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BMO Financial Group Reports Year-Over-Year Earnings Growth of Seven Per Cent in First Quarter 2003  

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Solid Growth of 18 per cent in Personal and Business Banking Drives Increased Earnings

Year-over-Year Operating Highlights are:

  • Net income of $399 million, up 7 per cent
  • EPS of $0.75, up 6 per cent, and cash EPS1 of $0.79
  • ROE of 14.3 per cent, cash ROE1 of 15.1 per cent
  • Personal and business banking revenue growth outstrips expense growth in Canada and the U.S.
  • Investment banking and wealth management businesses earnings hold steady in continued challenging operating environments
  • Provision for credit losses declines $30 million to $150 million; expected annual provision lowered to at or below $700 million versus 2003 target of at or below $820 million
  • Revenue growth of 5 per cent lags expense growth of 8 per cent; excluding acquired businesses, revenue and expenses rise 2 per cent
  • Productivity ratio increases to 67.9 per cent from 66.3 per cent a year ago; improves from 70.1 per cent in Q4 (from 68.3 per cent excluding non-recurring items)
  • Strong Tier 1 Capital Ratio of 9.05 per cent, up from 8.80 per cent in Q4
  • Dividend payout goal increased to between 35 and 45 per cent of net income, underscoring BMO’s commitment to shareholder value
  • Dividends per common share increase for 11th straight year

  1. The adjustments that change results under generally accepted accounting principles (GAAP) to cash results and results excluding non-recurring items are outlined in the “Effects of Non-Recurring Items” section, which precedes the “Review of Operating Groups Performance” in this release.   The section also comments on the use of these measures.  The adjustment that changes GAAP revenue to its taxable equivalent basis is discussed in the revenue section of Management’s Discussion and Analysis.

All Earnings per Share (EPS) measures in this release refer to diluted EPS unless specified otherwise.

1. Refer to footnote following ‘Year-over-Year Operating Highlights’.

Ottawa, February 25, 2003 – BMO Financial Group reported net income of $399 million and EPS of $0.75 for its first quarter ended January 31, 2003, compared with net income of $372 million and EPS of $0.71 in the first quarter of last year.  Cash earnings, which reflect the add-back of the amortization of intangible assets, were $421 million and cash EPS was $0.79.  There were no non-recurring items for reporting purposes in the quarter.

“Fiscal 2003 is off to a reasonable start,” said Tony Comper, Chairman and Chief Executive Officer, BMO Financial Group.  “Solid growth in personal and commercial banking volumes in both Canada and the U.S. continue to drive our performance.  Our investment banking and wealth management groups are managing their businesses effectively within the constraints of the challenging market environment, as evidenced by their stable year-over-year performances.  In this context, BMO’s improved performance from a year ago is encouraging.  We have achieved growth while at the same time continuing to build a foundation for the eventual return of sustained strength in the economy and stability in equity markets.”

BMO shareholders earned a return of 9.2 per cent on their investment in common shares in the first quarter.  The total shareholder return for the past twelve months of 18.4 per cent was the best of Canada’s major banks, comparing favourably with the six-bank average of 1.6 per cent and the TSX Composite Total Return of negative 12.5 per cent.

Net income rose $27 million from a year ago, driven by higher revenue and a lower provision for credit losses, partially offset by increased expenses.  The $113 million revenue increase was only modestly above the expense increase, partially due to the results of acquired businesses.

Revenue rose five per cent from the prior year, driven by volume growth in Personal and Commercial Client Group, acquired businesses in Private Client Group, and improved mergers and acquisitions and underwriting fees in Investment Banking Group.  These increases were mitigated by narrowing margins resulting from the maturity of higher yielding assets in our capital markets businesses and lower corporate lending volumes that reduced net interest earnings in Investment Banking Group.

Expenses rose eight per cent year-over-year, driven by acquired wealth management businesses, higher benefits costs, including pension costs, and higher stock-based compensation costs.

The expense-to-revenue ratio was 67.9 per cent, up from 66.3 per cent a year ago but improved from the fourth quarter’s ratio of 70.1 per cent (68.3 per cent excluding non-recurring items).  Acquired businesses increased revenues in the quarter by $68 million year-over-year and expenses by $84 million.  Excluding the effect of those businesses, the expense-to-revenue ratio was 66.2 per cent, just below the ratio of a year ago.

