Bank Of Montreal Q2 Earnings Call Highlights

Key Points

• Bank of Montreal delivered a strong second quarter, with adjusted EPS up 40% year over year to CAD 3.67 and record net income of CAD 2.7 billion. Management said the results show continued momentum toward its profitability and growth targets.
• Profitability and capital metrics improved, with adjusted ROE rising to 13.5%, CET1 at 13%, and the bank announcing a 5% dividend increase plus continued share buybacks. BMO also expects its efficiency program to generate about CAD 250 million in annualized savings.
• Performance was led by Wealth Management, Capital Markets, and U.S. banking, while commercial loan growth returned in both Canada and the U.S. Credit losses were stable, though consumer portfolios in Canada remain under pressure from higher insolvencies and unemployment.

Bank Of Montreal NYSE: BMO reported stronger second-quarter results for fiscal 2026, with management pointing to higher fee revenue, improved operating leverage and continued progress toward its profitability targets following the bank’s March Investor Day.

Chief Executive Officer Darryl White said the quarter demonstrated “meaningful progress and momentum” against BMO’s plan to elevate returns and accelerate growth. On an adjusted basis, BMO reported earnings per share of CAD 3.67, up 40% from a year earlier, and record net income of CAD 2.7 billion. Pre-provision pre-tax earnings rose 16% to CAD 4.4 billion.

White said the results were driven by deeper client relationships, innovation and performance optimization. He also noted broad-based fee revenue strength across Capital Markets, Wealth Management, and Treasury and Payment Solutions.

Profitability and capital metrics improve

Chief Financial Officer Rahul Nalgirkar said reported EPS was CAD 3.53 and reported net income was CAD 2.6 billion. His comments focused on adjusted results, consistent with the bank’s presentation.

Adjusted return on equity rose 370 basis points from a year earlier to 13.5%, while return on tangible common equity increased to 17.6%. Revenue rose 10%, or 12% on a constant-currency basis, while expenses increased 6%. BMO reported positive operating leverage of 4.1% and an efficiency ratio of 54.4%.

Nalgirkar said the bank remains on track with a previously announced efficiency program expected to generate approximately CAD 250 million in annualized savings, with half expected to be realized this year. He said BMO continues to expect mid-single-digit core expense growth for the full year and positive operating leverage for the remainder of the year.

BMO’s common equity tier 1 ratio was 13%, which Nalgirkar described as the higher end of the bank’s 12.5% to 13% target range. The bank repurchased 6 million shares during the quarter and announced a 5% dividend increase to CAD 1.71 per share.

White said the announced sale of BMO’s transportation and vendor finance businesses is expected to add 28 basis points to the CET1 ratio. Nalgirkar said the transaction is also expected to be accretive to ROE by about 30 basis points.

Segment performance led by Wealth, Capital Markets and U.S. banking

Canadian Personal and Commercial Banking net income rose 15%, reflecting 5% pre-provision pre-tax earnings growth and lower performing provisions for credit losses. Revenue increased 5%, supported by net interest income growth, margin expansion, loan growth and higher fee revenue, including commercial Treasury and Payment Solutions fees, mutual fund distribution fees and elevated card revenue.

White said Canadian P&C continued to execute a deposit-led client growth strategy, with core operating deposits up 7% in retail and 8% in commercial from a year earlier. He also said Canadian Personal and Business Banking delivered record mutual fund sales, up 49% year over year.

In U.S. banking, net income rose 30% year over year, and ROE increased 220 basis points to 9.3%. The segment generated record pre-provision pre-tax earnings of $924 million, up 9%. Revenue rose 5%, with higher net interest income from margin expansion partly offset by lower average balances tied to optimization actions.

White said U.S. banking reached an inflection point after several quarters of balance sheet optimization. He said the sale of the transportation and vendor finance businesses, along with a previously announced branch sale expected in the fourth quarter, effectively completes the bank’s U.S. balance sheet optimization program.

