Bank of Montreal Stock

Great. Thanks for our next presentation, we have Bank of Montreal. Coming from Bank of Montreal, we have their Chief Financial Officer, Rahul Nalgirkar.

Welcome, Rahul.

Thank you.

Let's get started kind of on the macro. Can you give us an update on the economic environment in Canada, especially in light of recent tariff negotiations and ongoing Investment Summit? You also have a unique perspective on the subject with large commercial businesses on both sides of the border?

Sure. First of all, thanks for having us, and thanks for hosting us here. As we think about Canada and U.S., it's been a long-standing relationship and partnership, which lives over decades. And while -- and then that's what's made the North America a pretty strong economy as well in general, if you think about it. So while there may have been some uncertainties with the recent trade discussions, I'm optimistic as we look beyond where things would proceed with this.

If you think just near term, you asked what is it looking like? I mean, clearly, there's a lot of discussion on demand, there's continued demand. Loan closings this year are almost double of what it was last year, coming out of a lot of slow 2025. Pipelines are strong. Conversations are strong. I think what clients are looking for, is that a little bit added confidence towards the end as the negotiations find closure.

As you think about BMO being a top 5 commercial bank in North America, we're very strategically positioned to help clients in their needs, whether it's cross-border, whether it's supply chain, whether it's export. And I think that's where we've been focused on, on how do you help the clients proactively and also use this as an opportunity to, in fact, acquire new clients on both sides of the border.

Great. And then I think if you look at recent earnings in Q3, demonstrated double digits year-over-year growth in revenue, PPPT, net income and EPS. Any of our key takeaways from earnings you'd like to highlight for investors? And how are these trends shaping up for 2027?

Sure. Third quarter was another strong quarter for us, and the results demonstrate the continued progress and execution, which we have been doing on our path, which we laid out at Investor Day.

If you see 7 quarters in a row when we started this journey in the end 2024 at an ROE of 9.8%. Now we finished at 14%, almost up 220 basis points so far this year, and it's been broad-based. It's not just coming from one particular unit, all the 4 units, subsegments for us are contributing 50, 60 basis points each of this expansion of 220 basis points we have had this year. So broad-based and also largely coming from core operating performance.

We've seen strong performance in revenue was up 11%. PPPT was up 13% and record at $4.5 billion. All 4 of our units printed record PPPT. ROE of 14%, ROTCE of 18% and EPS growth of 22%. So we feel very good about what these results demonstrate, the results of our execution. And then that gives us the confidence as we think about the next phase of the journey towards 15% exiting 2027.

Okay. And then, throughout 2026, Bank of Montreal has made steady progress towards reaching its 15% plus ROE target, inclusive of a 12% U.S. banking ROE with 3Q generating 14%, overall 9.8% in the U.S. Maybe can you discuss some of the drivers for that ROE expansion? How much is structural improvement versus cyclical market conditions? And then can you update us on the time line to achieving your return targets?

Sure. A part of this is also related to my previous response, where a lot of this growth, majority of the improvement is all coming from core operating performance and it's broad-based. Where we have come along within core operating performance includes the improvement in returns of our U.S. business. It also includes broad-based growth of our capital markets, Canadian Wealth and Canadian Personal business as well. As we think about the remainder of the journey from here onwards to the 15% target, which we have, I think about 50%, 60% comes back from core operating performance.

Continued strength in the P&C businesses on both sides of the border and the strength, which has been demonstrated both in wealth and capital markets. And then the remainder portion, we expect as credit normalizes as we continue to optimize our capital, the remainder to come from that. So it's a combination of largely dependent on core operating performance from fees, from deposits as we better squeeze the dollar of capital for more fees and deposits, that's how we look at it.

Great. Maybe drilling down into the U.S. banking business, now the bank has optimized the loan portfolio and divested certain businesses. Where are the areas resources will be deployed -- redeployed -- and how are you positioning for growth opportunities going forward?

Sure. I mean, listen, we're very pleased with the progress, which our U.S. banking has shown so far. ROE of 9.8%. I think the one thing I would point out is that's ROTCE of 17.3%. That's Important to note on return on margin and capital. That's 90 basis points of ROE improvement year-over-year.

And then these results demonstrate the impact of our deliberate actions. We deliberately 5, 6 quarters ago, unified the operating structure to bring all the business together under one umbrella. There's been very strong core operating deposit growth. TPS fees have grown about 14% year-over-year. Strong operating leverage.

Capital has been optimized as we looked at businesses which didn't meet our risk-adjusted return expectations. PCLs have normalized. And we have had significant upgrade in talent and reinvestment in tech across the board. So it's a very all-rounded story in terms of what these results reflect in terms of these deliberate actions.

As we look forward from where they are at around 10% to the remainder of 12%, I broadly think about the remainder of the journey as almost 1/3, 1/3, 1/3 as I say, coming from fees, 1/3 coming from deposits and 1/3 coming from all other actions, including cost and capital as we continue to invest and allocate capital to relationships and businesses which meet our risk-adjusted returns through the cycle and also our growth expectations through the cycle.

So that's how we've been very deliberate in our capital optimization and our liquidity optimization and also mix expense.

Great. Another major factor in the ROE expansion story has been continued strength in capital markets. Maybe can you discuss how you are positioned within capital markets relative to other Canadian banks?

Sure. I mean if you think about Capital Markets business, again, a very strong result so far this year, printing almost $900 million PPPT every quarter. Feel very strong about it. And while the markets have been constructive, but the story here is largely structural and represents the results of our deliberate investments over years. We've been very deliberate about allocating capital. We've been deliberate about expanding in tech and talent of a lot of product capabilities.

And then also very deliberate about how geographically this is dispersed. 48% of the revenues are from U.S., 41% from Canada. A lot of capabilities, as I was mentioning, which we have evolved over the years. First quarter was dominated by commodities. Third quarter was dominated by the equities. So as the market and the situation presents itself, we've diversified our -- and expanded our capabilities so that as we think about the future and as we think about sustaining strong performances, through the cycle, it helps us to get there.

So the flow has resumed. And while I do recognize markets have been constructive, but there's a lot to do with the deliberate actions.

Sure. Returns have also been strong in kind of Canadian P&C and Wealth. I mean, are there any trends there that you'd like to touch on?

Yes. I mean, what I would mention is that those 2 are our highest return businesses. Canadian P&C had ROE of almost 23%. And Wealth of about 42%. And as I deconstruct each of those businesses, very pleased with where we are seeing growth.

If we talk about Canadian P&C, 7% deposit growth, 3% loan growth, 13% TPS growth, strong ROE performance year-over-year improved. 23% was up 300 basis points year-over-year. So core operating performance business in general, focused on deposits, focus on fees, a lot of good improvement there.

And I think the last leg, which we are looking at is as we get past our optimization on the consumer unsecured as we look at growing the mass affluent and the premium group. That's a big focus of there as that then allows us to raise our ROEs in this segment beyond 23% to our medium-term target of 25% and plus.

As I look at Wealth, a very strong performance. PPPT of $620 million. If we were having this conversation 3 years ago, that was in the mid-300s to high 300s. So that reflects a lot of strong performance, which we have had over the years, especially in Asset Management business, where we've been a leading provider of many products like ETFs and mutual funds and so on and so forth. So again, reflecting deliberate investments we have made in that business and then feel strongly about how those 2 ROE, high ROE businesses are also growing and contributing to capital generation.

All right. Let's move on to credit and kind of start with performing PCLs. After materially improving over the course of the year, performing PCLs kind of have been relatively flat sequentially. Just -- did your guidance include the potential impact from higher tariffs? And if the tariff policy is enacted and maintained with that gradually, that would imply gradually higher PCLs heading into 2027?

Sure. So what I would mention is we enter fourth quarter with a position of strength as far as credit is concerned. We have a reserve coverage of 69 basis points and feel very well positioned for that. Watch list, gross impaireds are trending in the right direction trending down. We have a diversified exposure base. And as we look at the fundamentals of the customers, they're pretty strong, especially the commercial customers. So as you put it all together, we feel good about it.

And I think to also answer your question, a lot of the tariff-related activities, which are there, as we look at our performing PCL, we try to factor in certain scenarios based on economic scenarios and also some expert judgment. So a lot of that gives us the comfort in terms of where we are entering into fourth quarter. We had said that we expect our fourth quarter impaired to be in the similar range as what we had in the third quarter, which was in the low 40s.

And then heading into next year, I think path down towards the mid- to high 30s as we think about 2027. And then just to elaborate on your point on what does the tariff mean. I mean at this point of time, it's a manageable percentage of direct exposure and very immaterial size of the book. So this does not present any credit build or credit data point at this point of time. But more what we are focused on is the secondhand impact, the secondary impact of what it means to the broader macro, and that's what we are closely watching out. But we feel pretty good about where we are entering the fourth quarter.

Both our reserves, both are impaired are in the direction of underlying credit.

And then going further, gross impaired loans continued to move lower in conjunction with the decline in formations. Any particular factors that were driving this decrease or noticeable differences in geography or segment? And do you see gross impaired loans reaching a bottom in the near term?

So yes, I mean, our gross impaired this quarter were 97 basis points, so came down about 4, 5 basis points quarter-over-quarter. The watch list trend, the gross impaired trend has been pretty broad-based and heading in the right direction, declining, both in commercial and consumer business in both sides of the border. I think as we look forward, overall, I think we are focused on Canadian consumer, how that evolves over a period of time.

But largely, the strength is coming from improvement in watch list and gross impaired on the commercial side, which is a bigger portion than a predominant portion of our business. So we do expect that to happen, and that's correlated with our guidance at which we had provided for our mid-30s, high 30s impaired being correlated as those underlying trends are running positive that supports our impaired outlook as we look in the future.

All right. And then you highlighted ongoing investments in technology, digital innovation, including the rollout of GenAI tools for advisers and customer self-serve capabilities. Could you elaborate on how these initiatives are translating into tangible cost efficiencies or revenue opportunities in the near term? Are you starting to see scalable benefits from your digital transformation in terms of operating leverage?

Yes, sure. So I mean as we think about AI, we've got very strong momentum and pretty excited about what it means in terms of our opportunity for efficiency in both revenue growth in both our -- in all our businesses in both the countries. I think broadly before I answer that question, AI to us is we look at it in a couple of different ways.

How we are basically personalizing the client experience, how we are augmenting this for our employees and how we are automating our processes. And I think that is the big part because AI is not just a tech project, but it's a fundamental rewiring of your business model and processes.

So from that standpoint, as we look at it, there's lot already benefits which we are seeing. Now earlier part of the phase in this journey, it's going to be more on the efficiency side. But as time progresses and as some of these tools have their impact. It will start yielding into revenue growth. We already have revenue growth impact, but it's more coming on the efficiency side right now.

I mean, to give you some examples, you asked for it, in our insurance business, we have this tool called SmartDecision, which has cut down the underwriting time from many weeks to a couple of minutes. As we look at customer complaints and customer disputes, when we look at completely or reorganizing the end-to-end journey with the agentic tools, that speeds down not only the time for resolution, but also the quality of customer experience and also credit for that matter.

So there are a lot of these benefits, which we are seeing and that gives us the confidence about the $1 billion PPPT benefit, which we had talked about achieving by 2030, feel good about that progress.

And one thing we really haven't touched too much on loan growth. Is there any areas you can maybe discuss like compare commercial loan growth opportunities and consumer loan growth opportunities? I mean how would you compare the U.S. opportunity in the U.S. versus Canada, especially like this past week, we've had the Canadian Investment Summit going on?

Yes. Yes. Sure. I mean maybe I'll start with Canada and then go to the U.S. I think in Canada, there's a lot of good dialogue with this Summit, which is going to attract a lot more capital. I think there are already discussions on special projects like defense infrastructure, which is there.

What makes us feel very good as being a dominant commercial player in Canada positions us well to serve the clients in that need. And as that capital is coming into the country, how do we help those investments and also grow our own business and revenues as we see those areas specifically.

Canada, though, what I would say is coming out of last year, which was relatively slow. We have seen in Canadian commercial low to mid-single-digit loan growth. But the pipelines and the closings are very strong. So as we expect things to progress in time to get more clarity on the trade negotiations, we do expect more pickup from there.

On the U.S. side, I think the clients have been very resilient. The activity similar story. Pipelines are strong. We had 4% sequential loan growth in U.S. commercial. While a lot of that might have been related to some of the backlog on commercial construction and M&A activity side, but the underlying growth is still pointing towards a mid-single-digit loan growth as we exit the year. So good activity. Good loan closing, strong pipelines.

I think probably U.S., I would say the client sentiment is a little bit more confident than in Canada. But then with the negotiations finding place, we expect that to level out.

I guess maybe similar, if you could touch on competition for deposits and the potential in the U.S. were possible rate hikes tomorrow in Canada. I don't know how they'll react when they see what's going on in the U.S.? Maybe talk about what the competitive environment looks like for deposits?

Sure. I mean, with the rate environment where it is, there's a lot of activity which is going on in deposits. I think what we are focused on is our deliberate strategies to grow core operating deposits. I think in totality, if you look at our third quarter results, while it may look like that we were flat year-over-year on deposits, but if you unwrap the details, our core operating deposits were up for the total bank 8% year-over-year.

Now we had -- we were very cautious to deliberately run off CDs in the U.S. and term in Canada as to meet the requirements of the balance sheet as loan growth was muted, but a lot of deliberate focus on putting talent, putting product capabilities, putting technology behind core operating deposits. And then our results show that. And we've taken market share in everyday banking in Canada in savings accounts in Canada or we're looking at California on the retail side or even commercial on both sides of the border. There's a lot of data points which show how we have taken share. So that is how we look at our core deposits.

Now there will be competition as whether it's because of the rate environment or whether it is because of the loan growth picking up. But I think where we are very much focused is on our -- improving our deposit mix through these deliberate actions. And then the competition is what it is. It's a rational competition, the pressures will always be there. It's one thing or another at any point of time, but we are playing this game more to have good results to the cycle and significantly improve our deposit mix.

So when you kind of summing up the loan growth and deposit growth dynamics, maybe we can talk about the NIM expectations for both the U.S. and Canada over the near term. Do you think you can still maintain NIM expansion, even assuming deposit growth trails loan growth and potentially rising interest rates?

So I mean, as we look back '25 into '26, there was a lot of NIM expansion, which we experienced in both the countries and at a total bank level, and that reflected a lot of benefits from the ladder reinvestments. And also, as I talked about core deposits being up 8%, our deliberate actions in improving our deposit mix. So a lot of that contributed to the expansion year-over-year.

As we look forward, the magnitude of that expansion is not going to be there because as the story we were looking back into many years, loan growth was absent. So we optimize the funding cost and also the loan balances where we had capital deployed to grow NII through NIM expansion.

As we look forward, we do still see the benefits of ladders and deposit mix improvements, which we are doing to continue to help us. But we do also recognize loan growth has picked up. And you just previously asked about the competition on the deposit side. So those I do expect those tailwinds and headwinds to keep the NIM in a resilient fashion and not have the kind of expansion which we have seen previously. But our focus shifts more on continuing to have NII growth with loan growth and seek NIM stability.

NIM to me is an outcome, right? As we think about supporting relationships, enhancing returns and looking at relationships capital deployment where -- which meet our risk-adjusted returns, NII growth to us is what means in terms of ROE expansion and EPS growth and NIM stability in the short run is what we look at.

Great. Maybe moving on to capital for a little bit. BMO's CET1 ratio remains strong at 13%, even after repurchasing 3.8 million shares in the third quarter. I guess, leading you to announce a new program for 25 million shares. Still, OSFI has lowered the domestic stability buffer of 50 basis points, resulting in a lower CET1 ratio requirement. In addition, your CET1 expected to benefit about 50 basis points from the impact of recent divestitures.

Kind of given the situation, where do you think is an appropriate level of capital to run the bank? And how quickly would you look to get there?

Sure. So I mean, as you alluded in your question, we closed the third quarter at 13% CET1. And then we have pending transactions, which will add another 50 basis points of CET1 to that. So we look at that as our starting point. And all this, we put through our capital framework. We have a pretty robust approach in terms of we are looking at, obviously, the first deployment of capital is for organic growth and meeting the loan demands. So that is part of our framework. We look at how much capital which we are generating. As our ROE is improving, our capital generation every quarter is now north of 30 basis points. And then that is one part of the equation.

We also look at macro and geopolitical scenario. Obviously, we have a different outlook as we look forward given these trade uncertainties and what's happening in the Middle East, that kind of all comes into the macro geopolitical bucket. And then we'll also look at what's the regulatory expectations in the peer benchmark where they are and capital returns being the last part of the equation. So when you look at all these pieces together is how much we are generating with the primary objective to deploy for growth, we look at where we are taking all these things into factor.

Given all of this, we do still feel that 12.5% and 13% operating range, which we had talked about still feels judicious and prudent. It just allows us to have some more buffer in terms of what's happening with the environment in macro and operate with prudence. Now we've been operating on the higher end of that range. We might be comfortable to come slightly below that end as we see good loan demand, which meets our return expectations or return shareholders to the capital -- sorry, capital to the shareholders in terms of where we think to operate.

So at this point of time, we're just not thinking about changing the range. We might just come down from the higher end of the range a little bit if we think that's where we would want to go.

Great...

But that is something which we look at on a quarter-to-quarter basis and month-to-month as the macro and the geopolitics evolve.

I guess some investors start looking at the higher capital levels and higher valuation levels in Canadian banks, start to speculate potentials for acquisitions. How do you view inorganic growth opportunities in the current environment? Is there any differences between the geographies when you evaluate them?

Sure. So I mean, I would answer that question in 2 parts. One is obviously, what you may be alluding to is U.S. bank M&A and the other is all else, tuck-in good acquisitions. So U.S. Bank M&A is not a priority for us for the record. And we have a task cut out to achieve higher profitability in California, where we had Bank of the West acquisition few years ago, and that's where we are focused on.

And we are not looking to open any new footprint on any geography, but our heads are doubling down on achieving our path to 12% in U.S., which is 18% ROTCE. As we think about non-U.S. bank, we'll look for tuck-ins from time to time to expand our capabilities in various fee businesses. Last year, we acquired Burgundy Management in Canada to supplement the offerings, which we had -- we felt there was a gap in between our Private Bank and family office, so that's supplemented well.

Most recently, you heard about, we acquired a small investment banking team in Australia in metals and mining businesses, which complements very well with our global #1 position in metals and mining side. So these kind of capabilities and tuck-ins for fee businesses we will look for from time to time as they present itself. And if they align with our strategy. So those are where our focus is, but largely, our focus remains on organic growth.

Okay. Before we open it up to audience Q&A, is there any kind of final thoughts you'd like to leave us with or areas that we didn't touch on?

I mean I think where we'll leave you with the fact is that we started this journey to enhance returns and accelerate growth way back in end of 2024. Couple of quarters down in the path, I feel good about the progress which we have made, good EPS growth, ROE growth and also the results speak of the execution on that. So very much focused on that, and that's largely coming from core operating performance.

We are not banking on the environment in the market, but BMO specific levers as we look forward towards our medium-term target of 15% ROE and 18% ROTCE exiting 2027. So very much focused on execution through core operating performance.

Great. I would like to open it up to the floor to investor Q&A. Does anyone have any questions that they would have for Bank of Montreal?

We have one in the back. Do we have a mic runner? Or you can just speak up. I'll repeat the question.

Sure. So let me just repeat. The question was to what are the key levers that you're going to use to improve Bank of the West profitability?

Yes. I think the one thing that I'd mention is just at the outset. We have totally integrated Bank of the West in BMO. And so we don't operate anything in the West Coast of Bank of the West. It's very much unified BMO model north, south, U.S., Canada and West Coast. So I just thought I can explain that.

When we look at the Bank of the West profitability, or you're alluding to the West Coast profitability, it is a subset and part and parcel of our Investor Day target of path to 12%, which we talked about for U.S. banking. And then that is 18% ROTCE. So any profitability improvements on the West Coast is a subset of that. What we have talked about that path, it's basically broken up into 3 categories: 1/3 is fees, 1/3 is deposits, and 1/3 is capital cost and altogether. And these areas are broken up between all our 3 businesses.

I think first of all, what we did last year was, like I mentioned in one of my remarks was, we had a unified business structure we deliberately did it because bringing it in-house, we have reached a scale in the U.S. that it warranted a unified model, go-to-market model. So all the businesses could interact very cleanly and at a speedy pace with each other, whether it was wealth with commercial, it was mass affluent with private bank, it was business banking with middle market and so on and so forth. So we've kind of created that deliberate structure under one umbrella with a gentleman running the business called Aron Levine.

And what -- within each of those businesses, we have various initiatives to deepen client relationships and also optimize capital. What that results then into all the activities in those businesses is these fees, deposits and capital and cost, as I mentioned. I mean just to use an example on the deposit side, we have TPS fees, which has a penetration of mid-50s to high 50s in the U.S. commercial, taking that to the mid-70s, brings in more fees and deposits. There's a lot of focus on the consumer side on the mass affluent strategy, which helps bringing in core operating sticky deposit, which adds to the deposit part of the equation.

So that's how we have it laid out is the outcome in the past is going to be along these lines, 1/3 of in fees, 1/3 in deposits and all others, but a lot of other initiatives under this unified structure across all these business units.

Great. Any other questions out there?

Yes. So the question was on the impact of tariffs on small- and medium-sized businesses in Canada?

Yes. I think as we look at the tariff implications, and we've been running various models since the discussions started last year in terms of what the impact is. As we look at our book, it's a very immaterial size relative to where our existing exposures are. And very, very manageable in terms of what it means to what's already on the balance sheet and part of our portfolio. I think where we are more focused on is what is the second order impact of what does this tariff uncertainty mean to GDP to unemployment? And if there are going to be any real implications coming out of it and to counter that if there are any fiscal and stimulus measures coming out of the government.

So those are the pieces which we look at. As you -- and we are -- as we look at all of those pieces, we really don't see as a credit event based on what we see on this right now. On top of it, as I was mentioning, we come into fourth quarter and next year with a position of strength on our reserve coverage ratio at 69 basis points, where we feel between how we have modeled that, between how the direction of our underlying credit quality is, from an improvement basis, watch list and impairments, gross impairment as we look at, we feel very comfortable in terms of where we are, notwithstanding even if there are any second order implications.

But that is something which we'll closely watch out and keep talking to all of you on a quarterly basis. But we feel comfortable where we are today. But closely monitoring.

Great. And...

Sorry, repeat that question again?

Further growth ambitions in the U.S.

I mean U.S. for us, in a way if I look at it, I'm glad you asked that question because for us, we have a task cut out for each of the businesses, what role they play in our long-term journey to enhance returns and accelerate growth. So higher ROEs, also strong EPS growth, and U.S. for us and capital markets for us represents that growth story while maintaining a strong marginal return on equity. Whether it is Aron's business in U.S. banking, as we look at growing commercial, growing mass affluent, growing a private bank, there's a lot of focus there.

Within U.S. as I mentioned, almost 48% of our capital markets revenues comes from U.S. right now. And there's a lot of focus, how do we expand into capabilities, which we are already strong in Canada, like investment banking and metals and mining or energy into the U.S. and how do you bring those adjacencies down. So U.S. is a part of -- a big part of the equation for us, as we look at our North Star for elevating returns and accelerating growth across these businesses.

All right. With that, please join me in thanking Rahul for his presentation.

Thank you.

Up next, we have our keynote lunch panel on the Future of Financial Services, which will be hosted by Rodgin Cohen of Sullivan & Cromwell.

Good morning, and welcome to the BMO Financial Group's Q3 2026 Earnings Release and Conference Call for August 25, 2026. Your host today is Christine Viau. Please go ahead.

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 to answer questions are our group heads Matt Mehrotra, Canadian Personal and Business Banking; Sharon Haward-Laird, Canadian Commercial Banking; Aron Levine, U.S. Banking; Alan Tannenbaum, BMO Capital Markets; Deland Kamanga, Wealth Management; and Darrel Hackett BMO U.S. CEO.

A reminder that our call will end at 8:15 this morning. As noted on Slide 2, forward-looking statements may be made during this call, which involve assumptions that have inherent risks and uncertainties. Actual results could differ materially from these statements. I would also remind listeners that the bank uses non-GAAP financial measures to arrive at adjusted results. Management measures performance on a reported and adjusted basis and considers both to be useful in assessing underlying business performance. Darryl and Rahul will be referring to adjusted results in their remarks unless otherwise noted as reported. And with that, I'll turn the call over to Darryl.

Thank you, Christine, and good morning, everyone. This morning, we reported another quarter of strong operating performance with EPS of $3.96, up 22% year-over-year and pre-provision pretax earnings of $4.5 billion, up 13%. These results reflect our ongoing focused execution on the strategy we outlined at our Investor Day in March, to elevate returns and accelerate growth.

Every business segment delivered record pre-provision pretax earnings with sustained momentum in Capital Markets and Wealth and continued commercial loan growth in both Canada and the U.S. as we deepen [indiscernible] client relationships across our franchise. We delivered double-digit revenue growth and positive operating leverage of 1.6%, managing expenses in line with revenue and continuing to reinvest for growth.

We continue to make meaningful progress against our ROE targets. Return on equity improved again this quarter to 14%, up 200 basis points from last year and extending the momentum we've built over the last 7 quarters. The strength of our core operating performance this quarter reinforces our confidence in delivering a sustainable 15% ROE exiting fiscal 2027. Since outlining our path to higher returns, we've consistently demonstrated that diversified revenue growth, disciplined expense management, strong risk management and proactive capital management delivers tangible and sustainable results.

Our progress continues to be supported by each of the key drivers we identified at our Investor Day. We're seeing continued client growth, healthy fee-based revenue and improved productivity across the enterprise. Credit performance improved with impaired provisions at the lowest level in the last 10 quarters, a result of proactive risk management and our well-diversified portfolio.

Our capital position remains strong with a CET1 ratio of 13%. The impact of our announced divestitures closing which Rahul will cover in his remarks, is expected to contribute an additional 50 basis points of capital and support returns through reallocation to areas where we have attractive, higher return and longer-term growth opportunities. These strong capital levels are providing ongoing flexibility to support client needs, invest for growth and return capital to shareholders through a combination of dividends and share buybacks.

Turning now to our businesses where, as I highlighted, each business delivered record PPPT this quarter. In Canadian P&C, our deposit-led growth strategy continues to drive performance with operating deposits up 7% year-over-year as clients are choosing BMO for trusted advice, innovative digital capabilities and personalized solutions. At the same time, clients are consolidating more of their financial relationships with BMO.

Mutual fund sales through our financial centers were up 33% over last year with strong market share gains driving a higher penetration of investment products in our retail client base. We're building deeper client loyalty, including strong early engagement following the launch of BMO Blue Rewards with a 65% increase in weekly enrollments since launch and strong engagement with partner offers that help clients make real financial progress.

Canadian Commercial Banking continues to perform with good lending momentum up 3% and strong TPS fee growth up 13% from last year. Year-to-date, new client acquisition is healthy and 20% higher than last year, with particular strength in mid-market. As the official and exclusive financial services partner to Canada soccer, we're proud to continue our decade-long legacy of growing the game from the grassroots to the most global of events, including our support of the men's national team through the World Cup this summer and looking ahead to the Women's World Cup in 2027.

Our integrated marketing campaign around this year's World Cup reached 30 million Canadians and contributed to a 40% lift in BMO.com visits contributing to our strongest net client growth quarter of the year. Our U.S. banking business continues to build momentum with ROE of 9.8%, up 90 basis points year-over-year and ROTCE of 17.3%. The investments in talent, technology and integrated market strategies are leading to good progress in net client growth. We continue to see positive commercial lending activity with the first quarter of annual commercial loan growth since completing our optimization efforts in Q2.

Loan balances were up 4% sequentially, with record TPS revenues up 15% from last year. In U.S. Retail Banking, core customer deposits were up 2% over last year across the franchise, led by 3% growth in California. And we're seeing good progress in our mass affluent strategy with investment flows up 17% over last year. In U.S. banking, we've now made the transition from optimization to an inflection point where we can drive an acceleration in profitable growth.

Wealth Management delivered another strong quarter with record net income driven by broad-based growth across the franchise including higher private banking penetration among affluent households and sustained growth in net new assets. Our differentiated lineup of ETFs and mutual funds continues to attract client assets and strengthen our position as one of Canada's leading investment managers.

Long-term mutual fund gross sales and ETF flows are both up 19% from the prior year, reflecting strong fund performance and innovative offerings. In Capital Markets, performance remained strong with record PPPT of $903 million, reflecting the benefits of our diversified franchise and leading sector expertise. We had strong contributions across global markets and investment in corporate banking with strong equity trading and debt underwriting results driven by our franchise strength and one client connectivity.

The results this quarter reinforced the earnings capacity of our Capital Markets business. As demand for critical minerals, energy infrastructure and resource investment continues to grow BMO is helping clients execute transformative transactions that strengthen the economy and support long-term economic growth.

We also recently announced an agreement to acquire the Capital Markets business of [ Euros Hartley's ] Group combining BMO's globally leading metals and mining franchise with one of Australia's premier investment banking and equity distribution platforms to create a truly integrated global capability for our clients. Across all our businesses, the power of our One Client strategy is creating measurable value, increased referrals, stronger connectivity across business lines and higher level of client engagement are generating sustainable growth opportunities across the enterprise.

At our Investor Day, we highlighted the many ways that AI is already creating significant value business value for our clients and our teams by personalizing client experiences, augmenting our teams and automating processes to drive business value. We continue to advance and integrate these important initiatives.

This quarter, BMO Insurance launched another AI-powered platform, smart decision. It uses predictive modeling to deliver underwriting decisions in as little as 10 seconds compared with an industry average of 28 business days or more. Our Lumi frontline chat box brings speed and efficiency to a new level, simplifying access to policy information across Canadian personal and business banking, increasing productivity amongst new employees by 17%. Lumi is being extended and scaled to support client conversations starting with mortgage renewals.

We're now taking the next step in our evolution, further enhancing our operating model, scale our efforts across the organization and accelerate value creation. On the trade front, the Canada U.S. relationship is going through a period of adjustment. And the uncertainty that brings represents a headwind in both countries for trade-related sectors and domestic affordability more broadly. The relationship will remain an extraordinarily important one to both countries, but some of the assumptions that businesses have relied on for decades, particularly around the predictability of trade policy have been tested in the last 1.5 years.

For the bank, there are 2 implications. First, we're closely monitoring the effect on our clients and our portfolios, and we're working with them on liquidity, investment decisions, supply chain adjustments and market diversification and I can report today that they are adjusting very well.

Second, our competitive position in Canada and the United States is a strategic advantage for our clients. Our businesses operate across a diversified North American platform, and we can help our clients navigate in both markets. Canada and the United States are deeply connected and North America remains one of the most attractive economic regions in the world. We're disciplined on risk, staying close to our clients and are ready to support them as government policy and the environment evolves.

Against that backdrop, the world is looking for places that can deliver long-term growth and support resiliency in an increasingly uncertain environment. And Canada has real advantages, a stable financial system, abundant resources, world-class talent and a platform to export globally through the world's most comprehensive set of free trade agreements. The upcoming Investment Summit is a good example of Canada putting those strengths in front of investors to compete for capital on the global stage. And BMO is uniquely positioned to capture growth opportunities in this environment.

Our premium commercial banking franchise was once again recognized by World Finance Magazine as the best commercial bank in Canada and in the U.S. Our leadership in TPS was recognized by Global Finance as the Best Bank for transaction banking in North America for continued innovation across automation, real-time payments, data and AI capabilities. Our differentiated capital markets expertise, particularly in metals and mining, energy and infrastructure play to this market opportunity, all of which is supported by a growing wealth platform and strong deposit foundation providing significant opportunities to continue expanding client relationships and generate sustainable earnings growth.

Most importantly, we remain focused on our #1 imperative of delivering and sustaining a 15% ROE as we exit fiscal 2027 by executing on the commitments we made at our Investor Day, stronger returns, faster earnings growth and a more resilient franchise, all anchored in growing and deepening client relationships, innovating for business value and optimizing performance. I want to thank all employees of the BMO team. It's their commitment to our clients and communities that powers our combined success and my confidence in continuing to deliver long-term value for our shareholders. With that, I'll turn it over to Rahul.

Thank you, Darryl. Good morning, everyone. My comments will start on Slide 10. Third quarter reported EPS was $2.38, and net income was $1.8 billion. Adjusting items are on Slide 45 and included a $973 million charge largely related to goodwill on the announced sale of the Transportation Finance and vendor finance businesses. The remainder of my comments will focus on adjusted results.

EPS was $3.96, up 22% from last year on record net income of $2.9 billion. ROE of 14% increased 200 basis points year-over-year. ROTCE of 18% increased 240 basis points and ROA was 72 basis points. These results demonstrate strong execution of our strategic priorities and core operating performance across all our businesses while continuing to optimize the portfolio and invest for future growth.

PPPT grew 13% year-over-year to $4.5 billion with record PPPT in all 4 operating segments and positive operating leverage of 1.6%. The Revenue growth of 11% was broad-based, reflecting the benefits of our diversified business mix. Wealth Management and capital markets continue to generate strong fee growth while Canadian P&C and U.S. banking benefited from NIM expansion and balance sheet growth.

Total PCL decreased to $722 million with lower impaired and performing provisions and Piyush will speak to this in his remarks. As Darryl mentioned, we have announced 3 strategic transactions that optimize our business portfolios, including the sale of 138 U.S. branches outside our core footprint, the transportation and vendor finance businesses and Moneris Canada, while these businesses contributed modestly to the current quarter revenue and earnings, they did not meet our long-term growth and ROE objectives.

We expect these transactions to add 50 basis points to our CET1 ratio on closing, be overall accretive to ROE and position us to well deliver our Investor Day growth and return targets as we deploy capital and resources to opportunities which meet our growth and return expectations.

Turning to the balance sheet on Slide 11. We are seeing loan growth momentum on both Canada and the U.S., positioning us to deliver ongoing NII growth. Average loans were up 3% year-over-year and up 2% sequentially. With balance sheet optimization actions complete, year-over-year, U.S. commercial loan growth turned positive this quarter and was up 4% sequentially.

Canadian commercial loans were up 3% year-over-year and up 2% sequentially. Canadian consumer loans had modest growth across all lending products. Average deposit balances were flat both year-over-year and sequentially. Core operating deposits grew 8% year-over-year and offset by deliberate reduction in term deposits in both the countries. Deposit mix improvement remains an important source of our margin resilience.

Turning to Slide 12. NII [ X ] Markets was up 5% year-over-year, driven primarily by margin expansion and loan growth in Canadian P&C and U.S. Banking, partly offset by lower NII in corporate. NIM [ ex ] markets was 226 basis points, up 5 basis points year-over-year, reflecting continued deposit margin expansion from higher latter reinvestment rates and improved deposit mix.

NIM ex Markets declined 3 basis points sequentially with higher operating segment margins more than offset by higher levels of low-yielding liquid assets and lower NII in corporate. Our focus on growing core operating deposits and disciplined loan growth is reflected in the stable NIM trends in U.S. banking and Canadian P&C, notwithstanding the deposit competition and loan mix headwinds.

In Canadian P&C, NIM was up 2 basis points sequentially with higher deposit margins, offset by lower loan margins. In U.S. Banking, NIM decreased 1 basis point sequentially as higher deposit and loan margins were offset by the impact of loans growing faster than deposits. Looking ahead, we expect core margin trends in Canadian P&C and U.S. banking to remain resilient.

In the near term, while the quarterly NIM may fluctuate modestly with prudent liquidity management and divestiture-related balance sheet mix our underlying NIM performance is supported by the deposit mix improvement, ladder reinvestment and disciplined pricing. We are focused on growing NII while maintaining NIM stability.

Moving to noninterest revenue on Slide 13. NIR increased 26% year-over-year or 15%, including -- excluding trading and reflects our ongoing success in deepening client relationships across all our businesses. Growth was driven by higher wealth management fees, debt underwriting fees, EPS fees and lending fees which was partly offset by the gain on sale of a nonstrategic insurance portfolio in the prior year.

Turning to Slide 14. Expenses grew 9% and were up 6%, excluding FX and higher performance-based compensation. We continue to closely manage expenses in line with revenue growth to deliver positive operating leverage. This performance reflects realized benefits from our efficiency program while selectively reinvesting in key growth areas, including talent, technology and marketing. Our efficiency ratio improved to 54.9% and operating leverage was 1.6%. We remain on track to deliver against our guidance of mid-single-digit core expense growth and positive operating leverage for the full year.

Turning to Slide 15. Our CET1 ratio remained strong at 13%, unchanged from last quarter with strong capital generation net of dividends of 33 basis points, supporting growth and share repurchases. Disciplined capital allocation is foundational to our operating model. Given our strong capital position, today, we announced a new normal course issuer bid for up to an additional 25 million shares or approximately 3.6% of shares outstanding beginning in September, pending regulatory approval.

Moving to the operating segments and starting on Slide 16. Canadian P&C net income was up 15%, reflecting good PPPT growth of 7% and lower PCLs. Revenue was up 6% from higher NII on margin expansion loan growth and strong core deposit growth. Noninterest revenue increased 13%, driven by higher mutual fund distribution fees, TPS fees and card revenue partly offset by the reduction to retail deposit fees. Expense growth of 4% reflected higher operating costs and technology investments. Efficiency ratio improved to 42.8% with positive operating leverage of 1.6%.

Turning to U.S. Banking on Slide 17, which speaks to U.S. dollar performance. Net income was up 9% year-over-year with ROE expanding 90 basis points year-over-year to 9.8% and ROTCE of 17.3% representing a strong return on marginal capital deployed. This was supported by strong core operating performance, including PPPT of $972 million, up 7% year-over-year. Revenue was 5% on higher NII from margin expansion and commercial loan growth. NIR grew 4%, primarily driven by record EPS fees and higher investment management fees.

Expense growth of 3% reflected continued investments in talent and technology, largely funded by efficiency improvements with positive operating leverage of 1.7%. We are seeing strong momentum across our U.S. franchise to enhance returns and accelerate growth.

Moving to Slide 18. Wealth Management net income was up 22% year-over-year. Strong performance was driven by record wealth and asset management revenue, up 24% year-over-year, reflecting stronger markets and continued growth of net new assets, deposits and loans. Insurance revenue was down due to the gain on sale in the prior year, partially offset by the impact of favorable market movements in the current quarter. Expenses were up 22%, driven by higher employee-related expenses including higher revenue-based costs.

Turning to Slide 19. Capital Markets net income was up 45% year-over-year driven by record PPPT of $903 million, up 39%. Revenue was up 20% year-over-year with continued strength in Global Markets revenue which increased 27% on strong activity in equities trading. Investment in corporate banking revenue increased 10%, driven by corporate banking and strong debt underwriting activity. Expenses were up 9%, mainly driven by higher employee and technology costs. These results reflect both constructive market conditions and the benefits of our investments in product capabilities, resource deployment and sector expertise.

Turning to Slide 20. Corporate Services reflected a net loss of $178 million compared with $123 million in the prior year reflecting lower revenues and higher expenses. Our results this quarter demonstrate continued progress towards our Investor Day priorities to elevate returns and accelerate growth. We are advancing multiple BMO-specific levers, including stronger U.S. returns, core operating performance, capital efficiency and disciplined balance sheet growth. With adjusted ROE at 14% this quarter, we are confident in achieving our medium-term objective of 15% ROE exiting fiscal 2027. And with that, I will now turn it over to Piyush.

Thank you, Rahul, and good morning, everyone. The North American economies continue to demonstrate resilience amid elevated geopolitical risks and evolving trade landscape. Economic growth has resumed in Canada and growth in the U.S. remained solid, supported by AI-driven expansion. At the same time, Canadian labor markets remains softer than historical norms energy-driven insulation has created near-term volatility and this weekend announcement of additional tariffs present downside risks.

Turning to our performance this quarter. We are seeing the benefits of the actions we have taken over the past several years to strengthen portfolio quality, maintain disciplined underwriting standards and proactively manage emerging risks. As shown on Slide 22, total provision for credit losses were $722 million, down from $739 million in the prior quarter, driven by lower impaired provisions. Impaired losses decreased $26 million to $708 million or 41 basis points.

By operating segment, Canadian personal and commercial impaired losses were $447 million, down $30 million from the prior quarter, driven by lower losses in the unsecured retail portfolios. While consumer insolvencies remain elevated, we are starting to see some signs of stabilization as a result of proactive risk management actions.

We remain vigilant given the uncertainty of ongoing trade policies and continue to actively manage the portfolio through enhanced monitoring and early client engagement. In U.S. banking, losses were $223 million down $14 million from the prior quarter with lower losses in both Consumer and Commercial segments, and Capital Markets impaired losses were $30 million.

Turning to Slide 23. Our performing allowance position remains a key strength. The $14 million performing provision this quarter was primarily driven by changes in the macroeconomic outlook relating to higher long-term rates, partially offset by improvement in portfolio credit quality. The bank remains well reserved with $4.8 billion of performing allowance and 69 basis points coverage over performing loans.

Overall, underlying credit trends improved during the quarter. The wholesale portfolio continued to experience net positive migration resulting in further $1 billion decrease in watch list balances. Gross impaired loans were $6.8 billion or 97 basis points, down 4 basis points from the prior quarter, as shown on Slide 24. Formations were $1.5 billion table to prior quarter.

Looking ahead, we are encouraged by the positive trends in our portfolios. Commercial watches and impaired loan trends continue to improve and our portfolio continues to demonstrate strong borrower fundamentals. At the same time, the recent tariff announcement is an important development, and we are watching the potential second order effects on Canadian growth employment and business investment very closely.

That said, we do not see this as a broad-based credit event today. Our portfolio is well diversified. We've stress tested the areas most exposed to trade disruption and our underwriting remains disciplined. Direct exposure remains manageable at less than 1% of the loan book and a significant portion is to investment-grade borrowers. The bigger variable for us continues to be broader macroeconomic implications for Canada. We will continue to support our clients as they navigate through these policy changes.

We also believe government measures will help lessen the impact on workers and businesses. So we are appropriately cautious in the environment and confident in the resilience of our portfolio. Against this backdrop, we expect fourth quarter impaired PCL to be in line with third quarter with no change to our 2026 guidance.

To conclude, the bank enters the fourth quarter from a position of strength with robust reserve coverage, diversified exposures, solid borrower fundamentals and capital and liquidity levels that provide significant flexibility across a range of economic scenarios. We believe these factors position BMO well to continue supporting our customers while prudently managing risk through the cycle. With that, I will now turn the call back to the operator for the Q&A portion of this call.

[Operator Instructions] Our first question comes from Matthew Lee from Canaccord Genuity.

Maybe one for Aron. U.S. ROE is progressing pretty quickly now in the 10% range. Can you maybe rank the key --

Operator, do we have the first question?

Whether that's accelerating core banking loan and growth -- continued growth in wealth normalization of credit or further balance sheet optimization? And has that ranking changed at all since the Investor Day, just given the progress you made so far?

Sorry, just give us a moment here. Yes. Can you hear me?

Ladies and gentlemen, we're experiencing technical difficulties on the line.

[Technical Difficulty]

Yes, our first question comes from Matthew Lee from Canaccord Genuity.

Can you hear me?

Yes, we can hear you, Matt. Sorry for the delay.

Yes, no problem. Just maybe one for Aron. U.S. ROE is progressing quickly now in the 10% range maybe rank the key drivers to whether that's accelerating core banking loan growth, growth in wealth, credit normalization or further balance sheet optimization? And just how has that ranking changed at all since Investor Day, just given the progress you made so far?

Matthew, can you hear me now? Okay. Great. Sorry for the technical challenges. I think I heard your question was related to the path to 12%, the ROE path. So I'll answer that, and I think that's what you have. So if you remember what we said in the Investor Day and what we repeated, the way to think about the path is really in 1/3, 1/3, 1/3, right? 1/3 client balance growth, 1/3 fee income growth and 1/3 efficiencies and PCL normalization. And across all 3 of those, we are really seeing some positive trends.

We talked about the good loan momentum in commercial loan growth, 4% quarter-over-quarter, and that's after achieving the growth in the second quarter. We're seeing strong fee income growth, in particular, with our TPS, which we grew at 15% year-over-year on top of 23% the prior year. We are seeing good growth in our consumer business with the 3% core consumer operating deposit growth. And then, of course, on our efficiencies and PCL normalization our efficiencies have improved 90 basis points year-over-year and actually 300 basis points since 2024.

So across all of those, it's good progress. There's work to be done. We have to continue to execute the strategy as we've laid out, driving quality loan and deposit growth, really work as we have been across all of our fee-generating businesses, CPS, Capital markets and wealth and continue to deliver strong efficiencies through expense management and PCL normalization, as Piyush pointed out.

I will say critically important, we are investing within that expense management, strong increases in talent. We've delivered more investments in our technology model. So we continue to invest in a long-term growth because this is all about long-term success. And with a quarter now at 9.8% ROE and 17.3% ROTC, we're clearly making progress and we'll continue to work each quarter towards our ultimate goals.

All right. That's helpful. So just about 1/3 each for the next 100 basis points.

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

I guess maybe Darryl and then Alan and Mathew, if you want to jump in. Just give us a mark-to-market around -- that you addressed that the tariff impact could be manageable potentially. But as we think about the momentum, maybe starting with the Canadian economy, it felt like things were picking up steam, commercial growth, housing stabilizing.

Just give us a sense of what's your best expectation in light of the tariff uncertainty of what that means for the Canadian economy. And on the U.S. side, how much of lending do you think can get influenced or impacted by the AI CapEx cycle either direct or second round effects.

Ebrahim, it's Darryl. So thanks for the question. Look, you surmised in your question that we thought that the impact of the recent round of tariffs was manageable. I think I heard [ Kama ] potentially. I think it's absolutely manageable is the first point I would make, and I'll explain to you why. When we step back, I'm going to reinforce the point I made earlier, which is that we're focused on helping our clients navigate change. That's not new.

Liberation Day was 16 months ago. There's been a lot of change that has been navigated. I will point out to all of us that over the course of that time, as adjustments are being made in supply chains. We've got a growing Canadian economy, in fact, an increase in the growth rate as well as a reduction in the unemployment rate. So that sets the backdrop for where we are today. I think it is important to remove the emotion from the topic and have a clinical lens.

So I won't add to the motion. I will add to the clinicians work. which is the difference between last week and today, if we bring to a status quo is the imposition of the 338 tariffs, which are acute, but they are, at the same time, apply to 5% of the exports that go from Canada to the U.S. Within that 5%, Piyush took you through our position from a lending and risk perspective, which I would say is very, very manageable.

I think we have to recognize that whatever impact this might have has a very high chance of being mitigated in many ways. Later today, we do expect the Canadian government to announce its support mechanisms. There is a lot of fiscal capacity. And I mentioned earlier, Ebrahim, that the clients have adjusted very well and have proven that they can adjust very well.

Last thing I'll say on this, I think it's a very interesting point and another helpful catalyst where I will say what I've said before, which is there's an opportunity for the Canadian federal and provincial governments to recognize the moment for what it is and use it to drive transformational policy change around really truly knocking down interprovincial trade barriers, keeping the pace of project reviews and approval processes up, ensuring Canadian competitiveness on taxation is real and not let this moment go to waste.

So I think when you put it all together, I'll come back to where I started. Is it manageable? Of course, it is and in fact, there may be some opportunities in the challenge that we've got in front of us. On the U.S. side, I don't think this really has much impact whatsoever on the U.S. economy, which is mostly geared towards its own drivers and that includes the downstream effect, of course, from the AI trade and the CapEx cycle which is real, and we participate in that as many do in various parts of that ecosystem. I hope that helps.

Our next question comes from Stephen Boland from Raymond James.

Just one question. Could you just talk a little bit of the lowering of the -- this is going to obviously drive a little bit more excess capital hopefully to the loan book. So I'm just wondering where your focus is going to be? Is it going to be higher margin, possibly higher risk loans? Or are you going to kind of follow the government agenda with focus on defense infrastructure, which may have lower credit risk, but also lower margin. So how is that excess capital to be deployed in [indiscernible]?

Yes. So thanks for the question. It's Darryl again. I think the short answer to your question is no change. You've seen with the lowering of the DSP, we have not outlined any change in our target capital levels. We had said at our Investor Day that we intend to operate between 12.5% and 13%, that is unchanged as we sit here today.

I think we've demonstrated in the quarter. We've got -- quarter is actually a great example of the last couple of quarters where the generative capacity is now at basis points, as you saw, which is if you go back, I'm looking at rural several quarters, that would have been in the high teens, low 20s. So that's very helpful in terms of being able to drive a menu that allows us to meet the good client growth where it is in both countries, first and foremost, and at the same time, invest in our growth agenda, which you saw this quarter, we took some real opportunities to do that.

And then finally, there's plenty left over for dividends and share buybacks. So really, there is no change. There's certainly no change in risk appetite. There's certainly no change in going after chasing a different part of the risk curve or the yield curve. The strategy is exactly as we outlined it at Investor Day. I hope that helps.

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

Darryl, I think you talked about the -- this quarter demonstrates the earnings capacity of the Capital Markets division. I know capital markets can be all over the map. But this quarter was over 16% ROE. I think you're targeting 15%. So -- can you talk about the sustainability of the earnings relative to the past and is the earnings capacity at this division higher than it has been in the past? And maybe you could talk a bit about why?

Yes. So thanks for the question. Maybe you address me, so I'll begin the answer, but I'll also ask Alan to chip in here as he's running the business day to day. The short answer is, yes, the earnings capacity is higher than it had been historically. We have had constructive markets. The teams have done a really good job serving our clients within those constructive markets.

But at the same time, I remind us that over the course of the last few years, we've invested very heavily in the capabilities in this business on both sides of the border and internationally. So what you're seeing is the combination of the market demand and our ability to service that demand, but also an elevation of our own capabilities. And therefore, from a sustainable basis, I would say we absolutely expect more of ourselves than we might have 1.5 years or 2 years ago. Alan, why don't you jump in?

Thanks, Darryl. The only thing I would add, and Doug, I appreciate the questions, as Darryl mentioned, we've gone through an investment cycle in people, technology and broadening out our product set. And you see that Doug reflected in the diversity -- diversity of our results, right? This quarter, we'll highlight strength around our equity derivative businesses and some of our issuance businesses. Earlier in the year, we talked about our strength in our commodities businesses and our metals and mining M&A. So that investment cycle and diversification of our business gives us confidence that these results are sustainable.

I appreciate that. And then just a quick one. It sounds like you're holding more liquidity than normal. Can you quantify what the impact that had on is that something like at the all bank level, obviously -- and then is this something a drag that should continue for a few more quarters?

If I were to quantify, of the 3 basis points NIM decline, which we had quarter-over-quarter, almost 2 basis points is related to higher liquidity, which we have in corporate. I think and if you think about it, I would characterize this as prudent liquidity management. You're aware, we've got some pending dispositions here, especially in the fourth quarter. macro geopolitical developments and also we were opportunistic about prefunding some debt maturity. So when you put it all together, that's how we were looking at liquidity management here. We do expect though largely a lot of this to normalize post fourth quarter once the dispositions are behind us.

Our next question comes from Mario Mendonca from TD Securities.

Going to card PCLs, I appreciate it's not a big part of BMO's business, but it seems like it's -- it can be a pretty helpful indicator of Canadian consumer credit. Could we speak about -- could you speak about why that may have dropped so abruptly and I'm referring to the decline in card PCLs year-over-year and quarter-over-quarter. Is there something special in the quarter? Or is that just a healing of the Canadian consumer?

Mario, it's Piyush. So I'll begin and maybe I'll invite Matt to join. What you're seeing is a combination of improvement over time in the Canadian macro environment, you saw unemployment tick down. There's been some seasonal changes in insolvencies that have been helpful. But really, it's a very deliberate set of actions we've been taking to proactively manage and reduce risk in our portfolio while refocusing on the premium segment.

This has resulted in some moderation in the balance growth, which we believe is turning the corner, and we are seeing positive quarter-over-quarter momentum and expect continued improvement in the portfolio performance as we move through next year which is why the overall confidence in our Q4 impedes, knowing that there are going to be some second order impacts as we go into '27 from some of the policy changes, Matt?

Yes. And just to build on the growth side for just a second, we've seen quarter-over-quarter balance growth for the first time in 5 quarters, which is excellent and our premium account growth is up 47% year-over-year. So to Piyush's comments, the strategy is working. We've taken deliberate action to reposition the portfolio, and we're growing in the segments that we set out at Investor Day.

All right. Different kind of question. It's been many years since Canadian investors wanted to talk about U.S. Bank M&A. Your bank has been an acquirer, the valuation spread between our Canadian banks and U.S. regionals, for example, but as well as I've seen it, does that influence your outlook on U.S. M&A?

Mario, it's Darryl. Look, there's a lot of things that go into the rubric of how we think about M&A. I don't think today, acknowledging there have been some dynamics that are supportive, as you pointed out in your question. But I don't think our posture has changed. Our #1 imperative is to drive our business to the ROE targets that we've outlined for you all over the last couple of years and reinforced at Investor Day, I've said it before.

