BMO Financial Group Reports First Quarter 2023 Results
BMO Financial Group reported a net income of $247 million for the first quarter of 2023, significantly down from $2,933 million year-over-year. Adjusted net income was $2,272 million, down from $2,584 million. Earnings per share (EPS) on a reported basis were $0.30, compared to $4.43 last year; adjusted EPS was $3.22, compared to $3.89. The provision for credit losses amounted to $217 million, contrasting with a recovery of $99 million a year prior. The acquisition of Bank of the West on February 1, 2023, marked a significant growth step, enhancing BMO's North American presence. A quarterly dividend of $1.43 was declared, unchanged from the previous quarter but up 8% from last year.
- Completion of the acquisition of Bank of the West strengthens BMO's North American growth strategy.
- Quarterly dividend of $1.43 reflects an 8% increase from the previous year, indicating solid shareholder returns.
- Recognition as the most sustainable bank in North America reinforces BMO's brand value and commitment to sustainability.
- Net income dropped sharply to $247 million from $2,933 million year-over-year.
- Reported EPS decreased significantly to $0.30 from $4.43 compared to the same quarter last year.
- Provision for credit losses increased to $217 million from a recovery of $99 million last year, indicating potential credit risk.
BMO's First Quarter 2023 Report to Shareholders, including the unaudited interim consolidated financial statements for the period ended January 31, 2023, is available online at www.bmo.com/investorrelations and at www.sedar.com.
Financial Results Highlights
First Quarter 2023 Compared with First Quarter 2022:
- Net income of
, compared with$247 million ; adjusted net income1,3 of$2,933 million , compared with$2,272 million $2,584 million - Reported earnings per share (EPS)2 of
, compared with$0.30 ; adjusted EPS1,2,3 of$4.43 , compared with$3.22 $3.89 - Provision for credit losses (PCL) of
, compared with a recovery of the provision for credit losses of$217 million $99 million - Return on equity (ROE) of
1.3% , compared with21.4% ; adjusted ROE1,3 of13.4% , compared with18.8% - Common Equity Tier 1 Ratio4 of
18.2% , compared with14.1%
"We had a very good start to the year, with continued strong operating performance in our Canadian and
"The completion of our acquisition of
"This quarter, we were again recognized as the most sustainable bank in
Concurrent with the release of results, BMO announced a second quarter 2023 dividend of
Caution
The foregoing sections contain forward-looking statements. Please refer to the Caution Regarding Forward-Looking Statements.
(1) | Results and measures in this document are presented on a generally accepted accounting principles (GAAP) basis. They are also presented on an adjusted basis that excluded the impact of certain specified items from reported results. Adjusted results and ratios are non-GAAP and are detailed for all reported periods in the Non-GAAP and Other Financial Measures section. For details on the composition of non-GAAP amounts, measures and ratios, as well as supplementary financial measures, refer to the Glossary of Financial Terms in our First Quarter 2023 Report to Shareholders. |
(2) | All EPS measures in this document refer to diluted EPS, unless specified otherwise. |
(3) | Q1-2023 reported net income included a loss of |
(4) | The Common Equity Tier 1 (CET1) Ratio is disclosed in accordance with the Office of the Superintendent of Financial Institutions' (OSFI's) Capital Adequacy Requirements (CAR) Guideline. |
Note: All ratios and percentage changes in this document are based on unrounded numbers. |
Significant Events
On
Under International Financial Reporting Standards (IFRS), the purchase price will be allocated to the identifiable assets and liabilities of
The fair value of fixed rate loans, securities and deposits is largely dependent on interest rates. As interest rates have increased since the announcement of the acquisition, the fair value of the acquired fixed rate assets (in particular, loans and securities) has decreased, resulting in higher goodwill on closing compared with estimates in our original assumptions. Conversely, the fair value of floating rate assets (liabilities) and non-maturity deposits approximate par, providing no natural fair value change offset. Changes in goodwill relative to our original assumptions impacted capital ratios at closing, because goodwill is treated as a deduction from capital under the Office of the Superintendent
We proactively managed the exposure to capital from changes in fair value of the assets and liabilities of
The impact of the fair value management actions on our results was treated as an adjusting item. The current quarter included a loss of
The cumulative impact on our Common Equity Tier 1 Ratio related to these fair value management actions since the announcement of the acquisition was an increase of approximately 120 basis points. In addition, the changes in the fair value of the forward contracts decreased OCI by
This Significant Events section contains forward-looking statements. Please refer to the Caution Regarding Forward-Looking Statements.
