Q2 2026 Bank of Montreal Earnings Call

May 27, 2026

Rachel Smith: Good morning, welcome to BMO Financial Group's Q2 2026 Earnings Release and Conference Call for 27 May 2026. Your host for today is Christine Viau. Please go ahead.

Operator: Good morning, welcome to BMO Financial Group's Q2 2026 Earnings Release and Conference Call for 27 May 2026. Your host for today is Christine Viau. Please go ahead.

Speaker #2: Please go ahead.

Speaker #1: Thank you. And good morning, everyone. We will begin today with remarks from Darrell White, BMO's CEO, followed by we'll now go to our chief financial officer and Piyush Agrawal, our chief risk officer.

Christine Viau: 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, Mathew Mehrotra, Canadian Personal and Business Banking, Sharon Haward-Laird, Canadian Commercial Banking, Aron Levine, U.S. Banking, Alan Tannenbaum, BMO Capital Markets, Deland Kamanga from BMO 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.

Speaker #1: Also present today to answer questions are our group heads: Matt Marotra, Canadian Personal and Business Banking; Sharon Hayward-Leard, Canadian Commercial Banking; Aaron Levine, US Banking; Alan Tannenbaum, BMO Capital Markets; Dellen Kamenga from BMO Wealth Management; and Darrell Hackett, BMO US CEO.

Speaker #1: 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.

Speaker #1: 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.

Speaker #1: Darrell and Rahul will be referring to adjusted results in their remarks unless otherwise noted as reported. And with that, I will now turn the call over to Darrell.

Christine Viau: Darryl White and Rahul Nalgirkar will be referring to adjusted results in their remarks, unless otherwise noted as reported. With that, I will now turn the call over to Darryl White.

Speaker #2: Thank you, Christine. And good morning, everyone. At our March Investor Day, we laid out a clear execution-focused plan to elevate returns and accelerate growth.

Darryl White: Thank you, Christine, good morning, everyone. At our March Investor Day, we laid out a clear execution-focused plan to elevate returns and accelerate growth. Our Q2 results continued to demonstrate meaningful progress and momentum against these commitments. We once again strengthened return on equity and delivered strong EPS growth, driven by our focus on deepening client relationships, innovating to drive business value, and optimizing for performance. Adjusted EPS was CAD 3.67, up 40% from last year, with pre-provision pretax earnings of CAD 4.4 billion, up 16%, and record net income of CAD 2.7 billion, driven by robust fee revenue across Capital Markets, Wealth Management, and Treasury and Payment Solutions. Operating leverage was strong at 4.1%. Credit remains well managed and in line with our expectations, with PCL stable from last quarter. We're well reserved with performing loan coverage at 69 basis points.

Speaker #2: Our second quarter results continued to demonstrate meaningful progress and momentum against these commitments. We once again strengthened return on equity and delivered strong EPS growth, driven by our focus on deepening client relationships, innovating to drive business value, and optimizing for performance.

Speaker #2: Adjusted EPS was $3.67, up 40% from last year, with pre-provision pre-tax earnings of $4.4 billion, up 16%, and record net income of $2.7 billion, driven by robust fee revenue across capital markets, wealth management, and treasury and payment solutions.

Speaker #2: Operating leverage was strong at 4.1%. Credit remains well-managed and in line with our expectations, with PCL stable from last quarter. We're well reserved, with performing loan coverage at 69 basis points.

Speaker #2: Our CET1 ratio is strong at 13%, and does not include the pro forma impact of the sale of the transportation and vendor finance businesses, which we expect will add 28 basis points.

Darryl White: Our CET1 ratio is strong at 13% and does not include the pro forma impact of the sale of the transportation and vendor finance businesses, which we expect will add 28 basis points. This provides us with ongoing flexibility to support growth and return capital to our shareholders. We bought back 6 million shares this quarter and announced a dividend increase of 5% to CAD 1.71. At Investor Day, we laid out a clear plan to deliver sustainably higher ROE and earnings growth. This quarter's results reinforce that trajectory. Building on peer-leading performance in 2025, where we had number 1 ROE and number 1 EPS growth, we continued that momentum in Q1 and again this quarter with Q2 ROE up 370 basis points from a year ago to 13.5%, and EPS up 40%.

Speaker #2: This provides us with ongoing flexibility to support growth and return capital to our shareholders. We bought back $6 million shares this quarter and announced a dividend increase of 5% to $1.71.

Speaker #2: At Investor Day, we laid out a clear plan to deliver sustainably higher ROE and earnings growth. This quarter's results reinforce that trajectory. Building on peer-leading performance in 2025, where we had number one ROE and number one EPS growth, we continue that momentum in Q1 and again this quarter with Q2 ROE up 370 basis points from a year ago to 13.5%, and EPS up 40%.

Speaker #2: Year to date, underlying ROE is up 200 basis points and EPS is up 30%. ROTCE strengthened to 17.6%—a measure that underscores the strength of our core franchise and our ability to generate top-tier returns on capital deployed.

Darryl White: Year to date, underlying ROE is up 200 basis points and EPS is up 30%. ROTCE strengthened to 17.6%, a measure that underscores the strength of our core franchise and our ability to generate top-tier returns on capital deployed. Our progress has been driven by core operating performance, the strength of our diversified businesses, and our discipline around cost management, risk optimization, and capital allocation. In US Banking, ROE momentum continues to build up 220 basis points from last year to 9.3%. With optimization actions now behind us, we delivered a strong sequential loan growth in the quarter. As expected, we believe that we've now reached an inflection point in this business that will drive an acceleration in profitable growth going forward. All of these improvements position us well to achieve and sustain our number one imperative of a 15% ROE as we exit fiscal 2027.

Speaker #2: Our progress has been driven by core operating performance, the strength of our diversified businesses, and our discipline around cost management, risk optimization, and capital allocation.

Speaker #2: In U.S. banking, ROE momentum continues to build—up 220 basis points from last year to 9.3%. And with optimization actions now behind us, we delivered strong sequential loan growth in the quarter.

Speaker #2: As expected, we believe that we're now reached an inflection point in this business that will drive and acceleration in profitable growth going forward. All of these improvements position us well to achieve and sustain our number one imperative of a 15% ROE as we exit fiscal 2027.

Speaker #2: Each of our businesses delivered strong results this quarter, in Canadian P&C we continue to execute our deposit-led client growth strategy with core operating deposits up 7% in retail and 8% in commercial year over year.

Darryl White: Each of our businesses delivered strong results this quarter. In Canadian P&C, we continue to execute our deposit-led client growth strategy with core operating deposits up 7% in retail and 8% in commercial year-over-year. Canadian commercial banking saw strong customer acquisition across segments. New client growth was up 18% compared with last year, with particular strength in our mid-market segment, supporting stronger loan growth up 2% from last year and last quarter. Treasury and Payment Solutions continues to anchor our client relationships with fees up 12%. In Canadian Personal and Business Banking, we're translating deposit strength to deepen investment relationships. Our teams delivered record mutual fund sales this quarter, up 49% over last year, including continued strength in our preferred program for investors. In US Banking, we're executing against our multi-pronged profitable growth levers.

Speaker #2: Canadian Commercial Banking saw strong customer acquisition across segments. New client growth was up 18% compared with last year, with particular strength in our mid-market segment supporting stronger loan growth up 2% from last year and last quarter.

Speaker #2: Treasury and payment solutions continues to anchor our client relationships with fees up 12%. In Canadian Personal and Business Banking, we're translating deposit strength to deepen investment relationships.

Speaker #2: Our teams delivered record mutual fund sales this quarter, up 49% over last year, including continued strength in our preferred program for investors. In U.S. banking, we're executing against our multi-pronged profitable growth levers.

Speaker #2: In Q2, we delivered record PPPT of $924 million as our client focus and optimization efforts continue to lay the path to accelerated growth and elevated returns.

Darryl White: In Q2, we delivered record PPPT of CAD 924 million as our client focus and optimization efforts continue to lay the path to accelerated growth and elevated returns. Leveraging our top-tier commercial platform, unified US banking model, and differentiated treasury and capital markets capabilities, we delivered sequential quarterly commercial loan growth in the US banking segment of 4% point to point and grew TPS and advisory fees. Core retail operating deposits grew by 4%, and we are making progress on our de novo strategy, where over the next six months we expect to open an average of one financial center per month in Southern California. Together with our ongoing renovations and digital enhancements, these centers are designed to build deeper relationships, bringing together a full suite of personal, business, and wealth advice and products to meet our clients' financial needs.

Speaker #2: Leveraging our top-tier commercial platform, unified US banking model, and differentiated treasury and capital markets capabilities, we delivered sequential quarterly commercial loan growth in the US banking segment of 4% point-to-point and grew TPS and advisory fees.

Speaker #2: Core retail operating deposits grew by 4%, and we're making progress on our de novo strategy, where over the next six months we expect to open an average of one financial center per month in Southern California.

Speaker #2: Together, with our ongoing renovations and digital enhancements, these centers are designed to build deeper relationships, bringing together a full suite of personal business and wealth advice and products to meet our clients' financial needs.

Speaker #2: Wealth management delivered record earnings up 39% on strong markets and increased client assets. AUM was up 30% with continued strength in ETF market share and higher mutual fund sales reflecting strong fund performance.

Darryl White: Wealth Management delivered record earnings up 39% on strong markets and increased client assets. AUM was up 30% with continued strength in ETF market share and higher mutual fund sales reflecting strong fund performance. This past weekend in The Globe and Mail's Best ETFs for 2026 ranking, BMO was firmly among the leaders with 20 funds recognized for providing investors with differentiated value, performance, and ease of investing, underscoring the breadth and the strength of our ETF lineup. Capital Markets showed sustained momentum with PPPT of CAD 900 million driven by equities trading and underwriting and advisory fees. We continued building strength in our market-leading franchises, including a number one ranking in ECM and the top position in investment banking share of wallet in Canada, as well as growing M&A activity in the US. Our world-leading metals and mining business led the way with multiple transactions this quarter.

Speaker #2: This past weekend in the Globe and Mail's Best ETFs for 2026 ranking, BMO was firmly among the leaders with 20 funds recognized for providing investors with differentiated value, performance, and ease of investing, underscoring the breadth and the strength of our ETF lineup.

Speaker #2: Capital markets showed sustained momentum with PPPT of $900 million driven by equities trading and underwriting and advisory fees. We continued building strength in our market-leading franchises, including a number one ranking in ECM and the top position in investment banking, share of wallet in Canada, as well as growing M&A activity in the US.

Speaker #2: Our world-leading metals and mining business led the way with multiple transactions this quarter. As we outlined at our Investor Day, we're anchoring our performance on three clear enterprise priorities: first, growing and deepening client relationships, grounded in one client advice that leverages the strength of our commercial bank.

Darryl White: As we outlined at our Investor Day, we're anchoring our performance on three clear enterprise priorities. First, growing and deepening client relationships grounded in one client advice that leverages the strength of our Commercial Bank. That approach continues to drive tangible benefits in Q2, contributing to higher fee income and client primacy. In Canada, we had solid momentum in referral activity between Commercial and Capital Markets, and a 74% increase in referral revenue between Commercial and Wealth. We continue to extend our leading treasury and payments business, including adding over 2,500 new Business Banking accounts across Canada and the US year to date. Second, we're driving innovation for business value through digital-first AI-powered solutions and actively advancing new use cases focused on relationship-led intelligence, applying AI insights to proactively identify and solve client needs.

Speaker #2: That approach continues to drive tangible benefits in Q2, contributing to higher fee income and client primacy. In Canada, we had solid momentum in referral activity between commercial and capital markets and a 74% increase in referral revenue between commercial and wealth.

Speaker #2: And we continue to extend our leading treasury and payments business, including adding over 2,500 new business banking accounts across Canada and the US year to date.

Speaker #2: Second, we're driving innovation for business value through digital-first, AI-powered solutions, and actively advancing new use cases focused on relationship-led intelligence, applying AI insights to proactively identify and solve client needs.

