Prepared remarks
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 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. 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 number one ROE and number one EPS growth, we continued that momentum in Q1 and again this quarter, with Q2 ROE up 370 basis points from a year ago to 13.5% and EPS up 40%. Year-to-date, underlying ROE is up 200 basis points and EPS is up 30%. 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 strong sequential loan growth in the quarter. As expected, we believe that we've now reached an inflection point in this business that will drive an acceleration in profitable growth going forward. All of these improvements position us well to achieve and sustain our number one imperative of a 15% ROE as we exit fiscal 2027. Each of our businesses delivered strong results this quarter. In Canadian P&C, we continue to execute our deposit-led client growth strategy with core operating deposits up 7% in retail and 8% in commercial year-over-year. Canadian Commercial Banking saw strong customer acquisition across segments. New client growth was up 18% compared with last year, with particular strength in our mid-market segment supporting stronger loan growth, up 2% from last year and last quarter. Treasury and Payment Solutions continues to anchor our client relationships with fees up 12%. In Canadian Personal and Business Banking, we're translating deposit strength to deepen investment relationships. Our teams delivered record mutual fund sales this quarter, up 49% over last year, including continued strength in our preferred program for investors. In U.S. banking, we're executing against our 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 number one ranking in ECM and the top position in investment banking share of wallet in Canada as well as growing M&A activity in the U.S. Our world-leading Metals and Mining business led the way with multiple transactions this quarter. 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 six 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 one 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 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 one-time items this quarter, including elevated Canadian P&C card revenue as well as the prior-year loss on sale of the U.S. non-relationship card portfolio. Turning to Slide 13. Expenses grew 6% and were up 3% excluding FX and higher performance-based compensation. 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, enhance our liquidity and will be accretive to ROE by about 30 basis points as we allocate capital to support profitable organic growth. Moving to the operating segments and starting on Slide 15. Canadian P&C net income was up 15%, reflecting solid PPPT growth of 5% and lower performing PCL. Revenue was up 5% from higher NII on margin expansion and loan growth and strong growth in NIR driven by higher commercial TPS fees, mutual fund distribution fees and elevated card revenues, partially offset by a reduction in certain retail deposit fees effective this quarter. Expense growth of 5% reflected continued growth investments offset by cost optimization efforts. 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 one-time impacts last year, reflecting success of One Client initiatives with higher TPS, M&A and Wealth Management fees. Expense growth of 2% reflected continued investments in talent and technology, net of cost optimization efforts. With the expected closing of the announced sales of our transportation and vendor finance portfolios, and 138 branches in the fourth quarter, our balance sheet optimization efforts will be effectively behind us. 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 offset by lower interest rate trading. Investment and Corporate Banking revenue increased 26%, driven by 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 the prior quarter was impacted by severance charges and seasonally high expenses. We expect net losses to trend moderately higher for the remainder of the year and the full year to be in a similar range as the past two years. In summary, the results this quarter demonstrate our continued progress to enhance profitability and accelerate growth. We delivered record net income and PPPT, continued ROE expansion driven by core operating performance and maintained strong operating discipline and balance sheet strength. These results demonstrate consistent execution across our BMO-specific levers and position us well to continue to improve 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. 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 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 from conservative 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 into 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.
Questions and answers
Your first question comes from the line of John Aiken from Jefferies.
Just wanted to ask about your commentary on the domestic consumer softening. Are we expecting this to carry on through the second part of the year? I understand your guidance is not talking about consumer specifically, but it's the entire portfolio. Are we expecting to see some ongoing deterioration in terms of Canadian households? And do you have any expectation as to when that might begin to moderate?
Yes, thanks, John. I would say the benefit of the diversification is you're seeing the improvement in our wholesale. To give you a quick summary, we were at about 60 basis points, improving to 50, 40 and now down in the 30s which is offset by some of the weakness you're seeing in the macros, especially in Canada. Within that, we expect delinquencies to continue to go up. But again, the unsecured book, we've taken a lot of de-risking actions. Those are bearing fruit, but you will continue to see some rise in delinquencies. The unsecured book is very small for us. On the secured side, we actually have 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. From our experience, nine out of ten delinquent borrowers are self-correcting and the places where we do take action—we're seeing a very high recovery rate north of 98%, 99%. Our goal really is to help our consumers. We have an early reach program and multiple tools, and we want to keep our consumers in their homes while working with them to find good, sustainable 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 the broader effort to improve U.S. ROE. As you look across the U.S. business today, do you still see additional opportunities to refine that portfolio—maybe acquisitions, dispositions, balance sheet 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, thanks for the question. When we began the optimization program six quarters ago, this is really the time at which we thought the program would be complete. 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. 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 to invest principally organically. I will reemphasize in the markets where we can continue that multiproduct, multipronged, fully vetted relationship with clients. So nothing new in my answer, 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 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 PPPT 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 more durable than originally contemplated?
