Thank you and good morning. We will begin the call with remarks from Darryl White, BMO's CEO; followed by Tayfun Tuzun, our Chief Financial Officer; and Piyush Agrawal, our Chief Risk Officer. Also present today to take questions are Ernie Johansson, Head of BMO North American Personal and Business Banking; Nadim Hirji, Head of BMO Commercial Banking; Alan Tannenbaum, Head of BMO Capital Markets; Deland Kamanga, Head of BMO Wealth Management; and Darrel Hackett, BMO US CEO. 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 Tayfun will be referring to adjusted results in their remarks unless otherwise noted. I will now turn the call over to Darryl.

Thank you, Christine, and good morning, everyone. Today we announced adjusted net income of $2 billion and adjusted earnings per share of $2.59, with a $0.04 increase in our dividend up 5% over last year. We achieved strong pre-provision pre-tax earnings growth of 7% from last year, driven by continued momentum in Canadian personal and commercial banking and strengthening performance in our capital markets and wealth businesses. Canadian P&C delivered record revenue up 13% year-over-year with industry-leading growth in customer acquisition contributing to market share gains. We've seen strong momentum from newcomers to Canada, up 35% compared with last year, due to the success of BMO's New Start program, pre-arrival digital tools and advice, all aimed at helping new Canadians make real financial progress. BMO capital markets had strong pre-provisioned pre-tax earnings of $642 million within the range we have guided to and up 21% from last year, driven by good client activity and record results in debt underwriting. We met our commitment to positive operating leverage this quarter, which was very strong at 3%. Expenses were down from last year and from last quarter due to the achievement of the Bank of the West cost synergies and a large portion of the incremental operational efficiency savings we announced last year. We remain focused on delivering positive operating leverage for the full year. Credit risk, while elevated from last quarter, is well managed in what continues to be a challenging environment for many of our customers, where some individuals and businesses are being impacted by prolonged higher interest rates and a slowing economy. We now expect somewhat fewer and delayed rate cuts this year in both Canada and the US, with the Bank of Canada expected to begin lowering rates this summer and the Fed in the fall at a moderated pace. Our balance sheet is stronger than ever with a growing core deposit base, a CET1 ratio of 13.1% and prudent loan loss provisions. Since Q2 of 2023, which was the first quarter after the closing of the Bank of the West acquisition, we have effectively and quickly rebuilt our liquidity and capital positions. During that period, we added $48 billion in customer deposits, kept our liquidity and funding ratios stable, and added a full 90 basis points to our CET1 ratio, positioning us very well for capital allocation optionality heading into 2025. Our US businesses continue to be a key differentiator for BMO, with our US Segment contributing 45% to the bank's earnings and a significant driver of long-term growth. We have a strong foundation, building on our position as a top 10 US Bank, with a presence in 14 of the top 25 MSAs and a leading market share in businesses like RV Marine, Equipment Finance, and Wine and Spirits. We are competing from a position of strength. Since March of last year, the US banking industry has experienced more muted loan growth and intensified deposit competition as the Fed continues quantitative tightening. Meanwhile, BMO's strategy hasn't changed. We're building clear competitive advantages in a highly fragmented market structure. And as a result, we've delivered resilient performance ahead of US Regional bank competitors, reflecting our deep experience competing in this market, the expanded scale of our business, and strong execution of cost savings. Pre-provisioned pre-tax earnings in our US Segment exceeded $1 billion for the fifth consecutive quarter, growing 7% over last year, well above peer averages. Over the last four quarters, we've grown deposits, we've seen stability in commercial lending, and we've managed margins. Brand recognition is strong, having achieved a meaningful share of voice in California and surpassing our targets for awareness and consideration, leading to good customer acquisition. In retail in particular, we've improved branch productivity in the New West markets by 17% since the beginning of the fiscal year, complemented by strong digital sales and digital adoption. March was a record new high for new business generation across the retail and commercial businesses, including record client referrals. In commercial banking, we've retained over 90% of our clients post-conversion and we're now building our base with good new client acquisition. We're unlocking cross-sell opportunities and expanding in key verticals. For example, in our wine and spirit sector, our combined teams are exporting expertise from the US West Coast to grow and better serve clients in the Canadian winery market, while bringing M&A expertise to our US clients with five completed or underway deals. We're also leveraging our leading North American Treasury management and payment solutions. The capabilities we offer are not easily replicated and continue to be enhanced, including seamless access to FX trading capabilities and cross-border money movement. Clients that bank with us on both sides of the border have deeper relationships with over 10% higher revenue and 30% higher deposits. While the overall environment may continue to constrain revenue growth in the near-term, we continue to invest to build on our early success and capture profitable market share and create value for the long term. Our digital first strategy is an important driver of our growth aspirations, and we've empowered our teams to develop and deploy leading digital solutions that drive tangible customer and business value. We're using agile practices to accelerate time-to-market, deploying increasingly sophisticated data and analytics, including AI, and leveraging cloud engineering to drive modernization and deliver more faster with greater quality and security. Cloud computing is a critical enabler for business transformation across BMO, and we're seeing meaningful business benefits. We're modernizing legacy wealth infrastructure within the cloud and have invested in industry-leading workflow tools in capital markets to increase efficiencies and deliver better customer experiences. In retail banking, we've delivered 2 million AI-enabled conversations with BMO Assist and over 80 million BMO Insights to help our customers better manage their finances. As a result, we're not only being recognized with our clients' trust in business, but this quarter BMO ranked among Fast Company’s list of the world's most innovative companies of 2024, the only Canadian or US bank recognized out of more than 600 winning organizations. At the heart of BMO's culture is our commitment to ethical business practices including a responsible approach to AI development that guides the execution of our strategy to strengthen and grow our bank. This quarter we were again recognized by the Ethisphere Institute as one of the world's most ethical companies for the seventh consecutive year, an important differentiator for our bank. I'll now turn it over to Tayfun.

