Record Revenue, Negative Operating Leverage, and an ROE Headline That Is Not in the Financial Statements

Results vs. Consensus

Bank of Montreal reported fiscal first-quarter results before the open on February 25, 2026, for the quarter ended January 31, 2026, and held its call at 8:00 a.m. ET. All figures below are in Canadian dollars under IFRS unless marked otherwise, which is the bank's reporting currency and the basis on which Canadian sell-side estimates are struck.

Fiscal Q1 2026 Scorecard

Two independent sources carry the same C$3.23 adjusted-EPS estimate; only one publishes a revenue estimate, so the revenue beat should be read as indicative rather than precise. The reported diluted EPS of C$3.39 is not comparable to the C$3.23 figure, which is struck on an adjusted basis.

Year-Over-Year Comparison (C$M unless noted)

Two rows in that table sit at odds with the rest of it. The adjusted efficiency ratio deteriorated 150 basis points and adjusted operating leverage swung from positive 8.9% to negative 2.8%, in a quarter that produced record revenue in every operating segment. Both are direct consequences of the severance charge, which BMO recorded inside adjusted results rather than adjusting it out.

Quarter-Over-Quarter Comparison (C$M unless noted)

Sequentially the adjusted EPS gain of C$0.20 is larger than the adjusted net-income gain of 1.5% because the preferred-dividend line fell from C$163M to C$81M, an artefact of the semi-annual payment calendar on certain equity instruments and of the redemption of the Limited Recourse Capital Notes, Series 1. That is roughly C$0.12 of the C$0.20, and it is not operating progress.

The Four Reporting Bases

The most important thing to understand about this print is that BMO published its results on three bases and discussed them on a fourth. Reported results are the IFRS statements. Adjusted results strip six named items, of which the largest this quarter were C$96M pre-tax of acquisition-intangible amortization and a C$47M pre-tax reversal of a prior U.S. deposit-insurance special assessment. The severance charge is deliberately in both. Every headline figure spoken on the call, however, was struck excluding it.

The ex-severance column reproduces the figures management used on the call. The EPS and pre-provision entries in that column are our arithmetic: C$3.48 plus the C$0.21 per-share impact the filing attributes to the charge, and C$4,149M plus the C$202M pre-tax charge. The other four are quoted directly from the prepared remarks. None of them appears in the financial statements.

Quality of the Beat

• Revenue. The 6.2% adjusted increase is real and broad. It is also flattered on the reported line by two items management themselves labelled above trend. Canadian P&C non-interest revenue rose C$77M or 12% "primarily due to above-trend card fee revenue in Personal and Business Banking due to revised future redemption assumptions in the current quarter", a reserve true-up that management confirmed will not repeat at this scale. Capital Markets delivered adjusted pre-provision pre-tax earnings of C$893M against what the CEO described as a trailing five-quarter average of roughly C$750M, an excess of roughly C$143M pre-tax, or about C$0.15 per share after tax. Foreign exchange cut the other way, reducing revenue by 2%: on a constant-currency basis revenue rose 8%.
• Margins. The margin improvement is the highest-quality item in the quarter and is not a one-off. Net interest margin excluding Global Markets and Insurance reached 2.33%, 20 basis points better than a year ago and 3 better than last quarter, and it was earned on average earning assets of C$898.2B against C$931.8B a year ago. Net interest income on that same basis rose 5.5% on a base that shrank 3.6%. That is deposit repricing and mix, not leverage.
• Expenses. Adjusted non-interest expense rose 9.0%, or roughly 5% excluding the severance charge, against adjusted revenue growth of 6.2%. Management's own framing was that expenses were "up 4%, excluding FX, the severance charge and higher performance-based compensation", which is three exclusions on a single line. Corporate Services adjusted expense of C$271M against C$149M a year ago is an 82% increase in the segment where costs go when they do not belong to a business.
• EPS. Adjusted net income rose 11.4% and adjusted EPS rose 14.5%. The gap is the buyback: average diluted shares fell 2.8% and contributed roughly 3.2 percentage points of the 14.5%, so about a fifth of the per-share growth was bought rather than earned. That is a legitimate use of surplus capital, but it is not the same thing as operating momentum.
• A precision note on "record". Management described C$4.1B of pre-provision pre-tax earnings as a record, which holds on the adjusted basis. On the reported basis, pre-provision pre-tax earnings of C$4,071M sit below the C$4,530M of the fourth quarter of fiscal 2024, a quarter whose expense line carried an C$870M legal-provision reversal.

Segment Performance

Adjusted Net Income by Segment (C$M)

Segment Revenue, Efficiency and Operating Leverage

U.S. Banking's operating leverage, efficiency and return figures in that row are on a U.S. dollar basis, as the bank presents them. Segment revenue for U.S. Banking and Capital Markets is on a taxable-equivalent basis with the offset in Corporate Services. Three of four operating segments posted negative adjusted operating leverage, and the fourth cleared it by 70 basis points.

Canadian Personal and Commercial Banking

The strongest operating quarter in the bank and the one carrying the most one-time help. Revenue of C$3,258M rose 7.1% on net interest income up 6% and non-interest revenue up 12%. Margin of 2.90% expanded 11 basis points year over year and 6 sequentially on deposit and loan margins. Average gross loans rose 2% to C$343.1B, entirely on residential mortgages and commercial, while credit card balances fell 6%. Average deposits fell 1%, but the composition improved: term deposits down, operating deposits up, with the CEO citing core operating deposit growth of 8%.

