Bank of Montreal (TSX:BMO) and Royal Bank of Canada (TSX:RY) recently reported fiscal third-quarter (Q3) 2024 results that had opposite impacts on their respective share prices. Investors looking to add a TSX bank to their portfolios are wondering if BMO stock or RY stock is more attractive right now.

Bank of Montreal

Bank of Montreal trades near $112 at the time of writing. The stock is down about 14% in 2024 and is way off the $152 the stock hit in early 2022.

The decline to the 12-month low near $103 last fall occurred in step with aggressive interest rate hikes by the Bank of Canada and the U.S. Federal Reserve. Rising interest rates are usually good for banks due to the positive impact on net interest margins, but the steep rise in rates over such a short period of time puts borrowers with too much debt in a tight spot. As a result, provisions for credit losses (PCL) soared at the bank, driving fears of a wave of defaults if the economy slides into a deep recession.

Bank of Montreal also closed a US$16.3 billion acquisition in the United States right before the failures of a handful of American regional banks hammered the sector. The purchase of Bank of the West looks expensive in hindsight and contributed to the recent earnings pain.

Bank of Montreal reported adjusted net income of $1.98 billion in the quarter compared to $2.15 billion in the same period last year. PCL rose to $906 million from $492 million in fiscal Q3 2023. Adjusted return on equity (ROE) slipped from 12.5% to 10.6%.

Recent cuts to interest rates in Canada and anticipated reductions in the United States should lead to the stabilization of PCL in the coming months, so there could be an opportunity to do some bargain-hunting with BMO while it is in the penalty box.

Investors who buy Bank of Montreal at the current level can get a dividend yield of 5.5%.

Royal Bank of Canada

Royal Bank avoided the temptation to splurge on another U.S. acquisition when its peers were actively looking to deploy excess cash south of the border during the post-pandemic rebound. Instead, Royal Bank acquired HSBC Canada for $13.5 billion. The deal, which closed earlier this year, is already contributing to earnings.

Royal Bank is a giant in the Canadian banking sector with a current market capitalization of $232 billion. That makes it nearly three times larger than Bank of Montreal based on this metric. Royal Bank reported Q3 2024 results that showed its operations are performing better than its peers.

Adjusted net income in the quarter came in at $4.7 billion, up 18% compared to the same period last year. PCL rose just 7% to $659 million. Adjusted ROE increased 100 basis points to 16.4%.

RY stock recently hit a record high of $166 and currently trades near $164. The share price is up 22.5% in 2024. Investors who buy Royal Bank at the current level can get a dividend yield of 3.5%.

Is one a better pick?

Royal Bank is arguably the safer bet right now, even after the big rally. The bank remains very profitable, and its loan book is in good shape. If you are concerned about a recession occurring next year, RY should probably be your first choice.

Bank of Montreal is a contrarian pick today, but you get paid a nice dividend, and there is attractive upside potential once the bank gets through the challenges in the U.S. market. If you can handle some extra risk, BMO might be the way to go for a buy-and-hold portfolio.

Otherwise, investors might decide to split a new investment between the two stocks to reduce risk and boost the average dividend yield.