Bank of Montreal (BMO)

Q3 2011 Earnings Call

August 23, 2011 2:00 pm ET

Executives

Frank Techar - Chief Executive Officer of Personal & Commercial Banking for Canada BMO and President of Personal & Commercial Banking for Canada BMO

Surjit Rajpal - Deputy Head of Enterprise Risk & Portfolio Management

Viki Lazaris - Senior Vice President of Investor Relations

Compare to:
Previous Statements by BMO
» Bank of Montreal's CEO Discusses Q2 2011 Results - Earnings Call Transcript
» Bank of Montreal's CEO Discusses Q1 2011 Results - Earnings Call Transcript
» BMO Financial CEO Discusses F4Q2010 Results – Earnings Call Transcript

William Downe - Chief Executive Officer, President, Non-Independent Director, Chief Executive Officer of BMO Financial Group and President of BMO Financial Group

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

Analysts

Michael Goldberg - Desjardins Securities Inc.

Cheryl Pate - Morgan Stanley

John Reucassel - BMO Capital Markets Canada

Mario Mendonca - Canaccord Genuity

Robert Sedran - CIBC World Markets Inc.

John Aiken - Barclays Capital

Steve Theriault - BofA Merrill Lynch

Unknown Analyst -

Robert Sedran

J. Bradley Smith - Stonecap Securities Inc.

Andre-Philippe Hardy - RBC Capital Markets, LLC

Presentation

Operator

Please be advised that this conference call is being recorded. Good afternoon, and welcome to the BMO Financial Group's Third Quarter 2011 Conference Call for August 23, 2011. Your host for today is Viki Lazaris, Senior Vice President of Investor Relations. Ms. Lazaris, please go ahead.

Viki Lazaris

Thank you. Good afternoon, everyone and thanks for joining us today. Our agenda for today's investor presentation is as follows: we will 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 will have a short question-and-answer period where we will take questions from pre-qualified analyst. To give everyone an opportunity to participate, please keep it to 1 or 2 questions and then requeue. 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 conclusions in the forward-looking statements. Information about material factors that could cause results to differ and the material factors and assumptions underlying these forward-looking statements can be found in our annual MD&A and in our third quarter 2011 report to shareholders. With that said, I will hand things over to Bill.

William Downe

Thank you, Viki, and good afternoon, everyone. As noted, my comments may include forward-looking statements. BMO's third quarter results were very good and consistent with the business performance we've been delivering this year. Our year-to-date adjusted net income has reached more than $2.4 billion, 16% ahead of last year. Investments we're making continue to contribute to top line growth and this remains our priority as we steadily introduced initiatives that further enhance the experience of our customers. In July 5, we closed the acquisition of Marshall & Ilsley. And the closing was successful, on time and efficient and we're making good progress on integration with a set of defined milestones that we're working towards, as well as a clear view of the business opportunities that are present. Notwithstanding the slower-than-expected U.S. economy, we remain confident about the future of our U.S. businesses and the results we'll generate and I'll speak more on this later in the call.

Before moving to a review of the third quarter numbers, I'd like to thank Ellen Costello for her significant contributions at Harris over the 5-year leading up to our recent acquisition, and formally acknowledge Ellen's new position as CEO of BMO Financial Corp. In the role of U.S. country head for BMO Financial Group, Ellen is responsible for providing governance and regulatory oversight for all of BMO's U.S. businesses. She remains a key member of the BMO management and performance committees.

Mark Furlong, President and CEO of BMO Harris Bank joins us on the call today and as Viki mentioned, is with us to participate in the Q&A session. Mark leads our U.S. Personal and Commercial business and we're pleased to welcome him on BMO's management team.

Tom will provide detail on the Q3 results in a moment, but let me touch briefly on the overall results and the performance of our business groups. On an adjusted basis, net income was up 24% to $843 million, including 26 days of M&I's results. EPS was $1.36, representing an ROE of 15.6% compared with 13.9% last year. And reported net income in the quarter was $793 million. Revenues on an adjusted basis increased 13% year-over-year, while expenses were up 8% resulting in positive operating leverage and a productivity ratio of 62.2%. We remain committed to achieving the medium-term operating leverage target of 1.5% on an adjusted basis.

Credit performance continues to be good. The Q3 specific provisions for credit loss was $174 million compared with $214 million last year and $187 million in Q2. And Surjit will provide more color on credit later in the call. BMO remains well capitalized. The Basel II common equity ratio of 9.1% at the end of the third quarter and this includes the impact of M&I, which increased risk weighted assets by $45 billion. As we've discussed in previous calls, we continue to be confident in comfortably meeting the Basel III 2013 requirements.

Some brief comments now on the performance of our business groups. P&C Canada's net income was $432 million, up 2% from a year ago and up 8% from Q2. Revenue growth has moderated expected, increasing 2.5% year-over-year with good volume growth across most products and stable margins compared to last quarter. While there was increased initiative spending and growth in the sales force in the quarter, expense growth slowed to 3% from last year. We continue to invest in the business with a disciplined approach that carefully tracks the relationship between revenue and expenses. Our customer loyalty, as measured by net promoter score, continues to improve in both personal and commercial segments. And we've seen an increase in the average number of product categories used by both personal and commercial customers. That's not just a function of hiring more people. Our frontline team is in fact working more efficiently. The latest tracking data shows that the productivity of our core sales force has increased by 10% year-to-date, a trend that we expect to maintain.

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