Bank of Montreal

Please stand by. Your meeting is about to begin. Please be advised that this conference call is being recorded. Good morning and welcome to the BMO Financial Group's Q2 2021 earnings release and conference call for May 26, 2021. Your host for today is Ms. Christine Viau, Head of Investor Relations. Ms. Viau, please go ahead.

Thank you and good morning. Welcome to BMO's second quarter 2021 results presentation. We will begin the call with remarks from Darrell White, BMO's CEO, followed by Typhoon Tuzun, our Chief Financial Officer, and Pat Cronin, our Chief Risk Officer. Also present to take questions today are Ernie Johanson from Canadian P&C, Dave Casper from US P&C, Dan Barkley from BMO Capital Markets, and Joanna Rotenberg from BMO Wealth Management. As noted on slide two, forward-looking statements may be made during this call, which involve assumptions that have inherent risks and uncertainties. Actual results could differ materially from these statements. I would also remind listeners that the bank uses non-GAAP financial measures to arrive at adjusted results. Management measures performance on a reported and adjusted basis and considers both to be useful in assessing underlying business performance. Daryl and Typhoon will be referring to adjusted results in their remarks unless otherwise noted as reported. With that, I will turn the call over to Daryl.

Thank you, Christine, and good morning, everyone. It has been over... a year since the onset of the coronavirus pandemic, which has brought challenges unlike any we've faced before and that will have impacts for some time to come. But as we transition to recovery, there are more hopeful signs every day. We're proud to have supported our customers and communities as they navigate the disruption and uncertainty of the pandemic. And with them, we have grown stronger. underpinned by our purpose-driven strategy and a culture that will help drive a sustainable and inclusive recovery. We continue to deliver on our commitments with sustained, consistent financial performance. Today, we announced another quarter of very strong results with adjusted net income of $2.1 billion and earnings per share of $3.13 up from $3.06 last quarter. Each of our operating groups continues to perform very well, with continued strength in our market-sensitive businesses, as well as good growth in our P&C businesses, despite record low interest rates. For the first half of the year, adjusted pre-provisioned pre-tax earnings of $5.5 billion increased 27%. Revenue grew 11%, and expenses continued to be well-managed, up 1% year-to-date, with strong overall operating leverage of 9.8%. Our credit quality remains very strong with low impaired provisions again this quarter and a modest recovery of performing loan provisions reflecting both the resilience of our customers and our differentiated approach to risk management. Our return on equity increased again this quarter to 16.7% above our mid-term target while our capital position continues to strengthen with a CET1 ratio of 13%. We're on a continuous path to building a strong and even more competitive bank, digitally enabled, future ready, with leading efficiency improvement, customer loyalty and profitability, and a steadfast commitment to the communities we serve. Our progress is evident in our financial performance, which confirms the effectiveness of our strategy, and ability to support millions of clients in new ways. Compared to the first quarter of 2020, efficiency has continued to improve, down 370 basis points to 56.6%, reflecting our commitments to managing expenses while investing for future revenue growth. We're committed to continue to improve efficiency over time, even when expense growth reflects our strong revenue performance. We continue to outperform on credit, We have $2.8 billion of allowances against performing loans well above our base case expectations for future losses. Over the same period, return on equity increased 320 basis points with each of our businesses achieving higher levels of earnings and our OE. Our capital position has never been stronger with our CET1 ratio up 160 basis points positioning us well for growth and the eventual relaxing of constraints on returning capital to shareholders. We're taking actions to optimize capital and resource allocation. You've seen that reflected in a range of recent decisions, such as the sale of our EMEA asset management business, our private banking business in Hong Kong and Singapore, and the wind-down of our non-Canadian energy portfolio. These actions further strengthen the earnings power of the bank And together, they are expected to improve efficiency by approximately 60 basis points, ROE by 30 basis points, and capital by 80 basis points. And they enable reinvestment in our core businesses in North America. We've achieved these results while adapting to the changes and challenges of the last year. And with the economic recovery set to accelerate through this year and 2022, we've never been better positioned to continue to grow with our customers. Substantial fiscal stimulus, pent-up demand, and elevated household savings are expected to strengthen economic activity this year and next. Business confidence is much improved. On Monday, the U.S. National Association of Business Economists matched our forecast, calling