TORONTO, ONTARIO--(Marketwire - August 29, 2012) - BMO Financial Group (TSX: BMO)(NYSE: BMO) and BMO Bank of Montreal -
Third Quarter 2012 Report to Shareholders
BMO Financial Group Reports Strong Quarterly Results, Increasing Net Income by 37% Year Over Year to $970 Million, and Increases Dividend by 3%
Financial Results Highlights(1):
Third Quarter 2012 Compared with Third Quarter 2011:
-- Net income of $970 million, up $262 million or 37%
-- Adjusted net income(2) of $1,013 million, up $157 million or 18%
-- Reported EPS(3) of $1.42, up 30%
-- Adjusted EPS(2)(3) of $1.49, up 11%
-- Reported ROE of 14.5%, compared with 13.3%
-- Adjusted ROE(2) of 15.2%, compared with 16.4%
-- Reported provisions for credit losses of $237 million; adjusted
provisions of $116 million, down $129 million
-- Common Equity Ratio strengthens to 10.31%, using a Basel II approach
-- Announced a $0.72 dividend per common share for the fourth quarter, up
$0.02 or 3%
Year-to-Date 2012 Compared with Year-to-Date 2011:
-- Net income of $3,107 million, up $761 million or 32%
-- Adjusted net income(2) of $2,967 million, up $524 million or 21%
-- Reported EPS(3) of $4.56, up 22%
-- Adjusted EPS(2)(3) of $4.35, up 11%
-- Reported provisions for credit losses of $573 million; adjusted
provisions of $358 million, down $469 million
For the third quarter ended July 31, 2012, BMO Financial Group reported strong net income of $970 million or $1.42 per share. On an adjusted basis, net income was $1,013 million or $1.49 per share.
"BMO has reported strong quarterly financial results," said Bill Downe, President and Chief Executive Officer, BMO Financial Group. "Our business continues to deliver consistent and attractive profitability within a sound risk framework and the growth we are experiencing remains consistent with our strategy.
"We increased the dividend, reflecting our strong capital position and our confidence in our continued ability to generate sustained earnings growth. We also moved the target payout range to 40 to 50 per cent, which gives us more flexibility to grow the bank.
"Our core franchise, P&C Canada, experienced good volume growth across most product lines, including residential mortgages; we are attracting new customers and steadily increasing the amount of business existing customers are choosing to entrust to us. The recent changes to Canada's mortgage market announced by the Minister of Finance were prudent, responsible and timely; they align with BMO's risk practices and ongoing efforts to encourage Canadians to borrow smartly.
"Consistent with the confidence we expressed throughout our U.S. investor day in June, this quarter's earnings reflect strong performance from our U.S. businesses. The U.S. P&C business continues to generate healthy organic growth in commercial loans and is executing against its plans.
"Earnings in our wealth business were up quarter over quarter when adjusted to exclude the unfavourable impact of movements in long-term interest rates on the bank's insurance business.
"BMO Capital Markets delivered good performance with higher revenue and net income than last quarter. These results reflect the benefits of the diversified revenue mix of our capital markets' business.
"Across BMO, our sharp focus on improving efficiency will ensure we are investing in what our customers value most. Mobile PayPass, North American mobile banking and e-statements, BMO alerts that send account updates to customers' mobile devices and online appointment booking are just a few examples of the type of functionality we've rolled out for customers in the past twelve months - this in addition to a complete refresh of retail online banking in Canada that gained high approval ratings from customers and industry analysts alike.
"Overall, each of our businesses is delivering against a high standard of customer experience and is on track to finish the year with strong performance in a highly competitive environment," concluded Mr. Downe.
Concurrent with the release of results, BMO announced a fourth quarter dividend of $0.72 per common share, a two cents per share increase from the preceding quarter and equivalent to an annual dividend of $2.88 per common share.
(1) Effective the first quarter of 2012, BMO's consolidated financial statements and the accompanying Interim Management's Discussion and Analysis (MD&A) are prepared in accordance with International Financial Reporting Standards (IFRS), as described in Note 1 to the unaudited interim consolidated financial statements for the quarter ended April 30, 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 third quarter 2012 results in the determination of adjusted results totalled a charge of $43 million after tax, comprised of a $47 million after-tax net benefit of credit-related items in respect of the acquired Marshall & Ilsley Corporation (M&I) performing loan portfolio; costs of $105 million ($65 million after tax) for the integration of the acquired business; a $33 million ($24 million after tax) charge for amortization of acquisition-related intangible assets on all acquisitions; a loss on run-off structured credit activities of $15 million ($15 million after tax); and a decrease in the collective allowance for credit losses of $15 million ($14 million after tax). Items excluded from the year-to-date adjusted results totalled net income of $140 million after tax and consisted of a $216 million after-tax net benefit of credit-related items in respect of the acquired M&I performing loan portfolio; a $249 million ($155 million after tax) charge for the integration of the acquired business; a $100 million ($72 million after tax) charge for amortization of acquisition-related intangible assets; the benefit of run-off structured credit activities of $197 million ($194 million after tax); restructuring charges of $99 million ($69 million after tax) to align our cost structure with the current and future business environment; and a decrease in the collective allowance for credit losses of $33 million ($26 million after tax). All of the adjusting items are reflected in results of Corporate Services except for the amortization of acquisition-related intangible assets, which is charged across the operating groups. Management assesses performance on both a GAAP basis and adjusted basis and considers both bases to be useful in assessing underlying, ongoing business performance. Presenting results on both bases provides readers with an enhanced understanding of how management views results and may enhance readers' analysis of performance. 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 MD&A, 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.
