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Bank of Montreal
Symbol BMO
Shares Issued 647,242,067
Close 2021-05-25 C$ 123.60
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Bank of Montreal earns $1,303M in fiscal Q2

2021-05-26 06:13 ET - News Release

Mr. Darryl White reports

BMO FINANCIAL GROUP REPORTS SECOND QUARTER 2021 RESULTS

For the second quarter ended April 30, 2021, Bank of Montreal recorded net income of $1,303-million or $1.91 per share on a reported basis and net income of $2,095-million or $3.13 per share on an adjusted basis.

"This quarter, we continued to deliver very strong results with all of our businesses performing well. For the first half of the year, adjusted preprovision pretax earnings of $5.5-billion increased 27 per cent from a year ago, driven by revenue growth of 11 per cent, reflecting the benefits of our diversified business model and very strong operating leverage. We enter the second half of the year with strong momentum," said Darryl White, chief executive officer, BMO Financial Group.

"We are continuing to build a strong, competitive bank, allocating capital to businesses that are positioned to grow and deliver strong returns, and we are highly focused on continuously improving our performance. Return on equity increased to 16.7 per cent, we improved our efficiency ratio to 56.6 per cent and strengthened our CET1 ratio to 13.0 per cent, all underpinned by our strong balance sheet and differentiated risk and credit performance.

"In addition to strong financial performance, we are delivering on our commitments for a sustainable future. This quarter, we declared our ambition to be our clients' lead partner in the transition to a net-zero world and we are supporting key organizations that are helping reduce health care disparities, including global emergency COVID-19 relief efforts.

"We are executing against a consistent, purpose-driven strategy -- which for us means winning together with our customers, our communities, our employees and our shareholders," concluded Mr. White.

On April 12, 2021, the bank announced that it had reached a definitive agreement with Ameriprise Financial Inc. to sell the entities that represent the bank's EMEA (Europe, the Middle East and Africa) asset management business, subject to regulatory approvals and other customary closing conditions. In addition, the transaction includes the opportunity for certain BMO U.S. asset management clients to move to Columbia Threadneedle Investments, subject to client consent. The transaction is expected to close in the fourth quarter of calendar 2021. On April 30, 2021, the bank completed the sale of its private banking business in Hong Kong and Singapore to J. Safra Sarasin Group. These transactions support BMO's goals to optimize efficiency and to focus capital and investment in areas where the bank has an advantaged market position, including its North American wealth management business.

Adjusted net income in the current quarter excluded the impact of divestitures of $772-million ($771-million pretax), including a $747-million pretax and after-tax writedown of goodwill related to the announced sale of the bank's EMEA asset management business, a $22-million ($29-million pretax) net gain on the sale of the bank's private banking business in Hong Kong and Singapore, and $47-million ($53-million pretax) of divestiture-related costs for both transactions. Both periods also excluded the amortization of acquisition-related intangible assets and acquisition integration costs. Reported and adjusted net income increased from the prior year, driven by net revenue growth of 16 per cent, higher expenses and lower provisions for credit losses. Net income increased in all operating groups.

Return on equity (ROE) was 10.2 per cent, an increase from 5.3 per cent in the prior year, and adjusted ROE was 16.7 per cent, an increase from 5.5 per cent. Return on tangible common equity (ROTCE) was 11.8 per cent, an increase from 6.4 per cent in the prior year, and adjusted ROTCE was 19.1 per cent, an increase from 6.4 per cent.

Concurrent with the release of results, BMO announced a third quarter 2021 dividend of $1.06 per common share, unchanged from the prior quarter and the prior year. The quarterly dividend of $1.06 per common share is equivalent to an annual dividend of $4.24 per common share.

Second quarter performance review

Canadian P&C (property and casualty)

Reported net income was $764-million and adjusted net income was $765-million, both increasing $402-million from the prior year. Results were driven by a 9-per-cent increase in revenue with higher non-interest revenue and net interest income, lower expenses, and a decrease in the provision for credit losses.

During the quarter, the bank was recognized for its digital capabilities that help customers make real financial progress, including two digital innovation awards for BMO CashTrack, an artificial-intelligence-driven capability that provides customers with financial insights to predict cash shortfalls up to seven days in advance. The solution was recognized with a 2020 BAI Global Innovation award and won a 2021 Celent Model Bank award for financial wellness. In addition, in its inaugural mobile banking ratings, Insider Intelligence ranked BMO first for digital money management, security and alerts. These awards recognize the positive impact of the bank's digital-first approach on its customers' banking experience.

U.S. P&C

Reported net income was $542-million, an increase of $203-million or 60 per cent from the prior year, and adjusted net income was $547-million, an increase of $198-million or 57 per cent.

Reported net income was $434-million (U.S.), an increase of $188-million (U.S.) or 76 per cent from the prior year, and adjusted net income was $439-million (U.S.), an increase of $186-million (U.S.) or 73 per cent. Results were driven by a 4-per-cent increase in revenue with higher net interest income and non-interest revenue, lower expenses, and lower provisions for credit losses.

