Please be advised that this conference call is being recorded. Good afternoon. And welcome to the BMO Financial Group's Q1 2014 Earnings Release and Conference Call for February 25, 2013. Your host for today is Ms. Sharon Haward-Laird, Head Investor Relations. Ms. Haward-Laird, please go ahead.

Thank you operator. Good afternoon, everyone. And thanks for joining us today. Our agenda for today's 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 prequalified analysts. (Operator Instructions) Also with us this afternoon are Frank Techar, Chief Operating Officer; Cam Fowler from Canadian P&C; Mark Furlong from U.S. P&C; Tom Milroy from BMO Capital Markets; and Gilles Ouellette from Wealth Management. On behalf of those speaking today, I note that forward-looking statements may be made during this call. Actual results could differ materially from forecasts, projections or conclusions in these statements. I would also remind listeners that the bank uses non-GAAP financial measures to arrive at adjusted results to assess and measure performance by business and the overall bank. Management assesses its performance on a reported and adjusted basis and considers both to be useful in assessing underlying business performance. Both Bill and Tom will be referring to adjusted results in their remarks. Additional information on adjusting items, the bank’s reported results and factors and assumptions related to forward-looking information can be found in our annual report and in our first quarter report to shareholders. And with that said, I will hand things over to Bill.

Thank you, Sharon. And good afternoon to everyone on this call. Bank of Montreal’s first quarter results reflect growth in revenue and strong operating group performance especially in Canadian personal and commercial banking. BMO is showing sustained momentum and a growing balance sheet. Our U.S. segment reported earnings of US$300 million in the quarter with a significant contribution from personal and commercial banking, wealth and capital markets. We are clearly seeing the benefits of our diversified North American presence. We have good opportunities for growth across our U.S. businesses in an environment of improved household finances and growing consumer confidence. In addition progress in debt ceiling and budget negotiations in the U.S. will benefit business investment in our large North American commercial banking platform. Few highlights from our first quarter results both reported and adjusted net income were $1.1 billion. On an adjusted basis, backing out acquisition-related amortization of intangible assets, earnings per share were up 7% to $1.61. Revenues were $4.1 billion over 8% ahead of last year and ROE was 14.5%. Provision for credit losses was down from the prior quarter and Surjit will provide more detail on credit later in the call. Volume growth was strong in the quarter with loans up 11% and deposits up 13% reflecting strong business performance and some lift from strengthening U.S. dollar. BMO’s common equity Tier 1 ratio was 9.3% at the end of Q1 after absorbing previously disclosed items related to counter-party credit risk, IFRS accounting changes, as well as business growth. Our capital position is strong and will continue to be for the balance of the year. Turning to the operating groups, Canadian P&C net income was $486 million, up 8% from a year ago. Loan growth continued to be robust with the total portfolio up 10% from last…

Thanks Bill and good afternoon everyone. I will start on slide 8, EPS of $1.61 was up 7% year-over-year and net income was approximately $1.1 billion. As Bill outlined, operating group results were good, momentum continued in Canadian P&C and wealth management businesses. Capital markets revenues were up 9% with the strong contribution from its U.S. segment and U.S. P&C results improved significantly from last quarter which had above trend PCLs. As you will have seen, we have simplified the definition of adjusted income to start the year; the only adjusting item in Q1 is the amortization of acquisition related intangible assets which was $22 million in the quarter. Credit related items on acquired purchase performing loan portfolio cost for the integration of M&I and run-off structured credit activities will no longer be an adjusting items given they are expected to be less significant this year, this approach will also simply the presentation of our results. Adjusting items are detailed on slide 25, Q1 revenue was $4.1 billion, up 8% year-over-year or 6% excluding the impact of the stronger U.S. dollar. Net interest income was up 4% year-over-year and up 6% quarter-over-quarter due to growth in P&C businesses and revenue from acquired purchase performing loans. Non-interest revenue was up 13% year-over-year driven by growth in trading revenues and most other categories at non-interest revenue. Non-interest revenue was flat quarter-over-quarter, as increases in most categories were more than offset by significantly lower security gains which were high last quarter, as well as lower insurance income and other income. Q1 expenses were $2.7 billion up 8% year-over-year or 6% excluding the impact of the stronger U.S. dollar, the increase reflects higher employee related costs including severance and higher technology and support costs related to the changing business and regulatory environment. Expenses were…

