Financial Results Highlights(1):
Fiscal 2012 Compared with Fiscal 2011:
- Net income of $4,189 million, up $1,075 million or 35%
- Adjusted net income(2) of $4,092 million, up $817 million or 25%
- EPS(3) of $6.15, up 27%
- Adjusted EPS(2)(3) of $6.00, up 18%
- Provisions for credit losses of $765 million; adjusted provisions of $471 million, down $637 million
- Common Equity Ratio increases to 10.5% using a Basel II approach
Fourth Quarter 2012 Compared with Fourth Quarter 2011:
- Net income of $1,082 million, up $314 million or 41%
- Adjusted net income(2) of $1,125 million, up $293 million or 35%
- EPS(3) of $1.59, up 43%
- Adjusted EPS(2)(3) of $1.65, up 38%
- ROE of 15.6%, compared with 12.7%
- Adjusted ROE(2) of 16.3%, compared with 13.9%
- Provisions for credit losses of $192 million; adjusted provisions of $113 million, down $168 million
For the fourth quarter ended October 31, 2012, BMO Financial Group reported strong net income of $1,082 million or $1.59 per share. On an adjusted basis, net income was $1,125 million or $1.65 per share. For fiscal 2012, net income was $4,189 million and EPS was $6.15. Adjusted net income was $4,092 million and adjusted EPS was $6.00.
(1) Effective the first quarter of 2012, BMO''s consolidated financial statements and the accompanying Interim Management''s Discussion and Analysis (MD&A) or Financial Review are prepared in accordance with International Financial Reporting Standards (IFRS), as described in Note 1 to the audited consolidated financial statements for the year ended October 31, 2012. Amounts in respect of comparative periods for 2011 have been restated to conform to the current presentation. References to GAAP mean IFRS, unless indicated otherwise.
(2) Results and measures in this document are presented on a GAAP basis. They are also presented on an adjusted basis that excludes the impact of certain items. Items excluded from fourth quarter 2012 results in the determination of adjusted results totalled a charge of $43 million after tax, comprised of a $35 million after tax net benefit of credit-related items in respect of the acquired Marshall & Ilsley Corporation (M&I) performing loan portfolio; costs of $153 million ($95 million after tax) for the integration of the acquired business; a $34 million ($24 million after tax) charge for amortization of acquisition-related intangible assets on all acquisitions; a benefit on run-off structured credit activities of $67 million ($67 million after tax); a restructuring charge of $74 million ($53 million after tax) to align our cost structure for the current and future business environment; and a decrease in the collective allowance for credit losses of $49 million ($27 million after tax). Adjusted results and measures are non-GAAP and are detailed in the Adjusted Net Income section, and (for all reported periods) in the Non-GAAP Measures section of the Financial Review, where such non-GAAP measures and their closest GAAP counterparts are disclosed.
(3) All Earnings per Share (EPS) measures in this document refer to diluted EPS unless specified otherwise. EPS is calculated using net income after deductions for net income attributable to non-controlling interest in subsidiaries and preferred share dividends.
Note: All ratios and percentage changes in this report are based on unrounded numbers.
"BMO''s fourth quarter results mark a strong finish to a pivotal year for the bank," said Bill Downe, President and Chief Executive Officer, BMO Financial Group. "In the 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. Since the fourth quarter of 2010, we have generated reported earnings of $7.3 billion and increased BMO''s book value from $19.3 billion to $26.2 billion - an increase of 18%. During the year we increased the dividend and grew net loans and acceptances by 7.4% and deposits by 7.1%. A concerted focus on efficiency was reflected in a reduction of 700 full-time employees.
"P&C Canada experienced good quarter-over-quarter balance sheet growth - with loans and deposits up. We continue to see growth in residential mortgage market share, and believe the changes to Canada''s mortgage market announced earlier this year, which are aligned with BMO''s risk practices and ongoing efforts to encourage Canadians to borrow smartly, are having the desired moderating effect on housing prices in most markets.
"Over the past two years, with the acquisition of Marshall & Ilsley Corporation, we have fundamentally transformed the bank, changed its growth trajectory, and enhanced long-term value for shareholders. BMO Harris Bank has strong deposit market share positions in our core Midwest markets, and our U.S. footprint has doubled in size.
"During the year over 600 U.S. bank branches have been refreshed; high visibility BMO signage and promotion have been put in place; and 1,370 bank machines were raised to a new standard. Our reputation as a consistent commercial lender continues to grow. The core commercial and industrial portfolio in the U.S. has now increased in four sequential quarters - up 15 per cent from a year ago.
