Bank of Montreal - Q1 2026
February 25, 2026
Transcript
Operator (participant)
Good morning, and welcome to the BMO Financial Group's Q1 2026 earnings release and conference call for February 25, 2026. Your host for today is Christine Viau. Please go ahead.
Christine Viau (Head of Investor Relations)
Thank you. Good morning, everyone. We will begin today with remarks from Darryl White, BMO CEO, followed by Tayfun Tuzun, our Chief Financial Officer, and Piyush Agrawal, our Chief Risk Officer. Also present today to answer questions are our group heads, Mat Mehrotra, Canadian Personal Business Banking, Sharon Haward-Laird, Canadian Commercial Banking, Aron Levine, U.S. Banking, Alan Tannenbaum, BMO Capital Markets, Deland Kamanga, Wealth Management, and Darrel Hackett, BMO U.S. CEO. As noted on slide two, forward-looking statements may be made during this call, which involve assumptions that have inherent risks and uncertainties. Actual results could differ materially from these statements. I would also remind listeners that the bank uses non-GAAP financial measures to arrive at adjusted results. Management measures performance on a reported and adjusted basis and considers both to be useful in assessing underlying business performance.
Darryl and Rahul will be referring to adjusted results in their remarks, unless otherwise noted as reported, and I will now turn the call over to Darryl.
Darryl White (CEO)
Thank you, Christine. Good morning, everyone. First quarter results were very strong, building on our momentum from last year. We're executing on our commitment to deliver higher returns and profitable earnings growth. Adjusted EPS were CAD 3.48, up 15% from last year, and included a previously announced severance charge of CAD 202 million that reduced EPS by CAD 0.21. We saw continued momentum in our ROE improvement. The bank achieved record pre-provision, pre-tax earnings of CAD 4.1 billion, powered by record revenue in each of our operating segments. Strong fee growth in our market-driven businesses and margin expansion in our Canadian and U.S. banking businesses from deposit growth and mix optimization positions us particularly well for when loan growth resumes. Our commitment to expense management and operational efficiency continues to enable strategic investments in technology and talent.
Underlying expense growth was well managed. We continue to target positive operating leverage again this year. Credit performance remains in line with our expectations. Our CET1 ratio of 13.1% remains strong and above our target, even as we continued to buy back 6 million shares during the quarter. We're executing against a consistent strategy outlined back in Q4 of 2024 towards achieving and sustaining ROE of 15%. The progress we made last year and this quarter strengthens my conviction that we can achieve that goal as we exit 2027. We delivered peer-leading ROE improvement in 2025 of 150 basis points. That momentum continued into the first quarter.
Underlying ROE reached 13.1%, up 180 basis points from a year ago and 130 basis points from Q4. Consistent with last year, this reflected strong core operating performance across our businesses, including in U.S. banking, where underlying ROE was up 150 basis points from Q1 of last year. Broad-based line of business operating performance contributed to strong underlying EPS growth of 21%. Momentum is growing. Turning to our operating segments. In Canadian P&C, we're attracting more customers with deeper relationships, leading to consistent growth in core operating deposits, a key driver of earnings growth, which was up 8% from last year. Canadian commercial banking revenue grew 10%. New client acquisition is healthy and trending higher than last year.
Clients continued to adopt our innovative treasury and payment solutions, driving 9% growth in operating deposits and 13% increase in TPS fees. Our one client approach is key to our success, and client referrals between commercial and wealth increased to 34%, resulting in a 75% increase in referral revenue. In Canadian retail, we continue to see above-market growth in checking accounts and operating deposits, as well as strong growth in mutual fund sales of 13%, leveraging our personal bankers and our digital capabilities to drive fuller customer relationships. Our strategy to deepen engagement and loyalty will be further strengthened as we transition from Air Miles to our reimagined Blue Rewards loyalty program this summer.
Available to all Canadians, this program delivers personalized benefits, new partnerships, and an intuitive digital platform, giving millions of members a simple, flexible way to earn and redeem rewards and will be fully integrated into the BMO mobile app. In U.S. banking, we continue to execute on our strategy to accelerate performance and delivered record revenue and strong margin expansion. We're seeing momentum in personal account acquisition and net client growth over last year, with a solid 3% growth in non-interest-bearing deposits. By the end of next quarter, we will be effectively complete with our balance sheet optimization efforts and expect to see positive commercial loan growth in the second half of the year, supported by currently strong pipelines. With the U.S. economy expected to outpace Canada for a fourth straight year, and with our business mix, we're well positioned to capture growth opportunities as business activity expands.
Wealth management earnings were up 16% on stronger markets and net new asset growth. We successfully integrated Burgundy Asset Management, and we're seeing good client and employee retention and engagement. Our distinctive strength in innovation and speed to market continued to drive momentum across global asset management, with the launch of BMO's broad commodity ETF and expansion of our European CDR lineup. Our commitment to delivering high-quality solutions for investors was recognized at the 2025 Fundata FundGrade A+ awards, where BMO ETFs and mutual funds earned a combined 27 awards, reinforcing BMO's position as one of Canada's leading investment managers. Capital markets had a very strong quarter, with PPPT of CAD 893 million, driven by strong trading activity and higher advisory fee revenue.
