Bank of Montreal Q1 FY2025 earnings call

Management Statement and Operational Highlights

• Financial Performance: First quarter adjusted net income $2.3 billion, EPS $3.04, pre-provision pretax earnings $4 billion up 32%, broad-based revenue growth 18%, operating leverage 8.9%. CET1 ratio 13.6%, started share buyback, ROE 11.3%.
• Economic Backdrop: Monitored geopolitical uncertainty, clients being cautious on capital deployment, and closely tracking portfolio implications of tariffs.
• Business Unit Performances: Highlighted performances in Canadian P&C, Canadian Commercial Banking, U.S. P&C, U.S. Commercial Banking, Wealth Management, and Capital Markets.
• Community Impact: Recognized the impact of Los Angeles wildfires, provided relief and pledged $3 million to local charities for recovery efforts.

Segment Performance

• Canadian P&C: PPPT up 13% with record revenues of $3 billion, driven by customer and balance sheet growth. Opened over 1 million savings amplifier accounts and launched new BMO VIPorter Travel Rewards credit card suite.
• Canadian Commercial Banking: Strong revenue growth from loan and deposit growth, with the launch of BMO Sync in Canada, an innovative solution integrating online banking for business services into resource planning and accounting systems.
• U.S. P&C: PPPT grew 6% with revenue growth and good expense management, seeing a 14% increase in checking account acquisition in new West markets.
• U.S. Commercial Banking: Consistent client engagement, progress on the One Client strategy, and continued addition of top talent, particularly in the California market.
• BMO Wealth Management: PPPT up 48% with strong revenue growth in wealth and asset management, including the highest mutual fund sales since 2015 and the launch of new innovative products.
• BMO Capital Markets: PPPT grew 67% driven by strong Global Markets trading performance and good results in Corporate Banking and underwriting.

Guidance

• Maintained expense growth guidance in mid-single-digit range on constant currency basis excluding higher performance-based compensation.
• U.S. medium-term ROE target 12% or more, expecting improvement over the longer term. Continued reporting on progress against initiatives to track improvement.

Risks

• Geopolitical uncertainty, including potential tariffs, impacting portfolio and client capital deployment.
• Uncertainty in tariff outcomes affecting economic outlook and credit losses.
• Volatility in market environment impacting client activity in market-facing businesses.

Question and Answer

• Q: Difference in U.S. vs Canadian commercial clients' response to tariffs. A: Higher anxiety in Canada, but both sides seeing slowdown in investment plans, clients working on contingency plans, utilizing tools like currency or interest rate hedging.
• Q: CET1 ratio and buybacks. A: CET1 at 13.6%, intent to continue share buybacks with the ability to adapt to the environment.
• Q: U.S. P&C ROE synergies. A: Target $450M-$500M revenue synergy from Bank of the West acquisition, expected to be achieved by 2027 with progress on the path.
• Q: Performing ACL and tariffs. A: Performing PCL built considering prudent allowance, tariffs not included in macro forecast but sensitivities considered to reflect uncertain environment.
• Q: Tariffs impact on PCL. A: Difficult to predict exact impact without clarity, but expected to cause deterioration in economic outlook which may lead to adjustments in allowance.
• Q: U.S. ROE improvement and capital recycling. A: Capital recycled for business growth, aiming for 12% ROE in U.S., with revenue synergies and operating performance as key contributors.
• Q: Trading revenue seasonality. A: Trading performance consistent across businesses, not expecting ongoing high level, but objective to deliver consistent performance with investments in various businesses.
• Q: Loan portfolio susceptibility to tariffs. A: Diversified portfolio, tracking watchlist closely, north-south diversification helps mitigate risks.
• Q: U.S. P&C NIM outlook. A: NIM expected to be stable, focus on core deposit growth to support NIM, with shifts in deposit mix being accretive.
• Q: Capital markets outlook. A: Q1 results from market volatility and investments, Q2 expected to be above trend but not as strong as Q1, with normalized PPPT around $625M and above as a baseline.