So at the risk of boring with repetition I'll say it again, might we engage in M&A in the U.S. only if it meets very strict conditions. We think about it in the category of furthering our strategies around regional density and regional scale and the strategies that Aron has been outlining quite clearly. And secondly, that we wouldn't look at anything that would delay our ROE promises from a timing perspective by a day. And so with that, you kind of get to a pretty narrow view of what you might do. And in the meantime, I can reconfirm to all of our shareholders that our #1 priority today is organic.

Our next question comes from Paul Holden from CIBC.

So Darryl, on the organic priority and also your earlier comments on the CET1 organic capital generation, again, very strong at 33 basis points. I guess, what I want to ask is sort of the use of that, right? So this quarter, we saw 21 basis points go to share buybacks and 12 for RA.

Probably want to see that like inverse, right, more go to balance sheet growth, organic capital deployment and a little bit less to share buybacks, still some of the buybacks. But I guess my question there, is that a reasonable expectation? One is could we see RWA growth account for 20 basis points or more of CET1 consumption? And two, if it is a reasonable expectation, kind of could we get there in 2027?

Yes. Paul, thanks for the question. So the answer is, we could. And what you pointed out in your question is that we've got the flexibility to solve in the various quadrants that you just mentioned. I think the key point is that we don't create demand. And to the extent that there is good demand for good growth in the client segments that we've targeted very consistently and explained to you, we're there to satisfy that.

So I don't find myself in a position today of turning away a single good opportunity for client growth in favor of buying back a share. That's not the way it works. It works the other way around. So really, the market will drive the answer to your question, the market, meaning the real economy. And to the extent that, that good growth is there, I mean let's use commercial banking, for example. We've been pretty good at this, as you know, for decades in both countries, and we'll be there to support that growth, and we'll think about buybacks as the leftover as opposed to the driver.

And one more, if that's okay. In terms of the U.S. business, obviously seeing good loan growth there, as you've highlighted, like a little bit of NIM compression. Is there anything strategically you can do in terms of deposit growth to keep NIM flattish? Or do you just -- we have to accept that with strong loan growth that there will be some NIM compression?

Yes, it's Aron. I'll take that. So remember, when we think about NIM, our first focus continues to be on the ROE path. We've done a lot of work over the last 12 months on deposit optimization. You can see NIM improved 20 basis points year-over-year. And now we have -- we do turn to sort of growth, both on the loan side, which you talked about NIM and on the deposit side.

We have great relationships in our commercial bank, and we're seeing really good progress on driving against those relationships with TPS growth, both on the deposit side and the fee side. And in the consumer business, as we laid out on Investor Day, we have a really key clear strategy that we're executing against and highlight sort of 3 key areas of focus.

One is the mass affluent, which is our partnership between consumer and wealth. You heard some stats earlier about where that's making good progress. Second is our bank and work partnership between consumer and commercial, again, an area of real opportunity for us. And then finally, as we really focus in on driving the client experience and just overall financial center productivity, across our network, there's opportunity to continue to drive deposit growth, especially core operating accounts, which is where we're focused.

So that combination of delivering against our TPS business, which really covers everything from our business banking through our emerging middle market all the way up to our larger middle market. and driving the kind of core operating accounts and consumer through a variety of initiatives, we feel good about the path we're on.

Our next question comes from [ David Conrad ] from KBW.

Most of my questions have been asked and answered, but just a follow-up on the sustainability of capital markets. I mean maybe talk a little bit about how some of your core expertise in your product set may kind of fit with potential budget of the Canadian government in spending and infrastructure.

Thanks, David. I appreciate the question and a great opportunity for me to highlight. As you articulate some of the strengths around our business around metals and mining, [ PU and I ], the industrial sectors where I feel we shine. So we feel like as we think about the macro trends, you highlight some of the infrastructure investment in Canada, which, again, we think is going to be a fantastic opportunity.

You've -- we touched on in earlier questions, the AI opportunity which we see in multiple dimensions. We see a number of opportunities that align well with the areas that we've invested in. And at the same time, as we're all aware, you see shift in markets and some of the areas that have been less productive for us and our competitors this year, some of the core fixed income businesses which have experienced very low volatility, we see as having potential to reverse and create better opportunities for us on a go-forward basis.

So it's the theme of specific areas of opportunity, the diversification of our business, the investments that we've made, that's really what gives us confidence that there's room for us to continue to grow these businesses over the coming years.

Our next question comes from Gabriel Dechaine from National Bank Financial.

Just wanted to go back to the margin and the divergence between corporate and the segments. Can you give a sense of when the corporate, whatever balance sheet mix issues are like a large number of lower-yielding securities. Is that going to be adjusted in the next few quarters when those dispositions are closed?

And then as far as the margin, specifically on the U.S. and maybe in Canada as well, you use the term resilient. If -- and I pinpoint more of the U.S. here, but the loan growth is accelerating. Clearly, if deposit growth is still lagging loan growth, how do you expect margins to be flat? Or could we actually see them be down maybe beyond Q4 when the funding from the transportation finance business is reallocated?

Yes. Thank you, Gabe. This is Rahul. So let me take the 2 questions. I'll start with corporate and then go to NIM. So on Corporate Services, it was a combination of lower revenues and higher expenses. As I mentioned, a part of the lower revenues had to do with the prudent liquidity management and extra low-yielding assets we are carrying because of that.

In addition to that, there's always normal market volatility from hedges and interest rates impacting the balance sheet positions. That changes from quarter-to-quarter. Those are some of the reasons why we had lower revenues, and we were expecting that direction as we had previously shared in the last quarter. In addition to that, as we talk about some higher expenses, as I mentioned in my prepared remarks, we were deliberate about some investments in growth opportunities, especially on brand marketing and that was what was in there.

So when you look at it together, lower revenues, higher expenses is where we landed. And I think we expect fourth quarter to be broadly consistent with third quarter is how we are looking at the compensation. So that's the first part of your question.

Let me come to the second part, which is NIM. And we -- in my prepared remarks, I talked about the resilience of NIM in the core businesses, which is Canadian P&C and U.S. banking. I do recognize that the loan mix as loans grow faster and also the competition for hire for longer is going to put pressure, but both Matt and [ Sharon ] and Aron have talked about the deliberate efforts on growing core operating deposits.

Our core operating deposits were up 8% year-over-year, while their total deposits were flat. And also, we've been very good at optimizing high-priced deposits when the balance sheet need wasn't there. So when you look at the concerted efforts to grow good core deposits, while managing the balance sheet liquidity, that is the offset to the headwinds which we have, and that's how our approach is for resilience.

Okay. And just to the credit outlook, just to reiterate you expect a similar level of impaireds in Q4. And I'm not clear what you're saying about 2027, if you said anything at all? Is it kind of up in the air, considering this tariff dispute?

Gabe, it's Piyush. So too soon to give you 2017 guidance, we generally do that at the end of Q4, and we will do that at that point of time. But as I step back, again, we've seen the drivers of our beds show some real strength. So as we look at watch list, our gross impaired loan balances, and our retail performance that we just spoke to, we have a high degree of conviction around where Q4 impaired should come out, which is in line with Q3.

And again, there is always some basis point volatility for some of the wholesale files, but that should round out to our overall guidance we gave at the beginning of '26. I was just said 3 days ago, had you asked me on -- I would have the conviction of the Investor Day that we would end '27 in the mid-30s, but we'll continue to update that as we go through the trade policy files and any second order impact and come back to you at the end of the fourth quarter.

Our last question comes from Darko Mihelic from RBC.

I'll be quick and brief. Just trying to model in a couple of things. First, with respect to the dispositions. I'm suspecting that Moneris was the bigger contributor to earnings that will be lost in the future. Can you just remind me where are the earnings from Moneris in which segment is that reported? And are you willing to tell us how much of the lost earnings are by business unit at this time?

Darko, this is Rahul. So thanks for the question. So as we think about the lost earnings, let me kind of characterize that in 2 ways. Moneris, in fact, was not the major part. As you are aware, we sold 138 branches they had about $5 billion in deposits. So there's income related to that. Transportation Finance was also a major part of it, almost $10 billion, $15 billion in -- $16 billion loan balances. So it was a mix.

I would say, if you were to ask me, it's probably like 2/3, 1/3, 2/3 U.S. banking, 1/3 in Canadian P&C, but at that point, let me just remind you of one more item. There was a strategy behind these dispositions. These businesses did not meet our long-term growth and return objectives. We've been very rigorous about where we are allocating this capital and resources to client relationships, which will be at our higher growth, higher return expectations.

And we had already factored this in, in our Investor Day path, which we gave you. So our Investor Day commitments on EPS growth, PPPT growth remain unchanged. And in fact, what we had factored in was as we replenish this capital from single-digit ROE businesses, though the contribution was modest to earnings to replenish it to 15-plus ROE businesses is our path. So that's how we are thinking about it. So hopefully, that answers your tactical question and also my strategic overview.

No, that's really helpful. And just real quick on the drop in average common equity for the U.S. business quarter-over-quarter. Is that the DSP? And what will the drop look like after you dispose of the branches and transportation finance?

Yes. As you are aware, so that was in our reported numbers. So I mentioned we have a goodwill charge which we have taken ahead a quarter for the transportation business to be sold, and that's what's reflected in the change in equity for U.S. business.

Okay. I was confused by the charge was recorded at --

Sorry, repeat your question again?

I thought the charge for the goodwill was actually taken through the corporate segment. So that's my mistake. I guess, but in any event, okay. And then with respect to the drop going forward, is there anything you can tell us about the expected decline to common equity once the U.S. branches and the transportation finance business is sold? Will it just be one for one, like I can consider it [indiscernible]?

Overall, these dispositions will generate 50 basis points of CET1 for us. So as we take those -- that replenishment, we put it back in our capital framework, Obviously, loan growth, as Darryl mentioned, is the primary focus, and then we look at all other factors as a part of our dynamic capital management.

We have no further questions. I'd like to turn the call back to Darryl White for closing remarks.

Yes. Thanks, operator, and thank you all for your questions this morning. I just very quickly conclude by saying that our performance this quarter and for the year-to-date reflect our continued discipline executing against the very strategy that we outlined at our Investor Day.

We strengthened our returns. We've delivered stronger earnings growth, and we're growing momentum across each of our businesses. And perhaps most importantly, we're positioned well to build on this performance. So in short, good results, good momentum, and we're not done yet. Thank you for joining us today, and we look forward to speaking to you again in December.

This concludes today's conference call. Thank you for your participation. You may now disconnect.

Good morning, and welcome to BMO Financial Group's Q2 2026 Earnings Release and Conference Call for May 27, 2026.

Your host for today is Christine Viau. Please go ahead.

Thank you, and good morning, everyone. We will begin today with remarks from Darryl White, BMO's CEO; followed by Rahul Nalgirkar, our Chief Financial Officer; and Piyush Agrawal, our Chief Risk Officer.

Also present today to answer questions are our group heads, Matt Mehrotra, Canadian Personal Business Banking; Sharon Haward-Laird, Canadian Commercial Banking; Aron Levine U.S. Banking; Alan Tannenbaum, BMO Capital Markets; Deland Kamanga, Wealth Management; and Darrel Hackett, BMO U.S. CEO.

As noted on Slide 2, forward-looking statements may be made during this call, which involve assumptions that have inherent risks and uncertainties. Actual results could differ materially from these statements. I would also remind listeners that the bank uses non-GAAP financial measures to arrive at adjusted results. Management measures performance on a reported and adjusted basis and considers both to be useful in assessing underlying business performance. Darryl and Rahul will be referring to adjusted results in their remarks unless otherwise noted as reported.

And with that, I will now turn the call over to Darryl.

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.

Our second quarter results continue 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 $3.67, up 40% from last year with pre-provision pretax 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.

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. 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 $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 #1 ROE and #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%. 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 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 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 #1 imperative of a 15% ROE as we exit fiscal 2027. 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 a 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 multipronged profitable growth levers.

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.

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. Core retail operating deposits grew by 4%, and we're making progress on our de novo strategy, where over the next 6 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.

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 $900 million driven by equities trading and underwriting and advisory fees. We continued building strength in our market-leading franchises, including a #1 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.

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. And 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.

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 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.

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. 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.

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 6 quarters.

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 employment 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, and they're a good start.

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.

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.

Second quarter reported EPS was $3.53 and net income was $2.6 billion. Adjusting items are on Slide 45, and the remainder of my comments will focus on adjusted results. 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.

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 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.

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-at 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. 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 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. NIM ex Markets declined 4 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 2 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 3 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. 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 noninterest 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 onetime 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. 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 $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 delivered 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. 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, enhanced 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 offsets cost optimization efforts.

Turning to U.S. Banking on Slide 16, which speaks to U.S. 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. NIR grew 16% or 7% excluding onetime 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.

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 $900 million, up 31% and lower PCL. Revenue was up 19%. Global Markets revenue increased 15%, driven by higher equities trading revenue partially offered by lower interest rate trading. Investment and Corporate Banking revenue increased 26%, driven by a strong advisory and equity underwriting fees. 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 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 2 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 maintain 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.

And with that, I will now turn it over to Piyush.

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. 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.

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 $739 million or 45 basis points with impaired provisions declining modestly to $734 million.

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. In the consumer book, as we have been highlighting, there continues to be pressure and delinquency rates have been in an upward trend, reflecting as 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 RESL portfolio continues to benefit, including 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 $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. 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.

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 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.

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.

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

Just wanted to -- 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. But are we expecting to see some ongoing deterioration in terms of Canadian households. And do you have any expectation as to when that might maybe begin to moderate.

Yes. 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 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. So within that, we expect delinquencies to continue to go up.

But again, the unsecured book, we've taken a lot of derisking actions. Those are bearing fruit, but you will continue to see some rise in delinquencies. 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%, and the portfolio continues to benefit from higher 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. We are 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 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, 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.

Your next question comes from the line of Matthew Lee from Canaccord Genuity.

There is a small delay Matthew.

Can you hear me?

Yes, we can.

Okay. So 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, distributions, balance sheet repositioning? Or do you feel like the business mix will largely be where you'd like it to be once this transportation sale closes?

Yes. Matt, it's Darryl. Thanks for the question. Look, 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 complete. So 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. So I think the way you should think about it is that the optimization program is effectively complete.

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 reemphasize in the markets where we can continue that multiproduct and multipronged fully vetted relationship with the clients that we've been talking to you about. 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.

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. 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?

Thanks, Matt. I 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. If you reflect back to our Investor Day, broadening out our product capabilities, the asset classes that we are transacting and is really reflected in this type of performance. 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, 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. 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 trend line -- historical trend line performance. So what that means for a specific number, I'll leave to you, but we feel good about the forward look.

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

A couple, I guess, NIM type questions. Well, the outlook, you're saying stable and that's where people use a lot, but I just want to assess a few trends here. The U.S., we've got loan growth. Sounds like they're accelerating, which is great to see, but I'm just wondering how that outlook changes given maybe loan growth continuing to outpace deposit growth, and then at the treasury level, you've taken some actions. It looks like more lower-yielding assets? Some mix change and maybe more wholesale funding from the sounds it or at least temporarily. Are these factors going to outweigh the tailwind, which is mainly the reinvestment yields that are higher -- rates that are higher.

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. 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 are aware, 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. 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. So that's part of the impact. Now I think one thing important to note there is why it might have pressured NIM sequentially, they are largely immaterial for the ROE standpoint. 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. We still have tailwinds from the laddering investments 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. 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. 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. So.

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

And then just a follow-up on the U.S. It sounds more bullish in the outlook. And I guess is that -- is it wrong to conclude that an acceleration of C&I loan growth will absorb that excess not just the liquidity, excess liquidity, but that excess capital generated from the the transportation finance division such that, that 30 basis points of ROE expansion could be within the next year sort of thing?

It's Aron. 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? 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 brought in across the country, especially on the West Coast. 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 winded up.

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. 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.

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

Good morning. I guess just on this margin and ROE question, maybe Darryl and Rahul for all of you or one of you, I guess. But 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 be -- help the margin. But as we look out over the next 12 months, can you 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? Like how do you think about that? And 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.

Well, let me -- 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.

So look, as you know well, we are 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 of 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. So are we putting on business that's sub 15% return. The answer is absolutely not. We're very clear on that new business being well above that hurdle.

And then 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. But now we've very significantly repositioned it with a variety of efforts that really started in 2023 and with the addition of the Bank of the West, 6 quarters of optimization that we've come to the end of. And we've added the capacity that Aron talked about earlier.

So there, we're able to compete with a pretty disparate market in terms of how we grow the business. 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, and we're going to continue to do that to drive it single-digit outcome that Aron talked about earlier.

Rahul, would you add any?

Yes. 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. So while the environmental headwinds will be there, we are very much focused on the tailwinds what we can control.

And the ladder reinvestments also have some room left for a couple of quarters to go. So as I 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 Darryl's point, our tech fees also grew year-over-year 20%. And I think that's how we look at this package as we kind of look at outperformance returns through the cycle.

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, 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 sort of your client conversations, has that changed for the worse over the last 30 to 60 days? Like how would you sum up just overall loan demand and growth outlook in the U.S. looking out back half into next year?

Ebrahim, it's Aron. Thanks. No. In fact, our March and April has -- 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 into 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 of 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. 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.

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

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

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

Yes. 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 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 a 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.

Yes. On the U.S. side, again, as you heard Darryl mentioned, our core deposits are up 4%. I'm 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. So the work we're doing, bringing the business together, especially our consumer business and our business -- there's a lot of opportunity working with corporate clients and commercial clients on helping drive core operating accounts. 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.

And I hope like when we kind of roll that up, is there any way to quantify the benefit that you would have seen in the quarter from these actions? And what level of benefit you could see like quantitatively over the next year?

Yes. Sure. So I mean quarter-over-quarter, I would mention though our average deposits declined as a function of both seasonality and our deliberate actions on term and CD side. But underlying that was well north of $2 billion increase in deposits on these core sites. So while what we are looking at is trading off volume for wider spread here, and that's what we see as saw in these core deposits.

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

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. And 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, but it was basically just the management of our volume-driven costs, and we're seeing the benefit of that.

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

I have two questions, both on credit, one from a short-term perspective on 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 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 residential mortgage customers or would it be right and suggesting that your residential mortgage customers have much higher credit scores than your credit card customers that there isn't that much overlap. And the reason I ask the question is I worry that the spike in credit card PCLs could be the canary in the coal mine for everything else. So help me understand that.

So thanks, Mario. 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, 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. So 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 is -- 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.

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. So I'm not worried about the spillover impact from the unsecured card fees 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?

Yes. 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. But we don't expect spill over to use your language, the underwriting standards in the businesses are very different.

So I want to flip over to a different more longer 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 or 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, is this because our banks -- the loan mix has changed or banks to become more disciplined in their lending, capital standards require it?

Or is it simply because we have had a cycle. We haven't really had a recession. And the moment we have a recession will -- the banks will just reveal themselves to be exactly have always been, credit cycle, cyclical plays, which is in the past why they've traded at low multiples. And asking this question, I'm honestly trying to figure out what is the market doing in taking bank multiples to where they are, are 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.

Yes. I'll just answer briefly, Mario. All of us are 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 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 4 or 5 years ago. So all of those are staying 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. 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 derisking wherever we can. So I don't see this as a stress scenario.

To me, we're 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 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 change. In fact, I'm still standing by what I said at Investor Day, that by the end of '27, you should see us get down to our mid-30s.

But our bank is different today than they were 15 or 20 years ago. Do they not have the same amplitude of credit losses and cycles they had -- that's what I'm trying to figure out.

Well, it's Daryl, Mario. 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. 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. 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.

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

I'll ask a couple of quick ones. So just going back to Aron, you made it very clear that the improvement in U.S. commercial loan growth is broad based, including geography. So I just want to drill down on that for a moment, particularly on California, just given the importance of that region in terms of the growth plan. I understand it's very, very early in that strategy, but just want to get any color of the growth in California specifically?

Yes. 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. 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 and the growth there 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 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 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.

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.

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 U.S.

Yes. 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. 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 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 and just doing a really good job of now providing a broad relationship across banking, capital markets and treasury.

Okay. That's perfect. And then maybe quickly turning to commercial loan growth in Canada, also a bit of a pickup quarter-over-quarter there. And it's 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.

It's Sharon. Thanks for the question. Yes, 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. 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 Darryl mentioned, we've seen strong client acquisition. And so although our pipelines are at historic levels, I as soon as the uncertainty clears, I think we'll see even stronger growth.

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?

Yes. 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.

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

Want to go back to Aaron 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 to potentially maybe -- 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?

Yes, 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 utilization growth, which is helpful there.

But 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.

So I think we have -- 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.

So I think we can continue to deliver, as we stated, that mid-single digit, but most importantly, very profitable and sustainable growth, which is really important. 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 noninterest 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% -- so there's a long way to go there but the team is executing and working well on that front.

And I think I might have missed it earlier, there was a comment about the pace of branch openings. I think it had been in reference to California. Was that one per month?

Yes. Yes, exactly. So one per month in Southern California, and then that will be the rest of this year. We're excited. Lot those centers in San Diego and L.A., great locations. And again, a 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.

Okay. So 1 per month, but that's part of the 150. Was it 150 not over a 5-year period, the pace seems a bit lower. Does it accelerate maybe in year 2 and beyond?

It does. Yes, you're absolutely correct. It is 150 [indiscernible]. We -- right now, we think we'll get to about 27 to 29 new centers next year. So you'll see that pace significantly increase next year and then as the years go on.

So yes, just timing of some of the ones that might have opened in the fourth quarter this year on in the first quarter, and that's just timing. So we'll have a bigger number for '27.

Okay. And then just quickly, apologies for the multiple questions. But just on the Personal and Business Banking side, that book has been a bit stagnant the last, call it, 6 or 7 quarters. And I know it's less of a focus for you, Aron, but anything to add there in terms of the slight underperformance versus the industry focus

.

Yes. 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. 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.

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. So 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, and so we'll work through it and seeing progress.

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

Thank you, operator, and thanks, everybody, for your questions this morning. I'd 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. And with that, I will look forward to speaking with all of you again in August.

Thank you.

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

Well, good morning, fellow shareholders, and welcome to the 2026 Annual Meeting of Shareholders of the Bank of Montreal. My name is George Cope, and I have the honor of serving as the Chair of your Board of Directors, and I call this meeting to order.

Now we'd like to begin today's meeting with a land acknowledgment by Steven Jensen, Head of Diversified Industries Commercial Banking of Canada. Steven, over to you.

[Foreign Language] Hello and greetings. My name is Steven Jensen. I'm the Head of Diversified Industries for BMO's Canadian Commercial Bank. It is respectful to do a land acknowledgment to recognize the home, traditional territories and treaties of the First Peoples to start important events like today's Annual General Meeting.

I grew up on the north end of Vancouver Island, the traditional territory of the Kwakiutl, Quatsino and Gwa'sala people. I now live in Toronto, the traditional territory for indigenous nations, including the Huron-Wendat, the Haudenosaunee, the Chippewa and Anishinabek and the Mississaugas of the Credit, signatory to Treaty 13. Toronto is now the home to many First Nations people, the Inuit and Métis. I'm in BMO's newly completed Downie Wenjack Legacy Space, just a few steps away from the annual meeting venue at BMO Place. Created in partnership with Gord Downie and Chanie Wenjack Fund, this space reflects our ongoing commitment to reconciliation by providing an environment that fosters education, inspires reflection and opens dialogue about indigenous history.

For the people with us in person today and for those joining virtually from across Turtle Island, we encourage you all to advance reconciliation with positive, respectful relationships and implementing consultative change in a meaningful way. [Foreign Language] and thank you. Enjoy your meeting.

Thank you, Steven. So first of all, let me just begin by welcoming everyone who's joining us today, whether you are here in person at BMO Place or online on a webcast or listening over the telephone lines. I am joined on stage today by Darryl White, our CEO, Chief Executive Officer; Rahul Nalgirkar, our Chief Financial Officer; Paul Noble, our General Counsel; and Pascale Elharrar, our Corporate Secretary. Members of the bank's Board of Directors and the bank's senior management team are joining us today as well. Members of the Board will be introduced when it is time for the election of directors.

With the consent of the meeting, I appoint Steve Gilbert and Tara Israelson, representatives of Computershare Trust Company of Canada, who are joining us today to act as the scrutineers for the meeting; and Pascale, our Corporate Secretary, to act as Secretary. The Secretary has confirmed that notice of this meeting was duly in accordance with the Bank Act and that a quorum of shareholders are prescribed by the bylaws of the bank is present in person or represented by proxy. I therefore declare this meeting to be properly constituted for the transaction of business. The shareholders' auditors for fiscal 2025, KPMG LLP are also joining us today, and we thank them for their service.

I will turn it over to our Corporate Secretary, Pascale, for some of the meeting's procedures. Pascale, over to you.

Thank you, Chair. Closed captioning is being provided over the webcast, and the meeting is being broadcast in both official languages.

[Interpreted] Closed captioning is being provided over the webcast, and the meeting is being broadcast in both official languages.

Most of our shareholders submit their proxy or voting instructions in advance of the meeting, with only a small number choosing to vote their shares at the meeting. I will first describe how voting will occur and second, how shareholders can ask questions.

When you registered for the meeting in person this morning, you should have received a paper ballot. The ballot covers the items described in the management proxy circular being voted on today. Alternatively, if you registered in advance with Computershare, you may log into the online platform and vote from your mobile device while in the meeting. If you vote online today and also complete a paper ballot, the paper ballot will be given priority. If you want to vote in person by ballot and did not receive a paper ballot at registration, please raise your hand and a representative from Computershare will give you one.

Those of you participating in the meeting online can vote using the online voting platform. Only registered shareholders and proxy holders who registered in advance with Computershare are eligible to vote during the meeting. If you voted in advance of the meeting, your voting instructions have been recorded, and you do not need to do anything further. Detailed instructions on how to log into the meeting as either a registered shareholder or a proxy holder can be found on our Investor Relations website, the URL of which is now on the screen.

For those who have entered the registered shareholder and proxy holder section of the voting platform, when you select the voting icon, the meeting resolutions will be displayed. To vote, select one of the voting options. Voting will remain open during the formal voting portion of the meeting. You may vote on any or all agenda items and change your vote at any time during this period. If you have logged on as a guest, you will not be able to vote at the meeting.

[Interpreted] [Operator Instructions]

Shareholders attending the meeting in person who want to ask a question regarding an item of business that is before the meeting should line up behind one of the microphones in the meeting hall at the appropriate time. You may ask your question once the Chair invites you to do so. Questions of a more general nature and not related to the formal business of the meeting will be addressed during the question-and-answer session following the conclusion of the formal business of the meeting.

To ensure that everyone has an opportunity to speak or ask a question, I remind you that our meeting procedures limit each speaker to 2 minutes. Any questions not answered will be answered following the meeting. You can also join our meeting this morning in listen-only mode by calling into our English or French language phone lines. The numbers are on your screen now and are also on our website. Phone lines are listen only, and you cannot vote or ask questions over the phone lines.

On behalf of those speaking today, I note that their comments may include forward-looking statements, which involve assumptions that have inherent risks and uncertainties. Actual results may differ materially from forecasts, projections or conclusions in the forward-looking statements. I would remind listeners that the bank uses non-GAAP financial measures to arrive at adjusted results. Management measures performance on a reported and an adjusted basis and considers both to be useful in assessing underlying business performance. Unless otherwise noted, speakers will be referring to adjusted results in their remarks. Details regarding forward-looking statements and non-GAAP financial measures are on screen and can also be found in the bank's 2025 annual report as updated in our first quarter 2026 report to shareholders.

Thank you. We would like to thank the many shareholders who took time to vote by proxy for the meeting. The agenda will consist of an address by our bank's CEO, Darryl White, followed by the submission of the bank's 2025 annual financial statements. There will then be 3 resolutions proposed by management: first, to elect the Board of Directors for next year; second, to appoint the shareholder auditors for fiscal '26; and third, to consider an advisory resolution on the bank's approach to executive compensation. We will then consider the shareholder proposals. There are 8 shareholder proposals proceeding to a vote this year.

Following this, we will hear from a representative from an organization who withdrew a shareholder proposal following a constructive conversation with the bank. We will then review the preliminary voting results. Following the conclusion of the formal meeting, we will then, of course, as always, hold a question-and-answer session.

So with that, let me now call up our Chief Executive Officer, Darryl, if you join the podium and share with us your thoughts. Thank you.

Thank you, Chairman. [Foreign Language] Good morning. To welcome all of you here today to BMO Place. With my comments today, I will review our performance in 2025, how we positioned BMO to elevate returns and accelerate growth and as always, how we are helping our clients make real financial progress.

[Interpreted] Today, we are proud to be the eighth largest bank in North America with a balance sheet of $1.5 trillion. We are a digital-first future-ready bank, driven by our constant commitment to innovation to help our customers succeed by the strength of our teams and by the broad diversification of our geographic presence and business activities.

BMO today is stronger, more agile and better positioned than ever before. Over the past 5 years, we've outperformed peer averages across nearly every single financial metric. In 2025, we delivered strong performance, and we continue to integrate new capabilities to help our clients capture opportunities. And we're doing it with our unwavering sense of purpose to boldly grow the good in business and in life. Our purpose is at the heart of how we compete, how we invest and how we drive progress.

Through 2025, global relationships evolved, economic policy shifted and trade tensions persisted. Taken together, this contributed to continued uncertainty for individuals, for families and for businesses who contended with affordability pressures and changing economic conditions.

[Interpreted] Despite everything, BMO was there to support its clients, offering them expert advice and finance solutions that make our bank a first-rate institution.

Our financial performance underscores why BMO's North American platform is a key competitive advantage. We shared details of our progress at our Investor Day hosted right here on this stage at BMO Place 3 weeks ago. You can find a replay of that day plus detailed performance metrics on our Investor Relations website. Today, we'll focus on how that performance and the strategy driving it have built a stronger, more innovative and future-ready bank.

[Interpreted] Our strength is reflected in our scale, the diverse and unique mix of our businesses and the way we have optimized our portfolio.

In 2025, we made meaningful progress against our financial and our strategic commitments by delivering strong underlying financial performance across our businesses, exercising operating discipline and creating value for you, our shareholders. Importantly, we advanced against our #1 imperative, which we called out after Q4 of 2024, which was to strengthen our return on equity while delivering profitable earnings growth.

[Interpreted] To achieve this, we have taken deliberate steps to improve capital efficiency, refine our execution and build on our momentum.

Five quarters in, we've made strong progress against that goal. In 2025, we delivered both the highest ROE improvement and the strongest EPS growth compared to our peers on an adjusted basis. And we continue to make more progress in the first quarter of 2026. And all of that sets us well on our way to our goal of 15% ROE as we exit fiscal 2027.

In turn, the strength of our performance creates the capacity, the capacity to invest in the technology and the talent that supports our clients. And it also allows us to sustain a strong dividend and return excess capital to shareholders. BMO continues to deliver the longest dividend payout record of any company in Canadian history, a record we are fiercely proud of. In fact, our dividend has grown at an average rate of 9% over the last 5 years, which is a full 2% higher than the average of our Canadian peers.

Our accomplishments in 2025 didn't end with this financial performance. We made several strategic advances that have, in fact, enhanced our capabilities, both for today and for long-term growth. To strengthen connectivity across our businesses, we unified our businesses in the United States with our U.S. personal and business banking, our U.S. commercial and our U.S. wealth businesses into a unified U.S. banking group with common leadership and a unified strategy. These changes are already driving benefits, and they will continue to enhance client experiences and support stronger growth, profitability and ROE over time.

Also in 2025, we added incremental private wealth capabilities to our wealth franchise with the acquisition of Burgundy Asset Management, making BMO one of the top private investment counsel businesses in Canada. And we continue to innovate by implementing and scaling AI, placing powerful technology safely and responsibly in the hands of every employee, and we've been recognized by Evident AI as a global leader in AI talent development.

Our disciplined integration of AI is focused on 3 key areas: personalization, augmentation and automation. By empowering our people with technology that enhances decision-making, accelerates execution and strengthens relationships, we're driving tangible results. Digital engagement is rising, processes are faster and productivity is improving.

We recently extended our innovation leadership with the launch of the BMO Institute for Applied AI and Quantum, expanding our AI talent and innovation ecosystems and deepening our research and our capabilities. We're using AI to innovate with clarity and with purpose to drive value, and we're deploying it responsibly and in line with our risk appetite.

Our incredible team continues to show up as one of the world's most ethical companies. Across the bank, our winning culture continues to outperform ranking in the top quartile of businesses globally. And this is a team that always, always shows up for our communities.

[Interpreted] Last year, BMO donated $124 million to support more than 1,000 charities and nonprofit organizations.

And personally donated an incredible $36 million through our annual employee giving campaign. We're proud to support the unique needs of veterans and military families as the official bank of the Canadian defense community. And as Canada continues to invest in national defense, our strong relationships and deep understandings of this community positions us to support the industry and all those who serve. We've also built on more than 30 years of working closely with indigenous communities across Canada to advance economic empowerment and create opportunities shaped by indigenous priorities.

[Interpreted] Our progress across the board inspires confidence in our strategy.

And we're anchoring our performance in 3 key enterprise priorities as we go forward. First, we're growing and deepening client relationships by delivering world-class client experience grounded in what we call one client advice and guidance. When our clients succeed, we succeed. And we know that when we have the opportunity to serve our clients across more than one line of business, satisfaction scores consistently track higher.

Second, we're innovating for business value through digital-first AI-powered solutions with products and services targeted to meet the needs of our clients. And third, we're optimizing performance through effective resource deployment and disciplined management of risk and of capital. Together, these form a future-ready plan. They elevate the experiences that we deliver to clients. They ensure that we stay at the forefront of innovation and they sharpen how we deploy our resources. It's important to recognize that the geopolitical environment that we and our clients operate in remains dynamic.

[Interpreted] In today's ever-changing environment, our focus is clear to support our clients by providing them with sound advice.

Across North America, economies and governments are adapting to change, in some cases, rapidly and in other cases, not rapidly enough. This is driven by a shifting trade flows and technological acceleration and renewed emphasis on global competitiveness and on resilience.

Trade diversification creates real opportunity. For businesses, that's access to new markets and stronger supply chains. For households, it's job creation, price stability and greater economic security. Just as we diversify risks in our own portfolio, just as we advise our clients to diversify exposures and manage concentration, the Canadian government has recognized that the nation's business plan should give Canadian businesses more options. A binary view that some trade is good and other trade is not good is a suboptimal framework. We take the view that it's more optimal to increase options across the board, regardless of the outcome of ongoing trade reviews. And BMO has a role to play here in service of our clients.

As you trade with Canada or the U.S., we've got you covered. As you trade with the rest of the world from either country, we've got you covered. There is no one-size-fits-all approach. There are only scenarios which have more or less options. And we're in the business of creating more options, which is why it's good to see Canada diversifying trade, and we're here to help.

Now domestic policy choices are just as important as global ones. We've seen positive steps to reduce some interprovincial trade barriers and establish the major projects office. The opportunity now is to build on this momentum. One way to do this is to make -- is for provinces to make it easier for skilled workers to go where they are needed, no matter which side of the provincial border they happen to be on.

Another way is to accelerate approvals for projects that strengthen productivity, growth and resilience across the country. Speed matters. Decision-making pace measured in days and weeks matters. Decision-making pace that's measured in many months or years risks Canada being left behind in the global competition for investment. For context, the U.S. is accelerating initiatives through time-bound permitting. Canada can compete and win with clear time lines, aligned incentives and consistent execution.

As Canada's first bank, BMO has supported generations of clients through all economic cycles. With our diversified, strong and resilient foundation, our client-centric approach, we are positioned to deliver sustainable growth and long-term value for our clients and for our shareholders. Today, guided by our purpose, powered by our people and strengthened by our digital-first strategy, we are ready for what's next.

Thank you for your continued support and your trust, and thank you to all of our clients who move us forward every single day.

[Interpreted] Thank you, and have a good day.

Thank you, Darryl. Now it is a shareholders' meeting. And as your CEO was speaking, I think the stock hit its highest point in 197 years. So you can keep talking. And we're very, very impressive. And you sit here and hopefully, our shareholders sit here as well as an owner of what the company is doing and what it does every day in the community beyond just focusing on what I started with lightheartedly in terms of the share price. But as I recall, it is a shareholders' meeting.

Now let me turn to some really exciting additional procedural matters. I have been informed by a registrar and transfer agent that over 379 million votes have been cast or received by proxy from both registered and beneficial shareholders in respect of the matters of business before this meeting, representing approximately 53.85% of the total outstanding shares eligible to be voted. We will conduct all the votes in sequence. And later when the votes are tallied, the scrutineers will report the preliminary outcome of each vote at the meeting.

For shareholders and proxy holders who are using our online voting platforms, the polls are now open for voting and will close after our presentation of the items of business. If you have already voted or sent in a proxy, there is no need for you to do anything unless you would like to change your vote. If you have already voted or sent in a proxy and wish to change your vote during the meeting, please use the online platform to submit your new voting decision. When the proxies are submitted to our registrar and transfer agent, they are counted and tabulated by the officers. Scrutineers of the meeting will then verify and report on the results.

[Operator Instructions] Now to our first item of business, the submission of the 2025 financial statements. In March 2026, copies of our annual report for 2025 were either mailed to shareholders or made available online. The consolidated financial statements and notes for the October 31, 2025 year-end were included on Pages 133 to 202 of the annual report, and the auditor's report can be found on Pages 126 to 129. These will be taken as read.

Are there, at this point, any questions in the room related to the financial statements? Seeing none, thank you. Pascale, have we received any questions online?

There are no online questions relating to the financial statements.

Great. Thank you. This brings me now to the election of directors for the ensuing year. As determined by the Board, the number of directors to be elected today is 14, 13 of them who were elected previously. Tammy Brown is standing for election for the first time at this meeting. Tammy was formerly Deputy Chair of KPMG Canada's Board of Directors and was a partner and national industry leader for industrial markets at KPMG in Canada. She was also the partner sponsor of KPMG's National Indigenous Peoples Network. She was appointed to the BMO Board on December 4 and joined the Board's Risk Committee. Tammy brings deep expertise in audit, accounting, finance and government and is a valuable addition to your Board. You will also find biographical information about each of the nominated directors in the management proxy circular.

I will now call on Pascale to present the nominees for election. I would ask that each of the nominees stand when their name is called. I also note for shareholders today that [ David Hartwell ] is not able to join us.

Thank you, Chair. I'm a shareholder and proxy holder, and I now nominate the following persons to be elected as directors of the bank until the next succeeding Annual Meeting of Shareholders or until their successors are elected or appointed: Janice Babiak; Craig Broderick; Tammy Brown; Hazel Claxton; Diane Cooper; Stephen Dent; George Cope; Martin Eichenbaum; [ David Hartwell ]; Eric La Flèche; Brian McManus; Lorraine Mitchelmore; Madhu Ranganathan; Darryl White.

Thank you. Thank you, directors. We will now accept questions related to the election of the bank's Board of Directors. I remind shareholders that questions of a more general nature will be answered during the question-and-answer section following the conclusion of the formal part of this meeting. If you have any questions on the election of the bank's Board of Directors, please make your way to one of the microphones in the room. Are there any questions in the room related to the Board?

George, there are no online questions relating to the election of directors.

Great. We've received -- okay. Thank you. The bank provides for individual voting for directors. The Bank Act provides that you may vote for or withhold your vote for the election of each of the director nominees. I remind you that the Board of Directors and management recommend voting for all the nominees set out in the proxy circular. We will now pause for a few seconds to allow for voting.

[Voting]

Excellent. The next item of business is the appointment of the auditors for the ensuing year. To facilitate motions at this meeting, we have asked Amy Potter and [ Eric Willett ] to move management's motions related to the appointment of shareholder auditors and the advisory vote on executive compensation. I call on Amy to present the motion on the appointment of shareholder auditors.

Hello. My name is Amy Potter, and I'm the Director of Sponsorships here in Chicago. I'm a shareholder and a proxy holder. I move the motion to appoint KPMG as the shareholders' auditors for fiscal year 2026. Thank you.

Thank you, Amy. Are there any questions in the room related to the appointment of shareholder auditors? Did we receive any?

No online questions relating to the appointment of our auditors.

Great. Thank you. I remind you that the Board of Directors and management recommend voting for the appointment of the shareholder auditors. We will now pause for a few seconds to allow for voting.

[Voting]

Okay. Turning to the third item on the agenda is the consideration of an advisory vote on the bank's approach to executive compensation. I will call on [ Eric Willett ] to present the motion.

Hello. My name is [ Eric Willett ], and I'm Senior Human Resources Business Partner here in Montreal. In June of this year, I'm very proud to share with you that I will be celebrating my 40 years of service at BMO. Beyond my role as business partner, I'm Co-Chair of BMO Pride in Quebec. I am a member of the Executive Committee of BMO Pride in Canada. I'm a shareholder and proxy holder, and I move the motion to approve the advisory vote on the bank's approach to executive compensation. [Foreign Language]

Thank you, Eric. Are there any questions in the room related to advisory vote on the bank's approach to executive compensation? I see one. Good morning.

[Interpreted] Mr. Chairman, Willie Gagnon, representing MÉDAC, the Mouvement d’éducation et de défense des actionnaires. As is the case each year, we are intervening on this point on the agenda. Each year, we calculate the compensation ratio for all of Canada's banks, major banks comparing the compensation of the best paid individual to the average compensation of employees. And the Bank of Montreal has the largest ratio this year because of the compensation of the President of BMO United States.

At Page 89 of the circular, we can see that out of the $25,825,000 that are devoted to his compensation, $21 million are in the column, other compensation. And in the note, it is stated that other compensation for 2025 includes the combination of compensation based on substitute securities to replace compensation forfeited in his previous employment. This is a budget line on which we are asking certain questions. What is the depth of that envelope? Is there an endless quantity of money that can be drawn from that? We're wondering whether it's worth it for the bank. It's higher than the CEO's compensation, which itself grew by $7 million this year.

I remember last year, we keep to this microphone to say that we were happy that it had gone down, but now you've caught up. And of course, we're asking ourselves a lot of questions on your compensation ratio, which is the highest amongst all banks, to repeat myself. But when it's -- when we compare, for example, the highest compensation to the total of the bank's assets and when we compare that figure to that of RBC, which has similar compensation, that ratio is 70% higher for BMO.

So we have all kinds of questions on the decisions that have led to this situation, which we find is exceptional for BMO this year. So are there good reasons that justify such a high compensation, which is not the CEOs, the highest is not the CEOs. So I would like to have some answers about that, but I'm not hoping for very much.

Well, first of all, Mr. Gagnon, thank you, as always, for participating in our meeting. Thank you for the question. I mean, I think our position on compensation stands in the proxy. The only additional thing in fairness to your question I will add is clearly, we are on a major growth strategy in the U.S. And of course, ensuring in that strategy is that our compensation and recruiting of top talent continues to stay competitive, and that's reflected in what you are seeing in the proxy. So thank you for the question.

Did we receive any additional questions online?

There are no questions online.

Okay. Great. Thank you. I remind you that the Board of Directors and management recommend voting for the advisory resolution on the bank's approach to executive compensation. We will now proceed to the vote.

[Voting]

Thank you. We will now turn to shareholder proposals. There are 8 shareholder proposals from MÉDAC going to a vote this year. We will also hear about 2 withdrawn proposals after we have completed the voting. To ensure that everyone has an opportunity to speak or to ask a question, I remind you that our meeting procedures limit each speaker to 2 minutes. The shareholder proposals and their supporting statements as well as the bank's position on each proposal are set out in full on Pages 92 to 102 of the English management proxy circular and Pages 106 to 118 of the French version.

Mr. Willie Gagnon is with us this morning to make a statement and move the MÉDAC motion. I invite Mr. Gagnon to address the meeting and also make the motions set forth in the shareholder proposals. Mr. Gagnon, over to you.

[Interpreted] Mr. Chairman, good morning again. I am here to represent MÉDAC. Again, we are shareholders of the bank, and we have made 8 proposals this year. We know that this is a lot of proposals. There are 5 new proposals. I won't dwell on the other 3 proposals that are repeat proposals that have already been made in the past and that are being moved again. So I won't repeat the arguments that we've already made on this floor last year.

Our first new proposal aims at strengthening shareholder participation in Annual General Meetings. And we were faced last year with a lack of quorum in a listed company. And we wondered why shareholders are participating less in annual meetings. Our proposal is illustrated by a graph that shows that the participation rate of institutional shareholders at annual meetings is remaining stable, whereas the participation rate of individual shareholders is going down in the whole of public companies in Canada. We would have agreed not to put this proposal to a vote had the bank agreed to publish a similar graph showing the participation rate of institutional individual shareholders. You'll understand that we're focused on our mission, which is fostering participation of individual shareholders at annual meetings. Unfortunately, it wasn't possible to agree with the bank on publishing such a table, which would have led us not to agree not to put this proposal to a vote.

So the second proposal, inclusion of young people in the bank's governance bodies. We would have liked to see in the donations made by the bank to civil society organizations, we would have liked to see donations to organizations that provide training to young people to give them the skills to participate in Boards of Directors to increase the pool of young people among whom we could recruit directors. That has not been the case. But during our discussions with the bank, we've been given the hope that the bank may eventually donate money to organizations that participate in training young people in governance. We've identified a number of initiatives to that effect, and we would invite shareholders to support this proposal.

Proposal #3, responsible performance-aligned executive compensation policy. We are suggesting a whole suite of measures to promote that goal. I don't have much else about that part.

Proposal #5, strategic diversification of skills on the Board of Directors. In the current state of the economy, which is in crisis, not just because of what's happening in the United States, but because of the war, it is appropriate to specifically revise the directors' skills matrix so that it's aligned on what's happening in the world. We know that the bank annually reviews its skills matrix, but we believe that this is an exercise that should be in greater depth and that should be triggered from time to time. This is what we were seeking with that proposal.

And finally, the last new proposal this year, formal recognition of the Board of Directors' systemic role. We're requesting that an advisory committee be created on that subject, a committee that would be empowered to consult external experts on the systemic role. This is important, especially in the current circumstances.

As far as the repeat proposals, oversight of artificial intelligence, we had obtained almost 9% this year. We are making again our proposal on the public disclosure of nonconfidential information and country reporting for which we had obtained almost 9% of votes last year. And we are making again our proposal for an advisory vote on environmental policies for which we had obtained almost 13% last year.

So we would invite all shareholders to support our proposals, and we would also be interested in your comments on what we have just presented, what we are presenting each year on what we are requesting. So I hope that I haven't taken too much of your time, and thank you very much for all the time that you have dedicated to me. Mr. Chairman, thank you.

[Foreign Language] Thank you. And let me first of all say, I always just appreciate the incredible amount of work you do in terms of understanding the industry, the business and what you put forward to shareholders. And although we'll come to the vote, a number of these items, although not necessarily passing a resolution are part of how we operate the bank. So I think you're on top of what's happening in the banking community today. So thank you.

Are there any other questions in the room related to Mr. Gagnon and the motions for MÉDAC? Anything -- any online?

No questions online.

Okay. Great. We will now turn to the vote. I remind you that for the reasons stated in the management proxy circular, the Board of Directors and management are recommending voting against each of the shareholder proposals, we will now proceed to the vote.

[Voting]

Thank you. That brings us to the end of the voting on the items of business before the meeting. Please complete your voting as the polls will now close apparently in 10 seconds. Anyone -- yes, over here? No, you just -- yes, I know you're just -- someone's coming to receive it. You're down to 3 seconds.

[Voting]

Thank you. I hereby declare that the polls are now closed with respect to all items of business. If you've completed a proxy ballot, which you've just finished and they've just picked up, so we're just fine. The scrutineers will now count the vote and report back shortly. In the meantime, we will hear from a proponent presenting a withdrawn shareholder proposal.

InvestNow submitted a proposal, which was withdrawn following constructive conversation with the bank. Details of the withdrawn proposal are set in the management proxy circular. I understand that Gina Pappano from InvestNow is here with us today. Ms. Pappano, would you like to speak briefly on the withdrawn proposal? Thank you, and thank you for being here.

Thank you. Thank you for the opportunity to speak about InvestNow's withdrawn shareholder proposal. We asked the bank to return to viewpoint neutrality in their business practices and to put fiduciary duty to their shareholders first. But after submission at various banks, it was argued that the language of our request was at odds with the requirements of the Bank Act, which stipulates that decisions must be made in the best interest of the bank itself and its shareholders. Point taken. So in these remarks, we are asking the bank to return to viewpoint neutrality in their business practices and to put fiduciary duty to the bank and its shareholders first.

Banks are essential institutions for participating in modern life. Without a bank account, it is difficult to play any part in our society. Banks, therefore, must be truly inclusive institutions, and that means they should be held to a standard of strict viewpoint neutrality, looking after the interests of their clients in a nonpartisan, non-ideological way. So long as the bank's clients are abiding by the law, banks should be open to all potentially profitable businesses for the good of the bank, its shareholders and the health of the economy.

But over the past decade, maximizing financial returns to shareholders has increasingly taken a backseat to the pursuit of environmental, social and ideological goals. Along with other fiduciaries like public pension plans and university endowment funds, Canadian banks have placed ideological goals like decarbonization, net zero and energy transition above returns.

Since 2022, we have presented shareholder proposals to the big 5 Canadian banks to counter these prosperity destroying campaigns, whose ultimate objective is to shut down Canada's oil and gas industry. Our goal has always been to prevent the banks from giving into political and ideological pressure and becoming complicit in schemes to undermine Canada's energy sector.

Banks hold a government charter to conduct banking. That charter grants a privilege, but it also comes with a responsibility to stay focused on the purpose of banking. As customers and as shareholders of the banks, we need to hold the banks to account for any activity that strays from the business of banking. Thank you.

Thank you. Thank you for your comments, and thank you for attending the meeting today. Now [ Echo ] on behalf of [ Justine Ferric ] also submitted a proposal, which was subsequently withdrawn following constructive conversation with the bank. Details of the withdrawn proposal are also set out in the proxy circular.

The scrutineers have completed their preliminary report on the results of voting. And I now call on Steve Gilbert of Computershare to read the results. Have we set?

Good morning. Good morning, chair. We, the undersigned scrutineers, hereby confirm the following preliminary results on the votes at this meeting.

No director standing for election today received less than 95% of the votes cast for a director. On the appointment of the shareholders' auditors, 91% of the votes were cast for. On the advisory resolution on the bank's approach to executive compensation, 96% of the votes were for.

The shareholder proposal #1 received less than 1% of the votes for. Shareholder proposal #2 received 1% of the votes for. Shareholder proposal #3 received 5% of the votes for. Shareholder Proposal #4 received 8% of the votes for. Shareholder proposal #5 received 6% of the votes for. Shareholder proposal #6 received 22% for. Shareholder proposal #7 received 7% of the votes for. And shareholder proposal #8 received 13% of the votes for, and we will be handing in the assigned scrutineers' report signed by Tara Israelson and myself, Steve Gilbert. Thank you.

Great. Thank you very much. I, therefore, declare that the 14 nominees listed in the management proxy circular are all duly elected as directors. Thank you for your confidence in us. KPMG LLP is appointed as the auditor for the ensuing year. The advisory resolution on the bank's approach to executive compensation has been approved. Shareholder proposals #1 through 8 have not been approved. We, of course, value the feedback we received from all shareholders and their proposals.

I declare now the formal business of the meeting to be terminated. We will now move to the question-and-answer session.

I remind you that each speaker, we'd like you to -- if you come up, hold your comments to not more than 2 minutes. Questions may be submitted by shareholders or proxy holders only and must be of all interest to shareholders and not of a personal nature. If you have a question of a personal nature, leave your name with a BMO representative and management would be pleased to contact you at a later date, and we have a number of senior management people here as well. So don't be shy after the meeting.

If you have a question and have joined us in person today, please line up behind one of the microphones. [Operator Instructions]

I will go first to questions received in advance online. Have we received any questions in advance of the meeting?

There have been no questions received in advance or any online.

Okay. Great. Well, let's move now. Are there any questions here or comments from shareholders? Mr. Gagnon?

[Interpreted] Mr. Chairman, Willie Gagnon, representing MÉDAC, a shareholder of the bank. I'm asking the same question at the meeting of all banks this year. I would like to have a more ample comment on the current crisis that we're experiencing, not only in terms of our trade relationship with the United States, but the war, the increase in food prices, increase in gas prices. We are an oil-producing country, and we're not even protected from the increase in the price of oil. I would like to know the bank's opinion on this current crisis. It's a major crisis. Of course, when oil prices are rising, there are people here in Canada who are making more money, but citizens, ordinary people are paying more at the gas pump. So I would like to have your thoughts on this.

I'm impressed by the level of comment that I have heard. When I asked a question of Mr. Thomson, the CEO of Scotiabank, who always makes very interesting comments on current affairs and financial affairs in the country. And I hope that we can get similar comments from all leaders of all banks. It's of great interest to know what the banks intend to do in this context given the influence of Canada's banks on the economy. If they were to act in a coordinated way, things could change. So that is my question. I would like to get some remarks on the economy in general and the current crisis, not just in country, but in the world.

[Foreign Language] I think, Darryl, I should turn it over to you.

[Interpreted] Thank you very much, Mr. Gagnon, and thank you for being with us today. This is a major issue.

I made a few remarks in my prepared presentation around the state of the economy and the state of flux that geopolitics and reorganizing trade flows is presenting with us. Let me first, to your question, though, acknowledge the anxiety that, that does present for households, for families and for businesses who are managing supply chains and costs and margin pressures. These aren't easy times, and there are a variety of factors that are playing into that right now.

