BMO Financial Group Reports Net Income of $4.4 Billion for Fiscal 2015; Fourth Quarter Net Income Up 13%

TORONTO, ONTARIO, Dec. 1 (Korea Bizwire) – For fiscal 2015, BMO Financial Group (TSX: BMO)(NYSE: BMO) reported net income of $4,405 million or $6.57 per share on a reported basis and net income of $4,681 million or $7.00 per share on an adjusted basis. For the fourth quarter ended October 31, 2015, net income was $1,214 million and EPS was $1.83. Adjusted net income was $1,264 million and adjusted EPS was $1.90.

“BMO posted a strong finish to the year, delivering record results, with $4.7 billion in adjusted net income, and adjusted earnings per share of $7.00, up 6% from last year,” said Bill Downe, Chief Executive Officer, BMO Financial Group. “These results reflect the benefits of our diversified business mix, with Canadian and U.S. Banking and Wealth Management all contributing to the bank’s growth.

“For the first time, our Personal and Commercial Banking and Wealth Management businesses in the U.S. generated adjusted earnings of more than $1 billion. With the acquisition of GE Capital Transportation Finance which closed today, we continue to strengthen our large, well-established North American commercial banking customer base.

“Our business is still fundamentally about people helping people. We are increasingly adept at thinking like customers, using online and mobile to dramatically increase the number of customers we can serve. And when we get the digital and the personal in balance, the result is perfectly aligned with our brand promise – and will be difficult to duplicate.

“As we look ahead, our well-diversified portfolio of businesses provides a strong platform from which we will continue to deliver profitable growth.”

 

(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.               

 

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

Concurrent with the release of results, BMO announced a first quarter 2016 dividend of $0.84 per common share up $0.02 per share or 2% from the preceding quarter and up $0.04 per share or 5% from a year ago, equivalent to an annual dividend of $3.36 per common share.

BMO’s 2015 audited annual consolidated financial statements and accompanying management’s discussion & analysis (MD&A), along with the supplementary financial information report, are available online at www.bmo.com/investorrelations and at www.sedar.com.

Total Bank Overview

Net income was $1,214 million for the fourth quarter of 2015, up $144 million or 13% from the prior year.

Adjusted net income was $1,264 million, up $153 million or 14% from the prior year with good income growth across all of our operating groups. Adjusted EPS was up 17% year-over-year. Return on equity was 12.9% and adjusted return on equity was 13.5%. Book value per share increased 17% from the prior year to $56.31 per share. The Basel III Common Equity Tier 1 Ratio was strong at 10.7%.

Operating Segment Overview

Canadian P&C

Net income was $560 million and adjusted net income was $561 million both up $34 million or 7% from the prior year. Revenue was up $58 million or 3% from the prior year due to higher balances across most products and increased non-interest revenue. Expenses increased $28 million and adjusted expenses increased $27 million or 3% reflecting continued investment in the business, net of lower employee-related costs. Adjusted operating leverage was 0.1%. Year-over-year loan growth was 4% and deposit growth was 5%.

In our personal banking business, year-over-year loan and deposit growth was 3% and 4%, respectively. During the quarter, MoneySense™ magazine named our Premium Cashback MasterCard for Business as Canada’s #1 Business CashBack Card in their annual credit card rankings. Our Summer Campaign was a success with a 26% increase in sales of everyday banking plans and higher products per customer compared to the prior year.

In our commercial banking business, loans and deposits grew 6% and 7% year-over-year, respectively. During the quarter, World Finance magazine named BMO the Best Commercial Bank in Canada in their 2015 Banking Awards. The World Finance awards celebrate achievement and innovation in the financial industry, and BMO was recognized as a result of our commitment to building customer relationships, innovative solutions and strong regional and industry focus, particularly in Aboriginal Banking and Women in Business. In our upper mid-market business we launched equipment leasing to expand our product offerings. We remain second in Canadian business banking loan market share for small and medium-sized loans.

U.S. P&C

Net income of $207 million increased $38 million or 23% from a year ago. Adjusted net income of $221 million increased $39 million or 22%. All amounts in the remainder of this section are on a U.S. dollar basis.

Net income of $157 million increased $6 million or 4% from a year ago. Adjusted net income of $167 million increased $5 million or 3%, driven by lower provisions for credit losses.

Revenue of $723 million remained stable as higher loan and deposit volume and mortgage banking revenue were offset by lower net interest margin. Adjusted non-interest expense of $474 million increased $14 million or 3% primarily due to higher employee-related costs.

Year-over-year loan growth was $2.0 billion or 3%, led by good growth in commercial and industrial (C&I) loans of $3.1 billion or 11%.

During the quarter, the Federal Deposit Insurance Corporation released their annual deposit market share results. In the Chicago and Wisconsin areas we maintained our strong second place rankings, as BMO Harris Bank’s deposit market share improved to 12.5% and 12.8% respectively. We maintained our number four market share ranking within our primary footprint of Wisconsin, Illinois, Missouri, Kansas, Indiana, and Minnesota.

On September 10, 2015, we announced the signing of an agreement to acquire General Electric Capital Corporation’s (GE Capital) Transportation Finance business with net earning assets of approximately $8.9 billion U.S. dollars on closing. The acquisition builds on our position as a market leader in commercial banking and enhances our business position in the United States by further diversifying net income, adding scale and enhancing profitability and margins. The acquisition is expected to close in the first quarter of 2016.

Wealth Management

Net income was $243 million up $18 million or 8% from a year ago. Adjusted net income of $271 million increased $19 million or 8% from a year ago. Adjusted net income in traditional wealth was $214 million, driven by a gain on sale and underlying business growth, despite softer equity markets, partially offset by a legal reserve. Adjusted net income in traditional wealth was up $79 million or 60%. Adjusted net income in insurance was $57 million, compared to $117 million a year ago due to high actuarial benefits in the prior year.

Assets under management and administration grew by $70 billion or 9% from a year ago to $864 billion, driven by favourable foreign exchange movements and market appreciation. During the quarter, BMO Private Bank was named Best Domestic Private Bank, U.S. for 2015 by Global Financial Market Review for the third consecutive year. We were chosen for our client service, high-quality wealth advisors and innovative solutions demonstrating our team’s consistent dedication to our clients, understanding their needs and delivering a great product offering.

On September 30, 2015, we closed the sale of BMO’s U.S. retirement services business and BMO Benefit Services. These transactions are consistent with BMO Global Asset Management’s strategy to focus on our world-class asset management business.

BMO Capital Markets

Net income of $242 million increased $51 million or 27% from a year ago. Revenue increased $127 million or 16%. Excluding the impact of the stronger U.S. dollar, revenue increased $71 million or 9%. Trading Products revenue increased due to higher trading revenue, including the unfavourable impact of implementing a funding valuation adjustment in the prior year, and higher securities commissions and fees. Investment and Corporate Banking revenue increased due to higher lending revenue. Both Trading Products and Investment and Corporate Banking revenue were impacted by lower securities gains. Excluding the impact of the stronger U.S. dollar, non-interest expenses were relatively unchanged, increasing $3 million.

During the quarter, BMO Capital Markets was named Best Bank for Canadian Dollar Foreign Exchange for the fifth consecutive year by FX Week magazine. We also closed on the sale of our U.S. municipal bond sales, trading and origination business. We remain firmly committed to our U.S. platform and this transaction enables us to focus resources on our core U.S. fixed income businesses.

BMO Capital Markets participated in 286 new global issues in the quarter, comprising 122 corporate debt deals, 123 government debt deals and 41 equity transactions, raising $920 billion.

Corporate Services

Corporate Services adjusted net loss for the fourth quarter of 2015 was $32 million, compared with an adjusted net loss of $41 million a year ago.

Adjusted results in these Total Bank Overview and Operating Segment Overview sections are non-GAAP amounts or non-GAAP measures. Please see the Non-GAAP Measures section.

Capital

BMO’s Basel III Common Equity Tier 1 (CET1) Ratio was 10.7% at October 31, 2015. The CET1 Ratio increased by approximately 30 basis points from 10.4% at the end of the third quarter primarily due to an increase in CET1 Capital and also due to lower risk-weighted assets.

Provision for Credit Losses

The total provision for credit losses (PCL) was $128 million, a decrease of $42 million from the prior year primarily due to net recoveries in Corporate Services and lower provisions in Canadian P&C.

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.

Financial Review

The Financial Review commentary is as of December 1, 2015. The Financial Review should be read in conjunction with the unaudited interim consolidated financial statements for the period ended October 31, 2015, included in this document, as well as the audited consolidated financial statements for the year ended October 31, 2015, and Management’s Discussion and Analysis (MD&A) for fiscal 2015. The material that precedes this section comprises part of this Financial Review.

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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Table of Contents                                                           

 

5   Summary Data                  14  Review of Operating Groups’          

                                      Performance                          

6   Non-GAAP Measures                 14  Personal and Commercial Banking   

                                          (P&C)                            

7   Caution Regarding Forward-            15  Canadian Personal and        

    Looking Statements                        Commercial Banking (Canadian 

                                              P&C)                         

8   Foreign Exchange                      16  U.S. Personal and Commercial 

                                              Banking (U.S. P&C)           

8   Net Income                        18  Wealth Management                

9   Revenue                           19  BMO Capital Markets              

10  Provisions for Credit Losses      20  Corporate Services, Including    

                                          Technology and Operations         

11  Impaired Loans                20  Risk Management                      

11  Insurance Claims, Commissions 21  Interim Consolidated Financial       

    and Changes in Policy Benefit     Statements                           

    Liabilities                                                             

11  Non-Interest Expense              21  Consolidated Statement of Income 

11  Income Taxes                      22  Consolidated Statement of        

                                          Comprehensive Income             

12  Capital Management                23  Consolidated Balance Sheet       

13  Eligible Dividends Designation    24  Consolidated Statement of Changes

                                          in Equity                         

                                  25  Other Investor and Media Information 

 

—————————————————————————-

 

Bank of Montreal’s management, under the supervision of the CEO and CFO, has evaluated the effectiveness, as of October 31, 2015, of Bank of Montreal’s disclosure controls and procedures (as defined in the rules of the Securities and Exchange Commission and the Canadian Securities Administrators) and has concluded that such disclosure controls and procedures are effective.

There were no changes in our internal control over financial reporting during the quarter ended October 31, 2015, which materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Because of inherent limitations, disclosure controls and procedures and internal control over financial reporting can provide only reasonable assurance and may not prevent or detect misstatements.