Speaker #2: Our announcement this quarter to introduce 24/7 tokenized cash capabilities in partnership with the CME Group and Google Cloud reflects the growing importance of digital finance to our clients, an area where we're well positioned to lead.

Darryl White: Our announcement this quarter to introduce 24/7 tokenized cash capabilities in partnership with the CME Group and Google Cloud reflects the growing importance of digital finance to our clients, an area where we're well-positioned to lead. We further advanced our AI strategy through the launch of the BMO Institute for Applied Artificial Intelligence & Quantum, dedicated to the responsible application, governance, and oversight of AI at scale, reflecting our commitment to innovating, developing, and integrating technologies that will shape the future of financial services. We're consistently recognized for innovation leadership, including ranking first in EMARKETER's 2026 Canada Mobile Banking Features Benchmark for the third consecutive year. The third priority, optimizing performance.

Speaker #2: We further advanced our AI strategy through the launch of the BMO Institute for Applied Artificial Intelligence and Quantum dedicated to the responsible application governance and oversight of AI at scale, reflecting our commitment to innovating, developing, and integrating technologies that will shape the future of financial services.

Speaker #2: We're consistently recognized for innovation leadership, including ranking first in e-marketers 2026 Canada mobile banking features benchmark for the third consecutive year. The third priority: optimizing performance.

Speaker #2: As you'll hear from Rahul, we remain disciplined in optimizing performance through expense management and efficiency improvements. And we're also allocating capital to the highest return opportunities and continuing to strengthen the balance sheet, ensuring the flexibility to support growth and capital return to shareholders.

Darryl White: As you'll hear from Rahul, we remain disciplined in optimizing performance through expense management and efficiency improvements. We're also allocating capital to the highest return opportunities and continuing to strengthen the balance sheet, ensuring the flexibility to support growth and capital return to shareholders. Earlier this month, we announced the sale of our transportation and vendor finance businesses, a transaction that is accretive to both capital ratios and ROE. Through our 19.9% equity investment, we'll benefit from ongoing income participation in a more capital efficient way while allocating resources to core markets with deeper client relationship opportunities. With the closing of this transaction and the previously announced branch sale in Q4 of this year, we've effectively and successfully completed the balance sheet optimization program in the U.S. banking segment over the course of the last 6 quarters.

Speaker #2: Earlier this month, we announced the sale of our transportation and vendor finance businesses, a transaction that is accretive to both capital ratios and our OE.

Speaker #2: Through our 19.9% equity investment, we'll benefit from ongoing income participation in a more capital-efficient way, while allocating resources to core markets with deeper client relationship opportunities.

Speaker #2: With the closing of this transaction, and the previously announced branch sale, in the fourth quarter of this year, we've effectively and successfully completed the balance sheet optimization program in the U.S. banking segment over the course of the last six quarters.

Speaker #2: These deliberate actions have strengthened our OE and set the foundation to capture growth in our core US markets where the economic environment remains resilient, with GDP growth expected to be 2.1% in 2026.

Darryl White: These deliberate actions have strengthened ROE and set the foundation to capture growth in our core U.S. markets, where the economic environment remains resilient, with GDP growth expected to be 2.1% in 2026. The outlook for the Canadian economy remains mixed, with modest near-term growth in GDP expected amid inflation and unemployment challenges in certain segments. In the medium term, the combination of greater clarity on USMCA and the impact of infrastructure investments have the potential to drive a stronger growth outlook for both Canada and the United States. Our business clients consistently tell us that improving Canadian regulatory competitiveness is essential to unleashing Canadian growth and unlocking Canada's potential. Recent federal measures such as setting firm deadlines for project reviews and approvals within 1 year, streamlining consultations, establishing special economic zones and trade corridors nationally, and simplifying regulatory reporting are positive. They're a good start.

Speaker #2: The outlook for the Canadian economy remains mixed, with modest near-term growth in GDP expected, amid inflation and unemployment challenges in certain segments. In the medium term, the combination of greater clarity on USMCA and the impact of infrastructure investments have the potential to drive a stronger growth outlook for both Canada and the United States.

Speaker #2: Our business clients consistently tell us that improving Canadian regulatory competitiveness is essential to unleashing Canadian growth and unlocking Canada's potential. Recent federal measures, such as setting firm deadlines for project reviews and approvals within one year, streamlining consultations, establishing special economic zones, and trade corridors nationally, and simplifying regulatory reporting are positive and they're a good start.

Speaker #2: Businesses operate across multiple jurisdictions and meaningful growth will depend on a coordinated approach and alignment across governments to drive a more competitive environment for business investments in Canada.

Darryl White: Businesses operate across multiple jurisdictions, and meaningful growth will depend on a coordinated approach and alignment across governments to drive a more competitive environment for business investments in Canada. In closing, Q2 is another step forward in delivering what we committed to at our Investor Day: stronger returns, faster earnings growth, and a more resilient franchise. We're executing with discipline, the strategy is working, and I remain confident in our ability to continue building long-term value for our shareholders. With that, I will turn it over to Rahul.

Speaker #2: In closing, Q2 is another step forward in delivering what we committed to at our Investor Day: stronger returns, faster earnings growth, and a more resilient franchise.

Speaker #2: We're executing with discipline, the strategy is working, and I remain confident in our ability to continue building long-term value for our shareholders. With that, I will turn it over to Rahul.

Speaker #1: Thank you, Darryl. Good morning, everyone. My comments will start on slide 9. The bank delivered strong operating performance this quarter with continued progress towards our 15% ROE target driven by execution of BMO-specific levers we outlined at the Investor Day.

Rahul Nalgirkar: Thank you, Darryl. Good morning, everyone. My comments will start on slide nine. The bank delivered strong operating performance this quarter with continued progress towards our 15% ROE target, driven by execution of BMO specific levers we outlined at the Investor Day. Q2 reported EPS was CAD 3.53 and net income was CAD 2.6 billion. Adjusting items are on slide 45, and remainder of my comments will focus on adjusted results. EPS was CAD 3.67, up 40% from last year on record PPPT of CAD 4.4 billion and lower PCL. We delivered ROE of 13.5%, up 370 basis points, ROTCE of 17.6%, up 480 basis points, ROA of 73 basis points, and PPPT growth of 16%, with improvement primarily driven by core operating performance.

Speaker #1: Second quarter reported EPS was $3.53, and net income was $2.6 billion. Adjusting items are on slide 45 and remainder of my comments will focus on adjusted results.

Speaker #1: EPS was $3.67, up 40% from last year, on record PPPT of 4.4 billion and lower PCL. We delivered ROE of 13.5%, up 370 basis points, ROTCE of 17.6%, up 480 basis points, ROA of 73 basis points, and PPPT growth of 16% with improvement primarily driven by core operating performance.

Speaker #1: Revenue increased 10%, or 12% on a constant currency basis, with broad-based revenue momentum across all our businesses, including continued strong fee growth in capital markets and wealth management, and NIM expansion in both the P&C businesses.

Rahul Nalgirkar: Revenue increased 10%, or 12% on a constant currency basis, with broad-based revenue momentum across all our businesses, including continued strong fee growth in capital markets and wealth management, and NIM expansion in both the P&C businesses. Expenses increased 6%, and we delivered strong positive operating leverage of 4.1%. Total PCL decreased to CAD 739 million with lower impaired and performing provisions. Piyush will speak to this in his remarks. Moving to slide 10. Excluding the impact of a weaker U.S. dollar this quarter, average loans were up 1% and average deposits were flat year over year. This quarter, the commercial loans grew sequentially in both U.S. and Canada, with as-add balances up 4% and up 2% respectively from broad-based growth across segments and geographies. Consumer lending balances were down sequentially, primarily in Canada, driven by declines in cards and muted mortgage growth reflecting slower housing activity.

Speaker #1: Expenses increased 6%, and we delivered strong positive operating leverage of 4.1%. Total PCL decreased to $739 million, with lower impaired and performing provisions. Piyush will speak to this in his remarks.

Speaker #1: Moving to slide 10, excluding the impact of a weaker US dollar this quarter, average loans were up 1% and average deposits were flat year over year.

Speaker #1: This quarter, commercial loans grew sequentially in both the US and Canada, with as-at balances up 4% and up 2% respectively, from broad-based growth across segments and geographies.

Speaker #1: Consumer lending balances were down sequentially, primarily in Canada driven by declines in cards and muted mortgage growth reflecting slower housing activity. Average deposit balances were flat year over year, excluding the impact of the weaker US dollar and were down 1% sequentially.

Rahul Nalgirkar: Average deposit balances were flat year over year, excluding the impact of the weaker U.S. dollar, and were down 1% sequentially. We continue to see good growth in core personal and commercial operating deposits, which was offset by our deliberate actions to reduce term deposits in Canada and U.S. to improve the deposit mix and the seasonal outflows in Q2. Turning to slide 11. NII ex markets was up 4% year over year or 5% 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. NIM ex markets was 229 basis points, up 12 basis points year over year, reflecting continued deposit margin expansion from higher ladder reinvestment rates and strategic actions to improve the deposit mix.

Speaker #1: We continue to see good growth in core personal and commercial operating deposits, which was offset by our deliberate actions to reduce term deposits in Canada and US to improve the deposit mix and the seasonal outflows in the second quarter.

Speaker #1: Turning to slide 11, NIIX markets was up 4% year over year, or 5% on a constant currency basis, driven primarily by continued margin expansion in Canadian PNC and US banking, as well as higher NII in corporate services.

Speaker #1: NIMX markets was 229 basis points, up 12 basis points year over year, reflecting continued deposit margin expansion from higher ladder reinvestment rates and strategic actions to improve the deposit mix.

Speaker #1: NIMX markets declined 4 basis points sequentially, driven primarily by higher levels of low-yielding liquid assets in Corporate, aligned with prudent liquidity management practices.

Rahul Nalgirkar: NIM ex markets declined four basis points sequentially, driven primarily by higher levels of low-yielding liquid assets in corporate, aligned with prudent liquidity management practices. These higher levels contributed to sequential NIM pressure but are largely neutral to ROE. The core operating segment NIM ex markets was stable sequentially, reflecting continued deposit margin expansion offset by balance sheet mix. In Canadian P&C, NIM was down two basis points sequentially, with higher deposit margins offset by lower margins and product mix changes, including lower revolving card balances. In US banking, NIM increased three basis points sequentially, driven by higher deposit and loan margins, partially offset by changes in mix as loans grew faster than deposits. Our guiding principle is to manage NIM for stability through the cycle. There are several factors which impact our margins every quarter.

Speaker #1: These higher levels contributed to sequential NIM pressure but are largely neutral to ROE. The core operating segment NIMX markets was stable sequentially, reflecting continued deposit margin expansion offset by balance sheet mix.

Speaker #1: In Canadian PNC, NIM was down 2 basis points sequentially, with higher deposit margins offset by lower margins and product mix changes including lower revolving card balances.

Speaker #1: In US banking, NIM increased 3 basis points sequentially, driven by a higher deposit and loan margins partially offset by changes in mix as loans grew faster than deposits.

Speaker #1: Our guiding principle is to manage NIM for stability through the cycle, there are several factors which impact our margins every quarter. In the near term, we expect bank NIM to be relatively stable with continued tailwinds from ladder reinvestments and deposit initiatives offset by balance sheet mix and higher liquidity levels.

Rahul Nalgirkar: In the near term, we expect bank NIM to be relatively stable, with continued tailwinds from ladder reinvestments and deposit initiatives offset by balance sheet mix and higher liquidity levels. Moving to non-interest revenue on slide 12, NIR increased 20% year-over-year or 24% excluding trading, with strong growth in wealth management fees, higher advisory and equity underwriting fees, and TPS fees. This reflects the strength of our one client strategy in deepening relationships and driving higher fee penetration across all our businesses. We benefited from one-time items this quarter, including elevated Canadian P&C card revenue, as well as the prior year loss on sale of the US non-relationship card portfolio. Turning to slide 13, expenses grew 6% and were up 3% excluding FX and higher performance-based compensation.