You asked about outlook on economy. While there are pockets of difficulty in this country, it is an uneven outcome for Canada. We see more weakness in Central Canada, Quebec, Ontario, [indiscernible], the country, they're performing a little bit better. Net-net, our outlook for the Canadian economy might surprise you. We don't actually see a recession this year. We think that we'll see approximately 1% growth in the Canadian economy this year, approximately 2% growth in the U.S. economy this year.

It's a difficult world when we put that up against the rest of the world, whether it be trade flows, whether it be the impact of the war on energy prices and inflation, it's probable that the block that we're trafficking in today and the country that we're sitting in today is as good a place as anywhere as we look out over the course of the next couple of years. But at the same time, I acknowledge that doesn't necessarily mean it's even or that it's easy for everybody. And as banks, we have a responsibility, and we take that very seriously to support families, communities, as I mentioned in my remarks, as well as the economy in general, and we're hard at work at it. Thank you for your point. It's an important one.

Thank you. Seeing no other questions, I just -- and nothing additional online, Pascale?

Nothing else online.

Okay. Well, I'd like to thank all of you for attending both online and here. On behalf of the Board, on your behalf, shareholders, I'd like to thank management for their continued leadership in what is clearly a very challenging time globally. With that, everyone, stay well. Thank you. We're in Toronto, but I will say go to the other NHL teams in Canada in the playoffs. Thanks, everyone.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]

Well, good morning, everyone. On behalf of BMO's executive team, it is my pleasure to welcome you to BMO's 2026 Investor Day. I'm Christine Viau, Head of Investor Relations. This year, I'll be celebrating my 30th anniversary with BMO. And 10 of those, I've had the privilege of serving in Investor Relations. It's just so wonderful to see so many of you in here today. Before we begin our formal program, I would like to recognize the home traditional territories treaties of the first peoples. We acknowledge that the land has been the traditional territory for indigenous nations, including the Huron-Wendat, the HutNashoni, the Anishnabek, the Mississaugas of the Credit signatory to Treaty 13.

Toronto is now home to many First Nations peoples the Inuit, Meiti and all people who reside or treaty people committed to meaningful reconciliation. Today, we gather at BMO Academy within BMO Place in Toronto. BMO Academy is a place of education through inclusion, awareness and understanding, a place where indigenous art hangs proudly. We very much appreciate you taking the time to join us in person here in Toronto and online via the webcast. We have a full agenda today, covering all of the bank's diversified businesses. Our first segment this morning will begin with Darryl White, BMO's CEO, who will lay out our strategy, competitive advantage and how across the bank, we're elevating returns and accelerating growth, followed by our group heads for U.S. Banking, Aaron Levine and Capital Markets, Alan Tannenbaum.

And then we will have our first Q&A session. After a short break, we'll move to the next segment. Sharon Haward-Laird, who will spotlight our differentiated treasury and payment solutions business as well as Canadian Commercial Banking followed by Matt Mehrotra, Group Head, Canadian Personal and Business Banking. Matt and Sharon co-lead Canadian Personal and Commercial Banking together. We'll wrap up this session with Delan Kamenga, Group Head Wealth Management. After a short break, we will hear from our Chief Risk Officer, Piyush Agrawal; and our Chief Financial Officer, Rahul Nalgirkar. We'll conclude with a final Q&A session and closing remarks from Darryl.

We hope you will then join us for lunch and spend some time at our technology and AI showcase. Also with us today are executive committee members and business leaders who you will have the opportunity to meet at the end of the formal presentations. Before we begin, I would remind you that today's presentations include forward-looking statements, which as noted on the screen, involve assumptions that have inherent risks and uncertainties. Actual results and conditions coffer materially from the expectations expressed today.

I would also note 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. All presenters today will be referring to adjusted results. Now if you haven't already, I would ask that you please silence your phones, and we will begin with a short video and then welcome Darrel to the stage. Thank you.

[Presentation]

Thank you, Christine, and -- good morning, everyone. Welcome to BMO's 2026 Investor Day, and welcome to BMO Academy. [Foreign Language]

[Interpreted]

We're pleased to host you here at our flagship learning and development ecosystem in the heart of downtown Toronto. This space was, in fact, designed to bring colleagues and clients together to collaborate, to learn and to connect because as you've just seen in the video and as you'll see over the course of today, we are building a stronger a more connected and a future-ready bank. Let me start by saying thank you to all of you for taking the better part of your day, whether you're here in the room or you're online and spending your time with us. BMO has never been stronger, more agile and better positioned to elevate returns and accelerate growth than it is today.

For 209 years, BMO has helped clients, communities and shareholders make real financial progress. And today, we're the eighth largest bank in North America with $1.5 trillion in assets, proudly serving 13 million customers. And with you today, we'll be sharing our strategic vision, our progress against that vision and our commitment to delivering sustainable long-term value for you, our shareholders. We're executing against a consistent and a differentiated strategy. Commercial Banking remains at the core of our franchise, and it is a structural advantage. It's long been a strength at BMO, and it's been a defining ability to deliver performance.

You'll hear from Sharon and from Aaron, how this business on both sides of the border generate stable, attractive returns supported by scale, deep client relationships and integrated platforms. And this business is now positioned better than ever to drive value for all lines of business. In the United States, we've built a leading foundation with a unified go-to-market strategy for improved profitability, enhancing ROE and expanding our growth opportunities. Our U.S. business enhances both the quality and the diversification of our earnings. Aaron will be sharing with you how our transformed strategy is already delivering results and positions us well for the future. Here in Canada, our retail and our wealth businesses are strong. They're profitable and they're high-return businesses.

Matt will expand on our focus on delivering human and digital experiences that support relationship depth, high-quality deposit bases and opportunities for further growth. And Deland will share our client-centric focus on innovation and trust that's positioning BMO to grow client relationships everywhere we choose to. And our North American leading capital markets business continues to be a growth engine for us. And as you'll hear from Alan, our alignment with secular trends is a structural advantage. We're executing on a connected 1 client strategy that brings together that commercial strength with wealth, with capital markets and personal and business banking. BMO's success combines that collaboration, trust and a data-driven approach to serve clients holistically and improve returns per client with limited incremental capital.

Across BMO, our approach to AI-powered digital-first solutions is driving value today, which we'll demonstrate and will in the future. And today, we'll show you how we're deepening client engagement, enhancing efficiency and capturing revenue opportunities already. Our disciplined management of expenses, risk and capital and the stewardship of all of these is a core operational strength at BMO. We're investing strategically. We're sustaining a strong dividend. We're returning excess capital to shareholders and we're holding ourselves to a very high bar on any potential acquisitions. Piyush and Rahul will bring all of this together for you in their presentation.

So taken together, these strategies are designed to elevate returns and accelerate growth. We're executing on this combination with pace to deliver differentiated value for you, our shareholders. Sustainable ROE of 15% plus and resilient and profitable earnings growth. That's what you will hear today. BMO's strategy is long term, and it's built for success across a range of economic outcomes. And I think it is important to recognize today that the rapidly evolving geopolitical environment in which our clients work and which we work is indeed very dynamic. We've successfully managed the bank through many periods of disruption and change, and we've consistently supported our clients. In fact, this is often a time when we provide the greatest value to our clients through deepening trust and advice and guidance through our relationships.

All right. Let's dive in. Our resilience comes from diversification across 3 dimensions: by business segments with a differentiated mix, by geography, with over 40% of our earnings from the U.S. and by client with the highest weighting of business client revenue among our peers. BMO is competitively differentiated by our market positioning and by our proven capabilities, including our flagship commercial business that ranks in the top 5 in North America and our U.S. franchise with over 200 years serving clients in both established and in growing markets. We have a top-tier and competitively advantaged business mix across retail, wealth and capital markets and award-winning digital capabilities built on consistent investment to drive value increasingly powered by AI to enable those world-class client experiences.

Underpinning all of this is really strong risk management that has protected our bank for more than 200 years. Let's focus on the commercial banking franchise for a minute, which is one of BMO's most important long-term value drivers. For investors evaluating the strength, the resilience and the quality of our earnings, this business is central to our value proposition, generating $10 billion revenues in fiscal '25, contributing over 25% of the bank's revenue and 40% of the bank's earnings, it is our powerhouse. And this is not new. But as you'll hear today, it's now enabled by structure, by data and AI tools increasingly enabling it to become a revenue enhancer to each of our lines of business. What drives this performance is both the depth of our client relationship and the scale of our North American reach, which leverages the power and the efficiency of single technologies and product platforms including our award-winning treasury and payment solutions.

Critically, commercial banking represents an increasingly attractive one client revenue opportunity unlocking significant cross-bank value for BMO. Commercial clients, if you think about it, touch all parts of the bank, you've got the business that often also needs capital market services. You've got the business owner who has wealth and personal and business banking needs and you've got the company's employees who also have wealth and personal banking needs. This makes the commercial hub at BMO, a strategic engine for both growth and ROE expansion, as you'll see today. Our U.S. presence is also a key competitive advantage. As you know, we've had a long history in the United States, and we've grown steadily through a combination of organic and strategic expansion.

Our combined operations in the U.S. today, which include our U.S. banking businesses and U.S. capital markets has grown to contribute over 40% of the bank's earnings. And as you'll hear today from Aaron, our U.S. franchise is now very well positioned to unlock its full earnings potential. This is a top-tier U.S. bank with the scale to compete and win everywhere we choose to do business. We've integrated our U.S. personal business banking, commercial and wealth businesses under one unified structure to strengthen chronic connectivity across our teams, to accelerate our go-to-market strategies, and to build and bring the full value of BMO to our clients. ROE and ROTCE for our combined U.S. operations are up meaningfully from last year and are gaining ground on our competitors.

In 2025, we increased ROE by 160 basis points to 8.3%. This compares to the U.S. average of 7% to 13%. Our destination is 12%, the equivalent of an 18% ROTCE, which when we get there, will compete with the very best in the industry. With a strong and recognized brand exposure to highly attractive markets and a fully aligned structure now in place. We're really well positioned to gain share in the world's largest economy. So our evolution is not limited to the United States. We've reshaped the bank over the last few years with purpose in 4 key ways: we've optimized our portfolio through disciplined execution with strategic clarity, which has liberated $5 billion of capital to redeploy. We've invested and scaled through strategic acquisitions. We've modernized our technology, building top-tier capabilities with AI-ready foundations, and we've strengthened our winning culture, making BMO an employer of choice.

We're not the same bank we were 5 years ago. The results of our transformation have been a step change in our financial performance, which has been top tier over the past 5 years. The data on this chart tells a really clear story across nearly every financial metric, growth in revenue, PPPT, NIAT operating leverage and TSR, we have outperformed peer averages. So the bottom line is we're a stronger, more profitable and better positioned bank than ever before as we look forward to the next 5 years. And our teams are focused and committed to carry this positive momentum forward. Now even with this strong performance, ROE has been below the peer average and below our medium-term objectives, and we have taken deliberate actions to address this gap. Many of you will recall, we laid out a clear plan in the fourth quarter of 2024.

Our #1 imperative is achieving and sustaining a 15%-plus ROE. Our biggest opportunity is improving our U.S. banking's ROE to 12%. And we also identified opportunities in 3 key areas: core operating performance and sustaining positive operating leverage across all lines of business, normalizing PCLs to the mid-30s and optimizing capital. We'll dive into all of these today, but our report card so far is that 5 quarters in, we are delivering against that promise. In fiscal 2025, against our peers, we delivered the highest ROE improvement at 150 basis points and the strongest growth in EPS of 26%. And that momentum carried into Q1 of 2026. Excluding our severance charge, ROE increased 180 basis points to 13.1% over last year with EPS growth of 21%.

Improvement has primarily been driven by core operating performance across the bank. U.S. banking ROE increased 170 basis points. We achieved 4.3% operating leverage and 18% PPPT growth in 2025 at the total bank level. In Q1 of '26, we then saw record revenue and PPPT. And while Impaired PCLs remained stable at approximately 46 basis points in fiscal '25 with performing loan losses trending lower, normalization benefits are still to come. This confirms the actions that we set in motion 5 quarters ago, refocusing on our core strengths reallocating capital and sustaining operating discipline and they're translating into meaningful earnings power and strengthening the underlying engine of the bank. We're confident and we're well positioned to continue elevating ROE to 15% as we exit fiscal 2027 and accelerating growth and accelerating growth across the franchise.

And we've got a clear path, as you'll hear throughout the course of today. We're anchoring this performance on 3 really clear enterprise priorities. First, growing and deepening client relationships. We're delivering world-class experience grounded in what we call 1 client advice and guidance. Second, innovating for business value through digital-first AI-powered solutions and innovative products targeted to meet real client needs. And third, optimizing performance through effective resource deployment and disciplined management of risk and capital. We are hyper-focused on where resources are allocated, staying disciplined, agile and ensuring every decision we make reflects risk, return and strategic alignment. Together, these priorities form a future-ready plan to elevate the client experience to ensure that we're at the forefront of innovation and to sharpen how we deploy those resources.

One client is how we bring the full value of the bank to every client, and it's critical. With the strategy itself, not necessarily being unique, the terminology, putting the client at the center and our approach, as you'll see today, is we have embedded a client-centric approach across wealth, capital markets, Canadian P&C, and U.S. banking with shared priorities, incentives and scorecards. We've built a data-driven 360-degree view of clients that we did not have before. It provides leaders with actionable insights leading to improved decision-making and tailored actions that anticipate our clients' needs. Our One client strategy allows us to grow and to deepen relationships in ways that individual business lines simply can't achieve alone. Our clients tell us that we're differentiated and how we come together holistically to make -- to meet their needs as one bank, creating seamless and exceptional experiences that they expect and pay for. NPS scores are consistently higher when we serve clients across more than one line of business.

And as a result, their success is how we measure our success. A unique advantage at BMO is not only our approach, but the size of the opportunity with you guessed it, business owners. The strength and the differentiated scale of our commercial franchise creates significant one client opportunities and revenue pools that others simply don't have to the same extent. Commercial Banking represents a critical relationship between the bank and the clients and a bridge to bringing the whole value of the bank together. Mid-market businesses create the majority, in fact, of M&A activity in Canada, where our capital markets team is really well positioned. Business owners hold more than 3x the average household wealth. That makes this segment a powerful connection to our wealth advisers who provide wealth and guidance.

And as a trusted partner, we can offer our clients employees access to everyday banking and wealth solutions through our bank at work programs on both sides of the border. The results are clear. The more we deepen relationships, the more meaningful, the uplift. ROE increases 1.5x when commercial wealth and capital markets are engaged together versus commercial alone. This is another reason why our commercial franchise is a clear advantage in our mix. It's a scaled business with a greater share of total bank mix than others. And we're now positioned to bring the full breadth of BMO together around these clients, which unlocks the unique value that only BMO can deliver. Switching gears to our innovation advantage, which is focused on driving business value. You'll hear me say that over and over again. Consistent investment has been deployed into a robust technology foundation that delivers meaningful business value for our clients and for our teams. We've advanced capabilities across every dimension of our digital architecture.

Now operating with cloud-based infrastructure that gives us scalable on-demand computing power. And connected data platforms that integrate information across the enterprise to unlock better insights and faster decision-making. So we've delivered measurable outcomes over the past 5 years, doubling digital sales in Personal and Business Banking, reducing commercial account opening times by 50%. We've prioritized talent, bringing industry leaders to BMO and upskilling our workforce, recognized by Evident AI as the global leader in AI talent development. This is the foundation that will continue to deliver long-term benefits, not just for speed and efficiency, but for client experience, product differentiation and sustained growth. We're applying the same formula to our implementation and our scaling of AI. AI represents one of the most significant value creation opportunities for BMO, and we're approaching it with the discipline the clarity and the purpose that we can deliver.

And this includes leveraging digital capabilities from experienced technology partners and deploying AI responsibly and in line with our risk appetite. It starts by putting AI in the hands of every employee. Why? Because embracing new technologies and diffusing that competence is the first step in driving progress at scale. Our AI strategy is focused on 3 very clear priorities. First, personalizing client experiences. We've got, of course, a tremendous amount of data and we're using it to drive better risk outcomes, pricing decisions, tailored advice products, offers and effectively shaping how we go to market. We've been using sophisticated machine learning models for a long time to deliver insights and strengthen engagement. What we're accelerating at BMO is the ability to combine machine intelligence with deep sector expertise that our teams can then more effectively use to help their clients make better decisions.

Second, we're augmenting our own teams. We're leveraging Gen AI to accelerate code development, supporting employees with intelligent service tools and elevating productivity. As a regulated financial services institution, the policy and compliance processes are both critical and really time consuming. Augmenting our teams to navigate these processes efficiently is driving significant benefits. Third, automating our own businesses. Already, agentic AI is being embedded in client services and credit decisioning, and it's expanding rapidly across the functions. Freeing capacity, allowing teams to focus on higher value work and delivering better outcomes for clients. We're now digitizing processes that were previously too costly to even digitize given legacy banking platforms and huge opportunities are now presenting themselves for us to unlock value. And we're already delivering significant value. AI assistance and frontline chatbots are helping our teams and clients driving productivity gains.

Among our 2,000-plus software developers, we're targeting a 20% to 30% productivity uplift. And AI is fundamentally accelerating the speed at which we build, we modernize and we innovate. On the client side, enhanced personalization of leads and client offers improves client experience and is already generating revenue. Any -- pardon me, enterprise-wide, employee AI adoption is over 96%. This enables that idea creation and new ways of working to accelerate human innovation. With expanding use cases and measurable savings already in hand, we are confident in our ability to accelerate our leverage of AI to drive productivity, long-term performance and value. By fiscal 2030, we have line of sight to over $1 billion of PPPT, underscoring the scale of the opportunity and the strength of the foundation that we have already built. We're integrating and scaling AI and redesigning processes all through the company to unlock speed, productivity and deliver greater value to clients and to our teams.

The priority areas are here on the slide, capacity creation to drive revenue growth, streamline technology delivery, efficiency gains, lower operational costs and automating and optimizing our risk and control framework. And as an early investor in other technologies like quantum computing, we know this evolution is just getting started. The third key driver of our ROE journey is optimization. We do this in 3 key ways: capital, credit and cost. Over the last 5 years, we've taken a return-driven disciplined approach to capital optimization, reallocating capital to the areas of highest return and positioning the bank for long-term success. Our discipline in capital allocation is a strategic advantage. Our deployment priorities continue to be focused on profitable organic business growth as a top priority. When appropriate, retaining the optionality for highly strategic inorganic growth that supports and does not detract from our return objectives, share buybacks and consistent dividends.

We continue to deliver the longest dividend payout record of any company in Canada, a record we are fiercely proud of. In fact, our dividend has grown at an average rate of 9% over the last 5 years, which is a full 2% higher than the average of our peers. That's what capital allocation and optimization looks like at BMO. It's decisive, it's strategic and it's always focused on delivering long-term value for you, our shareholders. Credit and superior risk management are areas where BMO has consistently been disciplined and proactive. Our track record through all economic cycles is time-tested. This speaks to the strength of our underwriting, our portfolio construction and the rigor of our risk culture. In 2024, we experienced a combination of environmental headwinds and specific client outcomes that led to a short period of elevated PCLs.

But through disciplined credit actions and ongoing optimization, we're now prudently managing from the mid-40s today to a target of the mid-30s. We're managing risk and return with the same consistency that has defined BMO for decades. Expense and discipline around efficiency management have also been a core strength at BMO. And we see further opportunities here. We've delivered consistent operating leverage in 9 out of the last 10 years. And we've improved our efficiency ratio at a peer-leading pace, significantly narrowing the gap to those peers, and we are not done. We expect continued savings from AI and digital adoption, real estate optimization and capturing opportunities in our scaled and unified U.S. platform, as you'll hear shortly. To sustain our ongoing commitment to positive operating leverage and fuel the investment opportunities for long-term growth. So bringing our strategic priorities together, the message here is clear.

At BMO, we are positioned to elevate and sustain returns across every operating segment. Our fiscal 2028 ROE targets reinforce both our ambition and my confidence in exiting fiscal 2027 at 15% and sustaining that over the long term. I want to bring the message back to the essentials. BMO has a clear and actionable path forward. Our differentiated commercial engine is driving deeper client relationships across all business lines and in every market, leading to greater returns over time. Our scaled and our unified U.S. franchise is now positioned to unlock their full earnings potential. Our AI strategy is ambitious. It's disciplined and it's already delivering real value across the bank. We've got a really strong culture powering our execution with top-tier talent driving the returns that investors crave, and we have a clear line of sight to 15% ROE, and we're confident that we can achieve it. As we deliver on ROE, we're also accelerating growth in each of our businesses.

We expect to be at or above our EPS growth objective of 7% to 10% over the next 3 years. So simply put, we know what we have to do. We have the track record to deliver it, and we have the right strategy, talent and leadership to reach it. [Foreign Language]. We have an incredible leadership team, and you'll hear from them today, and you'll get a chance to meet all of them if you haven't already. I couldn't be more confident in this team guiding BMO in this moment. And now with that, I'm very pleased to introduce Aron Levine, our Group Head and President of U.S. Banking. Aron joined BMO in July from Bank of America, where he spent 30 years building and executing strategies across commercial, wealth and mass affluent. His impact here is already delivering results, and I've got full confidence in Aron's strategy for the next chapter of our U.S. performance. Welcome, Aron.

Okay. Thanks so much, Daryl. Good morning, everyone. It's great to be here. I'm Aron Levine, President of BMO U.S. and Group Head of U.S. Banking. I am very excited to talk to you today about our U.S. banking organization. And our plan to achieve 12% ROE and targeted sustained profitable growth. So I really want to start this morning with talking about how we're built to win and our differentiating strengths. As Darrel highlighted, we are a top 10 commercial bank with industry-leading treasury payments and capital markets offerings. We have a fully integrated model, bringing the strength of BMO to every business and individual client. We are focused on key markets and industry sectors. And importantly, we currently hold leading positions in the Midwest and have the opportunity to grow with our scale in the West from the Bank of the West acquisition.

Now one of the reasons why I joined and many others have over the past 12 months is our winning culture. We are focused on delivering for our clients and the communities we serve. And of course, we are investing for sustained growth. So those differentiators really underlie our clear strategic priorities. First and foremost, we will leverage our strength to deepen existing client relationships. We will also acquire new clients through our investments in people and our densified physical network. We will support all of our work with continued investment in digital and AI capabilities, and we will manage our expenses and risk to deliver sustained profitable growth. It is based on these strengths and this strategic focus that I am very confident we are on a path to deliver 12% ROE by the fourth quarter of 2027.

So let's take a look at the business. Today, U.S. banking is comprised of commercial, personal business banking and private wealth, serving clients as one integrated platform. This provides us with greater scale as we invest in markets and serve clients holistically, which better positions us to capture share across all 3 lines of business. We do have scale. We are a top 10 commercial lender. We have over 850 financial centers, and most importantly, 12,000 team members who show incredible commitment to our clients and our communities. We are a key contributor to BMO's success. We delivered over $8 billion in 2025 revenue. I should also note that all the numbers I'm using today will be in U.S. dollars. In addition to our U.S. scale, the BMO brand is actually well known across our markets. As Darryl said, BMO first opened its doors in the U.S. over 200 years ago, but we've had significant presence in the Midwest for over 40 years. We have an established brand connected to the community, as you can see, and we have already begun building awareness in the West.

Our campaigns and sponsorships of the LA Football Club and the LA Stadium have brought strong awareness that we are leveraging. What we're doing is working. We've increased California consideration by around 40%. And in 2 years, as you see, we've achieved 3x awareness and 2 to 3x more consideration, especially with the mass affluent segment which is a key area of growth that I'll talk about more later. So now when I joined last mid-2025, it was clear we had a very strong foundation from which to serve clients, but we had some areas that needed to be improved. Some low-returning portfolios. We had to change our deposit mix. There's technology investments that needed to be done and operational improvements to drive efficiency and enhance productivity.

So what have we done? We've optimized our loan and deposit book with noncore exits and sold financial centers in noncore markets. We've improved our deposit mix increasing our percent of core operating accounts. We have managed our credit book back towards normalized levels, and we've exercised disciplined expense management to support key investments in digital capabilities and increase the number of client-facing teammates. From an operational perspective, we consolidated all of Commercial Banking under one leader who joined BMO in early 2025. I think most important of what we've done is across all areas, we've established new business systems around performance management, risk management and one client execution. These actions have driven results. We've improved our margins. We've increased our fee revenue and we have driven ROE 170 basis points. And all of that simply represents the initial phase of our path to 12%. So how do we get from 8% where we are now to 12% ROE. Here's how we're going to do it.

With the changes in optimization mostly completed in 2025, we will now first grow revenue NII and NIR by deepening relationships with a focus on commercial treasury payments and capital markets. We will continue our investment in client-facing talent -- we will execute on programs that drive primary relationships with both personal and business clients, and we will expand our personal and business relationships to include wealth across all segments from mass affluent to ultrahigh net worth. And of course, we'll also open new financial centers that add density in key markets. Next, we'll improve our operating efficiency by maintaining expense discipline as we self-fund investments for future growth. And finally, by optimizing risk and capital with thoughtful client selection and to grow within our risk appetite and by allocating capital where we earn the highest returns.

Together, this is a winning model for executing our growth plan to achieve our targets, mid-single-digit revenue growth, 10% PPPT growth, low 50% efficiency and 12% ROE. So that's an overview. I want to dive deeper into how we're going to deliver these results through the 3 strategic priorities that Darrel mentioned earlier, growing and deepening our client relationships, innovating for business value and optimizing performance. So let's start with where U.S. banking is. It serves both business and consumer clients in a segment model in order to deliver on the specific needs of each client as well support clients as their needs change over time. So we'll start right now with a focus on our business clients and we serve clients from small businesses to large commercial. BMO's U.S. commercial franchise is nationally recognized and has been a top franchise in the U.S. Our strength lies in our industry expertise delivered locally through in-market relationship-driven coverage with a team of over 2,300 delivering leading industry, product and advisory expertise across diverse sectors and specialty areas.

We have clear opportunities to drive profitable loan and deposit growth with this terrific team. So remember, commercial is where we have scale and deep client relationships built over decades and is a key source of one client value across the enterprise. Now we've taken steps to reduce or eliminate lower return relationships. We've also been focused on how we're going to grow. Our growth strategy includes the following: One, we're increasing alignment to fully leverage industry strength with a new one commercial bank coverage model, both on a regional market basis and an industry vertical basis. Second, we are investing and expanding talent.

On our path to adding 20% more bankers, we've already hired over 50 revenue-generating professionals from leading firms, primarily in California. It's important to note, 80% of future hires will be in California, where we aim to become a leading player in commercial banking, just like we are in the Midwestern markets. We're going to drive our emerging middle market. Now these are defined as clients generally between sales between $10 million and $100 million. This represents a key client acquisition accelerant, we've added new leadership. We've refocused partnerships to capture more of this segment, which delivers opportunity to the commercial bank and to our capital markets partners.

Together, we expect these efforts to lead to increase in profitable loans and deposits in the mid-single digits. And as I've previously stated, we expect to see loan growth begin in the second half of this year. So in addition to loan and deposit growth, we will continue to build off the great momentum we have in 2025 in fee income by ensuring more of our lending clients benefit from our full capabilities. And as you can see on this slide, we have significant opportunity to deepen existing relationships with our 22,000 commercial clients and 265,000 business banking clients. But again, it starts with industry expertise and being a trusted adviser to our clients. With strong relationships that we have as a starting point, we now have the opportunity to induce our treasury management, investment banking and global markets capabilities far more consistently.

And we are deploying wealth advisers across U.S. banking to serve all financial needs of both the business owners and their employees. Our target in the medium term from this work is 10% NIR growth. We've already seen early momentum with an 8% growth rate in 2025 and have identified many clients where we can -- where we know we can capture greater share of wallet. So I want to turn the next slide and highlight a key example, one of our real strengths, which is treasury and payment solutions. This is a demonstration of the strong results that we've achieved really demonstrates over the past year and what we can do here. Now my colleague, Sharon is -- leads this area. She does a fantastic job. She'll be on stage later to discuss TPS in more detail, but I really want to illustrate the opportunity.

Last year, we launched business works. This is a tailored solution for business banking and emerging middle market clients. It's a bundle of cash -- solutions with transparent, easy to understand pricing tiers. It brings together digital banking with liquidity payments and fraud protection. In Business Banking, that business works offer has resulted in a 45% increase in TPS sales since launch. And in our emerging middle markets area, there's been a 60% increase in client acquisition since its launch. When we talk about our larger, more complex clients, we already offer an award-winning fully customizable enterprise cash management platform. We've added talent and really increased management focus on this offering, which has led to a 23% increase in U.S. TPS fee revenue year-over-year. Now whether it was the bankers that were already here where the many bankers that have joined us from leading firms, everyone says this offer competes with anyone, including the largest U.S. banks. Commercial TPS penetration is already up from 55% to 57% since last year.

But our target is 70% plus by fiscal '28. Now it's important to note, and again, as Sharon will discuss later, our top BMO markets are already at 80%. So there's -- that further supports my view that we can grow this to at least 70%. To get there, we'll do the following: we'll continue to add salesforce. We will align relationship managers in TPS and commercial bankers more closely. We are focusing on pricing strategies, how we scorecard and sales training. And of course, we'll continue to invest in the platform and develop new products and enhance those we have like we did with Business Works. So that's TPS. Let me turn to another good example of full firm delivery and the income growth opportunity is in alignment with our capital markets team.

Now Alan is going to follow me on stage and provide greater detail, but I want to highlight this critical partnership and the actions we have already taken to better align and deliver for clients. We have aligned sector coverage to win in key areas such as industrials, consumer and retail and business services. We have built a deep bench of more than 100 capital market bankers dedicated to the middle market, and we further drove alignment by creating a unified M&A team back in December. So this collaboration has already led to doubled investment banking revenue from commercial clients over the last 2 years, and we've expanded deal flow by 33% year-over-year. So overall, in Commercial Banking, our history and depth of relationships, our increased investments in talent and our unified U.S. banking model positions us to deliver on our medium-term targets. So I want to shift now to the consumer side of U.S. banking and how we'll bring the same relationship deepening model to our individual clients.

We serve nearly 4 million U.S. clients through our financial center network and digital capabilities. A key segment within our client base is our over 1.2 million that we define as mass affluent. That's generally clients that have investable assets over $250,000. This represents a significant opportunity to grow through our highly scalable premier banking and BMO Investment services platforms. I'll talk about more of that in a minute. Further, we deliver exceptional service and advice to our high net worth and ultra-high net worth clients through our private bankers and their teammates. So let me turn now first to our footprint and talk about that. Our consumer business is well positioned across the Midwest and the West, and we are focused on the opportunity to grow share in the markets we serve. We operate in 20 of the top 50 deposit MSAs, including Chicago, Los Angeles and San Francisco, 3 of the top 6 deposit markets in the U.S. We already have top positions in Chicago and Milwaukee, where we are #2 in total deposits at 18% and 14%, respectively.

Our clear opportunity here is to densify in the markets that we have acquired from Bank of the West across California. We already have 220 financial centers supported by award-winning digital capabilities. But we are executing on our plan to build 150 new financial centers. And as you've seen in our recent press release, 90% of those locations are in key submarkets across California with the remainder being in Arizona, another growth market for us. It's important to note that in addition, we continue to invest in renovations and relocations across our entire footprint. And we are always evaluating other markets for investment. So think about Oregon and Washington, where we can capitalize on our strength and scale that we have in Canada. Now clearly, density matters. It is a proven playbook. Let me show you what I mean about that. In markets where we have scale and a unified model, we see stronger growth, deeper relationships and better returns. If you take Illinois and Wisconsin, we have a proven playbook through deep community engagement alongside sponsorship and brand and an integrated go-to-market offering.

This leads to a productive network earning our fair share of retail deposits. In Chicago, we have 8% brand share and we have 7% retail share, deposit share. In Wisconsin, we have 10% brand share and 13% retail deposit share. Now look at California. This is a highly attractive market. It offers 2.5x more potential retail deposits than the Midwest markets. But today, currently, our deposit share in California is only half of what our Midwestern brand share does. Our retail deposits per financial center or trail our regional competitors. So through densification, driving best practice client acquisition, investments in digital and improving execution across our network, we can exceed our ratio of one-to-one deposits to branches in the Midwest. And most importantly, we can drive to achieve that onetime ratio in the West. So let me talk a little bit more about densification. You could see in Illinois and Wisconsin, our strong position is backed by a network of 320 financial centers.

Together, importantly, with more than 750 specialists serving our clients across business lines. So in California, we're going to take the network from 220 to over 360, and we're going to grow our frontline banker coverage by 1.5x. So think premier bankers, wealth advisers and commercial bankers. We are targeting 6% to 10% brand share over the medium term in those markets we're focused on. But more importantly, the goal is to build deposit share in line with our brand share. Our starting point, our first milestone is an expectation to achieve $50 million to $60 million in retail deposits per new de novo financial center by year 3 after opening. So our consumer strategy is highly focused and we are densifying in markets where we have a strong commercial banking presence as it's known that consumer and commercial businesses work in tandem to serve clients and the community.

And while it's critical to be focused on where we'll invest to grow, it's equally important to focus on specific opportunities to grow primary relationships. If you can see on the left, we've identified 6 areas of growth opportunities. There are others, but those are 6 important ones. But I want to spend a minute of further describing one of the most significant relationship deepening opportunities, and that's mass affluent where we have a proven model to scale. So if you look at the center of the slide, you can see that over 1 million mass affluent clients have an existing banking relationship with us today. However, only 11% of that existing mass affluent or near mass affluent client base is currently covered by our premier or private banking teams. When you look at the significant impact covering a client has on balances, on reducing attrition and on investment penetration, it's very clear how significant opportunity for growth mass affluent really presents.

Now if you know a little bit about my background, I have been focused on this segment for the last decade in my previous role, and we had quite a bit of success. What I've seen here at BMO when I know to be true is we have all the right pieces in place to be equally successful. We have brought together BMO's banking and investment teams and capabilities across both physical and digital channels. Importantly, we have a highly scalable model with access to leading technology, regulatory supervision expertise and service support. So therefore, our direct investments are focused on simply adding bankers and advisers to that scalable platform. Based on the focus and efforts to support our medium-term targets here are very clear. We're going to add 3% growth in our checking accounts, 5% plus growth in personal core deposit balances and bringing mass affluent AUM from $25 billion to over $40 billion.

So scaling mass affluent capturing greater share of wallet requires great human advice, but it also has to be amplified by great digital experiences. One of the ways we differentiate ourselves is by helping every client make real financial progress through both our people and our digital channels, bringing human and digital together is how we drive more business per client. We already offer a leading mobile banking app with high engagement. My financial compass, for example, is a needs-based planning tool, which in 2025 alone produced over 330,000 planning conversations and recorded more than 640,000 client goals. And we have a variety of other tools and content centered on financial wellness education. But in digital, it's key to continually raise the bar and add new features and capabilities focused on improving the client experience. That's what it's all about. We've enhanced our mobile onboarding for primacy and adoption and we just recently announced we're the first to work with a fintech dollar GPS to provide clients with a robust planning tool for better understanding their financial well-being.

So a great example of that would be the tool can calculate how reducing a mortgage payment will affect the clients' net worth over the next 20 to 30 years, really providing clients that ability to understand and visualize and have a higher level of financial awareness. So we're very focused on the mass affluent, but it is also critical that we deliver personalized advice to private wealth clients. Our wealth management platform, as you see on the next slide, provides holistic solutions to serve clients across the entire wealth spectrum. And as I've discussed, BMO Investment Services serves the mass affluent client segment, but our great private bank focuses on the broader needs of high net worth clients from $2 million to $50 million. And our family office serves the highly specific and far more complex needs of those clients with greater than $50 million in assets. We are already seeing positive momentum and have a clear plan to scale here.

Over the past 12 months, we have added over 85 client-facing positions in the wealth business. We have terrific new leadership. And with our unified U.S. banking model, we are seeing momentum coming out of fiscal year 2025. We captured over $2 billion in net new assets. We drove over 12% growth in wealth fees. And where we've leveraged our position in the West, we've seen a 50% increase year-over-year in trust and investment sales and over $1.1 billion in net new assets. We're going to grow this business by doing the following: continuing to add top talent aligned to our key segments. We're going to modernize our digital experiences and critically, we're going to leverage introductions from our commercial and business banking client base. So when we do all that, our medium-term targets are to go 1.3x more NIR growth, had $20 billion plus in investment AUM, move our investment penetration for our private banking clients from 40% to 65% plus. And as I said, we want to drive at least 15% growth in commercial to wealth introductions.

So with that, I'm going to move to our second theme, innovating for business value. We are making significant investments to enhance the digital client experience, modernize core platforms and deploy new capabilities. Our fiscal '26 investment in this area is up 70%. These investments are critical steps to allow us to ultimately fully leverage AI capabilities, which I'll describe more in a moment. Now when I say modernize frontline systems, what that ultimately means is we are improving speed, reducing complexity and offering a better client experience end to end. That's what it's all about. So 2 quick examples to illustrate that point. First, we're upgrading our frontline sales and service platform to remove manual work and release capacity for more time providing guidance to clients. So whether it's enhancing banker capacity or reducing time to open an account, we see over $30 million in run rate efficiencies supporting our op leverage and our path to 12% ROE.

Second, my wealth portal will create a differentiated experience for both the client and adviser in private wealth. We expect the benefits here to be very client-centric, 5 points at least of improved Net Promoter Score, about 35% of our processes will be simplified. And ultimately, we will reduce time to open an account by as much as 50%. I think it's important I should mention, it's not on the slide, but in commercial banking, significant work is being done on the credit platform to drive speed to response as well. This is work being done on a North American basis, and I think Sharon will make some comments on that later. Modernization of tech and data is foundational to AI, which we are leaning into as a driver of value. We're using AI to improve client delivery and streamline operations. So again, a couple of specific examples of how we're deploying AI today. We're enhancing client delivery by personalizing experiences, providing clients with the right offer at the right time.

In our Commercial Banking business, our next best offer engine has led to over 18,000 leads since launch that drives our pipeline, which ultimately drives increased revenue. Second, we're augmenting our teams. We're automating self-service delivery of BMO policies to our frontline through Gen AI chatbots so the Lexi chatbot automates financial center, frontline knowledge management of over 600 policy directives, which truly automates the work of what used to be 28 FTEs on the call center. Our Nova chatbot to -- very similar, over 650 commercial credit risk policies that we can get to our front line faster. So I'm now going to turn to our third theme, optimizing performance. Cost discipline and balanced risk return to fund growth and protect returns. Bringing together the plans and investments that I've discussed today requires precise execution. So I've got to start this conversation with our winning culture. Everything we do is powered by our dedicated, engaged U.S. banking team.

Our culture is clearly highly attractive to industry talent, both long-standing BMO colleagues and all the new ones who joined us. Talent translates into high-touch relationships and trust. And those are things that AI cannot replicate. We are committed to both attracting and developing talent and you need both to drive multiyear share gains. We have elevated internal and external experts into leadership positions and added talent in key markets and segments. We will continue to add talent in priority markets in the coming years that will support our ROE uplift with additional sales capacity. BMO's development drive execution, provide flexibility, so we continue to build out our next generation of leaders. In addition to talent, we've got to maintain a disciplined approach to expense management that is another key part of our culture.

We're committed to supporting investments through a self-funding model where discipline creates capacity to fund investments in tech and brand. We have a consistent track record of growing revenue while managing expenses. It's driven by our operational excellence. So medium term, we aim to achieve low 50s efficiency by managing expense to low single digits by consistently creating capacity for reinvestment through cost takeout priorities. Those are things that we'll do such as simplifying our operating and organizational model. We'll rationalize platform and technology, and we will optimize third-party vendors. More than 80% of our cost takeout target is already under execution with actions defined today. As we add bankers and wealth advisers, we expect these cost reductions across the platform to enable us to remain essentially flat on employee headcount over time.

So efficiency is half the equation. Returns also depend on balancing risk and capital. We are continuously improving how we drive growth within our risk appetite by managing these 4 key areas: credit. We've added origination controls. We've integrated portfolio monitoring and new collection strategies and tools. On the operations side, we're scaling our automated risk and control testing to mitigate fraud and other losses. For capital, we continue to expand stress testing capabilities to quickly rebalance risk and reward. And finally, as I mentioned earlier, liquidity, we continue to focus on growing core deposits. So with that, let me close this morning by reiterating why we have such confidence in our path to accelerate growth and achieve our medium-term growth. U.S. Banking has a clear path to deliver a sustainable, profitable growth and achieve our 12% ROE objective. We have a clear operating model with a very talented leadership team. We have a clear execution plan, and we have a clear path to profitable growth within BMO's risk appetite.

So it's why I'm very excited to have joined this company. It's why I'm very excited to be leading the U.S. banking team. There is so much talent so much capabilities and, quite frankly, so much potential in front of us. I thank you for your time today. It is now my pleasure to hand over to my great colleague, Alan Tannenbaum, Group Head of Capital Markets; who is a key partner in delivering on our U.S. banking goals. Thanks very much.

Thank you so much, Aron, and good morning, everybody. I'm Alan Tannenbaum. I lead the Capital Markets business. I've had the privilege of being part of this business for 16 years and have served as Group Head for the past 2. We provide strategic advice, capital raising and execution services to clients across BMO Financial Group, serving corporate and investor clients with comprehensive solutions. We are a growth engine for the bank and a strong contributor to the bank's ROE objectives. We've invested in and expanded our business in both human and financial capital, building leading capabilities across industry verticals and asset classes. The next phase of our growth is to deepen those capabilities, capture higher share of wallet and further enhance our returns. We have a powerful franchise with clear competitive advantages that shape our strategic priorities. First, we're a leading Canadian investment bank, serving clients of all sizes across all asset classes.

Second, our scaled U.S. platform is fully integrated with our Canadian franchise to deliver a North American platform with leading capabilities in targeted sectors and asset classes. And third, we have a proven track record of building businesses organically and through thoughtful acquisitions. These competitive advantages drive our strategic priorities, which center on deepening our client relationships, leveraging the one client operating model to deliver more holistic solutions for clients in both capital markets and the commercial bank. We're utilizing AI and cutting-edge technology solutions to drive growth and scale. We're gaining share as we deliver better advice, allocate capital more efficiently and managing -- and manage risk more effectively. This is a snapshot of our franchise. We run a well-diversified business, having made deliberate choices about where we compete.

In fiscal 2025, that translated into $7.4 billion of revenue and approximately $3 billion of PPPT. Roughly 40% of our revenue comes from Canada, 50% from the U.S. and 10% internationally. Our model prioritizes depth over breadth, focusing on where we have the right to win and can generate strong returns through the cycle. Turning now to our strong track record of growth. Over the past 5 years, we've delivered strong ROE and a high revenue to RWA ratio, reflecting peer-leading capital efficiency. We've grown revenue by $2 billion and delivered a 6% PPPT compound annual growth rate, while keeping annualized RWA growth to just 2%. This is disciplined high-quality growth and sets the foundation for our next phase of value creation. Let's drill down now on how we delivered that growth. We've consistently invested in areas aligned to client demand that deliver attractive returns and then integrated those capabilities across the platform.

And you can see that in some of the businesses where we've outperformed our Metals and Mining business, our Treasury and Payment Solutions business, Electronic trading and equities and our structured products business. Our mining franchise is a clear example. We're building deep sector expertise and a full suite of capabilities translates into BMO as the market leader. I'll spend more time on this business shortly. Our Treasury and Payment Solutions business leverages technology from across the bank, as you heard from Aron, to deepen our corporate client ships and deliver recurring revenue streams that are growing as a percentage of our overall business. Our Clearpool acquisition, leapfrogged our electronic trading capabilities and now powers electronic execution across global markets. And the acquisition of KGS elevated BMO into the top tier of U.S. securitized products dealers.

The outperformance of these businesses reflects a deliberate mix of both organic and inorganic investments, accelerating our scale and breadth of capabilities. Looking ahead, our focus is on delivering profitable growth and strong returns. Over the medium term, we are targeting ROE of 15% plus, up from around 13% over the past 3 years. High single-digit PPPT growth while continuing to improve our efficiency ratio to below 58%. Now let's move on to how we'll deliver on those objectives. Our business has a solid foundation, and we are accelerating growth. First, we're growing and deepening our client relationships by delivering the 1 client approach everywhere. Second, we're innovating and enhancing our capabilities, centered on an AI and technology-enabled business model. This is a key element of improving our efficiency. Third, we're optimizing the performance of our resources.

Now let's go through each of those elements. The client, everything starts with our client and our focus on being a trusted adviser. We have a broad, diversified client base, and we grow by deepening those existing relationships. Our one client approach ensures that we're delivering all of our capabilities and not just one-off products. Our clients tell us that they value integrated end-to-end solutions. Solving clients' challenges will result in delivering more products to achieve higher share of wallet and accelerate our growth. Next, I want to focus on how we're well positioned to continuing to deepen those client relationships by capitalizing on 3 key megatrends. AI-enabled infrastructure, commodities and energy. These areas continue to attract significant investment and represent significant opportunity for us and our clients. In AI infrastructure, we're financing and providing risk management solutions for the build-out of data centers, networks and associated power demand. In commodities, our long-standing leadership provides clients with trading, financing, risk management and balance sheet support through the cycles.

In energy, we bring together deep sector knowledge. Expertise in sustainable finance and an integrated advisory capabilities. In all 3, the need for strategic advice, capital raising, hedging and risk mitigation tools means a robust fee pool for us to capitalize on. Again, a deep focus in areas where we have the right to win. Let's now focus on our Metals and Mining franchise. As a blueprint for what we're delivering across capital markets. We recently hosted our largest Global Metals and Mining Conference and were named the world's best investment bank in the sector for the 17th year in a row. Developing mines is a complex, capital-intensive process. Our clients demand deep expertise and fully integrated solutions. And we, BMO Financial Group, are the leader. Our global platform brings together advisory, lending, capital raising and risk management. We support our clients and finance our clients' inventory, hedge their production and move and store their bullion, delivering multiproduct outcomes. That integration drives results.

Since 2018, we've more than tripled our revenue in this franchise. This model of deep sector expertise combined with integrated product solutions yields market-leading results, and we're replicating this proven playbook across key sectors like insurance and industrials, where we see similar opportunities. This is a natural transition to our one client focus. Building on what my partner Aron shared earlier, forging an even closer partnership between capital markets and the commercial bank is a clear path to high margin growth. This is already a key strength for us in Canada and this partnership represents our most significant growth vector in the U.S. We deliver high-value capabilities across M&A, ECM, DCM, FX, interest rate hedging and commodity hedging. We've made investments by embedding our personnel in the regions closer to the commercial teams with dedicated capabilities to support these efforts. The result is that we're accelerating this high-quality, high-margin revenue.

Next, let me turn to our U.S. platform. Scaling this platform has been a core strategic priority for the past decade and we've made meaningful progress. Over the past 5 years, U.S. Capital markets revenue has grown at an 8% compound annual growth rate and today represents 50% of our revenue. That growth reflects intentional choices focused on building capabilities that grow and deepen client relationships. The way we've scaled the U.S. also shapes our approach to growth in our international businesses. We've become increasingly affected at distributing our content and products outside North America. Over the past 5 years, International capital markets revenue has grown at a 12% compound annual growth rate, increasing that contribution from 9% to 11% of total revenue. We start by exporting proven North American products and content, particularly in rates, equities, securitization and structured products. We've invested selectively in local capabilities where it enhances client relevance, primarily across the U.K., Europe and Asia Pacific.

Our international platform is an increasingly material contributor with a clear opportunity to continue growing. Now let's talk about our 2 core operating businesses within Capital Markets. I'll start with global markets, a key growth engine. Last year, Global Markets generated $4.6 billion in revenue across a diversified set of asset classes. We've invested in expanding our product set, building capabilities in rates, commodities and prime brokerage while deepening our leadership in Canadian equities, Canadian equity derivatives and structured products. As we've expanded our product, we're now focused on deepening client penetration and increasing wallet share. This growth is anchored in continued investment in technology, best-in-class electronic trading, scalable trading architecture and strong risk management tools. Over the next 3 years, there are tangible opportunities to drive more than $1 billion of incremental revenue at returns that are accretive to the bank.

Now on to investment in Corporate Banking, which generated $2.8 billion of revenue last year. Our strategy here is to translate platform strength into incremental market share. This means driving more revenue through our integrated verticals, bringing together advisory, financing and markets to deliver cross-platform solutions. We focus on key clients, particularly in the U.S., where the opportunity set is vast and prioritization is critical. We continue to leverage sector leadership. In financial sponsors, for example, to win mandates across multiple products and drive repeat business. We are the leading advisory firm in Canada with an expanding presence in the U.S. and a clear focus on building a leading U.S. M&A franchise, again, leveraging the strength and client breadth of our commercial bank.

Together, these initiatives will drive over $0.5 billion of incremental revenue over the next 3 years with the goal of achieving market share in the U.S. of approximately 2%. The story for ICB is about getting more out of the platform we already have, driving sustainable share gains and expanding margins. As I've just described, we have an ambitious growth agenda. A critical enabler of that agenda is how we're using AI across our franchise. We're focused on 3 areas: one, we're enhancing client value. We're using AI tools to mine our data and content to deliver more relevant insights, support richer engagement with higher velocity and accuracy; two, we're elevating employee productivity and in creating efficiencies by embedding AI across our daily workflows. And three, we see opportunity to use AI to create new adjacent revenue streams, untapped opportunities from an AI-first approach. AI helps us serve better clients, serve our clients better, operate more efficiently and extend the reach of our platform.

Moving on to optimizing performance across our platform. As we grow and innovate, performance discipline becomes even more important. One area to highlight that dynamic is how we've optimized our lending book in the corporate bank. This is about actively managing our balance sheet to improve the quality of returns, not simply growing assets. Our loan book reflects that approach. It's well diversified, aligned to where we see the best risk-adjusted opportunities and balanced across Canada and the U.S. with investment-grade exposure at 77% of our portfolio, our leveraged loan exposure remains a modest portion of authorizations. We actively recycle capital, redeploying roughly 25% of our RWA since 2020 from lower returning relationships to higher-returning opportunities. This discipline, combined with a strong risk culture and robust controls delivers a high-quality loan book positioned to drive revenue with above-hurdle client ROEs.

Let me close by bringing this back to performance and returns. What you've seen today is a capital markets franchise built around clients and strategically scaled with clear positive momentum and a well-defined path forward. We're growing by deepening client relationships, leveraging a fully integrated North American platform and focusing on the sectors, products and geographies where we have a clear right to win. We're expanding with discipline, scaling our U.S. and international businesses deliberately and using technology and AI to enhance productivity, increase client relevance and deliver operating leverage. And all of this is underpinned by strong capital and risk management, reflected in the quality of our returns and our ability to perform through the cycle. That translates into medium-term targets that are clear and achievable. Capital Markets plays an important role in serving all the bank's clients with a powerful franchise positioned to deliver consistent, high-quality growth and accretive returns. Thank you all for your attention this morning. And with that, I'll turn it back to Christine.

Thank you, Darrel, Aron and Alan. We will now move to the first Q&A session. I'm also going to invite Piyush and Rahul up on to the stage to join them. Now I know that you've all flipped ahead in the deck. And you know that Piyush and Rahul will have presentations later.

I would ask you to focus your questions for this session on our current presenters. You'll have an opportunity to ask Rahul and Piyush questions on their presentations in the second Q&A session. [Operator Instructions] Go in the front row here, #3. Ebrahim?

Ebrahim Poonawala, Bank of America. I guess 2 questions. It's interesting that your first presentation was the U.S. with Aron. So maybe one question for you, Darrel, and then for Aaron, for you. You've been CEO for 9 years. What on paper BMO should have been super successful in the U.S., competing with the regional banks. Was it the org structure, not having the right people, not having the right strategy, like what led to the relative underperformance, which I think you would agree with. And then, I guess, Aron, for you, California is the most dense markets in terms of the big 3 banks. Just talk to us in terms of how you think BMO can differentiate given that it's been very challenging for some of the super regionals.

Yes, it's a good question. braving thank you for it. So I'll start, and you can come in in California. So look, I think you have to think about the stages of a journey, right? We've been building, I would say, to this moment for a long time in terms of our ability to unlock the full potential of the franchise. And when I say unlock, you have to think about what arguably has been locked. If I go back 10 years, if I go back 20 years, I think it's really difficult to compete in the U.S. market with a $50 billion, $100 billion bank. I think it's pretty hard. Some have done it well. but it's pretty difficult. And if you're going to do it really, really well, you have to be hyper focused on the regional scale and densification, but it's difficult to grow. In our case, we focused on growing the scale of that franchise over the 20-year period the last 10-year period, in part by acquisition in part by organic growth to develop a so that we could compete with the capabilities of anybody in the marketplace, and that takes investment, right?

We had to make those investments. And the investments come in a lot of ways. It comes in nicks. It comes in goodwill. It comes in some of the building activities that we've undertaken. So that's number one. Number two, when we had a hard look at where we were post integration of Bank of the West, so I'm taking you guys back about 1.5 years now, we came to the view that we had done a really nice job building the scale, building the capabilities but what we were lacking was the integration in country. And what I mean by that is, for those of you who have followed us for a while, it was absolutely the right structure and strategy at the time when we had smaller scale to say where are you going to get synergies you'll get them from the North South platform. So we ran all of our businesses with North American mandates, which is great because you can extract some synergies out of a smaller U.S. franchise that is competing with smaller banks. But what you're missing when you do that is when you come to the point of view, which I did, which is that you need a unified go-to-market strategy in regional markets in the United States, which are defined competitively differently than they are in Canada, market structure is different and your position in the market is different.

It was time to change how we go to market. So we made the decision about a year ago to change the structure, put the businesses under a unified structure called U.S. Banking and then I met Aron. And I asked Aron, if he would come and take on the challenge of running that combination. And he said, what's the job? I said 8 to 12, that's the job. We're going to go from 8 to 12. We're going to do this. And Aaron said, I think I can do it, and we didn't hoodwink each other. You had a -- you've had all blueprints at the time you knew what we were getting into. So I would say it's been a journey, and it kind of comes to this point, right? Today, we've talked to you all about the second quarter of this year, getting through the second quarter, turning the corner, third base, whatever the analogy is on our optimization. -- and then driving on those returns. Arguably through the course of that build, we weren't ready for that type of performance. Today, we bloody well are. That's where we are. Do you want to talk about California?

Yes, absolutely. Sorry, I want to break your question down to 2 parts because on the commercial banking side, right, where we've had strength in the U.S. for many, many years, we have -- well, that was great when I found when I got here, right? Unbelievable industry expertise, both from legacy BMO and Bank of the West, we have a treasury platform second to none, which is critical to be successful in the business. We have a great capital markets business. We've added tremendous leadership. Tony, who's in the room is doing a great job. We brought in a lot of new talent. So we can compete with anyone at any time across commercial. On the consumer side, I'd give you sort of 3 ways in which I think about it. First, we showed you, it's a $1.1 trillion market. If you take out the big 3, there's still $475 billion split across 165 banks. BMO is as good enough, if not better than those 165 banks. We can compete with any of them. I think -- that's just California. It's just California. So that's 1 -- that's a big one. .

Okay. Now the big the a year ago, when you asked me how we were doing, I'd be very proud to tell you, we've only 3% attrition in the operations. And all the big 3 banks will say roughly the same 3% to 6%. Well, with their scale, that's literally 4 million in motion clients every year. And in California is a big chunk of that. So no matter how good they are, there are still clients that opt to say, that's not the platform I want and it's enormous scale. So even at 3%, 4%, 5%, it's millions of clients that are in motion that I think a top bank like BMO can attract. And the third thing I'd say is there's real financial progress, this focus that we have, both in the U.S. and Matt will talk about in Canada around making sure we're thinking about clients, life priorities and giving them advice on wealth our whole wealth spectrum. That is a competitive model with our premier bankers, how we're set up that can compete with anyone. So I think in addition to sort of getting clients that already had to leave, we can take some clients that maybe hadn't quite made that decision yet.

So and the fourth thing I'd say, in the U.S. markets, clients open up accounts in more than one place these days because it's pretty easy digital. The key is how do you become primary and it's that combination of core operating account plus investments that's increasingly important, and our model is really well set up to take advantage of that. So for all those reasons, I feel very good about competing, and I was very excited that Darrel gave me this opportunity.

Can I go here, number 1.

Mike Rizvanovic at Scotiabank. For Aron, wanted to ask about the pathway of going from, I guess, 8.5% latest quarter to 12 on the ROE. And we caught my attention on this waterfall chart is that the majority is new client growth. And when I think about new client growth, there's either 2 things happening. There's robust demand in the market or you're gaining market share. And I'm suspecting it's probably more so the latter. If that's the case, is it not fair to assume that new clients are not as profitable initially. There's probably an element of pricing that you need to get the market share gains. And then beyond that, developing that more holistic relationship takes time. So in the short period that you have here in about 7 quarters, moving your profitability by upwards of 40%, it's a pretty meaningful move. Just wondering how you sort of see that dynamic of new client growth? And why would it not take longer than just 7 quarters?

Yes. I think whenever we talk about new client growth versus deep, they're a little bit blended we have lots of clients that may have an existing relationship with us, but they don't have the treasury part of they don't have capital markets. And so there is this component of new client to one part of BMO versus another. And I think that's wrapped into the overall view. So there's no question as you bring in new clients, certainly in the consumer space that it takes time as they ramp up and you get more and more of their balances and you drive. And that's why having both the consumer model and the investment model is so important because then you can attract more of their balances, more of their deposits more quickly because you're not relying on just the build out of their checking or savings.

You're tracking them in that way and then you're immediately bringing more of their assets. But on the commercial side, where we have deep relationships, there is real opportunity there to grow with new talent coming in, having new relationships. The way we've set up the model to be very unified a new client for wealth may not be a new client for BMO. So we can drive a lot of new clients in our private bank and our family office, in our mass affluent by leveraging the existing commercial clients. So I think it is very much a combination of truly new to bank, which we have to attract and I think where we can do it the most quickly is through our commercial business. And then it's new to one of the areas, new wealth client, new consumer client that happens with existing relationships. And it's that combination that I feel confident can move quicker than you're right if you're purely just trying to attract brand new to bank clients.

Thank you. #1 over here. Number 3.

Matt Lee, Canaccord Genuity. We'll keep honoring if your medium-term revenue CAGR is mid-single digits and your noninterest revenue target Doesn't that kind of imply that NII growth to be low to mid-single digits? And can you reconcile that against above-industry average loan growth? Does that mean that NIM is going to tighten. Is that the view?

No. Again, I think when you look at our loan growth of about mid-single digit and our deposit growth, that's our current case that allows us to get to 12%, right? So we have -- our model says, if we can drive mid-single-digit loan growth and deposit growth and 10% fee growth. That gets us to 12%. If there's more opportunity. There's no loans that we want to work with the clients that they want to work with us that we're not going to go after aggressively and win. So it's really just setting up what we believe is a fair, reasonable estimate of what we're going to do over the next couple of years that allows us to achieve our goals. If the market is growing faster than that, then you may see some faster growth but it's really a conservative case view that says mid-single-digit within our risk appetite, sustainable, long-term growth, which I think is really important for our -- we want to grow over the next couple of years not just grow fast and then later it's going to be sustainable. So 3 years from now, 5 years from now, we're just talking about a continued onward growth pattern. So I don't know if Rahul wants to add to anything but No, I think that's how I think about it.

I think he placed it well. The one thing I would add on to him is also the deposit mix improvement, which is embedded in there, which gives the lift to NII. I think that is 1 part, which is -- when you look at it, it doesn't come evident, and I'll probably talk more about in the details later, but it's the deposit mix also. .

Thank you. Can I get #2 here in the front?

Paul Holden, CIBC. So when I think about the importance you placed on strategy intensification in California, the first thing that might come to my mind is what sounds like an acquisition strategy. I know, Darrel, you talked about high hurdles to acquisitions. So 2 parts of the question. One is why not more of an emphasis on acquisitions to achieve those objectives? And two, what are the hurdles you'd look at?

Yes. So the -- Paul, the frame that I put this question in always is what is our strategy what are the most efficient levers to achieve that strategy. So if you look at what we've done in the last 2, 3 years in the U.S., we took a pretty hard look at where the returns come from. And I think I've talked to many of you about this. We took a look at how they map very, very closely by geography where we're densifying across at least 3 lines of businesses. Sometimes there's actually even 4. And then you can imagine the R square is very, very high against places where you're not going to market together. Geographically, I'm talking in the United States, different map, obviously, in Canada. And so the output of that, you saw that we announced the sale of 138 unique branches, for example, in sort of mountain territories. There's not a lot of people.

But the other -- the more important point was there are not a lot of other BMO businesses there, right? So we decided we're going to remove our chips on the board from places where we're not competing across the lines of business. We're going to put chips on the board where we are. So you heard the strategy today, I won't reiterate it. But we know empirically measurably that we can do it. The market has done it, but we do it in places where we employ that strategy. So then the question becomes, how fast do you want to go? And do you need M&A to get you there? And the answer to that question is, don't no, you don't need M&A to get you there. The market is active. We all know the market is active. We get calls all the time and all the rest of it. But the reality is we built a business plan that says we can get from here to there by optimizing, by densifying in California in particular.

We've got great people who have been with us for a very long time in both markets and in the Midwest. And the business plan that we've got. I've got high confidence in. So I don't have a lot of appetite to go and chase growth at the expense of returns. In fact, I have none. But I have said, we leave the door open a sliver for something that comes along, and I'll leave it here on your question, that fits in exactly what I just said. We've done other things in the past where you're adding capabilities or -- we don't need to add capabilities. We don't need to add scale. If something came along and said, "I can accelerate your path to that densification strategy in market and it doesn't detract from the timing of the ROE delivery that we're working on by like 1 minute. All right, we'll take the call. But that's a pretty narrow universe. I just defined for you. So organic first.

Paul, I'm going to come back to you because I know you had a follow-up, but I'll go to Darko here in the front number 2, please. Or one, sorry, no one.

It's Darko from RBC. My question is for Alan. A couple of things here. First, I wanted to talk about your targets versus what you've actually accomplished over the last 5 years. When I look at 7% revenue growth and 6% PPPT growth over the last 5 years, and you're looking for mid-single digit or high -- sorry, I apologize, high single-digit PPPT growth. What stands out to me is the very low RWA growth over the last 5 years. You don't talk about that, though. And so is -- conceptually, should I be thinking about more RWA growth for your business? -- over the course of the next 5 years.

Thanks, Darko. You touched on key elements there, which is how do we think about growth and what are the drivers of growth. And again, to review the drivers of growth for us have been expanding our product set and investments that we've made while being re-rational about our capital usage. And we see that as continuing over the next phase of our growth. So while we continue to deploy capital, we're doing it in a rational way. And again, I wouldn't underemphasize some of the recycling that we've been doing and optimizing our capital. So our focus has been on growth with a view to an ROE outcome that we feel really good about. So when you put those elements together, we feel that the PPPT and revenue targets are realistic and reasonable. And the RWA usage grows in a measured fashion alongside of that. So we feel like that's very much aligned with the targets that we've set for ourselves.

And if I may, Christine, before I go to the next one, Darko, your question, I'm going to take a little bit of scaling it a little bit because it's a little bit of a preview when we hear rule come up later. You're going to hear about how we're thinking about that optimization on our RWA, ROA. And one of the things I think that's been pretty impressive in the capital markets trajectory over the last 5 years is that chart that showed you the rate of RWA growth relative to the rate of income growth, which has been impressive. So we're expanding that ratio. And then as a consequence, the delivery of the 17% ROE that you see in the capital markets business is as good as anybody in the business, which is part of the plan going forward. If we can grab 10% top line growth and continue to deliver that, we'll give it -- but we're not going to grab 10% top line growth instead of 8% if we're sacrificing the ROA, RWA at the same time. .

Ebrahim and #2 in the front, please.

Two questions. One, I guess, maybe for Aron, when we think about AI, there's a lot of conversation about skill and data scale, given your experience pre and post and now at BMO, when you think about just the BMO franchise in the U.S., is there a competitive advantage for the largest banks because of the data skill that they have relative to your franchises -- and I guess a question for Alan. You talked about the financial sponsors as an expanding opportunity. Just talk to us how you assess what's going on with the private credit markets, whether this can bleed into private equity at some point tied to investments made from a few years ago? And just how worried or not worried you are about that space.

I can take the first part. I don't think it's a competitive end. They certainly have a dollar spend advantage, for sure. I think the way BMO has approached AI, incredibly thoughtful with really good leadership, bringing in expertise and then having a very thoughtful approach to what exactly adds value and driving programs, some of the ones that I highlighted, you hear some more in the afternoon that are really getting at some very fundamentally important things. One, first and foremost, is efficiency and helping us drive efficiency, which is not uncommon a lot of people are using that. I think then the big question is how do we turn that AI to more of a revenue-focused model. We're starting to do that. We are some things that we talked about with next personalization and next-gen lead generation. We're doing some work on how to think about retention.

So I think that it's about how there's a lot of advantage in having a lot of money and sometimes that isn't an advantage. For us, it's -- you have to be very deliberate, very focused, and I think there's been a real consistency at the level -- the management team level from Darrel down about how we go about leveraging AI in the most effective way. And there's some great things that you'll hear this afternoon that the team has done that we can ultimately leverage in the U.S. So I don't think it's -- I feel very strongly that we have the right model there that we can ultimately be nimble and take some advantage ourselves over time.

I'll pick up on private credit financial sponsors, which we could spend hours on, but I'll break it down to 3 dimensions that we think about Ebrahim. First, capital at risk. When we look at our portfolio, our overall exposure to this asset class is under 1%, right, very manageable, and it's collateralized and it's highly diversified. So we're comfortable with the risk there. Of course, we watch it very closely, but comfortable with the risk. So that's the risk element. The second, which is what you touched on, which is what does this mean for the largest users of that source of capital, which has been the private equity community writ large. And we're clearly going to and we're starting to see a bit of a slowdown in that community. When there's less availability of capital, they tend to be less aggressive and the financing markets are less robust. I'm going to go to the third one, which is opportunity, right? We see this as a fantastic opportunity for us.

As you know well, the industry has given up market share to private credit over the last, I must say, decade, it's accelerated. And we see this as an opportunity to go back to those very same clients and remind them that the syndicated underwritten market is robust and available, and that fee wallet, which has been compressed meaningfully, we see us expanding. So while we're focused on managing the risk and mitigating it see this as a really phenomenal opportunity for us.

Thank you. Any other questions? Number 3.

This is Shalabh Garg from Veritas Investment Research. I'm wondering how the loosening of capital requirements in the U.S. impacts BMO? Does it help you -- does it add to the hurdles of competing with the larger U.S. banks or per regionals? Or does it actually help you?

Yes. Rahul, you should come.

So just looking at the NPR, I think we're going to experience similar benefits as most of the other banks will in terms of the capital requirements for the U.S. entities. I think we'll closely monitor how it evolves in terms of the competitive landscape. Usually, the transactions are more market-driven. The structures are more market-driven and the market is fairly rational. So I think we'll closely evolve in terms of where it heads, but we expect similar kind of benefits in our U.S. entity.

And we should point out, Shalabh, related to your question, the outcomes that we put in front of you today, whether it's the 12% or the 15% of the total company, do not depend on a tailwind there. They depend on constant capital level. So if something helps us along the way, that would end up being net new benefit.

Positive. Yes.

Any other questions in the room. Okay. Wonderful. We are going to take a break then, and I would ask you all to be back by 10:15.

[Break]

Welcome back, everyone. For this next part of the agenda, Sharon Haward-Laird will begin with a spotlight on our North American Treasury and Payment Solutions business as well as our growth strategies for Canadian and Commercial Banking. So at this time, I would like to welcome Sharon to the stage.

Good morning, everyone. I'm Sharon Haward-Laird, and I have the privilege of leading Canadian commercial banking as well as North American integrated solutions. North American Integrated Solutions includes Treasury and Payment Solutions, Retail Payments, Virtual Connect, which is our call centers and the Sustainability Office. Together, these businesses enable BMO to fully leverage the advantages of our North American platform while staying closely aligned to local client needs. I'm really excited to be here today to talk about how our strategy has delivered a premium Canadian and commercial banking franchise and the opportunities that we see ahead for accelerated growth in strategic areas. One of the clearest advantages for our commercial bank is our North American Treasury and Payment Solutions, which we refer to as TPS.

TPS strengthens client retention, gross fee revenue and supports the high-quality deposit base across both Canada and the United States. Much like a checking account in personal banking, TPS is the anchor of our commercial banking relationships and the digital deposit engine of commercial banking, making it one of BMO's most important sources of funding and fee growth. And that's why we've decided to highlight TPS here today. We have built a truly differentiated business by listening closely to our clients and delivering the capabilities that they have told us they need from their bank to grow and scale their business. Since listening to our clients has been so key to our success in TPS, let's start with a short video that brings to life how TPS clients across BMO.

[Presentation]

So as you heard there, TPS is the gateway to unlocking the full opportunity and driving returns across all of BMO's commercial businesses -- this is a clear competitive advantage for BMO. We have built TPS on distinctive strengths. It is deeply embedded in each of our B2B businesses including business banking, commercial banking and corporate banking. We operate TPS on a fully integrated North American platform that connects technology, product and all aspects of client delivery end to end. Most importantly, TPS is growing rapidly and profitably across each of our businesses. Momentum is strong with a long runway ahead as we deepen relationships and continue to win new wins.

Together, these strengths position TPS as a durable and a scalable growth engine right at the core of our commercial businesses. One of TPS' defining strengths is the power and efficiency that is generated by having a single technology and product platform. That platform makes TPS the connective tissue across all of our client relationships. It helps us win clients early, deepen economics over time and serve those clients consistently as they scale from small business to middle market up to large corporate. Working side-by-side with our bankers TPS delivers a seamless cross-border experience grounded in our knowledge of the realities of running a business cross-border.

And the result of all of this is a stable base of core operating deposits and recurring fee revenue delivered efficiently through a build once and then personalize across segments model. The efficiencies that this model delivers are reinvested into intuitive digital solutions for our small- and medium-sized clients and innovative products and solutions for larger clients all on the same platform. This drives strong retention, depth of relationship and over time, a bigger share of wallet. The complete integration of our TPS platform, product, sales and service is a meaningful differentiator for BMO. We recognize this advantage early, and we built it ahead of the market. In 2010, BMO launched our North-South B2B digital platform, online banking for business. Over the next decade, we built an enterprise payments hub, including moving to a fully integrated North American wires platform. And this is something that many banks are only investing in now. I had the opportunity to lead this amazing business for 5 years while we were building these digital capabilities. And I learned that a horizontally integrated TPS business is not something that you can just go out and buy. You need to build it, and we continue to extend our market advantage by innovating and building on our strong foundation.

Over the past 5 years, we've invested over $500 million in advancing our technology and digital capabilities focused on reducing complexity, accelerating transaction speed and freeing up capacity to support growth. For example, we were the first Canadian bank to offer an enterprise resource planning, or ERP solution through BMO Sync. BMO Sync embeds online banking directly into our clients' own workflows, adapting banking to how our clients want to run their business. Operationally, our lending, treasury, sales and client service teams are aligned by segments, supported by an always on servicing and onboarding model along with dedicated product business and technology expertise. This is like an ecosystem that enables us to get to market faster with product innovation while improving efficiency and scalability through AI-enabled processes.

This innovation has been recognized externally. BMO is the first bank in Canada and the United States to receive a Red Dot design award for our reimagined online banking for business experience small- and medium-sized clients. These credentials are important as a growth accelerator because they reinforce to our clients that they can trust us to help them grow their businesses. During the break, you can stop by the tech showcase, where we have a booth that highlights our online banking for business platform and our embedded finance solutions. This slide illustrates the breadth and the scale of the $6 billion revenue business, which is spread across our clients and our businesses. Today, TPS serves more than 138,000 small, medium and large enterprise clients, a number which has grown at a consistent double-digit CAGR.

Last year alone, TPS processed $68 trillion in payments and that number has more than doubled over the last 3 years. BMO ranks as a top 15 U.S. automated clearing house or ACH originator, underscoring the true strength of our North American payment capability. We have more than 350,000 digital users that rely on this platform for their day-to-day work and operations and the satisfaction scores from those clients on this page speak for themselves. That performance translates to the bottom line, making TPS a meaningful contributor to bank earnings, representing roughly 40% of enterprise deposits and about 10% of enterprise fee revenue. Now to clarify, TPS results are reported in each of our B2B businesses with revenue split roughly evenly between Canada and the U.S., and that really demonstrates our differentiated North American scale.

As Aron noted earlier, we see a significant opportunity ahead to deepen TPS penetration within our growing U.S. commercial client base, particularly in the emerging middle market segment as we continue to tailor and simplify products for those clients as well as our mid-market clients in Canada. As TPS continues to grow, we're extending our advantage further by embedding API-based experience across all of our client segments, building market-leading solutions like business works that Aron spoke about as well as virtual accounts and cards that are tailored to industries and segments. Our leading solutions position us well to be a first mover in next-gen capabilities such as AI-enabled agents, optimizing digital banking solutions and tokenized deposits. As an early developer of these capabilities, the investments that we are making now are reinforcing a platform that is already advantaged while the market continues to build towards our existing model.

Let's turn to an example of innovation that we just announced. We believe tokenized cash and other digital asset capabilities will become important in parts of the financial system, particularly in those segments where clients need faster always on settlement. BMO, our long-term client, the CME Group and Google Cloud have partnered to introduce a tokenized cash solution for CME's institutional clients providing near-instant 24/7 settlement between participating accounts using Google Cloud Universal ledger. Tokenized assets deliver secure and private money movement without currency volatility risk. This capability that we've developed is important to BMO strategically as it positions us as a credible and active participant in next-gen market infrastructure, building trust with our institutional clients as real-time settlement models evolve and expanding access to new clients through the CME ecosystem.

TPS' strategy and execution has resulted in 5 years of strong growth in both core deposits and fees as well as improved efficiency while we're sustaining investment for future growth. Penetration now stands at 67% across medium and large enterprises and 13% in business banking, alongside a meaningful shift towards higher core deposit mix. Over the next 2 years, I am very confident that we will continue to deepen penetration into the mid-70s for medium and large enterprises and over 20% for business banking acknowledging that clients with simpler needs are often better supported through our retail platforms. Having shown how TPS differentiates BMO and accelerates growth, I'll now turn to Canadian Commercial Banking franchise where TPS capabilities are fully embedded and serve as a critical enabler of our growth strategy.

As you heard earlier, BMO is the second largest commercial bank in Canada -- and together with our U.S. commercial bank that Aron spoke about, we are a top 5 North American commercial franchise. Canadian Commercial Banking, which we refer to as CCB is a premium franchise built through disciplined execution with the very best talent on the street and long-standing loyal customers. The good news about this premium franchise is that we have proven playbooks. The even better news is that we have clear opportunities for continued growth and market share gains. Our coverage model is relationship-led and locally anchored and it's powered by enterprise capabilities across TPS, capital markets and wealth. This highly connected model helps us win new clients, deepen existing relationships, improve returns as our clients scale and reinforce BMO as a long-term partner that understands the Canadian and the U.S. markets and the realities for businesses that are operating cross-border.

We're now deliberately building on our strengths to extend our market leadership by expanding coverage and allocating capital to priority sectors and markets where we see strong opportunities for growth deepening client relationships by bringing more of the bank to each client and embedding digital and AI across all our client journeys to accelerate speed to market with new products and capabilities that reduce sales cycle time. Today, Canadian Commercial Banking generates about $3.5 billion in revenue and we have a top-tier efficiency ratio in the low 30s. Our team of 1,800 sales professionals serves over 34,000 commercial clients across Canada with $120 billion in loans and $104 billion in deposits.

We have held and grown a strong market position, ranking third in deposit market share progressing towards our fair share of deposits over the past 5 years while continuing to maintain a strong #2 market share for loans. We look at our commercial business as 2 distinct but seamlessly connected segments. For middle market clients, we serve them with digital-led solutions and local relationship coverage, while our core commercial clients require tailored offerings, which are augmented by deep industry and advisory expertise. Across all of our segments, our go-to-market approach is built around our full TPS offering that we spoke about. This diversification supports resilience across economic cycles while providing flexibility to allocate capital strategically towards higher return opportunities.

It also enables us to balance scale, risk discipline and growth. Key to our risk discipline is having a well-diversified loan portfolio, both by industry and by geography, as you can see on the screen. Our geographic footprint closely mirrors Canada's GDP providing strength from coast to coast, while allowing us to tailor coverage to regional demand and growth potential. What truly sets CCB apart is the combination of our unique coverage model, our deep sector expertise and the scale of our North American operations. We operate over 180 commercial locations across Canada, our relationship managers average over a decade of experience with deep expertise and they can bring in the right experts for tailored solutions and advice. Our one client approach brings the full breadth of BMO's capabilities to every relationship, driving strong adoption of wealth and capital market solutions. This integrated approach supports our growth, and it has contributed to a 96% client retention rate.

More than half of our clients have been with us for over a decade but many have been with us across multiple generations, some dating back more than 2 centuries right to when BMO was incorporated, a testament to the trust and the value of a bank that has grown with clients through multiple cycles. Our strategy is focused and we are growing by building those full client relationships to drive high-quality deposit growth and strong ROE in attractive sectors and markets. We're accelerating fee growth through TPS as well as through M&A, and we're expanding relationships cross-border and across the bank. We're operating from a position of strength. Since 2022, we have been #1 in total and operating deposit growth and we've delivered double-digit fee and cross-border revenue growth over the same period. We still see further upside through deeper penetration of TPS and cross-selling more solutions across our client base. The true test of the effectiveness of a strategy is whether it has produced strong consistent results and Canadian Commercial Banking has done just that.

Over the past 5 years, our strong balance sheet growth has delivered 9% annual revenue growth and roughly a 500 basis point improvement in efficiency. This performance reflects both the strength of the franchise and the discipline of our execution. Now our strong track record matters, but what matters even more is the great opportunity in front of us. We are confident that our medium-term strategy will deliver mid- to high single-digit revenue CAGR driven by mid-single-digit balance sheet growth across both loans and deposits maintaining our low 30s efficiency ratio while continuing to invest in our business and our people. PPPT growth will be driven by a combination of client growth and increased frontline productivity.

Our top opportunity for growth is from deepening our existing BMO client relationships, while we also use our strong Net Promoter Scores and recognize market leadership to acquire new clients. I'll now turn to how we support the enterprise strategic priorities that Darrel spoke about. As I mentioned earlier, our growth strategy is deliberate and it's focused. We will maintain our strong presence right across Canada, but we will invest where Canada's economy is growing faster than GDP and where we can deliver outsized returns particularly in markets and sectors that offer attractive deposit TPS and full client relationship opportunities. In some cases, our focus will be geographic, and I'll give you an example in the Greater Toronto area by increasing our frontline capacity and investing in productivity, we moved from fifth to second in deposit market share between 2022 and 2025 and driven by deeper client relationships.

At other times, our focus is sector-led. For example, professional services is growing at nearly twice the pace of GDP. We have tailored solutions for law and accounting firms that have delivered a significant increase in loan market share with strong returns, fee opportunities and excellent one client potential. Indigenous banking is another priority area for BMO, highly aligned to our purpose and supported by deep community-based relationships. We continue to see solid year-over-year balance growth in this portfolio, underpinned by our local presence and integrated BMO capabilities. Looking ahead, we will continue to build on this strategy, adding close to 300 frontline employees over the next 3 years, deploying them into markets and sectors where we see strong growth potential.

For example, geographically, we will prioritize high GDP growth regions where economic momentum is strong, for example, the Fraser Valley and where we have an opportunity to gain market share. We also see opportunities in national investment engines, such as defense and infrastructure. As the official bank of the Canadian defense community, our knowledge and relationships in this industry make this a natural area for us to grow. I'd also point out that public sector is another important focus for us because it is a deep source of deposits and a TPS rich segment with significant one client capital market opportunities. With a scaled national team focused on municipalities, universities and hospitals, we now bank some of the largest Canadian names offering them unique solutions.

Taken together, this disciplined approach about where and how we invest reinforces the strength of our franchise and support sustainable, high-quality growth. Another area where we see the potential for outsized growth is the mid-market. It is one of the most important segments for BMO's growth agenda, and it is a critical pillar of the Canadian economy that feeds into our core commercial franchise and other parts of BMO. For this segment, we leverage leading and tailored digital solutions to drive strong client acquisition and one client opportunities. Complemented with local relationship management and excellent serve capabilities, clients can be fully onboarded on multiple products within just a few days. Our AI-powered solutions for mid-market clients enable personalized advice and faster risk decisions, and these strengths are delivering results.

Over the past 3 years, we have grown our mid-market client base at greater than a 10% CAGR. And going forward, over the medium term, we're continuing to target double-digit client growth. I spend a significant portion of my personal time on our one client strategy because it is where Canadian Commercial Banking can deliver outstanding value both to our clients and outstanding returns for the enterprise. As our commercial clients grow, their needs expand across personal banking, wealth, treasury and capital markets. When we bring the full bank to those relationships, we deepen loyalty. We increase fee revenue, and we lift ROE for the enterprise. We have identified more than $250 million of annual incremental revenue opportunity tied to leveraging BMO's advantaged commercial mix. I'd also note that full relationship clients consistently demonstrate stronger economics for the bank with 1.5x higher ROE as well as higher client satisfaction and loyalty scores.

We report ROE at an operating group level, and Matt is going to cover the combined ROE targets for Canadian Personal and Commercial Banking at the end of his presentation. Canadian Commercial Banking's most important contribution to our enterprise target is to leverage the relationships in our commercial bank by delivering the best of the bank to all of our clients which will drive fee revenue in capital markets and in wealth management. Another area on which we are focused is building on the success of our digital approach that I spoke about in TPS and and applying it to our lending process. We have been transforming our lending platform to improve our speed to market and client experience by streamlining our product suite enhancing our lending platform with self-serve capabilities and deploying pricing disciplined tools while we enhance risk monitoring. By fiscal 2028, this focus on our clients' credit journey will reduce our credit underwriting time by roughly 50% with 70% of all commercial processes being powered by AI.

We're using the same AI capabilities for commercial banking in Canada and in the United States, and many of these are already embedded in our business. Today, 95% of our teams use AI daily and that adoption is translating into real outcomes. AI-driven insights are helping to close growth opportunities 1.5x more often, which lifts revenue per client. At the same time, we're using greater automation in deal preparation, annual reviews and portfolio monitoring. We're getting strong satisfaction on those results and we're freeing up our bankers to focus on client acquisition. From here, the opportunity is about scale. We're expanding these capabilities across a number of areas like prospecting, pricing, underwriting, on-boarding, fraud detection. We are embedding AI deeper and more broadly into how we operate.

And these capabilities are being built jointly with Aron and Alan's teams to maximize impact returns and productivity. I'll move now to our approach to optimizing performance through disciplined capital management. As I mentioned, we are prioritizing capital towards strategic growth sectors in the Canadian economy, where we have strong full relationship opportunities and can maintain our top-tier efficiency. We are strengthening risk management, fraud monitoring and cash flow predictability. Together, these actions support lower PCLs and more consistent returns with an expected 50 basis point improvement in return on risk-weighted assets over the medium term. To close, Canadian Commercial Banking is a premium franchise with proven execution, strong market positions and clear avenues for future growth. We are building upon our sector expertise, our North American capabilities, our digital leadership and our one client model to grow high-quality relationships, improve productivity and deliver durable returns. Thank you. I'm now pleased to turn it over to my colleague, Matt Mehrotra, to discuss the opportunity in personal and business banking in Canada.

Good morning, everyone. My name is Matt Mehrotra. I'm the Group Head of Canadian Personal and Business Banking and Co-Head of Canadian P&C, and I'm really pleased to be here with all of you today. I've been with BMO for nearly 16 years in a variety of roles, including my last role as our North American Chief Digital Officer and Head of Canadian Retail products. My experience has given me a strong conviction on the value creation that comes from combining the power of human and digital enabled by data and AI to unlock the full potential of our business and client franchise. To start, I'll frame the discussion with a few key takeaways. As you heard earlier from Darrel, we have a sustained track record of driving market-leading deposit client growth with full relationships, delivering benefit for this business and BMO Financial Group as a whole.

Behind that strength is an efficient growth engine, leading digital sales, a differentiated value proposition and a highly productive financial center network. Next, our business banking segment is a key way that we extend and scale our commercial strength into this business and equally support that strength through client referral flow. And as we look ahead, we have a clear and achievable plan focused on accelerating that client growth momentum, deepening relationships, translating our market recognized strength in digital to unlock the full potential of AI and optimizing the risk-adjusted returns of our business from both an efficiency and a credit risk perspective. All of this will add up to financial outcomes that support BMO's overall ROE objectives driven by competitive revenue growth, increased share in priority areas and improved efficiency ratio and normalized credit outcomes.

Let's start off with some context on the business. Canadian personal and business banking is a critical business to BMO from a financial, client and market presence perspective. As the face of our bank to clients across the country, Canadian personal and business banking plays a foundational role in BMO Financial Group, driving the profitable growth, stable deposits and scaled lending that underpin our business. Equally, the business is critical from a client flow perspective, driving robust high-quality client growth with benefits to our wealth and our commercial franchises. The last several years have been marked by the transformation of our business. The approach we've taken is to combine the best of human and digital, supported by the power of data with a distinct value proposition, more on that in a moment, to drive efficient, sustainable and ROE accretive growth. The results speak for themselves. Our net deposit account growth is double the market with strong overall quality and full relationships. We grew digital sales by 70%. At the same time, we drove strong growth in assisted sales and increased colleague sales productivity, and we transformed our digital experience from a growth and a client experience perspective.

Critically, behind this performance, it's a differentiated value proposition. We help clients make real financial progress. We saw white space in the market here 5 years ago. a proposition that helps clients get ahead and stay ahead. And we built a client experience and a prospect brand that aligns to that white space. What this means is aligning all aspects of our business. The digital experience, the financial center experience, the products, the offers, the brand in ways that reinforce the commitment to both clients and prospects. The business results have been incredible, very strong client momentum backed by meaningful shifts in how clients perceive our business for both the distinctiveness and a convenience perspective. This is one key source of sustainable competitive advantage for us. This is how we deliver real financial progress at scale.

The resulting financial outcomes we've achieved has been very strong. We've added over $3 billion in revenue and roughly $2 billion in PPPT over the last 5 years while significantly improving our efficiency ratio. And we've grown market share in areas consistent with our strategy to drive leading primary client growth with full relationships. Most critically, operating deposit share in our personal business has risen consistently supporting growth in the overall franchise, including our home financing and our mutual fund businesses. As we look ahead, we see a path to adding roughly $1 billion in PPPT by the end of fiscal 2018, supported by continued growth of our client franchise, deeper relationships and the digital and AI-enabled transformation of our business. This PPPT growth will be underpinned by mid-single-digit revenue growth, market share expansion, operating deposits, mutual funds and home financing and continued improvements in our efficiency ratio.

We also anticipate normalization in our credit performance, which will show up in our overall Canadian P&C returns and ROE, which I'll cover towards the end of this segment. As Darrel outlined earlier, I'll now go deeper on our 3 key forward focus areas: number one, growing and deepening client relationships; number two, innovating for business value and number three, optimizing performance from both a cost and a credit perspective. We'll start on client growth. Over the last 5 years, we have dramatically accelerated net client growth. Deposit-led net client growth is up 70% since fiscal '20. This performance has been consistently above market with a strong and widening premium, and we've done this while driving improved overall quality. This is the growth that fuels our business, primary clients that start a relationship with BMO that we can build upon over time with benefits in the PBB business and for BMO Financial Group as a whole.

Looking ahead, we're committed to sustaining this momentum. Our playbook builds on what's working, accelerating our already strong digital and financial center sales productivity, unlocking the full potential of strategic partnerships and supporting all channels with differentiated offers aligned to a real financial progress value proposition. While we've been growing our client base, we've also increased overall primacy anchored in the deposit relationship. These are clients that consider us their main bank. That primacy translates to direct financial benefit in terms of relationship depth and loyalty. As we look ahead, we see continued opportunity to drive even deeper relationships, particularly in 3 areas. Number one, investments number two, home financing and number three premium cards. The single biggest opportunity in our business is to grow our investment share of wallet. You can see the opportunity clearly with about 20% AUM upside with our most valuable clients. And you can imagine how critical this is given our value proposition and the flows and benefits into our wealth business. What we've made good progress here driving improved market share, backed by consistent investment in distribution, product and offers, we see significant upside ahead as we translate strong deposit client privacy into investment relationships supported by continued growth of our sales force, translation of our clear strength in digital into this domain and continued market leadership on offers.

Our key target here is to increase investment penetration by 400 basis points by 2028. This will translate into 20% growth in our mutual fund business, provide the basis for growth in other adjacent product categories and accelerate client flows into the wealth management business. Moving on to home financing. These clients are among our most valuable with many graduating into our wealth business over time. We made deliberate investments here to meet clients where they are, including expanding our sales force, entering the broker business, simplifying and digitizing our experience and really sharpening our focus on full relationships. Those investments have delivered consistent market share gains over the past several years and to provide a foundation for growth. Looking ahead, we remain committed to above-market growth in this business, enabled by continued execution of this playbook and the unlock of the full potential of digital, data and further simplification.

Our focus right now is on the generational renewal opportunity in front of us by combining strong offers, targeted pricing and a coordinated approach across digital, branch and our contact center. We are seeing a strong renewal rate with relationship deepening, and we are committed to maintaining that strength for the cohorts ahead. Our key target here is driving above-market growth with full relationships supported by even stronger renewal performance. In our cards business, we have transformed the franchise over the past several years, moving away from single service, becoming a dual issuer in establishing critical partnerships. Where we see the most opportunity is accelerating our growth in premium where our balance mix is below industry average by 10%. We will drive that acceleration through full monetization of our Porter partnership. They have about 1.2 million active collectors, targeted offers to our 350,000 premium ready clients across retail and wealth and further strengthening of our overall value proposition.

Our key target here is dramatically accelerating premium account growth, which will drive strong risk-adjusted returns and long-term sustainable growth. Underpinning our growth is the unlock of the full potential of AIR MILES, now Blue Rewards with prospects and existing clients. Key here is the clear value that we see from turning members into clients and clients into members. Our strategy to do this is to deepen integration with BMO, continue adding to our strong partner base and aligning the full experience to a real financial progress value proposition. We see this program as key to driving acquisition and client loyalty and deepening engagement with the clients, powered by rich beyond banking data, particularly important in an open banking world. Early results are very positive. Collectors are happy with where we're headed as are our partners and most importantly, test we've run bringing AIR MILES closer to BMO have demonstrated extremely strong uptake from clients.

After the presentations, you can see firsthand how we're integrating Blue Rewards into a seamless mobile experience for our clients, at the tech showcase in the reception area. Now let's move on to business banking. BMO takes a differentiated approach to this segment, translating our strength in commercial to this part of the business. The result is we punch above our weight here, driving 17% deposit share and 18% lending share, capturing benefits in our personal business and driving flows into our flagship commercial business. These clients typically have lending needs under $1 million and revenues under $10 million, and we serve these clients in our branches and with dedicated RMs at the upper end. As we look ahead, we're committed to continued market share momentum through translation of our digital strength into this key segment in parallel to continuing to unlock the full potential of our sales force through simplified products, platforms and processes.

Now we'll shift gears to continued upside we see from digital and the application of AI in our business. We are a market leader in digital. When I was building and leading the digital team starting in 2017, we set off on a mission to drive a value-oriented digital transformation, and we were very successful. That experience, I'm sure you can see has meaningfully shaped the strategy for the business overall. Since 2019, we grew digital sales by 70% and significantly increase engagement, nearly halved or assisted transaction volume and transformed our client experience. Our strength is recognized by our clients and the market regularly. We are the only full-service bank in North America in the last 12 years to win Fast Company's most Innovative Company award in financial services. Our mobile and digital money management experience are routinely recognized as best-in-class and we received multiple awards annually for our value-oriented and client-centric innovation approach.

Moving forward, we continue to see so much upside as we lean into our leadership on digital sales and accelerate client engagement. Our approach is grounded in being truly mobile first, unlocking the full potential of data to enable hyper personalization and continuing to lead the market in digital money management aligned with our value proposition. Key -- here are like the cementing our digital sales leadership position while driving engagement and self-service, core to the efficient growth we are committing to for the business overall. On AI, we have great momentum and upside as we translate our digital leadership track record of driving business value from technology to the opportunity ahead of us. Our specific focus with AI is on personalizing our experience, augmenting our people and automating our business. Work to date in these areas has been very impactful. Machine learning drove over 260,000 sales from 1.6 billion conversations in the last year alone. We've realized tangible cost savings from the deployment of Gen AI into our workforce.

And we have increasingly strong conviction on the opportunity from deployment of agents to drive scaled automation. And we see so much upside as we scale this technology broadly and deeply into our business. To showcase the power of this technology, I want to go deeper on Lumi, our Gen AI-powered assistant in our financial centers. We started with a focus on knowledge management, answering questions about policy and process. The results have been amazing. Nearly 80% adoption used multiple times per day, 60% reduction in calls to our internal help desk and $4 million in annual cost savings. And now we're taking this tool and bringing it to other channels and applying it to new use cases. A good example of how augmentation will unlock value in our business. You can also see Lumi in action at our tech showcase today after the presentations. I'll now shift gears to cover our third priority. The work we are doing to optimize the business from both a cost and a credit perspective. On costs, we have a good track record. Efficiency has improved significantly over the past 5 years. What's key here is that our focus on digital and AI, coupled with a deliberate drive to simplify our business and maintain cost discipline has delivered results.

This is about a business that's efficient by design, where gains come from change their client behavior and a deliberate focus on driving low value cost out of our environment as opposed to a one-and-done cost program. That's a big driver in our ROE outlook as we commit to a mid-40s efficiency ratio. Moving on to credit. We have a high-quality lending portfolio with very strong fundamentals. Assuming improved macro conditions, including reduced unemployment and stable inflation, we see a clear path to credit normalization as we return to a low 40s impaired PCL ratio in our consumer portfolio by fiscal '28. That normalization will be a driver of improved ROE. Our conviction on this outlook is built on the deliberate actions we've taken to manage exposure in our book, improve collections outcomes and ensure good growth in our low-risk home financing and premium card businesses. As I finish off the Canadian Personal and Business Banking portion, I want to leave you with 5 key takeaways. Number one, we have a strong and healthy client franchise that is growing at leading levels. We are committed to sustaining that momentum. Number two, we see upside on share of wallet in a few key areas and particularly investments. Number three, we are a leader on unlocking value from digital, and that leadership will translate into the AI era.

Number four, our business banking franchise is a differentiated extension of our market-leading commercial business and will continue to deliver outsized returns. And number five, we are deliberate on the optimization of cost and credit which will further support our ROE and profit growth objectives. On behalf of Sharon and I, I'll now just bring it back together briefly to share our combined personal and commercial ROE outlook. The personal and commercial businesses together drive significant highly ROE accretive growth for BMO Financial Group. On an integrated basis, these businesses represent our scaled client franchise in Canada and the source of the strong and stable deposits and lending that serve as the foundation of our business. Delivering against the strategies that Sharon and I laid out on an integrated basis will deliver greater than 25% ROE driven by the growth in our combined client base, deeper relationships, normalization of credit and continued positive operating leverage. We are both very optimistic about the path ahead and the continued potential to unlock client, balance sheet and cost efficiencies as a combined business. Thank you so much for your attention today. I'll now turn it over to my colleague, Delan.

Good morning, everyone. I'm Deland Kamanga, Group Head of Wealth Management. It's a pleasure to be here. The way we sit within the bank, it's our honor to really connect the clients, the teams and the capabilities of the bank. And we really are a true driver of revenue growth as well as ROE. So it's my privilege to spend the next few minutes talking to you a little bit about what we do. So I'm really excited about the distinctive strengths that we have in wealth. And we talk about everything, but we'll go through a few of our priorities with you today. the nature of our business, we built some of the strongest and longest-lasting client relationships. And that spans personal banking, commercial banking, capital markets, the entire enterprise. And this unique position allows us to connect clients to BMO seamlessly and consistently. It allows us to create experiences that make it easier for clients to do business with us regardless of how they enter into our ecosystem. We want to meet them where they are and connect them to the entire enterprise. We think about wealth in this way, we say to ourselves that it's built on a simple truth. When clients experience the full strength of BMO, and we can deliver that with our deep expertise, continuity and care, they stay with us. And equally as important, they tell their friends. So right now, we serve more than 1 million customers for the bank. Darryl had mentioned he's got 13 million customers and 1 million of them are already with wealth. AUM has grown now to over $700 billion. And last year, we generated $5.4 billion of revenue.

And importantly, we continue to grow. Last year, we delivered the fastest asset growth among bank-owned managers, and we delivered resilient durable earnings for the bank. 65% of our revenue is fee-based, so making us one of the most effective uses of capital at the bank. We're supported by over 5,300 wealth professionals. We bring together advisory, banking, insurance and asset management, and we deliver that digitally as well as through hybrid solutions. So again, trying to meet clients exactly where they are. We've taken deliberate actions over the last number of years to reposition wealth for sustainable growth. We've changed how we work together through one client. We've modernized our platforms. We've invested with discipline in innovation and talent. As you can see on the slide, these choices are delivering tangible results for us already. Beyond the numbers, though, this reflects real transformation.

We're deepening with our partners, trust, where innovation is now embedded in our culture and everything that we do. We've optimized the portfolio for maximum effect, and we renewed leadership talent who really have sharpened the focus on driving returns for the entire institution. And as you can see on the slide, these results are compounding. Across wealth, we've delivered 9% net client growth, a 10-point plus increase in NPS and a 25% growth in flows. that's internally with our bank partners, clear proof that our one client model is working. So the combined strengths of these deliberate actions, and I wish I'd put it in red or flashing signs right at the bottom there, it's a 2,200 basis point increase in ROE over the last 5 years. So I'm very proud of what the team has done, and that's truly a great work by the team.

So since 2020, we've delivered a consistent track record of strong results across the financial metrics, as you can see. We're driving momentum at both the top line and the bottom line, supported by double-digit growth in assets, reflecting robust client demand and the strength of our diversified model. I'm very proud of the progress that we're making as a more efficient and scalable business. We're continuing to improve our efficiency ratio through disciplined execution, balancing investment in client experience and strong cost and risk management. Our discipline is translating into leading efficiency improvement versus our peers, reinforcing our confidence that this performance is not short term, it's durable and it's absolutely built to last. And this is reflected in our sustained top-tier returns. Our path to 40% plus organic ROE starts with growing and deepening client relationships. By expanding coverage and equipping our frontline professionals with better tools and integrated solutions, we drive higher share of wallet, stronger client retention and sustainable revenue growth. At the same time, we're innovating for business value. We're investing in AI adviser enablement tools that increase personalization and improve productivity, allowing our advisers to do what they do best, which is spend more time solving problems for their clients. Now I'll speak to each of our 3 priorities, starting with how it all comes together through one client, followed by innovative solutions that prepare us for future growth and create opportunities to provide overall top-tier client service. We're operating in an absolutely historic period of money in motion. All of us have never seen the amount of money in motion that's happening right now. And so our focus at BMO is to show up in the right moment with the right advice.

And we're seeing that momentum across our priority segments. The largest piece of this is the intergenerational wealth transfer. It's a defining opportunity for all of us in this business. And planning-led advice is deepening trust as families navigate what they're going to realize are more and more complex transitions of this massive wealth transition. So today, private wealth has a next-gen connection with more than half of our current client households. We did this deliberately. We realized how important it was to get that connection with that next-generation household so we can position ourselves to retain assets and grow with the next generation.

For high net worth business owners, same thing. Succession planning is critical. We delivered over 1,200 succession plans, strengthening loyalty and outcomes. When commercial and private wealth work together, the impact is clear. It actually drives 2.5x higher private wealth revenue when those 2 teams work together. In the Women Investors segment, advocacy is strong with NPS of 80, driven by trusted advice across BMO Private Wealth, BMO for Women and Burgundy Asset Management's long-standing leadership with women investors and advisers. And importantly, you may be surprised to know what kind of momentum we're having with younger clients. So actually, in private wealth, where we have an older adviser profile, our highest NPS scores are with clients under the age of 35. Also within Investor line, our fastest-growing segment is clients under the age of 35. So our offerings are resonating with the younger client base. So you've heard from all of us that one client is foundational to how BMO serves our clients and drives growth. It's how we connect clients' deposits, investments, lending and advice into a single expanding relationship. And this creates better outcomes for clients and more value for the bank. Across personal banking right now, there are approximately 4.7 million customers who do not have a wealth relationship but have deposits and accounts with BMO.

What does that represent in dollars? 4.7 million customers. That's a lot of people. What does that represent in dollars? It's $110 billion of personal deposits that are currently on our books, not currently invested with BMO Wealth. So these are existing clients where some of the institution has already established trust where we can introduce some core investment solutions and then over time, advice and planning that deepens the relationship and grows the share of wallet. The opportunity is just as compelling we see in -- across business banking, commercial as well as capital markets. In those 3 groups, there are 600,000 business entities linked to BMO. And within that, at least 900,000 associated role players, people like the owners, the executives, decision-makers at these shops, where there's not currently a BMO Wealth relationship in place. So we've got 1 million customers, and we have 1 million high-value relationships already on the books that we can continue to help and solve more problems for and provide more solutions for. We know the impact of capturing these opportunities. Shared relationships drive deeper engagement and stronger loyalty. You heard Daryl say that we can see the loyalty scores increase.

I can actually quantify that for you with a wealth relationship. We actually increased NPS by 30 points when we're able to add the wealth relationship. So this is one client at work. It's a compounding model that strengthens every business and reinforces wealth's role as a growth engine for the entire bank. We're absolutely deliberately scaling, and I'll give you a few examples of how we're doing that. We'll start with Investorline. We have found that Investorine is a powerful front door into wealth and a proven catalyst for deeper relationships and stronger growth across the bank. It delivers high digital engagement and creates natural pathways into advice and planning as clients realize over time that their needs evolve. So the impact is material. When we see a retail client add an investor line account, in the very first year, we see 90% increase in asset growth. When those investor line clients add private wealth, we see a 110% increase in asset growth, again, in the very first year. So the takeaway is simple for us. Digital entry creates choice, shared relationship creates growth. And of course, we get one client wins as a result. Over time, clients do need more complex solutions. And when that happens, they want trusted personalized advice from professionals who understand their full financial picture and equally as importantly, can bring the entire breadth of the bank to bear. This is where our BMO Private Wealth has truly fundamentally differentiated themselves. We have built one of the most scaled and trusted private wealth franchises in North America, serving more than 450,000 clients right now through 1,500 frontline professionals. We proudly hold a 15-year track record as the #1 private bank in Canada and the #2 market share in private banking and private investment counsel.

Clients experience this through our client promise, with the wealth plan at its core. And for us, we feel the wealth plan is not just an overlay or an extra, but it's actually a catalyst for us. It allows us to identify needs, align solutions and then coordinate the delivery of those solutions across the wealth platform and the bank. What differentiates us is the plan, but it's also the plan and how we effectively follow up on the needs identified by the plan and do it in a fulsome and integrated fashion. The impact is clear. Households with the financial plan deliver 22 points in higher NPS and represent a plus 20% advantage in share of wallet.

So to deliver consistently on our client promise, we're investing deliberately in our front line and the tools that support them. So our teams can spend less time navigating complexity and more time focused on what they do best and what they enjoy doing, which is helping our clients and solving problems. Of course, talent is central to this strategy. So we're adding adviser support, professional investment planners, estate and insurance advisers and our recent acquisition of Burgundy adds additional top-tier talent, enhancing our ability to serve clients from emerging wealth to ultra-high net worth. I'll now turn to how innovation powers this model and where global asset management and insurance truly excel. Global Asset Management is a clear engine of innovation and performance for us.

We deliver winning solutions at scale, are the fastest-growing mutual fund provider with a leading position in alternatives. In F '25 alone, we launched more new solutions than any other Canadian competitor, demonstrating both speed to market. It's not easy to bring that many new ideas to market. So we've got to be fast, but also disciplined, relevant product development. That innovation is translating into results as performance continues to strengthen. The share of AUM in the top 2 performance quartiles increased from 66% to 84%, while total AUM has grown 18% annually since F '22. Now you might say that's fine. The market has been great.

You grew 18%, good for you. What are your net flows? Well, in F '25, net flows were 12% of beginning AUM. Now that's well above global industry standards, not just Canada and top quartile growers, and meaningfully ahead of every one of our competitors, none of whom, in fact, exceeded 7% net flows in F '25. So we're very proud of the team and their work. So this performance differentiates the entire wealth franchise because those solutions will equip advisers with market-aligned solutions across passive, active and institutional grade offerings.

Our investment solutions consistently deliver award-winning outcomes. They're being recognized externally. We earned 12 Lipper fund awards last year and 27 Fundgrade A+ awards. So we're growing assets. Your next question might be, are you doing that profitably? So we are capturing value. So the combination of performance, product breadth and disciplined innovation allows us to grow profitable AUM. So for example, right now, we're neck and neck on AUM revenue. for #1 for ETF AUM revenue, even though the #1 position assets are 24% higher than ours. So our ROA is higher than even our top competitors.

Turning to insurance. Innovation is embedded in our DNA with industry firsts, including Canada's first financial institution-led pet insurance offering. We launched this through our new insurance retail marketplace, a scalable self-serve platform that expands our direct-to-consumer model.

We see significant upside in new growth channels, particularly through brokers and Blue Rewards, where affinity-based pricing and partnerships drive profitable market share expansion. Innovation becomes our competitive advantage when we solve client problems at scale, and that's where asset management and insurance are focused. In Asset Management, we accelerate growth by designing solutions to solve for identified client needs. Insurance uses a similar playbook. With a digital-first distribution model, we're scaling differentiated solutions across retail and workplace channels while modernizing underwriting and workflows to unlock capacity. This is how we scale innovation, leading with client needs, defining clear priorities and setting measurable targets. We'll turn to AI. So across wealth, AI is already transforming how we work and improving how we serve clients. AI is taking friction out of workflows. It's allowing advisers to offload lower-value manual work and focus more time deepening relationships, solving complex problems and growing their practices.

