Q3 2024 Bank of Montreal Earnings Call

August 27, 2024

Piyush Agrawal: [inaudible] Piyush will discuss this further in his remarks. The Bank of Canada is anticipated to continue cutting rates in increments and the Fed to begin reducing rates in September. While GDP growth has strengthened from earlier expectations, we continue to monitor evolving geopolitical events and the pace of unemployment. We're dynamically managing our businesses to support customers and deliver returns across a range of conditions and outcomes.

Unknown Executive: Turning to our results and operating group performance for the quarter, adjusted net income for the third quarter was $2 billion and earnings per share were $2.64. We've had good balance sheet growth including robust customer deposit growth across our franchise, supported by a strong capital position with a CET-1 ratio of 13%. Canadian P&C delivered another quarter of record revenue of 7% year over year and PPPT of 12%. Our P&BB business is on pace for our strongest year ever in net customer acquisition with net account growth nearly double industry benchmark and strong customer primacy, a reflection of our award-winning digital and product capabilities and our strong traction with new Canadians.

Unknown Executive: It's been just over a year since the acquisition of Air Miles Canada's most recognized loyalty program. In that time, we've executed against key strategies and investments to revitalize the program including a new mobile app and expanded ways to earn miles, including offers directly linked to BMO Air Miles credit cards. The Air Miles brand relaunch this summer is already seeing early signs of success with double digit growth in enrollments, app downloads and reward redemptions.

Unknown Executive: With access to over two thirds of all Canadian households, we're creating differentiation in the market and a foundation to drive customer acquisition and engagement. In US P&C, we're seeing improving performance with revenue up over last quarter, positive operating leverage of 4.9% and a 300 basis point improvement in our efficiency ratio over last year. In commercial banking, loan and deposit growth is strengthening in Canada and while softer in the US, we continue to acquire new clients and increase deposit penetration.

Unknown Executive: We're growing active users in our leading Treasury payment solution business and we received the Red Dot Award for design concept for redesigning the digital banking experience for small and medium enterprises. BMO Wealth Management had a strong quarter with wealth and asset management net income up 44% year over year driven by good growth and client assets with strong net sales in our leading ETF business and net positive mutual fund flows. We're seeing results from our investments in asset management as nearly all global mandates managed by our global equity team performed in the top desial, including the BMO Global Equity Fund, which received the five-star morning star rating.

Unknown Executive: BMO Capital Markets had PPPT of 625 million within the range we've guided to, bolstered by strong client activity and revenue performance in global markets, M&A and corporate banking. We're growing our capabilities and leadership and target areas in the US, ranking number one in US agency CMO issuance year-to-date.

Unknown Executive: Turning to our overall US segment, we're building on over 200 years of experience in our second home market. This fall, we'll be celebrating 40 years since our bold expansion of Harris Bank in Chicago, 15 years since the acquisition of M&I, and one year since the conversion of the Bank of the West. Over this time, we've consistently grown through many economic cycles, creating value as a key differentiator for BMO and our customers.

Unknown Executive: From a regional bank with $8 billion of assets in 1984, we're now a top 10 bank with national reach, strong capital, and the size and scale to compete across retail and commercial banking, wealth management, and capital markets. We continue to progress on our revenue synergy targets, including strong core personal customer growth, with over 35 percent coming from our new West markets, evidence of our growing brand recognition, strong digital checking account growth, and improving branch productivity.

Unknown Executive: We're augmenting talent and capabilities, including, for example, dedicated teams in wine and beverage M&A and media and entertainment finance and Los Angeles. Transactions between commercial banking and capital markets and areas like FX hedging and treasury payments are increasing. In this quarter, we closed the biggest referral of the year between commercial and wealth management. We've delivered consistent pre-prevision pre-tax earnings of a billion dollars or more in the U.S, for the sixth consecutive quarter, with modest balance growth and protecting margins at a rate better than peers.

Unknown Executive: While we've surpassed our synergy goals, as we discussed, the currently muted conditions for U.S, banking industry growth have impacted the timing of delivery on the revenue synergies from the Bank of the West. However, the overall environment is now showing signs of inflection and the investments we've made to build the business for success, position us to grow profitable market share and strengthen return on equity.

Unknown Executive: At the same time, we're making a difference in the communities we serve through Empower 2.0, our five-year commitment to breakdown barriers faced by underserved communities, businesses, and families in the United States, having already delivered $10 billion of our more than $40 billion commitment. In summary, our franchise is strong, as evidenced by fast-growing deposit, customer-based, leading customer acquisition, and deepening client relationships. We've delivered on our commitment to positive operating leverage. I'm confident that our risk culture is intact with actions in place to effectively manage risk and improve our credit performance through next year. Our teams are executing on a clear and consistent strategy for sustained operating performance that will endure through credit cycles.

Unknown Executive: And I'll turn it over to Typhoon.

Tayfun Tuzun: Thank you, Zaryl.

Tayfun Tuzun: Good morning, and thank you for joining us. My comments will start on slide 10. Third quarter reported EPS was $2.48, and net income was $1.9 billion. Adjusting items are shown on slide 39, and the remainder of my comments will focus on adjusted results. Agessa DPS was $2.64 down from $2.94 last year and net income was $2 billion down 8% as strong PPPT growth of 8% was offset by higher PCL. Record PPPT of $3.5 billion was driven by strong operating performance across our businesses with positive operating leverage of 5.2%.

Tayfun Tuzun: Excluding lower insurance revenue which was inflated last year due to market impacts related to the IFRS 17 transition, revenue was up 2% and expenses were down 1% excluding severance in the prior year, PCL increased $414 million which Piyush will speak to in his remarks. Moving to slide 11, average loans grew 6% year over year excluding the impact of the RV loan portfolio sale and the wind down of the indirect auto book driven by good growth in residential mortgages and business and government loans.

Tayfun Tuzun: Strong growth in customer deposits that deposits continues with average balances up 9% from last year driven by higher deposits in our U.S, and Canadian personal and commercial businesses. Turning to slide 12, on an x-training basis net interest income was unchanged from the prior year as balanced growth was offset by lower margins and up 5% sequentially including the impact of two additional days in the quarter. Compared with last quarter, NIM was up 1 basis point.

Tayfun Tuzun: In both Canadian and U.S. PNC, NIM decreased 3 basis point sequentially. Lower deposit margins continue to pressure NIM this quarter but to a lesser extent as pricing and the shift to term deposits is stabilizing. At the old bank level, we maintain our expectation of relative margins stability for the remainder of the year. Canadian PNC NIM is expected to tighten mainly due to higher loan growth relative to deposit growth while U.S. PNC is expected to be modestly higher.

Tayfun Tuzun: Turning to slide 13, we maintain a relatively neutral position to changes and interest rates consistent with our strategy and we believe that we are well positioned for declining rate environments. Moving to slide 14, expenses continue to be well managed and declined 5% driven by the full realization of both the Bank of the West cost synergies and broader operational efficiencies as well as the impact of higher severance and legal provisions in the prior year which more than offset underlying growth and operating expenses and business investments.

Tayfun Tuzun: We delivered on our commitment to pause of operating leverage again this quarter and expect the same next quarter despite a typical fourth quarter sequential optic in expenses. Turning to slide 15, our capital position remains strong with a CET-1 ratio of 13%. The internal capital generation was offset by higher source currency RWA due to asset growth and to a lesser extent the impact of credit migration as well as an increase in market risk RWA from the low levels in the second quarter.

Tayfun Tuzun: Our capital outlook remains strong and it's still likely to remain above our 12.5% management targets. And starting on flight 16, Canadian PNC net income was up 3% year over year driven by strong TPPP performance up 12% partially offset by higher PCLs. Record revenue of $2.9 billion was up 7% driven by higher net interest income reflecting both solid balance growth and improved margins while non interest revenue remained flat. The transition of bankers acceptance is to loans resulted in lower lending revenue offset in net interest income.

Tayfun Tuzun: Expenses were up 2% reflecting higher employee related operating and technology costs partially offset by severance in the prior year. Loans were up 6% with good growth across consumer and commercial products and deposits were up 11% reflecting continued growth and transactional and term products across both consumer and commercial clients. Moving to US PNC on flight 17, my comments here will speak to the US dollar performance net income was down due to higher PCLs.

Tayfun Tuzun: While TPPP growth and operating leverage were strong at 6% and 4.9% respectively revenue was down slightly driven by lower non interest revenue due to lower deposit and cart fees and personal and business banking net interest income remained flat with balance growth offset by a 5 basis point reduction in margins which has actually performed better than industry trends. Expenses were down reflecting good expense management including cost synergies and operational efficiencies and lower severance costs.

Tayfun Tuzun: Loans were up 4% excluding the impact of the RV loan portfolio sale deposits were up 4% with strong growth in term in money markets offsetting decreases in not interest bearing deposits. Sequentially deposits were up 1% as we see the shift on interest bearing from non interest bearing deposits stabilizing. Moving to slide 18, BMO wealth management net income reflected year over year growth of 44% in wealth and asset management offset by decline and insurance from the impact of the transition to IFRS 17.

Tayfun Tuzun: Wealth and asset management revenue was up 7% reflecting good growth in client assets and market appreciation more than offsetting lower net interest income. Expenses were lower due to severance in the prior year. Moving to slide 19. BMO Capital Markets Net Income was up 31% year-over-year, reflecting continued strong PPPT of $625 million in the quarter, consistent with our guidance, and partially offset by higher PCLs. Revenue in global markets was up 16%, reflecting higher equity in interest rate trading, investment in corporate banking revenue was up 11% on higher advisory fees, and corporate banking related revenues.

Tayfun Tuzun: Expenses were down due to a legal provision and severance in the prior year. Assuming markets remain constructive, we expect capital markets to continue to deliver PPPT within the $625 to $650 million range guidance provided earlier. Turning out to slide 20, corporate services net loss was $236 million compared with $244 million in the prior quarter as higher revenue and lower expenses offset higher PCL.

Tayfun Tuzun: To conclude, while as Darrel said, our provisions have exceeded our expectations, similar to last quarter, this quarter demonstrated continued good operating performance with improving revenues, PPPT, and positive operating leverage in line with our expectations. The steady rise in our operating performance through the credit cycle is the result of the underlying strength of our franchise and our business and geographic diversity. We will continue to execute on our strategic priorities and invest for growth and look to leverage the strength of our balance sheet and our capital to build lasting shareholder value.

Piyush Agrawal: I will now turn it over to Peish.

Piyush Agrawal: Thank you, Typhoon, and good morning, everyone. First, I'll start with some context for our overall credit position. Consistent with trends over the last few quarters, we continue to experience credit outcomes reflective of the current credit cycle, notwithstanding the early stages of easing monetary policy in Canada and the potential for rate cuts in the US later this year, specific client segments continue to feel the impact of prolonged elevated interest rates, tightening of credit conditions as well as shifting consumer demand for products and services.

Piyush Agrawal: Moreover, rising unemployment in Canada and reduced pandemic-related liquidity are challenging consumer and business balance sheets. This has led to credit downgrade in our portfolio with higher watch list and impairments. On flight 22, this quarter's total provision for credit losses was $906 million or 54 basis points. Impact provisions were $828 million or 50 basis points, up to nine basis points from last quarter, largely driven by higher provision in our wholesale book. Canadian personal and business banking impaired losses were up to $27 million from prior quarter, driven by higher delinquencies and insolvencies in unsecured retail products, with a mortgage port for your continuing to perform well.

Piyush Agrawal: We continue to take actions to manage losses within these portfolios, including three delinquency engagement with customers most vulnerable to payment threats. In commercial banking, impaired losses increased $31 million in Canada and $55 million in the U.S. The capital market's lost this quarter was mainly driven by one account in the services sector. On slide 23, we provide additional information on our business and government portfolio. Over the last few quarters, the wholesale portfolio has experienced negative migration and elevated losses.

Piyush Agrawal: As Darrel noted, 15 accounts drove almost 50% of year-to-date wholesale impaired provisions. And, as I've said before, in a large wholesale portfolio like ours, quarterly provisions can be wearable and, in fact, this quarter, two accounts drove the nine basis point increase in impaired provisions over prior quarter. Two sectors we continue to monitor closely are transportation, where the trucking segment has been in a cyclical downturn with weak freight volumes and reduced spot rates, although there are early signs of stabilization and commercial real estate where the portfolio continues to perform in line with our expectations, including a partial recovery, this quarter of a prior provision.

Piyush Agrawal: The wholesale portfolio remains well diversified with over half rated investment grade. Moving to slide 24, performing provision for credit losses of $78 million primarily reflected portfolio credit migration. We have added to performing allowances for the last nine quarters and are appropriately reserved with a total performing allowance of $3.8 billion of 56 basis point coverage over performing allowance. We expect credit migration will continue, which in turn will drive increases to the allowance for the next few quarters.

Piyush Agrawal: Turning to slide 25, impaired formations of $1.8 billion decreased $141 million due to lower business and government formations. Gross impaired loans increased to $6 billion or 89 basis points with increases primarily in commercial real estate, manufacturing and transportation. Based on our extensive portfolio monitoring and where we are in this credit cycle, we expect impaired provisions to remain elevated over the next couple of quarters and subject to wearability. As rates fall and unemployment stabilizes, we expect credit performance will trend towards long-term averages through 2025.

Unknown Executive: I will now turn the call back to the operator for the Q&A portion of this call. Thank you.

Operator: We will now take questions from the telephone lines. If you have a question, please press star one on your device's keypad. You may answer your question at any time by pressing start two. Please press star one at this time if you have a question. There will be a brief pause for our participants for just a few questions. We take you for your patience.

Doug Young: Our first question is from Doug Young, from Desjardin Capital Market. Please go ahead. Good morning. On the PCL, the guidance was for impaired to be in line with QQs, up nine basis points and I get the things changed. Just curious. You know, what surprised you when you mentioned impaired PCLs like they remade elevated for a few quarters.

Piyush Agrawal: What gives you confidence that it's going to refer to the long term average in fiscal 25 and is this more midway through fiscal 25 or in 25 just hoping to get some color. Yeah, no, thanks. Thanks for the question. When we look at our overall embed BCL performance, there's several reasons for this elevated number this quarter. I think as we all know the current environment is complex and changing rapidly, but overall when we provided guidance, I would say our retail losses have been in a tight range of what we expected and that's pretty expected because of the link in season what's flowing through that book.

Piyush Agrawal: It's influenced a little bit by Canadian insolvencies as you've seen those continue to be high. And then in a large part our wholesale book has also performed exactly for our expected model. So we have a long history of what a loss performances and to a large part. The wholesale book is actually performed in line with our expectation where it has been a little challenging is the variability on a few large names that we've discussed before.

Piyush Agrawal: And so the variability what I call is unexpected losses that have a lower probability seem to be a significant part of any credit cycle and that's what you're seeing right now. So we are in a fairly tight range from that expectation as we look forward, it's hard to give you a number or a range only because of this variability over a quarter, but over a year, we can tell you where it's coming.

Piyush Agrawal: So we expect this will be elevated as we go through the next one or two quarters, starts to start coming down and by the end of the year, it should start reverting to our long come average. That's that expectation is provide you more guidance as you get through next quarter.

Piyush Agrawal: Just to clarify, so you're more expecting the version to the long term average closer to the end of fiscal 25, not through the entire year. And then the 50 basis points that when you last quarter, you said remain elevated and flat sequentially. So in the 40 basic point range for care, we're at 50 now, that 50 is kind of like the proper starting point to think about the else remaining elevated over the next few quarters is that correct.

Piyush Agrawal: Yeah, I would say when we think elevated, we know it's a little higher. It's hard to pinpoint a number because of the variability. You look back at this quarter, nine basis points was, you know, two accounts, you look back here to date, 50% was 15 accounts. So it's these one or two accounts that can move the needle a little bit more, but we expect it to be elevated. I did some of the economic environment, as you're seeing again, insolvencies and things like that, but it should start coming down towards the second half of the year, you know, because it's the elevation is the next one or two quarters. I appreciate it. Thank you very much. Thank you.

Meny Grauman: I'll following question is on many ground from scooshabink. Please go ahead.

Meny Grauman: Mr. Grohmann, your line is open. You may proceed with your question. Hi, can you hear me now? Yes, we can hear you now. Thanks a lot.

Darryl White: Good morning. Darryl wanted to ask about capital, 30% TQ1, a little bit low expectations, but still very strong, relative to the range of 12 and 12.5%, which seems to be where remote banks are comfortable operating now. So I'm just wondering why, no buyback, given that kind of capital level, are credit concerns keeping you cautious, and Piyush, you talked about migration during the quarters. I'm wondering if that's part of the story here.

Darryl White: No, thank you, many. Thanks for the question. I think it's just more generalized than that. You know, remind myself that we just turned the drip discount off in Q2, and as we assess the overall environment, I think the short answer to your question would be not yet. I think when we look at the overall environment, we're not yet in a position where buying back shares gets a full green light given the various uncertainties.

Darryl White: I would say various uncertainties that we see out there, and we also, at the same time, as I've always said, we want to maintain lots of capital for deployment when we see good customer opportunities, and the expectation is we'll start to see some expansion opportunities there as we go into 2025. But look, as always, we put all of those things into the hopper and we make our decisions, and we'll update you again at the end of the fourth quarter, based on where those conditions are.

Darryl White: Is that, is that helpful? Just as a follow-up, where you see sort of your comfortable operating range in terms of the city bar, and is it more elevated now just given the environment? I don't think it's elevated for the long run. Many, I think we've talked about 12 and a half or above as a reasonable range, and it all depends on circumstances. In the short run, we'll keep a close eye on this here for the next quarter, so we'll get back to you, but there's really no change in our posture.

Meny Grauman: Thank you.

Unknown Executive: Thank you for the following question. Is there any issue in terms of the bank having too many outsized credits for its size? Because for a bank of BMO size, one known, two loans moving credit meaningfully quarter after quarter is a little bit surprising.

Unknown Executive: So one, just talk through in terms of how you're approaching whole size. Are these all shared national credits in the US, and you're having to take these charges as you go through the review with examiners?

Darryl White: And second, just talk through the process, like given what's happening in the last two quarters, help us gain some confidence that you've done some deep-time reviews, what the outcomes have been, and why you have a better handle today than six months ago. Yeah, Brian, thanks for that.

Darryl White: I would say let me begin with where we are in terms of our performance. We obviously continue to look at our peers and where we are and I can't comment on any individual bank, but you know, you're to date second quarter. We were at 35 basis points. Our peer group was at 35 basis points. We're a bit higher right now. We'll see where everybody shapes up. In the large losses we've had, I would tell you about 70% of those credits, we're not alone.

Darryl White: We have, these are syndicated facilities, we have banks, North and South of the border, in those in different ranges, different sizes, in some, we're the lead bank, in some others are the lead banks. So these aren't unique to be more, to your point around what have we done? Well, we're always, you know,[inaudible] And the rest of the portfolio, like 99 point something percent of the portfolio, doesn't exhibit those combinations of characteristics.

Darryl White: So, you know, that's what gives us that confidence in a quarter or two, uh, that this this will be behind us, but we're going to have to fight through it for the next couple of quarters. Is that helpful?

Unknown Executive: That's helpful, and then follow up on the shared national credit exposure later.

Darryl White: But I had a question for you, Darrel, from an investor standpoint, 10.6% Darry, is there any short, this bank again becomes a 14% Darry, and what will it take to get there? Yeah, well, I will say to you, Ebrahim, we are not backing down on our midterm objective of 15% ROE, and that's because we do see a path to get there. Now near term with slower economic growth and the higher capital level, that might be a little bit more challenging, but as we go into the medium term, we know how to get there, we know what the levers are, they include the normalized credit that I've just talked about, they include continuing to develop positive operating leverage in the business, continuing to optimize the resources of our business and improving the US environment, and when we get those conditions present, those are the levers that get us there, so we're sticking to that.

Unknown Executive: Thank you.

Mario Mendonca: The following question is from Mario Mendelka, from TV Securities. Peace go ahead. Good morning. So BMO's PCOs, as you've disclosed, I have gone from 21 basis points impaired last year to 50 this year. And your peers are something like 24 to 38. So clearly, something's gone wrong, and I appreciate your comments around the pandemic, but the pandemic was not unique to BMO. So as you look back, do you see, do you identify the failures, like the underwriting failures, the mistakes that the bank made?

Mario Mendonca: The reason I'm asking the question this way is because it has been my experience that when a bank goes through something like this, and I think the bank is clearly going through something, relative to your peers, that changes need to be made. And often those changes lead to subpar growth until the bank figures out what went wrong. So the question is two parts. What went wrong relative to your peers? And secondly, does this necessarily lead to a period of below average growth as the bank retools?

Mario Mendonca: In terms of, you know, did we do something different? Our credit underwriting policies, procedures, or robust, and we did not make any significant changes to our creditless capital over the past several years. You know, I thought about this, and we've taken share in the US in the last few years. It was purposeful. But it was more so in specialty segments, like ABL, sponsor fund lending, and dealer finance, and these are not the areas where we are seeing an increase in impairment.

Mario Mendonca: And as you heard from Darrell and peers, we're not seeing the standard issues in the portfolio or losses concentrated in any segment, geography. It is broad-based. We had a growth strategy, but we didn't lose discipline. And we've got to, of course, look at our underwriting and portfolio management practices in a changing environment, but it's going to be to support continued growth and support our client through these times.

Nadim Hirji: Maria, that is Nadeem. I would just add, again, exactly to the point we've said, if you think about the PCL increase in retail, it's not unique to us. It's systemic. It's, you know, the pressures you're seeing from unemployment and insolvencies. So then it gets back to wholesale, and I'm confident we've looked through our files. It's not thematic to us sector. Yes, we have a transportation finance business, so the business ratings can change some of the PCL performance.

Nadim Hirji: Transportation, as you know, and we've covered in our remarks, is going through a tough time, a tough cycle, but we've been in the business 40, 50 years. It's still profitable. It just happens to have a higher PCL through a cycle. We're beginning to see some improvements. We hope we'll report those improvements as we go next quarter. And then on the wholesale. The confidence that I have is because through the reviews of the losses we've gone through they are broadly in line with our long term expected loss models where you're seeing is the changes that I call unexpected losses and these are hard to call, they're hard to call, especially when they're non credit like events in certain cases or in many cases, you know there's an auditor resignation or we're going through a cycle where you've got a company for sale.

Nadim Hirji: With 10 bidders and all of a sudden there's nobody at the end they all go away so those lead to some higher numbers and that's just a function of a credit cycle I think as this way through in the next one or two quarters we feel pretty good about this returning back to a normal I think the rate decreases coming in the US the transmission of what's been happening to the Canada Central Bank rate cuts these are all positives that should flow through the market. So they get back to you, but that's a good question because I think what the Deam said earlier is really important when we assess you know what's different about BMO our mixes a little bit different right we skew more wholesale we skew more US and we're seeing that there are some losses there but but Mario it's not a circumstance where we say all right that means the strategies wrong because the reality is what we're doing.

Nadim Hirji: What that doesn't consider is that we've also delivered better longer term growth through the development of that franchise that's an enduring franchise with 90% of the accounts having lead or soul relationships with us and when we look at where the losses are presenting they're actually not in the areas where we've grown out of much faster rate the market where we've grown at a faster rate the market and take and share we're actually not experiencing the losses so when we look at that question overall you know there is a business. It's just a mix of BMO that leads to this for short periods of time sometimes and we're in one of those periods right now it's that it's as simple as that.

