BMO Financial Group Reports Third Quarter 2018 Results
Financial Results Highlights
Third Quarter 2018 Compared With Third Quarter 2017:
Net income of $1,536 million,up 11%; adjusted net income1of $1,565 million,up 14%
EPS2of $2.31,up 13%; adjusted EPS1,2 of $2.36,up 16%
ROE of 14.7%,up from 13.4%; adjusted ROE1of 15.0%,up from 13.3%
Provision for credit losses3(PCL) of $186 million compared with $202 million on an adjusted basis in the prior year and $126 million on a reported basis; prior year reported provision for credit losses includes a decrease in the collective allowance of $76 million pre-tax
Common Equity Tier 1 Ratio of 11.4%
Year-to-Date 2018 Compared With Year-to-Date 2017:
Net income of $3,755 million,down 9%,reflecting the revaluation of our U.S. net deferred tax asset4and a restructuring charge in the current year5 and a net gain6 in the prior year; adjusted net income1 of $4,450 million,up 6%
EPS2,4,5of $5.59,down 8%; adjusted EPS1,2 of $6.67,up 7%
ROE of 12.3%,compared with 13.7%; adjusted ROE1of 14.6%,up from 13.9%
Provision for credit losses of $487 million3compared with $620 million on an adjusted basis and $544 million on a reported basis
TORONTO,Aug. 28,2018 -- For the third quarter ended July 31,2018,BMO Financial Group (TSX:BMO) (NYSE:BMO) recorded net income of $1,536 million or $2.31 per share on a reported basis,and net income of $1,565 million or $2.36 per share on an adjusted basis.
"BMO deliveredstrong results and ongoing earnings momentum this quarter. Adjusted net income was up 14% and adjusted earnings per share grew 16% with aparticularly goodcontribution from our U.S. segment and from our competitively advantaged commercial businesses on both sides of the border. Total Bank adjusted operating leverage was 2.9% and was positive in each of our operating groups," said Darryl White,Chief Executive Officer,BMO Financial Group.
"The bank is strong and growing. Our performance is a direct result of efforts to simplify how we work across our organization and with our customers and deliver the exceptional products and experiences that our customers have come to expect. Together we are making the bank more efficient and more competitive,positioning ourselves to deliver long-term growth and shareholder value," concluded Mr. White.
Return on equity (ROE) was 14.7%,up from 13.4% in the prior year and adjusted ROE was 15.0%,up from 13.3%. Return on tangible common equity (ROTCE) was 17.9% compared with 16.5% in the prior year and adjusted ROTCE was 18.0% compared with 16.0%.
(1)
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. Adjusted results and measures are non-GAAP and are detailed for all reported periods in the Non-GAAP Measures section,where such non-GAAP measures and their closest GAAP counterparts are disclosed.
(2)
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.
(3)
Effective in the first quarter of 2018,the bank prospectively adopted IFRS 9,Financial Instruments (IFRS 9). Under IFRS 9,we refer to the provision for credit losses on impaired loans and the provision for credit losses on performing loans. Prior periods have not been restated. Refer to the Changes in Accounting Policies section on page 27 of our Third Quarter 2018 Report to Shareholders for further details. In prior periods,changes to the collective allowance were an adjusting item. Refer to the Non-GAAP Measures section on page 3.
(4)
Reported net income in the first quarter of 2018 included a $425 million (US$339 million) charge due to the revaluation of our U.S. net deferred tax asset as a result of the enactment of the U.S. Tax Cuts and Jobs Act,which had a year-to-date negative impact of approximately 10% on reported net income growth,and $0.66 to EPS. See the Critical Accounting Estimates – Income Taxes and Deferred Tax Assets section on page 114 of BMO's 2017 Annual Report. For further information see the Other Regulatory Developments section on page 28 of our Third Quarter 2018 Report to Shareholders.
(5)
Reported net income in the second quarter of 2018 included a $192 million restructuring charge,primarily related to severance,as a result of an ongoing bank-wide initiative to simplify how we work,drive increased efficiency,and invest in technology to move our business forward.
(6)
Net income in the prior year included a net gain of $133 million,attributed to a $168 million gain on the sale of Moneris US and a $35 million loss on the sale of a portion of the U.S. indirect auto loan portfolio,and a decrease in the collective allowance of $54 million.
Note: All ratios and percentage changes in this document are based on unrounded numbers.
Concurrent with the release of results,BMO announced a fourth quarter 2018 dividend of $0.96 per common share,unchanged from the preceding quarter and up $0.06 per share or 7%from the prior year. The quarterly dividend of $0.96 per common share is equivalent to an annual dividend of $3.84 per common share.