As in prior quarters, Bank of Montreal’s Audit and Conduct Review Committee reviewed this document and Bank of Montreal’s Board of Directors approved the document prior to its release.

 

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Summary Data                                                         Table 1

—————————————————————————-

(Canadian $ in millions, except                             Fiscal   Fiscal

 as noted)                       Q4-2015 Q3-2015  Q4-2014     2015     2014

—————————————————————————-

Summary Income Statement                                                   

Net interest income                2,367   2,272    2,178    8,970    8,461

Non-interest revenue (1)           2,615   2,554    2,462   10,419    9,762

—————————————————————————-

Revenue (1)                        4,982   4,826    4,640   19,389   18,223

Insurance claims, commissions                                              

 and changes in policy benefit                                             

 liabilities (CCPB) (1)              265     218      300    1,254    1,505

—————————————————————————-

Revenue, net of CCPB               4,717   4,608    4,340   18,135   16,718

Specific provision for credit                                              

 losses                              128     160      170      612      561

Non-interest expense               3,093   2,971    2,887   12,182   10,921

Provision for income taxes           282     285      213      936      903

—————————————————————————-

Net income                         1,214   1,192    1,070    4,405    4,333

—————————————————————————-

  Attributable to bank                                                     

   shareholders                    1,206   1,185    1,057    4,370    4,277

  Attributable to non-                                                     

   controlling interest in                                                 

   subsidiaries                        8       7       13       35       56

—————————————————————————-

Net income                         1,214   1,192    1,070    4,405    4,333

—————————————————————————-

Adjusted net income                1,264   1,230    1,111    4,681    4,453

—————————————————————————-

Common Share Data ($ except as                                             

 noted)                                                                    

Earnings per share                  1.83    1.80     1.56     6.57     6.41

Adjusted earnings per share         1.90    1.86     1.63     7.00     6.59

Earnings per share growth (%)       17.3     7.8     (2.5)     2.5      3.9

Adjusted earnings per share                                                

 growth (%)                         16.6     7.5      0.6      6.2      6.1

Dividends declared per share        0.82    0.82     0.78     3.24     3.08

Book value per share               56.31   55.36    48.18    56.31    48.18

Closing share price                76.04   72.98    81.73    76.04    81.73

Total market value of common                                               

 shares ($ billions)                48.9    46.9     53.0     48.9     53.0

Dividend yield (%)                   4.3     4.5      3.8      4.3      3.8

—————————————————————————-

Financial Measures and Ratios                                              

 (%)                                                                       

Return on equity                    12.9    13.6     13.1     12.5     14.0

Adjusted return on equity           13.5    14.0     13.7     13.3     14.4

Net income growth                   13.5     5.9     (0.4)     1.7      3.3

Adjusted net income growth          13.9     5.7      2.1      5.1      5.4

Revenue growth (1)                   7.4     2.0      7.4      6.4      8.3

Adjusted revenue growth, net of                                            

 CCPB                                8.7     9.4      8.2      8.5      8.7

Non-interest expense growth          7.1     7.9     11.9     11.5      6.8

Adjusted non-interest expense                                              

 growth                              6.9     8.0     14.1      9.8     10.3

Efficiency ratio (1)                62.1    61.6     62.2     62.8     59.9

Adjusted efficiency ratio (1)       60.8    60.5     61.1     60.9     59.1

Adjusted efficiency ratio, net                                             

 of CCPB                            64.2    63.4     65.3     65.2     64.4

Operating leverage (1)               0.3    (5.9)    (4.5)    (5.1)     1.5

Adjusted operating leverage, net                                           

 of CCPB                             1.8     1.4     (5.9)    (1.3)    (1.6)

Net interest margin on average                                             

 earning assets                     1.57    1.55     1.60     1.55     1.60

Effective tax rate                  18.8    19.3     16.6     17.5     17.2

Adjusted effective tax rate         18.9    19.4     16.8     18.0     17.5

Return on average assets            0.70    0.71     0.69     0.66     0.72

Provision for credit losses-to-                                            

 average loans and acceptances                                             

 (annualized)                       0.15    0.20     0.23     0.19     0.19

—————————————————————————-

Balance Sheet (as at $ millions,                                           

 except as noted)                                                          

Assets                           641,881 672,442  588,659  641,881  588,659

Net loans and acceptances        334,024 329,179  303,038  334,024  303,038

Deposits                         438,169 447,617  393,088  438,169  393,088

Common shareholders’ equity       36,182  35,560   31,273   36,182   31,273

Cash and securities-to-total                                               

 assets ratio (%)                   27.8    29.3     30.2     27.8     30.2

—————————————————————————-

Capital Ratios (%)                                                         

Common Equity Tier 1 Ratio          10.7    10.4     10.1     10.7     10.1

Tier 1 Capital Ratio                12.3    11.7     12.0     12.3     12.0

Total Capital Ratio                 14.4    13.7     14.3     14.4     14.3

—————————————————————————-

Foreign Exchange Rates                                                     

As at Cdn./U.S. dollar            1.3075  1.3080   1.1271   1.3075   1.1271

Average Cdn./U.S. dollar          1.3191  1.2671   1.1114   1.2550   1.0937

—————————————————————————-

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(1)  Commencing in Q1-2015, insurance claims, commissions and changes in   

     policy benefit liabilities (CCPB) are reported separately. They were  

     previously reported as a reduction in insurance revenue in non-interest

     revenue. Prior period amounts and ratios have been reclassified.      

 

Adjusted results are non-GAAP amounts or non-GAAP measures. Please see the Non-GAAP Measures section.

Non-GAAP Measures

Results and measures in this MD&A 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 Table 2 below. Management assesses performance on a reported basis and on an adjusted basis and considers both to be useful in assessing underlying ongoing business performance. Presenting results on both bases provides readers with a better understanding of how management assesses results. It also permits readers to assess the impact of certain specified items on results for the periods presented and to better assess results excluding those items if they consider the items to not be reflective of ongoing results. As such, the presentation may facilitate readers’ analysis of trends, as well as comparisons with our competitors. 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 and should not be viewed in isolation from or as a substitute for GAAP results.

 

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Non-GAAP Measures                                                    Table 2

—————————————————————————-

(Canadian $ in millions, except                             Fiscal   Fiscal

 as noted)                      Q4-2015  Q3-2015  Q4-2014     2015     2014

—————————————————————————-

Reported Results                                                            

Revenue (1)                       4,982    4,826    4,640   19,389   18,223

Insurance claims, commissions                                              

 and changes in policy benefit                                              

 liabilities (CCPB) (1)            (265)    (218)    (300)  (1,254)  (1,505)

—————————————————————————-

Revenue, net of CCPB              4,717    4,608    4,340   18,135   16,718

Provision for credit losses        (128)    (160)    (170)    (612)    (561)

Non-interest expense             (3,093)  (2,971)  (2,887) (12,182) (10,921)

—————————————————————————-

Income before income taxes        1,496    1,477    1,283    5,341    5,236

Provision for income taxes         (282)    (285)    (213)    (936)    (903)

—————————————————————————-

Net Income                        1,214    1,192    1,070    4,405    4,333

EPS ($)                            1.83     1.80     1.56     6.57     6.41

—————————————————————————-

—————————————————————————-

Adjusting Items (Pre-tax)                                                  

Amortization of acquisition-                                               

 related intangible assets (2)      (43)     (40)     (42)    (163)    (140)

Acquisition integration costs                                              

 (3)                                (20)      (9)     (11)     (53)     (20)

Restructuring costs (4)               -        -        -     (149)       –

—————————————————————————-

Adjusting items included in                                                

 reported pre-tax income            (63)     (49)     (53)    (365)    (160)

—————————————————————————-

—————————————————————————-

Adjusting Items (After tax)                                                

Amortization of acquisition-                                                

 related intangible assets (2)      (33)     (32)     (32)    (127)    (104)

Acquisition integration costs                                              

 (3)                                (17)      (6)      (9)     (43)     (16)

Restructuring costs (4)               -        -        -     (106)       –

—————————————————————————-

Adjusting items included in                                                

 reported net income after tax      (50)     (38)     (41)    (276)    (120)

Impact on EPS ($)                 (0.07)   (0.06)   (0.07)   (0.43)   (0.18)

—————————————————————————-

—————————————————————————-

Adjusted Results                                                           

Revenue (1)                       4,984    4,826    4,640   19,391   18,223

Insurance claims, commissions                                              

 and changes in policy benefit                                             

 liabilities (CCPB) (1)            (265)    (218)    (300)  (1,254)  (1,505)

—————————————————————————-

Revenue, net of CCPB              4,719    4,608    4,340   18,137   16,718

Provision for credit losses        (128)    (160)    (170)    (612)    (561)

Non-interest expense             (3,032)  (2,922)  (2,834) (11,819) (10,761)

—————————————————————————-

Income before income taxes        1,559    1,526    1,336    5,706    5,396

Provision for income taxes         (295)    (296)    (225)  (1,025)    (943)

—————————————————————————-

Net income                        1,264    1,230    1,111    4,681    4,453

EPS ($)                            1.90     1.86     1.63     7.00     6.59

—————————————————————————-

—————————————————————————-

 

Adjusted results and measures in this table are non-GAAP amounts or non-GAAP measures.

 

(1)  Commencing in Q1-2015, insurance claims, commissions and changes in   

     policy benefit liabilities (CCPB) are reported separately. They were  

     previously reported as a reduction in insurance revenue in non-interest

     revenue. Prior period amounts and ratios have been reclassified.      

(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 14, 15, 16, 18 and 19.                          

(3)  Acquisition integration costs related to F&C are charged to Wealth    

     Management and acquisition integration costs related to GE Capital’s  

     Transportation Finance business are charged to Corporate Services.    

     Acquisition integration costs are primarily recorded in non-interest  

     expense.                                                              

(4)  Primarily due to restructuring to drive operational efficiencies. Also

     includes the settlement of a legacy legal matter from an acquired     

     entity.                                                               

 

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 2016 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.