Against that, adjusted expenses rose 11.2% and adjusted operating leverage was negative 4.1%, the worst of any segment. The adjusted efficiency ratio deteriorated to 44.0% from 42.3%. Some of that is severance and some is technology, and the filing does not split the two.

"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."
— Mathew Mehrotra, Group Head, Canadian Personal and Business Banking

Assessment: The underlying franchise is performing, and the deposit-mix work is the reason margin expanded in a quarter with almost no volume growth. But the reported 12% non-interest revenue growth contains a card-reward reserve true-up that management sized only qualitatively and told the Street will not repeat, so the durable Canadian P&C fee run-rate is lower than this quarter's print and nobody outside the bank can say by how much.

U.S. Banking

The segment on which the entire return-on-equity thesis depends, and the one that did the least this quarter. On a source-currency basis, revenue rose 2% to US$2,105M and expenses rose 3% to US$1,260M, which means pre-provision pre-tax earnings were US$845M against US$847M a year ago. Every dollar of the US$125M improvement in pre-tax income, and slightly more, came from provisions falling US$127M.

Margin of 4.00% expanded 22 basis points year over year and 13 sequentially, which is the best margin number in the bank. It was earned on average earning assets of US$163.4B against US$170.3B, average gross loans down 3.5% and average deposits down 5.1%. Commercial balances fell 6% on the optimization programme, Private Wealth balances rose 10%, and assets under management rose 22% to US$85.8B. Adjusted return on equity of 8.5% is better than the 7.2% of a year ago and worse than the 9.2% of last quarter.

"Excluding the charge, PPPT increased 1%."
— Rahul Nalgirkar, Chief Financial Officer

Assessment: The margin work is real and the deposit remix is working, but a segment that grows pre-provision earnings by 1% on management's own most generous basis is not yet carrying a return-on-equity plan that was built around it. The commitment that matters is the one made for the second half: optimization effectively complete at the end of the second quarter, then positive commercial loan growth. That is the single most testable claim from this call.

Wealth Management

Revenue of C$1,500M rose 13.6% and adjusted net income of C$380M rose 15.9%, with Wealth and Asset Management adjusted net income up 23% to C$301M and Insurance down 5% to C$79M. Assets under management reached C$430.5B, up 24%, and assets under administration C$288.3B, up 13%. Burgundy Asset Management closed November 1, 2025 and is inside the segment for the first time.

The return figure moved the other way and is worth pausing on. Adjusted return on equity fell to 35.7% from 42.5% a year ago and from 52.0% last quarter, because average allocated common equity rose to C$4,199M from C$3,044M. The acquisition brought goodwill and intangibles, and the capital that supports them is now charged to the segment. Adjusted expenses rose 15.0% and adjusted operating leverage was negative 0.2%.

Assessment: A genuinely good quarter in the asset-gathering business, with an acquisition integrated on schedule and net sales positive. The segment's returns are structurally lower after Burgundy, which is the arithmetic of buying assets under management rather than compounding them. Insurance continues to shrink quietly and was discussed by nobody.

Capital Markets

Revenue of C$2,212M rose 6.7% year over year and 22% sequentially. Global Markets contributed C$1,440M, up 39% sequentially on equities and commodities trading, and Investment and Corporate Banking C$772M, up 8.7% year over year on advisory and equity underwriting. Adjusted pre-provision pre-tax earnings of C$893M grew 8.0%. Trading non-interest revenue of C$866M rose C$64M year over year and C$309M sequentially.

Adjusted return on equity fell to 16.8% from 17.1% despite adjusted net income rising 11.3%, because average allocated equity rose 12.4% to C$15,219M. The CEO located the outperformance precisely rather than claiming it was broad.

"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."
— Darryl White, Chief Executive Officer

Assessment: A strong quarter honestly labelled. The C$893M of pre-provision earnings against a stated trailing five-quarter average near C$750M is roughly C$143M of pre-tax excess, which is about 4% of the bank's adjusted pre-tax income for the quarter and about C$0.15 of adjusted EPS. Modelling this segment at the quarter's run-rate would be a mistake management explicitly warned against.

Corporate Services

An adjusted net loss of C$242M against C$219M a year ago and C$74M last quarter. Adjusted expense of C$271M compares with C$149M a year ago. The sequential deterioration reflects severance, seasonal employee benefits, and lower treasury-related revenue. The reported loss narrowed to C$210M from C$291M only because the prior year carried a C$70M after-tax accounting-policy alignment and the current quarter carried a larger deposit-insurance reversal.

Assessment: The segment absorbed a disproportionate share of the quarter's discretionary cost. It is also where the capital-allocation change lands: the allocation rate to the operating segments rose to 12.5% of risk-weighted assets from 12.0%, which moves equity out of Corporate Services and into the businesses, and mechanically lowers every segment return on equity shown above.