Our complete Third Quarter 2018 Report to Shareholders,including our unaudited interim consolidated financial statements for the period ended July 31,is available online at www.bmo.com/investorrelations and at www.sedar.com.
Operating Segment Overview
Canadian P&C
Reported net income of $642 million increased $29 million or 5% and adjusted net income of $642 million increased $28 million or 5% from the prior year. Adjusted net income excludes the amortization of acquisition-related intangible assets. Results reflect revenue growth,partially offset by higher expenses and higher provision for credit losses.
During the quarter,we were named Best Commercial Bank – Canada by World Finance for the fourth consecutive year. The award recognized our personalized and partnership-based relationships with clients,as well as our continued specialized focus on three major sectors: technology,agriculture and healthcare.
U.S. P&C
Reported net income of $364 million increased $96 million or 36% and adjusted net income of $376 million increased $97 million or 34% from the prior year. Adjusted net income excludes the amortization of acquisition-related intangible assets.
Reported net income of US$279 million increased US$73 million or 35% and adjusted net income of US$288 million increased US$73 million or 34% from the prior year,due to good revenue growth,the tax reform benefit and lower provisions for credit losses,partially offset by higher expenses.
During the quarter,we improved our customer ranking to second among 40 of the largest U.S. banks in the 2018 Survey of Bank Reputations published by American Banker,which assesses perceptions of a banking institution's governance,products and services,and innovation.
BMO Wealth Management
Reported net income of $291 million increased $22 million or 8% and adjusted net income of $301 million increased $17 million or 6% from the prior year. Adjusted net income excludes the amortization of acquisition-related intangible assets. Traditional wealth reported net income of $202 million increased $10 million or 6% and adjusted net income of $212 million increased $5 million or 3% from the prior year,due to growth across our diversified businesses and improved equity markets,partially offset by a legal provision and technology investments. Insurance net income of $89 million increased $12 million or 15% due to business growth and a benefit from more favourable market movements in the current quarter.
BMO Private Bank was named Best Private Bank,Canada by World Finance for the eighth consecutive year,recognizing our private banking expertise and industry leading best practices.
BMO Capital Markets
Reported net income of $301 million increased $20 million or 7% and adjusted net income of $303 million increased $21 million or 7% from the prior year. Adjusted net income excludes the amortization of acquisition-related intangible assets and acquisition integration costs. Results reflect stronger revenues across both Trading Products and Investment and Corporate Banking.
BMO Capital Markets was recognized as a 2018 Greenwich Quality Leader in Canadian equity sales trading and execution service. We were also named as best institutional forex provider in North America and China by Global Banking and Finance Review for the eighth consecutive year. On August 15,BMO Capital Markets launched a pilot fixed income issuance transaction with a franchise client using blockchain technology to mirror the transaction,a first of its kind in the Canadian marketplace.
Corporate Services
Corporate Services net loss for the quarter was $62 million compared with a net loss of $44 million in the prior year. Corporate Services adjusted net loss for the quarter was $57 million compared with an adjusted net loss of $85 million in the prior year. Adjusted results exclude acquisition integration costs in both periods,as well as a decrease in the collective allowance in the prior year.
Adjusted results in this Operating Segment Overview section are non-GAAP amounts or non-GAAP measures. Please see the Non-GAAP Measures section.
Capital
BMO's Common Equity Tier 1 (CET1) Ratio was 11.4% at July 31,2018. The CET1 Ratio increased from 11.3% in the second quarter,driven by the impact of higher retained earnings,partially offset by higher risk-weighted assets (RWA) from business growth and share repurchases during the quarter.
Provision for Credit Losses
The total provision for credit losses was $186 million,an increase of $60 million from the prior year. Adjusted provision for credit losses,which excludes a $76 million pre-tax decrease in the collective allowance in the prior year,decreased $16 million. The provision for credit losses on impaired loans of $177 million decreased $25 million from $202 million in the prior year,primarily reflecting lower provisions in U.S. P&C. There wasa $9 million provision for credit losses on performing loans in the quarter.
Caution
The foregoing sections contain forward-looking statements. Please see the Caution Regarding Forward-Looking Statements.
Regulatory Filings
Our continuous disclosure materials,including our interim filings,annual Management's Discussion and Analysis 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.
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.
Non-GAAP Measures
Results and measures in this document are presented on a GAAP basis. 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. They are also presented on an adjusted basis that excludes the impact of certain items as set out in the table below. Results and measures that exclude the impact of Canadian/U.S. dollar exchange rate movements on our U.S. segment are non-GAAP measures (please see the Foreign Exchange section for a discussion of the effects of changes in exchange rates on our results). Management assesses performance on a reported basis and on an adjusted basis and considers both to be useful in assessing underlying ongoing business performance,and providing readers with a better understanding of management's perspective on our performance. Except as otherwise noted,management's discussion of changes in reported results in this document applies equally to changes in corresponding adjusted results. Adjusted results and measures are non-GAAP and as such do not have standardized meaning under GAAP. They are unlikely to be comparable to similar measures presented by other companies.
Non-GAAP Measures
(Canadian $ in millions,except as noted)
Q3-2018
Q2-2018
Q3-2017
YTD-2018
YTD-2017
Reported Results
Revenue
5,820
5,617
5,459
17,115
16,605
Insurance claims,commissions and changes in policy benefit liabilities (CCPB)
(269)
(332)
(253)
(962)
(965)
Revenue,net of CCPB
5,551
5,285
5,206
16,153
15,640
Total provision for credit losses
(186)
(160)
(126)
(487)
(544)
Non-interest expense
(3,386)
(3,562)
(3,286)
(10,389)
(9,955)
Income before income taxes
1,979
1,563
1,794
5,277
5,141
Provision for income taxes
(443)
(317)
(407)
(1,522)
(1,018)
Net Income
1,536
1,246
1,387
3,755
4,123
EPS ($)
2.31
1.86
2.05
5.59
6.11
Adjusting Items (Pre-tax) (1)
Amortization of acquisition-related intangible assets (2)
(28)
(29)
(35)
(85)
(115)
Acquisition integration costs (3)
(8)
(4)
(20)
(16)
(63)
Restructuring costs (4)
-
(260)
-
(260)
-
Decrease in the collective allowance for credit losses (6)
-
-
76
-
76
Adjusting items included in reported pre-tax income
(36)
(293)
21
(361)
(102)
Adjusting Items (After tax) (1)
Amortization of acquisition-related intangible assets (2)
(22)
(23)
(28)
(66)
(90)
Acquisition integration costs (3)
(7)
(2)
(13)
(12)
(40)
Restructuring costs (4)
-
(192)
-
(192)
-
U.S. net deferred tax asset revaluation (5)
-
-
-
(425)
-
Decrease in the collective allowance for credit losses (6)
-
-
54
-
54
Adjusting items included in reported net income after tax
(29)
(217)
13
(695)
(76)
Impact on EPS ($)
(0.05)
(0.34)
0.02
(1.08)
(0.11)
Adjusted Results
Revenue
5,640
Total provision for credit losses
(186)
(160)
(202)
(487)
(620)
Non-interest expense
(3,350)
(3,269)
(3,231)
(10,028)
(9,777)
Income before income taxes
2,015
1,856
1,773
5,638
5,243
Provision for income taxes
(450)
(393)
(399)
(1,188)
(1,044)
Net income
1,565
1,463
1,374
4,450
4,199
EPS ($)
2.36
2.20
2.03
6.67
6.22
(1)
Adjusting items are included in Corporate Services,with the exception of the amortization of acquisition-related intangible assets and certain acquisition integration costs,which are charged to the operating groups.
(2)
These expenses were charged to the non-interest expense of the operating groups. Before and after-tax amounts for each operating group are provided on pages 16,17,19,21 and 23 of our Third Quarter 2018 Report to Shareholders.
(3)
Acquisition integration costs related to the acquired BMO Transportation Finance business are charged to Corporate Services,since the acquisition impacts both Canadian and U.S. P&C businesses. KGS – Alpha acquisition integration costs are reported in BMO Capital Markets. Acquisition integration costs are recorded in non-interest expense.
(4)
In Q2-18,we recorded a restructuring charge,and invest in technology to move our business forward. Restructuring costs are included in non-interest expense in Corporate Services.
(5)
Charge due to the revaluation of our U.S. net deferred tax asset as a result of the enactment of the U.S. Tax Cut and Jobs Act. For more information see the Other Regulatory Developments section on page 28 of our Third Quarter 2018 Report to Shareholders.
(6)
In Q3-17,the adjustment to the collective allowance for credit losses was excluded from Corporate Services adjusted provision for (recovery of) credit losses.
Certain comparative figures have been reclassified to conform with the current year's presentation.
Adjusted results and measures in this table are non-GAAP amounts or non-GAAP measures.
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 fiscal 2018 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,U.S. and international economies. Forward-looking statements are typically identified by words such as "will","should","believe","expect","anticipate","intend","estimate","plan","goal","target","may" and "could".
By their nature,forward-looking statements require us to make assumptions and are subject to inherent risks and uncertainties,both general and specific in nature. 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,conclusions or projections. We caution readers of this document not to place undue reliance on our forward-looking statements,as a number of factors – many of which are beyond our control and the effects of which can be difficult to predict – 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 and tax legislation and interpretation; the level 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,and the effect of such changes on funding costs; 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,including obtaining regulatory approvals; 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; political conditions,including changes relating to or affecting economic or trade matters; global capital markets activities; the possible effects on our business of war or terrorist activities; outbreaks of disease or illness that affect local,national or international economies; natural disasters and disruptions to public infrastructure,such as transportation,communications,power or water supply; technological changes; information and cyber security,including the threat of hacking,identity theft and corporate espionage,as well as the possibility of denial of service resulting from efforts targeted at causing system failure and service disruption; and our ability to anticipate and effectively manage risks arising from all of the foregoing factors.
We caution that the foregoing list is not exhaustive of all possible factors. Other factors and risks could adversely affect our results. For more information,please see the discussion in the Risks That May Affect Future Results section on page 79 of BMO's 2017 Annual MD&A,the sections related to credit and counterparty,market,insurance,liquidity and funding,operational,model,legal and regulatory,business,strategic,environmental and social,and reputation risk,which begin on page 86 of BMO's 2017 Annual MD&A,the discussion in the Critical Accounting Estimates – Income Taxes and Deferred Tax Assets section on page 114 of BMO's 2017 Annual MD&A,and the Risk Management section in this document,all of which outline certain key factors and risks that may affect Bank of Montreal's future results. Investors and others should carefully consider these factors and risks,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.
Material economic assumptions underlying the forward-looking statements contained in this document are set out in the 2017 Annual MD&A under the heading "Economic Developments and Outlook",as updated by the Economic Review and Outlook section set forth in this document. 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 governments,historical relationships between economic and financial variables,and the risks to the domestic and global economy. See the Economic Review and Outlook section of our Third Quarter 2018 Report to Shareholders.
INVESTOR AND MEDIA PRESENTATION
Investor Presentation Materials
Interested parties are invited to visit our website at www.bmo.com/investorrelations to review our 2017 Annual MD&A and audited annual consolidated financial statements,quarterly presentation materials and supplementary financial information package.
Quarterly Conference Call and Webcast Presentations
Interested parties are also invited to listen to our quarterly conference call on Tuesday,August 28,at 2:00 p.m. (EDT). At that time,senior BMO executives will comment on results for the quarter and respond to questions from the investor community. The call may be accessed by telephone at 416-641-2144 (from within Toronto) or 1-888-789-9572 (toll-free outside Toronto) Passcode: 5126346. A replay of the conference call can be accessed until Monday,December 3,by calling 905-694-9451 (from within Toronto) or 1-800-408-3053 (toll-free outside Toronto) and entering Passcode:5740558.
A live webcast of the call can be accessed on our website at www.bmo.com/investorrelations. A replay can also be accessed on the site.
Shareholder Dividend Reinvestment and Share Purchase
Plan (the Plan)
Average market price as defined under the Plan
May 2018: $101.54
June 2018: $101.80
July 2018: $104.05
For dividend information,change in shareholder address
or to advise of duplicate mailings,please contact
Computershare Trust Company of Canada
100 University Avenue,8th Floor
Toronto,Ontario M5J 2Y1
Telephone: 1-800-340-5021 (Canada and the United States)
Telephone: (514) 982-7800 (international)
Fax: 1-888-453-0330 (Canada and the United States)
Fax: (416) 263-9394 (international)
E-mail: service@computershare.com
For other shareholder information,including the notice for our
normal course issuer bid,please contact
Bank of Montreal
Shareholder Services
Corporate Secretary's Department
One First Canadian Place,21st Floor
Toronto,Ontario M5X 1A1
Telephone: (416) 867-6785
Fax: (416) 867-6793
E-mail: corp.secretary@bmo.com
For further information on this document,please contact
Bank of Montreal
Investor Relations Department
P.O. Box 1,One First Canadian Place,10th Floor
Toronto,Ontario M5X 1A1
To review financial results and regulatory filings and disclosures
online,please visit our website at www.bmo.com/investorrelations.
Our 2017 Annual MD&A,audited annual consolidated financial statements and annual report on Form 40-F (filed with the U.S. Securities and Exchange Commission) are available online at www.bmo.com/investorrelations and at www.sedar.com. Printed copies of the bank's complete 2017 audited financial statements are available free of charge upon request at 416-867-6785 or corp.secretary@bmo.com.
Annual Meeting 2019
The next Annual Meeting of Shareholders will be held on Tuesday,April 2,2019 in Toronto,Ontario.
® Registered trademark of Bank of Montreal
Media Relations Contacts: Paul Gammal,Toronto,paul.gammal@bmo.com,416-867-3996; Investor Relations Contacts: Jill Homenuk,Head,Investor Relations,jill.homenuk@bmo.com,416-867-4770; Christine Viau,Director,christine.viau@bmo.com,416-867-6956
