(US$ in millions, except as noted) Q4-2018 Q3-2018 Q4-2017 Fiscal 2018 Fiscal 2017 --- Net interest income (teb) 774 762 708 2,983 2,718 Non-interest revenue 222 223 216 886 817 --- Total revenue (teb) 996 985 924 3,869 3,535 Provision for credit losses on impaired loans (1) 46 42 na 201 na Provision for (recovery of) credit losses on performing loans (1) 14 (11) na (31) na --- Total provision for credit losses (1) 60 31 52 170 221 Non-interest expense 602 601 574 2,338 2,253 --- Income before income taxes 334 353 298 1,361 1,061 Provision for income taxes (teb) 49 74 84 278 274 --- Reported net income 285 279 214 1,083 787 --- Amortization of acquisition-related intangible assets (2) 9 9 9 35 36 --- Adjusted net income 294 288 223 1,118 823 === Net income growth (%) 32.8 35.3 1.9 37.5 (0.8) Adjusted net income growth (%) 31.4 33.8 1.6 35.8 (1.0) Revenue growth (%) 7.8 8.5 2.8 9.4 1.6 Non-interest expense growth (%) 4.8 4.1 2.6 3.8 2.4 Adjusted non-interest expense growth (%) 5.1 4.3 2.8 4.0 2.6 Operating leverage (%) (teb) 3.0 4.4 0.2 5.6 (0.8) Adjusted operating leverage (%) (teb) 2.7 4.2 5.4 (1.0) Efficiency ratio (%) (teb) 60.5 61.0 62.2 60.4 63.7 Adjusted efficiency ratio (%) (teb) 59.4 59.9 60.9 59.3 62.4 Net interest margin on average earning assets (%) (teb) 3.69 3.71 3.70 3.72 3.69 Average earning assets 83,336 81,428 75,849 80,255 73,752 Average gross loans and acceptances 79,369 77,301 71,546 76,067 69,294 Average net loans and acceptances 78,835 76,765 71,603 75,558 69,324 Average deposits 73,668 70,478 64,952 70,431 65,724 === (Canadian $ equivalent in millions) --- Net interest income (teb) 1,010 994 894 3,843 3,551 Non-interest revenue 288 291 272 1,140 1,066 --- Total revenue (teb) 1,298 1,285 1,166 4,983 4,617 Provision for credit losses on impaired loans (1) 61 54 na 258 na Provision for (recovery of) credit losses on performing loans (1) 18 (14) na (38) na --- Total provision for credit losses (1) 79 40 64 220 289 Non-interest expense 786 783 725 3,012 2,944 --- Income before income taxes 433 462 377 1,751 1,384 Provision for income taxes (teb) 61 98 107 357 357 --- Reported net income 372 364 270 1,394 1,027 --- Adjusted net income 383 376 281 1,439 1,073 === Net income growth (%) 37.3 36.0 (2.7) 35.7 (2.2) Adjusted net income growth (%) 35.9 34.4 (3.1) 34.0 (2.4) Revenue growth (%) 11.4 9.0 (1.8) 7.9 0.1 Non-interest expense growth (%) 8.4 4.6 (2.0) 2.3 1.0 Adjusted non-interest expense growth (%) 8.7 4.9 (1.8) 2.6 1.2 Average earning assets 108,724 106,125 95,731 103,394 96,363 Average gross loans and acceptances 103,549 100,746 90,299 98,001 90,533 Average net loans and acceptances 102,853 100,048 90,371 97,346 90,572 Average deposits 96,122 91,853 81,974 90,738 85,927 ===
(1) Effective the first quarter of 2018, the bank prospectively adopted IFRS 9, Financial Instruments (IFRS 9). Under IFRS 9, we refer to the provision for credit losses on impaired loans and the provision for credit losses on performing loans. Prior periods have not been restated. The provision for credit losses in periods prior to the first quarter of 2018 is comprised of specific provisions. Refer to the Changes in Accounting Policies section on page 121 of BMO's 2018 Annual MD&A for further details. (2) Before tax amounts of US$11 million in Q4-2018 and Q3- 2018, US$13 million in Q4-2017, US$45 million in fiscal 2018 and US$49 million in fiscal 2017 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. na - not applicable
Q4 2018 vs Q4 2017Reported net income of $372 million increased $102 million or 37% and adjusted net income of $383 million increased $102 million or 36% from the prior year. Adjusted net income excludes the amortization of acquisition-related intangible assets. All amounts in the remainder of this section are on a U.S. dollar basis.
Reported net income of $285 million increased $71 million or 33% and adjusted net income of $294 million increased $71 million or 31% from the prior year, due to good revenue growth and lower taxes from the benefit of U.S. tax reform and a favourable U.S. tax item, partially offset by higher expenses and higher provisions for credit losses. The benefit of U.S. tax reform was approximately $28 million in reported net income and $29 million in adjusted net income in the current quarter.
Revenue of $996 million increased $72 million or 8% from the prior year, mainly due to higher deposit revenue and increased loan volumes, net of loan spread compression. Net interest margin decreased 1 basis point to 3.69%, mainly due to loan spread compression and a change in business mix, including a residential loan portfolio purchase, partially offset by improved deposit revenue, driven primarily by higher interest rates and interest recoveries.
Total provision for credit losses of $60 million increased $8 million from the prior year. The provision for credit losses on impaired loans decreased $6 million to $46 million due to lower commercial provisions, partially offset by higher consumer provisions. There was a $14 million provision for credit losses on performing loans in the quarter.
Non--interest expense of $602 million increased $28 million or 5% and adjusted non-interest expense of $591 million increased $30 million or 5%, due to continued investment in the business, including technology investments.
Average gross loans and acceptances increased $7.8 billion or 11% from the prior year to $79.4 billion, driven by commercial loan growth of 10% and increased personal loan volumes, due largely to the purchase of a mortgage portfolio in the first quarter of 2018.
Average deposits of $73.7 billion increased $8.7 billion or 13% from the prior year with 16% growth in commercial and 12% growth in personal volumes, reflective of our continued commitment to grow our treasury management business.
Q4 2018 vs Q3 2018Reported net income increased $8 million or 2% and adjusted net income increased $7 million or 2% from the prior quarter. All amounts in the remainder of this section are on a U.S. dollar basis.
Reported net income and adjusted net income both increased $6 million or 2% largely due to a favourable U.S. tax item and higher revenue, partially offset by higher provision for credit losses.
Revenue increased $11 million or 1%. Net interest margin decreased 2 basis points reflecting higher loan growth at lower spreads, partially offset by higher interest recoveries and improved deposit revenue.
Total provision for credit losses increased $29 million from the prior quarter. The provision for credit losses on impaired loans increased $4 million due to higher commercial and consumer provisions. There was a $14 million provision for credit losses on performing loans in the current quarter, compared with a $11 million net recovery of credit losses on performing loans in the prior quarter.
Non--interest expense and adjusted non-interest expense both increased $1 million.
Average gross loans and acceptances increased $2.1 billion or 3% due to growth in commercial and personal loan volumes. Average deposits increased $3.2 billion or 5% due to 9% growth in commercial and 2% growth in personal volumes.
Adjusted results in this U.S. P&C section are non-GAAP amounts or non-GAAP measures. Please see the Non-GAAP Measures section.
BMO Wealth Management
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