Speaker #1: Moving to non-interest revenue on slide 12, NUR increased 20% year over year, or 24% excluding trading, with strong growth in wealth management fees, higher advisory and equity underwriting fees, and TPS fees.

Speaker #1: This reflects the strength of our One Client strategy in deepening relationships and driving higher fee penetration across all our businesses. We benefited from one-time items this quarter, including elevated Canadian PNC card revenue, as well as the prior year loss on sale of the US non-relationship card portfolio.

Speaker #1: Turning to slide 13, expenses grew 6% and were up 3% excluding FX and higher performance-based compensation. Expenses were well managed and cost optimization continues to fund investments in talent and technology to drive growth and deliver positive operating leverage.

Rahul Nalgirkar: Expenses were well managed, and cost optimization continues to fund investments in talent and technology to drive growth and deliver positive operating leverage. Our efficiency ratio improved to 54.4% with positive operating leverage of 4.1%. We are on track to execute the previously announced efficiency program, which will generate approximately CAD 250 million in annualized savings, half of which is expected to be realized this year. We maintain our outlook for the full year of mid-single-digit core expense growth and deliver positive operating leverage for the remainder of the year. Turning to slide 14, our CET1 ratio remains strong at 13% and is at the higher end of our target range of 12.5% to 13%. Internal capital generation continues to strengthen, adding 30 basis points this quarter. We continue to return capital to the shareholders, repurchasing 6 million shares during the quarter, and had moderate growth in source currency RWA.

Speaker #1: Our efficiency ratio improved to 54.4%, with positive operating leverage of 4.1%. We are on track to execute the previously announced efficiency program, which will generate approximately $250 million in annualized savings, half of which is expected to be realized this year.

Speaker #1: We maintain our outlook for the full year of mid-single-digit core expense growth and deliver positive operating leverage for the remainder of the year. Turning to slide 14, our CET1 ratio remains strong at 13% and is at the higher end of our target range of 12.5% to 13%.

Speaker #1: Internal capital generation continues to strengthen, adding 30 basis points this quarter. We continue to return capital to the shareholders, repurchasing $6 million shares during the quarter and had moderate growth in source currency RWA.

Speaker #1: Our capital strength and disciplined capital allocation is foundational to our operating model. The recently announced sale of transportation and vendor finance business is expected to add approximately $28 basis points to the CET1 ratio in the fourth quarter, enhance our liquidity, and will be accretive to the ROE by about 30 basis points, as we allocate capital to support profitable organic growth.

Rahul Nalgirkar: Our capital strength and disciplined capital allocation is foundational to our operating model. The recently announced sale of transportation and vendor finance business is expected to add approximately 28 basis points to the CET1 ratio in Q4, enhance our liquidity, and will be accretive to the ROE by about 30 basis points as we allocate capital to support profitable organic growth. Moving to the operating segments and starting on slide 15, Canadian P&C net income was up 15%, reflecting solid PPPT growth of 5% and lower performing PCL. Revenue was up 5% from higher NII on margin expansion and loan growth, and strong growth in NIR, driven by higher commercial TPS fees, mutual fund distribution fees, and elevated card revenues, partially offset by a reduction in certain retail deposit fees effective this quarter. Expense growth of 5% reflected continued growth investments offset by cost optimization efforts.

Speaker #1: Moving to the operating segments and starting on slide 15, Canadian PNC net income was up 15%, reflecting solid PPPT growth of 5% and lower performing PCL.

Speaker #1: Revenue was up 5% from higher NII on margin expansion and loan growth, and strong growth in NUR, driven by higher commercial TPS fees, mutual fund distribution fees, and elevated card revenues.

Speaker #1: Partially offset by a reduction in certain retail deposit fees effective this quarter. Expense growth of 5% reflected continued growth investments offset by cost optimization efforts.

Speaker #1: Turning to US banking on slide 16, which speaks to US dollar performance. Net income was up 30% year over year. We saw continued improvement in profitability with ROE expanding 220 basis points year over year to 9.3%, supported by strong core operating performance, including record PPPT of $924 million, up 9%, and lower performing PCL.

Rahul Nalgirkar: Turning to US Banking on slide 16, which speaks to US dollar performance. Net income was up 30% year-over-year. We saw continued improvement in profitability, with ROE expanding 220 basis points year-over-year to 9.3%, supported by strong core operating performance, including record PPPT of $924 million, up 9%, lower performing PCL. Revenue was up 5% on higher NII from margin expansion, partially offset by lower average balances reflecting optimization initiatives. NIR grew 16%, or 7% excluding one-time impacts last year, reflecting success of one client initiatives with higher TPS, M&A, and Wealth Management fees. Expense growth of 2% reflected continued investments in talent and technology, net of cost optimization efforts. With the expected closing of the announced sales of our transportation and vendor finance portfolios and 138 branches in the Q4, our balance sheet optimization efforts will be effectively behind us.

Speaker #1: Revenue was up 5% on higher NII from margin expansion, partially offset by lower average balances reflecting optimization initiatives. NUR grew 16%, or 7% excluding one-time impacts last year, reflecting success of One Client initiatives with higher TPS, M&A, and wealth management fees.

Speaker #1: Expense growth of 2% reflected continued investments in talent and technology, net of cost optimization efforts. With the expected closing of the announced sales of our transportation and vendor finance portfolios and $138 branches in the fourth quarter, our balance sheet optimization efforts will be effectively behind us.

Speaker #1: The business is well positioned to drive profitable growth in priority markets and deliver higher returns through its stronger operating model. Moving to slide 17, wealth management net income was up 39% from last year.

Rahul Nalgirkar: The business is well positioned to drive profitable growth in priority markets and deliver higher returns through its stronger operating model. Moving to slide 17, Wealth Management net income was up 39% from last year. Strong performance was driven by record wealth and asset management revenue up 21%, reflecting market appreciation, continued growth in net sales, and strong balance sheet growth. Insurance revenue was up 27% on higher investment results. Expenses were up 15%, driven by higher employee-related expenses, including higher revenue-based costs. Turning to slide 18, Capital Markets net income was up 46% year over year, driven by record PPPT of CAD 900 million, up 31%, and lower PCL. Revenue was up 19%. Global markets revenue increased 15%, driven by higher equities trading revenue, partially offset by lower interest rate trading. Investment in corporate banking revenue increased 26%, driven by strong advisory and equity underwriting fees.

Speaker #1: Strong performance was driven by record wealth and asset management revenue up 21%, reflecting market appreciation continued growth in net sales, and strong balance sheet growth.

Speaker #1: Insurance revenue was up 27% on higher investment results. Expenses were up 15% driven by a higher employee-related expenses including higher revenue-based costs. Turning to slide 18, capital markets net income was up 46% year over year, driven by record PPPT of $900 million up 31% and lower PCL.

Speaker #1: Revenue was up 19%. Global markets revenue increased 15% driven by higher equities trading revenue, partially offset by lower interest rate trading. Investment and corporate banking revenue increased 26% driven by a strong advisory and equity underwriting fees.

Speaker #1: Expenses were up 11%, mainly driven by higher performance-based compensation. Turning to slide 19, corporate services net loss of $86 million improved sequentially, as the prior quarter was impacted by severance charges and seasonally high expenses.

Rahul Nalgirkar: Expenses were up 11%, mainly driven by higher performance-based compensation. Turning to slide 19. Corporate services net loss of CAD 86 million improved sequentially as prior quarter was impacted by severance charges and seasonally high expenses. We expect net losses to trend moderately higher for remainder of the year and the full year to be in the similar range as the past two years. In summary, the results this quarter demonstrate our continued progress to enhance profitability and accelerate growth. We delivered record net income and PPPT, continued ROE expansion driven by core operating performance, and maintained strong operating discipline and balance sheet strength. These results demonstrate consistent execution across our BMO specific levers and positions us well to continue to improve the returns and achieve our ROE target. With that, I will now turn it over to Piyush.

Speaker #1: We expect net losses to trend moderately higher for the remainder of the year, and the full year to be in a similar range as the past two years.

Speaker #1: In summary, the results this quarter demonstrate our continued progress to enhance profitability and accelerate growth. We delivered record net income and PPPT, continued ROE expansion driven by core operating performance, and maintained strong operating discipline and balance sheet strength.

Speaker #1: These results demonstrate consistent execution across our BMO-specific levers and positions, as well as continued improvement in returns to achieve our ROE target. And with that, I will now turn it over to Piyush.

Speaker #2: Thank you, Rahul, and good morning, everyone. The North American economy has remained resilient even with the ongoing trade policy uncertainty over the past year.

Piyush Agrawal: Thank you, Rahul. Good morning, everyone. The North American economy has remained resilient even with the ongoing trade policy uncertainty over the past year. More recently, the emergence of conflict in the Middle East has introduced additional risks to the global economy, including higher oil prices and renewed inflation concerns. Against this backdrop, we remain focused on disciplined and proactive risk management, supported by ongoing portfolio reviews, early client engagement, and maintaining balance sheet resilience and strong reserve coverage. The credit performance this quarter was in line with our expectations and reflective of the current environment. As shown on slide 21, total provision for credit losses was stable quarter-over-quarter at CAD 739 million or 45 basis points, with impaired provisions declining modestly to CAD 734 million.

Speaker #2: And more recently, the emergence of conflict in the Middle East has introduced additional risks to the global economy, including higher oil prices, and renewed inflation concerns.

Speaker #2: Against this backdrop, we remain focused on disciplined and proactive risk management supported by ongoing portfolio reviews, early client engagement, and maintaining balance sheet resilience and strong reserve coverage.

Speaker #2: The credit performance this quarter was in line with our expectations and reflective of the current environment. As shown on slide 21, total provision for credit losses was stable quarter over quarter at $739 million or 45 basis points with impaired provisions declining modestly to $734 million.

Speaker #2: By operating segment, Canadian personal and commercial impaired losses were $477 million down $20 million from the prior quarter, driven by lower losses in the commercial portfolio.

Piyush Agrawal: By operating segment, Canadian Personal & Commercial impaired losses were CAD 477 million, down CAD 20 million from the prior quarter, driven by lower losses in the commercial portfolio. In the consumer book, as we have been highlighting, there continues to be pressure and delinquency rates have been in an upward trend, reflecting elevated insolvencies and rising unemployment, particularly in certain regions, including parts of the GTA. This has translated into higher provisions in the unsecured portfolio. Importantly, the resi portfolio continues to benefit from prudent underwriting and solid loan-to-value ratios, providing meaningful protection. We remain vigilant given ongoing macro uncertainty and continue to actively manage the portfolio. In U.S. Banking, losses were $237 million, up $35 million from the prior quarter, driven largely by lower recoveries in U.S. Commercial Banking. Capital Markets impaired losses declined to CAD 15 million. Turning to slide 22. Our performing allowance position remains a key strength.

Speaker #2: In the consumer book, as we have been highlighting, there continues to be pressure and delinquency rates have been in an upward trend reflecting elevated insolvencies and rising unemployment particularly in certain regions including parts of the GTA.

Speaker #2: This has translated into higher provisions in the unsecured portfolio. Importantly, the reserve portfolio continues to benefit from prudent underwriting and solid loan-to-value ratios providing meaningful protection.

Speaker #2: We remain vigilant given ongoing macro uncertainty and continue to actively manage the portfolio. In US banking, losses were $237 million up 35 million from the prior quarter, driven largely by lower recoveries in US commercial banking.

Speaker #2: Capital markets impaired losses declined to $15 million. Turning to slide 22, our performing allowance position remains a key strength. We started the quarter with a robust performing coverage of $69 basis points.