By their nature, forward-looking statements require us to make assumptions and are subject to inherent risks and uncertainties. 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, forecasts, conclusions or projections. We caution readers of this document not to place undue reliance on our forward-looking statements as a number of factors 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, tax or economic policy; 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; 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; the anticipated benefits from the acquisition of the GE Capital Transportation Finance business are not realized in the time frame anticipated or at all; 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; general political conditions; 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; and our ability to anticipate and effectively manage risks associated with 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 Enterprise-Wide Risk Management section on pages 86 to 117 of BMO’s 2015 Annual MD&A, which outlines certain key factors and risks that may affect Bank of Montreal’s future results. When relying on forward-looking statements to make decisions with respect to Bank of Montreal, 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.

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 the Canadian and U.S. governments and their agencies. See the Economic Developments and Outlook section on page 30 of BMO’s 2015 Annual MD&A.

Assumptions about current and expected capital requirements, GE Capital’s Transportation Finance business revenues and expenses, potential for earnings growth as well as costs associated with the transaction and expected synergies, were material factors we considered in estimating the impact of the acquired business on our net income, profitability and margins in 2016 and beyond.

Assumptions about current and expected capital requirements and our models used to assess those requirements under applicable capital guidelines, GE Capital’s Transportation Finance business revenues and expenses, potential for earnings growth as well as costs associated with the transaction and expected synergies were material factors we considered in estimating the impact on our capital ratios in 2016 and beyond.

Foreign Exchange

The Canadian dollar equivalents of BMO’s U.S. segment net income, revenues, expenses, recovery of (provision for) credit losses and income taxes that are denominated in U.S. dollars were increased relative to the third quarter of 2015 and the fourth quarter of 2014, due to the strengthening of the U.S. dollar. The average Canadian/U.S. dollar exchange rate for the quarter, expressed in terms of the Canadian dollar cost of a U.S. dollar, increased by 4% from the third quarter of 2015 and increased by 19% from a year ago. Table 3 indicates the relevant average Canadian/U.S. dollar exchange rates and the impact of changes in the rates on our U.S. segment results. At October 31, 2015, the Canadian dollar traded at $1.3075 per U.S. dollar. It traded at $1.3080 and $1.127 per U.S. dollar at July 31, 2015 and October 31, 2014 respectively.

Economically, our U.S. dollar income stream was largely unhedged to changes in foreign exchange rates during the quarter. During the quarter we hedged a portion of the forecasted BMO Capital Markets U.S. dollar net income. These hedges are subject to mark-to-market accounting which resulted in a negligible loss in the fourth quarter, which was recorded in our BMO Capital Markets business.

We regularly determine whether to execute hedging transactions to mitigate the impact of foreign exchange rate movements on net income.

This Foreign Exchange section contains forward-looking statements. Please see the Caution Regarding Forward Looking Statements.

 

—————————————————————————-

Effects of Changes in Exchange Rates on BMO’s Reported and Adjusted        

 Results                                                             Table 3

—————————————————————————-

                                                            Q4-2015        

                                                    ————————

(Canadian $ in millions, except as noted)            vs Q4-2014  vs Q3-2015

—————————————————————————-

Canadian/U.S. dollar exchange rate (average)                                

  Current period                                         1.3191      1.3191

  Prior period                                           1.1114      1.2671

Effects on U.S. segment reported results                                   

Increased net interest income                               133          34

Increased non-interest revenue                              121          30

—————————————————————————-

Increased revenues                                          254          64

Increased recovery of credit losses                           5           1

Increased expenses                                         (194)        (49)

Increased income taxes                                      (16)         (4)

—————————————————————————-

Increased reported net income                                49          12

—————————————————————————-

—————————————————————————-

Effects on U.S. segment adjusted results                                   

Increased net interest income                               133          34

Increased non-interest revenue                              121          30

—————————————————————————-

Increased revenues                                          254          64

Increased provision for credit losses                        (2)         (1)

Increased expenses                                         (189)        (47)

Increased income taxes                                      (15)         (4)

—————————————————————————-

Increased adjusted net income                                48          12

—————————————————————————-

—————————————————————————-

 

Adjusted results in this section are non-GAAP amounts or non-GAAP measures. Please see the Non-GAAP Measures section.

Net Income

Q4 2015 vs Q4 2014

Net income was $1,214 million for the fourth quarter of 2015, up $144 million or 13% from the prior year. Adjusted net income was $1,264 million, up $153 million or 14% from the prior year. EPS of $1.83 and adjusted EPS of $1.90 were both up $0.27 or 17% from the prior year.

Adjusted results and items excluded in determining adjusted results are disclosed in detail in the preceding Non-GAAP Measures section, together with comments on the uses and limitations of such measures.

The combined P&C banking business net income of $767 million and adjusted net income of $782 million were both up 11%. Canadian P&C results increased 7% driven by higher revenue and strong credit performance, partially offset by higher expenses. U.S. P&C adjusted net income increased 22% on a Canadian dollar basis and increased 3% on a U.S. dollar basis, driven by lower provisions for credit losses. Wealth Management adjusted results increased 8% with traditional wealth increasing 60% driven by a gain on sale and underlying business growth, despite softer equity markets, partially offset by a legal reserve. Insurance net income decreased due to high actuarial benefits in the prior year. BMO Capital Markets results increased 27% due to higher revenue. Corporate Services adjusted results were better as lower revenue was more than offset by lower expenses, and credit loss recoveries.

Q4 2015 vs Q3 2015

Net income increased $22 million or 2%. Adjusted net income increased $34 million or 3%. EPS increased by $0.03 or 2% and adjusted EPS increased $0.04 or 2%.

Net income increased in Canadian P&C as a result of higher revenues. Traditional wealth adjusted net income increased due to a gain on sale and adjusted net income in insurance was stable quarter over quarter. BMO Capital Markets results decreased largely due to lower revenue in Trading Products and Investment and Corporate Banking. U.S. P&C adjusted net income decreased due primarily to below trend provisions for credit losses in the prior quarter. Corporate Services adjusted results improved mainly due to better than trend non-interest revenue and lower PCL partially offset by higher expenses which were below-trend in the prior quarter.

Adjusted results in this Net Income section are non-GAAP amounts or non-GAAP measures. Please see the Non-GAAP Measure section.

Revenue (1)

Q4 2015 vs Q4 2014

Total revenue of $4,982 million increased $342 million or 7% from the fourth quarter a year ago. On a basis that nets insurance claims, commissions and policy benefit liabilities (CCPB) against insurance revenue (net revenue), revenue increased $377 million or 9%, including a 6% impact of the stronger U.S. dollar. Canadian P&C revenue increased due to higher balances across most products and increased non-interest revenue. U.S. P&C revenue increased 19% on a Canadian dollar basis and was consistent with the prior year on a U.S. dollar basis as higher loan and deposit volume and mortgage banking revenue were offset by lower net interest margin. Wealth Management results increased on a net revenue basis, with traditional wealth revenue benefitting from the gain on sale and higher fee-based revenue partially offset by lower brokerage commissions. Net insurance revenue decreased mainly due to high actuarial benefits in the prior year. BMO Capital Markets revenue was up due to higher trading revenue, including the unfavourable impact of implementing a funding valuation adjustment in the prior year, and higher securities commissions and fees. Investment and Corporate Banking revenue increased due to higher lending revenue. Both Trading Products and Investment and Corporate Banking revenue were impacted by lower securities gains. Corporate Services revenue was lower due to a higher group teb adjustment and lower treasury-related revenue.

Net interest income of $2,367 million increased $189 million or 9% from a year ago, due to the impact of the stronger U.S. dollar and volume growth, partially offset by lower net interest margin. BMO’s overall net interest margin decreased by 3 basis points to 1.57%. Average earning assets increased $58 billion or 11% to $597 billion, including a $42 billion increase as a result of the stronger U.S. dollar.

Non-interest revenue increased $188 million or 9% on a net revenue basis to $2,350 million. Excluding the impact of the stronger U.S. dollar, net non-interest revenue increased 3%. Increases in other non-interest revenue and mutual fund revenues were partially offset by lower net insurance revenue, underwriting and advisory fees, and securities gains.

Gross insurance revenue declined $101 million from a year ago, when lower long-term interest rates increased the fair value of insurance investments, partially offset by increased underlying business premiums in the current quarter. The reduction in insurance revenue was partially offset by lower insurance claims, commissions and policy holder benefit liabilities as discussed on page 11. The decline in net insurance revenue was due to high actuarial benefits in the prior year.

Q4 2015 vs. Q3 2015

Total revenue increased $156 million or 3% from the third quarter. On a net revenue basis, revenue increased $109 million or 2%, primarily due to the impact of the stronger U.S. dollar. Canadian P&C revenue improved driven by higher balances across most products. U.S. P&C increased 4% on a Canadian dollar basis and declined modestly on a U.S. dollar basis. Traditional wealth revenue increased due to the gain on sale, partially offset by lower fee-based revenue due to softer equity markets and lower brokerage commissions. Net insurance revenue was stable. BMO Capital Markets revenue was lower driven by lower trading revenues resulting from unsettled markets, reduced client activity and lower securities gains, while in Investment and Corporate Banking, higher lending revenue was more than offset by reduced investment banking activity and securities gains. Corporate Services revenue was above-trend in the current quarter.

Net interest income increased $95 million or 4%, primarily due to volume growth and higher net interest margin. BMO’s net interest margin increased 2 basis points from the third quarter and net interest margin (excluding trading) decreased 4 basis points. Average earning assets increased $17 billion or 3%, including an $11 billion increase as a result of the stronger U.S. dollar.

Non-interest revenue increased $14 million or 1% on a net revenue basis. Excluding the impact of the stronger US dollar, net non- interest revenue was down 1%. Increased other non-interest revenue, due in part to the gain on sale and a legal settlement, was more than offset by declines in other types of non-interest revenue, including trading revenues, underwriting and advisory fees and security gains.

Gross insurance revenue increased $46 million from the prior quarter. Increased underlying business premiums in the current quarter were partially offset by the impact of higher long-term interest rates on the fair value of insurance investments. The increase in insurance revenue was offset by higher insurance claims, commissions and policy holder benefit liabilities as discussed on page 11.

 

(1)  Commencing in Q1-2015, insurance claims, commissions and changes in   

     policy benefit liabilities are reported separately. They were         

     previously reported as a reduction in insurance revenue in non-interest

     revenue. Prior period amounts and ratios have been reclassified.      

     Insurance can experience variability arising from fluctuations in the 

     fair value of insurance assets. The investments which support actuarial

     liabilities are predominantly fixed income assets recorded at fair    

     value with changes in the fair values recorded in insurance revenue in

     the Consolidated Statement of Income. These fair value changes are    

     largely offset by changes in the fair value of policy benefit         

     liabilities, the impact of which is reflected in insurance claims,    

     commissions and changes in policy benefit liabilities.                

