BMO Loan Closings Nearly Double as ROE Climbs to 14%

Bank of Montreal (NYSE:BMO) nearly doubled its loan closings this year compared with the prior year, Chief Financial Officer Rahul Nalgirkar told an investor event, signaling accelerating credit demand even as Canada-U.S. trade negotiations cloud the outlook.

Nalgirkar said commercial lending pipelines and client conversations remain strong following a slower 2025. Clients are seeking greater confidence as trade talks progress, and BMO's North American commercial banking presence positions it to support cross-border, supply-chain and export-related needs, he said.

Returns improving across all four units

The bank reported third-quarter return on equity of 14%, up from 9.8% at the end of 2024 — an improvement of about 220 basis points. Revenue rose 11% year over year, while pre-provision, pre-tax income climbed 13% to a record C$4.5 billion. Earnings per share grew 22%, and return on tangible common equity reached 18%.

Nalgirkar said all four of BMO's business units contributed to the expansion and each reported record pre-provision, pre-tax income. The performance reflects continued execution against the plan the bank outlined at its investor day, he said.

BMO is targeting 15% return on equity and 18% return on tangible common equity by the end of 2027. Nalgirkar said 50% to 60% of the remaining improvement should come from core operating performance, including fee and deposit growth plus continued strength in personal and commercial banking, wealth management and capital markets. Credit normalization and capital optimization account for the rest.

U.S. banking drives the turnaround

The U.S. banking business generated a 9.8% return on equity and 17.3% return on tangible common equity in the third quarter, with U.S. ROE improving 90 basis points year over year. Nalgirkar attributed the progress to a unified operating structure, core operating deposit growth, capital optimization, normalized credit provisions, technology investments and talent upgrades. U.S. transaction and payment services fees rose about 14% year over year.

To reach the 12% U.S. banking ROE target, Nalgirkar said the remaining progress will be divided roughly evenly among fee growth, deposit growth, and other initiatives covering costs and capital allocation.

The former Bank of the West operations are fully integrated into BMO and no longer operate as a separate brand, he said. BMO is not prioritizing additional U.S. bank acquisitions or expansion into new geographic footprints, choosing instead to lift profitability in its existing U.S. operations.

In capital markets, BMO has generated nearly C$900 million in quarterly pre-provision, pre-tax income so far this year. 48% of capital-markets revenue comes from the U.S. and 41% from Canada. While markets have been constructive, Nalgirkar said the results also reflect multiyear investments in talent, technology, product capabilities and geographic diversification.

Credit strength and deposit mix

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 roughly four to five basis points sequentially, with improvements across commercial and consumer portfolios in both Canada and the U.S.

Tariff-related direct exposures represent a manageable and immaterial portion of the portfolio, he said. The bank is watching possible secondary effects of trade uncertainty on economic growth and unemployment instead. BMO expects impaired provisions in the fourth quarter to remain in the low-40-basis-point range, with a path toward the mid- to high-30s in 2027.

Reported total deposits were flat year over year, but core operating deposits increased 8%. Nalgirkar said BMO deliberately let U.S. certificates of deposit and Canadian term deposits run off while loan growth was muted. The bank now aims to grow operating deposits and improve its deposit mix despite ongoing competition.

Net interest margins should remain resilient, though Nalgirkar said the bank does not expect the same magnitude of expansion seen previously. BMO is prioritizing net interest income growth through loan growth and stable margins.

Capital and AI

BMO ended the third quarter with a 13% common equity tier 1 ratio and expects pending transactions to add about 50 basis points. The bank views a 12.5% to 13% operating range as prudent, though it could operate slightly below the upper end if loan demand meets return thresholds or if it returns more capital to shareholders, Nalgirkar said.

The bank is investing in artificial intelligence tools to personalize customer experiences, support employees and automate processes. Nalgirkar cited the SmartDecision insurance underwriting tool, which cut underwriting time from weeks to minutes. AI benefits are currently weighted toward efficiency, with revenue opportunities expected to grow over time. BMO continues to target C$1 billion in annual pre-provision, pre-tax income benefits from these initiatives by 2030.

With loan demand rebounding, ROE up 220 basis points in three quarters and all four units posting record pre-provision earnings, BMO's path to its 2027 targets rests on execution rather than deals — a stance that will be tested if trade uncertainty starts to weigh on the economic growth its borrowers depend on.