Our performance reflects continued strength in market-leading franchises, including a number one ranking in ECM and a number two position in investment banking share of wallet in Canada, and robust equities trading and M&A activity in the US. Record results in our commodities trading business this quarter reflects our leadership position in the sector. We've been consistently ranked as the world's best metals and mining investment bank by Global Finance Magazine, now for the 17th year, and this week we hosted our 35th global conference, the world's leading forum on this topic. Looking ahead, BMO is uniquely positioned to serve our clients, playing leading roles in the AI infrastructure cycle and those in industries at the center of economic change.
We have highly competitive and differentiated strengths across areas critical to future economic growth, including our metals and mining franchise, our leadership position in the Canadian energy sector, and robust infrastructure, power, and utilities capabilities. We're proud to be the official bank of the Canadian defense community, serving members of the military, reservists, and their families. Across our Canadian capital markets and commercial banking businesses, we're supporting efforts to help growing defense industries, including participating in the development group for the Defense, Security and Resilience Bank. As we evolve our own AI journey across BMO, our digital-first, AI-powered strategy is focused on scaling rapidly, advancing capabilities to deliver world-class client experiences and drive business value. We're creating a responsible AI-enabled ecosystem of tools where innovation supports human insight.
Building on last year's launch of our generative AI-powered digital assistant in personal banking, we've introduced the same capabilities for the Canadian Commercial Bank, enabling our teams to quickly access policy and lending information. These are examples of how we're scaling AI-enabled intelligent tools to make every interaction faster and more confident, augmenting our teams and streamlining workflows to enhance client experience. In closing, our performance this quarter demonstrates momentum and progress. We're delivering value for our clients through world-class one client experiences, and for our shareholders through significant ROE and earnings growth since we outlined our clear path five quarters ago, and we're not done yet. We look forward to sharing further insights into our strategy and progress at the upcoming BMO Investor Day on the 26th of March.
Before I turn the call to Rahul, I would like to welcome him to his first quarterly call as our CFO. Rahul joined BMO in 2022 as CFO for our U.S. operations and commercial banking, and brings deep experience across leading organizations with a strong focus on execution. Rahul, over to you.
Rahul Nalgirkar (CFO)
Thank you, Darryl. Good morning, everyone, and thank you for joining us. My comments will start on slide eight. The bank delivered strong operating performance this quarter. The Q1 reported EPS was CAD 3.39, and net income was CAD 2.5 billion. Adjusting items are shown on slide 42, and the remainder of my comments will focus on adjusted results. EPS was CAD 3.48, up 15% from last year on record PPPT of CAD 4.1 billion and lower PCL. Net income was CAD 2.6 billion, up 11% from last year. As previously announced, our results include a charge of seven costs of CAD 202 million, or CAD 147 million after tax, related to advancing operational efficiencies across the bank and recorded in each operating segment.
Excluding the charge, we delivered positive operating leverage of 1.1% and strong PPPT growth of 8%, with ROE of 13.1%, up 180 basis points, and ROTCE of 17.1%, up 220 basis points, reflecting continued momentum to enhance returns and accelerate growth. Revenue increased 6% or 8% on a constant currency basis, with broad-based growth across all businesses, including strong fee growth in Capital Markets and wealth, and NIM expansion in both P&C businesses. Expenses increased 9% or 5%, excluding the charge. Total PCL decreased to CAD 746 million, with lower impaired and performing provisions. Piyush will speak to that in his remarks. Moving to slide nine.
Excluding the impact of the weaker U.S. dollar this quarter, average loans and deposits were relatively flat year-over-year and quarter-over-quarter. In Canada, residential mortgage and commercial loan growth of 2% remains muted, reflecting the softer economy, and was offset by lower U.S. commercial loans due to the impact of optimization activities. These activities are now 90% complete, and we are beginning to see positive signs in the portfolio, with underlying loan balances as at the end of January, up approximately 1% from the end of October. On deposits, we continue to manage decrease in term deposits, largely offset by growth in core personal and commercial operating deposits to enhance our deposit mix. Turning to slide 10.
Starting this quarter, we have enhanced disclosure of all bank NII and NIM to exclude global markets and insurance to focus on core banking margins and exclude volatility associated with all global market activities. Prior periods have been reclassified to this basis. NII ex markets was up 5% from the prior year or up 7% on a constant currency basis, driven primarily by continued margin expansion in Canadian P&C and U.S. banking, as well as higher NII in corporate services. Maintaining good NII growth despite muted loan growth, reflects success of our initiatives to improve deposit mix in both countries.
NIM ex markets was 233 basis points, up 20 basis points year-over-year and up 3 basis points sequentially as we continue to benefit from higher ladder reinvestment rates, deliberate actions to improve deposit mix and disciplined pricing, partially offset by lower NII in corporate services compared with the prior quarter. In Canadian P&C, NIM was up 6 basis points sequentially, primarily due to the higher deposit margins from improving mix. U.S. banking NIM increased a strong 13 basis points sequentially, driven by higher deposit margins as our deposit mix continues to shift to core deposits in both P&C and commercial businesses, as well as higher loan margins. Our guiding principle is to manage all bank NIM stability through the cycle. There are several factors which impact our margins every quarter.
We expect tailwinds from ladder reinvestments and our deposit margin initiatives to continue to benefit us in the near term, and we are closely monitoring deposit pricing as the competitive landscape evolves. Moving on to non-interest revenue on slide 11. NIR increased 9% from the prior year, with strong growth in wealth, including Burgundy acquisition, higher advisory fees, and stronger trading revenues as client activity and market performance remains robust. Card fees in Canadian P&C were elevated this quarter due to the impact of revised future reward redemption assumptions. Turning to slide 12. Expenses grew 9% and were up 4%, excluding FX, the severance charge, and higher performance-based compensation. Expenses are well managed as we continue to optimize cost to reinvest in talent and technology to drive future growth.
