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BMO Financial Group Reports 36 Per Cent Earnings Growth in Second Quarter  

 PDF format of entire Quarterly news release including this Performance Overview, Financial Highlights table, the MD&A and Unaudited Financial Statements

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Solid Growth in Retail and Business Banking and Improving Credit Performance Drive Earnings Growth
Year-over-year Highlights:
  • Net income of $409 million, up 36 per cent from $301 million
  • Personal and Commercial Client Group net income of $219 million, up 12 per cent
  • EPS of $0.77, up 35 per cent, and cash EPS1 of $0.81
  • ROE of 15.2 per cent, up 3.6 percentage points, and cash ROE1 of 15.9 per cent
  • Provision for credit losses of $120 million, significantly improved from $320 million
  • Strong Tier 1 Capital Ratio of 9.10 per cent, up from 8.61 per cent
Other Highlights:
  • BMO remains solidly on track to achieve all of its annual operating targets
  • Anticipated annual provision for credit losses lowered to at or below $600 million, down from the first quarter’s anticipated annual provision of $700 million
  • Personal and Commercial Client Group revenue up 6 per cent, as BMO’s overall revenue declines only marginally in the difficult business environment
  • Expenses up slightly as the expense-to-revenue ratio increases to 67.2 per cent from 66.4 per cent a year ago, but improves from 67.9 per cent in the first quarter
  • Expenses down from the first quarter and expense-to-revenue ratio at its best level in four quarters

1. The adjustments that change results under generally accepted accounting principles (GAAP) to cash results and explanations of non-recurring items are outlined in the “GAAP and Non-GAAP Measures” 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.



Toronto May 27, 2003 – BMO Financial Group reported a 36 per cent increase in earnings from a year ago. Net income was $409 million and EPS was $0.77 for its second quarter ended April 30, 2003, compared with net income of $301 million and EPS of $0.57 in the second quarter of last year.  Cash net income, which reflects the add-back of the after-tax amortization of intangible assets, was $429 million and cash EPS was $0.81.  There were no non-recurring items for reporting purposes in the quarter or for the year-to-date or in the comparative periods.

“BMO remains solidly on track to achieve its financial targets for 2003,” said Tony Comper, Chairman and Chief Executive Officer, BMO Financial Group.  “The continuation of solid growth in personal and commercial banking volumes and improving credit performance are driving higher profitability.”

Net income for the second quarter of 2003 increased $108 million from the second quarter a year ago.  The increase was driven by significantly improved results in Corporate Support, while strong volume growth in retail and business banking and higher net interest margins in Canada also contributed to the year-over-year increase. Corporate Support benefited from much lower provisions for credit losses, partially offset by lower corporate securitization revenue.  BMO’s provision for credit losses in the second quarter of 2003 improved by $200 million from a year ago and is the most significant factor contributing to improved year-over-year performance.  Results in the second quarter of 2002 included a $140 million provision for credit losses related to BMO’s exposure to Teleglobe Inc.

Net income for the year-to-date of $808 million was $135 million or 20 per cent higher than in the comparable period in 2002.  The year-to-date increase was also attributable to the improving credit performance, as the provision for credit losses was reduced by $230 million, and to the continued improved performance in retail and business banking. Retail and business banking benefited from volume growth, as its net income rose 15 per cent.

Revenue of $2,208 million in the second quarter was down $14 million from a year earlier.  Volume growth and improved net interest margins in Canadian retail and business banking were more than offset by the effects of low client-transaction volumes in other operating groups and the weaker U.S. dollar.  The prior year had benefited from $57 million of corporate securitization revenue.

Non-interest expenses of $1,484 million were only $8 million higher than a year ago.  The effects of the lower U.S. dollar and effective cost controls were modestly offset by the impact of acquired businesses and higher costs in Canadian retail and business banking associated with performance-based compensation, strategic initiatives and higher employee benefit costs.

The expense-to-revenue ratio was 67.2 per cent, up from 66.4 per cent a year ago but improved from the first quarter’s ratio of 67.9 per cent. Acquired businesses increased revenues in the quarter by $25 million year-over-year and expenses by $36 million.   Excluding the additive effect of those businesses, the expense-to-revenue ratio was 65.2 per cent, marginally better than the ratio of a year ago.

