Bank Of Montreal Q2 2026 Earnings Report

Bank Of Montreal EPS Results

• Actual EPS: $2.68
• Consensus EPS: $2.54
• Beat/Miss: Beat by +$0.14
• One Year Ago EPS: $2.62

Bank Of Montreal Revenue Results

• Actual Revenue: $7.04 billion
• Expected Revenue: $6.98 billion
• Beat/Miss: Beat by +$65.00 million
• YoY Revenue Growth: +10.20%

Bank Of Montreal Announcement Details

• Quarter: Q2 2026
• Date: 5/27/2026
• Time: Before Market Opens
• Conference Call Date: Wednesday, May 27, 2026
• Conference Call Time: 8:15AM ET

Bank Of Montreal (NYSE:BMO) (NYSE:BMO), commonly known as BMO Financial Group, is one of Canada’s largest and longest-established banks. Founded in Montreal and headquartered in Montreal, Quebec, the bank provides a broad range of financial services to retail, commercial, corporate and institutional clients. BMO is publicly listed in both Canada and the United States and operates under a consolidated financial services model that integrates banking, capital markets, wealth management and asset management activities.

BMO’s core businesses include personal and commercial banking—offering checking and savings accounts, lending, mortgages, and small-business services—alongside wealth management and private banking through its asset and investment management divisions. The bank’s investment banking and global markets operations are conducted through BMO Capital Markets, which provides corporate finance, advisory, equity and fixed-income solutions. In the United States, BMO serves clients through its U.S. commercial banking network, which includes consumer deposits, commercial lending and regional banking services.

Geographically, BMO’s primary markets are Canada and the United States, with selected international activities to support corporate and capital markets clients. Its client base spans individuals, small and medium-sized enterprises, large corporations, and institutional investors. The firm emphasizes an integrated approach to serving cross-border clients and supports capital raising, risk management and treasury solutions for diversified industry sectors.

The bank is led by President and Chief Executive Officer Darryl White and governed by a board of directors responsible for corporate strategy and oversight. BMO maintains a focus on enterprise risk management and regulatory compliance while investing in digital channels and service delivery to meet evolving client needs. Its long history and diversified business model position it as a significant player in North American banking and financial services.

Bank Of Montreal Q2 2026 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: BMO reported a very strong quarter, with adjusted EPS up 40% year over year to CAD 3.67 and record net income of CAD 2.7 billion, supported by broad-based revenue growth and strong operating leverage.
• Positive Sentiment: The bank said it made meaningful progress toward its 15% ROE target, with adjusted ROE rising to 13.5% and ROTCE reaching 17.6%, while management emphasized that momentum is building across the franchise.
• Positive Sentiment: Capital and shareholder returns remained strong: BMO ended the quarter with a 13% CET1 ratio, repurchased six million shares, and raised its dividend by 5% to CAD 1.71. Management also highlighted the announced sale of transportation and vendor finance as accretive to capital and ROE.
• Neutral Sentiment: Business momentum was broad-based, including stronger U.S. banking loan growth, record wealth management earnings, and solid capital markets results. Management said the U.S. optimization program is effectively complete and that it sees an inflection point for profitable growth.
• Negative Sentiment: Credit trends remain mixed, with overall PCL stable quarter over quarter but Canadian consumer delinquencies still rising amid elevated insolvencies and unemployment. Management said it expects impaired provisions to remain in the mid-40s basis point range and sees continued pressure in unsecured credit.

Presentation

[Operator]

Good morning, welcome to BMO Financial Group's Q2 2026 earnings release and conference call for May 27th, 2026. Your host for today is Christine Viau. Please go ahead.

[Christine Viau, Head of Investor Relations at BMO Financial Group]

Thank you. 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, Mat 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.

[Christine Viau, Head of Investor Relations at BMO Financial Group]

Darryl and Rahul 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.

[Darryl White, CEO at BMO Financial Group]

Thank you, Christine Viau, and good morning, everyone. At our March Investor Day, we laid out a clear execution-focused plan to elevate returns and accelerate growth. 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. Adjusted EPS was CAD 3.67, up 40% from last year, with pre-provision pre-tax 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.

[Darryl White, CEO at BMO Financial Group]

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 six 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 one ROE and number one 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%. Year-to-date, underlying ROE is up 200 basis points and EPS is up 30%.

[Darryl White, CEO at BMO Financial Group]

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 U.S. 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. Each of our businesses delivered strong results this quarter.

[Darryl White, CEO at BMO Financial Group]

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 U.S. Banking, we're executing against our multi-pronged profitable growth levers.

[Darryl White, CEO at BMO Financial Group]

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 U.S. Banking model, and differentiated treasury and capital markets capabilities, we delivered sequential quarterly commercial loan growth in the U.S. Banking segment of 4% point-to-point and grew TPS and advisory fees. 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. 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.

