Q2 2024 Bank of Montreal Earnings Call

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This conference is being recorded.

That's gonna stay home if they told US you see.

Christine Viau: All 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 29, 2024. Your host for today is Christine Viau.

Speaker Change: All participants please standby your conference is ready to begin.

Speaker Change: Good morning, and welcome to the BMO financial group's Q2, 'twenty 'twenty four earnings release and conference call for me 29th 'twenty 'twenty for your host for today is it just didn't feel please go ahead.

Christine Viau: Please go ahead. Thank you, and good morning. We will begin the call with remarks from Darrell White, BMO CEO, followed by Tayfun Tuzun, our Chief Financial Officer, and Piyush Agrawal, our Chief Risk Officer. Also present today to take questions are Ernie Johannson, Head of BMO North American Personal and Business Banking, Nadim Hirji, Head of BMO Commercial Banking, Alan Tenenbaum, Head of BMO Capital Markets, and Dellen Kameng As noted on slide two, forward-looking statements may be made during this call that involve assumptions that have inherent risks and uncertainties. However, actual results could differ materially from these statements.

Speaker Change: Thank you and good morning, we will begin the call with remarks from Darryl White Bmo's CEO, followed by Typhoon, Susan our Chief Financial Officer, and Piyush agro, while our chief risk Officer also present today to take questions Ernie Johansen head of BMO, North American personal and business banking and Tina <unk> head of commercial banking.

Speaker Change: Alan Tanenbaum head of BMO capital markets and delicate manga ahead of being on the wealth management and Darryl Hackett U S. C. O 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.

Speaker Change: Or is 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 Geralyn typhoon, we will be referring to adjusted results in their remarks, unless otherwise noted I will now turn this call over to Darryl.

Christine Viau: 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 Tayfun will be referring to adjusted results in their remarks unless otherwise noted. I will now turn this call over to Daryl.

William Darryl White: 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 4 cent increase in our dividend, up 5% over last year. We achieved strong pre-provision 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 business. Canadian P&C delivered record revenue, up 13% year over year, with industry-leading growth in customer acquisition, contributing to market share gain.

Darryl: Thank you Christina and good morning, everyone.

Darryl: Today, we announced adjusted net income of $2 billion and adjusted earnings per share of $2.59 with a four cent increase in our dividend up 5% over last year.

We achieved strong pre provision pretax 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.

Darryl: Canadian P&C delivered record revenue up 13% year over year with industry, leading growth and customer acquisition contributing to market share gains.

William Darryl White: 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. Female 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 due to the achievement of the Bank of the West cost synergies and a large portion of the incremental operational efficiency savings we announced last year.

Darryl: We've seen strong momentum from newcomers to Canada up 35% compared with last year due to the success of females New start program pre arrival digital tools and advice all aimed at helping new Canadians make real financial progress.

Darryl: BMO capital markets had strong P. P. P. T 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% <unk>.

Darryl: 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.

William Darryl White: 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 U.S., with the Bank of Canada expected to begin lowering rates this summer and the Fed in the fall at a moderated pace.

Darryl: We remain focused on delivering positive operating leverage for the full year.

Darryl: Credit risk well elevated from last quarter is well managed and what continues to be a challenging environment for many of our customers were some individuals and businesses are being impacted by prolonged higher interest rates and a slowing economy.

Darryl: We now expect somewhat fewer and delayed rate cuts this year in both Canada and the U S with the bank of Canada expected to begin lowering rates this summer and the fed in the fall at a moderated pace.

William Darryl White: Our balance sheet is stronger than ever, with a growing core deposit base, a CET1 ratio of 13.1%, and prudent loan loss provision. 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 position. 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% of the bank's earnings and a significant driver of long-term growth.

Darryl: Our balance sheet is stronger than ever with a growing core deposit base, our CET, one ratio of 13, 1% and prudent loan loss provisions.

Darryl: 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.

Darryl: During that period, we added $48 billion and customer deposits kept our liquidity and funding ratios stable and added a full 90 basis points to our CET, one ratio positioning us very well for capital allocation optionality heading into 2025.

Darryl: Our U S businesses continue to be a key differentiator for BMO with our U S segment contributing 45% of the bank's earnings and a significant driver of long term growth.

William Darryl White: 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 experienced more muted long-term growth and intensified deposit competition as the Fed continues quantitative tightening Meanwhile, BMO's strategy hasn't changed.

Darryl: 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 our leading market share in businesses like RV Marine equipment finance and wine and spirits, we are competing from a position of strength.

Darryl: [noise] since March of last year, the U S banking industry has experienced.

Speaker Change: Excuse me.

Speaker Change: As experienced more muted loan growth.

Speaker Change: And intensified deposit competition as the fed continues quantitative tightening.

William Darryl White: 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 US segment exceeded $1 billion for the fifth consecutive quarter, growing 7% over last year, well above pure average.

Speaker Change: Meanwhile, BMO strategy hasn't changed we're building clear competitive advantages in a highly fragmented market structure and as a result.

Speaker Change: We've delivered a 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.

Speaker Change: Pre provision pretax earnings in our U S segment exceeded $1 billion for the fifth consecutive quarter growing 7% over last year, well above peer averages.

William Darryl White: 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.

Speaker Change: Over the last four quarters, we've grown deposits, we've seen stability in commercial lending and we've managed margins.

Speaker Change: 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.

Speaker Change: 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 <unk>.

Speaker Change: Digital adoption.

Speaker Change: March was a record new high for new business generation across the retail and commercial businesses, including record client referrals.

William Darryl White: 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 the wine and spirit sector, our combined teams are exporting expertise from the US West Coast to grow and better serve clients in the Canadian winery market, while bringing M&A expertise to our US clients with five completed or underway deals. We're also leveraging our 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.

Speaker Change: In commercial banking, we have retained over 90% of our clients post conversion and we're now building our base with good new client acquisition.

Speaker Change: We're unlocking cross sell opportunities and expanding in key verticals for example.

Speaker Change: And our wine and spirits sector. Our combined teams are exporting expertise from the U S West coast to grow and better serve clients in the Canadian wine winery market, while bringing M&A expertise to our U S clients with five completed or underway deals.

Speaker Change: We're also leveraging our 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.

William Darryl White: 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.

Speaker Change: Clients that bank with us on both sides of the border have deeper relationships with over 10% higher revenue and 30% higher deposits.

Speaker Change: 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.

Speaker Change: 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.

Speaker Change: 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.

William Darryl White: 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 and capital markets to increase efficiencies and deliver a better customer experience. 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 for our clients' trust in business, but this quarter, BMO ranked among the fast companies list of the world's most innovative companies of 2024, the only Canadian or US bank recognized out of more than 600 winning organizations

Speaker Change: Cloud computing is a critical enabler for our 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 and capital markets to increase efficiencies and deliver better customer experiences.

Speaker Change: 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.

Speaker Change: As a result, we're not only being recognized with our clients' trust and business, but this quarter BMO ranked among fast company's list of the world's most innovative companies of 2024, the only Canadian or U S bank recognized out of more than 600 winning organizations.

William Darryl White: 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 Ethosphere 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 Tayfun. Thank you, Daryl. Good morning, and thank you for joining us.

Speaker Change: 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.

Speaker Change: Consecutive year, an important differentiator for our bank.

Speaker Change: Now I'll turn it over to typhoon.

Typhoon: Thank you Darryl good morning, and thank you for joining us.

Tayfun Tuzun: My comments will start on slide 10. Second quarter reported EPS was $2.36, and net income was $1.9 billion. Adjusting items are shown on slide 38 and included the after-tax impact of the incremental FDIC special assessment of $50 million. The remainder of my comments will focus on adjusted results. Adjusted EPS was $2.59, down from $2.89 last year, and net income was $2 billion, down 7%.

Speaker Change: <unk> will start on slide 10.

Speaker Change: Second quarter reported EPS was $2 36, and net income was $1 $9 billion.

Speaker Change: Adjusting items are shown on slide 38 and included the after tax impact of the incremental FDIC special assessment of $50 million.

Speaker Change: The remainder of my comments will focus on adjusted results.

Speaker Change: Adjusted EPS was $2.59 down from $2.89 last year, and net income was $2 billion down 7%.

Tayfun Tuzun: PPPT increased 7% driven by strong performance in Canadian PNC, capital markets, and wealth management, partially offset by a decline in US PNC, where loan demand continues to be muted, while deposit pricing remains very competitive. Revenue was up 2%, and expenses decreased 1% with good operating leverage of 3%. We delivered on our commitment to positive operating leverage this quarter, as the benefit of our efficiency initiatives offset the impact of lower revenue. However, PPPT growth was offset by an increase in PCL, which Piyush will speak to in his remarks.

Speaker Change: P. P. P T increased 7% driven by strong performance in Canadian P&C capital markets and wealth management, partially offset by a decline in U S. P&C, where loan demand continues to be muted while deposit pricing remains very competitive.

Speaker Change: Revenue was up 2% and expenses decreased 1% with good operating leverage of 3%.

Speaker Change: We delivered on our commitment to positive operating leverage this quarter as the benefit of our efficiency initiatives offset the impact of lower revenue growth.

Speaker Change: P. P. P. T growth was offset by an increase in PCL, which piyush will speak to in his remarks.

Tayfun Tuzun: Moving to slide 11, our balance sheet remains well diversified with solid loan and deposit growth. Average loans grew 4% year-over-year, excluding the impact of last quarter's RV loan portfolio sale and the wind-down of the indirect auto.

Speaker Change: Moving to slide 11, our balance sheet remains well diversified with solid loan and deposit growth.

Speaker Change: Average loans grew 4% year over year, excluding the impact of last quarter's RV loan portfolio sale and the wind down of the indirect auto book.

Tayfun Tuzun: Consumer loans were up 7%, and business and government loans were up 2% with good growth in Canadian PNC and capital markets, partially offset by lower commercial lending in US PNC. Average customer deposits increased 6% primarily from balanced growth in Canadian PNC and capital markets. Turning to slide 12, on an X trading basis, net interest income was down 1% from the prior year due to lower margins and was down 2% sequentially due to the impact of fewer days in the quarter. However, the decline in trading net interest income was offset by non-interest revenues.

Speaker Change: Consumer loans were up 7% and business and government loans were up 2% with good growth in Canadian P&C and capital markets, partially offset by lower commercial lending and U S. P&C.

Speaker Change: Average customer deposits increased 6% primarily from balanced growth in Canadian P&C and capital markets.

Speaker Change: Turning to slide 12 on an ex trading basis net interest income was down 1% from the prior year due to lower margins and was down 2% sequentially due to the impact of fewer days in the quarter.

Speaker Change: The decline in trading net interest income was offset in noninterest revenue.

Tayfun Tuzun: Compared with last quarter, NIM was modestly lower by two bases. In Canadian PNCs, the impact of lower deposit margins was offset by higher loan margins and favorable balance sheet mix, with NIM up three basis points. We expect NIM in Canadian PNCs to tighten during the second half of the year due to the BA migration and continued deposit competition. In USPNCs, lower deposit margins drove a 10 basis point reduction in NIP.

Speaker Change: Compared with last quarter, NIM was modestly lower by two basis points.

Speaker Change: In Canadian P&C, the impact of lower deposit margins was offset by higher loan margins and favorable balance sheet mix with NIM up three basis points.

Speaker Change: We expect NIM in Canadian P&C to tightened during the second half of the year due to the be a migration and continued deposit competition.

Speaker Change: And U S P&C lower deposit margins drove a 10 basis point reduction in NIM.