Thank you Tom and good afternoon everyone. Staring with slide 17, total provisions for credit losses were $99 million, a decrease of $90 million from the previous quarter. U.S. commercial and consumer PCLs decreased as a result of strong recoveries and lower new reservations. Canadian commercial and consumer PCLs are also lower than the previous quarter though commercial PCLs remained elevated due to few accounts. The recovery on the purchased credit impaired portfolio was $117 million, while we continue to have loan sales in resolutions over half of the recovery was due to the return of a few accounts to current status. The purchased credit impaired portfolio is now down to approximately $600 million with the credit mark of $51 million. Moving to the next slide, absence the impact of foreign exchange commissions are largely flat quarter-over-quarter. Those impaired loans decreased further this quarter to just below $2.5 billion because of improvement in the U.S. commercial portfolio. Overall I am pleased with our performance this quarter which is reflective of continued improvement in the U.S. economic environment and stable conditions in Canada. I will now turn it over to the operator for the question-and-answer portion of today’s presentation.

Thank you. We will now take questions from the telephone line. (Operator Instructions) The first question is from Mario Mendonca with TD Securities. Please go ahead.

Good afternoon. Probably a question for Tom, I understand the logic in the change in the performing bringing that back in the core makes sense. It will be helpful to understand though is $248 million that you referred to on page 42 of your report to shareholders that’s the future credit marks that will fall back into NII overtime. That helps the period over which that will fall into earnings and whether that should approximate the increase in PCLs also from that purchased performing portfolio?

Okay. It is Tom here. I will take that. A couple of things the total amount of the credit mark that will amortize is around $300 million so in total it’s a little bit higher and it’s broken down into different pieces in the disclosures. And that will phase in, into income over the next probably three years for the most part, and I say for the most part, because there is a bit of a tail to it related to some of the retail portfolios that have alert longer term to them. The amount of amortization that we had in the current quarter or revenue that we had in the current quarter is above the average that we expect over the balance of the year and that was partly due to pay downs that we had in the current year. So if you’re looking at modeling this going forward, I’d reduce the current level of revenue and spread it out over around three years.

One thing to be clear on, when you referred that the 300 million that amortizes incentive comp is that the NII component or is that net of the PCL?

No, those are all gross numbers, so those are gross numbers. And to refer to the PCL component, this quarter the revenues did exceed the PCL. There will be variability quarter-to-quarter, but we’re not expecting this to be a really big contributor to income through time.

Am I reading it currently, so net, net -- net of it, so you’d expect the numbers to be fairly modest?

Correct.

And then just for final clarification, you referred to 300 million but again on page 42, it’s first to 248, the number, that difference isn’t big but I want to make sure I understand the difference?

Yes, there the difference relates to a portion of the credit mark that is attributable to revolving credit, revolving loans and it’s disclosed in the first paragraph on page 42 of the disclosures.

I will read it more carefully. One final question then, expenses in the corporate segment, so non-interest expenses in the corporate segment dropped fairly significantly this quarter relative to last and relative to the year ago quarter; is there something obvious there that I just can’t remember?

The corporate expenses move around a bit quarter-over-quarter. The number is down on a year-over-year basis in part because of lower cost associated with working out impaired portfolio. So that’s a contributor and as well pension and benefit costs are down a little bit in corporate and that helped.

Thank you.

Thank you. The next question is from Sumit Malhotra with Scotia Bank. Please go ahead.

