Earnings Call Transcript - BMO Q1 2026

Operator, Operator

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. Thank you, and good morning, everyone. We will begin today with remarks from Darryl White, BMO's CEO; followed by Rahul Nalgirkar, our Chief Financial Officer; and Piyush Agrawal, our Chief Risk Officer. Also present today to answer questions are our group heads, Matt 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 2, 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, and 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 $3.48, up 15% from last year and included a previously announced severance charge of $202 million that reduced EPS by $0.21. And we saw continued momentum in our ROE improvement. The bank achieved record pre-provision pretax earnings of $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, and we continue to target positive operating leverage again this year. Credit performance remains in line with our expectations, and our CET1 ratio of 13.1% remains strong and above our target even as we continue 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 an 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, and 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% and 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 continue to adopt our innovative treasury and payment solutions, driving 9% growth in operating deposits and a 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 $893 million, driven by strong trading activity and higher advisory fee revenue. Our performance reflects continued strength in market-leading franchises, including a #1 ranking in ECM and a #2 position in investment banking share of wallet in Canada and robust equities trading and M&A activity in the U.S. 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 Defence 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 Defence, 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 all-bank Investor Day on the 26th of March. And 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 8. The bank delivered strong operating performance this quarter. The first quarter reported EPS was $3.39 and net income was $2.5 billion. Adjusting items are shown on Slide 42, and the remainder of my comments will focus on adjusted results. EPS was $3.48, up 15% from last year on record PPPT of $4.1 billion and lower PCL. Net income was $2.6 billion, up 11% from last year. As previously announced, our results include a charge of severance costs of $202 million or $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 $746 million with lower impaired and performing provisions. Piyush will speak to that in his remarks. Moving to Slide 9. 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 the 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&BB 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 noninterest revenue on Slide 11. NIR increased 9% from the prior year with strong growth in wealth, including the Burgundy acquisition, higher advisory fees and stronger trading revenues as client activity and market performance remain 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 $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 remained 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 U.S. 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, PPPT 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 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 and 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 $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, and 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 was stable quarter-over-quarter at 44 basis points or $746 million with impaired provisions declining $11 million to $739 million. By operating segment, Canadian Personal and Commercial impaired losses were $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 $8 million to $29 million. Turning to Slide 21. The $7 million performing provision reflects stability and strength in our existing reserve position. The $4.6 billion performing allowance continues to provide strong coverage at 69 basis points over performing loans, and we remain well reserved. On Slide 22, gross impaired loans decreased $228 million to $6.9 billion or 102 basis points, driven by lower formations in our commercial businesses, which decreased $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 and 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 of 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, Operator

And our first question comes from Gabriel Dechaine from National Bank Financial.

Gabriel Dechaine, Analyst

I think the ROE performance this quarter, especially after some of the comments you made earlier this year is a standout, and that's a good thing, great progress there. But I don't want to be that guy, but the U.S. looks to be a little bit flatter. And 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 the way you get there might be a bit different than the original plan because the U.S. was almost half of that expansion plan.

Darryl White, CEO

Yes, Gabe, it's Darryl. I'll expand on your answer, and then I might ask Aron to add in, since he's effectively executing the plans in the U.S. I believe we are on track in all areas. Looking at the overall company, we aim for a March increase of 15%. When we set our objective for the fourth quarter of 2024, we were at 9.8% that year. Considering how many quarters it will take to reach our goal, we're about 60% of the way there with 40% of the time left. If this were a linear process, which it might not be, we would be ahead of schedule. The U.S. was always expected to improve slightly later than Canada as it develops. That progress is also on track. We're about 90% through our optimization efforts in the U.S., and we expect to complete that as mentioned in the second quarter of this year. Once that is done, we should see significant acceleration. Additionally, I want to highlight that we have improved by 150 basis points year-over-year in U.S. ROE, which already contributes positively to the overall bank ROE, with more growth ahead. Aron, over to you to discuss our direction going forward.

Aron Levine, U.S. Banking

Yes. 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. But loans and deposits are down about 3% to 5% as a result of that work. Of course, ROE up, as Darryl said, as our margins, and revenue is actually up 2% year-over-year. So we've seen really good progress, whether it be fee income on commercial TPS, M&A or noninterest checking. So now what you'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. So 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, Analyst

Okay. Great. And then to be clear, I was talking about linked sequential quarter there. But sticking with the U.S., I look at the margin at 4%, that's definitely peak-ish. 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. And I just want to get more, I guess, the outlook for loan growth, what are some of the pillars for that confidence, I guess? Is the breakdown of private credit a little bit of a tailwind for you, maybe?