Tayfun Tuzun: Although we expect deposit competition to continue in the US, the quarterly impact on NIM should be more moderate. Furthermore, although the deposit environment is competitive in both countries, and migration to higher-rate deposits continues at a decelerating pace, we maintain our expectation of relative full bank margin stability for the remainder of the year. Moving to slide 13, expenses declined, driven by the continued progress on enterprise operational efficiencies we began in the third quarter of last year and the full realization of Bank of the West cost synergy.

Speaker Change: Although we expect deposit competition to continue in the U S. The quarterly impact on NIM should be more modest.

Speaker Change: Although the deposit environment is competitive in both countries and migration to a higher rate deposits continues at a decelerating pace, we maintain our expectation of relative pullback margin stability for the remainder of the year.

Speaker Change: Moving to slide 13 expenses declined driven by the continued progress on enterprise operational efficiencies. We began in the third quarter of last year and the full realization of back of the west cost synergies.

Tayfun Tuzun: While we achieve positive operating leverage this quarter and expect the same for the remaining two quarters of the year and for the full year, we are seeing profitable opportunities to capture market share in both Canada and the U.S. and will invest accordingly. Turning to slide 14, our capital position has strengthened with a CET1 ratio of 13.1 percent, up 30 basis points from the prior quarter, driven by internal capital generation, the final quarter of common shares issued under the dividend reinvestment plan, and lower source currency RWA, as lower market risk was partially offset by higher credit.

Speaker Change: While we achieved positive operating leverage this quarter and expect the same for the remaining two quarters of the year and for the full year, we are seeing profitable opportunities to capture market share in both Canada and the U S and will invest accordingly.

Speaker Change: Turning to slide 14, our capital position has strengthened with a CET one ratio of 13, 1% up 30 basis points from the prior quarter driven by internal capital generation. The final quarter of common shares issued under the dividend reinvestment plan and lower source currency.

Speaker Change: <unk> W. Lower source currency, our W. E as lower market risk was partially offset by higher credit risk.

Tayfun Tuzun: Our capital outlook for the rest of the year remains strong and is likely to remain above our management target. Moving to the operating groups, and starting on slide 15. Canadian PNC net income was up 7% year over year driven by strong PPPT performance up 17% partially offset by higher PCL. Record revenue of $2.8 billion was up 13% driven by higher net interest income, reflecting both solid balance growth and improved margins, and higher non-interest revenue, including the acquisition of air miles. Expenses were up 9%, reflecting the inclusion of air miles and higher technology costs.

Speaker Change: Our capital outlook for the rest of the year remains strong and is likely to remain above our management target.

Speaker Change: Yeah.

Speaker Change: Moving to the operating groups and starting on slide 15.

Adrian: Adrian P&C net income was up 7% year over year, driven driven by strong P. P. P. T performance up 17%, partially offset by higher P. C L.

Adrian: Record revenue of $2 $8 billion was up 13% driven by higher net interest income, reflecting both solid balanced growth and improve margins.

Adrian: And higher noninterest revenue, including the acquisition of air miles.

Adrian: Expenses were up 9%, reflecting the inclusion of air miles and higher technology costs.

Adrian: Loans were up 5%.

Adrian: With good growth in mortgages and commercial loans and deposits were up 11%, reflecting continued growth in term products across both consumer and commercial clients.

Tayfun Tuzun: Loans were up 5%, with good growth in mortgages and commercial loans, and deposits were up 11%, reflecting continued growth in term products across both consumer and commercial clients. Moving to USPNC on slide 16. My comments here will speak to the U.S. dollar performance. Net income was down 25% from the prior year with lower revenue and higher PCLs, partially offset by lower expenses. Revenue was down 7% driven by lower net interest income due to a 23 basis point reduction in margins, which is consistent with industry trends. Non-interest revenue decreased 11% as higher M&A advisory fees in commercial banking were offset by lower deposit fees in personal and business banking.

Adrian: Moving to U S P&C on slide 16.

Adrian: My comments here will speak to the U S dollar performance.

Adrian: Net income was down 25% from the prior year with lower revenue and higher PCL, partially offset by lower expenses.

Adrian: Revenue was down 7% driven by lower net interest income due to a 23 basis point reduction in margins, which is consistent with industry trends.

Adrian: Noninterest revenue decreased 11% as higher M&A advisory fees in commercial banking were offset by lower deposit fees in personal and business banking.

Tayfun Tuzun: Expenses were down 6%, reflecting good expense management, including cost synergies and operational efficiency. Loans were up 1%, excluding the impact of the RV loan portfolio sale last quarter. Deposits remain relatively stable, with strong growth in term and money markets, offsetting decreases in non-interest-bearing balances. Moving to slide seven, BMO Wealth Management's net income was up 33% from last year.

Adrian: Expenses were down 6%, reflecting good expense management, including cost synergies and operational efficiencies.

Adrian: Loans were up 1%, excluding the impact of the RV loan portfolio sale last quarter.

Adrian: Deposits remained relatively stable with strong growth in term in the money markets offsetting decreases in non interest bearing balances.

Adrian: Moving to slide 17, BMO wealth management net income was up 33% from last year.

Tayfun Tuzun: Wealth and asset management revenue was up 4%, reflecting good operating performance with client asset growth and stronger markets offsetting lower net interest income due to lower deposits in March. Insurance revenue increased from last year due to changes in portfolio positioning during the transition to IFRS 17 and was up 21 million dollars from last quarter due to the impact of favorable changes in interest rates on investment results. Expense growth of 1% reflected higher revenue-based costs, which were largely offset by the benefit of efficiency initiatives.

Adrian: Wealth and asset management revenue was up 4%, reflecting good operating performance with client asset growth and stronger markets offsetting lower net interest income due to lower deposits in margins.

Adrian: Insurance revenue increased from last year due to changes in portfolio positioning during the transition to Ifr 17, and was up $21 million from last quarter due to the impact of favorable changes in interest rates on investment results.

Adrian: Expense growth of 1% reflected higher revenue based costs, which were largely offset by the benefit of efficiency initiatives.

Tayfun Tuzun: Moving to slide 18, BMO Capital Markets net income was up 23% year over year, reflecting strong PPPT performance of $642 million in the quarter, consistent with our guidance, partially offset by higher PCL. Revenue in global markets was up 8% primarily due to improved market conditions driving higher interest rate trades, investment and corporate banking revenue was up 1%, and strong debt underwriting fees were mostly offset by lower advisory. Expenses were down 3% due to a legal provision in the prior year. Turning now to slide 19. Corporate services' net loss was $244 million, compared with $63 million in the prior year and $316 million in the prior quarter.

Adrian: Moving to slide 18, BMO capital markets net income was up 23% year over year, reflecting strong P. P. P. T performance of $642 million in the quarter consistent with our guidance, partially offset by higher PCL.

Adrian: Revenue in global markets was up 8%, primarily due to improved market conditions driving higher interest rate trading.

Adrian: Investment in corporate banking revenue was up 1%.

Adrian: Our strong debt underwriting fees were mostly offset by lower advisory fees.

Adrian: Expenses were down 3% due to a legal provision in the prior year.

Turning now to slide 19.

Adrian: Services net loss was $244 million compared with $63 million in the prior year and $316 million in the prior quarter.

Piyush Agrawal: The decline in quarter over quarter loss was in line with our expectation, and the increase relative to last year was driven by the lower net accretion of purchase accounting fair value markets, as well as the impact of treasury-related activities. To conclude, this quarter, our revenues improved, and our expenses declined in line with our expectations. The power of our franchise is evident in our ability to deliver positive operating leverage while investing in future growth opportunities.

Adrian: The decline in quarter over quarter loss was in line with our expectation.

Adrian: And the increase relative to last year was driven by the lower net accretion of purchase accounting fair value marks as well as impact of treasury related activities.

Adrian: To conclude this quarter, our revenues improved and our expenses declined in line with our expectations.

Adrian: Power of our franchise is evident in our ability to deliver a positive operating leverage while investing in future growth opportunities.

Piyush Agrawal: We have built strategic flexibility as a competitive advantage that relies on the strength of our operational resilience and Business and Geographic Diversity, and we expect our financial performance to reflect that strength as we move to a more supportive economic and market environment. I will now turn it over to... Thank you, Tayfun, and good morning, everyone.

Adrian: We have built strategic flexibility as a competitive advantage that relies on the strength of our operational resilience and business and geographic diversity and we expect our financial performance to reflect that strength as we move to a more supportive economic and market environments.

Speaker Change: I will now turn it over to Piyush.

Piyush: Thank you typhoon and good morning, everyone.

Piyush Agrawal: Starting on slide 21, the credit themes we've been seeing over the last several quarters continue to play out as the higher level of interest rates and slowing economic activity are reflected in credit migration and higher impaired loss rates. The total provision for credit losses was $705 million at 44 basis points, up from 38 basis points last quarter. Impaired provisions were $658 million, 41 basis points, up from 29 basis points last quarter.

Starting on slide 21, the credit teams, we've been seeing over the last several quarters continue to play out as the higher level of interest rates and slowing economic activity August selected and credit migration and higher embedded loss rates.

Speaker Change: The total provision for credit losses was $705 million or 44 basis points up from 38 basis points last quarter.

Speaker Change: Mbank provisions was $658 million or 41 basis points up from 29 basis points last quarter.

Piyush Agrawal: Given the environment, we continue to manage our portfolios closely as per a long track record of good performance through cycles. In Canada, the increasing trend in credit card delinquencies and elevated consumer insolvencies over the last number of quarters have resulted in impaired losses of $247 million, up $44 million from prior quarters. We continue to take actions to manage losses within these portfolios, including pre-delinquency engagement with customers who are most vulnerable to payment stress.

Speaker Change: Given the environment, we continue to manage our portfolio as closely as but a long track record of good performance through cycles.

Speaker Change: In Canada, the increasing trend in credit card delinquencies and elevated consumer insolvencies over the last number of quarters have resulted in impaired losses of $247 million up $44 million from prior quarter.

Speaker Change: We continue to take actions to manage losses within these portfolios, including pre delinquency engagement with customers, who are most vulnerable to payment stress.

Piyush Agrawal: Our residential portfolio continues to perform well, including renewing customers, and the amount of wearable rate loans and negative amortization declined further this quarter, down 34% year to date. U.S. retail-impaired loan losses were $44 million, down $36 million from prior quarters.

Speaker Change: Our residential portfolio continues to perform well, including renewing customers and the amount of variable rate loans and negative amortization decline further this quarter down 34% year.

Speaker Change: Year to date.

Speaker Change: U S retail impaired loan losses was $44 million down $36 million from prior quarter.

Piyush Agrawal: Our commercial portfolio remains well diversified across sectors and geographies. Canadian commercial impaired loan provisions were $48 million, up $14 million from last quarter. U.S. Commercial Impaired Provisions were $244 million, up $141 million. Provisions primarily came from the commercial real estate, transportation, and services sectors. Commercial real estate, including office, is performing in line with our expectations, and we maintain strong coverage. But given the rate environment, we do expect modest provisions going forward. Capital market impaired losses were $61 million, primarily driven by one idiosyncratic account in the insurance sector.

Speaker Change: Our commercial portfolio remains well diversified across sectors and geographies.

Speaker Change: Indian commercial impaired loan provisions of $48 million of up $14 million from last quarter.

Speaker Change: U S commercial impaired provisions about $244 million up $141 million.

Speaker Change: Provisions, primarily came from commercial real estate transportation and services sectors.

Speaker Change: Commercial real estate, including office is performing in line with our expectations and we've maintained strong coverage, but given the rate environment, we do expect modest provisions going forward.

Speaker Change: Capital market impaired losses were $61 million, primarily driven by one idiosyncratic account in the insurance sector.