"Our efforts to attract new client assets in our wealth businesses have been effective. Of note, our U.S. wealth segment, which has an advantaged private banking and asset management platform, delivered over $100 million in adjusted earnings in 2012. In Canada, we continue to innovate as a leader in the ETF market and BMO InvestorLine''s introduction of adviceDirect means that even if you are a do-it-yourself investor, you can get specific investment recommendations to help you manage your portfolio so you don''t have to feel like you''re on your own.
"BMO Capital Markets continues to deliver very good earnings with strong ROE. Our reputation as experienced advisors who help clients navigate emerging opportunities continues to grow.
"We are confident that each of our U.S. businesses - personal and commercial, wealth, and capital markets - has the scale to compete for new customers. We are well-positioned to leverage the investments we have made in each of these businesses and focus on organic growth.
"I would like to thank our customers for the trust they place in the bank and in particular acknowledge the customers who were part of the conversion of the core banking platform in the U.S. for their continuing loyalty. We recognize that critical to the bank''s success is our ability to serve customers exceptionally well – and help them succeed. The bank''s employees are at the heart of our differentiation strategy; they continuously drive forward our vision to define great customer experience – and I would like to acknowledge them for their hard work and the great improvements being made in the way work gets done more efficiently for our customers.
"As we look ahead to 2013, we are confident that each of our businesses is positioned to deliver high quality sustained earnings growth against a high standard of customer experience," concluded Mr. Downe.
Concurrent with the release of results, BMO announced a first quarter 2013 dividend of $0.72 per common share, unchanged from the preceding quarter and equivalent to an annual dividend of $2.88 per common share. BMO''s capital position is strong. We announced our intention, subject to the approval of OSFI and the Toronto Stock Exchange (TSX), to initiate a normal course issuer bid for up to 15,000,000 of the bank''s own common shares.
BMO''s 2012 audited annual consolidated financial statements and accompanying management''s discussion & analysis (MD&A) will be available today at www.bmo.com, along with the supplementary financial information report.
Operating Segment Overview
Net income was $439 million in the fourth quarter, unchanged from a year ago. Reported results reflect provisions for credit losses in BMO''s operating groups on an expected loss basis. On a basis that adjusts reported results to reflect provisions on an actual loss basis, P&C Canada''s net income was up $26 million or 6.2%. Results reflect the combination of higher volumes across most products and lower net interest margin. Expense growth of 0.7% year over year reflects good expense management with investments for growth.
We are focused on making money make sense for our customers while making it easier for them to use our products and services. Our distribution network continues to expand, with 51 branch locations opened or upgraded across the country, and the addition of more than 350 cash dispensing ABMs in 2012. Enhancements to online capabilities continue to provide customers with easy and quick access to our services, and more and more customers are using online and mobile features including email alerts and Mobile PayPass functionality.
In personal banking, with the success and momentum of our home financing campaign, we have established many new customer relationships while expanding existing ones through increased cross-selling of our products. In addition, our online appointment booking capabilities and leads management engine are enabling our sales force to work with customers to meet their needs and make money make sense for them. We are confident in the continued success of our business.
In commercial banking, our goal is to become the bank of choice for businesses across Canada by providing the knowledge, advice and guidance that customers value. Our award winning Online Banking for Business platform is helping customers manage their businesses better. We have seen positive early results following the recent launch of BMO Business Bundles, a product that provides flexible banking solutions that help make money make sense for business customers. We continue to rank #2 in Canadian business banking loan market share for small and medium sized loans.
P&C U.S. (all amounts in US$)
Net income of $132 million decreased $21 million or 14% from $153 million in the fourth quarter a year ago. Adjusted net income was $147 million, down $24 million or 13% from strong results a year ago due to lower revenue, due primarily to a reduction in certain loan portfolios and regulatory changes that lowered interchange fees. Adjusted net income increased 2.9% from the third quarter.
The core commercial and industrial loan portfolio continues to grow, having now increased in four sequential quarters with growth of $2.6 billion or 15% from the fourth quarter a year ago.
In the Chicago area, BMO Harris Bank''s deposits market share improved to 11.6% and we maintained our second place ranking. We have good relationships in place with our customers, who see BMO Harris Bank as a strong and stable leader, and deepening those relationships is helping to drive growth in market share. Our Wisconsin deposits market share was even higher, at 15.8% with a second place ranking.
During the quarter, we completed the integration of the operating systems of Harris Bank and M&I, giving customers access to a much larger network of branches and ABMs. In conjunction with the completion of the integration, we unveiled new signage on a number of the branches and our complete network of 630 branches and more than 1,370 ABMs now displays BMO Harris Bank signage.