Aron Levine, U.S. Banking

No, my confidence comes from a couple of 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, we feel like that's what's going to drive our growth. So the relationships we have with our clients, 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. So 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.

Operator, Operator

Our next question comes from Ebrahim Poonawala from Bank of America.

Ebrahim Poonawala, Analyst

I guess maybe first question, just following up, Rahul, on Slide 10 in terms of the net interest margin, I guess, as all of us think about the ROE improvement from here, you break down the 3 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 here, what's the level of margin expansion you expect on both sides of the border? And how should we think about the 3 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 the last couple of quarters, we do recognize that we've had nice NIM expansion. And 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. And also, we've been opportunistic about ladder reinvestments when we saw the right opportunity. So as we now fast forward that where we are heading, the ladder reinvestments and the mix will continue to benefit us, perhaps to a lesser extent. And we are also closely monitoring how the competitive landscape evolves in both countries, both for loans and deposits. So when you put it all together, we are still thinking about a relatively stable outlook in the near term for NIM.

Ebrahim Poonawala, Analyst

Got it. So 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, on our 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. So we are putting it all together as a package to say relatively stable.

Ebrahim Poonawala, Analyst

Got it. And I guess on that point on the loan growth, maybe, Aron, we've seen like Fed H8 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 inflecting a little bit. And 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 6 to 12 months.

Darryl White, CEO

Yes, thanks, Ebrahim. Yes, 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 mute some of that excitement in the first quarter. But as that comes to an end, we'll see that come through the rest of the year. But 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.

Sharon Haward-Laird, Canadian Commercial Banking

And then 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. And then the Canadian macro is maybe a little more uncertain as both Darryl and Piyush covered in their comments. But we have a lot of confidence in quarter-over-quarter momentum from here. And 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. And so based on that, we've invested in people, we've invested in AI tools. And with the strong deposit growth, the TPS fees and our great revenue, we feel like we're really well set up as we move into the end of the year and importantly, into fiscal '27 as well.

Operator, Operator

Our next question comes from Doug Young from Desjardins Capital Markets.

Doug Young, Analyst

Could you provide more details on the U.S. commercial loan growth? You mentioned optimization and related factors, but I'd like to understand the quantifiable impact of portfolio optimization this quarter and what the term 90% refers to. Additionally, how will this influence the next quarter? It was also noted that there have been record new client acquisitions in the U.S. Can you elaborate on this, as it appears you are gaining new business beyond the optimization effects? I would appreciate more detail on these topics.

Darryl White, CEO

Thanks, Doug. So 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. So you have optimization work that covers both sides, loans and deposits. And where you're seeing real momentum, again, if you look at our commercial TPS fees, up 23% year-over-year, up 17% quarter-over-quarter. That is this idea of we have great client relationships that we are now deepening with them. We're driving more high-quality cash for 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. So everything we are 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. And of course, the discipline that we're showing now on both risk and pricing, the goal for us is to not just grow but to grow in a sustainable way so that we do achieve our long-term targets of ROE. So 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 of quarters.

Doug Young, Analyst

And the evolution of growth being more in the back end, that outlook hasn't changed.

Darryl White, CEO

Yes, the outlook is the same. We think there'll be mid-single-digit loan growth from here. And 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 across both with our treasury partners and our capital market 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. And then for the second question, Piyush, how should we consider the changes in performing loan allowance for credit losses? It seems that Canada is facing some challenges, while the U.S. has a more positive outlook. You haven't experienced much growth in your loan book, which may explain why the performing loan provision for credit losses hasn't increased significantly. How should we interpret this situation? Although there is ongoing geopolitical uncertainty, the macroeconomic outlook appears to be improving. Considering the complexities involved in the performing loan aspect, how can you provide reassurance about its evolution?

Piyush Agrawal, Chief Risk Officer

Yes. Sure. Thanks, Doug. So we've ended the quarter at $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, whether that's translated into observable changes in our portfolio. And so when I break that down between U.S., Canada, wholesale, retail, the U.S. is on a better footing. Our risk rating migration are drivers of what we are seeing in portfolio quality for flows into formations into watch list and embeds has been improving. So that's a good positive sign across in the U.S. And I would say also it's stable in Canadian Commercial. Now 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. So again, when all of this 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. So I'll leave it to exactly where we've ended the quarter in the same range as we go forward.