Piyush Agrawal: We started the quarter with a robust performing coverage of 69 basis points. The CAD 5 million performing provision this quarter was primarily driven by the impact of model changes, which were previously captured through expert judgment. The net impact of this was largely offset by positive migration and lower portfolio balances. The bank remains well reserved with CAD 4.7 billion of performing allowance. On slide 23, gross impaired loans were CAD 6.9 billion, or 101 basis points, stable quarter over quarter. Formations were CAD 1.4 billion, modestly down from the prior quarter. Our portfolio continues to benefit from strong diversification. Total loans of CAD 685 billion are well distributed across sectors, products, and geography. At our Investor Day, I provided some comments on our exposure to private credit. This portfolio remains small and well collateralized, just under CAD 6 billion or less than 1% of our total portfolio.

Speaker #2: The $5 million performing provision this quarter was primarily driven by the impact of model changes which were previously captured through expert judgment. The net impact of this was largely offset by positive migration and lower portfolio balances.

Speaker #2: The bank remains well reserved with $4.7 billion of performing allowance. On slide 23, gross impaired loans were $6.9 billion or $101 basis points stable quarter over quarter.

Speaker #2: Formations were $1.4 billion modestly down from the prior quarter. Our portfolio continues to benefit from strong diversification total loans of $685 billion are well distributed across sectors, products, and geography at our investor day, I provided some comments on our exposure to private credit.

Speaker #2: This portfolio remains small and well collateralized, just under $6 billion, or less than 1% of our total portfolio. We are selective who we partner with in this business and we underwrite a large part of these loans and have good visibility into the quality of this portfolio, which continues to have a strong credit profile.

Piyush Agrawal: We are selective who we partner with in this business, and we underwrite a large part of these loans and have good visibility in the quality of this portfolio, which continues to have a strong credit profile. Overall, we continue to see an improving trend in our wholesale portfolio with net positive migration again this quarter. Over the last year, watchlist loans have decreased 20% and impaired formations are down 30%. Looking ahead, given the geopolitical landscape, we anticipate a softer economic environment and renewed inflationary pressure from higher energy prices. At the same time, expansionary fiscal policies and AI investment present important support for economic growth as we progress through the rest of the year. With this backdrop, we expect impaired provisions to remain in line with our previous guidance of mid-40s basis points range over the next couple of quarters.

Speaker #2: Overall, we continue to see an improving trend in our wholesale portfolio with net positive migration again this quarter. Over the last year, watchlist loans have decreased 20% and impaired formations are down 30%.

Speaker #2: Looking ahead, given the geopolitical landscape, we anticipate a softer economic environment and renewed inflationary pressure from higher energy prices. At the same time, expansionary fiscal policies and AI investment present important support for economic growth as we progress through the rest of the year.

Speaker #2: With this backdrop, we expect impaired provisions to remain in line with our previous guidance of mid-40s basis points range over the next couple of quarters.

Speaker #2: The bank is well positioned to manage these risks given the diversification of our portfolio our risk management capabilities underscored by a strong risk culture.

Piyush Agrawal: The bank is well-positioned to manage these risks given the diversification of our portfolio, our risk management capabilities underscored by a strong risk culture. We remain disciplined, and we continue to support our 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.

Speaker #2: We remain disciplined and we continue to support our 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.

Speaker #3: Your first question comes from the line of John Aiken from Jefferies. Your line is now live.

Operator: Your first question comes from the line of John Aiken from Jefferies. Your line is now live.

Speaker #4: Good morning, sir, Piyush. Just wanted to your commentary about the domestic consumer softening. Are we expecting this to carry on through the second part of the year?

John Aiken: Good morning. Sorry, Piyush. Your commentary about the domestic consumer softening. Are we expecting this to carry on through the second part of the year? I understand your guidance is not talking about consumer specifically, but it's the entire portfolio. Are we expecting to see some ongoing deterioration in terms of Canadian households? Do you have any expectation as to when that may begin to moderate?

Speaker #4: I understand your guidance is not talking about consumer specifically, but it's the entire portfolio. But are we expecting to see some ongoing deterioration in terms of Canadian households?

Speaker #4: And do you have any expectation as to when that may begin to moderate?

Speaker #2: Yep. Thanks, John. I would say the benefit of the diversification is you're seeing the improvement in our wholesale, and so just to give that probably a one-liner, we were at about 60 basis points, improving to 50, 40, and now down in the 30s.

Piyush Agrawal: Yep. Thanks, John. I would say the benefit of the diversification is you're seeing the improvement in our wholesale. Just to give that probably a one-liner, we were at about 60 basis points improving to 50, 40, and now down in the 30s, which is offset by some of the weakness you're seeing in the macros, especially in Canada. Within that, we expect delinquencies to continue to go up. Again, the unsecured book, we've taken a lot of de-risking actions. Those are bearing fruit, but you will continue to see some rise in delinquencies. The point is that unsecured book is very small for us. On the secured side, we actually have very high LTVs, sorry, very low LTVs, well around 60%, and the portfolio continues to benefit from high FICOs.

Speaker #2: Which is offset by some of the weakness you're seeing in the macros especially in Canada. So within that, we expect delinquencies to continue to go up.

Speaker #2: But again, the unsecured book we've taken a lot of de-risking actions those are bearing fruit. But you will continue to see some rise in delinquencies.

Speaker #2: But the point is that unsecured book is very small for us. On the secured side, we actually have very high LTVs sorry, very low LTVs well around 60%.

Speaker #2: And the portfolio continues to benefit from high FICOs. So I don't see any change in our guidance as it relates to secured mortgages. There is some pressure building, but I think that's transitory.

Piyush Agrawal: I don't see any change in our guidance as it relates to secured mortgages. There is some pressure building, but I think that's transitory. We're working with our consumers in the secured book to help them get over a temporary phase. What I'll tell you is from our experience, nine out of 10 delinquent borrowers are self-correcting. The place where we do take action, we're seeing a very high recovery rate, north of 98% and 99%. Our goal really is to help our consumers. There's an early reach program. We have multiple tools, but we want to see our consumers in their homes, and we are working with them to find them good handy solutions to come out of the delinquency stage.

Speaker #2: We're working with our consumers in the secured book. To help them get over a temporary phase, and what I'll tell you is from our experience, 9 out of 10 delinquent borrowers are self-correcting.

Speaker #2: And the place where we do take action we're seeing a very high recovery rate north of 98, 99%. But our goal really is to help our consumers and so there's an early reach program.

Speaker #2: We have multiple tools, but we want to see our consumers in their homes and we are working with them to find them good handy solutions.

Speaker #2: To come out of the delinquency stage.

Speaker #4: Thanks for that. I'll read Q.

John Aiken: Thanks for that. I'll requeue.

Speaker #3: Your next question comes from the line of Matthew Lee from Canaccord Genuity. Your line is now live. Just one moment.

Operator: Your next question comes from the line of Matthew Lee from Canaccord Genuity. Your line is now live. Just one moment. Certainly. There's a small delay, Matthew. Your line is now live.

Speaker #4: Set right.

Speaker #3: There's a small delay. Matthew, your line is now live.

Speaker #5: Hi, good morning. Can you hear me?

Matthew Lee: Hi. Good morning. Can you hear me?

Speaker #6: Yep, we can.

Piyush Agrawal: Yep, we can.

Christine Viau: Yep, we can.

Speaker #5: Oh, perfect. Okay. So the transportation and vendor finance transaction was pretty consistent with kind of the broader effort to improve US ROE. As you look across the US business today, do you still see additional opportunities to refine that portfolio, maybe acquisitions, dispositions, balance sheet repositionings?

Matthew Lee: Oh, perfect. Okay, the transportation and vendor finance transaction was pretty consistent with kind of the broader effort to improve US ROE. As you look across the US business today, do you still see additional opportunities to refine that portfolio, maybe acquisitions, dispositions, balance sheet repositionings? Do you feel like the business mix will largely be where you'd like it to be once this transportation sale closes?

Speaker #5: Or do you feel like the business mix will largely be where you'd like it to be once this transportation sale closes?

Speaker #2: Yeah, Matt, it's Darryl. Thanks for the question. Look, when we began the program around optimization six quarters ago, this is really the time at which we thought the program, if I could put it that way, would be complete.

Darryl White: Matt, it's Darryl. Thanks for the question. When we began the program around optimization 6 quarters ago, this is really the time at which we thought the program, if I could put it that way, would be complete, and it's also the shape of the portfolio that we expected by the time we would be complete. The portfolio today is where we like it. It's focused on full consumer relationships. It's focused on regional scale and density, where we have a right to win and where we compete. I think the way you should think about it is that the optimization program is effectively complete.

Speaker #2: And it's also the shape of the portfolio that we expected by the time we would be complete. So the portfolio today is where we like it.

Speaker #2: It's focused on full consumer relationships. It's focused on regional scale and density—where we have a right to win and where we compete. So I think the way you should think about it is that the optimization program is effectively complete.

Speaker #2: We've improved the ROE. We've improved the efficiency. We've built capital. And we've got capital therefore to invest principally organically, I will re-emphasize in the markets where we can continue that multi-product and multi-pronged fully vented relationship with the clients that we've been talking to you about.

Darryl White: We've improved the ROE, we've improved the efficiency, we've built capital, and we've got capital therefore to invest principally organically, I will re-emphasize in the markets where we can continue that multi-product and multi-pronged fully vented relationship with the clients that we've been talking about. Nothing new in my answer. I'm just reconfirming to you that this is where we thought we would get to. We're at a really good place now to accelerate the growth in the portfolio from where it is now.

Speaker #2: So nothing new in my answer. I'm just reconfirming to you that this is where we thought we would get to. And we're at a really good place now to accelerate the growth in the portfolio from where it is now.

Speaker #5: Okay, great. And then maybe a quick one for Alan. You had previously framed Capital Markets at around $750 million in quarterly PTPP as a run rate to the cycle.

Matthew Lee: Okay, great. Maybe a quick one for Alan. You had previously framed Capital Markets at around CAD 750 million in quarterly PPPT as a run rate through the cycle. As you look at the business today, do you think that framework still remains appropriate? Or are there aspects of the franchise and earnings profile that are proving maybe more durable than originally contemplated?

Speaker #5: As you look at the business today, do you think that framework still remains appropriate? Or are there aspects of the franchise and earnings profile that are proving maybe more durable than originally contemplated?

Speaker #4: Thanks, Matt. Appreciate the question. And reflect, obviously, that we feel good about the broad-based performance in our business this quarter. Which really is a reflection of some of the investments that we've been talking about.

Alan Tannenbaum: Thanks, Matt. Appreciate the question. Reflect obviously that we feel good about the broad-based performance in our business this quarter, which really is a reflection of some of the investments that we've been talking about. If you reflect back to our investor day, broadening out our product capabilities, the asset classes that we are transacting in is really reflected in this type of performance. Feel great about all of those elements. As we look forward, we see pipelines are very strong in those businesses where it's visible, the M&A business, the ECM business.

Speaker #4: If you reflect back to our investor day, broadening out our product capabilities, the asset classes that we are transacting in is really reflected in this type of performance.

Speaker #4: So, feel great about all of those elements. And as we look forward, we see pipelines are very strong in those businesses where it's visible.

Speaker #4: The M&A business, the ECM business. However, as you know, these businesses are subject to market conditions. And as long as markets remain constructive, we see clients that are prepared, willing, and anxious to transact.

Alan Tannenbaum: However, as you know, these businesses are subject to market conditions. As long as markets remain constructive, we see clients that are prepared, willing, and anxious to transact. Feel good about that forward look. However, we are seeing some modest moderation in activity levels. As we think forward, what we're focused on is delivering above our historical trend line performance. What that means for a specific number, I'll leave to you. We feel good about the forward look.

Speaker #4: So, feel good about that forward look. However, we are seeing some modest moderation in activity levels. And as we think forward, what we are focused on is delivering above our historical trend line performance.

Speaker #4: So, what that means for a specific number, I'll leave to you. But we feel good about the forward look.

Speaker #5: Okay, sounds good. I'll pass the line.

Matthew Lee: Okay, sounds good. I'll pass the line.