Credit Quality

The aggregate improvement is entirely American and entirely at the U.S. impaired line plus the disappearance of the performing build. Canadian P&C impaired provisions have now printed 58 basis points for three consecutive quarters, on rising dollar provisions. The bank added only C$7M of performing provision against C$152M a year ago, and the performing allowance fell C$100M to C$4,609M, which the filing attributes to foreign-exchange movements, lower balances and improved macroeconomic scenarios, partially offset by credit migration.

"We continue to see higher delinquencies in certain segments of our consumer portfolio, particularly in parts of the GTA where unemployment remains elevated."
— Piyush Agrawal, Chief Risk Officer

Assessment: Credit is stable, not improving, and the stability is composed of a genuinely healing U.S. commercial book offset by a Canadian consumer book that has been flat at an elevated level for a year. Gross impaired loans at 1.02% of gross loans are below last quarter's 1.04% but above the 1.00% of a year ago. The most encouraging datum is formations, down 38.8% year over year and 20.9% sequentially, with commercial formations down C$403M in the quarter.

Key Topics & Management Commentary

Overall Management Tone: Confident, well-rehearsed and consistently framed on the most flattering of the available bases, with the framing applied uniformly enough that it reads as policy rather than opportunism. Analyst pushback was narrow and technical, concentrated on margin guidance and the timing of U.S. loan growth, and management answered both directly. The most notable absence was any resistance to the ex-severance framing itself, which no one on the call questioned.

1. The Return-on-Equity Bridge, and the Basis on Which "Ahead of Schedule" Is Measured

The strategic spine of the story is a return-on-equity goal of 15%, set in the fourth quarter of fiscal 2024 and now dated to the exit of fiscal 2027. The CEO opened with progress against it and returned to it in the first answer of the Q&A.

"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."
— Darryl White, Chief Executive Officer

Asked whether the composition of the path had changed, he supplied the arithmetic that carried the call.

"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."
— Darryl White, Chief Executive Officer

The claim checks out on the numbers used. From 9.8% to 15% is 520 basis points; from 9.8% to the 13.1% quoted this quarter is 330, which is 63% of the distance. Five of the twelve quarters between the fourth quarter of fiscal 2024 and the exit of fiscal 2027 have elapsed, which is 42% of the time. The difficulty is that the 13.1% endpoint is the ex-severance figure. Against the same 9.8% starting mark, the disclosed adjusted return on equity of 12.4% is exactly 50% of the journey and the reported 12.1% is 44%. "Ahead of schedule", "on schedule" and "behind schedule" are all available from this quarter's results depending only on which of the four bases is chosen, and management chose one and did not say so.

Assessment: The trajectory is real. The characterization is not falsifiable from the outside because the starting mark's basis was never stated on the call. An investor underwriting the 15% goal should treat the bank as roughly halfway there rather than roughly two-thirds, and should note that the second half of any such bridge is the harder half because the easy deposit-repricing gains come first.

2. The Severance Charge BMO Chose Not to Adjust Out

The quarter carried C$202M pre-tax, C$147M after tax, of severance "associated with advancing operational efficiencies across the enterprise", recorded in each operating segment and reducing EPS by C$0.21. It does not appear in the list of adjusting items, which means BMO took the conservative accounting position: this is an ordinary cost of running the bank.

"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."
— Rahul Nalgirkar, Chief Financial Officer

The return on the charge was quantified, which is more than most banks do.

"We expect to realize annualized savings of approximately $250 million from the charge with half realized in 2026 and the remainder in 2027."
— Rahul Nalgirkar, Chief Financial Officer

C$202M spent for C$250M of annualized savings is a payback under ten months, which is a good ratio if delivered. The scale is worth keeping in proportion: C$250M against an annualized adjusted expense base near C$22.8B is a little over 1%.

Assessment: The accounting choice deserves credit and the narrative choice deserves scrutiny, and they cancel out to something like neutral. What does not cancel out is that a reader who takes the spoken figures at face value will carry an efficiency ratio 200 basis points better and an operating-leverage number 390 basis points better than the ones BMO actually filed. The savings commitment is now a checkable promise: roughly C$125M of realized benefit inside fiscal 2026.

3. Where the Earnings Growth Actually Came From

Adjusted net income rose C$262M. The provision for credit losses fell C$265M. Those two facts are not causally identical, but the pre-tax bridge above shows how close they are: 72% of the C$370M pre-tax improvement is the provision line, and pre-provision earnings grew 2.6% in a quarter described as record-setting.

The distinction matters because provisions are a level, not a trend. The bank is guiding to a mid-40s impaired provision rate from here, and it printed 44 basis points. If that guidance holds, the year-over-year provision tailwind narrows through the year. The comparison base moves from the 58 basis points just lapped to 63 in the second quarter, then 47, then 44. Against a mid-40s run-rate that leaves a real benefit in the second quarter, a small one in the third and none in the fourth. From the second half of fiscal 2026 onward, earnings growth has to come from pre-provision earnings or it does not come.

Assessment: This is the central tension in the print and the reason a beat of this size does not translate into an upgrade. The provision normalization is nearly complete on management's own guidance. Pre-provision growth of 2.6% adjusted, or 7.6% excluding the severance charge, is the run-rate that has to carry fiscal 2027, and the 15% return goal implicitly requires the higher of those two numbers to be the honest one.

