Bank of Montreal (BMO:CA) Q1 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call summary shows mixed signals: strong U.S. ROE improvement and loan growth optimism, but unclear NIM sustainability and vague responses on key issues like Canada's housing market. The Q&A highlighted management's confidence in strategic initiatives but also revealed uncertainties, such as deposit competition. Without a clear catalyst like a partnership or guidance change, and lacking market cap data, the stock is likely to remain stable.
Key Financial Performance
Adjusted EPS $3.48, up 15% from last year. This includes a severance charge of $202 million that reduced EPS by $0.21. The increase was driven by strong core operating performance across businesses.
Pre-provision pretax earnings (PPPT) $4.1 billion, a record high. This was powered by record revenue in all operating segments, strong fee growth in market-driven businesses, and margin expansion in Canadian and U.S. banking businesses.
Return on Equity (ROE) 13.1%, up 180 basis points from a year ago and 130 basis points from Q4. This reflects strong core operating performance across businesses, including U.S. Banking.
Canadian P&C earnings growth 8% year-over-year. This was driven by consistent growth in core operating deposits and a 10% increase in Canadian Commercial Banking revenue.
Canadian Commercial Banking revenue Grew 10% year-over-year. This was supported by new client acquisition, a 9% growth in operating deposits, and a 13% increase in treasury and payment solutions (TPS) fees.
Canadian retail mutual fund sales Grew 13% year-over-year. This was driven by leveraging personal bankers and digital capabilities to deepen customer relationships.
U.S. Banking revenue Record revenue with a 3% growth in noninterest-bearing deposits. This was driven by personal account acquisition and net client growth.
Wealth Management earnings Up 16% year-over-year. This was driven by stronger markets, net new asset growth, and the integration of Burgundy Asset Management.
Capital Markets pre-provision pretax earnings (PPPT) $893 million, driven by strong trading activity and higher advisory fee revenue.
Net income $2.6 billion, up 11% from last year. This was supported by record PPPT and lower provisions for credit losses (PCL).
Revenue Increased 6% year-over-year (8% on a constant currency basis). This was driven by broad-based growth across all businesses, including strong fee growth in Capital Markets and Wealth Management.
Expenses Increased 9% year-over-year (5% excluding severance charge). This reflects investments in technology and talent, as well as higher performance-based compensation.
Provision for Credit Losses (PCL) $746 million, stable quarter-over-quarter. This includes lower impaired and performing provisions.
Net Interest Margin (NIM) ex Markets 233 basis points, up 20 basis points year-over-year and 3 basis points sequentially. This was driven by higher deposit margins and deliberate actions to improve deposit mix.
Canadian P&C revenue Up 7% year-over-year. This was driven by higher net interest income (NII) and higher noninterest revenue (NIR), including card fees and mutual fund distribution fees.
U.S. Banking net income Up 18% year-over-year. This was driven by lower impaired and performing PCL, margin expansion, and higher Wealth Management and Commercial TPS fees.
Wealth Management revenue Up 17% year-over-year. This was driven by higher markets, net sales growth, and strong balance sheet growth.
Capital Markets revenue Up 7% year-over-year. This was driven by higher equities and commodities trading revenue, higher advisory fees, and equity underwriting.
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Operating Highlights
Blue Rewards loyalty program: BMO is transitioning from AIR MILES to the reimagined Blue Rewards loyalty program this summer. This program will offer personalized benefits, new partnerships, and an intuitive digital platform, fully integrated into the BMO mobile app.
AI-powered digital assistant: BMO has introduced generative AI-powered digital assistants for Canadian Commercial Bank, enabling teams to quickly access policy and lending information. This builds on the previous launch for personal banking.
BMO's broad commodity ETF: BMO launched a broad commodity ETF and expanded its European CDR lineup, enhancing its global asset management offerings.
U.S. Banking growth: BMO's U.S. Banking segment delivered record revenue and strong margin expansion. Personal account acquisition and net client growth increased, with a 3% growth in noninterest-bearing deposits.
Canadian Commercial Banking: Revenue grew 10%, driven by new client acquisition and adoption of treasury and payment solutions, resulting in 9% growth in operating deposits and 13% increase in TPS fees.
Wealth Management expansion: Earnings grew 16% due to stronger markets and net new asset growth. The integration of Burgundy Asset Management was successful, with good client and employee retention.
Operational efficiency: BMO implemented severance costs of $202 million to advance operational efficiencies, expecting annualized savings of $250 million by 2027.
Expense management: Underlying expense growth was well managed, targeting positive operating leverage. Adjusted EPS grew 15% to $3.48, and ROE improved to 13.1%.