Unknown Executive: Thank you.

Unknown Executive: I'll follow in question is some material from kind of originality please go ahead. Good morning guys you mentioned the watch list and I know it's going from 2% to 5% of the book up from 3% at the end of 23. I've needed to talk about what level of credit deterioration a company has to show before they end up on that list and just move into detail some of the indicators and looking for any other company on that list.

Unknown Executive: As you broke up at the end can you just repeat the last part of the question please. Yeah there's some details on the indicators that you look for when you put it on that watch list. So you know we're obviously evaluating credits between our bankers and risk partners throughout a company journey with us and as we underwrite risk rating changes that come through because of. I a leverage weaker cash flow is over the quality is what drives our internal ratings and when you get to a certain level you put in a watch list which really means we're evaluating you more often we have a higher connectivity with you.

Unknown Executive: I don't think that symbolic of a problem that something bad is imminent immediately but it just gives us a perspective on what the watch list is and are the things we need to be doing with the client. And helping the client get back to where they started so I wouldn't read more around the washes other than it's a category that allows us to continue to be highly engaged with the client and start also thinking about risk mitigation strategies which is appropriate at that point of time. And you've seen that happen through various things you've done around risk mitigation and we continue to do that even now.

Unknown Executive: Okay, that's great. And maybe on the U.S, expense, right? Efficiency ratio dropping a couple hundred basis points, a quarter of a quarter to progress. And you may be clicking dimensions around where you set that ratio to end up over the medium term. Like, should we be expecting to see a return to the low 50s high 40s in the next couple of years, or are there like mitigating factors like, you know, offset cost reductions there.

Unknown Executive: Yeah, the zero set of moment ago. So our broader enterprise target in the medium term continues to be 55% along with that in the U.S. We do expect our efficiency ratio to come down to lower 50s. Obviously, it would require a better revenue environment in the U.S. And, you know, we need to realize some of the scale benefits in our efficiency ratio as we grow our U.S, business. But yes, our target remains directionally. We need to be moving that ratio towards the lower 50s, even to 50% potential.

Unknown Executive: All right. Thanks, guys.

Unknown Executive: I'll pass you mine.

Unknown Executive: Thank you.

Gabriel Dechaine: I'm following questions from Gabriel DeShane from National Bank Financial. Please go ahead.

Gabriel Dechaine: Yeah, good morning. I just want to follow up on a line of questioning that Mario was going with earlier terms of, you know, maybe you. Stuff that went wrong over the past couple of years. I know you're saying it's, you know, normal and consistent with the industry on the consumer side. But on the commercial side, I'm just wondering if, you know, while you were integrating Bank of the West, maybe that watch list wasn't as closely washed as it should have been.

Darryl White: Yeah, I can begin to give to the spheres and then maybe Nadine can chime in. So we've done our extensive diligence that to you Bank of the West portfolio is for the integrated with ours. We haven't seen any different loss performance from the Bank of the West. Yeah, there's a few losses this quarter. But year to date, it's performing exactly in line with our expectations, exactly in line with the legacy BMO portfolio.

Darryl White: So I wouldn't say it is a geographic issue or something to do with Bank of the West. Like I said, there aren't industry teams. These are episodic events of credits that are driving some of these issues. But Nadine, I don't know if you would like to add more from the Bank of the West and what we've done. Yeah, I would just add on to exactly what Pure said. The portfolio is behaving very, very similar from a legacy business and our Bank of the West business.

Darryl White: If I look at our new client acquisition activity and the risk profile and the probability of defaults that are coming into the portfolio, the risk culture is very, very similar as well. You know, we've done scrub of many accounts that Tears talked about when we talked about the confidence we have and where we're going and that we have this contained and we know what we got. And I'm not seeing any big changes in terms of characteristics between our portfolio and Bank of the West.

Piyush Agrawal: Yeah, so we were saying, compared to our Q3, we expect Q4, maybe Q1 to be higher, and I'm not giving you a guidance around what that number is because of the variability that exists from these names. So the next couple of quarters really is one, maybe two, maybe three, but really it's the next two quarters given a confidence of the reviews we've done on where this will be. Also, I think the transmission, as we've talked about in many calls, the transmission of central bank policy takes about six to 12 months to go through the system, so that should start helping the market start helping consumers.

Piyush Agrawal: And so that's why the next couple of quarters elevated, and then after that, we're sitting back to a long term normal and a long term averages are in the range of about 36 basis points that we've seen over the last 30 years. Okay, and again, just languages, you know, important here, you're saying higher higher than that 36 or higher than what we saw this quarter. For the next couple of quarters, higher than what you saw this quarter. Got it.

Lemar Persaud: All right, well, thanks.

John Aiken: Thank you.

John Aiken: I'll follow in question some John Haken from Jeffries, please go ahead. I don't want to do a circle back in terms of your commentary, but the timing revenue signature to some bank of the Westdale. Now, understandably, that's being pushed out, but do you still think that you're able to achieve what you originally thought and give us some sort of framework in terms of what you're thinking that timing will be forward. Yeah, John, it's a great question and the short answer is yes, when we look at the environment, when I look at the revenue environment that's persisted for sort of a year and a half now, since we saw some of the failures in the US banking market with higher deposit costs with competition there and muted, muted loan volume.

John Aiken: That's all it is, right? That's that's depressed the overall revenue pie for the overall system. You know that you look across the system, so the available while it is less than we had forecasted, but underneath that. And that's that's the simple reason as to why we think it takes a little bit longer to get there, but whether we get there or not is is whether we get their pardon me is not a question.

Unknown Executive: We we are seeing in the meantime within the things that we can control lots of progress on the PMBB side of business, lots of progress on the commercial side of the business and even across our wealth of capital markets and I'm just looking across the table here are we tell leader or any going to jump in and give us some examples of that progress. Yeah, thanks, Neil. And thank you for the question.

Unknown Executive: We're seeing really good momentum in our Western markets fueled by by that above targeted brand awareness and consideration in the market that's generating as Darryl mentioned earlier strong core deposit checking and savings growth. That's really important for us. We are positions always around getting top tier deposit growth in the US as well as in Canada, we're also seeing a really strong performance from our branch network. In terms of achieving the outcomes we had anticipated they would get to our our normal run rate as we would say in our in our more Midwest markets and we're seeing that in particular in California, California is generating about 80% of the productivity that we have in our Illinois and Wisconsin markets just to give you a flavor.

Unknown Executive: Of the trajectory that they're on and as I said earlier digital sales strong at 40% year over year so the fundamentals are there. It's picking up momentum and as Darryl said is the market becomes more invigorated. We're going to see that acceleration just continue.

Unknown Executive: I'll flip it over to Nadine for some comments on commercial. Okay, thanks Ernie. Similarly, I'm also seeing Greg momentum. When I look at new client acquisition, the momentum is strong, the pipelines are strong, and in fact last quarter was the highest new client acquisition we've had in our Western market since integration. The other thing I also say is our branding, as you know, we've been able to build a very strong brand in our new markets.

Unknown Executive: This has led us to the ability to make significant progress in building talent. So we've had significant successes in adding to our teams and getting us ready, points of good growth. We added zipponian company to our team, it's an advisory firm in the alcohol beverage business. This is highly complimentary to our wine lending business, and we're just now expanding our media finance business into the California market. So I would call it the making extremely strong progress in a challenging environment.

Darryl White: Yeah, I'd wrap it, John, by saying, you know, this is what scale benefit should ultimately look like in the long run, which has been our thesis, which is in flat environments, which is what we had for the last year and a half, one who can invest and build capacity, such that that capacity is there to take advantage of expanding environments when they come ends up winning in the in the medium term, and that's that's the part of the play that we're in right now, and we feel pretty good about it. Thanks for the call again, so I'll record. Thank you.

Lemar Persaud: I'll find a way to question you some tomorrow. From Comrock, please go ahead. Yeah, thanks for taking my question. So just on credit, I'm just wondering like what is really preventing you guys from providing more specific guidance on PCL's given that you guys have done this deep dive in commercial wholesale exposure. Like is it because of uncertainty around the rate environment, unemployment, like what are the really the few factors preventing from going there?

Lemar Persaud: Because as you know, most of your peers are able to provide more specific guidance on credit losses, at least on the impaired side. Yeah, thanks Lamar Spioche, you know, I would just say for the retail portfolio, and we don't give individual business guidance, it's easier there because of the way it flows into what an environment is. In the whole set in a benign environment, again easier, but when you get into a situation of a credit cycle where we are, it's always hard.

Lemar Persaud: It's always hard to put a number for a quarter. I can guide you for a year, but I can never be able to tell you exactly which quarter and how much amount. And we've seen that we've talked about this couple of times. We know names and impairment, we know what their expected losses might be, but what you're seeing coming out after a long period of a benign environment into this credit cycle that the variability has been very high for various reasons.

Lemar Persaud: And it's been compounded because of the rate environment, it's been compounded by credit conditions that being compounded by a pullback from regional banks who are also active lenders in many of these areas. So all of these could, you know, change the situation, but, you know, I can see a situation which could be as high as 50 basis point where to low 60s high 50s low 60s. But I'm not giving a prescriptive guidance just because in the last one or two quarters, one or two accounts can skew that overall number.

Lemar Persaud: And that's why, you know, it's good to be in the range that it will be higher and then start coming down. Yeah, Lamar, I just say that I get what you guys are wrestling with, which is the difficulty of forecasting with precision. And you'd love our CRO to tell you the data on the calendar and the exact amount that we pick at and, you know, that would be great for all of us.

Lemar Persaud: But just to kind of get you a little bit more behind the curtain, you know, if you imagine that you can do a reasonable job, we and anybody at projecting where you think defaults might come from, you know, not perfect, but reasonable. It gets even more difficult though than when you go to the next level, which is what's the loss given default. And we might have an assumption on what the loss given default is, but in circumstances that are in some cases highly unusual, that outcome could be worse.

Lemar Persaud: And we've seen a couple of instances where it has than any model would have forecast it because there was no model that forecasted the very dynamics that I talked about earlier in this call. And so that's what makes it a little bit challenging. We do, you know, that's the tough part of the cycle, but the good news is, I mean, I think you've heard pure say pretty clearly on the topic of where we going from here that he thinks we go a little bit higher here for a quarter or two, but then we return to our long run average of 36 basis points.

Lemar Persaud: As we go through to 2025, so I, you know, I hope that's actually pretty helpful. We're not, we're not trying to dodge the question. That's a fair bit of a fair bit of guidance. We shank at least and, you know, that'll depend on the variability that goes around all. Is that helpful, Lamar? No, it's helpful. Yeah, it just sounds like it's, I guess, more because of a mixed issue. The other, your peers are probably able to better mask it given there.

Lemar Persaud: Perhaps, but perhaps, but I will remind us that our total losses here today are 40 basis points. Okay, then you guys mentioned that some of these losses in the commercial and wholesale businesses are syndicated positions. So I'm assuming you'd see what peers are involved in these loans. When you look across some of your peers, does that are involved in these loans that went bad? Does it feel like elevated PCOs are more just BMO being conservative on credit?

Lemar Persaud: Or are they simply just more meaningful to BMO? Yeah, it's a talk to say because every bank gets to choose, you know, how they're doing the valuation and the way they are in different parts of credit mitigation and capital structure and things like that. So I really can't, you know, comment on those. I would tell you, we haven't shied away from a credit culture. We see a problem. We take the impairment.

Lemar Persaud: We take a best case estimate. We revise our best case estimate every quarter as a situation progresses. And over time, you've seen the coverage and I think over time you're going to see recoveries and that's the hope. But in the quarter, we see the impairment. I think it's a good risk practice that we shall continue, which is you take the impairment then and you move forward. I appreciate the time. Thank you.

Darryl White: That's all the time we have for questions. I would not like to turn the meeting back over to the white. Okay. Thank you operator and thank you all for your questions today. I would just wrap very quickly with our performance reflects both the operating momentum, which will endure. And the higher credit cost, which have you heard, we expect to moderate through 2025, our strategic goals are firmly in place. And that's because we built a clear competitive advantages and highly fragmented US market, capturing our one client opportunities across the relationships and modernizing the digital capabilities of the bank for the future.

Darryl White: So I'm confident in the power of our integrated North American franchise to deliver long term value and we look forward to speaking to you again in December. Thank you. The conference has now ended. Please disconnect your lines of this time. And we thank you for your participation.

Speaker Change: Once again, please continue to stand by. We thank you for your patience.

Operator: We thank you for your patience. This conference has been recorded. This conference is being recorded.

Speaker Change: We will, this conference is being recorded, set consequences on Registrate.

Operator: All participants, please stand by your conferences, ready to begin.

Speaker Change: All participants, please stand by your conferences ready to begin. Good morning and welcome to Beemo Financial Groups Q2 2020-24 earnings release and conference call for August 27, 2024. You host today. It's Christine Viau. Please go ahead.

Christine Viau: Good morning and welcome to BMO Financial Group's Q2 2024 earnings release and conference call for August 27, 2024.

Christine Viau: You host for today. Is Christine Vio?

Darryl White: Please go ahead. Thank you and good morning. We will begin the call with remarks from Darryl White, BMO CEO, followed by Typhoon Tuzon, our Chief Financial Officer, and Piyush Agrawal, our Chief Risk Officer. Also, present to take questions are Ernie Johansson, head of BMO North American Personal and Business Banking, Nadim Herjee, head of BMO Commercial Banking, Alan Tannenbaum, head of BMO Capital Market, Deland Kamenga, head of BMO Wealth Management, and Darryl Hackett, BMO US CEO.

Speaker Change: Thank you and good morning. We will begin the call with remarks from Darryl White, Bimo C.E.O, followed by Tyfun Tuzun, our Chief Financial Officer and Piyush Agrawal, our Chief Risk Officer.

Speaker Change: Also, present-to-take questions, or Ernie Johansson, head of BMO North American Personal Business Banking, Nadine Herge, head of BMO Commercial Banking, Alan Tannenbaum, head of BMO Capital Market, Dylan's Kamanga, head of BMO Welp Management, and Darryl Hockett, BMO USCO.

Darryl White: As our call will end at 8:15 this morning, please limit yourselves to one question during the Q&A and ReQ to give everyone a chance to participate. As noted on slide 2, forward-looking statements may be made during this call, which involve assumptions that have inherent risks and uncertainties. Actual results could differ materially from these statements. I would also remind listeners that the bank uses non-GAAP financial measures to arrive at adjusted results, management measures, performance on a reported and adjusted basis, and considers both to be useful in assessing underlying business performance. Darryl and Tyson will be referring to adjusted results in their remarks unless otherwise noted.

Speaker Change: As our call will end at 8.15 this morning, please limit yourselves to one question during the Q&A and re-Q to give everyone a chance to participate.

Speaker Change: As noted on slide two, forward-looking statements may be made during this call, which involve assumptions that have inherent risk and uncertainty.

Speaker Change: Actual results could differ materially from these statements.

Speaker Change: It also reminds listeners that the bank uses non-gap financial measures to arrive at a adjusted result. Management measures performance on a reported and adjusted basis, and considers both to be useful in assessing underlying business performance.

Speaker Change: will be referring to adjusted results in their remarks unless otherwise noted. I will now turn the call over to Darryl. Thank you, Christina, and good morning, everyone.

Darryl White: I will now turn the call over to Darryl. Thank you, Christina, and good morning, everyone. This quarter, we delivered record pre-provision pre-tax earnings of 3.5 billion, up 8% over last year, driven by continued revenue growth in Canadian personal and commercial banking, stronger client activity in our market-sensitive businesses, and the full realization of our cost-energy and efficiency programs. We met our commitment to positive operating leverage this quarter at 5.2%, and year-to-date at 1.3%, and we remain on track to deliver positive operating leverage for the full year. Operating momentum across our diversified businesses has been steadily improving since the start of the year, and at the same time, the cyclical increase in credit costs has resulted in loan-loss provisions above our historical range, which is not our expectations.

Darryl: This quarter, we delivered record pre-provision pre-tax earnings of 3.5 billion, up 8% over last year, driven by continued revenue growth and Canadian personal and commercial banking, stronger client activity in our market sensitive businesses.

Darryl: and the full realization of our cost-energy and efficiency programs.

Darryl: We met our commitment to positive operating leverage this quarter at 5.2% and year-to-date at 1.3% and we remain on track to deliver positive operating leverage for the full year.

Darryl: Operating momentum across our diversified businesses has been steadily improving since the start of the year. And, at the same time, the cyclical increase in credit costs has resulted in loan loss provisions above our historical range, which has not meant our expectations.

Darryl White: BMO has a long history of superior credit management, and that has not changed. Over many cycles, we consistently outperformed peers, and our portfolios remain strong, diversified, and well managed. We've investigated the circumstances that led to recent impairments, and the conclusion is, for some customers, the combination of prolonged high interest rates, economic uncertainty, and changing consumer preferences had an acute impact. This has presented in a relatively limited list of borrowers. For instance, only 15 accounts comprise almost 50% of year-to-date impaired provisions in our wholesale portfolio. During a contracting credit cycle, the timing of wholesale losses can be difficult to predict.

Speaker Change: Vimo has a long history of superior credit management and that has not changed.

Speaker Change: Over many cycles, we consistently outperformed peers and our portfolios remain strong, diversified, and well-managed.

Speaker Change: We've investigated the circumstances that led to recent impairments and the conclusion is for some customers, the combination of prolonged high interest rates, economic uncertainty, and changing consumer preferences had an acute impact.

Speaker Change: This is presented in a relatively limited list of borrowers. For instance, only 15 accounts comprise almost 50% of year-to-date impaired provisions in our wholesale portfolio.

Speaker Change: During a contracting credit cycle, the timing of wholesale losses can be difficult to predict. Well, we expect provisions will remain elevated in the near term.

Darryl White: Well, we expect provisions will remain elevated in the near term, as the benefit of central bank easing will take time to transmit.

Speaker Change: As the benefit of central bank easing will take time to transmit, we also expect that we will return to normalized levels in the range of our long-term average during 2025.

Darryl White: We also expect that we will return to normalize levels in the range of our long-term average during 2025.

Darryl White: Piyush will discuss this further in his remarks. The Bank of Canada is anticipated to continue cutting rates in increments, and the FET to begin reducing rates in September. While GDP growth has strengthened from earlier expectations, we continue to monitor evolving geopolitical events and the pace of unemployment. We're dynamically managing our businesses to support customers and deliver returns across a range of conditions and outcomes.

Speaker Change: Piyush will discuss this further in his remarks.

Piyush: The Bank of Canada is anticipated to continue cutting rates in increments and the fed to begin reducing rates in September. While GDP growth has strengthened from earlier expectations, we continue to monitor evolving geopolitical events and the pace of unemployment.

Piyush: We're dynamically managing our businesses to support customers and deliver returns across a range of conditions and outcomes.

Darryl White: Turning to our results and operating group performance for the quarter, adjusted net income for the third quarter was $2 billion, and earnings per share were $2.64. We've had good balance sheet growth, including robust customer deposit growth across our franchise, supported by a strong capital position with a CET-1 ratio of 13%. Canadian PNC delivered another quarter of record revenue of 7% year over year and PPPT up 12%. Our PNBB business is on pace for our strongest year ever in net customer acquisition, with net account growth nearly double industry benchmark and strong customer primacy, a reflection of our award-winning digital and product capabilities and our strong traction with new Canadians.

Speaker Change: Turning to our results and operating group performance for the quarter, adjusted net income for the third quarter was $2 billion and earnings per share were $2.64.

Speaker Change: We've had good balance sheet growth, including robust customer deposit growth across our franchise, supported by a strong capital position with a CED-1 ratio of 13%.

Speaker Change: Canadian PNC delivered another quarter of record revenue of 7% year over year and PPPT of 12%.

Speaker Change: Our PNBB business is on pace for our strongest year ever in net customer acquisition, with net account growth nearly double industry benchmark and strong customer primacy, a reflection of our award-winning digital and product capabilities and our strong traction with new Canadians.

Darryl White: It's been just over a year since the acquisition of Air Miles Canada's most recognized loyalty program. In that time, we've executed against key strategies and investments to revitalize the program, including a new mobile app and expanded ways to earn miles, including offers directly linked to BMO Air Miles credit cards. The Air Miles brand relaunch this summer is already seeing early signs of success with double-digit growth in enrollments, app downloads, and reward redemptions. With access to over two thirds of all Canadian households, we're creating differentiation in the market and a foundation to drive customer acquisition and engagement.

Speaker Change: It's been just over a year since the acquisition of air miles. Canada's most recognized loyalty program.

Speaker Change: In that time, we've executed against key strategies and investments to revitalize the program, including a new mobile app and expanded ways to earn miles, including offers directly linked to BMO Airmiles credit cards.

Speaker Change: The AirMiles brand relaunched this summer is already seeing early signs of success with double-digit growth in enrollments, app downloads, and reward reductions.

Speaker Change: With access to over two thirds of all Canadian households, we're creating differentiation in the market and a foundation to drive customer acquisition and engagement.

Darryl White: In US PNC, we're seeing improving performance with revenue up over last quarter, positive operating leverage of 4.9%, and a 300 basis point improvement in our efficiency ratio over last year. In commercial banking, loan and deposit growth is strengthening in Canada, and while softer in the US, we continue to acquire new clients and increase deposit penetration. We're growing active users in our leading treasury payment solution business, and we received the Red Dot Award for design concept for redesigning the digital banking experience for small and medium enterprises. BMO Wealth Management had a strong quarter, with wealth and asset management net income up 44% year over year, driven by good growth and client assets, with strong net sales in our leading ETF business and net positive mutual fund flows.

Speaker Change: In USP and C, we're seeing improving performance with revenue up over last quarter, positive operating leverage at 4.9% and at 300 basis point improvement in our efficiency ratio over last year.

Speaker Change: In commercial banking, loan and deposit growth is strengthening in Canada, and while softer in the U.S., we continue to acquire new clients and increase deposit penetration.

Speaker Change: We're growing active users in our leading treasury payment solution business.

Speaker Change: and we received the Red Dot Award for design concept for redesigning the digital banking experience for small and medium-enter prices.

Speaker Change: Female wealth management at a strong quarter, with wealth and asset management net income up 44%.

Speaker Change: Year-over-year driven by good growth in client assets with strong net sales in our leading EGS business and net positive mutual fund flows.

Darryl White: We're seeing results from our investments in asset management as nearly all global mandates managed by our global equities team performed in the top decile, including the BMO Global Equity Fund which received a five-star Morningstar rating. BMO Capital Markets have PPPT of 625 million within the range we've guided to, bolstered by strong client activity and revenue performance in global markets, M&A, and corporate banking. We're growing our capabilities and leadership and target areas in the US, ranking number one in US agency CMO issuance year-to-date.

Speaker Change: We're seeing results from our investment in asset management as nearly all global mandates managed by our global equities team performed in the top That style, including the BMO Global Equity Fund which received a five-star morning star rating.

Piyush Agrawal: Piyush Agrawal Capital Markets had PPPG of 625 million within the range we've got it to, bolstered by strong client activity and revenue performance in global markets, M&A, and corporate banking.

Speaker Change: We're growing our capabilities in leadership and target areas in the U.S. ranking number one in U.S. agency CMO issuance year-to-date.

