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BMO Financial Group Reports 5.2% EPS Growth in the First Quarter of 2006 and Announces an 8.2% Dividend Increase

PDF format of entire Quarterly news release including this Performance Overview, Financial Highlights table, the Financial Performance Review and Unaudited Financial Statements
Higher Revenues Drive Improved Year-Over-Year Performance

Year-over-Year Operating Highlights:

 

 

  • Net income of $630 million, up $28 million or 4.7%
  • EPS1 of $1.22, up 5.2%, and cash EPS2 of $1.24, up 4.2%
  • Excluding a $32 million recovery of income taxes that benefited results a year ago, net income increased $60 million or 11% and EPS increased $0.12 or 11%
  • ROE of 18.5%, compared with 19.4% last year
  • A $52 million specific provision for credit losses, compared with a $43 million specific provision last year
  • Revenue2 growth of 3.0% (5.3% excluding Harrisdirect3 and 6.5% after also excluding the impact of the weaker U.S. dollar)
  • Expense growth of 0.8% (4.7% excluding Harrisdirect and 5.9% after also excluding the impact of the weaker U.S. dollar)
  • Productivity ratio2 improves 135 basis points to 61.5% and cash productivity ratio2 improves 80 basis points to 61.1%
  • Tier 1 Capital Ratio of 10.38%, up from 9.72% a year ago and 10.25% at the end of 2005
  • Operating Group Net Income
    • Personal and Commercial Client Group up $6 million or 2.2% to $300 million
      • P&C Canada up $3 million or 1.2% to $266 million
      • P&C Chicagoland Banking up $3 million or 11% to $34 million
    • Private Client Group up $21 million or 29% to $94 million
    • Investment Banking Group down $9 million or 3.6% to $228 million, but up $23 million or 11% excluding the $32 million recovery of income taxes last year
    • Corporate Support up $10 million to $8 million

 

 

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

2 The adjustments that change results under generally accepted accounting principles (GAAP) to cash results and GAAP revenue and income taxes to a taxable equivalent basis (teb) are outlined in the Non-GAAP Measures section in the Financial Performance Review, where all non-GAAP measures and their closest GAAP counterparts are outlined. Revenues and income taxes in the financial statements are stated in accordance with GAAP. Otherwise, all revenues and income taxes and measures that include revenues or income taxes in this document are stated on a taxable equivalent basis.

3 In the fourth quarter of 2005, BMO completed the sale of Harrisdirect, our U.S. direct-investing business. Certain of our revenue and expense growth and productivity measures have been disclosed on a basis that excludes Harrisdirect results in the comparative periods, to assist in explaining performance.

� Registered trade-mark of Bank of Montreal.

 

Other Highlights

 

  • Net income down $27 million or 4.1% from the fourth quarter of 2005, but up $16 million or 2.6% excluding the $43 million after-tax net impact of significant items that benefited results in the fourth quarter
  • Revenue declined $138 million or 5.2% from the fourth quarter, but dropped by a marginal $3 million or 0.1% excluding the impact of significant items and operating revenues of Harrisdirect in the comparable period
  • Expenses declined $91 million or 5.5% from the fourth quarter, but declined $31 million or 1.9% excluding the impact of operating expenses of Harrisdirect in the comparable period
  • Specific provision for credit losses now anticipated to be $325 million or less in fiscal 2006, down from the 2006 target of $400 million or less
  • Announced a $0.04 or 8.2% increase in dividends to $0.53 per common share in the second quarter, representing a 15% increase from $0.46 a year ago

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, together with its subsidiaries.

 

References to retail and business banking refer to Personal and Commercial Client Group activities and references to wealth management refer to Private Client Group activities.

 

 


FIRST QUARTER 2006 MANAGEMENT'S DISCUSSION AND ANALYSIS (MD&A)
MD&A commentary is as of March 1, 2006. Unless otherwise indicated, all amounts are in Canadian dollars and have been derived from financial statements prepared in accordance with Canadian generally accepted accounting principles (GAAP).

 

Summary Data

 

Calgary, March 1, 2006 – BMO Financial Group reported net income of $630 million for the first quarter ended January 31, 2006, up 4.7% from a year ago.

PERFORMANCE OVERVIEW
Net income was $630 million for the first quarter of 2006, up $28 million or 4.7% from $602 million a year ago. Earnings per share (EPS) rose 5.2% to $1.22, and cash EPS rose 4.2% to $1.24.

“Fiscal 2006 is off to a good start, with solid year-over-year earnings growth,” said Tony Comper, President and Chief Executive Officer, BMO Financial Group. “Adjusting for a substantial tax recovery that benefited Investment Banking Group's results a year ago, each of our client operating groups posted higher earnings than in 2005. Revenue growth was strong, particularly considering the sale of Harrisdirect.”