Thanks, Matt. I appreciate the question. We feel good about the broad-based performance in our business this quarter, which really is a reflection of some of the investments we've been making. If you reflect back to our Investor Day, broadening out our product capabilities and the asset classes that we are transacting is really reflected in this type of performance. We feel great about all of those elements. As we look forward, we see pipelines that 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. As long as markets remain constructive, we see clients that are prepared, willing and anxious to transact. We feel good about that forward look, but we are seeing some modest moderation in activity levels. As we think forward, we are focused on delivering above our historical trend-line performance. I'll leave specific numbers 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 NIM-type questions. The outlook you're saying is stable, and that's where people use the word a lot, but I want to assess a few trends here. In the U.S., we've got loan growth—sounds like it's accelerating, which is great to see—but I'm wondering how that outlook changes given loan growth continuing to outpace deposit growth. At the treasury level, you've taken some actions that look like more lower-yielding assets and some mix change and maybe more wholesale funding, at least temporarily. Are these factors going to outweigh the tailwind, which is mainly the reinvestment yields that are higher?
Gabe, thanks for the question. I'll take the second part first and then the first one. The higher corporate low-yielding liquid assets were just a function, as I mentioned in my prepared remarks, of prudent liquidity management. We've got a few variables going on: two pending dispositions in the next few quarters, some upcoming debt maturities, and uncertainties from the geopolitical situation. So we've been navigating with caution as we manage these variables. In the next few quarters, we do expect these levels to remain higher as we pass through this. That part has pressured NIM sequentially but is largely immaterial for ROE. On the outlook, we think margins will be relatively stable going forward. We still have tailwinds from laddering investments for a couple more quarters. There are a lot of efforts across the businesses to improve our mix, which will be a tailwind. As loan growth picks up in both countries, there will be some mix impact and these higher liquidity levels will remain for the next few quarters. Overall, we expect relatively stable NIM, though it may bump around quarter to quarter.
So that loan growth in the U.S. and in Canada should soak up some of that excess liquidity at the moment. And just a follow-up on the U.S., it sounds more bullish in the outlook. Is it wrong to conclude that an acceleration of C&I loan growth will absorb that excess not just the excess liquidity but that excess capital generated from the transportation finance division such that that 30 basis points of ROE expansion could be within the next year, roughly?
It's Aron. Let me jump in on that one. First, really pleased with the second quarter—important that the loan growth was broad-based, across commercial real estate, asset-based lending, diversified industries and across geographies. We're seeing the benefits of the bankers we brought in across the country, especially on the West Coast. The strength of the commercial bank that we've talked about is really coming through as the optimization program has wound up. We feel very good about the outlook for the rest of the year, pointing towards the mid-single-digit loan growth for the year that we've talked about. So far in May, we're seeing continued momentum. Pipelines are strong, and we'll continue to drive this and remain on the path we're on.
Your next question comes from the line of Ebrahim Poonawala from Bank of America.
Good morning. On margin and ROE, maybe Darryl and Rahul can comment. As we think about incremental growth, Canada is super competitive—banks going after the same clients; immigration is slower. The U.S. is super competitive on deposit pricing. We are seeing promotions recently. There's some excess liquidity you can absorb in the U.S. that should help margin. Over the next 12 months, how should we think about the dynamics? Is the incremental growth a sub-15% ROE business coming on? How do you think about that? Is it different in Canada versus U.S. such that as growth comes up, on a relative basis it should be a headwind to NIM and ROE and maybe you make up for that by overall efficiency?
You tagged both Rahul and me, Ebrahim. I'll start with the strategic imperative and Rahul can add on margins and NIM positioning. We're competing heavily in both markets. Both markets are competitive with different dynamics. In commercial, we have very strong market shares in Canada. We had loan growth in the quarter around 2%, which is an important marker because it's higher than where it's been, but we're being very selective in where we choose growth, and we're selecting for full client relationships and higher returns. We are not putting on business that's below our return hurdle. In the U.S., we have clear market share opportunities given the strength of the franchise, which we've repositioned over the last several quarters. We've added capacity, and we're able to compete in a disparate market. Again, we're very selective about growth and we're focused on higher-quality business. Rahul, would you like to add?