Speaker #3: Your next question comes from the line of Gabriel DeChain from National Bank Financial. Your line is now live.

Operator: Your next question comes from the line of Gabriel Dechaine from National Bank Financial. Your line is now live.

Speaker #4: Hey, good morning. A couple I guess NIM-type questions. Well, the outlook you're saying stable. And that's a word people use a lot. But I just want to assess a few trends here.

Gabriel Dechaine: Hey, good morning. Couple, I guess, NIM type questions. Well, the outlook, you're saying stable. That's a word people use a lot. Just want to assess a few trends here. The US, we've got loan growth sounds like it's accelerating, which is great to see, but I'm just wondering how that outlook changes given maybe loan growth continuing to outpace deposit growth. At the treasury level, you've taken some actions it looks like, have more lower yielding assets, some mix change and maybe more wholesale funding from the sounds of it, well, at least temporarily. Are these factors going to outweigh the tailwind, which is namely the reinvestment yields rates that are higher?

Speaker #4: The US, we've got loan growth sounds like it's accelerating, which is great. To see. But I'm just wondering how that outlook changes, given maybe loan growth continuing to outpace deposit growth.

Speaker #4: And then at the Treasury level, you've taken some actions, it looks like. How more lower yielding assets. Some mixed change and maybe more wholesale funding from the sounds of it.

Speaker #4: Well, at least temporarily. Are these factors going to outweigh the tailwind, which is namely the reinvestment yields that are higher rates that are higher?

Speaker #2: Hi, Gabe. Thanks for the question. This is Rahul. So let me take the second part first. And then I'll go to the first one.

Rahul Nalgirkar: Hi, Gabe. Thanks for the question. This is Rahul. Let me take the second part first, and then I'll go to the first one. The higher corporate low yielding liquid assets was just a function, as I mentioned in my prepared remarks about prudent liquidity management. We've got a few variables going on. As you're aware, we've got two pending dispositions in the next few quarters.

Speaker #2: The higher corporate low-yielding liquid assets was just a function, as I mentioned in my prepared remarks about prudent liquidity management. We've got a few variables going on, as you're aware.

Speaker #2: We've got two pending dispositions in the next few quarters. We've got some upcoming debt maturities. And obviously, the uncertainties from the geopolitical situation linger around there.

Rahul Nalgirkar: We've got some upcoming debt maturities, and obviously the uncertainties from the geopolitical situation linger around there. We've been navigating with caution as we manage these variables. In the next few quarters, we do expect these levels to remain higher as we pass through this. That's part of the impact. Now, I think one thing important to note there is while it might have pressured NIM sequentially, they are largely immaterial for the ROE standpoint. That's one noting. The second part as you asked the question on the outlook. Look, we think the margins will be relatively stable as we look ahead. We still have tailwinds from the ladder reinvestments for a couple of more quarters. We have a lot of effort going on across all the businesses to improve our mix, and that will be a tailwind.

Speaker #2: So we've been navigating with caution, as we manage these variables. And in the next few quarters, we do expect these levels to remain higher as we pass through this.

Speaker #2: So that's part of the impact. Now, I think one thing important to note there is why it might have pressured NIM sequentially. There are largely immaterial for the ROE standpoint.

Speaker #2: So that's one noting. The second part, as you asked the question on the outlook, look, we think the margins will be relatively stable as we look ahead.

Speaker #2: We still have tailwinds from the lateral reinvestments. For a couple of more quarters, we have a lot of effort going on across all the businesses to improve our mix.

Speaker #2: And that will be a tailwind. Now, obviously, as loan growth in both the countries picks up, there would be some mix. And, obviously, these higher liquidity levels for the next few quarters would be there.

Rahul Nalgirkar: Obviously, as loan growth in both the countries picks up, there would be some mix and obviously these higher liquidity levels for the next few quarters would be there. When you add it all together, I think we expect a relatively stable NIM. It might bump around here and there in every quarter.

Speaker #2: So when you add it all together, I think we expect a relatively stable NIM. Now, it might bump around here and there in every quarter.

Speaker #4: So that loan growth in the U.S., and in Canada—but I'm focusing more on the U.S.—should soak up some of that extra excess liquidity at the moment.

Gabriel Dechaine: That loan growth in the US and in Canada, but I'm focusing more on the US should soak up some of that extra excess liquidity at the moment. Then just to follow up on the US.

Speaker #4: And then, just to follow up on the U.S., it sounds more bullish in the outlook. And I guess, is it wrong to conclude that an acceleration of CNI loan growth will absorb not just the excess liquidity, but also the excess capital generated from the transportation finance disposition? Such that that 30 basis points of ROE expansion could be within the next year, sort of thing?

Rahul Nalgirkar: Yep

Gabriel Dechaine: it sounds more bullish in the outlook. I guess is it wrong to conclude that an acceleration of C&I loan growth will absorb that excess, not just the excess liquidity, but that excess capital generated from the transportation finance disposition such that that 30 basis points of ROE expansion could be within the next year sort of thing?

Speaker #2: Hey, it's Aaron. Let me jump in on that one. So look, first of all, really pleased with the second quarter. Important about the loan growth as it was broad-based, right?

Alan Tannenbaum: Hey, it's Aron. Let me jump in on that one. Look, first of all, really pleased with the Q2. Important about the loan growth as it was broad based, right? We had growth across commercial real estate, asset-based lending, diversified industries, as well as across geographies. We're seeing the benefits of the bankers we've brought in across the country, especially on the West Coast. What you're seeing is that strength of the commercial bank that we've talked about really coming through as that optimization program has kind of winded down. We feel very good about the outlook for the rest of the year.

Aron Levine: Hey, it's Aron. Let me jump in on that one. Look, first of all, really pleased with the Q2. Important about the loan growth as it was broad based, right? We had growth across commercial real estate, asset-based lending, diversified industries, as well as across geographies. We're seeing the benefits of the bankers we've brought in across the country, especially on the West Coast. What you're seeing is that strength of the commercial bank that we've talked about really coming through as that optimization program has kind of winded down. We feel very good about the outlook for the rest of the year.

Speaker #2: So we had growth across commercial real estate, asset-based lending, diversified industries, as well as across geographies. So we're seeing the benefits of the bankers we've brought in across the country, especially on the West Coast.

Speaker #2: And what you're seeing is that strength of the commercial bank that we've talked about really coming through as that optimization program has kind of wound down.

Speaker #2: So we feel very good about the outlook for the rest of the year, really pointing towards what we've said in the past, which is delivering that sort of mid-single-digit loan growth for the rest of the year.

Alan Tannenbaum: Really pointing towards what we've said in the past, which is delivering that sort of mid-single-digit loan growth for the rest of the year. Far in May, we're seeing the continued momentum. Pipelines are strong. We'll just continue to sort of drive this as we have and continue on the path we're on.

Aron Levine: Really pointing towards what we've said in the past, which is delivering that sort of mid-single-digit loan growth for the rest of the year. Far in May, we're seeing the continued momentum. Pipelines are strong. We'll just continue to sort of drive this as we have and continue on the path we're on.

Speaker #2: So far in May, we're seeing the continued momentum. Pipelines are strong, so we'll just continue to sort of drive this as we have and continue on the path we're on.

Speaker #4: Okay. Thanks.

Gabriel Dechaine: Okay. Thanks.

Speaker #3: Your next question comes from the line of Ibrahim Punwala from Bank of America. Your line is now live.

Operator: Your next question comes from the line of Ebrahim Poonawala from Bank of America. Your line is now live.

Speaker #5: Hey, good morning. I guess just on this margin and ROE question—maybe Daryl, Aaron, Rahul, for all of you or one of you, I guess.

Ebrahim Poonawala: Hey, good morning. Just on this margin and ROE question, maybe Darryl, Aron, Rahul for all of you or one of you. As we think about incremental growth, right? When we think about Canada, super competitive, all the banks are going after the same sort of set of clients. Immigration is slower, US super competitive on deposit pricing. We are already seeing that in terms of promotions over the last few months. I get that there is some excess liquidity that you can absorb in the US that should help the margin. As we look out over the next 12 months, just talk to us in terms of how to think about the dynamics. Is the incremental growth a sub 15% ROE business that is coming on? How do you think about that?

Speaker #5: But as we think about incremental growth, right? When we think about Canada—super competitive, all the banks are going after the same sort of set of clients.

Speaker #5: Immigration is slower. The U.S. is super competitive. On deposit pricing, we're already seeing that in terms of promotions over the last few months. I get that there's some excess liquidity that you can absorb in the U.S. that should help the margin.

Speaker #5: But as we look out over the next 12 months, just talk to us in terms of how to think about the dynamics. Is the incremental growth a sub-15% ROE business that's coming on?

Speaker #5: How do you think about that? And is it different in Canada versus the U.S., that as growth comes up, that, on a relative basis, should be a headwind to NIM.

Ebrahim Poonawala: Is it different in Canada versus US that as growth comes up, that on a relative basis should be a headwind to NIM and ROE, and then maybe you make up for that by just overall efficiency? Thanks.

Speaker #5: And ROE. And then maybe you make up for that by just overall efficiency. Thanks.

Speaker #2: Well, let me tag both of us, Ibrahim. So maybe we'll tag team on the way through your question. I'm going to start with the strategic imperative.

Darryl White: Well, you tagged both of us, Ebrahim, so maybe we'll tag team on the way through your question. I'm going to start with the strategic imperative and then, Rahul, if you got anything further to add on the NIM and the margin positioning, you should. Look, as you know well, we're competing heavily in both markets. Both markets are competitive with different dynamics around them, as you point out, Ebrahim. In the commercial business in particular, where we've got very strong market shares in Canada. We've got loan growth in the quarter around 2%, which I think is an important marker because it's higher than where it's been, but we're also being very selective in where we choose our growth, and we're being selective around full client relationships and higher returns. Are we putting on business that's sub 15% return? The answer is absolutely not.

Speaker #2: And then, Rahul, if you’ve got anything further to add on the NIM and the margin positioning, you should. So look, as you know well, we’re competing heavily in both markets.

Speaker #2: Both markets are competitive with different dynamics around them, as you point out, Ibrahim. In the commercial business in particular, where we've got very strong market shares in Canada, we've got loan growth in the quarter around 2%, which I think is an important marker because it's higher than where it's been.

Speaker #2: But we're also being very selective in where we choose our growth. And we're being selective around full client relationships and higher returns. So, are we putting on business that's sub-15% return?

Speaker #2: The answer is absolutely not. We're very clear on net new business being well above that hurdle. And then in the US, we've got clear market share opportunities given the strength of the franchise, which we didn't invent in the last few quarters.

Darryl White: We're very clear on net new business being well above that hurdle. Then in the US, we've got clear market share opportunities given the strength of the franchise, which we didn't invent in the last few quarters. It's been there for decades. Now we've very significantly repositioned it with a variety of efforts that really started in 2023 with the addition of the Bank of the West, six quarters of optimization that we've come to the end of, and we've added the capacity that Erin talked about earlier. There, we're able to compete with a pretty disparate market in terms of how we grow the business. Again, what we have in common is we're very selective about that growth. We're able to be in a position where we can have higher quality business come on the books relative to, we think, some of our competitors.

Speaker #2: It's been there for decades. But now we've very significantly repositioned it with a variety of efforts that really started in 2023 with the addition of the Bank of the West, six quarters of optimization that we've come to the end of.

Speaker #2: And we've added the capacity that Aaron talked about earlier. So there, we're able to compete with a pretty disparate market in terms of how we grow the business.

Speaker #2: But again, what we have in common is we're very selective about that growth. We're able to be in a position where we can have higher quality business come on the books relative to, we think, some of our competitors.

Speaker #2: And we're going to continue to do that to drive the mid-single-digit outcome that Aaron talked about earlier. Rahul, would you add anything?

Darryl White: We're going to continue to do that to drive the mid-single-digit outcome that Erin talked about earlier. Rahul, would you add anything?