Thank you, Darryl. Good morning and thank you for joining us. My comments will start on Slide 10. Second quarter reported EPS was $2.36 and net income was $1.9 billion. Adjusting items are shown on slide 38 and included the after-tax impact of the incremental FDIC special assessments of $50 million. The remainder of my comments will focus on adjusted results. Adjusted EPS was $2.59, down from $2.89 last year, and net income was $2 billion down 7%. Pre-provision pre-tax earnings increased 7%, driven by strong performance in Canadian P&C, capital markets, and wealth management, partially offset by a decline in US P&C, where loan demand continues to be muted, while deposit pricing remains very competitive. Revenue was up 2% and expenses decreased 1% with good operating leverage of 3%. We delivered on our commitment to positive operating leverage this quarter, as the benefit of our efficiency initiatives offset the impact of lower revenue growth. Pre-provisioned pre-tax earnings growth was offset by an increase in PCL, which Piyush will speak to in his remarks. Moving to Slide 11. Our balance sheet remains well-diversified with solid loan and deposit growth. Average loans grew 4% year-over-year, excluding the impact of last quarter's RV loan portfolio sale and the wind down of the indirect auto book. Consumer loans were up 7%, and business and government loans were up 2% with good growth in Canadian P&C and Capital Markets, partially offset by lower commercial lending in US P&C. Average customer deposits increased 6%, primarily from balanced growth in Canadian P&C and Capital Markets. Turning to Slide 12. On an ex-trading basis, net interest income was down 1% from the prior year, due to lower margins and was down 2% sequentially due to the impact of fewer days in the quarter. The decline in trading net interest income was offset in non-interest revenue. Compared with last quarter, NIM was modestly lower by 2 basis points. In Canadian P&C, the impact of lower deposit margins was offset by higher loan margins and favorable balance sheet mix, with NIM up 3 basis points. We expect NIM in Canadian P&C to tighten during the second half of the year, due to the BA migration and continued deposit competition. In US P&C, lower deposit margins drove a 10 basis point reduction in NIM. Although, we expect deposit competition to continue in the US, the quarterly impact on NIM should be more modest. Although the deposit environment is competitive in both countries and migration to higher rate deposits continues at a decelerating pace, we maintain our expectation of relative full bank margin stability for the remainder of the year. Moving to Slide 13. Expenses declined, driven by the continued progress on enterprise operational efficiencies we began in the third quarter of last year and the full realization of Bank of the West cost synergies. While we achieved positive operating leverage this quarter and expect the same for the remaining two quarters of the year and for the full year, we are seeing profitable opportunities to capture market share in both Canada and the US and will invest accordingly. Turning to Slide 14. Our capital position has strengthened with a CET1 ratio of 13.1%, up 30 basis points from the prior quarter, driven by internal capital generation, the final quarter of common shares issued under the dividend reinvestment plan and lower source currency RWA, as lower market risk was partially offset by higher credit risk. Our capital outlook for the rest of the year remains strong and is likely to remain above our management target. Moving to the operating groups and starting on Slide 15. Canadian P&C net income was up 7% year-over-year, driven by strong PPPT performance, up 17%, partially offset by higher PCLs. Record revenue of $2.8 billion was up 13%, driven by higher net interest income, reflecting both solid balanced growth and improved margins and higher non-interest revenue, including the acquisition of AIR MILES. Expenses were up 9%, reflecting the inclusion of AIR MILES and higher technology costs. Loans were up 5% with good growth in mortgages and commercial loans, and deposits were up 11%, reflecting continued growth in term products across both consumer and commercial clients. Moving to US P&C on Slide 16. My comments here will speak to the US dollar performance. Net income was down 25% from the prior year with lower revenue and higher PCLs, partially offset by lower expenses. Revenue was down 7% driven by lower net interest income due to a 23 basis point reduction in margins, which is consistent with industry trends. Non-interest revenue decreased 11% as higher M&A advisory fees in Commercial Banking were offset by lower deposit fees in Personal and Business Banking. Expenses were down 6%, reflecting good expense management, including cost synergies and operational efficiencies. Loans were up 1% excluding the impact of the RV loan portfolio sale last quarter. Deposits remained relatively stable, with strong growth in term and money markets, offsetting decreases in non-interest-bearing balances. Moving to Slide 17. BMO Wealth Management net income was up 33% from last year. Wealth and Asset Management revenue was up 4%, reflecting good operating performance, with client asset growth and stronger markets offsetting lower net interest income due to lower deposits and margins. Insurance revenue increased from last year due to changes in portfolio positioning during the transition to IFRS 17 and was up $21 million from last quarter due to the impact of favorable changes in interest rates on investment results. Expense growth of 1% reflected higher revenue-based costs, which were largely offset by the benefit of efficiency initiatives. Moving to Slide 18. BMO Capital Markets net income was up 23% year-over-year, reflecting strong PPPT performance of $642 million in the quarter consistent with our guidance, partially offset by higher PCLs. Revenue in Global Markets was up 8%, primarily due to improved market conditions, driving higher interest rate trading. Investment in corporate banking revenue was up 1% as strong debt underwriting fees were mostly offset by lower advisory fees. Expenses were down 3% due to a legal provision in the prior year. Turning now to Slide 19. Corporate Services net loss was $244 million compared with $63 million in the prior year and $316 million in the prior quarter. The decline in quarter-over-quarter loss was in line with our expectation and the increase relative to last year was driven by the lower net accretion of purchase accounting fair value marks, as well as the impact of treasury-related activities. To conclude, this quarter our revenues improved, and our expenses declined in line with our expectations. The power of our franchise is evident in our ability to deliver positive operating leverage while investing in future growth opportunities. We have built strategic flexibility as a competitive advantage that relies on the strength of our operational resilience and business and geographic diversity, and we expect our financial performance to reflect that strength as we move to a more supportive economic and market environment. I will now turn it over to Piyush.

