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PDF format of entire Quarterly news release including this Performance Overview, Financial Highlights table, the Financial Performance Review and Unaudited Financial Statements Printer-friendly version of this Performance Overview Improved Credit Performance and Higher Operating Group Results Contribute to GrowthYear-over-Year Operating Highlights:
Other Highlights:
1. All Earnings per Share (EPS) measures in this release refer to diluted EPS unless specified otherwise. 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. FIRST QUARTER 2004 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (MD&A)
Toronto, February 24, 2004 – BMO F inancial Group reported that its net income for the first quarter ended January 31, 2004 was up 34 per cent from a year ago. PERFORMANCE OVERVIEW “Our first quarter results are up sharply from a year ago, maintaining the momentum established in the second half of 2003,” said Tony Comper, Chairman and Chief Executive Officer, BMO Financial Group. “Although net interest margin is under pressure due to low interest rates and the competitive environment, we are continuing to benefit from better credit performance and our focus on improving productivity.” Net income was affected by certain items:
Excluding the $18 million (or $0.03 per share) increase in net income related to the four items above, net income was $514 million, an improvement of $115 million from a year ago. On a similarly adjusted basis, EPS was $0.97 and cash EPS was $1.00, up $0.22 and $0.21, respectively, from a year ago. The $115 million increase was a result of the specific provision for credit losses declining from $150 million to $55 million (a reduction of $65 million after tax or $0.13 per share) due to favourable credit performance and improving U.S. economic conditions. The remaining increase in net income was attributable to business growth in our operating groups. Revenue (on a taxable equivalent basis -- see the Non-GAAP Measures section) increased $83 million or four per cent from a year ago to $2,401 million, but would have grown by $203 million or nine per cent if the Canadian/U.S. dollar exchange rate had remained at the same level of a year ago. The first two accounting changes outlined above increased revenue by a net $16 million and are discussed in more detail in the Net Income section in the Financial Performance Review. Personal and Commercial Client Group revenue rose on continued strong volume growth. Revenue in Canada increased two per cent from a year ago, as volume growth was partially offset by the effects of lower net interest margins. Revenue declined slightly in the United States as the effects of volume growth were offset by the decline in the Canadian/U.S. dollar exchange rate. Investment Banking Group revenue rose on growth in fee-based businesses and Private Client Group revenue rose on increased client trading volumes and higher managed asset values. “Improving market conditions and a continued focus on productivity enhancements combined to drive up contributions from Private Client Group and from Investment Banking Group,” observed Mr. Comper. “We have seen record quarterly earnings from Investment Banking Group and our Private Client Group delivered its second highest quarterly earnings ever.” Net interest margins are detailed in the table in the Revenue section in the Financial Performance Review. Net interest margin was 1.92 per cent for the first quarter of 2004, a decline of 2 basis points from a year ago. Excluding the impact of the $42 million of mortgage prepayment fees in net interest income of the Corporate Support Group, net interest margin was 1.86 per cent, a decline of 8 basis points from a year ago. Personal and Commercial Client Group net interest margin in the United States was higher but net interest margin declined in Canada, due to changes in consumer product preferences and the competitive environment. Investment Banking Group net interest margin was also down from a year ago, due to compressed spreads in its interest rate sensitive businesses, a decline in higher yielding corporate loans and increased interest expense resulting from the unwinding of hedge contracts related to the sale of certain investment securities. Non-interest expense of $1,561 million was $12 million or one per cent lower than a year ago, but would have been $78 million or five per cent higher than a year ago if the Canadian/U.S. dollar exchange rate were unchanged. The increase was largely attributable to higher performance-based compensation costs and the incremental impact of acquired businesses. The non-interest expense-to-revenue ratio (productivity ratio) was 65.0 per cent (on a taxable equivalent basis--see the Non-GAAP Measures section) in the first quarter, compared with 67.9 per cent a year ago. The cash productivity ratio of 63.9 per cent (on a taxable equivalent basis--see the Non-GAAP Measures section) improved 270 basis points from a year ago. We are targeting to improve cash productivity by 150 to 200 basis points in 2004. On February 24, 2004 we announced a $0.05 or 14 per cent increase in the quarterly dividend payable on Bank of Montreal common shares, marking