Excluding the charge, operating leverage was 1.1%, and our efficiency ratio improved to 55.8%. We expect to realize annualized savings of approximately CAD 250 million from the charge, with half realized in 2026 and the remainder in 2027. These savings will both support continued efficiency improvements and reinvestment in strategic growth initiatives. Expenses were up 8% sequentially, or up 4%, excluding the severance charge, and represent seasonal uptick from employee benefits and stock-based compensation for employees eligible to retire. Turning to slide 13. Our CET1 ratio remains strong at 13.1%. The ratio declined approximately 20 basis points sequentially, with continued good internal capital generation more than offset by share repurchases and growth in source currency RWA, including the impact of ongoing methodology and model refinement of 17 basis points.
We repurchased 6 million shares during the quarter and expect to continue repurchases while supporting deployment for growth and maintaining a strong capital position as we navigate towards our target of 12.5%. Moving to operating segments, starting on slide 14. Canadian P&C net income was up 8%, reflecting solid PPPT growth of 4% and lower performing PCLs. Revenue was up 7% from higher NII, reflecting both balance growth and margin expansion. Higher NIR was driven by the above-trend card fees, higher commercial TPS fees, investment gains, as well as stronger mutual fund distribution fees. Expense growth of 11% reflected the severance charge and the higher technology costs. Turning to U.S. banking slide, on slide 15, which speaks to the US dollar performance. Net income was up 18%, primarily reflecting lower impaired and performing PCL.
Revenue was up 2% from margin expansion, offsetting lower balances, reflecting continued disciplined optimization as well as higher wealth management and commercial TPS fees. Expense growth of 4% reflected the severance charge, as well as investments in talent and technology. Excluding the charge, PPPD increased 1%. Moving to slide 16. Wealth management net income was up 16% from last year and includes Burgundy results starting this quarter. Strong performance was driven by higher wealth and asset management revenue, up 17%, reflecting higher markets, continued growth in net sales, and strong balance sheet growth. Expenses were up 15% due to employee-related expenses, including higher revenue-based costs and the severance charge in the quarter. Turning to slide 17, capital markets net income was up 11% from a strong first quarter performance last year, driven by a strong PPPT growth of 8% and lower PCLs.
Revenue was up 7%. Global markets revenue increased 6%, driven by higher equities and commodities trading revenue, partially offset by lower interest rate trading. Investment in corporate banking revenue increased 9%, driven by higher advisory fees and equity underwriting, partially offset by lower debt underwriting activity. Expenses were up 6%, mainly driven by higher employee-related costs, including severance, partly offset by the impact of the weaker U.S. dollar. Turning now to slide 18. Corporate services net loss was CAD 242 million and included the impact of the severance charge as well as seasonal employee benefit-related costs in the first quarter. In summary, we continue to build on last year's momentum with strong core operating performance across all our businesses. We delivered record revenue and at the same time took actions to optimize our structural cost base to support investments and drive future efficiencies.
These results reflect successful execution on the four strategic levers of our ROE journey over the last five quarters. I'm confident our businesses are well positioned to drive further growth and enhance returns. With that, I will now turn it over to Piyush.
Piyush Agrawal (Chief Risk Officer)
Thank you, Rahul. Good morning, everyone. We continue to operate in an environment of modest economic growth across North America, with the U.S. economy maintaining its outperformance relative to Canada. After a year marked by lingering trade uncertainty, we see an environment of measured expansion underpinned by resilient consumer spending and stabilizing inflation. In Canada, economic momentum remains constrained by softer labor and housing markets. Within this, we continue to see dispersion across sectors and borrowers, with pressure more pronounced among higher-leverage borrowers. Our approach remains disciplined. We are prioritizing proactive client engagement, balance sheet resilience, and maintaining strong reserve coverage. The credit performance this quarter was largely in line with our expectations and reflective of the environment.
As shown on slide 20, total provision for credit losses were stable quarter-over-quarter at 44 basis points or CAD 746 million, with impaired provisions declining CAD 11 million to CAD 739 million. By operating segment, Canadian Personal and Commercial impaired losses were CAD 497 million, stable to prior quarter. We continue to see higher delinquencies in certain segments of our consumer portfolio, particularly in parts of the GTA, where unemployment remains elevated. U.S. banking losses were $202 million, down $7 million, lower compared to prior quarter. U.S. commercial banking losses of $128 million declined $32 million. Capital Markets impaired losses also decreased CAD 8 million to CAD 29 million. Turning to slide 21. The CAD 7 million performing provision reflects stability and strength in our existing reserve position.
The CAD 4.6 billion performing allowance continues to provide strong coverage at 69 basis points over performing loans. We remain well reserved. On slide 22, gross impaired loans decreased CAD 228 million to CAD 6.9 billion, or 102 basis points, driven by lower formations in our commercial businesses, which decreased CAD 403 million compared to prior quarter. We are seeing positive momentum in our wholesale businesses, with lower formations to both our watch list and impaired loans. Looking ahead, trade issues between Canada and the U.S. remain unresolved. The USMCA renegotiation presents significant uncertainty. Given these factors, we continue to anticipate a softer economic environment in Canada. In the U.S., expansionary fiscal policies, supportive monetary policy, and AI investments should support growth as we go through the year.
