HispanicBusiness

Summary Quarterly Earnings Trends (Cont'd.)

BMO's quarterly earnings trends were reviewed in detail on pages 96 and 97 of BMO's 2012 annual MD&A. Readers are encouraged to refer to that review for a more complete discussion of trends and factors affecting past quarterly results including the modest impact of seasonal variations in results. Table 13 outlines summary results for the second quarter of fiscal 2011 through the first quarter of fiscal 2013.

Periodically, certain business lines and units within the business lines are transferred between client operating groups to more closely align BMO's organizational structure with its strategic priorities. Comparative figures have been restated to conform to the current presentation. This quarter, we commenced charging provisions for credit losses to the bank's operating groups based on actual credit losses incurred. Previously we had charged the groups with credit losses based on an expected loss provisioning methodology. Prior period results have been restated accordingly.

We have remained focused on embracing a culture that places the customer at the centre of everything we do. Economic conditions were at times challenging for some of our businesses in 2011 and 2012, but conditions have improved overall and quarterly adjusted results have generally trended higher over the past two years. In recent quarters, we have become more focused on improving our productivity.

P&C Canada had good volume growth across most products in both personal and commercial segments. Net income has generally trended higher in 2012 and into the first quarter of 2013, with revenue and expense growth moderating and provisions for credit losses decreasing during that period. Growth in earnings and revenue has been affected by reduced net interest margin as a result of the low interest rate environment.

P&C U.S. net income increased. Results started to improve significantly late in the third quarter of 2011, due to the benefits of the M&I acquisition as well as increases in commercial loan balances, which had seen minimal growth since the economic downturn that started in 2007.

PCG operating results have been strong in recent quarters. Quarterly results in PCG, excluding Insurance, have grown on a relatively consistent basis, driven by growth in client assets as market conditions improved. In the third quarter of 2011, PCG's results began to reflect the acquisition of the M&I wealth management business. Quarterly results in Insurance have been subject to variability.

BMO Capital Markets results in the first nine months of 2011 were very strong, but fell in the fourth quarter of that year due to a difficult market environment. Results in the first nine months of 2012 were generally good, but were down from the levels recorded in 2011 due to less favourable market conditions. Results in the final quarter of 2012 were stronger, due to increased revenues and a recovery of prior periods' income taxes, and net income for 2012 was better than in 2011. Results for the most recent quarter also reflect high net income, due to more favourable market conditions that contributed to very strong investment banking activity and trading revenues.

BMO's overall provisions for credit losses measured as a percentage of loans and acceptances were lower in 2012 than in 2011, and that has continued in 2013 to date. Adjusted provisions, which exclude provisions on the M&I purchased performing loan portfolio and changes in the collective allowance, were relatively consistent throughout 2012 and into 2013 and lower than in 2011, due in part to recoveries of provisions on the M&I purchased credit impaired loan portfolio and an improvement in the U.S. credit environment.