Bank of Montreal (BMO)
Q1 2013 Earnings Call
February 26, 2013 2:00 pm ET
Executives
Sharon 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 of BMO Financial Group and Executive Vice President of BMO Financial Group
Franklin 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
Analysts
Gabriel Dechaine - Crédit Suisse AG, Research Division
Sumit Malhotra - Macquarie Capital Markets Canada Ltd., Research Division
John Aiken - Barclays Capital, Research Division
Robert Sedran - CIBC World Markets Inc., Research Division
Mario Mendonca - Canaccord Genuity, Research Division
J. Bradley Smith - Stonecap Securities Inc., Research Division
Andre-Philippe Hardy - RBC Capital Markets, LLC, Research Division
Michael Goldberg - Desjardins Securities Inc., Research Division
Peter D. Routledge - National Bank Financial, Inc., Research Division
Darko Mihelic - Cormark Securities Inc., Research Division
Steve Theriault - BofA Merrill Lynch, Research Division
Presentation
Operator
Good afternoon, and welcome to the BMO Financial Group's Q1 2013 Earnings Release and Conference Call for February 26, 2013. Your host for today is Ms. Sharon Haward-Laird, Head, Investor Relations. Ms. Haward-Laird, please go ahead.
Sharon 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 Ouellette from the Private Client Group; Frank Techar, Head of P&C Canada; and Mark Furlong, Head of P&C U.S. 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. Information about material factors that could cause results to differ and the material assumptions underlying these forward-looking statements can be found in our annual MD&A and our first quarter report to shareholders. With that said, I will now hand things over to Bill.
William A. Downe
Thank you, Sharon, and good afternoon, everyone. BMO had strong first quarter results. Our focus on customers, efficiency and prudent risk management continues to serve us well. This is reflected in the financial performance underpinned by good operating group performance and also in the progress we've made in advancing our strategic agenda. Reported net income was $1 billion or $1.53 per share. On an adjusted basis, net income was also $1 billion, $1.52 per share, 7% ahead of last year. Revenues increased to $3.9 billion and ROE was 14.8%. Progress was particularly evident in our U.S. businesses. Personal and Commercial Banking U.S. had very good adjusted earnings and loan growth in the quarter. We focused our collective efforts on growing BMO's customer base and capturing opportunities in our redefined home market. And we've been highly visible in the Midwest, increasing our advertising support post-integration. Wealth management and capital markets businesses in the U.S. also had good quarters. We're seeing the benefits of disciplined expense management as we continue to focus on efficiencies and find ways to deliver superior service to our customers and to drive performance across the bank. Excluding costs related to employees eligible to retire booked in Q1, adjusted operating efficiency improved for the bank and all of business groups quarter-over-quarter. Core credit performance was good, provision for credit losses was down sequentially and relatively stable year-over-year. Our Basel III Common Equity Tier 1 Ratio was 9.4%. We increased our quarterly dividend by 3% to $0.74 a share, reflecting our strong capital position and the success of our business strategies. We delivered adjusted earnings of over $1 billion for the third consecutive quarter. We also gained market share against the backdrop of a cooling housing market in Canada, moderate consumer spending and continued government restraint. The U.S. economy is gradually improving, led especially by a rebound in housing. Looking ahead, we're optimistic about the opportunities for growth and expect the economy to improve in our markets throughout the year. BMO is very well positioned in this environment, with a proven strength in commercial banking across our large North American platform.
Turning to the operating groups, P&C Canada's adjusted net income for Q1 was $461 million, up 4% from a year ago. Loan growth was robust, with the total portfolio up 9%. The lift in commercial lending was the strongest we've seen since 2008. In personal banking, we're seeing the payoff from our focus on sales force productivity, which has improved over the past few years, with our frontline selling significantly more or booking more appointments and having better quality conversations with our customers. We're generating good results in the areas we're focused on while continuing to increase customer loyalty that will support future growth. P&C U.S. adjusted net income was $197 million in source currency, up 25% quarter-over-quarter and 13% ahead of last year. As I mentioned earlier, our loan book had very good growth, up $800 million or approximately 2% from the fourth quarter. We continue to drive good balance sheet momentum in this business. Core C&I loans were up $3.3 billion or 18% from a year ago, and total deposits have increased by $1.3 billion. We had strong deposit share in our key Midwest markets that positions us well and provides a source of competitive advantage. Our ongoing campaign to introduce BMO Harris Bank across our expanded U.S. footprint is driving customer recognition and producing good results. Here are some examples of how creative brand support is resonating with customers. In Milwaukee, just a few weeks into our newest advertising campaign, brand awareness of the bank has increased significantly. In Minneapolis, frontline staff are telling us ad recognition has brought customers into branches to open new accounts. And we premiered BMO advertising at the Super Bowl with good coverage in our U.S. regional markets and across Canada. BMO Capital Markets delivered Q1 adjusted net income of $310 million with ROE of 21.3%. Results were highlighted by strong revenue growth driven by M&A activity, debt underwriting and trading revenues. The 56.9% efficiency ratio reflects improved expense management. Private Client Group produced first quarter adjusted net income of $169 million, traditional wealth was up 36% excluding a gain on strategic investment last year, and insurance rebounded to a more normal level. Results benefited from higher revenue driven by growth in client assets and focused cost management.
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