Darryl White: Turning to our overall US segment, we're building on over 200 years of experience in our second home market. This fall, we'll be celebrating 40 years since our bold expansion of Harris Bank in Chicago, 15 years since the acquisition of M&I, and one year since the conversion of the Bank of the West. Over this time, we've consistently grown through many economic cycles, creating value as a key differentiator for BMO and our customers. From a regional bank with $8 billion of assets in 1984, we're now a top 10 bank with national reach, strong capital, and the size and scale to compete across retail and commercial banking, wealth management, and capital markets.

Speaker Change: Turning to our overall US segment, we're building on over 200 years of experience in our second home market.

Speaker Change: This fall will be celebrating 40 years since our bold expansion of Harris Bank in Chicago, 15 years since the acquisition of M&I, and one year since the conversion of the Bank of the West.

Speaker Change: Over this time, we've consistently grown through many economic cycles, creating value as a key differentiator for BMO and our customers.

Speaker Change: From a regional bank with $8 billion of assets in 1984, we're now a top-ten bank with national reach strong capital and the size and scale to compete across retail and commercial banking, wealth management and capital markets.

Darryl White: We continue to progress on our revenue synergy targets, including strong core personal customer growth with over 35% coming from our new West markets, evidence of our growing brand recognition, strong digital checking account growth, and improving branch productivity. We're augmenting talent and capabilities, including, for example, dedicated teams in wine and beverage M&A and media and entertainment finance in Los Angeles. Transactions between commercial banking and capital markets in areas like FX hedging and treasury payments are increasing. In this quarter, we close the biggest referral of the year between Commercial and Wealth Management. We've delivered consistent pre-provisioned pre-tax earnings of $1 billion or more in the US for the sixth consecutive quarter, with modest balance growth and protecting margins at a rate better than peers.

Speaker Change: We continue to progress on our revenue synergy targets, including strong core personal customer growth, with over 35% coming from our new West markets, evidence of our growing brand recognition, strong digital checking account growth, and improving branch productivity.

Speaker Change: We're augmenting talent and capabilities, including, for example, dedicated teams in wine and beverage M&A and media and entertainment finance and Los Angeles.

Piyush Agrawal: [inaudible] Piyush will discuss this further in his remarks. The Bank of Canada is anticipated to continue cutting rates in increments and the FET to begin reducing rates in September. While GDP growth has strengthened from earlier expectations, we continue to monitor evolving geopolitical events and the pace of unemployment.

Speaker Change: Transactions between commercial banking and capital markets and areas like FX hedging and treasury payments are increasing. And this quarter we closed the biggest referral of the year between commercial and wealth management.

Speaker Change: We've delivered.

Speaker Change: Consistent pre-provision pre-tax earnings of a billion dollars or more in the U.S. for the 6th consecutive quarter, with modest, balanced growth and protecting margins at a rate better than peers.

Darryl White: While we've surpassed our synergy goals, as we discussed, the currently muted conditions for the US banking industry growth have impacted the timing of delivery on the revenue synergies from the Bank of the West. However, the overall environment is now showing signs of inflection, and the investments we've made to build the business for success position us to grow profitable market share and strengthen return on equity.

Speaker Change: While we've surpassed our synergy goals, as we discussed, the currently muted conditions for US banking industry growth have impacted the timing of delivery on the revenue synergies from the bank of the West.

Speaker Change: However, the overall environment is now showing signs of inflection and the investments we've made to build the business for success position as to grow profitable market share and strengthen return on equity.

Darryl White: At the same time, we're making a difference in the communities we serve through In Power 2.0, our five-year commitment to breakdown barriers faced by underserved communities, businesses, and families in the United States, having already delivered $10 billion of our more than $40 billion commitment. In summary, our franchise is strong, as evidenced by fast growing deposit, customer base, leading customer acquisition, and deepening client relationships. We've delivered on our commitment to positive operating leverage. I'm confident that our risk culture is intact, with actions in place to effectively manage risk and improve our credit performance through next year.

Speaker Change: At the same time, we're making a difference in the communities we serve through, in power 2.0, our five-year commitment to break down barriers faced by underserved communities, businesses, and families in the United States, having already delivered $10 billion of our more than $40 billion commitment.

Speaker Change: It's Summary.

Speaker Change: Our franchise is strong, as evidenced by fast growing deposit, customer base.

Speaker Change: Leading customer acquisition and deepening client relationships.

Speaker Change: We've delivered on our commitment to positive operating leverage. I'm confident that our risk culture is intact, with actions in place to effectively manage risk, and improve our credit performance through next year.

Darryl White: Our teams are executing on a clear and consistent strategy for sustained operating performance that will endure through credit cycles.

Speaker Change: Our teams are executing on a clear and consistent strategy for sustained operating performance that will endure through credit cycles.

Tyfun Tuzun: I'll turn it over to Typhoon. Thank you, Zaryl. Good morning, and thank you for joining us. My comments will start on slide 10. Third-quarter reported EPS was $2.48, and net income was $1.9 billion. Adjusting items are shown on slide 39, and the remainder of my comments will focus on adjusted results. Agessa DPS was $2.64, down from $2.94 last year, and net income was $2 billion, down 8%, as strong PPPT growth of 8% was offset by higher PCL. Record PPPT of $3.5 billion was driven by strong operating performance across our businesses, with positive operating leverage of 5.2%.

Speaker Change: I'm now trying to overtake him.

Speaker Change: Thank you, Darryl, good morning and thank you for joining us. My comments will start on slide 10.

Speaker Change: Third quarter reported EPS was $2.48.

Speaker Change: and NetIncome was $1.9 billion.

Speaker Change: The adjusting items are shown on slide 39 and the remainder of my comments will focus on adjusted results.

Speaker Change: The Justice EPS was $2.64 down from $2.94 last year, and net income was $2.8 per cent as strong PPPT growth of 8 per cent was offset by higher PCL.

Speaker Change: Record PPPT of $3.5 billion was driven by strong operating performance across our businesses.

Speaker Change: with positive operating leverage of 5.2%.

Speaker Change: Excluding lower insurance revenue, which was inflated last year due to market impacts related to the IFRS-17 transition. Revenue was up 2% and expenses were down 1% excluding severance in the prior year.

Tyfun Tuzun: PCL increased $414 million, which Piyush will speak to in his remarks. Moving to slide 11, average loans grew 6% year over year, excluding the impact of the RV loan portfolio sale and the wind down of the indirect auto book, driven by good growth in residential mortgages and business and government loans. Strong growth in customer deposits that deposits continues with average balances up 9% from last year driven by higher deposits in our U.S. and Canadian personal and commercial businesses.

Speaker Change: PCL increased $414 million, which Piyush will speak to in his remarks.

Piyush Agrawal: Moving to slide 11, average loans grew 6% year over year, excluding the impact of the RV loan portfolio sale and the wind down of the indirect auto-book driven by good growth in residential mortgages and business and government loans.

Speaker Change: Strong growth in customer deposits that deposits continues with average balances up 9% from last year, driven by higher deposits in our US and Canadian personal and commercial businesses.

Unknown Executive: We're dynamically managing our businesses to support customers and deliver returns across a range of conditions and outcomes. Turning to our results and operating group performance for the quarter, adjusted net income for the third quarter was $2 billion and earnings per share were $2.64. We've had good balance sheet growth including robust customer deposit growth across our franchise, supported by a strong capital position with a CET-1 ratio of 13%. Canadian PNC delivered another quarter of record revenue of 7% year over year and PPPT up 12%.

Tyfun Tuzun: Turning to slide 12, on an x-training basis net interest income was unchanged from the prior year as balance growth was offset by lower margins and up 5% sequentially, including the impact of two additional days in the quarter. Compared with last quarter, NIM was up 1 basis point. In both Canadian and U.S. PNC, NIM decreased 3 basis points sequentially. Lower deposit margins continued to pressure NIM this quarter, but to a lesser extent as pricing and the shift to term deposits is stabilizing. At the old bank level, we maintain our expectation of relative margins stability for the remainder of the year.

Speaker Change: Turning this light 12.

Speaker Change: On an ex-training basis, net interest income was unchanged from the prior year, as balance growth was offset by lower margins, and up 5% sequentially, including the impact of 2 additional days in the quarter.

Unknown Executive: Turning to our results and operating group performance for the quarter, adjusted net income for the third quarter was $2 billion and earnings per share were $2.64. We've had good balance sheet growth including robust customer deposit growth across our franchise, supported by a strong capital position with a CET-1 ratio of 13%. Canadian PNC delivered another quarter of record revenue of 7% year over year and PPPT up 12%. Our PNBB business is on pace for our strongest year ever in net customer acquisition with net account growth nearly double industry benchmark and strong customer primacy, a reflection of our award-winning digital and product capabilities and our strong traction with new Canadians.

Speaker Change: Compared with last quarter, NIM was up one basis point.

Speaker Change: In both Canadian and USPNC, NIMD-crease 3-base is points sequentially.

Speaker Change: Lower the positive margins continue to pressure nimbus quarter, but to a lesser extent, as pricing and the shift to term deposits is stabilizing.

Unknown Executive: Our PNBB business is on pace for our strongest year ever in net customer acquisition with net account growth nearly double industry benchmark and strong customer primacy, a reflection of our award-winning digital and product capabilities and our strong traction with new Canadians. It's been just over a year since the acquisition of Air Miles Canada's most recognized loyalty program. In that time, we've executed against key strategies and investments to revitalize the program, including a new mobile app and expanded ways to earn miles, including offers directly linked to BMO Air Miles credit cards.

Speaker Change: At the old bank level, we maintain our expectation of relative margins the ability for the remainder of the year.

Tyfun Tuzun: Canadian PNC NIM is expected to tighten mainly due to higher loan growth relative to deposit growth, while U.S. PNC is expected to be modestly higher.

Speaker Change: Canadian BNCNM is expected to tighten mainly due to higher-long growth relative to the positive growth.

Unknown Executive: It's been just over a year since the acquisition of Air Miles Canada's most recognized loyalty program. In that time, we've executed against key strategies and investments to revitalize the program, including a new mobile app and expanded ways to earn miles, including offers directly linked to BMO Air Miles credit cards. The Air Miles brand relaunch this summer is already seeing early signs of success with double digit growth in enrollments, app downloads, and reward redemptions.

Speaker Change: While the U.S.P.N.C is expected to be modestly higher.

Tyfun Tuzun: Turning to slide 13, we maintain a relatively neutral position to change as interest rates consistent with our strategy, and we believe that we are well positioned for declining rate environments.

Speaker Change: Turning to slide 13.

Speaker Change: We maintain a relatively neutral position to change its interest rates, consistent with our strategy, and we believe that we are well positioned for declining rate environments.

Tyfun Tuzun: Moving to slide 14, expenses continued to be well managed and declined 5%, driven by the full realization of both the Bank of the West cost synergies and broader operational efficiencies, as well as the impact of higher severance and legal provisions in the prior year, which more than offset underlying growth in operating expenses and business investments. We delivered on our commitment to pause of operating leverage, again, this quarter, and expect the same next quarter, despite a typical fourth quarter sequential optic in expenses.

Unknown Executive: The Air Miles brand relaunch this summer is already seeing early signs of success with double digit growth in enrollments, app downloads, and reward redemptions. With access to over two thirds of all Canadian households, we're creating differentiation in the market and a foundation to drive customer acquisition and engagement. In US PNC, we're seeing improving performance with revenue up over last quarter, positive operating leverage of 4.9% and a 300 basis point improvement in our efficiency ratio over last year.

Speaker Change: Moving to slide 14.

Speaker Change: Expenses continue to be well managed and declined 5%.

Speaker Change: Driven by the full realization of both the Bank of the West Coast synergies and broader operational efficiencies, as well as the impact of higher severance and legal provisions in the prior year, which more than offset underlying growth and operating expenses and business investments.

Unknown Executive: With access to over two thirds of all Canadian households, we're creating differentiation in the market and a foundation to drive customer acquisition and engagement. In US PNC, we're seeing improving performance with revenue up over last quarter, positive operating leverage of 4.9% and a 300 basis point improvement in our efficiency ratio over last year. In commercial banking, loan and deposit growth is strengthening in Canada, and while softer in the US, we continue to acquire new clients and increase deposit penetration.

Speaker Change: We delivered on our commitment to positive operating leverage again this quarter and expect the same next quarter despite a typical fourth quarter's ecological optic in expenses.

Unknown Executive: In commercial banking, loan and deposit growth is strengthening in Canada, and while softer in the US, we continue to acquire new clients and increase deposit penetration. We're growing active users in our leading treasury payment solution business, and we received the Red Dot Award for design concept for redesigning the digital banking experience for small and medium enterprises. BMO wealth management at a strong quarter, with wealth and asset management net income up 44% year over year driven by good growth and client assets with strong net sales in our leading ETF business and net positive mutual fund flows.

Tyfun Tuzun: Turning to slide 15, our capital position remains strong with a CET-1 ratio of 13%. Internal Capital Generation was offset by higher source currency RWA due to asset growth and, to a lesser extent, the impact of credit migration, as well as an increase in market risk RWA from the low levels in the second quarter. Our capital outlook remains strong, and it's still likely to remain above our 12.5% management targets.

Speaker Change: Turning to slide 15, our capital position remains strong with a C-T1 ratio of 13

Unknown Executive: We're growing active users in our leading treasury payment solution business, and we received the Red Dot Award for design concept for redesigning the digital banking experience for small and medium enterprises. BMO wealth management at a strong quarter, with wealth and asset management net income up 44% year over year driven by good growth and client assets with strong net sales in our leading ETF business and net positive mutual fund flows. We're seeing results from our investments in asset management as nearly all global mandates managed by our global equities team performed in the top desial, including the BMO Global Equity Fund which received a five-star morning star rating.

Speaker Change: Internal Capital Generation was offset by higher source currency RWA, due to asset growth, and to a lesser extent the impact of credit migration, as well as an increase in market risk RWA from the low levels in the second quarter.

Speaker Change: Our capital outlook remains strong and is still likely to remain above our 12.5% management targets.

Tyfun Tuzun: And starting on flight 16, Canadian PNC net income was up 3% year over year, driven by strong TPPT performance, up 12%, partially offset by higher PCLs. Record revenue of $2.9 billion was up 7%, driven by higher net interest income reflecting both solid balance growth and improved margins, while non-interest revenue remained flat. The transition of bankers acceptance is to loans resulted in lower lending revenue, offset in net interest income. Expenses were up 2%, reflecting higher employee related operating and technology costs, partially offset by severance in the prior year. Loans were up 6% with good growth across consumer and commercial products, and deposits were up 11%, reflecting continued growth and transactional and term products across both consumer and commercial clients.

Speaker Change: Moving to the operating groups and starting on flight 16.

Unknown Executive: We're seeing results from our investments in asset management as nearly all global mandates managed by our global equities team performed in the top desial, including the BMO Global Equity Fund which received a five-star morning star rating. BMO capital markets have PPPT of 625 million within the range we've guided to, bolstered by strong client activity and revenue performance in global markets, M&A, and corporate banking. We're growing our capabilities and leadership and target areas in the US, ranking number one in US agency CMO issuance year-to-date. Turning to our overall U.S, segment, we're building on over 200 years of experience in our second home market.

Speaker Change: Canadian PNC net income was up 3% year over year driven by strong KPPT performance up 12% partially offset by higher PCLs.

Speaker Change: Record revenue of $2.9 billion was up 7% driven by higher net interest income, reflecting both solid downscrowed and improved margins while non-interest revenue remained flat.

Unknown Executive: BMO capital markets have PPPT of 625 million within the range we've guided to, bolstered by strong client activity and revenue performance in global markets, M&A, and corporate banking. We're growing our capabilities and leadership and target areas in the US, ranking number one in US agency CMO issuance year-to-date. Turning to our overall U.S, segment, we're building on over 200 years of experience in our second home market.

Speaker Change: The transition of bankers acceptance is to loans, resulted in lower lending revenue offset in net interest income.

Speaker Change: Expenses were up to percent reflecting higher employee-related operating and technology costs.

Speaker Change: Partially offset by severance in the prior year.

Unknown Executive: This fall, we'll be celebrating 40 years since our bold expansion of Harris Bank in Chicago, 15 years since the acquisition of M&I, and one year since the conversion of the Bank of the West. Over this time, we've consistently grown through many economic cycles, creating value as a key differentiator for BMO and our customers. From a regional bank with $8 billion of assets in 1984, we're now a top 10 bank with national reach, strong capital, and the size and scale to compete across retail and commercial banking, wealth management, and capital markets.

Speaker Change: Lones were up 6% with good growth across consumer and commercial products, and deposits were up 11% reflecting continued growth and transactional and term products across both consumer and commercial clients.

Tyfun Tuzun: Moving to US PNC on flight 17, my comments here will speak to the US dollar performance. Net income was down due to higher PCLs, while TPPT growth and operating leverage were strong at 6% and 4.9% respectively. Revenue was down slightly, driven by lower non-interest revenue due to lower deposit and card fees, and personal and business banking net interest income remained flat with balance growth offset by a 5 basis point reduction in margins, which has actually performed better than industry trends. Expenses were down, reflecting good expense management, including cost synergies and operational efficiencies, and lower severance costs.

Speaker Change: Moving to USPNC on slide 17, my comments here will speak to the US dollar performance.

Speaker Change: Net income was down due to higher PCLs, while PPPT growth and operating leverage was strong at 6% and 4.9% respectively.

Unknown Executive: We continue to progress on our revenue synergy targets, including strong core personal customer growth, with over 35 percent coming from our new West markets, evidence of our growing brand recognition, strong digital checking account growth, and improving branch productivity. We're augmenting talent and capabilities, including, for example, dedicated teams in wine and beverage M&A, and media and entertainment finance in Los Angeles. Transactions between commercial banking and capital markets in areas like FX hedging and treasury payments are increasing, and this quarter we close the biggest referral of the year between commercial and wealth management.

Speaker Change: Revenue was down slightly, driven by lower non-interest revenue due to lower deposit and car fees and personal and business banking.

Speaker Change: Net Interest Income Remained Flag with Vowels Girls Offset by a five-day point reduction in margins, which has actually performed better than industry trends.

Speaker Change: Experances were down, reflecting good expense management, including costs, synergies, and operational efficiencies, and lower severance costs.

Tyfun Tuzun: Loans were up 4%, excluding the impact of the RV loan portfolio sale. Deposits were up 4% with strong growth in term and money markets, offsetting decreases in not interest-bearing deposit balances. Sequentially, deposits were up 1% as we see the shift on interest bearing from non interest bearing deposits stabilizing.

Speaker Change: Lones were up 4% excluding the impact of the RV loan portfolio sale.

Speaker Change: Deposits were up 4% with strong growth in terming money markets.

Speaker Change: Offseting decreases in not intersparing the balances.

Unknown Executive: We've delivered consistent pre-provisioned pre-tax earnings of a billion dollars or more in the U.S, for the sixth consecutive quarter, with modest balance growth and protecting margins at a rate better than peers. While we've surpassed our synergy goals, as we discussed, the currently muted conditions for U.S, banking industry growth have impacted the timing of delivery on the revenue synergies from the Bank of the West. However, the overall environment is now showing signs of inflection, and the investments we've made to build the business for success, position us to grow profitable market share, and strengthen return on equity.

Speaker Change: sequentially deposits were up 1% as we see the shift on interest bearing from non-interest bearing deposits stabilizing.

Tyfun Tuzun: Moving to slide 18, BMO Wealth Management net income reflected year-over-year growth of 44% in wealth and asset management, offset by decline in insurance from the impact of the transition to IFRS 17. Wealth and asset management revenue was up 7%, reflecting good growth in client assets and market appreciation more than offsetting lower net interest income. Expenses were lower due to severance in the prior year.

Speaker Change: Moving to slide 18, BIMO wealth management net income reflected year over year growth of 44% in wealth and asset management, offset by decline and insurance from the impact of the transition to IFRS 17.

Speaker Change: Welfan asset management revenue was up 7% reflecting good growth in client assets and market appreciation more than offsetting lower net interest income. Expenses were lower due to severance in the prior year.

Tyfun Tuzun: Moving to slide 19. BMO Capital Markets net income was up 31% year-over-year, reflecting continued strong PPPT of $625 million in the quarter, consistent with our guidance, and partially offset by higher PCLs. Revenue in global markets was up 16%, reflecting higher equity and interest rate trading. Investment in corporate banking revenue was up 11% on higher advisory fees and corporate banking related revenues.

Unknown Executive: At the same time, we're making a difference in the communities we serve, through Empower 2.0, our five-year commitment to breakdown barriers faced by underserved communities, businesses, and families in the United States, having already delivered 10 billion dollars of our more than $40 billion commitment.

Speaker Change: Moving to slide 19.

Speaker Change: BMO Capital Market's net income was up 31% year over year, reflecting continued strong PPPT of $625 million in the quarter, consistent with our guidance, and partially all said by higher PCLs.

Unknown Executive: In summary, our franchise is strong, as evidenced by fast growing deposit customer base, leading customer acquisition, and deepening client relationships. We've delivered on our commitment to positive operating leverage. I'm confident that our risk culture is intact with actions in place to effectively manage risk and improve our credit performance through next year.

Speaker Change: Revenue in global markets was up 16% reflecting higher equity and interest rate trading, investment and corporate banking revenue was up 11% on higher advisory fees and corporate banking related revenues.

Tyfun Tuzun: Expenses were down due to illegal provision and severance in the prior year. Assuming markets remain constructive, we expect capital markets to continue to deliver PPPT within the $625 to $650 million range guidance provided earlier.

Speaker Change: Expenses were down due to a legal provision and severance in the prior year.

Speaker Change: It's sealing markets remain constructive. We expect Apple markets to continue to deliver a PPPT within the 625-650-million-dollar range guidance provided earlier.

Unknown Executive: Our teams are executing on a clear and consistent strategy for sustained operating performance that will endure through credit cycles, and I'll turn it over to Typhoon.

Tyfun Tuzun: Turning out to slide 20, corporate services net loss was $236 million compared with $244 million in the prior quarter, as higher revenue and lower expenses offset higher PCL.

Speaker Change: Turning out to slide 20, corporate services net loss was $236 million compared with $244 million in the prior quarter. It's higher revenue and lower expenses offset higher PCL.

Tyfun Tuzun: Thank you, Zaryl, good morning, and thank you for joining us.

Tyfun Tuzun: My comments will start on slide 10. Third quarter reported EPS was $2.48, and net income was $1.9 billion. Adjusting items are shown on slide 39, and the remainder of my comments will focus on the adjusted results. Adjusted EPS was $2.64 down from $2.94 last year, and net income was $2 billion down 8% as strong PPT growth of 8% was offset by higher PCL. Record PPT of $3.5 billion was driven by strong operating performance across our businesses with positive operating leverage of 5.2%.

Tyfun Tuzun: To conclude, while, as Darrell said, our provisions have exceeded our expectations, similar to last quarter, this quarter demonstrated continued good operating performance with improving revenues, PPPT, and positive operating leverage in line with our expectations. The steady rise in our operating performance through the credit cycle is the result of the underlying strength of our franchise and our business and geographic diversity.

Speaker Change: To conclude, while as Darryl said our provisions have exceeded our expectations, similar to last quarter, this quarter demonstrated continued good operating performance with improving revenues, PPPT and positive operating leverage in line with our expectations.

Darryl: The steady rise in our operating performance to the credit cycle is the result of the underlying strength of our franchise.