 

—————————————————————————-

Net Interest Margin on Average Earning Assets (teb) (1)              Table 4

—————————————————————————-

                                                             Fiscal   Fiscal

(In basis points)                Q4-2015  Q3-2015  Q4-2014     2015     2014

—————————————————————————-

  Canadian P&C                       262      261      261      261      261

  U.S. P&C                           347      345      354      346      363

—————————————————————————-

Personal and Commercial Banking      288      287      287      286      289

Wealth Management                    270      271      261      270      265

BMO Capital Markets                   59       51       46       56       53

Corporate Services, including                                              

 T&O (2)                              nm       nm       nm       nm       nm

—————————————————————————-

Total BMO net interest margin        157      155      160      155      160

Total BMO net interest margin                                              

 (excluding trading)                 184      188      199      187      198

—————————————————————————-

Total Canadian Retail (3)            258      257      258      256      252

—————————————————————————-

—————————————————————————-

(1)  Net interest margin is disclosed and computed with reference to average

     earning assets, rather than total assets. This basis provides a more  

     relevant measure of margins and changes in margins. Operating group   

     margins are stated on a taxable equivalent basis (teb) while total BMO

     margin is stated on a GAAP basis.                                     

(2)  Corporate Services adjusted net interest income is negative in all    

     periods and its variability affects changes in net interest margin (nm

     – not meaningful).                                                    

(3)  Total Canadian retail margin represents the net interest margin of the

     combined Canadian businesses of Canadian P&C and Wealth Management.   

 

Provisions for Credit Losses

Q4 2015 vs Q4 2014

The total provision for credit losses (PCL) was $128 million, a decrease of $42 million from the prior year due to net recoveries in Corporate Services and lower provisions in Canadian P&C. There was no net change to the collective allowance in the quarter.

Canadian P&C provisions decreased by $17 million to $112 million due to lower provisions in our consumer portfolio. U.S. P&C provisions of $42 million improved by $5 million. BMO Capital Markets net recoveries of $2 million decreased by $5 million reflecting higher provisions in the quarter. Corporate Services recoveries of $25 million increased by $27 million, due to a loan sale benefit in the quarter.

Q4 2015 vs. Q3 2015

Total PCL decreased by $32 million from the prior quarter. Canadian P&C provisions increased $3 million. U.S. P&C provisions increased $23 million primarily due to an increase in commercial provisions from below trend provisions in the previous quarter. BMO Capital Markets had a net recovery due to lower provisions in the quarter. Corporate Services recoveries increased by $40 million due to a loan sale benefit and lower provisions in the quarter.

 

—————————————————————————-

Provision for Credit Losses by Operating Group                       Table 5

—————————————————————————-

                                                            Fiscal   Fiscal

(Canadian $ in millions)        Q4-2015  Q3-2015  Q4-2014     2015     2014

—————————————————————————-

  Canadian P&C                      112      109      129      496      528

  U.S. P&C                           42       19       47      119      177

—————————————————————————-

Personal and Commercial Banking     154      128      176      615      705

Wealth Management                     1        3       (1)       7       (3)

BMO Capital Markets                  (2)      14       (7)      26      (18)

Corporate Services, including                                               

 T&O                                (25)      15        2      (36)    (123)

—————————————————————————-

Provision for credit losses         128      160      170      612      561

—————————————————————————-

—————————————————————————-

 

—————————————————————————-

Changes to Provision for Credit Losses                               Table 6

—————————————————————————-

(Canadian $ in millions, except                             Fiscal   Fiscal

 as noted)                      Q4-2015  Q3-2015  Q4-2014     2015     2014

—————————————————————————-

New specific provisions             330      323      312    1,278    1,413

Reversals of previously                                                     

 established allowances             (57)     (49)     (50)    (210)    (228)

Recoveries of loans previously                                             

 written-off                       (145)    (114)     (92)    (456)    (624)

—————————————————————————-

Provision for credit losses         128      160      170      612      561

PCL as a % of average net loans                                            

 and acceptances (annualized)      0.15     0.20     0.23     0.19     0.19

—————————————————————————-

—————————————————————————-

 

Impaired Loans

Total gross impaired loans (GIL) were $1,959 million at the end of the current quarter, down from $2,165 million in the third quarter of 2015 and $2,048 million a year ago primarily as a result of a loan sale.

Factors contributing to the change in GIL are outlined in Table 7 below. Loans classified as impaired during the quarter totalled $484 million, down from $559 million in the third quarter of 2015 and down from $534 million a year ago.

 

—————————————————————————-

Changes in Gross Impaired Loans (GIL) and Acceptances (1)            Table 7

—————————————————————————-

(Canadian $ in millions, except                             Fiscal   Fiscal

 as noted)                      Q4-2015  Q3-2015  Q4-2014     2015     2014

—————————————————————————-

GIL, beginning of period          2,165    2,047    1,975    2,048    2,544

Classified as impaired during                                              

 the period                         484      559      534    1,921    2,142

Transferred to not impaired                                                

 during the period                 (135)    (153)    (129)    (556)    (669)

Net repayments                     (167)    (213)    (159)    (700)  (1,059)

Amounts written-off                (178)    (175)    (214)    (704)    (801)

Recoveries of loans and                                                    

 advances previously written-                                              

 off                                  -        -        -        -        –

Disposals of loans                 (209)      (8)       -     (252)    (220)

Foreign exchange and other                                                 

 movements                           (1)     108       41      202      111

—————————————————————————-

GIL, end of period                1,959    2,165    2,048    1,959    2,048

—————————————————————————-

GIL as a % of gross loans and                                              

 acceptances                       0.58     0.66     0.67     0.58     0.67

—————————————————————————-

—————————————————————————-

(1)  GIL excludes purchased credit impaired loans.                         

 

For further discussion of risk management practices and key measures, see the Risk Management section.

Insurance Claims, Commissions and Changes in Policy Benefit Liabilities

Insurance claims, commissions and changes in policy benefit liabilities (CCPB) were $265 million, down $35 million from the fourth quarter a year ago, when lower long-term interest rates increased our policy benefit liabilities, partially offset by increased underlying business premiums in the current quarter. CCPB increased $47 million from the third quarter due to increased underlying business premiums, partially offset by the impact of higher long-term interest rates on our policy benefit liabilities. The changes from both periods were largely offset in revenue.

Non-Interest Expense

Non-interest expense increased $206 million or 7% from the prior year to $3,093 million. Adjusted non-interest expense increased $198 million or 7% to $3,032 million. Excluding the impact of the stronger U.S. dollar, adjusted non-interest expense was well controlled, up by $9 million or less than 1%.

Reported non-interest expense increased by $122 million or 4% from the prior quarter. Adjusted non-interest expense increased by $110 million or 4%. Excluding the impact of the stronger U.S. dollar, adjusted non-interest expense increased $63 million or 2%.

On a net revenue basis, adjusted operating leverage was positive 1.8% year over year. On a net revenue basis and excluding the impact of the stronger U.S. dollar, adjusted operating leverage was positive 2.6% year over year.

The adjusted efficiency ratio was 60.8%, and was 64.2% on a net revenue basis improving 110 bps from the prior year.

Non-interest expense is detailed in the unaudited interim consolidated financial statements.

Adjusted results in this Non-Interest Expense section are non-GAAP amounts or non-GAAP measures. Please see the Non-GAAP Measures section.

Income Taxes

The provision for income taxes of $282 million increased $69 million from the fourth quarter of 2014 and decreased $3 million from the third quarter of 2015. The effective tax rate for the quarter was 18.8%, compared with 16.6% a year ago and 19.3% in the third quarter of 2015.

The adjusted provision for income taxes of $295 million increased $70 million from a year ago and decreased $1 million from the third quarter of 2015. The adjusted effective tax rate was 18.9% in the current quarter, compared with 16.8% a year ago and 19.4% in the third quarter of 2015. The higher adjusted tax rate in the current quarter relative to the fourth quarter of 2014 was primarily due to a higher proportion of income from higher tax-rate jurisdictions. On a teb basis, the adjusted effective tax rate for the quarter was 24.7%, compared with 22.6% a year ago and 25.0% in the third quarter of 2015.

Adjusted results in this Income Taxes section are non-GAAP amounts or non-GAAP measures. Please see the Non-GAAP Measures section.

Capital Management

Fourth Quarter 2015 Regulatory Capital Review

BMO’s Basel III Common Equity Tier 1 (CET1) Ratio was 10.7% at October 31, 2015.

The CET1 Ratio increased by approximately 30 basis points from 10.4% at the end of the third quarter due to an increase in CET1 Capital and lower risk-weighted assets (RWA). The CET1 Ratio increased by approximately 60 basis points from October 31, 2014, mainly due to higher CET1 Capital partially offset by higher RWA. The impact of foreign exchange movements on the CET1 Ratio was largely hedged, as outlined below. The acquisition of GE Capital’s Transportation Finance business is expected to reduce BMO’s CET1 Ratio by approximately 70 basis points on closing in the first quarter of 2016.

CET1 Capital at October 31, 2015, was $25.6 billion, up $0.6 billion from July 31, 2015, mainly due to higher retained earnings. CET1 Capital was up $3.2 billion from October 31, 2014, mainly due to accumulated other comprehensive income (AOCI) from a stronger U.S. dollar and higher retained earnings.

RWA was $239 billion at October 31, 2015, down slightly from $240 billion at July 31, 2015 primarily due to changes in book quality and lower market risk largely offset by changes in methodology and business growth. RWA was up $17 billion from October 31, 2014, largely due to foreign exchange movement, business growth and higher market risk, partially offset by changes in methodology and book quality.

The bank’s Tier 1 and Total Capital Ratios were 12.3% and 14.4%, respectively, at October 31, 2015, compared with 11.7% and 13.7%, respectively, at July 31, 2015. The October 31, 2015 ratios are higher compared with July 31, 2015, primarily due to the same factors that impacted the CET1 Ratio, described above and a $600 million preferred share issuance. The Tier 1 and Total Capital Ratios were 12.0% and 14.3%, respectively, at October 31, 2014. The October 31, 2015 ratios are higher than October 31, 2014, mainly due to the factors impacting the CET1 Ratio and the Tier 1 Ratio, described above, partially offset by the redemption of Tier 1 instruments and the additional 10% phase out of non-qualifying subordinated debt.