AI-enabled tools: BMO is scaling AI-enabled tools to enhance client experiences and streamline workflows, supporting a digital-first strategy.
AI infrastructure and economic change: BMO is positioned to serve clients in the AI infrastructure cycle and industries central to economic change, leveraging its strengths in metals, mining, energy, and infrastructure sectors.
Defense sector support: BMO is supporting the Canadian defense community and industries, including participation in the Defence, Security and Resilience Bank development group.
Capital optimization: BMO completed 90% of its balance sheet optimization efforts, with positive commercial loan growth expected in the second half of the year.
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Risk or Challenges
Trade issues between Canada and the U.S.: Unresolved trade issues and the renegotiation of the USMCA present significant uncertainty, which could impact economic conditions and cross-border business activities.
Economic environment in Canada: Economic momentum in Canada remains constrained by softer labor and housing markets, with pressure more pronounced among higher-leverage borrowers.
Higher delinquencies in consumer portfolio: Certain segments of the consumer portfolio, particularly in parts of the GTA, are experiencing higher delinquencies due to elevated unemployment.
Severance costs: The bank incurred a severance charge of $202 million to advance operational efficiencies, which impacts short-term financial performance.
Loan growth: Loan growth remains muted in Canada due to a softer economy, and U.S. commercial loans have been impacted by optimization activities.
Competitive deposit pricing: The competitive landscape for deposit pricing is evolving, which could impact margins and deposit growth.
Impaired provisions: Impaired provisions are expected to remain in the mid-40 basis points range, reflecting ongoing credit risks and variability.
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Guidance & Outlook
Revenue Growth: The bank expects positive commercial loan growth in the U.S. in the second half of the year, supported by strong pipelines. Revenue growth is anticipated to be driven by margin expansion and fee growth across various segments.
Market Trends: The U.S. economy is expected to outpace Canada for a fourth consecutive year, providing growth opportunities as business activity expands. AI investments and expansionary fiscal policies in the U.S. are expected to support economic growth.
Capital Expenditures and Efficiency: The bank plans to realize annualized savings of approximately $250 million from operational efficiency initiatives, with half of the savings expected in 2026 and the remainder in 2027. These savings will support efficiency improvements and reinvestment in strategic growth initiatives.
Strategic Plans: The bank is focusing on scaling AI-enabled tools to enhance client experiences and streamline workflows. It is also transitioning to a new Blue Rewards loyalty program in Canada, expected to strengthen customer engagement and loyalty.
Financial Projections: The bank aims to achieve and sustain a return on equity (ROE) of 15% by the end of 2027. Current momentum in ROE improvement supports this target.
Loan and Deposit Trends: Loan growth in Canada remains muted, but U.S. loan balances are showing positive signs, with underlying balances up approximately 1% from the end of October. Deposit mix improvements are expected to continue benefiting net interest margins (NIM).
Wealth Management and Capital Markets: Wealth Management earnings are expected to grow, supported by net new asset growth and market performance. Capital Markets is positioned to benefit from strong trading activity and higher advisory fee revenue.
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Shareholder Return Plan
Share Buyback Program: The bank's CET1 ratio of 13.1% remains strong and above the target, even as the bank continued to buy back 6 million shares during the quarter. The bank repurchased 6 million shares during the quarter and expects to continue repurchases while supporting deployment for growth and maintaining a strong capital position as it navigates towards its target of 12.5%.
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Key Q&A
Q:Do you still have confidence in hitting the 15% ROE target, given the U.S. performance appears flatter compared to Canada?
A:Darryl White, CEO, expressed confidence in achieving the 15% ROE target by the fourth quarter of 2024. He noted that the company is 60% of the way there in 40% of the time, ahead of schedule. The U.S. ROE is up 150 basis points year-over-year, and optimization work in the U.S. is 90% complete, with expected acceleration in the second half of the year.
Q:What is the outlook for U.S. loan growth and the factors driving confidence in it?
A:Aron Levine, Group Head & President of BMO U.S., highlighted that the optimization work is nearly complete, and pipelines are growing. Investments in talent, especially on the West Coast, and organizational realignment are expected to drive growth. The momentum is expected to compound over the rest of the year and into 2027.
Q:What is the outlook for net interest margin (NIM) and its components in the U.S. and Canada?
A:Rahul Nalgirkar, CFO, stated that NIM expansion has been driven by optimization and mix improvement efforts. While further material expansion is not expected, the outlook for NIM is relatively stable in the near term. Loan growth and competitive dynamics will influence margins differently in the U.S. and Canada.
Q:Has there been a change in customer behavior in the U.S. driving loan demand?
