Editor’s Note: This analysis was originally published as a stock note by Morningstar Equity Research.
Bank of Montreal BMO reported OK results, with adjusted EPS of C$ 2.62, up 1% from a year ago. Investors should be aware that the trajectories of the Canadian and US economies have heightened uncertainty related to tariffs.
Why it matters: Bank of Montreal’s Canadian banking segment net income declined 10% from the prior year, mostly driven by a 53% increase in provisioning costs. The US segment reported adjusted return on equity of 6.9%, improving from 2024 but still much lower than the bank’s medium-term target of 12%-plus.
· Total bank provisioning increased by 4% from the previous quarter, with performing loan provisioning increasing 90% to C$ 289 million, driven by deteriorated economic outlooks for the Canadian and US economies.
· The bank maintains its 2025 impaired provisioning guidance of high 40 basis points of total loans, but it cautioned on a prolonged higher tariff’s impact on higher credit results than the guidance.
The bottom line: We maintain our C$ 146/USD 102 fair value estimates for narrow-moat-rated Bank of Montreal as we incorporate the latest results. We view shares as fairly valued.
· Valuation for the Canadian banking sector has largely recovered from April lows after some de-escalation in tariff rates. However, we still think the Canadian and US economies have elevated uncertainty, and we maintain our Medium Uncertainty Rating for the bank.
Key stats: The bank’s wealth management segment was a bright spot for the quarter, with net income increasing 14% from a year ago, driven by higher asset-based revenue. Assets under management increased 13%, and assets under administration were up 14% year over year.
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