Bank of Montreal

Good morning and welcome to BMO Financial Group's Q1 2022 earnings release and conference call for March 1st, 2022. Your host for today is Christine Ville. Please go ahead.

Thank you and good morning. We will begin the call today with remarks from Gerald White, BMO CEO, followed by Typhoon Tuzun, our Chief Financial Officer, and Pat Cronin, our Chief Risk Officer. Also present to take questions are Ernie Johanson from Canadian P&C, Dave Casper from USPNC, Dan Barkley from BMO Capital Markets, and Ellen Kamenga 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 an adjusted basis and considers both to be useful in assessing underlying business performance. Daryl and Tyson will be referring to adjusted results in their remarks unless otherwise noted as reported. And with that, I'll turn the call over to Daryl.

Thank you, Christine, and good morning, everyone. Before I begin, I want to acknowledge the humanitarian crisis taking place in Ukraine. The news of Russia's invasion of Ukraine and war in Europe impacts us all, but particularly the citizens of Ukraine, the citizens of Russia, and Ukrainians around the world including here in Canada. At BMO, we stand with our Ukrainian and Russian employees, customers, and members of our community in this time of need. To help support global aid efforts, BMO has committed $200,000 to the Canadian Red Cross's Ukrainian Humanitarian Crisis Appeal, and we are accepting donations on behalf of the Red Cross at BMO branches across Canada. Turning to our Q1 results. Today, we announced another quarter of very strong performance as we continue to build on our operating momentum to start the year. First quarter adjusted earnings per share of $3.89 were up 27% from last year, with pre-provisioned pre-tax earnings of $3.3 billion, which increased 18%. Results were driven by strong performance in Canadian and US P&C, including double-digit commercial loan growth on both sides of the border, continued strength in BMO capital markets, as well as good underlying performance in wealth management. Our growth is underpinned by our consistent risk and underwriting practices and continued strong credit quality. We're executing well on our strategic plan, and the targeted investments we're making across our businesses in sales capacity, in marketing, and in award-winning digital capabilities are contributing to our stronger revenue growth up 12% this quarter. Expenses remain well managed, up 2%, excluding higher performance-driven compensation as we're reinvesting the savings from the exit of lower return businesses. At the same time, we delivered strong operating leverage of 4.8% and improved efficiency by 250 basis points over the last year to 53.8%, supporting an ROE approaching 19%. and we remain committed to delivering positive operating leverage for the year. We continue to strengthen our capital position with a CET1 ratio of 14.1%, which positions us well for continued customer-driven balance sheet growth and the acquisition of the Bank of the West. Turning to our businesses, in Canadian PNC, investments we've been making in key customer-facing roles, innovative products, and enhanced digital experiences positioned us well for the rebound in consumer activity. We're gaining share across core product categories and delivering sustained leading performance, with double-digit PPPT growth of 19% this quarter, strong ROE, and improved efficiency. US P&C also had strong results, with PPPT up 12%, continued positive operating leverage, and ROE of 19.5%. We had strong growth in commercial banking on both sides of the border, with balances up 10% in Canada and 14% in the U.S., excluding PPP loan paydowns, with almost half of that growth driven by new clients. In the U.S., we continue to grow our national presence, including recently expanded operations in the high-growth Florida market, where our teams provide clients access to BMO's full array of financial services and industry expertise. These expansion markets are now contributing approximately 25% of new client growth. BMO wealth management is key to our growth strategy, and we continue to have good underlying performance in traditional wealth. This quarter, we completed the sale of our EMEA and U.S. asset management businesses and are well underway in repositioning wealth to grow in North America, investing in advisors and private bankers delivering best-in-class client experience. As a result of our innovation and relentless client focus, we've been leading the Canadian ETF industry in net new sales for the past 11 years with an expanded suite of award-winning products. BMO Capital Markets had record PPPT of over 900 million, up 30% from a strong quarter last year, demonstrating the diversification and strength of our North American platform. We continue to benefit from investments to reposition our business, including enhanced operational efficiency and risk management. And we're now operating at a run rate well above where we were two years ago. We continue to accelerate our growth, taking the top spot in Canadian ECM in 2021 and in Q1, and in M&A this quarter as well. Performance across our businesses is supported by the execution of our digital-first strategy, where consistent investments are driving loyalty, growth, and efficiency. We're continuously modernizing technology, building advanced capabilities, and leveraging data and analytics to enhance the customer and employee experience. One great example that brings this to life is BMO Business Express, our industry-leading business onboarding platform, which has exceeded $2 billion in authorizations, supporting over 33,000 businesses with rapid access to capital. In addition to reducing the onboarding process from days to minutes, a single system architecture supports the business customers on both sides of the US and Canada border. Personalized digital services like these drive above market growth with business banking balances up 15% and create efficiency, freeing up valuable time for our colleagues to provide one-on-one financial advice. We're also making significant progress on our cloud modernization journey to enhance scalability and security while driving innovation and efficiency. For example, we recently migrated our transportation finance business to the AWS cloud, leading to annual cost savings of $10 million US and enabling profound changes in how our business operates, competes, and creates value for our customers. Turning to our US segment, we've been executing against our proven strategy to steadily deliver growth and grow our presence both organically and by building on key acquisitions. Performance remains strong, contributing 39% of the bank's total earnings with an efficiency ratio of 53.9% and a return on equity of over 18% in the quarter, both right in line with the overall bank. The announced Bank of the West acquisition will meaningfully increase our scale and growth potential of our already high-performing U.S. segment when it closes. As we laid out in December, Bank of the West is a well-run, well-performing bank with a competitive position in leading U.S. markets complementary to our own, including a highly attractive California market. Their businesses are also highly complementary, 60% commercial and 40% retail, and we see significant opportunities to grow together. Integration planning is well underway, and we remain highly confident in achieving the identified cost synergies we talked to you about last quarter. We continue to expect the acquisition to close by the end of calendar 2022 and look forward to welcoming the Bank of the West employees and customers to BMO. Our purpose-driven strategy is achieving strong financial performance that enables the bank to invest in improving the well-being of our employees, customers, and communities. This quarter, we launched Business Within Reach, the BMO for Black Entrepreneurs lending program, committing $100 million in loans to help Black-led businesses start up, scale up, and grow. And later today, we'll be announcing new expanded support for women entrepreneurs. Recently, we became the first Canadian company to announce that we will join the Breakthrough Energy Catalyst, whose mandate to accelerate clean technologies and climate solutions critical to getting the world to net zero carbon emissions strongly aligns with BMO's commitment to mobilizing capital for a sustainable future. Next week, we'll be publishing our annual sustainability reporting, which will include the 2021 BMO Climate Report. In recognition of our leadership, we were named to Corporate Night's 2022 Global 100 Most Sustainable Corporations in the World ranked as the most sustainable bank in North America for the third year in a row. Looking forward, while the current environment clearly poses a number of macro risks and uncertainties, high levels of household savings and demand is supportive of continued good GDP growth in Canada and the United States. Our clients have proven their resilience throughout the pandemic and we continue to support them in navigating challenges, including supply chain disruptions, and higher inflation. With our diversified and advantaged business mix and our strong operating momentum, we are very well positioned to perform in any environment. I'll now turn it over to Typhoon.