Piyush Agrawal: On slide 24, our business and government portfolio continues to be well-structured and well-secured. While the impact of higher rates has resulted in negative credit migration, over half of the portfolio continues to be investment grade with low impairment levels of 1%. Moving to Slide 22, Performing Provision for Credit Losses of $47 million primarily reflected Portfolio Credit Migration and Uncertainty in Credit Conditions, Partially Offset by an Improvement in the Macroeconomic Outlook. Having added to performing allowances for the last eight quarters, we are comfortable that our total performing allowance of $3.7 billion continues to provide appropriate coverage over performing loans at 56 basis points.

Speaker Change: On slide 24, our business and government portfolio continues to be well structured and well secured.

Speaker Change: While the impact of higher rates has resulted in negative credit migration over half of the portfolio continues to be investment grade with lower impairment levels of 1%.

Moving to slide 22, performing provision for credit losses of $47 million, primarily reflected portfolio credit migration and uncertainty in credit conditions, partially offset by an improvement in the macroeconomic outlook.

Speaker Change: Having added two performing allowances for the last eight quarters, we are comfortable towards the performing allowance of $3 $7 billion continues to provide appropriate coverage over performing zones at 56 basis points.

Piyush Agrawal: Turning to slide 23 on impaired loans information, impaired formations increased to about $2 billion, with all of the increase in business and government, where high rates are continuing to feed through to higher impairment. Gross Impaired Loans increased to approximately $5.3 billion or 79 basis points, with increases across most industries, most notably in services.

Speaker Change: Turning to slide 23, unimpaired loans informations.

Speaker Change: <unk> formations increased to about $2 billion with all of the increase in business and government very high rates are continuing to feed through to higher impairment.

Speaker Change: Gross impaired loans increased to approximately $5 $3 billion of 79 basis points with increases across most industries, most notably in services.

Operator: To conclude, we expect that the delay in central bank easing of monetary policy and slowing economic activity could keep impaired provisions at around these levels over the next couple of quarters. However, given the quality and diversification of our portfolio, allowance coverage, and strong risk management capabilities, we remain well positioned to manage the current environment and emerging risks. I will now turn the call back to the operator for the Q&A portion of this call.

Speaker Change: To conclude we expect that the delay in central bank easing of monetary policy and slowing economic activity could keep embed provisions at around these levels over the next couple of quarters.

Speaker Change: Given the quality and diversification of our portfolio allowance coverage and strong risk management capabilities, we remain well positioned to manage the current environment and emerging risks.

Speaker Change: I will now turn the call back to the operator for the Q&A portion of this call.

Speaker Change: Thank you.

Operator: Thank you. We will now take your questions from the telephone line. If you have a question and you are using a speakerphone, please lift the handset before making your, If you have a question, please press star 1 on your device. You may cancel your question at any time by pressing star 2.

Speaker Change: We will now take the questions from the telephone lines.

Speaker Change: Have a question and you are using a speaker phone please lift the handset before making a selection.

Speaker Change: If you have a question. Please press star one on your devices keypad.

Speaker Change: You may cancel your question at any time by pressing star two.

Operator: Please press star 1 at this time if you have a question. There will be a brief pause while the participants register for questions. Thank you for your patience. The first question is from Ebrahim Poonawala from Bank of America. Please go ahead.

Please press star one at this time, if you have any questions. There will be a brief pause about the participants register for questions. Thank you for your patience.

Ebrahim Huseini Poonawala: Your line is now open. Thank you. Maybe I can guess Piyush for you, just on the comments around impaired PCLs, to one, impact PCLs of 41 basis points in the second quarter. Should we assume that the guidance, I think it was around low 30s impact PCLs for the year, that's shifting more into the low 40s. And then just talk to us about your visibility on credit. I heard you say higher rates, but honestly, we've expected higher rates for a while, higher for longer.

Speaker Change: The first question is from Ebrahim <unk> from Bank of America. Please go ahead. Your line is now open.

Ebrahim Huseini Poonawala: Yeah. Thank you.

Speaker Change: Yeah, just use for you.

Speaker Change: Just on the comments around in that D. C is.

Speaker Change: Two one.

Speaker Change: She is a 41 basis points in the second quarter should we assume that the guidance I think it was around <unk>.

Speaker Change: Thirties.

Speaker Change: Sales for the year that shifting more into the low forties and then just talk to us around your visibility on credit I Hope I heard you say higher but honestly.

Speaker Change: We expected higher rates for a while higher for longer so I'm just trying to understand the risk if we don't get materially it cuts over the next 12 to 18 months is that impaired PCL could give even higher just give us a sense of your visibility on credit and your comfort level that were.

Ebrahim Huseini Poonawala: So I'm just trying to understand the risk that if we don't get material rate cuts over the next 12 to 18 months, is the risk that impaired PCLs could drift even higher? Just give us a sense of your visibility on credit and your comfort level with where impaired PCLs could peak out absent a full-blown recession. Yeah, Ebrahim, thank you for the question. When we gave the guidance of the lower 30s, it was obviously predicated on our assessment of what monetary policy would be.

Speaker Change: In Pep ECS could peak out accident like a full blown recession.

Piyush Agrawal: And if you remember, in the same guidance, we said we were expecting three to four rate cuts in both Canada and the US and also said there would be some intra-quarter volatility just given the business mix we have on business and government. That, of course, has changed with restrictive monetary policy, which I think is now getting moved out quite a bit. So, as Daryl said in his comments, it's probably one, probably zero in the US, probably two or three in Canada.

Brian: Yeah, Hey, Brian Thank you for the question.

Speaker Change: When we gave the guidance of lower thirties cause obviously predicated on our assessment of what monetary policy, whether it would be and if you remember in the same guidance. We said we were expecting three to four rate cuts in both Canada and the U S.

Speaker Change: And also said there'd be some intra quarter volatility just given the business mix, we have on business and government.

Speaker Change: That of course has changed with the restrictive monetary policy, which I think is not getting moved out.

David: Quite a bit so as David said in his comments, it's probably the one probably zero in the U S probably two or three in Canada that then changes.

Piyush Agrawal: That then changes the psychology or the sentiment of the consumer. What you see today at 41 basis points, we are guiding around the same range for a couple of reasons. Let me break it down for you.

David: The psychology of the sentiment of the consumer.

Speaker Change: What you see today at 41 basis points, we are guiding around the same range for a couple of reasons I can break it down.

Piyush Agrawal: You're going to see unemployment pick up about 5.3%, same time last year, to around 6.3, going up to 6.5 in Canada. And so that is going to have an impact, especially on our unsecured portfolios in Canada. I think the mortgage consumer is very resilient.

Speaker Change: You're going to see you've seen unemployment pick up.

Speaker Change: About five 3% same time last year to around $6 three going up to six five in Canada.

Speaker Change: And so that is going to have an impact, especially on our unsecured portfolios in Canada I think the mortgage consumer is very resilient that continues whether there'll be an uptick in delinquencies <unk> strong.

Piyush Agrawal: That continues While there'll be an uptick in delinquencies, HBI is strong. And so we're figuring out or taking into account what unemployment will do to the unsecured portfolio. And then you have the exogenous factor of Canadian insolvencies or proposals that have been and continue to be surprisingly higher. (inaudible) The second piece I would say is around the whole cell.

Speaker Change: And so figuring out our taking into account what unemployment whether due to the unsecured portfolio and then you have the exogenous factor of Canadian insolvencies of proposals that have been and continue to be surprisingly higher.

Speaker Change: Then generally expectation.

Speaker Change: The second piece I would say is around the wholesale.

Piyush Agrawal: And if I back up to where we are in this quarter, there are two or three underlying trends that I would, you know, probably call out. One is that loan growth has remained muted. And this is not unique to BMO. This is, in fact, a market phenomenon. And so you get about, I would say, a headwind on that impaired portfolio by two or three basis points when loan growth is muted. And then, as I was going through the results you saw, we also have two or three large credits.

Speaker Change: And if I back up to where we are in this quarter.

Speaker Change: Two or three underlying trends that I would probably call out.

Speaker Change: John.

John: Loan growth has remained muted and this is not unique to BMO. This is in fact, a market phenomena and so youll get about I would say a headwind into that impaired portfolio by two or three basis points when loan growth was muted.

John: And then as I was going through the results. You saw we also have two or three large credits one specialty I called out in capital markets.

Piyush Agrawal: One, especially, I call it out in the capital markets. And to put that in context, you know, 16 or $17 million of impact can give you a basis point. So when you get 50 or 16 capital markets, that three or four basis points, so you take the three or four basis points. Dad and the Lone Grouch.

John: And to put that in context, you know 16 or $17 million of impacts can give you a basis point. So when you get 50 or 16 capital to the market, that's three or four basis points. So you take the three four basis points there.

John: That and the loan growth.

Piyush Agrawal: You know, you'd really get down from 41 to 35, which is just, again, a starting point of giving you a sense of how we performed this quarter. So we did expect rates and the impact to go up. And that's how we've landed here.

John: You really get down from 41 to 35, which.

John: It's just again, a starting point of giving you a sense of how we performed this quarter. So we did expect our.

John: The impact should go up.

John: And that's how we've landed here but.

Piyush Agrawal: But unemployment continues to rise. We're gonna see a little bit of cyclical businesses in our mix of wholesale that may have higher losses, transportation and finance being one of them. And I can get into more detail, but

John: Employment continues to tick up you're going to see a little bit off.

John: Click of the businesses and a mix of wholesale that may have higher losses transportation finance being one of them and I can get into more detail but.

Piyush Agrawal: Just to give you the perspective of why we are guiding in the similar range, again with that caveat that there will be volatility because two or three large names can move that number around by three or four basis points. So I hope that's helpful. Of course, you know, going forward much longer term, I think we'll revert back to our longer term averages, but that's something we have to see rather than speculate on the rate cycle when that happens. And we will provide you with more guidance as we go along. Sure, thanks for that. And I'll follow up offline. And just one question for Daryl.

John: Just to give you the perspective of why we are guiding in the similar range again with that caveat that there will be volatility because two or three large names can move that number around by three or four basis points. So I hope that's helpful.

John: You know going forward much longer term I think they revert back to our longer term averages, but that's something we have to see rather than speculate on the rate cycle when that happens.

John: We provide you more guidance as we go along.

Ebrahim Huseini Poonawala: Adjusted ROE 10.9%. Absent any improvement in the macro, can BMO do better than 11% return on equity anytime soon? Thank you. Thank you, Ibrahim.

Speaker Change: So thanks for that and then I'll follow up offline and just one question for Daniel adjusted out to 10, 9% absent any improvement in the macro can you can BMO do better than 11% return on equity anytime soon.

John: Yep.

William Darryl White: The answer, the short answer is yes. I do remind folks that ROTCE is an important metric for us as well, which is substantially higher than that. But you did hear Tayfun and I talk about continuing to push on positive operating leverage as we go forward. So assuming we can do that and assuming no change in the macro, I think we can continue to improve on where we are right now. And if there is a change in the macro to the positive, obviously, we think we can do even better. Thanks for taking my question. Thank you. The next question is from Matthew Lee from Canaccord. Please go ahead.

Graham: Thank you Graham.

Speaker Change: The answer the short answer is yes, I do remind folks that the R. O T. C. He is an important metric for us as well, which is substantially higher than that but you did hear a typhoon and I talk about continuing to push on positive operating leverage as we go forward. So assuming we can do that.

Speaker Change: And assuming no change in the macro I think we can continue to improve on where we are right now and if there is a change in the macro to the positive. Obviously, we think we can do even better.

Speaker Change: Thanks for taking my questions. Thank you.

Speaker Change: The next question is from Matthew Li from Canaccord. Please go ahead. Your line is now open.