4. A New Margin Disclosure in the Quarter Margins Inflected

Effective this quarter BMO changed how it presents its core margin, replacing "net interest margin, excluding trading and insurance" with a measure that excludes Global Markets net interest income and Global Markets and Insurance average earning assets. Prior periods were restated.

"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."
— Rahul Nalgirkar, Chief Financial Officer

On the new basis, margin of 2.33% is 20 basis points better year over year and 3 better sequentially, and the underlying net interest income of C$5,274M rose 5.5% on an earning-asset base that shrank 3.6%. Because prior periods were restated, the comparison is internally consistent, and the change is defensible on the merits: excluding a trading book from a lending margin is what most disclosure changes of this kind are trying to achieve.

Assessment: Presentational changes that arrive in the same quarter as a favourable inflection always warrant a second look, and this one survives it. The 20-basis-point expansion is corroborated at the segment level, where Canadian P&C margin rose 11 basis points and U.S. Banking margin rose 22 on their own unchanged definitions. The change makes the series cleaner rather than kinder.

5. U.S. Banking: Record Revenue, Flat Pre-Provision Earnings

The bank's most important segment produced US$845M of pre-provision pre-tax earnings against US$847M. Revenue rose 2%, expenses rose 3%, and adjusted operating leverage was negative 2.2%. Adjusted efficiency deteriorated to 57.1% from 55.9%. Adjusted return on equity of 8.5% remains roughly four percentage points below the bank average and roughly fourteen below Canadian P&C.

"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."
— Aron Levine, Group Head, U.S. Banking

The CEO's arithmetic on the programme was more specific.

"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."
— Darryl White, Chief Executive Officer

Assessment: The segment is doing the right things and has not yet been paid for them. Deliberately shrinking a low-return book while holding revenue flat and expanding margin 22 basis points is a coherent plan, and the return on equity has risen 130 basis points year over year on the adjusted basis. But four quarters of shrinkage have produced no pre-provision earnings growth at all, and the plan now depends on volume returning on schedule.

6. The Loan-Growth Commitment for the Second Half

Management made an unusually specific forward commitment, twice. The optimization programme will be "effectively complete" at the end of the second quarter of fiscal 2026, and commercial loan growth turns positive in the second half.

"Yes, the outlook is the same. We think there'll be mid-single-digit loan growth from here."
— Darryl White, Chief Executive Officer

The supporting evidence offered was pipeline-based rather than realized: building pipelines across commercial and corporate, commercial treasury and payment fees up 23% year over year in the U.S., 3% net checking growth, early signs in commercial real estate, and underlying loan balances at the end of January up approximately 1% from the end of October. In Canada the commercial head described increasing pipelines, acceleration in the middle market, and increased closings for the first time since tariff uncertainty arose.

Assessment: This is the commitment to grade next quarter and the one after. Mid-single-digit loan growth on a US$156.6B average commercial and consumer book would add roughly US$8B of earning assets, which at a 4.00% margin is roughly US$300M of annualized net interest income. The gap between a pipeline and a funded loan is where bank guidance most often fails, and the bank has now put a date on it.

7. Canadian P&C's Card-Fee True-Up

Canadian P&C non-interest revenue rose 12% year over year and 15% sequentially, and management attributed a material share to a revision of future reward-redemption assumptions. Pressed on whether it was a new run-rate, the answer was clear and the size was not.

Q: "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."
— Mehmed Rizvanovic, Scotiabank

A: "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."
— Mathew Mehrotra, Group Head, Canadian Personal and Business Banking

The follow-up produced the run-rate answer without a number attached: "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."

Assessment: An accrual true-up that lands entirely in one quarter's fee line and is described as above trend, unrepeatable at scale, and unsized is a modelling problem for everyone outside the bank. It sits inside a segment that also delivered genuine margin expansion and genuine commercial fee growth, which is precisely why the omission matters: the good and the one-off are pooled in a single reported line. The loyalty programme transitions from AIR MILES to a reimagined offering this summer, which will disturb the same accrual again.

8. Capital Markets Above Its Own Trend Line

Revenue of C$2,212M with Global Markets up 39% sequentially on equities and commodities, and adjusted pre-provision earnings of C$893M against a stated trailing five-quarter average near C$750M. Management named the outperformance and declined to annualize it. The CEO also flagged a record quarter in commodities trading and a leadership position in metals and mining.

Assessment: A high-quality quarter in a low-quality earnings line. Roughly C$143M of pre-tax excess over the stated trend is about C$0.15 of adjusted EPS, which is more than half the size of the beat against consensus. The segment's adjusted return on equity fell year over year despite 11% earnings growth because allocated capital rose 12.4%, which is a reminder that markets earnings are expensive in capital terms and should be capitalized at a lower multiple than the retail bank's.

9. Wealth Management, Burgundy, and the Capital It Brought

Burgundy Asset Management closed on the first day of the fiscal year and is fully inside the segment. Assets under management of C$430.5B rose 24%, of which the acquisition is part; the sequential increase of C$40.2B is attributed to Burgundy, higher client assets and stronger markets. Wealth and Asset Management adjusted net income rose 23%, and Insurance fell 5%.

The segment's adjusted return on equity fell to 35.7% from 42.5% as average allocated equity rose 38% to C$4,199M. Adjusted expenses rose 15.0% on revenue-based costs, severance and the acquisition.