Operator, Operator

Our next question comes from Paul Holden from CIBC.

Paul Holden, Analyst

So 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 the NIM, which you've also got a question on, is an important component of that. So if loan growth resumes, obviously, you're going to have to resume deposit growth and low-cost deposit growth. So maybe talk a little bit about the outlook there and how that will be achieved.

Darryl White, CEO

Thanks. I'll make a few comments, and it's important to note that we'll have more opportunities at Investor Day to discuss this topic in greater detail. On the consumer side, establishing ourselves as the primary relationship with clients is essential. We have various segments we can engage with, including a strong bank-at-work program targeting small business owners for both their business and personal needs. This program can be expanded to commercial clients, which we will elaborate on in a couple of weeks. We also see significant potential to grow deposits from our mass affluent segment. Overall, there are numerous areas for growth. As we increase our regional coverage, particularly out West, we're pursuing that through our de novo strategy. Currently, we are seeing a 3% net growth in checking accounts. When considering deposit growth, it’s crucial to focus on both acquisition and retention. We are implementing several initiatives to ensure we retain our clients and provide them with a positive experience that encourages loyalty. We'll provide more updates on this and other topics during our Investor Day in March.

Paul Holden, Analyst

Okay. 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.

Darryl White, CEO

Thanks, Paul. I 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. So the outcome is that this quarter's PPPT is above our trailing 5-quarter average of roughly $750 million. And 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. So we are optimistic in our outlook. That said, we wouldn't necessarily extrapolate Q1 outperformance for the full year. And our focus on as a team is to exceed our trend line on a consistent basis.

Operator, Operator

Our next question comes from Mario Mendonca from TD Securities.

Mario Mendonca, Analyst

Can I have you look at 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. It looks like it's stabilized here. So the question I'm asking is, what are we seeing here? Are we seeing the exposure...

Operator, Operator

Mario, we lost you for a moment. Could you please repeat your question?

Mario Mendonca, Analyst

Sure. Can you hear me okay now, Christine? Yes, 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. So 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?

Mathew Mehrotra, Canadian Personal Business Banking

Mario, it's Matt speaking. I'd go back to my comments on the last call. You've 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 up right now. We have, of course, made adjustments where we've seen risks elevate. We try to manage that risk. And 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 quarter partnership is a part of that, but it's broad-based beyond that. We do see this business, obviously, it does ebb and flow with the macro environment. And so 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, Analyst

All right. Just looking at the U.S., I acknowledge the $6 billion reduction in RWA over the last 4 quarters. Is there room to take the U.S. RWA still lower? Or are you essentially at the end there?

Darryl White, CEO

Sure, I can address that, Mario. It's Darryl. Optimization has come up quite frequently in our discussions as we approach the conclusion of this phase, which will be effectively completed by the end of the second quarter, as we've mentioned. However, this is an ongoing business-as-usual process for everyone involved. Do we anticipate more significant reductions in the program? Not really. When we say we are nearing completion, we mean it. Moving forward, you should expect to see the low-return assets gradually rolling off while better-return assets come in, and we'll keep managing that mix on both the loan and deposit sides as previously mentioned. Looking ahead to how the market will perform throughout the remainder of 2026, 2027, and beyond, we expect to maintain our market share and perform at or above market levels during that period.

Mario Mendonca, Analyst

U.S. NIM increased by 13 basis points this quarter, indicating a positive shift to core deposits from term deposits. However, this seems to contradict the guidance that U.S. NIM should remain stable moving forward. I'm not sure how both can be true at the same time, as it's possible for both the shift to core deposits and stability to coexist.

Rahul Nalgirkar, CFO

So Mario, this is Rahul. Our guidance on stability primarily focuses on the core banking level. We anticipate some variability within the businesses based on strategic initiatives, particularly in the U.S. Aron mentioned growth in mass affluent and checking and savings accounts, which will also depend on how the competitive landscape changes. In the near term, we expect to see more strength in the U.S. As loan growth increases, the situation will look different. Ultimately, that's our perspective on the U.S. However, when I refer to relative stability, I mean at the overall bank level.