Tyfun Tuzun: We will continue to execute on our strategic priorities and invest for growth and look to leverage the strength of our balance sheet and our capital to build lasting shareholder value.

Darryl: and our business and geographic diversity.

Darryl: We will continue to execute on our strategic priorities and invest more growth and look to leverage this strength of our balance sheet and our capital to build lasting shareholder value.

Piyush Agrawal: I will now turn it over to Piush. Thank you, Typhoon, and good morning, everyone. First, I'll start with some context for our overall credit position. Consistent with trends over the last few quarters, we continue to experience credit outcomes reflective of the current credit cycle, notwithstanding the early stages of easing monetary policy in Canada and the potential for rate cuts in the US later this year. Specific client segments continue to feel the impact of prolonged elevated interest rates, tightening of credit conditions, as well as shifting consumer demand for products and services. Moreover, rising unemployment in Canada and reduced pandemic-related liquidity are challenging consumer and business balance sheets.

Tyfun Tuzun: Excluding lower insurance revenue, which was inflated last year due to market impacts related to the IFRS 17 transition, revenue was up 2% and expenses were down 1% excluding severance in the prior year. PCL increased $414 million, which Piyush will speak to in his remarks. Moving to slide 11, average loans grew 6% year over year excluding the impact of the RV loan portfolio sale and the wind down of the indirect auto book, driven by good growth in residential mortgages and business and government loans.

Darryl: I will now turn it over to Piyush.

Piyush Agrawal: Thank you, Tayfun and good morning, everyone.

Piyush Agrawal: First, I'll start with some context for an overall credit position.

Piyush Agrawal: Consistent with trends over the last few quarters, we continue to experience credit outcomes reflective of the current credit cycle.

Piyush Agrawal: Notwithstanding the early stages of easing monetary policy in Canada, and the potential for rate cards in the U.S., the data this year, specific client segments continue to feel the impact of prolonged elevated interest rates.

Piyush Agrawal: Titanium of Credit Conditions as well as shifting consumer demand for product and services.

Piyush Agrawal: Moreover, rising unemployment in Canada and reduced pandemic-related liquidity, or challenging consumer and business balance sheet.

Tyfun Tuzun: Strong growth in customer deposits that deposits continues with average balances up 9% from last year, driven by higher deposits in our US and Canadian personal and commercial businesses. Turning to slide 12, on an x-training basis, net interest income was unchanged from the prior year, as balance growth was offset by lower margins and up 5% sequentially including the impact of two additional days in the quarter. Compared with last quarter, NIM was up 1 basis point.

Piyush Agrawal: This has led to credit downgrade in our portfolio, with higher watch list and impairments. On slide 22, this quarter's total provision for credit losses was $906 million, or 54 basis points. Impact provisions were $828 million or 50 basis points, up to nine basis points from last quarter, largely driven by higher provision in our wholesale book. Canadian personnel and business banking impaired losses were up to $27 million from prior quarter, driven by higher delinquencies and insolvencies and unsecured retail products, with a mortgage portfolio continuing to perform well. We continue to take actions to manage losses within these portfolios, including three delinquency engagement with customers most vulnerable to payment threats.

Speaker Change: This is like to credit down great in support for you with higher watch list and impairments.

Speaker Change: On flight 22, this quarter stole the provision for credit losses was $96 million of 54 basis points.

Speaker Change: In fact, provisions were $828 million of 50 basis points up to 9 basis points from last quarter, large is a driven by higher provision in our whole cell book.

Speaker Change: Canadian person and business banking impaired losses were up to $27 million from prior quarter. Driven by higher disinquencies and insolvencies, an unsecured retail products, with a mortgage portfolio continuing to perform well.

Tyfun Tuzun: In both Canadian and US PNC, NIM decreased 3 basis point sequentially. Lower deposit margins continue to pressure NIM this quarter, but to a lesser extent, as pricing and the shift to term deposits is stabilizing. At the old bank level, we maintain our expectation of relative margins stability for the remainder of the year. Canadian PNC NIM is expected to tighten mainly due to higher loan growth relative to deposit growth, while US PNC is expected to be modestly higher.

Speaker Change: We continue to take actions to manage losses within these portfolios, including read the engagement with customers most vulnerable to payment stress.

Piyush Agrawal: In commercial banking, impaired losses increased $31,000,000 in Canada and $55,000,000 in the US. The capital markets lost this quarter was mainly driven by one account in the services sector. On slide 23, we provide additional information on our business and government portfolio. Over the last few quarters, the wholesale portfolio has experienced negative migration and elevated losses. As Darryl noted, 15 accounts drove almost 50% of year-to-date wholesale impaired provisions. And as I've said before, in a large wholesale portfolio like ours, quarterly provisions can be wearable. And in fact, this quarter, two accounts drove the nine basis point increase in impaired provisions over prior quarter.

Speaker Change: In commercial banking, impaired losses increased $31 million in Canada and $55 million in the US.

Speaker Change: The capital of the market was lost this quarter, was mainly driven by one account in the services sector.

Speaker Change: On slide 23, we provide additional information on our business and government portfolio.

Tyfun Tuzun: Turning to slide 13, we maintain a relatively neutral position to change its interest rates, consistent with our strategy, and we believe that we are well positioned for the declining rate environments. Moving to slide 14, expenses continue to be well managed and declined 5%, driven by the full realization of both the bank of the West cost synergies and broader operational efficiencies, as well as the impact of higher severance and legal provisions in the prior year, which more than offset underlying growth in operating expenses and business investments.

Speaker Change: Over the last few quarters, the whole cell port for you has experienced negative migration and elevated losses.

Speaker Change: As the Dattles noted, 15 accounts grow almost 50% of year-to-date wholesale impact revisions.

Speaker Change: and as I've said before, in a large wholesale portfolio like ours, quarterly provisions can be veritable. And in fact, this quarter, two accounts drove the nine basis point increase in bad provisions over prior quarter.

Piyush Agrawal: Two sectors we continue to monitor closely are transportation, where the trucking segment has been in a cyclical downturn with weak freight volumes and reduced spot rates, although there are early signs of stabilization. And commercial real estate where the portfolio continues to perform in line with our expectations, including a partial recovery this quarter of a prior provision. The wholesale portfolio remains well diversified, with over half rated investment grade. Moving to slide 24, performing provision for credit losses of $78 million primarily reflected portfolio credit migration. We have added to performing allowances for the last nine quarters and are appropriately reserved with the total performing allowance of $3.8 billion of 56 basis point coverage over performing allowance.

Speaker Change: Two sectors we continue to monitor closely are consultation where the trucking segment has been in a cyclical downturn with weak freight volumes and reduced portraits, although there are early times of stabilization.

Tyfun Tuzun: We delivered on our commitment to pause of operating leverage again this quarter, and expect the same next quarter despite a typical fourth quarter sequential uptick in expenses. Turning to slide 15, our capital position remains strong with a CET-1 ratio of 13%. Internal Capital Generation was offset by higher source currency RWA due to asset growth and to a lesser extent the impact of credit migration as well as an increase in market risk RWA from the low levels in the second quarter. Our capital outlook remains strong and it's still likely to remain above our 12.5% management targets.

Speaker Change: and commercial real estate where the portfolio continues to perform in line with our expectations, including a partial recovery this quarter of a prior provision.

Speaker Change: The wholesale portfolio remains well diversified with over half rated investment grade.

Speaker Change: Moving to slide 24, performing provision for credit losses of $78 million primarily reflected for the accredited migration.

Speaker Change: We have added to performing allowances for the last nine quarters and are appropriately reserved with the total performing allowance of $3.8 billion of 56 basis point coverage over performing allowance.

Tyfun Tuzun: And starting on flight 16, Canadian PNC net income was up 3% year over year driven by strong TPPT performance up 12% partially offset by higher PCLs. Record revenue of $2.9 billion was up 7% driven by higher net interest income reflecting both solid balance growth and improved margins while non interest revenue remained flat. The transition of bankers acceptance is to loans resulted in lower lending revenue offset in net interest income expenses were up 2% reflecting higher employee related operating and technology costs partially offset by severance in the prior year loans were up 6% with good growth across consumer and commercial products.

Piyush Agrawal: We expect credit migration will continue, which in turn will drive increases to the allowance for the next few quarters. Turning to slide 25, impaired formations of $1.8 billion decreased $141 million due to lower business and government formations. Gross impaired loans increased to $6 billion or 89 basis points, with increases primarily in commercial real estate, manufacturing, and transportation. Based on our extensive portfolio monitoring and where we are in this credit cycle, we expect impaired provisions to remain elevated over the next couple of quarters and subject to wearability. As rates fall and unemployment stabilizes, we expect credit performance will trend towards long-term averages through 2025.

Speaker Change: We expect credit migration will continue, which in turn will drive increases to the allowance for the next few quarters.

Speaker Change: turning to slide 25.

Speaker Change: In fact, formations of $1.8 billion decrease, $141 million due to lower business and government formations.

Speaker Change: Gross embed loans increased to $6 billion of 89 basis points with increases primary and commercial electricity, manufacturing, and transportation.

Speaker Change: Based on our extensive portfolio monitoring and where we are in this credit cycle, we expect impaired provisions to remain elevated over the next couple of quarters and subject to variability.

Speaker Change: As rates fall and unemployment stabilizes, we expect credit performance with the trend towards long-term averages through 2025. I will now turn the calls back to the operator for the Q&A portion of this call.

Operator: I will now turn the call back to the operator for the Q&A portion of this call. Thank you. We will now take questions from the telephone lines. If you have a question, please press star one on your device's keypad. You may cancel your question at any time by pressing Start two. Please press star one at this time if you have a question. There will be a brief pause while participants register for questions. We take you for your patience.

Tyfun Tuzun: Moving to USPNC on flight 17, my comments here will speak to the US dollar performance net income was down due to higher PCLs while TPPT growth and operating leverage were strong at 6% and 4.9% respectively. Revenue was down slightly driven by lower non interest revenue due to lower deposit and card fees and personal and business banking net interest income remained flat with balance growth offset by a 5 basis point reduction in margins which has actually performed better than industry trends.

Speaker Change: Thank you, will we now take questions from the telephone lines? If you have a question, please press star 1 on your devices keypad. You may can solve your question at any time by pressing star 2.

Speaker Change: [inaudible]

Doug Young: Our first question is from Doug Young from Desjardin Capital Market. Please go ahead. Good morning. On the PCL, the guidance was for impaired to be in line with QQs, up nine basis points, and I get the things changed. Just curious.

Speaker Change: A first question is from Doug Young, from Deshard and Captain Markets. Please go ahead.

Doug Young: Good morning, on the PCL, the guidance was for impaired to be in line with QQs, up 9 basis points, and I get the things changed, just curious.

Piyush Agrawal: You know, what surprised you when you mentioned impaired PCL's, like the remit elevated for a few quarters. What gives you confidence that it's going to refer to the long-term average in fiscal 25, and is this more midway through fiscal 25 or in 25 just hoping to get some color. Yeah, no, thanks. Thanks for the question. When we look at our overall embed BCL performance, there's several reasons for this elevated number this quarter. I think, as we all know, the current environment is complex and changing rapidly. But overall, when we provided guidance, I would say our retail losses have been in a tight range of what we expected.

Piyush Agrawal: What surprised you and you mentioned in Piyush Agrawal Piyush Agrawal, like they've remit elevated for a few quarters? What gives you confidence that it's going to refer to the long-term average in fiscal 25? And is this more midway through fiscal 25 or 25, just something to get some color?

Tyfun Tuzun: Expenses were down reflecting good expense management including cost synergies and operational efficiencies and lower severance costs. Loans were up 4% excluding the impact of the RV loan portfolio sale deposits were up 4% with strong growth and term in money markets offsetting decreases in not interest bearing the pot balances. Sequentially deposits were up 1% as we see the shift on interest bearing from non interest bearing deposits stabilizing.

Speaker Change: Thanks for the question, when we look at our overall impact PCR performance, there are several reasons for this elevated number of this quarter. I think as we all know the current environment is complex and changing rapidly.

Speaker Change: But overall, when we provided guidance, I would say, our retail losses have been in a tight range of what we expected and that's pretty expected because of the frequencies and what's flowing through that book.

Tyfun Tuzun: Moving to slide 18, BMO wealth management net income reflected year over year growth of 44% in wealth and asset management offset by decline and insurance from the impact of the transition to IFRS 17. Wealth and asset management revenue was up 7% reflecting good growth in client assets and market appreciation more than offsetting lower net interest income. Expenses were lower due to severance in the prior year.

Piyush Agrawal: And that's pretty expected because of the link in season what's flowing through that book. It's influenced a little bit by Canadian insolvencies, as you've seen those continue to be high. And then, in a large part, our wholesale book has also performed exactly for our expected models. So we have a long history of what a loss performances. And to a large part, the wholesale book is actually performed in line with our expectation; where it has been a little challenging is the variability on a few large names that we've discussed before. And so the variability, what I call, is unexpected losses that have a lower probability, seem to be a significant part of any credit cycle.

Speaker Change: It's influenced a little bit by Canadian insolvency as you've been in those continued to be high.

Speaker Change: And then in a large part, our wholesale book has also performed exactly the entire expected model. So we have a long history of what a large performance is. And to a large part, the wholesale book is actually performed in line with that expectation.

Tyfun Tuzun: BMO Capital Markets Net Income was up 31% year-over-year, reflecting continued strong PPPT of $625 million in the quarter consistent with our guidance, and partially offset by higher PCLs. Revenue in global markets was up 16%, reflecting higher equity and interest rate trading, investment in corporate banking revenue was up 11% on higher advisory fees, and corporate banking related revenues. Expenses were down due to a legal provision and severance in the prior year. Assuming markets remain constructive, we expect capital markets to continue to deliver PPPT within the $625 to $650 million range guidance provided earlier.

Speaker Change: where it has been as a challenging is the vetabesity on a few large names that we have discussed before.

Speaker Change: and so the variability, what I call unexpected losses that have a lower probability.

Speaker Change: Sing to be a significant part of any credit site, and that's what you're seeing right now.

Piyush Agrawal: And that's what you're seeing right now. So we are in a fairly tight range from that expectation as we look forward. It's hard to give you a number or a range, only because of this variability over a quarter. But over a year, we can tell you where it's coming. So we expect this will be elevated as we go through the next one or two quarters. Starts to start coming down. And by the end of the year, it should start reverting to our long come average. That's that expectation. We provide you more guidance as you get through next quarter.

Speaker Change: So, we are in a fairly tight range from that expectation as we looked forward.

Speaker Change: It's hard to give you a number or a range only because of this variability over a quarter, but over a year.

Speaker Change: We can tell you where it's coming. So we expect this will be elevated as we go through the next one or two quarters. It starts to start coming down and by the end of the year it should start rewarding to our long-term average. That's that's our expectation. We provide you more guidance as we get through next quarter.

Piyush Agrawal: It just declarifies, so you're more expecting the version to the long-term average closer to the end of fiscal 25, not through the entire year.

Tyfun Tuzun: Turning out to slide 20, corporate services net loss was $236 million compared with $244 million in the prior quarter as higher revenue and lower expenses offset higher PCL. To conclude, while as Darrel said, our provisions have exceeded our expectations similar to last quarter, this quarter demonstrated continued good operating performance with improving revenues, PPPT, and positive operating leverage in line with our expectations. The steady rise in our operating performance through the credit cycle is the result of the underlying strength of our franchise and our business and geographic diversity. We will continue to execute on our strategic priorities and invest for growth and look to leverage the strength of our balance sheet and our capital to build lasting shareholder value.

Speaker Change: It's just a clarify soul.

Speaker Change: You're more expecting the reversation to the long term average closer to the end of fiscal 2025, not through the entire year. And then the 50 basis points, when last quarter you said, Rene and elevated and flat sequentially. So in the 40 basis point range for impaired, we're at 50 now.

Piyush Agrawal: And then the 50 basis points that, when you last quarter, you said remain elevated and flat sequentially. So, in the 40 basic point range for an error, we're at 50 now. That 50 is kind of like the proper starting point to think about. The else remaining elevated over the next few quarters is that correct. Yeah, I would say when we think elevated, we know it's a little higher. It's hard to pinpoint a number because of this variability. You look back at this quarter. Nine basis points was, you know, two accounts. You look back year to date.

Speaker Change: That's just the kind of like the proper starting point to think about the remaining elevated over the next two quarters is that correct?

Speaker Change: Yeah, I would say...

Speaker Change: When we think elevated, we know it's a little higher, it's hard to pinpoint the number because of the severity. We look back at this quarter, nine basis points was...

Piyush Agrawal: 50% was 15 accounts. So it's these one or two accounts that can move the needle a little bit more, but we expect it to be elevated. Some of it the economic environment, as you're seeing again, insolvencies and things like that, but it should start coming down towards the second half of the year. You know, because it's the elevation is the next one or two quarters. I appreciate it. Thank you very much. Thank you.

Speaker Change: You know, two accounts, you look back here to date 50% was 15 accounts, so it's these one or two accounts.

Speaker Change: that can move the needle a little bit more, but we expect it to be elevated, some affect the economic environment. As you're seeing again, in solvencies and things like that, but it should start coming down towards the second half of the year, you know, because it's the, as a version is the next one or two quarters.

Piyush Agrawal: I will now turn it over to Peish.

Tyfun Tuzun: I will now turn it over to Peish.

Speaker Change: I appreciate it. Thank you very much.

Unknown Attendee: I'll following question is on many ground from scooshabink. Please go ahead.

Speaker Change: Thank you.

Speaker Change: I'll follow in question if there are many grown-in from Skushabank. Please go ahead.

Meny Grauman: Mr. Grohmann, your line is open. You may proceed with your question. Hi, can you hear me now? Yes, we can hear you now. Thanks a lot. Good morning. Darryl wanted to ask about capital, 30% TQ1, a little bit low expectations, but still very strong, relative to the range of 12 and 12.5%, which seems to be where remote banks are comfortable operating now. So I'm just wondering why no buyback, given that kind of capital of the level. Are credit concerns keeping you cautious? And Piyush, you talked about migration during the quarters. I'm wondering if that's part of the story here.

Speaker Change: Mr. Gromman, your line is open, you may proceed with your question.

Mr. Gromman: Hi, can you hear me now? Yes, we can hear you now.

Mr. Gromman: Good morning. Gerald, one of the tasks about capital, 30% T-T-1 will be below expectations, but still very strong relative to the range of 12 and 12 and a half percent.

Piyush Agrawal: Moreover, rising unemployment in Canada and reduced pandemic-related liquidity are challenging consumer and business balance sheets. This has led to credit downgrade in our portfolio with higher watch list and impairments. On slide 22, this quarter's total provision for credit losses was $906 million or 54 basis points. Impact provisions were $828 million or 50 basis points, up to nine basis points from last quarter, largely driven by higher provision in our wholesale book. Canadian personnel and business banking impaired losses were up to $27 million from prior quarter, driven by higher delinquencies and insolvencies in unsecured retail products with a mortgage portfolio continuing to perform well.

Speaker Change: which seems to be where remote banks are comfortable operating now. So I'm just wondering...

Speaker Change: Why, no buyback, given that kind of capital level, our credit concerns keeping you cautious. And Piyush, you talked about migration during the quarters. I'm wondering if that's part of the story here.

Darryl White: No, I thank many. Thanks for the question. I think it's just more generalized than that. You know, remind myself that we just turned the drip discount off in Q2. And as we assess the overall environment, I think the short answer to your question would be, not yet. I think when we look at the overall environment, we're not yet.

Speaker Change: No, I think many thanks for the question. I think it's just more generalizing that. You know, remind myself that we just turned...

Speaker Change: The drip disc counter-off in Q2.

Speaker Change: and as we assess the overall environment, I think the short answer to your question would be not yet. I think when we look at the overall environment, we're not yet.

Darryl White: In a position where buying back shares gets a full green light, given the various uncertainties, I would say various uncertainties that we see out there, and we also at the same time, as I've always said, we want to maintain lots of capital for deployment when we see good customer opportunities. And the expectation is we'll start to see some expansion opportunities there as we go into 2025. But look, as always, we put all of those things into the hopper, and we make our decisions, and we'll update you again at the end of the fourth quarter, based on where those conditions are.

Speaker Change: In a position we're buying back shares, gets a full green light given the various uncertainties. It's a various uncertainties that we see.

Piyush Agrawal: We continue to take actions to manage losses within these portfolios, including In commercial banking, impaired losses increased $31 million in Canada and $55 million in the US. The capital markets lost this quarter was mainly driven by one account in the services sector. On slide 23, we provide additional information on our business and government portfolio. Over the last few quarters, the wholesale portfolio has experienced negative migration and elevated losses. As Darrel noted, 15 accounts drove almost 50% of year-to-date wholesale impaired provisions.

Speaker Change: Out there, and we also at the same time, as I've always said, we want to maintain lots of capital for deployment when we see good customer opportunities and the expectation is we'll start to see some expansion opportunities there as we go into 2025, but look, as always we put all of those things into the hopper and we make our decisions and we'll update to again.

Piyush Agrawal: On slide 23, we provide additional information on our business and government portfolio. Over the last few quarters, the wholesale portfolio has experienced negative migration and elevated losses. As Darrel noted, 15 accounts drove almost 50% of year-to-date wholesale impaired provisions. And as I've said before, in a large wholesale portfolio like ours, quarterly provisions can be wearable. And in fact, this quarter, two accounts drove the nine basis point increase in impaired provisions over prior quarter.

Speaker Change: at the end of the fourth quarter, based on where those conditions are. Is that awful?

Darryl White: Is that, is that Apple? Just as a follow-up, where you see sort of your comfortable operating range in terms of the city bar, or elevated now, just given the environment. I don't think it's elevated for the long run, many. I think we, you know, we've talked about 12 and a half or above as a reasonable range, and it all depends on circumstances. In the short run, we'll keep a close eye on this here for the next quarter or so, and we'll get back to you, but there's really no change in our posture.

Speaker Change: Just as a follow-up, where you see your comfortable operating range in terms of these seats you want, or elevated now, just given the environment.

Speaker Change: I don't think it's elevated for the long run. Many, I think, we've talked about.

Piyush Agrawal: And as I've said before, in a large wholesale portfolio like ours, quarterly provisions can be wearable. And in fact, this quarter, two accounts drove the nine basis point increase in impaired provisions over prior quarter. Two sectors we continue to monitor closely are transportation, where the trucking segment has been in a cyclical downturn with weak freight volumes and reduced spot rates, although there are early signs of stabilization and commercial real estate where the portfolio continues to perform in line with our expectations, including a partial recovery this quarter of a prior provision.

Speaker Change: 12.5 for above as a reasonable range and it all depends on circumstances.

Speaker Change: In the short run, we'll keep a close eye on this year for the next quarter or so, and we'll get back to you. There's really no change in our posture.

Unknown Attendee: Thank you.

Piyush Agrawal: Two sectors we continue to monitor closely are transportation, where the trucking segment has been in a cyclical downturn with weak freight volumes and reduced spot rates, although there are early signs of stabilization and commercial real estate where the portfolio continues to perform in line with our expectations, including a partial recovery this quarter of a prior provision. The wholesale portfolio remains well diversified with over half rated investment grade. Moving to slide 24, performing provision for credit losses of $78 million primarily reflected portfolio credit migration.

Ebrahim Poonawala: Thank you for following question. If I'm here by him from Bank of America, please go ahead.

Speaker Change: Thank you.

