue growth. Investors and analysts will be closely watching how other major banks, including RBC, Scotiabank, and TD, report their results in the coming days.
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