Matthew James Lee: Your line is now open. Hey, good morning, and thanks for taking my question. When we look at GIL formations, it's basically a bit of a step up from the US service industry, some CRE, and wholesale trade. Can you maybe talk about whether that stems from discrete, identifiable clients or if it's more of a broad-based weakness in those? Sure. So Matt, Matthew, I don't think this is a systemic weakness.

Matthew Li: Hey, good morning, and thanks for taking my question when we look at G. I L formation, there's been a bit of a step up from the U S service industry.

Matthew Li: CRE and wholesale trade.

Matthew Li: Can you maybe talk to whether that spend some discrete identifiable clients or if it's more of a broad based weakness in those industry.

Sure.

Matt: So Matt I don't think this is a systemic weakness in fact, we've been assessing many of these sectors for quite some time.

Piyush Agrawal: In fact, we've been assessing many of these sectors for quite some time. Some of the weakness I talked about was, for example, I'm just probably expanding on the point about transportation. For the last 18 months, you know, freight rates have remained at an all-time low.

Matt: Some of the weakness I talked about was for example, I mean, just probably the expanding on the point on transportation.

Matt: For the last 18 months, you've seen freight rates have remained at an all time low volumes haven't pick up if you look at the American tonnage index, that's been at a low point.

Piyush Agrawal: Volumes haven't picked up. If we look at the American tonnage index, it's been at a low point. And resale values, because of oversupply, have also been impacted. But a business like transportation, we've been in for 40-50 years; we've been through several cycles; we've managed through several cycles. And we are beginning to see some recovery or flattening out of delinquencies out there. To your other question about commercial real estate, it's a sector we've focused on.

Matt: And resale values because of oversupply have also been impacted.

Matt: But our business like transportation, we've been in for 40 50 years, we've been through several cycles. We've managed through several cycles and we are beginning to see some recovery a flattening out of delinquencies all dead.

Piyush Agrawal: There was one large name this time around in our impairment; I'm actually optimistic about getting back a partial recovery over the next few quarters, even on that, because it's a book we manage. So it wasn't a surprise on our small watch list of names that we've been tracking more closely, even after reappraising them every few months. This name was within our expectation. So it's a couple of names and a couple of cyclical sectors in a diversified business, but it's not systemic to anything that I would call out. All right, that's helpful. I'll requeue.

Matt: To your other question around commercial real estate sector, we are focused on.

There was one large name this time around in our impairment.

Matt: I'm actually optimistic to get backup partial recovery over the next few quarters, even on that because it's a book we manage so it wasn't a surprise in our small watch list of names that we've been tracking more closely even after reappraising them. Every few months. This name was within our expectations. So it is a key.

Matt: Names in a couple of cyclical sectors, and a diversified business, but it's not systemic to anything that I would call out for you.

Speaker Change: Alright, that's helpful I'll requeue.

Matt: Yeah.

Speaker Change: Thank you.

Doug Young: Thank you. The next question is from Doug Young from Desjardins Capital Markets. Please go ahead. Your line is now open. Good morning, Carol.

Speaker Change: The next question is from Doug Young from <unk> Capital markets. Please go ahead. Your line is now open.

Doug Young: I just want to go back to some of the points you made in your opening comment. You stressed the strong capital and liquidity position, and you stated that BMO is positioned well for capital allocation optionality going into 2025. And I'm just, Just hoping you can dig into what you're trying to say or what you mean by that statement. Sure, thanks, Doug. Listen, what I mean by that isn't anything more than what you heard.

Doug Young: Hi, Good morning, Daryl I just want to go back to some of the points you made in your opening comments, you emphasized strong capital and liquidity position.

Doug Young: And you stated that BMO is positioned well for capital allocation optionality going into 2025 and I'm just.

Doug Young: I'm, just hoping you can dig into what you're trying to say or what you mean by that statement.

William Darryl White: And when I say that, you know, I look back to a year ago, at the end of the quarter, after we closed the Bank of the West. I also advised in my opening comments that we've since built 90 basis points on the CET1 ratio. We've built almost $50 billion of deposits on our liquidity. You heard us last quarter announce that we were going to turn the drip off, and you saw us today consistent on dividend expectations.

Doug Young: Sure Thanks, Doug listen what I mean by it isn't anything more.

And then what you heard and when I say that I look back to a year ago at the end of the quarter. After we close the bank of the West I also advised in my opening comments that we have since built.

Doug Young: 90 basis points on the CET one ratio, we've built almost $50 billion of deposits on our liquidity.

Doug Young: Heard us last quarter announced that we were going to turn.

Doug Young: The drip off and you saw us today consistent on dividend expectations and as I look forward Doug over the next couple of quarters, we just see those trends.

William Darryl White: And as I look forward, Doug, over the next couple of quarters, we just see those trends at least stable, if not continuing to improve. And so setting us up for 2025, we feel like we're in a good position in terms of capital allocation. Optionality is exactly the word I used, and that's what I meant.

Doug Young: At least stable if not continuing to improve and so setting us up for 2025, we feel like we're in a good position in terms of capital allocation Optionality is exactly the word I used and that's what I meant in that goes to all the things we always talk to you about we will have.

William Darryl White: And that goes to all the things we always talk to you about. We take a differentiated position from a capital availability perspective in the US, in particular, relative to many of the names we compete against there. And in Canada, we'll be with some of our peers and have lots of optionality to first serve our clients and then to consider other options if the capital continues to accumulate beyond, beyond our base levels.

Andrew: We take a differentiated position from a from a capital availability perspective in the U S. In particular relative to many of the names we compete against there Andrew.

Andrew: And in Canada will be with some of our peers and have lots of optionality to first serve our clients.

Andrew: And then to consider other options if the capital continues to accrete beyond.

William Darryl White: So that's a good, that's a good place to be in. And it's, it's, it's quite an, we think, at least an impressive track record of progress on those metrics relative to a year ago after completing a large acquisition. That was the point I was trying to make.

Andrew: Beyond our base level so.

Andrew: That's a good that's a good place to be in and it's a it's a it's quite a we think at least to an impressive track record.

Andrew: The progress on those metrics relative to a year ago. After completing a large acquisition that was the point I was trying to make because that is that helpful.

Doug Young: Is that helpful? It is, I was just trying to kind of maybe finer point on it; does that mean that you are in a position to do further M&A? Or would you be more inclined to be more active on buybacks, given, you know, the flexibility on the capital side? That's yeah, yeah, it's, yeah, no, it's a good question, Doug. And it's, you know, it's hard to be particular in the answer because, as you know, it depends on the circumstance.

Speaker Change: It is I was just trying to kind of maybe finer point on it is it meaning that you are in a position to do further M&A or would you be more inclined to be more active on buybacks given the flexibility on the capital side, that's yeah yeah.

William Darryl White: And, you know, as we look at the environment, it continues to be, as we've outlined in our opening comments, a softer environment. In that environment, you're less likely, I think, to pursue M&A relative to, you know, having a worldview that says the clouds are parting. So that would be an important factor at the time.

Doug Young: Yeah, no. It's a good it's a good question, Doug and it's you know it's hard to be particular in answer because as you know it depends on the circumstance and as.

Doug Young: As we look at the environment.

Doug Young: It continues to be as we've outlined in our opening comments a softer environment.

William Darryl White: And it also goes to strategic attractiveness and price and all of the rest of it that we always talk about, you know, so subject to that, you know, but that's kind of my way of saying the M&A environment has to be helpful and constructive. We think when it is helpful and constructive, we are an attractive alternative for many potential candidates. But that doesn't mean you should go ahead and do something.

Doug Young: That environment Youre less likely I think to pursue M&A relative to having a world view that says the clouds are parting so that would be an important factor at the time and it also goes to strategic attractiveness and price in all of the rest of it that we always talk about.

Doug Young: So subject to that but that's kind of my way of saying that the M&A environment.

Doug Young: It has to be has to be helpful and constructive we think when it is helpful and constructive we are an attractive alternative for many protect many potential.

Doug Young: Candidates, but but that doesn't mean you go ahead and do something you go ahead and do something because it makes sense for our shareholders and in the aggregate and if we get to a point, where we've got excess capital in 'twenty five and we're not pursuing a b.

Doug Young: Because things don't make sense then of course buybacks are on the table at some point as we go through 'twenty five.

Doug Young: You go ahead and do something because it makes sense for shareholders in the aggregate. And if we get to a point where, you know, we've got excess capital in 25 and we're not pursuing it because things don't make sense, then, of course, buybacks are on the table at some point as we go through 25. And then second, just in your opening remarks, you talked about positive operating leverage, or you both talked about positive operating leverage, but that thing you talked about making investments, because you see profitable opportunities to take market share in Canada and the US, and I don't think, you know, you would make those investments that would take you away from positive operating leverage. I think you've been clear about that.

Speaker Change: Okay, and then second just I tunes in Europe opening remarks, he talked about positive operating leverage on both tactical positive operating leverage but that thing.

Speaker Change: You also talked about making investments because you see profitable opportunities to take market share in Canada, and the U S and I don't think you would make those investments to yeah that would take you away from positive operating leverage I think you've been clear on that but I'm. Just curious as to you just trying to make sure we're not surprised by something like can you dig into.

William Darryl White: But I'm just curious as to just trying to make sure we're not surprised by something like, can you dig into what those opportunities are? Can you kind of talk about what those investments might be and what the impact that might have on the expense line? It's nothing more than a reference to a number of businesses who are taking market share profitably, both in Canada and then a number of opportunities that we have, including, you know, our newly expanded franchise in the US.

Speaker Change: And what those opportunities are can you kind of talk about what those investments might be and what that impact that might have on the expense line.

Speaker Change: Yes, its nothing more than a reference to a number of businesses, who are taking market share profitably. Both in Canada, and then a number of opportunities that we have including our.

Speaker Change: Our newly expanded franchise in the U S and there will always be pockets, where we think that combining our balance sheet strength capsule in liquidity with the ability to take market share.

William Darryl White: And there will always be pockets where we think that combining our balance sheet strength, capital, and liquidity, with the ability to take market share will, you know, take advantage of those opportunities. But we believe we can do those things, even within the guidance of positive operating leverage. You know, that may mean that, you know, the expenses may tick up a little bit. But as long as we deliver positive operating leverage, we're quite comfortable leveraging our growth opportunities with smart investment. And so there wasn't any one or two particular opportunities that you wanted to point out or... No, I'll leave it there.

Speaker Change: We will take advantage of those opportunities, but we believe we can do those even within the guidance of positive operating leverage.

Speaker Change: That may mean that the expenses may tick up a little bit, but as long as we deliver a pause or operating leverage we're quite comfortable.

Speaker Change: Bridging our growth opportunities with smart investments.

Speaker Change: And so there wasn't any one or two particular opportunities that you wanted to point out or no.

Speaker Change: I'll leave it there thank you.

Speaker Change: Yeah.

Speaker Change: Thank you.

Doug Young: The next question is from Meny Grauman from Scotia Capital. Please go ahead, your line is now open. Hi, good morning.

Speaker Change: The next question is from that many grauman from Scotia capital. Please go ahead. Your line is now open.

Speaker Change: Hi, good morning, Peter.

Meny Grauman: Piyush, I think it's very clear, and you highlighted it, that the higher phalange rate environment is definitely putting upward pressure on the impaired PCL ratio, but I'm wondering if there are any other factors here worth considering. One factor that I wanted to specifically get your comment on is just collections. How is that tracking relative to expectation? Is there anything there that would explain some of the upward pressure on impaired PCL?

Speaker Change: I think it's very clear and you highlighted that the higher for longer rate environment definitely putting upward pressure on the impaired PCL ratio, but I'm wondering if there any other factors here worth considering.