Net income in the first quarter of 2005 benefited from a $32 million ($0.06 per share) recovery of prior years' income taxes. Excluding this item, net income in 2006 increased $60 million or 11% from the first quarter of 2005 and EPS increased $0.12 or 11%. Improved performance was attributable to revenue growth in P&C Canada, P&C Chicagoland Banking, Corporate Support and Private Client Group, excluding the impact of reduced revenue as a result of the sale of Harrisdirect, the U.S. direct-investing business that we sold in the fourth quarter of fiscal 2005. Investment securities gains declined $19 million, reflecting the $32 million ($21 million after tax) impact of a change in accounting for investments of merchant banking subsidiaries that increased investment securities gains in the first quarter of last year.

Revenue1 increased $73 million or 3.0% from a year ago (5.3% excluding Harrisdirect a year ago) to $2,512 million, as Personal and Commercial Client Group revenue rose $36 million or 2.8%, driven by strong volume growth, partially offset by a decline in net interest margins. Private Client Group revenue fell $18 million or 3.6%, but increased $38 million or 8.8% on broad-based growth excluding the 2005 revenues of Harrisdirect. Investment Banking Group revenue increased $35 million or 5.0%, driven by much higher trading income due primarily to heightened volatility in commodities prices, particularly oil and gas. Mergers and acquisitions fees were significantly higher and lending volumes increased. The weaker U.S. dollar lowered BMO's revenue growth by $29 million or 1.2 percentage points.

BMO's overall net interest margin1 for the first quarter of 2006 was 1.58%, or six basis points lower than in the first quarter of the prior year. Margins were lower in Personal and Commercial Client Group and in Investment Banking Group. When compared to the fourth quarter, BMO's overall net interest margin was unchanged, improving in P&C Chicagoland Banking and Investment Banking Group but declining in P&C Canada. Net interest margins are detailed in the revenue section of the Financial Performance Review.

The provision for credit losses was $52 million, compared with $43 million a year ago and $57 million in the fourth quarter. There was no reduction of the general allowance in the quarter or the comparative quarters. We now anticipate specific provisions of $325 million or less in 2006, down from our annual target of $400 million or less.

Non-interest expense totalled $1,545 million, up $12 million or 0.8% from the first quarter of 2005. Excluding expenses of Harrisdirect in the year-ago period, expenses increased $70 million or 4.7%. On this basis, expenses were higher in each of the operating groups. There were higher employee-related costs resulting from an expansion of both the retail and commercial sales forces and increased initiative expenditures in P&C Canada. There were also higher revenue-based costs in Private Client Group and Investment Banking Group. The weaker U.S. dollar lowered expense growth by $18 million or 1.2 percentage points. The non-interest expense-to-revenue ratio1 (productivity ratio) was 61.5% in the first quarter of 2006, compared with 62.9% a year ago. The cash productivity ratio improved 80 basis points to 61.1%, or by 31 basis points excluding Harrisdirect in the year-ago period.

Relative to the fourth quarter, net income declined $27 million, but increased $16 million or 2.6% excluding the $43 million ($0.09 per share) after-tax net impact of the following significant items that affected fourth quarter performance:

  • A $49 million ($18 million after tax) gain on the sale of Harrisdirect recorded in other income in the U.S. business of Private Client Group;
  • A $50 million ($32 million after tax) gain on the sale of TSX common shares, split equally between Private Client Group and Investment Banking Group;
  • A $29 million ($19 million after tax) gain on the sale of our Calgary office tower recorded in other income of Corporate Support; and
  • A $40 million ($26 million after tax) adjustment that decreased P&C Canada's card fees revenue as a result of further refinements made to the methodology used to determine the liability associated with our customer loyalty rewards program.

The $16 million increase in earnings was attributable to improved performance in Private Client Group and Investment Banking Group.

“Results improved from a particularly strong fourth quarter, after adjusting for a number of significant items in that period,” added Mr. Comper. “I am pleased to again announce an increase in dividends to shareholders, as the second quarter dividend to common shareholders will increase 8.2% from the first quarter and 15% from a year ago.”

Revenue for the quarter decreased $138 million from the fourth quarter. Excluding the $88 million of revenues from the foregoing significant items and the $47 million of Harrisdirect operating revenues in the comparable period, revenue decreased by a marginal $3 million or 0.1%. On this basis, revenue increased in Private Client Group (PCG) due to improved deposit spreads and higher mutual fund fees and in P&C Chicagoland Banking due to organic loan growth and acquisitions. Investment Banking Group revenues increased on the strength of interest rate, equity and commodity derivatives trading revenue, while P&C Canada revenue declined as lower net interest margin offset strong volume growth across most products, particularly mortgages. Investment securities gains were $61 million lower than in the fourth quarter, of which $50 million related to the gain on sale of TSX common shares. The weaker U.S. dollar lowered revenue growth by $12 million or 0.4 percentage points.