BMO’s Basel III Leverage Ratio was 4.2% at October 31, 2015, approximately 30 bps higher than July 31, 2015 due mainly to higher CET1 Capital, the $600 million preferred share issuance during the quarter, and lower leverage exposures.

BMO’s investments in foreign operations are primarily denominated in U.S. dollars. The foreign exchange impact of U.S.-dollar-denominated RWA and U.S.-dollar-denominated capital deductions may result in variability in the bank’s capital ratios. BMO may enter into hedging arrangements to reduce the impact of foreign exchange movements on its capital ratios and did so during the fourth quarter. Any such activities could also impact our book value and return on equity.

Pages 70 to 75 and pages 105 to 110 of BMO’s 2015 Annual MD&A provide disclosure on Enterprise-Wide Capital Management and Liquidity and Funding Risk, including regulatory requirements impacting capital and liquidity.

Other Capital Developments

During the quarter, 265,748 common shares were issued through the exercise of stock options.

On October 16, 2015, we completed our offering of Non-cumulative Perpetual Class B Preferred Shares Series 36. We issued 600,000 shares for aggregate proceeds of $600 million.

On November 27, 2015, BMO Capital Trust, a subsidiary of Bank of Montreal, announced its intention to redeem the $450 million of outstanding BMO Trust Capital Securities – Series E, on December 31, 2015.

On December 1, 2015, BMO announced that the Board of Directors had declared a quarterly dividend payable to common shareholders of $0.84 per common share, an increase of $0.02 per share or 2% from the preceding quarter and up $0.04 per share or 5.0% from a year ago.

The dividend is payable on February 26, 2016, to shareholders of record on February 1, 2016. Common shareholders may elect to have their cash dividends reinvested in common shares of the bank in accordance with the shareholder dividend reinvestment and share purchase plan.

On December 1, 2015, BMO announced its intention, subject to the approval of OSFI and the Toronto Stock Exchange (TSX), to initiate a new normal course issuer bid (NCIB) for up to 15 million of its common shares, commencing on or about February 1, 2016, after the expiry of the current NCIB. Once approvals are obtained, the share repurchase program will permit BMO to purchase its common shares on the TSX for the purpose of cancellation. Maintaining a NCIB is part of BMO’s capital management strategy. The timing and amount of any purchases under the program are subject to regulatory approvals and to management discretion based on factors such as market conditions and capital adequacy.

 

—————————————————————————-

Qualifying Regulatory Capital and Risk-Weighted Assets (All-in (1))  Table 8

—————————————————————————-

 

(Canadian $ in millions)                        Q4-2015   Q3-2015   Q4-2014

—————————————————————————-

  Gross Common Equity (2)                        36,182    35,560    31,273

  Regulatory adjustments applied to Common                                 

   Equity                                       (10,554)  (10,558)   (8,852)

—————————————————————————-

Common Equity Tier 1 Capital (CET1)              25,628    25,002    22,421

—————————————————————————-

  Additional Tier 1 Eligible Capital (3)          4,146     3,546     4,539

  Regulatory adjustments applied to Tier 1         (358)     (358)     (358)

—————————————————————————-

Additional Tier 1 Capital (AT1)                   3,788     3,188     4,181

—————————————————————————-

Tier 1 Capital (T1 = CET1 + AT1)                 29,416    28,190    26,602

—————————————————————————-

  Tier 2 Eligible Capital (4)                     5,218     4,928     5,375

  Regulatory adjustments applied to Tier 2          (50)      (50)      (50)

—————————————————————————-

Tier 2 Capital (T2)                               5,168     4,878     5,325

—————————————————————————-

Total Capital (TC = T1 + T2)                     34,584    33,068    31,927

—————————————————————————-

Risk-weighted assets (5)                                                   

CET1 Capital risk-weighted assets               239,185   239,934   222,092

Tier 1 Capital risk-weighted assets             239,471   240,265   222,428

Total Capital risk-weighted assets              239,716   240,549   222,931

—————————————————————————-

Capital Ratios (%)                                                         

CET1 Ratio                                         10.7      10.4      10.1

Tier 1 Capital Ratio                               12.3      11.7      12.0

Total Capital Ratio                                14.4      13.7      14.3

—————————————————————————-

—————————————————————————-

(1)  “All-in” regulatory capital assumes that all Basel III regulatory     

     adjustments are applied effective January 1, 2013, and that the capital

     value of instruments which no longer qualify as regulatory capital    

     under Basel III rules will be phased out at a rate of 10% per year from

     January 1, 2013, and continuing to January 1, 2022.                   

(2)  Gross Common Equity includes issued qualifying common shares, retained

     earnings, accumulated other comprehensive income and eligible common  

     share capital issued by subsidiaries.                                 

(3)  Additional Tier 1 Eligible Capital includes directly and indirectly   

     issued qualifying Additional Tier 1 instruments and directly and      

     indirectly issued capital instruments, to the extent eligible, which  

     are subject to phase-out under Basel III.                              

(4)  Tier 2 Eligible Capital includes directly and indirectly issued       

     qualifying Tier 2 instruments and directly and indirectly issued      

     capital instruments, to the extent eligible, that are subject to phase-

     out under Basel III.                                                  

(5)  Due to the phased-in implementation of the Credit Valuation Adjustment

     (CVA) which commenced in Q1-2014, the scalars applied to the fully    

     implemented CVA charge for CET1, Tier 1 Capital and Total Capital are 

     64%, 71% and 77% respectively, for Q4-2015 and Q3-2015. For Q4-2014,  

     the scalars were 57%, 65% and 77% respectively, resulting in different

     RWA measures for each of the three tiers of regulatory capital.       

 

Caution

The foregoing Capital Management sections contain forward-looking statements. Please see the Caution Regarding Forward-Looking Statements.

Eligible Dividends Designation

For the purposes of the Income Tax Act (Canada) and any similar provincial and territorial legislation, BMO designates all dividends paid or deemed to be paid on both its common and preferred shares as “eligible dividends”, unless indicated otherwise.

Review of Operating Groups’ Performance

How BMO Reports Operating Group Results

The following sections review the financial results of each of our operating segments and operating groups for the fourth quarter of 2015.

Periodically, certain business lines and units within the business lines are transferred between client and corporate support groups to more closely align BMO’s organizational structure with its strategic priorities. In addition, revenue and expense allocations are updated to more accurately align with current experience. Results for prior periods are restated to conform to the current presentation.

Corporate Services results reflect certain items in respect of the purchased loan portfolio, including the recognition of a portion of the credit mark that is reflected in net interest income over the term of the purchased loans and provisions and recoveries of credit losses on the purchased portfolio. Restructuring costs are also included in Corporate Services.

Commencing in the first quarter of 2015, insurance claims, commissions and changes in policy benefit liabilities (CCPB) are reported separately. They were previously reported as a reduction in insurance revenue in non-interest revenue. Prior period amounts and ratios have been reclassified. Insurance can experience variability arising from fluctuations in the fair value of insurance assets. The investments which support actuarial liabilities are predominantly fixed income assets recorded at fair value with changes in the fair values recorded in insurance revenue in the Consolidated Statement of Income. These fair value changes are largely offset by changes in the fair value of policy benefit liabilities, the impact of which is reflected in insurance claims, commissions and changes in policy benefit liabilities.

BMO analyzes revenue at the consolidated level based on GAAP revenue reflected in the consolidated financial statements rather than on a taxable equivalent basis (teb). Like many banks, we analyze revenue on a teb basis at the operating group level. This basis includes an adjustment that increases GAAP revenue and the GAAP provision for income taxes by an amount that would raise revenue on certain tax-exempt items to a level equivalent to amounts that would incur tax at the statutory rate. The offset to the group teb adjustments is reflected in Corporate Services revenue and income tax provisions. The teb adjustments for the fourth quarter of 2015 totalled $120 million, up from $114 million in the third quarter of 2015 and up from $99 million in the fourth quarter of 2014.

 

—————————————————————————-

Personal and Commercial Banking (P&C)                                Table 9

—————————————————————————-

(Canadian $ in millions, except                              Fiscal   Fiscal

 as noted)                       Q4-2015  Q3-2015  Q4-2014     2015     2014

—————————————————————————-

 

Net interest income (teb)          2,021    1,974    1,861    7,771    7,262

Non-interest revenue                 641      643      595    2,478    2,294

—————————————————————————-

Total revenue (teb)                2,662    2,617    2,456   10,249    9,556

Provision for credit losses          154      128      176      615      705

Non-interest expense               1,490    1,450    1,348    5,726    5,259

—————————————————————————-

Income before income taxes         1,018    1,039      932    3,908    3,592

Provision for income taxes (teb)     251      261      237      977      922

—————————————————————————-

Reported net income                  767      778      695    2,931    2,670

—————————————————————————-

  Amortization of acquisition-                                             

   related intangible assets (1)      15       14       14       57       56

—————————————————————————-

Adjusted net income                  782      792      709    2,988    2,726

—————————————————————————-

—————————————————————————-

 

Net income growth (%)               10.6     13.3     23.5      9.8     11.1

Adjusted net income growth (%)      10.5     13.1     22.8      9.7     10.7

Revenue growth (%)                   8.4      7.9      7.6      7.3      5.9

Non-interest expense growth (%)     10.5     10.1      6.5      8.9      5.4

Adjusted non-interest expense                                              

 growth (%)                         10.6     10.2      6.8      9.1      5.7

Return on equity (%)                16.4     16.7     17.1     16.1     16.7

Adjusted return on equity (%)       16.8     17.0     17.4     16.4     17.1

Operating leverage (%) (teb)        (2.1)    (2.2)     1.1     (1.6)     0.5

Adjusted operating leverage (%)                                            

 (teb)                              (2.2)    (2.3)     0.8     (1.8)     0.2

Efficiency ratio (%) (teb)          56.0     55.4     54.9     55.9     55.0

Adjusted efficiency ratio (%)                                              

 (teb)                              55.2     54.7     54.1     55.1     54.2

Net interest margin on average                                             

 earning assets (%) (teb)           2.88     2.87     2.87     2.86     2.89

Average earning assets           278,379  273,060  257,587  271,470  251,718

Average current loans and                                                  

 acceptances                     274,900  269,341  253,703  267,654  248,202

Average deposits                 218,932  210,886  196,299  210,562  190,337

—————————————————————————-

—————————————————————————-

(1)  Before tax amounts of: $20 million in Q4-2015, $17 million in Q3-2015 

     and $19 million in Q4-2014; $73 million for Fiscal 2015 and $75 million

     for Fiscal 2014 are included in non-interest expense.                  