One factor that I wanted to specifically get your comment on is just collections.

Speaker Change: That tracking relative to expectations is there anything there that would explain some of the upward pressure on impaired PCL as well.

Piyush Agrawal: Yeah, I think so you're higher for longer. I think everybody's talking about it's a new normal. And so customers adjusting to a new normal of higher prices for longer always takes time. And you've seen some of that come through over here.

Speaker Change: Yes, I think.

Speaker Change: So you are higher for longer I think everybody's talking about it as a new normal and so customers are adjusting to a new normal of higher for longer always takes time and you're seeing some of that come through over here specifically on collections I wouldn't say that collections is getting impacted because of that the obvious two or three points.

Piyush Agrawal: Specifically on collections, I wouldn't say that collections are getting impacted because of that. The obvious two or three points are that when you haven't lost money in the past, you can't collect enough. So, you know, the impairments are beginning now, and that's going to build the collection inventory for the future. But the second part, which is a challenge for the industry, is when it comes through insolvencies or proposals, it's going to take a longer window for collection, because you can't collect for the first four or five years. That is just the way the rules are.

Speaker Change: Is when you haven't lost money in the past you can't collect enough. So.

Speaker Change: Payments are beginning now and that's going to have better collection inventory for the future, but the second box, which is a challenge for the industry is when it comes through insolvencies of proposals, it's going to take a longer window for cognex, because you can't collect but the first four or five years or is that just the way the rules are.

Speaker Change: So that does have an impact on collections.

Piyush Agrawal: So that does have an impact on collection. Other than that, in the normal write-offs, I think a collection window of one or two years remains as robust as it was even before. I don't know, Forney, if you would like to add something here.

Speaker Change: Other than that in the normal write offs I think our collection window or one or two years remains as robust as it was even before I don't know if you would like to add something else. Yeah. I was just going to add that we've been very successful in proactive contact the customer is getting in front of the situation for them and helping.

Erminia Johannson: Yeah, I was just going to add that we've been very successful in proactive contact with customers, getting in front of the situation for them and helping them navigate, whether that be mortgages or credit cards or any unsecured lending. What we're finding is the receptivity has been very strong, and the performance of those contacts has been very helpful to the customers and ultimately to us being able to navigate and reduce losses. And I think that will continue as the market, as we talked about earlier, the macro environment, interest rates are higher for longer, and consumers are facing more cash flow efforts. But efforts are good, and they will continue over the course of the next, probably, year as we go forward. Thanks for that. And then maybe just a question for Daryl, you know, given the environment.

Navigate whether that be mortgages or credit card or any unsecured.

Speaker Change: Secured lending and what we're finding is the receptivity has been very strong and the performance of those contacts have been very helpful to the customer and ultimately and us being able to navigate and reduce losses and I think that will continue as the market as we talked about earlier macro environment as interest rates higher for longer and.

Speaker Change: Consumers are facing more cash flow out efforts by efforts are good and they will continue over the course of the next probably here as.

Speaker Change: As you go forward.

Speaker Change: Thanks for that and then maybe just a question for Daryl just given the environment are you seeing any increased regulatory scrutiny on AML proceeds these for.

Meny Grauman: Are you seeing any increased regulatory scrutiny on AML processes for FEMA, especially in the US? And, I guess, sort of related question, is there a risk of material increase in spending relative to plan because of that? You know, many short, I get it. The short answer is no. Regulatory scrutiny is pretty continuous rather than episodic. I would say, you know, a couple thoughts come to mind. We've been, you mentioned the US, operating in the US continuously for decades. We're coming up, as it turns out, on our 40th anniversary of the acquisition of Harris Bank.

Speaker Change: Especially in the U S and and.

Speaker Change: And I guess sort of related question is there a risk of material increase in spending relative to plan because of that.

Speaker Change: Okay.

Speaker Change:

Meny Grauman: And all the way through, we've built risk and governance and control infrastructure that would have been appropriate for the size of the operations at the time. And now, as we talked about before, our programs are subject to ongoing reviews. So when I say it's continuous, that's exactly what it is in the jurisdictions that we operate in, including in the US, where we transitioned to a Category 3 bank. So there was no surprise there.

Daryl I: Many short I get it the short answer is no.

Speaker Change: <unk> scrutiny is pretty continuous rather than episodic I would say you know a couple of thoughts come to mind. We've been you mentioned the U S. We've been operating in the U S continuously for decades, we're coming up as it turns out on our 40 year anniversary of the acquisition of the Harris Bank and all the way through.

Speaker Change: We've built risk and governance and control infrastructure.

Speaker Change: That would be appropriate for the size of the operations at the time and now as we talked to you about before our programs are subject to.

William Darryl White: And, you know, just as we believe our AML program is mature, and it's effective at that pace, we, of course, remain vigilant, and this goes to your question, I guess, on investment. Risks are elevated, criminals are more sophisticated, as we know, and we therefore continue to invest and strengthen our practices. But all of that happens, whether it's AML fraud, advanced technologies that we introduce, with oversight and with the spending envelope that Typhoon outlined earlier in terms of how we look at our business planning. So nothing, like nothing particularly unusual relative to the environmental factors that I think you're referring to, and nothing additional relative to what you've been doing. Correct. It's IE.

Speaker Change: Ongoing reviews, so when I say, it's continuous that's exactly what it is in the jurisdictions that we operate including in the U S, where we transitioned to a category three bank. So there was no surprise there and just.

Speaker Change: Just as we believe our AML program as is mature and it's effective through through that pace pay piece. We of course remain vigilant and this goes to your question I guess on investment risks.

Speaker Change: Risks are elevated criminals are more sophisticated as we know and we therefore continue to invest and strengthen our practices but.

Speaker Change: All of that happens, whether it's AML fraud advanced technologies that we introduce.

Speaker Change: With the oversight and with the spending envelope that typhoon I outlined earlier in terms of how we look at our business planning so nothing like nothing particular Lee unusual.

Speaker Change: Relative to the environmental factors that I think you're referring to.

Speaker Change: Nothing additional relative to what you've been doing before correct. It's I, it's all in the plan.

Speaker Change: Thanks, Dan.

Speaker Change: Thank you.

Meny Grauman: It's all in the plan. Thanks. Thank you. The next question is from John Aiken, from Jeffrey. Please go ahead, your line is now... Good morning, just wanted to focus on US deposit growth, given the environment where you've highlighted that it's very competitive. Can you discuss the strategy or the tactics of continuing to pursue deposit growth in an environment where it is compressing your margins? Is this bringing in deposits that will hopefully then expand the customer base and enable them to build more products? And secondarily, can you talk about how much of that growth was actually driven by your digital tactics? It's Ernie.

Speaker Change: The next question is from John Aiken from Jefferies.

Speaker Change: Please go ahead. Your line is now open.

John Aiken: Good morning, just wanted to focus on U S deposit growth given the environment, where you've highlighted that it's a very competitive can you can you discuss the strategy of the tactics are continuing to pursue the deposit growth in an environment, where it is compressing your margins is this.

Speaker Change: Bringing in deposits that will hopefully then expand the customer base and be able to build more products and secondarily can you talk to how much of that growth was actually driven by all your digital platform.

John Aiken: I'll answer that question later. Thanks, John. So a couple of things. One, I would say, first of all, I'll do the personal and business banking side, and then I'll turn it over to Nadim. But on the personal and business banking side, we have been successful in terms of growing overall deposits relative to the market. You've probably been noticing that the industry has been negative in growth. We have actually had positive growth and really lead in this position.

Speaker Change: Is there any I'll answer that question. Thanks, a ton. So a couple of things one I would say first of all at the I'll I'll do the personal and business banking side, and then I'll turn it to nadeem, but on the personal and business banking side, we have been successful in terms of growing overall deposits relative to the market and you probably been noticing the industry has been.

Nadeem: Negative <unk> growth that we have actually had positive growth in and really lead in this position is a function of a couple of things that the mix of blend that we have happening between as you state at new customer growth into the franchise and we've been particularly pleased with what we've been seeing in our west new western market and that's driven through a combination of all.

Nadeem: Our branches and our digital capabilities as you referred to so we have digital capabilities that are on the email enterprise banking capability and in our new markets in particular, we've been extremely pleased with how we.

Nadeem: Performing at about 40% of our sales have been coming in through the always on checking and savings accounts are core franchise as well. So that's a big component of it as well as our attraction factor of acquiring mass affluent customers into our what we call a premier banking offer in the U S that allows us to build full relationships.

John Aiken: It's a function of a couple of things, the mix, the blend that we have happening between accounts, and the core franchise as well. So that's a big component of it, as well as our attraction factor of acquiring mass affluent customers into what we call our premier banking offer in the U.S. That allows us to build full relationships and refer customers to our wealth colleagues. On the pricing side, per se, we use, obviously, a number of tactics to be able to optimize.

Nadeem: Referring to our our wealth our wealth colleagues.

Nadeem: On the pricing side per se, we use obviously, a number of tactics to be able to optimize but what we're finding is as you can imagine more price competition in general in the end.

Erminia Johannson: But what we're finding is, as you can imagine, more price competition in general in the U.S. marketplace. But overall, we're seeing the growth in our new customer base, as well as just our real focus on full conversations with our customers to ensure that we're also migrating them proactively in some cases to our CD products, so that we're at the whole keeping our deposit franchise growing. And as I said, it is growing relative to the marketplace. And I'll turn it over to Nadeem to talk about commercial deposits in the U.S. still see margin pressure on deposits. It's still a competitive environment.

Nadeem: U S U S marketplace.

Nadeem: But overall, we're seeing that growth in our new customer base as well as just a real focus on full conversations with our customers to ensure that we're also migrating them proactively in some cases to our C. D product. So that we're at at the whole keeping our deposit franchise.

Neil: Growing and I thought that it is growing relative to the market place and I'll turn it over to Neil to talk about commercial deposits in the U F. Okay. Thanks, Terry what I would say on the commercial side.

Neil: Is that where we had significant focus on growing deposits overall, when you see that in our Canadian balance sheet. The U S is a bit more challenged with the way the macro environment is there where we see a significantly higher mix shift, but I will say is that that that mix shift has been going at a decelerating pace in the last few months and so over the last three months a month.

Speaker Change: Per month, we have seen that deceleration of that mix shift, which is positive now with the rates where they are I still see margin pressure on deposits is still a competitive environment, but I do as typhoon mentioned see the level of margin compression dissipating and the mix shift dissipating, which will be a positive to the overall deposit book in terms of where we're focusing in on one of them.

Nadim Hirji: But I do, as Typhoon mentioned, see the level of margin compression dissipating, and the mixed shift dissipating, which will be positive for the overall deposit book. In terms of where we're focusing, one of the things I would say is that we are highly focused on simplifying our treasury business, making it easier for clients to onboard, making it simpler for our employees to sell the treasury products, and creating bundled pricing, which makes it easier for clients to sign up with us.

Speaker Change: The things I will say is that we are highly focused on simplifying our treasury business, making it easier for clients to onboard making it simpler for our employees to sell the treasury products, creating bundled pricing, which makes it easier for clients to sign up with us and focusing a lot more on our what I'll call the emerging mid market space.

Nadim Hirji: And focusing a lot more on what I'll call the emerging mid-market space. Clients with good operating deposits, sole lead relationship, strong ROE, a good loan-to-deposit ratio type portfolio, and so we are allocating our resources, capital, and focus to businesses where we can gain that kind of traction, and, frankly, beyond deposits, gaining opportunities for our wealth business as well. Thanks for the call, guys. All the

Speaker Change: With good operating deposits, so lead relationships strong ROE good loan to deposit ratio type portfolio and so we are allocating our resources capital and focus onto businesses, where we can gain that kind of traction and frankly beyond deposits gaining opportunities for our wealth business as well.