During the quarter, BMO Harris Bank was recognized on Forbes's 2020 list of the world's best banks for the second consecutive year. The list is based on a survey of more than 40,000 customers in 23 countries on their current and former banking relationships, who ranked banks on key attributes, including trust, fees, digital services and financial advice. BMO's digital capabilities were referenced as critical to scores in Forbes's summary of the results.

BMO wealth management

Reported net income was $346-million, an increase of $202-million from the prior year, and adjusted net income was $353-million, an increase of $200-million. Results were driven by higher net revenue, higher expenses and lower provisions for credit losses. Traditional wealth reported net income was $296-million, an increase of $136-million or 85 per cent, and adjusted net income was $303-million, an increase of $134-million or 79 per cent, driven by higher revenue, primarily from growth in client assets, including stronger global markets, the impact of a legal provision in the prior year and higher on-line brokerage transaction volumes. Insurance net income was $50-million, compared with a net loss of $16-million in the prior year, primarily due to unfavourable market movements in the prior year.

During the quarter, BMO InvestorLine announced the launch of adviceDirect Premium, a new offering designed to meet more complex needs of the bank's self-directed clients. This hybrid solution combines the strong technology of the bank's advice engine with planning and human support as clients' needs evolve. In addition, the bank's Canadian asset management business launched four new exchange-traded funds (ETFs), including a new environmental, social and governance (ESG) ETF that further advances the bank's ESG ETF lineup to meet the demands of investors.

BMO capital markets

Reported net income was $563-million, compared with a reported net loss of $74-million in the prior year, and adjusted net income was $570-million, compared with a net loss of $68-million. Results were driven by strong revenue performance in global markets and investment and corporate banking in the current quarter, higher employee-related expenses given business performance, and a recovery of the provision for credit losses, compared with elevated levels of provisions for credit losses in the prior year. The prior year included negative impacts related to equity-linked note-related businesses, the widening of credit and financing spreads on derivative valuation adjustments, and markdowns on the held-for-sale loan portfolio.

As a global industry leader in sustainability, the bank acted as joint bookrunner and green structuring agent on the first labelled green loan in Canada, to Atlantic Packaging Products. This loan was completed in partnership with BMO's sustainable finance team and Canadian commercial banking, with proceeds to be used to support the client's construction of a new 100-per-cent-recycled containerboard facility. As part of BMO's trees from trades initiative, the bank's fixed income currencies and commodities group committed on Earth day 2021 to financing reforestation with every dollar of fixed income securities and ESG framework securities traded on the BMO capital markets desk, which contributed to the planting of 100,000 trees. Tree planting will be carried out in partnership with Priceless Planet Coalition and tentree.

Corporate services

Reported net loss for the quarter was $912-million and adjusted net loss was $140-million, compared with a reported and adjusted net loss of $82-million in the prior year. Adjusted results for the quarter excluded the writedown of goodwill related to the announced sale of the bank's EMEA asset management business and a net gain on the sale of the bank's private banking business in Hong Kong and Singapore, as well as divestiture-related costs for both transactions. Adjusted results decreased, due to lower revenue and higher expenses, partially offset by the impact of a less favourable tax rate in the prior year.

Adjusted results in this second quarter performance review section are non-GAAP (generally accepted accounting principles) amounts or non-GAAP measures.

The order in which the impact on net income is discussed in this section, and elsewhere in the bank's second quarter 2021 report to shareholders, follows the order of revenue, expenses and provision for credit losses, regardless of their relative impact.

Capital

BMO's common equity Tier 1 (CET1) ratio was 13.0 per cent as at April 30, 2021, an increase from 12.4 per cent at the end of the first quarter of fiscal 2021, due to internal capital generation and lower source currency risk-weighted assets. The writedown of goodwill related to the announced sale of the bank's EMEA asset management business was offset by a lower goodwill capital deduction, and therefore did not impact the current quarter CET1 ratio.

Credit quality

Total provision for credit losses was $60-million, a decrease of $1,058-million from $1,118-million in the prior year. The total provision for credit loss ratio was five basis points, compared with 94 basis points in the prior year. The provision for credit losses on impaired loans was $155-million, a decrease of $258-million from $413-million in the prior year, largely due to lower commercial provisions in the P&C businesses and in BMO capital markets. The provision for credit losses on impaired loans ratio was 13 basis points, compared with 35 basis points in the prior year. There was a $95-million recovery of the provision for credit losses on performing loans in the current quarter, compared with a $705-million provision in the prior year. The $705-million provision for credit losses on performing loans in the prior year was primarily based on the weaker economic outlook, while the $95-million recovery of the provision in the current quarter reflected positive credit migration and an improving economic outlook, partially offset by a more severe adverse scenario.