Speaker #4: Yeah, the only thing I would add to that, Ibrahim, is I do appreciate the fact that, yes, in this rate environment, deposits would be slightly under pressure.

Rahul Nalgirkar: Yeah. The only thing I would add to that, Ebrahim, is I do appreciate the fact that, yes, in this rate environment, deposits would be slightly under pressure, but we also acknowledge the fact that there are a lot of deliberate initiatives going across both the countries, across all the businesses to grow core operating sticky deposits in both the businesses. While the environmental headwinds will be there, we are very much focused on the tailwinds, what we can control. The latter investments also have some room left for a couple of quarters to go. As you put it all together, yes, NIM expansion, I said relatively stable relative to what we have seen in the past. In that context, to add to Darryl's point, our fees also grew year-over-year 20%.

Speaker #4: But we also acknowledge the fact that there are a lot of deliberate initiatives going across both the countries, across all the businesses, to grow core operating sticky deposits in both the businesses.

Speaker #4: So, while the environmental headwinds will be there, we are very much focused on the tailwinds—what we can control. And the latter reinvestments also have some room left for a couple of quarters to go.

Speaker #4: So as you put it all together, yes, NIM expansion, I said relatively stable, relative to what we have seen in the past. But in that context, to add to Daryl's point, our fees also grew year over year 20%.

Speaker #4: And I think that's how we look at this package as we kind of look at outperformance for returns through the cycle.

Rahul Nalgirkar: I think that's how we look at this package as we kind of look at outperformance for returns through the cycle.

Speaker #5: That's helpful. And I guess, just a separate question on the U.S.—the back half of the year is supposed to be sort of the pickup in momentum on lending, as you've done with the optimization. Obviously, there's concern that the higher rates and some of this war-related uncertainty in the Middle East conflict could sort of derail domestic CapEx in the U.S. and the momentum.

Ebrahim Poonawala: That's helpful. I guess just a separate question on the US, the H2 of the year is supposed to be sort of the pickup in momentum on lending as you've done with the optimization. Obviously, there's concern that the higher rates, some of this war-related uncertainty in the Middle East conflict could sort of derail domestic CapEx in the US and the momentum. When you think about sort of your client conversations, has that changed for the worse over the last 30 to 60 days? How would you sum up just overall loan demand and growth outlook in the US looking out H2 into next year? Thanks.

Speaker #5: When you think about sort of your client conversations, has that changed for the worse over the last 30 to 60 days? How would you sum up just overall loan demand and growth outlook in the US looking out back half into next year?

Speaker #5: Thanks.

Speaker #2: Yep. Ibrahim, it's Aaron. Thanks. No, in fact, our March and April have—we've seen momentum growing. And that's been what drove that quarter over quarter.

Aron Levine: Yeah. Hey, Ebrahim, it's Erin. Thanks. No.

Aron Levine: Yeah. Hey, Ebrahim, it's Aron. Thanks. No.

Aron Levine: our March and April we've seen momentum growing, and that's been what drove that quarter-over-quarter. It's really picked up over the last 60 days. Our clients are active. Certainly cautious and certainly taking account the macro environment, but again, given that it's been broad-based, we're seeing growth across all of our different segments and across different diverse industries, across geographies. That diversity gives me comfort as we can continue to drive. We're seeing pipeline and strength here in the first couple of weeks of Q3. I feel comfortable that we're on the path that we've set for ourselves, again, around that mid-single-digit growth for the year.

Speaker #2: It's really picked up over the last 60 days. Our clients are active. Certainly, cautious and certainly taking account the macro environment. But again, given that it's been all of our different segments and across different diverse industries across geographies.

Speaker #2: That diversity gives me comfort as we can continue to drive, and we're seeing pipeline and strength here in the first couple of weeks of the third quarter.

Speaker #2: And so, I feel comfortable that we're on the path that we've set for ourselves again, around that mid-single-digit growth for the year.

Speaker #5: Look, good to hear. Thank you.

Ebrahim Poonawala: All right. Good to hear. Thank you.

Speaker #6: Your next question comes from the line of Doug Young from Desjardins. Your line is now live.

Operator: Your next question comes from the line of Doug Young from Desjardins. Your line is now live.

Speaker #7: Hi. Good morning. Most of my questions have been asked and answered, but I've got just a few quick ones. So I think, Rahul, you talk about strategic actions to improve deposit mix and benefit NIMs.

Doug Young: Hi, good morning. Most of my questions have been asked and answered, but I've got just a few quick ones. I think, Rahul, you talk about strategic actions to improve deposit mix and benefit NIMs. I think that's been mentioned a few times. Can you just remind us what some of those are and if they're different between Canada and the US?

Speaker #7: I think that's been mentioned a few times. Can you just remind us what some of those are, and if they're different between Canada and the US?

Speaker #4: Yeah. Why don't we start with Canada, and then we can go to the US to talk about some of those initiatives?

Rahul Nalgirkar: Yeah. Why don't we start with Canada, and then we can go to the US to talk about some of those initiatives.

Speaker #2: Yeah. So Doug, it's Matt speaking. Just for the overall Canadian P&C business, we have had very strong operating deposit growth. That's been a consistent feature of our franchise.

Mathew Mehrotra: Doug, it's Mathew speaking. Just for the overall Canadian P&C business, we have had very strong operating deposit growth. That's been a consistent feature of our franchise. In the retail business, that's driven by very strong net client growth on a relative basis. In our commercial business, very strong TPS performance, and again, also strong client growth. That has given us the optionality to optimize our deposit mix, which has been favorable and a tailwind to NIM, and we see those underlying trends continuing. On the US side, again, as you heard Darryl mention, our core deposits are up 4%. Really pleased with seeing the work we've done on the mass affluent segment, of course, which is very important. It's up 20% year over year coming out of our financial center channel.

Mat Mehrotra: Doug, it's Mat speaking. Just for the overall Canadian P&C business, we have had very strong operating deposit growth. That's been a consistent feature of our franchise. In the retail business, that's driven by very strong net client growth on a relative basis. In our commercial business, very strong TPS performance, and again, also strong client growth. That has given us the optionality to optimize our deposit mix, which has been favorable and a tailwind to NIM, and we see those underlying trends continuing. On the US side, again, as you heard Darryl mention, our core deposits are up 4%. Really pleased with seeing the work we've done on the mass affluent segment, of course, which is very important. It's up 20% year over year coming out of our financial center channel.

Speaker #2: In the retail business, that's driven by very strong net client growth on a relative basis. In our commercial business, very strong TPS performance. And again, also strong client growth.

Speaker #2: That has given us the optionality to optimize our deposit mix, which has been favorable, and a tailwind to NIM. And we see those underlying trends continuing.

Speaker #7: Yeah. On the US side, deposits are up 4%. Really pleased with seeing the work we've done on the mass affluence segment, of course, which is very important.

Speaker #7: It's up 20% year over year, coming out of our financial center channel. So the work we're doing bringing the business together, especially our consumer business and our wealth business, there's a lot of opportunity working with corporate clients and commercial clients on helping drive core operating accounts.

Aron Levine: The work we're doing bringing the business together, especially our consumer business and our wealth business, there's a lot of opportunity working with corporate clients and commercial clients on helping drive core operating accounts. A combination of sources that are available to us that we can better penetrate. Between mass aff one and the other work, we're already starting to see some results of that effort.

Mat Mehrotra: The work we're doing bringing the business together, especially our consumer business and our wealth business, there's a lot of opportunity working with corporate clients and commercial clients on helping drive core operating accounts. A combination of sources that are available to us that we can better penetrate. Between mass aff one and the other work, we're already starting to see some results of that effort.

Speaker #7: So a combination of sources that are available to us that we can better penetrate. But between mass affluent and the other work, we're already starting to see some results of that effort.

Speaker #2: And Rahul, when we kind of roll that up, is there any way to quantify the benefit that you would have seen in quarter from these actions and what level of benefit you could see quantitatively over the next year?

Doug Young: Rahul, when we kind of roll that up, is there any way to quantify the benefit that you would have seen in quarter from these actions and what level of benefit you could see quantitatively over the next year?

Speaker #4: Yeah. Sure. So I mean, quarter over quarter, I would mention, though our average deposits decline as a function of both seasonality and our deliberate actions on term and CD side.

Rahul Nalgirkar: Yeah, sure. Quarter over quarter, I would mention, though our average deposits decline as a function of both seasonality and our deliberate actions on term and CD side. Underlying that was well north of CAD 2 billion increase in deposits on these core sides. While what we are looking at is trading off volume for quality and spread here, and that's what we saw in these core deposits.

Speaker #4: But underlying that was well north of $2 billion increase in deposits on these core sides. So while what we are looking at is trading off volume for quality and spread here, and that's what we see us off in these core deposits.

Speaker #7: Okay, I'll leave that there. And then, just elevated current revenues in Canada—what drove that? And can you quantify it?

Doug Young: Okay. I'll leave that there. Just elevated card revenues in Canada, what drove that and can you quantify it?

Speaker #2: Hey, Doug, it's Matt speaking again. We did see above trend current fees, as you know. We're always managing the volume-driven costs in this business.

Mathew Mehrotra: Hey, Doug, it's Matt speaking again. We did see above-trend card fees. As you know, we're always managing the volume-driven costs in this business. We did see an improvement in that. The improvement was reflected in a bit of outsized performance this quarter, but will deliver sustainable gains to a lesser degree in future quarters. It was basically just the management of our volume-driven costs, and we're seeing the benefit of that.

Mat Mehrotra: Hey, Doug, it's Matt speaking again. We did see above-trend card fees. As you know, we're always managing the volume-driven costs in this business. We did see an improvement in that. The improvement was reflected in a bit of outsized performance this quarter, but will deliver sustainable gains to a lesser degree in future quarters. It was basically just the management of our volume-driven costs, and we're seeing the benefit of that.

Speaker #2: And we did see an improvement in that. The improvement was reflected in a bit of outsized performance this quarter, but we'll deliver sustainable gains to a lesser degree in future quarters.

Speaker #2: But it was, yeah, basically just the management of our volume-driven costs. And we're seeing the benefit of that.

Speaker #7: Okay. I'll leave it there. Thank you.

Doug Young: Okay. I'll leave it there. Thank you.

Speaker #6: Your next question comes from the line of Mariel Mendonca from TD Securities. Your line is now live.

Operator: Your next question comes from the line of Mario Mendonca from TD Securities. Your line is now live.

Speaker #4: Good morning. I have two questions, both on credit. One from a short-term perspective, one a little longer term. First, if you could look at your slide 28—we've talked about this before.

Mario Mendonca: Good morning. I have two questions, both on credit. One from a short-term perspective, one a little longer term. First, Piyush, if you could look at your slide 28. We've talked about this before. The move in credit card PCLs is big. It's a big move here. What I'm trying to understand now is, are your credit card customers the same as your personal loan customers and the same as your residential mortgage customers? Or would I be right in suggesting that your residential mortgage customers have much higher credit scores than your credit card customers, that there isn't that much overlap? The reason I ask the question is, I worry that this spike in credit card PCLs could be the canary in the coal mine for everything else. Help me understand that.

Speaker #4: The move in credit card PCLs is big. It's a big move here. What I'm trying to understand now is, are your credit card customers the same as your personal loan customers and the same as your residential mortgage customers?

Speaker #4: Or would I be right in suggesting that your residential mortgage customers have much higher credit scores than your credit card customers? That there isn't that much overlap.

Speaker #4: And the reason I asked the question is, I worry that this spike in credit card PCLs could be the canary in the coal mine for anything else.

Speaker #4: So help me understand that.

Speaker #2: So thanks, Mariel. So if I look at this, I think none of this should be a surprise. I mean, we've been talking about this for a few quarters.

