The Bank of Nova Scotia and Bank of Montreal ended their 2020 fiscal years on a relative high note, as both lenders reported on Tuesday fourth-quarter earnings that were better than expected, albeit still buffeted by the coronavirus pandemic.
Toronto-based Scotiabank reported a profit of nearly $1.9 billion for the three-month period ended Oct. 31, a decrease of 18 per cent for the same quarter a year earlier. When adjusted for acquisition and divestiture-related costs, Scotiabank’s net income of the fourth quarter was about $1.94 billion and its earnings per share were $1.45, down from $1.82 a year ago.
BMO reported net income of approximately $1.58 billion for its fourth quarter, up 33 per cent from a year ago. When adjusted for certain costs, the bank’s net income was $1.6 billion and its earnings per share were $2.41, down two cents from the previous year’s quarter.
Although a decline from their 2019 fourth quarters, the banks’ adjusted earnings per share beat analysts’ expectations. The consensus estimate for Scotiabank had been $1.22 in adjusted EPS, while BMO’s was $1.91.
Moreover, credit costs eased for both BMO and Scotiabank in the fourth quarter when compared to the third, helping to improve earnings on a quarter-over-quarter basis. Scotiabank’s fourth-quarter profit was up 46 per cent from the third quarter, and BMO’s was up 28 per cent.
“The bank delivered improved earnings in the fourth quarter with strong operating results to end a year marked by high loan loss provisions driven by the global pandemic,” said Brian Porter, president and CEO of Scotiabank, in a press release. “We are encouraged by progress towards a vaccine and we remain cautiously optimistic about the year ahead.”
Tuesday’s results begin another earnings season for Canada’s six largest banks. And as has been the case since the pandemic hit, the driving force behind the financial results at Scotiabank and BMO — the country’s third and fourth-biggest banks, respectively — was COVID-19.
For instance, both lenders reported that full-year profits were down from 2019. Scotiabank’s 2020 net income was approximately $6.85 billion, down from nearly $8.8 billion for the previous fiscal year. BMO said its full-year profit dipped to just shy of $5.1 billion, compared to about $5.76 billion for 2019.
Those lower profits are due in large part to the banks having to increase their loan-loss reserves in the face of the pandemic and its related economic effects, both of which have weighed on borrowers. They have also weighed on lenders, which use economic forecasts in determining how much money to set aside for possible loan losses.
Scotiabank’s provisions for credit losses were $1.13 billion for the fourth quarter, compared to $2.18 billion in the third quarter and $753 million a year ago. The bank said that the sequential improvement was driven by lower provisions on performing loans, or those still being paid back, because of an improving macroeconomic forecast and credit quality.
Total provisions for credit losses at BMO were $432 million in the fourth quarter, up from $253 million a year earlier, but down from $1.05 billion it set aside in the third quarter.
“The prior quarter provision for credit losses was largely due to the impact of the extraordinary and highly uncertain environment on credit conditions, the economy and scenario weights, while the current quarter provision for credit losses was primarily due to a more severe adverse scenario, partially offset by an improving economic outlook and reduced balances,” BMO said in its fourth-quarter report.
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