[Darryl White, CEO at BMO Financial Group]

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 U.S. Our world-leading metals and mining business led the way with multiple transactions this quarter.

[Darryl White, CEO at BMO Financial Group]

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 U.S. 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.

[Darryl White, CEO at BMO Financial Group]

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. As you'll hear from Rahul, we remain disciplined in optimizing performance through expense management and efficiency improvements.

[Darryl White, CEO at BMO Financial Group]

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 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.

[Darryl White, CEO at BMO Financial Group]

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 one year, streamlining consultations, establishing special economic zones and trade corridors nationally, and simplifying regulatory reporting are positive, and they're a good start.

[Darryl White, CEO at BMO Financial Group]

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.

[Rahul Nalgirkar, CFO at BMO Financial Group]

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. Second quarter reported EPS was CAD 3.53, net income was CAD 2.6 billion. Adjusting items are on slide 45, 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.

[Rahul Nalgirkar, CFO at BMO Financial Group]

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 asset 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.

[Rahul Nalgirkar, CFO at BMO Financial Group]

Average deposit balances were flat year-over-year, excluding the impact of the weaker US 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 the second quarter. 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.

[Rahul Nalgirkar, CFO at BMO Financial Group]

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 U.S. 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.

[Rahul Nalgirkar, CFO at BMO Financial Group]

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 U.S. non-relationship card portfolio. Turning to slide 13. Expenses grew 6% and were up 3% excluding FX and higher performance-based compensation.

[Rahul Nalgirkar, CFO at BMO Financial Group]

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%-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.

[Rahul Nalgirkar, CFO at BMO Financial Group]

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. 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 NNR 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.

[Rahul Nalgirkar, CFO at BMO Financial Group]

Turning to U.S. 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. Revenue was up 5% on higher NII from margin expansion, partially offset by lower average balances reflecting optimization initiatives. NNR 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 fourth quarter, our balance sheet optimization efforts will be effectively behind us.

[Rahul Nalgirkar, CFO at BMO Financial Group]

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 and corporate banking revenue increased 26%, driven by strong advisory and equity underwriting fees.

[Rahul Nalgirkar, CFO at BMO Financial Group]

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.

[Piyush Agrawal, Chief Risk Officer at BMO Financial Group]

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.

[Piyush Agrawal, Chief Risk Officer at BMO Financial Group]

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. By operating segment, Canadian Personal and 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.

[Piyush Agrawal, Chief Risk Officer at BMO Financial Group]

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 $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. 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. 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. Formations were $1.4 billion, modestly down from the prior quarter. Our portfolio continues to benefit from strong diversification.

[Piyush Agrawal, Chief Risk Officer at BMO Financial Group]

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. We are selective who we partner with in this business. 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.

[Piyush Agrawal, Chief Risk Officer at BMO Financial Group]

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. 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.

[Operator]

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

[John Aiken, Analyst at Jefferies]

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 might maybe begin to moderate?

[Piyush Agrawal, Chief Risk Officer at BMO Financial Group]

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.

[Piyush Agrawal, Chief Risk Officer at BMO Financial Group]

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, and the place where we do take action, we're seeing a very high recovery rate north of 98%, 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.

[John Aiken, Analyst at Jefferies]

Thanks for that. I'll requeue.

[Operator]

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

[Matthew Lee, Analyst at Canaccord Genuity]

Shouldn't work.

[Operator]

There's a small delay, Matthew. Your line is now live.

[Matthew Lee, Analyst at Canaccord Genuity]

Hi, good morning. Can you hear me?

[Christine Viau, Head of Investor Relations at BMO Financial Group]

Yep, we can.

[Matthew Lee, Analyst at Canaccord Genuity]

Oh, perfect. Okay, the transportation and vendor finance transaction was pretty consistent with kind of the broader effort to improve U.S. ROE. As you look across the U.S. 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?

[Darryl White, CEO at BMO Financial Group]

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. 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.

[Darryl White, CEO at BMO Financial Group]

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. 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.

[Matthew Lee, Analyst at Canaccord Genuity]

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? Are there aspects of the franchise and earnings profile that are proving maybe more durable than originally contemplated?

[Alan Tannenbaum, CEO and Group Head and BMO Capital Markets at BMO Financial Group]

Thanks, Matt. Appreciate the question. We 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. 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. Feel good about that forward look.

[Alan Tannenbaum, CEO and Group Head and BMO Capital Markets at BMO Financial Group]

However, we are seeing some modest moderation in activity levels, and 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.

[Matthew Lee, Analyst at Canaccord Genuity]

Okay, sounds good. I'll pass the line.