Yes. Ebrahim, I appreciate the point. Deposits will be under some pressure in this rate environment, but we also have deliberate initiatives across both countries and all the businesses to grow core operating sticky deposits. While environmental headwinds exist, we are focused on controllable tailwinds. Ladder reinvestments also have some room left for a couple more quarters. Putting it together, while NIM is expected to be relatively stable, we are focused on revenue diversification and growing higher-fee businesses. Our technology and fee revenue grew meaningfully year-over-year, and that helps us drive outperformance and returns through the cycle.
That's helpful. A separate question on the U.S.: the back half of the year is supposed to be the pickup in lending as you've done optimization. There's concern that higher rates and geopolitical uncertainty could derail domestic CapEx in the U.S. and the momentum. When you talk to clients, has that changed for the worse over the last 30 to 60 days? How would you sum up overall loan demand and the growth outlook in the U.S. into the back half and into next year?
Ebrahim, it's Aron. No, in fact, our March and April have shown momentum growing. That's what drove the quarter-over-quarter improvement. It has picked up over the last 60 days. Our clients are active and cautious, taking into account the macro environment, but given that growth was broad-based, we're seeing growth across different segments, industries and geographies. That diversity gives me comfort. Pipelines are strong, and we continue to see momentum in the early part of the third quarter. So I feel comfortable we're on the path we've set, aiming for 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 a few quick ones. Rahul, you talked about strategic actions to improve deposit mix and benefit NIMs. Can you remind us what some of those are and if they're different between Canada and the U.S.?
Sure. Why don't we start with Canada and then go to the U.S. to talk about some of those initiatives?
Doug, 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 retail driven by very strong net client growth on a relative basis. In our commercial business, very strong TPS performance and strong client growth has given us the optionality to optimize our deposit mix, which has been favorable and a tailwind to NIM. We see those underlying trends continuing.
On the U.S. side, as Darryl mentioned, our core deposits are up 4%. We're seeing strong work on the mass affluent segment, which is up 20% year-over-year coming out of our financial center channel. The work we're doing to bring the business together—consumer, business, treasury—gives us opportunity to drive core operating accounts. Between mass affluent and other efforts, we're starting to see results.
When you roll that up, is there any way to quantify the benefit you would have seen in the quarter from these actions? And what level of benefit could you see quantitatively over the next year?
Quarter-over-quarter, while average deposits declined due to seasonality and our deliberate actions on term and CDs, underlying that was well north of $2 billion increase in deposits on these core sites. So we're trading off some volume for wider spread, and that is the nature of the improvement in core deposits.
Okay. And then about the elevated card revenues in Canada, what drove that and can you quantify it?
Doug, we did see above-trend card fees. We always manage volume-driven costs in this business, and we saw an improvement this quarter. The improvement was reflected in a bit of outsized performance this quarter, but we expect more sustainable but lesser gains in future quarters. It was primarily 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.
A couple on credit, one short-term and one longer-term. First, Piyush, on Slide 28, the move in credit card PCLs is big. Are your credit card customers the same as your personal loan customers and residential mortgage customers, or would it be right to suggest that residential mortgage customers have much higher credit scores than your credit card customers and there isn't much overlap? I'm worried the spike in credit card PCLs could be the canary in the coal mine for everything else. Help me understand that.
Thanks, Mario. None of this should be a surprise; we've been discussing this for a few quarters and signaling the weakness in Canada with insolvencies at an all-time high. The weakness is playing out in the unsecured segment. Our unsecured segment skews more mass, and changing that mix takes a few quarters. We are beginning to see benefits. Our overall loss amounts are flattening. The rate change is driven by multiple factors, especially the denominator impact because our overall book in that segment is shrinking as we replace it with more premium segments, which are slow to build, especially in an economy with higher unemployment and slower immigration. I'm not worried about spillover from unsecured card losses to the secured mortgage side, given the value of collateral and conservative underwriting. Matt, anything to add?
Mario, the underlying credit quality of these books is very different. They're different businesses. The pressure in the card portfolio reflects the mix of our book and broader macroeconomic conditions. Piyush mentioned the performance in our premium growth, which has been positive—we're up 8% year-over-year in that area, reflecting partnerships and growth within our existing franchise. We don't expect spillover; underwriting standards in the businesses are very different.
I want to flip to a longer-term question on credit. My observation is that over the last 25 to 30 years, the amplitude of credit cycles for Canadian banks seems to be getting lower. I'm trying to understand why. Is this because loan mix has changed, banks became more disciplined, capital standards require it, or is it because we haven't had a recession? If a recession happens, will banks reveal themselves to be cyclical as before? I'm trying to figure out what the market thinks setting bank multiples where they are, essentially saying banks aren't cyclical anymore. Can you help me think this through?
