Market Overview

BMO Financial Group Reports Fourth Quarter and Fiscal 2019 Results

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Financial Results Highlights


Fourth Quarter 2019 Compared With Fourth Quarter 2018:



  • Net income4,5 of $
    1,194

    million, down
    30%
    , reflecting a restructuring charge in the current quarter and a benefit from the remeasurement of an employee benefit liability in the prior year; adjusted net income1 of $
    1,607
    million,
    up

    5%


  • EPS2 of $
    1.78
    , down
    31%
    ;
    adjusted
    EPS1 of $
    2.43
    ,
    up

    5%


  • Revenue, net of CCPB3,4, of $
    5,752
     million,
    up

    5%
    ; revenue, net of adjusted CCPB1, of $5,777 million, up 5%


  • Provision for credit losses (PCL) of $
    253
     million compared with $
    175

    million in the prior year; includes PCL on performing loans of $22 million


  • ROE of 9.9%, compared with
    16.1
    %
    ; adjusted ROE1 of
    13.5
    %, compared with
    14.5
    %


  • Common Equity Tier 1 Ratio of 11.4% 


  • Dividend increased $0.03 to $1.06, up 6% from the prior year

Fiscal 2019 Compared With Fiscal 2018:



  • Net income4,5 of $
    5,758

    million,
    up

    6%
    ; adjusted net income1 of $
    6,249
    million,
    up

    4%



  • EPS2 of $
    8.66
    ,
    up

    6%
    ; adjusted
    EPS1 of $
    9.43
    ,
    up

    5%


  • Revenue, net of CCPB3,4, of $
    22,774
     million,
    up

    6%


  • PCL of $
    872
     million compared with $
    662

    million in the prior year; includes PCL on performing loans of $121 million


  • ROE of 12.6%
     compared with 13.3%; adjusted ROE1 of
    13.7
    % compared with
    14.6
    %

TORONTO, Dec. 3, 2019 /CNW/ - For the fourth quarter ended October 31, 2019, BMO Financial Group (TSX:BMO) (NYSE:BMO) recorded net income of $1,194 million or $1.78 per share on a reported basis, and net income of $1,607 million or $2.43 per share on an adjusted basis.

"BMO finished the year with very strong performance, delivering $1.6 billion in adjusted earnings and adjusted earnings per share of $2.43 in the fourth quarter, up 5% year-over-year, with pre-provision pre-tax earnings growth of 11%, driven by positive operating leverage in all businesses and particularly strong operating performance in Personal and Commercial banking in both Canada and the U.S.," said Darryl White, Chief Executive Officer, BMO Financial Group.

"Our results for the year reflect the strength and quality of our diversified businesses. Adjusted earnings per share were $9.43, up 5% from last year. We continued to make significant progress on our strategic priorities and delivered annual earnings growth of 23% in our U.S. business. With a clear bank-wide focus on disciplined expense management, we continued to improve our overall efficiency ratio with 130 basis points of improvement in the past two years and good momentum throughout the year. We have a number of initiatives underway, including today's announcement of a restructuring charge, that will serve to accelerate our momentum and help us meet our efficiency objectives over the long-term. In addition, we gained market share in key areas, including commercial lending and retail deposits, in Canada and the U.S. Our credit performance remains good and we ended the year with a strong CET1 capital ratio of 11.4%."

"Looking ahead to 2020, we will continue to execute on our clearly articulated strategic priorities and objectives. We remain focused on building on the foundation of our integrated North American platform to grow our customer base and broaden our customer relationships. I am confident that we are well-positioned to deliver sustainable and resilient profitability through an evolving economic environment," concluded Mr. White.

Reported net income in the current quarter included a restructuring charge of $357 million after-tax ($484 million pre-tax), related to severance and a small amount of real estate-related costs, to continue to improve our efficiency, including accelerating delivery against key bank-wide initiatives focused on digitization, organizational redesign and simplification of the way we do business. Reported net income also included a $25 million pre-tax and after-tax reinsurance adjustment for the net impact of major reinsurance claims from Japanese typhoons that were incurred after our announced decision to wind down our reinsurance business.

Return on equity (ROE) was 9.9%, compared with 16.1% in the prior year and adjusted ROE was 13.5%, compared with 14.5% in the prior year. Return on tangible common equity (ROTCE) was 11.9%, compared with 19.5% in the prior year and adjusted ROTCE was 15.7%, compared with 17.3% in the prior year.

Concurrent with the release of results, BMO announced a first quarter 2020 dividend of $1.06 per common share, up $0.03 per share or 3% from the prior quarter and up $0.06 per share or 6% from the prior year. The quarterly dividend of $1.06 per common share is equivalent to an annual dividend of $4.24 per common share.

BMO's 2019 audited annual consolidated financial statements and accompanying Management Discussion and Analysis (MD&A) are 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. 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 deducting total dividends on preferred shares and distributions on other equity instruments.

