Bank of Montreal

This conference is being recorded. Our participants, please stand by. Your conference is ready to begin. Good morning and welcome to the BMO Financial Group's Q2 2024 Earnings Release and Conference Call for May 29th, 2024. Your host for today is Christine Viau. Please go ahead.

Thank you and good morning. We will 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 Johansson, Head of BMO North American Personal and Business Banking, Nadeem Herji, Head of BMO Commercial Banking, Alan Tannenbaum, Head of BMO Capital Markets, and 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 adjusted net income of $2 billion and adjusted earnings per share of $2.59, with a $0.04 increase in our dividend, up 5% over last year. We achieved strong pre-provisioned pre-tax earnings growth of 7% from last year, driven by continued momentum in Canadian personal and commercial banking and strengthening performance in our capital markets and wealth businesses. Canadian P&C delivered record revenue, up 13% year-over-year, with industry-leading growth in customer acquisition, contributing to market share gains. We've seen strong momentum from newcomers to Canada, up 35% compared with last year, due to the success of BMO's New Start program, pre-arrival digital tools and advice, all aimed at helping new Canadians make real financial progress. BMO Capital Markets, had strong PPPT of $642 million within the range we have guided to and up 21% from last year, driven by good client activity and record results in debt underwriting. We met our commitment to positive operating leverage this quarter, which was very strong at 3%. Expenses were down from last year and from last quarter from the achievement of the Bank of the West cost synergies and a large portion of the incremental operational efficiency savings we announced last year. we remain focused on delivering positive operating leverage for the full year. Credit risk, while elevated from last quarter, is well managed in what continues to be a challenging environment for many of our customers, where some individuals and businesses are being impacted by prolonged higher interest rates and a slowing economy. We now expect somewhat fewer and delayed rate cuts this year in both Canada and the US, with the Bank of Canada expected to begin lowering rates this summer. and the Fed in the fall at a moderated pace. Our balance sheet is stronger than ever with a growing core deposit base, a CET1 ratio of 13.1% and prudent loan loss provisions. Since Q2 of 2023, which was the first quarter after the closing of the Bank of the West acquisition, we have effectively and quickly rebuilt our liquidity and capital positions. During that period, we added $48 billion in customer deposits, kept our liquidity and funding ratios stable, and added a full 90 basis points to our CET1 ratio, positioning us very well for capital allocation optionality heading into 2025. Our U.S. businesses continue to be a key differentiator for BMO, with our U.S. segment contributing 45% to the bank's earnings and a significant driver of long-term growth. We have a strong foundation, building on our position as a top 10 U.S. bank. With a presence in 14 of the top 25 MSAs and a leading market share in businesses like RV Marine, Equipment Finance, and Wine and Spirits, we are competing from a position of strength. Since March of last year, the U.S. banking industry has experienced more muted loan growth, and intensified deposit competition as the Fed continues quantitative tightening. Meanwhile, BMO's strategy hasn't changed. We're building clear competitive advantages in a highly fragmented market structure. And as a result, we've delivered resilient performance ahead of U.S. regional bank competitors, reflecting our deep experience competing in this market, the expanded scale of our business, and strong execution of cost savings. Pre-provision pre-tax earnings in our U.S. segment exceeded $1 billion for the fifth consecutive quarter, growing 7% over last year, well above pure averages. Over the last four quarters, we've grown deposits, we've seen stability in commercial lending, and we've managed margins. Brand recognition is strong, having achieved a meaningful share of voice in California and surpassing our targets for awareness and consideration, leading to good customer acquisition In retail in particular, we've improved branch productivity in the New West markets by 17% since the beginning of the fiscal year, complemented by strong digital sales and digital adoption. March was a record new high for new business generation across the retail and commercial businesses, including record client referrals. In commercial banking, we've retained over 90% of our clients post-conversion, and we're now building our base with good new client acquisition. We're unlocking cross-sell opportunities and expanding in key verticals. For example, in our wine and spirit sector, our combined teams are exporting expertise from the U.S. West Coast to grow and better serve clients in the Canadian winery market, while bringing M&A expertise to our U.S. clients with five completed or underway deals. We're also leveraging are leading North American treasury management and payment solutions. The capabilities we offer are not easily replicated and continue to be enhanced, including seamless access to FX trading capabilities and cross-border money movement. Clients that bank with us on both sides of the border have deeper relationships with over 10% higher revenue and 30% higher deposits. While the overall environment may continue to constrain revenue growth in the near term, we continue to invest to build on our early success and capture profitable market share and create value for the long term. Our digital first strategy is an important driver of our growth aspirations, and we've empowered our teams to develop and deploy leading digital solutions that drive tangible customer and business value. We're using agile practices to accelerate time to market, deploying increasingly sophisticated data and analytics, including AI, and leveraging cloud engineering to drive modernization and deliver more, faster, with greater quality and security. Cloud computing is a critical enabler for business transformation across BMO, and we're seeing meaningful business benefits. We're modernizing legacy wealth infrastructure within the cloud and have invested in industry-leading workflow tools in capital markets to increase efficiencies, and deliver better customer experiences. In retail banking, we've delivered 2 million AI-enabled conversations with BMO Assist and over 80 million BMO Insights to help our customers better manage their finances. As a result, we're not only being recognized with our clients' trust in business, but this quarter, BMO ranked among Fast Company's list of the world's most innovative companies of 2024. the only Canadian or US bank recognized out of more than 600 winning organizations. At the heart of BMO's culture is our commitment to ethical business practices, including a responsible approach to AI development that guides the execution of our strategy to strengthen and grow our bank. This quarter, we were again recognized by the Ethisphere Institute as one of the world's most ethical companies for the seventh consecutive year. an important differentiator for our bank. I'll now turn it over to Typhoon.