 

Adjusted results in this table are non-GAAP amounts or non-GAAP measures. Please see the Non-GAAP Measures section.

The Personal and Commercial Banking (P&C) operating group represents the sum of our two retail and business banking operating segments, Canadian Personal and Commercial Banking (Canadian P&C) and U.S. Personal and Commercial Banking (U.S. P&C). The combined P&C Banking business net income of $767 million was up $72 million from the prior year and adjusted net income of $782 million was up $73 million from the prior year, both increasing by 11%. These operating segments are reviewed separately in the sections that follow.

 

—————————————————————————-

Canadian Personal and Commercial Banking (Canadian P&C)             Table 10

—————————————————————————-

(Canadian $ in millions, except                              Fiscal   Fiscal

 as noted)                       Q4-2015  Q3-2015  Q4-2014     2015     2014

—————————————————————————-

 

Net interest income                1,271    1,255    1,222    4,937    4,780

Non-interest revenue                 438      443      429    1,703    1,625

—————————————————————————-

Total revenue                      1,709    1,698    1,651    6,640    6,405

Provision for credit losses          112      109      129      496      528

Non-interest expense                 847      845      819    3,340    3,182

—————————————————————————-

Income before income taxes           750      744      703    2,804    2,695

Provision for income taxes           190      188      177      700      679

—————————————————————————-

Reported net income                  560      556      526    2,104    2,016

—————————————————————————-

  Amortization of acquisition-                                             

   related intangible assets (1)       1        1        1        4        4

—————————————————————————-

Adjusted net income                  561      557      527    2,108    2,020

—————————————————————————-

—————————————————————————-

 

Personal revenue                   1,145    1,121    1,096    4,415    4,237

Commercial revenue                   564      577      555    2,225    2,168

Net income growth (%)                6.6      5.8     14.8      4.4     11.2

Revenue growth (%)                   3.4      3.7      6.9      3.7      6.4

Adjusted non-interest expense                                              

 growth (%)                          3.3      4.8      6.1      4.9      4.2

Non-interest expense growth (%)      3.5      4.8      6.1      5.0      4.2

Adjusted operating leverage (%)      0.1     (1.1)     0.8     (1.2)     2.2

Operating leverage (%)              (0.1)    (1.1)     0.8     (1.3)     2.2

Efficiency ratio (%)                49.6     49.8     49.6     50.3     49.7

Net interest margin on average                                              

 earning assets (%)                 2.62     2.61     2.61     2.61     2.61

Average earning assets           192,591  190,409  185,905  189,505  183,406

Average current loans and                                                   

 acceptances                     197,193  195,288  190,428  194,199  187,788

Average deposits                 135,413  132,950  128,536  132,767  124,925

—————————————————————————-

—————————————————————————-

(1)  Before tax amounts of: $2 million in Q4-2015 and $1 million in each of,

     Q3-2015 and Q4-2014; $5 million for Fiscal 2015 and $4 million for    

     Fiscal 2014 are included in non-interest expense.                     

 

Adjusted results in this table are non-GAAP amounts or non-GAAP measures. Please see the Non-GAAP Measures section.

Q4 2015 vs Q4 2014

Canadian P&C net income of $560 million and adjusted net income of $561 million both increased $34 million or 7% from a year ago. Revenue increased $58 million or 3% from the prior year due to higher balances across most products and increased non-interest revenue. Net interest margin was 2.62%, up 1 basis point from the prior year.

In our personal banking business, revenue increased $49 million due to the impact of higher balances across most products and increased non-interest revenue.

In our commercial banking business, revenue increased $9 million mainly due to the impact of higher balances across most products.

Provisions for credit losses decreased by $17 million to $112 million due to lower provisions in our consumer portfolio. Non-interest expense increased $28 million and adjusted non-interest expense increased $27 million or 3% reflecting continued investment in the business, partially offset by lower employee-related costs. Adjusted operating leverage was 0.1%.

Average current loans and acceptances increased $6.8 billion or 4% from a year ago. Total personal loan balances (excluding retail cards) increased 3% and commercial loan balances (excluding corporate cards) grew 6%. Deposits increased $6.9 billion or 5% from the prior year. Personal deposit balances increased 4% mainly driven by strong growth in chequing accounts, while commercial deposit balances grew 7%.

Q4 2015 vs Q3 2015

Net income increased $4 million from the prior quarter as a result of higher revenues. Revenue improved by $11 million or 1% driven by higher balances across most products. Net interest margin of 2.62% increased 1 basis point from the prior quarter.

Personal revenue increased $24 million driven by higher non-interest revenue and higher balances across most products. Commercial revenue declined $13 million as the impact of higher net interest margin was more than offset by lower non-interest revenues.

Provisions for credit losses increased $3 million due to the gain on sale of charged-off accounts in the prior quarter, partially offset by lower commercial provisions. Non-interest expense increased $2 million.

Average current loans and acceptances increased $1.9 billion or 1% compared to the prior quarter. Average deposits increased $2.5 billion or 2% with growth in both our commercial and personal businesses.

 

—————————————————————————-

U.S. Personal and Commercial Banking (U.S. P&C)                     Table 11

—————————————————————————-

(US$ in millions, except as                                 Fiscal   Fiscal

 noted)                         Q4-2015  Q3-2015  Q4-2014     2015     2014

—————————————————————————-

 

Net interest income (teb)           569      568      575    2,259    2,269

Non-interest revenue                154      159      149      618      611

—————————————————————————-

Total revenue (teb)                 723      727      724    2,877    2,880

Provision for credit losses          33       15       42       95      162

Non-interest expense                487      478      476    1,901    1,899

—————————————————————————-

Income before income taxes          203      234      206      881      819

Provision for income taxes                                                 

 (teb)                               46       59       55      222      222

—————————————————————————-

Reported net income                 157      175      151      659      597

—————————————————————————-

  Amortization of acquisition-                                             

   related intangible assets                                               

   (1)                               10       11       11       42       47

—————————————————————————-

Adjusted net income                 167      186      162      701      644

—————————————————————————-

—————————————————————————-

 

Net income growth (%)               3.6     17.2     51.8     10.3      3.2

Adjusted net income growth (%)      2.6     15.3     44.9      8.8      1.8

Revenue growth (%)                 (0.1)    (0.5)     2.1     (0.2)    (1.8)

Non-interest expense growth (%)     2.3      1.1      0.4      0.1      0.4

Adjusted non-interest expense                                              

 growth (%)                         2.9      1.7      1.2      0.7      1.2

Operating leverage (%) (teb)       (2.4)    (1.6)     1.7     (0.3)    (2.2)

Adjusted operating leverage (%)                                            

 (teb)                             (3.0)    (2.2)     0.9     (0.9)    (3.0)

Efficiency ratio (%) (teb)         67.4     65.8     65.8     66.1     65.9

Adjusted efficiency ratio (%)                                              

 (teb)                             65.5     63.9     63.6     64.2     63.6

Net interest margin on average                                             

 earning assets (%) (teb)          3.47     3.45     3.54     3.46     3.63

Average earning assets           65,039   65,229   64,492   65,319   62,443

Average current loans and                                                  

 acceptances                     58,912   58,442   56,929   58,520   55,224

Average deposits                 63,317   61,494   60,966   61,962   59,804

—————————————————————————-

—————————————————————————-

 

(Canadian $ equivalent in                                                  

 millions)                                                                 

Net interest income (teb)           750      719      639    2,834    2,482

Non-interest revenue                203      200      166      775      669

—————————————————————————-

Total revenue (teb)                 953      919      805    3,609    3,151

Provision for credit losses          42       19       47      119      177

Non-interest expense                643      605      529    2,386    2,077

—————————————————————————-

Income before income taxes          268      295      229    1,104      897

Provision for income taxes                                                 

 (teb)                               61       73       60      277      243

—————————————————————————-

Reported net Income                 207      222      169      827      654

Adjusted net income                 221      235      182      880      706

Net income growth (%)              22.9     38.0     62.0     26.5     10.7

Adjusted net income growth (%)     21.7     35.6     54.6     24.8      9.2

Revenue growth (%)                 18.6     16.7      8.9     14.6      5.1

Non-interest expense growth (%)    21.4     18.5      7.0     14.9      7.3

Adjusted non-interest expense                                               

 growth (%)                        22.2     19.2      7.9     15.6      8.1

Average earning assets           85,788   82,651   71,682   81,965   68,312

Average current loans and                                                   

 acceptances                     77,707   74,053   63,275   73,455   60,414

Average deposits                 83,519   77,936   67,763   77,795   65,412

—————————————————————————-

—————————————————————————-

(1)  Before tax amounts of: $13 million in Q4-2015, $14 million in Q3-2015,

     and $16 million in Q4-2014; $55 million for Fiscal 2015 and $67 million

     for Fiscal 2014 are included in non-interest expense.                 

 

Adjusted results in this table are non-GAAP amounts or non-GAAP measures. Please see the Non-GAAP Measures section.

Q4 2015 vs Q4 2014

Net income of $207 million increased $38 million or 23%. Adjusted net income of $221 million increased $39 million or 22%. All amounts in the remainder of this section are on a U.S. dollar basis.

Net income of $157 million increased $6 million or 4% from a year ago. Adjusted net income of $167 million increased $5 million or 3%, driven by lower provisions for credit losses.

Revenue of $723 million remained stable as higher loan and deposit volume and mortgage banking revenue were offset by lower net interest margin. Year over year net interest margin decreased at a lower rate than previous quarters, down 7 basis points to 3.47%, primarily driven by a decline in loan spreads due to competitive pricing and changes in mix.

Provisions for credit losses were $33 million, down $9 million mainly due to higher recoveries from a loan sale benefit in the consumer portfolio partially offset by higher provisions in the commercial portfolio. Non-interest expense of $487 million increased $11 million or 2%. Adjusted non-interest expense of $474 million increased $14 million or 3% primarily due to higher employee-related costs.

Average current loans and acceptances increased $2.0 billion or 3% from the prior year to $58.9 billion. Commercial loan growth was strong with C&I loan growth of $3.1 billion or 11% and commercial real estate loan growth of $0.8 billion or 21%.