Wealth Management net income increased 39% from last year, driven by record wealth and asset management revenue, market appreciation, net sales growth and balance sheet growth. Capital Markets net income rose 46%, with record pre-provision pre-tax earnings of CAD 900 million. Nalgirkar said Capital Markets revenue increased 19%, supported by higher equities trading revenue and stronger advisory and equity underwriting fees.

Loan growth returns in commercial portfolios

Nalgirkar said average loans were up 1% year over year excluding the impact of a weaker U.S. dollar, while average deposits were flat. Commercial loans grew sequentially in both the U.S. and Canada, with balances up 4% and 2%, respectively. Consumer lending balances declined sequentially, mainly in Canada, due to lower card balances and muted mortgage growth amid slower housing activity.

During the question-and-answer session, Aron Levine, president of U.S. banking, said U.S. commercial loan growth was broad-based across commercial real estate, asset-based lending, diversified industries and geographies. He said BMO continues to target mid-single-digit loan growth for the rest of the year.

Levine also said the bank is seeing early progress in California and the broader West Coast business following investments in talent and the Bank of the West acquisition. He said BMO expects to open an average of one financial center per month in Southern California over the next six months, with a larger pace of openings expected in 2027 as part of a broader plan for 150 new centers over five years.

In Canadian Commercial Banking, Sharon Haward-Laird said the quarter marked an inflection point, with the first sequential loan growth of 2% in some time. She described growth as broad-based across industries and geographies, supported mostly by client growth and slightly higher utilization.

Margins expected to remain relatively stable

Nalgirkar said net interest income excluding markets was up 4% year over year, or 5% on a constant-currency basis. Net interest margin excluding markets was 229 basis points, up 12 basis points from a year earlier but down 4 basis points sequentially.

The sequential decline was driven mainly by higher levels of low-yielding liquid assets in corporate treasury, which Nalgirkar said reflected prudent liquidity management ahead of pending dispositions, debt maturities and geopolitical uncertainty. He said the higher liquidity levels created pressure on NIM but were largely neutral to ROE.

Looking ahead, Nalgirkar said BMO expects bank NIM to be relatively stable, with tailwinds from ladder reinvestments and deposit initiatives offset by balance sheet mix and higher liquidity levels.

Credit losses stable, consumer pressure persists

Chief Risk Officer Piyush Agrawal said total provisions for credit losses were stable from the prior quarter at CAD 739 million, or 45 basis points. Impaired provisions declined modestly to CAD 734 million.

Agrawal said credit performance was in line with expectations, though Canadian consumer portfolios continue to face pressure from elevated insolvencies and rising unemployment, particularly in certain regions including parts of the Greater Toronto Area. He said the pressure has translated into higher provisions in the unsecured portfolio.

At the same time, Agrawal said BMO’s residential mortgage portfolio continues to benefit from prudent underwriting and solid loan-to-value ratios. In response to analyst questions, he said the unsecured book is small for BMO and that the secured mortgage portfolio has low loan-to-value ratios and high credit scores.

Agrawal said BMO expects impaired provisions to remain in the mid-40-basis-point range over the next couple of quarters. He also said the bank remains well reserved, with CAD 4.7 billion of performing allowance and performing coverage of 69 basis points.

White closed the call by reiterating that the quarter showed disciplined execution against the plan presented at Investor Day, with momentum toward BMO’s goal of higher returns and faster growth.

About Bank Of Montreal NYSE: BMO

Bank of Montreal NYSE: BMO, commonly known as BMO Financial Group, is one of Canada's largest and longest-established banks. Founded in Montreal and headquartered in Montreal, Quebec, the bank provides a broad range of financial services to retail, commercial, corporate and institutional clients. BMO is publicly listed in both Canada and the United States and operates under a consolidated financial services model that integrates banking, capital markets, wealth management and asset management activities.

BMO's core businesses include personal and commercial banking—offering checking and savings accounts, lending, mortgages, and small-business services—alongside wealth management and private banking through its asset and investment management divisions.

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