Operating Segment Overview
P&C Canada
Net income was $453 million, up $10 million or 2.4% 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 $20 million or 4.6%. Results reflect higher revenues from increased volume across most products, partially offset by lower net interest margins. The volume growth was achieved while managing expenses prudently and continuing to invest in our business. There was good quarter-over-quarter growth, with loans increasing 2.9% and deposits up 1.6%, as well as improvements in market share for these products.
We are focused on our customers and helping them make money make sense. Our continued investment in our branches, automated banking machines (ABMs) and online and mobile banking platforms are making it easier for more customers to access our products and services. This year we have opened or upgraded 28 locations across the country. Our ABM network continues to grow as we have added more than 300 cash dispensing ABMs so far this year. More and more of our customers are using our online and mobile banking services including 'Tap & Go' and email notice features. In addition, cross-selling of products to both personal and commercial customers continues to grow, while customer loyalty, as measured by net promoter score, continues to improve in both our personal and commercial businesses.
In personal banking our award winning mortgage product continues to help customers become mortgage free faster, pay less interest and protect themselves against rising interest rates. With the success of this product, we have also seen improved customer retention and the foundation for new and expanded long-term relationships. We are confident that we are well positioned for future growth.
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. BMO was the only Canadian bank to receive the prestigious 2012 Model Bank Award from the research group Celent, for our Online Banking for Business Platform. This annual award program identifies model banks and recognizes them for their achievements in the strategic development, effective deployment, and improvements to business and customer experience with banking technology. We continue to rank #2 in Canadian business banking loan market share.
P&C U.S. (all amounts in US$)
Net income of $127 million increased $32 million or 34% from $95 million in the third quarter a year ago. Adjusted net income was $143 million, up $40 million or 37% from a year ago as a result of the acquisition of Marshall & Ilsley Corporation in July 2011. Adjusted net income increased 4.1% from the second quarter.
The core commercial loan portfolio continues to grow, having now increased in three sequential quarters.
BMO Harris Bank recently launched a free mobile application for iPhone and Google Android devices. Our retail customers can now check account balances, transfer funds, locate branches, pay bills, and use remote cheque deposit with this application. We registered more than 41,500 new users in the first month of the offering in July.
On August 1, BMO Harris Bank launched its social media platform on the largest social media sites including Facebook, Twitter and LinkedIn. Social media was identified as a way to deliver on our vision to be the bank that defines a great customer experience. Through social media, we will be able to deliver more great service, more convenience, more helpful guidance and more smart advice.
During the quarter, BMO Harris Bank received the 2012 Corporate Philanthropic Award from the West Suburban Philanthropic Network for our commitment to financial support, leadership and volunteerism in Illinois' western suburbs. BMO Harris is the only financial institution to have ever received the Corporate Philanthropic Award.
Preparation for our systems conversion and rebranding of all remaining legacy M&I and Harris Bank locations under the BMO Harris Bank banner is progressing and we have successfully completed a number of technology projects to enhance system features and functionality. In addition, associated employee readiness and customer outreach programs are underway.
Private Client Group
Net income was $109 million, up $5 million or 5.7% from a year ago. Adjusted net income was $115 million, up $10 million or 8.4% from a year ago. Lower interest rates reduced net income in the insurance business by $45 million in the current quarter and by $36 million a year ago. Adjusted net income in PCG excluding insurance was $97 million, up $11 million or 10% from a year ago. Results benefited from acquisitions and higher spread-based and fee-based revenue, partly offset by lower brokerage revenue.
Assets under management and administration grew by approximately $14 billion from a year ago to $445 billion as we continue to attract new client assets.
On June 11, 2012, we completed our acquisition of CTC Consulting, LLC, a U.S.-based independent investment consulting firm. This acquisition expands and enhances our manager research and advisory capabilities, especially in the area of alternative investments, benefiting our high net worth clients in the United States as well as in Canada and Asia.
On August 1, 2012, we completed our acquisition of a 19.99% interest in COFCO Trust Co., a subsidiary of COFCO Group, one of China's largest state-owned enterprises with operations across a variety of sectors, including agriculture and financial services. COFCO Trust Co. had assets under management of approximately US$5.7 billion at December 31, 2011. The acquisition provides an effective vehicle to expand our offering to high net worth and institutional clients in China through a local partner. In addition, this strategic partnership opens more doors, broadens our capabilities and helps grow our domestic wealth management business in China.
BMO Harris Private Banking was named the Best Private Bank in Canada for the second consecutive year by World Finance. This recognition is a clear demonstration of the quality of our client relationships.
BMO's Exchange Traded Fund (ETF) business marked its three-year anniversary by surpassing $6 billion in assets under management. In the first six months of 2012, the total assets of BMO ETFs grew by 62 per cent.
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