Assessment: The integration appears clean and the asset-gathering momentum is real, with net sales positive alongside market appreciation. The return dilution is the honest cost of the transaction and is permanent until the acquired book compounds into it. Insurance earnings of C$79M have now been flat sequentially and down year over year, and drew no commentary from anyone on the call.

10. Capital: 13.1% Against a 12.5% Destination, and 17 Basis Points of Model Refinement

The CET1 ratio fell 20 basis points sequentially to 13.1%, against a stated managed target of 12.5%. Six million shares were repurchased in the quarter and the share count is down 3.1% year over year. Risk-weighted assets rose to C$442.1B from C$437.9B despite a 3.0% strengthening of the Canadian dollar against the U.S. dollar over the quarter.

"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."
— Rahul Nalgirkar, Chief Financial Officer

That parenthetical is the quarter's most under-examined disclosure. Seventeen basis points of a twenty-basis-point decline came from methodology and model changes rather than from growth or capital return. On C$442.1B of risk-weighted assets, 17 basis points of CET1 is roughly C$750M of capital, comparable in size to a quarter's share repurchases. It was stated once, never quantified in dollars, and no analyst returned to it.

Assessment: The excess above the 12.5% target is roughly 60 basis points, or about C$2.65B, which supports perhaps 1.9% of the shares outstanding at the current price on top of internal generation. That is a supportive buyback, not a transformative one. If model refinement is an ongoing programme rather than a one-quarter true-up, it is a recurring tax on the same capital, and the bank has given no forward indication of its size.

11. Credit: Stable in Aggregate, Unchanged Where It Matters Most

The Chief Risk Officer set an explicit forward range and an explicit refusal.

"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."
— Piyush Agrawal, Chief Risk Officer

"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."
— Piyush Agrawal, Chief Risk Officer

The Canadian consumer picture was described candidly by the retail head, who was asked about a credit-card impaired loss rate an analyst characterized as roughly 6%.

"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."
— Mathew Mehrotra, Group Head, Canadian Personal and Business Banking

Assessment: The forward guidance is the most useful thing in it. Mid-40s impaired provisions with no releases and no builds converts the credit line from a source of earnings growth into a constant, which is exactly what makes the pre-provision run-rate the whole story from the middle of this fiscal year. The Canadian consumer book remains the tail risk: three quarters of flat 58-basis-point provisions is stability at an elevated level, not recovery.

12. A New Chief Financial Officer, an Investor Day Three Weeks Out, and What Is Being Held Back

This was Rahul Nalgirkar's first quarterly call as Chief Financial Officer, having joined BMO in 2022 as finance chief for the U.S. operations and Commercial Banking. He was fluent and specific, and the ex-severance framing was consistent with the CEO's, which suggests it is a house convention rather than a new voice.

An all-bank Investor Day is scheduled for March 26, 2026, and it was used repeatedly during the call as a reason to defer detail. Deposit-growth strategy, U.S. segment plans and margin detail were all pushed to it. No full-year financial guidance was offered on this call beyond a target of positive operating leverage, a mid-40s impaired provision rate, and near-term margin stability.

Assessment: Deferring to an Investor Day three weeks out is reasonable, and it also means this print should be read as an incomplete disclosure. The material question of what the bank thinks its fiscal 2026 earnings, expenses and capital plan look like is unanswered, and any position taken on this quarter's numbers is a position taken ahead of the fuller picture.

Guidance & Outlook

BMO does not issue formal quantitative guidance in the manner of a U.S. reporter. What follows is the complete set of forward commitments made in the release and on the call, which is the operative guidance for the Street.

Implied run-rate. Holding provisions at 44 basis points and the tax rate at 25%, delivering the fiscal-year positive-operating-leverage target from a first quarter that printed negative 2.8% requires roughly 1 percentage point of positive leverage across the remaining three quarters on a revenue-weighted basis. That is achievable, because the severance charge does not recur and adjusted expense growth excluding it was about 5% against revenue growth of 6.2%. It is not achievable if the expense trajectory excluding severance does not moderate.

Street position. Consensus entering the print sat at C$3.23 for the quarter. With the provision tailwind exhausting by mid-year on management's own guidance and Capital Markets flagged as above trend, the honest starting point for the next three quarters is the ex-severance, ex-markets-excess run-rate, which is materially below the C$3.48 just printed.

Guidance style. Conservative in the accounting and confident in the narration. The bank refused to adjust out a restructuring charge that most peers would have, then excluded it verbally from every metric. It gave a forward provision range and an explicit statement that reserves will neither be released nor built, which is a harder commitment than most Canadian banks make. And it deferred everything quantitative about fiscal 2026 to an Investor Day three weeks away.

Analyst Q&A Highlights

Whether the Path to 15% Still Runs Through the United States

The opening question of the call went straight to the composition of the return bridge rather than to the beat, noting that return-on-equity expansion this quarter came from Canada and Capital Markets while the U.S. was comparatively flat, and that the U.S. was supposed to supply roughly half the improvement. Management did not concede the premise; it reframed the timing instead, arguing the U.S. was always scheduled to arrive later and that the segment's return is up 150 basis points year over year on the bank's preferred basis.