Speaker Change: Thanks for the color guys.

Speaker Change: Thank you.

Gabriel Dechaine: Thank you. The next question is from Gabriel Dechaine from National Bank Financial. Please go ahead. Your line is now open. Hi. Good morning.

Speaker Change: The next question is from Gabriel Deschaine from National Bank Financial. Please go ahead. Your line is now open hi, good morning, I want to look at the performing loan book for a minute here specifically the stage two classifications. So they were owned.

Gabriel Dechaine: I want to look at the performing loan book for a minute here, specifically the Stage 2 classifications. So, you know, about 11.5% of your loans were classified as Stage 2 last quarter. That jumped up to 16% this quarter. I'm just wondering what the process is, what's involved in moving loans from Stage 1 to Stage 2. I know technically how it works, but what do you do specifically?

But 11.5% of your loans were classified as stage two last quarter that jumped up to 16%. This quarter I was just wondering what the process is.

Speaker Change: What's involved in and you know moving loans from stage one to stage two I know technically how it works, but what do you do specifically do you think you've you've gone with a fine tooth comb and identified which commercial borrowers.

Piyush Agrawal: Do you think you've gone with a fine-toothed comb and identified which commercial borrowers are, you know, on the brink or whatever because of higher rates and that, you know, we should see that balance, you know, be stable from here on out because that's where, you know, the bulk of formations should be emanating from, right? Yeah, good. Thanks for the question. We're always making a dynamic assessment of our borrowers. And even for people who continue to be paying, the assessment really is, has there been a change in the credit conditions that may affect future performance?

Speaker Change: On the brink or whatever.

Speaker Change: Because of higher rates on that are you know, we should see that balance it'll be stable from here on out because that's where the bulk of formations should be emanating from right.

Gabe: Yeah Gabe thanks.

Speaker Change: Thanks for the question.

So we'd always making our dynamic assessment of our borrowers and even you know for people who continue to be paying the assessment really is is there a change in the credit conditions that may affect future performance mhm, and so our risk team working with the business as they continue to evaluate customize both on there.

Piyush Agrawal: And so our risk team, working with the business, as they continue to evaluate customers, both on the retail side and the wholesale side, make the determination. And then, based on that, we move customers from stage one to stage two. And the impact, as you know, is you go from a one-year loss to a lifetime loss.

Speaker Change: Retail site in wholesale side are making their determination and then based on that we move customers from stage one to stage two and the impact as you know as you go from a one year or two a lifetime loss.

Piyush Agrawal: So the performing provision picks that up. I think this process has been going on for the last year and a half with the rate change cycle that's happened. Both the impact of rates and inflation that affects our clients' earnings have a material impact on where final ratings might be. And so I think this will continue. This should be a dynamic process.

Speaker Change: Performing provision picks that up I think this process has been going on for the last year and a half with the rate change cycles that's happened.

The impact of rates and inflation that affects our clients earnings.

Speaker Change: It has a material impact on bad final ratings might be.

Piyush Agrawal: No change in risk management practice as we go forward. My expectation is if we go into the higher for longer, we will continue to evaluate what that means for our clients and book provisions, and where we are today, I mean, having built for eight quarters, I think we have prudently provisioned the coverage ratios. As you look through different metrics, when we compare ourselves in the context of our peers, we feel very good about that.

Speaker Change: And so I think this is a continued this should be a dynamic process no change in the risk management practice as we go forward.

Speaker Change: My expectation is if we go into the higher for longer we will continue to evaluate what that means for our clients and our book.

Speaker Change: Booked provisions and where we are today I mean, having built for eight quarters I think we are prudently provisioned the.

The coverage ratio is as you look through different metrics, when we compared ourselves in the context of our peers, we feel very good about that.

Piyush Agrawal: Yeah, I guess the other question I had is last quarter you had a pretty large Performing Provision on a smaller increase in Stage 2 classification, and this quarter was a smaller increase. I think there's some netting effect going on as you release some of those because of some of those Stage 2 going to Stage 3.

Speaker Change: I guess the other question I have is last quarter, you had a pretty large.

Speaker Change: Forming provision on a smaller increase in stage two classifications.

Speaker Change: Quarter was a smaller increase I get there's some netting effect going on have you released some of those because of some of those states to go into stage three.

Gabriel Dechaine: Are you saying that the build-up in performing provisions is more or less done for you in anticipation of what you're seeing in the market today? Yeah, that's a hard question because performing provisions is a quarterly decision based on many factors. And so macroeconomics and how that affects the quality of our portfolios and the size of the portfolios, all of those will have an impact on what the final number is. And as you know, while we rely on models, we also sprinkle human judgment at the end, just to understand what the models may not be saying. So until we see a peak in the impaired portfolio or we see a change in the economy, I think there'll continue to be small builds. I don't know how small or what the sizes will be.

Speaker Change: Is there what's.

Speaker Change: What's the are we kind of are you messaging that the the buildup in performing provisions is it was more or less done for you over the in anticipation of what youre seeing in the market today.

Speaker Change: Yes, that's a hard question because the performing provisions as a quarterly decision based on many factors and so macro economy and how that moves.

Speaker Change: The quality of our portfolios and the size of the portfolios all of those.

Speaker Change: Having impact on what the final number is and as you know why we rely on models. We also sprinkle human judgment at the end just.

Speaker Change: To understand what the models may not be saying.

Speaker Change: Until we see a peak in the embedded portfolio of V. C change around in the economy I think they'll continue to be small biggs I don't know how smaller how but the sizes I don't expect releases anytime soon.

Piyush Agrawal: I don't expect releases anytime soon, but the reason we feel good about this is that performing provisions are supposed to precede impaired provisions. That's why you've seen the build over the last few quarters. And, you know, over the next one or two quarters, looking at the shape and size of our portfolios, we will give you better guidance on what the direction of performance will be. Okay, and this is the last one for Tayfun.

Speaker Change: But the reason we feel good about this is performing provisions as opposed to proceed impact provisions that's why you've seen the better over the last few quarters and over the next one or two quarters looking at the shape and size of our portfolios be able to give you a better.

Speaker Change: Guidance on what the direction of performing whether it be okay. And then just the last one for typhoon I missed it because I was distracted, but the Oh look for U S. P&C NIM compression.

Gabriel Dechaine: I missed it because I was distracted, but the outlook for US PNC NIMH is, you know, big compression this quarter. Can you remind me of that and what the assumptions or moving pieces are? Yes, my comment was that the biggest impact on this quarter's NIM was the deposit pricing competition and reduced spreads for deposits. But I said that I do not expect that phenomenon, although competition will continue, that it will impact quarterly NIM as much as it did this quarter.

Speaker Change: Compression this quarter.

Speaker Change: Can you remind me of what the.

Speaker Change: You know the assumptions are moving pieces are.

Speaker Change: Yes, my comment was that the biggest impact on this quarters NIM.

Speaker Change: Was.

Speaker Change: The deposit pricing competition, and reduced spreads or deposits, but I said that I do not expect that phenomenon. Although competition will continue that it will impact quarterly NIM as much as it did this quarter.

Gabriel Dechaine: I suspect that there is a little bit more contraction left in the US, but we probably will not see a quarter over quarter compression similar to what we just saw in Q2. So a bit more, you know, down, but a more stable outlook. Okay, good. I forgot to take my riddle in today, so I missed that one.

Speaker Change: I suspect that there is a little bit more of a contraction left in the U S. But we probably will not see a quarter over quarter compression similar to what we just saw in Q2.

Speaker Change: Sorry, a bit more.

Speaker Change: Down, but more stable outlook I should say, okay. Good I, Oh, I forgot to take my Ritalin today, So I missed that one alright that was a good one.

Speaker Change: Okay.

Speaker Change: Thank you.

Tayfun Tuzun: All right, have a good one. Thank you. The next question is from Lemar Persaud for Cormark's unit.

Speaker Change: The next question is from Lamar Prasad Foreign car Marchione. Please go ahead. Your line is now open.

Lemar Persaud: Please go ahead, your line is now open. Yeah, thanks. Just sticking along Gabe's line of questioning there. I think I heard that you guys are expecting stable, kind of stable-ish or flat-ish NIM at the all-bank level. So, correct me if I'm wrong, how do you guys get there?

Todd: Yeah. Thanks Todd.

Speaker Change #100: Sticking along the <unk>.

Speaker Change #101: Your line of questioning there.

Speaker Change #102: I heard that you guys are expecting stable kind of stable ish or flattish NIM at the all bank level. So correct me if I'm wrong, how do you guys get there because I think I heard that we should expect some pressure in domestic retail and.

Lemar Persaud: Because I think I heard that we should expect some pressure in domestic retail and, you know, less pressure in US retail. So how do you get flat-ish on the all-bank result? Or did I just hear that wrong?

Speaker Change #102: Less pressure in U S retail so how do you get flattish at the all bank result, or did I just hear that wrong.

Tayfun Tuzun: Thanks. No, I mean, you did hear that we are expecting stability in our all-bank NIM. And that is largely related to the five to seven-year rates remaining where they are today because our reinvestments are continuing to provide good support against deposit price competition. And then, in Canada, the phenomenon of BAs going away is zero at the bank level. It does not impact the bank's net, so you can see the dynamic where some pressure in US retail is less than we saw this quarter and some pressure in the domestic business, and we still have flat all banks.

Speaker Change #103: No I mean, you did hear that we are expecting stability in our all bank NIM and that is largely related to.

Speaker Change #103: The five to seven year rates remaining where they are today, because our reinvestments are continuing to provide good support against the deposit price competition.

Speaker Change #104: And then at the sort of it in Canada, the phenomenon of our Bas.

Speaker Change #104: Going away is really is neutral at the bank level. It does not impact the bank's NIM.

Speaker Change #104: So you can see the dynamic where some pressure in the U S retail less than we saw this quarter and some pressure in the in.

Speaker Change #105: In the domestic business and still have flat all banks. So then its at the at the corporate level like just help me understand those pieces like how you get to flat at the consolidated with.

Tayfun Tuzun: So then it's at the corporate level. Like just help me understand those pieces, like how you get to flat at the consolidated level, with pressure and quarter over quarter impact of the corporate side should provide some support for the broader bank. Okay, okay. And then, Piyush, if I may, Gabriel was kind of going along the lines that I'm thinking in terms of his performing question there.

Speaker Change #106: With pressure on a quarter over quarter.

Speaker Change #107: Impact of the corporate side I should provide some support for the broader backing them.

Speaker Change #106: Okay.

Piyush Agrawal: I wonder if you could just talk about why we shouldn't see performing PCLs move materially higher, just given these trends and formations and higher unemployment and longer, higher for longer rates? If I look at your coverage ratio, it's only up two basis points since the end of 2020. Sure. So I'd say that on the performance, again, similar to the way I answered.

Speaker Change #108: Okay, Okay and then.

Speaker Change #108: Piyush, if I if I may.

Speaker Change #109: Gabriel was kind of going along the lines that I am thinking in terms of his performing questionnaire.

Piyush: If you could just talk about you know why shouldn't we see performing PCL has moved materially higher just given these trends and formations and higher unemployment and then a longer higher for longer rates like.

Speaker Change #110: If I look at your coverage ratio, it's only up two basis points since the end of 2023.

Sure. So I'd say that underperforming again similar to the way I answered.

Piyush Agrawal: There are so many things that go into a performing provision, as you think about. So we've obviously considered the macroeconomy in our forecast. We've considered things around higher unemployment. And that's why, within the performing provision, you see a higher allocation towards Canadian retail. We felt our coverage there needed to be higher, and we did that.