Average deposits of $63.3 billion increased $2.4 billion or 4% from the prior year. Growth in commercial and personal chequing volumes was partially offset by declines in money market and higher-cost time deposits.

Q4 2015 vs Q3 2015

Net income decreased $15 million or 7% and adjusted net income decreased $14 million or 6% from the prior quarter. All amounts in the remainder of this section are on a U.S. dollar basis.

Net income decreased $18 million or 10% and adjusted net income decreased $19 million or 10% from the prior quarter, driven primarily by an increase in provisions for credit losses from the below-trend level in the prior quarter and also from higher expenses.

Revenue was consistent with the prior quarter as lower commercial lending fees and mortgage banking revenue were offset by a modest increase in net interest income. Net interest margin increased 2 basis points from the prior quarter primarily due to changes in mix, including deposits growing faster than loans.

Provisions for credit losses increased by $18 million from the below trend level of the prior quarter due to an increase in commercial provisions. Non-interest expense and adjusted non-interest expense both increased 2% due to higher employee related costs and investment in the business.

Average current loans and acceptances increased by $0.5 billion or 1% from the prior quarter, due mainly to C&I loan growth. Average deposits increased $1.8 billion or 3%, as growth in commercial and personal chequing volumes was partially offset by declines in money market and higher-cost time deposits.

 

—————————————————————————-

Wealth Management                                                  Table 12

—————————————————————————-

(Canadian $ in millions, except                       Q4-   Fiscal   Fiscal

 as noted)                      Q4-2015  Q3-2015  2014(i)     2015  2014(i)

—————————————————————————-

 

Net interest income                 168      164      144      642      560

Non-interest revenue (1)          1,289    1,172    1,256    5,121    4,778

—————————————————————————-

Total revenue (1)                 1,457    1,336    1,400    5,763    5,338

Insurance claims, commissions                                              

 and changes in policy benefit                                             

 liabilities (CCPB) (1)             265      218      300    1,254    1,505

—————————————————————————-

Revenue, net of CCPB              1,192    1,118    1,100    4,509    3,833

Provision for credit losses           1        3       (1)       7       (3)

Non-interest expense                854      839      816    3,357    2,840

—————————————————————————-

Income before income taxes          337      276      285    1,145      996

Provision for income taxes           94       66       60      295      216

—————————————————————————-

Reported net income                 243      210      225      850      780

—————————————————————————-

  Acquisition integration costs                                            

   (2)                               11        6        9       37       16

  Amortization of acquisition-                                             

   related intangible assets                                               

   (3)                               17       17       18       68       47

—————————————————————————-

Adjusted net income                 271      233      252      955      843

—————————————————————————-

—————————————————————————-

 

Net income growth (%)               8.2     10.6    (27.7)     8.9     (5.7)

Adjusted net income growth (%)      8.1      9.5    (20.9)    13.3     (1.3)

Revenue growth (%) (1)              4.1    (11.4)    14.7      8.0     26.6

Revenue growth, net of CCPB         8.4     13.1      5.8     17.6     11.2

Non-interest expense growth (%)     4.6     12.3     35.2     18.2     20.8

Adjusted non-interest expense                                              

 growth (%)                         4.5     12.6     31.7     16.9     19.1

Return on equity (%)               16.1     14.4     17.4     14.8     18.4

Adjusted return on equity (%)      18.0     16.0     19.4     16.6     19.9

Operating leverage (%) (1)         (0.5)   (23.7)   (20.5)   (10.2)     5.8

Adjusted operating leverage,                                               

 net of CCPB (%)(1)                 3.9      0.5    (25.9)     0.7     (7.9)

Efficiency ratio (%) (1)           58.6     62.8     58.3     58.3     53.2

Adjusted efficiency ratio, net                                             

 of CCPB (%)                       68.7     72.3     71.2     71.5     71.9

Net interest margin on average                                             

 earning assets (%)                2.70     2.71     2.61     2.70     2.65

Average earning assets           24,730   24,026   21,985   23,784   21,169

Average current loans and                                                   

 acceptances                     15,331   14,709   13,250   14,502   12,897

Average deposits                 28,030   27,571   25,217   27,377   24,912

—————————————————————————-

U.S. Select Financial Data (US$                                            

 in millions)                                                              

Total revenue                       248      188      181      806      720

Non-interest expense                160      160      196      652      658

Reported net income                  52       20       (7)      99       53

Adjusted net income                  57       24       (2)     118       73

Average earning assets            3,305    3,281    3,126    3,242    3,028

Average current loans and                                                  

 acceptances                      3,028    2,992    2,707    2,938    2,629

Average deposits                  5,757    5,880    6,092    6,010    5,834

—————————————————————————-

—————————————————————————-

(i)  Growth rates for Q4-2014 and Fiscal 2014 reflect the impact of a $191 

     million pre-tax ($121 million after-tax) security gain in Q4-2013.    

(1)  Commencing in Q1-2015, insurance claims, commissions and changes in   

     policy benefit liabilities (CCPB) are reported separately. They were  

     previously reported as a reduction in insurance revenue in non-interest

     revenue. Prior period amounts and ratios have been reclassified.      

(2)  Acquisition integration costs related to F&C of $13 million in Q4-2015,

     $9 million in Q3-2015 and $11 million in Q4-2014; $46 million for     

     Fiscal 2015 and $20 million for Fiscal 2014 are included in non-      

     interest expense.                                                     

(3)  Before tax amounts of: $22 million in each of Q4-2015, Q3-2015 and Q4-

     2014; $88 million for Fiscal 2015; and $62 million for Fiscal 2014 are

     included in non-interest expense.                                     

 

Adjusted results in this table are non-GAAP amounts or non-GAAP measures. Please see the Non-GAAP Measures section.

Q4 2015 vs Q4 2014

Net income of $243 million and adjusted net income of $271 million were both up 8% from a year ago. Adjusted net income in traditional wealth was $214 million, driven by a gain on sale and underlying business growth, despite softer equity markets, partially offset by a legal reserve. Adjusted net income in traditional wealth was up $79 million or 60%. Adjusted net income in insurance was $57 million, compared to $117 million a year ago, primarily due to high actuarial benefits in the prior year.

Revenue was $1,457 million, up $57 million or 4% from a year ago. Wealth Management revenue grew $92 million or 8% on a net revenue basis. Revenue in traditional wealth of $1,082 million increased $162 million or 17%, benefitting from the gain on sale and higher fee-based revenue partially offset by lower brokerage commissions. Net insurance revenue was down $70 million primarily due to high actuarial benefits a year ago. The stronger U.S. dollar increased revenue by $52 million.

Non-interest expense was $854 million and adjusted non-interest expense was $819 million, both up 5% mainly due to the stronger U.S. dollar which increased adjusted expenses by $32 million.

Assets under management and administration grew by $70 billion or 9% from a year ago to $864 billion, driven by favourable foreign exchange movements and market appreciation.

Q4 2015 vs Q3 2015

Net income and adjusted net income both increased 16% from the prior quarter. Adjusted net income in traditional wealth was up $37 million or 21% benefitting from the gain on sale, partially offset by weaker equity markets and a legal reserve in the current quarter. Adjusted net income in insurance was up $1 million or 2%.

Wealth Management revenue increased $74 million or 7% from the prior quarter on a net revenue basis. Revenue in traditional wealth increased $71 million or 7% primarily due to the gain on sale, partially offset by lower fee-based revenue due to softer equity markets and brokerage commissions. Net insurance revenue was up $3 million or 3%.

Non-interest expense increased $15 million or 2% from the prior quarter. Adjusted non-interest expense increased $11 million or 1% primarily due to the stronger U.S. dollar.

Assets under management and administration decreased $15 billion or 2% primarily due to market depreciation.

 

—————————————————————————-

BMO Capital Markets                                                 Table 13

—————————————————————————-

(Canadian $ in millions, except                             Fiscal   Fiscal

 as noted)                      Q4-2015  Q3-2015  Q4-2014     2015     2014

—————————————————————————-

 

Net interest income (teb)           364      308      262    1,334    1,177

Non-interest revenue                574      694      549    2,539    2,543

—————————————————————————-

Total revenue (teb)                 938    1,002      811    3,873    3,720

Provision for (recovery of)                                                

 credit losses                       (2)      14       (7)      26      (18)

Non-interest expense                623      623      573    2,486    2,351

—————————————————————————-

Income before income taxes          317      365      245    1,361    1,387

Provision for income taxes                                                 

 (teb)                               75       92       54      329      310

—————————————————————————-

Reported net income                 242      273      191    1,032    1,077

—————————————————————————-

  Amortization of acquisition-                                             

   related intangible assets                                                

   (1)                                1        1        -        2        1

—————————————————————————-

Adjusted net income                 243      274      191    1,034    1,078

—————————————————————————-

—————————————————————————-

 

Trading Products revenue            564      619      470    2,412    2,257

Investment and Corporate                                                   

 Banking revenue                    374      383      341    1,461    1,463

Net income growth (%)              26.5    (10.7)   (11.6)    (4.2)     3.6

Revenue growth (%)                 15.8      1.7      2.0      4.1      9.9

Non-interest expense growth (%)     8.7      5.8      9.0      5.7     12.9

Return on equity (%)               12.6     15.6     14.3     14.9     19.1

Operating leverage (%) (teb)        7.1     (4.1)    (7.0)    (1.6)    (3.0)

Efficiency ratio (%) (teb)         66.4     62.2     70.8     64.2     63.2

Net interest margin on average                                             

 earning assets (%) (teb)          0.59     0.51     0.46     0.56     0.53

Average earning assets          244,528  238,671  225,414  238,916  222,471

Average assets                  296,263  287,468  263,362  290,325  259,746

Average current loans and                                                  

 acceptances                     41,509   37,518   31,076   37,416   30,101

Average deposits                147,748  141,841  132,916  141,275  133,405

—————————————————————————-

U.S. Select Financial Data (US$                                             

 in millions)                                                              

Total revenue (teb)                 272      265      253    1,099    1,154

Non-interest expense                227      222      212      890      887

Reported net income                  39       23       32      142      216

Average earning assets           78,253   77,802   80,529   76,630   79,958

Average assets                   85,610   85,101   88,323   84,872   88,902

Average current loans and                                                  

 acceptances                     12,492   10,727    9,587   10,969    9,536

Average deposits                 55,134   55,586   57,254   55,942   57,754

—————————————————————————-

—————————————————————————-

(1)  Before tax amounts of: $1 million in each of Q4-2015, Q3-2015 and Q4- 

     2014; $2 million in Fiscal 2015 and $3 million for Fiscal 2014 are    

     included in non-interest expense.                                     

