Wednesday, February 27th, 2013 - -

Financial Results Highlights:

First Quarter 2013 Compared with First Quarter 2012:

- Net income of $1,048 million, down 5%; adjusted net income(1) of $1,041 million, up 7%

- EPS(2) of $1.53, down 6%; adjusted EPS(1), (2) of $1.52, up 7%

- ROE of 14.9%, compared with 17.2%; adjusted ROE(1) of 14.8%, compared with 15.0%

- Provisions for credit losses of $178 million, compared with $141 million; adjusted provisions for credit losses(1) of $96 million, compared with $91 million

- Basel III Common Equity Ratio is strong at 9.4%

- Dividend Increased by $0.02 or 3% to $0.74 per Common Share

TORONTO, ONTARIO--(Marketwire) - BMO Financial Group (TSX: BMO)(NYSE: BMO) and Bank of Montreal -

For the first quarter ended January 31, 2013, BMO Financial Group reported net income of $1,048 million or $1.53 per share on a reported basis and net income of $1,041 million or $1.52 per share on an adjusted basis.

"BMO had a strong first quarter, with momentum in each of our businesses and a strong capital position. Looking ahead, we are well-positioned to leverage our North American platform and deliver sustained earnings growth," said Bill Downe, President and Chief Executive Officer, BMO Financial Group. "Adjusted net income was over $1 billion for the third consecutive quarter.

"With our U.S. retail platform consolidated under the BMO Harris Bank brand - supported by our largest U.S. advertising campaign to date - P&C U.S. posted good net income growth and good total loan growth.

"In the quarter, we demonstrated continued momentum in commercial banking on both sides of the border. Commercial banking is an important contributor to the performance of the bank, positioning us well in an environment of business expansion.

"As we look ahead to the rest of the year, we will continue our focus on delivering industry-leading customer experience, helping businesses expand and customers control their financial lives - allowing them to make better decisions with better information and have confidence in the choices they make. At the same time, we will maintain prudent risk management and improve efficiency," concluded Mr. Downe.

Concurrent with the release of results, BMO announced a second quarter 2013 dividend of $0.74 per common share, up $0.02 per share from the preceding quarter and equivalent to an annual dividend of $2.96 per common share. The increase in our dividend reflects our strong capital position and the success of our business strategies.

Our complete First Quarter 2013 Report to Shareholders, including our unaudited interim consolidated financial statements for the period ended January 31, 2013, is available online at www.bmo.com/investorrelations and at www.sedar.com.

 

(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. Items excluded from first quarter 2013 results in the

     determination of adjusted results totalled net income of $7 million   

     after tax, comprised of a $79 million after tax net benefit of credit-

     related items in respect of the acquired Marshall & Ilsley Corporation

     (M&I) performing loan portfolio; costs of $92 million ($57 million    

     after tax) for the integration of the acquired business; a benefit on 

     run-off structured credit activities of $7 million before and after   

     tax; and a $31 million ($22 million after tax) charge for amortization

     of acquisition-related intangible assets on all acquisitions. 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, 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.               

 

Note: All ratios and percentage changes in this document are based on unrounded numbers.

Operating Segment Overview

Commencing in the first quarter of 2013, we changed the way in which we evaluate our operating segments to reflect the provisions for credit losses on an actual credit loss basis. The change in allocation methodology enhances the assessment of performance against our peer group. Previously, we had charged the groups with credit losses based on an expected loss provisioning methodology whereby Corporate Services was charged (or credited) with differences between the periodic provisions for credit losses charged to the operating group segments under our expected loss provisioning methodology and the periodic provisions required under GAAP. Prior period results have been restated accordingly. Provisions for the purchased performing and purchased credit impaired loan portfolios continue to be evaluated and reported in Corporate Services.

P&C Canada

Net income was $458 million, up $17 million or 4% from a year ago. Results reflect the combination of good volume growth across most products and the impact of lower net interest margin, together with lower provisions for credit losses. There was year-over-year loan growth of 9% and deposit growth of 4%. Expenses were up modestly, with growth of 1% reflecting good expense management as we continue to invest in our business.

We are focused on making money make sense for our customers, offering simplified products and exceptional customer service. Customers have more options than ever as to how to bank with BMO. We expanded our network by opening or upgrading nine locations this quarter and have continued to invest in our online and mobile banking services. These investments in online and mobile capabilities are making a difference as increasing numbers of customers are using technologies such as eStatements, email and text alerts, online appointment booking and Mobile Paypass. We continue to have top-tier performance in customer loyalty, as measured by the net promoter score.

Personal banking continues to see momentum and improved sales force productivity. We are leveraging the success of our home financing campaigns and offering products that fit the needs of our customers. The average number of products held by our customers continues to grow, as we develop stronger relationships with our current customers and attract new ones. In the quarter, we enhanced our Smart Saver Account by paying interest on every dollar of savings with no minimum required, providing our customers with a competitive offer and an easy to understand product. We also introduced a compelling Tax Free Savings Account offer which is generating strong early results.

In commercial banking, our sales force is focused on offering solutions, advice and integrated products and services suited to the needs of our diverse commercial customer base. Our award-winning Online Banking for Business platform helps customers manage their businesses more effectively. Customers continue to recognize us with top-tier customer loyalty, as measured by commercial net promoter score. With our ongoing success in these areas, we continue to rank #2 in Canadian business banking loan market share for small and medium-size loans.

P&C U.S. (all amounts in US$)

Net income of $183 million increased $26 million or 17% from $157 million in the first quarter a year ago. Adjusted net income was $197 million, up $23 million or 13% from a year ago due to the benefit of reduced expenses and lower provisions for credit losses. Revenue was 3% lower as higher gains on the sale of newly originated mortgages and increased commercial lending fees were more than offset by the effect of lower net interest margin, a decline in securities gains and lower deposit fees.

Relative to the fourth quarter of 2012, net income increased 30% and adjusted net income increased 25%. There was quarter-over-quarter growth in average loans as growth in the core commercial and industrial loan portfolio remains strong. This portfolio has increased $3.3 billion or 18% from a year ago with continued quarterly sequential growth.

We added 131 new commercial relationships during the quarter and continue to look for expansion opportunities into new geographic areas and specialties that align with our growth strategy. Additionally, we added a seasoned team of bankers and launched a franchise finance specialty lending group with the expectation of capturing a portion of this growing sector of the U.S. economy.

During the quarter, we were awarded 16 competitive Affordable Housing Program projects by the Federal Home Loan Bank of Chicago (FHLBC). These projects allow us to support our communities through the development of affordable housing, and also provide us with opportunities to cross-sell our products and services. We were also awarded the FHLBC 2012 Community First Partnership Award in conjunction with the DuPage County Habitat for Humanity. This award recognizes outstanding achievement in affordable housing and community economic development between partnering FHLBC member institutions and non-profit organizations.

Private Client Group

Net income was $163 million, up $59 million or 56% from a year ago. Adjusted net income was $169 million, up $60 million or 54% from a year ago. Adjusted net income in Private Client Group (PCG), excluding Insurance, was $105 million, up $8 million or 8% from a year ago. Results reflect higher revenue, driven by growth in client assets, and focused cost management. The prior year's results benefited from higher than usual asset management revenue from a strategic investment. Adjusted net income in Insurance was $64 million, up $52 million, as revenues improved significantly due to the reduced impact of movements in long-term interest rates in the current quarter relative to a year ago and continued premiums growth in both creditor and life insurance businesses.

Assets under management and administration grew by $44 billion or 10% from a year ago to $479 billion, due to market appreciation and new client assets.

In late January, we completed the acquisition of a Hong Kong and Singapore-based wealth management services provider. Operating as BMO Private Bank in Asia, this acquisition will provide private banking services to high net worth individuals in the Asia-Pacific region, and supports BMO's plans to create a truly global service for wealthy individuals looking to manage their Asian and North American investments.

BMO InvestorLine was named the top bank-owned online brokerage firm in Canada for the second consecutive year in the 14th annual Globe and Mail ranking of online brokers. BMO InvestorLine ranked among the top three leading online brokerages in Canada.

BMO Global Asset Management U.S. received three Wall Street Journal Category King rankings. Its BMO TCH Corporate Income Fund and BMO TCH Core Plus Bond Fund ranked in the top ten in terms of one-year performance in 2012 out of more than 600 funds and its BMO Intermediate Tax-free Fund's one-year performance in 2012 ranked in the top ten out of nearly 400 funds.

BMO Capital Markets

Net income for the current quarter was a very strong $310 million, up $86 million or 38% from a year ago. This performance was supported by our strategy of continuing to operate with a diversified portfolio of businesses and a strong client focus. These factors, coupled with an improving economic outlook, resulted in very good revenue performance in both the investment and corporate banking businesses, as well as the trading products business. In particular, there was good growth in mergers and acquisition activity and higher debt underwriting fees across our North American platform, as well as increases in trading revenue. Revenue increased $129 million or 17% from a year ago to $904 million.

Demonstrating our success at focusing on core clients, during the quarter BMO Capital Markets was named 2012 Best Equity House, Canada in International Financing Review, a Thomson Reuters publication. This award is a testament to our ability to develop innovative solutions for our clients' most complex problems, while executing at a consistently high standard.

BMO Capital Markets participated in 169 new issues in the quarter including 55 corporate debt deals, 48 government debt deals, 58 common equity transactions and eight issues of preferred shares, raising $57 billion.

Corporate Services

Corporate Services net loss for the quarter was $65 million, compared with net income of $181 million a year ago. The decrease in reported results was significantly larger than the decrease in adjusted results. The difference was primarily due to high revenues from run-off structured credit activities in reported results a year ago. On an adjusted basis, the net loss was $94 million, compared with net income of $20 million a year ago. Adjusting items are detailed in the Adjusted Net Income section and in the Non-GAAP Measures section. Adjusted expenses were $80 million higher primarily due to increased benefit costs including pension costs, the timing of technology investment spending and higher severance costs in the current quarter. Adjusted recoveries of credit losses decreased $72 million to a recovery of $51 million, due to an $83 million reduction in the recoveries on the M&I purchased credit impaired loan portfolio. Adjusted revenues decreased $58 million due to lower securities gains, a higher taxable equivalent basis (teb) group offset in the current quarter and lower revenue from a variety of items, including treasury-related items, none of which were individually significant.

Adjusted Net Income

Adjusted net income was $1,041 million for the first quarter of 2013, up $69 million or 7% from a year ago. Adjusted earnings per share were $1.52, up 7% from $1.42 a year ago.

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 first quarter 2013 results in the determination of adjusted results totalled $7 million of net income or $0.01 per share and were comprised of:

 

--  the $79 million after-tax net benefit for credit-related items in

    respect of the acquired M&I performing loan portfolio, consisting of

    $210 million for the recognition in net interest income of a portion of

    the credit mark on the portfolio (including $65 million for the release

    of the credit mark related to early repayment of loans), net of an $82

    million specific provision for credit losses and related income taxes of

    $49 million. These credit-related items in respect of the acquired M&I

    performing loan portfolio can significantly impact both net interest

    income and the provision for credit losses in different periods over the

    life of the acquired M&I performing loan portfolio;

--  costs of $92 million ($57 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 related to rebranding activities;

--  the $7 million before 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 and

    results primarily reflect valuation changes associated with these

    activities that have been included in trading revenue; and

--  the amortization of acquisition-related intangible assets of $31 million

    ($22 million after tax).

 

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.

Caution

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.

Management's Discussion and Analysis

Management's Discussion and Analysis (MD&A) commentary is as of February 26, 2013. 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 MD&A should be read in conjunction with the unaudited interim consolidated financial statements for the period ended January 31, 2013, as well as the audited consolidated financial statements for the year ended October 31, 2012, and Management's Discussion and Analysis for fiscal 2012. The material that precedes this section comprises part of this MD&A.

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.

 

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Summary Data - Reported                                              Table 1

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                                              % Increase         % Increase

(Unaudited) (Canadian $ in        Q1-    Q1-  (Decrease)    Q4-  (Decrease)

 millions, except as noted)      2013   2012  vs Q1-2012   2012  vs Q4-2012

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Summary Income Statement                                                   

Net interest income             2,216  2,318          (4) 2,145           3

Non-interest revenue            1,865  1,799           4  2,031          (8)

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Revenue                         4,081  4,117          (1) 4,176          (2)

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Specific provision for credit                                              

 losses                           178    122          46    216         (18)

Collective provision for                                                   

 (recovery of) credit losses        -     19        (100)   (24)        100

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Total provision for credit                                                 

 losses                           178    141          26    192          (8)

Non-interest expense            2,590  2,554           1  2,701          (4)

Provision for income taxes        265    313         (15)   201          32

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Net income                      1,048  1,109          (5) 1,082          (3)

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  Attributable to bank                                                     

   shareholders                 1,030  1,090          (6) 1,064          (3)

  Attributable to non-                                                     

   controlling interest in                                                 

   subsidiaries                    18     19          (4)    18           -

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Net income                      1,048  1,109          (5) 1,082          (3)

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Common Share Data ($ except as                                             

 noted)                                                                    

Earnings per share               1.53   1.63          (6)  1.59          (4)

Dividends declared per share     0.72   0.70           3   0.72           -

Book value per share            40.87  37.85           8  40.25           2

Closing share price             62.99  58.29           8  59.02           7

Total market value of common                                               

 shares ($ billions)             41.1   37.3          10   38.4           7

Dividend yield (%)                4.6    4.8          nm    4.9          nm

Price-to-earnings ratio (times)  10.4   11.3          nm    9.6          nm

Market-to-book value (times)      1.5    1.5          nm    1.5          nm

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Financial Measures and Ratios                                              

 (%)                                                                       

Return on equity                 14.9   17.2        (2.3)  15.6        (0.7)

Efficiency ratio                 63.5   62.0         1.5   64.7        (1.2)

Operating leverage               (2.3)  (5.4)         nm   (1.7)         nm

Net interest margin on earning                                             

 assets                          1.85   2.05       (0.20)  1.83        0.02

Effective tax rate               20.2   22.0        (1.8)  15.7         4.5

Return on average assets         0.74   0.81       (0.07)  0.77       (0.03)

Provision for credit losses-to-                                             

 average loans and acceptances                                             

 (annualized)                    0.28   0.23        0.05   0.31       (0.03)

Gross impaired loans and                                                    

 acceptances-to-equity and                                                 

 allowance for credit losses     8.98   8.74        0.24   9.30       (0.32)

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Value Measures (% except as                                                

 noted)                                                                    

Average annual three year total                                            

 shareholder return              11.8   27.2       (15.4)  10.8         1.0

Twelve month total shareholder                                             

 return                          13.5    5.7         7.8    5.2         8.3

Net economic profit ($                                                      

 millions)                        318    434         (27)   361         (12)

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Balance Sheet (as at $billions)                                             

Assets                            542    538           1    525           3

Net loans and acceptances         259    242           7    254           2

Deposits              

Contact Profile

Ralph Marranca

P: (416) 867-3996
M: -
W: www.bmo.com

Ronald Monet

P: 514-877-1873
M: [email protected]

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