Non-interest expense decreased $91 million or 5.5% from the fourth quarter. Excluding the $60 million of Harrisdirect expenses included in the fourth quarter results, expenses declined $31 million or 1.9%. Costs were down in Personal and Commercial Client Group due to a decline in performance-based compensation costs and reductions related to the timing of both marketing expenses and investments in our distribution network. Non-interest expense increased in Investment Banking Group as a result of higher performance-based costs, but declined in Private Client Group, reflecting the benefit of the ongoing focus on expense management and the sale of Harrisdirect in 2005. The weaker U.S. dollar lowered expense growth from the fourth quarter by approximately $7 million or 0.4 percentage points. Our productivity ratio improved 21 basis points from the fourth quarter, while our cash productivity ratio deteriorated by 18 basis points, the differing rates of change relating largely to the sale of Harrisdirect in the fourth quarter and the resulting reduction in the amortization of intangible assets, a non-cash charge. Excluding significant items and Harrisdirect operating results in the fourth quarter, BMO's productivity ratio improved 115 basis points and our cash productivity ratio improved 109 basis points.

Net income from U.S.-based businesses totalled US$109 million in the first quarter of 2006, compared with US$128 million a year ago and US$86 million in the fourth quarter. The decline from a year ago was due to higher expenses, mainly as a result of higher performance-based costs, offset in part by stronger commodity derivatives trading revenues. The growth from the fourth quarter was due to increased commodity derivatives trading revenues, partially offset by higher performance-based costs and the fourth quarter gain on sale of Harrisdirect.

The Tier 1 capital ratio was 10.38% at the end of the quarter, compared with 10.25% at the end of 2005 and 9.72% at the end of the first quarter a year ago.

During the quarter, we repurchased 538,200 Bank of Montreal common shares under our common share repurchase program at an average cost of $60.33 per share, for a total cost of $32.5 million.

On March 1, 2006, BMO's Board of Directors declared a quarterly dividend payable to common shareholders of $0.53 per common share, representing an 8.2% increase from $0.49 per share in the first quarter and a 15% increase from $0.46 per share in the second quarter of 2005. BMO's dividend payout ratio was 39% in fiscal 2005. The dividend increase reflects BMO's policy of having a 35% to 45% dividend payout ratio over time.

1 On a taxable equivalent basis – see the GAAP and Related Non-GAAP Measures section.

 


 

 

 

2006 Earnings and Economic Outlook
We are on track to achieve the annual targets for 2006 that were established at the end of last year, and which are outlined above. The Canadian economy is expected to grow at a faster pace in 2006 than in 2005 as we anticipate that the negative impact of the strong Canadian dollar will dissipate. We expect that personal spending will continue to benefit from still low, albeit rising, interest rates, and that business investment will remain strong as a result of robust profit growth and the need to expand productive capacity. The housing market should remain firm, though we expect the pace of activity to be lower than the high rates of recent years. The Bank of Canada is expected to raise interest rates a further one percentage point this year, which may temper demand for residential mortgages and personal loans. However, we anticipate a more robust economic expansion in 2006, which should boost growth in business lending and support fee-based investment banking activities. The Canadian dollar is expected to remain strong relative to the U.S. dollar, supported by tighter monetary policy and high commodity prices.

The U.S. economy is expected to continue expanding at a solid rate in 2006. Growth should be led by strong business investment as a result of healthy corporate balance sheets, rebuilding activity in hurricane-affected regions and firms striving to improve productivity to remain globally competitive. All of these factors will favour business loan growth, while strong job creation should underpin personal loan demand. However, interest rates are forecast to again increase moderately in 2006, which should reduce housing affordability and dampen demand for residential mortgages.

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 filed certifications, signed by the CEO and CFO, with the Canadian Securities Administrators and the SEC in the United States in December 2005 when we filed our Annual Report and other annual disclosure documents. In those filings, BMO's CEO and CFO certify, as required in Canada by Multilateral Instrument 52-109 (Certification of Disclosure in Issuers' Annual and Interim Filings) and in the United States by the Sarbanes-Oxley Act, the appropriateness of the financial disclosures in our annual filings and the effectiveness of our disclosure controls and procedures. BMO's CEO and CFO certify the appropriateness of the financial disclosures in our interim filings with securities regulators, including this MD&A and the accompanying unaudited interim consolidated financial statements for the period ended January 31, 2006, and that they have caused disclosure controls and procedures to be designed.