Speaker Change #110: There's so many things that go into a performing provision.

Speaker Change #111: If you think about so we obviously couldn't say Doug the macro economy in our forecasts, we've considered things around higher unemployment and Thats why within the performing provision you will see a higher allocation towards Canadian retail, we felt our coverages that need to be higher and we've done that.

Piyush Agrawal: So that, I think, continues as we go forward. The other thing I would say is we look at trends, and you talked about the impaired portfolio. On our impaired portfolio, we've historically had a 15 to 20% reservation. This quarter was a bit higher.

Speaker Change #111: So that I think continues as we go forward. The other thing I would say is we look at trends and you've talked about the impact portfolio.

Piyush Agrawal: But we look for trends in formation of what it's telling us, and then dynamically adjust where we can in terms of the allocation of our capital of our portfolio. And don't forget, we also have a very large synthetic portfolio or credit insurance outlined. And so some of the losses as we move forward, we think will get covered also through insurance protection. So there are several ins and outs that go into it.

Speaker Change #111: On our impaired portfolio, we've historically had a 15% to 20% reservation. This quarter was a bit higher but we look for trends with the formation of what it's telling us and then dynamically adjust where we can in terms of allocation of our of a cap rate of our portfolio mix.

Speaker Change #111: And don't forget we also have a very large synthetic portfolio on a credit insurance.

Speaker Change #111: Outlined and so some of the losses as we move forward. We think will get covered also with reinsurance protection. So there are several other ins and outs that going.

Piyush Agrawal: That's why I feel we will grow our performing provisions. We just don't see it grow sizably as we did last quarter, which was really the impact of a one-time model impact as we go forward. Thanks. I appreciate the time.

Speaker Change #111: That's why I feel we will grow outperforming provisions, we just don't see it grow size of the as we had last quarter, which was really the impact of a onetime model impact as we go forward.

Speaker Change #112: Okay. Thanks, I appreciate the time.

Lemar Persaud: And just in the interest of time, perhaps I could ask the operator if we could limit one question as we try to fit everybody in. Thank you. Thank you. The next question is from Nigel D'Souza from Averitis Investments and Research. Please go ahead, your line is now open.

Speaker Change #113: And just in the interest of time, perhaps I could ask operator, if we could limit to one question as we try to fit everybody and thank you.

Speaker Change #114: Thank you.

Speaker Change #115: The next question is from Nigel D'souza from various investments research. Please go ahead. Your line is now open.

Nigel D'Souza: Thank you, I just wanted to quickly follow up on impaired provisions and... Last time you had significant impaired formations, I think you mentioned a loss rate of 12% around there, and you mentioned it's higher. So this quarter, so any details on what the loss rate was this quarter, it looks like you're seeing higher loss rates. Given the context that the macroeconomic environment has not deteriorated substantially and policy rates have not changed, what's driving the increase in wall charges?

Speaker Change #114: Yeah.

Unknown Attendee: Thank you I just wanted to quickly follow up on impaired provisions and.

Unknown Attendee: Last time, you had significant impaired formations I think you mentioned a loss rate of 12%.

Unknown Attendee: Round, there and you mentioned it is higher so this quarter. So any details on what the loss rate was this quarter it looks like you're seeing higher loss rate.

Speaker Change #117: Manufacturing retail trade.

Speaker Change #117: Commercial real estate.

Speaker Change #118: In the context of the macroeconomic environment has not deteriorated substantially and also rates have not changed what's driving the increase on wall Street.

Piyush Agrawal: Yeah, so there's a couple of factors that go into it. There's obviously client behavior. And so, as you've seen supply of credit change, especially in the US, with what's happening with the regional banks. Refinancing for many of our clients is becoming more limited, and those who had postponed refinancing, hoping rates would come down sooner, are finally, they have to hit, you know, as they hit a maturity wall, they're coming to us. So we work with these clients extensively; in fact, that's a huge relationship trait for us, working with our clients over cycles; we continue to do that.

Speaker Change #119: Yeah. So there's a couple of factors that go in.

C <unk> behavior and so.

Speaker Change #119: As you've seen supply of credit change, especially in the U S with what's happening with the regional banks.

Speaker Change #119: Refinancing for many of our clients get Tomorrow is limited and those who have postponed refinancing holding rates really come down sooner.

Speaker Change #119: I find these they have to hit as they hit a maturity, while they're coming to us. So we work with these clients extensively in fact, that's a huge relationship creates for US is working with our clients over cycles, we continue to do that.

Piyush Agrawal: In the impairment provision rate, which I was answering the previous question, which is in the 15-20% range, it can move around a bit depending on the cycle or the sector that's in the impaired book. Transportation finance, I said, was higher. We had a large CRE loss, but we also had a large capital markets loss. And so when you've got larger cash flow that is unsecured, you may have a higher loss in that quarter. But in the end, it's such a diversified book.

Speaker Change #119: In the impairment provision rate, which I was answering the previous question, which is in the 15% to 20% range. It can move around a bit depending on the cycle or the sector that is in the embedded book Transportation Finance I said was higher we had a large credit loss. We also had a large capital market for us and so on.

Speaker Change #119: And you've got larger cash, though unsecured you may have a higher loss in that quarter, but at the end, it's such a diversified book, there's no concentration that come up that I feel pretty confident that going forward the trends should come back to where we've been over the last few years.

Piyush Agrawal: There's no concentrations that come up that I feel pretty confident that going forward, the trends should come back to where we've been over the last few years. And sorry, just to follow up on a point you made there on the extension of maturities in commercial real estate, the 2023 maturities we know across the industry, both of those were extended to 2024. And we haven't seen the rate cuts provide relief.

Speaker Change #120: And sorry, just to follow up on a point you made there on the.

Speaker Change #121: The extension of maturities and commercial real estate the 2023 maturities, we know across the industry bulk of that was extended into 2024, and we haven't seen the rate cuts to provide relief. So could you just provide some color on how active the my husband you mentioned in a special account management team, but how active have you been.

Piyush Agrawal: So could you just provide us some color on how active BMO has been? You mentioned your special account management team, but how active have you been in renegotiating, modifying, or extending maturities over the last year? And what could the impact from those actions be going forward in terms of maturities in the pipeline? So you'll see that on our watch list. You'll see that in our impaired formation.

Speaker Change #122: And renegotiating modifying our extending maturities over the last year and what could the impact from that action speak going forward.

Yeah mature pipeline.

Piyush Agrawal: Our commercial real estate impaired formations are still, I would say, compared to the market, lower. So we've actually done better. But we haven't taken our eyes off it. As we said in calls before, we've looked at every large loan in the office space, which is where most of the stress has been in the US market. And we only have a handful, and we've been working with our borrowers.

Speaker Change #123: So you'll see that in our watch list, you'll see that did not embed formation.

Speaker Change #124: Commercial real estate impaired formations is still I would say compared to the market. So have you actually done better, but we haven't taken a rise of it we've said in calls before we've looked at every dollar zone.

Speaker Change #124: In the office space, which is where most of the stress has been in the U S market.

Speaker Change #124: And we only have a handful and we've been working with our borrowers in fact.

Speaker Change #124: Over the last few quarters.

Piyush Agrawal: In fact, over the last few quarters, several borrowers have refinanced, and several of the loans which we had on our watch list have been paid off. And the one large loan this quarter, where we've taken the impairment, I've also added that I'm confident over the next few quarters, as we work with our sponsors and buyers, that we may get a partial recovery even on that. Now, there is stress in the sector. You read about this, but again, it depends from city to city, property to property.

Budd was a refinance several of the zones, which we had on our watch list were paid off and the one large loan this quarter, maybe you've taken the impairment I've also added that I'm confident over the next few quarters as we work with our sponsors and buyers and we may get a partial recovery even on that now there is.

Speaker Change #124: Dressed in the sector you read about this but it again it depends.

Speaker Change #124: City to city property to property and again the assessment has been very good we continue to reappraise. So.

Speaker Change #124: This is going to continue and we'll keep reporting back to you as you can see through our results on any of these events.

Piyush Agrawal: And again, the assessment has been very good. We continue to reappraise. So this is going to continue, and we'll keep reporting back to you as you see through our results on any of these events. Thank you. The next question is from Mario Mendonca from TD Securities. Please go ahead, your line is now open.

Speaker Change #125: Thank you. The next question is from Mario Mendonca from TD Securities. Please go ahead. Your line is now open.

Mario Mendonca: Good morning, I want to take the credit position credit question, but maybe from a more positive perspective. Now, it's been my experience over the years that BMO has, in the past, impaired PCLs a little sooner, taken some pretty big provisions, and then a year or so later, we get these really unusually outsized recoveries that continue for some time. So the nature of my question is this, has anything changed relative to the past in BMO's impairment disciplines, provisioning disciplines, or is there anything different about this cycle that would cause us to rethink that historical trend, the trend where elevated provisions, elevated impairments relative to peers, and then elevated recoveries a year or so or two years. Yeah, Mario. It's Daryl.

Mario Mendonca: Good morning, I want to take the credit position credit question, but maybe from a more positive perspective now its been my experience over the years that BMO has in the past impaired PCL a little sooner.

Mario Mendonca: Taken some pretty big provisions and then a year or so later.

Mario Mendonca: We get these really unusually outsized recoveries that continue for some time. So the nature of my question is has anything changed.

Mario Mendonca: And relative to the past and Bmo's impairment.

Mario Mendonca: Disciplines provisioning disciplines or is there anything different about this cycle that.

Mario Mendonca: That would cause us to rethink that historical trend the trend were elevated provisions elevated impairments relative to peers, and then elevated recoveries a year or so or two years later yeah.

William Darryl White: I might try and help you with that. And while I'm at the mic operator, I think what we'll do is we'll extend the call for five more minutes because we've got a few people in the queue. And I'll ask people to try to stick to the one question. And I'll ask my team to try to stick to quick answers so we can get to all of you.

Daryl I: Yes, Mario it's Daryl I might I might try and help you with that and while I have the mic operator, I think what we'll do is we'll extend the call for five more minutes because we've got a few people in the queue and I'll ask people to try to stick to one question and I'll ask my team to try to stick to quick answers. So we can get to all of you and I'll try to lead by example here.

Daryl I: So Mario I think the short answer is no nothing has changed our appetite hasn't changed our underwriting practices haven't changed the composition, particularly in the wholesale side of the business, whereas we told you before 90% of the relationships are sole or lead relationships haven't changed so our ability to work through.

William Darryl White: And I'll try to lead by example here. So Mario, I think the short answer is no, nothing has changed. Our appetite hasn't changed. Our underwriting practices haven't changed.

Daryl I: As opposed to be at the end of the line and credit negotiations as we work out.

Speaker Change #127: Is it.

Speaker Change #127: At the end and the end of the day advantaged relative to some I would say and to your question unchanged now I can't necessarily extrapolate that and say that that will result in accelerated recoveries.

As compared to others.

Speaker Change #127: You pointed out that has happened in the past it might happen.

Speaker Change #127: And I can but what I can tell you and I've sat around this table for a long time looking at these cycles is that the way we approach the business. The way we're looking at the diversification of the business and where these particular impairments are coming from right now isn't a particular surprise relative to prior peaks and valleys that I've seen.

And so the scenario that you that you outline is certainly possible I can't go so far as to say, it's probable but it's certainly possible because there isn't anything underlying that's that's suggested otherwise is that helpful.

William Darryl White: The composition, particularly in the wholesale side of the business, where, as we told you before, 90% of the relationships are sole or lead relationships, hasn't changed. So our ability to work through, as opposed to being at the end of the line and credit negotiations as we work out, is, you know, at the end, in the end of the day, you know, advantaged relative to some, I would say, and to your question, unchanged.

Speaker Change #128: Thank you.

Speaker Change #129: Next question is from Mike Rees Zenovich from Keefe Bruyette and Woods. Please go ahead. Your line is now open hi, Good morning, just a quick one for Piyush just just not sure. If you can delineate or if there is a difference at all but have you seen more noise from existing legacy relationships longer.

William Darryl White: Now, I can't necessarily extrapolate that and say that that will result in accelerated recoveries. As compared to others, as you point out, that has happened in the past, it might happen. And I can, but what I can tell you, and you know, I've sat around this table for a long time looking at these cycles, is that the way we approach the business, the way we're looking at the diversification of the business, and where these particular impairments are coming from right now, isn't a particular surprise relative to prior peaks and valleys that I've seen.

Speaker Change #128: Term relationships in that commercial lending book.

Speaker Change #128: As the new ones that you would have acquired a few quarters ago with bank of the West just trying to understand if there's a specific source in terms of client base between legacy and new clients that drove that P. C. L. A to do even more than double in the quarter sequentially.

William Darryl White: And so, you know, the scenario that you outline is, is, is certainly possible. I can't go so far as to say it's probable, but it's certainly possible because there isn't anything underlying that's suggested otherwise.

Mike: Yes, Mike Thanks for that.

Speaker Change #131: Short answer is no just in the interest of time I'll just add one more sentence.

We've actually fully integrated bank of the West It's one BMO portfolio and so if you look at it and do and like any other practice all of our policies processes everything is the same but going back to the beginning.

Speaker Change #131: It's the same U S performance across bank of diverse and our legacy book.

Speaker Change #132: Thank you. The next question is from Darko Mihelich from RBC capital markets. Please go ahead. Your line is now open.

William Darryl White: Is that helpful? Thank you. The next question is from Mike Rizvanovic from Tief, Brouillette, and Woods. Please go ahead. Your line is now open.

Mehmed Rizvanovic: Just a quick one for Piyush. I'm not sure if you can delineate or if there is a difference at all, but have you seen more noise from existing legacy relationships, longer-term relationships in that commercial lending book versus the new ones that you would have acquired a few quarters ago with Bank of the West? Just trying to understand if there's a specific source in terms of client base between legacy and new clients that drove that PCL to more than double in the quarter.

Darko Mihelic: Hi, Thank you for fitting me in Piyush I'm going to follow that same line of questioning for Mike, but I'm gonna do it a little differently when I compare your impaired.

Piyush Agrawal: Yeah, Mike, no, thanks for that. The short answer is no, but in the interest of time, I'll just add one more sentence. We've actually fully integrated Bank of the West, it's one BMO portfolio. And so we look at it end to end, like any other practice, all of our policies, processes, everything is the same.

Piyush Agrawal: But going back to the beginning, it's the same US performance across Bank of the West and our legacy book. Thank you. The next question is from Darko Mihelic from RBC Capital Markets. Please go ahead. Your line is now open. Hi, thank you for fitting me in, Piyush.

Darko Mihelic: Experience in the quarter versus your U S peers is worse.

Darko Mihelic: I'm going to follow that same line of questioning from Mike, but I'm going to do it a little differently. When I compare your impaired experience in the quarter versus your US peers, it is worse. And so possibly, there's a timing impact here, meaning your quarter ends in April, and the U.S. banks ended in March. Part of this could perhaps be explained if there were a lot of files that went impaired in April.

Darko Mihelic: And then secondarily, when I compare you to TD, where there is no difference in timing, it's also significantly more impairment, which perhaps may not necessarily say Bank of the West but what might suggest Midwest to the west coast of the US of A. So I wonder if you can just comment on whether or not those observations lead to that conclusion that there were a lot of impairments in April from the Midwest out to the West.

Darko Mihelic: And so possibly there is a timing impact here, meaning your quarter ends in April in the U S. Banks ended in March so part of this perhaps could be explained if there were a lot of files that was impaired in April and then secondarily when I compare you to T D where there is no difference in timing.

Speaker Change #134: <unk> is also significantly more impairments, which perhaps may not necessarily see bank of the west what would might might suggest Midwest to the west coast of the U S debate. So I wonder if you can just comment on whether or not those observations lead to that.

Speaker Change #134: Conclusion that there were a lot of impairments in April.

Speaker Change #134: From the Midwest out to the west.

Darko Mihelic: Darko, thank you. I wouldn't say it is a Midwest or California or any other geographic question. If I were to just peel it back for you on the U.S. commercial side, there are two or three big reasons.

Speaker Change #135: Darko Thank you.

Speaker Change #136: I wouldn't say it is a made vast or California or any of the geographic question. If I were to just be added back for you on the U S. Commercial side, there are two or three big or the U S side, there's two or three big reasons one.

Piyush Agrawal: One is you've got to back out the idiosyncratic loans, because like larger files, they are not a regular feature. They'll come idiosyncratically, which is exactly what happened. So that's one piece. We've never lost money. I would say never, close to almost never, in the financial sector. And this is the one loan we had in capital markets that was large. Second, within our wholesale book, we have the transportation business. That's a very cyclical business compared to the rest of the industry.

Speaker Change #136: As you go to back out the idiosyncratic noise like the larger files are not a regular feature datacom idiosyncratic leave which is exactly what happened.

Speaker Change #136: So that's one piece, we've never lost money I would say never goes to almost never on the financial sector and this is a one zone. We had in capital markets that was large second is within our wholesale book, we have the transportation business that is a very cyclical business compared to the rest of the industry. It's much more I would say small truckers.

Piyush Agrawal: It's much more, I would say, small truckers, less than 10 when you compare the small business delinquency index in the U.S. and compare our performance. Not only have we been better than the delinquency index, but we have been better for 40 years.

So that's and Dan when you compare the small business delinquency index in the U S and combat our performance.

Not only have you been better than delinquency index, we are better over 40 years and so I think this quarter, we took the higher impairment on that.

Piyush Agrawal: And so I think this quarter, we took the higher impairment on that. We feel good about that performance because, with the summer, tonnage is picking up, freight rates will move up, and I think as supply goes down, this should do well. And then the third is, you've got borrowers in different sectors that were just, you know, with higher leverage, who were feeling the heat from inflation, and then the higher interest rates came to us and worked out a solution.

Speaker Change #136: We feel good about that performance because of the summer.

Tonnage is picking up freight rates move up and I think as supply goes down this should do well.

Speaker Change #136: And the third is.

Speaker Change #136: You've got.

Speaker Change #136: Borrowers in different sectors that but just you know with higher average who are feeling the heat from inflation and then the higher interest rate.

Speaker Change #136: Coming to us and looking out into the ocean.

Piyush Agrawal: And so that's why it's a little bit more this quarter; this may, like I said, continue if rates don't change. But there's nothing unique, I would say, on the overall portfolio that is system-wide. It's just these one-off events that add up to our US performance. You know, on the other side, momentum is really good.

And so that's why it's a little bit more this quarter dismayed that continue if rates don't change, but theres nothing unique I would say on the overall portfolio that is system wide. It's just these one off events that add up to our U S performance.

Nadim Hirji: Risk appetite continues to be strong. And I think Nadim has touched on this, where if I look at pipelines and activity, I actually think, you know, both loan growth and client engagement will result in just a better overall mix of revenue to overcome these losses. Thank you. The last question is from Paul Holden from CIBC. Please go ahead. Your line is now open.

Speaker Change #137: On the other side momentum is really good risk appetite continues to be strong and I think <unk> touched on this very if I look at pipelines and activity I actually think you know both loan growth and our client engagement resulted in just a better overall mix of revenue to overcome these losses.

Speaker Change #138: Thank you. The last question is from Paul Holden from CIBC. Please go ahead. Your line is now open.

Paul David Holden: Thanks for taking the time. I want to ask a question quickly on your US mid-market private equity lending business, if that's adding any noise to the impairments, and then two, if that's adding any noise to the revenue lines for those mark-to-market positions, I guess the LP positions you take in some of those funds. Thank you. Yeah, so we've got a very good, strong presence with our private equity partners. The private equity, I think you're referring to the call program or the sponsor fund lending, has been an exceptional strength. So I don't see any losses from that. That's not the impairment.

Paul David Holden: Thanks for making the time why don't I ask a question quickly on your U S mid market private equity lending business, if that's adding any noise to the impairments and then two if that's adding any noise to the revenue lines for those mark to market positions.

Speaker Change #140: The L. P positions you've taken some of those funds. Thank you.

Speaker Change #141: Yes, so we've got a very good strong presence with our private equity partners.

Speaker Change #142: The private equity I think you're referring to the call program with a sponsor funded lending has been an exceptional.

Speaker Change #143: Strength, so I don't see any losses from that that's not the impairment.

Piyush Agrawal: You know, there'll be small names of operating companies that we take very granular positions in. Those, you know, are part of the regular higher risk profile that we've always known. But in general, I think market activity is muted on the revenue side. Let me hand it over to Nadim because I know we have a regular discussion about pipelines, and the pipelines are very rich. And some of those are probably waiting for the election cycle in the US. Nadim?

Speaker Change #143: There'll be small names of operating companies that we take very great grandmother physicians in those.

Nadeem: Part of the Reg is a higher risk profile that we've always known but in general I think it's a the market activities muted to on the revenue side, let me hand, it over to Nadeem, because I know we have a regular discussion on pipeline and the pipelines are very rich and some of those are probably waiting for the election cycle in the U S and nadeem. Thanks, Paresh I would just say active.

Nadim Hirji: Yeah, thanks, Piyush. I'll just say activity has been muted, so that's definitely dampened our ability to grow within that space.

Nadeem: He has been muted so that's definitely a gap and our ability to grow within that space, but we are seeing is capital markets activity is increasing we are seeing M&A starting to increase there are M&A transactions or waiting for the election to see a policy changes will change their mind about the transaction or not so things are delayed for a little bit longer specifically in the <unk>.

Nadim Hirji: But we are seeing as capital markets activity is increasing; we are seeing M&A starting to increase. There are M&A transactions waiting for the election to see if policy changes will change their minds about the transaction or not. So things are delayed for a little bit longer, specifically in the US, than we'd like them to be. But to your question, no, we haven't had significant FMV-type losses in that book that are contributing to the numbers you're talking about.

Nadeem: U S than we'd like it to be.

Speaker Change #144: But it's but to your question no.

Speaker Change #145: No. We haven't had significant F&B type losses in that book that are contributing to the numbers you're talking.

Paul David Holden: Thank you. There are no further questions registered at this time. I would like to turn the meeting back over to Daryl White.

Speaker Change #146: Thank you there are no further questions registered at this time I would like to turn back the meeting over to Darryl White.

William Darryl White: Okay, thank you all for your questions. I'll just close by saying that we remain confident in the growth opportunities across our businesses. And importantly, as I said earlier, the power of the integrated North American franchise. We're clearly building competitive advantages in a highly fragmented US market. Our strategy isn't changing, and we are poised to exploit those advantages.

Okay. Thank you all for your questions I'll, just close by saying that we remain confident in the growth opportunities across our businesses and importantly, as I said earlier the power of the integrated North American franchise, we're clearly building competitive advantages in a highly fragmented U S market our strategy isn't changing.

<unk> and we are poised to press those advantages. So thank you all for your time today and we look forward to speaking to you again in August.

William Darryl White: So, thank you all for your time today, and we look forward to speaking to you again in August. Thank you. The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation.

Speaker Change #147: Thank you the conference has now ended.

Speaker Change #148: Your lines at this time and we thank you for your participation.