The provision for credit losses was $150 million, down from $180 million a year ago.  Gross impaired loans decreased from the fourth quarter as new impaired loan classifications totalled $307 million, down $155 million from the immediately preceding quarter and broadly in line with expectations at this point in the credit cycle.  Exposures to industry groups that are currently more economically sensitive, such as communications and power and power generation, continue to represent a small part of BMO’s loan portfolio.  The allowance for impaired loans in these industries, as in other sectors, is considered to be adequate.  Management now estimates that the annual provision for credit losses will be at or below $700 million for 2003, better than management’s target of an annual provision at or below $820 million, which had been established following the fourth quarter.

Revenue from U.S. based businesses totalled $705 million, representing 30 per cent of total revenue, compared with 31 per cent a year ago.  The current quarter’s ratio benefited from the wealth management acquisitions of the past year.  Earnings sourced in the United States represented 17 per cent of net income, compared with 30 per cent a year ago.  Improved first quarter performance from our Canadian operations relative to the U.S., and a strengthening Canadian dollar contributed to the decline.  The decline was also attributable to investment banking and wealth management operations in the United States where geopolitical uncertainties have affected client transaction volumes, and the maturing of higher yielding assets has narrowed spreads.  Non-cash amortization costs of acquired U.S. wealth management businesses also affected the comparative ratios.

Relative to the fourth quarter, net income was unchanged on a GAAP basis but declined $24 million or six per cent after excluding the fourth quarter’s $39 million ($25 million after tax) of non-recurring acquisition-related costs.  Improved revenues and a lower provision for credit losses were more than offset by a higher provision for income taxes.  Expenses rose modestly in the current quarter.

Effective this quarter, certain enhancements have been reflected in funds transfer pricing related to Harris Bank businesses.  Harris Bank has implemented a new instrument-level matched-maturity funds transfer pricing system that incorporates industry best practices.  Concurrently, certain Harris Bank portfolios that were used to manage interest rate risk have been transferred from operating groups to Corporate Support.  The new system and portfolio transfers shift structural interest rate risk from the business units to the Corporate Support unit. Refinements to BMO’s funding and cost allocations have also been implemented.  All of these enhancements have been applied retroactively and segmented results for prior periods reflect the reclassifications.  Note 7 to the attached unaudited interim consolidated financial statements outlines the reclassifications affecting prior period results.

Operating Group Net Income Q4

Annual Targets for 2002, Excl. Non-Recurring Items

2003 Earnings Outlook Unchanged
BMO continues to anticipate achieving its annual targets for fiscal 2003, notwithstanding somewhat slower economic growth than previously expected.  Expectations of improved provisions for credit losses should compensate for the revised economic outlook.  After expanding an estimated 3.3 per cent in 2002, Canadian real GDP is now anticipated to grow 3.5 per cent in 2003, down from our year-end estimate of 3.8 per cent.  Following estimated growth of 2.4 per cent in 2002, U.S. real GDP is now expected to grow 2.8 per cent in 2003, down from our earlier estimate of 3.2 per cent.  Growth in the U.S. economy remains uneven as geopolitical concerns continue to cast a shadow over business hiring and spending plans, resulting in weak commercial lending.  However, resilient consumer spending, especially on big-ticket items such as homes and autos, continues to support growth in mortgage and personal lending.  Activity in equity markets remains depressed as investors await the resolution of geopolitical issues.  An early and decisive resolution may result in economic activity strengthening and capital markets activity improving.

Note on Performance Analysis
Management and certain other observers believe that performance analysis is enhanced by analyzing results excluding non-recurring items.  In addition, cash-based earnings measures may enhance comparisons between periods when there has been an acquisition, particularly because the purchase decision may not consider the amortization of intangible assets to be a relevant expense.  Cash EPS measures are also provided because analysts frequently focus on these measures and cash EPS is used by Thomson First Call, which tracks third-party earnings forecast estimates that are frequently reported in the media.  The foregoing adjustments and their effects on our results are outlined in the “Effects of Non-Recurring Items” table.  Securities regulators require that corporations caution readers that earnings as adjusted for such items do not have standardized meanings under GAAP and are unlikely to be comparable to similar measures used by other companies.

Bank of Montreal uses a unified branding approach that links all of the organization’s member companies.  Bank of Montreal, together with its subsidiaries, is known as BMO Financial Group.  As such, in this document, the names BMO and BMO Financial Group mean Bank of Montreal.