Q: "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."
— Gabriel Dechaine, National Bank Financial

A: "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."
— Darryl White, Chief Executive Officer

Assessment: The question identified the correct weak point and the answer redirected to an aggregate that is measured on the most favourable basis. The follow-through, that the U.S. was always going to come later and that optimization ends this quarter, is a real answer with a real date attached. It converts a strategic doubt into a schedule risk, which is the best outcome management could have engineered from the exchange.

What "Relatively Stable" Margin Guidance Means After 13 Basis Points of U.S. Expansion

The most persistent line of questioning on the call. Two separate analysts pressed the same contradiction: the bank guided to stable margins while both banking segments had just expanded materially, and the deposit remix that drove the expansion is explicitly described as continuing. The answer, in stages, was that the stability guide applies at the all-bank level and that the U.S. specifically should see further strength.

Q: "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."
— Multiple analysts incl. Mario Mendonca, TD Securities; Ebrahim Poonawala, Bank of America

A: "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."
— Rahul Nalgirkar, Chief Financial Officer

Assessment: A guidance clarification extracted rather than volunteered, and it materially changes the model. The all-bank stability guide is a mix statement, not a margin statement: as loan growth returns, lower-margin balance-sheet growth dilutes a segment margin that is still rising. Read correctly, this is a constructive answer, because a stable all-bank margin alongside resuming volume growth produces net interest income growth the bank has not had for two years.

Quantifying the Optimization Drag and What "90% Complete" Leaves

The single most useful exchange of the call for anyone building a model. The question asked for the dollar size of the programme, the definition of 90%, and the residual impact in the next quarter. Two of the three were answered, with the US$6 billion figure supplied unprompted and the residual left qualitative.

Q: "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."
— Doug Young, Desjardins Capital Markets

A: "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."
— Darryl White, Chief Executive Officer

Assessment: The programme's size is now on the record at roughly US$6 billion of loan reduction over four quarters, which is the number to hold management to. A later exchange added the useful clarification that no further significant reductions are expected inside the programme and that ongoing mix management continues as business as usual. What remains unquantified is the second-quarter residual, so the first clean quarter of U.S. balance-sheet data will be the third.

Whether the Performing Allowance Can Hold Where It Is

A question about the direction of performing reserves given a softer Canadian macro against an improving U.S. one. The answer was unusually direct about both tails, and introduced a mechanism that is easy to miss: loan growth itself consumes performing reserves, which offsets the absence of releases.

Q: "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?"
— Doug Young, Desjardins Capital Markets

A: "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."
— Piyush Agrawal, Chief Risk Officer

Assessment: The most valuable disclosure in the Q&A. Committing publicly to neither releasing nor building removes the largest discretionary lever in a bank income statement for the next several quarters, and does so in a quarter when releasing would have been easy and popular. It also removes the most common source of a Canadian bank beat, which is precisely why the pre-provision run-rate now carries the whole thesis.

Whether Capital Markets Has Set a New Trend Line

Asked how the momentum carries forward, particularly in investment banking, management gave the specifics behind the outperformance and then explicitly declined to extrapolate it, naming its own trailing average as the reference point.

Q: "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."
— Paul Holden, CIBC

A: "So the outcome is that this quarter's PPPT is above our trailing 5-quarter average of roughly [ $750 million ]. ... So we are optimistic in our outlook. That said, we wouldn't necessarily extrapolate Q1 outperformance for the full year."
— Darryl White, Chief Executive Officer

Assessment: Management handed the Street the exact figure needed to normalize the segment and then told it to. That is the opposite of the usual pattern and deserves credit. It also means anyone modelling Capital Markets at this quarter's run-rate is doing so against explicit instruction, and that roughly C$0.15 of this quarter's adjusted EPS should be treated as cyclical.

Whether the Card-Fee Benefit Is a One-Off

A direct challenge to the durability of Canadian P&C's fee growth, anchored on a bank-wide card fee line the questioner characterized as elevated against history. Management confirmed the mechanism and confirmed it will not repeat at this magnitude, without ever sizing it.

Q: "So that is specific to the quarter. It's not like necessarily a new run rate. Is that fair?"
— Mehmed Rizvanovic, Scotiabank

A: "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."
— Mathew Mehrotra, Group Head, Canadian Personal and Business Banking

Assessment: A clean answer to a clean question, and an incomplete one. The Street now knows the item is transitory and still cannot quantify it, which means the fiscal 2026 Canadian P&C fee line will be modelled with a wide error bar. The unwillingness to size an item after conceding it is above trend is the most straightforwardly avoidable disclosure gap in the quarter.

Whether the Term-Deposit Pricing Advantage Has Run Its Course

The most technically specific question of the call, observing that BMO's brokered-term deposit rates sit materially below peers and asking how long that can persist and how much of the deposit remix it explains. The answer laid out an explicit funding hierarchy: operating deposits first, own-client term second, third-party brokered term last.

Q: "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?"
— Darko Mihelic, RBC Capital Markets

A: "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."
— Mathew Mehrotra, Group Head, Canadian Personal and Business Banking

Assessment: The exchange establishes both that the margin tailwind is not finished and that it is decelerating, which is the correct reading of a 20-basis-point year-over-year expansion that was only 3 basis points sequentially. It also establishes the dependency: the ability to underprice the brokered market rests on core operating deposit growth continuing, which is a customer-acquisition claim rather than a treasury one.