First Quarter 2023 Performance Review
The order in which the impact on net income is discussed in this section follows the order of revenue, expenses and provision for credit losses, regardless of their relative impact.
Adjusted results and ratios in this First Quarter 2023 Performance Review section are on a non-GAAP basis and discussed in the Non-GAAP and Other Financial Measures section.
Adjusted results in the current quarter excluded a loss of
Reported net income decreased from the prior year, primarily due to the impact of the items noted above, and adjusted net income decreased
Canadian P&C
Reported and adjusted net income was
Reported net income was
On a
BMO Wealth Management
Reported net income was
Reported net income was
Corporate Services
Reported net loss was
Capital
BMO's Common Equity Tier 1 Ratio was
Credit Quality
Total provision for credit losses was
Refer to the Critical Accounting Estimates and Judgments section of BMO's 2022 Annual Report and Note 4 of our audited annual consolidated financial statements for further information on the allowance for credit losses as at
Supporting a Sustainable and Inclusive Future
BMO has a deep sense of purpose – to be a champion for progress and a catalyst for change. We are leveraging our position as a leading financial services provider in order to create opportunities for our stakeholders and communities to make positive, sustainable change, because we believe that success can and must be mutual. In support of our customers, communities and employees, in the first quarter of 2023:
- BMO employees pledged more than
to the$31 million United Way and thousands of other community organizations acrossNorth America , setting a new BMO record. - We completed the acquisition of
Radicle Group Inc. , a leader in sustainability advisory services and solutions, including carbon credit origination and environmental commodity trading. The acquisition makes BMO a leader in carbon credit development and technology-driven emissions measurement and management, and enhances our commitment to help our clients understand and manage the risks and opportunities of the energy transition. BMO InvestorLine announced the launch of its new ESG Insights feature that provides self-directed investors with Environmental, Social and Governance (ESG) ratings for individual equities and exchange traded funds (ETFs), to help them evaluate the ESG risks and opportunities of the investments they make.- BMO joined Ontario Soccer as its newest premier partner, collaborating on new empowerment initiatives to foster gender equity for soccer benefiting thousands of women and girls.
- We announced a Community Benefits Plan that outlines a commitment of more than
to local communities across our expanded footprint in$40 billion the United States , with a focus on increasing home ownership and supporting the growth of small businesses in low to moderate-income neighbourhoods.
BMO's leadership continues to be recognized in several rankings, including:
- Ranked among the most sustainable companies on the Dow Jones Sustainability Indices (DJSI). In addition, BMO ranked in the 95th percentile among banks globally and earned the highest possible score in the areas of Environment Reporting, Social Reporting and Financial Inclusion.
- Named as one of
Corporate Knights ' 2023 Global 100 Most Sustainable Corporations in the World and, for the fourth consecutive year, ranked asNorth America 's most sustainable bank. We ranked eighth in the world and in the top 15 per cent of banks globally for sustainable revenue and received high marks for diversity on our Board and the representation of diversity among our directors and senior leadership. - Recognized by the World Benchmarking Alliance's new global benchmark (WBA) as the world's top ranked financial institution for helping make progress in support of a just and sustainable economy.