the twelfth consecutive year of increases. “The dividend increase reflects our strong capital position and management’s confidence in both the quality of our earnings and our ability to meet our stated targets,” indicated Mr. Comper. Relative to the fourth quarter, net income rose $19 million or four per cent, approximating the one-time impact of the four items identified previously. The effects of lower net interest margins and reduced other income in Corporate Support offset the benefits of lower specific provisions for credit losses, improved volumes and higher net gains on investment securities. Revenue was $10 million lower than in the fourth quarter, although the current quarter’s revenues benefited from a $16 million increase related to the four items previously identified. There were increased net gains from investment securities, higher underwriting and mergers and acquisitions fees, and higher trading and wealth management revenues. However, these were more than offset by lower revenues in the Corporate Support Group and by the impact of lower net interest margins and the weaker U.S. dollar. Relative to the fourth quarter, net interest margin rose 1 basis point, but was 5 basis points lower after excluding the effect of the mortgage prepayment fees adjustment. As expected, personal and commercial banking margins declined. In Canada, reduced net interest margin in personal and commercial banking is expected in the foreseeable future, given the low interest rate outlook and competitive environment. Net interest margin fell in Investment Banking Group, reflecting reduced cash collections on loans that were previously classified as impaired and higher interest expense resulting from the unwinding of hedge contracts related to the sale of certain investment securities. Relative to the fourth quarter, expenses rose $16 million or one per cent. The weaker U.S. dollar reduced expenses by $16 million. The increase in expenses was due to higher performance-based compensation costs. Gross impaired loans of $1,786 million decreased by $496 million from a year ago and by $132 million from the fourth quarter. Impaired loan formations totalled $242 million in the quarter, down $65 million from the first quarter of last year and down $155 million from the fourth quarter. The specific provision for credit losses was $55 million, down from $150 million in the first quarter of 2003 and from $95 million in the fourth quarter. Specific provisions in the quarter benefited from the recovery of prior-period write-offs and the reversal of allowances on certain loans as a result of restructurings and refinancings. Specific provisioning also benefited from success in selling impaired loans for proceeds in excess of net book value. We now anticipate specific provisions for credit losses of $300 million or less in 2004, down from our annual target of $500 million or less established at the beginning of the year, largely due to favourable credit performance in the first quarter and improving U.S. economic conditions. The net of the specific provision of $55 million and the $40 million reduction in the general allowance resulted in a net provision for credit losses of $15 million. The previously mentioned $19 million future income tax adjustment increased the effective tax rate in the quarter from 31.4 per cent (on a taxable equivalent basis -- see the Non-GAAP Measures section) to 33.7 per cent, up from 30.3 per cent a year ago and from 31.5 per cent in the fourth quarter. We continue to expect that the effective rate in 2004 will be 31 to 32 per cent and consider that rate to be sustainable. During the quarter, we repurchased 150,000 Bank of Montreal common shares under our common share repurchase program at an average cost of $54.21 per share for total consideration of $8.1 million.
2004 Earnings Outlook Unchanged Management's Responsibility for Financial Information As in prior quarters, BMO’s audit committee reviewed this document, including the attached unaudited consolidated financial statements. BMO’s Board of Directors continues to approve these documents prior to their release. A comprehensive discussion of our businesses, strategies and objectives can be found in Management’s Discussion and Analysis of Results of Operations in BMO’s 2003 Annual Report, which can be accessed on our web site at www.bmo.com/investorrelations. Readers are also encouraged to visit our web site to view quarterly financial information. Regulatory Filings To view the rest of this news release consisting of:
CAUTION REGARDING FORWARD-LOOKING STATEMENTS 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; the effects of disruptions to public infrastructure, such as transportation, communications, power or water supply disruptions; 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 AND MEDIA PRESENTATIONInvestor Presentation Materials Quarterly Conference Call and Webcast Presentations A live webcast of the quarterly conference call can be accessed on our web site at www.bmo.com/investorrelations. A replay of the webcast can be accessed on the site until Tuesday, May 25, 2004. Media Relations Contacts Investor Relations Contacts Chief Financial Officer Corporate Secretary |
