Bank of Montreal (BMO)
Q4 2012 Earnings Call
December 04, 2012 2:00 pm ET
Executives
Sharon Marie Haward-Laird
William A. Downe - Chief Executive Officer, President and Director
Thomas E. Flynn - Chief Financial Officer, Principal Accounting Officer and Executive Vice President
Surjit S. Rajpal - Chief Risk Officer and Executive Vice-President
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
Franklin J. Techar - Chief Executive Officer of Personal & Commercial Banking for Canada Bmo and President of Personal & Commercial Banking for Canada Bmo
Gilles G. Ouellette - Chief Executive Officer of Private Client Group and President of Private Client Group
Thomas V. Milroy - Chief Executive Officer
Analysts
Gabriel Dechaine - Crédit Suisse AG, Research Division
Sumit Malhotra - Macquarie Research
Steve Theriault - BofA Merrill Lynch, Research Division
Peter D. Routledge - National Bank Financial, Inc., Research Division
Michael Goldberg - Desjardins Securities Inc., Research Division
Andre-Philippe Hardy - RBC Capital Markets, LLC, Research Division
Charles Nabhan - Stifel, Nicolaus & Co., Inc., Research Division
Robert Sedran - CIBC World Markets Inc., Research Division
J. Bradley Smith - Stonecap Securities Inc., Research Division
Mario Mendonca - Canaccord Genuity, Research Division
John Reucassel - BMO Capital Markets Canada
Cheryl M. Pate - Morgan Stanley, Research Division
Presentation
Operator
Good afternoon, and welcome to the BMO Financial Group's Fourth Quarter 2012 Conference Call for December 4, 2012. Your host for today is Ms. Sharon Haward-Laird, Head, Investor Relations. Ms. Haward-Laird, please go ahead.
Sharon Marie Haward-Laird
Thank you, operator. 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 prequalified analysts. [Operator Instructions]
Also with us this afternoon to take questions are BMO's business unit heads: Tom Milroy from BMO Capital Markets; Gilles Ouellete from the Private Client Group; Frank Techar, Head of P&C Canada; and Mark Furlong, Head of 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 our fourth quarter earnings release.
With that said, I will hand things over to Bill.
William A. Downe
Thank you, Sharon, and good afternoon, everyone. Today BMO reported a strong finish to a pivotal year for the bank. In the fourth quarter, we successfully completed the conversion of the core banking platform in the U.S. and turned the page on the purchase of M&I, announced 24 months ago. With our stronger expanded North American platform, BMO is now the second largest Canadian bank measured by the number of retail branches in Canada and the U.S. And adjusted earnings from BMO's U.S. segment tripled from 2011 to over $1 billion, benefiting from growth in our business and strong credit performance. And I'll comment further on a number of milestones achieved later in my remarks.
The bank had record results in 2012. Reported net income was $4.2 billion or $6.15 per share. On an adjusted basis, net income was $4.1 billion, up 25% from last year. Revenues increased 10% to $15 billion. ROE was 15.5%, and return on tangible common equity was 19.6%. We also increased the dividend, grew loans by 7.4% and deposits by 7.1%. With the majority of M&I conversion work complete and initiatives to improve productivity taking hold, the adjusted efficiency ratio improved in the quarter, and we reduced headcount by 700 during the year. BMO continued to build its strong capital position, finishing the year with a pro forma Basel III common equity ratio of 8.7%, assuming full implementation of Basel III reforms and the full impact of IFRS.
Concurrent with our earnings release today, we announced our intention to establish a normal course issuer bid subject to regulatory approvals. This will give us additional flexibility in managing capital.
Turning briefly to the operating groups. P&C Canada's reported net income for the year was $1.8 billion, 3% on an actual loss basis. We had good loan growth across most products, an increase of $11 billion or 7.3%, supported by 2 strong quarters of sequential growth to end the year with momentum.
Importantly, in the last 2 years, we significantly shortened the average term to maturity of our mortgage book, reducing the risks to our customers from home ownership. Our net interest margin remains above the peer average despite margin compression, and we've continued to invest in this flagship business to generate consistent quality long-term growth, and we remain very confident in the success of our customer-focused strategy.
P&C U.S. delivered adjusted net income for the year of $579 million in sourced currency, up 48% over 2011. Our fully integrated commercial banking team continues to perform very well with strong momentum in core C&I growth, which increased 15% from a year ago. I'll comment further on our overall progress in the U.S. in a few minutes.
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