Bank of Montreal

This conference is being recorded. Cette conférence est enregistrée. All participants, please stand by. Your meeting is ready to begin. Good morning and welcome to BMO Financial Group's Q1 2024 earnings release and conference call for February 27, 2024. Your host for today is Christine Viau. Please go ahead.

Thank you and good morning. We'll begin the call with remarks from Darrell White, BMO CEO, followed by Typhoon Tuzun, our Chief Financial Officer, and Piyush Agrawal, our Chief Risk Officer. Also present today to take questions are Ernie Johanson, Head of BMO North American Personal and Business Banking, Nadine Herjee, Head of BMO Commercial Banking, Alan Tannenbaum, Head of BMO Capital Markets, Dellen Kamenga, Head of BMO Wealth Management, and Darrell 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, Christine, and good morning, everyone. Today, we announced net income of $1.9 billion and adjusted earnings per share of $2.56, and against a challenging economic backdrop, continued to demonstrate the strength and resilience of our diversified businesses. While the environment has constrained revenue growth in market-sensitive businesses in the near term, the strength of our personal and commercial businesses further enhanced through the integration of strategic acquisitions delivered revenue growth of 10% and pre-provisioned pre-tax earnings growth of 3% from last year. We're executing against a simple, clear, and well-defined plan by optimizing our businesses and balance sheet, controlling costs, and growing customer relationships to drive long-term sustainable growth. We significantly strengthened our capital position with a CET1 ratio of 12.8% up 30 basis points from last quarter and up 60 basis points since closing the Bank of the West transaction. Through disciplined balance sheet optimization, we've absorbed regulatory impacts and credit normalization and are well positioned to support client growth going forward. Given the outcomes of our actions, the resulting strong position and consistent internal capital generation, we've removed the drip discount as of this quarter. We're delivering against the expense management commitments we announced last year, including the full achievement of the U.S. $800 million run rate cost synergies at Bank of the West as of February 1st, one year after closing, and 20% higher than our initial plan. We're also on track to deliver the additional $400 million of expense savings by the end of 2024 from the early actions put in place last year to enhance bank-wide operational efficiency. The benefits of these programs are now accelerating. In fact, we've reduced expenses by 4% from last quarter and remain focused on returning to positive operating leverage beginning next quarter. Credit remains well managed. While impaired loss provisions have increased from very low levels, our consistent and disciplined risk management practices and the expertise within our lending teams and the quality of our client selection are resulting in good overall credit performance in line with our expectations. As we've been saying for several quarters, the near-term growth outlook industry-wide is muted by slowing GDP growth. We expect North American economic growth to remain subdued in the first half of this year before recovering towards the end of the year on the back of lower interest rates. While directionally similar, we do expect a meaningful difference in the landing between Canadian and US economies. In Canada, real GDP is expected to fall from 3.8% in 2022 to 0.8% in 2024. The US, while also slowing, is expected to show much better growth of 2.2% in 2024. We foresaw these trends emerging and we're dynamically managing our businesses to succeed and further strengthen our competitive advantage as the environment improves. In Canada, personal and business banking continues to outperform with net new customer growth up 7% year over year. We continue to expand our suite of innovative products, including our new BMO Eclipse Rise Visa card that rewards customers for establishing good financial habits. We're already seeing great traction with over 15,000 new accounts since launching in December. We continue to attract newcomers to Canada with our award-winning digital offerings and services with new accounts up 35% from last year. In the U.S., we're executing against a very specific plan. We closed, converted, and integrated the Bank of the West acquisition during a period of heightened uncertainty in the U.S. banking market where several banks have been challenged. to maintain liquidity, capital, and customers. Since closing, our total U.S. segment has consistently delivered quarterly PPPT above $1 billion U.S. and contributing 45% to the bank's earnings. We've sustained this performance despite intensified deposit competition and decreased loan demand. We've overachieved our cost synergies and steadily improved our capital ratio in the U.S. banking subsidiary, which is up over 80 basis points from a year ago. We're gaining momentum from our initial brand campaign, which when combined with targeted marketing, including becoming the official jersey sponsor of the LAFC, is driving new customers across our entire footprint, all under the unified BMO brand. In our new Western markets, we've had over 250,000 customer conversations this quarter, providing valued and trusted advice. In California, new deposit relationships were 38% higher compared to last year as branch productivity continues to build towards our full potential. In North American commercial banking, while pressure on loan demand reflects lower utilizations as businesses wait to deploy capital at a lower cost, we continue to see strong momentum in customer acquisition across our integrated North American platform. The U.S. is now contributing 60% of our total new client growth compared to 37% during the same period last year. And we've retained over 90% of Bank of the West clients solid evidence that the BMO brand is strong and gaining traction. We're actively pursuing revenue synergies across our businesses with early indicators providing confidence that we will outperform the market when the environment becomes more constructive. In our wealth business, we continue to create new and innovative solutions in the ETF and mutual fund space to help investors achieve their financial goals. BMO Global Asset Management received top honors across several categories at the 2023 Canada Lipper Fund Awards and led all ETF providers at the 2023 Fund Data Awards. At BMO Insurance, investments in data and analytics are helping speed up and simplify the underwriting process, improving productivity for financial advisors and helping make life insurance coverage more accessible to Canadians. In BMO Capital Markets, client activity is gaining momentum after a muted start to the year. In Canada, we were number one in completed M&A and ECM this quarter, and in the UK, BMO was recently designated as a gilt-edged market maker, a natural extension of our global rates business. We're driving real financial progress for our clients and communities and continuing to deliver on our climate ambitions. In partnership with the Canada Infrastructure Bank, we launched an innovative program to support the financing of energy retrofits for commercial building owners to deliver certified reductions to greenhouse gas emissions. It's just one example of how we're supporting our clients as their lead partner in the transition to a net zero world. BMO's leadership continues to be acknowledged, once again being ranked among the most sustainable companies in the Dow Jones Sustainability Index. In summary, our first quarter results were impacted by revenues that fell short of expectations due in part to environmental pressure and other specific factors Typhoon will describe in detail. Meanwhile, our core fundamental pillars are strong. Capital is very strong and ahead of expectations. Credit is within our range of expectations and expenses are tightly controlled and we're delivering on our efficiency commitments and driving clear results. We will continue to manage for optimal performance in this environment and also proactively improve our competitive positioning for outperformance as we move to the next stage of the business cycle. I'll now turn it over to Typhoon.