Private Client Group
Net income was $166 million, up $29 million or 21% from a year ago. Adjusted net income was $171 million, up $28 million or 20% from a year ago. Adjusted net income in Private Client Group (PCG), excluding Insurance, was $95 million, down $8 million or 7.1% from a year ago. These results reflect higher revenue across most businesses, offset by higher strategic initiative spending to drive future revenue growth. Adjusted net income in PCG Insurance was $76 million, up $36 million or 86% from a year ago. These results benefited from changes to our investment portfolio to improve asset-liability management and the annual review of actuarial assumptions. Lower interest rates reduced PCG Insurance adjusted net income by $7 million in the current quarter and by $19 million a year ago.
Assets under management and administration grew $40 billion from a year ago to $465 billion due to market appreciation and new client assets.
On September 10, 2012, BMO InvestorLine launched adviceDirect, an innovative and personalized service that provides investing advice to online investors. The first of its kind in Canada, adviceDirect puts investors in control by providing specific investment recommendations to help them manage their investment portfolios.
BMO Capital Markets
Net income for the quarter was $293 million, more than double the level of a year ago. Revenues in the current quarter were significantly higher, as the market environment improved from the weak conditions of the previous year. These conditions provided more business opportunities, driving solid improvement in our trading revenue, particularly in interest rate and equity trading and increased underwriting fees.
Within BMO Capital Markets we remain focused on our core clients and staying true to our North American strategy of consistently delivering a great client experience while evolving in response to the market.
During the quarter, BMO Capital Markets was named as the North America M&A Investment Bank Team of the Year, Americas, by Global M&A Network at the Americas M&A Atlas Awards for our quality of advice on a series of award winning deals. The awards honour outstanding firms, top deals and influential dealmakers from the North American and South American mergers, acquisitions, corporate and private equity deal communities.
BMO Capital Markets participated in 134 new issues in the quarter including 38 corporate debt deals, 29 government debt deals, 57 common equity transactions and 10 issues of preferred shares, raising $52 billion.
Net income for the quarter was $54 million, an improvement of $160 million from a year ago. On an adjusted basis, net income was $74 million, an improvement of $141 million from a year ago. Adjusting items are detailed in the Adjusted Net Income section and in the Non-GAAP Measures section. Adjusted provisions for credit losses were $173 million lower than a year ago due in part to a $132 million ($82 million after tax) recovery of provisions for credit losses on the M&I purchased credit impaired loan portfolio, primarily due to the timing and amount of repayments of loans in excess of expectations at closing. The remaining decrease was attributable to lower provisions charged to Corporate Services under BMO''s expected loss provisioning methodology, which is explained in the Review of Operating Groups'' Performance section at the end of this document.
Acquisition of Marshall & Ilsley Corporation (M&I)
On July 5, 2011, BMO completed the acquisition of M&I. In this document, M&I is generally referred to as the ''acquired business'' and other acquisitions are specifically identified. Activities of the acquired business are primarily reflected in the P&C U.S., Private Client Group and Corporate Services segments, with a small amount included in BMO Capital Markets.
The acquired business contributed $90 million to reported net income and $169 million to adjusted net income for the quarter. It contributed $647 million to reported net income and $730 million to adjusted net income for the fiscal year. In 2011, it contributed $105 million to net income and $180 million to adjusted net income.
Adjusted Net Income
Management has designated certain amounts as adjusting items and has adjusted GAAP results so that we can discuss and present financial results without the effects of adjusting items to facilitate understanding of business performance and related trends. Management assesses performance on a GAAP basis and on an adjusted basis and considers both to be useful in the assessment of underlying business performance. Presenting results on both bases provides readers with a better understanding of how management assesses results. Adjusted results and measures are non-GAAP and, together with items excluded in determining adjusted results, are disclosed in more detail in the Non-GAAP Measures section, along with comments on the uses and limitations of such measures. Items excluded from fourth quarter 2012 results in the determination of adjusted results reduced reported net income by $43 million or $0.06 per share and were comprised of:
- the $35 million after tax net benefit for credit-related items in respect of the M&I purchased performing loan portfolio, including $185 million for the recognition in net interest income of a portion of the credit mark on the portfolio (including $69 million for the release of the credit mark related to early repayment of loans), net of a $128 million provision for credit losses (comprised of an increase in the collective allowance of $25 million and specific provisions of $103 million) and related income taxes of $22 million. These credit-related items in respect of the M&I purchased performing loan portfolio can significantly impact both net interest income and the provision for credit losses in different periods over the life of the portfolio;
- costs of $153 million ($95 million after tax) for integration of the acquired business including amounts related to system conversions, restructuring and other employee-related charges, consulting fees and marketing costs in connection with customer communications and rebranding activities;
- the $67 million before and after tax benefit from run-off structured credit activities (our credit protection vehicle and structured investment vehicle). These vehicles are consolidated on our balance sheet under IFRS and results primarily reflect valuation changes associated with these activities that have been included in trading revenue;
- a decrease in the collective allowance for credit losses of $49 million ($27 million after tax) on loans other than the M&I purchased loan portfolio;
- a restructuring charge of $74 million ($53 million after tax) to help align our cost structure for the current and future business environment. This action is part of the broader effort underway in the bank to improve productivity; and
- the amortization of acquisition-related intangible assets of $34 million ($24 million after tax).
