Improved credit performance drives stronger earnings
BMO Financial Group reported $2.3 billion in fourth quarter profit and announced a higher dividend as improvements in its U.S. loan portfolio helped reduce provisions for bad loans. Provisions for impaired loans in the U.S. division fell to $209 million, compared with $446 million a year earlier.
Chief risk officer Piyush Agrawal said credit performance is improving as the bank works through weaker files and expects impaired balances to continue declining over time.
Branch realignment and hiring boost U.S. expansion
BMO has made the U.S. a key growth priority following its US$16.3 billion acquisition of Bank of the West in 2023. Over the past year, the bank has hired more than 100 commercial bankers and private advisers to support new lending opportunities.
The company is also restructuring its branch footprint, selling 138 branches in slower-growth markets while opening 150 in higher-potential regions over the next five years. As a result, U.S. earnings surged to $807 million in the quarter, up from $281 million a year ago.
Return on equity still below long-term target
Adjusted return on equity improved to 11.3% from last year’s 9.8%, but remains short of BMO’s goal of 15%+. CEO Darryl White told analysts any future acquisitions will only be considered if they help accelerate that profitability target.
“We are rebuilding ROE together with profitable earnings growth,” said White, noting the target could be reached within three to five years depending on market conditions.
Capital markets strength and dividend increase
Capital markets posted $521 million in quarterly earnings, up from $251 million last year, helping offset rising provisions in Canadian retail banking.
Total quarterly revenue grew to $9.34 billion from $8.96 billion, and provisions for credit losses dropped by nearly half to $755 million. Adjusted earnings of $3.28 per share surpassed expectations of $3.03.
BMO increased its quarterly dividend to $1.67 per share, up four cents, and announced the appointment of Tammy Brown — former KPMG Canada deputy chair — to its board of directors.