[Operator]

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

[Gabriel Dechaine, Analyst at National Bank Financial]

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 U.S., we've got loan growth sounds like it's accelerating, which is great to see. I'm just wondering how that outlook changes given maybe loan growth continuing to outpace deposit growth. Then 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?

[Rahul Nalgirkar, CFO at BMO Financial Group]

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.

[Rahul Nalgirkar, CFO at BMO Financial Group]

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. I think one thing important to note there is while it might have pressured NIM sequentially, they're largely immaterial for the ROE standpoint. That's one noting. The second part is you asked the question on the outlook. 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.

[Rahul Nalgirkar, CFO at BMO Financial Group]

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.

[Gabriel Dechaine, Analyst at National Bank Financial]

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 excess liquidity at the moment. Then just to follow up on the U.S.

[Rahul Nalgirkar, CFO at BMO Financial Group]

Yep

[Gabriel Dechaine, Analyst at National Bank Financial]

it sounds more bullish in the outlook. I guess, is it wrong to conclude that an acceleration of C&I loan growth will absorb 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?

[Aron Levine, President of U.S. Banking at BMO Financial Group]

Hey, it's Aron. Let me jump in on that one. Look, first of all, really pleased with the second quarter. 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 wound down. We feel very good about the outlook for the rest of the year.

[Aron Levine, President of U.S. Banking at BMO Financial Group]

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.

[Gabriel Dechaine, Analyst at National Bank Financial]

Okay. Thanks.

[Operator]

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

[Ebrahim Poonawala, Analyst at Bank of America]

Hey, good morning. I guess just on this margin and ROE question, maybe Darryl, Aron, Rahul, for all of you or one of you, I guess. As we think about incremental growth, right? When you think about Canada, super competitive, all the banks are going after the same sort of set of clients. Immigration is slower, U.S. 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. 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? How do you think about that?

[Ebrahim Poonawala, Analyst at Bank of America]

Is it different in Canada versus U.S. 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.

[Darryl White, CEO at BMO Financial Group]

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.

[Darryl White, CEO at BMO Financial Group]

We're very clear on net new business being well above that hurdle. In the U.S., 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 Aron 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.

[Darryl White, CEO at BMO Financial Group]

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

[Rahul Nalgirkar, CFO at BMO Financial Group]

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.

[Rahul Nalgirkar, CFO at BMO Financial Group]

While the environmental headwinds will be there, we are very much focused on the tailwinds, what we can control. The latter reinvestments 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%. I think that's how we look at this package as we kind of look at outperformance for returns through the cycle.

[Ebrahim Poonawala, Analyst at Bank of America]

That's helpful. 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, some of this war-related uncertainty in the Middle East conflict could sort of derail domestic CapEx in the U.S. and the momentum. When you think about 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 U.S. looking out back half into next year? Thanks.

[Aron Levine, President of U.S. Banking at BMO Financial Group]

Yep. Hey, Ebrahim, it's Aron. Thanks. No. In fact, our March and April we've seen momentum growing. 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. 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 the third quarter. 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.

[Ebrahim Poonawala, Analyst at Bank of America]

All right. Good to hear. Thank you.

[Operator]

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

[Doug Young, Analyst at Desjardins]

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 U.S.?

[Rahul Nalgirkar, CFO at BMO Financial Group]

Yeah. Why don't we start with Canada, and then we can go to the U.S. to talk about some of those initiatives.

[Mat Mehrotra, Group Head of Canadian Personal and Business Banking at BMO Financial Group]

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.

[Aron Levine, President of U.S. Banking at BMO Financial Group]

On the U.S. 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. 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 Affluent and the other work, we're already starting to see some results of that effort.

[Doug Young, Analyst at Desjardins]

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?

[Rahul Nalgirkar, CFO at BMO Financial Group]

Yeah, sure. 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. 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.

[Doug Young, Analyst at Desjardins]

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

[Mat Mehrotra, Group Head of Canadian Personal and Business Banking at BMO Financial Group]

Hey, Doug, it's Mat 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.

[Doug Young, Analyst at Desjardins]

Okay. I'll leave it there. Thank you.

[Operator]

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

[Mario Mendonca, Analyst at TD Securities]

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? 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.

[Piyush Agrawal, Chief Risk Officer at BMO Financial Group]

Thanks, Mario. 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, 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. 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 Affluent, 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.

[Piyush Agrawal, Chief Risk Officer at BMO Financial Group]

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 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 the mortgages. I don't know, Matt, if you want to add something.

[Mat Mehrotra, Group Head of Canadian Personal and Business Banking at BMO Financial Group]

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.

[Mario Mendonca, Analyst at TD Securities]

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.

[Mario Mendonca, Analyst at TD Securities]

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.

[Piyush Agrawal, Chief Risk Officer at BMO Financial Group]

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 four or five 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.