Management’s Responsibility for Financial Information
A rigorous and comprehensive financial governance framework is in place at BMO and its subsidiaries at both the management and board levels.  Each year, BMO’s Annual Report contains a statement signed by the Chief Executive Officer (CEO) and Chief Financial Officer (CFO) outlining management’s responsibility for financial information contained in the report.  BMO also filed certifications, signed by the CEO and CFO, with the Securities and Exchange Commission (SEC) in the United States on January 24, 2003 when it filed its Annual Report and other continuous disclosure documents.  In those filings, BMO’s CEO and CFO certified, as required by U.S. law, the appropriateness of BMO’s financial disclosures in the Annual Report and the effectiveness of controls and procedures over those disclosures.  Our CEO and CFO will voluntarily certify to the SEC the appropriateness of our financial disclosures in this release, including the attached unaudited interim consolidated financial statements.

As in prior quarters, BMO’s audit committee reviewed the attached unaudited consolidated financial statements and this news release, including Management’s Discussion and Analysis of Results of Operations and Financial Condition.  BMO’s Board of Directors continues to approve these documents prior to their release.

Management’s Discussion and Analysis of Results of Operations (MD&A) for the quarter is attached.  A more comprehensive discussion of our businesses, strategies and objectives can be found in the MD&A in BMO’s 2002 Annual Report, which can be accessed on our web site as directed below.  Readers are also encouraged to visit our web site to view other quarterly financial information.

Bank of Montreal’s public communications often include written or oral forward-looking statements.  Statements of this type are included in this news release, and may be included in filings with Canadian securities regulators or the U.S. Securities and Exchange Commission, or in other communications.  All such statements are made pursuant to the ‘safe harbor’ provisions of the United States Private Securities Litigation Reform Act of 1995.  Forward-looking statements may involve, but are not limited to, comments with respect to our objectives for 2003 and beyond, our strategies or future actions, our targets, expectations for our financial condition or share price, the results of or outlook for our operations or for the Canadian and U.S. economies.

By their nature, forward-looking statements require us to make assumptions and are subject to inherent risks and uncertainties. There is significant risk that predictions and other forward-looking statements will not prove to be accurate.  We caution readers of this document not to place undue reliance on our forward-looking statements as a number of factors could cause actual future results, conditions, actions or events to differ materially from the targets, expectations, estimates or intentions expressed in the forward-looking statements.

The future outcomes that relate to forward-looking statements may be influenced by many factors, including but not limited to: global capital market activities; interest rate and currency value fluctuations; industry and worldwide economic and political conditions; regulatory and statutory developments; the effects of competition in the geographic and business areas in which we operate; management actions; and technological changes.  We caution that the foregoing list of factors is not exhaustive and that when relying on forward-looking statements to make decisions with respect to Bank of Montreal, investors and others should carefully consider these factors, as well as other uncertainties and potential events, and the inherent uncertainty of forward-looking statements.  Bank of Montreal does not undertake to update any forward-looking statement, whether written or oral, that may be made, from time to time, by the organization or on its behalf.


Investor Presentation Materials
Interested investors, the media and others are invited to visit our web site at to review this quarterly news release, presentations and supplementary financial information package.  Copies of these documents are also available at BMO Financial Group’s offices at 100 King Street West, 18th Floor, 1 First Canadian Place, Toronto, Ontario, M5X 1A1.

Quarterly Conference Call and Webcast Presentations
Interested parties are invited to join our quarterly conference call, in listen-only mode, on Tuesday, February 25, 2003 at 2:00 p.m. (EST).  At that time, BMO executives will comment on results for the quarter and respond to questions from the investor community.  The call may be accessed by telephone at 1-888-789-0089 (toll free outside Toronto) or 416-695-9753 (from within Toronto).  A replay of the conference call can be accessed until Friday, March 7, 2003 by calling 1-888-742-2491 and entering pass code 5956.

A live webcast of the quarterly conference call can be accessed at  A replay of the webcast can be accessed on our web site until May 26, 2003.

Media Relations Contacts
Ralph Marranca, Toronto, 416-867-3996
Ian Blair, Toronto, 416-867-3996
Ronald Monet, Montreal, 514-877-1101

Investor Relations Contacts
Susan Payne, Senior Vice-President, Investor Relations,, 416-867-6656
Lynn Inglis, Director, Investor Relations,, 416-867-5452
Amanda Mason, Manager, Investor Relations,, 416-867-3562

Chief Financial Officer
Karen Maidment, Executive Vice-President and Chief Financial Officer,, 416-867-6776

Corporate Secretary, 416-867-6785




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