So for us, AI is not about replacing human advice. Trust and relationships absolutely remain central to what we do. So AI is about amplifying adviser capacity, productivity and effectiveness. We're seeing this in action. tools like Nexa and Rover give advisers and insurance agents real-time access to policy process and underwriting intelligence, enabling more personalized advice but at scale. AI is also curating needs-based offers, targeting approximately a 10% uplift in acceptance rates, enhancing credit risk reviews and automating workflows, underwriting and credit triage. Importantly, some of these initiatives are already expected to return dollars this year. Across wealth, AI tools are delivering more than 400,000 assisted hours a year. And for [indiscernible] teams, we're already freeing up roughly 1 full working day per month. In key areas, we're targeting 2x capacity for account opening and material reductions in manual processing.

Our objective is clear: better client experiences, strong adviser productivity, scalable efficiency across the wealth platform. Rover is a clear example of AI delivering real value in BMO Wealth. It's an AI-powered digital assistant that gives insurance advisers real-time access to policy, process and underwriting intelligence. Very proud to say that this was developed 100% in-house and it's the first to market in Canada. It's now available to 100% of our insurance advisers. And so far, it's already supported over 10,000 adviser queries. The result is tangible for us, faster turnaround times for our advisers, more confident client conversations with their clients and better outcomes for the clients and for us. Rover has supported record levels of premiums for BMO and contributed to market share gains already. Please take some time today at the tech showcase to see Rover.

It's featured there, and they'll be happy to walk you through how it works. So for us at BMO Wealth optimizing is always on and it's intentional. We simplify and reengineer to recreate capacity. We then reinvest that capacity into growth, technology and better outcomes. Over the past several years, we've reduced complexity by streamlining the leadership roles, consolidating centers of excellence and digitizing workflows. The biggest step forward is our wealth replatforming. We're replacing more than 40 legacy systems with a simple, modern cloud-based platform. The result will be more time for advisers to spend with clients, more consistent advice and new capacity to grow while making sure that we protect margins and ROE.

This is how we optimize to reinvest, simplify today, modernize for the future and sustain value creation over the long term. In summary, we've built a business anchored in world-class client experience. Our teams are deeply connected to each other, enabling us to deliver integrated solutions for all our clients. Our sole purpose is to simplify complexity for clients, make it easy to access all of BMO while making it equally easy for our teams to deliver coordinated, high-quality solutions and advice. That clarity of purpose underpins everything that we do. It's what allows wealth to act as a catalyst for the bank to deepen relationships, build trust and to consistently create value for clients and for the bank. We will contribute to the bank's strategic agenda by directly improving our already strong ROE, but also through compounded profitable growth and increasing the contribution of wealth to the enterprise's overall earnings pool. We succeed in our wealth business by building trust through expert advice and innovative solutions, resulting in enduring relationships. That is how we compound value for clients and how BMO Wealth continues to grow enterprise value. Thank you very much.

Thank you, Sharon, Matt and Dell. We are going to take another short break here. We're going to start promptly at 11:40 with Piyush, then Rahul and our last Q&A session. [Operator Instructions].

[Break]

Thank you. -- all right. Welcome back, everyone. I made them wait. That's one of my favorite songs. We are now going to wrap up the day with risk management and our financial overview. So as you're sitting down, I'll give you a couple of minutes, and then I will invite Piyush Agarwal to the stage.

Thank you, Christine. Good morning, and it is great to see everyone today. I'm Piyush Agrawal, and I've been Chief Risk Officer for BMO since November 2022. And prior to this role, I spent more than 2 decades in global financial services leading large-scale operations and enterprise risk management across multiple regions. From day 1 in this role, we've been very focused. We've made targeted investments to strengthen our risk management capabilities, which has served the bank well in navigating a dynamic current environment. Our balance sheet has grown to $1.5 trillion. This is a source of strength and scale, providing the foundation for ROE expansion.

The deployment of our assets is guided and supported by a strong risk framework and capital discipline that are foundational to how we run the bank. Risk appetite guides how we consistently allocate capital, construct portfolios and pursue disciplined growth. We operate with an integrated approach where capital allocation is grounded in returns, liquidity and risk appetite. And over the last several years, we built a rich toolbox that we deploy proactively to assess and manage exposures and emerging risks.

We've invested meaningfully in core capabilities, including emerging risk identification, stress testing, risk mitigation tools, modeling and AI. And increasingly, data-driven insights are enhancing both our ability to manage risk and loss potential and our ability to optimize risk return decisions across the portfolio, all of which strengthen our ability to effectively manage risk through different environments. At the heart of everything you have seen and heard today from my colleagues and fundamental to our confidence in delivering sustainable growth is our strong risk culture, which is built on accountability that lives with everyone at BMO.

Risk ownership is equally explicit and embedded. Every business, as you saw today, owns the risk in the portfolio, supported by a strong second line challenge and transparent escalation. This shared ownership enables risk to be identified early and managed with discipline. Our loan portfolio is deliberately and well diversified across provinces and states with 58% in Canada and 40% in the U.S., and it's further diversified across businesses, segments and products.

Disciplined underwriting and robust portfolio management underpins consistent through-the-cycle earnings power. We are focused on long-term sustainable growth, and our growth has been strategic, not concentrated, ensuring that our decisions today support resilient performance through all environments. The bank is well capitalized and reserved for even the harshest events, including severe tail risk scenarios where demand for capital is not allowed to exceed the supply. And this level of resilience is reflected in the enduring strength of our portfolios, particularly in commercial banking, where we have a long-standing position and deep expertise that differentiates us. We're a top 5 commercial lender in North America, serving 56,000 commercial clients and more than half of our wholesale portfolio is investment grade. We differentiate through deep sector expertise in high-value verticals such as commercial real estate, food and ag, dealer finance and financial institutions and through top-tier products and advisory solutions, including asset-based lending, equipment finance and mid-market M&A. This commercial strength reflects who we are, a bank that has strong underwriting standards, makes deliberate portfolio choices and supports clients through cycles over decades and in some over 100 years. Our performing allowance stands at $4.6 billion, providing strong coverage for our performing loans above peer average, and our impaired book remains stable at 1%. Following elevated PCLs in '24, the credit normalization path towards our long-term average PCL in the mid-30s is well underway, driven by proactive targeted actions. These actions include agile portfolio management and selective derisking in certain segments, the deployment of risk transfer transactions to actively manage concentrations and tail risk risk-informed capital optimization and a proactive and strong workout process led by our specialized teams with deep industry and restructuring expertise. These actions are delivering results. We're seeing positive migration trends, lower watch list levels and reduced impaired formations. The U.S. economy continues to demonstrate resilience anchored by expansionary fiscal policies and supportive monetary policies and AI investments. In Canada, there have been meaningful steps to strengthen trade relations with important world economies. Additionally, the Canadian policy agenda is focused on stimulating economic growth through national priorities, particularly defense spending and large-scale strategic projects. These initiatives have the ability to drive investment, job creation and demand across multiple sectors. Uncertainty in the outcome of the Middle East conflict and resulting oil disruption over the last few weeks has the potential to impact the global economy, particularly if the situation is prolonged. We are closely monitoring these developments, and we continuously refresh our established stress testing scenarios to incorporate the latest dynamics. As this economic trajectory stabilizes and improves, combined with the enhancements we've made, we are well positioned to get to our mid-30s PCL over the medium term, in line with our 30-plus year record of strong credit performance. Beyond credit, we've invested meaningfully in operational resiliency, not just to protect the bank and our customers from threats, but also as a strategic enabler for a growing organization. Operational resilience is fully integrated into our operational risk framework, and we've strengthened our capabilities across all key risk domains. As part of this progress, we've advanced automation and digitization across our nonfinancial risk programs, accelerating our risk assessment and testing and improving the speed and our consistency and reliability of risk oversight. A significant part of our evolution involves AI-enabled risk management. We are leveraging AI in areas such as AML, where digital workers and agentic AI are being deployed to accelerate pace. This augmentation is already reshaping our AML processes, reducing false positives, improving coverage of client activity and supporting higher risk clients and transaction monitoring. We're also deploying AI across fraud and cybersecurity, enhancing our ability to protect both the bank and our clients. We see our nonfinancial risk management as a competitive strength. It is embedded in our culture and our risk appetite framework, and our investments have strengthened operational resilience and had a positive financial impact. Net income has benefited from lower operational losses, which are consistently down 40% over the first past 5 years, and our capital reflects a lower than peer internal loss multiplier of 0.8x.

To conclude, BMO has strong frameworks and programs to manage current and emerging risks effectively. Our risk discipline supports 3 key outcomes: lower credit volatility, more stable capital generation and stronger through-the-cycle ROE. And at the center of this is our risk culture based on a commitment to doing what's right. And I will now turn this presentation to Rahul. He and I and our risk and finance teams work closely together to oversee and maintain strong capital, strong liquidity, both of which are the foundation for strong and stable returns. Thank you.

Thank you, Piyush. Good morning, everyone, and thank you for joining us here today. So I'll wrap up the day by walking through our clear and sustainable path to 15% ROE exiting 2027, which is grounded in execution as demonstrated over the past year and designed to be resilient through the cycle. I'll focus on 3 things: first, the progress which we have made so far; second, the specific levers to achieve our target of 15%; and lastly, why we are confident that the target is sustainable. Our path to 15% ROE is driven by 6 reinforcing elements. First, we've made strong progress in 2025 as that builds the momentum, and it matters because it all starts with results. Second, a resilient balance sheet is at the foundation of all our business strategies. Third, as you've heard from all the business leaders, we are driving diversified revenue growth across all businesses and not relying on a single engine. Fourth, we are building on our long-standing track record of cost discipline to reinvest in growth and improve efficiency.

Fifth, we have taken deliberate actions to ensure that we deliver a consistent credit performance. And finally, higher returns translate to stronger capital generation, giving us flexibility to deploy capital for growth and return to shareholders. So let me start with execution. We set clear ROE targets at the end of 2024. And in 2025, we have delivered peer-leading ROE improvement of 150 basis points year-over-year and EPS growth of 26% -- more importantly, majority of this improvement was driven by strong core operating performance, including the optimization efforts in the U.S. banking, as you heard. Performing PCLs were lower as we build reserves in 2024.

And we generated almost 90 basis points of CET1, which pressured returns, but it reflects impact of capital optimization of segments and relationships that didn't meet our risk-adjusted return expectations. And this positive momentum has continued in the first quarter of this year with underlying ROE of 13.1%, up 180 basis points year-over-year, largely from core operating performance as well. As we look ahead, we have a clear path for achieving sustainable 15% ROE exiting 2027 and manifesting all those benefits in 2028 and beyond. And this path depends primarily on BMO specific execution levers, which you've heard from all the business leaders. These levers are the building blocks of the ROE walk on this page, and they are core operating performance, PCL normalization, buybacks, net of capital generated. Core operating performance is expected to deliver about 250 basis points of ROE improvement, almost half of which is from U.S. Banking and is driven by PPPT CAGR of about 8%.

Our PPPT growth is led by U.S. banking profitability improvement, consistent performance in Canadian P&C, Capital Markets and Wealth and positive operating leverage. This is made up of 6% revenue CAGR, 4% expense CAGR, resulting in efficiency ratio below 54% Impaired PCL normalization to mid-30s is approximately 100 basis points of ROE benefit. Our ROE enhancement doesn't factor in meaningful performing PCL release or BI. Buybacks net of capital generated will contribute to about 50 basis points of ROE improvement as we continue with our buyback program, offset by higher capital generated while maintaining a strong CET1 ratio. In the following pages, I'll spend some more time giving details of each of these building blocks. Our path is sustainable and reinforced by our control on these levers and will generate low double-digit EPS growth in the near term. Our sensitivity analysis, as you can see on the right side of this page, shows the impact of these levers on ROE and we have pressure-tested business plans for potential risks and identified mitigating actions to manage the ROE building blocks with flexibility to achieve 15% ROE exiting 2027.

In summary, this ROE improvement is primarily driven by core operating performance and ROA improvement. As a result, it leads to sustainability of earnings as it comes from foundational enhancements like deposit mix, recurring fee penetration, disciplined capital allocation and cost management. Before moving into the details of our ROE building blocks, it's important to recognize that U.S. Banking is the largest building block of our path to 15% Aaron shared earlier the U.S. banking strategy, which will lead to improvement in 3 specific areas: First, revenue growth, driven by loan and deposit growth in our priority markets and improved fee penetration and deposit mix. Second is efficiency. As we scale our U.S. business and optimize the unified structure, the efficiency moves towards low 50s. And third, disciplined risk and capital allocation, with PCLs moderating to mid-30s and more efficient RWA usage. A combination of these levers will deliver 12% ROE for U.S. banking in the medium term, which is equivalent of about 18% ROTCE, which is top quartile among the U.S. peers.

As we earn through our goodwill, it is important to measure return on marginal capital for which ROTCE is a good metric over the longer term. Our strategies are anchored on a strong, diversified and stable balance sheet, which provides resilience, flexibility and higher returns through the cycle. We have grown our balance sheet over the past years, both organically and inorganically, with deposit growth outpacing loan growth. These strategies are deliberately designed to deliver improving core deposit funding mix and reduce reliance on wholesale funding.

Our business and risk strategies are focused on achieving a highly diverse loan portfolio across sectors and geographies and is at the core of capital allocation during our planning process to enhance risk-adjusted returns through the cycle. We've maintained our liquidity and capital ratios comfortably above our regulatory minimums and at levels where we manage the balance sheet and capital efficiently and keeps us well positioned through the cycle. And we have strong allowance coverage, and that will support expanded loan growth. In summary, this balance sheet strength enables growth and higher returns while staying disciplined on risk, capital and liquidity.

Now let me unpack each of the building blocks of our ROE walk. I will start with the first subset of core operating performance, revenue, NII, NIR, expenses, and then I'll go to credit and capital. Starting with revenue, each of our businesses are executing well-defined strategies to accelerate revenues for the same dollar of capital deployed, including deliberate weighting towards noninterest revenue. We aim to grow revenues at about 6% CAGR through fiscal 2028. Growth is broad-based across NII and NUR with meaningful contributions from each of the businesses, balance and fee mix expansion in U.S. banking, capturing money in motion via one client in wealth, deposit-led primacy and advice-based penetration in Canadian P&C and expanding fee pools and commercial anchored one client in capital markets.

This diversification supports sustainable profitability for the franchise. On noninterest income, growth is driven by 2 primary levers: balance sheet growth and modest margin expansion. We have positive momentum exiting fiscal 2025, and we expect to achieve mid-single-digit CAGR through 2028 for NII.

Our key growth levers for NII are clear: reaccelerating loan growth now that portfolio optimization is largely behind us, driven by new client acquisition and expanded coverage model. We are growing core operating deposits through targeted coverage in priority markets and client segments. You heard earlier today from Matt, Sharon and Aaron about our enhanced focus on new client acquisition and deepening existing relationships to acquire core, sticky granular deposits. And we continue to optimize margins through ladder reinvestments, deposit mix improvement, disciplined pricing and proactive interest rate risk management. These actions should lead to sustainable and modest NIM expansion over the medium term and reflects the business improvement in deposit mix. Having said that, our guiding principle for interest rate risk management continues to be NIM stability through the cycle. As a result, the NII growth is a volume, mix and discipline story. Noninterest revenue growth is based on our strategy to deepen existing client relationships and new relationships with advice and solutions to deliver exponential financial returns on the capital deployed.

This creates durable revenues, and we expect mid-single-digit CAGR through fiscal 2028. Execution priorities are focused along the themes which you've heard earlier today. The core here is one client, converting commercial personal clients into wealth relationships and deepening commercial relationships into capital markets. We have industry-leading product capabilities in treasury and payment solutions, reflecting success of deliberate investments in this space over many years. These capabilities will scale TPS fees as we offer these products to our new clients and higher penetration with existing clients.

And lastly, as we scale fee pools in investment banking and wealth management businesses. Moving on to the last subset of core operating performance, that's cost management. We have delivered positive operating leverage in 9 out of the past 10 years, demonstrating disciplined cost management across cycles. We are leveraging this long track record to optimize cost to reinvest in talent and technology and simultaneously improve efficiency through positive operating leverage.

Our optimization efforts are focused on structural cost improvement, including increased automation through AI and digital adoption, middle and back-office optimization and additional efficiencies from a scaled U.S. platform. We expect expenses to grow at about 4% CAGR through 2028, and these actions will enable us to deliver 2% operating leverage and drive efficiency ratio below 54% by fiscal 2028.

Turning to the second lever of our ROE path, and that's credit. Our focus is consistency and discipline. For years, credit risk management has been our differentiator, and we are confident that our deliberate actions will deliver a consistent credit performance through the cycle. As Piyush detailed earlier, we expect impaired PCLs to moderate to mid-30 basis points in the medium term. Importantly, risk discipline is embedded in how we allocate capital and how we develop business strategies to maximize the risk-adjusted returns through the cycle.

Now the last lever, and that's capital. Higher ROEs and disciplined capital allocation are expected to drive stronger capital generation. Organic capital generation increases from approximately 90 basis points annually to about 125 to 135 basis points or roughly $2 billion of additional deployable capital each year. Now that gives us additional flexibility to support organic growth, pursue selective inorganic opportunities, execute buybacks and maintain sustained dividend payout of 40% to 50%.

In addition, we have elevated our rigor to regularly recycle capital away from low-returning relationships to opportunities which meet our risk-adjusted return expectations. This capital strength and flexibility are foundational to our operating model. In our path to 15%, we expect CET1 to be between 12.5% and 13% exiting 2027, giving us additional flexibility to deliver our ROE target. Now this page highlights that each of our business play a defined role in our journey to enhance returns and accelerate EPS growth. While all of them contribute to higher returns and growth, but as we think about them as a portfolio, each of them has a primary role to play.

Some businesses are primarily ROE enhancers. They generate strong returns and anchor our overall profitability. Canadian P&C and Wealth, our highest returning businesses and delivering over 50% PPPT, bank's PPPT primarily fall in this category. And some businesses are primarily EPS accelerators. They scale earnings efficiently and drive operating -- positive operating leverage. U.S. Banking and capital markets fall in this category, given their strong growth potential in their targeted footprint. Together, they work as a portfolio.

We allocate capital and resources, manage risk and drive execution so that the combination delivers strong EPS growth and higher ROEs for our shareholders. And this balance underpins our confidence in achieving 15% ROE exiting 2027. To recap, we are confident in delivering 15% ROE and 18% ROTCE exiting 2027 given our control on the levers, balanced assumptions and flexibility in our path.

Our ROE building blocks of core operating performance, credit and capital, our U.S. banking path to 12% ROE, 8% PPPT growth, less than 54% efficiency, mid-30 basis points PCL impaired and strong commitment to capital ratios to support profitable RWA growth and share buybacks, resulting in an EPS growth of low double digit in the near term while remaining committed to our medium-term objective range of 7% to 10%. In closing, BMO has a differentiated franchise. strong execution plan and a clear path to deliver 15% ROE and 18% ROTCE exiting 2027. I'm confident that our strategies and execution plan, coupled with differentiated value proposition will enhance and sustain shareholder value through the cycle. And with that, I'm going to hand things back to Christine.

Great. Thank you, Rahul. We're just going to get set up now. I'm going to invite Darryl, Sharon, Matt, Dell, Piyush and Rahul back to the stage for our last Q&A session. I'll remind you again, if you could raise your hand and wait for the microphone to come to you, state your name and your firm name before you ask the question. We'll just give them a couple of minutes here to get seated.

All right. Thank you. I'll go over here, please, number one.

A couple of questions. Steve Boland from Raymond James. The first question is on, I guess, for risk, AI, large discussion today, obviously, a big focus. I'm just curious on adjudication. When you, I guess, parallel run your models, how long is that? And when you back test and I know this will be difficult to quantify, but what's the success rate when you do back test the models once they're implemented?

So this is AI across the bank. That's the question.

No, you're talking about the portfolio, right?

Yes, mostly adjudication, so loans, mortgages, things of that sort.

Yes, certainly. So let me begin. Across the board, disruption risk and obsolescence is part of the underwriting ethos in any credit. that's been going on well before AI. So as technology changes have been coming, those have been part of the credit work happening. That's accelerated with what you're seeing in the news across. And so if I narrow that down, we've been using AI to give us more insights. The work has started. It's not complete by any chance. We're seeing success in some parts that I'll talk about. But just on the portfolio piece, our software business, which has really been the target in some of the media is very small. It's less than 1%. And in fact, all of these are companies who have been clients of ours for many, many years. These are companies we're all familiar with, cash flow positive. As our bankers talk to these clients, what you're seeing is that the clients themselves are using AI to improve their own businesses. So this obsolescence risk, in my view today is a little overdone. This is going to help businesses. Over time, it may accelerate. But overall, I don't see that as an immediate impact into PCLs in any way, given that small-sized portfolio. I do want to touch on one more piece just to give you a risk management view. So all of us, as you heard today, are using AI, bringing it in, testing it out. We've got a whole risk framework around how we introduce AI to our clients or internally. But just in the risk space, I'll give you a financial crime example, AML, I talked about that a few minutes ago. There are so many pieces of an AML where AI has been fantastically useful. One, we get lots of alerts through our algorithm. AI has been able to take down the number of false alerts already by about 10%. Now that's minor. I'll give you a bigger example is when these alerts go into case dispositions, you have to do an adverse media search. That used to take about 180 minutes per search. That time has come down to 20 minutes. So you can see the effectiveness of AI through different realms. And again, there is large amounts of work happening across the bank risk business as we roll out more AI. So I give you the software portfolio piece, but I also wanted to compound that with some of the AI successes we are seeing.

Thank you. Mike here in the front panel.

Mike Rizvanovic, Scotiabank. Starting with Matt, I wanted to ask you about the ROE upside potential that you have. It looks like most of it's just PCL normalization, but I'm surprised that there isn't more of a focus on the cost side. And the reason is because we've seen digitization come such a long way. You're talking about AI changing the business. Is there maybe an opportunity to gradually cut some of the branches that you have in your network in Canada? I'm just surprised that if the revenue side doesn't amplify or grow as expected, maybe that's where the shift to the cost might start to become a bit more apparent. But what are your thoughts on the cost opportunity on the branch network, just given the digitization? And I'm sure you benchmark versus some of your international peers in terms of other jurisdictions, what they've done on the branch side, which hasn't really come into Canada yet, but might in the future? And then one for Dylan, if I may. Maybe just talk a little bit about the -- like you mentioned how your Net Promoter Score is very strong on the under 35s. Are you concerned at all at some of these nonbank platforms that are making some headway in the Canadian market? And why or why not?

Yes. So I'll start off with your first question. The way I would break this down is, number one, if you do look at our ROE walk, there's really 3 big drivers within that. One is consistent revenue growth. The second is sustained positive operating leverage. And the third, as you point out, is credit normalization. That's obviously off a strong base. The returns for the business right now are strong and will get stronger over the course of time, consistent with what we shared. When you go to the cost story in particular, I'd say a couple of things. Number one, you heard me start off by saying our focus is the power of human and digital. The 2 things together combined or how we deliver on our value proposition and commitment to our clients. That remains front and center and will continue to remain front and center. You've asked about branches specifically. Branches are really at the heart of that proposition and that commitment to that value proposition for our clients. When we think about the cost picture overall, there is a lot of cost in what I would describe as middle and back office and costs associated with routine servicing. as that adoption curve scales and as the AI usage scales, that's where we'll see those benefits, which will be deployed in 2 ways. One, of course, is to support the operating leverage. But the second and probably the thing I'm most excited about is better conversations with our clients where our people are focused on advice and guidance delivery as opposed to, in some cases, routine servicing like what you see today.

On the question on the competitors, so it's a great question because it is something that we are concerned about, but became concerned about a number of years ago. So we've had time to react. We've been reacting. So if you go back 4 years, if you looked at the App Store for [indiscernible], we would have had a 1.5 score because we just weren't focused necessarily on getting ahead of some of these things. So we dramatically changed how we approach the clients and how we interact with the clients. So our App Store score now is over 4.5. We invested heavily in our active trader platform. So if you look on our active trader platform, you go on our 5 star, you're going to have a beautiful black background like you're on Bloomberg and it's the best active trader platform in the country. So we're seeing take up on that. Is it resulting in net new asset growth? Yes. So if you look at Q1, we actually had net new -- positive net new asset growth in our Investor Line platform. So linking what we've done with InvestorLine to improve the experience for the client and being much more aggressive now with Matt and his team on the funnel, making sure that we're getting in front of that. I mentioned those 4.7 million clients. Many of those people are a funnel into the InvestorLine platform. So we are now marketing together with Matt's team to get that funnel going. So we feel good.

Okay. I'm going to go over here [indiscernible].

Just a few questions for Rahul, I guess. I'll wrap at fire them. The core Tier 1 assumption underlying your ROE targets, is 12.5% Second, I see mid-single-digit loan growth is contemplated in this plan. Would the number be the same for risk-weighted asset growth? Or are you anticipating lower risk density in your -- in that mid-single-digit loan growth? And then lastly, for the U.S., because it's the biggest contributor to the ROE expansion, is there a reason why the ROTC expansion, like it's around 450, 460 basis points is higher than the ROE expansion?

The 3-part question. Yes. So I'll start off with the CET1 ratio. So what I mentioned was we expect our CET1 to be between 12.5% and 13% as we exit 2027. Our management operating target remains 12.5%. However, as we've looked at this path and optimize this path at this point, it looks -- will be between 12.5% to 13%. So that's point number one. And that gives us additional flexibility in our ROE path. And looking at the capital, we look at a lot of things. It's an output. We look at the growth demand from the businesses. We'll look at our own capital management, which is buybacks and capital position, what's happening in the environment. So we look at all those things. We've looked at all our ROE path and feel 12.5% and 13% is the range we think we'll be exiting 2027. Your second question was about...

RWA density.

Yes. about mid-single-digit loan growth, RWA density is going to be in the same neighborhood. We've been very cautious. And the reason for that is our path is very much focused on ROA and EPS improvement and more focused on share of wallet and deposits and fees. And in that fashion, it's an optimal level of loan growth, which is reflected in an optimal level of RWA growth. So very correlated. And your third question was the ROTCE. Do you mind just repeating that again? Is it the correlation between U.S. ROTCE and ROE?

Yes. Slide 152, just I'm doing 2028 minus 2025 adjusted, and it's almost 100 basis points higher, the expansion for ROTCE.

Yes. I think that's a math which probably I can take you offline and walk you through. I understand. I think what happens is ideally you would have thought over a period of time that gap should shrink, but also as you are generating profitability, the gap between ROE and ROTCE only on the U.S. basis will actually expand. Maybe it will be easier for me to just draw it and explain it in the math.

Trust me, my team when we showed me that, that was my first question. So I'll probably have to walk you through it.

Number 2 here, Paul?

Paul Holden, CIBC. A couple of questions for Sharon. So first in the presentation, I was a little bit surprised to see the deposit share in Canada versus the loan -- the loan share part wasn't surprising the deposit share was. You kind of highlighted roughly a 600 basis point gap. So what's the background behind that? And then why not a little bit more of an aggressive deposit growth expectation versus the mid-single digits there? And then second question, I think the tokenization part you highlighted is interesting. So a lot of talk around stablecoin and change in payment system in the U.S. more broadly. So is this a little bit of a first step in terms of getting ahead of that trend? And maybe you can give us some flavor on what you would expect in terms of how that -- the payment and deposit ecosystem in the U.S. may evolve?

Sure. So thanks for the question. On the deposit market share, starting with the market share, we actually have been quite ambitious in growing. We've narrowed the gap to #2 by like 600 basis points over the last 5 years as a result of a deliberate strategy. When you look at the mid-single digit going forward, that's more an assumption around the fact that as the economy improves and businesses start to invest, a lot of people are holding excess deposits right now, keeping their powder dry. So once they start to deploy that, industry-wide, we don't expect deposits to grow at as high of a rate. What I would say is if they do, we'll get our share of those, particularly in the operating deposit space where we're #1 in operating deposit growth over the last 5 years by a country mile. And then we're really excited. First, I want to say on the CME, the reason that they picked us for that project is because of the strength of the relationship. It's a Chicago-based client. We have an excellent business and Aaron and Tony is here, years of dealing with them as a trusted partner. And so that's what gave us the opportunity. And for us, First of all, being integrated into that ecosystem with many of our clients are partners of the CME. But also, this is going to be a bigger part, tokenized assets in all businesses, not just deposit businesses, is going to become increasingly important. So it's really important for us to take an innovative approach to this. And we have a strong team working on this, both you would refer to the U.S., but I would say also in Canada. And primarily, we think the focus will be on starting probably interbank exchanges or things like real-time settlement. The other one you hear is cross-border payments. I think there's other ways that might be easier to solve that. But I think tokenized deposits will be more prevalent than stablecoin in North America would be my kind of base case view of the future. But it's really exciting, like it's going to revolutionize how companies can manage their treasury. So it's a natural place for us to show leadership.

Great. Thank you. [indiscernible] down here at the front.

Ebrahim, Bank of America. I guess maybe one question, Darrel, for you. So when we look at the ROE targets, a lot depends on positive operating leverage, PDPP growth of 8% for any number of reasons, if the revenue growth environment turns out to be worse, just talk to us across the businesses, what's the flex? Or would that potentially delay the timing of achieving some of those?

Yes. Look, it's a good frame to think about the plan. So if you go back, I mean, Rahul had a Page 151, if you're looking to nerd out on more data at this point, that I always sort of ground myself in and look at where the degrees of freedom are in the ultimate delivery of the plan. And I hope that when people look at it because we certainly -- maybe up until a quarter or 2 ago, we would have had people say to us, that's pretty ambitious, and I can't make my model work. I can't get from basically 10% to 15% if you go back to the end of '24. I look at it now and say the credibility of a plan depends in some instances, at least any plan that people present to me on proof of concept, right? So where is my proof of concept? We had 12 quarters to deliver 500 basis points, I'm rounding, but it's pretty damn close to 500 basis points. And 5 quarters in, we've delivered 300 basis points, I'm rounding. So I'm 60% of the way through in 40% of the time. So can I get the other 40% and 60% of the time? Pretty sure I can. Point one. Point two, does it depend on big tailwind assumptions and heroic growth? We have mid-single-digit loan growth. We had 6% revenue growth, which drives out 8% PPPT with some positive operating leverage. does that feel like I'm pushing hard on a plan in order to get there? Not really when we've delivered positive operating leverage 9 times out of 10 over the last decade. So I say that as a frame because while your question says, well, what could go wrong, I want people to realize like we didn't put in heroic assumptions in order to get to that 15%. We tried to give you the paint by numbers as to how we get there with pretty reasonable assumptions. If revenues slow down, and reminder, that means we can't deliver 6% revenue growth, right? If revenues slow down, we can't deliver 6% revenue growth. Can we respond in other areas? I think we've shown pretty clearly we respond pretty well on costs. Credit will be what credit is. We're managing it super well, but we respond pretty well on costs. Ultimately, if that still isn't enough and we're in a really bad environment from a revenue perspective across the diversified businesses, Well, then does it become a timing issue? Maybe. But the destination is firm.

I guess maybe one for Sharon. When we think about the overlap between tokenization and AI, I think there is a case to be made that it removes a lot of friction from the system. And when you -- even in Alan's business in terms of capital markets, collateral liquidity, et cetera, just talk to us when you think about that, does all of this create a risk to lower cost deposits for banks and for BMO, but generally for banks because -- and over time, like do you think financial services sector in certain ways are rent extractors. So as more efficiency comes in, do you see a risk of just revenue and margins coming under pressure across a range of businesses?

Thanks for the question. My view on AI and tokenized deposits generally stablecoins is actually that they -- if they solve real client problems and you can help the client use this technology either to deliver for them better or to solve a problem for them like you saw with [indiscernible] with our API, we're solving a real problem. Even you can be a net winner in this because if you can react faster, and that's why going back to the previous question, so important for us to be involved in these things because people will pick who they're going to work with early and you can actually gain clients. For history, like is it going to end up with lower margins? I don't actually think so because I think it will be so much more productive and our costs will go down at the same time. So to me, I see this as an opportunity, both vis-a-vis competitors, but also just for the industry.

Mat, you were leaning forward. Did you want to get in on the consumer.

No, I think that was really, really well covered. And I think you asked a question about the connection between AI and this framework specifically. And to me, that's just another enabler to that frictionless commerce that I think you're alluding to. And I think to Sharon's point, that is direct client value. And these systems are run efficiently today. And what that means it's going to be even more efficient for a wider set of use cases tomorrow.

Panel one here at the front.

I wanted to nerd out on something that Piyush had said. So forgive me. And if this is too complicated and you'd want to talk about this separately, I completely understand. But I wanted to double-click on your commentary regarding private credit. The way you whittle it down to 1%, I just want to better understand that exposure. Do you mean 1% of the entire loan book is with sponsored private credit activity versus what you actually do in the trenches on private credit? Can you maybe just double-click on that for a moment? And then I'll probably have a follow-up 1 or 2, but I don't want to hog the puck here or anything if this becomes too.

I'll try the short version if that's okay, in the interest of time. And it's not an [indiscernible]. It's actually -- I know there is some misunderstanding or mischaracterization. So people look at the NBFI exposure that we've disclosed and they think that's private credit. No, that's not private credit. So the headline, the way you've said it, I'm going to acknowledge less than 1%, and it does not keep me up at night in the way we've managed our private credit exposure. So a little bit of expansion. We have $68 billion. It goes between $65 billion and $70 billion of nonbank exposure, depending on client utilizations. Half of that is an equity call subscription business that the bank has been for 30 years with 0 losses and it's going to be in the business forever, hopefully, with 0 losses. It's a low-risk, high-return business and the epicenter of the one client business we do. That's half of that. The next leg, we call finance companies. In the finance companies, you've got mortgage finance companies, well secured by mortgages, primarily Fannie, Freddie in the U.S. as an example. You've got consumer finance companies and then some business finance companies. It is this business finance companies that I'm pulling out that we do through either few BDCs, but mainly through our private credit partners, and we've publicly disclosed, we've got a partnership with Canal Road before that, Oak Hill. The highlight of this 1% of my confidence in the 1% and the quality is the structure, the collateral, we re-underwrite almost 80% of the loans they have. We've got concentration limits generally in what they can hold. And these have performed very well through the cycle. So the coverage I have, the bank has is exceptionally high. That's a strategic choice. We could have expanded into many more, but we do that business of lending to mid-market through what you heard today. So we're doing that ourselves. So therefore, we do very little of it through our private credit partners that we've selected, which is what that 1% is. So I just wanted to give you that comfort around the private credit. I do not expect we'll take any PCLs in that private credit setup as you think forward. And I'll come back more, and I'm happy to go through the nerdy answer if there's more to it afterwards.

There's going to be some more nerdy stuff we'll talk about later on. I mean conceptually, when we think about the entire private credit market, the reason why it exists and what people -- what many other U.S. banks will tell us is, look, the returns aren't there. There was a high RWA business. The ROEs are low. But here you are in the trenches doing it. I mean that's the one thing that I can't connect the dots is that you're actually doing mid-market lending without private credit sort of intermediary and somehow getting a high ROE on it. So that's probably a discussion.

So that's what you would have seen -- Sharon can talk about the business is mainly in the U.S. but mid-market lending is the center of the relationship, then the TPS, then the M&A, then the capital markets, then the wealth connection, automatically, the ROE goes up.

Yes, you're not wrong, [indiscernible]. I mean if you were purely a mid-market lending-only business, bank or otherwise, and you said, that's what I have to offer against the cost structure that includes distribution, includes the intellectual capacity, includes the products, that makes sense. But why are the ROEs where they are? That's what's different from private credit. It's because 70% of the time we do the TPS, a high share of the time we do all those other things, and that's how you drive that. The private credit only -- we -- some of the private credit where we "lost business" over the course of the last 10 years as a result of market share take was because someone will come along and say, I can chase a yield. I don't have to worry about any of those other things, and I'll go and take the asset, but I can't do anything else. We would then turn around and say to the client, well, I don't have to hold the asset. Can I still do all the other things? And they would say, yes, so that's good. My ROE just went up. So now we're in this phase of the cycle where we'll see what happens, right? Like we'll see if there's a shakeout and we take some of that market share back. But we're only going to do it if we're following loan growth, people ask me about loan growth. What's the growth objective in loan growth? The growth objective is the ROA enhancement and the EPS delivery. The loan growth itself, inclusive of taking back share from private credit, if we do, is not the end. It's a means to an end. It's part of the formula. Does that help?

Thank you very much for entertaining that. Real quick question for Mat. I just want to understand what your end goal or objective is with the Blue Rewards. I think that's the thing that's missing for me is if you really want to make a strong cards push into cards, you need that premium rewards program. So I don't think I grasped it. So is this going to be a primarily travel kind of card? What is the premium nature of this offering that you're bringing? I guess, mid-summer summer...

Mid-summer is when you'll really see it in action in our franchise, but I'll go to the very top of this thing. The goal of Blue Rewards fundamentally, when you think about our client base is to make real financial progress real every day, not just for card clients, but for everyday banking clients and for prospects, a program that will appeal to noncustomers as well. It's not specifically for the premium segment. It's for the whole population. There are aspects of it that will support the premium growth strategy. But equally, there are aspects of it that will start to reinforce the day-to-day value we deliver to Canadians. So you're asking what's the macro objective. Macro objective number one is there's a number of Blue Rewards collectors today that aren't currently our clients. And the way a very big number. And the way the program is being defined right now is in such a way that it will deliver incremental value to those collectors if and when they become our clients. So that's sort of source of value number one.

And then source of value number two, of course, is that we have a number of clients that are collectors. We want to entrench those clients deeply into our franchise. And the more we can deliver them value beyond their banking, the more likely we are to do that. Ultimately, how this all transits, I referenced open banking when I was talking through the pages. What we're really trying to do here is drive more engagement day-to-day with our clients through a fulsome offering that includes, obviously, all of our core product lines, but also the value we can deliver through Blue Rewards. When you allude to somewhere, the thing we're really excited about is plugging it into our app, plugging it into our experience and our clients will really see that power.

Any other questions? Another one #2, please, down at the front.

I guess just maybe, [indiscernible] for you. There's been a lot of macro volatility over the last month. Just address for us, one, when you think about Canada, are you seeing any escape velocity in middle market businesses? Are they gaining more confidence to invest and hire? Like will we truly have a better '27 versus '26? On the U.S. side, have you seen any loss of momentum in activity? I know it's very recent, but over the last 3 to 4 weeks around decision-making around M&A, IPOs or even clients borrowing?

Yes. I think it's early, Ebrahim. If you look back before the 29th of February, if you asked me this question on the 28th of February, I would have said we're seeing some risk on behavior, some capital formation, some confidence in sort of putting aside the noise of if you look at Canada, U.S., for example, the trade tariff negotiation and let's get on with it, right? I think you've maybe heard me say that, and we were feeling that and continue to feel that. So we're -- whatever we are now 3 or 4 weeks into this new phase. I think it's too early for me to adjust that view. I can't tell you that I can look in our pipeline and say it's been reduced or there's a whole bunch of pausing going on. I can't say that today. If you ask me that question in another month from now, 2 months from now, if we're still where we are today, I think you probably could guess -- we could all probably guess that the answer would be there will be some moderation. But at this point, we haven't seen it. At this point, there's a lot going on in the active traded markets every day. But in terms of real commercial activity every day, it continues pretty much as was with maybe a little bit of, gee, what's going to happen as I go into the back half of...

Of '27.

Were you going to add to that in terms of the commercial -- your clients activity?

I would just say for us, this is when it's really important for us to be out and talking to our clients, and this is where you can really add value and relationships. And our clients are really used to working through volatility from what they've seen recently. But what I said on the last analyst call is still the same. The pipelines are very strong. We're starting to see the lower end of the middle market moving, and we feel really good about as we accelerate into the back part of the year. As Darrel said, if things are prolonged for longer, what I can say is we feel good about our relative position and how we're showing up in the market right now.

I'm just -- I'm going to take -- there was one last question over here, and then I think we're out of time. So I'm going to take one last question on this side, if that's okay.

Just have a question on residential mortgages and the mortgage broker channel. I think you're 3 years into your coming back to that channel. I know you have partnerships with a couple of the large companies in the channel. What I'm curious about, and again, I don't know if there's a regulatory burden, but why not own that distribution? It's been very successful in the property casualty insurance. They continue to grab insurance brokers. Why not buy the mortgage brokers or franchises?

It's a good question. We're not quite 3 years in. We're like 1.5 years, but we're off to a great start. I'll start at the top on this one. We've entered the channel to meet clients where they are, right? 40% of the market has moved here, in particular, first-time homebuyers, people that are earlier in their home buying journey, urban centers, et cetera. That's where that market tends to be concentrated. And we're there with a focus on full relationships, and we're getting those full relationships.

Ultimately, clients go to brokers for a variety of reasons, right? One is oftentimes, the bank or the real estate agent that they're working with has an affiliation with their broker, right? So they referred to the broker in that context. In some cases, they're looking for the broker service comparing offers across a range of different institutions. Their value proposition is contingent to some degree on their ability to shop across multiple organizations.

And I think that would be consistent in the future, which is why we're participating in the channel as opposed to owning it. And I think that's a pretty consistent view of the market and for our clients as well.

Okay. I'll follow up.

Great. Thank you, everyone, very much for your questions and engagement today. We will -- it's been an absolutely fantastic day. So thank you so much for being here. I'm going to invite Darrel to come and close our session today. I will also say that there is an incredible -- you've heard it mentioned a few times already, an incredible technology showcase that is outside with -- of these doors next to the lunch, so you can be fed and also see the amazing work that the teams are doing here. Please take some time to walk through and see that. Thank you.

Great. Thank you, Christine. I'll take a minute to thank everybody in the room and all of you that are online for the time that you spent with us today. We appreciate all the time that you spent with us, not only today, but every other day of the year as you engage with. Today, we reinforced a really clear message. BMO is a purpose-driven future-ready bank with the scale, with the diversification and the proven capabilities to elevate returns and accelerate growth.

I hope what you joined me in seeing today was we are not the largest bank in the land, but we may well be the highest quality franchise in the land as we continue to build the business and as we continue to invest in the depth of the management team. And the diversification that we talked about across businesses, across geographies and clients does position us to compound growth through the cycle. The strategy that we talked about today is grounded in durable earnings, disciplined growth and strong capital returns.

And it's underpinned by a risk culture that is the bedrock of that profitable growth plan. Commercial Banking, we talked about as a differentiated core earnings engine and a structural advantage, which helps us drive significant and differentiated One client opportunities. The scaled U.S. franchise that we showed you today is positioned now to unlock its full potential.

And the Canadian retail and wealth businesses provide stability, growth and a really strong deposit foundation. And this is all enhanced by the leading North American capital markets platform that Aron walked you through, which continues to be a growth engine. And we've made over the course of the last few years, meaningful progress transforming the bank through portfolio optimization and through digital transformation. Now we're leveraging AI to personalize those client experiences to augment our teams and to automate our businesses, why to deliver real business value. The opportunity is real, and it's already in motion.

The leadership team and I are absolutely confident in our path to the 15% plus on the ROE, and we're executing a plan to deliver it while accelerating growth and delivering long-term sustainable value to shareholders. A lot of people put a lot of work into getting us organized today for all of you. And I want to give a shout out to Christine and her amazing Investor Relations team and to [indiscernible] and the amazing events team who helped us put this together. Thank you all. Please join us for lunch and conversation. And there is lunch, conversation and further digital showcases just outside those doors. Thanks, folks.

Good morning, and welcome to the BMO Financial Group's Q1 2026 Earnings Release and Conference Call for February 25, 2026. Your host for today is Christine Viau. Please go ahead.

Thank you, and good morning, everyone. We will begin today with remarks from Darryl White, BMO's CEO; followed by Rahul Nalgirkar, our Chief Financial Officer; and Piyush Agrawal, our Chief Risk Officer. Also present today to answer questions are our group heads, Matt Mehrotra, Canadian Personal Business Banking; Sharon Haward-Laird, Canadian Commercial Banking; Aron Levine U.S. Banking; Alan Tannenbaum, BMO Capital Markets; Deland Kamanga, Wealth Management; and Darrel Hackett, BMO U.S. CEO.

As noted on Slide 2, forward-looking statements may be made during this call, which involve assumptions that have inherent risks and uncertainties. Actual results could differ materially from these statements. I would also remind listeners that the bank uses non-GAAP financial measures to arrive at adjusted results. Management measures performance on a reported and adjusted basis and considers both to be useful in assessing underlying business performance. Darryl and Rahul will be referring to adjusted results in their remarks unless otherwise noted as reported.

And I will now turn the call over to Darryl.

Thank you, Christine, and good morning, everyone. First quarter results were very strong, building on our momentum from last year. We're executing on our commitment to deliver higher returns and profitable earnings growth. Adjusted EPS were $3.48, up 15% from last year and included a previously announced severance charge of $202 million that reduced EPS by $0.21. And we saw continued momentum in our ROE improvement. The bank achieved record pre-provision pretax earnings of $4.1 billion, powered by record revenue in each of our operating segments. Strong fee growth in our market-driven businesses and margin expansion in our Canadian and U.S. banking businesses from deposit growth and mix optimization positions us particularly well for when loan growth resumes.

Our commitment to expense management and operational efficiency continues to enable strategic investments in technology and talent. Underlying expense growth was well managed, and we continue to target positive operating leverage again this year. Credit performance remains in line with our expectations, and our CET1 ratio of 13.1% remains strong and above our target even as we continue to buy back 6 million shares during the quarter. We're executing against a consistent strategy outlined back in Q4 of 2024 towards achieving and sustaining ROE of 15%. The progress we made last year and this quarter strengthens my conviction that we can achieve that goal as we exit 2027.

We delivered peer-leading ROE improvement in 2025 of 150 basis points, and that momentum continued into the first quarter. Underlying ROE reached 13.1%, up 180 basis points from a year ago and 130 basis points from Q4. Consistent with last year, this reflected strong core operating performance across our businesses, including in U.S. Banking, where underlying ROE was up 150 basis points from Q1 of last year. Broad-based line of business operating performance contributed to strong underlying EPS growth of 21% and momentum is growing.

Turning to our operating segments. In Canadian P&C, we're attracting more customers with deeper relationships, leading to consistent growth in core operating deposits, a key driver of earnings growth, which was up 8% from last year. Canadian Commercial Banking revenue grew 10%. New client acquisition is healthy and trending higher than last year. Clients continue to adopt our innovative treasury and payment solutions, driving 9% growth in operating deposits and 13% increase in TPS fees. Our One Client approach is key to our success and client referrals between commercial and wealth increased to 34%, resulting in a 75% increase in referral revenue.

In Canadian retail, we continue to see above-market growth in checking accounts and operating deposits as well as strong growth in mutual fund sales of 13%, leveraging our personal bankers and our digital capabilities to drive fuller customer relationships. Our strategy to deepen engagement and loyalty will be further strengthened as we transition from AIR MILES to our reimagined Blue Rewards loyalty program this summer. Available to all Canadians, this program delivers personalized benefits, new partnerships and an intuitive digital platform, giving millions of members a simple, flexible way to earn and redeem rewards and will be fully integrated into the BMO mobile app.

In U.S. Banking, we continue to execute on our strategy to accelerate performance and delivered record revenue and strong margin expansion. We're seeing momentum in personal account acquisition and net client growth over last year with a solid 3% growth in noninterest-bearing deposits. By the end of next quarter, we will be effectively complete with our balance sheet optimization efforts and expect to see positive commercial loan growth in the second half of the year, supported by currently strong pipelines.

With the U.S. economy expected to outpace Canada for a fourth straight year and with our business mix, we're well positioned to capture growth opportunities as business activity expands. Wealth Management earnings were up 16% on stronger markets and net new asset growth. We successfully integrated Burgundy Asset Management, and we're seeing good client and employee retention and engagement.

Our distinctive strength in innovation and speed to market continued to drive momentum across global asset management with the launch of BMO's broad commodity ETF and expansion of our European CDR lineup. Our commitment to delivering high-quality solutions for investors was recognized at the 2025 Fundata Fundgrade A+ Awards, where BMO ETFs and mutual funds earned a combined 27 awards, reinforcing BMO's position as one of Canada's leading investment managers.

Capital Markets had a very strong quarter with PPPT of $893 million, driven by strong trading activity and higher advisory fee revenue. Our performance reflects continued strength in market-leading franchises, including a #1 ranking in ECM and a #2 position in investment banking share of wallet in Canada and robust equities trading and M&A activity in the U.S.

Record results in our commodities trading business this quarter reflects our leadership position in the sector. We've been consistently ranked as the world's Best Metals and Mining Investment Bank by Global Finance Magazine now for the 17th year. And this week, we hosted our 35th Global Conference, the world's leading forum on this topic.

Looking ahead, BMO is uniquely positioned to serve our clients playing leading roles in the AI infrastructure cycle and those in industries at the center of economic change. We have highly competitive and differentiated strengths across areas critical to future economic growth, including our metals and mining franchise, our leadership position in the Canadian energy sector and robust infrastructure, power and utilities capabilities.

We're proud to be the official bank of the Canadian Defence Community, serving members of the military, reservists and their families. Across our Canadian Capital Markets and Commercial Banking businesses, we're supporting efforts to help growing defense industries, including participating in the development group for the Defence, Security and Resilience Bank. As we evolve our own AI journey across BMO, our digital-first AI-powered strategy is focused on scaling rapidly, advancing capabilities to deliver world-class client experiences and drive business value. We're creating a responsible AI-enabled ecosystem of tools where innovation supports human insight.

Building on last year's launch of our generative AI-powered digital assistant in personal banking, we've introduced the same capabilities for the Canadian Commercial Bank, enabling our teams to quickly access policy and lending information. These are examples of how we're scaling AI-enabled intelligent tools to make every interaction faster and more confident, augmenting our teams and streamlining workflows to enhance client experience.

In closing, our performance this quarter demonstrates momentum and progress. We're delivering value for our clients through world-class One Client experiences and for our shareholders through significant ROE and earnings growth since we outlined our clear path 5 quarters ago, and we're not done yet. We look forward to sharing further insights into our strategy and progress at the upcoming all-bank Investor Day on the 26th of March.

And before I turn the call to Rahul, I would like to welcome him to his first quarterly call as our CFO. Rahul joined BMO in 2022 as CFO for our U.S. operations and Commercial Banking and brings deep experience across leading organizations with a strong focus on execution.

Rahul, over to you.

Thank you, Darryl. Good morning, everyone, and thank you for joining us. My comments will start on Slide 8. The bank delivered strong operating performance this quarter. The first quarter reported EPS was $3.39 and net income was $2.5 billion. Adjusting items are shown on Slide 42, and the remainder of my comments will focus on adjusted results. EPS was $3.48, up 15% from last year on record PPPT of $4.1 billion and lower PCL. Net income was $2.6 billion, up 11% from last year.

As previously announced, our results include a charge of severance costs of $202 million or $147 million after tax related to advancing operational efficiencies across the bank and recorded in each operating segment. Excluding the charge, we delivered positive operating leverage of 1.1% and strong PPPT growth of 8% with ROE of 13.1%, up 180 basis points and ROTCE of 17.1%, up 220 basis points, reflecting continued momentum to enhance returns and accelerate growth.

Revenue increased 6% or 8% on a constant currency basis, with broad-based growth across all businesses, including strong fee growth in Capital Markets and Wealth and NIM expansion in both P&C businesses. Expenses increased 9% or 5% excluding the charge. Total PCL decreased to $746 million with lower impaired and performing provisions. Piyush will speak to that in his remarks.

Moving to Slide 9. Excluding the impact of the weaker U.S. dollar this quarter, average loans and deposits were relatively flat year-over-year and quarter-over-quarter. In Canada, residential mortgage and commercial loan growth of 2% remains muted, reflecting the softer economy and was offset by lower U.S. commercial loans due to the impact of optimization activities. These activities are now 90% complete, and we are beginning to see positive signs in the portfolio with underlying loan balances as at the end of January, up approximately 1% from the end of October. On deposits, we continue to manage decrease in term deposits, largely offset by growth in core personal and commercial operating deposits to enhance our deposit mix.

Turning to Slide 10. Starting this quarter, we have enhanced disclosure of all bank NII and NIM to exclude Global Markets and Insurance to focus on core banking margins and exclude volatility associated with all global market activities. Prior periods have been reclassified to this basis. NII ex Markets was up 5% from the prior year or up 7% on a constant currency basis, driven primarily by continued margin expansion in Canadian P&C and U.S. Banking as well as higher NII in Corporate Services. Maintaining good NII growth despite muted loan growth reflects success of our initiatives to improve deposit mix in both countries.

NIM ex Markets was 233 basis points, up 20 basis points year-over-year and up 3 basis points sequentially as we continue to benefit from higher ladder reinvestment rates, deliberate actions to improve deposit mix and disciplined pricing, partially offset by lower NII in Corporate Services compared with the prior quarter. In Canadian P&C, NIM was up 6 basis points sequentially, primarily due to the higher deposit margins from improving mix.

U.S. Banking NIM increased a strong 13 basis points sequentially, driven by higher deposit margins as our deposit mix continues to shift to core deposits in both P&BB and commercial businesses as well as higher loan margins. Our guiding principle is to manage all bank NIM stability through the cycle. There are several factors which impact our margins every quarter. We expect tailwinds from ladder reinvestments and our deposit margin initiatives to continue to benefit us in the near term, and we are closely monitoring deposit pricing as the competitive landscape evolves.

