Bank of Montreal
) reported its third-quarter 2012 adjusted earnings per share of
C$1.49, which compares favorably with the previous-quarter earnings
of C$1.44 and the prior-year quarter earnings of C$1.34. Adjusted
net income came in at C$1.01 billion ($1.03 billion), up 3.1% from
the prior quarter and 18.2% from the prior-year quarter.
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The improvement in results came on the back of enhanced net
interest revenue and non-interest income. The total assets and
capital ratios also remained strong in the quarter. However,
increased operating expenses were the primary headwinds.
On a GAAP basis, net income came in at C$970.0 million ($987.46
million), down 5.8% sequentially but up 37.0% year-over-year.
Behind the Headlines
Bank of Montreal reported adjusted revenue of C$3.68 billion ($3.74
billion) in the quarter, up 9.0% from prior-year quarter. Revenue,
on an operating basis, came in at C$3.88 billion ($3.95 billion),
up almost 16.8% from the prior-year quarter.
For the reported quarter, net interest income, on an operating
basis, grew 10.7% year over year to C$2.01 billion ($2.04 billion).
The improvement from the prior-year quarter was primarily due to
the inclusion of results of acquired businesses. Adjusted net
interest margin was 1.70% in the quarter, down 8 basis points from
the prior-year quarter.
Non-interest revenue came in at C$1.67 billion ($1.70 billion), up
by 6.6% from the prior-year quarter. The year-over-year increase
was the result of higher deposit and payment service charges,
trading revenues, lending fees, card fees, investment management
fees, securities gain and other income, partly offset by reduced
securities commissions and fees, mutual fund revenues, underwriting
and advisory fees, foreign and insurance income.
On an operating basis, non-interest expenses were C$2.34 billion
($2.38 billion), surging 13.2% from the prior-year quarter. The
hike was due to inclusion of results of the acquired businesses and
the relatively strong American dollar.
Total provision for credit losses were C$116.0 million ($118.09
million) as of July 31, 2012, down 23.2% from the prior quarter and
52.6% from the comparable quarter last year. Moreover, adjusted
provision for taxes stood at C$206.0 million, ($209.71 million)
down 13.1% from the prior quarter and 1.9 % from the year-ago
Total assets came in at C$542.2 billion ($551.96 billion) as of
July 31, 2012, jumping 8.3% as of October 31, 2011. The enhancement
primarily reflects increases in net loans and acceptances, cash and
cash equivalents, interest bearing deposits with banks along with
securities and securities borrowed or purchased under resale
agreements, partly offset by decline in other assets.
Capital and Profitability Ratios
Bank of Montreal's capital ratios remained strong in the reported
quarter. As of July 31, 2012, Tier 1 capital ratio (Basel II) was
12.4%, up from 11.97% as of April 30, 2012, and 11.48% as of July
31, 2011. However, total capital ratio (Basel II) stood at 14.78%
as of July 31, 2012 from 14.89% as of April 30, 2012, and 14.21% as
of July 31, 2011.
For the reported quarter, common equity (Basel II) improved to
10.31% from 9.9% in the prior quarter and 9.11% in the prior-year
Concurrent with the earnings release, Bank of Montreal declared
fourth-quarter dividend of 72 cents per share payable on November
28, 2012 to shareholders of record as of November 1, 2012. This
represents a 2.8% hike from the third quarter dividend.
We anticipate Bank of Montreal's acquisition activities to
positively impact its financials in the long run. Further,
investors' confidence is expected to be boosted since the company
has announced a dividend hike. However, low interest rate
environment, weak economic recovery and increased regulatory
requirements will remain a drag on its financials.
Bank of Montreal currently retains a Zacks #2 Rank, which
translates into a short-term Buy rating. One of its peers,
Westpac Banking Corporation
) retains a Zacks #1 Rank, which translates into a short-term
Strong Buy rating.