Financial services firm Bank of Montreal (BMO,BMO.TO) on Tuesday reported a 6.9% year-over-year increase in profit for the third quarter, reflecting lower provision for credit losses as well as 8.4% revenue growth. Results were boosted by strong operational results at Canadian personal & commercial banking group and BMO Capital Markets. The company also declared a quarterly dividend that was unchanged from a year ago.
Bank of Montreal is the first of the five big Canadian banks to report its financial results for the third quarter. Canadian banks have largely managed to evade the global slump that has slapped the U.S. financial firms. Canada is the only nation in the group of seven industrialized nations that has not bailed out its banks since the onset of the financial crisis. Strict capital requirements, conservative lending policies and periodic regulatory reviews are some factors contributing to the stability of Canada's financial system.
In a statement, president and chief executive officer, Bill Downe said, "The elements we have put in place over the past three years to strengthen our core businesses - and our focus on building a strong, distinct, and clear presence in the marketplace - are yielding dividends and showing up in the bottom line. We're successfully executing on our strategy of providing customers with a value proposition that helps them make sense of their banking and investing."
Third Quarter Results
The Montreal, Canada-based company reported net income of C$557 million or C$0.97 per share for the third quarter, compared to C$521 million or C$0.98 per share in the prior-year quarter.
The results for the latest quarter include C$39 million or C$0.07 per share increase in the general allowance for credit losses recorded in Corporate Services. The year-ago results included charges of C$96 million or C$0.19 per share related to capital markets environment and a C$30 million or C$0.06 per share increase in the general allowance.
Cash net income for the latest quarter increased 7% to C$566 million from C$530 million, while on a per share basis, earnings decreased 2% to C$0.98 from C$1.00 in the year-ago quarter. Excluding an increase in the general allowance of C$39 million or C$0.07 per share, adjusted cash earnings for the latest quarter were C$1.05 per share.
Total revenue for the quarter rose 8.4% to C$2.98 billion from C$2.75 billion in the same quarter last year, helped by strong revenue growth in Canadian personal & commercial banking group and BMO Capital Markets. Net interest income increased 14% from a year ago to C$1.47 billion, and non-interest revenue grew 3% from the same period last year to C$1.51 billion.
Among BMO's peers, the two Toronto, Canada-based banks, Toronto-Dominion Bank (TD, TD.TO) as well as Royal Bank of Canada (RY, RY.TO) are scheduled to announce financial results for the third quarter on August 27, 2009.
Segmental Results
Effective in the third quarter, all of BMO's insurance businesses now operate within Private Client Group, and at the same time, the term investments business has moved to Canadian personal & commercial banking group.
Canadian personal & commercial banking group's net income for the quarter was C$356 million, up 13% from a year ago, helped by strong volume growth across most products and increased net interest margin, despite the economic slowdown. Revenue for the quarter increased 8.2% to C$1.35 billion from last year.
U.S. personal & commercial banking reported a 10.7% decline in net income to C$25 million from the year-ago quarter. On a U.S. dollar basis, net income decreased 16% to US$23 million. Revenue for the quarter increased 9% from the same period last year to C$272 million.
Private client group's net income for the quarter decreased 4.2% to C$120 million from the year-ago period, reflecting the challenging equity markets and a low interest rate environment. Revenue for the quarter declined 7.7% from a year ago to C$521 million.
BMO capital markets reported a strong net income to C$343 million, up 30.4% from a year ago, driven by significantly higher trading revenues as well as improved performance in corporate banking. Results for the year-ago quarter were lowered by after-tax charges of C$96 million related to the capital markets environment, partially offset by C$82 million of recovery of prior periods' income taxes. Revenue for the quarter surged 37% to C$1.03 billion from the year-ago quarter. Corporate services, including technology and operations reported a net loss of C$287 million, wider than C$210 in the year-ago quarter, primarily due to higher provisions for credit losses and lower revenues.
Other Metrics
The provision for credit losses for the third quarter totaled C$417 million, down 13.8% from C$484 million in the year-ago quarter. Total non-interest expense for the quarter was C$1.87 billion, up 5.1% from C$1.78 billion in the prior-year quarter.
At July 31, 2009, the company's Tier 1 Capital ratio for the quarter was 11.71%, with risk-weighted assets of C$171.6 billion and Tier 1 Capital of C$20.1 billion. Total Capital Ratio at the end of the quarter was 14.32%. Return on equity for the quarter was 12.1%, down 1.4 percentage points from a year ago.
BMO ended the third quarter with cash and cash equivalents of C$10.76 billion, compared to C$3.24 billion at the end of the year-ago quarter.
Separately, the company's board of directors declared a quarterly dividend payable to common shareholders of C$0.70 per share, unchanged from a year ago and from the preceding quarter, payable on November 26 to shareholders of record as of November 6, 2009.
During the third quarter, though the company did not repurchase any common shares under the common share repurchase program, it issued 3.42 million shares due to the exercise of stock options, share exchanges and the Dividend Reinvestment and Share Purchase Plan.
Nine Month Highlights
For the nine months, BMO's net income dropped to C$1.14 billion or C$1.97 per share from C$1.42 billion or C$2.70 per share in the prior-year period.
Cash net income for the nine-month period were C$1.17 billion or C$2.01, down from last year's C$1.44 billion or C$2.75. Excluding capital markets environment charges of C$439 million after tax, or C$0.84 per share, adjusted cash earnings per share for the latest period was C$3.07.
Total revenue for the year-to-date period increased 9.2% to C$8.08 billion from C$7.39 billion in the same period last year.
Looking Ahead..........
"Overall, our businesses had a good quarter. We are seeing positive signs that the economic environment is starting to turn from challenging to more normal conditions and BMO is well-positioned for further growth as conditions continue to improve," Downe added.
Stock Quotes
In Tuesday's regular trading session, BMO is currently trading at US$47.68, up US$2.11 or 4.63% on a volume of 0.59 million shares. In the past 52-week period, the stock has been trading in a broad range of US$19.32 to US$51.76.
On the Toronto Stock Exchange, BMO.TO is currently trading at C$51.43, up C$2.42 or 4.94% on a volume of 2.28 million shares. The stock has been trading in a range of C$24.05 to C$54.75 in the past 52 weeks.
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