Piyush Agrawal: Thanks, Mario. If I look at this, I think none of this should be a surprise. We've been talking about this for a few quarters, and we've been signaling the weakness that you're seeing in macro Canada. You just saw the print on the insolvencies. It's at an all-time high. Both the insolvency as well as some of this weakness is what you see play out in the unsecured segment. Matt and I have talked at these calls about our segment, which skews a little bit more mass, and the work to change that over time takes a few quarters. We are beginning to see the benefits. Our overall loss amounts are flattening. What you see is the rate change, and the rate change is a multitude of factors, especially the denominator impact, because our overall book in that segment is shrinking.

Speaker #2: And we've been signaling the weakness that you're seeing in macro Canada. Plus, you just saw the print on the insolvencies. It's at an all-time high.

Speaker #2: insolvency as well as some of this weakness is what you see play out in the unsecured segment. Matt and I have talked at these calls about our segment, which skews a little bit more mass.

Speaker #2: And the work to change that over time takes a few quarters. We are beginning to see the benefits are overall loss amounts are flattening.

Speaker #2: What you see is the rate change. And the rate change is a multitude of factors, especially the denominator impact, because our overall book in that segment is shrinking.

Speaker #2: We are replacing it with more value segment, more premium. But those are slow build-outs, especially in a quarter where or in an economy where, again, like I said, the unemployment is high.

Piyush Agrawal: We are replacing it with more value segment, more premium, those are slow build-outs, especially in a quarter where, or in an economy where, again, like I said, the unemployment is high and new to Canada has slowed down quite a bit. I'm not worried about the spillover impact from the unsecured cards piece to the secured side, again, given the value of the collateral and some of the primacy that people have around their mortgages. I don't know, Matt, if you want to add something.

Speaker #2: And new to Canada, has slowed down quite a bit. So I'm not worried about the spillover impact from the unsecured cards piece to the secured side.

Speaker #2: Again, given the value of the collateral and some of the primacy that people have, around the mortgages. I don't know, Matt, if you want to add something.

Speaker #3: Yeah. Mariel, the only thing I would add is that the underlying credit quality, these books is very different. They're very different businesses. The pressure that you're noting in the card portfolio consistent with my prior comments, it does reflect the mix of our book.

Mathew Mehrotra: Yeah. Mario, the only thing I would add is that the underlying credit quality of these books is very different. They're very different businesses. The pressure that you're noting in the card portfolio, consistent with my prior comments, it does reflect the mix of our book and broader macroeconomic conditions. Piyush did mention the performance that we're seeing in our premium growth, which has been positive. We're up 8% year over year in that area, reflecting partnerships with Porter and growth within our existing franchise. We don't expect spillover, to use your language. The underwriting standards in the businesses are very different.

Mat Mehrotra: Yeah. Mario, the only thing I would add is that the underlying credit quality of these books is very different. They're very different businesses. The pressure that you're noting in the card portfolio, consistent with my prior comments, it does reflect the mix of our book and broader macroeconomic conditions. Piyush did mention the performance that we're seeing in our premium growth, which has been positive. We're up 8% year over year in that area, reflecting partnerships with Porter and growth within our existing franchise. We don't expect spillover, to use your language. The underwriting standards in the businesses are very different.

Speaker #3: And broader macroeconomic conditions. Piyush did mention the performance that we're seeing in our premium growth, which has been positive, we're up 8% year over year.

Speaker #3: In that area, reflecting partnerships with Porter and growth within our existing franchise. But we don't expect spillover to use your language, the underwriting standards and the businesses are very different.

Speaker #4: Right. So I want to flip over to a different more long-term question on credit. It's my observation that credit cycles, and I'm not even sure if this is a credit cycle.

Mario Mendonca: I want to flip over to a different, more long-term question on credit. It's my observation that credit cycles, and I'm not even sure if this is a credit cycle, it's hard to tell, to be honest. Credit cycles for our Canadian banks over the last, let's say, 25, 30 years. The amplitude of the credit cycle seems to get lower and lower each time something plays out. What I'm struggling to understand is this because our banks, the loan mix has changed, our banks have become more disciplined in their lending, capital standards require it, or is it simply because we haven't had a cycle? We haven't really had a recession. The moment we have a recession, the banks will just reveal themselves to be exactly what they've always been. Credit cycle, cyclical plays, which is, in the past why they've traded at low multiples.

Speaker #4: It's hard to tell, to be honest. Credit cycles, for our Canadian banks over the last, let's say, 25, 30 years, the amplitude of the credit cycle seems to get lower and lower each time something plays out.

Speaker #4: What I'm struggling to understand is, is this because our banks, the loan mix has changed, our banks have become more disciplined in their lending, capital standards require it?

Speaker #4: Or is it simply because we haven't had a cycle? We haven't really had a recession. And the moment we have a recession, the banks will just reveal themselves to be exactly what they've always been.

Speaker #4: Credit cycle, cyclical plays, which is in the past why they've traded at low multiples. And the reason I'm asking this question is, I'm honestly trying to figure out, what is the market doing in taking bank multiples to where they are?

Mario Mendonca: The reason I'm asking this question is I'm honestly trying to figure out what is the market doing in taking bank multiples to where they are? Are we essentially saying banks aren't cyclical anymore? They don't have credit cycles. Anybody with a long memory sitting at that table today, maybe help me think this through.

Speaker #4: Are we essentially saying banks aren't cyclical anymore? They don't have credit cycles. So anybody with a long memory sitting at that table today, maybe help me think this through.

Speaker #2: Yeah. I'll just answer briefly, Mariel. All of us have long memories. We've been around lots of cycles. When I look at what we are seeing right now, from a risk-return perspective, it is yet a very profitable portfolio.

Piyush Agrawal: Yeah. I'll just answer briefly, Mario. All of us have long memories. We've been around lots of cycles. When I look at what we are seeing right now, from a risk-return perspective, it is yet a very profitable portfolio. The point we're looking at right now is that the unemployment rate has crept up, inflation is hurting, and rates haven't gone down to where they were 4 or 5 years ago. All of those are playing in the consumer psyche. I think the impact of the fiscal policy rollouts haven't fully come in. All of these will benefit. To me, it's a little bit transitory. You can see what's happening in the Middle East. I think there are puts and takes in the larger Canadian economy.

Speaker #2: The point we are looking at right now is that the unemployment rate has crept up, inflation is hurting, and rates haven't gone down to where they were four or five years ago.

Speaker #2: So all of those are playing in the consumer psyche. I think the impact of the fiscal policy rollouts haven't fully come in. All of these will benefit to me.

Speaker #2: It's a little bit transitory. You can see what's happening in the Middle East. I think there are puts and takes in the larger Canadian economy.

Speaker #2: And from a credit cycle, we may not be in a recession, but we are treating the softness as one in terms of helping our customers and de-risking wherever we can.

Piyush Agrawal: From a credit cycle, we may not be in a recession, but we are treating the softness as one in terms of helping our customers and de-risking wherever we can.

Speaker #2: So I don't see this as a stress scenario. To me, we are managing very well through this. And we've taken early action. And what's really important is the benefit of the diversification of the portfolio.

Piyush Agrawal: As a stress scenario. To me, we are managing very well through this, we've taken early action. What's really important is the benefit of the diversification of the portfolio, especially in retail, wholesale, US, Canada. All of those are helpful puts and takes into my overall guidance, and I don't see that changing. In fact, I'm still standing by what I said at Investor Day, that by the end of 2027, you should see us get down to our mid-30s.

Speaker #2: Especially in retail, wholesale, US, Canada, all of those are helpful puts and takes into my overall guidance. And I don't see that change. In fact, I'm still standing by what I said in Investor Day.

Speaker #2: That by the end of 2027, you should see us get down to a mid-30s.

Speaker #4: But are banks different today than they were 15 or 20 years ago? Do they not have the same amplitude of credit losses and cycles they had in the past?

Mario Mendonca: Are banks different today than they were 15 or 20 years ago? Do they not have the same amplitude of credit losses and cycles they had in the past? That's what I'm trying to figure out.

Speaker #4: That's what I'm trying to figure out.

Speaker #2: Well, it's dear all. Mariel, so I think banks are different than they were. I can't tell you exactly over the course of the next 15 years, how credit cycles will play out.

Darryl White: Well, it's Darryl, Mario. I think banks are different than they were. I can't tell you exactly over the course of the next 15 years how credit cycles will play out. You ask a reasonable question there. I do think when you look at the quality of the portfolios, the quality of the underwriting standards, the use of technology to guide outcomes, and predict where we can help clients sooner than we would have, to use your time frames 10 or 15 years ago, and the sophistication around which all of that is managed, speaking for our bank, it is a different approach. It's different underwriting. That should provide over the course of time, like for like, better outcomes. That's what we're seeing.

Speaker #2: You ask a reasonable question there. But I do think when you look at the quality of the portfolios, the quality of the underwriting standards, the use of technology to guide outcomes, and predict where we can help clients sooner than we would have to use your time frames, 10 or 15 years ago, and the sophistication around which all of that is managed, speaking for our bank, it is a different approach.

Speaker #2: It's different underwriting. And that should provide over the course of time, like for like better outcomes. And that's what we're seeing.

Speaker #4: Thank you.

Mario Mendonca: Thank you.

Speaker #5: Your next question comes from the line of Paul Holden from CIBC. Your line is now live.

Operator: Your next question comes from the line of Paul Holden from CIBC. Your line is now live.

Speaker #6: Thank you. Good morning. I'll ask a couple of quick ones. So first, going back to what Aaron, you made it very clear that the improvement in US commercial loan growth is broad-based, including geography.

Paul Holden: Thank you. Good morning. I'll ask a couple quick ones. First, going back to Aron Levine, you made it very clear that the improvement in US commercial loan growth is broad-based, including geography. I just want to drill down on that point for a moment, particularly on California, just given the importance of that region in terms of the growth plan. I understand it's very early in that strategy, but just want to get any color and sort of the growth in California specifically.

Speaker #6: So I just want to drill down on that point for a moment, particularly on California, just given the importance of that region in terms of the growth plan.

Speaker #6: And I understand it's very, very early in that strategy. But just want to get any commentary on sort of the growth in California specifically.

Speaker #2: Yeah. I think we Tony has done a terrific job. And we've really built out a very strong team as we've talked about, really starting with Investor Day.

Aron Levine: I think Tony has done a terrific job, and we've really built out a very strong team, as we've talked about, really starting with Investor Day. Bringing in not only talent from the outside in leadership positions, but a significant number of new bankers throughout the state. Also the development of talent from within and the growth there of strong sort of legacy BMO bankers that have always performed well. I think what you're seeing is this combination of the new talent, the new leadership, combined with just the strength that BMO has in industry expertise, local delivery. The partnership with Capital Markets, I think continues to really grow and strengthen, and that's been a tremendous part of our sort of success that we're seeing. You hear us talk a lot about our partnership with Treasury, the TPS business, and the growth we're seeing there.

Speaker #2: Bringing in not only talent from the outside in leadership positions, but a significant number of new bankers throughout the state. But also the development of talent from within.

Speaker #2: And the growth there of strong sort of legacy BMO bankers that have always performed well. So I think what you're seeing is this combination of the new talent, the new leadership, combined with just the strength that BMO has in industry expertise, local delivery, the partnership with capital markets.

Speaker #2: I think continues to really grow and strengthen. And that's been a tremendous part of our sort of success that we're seeing. You hear us talk a lot about our partnership with Treasury and the TPS business and the growth we're seeing there.

Speaker #2: So I think just the execution of working with clients broadly and really leaning into where we're strong in terms of our industry expertise and local delivery is all what's supporting that growth.

Darryl White: I think just the execution of working with clients broadly and really leaning into where we're strong in terms of our industry expertise and local delivery is all what's supporting that growth.

Aron Levine: I think just the execution of working with clients broadly and really leaning into where we're strong in terms of our industry expertise and local delivery is all what's supporting that growth.

Speaker #5: Okay. Okay. So if I take away from that answer, so the growth in California is kind of on par or similar-ish to the rest of the US.

Paul Holden: Okay. If I take away from that answer, the growth in California is kind of on par or similar-ish to the rest of the US.