Good afternoon. This is probably also for Tom Flynn. Looking at page 40 of your supplement and looking to understand some of the growth in the RWA this quarter, specifically in the credit portion we see about 6.4 billion attributed to methodology and policy changes and also a decent amount for the model update and the model update was a key driver for market RWA. I think you gave some color in your prepared remarks Tom, I was hoping you could give us an idea what the key moving parts were to drive this magnitude of increase?

Yes. So the methodology and policy change of about 6 billion includes the change for the CVA which is about 4 billion and it also includes about 2 billion related to a change in our treatment for an entity that we’ve got a 50% interest in, as a result of a new IFRS accounting standard and so those two basically drive all of the change. So CVA is 4 and the change in joint venture accounting is 2.

And the two model updates on the market risk and credit RWA, just trying to get an idea what is you change and whether this is something that has the potential to move back the other way or whether it’s something that you feel is going to be sustained at this level?

I think the model updates aren’t likely then else to change. In the quarter, the total risk weighted asset number was up quite a bit as you’ve seen. And we do expect some of that to revert and in particular a good portion of the increase in the market risk, risk weighted asset that we had in the quarter, we do expect to come back over the next quarter or two.

And if taking that last statement into account and I’ll stop here, if we go ahead and look at this on a pro forma basis after the proposed acquisition, you’re clearly going to have some organic build, but you get closer to the 8.5 level. Does this -- and this is probably more for Bill Downe, does this tamper your expectations and what the bank may be able to do on a return to capital basis or additional capital deployment basis for the balance of 2014?

It’s Tom. I’ll keep on going. I guess the first thing I’d say is that we expect the acquisition of F&C to close in the third quarter and so we do have two quarters of builds to come and our expectations that we’ll be above 9, given the capital that we’ll build and also the reduction to risk weighted assets that we’re expecting in market risk, which could be in the order of 20 basis points. And then on the return on capital, we do expect to be basically not active under the buyback prior to the close of the acquisition of F&C, given that it will consume some of our excess capital. We were active with the buyback last year, bought back over 10 million shares and feel good about that. And through time, as we’ve talked about, we want to be in a position of capital strength and we’ll deploy that capital through acquisitions that make sense, organic growth and share buybacks, when the ratio would otherwise be getting higher than make sense.

That’s really helpful. Thanks for your time, Tom.

Thank you. The next question is from Robert Sedran with CIBC. Please go ahead.

Hi, just first off a quick clarification on the performing the $300 million -- performing portfolio. Is there anything, Tom, that would bias number up or down? I know pay downs may change the timing of when is the revenue comes in, but is there anything that might make that number get larger or smaller than the 300?

Not really. It basically is what it is at the current time, it will come down over time. And the only thing that will really accelerate the decline is paybacks. And we did have some of those in the current quarter which increased the revenue number.

Okay. And I just want to ask about the U.S. margin. I guess -- and I’m sorry if I missed in the prepared remarks. But I guess the guidance had been for little bit more margin pressure to be felt through this year and the margin end up being up a basis point quarter-on-quarter. Was there something unusual in the quarter or are we more confident now that a stable margin is the more appropriate view from here for the year?

Hi, this is Mark Furlong. So we had some interest recoveries that was positive to the margin this quarter. But, I’d say overall, we continue to think that there are -- continue to believe will be downward pressure on the NIM. As you said last quarter I said it’d be about 4 to 8 basis points. We feel like it could be more towards maybe the lower end with that range. This quarter we had better performance and we will continue to have some upside performance in future quarters in part due to the interest recoveries like this quarter and with improving credit environment. There will be some variability though from quarter-to-quarter based on things like competitive pressures and interest recoveries and things like that, but it’s overall. When we look at the new business we are adding, the new business is generally at lower spreads than our existing portfolio but we really like the diversity and the credit quality of the customers we are adding. So, over the long term I think this will still be good revenue growth story.

Mark, we’ve been hearing a little bit about competitive pressures in the Midwest in particular, if you were to back out the impact of those interest recoveries, would the margin have been actually down that sort of 4 to 6 basis points this quarter?