Moving on to noninterest revenue on Slide 11. NIR increased 9% from the prior year with strong growth in wealth, including Burgundy acquisition, higher advisory fees and stronger trading revenues as client activity and market performance remains robust. Card fees in Canadian P&C were elevated this quarter due to the impact of revised future reward redemption assumptions.

Turning to Slide 12. Expenses grew 9% and were up 4%, excluding FX, the severance charge and higher performance-based compensation. Expenses are well managed as we continue to optimize cost to reinvest in talent and technology to drive future growth. Excluding the charge, operating leverage was 1.1% and our efficiency ratio improved to 55.8%. We expect to realize annualized savings of approximately $250 million from the charge with half realized in 2026 and the remainder in 2027. These savings will both support continued efficiency improvements and reinvestment in strategic growth initiatives. Expenses were up 8% sequentially or up 4% excluding the severance charge and represent seasonal uptick from employee benefits and stock-based compensation for employees eligible to retire.

Turning to Slide 13. Our CET1 ratio remained strong at 13.1%. The ratio declined approximately 20 basis points sequentially with continued good internal capital generation more than offset by share repurchases and growth in source currency RWA, including the impact of ongoing methodology and model refinement of 17 basis points. We repurchased 6 million shares during the quarter and expect to continue repurchases while supporting deployment for growth and maintaining a strong capital position as we navigate towards our target of 12.5%.

Moving to operating segments, starting on Slide 14. Canadian P&C net income was up 8%, reflecting solid PPPT growth of 4% and lower performing PCLs. Revenue was up 7% from higher NII, reflecting both balance growth and margin expansion. Higher NIR was driven by the above trend card fees, higher commercial TPS fees, investment gains as well as stronger mutual fund distribution fees. Expense growth of 11% reflected the severance charge and the higher technology costs.

Turning to U.S. Banking slide on Slide 15, which speaks to the U.S. dollar performance. Net income was up 18%, primarily reflecting lower impaired and performing PCL. Revenue was up 2% from margin expansion, offsetting lower balances, reflecting continued disciplined optimization as well as higher Wealth Management and Commercial TPS fees. Expense growth of 4% reflected the severance charge as well as investments in talent and technology. Excluding the charge, PPPT increased 1%.

Moving to Slide 16. Wealth Management net income was up 16% from last year and includes Burgundy results starting this quarter. Strong performance was driven by higher Wealth and Asset Management revenue, up 17%, reflecting higher markets, continued growth in net sales and strong balance sheet growth. Expenses were up 15% due to employee-related expenses, including higher revenue-based costs and the severance charge in the quarter.

Turning to Slide 17. Capital Markets net income was up 11% from a strong first quarter performance last year, driven by strong PPPT growth of 8% and lower PCLs. Revenue was up 7%. Global Markets revenue increased 6%, driven by higher equities and commodities trading revenue, partially offset by lower interest rate trading. Investment and Corporate Banking revenue increased 9%, driven by higher advisory fees and equity underwriting, partially offset by lower debt underwriting activity. Expenses were up 6%, mainly driven by higher employee-related costs, including severance, partly offset by the impact of the weaker U.S. dollar.

Turning now to Slide 18. Corporate Services net loss was $242 million and included the impact of the severance charge as well as seasonal employee benefit-related costs in the first quarter.

In summary, we continue to build on last year's momentum with strong core operating performance across all our businesses. We delivered record revenue and at the same time, took actions to optimize our structural cost base to support investments and drive future efficiencies. These results reflect successful execution on the 4 strategic levers of our ROE journey over the last 5 quarters. I'm confident our businesses are well positioned to drive further growth and enhance returns.

With that, I will now turn it over to Piyush.

Thank you, Rahul, and good morning, everyone. We continue to operate in an environment of modest economic growth across North America with the U.S. economy maintaining its outperformance relative to Canada. After a year marked by lingering trade uncertainty, we see an environment of measured expansion, underpinned by resilient consumer spending and stabilizing inflation. In Canada, economic momentum remains constrained by softer labor and housing markets. Within this, we continue to see dispersion across sectors and borrowers with pressure more pronounced among higher leverage borrowers. Our approach remains disciplined. We are prioritizing proactive client engagement, balance sheet resilience and maintaining strong reserve coverage. The credit performance this quarter was largely in line with our expectations and reflective of the environment.

As shown on Slide 20, total provision for credit losses was stable quarter-over-quarter at 44 basis points or $746 million with impaired provisions declining $11 million to $739 million. By operating segment, Canadian Personal and Commercial impaired losses were $497 million, stable to prior quarter. We continue to see higher delinquencies in certain segments of our consumer portfolio, particularly in parts of the GTA where unemployment remains elevated. U.S. Banking losses were $202 million, down $7 million lower compared to prior quarter. U.S. Commercial Banking losses of $128 million declined $32 million. Capital Markets impaired losses also decreased $8 million to $29 million.

Turning to Slide 21. The $7 million performing provision reflects stability and strength in our existing reserve position. The $4.6 billion performing allowance continues to provide strong coverage at 69 basis points over performing loans, and we remain well reserved.

On Slide 22, gross impaired loans decreased $228 million to $6.9 billion or 102 basis points, driven by lower formations in our commercial businesses, which decreased $403 million compared to prior quarter. We are seeing positive momentum in our wholesale businesses with lower formations to both our watch list and impaired loans. Looking ahead, trade issues between Canada and the U.S. remain unresolved and the USMCA renegotiation presents significant uncertainty. Given these factors, we continue to anticipate a softer economic environment in Canada.

In the U.S., expansionary fiscal policies, supportive monetary policy and AI investments should support growth as we go through the year. These dynamics are playing out for our customers and reflected in our portfolios with a gradual improvement in the U.S. geography and elevated risks in Canada. As we look forward, we expect these to have somewhat a balancing effect and impaired provisions to remain in the mid-40 basis points range with quarterly variability. Our performance continues to be supported by the diversification of our portfolio and risk management capabilities, underscored by a strong risk culture. We remain disciplined and well positioned to support clients with our strong balance sheet and liquidity levels.

I will now turn the call back to the operator for the Q&A portion of this call.

[Operator Instructions] And our first question comes from Gabriel Dechaine from National Bank Financial.

I think the ROE performance this quarter, especially after some of the comments you made earlier this year is a standout, and that's a good thing, great progress there. But I don't want to be that guy, but the U.S. looks to be a little bit flatter. And we saw more ROE expansion in Canada and capital markets, whereas it was a bit more flat in the U.S. I guess my question is, do you still have confidence presumably in hitting that 15%, but the way you get there might be a bit different than the original plan because the U.S. was almost half of that expansion plan.

Yes, Gabe, it's Darryl. I'll give you a topper on your answer, and then I might ask Aron to kick in, who's effectively executing the plans in the U.S. No, I would actually say in all facets, we're very much on track. When I look at the total company on the March up to 15%. If you go back to when we called out our objective in the fourth quarter of 2024, we were at 9.8% that year. If you look at how many quarters it will take us to get there, I'd sort of think about it as a total company, we're about 60% of the way there and 40% of the time. So in one way, if it were linear, which is not necessarily going to be linear, we're ahead of schedule.

The U.S. was always going to come in a little bit later than the improvement in Canada as it evolves. And that's on track as well as we move to -- I would say, we're 90% through our optimization work in the U.S., and we'll be effectively complete on that, as we've said we would in the second quarter of this year. And then we should see some good acceleration there as well.

We have -- I will point out before kicking it over to Aron here, we are up 150 basis points year-over-year in the U.S. ROE. So there's some nice contribution to the total bank ROE already with a lot more to go. But Aron, over to you on where we go from here.

Yes. Thanks, Darryl. Thanks, Gabriel. I think what you're seeing is the U.S. is really at this inflection point. As we've talked a lot about the optimization work now that we're 90% of the way complete. But loans and deposits are down about 3% to 5% as a result of that work. Of course, ROE up, as Darryl said, as our margins, and revenue is actually up 2% year-over-year. So we've seen really good progress, whether it be fee income on commercial TPS, M&A or noninterest checking. So now what you're seeing is this translation into the momentum we're starting to build in our pipelines. We're starting to see progress across the commercial. We have some areas like commercial real estate that are starting to show some growth.

So all the things are pointing to exactly how we had said would operate in the first quarter and the first half of the year with real opportunity for growth in the second half and keep us on track to contribute to the overall ROE play.

Okay. Great. And then to be clear, I was talking about linked sequential quarter there. But sticking with the U.S., I look at the margin at 4%, that's definitely peak-ish. But as I look ahead, I actually want to see that go down because that means you're going to be deploying more balance sheet, loan lending and raising more deposits, which might result in a lower NIM, but more top line momentum. And I just want to get more, I guess, the outlook for loan growth, what are some of the pillars for that confidence, I guess? Is the breakdown of private credit a little bit of a tailwind for you, maybe?

No, my confidence comes from a couple of areas. One, if you look at the actions we've taken, right, the talent that we've built, especially on the West Coast has been impressive coming from lots of other areas of the industry, the way we've realigned the organization and the investments we've made in the business. If you look at all of those actions in addition to now the optimization work coming to completion and these pipelines growing, we feel like that's what's going to drive our growth. So the relationships we have with our -- with the clients, the way we provide industry expertise, we have momentum, and it's really been built off of all the work we've done over the last 5 quarters. So I think what you're going to see is a compounding effect of those investments we've made and the changes we've made over the rest of this year and into 2027.

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

I guess maybe first question, just following up, Rahul, on Slide 10 in terms of the net interest margin, I guess, as all of us think about the ROE improvement from here, you break down the 3 buckets, deposit margins, loan margins and the mix for the U.S. and CAD NIM. Maybe just unpack that for us as we think about the outlook for here, what's the level of margin expansion you expect on both sides of the border? And how should we think about the 3 components that you lay out in that slide?

Sure. Thanks, Ebrahim, for the question. This is Rahul. Ebrahim, as we have seen last couple of quarters, we do recognize that we've had a nice NIM expansion. And while we have our guiding principle to manage NIM stability through the cycle, this expansion speaks to the success of our optimization and mix improvement efforts. And also, we've been opportunistic about ladder reinvestments when we saw the right opportunity. So as we now fast forward that where we are heading, the ladder reinvestments and the mix will continue to benefit us, perhaps to a lesser extent. And we are also closely monitoring how the competitive landscape evolves in both the countries, both for loans and deposits. So when you put it all together, we are still thinking about a relatively stable outlook in the near term for NIM.

Got it. So you don't expect material expansion from here? Obviously, balance sheet growth is going to pick up and you expect the margin to be relatively stable?

Yes. I mean if you think about it, Ebrahim, we have a lot of efforts going on, on our strategic initiatives to improve our mix, but also as loan growth picks up in both sides of the countries, pricing and margin will behave differently. So we are putting it all together as a package to say relatively stable.

Got it. And I guess on that point on the loan growth, maybe, Aron, we've seen like Fed H8 data looks pretty good on C&I year-to-date, like commentary from the regional banks have been strong. Just talk to us if there's been a discernible change in sort of customer behavior in the U.S. around like wanting to invest and that's driving loan demand or not? You talked about CRE inflecting a little bit. And then maybe on the other side of the border, just the level of optimism, caution on the Canadian macro as we look out over the next 6 to 12 months.

Yes. Thanks, Ebrahim. Yes, there's no question. We're hearing it from our clients. We're seeing it in the way the pipelines are building and the activity and the conversations we're having across both the commercial bank and the corporate bank with Alan, there's a lot of enthusiasm building across the businesses, and we're seeing that play out. Again, the optimization work we do sort of mute some of that excitement in the first quarter. But as that comes to an end, we'll see that come through the rest of the year. But in terms of client sentiment, we're hearing a lot of people that are feeling a little more comfortable again with some of the uncertainty and how to handle it and starting to invest again, and we're right there with them.

And then Ebrahim. In Canada, I think the story is very much the same with 2 maybe main differences. The first being we don't have an optimization program. So that's not a headwind for us. And then the Canadian macro is maybe a little more uncertain as both Darryl and Piyush covered in their comments. But we have a lot of confidence in quarter-over-quarter momentum from here.

And just to give you a sense of where that confidence comes from, it's increasing pipelines. We're starting to see acceleration in the middle market. And we've seen increased closings of deals for the first time since the tariff uncertainty arose. And so based on that, we've invested in people, we've invested in AI tools. And with the strong deposit growth, the TPS fees and our great revenue, we feel like we're really well set up as we move into the end of the year and importantly, into fiscal '27 as well.

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

Just going to the U.S. commercial loan growth. You talked a lot about optimization and various items, but maybe we can dig a little bit down into it. So can you quantify the portfolio optimization and what impact it had in the quarter? And what does 90% mean? And what impact will it have in the next quarter? Just to give some sense around that. And then I think there was mention of new -- record new client acquisitions in the U.S. Can you maybe flesh this out because it seems like you are kind of winning new business when we kind of pull out the optimization impact. Just hoping to get down into a little bit more detail around that.

Thanks, Doug. So I think from an optimization standpoint, probably the best number is around $6 billion of sort of balance sheet loans reduction over the course of the last 4 quarters. Our loans are down about 5% across U.S. Banking. Remember, our optimization work is both on the deposit side as we've rolled off higher-priced CDs and are repositioning ourselves, both in the commercial business and the consumer business on higher quality, lower cost deposits. So you have optimization work that covers both sides, loans and deposits.

And where you're seeing real momentum, again, if you look at our commercial TPS fees, up 23% year-over-year, up 17% quarter-over-quarter. That is this idea of we have great client relationships that we are now deepening with them. We're driving more high-quality cash for those clients. You look again at our noninterest checking, an important benchmark for us in terms of how we're doing on the consumer side of the business, creating primary relationships that we can then, over time, grow both on the wealth side and more.

So everything we are doing in the U.S. now comes down to how we operate in our markets that are, a, very focused on markets; B, we're very focused on being a unified organization so that our wealth business, our commercial business and our personal business are going to market together. We're seeing that in higher referrals. We're seeing that in more closed business, and that's really important. And of course, the discipline that we're showing now on both risk and pricing, the goal for us is to not just grow but to grow in a sustainable way so that we do achieve our long-term targets of ROE. So it's all coming together. We feel very good about the progress we've made. We've got work to do, but we feel confident about where the momentum is pointing to over the next couple of quarters.

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

Yes, the outlook is the same. We think there'll be mid-single-digit loan growth from here. And again, the execution from here really comes down to we've put great talent in the field. We've built an organizational alignment where we are working very well in the industries that we serve across both with our treasury partners and our capital market partners, and we're delivering the kind of industry expertise that ultimately wins clients and relationships, and that's what you're seeing.

Okay. And then second question, maybe, Piyush, how do we think about the evolution of performing loan ACLs? I mean, Canada looks like it's a little bit more challenged. U.S. looks like it's a little bit better outlook in terms of -- from a macro perspective, you haven't been growing much, some loan book so like the performing loan. PCL hasn't been much because of that as well. So how do we think about that? And the macro outlook seems to be improving even though we have a lot of geopolitical uncertainty. So I know there's a lot that goes into the performing loan side, but how can you give us comfort around that and the evolution of that?

Yes. Sure. Thanks, Doug. So we've ended the quarter at $4.6 billion, and it's a strong coverage of 69 basis points. As you know, our allowance goes through the rigorous process, reflects a range of downside scenarios, including some of the trade-related stresses. I think the question going forward is not whether uncertainty exists, it does, whether that's translated into observable changes in our portfolio. And so when I break that down between U.S., Canada, wholesale, retail, the U.S. is on a better footing. Our risk rating migration are drivers of what we are seeing in portfolio quality for flows into formations into watch list and embeds has been improving. So that's a good positive sign across in the U.S. And I would say also it's stable in Canadian Commercial.

Now the Canadian Commercial macros are a little bit more softer. And so where we expect to see is until some of this uncertainty comes down, I don't expect any releases. At the same time, I think some of the performing provision will be consumed by what you're hearing on the call of the momentum on loan growth that's going to pick up. So again, when all of this bring back together, I'm not expecting any releases in the near term. I also don't see any large builds unless there's a big shift in the environment. And so loan growth is going to be the big driver for us going forward, especially as quality is stabilizing. So I'll leave it to exactly where we've ended the quarter in the same range as we go forward.

Our next question comes from Paul Holden from CIBC.

So I want to continue sort of the line of questioning on the U.S. segment, but instead of talking about the loan growth, which is being well covered. Maybe talk about the deposit growth because I think the NIM, which you've also got a question on, is an important component of that. So if loan growth resumes, obviously, you're going to have to resume deposit growth and low-cost deposit growth. So maybe talk a little bit about the outlook there and how that will be achieved.

Yes. Thanks. I'll hit a couple of comments, and then I think important that we will have more opportunity at Investor Day to go into a lot more detail, especially on this topic. But when you think about where we are on the consumer side, what driving to, again, being the primary relationship with clients is critical, right? And we do this with -- we have a whole series of different segments that we can work with clients. We have a great bank at work program that we work with sort of small business owners, both on their business and personal relationship. That program, we can expand to commercial clients, and we'll talk more about that again in a couple of weeks. We certainly have a big opportunity with our mass affluent segment where we can grow that deposits substantially.

So across the board, we have a whole series of places that we can grow. Obviously, as we densify in regional coverage, certainly out West, there's opportunity there, and we're kind of pursuing that program as we've talked about in the past through our de novo. So right now, the key is we're showing 3% net checking growth. So as always, when you talk about deposit growth, it's both how you acquire and equally important is how you retain. And we're putting a lot of initiatives in place to make sure that we retain our clients and give them the client experience that makes them stay with us longer. So we'll talk more about that and other things as we get to our March Investor Day.

Okay. Fair enough. Second question is on Capital Markets. Obviously, a very strong quarter. So wondering if you can provide us sort of any thoughts on how that momentum may carry forward, particularly with investment banking, like Darryl has highlighted the strength of mining, and I think deals there continue to flow.

Thanks, Paul. I appreciate both the question and the recognition. As you would imagine, we also feel very good about our performance this quarter and really view it as reflective of strength across our franchise with, as you point out, outperformance in very specific areas. To deliver $2 billion plus of revenue, it means that most of our businesses are doing well, and we did have areas of outperformance, specifically in Global Markets, it was our equity and equity derivative businesses as well as commodities. And then in investment banking, it's the advisory and ECM businesses that were led by our mining franchise that both you and Darryl point out, but it was also broad-based across our franchise. So the outcome is that this quarter's PPPT is above our trailing 5-quarter average of roughly [ $750 million ]. And as we look forward, the environment in markets continues to be constructive with volatility creating opportunities. And we have a very strong pipeline, yes, in the mining space, particularly, but across our franchises. So we are optimistic in our outlook. That said, we wouldn't necessarily extrapolate Q1 outperformance for the full year. And our focus on as a team is to exceed our trend line on a consistent basis.

Our next question comes from Mario Mendonca from TD Securities.

Can I have you look at, I believe it's Slide 27. What stands out for me first is the credit card impaired rate at about 6%. I mean I suspect that relates to your exposure to the mass market, but that's just not a number I'm used to seeing at a Canadian bank. But secondary, it looks like it's stabilized here. So what I'm -- the question I'm asking is, what are we seeing here? Are we're seeing the exposure...

Mario, we lost you for a second. Could you just -- could you just repeat your question?

Sure. Can you hear me okay now, Christine?

Yes. Can hear you good now?

Yes, the credit cards, the loss rate there, the impaired PCL rate on credit cards, it's not a number you see too often at a Canadian bank at 6%, but it has stabilized. So what I'm getting at now is what is your outlook for the unsecured consumer? I'm thinking personal lending credit cards for BMO specifically in the near term. Do things look like they're improving somewhat as you heard from another bank yesterday? What's your outlook there?

Mario, it's Matt speaking. I'd go back to my comments on the last call. You've captured it well. We see stress at the lower end of the market. That's a broad phenomenon in the country. It is more visible for us. That's showing up in the losses that you're pointing up right now. We have, of course, made adjustments where we've seen risks elevate. We try to manage that risk. And on the flip side, we're focused on growth in our premium business, which is showing really good momentum. Premium account growth is up 13% year-over-year. Our quarter partnership is a part of that, but it's broad-based beyond that. We do see this business, obviously, it does ebb and flow with the macro environment. And so our outlook is tied pretty closely to unemployment and improvement in the Canadian economy overall. This quarter, your comments on the stability, we did see a good insolvency performance. That's a little bit hard to predict over time, but we do see this stabilizing for the most part.

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

Yes, I'll take it, Mario. It's Darryl. I mean, I think all -- optimization is a big word that's come up, to my liking, way too often with all of you as it goes through because it's kind of coming to the end, and we're going to be effectively complete on this on the end of the second quarter, as we've said. But it is, as you know, an ongoing BAU thing that everybody does. Do we see further significant reductions in the "program"? No. I think when we say we're kind of getting to the end, we're getting to the end. What you should see from here is the low-return stuff that still exists from time to time rolls off and better return assets roll on, and we'll continue to manage the mix, both on the loan side and the deposit side, as we said earlier, as we go forward. And if you kind of look out to where the market performs over the course of the rest of 2026 and '27 and then beyond, frankly, our expectation is that we'll perform and we'll protect market share, and we'll perform at the market or better as we go through that.

All right. One final quick thing. U.S. NIM, up 13 basis points in the quarter, the shift to core deposits from term, all these are positive things. That sounds contrary, however, to the guidance that U.S. NIM should be stable from here. That just doesn't seem -- I'm not sure I understand how that can be true. Both things can be true, the shift to core and stable at the same time.

So Mario, primarily -- this is Rahul. So primarily, our guidance on stable is more at a bank core level. We will see variability within the businesses depending upon the strategic initiatives, especially like in U.S., Aron talked about mass affluent and checking and savings account growth there and depending upon also how the competitive landscape evolves. So at least in the near term, we do expect some more strength in the U.S. And then also as loan growth picks up, things would look different. So when you bring it all together, that's how we think about the U.S. But when I mentioned relative stability, that is at the bank -- all bank level.

Our next question comes from Mike Rizvanovic from Scotiabank.

First one, maybe for Sharon. Just wanted to get a bit more color on the NIR in Canadian Personal and Commercial Banking. And I saw the comment on Slide 14 about above-trend card fees due to revised future redemption assumptions. Can you just give me a bit more granularity? I'm just trying to understand if that -- is that like a one-off on this quarter? Or is this like a new run rate? Because I noticed the card fees, $261 million in the quarter for the bank overall was pretty elevated versus historical.

Mike, I'll take that one. So on the card fees overall, the above trend that you're noting, we go through an ongoing process to evaluate our accrual rates relative to customer behavior. In this particular case, we saw accrual rates that were above reward redemption rates. And obviously, that's the gain that you're seeing in our fees. For fees overall, though, acknowledging that above trend item and a couple of other ones, we are seeing really good momentum in our commercial business, double-digit NIR growth and our mutual fund fees as well are doing -- are performing really well in line with the sales comments that Darryl made earlier. So overall, the outlook is solid on NIR acknowledging those above-trend items for this quarter.

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

No. You'll see a marginal benefit of that in the quarters to come, but nothing in line with what we've seen for this quarter.

Okay. So a bit elevated this quarter. It could come back now. Okay. Okay. That's helpful, Matthew.

And then maybe just one for Piyush. I just wanted to get your thoughts on Canada's housing market. I know it's always very topical. And just some of the recent trends, things just don't seem to be getting better. And I know there's a lot of moving parts that make up your ECLs and all the assumptions that go into that. But do you have any concerns, any real concerns that a weak housing market, we're seeing inventories rise, sales volumes very, very weak. Are you concerned that if it just continues to move along this trend line that maybe it's more meaningful of a hit to the Canadian economy, not directly on the mortgage book per se, but just more broadly speaking. Any thoughts you could offer would be helpful.

Yes, I can begin. I mean, broadly, the housing market, obviously, is a structural strength in the overall Canadian economy, and we have seen the softness in Canadian housing. You can see that in the offtake and new sales. Inventory has been up a bit. Some of this might be the winter effect. Some of this might be the impact of just the news uncertainty. But at some point, the backlog has to clear, and I think it will kick start as spring comes around. More in terms of our own portfolio, you're beginning to -- you're seeing higher delinquencies, and Matt touched on this. This is some of the stress in the Canadian consumer. We see that in consumer spend. We see this in other places.

So that's the softness we've generally talked about. But I don't see that broadly for us or the Canadian market translate into higher losses. The LTVs are strong even with the refresh of the HPI decline, they remain strong and FICOs are good. And the behavior we've seen from renewals in the last few quarters has actually been very good. Delinquency levels of renewing customers, 1/3 of them at lower rates, some at a higher rate are actually comparable to the rest of the portfolio. So this will take some time, but I'm hopeful for the spring to come around and actually reinvigorate the market.

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

I wanted to circle back on the net interest margin discussion as well. And this may be a topic for the Investor Day and happy to defer to them. But I am just curious on one thing with respect to what we're seeing specifically in Canada. We saw some good deposit margin improvement. One of the things that I often do is I try and look and sort of see what banks are doing differently. And there is one place where you stand out very different from the crowd, and it's been for quite some time now, wherein the deposit market and particularly in term, your rates that you're offering are materially lower than your big bank peers, but very -- almost 100 basis points this morning, lower on term in the brokered deposit market.

And so the question is, how long do you think this persists -- and how impactful has this been in terms of running off term deposits? And are you more or less running them off in the brokered market? And how long can this persist? And are we seeing any level of deposit competition heating up yet in Canada?

Yes. Thanks for the question, Darko. The overall story on deposits in Canadian P&C and Retail overall is we've been seeing really strong operating deposit growth, and that's been driven by really strong net customer growth. So we're getting primary relationships in the market at a faster rate than our competitors, and that's giving us the opportunity to optimize our term business. We think about our term business in 2 different parts. There's obviously the term that we sell to our own clients in our branches, digital channels, in our contact center as well as the broker term, which are the rates that you're looking at.

Our optimization obviously focuses on first an operating deposit as needed, then term with our existing clients and third-party as sort of the final area where we'd look. And as the operating deposit performance continues to be strong and in line with the company's liquidity needs, we haven't really focused on driving that channel. And so it will sort of trend in line with our overall loan growth outlook for the company.

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

I would say it has not totally run its course. There's still some tailwinds that we'll see on this. It won't be at the rate that you've seen up to this point, but it will continue. Again, the underlying drivers of this are strong operating deposit growth and the opportunity that, that presents. And we expect that to continue, but of course, not to the same degree as you've seen.

We have no further questions. I would like to turn the call back over to Darryl White for any closing remarks.

Well, thank you, operator, and thank you all for your questions this morning. Look, to sum up, I would reemphasize that we had a very strong start to 2026. The momentum is continuing to build as we're focusing on what we've told you we would, which is improving our ROE and driving profitable growth. And as I said earlier, my conviction in achieving this outcome against our ROE objectives is very strong and on time.

So with that, we look forward to speaking with all of you again on the 26th of March at our Investor Day. Thank you very much.

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

Darryl, CEO of BMO. And before we begin, I've been asked to tell you that Darryl White's comments today may include forward-looking statements. Actual results could differ materially from forecasts, projections or conclusions in these statements. Listeners can find additional details in the public filings of BMO Financial Group. And with that, we'll kick off the question period. Darryl, welcome.

Thank you. Thank you. Happy New Year.

So we've had a few discussions this morning. And as I talked about in my opening remarks, we've been diving into ROE a little bit. I think you've been very clear and a lot of investors have been telling me that there's a lot of clarity on achieving a 15% ROE. The question is timing, right? I think that's the one thing that I got bombarded with after the fourth quarter conference call is, Darko, what do you think is the most reasonable time frame for Bank of Montreal to hit its 15% ROE target? So maybe I'll just leave it wide open at this stage just to kick it off. Maybe you can talk a little bit about your aspirations and give us some sense of.

Yes, sure. So it's a good place to start. As I've said for a year now, it's our #1 imperative. We committed ourselves pretty clearly to it a year ago. And I do have an update for you all here and to your question, Darko, on timing. I think it's important to put it in the frame of what's happened on our execution since we identified it and we put out our waterfall in the window as our #1 priority over the course of the last year. And I got to tell you, I'm very proud of our teams for the execution that we delivered in the last year. So just to remind us, we increased our ROE by 150 basis points year-over-year last year, which was the fastest rate among our peers.

We sometimes get asked, are you too obsessed with ROE at the expense of growth at the same time, you might have even asked that at one point. So I remind people that we also delivered 26% EPS growth last year, which was also the fastest among our peers. So we're in a pretty distinguished company, all biases aside as far as our disciplined execution over the course of 2025. We did that while delivering 4.3% operating leverage and 18% growth in PPPT in 2025. The ROE improvement in '25 did not benefit from credit, which I'm sure we'll talk about at this point because impaired PCLs were roughly flat '25 over '24. So it was driven by operating performance, 3 of the 4 levers that we've talked about.

So I come to the view and the update I have for folks on timing has a lot of conviction with respect to the momentum that we have delivered in '25 as well as the plans that we're executing against right now as we enter '26, which are good and picking up pace. So as far as a specific answer to when do we get to 15%, our view is that we will exit 2027 at 15%, which might be a little bit earlier than some folks have modeled or assumed. So exiting '27, very comfortable in that when I look at the levers that get us there. We're going to -- we are recommitting to positive operating leverage this year at the total bank level. We have an amazing opportunity to continue to deliver better performance through our U.S. Banking segment. And so we can talk about that a little bit more today, Darko, if you want.

The third lever on capital, no change there. We're committed to continuing to meet loan demand where it is, but we've also got lots of capital to continue to buy back stock. We bought back 3 million shares last -- 22 million shares last year, which is about 3% of the market cap. We're still in the market, and we're still active on that. And we've got the rest of our capital optimization continuing, which we think starts to come to a conclusion in the second quarter of this year. So when I put it all together, we see ourselves exiting '27 at 15%. And then a really important point related to it is not just touching that number and then going back. The actions that we're working through right now, whether it be the way we're running deposits, whether it be the way we're running the integrated franchise now in the U.S. under the new model are all designed to get there and then to sustain it. So exit '27, 15%, make sure we're 15% or higher in 2028 and beyond. So really high conviction on that. The evidence is real as we currently operate and currently execute in the early part of 2026.

Okay. Great. That's a great answer. There's a lot of things there we can unpack. Maybe we'll start with the U.S. business, which is an important lever. So maybe we'll talk about -- I mean, presumably, is it safe to say that if you're exiting '27 at 15% at the all bank, are you also exiting in the U.S. bank at 12%.

That's the objective. The most important objective is the 15% for total bank. And the objective is to also exit the U.S. at 12%. And if you go back on the performance of our U.S. banking system and our U.S. Banking segment, I should say, it's not like we haven't been there before. We have been there before. We're now at the stage where a reminder to folks, we reorganized our structure in July of last year. And this is a really important unlock to revisit because we reorganized the structure in July of last year to put our Personal and Business Banking, our Commercial Banking and our wealth businesses in the U.S. under one leadership spine in country. And what that is allowing us to do is optimize not only the synergies between the businesses themselves, whether they be cost or revenue, but also the balance sheet synergies in country, which prior to, we had some limitations given the way we were structured.

And I remind folks that, that change occurred on the 7th of July last year. So we're really only starting to see the benefit now, point one. Point two, the optimization work that we've done around the lending book in particular, I think we said on the fourth quarter call, we're about 80% complete on that. So we've only got 20% to finish. And we think by sometime in the second quarter of this year that we're in a position to say we've got the full benefit of the optimized structure plus the balance sheet restructuring, plus what I believe will be an improving macro environment in the United States as we go through 2026. So that's a convenient coincidence relative to the way we set the business up and the foundation now that we go into that improving macro is about as solid and as complete as I've ever seen it at our bank. So I'm very confident that we're going to continue to execute on that U.S. rebuild path towards the 12% at the end of '27.

And how much does a factor of -- I mean, you step back and look at it, you say in '26, you more or less guided to similar credit experience as in '25. How much is a factor in as we reach towards the goal of exiting '27, how much a factor is credit improvement in getting there and especially for the U.S. business?

Yes. So ultimately, we will continue to work to normalizing our impaired PCL experience to somewhere in the mid-30s. I've said that before, and I stand by it today. We don't think there's an environment that will produce that outcome in 2026. We think for at least the next couple of quarters here, we'll be flattish on credit. We continue -- by the way, within flattish, we continue to experience improvement in the U.S., pretty stable in Canadian commercial and then a little bit of an increase in impairments in Canadian retail rounds out to flattish for us for the next couple of quarters.

If we see the macro improve in the back half of 2026, which I think is a reasonable assumption today. In fact, economies are a lot more resilient today than I would have expected myself 3 months ago, then you'll start to see some grinding down in the back half of '26 and into '27. The fullness of the benefit of the ROE from credit normalization is less than 100 basis points. Like this -- we're not dependent on 200 or 300 basis points of credit normalization in order to benefit -- ROE benefit from credit normalization to get to the 15%. We're only dependent on it to a smaller extent, which should start to come in the back half of '26 and '27.

So that's less than 100 basis points at all bank level, but in the U.S. business is...

In the U.S. business -- Well, we've already experienced some benefit there, and we will continue to experience more. And yes, it will be more material.

And so maybe can we flesh out this optimization that's going to sort of end here in terms of the balance sheet in the U.S. And can you just speak to -- I mean, there's sort of 2 parts to this, right? There's deposit growth and loan growth. And what we're all wondering about is like what kind of loan growth should we expect after this is complete and pushing into '27?

Yes. I mean I hate to be glib about it. It obviously depends on demand, and it's a hard call on the demand side. But we've said we expect net new loan growth to be visible for us starting somewhere in the middle of the second quarter of this year. And based on the macro that I just described, I think you can expect mid-single-digit loan growth from us after that, assuming the macro is as I surmised it, which I think is a reasonable assumption. And look, maybe there's upside to that if we, in fact, see an even better demand side to the equation. But in our U.S. bank, we've got lots of capital. I mentioned that we've got the sales forces in place and restructured in a way that really starts to take advantage of that opportunity around density and regional scale.

And while we've been optimizing, I got to tell you, we're not sitting around just worrying about what the balance sheet looks like. We're also building capacity. We've added 100 bankers, personal bankers, commercial bankers and consolidating in go-to-market strategies where we have all 3 business lines in the regions where we have rights to win. So when you put that all together, it adds up to a pretty good formula for the improvement in the U.S.

And can you touch on deposits? Because I mean we had an interesting chat this morning with a couple of other CEOs about deposit growth in the U.S. and how it's expected to be sort of elevated. What's your view on the deposit growth in your franchise?

It's been really good after the wobbles around Silicon Valley in the early part of '23, '24, '25 has been really good. The fees that we've been able to then produce on the TPS franchise have been terrific. I expect that to continue going forward. And as I look at deposit growth in the U.S., we should see deposit growth in keeping with loan growth as I look forward in the U.S. And even more importantly, you're going to continue to see us adjust the mix of those deposits on the retail side. And this is one of the core benefits of this integrated strategy, Darko, that I've been talking about.

When you look across from mass to mass affluent to high net worth ultra-high net worth family office, we've now got not only a business line synergy, but we have a balance sheet synergy and a pricing synergy to consider how do we best and most effectively attract that low-cost efficient retail deposit and also make sure that we're shifting our mix in the commercial business more towards the operating deposits as opposed to the temporary deposits. All that work is mostly complete. We've got a little bit more work to do. So you put together the sort of the growth itself and then the quality of the deposits at the same time, and it gets pretty efficient.

And was it a product gap? Was it -- so when I think of the deposit growth, pricing is the obvious feature that gets you deposit growth?

It's full client relationship, right? So at the retail side, it's targeting that mass affluent checking deposit and retaining the customer, not just bringing them in with great price and seeing them fall out of the funnel 3 months later, but making sure they're in full relationship. So that is a bit of a shift in our strategy in the U.S. retail business, which I think is really encouraging. And then on the commercial side, look, it is a great commercial business built around business owners for us that we have in the United States, where we, for the most part, do have a full product relationship. And therefore, pricing is important, yes, but they value the full relationship and you can price accordingly.

I look forward to the details on the Investor Day, by the way, on the U.S. business. So that should be fun. So maybe switching gears to Canada. Loan growth was tough. What makes you optimistic here? -- and/or for Canada. There's a lot of mortgages renewing. How do you see that playing out for your banking.

Yes. It's been a tough environment for loan growth for all of us for the last year or so. I pin that entirely on the economic uncertainty related to tariffs and geopolitics. As I sit here today, compared to 3 months ago, I think the economy is a lot more resilient than I even predicted 3 months ago. Most of the conversations we're having with our clients today, we advise clients not to rely on a resolution of the USMCA in the early part of this year to think that we're going to all of a sudden wake up to a new deal in June or July, I think, is a bad assumption. That said, the environment isn't bad for most clients, for most clients who are USMCA compliant, business goes on. There's uncertainty, yes, but there's less uncertainty than there was a year ago. And so the conversations we're having with them, they're explaining to us that it's time to kind of get out of the back seat and start driving the car again, which I think is encouraging for loan demand in Canada.

And then the trickle down is similar on the retail side of the business. There, what we have to watch for is unemployment, and that will be the trigger as to whether we've got real loan growth. So look, in Canada, we're seeing -- I think we said on our call, we're seeing low single-digit loan growth for the year. That depends on that macro that I just described and that uncertainty persisting for a while longer. If we're wrong about that and then there's a release and there's stronger demand related to effectively comfort around business plans and not the obsession around the trade file, there could be some upside to that. But at this point, that's what we're budgeting for.

So one of the things that you've really committed to apart from a very strong view on ROE is PPPT growth. Cost control has been a very good focus for you. You ended the year talking about restructuring. I wondered if you can maybe just touch on and just expand for us here in the room what it is that you intend to do? And is there possibly more restructuring in your near future? And maybe just touch on your efficiency goals just generally.

Yes. So I can give you an update on that. So it's interesting, Darko, when I look back 5 years ago, our efficiency ratio gap to our peer average was 400 basis points. At the end of last year, it's 160 basis points. I'd like to see that gap continue to narrow, and that's relative operating performance improvement that I think benefits us. We did say in our fourth quarter call that we expected in the first quarter to take an expense in the range of $225 million in this particular quarter and not adjust for it. At this point, the update is, I think that number will be a little bit lower. I think, in fact, it will be around $200 million in the quarter. We do expect the benefit of that to be about $250 million annual run rate. We think we get about half of that in 2026, and we get 100% of it into 2027. It's one piece of the puzzle. It's not the puzzle, but it should help us continue to grind away at that gap relative to our peers as we deliver positive operating leverage and we move that efficiency ratio down as we have for all but 1 of the last 6 or 7 years.

Okay. That's pretty clear. And so it doesn't sound like there's really much more restructuring. It's more just a typical grind on expenses as long as you're keeping below revenue growth, which I wanted to touch on. So when we think about the commitment to operating leverage and sort of where we expect expenses to grow this year, it kind of gives us a mid-single-digit view of revenue growth. Is that a fair assumption?

Yes. I think mid-single digits is a reasonable framing. But when I decompose it, I think it's important to sort of think about what the sensitivity around that is because if you look at it, it presumes, I'll call it, moderate loan growth. I've been saying low single digits on the loan growth side. It presumes higher fee growth. We've had some really good outcomes, and we expect we will continue to think TPS Wealth, Capital Markets, it includes slightly better margin performance, particularly we talked earlier on the deposit side of the equation. So I would see a faster NIR growth in that outcome. So what does that leave you open to? It leaves you open to the question, if that loan growth is better than I think -- than I'm forecasting it will be at low single digits, yes, you could adjust your view to our revenue outcome this year being somewhere from mid-single digits to higher single digits, but still single digits.

And the idea would be that, that would just widen out the operating leverage? Or would you take the opportunity there if revenue comes in stronger than anticipated to further press and further invest for future efficiencies? How should we think about that?

We always look to do both as we've been doing. And I would take the opportunity to further invest in the key businesses that we've got for growth, particularly you look at the wealth business, for example, you look at the TPS fee businesses, you look at the commercial bankers that we've been hiring. If I've got room to continue to make those investments and not or and deliver some positive operating leverage, we'll take advantage of that. So we should watch for that at the back half of this year.

Okay. So on that, maybe just let's touch a little bit -- go back and talk a little bit about credit. You touched on it. What is it -- I mean, you sort of mentioned that essentially, you're expecting some improvement in the U.S., but a little bit of maybe deterioration in consumer. And so you're flat PCL guidance in '26 over '25. Maybe just touch on the consumer side. I always thought that your consumer book was smaller and shouldn't really factor into the overall view. So is it just -- is there conservatism somewhere else in there? Or maybe how should we think about that?

Yes. I think the way you should think about it is, just to remind, we see U.S. getting better, which is for us mostly wholesale. We see Canada wholesale roughly flat, and we see Canada retail having a little bit more impairment as we go through this year. You're not wrong to point out we have a smaller retail book anyway. So why does it matter? It matters because at the same time as it's smaller, it skews a little bit more mass than some of the other books do. So it would be natural in a higher unemployment environment that we could end up with unsecured. I'm not talking about mortgages here. I'm talking about unsecured credit. We could end up with a little bit more of a loss rate on that book. But as you point out, it's a smaller book relative to others anyway. So it will matter, but it shouldn't be that consequential.

And by the way, we didn't talk about performing, but I do want to say that in my forecast that I've been giving here, I'm not assuming anything on performing. We get asked sometimes, is there going to be a big performing release or something like that. We assume roughly flat in our performing. So no big build, no big...

And it's fair to say you're probably assuming flat when you think about that 15% of -- exiting '27, right?

Yes. We're not depending on a big performing release to get us there. It would be pretty artificial.

Yes. Okay. So capital deployment, I'm interested in a couple of things on capital deployment. The first is, I get a lot of questions on your ability to generate capital. So maybe you can talk a little bit about what your expectations are there. And then the question is, at what point do you see deployment really picking up organically? And what are your longer-term...

I think -- yes, I think you'll -- like remember, we generated 90 basis points of capital last year, and then we would grind away at it through the combination of RWA growth and share buybacks. We ended the year with 13.3% CET1. I feel like we're in a pretty good place there to continue exactly what I just said, which is have lots of capacity to satisfy that organic demand and continue in the buyback game as we are right now. So really no change there. And when do we see that sort of demand side really kicking in? I think we're going to gradually see that increase through the course of the year, which is very, very good timing for us because in Canada, we're ready to catch any balls, particularly on the commercial side when they come our way and continue to defend that position that we've got and just slowly take share.

By the way, we're also taking share pretty meaningfully in Canada in the deposit side of that lending business, but you asked about deployment on the asset side. So I'd go back to the U.S. as the last part of that puzzle. If we do see the combination of lower interest rates in the U.S., which I think we will see, we see a manageable level of inflation, 2.5%, and we see the unemployment rates stay, let's say, below 5% as we go through the fiscal stimulus kicking in and the grow over on the last bit of the tariff effect, there might be some pass-through to the consumer here in the next quarter or 2, you start to set the scene pretty well ahead of the U.S. midterms for some strong economic performance, and we're ready there to take advantage of it with the organic deployment of capital. And we've got lots of capital in our U.S. bank to do that.

And so a question I often get with your bank is, all right, so U.S. is on the mend. We're going to have a higher ROE. We've got balance sheet sort of being optimized. It's a hot market for M&A in the U.S. So can you touch on inorganic opportunities? Do you see gaps? Do you see things that you would love to sort of do with the business in an environment where it seems like there are some banks that are willing to sell?

Yes. Look, a hot environment for M&A is not a reason to do M&A. And so when I look back at the projections I just gave you, there's a great opportunity for us to continue to build that ROE in the United States. without any M&A at all. So I just want to make sure that's really clear. I look at last year, total bank, we grew ROE at 150 basis points. In the U.S., we grew at 170 basis points. And we improved our efficiency in the U.S. by 180 basis points, and we increased our margin in the U.S. by 15 basis points, all in the same year, unaffected by M&A. And so just continuing to do that and taking share in that consolidation game that we're talking about within our own house on densification and local scale is priority #1 and making sure we've got lots of capital to meet the loan demand as it comes.

Great play, and we're more set up. The foundation is set up better for us than I would say it ever has been to take advantage of that market environment. So I'm pretty bullish about that. And I think, Darko, I was about as clear as I could be on our fourth quarter call that M&A for us, you don't ever completely close the door. That would be a foolish thing, I think, for anybody to do. But the door opens only a sliver for something that has very specific conditions, which is it's a tuck-in. It accelerates the progress around the strategy that I just described, i.e., densification and local scale, not de novo, and it doesn't delay for 1 second, the ROE rebuild time line that I described to you. Something that looks like that, we'll take the call. Otherwise, we don't swing at the pitch...

Pretty clear. And you sold some branches. Is it safe to say that dispositions are also off the table?

No. Look, we don't get -- I don't get married to any of our businesses. Like if there's something that has a low return profile and doesn't fit in the total client return, we'll take those calls, too. In the meantime, if you look at -- it's important actually to focus on why we sold those branches. There's 138 branches that we're in the process of selling. We haven't closed yet, but we've announced it. They are in 9 states where we are not doing wealth business. We are not doing commercial business, a bunch of historical reasons for that as a result of historical smaller acquisitions.

And we set out to see if we could find a buyer for those business -- those branches, which have a productivity rate of approximately half of what the productivity rate is in our core markets in the Midwest and in California, in particular, and we were able to do that. And this is just an example of liberating that capital and moving that capital into the places where we have right to win and densification. And if anybody wants to talk to us about any of our businesses where we have low returns and not full relationships, we'll be happy to take those calls, but those are getting fewer and further between as we continue to optimize the portfolio.

So it's about getting a call rather than actively seeking anything else. I guess that's the...

I mean you always answer the phone.

Right. Okay. But you're not actually actively looking at anything in the current portfolio.

We're always looking at the portfolio, but we don't have anything to announce today.

Okay. I wasn't thinking today, but fair enough. Let me take a look at the questions that are coming in, in the Q&A, hopefully. It's actually working. Okay. So the questions -- I mean, it is slow coming in here. I apologize, Darryl. There's only a couple on here, and they haven't even been voted on. So why don't we go back to my questions and hopefully...

Yes. No problem.

Another one that comes in from the crowd. So it's working. One of the things that's happening in the U.S. is there's a potential for interest rates to fall. How is that going to affect your business? How do you think about the rate environment generally and the negative and positive impact of -- especially for the U.S.

For us, the most important knock-on effect of a falling interest rate environment is the demand stimulation in the commercial business. And the next most important is the demand stimulation in the capital markets business. We don't look at it as a huge margin opportunity. I think as you know, we try to manage to a stable margin. I'll remind us that I said that a year ago sitting on the stage, and we built 15 basis points of margin through the year anyway. But when we look at how we manage the balance sheet, we try to manage to a stable margin environment on the NIM side. Maybe there's a little bit of upside to that as a result of the deposit strategies and the mix that I talked about earlier.

And then you've got the impact of ladders, but -- which is also a net positive impact, but that's a completely separate issue as we're refinancing them at better rates than we had 5 years ago. So look, if we have a stimulative environment, really, it's a business question. It's not a balance sheet management question, and it's the opportunity to then be front-footed for those clients who are getting more interested in taking on more risk and taking on more business activity, and we're ready to serve them when they are. And I reemphasize tons of capacity, both human and capital in order to do that.

And so you mentioned the capital markets business. So maybe we can just touch upon your outlook there because it was a really hot 2025. I mean we're sitting here in '26. The vibe I'm getting from everybody is so far into '26 is still hot and it's still quite -- pipelines are building. But maybe you can talk to your outlook and then talk to maybe some risks around this business.

Yes. No, look, I'm pretty bullish. I look at the -- you'll recall that we used to say that our target in our Capital Markets business was to get above $625 million of PPPT per quarter. We did that [ 4 for 4 ] last year. So it's time to rethink that. And notably higher would be the place I would go in terms of the expectation for that business. And yes, it's been a good environment. It continues to be a good environment, and it continues to be a good environment. You don't want to get too far ahead of yourself, but we continue to perform pretty well in it in the quarter that we're in. And we used to talk about when is the day when you get both an attractive global markets environment and an attractive investment banking environment while you have the underpinning of the corporate banking revenues, it's starting to feel like those are actually coming together because we're continuing to have a pretty good go here on the Global Markets side, and we're seeing some pickup in the investment banking business, particularly in the U.S.

Our market shares in Canada and investment banking are very high. I mean they're top 3 in most products and services. But -- so therefore, that's good, and we want to continue to take advantage of a good market in Canada and investment banking. But for us, the beta comes from the U.S. If the U.S. continues to pick up as it is there, and we continue to have a buoyant global markets outcome, this should be a pretty good market for capital markets.

And that's been a pretty consistent theme so far that I'm hearing from CEOs today is the U.S. capital markets business is really the area of growth. Is it because it's simply a smaller part of the business? Or is it -- maybe you can speak to the specific businesses where you see some outsized growth.

Within capital markets?

Within Capital markets.

Yes. So no, it's not that -- like remember for us, the U.S. share of our capital markets business is almost the size of our Canadian capital markets business. So we're pretty hedged on the environment, but the market share of our U.S. business is much lower. So we've got opportunities and capabilities that some of the smaller players don't have. We're taking advantage of that. We've invested pretty heavily. If you look at the metals business, if you look at the rates business, you look at some of the investment banking sectors that we've tried to lean into. And then I guess the last leg of the stool is I think we can do a better job and the teams are doing a much better job integrating across capital markets businesses for us at BMO, what are we uniquely differentiated in? It's actually our commercial business.

If you compare us to many of the capital markets folks that we compete with in the United States, it's the ability to bring that capital markets service to the commercial business. And I talked about the integrated strategies that we now have in the U.S., and that should be another source of synergy. So yes, it's been a tougher environment in capital markets overall, as we all know, prior to 2025, a little bit more persistently tough than I would have liked than anybody else. But '25 was really good and '26 is starting out to be pretty good as well. And we should get the benefits of those investments that I've talked about as we continue to go through the year.

Interesting. Okay.

The U.S. is a big part of that. It's a very important part of that.

And is it something that where you would consider -- I mean, what we're hearing generally from everyone is the U.S. market is very good and so on. And there is some hiring going on in the U.S., and it's been a difficult thing to do. There's a big war for talent in the U.S. Can you touch on your aspirations with respect to growing the business?

Well I think we're -- like we continue to just grow at the margin, right? Like we think we're fairly developed in our product shelf. We don't think we have big gaps to fill. But in the places where we're winning, we want to get more dense, and we want to continue to build those businesses. In some cases, that's technology and in some cases, that's human capital. So if you watch carefully, you see us continue to add in those places. But no big swings. It is -- on the one hand, it's a good market. On the other hand, it's an expensive market. So you got to be careful as to how you extend yourself in a market like that. So marginal growth in human capital to drive even better than marginal growth on revenues, that's the game. We've been pretty consistent at that for a while.

Okay. So we've got some questions up voted here. There's a couple that are tied. We talked about PCL. So maybe I'm going to go to this next question, which is BMO has a strong commodity mining transaction presence. We just talked about that. With mining capital markets and resource projects prioritized, how are you positioned to benefit? And is it both sides of the border? Or is there a specific maybe?

Yes. So it's a good question. Thanks for -- thanks to whomever asked it. Our mining franchise is an extraordinarily strong storied and powerful franchise. We've been a leader in this business globally for decades. And if you look at, for example, in M&A in the gold market, for example, we've got pretty close to the highest market share in the world. And if you think about -- I think the question was kind of scratching at the CapEx cycle on major build requiring minerals, requiring -- and at the end of the day, the mix of our business as we at BMO overweight wholesale, overweight some resource sectors in wholesale, including metals and mining. I don't really think about that as a geography question because we run that business globally, and that should be a net benefit to us.

The only caution I would give on it is when you -- I'm very encouraged by the shift in tone in the fiscal policy and the open for business and the build. which is all great. But when you talk to our clients, that doesn't necessarily mean everything happens this minute. I mean am I more encouraged than I was a year ago? You bet. I'm more encouraged than I was a year ago, but it does take a little bit of time to get through the steps that require the draw of that capital or the draw of that advice or the need for that equity. And we're starting to see that pick up, but I just caution people to say, you don't switch policy and then all of a sudden see trillions of dollars of capital flow the next minute. But I do think over the next 10 years, as I compare to what I would have said a year ago, the policy shift will be very beneficial, and that will be very beneficial to us.

Okay. We're at the stage now where I hand it over to you for last words and key takeaways that you want investors to...

Yes. Look, it's very much what we just talked about. On the macro, I'm finding that we're more resilient than I expected we would be. I think that's a good thing going into the year. We're looking at 2.3%, 2.4% GDP growth in the United States, less than that in Canada because for the time being, it's going to take a while for that to ramp up, but maybe we're around 1.7% in Canada, which is not as good as the United States, but it's not bad. Against that macro, I talked about the operating improvements that we have delivered in 2025, which I expect to continue into 2026. And I think we're very well set up to deliver on that. I'm as optimistic as I've been in a while, I would say. And then lastly, to reiterate, the ROE rebuild remains the #1 priority for us, and we're making the statement today that we expect to exit 2027 at 15% and stay there sustainably, and we say that with a lot of conviction. So it's a good -- from my perspective, this is a really positive update and the teams have done a really good job executing.

