BMO beats estimates on loan income even as provisions climb

Bank of Montreal topped earnings estimates as net interest income came in higher than expected, even as the company set aside more money to cover loans that are still in good standing, highlighting concern about the fate of the North American economy.

The Canadian bank earned C$2.62 a share on an adjusted basis in its fiscal second quarter, according to a statement Wednesday, beating the C$2.54 average estimate of analysts in a Bloomberg survey. Net interest income, the difference between what the bank earns on loans and pays for deposits, totaled C$5.1 billion ($3.7 billion), higher than the C$5.04 billion expected by analysts. 

Still, provisions for credit losses totaled C$1.05 billion for the three months through April, more than the C$1.03 billion analysts had forecast. The bank’s provisions for impaired loans declined compared with the first quarter, but it earmarked C$289 million for loans that are not in default, up from C$152 million in the first quarter. 

“We delivered strong revenue and pre-provision, pretax earnings growth across each operating group and ongoing positive operating leverage,” Chief Executive Officer Darryl White said in the statement. “Impaired credit provisions moderated again this quarter as expected, while we bolstered performing allowances.”

Bank of Montreal hiked its quarterly dividend by 4 Canadian cents to C$1.63 per common share. 

National Bank of Canada, which also reported second-quarter results Wednesday, beat estimates on the strength of record performance in its capital-markets division. It also increased its quarterly payout, boosting its dividend by 4 Canadian cents to C$1.18 per share.

The bank, Canada’s sixth-largest lender, earned C$2.85 a share on an adjusted basis in its fiscal second quarter, topping the average estimate of C$2.40. Its capital-markets unit reported C$501 million in net income, surging past the C$345 million forecast of four analysts in a Bloomberg survey.

Credit provisions

The country’s big lenders have been building up reserves against loan defaults as the economy weakens in the face of U.S. tariffs and broader policy uncertainty. 

At National Bank, provisions for credit losses totaled C$545 million, which included C$230 million in initial provisions recorded after the firm completed its acquisition of Canadian Western Bank on Feb. 3. National Bank’s provisions for performing loans increased to C$85 million in the second quarter on an adjusted basis, up from C$57 million in the first quarter.  

Toronto-Dominion Bank and Bank of Nova Scotia have also posted notable increases in provisions for loans that are still performing, citing the risks in the macroeconomic picture. Both saw their shares move higher after their quarterly reports — with TD Bank also announcing a restructuring program — as analysts noted that the provisions represent a conservative approach and not an actual deterioration in credit.

Bank of Montreal, which bought San Francisco-based Bank of the West in 2023, has more exposure to commercial lending than its peers and has struggled with impaired loans on that front, but had expected its credit performance to improve this year.