BMO on NAMarch 1, 2023 | 18:36 ET~ National Bank NA-TSX
Rating Outperform Price: Mar-1 $101.86 Target $103.00 Total Rtn 5%
Q1/23 Beat on Better P&C NIM and Financial Markets
Bottom Line: Beat. NA's cash EPS of $2.56 beat our/consensus estimates of $2.26/$2.39.
The beat to us was largely from Financial Markets (stronger-than-expected trading; continued strength in advisory/lending activities) and P&C (better NIMs).
Total bank PCL ratio was 16bps (we were looking for 15bps), with the bulk of the build in performing loans. Balance sheet remains strong with CET1 ratio of 12.6%/LCR ratio of 151%. Key Points Beat Driven Primarily by Financial Markets. Financial Markets had earnings of $298MM, compared to our expectation of $229MM, driven by strong trading results (FICC), as well as resiliency in advisory and lending activity. P&C earnings of $331MM were up 10% y/y driven by 8% volume growth and higher risk-adjusted margins. Wealth Management was up 16% y/y to $198MM with strong spread income growth. USSF&I was down 1% y/y, with earnings at ABA up 7% y/y (+31% y/y loan growth), offset by lower results at Credigy (down 11% y/y primarily on higher performing PCLs). PTPP Income Was Up 5% y/y, with top-line revenue growth of 7%; total bank operating leverage of -2.4% with NIX of 51.7% (vs. 50.6% in Q1/22 including benefit from a tax provision reversal). Trading revenue of $393MM was above our estimate of $320MM (vs. prior eight-quarter average of $305MM). Total bank non-trading NIM was 270bps (up 41bps y/y; aided by two non-recurring items — Credigy pre-payments and interest recovery on impaired loans in Corporate Banking). ROE was 18.6% this quarter on the back of 82bps ROA. Outlook: Mid- to high-single-digit PTPP growth; positive operating leverage in FY23. Performing Loan Credit Builds. PCL of $86MM/16bps (Stage 1&2: 12bps; Stage 3: 4bps) included a $66MM build for performing loans. Total allowances (specifics + collectives) now stand at ~$1.3B or ~125bps of credit RWA (vs. “through the cycle” average of 131bps). Outlook: F23 impaired PCL in the 15-25bps range (pre-pandemic levels). Strong Balance Sheet and Liquidity Position. CET1 ratio of 12.6%, down 10bps q/q, reflecting solid RWA growth and dividends; CDR impact was 3bps. LCR was 151% (fiveyear average of ~148%). Forecasts. 2023E EPS goes to $9.35 from $9.30; 2024E EPS tweaked to $9.80. TP of $103 remains unchanged and is based on P/E valuation multiple of ~10.5x 2024E EPS.