No, it would have been down 2. And so there is variability between quarter-to-quarter. The competition isn’t consistent quarter-to-quarter, it’s always there, but we would have only been down 2, so my estimate would have been little bit high then.

Okay, thank you.

You are welcome.

Thank you. The next question is from Michael Goldberg with Desjardins Securities. Please go ahead.

Thank you. I wonder if we could get some additional color on growth in business funding in Canada and the U.S.; where is it coming from and what’s the sustainability like?

Hi Michael, it’s Frank. I will start with Canada. Business growth that we've seen in our lending book in Canada has been pretty consistent for the last year or so. And there is no one place that is despite where most of that is coming from. We've got diversification across the country, we've got good diversification from a segment perspective and that's part of the plan and the strategies and tactics that we have in place are bringing that there. So expectations for the future are strong growth again on the back of something that we’re very good at, we’re very good at it here in Canada, we’re very good at it in the United States. But there is not one place where we've got over representation flowing into the growth profile for the business.

So would you say that this growth has been inline with your expectations or better than your expectations?

Well, speaking for the Canadian business, the growth has been inline with our expectations, we've got investments continuing to be made in the business and we believe we can even have stronger growth as we look forward, Michael. So this is -- as I said this is a business that we've been good at for a long time and our intention is to continue to grow rapidly. Do you want a comment about U.S. I’ll turn it over to Mark for that?

Fair enough.

So, I could almost repeat what Frank said and really market-by-market and national segments by national segment, we've had growth quarter-to-quarter and year-over-year in U.S. And it is pretty much been that way for the last probably 8 to 9, 10 quarters. Really been diverse it’s been and then commercial real estate of course has picked the last three quarters and that’s been diversified geography and diversified property type as well. So to echo Frank’s comments in the U.S. we really have a strong commercial and a strong business banking team and it isn’t a surprise to us that we are having this kind of growth and that we feel optimistic based on what’s in pipeline when we look forward into future quarters. I mean we really feel like we have some really strong momentum going broadly across the U.S. markets and see no reason why we should reduce expectations on continuing to grow strongly.

Okay. And separately but sticking to the balance sheet personal demand and notice deposits looks like they are up about 5% from the fourth quarter or 20% annualized. Can you tell me what’s going on there and how sustainable that is?

Yes. It’s Tom Michael, a portion of the increase both quarter-over-quarter and year-over-year would related to the move in the currency and so that would give the numbers a lift. And then as I said in my comments we have seen good growth in the deposit business in really both businesses P&C Canada has had good performance overall particularly good in commercial with I think our fourth quarter in a row of double-digit deposit growth. And on the commercial side of the business and we’ve had good performance in the operating P&C U.S. business as well and to help with the margin we have let some of legacy longer term higher cost term deposits in the U.S. run off.

Thank you.

Thank you. The next question is from (inaudible) with Cormark Securities. Please go ahead.

Hi, good afternoon. My question is about U.S. capital markets you saw a really strong quarter in Q1 and I am wondering what’s driving that and whether that’s sustainable going forward at the level we saw in Q1?

Hi, it’s Tom Milroy, [Manny]. Thank you very much. The U.S. had a really strong quarter this time as you saw the net income for the quarter up quarter-over-quarter almost 50%, revenue up 26%. So it was pretty encouraging. We saw the revenue coming really across both the investment in corporate banking and trading businesses. We had stronger equity underwriting and loan syndication and we just think it was a quarter in which the bunch of things fell into place. We are I am not sure (inaudible) businesses there is some variability quarter-to-quarter, but if we look at the U.S. business we are very encouraged about what we see where we are and we think going forward this will continue to perform well.

Thank you.

Thank you. The next question is from Peter Routledge with National Bank Financial. Please go ahead.

Yes thanks. So a question for Frank just on comparing growth improved provision income in P&C Canada and P&C U.S. and the trends are very different. And Mark spoke about good organic tough competitive positions, I guess from your advantage point in your relatively new role, what are your objectives to the U.S. and what plans for a change you have?