Thank you, Tayfun and good morning, everyone. Starting on Slide 21. The credit themes we've been seeing over the last several quarters continue to play out as the higher level of interest rates and slowing economic activity are reflected in credit migration and higher impaired loss rates. The total provision for credit losses was $705 million or 44 basis points, up from 38 basis points last quarter. Impaired provisions were $658 million or 41 basis points, up from 29 basis points last quarter. Given the environment, we continue to manage our portfolios closely as per a long track record of good performance through cycles. In Canada, the increasing trend in credit card delinquencies and elevated consumer insolvencies over the last number of quarters have resulted in impaired losses of $247 million, up $44 million from prior quarter. We continue to take actions to manage losses within these portfolios, including pre-delinquency engagement with customers who are most vulnerable to payment stress. Our residential portfolio continues to perform well, including renewing customers and the amount of variable rate loans and negative amortization declined further this quarter, down 34% year-to-date. US retail impaired loan losses were $44 million, down $36 million from prior quarter. Our commercial portfolio remains well diversified across sectors and geographies. Canadian commercial impaired loan provisions were $48 million, up $14 million from last quarter. US commercial impaired provisions were $244 million, up $141 million. Provisions primarily came from commercial real estate, transportation, and services sectors. Commercial real estate, including office, is performing in-line with our expectations and we maintain strong coverage. But given the rate environment, we do expect modest provisions going forward. Capital market impaired losses were $61 million, primarily driven by one idiosyncratic account in the insurance sector. On Slide 24, our business and government portfolio continues to be well structured and well secured. While the impact of higher rates has resulted in negative credit migration, over half of the portfolio continues to be investment grade with low impairment levels of 1%. Moving to Slide 22, performing provision for credit losses of $47 million primarily reflected portfolio credit migration and uncertainty in credit conditions, partially offset by an improvement in the macroeconomic outlook. Having added to performing allowances for the last eight quarters, we are comfortable that our total performing allowance of $3.7 billion continues to provide appropriate coverage over performing loans at 56 basis points. Turning to Slide 23 on impaired loans and formations. Impaired formations increased to about $2 billion with all of the increase in business and government where high rates are continuing to feed through to higher impairment. Gross impaired loans increased approximately $5.3 billion or 79 basis points, with increases across most industries, most notably in services. To conclude, we expect that the delay in Central Bank easing of monetary policy and slowing economic activity could keep impaired provisions at around these levels over the next couple of quarters. Given the quality and diversification of our portfolio, allowance coverage, and strong risk management capabilities, we remain well positioned to manage the current environment and emerging risks. I will now turn the call back to the operator for the Q&A portion of this call.

Thank you. The first question is from Ebrahim Poonawala from Bank of America. Please go ahead. Your line is open.

Thank you. Piyush, regarding the comments on impaired PCLs, with one impaired PCL at 41 basis points in the second quarter, should we assume that the guidance, which was around the low 30s for impaired PCLs for the year, is now shifting more towards the low 40s? Also, can you provide your insights on credit visibility? I heard you mention higher rates, but we have anticipated higher rates for a while now, thinking they might remain elevated. I'm trying to understand the risk if we don't see significant rate cuts in the next 12 to 18 months. Could the risk be that impaired PCLs might increase even more? Please share your thoughts on your visibility regarding credit and your confidence in where impaired PCLs might peak without a severe recession.