Speaker #2: Yeah. I think in the last 60 days, we've seen actually probably a little of an acceleration in the West relative to other parts of the country.

Aron Levine: Yeah. I think in the last 60 days, we’ve seen actually probably a little of an acceleration in the West relative to other parts of the country. Again, all of the things I just talked about are actually driving coming off a little bit of a lower base, we’re starting to see a little more acceleration of success on the West Coast. Again, leveraging that the acquisition we made and the client relationships that we had on the West Coast and just doing a really good job of now providing a broad relationship across banking, capital markets, and treasury.

Speaker #2: So again, all of the things I just talked about are actually driving a little bit of, again, coming off a little bit of a lower base.

Speaker #2: We're starting to see a little more acceleration of success on the West Coast. Again, leveraging the acquisition we made and the client relationships that we had on the West Coast and just doing a really good job of now providing a broad relationship across banking, capital markets, and Treasury.

Speaker #5: Okay. That's perfect. Thank you. And then maybe quickly turning to commercial loan growth in Canada. Also a bit of a pickup quarter over quarter there.

Paul Holden: Okay. That's perfect. Thank you. Then maybe quickly turning to commercial loan growth in Canada. Also a bit of a pickup quarter-over-quarter there. Seems like you're not the only bank that's seen that so far. Just wondering what's driving the growth in Canada, and particularly against the context of what looks like a fairly lackluster economy?

Speaker #5: And it seems like you're not the only bank that's seen that so far. So just wondering, what's driving the growth in Canada? And particularly against the context of what looks like a fairly lackluster economy.

Sharon Haward-Laird: Hi, it's Sharon. Thanks for the question. Yeah, this was a bit of an inflection point for us in terms of loan growth with the first sequential loan growth of 2% that we've seen for a while. I would describe it as pretty broad-based across industries, geographies, nothing in particular. Slightly higher utilization, mostly just good client growth. As Darryl mentioned, we've seen strong client acquisition. Although our pipelines are at historic levels, as soon as the uncertainty clears, I think we'll see even stronger growth.

Speaker #3: Hi. It's Sharon. Thanks for the question. Yeah. This was a bit of an inflection point for us in terms of loan growth with the first sequential loan growth of 2% that we've seen for a while.

Speaker #3: And I would describe it as pretty broad-based. Across industries, geographies, nothing in particular. Slightly higher utilization. But mostly just good client growth. And as Daryl mentioned, we've seen strong client acquisition.

Speaker #3: And so although our pipelines are historic levels, I as soon as the uncertainty clears, I think we'll see even stronger growth.

Speaker #5: Okay. So at 2%, you think is kind of a sustainable type growth rate in the near term? And then maybe even accelerating from there?

Paul Holden: Okay. At 2%, you think is kind of a sustainable type 2 growth rate in the near term and then maybe even accelerating from there?

Speaker #3: Yeah. I think we'll continue to see sequential quarter over quarter loan growth. And as I said at Investor Day, kind of low single digits if caution remains.

Sharon Haward-Laird: Yeah, I think we'll continue to see sequential quarter over quarter loan growth. As I said at Investor Day, kind of low single digits if caution remains, and it could be higher than that if we get some tailwinds from the macro.

Speaker #3: And it could be higher than that if we get some tailwinds from the macro.

Speaker #5: Okay. That's it from me. Thank you. Your next question comes from the line of Mike Rizvanovic from Scotiabank. Your line is now live.

Paul Holden: Okay. That's it from me. Thank you.

Operator: Your next question comes from the line of Mike Rizvanovic from Scotiabank. Your line is now live.

Mike Rizvanovic: Hey, good morning. I wanted to go back to Aron on the US business. We've obviously seen a pretty good pickup on the C&I side industry wide, and you sound relatively bullish on the outlook, but can you sort of delineate for us how much of that is just market driven versus some of the things that you're changing in the business? Can you potentially maybe outgrow peers if there is a bit of a pullback, can BMO stand out because of the primacy initiatives that you're pushing through right now?

Speaker #4: Hey. Good morning. I want to go back to Aaron on the US business. We've obviously seen a pretty good pickup on the CNI side industry-wide.

Speaker #4: And you sound relatively bullish on the outlook. But can you sort of delineate for us how much of that is just market-driven versus some of the things that you're changing in the business to potentially maybe and can you potentially maybe outgrow peers if there is a bit of a pullback?

Speaker #4: Can BMO stand out because of the primacy initiatives that you're pushing through right now?

Speaker #2: Yeah. Thanks. Look, it's certainly you get the benefit of both. Obviously, as the economy is strong in the US, that is obviously helpful in terms of the activity levels that our clients are pursuing.

Aron Levine: Yeah, thanks. Look, certainly you get the benefit of both. Obviously, as the economy is strong in the US, that is obviously helpful in terms of the activity levels that our clients are pursuing, and we benefit from that. We benefit a little bit from utilization growth, which is helpful there. What I'd say is, what we are seeing is the strength of the commercial franchise. Again, the fact that we now have this West Coast base through the acquisition and then the new leadership and talent coming in and really being able to work with clients. I think we're really starting to see the good first step in the Q2. As we talked about, pipelines had been building, and we were starting to see strength that would better come through as the optimization kind of program ended.

Speaker #2: And we benefit from that. We benefit a little bit from the utilization growth, which is helpful there. But what I'd say is, what we are seeing is the strength of the commercial franchise again, and the fact that we now have this West Coast base through the acquisition.

Speaker #2: And then the new leadership and talent coming in and really being able to work with clients. So I think we have we're really starting to see the good first step in the second quarter.

Speaker #2: As we talked about, pipelines have been building. And we were starting to see strength that would better come through as the optimization kind of program ended.

Speaker #2: So I think we can continue to deliver as we've stated. That mid-single digit. But most importantly, very profitable and sustainable growth, which is really important.

Aron Levine: I think we can continue to deliver, as we've stated, that mid-single digit. Most importantly, very profitable and sustainable growth, which is really important. I think equally important, we got to keep in mind to loan growth is the fees side of things and our ability to drive non-interest revenue, the growth in capital markets that we're seeing across FX and M&A, and continued progress on the treasury side. Again, 2% year-over-year improvement on penetration. There's huge upside for us within our own client base. As we've talked about, at 58% penetration, we want to get to 70%, 75%. There's a long way to go there, but the team is executing and working well on that front.

Speaker #2: But I think equally important, we got to keep in mind to loan growth is the fees side of things. And our ability to drive non-interest revenue the growth in capital markets that we're seeing across FX and M&A and continued progress on the Treasury side.

Speaker #2: Again, 2% year-over-year improvement on penetration, and there's huge upside for us within our own client base. As we've talked about, at 58% penetration, we want to get to 70, 75 percent.

Speaker #2: So, there's a long way to go there. But the team is executing and working well on that front.

Speaker #4: And I think I might have missed it earlier. There was a comment about the pace of branch openings. I think it might have been in reference to California.

Mike Rizvanovic: I think I might have missed it earlier. There was a comment about the pace of branch openings. I think it might have been in reference to California. Was that one per month?

Speaker #4: Was that one per month?

Speaker #2: Yes. Yes. Exactly. So one per month in Southern California. And then that'll be the rest of this year. We're excited. Love those centers in San Diego and LA.

Aron Levine: Yes. Exactly. One per month in Southern California, that'll be the rest of this year. We're excited. A lot of those centers in San Diego, in LA, great locations. The design that is focused on delivering for mass affluent clients, really delivering banking, lending, and investments, which is a key to the way we think about the financial center channel going forward.

Speaker #2: Great locations. And again, the design that is focused on delivering for mass affluent clients really delivering banking lending and investments which is the key to the way we think about the financial center channel going forward.

Speaker #4: Okay. So one per month. But that's part of the 150. Was it 150 not over a five-year period? The pace seems a bit slower.

Mike Rizvanovic: Okay. One per month, but that's part of the 150. Was 150 not over a 5-year period? The pace seems a bit slower. Does it accelerate maybe in year two and beyond?

Speaker #4: Does it accelerate maybe in year two and beyond?

Speaker #2: It does. Yeah. You're absolutely correct. It is 150 over five years. Right now, we think we'll get to about 27 to 29 new centers next year.

Aron Levine: It does. Yeah, you're absolutely correct. It is 150 over 5 years. Right now, we think we'll get to about 27 to 29 new centers next year. You'll see that pace significantly increase next year and then as the years go on.

Speaker #2: So you'll see that pace significantly increase next year. And then as the years go on. So some of the ones we've yeah. Just timing of some of the ones that might have opened in the fourth quarter this year will open in the first quarter.

Mike Rizvanovic: Okay.

Aron Levine: Just timing of some of the ones that might have opened in the Q4 this year will open in the Q1, and that's just timing. We'll have a bigger number for 2027.

Speaker #2: And that's just timing. So we'll have a bigger number for 27.

Speaker #4: Okay. Then just quickly, apologies for the multiple questions. But just on the personal and business banking side, that book's been a bit stagnant the last, call it, six or seven quarters.

Mike Rizvanovic: Okay, just quickly, apologies for the multiple questions, but just on the personal and business banking side, that book's been a bit stagnant the last, call it six or seven quarters. I know it's less of a focus for you, Aron, but anything to add there in terms of the slight underperformance versus industry focus?

Speaker #4: And I know it's less of a focus for you, Aaron. But anything to add there in terms of the slight underperformance versus industry?

Speaker #2: Yeah. Well, I wouldn't say it's less of a focus. It's obviously given my background. It's a really important part of our business and one that I'm excited about the ultimate opportunity.

Aron Levine: Yeah. Well, I wouldn't say it's less of a focus. Obviously given my background, it's a really important part of our business and one that I'm excited about the ultimate opportunity. The team is executing well. The first step we've worked hard on repositioning through an optimization program of reducing the higher rate deposits and focusing on core operating deposits, both on the consumer and the business banking side. That is just given the scale, and really focusing on every day improving the client experience and just delivering sustainable growth over time. The team, we're working hard. I'm seeing improvements. I mentioned earlier, mass affluent segment up 20% of assets from our financial center channel. That's one indication. We have others. We're working through it and seeing progress.

Speaker #2: The team is executing well. The first step, we've worked hard on repositioning through an optimization program of reducing the hire rate deposits and focusing on a core operating deposits both on the consumer and the business banking side.

Speaker #2: And so that is just given the scale. And really focusing on every day improving the client experience and just delivering sustainable growth over time.

Speaker #2: So the team we're working hard. I'm seeing improvements. I mentioned earlier mass affluent segment up 20% assets from our financial center channel. That's one indication.

Speaker #2: We have others. And so we're working through it. And seeing progress.

Speaker #4: Got it. Thanks very much for the color.

Mike Rizvanovic: Got it. Thanks very much, Colin.

Aron Levine: Yep.

Speaker #5: That concludes the question and answer session. I'll now turn the call over to Darryl White CEO for closing remarks.

Operator: That concludes the question and answer session. I'll now turn the call over to Darryl White, CEO, for closing remarks.

Speaker #4: Thank you, operator. And thanks, everybody, for your questions this morning. I just reiterate that our second quarter results continued to demonstrate the disciplined execution on the plan that we outlined for you in March at our investor day.

Darryl White: Thank you, operator, and thanks everybody for your questions this morning. I just reiterate that our Q2 results continued to demonstrate the disciplined execution on the plan that we outlined for you in March at our Investor Day. We've shown you today that we've made meaningful progress against those commitments, and we have strong momentum towards our goal of elevating returns and accelerating growth. With that, I will look forward to speaking with all of you again in August. Thanks, Aron. Bye.

Speaker #4: We've shown you today that we've made meaningful progress against those commitments, and we have strong momentum towards our goal of elevating returns and accelerating growth.

Speaker #4: And with that, I will look forward to speaking with all of you again in August. Thanks, Aaron. Bye.

Operator: This concludes today's meeting. You may now disconnect.