Briefly, Mario: we've seen many cycles and have long memories. What we're seeing now is from a risk-return perspective a very profitable portfolio. Unemployment has crept up, inflation is hurting and rates remain higher than several years ago. Fiscal policy rollouts and other supports haven't fully come in yet, which may be beneficial later. To me, current softness is somewhat transitory. We're seeing geopolitical uncertainty and taking early actions to de-risk where we can. The diversification of the portfolio across retail, wholesale, U.S. and Canada is helpful. I don't see this as a stress scenario; we're managing well and remain disciplined. I'm standing by what I said at Investor Day that by the end of 2027 you should see us get down to our mid-30s in PCLs.
Mario, speaking for the bank, we are different today than 15 or 20 years ago. While I can't predict the next 15 years, the quality of underwriting, use of technology to guide outcomes and earlier intervention are materially different. That approach should provide better outcomes over time on a like-for-like basis, 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. Aron, you made it clear that the improvement in U.S. commercial loan growth is broad-based, including geography. I want to drill down on California, given its importance to your growth plan. I understand it's early, but can you provide color on growth in California specifically?
It's Paul. We've built a very strong team in California. Tony and the team have done a terrific job bringing in new leadership and bankers across the state, and we're also developing talent from within. The combination of new talent, new leadership and legacy BMO bankers performing well is driving growth. The partnership with Capital Markets continues to strengthen, and the TPS business is growing. Executing on local delivery and industry expertise is supporting that growth.
So the growth in California is kind of on par or similar-ish to the rest of the U.S.?
In the last 60 days, we've actually seen a little acceleration in the West relative to other parts of the country. We're seeing a bit more acceleration off a lower base and leveraging the acquisition and client relationships on the West Coast. We're providing broad relationships across banking, Capital Markets and Treasury, and that's supporting success.
Okay. And then maybe quickly on commercial loan growth in Canada, you had an inflection with first sequential loan growth of 2% in a while. What's driving that growth, particularly given what looks like a lackluster economy?
It's Sharon. This was a bit of an inflection point in loan growth, with sequential growth of 2%. It's broad-based across industries and geographies—slightly higher utilization but mostly good client growth. As Darryl mentioned, we've seen strong client acquisition and our pipelines are at historic levels. As uncertainty clears, I think we'll see even stronger growth.
So 2% is kind of a sustainable near-term growth rate and could accelerate?
Yes, we expect to continue to see sequential quarter-over-quarter loan growth. As I said at Investor Day, low single digits in a cautious environment, and it could be higher if we get tailwinds from the macro.
Your next question comes from the line of Mehmed Rizvanovic from Scotiabank.
Going back to Aron on the U.S. business, we've seen a pickup on the C&I side industry-wide and you sound relatively bullish. Can you delineate how much of that is market-driven versus things you're changing in the business? Could you potentially outgrow peers if there is a pullback, and can BMO stand out because of the primacy initiatives you're pushing?
You get the benefit of both market tailwinds and internal execution. A stronger economy in the U.S. helps activity levels, but we're also benefitting from the strength of the commercial franchise, the West Coast base from the acquisition, new leadership and talent, and our ability to work with clients. The optimization program ending has allowed pipelines to build and strength to come through. We can continue to deliver mid-single-digit growth, and most importantly, very profitable and sustainable growth, while also driving noninterest revenue and capital markets fees through deeper client relationships.
I might have missed earlier: you mentioned the pace of branch openings in California—was it one per month?
Yes, one per month in Southern California for the rest of this year. These centers are in great locations in San Diego and L.A. and are designed to deliver banking, lending and investments for mass affluent clients. This is part of the broader plan to open 150 total centers over the multi-year plan. Right now, we think we'll get to about 27 to 29 new centers next year, so you'll see the pace increase in 2027.
And then on Personal and Business Banking, that book has been a bit stagnant for the last six or seven quarters. Anything to add there in terms of the slight underperformance versus the industry focus?
I wouldn't say it's less of a focus—given my background it's an important part of our business. The team is executing. We've repositioned through an optimization program to reduce higher-rate deposits and focus on core operating deposits. Given the scale and effort, we're seeing improvements. The mass affluent segment being up 20% from our financial center channel is one indication. We have other indicators as well and we're 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 disciplined execution on the plan we outlined in March at our Investor Day. We've shown meaningful progress against those commitments and we have strong momentum towards our goal of elevating returns and accelerating growth. With that, I look forward to speaking with all of you again in August. Thank you.
This concludes today's meeting. You may now disconnect.