Bank of Montreal, Scotiabank both beat expectations, are optimistic about 2021

Bank of Montreal and Scotiabankboth kicked off first-quarter results from Canada's big banks on Tuesday by beating expectations.

Both banks said economicrecoveries driven by the rollout of coronavirus vaccines willboost performance into the year, though BMO executives also said that U.S. clients are benefiting from a faster vaccine rollout compared with Canada.

BMO Financial Group reported its first-quarter profit was up compared with a year ago, before the pandemic began, as clients found ways to make their loan payments.

BMO beat expectations as it reported a profit of nearly $2.02 billion or $3.03 per diluted share for the quarter ended Jan. 31, up from $1.59 billion or $2.37 per diluted share in the same period a year earlier.

Businesses weathering the storm, BMO says

The profit came as BMO's provisions for credit losses for the quarter amounted to $156 million, down from $349 million a year ago and $432 million in the fourth quarter of its 2020 financial year.

"We typically don't lend to people that can't weather storms," chief risk officer Patrick Cronin told a conference call with financial analysts.

Cronin gave the example of a restaurant that was able to break even on revenue during lockdown restrictions through takeout, delivery, cost-cutting, government support and cash reserves.

"I wouldn't argue that they're thriving by any stretch. But you know, we're seeing real stability and, in some cases, improvement in credit metrics, as they figure out ways to weather the storm. That's leading to fairly low loss rate."

Chief executive Darryl White noted that over 40 per cent of total bank earnings came from the U.S. segment of the business, calling it a key driver of future earnings growth.

White said that the U.S. has made "good progress" on the rollout of the COVID-19 vaccine, and that the bank has raised its expectations for economic growth south of the border. The bank said that 43 per cent of total adjusted net income was from the U.S., 51 per cent was from Canada, and six per cent was from elsewhere.

Executives said that they are still positive on the Canadian business in the longer-term, but that Canada may "lag" the U.S. when it comes to the job market recovery amid a slower pace of vaccination.

Revenue for the quarter totalled nearly $6.98 billion, up from nearly $6.75 billion in the first quarter last year.

A 'strong beat' for bank earnings

On an adjusted basis, BMO says it earned $3.06 per diluted share, up from an adjusted profit of $2.41 per diluted share in the same quarter last year.

Analysts on average had expected an adjusted profit of $2.15 per share for the quarter, according to financial data firm Refinitiv.

Barclays analyst John Aiken said in a research note that the lower-than-forecast provisions underpinned a "very strong beat" for the bank's earnings, but noted that BMO's wealth management business also had a solid quarter and that the capital markets business was strong.

Net income from BMO's wealth management business rose 23 per cent from the same period a year ago, while capital markets net income rose 36 per cent, the quarterly financial report said.

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More than a million Canadians are still under- or unemployed as a result of COVID-19, but the crisis also allowed others, who were easily able to work from home, save more money.

White said the company is adding mortgage specialists to its staff, as well as growing the team for its online brokerages amid unprecedented demand and record transaction volumes.But healso noted that the company is streamlining and digitizing branch operations.

On the conference call, chief financial officer Tayfun Tuzun also said that controlling expenses remains an ongoing focus for the company, noting that some areas of the business had lower employee costs, partially offset by higher technology-related costs.

Despite the better-than-expected adjusted profits announced on Tuesday, Cronin noted that the bank is keeping an eye on new COVID-19 variants.

"A potential adverse case includes ... slower rollout of a vaccine that tips those borrowers that are barely hanging on into delinquency. Or, a worst case, where virus variants push us back into a situation that looks more like last March," Cronin said.

"Those aren't our base case. But the risk of those felt higher to us quarter-over-quarter."

Scotiabankearns $2.4B

Meanwhile, Scotiabank topped expectations as it reported a first-quarter profit of nearly $2.40 billion, up from nearly $2.33 billion.

The bank says the profit amounted to $1.86 per diluted share for the quarter ended Jan. 31, up from an adjusted profit of $1.84 per diluted share a year earlier.

Revenue totalled $8.07 billion, down from $8.14 billion.

Provisions for credit losses for the quarter amounted to $764 million, down from $926 million a year ago.

Although many of Scotiabank's Latin American markets saw thehit of the pandemic later than North America, it cited a"favourable macroeconomic outlook" as a driver of lowerprovisions for credit losses, particularly overseas.

The bank, which saw bad loans climb in some overseasmarkets, notably Peru, has enough reserves to cover expected
increases in impaired loans in the second and third quarters,its executives said on a call.

On an adjusted basis, Scotiabank says it earned $1.88 per diluted share, up from an $1.83 per diluted share in the same quarter last year.

Analysts on average had expected an adjusted profit of $1.57 per share, according to financial data firm Refinitiv.