“BMO remains committed to improving its expense-to-revenue ratio,” Mr. Comper added.  “While we continue to incur the costs of investing in the businesses and initiatives that will form the basis for improved future performance, the expense-to-revenue ratio is at its best level in the past four quarters.  Each of our operating groups is targeting to improve its cash-productivity ratio by 150 to 200 basis points for the year.”

The provision for credit losses was $120 million, down from $320 million a year ago.  This quarter’s provision benefited from loan restructurings, with the assets received valued at, and then subsequently sold for, $21 million more than the net book value of the original loans.  In addition, loan loss recoveries in respect of loan amounts that had been written-off in prior periods totalled $28 million in the quarter, compared with $17 million in each of the second quarter of 2002 and the first quarter of 2003.

Gross impaired loans increased by $30 million from the first quarter.  New impaired loan formations totalled $350 million, up $43 million from the first quarter, and remain 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 electric power generation, continue to represent a small part of BMO’s loan portfolio.  The allowance for credit losses 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 $600 million for 2003, down from the $700 million estimate last quarter and better than management’s target of an annual provision at or below $820 million, which had been established following the fourth quarter. The estimate has been reduced based on the favourable loan loss experience in the first half of the year.

BMO’s practice is to maintain low levels of U.S. dollar balance sheet translation risk by funding U.S. dollar investments with U.S. borrowings.  Exchange rate fluctuations can affect net income.  The Canadian dollar equivalent of BMO’s U.S. denominated revenues and expenses included in results this quarter was affected by the weakening of the U.S. dollar.  Changes in the Canadian/U.S. exchange rate reduced revenues by $57 million relative to the second quarter a year ago and expenses by $36 million.   Relative to the first quarter, Canadian/U.S. exchange rate fluctuations had no effect on BMO’s net income in the second quarter, after recoveries related to hedging activity.  Rate changes reduced revenues in the second quarter by $42 million from the first quarter, expenses by $31 million and the provision for credit losses by $4 million.  At the start of each quarter, BMO enters into transactions that are expected to partially offset the pre-tax effects of the exchange rate fluctuations in the quarter.  Second quarter revenue included $7 million related to this hedging activity.  Future revenue and expenses will be affected by future currency fluctuations, while the gain or loss from related hedging transactions in future periods will be determined by both the currency fluctuations and the amount of the underlying future transactions, since the transactions are entered into each quarter in relation to net income for the next three months.  Each one-cent change in the Canadian/U.S. exchange rate affects BMO’s quarterly earnings by approximately $1 million before income taxes, in the absence of hedging activity.

The ratios of revenue and net income of U.S. based businesses to total revenue and net income were unusually high in the second quarter of 2002, partially due to that quarter’s recognition of $57 million of U.S. corporate securitization revenue and a $47 million write-down of BMO’s ownership interests in its own high-yield Canadian collateralized bond obligations.

Revenue from U.S. based businesses totalled $710 million in the second quarter of 2003, representing 32 per cent of total revenue, compared with 36 per cent a year ago.  Year-to-date, revenue from U.S. based business of $1,416 million represented 31 per cent of BMO’s revenue, compared with $1,484 million and 34 per cent in 2002.  This year’s ratio benefited from the wealth management acquisitions of the past year.

Earnings from U.S. based businesses represented 25 per cent of net income in the quarter, compared with 49 per cent a year ago.  Improved performance from our Canadian operations, in absolute terms and relative to the U.S., and the weaker U.S. dollar contributed to the shift.  Relatively weaker investment banking and wealth management operations in the United States, where geopolitical uncertainties have affected client-transaction volumes, and non-cash amortization costs of acquired U.S. wealth management businesses also affected the comparative ratios.

BMO’s net income for the quarter rose three per cent from the first quarter, driven largely by a lower provision for credit losses.  The second quarter has three fewer calendar days than the first quarter and the U.S. dollar fell appreciably relative to the Canadian dollar in the second quarter.  These factors contributed to both revenue and expenses declining somewhat from the first quarter.