for 6.5% U.S. real GDP growth in 2021, the strongest expansion in 37 years. And among consumers... This week, the Bloomberg Nanos Canadian Confidence Index hit its highest point recorded since they started polling in 2008, with Canadian real GDP expected to grow 6% as vaccine rollouts accelerate. Here, we're building capabilities and continuing to invest in our businesses for growth with a digital strategy first. Our bank has been driving digital transformation for more than a decade, and in the last 12 months, the pace has meaningfully accelerated. This quarter, we launched automated digital enrollment, a solution that quickly and seamlessly enrolls customers into a commonly used mobile banking feature, a first for a major Canadian financial institution. We're accelerating our strong digital sales performance, driven by continued deployment of market-leading capabilities and offers, while continuing to shift service transactions to digital, allowing our employees to focus on advice and sales. In our leading treasury payment solutions business, wire payments are now processed on a single North American platform, 95% without human intervention, resulting in improved speed, less risk for error, and a better experience for our customers and our employees. In wealth management, we launched AdviceDirect Premium, a new offering designed for our self-directed clients with more complex needs. This hybrid solution combines the strong technology of our digital advice engine with human support and planning when it's needed. These are examples of investments driving strong and resilient performance across our operating groups. Our flagship Canadian P&C business delivered year-to-date revenue growth of 5%, strong operating leverage and PPPT growth of 11%, with ROE improving to 26.8%. Performance was supported by continued strong mortgage growth and a resumption of commercial lending growth. In U.S. P&C, PPPT growth was also strong, up 22% year-to-date, with revenue growth of 6% and effectively managed expenses. Our efficiency ratio improved to 48.6% and ROE to 16.4%. We're continuing to add clients. and deepen relationships with strong growth in commercial deposits and core retail checking balances, with lending expected to accelerate as the economy expands and supply chain issues ease. In BMO Wealth Management, we had a strong PPPT growth of 53% year-to-date. Revenue grew 14% in traditional wealth with strong growth in client assets, online broker revenue, and mutual fund revenue, where sales year-to-date are more than double all of fiscal 2020. These results were complemented by record client loyalty scores in Canadian and US private wealth businesses. We're refocusing the business for North American growth, investing in key areas of competitive strength in private wealth, in digital investing, and Canadian asset management that we expect will continue to contribute strongly to the bank's growth. BMO Capital Markets, continues to be a source of diversified earnings to the overall bank and had another very strong quarter delivering very strong year-to-date PPPT growth of 72% and ROE of 11.9%. Results reflect strong and diverse revenue performance in both global markets and investment in corporate banking and the benefit of actions we've taken over the past few years to further strengthen and reposition the business for sustained performance with new capabilities, deeper relationships, and improved efficiency and returns. Our overall U.S. segment is a key driver of earnings growth, contributing 40% of total bank earnings year to date. Pre-provisioned pre-tax earnings were up 46%, with an efficiency ratio of 55%. Our integrated approach brings the full value and scale of BMO to our North American customers, leveraging our top-tier commercial lending market position leading deposit share and core footprint and a growing strategically focused capital markets and private wealth management presence. We're leveraging our strong and consistent financial performance for the benefit of our customers and to support a sustainable and inclusive recovery. We continue to facilitate access to a number of programs for those customers that continue to be impacted by the pandemic to bridge them to an eventual full reopening of the economy. We're addressing key barriers faced by minorities, including targeting financing for women and minority-owned businesses and supporting community reinvestment through programs such as BMO Empower and our announced $10 million donation to create the new Rush BMO Institute for Health Equity in Chicago. Building on our long-standing commitment to a sustainable future and support for the Paris Climate Agreement, this quarter we declared our ambition to be our client's lead partner in the transition to a net-zero world and created the BMO Climate Institute to drive insights and enhance climate resilience. So while the impacts of the pandemic are not yet fully behind us, the North American economy is poised for a strong recovery through 2021 and into 2022, to help our customers make real financial progress. We have operating momentum in our businesses, differentiated risk management, and flexibility for capital deployment. I'm confident that we've never been better positioned for the opportunities ahead. I'll now turn it over to Typhoon to talk about the second quarter financial results.