Investing.com — Scotiabank (TSX:BNS) and Bank of Montreal (TSX:BMO) both delivered better-than-anticipated third-quarter results this week, underscoring renewed investor confidence in the resilience of Canada’s financial sector. Shares of Scotiabank surged 5.3% on Tuesday, while BMO gained 3.2%, after each lender reported earnings above analyst expectations, supported by improved credit performance and operating leverage.
Bank of Nova Scotia posted adjusted EPS of C$1.88, well ahead of the C$1.73 consensus, helped by better-than-forecast provisions for credit losses and strong earnings growth in Wealth Management and Capital Markets. Operating leverage turned firmly positive, supported by a 13.4% year-over-year increase in revenue and a CET1 ratio that edged up 10 basis points to 13.3%.
“This is a very strong quarter as we continue to execute on our strategy,” said Scott Thomson, Scotiabank’s CEO. “We reported improving revenue growth which helped drive another quarter of positive operating leverage and pushed our return on equity meaningfully higher compared to the prior year.” Adjusted ROE rose to 12.4% from 11.3%, while the bank repurchased 3.2 million shares under its 20 million NCIB program.
Revenue and margin trends were particularly strong at Scotiabank, where average net interest margin expanded 5 basis points to 2.36%, aided by core deposit growth in Canadian and international banking. Non-interest income also grew, supported by higher mutual fund fees, trading revenues, and wealth management performance, helping to lift group efficiency ratio to 53.7% from 56.0% a year ago.
Bank of Montreal posted adjusted earnings of C$3.23 per share, beating estimates of C$2.96. Although the bulk of the beat was attributed to significantly lower provisions for performing loans, particularly in the U.S., management emphasized improved credit quality and operating discipline across its North American franchise.
Darryl White, BMO CEO, highlighted the strength of its U.S. commercial and wholesale lending businesses, calling them “a power alley for us.” He added, “I think what we’re seeing is a combination of some macro factors… But specifically for us, I see this as a really interesting and positive short term reset.” The bank’s U.S. business saw net income rise 51%, with positive signals on credit migrations and asset-quality trends.
Analysts took a nuanced view of the results. Jefferies noted that BMO’s earnings quality was mixed, with several business lines slightly missing expectations and credit recoveries inflating headline EPS. At Scotiabank, Barclays and BMO Capital Markets pointed to strength across most core franchises, though impaired loan formation ticks higher in certain markets tempered the outlook.