Thanks Peter for the question. The U.S. at this point in time as Mark has described over the last few quarters is kind of a tale of two cities. The commercial business in our business banking segment has been performing extremely well and we've seen a lot of growth. On the consumer side not only because of some of the regulatory changes but also because of some of the competitive and economic realities in the marketplace, top-line growth has been a little bit more of a challenge. So as we look forward, our focus is on continuing to build on the momentum we have in our business segment and really focusing on changes to the business on the consumer side in particular, our consumer lending and card businesses are couple of the areas that we are focused on over the next little while.

When do you think, I don't want to presumably but are we (inaudible) pre-provision income this year i.e. quarter over quarter growth?

Well, I think we're confident that the second half of the year is going to look better than the first half of the year. The year-over-year growth question, we're working as hard as we can on that front. And as Mark said, quarter to quarter, we're going to see variability continuing in the market just given the dynamics. So, I'm not in a position to go out on a limit this point in time relative to where we are today.

Okay. Thanks very much.

Thank you. The next question is from Steve Theriault with Bank of America Merrill Lynch. Please go ahead.

Thanks very much. Couple of questions, first I think for Tom. Tom just on currency, I want to make sure, I understand this correctly. In the capital section you highlight that source currency from new business created a 50 basis point headwind in Q1. So what scenario would create additional headwinds there? Is this driven by future moved in the currency or business mix by geography or something like that?

The 50 basis points from business driven source from RWA tries to give the growth in risk-weighted assets excluding the impact of the strengthening U.S. dollar. And so we just hold the currency constant in giving that number. So we are not suggesting that there is anything else going on other than backing of the dollar.

And so if the dollar stays at around $1.10 or $1.12 where it ended January 31st probably not a big item?

Well, it’s not a big item on the capital ratio, but I go back to the earlier comment about how the business driven risk-weighted growth included higher market risk assets in the quarter and we do expect some of those RWAs to decline over the next quarter or two.

Yes, okay. And I wanted to go back to your server related currency question, trying to run through the sensitivities in earnings for the weaker C dollar. In there you know that your sensitivities are all disclosed assuming no hedging outside your exposure to the C dollar versus U.S. dollar. Can you tell us a bit about like is there an effect any hedges in place currently?

Our hedging practice on U.S. dollar varies through time. And in the current quarter, a portion of our U.S. earnings would have been hedged, but it was not the majority of the earnings.

But a material one, I guess?

I don’t, I really don’t think it was that material at the end of day. It was less than half of the total earnings would have been hedged.

Okay. And then I had a last question on regulation, which is Bill (inaudible) off the hook through whole Q&A session. So, I’ll ask, we’re few days post the Fed posting 400 plus page document on foreign bank holding companies. So based on your first impressions, any sort of initial sense on whether holding company requirements, minimum leverage, do you think have that will have much of a material impact on your business, appreciating of course that’s being faced in over a long period of time?

Well, thanks Stephen, thanks for giving me the opportunity to participate in the call. It was, it’s been such a good quarter that I was hoping somebody would let me speak. I think from our perspective, first of all you are right, the phase in gives a lots flexibility to 2016, but from our perspective, because we’ve run the U.S. bank as a U.S. banking subsidiary of a holding company, we’ve historically maintained the capitalization and the leverage as though it was a domestic institution. So there are some, there will clearly be some details in the final interpretation that will be important. But the overall impact on BMO Financial Corp, the U.S. holding company and BMO Harris Bank is going to be very little. And so I think on a relative competitive basis, having run that bank the way we did as a discrete well capitalized institution, stood us in very good stead going through the period of challenge during the crisis. And it means that as we look at this new body of regulation, we don’t expect to be materially impacted. So, it was actually a good news piece.

Thanks very much for that.

Yes. Thank you. And thank you to everyone for being on the call.

Thank you. There are no further questions registered at this time, I would now like to turn the meeting over to Ms. Haward-Laird.

Thanks everyone for joining us today. If there is any follow up questions, we are happy to take them in Investor Relations. And have a great afternoon.

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