Bank of Montreal

Good morning and welcome to BMO Financial Group's Q2 2023 earnings release and conference call for May 24th, 2023. Your host for today is Christine Vieux. Please go ahead.

Thank you and good morning. We will begin today's call with remarks from Daryl White, BMO's CEO, followed by Typhoon Tuzun, our Chief Financial Officer, and Piyush Agrawal, our Chief Risk Officer. Also present To take questions today are Ernie Johanson, head of BMO North American Personal and Business Banking, Nadeem Hirji, head of BMO Commercial Banking, Dan Barkley, head of BMO Capital Markets, Deland Kamenga, head of BMO Management, and Dave Kasper, BMO U.S. CEO. As noted on slide two, forward-looking statements may be made during this call, which involve assumptions that have inherent risks and uncertainty. 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 Tyson will be referring to adjusted results in their remarks unless otherwise noted as reported. I will now turn the call over to Daryl.

Thank you, Christine, and good morning, everyone. I'd like to begin by acknowledging the hardship faced by our communities in Alberta impacted by the devastating wildfires that threaten their homes and livelihoods. We're committed to standing alongside our clients and doing our part to make sure that they get the help that they need. I'd also like to welcome Nadeem Herji, Group Head, BMO Commercial Banking, who's joining the call for the first time. Nadeem has a long track record of serving our clients, including leadership positions in risk management and commercial banking, where most recently he was co-head of the Canadian Commercial Bank. Now, let me turn to the quarter. Against the backdrop of a shifting environment, BMO delivered solid performance, including the benefit of a full quarter of results from Bank of the West. Earnings per share were $2.93 and net income was $2.2 billion for the quarter and $4.5 billion year-to-date. Second quarter pre-provisioned pre-tax earnings were up 7% year-over-year and grew $6.2 billion year-to-date. Our performance reflects the continued strength in our highly diversified business mix, with good PPPT growth in our Canadian and US personal and commercial banking businesses, up 8% and 29% year-to-date respectively, while our wealth and capital markets businesses were impacted by weaker markets and lower client activity. While credit trends are beginning to normalize from historically low levels as expected, credit performance remains strong across our portfolios, reflecting our long-standing track record of superior risk management, a culture that is shared by our Bank of the West colleagues. Our CET1 ratio of 12.2% remains very strong, even after closing the largest acquisition in Canadian history. ROE for the quarter was 12.6%, while return on tangible common equity improved to 17.2%. We also announced a dividend increase of 4 cents, up 6% from last year to $1.47 per share. Since we spoke last quarter, the impact of persistent inflation, rising rates, a slowing global economy, and an increasing deposit competition on the industry has accelerated. We're not immune to these market forces, which are putting pressure on revenue growth and near-term operating leverage. After delivering five consecutive years of positive operating leverage, These factors, along with the higher efficiency of Bank of the West pre-synergies, are now expected to result in negative operating leverage this year. We're focused on resetting our expense outlook in line with the revenue headwinds to regain positive operating leverage and continue the improvement in our efficiency ratio. Typhoon will elaborate on this in his remarks. Our commitment to positive operating leverage through time remains firm even in this environment. The last few months have reinforced the importance of a strong foundation and the trust built over time with our stakeholders. Our bank is highly diversified by customer sector and geography and we fortified our balance sheet and significantly expanded our customer deposit base with Bank of the West. Liquidity, funding and capital are all well managed and ratios are strong, well above both regulatory requirements and internal targets. The strength and stability of our bank that has delivered resilient performance through economic cycles is being noticed. We have a differentiated position in the US market that's been enhanced with the Bank of the West. As a high-performing national US bank, we rank in the top 10 of diversified banks with assets over $250 billion. Our combined US segment has over $400 billion in assets, and offers customers a full range of integrated banking wealth and capital markets products and services with presence in leading markets and digital platforms that extend nationally. Our clients further benefit from the strength of BMO's $1.25 trillion North American balance sheet, investment capacity, and the stability of a Canadian bank. We're advantageously positioned within a small number of large banks in the U.S. that have sufficient size, scale, and a full range of capabilities, including our premium top five North American commercial banking franchise, a one-client approach, and a north-south business model unlike any other bank. We believe that this will contribute to outsized gains in customer and deposit acquisition as customers seek to partner with banks who are willing and able to support them through the cycle. Since the market disruption in early March, leveraging our leading North American treasury and payment solutions and enhanced digital onboarding capabilities, we've opened several thousand new commercial deposit accounts and continued to add retail customers across our expanded US footprint. Our US segment has been a key contributor to our growth and success over time, with a long track record of combining organic growth with successful acquisitions. The contribution of Bank of the West to BMO's performance is in line with our expectations, adding 10% to BMO's pre-provisioned pre-tax earnings in the first quarter, and we are on track to increase that contribution as our run rate, expense, and revenue synergies come through. We're well prepared and on track to convert systems and branding over the Labor Day weekend. I remain confident that by the end of 2025, Bank of the West acquisition will add over US $2 billion in run rate pre-provision, pre-tax earnings, as I discussed with you last quarter. This quarter, we also continued to make progress on our strategic priorities to continue building a digitally enabled bank, enhancing customer loyalty, and being our client's lead partner in the climate transition, benefiting from the investments we've made in technology, marketing, and Salesforce expansion. We continue to support newcomers to Canada, launching industry-leading digital pre-arrival account opening capabilities through our expanded New Start program. The combination of digital transformation and helping customers make real financial progress was recognized by Cellent with two model bank awards. Earlier this month, we announced the approval of our acquisition of the Air Miles Reward Program, an opportunity to reinvigorate one of Canada's largest and most celebrated loyalty programs. We're helping customers address the challenges of climate change through thought leadership, such as our participation in the UN convened Nature Target Setting Working Group, as well as the launch of our Greener Future Financing Program to help agriculture businesses build future-ready, climate-resilient operations. In BMO Wealth Management, even in a challenging market environment, our focus on client advice and product innovation is bringing net new clients and assets to BMO, including our continued leadership in ETF flows and an improved mutual fund market share. BMO Capital Markets continued to perform well despite muted client activity with record results in M&A and in our digital and liquid trading businesses, reflecting the benefits of our diversified business model. All that we do is guided by our purpose. to boldly grow the good in business and life and underpinned by our core values. We continue to be acknowledged for our ethical business practices, recognized for the sixth consecutive year as one of the world's most ethical companies by the Ethisphere Institute, the only bank in Canada to receive this award since its inception in 2007. Our resilient and tested strategy is designed to deliver sustained performance through the cycle. As we move towards finalizing the integration of Bank of the West, we're equally focused on continuing to drive performance in all of our businesses and are uniquely situated to offer integrated North American banking, wealth, and capital markets products and leading digital experiences that differentiate us from our competitors and drive long-term value for our shareholders. I'll now turn it over to Typhoon.