These dynamics are playing out for our customers and reflected in our portfolios, with a gradual improvement in the U.S. geography and elevated risks in Canada. As we look forward, we expect these to have somewhat a balancing effect and impaired provisions to remain in the mid-40 basis points range with quarterly variability. Our performance continues to be supported by the diversification of our portfolio and risk management capabilities underscored by a strong risk culture. We remain disciplined and well positioned to support clients with our strong balance sheet and liquidity levels. I will now turn the call back to the operator for the Q&A portion of this call.
Operator (participant)
Thank you. To ask a question, please press star followed by one on your telephone keypad. If you would like to withdraw your question, press star one again. We'll pause for just a moment to compile the Q&A roster. Our first question comes from Gabriel Dechaine from National Bank Financial. Please go ahead. Your line is open.
Gabriel Dechaine (Managing Director and Senior Equity Analyst)
Yeah, good morning. I think the ROE performance this quarter, especially after, you know, some of the comments you made earlier this year, is a standout, and that's a good thing. Great progress there. I don't want to be that guy, but the U.S. looks to be a little bit flatter and, you know, we saw more ROE expansion in Canada and capital markets, whereas it was a bit more flat in the U.S. I guess my question is, do you still have confidence presumably in hitting that 15%, but, you know, the way you get there might be a bit different than the originally planned, because, you know, the U.S. was almost half of that expansion plan.
Darryl White (CEO)
Yeah, Gabe, it's Darryl. I'll give you a topper on your answer, and then I might ask Aron to kick in, who's effectively executing the plans in the U.S. You know, no, I would actually say, in all facets, we're very much on track. When I look at the total company on the march up to 15, you know, if you go back to when we called out our objective in the fourth quarter of 2024, we were at 9.8 that year. If you look at how many quarters it will take us to get there, I sort of think about it as the total company. We're about 60% of the way there in 40% of the time.
In one way, if it were linear, which is not necessarily going to be linear, we're ahead of schedule. The U.S. was always going to come in, a little bit later than the improvement in Canada as it, as it evolves, and that's on track as well as we move to, I would say, we're 90% through our optimization work in the U.S., and we'll be effectively complete on that, as we've said we would in the 2nd quarter of this year, and then we should see some good acceleration there as well. You know, I will point out before pointing, kicking it over to Aron here.
We are up 150 basis points year-over-year in the U.S. ROE, so there's some nice contribution to the total bank ROE already, with a lot more to go. Aron, over to you on where we go from here.
Aron Levine (President of BMO U.S.)
Yeah, thanks, Darryl. Thanks, Gabriel. I think what you're seeing is the U.S. is really at this inflection point, as we've talked a lot about the optimization work, now that we're 90% of the way complete. You know, loans and deposits are down about 3%-5%, a result that work. Of course, ROE up, as Darryl said, as our margins and revenue is actually up 2% year-over-year. We've seen really good progress, whether it be fee income on commercial TPS, M&A, or non-interest checking. Now what we're seeing is this translation into the momentum we're starting to build in our pipelines. We're starting to see progress across the commercial. We have some areas, like commercial real estate, that are starting to show some growth.
All the things are pointing to exactly how we had said would operate in the first quarter, and the first half of the year, with real opportunity for growth in the second half and keep us on track to contribute to the overall ROE play.
Gabriel Dechaine (Managing Director and Senior Equity Analyst)
Okay, great. To be clear, I was talking about a linked sequential quarter there, you know, sticking with the U.S., where, you know, I look at the margin, it's 4%. That's definitely peakish, but as I look ahead, I actually want to see that go down because that means you're going to be deploying more balance sheet, loan lending and raising more deposits, which might result in a lower NIM, but more top-line momentum. I just want to get more, I guess, you know, the outlook for loan growth, you know, what are some of the pillars for, you know, for that confidence, I guess? Is the breakdown of private credit a little bit of a tailwind for you, maybe?
Aron Levine (President of BMO U.S.)
No, you know, my confidence comes from a couple areas. One, if you look at the actions we've taken, right? The talent that we've built, especially on the West Coast, has been impressive, coming from lots of other areas of the industry, the way we've realigned the organization and the investments we've made in the business. If you look at all of those actions, in addition to now the optimization work coming to completion, and these pipelines growing, you know, we feel like that's what's going to drive our growth. The relationships we have with the clients, are the way we provide industry expertise. We have momentum, and it's really been built off of all the work we've done over the last five quarters.
I think what you're going to see is a compounding effect of those investments we've made and the changes we've made over the rest of this year and into 2027.
Gabriel Dechaine (Managing Director and Senior Equity Analyst)
Okay, great. Good quarter.
Operator (participant)
Our next question comes from Ebrahim Poonawala from Bank of America. Please go ahead. Your line is open.
Ebrahim Poonawala (Managing Director of Head of North American Banks Research)
Good morning. I guess maybe first question, just following up, Rahul, on slide 10, in terms of the net interest margin. Like, as I guess, as all of us think about the ROE improvement from here, you break down the three buckets, deposit margins, loan margins, and the mix for the U.S. and CAD NIM. Maybe just unpack that for us as we think about the outlook for what's the level of margin expansion you expect on both sides of the border, and how should we think about the three components that you lay out in that slide?