Adjusted net income was $1,125 million for the fourth quarter of 2012, up $293 million or 35% from a year ago. Adjusted earnings per share were $1.65, up 38% from $1.20 a year ago. All of the above adjusting items were recorded in Corporate Services except the amortization of acquisition-related intangible assets, which is charged to the operating groups. The impact of adjusting items for comparative periods is summarized in the Non-GAAP Measures section.
The foregoing sections contain forward-looking statements. Please see the Caution Regarding Forward-Looking Statements that follows.
The foregoing sections contain adjusted results and measures, which are non-GAAP. Please see the Non-GAAP Measures section.
(Canadian $ in
|For the three months ended||For the twelve |
|Income Statement Highlights|
|Provision for credit losses||192||237||195||141||362||(46.5||)||765||1,212||(36.8||)|
|Adjusted net income (a)||1,125||1,013||982||972||832||35.1||4,092||3,275||24.9|
|Net income attributable to non-controlling interest in subsidiaries||18||19||18||19||19||(2.1||)||74||73||0.6|
|Net income attributable to Bank shareholders||1,064||951||1,010||1,090||749||41.9||4,115||3,041||35.3|
|Adjusted net income attributable to Bank shareholders (a)||1,107||994||964||953||813||36.0||4,018||3,202||25.5|
|Reported Net Income by Operating Segment|
|Personal & Commercial Banking Canada||439||453||446||446||439||(0.2||)%||1,784||1,773||0.6||%|
|Personal & Commercial Banking U.S.||130||129||121||137||155||(16.2||)||517||352||46.7|
|Private Client Group||166||109||145||105||137||20.7||525||476||10.3|
|BMO Capital Markets||293||232||225||198||143||+100||948||902||5.1|
|Corporate Services (including Technology and Operations)||54||47||91||223||(106||)||nm||415||(389||)||nm|
|Common Share Data ($)|
|Diluted earnings per share||$||1.59||$||1.42||$||1.51||$||1.63||$||1.11||$||0.48||$||6.15||$||4.84||$||1.31|
|Diluted adjusted earnings per share (a)||1.65||1.49||1.44||1.42||1.20||0.45||6.00||5.10||0.90|
|Dividends declared per share||0.72||0.70||0.70||0.70||0.70||0.02||2.82||2.80||0.02|
|Book value per share||40.25||39.43||38.06||37.85||36.76||3.49||40.25||36.76||3.49|
|Closing share price||59.02||57.44||58.67||58.29||58.89||0.13||59.02||58.89||0.13|
|Total market value of common shares ($ billions)||38.4||37.2||37.7||37.3||37.6||0.8||38.4||37.6||0.8|
|Balance Sheet Highlights|
|Net loans and acceptances||256,608||253,352||245,522||242,621||238,885||7.4|
|Common shareholders'' equity||26,190||25,509||24,485||24,238||23,492||11.5|
|For the three months ended (b)||For the twelve |
months ended (b)
|Financial Measures and Ratios (% except as noted)|
|Average annual five year total shareholder return||4.2||2.5||2.0||1.6||1.9||4.2||1.9|
|Diluted earnings per share growth (c)||43.2||30.3||14.4||21.6||(10.5||)||27.1||1.9|
|Diluted adjusted earnings per share growth (a) (c)||37.5||11.2||15.2||7.6||(4.8||)||17.6||6.0|
|Return on equity||15.6||14.5||16.2||17.2||12.7||15.9||15.1|
|Adjusted return on equity (a)||16.3||15.2||15.4||15.0||13.9||15.5||16.0|
|Net economic profit |
($ millions) (a)
|Net economic profit (NEP) growth (a) (c)||+100||84.5||16.2||33.4||(21.1||)||53.0||33.0|
|Adjusted operating leverage (a)||2.7||(4.4||)||(3.3||)||(7.6||)||(2.6||)||(2.8||)||0.8|
|Revenue growth (c)||9.3||16.8||18.8||18.7||18.1||15.7||13.9|
|Adjusted revenue growth (a) (c)||6.8||8.8||14.9||8.5||13.4||9.7||12.3|