Operator, Operator

Our next question comes from Mike Rizvanovic from Scotiabank.

Mehmed Rizvanovic, Analyst

I would like to request more details regarding the NIR in Canadian Personal and Commercial Banking. I noticed the comment on Slide 14 about higher-than-average card fees due to updated future redemption expectations. Can you provide more specifics? I'm trying to determine whether this increase is a one-time occurrence for this quarter or if it reflects a new trend. I observed that the card fees reached $261 million this quarter, which is notably higher compared to historical data.

Mathew Mehrotra, Canadian Personal Business Banking

Sure, I'll take that. Regarding the card fees, the trend you've mentioned reflects our continuous evaluation of accrual rates in relation to customer behavior. In this case, we observed accrual rates that exceeded reward redemption rates, which explains the increase in our fees. Overall, despite this trend and a few other factors, our commercial business is showing strong momentum with double-digit growth in NIR, and our mutual fund fees are also performing well, aligning with Darryl's earlier sales comments. So, the outlook for NIR remains strong, taking into account those above-trend factors for this quarter.

Mehmed Rizvanovic, Analyst

So that is specific to the quarter. It's not like necessarily a new run rate. Is that fair?

Mathew Mehrotra, Canadian Personal Business 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.

Mehmed Rizvanovic, Analyst

Okay. So a bit elevated this quarter. It could come back now. Okay. Okay. That's helpful, Matthew. And 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. And just some of the recent trends, things just don't seem to be getting better. And I know there's a lot of moving parts that make up your ECLs and all the assumptions that go into that. But do you have any concerns, any real concerns that a weak housing market, 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

Yes, I can start. Overall, the housing market is clearly a fundamental strength in the Canadian economy, although we have noticed some weakness in it. This is evident in the off-take and new sales. Inventory levels have increased slightly. Some of this may be due to seasonal factors, while other parts could be attributed to uncertainty in the news. Eventually, the backlog will need to clear, and I believe it will pick up as spring approaches. Regarding our portfolio, we are starting to observe a rise in delinquencies, which Matt mentioned. This reflects some stress among Canadian consumers, visible in consumer spending and other areas. This general softness does not, in my view, suggest that we will see higher losses either for us or in the broader Canadian market. Loan-to-value ratios remain strong despite the recent home price index decline, and credit scores are in good shape. Additionally, the renewal behavior we’ve seen over the last few quarters has been quite positive. The delinquency rates of renewing customers, one-third are at lower rates and some at higher rates, are comparable to the rest of our portfolio. While this will take time to stabilize, I am optimistic that spring will bring renewed activity in the market.

Operator, Operator

And our last question will come from Darko Mihelic from RBC.

Darko Mihelic, Analyst

I wanted to revisit the discussion on net interest margin. This may be more suitable for the Investor Day, so I can hold off on it for now. However, I have a question regarding what we are observing in Canada. We have seen some positive improvements in deposit margins. I often look into what different banks are doing. One area where your bank is notably different from others is in the deposit market, especially regarding the rates you're offering, which are significantly lower than those of the larger banks—almost 100 basis points lower in the brokered deposit market this morning. My question is, how long do you anticipate this situation will last? What impact has this had on your term deposits? Are you seeing more or fewer term deposits being managed in the brokered market? How sustainable is this position? And are we beginning to notice any increase in deposit competition in Canada?

Mathew Mehrotra, Canadian Personal Business Banking

Yes. Thanks for the question, Darko. The overall story on deposits in Canadian P&C and Retail overall is we've been seeing really strong operating deposit growth, and that's been driven by really strong net customer growth. So we're getting primary relationships in the market at a faster rate than our competitors, and 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 an operating deposit as needed, then term with our existing clients and third party as sort of the final area where we'd look. And 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, Analyst

Okay. I'd imagine there'll be more follow-up when I see all bank results at your Investor Day, but I appreciate that. I guess where I'm going with this is if the outlook for margin is somewhat stable, I'm just wondering how has this sort of run its course on the term side in terms of deposit mix?

Mathew Mehrotra, Canadian Personal Business Banking

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.

Operator, Operator

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. And as I said earlier, my conviction in achieving this outcome against our ROE objectives is very strong and on time. So 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, Operator

This concludes the BMO Financial Group's Q1 2026 Earnings Release and Conference Call. Thank you for your participation. You may now disconnect.