Thank you for your question, Ebrahim. When we provided guidance of lower 30s, it was based on our expectations regarding monetary policy. We anticipated three to four rate cuts in both Canada and the US and noted there might be some volatility during the quarter due to our business mix in government and other sectors. However, that has shifted with more restrictive monetary policy, which seems to be changing significantly now. According to Darryl's comments, we might see one or no cuts in the US and two or three in Canada. This shift can affect consumer psychology and sentiment. Currently, at 41 basis points, we’re maintaining our guidance range for a couple of reasons. First, unemployment has risen from about 5.3% last year to around 6.3%, potentially reaching 6.5% in Canada, which will impact our unsecured portfolios there. The mortgage sector remains resilient despite expected increases in delinquencies, and housing price index is strong. We are considering how rising unemployment may affect our unsecured portfolio, alongside the unexpectedly higher rates of Canadian insolvencies. Regarding wholesale trends, in this quarter, loan growth has been sluggish, which is not just a BMO issue but a broader market phenomenon. This muted loan growth could contribute a headwind of 2 or 3 basis points to the impaired portfolio. Additionally, there are large credits, particularly in Capital Markets, where $16 million or $17 million of impaired credit can influence our basis points. So, when considering those large credits, we might see a decrease from 41 to around 35 basis points, helping illustrate our performance this quarter. We expected the impaired figures to rise, and that’s where we currently stand. As unemployment continues to rise, we will observe some cyclical businesses in our wholesale mix that may face higher losses, such as transportation finance. I can elaborate further, but this provides insight into our guidance in a similar range, with the understanding that volatility is possible since two or three large accounts can sway the numbers by a few basis points. Looking ahead, I believe we will eventually return to our historical averages, but we'll need to monitor the rate cycle before making any predictions. We'll share more guidance as we move forward.

Sure, thanks for that. I'll follow up offline. I have one question for Darryl. The adjusted return on equity is 10.9%, and I want to know if you can achieve better than an 11% return on equity anytime soon. Thank you.

Ebrahim, the answer, the short answer is yes. I do remind folks that the ROTCE is an important metric for us as well, which is substantially higher than that. But you did hear Tayfun and I talk about continuing to push on positive operating leverage as we go forward. So assuming we can do that, and assuming no change in the macro I think we can continue to improve on where we are right now. And if there is a change in the macro to the positive, obviously we think we can do even better.

The next question is from Matthew Lee from Canaccord. Please go ahead. Your line is now open.

Hi, good morning and thanks for taking my question. When we look at GIL formation, it feels a bit of a step-up from the US service industry, some CRE and wholesale trade. Can you maybe talk to whether that's done some discrete identifiable clients or if it's more of a broad-based weakness in those industries?

Sure. So, Matthew, I don't think this is a systemic weakness. In fact, we've been assessing many of these sectors for quite some time. Some of the weakness I talked about was, for example, I'm just probably expanding on the point on transportation. For the last 18 months, you've seen freight rates have remained at an all-time low, volumes haven't picked up. If you look at the American tonnage index, that's been at a low point. And resale values because of oversupply have also been impacted. But a business like transportation, we've been in for 40 years, 50 years. We've been through several cycles. We managed through several cycles, and we’re beginning to see some recovery or flattening out of delinquencies out there. To your other question around commercial real estate, it is a sector we're focused on. There was one large name this time around in our impairment. I'm actually optimistic to get back a partial recovery over the next few quarters even on that because it's a book we manage. So it wasn't a surprise in our small watch list of names that we've been tracking more closely even after reappraising them every few months; this NIM was within our expectation. So it is a couple of names and a couple of cyclical sectors in a diversified business, but it's not systemic to anything that I would call out for you.

The next question is from Doug Young from Desjardins Capital Markets. Please go ahead, your line is now open.

Hi, good morning. I want to revisit some points you made in your opening remarks. You highlighted a strong capital and liquidity position and mentioned that BMO is well-positioned for capital allocation flexibility as we approach 2025. Could you please elaborate on what you meant by that statement?

Thank you, Doug. What I meant is reflected in what you heard. Looking back a year ago at the end of the quarter after acquiring Bank of the West, I mentioned that we've increased our CET1 ratio by 90 basis points and built nearly $50 billion in deposits for our liquidity. Last quarter, we indicated that we would stop the drip, and today we maintained our dividend expectations. Moving forward over the next couple of quarters, we anticipate that these trends will at least remain stable, if not improve, which sets us up well for 2025. We believe we are well-positioned for capital allocation, and the word optionality is what I intended to convey. This refers to all the aspects we often discuss. We expect to have a unique position regarding capital availability in the US, especially compared to our competitors. In Canada, we will work closely with some peers and have plenty of options to first support our clients and then explore additional opportunities if our capital continues to grow beyond our base levels. This is a commendable position to be in, and we think it showcases significant progress in our metrics compared to a year ago after completing a major acquisition. That was the point I aimed to make. Is that clear?

It is. I was just trying to kind of find a point on it. Is it meaning that you are at a position to do further M&A? Or would you be more inclined to be more active on buybacks, given the flexibility on the capital side?