Speaker Change: Thank you for following question you from Hibrahim Puna Lala from Bank of America. Please go ahead.

Ebrahim Poonawala: Good morning. I guess a question for Puyush and maybe for Darrell on credit. So a couple of things, like it seems that you have very limited visibility on credit for now, and two questions come up. One is there an issue in terms of the bank having too many outsized credits for its size because for a bank of BMO size, one known, two loans moving credit meaningfully quarter after quarter is a little bit surprising. So one, this talk through in terms of how you're approaching whole size. Are these all shared national credits in the US, and you're having to take these charges as you go through the review with examiners.

Speaker Change: and Good Morning.

Speaker Change: I guess a question for Piyush and maybe for Darryl on credit, so a couple of things.

Speaker Change: Like...

Speaker Change: It seems that you have very limited visibility on credit for now.

Speaker Change: and two questions come up. One,

Speaker Change: Is there any issue in terms of the bank having too many outsized credits for its size?

Speaker Change: Because for a bank of BMO size, one loan, two loans, moving credit, meaning fully quarter after quarter, is a little bit surprising. So one, this talk through in terms of how you're approaching whole size are these old shared national credits in the US and you're having to take these charges as you go through the review with examiners.

Piyush Agrawal: We have added to performing allowances for the last nine quarters and are appropriately reserved with a total performing allowance of $3.8 billion of 56 basis point coverage over performing allowance. We expect credit migration will continue, which in turn will drive increases to the allowance for the next few quarters. Turning to slide 25, impaired formations of $1.8 billion decreased $141 million due to lower business and government formations. Gross impaired loans increased to $6 billion or 89 basis points with increases primarily in commercial real estate, manufacturing and transportation.

Piyush Agrawal: And second, just talk through the process, like given what's happening in the last two quarters, help us gain some confidence that you've done some deep time reviews, what the outcomes have been, and why you have a better handle today than six months ago. Yeah, the prime. Thanks for that.

Speaker Change: and second, just talk to the process, given what's happening in the last two quarters, help us gain some confidence that you've done some deep-type reviews, what the outcomes have been and why you have a better handle today, gain six months ago.

Brian: The Brian, thanks for that. I would say let me begin with where we are in terms of our performance.

Piyush Agrawal: I would say, let me begin with where we are in terms of our performance. We obviously continue to look at our peers and where we are, and I can't comment on any individual bank. But you know, you have to date second quarter; we were at 35 basis points. A peer group was a 35 basis points. They're a bit higher right now. We'll see where everybody shapes up. In the large losses we've had, I would tell you that about 70% of those credits, we're not alone. We have; these are syndicated facilities. We have banks, north and south of the border, in those in different ranges, different sizes in some. We're the lead bank; in some, others are the lead banks.

Speaker Change: We obviously continue to look at our peers and where we are in a comment on any individual bank. But, you know, year to date, second quarter, we were at 35 basis points, a peer group was at 35 basis points. There are a bit higher right now, we'll see where everybody shapes up.

Piyush Agrawal: Based on our extensive portfolio monitoring and where we are in this credit cycle, we expect impaired provisions to remain elevated over the next couple of quarters and subject to wearability. As rates fall and unemployment stabilizes, we expect credit performance will trend towards long-term averages through 2025.

Speaker Change: In the large losses we've had, I would tell you about 70% of those credits, we're not alone.

Speaker Change: We have these are syndicated facilities, we have banks, north and south of the border, in those and different ranges, different sizes and some with a lead bank and some other lead banks. So these aren't unique to be more. To your point around.

Operator: I will now turn the call back to the operator for the Q&A portion of this call. Thank you.

Piyush Agrawal: So these aren't unique to be more, to your point around what have we done? Well, we're always, you know, learning from what has happened, and what can we change? And I would say we're not anticipating any radical changes to risk appetite, but we're always making refinements. I mean, that's what good risk managers and bankers do to ensure we are capturing the evolving risks in the industry. I would tell you that in the large losses, there isn't an industry theme, there isn't a geography theme; these are very episodic. But many of these loans have related to underwriting we have done.

Operator: We will now take questions from the telephone lines. If you have a question, please press star one on your device's keypad. You may answer your question at any time by pressing start two. Please press star one at this time. If you have a question, there will be a brief pause for our participants for just some questions. We thank you for your patience.

Speaker Change: What have we done? Well, we're always, you know, learning from what has happened and what can we change?

Speaker Change: and I would say we are not anticipating any radical changes to risk appetite, but we are always making refinements. I mean that's what good risk managers and bankers do to ensure we are capturing the evolving risks in the industry. I would tell you in the large losses.

Doug Young: Our first question is from Doug Young from Desjardins Capital Markets. Please go ahead. Good morning. On the PCL, the guidance was for impaired to be in line with QQ's up nine basis points and I get the things changed. Just curious.

Speaker Change: There is an industry team, there is an geography team, these are very episodic.

Speaker Change: But many of these loans have related to underwriting, we have done around the end of the pandemic. And those were exceptional circumstances, liquidity was high, it carried consumers, it carried companies, the balance sheets, more liquid.

Piyush Agrawal: Around the end of the pandemic, and those were exceptional circumstances, the equity was high; it carried consumers, it carried companies. The balance sheets were more liquid. As consumer patterns have shifted, as one of the reasons many of these companies are right now in a position to have higher leverage or not the same operating performance as we expected. So we've gone back, looked at our entire book, combed through underwriting. We've done that, and really I come down to a handful of accounts that are now on a watch list, which is why we are guiding you to a higher elevated performance for the next few quarters. Just like we've said for retail, this will get through the system; it's the same thing. We believe the position is contained; this gets through the system. It's hard to pinpoint the exact quarter.

Ebrahim Poonawala: You know, what surprised you when you mentioned impaired PCL's like the remade elevated for a few quarters, what gives you confidence that it's going to refer to the long term average in fiscal 25 and is this more midway through fiscal 25 or in 25 just something to get some color. Yeah, no, thanks. Thanks for the question. When we look at our overall impact BCL performance, there's several reasons for this elevated number this quarter.

Piyush Agrawal: You know, what surprised you when you mentioned impaired PCL's like the remade elevated for a few quarters, what gives you confidence that it's going to refer to the long term average in fiscal 25 and is this more midway through fiscal 25 or in 25 just something to get some color. Yeah, no, thanks. Thanks for the question. When we look at our overall impact BCL performance, there's several reasons for this elevated number this quarter.

Speaker Change: As consumer patterns have shifted, as one of the reasons many of these companies are right now in a position to have higher leverage or not the same operating performance as we expected.

Speaker Change: So, we've gone back, looked at our entire book come through underwriting, we've done that. And really, I come down to a handful of accounts that now on our watch list.

Ebrahim Poonawala: I think as we all know, the current environment is complex and changing rapidly, but overall when we provided guidance, I would say our retail losses have been in a tight range of what we expected and that's pretty expected because of the link in season what's flowing through that book. It's influenced a little bit by Canadian insolvencies as you've seen those continue those continue to be high. And then in a large part, our wholesale book has also performed exactly for our expected model.

Piyush Agrawal: I think as we all know, the current environment is complex and changing rapidly, but overall when we provided guidance, I would say our retail losses have been in a tight range of what we expected and that's pretty expected because of the link in season what's flowing through that book. It's influenced a little bit by Canadian insolvencies as you've seen those continue those continue to be high. And then in a large part, our wholesale book has also performed exactly for our expected model.

Speaker Change: which is why we are guiding you to our higher elevated performance for the next few quarters. Just like we've said for Rita, this is get through the system. It's the same thing we believe the position is contained. It's get through the system. It's hard to pinpoint the exact quarter. But...

Darryl White: But in the next one, maybe two, maybe three, these names should clear the system, and that is why our confidence in reloading back to a long time averages. Yeah, and Abraham is there. I would just add to that, when you look back, I think what we're experiencing here is effectively the delayed consequence of the dynamics that were pretty unique to a pandemic. When you look back at that inflation surge, which the unprecedented rise in interest rates, and you consider that time in 2020, for example, when we were all coming to grips with all those dynamics around the pandemic, and free money was free money from government stimulus, that free money didn't discriminate where it went, everybody got it.

Abraham: In the next one, maybe two, maybe three, these names should clear the system, and that is why I've confidence in reloading back to a long-term averages. Yeah, and Abraham is Darryl, I would just add to that when you look back.

Ebrahim Poonawala: So we have a long history of what a loss performances and to a large part, the wholesale book is actually performed in line with our expectation where it has been a little challenging is the variability on a few large names. That we've discussed before and so the variability what I call is unexpected losses that have a lower probability seem to be a significant part of any credit cycle and that's what you're seeing right now.

Piyush Agrawal: So we have a long history of what a loss performances and to a large part, the wholesale book is actually performed in line with our expectation where it has been a little challenging is the variability on a few large names. That we've discussed before and so the variability what I call is unexpected losses that have a lower probability seem to be a significant part of any credit cycle and that's what you're seeing right now.

Abraham: I think what we're experiencing here is effectively the delayed consequence of the dynamics that were pretty unique to a pandemic. When you look back at that inflation surge, the unprecedented rise in interest rates.

Abraham: and you consider...

Speaker Change: You know, that time in 2020, for example, when we were all coming to grips with all those dynamics around the pandemic and free money was free money from government stimulus that free money didn't discriminate where it went, everybody got it and that tends to, in some cases, as Piyush said, pretty.

Ebrahim Poonawala: So we are in a fairly tight range from that expectation as we look forward it's hard to give you a number or a range only because of this variability over a quarter, but over a year we can tell you where it's coming. So we expect this will be elevated as we go through the next one or two quarters starts to start coming down and by the end of the year, it should start reverting to our long term average that's that expectation is provide you more guidance as you get through next quarter.

Piyush Agrawal: So we are in a fairly tight range from that expectation as we look forward it's hard to give you a number or a range only because of this variability over a quarter, but over a year we can tell you where it's coming. So we expect this will be elevated as we go through the next one or two quarters starts to start coming down and by the end of the year, it should start reverting to our long term average that's that expectation is provide you more guidance as you get through next quarter.

Darryl White: And that tends to, in some cases, as Posh said, pretty limited list, but it covers up a lot of problems, which then can come back later. Inevitably, when we look through that, there will be companies that are stranded, as rates rise, inflation persists, and consumer preferences change, especially in certain segments.

Speaker Change: Limited List, but it covers up a lot of problems which then can come back later. Inevitably, when we look through that, there will be companies that are stranded as rates rise in inflation for CISC and consumer preferences change, especially in certain segments. So, where are we today? I think, well, on the one hand, you know, one might say, we're seeing those conditions reversing and easing, the reality is, in some cases, the impairments and the bankruptcies are just never-ending themselves.

Darryl White: So, where are we today? I think, well, on the one hand, one might say, we're seeing those conditions reversing and easing; the reality is, in some cases, the impairments and the bankruptcies are just evidencing themselves while the conditions improve, and that's what we have seen in previous credit cycles, because for some of those instances, it's just too late. And what we're seeing is, therefore, it's a faster rise with higher losses than we've seen historically. I will say, except for the fact that we have to remember we haven't had a recession in 15 years; it will take.

Ebrahim Poonawala: So you're just to clarify so you're more expecting the version to the long term average closer to the end of fiscal 25 not through the entire year and then the 50 basis points that when you last quarter you said remain elevated and flat sequentially so in the 40 basic point range for a period we're at 50 now that 50 is kind of like the proper starting point to think about the else remaining elevated over the next few quarters is that correct. Yeah, I would say when we think elevated we know it's a little higher it's hard to pinpoint a number because of this variability you look back at this quarter nine basis points was you know two accounts you look back here to date 50% was 15 accounts.

Piyush Agrawal: So you're just to clarify so you're more expecting the version to the long term average closer to the end of fiscal 25 not through the entire year and then the 50 basis points that when you last quarter you said remain elevated and flat sequentially so in the 40 basic point range for a period we're at 50 now that 50 is kind of like the proper starting point to think about the else remaining elevated over the next few quarters is that correct. Yeah, I would say when we think elevated we know it's a little higher it's hard to pinpoint a number because of this variability you look back at this quarter nine basis points was you know two accounts you look back here to date 50% was 15 accounts.

Speaker Change: While the conditions improve and that's what we have seen in previous credit cycles because for some of those instances, it's just too late.

Speaker Change: and what we're seeing is therefore, you know, it's faster rise with higher losses than we've seen historically, I will say, except for the fact that we have to remember we haven't had a recession in 15 years.

Darryl White: And so, when we look back to that recession, this is actually a very similar pattern to what we saw then in our wholesale portfolio, where we ended up having higher losses in our peers for a short period of time, which is unusual relative to a very long period of time. And I think that's kind of where we are now. The implications, as we've done that, and if you referred to the deep dive, Abraham, are pretty straightforward. I mentioned earlier that 50% of our credit losses year to date are from 15 accounts. When we looked into whether there are common characteristics in those 15 accounts, it's actually quite interesting in terms of what it wasn't and what it is.

Speaker Change: and so when we look back to that recession, this is actually a very similar pattern to what we saw then in our whole solar portfolio.

Speaker Change: where we ended up having higher losses in our periods for a short period of time, which is unusual relative to a very long period of time.

Speaker Change: I think that's kind of where we are now. The implications, as we've done that, I think you referred to the deep dive e-bram, are pretty straightforward. I mentioned earlier that 50% of our credit losses.

Ebrahim Poonawala: So it's these one or two accounts that can move the needle a little bit more, but we expect it to be elevated some of the economic environment as you're seeing again insolvencies and things like that. But it should start coming down towards the second half of the year, you know, because it's the elevation is the next one or two quarters. I appreciate it. Thank you very much. Thank you.

Piyush Agrawal: So it's these one or two accounts that can move the needle a little bit more, but we expect it to be elevated some of the economic environment as you're seeing again insolvencies and things like that. But it should start coming down towards the second half of the year, you know, because it's the elevation is the next one or two quarters. I appreciate it. Thank you very much. Thank you.

Speaker Change: here today from 15 accounts when we looked into whether there are common characteristics in those 15 accounts is actually quite interesting.

Darryl White: It's not a local concentration within geographies in the US; for example, it's not Bemo Legacy versus Bank of the West; there were pretty much pro rata. It's not a specific industry sector; what it is, is there's a vintage of, I call them pandemic loans, that might have had higher leverage and larger holds than if we, if we were able to do them again. And in some cases, expansion geographies. And in most of those cases at PFO pointed out, there were other banks involved. So it wasn't unique to us. I think 70% of the time. In fact, they were syndicated facilities.

Speaker Change: in terms of what it wasn't and what it is.

Speaker Change: It's not.

Speaker Change: A local concentration within geographies in the US for example, it's not the mo legacy versus Bank of the West. There were pretty much pro-rata. It's not a specific industry sector. What it is is there's a vintage of my call them pandemic loans that might have had higher leverage.

Meny Grauman: I'll follow in question is some mini-Growman from Scusherbank. Please go ahead.

Meny Grauman: Mr. Growman your line is open you may proceed with your question. Hi, can you hear me now? Yes, we can hear you now. Thanks a lot.

Darryl White: Mr. Growman your line is open you may proceed with your question. Hi, can you hear me now? Yes, we can hear you now. Thanks a lot. Good morning. Darrel wanted to ask about capital, 30% TQ1, a little bit low expectations, but still very strong, relative to the range of 12 and 12.5%, which seems to be where remote banks are comfortable operating now. So I'm just wondering why, no buyback, given that kind of capital level, are credit concerns keeping you cautious?

Speaker Change: and larger holes than if we were able to do them again.

Darryl White: Good morning. Darrel wanted to ask about capital, 30% TQ1, a little bit low expectations, but still very strong, relative to the range of 12 and 12.5%, which seems to be where remote banks are comfortable operating now. So I'm just wondering why, no buyback, given that kind of capital level, are credit concerns keeping you cautious? And Piyush, you talked about migration during the quarters. I'm wondering if that's part of the story here.

Speaker Change: and some cases expansion geographies.

Speaker Change: and in most of those cases of P4 and Darryl, they were other banks involved so it wasn't unique to us. I think 70% of the time and fact.

Darryl White: So look, when I look forward, I think you asked about, you know, our confidence in terms of where we go from here. We know what those conditions were. We know how to screen the rest of the portfolio for those conditions, and we've done that. And that's why we feel really confident that this is known and it's bounded. And the rest of the portfolio, like 99 point something percent of the portfolio, doesn't exhibit those combinations of characteristics. So, you know, that's what gives us that confidence in a quarter or two. That this will be behind us, but we're going to have to fight through it for the next couple of quarters.

Speaker Change: The Resenticate Facility, so luck!

Speaker Change: When I look forward, I think you asked about, you know, our confidence in terms of where we go from here. We know what those conditions were. We know how to screen the rest of the portfolio for those conditions and we've done that. And that's why we feel really confident that this is known and it's bounded.

Darryl White: And Piyush, you talked about migration during the quarters. I'm wondering if that's part of the story here. No, thank you, many. Thanks for the question. I think it's just more generalized than that. You know, remind myself that we just turned the drip discount off in Q2. And as we assess the overall environment, I think the short answer to your question would be not yet. I think when we look at the overall environment, we're not yet in a position where buying back shares gets a full green light given the various uncertainties.

Speaker Change: and the rest of the portfolio, like 99. something percent of the portfolio, doesn't exhibit those combinations of characteristics. So that's what gives us the confidence in the quarter or two that this will be behind us, but we're going to have to fight through it for the next couple of quarters. Is that helpful?

Darryl White: No, thank you, many. Thanks for the question. I think it's just more generalized than that. You know, remind myself that we just turned the drip discount off in Q2. And as we assess the overall environment, I think the short answer to your question would be not yet. I think when we look at the overall environment, we're not yet in a position where buying back shares gets a full green light given the various uncertainties.

Ebrahim Poonawala: Is that helpful? Yes.

Ebrahim Poonawala: That's helpful, and I'll follow up on the shared national credit exposure later, but I had a question for you, Darryl. From an investor standpoint, 10.6% ROE, is there any short this bank again becomes a 14% ROE, and what will it take to get there? Yeah, well, I will say to you, Ebrahim, we are not backing down on our midterm objective of 15% ROE, and that's because we do see a path to get there. Now, near term, with slower economic growth and the higher capital level that might be a little bit more challenging, but as we go into the medium term, we know how to get there.

Speaker Change: That's helpful and I'll follow up on the shared national credit exposure later. But I had a question for you, Darryl, from an investors standpoint, 10.6% DROE. Is there any short this bank again becomes a 14% DROE and what will it take together?

Darryl White: I would say various uncertainties that we see out there. And we also, at the same time, as I've always said, we want to maintain lots of capital for deployment when we see good customer opportunities and the expectation as we'll start to see some expansion opportunities there as we go into 2025. But look, as always, we put all of those things into the hopper and we make our decisions and we'll update you again at the end of the fourth quarter based on where those conditions are.

Darryl: Yeah, well, I will say to you, Abraham, we are not.

Speaker Change: Backing down on our midterm objective of 15% ROE and that's because we do see a path to get there. Now near-term with slower economic growth.

Darryl: and the higher capital levels, that might be a little bit more challenging, but as we go into the medium-term, we know how to get there, we know what the levers are, they include the normalized credit that I've just talked about, they include continuing to develop positive operating leverage in the business, continuing to optimize the resources of our business and improving the US environment, and when we get those conditions present, those are the levers that get us there. So we're sticking to that.

Darryl White: We know what the levers are. They include the normalized credit that I've just talked about. They include continuing to develop positive operating leverage in the business, continuing to optimize the resources of our business, and improving the US environment. And when we get those conditions present, those are the levers that get us there. So we're sticking to that.

Darryl White: Is that helpful? Just as a follow-up, where you see sort of your comfortable operating range in the city line. Or elevated now, just given the environment. I don't think it's elevated for the long run. Many, I think, we've talked about 12 and a half or above as a reasonable range and it all depends on circumstances. In the short run, we'll keep a close eye on this here for the next quarter or so and we'll get back to you, but there's really no change in our posture.

Darryl White: Thank you.

Mario Mendonca: Thank you.

Speaker Change: Thank you.

Mario Mendonca: The following question is from Mario Mendonka, from TV Securities. Peace, go ahead. Good morning. So BMO's PCOs, as you've disclosed, I have gone from 21 basis points impaired last year to 50 this year. And your peers are something like 24 to 38. So clearly, something's gone wrong, and I appreciate your comments around the pandemic, but the pandemic was not unique to BMO.

Speaker Change: Thank you. I'll follow in question if some Mario Mendenka from TV Security. Please go ahead. Good morning.

Mario Mendenka: So, Bemos PCLs is closed, gone from 21 basis points, impaired last year to 50 this year, and your peers are something like 24 to 38. So, clearly something's gone wrong, and I appreciate your comments around the pandemic, but the pandemic was not unique to Bimo.

Ebrahim Poonawala: We'll follow in question if you have any question from Bank of America. Please go ahead.

Darryl White: We'll follow in question if you have any question from Bank of America. Please go ahead.

Darryl White: Good morning. I guess a question for PUSH and maybe for Daryl on credit. So a couple of things, like, it seems that you have very limited visibility on credit for now and two questions come up. One, is there an issue in terms of the bank having too many outsized credits for its size? Because for a bank of BMO size, one known, two loans moving credit meaningfully quarter after quarter is a little bit surprising.

Ebrahim Poonawala: Good morning. I guess a question for PUSH and maybe for Daryl on credit. So a couple of things, like, it seems that you have very limited visibility on credit for now and two questions come up. One, is there an issue in terms of the bank having too many outsized credits for its size? Because for a bank of BMO size, one known, two loans moving credit meaningfully quarter after quarter is a little bit surprising.

Darryl White: So, as you look back, do you see, can you identify the failures, like the underwriting failures, the mistakes that the bank made? The reason I'm asking the question this way is because it's been my experience that when a bank goes through something like this, and I think the bank is clearly going through something relative to your peers, that changes need to be made, and often those changes lead to subpar growth until the bank figures out what went wrong. So the question is two parts. What went wrong relative to your peers? And secondly, does this necessarily lead to a period of below-average growth as the bank retools?

Speaker Change: So, as you look back, do you see, can you identify the failures, like the underwriting failures, the mistakes that the bank made, and the reason I'm asking the question this way is because...

Speaker Change: It has been my experience that when a bank goes through something like this and the bank is clearly going through something where a lot of tear pairs that changes need to be made and often those changes lead to sub.

Speaker Change: Subpar Growth until the bank figures out what went wrong, so the question is two parts, what went wrong, relative to your peers, and secondly, does this necessarily lead to a period of below average growth as the bank retools?

Darryl White: So one, just talk through in terms of how you're approaching whole size. Are these all shared national credits in the US and you're having to take these charges as you go through the review with examiners? And second, just talk through the process, like given what's happening in the last two quarters, help us gain some confidence that you've done some deep type reviews, what the outcomes have been, and why you have a better handle today in six months ago.

Ebrahim Poonawala: So one, just talk through in terms of how you're approaching whole size. Are these all shared national credits in the US and you're having to take these charges as you go through the review with examiners? And second, just talk through the process, like given what's happening in the last two quarters, help us gain some confidence that you've done some deep type reviews, what the outcomes have been, and why you have a better handle today in six months ago.