- Included for the eighth consecutive year in the Bloomberg Gender-Equality Index (GEI), which recognizes BMO as a global leader in gender equality and inclusion within the workplace and the community, and for publicly demonstrating our commitment to equality and advancing women.
Caution
The foregoing sections contain forward-looking statements. Please refer to the Caution Regarding Forward-Looking Statements.
Regulatory Filings
BMO's continuous disclosure materials, including interim filings, annual Management's Discussion and Analysis and audited annual 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
Non-GAAP and Other Financial Measures
Results and measures in this document are presented on a GAAP basis. Unless otherwise indicated, all amounts are in Canadian dollars and have been derived from our audited annual consolidated financial statements prepared in accordance with International Financial Reporting Standards (IFRS). References to GAAP mean IFRS. We use a number of financial measures to assess our performance, as well as the performance of our operating segments, including amounts, measures and ratios that are presented on a non–GAAP basis, as described below. We believe that these non–GAAP amounts, measures and ratios, read together with our GAAP results, provide readers with a better understanding of how management assesses results.
Non-GAAP amounts, measures and ratios do not have standardized meanings 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.
Certain information contained in BMO's Management's Discussion and Analysis dated
Our non-GAAP measures broadly fall into the following categories:
Adjusted measures and ratios
Management considers both reported and adjusted results and measures to be useful in assessing underlying ongoing business performance. Adjusted results and measures remove certain specified items from revenue, non-interest expense and income taxes, as detailed in the following table. Adjusted results and measures presented in this document are non-GAAP. Presenting results on both a reported basis and an adjusted basis permits readers to assess the impact of certain items on results for the periods presented, and to better assess results excluding those items that may not be reflective of ongoing business performance. As such, the presentation may facilitate readers' analysis of trends. Except as otherwise noted, management's discussion of changes in reported results in this document applies equally to changes in the corresponding adjusted results.
Measures net of insurance claims, commissions and changes in policy benefit liabilities (CCPB)
We also present reported and adjusted revenue on a basis that is net of insurance claims, commissions and changes in policy benefit liabilities (CCPB), and our efficiency ratio and operating leverage are calculated on a similar basis, as reconciled in the Revenue section. Measures and ratios presented on a basis net of CCPB are non-GAAP. Insurance revenue can experience variability arising from fluctuations in the fair value of insurance assets, caused by movements in interest rates and equity markets. The investments that support policy benefit liabilities are predominantly fixed income assets recorded at fair value, with changes in fair value 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 CCPB. The presentation and discussion of revenue, efficiency ratios and operating leverage on a net basis reduces this variability, which allows for a better assessment of operating results. For more information refer to the Insurance Claims, Commissions and Changes in Policy Benefit Liabilities section in our First Quarter 2023 Report to Shareholders.
Tangible common equity and return on tangible common equity
Tangible common equity is calculated as common shareholders' equity less goodwill and acquisition-related intangible assets, net of related deferred tax liabilities. Return on tangible common equity is commonly used in the North American banking industry and is meaningful because it measures the performance of businesses consistently, whether they were acquired or developed organically.
Non-GAAP and Other Financial Measures
(Canadian $ in millions, except as noted) | Q1-2023 | Q4-2022 | Q1-2022 |
Reported Results | |||
Net interest income | 4,021 | 3,767 | 4,019 |
Non-interest revenue | 2,449 | 6,803 | 3,704 |
Revenue | 6,470 | 10,570 | 7,723 |
Insurance claims, commissions and changes in policy benefit liabilities (CCPB) | (1,193) | 369 | (81) |
Revenue, net of CCPB | 5,277 | 10,939 | 7,642 |
Provision for credit losses | (217) | (226) | 99 |
Non-interest expense | (4,421) | (4,776) | (3,846) |
Income before income taxes | 639 | 5,937 | 3,895 |
Provision for income taxes (6) | (392) | (1,454) | (962) |
Net income | 247 | 4,483 | 2,933 |
Diluted EPS ($) | 0.30 | 6.51 | 4.43 |
Adjusting Items Impacting Revenue (Pre-tax) | |||
Impact of divestitures (1) | - | - | (29) |
Management of fair value changes on the purchase of | (2,011) | 4,541 | 562 |
Legal provision (3) | (6) | (515) | - |
Impact of adjusting items on revenue (pre-tax) | (2,017) | 4,026 | 533 |
Adjusting Items Impacting Non-Interest Expense (Pre-tax) | |||
Acquisition and integration costs (4) | (239) | (193) | (12) |
Amortization of acquisition-related intangible assets (5) | (8) | (8) | (8) |
Impact of divestitures (1) | - | 6 | 3 |
Legal provision (3) | (2) | (627) | - |
Impact of adjusting items on non-interest expense (pre-tax) | (249) | (822) | (17) |
Impact of adjusting items on reported net income (pre-tax) | (2,266) | 3,204 | 516 |
Adjusting Items Impacting Revenue (After-tax) | |||
Impact of divestitures (1) | - | - | (29) |
Management of fair value changes on the purchase of | (1,461) | 3,336 | 413 |
Legal provision (3) | (5) | (382) | - |
Impact of adjusting items on revenue (after-tax) | (1,466) | 2,954 | 384 |
Adjusting Items Impacting Non-Interest Expense (After-tax) | |||
Acquisition and integration costs (4) | (181) | (145) | (10) |
Amortization of acquisition-related intangible assets (5) | (6) | (6) | (6) |
Impact of divestitures (1) | - | 8 | (19) |
Legal provision (3) | (1) | (464) | - |
Impact of adjusting items on non-interest expense (after-tax) | (188) | (607) | (35) |
Impact of Canadian tax measures (6) | (371) | - | - |
Impact of adjusting items on reported net income (after-tax) | (2,025) | 2,347 | 349 |
Impact on diluted EPS ($) | (2.92) | 3.47 | 0.54 |
Adjusted Results | |||
Net interest income | 4,410 | 4,439 | 3,974 |
Non-interest revenue | 4,077 | 2,105 | 3,216 |
Revenue | 8,487 | 6,544 | 7,190 |
Insurance claims, commissions and changes in policy benefit liabilities (CCPB) | (1,193) | 369 | (81) |
Revenue, net of CCPB | 7,294 | 6,913 | 7,109 |
Provision for credit losses | (217) | (226) | 99 |
Non-interest expense | (4,172) | (3,954) | (3,829) |
Income before income taxes | 2,905 | 2,733 | 3,379 |
Provision for income taxes (6) | (633) | (597) | (795) |
Net income | 2,272 | 2,136 | 2,584 |
Diluted EPS ($) | 3.22 | 3.04 | 3.89 |
(1) | Reported net income included the impact of divestitures related to the sale of our EMEA Asset Management business. Q4-2022 net income included a |
(2) | Reported net income included revenue (losses) related to the acquisition of |
(3) | Q1-2023 reported net income included |
(4) | Reported net income included acquisition and integration costs related to the acquisition of |
(5) | Reported income included amortization of acquisition-related intangible assets recorded in non-interest expense in the related operating group and was |
(6) | Q1-2023 reported net income included a one-time tax expense of |
Summary of Reported and Adjusted Results by
BMO Wealth | Corporate | |||||||
(Canadian $ in millions, except as noted) | Canadian P&C | Total P&C | Management | Markets | Services | (US $ in millions) | ||
Q1-2023 | ||||||||
Reported net income (loss) | 980 | 698 | 1,678 | 277 | 503 | (2,211) | 247 | (558) |
Acquisition and integration costs | - | - | - | - | 3 | 178 | 181 | 132 |
Amortization of acquisition-related intangible assets | - | 1 | 1 | 1 | 4 | - | 6 | 4 |
Impact of divestitures | - | - | - | - | - | - | - | - |
Management of fair value changes on the purchase of | ||||||||
| - | - | - | - | - | 1,461 | 1,461 | 1,093 |
Legal provision | - | - | - | - | - | 6 | 6 | 5 |
Impact of Canadian tax measures | - | - | - | - | - | 371 | 371 | - |
Adjusted net income (loss) | 980 | 699 | 1,679 | 278 | 510 | (195) | 2,272 | 676 |
Q4-2022 | ||||||||
Reported net income (loss) | 917 | 660 | 1,577 | 298 | 357 | 2,251 | 4,483 | 2,306 |
Acquisition and integration costs | - | - | - | - | 2 | 143 | 145 | 106 |
Amortization of acquisition-related intangible assets | - | 2 | 2 | - | 4 | - | 6 | 4 |
Impact of divestitures | - | - | - | - | - | (8) | (8) | (3) |
Management of fair value changes on the purchase of | ||||||||
| - | - | - | - | - | (3,336) | (3,336) | (2,470) |
Legal provision | - | - | - | - | - | 846 | 846 | 621 |
Adjusted net income (loss) | 917 | 662 | 1,579 | 298 | 363 | (104) | 2,136 | 564 |
Q1-2022 | ||||||||
Reported net income (loss) | 1,004 | 681 | 1,685 | 315 | 705 | 228 | 2,933 | 1,145 |
Acquisition and integration costs | - | - | - | - | 3 | 7 | 10 | 7 |
Amortization of acquisition-related intangible assets | - | 1 | 1 | 1 | 4 | - | 6 | 4 |
Impact of divestitures | - | - | - | - | - | 48 | 48 | (40) |
Management of fair value changes on the purchase of | ||||||||
- | - | - | - | - | (413) | (413) | (325) | |
Adjusted net income (loss) | 1,004 | 682 | 1,686 | 316 | 712 | (130) | 2,584 | 791 |
(1) | |
Refer to footnotes (1) to (6) in the Non-GAAP and Other Financial Measures table for details on adjusting items. |
Return on Equity and Return on Tangible Common Equity
(Canadian $ in millions, except as noted) | Q1-2023 | Q4-2022 | Q1-2022 |
Reported net income | 247 | 4,483 | 2,933 |
Dividends on preferred shares and distributions on other equity instruments | (38) | (77) | (55) |
Net income available to common shareholders (A) | 209 | 4,406 | 2,878 |
After-tax amortization of acquisition-related intangible assets | 6 | 6 | 6 |
Net income available to common shareholders after adjusting for amortization of | |||
acquisition-related intangible assets (B) | 215 | 4,412 | 2,884 |
After-tax impact of other adjusting items (1) | 2,019 | (2,353) | (355) |
Adjusted net income available to common shareholders (C) | 2,234 | 2,059 | 2,529 |
Average common shareholders' equity (D) | 66,015 | 63,343 | 53,345 |
Return on equity (%) (= A/D) (2) | 1.3 | 27.6 | 21.4 |
Adjusted return on equity (%) (= C/D) (2) | 13.4 | 12.9 | 18.8 |
Average tangible common equity (E) (3) | 60,882 | 58,224 | 48,431 |
Return on tangible common equity (%) (= B/E) (2) | 1.4 | 30.1 | 23.6 |
Adjusted return on tangible common equity (%) (= | 14.6 | 14.0 | 20.7 |
(1) | Refer to footnotes (1) to (6) in the Non-GAAP and Other Financial Measures table for details on adjusting items. |
(2) | Quarterly calculations are on an annualized basis. |
(3) | Average tangible common equity is average common shareholders' equity (D above) adjusted for goodwill of |
Caution Regarding Forward-Looking Statements
By their nature, forward-looking statements require us to make assumptions and are subject to inherent risks and uncertainties, both general and specific in nature. 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 – many of which are beyond our control and the effects of which can be difficult to predict – 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, including labour challenges; the severity, duration and spread of the COVID-19 pandemic, and possibly other outbreaks of disease or illness, and their impact on local, national or international economies, as well as their heightening of certain risks that may affect our future results; information, privacy and cybersecurity, including the threat of data breaches, hacking, identity theft and corporate espionage, as well as the possibility of denial of service resulting from efforts targeted at causing system failure and service disruption; benchmark interest rate reforms; technological changes and technology resiliency; political conditions, including changes relating to, or affecting, economic or trade matters; climate change and other environmental and social risk; the Canadian housing market and consumer leverage; inflationary pressures; global supply-chain disruptions; changes in monetary, fiscal, or economic policy; changes in laws, including tax legislation and interpretation, or in supervisory expectations or