|Non-interest expense growth (c)||11.0||11.9||23.2||24.1||19.9||17.1||14.7|
|Adjusted non-interest expense growth (a) (c)||4.1||13.2||18.2||16.1||16.0||12.5||11.5|
|Adjusted efficiency ratio (a)||62.2||63.7||63.2||63.5||63.8||63.1||61.5|
|Net interest margin on average earning assets||1.83||1.88||1.89||2.05||2.01||1.91||1.85|
|Adjusted net interest margin on average earning assets (a)||1.67||1.70||1.76||1.85||1.78||1.74||1.79|
|Provision for credit losses-to-average loans and acceptances (annualized)||0.30||0.38||0.32||0.23||0.60||0.31||0.56|
|Effective tax rate||15.7||16.2||18.7||22.0||25.3||18.3||22.0|
|Adjusted effective tax rate||17.9||16.9||19.5||23.7||20.7||19.5||21.7|
|Gross impaired loans and acceptances-to-equity and allowance for credit losses||9.30||9.15||9.34||8.74||8.98||9.30||8.98|
|Cash and securities-to-total assets ratio||29.4||31.3||32.0||32.2||29.5||29.4||29.5|
|Common equity ratio (based on Basel II)||10.54||10.31||9.90||9.65||9.59||10.54||9.59|
|Basel II tier 1 capital ratio||12.62||12.40||11.97||11.69||12.01||12.62||12.01|
|Basel II total capital ratio||14.94||14.78||14.89||14.58||14.85||14.94||14.85|
|Credit rating (d)|
|Standard & Poor''s||A+||A+||A+||A+||A+||A+||A+|
|Twelve month total shareholder return||5.2||0.5||(1.0||)||5.7||2.4||5.2||2.4|
|Price-to-earnings ratio (times)||9.6||10.1||11.0||11.3||12.1||9.6||12.2|
|Market-to-book value (times)||1.47||1.46||1.54||1.54||1.49||1.47||1.49|
|Return on average assets||0.77||0.68||0.76||0.81||0.56||0.76||0.65|
|nm - not meaningful|
|(a) These are non-GAAP amounts or non-GAAP measures. Please see the Non-GAAP Measures section.|
|(b) For the period ended, or as at, as appropriate.|
|(c) Amounts for periods prior to fiscal 2011 have not been restated for IFRS. As a result, growth measures for 2011 may not be meaningful.|
|(d) For a discussion of the significance of these credit ratings, see the Liquidity and Funding Risk section on pages 86 to 88 of BMO''s Annual Management''s Discussion and Analysis.|
The Financial Review commentary is as of December 4, 2012. Unless otherwise indicated, all amounts are in Canadian dollars and have been derived from financial statements prepared in accordance with International Financial Reporting Standards (IFRS). References to GAAP mean IFRS, unless indicated otherwise. The Financial Review should be read in conjunction with the summary unaudited quarterly consolidated financial statements for the period ended October 31, 2012, included in this document, as well as the audited consolidated financial statements for the year ended October 31, 2012, and Management''s Discussion and Analysis (MD&A) for fiscal 2012. Note 30 to the audited financial statements contains reconciliations and descriptions of the effects of the transition from Canadian GAAP to IFRS on BMO''s financial results. The material that precedes this section comprises part of this Financial Review.
The annual MD&A includes a comprehensive discussion of our businesses, strategies and objectives, and can be accessed on our website at www.bmo.com/investorrelations. Readers are also encouraged to visit the site to view other quarterly financial information.
Bank of Montreal uses a unified branding approach that links all of the organization''s member companies. Bank of Montreal, together with its subsidiaries, is known as BMO Financial Group. As such, in this document, the names BMO and BMO Financial Group mean Bank of Montreal, together with its subsidiaries.
