Bank of Montreal (BMO) and Bank of Nova Scotia (Scotiabank) have successfully surpassed analysts' quarterly earnings estimates, a notable achievement driven by lower-than-anticipated provisions for bad loans. This positive financial performance was reported on Tuesday, August 26, amidst ongoing U.S.-Canadian trade tensions, which had previously influenced the banks' financial strategies.

The quarter, which concluded on July 31, saw Canada's third and fourth largest banks by assets kick off the earnings season for major Canadian lenders. This period was characterized by continued trade discussions between Canadian Prime Minister Mark Carney and U.S. President Donald Trump, along with persistent concerns regarding a potential North American trade war. Despite this backdrop, both banks demonstrated resilience and improved financial health.

BMO attributed its lower loan loss provisions to an improvement in economic scenarios, particularly noting strength in its U.S. commercial loan book. The bank set aside C$797 million ($576.83 million) for loan loss provisions, significantly below analysts' average estimate of C$948.5 million, according to LSEG data. This reflected a macroeconomic improvement that positively impacted its operations.

Scotiabank also reported a strong quarter, with its earnings benefiting from growth within Canada. The bank's provision for credit losses stood at C$1.04 billion, which was also below analysts' C$1.19 billion estimate. Scotiabank noted that higher provisions in previous quarters had been a direct response to a deteriorating economic outlook and uncertainties stemming from U.S. tariffs, which affected both its Canadian retail and commercial portfolios.

In prior quarters, both BMO and Scotiabank had increased their loan loss provisions to brace for potential mortgage and credit card defaults in a high-interest rate environment. This proactive measure also addressed the struggles businesses faced in repaying loans and reduced lending due to escalating trade tensions. The recent reduction in these provisions indicates a more favorable economic landscape.

Both banks maintain significant exposures outside of Canada, which plays a crucial role in their overall financial health. The U.S. market, for instance, accounts for approximately one-third of BMO's income. Similarly, international markets, including the United States, Mexico, and South America, contribute over a quarter of Scotiabank's earnings.

Beyond the reduced provisions, both banks also reported strong adjusted earnings per share. BMO earned C$3.23 per share on an adjusted basis, exceeding analysts' estimate of C$2.95. Scotiabank reported adjusted earnings of C$1.88 per share, also above the average estimate of C$1.73. Furthermore, BMO announced a new 30 million share buyback program, representing 4.2% of its outstanding shares, which replaces a previously announced 20 million program, signaling confidence in its financial outlook.