All right. With that, we'll end the session. Thank you very much, Darryl.

Okay. Thanks, Darko.

Good morning, and welcome to the BMO Financial Group's Q4 2025 Earnings Release and Conference Call for December 4, 2025. Your host for today is Christine Viau. Please go ahead.

Thank you, and good morning. We will begin the call today with remarks from Darryl White, BMO's CEO; followed by Tayfun Tuzun, our Chief Financial Officer; and Piyush Agrawal, our Chief Risk Officer. Also present to answer questions are our group heads: Matt Mehrotra from Canadian Personal and Business Banking; Sharon Haward-Laird, Canadian Commercial Banking; Aron Levine, U.S. Banking; Alan Tannenbaum, BMO Capital Markets; Deland Kamanga, BMO Wealth Management; and Darrel Hackett, BMO U.S. CEO.

[Operator Instructions] As noted on Slide 2, forward-looking statements may be made during this call, which involve assumptions that have inherent risks and uncertainties. Actual results could differ materially from these statements. I would also remind listeners that the bank uses non-GAAP financial measures to arrive at adjusted results, management measures performance on a reported and adjusted basis and considers both to be useful in assessing underlying business performance. Darryl and Tayfun will be referring to adjusted results in their remarks unless otherwise noted as reported.

I will now turn the call over to Darryl.

Thank you, Christine, and good morning, everyone. This morning, we reported adjusted EPS of $3.28 for the fourth quarter and $12.16 for the year. Fiscal 2025 was a strong year for BMO. We made meaningful progress against our financial and strategic commitments, strengthening profitability, delivering for our clients and supporting the communities we serve. At this time last year, we laid out specific financial commitments and a clear path. And through 2025, we delivered against each of those commitments with disciplined execution.

Here are some highlights. Our top imperative is rebuilding our ROE together with profitable earnings growth. These priorities are not mutually exclusive, but mutually reinforcing as we demonstrated in 2025. We increased full year ROE by 150 basis points from 9.8% to 11.3%, and we exited Q4 with momentum at 11.8%. At the same time, we delivered EPS growth of 26% and record net income of $9.2 billion. We made progress across each of our 4 strategic levers. The most important driver was strong operating performance in each of our businesses with PPPT up 18% for the year to $15.8 billion. We met our long-standing commitment to positive operating leverage, achieving 4% for the year. Operating leverage was positive in each segment, driven by disciplined expense management and solid revenue performance. Our efficiency ratio improved by 230 basis points to 56.3%.

Strength in risk management remains a core differentiator for BMO. As expected, impaired provisions moderated from the peak in Q4 '24 to 44 basis points this quarter. We built allowances during the first half of the year to account for a slower economy and trade uncertainty, and we are well reserved for potential risks in the environment. Finally, we're actively optimizing our capital position. Over the course of 2025, we returned over $8 billion in capital to our shareholders through buybacks and dividends. And today, we announced a dividend increase of $0.04 to $1.67 per share, up 5% over last year. Our CET1 ratio of 13.3% remains above our target, and we're maintaining steady execution of our share buyback program.

Our strategy is clear and consistent and team BMO is executing with pace and momentum. Our digital-first AI-powered strategy is reshaping how we operate to serve our clients while putting AI in the hands of everyone. To support this, we recently introduced a leading Gen AI productivity tool to all BMO employees and award-winning learning modules to help them unlock the power of artificial intelligence with over 80% active users. We're creating value through strategic partnerships and investments we've made in data, risk governance and talent that are accelerating our AI capabilities to realize even greater efficiencies and business growth. We've executed and captured benefits from Gen AI tools like Lumi and Rover, digital assistants that support our frontline employees, enabling faster customer advice and insights. We're the first Canadian bank to access the IBM Quantum network and are actively using machine and reinforcement learning models in credit and capital markets and across the bank.

Turning to highlights in each of our businesses. Starting with Wealth Management, our highest ROE business, which had a very strong year with record revenues and net income driven by continued growth in client assets and constructive markets. Clients are rewarding us with more business as we continue to deliver competitive investment returns and innovative solutions to meet their needs. This quarter, BMO Global Asset Management received 12 Lipper Fund Awards recognizing continued excellence in delivering strong risk-adjusted returns for clients across a diverse range of investment solutions. And with Burgundy Asset Management joining BMO on November 1, we're positioned to further expand private wealth solutions for the benefit of our clients.

Capital Markets is a key contributor to BMO's diversified earnings. PPPT growth for the full year was strong with each quarter above our expectations. We strengthened our platform and enhanced client coverage to achieve and advance our position as a leader across priority markets and products, including in our globally leading metals and mining business, while expanding our equity derivatives and U.S. rate businesses. In Canadian Investment Banking, this year, we ranked #1 in M&A deals and #2 in ECM league tables.

Our flagship Canadian P&C business delivered record revenue this year and strong PPPT growth of 8% as we're acquiring high-quality accounts and deepening client relationships through market-leading digital sales, engagement and experience. We continue to offer innovative solutions to clients -- to help clients make real financial progress. And this quarter, we launched joint programs with Instacart and Walmart to deliver convenience and savings to Canadians.

In Canadian Commercial Banking, steady client growth supported by increased referrals between commercial, wealth and capital markets and continued momentum in digital engagement led to good loan growth of 7% and deposit growth of 5% despite a complex environment. A key driver of client and deposit growth is through our leading North American Treasury and Payment Solutions platform, which offers clients a comprehensive product suite, including real-time payments, virtual account management and payment APIs that connect directly to their enterprise resource planning and treasury systems.

Turning to U.S. banking. This is the first quarter reporting under the unified structure with teams integrated to deliver the full power of BMO to our clients and momentum is building. We've made strong progress this year on improving the ROE in our U.S. banking towards our 12% medium-term target, executing against deliberate action plans to support this priority. Through a disciplined focus on stronger connectivity across our businesses, funding optimization and redeployment of resources to higher returning relationships, profitability has strengthened across key metrics.

Execution of pricing optimization led to increased deposit spreads and margin expansion of 15 basis points from Q4 of last year. To date, we've completed optimization actions for approximately 80% of the loans we identified as nonstrategic and below our return targets and reduced RWA by USD 4.6 billion. We continue to expect these activities to be largely completed by the second quarter.

At the same time, we successfully grown recurring fee revenues, up 10% this year. Commercial TPS fees grew 23% year-over-year and strong growth in net new assets and AUM drove a 12% increase in private wealth fees. Momentum continues to build in retail banking with 60% higher growth in net new checking accounts year-over-year. The results are evident in our fiscal 2025 performance. PPPT growth accelerated to 7% with positive operating leverage of 3% and meaningful improvement in PCL, all leading to ROE improvement of 170 basis points to 8.1% for the full year.

We recently announced the sale of 138 branches in certain markets where we did not have local scale to compete and are strategically reinvesting to strengthen our network and densify our presence in key markets where we can achieve local scale and have the greatest opportunity for long-term growth. We plan to add 150 new branches over the next 5 years with a focus on further densifying in California, where we recently opened a newly integrated financial center in Manhattan Beach.

We've also invested in key talent positions, adding and promoting over 100 frontline commercial and private bankers in the U.S., building significant capacity to further accelerate performance. Overall, 2025 was a productive year, realigning our U.S. banking structure and optimizing the portfolio. We're now advancing to the next phase of our strategy, positioning the business for growth, leveraging the strength and scale of all 3 businesses to drive greater synergies and continued ROE improvement.

As we look ahead to 2026 with the -- while the economic environment has remained resilient, GDP growth has been modest and is expected to grow 1.8% in the U.S. and 1.4% in Canada. The Canadian unemployment rate is likely to remain above 7% through the middle of next year, presenting some challenges, particularly to consumer credit. While trade uncertainty persists pending the review of the USMCA agreement, at the same time, I'm encouraged that initiatives to invest in Canada and diversify trade relationships to strengthen the Canadian economy over the medium term are beginning to move forward. We're well positioned to benefit from a renewed CapEx cycle given our advantaged position in commercial banking and in capital markets.

At BMO, we've set the foundation for continued momentum in 2026 and are moving forward with pace. I'm pleased to announce that we plan to host an All Bank Investor Day on March 26, where we will share with you more details on our strategy and our progress. In summary, we're delivering world-class client experiences grounded in one client leadership and fostering a high-performing, winning culture to drive progress for our clients and our performance.

We continue to invest and leverage our digital-first AI power strategy, reshaping how we operate and serve our clients. Our consistent focus on superior risk management is foundational and through continued discipline and improving credit market conditions, we expect PCL to continue to normalize over time. Our #1 imperative continues to be our ROE rebuild, and I'm confident in the momentum we've built this year and that it will continue to deliver profitable growth and long-term shareholder value.

With that, I'll turn it over to Tayfun.

Thank you, Darryl. Good morning, and thank you for joining us. My comments will start on Slide 9. On a reported basis, fourth quarter EPS was $2.97 and net income was $2.3 billion. Adjusting items are shown on Slide 46 and included a goodwill write-down related to the announced sale of certain U.S. branches. The remainder of my comments will focus on adjusted results.

Adjusted EPS of $3.28 was up significantly from $1.90 last year with net income of $2.5 billion, driven by strong PPPT growth of 16% and lower PCLs. Return on equity of 11.8% improved 440 basis points and return on tangible common equity of 15.4% improved 570 basis points. Revenue increased 12%, with broad-based growth across all businesses, including continued strong fee growth in wealth and capital markets and NIM expansion. Expenses grew 9% or 5% excluding higher performance-based compensation and the impact of stronger U.S. dollar, and we delivered positive operating leverage of 3%. Total PCL decreased $768 million from the prior year with lower impaired and performing provisions. Piyush will speak to this in his remarks.

Moving to Slide 10. Average loans grew 1% year-over-year, driven by higher residential mortgages and commercial loans in Canada, offset by lower U.S. commercial balances, including the impact of optimization actions. Customer deposits were up 1% from last year with good growth in Canadian everyday banking and commercial operating balances, offset by lower term deposits in both countries.

Turning to Slide 11. On an ex-trading basis, net interest income was up 10% from the prior year with good growth in all operating segments supported by continued margin expansion and balanced growth in Canadian P&C and Wealth as well as higher net interest income in Corporate Services. Net interest margin ex trading was 206 basis points, up 7 basis points sequentially, reflecting improved deposit margins and contribution from corporate services, including the benefit of higher reinvestment rates.

In Canadian P&C, NIM was stable with higher deposit margins, offset by changes in product mix. U.S. banking NIM was up 5 basis points, with higher deposit margins, partially offset by the impact of lower deposit balances. Year-over-year all bank NIM widened by 15 basis points and we expect it to remain relatively stable through next year based on the current rate expectations and continued benefit from latter investments.

Turning to Slide 12. Noninterest revenue was up 9% from the prior year and up 17% excluding trading, driven by strong wealth management fees and underwriting fees in capital markets, as well as continued growth in deposit fees reflecting strength in our TPS business.

Moving to Slide 13. Underlying expense growth was up 5% driven by higher employee-related costs, including investments in talent as well as higher technology investments. For the full year, underlying expense growth of 4% was in line with our mid-single-digit growth guidance given at the beginning of the year and achieved positive operating leverage of 4.3%. We have a long track record of disciplined expense management through continuous assessment of our expense base, balanced against strategic investments for future growth.

We believe that we still have room to improve our structural expense base and have identified further efficiencies, mainly in the form of workforce optimization that will require an upfront charge. We are in the process of finalizing the details and currently expect to record a charge of approximately $225 million in the first quarter, which we expect will deliver annualized savings of $250 million when fully executed. We expect to realize about half of the savings in 2026. We expect core expense growth to be in the mid-single-digit range in 2026, including the upfront charge and our growing investments in talent, technology and automation with a particular focus on our U.S. banking and wealth businesses.

We expect to still achieve positive operating leverage for the year, including the impact of the first quarter charge. A reminder that similar to previous years, Q1 will include seasonally higher benefits and impact of stock-based compensation for employees eligible to retire, which we project to be in the range of $250 million to $270 million.

Turning to Slide 14. Our CET1 ratio is strong at 13.3% and remains above management targets. The ratio declined 20 basis points from last quarter with continued good internal capital generation more than offset by share repurchases and moderate growth in source currency RWA. We completed 8 million share repurchases during the quarter and 22.2 million shares in total during fiscal 2025. In 2026, we expect to continue buying back our shares while supporting business growth opportunities and maintaining a strong capital position. Our CET1 management target remains 12.5%.

Moving to the operating segments and starting on Slide 15. Canadian P&C net income was up 5% year-over-year as good PPPT growth of 7% was partly offset by an increase in impaired and performing PCLs. Revenue of $3.1 billion was up 7%, driven by higher net interest income, reflecting both balanced growth and higher margins. Higher noninterest revenue reflected good growth in mutual fund fees, deposit fees and net investment gains in our commercial business. Expense growth of 6% reflected higher technology and employee-related costs. Canadian P&C, again delivered positive operating leverage for the full year with the efficiency ratio improving to 43.1%.

Moving to U.S. Banking on Slide 16. My comments here will speak to the U.S. dollar performance and reflect the change to our organizational structure, combining the U.S. wealth business with our U.S. personal and commercial businesses. Net income was $627 million, up from $262 million a year ago, reflecting good PPPT growth of 8%, positive operating leverage of 3.6% and lower PCLs. Revenue growth was driven by higher deposit margins more than offsetting lower deposit and loan balances and improving noninterest revenue driven by strong TPS fees and net asset growth in wealth. Expenses were flat compared with the prior year as lower technology and other operating expenses were offset by higher employee-related costs.

Moving to Slide 17. Wealth Management net income was up 28% from last year, driven by strong revenue performance in Wealth and Asset Management, up 14%, reflecting higher markets and continued growth in net sales, strong balance sheet growth and higher brokerage transactions. Insurance revenue increased due to underlying business growth and favorable market movements. Expense growth of 11% was driven by employee-related expenses, including higher revenue-based costs. In Q1, our first quarter results will include a full quarter of results from Burgundy Asset Management.

Moving to Slide 18. Capital Markets net income was $532 million compared with $270 million last year, reflecting strong PPPT performance of $712 million, up 32% and lower PCL. Revenue was up 14%, reflecting 10% growth in Global Markets driven by higher debt and equity insurances and higher equities trading revenue partially offset by lower interest rate trading. Investment and corporate banking revenue increased 18% driven by higher debt and equity underwriting fees as we saw strong client activity during the quarter. Expenses were up 4%, mainly driven by higher performance-based compensation.

Turning now to Slide 19. Corporate Services net loss was $73 million, reflecting above trend revenue in the quarter. We expect Corporate Services net loss in 2026 to average a similar range as the current year with the first quarter net loss expected to be the high point, including seasonal items.

In summary, in 2025, we delivered strong performance with record revenue, PPPT and net income and met our commitments on positive operating leverage while investing in the business. We've made strong progress in ROE improvements at both the total bank and U.S. banking levels with strategies in place to drive further improvement. As we look ahead towards 2026, in Canada, we expect low single-digit loan growth as challenges in the macroeconomic environment continues to impact personal and commercial demand. Despite the muted environment, we are well positioned to generate continued market share gains in our businesses and anticipate improving conditions during the year from fiscal initiatives in addition to further policy rate easing and lower borrowing costs.

In the U.S., we expect to benefit from the improved economic backdrop and focus on allocating resources to areas of competitive strength and higher returns. We expect to largely complete our balance sheet optimization in the early part of the year and expect year-over-year loan growth to strengthen and reach mid-single digits by the end of the year. Assuming markets remain constructive, we expect Capital Markets and Wealth Management to maintain their strong performance in 2026. And lastly, we expect an effective tax rate in the range of 25% to 26%. Overall, we are focused on building on our current earnings momentum and deliver continued progress towards our medium-term ROE targets. Across all of our businesses, resource deployment decisions today are predominantly driven by this ambition, and we are confident that the strength of our franchise on both sides of the border will help accelerate our performance.

I will now turn it over to Piyush.

Thank you, Tayfun, and good morning, everyone. My remarks start on Slide 21. Our credit performance this year was in line with our expectations. Impaired provision for credit losses was 46 basis points for the fiscal year at the lower end of the guidance of high 40s. Through fiscal 2025, performance improved in U.S. banking. At the same time, softness in the Canadian economy, including rising unemployment and trade uncertainty, resulted in higher losses in our Canadian Personal and Commercial business.

Now turning to the fourth quarter. Total provision for credit losses was $755 million or 44 basis points with impaired provision of $750 million, down $23 million or one basis point from prior quarter, primarily due to lower losses in U.S. banking with relatively stable losses in Canadian Personal and Commercial banking and capital markets, which increased $7 million and $4 million, respectively.

Turning to Slide 22. The performing provision for the quarter was $5 million with a build in Canadian Personal and Commercial, largely offset by a release in U.S. banking, consistent with the risks in the economy and credit trends in our portfolios. Overall, the provision this quarter reflected an improvement in the macroeconomic scenarios and lower balances in certain portfolios, which were offset by the uncertainty in credit conditions. The performing allowance of $4.7 billion provides a robust coverage of 70 basis points over performing loans, and we remain well reserved.

Turning to Slide 23. Impaired formations were stable at $1.8 billion this quarter. The increase in the consumer segment came largely from mortgages, which are well secured with low LTVs and we do not expect to see significant losses. Wholesale formations have come down since last year and have been relatively stable over the last 3 quarters. Gross impaired loans increased to $7.1 billion or 104 basis points, up 2 basis points from last quarter. While it takes time to work through impaired files, we have seen a steady decline in new watch list formations and expect that this will lead to lower impaired balances over time.

This quarter, we included in the appendix additional details on the nonbank financial institutions, or NBFI portfolio. This portfolio is well diversified across products, clients and collateral pools. It is well structured, generally secured and managed through specialized teams and differentiated underwriting criteria. 50% of this portfolio relates to equity subscription loans which has a very strong risk profile with no losses over a 30-year history of this business.

In closing, while downside risks remain the impaired PCL ratio has improved 22 basis points since the end of last year. As we look to 2026, we anticipate a softer economic environment in Canada during the first half with trade uncertainty and subdued consumer sentiment continuing to weigh on the economy. At the same time, expansionary fiscal policies and growth initiatives as well as support from monetary policy should lead to stronger growth as we go through the year. Assuming the consensus macroeconomic outlook plays out, we expect impaired provision to remain in the mid-40 basis points range with quarterly variability.

In conclusion, our performance continues to be supported by the diversification of our portfolio and risk management capabilities underscored by a strong risk culture. The robust allowance coverage, strong capital and liquidity not only equip us to navigate any challenges in the environment, they position the bank to capture opportunities as market conditions evolve.

I will now turn the call back to the operator for the Q&A portion of this call.

[Operator Instructions] Our first question comes from Paul Holden from CIBC.

A question on ROE. Now given the 11.3% in '25, wouldn't expect you to increase the target at this point. That's for sure. But just wondering in terms of that 15% target, do you think it's realistic that you could achieve that in 2027 given the pace at which you're executing against your strategy? Is it a realistic objective? Or are we going to have to wait a little bit longer?

Paul, it's Darryl. So the 15% is still absolutely the target. Thank you for the question. In terms of the timeline, we're pretty clear to say that, that's our medium-term target, which we sort of think about as 3 to 5 years. And we started to establish that language pretty clearly through the course of this year. So it's difficult for me to put a particular date on when we hit the 15% for you right now. But we also have said and I stand by it, that assuming constructive environments, we hope to get there by the early part of this range.

Our next question comes from John Aiken from Jefferies.

Tayfun, you reiterated your preference for a CET1 ratio, getting closer to 12.5%. You guys are actually a little bit more aggressive in that regard. I'll preface this question by saying that I do agree that 13% is still a little bit too high for you and the group. But how comfortable do you believe that you and BMO are in terms of breaking ranks with the peer group if you drop below 13% before anybody else does?

So John, good question. I will reiterate how we think about our approach to capital management. There are 3 factors that we've been very public about this. One is obviously the regulatory minimums. The second one is the economic -- macroeconomic backdrop and our own performance within that macroeconomic backdrop. And the third one is the peer group distribution. So when we arrived at 12.5% management target, we considered all these 3 points. And we're quite comfortable that at 12.5%. This is a very sound approach to managing our capital ratio. And thus, we've been very public about that for a while now.

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

I guess just 2 questions -- one or 2-part questions since we can only ask one. I guess when we think about the commercial loan growth outlook, ex your optimization actions. I understand that's going to mitigate growth in the near term. But when we look at the U.S., there are obviously mixed signals around what's happening with the economy. Are you actually seeing signs that the tax bill is having an impact on how businesses are behaving around investments and hiring? And when you look at the first half loan growth in the U.S. one, like do you see a pickup? Or do you see risks of downside given the tariff uncertainties? And similarly, in Canada, what needs to happen to really lift the macro overhang if we don't get some clarity on [ CUSMA ] maybe until the back half of '26?

Ebrahim, thanks for the question. It's Aron. So in terms of the U.S. we're hearing from clients, general optimism, obviously, that's cautious and there's always the questions as you're asking. But generally, we're seeing pickup in activity. We're seeing pipelines grow. We're having good conversations with clients that are feeling generally a level of optimism. For us, in particular, as we think about this inflection point that we're hitting with moving out of optimization towards growth, right, the strength of our commercial relationships that really came through with the fee growth that we showed.

Second, as Darryl mentioned, hiring over 100 commercial bankers and private advisers over the last 12 months. They're just effectively getting going. So you're going to see that benefit us over the next 12 months. And then, of course, our continued investment in both client-facing and internal technology as we get more efficient, make it easier to do business. So for all of those reasons, I feel very confident that we'll start to see the loan growth, as Darryl mentioned, as we get into the second quarter, third quarter of 2026, again, assuming some of the optimism stays and the U.S. economy stays as we think it will.

Got it. [indiscernible] on Canada.

Yes. Here it comes.

Thank you. Here it comes. It's Sharon. Thanks for the question. I'd say similar to Aron, I've been out talking to clients, and we would describe the tone as cautiously optimistic. There's obviously a lot of pent-up demand and pipelines are very strong. We did see the end of the fourth quarter was stronger than the beginning of the fourth quarter. So we're seeing good momentum going into this coming year. But we're also really focused on deposit growth. And you see we've taken a lot of market share in operating deposits and our TPS business has had double-digit -- high double-digit growth this year as well. So we've had very strong commercial revenue growth, and we're ready for the CapEx.

On your question of what has to happen. I think at some point, we are starting to see, especially in the middle market, more clients moving and starting to draw down. But utilization rates are still low. So there's room there as well. Obviously, any more certainty will be a positive contributor to things moving. But whenever things pick up, we think we'll be in a good position to take share.

Our next question comes from Gabriel Dechaine from National Bank Financial.

I know the impaired PCL discussion over the past while it's focused on the U.S., but I want to ask about the Canadian credit card book. We're seeing the delinquency rates there rise above the peer average. We're seeing the balances shrink over the course of the year. And I'm wondering what I should take away from that data? Are you -- did you grow too fast at a certain point in time? Are we maybe going to see a blip in post-Christmas period credit metrics? And then I'll throw this one in there while I'm at it for Darryl, M&A, would you be willing to issue stock to do a deal? Or are you looking at more tuck-in type things?

Thanks for the question, Gabe. It's Matt speaking. I'll just go back to the comments at the beginning of the call on the macro economy. That -- the overall conditions are definitely affecting mass consumers and particularly the lower end of the credit spectrum, not surprisingly, unemployment and solvency is up. Those stresses are more visible for us given our portfolio composition. We tend to have a smaller premium book, think about sort of large airline co-brand hasn't been a big part of our business up until recently with Porter.

We've made adjustments that manage our exposure to that segment and equally on the flip side are seeing good growth with Porter and sort of our premium segment overall, 16,000 accounts acquired since launch. They have a deep active collector base. So overall, we're looking ahead towards that top end of the market. But I mean, obviously, with the macro conditions as they are, the impact on that lower segment is visible for us, and we're waiting for that improvement.

Our next question comes from Mario Mendonca from TD Securities.

Sort of similar question to what Gabe just asked on acquisitions. There's plenty of speculation that BMO is actively looking to make an acquisition in the U.S. banking. And I know it's difficult for you to comment on that speculation because that would be a speculation, but perhaps you could speak to this. If BMO were to do a deal in the U.S., would you sacrifice that ROE target of 12%, at least for a few years, for the benefit of that increased scale?

Yes. Okay. So it's Darryl, Mario. Thanks, Gabe, for the question as well. We rolled into the next one pretty quickly. So it's fine. I'll pair them together. The short answer to Mario's question is no, and absolutely no. So let me step back and give you a little bit of color behind that. I think we've been pretty clear about how we think about capital deployment and achieving the ROE targets is the top imperative across the bank and in U.S. banking. So every decision that we make is evaluated through that lens.

Will it support the ROE improvement and sustainable profitable growth or not? That applies to an organic growth decision and it applies to M&A decisions as well. I've also said before good management teams always have their M&A antenna up. But equally, you got to be really disciplined. And we would only take a hard look at anything that met both the strategic and the ROE objectives.

We've discussed a lot about how we're optimizing the redeployment in the United States. You saw it in my comments. You saw it in our new slide. You heard from Aron just now. The reinvestment is targeted at densifying and building local scale in markets where we think we're positioned to compete and win. So that's a really important point when you think about your question. Is there a tuck-in opportunity in those markets that would enable us to continue our ROE journey and not slow it down. In fact, if it would accelerate it, might we look at it? Sure.

But if it doesn't meet those criteria, both strategically and financially, we're not on. Our #1 priority is to grow organically, and we're confident we could do that and reach those objectives with or without M&A.

Okay. And I need one quick clarification on the restructuring. Is that a number you're leaving in the core number? Or are you going to take that out and adjust that for it? It sounds like you're leaving it in, but some clarification?

Yes. We are leaving it in. We've always -- yes, we -- our record is that we typically leave it in.

Our last question comes from Darko Mihelic from RBC.

I have a 2-part question. Just the first part of this is just a clarification on the corporate segment. Can you just speak to what it was that you did in the quarter that had this segment do much better than the typical loss? And importantly for me is just whatever was done in there, it doesn't seem like it has any kind of impact on the tractoring or anything like that? That's just the most important part of the answer to that.

And the second part of my question is completely unrelated to -- with the disclosure you provided, Piyush, one of the things that -- on NBFI, one of the things I just want to confirm with you is you mentioned in your remarks that the -- there's no losses, so to speak, in a significant part of this book. And I guess, where I am with that is, were there losses in the other parts of the book and specifically, Piyush, I'm very interested in understanding if any part of this NBFI lending contributed to the higher losses we saw in '24 and to some extent '25?

So I'll begin with the first question, Darko. We have not done anything unique this quarter. So if you're asking, like, have you triggered something on your latter investments, et cetera, that resulted in outperformance? No. I think sometimes, we will have quarters when we may have some gains and that go to corporate services. We are doing a very good job in managing the overall liquidity and the low-yielding asset balances, which typically contributes to revenues in corporate services. And it's reflected in our margin improvement as well.

As you can see, I mean, we've done a very good job in managing the margin. But there is nothing unique to the quarter. In some quarters, it happens to be higher. Some quarters, it tends to be lower. But there's nothing that we triggered caused this outcome.

Okay. Let me Darko -- it's Piyush, let me talk to the NBFI. So the NBFI sector, you've disclosed information as you saw in the appendix. It's a big part of our business. It's a very profitable part of our business, very high returns. The big piece, as you saw is our equity subscription lines, 50% of it. We've been in this for a long time. I think you understand this business well. Over 99% almost is investment grade, and it's at the epicenter of a one client business of how we take this exposure and have multiproduct relationships across TPS, across wealth, across capital markets.

In the other pieces, again, it's an amalgamation of many forms of clients, but it's well secured, well structured. Over 10 years, I would tell you, the loss rate is one basis point, and some of that came from what we've disclosed 2 years ago in the insurance sector. It's not a typical NBFI segment, but depending on how the nomenclature is, we have included insurance as well. So it's a high-performing, high investment grade, very, very low gross impaired loans. So what I would leave you with is, well secured, well structured, managed by dedicated teams and specialized underwriting criteria.

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

So I guess, Tayfun for you, as we think about the regulatory changes in the U.S., the SLR change, et cetera, does that -- any of that actually impact how you think about the capital levels within BMO's U.S. bank or the holding company? Like could any of that change? And I'm just wondering, as we think about the path to the 12% ROE, is there an element of capital flex that we may be underappreciating, especially in light of what seems like we could have a pretty busy period of rule making in the U.S. around some of the capital requirements?

Yes. Good question. Our capital position in the U.S. today and in the coming quarters, we'll continue to be above our peers. So today, the FC has 13.75% CET1 capital. The bank has 14.73% capital. So those are very strong levels. And given our income accretion, they are expected to go up. There is nothing in our ROE outlook that would be achieved by a lower capital position in the U.S. We're currently continuing to keep that accretion. So any changes from a regulatory perspective potentially could give us more flexibility, but we're not baking that into our ROE outlook. Our desire is to continue to utilize that capital supporting our balance sheet growth.

Got it. And if I could follow up, maybe, Darryl, for you, given just how frequently bank M&A comes up with any conversation on BMO. One, why would you not want to do a deal in a world with the regulatory backdrop and wide open, you have excess capital. I'm assuming you could deploy some of that U.S. capital in a deal, I get it needs to meet the financial hurdles, but we didn't scale and -- scale be the way to go when you think about density, regional scale a priority for you?

Okay. Ebrahim, thanks for the question. Look, the first thing is we don't -- we don't think about M&A timing regulatory environment, timing windows. You've seen us do deals in different administrations, and you've seen us do it through different macro environments as well. It's all about whether we have something that fits both strategically and financially, and I've reemphasized on this call the discipline that we're applying to that. And so I'll just come back to my question -- my answer earlier when I say that the focus is on densification and regional scale in markets where we can win. We have a really good strategy that Aron is leading in terms of making sure we have the highest probability of climbing up that ROE curve as fast as possible in the U.S. organically. And right now, that's job one.

If something comes along that fits in the tuck-in category where we can accelerate that and not slow it down, yes, we'll have a good look. Otherwise, we've got other things to do.

We have no further questions. I would like to turn the call back over to Darryl White for closing remarks.

Okay. Thanks, everyone, for your questions this morning. I'll just wrap up by saying we had a really strong 2025, and we're well positioned for the year ahead. As I think about today's call, I'm reminding all of us that we're laser-focused on achieving our ROE imperative as quickly as possible and delivering earnings growth at the same time. And we'll share more on those plans and our outcomes at our Investor Day in March.

Before closing the call, I want to acknowledge the contributions of our CFO, Tayfun, on his last quarterly call before retiring at the end of the year. Over the course of the last 5 years, he has served as an exceptional CFO, executive committee member and trusted adviser, and he has had a tremendous impact on BMO's growth trajectory, strategy and ambition to win. He's taken significant personal initiative to develop the next generation of leaders and strengthen the future of the bank. Tayfun, thank you for your leadership.

And with that, I wish everybody a happy holiday season and look forward to speaking to you again in the New Year.

This concludes the BMO Financial Group's Q4 2025 Earnings Release and Conference Call. Thank you for your participation. You may now disconnect.

Good morning. Welcome to day 2 of the Barclays Global Financial Services Conference. I'm Brian Morton here at Barclays, and I cover Canadian and Mexican banks. Our presentation this morning, we're kicking off with Bank of Montreal. Here from Bank of Montreal, we have CFO, Tayfun Tuzun. Welcome, Tayfun.

Thank you, Brian. Thank you for having us. This conference always feels like back-to-school at the start of the year. So good to be here this morning.

Thanks. Maybe can we start with an update on the economic environment in Canada, including the impact of tariffs, potential USMCA renegotiation. You also have a unique perspective on the impact of the tariff policies with large commercial business on both sides of the border.

Sure. As you know, we have almost equal exposure on both sides of the border. So I will comment on Canada, and I will also comment on what we are seeing in the U.S. Look, many uncertainties remain, but as we sit here in September compared to the beginning of the year, especially right after the announcement about the new approach to the tariff policies, the sentiment has improved visibly. We can feel it. We can feel it both in Canada and as well as in the U.S. And also, since then, we've gone through several rounds of these trade discussions. There's a change in Canada. The government has changed. There's a new set of policies.

And in general, I think the macro environment has improved. There is more certainty, at least the uncertainty that we started the year with has significantly diminished. We still have USMCA in place, which covers almost 95% of the trade between the 2 countries. And despite the expectation of a significant slowdown in Canada, although the economy still is sort of slugging through a 1%, 1.5% type of growth pattern in general, especially with the new government and their plans to start supporting certain industries that have been more exposed to tariff issues and also broader measures on changing some of the macroeconomic approach and with a decent amount of fiscal firepower that's available to them, I think the outlook is relatively benign as opposed to the worst-case scenarios that we were contemplating at the beginning of the year.

Unemployment still is high, and it probably will continue to inch up. So that's a reality. But our clients have had time to both monitor their trade activities, monitor their operations and start taking some measures to protect themselves against a bad case scenario. USMCA, as I said, is still working. And it is one of the most successful global trade agreements. And I hope and we expect that it will certainly be renegotiated, but the final form of the agreement, whenever that happens, would be another piece of certainty that would help the macro expectations in Canada. In the U.S., many uncertainties remain. Monetary policy is a little bit uncertain, but clearly, the direction is towards lower interest rates, which would be supportive of stronger economic activity.

Our clients are showing a more positive attitude towards investments. Our client conversations are picking up. Overall, our originations throughout the year have continued to pick up. We're not quite yet to our historical loan growth patterns in the U.S. But in general, we feel more positive today than we did at the beginning of the year. So in both countries, I would say, our business is picking up. Our clients are engaging with us more frequently. And with these improving macro conditions, we certainly have a more positive perspective on the outlook.

Okay. Great. And then maybe credit has been really coming up a lot. Particularly if you look at kind of the PCLs on performing loans declined materially in 3Q, some of the uncertainty around the tariffs and trade policies already been reserved for. I mean as you start looking towards the end of the year, maybe take us through your puts and takes around what could drive the reserving process on the performing side.

Sure. It's very much related -- closely correlated with the macro environment. As you know, there are 2 sets of variables that determine most of the trends in our performing PCL. One is the portfolio dynamics, especially negative migration and the macro outlook. Overall migration trends, although they still continue to be negative, the rate of change certainly has -- is much different now than it was in 2024, which is a helpful fact as we look at our coverage levels. We added over -- close to $900 million in performing PCLs over the past 4 quarters. And I believe we've added actually to our performing PCLs for 13 quarters in a row now.

Our coverage level is at 70 basis points. We feel pretty good about where we are. And we only added about $24 million, $25 million in third quarter, which is reflective of those sort of internal portfolio dynamics. And when you then add an improving macro outlook in both countries. I think our expectation is that where we are today, our coverage levels are sufficient to cover our existing exposures. And this question about [Technical Difficulty] in the near term, that is difficult to answer. It's -- we're not -- I don't -- it doesn't feel like we have [Technical Difficulty] releases from reserves. But I also have to say that we are getting closer to that time, whatever that time line is. And I certainly don't expect the type of performing build we have seen from the earlier [Technical Difficulty] in late of last year.

And maybe talk about like kind of the trends in the gross impaired loans, they kind of continue to move higher despite a decline in formations. Any particular factors that you want to talk about that drive that?

Yes. I mean, look, we spent a lot of time on credit, right? So last year -- against our expectations, our impaired provisions have increased starting second quarter throughout the year. And when we got to the fourth quarter, we signaled that the peak was behind us. Our fourth quarter [Technical Difficulty] were 66 basis points. And we guided towards an improving credit profile throughout 2025 with an intention to get back to our normal historical levels, which is sort of mid- to high 30s. And overall, there's a [Technical Difficulty], but we feel pretty good about that guidance and where we are today. We consistently over the last 3 quarters have seen lower impaired PCLs. We were at 45 basis points in the third quarter.

Now the way we look at it, and I'll come to your question about gross impaired loans in a moment because they're sort of tied to each other. We gave the guidance at the end of November, early December when we released our year-end earnings. And at that time, we did not have any expectations about developing tariff discussions. So we said we would expect continued improvement throughout the year, potentially getting to low 40s and then we would be on our way throughout '26 into '27 [Technical Difficulty] more normalized levels. And that still holds in general, as we look at our portfolio and the credit migration patterns, the problems that we had identified back then [Technical Difficulty] guidance results, I think, are in line with the guidance, absent the incremental impact of the uncertainties associated with the announced tariff regimes.

But although we recognize that some of the macroeconomic challenges associated with the tariff discussions have had an incremental potential impact, which sort of kept us at this 45 basis point range. We don't think that necessarily takes us away from the trends that we have projected towards that mid- to high 30s in impaired PCLs. We may be around these levels in the mid-40s for a quarter or 2, but I think our expectation is with a friendlier macro background and the government policies, some of which were announced on Friday, we would be back to our normal pattern towards the historical PCL levels.

Now with respect to impaired loans, we had a very modest increase in formations this quarter, but that was mostly associated with a couple of unique customer challenges in commercial real estate and ag. Overall, I don't think that the third quarter levels are going to be challenge on our way to get to normalized PCL [Technical Difficulty] with those specific clients and there are sort of some unique factors associated with them. The only comment that I may make as opposed to improving credit outlook.

We are probably going to see maybe a more challenging picture associated with our unsecured consumer exposures in Canada with unemployment and with more of a mass profile that we have in our [ card ] portfolio, impaired provisions sort of will continue to increase there probably somewhat over the next few quarters. Luckily, that is a very small portfolio for us. So it doesn't necessarily pose a challenge, but I just wanted to separate that portfolio from the more positive trends that obviously I mentioned on the commercial side. So I would say when you put it together, impaired provisions, performing provisions, gross impaired loans, we are in a much better place today than we were a year ago and also looking to probably a more confident outlook for the trend that will take us back to our normal historical ranges, which for 30, 35 years have resulted in lower PCLs than our peers. So we're pretty confident that we'll get back there.

Great. Maybe talk a little bit -- you mentioned about like loan demand trends and maybe talk a little bit more kind of what you're seeing. You've seen some declines in U.S. commercial business. How much of that relates to consumer demand -- customer demand and balance sheet or balance sheet optimization activities? And maybe what do you see for an catalyst for acceleration in loan growth?

Yes. I'll comment on both sides. I'll start with Canada first, and I'll come back to the U.S. In Canada, for a longer period of time than we anticipated, loan growth continued to remain very strong, both on the commercial side as well as consumer side through 2024 and also early this year, we continue to see normal sort of 1% to 2% quarterly growth in our consumer and commercial book despite the fact that the economy was not necessarily growing very fast. That has slowed down a little bit in Canada. I think there is a bit of a pause now as everybody is trying to reposition themselves with both of these new government policies as well as the overhang of the trade uncertainty. And I suspect that's going to be the case for a little while longer into 2026, slower growth patterns than, I would say, the average of the last 5 years is likely going to continue in Canada.

In the U.S., coming into this year, we were expecting a pickup in the second half of this year for sure. That was delayed, and it's a mixture of a couple of different factors. One is especially in the first part of the year, first and second quarters for us, customer demand remained muted. And although there was a lot of conversations, pipelines were not necessarily strong enough to lead to a more pronounced growth pattern. Originations have remained healthy. And I'm going to come to the second piece of the puzzle here for us. As you know, we have a very clear mandate internally to improve our ROE performance, both in the U.S. as well as at the consolidated level. And as part of that, our U.S. business leaders at the beginning of the year have identified certain relationships that are unlikely to meet those ROE targets.

And as such, as opportunities are coming around at repricing dates at maturity dates, we are slowly reducing our exposure to those lower ROE relationships. And that has had an impact on the net loan growth trends this year. But what's encouraging is our origination level in Q3 was strong enough for us to believe that we are probably going to slowly move to a better growth pattern. It will probably take us a couple of quarters here. I don't think that although things are picking up, I'm not sure if in 1 quarter, we're going to turn the corner and all of a sudden start showing stronger growth. But as we look into '26, I think the fundamentals are in place.

As you know, we also have a new organizational structure in the U.S. We brought in new leaders, and there is quite a bit of growth in our sort of sales force that should help the overall origination activity, both in our legacy markets in the Midwest as well as out in the West in California. So I think as we get through some of the ROE-related changes in our portfolio, we anticipate that we'll get back to the growth patterns that some of our U.S. peers are showing. In particular, in the third quarter, we also -- our utilization rate dropped, and that tends to be volatile. There's some seasonal aspect to it. So coming out of the year-end for us here and into 2026, I think there's every reason to believe that we are going to be looking at a better year in terms of net loan growth compared to the last 6 or 7 quarters.

Excellent. Great. And that kind of segues into my next question. You talked about your kind of ROE targets. Maybe talk us through again the progress you're making towards the medium-term target of 12% in the U.S. P&C and the 15% overall and kind of just see how we're going to get there, walk us through that.

Sure. Yes. That is today a very visible target across our entire organization, 15% at the consolidated level, which requires us to get to 12% in the U.S. And the way we formulated this at the end of last year again is that we said our goal, and we've always had that goal medium term. We define medium term 3 to 5 years. We said we'd like to get there at the earlier part of this window than the latter part. So we are now almost a year closer to that. We've seen great progress this year. Our ROE in the third quarter was 12%. Our ROE in the U.S. came up from low 6%, 6.2%, I think fourth quarter of last year, we were at 8.7%. Year-to-date, we are at 7.5% in the U.S. 11.1% year-to-date at a consolidated level.

Every quarter, we've kept making progress, and that is very promising, and it gives us confidence that we will be able to hit our ROE targets. Just to remind you the building blocks of this path towards the 15% target. One is credit, improving credit trends back to historical levels. The second is normal BAU growth with positive operating leverage. The third one is the sort of balance sheet optimization that we have articulated last year and continue to execute. And then the overall improvement in the U.S. is the fourth piece here. And all 4 are moving in tandem. And it is very encouraging to see that we've made this type of progress to 12%.

I said during our earnings call a couple of weeks ago, I don't expect us to be on a linear trend from here towards 15%. Not every quarter is going to necessarily show the same leap that we saw in the third quarter. But I think our confidence level continues to grow with every quarter as we sort of watch these 4 cornerstones of our strategy, execution is matching the strategic priorities that we have developed. So we're pretty confident that when we get to that earlier part of the 3- to 5-year window, our performance is going to match our targets.

I guess to maybe how it relates to your overall ROE targets, but we're talking a lot about -- or we've heard a lot about technology investments. And you've highlighted some ongoing investments in technology and digital innovation, including the rollout of Gen AI tools. Maybe could you elaborate on how these initiatives are maybe progressing and how much of -- when we could expect to see that kind of hit the ROE target?

Yes. I mean I think we've been talking a lot about the scale benefits that relate to the capacity that we have to invest in technology and other growth elements in our organization. Over the past 3 to 4 years, with an expanding technology portfolio, we have seen proof points of the efficiencies that it's generating as well as revenue growth that it has led to, especially in Canada, we now have a leading position in our personal banking business. We are the lead revenue generator. It has significantly improved our market share above and beyond our physical branch share in Canada. It continues to create efficiencies in the system.

Our treasury management platform has become a highly competitive platform north-south, both in Canada and the U.S. In both countries, we have seen significant pickup in operating deposits. In our Wealth Management business, we are significantly increasing our investments in our middle office and back-office capabilities, both with respect to how we work with our clients as well as how we work with our employees. So there are a lot of proof points -- and along the way, part of this is obviously leading to better revenue growth. Part of this is leading to better expense management. When you look at our operating leverage trends, especially this year with close to 5%, 4.7% year-to-date positive operating leverage.

All of these investments are helping us to achieve that. As we now look forward, obviously, AI is taking a larger portion of our discussions -- and just as any other company, we are looking at different opportunities. What we have decided to do, though, is instead of sort of creating a huge sort of scope of different tests for AI capabilities, we're trying to concentrate them into a less than a handful areas so that we can go a little bit deeper and potentially be a bit faster. These are -- candidates are very similar, customer contact, internally, the ability to equip our sales force with real-time data that they can use in their connections with their clients. We are testing some processing solutions in our commercial business. Document processing is one area.

So we're quite hopeful that with the recent history of success in our technology investments, we will be able to also, as we look ahead, to use our scale advantage, which is, in my mind, a bigger advantage here in the U.S. because our technology budget tends to be a little bit bigger than our regional competitors in the U.S. And so we're quite optimistic that although AI is not going to turn into a big expense efficiency machine in the next year or 2, I think the long-term capacity of some of these applications is probably going to be significant.

And then maybe talk about like you've seen some operating efficiency improvement in third quarter. Maybe talk about how you see the efficiency ratio trends moving and targets given kind of the need for investments versus balancing like optimization and overall efficiency.

Yes. I think, as I said, when you look back the last 5 years, we've been able to manage that delicate balance between ensuring that we operate with positive operating leverage while we continue to invest. That approach is going to continue. And I think we have a record of success. I'm quite confident that we will maintain the flexibility where we have been able to change expense patterns relative to revenue growth that we are seeing in our business. And Internally, we also are very cognizant that part of our ROE rebuild plans do require investments, whether it's investments in upgrading our technologies, our digital outreach here in the U.S. or growing our sales force, we're not pulling back on those types of investments to achieve positive operating leverage.

But I think there's an understanding in the company now that every year, we are asking our groups and staff functions before they ask for expense increases for the next 12 months, they need to show us at least a 2% efficiency improvement such that, that efficiency improvement funds the expense growth that is appropriate for our growth ambitions. Part of this ROE rebuild is based on us continuously improving our efficiency ratio, which is now below 56% at the consolidated level. And so therefore, we're not going to necessarily change that. We're still 100, 150 basis points above the peer average in terms of our efficiency ratio.

So we will continue to have a very strong commitment. And you may not see this every quarter, but I think on our path to 15% ROE, there's going to be a need to achieve operating leverage over that period of time. And at the same time, we're quite confident that our scale advantage gives us the ability to invest back in the company without necessarily disturbing that pattern of operating leverage.

And then I guess another piece of the ROE progression story is the capital levels. I maybe talking about -- right now, you're at about like a 13.5% CET1, picked up a repurchase program. Can you just run us through what your kind of target capital levels are and your priorities for capital?

Yes. Obviously, we are at a very strong level of capital, 13.5%, 200 basis points above regulatory minimums. And in addition to capital, we also have a balance sheet with ample liquidity and growing deposits. So as such, I'll come back to the particular capital question. But we believe, especially with our commercial heavy business model as the macro conditions improve in both countries, this abundant capital position and abundant liquidity position actually are very good support points to future growth that we anticipate in both countries. Coming back to capital, in particular, our management target is 12.5% and we had good organic capital growth internally this year. And with lower RWA growth, we haven't been able to lower our capital ratio towards that 12.5% target. I actually anticipated at the beginning of the year that we would be below 13%. We're not.

So therefore, we basically decided to ensure that our buyback program continues without interruption. So therefore, we filed for a new buyback program, 30 million shares. And I suspect that we will see our trends to continue to get closer to 12.5%. But we don't mind being in this position. It's a rich man's problem, and it's basically capacity that's available for future growth. And as you know, the regulatory environment has also changed fairly significantly compared to 2 years ago. And our superintendent of OSFI made some comments about the capital positions overall in the Canadian banking system, and he feels very comfortable with where we are, and we feel very comfortable with where we are with all this capacity. But again, that gives us the ability to also return capital to our shareholders at a fairly aggressive pace.

One other thing, I didn't really touch too much on the NIM. Maybe talk about your NIM expectations for U.S. and Canada over the near term? And how do you factor in Bank of Canada hasn't moved too much on rates lately, though there could be some rate cuts coming up. How do you factor those expectations into?

Yes, NIM is a very positive story for us for BMO. And for a very long time, we communicated to our investors that the way we manage NIM is we manage for stability with strong downside protection and enabling our businesses to actually capture spread widening or the dynamics of their portfolio change. And we have, to a very large extent, achieved that. We have I think, 16, 17 basis points year-over-year NIM improvement. We have seen another 2 basis points of NIM widening in the third quarter. And as we look ahead, we anticipate those patterns to hold. We are less concerned about short-term monetary policy changes. Yes, I mean, the expectation is that in both countries, monetary authorities are likely to pursue rate cuts over the next 12 months.

But we think that we are positioned, although lower short rates in general are negative for banks. But I think we are protected at the downside. Our investment portfolio continues to give us strong support to protect that downside. We also have discussed the opportunities that we have, especially in the U.S. with the current liquidity that we are holding on our balance sheet, our ability to be a little bit more aggressive rationalizing our cost of funds in the U.S. Obviously, post Silicon Valley crisis, all banks, including us, have pursued strong deposit growth, but that came at a price. With the liquidity that we have in place, we not only were able to pay back most of the wholesale funding on our balance sheet, but we're now actually going a little bit more aggressively after those higher-priced deposits on both sides, consumer and commercial.

And this year in the U.S., we have seen the benefits. So -- and in Canada, similarly, there was a big buildup in term deposits in '22, '23 into '24, and that is reversing. That has reversed, which has been helpful to capture more spread, while we are seeing our everyday deposits in Canada grow. So the trends on both countries are giving us an opportunity in addition to the way we manage our interest rate risk to capture a better deposit environment, which builds into our NIM outlook. So overall, I feel very good about where we are, and I feel good about the next 3, 4 quarters regardless of the pace of rate cuts in either country.

Great. We've covered a lot of ground, Tayfun. But before we open up to questions, are there any other areas that you'd like to comment on?

Look, I think this year, so far, we have been able to demonstrate that we -- the confidence level that we have in getting back to BMO's normal operating pattern, whether it's credit, whether it's operating leverage, growth opportunities, all of these factors are aligned with each other with a significant management focus on achieving the targets that we have publicly set for ourselves. We've made some important organizational changes in the U.S., as you have seen earlier this quarter. We now have brought the 3 businesses: commercial, consumer and wealth under one single management. Aron Levine from Bank of America joined us earlier this summer.

We have new leaders in the U.S., a new leader running our commercial business, a new leader running our Wealth Management business. And we are very excited about both Aron's background in building Bank of America's mass affluent strategy and under this new organizational structure, quite hopeful that our U.S. performance is going to start matching our ambitions and expectations that we have announced after the Bank of the West acquisition. So there's a lot of excitement in the company. We're looking into our next 5-year plan and the level of confidence with a friendlier macro environment is growing. So a lot of optimism in the air at the moment.

Excellent. We have a few minutes left. Does anyone has any questions for Tayfun. Mics running around the room. One over here.

Yes. I really apologize. I got here a little bit late, so you may have covered this territory. But I was just wondering if you could give us some color on the rapid turnaround in credit quality in the U.S. in the last quarter and why that occurred?

Look, I think as we discussed last year, our credit issues in the U.S. resembled sort of this pig moving through the python. And we identified certain areas related to credits that were originated 3, 4 years ago that had some unique characteristics, whether it's size, whether it's sort of reliance on enterprise values and business model challenges. So there was no issue systemically with how we underwrite loans or our risk appetite, and that applies to both the U.S. and Canadian side. But in the U.S., the increase was a bit more outside our normal norm. So once we got our arms around these problem credits, then focused quite a bit on the execution of actually solving those credits. And we've made certain changes in our processes. The approval levels, et cetera, have changed.

So on a combined basis, that sort of quick reaction to both the identification of problem credits as well as ensuring that the system in general is in place enabled us to put this behind us. I would say I think within the time frame we thought that we were going to be able to actually control. Now there's more room, right, in the U.S., although U.S. credit profile tends to be a little bit higher risk than Canada because in Canada, leverage is -- has a different profile. We still have some room in the U.S. to continue to improve. And the macro environment also helped. I think in general, we were able to actually release performing provision in the U.S. this quarter, which was mostly related to a better macro outlook as well as somewhat improving credit migration in our portfolio. So we're quite pleased with where we are.

Okay. With that, we're pretty much out of time. Please join me in thanking Tayfun for his presentation.

Thank you, Brian.

Thank you, Tayfun.

Thanks.

Good morning, Darryl. How are you?

I'm well. How are you?

Pretty good.

Thanks for joining us, Darryl. Maybe just to start with just sort of your high-level sort of outlook on some of the macroeconomic headwinds. And it seems that it's been a very volatile period for all the banks. And how are you feeling right now in terms of your outlook?

Yes. On the macro overall?

Yes.

Look, I think we're at a really interesting place on the macro. Mike and I've spent time with some shareholders and one-on-ones having this conversation this morning. And I think I probably have one of the unique positions to do a little bit of a juxtaposition for you in 45 -- 40% of our banks in the United States and 50% or so is here in Canada. And I think that, yes, there have been headwinds in both places, but I talked about this a little bit on the call that we had last week. I actually think my uncertainty meter, as I've come to call it, is actually improving in a pretty meaningful way in the United States.

If you think about it, setting aside the 24/7 news cycle, if you actually just kind of get down to the facts and you consider where we were 6 or 8 months ago, and the number of uncertainties included all the trade balls that were in the air. And while I accept the fact that we haven't caught all those balls yet, we have a better idea than we did then where they're landing.