|Summary Data - Reported|
|(Unaudited) (Canadian $ in millions, except as noted)||Q4-2012||Increase |
|Net interest income||2,145||(117||)||(5||%)||(80||)||(4||%)||8,808||1,334||18||%|
|Specific provision for credit losses||216||(83||)||(28||%)||(13||)||(6||%)||762||(364||)||(32||%)|
|Collective provision for credit losses||(24||)||(87||)||(+100||%)||(32||)||(+100||%)||3||(83||)||(97||%)|
|Total provision for credit losses||192||(170||)||(47||%)||(45||)||(19||%)||765||(447||)||(37||%)|
|Provision for income taxes||201||(59||)||(23||%)||14||8||%||938||62||7||%|
|Attributable to bank shareholders||1,064||315||42||%||113||12||%||4,115||1,074||35||%|
|Attributable to non-controlling interest in subsidiaries||18||(1||)||(5||%)||(1||)||(2||%)||74||1||-|
|Earnings per share - basic ($)||1.59||0.47||42||%||0.17||12||%||6.18||1.28||26||%|
|Earnings per share - diluted ($)||1.59||0.48||43||%||0.17||12||%||6.15||1.31||27||%|
|Return on equity||15.6||%||2.9||%||1.1||%||15.9||%||0.8||%|
|Net interest margin on earning assets||1.83||%||(0.18||%)||(0.05||%)||1.91||%||0.06||%|
|Effective tax rate||15.7||%||(9.6||%)||(0.5||%)||18.3||%||(3.7||%)|
|Capital Ratios Reported|
|Basel II Tier 1 Capital Ratio||12.6||%||0.6||%||0.2||%||12.6||%||0.6||%|
|Common Equity Ratio - using a Basel II approach||10.5||%||0.9||%||0.2||%||10.5||%||0.9||%|
|Net income by operating group:|
|Personal and Commercial Banking||569||(25||)||(4||%)||(13||)||(2||%)||2,301||176||8||%|
|Private Client Group||166||29||21||%||57||51||%||525||49||10||%|
|BMO Capital Markets||293||150||+100||%||61||26||%||948||46||5||%|
|Corporate Services, including T&O||54||160||+100||%||7||22||%||415||804||+100||%|
|BMO Financial Group net income||1,082||314||41||%||112||12||%||4,189||1,075||35||%|
|T&O means Technology and Operations.|
|nm - not meaningful|
|Summary Data - Adjusted (1)|
|(Unaudited) (Canadian $ in millions, except as noted)||Q4-2012||Increase (Decrease) |
|Increase (Decrease) |
|Fiscal-2012||Increase (Decrease) |
|Adjusted net interest income||1,956||(40||)||(2||%)||(56||)||(3||%)||8,029||781||11||%|
|Adjusted non-interest revenue||1,964||290||17||%||299||18||%||7,038||544||8||%|
|Adjusted specific provision and adjusted total provision for credit losses||113||(168||)||(60||%)||(3||)||(2||%)||471||(637||)||(57||%)|
|Adjusted non-interest expense||2,436||95||4||%||94||4||%||9,513||1,060||13||%|
|Adjusted provision for income taxes||246||30||13||%||40||20||%||991||85||9||%|
|Adjusted net income||1,125||293||35||%||112||11||%||4,092||817||25||%|
|Attributable to bank shareholders||1,107||294||36||%||113||11||%||4,018||816||25||%|
|Attributable to non-controlling interest in subsidiaries||18||(1||)||(5||%)||(1||)||(2||%)||74||1||-|
|Adjusted net income||1,125||293||35||%||112||11||%||4,092||817||25||%|
|Adjusted earnings per share - basic ($)||1.65||0.43||35||%||0.16||11||%||6.02||0.85||16||%|
|Adjusted earnings per share - diluted ($)||1.65||0.45||38||%||0.16||11||%||6.00||0.90||18||%|
|Adjusted return on equity||16.3||%||2.4||%||1.1||%||15.5||%||(0.5||%)|
|Adjusted efficiency ratio||62.2||%||(1.6||%)||(1.5||%)||63.1||%||1.6||%|
|Adjusted operating leverage||2.7||%||nm||nm||(2.8||%)||nm|
|Adjusted net interest margin on earning assets||1.67||%||(0.11||%)||(0.03||%)||1.74||%||(0.05||%)|
|Adjusted effective tax rate||17.9||%||(2.8||%)||1.0||%||19.5||%||(2.2||%)|
|Adjusted net income by operating group:|
|Personal and Commercial Banking||587||(26||)||(4||%)||(14||)||(2||%)||2,375||207||9||%|
|Private Client Group||171||28||20||%||56||48||%||546||60||12||%|
|BMO Capital Markets||293||150||+100||%||61||26||%||949||47||5||%|
|Corporate Services, including T&O||74||141||+100||%||9||15||%||222||503||+100||%|
|BMO Financial Group adjusted net income||1,125||293||35||%||112||11||%||4,092||817||25||%|
|(1)||The above results and statistics are presented on an adjusted basis. These are non-GAAP amounts or non-GAAP measures. Please see the Non-GAAP Measures section.|
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Management''s Responsibility for Financial Information
Bank of Montreal''s Audit and Conduct Review Committee reviewed this document, including the summary unaudited quarterly consolidated financial statements, and Bank of Montreal''s Board of Directors approved the document prior to its release.