As in prior quarters, BMO's audit committee reviewed this document, including the attached unaudited interim consolidated financial statements, and BMO's Board of Directors approved the document prior to its release.

A comprehensive discussion of our businesses, strategies and objectives can be found in Management's Discussion and Analysis in BMO's 2005 Annual Report, which can be accessed on our web site at www.bmo.com/investorrelations. Readers are also encouraged to visit the site to view other quarterly financial information.

Regulatory Filings
Our continuous disclosure materials, including our interim filings, annual MD&A and audited consolidated financial statements, our Annual Information Form and the Notice of Annual Meeting of Shareholders and Proxy Circular are available on our web site at www.bmo.com/investorrelations, on the Canadian Securities Administrators' web site at www.sedar.com and on the EDGAR section of the SEC's web site at www.sec.gov.


To view the rest of this news release consisting of:

 

 

Financial Highlights

click here

Financial Performance Review

click here

Unaudited Financial Statements

click here

 

 


CAUTION REGARDING FORWARD-LOOKING STATEMENTS
Bank of Montreal's public communications often include written or oral forward-looking statements. Statements of this type are included in this document, and may be included in other 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 and of any applicable Canadian securities legislation. Forward-looking statements may involve, but are not limited to, comments with respect to our objectives and priorities for 2006 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, forecasts, conclusions or projections will not prove to be accurate, that our assumptions may not be correct and that actual results may differ materially from such predictions, forecasts, conclusions or projections. 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: general economic conditions in the countries in which we operate; interest rate and currency value fluctuations; changes in monetary policy; the degree of competition in the geographic and business areas in which we operate; changes in laws; judicial or regulatory proceedings; the accuracy and completeness of the information we obtain with respect to our customers and counterparties; our ability to execute our strategic plans and to complete and integrate acquisitions; critical accounting estimates; operational and infrastructure risks; general political conditions; global capital market activities; the possible effects on our business of war or terrorist activities; disease or illness that impacts on local, national or international economies, and disruptions to public infrastructure, such as transportation, communications, power or water supply; and technological changes.

We caution that the foregoing list is not exhaustive of all possible factors. Other factors could adversely affect our results. For more information, please see the discussion on pages 29 and 30 of BMO's 2005 Annual Report, which outlines in detail certain key factors that may affect BMO's future results. 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.

Assumptions on how the Canadian and U.S. economies will perform in 2006 and how that impacts our businesses are material factors we consider when setting our strategic priorities and objectives and in determining our financial targets, including provision for credit losses. Key assumptions include that the Canadian and U.S. economies will expand at a healthy pace in 2006 and that inflation will remain low. We also have assumed that interest rates will increase gradually in both countries in 2006 and the Canadian dollar will hold onto its recent gains. In determining our expectations for economic growth, both broadly and in the financial services sector, we primarily consider historical economic data provided by the Canadian and U.S. governments and their agencies. Tax laws in the countries in which we operate, primarily Canada and the United States, are material factors we consider when determining our sustainable effective tax rate.

INVESTOR AND MEDIA PRESENTATION

Investor Presentation Materials
Interested parties are invited to visit our web site at www.bmo.com/investorrelations to review this quarterly news release, presentation materials and a supplementary financial information package online. 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 also invited to listen to our quarterly conference call on Thursday, March 2, 2006 at
1:30 p.m. Mountain Standard Time (3:30 p.m. Eastern Standard Time). At that time, senior 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 416-695-9753 (from within Toronto) or 1-888-789-0089 (toll-free outside Toronto). A replay of the conference call can be accessed until Wednesday, March 15, 2006 by calling 416-695-5292 (from within Toronto) or 1-888-742-2491 (toll-free outside Toronto) and entering passcode 6788.

A live webcast of the call can be accessed on our web site at www.bmo.com/investorrelations. A replay can be accessed on the site until Tuesday, May 23, 2006.


Media Relations Contacts
Ralph Marranca, Toronto, ralph.marranca@bmo.com, 416-867-3996
Ronald Monet, Montreal, ronald.monet@bmo.com, 514-877-1101

Investor Relations Contacts
Susan Payne, Senior Vice-President, Investor Relations, susan.payne@bmo.com, 416-867-6656
Steven Bonin, Director, Investor Relations, steven.bonin@bmo.com, 416-867-5452
Krista White, Senior Manager, Investor Relations, krista.white@bmo.com, 416-867-7019

Chief Financial Officer
Karen Maidment, Chief Financial and Administrative Officer,
karen.maidment@bmo.com, 416-867-6776

Corporate Secretary
Robert Horte, Vice-President and Corporate Secretary, Corporate and Legal Affairs
corp.secretary@bmo.com, 416-867-6785

For further information: