Hello everyone with companies reporting their fourth quarter and year-end results I thought I would take a look at the year that was in 2015 for the stocks that I own. I believe this will allow readers that might be interested to go ahead and make that purchase or hold off, or might perk your interest in the company. I would advise all readers to do their own research before making a decision to purchase the stock please don’t rely on the information that I provide as your sole source.
Today I will focus on Bank of Montreal (TSX: BMO), the bank is the fourth largest in Canada. Besides operating in Canada Bank of Montreal has over 500 branches, contact centres, online and mobile banking platforms and more than 1,300 ABMs across eight states in the United States. The U.S. operations are mainly focused in six Midwest states – Illinois, Indiana, Wisconsin, Minnesota, Missouri and Kansas. Bank of Montreal also has offices all around the world for their Wealth Management and Capital Markets groups. BMO has three operating groups Personal and Commercial Banking (Canadian and U.S.), Wealth Management and BMO Capital Markets.
|Source: BMO 2015 Annual Report|
In 2015 net income was $4,405 billion, up $72 million or 2% from the previous year. Adjusted net income was $4,681 billion, up $228 million or 5%.
- Canadian P&C adjusted net income increased $88 million or 4% to $2,108 billion due to continued revenue growth as a result of higher balances and improved non-interest revenue.
- U.S. P&C adjusted net income increased $174 million or 25% to $880 million, and increased $57 million or 9% to $701 million on a U.S. dollar basis, primarily due to lower provisions for credit losses.
- Wealth Management adjusted net income was $955 million, up $112 million or 13% from a year ago. Adjusted net income in traditional wealth was $715 million, up $158 million or 28% from a year ago, due to organic growth from the businesses, a gain on the sale of BMO’s U.S. retirement services business, and the full year benefit from the acquired F&C business. Insurance adjusted net income was $240 million, compared to $286 million a year ago.
- BMO Capital Markets adjusted net income decreased $44 million or 4% to $1,024 billion as the benefit of the stronger U.S. dollar was more than offset by higher provisions in the current year compared to net recoveries.
Revenue increased $1,166 billion or 6% in 2015 to $19,389 billion. On a basis that nets insurance claims, commissions and changes in policy benefit liabilities (CCPB) against insurance revenue (net revenue), revenue increased $1,417 billion or 8% to $18,135 billion. Net revenue increased $1,419 billion or 8% to $18,137 billion, including a $732 million or 4% impact of the stronger U.S. dollar, mainly due to growth in Canadian P&C and Wealth Management.
- Canadian P&C revenue increased $235 million or 4% as a result of higher balances and improved non-interest revenue, with stable net interest margin.
- U.S. P&C revenue increased $458 million or 15% on a Canadian dollar basis and remained stable at $2,877 billion on a U.S. dollar basis, as higher balances and increased mortgage banking revenue offset the effects of lower net interest margin.
- Wealth Management revenue increased $676 million or 18% to $4,509 billion on a net revenue basis, with traditional wealth growth of 20% due to good growth in client assets, including the full year benefit from the acquired F&C business.
- BMO Capital Markets revenue increased $153 million or 4% to $3,873 billion due to the stronger U.S. dollar.
Provision for Credit Losses
The provision for credit losses (PCL) was $612 million in 2015 up from $561 million in 2014.There was no net change to the collective allowance in the year. The increase was due to lower recoveries in the Corporate Services and higher provisions in BMO Capital Markets. PCL as a percentage of average net loans and acceptances was 0.19% in 2015, consistent with the prior year.
In Canadian P&C PCL decreased by $32 million to $496 million, reflecting lower provisions in both the consumer and commercial portfolios. U.S. P&C PCL was $119 million, down $58 million from 2014, reflecting better credit quality in both the consumer and commercial loan portfolios and loan sale benefits. Wealth Management provisions increased to $7 million, compared to a net recovery of $3 million in the previous year. BMO Capital Markets recorded provisions of $26 million, compared to net recoveries of $18 million in the prior year.
2015 Operating Groups Performance
Let’s dig into each groups performance over 2015, below are charts that show the percentage that each group provides to BMO’s income. Also the percentage of income per country.
Canadian Personal and Commercial Banking
- Achieved personal lending (excluding credit cards) and deposit growth of 2% and 6% respectively.
- Achieved 7% growth in both commercial lending and deposits.
- Digital channel sales volume continued to grow, rising ~14& from last year, which is the equivalent to the total sales volume at ~100 branches.
- Opened or upgraded 24 branches across Canada and expanded the channel network with more than 400 ABMs at Shell locations.
- Provisions for credit losses declined by 6% and gross impaired loan formations were 11% lower year over year.
2015 Financial Review
- Net income of $2,104 billion, up $88 million or 4% with improved performance in the second half of the year. Revenue increased $235 million or 4% to $6,640 billion as a result of higher balances and improved non-interest revenue.
- Revenue increased $178 million or 4% in the personal banking business. In the commercial banking business, revenue increased $57 million or 3%, mainly driven by higher balances.
- Credit performance improved, as provisions for credit losses decreased $32 million or 6% to $496 million.
- Non-interest expense was $3,340 billion, up $158 million or 5%, primarily due to the bank’s continuing investment in the business, net of expense management.
- Average current loans and acceptances increased $6.4 billion or 3% to $194.2 billion.
- Average deposits increased $7.8 billion or 6% to $132.8 billion. Personal deposit balances increased 6%. Commercial deposit growth was broad based with balances growing 7%.
U.S. Personal and Commercial Banking
- Consumer deposit sales per retail banker increased 7%
- Consumer loan sales per retail banker increased 27%
- Mortgage sales per mortgage banker and sales of loans and deposits to mass affluent customers per team both increased in excess of 25%.
- Provision for credit losses improved by 41% over the prior year.
2015 Financial Review
- Net income of $827 million increased $173 million or 26%. Adjusted net income of $880 million increased $174 million or 25%. Revenue grew $458 million or 15% to $3,609 billion.
- Commercial banking business, revenue increased $27 million or 2% to $1,431 billion, reflecting strong loan volume growth, primarily in commercial & industrial (C&I) loan portfolio.
- Personal banking revenue decreased by $30 million or 2% to $1,446 billion primarily due to declines in loan spreads and balances and reduced fees from deposits and credit cards.
- Net interest margin decreased by 17 basis points to 3.46%
- Non-interest expense of $1,901 billion remained stable.
- Average current loans and acceptances increased $3.3 billion or 6% to $58.5 billion. The C&I loan portfolio experienced strong growth, increasing by $4.3 billion or 16% from a year ago to $30.9 billion.
- Average deposits of $62.0 billion increased $2.2 billion.
- Divested the U.S. retirement services business to focus on core businesses.
- Accelerated credit portfolio growth with improvements in lending processes and expansion in select areas.
- Completed the integration of F&C Asset Management plc (F&C) and rebranded it as BMO Global Asset Management.
2015 Financial Review
- Net income was $850 million, up $70 million or 9%. Adjusted net income, which excludes the amortization of acquisition-related intangible assets and acquisition costs, was $955 million, up $112 million or 13%.
- Traditional wealth adjusted net income was $715 million, up $158 million or 28% due to good growth from the businesses, a gain on the sale of the U.S. retirement services business, as well as the full year contribution from the acquired F&C business.
- Revenue was $5,763 billion, up $425 million or 8%. Revenue was $4,509 billion on a basis that nets CCPB with insurance revenue, up $676 million or 18%. Traditional wealth revenue was $4,057 billion, up $687 million.
- Provision for credit losses was $7 million compared to a $3 million net recovery last year.
- Non-interest expense was $3,357 billion, up $517 million or 18%.
- Assets under management and administration grew by $70 billion or 9% to $864 billion.
- Net income in Wealth Management U.S. businesses was US$99 million.
BMO Capital Markets
- The number of M&A transactions closed this year was up 23%, totalling $13.9 billion
- Average lending assets increased 20% in the United States.
2015 Financial Review
- Net income decreased by $45 million or 4% to $1,032 billion. Return on equity of 14.9% declined by 4.2% largely due to higher allocated capital.
- Revenue increased $153 million or 4% to $3,873 billion.
- Trading products revenue increased $155 million or 7%. Excluding the impact of the U.S. dollar, revenue increased $69 million or 3%.
- Provision for credit losses was $44 million higher.
- Non-interest expanse increased $135 million or 6% to $2,486 billion.
- Average assets of $290.3 billion increased $30.6 billion.
- BMO Capital Markets participated in 1,355 new global issues in 2015, comprised 571 corporate debt deals, 558 government debt deals and 226 equity transactions, raising $3,650 billion.
|Source: BMO 2015 Annual Report|
Dividends declared per common share in fiscal 2015 totalled $3.24. Annual dividends declared represented 51.1% of reported net income and 48% of adjusted net income available to common shareholders. The dividend payout ratio in 2015 was 49.3% which is in BMO’s targeted payout range of 40% to 50%.
BMO paid $2,087 billion in dividends for 2015. In 2015 the bank raised the dividend by $0.16 per share, a year-over-year increase of 5%.
On September 10th, 2015 BMO announced an agreement to purchase the assets of GE Transportation Finance. The aggregate cash purchase price is approximately US$8.9 billion. The GE Transportation Finance portfolio includes approximately $11.9 billion (US$8.9 billion) in net earning assets.
In December 2015 the above deal was made official.
By all accounts BMO had an excellent 2015 their income and revenue grew considerably. There was a 5% increase in their dividend every investor loves to get an increase. I will be long-term investor in BMO as I believe they are on the right path I will look to increase my position when possible.
A couple areas of concern for me is the amount of income that came from Canada 71%, so far the economic slowdown in Canada doesn’t seem to be slowing the bank. The bank has taken steps to help in this regard with two purchases, in 2014 they purchased F&C Asset Management. In September 2015 they purchased GE Transportation Finance portfolio. The second area of concern would be the low price of oil so we will need to see if the bank’s provision for credit losses rise throughout 2016.
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