Bank of Montreal Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Earnings and ROE: Third quarter earnings per share increased 22% to $3.23 and net income of $2.4 billion was the highest quarter on record. Return on equity improved to 12% for the quarter. CET1 ratio of 13.5% remains strong.
• Business Highlights: Canadian Personal banking saw customer growth with BMO checking account growth nearly double the industry benchmark. Canadian Commercial Banking had broad-based loan and deposit growth. U.S. P&C had continued momentum in PPPT growth. BMO Wealth Management had record revenue in Wealth and Asset Management. BMO Capital Markets had strong underwriting and advisory fees.
• Acquisition: Announced acquisition of Burgundy Asset Management to expand wealth management and financial planning capabilities.
• Organizational Changes: Restructured U.S. banking and Canadian P&C leadership to accelerate performance, with Aron Levine leading U.S. Personal, Business, Commercial, and Wealth management; Matt Mehrotra and Sharon Haward-Laird leading Canadian segments.
• Digital and AI: Launched LUMI Assistant, an AI-powered tool, and received the 2025 Celent Model Bank award for payments innovation.

Segment Performance

• Canadian P&C: Net income down 5% year-over-year. Revenue of $3.1 billion was up 6%, driven by higher net interest income, partially offset by lower noninterest revenue. Expense growth of 7% reflected higher technology and employee-related costs.
• U.S. P&C: Net income increased by 42% with strong PPPT growth of 10%, positive operating leverage of 5% and lower PCLs. Revenue growth was driven by higher deposit margins, more than offsetting lower deposit and loan balances and higher deposit fee revenue in both Personal and Commercial Banking.
• BMO Wealth Management: Net income was up 21% from last year, driven by strong revenue in Wealth and Asset Management, up to 11% from higher markets, continued growth in net sales and higher loans and deposits.
• BMO Capital Markets: Net income was up 12%, driven by PPPT growth of 3% and lower PCLs. Revenue was up 7%, reflecting good performance in Global Markets, driven by increases in debt and equity underwritings and higher trading revenue.
• Corporate Services: Net loss was $123 million, reflecting higher revenue in the current quarter, partially offset by higher retained expenses.

Guidance

• ROE Target: Aiming for 15% medium-term ROE for BMO and 12% for U.S. P&C. Year-to-date, progress towards these targets is visible with ROE improving to 12% and U.S. P&C ROE at 7.5% year-to-date.
• Operating Leverage: Anticipate continued positive operating leverage, with a commitment to efficiency ratio improvement. Year-to-date positive operating leverage of 4.7% achieved.
• Capital Optimization: Completed share repurchases during the quarter, with intention to initiate a new normal course issuer bid in September pending regulatory approval for up to 30 million shares.

Risks

• Economic Uncertainty: Trade-related risks, geopolitical challenges, impact of tariffs and fiscal policy on the North American economy.
• Credit Risks: Uncertainty around trade policies, fiscal developments, and unemployment trends affecting credit performance. Idiosyncratic credit issues in commercial real estate in Canada were noted.
• Portfolio Risk: Some credit formations in commercial real estate portfolios, requiring proactive management.

Question and Answer

• Q: About U.S. loan and revenue growth outlook, de-banking, etc. A: Darryl and Aron discuss U.S. loan growth, ROE optimization, and integration of Personal, Business, Commercial, and Wealth management businesses in the U.S.
• Q: U.S. Credit recovery and ROE target. A: Piyush and Aron talk about credit migration in the U.S., positive macroeconomic outlook, and plans to achieve 12% ROE for U.S. P&C.
• Q: Operating leverage and PCLs. A: Tayfun and Piyush discuss ongoing commitment to positive operating leverage, expense management, and PCL trends in different geographies.