(3)

On a basis that nets insurance claims, commissions and changes in policy benefit liabilities (CCPB) against insurance revenue.

(4)

Q4-2019 reported net income included a $357 million after-tax ($484 million pre-tax) restructuring charge, related to severance and a small amount of real estate-related costs, to continue to improve our efficiency, including accelerating delivery against key bank-wide initiatives focused on digitization, organizational redesign and simplification of the way we do business. The current quarter reported net income also included a $25 million (pre-tax and after-tax) net impact of major reinsurance claims from Japanese typhoons that were incurred after our announced decision to wind down our reinsurance business. The restructuring charge was included in non-interest expense in Corporate Services and the reinsurance adjustment was included in CCPB in BMO Wealth Management.

(5)

In fiscal 2018, we recorded a $425 million (US$339 million) charge related 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 in the first quarter; a $192 million after-tax ($260 million pre-tax) restructuring charge, primarily related to severance, in the second quarter; and a benefit of $203 million after-tax ($277 million pre-tax) from the remeasurement of an employee benefit liability, as a result of an amendment to our other employee future benefits plan for certain employees, in the fourth quarter. The second quarter charge and fourth quarter benefit were included in non-interest expense in Corporate Services. For more information on the tax charge, refer to the Critical Accounting Estimates – Income Taxes and Deferred Tax Assets section on page 119 of BMO's 2018 Annual Report.


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

 

Fourth Quarter Operating Segment Overview

Canadian P&C
Reported net income was $716 million, an increase of $42 million or 6% and adjusted net income was $716 million, an increase of $41 million or 6% from the prior year. Adjusted net income excludes the amortization of acquisition-related intangible assets. Results reflect strong revenue growth, partially offset by higher provisions for credit losses and higher expenses.

During the quarter, we launched a new digital lending solution, the first of its kind from a major Canadian financial institution. Customers are now able to apply for a personal line of credit by completing a short, user-friendly digital application and receive a decision on their loan application in minutes. We also became the first Canadian financial institution to offer retail credit card customers the option to report a lost or stolen card through online banking. These new digital services and innovations reflect BMO's commitment to creating digital solutions that better support our customers.

U.S. P&C
Reported net income was $393 million, an increase of $21 million or 6% and adjusted net income was $404 million, an increase of $21 million or 5% from the prior year. Adjusted net income excludes the amortization of acquisition-related intangible assets.

Reported net income was US$297 million, an increase of US$12 million or 4% and adjusted net income was US$305 million, an increase of US$11 million or 4%, primarily due to higher revenue and lower provisions for credit losses, partially offset by a favourable U.S. tax item in the prior year and higher expenses.

During the quarter, the Federal Deposit Insurance Corporation released its annual deposit market share report. We improved our market share ranking within our core footprint, which includes Illinois, Kansas, Wisconsin, Missouri, Indiana and Minnesota, from fourth to third place and maintained our strong ranking of second place in the Chicago and Milwaukee markets.

BMO Wealth Management
Reported net income was $267 million, an increase of $48 million or 22% and adjusted net income was $301 million, an increase of $72 million or 31% from the prior year. Adjusted net income in the current quarter excludes the net impact of major reinsurance claims and the amortization of acquisition-related intangible assets in both the current and prior year. Traditional Wealth reported net income was $237 million, an increase of $45 million or 24% and adjusted net income was $246 million, an increase of $44 million or 22%, due to the impact of a legal provision in the prior year, higher deposit and loan revenue and higher fee-based revenue. Insurance reported net income was $30 million, an increase of $3 million or 9%, and adjusted net income of $55 million increased $28 million, primarily due to benefits from changes in investments to improve asset liability management.

For the second consecutive year, BMO Global Asset Management was named the best manager in liability-driven investment by Financial News.

BMO Capital Markets
Reported net income was $269 million, compared with $298 million and adjusted net income was $280 million, compared with $309 million in the prior year. Adjusted net income excludes the amortization of acquisition-related intangible assets and acquisition integration costs. Higher revenue was more than offset by higher provisions for credit losses and higher expenses.

On September 25, 2019, BMO Capital Markets celebrated the 15th anniversary of the Equity Through Education Trading Day, a BMO Capital Markets initiative that donates all institutional equity trading commissions earned that day across North America and Europe to charities helping underprivileged students through scholarships, bursaries and other academic programs. This year, we raised $1.6 million, bringing the total amount raised since the introduction of the program in 2005 to more than $21 million, and helping over 5,000 students. This is one of the many initiatives that continue to highlight BMO's Purpose to Boldly Grow the Good in business and life.

Corporate Services
Reported net loss was $451 million, compared with a reported net income of $134 million in the prior year. Adjusted net loss was $94 million, compared with an adjusted net loss of $65 million in the prior year. Adjusted results in the current quarter exclude a restructuring charge of $357 million after-tax. Adjusted results in the prior year exclude a $203 million after-tax benefit from the remeasurement of an employee benefit liability and acquisition integration costs. Adjusted results decreased,

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