Piyush Agrawal: In terms of, you know, did we do something different, our credit underwriting policies, procedures, or robust? And we did not make any significant changes to our credit this appetite over the past several years. You know, I thought about this, and we've taken share in the US in the last few years. It was purposeful. But it was more so in specialty segments, like ABL, sponsor fund lending, and dealer finance. And these are not the areas where we're seeing an increase in impairment. And as you heard from Darrell and peers, we're not seen to stand the cases in the portfolio or losses concentrated in any segment, geography.

Speaker Change: In terms of, you know, did we do something different? Our credit underwriting policies, procedures, or robust, and we did not make any significant changes to our credit risk appetite over the past several years.

Darryl White: Yeah, the prime thanks for that. I would say, let me begin with where we are in terms of our performance. We obviously continue to look at our peers and where we are and I can't comment on any individual bank. But, you know, year to date, second quarter, we were at 35 basis points. Our peer group was a 35 basis points. We're a bit higher right now. We'll see where everybody shapes up.

Ebrahim Poonawala: Yeah, the prime thanks for that. I would say, let me begin with where we are in terms of our performance. We obviously continue to look at our peers and where we are and I can't comment on any individual bank. But, you know, year to date, second quarter, we were at 35 basis points. Our peer group was a 35 basis points. We're a bit higher right now. We'll see where everybody shapes up.

Speaker Change: You know, I thought about this and we've taken share in the U.S. in the last few years. It was purposeful.

Speaker Change: It was more so inspectualty segments like ABL, Sponsor Fund Landing, and Diverfinance, and these are not the areas where we're seeing an increase in impairment and that's your urge from Darryl and Piyush, we're not seeing systemic issues in the portfolio, and loss is concentrated in any segment you'll release.

Piyush Agrawal: It is broad based. We had a growth strategy, but we didn't lose discipline.

Speaker Change: It is broad-based. We had a growth strategy, but we didn't lose discipline, and we've got a, of course, look at our underwriting and portfolio management practices in a changing environment. But it's going to be to support continued growth and support our clients through these times.

Piyush Agrawal: And we're going to, of course, look at our underwriting and portfolio management practices in a changing environment. But it's going to be to support continued growth and support our client through these times.

Darryl White: In the large losses we've had, I would tell you about 70% of those credits we're not alone. We have, these are syndicated facilities, we have banks, North and South of the border, in those in different ranges, different sizes, in some, we're the lead bank, in some others are the lead banks. So these aren't unique to be more, to your point around what have we done, well, we're always, you know, learning from what has happened and what can we change, and I would say we're not anticipating any radical changes to risk appetite, but we're always making refinements.

Ebrahim Poonawala: In the large losses we've had, I would tell you about 70% of those credits we're not alone. We have, these are syndicated facilities, we have banks, North and South of the border, in those in different ranges, different sizes, in some, we're the lead bank, in some others are the lead banks. So these aren't unique to be more, to your point around what have we done, well, we're always, you know, learning from what has happened and what can we change, and I would say we're not anticipating any radical changes to risk appetite, but we're always making refinements.

Nadim Hirji: Yeah, Mario, that is Nadeem. I would just add, again, exactly to the point we've said, if you think about the PCL increase in retail, it's not unique to us. It's systemic. It's, you know, the pressures you're seeing from unemployment and insolvency. So then it gets back to wholesale, and I'm confident we look through our files. It's not thematic to a sector. Yes, we have a transportation finance business. So the business ratings can change some of the PCL performance. Transportation, as you know, and we've covered in our remarks, is going through a tough time, a tough cycle. But we've been in the business 40, 50 years.

Maria: Maria, Darryl Nadim, I would just add again exactly to the point we've said. If you think about the PCL increase, in retail, it's not unique to us, it's systemic, you know, the pressures you're seeing from unemployment and then solving these.

Speaker Change: So then it gets back to wholesale, and I'm confident we've looked through our files, it's not thematic to a sector, yes we have a transportation finance business, so the business ratings can change some of the PCL performance.

Darryl White: I mean, that's what good risk managers and bankers do to ensure we're capturing the evolving risks in the industry. I would tell you in the large losses, there isn't an industry theme, there isn't a geography theme, these are very episodic, but many of these loans have related to underwriting, we have done around the end of the pandemic. And those were exceptional circumstances, liquidity was high, it carried consumers, it carried companies that balance sheets were more liquid, as consumer patterns have shifted, as one of the reasons many of these companies are right now in a position to have higher leverage or not the same operating performance as we expected.

Ebrahim Poonawala: I mean, that's what good risk managers and bankers do to ensure we're capturing the evolving risks in the industry. I would tell you in the large losses, there isn't an industry theme, there isn't a geography theme, these are very episodic, but many of these loans have related to underwriting, we have done around the end of the pandemic. And those were exceptional circumstances, liquidity was high, it carried consumers, it carried companies that balance sheets were more liquid, as consumer patterns have shifted, as one of the reasons many of these companies are right now in a position to have higher leverage or not the same operating performance as we expected.

Speaker Change: Transportation, as you know and we've covered in our remarks, is going through a tough time, a tough cycle but we've been in the business 45 years.

Nadim Hirji: It's still profitable. It just happens to have a higher PCL through a cycle. We're beginning to see some improvements. We hope we'll report those improvements as we go next quarter. And then on the whole scale. The confidence that I have is because, through the reviews of the losses we've gone through, they are broadly in line with a long term expected loss models where you're seeing is the changes that I call unexpected losses. And these are hard to call; they're hard to call, especially when they're non-credit like events in certain cases or in many cases. You know, if there's an auditor resignation or you're going through a cycle where you've got a company for yourself with 10 bidders and all of a sudden there's nobody at the end, they all go away.

Speaker Change: It's still profitable, it just happens to have a higher PCL through a cycle, we're beginning to see some improvements, we hope we'll report those improvements as we go next quarter and then on the whole style.

Speaker Change: The confidence that I have is because through the reviews of the losses we've gone through, they are broadly in line with a long-term expected loss models.

Speaker Change: where you're seeing is the changes that I call unexpected losses.

Speaker Change: And these are hard to call, they're hard to call, especially when they're non-credit-like events in certain cases or in many cases.

Darryl White: So we've gone back, looked at our entire book, combed through underwriting, we've done that, and really I come down to a handful of accounts that are now on a watch list, which is why we are guiding you to a higher elevated performance for the next few quarters, just like we've said for retail, this will get through the system. It's the same thing, we believe the position is contained, it gets through the system, it's hard to pinpoint the exact quarter, but in the next one, maybe two, maybe three, these names should clear the system, and that is why our confidence in reverting back to a long term averages.

Ebrahim Poonawala: So we've gone back, looked at our entire book, combed through underwriting, we've done that, and really I come down to a handful of accounts that are now on a watch list, which is why we are guiding you to a higher elevated performance for the next few quarters, just like we've said for retail, this will get through the system. It's the same thing, we believe the position is contained, it gets through the system, it's hard to pinpoint the exact quarter, but in the next one, maybe two, maybe three, these names should clear the system, and that is why our confidence in reverting back to a long term averages.

Speaker Change: You know, if there's an audit or resignation.

Speaker Change: Are we going through a cycle where you've got a company for sales with 10 bidders and all of a sudden, there's nobody at the end, they all go away. So those lead to some higher numbers, and that's just a function of a credit cycle. I think as this wade through in the next one or two quarters.

Nadim Hirji: So those lead to some higher numbers, and that's just a function of a credit cycle. I think as this way through in the next one or two quarters, we feel pretty good about this returning back to a normal. I think the rate decreases coming in the US, the transmission of what's been happening to the Canada Central Bank rate cuts. These are all positives. That should flow through the system. So we get back to you.

Speaker Change: We feel pretty good about this returning back to a normal. I think the rate decreases coming in the U.S. the transmission of what's been happening to the Canada central bank rate cuts. These are all positive that should flow through the system.

Darryl White: Yeah, and Abraham is there, I would just add to that, that when you look back, I think what we're experiencing here is effectively the delayed consequence of the dynamics that were pretty unique to a pandemic, when you look back at that inflation surge, the unprecedented rise and interest rates, and you consider that time in 2020, for example, when we were all coming to grips with all of those dynamics around the pandemic. And free money was free money from government stimulus, that free money didn't discriminate where it went, everybody got it, and that tends to, in some cases, as Pio said, pretty limited list, but it covers up a lot of problems, which then can come back later, inevitably when we look through that, there will be companies that are stranded as rates rise, inflation persists, consumer preferences change, especially in certain segments.

Ebrahim Poonawala: Yeah, and Abraham is there, I would just add to that, that when you look back, I think what we're experiencing here is effectively the delayed consequence of the dynamics that were pretty unique to a pandemic, when you look back at that inflation surge, the unprecedented rise and interest rates, and you consider that time in 2020, for example, when we were all coming to grips with all of those dynamics around the pandemic. And free money was free money from government stimulus, that free money didn't discriminate where it went, everybody got it, and that tends to, in some cases, as Pio said, pretty limited list, but it covers up a lot of problems, which then can come back later, inevitably when we look through that, there will be companies that are stranded as rates rise, inflation persists, consumer preferences change, especially in certain segments.

Darryl White: Yeah, but that's any reason to take growth down and then your corporate commercial. No, I think it's a good, it's a good question because I think what the Dean said earlier is really important when we assess, you know, what's different about BMO, what all our mixes a little bit different, right? We skew more wholesale, we skew more US, and we're seeing that there are some losses there, but, but Mario, it's not a circumstance where we say, all right, that means the strategy's wrong. Because the reality is what that doesn't consider is that we've also delivered better longer-term growth through the development of that franchise.

Speaker Change: So we get back to you? Yeah, Darryl, but that's just very recent to take growth down in.

Speaker Change: and your Colbert commercial.

Speaker Change: and Piyush Agrawal, Piyush Agrawal, Piyush Agrawal, Piyush Agrawal,

Speaker Change: No, I think it's a good question because I think what the Dean said earlier is

Marianne: Really important when we assess what's different about Bimo, what all our mixes a little bit different, right? We skew more wholesale, we skew more US and we're seeing that there are some losses there. But Marianne, it's not a circumstance where we say, alright, that means the strategy is wrong because The reality is what that doesn't consider is that we've also delivered.

Marianne: Better longer term growth through the development of that franchise. That's been enduring franchise with 90% of the accounts having lead or soul relationships with us.

Darryl White: That's an enduring franchise with 90% of the accounts having lead or soul relationships with us. And when we look at where the losses are presenting, they're actually not in the areas where we've grown out of much faster rate than market, where we've grown at a faster rate than market and take and share. We're actually not experiencing the losses. So when we look at that question overall, you know, there is a business mix of BMO that leads to this for short periods of time, sometimes, and we're in one of those periods right now. It's that it's as simple as that.

Marianne: and when we look at where the losses are presenting, they're actually not in the areas where we've grown.

Marianne: At a much faster rate than market where we've grown out of faster rate than market and taken share, we're actually not experiencing the losses. So when we look at that question overall, you know, there is a business mix that be able that leads to this for short periods of time, sometimes, and we're in one of those periods right now. It's that, it's as simple as that.

Darryl White: So where are we today? I think, well, on the one hand, one might say we're seeing those conditions reversing and easing the reality is, in some cases, the impairments and the bankruptcies are just evidencing themselves while the conditions improve, and that's what we have seen in previous credit cycles, because for some of those instances, it's just too late. And what we're seeing is therefore, you know, it's faster rise with higher losses than we've seen historically, I will say, except for the fact that we have to remember we haven't had a recession in 15 years, it will take.

Ebrahim Poonawala: So where are we today? I think, well, on the one hand, one might say we're seeing those conditions reversing and easing the reality is, in some cases, the impairments and the bankruptcies are just evidencing themselves while the conditions improve, and that's what we have seen in previous credit cycles, because for some of those instances, it's just too late. And what we're seeing is therefore, you know, it's faster rise with higher losses than we've seen historically, I will say, except for the fact that we have to remember we haven't had a recession in 15 years, it will take.

Unknown Attendee: Thank you.

Matthew Lee: A following question is from Matthew Lee from Canacorn Genuity; please go ahead. Good morning, guys. You mentioned the watch list, and I know it's grown from 5% of the book, up from 3% at the end of 23.

Speaker Change: Thank you.

Speaker Change: Thank you. I'll follow in question if from Matuli from Kanakorchiniwiki. Peace go ahead.

Speaker Change: Good morning, guys. You mentioned the wash list and I know the film from to 5% of the book off from through this end at the end of 23. I've needed to talk about what level of credit deterioration a company has to show before they end up on that list and just maybe can detail some of the indicators from the people when you put a company on that list.

Matthew Lee: I'm here to talk about what level of credit deterioration a company has to show before they end up on that list. And just maybe some details; some of the indicators are looking for any company on that list. As you broke up at the end, can you just repeat the last part of the question, please? Yeah, there's some details on the indicators that you look for when you put it on that watch list. Sure. So, you know, we're obviously evaluating credits between our bankers and risk partners throughout a company journey with us. And as we underwrite, risk rating changes that come through because of higher leverage, weaker cash flow, and lower liquidity is what drives our internal ratings.

Darryl White: And so when we look back to that recession, this is actually a very similar pattern to what we saw then in our wholesale portfolio, where we ended up having higher losses in our peers for a short period of time, which is unusual relative to a very long period of time. And I think that's kind of where we are now, the implications as we've done that, and if you referred to the deep dive, Abraham, are pretty straightforward.

Ebrahim Poonawala: And so when we look back to that recession, this is actually a very similar pattern to what we saw then in our wholesale portfolio, where we ended up having higher losses in our peers for a short period of time, which is unusual relative to a very long period of time. And I think that's kind of where we are now, the implications as we've done that, and if you referred to the deep dive, Abraham, are pretty straightforward.

Speaker Change: As you broke up at the end, can you just repeat the last part of the question, please?

Speaker Change: Yeah, there's some details on the indicators that you look for when you put a company on that watch list.

Speaker Change: Sure, so...

Darryl White: You know, I mentioned earlier the 50% of our credit losses year to date are from 15 accounts. When we looked into whether there are common characteristics in those 15 accounts, it's actually quite interesting in terms of what it wasn't and what it is. It's not a local concentration within geographies in the US, for example, it's not bemo legacy versus bank of the West there were pretty much pro rata. It's not a specific industry sector, what it is is there's a vintage of I call them pandemic loans that might have had higher leverage and larger hold them if we if we were able to do them again.

Ebrahim Poonawala: You know, I mentioned earlier the 50% of our credit losses year to date are from 15 accounts. When we looked into whether there are common characteristics in those 15 accounts, it's actually quite interesting in terms of what it wasn't and what it is. It's not a local concentration within geographies in the US, for example, it's not bemo legacy versus bank of the West there were pretty much pro rata. It's not a specific industry sector, what it is is there's a vintage of I call them pandemic loans that might have had higher leverage and larger hold them if we if we were able to do them again.

Speaker Change: We're obviously evaluating credit between our bankers and risk partners throughout the company's journey with us.

Speaker Change: and as we on the right.

Speaker Change: with creating changes that come through because of...

Speaker Change: I'll leverage weaker cash flows lower liquidity

Speaker Change: is what drives our internal ratings.

Nadim Hirji: And when you get to a certain level, we put you in a watch list, which really means we're evaluating you more often; we have a higher connectivity with you. I don't think that symbolic of a problem that something bad is imminent immediately, but it just gives us a perspective on what the watch list is and other things we need to be doing with the client helping the client get back to where they started. So, I wouldn't read more around the watches other than it's a category that allows us to continue to be highly engaged with the client and start also thinking about risk mitigation strategies, which is appropriate at that point of time.

Speaker Change: and when you get to a certain level, if you put your no watch this, which really means...

Speaker Change: We are evaluating you more often, we have a higher connectivity with you. I don't think that's symbolic of a problem that...

Speaker Change: Something bad is imminent immediately, but it just gives us a perspective on what the watch of this is and other things we need to be doing with the client helping the client get back to where they started.

Darryl White: And in some cases expansion geographies, and in most of those cases of PFO pointed out there were other banks involved so it wasn't unique to us. I think 70% of the time, in fact, they were syndicated facilities. So look, when I look forward, I think you asked about, you know, our confidence in terms of where we go from here, we know what those conditions were. We know how to screen the rest of the portfolio for those conditions and we've done that.

Ebrahim Poonawala: And in some cases expansion geographies, and in most of those cases of PFO pointed out there were other banks involved so it wasn't unique to us. I think 70% of the time, in fact, they were syndicated facilities. So look, when I look forward, I think you asked about, you know, our confidence in terms of where we go from here, we know what those conditions were. We know how to screen the rest of the portfolio for those conditions and we've done that.

Speaker Change: So I wouldn't read more around the washes other than it's a category that allows us.

Darryl White: And that's why we feel really confident that this is known and it's bounded. And the rest of the portfolio, like 99 point something percent of the portfolio doesn't exhibit those combinations of characteristics. So, you know, that's what gives us the confidence in a quarter or two that this will be behind us, but we're going to have to fight through it for the next couple of quarters. Is that helpful? That's helpful, and I'll follow up on the shared national credit exposure later.

Ebrahim Poonawala: And that's why we feel really confident that this is known and it's bounded. And the rest of the portfolio, like 99 point something percent of the portfolio doesn't exhibit those combinations of characteristics. So, you know, that's what gives us the confidence in a quarter or two that this will be behind us, but we're going to have to fight through it for the next couple of quarters. Is that helpful? That's helpful, and I'll follow up on the shared national credit exposure later.

Speaker Change: To continue to be highly engaged with the client and start also thinking about risk mitigation strategies, which is appropriate at that point of time. And you've seen that happen through various things you've done around risk mitigation and we continue to do that even now.

Nadim Hirji: And you've seen that happen through various things you've done around risk mitigation, and we continue to do that even now. Okay, that's great.

Tyfun Tuzun: And maybe on the U.S. expense front, efficiency ratio dropping a couple hundred basis points, a quarter of a quarter of a set progress.

Speaker Change: Okay, that's great, and maybe I'm the US expense friend.

Speaker Change: Aficiency ratio dropped in a couple hundred basis points, a quarter of a quarter-stick progress. And you may be looking to mention this round.

Tyfun Tuzun: Can you maybe put in dimensions around where you set that ratio to end up over the medium term, like should we be expecting to see a return to the low 50s, high 40s in the next couple of years, or are there like mitigating factors that you know all set cost reductions there. Yeah, the zero set of moment ago are blue. The broader enterprise target in the medium term continues to be 55%, along with that in the U.S. We do expect our efficiency ratio to come down to lower 50s. Obviously, it would require a better revenue environment in the U.S.

Speaker Change: where you said that they should end up over the median term, like, should we be expecting to see a return to the low 50s high 40s in the next couple of years or are there, like, mitigating factors that, you know, offset cost reduction there.

Darryl White: But I had a question for you, Darrel, from an investor standpoint, 10.6% ROE, is there any short, this bank again becomes a 14% ROE, and what will it take to get there? Yeah, well, I will say to you, Ebrahim, we are not backing down on our midterm objective of 15% ROE, and that's because we do see a path to get there. Now near term with slower economic growth and the higher capital level, that might be a little bit more challenging.

Ebrahim Poonawala: But I had a question for you, Darrel, from an investor standpoint, 10.6% ROE, is there any short, this bank again becomes a 14% ROE, and what will it take to get there? Yeah, well, I will say to you, Ebrahim, we are not backing down on our midterm objective of 15% ROE, and that's because we do see a path to get there. Now near term with slower economic growth and the higher capital level, that might be a little bit more challenging.

Speaker Change: Yeah, the zero set of moments are broader enterprise targets.

Speaker Change: in the medium term continues to be 55% along with that in the U.S.

Speaker Change: We do expect our efficiency ratio to come down to lower fifties. Obviously, it would require a better revenue environment in the U.S.

Tyfun Tuzun: And you know, we need to realize some of the scale benefits in our efficiency ratio as we grow our U.S. business. But yes, our target remains directionally moving. That ratio towards the lower 50s, even to 50% potential.

Speaker Change: and we need to realize some of the scale benefits in our efficiency ratio as we grow our US business. But yes, our target remains directionally moving that ratio towards the lower 50s, even to 50% potential.

Darryl White: But as we go into the medium term, we know how to get there. We know what the levers are. They include the normalized credit that I've just talked about. They include continuing to develop positive operating leverage in the business, continuing to optimize the resources of our business and improving the US environment. And when we get those conditions present, those are the levers that get us there. So we're sticking to that.

Ebrahim Poonawala: But as we go into the medium term, we know how to get there. We know what the levers are. They include the normalized credit that I've just talked about. They include continuing to develop positive operating leverage in the business, continuing to optimize the resources of our business and improving the US environment. And when we get those conditions present, those are the levers that get us there. So we're sticking to that.

Unknown Attendee: All right. Thanks, guys.

Unknown Attendee: I'll pass you on. Thank you.

Speaker Change: All right, thanks for the passing line.

Gabriel Dechaine: I'm following questions from Gabriel DeShane from National Bank Financial. Please go ahead. Yeah. Good morning.

Speaker Change: Thank you.

Speaker Change: I'm following questions from Gabriel the Shane, from National Bank Financial, please go ahead.

Gabriel Dechaine: I just want to follow up on the line of questioning that Mary was going with earlier, terms of, you know, maybe you stuff that went wrong over the past couple of years. I know you're saying it's, you know, normal and consistent with the industry on the consumer side, but on the commercial side, I'm just wondering if, you know, while you were integrating Bank of the West, maybe that watch list wasn't as closely washed as it should have been. Yeah, I can begin to give this fear, and then maybe Nadine can chime in. So we've done obviously extensive diligence set to you Bank of the West portfolio is for the integrated with ours.

Unknown Executive: Thank you.

Darryl White: Thank you.

Speaker Change: Yeah, good morning. I just want to follow up on the line of questioning that Mariah was going with earlier terms of, you know, maybe you stuff that went wrong over the past couple of years. I know you're saying it's, you know, normal and normal.

Mario Mendonca: The following question is from Mario Mendonka, from TV Securities.

Mario Mendonca: The following question is from Mario Mendonka, from TV Securities. Peace go ahead. Good morning. So BMOS PCOs, as you've disclosed, I have gone from 21 basis points impaired last year to 50 this year. And your peers are something like 24 to 38. So clearly, something's gone wrong. And I appreciate your comments around the pandemic. But the pandemic was not unique to BMOS.

Mario Mendonca: Peace go ahead. Good morning. So BMOS PCOs, as you've disclosed, I have gone from 21 basis points impaired last year to 50 this year. And your peers are something like 24 to 38. So clearly, something's gone wrong. And I appreciate your comments around the pandemic. But the pandemic was not unique to BMOS. So as you look back, do you see, do you identify the failures, like the underwriting failures, the mistakes that the bank made?

Speaker Change #100: Consistent with the industry on the consumer side, but on the commercial side I'm just wondering if while you were integrating back in the West, maybe that watch list wasn't as closely washed as it should have been.

Darryl White: So as you look back, do you see, do you identify the failures, like the underwriting failures, the mistakes that the bank made? The reason I'm asking the question this way is because it has been my experience that when a bank goes through something like this. And I think the bank is clearly going through something relative to your peers that changes need to be made and often those changes lead to subpar growth until the bank figures out what went wrong.

Speaker Change #100: Yeah, I can begin, give this Vyush, and then maybe Nadine can chime in.