Yes. Yes, no. It's a good question, Doug, and it's hard to be particular in the answer because, as you know, it depends on the circumstance. And as we look at the environment, it continues to be, as we've outlined in our opening comments, a softer environment. In that environment, you're less likely, I think, to pursue M&A relative to having a world view that says the clouds are parting, so that would be an important factor at the time. And it also goes to strategic attractiveness and price and all of the rest of it that we always talk about. So, subject to that. But that's kind of my way of saying the M&A environment has to be helpful and constructive. We think when it is helpful and constructive, we are an attractive alternative for many potential candidates. But that doesn't mean you go ahead and do something. You go ahead and do something because it makes sense for shareholders in the aggregate. And if we get to a point where we've got excess capital in '25 and we are not pursuing because things don't make sense, then, of course, buybacks are on the table at some point as we go through '25.

Okay. In your opening remarks, you mentioned positive operating leverage, and both you and Darryl spoke about it. Tayfun, you also highlighted the need for investments to capture profitable opportunities to gain market share in Canada and the US. I believe you have been clear that these investments won't compromise your positive operating leverage. However, I'm curious about the nature of these opportunities. Can you elaborate on what those investments might entail and how they could affect the expense line?

Yes. It's nothing more than a reference to a number of businesses who are taking market share profitably, both in Canada and then a number of opportunities that we have including our newly expanded franchise in the US, and there will always be pockets where we think that combining our balance sheet strength, capital and liquidity, with the ability to take market share, we'll take advantage of those opportunities. But we believe we can do those even within the guidance of positive operating leverage. That may mean that the expenses may tick up a little bit. But as long as we deliver positive operating leverage, we are quite comfortable leveraging our growth opportunities with smart investments.

And so there wasn't any one or two in particular opportunities that you wanted to point out, or ...

No.

The next question is from Meny Grauman from Scotia Capital. Please go ahead. Your line is open.

Hi, good morning. Piyush, I think it's very clear and you highlighted it that the higher for longer rate environment is definitely putting upward pressure on the impaired PCL ratio. But I'm wondering if there are any other factors here worth considering. One factor that I wanted to specifically get your comment on is just collections. How is that tracking relative to expectations? Is there anything there that would explain some of the upward pressure on impaired PCLs as well?

Yes, I believe that the prolonged period of higher rates is something everyone is discussing. It has become a new normal, and customers are adapting to this reality, which takes time. We are beginning to see some of these effects. Regarding collections, I wouldn't say that they are negatively impacted by this situation. The key points to consider are that if you haven't experienced losses in the past, you may not be able to collect enough. Currently, impairments are starting to emerge, which will create a collection inventory for the future. Another challenge facing the industry is that when it comes to insolvencies or proposals, the collection process will take longer, as collections typically cannot be made in the first four or five years due to the existing rules. This aspect does influence collections. Aside from that, in terms of normal write-offs, I believe our collection window of one to two years remains as strong as it was previously. Ernie, do you have anything to add?

Yes. I wanted to mention that we have been very effective in proactively reaching out to customers, addressing their situations, and assisting them with mortgages, credit cards, and other unsecured lending. We have observed a strong receptivity to these efforts, and the outcome of these contacts has been beneficial for the customers as well as for us in managing and minimizing losses. I believe this trend will persist as the market evolves, especially considering the macroeconomic environment, with interest rates remaining elevated for an extended period and consumers facing increased cash flow challenges. Our efforts are productive and will likely continue throughout the next year.

Thanks for that. And then maybe just a question for Darryl. Just given the environment, are you seeing any increased regulatory scrutiny on AML processes for BMO, especially in the US? And I guess sort of a related question, is there a risk of material increase in spending relative to plan because of that?

The short answer is no. Regulatory scrutiny is ongoing rather than sporadic. We've been operating in the US continuously for decades, and we're approaching our 40-year anniversary of acquiring the Harris Bank. Throughout this time, we've developed risk, governance, and control infrastructure suitable for our operational scale at each period. Our programs undergo continuous reviews, particularly now that we've transitioned to a Category 3 bank in the US. There weren't any surprises in that transition. We believe our anti-money laundering program is both mature and effective, and we remain vigilant. Regarding your question on investment, risks have increased, and criminals have become more sophisticated. As a result, we continue to invest in and enhance our practices. This applies to our efforts in areas like anti-money laundering and fraud, as well as the advanced technologies we've incorporated, which align with the business planning framework that Tayfun previously discussed. There's nothing particularly unusual about the environmental factors you mentioned.

Nothing additional relative to what you've been doing before?

Correct. It's all in the plan.

Thanks Darryl.

The next question is from John Aiken from Jefferies. Please go ahead, your line is now open.

Good morning. Just wanted to focus on US deposit growth, given the environment where you've highlighted that it's very competitive. Can you discuss the strategy or the tactics of continuing to pursue the deposit growth in an environment where it is compressing your margins? Is this by bringing in deposits that will hopefully then expand the customer base and be able to build more products? And secondarily, can you talk to how much of that growth was actually driven by your digital platform?