Rahul Nalgirkar (CFO)
Sure. Thanks, Ebrahim, for the question. This is Rahul. Ebrahim, as we have seen last couple of quarters, we do recognize that we've had a nice NIM expansion. While we have our guiding principle to manage NIM stability through the cycle, this expansion speaks to the success of our optimization and mix improvement efforts. Also, we've been opportunistic about ladder reinvestments when we saw the right opportunity. As we now fast-forward that where we are heading, the ladder reinvestments and the mix will continue to benefit us, perhaps to the lesser extent. We are also closely monitoring how the competitive landscape evolves in both the countries, both for loans and deposits. When you put it all together, you know, we are still thinking about a relatively stable outlook in the near term for NIM.
Ebrahim Poonawala (Managing Director of Head of North American Banks Research)
Got it. You don't expect material expansion from here? Obviously, balance sheet growth is going to pick up, and you expect the margin to be relatively stable.
Rahul Nalgirkar (CFO)
Yes. I mean, if you think about it, Ebrahim, we have a lot of efforts going on around strategic initiatives to improve our mix, but also, as loan growth picks up in both sides of the countries, pricing and margin will behave differently. We are putting it all together as a package to stay relatively stable.
Ebrahim Poonawala (Managing Director of Head of North American Banks Research)
Got it. I guess on that point, on the loan growth, maybe Aron, we've seen the Fed HA data looks pretty good on C&I year to date, like commentary from the regional banks have been strong. Just talk to us if there's been a discernible change in sort of customer behavior in the U.S. around, like, wanting to invest, and that's driving loan demand or not. You talked about CRE inflicting a little bit. Then maybe on the other side of the border, just the level of optimism, caution on the Canadian macro as we look out over the next six to 12 months. Thank you.
Darryl White (CEO)
Thanks, Abraham. There's no question. We're hearing it from our clients. We're seeing it in the way the pipelines are building and the activity and the conversations we're having across both the commercial bank and the corporate bank. With Alan, there's a lot of enthusiasm building across the businesses, and we're seeing that play out. Again, the optimization work we do sort of mutes some of that excitement in the Q1, but as that comes to an end, we'll see that come through the rest of the year. In terms of client sentiment, we're hearing a lot of people that are feeling a little more comfortable again with some of the uncertainty and how to handle it and starting to invest again, and we're right there with them.
Christine Viau (Head of Investor Relations)
And then, uh-
Ebrahim Poonawala (Managing Director of Head of North American Banks Research)
Go ahead.
Christine Viau (Head of Investor Relations)
Thanks, Ebrahim. In Canada, I think the story is very much the same with two maybe main differences. The first being, we don't have an optimization program, so that's not a headwind for us. The Canadian macro is maybe a little more uncertain as both Darryl and Piyush covered in their comments. We have a lot of confidence in quarter-over-quarter momentum from here. Just to give you a sense of where that confidence comes from, it's increasing pipelines. We're starting to see acceleration in the middle market, and we've seen increased closings of deals for the first time since the tariff uncertainty arose.
You know, based on that, we've invested in people, we've invested in AI tools, and, you know, with the strong deposit growth, the TPS fees, and our great revenue, you know, we feel like we're really well set up as we move into the end of the year and, importantly, into fiscal 2027 as well.
Ebrahim Poonawala (Managing Director of Head of North American Banks Research)
Got it. Thank you.
Operator (participant)
Our next question comes from Doug Young from Desjardins Capital Markets. Please go ahead. Your line is open.
Doug Young (Analyst)
Hi, good morning. Just going to the U.S. commercial loan growth. You talked a lot about optimization. and various items, but maybe we can dig a little bit down into it. Can you quantify the portfolio optimization and what impact it had in the quarter, and what does 90% mean, and what impact will it have in the next quarter? Just to give some sense around that. Then, I think there was mention of new record new client acquisitions in the U.S. Can you maybe flesh this out? 'Cause it seems like you are kind of winning new business when we kind of pull out the optimization impact. Just hoping to get down into a little bit.
Darryl White (CEO)
Yeah
Different detail around that.
Aron Levine (President of BMO U.S.)
Okay. Thanks, Doug. I think from an optimization standpoint, probably the best number is around $6 billion of sort of balance sheet loans reduction over the course of the last four quarters. Our loans are down about 5% across U.S. banking. Remember, our optimization work is both on the deposit side, as we've rolled off higher priced CDs and are repositioning ourselves both in the commercial business and the consumer business on higher quality, lower cost deposits. You have optimization work that covers both sides, loans and deposits. Where you're seeing real momentum, again, you look at our commercial TPS fees, up 23% year-over-year, up 17% quarter-over-quarter. You know, that is this idea of we have great client relationships that we are now deepening with them.
We're driving more high-quality cash with those clients. You look again at our non-interest checking, an important benchmark for us in terms of how we're doing on the consumer side of the business, creating primary relationships that we can then, over time, grow both on the wealth side and more. Everything we're doing in the U.S. now comes down to how we operate in our markets that are, A, very focused on markets. B, we're very focused on being a unified organization so that our wealth business, our commercial business, and our personal business are going to market together. We're seeing that in higher referrals, we're seeing that in more closed business, and that's really important. Of course, the discipline that we're showing now on both risk and pricing.
The goal for us is to not just to grow, but to grow in a sustainable way so that we do achieve our long-term targets of ROE. It's all coming together. We feel very good about the progress we've made. We've got work to do, but we feel confident about where the momentum is pointing to over the next couple quarters.
Doug Young (Analyst)
The evolution of growth being more on the back end, that outlook hasn't changed?
Aron Levine (President of BMO U.S.)