What They're NOT Saying

1. The severance charge is not split by segment. It is recorded "in the respective operating segments" and nowhere disclosed segment by segment, which means no reader can clean up any individual segment's operating leverage. Canadian P&C's negative 4.1% and U.S. Banking's negative 2.2% are therefore uninterpretable at the margin, which happens to be where the argument is.
2. The card-fee true-up is never sized. Management conceded it is above trend, conceded it will not repeat at scale, and gave no dollar figure. It is the largest single unquantified item in the quarter's revenue.
3. The capital-allocation rate change is disclosed only in a table footnote. The rate charged to operating segments rose to 12.5% of risk-weighted assets from 12.0%, which lowers every segment return on equity shown in the report and shrinks the unallocated pool in Corporate Services. It was not mentioned on the call and no analyst raised it.
4. Seventeen of the twenty basis points of CET1 decline were model and methodology refinement. Stated once, never explained, never asked about, and never given a forward path. If this is an ongoing programme it is a recurring capital cost of roughly C$750M per quarter equivalent at current risk-weighted assets.
5. There is no fiscal 2026 financial guidance. No revenue, expense, earnings or capital-return targets beyond positive operating leverage and a provision range. Everything quantitative was deferred to the March 26 Investor Day, which arrives three weeks after the print.
6. Insurance is shrinking without comment. Net income of C$79M was down 5% year over year and flat sequentially, on revenue down 4%. No prepared remark and no question addressed it.
7. Book value per share fell C$1.12 sequentially. Return on equity improved while the per-share denominator declined, on accumulated other comprehensive income losses of C$1.8B and buybacks executed above book. Nobody framed the trade-off between repurchasing stock at 1.8 times book and compounding it.
8. The starting point of the 15% return journey was never put on a basis. The 9.8% mark is quoted repeatedly and its basis, reported or adjusted, is never stated, which makes the "60% of the way there" claim unauditable from outside.

Market Reaction

• Pre-print setup. The Toronto listing closed at C$195.06 on February 24, up 9.4% year to date, 4.0% over the trailing 30 days and 30.8% over the trailing twelve months, against a 52-week closing range of C$124.47 to C$199.76. The New York listing closed at US$142.30, up 9.6% year to date and 36.6% over twelve months. The S&P 500 was up 0.7% year to date entering the print.
• Reaction session. BMO reported before the open, so February 25 is the reaction day. The Toronto listing opened at C$199.00, a 2.0% gap, traded between C$197.99 and C$204.57, and closed at C$202.52, up 3.8% or C$7.46. The New York listing closed at US$148.13, up 4.1%. The difference between the two is currency, not disagreement.
• Volume. Toronto volume of 2.8 million shares was 0.9 times the 30-day average; New York volume of 1.3 million was 1.5 times its own average. Neither is a capitulation or an accumulation signal.
• Benchmark. The S&P 500 rose 0.8% on the session, so roughly 3 percentage points of the Toronto move and 3.3 of the New York move were stock-specific.

The intraday high of C$204.57 cleared the pre-print 52-week closing high of C$199.76, so the shares set a new high on the day. A 3.8% single-session move is large for a Canadian Big Six bank on an in-line-to-better quarter, and its size tells you something about positioning rather than about the print.

What the market bought. The reaction is best explained by three things landing together: a 7.7% headline beat, a provision line 26% lower than a year ago, and a return-on-equity figure of 13.1% that management framed as ahead of a widely known 15% schedule. Those are the three most legible facts in the release, and all three are on the favourable side of the basis question. The reaction was set before the Q&A extracted the qualifications: that Capital Markets was above its own trend, that card fees carried a non-repeating true-up, and that the all-bank margin guide is stability rather than expansion.

What the market did not price. Negative adjusted operating leverage of 2.8%, an adjusted efficiency ratio 150 basis points worse than a year ago, U.S. pre-provision earnings down US$2M, and a book value per share that fell sequentially. None of those is in the release's highlights box, and all four are in the tables behind it. The gap between the headline set and the table set is the entire reason a 3.8% rally on this quarter is a selling opportunity for anyone whose position was sized for the 15% goal arriving early.

Street Perspective

Debate: Is 13.1% Return on Equity the Right Number to Anchor On?

Bull view: The severance charge is a discrete, pre-announced, self-liquidating cost with a stated ten-month payback, and excluding it from a run-rate return calculation is exactly what a forward-looking investor should do. On that basis the bank has improved 180 basis points in a year and is running ahead of a public schedule.

Bear view: BMO's own accountants declined to treat the charge as non-recurring, and a bank in the fifth year of a continuous efficiency programme will have another one. A return metric that requires a verbal adjustment the financial statements refuse to make is a metric chosen rather than measured.

Our take: The bear has the better of the accounting and the bull has the better of the economics. The honest anchor for a 12-month view sits between the disclosed 12.4% and the spoken 13.1%, which is why our valuation framework runs both. What is not defensible is quoting 13.1% against a 9.8% starting mark whose basis is unstated and calling the difference "ahead of schedule".

Debate: Was This a High-Quality Beat or a Favourable-Composition Beat?