It's Ernie. I'll address that question, thanks, John. First, on the Personal and Business Banking side, we have experienced growth in overall deposits compared to the market, which has been declining. We’ve achieved positive growth and have taken a leading position. This success is due to a mix of new customer growth and our strong franchise, particularly in our new Western market. Our performance is supported by both our branches and our digital capabilities. Approximately 40% of our sales are coming from our core checking and savings accounts. Additionally, we are attracting mass-affluent customers to our premier banking offer in the US, allowing us to establish full relationships and refer clients to our wealth management teams. On the pricing side, we employ various strategies to optimize, and while there's increased price competition in the US market, we continue to see growth in our new customer base. Our focus on engaging fully with our customers also helps us proactively migrate some of them to our CD products, ensuring our deposit franchise keeps growing. Now I will hand it over to Nadim to discuss commercial deposits in the US.

Thanks, Ernie. On the commercial side, we have been heavily focused on increasing deposits overall, which is evident in our Canadian balance sheet. The situation in the US is more challenging due to the macro environment, leading to a higher mix shift. However, I want to note that this mix shift has been decelerating over the past few months. Over the last three months, we have observed a month-over-month deceleration of the mix shift, which is a positive development. Given the current rates, I still anticipate margin pressure on deposits due to the competitive environment. However, as Tayfun mentioned, I see the extent of margin compression and the mix shift easing, which will positively impact our overall deposit portfolio. Regarding our focus areas, we are working on simplifying our Treasury business to make it easier for clients to onboard and for our employees to sell Treasury products. We are also creating bundled pricing to facilitate client sign-ups and concentrating on what I refer to as the emerging mid-market space—clients with strong operating deposits, primary relationships, solid ROE, and favorable loan-to-deposit ratios. We are directing our resources, capital, and attention towards businesses where we can achieve this kind of growth, as well as exploring additional opportunities for our wealth business.

Thanks for the color, guys. I will re-queue.

Thank you. The next question is from Gabriel Dechaine from National Bank Financial. Please go ahead, your line is now open.

Hey, good morning. I want to look at the performing loan book for a minute here, specifically the Stage 2 classifications. So they were around about 11.5%, that your loans were classified as Stage 2 last quarter. That jumped up to 16% this quarter. I'm just wondering what the process is? What's involved in moving loans from Stage 1 to Stage 2? I know technically how it works. But what do you do specifically? Do you think you have gone with a fine tooth comb and identified which commercial borrowers are on the brink or whatever because of higher rates and that we should see that balance be stable from here on out because that's where the bulk of formations should be emanating from, right?

Yes, Gabe. Thanks for the question. So we're always making a dynamic assessment of our borrowers and even for people who continue to be paying, the assessment really is, is there a change in the credit conditions that may affect future performance? And so our risk team, working with the business as they continue to evaluate customers, both on the retail side and wholesale side, are making the determination. And then based on that, we move customers from Stage 1 to Stage 2. And the impact, as you know, is you go from a one-year to a lifetime loss. So the performing provision picks that up. I think this process has been going on for the last 1.5 years, with the rate change cycle that's happened. Both the impact of rates and inflation that affects our clients' earnings has a material impact on where final ratings might be. And so I think this will continue. This should be a dynamic process. No change in the risk management directors as we go forward. My expectation is, if we go into the higher for longer, we will continue to evaluate what that means for our clients and book provisions. And where we are today, having built for eight quarters, I think we have prudently provisioned the coverage ratios as you look through different metrics when we compare ourselves in the context of our peers. We feel very good about that.

Yes. I have another question. Last quarter, you had a significant provision for performing loans despite a smaller increase in Stage 2 classifications, while this quarter saw a smaller increase overall. I understand there are some netting effects at play as some Stage 2 loans are transitioning to Stage 3. Can you clarify whether you believe the buildup in performing provisions is largely complete in light of current market conditions?

Yes, that is a hard question because performing provisions are a quarterly decision based on many factors. And so macroeconomy and how that moves the quality of our portfolios and the size of the portfolios, all of those will have an impact on what the final number is. And as you know, while we rely on models, we also sprinkle human judgment at the end just to understand what the models may not be saying. So until we see a peak in the impaired portfolio or we see a change around in the economy, I think there'll continue to be small builds. I don't know how small or what the size is. I don't expect releases anytime soon. But the reason we feel good about this is performing provisions as opposed to precedent impaired provisions. That's why you've seen the build over the last few quarters. And over the next one or two quarters, looking at the shape and size of our portfolios, we will give you better guidance on what the direction of performing will be.

Okay. And then just the last one for Tayfun. I missed it because I was distracted. But the outlook for US P&C NIM, big compression this quarter. Can you remind me of that? And what the assumptions or moving pieces there?

Yes. My comment was that the biggest impact on this quarter's NIM was the deposit pricing competition and reduced spreads for deposits. But I said that I do not expect that phenomenon, although competition will continue, that it will impact quarterly NIM as much as it did this quarter. I suspect that there is a little bit more contraction left in the US, but we probably will not see a quarter-over-quarter compression similar to what we just saw in Q2. So a bit more down, but more stable outlook, I should say.

