BMO's overall provisions for credit losses measured as a percentage of loans and acceptances continued to trend lower in recent quarters relative to 2012 and the fourth quarter of 2011. 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 the second quarter of 2013 and lower than in the fourth quarter of 2011, primarily due to recoveries of provisions on the purchased credit impaired loan portfolio and an improvement in the U.S. credit environment. Adjusted provisions declined significantly in the third quarter of 2013, mainly due to lower provisions in P&C Canada and P&C U.S., coupled with higher recoveries of credit losses on the M&I purchased credit impaired loan portfolio in Corporate Services.
Corporate Services quarterly net income can vary, in large part due to the inclusion of the adjusting items, which are largely recorded in Corporate Services. Adjusted results in Corporate Services were relatively steady in 2012 and better than in 2011. This was primarily due to significant recoveries of provisions on the M&I purchased credit impaired loan portfolio. These recoveries can vary and reduced recoveries in the first quarter of 2013 together with lower revenues and increased expenses lowered Corporate Services results that quarter. These recoveries increased in the second and third quarters, increasing net income.
Movements in exchange rates in 2012 and for 2013 to date have been subdued. A stronger U.S. dollar increases the translated value of U.S.-dollar-denominated revenues, expenses, provisions for credit losses, income taxes and net income.
The effective income tax rate can vary, as it depends on the timing of resolution of certain tax matters, recoveries of prior periods' income taxes and the relative proportion of earnings attributable to the different jurisdictions in which we operate.
This Summary Quarterly Earnings Trends section contains forward-looking statements. Please see the Caution Regarding Forward-Looking Statements.
Adjusted results in this Summary Quarterly Earnings Trends section are non-GAAP amounts or non-GAAP measures. Please see the Non-GAAP Measures section.
Total assets of $549.3 billion at July 31, 2013, increased $23.9 billion from October 31, 2012, including a $3.5 billion increase as a result of the stronger U.S. dollar. The increase primarily reflects growth in net loans and acceptances of $18.5 billion, cash and cash equivalents and interest bearing deposits with banks of $14.3 billion and securities borrowed or purchased under resale agreements of $6.7 billion, partially offset by a decrease in derivative financial assets of $16.4 billion. All remaining assets increased by a combined $0.8 billion.
The $18.5 billion increase in net loans and acceptances was primarily due to an increase in residential mortgages, primarily in P&C Canada, and an increase in loans to businesses and governments in both P&C Canada and P&C U.S.
The $14.3 billion increase in cash and cash equivalents and interest bearing deposits with banks was primarily due to increased balances held with central banks.
The $6.7 billion increase in securities borrowed or purchased under resale agreements was mainly due to increased client-driven activities.
The $16.4 billion decrease in derivative financial assets and the $15.8 billion decrease in derivative financial liabilities were primarily due to declines in the fair value of interest rate contracts as a result of rising interest rates.
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