Bull view: Record revenue in all four operating segments, 20 basis points of core margin expansion earned on a smaller balance sheet, 24% growth in wealth assets under management, and a beat delivered while absorbing C$0.21 of severance the Street may not have fully modelled. Composition arguments always exist and this quarter's operating breadth is unusually genuine.

Bear view: Seventy-two percent of the pre-tax improvement is provisions, roughly C$0.15 of EPS is Capital Markets above its own stated trend, an unsized card-fee true-up sits in the fee line, and C$0.12 of the sequential EPS gain is the preferred-dividend calendar. Strip those and the operating beat is thin.

Our take: Both descriptions are true of different parts of the print, and the resolution is timing. The revenue quality is real and improving; the earnings quality is temporarily flattered. The provision tailwind is largely spent by the fourth quarter on management's own guidance, which means the market will get a clean read on the operating run-rate in the second half and not before.

Debate: Does the U.S. Franchise Inflect on Schedule?

Bull view: Optimization is 90% complete with a hard end date, pipelines are building on both sides of the border, commercial treasury and payment fees are up 23%, net checking growth is positive, and margin at 4.00% is the highest in the bank. The moment the shrinkage stops, four quarters of margin and mix work convert into revenue.

Bear view: Four quarters of optimization have produced zero pre-provision earnings growth, deposits are down 5%, adjusted efficiency has deteriorated, and the segment's adjusted return on equity fell sequentially. The plan has been "growth in the second half" for several halves.

Our take: The bull case is the more likely outcome and the bear case is the better description of the evidence to date. Management has now attached a date and a growth rate to the claim, which converts it from a narrative into a test. We would rather own the outcome after the test than before it, which is a large part of why this is a Hold.

Debate: Does 1.83x Book Already Capitalize the 2027 Target?

Bull view: A Canadian Big Six bank compounding book value with a 3.3% yield, an active buyback, capital 60 basis points above target and a credible path to a 15% return deserves to trade above the group's historical multiple, and the multiple should expand further as the return is delivered.

Bear view: On a Gordon-growth framework the traded price already sits above ten of the twelve reasonable combinations of sustainable return and cost of equity, and the two it does not clear both require the 15% goal to be already achieved. The market has capitalized a 2027 outcome seven quarters early.

Our take: The bear view is arithmetically correct and the disagreement is really about the cost of equity. At 9%, the price is fair for a 14% return; at 10%, it is roughly 15% too high for the same return. There is no version of this framework in which the shares are cheap, and there is a plausible version in which they are fairly valued. That is the definition of a Hold.

Model Update & Valuation Framework

We have no prior BMO model, so this section establishes the starting assumptions rather than revising them.

Valuation: Price-to-Book Against Sustainable Return on Equity

For a bank, the cleanest framework is the Gordon-growth form of justified price-to-book: the multiple equals sustainable return on equity less growth, divided by cost of equity less growth. We use a 3% terminal growth rate, book value per share of C$110.45 as reported at January 31, 2026, and a cost-of-equity range of 9% to 10%, which brackets where a Canadian domestic systemically important bank is normally struck.

The February 25 close of C$202.52 is 1.83 times book. It exceeds ten of the twelve cells. The only two it does not clear both assume the 15% goal has already been reached, at the two lowest costs of equity in the range. Put the other way, the market is currently paying for a sustainable 14% return at a 9% cost of equity, which is the single cell that reproduces the traded price almost exactly.

Fair value. The two most defensible cells for a twelve-month horizon are 13.1% and 14.0% sustainable return at 9.0% to 9.5% cost of equity, which give C$172, C$186, C$187 and C$202. The midpoint is roughly C$187, about 8% below the reaction-day close. With a 3.3% dividend yield at that price, the base-case twelve-month total return is around negative 4%.

The other side. Held at a constant 1.83 times book, the return is book-value growth plus the dividend. Book value per share has been the weak link, up only 0.9% year over year and down 1.0% sequentially, because accumulated other comprehensive income losses and repurchases executed above book both consume it. On a constant multiple with mid-single-digit book growth restored as currency translation stabilizes, the total return is high single digits. The gap between negative 4% and positive 8% is the whole argument, and neither end of it deserves conviction.

Supporting reference points. At C$202.52 the shares trade at 16.1 times trailing four-quarter adjusted EPS of C$12.61 and yield 3.3% on the C$6.68 annualized dividend, against an adjusted payout ratio of 47.9%.

Thesis Scorecard Post-Earnings

This is our initiation, so the pillars below are established rather than graded. Each is stated at the level of specificity that makes it testable next quarter.

Overall: The operating thesis is stronger than the headline numbers require and the valuation thesis is weaker than the price implies. BMO is executing a coherent return-on-equity plan, and the deposit-and-margin half of it is working better than expected. The parts that have not yet worked, U.S. volume and enterprise cost, are the parts that have to carry fiscal 2027, and the market has already paid for their success.

Action: Hold. We would need either a de-rating toward roughly 1.6 times book, near C$177, or evidence that lifts the sustainable return above 14.5%, most plausibly the U.S. segment breaking decisively out of an 8.5% adjusted return, to move to Outperform. We would move to Underperform on a multiple above roughly 2.0 times book without a raised return destination, on U.S. commercial loan growth failing to turn positive in the second half, or on Canadian impaired provisions sustained above 65 basis points.