Refer to the accounting policies and critical accounting estimates section and note 3 in the bank's unaudited interim consolidated financial statements for further information on the allowance for credit losses as at April 30, 2021.

Regulatory filings

BMO's continuous disclosure materials, including interim filings, annual management's discussion and analysis, audited annual consolidated financial statements, annual information form, notice of annual meeting of shareholders, and proxy circular, are available on the bank's website, on the Canadian Securities Administrators' website at SEDAR, and on the EDGAR section of the U.S. Securities and Exchange Commission's website. Information contained in or otherwise accessible through the bank's website, or any third party websites mentioned herein, does not form part of this document.

Caution

The extent to which the COVID-19 pandemic impacts BMO's business, results of operations, reputation, and financial performance and condition, including its regulatory capital and liquidity ratios, and credit ratings, as well as its impact on the bank's customers, competitors and trading exposures, and the potential for loss from higher credit, counterparty and mark-to-market losses will depend on future developments, which are highly uncertain and cannot be predicted, including the scope, severity and duration of the pandemic and actions taken by governments, and governmental and regulatory authorities, which could vary by country and region, and other third parties in response to the pandemic. The COVID-19 pandemic may also impact the bank's ability to achieve, or the timing to achieve, certain previously announced targets, goals and objectives.

                                            FINANCIAL HIGHLIGHTS
                                       (in millions, except as noted)

                                                 Q2 2021     Q1 2021     Q2 2020    YTD 2021    YTD 2020
Reported results
Revenue                                           $6,076      $6,975      $5,264     $13,051     $12,011
Insurance claims, commissions and changes
in policy benefit liabilities (loss) (CCPB)          283        (601)        197        (318)       (519)
Revenue, net of CCPB                               6,359       6,374       5,461      12,733      11,492
Total provision for credit (losses)                  (60)       (156)     (1,118)       (216)     (1,467)
Non-interest (expense)                            (4,409)     (3,613)     (3,516)     (8,022)     (7,185)
Income before income taxes                         1,890       2,605         827       4,495       2,840
Provision (loss) for income taxes                   (587)       (588)       (138)     (1,175)       (559)
Net income                                         1,303       2,017         689       3,320       2,281
EPS ($)                                             1.91        3.03        1.00        4.93        3.37
Adjusting items (pretax)
Acquisition integration (costs)                       (2)         (3)         (3)         (5)         (6)
Amortization (loss) of acquisition-related
intangible assets                                    (24)        (25)        (30)        (49)        (59)
Impact (loss) of divestitures                       (771)          -           -        (771)          -
Adjusting items included in
reported pretax income (loss)                       (797)        (28)        (33)       (825)        (65)
Adjusting items (after tax)
Acquisition integration (costs)                       (2)         (2)         (2)         (4)         (4)
Amortization (loss) of acquisition-related
intangible assets                                    (18)        (19)        (24)        (37)        (47)
Impact of divestitures (loss)                       (772)          -           -        (772)          -
Adjusting items included in
reported net income after tax (loss)                (792)        (21)        (26)       (813)        (51)
Impact (loss) on EPS ($)                           (1.22)      (0.03)      (0.04)      (1.26)      (0.08)
Adjusted results
Revenue                                            6,047       6,975       5,264      13,022      12,011
Insurance claims, commissions and changes
in policy benefit liabilities (loss) (CCPB)          283        (601)        197        (318)       (519)
Revenue, net of CCPB                               6,330       6,374       5,461      12,704      11,492
Total provision for credit (losses)                  (60)       (156)     (1,118)       (216)     (1,467)
Non-interest (expense)                            (3,583)     (3,585)     (3,483)     (7,168)     (7,120)
Income before income taxes                         2,687       2,633         860       5,320       2,905
Provision (loss) for income taxes                   (592)       (595)       (145)     (1,187)       (573)
Net income                                         2,095       2,038         715       4,133       2,332
EPS ($)                                             3.13        3.06        1.04        6.19        3.45

Investor and media presentation

Investor presentation materials

Interested parties are invited to visit BMO's website to review the 2020 annual MD&A and audited annual consolidated financial statements, quarterly presentation materials, and supplementary financial and regulatory information package.

Quarterly conference call and webcast presentations

Interested parties are also invited to listen to the bank's quarterly conference call on Wednesday, May 26, 2021, at 8 a.m. Eastern Time. The call may be accessed by telephone at 416-406-0743 (from within Toronto) or 1-800-898-3989 (toll-free outside Toronto), entering pass code: 1365804 followed by the number sign. A replay of the conference call can be accessed until Saturday, June 26, 2021, by calling 905-694-9451 (from within Toronto) or 1-800-408-3053 (toll-free outside Toronto) and entering pass code: 9195676 followed by the number sign.

A live webcast of the call can be accessed on the bank's website. A replay can also be accessed on the website.

We seek Safe Harbor.

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