Okay, good. I forgot to take my riddle, so I missed that one.

Thank you. The next question is from Lemar Persaud from Cormark Securities. Please go ahead, your line is now open.

Thank you. Following up on Gabe's question, I believe I heard that you are anticipating a stable or flat net interest margin at the overall bank level. Could you clarify how you plan to achieve that? I thought I heard that we should expect some pressure in domestic retail but less in US retail. So how do you arrive at a flat result for the entire bank? Or did I misunderstand? Thank you.

No, you understood correctly. We are anticipating stability in our overall bank net interest margin, which is primarily linked to the five to seven-year interest rates remaining at their current levels. Our reinvestments are effectively countering the competitive pressure on deposit pricing. Additionally, in Canada, the phase-out of Bankers' Acceptances has a neutral effect at the bank level and does not affect our net interest margin.

So you could see the dynamic where some pressure in the US retail less than we saw this quarter and some pressure in the domestic business and still have flat all banks. So then it is at the corporate level. Like just help me understand those pieces, like how you get to flat at the consolidated with pressure on retail?

Yeah. It’s a quarter-over-quarter impact of the corporate side should provide some support for the broader bank NIM.

Okay. And then Piyush, if I may, Gabriel is touching on what I'm considering regarding his question about performance. I'm curious to hear your thoughts on why we shouldn't expect performing PCLs to increase significantly, particularly given the trends in formations, rising unemployment, and prolonged higher interest rates. When I look at your coverage ratio, it's only up 2 basis points since the end of 2023.

Sure. I would say that underperformance is influenced by numerous factors. We've taken the macroeconomic environment into account in our forecast, particularly concerning higher unemployment, which is why we've allocated more towards Canadian retail within the performing provision. We believe our coverage in that area needs to be increased, and we have made those adjustments. Moving forward, we are also observing trends related to our impaired portfolio. Historically, we have maintained a reservation level of 15% to 20% for our impaired portfolio, and this quarter it was slightly higher. We analyze trends in portfolio formation and adjust our capital allocation dynamically as needed. Additionally, we have a substantial synthetic portfolio or credit insurance in place, which we expect will help mitigate some losses moving forward. There are various factors at play, and that’s why we anticipate growth in our performing provisions, though not as significantly as last quarter, which was primarily due to a one-time model impact.

Okay, thanks. Appreciate the time.

And just in the interest of time, perhaps I could ask, operator if we could limit one question as we try to fit everybody in. Thank you.

Thank you. The next question is from Nigel D'Souza from Veritas Investment Research. Please go ahead, your line is now open.

Thank you. I just wanted to quickly follow up on impaired provisions. And last time you had significant impaired formations. I think you mentioned a loss rate of 12% around there, and you mentioned it's higher so this quarter. So any details on what the loss rate was this quarter? It looks like you've seen higher loss rates in manufacturing, retail trade and commercial real estate given the context that the macroeconomic environment has not deteriorated substantially and policy rates have not changed. What's driving the increase in the loss rate?

Yes. There are a few factors to consider. Client behavior plays a significant role. As you’ve noticed, the supply of credit has shifted, particularly in the US due to the situation with regional banks, making refinancing options more limited for many of our clients. Those who had delayed their refinancing, anticipating that rates would drop sooner, now find themselves coming to us as their maturity dates approach. We are committed to working closely with these clients throughout the cycles. In relation to the impairment provision rate I mentioned earlier, which is in the 15% to 20% range, it can fluctuate depending on the cycle of the specific sector within the impaired portfolio. For instance, transportation finance has seen a rise in losses, along with significant losses in commercial real estate and capital markets. Larger cash flow unsecured loans may also contribute to increased losses in a given quarter. However, our portfolio is well-diversified, and I believe there are no concerning concentrations, so I am optimistic that trends will return to what we have experienced over the past few years.

And sorry, just to follow up on a point you made there on the extension of maturities in commercial real estate, the 2023 maturities we know across the industry, bulk of that was extended to 2024 and we haven't seen the rate cuts provide relief. So could you just provide some color on how active it has been? You mentioned your special discount management team, but how active have you been in renegotiating, modifying or extending maturities over the last year? And what could the impact from that actions be going forward in terms of maturity in the pipeline?

So you'll see that in our watch list. You'll see that in our impaired formation. Our commercial real estate impaired formations are still, I would say, compared to the market, lower. So we've actually done better. But we haven't taken our eyes off it. We've said in calls before, we've looked at every large loan in the office space, which is where most of the stress has been in the US market. And we only have a handful, and we've been working with our borrowers. In fact, over the last few quarters, several borrowers have refinanced, several of the loans which we had on our watch list were paid off. And the one large loan this quarter where we've taken the impairment, I've also added that I'm confident over the next few quarters as we work with our sponsors and buyers, and we may get a partial recovery even on that. Now there is stress in the sector, you read about this, but again it depends city to city, property to property. And again the assessment has been very good. We continue to reappraise. So this is going to continue, and we'll keep reporting back to you as you see through our results on any of these events.