Caution Regarding Forward-Looking Statements
Bank of Montreal''s public communications often include written or oral forward-looking statements. Statements of this type are included in this document, and may be included in other filings with Canadian securities regulators or the U.S. Securities and Exchange Commission, or in other communications. All such statements are made pursuant to the "safe harbor" provisions of, and are intended to be forward-looking statements under, the United States Private Securities Litigation Reform Act of 1995 and any applicable Canadian securities legislation. Forward-looking statements may involve, but are not limited to, comments with respect to our objectives and priorities for 2013 and beyond, our strategies or future actions, our targets, expectations for our financial condition or share price, and the results of or outlook for our operations or for the Canadian and U.S. economies.
By their nature, forward-looking statements require us to make assumptions and are subject to inherent risks and uncertainties. There is significant risk that predictions, forecasts, conclusions or projections will not prove to be accurate, that our assumptions may not be correct and that actual results may differ materially from such predictions, forecasts, conclusions or projections. We caution readers of this document not to place undue reliance on our forward-looking statements as a number of factors could cause actual future results, conditions, actions or events to differ materially from the targets, expectations, estimates or intentions expressed in the forward-looking statements.
The future outcomes that relate to forward-looking statements may be influenced by many factors, including but not limited to: general economic and market conditions in the countries in which we operate; weak, volatile or illiquid capital and/or credit markets; interest rate and currency value fluctuations; changes in monetary, fiscal or economic policy; the degree of competition in the geographic and business areas in which we operate; changes in laws or in supervisory expectations or requirements, including capital, interest rate and liquidity requirements and guidance; judicial or regulatory proceedings; the accuracy and completeness of the information we obtain with respect to our customers and counterparties; our ability to execute our strategic plans and to complete and integrate acquisitions; critical accounting estimates and the effect of changes to accounting standards, rules and interpretations on these estimates; operational and infrastructure risks; changes to our credit ratings; general political conditions; global capital markets activities; the possible effects on our business of war or terrorist activities; disease or illness that affects local, national or international economies; natural disasters and disruptions to public infrastructure, such as transportation, communications, power or water supply; technological changes; and our ability to anticipate and effectively manage risks associated with all of the foregoing factors.
We caution that the foregoing list is not exhaustive of all possible factors. Other factors could adversely affect our results. For more information, please see the discussion on pages 28 and 29 of BMO''s 2012 annual MD&A, which outlines in detail certain key factors that may affect Bank of Montreal''s future results. When relying on forward-looking statements to make decisions with respect to Bank of Montreal, investors and others should carefully consider these factors, as well as other uncertainties and potential events, and the inherent uncertainty of forward-looking statements. Bank of Montreal does not undertake to update any forward-looking statements, whether written or oral, that may be made from time to time by the organization or on its behalf, except as required by law. The forward-looking information contained in this document is presented for the purpose of assisting our shareholders in understanding our financial position as at and for the periods ended on the dates presented, as well as our strategic priorities and objectives, and may not be appropriate for other purposes.
In calculating the pro-forma impact of Basel III on our regulatory capital, risk-weighted assets (including Counterparty Credit Risk and Market Risk) and regulatory capital ratios, we have assumed that our interpretation of the proposed rules and amendments announced by the Basel Committee on Banking Supervision (BCBS) as of this date, and our models used to assess those requirements, are consistent with the final requirements that will be promulgated by the Office of the Superintendent of Financial Institutions Canada (OSFI). We have also assumed that the proposed changes affecting capital deductions, risk-weighted assets, the regulatory capital treatment for non-common share capital instruments (i.e. grandfathered capital instruments) and the minimum regulatory capital ratios will be adopted by OSFI as proposed by BCBS, unless OSFI has expressly advised otherwise. We have also assumed that existing capital instruments that are non-Basel III compliant but are Basel II compliant can be fully included in the October 31, 2012, pro-forma calculations. The full impact of the Basel III proposals has been quantified based on our financial and risk positions at year end or as close to year end as was practical. In setting out the expectation that we will be able to refinance certain capital instruments in the future, as and when necessary to meet regulatory capital requirements, we have assumed that factors beyond our control, including the state of the economic and capital markets environment, will not impair our ability to do so.
Assumptions about the performance of the Canadian and U.S. economies, as well as overall market conditions and their combined effect on our business, are material factors we consider when determining our strategic priorities, objectives and expectations for our business. In determining our expectations for economic growth, both broadly and in the financial services sector, we primarily consider historical economic data provided by the Canadian and U.S. governments and their agencies. See the Economic Developments section on page 30 of BMO''s 2012 annual MD&A. Among the material factors that we considered when establishing our expectation of net interest margin changes in 2013 in the P&C Canada business, were assumptions about growth in and mix of loans and deposits, stable competitive pressures and an interest rate and economic environment as described on page 48 of BMO''s 2012 annual MD&A.