Yeah, the outlook is the same. We think there'll be mid-single-digit loan growth from here. Again, the execution from here really comes down to we've put great talent in the field. We've built an organizational alignment, where we are working very well in the industries that we serve, but across both with our treasury partners and our Capital Markets partners, and we're delivering the kind of industry expertise that ultimately wins clients and relationships, and that's what you're seeing.
Doug Young (Analyst)
Okay. Second question, maybe Piyush. How do we think about the evolution of performing loan ACLs? I mean, Canada looks like it's a little bit more challenged. U.S. looks like it's, you know, a little bit better outlook in terms of from a macro perspective. You know, you haven't been growing much, so loan books, like the performing loan PCL hasn't been much because of that as well. How do we think about that? And the macro-
Outlook seems to be improving, even though we have, you know, a lot of geopolitical uncertainty. I know there's lots that goes into the performing loan side, but how can you give us comfort around that?
Piyush Agrawal (Chief Risk Officer)
Yeah.
Doug Young (Analyst)
The evolution of that?
Piyush Agrawal (Chief Risk Officer)
Yeah, sure. Thanks, Doug. We've ended the quarter at CAD 4.6 billion, and it's a strong coverage of 69 basis points. As you know, our allowance goes through the rigorous process, reflects a range of downside scenarios, including some of the trade-related stresses. I think the question going forward is not whether uncertainty exists, it does, but whether that's translated into observable changes in our portfolio. When I break that down between U.S., Canada, wholesale, retail, the U.S. is on a better footing. Our risk rating migration, our drivers of what we are seeing in portfolio quality from flows and formations into watchlist and embeds has been improving. That's a good positive sign across in the U.S., and I would say also it's stable in Canadian Commercial.
The Canadian commercial macros are a little bit more softer, and so where we expect to see is until some of this uncertainty comes down, I don't expect any releases. At the same time, I think some of the performing provision will be consumed by what you're hearing on the call of the momentum on loan growth that's going to pick up. Again, when all of this, you know, bring back together, I'm not expecting any releases in the near term. I also don't see any large builds unless there's a big shift in the environment, and so loan growth is going to be the big driver for us going forward, especially as quality is stabilizing. I'll leave it to exactly where you know, we've ended the quarter in the same range as we go forward.
Doug Young (Analyst)
Appreciate the color. Thank you.
Operator (participant)
Our next question comes from Paul Holden from CIBC. Please go ahead. Your line is open.
Paul Holden (Director)
Yeah, thanks. Good morning. I want to continue sort of the line of questioning on the U.S. segment, but instead of talking about the loan growth, which is being well covered, maybe talk about the deposit growth, because I think, you know, the NIM, which you've also got a question on, is an important component of that. If loan growth resumes, obviously you're going to have to resume deposit growth and low cost deposit growth. Maybe talk a little bit about the outlook there and how that will be achieved.
Aron Levine (President of BMO U.S.)
Yeah, thanks. I'll hit a couple comments, and then I think, you know, important that we will have more opportunity in Investor Day to go into a lot more detail, especially on this topic. When you think about where we are on the consumer side, what driving to, again, being the primary relationship with clients is critical, right? We, we do this with, we have a whole series of different segments that we can work with with clients. We have a great Bank at Work program, that we work with sort of small business owners, both on their business and personal relationship. That program we can expand to commercial clients, and we'll talk more about that again in a couple weeks.
We certainly have a big opportunity with our mass affluent segment, where we can grow that deposits substantially. Across the board, we have a whole series of places that we can grow. Obviously, as we densify in regional coverage, certainly out west, there's opportunity there, and we're kind of pursuing that program as we've talked about in the past through our de novo. You know, right now the key is we're showing 3% net checking growth. As always, when you talk about deposit growth, it's both how you acquire, and equally important is how you retain. We're putting a lot of initiatives in place, to make sure that we retain our clients and give them the client experience, that makes them stay with us longer.
We'll talk more about that and other things as we get to our March Investor Day.
Paul Holden (Director)
Fair enough. Second question is on capital markets. Obviously, a very strong quarter, so wondering if you can provide us sort of any thoughts on how that momentum may carry forward, particularly with investment banking, like Darryl has highlighted the strength of mining, and I think, deals there continue to flow.
Alan Tannenbaum (CEO)
Thanks, Paul. Appreciate both the question and the recognition. As you would imagine, we also feel very good about our performance this quarter, and really view it as reflective of strength across our franchise with, as you point out, outperformance in very specific areas. To deliver $2 billion plus of revenue, it means that most of our businesses are doing well, and we did have areas of outperformance. Specifically in Global Markets, it was our equity and equity derivative businesses as well as commodities, and then in Investment Banking, it's the advisory and ECM businesses that were led by our mining franchise that both you and Darryl point out, but it was also broad-based across our franchise. The outcome is that this quarter's PPBT is above our trailing five-quarter average of roughly $750.
As we look forward, the environment in markets continues to be constructive, with volatility creating opportunities, and we have a very strong pipeline. Yes, in the mining space particularly, but across our franchises. We are optimistic in our outlook. That said, we wouldn't necessarily extrapolate Q1 outperformance for the full year, and our focus on it as a team is to exceed our trend line on a consistent basis.
Paul Holden (Director)
Got it. Thank you. I will leave it there.
Operator (participant)
Our next question comes from Mario Mendonca from TD Securities. Please go ahead. Your line is open.
