Executive Summary / Key Takeaways

• BMO Financial Group delivered a record-setting third quarter in 2025, with net income reaching $2.4 billion and adjusted earnings per share (EPS) increasing 22% to $3.23, demonstrating strong momentum in its Return on Equity (ROE) rebuild.
• The bank's strategic imperative to achieve a 15% medium-term ROE is driven by four key pillars: U.S. segment improvement, normalization of Provisions for Credit Losses (PCLs), consistent positive operating leverage, and disciplined capital optimization.
• Significant investments in digital and AI capabilities, including the LUMI Assistant and a partnership with IBM Quantum Network (IBM), are enhancing operational efficiency, client experience, and fostering technological differentiation.
• The integration of Bank of the West and recent organizational restructuring in U.S. banking are poised to accelerate growth and realize substantial revenue synergies, with full run-rate pre-provision pre-tax earnings (PPPT) expectations intact by the end of fiscal 2026.
• Despite ongoing economic uncertainties, particularly regarding trade policies and Canadian unemployment, BMO maintains a cautious yet optimistic outlook, supported by robust capital levels and a commitment to returning excess capital to shareholders through share buybacks and dividend increases.

A North American Banking Powerhouse Forges Ahead

Bank of Montreal (BMO), founded in 1817, stands as a venerable institution in the North American financial landscape, offering a diversified suite of personal and commercial banking, wealth management, and capital markets services. Its enduring presence and strategic evolution have shaped its current position as a top ten U.S. bank, a status significantly bolstered by the acquisition of Bank of the West. This strategic move, completed prior to fiscal year 2024, was designed to leverage expanded scale in attractive growth markets, particularly California, and optimize its business mix across the continent.

BMO's overarching strategy is singularly focused on rebuilding its Return on Equity (ROE) to a medium-term target of 15% for the overall bank and 12% for its U.S. Personal & Commercial (P&C) business. This ambitious goal is underpinned by a four-pronged approach: enhancing U.S. segment performance, normalizing PCLs, consistently delivering positive operating leverage, and optimizing capital allocation. The bank operates within a competitive industry, facing established Canadian rivals like Royal Bank of Canada (RY) (RBC), Toronto-Dominion Bank (TD) (TD), Bank of Nova Scotia (BNS) (BNS), and Canadian Imperial Bank of Commerce (CM) (CIBC), as well as emerging threats from fintech innovators.

Technological Edge: Fueling Efficiency and Client Experience

BMO is strategically investing in a digital-first agenda, powered by artificial intelligence (AI) and data, to drive tangible value for its businesses and clients. The bank is seeing concrete benefits from AI across several areas, including decisioning, customer experience, software development, and employee productivity. A notable innovation is LUMI Assistant, BMO's award-winning AI-powered tool that provides frontline teams with real-time, simplified access to critical policy and process information, enabling them to offer enhanced advice and guidance to clients.

Beyond internal efficiencies, BMO's commitment to innovation extends to client-facing solutions. The bank recently received the 2025 Celent Model Bank award for payments innovation, recognizing five separate digital payments and client experience initiatives. In Canada, BMO launched BMO Sync, an innovative solution that integrates BMO online banking for business services directly into enterprise resource planning (ERP) and accounting systems, boosting automation and efficiency for its commercial clients. This technology, previously available only in the U.S., exemplifies how BMO's North American platform brings industry-leading capabilities to clients across the border. Furthermore, BMO Insurance has launched an AI-powered digital assistant designed to enhance the underwriting process for advisors, eliminate complexity, and simplify the client experience. These technological advancements are crucial to BMO's competitive moat, contributing to lower operating costs, improved customer satisfaction, and a stronger market position, ultimately supporting its long-term growth strategy and ROE objectives.

Financial Momentum and Strategic Execution

BMO's third quarter of fiscal 2025 showcased significant financial momentum, with adjusted net income reaching a record $2.4 billion, a 21% increase from the prior year. Adjusted earnings per share (EPS) rose 22% to $3.23. Pre-provision pre-tax earnings (PPPT) were $4 billion, up 13%, with strong contributions from every operating group. This performance drove the bank's return on equity (ROE) to 12% for the quarter, marking a 130 basis point improvement year-to-date to 11.1%.

BMO has consistently delivered positive operating leverage for six consecutive quarters, with a strong all-bank operating leverage of 4.7% year-to-date.

Segment Performance Highlights:

• Canadian Personal & Commercial (P&C) Banking: This segment reported a 6% year-over-year (YOY) increase in PPPT and revenue in Q3 2025. BMO's checking account growth is nearly double the industry benchmark, and its market-leading Savings Amplifier account has surpassed $12 billion in deposits, attracting an additional $2 billion since the previous quarter. However, net income was down 5% YOY, primarily due to higher Provisions for Credit Losses (PCLs) in Canadian unsecured retail portfolios, reflecting elevated unemployment and insolvency trends.
• U.S. Banking: This segment, which will combine U.S. Wealth Management results starting in Q4 2025, demonstrated robust growth. Net income increased 42% YOY in Q3 2025, driven by a 10% rise in PPPT and positive operating leverage of 5%. U.S. P&C ROE improved to 7.5% year-to-date. Client acquisition in U.S. Personal and Business Banking (PNBB) is strong, with 8% YOY growth in checking account acquisitions in the West markets. While U.S. commercial loans saw a decline due to muted industry demand and a strategic reduction in low ROE relationships, management expects loan growth to be positive in the second half of fiscal 2025. The full capture of Bank of the West revenue synergies, estimated at $450 million to $500 million, is anticipated by the end of fiscal 2026.
• BMO Wealth Management: This segment had a strong quarter, with net income up 21% YOY in Q3 2025. Revenue in Wealth and Asset Management increased 11%, fueled by market appreciation and continued growth in net new assets. BMO's acquisition of Burgundy Asset Management will further expand its capabilities. The bank was recognized as the Best Private Bank in Canada for the 15th consecutive year.
• BMO Capital Markets: PPPT has been consistently strong throughout the year. In Q3 2025, net income rose 12% YOY, with revenue up 7%, driven by strong underwriting and advisory fees and robust trading revenue across products. BMO Capital Markets expects to deliver an average quarterly PPPT above $625 million in 2025. The segment was recognized as the Best Metals and Mining Bank of the Year for the 15th consecutive year.

Competitive Landscape and Strategic Positioning

BMO operates in a highly competitive North American financial services market. In Canada, BMO's Canadian Personal Banking has achieved checking account growth nearly double the industry benchmark, demonstrating its effectiveness in customer acquisition. The bank's Premium Commercial Banking Franchise was recognized as the best commercial bank in both Canada and the United States by World Finance Magazine, underscoring its strength in this critical segment. Furthermore, BMO has been named the Best Private Bank in Canada for 15 consecutive years, a testament to its expertise in wealth management.

Compared to its peers, BMO leverages its diversified North American footprint as a key advantage. While some competitors like TD Bank have a more established U.S. retail presence and RBC boasts a broader global reach and advanced digital initiatives, BMO differentiates itself through a client-centric approach, integrated financial advice, and a strong branch network that fosters personalized service. BMO's strategic investments in digital and AI are crucial for maintaining its competitive edge against fintech disruptors and digitally aggressive rivals. While BMO acknowledges having a higher cost of funds compared to some peers due to its deposit mix, it is actively optimizing its balance sheet through disciplined deposit pricing and a focus on core operating deposits.

Outlook, Guidance, and Risk Management

BMO's management expresses cautious optimism for the economic outlook, anticipating that central bank easing and expansionary fiscal policies will support a moderate pickup in growth across North America. However, the environment remains uncertain, with geopolitical challenges and potential trade protectionist measures, particularly tariffs between the U.S. and Canada, posing ongoing risks.

The bank's guidance for fiscal 2025 includes:

• Provisions for Credit Losses (PCLs): Impaired losses are expected to average in the high 40 basis points for the full year, similar to fiscal 2024, with quarterly variability. Management believes Q4 2024 represented a high point for impaired PCLs, with moderation expected through 2025. Performing provisions are expected to continue building, albeit at a lower level than Q4 2024, reflecting prudent allowance coverage.
• Operating Leverage: BMO is committed to delivering consistent positive all-bank operating leverage, aiming to further reduce its efficiency ratio.

• Expenses: Year-over-year expense growth is projected to be in the mid-single-digit range on a constant currency basis (excluding performance-based compensation) for fiscal 2025.
• Net Interest Margin (NIM): BMO anticipates continued margin stability at the all-bank level in Q4 2025, with some upside potential in the latter part of the year, supported by disciplined deposit management and asset mix improvements.
• Capital Markets PPPT: The segment expects to deliver an average quarterly PPPT above $625 million in 2025 under more constructive market conditions.
• Capital: BMO's Common Equity Tier 1 (CET1) ratio of 13.5% remains strong. The bank intends to continue share buybacks, with a new normal course issuer bid (NCIB) for up to an additional 30 million shares, aiming to manage towards its 12.5% CET1 management target.

• Effective Tax Rate: The effective tax rate for fiscal 2025 is expected to be in the range of 24% to 25%, including the implementation of the global minimum tax.

Key risks include persistently high unemployment in Canada (between 6.8% and 7%) and rising consumer insolvencies, which are expected to lead to moderately higher losses in unsecured retail portfolios through 2025. The full impact of potential tariffs remains a significant unknown, influencing business sentiment and capital deployment. BMO is actively managing these risks through disciplined portfolio management, direct client engagement, and continuous scenario analysis.

Conclusion

BMO Financial Group's third quarter 2025 results underscore a compelling investment thesis centered on its strategic ROE rebuild, robust U.S. expansion, and a growing technological edge. The bank's record net income and improving ROE demonstrate the tangible impact of its disciplined execution across key initiatives. By leveraging its diversified North American platform, BMO is effectively navigating a dynamic economic environment, capitalizing on growth opportunities in its U.S. segment, and optimizing its balance sheet and capital allocation.

The bank's significant investments in digital and AI capabilities, coupled with its strong competitive positioning in commercial and wealth management, provide a solid foundation for sustainable earnings growth. While macroeconomic uncertainties, particularly related to trade policies and Canadian consumer credit, warrant continued vigilance, BMO's proactive risk management and strong capital position offer resilience. The ongoing commitment to returning capital to shareholders through dividends and share buybacks further enhances its appeal. For discerning investors, BMO presents a compelling opportunity, poised for continued performance acceleration as its strategic initiatives, technological leadership, and North American footprint converge to drive enhanced shareholder returns.