Our continuous disclosure materials, including our interim filings, annual MD&A and audited consolidated financial statements, Annual Information Form and Notice of Annual Meeting of Shareholders and Proxy Circular are available on our website at www.bmo.com/investorrelations, on the Canadian Securities Administrators'' website at www.sedar.com and on the EDGAR section of the SEC''s website at www.sec.gov.
The Canadian dollar equivalents of BMO''s U.S.-dollar-denominated net income, revenues, expenses, provisions for credit losses and income taxes were decreased relative to the fourth quarter of 2011 and third quarter of 2012 by the weakening of the U.S. dollar. The average Canadian/U.S. dollar exchange rate for the quarter, expressed in terms of the Canadian dollar cost of a U.S. dollar, decreased by 1.8% from a year ago and by 2.8% from the average of the third quarter. The following table indicates the relevant average Canadian/U.S. dollar exchange rates and the impact of changes in the rates. The effect of currency fluctuations on our investments in foreign operations is discussed in the Income Taxes section.
|Effects of U.S. Dollar Exchange Rate Fluctuations on BMO''s Results|
|(Canadian $ in millions, except as noted)||vs. Q4-2011||vs. Q3-2012|
|Canadian/U.S. dollar exchange rate (average)|
|Effects on reported results|
|Increased (decreased) net interest income||(16||)||(24||)|
|Increased (decreased) non-interest revenue||(12||)||(19||)|
|Increased (decreased) revenues||(28||)||(43||)|
|Decreased (increased) expenses||18||29|
|Decreased (increased) provision for credit losses||2||3|
|Decreased (increased) income taxes||2||2|
|Increased (decreased) net income||(6||)||(9||)|
|Effects on adjusted results|
|Increased (decreased) net interest income||(12||)||(19||)|
|Increased (decreased) non-interest revenues||(12||)||(19||)|
|Increased (decreased) revenues||(24||)||(38||)|
|Decreased (increased) expenses||15||23|
|Decreased (increased) provision for credit losses||(1||)||-|
|Decreased (increased) income taxes||2||3|
|Increased (decreased) adjusted net income||(8||)||(12||)|
|Adjusted results in this section are non-GAAP amounts or non-GAAP measures. Please see the Non-GAAP Measures section.|
Q4 2012 vs Q4 2011
Net income was $1,082 million for the fourth quarter of 2012, up $314 million or 41% from a year ago. Earnings per share were $1.59, up 43% from $1.11 a year ago.
Adjusted net income was $1,125 million, up $293 million or 35% from a year ago. Adjusted earnings per share were $1.65, up 38% from $1.20 a year ago. Adjusted results and items excluded in determining adjusted results are disclosed in more detail in the preceding Adjusted Net Income section and in the Non-GAAP Measures section, together with comments on the uses and limitations of such measures.
There was good revenue growth and controlled expense growth, resulting in adjusted operating leverage of 2.7%. Adjusted provisions for credit losses were lower than in 2011 and there was a lower effective tax rate. BMO Capital Markets adjusted net income was significantly higher than a year ago as the market environment improved. PCG results were also higher, due to improvements in its insurance operations. P&C Canada''s results on an expected loss basis were unchanged from a year ago as the effects of higher volumes across most products were offset by reduced net interest margin. Its net income increased on an actual loss basis. P&C U.S. results decreased from strong results a year ago due to lower revenue, due primarily to a reduction in certain loan portfolios and regulatory changes that lowered interchange fees. Corporate Services adjusted net income was higher, due primarily to a recovery of provisions for credit losses on the M&I purchased credit impaired loan portfolio and lower provisions charged to Corporate under BMO''s expected loss provisioning methodology.
Q4 2012 vs Q3 2012
Net income increased $112 million or 12% from the third quarter and earnings per share increased $0.16 or 12%. Adjusted net income increased $112 million or 11% and adjusted earnings per share increased $0.16 or 11%.
As with the year-over-year improvement, increased adjusted net income reflected good revenue growth and controlled expense growth, resulting in adjusted operating leverage of 2.6% from the third quarter. On an adjusted basis, there was increased net income in all groups except P&C Canada. There was strong growth in PCG and BMO Capital Markets and a more modest increase in P&C U.S. on a U.S. dollar basis. P&C Canada earnings were down due to lower net interest margin and higher initiative spending while Corporate Services adjusted net income was modestly higher.