Mario Mendonca (Managing Director and Senior Research Analyst)
Good morning. Can I have you look at, I believe it's slide 27? What stands out for me first is the credit card impaired rate at about 6%. I suspect that relates to your exposure to the mass market, but that's just not a number I'm used to seeing at a Canadian bank. Secondary, it looks like it's stabilized here. What I'm asking is, what are we seeing here? We're seeing the exposure to the mass market-
Christine Viau (Head of Investor Relations)
Mario, we lost you for a second. Could you just, we heard-
Mario Mendonca (Managing Director and Senior Research Analyst)
Sure.
Christine Viau (Head of Investor Relations)
Could you just repeat your question? Thank you.
Mario Mendonca (Managing Director and Senior Research Analyst)
Sure. Can you hear me okay now, Christine?
Christine Viau (Head of Investor Relations)
Yep, can hear you good now.
Mario Mendonca (Managing Director and Senior Research Analyst)
Yeah, the credit cards, the loss rate there, the impaired PCL rate on credit cards, it's not a number you see too often at a Canadian bank at 6%, but it has stabilized. What I'm getting at now is: What is your outlook for the unsecured consumer? I'm thinking personal lending, credit cards, for BMO specifically in the near term. Do things look like they're improving somewhat, as you heard from another bank yesterday? What's your outlook there?
Mat Mehrotra (Group Head of Canadian Personal and Business Banking and Co-Head Canadian Personal and Commercial Banking)
Mario, it's Mat speaking. I'd go back to my comments from the last call. You captured it well. We see stress at the lower end of the market. That's a broad phenomenon in the country. It is more visible for us. That's showing up in the losses that you're pointing out right now. We have, of course, made adjustments where we've seen risks elevate. We try to manage that risk. On the flip side, we're focused on growth in our premium business, which is showing really good momentum. Premium account growth is up 13% year-over-year. Our Porter partnership is a part of that. It's broad-based beyond beyond that. We do see this business.
Obviously, it does ebb and flow with the macro environment. Our outlook is tied pretty closely to unemployment and improvement in the Canadian economy overall. This quarter, your comments on the stability, we did see a good insolvency performance. That's a little bit hard to predict over time, but we do see this stabilizing for the most part.
Mario Mendonca (Managing Director and Senior Research Analyst)
All right. Just looking at the U.S., I acknowledge the $6 billion reduction in RWA over the last four quarters. Is there room to take the U.S. RWA still lower, or are you essentially at the end there?
Darrel Hackett (President and CEO)
I'll take it, Mario. It's Darrell. I mean, I think you always optimization is a big word that's come up, you know, to my liking, way too often with all of you as it goes through, because it's kind of coming to the end, and we're going to be effectively complete on this on the end of the second quarter, as we've said. It is, as you know, an ongoing BAU thing that everybody does. Do we see further, you know, significant reductions in the quote-unquote program? No. I think when we say we're kind of getting to the end, we're getting to the end.
What you should see from here is the low return stuff that still exists from time to time, rolls off and better return assets roll on, and we'll continue to manage the mix, both on the loan side and the deposit side, as we said earlier, as we go forward. If you kind of look out to where the market performs over the course of, you know, the rest of 2026 and 2027 and then beyond, frankly, you know, our expectation is that we'll perform and we'll protect market share, and we'll perform at the market or better as we go through that net.
Mario Mendonca (Managing Director and Senior Research Analyst)
All right, one final quick thing. U.S. NIM up 13 basis points in the quarter, the shift to core deposits from term. All these are positive things. That sounds contrary, however, to the guidance that U.S. NIM should be stable from here. That just doesn't seem. I'm not sure I understand how that can be true, both things can be true, the shift to core and stable at the same time.
Rahul Nalgirkar (CFO)
Mario, this is Rahul. Primarily our guidance on stable is more at a bank core level. We will see variability within the businesses, depending upon the strategic initiatives, especially like in U.S., Aron talked about mass affluent and checking and savings account growth there, and depending upon also how the competitive landscape evolves. At least in the near term, we do expect some more strength in the U.S., and then also as loan growth picks up, things would look different. You know, when you bring it all together, that's how we think about the U.S. When I mention relative stability, that is at the bank, all bank level.
Mario Mendonca (Managing Director and Senior Research Analyst)
All right. Got it. Thank you.
Operator (participant)
Our next question comes from Mike Rizvanovic from Scotiabank. Please go ahead. Your line is open.
Mike Rizvanovic (Managing Director)
Good morning. First one, maybe for Sharon. Just wanted to get a bit more color on the NIR in Canadian Personal and Commercial Banking. I saw the comment on slide 14 about above-trend card fees due to revised future redemption assumptions. Can you just give me a bit more granularity? I'm just trying to understand if that is that like a one-off on this quarter, or is this like a new run rate? I noticed the card fees, CAD 261 million in the quarter for the Bank overall was pretty elevated versus historical.
Mat Mehrotra (Group Head of Canadian Personal and Business Banking and Co-Head Canadian Personal and Commercial Banking)
Hey, Mike, I'll take that one. On the card fees overall, the above trend that you're noting, we go through an ongoing process to evaluate our accrual rates relative to customer behavior. In this particular case, we saw accrual rates that were above our reward redemption rates, and obviously that's the gain that you're seeing in our fees. For fees overall, though, acknowledging that above-trend item and a couple other ones, we are seeing really good momentum in our commercial business, double-digit NIR growth, and our mutual fund fees as well are performing really well in line with the sales comments that Darryl made earlier. Overall, the outlook is solid on NIR, acknowledging that those above-trend items for this quarter.