A:Darryl White, CEO, noted that client sentiment is improving, with increased activity and pipeline growth in both commercial and corporate banking. In Canada, there is similar momentum, with increasing pipelines and deal closings, despite a more uncertain macro environment.
Q:Can you quantify the impact of portfolio optimization in the U.S. and its future effects?
A:Darryl White, CEO, stated that $6 billion in balance sheet loans have been reduced over the last four quarters, with loans down 5% across U.S. Banking. Optimization work is 90% complete and expected to be effectively finished by the second quarter of this year. The focus is now on sustainable growth and improving ROE.
Q:What is the outlook for performing loan allowances for credit losses (ACLs)?
A:Piyush Agrawal, Chief Risk Officer, stated that the current ACL coverage is strong at 69 basis points. While uncertainty exists, portfolio quality is stable, and loan growth will be the primary driver of ACLs going forward. No significant releases or builds are expected unless there is a major environmental shift.
Q:What is the outlook for deposit growth in the U.S. and its impact on NIM?
A:Darryl White, CEO, emphasized the importance of primary relationships and regional coverage expansion. Initiatives like the bank-at-work program and focus on the mass affluent segment are expected to drive deposit growth. The company is showing 3% net checking growth and is focused on both acquisition and retention.
Q:What is the outlook for Capital Markets, particularly investment banking?
A:Darryl White, CEO, noted strong performance in Q1, driven by equity, equity derivatives, commodities, advisory, and ECM businesses, particularly in mining. While optimistic about the pipeline, the company does not expect Q1 outperformance to continue at the same level for the full year.
Q:What is the outlook for unsecured consumer credit in Canada, particularly credit cards?
A:Mathew Mehrotra, Group Head, noted stress at the lower end of the market, which is reflected in higher losses. However, premium account growth is strong, and insolvency performance has been stable. The outlook is tied to unemployment and the broader Canadian economy.
Q:Is there room to further reduce U.S. risk-weighted assets (RWA)?
A:Darryl White, CEO, stated that significant reductions in RWA are not expected as the optimization program is nearing completion. The focus will shift to managing the mix of low-return and better-return assets.
Q:What is the outlook for Canada's housing market and its impact on the economy?
A:Piyush Agrawal, Chief Risk Officer, acknowledged softness in the housing market but noted strong LTVs and FICOs in the portfolio. While higher delinquencies are observed, the market is expected to stabilize with the arrival of spring.
Q:What is the outlook for deposit competition in Canada and its impact on margins?
A:Mathew Mehrotra, Group Head, noted strong operating deposit growth and optimization of term deposits. While deposit competition is heating up, the company expects continued tailwinds from deposit growth, albeit at a slower rate.
Q:Review of Unclear Management Responses
A:Management avoided providing a direct answer to the question about the sustainability of U.S. NIM improvements, as they emphasized variability within businesses and strategic initiatives without clearly addressing the long-term outlook. Additionally, the response to the question about Canada's housing market was somewhat vague, relying on seasonal factors and general optimism without detailed data or analysis.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AI
BMO
Burgundy
Canadian PC
Commercial Banking
Corporate Services
Defence
Expense severance
NII Corporate
NIM
Piyush
ROE basis
Rahul
Slide dollar
TPS fee
Wealth
bank
banking
capability
charge leverage
client
commodity
core business
core deposit
deposit mix
employee benefit
employee severance
ex Markets
fee Expense
loan
optimization
record
severance charge
trading
world
BMO Transcript
Bank of Montreal (BMO:CA) Q1 2026 Earnings Call Transcript
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The earnings call summary shows mixed signals: strong U.S. ROE improvement and loan growth optimism, but unclear NIM sustainability and vague responses on key issues like Canada's housing market. The Q&A highlighted management's confidence in strategic initiatives but also revealed uncertainties, such as deposit competition. Without a clear catalyst like a partnership or guidance change, and lacking market cap data, the stock is likely to remain stable.
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The earnings call presents mixed signals. Financial performance is stable, with share buybacks and strategic asset management. However, concerns about elevated promotions, flat industry trends, and lack of specific guidance temper optimism. The Q&A reveals uncertainties in inventory management and market conditions, leading to a cautious outlook. Despite positive aspects like innovation and asset utilization, the overall sentiment remains neutral due to these counterbalancing factors.
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The earnings call highlights record-high net income, strong PPPT growth, and improved efficiency ratios, all reflecting robust financial performance. Shareholder returns via buybacks and dividends further boost sentiment. The Q&A section reveals optimism regarding commercial loan growth and disciplined capital management, although there are concerns about rising delinquency rates. Overall, the strong earnings, optimistic guidance, and shareholder return plans contribute to a positive outlook, likely leading to a stock price increase of 2% to 8% over the next two weeks.
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