Bank of Montreal 2012 Annual Report Download - page 26

BMO Financial Group 195th Annual Report 2012 23
Our Performance (Note 1)
Provision for Credit Losses as a % of Average
Net Loans and Acceptances
•
The Canadian peer group average PCL represented 38 basis
points of average net loans and acceptances, down slightly
from 40 basis points in 2011.
•
The North American peer group average PCL represented
50 basis points, down from 68 basis points in 2011, but
higher than the average PCL for the Canadian peer group.
Gross Impaired Loans and Acceptances as a %
of Equity and Allowances for Credit Losses
• The Canadian peer group average ratio of GIL as a
percentage of equity and allowances for credit losses
was 7.8% in 2012, up from 7.3% in 2011.
• The average ratio for our North American peers improved
from a year ago to 10.5%, but continues to be higher
than the average for the Canadian peer group.
Capital Adequacy
• The Canadian peer group average Tier 1 Capital Ratio on
a Basel II basis was 13.0% in 2012, relatively unchanged
from 2011.
Impaired Loans
• Gross impaired loans and acceptances (GIL), excluding
purchased credit impaired loans, increased to $2,976 million
from $2,685 million in 2011, and represented 9.3% of equity
and allowances for credit losses, compared with 9.0% a year ago.
• Formations of new impaired loans and acceptances, a key driver
of provisions for credit losses, were $3,101 million, up from
$1,992 million in 2011, due to a $1,317 million increase in
formations in the M&I purchased performing loan portfolio that
was acquired in July 2011. The potential for impairment and losses
on this portfolio was adequately provided for in the credit mark.
Formations in BMO’s legacy portfolio have been trending lower.
Capital Adequacy
•
The Tier 1 Capital Ratio on a Basel II basis was 12.6%, up from
12.0% in 2011, and well in excess of regulatory requirements.
• The Common Equity Ratio on a Basel II basis strengthened to
10.5%, up 95 basis points from 2011.
• Capital ratios were higher due to an increase in common equity
and a reduction in risk-weighted assets.
• On a pro-forma basis, BMO’s Basel III capital ratios at
October 31, 2012, exceeded OSFI’s fully implemented Basel III
expectations, with a pro-forma Tier 1 Capital Ratio of 10.5%
and pro-forma Common Equity Ratio of 8.7%.
Credit Rating
• Credit ratings for BMO’s senior long-term debt are listed below. There were
no changes in credit ratings in 2012 and all four ratings are considered to
indicate high-grade, high-quality issues. On October 26, 2012, Moody’s Investors
Service placed the senior long-term debt rating of BMO and four of our Canadian
peers on review for downgrade. On January 28, 2013, subsequent to BMO’s
year end, Moody’s completed its review and lowered the senior long-term debt
rating for each of the banks on review by one notch. At that time, Moody’s also
lowered the subordinated debt ratings of BMO and all of our Canadian peers.
Moody’s affirmed BMO’s short-term rating.
Credit Rating
• Moody’s Canadian peer group median credit rating was lower in 2012 compared
with 2011, as the rating for one of our Canadian peers was downgraded two
notches. The credit ratings awarded by the three remaining ratings agencies were
unchanged, with each rating considered high-grade and high-quality.
• S&P downgraded the long-term debt ratings of two of our Canadian peers by
one notch on December 14, 2012, and as a result, the Canadian peer group
median rating fell from AA– to A+ at that time.
• The North American peer group median credit ratings were unchanged from 2011,
but remained slightly lower than the median of the Canadian peer group for three
of the ratings, as economic conditions remain more difficult in the United States.
The Canadian peer group averages are based on the performance of Canada’s six largest banks: BMO Financial Group, Canadian Imperial Bank of Commerce,
National Bank of Canada, RBC Financial Group, Scotiabank and TD Bank Group. The North American peer group averages are based on the performance
of 13 of the largest banks in North America. These include the Canadian peer group, except National Bank of Canada, as well as BB&T Corporation, Bank of
New York Mellon, Fifth Third Bancorp, Key Corp., The PNC Financial Services Group Inc., Regions Financial, SunTrust Banks Inc. and U.S. Bancorp.
Results are as at or for the years ended October 31 for Canadian banks and as at or for the years ended September 30 for U.S. banks.
* Data for all years refl ects the peer group composition in the most recent year.
BMO reported
BMO adjusted
Canadian peer group average
North American peer group average
201220112010
0.21
0.31
0.61
0.54
0.56
0.61
P 40, 75, 80
P 41, 80
P 61
P 88
Peer Group Performance
Credit Losses
• The adjusted provision for credit losses (PCL) fell to
$471 million from $1,108 million in 2011. Reported
PCL fell to $765 million from $1,212 million.
• Adjusted PCL as a percentage of average net loans and
acceptances improved to 21 basis points from 54 basis
points a year ago, and reported PCL as a percentage
improved to 31 basis points from 56 basis points.
• These improvements reflect recoveries on the M&I
purchased credit impaired loan portfolio and an
improved credit environment.
201220112010
9.3
9.0
12.1
201220112010
13.5 12.0 12.6
20122011
AA AA
AA–
Aa2
A+
AA–
Aa2
A+
2010
AA
AA–
Aa2
A+
DBRS
Fitch
Moody’s
S&P
20122010
AA
AA–
Aa1
AA–
AA
AA–
Aa2
AA–
2011
AA
AA–
Aa1
AA–
DBRS
Fitch
Moody’s
S&P
20122010
AAL
AA–
Aa3
A+
AAL
AA–
Aa3
A+
2011
AAL
AA–
Aa3
A+
DBRS
Fitch
Moody’s
S&P
Canadian peer group median*BMO Financial Group North American peer group median*