Bank Of Montreal Q3 Earnings Call Highlights

Key Points

• BMO reported strong adjusted third-quarter results: Adjusted EPS rose 22% year over year to C$3.96, adjusted net income reached a record C$2.9 billion, and adjusted ROE improved to 14%. Reported results were reduced by a C$973 million charge tied largely to planned business divestitures.
• Broad-based growth drove performance: Revenue increased 11%, while Wealth Management net income rose 22% and Capital Markets net income surged 45%. Canadian and U.S. banking operations also posted higher earnings, supported by fee growth, lending expansion and lower credit provisions.
• Capital and credit remain solid, but risks persist: BMO’s CET1 ratio held at 13%, with planned asset sales expected to add roughly 50 basis points, and the bank proposed repurchasing up to 25 million shares. Credit provisions declined modestly, though elevated consumer insolvencies and potential tariff-related weakness remain risks.

Bank Of Montreal NYSE: BMO reported higher third-quarter adjusted earnings as broad-based revenue growth, lower credit provisions and record pre-provision, pre-tax earnings across its operating segments supported improved returns.

Chief Executive Officer Darryl White said adjusted earnings per share rose 22% from a year earlier to C$3.96, while pre-provision, pre-tax earnings increased 13% to C$4.5 billion. Adjusted net income was a record C$2.9 billion. Reported earnings per share were C$2.38 and reported net income was C$1.8 billion, reflecting a C$973 million charge largely related to goodwill associated with the planned sale of its Transportation Finance and Vendor Finance businesses.

BMO’s adjusted return on equity reached 14%, up 200 basis points year over year, while return on tangible common equity rose 240 basis points to 18%. White said the bank remains confident it can achieve a sustainable 15% return on equity as it exits fiscal 2027.

Revenue Growth and Capital Position

Chief Financial Officer Rahul Nalgirkar said revenue increased 11% year over year, aided by growth in wealth-management fees, debt underwriting, transaction payment services fees and lending fees. Non-interest revenue rose 26%, or 15% excluding trading revenue.

Net interest income excluding markets increased 5% from a year earlier. Net interest margin excluding markets was 2.26%, up five basis points year over year but down three basis points sequentially. Nalgirkar attributed the sequential decline primarily to higher balances of low-yielding liquid assets and lower corporate net interest income, while saying margin trends in Canadian personal and commercial banking and U.S. banking remained resilient.

Expenses increased 9%, or 6% excluding foreign exchange impacts and higher performance-based compensation. The bank’s efficiency ratio improved to 54.9%, and it generated positive operating leverage of 1.6%.

BMO’s common equity tier 1 ratio remained at 13%. The bank said its announced sales of 138 U.S. branches outside its core footprint, the Transportation Finance and Vendor Finance businesses, and Moneris Canada are expected to add 50 basis points to the CET1 ratio when completed. Management said the businesses being sold did not meet its long-term growth and return objectives.

The company also announced a proposed normal course issuer bid for up to 25 million additional shares, representing about 3.6% of shares outstanding, beginning in September subject to regulatory approval.

Business Segment Performance

Canadian personal and commercial banking net income increased 15% from a year earlier, supported by 7% growth in pre-provision, pre-tax earnings and lower provisions for credit losses. Operating deposits grew 7%, while Canadian commercial lending rose 3% year over year. Transaction payment services fee growth in Canadian commercial banking was 13%.

In the U.S. banking business, net income increased 9% year over year, with return on equity rising 90 basis points to 9.8% and return on tangible common equity reaching 17.3%. U.S. commercial loan balances rose 4% sequentially after the bank completed balance-sheet optimization efforts, according to management. Core consumer operating deposits increased about 3%.

Aron Levine, president of U.S. Banking, said the business’s path toward a 12% return on equity is driven roughly equally by client balance growth, fee-income growth, and efficiency gains and credit-loss normalization. U.S. transaction payment services revenue grew 15% year over year, following 23% growth in the prior year, he said.

Wealth Management net income rose 22%, as wealth and asset management revenue increased 24% on stronger markets and growth in net new assets, deposits and loans. Long-term mutual fund sales and exchange-traded fund flows each increased 19% from the prior year.

Capital Markets net income climbed 45%, while pre-provision, pre-tax earnings reached a record C$903 million, up 39%. Revenue increased 20%, led by a 27% increase in Global Markets revenue, including strong equities trading activity. Investment and corporate banking revenue increased 10%, supported by corporate banking and debt underwriting.

White said the earnings capacity of the capital-markets business is higher than it was historically, citing investments in capabilities in North America and internationally. Alan Tannenbaum, CEO and group head of BMO Capital Markets, pointed to investments in people, technology and product breadth, as well as contributions from equity derivatives, issuance, commodities and metals-and-mining advisory activity.

Credit Trends and Trade Outlook

Total provisions for credit losses declined to C$722 million from C$739 million in the preceding quarter. Impaired provisions fell C$26 million to C$708 million, or 41 basis points. Chief Risk Officer Piyush Agrawal said Canadian personal and commercial impaired losses declined by C$30 million, largely due to lower losses in unsecured retail portfolios.

Agrawal said consumer insolvencies remain elevated, though the bank has seen signs of stabilization following risk-management actions. Gross impaired loans were C$6.8 billion, or 97 basis points of loans, down four basis points from the prior quarter. Commercial watchlist balances declined by C$1 billion.

The bank expects fourth-quarter impaired provisions to be in line with third-quarter levels and maintained its fiscal 2026 credit guidance. It held C$4.8 billion of performing allowances, representing 69 basis points of coverage on performing loans.

Management said recently announced tariffs could create downside risks for Canadian growth, employment and business investment, but Agrawal said BMO does not view the development as a broad-based credit event at present. Direct exposure to trade disruption is less than 1% of the loan book, with a significant portion tied to investment-grade borrowers, he said.

White said BMO’s priority remains organic growth and disciplined capital deployment, with share repurchases considered after meeting client lending demand and investment needs. He said the bank would consider U.S. acquisitions only under strict conditions, including that a transaction supports regional scale and does not delay its return-on-equity targets.

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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