Thank you. The last question is from Mario Mendonca from TD Securities. Please go ahead, your line is now open.

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

Yes. Mario, it's Darryl. I will try to help you with that. While I have the mic, I propose that we extend the call by five more minutes since we have a few people in the queue. I ask everyone to stick to one question, and I’ll encourage my team to provide brief answers so we can address everyone. As for your question, the short answer is no, nothing has changed. Our appetite remains the same, and our underwriting practices haven't changed. The make-up of our wholesale business, where 90% of the relationships are sole or lead, remains constant. This gives us an advantage in credit negotiations, compared to others. To your question, there are no changes. I can’t necessarily say that this will lead to accelerated recoveries compared to others. As you noted, that has occurred in the past and could happen again. However, based on my long experience with these cycles, our approach to the business, the diversification we have, and the current impairments are not surprising compared to previous peaks and values I’ve seen. The scenario you mentioned is certainly possible, but I can’t say it’s probable, as there’s nothing to suggest otherwise. Is that helpful?

Thank you. The next question is from Mike Rizvanovic from Keefe, Bruyette, & Woods. Please go ahead, your line is now open.

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

Yes, Mike. No. Thanks for that. The short answer is no, just in the interest of time, I'll just add one more sentence. We've actually fully integrated Bank of the West. It's one BMO portfolio. And so we look at it end-to-end, like any other practice, all of our policies, processes, everything is the same. But going back to the beginning, it's the same US performance across Bank of the West and our legacy book.

Thank you. The next question is from Darko Mihelic from RBC Capital Markets. Please go ahead, your line is now open.

Hi, thank you for fitting me in. Piyush, I'm going to follow that same line of questioning for Mike, but I'm going to do it a little differently. When I compare your impaired experience in the quarter versus your US peers, it is worse. And so possibly, there is a timing impact here, meaning your quarter ends in April and the US banks ended in March. So part of this perhaps could be explained if there were a lot of files that went impaired in April. And then secondarily, when I compare you to TD, where there is no difference in timing, it's also significantly more impairments, which perhaps may not necessarily see Bank of the West, but would might suggest Midwest to the West Coast of USA. So I wonder if you can just comment on whether or not those observations lead to that conclusion that there were a lot of impairments in April from the Midwest out to the West?

Thank you, Darko. I don't believe this is a geographic issue limited to the Midwest or California. On the US commercial side, there are a couple of main factors. First, we need to account for atypical loans, as larger files are not common and show up in a sporadic manner, which is what occurred here. We've typically not lost money in the financial sector, and this is just one large loan we had in capital markets. The second factor involves our wholesale division, specifically the transportation segment, which can be very cyclical compared to the broader industry. This area primarily consists of smaller truckers, and when we compare the small business Delinquency Index in the US to our performance, we’ve actually performed better than that index, consistently over four decades. In this quarter, we accounted for higher impairment, but we feel confident about that performance. With the summer season, tonnage is increasing and freight rates are rising. As supply diminishes, we expect this sector to perform well. The third factor involves borrowers in different sectors dealing with higher leverage, exacerbated by inflation and rising interest rates, creating a need for solutions. This quarter's performance reflects these one-off events rather than a systemic issue across our entire portfolio. On the positive side, momentum is strong, risk appetite remains high, and I believe our pipelines and client engagement will lead to improved loan growth and a favorable revenue mix to offset these losses.

Thank you. The last question is from Paul Holden from CIBC. Please go ahead, your line is now open.

Thanks for making the time. I want to ask a question quickly on your US mid-market private equity lending business, if that's adding any noise to the impairments? And then two, if that's adding any noise to the revenue line for those mark-to-market positions? I guess, the LP positions you take in some of those funds. Thank you.

We have a strong presence with our private equity partners, and the private equity lending through our call program has shown exceptional strength. I don't anticipate any losses from that; it is not an impairment issue. There may be smaller operating companies where we take specific positions, which are part of the regular higher risk profile we have always recognized. Overall, market activity is somewhat muted on the revenue side. I will pass it to Nadim, as they regularly discuss the pipeline, which remains robust. Some projects may be awaiting the upcoming election cycle in the US. Nadim?

Yes, thanks Piyush. I'll just say, activity has been muted. So that's definitely dampened our ability to grow within that space. But we are seeing as capital markets activities increasing, we are seeing M&A starting to increase. There are M&A transactions waiting for the election to see if policy changes would change their mind about the transaction or not. So things are delayed for a little bit longer, specifically in the US than we'd like it to be. But to your question, no, we haven't had significant losses in that book that are contributing to what the numbers you're talking about.

Thank you. There are no further questions registered at this time. I would like to turn back the meeting over to Darryl White.

Okay. Thank you all for your questions. I'll just close by saying that we remain confident in the growth opportunities across our businesses. And importantly, as I said earlier, the power of the integrated North American franchise. We're clearly building competitive advantages in a highly fragmented US market. Our strategy isn't changing, and we are poised to press those advantages. So thank you all for your time today, and we look forward to speaking to you again in August.

Thank you. The conference has now ended. Please disconnect your lines at this time and we thank you for your participation.