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Bank of Montreal (BMO)

Q1 2012 Earnings Call

February 28, 2012 2:00 pm ET


Viki A. Lazaris - Senior Vice President of Investor Relations

William A. Downe - Chief Executive Officer, President, Director, Chief Executive Officer of BMO Financial Group and President of BMO Financial Group

Thomas E. Flynn - Chief Financial Officer, Principal Accounting Officer and Executive Vice President

Surjit S. Rajpal - Chief Risk Officer and Executive Vice-President

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Frank J. Techar - Chief Executive Officer of Personal & Commercial Banking for Canada Bmo and President of Personal & Commercial Banking for Canada Bmo

Mark F. Furlong - Chairman, Chief Executive Officer, President, Treasurer of M&I Capital Markets Group Llc, Vice President of M&I Capital Markets Group Llc, Chief Executive Officer of M&I Marshall & Ilsley Bank, Chairman of M&I Marshall & Ilsley Bank, Director of M&I Marshall & Ilsley Bank, Director of M&I Capital Markets Group Llc and Director of Marshall & Ilsley Trust Company

Thomas V. Milroy - Chief Executive Officer


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John Aiken - Barclays Capital, Research Division

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Please be advised that this conference call is being recorded. Good afternoon, and welcome to the BMO Financial Group's First Quarter 2012 Conference Call for February 28, 2012. Your host for today is Viki Lazaris, Senior Vice President of Investor Relations. Ms. Lazaris, please go ahead.

Viki A. Lazaris

Thank you. Good afternoon, everyone, and thanks for joining us today. Our agenda for today's Investor Presentation is as follows: we'll begin the call with remarks from Bill Downe, BMO's CEO; followed by presentations from Tom Flynn, the bank's Chief Financial Officer; and Surjit Rajpal, our Chief Risk Officer. After their presentations, we'll have a short question-and-answer period where we'll take questions from prequalified analysts. To give everyone an opportunity to participate, please keep it to 1 or 2 questions and then re-queue. The call is scheduled to run for 1 hour. Also with us this afternoon to take questions are BMO's business unit heads: Tom Milroy from BMO Capital Markets; Gilles Ouellette from the Private Client Group; Frank Techar, Head of P&C Canada; and Mark Furlong, from P&C U.S.

At this time, I caution our listeners by stating the following on behalf of those speaking today. Forward-looking statements may be made during this call. They are subject to risks and uncertainties. Actual results could differ materially from forecasts, projections or inclusions in the forward-looking statements. Information about material factors that could cause results to differ and the material factors and the assumptions underlying these forward-looking statements can be found in our annual MD&A and in our first quarter report to shareholders.

With that said, I'll hand things over to Bill.

William A. Downe

Thank you, Viki, and good afternoon, everyone. As noted, my comments may include forward-looking statements.

BMO produced record first quarter net income of $1.1 billion, kicking off the year with very strong earnings. Our focus on customers and investing prudently in the business is serving us well, and this is reflected in both our financial results and the momentum of the bank. Operating group performance in the first quarter was better than initially expected as markets recovered from the depths of early December. The Capital Markets-related businesses, which were particularly impacted by negative market sentiment early in the quarter, experienced improved market conditions in January. And credit performance, a long historic strength of BMO, contributed to earnings growth.

We continue to make steady progress on the integration of the acquired M&I business, and the benefits evidenced so far confirm that we're on track. We remain focused on living up to our reputation for treating customers extremely well and ensuring our new customers can draw on the strengths and abilities of the whole company. The largest of the platform conversions will take place at the end of the year, and we're pleased with the synergies obtained to date, reflecting the work of a focused and capable integration team. The combination of our 2 banks has created a competitive platform from which to grow personal, commercial and wealth business in the United States.

Turning to the financial results. Reported net income increased 34% year-over-year to $1.1 billion or $1.63 per share. Adjusted net income was up 19% to $972 million, representing $1.42, 8% ahead of last year. Adjusted revenue growth was 9%. BMO's ROE on an adjusted basis was 15%, improved from 13.9% in the fourth quarter. Improving the bank's productivity is an area of broad focus and the entire BMO organization is participating in this effort. You'll note, the charge taken this quarter for restructuring in our Capital Markets business. Innovation and productivity are themes we're stressing with our customers and we believe will be important contributors to North American competitiveness, and it's an area of focus for the bank.

Core credit performance improved in the quarter with provision for credit loss down substantially, and we were effective in the collection of impaired loans. Surjit will take you through our credit performance in detail later in the call. BMO continues to be well capitalized with a pro forma Basel III common equity ratio of 7.2%.

I'll now take you through the highlights of our operating groups. P&C Canada's reported net income for Q1 was $446 million, and on an actual loss basis, up 5.4% from the fourth quarter. This business continues to perform well with volumes higher across most products, and we continue to innovate in the execution of our strategy, achieving higher net promoter scores and increasing share of wallet. We're also confirming our confidence in business growth by committing to increase the credit we make available to small- and medium-sized businesses so they in turn can innovate, expand and create jobs. For consumers, especially homebuyers, we're actively encouraging them to borrow smartly by considering a mortgage with a shorter amortization period. Our low rate mortgage was recognized by the Canadian Mortgage Trends as 2011 Mortgage of the Year. This product, which carries a maximum amortization of 25 years, is unique in the market place and rewards customers who make responsible borrowing decisions. Moreover, it will help Canadians enter retirement without the burden of mortgage debt.

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