Bank of Montreal

All participants, please stand by. Your conference is ready to begin. Good morning and welcome to BMO Financial Group's Q4 2023 earnings release and conference call for December 1st, 2023. Your host for today is Christine Viau. Please go ahead.

Thank you and good morning. We will begin the call with remarks from Daryl White, BMO 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 Herji, head of BMO Commercial Banking, Alan Tenenbaum and Dan Barkley are representing BMO Capital Markets, Dallin Kamenga from BMO Wealth Management, and Daryl Hackett, 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 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. I will now turn the call over to Daryl.

Thank you, Christina, and good morning, everyone. Our results this year reflect the fundamental strength and diversification of our businesses. Driven by record revenue and ongoing momentum in Canadian personal and commercial banking and the contribution of the Bank of the West, we delivered good performance in a challenging economic backdrop with net income of $8.7 billion in fiscal 2023. Adjusted earnings per share were $2.81 for the fourth quarter and $11.73 for the year. Pre-provisioned pre-tax earnings grew 5 percent for the year, driven by 16 percent growth in revenue, reflecting both organic growth across our businesses and the benefit of acquisitions. Revenue is up 10 percent in Canadian P&C, 43 percent in U.S. P&C, and 5 percent in each of wealth management and capital markets. We continue to have a strong capital position with a CET1 ratio of 12.5 percent. For the year, return on equity was 12.3 percent, and return on tangible common equity was 15.8 percent. And this morning, we announced a dividend increase of 4 cents to $1.51 per share, a 6 percent increase over last year. This year, we made significant progress against our consistent strategic priorities to continue to grow and strengthen our bank and enhance customer service and invest in communities. We closed and integrated strategic acquisitions, advanced our digital first capabilities, and increased our focus on delivering interconnected one client experiences. With the successful conversion of Bank of the West, which I'll expand upon in a moment, BMO is the most integrated north-south bank on the continent. For our customers joining from Bank of the West, this means an upgrade to the strength and breadth of their bank, with access to new capabilities, products, and services to help them make financial progress. When we enter a new market, we commit to making progress for our clients and communities. Our BMO Empower 2.0 plan is set to deliver more than $40 billion to support underrepresented communities and organizations across our US footprint, including loans to minority-owned small businesses, community reinvestment in real estate, affordable housing, and neighborhood revitalization. We also completed the acquisition of air miles, with nearly 10 million active collectors who will benefit from the stability and rejuvenation of the most recognized loyalty program in Canada. Since we closed in June, We've added already 50 new partners and introduced robust new features, including an updated travel booking platform and a mobile app leading to four consecutive months of new collector growth and increased engagement. Our relentless focus on putting customers first and supporting their financial goals with innovative digital experiences and expert guidance continues to be recognized, including being ranked first by J.D. Power in both its 2023 Canada Retail Banking and Online Banking Customer Satisfaction Studies, with the highest scores among Canada's largest banks. This type of recognition, combined with the continued strong customer loyalty, reinforces the trust our customers place in us, and it's translating into results with strong customer acquisition and deeper relationships. We've had consistent performance in our flagship Canadian P&C business, with PPPT growth of 10% this year, reflecting peer-leading revenue growth in our retail bank, strong market share in our premier commercial bank, and an ongoing focus on efficiency improvement. In addition, our one-client strategy has momentum, and we've set a strong foundation to grow and deepen relationships between personal, wealth, commercial, and capital markets clients through our integrated approach and product offering. The conversion of Bank of the West in September was highly successful. We welcomed 2 million new customers, converted 2.7 million accounts and over 300 systems, and re-enrolled over 90% of active digital users within the first week. We completed the rebranding of over 500 branches, now serving all customers with one unified BMO brand. This was a large and complex acquisition requiring exceptional planning and integration across the BMO and Bank of the West organizations, evidence of our ongoing excellence in execution, a key competency at BMO. Our record of improved profitability and efficiency combined with strong organic growth and successful acquisitions set the foundation for this expansion. Now, we are at the starting line to realize the full benefit of our expanded scale, leverage our position as a top 10 U.S. bank, backed by the strength of BMO's full $1.3 trillion balance sheet, a key differentiator relative to our U.S. regional competitors. We're executing against a proven playbook and we're uniquely positioned to gain share in our new markets. And momentum is already building with PPPT growth in our U.S. segment of 27% this year to $4.1 billion U.S., doubling from five years ago. Bank of the West customer activity is accelerating as we expected. For example, we've seen a 3X increase in checking accounts sold digitally on our platform. and we've completed thousands of trades and transactions between Bank of the West clients and our capital markets businesses. With cost and revenue synergies identified and well underway, we are poised to continue to deliver strong performance. 2023 saw growing challenges in the global economy, impacted by weaker financial conditions and compounded by the escalation of geopolitical crises. While the rate of inflation has fallen from four-decade highs, further progress towards normalization could be impeded by persistent inflation and weaker global demand due to higher costs of borrowing. The potential for an economic downturn remains, both in Canada and the U.S., with higher risks north of the border. At BMO, we have a clear plan to respond to the environmental shift which we began to anticipate much earlier this year. we've remained vigilant in controlling what we can control. As Typhoon will comment on shortly, we're exceeding our planned cost synergies at Bank of the West and now expect run rate synergies to be over $800 million U.S., almost 20% higher than our initial estimate of $670 million U.S., and largely in our run rate by Q2 of 2024. On the revenue side, a high, Impact marketing campaign is in place across our expanded footprint, driving strong brand-aided awareness, leading to thousands of new appointments with our customers and supporting revenue synergies in line with our expectations. Additionally, actions we announced and started last quarter on efficiency initiatives to optimize legacy BMO workforce, real estate, technology, and procurement are expected to result in additional run rate savings of $400 million Canadian and be largely in our run rate by the end of 2024. We continue to focus on strengthening return on capital through our discipline dynamic capital allocation decisions, including the winding down of our indirect auto portfolio and our focus on one client experiences to deepen customer relationships. Combining these actions with our long-term track record of superior risk management and the full run rate of our acquisitions should differentiate BMO from peers in fiscal 2024 and beyond, driving positive operating leverage and setting us up to compete from a position of strength regardless of the environment. Our consistent performance enables us to put our purpose into action, to boldly grow the good in business and life and support a sustainable and inclusive future. We continue to advance our ambition to be our client's lead partner in the transition to a net zero world through industry-leading sustainable finance and energy transition solutions. This year, we ranked first in the sustainability-linked loan market and launched one of the first sustainability-linked deposit offerings in North America. As I look ahead, we are focused on a consistent set of strategic priorities and are squarely focused on disciplined execution to deliver sustained performance against our medium-term financial objectives, including delivering positive operating leverage. This year, we've added return on tangible common equity of over 18% as we believe it to be an important measure of our performance across our capital structure. As the bank best positioned to serve more clients across the Canadian and U.S. economies, we're confident in the power of our integrated North American franchise and our strategy to help clients make real financial progress. BMO will continue to leverage opportunities to drive progress across all our home markets. I want to thank our employees, our customers, and shareholders for their commitment to BMO, and I will now turn it over to Typhoon.