Bank of Montreal

Good morning and welcome to BMO Financial Group Q4 2024 earnings release and conference call for December 5th, 2024. Your host for today is Kristen Beal. Please go ahead.

Thank you and good morning. We will begin with remarks from Darrell White, BMO's 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, Nadeem Herji, head of BMO Commercial Banking, Alan Tunnenbaum, head of BMO Capital Markets, Dellen Kamenga, head of BMO Wealth Management, and Darrell Hackett, BMO U.S. CEO. As our call will end at 9.30, I would ask you to limit to one question during the Q&A to give everyone a chance to participate. 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. Darrell and Typhoon will be referring to adjusted results in their remarks unless otherwise noted. I'll now turn the call over to Darrell.

Thank you, Christine, and good morning, everyone. A year ago, we anticipated that higher interest rates and a slowing economy would present a more challenging environment for business activity, loan demand, and credit provision. In response, we outlined a clear plan and took early action to dynamically manage our businesses, including controlling expenses, while continuing to invest and support our customers. Against that backdrop, we delivered resilient operating performance. At the same time, credit performance deteriorated more than we anticipated. Impaired loss rates exceeded our historical range, impacting our overall results with net income for the year of $7.4 billion and earnings per share of $9.68, both down from a year ago. We continue to prudently manage our portfolio and are working closely with clients that are facing challenges. We expect quarterly provisions to moderate through 2025. Despite a challenging year, there is much to be proud of, including significant progress advancing our strategic priorities. Pre-provisioned pre-tax earnings grew 5% to a record $13.4 billion, with growth across all operating groups. We met our commitment to positive operating leverage in each of the last three quarters and for the full year at 1.6%. Our efficiency ratio improved by almost 100 basis points to 58.6%, with sustained cost discipline. Across our businesses, we accelerated growth in our core customer base, We delivered more one-client connected solutions that built loyalty and expanded client relationships, and we grew deposits by $61 billion, or 9%. We successfully managed evolving regulatory expectations, including the transition to a Category 3 bank in the U.S. Our CET1 ratio increased meaningfully by 110 basis points from last year to 13.6%, creating ample capacity to support our clients and return excess capital to our shareholders. These are all indicators of the strength and the health of our franchise. And this morning, we announced a dividend increase of $0.04 to $1.59 per share, a 5% increase over last year, and our intention to repurchase common shares under an NCIB. Each of our business lines delivered good PPPT growth this year with momentum that is expected to accelerate performance going forward. In Canadian PNC, PPPT was up 11%, with record revenue driven by good loan and deposit growth. We continue to grow market share in key categories, including deposits, mortgages, and credit cards, supported by a record year in net core customer growth and peer-leading checking and savings account acquisitions. We're solidifying deep relationships through customer-centric onboarding journeys, with nearly 50% becoming primary customers within the first six months. US P&C grew PPPT 4%, as cost synergies more than offset the impact of market conditions on revenue growth. We've grown core retail customers across the country and in our Western markets, including California. we're successfully shifting the branch model to be advice-centric, achieving deeper customer relationships and higher mobile banking engagement, which is now driving above-peer average checking account growth in California. In North American commercial banking, we continue to have strong client loyalty scores across Canada and the U.S. and leading TPS capabilities, driving deposit growth and deeper client relationships. The pace of referrals from the commercial bankers to other business lines doubled from the start of the year as we focus on bringing the best of BMO to all our clients. Our integrated online banking for business platform is a key driver of growth with an over 10% increase in active users this year. In BMO Wealth Management, PPPT was up 10% with good growth in client assets. We continue to strengthen our ETF offerings and mutual fund performance, driving strong net flows. Our first place ranking in the J.D. Power 2024 Canada Wealth Management Digital Experience Study is a recognition of our focus on technology modernization and delivering innovative digital client experiences. BMO Capital Markets grew PPPT by 7% in a mixed environment with strong trading performance reflecting growth in our securitization business while the M&A environment in Canada remained muted. We're seeing signs that market activity is now accelerating, and we're poised to build on our leadership position, including a number one position in U.S. agency CMO issuance and a top two position in Canadian investment banking and ECM. Globally, BMO was recognized as the best metals and mining bank of the year by Global Finance Magazine for the 15th consecutive year. Across our businesses, we advanced our digital first strategy, powered by AI data and technology modernization to drive tangible customer and business value. For example, BMO Insurance launched an AI-powered digital assistant designed to enhance the underwriting process for advisors, eliminate complexity, and simplify the client experience. And we were recently recognized by the digital banker with five global retail banking innovation awards for leadership in digital innovation, customer experience, and delivery excellence. We consider these outcomes as foundational assets that underscore the health of our franchise and the strength of our North American platform as we move with pace into a more constructive environment in 2025. Although risks remain from still restrictive interest rates, ongoing geopolitical tensions, and potential trade protectionist measures, we're optimistic that central bank easing and expansionary fiscal policies will begin to set the stage for relief for Canadian and U.S. clients and support a moderate pickup in growth in both countries. This optimism is reflected in my recent conversations with clients. Looking forward, Our top priority is rebuilding return on equity to achieve our target of 15% over the medium term. We have a clear path focused on disciplined execution across four specific areas. First, improved performance in our U.S. segment, including lower PCLs, as we leverage our expanded scale and optimize our business mix. The weaker banking environment over the past 24 months in the U.S. impacted our core performance with lower than expected business activity and balance sheet growth. We partially offset these headwinds by overachieving on cost synergies, and at the same time, we've made critical investments in the future. The U.S. remains an attractive growth market with a GDP more than 10 times the size of Canada and an environment that is now set to perform well. With an advantage position as a top 10 U.S. bank, we're executing on our strategy to compete in an improving environment. Revenue synergies are on track and building, benefiting from early one client successes. Our full run rate PPPT expectations are intact and, as we previously noted, delayed till the end of fiscal 2026. We're also driving stronger results across the enterprise, including continued risk management discipline and improving market conditions, which will help deliver normalized PCL over time as we continue to manage appropriate risk return targets. Next, delivering consistent positive all bank operating leverage by focusing on core operating performance and execution of enterprise priorities. And finally, disciplined balance sheet optimization by continuing to systemically allocate capital to fuel profitable growth. We have a robust foundation for accelerating our momentum and delivering on the next phase of growth and ROE improvement. With strong risk and capital management as key enablers, I'm confident in our strategy to drive enhanced shareholder returns. Underpinning this involves our continued focus on attracting top talent as we are adding leaders and teams with deep expertise in key areas, including artificial intelligence and data, U.S. private wealth, and U.S. commercial banking. Employee engagement and winning culture are critical enablers to sustained business performance and advancing our purpose to boldly grow the good in business and life. And we're proud to have been recognized as one of the most admired corporate cultures in Canada by Waterstone Human Capital. I want to thank our employees for always putting the customer at the center and operating in support of the communities we serve. I'll now turn it over to Typhoon.