Mario Mendonca: The reason I'm asking the question this way is because it has been my experience that when a bank goes through something like this. And I think the bank is clearly going through something relative to your peers that changes need to be made and often those changes lead to subpar growth until the bank figures out what went wrong. So the question is two parts. What went wrong relative to your peers? And secondly, does this necessarily lead to a period of below average growth as the bank retools?

Vyush: So, we've done our extensive diligence, that you bank of the Westport for this fully integrated. We haven't seen any different loss performance from the bank of the West. Yet there's a few losses.

Darryl White: We haven't seen any different loss performance from the Bank of the West. Yeah, there's a few losses this quarter, but year to date it's performing exactly in line with our expectations, exactly in line with a legacy BMO portfolio. So I wouldn't say it is a geographic issue or something to do with Bank of the West. Like I said, there aren't industry teams. These are episodic events of credits that are driving some of these issues. But Nadine, I don't know if you would like to add more from the Bank of the West and what we've done.

Speaker Change #102: this quarter but year to date, it's performing exactly in line with the expectations, exactly in line with the legacy B-Mobile for you. So I wouldn't say it is.

Darryl White: So the question is two parts. What went wrong relative to your peers? And secondly, does this necessarily lead to a period of below average growth as the bank retools? In terms of, you know, did we do something different? Our credit underwriting policies, procedures, or robust? And we did not make any significant changes to our creditless capital over the past several years. You know, I thought about this and we've taken share in the US in the last few years.

Speaker Change #102: and Geographic issue or something to do with Bank of the West.

Nadim: Like I said, there aren't industry-teens these are episodic events of credits that are driving some of these issues. But Nadim I don't know if you would like to add more from the bank of the last and what we've done. Yeah, I would just add on to exactly what Piyush said.

Mario Mendonca: In terms of, you know, did we do something different? Our credit underwriting policies, procedures, or robust? And we did not make any significant changes to our creditless capital over the past several years. You know, I thought about this and we've taken share in the US in the last few years. It was purposeful. But it was more so in specialty segments, like ABL, sponsor fund landing, and deeper finance. And these are not the areas where we're seeing an increase in impairment.

Nadim Hirji: Yeah, I would just add on to exactly what Pure said. The portfolio is behaving very, very similar from a legacy business and our Bank of the West business. If I look at our new client acquisition activity and the risk profile and the probability of defaults that are coming into the portfolio, the risk culture is very, very similar as well. You know, we've done a scrub of many accounts that Tears talked about when we talked about the confidence we have and when we're going and that we have this contained and we know what we got. And I'm not seeing any big changes in terms of characteristics between our portfolio and Bank of the West.

Nadim: The portfolio is behaving very, very similar from a legacy business and our blanket of the West business. Look at our new client acquisition activity.

Darryl White: It was purposeful. But it was more so in specialty segments, like ABL, sponsor fund landing, and deeper finance. And these are not the areas where we're seeing an increase in impairment. And as you heard from Darrell and peers, we're not seen to establish issues in the portfolio or losses concentrated in any segment, geography. It is broad based. We had a growth strategy, but we didn't lose discipline. And we've got to, of course, look at our underwriting and portfolio management practices in a changing environment, but it's going to be to support continued growth and support our client through these times.

Nadim: and the risk profile and the problem and the defaults that are coming into the portfolio, the risk culture is very, very similar as well.

Nadim: You know, we've done scob of many accounts that just talked about when we talked about the confidence we have and we're going and we have this contained and we know what we got. And I'm not seeing any big changes in terms of characteristics between our portfolio and back or the West.

Mario Mendonca: And as you heard from Darrell and peers, we're not seen to establish issues in the portfolio or losses concentrated in any segment, geography. It is broad based. We had a growth strategy, but we didn't lose discipline. And we've got to, of course, look at our underwriting and portfolio management practices in a changing environment, but it's going to be to support continued growth and support our client through these times. Yeah, Mario, Darrell Nadeem, I would just add, again, exactly to the point we've said, if you think about the PCL increase in retail, it's not unique to us.

Piyush Agrawal: Okay. And just so I understand your credit outlook, you know, in a clear fashion, you're saying the next one to three quarters are going to be in and around, you know, the credit experience we've seen this quarter. Some variability, I guess, for whatever you're calling it an idiosyncratic situation. But in and around this quarter's level for the next one to three, then after that moving towards the normalized level, which would be what? Yeah, so we were saying, compared to our Q3, we expect Q4, maybe Q1, to be higher, and I'm not giving you a guidance around what that number is because of the variability that exists from these names.

Speaker Change #104: Okay, and just so I understand your...

Speaker Change #105: Cut a outlook on a queer fashion. You're saying...

Darryl White: Yeah, Mario, Darrell Nadeem, I would just add, again, exactly to the point we've said, if you think about the PCL increase in retail, it's not unique to us. It's systemic. It's, you know, the pressures you're seeing from unemployment and insolvency. So then it gets back to wholesale. And I'm confident we look through our files. It's not thematic to a sector. Yes, we have a transportation finance business. So the business ratings can change some of the PCL.

Speaker Change #106: The next one to three quarters are going to be in and around, you know, the accredited experience we've seen this quarter, some variability I guess, for whatever you're calling it, it is an chaotic situation, but in and around.

Mario Mendonca: It's systemic. It's, you know, the pressures you're seeing from unemployment and insolvency. So then it gets back to wholesale. And I'm confident we look through our files. It's not thematic to a sector. Yes, we have a transportation finance business. So the business ratings can change some of the PCL. Performance transportation, as you know, and we've covered in our remarks, is going through a tough time, a tough cycle, but we've been in the business 40, 50 years.

Speaker Change #106: This quarter is level for the next one to three, then after that, moving towards the normalized level, which would be what?

Darryl White: Performance transportation, as you know, and we've covered in our remarks, is going through a tough time, a tough cycle, but we've been in the business 40, 50 years. It's still profitable. It just happens to have a higher PCL through a cycle. We're beginning to see some improvements. We hope we report those improvements as we go next quarter. And then on the wholesale. The confidence that I have is because through the reviews of the losses we've gone through, they are broadly in line with a long term expected loss models where you're seeing is the changes that I call unexpected losses.

Speaker Change #106: So we're saying compared to a Q3, we expect Q4, maybe Q1 to be higher, you know, I'm not giving you a guidance around what that number is because of the variability that exists from these names.

Mario Mendonca: It's still profitable. It just happens to have a higher PCL through a cycle. We're beginning to see some improvements. We hope we report those improvements as we go next quarter. And then on the wholesale. The confidence that I have is because through the reviews of the losses we've gone through, they are broadly in line with a long term expected loss models where you're seeing is the changes that I call unexpected losses.

Piyush Agrawal: So the next couple of quarters really is one, maybe two, maybe three, but really it's the next two quarters, given a confidence of the reviews we've done on where this will be. Also, I think there was a transmission, as we've talked about in many calls. The transmission of central bank policy takes about six to twelve months to go through the system. So that should start helping the market start helping consumers. And so that's why the next couple of quarters elevated, and then after that, receiving back to a long term normal. And long term averages are in the range of about 36 basis points that we've seen over the last 30 years.

Speaker Change #106: So, the next couple of quarters is really is one, maybe two.

Speaker Change #106: May be three, but it's the next two quarters given a confidence of the reviews we've done on where this will be.

Speaker Change #106: Also, I think the transmission, as we've talked about in many calls, the transmission of central bank policy takes about.

Speaker Change #106: 6-12 months ago through the system, so that should start helping the markets start helping consumers. And so that's why the next couple of quarters elevated, and then after that, we're sitting back to a long-term normal, and a long-term averages are in the range of about 36 basis points.

Mario Mendonca: And these are hard to call, they're hard to call especially when they're non credit like events in certain cases or in many cases, you know, if there's an auditor resignation or we're going through a cycle where you've got a company for a sale with 10 bidders and all of a sudden there's nobody at the end, they all go away. So those lead to some higher numbers and that's just a function of a credit cycle.

Darryl White: And these are hard to call, they're hard to call especially when they're non credit like events in certain cases or in many cases, you know, if there's an auditor resignation or we're going through a cycle where you've got a company for a sale with 10 bidders and all of a sudden there's nobody at the end, they all go away. So those lead to some higher numbers and that's just a function of a credit cycle.

Piyush Agrawal: Okay, and again, just languages, you know, important here. You're saying higher, higher than that 36 or higher than what we saw this quarter. For the next couple of quarters, higher than what you saw this quarter. Got it.

Speaker Change #106: that you've seen over the last 30 years. Okay, and again, this language is important here. You're just saying, higher than that 36 or higher than what we saw this quarter.

Speaker Change #107: for the next couple of quarters, higher than what you saw this quarter. Got it. All right. Well, thanks.

Mario Mendonca: I think as this wades through in the next one or two quarters, we feel pretty good about this returning back to a normal. I think the rate decreases coming in the US, the transmission of what's been happening to the Canada Central Bank rate cuts, these are all positives. That should flow through the system. So we get back to you. Yeah, but that's any reason to take growth down in your corporate commercial.

Darryl White: I think as this wades through in the next one or two quarters, we feel pretty good about this returning back to a normal. I think the rate decreases coming in the US, the transmission of what's been happening to the Canada Central Bank rate cuts, these are all positives. That should flow through the system. So we get back to you. Yeah, but that's any reason to take growth down in your corporate commercial.

Unknown Attendee: All right, well, thanks. Thank you.

John Hacen: I'll follow in question. Some John Hacen from Jeffries. Please go ahead.

Speaker Change #107: Thank you. I'll follow in question, if I'm John Haken, I'm Jeff Reeves. Please go ahead.

John Hacen: Don't want to do a circle back in terms of your commentary about the timing of revenue signatures in Bank of the West. You know, understandably, that's being pushed out, but do you still think that you're able to achieve what you originally thought? And can you give us some sort of framework in terms of what you're thinking about timing really forward? Yeah. John, it's a great question. In the short answer is, yes, when we look at the environment, when I look at the revenue environment that's persisted for sort of a year and a half now, since we saw some of the failures in the US banking market with higher deposit costs, with competition there and muted, muted loan volume.

Darryl White: Darryl White is sick of back in terms of your commentary of the timing of breaking your synergies in the bank of the Westdale. I understand that that's very deep pushed out, but you still think you're able to achieve what your regionally thoughts and give us some sort of framework in terms of what you're thinking of timing moving forward.

Mario Mendonca: No, I think I think it's a good, it's a good question because I think what the Dean said earlier is really important when we assess, you know, what's different about BMO or mix is a little bit different, right? We skew more wholesale, we skew more US and we're seeing that there are some losses there, but, but Mario, it's not a circumstance where we say, all right, that means the strategies wrong because the reality is what that doesn't consider is that we've also delivered better longer term growth through the development of that franchise.

Darryl White: No, I think I think it's a good, it's a good question because I think what the Dean said earlier is really important when we assess, you know, what's different about BMO or mix is a little bit different, right? We skew more wholesale, we skew more US and we're seeing that there are some losses there, but, but Mario, it's not a circumstance where we say, all right, that means the strategies wrong because the reality is what that doesn't consider is that we've also delivered better longer term growth through the development of that franchise.

Darryl White: Yes, John, it's a great question in the short answer is yes, when we look at the environment, when I look at the revenue environment that's persisted for sort of

Speaker Change #109: A year and a half now since we saw some of the failures.

Speaker Change #110: in the U.S. banking market with higher deposit costs with competition there and muted loan volumes. That's all it is, right? That's the press, the overall revenue pie for the overall system. You know that, you look across the system, so the available.

Darryl White: That's all it is, right? That's that's depressed the overall revenue pie for the overall system. You know that you look across the system, so the available while it is less than we had forecasted, but underneath that. And that's the simple reason as to why we think it takes a little bit longer to get there. But whether we get there or not is whether we get their; pardon me, is not a question.

Mario Mendonca: That's an enduring franchise with 90% of the accounts having lead or soul relationships with us. And when we look at where the losses are presenting, they're actually not in the areas where we've grown out of much faster rate than market, where we've grown at a faster rate than market and take and share. We're actually not experiencing the losses. So when we look at that question overall, you know, there is a business mix at BMO that leads to this for short periods of time, sometimes, and we're in one of those periods right now. It's that, it's as simple as that.

Darryl White: That's an enduring franchise with 90% of the accounts having lead or soul relationships with us. And when we look at where the losses are presenting, they're actually not in the areas where we've grown out of much faster rate than market, where we've grown at a faster rate than market and take and share. We're actually not experiencing the losses. So when we look at that question overall, you know, there is a business mix at BMO that leads to this for short periods of time, sometimes, and we're in one of those periods right now.

Unknown Executive: Thank you.

Speaker Change #111: Wall, it is less than we had forecasted, but underneath that, and that's the simple reason, as to why we think it takes a little bit longer to get there. But whether we get there or not, is whether we get there, pardon me, is not a question.

Ernie Johansson: We are seeing, in the meantime, within the things that we can control, lots of progress on the PMBB side of business, lots of progress on the commercial side of the business, and even across our wealth and capital markets. And I'm just looking across the table here. Are we tell leader or any going to jump in and give us some examples of that progress. Yeah, thanks, Darryl. And thank you for the question. We're seeing really good momentum in our Western markets fueled by that above targeted brand awareness and consideration in the market that's generating, as Darryl mentioned earlier.

Speaker Change #112: We are seeing in the meantime, within the things that we can control, lots of progress on the...

Darryl White: It's that, it's as simple as that. Thank you.

Darryl White: P&B side of the business, lots of progress on the commercial side of the business and even across our wealth and capital markets and I'm just looking across the table here, our retail leader and he's going to jump in and give you some examples of that progress. Yeah, thanks, Darryl. And thank you for the question. We're seeing really good momentum in our Western markets, fueled by that above targeted brand awareness and consideration in the market that's generating, as Darryl mentioned earlier, strong core deposit, checking and savings growth. That's really important for us. We are positions always around getting top to your deposit growth in the U.S. as well as in Canada. We're also seeing a really strong performance from our branch network in terms of achieving the outcomes.

Unknown Executive: A following question is from Matthew Lee, from Kennec originality. Please go ahead. Good morning, guys. You mentioned the watch list, and I know that from 5% of the book, up from 3% at the end of 23, I can hear you talking about what level of credit deterioration a company has to show before they end up on that list. And just maybe some details of the indicators and looking for any company on that list.

Matthew Lee: A following question is from Matthew Lee, from Kennec originality. Please go ahead.

Unknown Executive: As you broke up at the end, can you just repeat the last part of the question, please? Yeah, there's some details on the indicators that you look for when you put a company on that watch list. So, you know, we're obviously evaluating credits between our bankers and risk partners throughout a company journey with us. And as we underwrite risk rating changes that come through because of higher leverage, weaker cash flows over the quality is what drives our internal ratings.

Unknown Executive: Good morning, guys. You mentioned the watch list, and I know that from 5% of the book, up from 3% at the end of 23, I can hear you talking about what level of credit deterioration a company has to show before they end up on that list. And just maybe some details of the indicators and looking for any company on that list. As you broke up at the end, can you just repeat the last part of the question, please?

Ernie Johansson: Strong core deposit checking and savings growth. That's really important for us. We are positions always around getting top tier deposit growth in the US as well as in Canada. We're also seeing a really strong performance from our branch network in terms of achieving the outcomes we had anticipated they would get to our normal run rate, as we would say in our more Midwest markets. And we're seeing that in particular in California. California is generating about 80% of the productivity that we have in our Illinois and Wisconsin markets, just to give you a flavor of the trajectory that they're on.

Unknown Executive: Yeah, there's some details on the indicators that you look for when you put a company on that watch list. So, you know, we're obviously evaluating credits between our bankers and risk partners throughout a company journey with us. And as we underwrite risk rating changes that come through because of higher leverage, weaker cash flows over the quality is what drives our internal ratings. And when you get to a certain level, we put you in a watch list, which really means we're evaluating you more often.

Speaker Change #113: and Anticipated, they would get to our normal run rate, as we would say, in our more Midwest markets, and we're seeing that. In particular in California, California is generating about 80% of the productivity that we have in our Illinois and Wisconsin markets, just to give you a flavor of the trajectory that they're on. And as I said earlier, digital fails.

Ernie Johansson: And as I said earlier, digital sales strong at 40% year over year. So the fundamentals are there. It's picking up momentum. And as Darryl said, is the market becomes more invigorated. We're going to see that acceleration just continue.

Unknown Executive: And when you get to a certain level, we put you in a watch list, which really means we're evaluating you more often. We have a higher connectivity with you. I don't think that symbolic of a problem that something bad is imminent immediately, but it just gives us a perspective on what the watch list is and other things we need to be doing with the client helping the client get back to where they started.

Dean: Strong at 40% year over year. So the fundamentals are there. It's picking up momentum and as Darryl said, this is the market becomes more invigorated. We're going to see that acceleration just continue. I'll flip it over to the Dean for some comments on commercial.

Unknown Executive: We have a higher connectivity with you. I don't think that symbolic of a problem that something bad is imminent immediately, but it just gives us a perspective on what the watch list is and other things we need to be doing with the client helping the client get back to where they started. So, I wouldn't read more around the watches other than it's a category that allows us to continue to be highly engaged with the client and start also thinking about risk mitigation strategies, which is appropriate at that point of time. And you've seen that happen through various things you've done around risk mitigation and we continue to do that even now.

Nadim Hirji: I'll flip it over to Nadine for some comments on commercial. Okay, thanks, Ernie. Similarly, I'm also seeing Greg Mendton. When I look at new client acquisition, the momentum is strong, the pipelines are strong, and in fact, last quarter was the highest new client acquisition we've had in our Western market since integration. The other thing I also say is our branding. As you know, we've been able to build a very strong brand in our new markets. This has led us to the ability to make significant progress in building talent. So we've had significant successes and adding to our teams and getting us ready, points of good growth.

Dean: Okay, thanks, Rani. Some, earlier, I'm also seeing great momentum. When I look at new client acquisition, the momentum is strong, the pipeline is strong, and in fact last quarter was the highest new client acquisition we've had in our Western Market since integration.

Unknown Executive: So, I wouldn't read more around the watches other than it's a category that allows us to continue to be highly engaged with the client and start also thinking about risk mitigation strategies, which is appropriate at that point of time. And you've seen that happen through various things you've done around risk mitigation and we continue to do that even now.

Dean: The other thing I also say is our branding. As you know, we've been able to build a very strong brand in our new markets, this has led us to the ability to make significant progress.

Dean: in Building Calents. So we've had significant successes in adding to our teams and getting us ready for a good goal.

Unknown Executive: Okay, that's great. And maybe on the U.S, expense front, efficiency ratio dropping a couple hundred basis points, a quarter of a quarter to progress. Can you maybe put in dimensions around where you set that ratio to end up over the medium term, like should we be expecting to see a return to the low 50s high 40s in the next couple of years, or are there like mitigating factors like, you know, all set cost reductions there.

Nadim Hirji: We added the polling incompetence to our team. It's an advisory firm in the alcohol beverage business. This is highly complementary to our wine lending business, and we're just now expanding our media finance business into the California market. So I would call it the making extremely strong progress in a challenging environment.

Speaker Change #115: We added to a polling and confidentiality which an advisory from in the Dialka Hall beverage business.

Speaker Change #115: This was highly complimentary to our wine lending business and we're just now expanding our media finance business into the California market. So I would call it the Making Extremely Strong Program in the Challenging Environment. Yeah, I graph it John by saying, you know, this is what...

Darryl White: Yeah, I’d wrap it, John, by saying, you know, this is what scale benefit should ultimately look like in the long run, which has been our thesis, which is in flat environments, which is what we had for the last year and a half, one who can invest and build capacity, such that that capacity is there to take advantage of expanding environments when they come, ends up winning in the medium term, and that’s that’s the part of the play that we’re in right now, and we feel pretty good about it.

Unknown Executive: Yeah, the zero set of moment ago are blue. The broader enterprise target in the medium term continues to be 55% along with that in the U.S. We do expect our efficiency ratio to come down to lower 50s. Obviously it would require a better revenue environment in the U.S. And, you know, we need to realize some of the scale benefits in our efficiency ratio as we grow our U.S, business. But yes, our target remains directionally moving. That ratio towards the lower 50s, even to 50% potential. All right, thanks for the passing line.

Gabriel Dechaine: Thank you.

John Haken: Scale Benefit should ultimately look like in the long run, which has been our thesis, which is in flat environments, which is what we've had for the last year and a half, one who can...

John Haken: Invest and build capacity, such that that capacity is there to take advantage of expanding environments when they come, ends up winning in the medium term. That's the part of the play that we're in right now, and we feel pretty good about it.

Unknown Attendee: Thanks for the call, so I'll rekey.

Speaker Change #117: Thanks for watching, so I'll be right back.

Lemar Persaud: Thank you. A following question is from Lamar Persaud from Comrax. Please go ahead. Yeah, thanks for taking my question. So just on credit, I'm just wondering, like, what is really preventing you guys from providing more specific guidance on PCL's, given that you guys have done this deep dive in commercial wholesale exposure. Is it because of uncertainty around the rate environment, unemployment, like what are the really the few factors preventing you from going there? Because, as you know, most of your peers are able to provide more specific guidance on credit losses, at least on the impaired side.

Speaker Change #118: Thank you.

Piyush Agrawal: I'm following questions from tomorrow, Piyush Agrawal, Piyush Agrawal. Yeah, thanks for taking my question. So just on credit, I'm just wondering, like, what is really preventing you guys from providing?

Unknown Executive: All right, thanks for the passing line.

Unknown Executive: Thank you.

Gabriel Dechaine: I'm following questions from Gabriel DeShane, from National Bank Financial. Please go ahead. Yeah, good morning. I just want to follow up on the line of questioning that Maria was going with earlier terms of, you know, maybe stuff that went wrong over the past couple of years. I know you're saying it's, you know, normal and consistent with the industry on the consumer side, but on the commercial side, I'm just wondering if, you know, while you were integrating Bank of the West, maybe that watch list wasn't as closely washed as it should have been.

Piyush Agrawal: More specific guidance on PCLs, given that you guys have done this deep dive.

Speaker Change #119: in commercial wholesale exposures. Like is it because of uncertainty around the rate environment, unemployment, like what are the really the few factors preventing you from going there? Because as you know, most of your peers are able to provide more specific guidance on credit losses, at least on the impaired side.

Piyush Agrawal: Yeah, thanks, Lamar. You know, I would just say for the retail portfolio, and we don't give individual business guidance, it's easier there because of the way it flows into what an impairment is in the whole set in a benign environment. Again, easier, but when you get into a situation of a credit cycle where we are, it's always hard. It's always hard to put a number for a quarter. I can guide you for a year, but I can never be able to tell you exactly which quarter and how much amount, and we've seen that we've talked about this a couple of times.

Speaker Change #119: Yeah, thanks, Lamar Spirush. You know, I would just say...

Speaker Change #120: For the retail portfolio, and we don't give individual business guidance. It's easier there because of the way it flows into what an impairment is. In the whole set in a benign environment.

Darryl White: Yeah, I can begin to give it a speech and then maybe Nadine can chime in. So we've done obviously extensive diligence. I've set to you, Bank of the West portfolio is for the integrated with ours. We haven't seen any different loss performance from the Bank of the West. Yeah, there's a few losses this quarter, but year to date, it's performing exactly in line with our expectations exactly in line with the legacy BMO portfolio.