[Piyush Agrawal, Chief Risk Officer at BMO Financial Group]

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. I don't see this as a stress scenario. To me, we are managing very well through this, and we've taken early action. What's really important is the benefit of the diversification of the portfolio, especially in retail, wholesale, U.S., 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.

[Mario Mendonca, Analyst at TD Securities]

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.

[Darryl White, CEO at BMO Financial Group]

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, and that should provide, over the course of time, like for like better outcomes, and that's what we're seeing.

[Mario Mendonca, Analyst at TD Securities]

Thank you.

[Operator]

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

[Paul Holden, Analyst at CIBC]

Thank you. Good morning. I'll ask a couple quick ones. First, going back to Aron, you made it very clear that the improvement in U.S. 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, material on sort of the growth in California specifically.

[Aron Levine, President of U.S. Banking at BMO Financial Group]

Yeah, 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.

[Aron Levine, President of U.S. Banking at BMO Financial Group]

Also the development of talent from within and the growth there of strong sort of legacy of 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 and the TPS business and the growth we're seeing there. 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.

[Paul Holden, Analyst at CIBC]

Okay. 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 U.S.

[Aron Levine, President of U.S. Banking at BMO Financial Group]

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, again, 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.

[Paul Holden, Analyst at CIBC]

Okay. That's perfect. Thank you. 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?

[Sharon Haward-Laird, Group Head of Canadian Commercial Banking at BMO Financial Group]

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, but 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.

[Paul Holden, Analyst at CIBC]

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

[Sharon Haward-Laird, Group Head of Canadian Commercial Banking at BMO Financial Group]

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, and it could be higher than that if we get some tailwinds from the macro.

[Paul Holden, Analyst at CIBC]

Okay. That's it from me. Thank you.

[Operator]

Your next question comes from the line of Mike Rizvanovic from Scotiabank.

[Mike Rizvanovic, Analyst at Scotiabank]

Hey, good morning. I wanted to go back to Aron on the U.S. 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, and 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?

[Aron Levine, President of U.S. Banking at BMO Financial Group]

Thanks. Look, it's certainly you get the benefit of both. Obviously, as the economy is strong in the U.S., that is obviously helpful in terms of the activity levels that our clients are pursuing, and we benefit for that. We benefit a little bit from the utilization growth, which is helpful there. What I'd say is, what we are seeing is the strength of the commercial franchise. 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 second quarter. 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.

[Aron Levine, President of U.S. Banking at BMO Financial Group]

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. 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, 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%. There's a long way to go there, but the team is executing and working well on that front.

[Mike Rizvanovic, Analyst at Scotiabank]

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?

[Aron Levine, President of U.S. Banking at BMO Financial Group]

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 and L.A. Great locations. Again, 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.

[Mike Rizvanovic, Analyst at Scotiabank]

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

[Aron Levine, President of U.S. Banking at BMO Financial Group]

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

[Mike Rizvanovic, Analyst at Scotiabank]

Okay.

[Aron Levine, President of U.S. Banking at BMO Financial Group]

Yeah. Just timing of some of the ones that might have opened in the fourth quarter this year will open in the first quarter, and that's just timing. We'll have a bigger number for 2027.

[Mike Rizvanovic, Analyst at Scotiabank]

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?

[Aron Levine, President of U.S. Banking at BMO Financial Group]

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.

[Mike Rizvanovic, Analyst at Scotiabank]

Got it. Thanks very much for the color..

[Aron Levine, President of U.S. Banking at BMO Financial Group]

Yep.

[Operator]

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

[Darryl White, CEO at BMO Financial Group]

Thank you, operator. 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. 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, you. Bye.

[Operator]

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

Participants

Analysts

• Alan Tannenbaum, CEO and Group Head and BMO Capital Markets at BMO Financial Group
• Aron Levine, President of U.S. Banking at BMO Financial Group
• Christine Viau, Head of Investor Relations at BMO Financial Group
• Darryl White, CEO at BMO Financial Group
• Doug Young, Analyst at Desjardins
• Ebrahim Poonawala, Analyst at Bank of America
• Gabriel Dechaine, Analyst at National Bank Financial
• John Aiken, Analyst at Jefferies
• Mario Mendonca, Analyst at TD Securities
• Mat Mehrotra, Group Head of Canadian Personal and Business Banking at BMO Financial Group
• Matthew Lee, Analyst at Canaccord Genuity
• Mike Rizvanovic, Analyst at Scotiabank
• Paul Holden, Analyst at CIBC
• Piyush Agrawal, Chief Risk Officer at BMO Financial Group
• Rahul Nalgirkar, CFO at BMO Financial Group
• Sharon Haward-Laird, Group Head of Canadian Commercial Banking at BMO Financial Group