Bank of Montreal Q4 2025 Earnings Call: Diverging Views on Loan Growth, ROE Strategy, and U.S. Tax Impact

Date of Call: December 4, 2025

Financials Results

• Revenue: Revenue increased 12% year-over-year (total amount not disclosed)
• EPS: Adjusted EPS $3.28 per diluted share, up from $1.90 a year ago; reported EPS $2.97
• Gross Margin: Net interest margin (ex-trading) 2.06% (206 bps), up 7 bps sequentially; all-bank NIM widened 15 bps YoY
• Operating Margin: Efficiency ratio 56.3%, improved 230 bps YoY; positive operating leverage of 4% for FY2025 and 3% in Q4

Guidance:

• Expect core expense growth to be mid-single-digit in 2026 (includes upfront CAD 225M Q1 charge).
• Q1 2026 to include a CAD 225M restructuring charge (deliver CAD 250M annualized savings; ~half realized in 2026).
• Anticipate positive operating leverage for 2026 despite the Q1 charge.
• Impaired PCL expected to remain in the mid-40 basis points range, with quarterly variability.
• Effective tax rate expected 25%–26%.
• Continue share buybacks while maintaining CET1 target (~12.5% management target).
• 
  NIM expected to remain relatively stable given current rate expectations.

Business Commentary:

• ROE Improvement and Financial Performance:
• BMO Financial Group reported an adjusted ROE of 11.8% for Q4 2025, marking a 150 basis points increase from the previous year.

• The improvement in ROE was driven by disciplined execution, achieving record net income of $9.2 billion and EPS growth of 26%.

• Operating Performance and Efficiency:

• BMO's operating performance was strong, with PPPT (pre-provision and pre-tax) earnings up 18% to CAD 15.8 billion.

• This was supported by disciplined expense management, resulting in a 56.3% efficiency ratio.

• Risk Management and Credit Quality:

• Impaired provisions moderated from Q4 2024 to 44 basis points in Q4 2025.

• Allowances were built during the year to account for a slower economy and trade uncertainty, indicating proactive risk management.

• Digital Transformation and AI Strategy:

• BMO introduced a GenAI productivity tool to enhance employee productivity and is integrating AI solutions across the bank.
• This strategy aims to optimize efficiencies and business growth through strategic investments in data, risk governance, and talent.

Sentiment Analysis:

Overall Tone: Positive

• Management highlighted strong 2025 results: "EPS growth of 26% and record net income of $9.2 billion," ROE improvement (full-year ROE +150 bps to 11.3%, Q4 exit 11.8%), positive operating leverage and continued buybacks/dividend increase—signals of constructive momentum and confidence in outlook.

Q&A:

• Question from Paul Holden (CIBC): Given 11.3% ROE in 2025, is the 15% ROE target realistic by 2027 or should we expect a longer timeline?
  Response: 15% remains the medium-term target (defined as 3–5 years); management hopes to reach the early part of that range assuming a constructive environment.

• Question from John Aiken (Jefferies): How comfortable is management breaking ranks with peers by moving the CET1 ratio below 13% (toward 12.5%) before others do?
  Response: 12.5% is the management target after considering regulatory minimums, macro backdrop, and peer distribution; management is comfortable that 12.5% is prudent.

• Question from Ibrahim Punawalla (Bank of America): On commercial loan growth (ex-optimization), are you seeing signs U.S. tax policy is driving investment/hiring and will U.S. loan growth pick up in H1? And in Canada, what would lift the macro if USMCA clarity is delayed?
  Response: U.S.: clients are cautiously optimistic, pipelines are growing and loan growth should pick up as optimization completes (expected benefit in second half of 2026). Canada: tone is cautiously optimistic with strong pipelines and deposit/TP S wins; clarity on trade (USMCA) would accelerate activity.

• Question from Gabriel Dechaine (National Bank Financial): Canadian credit card delinquencies rose above peers while balances shrank—did the book grow too fast and should we expect a post-holiday blip? Also, would BMO issue stock for M&A?
  Response: Credit cards: stress concentrated at lower-end of the consumer spectrum due to macro; management has adjusted exposure and is seeing growth in premium segments (e.g., Porter). On M&A: decisions must meet strategic and ROE criteria (addressed in subsequent Q&A).