Piyush Agrawal: Yeah, I can begin to give it a speech and then maybe Nadine can chime in. So we've done obviously extensive diligence. I've set to you, Bank of the West portfolio is for the integrated with ours. We haven't seen any different loss performance from the Bank of the West. Yeah, there's a few losses this quarter, but year to date, it's performing exactly in line with our expectations exactly in line with the legacy BMO portfolio.

Speaker Change #120: Again, easier. When you get into a situation of a credit cycle where we are, it's always hard. It's always hard to put a number for a quarter. I can guide you for a year, but I can never be able to tell you exactly which quarter and how much amount. And we've seen that we've talked about this couple of times.

Piyush Agrawal: We know names and impairment; we know what their expected losses might be, but what you're seeing coming out after a long period of a benign environment into this credit cycle is that the variability has been very high for various reasons. And it's been compounded because of the rate environment; it's been compounded by credit conditions that being compounded by a pullback from regional banks who are also active lenders in many of these areas. So all of these could change the situation, but I can see a situation which could be as high as 50 basis points, where to low 60s, high 50s, low 60s, but I'm not giving a prescriptive guidance just because in the last one or two quarters, one or two accounts can skew that overall number.

Piyush Agrawal: So I wouldn't say it is a geographic issue or something to do with Bank of the West. Like I said, there aren't industry teams. These are episodic events of credits that are driving some of these issues.

Speaker Change #120: We know names in impairment, we know what their expected losses might be, but what you're seeing coming out after a long period of a benign environment into this credit cycle.

Speaker Change #120: that the variability has been very high for various reasons and it has been compounded because of the rate environment, it has been compounded by credit conditions, it has been compounded by a pullback from regional banks.

Nadim Hirji: But Nadine, I don't know if you would like to add more from the Bank of the West and what we've done. Yeah, I would just add on to exactly what Pierce said. The portfolio is behaving very, very similar from a legacy business and our Bank of the West business. If I look at our new client acquisition activity and the risk profile and the probability of defaults that are coming into the portfolio, the risk culture is very, very similar as well.

Speaker Change #120: who are also active lenders in many of these areas. So, all of these.

Speaker Change #121: Good, you know, change the situation. But you know, I can see a situation which could be as high as 50 basis point where to low 60s, high 50s, low 60s.

Nadim Hirji: You know, we've done scrub of many accounts that Pierce talked about when we talked about the confidence we have and where we're going and that we have this contained and we know what we got. And I'm not seeing any big changes in terms of characteristics between our portfolio and Bank of the West.

Speaker Change #121: But I'm not giving you prescriptive guidance, because in the last one or two quarters.

Speaker Change #121: One or two accounts can skew that overall number.

Darryl White: And that's why it's good to be in the range that it will be higher and then start coming down. Yeah, Lamar, I just say that I get what you guys are wrestling with, which is the difficulty of forecasting with precision. And you'd love RCRO to tell you the data on the calendar and the exact amount that we pick at, and that would be great for all of us. But just to kind of get you a little bit more behind the curtain, you know, if you imagine that you can do a reasonable job, we and anybody at projecting where you think defaults might come from, you know, not perfect, but reasonable.

Speaker Change #121: and that's why you know it's good to be in the range.

Darryl White: Okay. And just so I understand your credit outlook, you know, you know, clear fashion. You're saying the next one to three quarters are going to be in and around, you know, the credit experience we've seen this quarter. Some variability, I guess, for whatever you're calling it an idiosyncratic situation. But in and around this quarter's level for the next one to three, then after that moving towards the normalized level, which would be what?

Piyush Agrawal: Okay. And just so I understand your credit outlook, you know, you know, clear fashion. You're saying the next one to three quarters are going to be in and around, you know, the credit experience we've seen this quarter. Some variability, I guess, for whatever you're calling it an idiosyncratic situation. But in and around this quarter's level for the next one to three, then after that moving towards the normalized level, which would be what?

Speaker Change #121: that it will be higher.

Speaker Change #121: and then shot coming down.

Speaker Change #122: Yeah, I just say that I get what you guys are wrestling with, which is the difficulty of forecasting with precision.

Speaker Change #122: and you'd love our CRO to tell you the data on the calendar and the exact amount that we peek at and that would be great for all of us.

Speaker Change #122: But just to kind of get you a little bit more behind the curtain, you know, if you imagine that you can do a reasonable job, we in anybody, at projecting where you think.

Speaker Change #122: Defaults might come from, you know, not perfect, but reasonable. It gets even more difficult though than when you go to the next level, which is what's the last given default.

Darryl White: It gets even more difficult, though, than when you go to the next level, which is what's the last given default. And we might have an assumption on what the lost given default is, but in circumstances that are in some cases highly unusual, that outcome could be worse. And we've seen a couple of instances where it has been more than any model would have forecast it because there was no model that forecasted the very dynamics that I talked about earlier in this call. And so that's what makes it a little bit challenging. We do, you know, that's the tough part of the cycle, but the good news is, I mean, I think you've heard Pure say pretty clearly on the topic of where we're going from here, that he thinks we go a little bit higher here for a quarter or two, but then we return to our long run average of 36 basis points as we go through 2025.

Darryl White: Yeah, so we're saying compared to our Q3, we expect Q4, maybe Q1 to be higher, and I'm not giving you a guidance around what that number is because of the variability that exists from these names. So the next couple of quarters really is one, maybe two, maybe three, but really it's the next two quarters given a confidence of the reviews we've done on where this will be. Also, I think there was a transmission as we've talked about in many calls, the transmission of central bank policy takes about six to 12 months to go through the system, so that should start helping the market start helping consumers.

Piyush Agrawal: Yeah, so we're saying compared to our Q3, we expect Q4, maybe Q1 to be higher, and I'm not giving you a guidance around what that number is because of the variability that exists from these names. So the next couple of quarters really is one, maybe two, maybe three, but really it's the next two quarters given a confidence of the reviews we've done on where this will be. Also, I think there was a transmission as we've talked about in many calls, the transmission of central bank policy takes about six to 12 months to go through the system, so that should start helping the market start helping consumers.

Speaker Change #122: and we might have an assumption on what the law's given default is but in circumstances that are, in some cases, highly unusual, that outcome could be worse and we've seen a couple of instances where it has than any model would have forecasted because there was no model that forecasted the very dynamics that I talked about earlier in this call. And so that's what makes it a little bit challenging. We do, you know, that's the tough part of the cycle, but the good news is

Speaker Change #122: I mean, I think he heard Piyush say pretty clearly on the topic of where we're going from here that he thinks we go a little bit higher here for a quarter or two, but then we return to our long-run average of 36 basis points.

Darryl White: And so that's why the next couple of quarters elevated and then after that, receding back to a long term normal and a long term averages are in the range of about 36 basis points that we've seen over the last 30 years. Okay, and again, just languages, you know, important here, you're saying higher, higher than that 36 or higher than what we saw this quarter. For the next couple of quarters, higher than what you saw this quarter. Got it.

Piyush Agrawal: And so that's why the next couple of quarters elevated and then after that, receding back to a long term normal and a long term averages are in the range of about 36 basis points that we've seen over the last 30 years. Okay, and again, just languages, you know, important here, you're saying higher, higher than that 36 or higher than what we saw this quarter. For the next couple of quarters, higher than what you saw this quarter. Got it.

Lemar Persaud: So I, you know, I hope that's actually pretty helpful. We're not; we're not trying to dodge the question. That's a fair bit of a fair bit of guidance. We shank at least, and, you know, that'll depend on the variability that goes around all. Is that helpful, Lamar? No, it's helpful. Yeah, it just sounds like it's, I guess, more because of a mixed issue. The other, your peers are probably able to better mask it given there. Perhaps, but I will, you know, I will remind us that our, you know, our total losses year to date are 40 basis points.

Speaker Change #123: As we go through 2025, so I hope that's actually pretty helpful. We're not trying to dodge the question. That's a fair bit of guidance we shank at least and that'll depend on the variability that goes around all of that.

Darryl White: Alright, well, thanks.

Gabriel Dechaine: Alright, well, thanks.

Paul: Is that helpful to Mark? Well, Paul, it sounds like it's a mix issue. Your peers are probably able to better mask it given their head to their ingredients. Perhaps, perhaps, but I will remind us that our total losses here to date are 40 basis points.

John Aiken: I'll following questions from John Haken from Jeffries. Please go ahead.

John Aiken: Thank you. I'll following questions from John Haken from Jeffries. Please go ahead.

Darryl White: Okay, then you guys mentioned that, you know, some of these losses in the commercial and wholesale businesses are syndicated position. So I'm assuming you'd see what peers are involved in these loans. When you look across some of your peers, does that are involved in these loans that went bad? Does it feel like elevated PCOs are more just BMO being conservative on credit? Or are they simply just more meaningful to BMO? Yeah, it's a talk to say because every bank gets to choose, you know, how they're doing the valuation and the way they are in different parts of credit mitigation and capital structure and things like that.

Speaker Change #125: Okay, and then just to know, you guys mentioned that, you know, some of these losses in the commercial and wholesale businesses.

John Aiken: I don't want to do a circle back in terms of your commentary about the timing of revenue signatures in Bank of the West. You know, understandably that's being pushed out, but do you still think that you're able to achieve what you originally thought? And can you give us some sort of framework in terms of what you're thinking about timing really forward? Yeah. John, it's a great question in the short answer is yes.

Darryl White: I don't want to do a circle back in terms of your commentary about the timing of revenue signatures in Bank of the West. You know, understandably that's being pushed out, but do you still think that you're able to achieve what you originally thought? And can you give us some sort of framework in terms of what you're thinking about timing really forward? Yeah.

Speaker Change #126: Our syndicated position, so I'm assuming you'd see what peers are involved in these loans. When you look across some of your peers, does that are involved in these loans that went bad? Does it feel like elevated PCLs are more just B-mobile and conservative on credit? Or are they simply just more meaningful to B-mobile?

Unknown Executive: John, it's a great question in the short answer is yes. When we look at the environment, when I look at the revenue environment that's persisted for sort of a year and a half now, since we saw some of the failures in the US banking market with, you know, higher deposit costs with competition there and muted, muted loan volume. That's all it is, right? That's the press the overall revenue pie for the overall system.

Speaker Change #127: It's hard to say because every band gets to choose, you know, how they're doing the valuation and where they are in.

John Aiken: When we look at the environment, when I look at the revenue environment that's persisted for sort of a year and a half now, since we saw some of the failures in the US banking market with, you know, higher deposit costs with competition there and muted, muted loan volume. That's all it is, right? That's the press the overall revenue pie for the overall system. You know that you look across the system. So the available wallet is less than we had forecasted, but underneath that.

Speaker Change #128: different parts of credit mitigation and capital structure and things like that.

Darryl White: So I really can't, you know, comment on those. I would tell you, we haven't shied away from a credit culture. We see a problem. We take the impairment. We take a best case estimate. We revise our best case estimate every quarter as a situation progresses. And over time you've seen the coverage, and I think over time you're going to see recoveries. And that's the hope. But in the quarter, we see the impairment.

Speaker Change #129: So, I very can't comment on those.

Speaker Change #130: I would tell you, we haven't tried away from our credit culture, we see a problem, we take the impairment, we take a best case estimate, we revise our best case estimate every quarter as a situation progress is and over time you've seen recoveries and I think over time you

Unknown Executive: You know that you look across the system. So the available wallet is less than we had forecasted, but underneath that. And that's that's the simple reason as to why we think it takes a little bit longer to get there. But whether we get there or not is whether we get their pardon me is not a question. We are seeing in the meantime within the things that we can control lots of progress on the PMBB side of the business, lots of progress on the commercial side of the business and even across our wealth of capital markets.

Speaker Change #130: and that's the hope.

Darryl White: I think it's a good risk practice that we shall continue, which is you take the impairment then, and you move forward.

Speaker Change #130: Buck.

Speaker Change #130: In the Quarterly CD impairment, I think it's a good risk practice that it shall continue, which is you take the impairment then and you move forward.

John Aiken: And that's that's the simple reason as to why we think it takes a little bit longer to get there. But whether we get there or not is whether we get their pardon me is not a question. We are seeing in the meantime within the things that we can control lots of progress on the PMBB side of the business, lots of progress on the commercial side of the business and even across our wealth of capital markets.

Unknown Attendee: I appreciate the time. Thank you.

Piyush Agrawal: and Piyush Agrawal.

Piyush Agrawal: Thank you.

Operator: That's all the time we have for questions.

Speaker Change #131: That's all the time we have for questions. I would not like to turn the meeting back over to that in a while.

Darryl White: I would not like to turn the meeting back over today and white. Okay.

Darryl White: Thank you, operator, and thank you all for your questions today. I would just wrap very quickly with our performance reflects both the operating momentum, which will endure. And the higher credit cost, which have you heard, we expect to moderate through 2025. Our strategic goals are firmly in place. And that's because we built a clear competitive advantage in a highly fragmented US market, capturing our one client opportunities across the relationships and modernizing the digital capabilities of the bank for the future. So I'm confident in the power of our integrated North American franchise to deliver long-term value, and we look forward to speaking to you again in this summer.

Speaker Change #132: Okay, thank you, operator, and thank you all for your questions today. I would just wrap very quickly living our performance.

John Aiken: And I'm just looking across the table here are we tell leader or any going to jump in and give us some examples of that progress. Yeah, thanks, Darryl. And thank you for the question. We're seeing really good momentum in our Western markets fueled by by that above targeted brand awareness and consideration in the market. That's generating as Darryl mentioned earlier strong core deposit checking and savings growth. That's really important for us.

Unknown Executive: And I'm just looking across the table here are we tell leader or any going to jump in and give us some examples of that progress. Yeah, thanks, Darryl. And thank you for the question. We're seeing really good momentum in our Western markets fueled by by that above targeted brand awareness and consideration in the market. That's generating as Darryl mentioned earlier strong core deposit checking and savings growth. That's really important for us.

Speaker Change #132: Reflects both the operating momentum which will endure.

Speaker Change #132: and the higher credit cost, which, as you heard, we expect to moderate through 2025. Our strategic goals are firmly in place, and that's because we built a clear competitive advantages in a highly fragmented US market, capturing our one-clin opportunities.

Speaker Change #132: across the relationships and modernizing the digital capabilities of the bank for the future. So, I'm confident in the power of our integrated North American franchise to deliver long-term value and we look forward to speaking to you again in December. Thank you.

John Aiken: We are positions always around getting top tier deposit growth in the US as well as in Canada. We're also seeing a really strong performance from our branch network. In terms of achieving the outcomes we had anticipated they would get to our our normal run rate as we would say in our in our more Midwest markets. And we're seeing that in particular in California, California is generating about 80% of the productivity that we have in our Illinois and Wisconsin markets.

Unknown Executive: We are positions always around getting top tier deposit growth in the US as well as in Canada. We're also seeing a really strong performance from our branch network. In terms of achieving the outcomes we had anticipated they would get to our our normal run rate as we would say in our in our more Midwest markets. And we're seeing that in particular in California, California is generating about 80% of the productivity that we have in our Illinois and Wisconsin markets.

Operator: Thank you.

Operator: The conference has now ended. Please disconnect your lines of this time. And we thank you for your participation.

Speaker Change #133: Thank you. The conference has now ended. Please disconnect your lines at this time. And we thank you for your participation.

Speaker Change #134: I'm going to take a look at the picture of a girl who is in the middle of the night.

John Aiken: It's just to give you a flavor of the trajectory that they're on. And as I said earlier digital sales strong at 40% year over year. So the fundamentals are there. It's picking up momentum. And as Darryl said is the market becomes more invigorated. We're going to see that acceleration just continue.

Unknown Executive: It's just to give you a flavor of the trajectory that they're on. And as I said earlier digital sales strong at 40% year over year. So the fundamentals are there. It's picking up momentum. And as Darryl said is the market becomes more invigorated. We're going to see that acceleration just continue.

Unknown Executive: I'll flip it over to Nadine for some comments on commercial. Okay, thanks Ernie. Similarly, I'm also seeing Greg Momentum when I look at new client acquisition, the momentum is strong, the pipelines are strong, and in fact last quarter was the highest new client acquisition we've had in our Western market since integration. The other thing I also say is our branding. As you know, we've been able to build a very strong brand in our new markets.

Nadim Hirji: I'll flip it over to Nadine for some comments on commercial. Okay, thanks Ernie. Similarly, I'm also seeing Greg Momentum when I look at new client acquisition, the momentum is strong, the pipelines are strong, and in fact last quarter was the highest new client acquisition we've had in our Western market since integration. The other thing I also say is our branding. As you know, we've been able to build a very strong brand in our new markets.

Unknown Executive: This has led us to the ability to make significant progress in building talent. So we've had significant successes and adding to our teams and getting us ready, points of good growth. We added Zipponian company to our team, it's an advisory firm in the alcohol beverage business. This is highly complementary to our wine lending business, and we're just now expanding our media finance business into the California market. So I would call it the making extremely strong progress in a challenging environment.

Nadim Hirji: This has led us to the ability to make significant progress in building talent. So we've had significant successes and adding to our teams and getting us ready, points of good growth. We added Zipponian company to our team, it's an advisory firm in the alcohol beverage business. This is highly complementary to our wine lending business, and we're just now expanding our media finance business into the California market. So I would call it the making extremely strong progress in a challenging environment.

Darryl White: Yeah, I'd wrap it, John, by saying, you know, this is what scale benefit should ultimately look like in the long run, which has been our thesis, which is in flat environments, which is what we had for the last year and a half, one who can invest and build capacity, such that that capacity is there to take advantage of expanding environments when they come, ends up winning in the in the medium term, and that's that's the part of the play that we're in right now, and we feel pretty good about it.

Darryl White: Yeah, I'd wrap it, John, by saying, you know, this is what scale benefit should ultimately look like in the long run, which has been our thesis, which is in flat environments, which is what we had for the last year and a half, one who can invest and build capacity, such that that capacity is there to take advantage of expanding environments when they come, ends up winning in the in the medium term, and that's that's the part of the play that we're in right now, and we feel pretty good about it. Thanks for the call, so I'll rekey.

Lemar Persaud: Thank you.

Unknown Executive: Thanks for the call, so I'll rekey.

Lemar Persaud: Thank you.

Darryl White: A following question is from Lamar Persaud from Comrax. Please go ahead. Yeah, thanks for taking my question. So just on credit, I'm just wondering, like, what is really preventing you guys from providing more specific guidance on PCL's given that you guys have done this deep dive in commercial wholesale exposure? Is it because of uncertainty around the rate environment, unemployment? Like what are the really the few factors preventing you from going there?

Darryl White: Because as you know, most of your peers are able to provide more specific guidance on credit losses, at least on the impaired side. Yeah, thanks Lamar Persaud. You know, I would just say for the retail portfolio and we don't give individual business guidance, it's easier there because of the way it flows into what an impairment is in the wholesale in a benign environment. Again, easier, but when you get into a situation of a credit cycle where we are, it's always hard.

Darryl White: It's always hard to put a number for a quarter. I can guide you for a for a year, but I can never be able to tell you exactly which quarter and how much amount and we've seen that we've talked about this couple of times. We know names and impairment. We know what their expected losses might be, but what you're seeing coming out after a long period of a benign environment into this credit cycle that the variability has been very high for various reasons.

Darryl White: And it's been compounded because of the rate environment. It's been compounded by credit conditions that being compounded by a pullback from regional banks who are also active lenders in many of these areas. So all of these could, you know, change the situation. But, you know, I can see a situation which could be as high as 50 basis point where to low 60s, high 50s, low 60s. But I'm not giving a prescriptive guidance just because in the last one or two quarters, one or two accounts can skew that overall number.

Darryl White: And that's why, you know, it's good to be in the range that it will be higher and then start coming down. Yeah, Lamar, I just say that I get what you guys are wrestling with, which is the difficulty of forecasting with precision. And you'd love RCRO to tell you the data on the calendar and the exact amount that we pick at and that would be great for all of us. But just to kind of get you a little bit more behind the curtain, you know, if you imagine that you can do a reasonable job, we and anybody at projecting where you think defaults might come from, you know, not perfect, but reasonable.

Darryl White: It gets even more difficult though than when you go to the next level, which is what's the loss given default. And we might have an assumption on what the loss given default is, but in circumstances that are in some cases highly unusual, that outcome could be worse. And we've seen a couple of instances where it has been any model would have forecast it because there was no model that forecasted the very dynamics that I talked about earlier in this call.

Darryl White: And so that's what makes it a little bit challenging. We do, you know, that's the tough part of the cycle, but the good news is, I mean, I think you've heard pure say pretty clearly on the topic of where we're going from here that he thinks we go a little bit higher here for a quarter or two, but then we return to our long run average of 36 basis points as we go through 2025.

Darryl White: So I, you know, I hope that's actually pretty helpful. We're not, we're not trying to dodge the question. That's a fair bit of a fair bit of guidance. We shank at least and, you know, that'll depend on the variability that goes around all. Is that helpful, Lamar? No, it's helpful. Yeah, it just sounds like it's, I guess, more because of a mixed issue. The other, your peers are probably able to better mask it given there.

Darryl White: Perhaps, perhaps, but I will, you know, I will remind us that are, you know, our total losses year to date are 40 basis points. Okay, then just in order, you guys mentioned that, you know, some of these losses in the commercial and wholesale businesses are syndicated positions. So I'm assuming you'd see what peers are involved in these loans. When you look across some of your peers, does that are involved in these loans that went bad?

Darryl White: Does it feel like elevated PCOs are more just BMO being conservative on credit? Or are they simply just more meaningful to BMO? Yeah, it's a talk to say because every bank gets to choose, you know, how they're doing the valuation and the way they are in different parts of credit mitigation and capital structure and things like that. So I really can't, you know, comment on those. I would tell you we haven't shied away from a credit culture.

Darryl White: We see a problem. We take the impairment. We take a best case estimate. We revise our best case estimate every quarter as a situation progresses. And over time, you've seen the coverage. And I think over time, you're going to see the coverage. And that's the hope. But in the quarter, we see the impairment. I think it's a good risk practice that we shall continue, which is you take the impairment then and you move forward. Let's appreciate the time. Thank you.

Darryl White: That's all the time we have for questions. I would not like to turn the meeting back over to the white. Okay, thank you operator and thank you all for your questions today. I would just wrap very quickly within our performance reflects both the operating momentum, which will endure and the higher credit cost, which have you heard, we expect to moderate through 2025 our strategic goals are firmly in place. And that's because we built a clear competitive advantages and a highly fragmented US market, capturing our one client opportunities across the relationships and modernizing the digital capabilities of the bank for the future. So I'm confident in the power of our integrated North American franchise to deliver long term value. And we look forward to speaking to you again in December. Thank you.

Operator: That's all the time we have for questions. I would not like to turn the meeting back over to the white. Okay, thank you operator and thank you all for your questions today. I would just wrap very quickly within our performance reflects both the operating momentum, which will endure and the higher credit cost, which have you heard, we expect to moderate through 2025 our strategic goals are firmly in place. And that's because we built a clear competitive advantages and a highly fragmented US market, capturing our one client opportunities across the relationships and modernizing the digital capabilities of the bank for the future.

Operator: So I'm confident in the power of our integrated North American franchise to deliver long term value. And we look forward to speaking to you again in December. Thank you. The conference has now ended. Please disconnect your lines at this time.

Operator: The conference has now ended. Please disconnect your lines at this time.

Operator: And we thank you for your participation.

Q3 2024 Bank of Montreal Earnings Call

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