Bank of Montreal Q2 FY2025 earnings call

Management Statement and Operational Highlights

• Financial Performance: Adjusted net income $2B, EPS $2.62, up 1% year-over-year. PPPT growth 12%. Impaired provisions moderated, with over $850M added to performing provision in last three quarters. Capital position robust with CET1 ratio 13.5%.
• Business Segments: Each operating group delivered solid results. Canadian personal banking focused on customer experience and digital innovation. US P&C on core customer acquisition. Commercial banking on one-client relationships and TPS growth. Wealth management on ROE rebuild and product innovation. Capital markets on strong trading revenue.
• Risk Management: Actively managing risks, with cautious approach to macro uncertainties. Provisions trending to normalize, but monitoring trade negotiations and adjusting allowances accordingly.

Segment Performance

• Canadian Personal Banking: Saw good customer growth and deeper engagement via product and digital innovation. Added over 10,000 VIPorter loyalty cards, Savings Amplifier account surpassed $10B in deposits.
• US P&C: Had good momentum in core customer acquisition, with 7% year-over-year growth in checking account acquisition in West markets. Focus on balance sheet optimization.
• Commercial Banking: Business activity and loan demand impacted by trade uncertainty. Over 90% of commercial borrowers choose BMO for additional services. Treasury and Payment Solutions (TPS) grew 20% year-over-year.
• BMO Wealth Management: Return on equity 29% year-to-date, net new asset growth second highest on record. Launched new products like Canadian Depository Receipt Lineup.
• BMO Capital Markets: PPPT $684M, above guidance. Strong trading revenue, especially in commodities.

Guidance

• Adjusted Results: Adjusted EPS $2.62, up 1% year-over-year. Revenue growth 9%, PPPT growth 12%. Positive operating leverage of 2.7% year-to-date.
• Balance Sheet: Average loans up 3% year-over-year, customer deposits up 5% year-over-year. Expecting macro uncertainties to normalize as tariff regime clarity improves.
• ROE: Year-to-date ROE 10.6%, excluding performing PCLs would be ~11.5%. Focus on balance sheet optimization and expense management for ROE improvement.

Risks

• Macro Uncertainties: Economic uncertainties in North America, trade policy impacts on consumer and business sentiment. Tariff-related risks affecting certain sectors and loan portfolios.
• Credit Risks: Delinquencies trending up in Canadian consumer portfolios, potential for moderately higher losses in unsecured portfolios. Monitoring trade negotiations and adjusting allowances accordingly.

Question and Answer

Q: On ROE story, loan growth and funding optimization in US A: Darryl, Ernie, and Nadim discussed loan growth muted but pipelines healthy, funding mix changing with deposit optimization and new customer acquisition.

Q: Balance sheet restructuring in US, scaling opportunities A: Tayfun mentioned ambitious ROE plan with periodic decisions, but no specific news on scaling opportunities.

Q: US commercial book PCLs and customer sentiment A: Piyush and Nadim said US commercial book PCLs dropping, customer sentiment improving, and expecting loan growth rebound in back half of year.

Q: US capital allocation and stress test A: Tayfun said CCAR exercise unlikely to meaningfully impact capital allocation in US.

Q: Margin discussion, US margin outlook A: Tayfun expected stable margins with upside, influenced by deposit mix optimization and balance sheet actions.

Q: Tariff-related industry exposure A: Piyush said diversified portfolio, ~6% in higher risk sectors, ~1% in highest risk files, mixed between Canada and US.

Q: Political climate impact on Canadian corporations in US A: Darryl said uncertainties high, no house view yet on potential tax impacts.

Q: Manageable PCLs and earnings growth A: Piyush explained manageable PCLs mean continuing earnings growth with healthy capital ratios and client relationships.

Q: Loan growth prospects Canada vs US A: Darryl said possible stronger US loan growth due to Bank of the West deal, but Canada also has potential with infrastructure spend.

Q: NIR and mortgage growth A: Tayfun expected NIR to improve in second half, Ernie said mortgage growth strong with broker channel performing as expected