Bank of Montreal Q3 Adjusted Income Up 19%
Bank of Montreal's Q3 net income fell 25% to C$1.75B, but adjusted net income rose 19% to C$2.86B, due to a C$962M charge from a pending business sale.
Bank of Montreal (BMO) reported third-quarter net income of C$1.75 billion, a 25% decline from the same period a year earlier. However, the bank's company-defined non-GAAP adjusted net income increased by 19% to C$2.86 billion.
Reported diluted earnings per share fell 24% to C$2.38. Adjusted diluted EPS rose 22% to C$3.96.
Divestiture Drives Divergence
The sharp split between reported and adjusted figures stemmed primarily from the announced sale of BMO's Transportation Finance and Vendor Finance businesses to Stonepeak. This transaction triggered a C$1.09 billion pretax charge, which was C$962 million after tax. The charge was largely due to a reduction in goodwill.
Including costs from the separate sale of 138 U.S. branches, BMO reported aggregate after-tax divestiture adjustments totaling C$973 million. The sale of the finance businesses includes related loan portfolios in both Canada and the United States. BMO plans to retain a 19.9% equity interest in the sold operations. The transaction is expected to close in the fourth quarter of fiscal 2026, pending regulatory approvals.
Segment Performance and Credit
The bank stated that its adjusted results demonstrate strengthening in its core operations. According to BMO, every business segment generated record pre-provision, pre-tax earnings, a company-defined performance measure. The bank's adjusted net income grew across its major divisions.
| Business Segment | Adjusted Net Income Growth |
|---|---|
| Canadian P&C Banking | 15% |
| U.S. Banking | 11% |
| Wealth Management | 22% |
| Capital Markets | 45% |
BMO also expanded its company-defined non-GAAP adjusted return on equity to 14.0% from 12.0% a year ago. Credit costs improved. Total provisions for credit losses declined to C$722 million from C$797 million. Provisions on impaired loans fell by C$65 million to C$708 million. Provisions on performing loans dropped to C$14 million from C$24 million.
Capital and Investor Considerations
The divestiture could improve capital efficiency. BMO expects the finance-business sale to add approximately 28 basis points to its Common Equity Tier 1 (CET1) ratio. The bank also anticipates the move will improve its return on equity without significantly affecting future run-rate earnings.
However, the C$962 million after-tax charge reflects a reduction in goodwill allocated to the finance businesses after they were classified as held for sale. It reduced reported earnings but does not represent the transaction's undisclosed cash sale price. The source notes that the sale price was not disclosed. This limits investors' ability to compare the cash proceeds, the retained stake, and released capital against the businesses' historical acquisition and operating costs.