Mike Rizvanovic (Managing Director)
That is specific to the quarter. It's not like a necessarily a new run rate. Is that fair?
Mat Mehrotra (Group Head of Canadian Personal and Business Banking and Co-Head Canadian Personal and Commercial Banking)
No. You'll see a marginal benefit of that in the quarters to come, but nothing in line with what we've seen for this quarter.
Mike Rizvanovic (Managing Director)
A bit elevated this quarter. It could come back down. Okay. Okay, thank-- that's helpful, Matthew. Then maybe just one for Piyush. I just wanted to get your thoughts on. Canada's housing market. I know it's always very topical, just some of the recent trends, things just don't seem to be getting better. I know there's a lot of moving parts that make up your ECLs and all the assumptions that go into that. Do you have any concerns, any real concerns that a weak housing market? You know, we're seeing inventories rise, sales volumes very, very weak. Are you concerned that if it just continues to move along this trend line, that maybe it's more meaningful of a hit to the Canadian economy?
Not directly on the mortgage book per se, but just more broadly speaking. Any thoughts you could offer would be helpful.
Piyush Agrawal (Chief Risk Officer)
Yeah, I can begin. I mean, broadly, the housing market obviously is a structural strength in the overall Canadian economy. We have seen the softness in Canadian housing. You can see that in the offtake and new sales. Inventory has been up a bit. Some of this might be the winter effect, some of this might be the impact of just the news uncertainty. At some point the backlog has to clear. I think it will kickstart as, you know, spring comes around. More in terms of our own portfolio, you're seeing higher delinquencies. Mat touched on this. This is some of the stress in the Canadian consumer. We see that in consumer spend, we see this in other places. That's the softness we've generally talked about.
I don't see that broadly for us or the Canadian market translate into higher losses. The LTVs are strong. Even with the refresh of the HPI decline, they remain strong and FICOs are good. The behavior we've seen from renewals in the last few quarters has actually been very good. Delinquency levels of renewing customers, a third of them at lower rates, some at a higher rate, are actually comparable to the rest of the portfolio. This will take some time, but I'm hopeful for the spring to come around and actually reinvigorate the market.
Mike Rizvanovic (Managing Director)
Okay, that's helpful context. Thanks for that.
Operator (participant)
Our last question will come from Darko Mihelic from RBC. Please go ahead, your line is open.
Darko Mihelic (Managing Director and Senior Equity Analyst)
Hi, thank you. I wanted to circle back on to net interest margin discussion as well. This may be a topic for the BMO Investor Day, and happy to defer to them, but I am just curious on one thing with respect to what we're seeing, specifically in Canada. You know, we saw some good deposit margin improvement. One of the things that I often do is I try and look and sort of see what banks are doing differently. There is one place where you stand out very different from the crowd, and it's been for quite some time now, where in the deposit market, and particularly in term, your rates that you're offering are materially lower than your big bank peers.
Like very almost 100 basis points this morning, lower on term, in the brokered deposit market. The question is: how long do you think this persists, and how impactful has this been in terms of running off term deposits? Are you more or less running them off in the brokered market? How long can this persist? Are we seeing any level of deposit competition heating up yet in Canada? Thank you.
Darryl White (CEO)
Yeah, thanks for the question, Darko. The overall story on deposits in Canadian P&C and in retail overall, is we've been seeing really strong operating deposit growth, that's been driven by really strong net customer growth. We're getting primary relationships in the market at a faster rate than our competitors, that's giving us the opportunity to optimize our term business. We think about our term business in two different parts. There's obviously the term that we sell to our own clients in our branches, digital channels, in our contact center, as well as the broker term, which are the rates that you're looking at. Our optimization obviously focuses on first and operating deposit as needed, then term with our existing clients, and third party as sort of the final area where we'd look.
As the operating deposit performance continues to be strong and in line with the company's liquidity needs, we haven't really focused on driving that channel, and so it will sort of trend in line with our overall loan growth outlook for the company.
Darko Mihelic (Managing Director and Senior Equity Analyst)
Okay, thanks. I'd imagine there'll be more follow-up when I see all bank results and at your Investor Day. I appreciate that. I guess the where I'm going with this is, if the outlook for margin is somewhat stable on I'm just wondering how, you know, has this sort of run its course on the term side in terms of deposit mix?
Darryl White (CEO)
I would say it has not totally run its course. There's still some tailwinds that we'll see on this. It won't be at the rate that you've seen up to this point, but it will continue. Again, the underlying drivers of this are strong operating deposit growth and the opportunity that that presents. And we expect that to continue, but of course, not to the same degree as you've seen.
Darko Mihelic (Managing Director and Senior Equity Analyst)
Okay, great. Thank you.
Operator (participant)
We have no further questions. I would like to turn the call back over to Darryl White for any closing remarks.
Darryl White (CEO)
Well, thank you, operator, and thank you all for your questions this morning. Look, to sum up, I would reemphasize that we had a very strong start to 2026. The momentum is continuing to build as we're focusing on what we've told you we would, which is improving our ROE and driving profitable growth. As I said earlier, my conviction in achieving this outcome, against our ROE objectives, is very strong and on time. With that, we look forward to speaking with all of you again on the 26th of March at our Investor Day. Thank you very much.
Operator (participant)
This concludes the BMO Financial Group's Q1 2026 earnings release and conference call. Thank you for your participation. You may now disconnect.