If you look at the tax policy, in particular, under the Big Beautiful Bill, there's a lot of uncertainty as to whether it was going to pass. And even if it did pass, what was going to be in it. Well, now we know all that. If you're one of our clients in the United States, you know what your tax rate is, you know what your accelerated depreciation is, and you have a better idea of where trade balls are falling. And so you kind of get on the mix, you kind of get on with life.

So we're seeing a bit of a resurgence in the U.S. and a pickup In Canada. I think there's a lag in Canada in the sense that if you use again that uncertainty meter, I think we have less uncertainty than we did. If I go back that far 6 or 8 months ago, we didn't know who our government was going to be. And if it was going to be a liberal government, we didn't even know what the leader was going to be. And so we do know those things now, and we have some indication of the policy direction, but we don't have a full understanding yet as to whether we're going to preserve USMCA. I think the probability is that we do, but I can't put a high probability on that because you don't know, and it depends on a lot of things, and that's really, really important to do.

And then on fiscal policy, supporting business growth investments, supporting, most important of all, attracting international and domestic investment in the Canadian economy to take advantage of this moment, lots of good narrative, but we haven't yet seen the term sheet, right, in order to get the actions.

So I think what we're seeing in Canada as a consequence of that is just a little bit of a pause, right, which is a natural thing to do, right? You might think interest rates are coming down so I'll wait to buy the house or you might think I'm running a portfolio as a corporate treasurer who I got to think about whether today is the day to push go on the capital formation button or whether I just wait another quarter or so. So I think as those uncertainties clear up in Canada, we'll then see the pickup that we're now seeing in the U.S., but I think there's a bit of a lag.

Okay. So it sort of dovetails into the ROE question. Obviously, the PCL environment was challenging for BMO and the industry more broadly. It tends to be volatile from quarter-to-quarter. Things have gotten a lot better there. Your outlook doesn't seem to be -- it seems to be better than it was a quarter ago, which I'm guessing gives you more confidence in your ROE trajectory at the all bank level. Maybe just remind investors the pathway of getting to that 15% level. And then obviously, there's still more room to go, but you've made some strides.

Yes. I'll tell you why I have a lot of confidence, Mike. And in order to do that, you kind of have to go back to the end of the fourth quarter last year, which was a bit of a seminal moment for us. When we looked at our full year performance and we said the credit outcome isn't what we wanted it to be and a couple of other smaller things, but in general, it all laddered up to an ROE for the year, which was 9.8%. We called it out. We said it's unacceptable. The target is going to be 15%. We reiterated that target. But we also came forward and said it's the #1 imperative in the bank, and we know exactly how we're going to hold ourselves accountable against 4 key metrics.

So I think the best way to answer your question is actually just give you an update on where we are on the 4 key metrics so you can understand why we've got confidence. And so number one was the U.S. P&C business improvement. Number two was the credit that you referred to at the total bank level. Number three was the operating leverage that we have to drive and committed to drive at the total bank. And number four was capital allocation.

So my update for shareholders after 3 quarters is that on U.S. P&C, we've seen really nice returns and a pickup in that business. We've got 6% PPPT growth in U.S. P&C year-to-date. We've got 3.2% operating leverage and the ROE, which in that business on that day, when I pinned it and called the shot, we were below 7% on the ROE. In the quarter, we showed you last week, we're at 8.7%. So we've made quite a bit of progress on lever 1.

Lever 2, when we look at total bank credit, we were at 66 basis points on the impaired credit. We told the world that we thought that was the high point, and we walked down from 66 to 50 to 46 to 45, and we're sitting at 45 today on the impaired credit. That's real value between 66 and 45, by the way. Like that's $300 million of P&L in quarter. And so that's really important on lever #2.

Lever #3, all bank operating leverage. We're at 4.7% year-to-date relative to the peer set. That's relatively distinguished. Teams are doing a really good job; positive PPPT growth across all lines of business.

And then number four, on capital allocation, you've seen some decisions that we've made. We exited a card portfolio that was single serve and low value in the ROE in the U.S. We had a normal course issuer bid, which executed 16 million shares bought back. We announced last week and were approved last night on a new program for another 30 million shares. That would bring it to 46 million by this time last year -- this time next year, pardon me. And so that capital allocation work is going on off of a 13.5% CET1 ratio. So tons of capital to execute as we go forward.

So we've done that. We're nowhere near end of job. But point-to-point, 9.8% ROE for '24 was 12% in our quarter announced last week. So 220 basis points of improvement in only 3 quarters with 300 basis points to go. But the momentum we've got there doesn't consider some of the other changes that we've made, including reorganization and business strategy. So I'm pretty encouraged that we'll get there, and we call it our shot, and we tend to make it when we call it.

Got it. Maybe on the credit, you might hate this question. I know sometimes you've gotten this question before on the calls. Given the headwinds that you saw on the credit side, did it change how you operate?

Oh, I don't hate this. No, I don't hate this.

So maybe this is an opportunity to sort of remind investors why nothing changes; that it was, in fact, a blip, it's in the past, and it doesn't really impact your -- either your ability to grow the commercial loan book, particularly in the U.S., that's where the question usually emanates from and why you're still excited about your...

Yes. Sure, sure. So if you look at our credit, we've talked for decades actually about superior credit management. If you look at our track record, there's a slide in our investor deck that shows you literally decades of superior credit performance. There's only 2 exceptions to that. One was in the global financial crisis and one was last year. So I think we've got a pretty good track record that, over the course of time, it's very, very infrequent that our credit is anything but outperforming. And last year, we spent a lot of time with investors on this. We've got tens of thousands of commercial wholesale credits, both in Canada and the U.S., and we had a very small number of them that ended up being regretful underwritings that we did 3 or 4 or 5 years prior to that.

So it's -- a lot of work was done to come to that conclusion. The analytics behind that conclusion were clear. We use that analytic to say, at the end of the fourth quarter, we feel very confident that we've got an isolated issue. It's not a forest fire. It's a small bushfire that we contained.

And the evidence over the last 3 quarters has been proven. And if you see the deceleration when I talk about 66 down to 45, we've got an even faster deceleration on that curve in our U.S. business in particular. And so the outcomes today are what we thought it would be when we contain the issue. But we didn't have to make wholesale changes across tens of thousands of credits in order to contain the issue. We feel pretty good about where we are.

Okay. Okay. Maybe moving on to some of the business lines, starting with the U.S. Just with the new leadership, so Aron Levine coming in and running the business. Is there -- are there any changes that investors should expect to see?

I think, Mike, the most important change investors should focus on is the fact that we made the decision to actually change our go-to-market structure to accelerate the strategy on the ROE rebuild in the U.S. So it's wonderful that we've taken it from sub-7% to 8.7%. But we've got to take it from 8.7% to 12%. And so I want the U.S. business to deliver for you 12% so that the total bank can deliver 15% or more.

When you look at the way we had organized the bank for 10 or 15 years, I think right thing, right time, all of the business lines at our bank were organized under the leadership of someone who would have a North American mandate. So if you ran commercial, whether you sat in the U.S. or Canada, you ran North America; if you ran personal, North America; wealth and so on. And we came to the point of view that, that was the right strategy at the time when you have a smaller bank in the United States, if you have $100 billion of assets, $200 billion of assets, how do you synergize that? You take the synergies where you can get them, in our case, North America. We've got a lot of them, and we're going to keep them.

TPS, as an example, we run North South Rails. The lending platform for commercial is the same in Canada as it is in the U.S. Things as you might think mundane, but I can tell you they're strategic and they keep you in good shape like the compliance regime and the regulatory regime. We have a North American matrix on that. We preserve that technology on it goes.

But what we were missing in the meantime was the strategy as you go to market on the customer and the demand imperative in the U.S. itself. If you imagine those decisions are being made in 4 silos as opposed to an integrated in-country management system that says, you are a personal banker, you want to do business in this geography. We're not going to do that unless we're doing it with commercial and we're doing it with wealth.

We're doing it all together. And early returns are good. I want to caution people that we have this change effective on the 7th of July. So none of the benefits of this are in any of our numbers. But I can also tell you there are early returns, balance sheet optimization, one client imperative, choice on geography, choice on capital allocation across those lines of business. We're all grown up now. We have a bank in the U.S. that has almost USD 500 billion of assets in our U.S. segment, and that's top 10 in the country relative to the other banks. This is the way to go to market and to take advantage of not just improving -- you asked earlier about credit outcomes. This isn't about credit outcomes. This is about taking advantage of your ability to take share and grow the revenue line and the capital allocation more efficiently in country and preserve the synergies that we've got in ourselves so we get the best multiples. So that was the reason for the change.

You asked about Aron. Aron was the choice of the person, and he's going to work with Darrel Hackett and our management team to operationalize against that imperative across those 3 lines of business, and we're delighted to have him on board.

Okay. Also, you sort of touched on my next question, which was around the connectivity, U.S. P&C, wealth, capital markets. How does that sort of all tie in from your perspective? And where do you see opportunities on that client outreach and deeper relationships and doing more for the same?

I think that I ground the answer to this question, Mike, in where is our power alley in the United States. I mean I think you all understand there are various power alleys in Canada for us and the other banks that come up here. In the United States for BMO, for 40 years, we've effectively been building business strategies around business arms.

So if you look at our commercial business, for example, which is one of the largest on the continent, the vast, vast, vast majority of those relationships are sole or lead relationships with who with the business owner, private businesses for the most part. And so you can see under the new structure that I described to you, the connectivity that you're referring to in your question across from the wealth management offering, where our wealth management offering was doing a good job, but probably not integrated enough because of the structural point I made earlier. Yet within it, it's got the full range from mass to affluent to high-net worth, ultra-high net worth to family office, business owner.

Capital markets, there are a whole bunch of those credits in the commercial book that have a need for a foreign exchange or a derivative or maybe some help on advisory, the capital markets can come in. And even consumer, we've got a bank at work program that works really well.

So I think we're -- even though we've been talking about it for a long time, I don't think we had the right structure to enable it. I think today, we do. And I think, therefore, we're just scratching the surface on the opportunity on the connectivity. We wake up to this connectivity every day in Canada. All the banks do because you're in every single community on every street corner. You have to be more deliberate about it when you're competing in the U.S., and that's what we're doing now. And we think we'll be able to lean in and we'll be able to show really good growth through that.

Okay. One more follow-up on the U.S. Just want to talk a little bit about Bank of the West, that deal. Obviously, very big transformational deal for BMO. Now that you look at the U.S. market, has anything changed versus when you purchased Bank of the West? From a competitive perspective, has it become more competitive? Less? I know you were excited about -- probably still are excited about the California market, which has a GDP bigger than Canada. A lot of opportunity there. Maybe talk about the dynamics of the competitive environment, if anything has, in fact, changed post-COVID and pre-COVID.

Net-net, like a lot of things have changed, but net, not much. You know what I mean? Like if you kind of go to after we bought Bank of the West, 6 weeks later, Silicon Valley Bank happened and then First Republic happened and you kind of had that disruption in the marketplace, which, short term, was disruptive for us, but longer term is good because we've been able to kind of slowly creep in and take market share and adjust pricing well accordingly.

You've got movement in terms of G-SIBs who have asset caps, G-SIBs who don't have asset caps, and we get asked these questions all the time. But when you kind of net it all out, it's the biggest economy in the world. If California were its own country, it would be the fourth largest economy in the world. It's bigger than France, and it's got 70% more GDP than Canada. That says something about Canada, by the way, because of the same population. But the competitive environment has always been such. And what you've seen, over time, in the United States is the top 25 banks over the last 10 years have pretty gradually taken share, and they've taken share from about 4,000 banks that aren't in the top 25.

So you want to start with the premise that it's good to be in that top 25. It's even better to be in the top 10 where we are. And then I layer on the way we're enforcing the strategic decisions that we're making now on a more integrated basis, and I like our chances. So things come in, things come out, super competitive, always has been super competitive. But net-net, we'll just continue to press ahead against that competitive set, and I like our chances today better than I ever have, frankly.

Okay. And then maybe switching over to Canada and staying on that theme of the landscape, the competitive landscape. How do you see Canada sort of evolving going forward? It's fair to say it's less competitive in the U.S.

Well, I don't want to pick on you. You're the host, but there isn't a bank that's going to come up on the stage that's not really competitive. They're all really competitive. And then there are a whole bunch of providers outside the core bank ecosystem that are very competitive. And I think we do a hell of a job keeping each other honest. I can speak to our agenda within that.

I talked about -- I get asked questions all the time about the reorganization and its implications for the U.S., but it also has really positive implications for Canada because I've got now really, really focused business leaders in Canada who have Canada as their strategic imperative and have Canada as their competitive imperative and competing with all the other players isn't easy. And they've done a really good job.

And if I look at my P&C performance in Canada, it's stacked up really well year-to-date. I look at the consumer side of the business. We're in net customer acquisition mode. Our benchmarking shows that we're top tier in net acquisition, top tier in net attrition, therefore, top tier in net customer growth. We're really focusing on retail, operating deposits, mutual funds, home financing. Those, we think, are our power alleys for growth going forward on the consumer side.

And then on the commercial side, you guys know our story. I mean we're the #2 commercial lender in that space of the $1 million to $100 million. We're going to defend that, and we defend that every day. That, again, is our strength in business owners. And that's a really good business for us.

If I was on the stage 3 or 4 years ago and said to your predecessor, we've got a position in that business that will defend the #2 market share on the lending book, but we had opportunity in the deposit side of that equation given our focus and our strategies, I'll bring that comment forward to you today. Over the last 3 years, if you look at the CAGR on our deposit growth in Canada and commercial, third-party data shows that we've grown faster than anybody. And so the balancing of that book now is even better. So I think that sets us up for some really good returns going forward.

And I haven't talked about wealth. Wealth is our highest return business. It's got a higher ROE than many of our competitors. And it's smaller than I'd like it to be because we've got a little bit of an underweight position there. So we're going to invest in wealth, in particular. And you saw that through the acquisition we announced for Burgundy, which should close later this year, and we'll continue to think about ways to invest in that business. So I may be, for the time being, hopefully, a short period of time, Mike, a little less bullish on the macro in Canada, but I'm really bullish on our competitive positioning in Canada.

You mentioned the lag with the U.S. So you would expect Canada to sort of catch up at some point.

I don't know, 6 months, something like that.

What about the cost side in Canada? We hear banks talk a lot about optimization of the branch network. I'm guessing that you're also actively doing that. You mentioned that you've talked about that in the past as well. Maybe just remind investors where your priorities are on whether it's branch count or not necessarily the number of branches, but how you're sort of looking to cut costs within your physical infrastructure.

In consumer and retail banking?

Retail banking.

Yes. So look, I think that the narrative has really changed. We've delivered positive operating leverage in all years but one over the last 6 or 7 years. We've got 6 consecutive quarters of operating leverage. That doesn't happen by accident. We've got very clearly defined strategies against revenues and costs.

And in the retail banking in Canada, I don't think it's so much how do you think about getting cost out as it is, how do you think about the most efficient channel delivery for the customer. And if you look at the digital side, we've had top-tier digital acquisition, and we've anchored all that digital acquisition around our value proposition to the customer, which is to make real financial progress. And that's really resonated with customers. So you get this maybe not unique, but rare combination where you can get top-tier digital performance and really good branch performance. And these are validated J.D. Power, all the rest of it, at the same time, the productivity in the branch and the digital acquisition strategies, that's how those flywheels start to turn.

So 10 years ago, the knock on us would have been, well, you have a smaller branch network and digital isn't fully operationalized yet. So therefore, you're really disadvantaged in consumer banking in Canada. Well, the world has changed, right? The equalizer has actually been the pace of the digital investment. And I think our teams have done it just about as well as anybody, and I'm proud of them for it.

Okay. Awesome. Any comments on the mortgage business? I know that's always topical for investors, not from a direct loss perspective. I think people are comfortable with the risk side. But what about on the growth side? We've seen sales volumes come in relatively weak this entire spring/summer lending season. It hasn't really been the rebound that many were expecting.

Yes, I don't know why many we're expecting otherwise because if you think about my comment earlier, we're sort of in this phase of people trying to figure out what their financial outlook is going to look like in 3 months, 6 months, 9 months on a couple of fronts.

Are we going to protect the trade agreement? Is my job safe? And by the way, everybody tells me the interest rate is coming down. So why would I step into the housing market today if I can wait 3 months or 6 months? So like to me, it's actually a very natural market reaction to where we are on the macro inputs.

And we're starting to see -- actually, if you look at the very recent data, there's a little bit of a perk up in housing demand in Canada. I think we got a little bit of a ways to go. I think you kind of have to check off some of those uncertainties before people will lag back into the housing market in Canada. But I think that will happen. I just don't know if it's -- as I said before, I don't know if it's 3 months, 6 months, 9 months.

In the meantime, the business is really good. It's just not growing at the pace that you want it to. But you can imagine a day, if you leg out further into 2026. I'm not promising this day, but you can imagine a day where we have lower interest rates, we've got an economic development growth plan in Canada that's attracting capital. And the GDP growth rate in Canada is not 1%, but rather 3%, and unemployment is not 7%, but it's 5%. That's pretty interesting, right? Like that's pretty interesting from a growth perspective for bank P&Ls. You got to wait to find out if those boxes are going to be checked by, I would say, end of this year in order to put that in your model for the middle of '26.

Okay. Maybe switching over to cap markets. Your pretax pre-provision guidance of $625 million. You sort of crushed that number the last 3 quarters. I think there is obviously an expectation that trading, which has been a big part of that...

You keep using the word crush. I hope that shows up on word searches.

Well, it's certainly been a very, very good sort of setup for BMO as well as your peers. Just wondering as that maybe moderates, perhaps volatility comes down in the market, we get a bit less client activity. How do you sort of look at that $625 million?

Yes. I'm not going to guide that number down, Mike. I think that $625 million was a number we set that we want to be consistently above through the cycle. It doesn't mean it's not going to be $1 below it in some quarter at some point. But in the main, I think we've invested well in that business.

If I look at the Canadian outcomes, most measures we look at league tables, we are very solidly positioned in the top 3 in almost every product every day. We have tough conversations when we're not. I can assure you. I ran that business so I have some idea of what kind of questions to ask. And I am very pleased with the development of the INCB business in the U.S. You saw a really good quarter from us in INCB in the U.S. I go back to this positioning in the mid-market across from business owners, and the teams have started to do a really good job there.

And the Global Markets business has been a really steady performer for us. We don't look to shoot the lights out in any particular quarter and take advantage of some aberration because we know nobody will give you anybody credit for that anyway. But if we can have a really consistent delivery above that $625 million level that you highlighted, the ROE in that business for us is 14%, which is as good as any of our peers. And that's a good outcome. I go into 2026, if the markets are constructive through 2026, you should actually expect more from us than that, not less.

How about on the advisory side in the U.S. I think it's clear that BMO has been very focused on how it's invested in cap markets in the U.S., very, very sort of structured, not looking to be all things to everyone. If we do get an M&A rebound in the U.S., how are you sort of positioned for that? Or are you looking to deploy more?

We're positioned really well if there's a strong M&A rebound in the mid-market in the core sectors where we are really, really deep in our knowledge base and our coverage. So think industrials, think food and consumer. I think sort of mid-market America, we are really well placed, and it also goes back to that connectivity with the commercial bank as well in capital markets.

Don't expect -- if an M&A boom is all around $25 billion technology mergers -- that we're going to play a large part in that. I mean we may pick around the edges, but that's not our game. That's not where we play. But in that sort of mid-market in those deals of those size, if we see a market [ surgence, ] we're not going to let that market get away. We're going to be in it.

And what about the cross-border dynamic in terms of transactions? Has that been sort of still being impacted by the geopolitical?

I think it is now, right? Like given where we are on the uncertainty around USMCA, it's difficult for a business owner or a CEO to make a decision that they're going to double down on their investment one way or the other. You'll see some of that. But I think until we see clarity on USMCA, it would be a natural place for folks to be to say, okay, we'll wait and see what my trade agreement is before I start buying on either side of the border very much.

Okay. Maybe switching over to capital. Obviously, BMO has been a very acquisitive bank over time, some sizable transactions in the past. And you've got a pretty good track record of making them work over time. Just given that we're now well past the closing of Bank of the West, are you starting to think about that now that your capital level is so strong and you're accreting capital quarter-over-quarter? How do you sort of think about M&A from the perspective of whether it's size, business line or geography? Any thoughts?

Yes. I guess I would say, Mike, you never turn off, like you never turn off. A good management team should never turn off the M&A antenna because you need to know what's going on. You need to know where the flows are, and you need to make your decisions as to where you're going to play. But I did make this point before. I mean there isn't much that goes on in the market in either country that we don't see. The really important thing is to be disciplined about you don't swing at every pitch. And some of those pitches are in the dirt or they're over the backstop or whatever. But once in a while, they're closer to the plate, and we'll take a hard look.

In the meantime, though, while that antenna is always on, I would say to you, our priority right now is the organic rebuild on the ROE that we talked about at the beginning of this conversation. The U.S. ROE is a hell of a lot better than it was 3 quarters ago, and it's now pushing up closer to 9% than 7%, but the goal is 12%, and we'll move along. And if we do something on the M&A front on our journey between 9% and 12%, it will only happen if I'm able to say it's not going to interrupt that journey. If it's going to interrupt that journey, we're not going to do it. Otherwise, we'll just continue to push on it organically as we go forward.

Okay. And then on buybacks, obviously, the NCIB, I think it's about 4% now. It gives you a lot of optionality. And maybe in the context of getting to that ultimate destination CET1, I'm not going to ask you for a time line, but I know you've been very vocal about 12.5% is a really solid number where BMO could operate at very comfortably, you'd be good with 12.5%. You're about 100 basis points above that right now.

We're stubbornly 100 basis points above that. And I've been very clear on this, and Tayfun has been very clear on this that 12.5% is the number. I think it is actually important to shareholders to call it out that, that's the destination. So I stand by that. That's where we seek to go.

And you saw the announcement last week of the share buyback, and it was really smart on behalf of our finance and treasury teams as you don't wait until a buyback expires and then apply for a new one and then you have a lag where you can't go into the market, why would we do that? So we just said we bought 16 million shares to date. The mechanic is you terminate that program, you launch a new one, that's 30 million shares. So I actually think of it as a continuous program, Mike. It's 46 million shares at the end of the day.

And our intent is to kind of keep at it while the capital levels are as high as they are. They're not the highest among our peer group, but they're higher than the average of our peer group. And the first priority, I'll always reiterate this is where the demand is. If there's good demand business, we're going to put the assets out to clients at the ROE thresholds that we've reestablished. But if it's not there and the loan book aren't growing and there isn't good demand, we'll be in the market buying back those shares until we get to 12.5%. And that's the goal, and we stand by that.

Okay. As we sort of get to the end here, any key messages you want to convey to investors in the room today.

Yes. Thanks. First of all, thanks for the opportunity. Thanks for hosting the conference. It's a really good one. You guys do a good job at a good time of the year so that people can get tuned in to what we're all thinking and what we're talking about.

For us, it's dead simple. Like if I look at the last 3 quarters, I think we're having a really good play against everything we said we were going to do in December of last year. I talked earlier about the rebuild of the ROE. 12% is nowhere near good enough, but it's a hell of a lot better than 9.8%, and we're on the trajectory to get to 15%. Good.

Inside of that, we've got the operating leverage that I talked about earlier is 4.7% year-to-date, which is quite good relative to most. That's good. Inside of that, the credit performance is also normalizing as we thought it would going forward. I think Piyush said on the call, we've gone from 66 to 45. We think we probably level out here for a couple of quarters as this Canadian uncertainty settles. And then hopefully, we resume actually some trajectory to the positive after that as well. So that's good.

And one of the things that probably doesn't get enough play is we like to talk about walking and chewing gum. Like everything gets a lot of air play when you call out a #1 imperative around ROE rebuild. We're also growing our earnings. Like in the quarter, we put up the fastest ROE improvement, but we also had 22% EPS growth year-over-year, which is the highest among our peer group.

So there's a lot of good things going on, and yet we haven't captured the benefit of some of the changes that I talked about earlier either. So as we go forward, we'll do all those things. And if the CET1 ratio is stubbornly high, we'll also be in the market with the share repurchase as well. So it's a pretty good package as I think about the outlook despite the uncertainties, I'm very optimistic.

Okay. With that, we'll end the conversation. Thank you very much, Darryl, for your insights. Thanks for joining us today. Very happy to have you join us and terrific.

Thanks for all that.

Good morning, and welcome to the BMO Financial Group's Q3 2025 Earnings Release and Conference Call for August 26, 2025. Your host for today is Christine Viau.

Please go ahead.

Thank you. We will begin today's call with remarks from Darryl White, BMO's CEO; followed by Tayfun Tuzun, our Chief Financial Officer; and Piyush Agrawal, our Chief Risk Officer. Also present to answer questions are our group heads Matt Mehrotra, Canadian Personal Business Banking; Sharon Haward-Laird, Canadian Commercial Banking; Aron Levine, U.S. Banking; Alan Tannenbaum, BMO Capital Markets; Deland Kamanga, BMO Wealth Management; and Darrel Hackett, BMO U.S. CEO.

[Operator Instructions]

As noted on Slide 2, forward-looking statements may be made during this call, which involve assumptions that have inherent risks and uncertainties. Actual results could differ materially from these statements. I would also remind listeners that the bank uses non-GAAP financial measures to arrive at adjusted results. Management measures performance on a reported and adjusted basis and considers both to be useful in assessing underlying business performance. Darryl and Tayfun will be referring to adjusted results in their remarks unless otherwise noted as reported.

And now I'll turn the call over to Darryl.

Thank you, Christine, and good morning, everyone. This morning, we announced another quarter of strong earnings growth and progress against our ROE rebuild objective. Third quarter earnings per share increased 22% to $3.23 and net income of $2.4 billion was the highest quarter on record. Pre-provision pretax earnings of $4 billion were up 13% with good contribution from every operating group. Credit was well managed with lower provisions compared with last year and last quarter.

Our CET1 ratio of 13.5% remains strong as we continue to execute share buybacks to return excess capital to our shareholders with ample flexibility to deploy our balance sheet to support client growth. We continue to invest to drive sustainable growth across our businesses, including our recently announced acquisition of Burgundy Asset Management.

Return on equity improved to 12% for the quarter. Execution against each of our ROE rebuild strategies, U.S. P&C improvement, normalizing PCL, overall operating performance and capital optimization is driving tangible results. Year-to-date, revenue growth was 12% and PPPT is up 19%, with strong all-bank operating leverage of 4.7%. We've now delivered positive operating leverage for 6 consecutive quarters and we expect continued PCL normalization to support ROE going forward. This remains our #1 imperative and Tayfun will elaborate further.

We achieved these results in what remains an uncertain economic environment. In recent months, some trade-related risks to the North American economy have eased, though the final outcome is unclear and geopolitical challenges persist. Canada's economy is navigating a period of modest growth amid shifting policy and global trade pressures. Most industries remain USMCA compliant and government programs are beginning to roll out to support the most impacted industries, limiting the negative impact.

Despite slower job growth, consumer spending has remained resilient. For the U.S., despite headwinds from higher interest rates, and tariffs, strong corporate earnings, a resilient labor market and continued consumer spending have helped maintain resilience in the U.S. economy and should support growth in 2026.

This quarter, we announced important changes to our organizational structure in U.S. banking to accelerate our performance even further. We've brought together our U.S. Personal and Business banking, Commercial and Wealth management businesses under the leadership of Aron Levine. Aron brings 3 decades of U.S. banking experience and will lead our go-to-market strategy, optimizing the strength and scale of all 3 businesses to drive greater synergies and superior one client service.

We've also announced new co-leaders in Canadian P&C with Matt Mehrotra leading Canadian Personal and Business Banking; and Sharon Haward-Laird, leading Canadian Commercial Banking as well as North American integrated solutions, including treasury and payments, cards and customer connect centers. These changes reflect both BMO's deep strength in talent development and our ability to attract exceptional leaders.

Turning now to highlights in each of our businesses. In Canadian Personal banking, we continue to drive top-tier, high-quality customer growth with deep relationships. BMO checking account growth is nearly double the industry benchmark, as measured by Argus Advisory driven by strong acquisition. These results are underpinned by robust digital and branch performance, fueled by the strength of our data and marketing capabilities and our commitment to real financial progress for our customers.

For example, our market-leading savings amplifier account has now surpassed $12 billion in deposits, attracting another $2 billion since last quarter. And we recently launched BMO preferred program for investors designed to help families build and preserve their wealth with reduced fees and personalized financial guidance. This innovative program is attracting good mutual fund flows of $1.4 billion to date while deepening customer relationships and growing households.

Canadian Commercial Banking had broad-based loan and deposit growth over the last year. We're seeing a pickup in conversations as clients gain greater clarity on the environment and prepare to move forward on their business plans. Client growth remained steady, supported by increased referrals between commercial, wealth and capital markets and continued momentum in digital engagement.

Our integrated Treasury and Payment Solutions delivered strong performance with fee revenue up 23% year-to-date across our North American platform. In U.S. P&C, continued momentum in PPPT growth reflects strong positive operating leverage through disciplined expense management and balance sheet optimization. ROE is improving and the changes to our structure I mentioned earlier will help accelerate our progress going forward.

We continue to see good client acquisition in U.S. PNBB in both the Midwest and West markets with over 90% coming from new checking clients, including 8% year-over-year growth in checking account acquisitions in our West markets.

In U.S. Commercial Banking, client engagement is strong, even as borrowers remain cautious amid policy uncertainty.

In our Emerging Middle Markets business, one of our highest return segments, we've deployed enhanced tools for faster, more predictable loan decisioning and deeper client insights, which are driving quality originations. One client referrals between this segment and Wealth Management are up 27% over last year, and fee income from Treasury and Payments continues to perform strongly.

Our Premium Commercial Banking Franchise was again recognized by World Finance Magazine as the best commercial bank in both Canada and the United States. We were also named the Best Private Bank in Canada, for the 15th year in a row, a testament to the exceptional service and strategic expertise our teams deliver.

BMO Wealth Management had a strong quarter with record revenue in Wealth and Asset Management delivered by continued growth in net new assets as we continue to strategically invest in talent and innovative products. The announced acquisition of Burgundy Asset Management will further expand BMO's wealth management and financial planning capabilities. Upon closing, we will be adding one of Canada's most respected independent investment managers known for its high-caliber team rigorous investment process and dedicated service to private clients, institutions and family offices.

We look forward to welcoming BMO's teams and clients to BMO. In BMO Capital Markets, PPPT has consistently been strong this year. The third quarter benefited from strong underwriting and advisory fees as we captured more mandates and executed on pipelines that had been building. We're winning more lead positions as we maintain a consistent focus on building talent and capabilities to support client needs. Trading revenue was strong across products, driven by our ability to respond quickly to evolving market conditions and client demand.

In the U.S., we saw good momentum in mid-market investment banking activity, and we're well positioned for profitable growth in the markets where we compete. Across our businesses, we continue to invest and deploy digital and AI capabilities to drive value in our businesses and for our clients, balancing innovation with disciplined risk management. We're seeing tangible value from AI in several areas, including decisioning, customer experience, software development and employee productivity.

We recently launched LUMI Assistant, BMO's award-winning AI-powered tool that equips frontline teams with real-time simplified access to critical policy and process information to provide advice and guidance to clients. This quarter, we also received the 2025 Celent Model Bank award for payments innovation for 5 separate digital payments and client experience initiatives. Our strong performance this quarter is evidence of consistent execution on our plan to rebuild ROE while continuing to manage risk effectively. Investments we've made in the business, paired with BMO's award-winning culture with industry-leading employee engagement are helping to power the progress we make for our clients, colleagues and the communities we serve.

With that, I will turn it over to Tayfun.

Thank you, Darryl. Good morning, and thank you for joining us. My comments will start on Slide 8. Third quarter reported EPS was $3.14, and net income was $2.3 billion. Adjusting items are shown on Slide 39. The remainder of my comments will focus on adjusted results. We delivered strong earnings growth with adjusted EPS of $3.23 up from $2.64 last year and net income of $2.4 billion, up 21%, driven by strong PPPT growth of 13% and lower PCLs. Revenues increased 10% with broad-based growth across all businesses, including strong fee growth in Wealth and Capital Markets and continued NIM expansion.

Expenses grew 7%, and we delivered positive operating leverage of 2.9%. Total PCL decreased $109 million from the prior year with lower impaired and performing provisions. Piyush will speak to this in his remarks.

Moving to Slide 9. We are firmly advancing towards our 15% medium-term ROE target for BMO and 12% target for U.S. P&C. Over the past 3 quarters, we have been executing across each of the 4 key initiatives, which has resulted in 130 basis points of improvement to 11.1% year-to-date. U.S. P&C ROE increased to 7.5% year-to-date, driven by PPPT growth of 6% and positive operating leverage, lower impaired PCLs and progress on balance sheet optimization initiatives. The overall impaired PCL ratio continued to moderate from the peak Q4 last year and credit migration continued to improve supporting ROE going forward.

Operating performance has been strong across our businesses with good PPPT growth in each of the operating groups and positive operating leverage of 4.7% year-to-date. And lastly, we remain diligent in our capital optimization initiatives as we continue to allocate resources to higher return businesses, including our announced acquisition of Burgundy Asset Management, while returning excess capital to our shareholders.

Overall, we are pleased with the progress we are making on increasing our returns, and we'll continue to provide updates across these key initiatives in future quarters.

Moving to Slide 10. Average loans grew 2% year-over-year, driven by growth in residential mortgages and commercial loans in Canada. U.S. commercial loans declined from last year primarily due to muted loan demand across the industry and declined from last quarter as new originations were offset by reduced exposures in low ROE relationships.

Customer deposits were up 3% from last year, with good growth in Canadian Everyday Banking and Commercial Operating balances, partly offset by lower term deposits as well as higher balances in Wealth and Capital Markets. U.S. Personal Deposits declined due to lower noncore customer deposits.

Turning to Slide 11. On an ex-trading basis, Net interest income was up 9% from the prior year with good growth in all operating groups, supported by continued margin expansion. NIM ex-trading was up 16 basis points year-over-year and up 2 basis points sequentially.

In Canadian P&C, NIM increased 1 basis point, reflecting higher deposit margins partially offset by loan growth exceeding deposit growth. U.S. P&C NIM was flat as higher deposit margins, including the benefit from deposit optimization activity was offset by the impact of lower deposit balances and loan margins. We anticipate continued margin stability at the all bank level in the fourth quarter based on the current market expectations and supported by our disciplined deposit management and asset mix improvements.

Turning to Slide 12. Noninterest revenue was up 3% from the prior year and up 11%, excluding trading, driven by strong Wealth Management and underwriting and Advisory Fees and Capital Markets as well as continued deposit fee growth in our Treasury and Payment Solutions business. We also benefited from a gain on the sale of a nonstrategic portfolio of insurance contracts during the current quarter.

Moving to Slide 13. Expenses were up 7% from the prior year, driven by higher employee-related costs and 4% excluding performance-based compensation. Our consistent approach to managing expenses in line with revenue growth, has delivered consistent positive operating leverage and efficiency improvements. And while we anticipate a typical fourth quarter sequential uptick in expenses, our ongoing commitment to positive operating leverage remains intact.

Turning to Slide 14. Our CET1 ratio of 13.5% remained unchanged from last quarter, reflecting good internal capital generation, offset by share repurchases and moderate growth in source currency RWA. We completed 6 million share repurchases during the quarter and 15.7 million shares to date as of August. Given the strength of our capital position, we announced our intention to initiate a new normal course issuer bid in September pending regulatory approval for an up to an additional 30 million shares.

Moving to the operating groups and starting on Slide 15. Canadian P&C net income was down 5% year-over-year as good PPPT growth of 6% was more than offset by an increase in PCLs. Revenue of $3.1 billion was up 6%, driven by higher net interest income, reflecting balanced growth in loans and deposits and higher margins, partially offset by lower noninterest revenue. Expense growth of 7% reflected higher technology and employee-related costs.

Moving to U.S. P&C on Slide 16. My comments here will speak to the U.S. dollar performance. Net income increased by 42% with strong PPPT growth of 10%, positive operating leverage of 5% and lower PCLs. Revenue growth was driven by higher deposit margins, more than offsetting lower deposit and loan balances and higher deposit fee revenue in both Personal and Commercial Banking.

Expenses were lower compared with the prior year as lower technology and advertising spend was partially offset by higher employee-related costs. Following the change to our U.S. organizational structure, beginning in the fourth quarter, we will be combining the financial results from U.S. Wealth Management with our U.S. Personal and Commercial business.

Moving to Slide 17. BMO Wealth Management net income was up 21% from last year, driven by strong revenue in Wealth and Asset Management, up to 11% from higher markets, continued growth in net sales and higher loans and deposits. Insurance revenue increased due to the gain on sale, I mentioned earlier. Expense growth of 8% was driven by employee-related expenses, including higher revenue-based costs.

Moving to Slide 18. BMO Capital Markets net income was up 12%, driven by PPPT growth of 3% and lower PCLs. Revenue was up 7%, reflecting good performance in Global Markets, driven by increases in debt and equity insurances and higher trading revenue. Growth in Investment and Corporate Banking revenue was primarily due to higher underwriting and advisory fees as we saw good improvement in client activity during the quarter. Expenses were up 9%, mainly driven by higher employee-related expenses. Capital Markets performance continues to align with the guidance that we gave at the beginning of the year as a moderation in trading activity has been offset by stronger underwriting and advisory fees, reflecting the strength of our diversified businesses.

Turning now to Slide 19. Corporate Services net loss was $123 million, reflecting higher revenue in the current quarter, partially offset by higher retained expenses. We expect a moderately higher corporate loss next quarter. In closing, we are pleased with the progress we delivered this past quarter. Revenue growth and expense management, along with further improvement in our credit performance, all continue to progress in line with the path toward our targets.

The underlying fundamentals remain strong, and although the results will not always be linear, we remain firmly on track to deliver against our medium-term guidance. As we end the year, we continue to focus on allocating resources to initiatives that will drive sustainable earnings growth while maintaining positive operating leverage. Collectively, the progress we have made so far and the future steps that we plan to execute gives us confidence in our ability to achieve our targets.

I will now turn it over to Piyush.

Thank you, Tayfun, and good morning, everyone. Our credit performance this quarter was in line with expectations. Key credit metrics continue to normalize with slower migration rates and lower formations to watch list.

Starting on Slide 21. This quarter's total provision for credit losses was $797 million or 47 basis points, impaired provisions of $773 million or 45 basis points were relatively stable compared to prior quarter. Looking at the operating group results. Canadian Personal and Commercial Banking impaired losses were $489 million, up $13 million from prior quarter. This was driven by higher losses in the Canadian unsecured retail portfolios reflective of unemployment and insolvency trends in Canada.

We continue to take proactive measures to manage losses within these portfolios, including early engagement with customers. In U.S. Personal and Commercial Banking, impaired losses were $240 million, down $7 million by lower losses in the U.S. Commercial businesses. Capital Markets impaired losses were $33 million, up $5 million from prior quarter.

Turning to Page 22. The performing provision on credit losses was a build of $24 million. While the macroeconomic outlook has become more positive vis-a-vis the environment after last quarter's tariff announcement, uncertainty remains around the impact from trade policies as well as fiscal policy developments. Moreover, we continue to watch unemployment trends in Canada. All of these factors were considered in our performing allowance assessment for the quarter. With this $24 million bill, our performing allowance stands at $4.7 billion and coverage is strong at 70 basis points over performing loans.

Turning to Slide 23. Impaired formations of $1.8 billion were stable relative to prior quarter. Gross impaired loans increased 3 basis points, driven by higher impaired loans in Canadian Commercial Banking. Our impaired provisions have been trending down this year in line with our expectations. At the same time, we remain cautious as the full impact from the current tariff announcements have yet to flow through the economy and the policy environment remains evolving.

We are actively managing risks through disciplined portfolio management and direct client engagement. We also expect monetary policy to be supportive. Against this backdrop, our prior guidance of high 40 basis points remains unchanged. The bank is adequately provisioned and has strong capital and liquidity levels to manage current and emerging risks.

I will now turn the call back to the operator for the Q&A portion of the call.

[Operator Instructions]

The first question is from Gabriel Dechaine from National Bank Financial.

Just want to ask about the U.S. well, loan and revenue growth outlook. There's quite a few moving pieces in there. I know earlier in the year, the outlook was for a strong second half, but obviously, a lot of changed in the macro environment. So I'm just wondering what the updated view on loan growth would be?

And if you can layer into that answer, the impact of, I'll call it, de-banking, whatever you want to call it, because it sounds like there's some lending or client exposures that you're exiting because they don't meet your ROE targets. There was a story in the press last week that you're maybe looking to sell the Transportation Finance business. I don't think you want to comment specifically on that one, but may be generally. And yes, let's just go with that.

Gabe, it's Darryl. Thanks for the question. I'll give it a start, and I might kick it over to Aron actually and has made in voyage here to give us some perspectives as you said, a few weeks to look into these questions with us as well. So look, when you think about loan growth for us, I don't have to remind you this, but in general, in the United States. We're talking more about wholesale loan growth than we are consumer loan growth. And when I step back from it, I'm actually quite comfortable with where we are, and I'll explain to you why I say that.

This has been, as you know, for a very long time for decades, one of our best businesses and one of our more competitive businesses across the U.S., our Commercial business and our Wholesale Capital Markets business. And we've been at this for decades. And so I've always considered this a power alley and I'm going to consider it a power alley for us as we go forward as well.

At the present moment, I think what we're seeing is a combination of some macro factors that you referred to. But specifically for us, I see this as a really interesting and positive short-term reset. We're looking at managing our PCLs down. We're looking at optimizing through some low-return assets on the balance sheet.

I would say in the meantime, it's interesting that utilizations are down a little bit. But originations are actually up underneath the cover. So that's good news and a good sign as we think about going forward. And as I go forward, I've said this to you before, all of you. My expectation for this business as we benefit from this reset that we've got right now, gets really exciting because if the market grows and we do expect it to grow as we go through the back half of this year and particularly into next year, you should watch us grow at market or better in terms of our asset growth.

But Aron, why don't you jump in here on your observations?

Okay. Thanks, Darryl. Well, first, let me say I'm just extremely excited by what I found here in the first month. I spent opening month mostly listening to clients and teammates and it's really reaffirmed 2 things that I felt before I came here. One, BMO has a terrific commercial business, a lot of talented bankers, great industry expertise. But I'm particularly excited about the strength that BMO has in relationships across the entire spectrum of businesses; business banking, commercial, corporate as well as our wealth advisers have a great deal of relationships.

So when you think about the significant opportunity that gives us to not only grow on the commercial asset side but also the personal loan and deposit side, that's a great foundation to work off of. I'd also point out that when you combine the scale of the Personal business, not only the strength that we have in the Midwest but now the scale that we've acquired on the West Coast and the ability to serve clients across the entire wealth spectrum, mass affluent, high net worth, ultra-high net worth, there is a huge opportunity for us to expand with our roughly 4 million clients, especially in the mass affluent segment.

So when you think about bringing together 3 lines of business, which is certainly a key mandate for me and deliver the full enterprise, and that, of course, includes our great Treasury Management platform, our global markets, our Investment Banking capabilities, the opportunity for us to win and grow. And as you see, all the things Darryl talked about with ROE optimization, working its way through, real opportunity to have the momentum start to come through our results. So very excited with the first month here, and the team is doing a great job in working together to drive us forward.

Just a quick one. You're moving the U.S. Wealth business into the segment makes sense geographically for us. Does that mean were we looking at CAD 60 million of earnings and your 12% ROE target for the business will increase?

Yes. I think the key when you think about moving the Wealth business, it's -- again, this connectivity that is so critical. The Wealth business will benefit greatly from the connection to both the Personal and the Commercial businesses, bringing the leaders together to make sure that we're serving clients and can deliver across all of the different needs of the enterprise. That's a really powerful combination.

Gabe, we're not adjusting the 12% target. The 12% target remains because it's rather a small contribution.

The next question is from Matthew Lee from Canaccord Genuity.

Maybe on U.S. Credit, just a bit of a surprise to see a recovery of performing this quarter. I know you had a sizable bill last year, but does the release indicate kind of a more positive view on the U.S. economy? And maybe should we expect to see more performing releases if the economy proves resilient?

Yes, Matt, thanks for the question. It's Piyush, I would say there's a couple of factors that we've always considered when we go through our performing process. And again, it differs because of the 2 different geographies. So what you're really seeing in the release in the U.S. performing is a couple of factors. One, the macroeconomic forecast for U.S. has become better. Canada is improving, but the tariff uncertainty still holding things back in Canada a bit. The U.S. economy, as you see, has been doing better. So the macroeconomic outlook is a big driver, coupled with the speed of ratings migration.

The portfolio quality continues to stabilize at a faster rate. And you're seeing that also in our overall impaired performance in the U.S., it's improved much more year-over-year in the U.S. than it has. So it's just, again, a combination of these factors that are driving the performance -- performing provision release in the U.S., offset by the build you're seeing in Canada.

And as a quick follow-up, given the current economic outlook, do you think we've hit peak impaired PCLs in the U.S. yet?

I would say, given everything you've seen over the last 3 or 4 quarters, the answer is yes. Things have significantly improved. We've been managing our portfolios pretty tightly. So we have a good control and a handle on what's in our watch list and what's in our impaired. So I feel reasonably confident about that. At the end of the day, the hardest part is to give you a sense of the macroeconomic assumptions as we go forward. There will be quarter-to-quarter variability. We've talked about this in these calls, one or two files can move things because of the nature of our portfolio. But generally speaking, I would give you the confidence that we have passed our high point or the peak in the U.S.

The next question is from Ebrahim Poonawala from Bank of America.

I guess just wanted to follow up on the Canada macro. So I guess maybe Darryl or Piyush. It sounds like as I put together -- I think Darryl, you mentioned client conversation Canadian P&C also picking up. So things seem to be on the improving trajectory. Would love to get your feedback around -- yes, there's tariff uncertainty. But as you look forward, are you more optimistic where growth and credit outlook within Canada is headed? And I ask this because there's ongoing debate around whether the economy is still stuck in some version of a recession relative to how kind of bank stocks are priced. So I would love to get your perspective on where you think directionally, we are headed? And then can the administration in Canada increase the speed of that improvement if, in fact, you believe things are getting better?

Yes. Thanks, Ebrahim, for the question, Darryl. Look, I think where we are is we're sort of in the middle innings of this weaving through a very modest growth environment. I mean, at the end of the day, in the back half of the year, if we're in the zone of 1%, 1.5% growth, I wouldn't be surprised as we look around the economy right now. You're seeing a combination of factors where you've got impacted households, impacted industries who will do what you would naturally do when there's uncertainty, which has hit some pause buttons.

But you've also got the fact that, as I mentioned in my prepared remarks, the vast majority of industries are USMCA compliant and are moving right along. So in this period, I'll call it, pre the USMCA renewal window, the economy is sort of moving at a pace that you'd expect. It's not neither robust nor does it feel recessionary in Canada, and you've got some segments that will naturally slow down when that happens.

As we look forward into 2026, I think, was sort of if I could paraphrase the back end of your question. I think it will depend greatly on both the macro and the trade file. and on particular initiatives that I think you're referring to. And we've definitely got a positive narrative in terms of pro-growth and pro economy policy today that I think is a welcome improvement from what we had seen in the past. But at the same time there, we need to see actions behind words. And as we get closer to those, if I could put those 2 factors together, you could get yourself into a more optimistic place for 2026.

Got it. And if I could follow up, I guess, maybe for Aron. So one, congratulations on the new role. But just talk to us, like looking at the Slide 9, I think, Aron, you mentioned strong foundation, great customer relationships. As we think about the U.S. P&C ROE at 8.7% headed towards 12% plus, it seems like the credit leverage is more or less baked in when we look at Q3 numbers. Just talk to us what you think in terms of identifying areas where you see the biggest bridge sort of to get that ROE improved. One, how quickly do you think it can be achieved? And does it require like tech investments, hiring of personnel to get there?

Yes. Thanks, Ebrahim. I appreciate it, and thanks for the nice comment. Look, as you heard, we are doing a lot of the great work around the ROE and efficiency. So the key next piece of the puzzle is how we deliver sustainable, profitable loan and deposit growth. And I think there's several things that we are already doing and in process that we can build upon. First, this idea of a unified business organization, it does allow us to accelerate the delivery of the full enterprise to clients, right? So you can see that in early results in the NIR, commercial Strategy services, capital markets activity and that ongoing pickup of how we deepen with existing clients and drive more of the enterprise to each one is a critical component.

Second, you do have to invest in the business for sure. So we have technology investments that we'll be making, obviously, investing in our branch footprint through renovations and new centers. And as I talked about and probably critically important, investing in talent. Not only have we brought in some terrific leaders from the outside, but a lot of internal promotions of top talent, and we're seeing some of those benefits already come through on wealth, new asset growth and a growth in pipeline. So as always, it's a combination of all those things. You have to invest in the business. And you've got to really drive out the opportunity to leverage what we're great at, the scale we have, the North American capabilities, our really strong treasury and capital markets platforms. And so all of those things is what makes me feel very optimistic for our ability to show growth here, and that will come through as the ROE optimization work starts to pull itself through.

The next question is from John Aiken from Jefferies.

Piyush, in terms of the formations that we saw in the quarter, commercial real estate on this side of the border had a bit of an uptick. Were there -- was this one credit? Or were there several in part of the portfolio?

John, yes, so there is some new formations in the commercial real estate, as you've seen on the Canadian side. I just step back, I mean, the portfolio generally has performed very well, in fact, better than our expectations. But we've been watching it closely for the last few years. And some of the files were in the watch list so that we were tracking those. But you're right, it's one idiosyncratic file that's one developer that moved into the impaired formation. And it's actually a combination of projects that we've lent to within the developer where you see this impaired formation increase. But these will get resolved as we have in the past. And so while we've also taken some impaired provision, we're also seeing some positive news happen in several of those projects as we go through the appraisals and the resolution.

And the projects, are they spread across the country? Or is there a regional concentration?

No, it's diversified. It's a developer that had some challenges. So it's multiple projects. Some are doing very well and some needed some resolution. So it's a combination of the diversity of those projects.

The next question is from Doug Young from Desjardins Capital Markets.

Just maybe bigger picture, going back to just some of the prepared remarks. I mean, Darryl, you mentioned in yours, I think credit improving, helping driving EPS growth. And then Tayfun, I think you talked about credit migration and the benefits that should have moving forward on ROEs. And so what I'm trying to go with this is, are you signaling basically that PCLs peak like this quarter is kind of the new high level and that we should be thinking about PCLs improving from Q3 levels over the coming year. And just trying to get a sense of that and thinking about the evolution of the impaired and the performing over that period.

Yes. I mean, look -- It's Darryl. I'll give you a macro thought on your question, and I'll ask Piyush to come in on the PCLs particularly. But look, I was -- if you go back to Page 4 of the presentation, the opening construct that I was trying to get us all in was that there are a number of factors that are contributing to the increased performance. When you go through the levers that we identified for the ROE rebuild, and I've spoken to shareholders a lot about them since the fourth quarter of last year when we called it out, we've made progress on each of them. So you've seen the PPPT growth in our U.S. businesses. You've seen the normalization of Credit from 66 basis points at the high down to 45 today on the impaired side. You have seen some capital optimization decisions that are starting to bear some fruit.

And of course, you've seen the total bank operating leverage, which sits at 4.7% year-to-date. So it's the formula really that's driving the outcome to get us to 12% today, and that gives us the confidence. And I'd say probably increased confidence that we'll get to the target that we identified for you at the total bank level at the 15% as we continue to push on this journey. PCLs are one input into that formula, not the only one.

So did you want to comment on the PCL side?

Sure. Thanks, Darryl. Doug, it's Piyush. So I would say, when you look back at where we were 3 quarters ago, we've made tremendous progress overall across all of our portfolios to get to our 45 basis points, and we're very pleased. This is -- there's tremendous progress on a turnaround from our '24 story to where we are. The way I think about PCLs is the 2 pieces. First is the improvement in credit performance in line with what we expected when we provided guidance at the end of last year, using the then consensus economic outlook. And the answer is yes.

Our projections in our credit performance and fundamentals are intact. And that's what you see in the metrics as you're seeing in this third quarter performance. But the second piece also important is what's the incremental impact from the revised macroeconomic outlook and the tariff environment. And here, I would say, while we have an excellent handle on the portfolio, externally, there are puts and takes whether it's trade policies and goods not covered by the USMCA or the timing of implementation of our federal funding programs or even changes in interest rates, all of this has an impact on the business investment both in Canada and the U.S., more importantly, business sentiment. And then ultimately, on the macroeconomic variables, most importantly, unemployment, and unemployment in Canada is still high at between 6.8% and 7%. And so it's going to take a while for that to show up in some of these metrics. As they go down, there's a 3- to 6-month lag to show up in our overall PCL metrics. So net-net, when I sum it all up, it'll be plus-minus where we are in the current environment, but I'll give you better guidance as we go through the next quarter with hopefully more certainty and more resolution in the next 3 months.

And just one is, one follow-up. It sounds like you're seeing even some if this is right, you seem more confident in the U.S. versus Canada. Is that a fair interpretation?

I'm confident about the quality of our books in both North and South. It's the economic uncertainty that just needs a little bit more resolution, especially for Canada.