 

Adjusted results in this table are non-GAAP amounts or non-GAAP measures. Please see the Non-GAAP Measures section.

Q4 2015 vs Q4 2014

Net income of $242 million increased $51 million or 27% from below-trend results a year ago. Return on equity of 12.6% was down 1.7% due to higher allocated capital.

Revenue increased $127 million or 16%. Excluding the impact of the stronger U.S. dollar, revenue increased $71 million or 9%. Trading Products revenue increased due to higher trading revenue, including the unfavourable impact of implementing a funding valuation adjustment in the prior year, and higher securities commissions and fees. Investment and Corporate Banking revenue increased due to higher lending revenue. Both Trading Products and Investment and Corporate Banking revenue were impacted by lower securities gains.

Net recoveries of credit losses decreased by $5 million. Non-interest expense increased $50 million or 9%. Excluding the impact of the stronger U.S. dollar, non-interest expense was relatively unchanged, up $3 million.

Q4 2015 vs Q3 2015

Net income decreased $31 million or 11% from the prior quarter, largely due to lower Trading Products and Investment and Corporate Banking revenue.

Revenue decreased $64 million or 6%. Excluding the impact of the stronger U.S. dollar, revenue decreased $78 million or 8% driven by lower trading revenues resulting from unsettled markets, reduced client activity and lower securities gains, while in Investment and Corporate Banking, higher lending revenue was more than offset by reduced investment banking activity.

Provision for credit losses decreased by $16 million due to net recoveries in the quarter compared to net new provisions in the prior quarter. Non-interest expense was unchanged compared with the previous quarter. Excluding the impact of the stronger U.S. dollar, non-interest expenses decreased $12 million or 2% due to lower employee-related expenses.

 

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Corporate Services, including Technology and Operations             Table 14

—————————————————————————-

(Canadian $ in millions, except                             Fiscal   Fiscal

 as noted)                      Q4-2015  Q3-2015  Q4-2014     2015     2014

—————————————————————————-

 

Net interest income before                                                 

 group teb offset                   (66)     (60)      10     (253)     (62)

Group teb offset                   (120)    (114)     (99)    (524)    (476)

—————————————————————————-

Net interest income (teb)          (186)    (174)     (89)    (777)    (538)

Non-interest revenue                111       45       62      281      147

—————————————————————————-

Total revenue (teb)                 (75)    (129)     (27)    (496)    (391)

Provision for (recovery of)                                                

 credit losses                      (25)      15        2      (36)    (123)

Non-interest expense                126       59      150      613      471

—————————————————————————-

Loss before income taxes           (176)    (203)    (179)  (1,073)    (739)

Recovery of income taxes (teb)     (138)    (134)    (138)    (665)    (545)

—————————————————————————-

Reported net loss                   (38)     (69)     (41)    (408)    (194)

—————————————————————————-

  Acquisition Integration Costs                                            

   (1)                                6        -        -        6        –

  Restructuring costs (2)             -        -        -      106        –

—————————————————————————-

Adjusted net loss                   (32)     (69)     (41)    (296)    (194)

—————————————————————————-

—————————————————————————-

Corporate Services Provision                                               

 for (Recovery of) Credit                                                   

 Losses                                                                    

Impaired real estate loans            3        2        2       28       21

Interest on impaired loans            4        4        3       17       26

Purchased credit impaired loans     (12)     (19)     (33)     (86)    (252)

Purchased performing loans          (20)      28       30        5       82

—————————————————————————-

Provision for (recovery of)                                                 

 credit losses                      (25)      15        2      (36)    (123)

—————————————————————————-

Average loans and acceptances       188      218      356      242      452

Period-end loans and                                                       

 acceptances                        182      209      306      182      306

—————————————————————————-

U.S. Select Financial Data (US$                                            

 in millions)                                                              

Total revenue (teb)                 (22)     (24)     (34)     (87)     (31)

Provision for (recovery of)                                                

 credit losses                      (56)      11      (23)     (79)    (120)

Non-interest expense                 61       45       86      272      298

Recovery of income taxes (teb)      (13)     (30)     (45)    (133)    (103)

—————————————————————————-

Reported net loss                   (14)     (50)     (52)    (147)    (106)

Adjusted total revenue (teb)        (22)     (24)     (34)     (87)     (31)

Adjusted provision for                                                     

 (recovery of) credit losses        (21)      13        2      (30)    (117)

Adjusted non-interest expense        58       45       86      228      298

Adjusted net loss                   (33)     (51)     (66)    (148)    (105)

—————————————————————————-

—————————————————————————-

(1)  Acquisition integration costs related to the acquisition of the GE    

     Capital’s Transportation Finance business are primarily included in   

     non-interest expense.                                                 

(2)  Primarily due to restructuring to drive operational efficiencies. Also

     includes the settlement of a legacy legal matter from an acquired     

     entity. Before tax amount of $149 million in Q2-2015 included in non- 

     interest expense.                                                     

 

Adjusted results in this table are non-GAAP amounts or non-GAAP measures. Please see the Non-GAAP Measures section.

Corporate Services

Corporate Services consists of Corporate Units and Technology and Operations (T&O). Corporate Units provide enterprise-wide expertise and governance support in a variety of areas, including strategic planning, risk management, finance, legal and compliance, marketing, communications and human resources. T&O manages, maintains and provides governance over information technology, operations services, real estate and sourcing for BMO Financial Group.

The costs of providing these Corporate Unit and T&O services are largely transferred to the three client operating groups (P&C, Wealth Management and BMO Capital Markets), and only relatively minor amounts are retained in Corporate Services results. As such, Corporate Services adjusted operating results largely reflect the impact of certain asset-liability management activities, the elimination of taxable equivalent adjustments, the results from certain impaired real estate secured assets and purchased loan accounting impacts.

Financial Performance Review

Q4 2015 vs Q4 2014

Corporate Services reported loss for the quarter was $38 million compared with reported loss of $41 million a year ago. The adjusted net loss was $32 million, compared with an adjusted net loss of $41 million a year ago. Adjusted results were better due to higher recoveries of credit losses and lower expenses partially offset by lower revenue due to a larger group teb adjustment and lower treasury-related revenue. Corporate revenue was better than trend in both periods.

Q4 2015 vs Q3 2015

Corporate Services reported loss for the quarter was $38 million compared with reported loss of $69 million in the third quarter of 2015. The adjusted net loss was $32 million, compared with an adjusted net loss of $69 million in the prior quarter. Adjusted results were improved mainly due to better than trend revenue, due to a legal settlement and higher gains on the sale of impaired real estate assets, and recoveries of credit losses compared to provisions, partially offset by higher expenses compared to below trend expenses in the prior quarter.

Risk Management

Our market risk, liquidity and funding, insurance risk, information and cyber security risk, select geographic exposures and risk management practices and key measures are outlined in the Enterprise-Wide Risk Management section on pages 86 to 117 of BMO’s 2015 annual MD&A.

INVESTOR AND MEDIA PRESENTATION

Investor Presentation Materials

Interested parties are invited to visit our website at www.bmo.com/investorrelations to review our 2015 annual MD&A and audited annual consolidated financial statements, this quarterly news release, presentation materials and supplementary financial information package online.

Quarterly Conference Call and Webcast Presentations

Interested parties are also invited to listen to our quarterly conference call on Tuesday, December 1, 2015, at 2:00 p.m. (EST). 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 416-695-9753 (from within Toronto) or 1-888-789-0089 (toll-free outside Toronto). A replay of the conference call can be accessed until Monday, February 22, 2016, by calling 905-694-9451 (from within Toronto) or 1-800-408-3053 (toll-free outside Toronto) and entering passcode 6766952.

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  For other shareholder information,  

Share Purchase                         including the notice for our normal 

Plan (the Plan)                        course issuer bid, please contact   

Average market price as defined under  Bank of Montreal                    

the Plan                               Shareholder Services                

August 2015: $70.49                    Corporate Secretary’s Department    

September 2015: $70.60                 One First Canadian Place, 21st Floor

October 2015: $77.60                   Toronto, Ontario M5X 1A1             

                                       Telephone: (416) 867-6785           

For dividend information, change in    Fax: (416) 867-6793                 

shareholder address                    E-mail: corp.secretary@bmo.com      

or to advise of duplicate mailings,                                        

please contact                         For further information on this     

Computershare Trust Company of Canada  report, please contact              

100 University Avenue, 9th Floor       Bank of Montreal                    

Toronto, Ontario M5J 2Y1               Investor Relations Department       

Telephone: 1-800-340-5021 (Canada and  P.O. Box 1, One First Canadian Place,

the United States)                     10th Floor                          

Telephone: (514) 982-7800              Toronto, Ontario M5X 1A1            

(international)                                                            

Fax: 1-888-453-0330 (Canada and the    To review financial results online, 

United States)                         please visit our website at         

Fax: (416) 263-9394 (international)    http://www.bmo.com/. To review      

E-mail: service@computershare.com      regulatory filings and disclosures  

                                       online, please visit our website at 

                                       www.bmo.com/investorrelations.      

—————————————————————————-

 

Our 2015 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 2015 audited financial statements are available free of charge upon request at 416-867-6785 or corp.secretary@bmo.com.

® Registered trademark of Bank of Montreal

 

                    ——————————————————–

                    Annual Meeting 2016                                    

                    The next Annual Meeting of Shareholders will be held on

                    Tuesday, April 5, 2016, in Toronto, Ontario.            

                    ——————————————————–

 

 

Contact Information

Contacts:
Media Relations Contacts
Ralph Marranca, Toronto
416-867-3996
ralph.marranca@bmo.com

Ronald Monet, Montreal
514-877-1873
ronald.monet@bmo.com

Investor Relations Contacts
Lisa Hofstatter
Managing Director, Investor Relations
416-867-7019
lisa.hofstatter@bmo.com

Christine Viau
Director, Investor Relations
416-867-6956
christine.viau@bmo.com

Corporate Secretary
Barbara Muir
Corporate Secretary
416-867-6423
corp.secretary@bmo.com

 

Source: BMO Financial Group via Marketwired