requirements, including capital, interest rate and liquidity requirements and guidance, and the effect of such changes on funding costs; weak, volatile or illiquid capital or credit markets; the level of competition in the geographic and business areas in which we operate; exposure to, and the resolution of, significant litigation or regulatory matters, our ability to successfully appeal adverse outcomes of such matters and the timing, determination and recovery of amounts related to such matters; the accuracy and completeness of the information we obtain with respect to our customers and counterparties; failure of third parties to comply with their obligations to us; our ability to execute our strategic plans, complete proposed acquisitions or dispositions and integrate acquisitions, including obtaining regulatory approvals; critical accounting estimates and judgments, and the effects of changes to accounting standards, rules and interpretations on these estimates; operational and infrastructure risks, including with respect to reliance on third parties; the anticipated benefits from acquisitions, including
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 refer to the discussion in the Risks That May Affect Future Results section, and the sections related to credit and counterparty, market, insurance, liquidity and funding, operational non-financial, legal and regulatory, strategic, environmental and social, and reputation risk, in the Enterprise-Wide Risk Management section of BMO's 2022 Annual Report, and the Risk Management section in our First Quarter 2023 Report to Shareholders, all of which outline certain key factors and risks that may affect our future results. 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. We do 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 shareholders and analysts 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.
Material economic assumptions underlying the forward-looking statements contained in this document include those set out in the Economic Developments and Outlook section of BMO's 2022 Annual Report, as updated in the Economic Developments and Outlook section in our First Quarter 2023 Report to Shareholders, as well as in the Allowance for Credit Losses section of BMO's 2022 Annual Report, as updated in the Allowance for Credit Losses section in our First Quarter 2023 Report to Shareholders. Assumptions about the performance of the Canadian and
In determining our expectations for economic growth, we primarily consider historical economic data, past relationships between economic and financial variables, changes in government policies, and the risks to the domestic and global economy.
INVESTOR AND MEDIA INFORMATION
Investor Presentation Materials
Interested parties are invited to visit BMO's website at www.bmo.com/investorrelations to review the 2022 Annual MD&A and audited annual consolidated financial statements, quarterly presentation materials and supplementary financial and regulatory information package.
Quarterly Conference Call and Webcast Presentations
Interested parties are also invited to listen to our quarterly conference call on
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 website.
Shareholder Dividend Reinvestment and Share Purchase Plan (the Plan) Average market price as defined under DRIP
For dividend information, change in shareholder address or to advise of duplicate mailings, please contact Telephone: 1-800-340-5021 ( Telephone: (514) 982-7800 (international) Fax: 1-888-453-0330 ( Fax: (416) 263-9394 (international) E-mail: service@computershare.com | For other shareholder information, please contact Shareholder Services Corporate Secretary's Department One Telephone: (416) 867-6785 E-mail: corp.secretary@bmo.com
For further information on this document, please contact Investor Relations Department P.O. Box 1,
To review financial results and regulatory filings and disclosures online, |
BMO's 2022 Annual MD&A, audited consolidated financial statements, annual information form and annual report on Form 40-F (filed with the
| |
Annual Meeting 2023
The next Annual Meeting of Shareholders will be held on
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