• Question from Mario Mendonca (TD Securities): If BMO did a U.S. deal, would you sacrifice the 12% U.S. ROE target for scale? Also, will the restructuring charge be left in core numbers?
  Response: No—management will not sacrifice ROE; any M&A must meet strategic and ROE hurdles and could be considered if tuck-ins accelerate ROE. The restructuring charge will remain in core results.

• Question from Darko Mihalik (RBC): What drove corporate services to outperform this quarter and did any NBFI lending contribute to higher losses in 2024/2025?
  Response: Corporate services outperformance was not due to a one-time action—largely from managing liquidity and low-yielding assets; NBFI portfolio is well-structured and secured (50% equity subscription lines), with very low historical loss rates and did not materially drive prior-year losses.

• Question from Ibrahim Punawalla (Bank of America): Do recent/forthcoming U.S. regulatory changes (e.g., SLR) affect how you view U.S. capital levels or your path to 12% ROE? Could you deploy U.S. capital to M&A?
  Response: U.S. capital ratios are already strong (CET1 ~13.75% at the U.S. bank); regulatory changes could provide flexibility but are not assumed in the ROE plan—management is not relying on lower capital to hit ROE and will only consider M&A that meets strategic and ROE criteria.

Contradiction Point 1

U.S. Loan Growth Outlook and Strategy

It reflects differing perspectives on the expectations and strategies regarding U.S. loan growth, which is crucial for the bank's revenue and market positioning.

Is the U.S. tax bill affecting business investments and hiring? How will loan growth develop in the U.S. and Canada? - Ibrahim Punawalla (Bank of America)

2025Q4: Clients show general optimism; loan growth expected to rise in Q2 and Q3 as optimization completes. - Ernie Johannson(CEO, U.S. Banking)

What is the updated outlook for U.S. loan and revenue growth given macroeconomic changes? Is there any impact from de-banking or business exits related to ROE targets? - Gabriel Dechaine (National Bank Financial)

2025Q3: Loan growth is manageable, with a short-term reset for optimization. Originations are up, and utilization is lower due to macro factors. - William Darryl White(CEO & Director)

Contradiction Point 2

ROE Target and M&A Strategy

It involves the bank's strategic goals and how they relate to potential M&A activities, which could impact financial performance and investor confidence.

If BMO acquires a U.S. bank, would you sacrifice the 12% ROE target? - Mario Mendonca (TD Securities)

2025Q4: No, we won't sacrifice the ROE target for M&A. We only consider deals that enhance strategic and financial objectives. - Darryl White(CEO)

Are there potential balance sheet restructuring opportunities in the US other than the credit card portfolio sale? - John Aiken (Jefferies)

2025Q2: The bank has an ambitious plan for improving ROE, which involves looking at all aspects of the business and balance sheet. More decisions will be made as plans progress, but no specific details are available at this time. - Tayfun Tuzun(CFO)

Contradiction Point 3

Impact of U.S. Tax Developments

It involves the bank's response to potential changes in U.S. tax policies, which could have financial implications.

What is BMO's view on potential higher taxes for Canadian firms in the U.S., and what does 'manageable' mean for PCLs? - Mario Mendonca (TD Securities)

2025Q4: Uncertainties are high on US tax developments, but we'll form a perspective once finalized. - Darryl White(CEO)

How is the higher US tax impacting first-quarter performance, and whether it will remain elevated for the full year? - Mario Mendonca (TD Securities)

2025Q2: We're not returning to the high levels of 2024. Most of the disparity is in the corporate segment and to a lesser extent in commercial. - Piyush Agrawal(Chief Risk Officer)

Contradiction Point 4

Impact of U.S. Tax Bill on Client Activity

It involves the perceived impact of regulatory changes, specifically the U.S. tax bill, on client activity and business investments, which can influence loan growth and economic projections.

Is the U.S. tax bill affecting business investments and hiring? How is loan growth progressing in the U.S. and Canada? - Ibrahim Punawalla (Bank of America)

2025Q4: Clients show general optimism; loan growth expected to rise in Q2 and Q3 as optimization completes. - Ernie Johannson(CEO, U.S. Banking)

Is there any impact yet from the U.S. tax bill on client activity and loan growth? - Ryan Spilken (Morgan Stanley)

2024Q4: In U.S. banking, we have not seen any significant material impact to date from the U.S. tax bill, in terms of our clients' hiring, investment spending, et cetera. - Darryl White(CEO)