Bank of Montreal Just Able to Grow NII in First Quarter; Closes Bank of the West Acquisition

Narrow-moat Bank of Montreal reported satisfactory fiscal first-quarter earnings. Adjusted earnings per share were CAD 3.22, representing a year-over-year decline of 17%, primarily driven by higher expenses and higher provisioning. Bank of Montreal was able to grow adjusted revenue sequentially once again, and more importantly, adjusted net interest income was also able to grow sequentially. So far (half way through Canadian bank earnings), Bank of Montreal is the only Canadian bank to pull this off. Management stuck to its outlook for positive operating leverage for the year along with slowing expense growth in the second half of 2023. With results generally coming in close to our expectations and no major changes to the expected benefits from the recently closed (Feb. 1) Bank of the West acquisition, we do not expect to make a material change to our fair value estimate of CAD 144/USD 107. The bank seems set to go through a transitionary period of cost savings and one-time charges before reaching its true profitability potential. Cost savings should be finished in around a year, while management expects revenue synergies to be more apparent by the end of 2025.