Solid Start to 2022 for Bank of Montreal, With Revenue Growth Handily Outpacing Expense Growth

Narrow-moat rated Bank of Montreal reported excellent fiscal first-quarter earnings. Adjusted earnings per share were CAD 3.89, representing year-over-year growth of 27%. The bank was able to record another provisioning benefit, meaning credit costs were a net benefit during the quarter. Adjusted net revenue was up 12%, a strong result, driven by decent loan growth, some positive margin movement within the loan book, and continued strong fee income from investment banking. While revenue was coming in relatively strong, so were expenses. Adjusted expenses were up 7% year over year. This still led to 18% adjusted pre-provision pretax earnings growth. While these initial results are generally ahead of where we expected the bank to be, we do not plan to make any material adjustments to our current fair value estimates of CAD 148/USD 115 just yet, as we wait for at least one more quarter of results in this uncertain environment. We will note that Canadian bank names are generally reacting much less to the current situation than U.S. bank stocks. We’ve highlighted in the past that Canadian banks tend to be more stable names overall, and we believe they have much less rate risk exposure.