Key Points
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Quick loan request: BMO reported that loan closings nearly doubled from last year, with a strong commercial credit pipeline and continued client activity despite Canada-U.S. trade uncertainty.
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The answer is growing: Third-quarter ROE increased to 14% from 9.8% at the end of 2024, while revenue increased 11% and earnings per share increased 22%. BMO is targeting 15% ROE and 18% real return on equity by 2027.
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BMO prioritizes organic growth and efficiency: The bank is focused on improving profitability in its existing US operations rather than pursuing acquisitions, while investing in AI tools that support efficiency and is expected to generate annual pre-tax pre-provisions of C$1 billion by 2030.
Bank Of Montreal (NYSE: BMO) Chief Financial Officer Rahul Nalgirkar said the bank is seeing stronger client activity and loan demand despite uncertainty in Canada-US trade negotiations, while remaining focused on improving returns through core operating performance.
Speaking at an investor event, Nalgirkar said this year’s loan closings are almost double the previous year’s rate after 2025 is slower, with the commercial credit pipeline and client conversations remaining strong. He said clients seek greater confidence as trade negotiations progress, and BMO’s commercial banking presence in North America provides support for cross-border, supply chain and export needs.
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Nalgirkar said BMO’s third-quarter performance reflected continued execution on its investor day plan. The bank reported a return on equity of 14%, up from 9.8% at the end of 2024, representing an increase of around 220 basis points.
He said the improvements were broad-based, with all four BMO business units contributing to the expansion. Revenue increased 11% year over year, while pre-provision, pre-tax income increased 13% to a record C$4.5 billion. All four units reported record pre-provision, income before tax, he said. Earnings per share rose 22%, while the real return on common equity reached 18%.
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BMO is targeting 15% return on equity and 18% return on tangible common equity by the end of 2027. Nalgirkar said that approximately 50% to 60% of the improvement is still needed to reach the target that has been expected to come from the performance of core operations, including growth in fees and deposits and continued strength in private and commercial banking, wealth management and capital. The rest is expected to come from credit normalization and capital optimization.
US Banking and Capital Markets Priorities
The CFO said BMO’s US banking business generated a 9.8% return on equity and a 17.3% return on tangible common equity in the third quarter. US banking equity returns increased 90 basis points annually.
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He stated that the progress for action includes a unified operating structure, growth of core operating deposits, capital optimization, normalized provision for credit losses, technology investment and talent upgrade. The cost of transaction and payment services in the U.S. is rising about 14% annually, he said.
To achieve BMO’s 12% U.S. banking return-on-equity target, Nalgirkar said the remaining progress will be split evenly between fee growth, deposit growth, and other initiatives involving capital expenditure and allocation.
He added that the former Bank of the West operation has been fully integrated into BMO and is no longer operated as a separate brand. BMO is not prioritizing the acquisition of additional US banks or expansion into new geographic footprints, he said, as the focus is on lifting profitability in existing US operations.
In capital markets, BMO has generated nearly C$900 million in monthly pre-provision, pre-tax earnings so far this year, according to Nalgirkar. He said that 48% of capital market income comes from the US and 41% from Canada. While the market has been constructive, he said the business results also reflect multiyear investment in talent, technology, product capabilities and geographic diversification.
Credit, Deposit and Margin
Nalgirkar said BMO entered the fourth quarter from a position of credit strength, citing a 69-basis-point reserve coverage ratio. Gross impaired loans fell to 97 basis points, down about four to five basis points sequentially, with improvements in the commercial and consumer portfolios in Canada and the U.S.
He said direct rate-related exposure represents a manageable and immaterial part of the portfolio. The bank focuses more on the secondary effects of trade uncertainty on economic growth and unemployment. BMO expects impairment provisions in the fourth quarter to remain in the 40 basis point range, with a path to mid to 30 in 2027.
While it was reported that total deposits were flat year over year, Nalgirkar said core operating deposits increased by 8%. The bank deliberately allowed US certificates of deposit and Canadian term deposits to open when loan growth was muted, he said. BMO’s focus remains on growing operating deposits and improving the deposit mix despite competition.
Looking ahead, Nalgirkar said net interest margins are expected to remain stable, although the bank does not expect the same expansion seen before. BMO prioritizes net interest income growth over loan growth and stable margins.
Capital Investment and Technology
BMO ended the third quarter with a common equity ratio of 13% and expects pending transactions to increase by about 50 basis points. Nalgirkar said the bank continues to see an operating range of 12.5% to 13% as prudent, although it could run slightly below that if loan demand meets return thresholds or if it returns more capital to shareholders.
The bank is also investing in artificial intelligence tools to create customer experience, support employees and automate processes. Nalgirkar noted his insurance underwriting tool, SmartDecision, which cuts underwriting time from weeks to minutes. He said AI-related benefits are now weighted toward efficiency, with revenue opportunities expected to grow over time. BMO continues to target C$1 billion in pre-provision, pre-tax income benefits from these initiatives by 2030.
Information about the company Bank Of Montreal (NYSE:BMO)
Bank of Montreal, operating under the BMO Financial Group brand, is a diversified financial services company headquartered in Montreal, Quebec. Founded in 1817, it is one of the largest banks in Canada and serves individuals, businesses, institutions and governments through operations in Canada and the United States.
BMO’s personal and commercial banking businesses provide deposit accounts, mortgages, consumer loans, credit cards, investment products and financial planning services. The bank also offers commercial lending, treasury management and other banking solutions for businesses of all sizes.
Through BMO Wealth Management, the company provides investment management, personal banking, financial planning and related consulting services.
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The article “BMO Sees Loan Demand Surge as Returns Rise Toward 2027 Targets” was originally published by MarketBeat.
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