In Canada, Personal and Commercial Client Group revenue was up nine per cent and net income up 15 per cent from the second quarter of 2002.  In the United States, loan volumes, measured in U.S. dollars, rose 25 per cent, but revenue and expenses fell six per cent because of lower net interest margins and the weaker U.S. dollar.

Investment Banking Group net income was up seven per cent from a year ago despite difficult market conditions.  On April 4, 2003, the Group announced it had signed an agreement to acquire Gerard Klauer Mattison (GKM), a New York-based mid-market investment bank, for approximately US$30 million.  The transaction, which is expected to close by the end of June, establishes a solid equity research, sales and trading platform in the United States.  The addition of GKM will allow BMO to build on its strengths in serving Harris Nesbitt middle-market clients, while strengthening its Canadian franchise by providing enhanced U.S. equity capital markets and research capabilities.

Private Client Group earnings in the quarter were down just slightly from a year ago in the continued challenging operating environment, but cash earnings and earnings excluding acquired businesses were higher.

Operating Group Net Income

In the first quarter of 2003, certain enhancements were reflected in funds transfer pricing.  All of the associated enhancements were applied retroactively in the first quarter and segmented results for prior periods reflect the reclassifications.  Note 9 to the attached unaudited interim consolidated financial statements outlines the reclassifications affecting prior period results.

Annual Targets for 2003

2003 Earnings Outlook Unchanged
BMO continues to anticipate achieving its annual targets for fiscal 2003. Lower provisions for credit losses and effective cost controls are expected to compensate for the weaker than expected economic environment, the sustained weakness in some of our business sectors and the effect of the weaker U.S. dollar on Canadian equivalent earnings from U.S. operations over the balance of the year.

After expanding 3.4 per cent in 2002, Canadian real GDP is now anticipated to grow 2.9 per cent in 2003, down from our year-end estimate of 3.8 per cent and our first-quarter estimate of 3.5 per cent.  The weaker growth profile is largely attributable to lower exports to a struggling U.S. economy and to the recent outbreak of severe acute respiratory syndrome (SARS).  Notwithstanding the lower estimate, healthy growth in domestic demand, especially in housing markets, has sustained strong growth in personal and mortgage lending.  Despite soft capital spending, business lending continues to expand.

While the Canadian economy continues to grow at a respectable pace, the U.S. expansion remains uneven. Following modest growth of 2.4 per cent in 2002, U.S. real GDP is now expected to grow 2.3 per cent in 2003, down from our year-end estimate of 3.2 per cent and our first-quarter estimate of 2.8 per cent.  Persistent weakness in U.S. labor markets has weighed on household consumption and personal lending.  Weak U.S. business investment in the first half of the year, relating in part to uncertainty about the conflict in Iraq, has undermined commercial lending volumes.  In contrast, ongoing strength in housing markets continues to support strong growth in mortgage lending.  The U.S. economy is expected to strengthen in the second half of the year in response to a decline in geopolitical uncertainty, new fiscal stimulus, low interest rates and a weaker U.S. dollar. This should lead to firmer lending growth and capital markets activity as the year progresses.

Note on Performance Analysis
Management and certain other observers believe that analyzing results excluding non-recurring items enhances performance analysis.  There were no non-recurring items in any of the reporting periods discussed in this release. 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. When necessary, the foregoing adjustments and their effects on our results are outlined in the “GAAP and Non-GAAP Earnings Measures” 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 voluntarily certify to the SEC the appropriateness of our financial disclosures in BMO’s results news releases, including the attached unaudited interim consolidated financial statements.  The certifications of the financial disclosures in the first quarter release were filed on March 18, 2003.

As in prior quarters, BMO’s audit committee reviewed the attached unaudited consolidated financial statements and the other contents of 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 in the Investor and Media Presentations section.  Readers are also encouraged to visit our web site to view other quarterly financial information.

To view the rest of this news release consisting of:
Financial Highlights  
Second Quarter 2003 MD&A  
Unaudited Financial Statements  

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, and 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; the effects of war or terrorist activities; the effects of disease or illness that impact on local, national or international economies; 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 a 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 listen to our quarterly conference call on Tuesday, May 27, 2003 at 3:30 p.m. (EDT). 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, June 6, 2003 by calling 1-888-742-2491 and entering pass-code 5963.

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 August 25, 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, Senior 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

For further information: